the rewardsof being different.

ANZ Financial Report 2006

financial report
page

page

page

Income Statements

2

Balance Sheets

3

Statements of Recognised
Income and Expense

4

Cash Flow Statements

5

19 Deferred Tax Assets
34
20 Goodwill and Other Intangible
Assets35
21 Other Assets
36
22 Premises and Equipment
36
23 Due to Other Financial Institutions 38
24 Deposits and Other Borrowings
38
25 Income Tax Liabilities
39
26 Payables and Other Liabilities
39
27 Provisions
40
28 Bonds and Notes
40
29 Loan Capital
41
30 Share Capital43
31 Reserves and Retained Earnings 45
32 Minority Interests
46
33 Average Balance Sheet andRelated Interest
47
34 Interest Spreads and Net Interest
Average Margins
50
35 Financial Risk Management
51
36 Interest Rate Risk
57
37 Fair Value of Financial Assets
and Financial Liabilities
59
38 Segment Analysis
61
39 Notes to the Cash Flow Statements 64
40 Controlled Entities
66
41 Associates
67
42 Interests in Joint Venture Entities 67
43 Fiduciary Activities
69
44 Commitments
69
45 Contingent Liabilities,
Contingent Assets and Credit
Related Commitments
70

46 Superannuation and Other Post
Employment Benefit Schemes
75
47 Employee Share and Option Plans 80
48 Key Management Personnel
Disclosures
87
49 Transactions with Other
Related Parties
89
50 Exchange Rates
89
51 Impact of Adopting Australian
Equivalents to International
Financial Reporting Standards
90
52 Events Since the Endof the Financial Year108

Notes to the Financial Statements
1
2

Significant Accounting Policies
Critical Estimates andJudgements Used in Applying
Accounting Policies
3 Income
4 Expenses
5 Compensation 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 Derivative Financial Instruments
13 Available-for-sale Assets andInvestment Securities
14 Net Loans and Advances
15 Impaired Financial Assets
16 Provision for Credit Impairment
17 Regulatory Deposits
18 Shares in Controlled Entities,
Associates and Joint
Venture Entities

6

14
16
17
18
19
20
22
22
22
23
23
27
30
31
32
33

33

1

Directors’ Declaration

110

Independent Audit Report

111

Financial Information
1
2
3
4
5
6
7

Cross Border Outstandings
Certificates of Deposit and Term
Deposit Maturities
Volume and Rate Analysis
Concentrations of Credit Risk
Provision for Credit Impairment– Industry Analysis
Short Term Borrowings
Capital Management

112
112
113
114
115
116
117

Glossary120

Alphabetical Index122

Income statements for the year ended 30 September
Consolidated

The Company

Note

2006
$m

20053
$m

2006
$m

20053
$m

Total income

325,51021,297

17,914

14,037

Interest income
Interest expense3422,301(15,358)

17,719(11,901)

14,618(10,341)

10,948(7,648)

6,943

5,818

4,277

3,300

Net interest income
Other operating income
Share of joint venture profit from ING Australia and ING New ZealandShare of associates profit

3
3
3

3,015
138
56

3,377
149
52

3,296
–
–

3,089
–
–

Operating income
Operating expenses

4

10,152(4,531)

9,396(4,418)

7,573(3,250)6,389(3,126)

Profit before credit impairment and income tax
Provision for credit impairment

16

5,621
(407)

4,978
(580)

4,323
(278)

3,263
(388)

5,214

4,398

4,045

2,875

(1,522)(1,220)

(871)

(700)

Profit for the year

3,692

3,178

3,174

2,175

Profit attributable to minority interests
Profit attributable to shareholders of the Company1,2

4
3,688

3
3,175

–
3,174

–
2,175

200.0
194.0

169.5
164.4

n/a
n/a

n/a
n/a

Profit before income tax
Income tax expense

6

Earnings per ordinary share (cents)
Basic
Diluted8
8

The notes appearing on pages 6 to 108 form an integral part of these financial statements.
1 The results of 2006 include the impact of these significant items:■ Settlement of ANZ National Bank claims ($14 million profit after tax), Company (NIL)■ Settlement of NHB insurance claim ($79 million profit after tax), Group and Company
The results of 2005 include the impact of the significant item:■ Gain on sale of NBNZ Life ($14 million profit after tax), Company (NIL)
2 Includes NBNZ incremental integration costs of $26 million (2005: $52 million) after tax.
3 2005 comparatives are not restated for the financial instruments standards being AASB 132, AASB 139 and AASB 4, as permitted under the first time adoption transitional provisions.

2 ANZ Full Financial Report 2006

Balance sheets as at 30 September
Consolidated

The Company

2006
$m

2005 1$m

2006$m

2005 1$m

15,019
9,665
9,179
9,164
10,653
255,410
13,435
–
205
–
2,200
1,384
3,337
5,011
1,109

11,601
6,348
6,285
6,511
10,042
232,490
13,449
–
159
–
1,926
1,389
3,458
6,173
1,054

10,427
6,253
7,508
8,787
8,657
172,155
13,4259,418
132
11,424
307
867
419
2,690
527

7,191
3,452
5,309
6,027
5,301
153,361
13,4498,625
113
11,998
92
806
422
2,833
495

335,771

300,885

252,996

219,474

14,118204,794
8,753
13,435–569
1,384
10,679957
50,05011,126

12,027
190,322
7,006
13,449
–
199
1,602
7,618
914
39,073
9,137

11,652
128,321
8,442
13,425
12,556
701
999
8,823
688
39,83910,251

9,029
113,089
6,322
13,449
11,694
281
1,211
5,472
650
32,7398,452

Total liabilities

315,865

281,347

235,697

202,388

Net assets

19,906

19,53817,29917,086

Note

AssetsLiquid assets
Due from other financial institutions
Trading securities2
Derivative financial instruments
Available-for-sale assets/investment securities3
Net loans and advances
Customer’s liabilities for acceptances
Due from controlled entities
Regulatory deposits
Shares in controlled entities
Shares in associates and joint venture entities
Deferred tax assets
Goodwill and other intangible assets4
Other assets
Premises and equipment

9
10
11
12
13
14

17
18
18
19
20
21
22

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

23
24
12

25
25
26
27
28
29

EquityOrdinary share capitalPreference share capital
Reserves
Retained earnings

30
30
31
31

8,271
871
(354)
11,084

8,053
1,858
(46)
9,646

8,271
871
(16)
8,173

8,053
1,858
(135)
7,310

Share capital and reserves attributable to shareholders of the Company
Minority interests

32

19,872
34

19,511
27

17,299–17,086–

19,906

19,53817,29917,086

Total Equity
Commitments
Contingent liabilities, contingent assets and credit related commitments

44
45

The notes appearing on pages 6 to 108 form an integral part of these financial statements.
1
2
3
42005 comparatives are not restated for the financial instruments standards being AASB 132, AASB 139 and AASB 4, as permitted under the first time adoption transitional provisions.
Includes bills held in portfolio $1,569 million (September 2005: $1,182 million).
In 2005 available-for-sale assets were reported as investment securities.
Excludes notional goodwill related to the ING Australia joint venture of $826 million (September 2005: $826 million) and the ING New Zealand joint venture of $79 million (September 2005:$82 million).

