www.anz.com

2003 ANZ Financial Report

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

2003 ANZ
Financial Report

StrongDifferent
Successful
Sustainable

Australia and New Zealand Banking Group Limited
is a company limited by shares, incorporated anddomiciled in Australia. Its registered office andprincipal place of business is:Australia and New Zealand Banking Group Limited
Level 6, 100 Queen Street Melbourne,
Victoria 3000 Australia
The principal activities of the Group during theyear were general banking, mortgage lending,life insurance, leasing, hire purchase and general
finance, international and investment banking,investment and portfolio management andadvisory services, nominee and custodian services
and executor and trustee services.
The number of employees (full time equivalents)
as at 30 September 2003 was 23,137.

1

Table of Contents
Page

Statements of Financial Performance
Statements of Financial Position
Statements of Changes inShareholders’ Equity
Statements of Cash Flows
Notes to the Financial Statements
1 Accounting Policies
2 Income
3 Expenses
4 Equity Instruments Issued to Employees
5 Remuneration of Auditors
6 Income Tax Expense
7 Dividends
8 Earnings per Ordinary Share
9 Liquid Assets
10 Due from Other Financial Institutions
11 Trading Securities
12 Investment Securities
13 Net Loans and Advances
14 Impaired Assets
15 Provisions for Doubtful Debts
16 Customers’ Liabilities for Acceptances
17 Regulatory Deposits
18 Shares in Controlled Entities,
Associates and Joint Venture Entities
19 Deferred Tax Assets
20 Goodwill
21 Other Assets
22 Premises and Equipment
23 Due to Other Financial Institutions

2
3
4
5
6
6
10
11
12
12
13
14
15
15
16
16
17
20
23
25
26
26
26
27
27
27
28
30

Page

24 Deposits and Other Borrowings
25 Income Tax Liabilities
26 Payables and Other Liabilities
27 Provisions
28 Bonds and Notes
29 Loan Capital
30 Share Capital
31 Outside Equity Interests
32 Capital Adequacy
33 Average Balance Sheet andRelated Interest
34 Interest Spreads and Net Interest
Average Margins
35 Market Risk
36 Interest Sensitivity Gap
37 Net Fair Value of Financial Instruments
38 Derivative Financial Instruments
39 Securitisation
40 Life Insurance
41 Segment Analysis
42 Notes to the Statements of Cash Flows
43 Controlled Entities
44 Associates
45 Interests in Joint Venture Entities
46 Fiduciary Activities
47 Commitments
48 Contingent Liabilities, Contingent Assets
and Credit Related Commitments
49 Superannuation Commitments
50 Employee Share and Option Plans
51 Related Party Disclosures
52 Remuneration of Directors
53 Remuneration of Executives
54 US GAAP Reconciliation
55 Exchange Rates
56 Events Since the Endof the Financial Year

30
31
31
32
33
33
34
35
36
38
41
42
44
45
47
51
51
52
54
56
56
57
57
58
58
61
62
67
69
69
71
77
77

Page

Directors’ Declaration
Auditors’ Report
Critical Accounting Policies
Financial Information
1 Cross Border Outstandings
2 Certificates of Deposit and Term
Deposit Maturities
3 Volume and Rate Analysis
4 Concentrations of Credit Risk
5 Doubtful Debts – Industry Analysis
6 Short Term Borrowings
Glossary
Alphabetical Index

78
79
80
84
84
84
85
86
88
89
90
91

2

Statements of Financial Performance for the year ended 30 September 2003
Consolidated
2002
$m

2003
$m

Total Income

2

13,023

12,007

12,824

11,368

9,061

Interest income
Interest expense2
3

10,215(5,904)

9,037(5,019)10,251(6,418)

7,378(4,556)

6,426(3,813)

4,311
–
–

4,018
566
(392)

3,833
–
–

2,822
–
–

2,613
780
(588)

Net interest income
Proceeds, net of costs, on disposal of investments
Carrying amount of assets given up

2001
$m

The Company
2003
2002
$m
$m

Note

Profit from disposal of investments
Other operating income
Share of joint venture: profit from INGA joint venture
Share of associates profit (net of writeoffs)

2
2
2
2

–
2,702
55
51

174
2,765
2
29

–
2,598
–
(25)

–
3,990
–
–

192
2,443
–
–

Operating income
Operating expenses

3

7,119
(3,228)6,988(2,905)

6,406(3,092)

6,812(2,663)

5,248(2,388)

Profit before doubtful debt provision
Provision for doubtful debts

15

3,891
(614)

4,083
(860)

3,314
(531)

4,149
(465)

2,860
(710)

3,277

3,223

2,783

3,684

2,150

(926)

(898)

(911)

(616)

(643)

Profit after income tax
Net profit attributable to outside equity interests

2,351
(3)

2,325
(3)

1,872
(2)

3,068
–

1,507
–

Net profit attributable to shareholders of the Company1

2,348

2,322

1,870

3,068

1,507

Currency translation adjustments, net of hedges after tax

(356)

(98)

197

(191)

(214)

Total adjustments attributable to shareholdersof the company recognised directly into equity

(356)

(98)

197

(191)

(214)

Total changes in equity other than those resulting
from transactions with shareholders as owners

1,992

2,224

2,067

2,877

1,293

148.3
147.9

147.3
146.6

117.4
117.0

n/a
n/a

n/a
n/a

Profit before income tax
Income tax expense

Earnings per ordinary share (cents)
Basic
DilutedThe notes appearing on pages 6 to 77 form an integral part of these financial statements
1 The results of 2002 include the impact of these significant transactions:> The sale of businesses to INGA joint venture (profit after tax of $170 million);> National Housing Bank recovery ($159 million profit after tax); and> Special general provision for doubtful debts ($175 million charge after tax)
Further details on these transactions are shown in notes 2, 3 and 15

6

8

3

Statements of Financial Position as at 30 September 2003
Note

AssetsLiquid assets
Due from other financial institutions
Trading securities
Investment securities
Net loans and advances
Customers’ liabilities for acceptances
Due from controlled entities
Regulatory deposits
Shares in controlled entities, associates and joint venture entities
Deferred tax assets
Goodwill1
Other assets
Premises and equipment

9
10
11
12
13
16

Consolidated
2003
2002
$m
$m

The Company
2003
2002
$m
$m

6,592
2,427
4,213
4,767
149,465
13,178
–
101
1,814
1,165
160
10,224
1,485

7,410
3,815
5,873
3,609
132,060
13,796
–
178
1,692
1,218
180
11,810
1,464

3,916
2,143
3,636
3,838
115,530
13,178
5,738
68
8,095
746
87
8,042
897

5,994
2,649
5,219
2,593
99,90013,796
6,495
138
6,256
835
94
9,603
866

195,591

183,105

165,914

154,438

6,467
124,494
13,178–1,083
13,611
769
16,572
5,630

10,860113,259
13,796–
1,340
12,6301,602
14,7083,445

5,490
90,186
13,178
9,262
546
11,671
614
16,131
5,367

10,37285,258
13,796
3,895
921
10,845
1,469
14,536
3,186

Total liabilities

181,804

171,640

152,445

144,278

Net assets

13,787

11,465

13,469

10,160

4,175
2,212
180
7,203

3,939
1,375
534
5,600

4,175
2,212
684
6,398

3,939
1,375
875
3,971

13,77017

11,44817

13,469–

10,160–13,787

11,465

13,469

10,160

17
18
19
20
21
22

Total assets
Liabilities
Due to other financial institutions
Deposits and other borrowings
Liability for acceptances
Due to controlled entities
Income tax liabilities
Payables and other liabilities
Provisions
Bonds and notes
Loan capital

Shareholders’ equity
Ordinary share capitalPreference share capital
Reserves
Retained profits
Share capital and reserves attributable to shareholders of the Company
Outside equity interests

23
24

25
26
27
28
29

30
30

31

Total shareholders’ equity
Derivative financial instruments
Commitments
Contingent liabilities, contingent assets and credit related commitments

38
47
48

The notes appearing on pages 6 to 77 form an integral part of these financial statements
1 Excludes notional goodwill of $821 million (September 2002: $865 million) included in the net carrying value of ING Australia Limited

4Statements of Changes in Shareholders’ Equity for the year ended 30 September 2003
Note

2003
$m

Consolidated
2002
$m

2001
$m

30

3,939
115
48
73
–
–
–

3,733
94
55
57
–
–
–

4,028
86
65
21
12
16
(495)

3,939
115
48
73
–
–
–

3,733
94
55
57
–
–
–

4,175

3,939

3,733

4,175

3,939

1,375
987
(150)

1,526
–
(151)

1,374
–
152

1,375
987
(150)

1,526
–
(151)

Balance at end of year

2,212

1,375

1,526

2,212

1,375

Total share capital

6,387

5,314

5,259

6,387

5,314

31

31

31

401

401

31

31

31

401

401

Share capital
Ordinary shares
Balance at start of year
Dividend reinvestment plan
Group employee share acquisition scheme
Group share option scheme
Small shareholder voluntary top up scheme
New issues
Share buyback
Balance at end of year
Preference shares
Balance at start of year
New issues1
Retranslation of preference share issues

The Company
2003
2002
$m
$m

30

Asset revaluation reserve2
Balance at start and end of year
Total asset revaluation reserve
3

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

117

215

18

419

633

(356)

(98)

197

(191)

(214)

Total foreign currency translation reserve

(239)

117

215

228

419

General reserve4
Balance at start of year
Transfers (to) from retained profits

237
2

322
(85)

588
(266)

55
–

55
–

Total general reserve

239

237

322

55

55

Capital reserve4

149

149

149

–

–

Total reserves

180

534

717

684

875

Retained profits
Balance at start of year
Net profit attributable to shareholders of the Company

5,600
2,348

4,562
2,322

3,607
1,870

3,971
3,068

3,716
1,507

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

7,948
(2)
(641)
(102)

6,884
85
(1,252)
(117)

5,477
266
(1,062)
(119)

7,039
–
(641)
–

5,223
–
(1,252)–Retained profits at end of year

7,203

5,600

4,562

6,398

3,971

Total shareholders’ equity attributable to shareholders of the Company

13,77011,448

10,53813,469

10,160

7
7

The notes appearing on pages 6 to 77 form an integral part of these financial statements
1 Relates to the issue of 10 million ANZ Stapled Exchangeable Preferred Securities, raising $1 billion net of issue costs of $13 million. Refer Note 30
Nature and purpose of reserves
2 Asset revaluation reserve
Prior to 1 October 2000, the asset revaluation reserve was used to record certain increments and decrements on the revaluation of non-current assets. As the Group has elected to adopt deemed cost inaccordance with AASB 1041, the balance of the reserve is not available for future non-current asset write downs while the Group remains on the deemed cost basis
3 Foreign currency translation reserve
Exchange differences arising on translation of foreign self-sustaining operations are taken to the foreign currency translation reserve, as described in accounting policy note 1
4 General reserve and Capital reserve
The balance of these reserves have resulted from prior period allocations of retained profits and may be released to retained profits. Within the General reserve, amounts held in claims equalisation reserve
under the Insurance Act 1973, cannot be released to profit for a period of ten years

5Statements of Cash Flows for the year ended 30 September 2003
2003
$mConsolidated
2002
$m

2001
$m

10,887
7
2,908(5,724)(1,848)(279)(1,952)(1,312)
1
1,669

10,1483
2,919(5,367)(1,900)(268)(1,893)(853)(28)(1,030)11,05475
2,783(6,703)(1,827)(253)(1,775)
(823)
(53)
(629)

7,243
1,803
2,397
(4,372)(1,463)(257)(855)(1,063)
17
1,583

6,723
67
2,689
(4,158)(1,576)
(249)
(913)
(574)
(8)
(782)

4,357

1,731

1,849

5,033

1,219

1,113
(44)
52
(19,944)
(2)

(442)
554
37
(9,441)
(1)

983
909
(27)
(4,829)
(36)

1,091
(59)
48
(17,928)
(701)

(416)
557
(47)
(9,216)
1,023(3,871)
2,445(2,851)
2,436(4,005)
3,630(2,838)1,294(1,480)977––(1,050)
–

(36)
–

–
–

(893)
–

(368)
51
–
1,663

(385)
101
248
201

(452)
127
–
(454)

(292)
38
–
1,501

(309)
51
248
50

(18,905)(10,593)(4,190)(17,846)(9,455)(2,946)13,995–1,000(1,211)
9,152
–
362

(826)
890
–
581

(3,434)
7,500
4,993
1,140

(917)
9,888
(2,907)875

8,255(4,095)

4,537(3,519)7,542(2,878)

7,788(4,095)

4,538(3,519)

3,380
(437)
(1)
(1,322)
120
1,000
(13)
–

759
(589)
1
(1,178)
112
–
–
–

–
(244)
(1)
(1,028)
114
–
–
(495)

3,380
(437)
–
(1,220)
120
1,000
(13)
–

500
(398)
–
(1,061)112–––

Net cash provided by financing activities

18,936

8,426

3,655

16,722

7,111

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

4,357(18,905)
18,936

1,731(10,593)
8,426

1,849
(4,190)
3,655

5,033
(17,846)
16,722

1,219(9,455)
7,111

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

4,388
7,925
(4,998)

(436)
9,071
(710)

1,314
6,462
1,295

3,909
5,453
(4,951)(1,125)
6,747
(169)

7,315

7,925

9,071

4,411

5,453

Note

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

42(a)

42(c)

Net cash (used in) investing activities
Cash flows from financing activities
Net (decrease) increase
Due to other financial institutions
Deposits and other borrowings
Due from/to controlled entities
Payables and other liabilities
Bonds and notes
Issue proceeds
Redemptions
Loan capital
Issue proceeds
Redemptions
Decrease (increase) in outside equity interests
Dividends paid
Share capital issues (ordinary capital)
StEPS preference share issue
StEPS issues costs
Share buyback

Cash and cash equivalents at end of year
The notes appearing on pages 6 to 77 form an integral part of these financial statements

42(b)The Company
2003
2002
$m
$m

6

Notes to the Financial Statements

Our critical accounting policies are describedon pages 80 to 83.
1: Accounting Policies
i) Basis of preparation
This general purpose financial report complies
with the accounts provisions of the Banking Act
1959, applicable Australian AccountingStandards, the accounts provisions of the
Corporations Act 2001, Urgent Issues Group
Consensus Views and other authoritative
pronouncements of the Australian AccountingStandards Board. Except as disclosed below,
these accounting policies are consistent withthose of the previous year.

the end of each reporting period. The Grouphas retranslated its USD preference sharecapital to the historical spot rates. As thetranslation adjustment is reported in theforeign currency translation reserve the impactof these changes are neutral on equity.
iii) Consolidation
The financial statements consolidate thefinancial statements of Australia and New
Zealand Banking Group Limited (the Company)
and its controlled entities.
Shares in controlled entities are stated atdeemed cost in the statement of financial
position.

Certain disclosures required by the UnitedStates Securities and Exchange Commission in
respect of foreign registrants have also been
included in this report.

Where controlled entities and associates havebeen sold or acquired during the year, theiroperating results have been included to thedate of disposal or from the date of acquisition.

The financial report has been prepared inaccordance with the historical cost convention
as modified by the revaluation of trading
instruments, and the deemed cost of
properties. The preparation of the financial
report requires the use of management
estimates. Such estimates may require review
in future periods.

The Group adopts the equity method of
accounting for associates and the Group’s
interest in joint venture entities. Shares inassociates and joint venture entities are statedin the consolidated statement of financial
position at cost plus the Group’s share of postacquisition net assets. The Group’s share of
results of associates and joint venture entities
is included in the consolidated statement offinancial performance.

The Company is a company of the kind referred
to in Australian Securities and Investments
Commission class order 98/100, dated 10 July
1998. Consequently, amounts in the financial
report have been rounded to the nearest
million dollars except where otherwise
indicated.
All amounts are expressed in Australian
dollars, unless otherwise stated. Where
necessary, amounts shown for the previous
year have been reclassified to facilitatecomparison.
ii) Changes in Accounting Policies
AASB 1044, Provisions, Contingent Liabilities
and Contingent Assets became effective for theGroup from 1 October 2002. Under the newStandard, provision for dividends cannot bebooked unless dividends are declared,
determined or publicly recommended on or
before balance date. Accordingly the dividend
applicable to the current reporting period has
not been booked in this report. However,dividends declared after balance date still need
to be disclosed in the notes. The adoption of
AASB 1044 results in an increase in
Shareholders’ Equity of $777 million.
The Group will continue its current practice ofmaking a public announcement of the dividend
after balance date. Dividend information for thecurrent period is provided in note 7, Dividends.
AASB 1012, Foreign Currency Translation
became effective for the Group from 1 October
2002. Under this revised Standard foreign
denominated equity must be reported using
the spot rate applicable at the date of issue
and not be retranslated using the spot rate at

The Group may invest in or establish special
purpose companies, or vehicles, to enable it toundertake specific types of transactions. Where
the Group controls such vehicles, they are
consolidated into the Group financial results.
iv) Goodwill
Goodwill, representing the excess of thepurchase consideration over the fair value ofthe identifiable net assets of a controlled entity
at the date of gaining control, is recognised as
an asset and amortised on a straight line basis
over the period during which the benefits are
expected to arise, not exceeding 20 years.
The unamortised balance of goodwill andnotional goodwill and the period ofamortisation are reviewed annually. Where thebalance exceeds the value of expected future
benefits, the difference is charged to thestatement of financial performance.

v) Foreign currency
Financial assets and liabilities denominated inforeign currencies are translated into Australian
dollars at the rates of exchange ruling atbalance date.
Revenues and expenses of overseas branches
and controlled entities are translated ataverage exchange rates for the year.
Net translation differences arising from thetranslation of overseas branches and controlled
entities considered to be self-sustaining
operations are included in the foreign currencytranslation reserve, after allowing for thosepositions hedged by foreign exchange
contracts and related currency borrowings(net of tax).
vi) Fee income
Fee and commission income are brought toaccount on an accruals basis. Yield-related
front-end application fees received are deferred
and accrued to income as an adjustment ofyield over the period of the loan. Non yieldrelated application and activation lending fees
received are recognised as income no later
than when the loan is disbursed or thecommitment to lend expires. Fees received on
an ongoing basis that represent therecoupment of the costs of providing service(for example, maintaining and administering
existing facilities) are taken to income when
the fees are receivable.

7

Notes to the Financial Statements

1: Accounting Policies (continued)vii) Net loans and advances
Net loans and advances include direct financeprovided to customers such as bankoverdrafts, credit cards, term loans, leasefinance, hire purchase finance and commercial
bills.
Overdrafts, credit cards and term loans arecarried at principal balances outstanding.
Interest on amounts outstanding is accounted
for on an accruals basis.
Finance leases and hire purchase contracts areaccounted for using the finance method
whereby income is taken to accountprogressively over the life of the lease or thecontract in proportion to the outstanding
investment balance.
Customer financing through redeemablepreference shares is included within net loans
and advances. Dividends received onredeemable preference shares are taken to thestatement of financial performance as part ofinterest income.
All loans are subject to regular scrutiny andgraded according to the level of credit risk.
Loans are classified as either productive or
non-accrual. The Group has adopted theAustralian Prudential Regulation Authority
Impaired Assets Guidelines in assessing nonaccrual loans. Non-accrual loans include loans
where the accrual of interest and fees hasceased due to doubt as to full recovery, andloans that have been restructured with aneffective yield below the Group’s average costof funds at the date of restructuring. A specificprovision is raised to cover the expected loss,
where full recovery of principal is doubtful.
Restructured loans are loans with an effective
yield above the Group’s cost of funds andbelow the yield applicable to a customer of
equal credit standing.
Cash receipts on non-accrual loans are, in theabsence of a contrary agreement with thecustomer, applied as income or fees in priority
to being applied as a reduction in principal,
except where the cash receipt relates toproceeds from the sale of security.
viii) Bad and doubtful debts
Each month the Group recognises an expense
for credit losses based on the expected longterm loss ratio for each part of the loan
portfolio. The monthly charge is booked to theGeneral Provision which is maintained to coverlosses inherent within the Group’s existing
loan portfolio.

The method used by the Group for determining
this monthly expense charge is referred to as‘economic loss provisioning’ (ELP). The Group
uses ELP models to calculate the expected loss
by considering:> the history of credit loss for each type andrisk grade of lending; and> the size, composition and risk profile of thecurrent loan portfolio.
The Group regularly reviews the assumptions
used in the ELP models. These reviews are
conducted in recognition of the subjective
nature of ELP methodology. Methodologies are
updated as improved analysis becomes
available. In addition, the robustness ofoutcomes is reviewed considering the Group’s
actual loss experience, and losses sustained byother banks operating in similar markets.
To the extent that credit losses are notconsistent with previous loss patterns used todevelop the assumptions within the ELP
methodology, the existing General Provision
may be determined to be either in excess of or
insufficient to cover credit losses not yet
specifically identified. As a result of thereassessments, ELP charge levels may beperiodically increased or decreased.
Specific provisions are maintained to coveridentified doubtful debts. All known bad debts
are written off in the year in which they are
identified. The specific provision requirement(representing new and increased specificprovisions less specific provision releases) istransferred from the general provision to thespecific provision. Recoveries, representing
excess transfers to the specific provision, arecredited to the general provision.
Provisions for doubtful debts are deductedfrom loans and advances in the statementof financial position.
ix) Acceptances
Commercial bills accepted but not held in
portfolio are accounted for and disclosed as aliability with a corresponding contra asset.
The Group’s own acceptances discounted areheld as part of either the trading securities
portfolio or the loan portfolio, depending onwhether, at the time of such discount, theintention was to hold the acceptances forresale or until maturity.
x) Trading securities
Securities held for trading purposes arerecorded at market value. Unrealised gains andlosses on revaluation are taken to thestatement of financial performance.

xi) Investment securities
Investment securities are those which theGroup intends and has the ability to hold until
maturity. Such securities are recorded at cost or
at cost adjusted for amortisation of premiums
or discounts.
Premiums and discounts are capitalised andamortised from the date of purchase tomaturity. Interest and dividend income isaccrued. Changes in market values of securities
are not taken into account unless there isconsidered to be a permanent diminution invalue.
xii) Repurchase agreements
Securities sold under repurchase agreements
are retained in the financial statements and acounterparty liability is disclosed under theclassifications of Due to other financial
institutions or Deposits and other borrowings.
The difference between the sale price and therepurchase price is amortised over the life of
the repurchase agreement and charged tointerest expense in the statement of financial
performance.
Securities purchased under agreements toresell are recorded as Liquid assets, Net loans
and advances, or Due from other financial
institutions, depending on the term of theagreement and the counterparty.

8Notes to the Financial Statements

1: Accounting Policies (continued)xiii) Derivative financial instruments
Derivative financial instruments (derivatives)
are contracts whose value is derived from one
or more underlying financial instruments orindices. They include swaps, forward rateagreements, futures, options and combinationsof these instruments.
Trading derivatives, comprising derivatives
entered into for customer-related or proprietary
reasons or for hedging the trading portfolio, aremeasured at fair value and all gains and losses
are taken to other operating income in thestatement of financial performance. Fair value
losses arising from trading derivatives are notoffset against fair value gains unless a legal
right of set-off exists.

Gains and losses that arise prior to andupon the maturity of transactions entered into
under hedge rollover strategies are deferredand included in the measurement of thehedged anticipated transaction if thetransaction is still expected to occur. If theforecasted transaction is no longer expected tooccur, the gains and losses are recognised
immediately in the statement of financial
performance in the other income disclosure.
Movements in the derivative financial position
are recorded in the cashflow statement when
they are settled on the other financing andinvesting lines.
xiv) Premises and equipment
Premises and equipment are carried at costless depreciation or amortisation.

Derivatives designated as hedges of underlying
non-trading exposures are accounted for on thesame basis as the underlying exposures. To be
designated as a hedge, the fair value of thehedge must move inversely with changes in thefair value of the underlying exposure.

Profit or loss on the disposal of premises andequipment is determined as the difference
between the carrying amount of the assets atthe time of disposal and the proceeds ofdisposal, and is included in the results of theGroup in the year of disposal.

Gains and losses resulting from the terminationof a derivative that was designated as a hedge
of non-trading exposures are deferred andamortised over the remaining period of theoriginal term covered by the terminatedinstrument where the underlying exposure still
exists. The gains or losses are recorded in theincome or expense line in which the underlying
exposure movements are recorded. Where theunderlying exposure no longer exists, the gains
and losses are recognised in the statement offinancial performance in the other operating
income line.

Assets other than freehold land are depreciatedat rates based upon their expected useful lives
to the Group, using the straight line method.
The depreciation rates used for each class ofasset are:Gains and losses on derivatives related tohedging exposures arising from anticipatedtransactions are deferred and recognised in thefinancial statements when the anticipatedtransaction occurs.
These gains and losses are deferred only to theextent that there is an offsetting unrecognised(unrealised) gain or loss on the exposures
being hedged. Deferred gains and losses areamortised over the expected term of thehedged exposure and are recorded in the
results of operations in the same line as theunderlying exposure. The deferred gain or loss
is recorded in other liability or other assets inthe statement of financial position.

Buildings
Building integrals
Furniture & equipment
Computer & office equipment
Software

1%
10%
10%
12.5% to 33%
14% to 33%

Leasehold improvements are amortised on astraight line basis over the remaining period ofeach lease.
Costs incurred in acquiring and building
software and computer systems are capitalised
as fixed assets and expensed as amortisation
over periods of between 3 and 5 years except
for the branch front end applications where
7 years is used. Costs incurred in planning or
evaluating software proposals, or inmaintaining systems after implementation,
are not capitalised.
The carrying values of all non-current assets
have been assessed and are not in excessof their recoverable amounts.

xv) Income tax
The Group adopts the liability method of
tax effect accounting whereby income tax
expense is calculated based on accounting
profit adjusted for permanent differences.
Permanent differences are items of revenue
and expense which are recognised in thestatement of financial performance but are notpart of taxable income or vice versa.
Future tax benefits and deferred tax liabilities
relating to timing differences and tax losses
are carried forward at tax rates applicable tofuture periods. These future tax benefits are
not brought to account unless realisation of
the asset is assured beyond reasonable doubt.
Future tax benefits relating to tax losses are
only carried forward where realisation of thebenefit is considered virtually certain.
Provision for Australian income tax is madewhere the earnings of overseas controlled
entities are subjected to Australian tax under
the attribution rules for the taxation of foreignsourced income.
Otherwise, no provision is made for overseas
withholding tax or Australian income tax which
may arise on repatriation of earnings fromoverseas controlled entities, where itis expected these earnings will be retained bythose entities to finance their
ongoing business.
xvi) Employee entitlements
The amounts expected to be paid in respect of
employees’ entitlements to annual leave areaccrued at expected salary rates including oncosts. Liability for long service leave is accruedin respect of all applicable employees at thepresent value of future amounts expected tobe paid.
xvii) Provisions
Refer to note 27 for the accounting policies
covering various provisions excluding ELP
which is detailed in note 1 viii) above.

9

Notes to the Financial Statements

1: Accounting Policies (continued)
xviii) Superannuation commitments
Contributions, which are determined on an
actuarial basis, to superannuation schemes
are charged to personnel expenses in thestatement of financial performance.
Any aggregate deficiencies arising from theactuarial valuations of the Group’s defined
benefit schemes have been provided for in thefinancial statements, where a legal orconstructive obligation exists.
The assets and liabilities of the schemes havenot been consolidated as the Company does
not have direct or indirect control of theschemes.
xix) Leasing
Leases entered into by the Group as lessee are
predominantly operating leases, and theoperating lease payments are included in thestatement of financial performance in equal
installments over the lease term.
xx) Goods and services tax
Revenues, expenses and assets arerecognised net of the amount of goods andservices tax (GST), except where the amountof GST incurred is not recoverable from theAustralian Tax Office (ATO). In thesecircumstances the GST is recognised as partof the cost of acquisition of the asset or as
part of the expense.
Receivables and payables are stated with theamount of GST included. The net amount of
GST recoverable from, or payable to, the ATO isincluded as an other asset or liability in thestatement of financial position.
Cash flows are included in the statementof cash flows on a gross basis. The GST
components of cash flows arising frominvesting and financing activities which arerecoverable from, or payable to, the ATO areclassified as operating cash flows.
xxi) Life insurance
The Group’s life insurance business was
conducted through ANZ Life Assurance
Company Limited until 30 April 2002 and its
results consolidated until that date.
On 1 May 2002 the Group’s life insurance
business was transferred to a joint venture
entity, (see note 45) which is accounted
for in accordance with the equity methodof accounting. The joint venture adopts similaraccounting policies to those described here.

Components of life insurance margin onservices operating income disclosed arepremium revenue and related revenue,
investment revenue, claims expense andinsurance policy liabilities expense(refer note 40).
Premiums with no due date are recognised asrevenue on a cash received basis. Premiums
with a regular due date are recognised asrevenue on an accruals basis. Unpaid
premiums are only recognised as revenue
during the days of grace or where secured by
the surrender value of the policy and areincluded as ‘Other Assets’ in the balance sheet.
Claims under investment-linked business
are recognised when the policy ceases toparticipate in the earnings of the fund. Claims
on non investment-linked business arerecognised when the liability to the policy
owner under the policy contract has been
established or upon notification of the insured
event depending on the type of claim.
Policy liabilities and other liabilities aremeasured at net present value of estimatedfuture cash flows. Changes in net present
values are recognised in the statement offinancial performance as revenue or expenses
in the financial year in which they occur.
All assets are measured at net market values asat the reporting date. Changes in the net market
values are recognised in the statement offinancial performance as revenue or expenses
in the financial year in which they occur.
xxii) Capitalised expenses
Expenses related to the acquisition of interest
earning assets are initially recognised as part ofthe cost of acquiring the asset and written-off
as an adjustment to its yield over its expected
life. For assets subject to prepayment, expected
life is determined on the basis of the historicalbehaviour of the asset portfolio, taking
into account prepayments.