3

Statements of recognised income and expense for the year ended 30 September
Consolidated

The Company

2006
$m

2005
$m

2006
$m

2005
$m

(203)

(443)

97

(213)

Available-for-sale assets
Valuation gain taken to equity
Cumulative (gain) transferred to the income statement on sale

20
(8)

n/a
n/a

15
(7)

n/a
n/a

Cash flow hedges
Valuation gain taken to equity
Transferred to income statement for the year

121
(56)

n/a
n/a

36
(7)

n/a
n/a

Actuarial (loss)/gain on defined benefit plans

(55)

25

(54)

23

Net income/(loss) recognised directly in equity

(181)

(418)

80

(190)

Profit for the year

3,692

3,178

3,174

2,175

Total recognised income and expense for the year

3,511

2,760

3,254

1,985

Items recognised directly in equity1
Currency translation adjustments
Exchange differences on translation of foreign operations taken to equity

Total recognised income and expense for the year attributable tominority interests
Total recognised income and expense for the year attributable toshareholders of the Company

4

3

–

–

3,507

2,757

3,254

1,985

Effect of adoption of AASB 139:2
Available-for-sale reserve
Hedging reserve
Retained earnings

(10)
162
(431)

n/a
n/a
n/a

(11)
11
(201)

n/a
n/a
n/a

(279)

n/a

(201)

n/a

The notes appearing on pages 6 to 108 form an integral part of these financial statements.
1 These items are disclosed net of tax (refer Note 6).
2 No portion is attributable to minority interests.

4 ANZ Full Financial Report 2006

Cash flow statements for the year ended 30 September
Consolidated
Note

Cash flows from operating activities
Interest received
Dividends received
Fee income received
Other income received
Interest paid
Personnel expenses paid
Premises expenses paid
Other operating expenses paid
Recovery from NHB litigation
Income taxes paid
Australia
Overseas
Goods and services tax received (paid)(Increase)/decrease in operating assets
Liquid assets – greater than three months
Due from other financial institutions
Trading securities
Regulatory deposits
Loans and advances
Increase/(decrease) in operating liabilities
Deposits and other borrowings
Due to other financial institutions
Payables and other liabilities
Net cash (used in)/provided by operating activities
Cash flows from investing activities
Net (increase)/decrease
Available-for-sale assets
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
Other
Net cash provided by/(used in) investing activities
Cash flows from financing activities
Net increase (decrease)
Due from/to controlled entities
Bonds and notes
Issue proceeds
Redemptions
Loan capital
Issue proceeds
Redemptions
Change in minority interests
Dividends paid
Share capital issues
Share capital buyback
Euro Trust security issue
Euro Trust issue costs
Net cash provided by financing activities
Net cash (used in)/provided by operating activities
Net cash provided by/(used in) investing activities
Net cash provided by financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Foreign currency translation on opening balances
Cash and cash equivalents at end of year

39(a)

39(b)

The notes appearing on pages 6 to 108 form an integral part of these financial statements.

5

The Company

2006
$m

2005
$m

2006
$m

2005
$m

23,014
53
2,082
1,057
(14,676)(2,737)(379)(2,416)
114

17,868
144
2,303
1,013
(11,414)(2,498)(367)(2,144)–

14,623
1,151
1,434
1,273
(9,311)(1,887)(262)(1,154)114

10,926
475
1,340
1,517
(7,541)(1,702)
(251)
(931)
–

(788)
(437)
(18)

(572)
(500)
18

(793)
(46)
–

(434)
(37)
–

(1,300)1,318(1,681)(42)(26,848)

(728)
(371)
(821)
5
(28,788)

(441)
177
(182)
(17)
(18,732)

(631)
(180)
(523)
22
(20,599)

16,1291,859
541(5,155)19,856
4,972(1,339)(3,363)

14,736
2,462
1,221
4,366

14,085
3,422(1,375)(2,417)(15,480)
16,239(17,188)
17,856(16,880)
13,695(13,873)
14,421

(289)
14

(208)
360

(230)
10

–
–

(250)
19
1,697
1,950

(325)
86
(1,719)(1,138)

(161)
12
(239)
(3,793)(277)
1(2,370)(2,098)

–

–

66

1,085

17,506(8,949)17,968(5,025)

14,316(8,873)

13,691(4,665)

1,248
(656)
–
(1,930)
147
(146)
–
–
7,220
(5,155)
1,950
7,220
4,015
13,702
2,627
20,344

1,225
(93)
8
(1,808)
120
(204)
875
(4)
13,062(3,363)(1,138)13,0628,561
7,854(2,713)
13,702

1,188
(626)
–
(1,903)
147
(146)
–
–
4,169
4,366
(3,793)
4,169
4,742
7,899
929
13,5701,225––(1,724)
120
(204)
875
(4)
10,399(2,417)(2,098)
10,3995,884
4,242(2,227)7,899

Notes to the financial statements
1: Significant Accounting Policies
i) Basis of preparation
These consolidated financial statements
comprise a general purpose financial report
and:comply with the accounts provisionsof the Banking Act 1959
have been prepared in accordancewith the Australian equivalents to
the International Financial ReportingStandards (AIFRS), other authoritive
pronouncements of the Australian
Accounting Standards Board, Urgent
Issues Group Interpretations and the
Corporations Act 2001.
are presented in Australian dollars
have been prepared in accordance withthe historical cost convention exceptthat the following assets and liabilities
are stated at their fair value: derivative
financial instruments, including thefair value of any applicable underlying
exposure; assets treated as availablefor-sale; financial instruments held
for trading; term funding instruments
including specific bonds and notes; anddefined benefit plan assets and liabilities.
The preparation of the financial reportrequires the use of management judgement,
estimates and assumptions that affectreported amounts and the application ofpolicies. The estimates and associatedassumptions are based on historicalexperience and various other factors thatare believed to be reasonable. Actual results
may differ from these estimates. Discussionof these critical accounting treatments,
which include complex or subjective
decisions or assessments, are covered
within Note 2. Such estimates may require
review in future periods.
The Parent entity is an entity of the kindreferred to in Australian Securities andInvestments Commission class order
98/100, dated 10 July 1998 (as amended).
Consequently, amounts in the financial
report have been rounded to the nearest
million dollars except where otherwise
indicated.
The financial report was authorised for issue
by the directors on 1 November 2006.
International Financial Reporting Standards(IFRS) form the basis of Australian
Accounting Standards issued by the
AASB, being AIFRS. The Group revised its
accounting policies effective 1 October
2004 to enable the preparation of financial
statements that comply with AIFRS.
This is the Group’s first annual financial
report prepared in accordance with AIFRS.
AASB 1: ‘First-time Adoption of Australian
Equivalents to International Financial
Reporting Standards’ has been appliedin preparing these financial statements.
An explanation of how the transition fromsuperseded policies to AIFRS has impacted
the Group’s reported financial position,
financial performance and cash flow, is set
out in Note 51.
The accounting policies have been
consistently applied by all consolidated
entities and to all periods presented in
the consolidated financial report, and theopening AIFRS balance sheet as at 1 October
2004, except for those policies relating tostandards for which comparatives are notrestated, as permitted under the first time
adoption transitional provisions of AASB
1. The standards are AASB 132: ‘Financial
Instruments: Presentation and Disclosure’,AASB 139: ‘Financial Instruments:
Recognition and Measurement’, and AASB
4: ‘Insurance Contracts’. Policies appliedin respect of the period 1 October 2004 to
September 2005 prior to the adoption ofthese standards are set out as ‘comparative
accounting policy’ throughout this note.
The Group has elected to early adopt
the following accounting standards andamendments:
AASB 119: ‘Employee Benefits’(December 2004)
AASB 2004-3: ‘Amendments to Australian
Accounting Standards’ (December2004) amending AASB 1, AASB 101:
‘Presentation of Financial Statements’ and
AASB 124: ‘Related Party Disclosures’AASB 2005-3: ‘Amendment to Australian
Accounting Standards’ (June 2005)
amending AASB 119: ‘Employee Benefits’(December 2004)
AASB 2005-4: ‘Amendments toAustralian Accounting Standards’(June 2005) amending AASB 139:
‘Financial Instruments: Recognition andMeasurement’, AASB 132: ‘Financial
Instruments: Presentation and Disclosure’,AASB 1: ‘First-time Adoption of Australian
Equivalents to International Financial
Reporting Standards’ (July 2004), AASB
1023: ‘General Insurance Contracts’ and
AASB 1038: ‘Life Insurance Contracts’.
The following standards and amendments
were available for early adoption but havenot been applied by the Group in thesefinancial statements:
AASB 7: ‘Financial Instruments:
Disclosure’. AASB 7 is applicable forannual reporting periods beginningon or after 1 January 2007
AASB 2005-1: ‘Amendments to Australian
Accounting Standards’ (May 2005)
amending AASB 139. AASB 2005-1 isapplicable for annual reporting periods
beginning on or after 1 January 2006.
6 ANZ Full Financial Report 2006

AASB 2005-9: ‘Amendments to Australian
Accounting Standards’ (September 2005)
replacing the presentation requirements
for financial instruments in AASB 132.
AASB 2005-9 is applicable for annual
reporting periods beginning on or after
1 January 2006.
AASB 2005-10: ‘Amendments toAustralian Accounting Standards’(September 2005) makes consequential
amendments to AASB 132: ‘Financial
Instruments: Presentation andDisclosure’, AASB 101: ‘Presentationof Financial Statements’, AASB 114:
‘Segment Reporting’, AASB 117: ‘Leases’,
AASB 133: ‘Earnings per Share’, AASB
139: ‘Financial Instruments: Recognition
and Measurement’, AASB 1, AASB 4,AASB 1023: ‘General Insurance Contracts’and AASB 1038: ‘Life Insurance Contracts’arising from the release of AASB 7. AASB
2005-10 is applicable for annual reporting
periods beginning on or after 1 January
2007.
The initial application of AASB 7 and AASB
2005-10 is not expected to have an impact
on the financial results of the Company
and the Group as the standard and theamendment are only concernedwith disclosures.
AASB 7 requires the disclosure of thesignificance of financial instruments on an
entity’s financial position and performanceand of qualitative and quantitative
information about exposure to risks arisingfrom financial instruments. AASB 2005-10
amendments arise from the release of AASB
7 and are only applicable when an entity
adopts AASB 7.
AASB 2005-1 permits the foreign currency
risk of a highly probable intragroup forecast
transaction to qualify as the hedged item inconsolidated financial statements provided
that the transaction is denominated in acurrency other than the functional currencyof the entity entering into that transaction
and the foreign currency risk will affectconsolidated financial statements.
As a result of the amendments introduced
by AASB 2005-1, the Group can no longer
designate NZD denominated revenuesof its New Zealand subsidiary as hedged
items. The realised gains on the hedgesof future years’ revenues of approximately$141 million (net of tax) are included in thehedging reserve in equity at 30 September
2006. In line with AIFRS requirements, thesegains (which would have otherwise beentransferred to the income statement in futureyears as the hedged transactions occurred)
were transferred directly to retained earnings
at 1 October 2006.

Notes to the financial statements
1: Significant Accounting Policies (continued)
The initial application of AASB 2005-9
could have an impact on the financial
results of the Company and the Groupas the amendment could result in liabilities
being recognised for financial guarantee
contracts that have been provided by
the Company and the Group. However,the quantification of the impact is not yet
known or reasonably estimable. An exercise
to quantify the financial impact is currently
being undertaken by the Company and
the Group.

ii) Consolidation
The financial statements consolidate
the financial statements of Australia and
New Zealand Banking Group Limited (theCompany) and all of its controlled entities
where it is determined that there is a
capacity to control.
Where controlled entities have been soldor acquired during the year, their operating
results have been included to the date ofdisposal or from the date of acquisition.
Control means the power to govern directly
or indirectly the financial and operating
policies of an entity so as to obtain benefits
from its activities. Control is usually present
when an entity has: power over more than
one-half of the voting rights of the otherentity; power to govern the financial andoperating policies of the other entity;
power to appoint or remove the majorityof the members of the board of directors
or equivalent governing body; or power tocast the majority of votes at meetings of theboard of directors or equivalent governing
body of the entity. In addition, potential
voting rights that are presently exercisable orconvertible are taken into account. However,
all the facts of a particular situation are
considered when determining whether
control exists. In relation to special purpose
entities, such control is also deemed toexist even where an entity owns less than amajority of the shareholder or Board voting
power of such companies, provided that thefollowing factors exist:
the majority of the benefits from theiractivities accrue to the entity
the entity has the majority of the residual
risks and rewards of the special purpose
entity.
Further detail on special purpose entities
is provided in note 2(i).
The Group adopts the equity method of
accounting for associates and the Group’s
interest in joint venture entities.

The Group’s share of results of associates
and joint venture entities is included in the
consolidated income statement. Sharesin associates and joint venture entities
are stated in the consolidated balance
sheet at cost plus the Group’s share ofpost acquisition net assets. Interests inassociates and joint ventures are reviewed
annually for impairment primarily using
a discounted cash flow methodology. In
the course of completing this impairment
review other methodologies are considered
to determine the reasonableness of thevaluation, including the multiples
of earnings methodology.

The consolidated financial statements arepresented in Australian dollars, which is
the Company’s functional and presentation
currency.

In the Company’s financial statements,
investments in associates and joint venture
entities are carried at cost.

Transactions and balances
Foreign currency transactions are translated
into the functional currency using theexchange rates prevailing at the dates of thetransactions. Foreign exchange gains andlosses resulting from (i) the settlement ofsuch transactions, and (ii) the translation
at year-end exchange rates of monetary
assets and liabilities denominated inforeign currencies, are recognised in theincome statement, except when deferredin equity as qualifying cash flow hedges
and qualifying net investment hedges.

All significant activities of the Group, withthe exception of the ING Australia Joint
Venture, are operated through wholly
owned controlled entities.
Derecognition
The Group enters into transactions where it
transfers assets recognised on its balance
sheet but retains either all risks and rewardsof the transferred assets or a portion ofthem. If all or substantially all risks andrewards are retained, the transferred assets
are not derecognised from the balance
sheet. The main types of financial assetsthat do not qualify for derecognition aredebt securities held by counterparties as
collateral under repurchase agreements,
equity securities lent under securities
lending agreements and securitised assets.
In transactions where substantially all
the risks and rewards of ownership of afinancial asset are neither retained nor
transferred, the Group derecognises theasset if control over the asset is lost. The
rights and obligations retained in thetransfer are recognised separately as assets
and liabilities as appropriate. In transfers
where control over the asset is retained,
the Group continues to recognise the asset
to the extent of its continuing involvement,
determined by the extent to which it is
exposed to changes in the value of thetransferred asset.

iii) Foreign currency
Functional and presentation currency
Items included in the financial statementsof each of the Group’s entities are measured
using the currency of the primary economic
environment in which the entity operates(the functional currency).

7

Translation differences on non-monetary
items, such as derivatives measured at fairvalue through profit or loss, are reported aspart of the fair value gain or loss on these
items. For 2006, translation differences on
non-monetary items measured at fair value
through equity, such as equities classified
as available-for-sale financial assets, areincluded in the available-for-sale reservein equity.

Foreign operations
The results and financial position of all
Group entities (none of which has thecurrency of a hyperinflationary economy),that have a functional currency different
from the Group’s presentation currency,
are translated into the Group’s presentation
currency as follows:(i) assets and liabilities of each foreign
operation are translated at the rates of
exchange ruling at balance date;(ii) revenue and expenses of each foreign
operation are translated at the averageexchange rate for the period, unless thisaverage is not a reasonable approximationof the rate prevailing on transaction date,
in which case revenue and expenses aretranslated at the exchange rate ruling attransaction date; and(iii) all resulting exchange differences
are recognised in the foreign currencytranslation reserve.
On consolidation, exchange differences
arising from borrowings and other currency
instruments designated as hedges of net
investment in foreign operations, are taken
to the foreign currency translation reserve.