10Notes to the Financial Statements
2: Income2003$mConsolidated
2002
$m

2001
$m

Interest income
From other financial institutions
On regulatory deposits
On trading and investment securities
On loans and advances
Other

92
–
452
9,320
351

121
1
397
8,245
273

214
1
471
9,122
443

65
–
355
6,667
213

83
1
324
5,733
192

From controlled entities

10,215–

9,037–

10,251
–

7,300
78

6,333
93

Total interest income

10,215

9,037

10,251

7,378

6,426

Other operating incomei) Fee income
Lending
Other, commissions1

933
1,115

876
1,196

787
1,105

813
795

771
861

From controlled entities

2,048
–

2,072
–

1,892
–

1,608
219

1,632
284

Total fee income

2,048

2,072

1,892

1,827

1,916

–
348
–
71
–
110
6
3
–
–
116

174
365
–
72
99
59
5
4
–
–
89

–
348
99
27
190
63
3
5
21
(84)
34

–
238
–
71
–
122
–
3
–
–
1,729

192
264
–
72
–
44
2
3
–
–
142

654

867

706

2,163

719

2,702

2,939

2,598

3,990

2,635

Share of joint venture: profit from INGA joint venture (refer note 45)
Share of associates profit (net of writeoffs)

55
51

2
29

–
(25)

–
–

–
–

Total share of joint venture and associates profit

106

31

(25)

–

–

13,023

12,007

12,824

11,3689,061ii) Other income
Significant transaction: Net profit before tax from sale of business to INGA joint venture
Foreign exchange earnings
Profit on sale of strategic investments
Hedge of TrUEPrs cash flows2
Life insurance margin on services operating income (refer note 40)
Profit on trading instruments
Profit on sale of premises3
Rental income
Dividend income from strategic investments
Writedown of equity investments
Other
Total other income4
Total other operating income

5

Total income
1
2
3
4
5

Includes commissions from funds management business (up to 30 April 2002)
Preference shares are issued via the TrUEPrs structure. This income is earned on a fixed receive/floating pay swap of the fixed dividend commitments
Gross proceeds on sale of premises is $33 million (2002: $42 million, 2001: $98 million)
The Company’s ‘other income’ include dividends received from controlled entities of $1,803 million (2002: $65 million)
Includes external dividend income of $10 million (2002: $3 million, 2001: $75 million) for the Group and $1 million (2002: $2 million) for the Company

The Company
2003
2002
$m
$m

11

Notes to the Financial Statements
3: Expenses
2003$mConsolidated
2002
$m

2001
$m

Interest expense
To other financial institutions
On deposits
On borrowing corporations’ debt
On commercial paper
On loan capital, bonds and notes
Other

183
3,502
461
310
1,052
396

246
3,019
404
251
801
298

590
3,597
454
584
797
396

164
2,722
–
184
1,014
295

225
2,371
–
46
793
210

To controlled entities

5,904
–

5,019
–

6,418
–

4,379
177

3,645
168

Total interest expense

5,904

5,019

6,418

4,556

3,813

122
109
1,177
342

129
103
1,134
348

131
93
1,124
327

106
94
912
283

117
88
892
293

1,750

1,714

1,675

1,395

1,390

15
16
154
88
22

14
17
161
92
15

15
18
152
89
11

9
1
120
74
18

8
2
131
70
11

To controlled entities

295
–

299
–

285
–

222
43

222
37

Total premises expenses

295

299

285

265

259

iii) Computer
Computer contractors
Data communication
Depreciation and amortisation
Rentals and repairs
Software purchased
Other

18
61
183
70
103
30

34
62
140
59
105
24

44
49
108
61
82
20

16
41
148
63
90
12

29
44
112
49
92
7

Total computer expenses

465

424

364

370

333

91
18
3
33
35
7
48
92
102
49
78
102

98
20
3
35
36
2
51
97
97
53
77
84

106
17
3
42
32
5
45
94
114
70
79
75

66
9
2
26
29
2
36
67
86
35
55
165

71
8
2
28
30
1
36
71
79
38
57
171

658

653

682

578

592

60

63

86

55

62

3,228

3,153

3,092

2,663

2,636

–

(248)

–

–

(248)

Total operating expenses including recovery from NHB litigation

3,228

2,905

3,092

2,663

2,388

Total expenses

9,132

7,924

9,510

7,219

6,201

Operating expensesi) Personnel
Employee entitlements and taxes
Pension fundSalaries and wages
Other
Total personnel expensesii) Premises
Amortisation of leasehold improvements
Depreciation of buildings and integrals
Rent
Utilities and other outgoings
Otheriv) OtherAdvertising and public relations
Amortisation of goodwill1
Audit fees (refer note 5)
Depreciation of furniture and equipment
Freight and cartage
Loss on sale of equipment
Non-lending losses, frauds and forgeries
Postage and stationery
Professional fees
Telephone
TravelOther
Total other expensesv) Restructuring
Total operating expenses
Significant transaction: recovery from NHB litigation

1 In addition, there is a notional goodwill amortisation charge of $44 million (2002: $18 million) included in the calculation of the share of income from the ING Australia joint venture

The Company
2003
2002
$m
$m

12

Notes to the Financial Statements
4: Equity Instruments Issued to Employees
Under existing Australian Accounting Standards, certain equity instruments issued to employees are not required to be expensed. The impact of expensing
options1, and shares issued under the $1,000 employee share plan, has been calculated and is disclosed below.
Consolidated
2003
2002
$m
$m

Net profit attributable to shareholders of the Company
Expenses attributable to:
Options issued to Management Board1
Options issued to general management1
Shares issued under $1,000 employee share plan

2,348

2,322

(8)
(24)
(18)

(7)
(19)
(18)

Total

2,298

2,278

1 Based on fair values estimated at grant date determined in accordance with the fair value measurement provisions of Accounting Exposure Draft ED 108. Value of options are amortised on a straight line basis
over the vesting period

5: Remuneration of Auditors
2003
$’000

Consolidated
2002
$’000

2001
$’000

2,640
2,083
3,891

2,065
2,793
8,188

2,296
1,753
2,811

2,115
1,690
3,864

1,586
2,685
7,453

8,614

13,046

6,860

7,669

11,724

–
775

–
1,278

10,867
1,681

–
775

–
1,256

775

1,278

12,548

775

1,256

Total

9,389

14,324

19,408

8,444

12,980Overseas Related practices of KPMG Australia
Audit or review of financial reports of Group entities
Other audit-related services1,2
Other assurance services3

1,293
1,503
1,473

1,305
1,611
316

1,024
1,755
937

315
639
1,194

271
861
101

4,269

3,232

3,716

2,148

1,233

83

200

452

10

111

83

200

452

10

111

Total

4,352

3,432

4,168

2,158

1,344

Total remuneration of auditors

13,741

17,75623,576

10,602

14,324

KPMG Australia
Audit or review of financial reports of the Company or any entity in the Group
Other audit-related services1,2
Other assurance services3

Consulting4
Taxation

Taxation

The Company
2003
2002
$’000
$’000

By virtue of an Australian Securities and Investments Commission class order dated 30 September 1998, the auditors of Australia and New Zealand Banking Group Limited and its related bodies corporate,
KPMG, have been exempted from compliance with the requirements of Section 324 of the Corporations Act 2001. The class order exemption applies in that partners and associates of KPMG not engaged on
the audit of Australia and New Zealand Banking Group Limited and its related bodies corporate may be indebted to the Company, provided that such indebtedness arose upon ordinary commercial terms
and conditions.
It is Group policy that KPMG Australia or any of its related practices may provide assurance and other audit-related services that, while outside the scope of the statutory audit, are consistent with the role ofauditor. These include regulatory and prudential reviews requested by the Company’s regulators such as the Australian Prudential Regulation Authority. KPMG Australia or any of its related practices may notprovide services that are perceived to be materially in conflict with the role of auditor. These include consulting advice and subcontracting of operational activities normally undertaken by management, andengagements where the auditor may ultimately be required to express an opinion on its own work. However, non-audit services that are not perceived to be materially in conflict with the role of auditor may beprovided by KPMG Australia or any of its related practices subject to the approval of the ANZ Audit Committee.
1 Includes completion accounts review
2 Includes services for the audit or review of financial information other than financial reports including prudential supervision reviews for central banks, prospectus reviews, trust audits and other audits required
for local statutory purposes
3 2003 includes assessing the Group’s compliance with the requirements of the US Patriot Act. 2002 includes due diligence services principally related to ING joint venture. Under the policy adopted by ANZ in
April 2002, due diligence services are no longer provided by the external auditor, unless specifically approved by the Board
4 KPMG sold its consulting business effective 1 September 2001

13

Notes to the Financial Statements
6: Income Tax Expense
2003$mConsolidated
2002
$m

2001
$m

3,277

3,223

2,783

3,684

2,150

983

967

946

1,105

645

15
(31)
(16)
–
–
(32)
–
–
10

14
(39)
(11)
7
–
(9)
15
(48)
–

(9)
(36)
(32)
18
27
9
–
–
(16)

2
–
(541)
–
–
–
–
–
53

5
(1)
(20)
–
–
–
15
(55)
51

Income tax under/(over) provided in prior years

929
(3)

896
2

907
4

619
(3)

640
3

Total income tax expense

926

898

911

616

643

Australia
Overseas

672
254

683
215

716
195

543
73

578
65

926

898

911

616

643

Reconciliation of the prima facie income tax payable on profit with the income
tax expense charged in the statement of financial performance
Profit before income tax
Prima facie income tax at 30% (2002: 30%: 2001: 34%)
Tax effect of permanent differences
Overseas tax rate differential
Other non-assessable income
Rebateable and non-assessable dividends
Life insurance accounting
Writedown of investments
Profit from associated and joint venture entities
NHB settlement tax rate differential
Sale of business to ING Australia joint venture
Other

The Company
2003
2002
$m
$m

Tax Consolidation
Legislation has been enacted to allow Australian resident entities to elect to consolidate and be treated as a single entity for Australian tax purposes. At thedate of this report, the Directors of the Company have not made a decision whether or not to elect to be taxed as a single entity. Should the Company enter thetax consolidation regime, tax balances will no longer be recorded by subsidiaries if they form part of a consolidated tax group.
Tax balances for the consolidated tax group will be recorded in the financial statements of the Company.

14

Notes to the Financial Statements
7: Dividends
2003$mConsolidated
2002
$m

2001
$m

The Company
2003
2002
$m
$m

Ordinary dividends
Interim dividend
Proposed final dividend
Bonus option plan adjustment

666
7771
(25)

583
692
(23)

491
595
(24)

666
7771
(25)

583
692
(23)

Dividends on ordinary shares

1,418

1,252

1,062

1,418

1,252

1 Not provided for. Refer Note 1 (ii) Changes in accounting policies

A final dividend of 51 cents, fully franked, is proposed to be paid on each fully paid ordinary share on 19 December 2003 (2002: final dividend of 46 cents,
paid 13 December 2002, fully franked; 2001: final dividend of 40 cents, paid 14 December 2001, fully franked). The 2003 interim dividend of 44 cents,
paid 1 July 2003, was fully franked (2002: interim dividend of 39 cents, paid 1 July 2002, fully franked; 2001: interim dividend of 33 cents, paid 2 July 2001,
fully franked).
The tax rate applicable to the franking credits attached to the interim dividend and to be attached to the proposed final dividend is 30% (2002: 30%,
2001: 30%).
2003$mConsolidated
2002
$m

2001
$m

The Company
2003
2002
$m
$m

Preference dividends
Trust Securities Issues
ANZ Stapled Exchangeable Preferred Securities (ANZ StEPS)

102
–

117
n/a

119
n/a

–
–

–
n/a

Dividends on preference shares

102

117

119

–

–

Trust Securities Issues
The Company has issued 124,032,000 preference shares, raising USD 775 million via Trust Securities issues. The Trust Securities carry an entitlement to a
distribution of 8% (USD 400 million) or 8.08% (USD 375 million). The amounts are payable quarterly in arrears. Distributions are expected to be payable on 15
January, April, July and October of each year.
ANZ Stapled Exchangeable Preferred Securities (ANZ StEPS)
On 23 September 2003, the Company issued ten million ANZ StEPS raising $987 million (net of issue costs). ANZ StEPS comprise two fully paid securities - aninterest paying unsecured note (issued by ANZ Holdings (New Zealand) Limited a wholly owned subsidiary of the Company) stapled to a fully paid preference
share issued by the Company. Distributions on ANZ StEPS are non-cumulative and are payable quarterly in arrears based upon a floating distribution rate equal
to the 90 day bank bill rate plus a margin. At each payment date the 90 day bank bill rate is reset for the next quarter. Distributions are expected to be payable
on 15 March, 15 June, 15 September and 15 December of each year. Dividends are not payable on the preference share while it is stapled to the note.
Dividend Franking Account
The amount of franking credits available to the Company for the subsequent financial year is nil (2002 and 2001: nil), after adjusting for franking credits that willarise from the payment of tax on Australian profits for the 2003 financial year, less franking credits which will be utilised in franking the proposed final dividend
and franking credits that may not be accessible by the Company at present.
From 1 July 2002 the franking credits available have been measured in accordance with the New Business Tax System (Imputation) Act 2002 as the amount ofincome tax paid rather than being based on after-tax profits as in previous periods.
This change in the basis of measurement does not change the value of franking credits to shareholders who may be entitled to franking credit balances.
Restrictions which Limit the Payment of Dividends
There are presently no significant restrictions on the payment of dividends from controlled entities to the Company. Various capital adequacy, liquidity, statutory
reserve and other prudential requirements must be observed by certain controlled entities and the impact on these requirements caused by the payment of cash
dividends is monitored. In practice however, there are significant tax considerations associated with the receipt of dividends from controlled entities by acompany. Payment of dividends from domestic controlled entities constitutes assessable income to a recipient Australian company. Where the dividend isreceived from a company within the wholly-owned group or, if the payer company is not wholly-owned (up to 30 June 2002) to the extent that the dividend isfranked, the recipient company is generally entitled to a rebate of tax otherwise payable on the assessable dividend. With effect from 1 July 2002, for franked
dividends received from non wholly-owned companies a gross up and offset mechanism applies. Should the recipient company’s total assessable income beless than the rebateable/grossed up dividend income, or it be in a tax loss position, the rebate/offset will reduce or be eliminated. The Group therefore acts topreserve the availability of rebates/offsets by avoiding the payment of rebateable/grossed up dividends by domestic controlled entities in this situation.
Payments of dividends from overseas controlled entities may attract withholding taxes which have not been provided for in these financial statements.
There are presently no restrictions on payment of dividends by the Company. Reductions of shareholders’ equity through payment of cash dividends is monitored
having regard to the regulatory requirements to maintain a specified capital adequacy ratio. In particular, the Australian Prudential Regulation Authority has
advised Australian banks that a bank under its supervision must consult with it before declaring a dividend if the bank has incurred a loss, or proposes to pay
dividends which exceed the level of profits earned.
Dividend Reinvestment Plan
During the year, 3,142,629 ordinary shares were issued at $18.32 per share, and 3,081,237 ordinary shares at $18.48 per share, under the Dividend
Reinvestment Plan (2002: 2,533,819 ordinary shares at $18.33 per share and 2,484,694 ordinary shares at $19.24 per share).

15

Notes to the Financial Statements
7: Dividends (continued)
Bonus Option Plan
Dividends paid during the year have been reduced by way of certain shareholders participating in the Bonus Option Plan and forgoing all or part of their right todividends in return for the receipt of bonus shares.
During the year, 787,335 ordinary shares were issued at $18.32 per share, and 747,652 ordinary shares at $18.48 per share, under the Bonus Option Plan
(2002: 679,408 ordinary shares at $18.33 per share and 672,437 ordinary shares at $19.24 per share).
Declared Bonus options
dividend
exercised$m$mFinal dividend 2002
Interim dividend 2003

Amount
paid
$m

692
666

(13)
(12)

679
654

1,358

(25)

1,333

8: Earnings per Ordinary Share2003$m

Consolidated
2002
$m

2001
$m

Basic earnings per share (cents)

148.3

147.3

117.4

Earnings reconciliation
Net profit
Less: net profit attributable to outside equity interests
Less: preference share dividend paid
Earnings used in calculating basic earnings per share

2,351
3
102
2,246

2,325
3
117
2,205

1,872
2
119
1,751

Weighted average number of ordinary shares (millions)
Used in calculating basic earnings per share

1,514.2

1,496.9

1,492.1

Diluted earnings per share (cents)

147.9

146.6

117.0

Earnings reconciliation
Net profit
Less: net profit attributable to outside equity interests
Less: preference share dividend paid
Earnings used in calculating diluted earnings per share

2,351
3
102
2,246

2,325
3
117
2,205

1,872
2
119
1,751

Weighted average number of ordinary shares (millions)
Used in calculating basic earnings per share
Add: potential conversion of options to ordinary shares
Used in calculating diluted earnings per share

1,514.2
4.8
1,519.0

1,496.9
7.6
1,504.5

1,492.1
4.2
1,496.3

The weighted average number of converted and lapsed options, weighted with reference to the date of conversion or lapse, and included in the calculationof diluted earnings per share is 1.1 million.

9: Liquid Assets
Consolidated
2003
2002
$m
$m

The Company
2003
2002
$m
$m

601
317
496
436

924
112
524
1,179

522
311
496
436

894
101
522
1,179

1,850

2,739

1,765

2,696

284
511
2,437
374
1,136

293
548
2,725
12
1,093

96
10
1,173
–
872

109
1
2,418
–
770

4,742

4,671

2,151

3,298

Total liquid assets

6,592

7,410

3,916

5,994

Maturity analysis based on original term to maturity at 30 September
Less than 90 days
More than 90 days

5,509
1,083

4,821
2,589

2,834
1,082

3,432
2,562

Total liquid assets

6,592

7,410

3,916

5,994

Australia
Coins, notes and cash at bankers
Money at call
Securities purchased under agreement to resell less than 90 days
Bills receivable and remittances in transit

Overseas
Coins, notes and cash at bankers
Money at call
Other banks’ certificates of deposit
Securities purchased under agreement to resell less than 90 days
Bills receivable and remittances in transit

16

Notes to the Financial Statements
10: Due from Other Financial Institutions
Consolidated
2003
2002
$m
$m

The Company
2003
2002
$m
$m

Australia
Overseas

646
1,781

706
3,109

638
1,505

695
1,954

Total due from other financial institutions

2,427

3,815

2,143

2,649

Maturity analysis based on remaining term to maturity at 30 September
Overdraft
Less than 3 months
Between 3 months and 12 months
Between 1 year and 5 years
After 5 years

638
1,283
351
84
71

275
2,805
597
118
20

636
1,051
309
83
64

272
1,657
586
116
18

2,427

3,815

2,143

2,649

11: Trading Securities
Trading securities are allocated between Australia and Overseas based on the domicile of the issuer
Consolidated
2003
2002
$m
$m

The Company
2003
2002
$m
$m

Listed – Overseas
Equity securities

–

289

–

–

Total listed

–

289

–

–

475
1,230
820
1,142

977
1,692
1,453
1,096

475
1,230
820
1,109

977
1,692
1,453
1,096

3,667

5,218

3,634

5,218

395
151

300
66

2
–

1
–

546

366

2

1

Total unlisted

4,213

5,584

3,636

5,219

Total trading securities

4,213

5,873

3,636

5,219

Unlisted – Australia
Commonwealth securities
Local and semi-government securities
ANZ accepted bills
Other securities and equity securities

Unlisted – Overseas
Other government securities
Other securities and equity securities

17

Notes to the Financial Statements
12: Investment Securities
Consolidated
2003
2002
$m
$m

The Company
2003
2002
$m
$m

Investment securities are allocated between Australia and Overseas based on the domicile of the issuer
Listed – Australia
Other securities and equity investments

4

23

–

18

4

23

–

18

546
633

63
–

546
633

63
–

1,179

63

1,179

63

Total listed

1,183

86

1,179

81

Unlisted – Australia
Local and semi-government securities
Other securities and equity investments

1,362
250

756
252

1,362
157

756
252

1,612

1,008

1,519

1,008

399
907
237
429

488
1,322
169
536

–
907
131
102

–
1,322
149
33

1,972

2,515

1,140

1,504

Total unlisted

3,584

3,523

2,659

2,512

Total investment securities

4,767

3,609

3,838

2,593

2

20

–

15

2

20

–

15

548
632

63
–

548
632

63
–

1,180

63

1,180

63

Total market value of listed investment securities

1,182

83

1,180

78

Unlisted – Australia
Local and semi-government securities
Other securities and equity investments

1,362
251

756
252

1,362
157

756
252

1,613

1,008

1,519

1,008

399
905
238
429

488
1,322
169
541

–
905
132
102

–
1,322
149
28

1,971

2,520

1,139

1,499

Total market value of unlisted investment securities

3,584

3,528

2,658

2,507

Total market value of investment securities

4,766

3,611

3,838

2,585

Listed – Overseas
Other government securities
Other securities and equity investments

Unlisted – Overseas
New Zealand government securities
US government securities
Other government securities
Other securities and equity investments

Market value information
Listed – Australia
Other securities and equity investments

Listed – Overseas
Other government securities
Other securities and equity investments

Unlisted – Overseas
New Zealand government securities
US government securities
Other government securities
Other securities and equity investments

18

Notes to the Financial Statements
12: Investment Securities (continued)
Investment Securities by Maturities and Yields
Based on remaining term to maturity at 30 September 2003
Less than
3 months$m

Between 3
months and
12 months$m

Between
1 year and5 years$m

Between
5 years and
10 years$m

After
10 years$mNomaturity
specified
$m

Total
$m

Market
Value
$m

1,002
95

360
60

–
68

–
–

–
–

–
31

1,362
254

1,362
253

1,097

420

68

–

–

31

1,616

1,615

291
258
220
573

108
330
363
173

–
319
200
316

–
–
–
–

–
–
–
–

–
–
–
–

399
907
783
1,062

399
905
786
1,061

1,342

974

835

–

–

–

3,151

3,151

Total book value

2,439

1,394

903

–

–

31

4,767

n/a

Total market value

2,439

1,393

903

–

–

31

n/a

4,766

Less than
1 year%

Between
1 year and5 years%

Between
5 years and
10 years%

After
10 years
%

4.70
4.94

–
4.95

–
–

–
–

4.99
3.25
7.74
2.59

–
2.23
6.25
1.61

–
–
–
–

–
–
–
–

At book value

Australia
Local and semi-government securities
Other securities and equity investments

Overseas
New Zealand government securities
US government securities
Other government securities
Other securities and equity investments

Weighted average yields1

Australia
Local and semi-government securities
Other securities and equity investments
Overseas
New Zealand government securities
US government securities
Other government securities
Other securities and equity investments
1 Based on effective yields for fixed interest and discounted securities and dividend yield for equity investments at 30 September 2003

19

Notes to the Financial Statements
12: Investment Securities (continued)
Investment Securities by Maturities and Yields
Based on remaining term to maturity at 30 September 2002

At book value

Australia
Local and semi-government securities
Other securities and equity investments

Overseas
New Zealand government securities
US government securities
Other government securities
Other securities and equity investments

Total book value
Total market valueLess than
3 months$m

Between 3
months and
12 months$m

Between
1 year and5 years$m

Between
5 years and
10 years$m

After
10 years$mNomaturity
specified
$m

Total
$m

Market
Value
$m

644
85

50
-

62
135

-

-

55

756
275

756
275

729

50

197

-

-

55

1,031

1,031

164
100
126
93

324
68
21

1,222
38
414

1

-

7

488
1,322
232
536

488
1,322
232
538

483

413

1,674

1

-

7

2,578

2,580

1,212

463

1,871

1

-

62

3,609

n/a

1,212

464

1,872

1

-

62

n/a

3,611

Less than
1 year%

Between
1 year and5 years%

Between
5 years and
10 years%

After
10 years
%

5.03
5.22

6.34
5.05

-

-

5.89
2.19
7.79
3.96

3.88
5.01
2.11

8.00

-

1

Weighted average yields

Australia
Local and semi-government securities
Other securities and equity investments
Overseas
New Zealand government securities
US government securities
Other government securities
Other securities and equity investments
1 Based on effective yields for fixed interest and discounted securities and dividend yield for equity investments at 30 September 2002

20

Notes to the Financial Statements
13: Net Loans and Advances
Loans and advances are classified between Australia, New Zealand and Overseas markets based on the domicile of the lending point.
Consolidated
2003
2002
$m
$m

Australia
Overdrafts
Credit card outstandings
Term loans – housing
Term loans – non-housing
Lease finance (refer below)
Hire purchase
Other

New Zealand
Overdrafts
Credit card outstandings
Term loans – housing
Term loans – non-housing
Lease finance (refer below)
Hire purchase
Other

Overseas markets
Overdrafts
Credit card outstandings
Term loans – housing
Term loans – non-housing
Lease finance (refer below)
Commercial bills
Other

Total gross loans and advances
Provisions for doubtful debts (refer note 15)
Income yet to mature

Total net loans and advances
Lease finance consists of gross lease receivables
Current
Non-current

The Company
2003
2002
$m
$m

3,915
4,265
62,482
41,133
2,613
6,127
785

3,151
3,888
52,381
34,212
2,503
5,411
992

3,915
4,265
62,48235,804
1,020
398
760

3,151
3,888
52,381
28,688878
331
974

121,320

102,538

108,644

90,291

611
491
10,551
7,425
370
496
985

619
462
9,796
6,460
375
477
908

–
–
–
–
–
–
–

–
–
–
–
–
–
–

20,92919,097

–

–

740
134
361
8,984
239
78
2

860
108
323
11,938
469
7
9

579
21
266
7,437
216
78
2

722
26
239
9,983
449
7
3

10,53813,714

8,599

11,429152,787

135,349

117,243

101,720(2,018)(1,304)(2,081)(1,208)(1,712)(1)(1,819)(1)(3,322)(3,289)(1,713)(1,820)149,465

132,060

115,530

99,900

615
2,607

741
2,606

124
1,112

103
1,224

3,222

3,347

1,236

1,327

21

Notes to the Financial Statements
13: Net Loans and Advances (continued)
Maturity Distribution and Concentrations of Credit Risk
Based on remaining term to maturity at 30 September 2003
Overdraft1$m

Less than
3 months$m

Between
3 months and
12 months$m

Between
1 year and5 years$m

After
5 years
$m

Total
$m

505
243
100
1,355
2
–
345
4,491
223
125
621
170

417
261
588
705
–
113
2,068
5,322
66
1,990
2,086
2,284

655
313
199
897
2
289
479
210
114
1,811
620
647

1,001
869
805
1,733
20
1,701
1,125
5,046
821
9,871
1,241
1,065

1,251
946
940
276
27
510
1,349
579
543
55,863
2,253
1,169

3,829
2,632
2,632
4,966
51
2,613
5,366
15,648
1,767
69,660
6,821
5,335

85
7
23
61
7
25
58
43
16
629
51
97

30
1
3
5
2
28
27
171
27
1
10
61

229
–
7
462
6
79
185
202
56
660
100
137

588
35
71
564
62
236
493
375
153
464
385
712

679
96
332
75
70
2
440
39
56
10,198
428
785

1,611
139
436
1,167
147
370
1,203
830
308
11,952
974
1,792

17
14
6
5
11
73
171
10
13
49
263
242

111
6
16
78
9
4
418
177
14
16
259
191

252
15
17
23
16
4
394
119
8
61
19
195

534
146
32
137
81
10
1,089
202
125
403
186
1,269

231
3
27
106
10
148
379
433
4
298
40
1,369

1,145
184
98
349
127
239
2,451
941
164
807
767
3,266

10,156

17,565

9,482

33,65081,934

152,787

(484)
(96)

–
(287)

–
(256)

–
(661)

–
(4)

(484)
(1,304)

(580)

(287)

(256)

(661)

(4)

(1,788)

9,576

17,2789,226

32,98981,930150,999

–

–

–

–

(1,534)(1,534)

Net loans and advances

9,576

17,2789,226

32,98980,396

149,465Interest rate sensitivity
Fixed interest rates4
Variable interest rates

372
9,784

8,572
8,993

4,732
4,750

22,73910,911

19,826
62,10856,241
96,546

10,156

17,565

9,482

33,65081,934

152,787

Australia
Agriculture, forestry, fishing and mining
Business service
Entertainment, leisure and tourism
Financial, investment and insurance
Government and official institutions
Lease finance
Manufacturing
Personal2
Real estate – construction
Real estate – mortgage3
Retail and wholesale trade
Other
New Zealand
Agriculture, forestry, fishing and mining
Business service
Entertainment, leisure and tourism
Financial, investment and insurance
Government and official institutions
Lease finance
Manufacturing
Personal2
Real estate – construction
Real estate – mortgage3
Retail and wholesale trade
Other
Overseas Markets
Agriculture, forestry, fishing and mining
Business service
Entertainment, leisure and tourism
Financial, investment and insurance
Government and official institutions
Lease finance
Manufacturing
Personal2
Real estate – construction
Real estate – mortgage3
Retail and wholesale trade
Other
Gross loans and advances
Specific provision for doubtful debts
Income yet to mature

Loans and advances net of specific provision and income yet to mature
General provision

1
2
3
4

Overdraft includes credit cards and unsecured lending
Personal includes non-business loans to individuals through overdrafts, personal loans, credit cards and fully drawn advances
Real estate-mortgage includes residential and commercial property exposure. Loans within this category are for the purchase of such properties and must be secured by property
Housing loans and other loans that are capped for an initial period are fixed interest rate loans and their maturities based on the principal repayments due over the term of the loan

22

Notes to the Financial Statements
13: Net Loans and Advances (continued)
Maturity Distribution and Concentrations of Credit Risk
Based on remaining term to maturity at 30 September 2002
Overdraft1$m

BetweenLess than
3 months$m

Between
3 months and
12 months$m

1 year and5 years$m

After
5 years
$m

Total
$m

398
278
98
1,467
3
–
381
3,131
235
116
756
178

891
215
175
67
–
93
1,483
4,208
29
969
1,748
1,443

433
396
442
818
3
319
710
270
91
1,407
915
635

575
481
893
2,016
22
1,570
1,011
6,723
347
9,130
752
723

1,139
750
857
235
39
521
718
561
450
45,427
1,786
1,011

3,436
2,120
2,465
4,603
67
2,503
4,303
14,893
1,152
57,049
5,957
3,990

54
15
26
59
7
22
91
41
13
619
54
79

124
40
20
69
11
62
134
173
55
297
57
205

91
31
17
46
6
57
450
137
39
275
108
160

269
109
342
863
60
102
688
296
77
1,050
547
786

436
64
59
5
37
132
252
74
52
8,704
184
166

974
259
464
1,042
121
375
1,615
721
236
10,945
950
1,396

18
11
5
7
18
–
211
14
18
41
295
329

135
10
10
26
–
188
549
84
102
7
166
439

141
29
6
56
12
–
711
50
27
341
24
433

714
121
75
223
52
188
910
400
123
360
200
1,778

544
5
26
207
9
93
705
579
45
262
13
1,568

1,552
176
122
519
91
469
3,086
1,127
315
1,011
698
4,547

Gross loans and advances

9,088

14,284

9,686

34,57667,715

135,349

Specific provision for doubtful debts
Income yet to mature

(585)
–

–
(286)

–
(272)

–
(642)

–
(8)

(585)
(1,208)

(585)

(286)

(272)

(642)

(8)

(1,793)

8,503

13,9989,414

33,93467,707

133,556

–

–

–

–

(1,496)(1,496)Net loans and advances

8,503

13,9989,414

33,934

66,211132,060

Interest rate sensitivity
Fixed interest rates4
Variable interest rates

938
8,150

8,519
5,765

6,434
3,252

21,481
13,095

15,552
52,16352,92482,425

9,088

14,284

9,686

34,57667,715

135,349

Australia
Agriculture, forestry, fishing and mining
Business service
Entertainment, leisure and tourism
Financial, investment and insurance
Government and official institutions
Lease finance
Manufacturing
Personal2
Real estate – construction
Real estate – mortgage3
Retail and wholesale trade
Other
New Zealand
Agriculture, forestry, fishing and mining
Business service
Entertainment, leisure and tourism
Financial, investment and insurance
Government and official institutions
Lease finance
Manufacturing
Personal2
Real estate – construction
Real estate – mortgage3
Retail and wholesale trade
Other
Overseas Markets
Agriculture, forestry, fishing and mining
Business service
Entertainment, leisure and tourism
Financial, investment and insurance
Government and official institutions
Lease finance
Manufacturing
Personal2
Real estate – construction
Real estate – mortgage3
Retail and wholesale trade
Other

Loans and advances net of specific provision and income yet to mature
General provision

1
2
3
4

Overdraft includes credit cards and unsecured lending
Personal includes non-business loans to individuals through overdrafts, personal loans, credit cards and fully drawn advances
Real estate mortgage includes residential and commercial property exposure. Loans within this category are for the purchase of such properties and must be secured by property
Housing loans and other loans that are capped for an initial period are fixed interest rate loans and their maturities based on the principal repayments due over the term of the loan

23

Notes to the Financial Statements
14: Impaired Assets
Consolidated
2003
2002
$m
$m

Summary of impaired assets
Non-accrual loans
Restructured loans
Unproductive facilities

The Company
2003
2002
$m
$m

1,007
–
39

1,203
1
54

865
–
38

1,006
1
52

1,046

1,258

903

1,059

(482)
(2)

(575)
(10)

(427)
(2)

(500)
(9)

Net impaired assets

562

673

474

550

Non-accrual loans
Non-accrual loans
Specific provisions

1,007
(482)

1,203
(575)

865
(427)

1,006
(500)

525

628

438

506

Restructured loans
For these loans interest and fees are recognised as income on an accrual basis

–

1

–

1

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

–

–

–

–

Unproductive facilities
Unproductive facilities
Specific provisions

39
(2)

54
(10)

38
(2)

52
(9)

Net unproductive facilities

37

44

36

43

Accruing loans past due 90 days or more
These amounts, comprising loans less than $100,000 or fully secured, are not classified as impaired assets
and therefore are not included within the above summary

213

216

163

153

Gross impaired assets
Specific provisions
Non-accrual loans
Unproductive facilities

Total net non-accrual loans

Consolidated average non-accrual loans: September 2003 $1,103 million; September 2002 $1,254 million; September 2001 $1,194 million.
Further analysis of impaired assets at 30 September 2003 and interest and/or other income received during the year under Australian Prudential Regulation
Authority guidelines is as follows:Grossbalanceoutstanding$m

Non-accrual loans
Without provisions
Australia
New ZealandOverseas markets

Consolidated
Interest and/orSpecific other income
provision
received
$m
$m

Gross
balanceoutstanding$m

The Company
Interest and/orSpecific other income
provision
received
$m
$m

20
5
69

–
–
–

5
–
3

19
–
53

–
–
–

5
–
2

94

–

8

72

–

7

499
17
378

264
9
207

5
1
8

439
–
336

246
–
179

4
–
8

894

480

14

775

425

12

3
–
16

2
–
–

–
–
1

3
–
15

2
–
–

–
–
1

19

2

1

18

2

1

Total non-accrual loans

1,007

482

23

865

427

20

Restructured loans
Unproductive facilities

–
39

–
2

–
–

–
38

–
2

–
–

Total impaired assets

1,046

484

23

903

429

20

With provisions and no, or partial, performance1
Australia
New ZealandOverseas markets

With provisions and full performance1
Australia
New ZealandOverseas markets

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

24

Notes to the Financial Statements
14: Impaired Assets (continued)
Interest and other income forgone on impaired assets
The following table shows the estimated amount of interest and other income that would have been recorded had interest and other income on non-accrualloans and unproductive facilities been accrued to income (or, in the case of restructured loans, had interest and other income been accrued at the originalcontract rate), and the amount of interest and other income received with respect to such loans.
Consolidated
2003
2002
$m
$m

The Company
2003
2002
$m
$m

Gross interest and other income receivable on non-accrual loans, restructured loans
and unproductive facilities
Australia
New ZealandOverseas markets

36
2
31

50
3
30

28
–
23

42
–
23

Total gross interest and other income receivable on non-accrual loans, restructured loans
and unproductive facilities

69

83

51

65

Interest and other income received
Australia
New ZealandOverseas markets

(10)
(1)
(12)

(10)
(3)
(16)

(9)
–
(11)

(10)
–
(12)

Total interest and other income received

(23)

(29)

(20)

(22)

Net interest and other income forgone
Australia
New ZealandOverseas markets

26
1
19

40
–
14

19
–
12

32
–
11

Total net interest and other income forgone

46

54

31

43

25

Notes to the Financial Statements
15: Provisions for Doubtful Debts
2003$m

Consolidated
2002
$m

2001
$m

General provision
Balance at start of year
Adjustment for exchange rate fluctuations
Charge to statement of financial performance
Significant transactions: special charge to statement of financial performance1
Transfer to specific provision
Recoveries

1,496
(49)
614
–
(588)
61

1,386
(22)
610
250
(788)
60

1,373
2
531
–
(595)
75

1,310
(70)
465
–
(460)
38

1,283
(41)
460
250
(677)
35

Total general provision

1,534

1,496

1,386

1,283

1,310

Specific provision
Balance at start of year
Adjustment for exchange rate fluctuations
Bad debts written off
Transfer from general provision

585
(49)
(640)
588

500
(6)
(697)
788

709
30
(834)
595

509
(43)
(497)
460

397
(6)
(559)
677

Total specific provision

484

585

500

429

509

2,018

2,081

1,886

1,712

1,819

Provision movement analysis
New and increased provisions
Australia
New Zealand
Other overseas markets

418
45
212

423
54
421

562
67
47

360
–
163

348
–
409

Provision releases

675
(87)

898
(110)

676
(81)

523
(63)

757
(81)

Recoveries of amounts previously written off

588
(61)

788
(60)

595
(75)

460
(38)

676
(35)

Net specific provision
Net credit to general provision

527
87

728
132

520
11

422
43

641
69

Charge to statement of financial performance

614

860

531

465

710

%

%

%

%

%

0.3
0.9

0.4
1.1

0.4
1.0

0.3
1.0

0.4
1.1

0.3
1.0

0.4
1.1

0.4
1.0

0.4
1.1

0.5
1.3

Bad debts written off as a % of total advances3

0.4

0.5

0.6

0.4

0.5

3

0.3

0.5

0.4

0.3

0.5

Total provisions for doubtful debts

RatiosProvisions2 as a % of total advances3
Specific
GeneralProvisions2 as a % of risk weighted assets
Specific
General

Net specific provision as a % of total advances

The Company
2003
2002
$m
$m

1 Following an assessment of the general provision balance in March 2002, a special provision for doubtful debts of $250 million ($175 million after tax) was charged to restore the provision balance to an
appropriate level in the environment relevant at that time of unexpected investment grade defaults
2 Excludes provisions for unproductive facilities
3 See definitions on page 90.

26

Notes to the Financial Statements
16: Customers’ Liabilities for Acceptances
Consolidated
2003
2002
$m
$m

Australia
Agriculture, forestry, fishing and mining
Business service
Entertainment, leisure and tourism
Financial, investment and insurance
Manufacturing
Personal1
Real estate – construction
Real estate – mortgage2
Retail and wholesale trade
Other

Overseas
Agriculture, forestry, fishing and mining
Business service
Financial, investment and insurance
Manufacturing
Retail and wholesale trade
Other

Total customers’ liabilities for acceptances

The Company
2003
2002
$m
$m

797
550
473
977
2,251
80
112
5,463
1,810
629

645
464
474
730
2,921
14
147
5,012
1,851
1,426

797
550
473
977
2,251
80
112
5,463
1,810
629

645
464
474
730
2,921
14
147
5,012
1,851
1,426

13,142

13,684

13,142

13,684

–
–
11
20
4
1

2
1
51
7
18
33

–
–
11
20
4
1

2
1
51
7
18
33

36

112

36

112

13,178

13,796

13,178

13,796

1 Personal includes non-business acceptances to individuals
2 Real estate mortgage includes residential and commercial property exposure. Acceptances within this category are for the purchase of such properties and must be secured by property

17: Regulatory Deposits
Consolidated
2003
2002
$m
$m

Overseas central banks

101

178

The Company
2003
2002
$m
$m

68

138

18: Shares in Controlled Entities, Associates and Joint Venture Entities
Refer notes 43 to 45 for details.
Consolidated
2003
2002
$m
$m

The Company
2003
2002
$m
$m

Total shares in controlled entities
Total shares in associates
Total shares in joint venture entity

–
166
1,648

–
99
1,593

8,054
41
–

6,238
18
–

Total shares in controlled entities, associates and joint venture entities

1,814

1,692

8,095

6,256

Acquisitions of controlled entities
There were no material controlled entities acquired during the years ended 30 September 2003 and 2002.
Disposals of controlled entities
There were no material controlled entities disposed of during the year ended 30 September 2003.
During the year ended 30 September 2002 the following material controlled entities were disposed of:
On 30 April 2002, ANZ formed a joint venture with ING Australia Pty Ltd. ANZ have a 49% equity interest in the joint venture and 49% of the voting rights. ANZ
sold a controlling interest in ANZ Life Insurance Company Limited, ANZ Managed Investments Limited, ANZ General Insurance Limited and Investment andAdministration Services Limited to the joint venture representing net assets of $392 million (fair value of business $879 million) as well as paying $960 million in
cash. ING also contributed net assets of $1,091 million into the joint venture.
ANZ’s businesses were sold at fair value to the joint venture and a profit on sale of $170 million (after tax and transaction costs) was recognised.
The results of the joint venture have been included in the consolidated financial statements since the date of acquisition.
Subsequent to 30 April 2002, ANZ accounts for its interest in the joint venture using the equity method of accounting.

27

Notes to the Financial Statements
19: Deferred Tax Assets
Consolidated
2003
2002
$m
$m

The Company
2003
2002
$m
$m

505
660

489
729

414
332

413
422

Total income tax assets

1,165

1,218

746

835

Future income tax assets
Australia
Overseas

874
291

883
335

605
141

644
191

1,165

1,218

746

835

Future income tax assets comprises
General provision for doubtful debts
Other

Certain potential future income tax assets within the Group have not been recognised as assets because recovery cannot be regarded as virtually certain. These
potential benefits arise from tax losses and timing differences (benefits could amount to $nil, 2002: $6 million), and from realised capital losses (benefits could
amount to $nil, 2002: $2 million).
These benefits will only be obtained if:i) the relevant entities derive future assessable income of a nature and amount sufficient to enable the benefit of the taxation deductions to be realised;ii) the relevant entities continue to comply with the conditions for deductibility imposed by law; andiii)there are no changes in taxation legislation adversely affecting the benefit of the taxation deductions.
20: Goodwill
Consolidated
2003
2002
$m
$m

The Company
2003
2002
$m
$m

Goodwill – at cost
Accumulated amortisation

248
(88)

250
(70)

128
(41)

126
(32)

Total goodwill1

160

180

87

94

1 Excludes notional goodwill related to the ING joint venture of $821 million (September 2002: $865 million)

21: Other Assets
Consolidated
2003
2002
$m
$m

Property held for resale
Cost of acquisition
Provision for diminution in value

The Company
2003
2002
$m
$m

2
–

25
–

–
–

–
–

2

25

–

–

Accrued interest/prepaid discounts
Accrued commission
Prepaid expenses
Treasury instruments revaluations
Security settlements
Operating leases residual value
Available for sale emerging markets portfolio
Other

1,085
81
398
5,963
373
461
–
1,861

941
133
373
7,918
305
437
24
1,654

859
55
115
5,379
360
–
–
1,274

750
93
126
7,044
283
–
24
1,283

Total other assets

10,224

11,810

8,042

9,603

28

Notes to the Financial Statements
22: Premises and Equipment
Consolidated
2003
2002
$m
$m

Freehold and leasehold land and buildings
At cost1
Provision for depreciation

Leasehold improvements
At costProvision for amortisation

Furniture and equipment
At costProvision for depreciation

Computer and office equipment
At costProvision for depreciation

SoftwareAt costProvision for amortisation

Capital works in progress
At costTotal premises and equipment

The Company
2003
2002
$m
$m

442
(16)

469
(14)

22
(1)

28
(1)

426

455

21

27

168
(116)

154
(110)

108
(71)

99
(69)

52

44

37

30

725
(488)

706
(475)

507
(324)

477
(316)

237

231

183

161

853
(572)

717
(434)

636
(419)

536
(301)

281

283

217

235

624
(159)

515
(96)

560
(139)

474
(85)

465

419

421

389

24

32

18

24

1,485

1,464

897

866

1 In accordance with AASB 1041 this represents deemed cost

From 1 October 2000 as allowed by AASB 1041 ‘Revaluation of Non-Current Assets’ the Group elected to revert to the cost basis for measuring the class of assets
land and buildings.
All premises over a specific value are subject to external valuation at least once every three years by independent valuers. Valuations are based on the estimatedopen market value and assume that the premises concerned continue to be used in their existing manner by the Group.
The independent valuation of the Group’s freehold land and buildings was carried out as at 30 June 2002 by Jones Lang La Salle Advisory and resulted ina valuation of $464 million (The Company: $32 million). As land and buildings are recorded at deemed cost, the valuation was not brought to account.
Group accounting policy covering the amortisation of software costs capitalised are detailed in note 1 xiv). As at 30 September 2003 the weighted averageamortisation period is 5 years.

29

Notes to the Financial Statements
22: Premises and Equipment (continued)
Reconciliations of the carrying amounts for each class of premises and equipment are set out below:
Consolidated
2003
2002
$m
$m

The Company
2003
2002
$m
$m

Freehold and leasehold land and buildings
Carrying amount at beginning of year
Additions
Disposals
Depreciation
Net foreign currency exchange difference

455
13
(35)
(4)
(3)

483
24
(44)
(4)
(4)

27
4
(7)
(1)
(2)

27
7
(3)
(2)
(2)

Carrying amount at end of year

426

455

21

27

Leasehold improvements
Carrying amount at beginning of year
Additions
Disposals
Amortisation
Net foreign currency exchange difference

44
25
(2)
(15)
–

43
16
(1)
(14)
–

30
16
–
(9)
–

28
11
–
(8)
(1)

Carrying amount at end of year

52

44

37

30

Furniture and equipment
Carrying amount at beginning of year
Additions
Disposals
Depreciation
Net foreign currency exchange difference

231
56
(1)
(45)
(4)

243
45
(8)
(48)
(1)

161
50
–
(26)
(2)

171
23
(3)
(28)
(2)

Carrying amount at end of year

237

231

183

161

Computer and office equipment
Carrying amount at beginning of year
Additions
Disposals
Depreciation
Net foreign currency exchange difference

283
110
(12)
(100)
–

260
151
(40)
(90)
2

235
94
(36)
(75)
(1)

215
124
(33)
(71)
–

Carrying amount at end of year

281

283

217

235

SoftwareCarrying amount at beginning of year
Additions
Disposals and writeoffs
Amortisation

419
141
(12)
(83)

303
178
(12)
(50)

389
115
(10)
(73)

272
170
(12)
(41)

Carrying amount at end of year

465

419

421

389

Capital works in progress
Carrying amount at beginning of year
Net additions (transfers)

32
(8)

29
3

24
(6)

18
6

Carrying amount at end of year

24

32

18

24

Total premises and equipment

1,485

1,464

897

866

30

Notes to the Financial Statements
23: Due to Other Financial Institutions
Consolidated
2003
2002
$m
$m

The Company
2003
2002
$m
$m

Australia
Overseas

1,652
4,815

2,340
8,520

1,652
3,838

2,340
8,032

Total due to other financial institutions

6,467

10,8605,490

10,372

Maturity analysis based on remaining term to maturity at 30 September
At callLess than 3 months
Between 3 months and 12 months
Between 1 year and 5 years

2,887
2,893
686
1

2,639
6,623
694
904

1,948
2,859
682
1

2,338
6,453
677
904

Total due to other financial institutions

6,467

10,8605,490

10,372

24: Deposits and Other Borrowings
Deposits and other borrowings are classified between Australia and Overseas based on the location of the deposit taking point.
Consolidated
2003
2002
$m
$m

Australia
Certificates of deposit
Term deposits
Other deposits bearing interest
Deposits not bearing interest
Commercial paper
Borrowing corporations’ debt 1
Securities sold under agreement to repurchase
Other borrowings

The Company
2003
2002
$m
$m

7,029
19,26340,864
3,881
5,458
6,822
299
713

5,340
18,86437,906
3,539
3,963
6,430
10
1,085

7,029
19,81440,852
3,881
3,722
–
299
713

5,340
19,24037,890
3,539
2,868
–
10
1,085

84,32977,13776,31069,972

3,119
19,683
6,536
1,950
6,981
1,797
99

6,333
18,395
6,317
1,710
1,654
1,713
–

1,786
10,768
771
452
–
–
99

4,075
9,870
869
472
–
–
–

40,16536,122

13,876

15,286

Total deposits and other borrowings

124,494

113,259

90,18685,258Maturity analysis based on remaining term to maturity at 30 September
At callLess than 3 months
Between 3 months and 12 months
Between 1 year and 5 years
After 5 years

48,95856,587
10,3008,628
21

46,08349,284
13,6154,091
186

41,45737,323
5,291
6,103
12

39,32536,347
8,089
1,404
93

Total deposits and other borrowings

124,494

113,259

90,18685,258Overseas
Certificates of deposit
Term deposits
Other deposits bearing interest
Deposits not bearing interest
Commercial paper
Borrowing corporations’ debt 1
Other unsecured borrowings

1 Included in this balance is debenture stock of controlled entities. The debenture stock is secured by a trust deed and collateral debentures, giving floating charges upon the undertaking and all the assets of theentities involved other than land and buildings. All subsidiaries of the controlled entities (except for some subsidiaries which have been placed or are expected to be placed in voluntary deregistration and haveminimal book value) have guaranteed the payment of principal, interest and other monies in relation to all debenture stock and unsecured notes issued by the controlled entity. No subsidiaries have given any
charge over their respective assets in support of the above mentioned guarantees

31

Notes to the Financial Statements
25: Income Tax Liabilities
Consolidated
2003
2002
$m
$m

Australia
Provision for income tax
Provision for deferred income tax

Overseas
Provision for income tax
Provision for deferred income tax

Total income tax liabilities
Provision for deferred income tax comprises
Lease finance
Treasury instruments
Other

The Company
2003
2002
$m
$m

(303)
1,168

538
593

(381)
801

476
315

865

1,131

420

791

52
166

37
172

26
100

32
98

218

209

126

130

1,083

1,340

546

921

95
511
728

111
–
654

46
511
344

43
–
370

1,334

765

901

413

26: Payables and Other Liabilities
Consolidated
2003
2002
$m
$m

Australia
PayablesAccrued interest and unearned discounts
Treasury instruments revaluations
Accrued charges
Security settlements
Other liabilities

Overseas
PayablesAccrued interest and unearned discounts
Treasury instruments revaluations
Accrued charges
Security settlements
Other liabilities

Total payables and other liabilities

The Company
2003
2002
$m
$m

3,102
864
5,997
312
165
693

2,174
721
4,142
258
363
270

3,145
758
5,995
299
165
642

2,137
611
4,134
237
363
342

11,133

7,928

11,004

7,824

197
341
1,335
143
–
462

124
333
3,409
136
48
652

5
178
104
49
–
331

10
171
2,263
52
37
488

2,478

4,702

667

3,021

13,611

12,63011,671

10,845

32

Notes to the Financial Statements
27: Provisions
Consolidated
2003
2002
$m
$m

The Company
2003
2002
$m
$m

Employee entitlements1
Dividends (refer note 7 and note 1(ii))
Non-lending losses, frauds and forgeries
Restructuring costs and surplus leased space
Other

269
–
164
92
244

253
692
216
143
298

237
–
128
68
181

222
692
184
103
268

Total provisions

769

1,602

614

1,469

1 The aggregate liability for employee benefits largely comprise employee entitlements provisions plus liability for payroll tax and fringe benefits tax. The aggregate liability as at 30 September 2003 was$362 million consolidated and $263 million for the company (30 September 2002: $333 million consolidated and $233 million for the company)

Reconciliations of the carrying amounts of each class of provisions, except for employee entitlements are set out below:
Consolidated
2003

The Company
2003

692
666
(1,358)692
666(1,358)––

Restructuring costs and surplus leased space3
Carrying amount at beginning of the year
Provision made during the year
Payments made during the year
Release of Provisions

143
45
(80)
(16)

103
43
(62)
(16)

Carrying amount at the end of the year

92

68

Non-lending losses frauds and forgeries4
Carrying amount at beginning of the year
Provision made during the year
Payments made during the year
Release of Provisions

216
17
(59)
(10)

184
6
(57)
(5)

Carrying amount at the end of the year

164

128

Other provisions5
Carrying amount at beginning of the year
Provision made during the year
Payments made during the year
Release of Provisions
Adjustment for exchange rate fluctuations

298
153
(130)
(76)
(1)

268
111
(129)
(68)
(1)

Carrying amount at the end of the year

244

181

Dividends1
Carrying amount at beginning of the year
Interim dividend 2003
Payments made during the year2
Carrying amount at the end of the year

1 A provision for dividends payable will be recognised in the reporting period in which the dividends are declared, determined, or publicly recommended. Current practice is to publicly announce dividends after
the reporting period to which the dividend relates.
2 Includes issue of ordinary shares under the Bonus Option Plan ($25million)
3 Restructuring costs and surplus leased space provisions arise from exit activities related to material changes in the scope of business undertaken by the Group or the manner in which that business isundertaken, and includes termination benefits. Costs related to on-going activities are not provided for. Provision is made when the Group is demonstrably committed, it is probable that the costs will be
incurred, though its timing is uncertain, and the costs can be reliably estimated.
4 Non-lending losses frauds and forgeries provisions arise from inadequate or failed internal processes and systems, or from external events.
5 Other provisions comprise various other provisions including fringe benefits tax, fleet maintenance, workers compensation and other non-employee entitlement provisions.

33

Notes to the Financial Statements
28: Bonds and Notes
Consolidated
2003
2002
$m
$m

The Company
2003
2002
$m
$m

Bonds and notes by currency
USD United States dollars
GBP Great British pounds
AUD Australian dollars
NZD New Zealand dollars
JPY Japanese yen
EUR Euro
HKD Hong Kong dollars
CHF Swiss francs
CAD Canadian dollars
NOK Norwegian krone
SGD Singapore dollars

5,772
1,758
688
31
304
4,903
2,259
389
184
84
200

5,758
1,346
160
183
83
4,550
2,188
173
14
98
155

5,331
1,758
688
31
304
4,903
2,259
389
184
84
200

5,758
1,346
160
11
83
4,550
2,188
173
14
98
155

Total bonds and notes

16,572

14,708

16,131

14,536

Bonds and notes by maturity
Maturity analysis based on remaining term to maturity at 30 September
Less than 3 months
Between 3 months and 12 months
Between 1 year and 5 years

269
3,652
12,651399
3,502
10,807269
3,652
12,210399
3,330
10,807

Total bonds and notes

16,572

14,708

16,131

14,536

29: Loan CapitalInterest
Rate%

Perpetual subordinated notes
USD 300m
floating rate notes
USD 258.7m fixed rate notes
Subordinated notes
USD 40m
floating rate notes due 20022
USD 250m
fixed notes due 2004
USD 500m
fixed notes due 2006
USD 12.5m
floating rate notes due 2007
JPY 482m
floating rate notes due 2007
JPY 568.8m floating rate notes due 2008
USD 14.3m
floating rate notes due 2008
USD 79m
floating rate notes due 20083
AUD 400m
floating rate notes due 20084
AUD 100m
floating rate notes due 20084
NZD 300m
floating rate notes due 2012
USD 550m
floating rate notes due 20135
EUR 500m
fixed/floating rate notes due 20136
GBP 400m
fixed notes due 2018
EUR 300m
floating rate notes due 20137

LIBOR + 0.70
6.25
7.55
LIBOR + 0.50
LIBOR + 0.50
LIBOR + 0.55
LIBOR + 0.50
LIBOR + 0.53
BBSW + 0.57
BBSW + 0.57
BKBM(3) + 0.50
LIBOR(3) + 0.55
4.45
4.75
EURIBOR(3) + 0.375

The Company
2003
2002
$m
$m

442
–

551
476

442
–

551
476

442

1,027

442

1,027

–
367
735
17
6
8
20
115
400
100
263
808
854
983
512

71
459
919
23
7
9
26
145
400
100
259
–
–
–
–

–
367
735
17
6
8
20
115
400
100
–
808
854
983
512

71
459
919
23
7
9
26
145
400
100
–
–
–
–
–

5,188

2,418

4,925

2,159

Total loan capital

5,630

3,445

5,367

3,186

Loan capital by currency
AUD Australian dollars
NZD New Zealand dollars
USD United States dollars
JPY Japanese yen
EUR Euro
GBP Great British pounds

500
263
2,504
14
1,366
983

500
259
2,670
16
–
–

500
–
2,504
14
1,366
983

500
–
2,670
16
–
–

5,630

3,445

5,367

3,186

368
736
4,084

71
1,378
969

368
736
3,821

71
1,378
710

442

1,027

442

1,027

5,630

3,445

5,367

3,186

Loan capital by maturity
Maturity analysis based on remaining term to maturity at 30 September
Between 3 months and 12 months
Between 1 year and 5 years
After 5 years
Perpetual
1
2
3
4
5
6
7

LIBOR1 + 0.15
9.125

Consolidated
2003
2002
$m
$m

LIBOR is an average of rates offered on loans to leading banks in the London inter-bank market
As at 30 September 1998 principal of note outstanding was US$200 million. Note is repayable over 5 years ($40 million (20%) per annum), commencing in October 1998
Prior to January 2002, the interest rate was LIBOR+ 1.03
After March 2007 rate changes to BBSW+ 1.07
After February 2008 rate changes to LIBOR (3) + 1.05
After February 2010 rate changes to EURIBOR (3) + 0.50
After August 2008 rate changes to EURIBOR (3) + 0.875
Loan capital is subordinated in right of payment to the claims of depositors and all other creditors of the Company and its controlled entities which have issued the notes, and constitutes tier 2 capital as
defined by the Australian Prudential Regulation Authority for capital adequacy purposes

34

Notes to the Financial Statements
30: Share Capital
Number of issued shares

2003

The Company
2002

2001

Ordinary shares each fully paid
Preference shares each fully paid

1,521,686,560
134,032,000

1,503,886,082
124,032,000

1,488,267,146
124,032,000

Total number of issued shares

1,655,718,560

1,627,918,082

1,612,299,146

Ordinary shares
Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the company in proportion to the number of and amounts
paid on the shares held.
On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share is entitledto one vote.
Number of issued shares

2003

The Company
2002

2001

Balance at start of year
Bonus option plan
Dividend reinvestment plan
ANZ employee share acquisition plan
ANZ share option plan
ANZ share purchase scheme
Share buy back
Purchase of Amerika Samoa Bank

1,503,886,082
1,534,987
6,223,866
3,615,714
6,425,911–––

1,488,267,146
1,351,845
5,018,513
4,144,988
5,103,590–––

1,506,210,690
1,554,453
5,828,303
5,925,928
2,125,120
73,000(34,626,158)
1,175,810

Balance at end of year

1,521,686,560

1,503,886,082

1,488,267,146

For a reconciliation of the movement in ordinary shares capital refer to Statement of Changes in Shareholders Equity on page 4.
Preference sharesa) Trust Securities Issues
The Trust Securities are fully paid non-converting non-cumulative preference shares issued for USD 6.25 per share via Trust Securities Issues in 1998.
The Trust Securities are mandatorily exchangeable for the preference shares issued by the Company, and carry an entitlement to a non-cumulative trust
distribution of 8.00% or 8.08% per annum payable quarterly in arrears. The Trust Securities were issued by a non diversified closed end management investmentcompany registered under the US Investment Company Act of 1940. The preference shares themselves carry no present entitlement to dividends. Distributions toinvestors in the Trust Securities are funded by income distributions made by the Group.
Upon maturity of the Trust Securities in 2048, investors will mandatorily exchange the Trust Securities for the preference shares and thereupon the preference
shares will carry an entitlement to non-cumulative dividends of 8.00% or 8.08% per annum payable quarterly in arrears. The mandatory exchange of the Trust
Securities for the 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 redeemable at the Company’s option after 5 years, or within
5 years in limited circumstances. The entitlement of investors to distributions on the Trust Securities will cease on redemption of the preference shares.
The transaction costs arising on the issue of these instruments were recognised directly in equity as a reduction of the proceeds of the equity instruments towhich the costs relate.
b) ANZ Stapled Exchangeable Preferred Securities (ANZ StEPS)
On 23 September 2003, the Company issued 10 million ANZ StEPS at $100 each pursuant to a prospectus dated 14 August 2003 raising $1 billion (excluding
issue costs of $13 million: net raising $987 million). ANZ StEPS comprise two fully paid securities - an interest paying unsecured note (issued by ANZ Holdings(New Zealand) Limited, a wholly owned subsidiary of the Company) stapled to a fully paid preference share (issued by the Company).
Distributions on ANZ StEPS are non-cumulative and are payable quarterly in arrears based upon a floating distribution rate equal to the 90 day bank bill rate plus
a margin. At each payment date the 90 day bank bill rate is reset for the next quarter. Distributions are subject to certain payment tests (ie. APRA requirements
and distributable profits being available) and the basis for their calculation may change on any reset date. Distributions are expected to be payable on 15
March, 15 June, 15 September and 15 December of each year. Dividends are not payable on the preference share while it is stapled to the note. If distributions
are not paid on ANZ StEPS, the Company may not pay dividends or return capital on its ordinary shares or any other share capital ranking below the preference
share component.
On any reset date, ANZ may change certain terms (subject to certain restrictions) including the next reset date, market reset (from floating rate to a fixed rate, orvice versa), margin and the frequency and timing of the distribution payment dates. The first reset date is 15 September 2008. Holders of ANZ StEPS can require
exchange on any reset date or earlier if certain specified events occur. On exchange, a holder will receive (at the Company’s discretion) either $100 cash for each
ANZ StEPS exchanged or a number of ordinary shares calculated in accordance with a conversion ratio based on $100 divided by the market price of ordinary
shares at the date of conversion less 2.5%. In certain circumstances, the Company may also require exchange other than on a reset date.
Upon the occurrence of an assignment event, ANZ StEPS become unstapled. In this case, the note will be assigned from the holder, however, the holder willretain the preference share and the rights to exchange the preference share.
The preference shares forming part of ANZ StEPS rank equally with the preference shares issued in connection with Trust Securities Issues in all respects. Except
in certain limited circumstances, holders of ANZ StEPS do not have any right to vote in general meetings of the Company.
On a winding up of the Company, the rights of ANZ StEPS holders will be determined by the preference share component of ANZ StEPS. Those preference sharesrank behind all depositors and creditors, but ahead of ordinary shareholders.
The transactions costs arising on the issue of these instruments were recognised directly in equity as a reduction of the proceeds of the equity instruments towhich the costs relate.

35

Notes to the Financial Statements
30: Share Capital (continued)
Consolidated
2003
2002
$m
$m

The Company
2003
2002
$m
$m

Preference share net proceeds at start of year
- Trust Securities Issues (USD 748 million)1

1,375

1,526

1,375

1,526

Retranslation of Trust Securities Issues2

1,375
(150)

1,526
(151)

1,375
(150)

1,526
(151)

1,225

1,375

1,225

1,375

987

–

987

–

2,212

1,375

2,212

1,375

Preference share net proceeds at end of year
- Trust Securities Issues (USD 748 million)1- ANZ StEPS1

1,225
987

1,375
–

1,225
987

1,375
–

Balance at end of year

2,212

1,375

2,212

1,375

Preference share net proceeds from new issues during the year
- ANZ StEPS1

1 Net of issue costs
2 From 1 October 2002, the net proceeds are translated at the spot rate applicable at date of issue. Before 1 October 2002, the net proceeds were translated at the current spot rate at each reporting period.
Refer accounting policy note 1

Share Buybacks
The Company conducted no on-market buybacks during the years ended 30 September 2003 and 2002.

31: Outside Equity Interests
Consolidated
2003
2002
$m
$m

Share capital
Retained Profits

2
15

2
15

Total outside equity interests

17

17

36

Notes to the Financial Statements
32: Capital Adequacy

The Australian Prudential Regulation Authority (APRA) adopts a risk-based capital assessment framework for Australian banks based on internationally accepted
capital measurement standards. This risk-based approach requires eligible capital to be divided by total risk weighted assets, with the resultant ratio being used
as a measure of a bank’s capital adequacy.
Capital is divided into tier 1, or ‘core’ capital, and tier 2, or ‘supplementary’ capital. For capital adequacy purposes, eligible tier 2 capital cannot exceed the levelof tier 1 capital. Banks are required to deduct from total capital any strategic holdings of other banks’ capital instruments and investments in entities engaged inlife insurance, funds management and securitisation activities. Under APRA guidelines, banks must maintain a ratio of qualifying capital to risk weighted assets
of at least 8 per cent.
The measurement of risk weighted assets is based on: a) A credit risk-based approach wherein risk weightings are applied to statement of financial position
assets and to credit converted off balance sheet exposures. Categories of risk weights are assigned based upon the nature of the counterparty and the relativeliquidity of the assets concerned and: b) The recognition of risk weighted assets attributable to market risk arising from trading and commodity positions.
Trading and commodity balance sheet positions do not attract a risk weighting under the credit risk-based approach.
Consolidated
2003
2002
$m
$m

Qualifying capital
Tier 1
Total shareholders’ equity and outside equity interests
Asset revaluation reserve
Dividend
Accumulated retained profits and reserves of insurance, funds management and securitisation entities
Unamortised goodwill and other intangibles1
Investment in ANZ Lenders Mortgage Insurance

13,787
(31)
(777)
(168)
(1,044)(27)

11,465
(31)
–
(48)
(158)
(27)

Tier 1 capital

11,740

11,201

Tier 2
Asset revaluation reserve
Perpetual subordinated notes
General provision for doubtful debts2

31
442
1,029

31
1,027
1,007

1,502

2,065

Subordinated notes

4,563

1,872

Tier 2 capital

6,065

3,937

Deductions
Investment in Funds Management and securitisation entities
Investment in joint venture with INGA1
Other

(56)
(708)
(156)

(45)
(1,591)
(67)

(920)

(1,703)

16,885

13,435

8,679

8,073

3

Total qualifying capital
4

Adjusted common equity

Assets1
2
3
4

Risk weighted assets
2003
2002
$m
$m

2003
$m

2002
$m

Statement of financial position
Cash, claims on Australian Commonwealth, State Governments, Territory Governments, claims on OECD
Central Governments, local currency claims on non-OECD Governments and other zero weighted assets
Claims on approved banks and local Governments
Advances secured by residential mortgages
Other assets – credit risk

19,8178,350
76,711
88,042

21,188
10,82765,57582,697–1,670
38,35588,042–2,165
32,78882,697

Total statement of financial position assets – credit risk
Trading assets – market risk

192,9202,671

180,287
2,818

128,067
n/a

117,650n/aTotal statement of financial position assets

195,591

183,105

128,067

117,650

From 1 July 2003 the intangible component of investments is deducted from Tier 1 Capital. Prior to this, the deduction was from total capital
Excluding attributable future income tax benefit
Subordinated note issues are reduced by 20% of the original amount during each of the last five years to maturity
Tier 1 capital, less preference share capital (converted at 30 September 2003 rates), less deductions

37

Notes to the Financial Statements
32: Capital Adequacy (continued)
Contract/
notional amount
2003
2002
$m
$m

Off balance sheet exposures
Direct credit substitutes

2003
$m

Creditequivalent
2002
$m

Risk
weighted assets
2003
2002
$m
$m

9,771

9,853

9,771

9,853

8,115

8,304

Trade and performance related items
Commitments
Foreign exchange, interest rate and other market related transactions

10,78265,396
516,773

12,78160,409470,287

4,864
7,632
11,4695,905
7,296
10,080

4,502
7,422
3,387

5,431
6,506
3,126

Total off balance sheet exposures – credit risk

602,722553,330

33,73633,134

23,42623,367

Total risk weighted assets – credit risk
Risk weighted assets – market risk

151,493671

141,017373

Total risk weighted assets

152,164

141,390

%

%

7.7
4.0
(0.6)

7.9
2.8
(1.2)

11.1

9.5

5.7

5.7

Capital adequacy ratios
Tier 1
Tier 2
Deductions
Total
1

Adjusted common equity

1 Tier 1 capital, less preference share capital (converted at 30 September 2003 rates), less deductions

38

Notes to the Financial Statements
33: Average Balance Sheet and Related Interest
Averages used in the following table are predominantly daily averages. Interest income figures are presented on a tax-equivalent basis. Non-accrual loans areincluded under the interest earning asset category ‘Loans, advances and bills discounted’. Intragroup interest earning assets and interest bearing liabilities aretreated as external assets and liabilities for the geographic segments.
2003

Interest earning assets
Due from other financial institutions
Australia
New ZealandOverseas markets
Investments in public securities
Australia
New ZealandOverseas markets
Loans, advances and bills discounted
Australia
New ZealandOverseas markets
Other assets
Australia
New ZealandOverseas markets
Intragroup assets
Overseas markets
Intragroup elimination

Non-interest earning assets
Acceptances
Australia
Overseas markets
Premises and equipment
Other assets
Provisions for doubtful debts
Australia
New ZealandOverseas markets

Averagebalance$m

2002

Interest$m

Averagerate%

Averagebalance
$m

432
582
2,046

21
23
48

4.9
4.0
2.3

6,390
1,642
1,870

301
73
78

110,260
20,365
12,213

2001

Interest$m

Averagerate%

Averagebalance$mInterest$m

Average
rate
%

653
570
2,404

26
26
69

4.0
4.6
2.9

858
589
2,326

47
34
133

5.5
5.7
5.7

4.7
4.4
4.2

5,384
1,253
1,550

259
55
82

4.8
4.4
5.3

4,517
1,690
1,613

254
103
114

5.6
6.1
7.1

7,263
1,577
503

6.6
7.7
4.1

95,84618,12914,195

6,273
1,363
627

6.5
7.5
4.4

90,02817,25815,087

6,694
1,466
986

7.4
8.5
6.5

1,606
1,353
3,395

105
106
140

6.5
7.8
4.1

1,463
1,349
3,124

17
83
179

1.2
6.2
5.7

1,475
1,109
2,751

98
69
276

6.7
6.3
10.0

9,858

200

2.0

9,525

211

2.2

12,358536

4.3

172,012(9,858)10,438(200)

155,445(9,525)

9,270
(211)

151,659(12,358)

10,810(536)

162,154

10,238145,920

9,059

139,301

10,274

6.3

6.2

13,492
88
1,436
15,781

14,556152
1,349
18,18915,421249
1,264
19,957(1,838)(211)(75)(1,805)(176)(58)(1,742)
(166)
(156)

28,67332,207

34,827

Total assets

190,827

178,127

174,128

Total average assets
Australia
New ZealandOverseas markets

142,491
25,33332,861

130,515
22,60734,530126,530
21,92538,031

Intragroup elimination

200,685(9,858)

187,652(9,525)