Notes to the financial statements
1: Significant Accounting Policies (continued)
When a foreign operation is disposed, suchexchange differences are recognised in theincome statement as part of the gain or loss
on sale.

Fees charged for providing ongoing services(for example, maintaining and administering
existing facilities) are recognised as income
over the period the service is provided.

Goodwill and fair value adjustments arisingon the acquisition of a foreign entity aretreated as assets and liabilities of theforeign entity and translated at the rateruling at balance date.

Comparative period policy
Fee and commission income is broughtto account on an accruals basis. Certain
yield-related front-end application fees
received are deferred and accrued to income
as an adjustment to yield over the periodof the loan. Non yield-related application
and activation lending fees received arerecognised as income no later than when
the loan is disbursed or the commitment
to lend expires.

iv) Interest income and interest expense
Current accounting policy
Interest income and interest expense arerecognised in the income statement as theyaccrue, using the effective interest method.
The effective interest method calculates
the amortised cost of a financial asset or
financial liability and allocates the interest
income or interest expense, including feesand directly related transaction costs thatare an integral part of the effective interest
rate, over the expected life of the financial
instrument. Income and expense on thefinancial instruments are recognised onan effective yield basis in proportion to
the amount outstanding over the period
to maturity or repayment.
Loan commitment fees, together with related
direct costs, are deferred and recognised
as an adjustment to the interest yield on
the loan once drawn or immediately to theincome statement for expired commitments.
Fees and commissions payable to brokers
in respect of originating lending business,where these are direct and incremental costs
related to the issue of a financial instrument,
are deferred in other assets and recognised
in interest income as part of the effective
interest rate.
Comparative period policy
Interest on amounts outstanding isaccounted for on an accruals basis withthe exception of interest on non-accrualloans as set out in note 1(x) undercomparative period policy.

v) Fee and commission income
Current accounting policy
Fees and commissions that are integral tothe effective interest rate of a financial asset
or liability are included in the determinationof the effective interest rate.
Fees and commissions that relate to the
execution of a significant act (for example,
advisory or arrangement services, placement
fees and underwriting fees) are recognised
when the significant act has been completed.

vi) Offsetting of income and expenses
Income and expenses are not offset unlessrequired or permitted by an accounting
standard. At the Group level, this generally
arises in the following circumstances:where transaction costs form an integral
part of the effective interest rate of afinancial instrument which is measured
at amortised cost, these are offset against
the interest income generated by thefinancial instrument
where gains and losses relating to fairvalue hedges are assessed as being
effective
where gains and losses from a group ofsimilar transactions are reported on a net
basis, such as foreign exchange gains andlosseswhere amounts are collected on behalf ofthird parties, where the Group is acting asan agent only, or
where costs are incurred on behalf ofcustomers from whom the Group isreimbursed.

vii) Trading securities and other financial
assets at fair value through profit or loss
Current accounting policy
Trading securities and other financial
instruments acquired principally for the
purpose of selling in the short-term or which
are a part of a portfolio which is managed
for short-term profit-taking are initiallyrecognised and subsequently measured
in the balance sheet at their fair value.
Additionally, this valuation basis is used
as an alternative to hedge accounting for
certain financial instruments where certain
conditions are met.
Changes in the fair value (gains or losses)of these financial instruments arerecognised in the income statementin the period in which they occur.

8 ANZ Full Financial Report 2006

Comparative period policy
Securities held for trading purposes arerecorded at market value. Unrealised gains
and losses on revaluation are taken to theincome statement.

viii) Derivative financial instruments
Current accounting policy
Derivative financial instruments arecontracts whose value is derived from one
or more underlying price, index or othervariable. They include swaps, forward
rate agreements, futures, options andcombinations of these instruments.
Derivative financial instruments areentered into for trading purposes (including
customer-related reasons), or for hedging
purposes (where the derivative instruments
are used to hedge the Group’s exposures
to interest rate risk, currency risk, price risk,
credit risk and other exposures relating to
non-trading positions).
Derivative financial instruments arerecognised initially at fair value with gains
or losses from subsequent measurement
at fair value being recognised in theincome statement. Where the derivativeis designated effective as a hedging
instrument, the timing of the recognitionof any resultant gain or loss in the income
statement is dependent on the hedging
designation. These hedging designations
and associated accounting are as follows:
Fair value hedge
Where the Group hedges the fair valueof a recognised asset or liability or firm
commitment, changes in the fair valueof the derivative designated as a fairvalue hedge are recognised in theincome statement. Changes in the fairvalue of the hedged item attributable
to the hedged risk are reflected inadjustments to the carrying value of thehedged item, which are also recognisedin the income statement.
Hedge accounting is discontinued
when the hedge instrument expires
or is sold, terminated, exercised or nolonger qualifies for hedge accounting.
The resulting adjustment to the carrying
amount of the hedged item arising fromthe hedged risk is amortised to theincome statement over the period tomaturity.
If the hedged item is sold or repaid, theunamortised fair value adjustment isrecognised immediately in the income
statement.

Notes to the financial statements
1: Significant Accounting Policies (continued)
Cash flow hedge
The Group designates derivatives ascash flow hedges where the instrument
hedges the variability in cash flows
of a recognised asset or liability, aforeign exchange component of a firm
commitment or a highly probable forecast
transaction. The effective portion ofchanges in the fair value of derivatives
qualifying and designated as cash flow
hedges is deferred to the hedging reserve
which forms part of shareholders’ equity.
Any ineffective portion is recognised
immediately in the income statement.
Amounts deferred in equity are recognisedin the income statement in the period
during which the hedged forecast
transactions take place.
When the hedge expires, is sold,terminated, exercised, or no longer
qualifies for hedge accounting, thecumulative amount deferred in equity
remains in the hedging reserve, and is
subsequently transferred to the income
statement when the hedged item isrecognised in the income statement.
When a forecast transaction is no longer
expected to occur, the amount deferredin equity is recognised immediately in theincome statement.
Net investment hedge
Hedges of net investments in foreign
operations are accounted for similarly tocash flow hedges. The gain or loss fromremeasuring the fair value of the hedging
instrument relating to the effective portionof the hedge is deferred in equity andthe ineffective portion is recognised
immediately in the income statement.
Derivatives that do not qualify forhedge accounting
All gains and losses from changes in the fairvalue of derivatives that are not designatedin a hedging relationship but are enteredinto to manage the interest rate and foreignexchange risk of funding instruments arerecognised in the income statement. Undercertain circumstances, the componentof the fair value change in the derivative
which relates to current period realised andunrealised interest is included in net interest
income. The remainder of the fair value
movement is included in other income.
Purchases and sales of derivatives that
do not qualify for hedge accounting arerecognised on trade date, being the dateon which the Group commits to purchaseor sell the asset.