186,486(12,358)

190,827

178,127

174,128

25.3%

26.7%

27.3%

% of total average assets
attributable to overseas activities

7.4

39

Notes to the Financial Statements
33: Average Balance Sheet and Related Interest (continued)
2003

Interest bearing liabilities
Time deposits
Australia
New ZealandOverseas markets
Savings deposits
Australia
New ZealandOverseas markets
Other demand deposits
Australia
New ZealandOverseas markets
Due to other financial institutions
Australia
New ZealandOverseas markets
Commercial paper
Australia
Overseas markets
Borrowing corporations’ debt
Australia
New Zealand
Loan capital, bonds and notes
Australia
New ZealandOverseas markets
Other liabilities1
Australia
New ZealandOverseas markets
Intragroup Liabilities
Australia
New Zealand
Intragroup elimination

1 Includes foreign exchange swap costs

2002

2001

Averagebalance$mInterest$m

Averagerate%

Averagebalance$mInterest$m

Averagerate%

Averagebalance$mInterest$m

Averagerate%

25,171
10,666
14,738

1,165
570
336

4.6
5.3
2.3

20,741
8,894
15,113

937
456
417

4.5
5.1
2.8

19,395
8,411
13,156

1,081
519
658

5.6
6.2
5.0

11,959
3,285
405

279
79
3

2.3
2.4
0.7

10,964
3,113
449

245
76
7

2.2
2.4
1.6

9,623
2,832
353

269
89
7

2.8
3.1
2.0

26,718
2,108
642

963
98
9

3.6
4.6
1.4

23,397
1,903
704

792
78
11

3.4
4.1
1.6

20,456
1,621
809

872
82
20

4.3
5.0
2.5

957
631
6,446

49
23
111

5.1
3.6
1.7

942
514
7,399

49
17
180

5.2
3.3
2.4

434
481
10,224

31
20
539

7.2
4.2
5.3

5,216
4,740

252
58

4.8
1.2

3,888
3,641

178
73

4.6
2.0

5,275
5,408

310
274

5.9
5.1

6,626
1,824

353
108

5.3
5.9

6,097
1,472

316
88

5.2
6.0

6,108
1,334

365
88

6.0
6.6

19,783
521
184

1,011
37
4

5.1
7.1
2.2

15,639
441
540

756
30
15

4.8
6.8
2.8

12,397
399
600

733
29
35

5.9
7.2
5.9

2,714
96
33

276
97
23

n/a
n/a
n/a

1,463
117
37

167
98
33

n/a
n/a
n/a

1,938
108
47

171
160
66

n/a
n/a
n/a

7,926
1,932

134
66

1.7
3.4

6,778
2,747

128
83

1.9
3.0

8,763
3,595

395
141

4.5
3.9

155,321(9,858)

6,104
(200)

136,993(9,525)

5,230
(211)

133,767(12,358)

6,954
(536)

145,463

5,904

127,468

5,019

121,409

6,418

4.1

3.9

5.3

40

Notes to the Financial Statements
33: Average Balance Sheet and Related Interest (continued)
2003
Averagebalance$m

2002
Averagebalance$m

2001
Averagebalance
$m

3,656
1,159
683

3,925
873
597

3,713
883
432

13,492
88
14,113

14,556
152
19,634

15,421
249
21,91733,191

39,73742,615

Total liabilities

178,654

167,205

164,024

Total average liabilities
Australia
New ZealandOverseas markets

134,462
24,071
29,979123,341
21,50731,882

120,416
20,98834,978Intragroup elimination

188,512(9,858)

176,730(9,525)

176,382(12,358)

178,654

167,205

164,024

10,929
1,244

9,507
1,415

8,666
1,438

12,173

10,922

10,104

190,827

178,127

174,128

29.2%

30.3%

31.9%

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

Total average shareholders’ equity
Ordinary share capital1
Preference share capital

Total average liabilities and shareholders’ equity% of total average liabilities attributable to overseas activities
1 Includes reserves and retained profits

41

Notes to the Financial Statements
34: Interest Spreads and Net Interest Average Margins
2003
$m

2002
$m

2001
$m

3,210
699
425

3,009
601
432

2,868
544
446

4,334

4,042

3,858

118,688
23,942
29,382(9,858)103,346
21,30130,798(9,525)96,87820,64634,135(12,358)

162,154

145,920

139,301%%%

Gross earnings rate
Australia
New ZealandOverseas markets
Group

6.48
7.43
3.30
6.31

6.36
7.17
3.79
6.21

7.32
8.10
5.99
7.38

Interest spreads and net interest average margins may be analysed as follows
Australia
Gross interest spread
Interest forgone on impaired assets3

2.31(0.02)

2.44(0.04)

2.35(0.03)Net interest spread
Interest attributable to net non-interest bearing items

2.29
0.41

2.40
0.51

2.32
0.64

Net interest average margin – Australia

2.70

2.91

2.96

New ZealandGross interest spread
Interest forgone on impaired assets3

2.30
–

2.34
–

2.13
(0.03)Net interest spread
Interest attributable to net non-interest bearing items

2.30
0.62

2.34
0.48

2.10
0.54

Net interest average margin – New Zealand

2.92

2.82

2.64

Overseas markets
Gross interest spread
Interest forgone on impaired assets3

1.37(0.07)

1.20(0.05)

0.92(0.16)Net interest spread
Interest attributable to net non-interest bearing items

1.30
0.15

1.15
0.25

0.76
0.55

Net interest average margin – Overseas markets

1.45

1.40

1.31

Group
Gross interest spread
Interest forgone on impaired assets3

2.28(0.03)

2.31(0.04)

2.15(0.06)Net interest spread
Interest attributable to net non-interest bearing items

2.25
0.42

2.27
0.50

2.09
0.68

Net interest average margin – Group

2.67

2.77

2.77

Net interest income1
Australia
New ZealandOverseas markets

Average interest earning assets
Australia
New ZealandOverseas markets
Intragroup elimination

2

1 On a tax equivalent basis
2 Average interest rate received on interest earning assets. Overseas markets includes intragroup assets
3 Refer note 14 to the financial report

42

Notes to the Financial Statements
35: Market Risk
Market risk is the risk to earnings arising from changes in interest rates, currency exchange rates, or from fluctuations in bond, commodity or equity prices.

The Board of Directors through the Risk Management Committee, a Committee of the Board, has responsibility for oversight of market risk within the Group.
Routine management of market risk is delegated to two senior management committees chaired by the Chief Financial Officer. The Credit and Trading Risk
Committee is responsible for traded market risk, while the Group Asset and Liability Committee is responsible for non-traded market risk (or balance sheet risk).
The Credit and Trading Risk Committee monitors traded market risk exposures (including Value at Risk and Stress Testing) and is responsible for authorising the
trading risk limit framework. The Group Asset and Liability Committee reviews balance sheet based risk measures and strategies on a monthly basis.
The Value at Risk (VaR) Measure
A key measure of market risk is Value at Risk (VaR). VaR is a statistical estimate of the likely daily loss and is based on historical market movements.
The confidence level is such that there is 97.5% probability that the loss will not exceed the VaR estimate on any given day.
The Group’s standard VaR approach for both traded and non-traded risk is historical simulation. The Group calculates VaR using historical changes in market
rates and prices over the previous 500 business days.
It should be noted that because VaR is driven by actual historical observations, it is therefore not an estimate of the maximum loss that the Group could
experience from an extreme market event. As a result of this limitation, the Group utilises a number of other risk measures (eg. stress testing) and associatedsupplementary limits to measure and manage traded market risk.
Traded and non-traded market risks have been considered separately below.
Traded Market Risks
Trading activities are focused on customer trading, distribution and underwriting of a range of securities and derivative instruments. The principal activities
include foreign exchange, interest rate and debt markets. These activities are managed on a global product basis.
Below are aggregate VaR exposures covering both derivative and non-derivative trading positions for the Group’s principal trading centres.
As at
Sep 03$m

High for
period
Sep 03$m

Low forperiod
Sep 03$m

Ave forperiod
Sep 03$m

As at
Sep 02$m

High for
period
Sep 02$m

Low forperiod
Sep 02$m

Avg forperiod
Sep 02$m

Value at risk at 97.5% confidence
Foreign exchangeInterest rate
Diversification benefit

1.4
1.1
(0.8)

2.0
2.1
(1.5)

0.3
0.5
(0.1)

0.8
1.0
(0.5)

1.1
1.0
(0.6)

2.3
3.4
(1.8)

0.5
0.7
(0.2)

1.1
1.5
(0.5)

Total

1.7

2.6

0.7

1.3

1.5

3.9

1.0

2.1

VaR is calculated separately for Foreign Exchange/Commodities and for Interest Rate/Debt Markets businesses as well as Total Group. The diversification benefit
reflects the correlation implied by historical rates between Foreign Exchange/Commodities and Interest Rate/Debt Markets.
Non-Traded Market Risks (Balance Sheet Risk)
The principal objectives of balance sheet management are to manage interest income sensitivity while maintaining acceptable levels of interest rate and liquidity
risk and to hedge the market value of the Group’s capital.
Interest Rate Risk
The objective of balance sheet interest rate risk management is to secure stable and optimal net interest income over both the short (next 12 months) and longterm. Non-traded interest rate risk relates to the potential adverse impact of changes in market interest rates on the Group’s future net interest income. This riskarises from two principal sources: mismatches between the repricing dates of interest bearing assets and liabilities; and the investment of capital and other noninterest bearing liabilities in interest bearing assets. Interest rate risk is reported as follows using three measures: VaR, scenario analysis (to a 1% shock) anddisclosure of the interest rate sensitivity gap (Note 36).

43

Notes to the Financial Statements
35: Market Risk (continued)a) VaR Interest Rate Risk
Below are aggregate VaR figures covering non-traded interest rate risk.
As at
Sep 03$m

High for
period
Sep 03$m

Low forperiod
Sep 03$m

Ave forperiod
Sep 03$m

As at
Sep 02$m

High for
period
Sep 02$m

Value at risk at 97.5% confidence
ANZ
Diversification impact

24.4
–

59.3
–

22.2
–

40.8
–

56.9
–

56.9
–

Total

24.4

59.3

22.2

40.8

56.9

56.9

b) Scenario Analysis – A 1% Shock on the Next 12 Months’ Net Interest Income
A 1% overnight parallel positive shift in the yield curve is modelled to determine the potential impact on net interest income over the immediate forward periodof 12 months. This is a standard risk quantification tool.
The figures in the table below indicate the outcome of this risk measure for the current and previous financial years – expressed as a percentage of reported net
interest income. The sign indicates the nature of the rate sensitivity with a positive number signifying that a rate increase is positive for net interest income overthe next 12 months. Conversely, a negative number signifies that a rate increase is negative for the next 12 months’ net interest income.
Consolidated
2003
2002

Impact of 1% Rate ShockAs at 30 September
Maximum exposure (in absolute terms)
Minimum exposure (in absolute terms)
Average exposure (in absolute terms)

1.67%
1.67%
0.03%
0.74%

0.43%
0.63%
0.04%
0.25%

The extent of mismatching between the repricing characteristics and timing of interest bearing assets and liabilities at any point has implications for future netinterest income. On a global basis, the Group quantifies the potential variation in future net interest income as a result of these repricing mismatches eachmonth using a static gap model.
The repricing gaps themselves are constructed based on contractual repricing information. However, for those assets and liabilities where the contractual term
to repricing is not considered to be reflective of the actual interest rate sensitivity (for example, products priced at the Group’s discretion), a profile based on
historically observed and/or anticipated rate sensitivity is used. This treatment excludes the effect of basis risk between customer pricing and wholesale market
pricing. For example, when wholesale market rates are anticipating an official rate increase the Group does not reprice certain customer business until the first
repricing date after the official rate rise.
The majority of the Group’s non-traded interest exposure exists in Australia and New Zealand. In these centres, a sophisticated balance sheet simulation
process supplements this static gap information. This allows the net interest income outcomes of a number of different scenarios – with different market interest
rate environments and future balance sheet structures – to be identified. This better enables the Group to accurately quantify the interest rate risks associatedwith the balance sheet, and to formulate strategies to manage current and future risk profiles.
Foreign Currency Related Risks
The Group’s investment of capital in non-Australian operations generates an exposure to changes in the relative value of individual currencies against theAustralian Dollar. Variations in the value of these foreign currency investments are reflected in the Foreign Currency Translation Reserve.
Revenue related hedge contracts outstanding at 30 September 2003 were USD 93 million, GBP 6 million and NZD 1,287 million.
The Group incurs some non-traded foreign currency risk related to the potential repatriation of profits from non-Australian business units. This risk is routinely
monitored and hedging is conducted where it is likely to add shareholder value.
The risk relating to mismatching of non-traded foreign currency assets and liabilities has not been presented, as this type of risk is minimal for the Group.

44

Notes to the Financial Statements
36: Interest Sensitivity Gap
The following table represents the interest rate sensitivity as at 30 September 2003 of the Group’s assets, liabilities and off balance sheet instruments repricing(that is, when interest rates applicable to each asset or liability can be changed) in the periods shown.
Repricing gaps are based upon contractual repricing information except where the contractual terms are not considered to be reflective of actual interest ratesensitivity, for example, those assets and liabilities priced at the Group’s discretion. In such cases, the rate sensitivity is based upon historically observed
and/or anticipated rate sensitivity.
Sensitivity to interest rates arises from mismatches in the period to repricing of assets and that of the corresponding liability funding. These mismatches
are managed within policy guidelines for mismatch positions.

At 30 September 2003

Less than
3 months$m

Between
3 months and6 months$m

Between
6 months and
12 months$m

Between
1 year and5 years$m

After
5 years$m

Notbearing
interest
$m

Total
$m

Liquid assets and due from other financial institutions
Trading and investment securities
Net loans and advances
Other assets

6,857
4,452
117,209
640

388
890
6,796
61

103
1,231
7,201
92

47
2,059
18,804
828

36
291
466
58

1,588
57
(1,011)
26,4489,019
8,980
149,465
28,127

Total assets

129,158

8,135

8,627

21,738851

27,082

195,591

Certificates of deposit and term deposits
Other deposits
Other borrowings and due to other financial institutions
Other liabilities
Bonds, notes and loan capital

39,94543,002
20,408480
10,384

4,313
471
2,591
19
1,273

2,634
956
2,352
65
241

2,158
2,971
2,024
441
8,466

44
–
35
117
1,838

–
5,831
1,226
27,519–49,09453,231
28,63628,641
22,202

Total liabilities

114,219

8,667

6,248

16,0602,034

34,576

181,804

Shareholders’ equity and outside equity interests
Off balance sheet items affecting interest rate sensitivity–(4,818)–(111)–(1,214)

–
5,227

–
916

13,787–

13,787–

Interest sensitivity gap– net– cumulative

10,121
10,121

(643)
9,478

1,165
10,643

10,905
21,548(267)
21,281(21,281)–––

The bulk of the Group’s loan/deposit business is conducted in the domestic balance sheets of Australia and New Zealand and is priced on a floating rate basis.
The mix of repricing maturities in these books is influenced by the underlying financial needs of customers.
Offshore operations, which are generally wholesale in nature, are able to minimise interest rate sensitivity through closely matching the maturity of loans anddeposits. Given both the size and nature of their business, the interest rate sensitivities of these balance sheets contribute little to the aggregate risk exposure,which is primarily a reflection of the positions in Australia and New Zealand.
In Australia and New Zealand, a combination of pricing initiatives and off-balance sheet instruments are used in the management of interest rate risk. For
example, where a strong medium to long term rate view is held, hedging and pricing strategies are used to modify the profile’s rate sensitivity so that it ispositioned to take advantage of the expected movement in interest rates. However, such positions are taken within the overall risk limits specified by policy.
The following table represents the interest rate sensitivity as at 30 September 2002 of the Group’s assets, liabilities and off balance sheet instruments repricing(that is, when interest rates applicable to each asset or liability can be changed) in the periods shown.

At 30 September 2002

Less than
3 months$m

Between
3 months and6 months$m

Between
6 months and
12 months$m

Between
1 year and5 years$m

After
5 years$m

Notbearing
interest
$m

Total
$m

Liquid assets and due from other financial institutions
Trading and investment securities
Net loans and advances
Other assets

8,071
6,339
99,459
86

893
717
6,918
56

11
646
7,130
73

44
1,247
19,028
245

32
365
545
104

2,174
168
(1,020)29,774

11,225
9,482
132,060
30,338

Total assets

113,955

8,584

7,860

20,564

1,046

31,096

183,105

Certificates of deposit and term deposits
Other deposits
Other borrowings and due to other financial institutions
Other liabilities
Bonds, notes and loan capital

38,231
38,073
16,494
124
8,646

5,183
820
2,694
2
1,087

3,638
984
2,589
–
486

1,869
4,283
2,014
1
7,458

11
–
25
22
476

–
5,312
1,937
29,181–

48,93249,47225,75329,33018,153

Total liabilities

101,568

9,786

7,697

15,625534

36,430171,640

Shareholders’ equity and outside equity interests
Off balance sheet items affecting interest rate sensitivity(7,873)(1,859)(2,189)12,289(368)

11,465–

11,465–Interest sensitivity gap– net– cumulative

4,514
4,514

(3,061)
1,453(2,026)(573)

17,22816,655

144
16,799(16,799)
–

–
–

45

Notes to the Financial Statements
37: Net Fair Value of Financial Instruments
Australian Accounting Standard AASB 1033: Presentation and Disclosure of Financial Instruments (AASB 1033) requires disclosure of the net fair value of onand off balance sheet financial instruments. The disclosures exclude all non-financial instruments, such as income taxes and regulatory deposits, and specified
financial instruments, such as interests in controlled entities. The aggregate net fair value amounts do not represent the underlying value of the Group.
Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction.
Net fair value is the fair value adjusted for transaction costs.
Quoted market prices, where available, are adjusted for material transaction costs and used as the measure of net fair value. In cases where quoted market
values are not available, net fair values are based on present value estimates or other valuation techniques. For the majority of short-term financial instruments,
defined as those which reprice or mature in 90 days or less, with no significant change in credit risk, the net fair value was assumed to equate to the carrying
amount in the Group’s statement of financial position.
The fair values are based on relevant information available as at 30 September 2003. While judgement is used in obtaining the net fair value of financial
instruments, there are inherent weaknesses in any estimation technique. Many of the estimates involve uncertainties and matters of significant judgement, andchanges in underlying assumptions could significantly affect these estimates. Furthermore, market prices or rates of discount are not available for many of thefinancial instruments valued and surrogates have been used which may not reflect the price that would apply in an actual sale.
The net fair value amounts have not been updated for the purposes of these financial statements since 30 September 2003, and therefore the net fair value ofthe financial instruments subsequent to 30 September 2003 may be different from the amounts reported.
Financial Assets

Liquid assets
Due from other financial institutions
Trading securities
Investment securities, shares in associates and joint venture entities
Loans and advances
Customers’ liabilities for acceptances
Other financial assets

Net fair value
2003
2002
$m
$m

6,592
2,427
4,213
6,706
151,058
13,178
10,618

7,410
3,815
5,873
5,389
133,793
13,796
12,114

Carrying value
2003
2002
$m
$m

6,592
2,427
4,213
6,581
149,465
13,178
9,824

7,410
3,815
5,873
5,301
132,060
13,796
11,413Liquid assets and Due from other financial institutions
The carrying values of these financial instruments are considered to approximate their net fair values as they are short-term in nature or are receivable
on demand.
Trading securities
Trading securities are carried at market value. Market value is generally based on quoted market prices, broker or dealer price quotations, or prices for securities
with similar credit risk, maturity and yield characteristics.
Investment securities
Net fair value is based on quoted market prices or broker or dealer price quotations. If this information is not available, net fair value has been estimated using
quoted market prices for securities with similar credit, maturity and yield characteristics.
Shares in associates and Joint venture entities
Net fair value is based on quoted market prices or broker or dealer price quotations. If this information is not available net fair value has been estimated using
quoted market prices for securities with similar credit, maturity and yield characteristics, or by reference to the net tangible asset backing of the investee.
Loans, advances and Customers’ liabilities for acceptances
The carrying value of loans, advances and acceptances is net of specific and general provisions for doubtful debts and income yet to mature. The estimated net
fair value of loans, advances and acceptances is based on the discounted amount of estimated future cash flows and accordingly has not been adjusted for
either specific or general provisions for doubtful debts.
Estimated contractual cash flows for performing loans are discounted at estimated current bank credit spreads to determine fair value. For loans with doubt as
to collection, expected cash flows (inclusive of the value of security) are discounted using a rate which includes a premium for the uncertainty of the flows.
The difference between estimated net fair values of loans, advances and acceptances and carrying value reflects changes in interest rates and the credit
worthiness of borrowers since loan origination.
Net lease receivables, with a carrying value of $2,996 million (2002 $3,151 million) and a net fair value of $3,003 million (2002: $3,155 million), are included
in loans and advances.

46

Notes to the Financial Statements
37: Net Fair Value of Financial Instruments (continued)

Other financial assets
Included in this category are accrued interest, fees receivable and derivative financial instruments. The carrying values of accrued interest and fees receivable areconsidered to approximate their net fair values as they are short term in nature or are receivable on demand.
The fair values of derivative financial instruments such as interest rate swaps and currency swaps were calculated using discounted cash flow models based on
current market yields for similar types of instruments and the maturity of each instrument. Foreign exchange contracts and interest rate option contracts werevalued using market prices and option valuation models as appropriate.
Properties held for resale, deferred tax assets and prepaid expenses are not considered financial assets.
Net fair value
2003
2002
$m
$m

Financial Liabilities

Due to other financial institutions
Deposits and other borrowings
Liability for acceptances
Bonds and notes
Loan capital
Other financial liabilities

6,467
124,519
13,178
16,837
5,640
13,285

10,860113,342
13,79614,9993,505
12,375Carrying value
2003
2002
$m
$m

6,467
124,494
13,178
16,572
5,630
13,062

10,860113,259
13,796
14,708
3,445
12,156

Due to other financial institutions
The carrying value of amounts due to other financial institutions is considered to approximate the net fair value.
Deposits and other borrowings
The net fair value of a deposit liability without a specified maturity or at call is deemed by AASB 1033 to be the amount payable on demand at the reporting date.
The fair value is not adjusted for any value expected to be derived from retaining the deposit for a future period of time.
For interest bearing fixed maturity deposits and other borrowings and acceptances without quoted market prices, market borrowing rates of interest for debt witha similar maturity are used to discount contractual cash flows.
Bonds and notes and Loan capital
The aggregate net fair value of bonds and notes and loan capital at 30 September 2003 was calculated based on quoted market prices. For those debt issues
where quoted market prices were not available, a discounted cash flow model using a yield curve appropriate for the remaining term to maturity of the
instrument was used.
Other financial liabilities
This category includes accrued interest and fees payable for which the carrying amount is considered to approximate the fair value. Also included are derivative
financial instruments, where fair value is determined on the basis described under ‘Other financial assets’.
Income tax liabilities, other provisions and accrued charges are not considered financial instruments.
Commitments and contingencies
As outlined in note 48, the Group has various credit related commitments. Based upon the level of fees currently charged for granting such commitments, taking
into account maturity and interest rates, together with any changes in the creditworthiness of counterparties since origination of the commitments, theirestimated replacement or net fair value is not material.
Transaction costs
The fair value of financial instruments required to be disclosed under US accounting standard, Statement of Financial Accounting Standards No. 107 ‘Disclosuresabout Fair Value of Financial Instruments’ (SFAS 107) is calculated without regard to estimated transaction costs. Such transaction costs are not material,
and accordingly the fair values shown above would not differ materially from fair values calculated in accordance with SFAS 107.

47

Notes to the Financial Statements
38: Derivative Financial Instruments
Derivatives
Derivative instruments are contracts whose value is derived from one or more underlying financial instruments or indices. They include swaps, forward rateagreements, futures, options and combinations of these instruments. The use of derivatives and their sale to customers as risk management products is an
integral part of the Group’s trading activities. Derivatives are also used to manage the Group’s own exposure to fluctuations in exchange and interest rates aspart of its asset and liability management activities and are classified as other than trading. Derivatives are subject to the same types of credit and market risk
as other financial instruments, and the Group manages these risks in a consistent manner.
The principal exchange rate contracts used by the Group are forward foreign exchange contracts, currency swaps and currency options. Forward foreignexchange contracts are agreements to buy or sell a specified quantity of foreign currency on a specified future date at an agreed rate. A currency swap generally
involves the exchange, or notional exchange, of equivalent amounts of two currencies and a commitment to exchange interest periodically until the principal
amounts are re-exchanged on a future date. Currency options provide the buyer with the right, but not the obligation, either to purchase or sell a fixed amount ofa currency at a specified rate on or before a future date. As compensation for assuming the option risk, the option writer generally receives a premium at thestart of the option period.
The principal interest rate contracts used by the Group are forward rate agreements, interest rate futures, interest rate swaps and options. Forward rateagreements are contracts for the payment of the difference between a specified interest rate and a reference rate on a notional deposit at a future settlement
date. There is no exchange of principal. An interest rate future is an exchange traded contract for the delivery of a standardised amount of a fixed income
security or time deposit at a future date. Interest rate swap transactions generally involve the exchange of fixed and floating interest payment obligations without
the exchange of the underlying principal amounts.
Derivative transactions generate income for the Group from buy/sell spreads and from trading positions taken by the Group. Income from these transactions istaken to net interest income, foreign exchange earnings or profit on trading instruments. Income or expense on derivatives entered into for balance sheet andrevenue hedging purposes is accrued and recorded as an adjustment to the interest income or expense of the related hedged item.
Credit risk
The credit risk of derivative financial instruments arises from the potential for a counterparty to default on its contractual obligation. Credit risk arises whenmarket movements are such that the derivative has a positive value to the Group. It is the cost of replacing the contract in the event of counterparty default.
The Group limits its credit risk within a conservative framework by dealing with creditworthy counterparties, setting credit limits on exposures to counterparties,
and obtaining collateral where appropriate.
The following table provides an overview of the Group’s exchange rate, credit, commodity and interest rate derivatives. It includes all trading and other than
trading contracts. Notional principal amounts measure the amount of the underlying physical or financial commodity and represent the volume of outstandingtransactions. They are not a measure of the risk associated with a derivative.
The credit equivalent amount is calculated in accordance with the Australian Prudential Regulation Authority’s Capital Adequacy guidelines. It combines
the aggregate gross replacement cost with an allowance for the potential increase in value over the remaining term of the transaction should market
conditions change.
The fair value of a derivative represents the aggregate net present value of the cash inflows and outflows required to extinguish the rights and obligations
arising from the derivative in an orderly market as at the reporting date. Fair value does not indicate future gains or losses, but rather the unrealised gains andlosses from marking to market all derivatives at a particular point in time.

Consolidated

Foreign exchange contracts
Spot and forward contracts
Swap agreements
Futures contracts1
Options purchased
Options sold2
Other contracts

Interest rate contracts
Forward rate agreements
Swap agreements
Futures contracts1
Options purchased
Options sold2

Credit contracts
Credit default swaps3

Notional
principal
amount2003$mCreditequivalentamount2003$m

Fair value
2003$m

Notional
principal
amount2002$mCreditequivalentamount2002$m

Fair value
2002$m

144,687
42,528353
10,971
15,889
3,818

3,717
3,124
n/a
433
n/a
408

(683)
(121)
–
395
(451)
112

140,867
23,834337
8,779
11,741
3,046

3,390
1,807
n/a
435
n/a
623

815
(13)
–
272
(216)
456

218,246

7,682

(748)

188,604

6,255

1,314

47,617
236,083
13,458
11,961
13,987

10
3,232
n/a
117
n/a

11
487
3
61
(23)

35,890212,765
26,934
16,118
9,244

18
3,491
n/a
127
n/a

5
634
(4)
88
(65)

323,106

3,359

539

300,951

3,636

658

8,520

2,836

73

5,722

3,277

(13)

549,872

13,877(136)

495,277

13,168

1,959

1 Credit equivalent amounts have not been included as there is minimal credit risk associated with exchange traded futures where the clearing house is the counterparty
2 Options sold have no credit exposure, as they represent obligations rather than assets
3 Credit default swaps include structured financing transactions that expose the Group to the performance of certain assets. The total investment of the Group in these transactions is USD 750 million (2002: USD
750 million)

48

Notes to the Financial Statements
38: Derivative Financial Instruments (continued)
The maturity structure of derivative activity is a primary component of potential credit exposure. The table below shows the remaining maturity profile by classof derivatives, based on notional principal amounts. The table also shows the notional principal amounts of the derivatives held for trading and other than
trading purposes.
Remaining life
Greater than
1 to 5 years
5 years$m$m

Consolidated
At 30 September 2003

Less than
1 year
$m

Total
$m

Trading$m

Other than
Trading$m

Foreign exchange contracts
Spot and forward contracts
Swap agreements
Future contracts
Options purchased
Options sold
Other contracts

138,559
9,632
348
10,002
14,4751,379

5,677
24,616
5
792
1,228
2,258

451
8,280
–
177
186
181

144,687
42,528353
10,971
15,8893,818

130,825
17,763353
10,971
15,8893,808

13,862
24,765–––
10

174,395

34,576

9,275

218,246

179,609

38,63747,09094,922
13,114
5,407
13,987527
106,612
344
5,790
–

–
34,549–764–

47,617
236,083
13,458
11,961
13,98742,764
186,760
13,458
11,961
13,987

4,853
49,323–––

174,520

113,273

35,313

323,106

268,930

54,176

2,157

6,287

76

8,520

5,298

3,222

Total

351,072

154,136

44,664

549,872

453,837

96,035

Consolidated
At 30 September 2002

Less than
1 year$m

1 to 5 years$mRemaining life
Greater than
5 years
$m

Total
$m

Trading$m

Other than
Trading$m

Foreign exchange contracts
Spot and forward contracts
Swap agreements
Future contracts
Options purchased
Options sold
Other contracts

132,923
5,315
325
7,019
9,658
955

7,480
13,448
12
1,498
1,918
1,789

464
5,071
–
262
165
302

140,867
23,834337
8,779
11,741
3,046

130,940
6,534
337
8,779
11,741
2,959

9,927
17,300–––87

156,195

26,145

6,264

188,604

161,290

27,31435,60895,83018,087
9,012
8,959

282
86,697
8,847
6,554
280

–
30,238–552
535,890212,765
26,934
16,118
9,244

32,681
173,199
26,705
16,1189,244

3,209
39,566229––

167,496

102,660

30,795300,951

257,947

43,004

1,520

4,156

46

5,722

1,718

4,004

325,211

132,961

37,105495,277

420,955

74,322

Interest rate contracts
Forward rate agreements
Swap agreements
Futures contracts
Options purchased
Options sold

Credit contracts
Credit default swaps

Interest rate contracts
Forward rate agreements
Swap agreements
Futures contracts
Options purchased
Options sold

Credit contracts
Credit default swaps
Total

49

Notes to the Financial Statements
38: Derivative Financial Instruments (continued)
Concentrations of credit risk exist for groups of counterparties when they have similar economic characteristics. Major concentrations of credit risk arise
by location and type of customer.
The following table shows the concentrations of credit risk, by class of counterparty and by geographic location, measured by credit equivalent amount.
In excess of 50% (2002: 40%) of the Group’s exposures are with counterparties which are either Australian banks or banks based in other OECD countries.
Corporations,
non-OECD
banks andothers
$m

Total
$m

5,531
506
113

12,317
1,058
502

Consolidated
At 30 September 2003

OECD
governments$mAustralian
andOECD banks$mAustralia
New ZealandOverseas markets

227
21
3

6,559
531
386

251

7,476

6,150

13,877Total$mConsolidated
At 30 September 2002OECD
governments$mAustralian
andOECD banks$mCorporations,
non-OECD
banks andothers$mAustralia
New ZealandOverseas markets

402
17
1

3,113
378
2,206

6,351
333
367

9,866
728
2,574

420

5,697

7,051

13,168The next table shows the fair values of the Group’s derivatives by product type, disaggregated into gross unrealised gains and gross unrealised losses.
The fair value of a derivative represents the aggregate net present value of the cash inflows and outflows required to extinguish the rights and obligations
arising from the derivative in an orderly market as at the reporting date. Fair value does not indicate future gains or losses, but rather the unrealised gains andlosses from marking to market all derivatives at a particular point in time.

Consolidated

Foreign exchange contracts
Spot and forward contracts
Gross unrealised gains
Gross unrealised losses
Swap agreements
Gross unrealised gains
Gross unrealised losses
Options purchased
Options sold
Other contracts
Gross unrealised gains
Gross unrealised losses

Interest rate contracts
Forward rate agreements
Gross unrealised gains
Gross unrealised losses
Swap agreements
Gross unrealised gains
Gross unrealised losses
Futures contracts
Gross unrealised gains
Gross unrealised losses
Options purchased
Options sold

Credit contracts
Credit default swaps
Gross unrealised gains
Gross unrealised losses

Total

Other than Trading
Fair value
Fair value
as at
as at
2003
2002
$m
$m

Fair value
as at
2003
$m

Trading
Fair value
as at
2002
$m

Fair value
Average2003$m

Trading
Fair value
Average
2002
$m

628
(2,509)

1,452
(349)

1,923
(725)

553
(841)

1,284
(794)

2,187
(1,689)

397
(283)
–
–

333
(96)
–
–

776
(1,011)
395
(451)

436
(686)
272
(216)

554
(672)
270
(326)

354
(728)
348
(412)

–
–

–
–

245
(133)

501
(45)

315
(136)

459
(45)

(1,767)

1,340

1,019

(26)

495

474

–
–

–
–

13
(2)

16
(11)

7
(1)

19
(11)

402
(228)

605
(267)

1,843
(1,530)2,013(1,717)

1,885(1,561)

2,181(1,911)

–
–
–
–

–
–
–
–

51
(48)
61
(23)

36
(40)
88
(65)

41
(37)
79
(58)

51
(56)
81
(71)

174

338

365

320

355

283

74
–

–
(15)

34
(35)

75
(73)

44
(69)

42
(33)

74

(15)

(1)

2

(25)

9

(1,519)

1,663

1,383

296

825

766

The fair values of derivatives vary over time depending on movements in interest and exchange rates and the trading or hedging strategies used50

Notes to the Financial Statements
38: Derivative Financial Instruments (continued)
In addition to customer and trading activities, the Group uses, inter alia, derivatives to manage the risk associated with its balance sheet and future revenue
streams. The principal objectives of asset and liability management are to hedge the market value of the Group’s capital and to manage and control thesensitivity of the Group’s income while maintaining acceptable levels of interest rate and liquidity risk. The Group also uses a variety of foreign exchange
derivatives to hedge against adverse movements in the value of foreign currency denominated assets and liabilities and future revenue streams.
During the year NZD 1.6 billion hedge of NZD revenue were put in place to lock in historically high NZD exchange rates. Hedge contracts outstanding at
30 September 2003 totalled NZD 1.3 billion.

The table below shows the notional principal amount, credit equivalent amount and fair value of derivatives held by the Group, split between those entered into
for customer-related and trading purposes, and those entered into for balance sheet hedging and revenue related hedging.

Consolidated

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

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

Credit contracts
Customer –related and trading purposes
Balance sheet hedging purposes

Total

Notional
principal
amount2003$mCreditequivalentamount
2003
$m

Fair
value
2003
$m

Notional
principal
amount2002$mCreditequivalentamount
2002
$m

Fair
value
2002
$m

179,60937,360
1,277

5,795
1,874
13

1,019
(1,857)90

161,290
26,926
388

3,689
2,562
4

(26)
1,361
(21)

218,246

7,682

(748)

188,604

6,255

1,314

268,930
54,176

2,931
428

365
174

257,947
43,004

2,992
644

320
338

323,106

3,359

539

300,951

3,636

658

5,298
3,222

427
2,409

(1)
74

1,718
4,004

189
3,088

2
(15)

8,520

2,836

73

5,722

3,277

(13)

549,872

13,877(136)

495,277

13,168

1,959

Detailed below are the net deferred realised and unrealised gains and losses arising from other than trading contracts used to hedge interest rate exposure or
to hedge anticipated transactions. These gains and losses are deferred only to the extent that there is an offsetting unrecognised gain or loss on the exposure
being hedged. Deferred gains or losses are generally amortised over the expected term of the hedged exposure.

Consolidated

Expected recognition in income
Within one year
One to two years
Two to five years
Greater than five years

Foreign Exchange
Contracts
2002$mInterest Rate and Credit
Contracts
2003
2002
$m
$m

2003
$m

2002
$m

47
26
14
–

(10)
(7)
(3)
–

214
86
117
(5)

165
130
105
102

261
112
131
(5)

155
123
102
102

87

(20)

412

502

499

482

2003
$m

Total

51

Notes to the Financial Statements
39: Securitisation
During the year ended 30 September 2003, the Group did not securitise any residential mortgage loans (2002: $nil) or commercial loans (2002: $66 million).
Loans previously securitised have been removed from the Group’s balance sheet and transferred to third party special purpose entities (SPEs).
The Group retains servicing and (for some loans) custodian responsibilities for the loans sold. Following a securitisation, the Group receives fees for servicing
the loans, custodian fees, fees for facilities provided and any excess income derived by the SPE after interest has been paid to investors and net credit losses
and expenses absorbed.
The Group does not hold any material retained interest in the loans that have been sold. There is no recourse against the Group if cash flows from thesecuritised loans are inadequate to service the obligations of the SPE except to the limited extent provided in the transaction documents through the provisionof arms’ length services and facilities.
The securities issued by the SPEs do not represent deposits or other liabilities of the Company or the Group. Neither the Company nor the Group in any way
stands behind the capital value and/or performance of the securities or the assets of the SPEs except to the limited extent provided in the transaction
documents through the provision of arms’ length services and facilities.
The Group may also provide liquidity facilities and other forms of credit enhancement to ensure adequate funds are available to the SPEs. The facilities are
undrawn. The Group also provides hedging facilities to the SPEs to mitigate interest rate and currency risks. All these transactions are completed on an arms’length basis.
The following table summarises the cash flows between the Group and the SPEs in respect of securitisation activities.
2003
$m

2002
$m

–
4
13

66
6
17

2003
$m

Consolidated
20021
$m

2001
$m

Reconciliation of Life Insurance margin on services operating income to profit after income tax:
Premium and related revenue
Investment revenue
Claims expense
Insurance policy liabilities expense

–
–
–
–

701
238
(636)
(204)

1,600
20
(1,330)(100)

Life insurance margin on services operating income
Operating expenses

–
–

99
(54)

190
(105)

Profit before income tax
Income tax expense

–
–

45
(20)

85
(47)

Profit after income tax

–

25

38

Profit after income tax arose from:Movements in policy liabilities separated between:
Planned margin of revenues over expenses released
Difference between actual and assumed experience
Investment earnings on assets in excess of policy liabilities

–
–
–

18
(1)
8

36
(11)
13

Profit after income tax

–

25

38

Proceeds from securitising loans
Servicing fees received
Other cash inflows
40: Life Insurance

1 ANZ Life Assurance Company Limited was sold into a joint venture with ING Australia in April 2002. Accordingly the results shown only include profits to 30 April 2002

52

Notes to the Financial Statements
41: Segment Analysis

For management purposes the Group is organised into nine major business segments including Personal Banking Australia, ING Australia, Institutional Financial
Services, Corporate, New Zealand Banking, Mortgages, Consumer Finance, Esanda and UDC and Asia Pacific.
A description of each segment is shown below:
Personal Banking Australia

Provides a full range of banking and distribution services for consumers in Australia.

ING Australia

A joint venture between ANZ and ING Group, provides wealth creation, management and protection products and services
for consumers

Institutional Financial Services Comprises institutional banking, transaction services, foreign exchange, capital markets, structured finance international,
corporate financing and advisory
Corporate

Comprises corporate banking and small to medium enterprise banking in Australia

New Zealand Banking

Provides a full range of banking services including wealth management, for personal, small business and corporate customers
in New ZealandMortgages

Provides mortgage finance secured by residential real estate in Australia and New ZealandConsumer Finance

Provides consumer and commercial credit cards, ePayment products, personal loans and merchant payment facilities

Esanda and UDC

Provides motor vehicle and equipment finance; equipment operating leases and management services; fleet management
services; and investment products

Asia Pacific

Provides retail banking services in the Pacific Region and Asia, including ANZ’s share of PT Panin Bank in Indonesia

As the composition of segments has changed over time, September 2002 comparatives have been adjusted to be consistent with the 2003 segment definitions.
Comparatives for the year ended 30 September 2001 have not been provided because data could not reasonably be disaggregated into the changed segments.

Business Segment Analysis1, 2

Consolidated
30 September 2003

Personal
Banking
Australia$m

ING
Australia$mInstitutional
Financial
Services$m

Corporate$m

New
Zealand
Banking$m

Mortgages$mConsumer
Finance$m

Esandaand UDC$m

Asia
Pacific$m

Other3$m

Consolidated
Total
$m

External interest income
External interest expense
Net intersegment interest

359
(861)
1,353

–
(16)
–

2,146
(2,074)
629

723
(396)
160

299
(475)
487

4,397
(197)
(3,425)

695
–
(246)

1,005
(512)
(143)

137
(129)
112

454
(1,244)
1,073

10,215(5,904)
–

851
378
389

(16)
(9)
–

701
1,193
(25)

487
209
(43)

311
181
46

775
90
(267)

449
358
(93)

350
86
(7)

120
134
–

283
82
–

4,311
2,702
–

Operating income

1,618

(25)

1,869

653

538

598

714

429

254

365

7,013

Other external expenses
Net intersegment expenses

(835)
(213)

2
(2)

(547)
(121)

(178)
(41)

(222)
(92)

(140)
(39)

(260)
(87)

(157)
(25)

(97)
(34)

(794)
654

(3,228)–(1,048)

–

(668)

(219)

(314)

(179)

(347)

(182)

(131)

(140)

(3,228)

Share of net profit/loss of equity
accounted investments
Charge for doubtful debts
Income tax expense
Outside equity interests

–
(27)
(159)
–

55
–
8
–

3
(165)
(266)
(1)

–
(48)
(116)
–

–
(13)
(70)
–

–
(31)
(118)
–

(1)
(152)
(69)
(1)

–
(63)
(57)
–

55
(10)
(36)
(1)

(6)
(105)
(43)
–

106
(614)
(926)
(3)

Profit after income tax

384

38

772

270

141

270

144

127

131

71

2,348

56
–

–
–

16
1

2
–

9
–

6
7

27
5

16
2

9
3

106
–

247
18

6,696
12
33,078

1,736
1,648
403

56,52932
47,43916,085–
17,9504,225–
11,83377,586
–
4,219

6,135
–
343

13,4601
10,795

1,949
117
4,850

11,1904
50,894

195,591
1,814
181,804

Net interest income
Other external operating income
Net intersegment income

Operating expenses

Non-Cash Expenses
Depreciation
Amortisation of goodwill
Financial Position
Total external assets
Associate investments
Total external liabilities

1 Results are equity standardised
2 Intersegment transfers are accounted for and determined on an arm’s length or cost recovery basis
3 Includes Treasury, Operations, Technology & Shared Services, Corporate Centre, Risk & Finance53

Notes to the Financial Statements
41: Segment Analysis (continued)
The following analysis details financial information by business segment.
Business Segment Analysis1, 2Personal
Banking
Australia$m

ING
Australia$mInstitutional
Financial
Services$m

Corporate$m

New
Zealand
Banking$m

Mortgages$mConsumer
Finance$m

Esandaand UDC$m

External interest income
External interest expense
Net intersegment interest

360
(559)
989

(16)
(14)
25

2,029
(1,968)
653

630
(318)
136

250
(397)
424

3,671
(159)
(2,827)

598
–
(206)

967
(472)
(157)

136
412
(124) (1,008)
110
853

9,037
(5,019)–Net interest income
Other external operating income
Net intersegment income

790
368
399

(5)
156
(40)

714
1,116
(28)

448
197
(41)

277
167
46

685
89
(233)

392
399
(92)

338
69
(8)

122
115
–

257
263
(3)

4,018
2,939
–

Operating income

1,557

111

1,802

604

490

541

699

399

237

517

6,957

Other external expenses
Net intersegment expenses

(812)
(207)

(62)
19

(568)
(114)

(170)
(42)

(191)
(90)

(120)
(40)

(234)
(76)

(151)
(29)

(95)
(29)

(502)
608

(2,905)–(1,019)

(43)

(682)

(212)

(281)

(160)

(310)

(180)

(124)

106

(2,905)

Share of net profit/loss of equity
accounted investments
Charge for doubtful debts
Income tax expense
Outside equity interests

–
(24)
(154)
–

2
–
(27)
–

2
(173)
(231)
(3)

–
(46)
(104)
–

–
(13)
(65)
–

–
(28)
(106)
–

(5)
(161)
(73)
–

–
(69)
(47)
–

30
(10)
(35)
–

2
(336)
(56)
–

31
(860)
(898)
(3)

Profit after income tax

360

43

715

242

131

247

150

103

98

233

2,322

41
–

17
–

1
1

11
–

6
–

20
7

11
7

2
2

7
3

90
–

206
20

5,832
–
30,076

1,638
1,593
398

59,15524
50,464

13,538–15,699

3,797–
11,10864,826
–
3,551

5,551
4
249

12,4101
9,704

Consolidated
30 September 2002

Operating expenses

Non-Cash Expenses
Depreciation
Amortisation of goodwill
Financial Position
Total external assets
Associate investments
Total external liabilities
1
2
3
4

Asia
Pacific$m

Consolidated
Other3, 4
Total
$m
$m

1,932 14,426 183,105
67
3
1,692
5,148 45,243 171,640

Results are equity standardisedIntersegment transfers are accounted for and determined on an arm’s length or cost recovery basis
Includes Treasury, Operations, Technology & Shared Services; Corporate Centre, Risk & FinanceIncludes net profit from disposal of investments

The following analysis details financial information by geographic location.
Geographic Segment Analysis5, 6
2003
Consolidated

IncomeAustralia
New ZealandOverseas markets

Total assets
Australia
New ZealandOverseas markets

2002

2001

$m

%

$m

%

$m

%

9,508
2,149
1,366

73
17
10

8,697
1,917
1,393

72
16
12

9,012
2,011
1,801

70
16
14

13,023100

12,007100

12,824

100

151,538
25,696
18,35777
13
10135,050
23,79924,25674
13
13

133,057
22,33730,09972
12
16

195,591100

183,105100

185,493

100

2,371
495
411

72
15
13

2,391
456
376

74
14
12

2,160
395
228

78
14
8

3,277

100

3,223

100

2,783

100

7

Net profit before tax
Australia
New ZealandOverseas markets

5 Intersegment transfers are accounted for and determined on an arm’s length or cost recovery basis
6 The geographic segments represent the locations in which the transaction was booked
7 Includes outside equity interests

54

Notes to the Financial Statements
42: Notes to the Statements of Cash Flows2003$mConsolidated
2002
$m

2001
$m

The Company
2003
2002
$m
$m

a) Reconciliation of net profit after income tax to net cash provided by operating activities
Inflows(Outflows)

Net profit after income tax

Inflows(Outflows)

2,348

2,322

1,870

3,068

1,507

614
265
139
(269)
5
(11)
–
–
–

860
226
248
(436)
(5)
1
(170)
(248)
(4)

531
181
300
(288)
(1)
–
–
–
–

464
193
87
(248)
6
(1)
–
–
–

710
113
224
(299)
(1)
1
–
(248)
–

1,669
(189)
51
(386)
(19)

(1,030)
328
(16)
46
(30)

(629)
137
(34)
88
(52)

1,583
(144)
37
(447)
9

(782)
230
(25)
69
(6)

180
69
(109)

(348)
(1)
(12)

(285)
(42)
73

184
228
14

(272)
(2)
–

Total adjustments

2,009

(591)

(21)

1,965

(288)

Net cash provided by operating activities

4,357

1,731

1,849

5,033

1,219

Adjustments to reconcile net profit after income tax to net cash
provided by operating activities
Provision for doubtful debts
Depreciation and amortisation
Provision for employee entitlements, restructuring and other provisions
Payments from provisions(Profit) loss on sale of premises and equipment
Provision for surplus lease space(Profit) on sale of controlled entities and associates
Recovery from NHB litigation
Profit on sale of investment securities
Net decrease (increase)
Trading securities
Interest receivable
Accrued income
Tax balances
Amortisation of discounts/premiums included in interest income
Net increase (decrease)
Interest payable
Accrued expenses
Otherb) Reconciliation of cash and cash equivalents1
Cash and cash equivalents include liquid assets and amounts due from other financial institutions with an original term to maturity of less than 90 days. Cashand cash equivalents at the end of the financial year as shown in the statements of cash flows are reconciled to the related items in the statements of financial
position as follows
2003$m

Liquid assets – less than 90 days
Due from other financial institutions – less than 90 days

Consolidated
2002
$m

2001
$m

The Company
2003
2002
$m
$m

5,509
1,806

4,821
3,104

5,504
3,567

2,834
1,577

3,432
2,021

7,315

7,925

9,071

4,411

5,453

1 At 30 September 2003, cash and cash equivalents totalling nil (2002: nil; 2001: nil) were not available for use outside the local operations due to exchange control regulations

55

Notes to the Financial Statements
42: Notes to the Statements of Cash Flows (continued)c) Acquisitions and disposals1
2003$mConsolidated
2002
$m

2001
$m

Details of aggregate assets and liabilities of controlled entities and branches acquired, and disposed of,by the Group are as follows:
Fair value of net assets acquired
Net loans and advances
Trading securities
Other assets
Premises and equipment
Payables and other liabilities
Deposits and other borrowings
Income tax liability

–
–
–
–
–
–
–

141
–
106
5
(7)
(231)
–

408
4
30
5
(11)
(348)
(42)

Fair value of net assets acquired
Goodwill on acquisition

–
–

14
53

46
5

Consideration paid
Cash consideration paid

–
–

67
67

51
36

Fair value of net assets disposed
Liquid assets
Due from other financial institutions
Trading securities
Investment securities
Net loans and advances
Customers’ liabilities for acceptances
Regulatory depositsLife insurance investment assets
Shares in controlled entities and associates
Other assets
Premises and equipment
Due to other financial institutions
Deposits and other borrowings
Liability for acceptances
Income tax liability
Payables and other liabilities
Life insurance policy liabilities
Provisions
Loan capital

–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–

8
–
–
36
–
–
–
5,090
–
38
4
–
–
–
–
(22)
(4,798)
36
–

99
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–

Fair value of net assets disposed
Profit on disposal net of transaction costs

–
–

392
174

99
–

Net consideration received/receivable

–

566

99

Cash consideration received

–

–

99

1 For details on acquisitions and disposals refer to Note 18d) Non-cash financing and investing activities
2003$mConsolidated
2002
$m

2001
$m

115

94

86

115

Available$m

Unused$m

Available$m

Unused$m

Financing arrangements which are available under normal financial arrangements
Credit standby arrangements
Standby lines
Other financing arrangements
Overdrafts and other financing arrangements

1,671

1,242

1,062

696

1,447

59

975

58

Total finance available

3,118

1,301

2,037

754

Share capital issues
Dividend reinvestment plan

The Company
2003
2002
$m
$m

94

e) Financing arrangements
2003

2002

56

Notes to the Financial Statements
43: Controlled Entities
Incorporated in

Nature of Business

Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New ZealandSingapore
Singapore
EnglandEngland
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Papua New Guinea
Australia
Australia
Australia
Indonesia
USA
USA

Banking
Investment
Investment Banking
Funding
Hedging
Self-Insurance
Trustee/Nominee
Investment
Holding Company
Holding Company
Eftpos Service Provider
Banking
Investment
FinanceFinanceFinanceFinance
Merchant Banking
Holding Company
Export Finance
Property Owner
Investment
Investment Activities
Mortgage Insurance
Investment
Property Owner
Holding Company
Banking
General Finance
Finance
Investment
Banking
Investment
Investment

All controlled entities are 100% owned unless otherwise noted.
The material controlled entities of the Group are:
Australia and New Zealand Banking Group Limited
Alliance Holdings Limited
ANZ Capel Court Limited
ANZ Capital Funding Pty Ltd
ANZ Capital Hedging Pty Ltd
ANZCover Insurance Pty Ltd
ANZ Executors & Trustee Company Limited
ANZ Financial Products Pty Ltd
ANZ Funds Pty Ltd
ANZ Holdings (New Zealand) Limited*
EFTPOS New Zealand Limited*
ANZ Banking Group (New Zealand) Limited*
Tui Securities Limited*
UDC Finance Limited*
Endeavour Finance Limited*
Tui Endeavour Limited*
ANZ International Private Limited*
ANZ Singapore Limited*
Minerva Holdings Limited*
ANZEF Limited*
ANZ Holdings Pty Ltd
ANZ Investment Holdings Pty Ltd
530 Collins Street Property Trust
ANZ Lenders Mortgage Insurance Pty Limited
ANZ Orchard Investments Pty Ltd
ANZ Properties (Australia) Pty Ltd
ANZ Securities (Holdings) Limited
Australia and New Zealand Banking Group (PNG) Limited*
Esanda Finance Corporation Limited
Fleet Partners Pty Limited
NMRSB Pty Ltd
PT ANZ Panin Bank*1
US Distribution Trust I
US Distribution Trust II* Audited by overseas KPMG firms
1 Outside equity interests hold ordinary shares or units in the controlled entities listed above as follows: PT ANZ Panin Bank – 7,500 IDR 1M shares (15%) (2002: 7,500 IDR 1M shares (15%))

44: Associates
Significant associates of the Group are as follows:

PT Panin Indonesia Bank1
ETrade2
Autobake Pty Ltd3
Australian Convenience Foods Pty Ltd4
Other associates
Total shares in associates
1
2
3
4
5

Ownership
Interest
held

VotingInterest

Incorporated in

11%
35%
43%
46%

11%
35%
20%
20%

Indonesia
Australia
Australia
Australia

5

Carrying Value
$m

117
12
8
7
22

Reportingdate

Principal
activity

31 December
Banking
30 June Online Stockbroking
30 JuneManufacturing
30 JuneManufacturing

166

An associate from 1 April 2001. In addition, the Group holds options over a further 18% of PT Panin Indonesia Bank
An associate from 1 October 2002
An associate from 21 August 2002
An associate from 1 July 2002
2002 carrying values as follows: PT Panin Indonesia Bank $67 million, Australian Convenience Foods Pty Ltd $7 million and Other associates $25 million. Total $99 million

57

Notes to the Financial Statements
45: Interests in Joint Venture Entities
The Group has an interest in a joint venture entity as follows:

ING Australia Ltd1Interest
held

Voting2
Interest

Incorporated inCarrying Value$m

Reportingdate

Principal
activity

49%

49%

Australia

1,648

31 December

Funds
Management
and Insurance

1 A joint venture entity from 1 May 2002
2 The Group has right of veto on certain decisions
2003
$m

2002
$m

2
57

–
2

Movement in the carrying amount of the joint venture entity
Carrying amount at the commencementof the period
Share of net profit
Distributions received

1,593
55
–

1,591
2
–

Carrying amount at the end of the financial year

1,648

1,593

Share of assets and liabilities
Investments
Other assets

9,659
663

9,140
732

Total assets

10,322

9,872

Policy holder liabilities
Other liabilities

8,928
324

8,508
373

Total liabilities

9,252

8,881

Net assets

1,070

991

Share of revenues, expenses and results
Revenues
Expenses

310
197

195
169

Profit from ordinary activities before income tax

113

26

Income tax expense

146Profit from ordinary activities after income tax

99

20

Amortisation of notional goodwill

(44)

(18)

Net equity accounted profit

55

2

Share of commitments
Lease commitments
Other commitments

169
23

163
166

Total expenditure commitments

192

329

Retained profits attributable to the joint venture entity
At the beginning of the financial year
At the end of the financial year

1

1 This represents the Group’s share of the assets and liabilities of ING Australia, less outside equity interests and including goodwill on acquisition of ANZ Funds Management entities

46: Fiduciary Activities
The Group conducts investment fiduciary activities for trusts, including deceased estates. These trusts have not been consolidated as the Company does nothave direct or indirect control.
Where the Company or its controlled entities incur liabilities in respect of these operations as trustee, a right of indemnity exists against the assets of theapplicable funds or trusts. As these assets are sufficient to cover the liabilities and it is therefore not probable that the Company or its controlled entities will be
required to settle the liabilities, the liabilities are not included in the financial statements.
The aggregate amounts of funds concerned are as follows:

Trusteeships

2003
$m

2002
$m

1,432

1,8491

1 Includes $323 million of Superannuation Savings Account balances and a further $153 million associated with a number of smaller funds that ANZ Executors & Trustees were previously trustee for.

Funds management activities are conducted through the ANZ/INGA joint venture. As at 30 September 2003, the ANZ/INGA joint venture had funds undermanagement of $28,655 million (2002: $26,642 million).

58

Notes to the Financial Statements
47: Commitments
Consolidated
2003
2002
$m
$m

The Company
2003
2002
$m
$m

Capital expenditure
Contracts for outstanding capital expenditure
Not later than 1 year
Later than 1 year but not later than 5 years

55
1

75
–

11
1

38
–

Total capital expenditure commitments

56

75

12

38

Lease rentals
Future rentals in respect of leases
Land and buildings
Not later than 1 year
Later than 1 year but not later than 5 years
Later than 5 years

164
391
441

163
426
450

134
320
425

133
347
427

996

1,039

879

907

17
23

16
7

12
20

10
3

40

23

32

13

Total lease rental commitments

1,036

1,062

911

920

Total commitments

1,092

1,137

923

958

Furniture and equipment
Not later than 1 year
Later than 1 year but not later than 5 years

The Group leases land and buildings under operating leases expiring from one to five years. Leases generally provide the Group with a right of renewal at whichtime all terms are renegotiated. Lease payments comprise a base amount plus an incremental contingent rental. Contingent rentals are based on either
movements in the Consumer Price Index or operating criteria.
48: Contingent Liabilities, Contingent Asset and Credit Related Commitments
Credit related commitments
The credit risk of the following facilities may be less than the contract amount, but as it cannot be accurately determined, the credit risk has been taken
to be the contract amount.

Undrawn facilities
Underwriting facilities

Consolidated
2003
2002
Contract
Contract
amountamount$m$m

The Company
2003
2002
Contract
Contract
amountamount$m$m

Controlled Entities
2003
2002
Contract
Contract
amountamount$m$m

65,381
15

60,37336

57,91415

54,271
36

7,467
–

6,102
–

65,39660,40957,92954,307

7,467

6,102

Contingent liabilities
The Group guarantees the performance of customers by issuing standby letters of credit and guarantees to third parties. The risk involved is essentially thesame as the credit risk involved in extending loan facilities to customers, therefore these transactions are subjected to the same credit origination, portfolio
management and collateral requirements for customers applying for loans. As the facilities may expire without being drawn upon, the notional amounts do
not necessarily reflect future cash requirements.
The credit risk of these facilities may be less than the contract amount, but as it cannot be accurately determined, the credit risk has been taken to be
the contract amount.
Consolidated
2003
2002
Contract
Contract
amountamount$m$m

The Company
2003
2002
Contract
Contract
amountamount$m$m

Controlled Entities
2003
2002
Contract
Contract
amountamount$m$m

Guarantees
Credit derivatives – soldStandby letters of credit
Bill endorsements
Documentary letters of credit
Performance related contingents
Other

4,954
2,409
1,406
148
1,755
9,027
854

3,580
3,088
1,952
298
1,620
11,161
935

4,888
2,409
1,387
148
1,637
8,815
601

3,526
3,088
1,932
298
1,505
10,907
552

66
–
19
–
118
212
253

54
–
20
–
115
254
383

Total contingent liabilities

20,553

22,634

19,88521,808668

826

Notes to the Financial Statements

59

48: Contingent Liabilities, Contingent Asset and Credit Related Commitments (continued)
The details and estimated maximum amount of contingent liabilities that may become payable are set out below.
i) Clearing and Settlement Obligations
In accordance with the clearing and settlement arrangements set out in the Australian Payments Clearing Association Limited (APCA) Regulations for theAustralian Paper Clearing System, the Bulk Electronic Clearing System and the High Value Clearing System (HVCS) and in the Austraclear System Regulations, theCompany has a commitment to participate in loss-sharing arrangements in the event of a failure to settle by a member institution.
For both the APCA HVCS and Austraclear, the obligation arises only in limited circumstances.
ii) The Group will indemnify each customer of controlled entities engaged in nominee activities against loss suffered by reason of such entities failing to perform
any obligation undertaken by them to a customer.
iii) Interbank Deposit Agreement
ANZ has entered into an Interbank Deposit Agreement with the major banks in the payments system. This agreement is a payment system support facility
certified by the Australian Prudential Regulation Authority, where the terms are such that if any bank is experiencing liquidity problems, the other participants are
required to deposit equal amounts of up to $2 billion for a period of 30 days. At the end of 30 days the deposit holder has the option to repay the deposit incash or by way of assignment of mortgages to the value of the deposit.
iv) Tax Audit
ANZ in Australia is being audited by the Australian Taxation Office (ATO) as part of normal ATO procedures. The Group has received various assessments that are
being disputed and is likely to receive further assessments.
There are several major issues that the ATO is considering, including:> Lease assignments in 1991 and 1992. Tax assessments have been received and are being contested in the Federal Court. Profit after tax of approximately$50 million was earned from these transactions.
> Sale of Grindlays in 2000. At ANZ’s request the ATO is reviewing the taxation treatment of this transaction. ANZ’s profit after tax from this transaction was$404 million.
Based on external advice, ANZ has assessed the likely progress of these issues, and believes that it holds appropriate provisions.
During the years 1996–2002 ANZ was involved in securities lending, equity swaps, and other similar kinds of transactions in the normal course of its business ofbanking. The ATO had been reviewing these transactions for some time. On 21 February 2003, a settlement was reached between the ATO and ANZ which
involved the payment of $262 million to the ATO. The amount was met from ANZ’s existing tax provisions.
The ANZ Group in New Zealand is being audited by local revenue authorities as part of normal revenue authority procedures. No tax assessments have been
issued.
v) Sale of Grindlays businesses
As part of the sale on 31 July 2000 of ANZ Grindlays Bank Limited and the private banking business of ANZ in the United Kingdom and Jersey, together with ANZ
Grindlays (Jersey) Holdings Limited and its subsidiaries (the Grindlays businesses), to Standard Chartered Bank (SCB), ANZ provided warranties relating to thosebusinesses. Where it is anticipated that payments are likely under these warranties, provisions have been made to cover the anticipated liability.
In addition, ANZ provided SCB and/or Grindlays with certain indemnities. Those indemnities under which ANZ remains exposed as at 30 September 2003 are:> an indemnity relating to liabilities Grindlays may incur as a result of certain claims made against Grindlays and its officers in India (the Indian Indemnity). Detailsof this indemnity are set out below; and> an indemnity relating to tax liabilities of Grindlays (and its subsidiaries) and the Jersey Sub-Group to the extent to which such liabilities have not been provided
for in the Grindlays accounts as at 31 July 2000.
Claims have been made under the above indemnities and also in relation to certain warranties made by ANZ at the time of sale. At present the Group is confident
that they will have no material impact on the Group.
The Indian Indemnity requires ANZ to pay SCB for losses that Grindlays incurs as a result of certain claims that have been or may be made against Grindlays andits officers in India. Under the terms of the Indian Indemnity, ANZ will have control of matters for which it is potentially liable. No settlement offer can be made or
paid by Grindlays without the prior agreement of ANZ. ANZ will continue to manage these matters in the best interests of the shareholders taking into account its
legal obligations.
ANZ remains liable for certain claims under the Indian Indemnity, including in relation to the following two matters that are the subject of current proceedings
involving Grindlays or its officers:> In 1991, certain amounts were transferred from non-convertible Indian Rupee accounts maintained with Grindlays in India. In making these transactions it would
appear that the provisions of the Foreign Exchange Regulation Act 1973 were inadvertently not complied with. Grindlays on its own initiative, brought thesetransactions to the attention of the Reserve Bank of India. The Indian authorities have served notices on Grindlays and certain of its officers in India that could
lead to possible penalties. Grindlays has commenced proceedings in the courts contesting the validity of these notices.
> In June 2003, Grindlays was successful in its appeal against orders to repay, with interest, two payments it received from a stockbroker in 1991 in connection
with securities transactions. These orders had directed repayment of Indian Rupees 24 million (AUD 0.8 million at 30 September 2003 rates, plus interest
accruing at 24% since 1991). Grindlays is awaiting the outcome of proceedings in relation to a further twelve payments received by it in 1991 in similar
circumstances totalling Indian Rupees 277 million (AUD 8.9 million at 30 September 2003 rates).

60

Notes to the Financial Statements
48: Contingent Liabilities, Contingent Asset and Credit Related Commitments (continued)vi) Pursuant to class order 98/1418 (as amended) dated 13 August 1998, relief was granted to a number of wholly owned controlled entities from the Corporations
Act 2001 requirements for preparation, audit, and publication of financial statements. The entities to which relief was granted are> ANZ Properties (Australia) Pty Ltd1
> Alliance Holdings Pty Ltd1
> ANZ Capital Hedging Pty Ltd1
> ANZ Funds Pty Ltd1
> ANZ Infrastructure Investments Ltd3
> ANZ Nominees Ltd1
> ANZ Securities (Holdings) Ltd3
> Binnstone Traders Pty Ltd1

> Deori Pty Ltd1
> E S & A Holdings Pty Ltd1
> Jikk Pty Ltd1
> LFD Ltd1
> NMRSB Pty Ltd1
> ANZ Orchard Investments Pty Ltd2
> Votraint No. 1103 Pty Ltd2

1 Relief granted on 21 August 2001
2 Relief granted on 13 August 2002
3 Relief granted on 9 September 2003

It is the condition of the class order that the Company and each of the above controlled entities enter into a Deed of Cross Guarantee. A Deed of Cross Guarantee
under the class order was lodged and approved by the Australian Securities and Investments Commission. The effect of the Deed is that the Company guarantees
to each creditor payment in full of any debt in the event of winding up any of the controlled entities under certain provisions of the Corporations Act 2001. The
Company will only be liable in the event that after six months any creditor has not been paid in full. The controlled entities have also given similar guarantees inthe event that the Company is wound up. The consolidated statement of financial performance and consolidated statement of financial position of theCompany and its wholly owned controlled entities which have entered into the Deed of Cross Guarantee are:Consolidated
2003
2002
$m
$m

Profit before tax
Income tax expense

2,595
(643)

1,955
(654)

Profit after income tax
Retained profits at start of year 1

1,952
4,788

1,301
4,348

Total available for appropriation
Ordinary share dividends provided for or paid

6,740
(640)

5,649
(882)

Retained profits at end of year

6,100

4,767

AssetsLiquid assets
Investment securities
Net loans and advances
Other assets
Premises and equipment

3,919
3,818
116,557
38,916
1,178

5,998
2,606
100,999
40,5201,189

Total assets

164,388

151,312

Liabilities
Deposits and other borrowings
Income tax liability
Payables and other liabilities
Provisions

90,186766
59,353614

85,258
1,064
53,218
1,611

Total liabilities

150,919

141,151

Net assets

13,469

10,161

Shareholders’ equity

13,469

10,161

1 The Companies included in the class order have changed, accordingly retained profits have not carried forwardvii) The Company has guaranteed payment on maturity of the principal and accrued interest of commercial paper notes issued by ANZ (Delaware) Inc. of $6,988
million as at 30 September 2003 (2002: $1,654 million).
viii) The Company is party to an underpinning agreement with ANZ Banking Group (New Zealand) Limited whereby the Company undertakes to assume risk in relation
to credit facilities extended by ANZ Banking Group (New Zealand) Limited to individual customers which exceed 35% of ANZ Banking Group (New Zealand)
Limited’s capital base.
ix) The Company is party to an underpinning agreement with Australia and New Zealand Banking Group (PNG) Limited whereby the Company undertakes to assume
risk in relation to credit facilities extended by Australia and New Zealand Banking Group (PNG) Limited to individual customers which exceed 50% of Australia
and New Zealand Banking Group (PNG) Limited’s capital base.
GeneralThere are outstanding court proceedings, claims and possible claims against the Group, the aggregate amount of which cannot readily be quantified. Appropriate
legal advice has been obtained and, in the light of such advice, provisions as deemed necessary have been made.