Embedded derivatives
Derivatives embedded in financial
instruments or other host contracts aretreated as separate derivatives when theireconomic characteristics and risks are notclosely related to those of the host contracts,
and the host contracts are not measured
at fair value. The embedded derivative ismeasured at fair value with changes in fairvalue immediately recognised in the income
statement.
Cash flow treatment
Movements in the derivative financial
position are recorded in the cash flow
statement when they are settled on theother financing and investing lines.
Set-off arrangements
Fair value gains/losses arising from trading
derivatives are not offset against fair value
gains/losses on the balance sheet unlessa legal right of set-off exists.
For contracts subject to master netting
agreements that create a legal right of
set-off for which only the net revaluation
amount is recognised in the income
statement, unrealised gains on derivatives
are recognised as part of other assets andunrealised losses are recognised as part ofother liabilities.
Comparative accounting policy
Trading derivatives, comprising derivatives
entered into for customer-related or for
proprietary reasons or for hedging the
trading portfolio, are measured at fair value
and all gains and losses are taken to otheroperating income in the income statement.
Derivatives designated as hedges ofunderlying non-trading exposures areaccounted for on the same basis as theunderlying exposures. To be designated asa hedge, the fair value of the hedge mustmove inversely with changes in the fair valueof the underlying exposure.
Gains and losses resulting from thetermination of a derivative that was
designated as a hedge of non-trading
exposures are deferred and amortised over
the remaining period of the original term
covered by the terminated instrument where
the underlying exposure still exists. The
gains or losses are recorded in the income
or expense line in which the underlying
exposure movements are recorded. Where
the underlying exposure no longer exists,
the gains and losses are recognised in theincome statement in the other operating
income line.

9

Gains and losses on derivatives related tohedging exposures arising from anticipatedtransactions are deferred and recognisedin the financial statements when the
anticipated transaction occurs.
These gains and losses are deferred only
to the extent that there is an offsetting
unrecognised (unrealised) gain or loss on
exposures being hedged. Deferred gains andlosses are amortised over the expected termof the hedged exposure and are recordedin the results of operations in the same line
as the underlying exposure. For hedging
instruments designated as hedging interest
rate risk, the amortised deferred gain or loss
is posted to the net interest line; for items
designated as hedging foreign currency
exposures, the amortised deferred gainor loss is recorded in the other operating
income line. The impact of hedges of foreign
currency revenue is recorded in interest
income. The deferred gain or loss isrecorded in other liability or other assets
in the balance sheet.
Gains and losses that arise prior to andupon maturity of transactions enteredinto under hedge rollover strategies aredeferred and included in the measurementof the hedged anticipated transaction if
the transaction is still expected to occur.
If the forecasted transaction is no longer
expected to occur, the gains and losses
are recognised immediately in the income
statement in other income.

ix) Available-for-sale assets
Current accounting policy
Available-for-sale assets comprise nonderivative financial assets which the Group
designates as available-for-sale but which
are not deemed to be held principallyfor trading purposes, and include equity
investments, certain loans and advances,and fixed term securities. They are initiallyrecognised at fair value plus transaction
costs. Subsequent gains or losses arisingfrom changes in fair value are included
as a separate component of equity, the‘Available-for-sale revaluation reserve’.
When the asset is sold the cumulative gainor loss relating to the asset is transferredto the income statement.
Where there is objective evidence ofimpairment on an available-for-sale asset,
the cumulative loss related to that asset
is removed from equity and recognised in
the income statement. If, in a subsequent
period, the amount of an impairment
loss relating to an available-for-sale debt
instrument decreases and the decrease canbe linked objectively to an event occurring
after the impairment event, the loss isreversed through the income statement.

Notes to the financial statements
1: Significant Accounting Policies (continued)
Premiums and discounts are included
within the calculation of the fair value of the
security. Interest income is accrued on an
effective yield basis and dividend income
is recognised when the right to receive
payment is established.
Financial assets previously disclosed
as investment securities are now
predominantly treated as available-for-salesecurities.
Purchases and sales of available-for-salefinancial assets are recognised on tradedate, being the date on which the Group
commits to purchase or sell the asset.
Comparative period policy
Investment securities are those which theGroup has the ability to hold until maturity.
Such securities are recorded at cost or atcost adjusted for amortisation of premiums
or discounts.
Premiums and discounts are capitalised
and amortised from the date of purchaseto maturity. Interest and dividend income
is accrued. Changes in market values of
securities are not taken into account unlessthere is considered to be an other than
temporary diminution in value. The market
value of listed and unlisted investment
securities used for considering otherthan temporary impairment and fair value
market disclosures is determined using
quoted market prices for securities with thesame or similar credit, maturity and yieldcharacteristics.

x) Net loans and advances
Current accounting policy
Net loans and advances are non-derivative
financial assets with fixed or determinable
payments that are not quoted in an active
market. They arise when the Group provides
money to a debtor with no intention of
trading the loans and advances. The loans
and advances are initially recognised at fairvalue plus transaction costs that are directly
attributable to the issue of the loan oradvance. They are subsequently measured
at amortised cost using the effective
interest method (refer note 1(iv)). They are
derecognised when the rights to receive
cash flows have expired or the Group has
transferred substantially all the risks andrewards of ownership.
All loans are subject to scrutiny and gradedaccording to the level of credit risk.

Net loans and advances includes direct
finance provided to customers such as bankoverdrafts, credit cards, term loans, financelease receivables and commercial bills.
Overdrafts, credit cards, term loans andcommercial bills are carried at amortised
cost.
Customer financing through redeemablepreference shares is included within net
loans and advances. Dividends received
on redeemable preference shares are taken
to the income statement as part of interest
income.
Comparative accounting policy
Loans are classified as either productive
or non-accrual. Non-accrual loans include
loans where the accrual of interest and fees
has ceased due to doubt as to full recovery,and loans that have been restructured with
an effective yield below the Group’s average
cost of funds at the date of restructuring.
Restructured loans are loans with aneffective yield above the Group’s cost offunds and below the yield applicable to acustomer of equal credit standing.
Cash receipts on non-accrual loans are, in
the absence of a contrary agreement withthe customer, applied as income or feesin priority to being applied as a reductionin principal, except where the cash receipt
relates to proceeds from the sale of security.
Finance lease receivables
Finance lease receivables include amounts
due from lessees in relation to financeleases and hire purchase contracts.
A hire purchase contract is one where theGroup (the ‘owner’) allows the customer(the ‘hirer’) the right to possess and use
goods in return for regular payments. When
all payments are made the title to the goods
passes to the customer.
The gross amount of contractual payments
regarding lease finance to businesscustomers that have a fixed rate and a fixed
term are recorded as gross lease receivables
and the unearned interest component isrecognised as income yet to mature.
Finance lease receivables are initiallyrecognised at amounts equal to the present
value of the minimum lease payments,
plus the present value of any unguaranteed
residual value expected to accrue at the endof the lease term. Finance lease payments
are allocated between interest revenue
and reduction in the lease receivable over
the term of the finance lease, reflecting a
constant periodic rate of return on the net

10 ANZ Full Financial Report 2006

investment outstanding in respect of thelease. Any unguaranteed operating leaseresidual is recorded as other assets andnot within net loans and advances.
At the end of the lease term, goods aredisposed of and proceeds received areapplied against the residual value. Any
resulting gains or losses are recognised
through the income statement.

xi) Impairment of loans and advances
Current accounting policy
Loans and advances are reviewed at leastat each reporting date for impairment.
Credit impairment provisions are raisedfor exposures, including off-balance
sheet items such as commitments andguarantees, that are known to be impaired.
Exposures are impaired and impairment
losses are recorded if, and only if, there
is objective evidence of impairment asa result of one or more loss events that
occurred after the initial recognition of theloan and prior to the reporting date, andthat loss event or events has had an impact
on the estimated future cash flows of theindividual loan or the collective portfolioof loans that can be reliably estimated.
Impairment is assessed individually for
assets that are individually significant (oron a portfolio basis for small value loans),
and then on a collective basis for those
exposures not individually known to be
impaired.
Exposures that are assessed collectively
are placed in pools of similar assets withsimilar risk characteristics. The required
provision is estimated on the basis ofhistorical loss experience for assets withcredit risk characteristics similar to thosein the collective pool. The historical loss
experience is adjusted based on current
observable data.
The estimated impairment losses aremeasured as the difference between theassets carrying amount and the estimatedfuture cash flows discounted to theirpresent value. As this discount unwinds
during the period between recognitionof impairment and recovery of the cash
flow, it is recognised in interest income.
The process of estimating the amount andtiming of cash flows involves considerable
management judgment. These judgments
are reviewed regularly to reduce any
differences between loss estimates andactual loss experience.