61

Notes to the Financial Statements
48: Contingent Liabilities, Contingent Asset and Credit Related Commitments (continued)
Contingent Asset
On 14 October 2003 ANZ issued proceedings in the Victorian Supreme Court against its captive insurance company ANZcover Insurance Pty Ltd regarding a$130 million insurance claim. This claim is in relation to the loss on settlement of its former subsidiary ANZ Grindlays Bank Limited’s 1992 dispute with India’s
National Housing Bank (NHB). ANZcover is an authorised general insurer restricted to insuring the interests of ANZ and its subsidiaries. ANZcover in turnpurchases reinsurance from global reinsurers, primarily in the London reinsurance market. The claim against ANZcover is fully reinsured, and therefore ANZcoverhas no retained exposure to the claim.
The January 2002 settlement of the NHB litigation saw Grindlays recover Rupees 6.20 billion (AUD 248 million at 19 January 2002 rates) of the disputed monies
that Grindlays Bank had lodged with the Court, which by that time totalled Rupees 16.45 billion (AUD 661 million at 19 January 2002 rates), including interest,with NHB receiving the balance. ANZ in turn received a payment of USD 124 million from Standard Chartered Bank under the terms of the Indian Indemnity.
The claim of $130 million is for the balance of the limit of indemnity under ANZcover’s reinsurance arrangements for the 1991–92 policy year.
49: Superannuation Commitments
A number of pension and superannuation schemes have been established by the Group worldwide. The Group may be obliged to contribute to the schemes as aconsequence of legislation and provisions of trust deeds. Legal enforceability is dependent on the terms of the legislation and trust deeds. The major schemeswith assets in excess of $25 million are:Contribution levels
Country

SchemeScheme type

Australia

ANZ Australian Staff
Superannuation Scheme1,2

Defined Contribution Scheme
Section C
orDefined Contribution Scheme
Section A
orDefined Benefit Scheme
Pension Section4

New ZealandEnglandANZGROUP (New Zealand)
Staff Superannuation Scheme1,2

1

ANZ UK Staff Pension Scheme

Defined Benefit Scheme5orDefined Contribution Scheme
Defined Benefit Scheme

Employee

Employer

optional

Balance of cost3

optional

9% of salary4nil

Balance of costnil

Balance of cost

2.5% min

7.5% of salaries

nil

Balance of cost

Balance of cost: the Group’s contribution is assessed by the actuary after taking account of members’ contributions and the value of the schemes’ assets
1
2
3
4
5

These schemes provide for pension benefits
These schemes provide for lump sum benefits
As recommended by the actuary, currently 9% (2002: 9%) of members’ superannuation salaries
Closed to new members. Operates to make pension payments to retirees who were members or to dependants of the members
Closed to new members on 31 March 1990. Operates to make pension payments to retirees who were members of that section of the scheme or to dependants of the members.

The details of major defined benefit schemes with assets in excess of $25 million are as follows:

2003
SchemesANZ Australian Staff Superannuation Scheme
Pension Section1
ANZ UK Staff Pension Scheme1

2002
SchemesANZ Australian Staff Superannuation Scheme
Pension Section2
ANZ UK Staff Pension Scheme2

Employer’s
contribution$mAccruedbenefits
$m

–
–

43
872

Employer’s
contribution$mAccruedbenefits
$m

–
–

46
998

Excess of
Net market
net market
value of value of assets
assets held
over accruedby scheme
benefits
$m
$m

37
771

Vestedbenefits
$m

(6)
(101)

43
845

Excess of
Net market
net market
value of value of assets
assets held
over accruedby scheme
benefits$m$m

Vestedbenefits
$m

47
1,053

1
55

46
963

1 Amounts were measured at 31 December 2002
2 Amounts were measured at 31 December 2001

The Pension Section of the ANZ Australian Staff Superannuation Scheme is closed to new members. The last full actuarial valuation, conducted by the actuary,
Towers Perrin, as at 31 December 2001 showed a small surplus. An interim valuation conducted as at 31 December 2002 showed a deficit of $6 million, butsince that date the deficit has reduced. Another interim valuation will be conducted as at 31 December 2003, at which time the funding position will bereassessed. The next full actuarial valuation is due to be conducted as at 31 December 2004.
The deficit disclosed above for the UK Staff Pension Scheme has been determined for the purpose of AASB1028 “Employee Benefits”.
Consulting actuaries Watson Wyatt LLP have advised that as at 31 December 2002 the Scheme would have met the minimum funding requirement (MFR) test
as defined in UK legislation. Further, an interim actuarial valuation (which differs from AASB1028 requirements) of the Scheme was performed at 31 December
2002. This valuation, performed in accordance with actuarial standards, indicated a deficit of GBP 0 million to GBP 31 million ($76 million) depending on theassumptions used.
The Group has no present liability under the Scheme’s trust deed to commence contributions or fund the deficit. However, as a matter of prudence,
the Bank has decided to recommence contributions to the Scheme with effect from 1 October 2003, ahead of the next formal actuarial review which isdue as at 31 December 2003.

62

Notes to the Financial Statements
50: Employee Share and Option Plans

The Company has four share purchase and option incentive plans available for employees and directors of the Group: the ANZ Employee Share Acquisition Plan1;
the ANZ Share Purchase Scheme; the ANZ Share Option Plan; and the ANZ Directors' Share Plan. Shareholders of the Company have approved theimplementation of each of the current plans. Fully paid ordinary shares issued under these plans rank equally with other existing fully paid ordinary shares,
other than in respect of voting rights.
Each option granted under the ANZ Share Option Plan entitles a holder to purchase one ordinary share subject to any terms and conditions imposed on issue.
The exercise price of the options, determined in accordance with the rules of the plan, is based on the weighted average price of the Company's shares traded
during the five business days preceding the date of granting the options.
An offer to employees and directors cannot be made under any of the plans if an issue pursuant to that offer will result in the aggregate of shares issued andoptions granted over unissued shares held for employees under various employee share and option incentive schemes exceeding 7% of the issued capital(and unexercised options) of the Company.
The closing market price of one ordinary share at 30 September 2003 was $17.95.
1 The ANZ Employee Share Acquisition Plan includes the $1,000 Share Plan, the Deferred Share Plan and the Employee Share Save Scheme

ANZ Employee Share Acquisition Plan
$1,000 Share Plan
All permanent employees (other than senior executives) who have had continuous service for one year with the Company or any of its controlled entities may be
eligible to participate in a scheme enabling the issue of up to $1,000 of shares to an employee in each financial year, subject to the approval of the Board.
The shares are retained in trust for a three year vesting period. On expiration of that period, an employee may generally sell the shares, transfer them into theirname, or have them retained in the trust. On termination, the shares are generally transferred into the employee’s name. Forfeiture provisions may apply,
depending on jurisdiction.
The shares are issued for no consideration. During the financial year, 1,028,623 shares with an average issue price of $17.70 were issued under the $1,000
Share Plan (2002: 1,070,986 shares with an average issue price of $17.21 were issued). These shares are issued from the Share Capital account, hence only an
increase in the number of shares on issue results.
Details of the movement in employee shares under the $1,000 Share Plan are as follows:
The Company
2003

Number of shares at beginning of the year
Number of shares issued to the trust
Number of shares distributed to employees
Number of shares forfeited

4,217,660
1,242,614(915,612)(6,986)

Number of shares at end of the year

4,537,676
The Company
2003
2002

Number of shares acquired since commencement of the $1,000 Share Plan2

7,013,921 5,985,298

Deferred Share Plan
Selected employees may also be issued deferred shares, which vest in the employee three years from the date of issue (previously one or three years). Ordinary
shares issued under this plan may be held in trust for up to 10 years, and may be required to meet performance hurdles before being able to be traded after the
restriction period has expired. The issue price is based on the volume weighted average price of the shares traded on the ASX in the weeks leading up to andincluding the date of issue. Unvested shares are forfeited on resignation or dismissal, or if a performance condition has not been met.
During the financial year, 2,587,091 (2002: 3,074,002) deferred shares were issued under this Plan.
Details of the movement in employee shares under the Deferred Share Plan are as follows:
The Company
2003

Number of shares at beginning of the year
Number of shares issued to the trust
Number of shares distributed to employees
Number of shares forfeited

7,500,351
2,666,291(2,024,878)(120,916)

Number of shares at end of the year

8,020,848
The Company
2003
2002

Number of shares acquired since commencement of the Deferred Share Plan2
2 Excludes shares issued under the bonus option plan and the dividend reinvestment plan

13,878,185 11,291,094

63

Notes to the Financial Statements
50: Employee Share and Option Plans (continued)
Employee Share Save Scheme
Eligible employees have the opportunity to request that a proportion of their income be directed to the purchase of ANZ shares. The amount they elect tocontribute is deducted fortnightly and shares are purchased on market quarterly in arrears by the trust. The Company contributes 5% of the purchase price andpays for brokers fees and stamp duty. Senior executives may participate but are not eligible to receive the 5% discount. Employees are eligible to participate in
the Scheme if they are permanent full-time or part-time employees of the Company and have been employed since 1 October immediately prior to the invitation
being made by the Company. Employees nominate a restriction period between 1 to 10 years during which period the shares are held in trust. Dividends arepaid to the employees.
Details of the movement in employee shares under the ANZ Employee Share Save Scheme are as follows:
The Company
2003

Number of shares at beginning of the year
Number of shares purchased
Number of shares issued to the trust
Number of shares distributed to employees
Number of shares forfeited

302,410291,210
16,408(215,623)–

Number of shares at end of the year

394,405
The Company
2003
2002

Number of shares acquired since commencement of the ANZ Employee Share Save Scheme

763,652

472,442

Costs associated with the ANZ Employee Share Save Scheme were recognised in Personnel Expenses and Liquid Assets (amounts were less than $500,000).
ANZ Share Purchase Scheme
The ANZ Share Purchase Scheme is a closed scheme. Shares are progressively being paid up by eligible officers that were offered fully paid ordinary shares.
No fully paid ordinary shares have been issued under this Scheme since 1996.
Details of the movement in employee shares under the ANZ Share Purchase Scheme are as follows:
The Company
2003
2002

Number of shares at beginning of the year
Number of shares redeemed by employees1
Number of shares at end of the year
1 Redeemed once paid out by employee

1,272,500 1,997,500(1,043,000) (725,000)
229,500 1,272,500

64

Notes to the Financial Statements
50: Employee Share and Option Plans (continued)

ANZ Share Option Plan
Selected employees may be granted options, which entitle them to purchase ordinary fully paid shares in the Company at or greater than a price fixed at the time
when the options are issued (depending on whether the exercise price is indexed or not). Voting rights will be attached to the unissued ordinary shares when
the options have been exercised.
Details of the options over unissued ordinary shares as at the beginning and end of the financial year and movements during the year are set out below.
No. options outstandingat 30 September 2003
Grant date

Exercise
price$

Earliest
exercisedate

23/01/1998
24/02/1998
28/10/1998
11/12/1998
28/01/1999
25/03/1999
02/06/1999
02/06/1999
07/06/1999
12/07/1999
27/10/1999
31/12/1999
31/01/2000
23/02/2000
08/03/2000
23/05/2000
07/06/2000
26/09/2000
21/11/2000
27/12/2000
31/12/2000
27/01/2001
21/02/2001
27/02/2001
07/03/2001
24/04/2001
24/04/2001
07/05/2001
01/06/2001
23/08/2001
27/08/2001
24/10/2001
24/10/2001
24/10/2001
24/10/2001
31/12/2001
31/12/2001
28/02/2002
24/04/2002
24/04/2002
24/04/2002
24/04/2002
31/05/2002
27/06/2002
21/07/2002
23/10/2002
23/10/2002
20/11/2002
31/12/2002
20/05/2003
20/05/2003
09/06/2003

11.45
9.51
8.97
10.34
10.41
11.44
11.20
11.20
11.26
11.30
9.94
11.49
10.63
10.11
10.20
11.81
12.23
12.75
14.34
14.63
14.78
14.63
14.92
15.47
15.66
13.70
13.70
13.70
15.33
16.49
16.81
17.05
17.05
0.00
17.05
17.20
17.52
18.21
18.75
0.00
18.75
18.75
19.27
19.27
17.90
18.06
18.06
18.28
17.41
18.32
18.32
18.84

23/01/2001
24/02/2001
28/10/2001
11/12/2001
28/01/2002
25/03/2002
02/06/2002
02/06/2002
07/06/2002
12/07/2002
27/10/2002
31/12/2002
31/01/2003
23/02/2003
08/03/2003
23/05/2003
07/06/2003
26/09/2003
22/11/2003
25/10/2003
31/12/2003
07/02/2004
21/02/2004
27/02/2004
07/03/2004
25/04/2004
25/04/2004
07/05/2004
01/06/2004
21/08/2004
27/08/2004
25/10/2004
25/10/2004
24/10/2002
24/10/2004
31/12/2004
31/12/2003
26/02/2005
24/04/2005
24/04/2003
24/04/2005
24/04/2005
14/05/2005
28/06/2005
22/07/2005
23/10/2005
23/10/2005
20/11/2005
31/12/2004
20/05/2006
20/05/2006
09/06/2006

TotalsExpirydate

No. options
at beginningof the year

Options
grantedOptions
lapsedOptions
exercised

On issue

VestedPerformance
hurdles for each
option class

22/01/2003
23/02/2003
27/10/2003
10/12/2003
27/01/2004
24/03/2004
01/06/2004
01/06/2004
06/06/2004
11/07/2004
26/10/2004
31/12/2004
30/01/2005
22/02/2007
07/03/2007
23/05/2007
06/06/2007
25/09/2007
21/11/2007
07/02/2008
31/12/2004
07/02/2008
20/02/2008
26/02/2008
06/03/2008
24/04/2008
24/04/2008
06/05/2008
31/05/2008
20/08/2008
26/08/2008
24/10/2008
24/10/2008
24/10/2003
23/10/2008
31/12/2005
31/12/2007
25/02/2009
24/04/2009
24/04/2004
24/04/2009
24/04/2009
13/05/2009
27/06/2009
21/07/2009
22/10/2009
22/10/2009
19/11/2009
31/12/2007
19/05/2010
19/05/2010
08/06/2010

2,565
325,000
250,000
195,000
10,00082,000237,500
1,615,000
2,500
150,000
900,000
750,000
100,000
1,050,000
350,000
447,500
200,000
75,0002,373,258
1,642,500
750,000
1,034,250
4,510,025
75,00050,0002,485,227
1,119,900
194,800
453,500
76,00084,0001,043,100
3,356,525
72,24250,000500,000
500,000
20,0003,386,680
24,0981,000,500
435,000
145,000
297,970
17,000
–
–
–
–
–
–
–

–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,638,774
2,346,050
40,0001,000,000
2,904,522
2,177,066
10,000

–
–
–
–
–
–
2,500
–
–
–
–
–
–
30,000–10,000–5,000
41,00079,600–51,000162,250––
76,500110,500
5,050
11,500–4,500
115,400
113,125–––––
199,080235
112,291
20,000–11,500–54,27980,481––
13,891
37,575–

2,565
325,000
250,000
180,000
10,00060,000120,000
1,290,000
2,500
150,000
900,000
750,000
100,000
578,000–
166,250
200,000
12,500289,000
90,400–62,250283,950–
50,000137,31274,50012,85027,750–3,750
57,500141,475
71,833
–
–
–
–
3,751
19,158
3,016
–
–
–
–
143
458
–
–
–
–
–

–
–
–
15,000–22,000115,000
325,000–––––
442,000
350,000
271,250–
57,5002,043,258
1,472,500
750,000
921,000
4,063,825
75,000–2,271,415
934,900
176,900
414,250
76,00075,750870,200
3,101,925
409
50,000500,000
500,000
20,0003,183,849
4,705
885,193415,000
145,000
286,470
17,0002,584,352
2,265,111
40,0001,000,000
2,890,631
2,139,491
10,000

Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
No
No
No
No
No
No
No
No
No
No
No
No
No
No
No
Yes
No
No
No
No
No
Yes
No
No
No
No
No
No
No
No
No
No
No
No

N
A
A
A
A
A
N
A
N
A
A
E
A
B
B
N
B
N
B
N
E
N
N
B
B
N
B
N
N
B
N
B
N
N
B
E
F
B
N
N
C
C
N
N
C
D
N
D
F
D
N
N

32,438,640

11,116,412

1,347,257

6,425,911 35,781,884

The aggregate fair value of shares issued as a result of the exercise of options during the 2003 financial year was $117 million.

65

Notes to the Financial Statements
50: Employee Share and Option Plans (continued)
On 24 October 2003 the Company issued a prospectus to invite shareholders to participate in a pro rata renounceable rights issue. In accordance withthe rules set out in the ANZ Share Option Plan in the event of a rights issue, the exercise price of options granted under the plan is to be reduced inaccordance with ASX Listing Rule 6.22. As a result the exercise price of each option issued under the ANZ Share Option Plan is reduced by 72 cents fromthe amount disclosed.
Details of performance hurdles applicable to options are as follows:
N No performance hurdles apply. Once the exercise period has been reached, the options may be exercised.
A During the two year period commencing three years and ending five years after the date of issue of the options, the percentage change of the ANZ Total
Shareholder Return (ANZ TSR) to exceed the percentage change of the S&P/ASX 200 Banks (Industry Group) Accumulation Index from date of issue to any
time from the third anniversary date up to and including the proposed exercise date.
B & C During the four-year period commencing three years, and ending seven years, after the issue date of the options:> 50% of the options allocated may be exercised by the option holder subject to the ANZ TSR exceeding the percentage change in the S&P/ASX 200
Banks (Industry Group) Accumulation Index measured over the same period and calculated as at the last trading day of any month; and> 50% of the options allocated may be exercised by the option holder subject to the ANZ TSR exceeding the percentage change in the S&P/ASX 100
Accumulation Index measured over the same period and calculated as at the last trading day of any month.
D Options may be exercised during the four-year period commencing three years, and ending seven years, after the issue date of theoptions. The exercise price will be set according to the movement in the S&P/ASX 200 Banks (Industry Group) Accumulation Index (excluding ANZ)
since issue date, and can be no lower than the base issue price.
E The options may be exercised only if the ANZ Accumulation Index over the period from the date on which the options are granted to the last trading
day of any month occurring during the relevant exercise period equals or exceeds the ASX 100 Accumulation Index calculated over the same period(applicable to the CEO only).
F One half of the options may be exercised only if the ANZ TSR calculated over the period commencing on the date of grant and ending on the last dayof any month after the second anniversary of their date of grant exceeds the percentage change in the S&P/ASX 200 Banks (Industry Group)
Accumulation Index over that same period; and the other half of the options may be exercised only if the ANZ TSR calculated over the relevant period
exceeds the percentage change in the S&P/ASX 100 Accumulation Index over that same period (applicable to the CEO only).
These options will expire immediately on termination of employment, except in the event of retirement, retrenchment, death or disablement or where agreed
by the directors of the Company, in which case the exercise of the options may be allowed.
In the event of a takeover offer or takeover announcement, the directors of the Company may allow the options to be exercised.
If there is a bonus issue prior to the expiry or exercise of the options, then upon exercise of the options, option holders are entitled to those shares as if theoptions had been exercised prior to that issue. Those shares will be allotted to the option holder when the options are exercised.
The following options were exercised by employees and former employees during the financial year:
Exercise priceNo. of shares issued

Proceeds received

Exercise priceNo. of shares issued

Proceeds received

$0.00
$0.00
$8.97
$9.51
$9.94
$10.11$10.34$10.41$10.63$11.20$11.20$11.26$11.30$11.44$11.45$11.49$11.81$12.23

71,833
19,158250,000
325,000
900,000
578,000
180,000
10,000100,000
120,000
1,290,000
2,500
150,000
60,0002,565
750,000
166,250
200,000

$0.00
$0.00
$2,242,500$3,090,750$8,946,000$5,843,580$1,861,200$104,100$1,063,000$1,344,000$14,448,000$28,150$1,695,000$686,400$29,369$8,617,500$1,963,413$2,446,000$12.75$13.70$13.70$13.70$14.34$14.63$14.63$14.92$15.33$15.66$16.81$17.05$17.05$18.06$18.06$18.75$18.75

12,500137,31274,50012,850289,000
90,40062,250283,950
27,75050,0003,750
57,500141,475
143
458
3,751
3,016

$159,375$1,881,174$1,020,650$176,045$4,144,260$1,322,552$910,718$4,236,534$425,408$783,000$63,038$980,375$2,412,149$2,583$8,271$70,331$56,550

For those options exercised by employees and former employees during the financial year, the market price of the Company’s shares during the year wereas follows:High$19.23Low$15.95As at 30 September 2003

$17.95As at the date of the Directors’ Report, unexercised options over ordinary shares are as per the table on the previous page, adjusted for the exercise of thefollowing options which were exercised by employees and former employees since the end of the financial year.

66

Notes to the Financial Statements
50: Employee Share and Option Plans (continued)

Exercise priceNo. of shares issued

Proceeds received

Exercise priceNo. of shares issued

Proceeds received$0.00$10.11$10.72$11.09$11.20$11.81$12.75$12.98$13.70

4,254
195,000
10,0007,500
15,00022,5002,500
375
13,450$0$1,971,450$107,200$83,175$168,000$265,725$31,875$4,868$184,265$13.91$14.20$14.34$14.63$14.92$15.33$16.33$17.05$18.06

6,000
750
8,000
87,25021,0003,000
375
15,600285$83,460$10,650$114,720$1,276,468$313,320$45,990$6,124$265,980$5,147For options granted in the current year, valuations have been determined in accordance with the fair value measurement provisions of Accounting Exposure Draft
ED 108, using a modified Black-Scholes option pricing model.
These valuations take into account the probability of achieving the performance hurdle required for these options to vest and have used the following significant
assumptions:
Range or Average

Risk free interest rate
Life of options
Volatility of share price
Dividend rate

2003

2002

2001

4.76% – 5.22%
3.5 years – 5.0 years
20.70% – 22.00%
5.00%

6.14%
6.8 years
22.00%
4.45%

6.33%
6.9 years
24.96%
4.66%

Amounts received from exercising options under the ANZ Share Option Plan during the financial year were recognised as follows:

Share capital
Liquid assets

2003
$m

The Company
2002
$m

73
73

57
57

ANZ Directors' Share Plan
Directors may elect to forgo remuneration to which they may have otherwise become entitled and receive shares to the value of the remuneration forgone.
Participation in the Plan is voluntary.
The shares are purchased on market and are held in trust for up to 10 years. The director selects a restriction period of between 1 and 10 years during which theshares cannot be traded. The shares are subject to forfeiture for serious misconduct. All costs associated with the Plan are met by the Company.
Details of the movement in shares under this Scheme are as follows:
1

The Company
2003

Number of shares at beginning of the year
Number of shares purchased
Number of shares soldNumber of shares forfeited349,767
114,700––

Number of shares at end of the year

464,467

1 Includes deferred shares

67

Notes to the Financial Statements
51: Related Party Disclosures
The directors during the year were:C B Goode (Chairman)J C Dahlsen
R S Deane
J K Ellis

M A Jackson
J McFarlane
B W Scott
D M Gonski

Australian banks, parent entities of Australian banks and controlled entities of Australian banks have been exempted, subject to certain conditions, by anAustralian Securities and Investments Commission (ASIC) class order, 98/110 dated 10 July 1998, from making disclosures of loans made, guaranteed or
secured by a bank to related parties (other than specified categories of directors) and financial instrument transactions (other than shares and share options)of a bank where a director of the relevant entity is not a party to the transaction and where the loan or financial instrument transaction is lawfully made andoccurs in the course of ordinary banking business either at arm’s length or with the approval of a general meeting of the relevant entity and its ultimate chief
entity (if any).
The class order does not apply to a loan or financial instrument transaction of which any director of the relevant entity should reasonably be aware that, if notdisclosed, would have the potential to adversely affect the decisions made by users of the financial statements about the allocation of scarce resources.
A condition of the class order is that for each financial year to which it applies, the Company must provide evidence to ASIC that the Company has systems
of internal controls and procedures which:i) in the case of any material financial instrument transaction, ensure that; andii) in any other case, are designed to provide a reasonable degree of assurance that, any financial instrument transaction of a bank which may be required tobe disclosed in the Company’s financial statements and which is not entered into regularly, is drawn to the attention of the directors.
a) Transactions with directors and director-related entities
Shares and Share Options
The aggregate number of shares issued to, acquired for, disposed or no longer held by directors, and share options granted to and exercised by directors of theCompany and their director-related entities by the Company during the financial year were as follows:
The Company
2003
2002
No.
No.

Fully paid ordinary shares in the Company acquired
Fully paid ordinary shares in the Company disposed of or no longer held by directors
Options granted under the ANZ Share Option Plan
Options exercised under the ANZ Share Option Plan

878,987 1,127,098(650,000) (605,864)
1,000,000 1,000,000(750,000) (1,000,000)

Aggregate number of shares and share options held directly, indirectly or beneficially by directors of the Company and their director-related entities,
as at balance date, were as follows:
The Company
2003
2002
No.
No.

Fully paid ordinary shares in the Company1
Share options over ordinary shares in the Company
1 Includes deferred shares

Directors of the Company and their director-related entities receive normal dividends on these shares.

2,046,146 1,817,159
2,750,000 2,500,000

68

Notes to the Financial Statements
51: Related Party Disclosures (continued)
Loans made to Directors
Loans made to non-executive directors of the Company and controlled entities are made in the course of ordinary business on normal commercial terms andconditions. Loans to executive directors of the Company and controlled entities are made pursuant to the Executive Directors’ Loan Scheme authorised byshareholders on 18 January 1982, on the same terms and conditions applicable to other employees within the Group in accordance with established policy.
Under the Australian Securities and Investments Commission class order referred to above, disclosure is limited to the aggregate amount of loans made,guaranteed or secured by:i) the Company to its directors;ii) any controlled entity to the directors of the Company;iii) banking corporation controlled entities to their directors; andiv) non-banking corporation controlled entities to directors of controlled entities and to parties related to any one of them or the directors of the Company.
The directors involved were:
S Armstrong1,2,4
P K Cromby1,3
A J Holdstock1,2
M Kalangis1,2,3,4
K D McKay1,2
B Poedjirahardjo1,2,3
M Rostian1,2,3
G Tunstall1,2,3,4
1
2
34

G J Camm1,2
D C Hannam1,2,3,4
D Hornery1,3
J McFarlane1,2,3,4
N J Merrick1,2,3
J Todd3,4

Repayments made during the year
Loans made or outstanding during the year
Repayments made during the prior year
Loans made during the prior year

The aggregate amount of such loans outstanding at 30 September 2003 were:
Consolidated
2003
2002
$’000
$’000

Balance outstanding at 30 September
Total interest received

1,906
149

The Company
2003
2002
$’000
$’000

6,284
414

18
37

5,889
362

The aggregate amount of repayments received from directors and their director-related entities during the financial year was:Normal terms and conditions
9,587
6,500
Employee terms and conditions
283
97

9,587
–

6,500
–

The aggregate amount of loans made during the financial year was:Normal terms and conditions
Employee terms and conditions

3,716
–

11,518
–

3,716
1,804

11,51836

Other transactions of Directors and Director-Related Entities
i) Financial instrument transactions
Under the Australian Securities and Investments Commission class order referred to above, disclosure of financial instrument transactions regularly made by abank is limited to disclosure of such transactions with a director of the entity concerned. Financial instrument transactions which have occurred on arm’s length
terms and conditions, and are deemed trivial or domestic in nature are required to be disclosed by general description.
Financial instrument transactions between the directors and the Bank during the financial year were in the nature of normal personal banking, investment anddeposit transactions. These transactions occurred on an arm’s length basis and on normal commercial terms and conditions no more favourable than thosegiven to other employees or customers.
ii) Transactions other than financial instrument transactions of banks
All transactions with directors and their director-related entities are conducted on arm’s length terms and conditions, and are deemed trivial or domestic innature. These transactions are in the nature of deposits, debentures, or investment transactions conducted with non-bank controlled entities.
All other transactions with director-related entities occur within a normal customer or supplier relationship and are on arms length terms.

69

Notes to the Financial Statements
51: Related Party Disclosures (continued)b) Transactions with associates and joint venture entities
During the course of the financial year the Company and the Group conducted transactions with associated and joint venture entities on normal commercial
terms and conditions as shown below:
Consolidated
2003
2002
$’000
$’000

Aggregate
Amounts receivable from associates and joint venture entities
Interest revenue
Dividend revenue
Commissions received from INGA joint venture
Costs recovered from joint INGA venture

30,691
1,126
5,606
79,14615,802

26,097–760
32,01912,213

The Company
2003
2002
$’000
$’000

1,139
507
326
70,504
15,544––760
32,01912,213

52: Remuneration of Directors
Remuneration includes income from salaries, bonuses, other benefits (including non-cash benefits), retirement benefits and superannuation contributions. The
maximum total remuneration for non-executive directors of the Company was set at the Annual General Meeting held on 13 December 2002 at $2.5 million.
Total fees paid to non-executive directors by the Company for the year were $1.3 million (2002: $1.2 million). Retirement benefits accrued for the year but not
paid applicable to the directors of the Company are detailed in the Annual Report. There were no retirement benefits paid to directors of the Company in 2003
(2002: $98,090 paid to G K Toomey).
The number of directors of the Company with total income1 in each of the following bands was:The Company1
2003
2002

$90,001 to $100,000$110,001 to $120,000$120,001 to $130,000$130,001 to $140,000$140,001 to $150,000$160,001 to $170,000$210,001 to $220,000$220,001 to $230,000$350,001 to $360,000$360,001 to $370,000$2,480,001 to $2,490,000$2,890,001 to $2,900,000

–
1
–
–
3
1
–
1
–
1
1
–

2
–
1
3
–
–
1
–
1
–
–
1

Total number of directors

89Consolidated
2003
2002
$’000
$’000

Total income paid or payable to directors of the Company and controlled entities from the Company
or related entity2

34,57342,606The Company
2003
2002
$’000
$’000

3,783

4,194

1 For the purpose of this note:i) long term incentive options of the executive director are valued at intrinsic value (nil); andii) accrued retirement benefits are not included.
2 Including the total income of executive directors, excluding directors of controlled entities who are executives of the Company

53: Remuneration of Executives
Executives are defined as members of the Chief Executive’s Group. Remuneration includes salaries, bonuses, other benefits (including non-cash benefits), andsuperannuation contributions. The remuneration of executives who work wholly or mainly outside Australia are excluded from this disclosure. Executive
emoluments disclosed in the Annual Report include the emoluments of the six highest paid executives, calculated to include the amortised cost of Short Term
Incentive deferred shares and Long Term Incentive options and deferred shares granted prior to or during 2003. For the purposes of this note:i) Long Term Incentive options granted are valued at intrinsic value (nil); andii) the performance related bonus components of Short Term and Long Term Incentive deferred shares have been expensed in full and included in theamounts below.
The number of executives with total remuneration exceeding $100,000 in each of the following bands was:
Consolidated
2003
2002

$120,001 to $130,000$150,001 to $160,000$190,001 to $200,000$250,001 to $260,000$260,001 to $270,000$280,001 to $290,000$290,001 to $300,000$310,001 to $320,000$340,001 to $350,000

1
1
–
–
1
1
1
1
1

–
–
1
1
1
1
–
–
1

The Company
2003
2002

1
1
–
–
1
1
1
1
1

–
–
1
1
1
1
–
–
1

70

Notes to the Financial Statements
53: Remuneration of Executives (continued)$350,001 to $360,000$360,001 to $370,000$370,001 to $380,000$390,001 to $400,000$400,001 to $410,000$410,001 to $420,000$420,001 to $430,000$430,001 to $440,000$440,001 to $450,000$450,001 to $460,000$460,001 to $470,000$470,001 to $480,000$480,001 to $490,000$490,001 to $500,000$520,001 to $530,000$530,001 to $540,000$540,001 to $550,000$560,001 to $570,000$570,001 to $580,000$580,001 to $590,000$590,001 to $600,000$600,001 to $610,000$610,001 to $620,000$620,001 to $630,000$660,001 to $670,000$670,001 to $680,000$690,001 to $700,000$700,001 to $710,000$730,001 to $740,000$740,001 to $750,000$760,001 to $770,000$770,001 to $780,000$780,001 to $790,000$790,001 to $800,000$800,001 to $810,000$810,001 to $820,000$820,001 to $830,000$850,001 to $860,000$860,001 to $870,000$910,001 to $920,000$920,001 to $930,000$970,001 to $980,000$1,010,001 to $1,020,000$1,020,001 to $1,030,000$1,060,001 to $1,070,000$1,100,001 to $1,110,000$1,110,001 to $1,120,000$1,120,001 to $1,130,000$1,160,001 to $1,170,000$1,190,001 to $1,200,000$1,200,001 to $1,210,000$1,240,001 to $1,250,000$1,270,001 to $1,280,000$1,340,001 to $1,350,000$1,360,001 to $1,370,000$1,400,001 to $1,410,000$1,430,001 to $1,440,000$1,450,001 to $1,460,000$1,490,001 to $1,500,000$1,510,001 to $1,520,000$1,540,001 to $1,550,000$1,550,001 to $1,560,000$1,580,001 to $1,590,000$2,480,001 to $2,490,000$2,890,000 to $2,900,000

–
–
1
1
–
1
3
–
2
2
5
1
1
2
1
1
2
–
–
1
–
1
–
–
2
–
1
1
1
–
–
–
1
–
1
–
1
1
–
–
1
1
1
1
1
1
–
1
–
–
–
–
1
–
2
1
–
1
–
1
–
–
–
1
–

1
1
1
2
1
–
1
1
1
–
3
1
–
–
–
1
–
2
4
–
1
1
1
1
–
1
–
–
–
1
1
1
–
1
–
1
1
–
2
1
1
1
–
–
–
–
2
–
1
1
1
1
–
1
–
–
2
–
1
–
1
1
1
–
1

–
–
1
1
–
1
3
–
2
2
5
1
1
2
1
1
2
–
–
1
–
1
–
–
2
–
1
1
1
–
–
–
1
–
1
–
1
1
–
–
1
1
1
1
1
1
–
1
–
–
–
–
1
–
2
1
–
1
–
1
–
–
–
1
–

1
1
1
2
1
–
1
1
1
–
3
1
–
–
–
1
–
2
4
–
1
1
1
1
–
1
–
–
–
1
1
1
–
1
–
1
1
–
2
1
1
1
–
–
–
–
2
–
1
1
1
1
–
1
–
–
2
–
1
–
1
1
1
–
1

Total number of executives

55

55

55

55

Total remuneration received or due and receivable directly or indirectly by executives of the Company and controlled entities ($’000)
38,49943,47738,49943,477

71

Notes to the Financial Statements
54: US GAAP Reconciliation
The consolidated financial statements of the Group are prepared in accordance with Generally Accepted Accounting Principles applicable in Australia (AustralianGAAP) which differ in some respects from Generally Accepted Accounting Principles in the United States (US GAAP).
The following are reconciliations of the net profit, shareholders’ equity and total assets, applying US GAAP instead of Australian GAAP.
2003
$m

2002
$m

2001
$m

2,348

2,322

1,870

(xix)

(21)

(40)

(49)

(i)

2

2

2

(i)

2

5

17

(iii)
(ii)

(4)
62

(9)
(6)

–
(28)

(iii)
(vi)
(xvi)
(xv)
(xv)
(xvii)
(xx)

25
2
–
–
(47)
–
(1)
12

25
18
–
–
(17)
(205)
–
2

23
20
(361)
11
284
–
–
7

2,380

2,097

1,796

150.4
150.0

132.3
131.6

112.4
112.1

2,380

2,097

1,796

(356)

(98)

197

(2)
–
76
(99)

3
–
60
–

15
(52)
(66)
–

1,999

2,062

1,890

13,770
(247)
1
50
695
(452)
(17)
–
(14)
309
(203)
(988)
(84)

11,448
(266)
3
48
695
(514)
(20)
681
126
247
(203)
–
(106)

10,538
(287)
–
46
692
(505)
(18)
583
114
117
–
–
(73)

12,82012,139

11,207

195,591
(203)
2
50
695
(452)
66
(726)
397
13
(203)

183,105
(205)
3
48
695
(514)
67
(462)
501
–
(203)

185,493
(210)
(1)
46
692
(505)
58
(552)
552
–
–

195,230

183,035

185,573Note

Net profit reported under Australian GAAP
Items having the effect of increasing (decreasing) net income according
to US GAAP (total tax impact of adjustments shown separately):
Employee share issue and options
Depreciation charged on the difference between revaluation
amount and historical cost of buildings
Difference in gain or loss on disposal of properties revalued
under historical cost
Deferred profit on sale and leaseback transactions
over the lease term
Amortisation of goodwill
Amortisation of deferred profit on sale and leaseback transactions
over the lease term
Pension expense adjustment
Provisions
Transition adjustment related to the initial application of SFAS 133
Derivatives and hedging activities
Adjustment on entering joint venture
Interest accrual on reclassified preference shares
Total tax impact of the above adjustments
Net income according to US GAAP

(xiv)

Earnings per share (cents) according to US GAAP
Basic
DilutedAdjustments to determine other comprehensive income for US GAAPNet income according to US GAAP
Currency translation adjustments, net of hedges after tax: Tax is(Sep 2003: $54m; Sep 2002: $43m; Sep 2001: -$58m)
Unrealised profit (loss) on available for sale securities net of tax: Tax is(Sep 2003: -$1m; Sep 2002: $1m; Sep 2001: $8m)
Transition adjustment related to the initial application of SFAS 133 net of tax: Tax is (Sep 2001: -$27m)
Derivatives and hedging activities net of tax: Tax is (Sep 2003: $33m; Sep 2002: $26m; Sep 2001: -$34m)
Pension plan deficit net of tax: Tax is: (Sep 2003: -$42m)

(ix)
(xv)
(xv)
(vi)

Total comprehensive income according to US GAAP
1

Shareholders’ equity reported under Australian GAAP
Elimination of gross asset incremental revaluations
Unrealised profit (loss) on available for sale securities
Adjustment to accumulated depreciation on buildings revalued
Restoration of previously deducted goodwill
Accumulated amortisation of goodwill
Deferred profit on sale and leaseback transactions
Provision for final cash dividend
Pension expense adjustment
Derivatives and hedging activities
Adjustment on entering joint venture
Reclassification of preference shares
Total tax impact of the above adjustments

(i)
(ix)
(i)
(ii)
(ii)
(iii)
(iv)
(vi)
(xv)
(xvii)(xx)

Shareholders’ equity according to US GAAP
Total assets reported under Australian GAAP
Elimination of gross incremental revaluations
Unrealised profit (loss) on available for sale securities
Adjustment to accumulated depreciation on buildings revalued
Restoration of previously deducted goodwill
Accumulated amortisation of goodwill
Prepaid pension adjustment
Reclassification of deferred tax assets against deferred tax liabilities
Revaluation of hedges
Issue Costs
Adjustment to carrying value of the ING joint venture
Total assets according to US GAAP
1 Excluding outside equity interest

(i)
(ix)
(i)
(ii)
(ii)
(vi)
(v)
(xv)
(xx)
(xvii)

72

Notes to the Financial Statements
54: US GAAP Reconciliation (continued)i) Premises and equipment
In accordance with Australian GAAP, the Groupholds its properties at a deemed cost value(refer note 1). However in the past the Groupat various times, has revalued properties,
increasing the book value of these assets.
Any increments on revaluation were credited
directly to the Asset Revaluation Reserve (ARR),
and decrements were debited to the ARR to theextent of any previous revaluation increments.
Decrements in excess of any previous
revaluation increments were charged to thestatement of financial performance. The ARR
forms part of Shareholders’ equity and is notavailable for future property writedowns whileproperties are measured at deemed cost.
Under US GAAP, revaluation of properties is
not permitted except for decrements which are
regarded as other than temporary. Any suchdecrements are recorded in the statement offinancial performance. Subsequent recoveries
to the statement of financial performance are
not allowed.
The impact of previous revaluations under
Australian GAAP is that depreciation charges
are generally higher and profits on disposal are
lower than those recorded under US GAAP. The
depreciation charges, together with the profits
and losses on revalued assets sold have beenadjusted to historical cost in the US GAAP
reconciliation.
ii) Goodwill
Under Australian GAAP the Group changed its
accounting policy in respect of goodwill in thefinancial year ended 30 September 1993 sothat goodwill is amortised over a period notexceeding 20 years. Previously, goodwill on
acquisition was charged in full to the Group’s
statement of financial performance in the yearof acquisition.
Historically, under US GAAP, goodwill has been
capitalised and amortised over the period oftime during which the benefits are expected toarise, such period not exceeding 20 years.
Adjustments have been made in the US GAAP
reconciliation statement to restore goodwill
written-off in full under Australian GAAP and
to amortise such goodwill over the period of
the expected benefits. Under US GAAP for
goodwill acquired during the year ended
30 September 2002 and for all goodwill
balances after 30 September 2002 a review for
impairment test will apply rather thansystematic goodwill amortisation. This review isundertaken in accordance with SFAS 142‘Goodwill and other Intangible Assets.’
Goodwill acquired is allocated to reporting
segments that are expected to benefit from theacquisition. These units have been evaluatedusing a combination of discounted cashflows
and multiples of earnings methodologies.
Any impairment is recognised in earnings in theyear in which it is identified. The 2003 review
did not indicate any impairment.

For comparability the table below reconciles theGroups US GAAP reported income to ‘adjusted’
income excluding the effect of goodwill
amortisation.
2002
2001
US GAAP reported net income $2,097m $1,796m
Goodwill amortisation
$26m
$45m
Reported net income excluding
effect of amortisation$2,123m $1,841m
Basic EPS using adjusted
net income
134.0
115.4
Diluted EPS using adjusted
net income
133.3
115.1
iii) Sale-leaseback transactions
Under Australian GAAP for operating leases,
gains on disposal under sale-leaseback
transactions can be recognised in the period ofsale. Under US GAAP, the gain is amortised over
the remaining lease term. This difference intreatment has been adjusted in the US GAAP
reconciliation.
iv) Dividends in 2002 and 2001
Historically Australian GAAP dividends
were shown in the statement of financial
performance in the period to which they
relate rather than in the period when they
are declared as required by US GAAP. Thisdifference in treatment has been adjusted
in the US GAAP shareholders’ equity
reconciliation. Changes in Australian GAAP
for 2003 disallows accrual of dividends, thus
there is no adjustment for the 2003 year.
v) Income taxes
Under Australian GAAP, tax benefits relating
to carry forward tax losses must be ‘virtuallycertain’ of being realised before being booked.
Realisations of benefits relating to other timing
differences must be ‘beyond reasonable doubt’
before they may be booked. These tests are
more stringent than those applied under
US GAAP. However no material adjustment tofuture tax benefits for US GAAP is required.
Australian GAAP allows offsetting of future
income tax benefits and liabilities to the extent
they will reverse in the same period.
Under US GAAP, deferred tax liabilities anddeferred tax assets are offset and presented foreach tax paying component of an enterprise
and within each particular tax jurisdiction. The
impact of the difference in this approach toAustralian GAAP has been adjusted for in the
US GAAP reconciliation for total assets.
vi) Pension commitments
Under Australian GAAP, contributions in respectof defined benefit schemes are recorded in theincome statement and are made at levels
necessary to ensure that these schemes aremaintained with sufficient assets to meet theiractuarially assessed liabilities. Any net
deficiency arising from the aggregation ofassets and liabilities of the Group’s defined
benefit schemes, where there is a legal orconstructive obligation, is provided for in theGroup’s financial statements (refer note 49).
Under US SFAS 87 ‘Employers’ Accounting for
Pensions’ and the disclosure requirements of
SFAS 132 ‘Employers’ Disclosures about
Pensions and Other Post Retirement Benefits’,
pension expense is a function of an employee’s

service period, interest costs, expected
actuarial return on the schemes’ assets,
amortisation of net transition asset andrecognised prior service cost. In addition,
reconciliation between the accrued pension
liability/prepaid asset and the funded status(difference between projected benefit
obligation and fair value of pension plan
assets) of the pension schemes is required.
As required under US GAAP an additional
liability has been recognised for the Group’s
UK Pension plan of $142 million ($99 million
after tax) as at September 2003. This liability
is required to be recognised where theaccumulated benefit obligation exceeds thefair value of plan assets and an asset has beenrecognised as prepaid pension cost, or theliability already recognised as unfunded
accrued pension cost, is less than theunfunded accumulated benefit obligation.
vii) Post retirement and post employment benefits
Post retirement and post employment benefits
other than pension payments are not material
and no adjustment is required in the US GAAP
reconciliation.
viii) Trading securities
US GAAP requires that in instances wheretrading securities are not bought and heldprincipally for the purpose of selling them in
the near term, they should be classified asavailable for sale and recorded at market value
with unrealised profits and losses in respect ofmarket value adjustments recognised as othercomprehensive income in Shareholders’ equity.
The residual emerging markets portfolio had
been classified as available for sale with themarket value write down taken through thestatement of financial performance for both
Australian GAAP and US GAAP purposes.
Except for the above no adjustment is required
to be made in the US GAAP reconciliation as theeffect of reclassifying certain trading securities
as available for sale is not material.
ix) Investment Securities
US GAAP requires that investments notclassified as trading securities or as held
to maturity securities shall be classified asavailable for sale securities and be recorded
at market value in accordance with SFAS 115‘Accounting for Certain Investments in Debt andEquity Securities’. An adjustment is made in the
US GAAP reconciliation to reclassify certain
investment securities under Australian GAAP
to reflect available for sale securities which
are carried at market value with unrealised
profits and losses in respect of market
value adjustments being reported as othercomprehensive income in shareholders’ equity.
x) Accounting for the impairment of loans
SFAS 114 ‘Accounting by Creditors for
Impairment of a Loan’, as amended by SFAS
118 ‘Accounting by Creditors for Impairment ofa Loan – Income Recognition and Disclosures’,
requires the value of an impaired loan to bemeasured as the present value of future cash
flows discounted at the loan’s initial effective
interest rate, the loan’s observable market priceor the fair value of the collateral, if the loan iscollateral dependent.

73

Notes to the Financial Statements
54: US GAAP Reconciliation (continued)x) Accounting for the impairment of loans(continued)
There is no requirement under Australian GAAP
to discount the expected future cash flows
attributable to impaired loans in assessing thelevel of specific provision for doubtful debts.
No adjustment is required in the US GAAP
reconciliation as the estimated fair value of
impaired loans is not materially different fromthe carrying value.
xi) Accounting for the impairment of long
lived assets and for long-lived assets tobe disposed of
SFAS 144 ‘Accounting for the Impairment or
disposal of Long-Lived Assets’, requires that
where an event or a change in circumstanceindicates that the carrying value of an asset
that is expected to be held and used may not
be recoverable, an impairment loss should berecognised. The standard also requires that
where there is a committed plan to dispose ofan asset, the asset should be reported at thelower of the carrying value or fair value lessselling costs.
The Group has assessed the carrying values of
all non-current assets and determined that they
are not in excess of their recoverable amounts.
xii) Accounting for transfers and servicing
of financial assets and extinguishmentsof liabilities
SFAS 140 ‘Accounting for Transfers andServicing of Financial Assets andExtinguishments of Liabilities’ prescribes theaccounting and disclosure requirements fortransfers of financial assets andextinguishments of liabilities. Under certain
circumstances, the statement also requires atransferor of financial assets that are pledged
as collateral to reclassify those assets, and thetransferee to recognise those assets and their
obligation to return them.
No adjustment is required in the US GAAP
reconciliation as the effect of adopting theprovisions of SFAS 140 on total assets is notmaterial. Refer to note 39 for the required
disclosures.
xiii) Comprehensive Income
SFAS 130 ‘Reporting Comprehensive Income’establishes standards for reporting and displayof comprehensive income and its components.
Comprehensive income is defined as allchanges in shareholders’ equity during aperiod excluding those resulting frominvestments by shareholders and distributions
to shareholders.
Accordingly, the Group has shown currencytranslation adjustments, unrealised profit
on available for sale securities, additional
pension liability and certain SFAS 133
adjustments as components of othercomprehensive income with net income
according to US GAAP forming the remaining
component of comprehensive income.
Amounts transferred in and out ofcomprehensive income relating to unrealised
profits on available for sale securities are
specific to individual assets. The fair valueof equity investments recorded as available forsale subject to adjustment in the US GAAP
reconciliation was $3.5 million as at 30
September 2003, with a book value of$1.9 million.
The currency translation adjustment throughcomprehensive income includes a net gain on
hedges after tax of $126 million.
xiv) Earnings per share (‘EPS’)
Under US GAAP, EPS is computed inaccordance with SFAS 128 ‘Earnings Per Share’.
This Standard is similar to Australian GAAP.
xv) Accounting for derivative instruments andhedging activities
The Group has adopted SFAS 133 ‘Accounting
for Derivative Instruments and Hedging
Activities’ as amended by SFAS 138‘Accounting for Certain Derivative Instruments
and Certain Hedging Activities’ in its US GAAP
reconciliation from 1 October 2000. SFAS 133
requires all derivatives to be recognised onbalance sheet at fair value. Movements in thefair value of derivatives are taken to thestatement of financial performance, unless thederivatives meet the criteria prescribed in SFAS
133 for fair value, cash flow, or foreign currency
hedges. If certain criteria are met derivatives
can be designated as hedges. Under SFAS 133
normal banking hedging practices may not
qualify for hedge accounting, notwithstanding
their ability to hedge existing balance sheet
positions from an economic perspective.
As a result future fair value movements
recognised in the US GAAP reconciliation may
not be indicative of the Group’s risk profile. The
Group uses instruments and hedging
techniques that are effective in managing
interest rate risk and foreign exchange risk.
Further information on the results of theGroup’s hedging activities, and theeffectiveness of the risk management policies,
can be assessed better by considering theinformation provided on interest rate risk innote 35, and the information on hedging
derivatives provided in note 38: Derivative
Financial Instruments. The accounting forderivatives under Australian GAAP is outlined
in note 1.
Under SFAS 133, movements in the value ofderivatives designated as fair value hedges aretaken to the statement of financial
performance, along with the movement in thefair value of the underlying exposure that isbeing hedged to the extent the hedge iseffective. These amounts largely offset eachother with any ineffectiveness recognised in
the US GAAP statement of financial
performance.

Movements in the effective portion of the fairvalue of derivatives designated as cash flow
hedges are taken to other comprehensive
income. Any ineffectiveness is recognised in
the US GAAP statement of financial
performance immediately. Amounts aresubsequently reclassified out of othercomprehensive income into earnings as thehedged transaction impacts earnings.
The impact on adoption of SFAS 133 andSFAS 138 at 1 October 2000 was atransitional adjustment to increase US GAAP
profit by $11 million, and a transitional
adjustment to decrease other comprehensive
income by $52 million. Changes in market
conditions and the Group’s hedging policies
may result in volatility in these US GAAP
adjustments going forward. The net
gain/(loss) after tax in the net income
according to US GAAP recognised during the
September 2003 year due to fair value andcashflow hedge ineffectiveness or noncompliance is $(57) million and $24 million
respectively.
xvi) Provisions
At 30 September 2000, the Group recorded a
provision for restructuring in accordance with
Australian GAAP amounting to $361 million
before tax with an associated taxation creditof $116 million. US GAAP requires certain
criteria to be met before a restructuringprovision is recognised. These criteria, which
are more detailed than the Australianrecognition criteria, include publicannouncement of many details of the
programs prior to balance date. Accordingly,
the provision and associated taxation effectwere recognised for US GAAP during the year
ended 30 September 2001.
xvii) Gain and non-capitalisable costs recognisedon entering joint venture
In accordance with Australian GAAP theGroup recognised a profit (net of transaction
costs) based on the difference between fairvalue and carrying value of the share ofbusinesses transferred to an external party onentering into a joint venture.
Under US GAAP the gain may not berecognised as it occurred as a result of a nonmonetary transaction, which involved
transferring ownership of controlled entities
in exchange for a non-controlling ownershipinterest in the joint venture.
xviii) Guarantees
As of 1 January 2003 FIN 45 ‘Guarantors
Accounting and Disclosure Requirements for
Guarantors, including indirect Guarantees ofindebtedness of Others’ requires a guarantor(for non derivative contracts) to recognise at
inception a liability equal to the fair value ofthe obligations undertaken in issuing thatguarantee. The fair value of the obligation in
issuing the guarantee at inception is typicallyequal to the net present value of the future
amount of the premium receivable under thecontract.

74

Notes to the Financial Statements
54: US GAAP Reconciliation (continued)
xviii) Guarantees (continued)
ANZ provides a variety of guarantees andindemnifications to our customers to enhancetheir credit standing or allow them tocomplete various business transactions.
The group considers the following off balance
sheet non derivative arrangements to beguarantees under FIN 45: Standby letters ofcredit, Guarantees, Bill endorsements,
Documentary letters of credit, Performance
related contingents. The fair value of theestimated liability related to guarantees forthe forementioned instruments at 30
September 2003 is not material and has notbeen adjusted in the reconciliation.
Standby letters of credit generally include
guarantees of payments for loans, credit
facilities, promissory notes and trade
acceptances and are generally issued inconnection with agreements made bycustomers with counterparties. Documentary
letters of credit are an undertaking by thebank to guarantee payment to a beneficiaryprovided documents are presented in strict
compliance with the terms and conditions of
the documentary credit. Performance
guarantees are issued to guarantee
completion of projects in accordance with
contract terms. They can be issued to supporta customers obligation to supply specified
products, commodities or maintenance orwarranty services to a third party. ANZ asguarantor becomes obligated to perform
under the guarantee when a counterparty
does not fulfill its obligations under anassociated contract. The majority of thesecontracts are short term.
Sold – credit derivatives also meet thedefinition of guarantees under this statement
but are recorded in the statement of financial
position at their fair value.
Details of the maximum potential amount of
future payments can be found at note 48.
The amounts detailed in note 48 represent
the notional amounts that could be lost under
the guarantees and indemnifications if there
was a total default by the guaranteed parties,
without consideration of possible recoveries.
xix) Accounting for stock – compensation plans
Under Australian GAAP an expense is not
required to be recognised for share options
issued to employees or for shares issued at
a discount.
SFAS 123 ‘Accounting for Stock-Based
Compensation’ requires shares and options
issued as part of a compensation plan toemployees to be recognised using either thefair value method or the intrinsic value method
as prescribed by APB No. 25 and its related
interpretations.

For US GAAP APB No.25 share-based employeecompensation cost for variable share option
plans (those with performance hurdles) ismeasured using the intrinsic value method. US
GAAP compensation cost is determined at dateof issue and is expensed if the strike price isless than the market price at the time and it isprobable that performance hurdles are met.
To the extent that the intrinsic value increases
in subsequent periods an additional expense isrecorded.
Variable share option plans include all plans
with performance conditions. The Group’s
policy is to generally grant share options at the
average market price of the underlying sharesat the date of grant.
Share issues to employees under the $1000
Share Plan are expensed in the year issued
under US GAAP. Under Australian GAAP they areissued from Share Capital Account and are notexpensed.
If the fair value basis of accounting had been
applied to account for compensation costs as
stipulated in SFAS 123, the following profit after
income tax and earnings per share would
have appeared.

75

Notes to the Financial Statements
54: US GAAP Reconciliation (continued)xix) Accounting for stock – compensation plans (continued)
2003
$m

2002
$m

2001
$m

Net income according to US GAAP
Intrinsic method adjustment (APB 25)
Fair value adjustment (SFAS 123)

2,380
21
(50)

2,097
40
(44)

1,796
49
(32)

Adjusted Pro Forma net income according to US GAAP

2,351

2,093

1,813

– Basic earnings per share (cents)– Diluted earnings per share (cents)

As
Reported

Pro
Forma

As
Reported

Pro
Forma

As
Reported

Pro
Forma

150.4
150.0

148.5
148.1

132.3
131.6

132.0
131.3

112.4
112.1

113.5
113.2

Details of the share-based compensation plans are included in note 50 to the Financial Statements.
xx) Classification of financial instruments with characteristics of both liability and equity – all new issues post May 2003
Under Australian GAAP, preference shares issued on 23 September 2003 (known as ANZ StEPS) are classified as equity instruments as they are not considered
to be mandatorily converting to ordinary shares and do not meet the classification requirements of a financial liability upon issue.
SFAS 150 ‘Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity’ requires that the StEPS be classified as a liability
because the monetary value of the obligation to the holders of the securities is known at inception and the holders are not exposed to changes in the fair valueof equity. Any associated dividends have been reclassified as interest expense in the US GAAP reconciliation.
Note that SFAS 150 does not as at 30 September 2003 apply to previous issues of preference shares.
xxi) Details of Pension Schemes and Pension Expense
Reconciliations of the funded status of major defined benefit schemes as at 30 June 2003 are summarised below.
Details of the funding of the schemes are set out in note 49.
2003$mAustralian Scheme
2002
$m

2001
$m

Change in benefit obligation
Balance at start of year
Interest costs
Benefits paid
Actuarial gains (losses)

51
3
(6)
2

54
3
(6)
–

54
3
(6)
3

Benefit obligation, 30 June

50

51

54

Change in plan assets
Fair value at start of year
Actual return on plan assets
Employer contribution
Benefits paid

43
(2)
–
(6)

49
–
–
(6)

52
3
–
(6)

Total fair value of plan assets, 30 June

35

43

49

Funded status
Unrecognised net transition loss
Unrecognised net loss
Adjustment required to recognise minimum unfunded projected benefit obligation

(15)
1
16
(17)

(8)
2
10
(12)

(5)
3
7
(10)

Net amount recognised

(15)

(8)

(5)

Amounts recognised in the consolidated statement of financial position consist of:Prepaid benefits costs
Accrued benefit liabilities

–
(15)

–
(8)

–
(5)

5.0%

6.0%

6.0%

2.5%
7.5%

2.5%
7.5%

2.9%
7.5%

The assumptions used in the actuarial calculations are as follows:
Discount rate used in determining present values– pensioners
Annual increase in future compensation levels– pensions
Expected long-term rate of return on assets

76

Notes to the Financial Statements
54: US GAAP Reconciliation (continued)xxi) Details of Pension Schemes and Pension Expense (continued)
2003$m

UK Scheme
2002
$m

2001
$m

1,034
13
53
(49)
56
(155)

1,038
15
62
(62)
27
(46)

923
17
55
(50)
(15)
108

Benefit obligation, 30 June

952

1,034

1,038

Change in plan assets
Fair value at start of year
Actual return on plan assets
Employer contribution
Benefits paid
Foreign currency exchange rate fluctuations

982
(4)
(1)
(49)
(138)

1,152
(69)
(2)
(62)
(37)

1,120
(43)
2
(50)
123

Total fair value of plan assets, 30 June

790

982

1,152

Funded status
Unrecognised net transition gain
Unrecognised loss (gain)
Unrecognised prior service cost
Adjustment required to recognise minimum benefit obligation

(162)
(10)
194
44
(142)

(52)
(19)
92
46
–

114
(28)
(81)
53
–

Net amount recognised

(76)

67

58

Amounts recognised in the consolidated statement of financial position consist of:Prepaid benefits costs
Accrued benefit liabilities

66
(142)

67
–

58
–

5.25%
5.25%

5.75%
5.75%

6.0%
6.0%

4.25%
2.25%
6.25%

4.5%
2.5%
6.75%

4.75%
2.9%
7.0%

2003
$m

2002
$m

2001
$m

Service cost
Interest cost
Expected return on schemes’ assets
Amortisation net transition asset
Recognised prior service cost

14
57
(70)
(6)
4

13
59
(77)
(7)
4

17
55
(74)
(7)
4

Net periodic pension cost

(1)

(8)

(5)

Change in benefit obligation
Balance at start of year
Service cost
Interest cost
Benefits paid
Actuarial gains (losses)
Foreign currency exchange rate fluctuations

The assumptions used in the actuarial calculations are as follows:
Discount rate used in determining present values– active members– pensioners
Annual increase in future compensation levels– salary– pensions
Expected long-term rate of return on assets
The elements of the net periodic pension cost of the above schemes are as follows:

The Group also sponsors defined contribution schemes. The Group’s contributions to major defined contribution schemes amounted to $89 million for the year
(2002: $80 million; 2001: $83 million).

77

Notes to the Financial Statements
55: Exchange Rates
The exchange rates used in the translation of the results and the assets and liabilities of major overseas branches and controlled entities are:
2003

Great British pound
United States dollar
New Zealand dollar

2002

2001

Closing

Average

Closing

Average

Closing

Average

0.40700.6795
1.1431

0.38220.6124
1.11390.34770.5441
1.15850.3621
0.53231.20010.33310.49031.21270.36270.52301.2473

56: Events Since The End Of The Financial Year
The National Bank of New Zealand (NBNZ)
On 24 October 2003, the Company announced the acquisition of NBNZ from Lloyds TSB.
The purchase price was approximately GBP 2,043.8 million ($4,915 million at exchange rates on 23 October 2003) excluding a dividend to Lloyds TSB of NZD
575 million ($498 million) from NBNZ's retained earnings and transaction costs of $25 million.
The acquisition will be funded as follows:> A 2 for 11 renounceable rights issue at $13 per share in the Company raising $3,570 million; and> $1,370 million in hybrid Tier 1 capital, subordinated debt, and wholesale funding.
The completion date of the acquisition is 1 December 2003.
Further matters can be obtained by reference to the ANZ Renounceable Rights Issue prospectus dated 24 October 2003.
The financial effect of this acquisition has not been recognised in these financial statements.
Trust Securities Issues (TrUEPrS)
On 6 November 2003, ANZ called for the buy-back of the ANZ Preference Shares issued as part of the trust units exchangeable for preference shares (TrUEPrS)
Series 1 (September 1998 – CUSIP No.001823202) and Series 2 (November 1998 – CUSIP No.0018241010). The buy-back is for the entire issue of both series.
The buy-back date will be effective on 12 December 2003. This buy-back will also result in ANZ redeeming the TrUEPrS on the same date.
The redemption price will be US$25.00 plus an amount equal to the accrued but unpaid interest on each US$25.00 principal amount of the debt securities fromand including the Interest Payment Date immediately preceding the Exchange Date to, but excluding, the Exchange Date.
The financial effect of this transaction has not been recognised in these financial statements.

Directors’ Declaration
The directors of Australia and New Zealand Banking Group Limited declare that the financial statements and notes of the Company and the consolidated entity:a) are in accordance with the Corporations Act 2001, including:i) complying with applicable Australian Accounting Standards, and other mandatory professional reporting requirements; andii) giving a true and fair view of the financial position of the Company and of the consolidated entity as at 30 September 2003 and of theirperformance as represented by the results of their operations and their cash flows, for the year ended on that date; andb) in the directors’ opinion at the date of this declaration there are reasonable grounds to believe that the Company will be able to pay its debts as
and when they become due and payable.
The Company and some of its wholly owned controlled entities listed in note 48 executed a Deed of Cross Guarantee enabling them to take advantage of theaccounting and audit relief offered by class order 98/1418 (as amended), dated 13 August 1998 issued by the Australian Securities and Investments
Commission.
The nature of the Deed of Cross Guarantee is to guarantee each creditor payment in full of any debt in accordance with the terms of the Deed of
Cross Guarantee.
At the date of this declaration, there are reasonable grounds to believe that the Company and its controlled entities to which the class order applies, are able,
as an economic entity, to meet any obligations or liabilities to which they are, or may become, subject by virtue of the Deed of Cross Guarantee.
Signed in accordance with a resolution of the directors

John Dahlsen
Director
7 November 2003

John McFarlane
Chief Executive Officer

78

79

Auditors’ Report
Independent audit report to the members of Australia and New Zealand Banking Group Limited
Scope
We have audited the financial report of Australia and New Zealand Banking Group Limited for the financial year ended 30 September 2003, consisting of thestatements of financial performance, statements of financial position, statements of changes in shareholders’ equity, statements of cash flows, accompanying
notes 1 to 56 and the directors’ declaration set out on pages 2 to 78. The financial report includes the consolidated financial statements of the consolidated
entity, comprising the Company and the entities it controlled at the end of the year or from time to time during the financial year. The Company’s directors are
responsible for the financial report. We have conducted an independent audit of this financial report in order to express an opinion on it to the members of theCompany.
Our audit has been conducted in accordance with Auditing Standards of Australia and the United States of America to provide reasonable assurance whether
the financial report is free of material misstatement. Our procedures included examination, on a test basis, of evidence supporting the amounts and otherdisclosures in the financial report, and the evaluation of accounting policies and significant accounting estimates. These procedures have been undertaken toform an opinion whether, in all material respects, the financial report is presented fairly in accordance with Accounting Standards and other mandatory
professional reporting requirements in Australia and statutory requirements so as to present a view which is consistent with our understanding of theCompany’s and the consolidated entity’s financial position, and performance as represented by the results of their operations and their cash flows.
The audit opinion expressed in this report has been formed on the above basis.
Audit Opinion
In our opinion, the financial report of Australia and New Zealand Banking Group Limited is in accordance with:a) the Corporations Act 2001, including:i) giving a true and fair view of the Company’s and consolidated entity’s financial position as at 30 September 2003 and of their performance for thefinancial year ended on that date; andii) complying with Accounting Standards in Australia and the Corporations Regulations 2001; andb) other mandatory professional reporting requirements in Australia.
Accounting principles generally accepted in Australia vary in certain respects from accounting principles generally accepted in the United States of America. An
explanation of the major differences between the two sets of principles is presented in note 54 to the financial statements.
The application of the United States principles would have affected the determination of consolidated net profit for each of the three years in the period ended
30 September 2003 and the determination of the consolidated financial position as of 30 September 2003, 2002 and 2001 to the extent summarised in note
54 to the financial statements.