Notes to the financial statements
1: Significant Accounting Policies (continued)
The provision for impairment loss
(individual and collective) is deducted fromloans and advances in the balance sheet
and the movement for the reporting period
is reflected in the income statement.
When a loan is uncollectible, it is writtenoff against the related provision for loan
impairment. Subsequent recoveries ofamounts previously written-off are credited
back to the income statement.
Where impairment losses recognised
in previous periods have subsequently
decreased or no longer exist, such
impairments are reversed in theincome statement.
A provision is also raised for off balance
sheet items such as commitments andguarantees that are considered to be
onerous.
Comparative accounting policy
The Group recognises an expense for credit
losses through a systematic approachdrawing on historical loss experience,
portfolio composition, internal rating
statistics and overlaid by management
judgement to ensure the estimated expensereflects current economic conditions andcredit risks. The charge is booked to theGeneral Provision which is maintained tocover losses inherent within the Group’s
existing loan portfolio.
The method used by the Group for
determining this expense charge is referred
to as ‘economic loss provisioning’ (ELP).
The Group uses ELP models to calculate
the incurred loss by considering:
the history of credit loss for each typeand risk rate of lending; andthe size, composition and risk profileof the current loan portfolio.
The Group regularly reviews theassumptions used in the ELP models. These
reviews are conducted in recognition of
the subjective nature of ELP methodology.
In addition, the robustness of outcomes isreviewed 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
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 individually identified. As a result of thereassessments, ELP charge levels may beperiodically increased or decreased.

Specific provisions are raised to cover
expected losses, where full recovery
of principal is doubtful. All known bad
debts are written off in the year in which
they are identified. The specific provision
requirement (representing new andincreased specific provisions less specificprovision releases) is transferred from theGeneral Provision to the Specific Provision.
Recoveries, representing excess transfers
to the Specific Provision, are credited to theGeneral Provision.
Provisions for doubtful debts are deductedfrom loans and advances in the balance
sheet.

xii) Leasing
Leases as lessee
Leases entered into by the Group as lessee
are predominantly operating leases, and theoperating lease payments are recognised as
an expense on a straight-line basis over thelease term.
Leases as lessor
Contracts to lease assets, and hire purchaseagreements are classified as finance leases
if they transfer substantially all the risks
and rewards of ownership of the asset tothe customer or an unrelated third party.
All other lease contracts are classified as
operating leases. The policy for accounting
for finance leases as lessor is explained innote 1(x) above.

xiii) Acceptances
Commercial bills accepted but not held in
portfolio are accounted for as a liability witha corresponding contra asset. The liability isdisclosed as liability for acceptances, andthe asset is disclosed as Customer’s liability
for acceptances
The Group’s own acceptances discounted
are held as part of the trading securities
portfolio.

xiv) Goodwill and other intangible assets
Goodwill
Goodwill, representing the excess of thepurchase consideration over the fair valueof the identifiable net assets of a controlled
entity at the date of gaining control, isrecognised as an asset and not amortised,
but assessed for impairment annually andwhenever there is an indication that the
goodwill may be impaired. This involves,
where required, using the discounted
cash flow (DCF) or the capitalisation of
earnings methodology (CEM) to determine
the expected future benefits of the cash-

11

generating units. Where the assessment
results in the goodwill balance exceeding
the value of expected future benefits,
the difference is charged to the income
statement.
Any impairment of goodwill is not
subsequently reversed.
Other intangible assets
Other intangible assets include costs
incurred in acquiring and building softwareand computer systems (“software”).
Software is amortised using the straightline method over its expected useful life
to the Group. The period of amortisation is
between 3 and 5 years except for branch
front-end applications where 7 years isused.
At each reporting date, software assets
are reviewed for impairment. If any such
indication exists, the recoverable amountof the assets are estimated and comparedagainst the existing carrying value. Wherethe existing carrying value exceeds therecoverable amount, the difference ischarged to the income statement.
Costs incurred in planning or evaluating
software proposals, or in maintaining
systems after implementation, are notcapitalised.

xv) Premises and equipment
Premises and equipment are carried atcost less accumulated depreciation andimpairment.
The gain or loss on the disposal of premises
and equipment is determined as thedifference between the carrying amount of
the assets at the time of disposal and theproceeds of disposal, and is included in the
results in the year of disposal.
Assets other than freehold land are
depreciated at rates based upon their
expected useful lives to the Group, using
the straight-line method. The depreciation
rates used for each class of asset are:
Buildings
1%
Building integrals
10%
Furniture & equipment
10%
Computer & office equipment 12.5%–33%
Leasehold improvements are amortised ona straight-line basis over the shorter of theiruseful lives or remaining terms of the lease.

Notes to the financial statements
1: Significant Accounting Policies (continued)
Premises and equipment impairment
assessment
At each reporting date, the carrying
amounts of premises and equipment
are reviewed for impairment. If any such
indication exists, the recoverable amountof the assets are estimated and comparedagainst the existing carrying value. Wherethe existing carrying value exceeds therecoverable amount, the difference ischarged to the income statement. If it is
not possible to estimate the recoverable
amount of an individual asset, the Groupestimates the recoverable amount of the
cash generating unit to which the asset
belongs.
A previously recognised impairment loss
is reversed if there has been a change
in the estimates used to determine therecoverable amount.

xvi) Repurchase agreements
Securities sold under repurchaseagreements are retained in the financial
statements where substantially all the risks
and rewards of ownership remain with
the Group, and a counterparty liability isdisclosed under the classifications of due
to other financial institutions or payables
and other liabilities. The difference between
the sale price and the repurchase priceis accrued over the life of the repurchaseagreement and charged to interest expensein the income statement.
Securities purchased under agreements toresell, where the Group does not acquire
the risks and rewards of ownership, arerecorded as liquid assets, net loans andadvances, or due from other financial
institutions, depending on the term of
the agreement and the counterparty. The
security is not included in the balance
sheet. Interest income is accrued on theunderlying loan amount.
Securities borrowed are not recognisedin the balance sheet, unless these aresold to third parties, at which point the
obligation to repurchase is recorded asa financial liability at fair value with fairvalue movements included in the income
statement.

xvii) Capitalised expenses
Direct external expenses, comprising
direct and incremental costs related
to the acquisition of interest earning
assets, including structured institutional
lending, mortgages and finance leases,

are initially recognised as part of the costof acquiring the asset and amortised aspart of expected yield over its expected
life using the effective interest method.
The write-off is to interest income as partof the effective interest rate. For assets
subject to prepayment, expected life isdetermined on the basis of the historicalbehaviour of the particular asset portfolio,
taking into account contractual obligations
and prepayment experience assessed ona regular basis. Impairment of capitalised
expenses is assessed through comparing
the actual behaviour of the portfolio against
initial expected life assumptions.

xviii) Deposits and other borrowings
Deposits and other borrowings include
certificates of deposit, interest bearing
deposits, debentures and other related
interest bearing financial instruments.
They are measured at amortised cost. Theinterest expense is recognised using theeffective interest method as explained innote 1(iv).

xix) Bonds, notes and loan capital
Bonds, notes and loan capital areaccounted for in the same way as deposits
and other borrowings, except for thosebonds and notes which are stated at fairvalue, with fair value movements recordedin the income statement.

xx) Employee benefits
Leave benefits
The amounts expected to be paid in respectof employees’ entitlements to annual
leave are accrued at expected salaryrates including on-costs. Liability for longservice leave is calculated and accrued
for in respect of all applicable employees(including on-costs) using an actuarial
valuation.
Defined contribution superannuation
schemes
The Group operates a number ofdefined contribution schemes and also
contributes, according to local law, in thevarious countries in which it operates, togovernment and other plans that havethe characteristics of defined contribution
schemes. The Group’s contributions tothese schemes are recognised as an
expense in the income statement whenincurred.

12 ANZ Full Financial Report 2006

Defined benefit superannuation schemes
The directors have elected under s334(5)of the Corporations Act 2001 to early adopt
the December 2004 revision of Australian
Accounting Standard AASB 119: ‘Employee
Benefits’.
The Group operates a number of defined
benefit schemes. The liability and expense
related to providing benefits to employees
under each defined benefit scheme arecalculated by independent actuaries.
Initially, a defined benefit liability isrecognised, to the extent that the present
value of the defined benefit obligationof each scheme, calculated using the
Projected Unit Credit Method, is greaterthan the fair value of each scheme’s assets.
Where this calculation results in a benefit
to the Group, a defined benefit asset isrecognised. In each subsequent reporting
period, ongoing movements in the defined
benefit liability or asset carrying value istreated as follows:
the net movement relating to the current
period’s service cost, interest cost,
expected return on scheme assets,
past service costs and other costs(such as the effects of any curtailments
and settlements) is recognised as
an employee expense in the income
statement
movements relating to actuarial gains
and losses are recognised directly inretained earnings
contributions incurred are recognised
directly against the net defined benefit
position.
Share-based compensation
The Group has various equity settled
share-based compensation plans. These
are described in Note 47 of the 2006
annual financial report and largely comprise
the Employee Share Acquisition Plan and
the ANZ Share Option Plan.
ANZ ordinary shares: The fair value of
ANZ ordinary shares granted under the
Employee Share Acquisition Plan ismeasured at grant date, using the one-day
volume weighted average market priceof ANZ shares. The fair value is expensed
immediately when shares vest immediately
or on a straight-line basis over the relevant
vesting period. This is recognised as an
employee compensation expense with acorresponding increase in equity.

Notes to the financial statements
1: Significant Accounting Policies (continued)
Share options: The fair value of shareoptions is measured at grant date, using
an option pricing model. The fair value isexpensed on a straight-line basis over the
relevant vesting period. This is recognised as
an employee compensation expense with acorresponding increase in the share options
reserve. The option pricing model takes into
account the exercise price of the option, therisk-free interest rate, the expected volatilityof ANZ ordinary share price and otherfactors. Market vesting conditions are taken
into account in estimating the fair value.
Performance rights: From October 2005, ANZ
has granted Performance Rights to certain
employees. A Performance Right is a right toacquire a share at nil cost to the employee
subject to satisfactorily meeting time andperformance hurdles. Upon exercise, each
Performance Right entitles the holder toone ordinary share in ANZ. The fair value of
Performance Rights is determined at grant
date using an option pricing model, taking
into account market conditions. The fairvalue is expensed over the relevant vesting
period. This is recognised as an employee
expense with a corresponding increase inequity.
Other adjustments: The amount recognised
as an expense is adjusted to reflect theactual number of shares or share options
that vest, except where forfeiture is only due
to share prices not achieving the thresholdfor vesting.

xxi) Provisions
The Group recognises provisions when there
is a present obligation, the future sacrificeof economic benefits is probable, and theamount of the provision can be measured
reliably. The amount recognised is the best
estimate of the consideration required tosettle the present obligation at reporting
date, taking into account the risks anduncertainties surrounding the obligation
at reporting date. Where a provision ismeasured using the cash flows estimatedto settle the present obligation, its carrying
amount is the present value of those cash
flows. Any expected third party recoveries
are recognised as an asset if it is virtuallycertain that recovery will be received and theamount of the receivable can be measured
reliably.

xxii) Offsetting of assets and liabilities
Assets and liabilities are offset and the net
amount reported in the balance sheet only
where there is:a current enforceable legal right to offset
the asset and liability, andan intention to settle on a net basis, or to
realise the asset and settle the liability
simultaneously.

xxiii) Loss contingencies
These items are recorded as liabilities
on the balance sheet when the following
requirements are met:
the transaction is probable in that thecontingency is likely to occur; andthe contingency can be reasonably
estimated.
Further disclosure is made in note 45, where
the above requirements are not met but
there is a possible obligation that is higher
than remote. Specific details are provided
together with an estimate of the range ora statement that such an estimate is notpossible.

xxiv) Income tax
Income tax expense
Income tax on earnings for the year
comprises current and deferred tax and isbased on the applicable tax law in eachjurisdiction. It is recognised in the income
statement as tax expense, except when it
relates to items credited directly to equity,in which case it is recorded in equity, or
where it arises from the initial accounting fora business combination, in which case it isincluded in the determination of goodwill.
Current tax
Current tax is the expected tax payable on
taxable income for the year, based on tax
rates (and tax laws) which are enacted or
substantively enacted by the reporting date,including any adjustment for tax payablein previous years. Current tax for current
and prior years is recognised as a liability(or asset) to the extent that it is unpaid (orrefundable).
Deferred tax
Deferred tax is accounted for using thecomprehensive tax balance sheet liability
method. It is generated by temporary
differences between the carrying amounts ofassets and liabilities for financial reporting
purposes, and the amounts used fortaxation purposes.

13

Deferred tax assets and liabilities aremeasured at the tax rates that are expected
to apply to the year(s) when the asset andliability giving rise to them are realised or
settled, based on tax rates (and tax laws)that have been enacted or substantively
enacted by the reporting date. The
measurement reflects the tax consequencesthat would follow from the manner in which
the Group, at the reporting date, recovers or
settles the carrying amount of its assets andliabilities.
Deferred tax liabilities are recognised for
all taxable temporary differences, otherthan those in relation to taxable temporary
differences arising from goodwill.
Deferred tax liabilities are recognised fortaxable temporary differences arising on
investments in controlled entities, branches,
associates and joint ventures, except where
the Group is able to control the reversal of
the temporary differences and it is probablethat temporary differences will not reversein the foreseeable future. Deferred tax
assets associated with these interests
are recognised only to the extent that it isprobable that the temporary difference willreverse in the foreseeable future and there
will be sufficient taxable profits against
which to utilise the benefits of the temporary
difference.
Deferred tax assets, including those related
to the tax effects of income tax losses andcredits available to be carried forward,
are recognised only to the extent that itis probable that future taxable profits will
be available against which the deductible
temporary differences or unused tax losses
and credits can be utilised.
For details of Tax Consolidation, refer note 6.

xxv) Change in accounting policy
In the current reporting period the Group has
adopted AASB 132: ‘Financial Instruments:
Presentation and Disclosure’, AASB 139:
‘Financial Instruments: Recognition andMeasurement’ and AASB 4: ‘Insurance
Contracts’. This change in accounting policy
has been adopted in accordance with thetransitional rules of AASB 1, which does
not require the restatement of comparative
information for financial instruments within
the scope of AASB 132, AASB 139 and AASB
4. The impact of this change in accounting
policy in the current reporting period isdetailed in note 51.