KPMG
Chartered Accountants
Melbourne
7 November 2003

Peter Nash
PartnerCritical Accounting Policies

80

The Group prepares its consolidated financial statements in accordance with Australian Accounting Standards and other authoritative accounting
pronouncements. However, notwithstanding the existence of relevant accounting standards, there are a number of critical accounting treatments, which include
complex or subjective decisions or assessments. The Group requires all such applications of judgement to be reviewed and agreed by Group Finance, and where
the impact is material, the accounting treatment be reviewed during the audit process by the Group’s external auditors.
All material changes to accounting policy are approved by the Audit Committee of the Board.
Historical changes
No change has been made to any of the critical accounting policies or their related methodologies over the last 3 years.
A brief discussion of critical accounting policies, and their impact on the Group, follows:a) Economic Loss Provisioning
Description and Significance
Each month the Group recognises an expense for credit losses based on the expected long term loss ratio for each part of the loan portfolio. The monthly
charge is booked to the General Provision which is maintained to cover losses inherent within the Group’s existing loan portfolio. The method used by theGroup for determining this monthly expense charge is referred to as ‘economic loss provisioning’ (ELP). The Group uses ELP models to calculate the expected
loss by considering:> the history of credit loss for each type and risk grade of lending; and> the size, composition and risk profile of the current loan portfolio.
Ongoing reviews
The Group regularly reviews the assumptions used in the ELP models. These reviews are conducted in recognition of the subjective nature of the ELP
methodology. Methodologies are updated as improved analysis becomes available. In addition, the robustness of outcomes is reviewed considering the Group’s
actual loss experience, and losses sustained by other banks operating in similar markets.
To the extent that credit losses are not consistent with previous loss patterns used to develop the assumptions within the ELP methodology, the existing General
Provision may be determined to be either in excess of or insufficient to cover credit losses not yet specifically identified.
As a result of the reassessments, ELP charge levels may be periodically increased or decreased with a direct impact on profitability.
As part of its review of the ELP model outputs, the Group also regularly evaluates the overall level of the General Provision. The Group is required, by APRA
prudential standards, to have policies which cover the level of General Provisions that are needed to absorb estimated losses inherent in the credit portfolio.
In some limited circumstances, the assessment of the inherent losses in the portfolio may require an additional charge to profits to ensure the adequacy of theGeneral Provision. The Group considers it appropriate to maintain its General Provision in excess of the APRA guidelines.
Quantification of Sensitivity
The average charge to profit for ELP was 0.39% of average net lending assets or $614 million (Sep 2002: 0.43% or $610 million excluding the special
general provision of $250 million. During 2002 an additional provision for bad debts of $250 million was added to the general provision to restore its balance toan appropriate level). During the same period, specifically identified credit losses net of recoveries during the year were $527 million(Sep 2002: $728 million).
As at September 2003, the balance of the General Provision of $1,534 million (Sep 2002: $1,496 million) represents 1.01% (Sep 2002: 1.06%) of risk
weighted assets.
b) Specific Provisioning
Description and Significance
The Group maintains a specific provision for doubtful debts arising from its exposure to organisations and credit counterparties.
The Group’s ELP provisioning methodology is used to estimate the extent of losses inherent within the loan book. Once a specific doubtful debt loss is identified
as being probable, its value is transferred from the General Provision to the Specific Provision. Specific provisioning methodology applies when the full recovery
of one of the Group’s exposures is identified as being doubtful resulting in the creation of a specific provision equal to the full amount of the expected loss plus
any enforcement/recovery expenses.
Recoveries resulting from excess specific provisions arising when actual losses are determined to be less than the amount provided for within the specificprovision are transferred back to the General Provision.

81

Critical Accounting Policies
Quantification of Sensitivity
The recognition of losses has an impact on the size of the General Provision rather than directly impacting profit. However, to the extent that the General
Provision is drawn down beyond a prudent amount it will be restored through a transfer from the current year’s earnings. Recoveries of amounts previously
specifically provided against are applied to the restoration of the General Provision balance. The amount of net transfer from the General Provision to theSpecific Provision, net of recoveries, during the year was $527 million (Sept 2002: $728 million).
c) Deferred acquisition costs, software assets and deferred income
Description and Significance
The Group recognises assets and liabilities that represent:> Deferred acquisition costs – direct costs from the acquisition of interest earning assets;> Software assets – direct costs incurred in developing software systems; and> Deferred income – liabilities representing income received in advance of services performed.
Deferred acquisition costs – Initially, expenses related to the acquisition of interest earning assets are recognised as part of the cost of acquiring the asset andwritten-off as an adjustment to its yield over its expected life. For assets subject to prepayment, expected life is determined on the basis of the historicalbehaviour of the asset portfolio, taking into account prepayments. Commissions paid to third party mortgage brokers are an example of expenditure that isdeferred and amortised over the expected average life of a mortgage of 4 years.
Software assets – Costs incurred in acquiring and building software and computer systems are capitalised as fixed assets and expensed as depreciation overperiods of between 3 and 5 years except for the branch front end applications where 7 years is used. The carrying value of these assets is subject to a‘recoverable amount test’ to determine their value to the Group. If it is determined that the value of the asset is less than its ‘book’ value, the asset is written
down to the recoverable amount. Costs incurred in planning or evaluating software proposals, or in maintaining systems after implementation, are notcapitalised.
Deferred income – Income received in advance of the Group’s performance of services or in advance of having been earned, is initially recorded as a liability.
Once the recognition criteria are met, it is then recognised as income.
Quantification of Sensitivity
Deferred acquisition costs – At 30 September, the Group’s assets included $336 million (Sep 2002: $289 million) in relation to costs incurred in acquiring
interest earning assets. During the year, amortisation of $169 million (Sep 2002: $132 million) was recognised as an adjustment to the yield earned on interest
earning assets.
Software assets – At 30 September, the Group’s fixed assets included $465 million (Sep 2002: $419 million) in relation to costs incurred in acquiringand developing software. During the year, depreciation expense of $83 million (Sep 2002: $50 million) was recognised and adjustments were made torecognise the right to use software in Tradecentrix. Following prior periods of above average project activity which replaced significant parts of the Group’s core
infrastructure, the software depreciation expense will increase before stabilising going forward. Consistent with US accounting rules on software capitalisation
only costs incurred during configuration, coding and installation stages are capitalised. Administrative, preliminary project and post implementation costs
including determining performance requirements, vendor selection and training costs are expensed as incurred.
Deferred income – At 30 September, the Group’s liabilities included $272 million (Sep 2002: $170 million) in relation to income received in advance. This
income is largely comprised of 2 components: (1) fees received for services not yet completed; and (2) profit made on an interest rate swap that was hedging
future payments (years 2004 and forward) on the Group’s preference shares. Under Australian Accounting Standards, this profit is deferred and recognised
when the hedged transaction occurs, or immediately if the hedged transaction is no longer expected to occur.
The balances of deferred assets at 30 September were:
Deferred Acquisition Costs
2003
2002
$m
$m

Software Assets
2003
2002
$m
$m

Deferred Income
2003
2002
$m
$m

Personal Banking Australia
Corporate
Institutional
Consumer FinanceMortgages
Asset Finance
Asia Pacific
Other

–
–
7
–
102
227
–
–

–
–
27
–
73
189
–
–

242
14
50
47
33
21
2
56

176
9
14
45
27
29
1
118

–
7
7
9
–
–
–
249

–
11
30
–
–
–
2
127

Total

336

289

465

419

272

170

82

Critical Accounting Policiesd) Derivatives and Hedging
Description and Significance
The Group buys and sells derivatives as part of its trading operations and to hedge its interest rate risk, foreign exchange risk and equity risks (in the ING
Australia joint venture). The derivative instruments used to hedge the Group’s exposures include:> swaps;> forward rate agreements;> futures;> options; and> combinations of the above instruments.

Accounting treatment – In accordance with the requirements of Australian Accounting Standards, derivative instruments entered into for the purpose of hedging
are accounted for on the same basis as the underlying exposures or risks.
Derivative instruments entered into to hedge exposures that are not recorded at fair value, do not have their fair values recorded in the Group’s Statement of
Financial Position (in accordance with Australian Accounting Standards).
Exposures hedged by derivatives not recorded at their fair value include risks related to:> revenues from foreign operations;> structured lending transactions;> lending assets; and> funding liabilities.
Hedge accounting is only applied when the hedging relationship is identified at the time the Group enters into the hedging derivative transaction.
If a hedge ceases to be effective, the hedging derivative transaction will be recognised at fair value. Gains and losses on derivative instruments not carriedat their fair value amounts are recognised at the same time as the gain or loss on the hedged exposure is booked.
Movements in the value of foreign exchange contracts that are hedging overseas operations are not recognised as income or expenses. Instead these
movements are recognised in the Foreign Currency Translation Reserve together with the net difference arising from the translation of the overseas operation.
Fair value determination –Derivatives entered into as part of the Group’s trading operations are carried at their fair values with any change in fair value being
immediately recognised as part of trading income. Where liquid markets exist, fair value is based on quoted market prices. For certain complex or illiquid
derivative instruments, it may be necessary to use projections, estimates and models to determine fair value. In addition, judgemental factors such as the needfor credit adjustments, liquidity and other valuation adjustments affect the reported fair value amounts of derivatives.
e) Special purpose and off balance sheet vehicles
The Group may invest in or establish special purpose companies, or vehicles (SPVs), to enable it to undertake specific types of transactions.
Where the Group controls such vehicles, they are consolidated into the Group financial results.
Certain SPVs may be set up by the Group to facilitate Group strategic aims, or to assist with structured transactions for clients. The accounting treatment of each
SPV is assessed using existing Australian guidance, with reference also to International and US accounting standards where specific issues are yet to beaddressed in Australia. The table below summarises the main types of SPVs that are not consolidated into the Group, the reason for their establishment, andthe key risks associated with them.

Type of Special
Purpose Vehicle (SPV)

Securitisation vehicles

2003
$m

SPV Assets
2002$m

Reason for establishment

Key Risks

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

ANZ may manage securitisation vehicles, service assets
9,9541in a vehicle or provide liquidity support or other support andretains the risks associated with the provision of these services.
Credit and market risks associated with the underlying assets
are not retained or assumed by ANZ. ANZ may also provide
other services (eg. swaps, credit guarantees). ANZ
earns fees at a commercial rate for providing these services.

6,9921

Enables ANZ or customers to increase
diversity of funding sources.

Structured finance entities

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

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

2,124

1,968

Managed funds

These funds invest in specified
investments on behalf of clients.

The ANZ/ING Australia joint venture, as manager of thefunds, exposes ANZ to operational risk and reputational risk.

28,65526,642

1 The amounts disclosed are the total assets managed or arranged by ANZ. They include SPV’s that purchase assets from sellers other than ANZ

83

Critical Accounting Policiesf) Valuation of investment in ING Australia Limited (INGA)
Description and significance
The Group adopts the equity method of accounting for its 49% interest in the INGA joint venture. As of 30 September 2003, the Group’s carrying value is$1,648 million (2002: $1,593 million).
The carrying value is subject to a recoverable amount test, to ensure that this does not exceed its recoverable amount at the reporting date. This involves, theGroup obtaining an indication of whether the carrying value may be less than the recoverable amount. If so, an independent valuation is sourced to determine
current recoverable amount.
Any excess of carrying value above recoverable amount is written off to the Statement of Financial Performance.
Quantification of sensitivity
During the year the Group engaged Ernst and Young ABC Ltd (EY ABC) to provide an independent valuation of INGA as at 31 March 2003. The valuation was astand alone market based assessment of economic value, and excluded the Group’s specific synergies and hedging arrangements. The independent valuation
was based on a discounted cashflow approach, with allowance for the cost of capital. EY ABC presented an independent valuation range of $3,304 million to$3,690 million, reflecting a range of sales and cost base assumptions.
The key assumptions used in that valuation were reviewed by EY ABC against recent business experience as at 30 September 2003 to assess any potential
valuation impacts. Based on this review, ANZ believes no change is required to the carrying value of the investment at 30 September 2003.
Key valuation assumptions
The 31 March 2003 valuation was based on a 31 December 2002 benchmark date with a roll-forward assesment to 31 March 2003. The valuation was basedon a discounted cash flow approach comprising the present value of estimated future distributable profits after corporate tax, together with (in Australia only)
the present value of 70% of the attaching imputation credits.
The assumptions underlying the cash flow projections were generally based on a long term view, together with an assessment of the current market environment.
The following gross of tax risk discount rates were used:> Australian life insurance business10.75% pa> Australian funds management businesses

11.75% pa> New Zealand businesses

13.00% pa

All economic assumptions, including future investment earnings and discount rates, were derived using the Capital Asset Pricing Model.
The value of future new business was based on a projection of 20 years of future new business allowing for:> anticipated new business growth and volumes; and> future margin squeeze
Other business assumptions were set relative to the experience of the business and the industry as well as management business plans.

84

Financial Information
1: Cross Border Outstandings
Cross border outstandings of the Group to countries which individually represented in excess of 0.75% of the Group’s total assets are shown below.
There were no cross border outstandings to any other country exceeding 0.75% of total assets.
Cross border foreign outstandings are based on the country of domicile of the borrower or guarantor of the ultimate risk and comprise loans (including accrued
interest), placements with banks, acceptances and other monetary assets denominated in currencies other than the borrower’s local currency.
For certain countries, local currency obligations are also included. Cross border foreign outstandings are before specific and general provisions.
Governments
Banks andand other other financial
official institutions
institutions
$m
$m

Other
commercial
and industrial
$m

Total
$m

% of
Group
assetsAt 30 September 2003
United Kingdom
USA
New Zealand

205
94
6

1,571
1,818
1,254

2,769
1,171
392

4,545
3,083
1,652

2.3
1.6
0.8

At 30 September 2002
United Kingdom
USA
South Korea1
Singapore1
FranceGermany

273
29
245
603
358
370

1,079
2,456
1,305
388
349
345

4,581
1,705
171
629
890
797

5,933
4,190
1,721
1,620
1,597
1,512

3.2
2.3
0.9
0.9
0.9
0.8

1 Includes local lending in local currency

2: Certificates of Deposit and Term Deposit Maturities
The following table shows the maturity profile of the Group’s certificates of deposit and term deposits in excess of $100,000 issued at 30 September 2003.

Australia
Certificates of deposit
Term deposits

Overseas
Certificates of deposit
Term deposits

Total

Less than
3 months$m

Between
3 months and6 months$m

Between
6 months and
12 months$m

After
1 year
$m

Total
$m

3,979
13,111

748
838

399
580

1,903
163

7,029
14,692

17,090

1,586

979

2,066

21,721

2,579
14,465

298
1,133

128
797

114
402

3,119
16,797

17,044

1,431

925

516

19,91634,134

3,017

1,904

2,582

41,637

85

Financial Information
3: Volume and Rate Analysis
The following table allocates changes in interest income and interest expense between changes in volume and changes in rate for the past two years. Volume
and rate variances have been calculated on the movement in average balances and the change in the interest rates on average interest earning assets andaverage interest bearing liabilities. The variance caused by the change of both volume and rate has been allocated in proportion to the relationship of theabsolute dollar amounts of each change to the total.
2003 over 2002
Change due toRate$m2002 over 2001
Change due to
Rate
$m

Total
$m

Volume
$m

Total
$m

(10)
1
(9)
–

5
(4)
(12)
–

(5)
(3)
(21)
–

(10)
(1)
4
–

(11)
(7)
(68)
–

(21)
(8)
(64)
–

47
17
15

(5)
1
(19)

42
18
(4)

45
(23)
(4)

(40)
(25)
(28)

5
(48)
(32)

949
172
(84)

41
42
(40)

990
214
(124)

414
71
(55)

(835)
(174)
(304)

(421)
(103)
(359)

2
–
14

86
23
(53)

88
23
(39)

(1)
15
34

(80)
(1)
(131)

(81)
14
(97)

7

(18)

(11)

(104)

(221)

(325)

1,121

47

1,168

385

(1,925)(1,540)

(7)

18

11

104

221

325

1,114

65

1,179

489

(1,704)(1,215)

205
94
(10)

23
20
(71)

228
114
(81)

71
29
87

(215)
(92)
(328)

(144)
(63)
(241)

23
4
(1)

11
(1)
(3)

34
3
(4)

34
8
2

(58)
(21)
(2)

(24)
(13)
–

117
9
(1)

54
11
(1)

171
20
(2)

115
13
(2)

(195)
(17)
(7)

(80)
(4)
(9)

1
4
(21)

(1)
2
(48)

–
6
(69)

28
1
(122)

(10)
(4)
(237)

18
(3)
(359)

64
18

10
(33)

74
(15)

(72)
(71)

(60)
(130)

(132)
(201)

28
21

9
(1)

37
20

(1)
9

(48)
(9)

(49)
–

210
6
(8)

45
1
(3)

255
7
(11)

171
3
(3)

(148)
(2)
(17)

23
1
(20)

129
(19)
(3)

(18)
18
(7)

111
(1)
(10)

(47)
12
(12)

43
(74)
(21)

(4)
(62)
(33)

20
(27)

(14)
10

6
(17)

(75)
(29)

(192)
(29)

(267)
(58)

863

13

876

149

(1,873)(1,724)

(7)

18

11

104

221

325

856

31

887

253

(1,652)(1,399)

258

34

292

236

(52)

184

Volume$mInterest earning assets
Due from other financial institutions
Australia
New ZealandOverseas markets
Regulatory deposits with Reserve Bank of Australia
Investments in public securities
Australia
New ZealandOverseas markets
Loans, advances and bills discounted
Australia
New ZealandOverseas markets
Other assets
Australia
New ZealandOverseas markets
Intragroup assets
Overseas markets
Change in interest income
Intragroup elimination

Interest bearing liabilities
Time deposits
Australia
New ZealandOverseas markets
Savings deposits
Australia
New ZealandOverseas markets
Other demand deposits
Australia
New ZealandOverseas markets
Due to other financial institutions
Australia
New ZealandOverseas markets
Commercial paper
Australia
Overseas markets
Borrowing corporations’ debt
Australia
New Zealand
Loan capital, bonds and notes
Australia
New ZealandOverseas markets
Other liabilities
Australia
New ZealandOverseas markets
Intragroup liabilities
Australia
New Zealand
Change in interest expense
Intragroup elimination

Change in net interest income

86

Financial Information
4: Concentrations of Credit Risk

Concentrations of credit risk exist if a number of counterparties are engaged in similar activities and have similar economic characteristics that would cause theirability to meet contractual obligations to be similarly affected by changes in economic or other conditions. Off balance sheet transactions of the Group are
substantially with other banks.

Australia
Agriculture, forestry, fishing and mining
Business service
Entertainment, leisure and tourism
Financial, investment and insurance
Government and official institutions
Lease finance
Manufacturing
Personal2
Real estate – construction
Real estate – mortgage3
Retail and wholesale trade
Other

Overseas
Agriculture, forestry, fishing and mining
Business service
Entertainment, leisure and tourism
Financial, investment and insurance
Government and official institutions
Lease finance
Manufacturing
Personal2
Real estate – construction
Real estate – mortgage3
Retail and wholesale trade
Other

Total portfolio

Loans andadvances1$m

2003
Specific
provision$m

Loans andadvances1$m

2002
Specific
provision$m

Loans andadvances1$m

2001
Specific
provision
$m

3,829
2,632
2,632
4,966
51
2,613
5,366
15,648
1,767
69,660
6,821
5,335

71
4
23
5
–
2
5
23
4
11
54
65

3,436
2,120
2,465
4,603
67
2,503
4,303
14,893
1,152
57,049
5,957
3,990

16
5
28
13
–
2
7
27
5
32
15
61

3,500
2,044
2,293
4,311
122
2,524
4,034
13,435
1,198
49,127
6,017
3,850

104
7
27
3
–
5
11
36
11
13
16
70

121,320267

102,538

211

92,455

303

2,756
323
534
1,516
274
609
3,654
1,771
472
12,759
1,741
5,058

12
1
5
5
–
–
17
19
1
4
9
144

2,526
435
586
1,561
212
844
4,701
1,848
551
11,956
1,648
5,943

3
1
4
21
–
1
34
7
1
5
15
282

2,686
214
361
2,276
372
936
5,153
1,804
921
11,638
2,021
5,853

8
1
1
26
27
4
30
18
9
12
18
43

31,467217

32,811

374

34,235

197

152,787484

135,349585

126,690500

1 Loans and advances exclude acceptances
2 Personal includes non-business loans to individuals through overdrafts, personal loans, credit cards and fully drawn advances
3 Real estate mortgage includes residential and commercial property exposure. Loans within this category are for the purchase of such properties and must be secured by property

87

Financial Information
4: Concentrations of Credit Risk (continued)

Australia
Agriculture, forestry, fishing and mining
Business service
Entertainment, leisure and tourism
Financial, investment and insurance
Government and official institutions
Lease finance
Manufacturing
Personal2
Real estate – construction
Real estate – mortgage3
Retail and wholesale trade
Other

Overseas
Agriculture, forestry, fishing and mining
Business service
Entertainment, leisure and tourism
Financial, investment and insurance
Government and official institutions
Lease finance
Manufacturing
Personal2
Real estate – construction
Real estate – mortgage3
Retail and wholesale trade
Other

Total portfolio

Loans andadvances1$m

2000
Specific
provision$m

Loans andadvances1$m

1999
Specific
provision
$m

4,157
2,206
2,062
5,532
103
2,821
4,236
12,728
1,376
43,912
5,691
4,196

34
6
4
1
–
8
19
131
7
9
24
17

4,288
1,717
2,007
4,438
106
3,585
3,815
9,280
1,376
35,862
4,946
3,835

12
5
25
5
–
5
19
94
6
48
23
39

89,020260

75,255

281

2,429
274
505
1,952
627
504
4,781
1,876
820
10,628
1,950
4,266

12
1
6
128
25
–
118
16
36
16
35
56

2,131
550
665
2,214
750
405
6,493
2,304
753
9,645
2,010
4,376

17
7
4
156
–
1
213
35
32
25
72
64

30,612449

32,296626

119,632

709

107,551907

1 Loans and advances exclude acceptances
2 Personal includes non-business loans to individuals through overdrafts, personal loans, credit cards and fully drawn advances
3 Real estate mortgage includes residential and commercial property exposure. Loans within this category are for the purchase of such properties and must be secured by property

88

Financial Information
5: Doubtful Debts – Industry Analysis
2003
$m

2002
$m

2001
$m

2000
$m

1999
$m

Balance at start of year
Adjustment for exchange rate fluctuations
Bad debts written off (refer (i) below)
Charge to statement of financial performance
Recoveries (refer (ii) below)
Other1

2,081
(98)
(640)
614
61
–

1,886
(28)
(697)
860
60
–

2,082
32
(834)
531
75
–

2,302
37
(539)
502
46
(266)

2,220
(79)
(382)
510
33
–

Total provisions for doubtful debts

2,018

2,081

1,886

2,082

2,302

i) Total write-offs by industry
Australia
Agriculture, forestry, fishing and mining
Business service
Entertainment, leisure and tourism
Financial, investment and insurance
Lease finance
Manufacturing
Personal2
Real estate – construction
Real estate – mortgage3
Retail and wholesale trade
Other
Overseas
Other

(4)
(11)
(3)
(9)
(22)
(10)
(177)
(10)
(11)
(42)
(15)

(72)
(8)
(4)
(8)
(7)
(17)
(237)
(12)
(19)
(47)
(37)

(14)
(6)
(5)
(7)
(11)
(22)
(292)
(13)
(13)
(97)
(28)

(12)
(5)
(10)
(3)
(9)
(11)
(133)
(5)
(51)
(28)
(8)

(6)
(4)
(3)
(28)
(5)
(18)
(67)
(8)
(16)
(19)
(48)

(326)

(229)

(326)

(264)

(160)

Total write-offs

(640)

(697)

(834)

(539)

(382)

2
1
1
1
2
6
24
3
1
3
–

3
1
2
–
2
3
27
2
4
3
1

5
1
1
2
1
2
30
1
3
2
1

4
–
1
4
2
5
9
1
4
2
2

–
–
–
3
2
1
8
–
1
–
2

17

12

26

12

16

Total recoveries

61

60

75

46

33

Net write-offs

(579)

(637)

(759)

(493)

(349)

Ratio of net write-offs to average loans and acceptances

0.4%

0.4%

0.5%

0.4%

0.3%

ii) Total recoveries by industry
Australia
Agriculture, forestry, fishing and mining
Business service
Entertainment, leisure and tourism
Financial, investment and insurance
Lease finance
Manufacturing
Personal2
Real estate – construction
Real estate – mortgage3
Retail and wholesale trade
Other
Overseas
Other

1 2000 includes $266 million reduction from the sale of Grindlays
2 Personal includes non-business loans to individuals through overdrafts, personal loans, credit cards and fully drawn advances
3 Real estate mortgage includes residential and commercial property exposure. Loans within this category are for the purchase of such properties and must be secured by property

89

Financial Information
6: Short Term Borrowings
The Group’s short-term borrowings comprise commercial paper, as well as unsecured notes issued by subsidiary borrowing corporations with an original term tomaturity of less than one year. The Group has commercial paper programs in the United States, where it issues paper through ANZ (Delaware) Inc., and inEurope and Asia, where the Group issues paper direct.

Balance at end of year
Commercial paper – ANZ (Delaware) Inc.
Commercial paper – otherUnsecured notes
Weighted average interest rate at end of year
Commercial paper – ANZ (Delaware) Inc.
Commercial paper – otherUnsecured notes
Maximum amount outstanding at any month end during year
Commercial paper – ANZ (Delaware) Inc.
Commercial paper – otherUnsecured notes
Average amount outstanding during year
Commercial paper – ANZ (Delaware) Inc.
Commercial paper – otherUnsecured notes
Weighted average interest rate during year
Commercial paper – ANZ (Delaware) Inc.
Commercial paper – otherUnsecured notes

2003
$m

2002
$m

2001
$m

6,981
5,458
–

1,654
3,963
12

4,059
5,043
28

1.07%
4.76%
–

1.85%
4.92%
6.22%

4.67%
3.78%
5.69%

6,988
7,407
7

5,541
5,647
29

7,096
7,193
99

4,740
5,216
7

3,641
3,888
14

5,408
5,275
53

1.22%
4.83%
5.85%

2.00%
4.57%
5.54%

5.07%
5.87%
5.73%

90

Glossary

Asia Pacific provides primarily retail banking
services in the Pacific Region and Asia, including
ANZ’s share of PT Panin Bank in Indonesia.
Excludes Institutional Financial Services andCorporate transactions.

Institutional Financial Services comprises
Institutional Banking, Transaction Services,
Foreign Exchange, Capital Markets, Structured
Finance International, and Corporate Financing
and Advisory.

Esanda and UDC provides motor vehicle andequipment finance, equipment operating leases
and management services, fleet management
services, and investment products to customers
in Australia and New Zealand through its threebusinesses – Esanda (Australia), Esanda
FleetPartners (Australia and New Zealand) andUDC (New Zealand).

Mortgages provides mortgage finance secured
by residential real estate in Australia and New
Zealand.

Consumer Finance provides consumer andcommercial credit cards, ePayment products,
personal loans, and merchant payment facilities
in Australia, New Zealand and selected overseas
markets.
Corporate business segment comprises
corporate banking and small to medium
enterprise banking in Australia. Corporate
provides financial products and develops
product strategies for medium sized businesses.
Small to medium enterprise banking provides
a full range of banking services for metropolitan
based small to medium business with turnover
up to $10 million.
Economic loss provisioning (ELP) charge
is determined based on the expected averageannual loss of principal over the economic cycle
for the current risk profile of the lending
portfolio.
Equity standardisation Economic Value Added(EVATM) principles are in use throughout theGroup, whereby risk adjusted capital is allocatedand charged against business units. Equity
standardised profit is determined by eliminating
the impact of earnings on each business unit’s
book capital and attributing earnings on thebusiness unit’s risk adjusted capital. Thisenhances comparability of business unit
performance. Geographic results are not equity
standardised.
Impaired assets are loans or other credit
facilities where there is reasonable doubt about
the collectability of interest, fees (past andfuture) or principal outstanding, or whereconcessional terms have been provided becauseof the financial difficulties of the customer.
ING Australia (INGA) is a joint venture between
the Group and the ING Group, providing
integrated manufacture and distribution of
wealth creation, management and protection
products and services aligned to the Groups
distribution and the open market. The INGA
segment result for 2002 includes seven months
ANZ Funds Management result (to 1 May 2002).

Net advances include gross loans and advances
and acceptances less income yet to mature andprovisions (for both as at and average volumes).
Net interest average margin is net interest
income as a percentage of average interest
earning assets. Non-assessable interest income
is grossed up to the equivalent before tax
amount for the purpose of these calculations.
Net interest spread is the average interest ratereceived on interest earning assets less theaverage interest rate paid on interest bearing
liabilities. Non-assessable interest income isgrossed up to the equivalent before tax amountfor the purpose of these calculations.
Net non-interest bearing items, which arereferred to in the analysis of interest spread andnet interest average margin, includes
shareholders’ equity, provisions for doubtful
debts, and deposits not bearing interest andother liabilities not bearing interest, offset bypremises and equipment and other non-interest
earning assets. Non-accrual loans are included
within interest bearing loans, advances and bills
discounted.
Net specific provision is the transfer fromthe general provision to the specific provision(representing new and increased specificprovisions less specific provision releases on
impaired assets) less recoveries.
New Zealand banking provides a full rangeof banking services, including wealthmanagement, for personal, small business andcorporate customers in New Zealand throughbranches, call centres, relationship managers
and on-line banking. New Zealand Banking
excludes Mortgages, Consumer Finance andUDC. New Zealand geography (page 53) includes
all ANZ operations in New Zealand.
Operating expenses exclude charge for
doubtful debts.

Operations, Technology & Shared Services
is the Group’s core support unit and is
responsible for the Group’s global technicalplatforms, development and maintenance ofbusiness applications, the Group’s payments
business and the provisions of other essential
shared services to the Group, including
property, Human Resources operations
services, procurement and outsourcing.
Overseas includes the results of all operations
outside Australia.
Overseas markets includes the resultsof operations in the UK, Europe, Asia, Pacificand Americas. The Group’s geographic
segments are Australia, New Zealand andOverseas markets.
Personal Banking Australia comprises
personal distribution and banking products.
Personal distribution provides a full range ofbanking and financial planning services topersonal customers across Australia, and tosmall business and agricultural customers inrural Australia. Banking Products
manufactures deposit, transaction accounts
and margin lending products. In addition,
the business manage ANZ’s direct channels
covering Phone Banking, ATMs andInternet Banking.
Service transfer pricing is in use throughout
the Group, whereby business and support
units recover the cost of services provided toother units. The basis of pricing for internal
services varies from cost recovery, to market
equivalent. There are some head office costs
which are not recharged.
Total advances include gross loans andadvances and acceptances less income yet tomature (for both as at and average volumes).
Treasury is the banker to all Group businesses.
Treasury provides cash flow support, ensuresliquidity, manages interest rate risk andprovides capital to the Group businesses.
Unproductive facilities comprise facilities (suchas standby letters of credit, bill endorsements,
documentary letters of credit and guarantees
to third parties, undrawn facilities to which theGroup is irrevocably committed and market
related exposures) where the customer status
is non-accrual.

91

Alphabetical Index

Page

Accounting Policies
6
Associates
56
Auditors’ Report
79
Average Balance Sheet and Related Interest 38
Bonds and Notes
33
Capital Adequacy
36
Certificates of Deposit andTerm Deposit Maturities
84
Commitments
58
Concentrations of Credit Risk
86
Contingent Liabilities, Contingent Assets
and Credit Related Commitments
58
Controlled Entities
56
Critical Accounting Policies
80
Cross Border Outstandings
84
Customers’ Liabilities for Acceptances
26
Deferred Tax Assets
27
Deposits and Other Borrowings
30
Derivative Financial Instruments
47
Directors’ Declaration
78
Dividends
14
Doubtful Debts – Industry Analysis
88
Due from Other Financial Institutions
16
Due to Other Financial Institutions
30
Earnings Per Ordinary Share15
Employee Share and Option Plans
62
Equity Instruments Issued to Employees
12
Events Since the End of the Financial Year 77
Exchange Rates
77
Expenses11
Fiduciary Activities
57
Glossary
90
Goodwill
27
Impaired Assets
23
Income10
Income Tax Expense
13
Income Tax Liabilities
31
Interest Sensitivity Gap
44Interest Spreads andNet Interest Average Margins
41

Page

Interests in Joint Venture Entities
Investment Securities
Life Insurance
Liquid Assets
Loan CapitalMarket Risk
Net Fair Value of Financial Instruments
Net Loans and Advances
Notes to the Financial Statements
Notes to the Statements of Cash Flows
Other Assets
Outside Equity Interests
Payables and Other Liabilities
Premises and Equipment
Provisions
Provisions for Doubtful Debts
Regulatory Deposits
Related Party Disclosures
Remuneration of Auditors
Remuneration of Directors
Remuneration of Executives
Securitisation
Segment Analysis
Share Capital
Shares in Controlled Entities,
Associates and Joint Venture Entities
Short Term Borrowings
Statements of Cash Flows
Statements of Changes
in Shareholders’ Equity
Statements of Financial Performance
Statements of Financial Position
Superannuation Commitments
Trading Securities
US GAAP Reconciliation
Volume and Rate Analysis

57
17
51
15
33
42
45
20
6
54
27
35
31
28
32
25
26
67
12
69
69
51
52
34
26
89
5
4
2
3
61
16
71
85

This page has been left blank intentionally92

Australia and New Zealand Banking Group Limited
is a company limited by shares, incorporated anddomiciled in Australia. Its registered office andprincipal place of business is:Australia and New Zealand Banking Group Limited
Level 6, 100 Queen Street Melbourne,
Victoria 3000 Australia
The principal activities of the Group during theyear were general banking, mortgage lending,life insurance, leasing, hire purchase and general
finance, international and investment banking,investment and portfolio management andadvisory services, nominee and custodian services
and executor and trustee services.
The number of employees (full time equivalents)
as at 30 September 2003 was 23,137.

www.anz.com

2003 ANZ Financial Report

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

2003 ANZ
Financial Report

StrongDifferent
Successful
Sustainable