Notes to the financial statements
2: Critical Estimates and Judgements Used in Applying Accounting Policies
The Group prepares its consolidated financial statements in accordance with policies which are based on Australian Equivalents to International
Financial Reporting Standards, other authoritative accounting pronouncements of the Australian Accounting Standards Board, Urgent Issues
Group Interpretations and the Corporations Act of 2001. This involves the Group making estimates and assumptions that affect the reported
amounts within the financial statements. Estimates and judgements are continually evaluated and are based on historical factors, including
expectations of future events that are believed to be reasonable under the circumstances. All material changes to accounting policies andestimates and the application of these policies and judgements are approved by the Audit Committee of the Board.
A brief explanation of critical estimates and judgements, and their impact on the Group, follows:

Critical Accounting Estimates and Assumptions
Provisions for credit impairment
The accounting policy, as explained in note 1(xi), relating to measuring the impairment of loans and advances, requires the Group to assess
impairment regularly. The credit provisions raised (individual and collective) represent management’s best estimate of the losses incurred in
the loan portfolio at balance date based on their experienced judgement.
The collective provision is estimated on the basis of historical loss experience for assets with credit characteristics similar to those in thecollective pool. The historical loss experience is adjusted based on current observable data and events and an assessment of the impact ofmodel risk. The use of such judgements and reasonable estimates is considered by management to be an essential part of the process anddoes not impact on reliability.
Individual provisioning is applied when the full collectibility of one of the Group’s loans is identified as being doubtful.
Individual and collective provisioning is calculated using discounted expected future cash flows. The methodology and assumptions used for
estimating both the amount and timing of future cash flows are revised regularly to reduce any differences between loss estimates and actual
loss experience.

Critical judgements in applying the entity’s accounting policiesi) Special purpose and off balance sheet entities
The Group may invest in or establish special purpose entities (SPEs) to enable it to undertake specific types of transactions. The main typesof these SPEs are securitisation vehicles, structured finance entities, entities used to sell credit protection and managed funds.
Where the Group has established SPEs which are controlled by the Group to facilitate transactions undertaken for Group purposes, these areconsolidated in the Group’s financial statements.
The Group does not consolidate SPEs that it does not control in accordance with the Group’s policy outlined in note 1(ii). As it can sometimes
be difficult to determine whether the Group has control of an SPE, it makes judgments about its exposure to the risks and rewards, as well as
about its ability to make operational decisions for the SPE in question.
The table below summarises the main types of SPEs that are not consolidated into the Group, the reason for their establishment, and the key
risks associated with them.
SPE Assets
2006
$m

2005
$m

Type of SPE

Reason for establishment

Key Risks

Securitisation vehicles

Assets are transferred to an SPE which funds
the purchase by issuing securities. This enables
ANZ or customers to increase diversity offunding sources.

ANZ may manage securitisation
vehicles, service assets in a vehicle
or provide liquidity or other supportand retains the risks associated withthe provision of these services. Credit
and market risks associated with theunderlying assets are not retained orassumed by ANZ except to the limited
extent that ANZ provides arm’s length
services and facilities. ANZ does notbear the majority of residual rights andrewards.

9,381

11,981n/a

n/a

The amount disclosed here is the total assets ofSPEs managed or arranged by ANZ. It includes
SPEs that purchase assets from sellers otherthan ANZ.

Structured finance entities1

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

ANZ may manage these vehicles andalso provide derivatives.

Credit protection

These entities are set up to allow the Groupto sell the credit risk on portfolios.

ANZ may manage these vehicles.

2,145

–

Managed funds

These funds invest in specified investmentson behalf of clients.

INGA, INGNZ and certain subsidiaries
of ANZ National Bank Limited, as
managers of the funds, expose ANZ
to operational and reputational risk.

53,76044,779

1 ANZ’s net investment in the structured finance entities is $233 million (30 September 2005: $1,243 million).

14 ANZ Full Financial Report 2006

Notes to the financial statements
2: Critical Estimates and Judgements Used in Applying Accounting Policies (continued)ii) Valuation of investment in ING Australia
Limited (INGA)
The Group adopts the equity method of
accounting for its 49% interest in INGA. As
at 30 September 2006, the Group’s carrying
value was $1,462 million (September 2005:$1,530 million).
The carrying value is subject to a recoverable
amount test to ensure that this does notexceed its recoverable amount at thereporting date.
Any excess of carrying value above
recoverable amount is written off to theincome statement as an impairment
write-down.
During the year the Group engaged Ernst &Young [ABC] Limited (EY [ABC]) to provide an
independent valuation of INGA for 31 March
2006 assessment purposes. The valuation
was a stand alone market based assessmentof economic value, and excluded theGroup’s specific synergies and hedging
arrangements. The independent valuation
was based on a discounted cashflow
approach, with allowance for the cost ofcapital. EY [ABC] presented an independentvaluation range of $3,955 million to $4,194
million, reflecting a range of sales and costbase assumptions. Based on this review,
ANZ believed that no change was required tothe carrying value of the investment as at
31 March 2006.
At 30 September 2006, impairment testing
via a management review was conducted
to determine whether there were any
indicators of impairment. The assessment
involved review of the following indicators of
impairment:
Performance
Operational and regulatory factors
Economic and industry factors
The assessment did not indicate theexistence of impairment indicators andaccordingly no write-down was required.
(iii) Valuation of investment in ING (NZ)
Holdings Limited (ING NZ)
The Group adopts the equity method of
accounting for its 49% interest in ING NZ.
As at 30 September 2006, the Group’s
carrying value was $146 million (September
2005: $131 million).
The carrying value is subject to a recoverable
amount test to ensure that this does notexceed its recoverable amount at thereporting date.

Any excess of carrying value above
recoverable amount is written off to
the income statement as an impairment
write-down.
During the year the Group engaged
PricewaterhouseCoopers (PwC) to provide an
impairment analysis of ING NZ for 31 March
2006 assessment purposes. The valuation
was based on a discounted cashflow
approach. PwC presented a valuation range
as at 31 December 2005 of $337 million
to $371 million (at 30 September 2006
exchange rates), reflecting a range of sales
and cost base assumptions.
PwC also considered the additional cash
generated by ING NZ in the period between
31 December 2005 and 31 March 2006 inorder to provide an assessment as at 31
March 2006 of the appropriateness of thecarrying value. Based on this review ANZ
believed that no change was required to thecarrying value of the investment as at 31
March 2006.
At 30 September 2006, impairment testing
via a management review was conducted todetermine whether there were any indicatorsof impairment based on the 31 March 2006
valuation. The assessment involved reviewof the following indicators of impairment:
Performance
Operational and regulatory factors
Economic and industry factors
The assessment did not indicate theexistence of impairment indicators andaccordingly no write-down was required.
iv) Goodwill and valuation of goodwill in
ANZ National Bank Ltd
The carrying value of goodwill is reviewed
at each balance date and is written down,
to the extent that it is no longer supported
by probable future benefits.
Any excess of carrying value over recoverable
amount is taken to the income statement as
an impairment write-down.
As at 30 September 2006, the balanceof goodwill recorded as an asset in ANZ
National Bank Ltd was $2,828 million(30 September 2005: $2,943 million).
Goodwill is allocated to cash-generating
units (CGU) for the purpose of impairment
testing, which is undertaken at the lowest
level at which goodwill is monitored forinternal management reporting purposes.

15

Impairment testing of purchased goodwill
is performed annually in March through an
independent valuation, by comparing therecoverable value of the CGU with the current
carrying amount of its net assets, including
goodwill. Where the current carrying value
is greater than fair value a charge for
impairment of goodwill will be recordedin the income statement.
In determining the fair value of the CGU
for testing of the goodwill in ANZ National
Bank Ltd, an independent valuation is
obtained based on a capitalisation of
earnings approach. Under this methodology,
valuation multiples (such as the price toearnings (PE) ratio) observed from previoustransactions in the banking sector andcurrent price/cash earnings multiples fromsimilar businesses are used to determine
an appropriate price/earnings multiple for
the CGU.
In determining an appropriate price multiple
for the valuation, judgement is applied
when assessing comparable companies andtransactions, particularly with respect to themix of business, geographic location, growthprospects, riskiness of future earnings andsize of the overall business.
The results of the independent valuation
carried out as at 31 March 2006 showeda fair value in excess of the then current
carrying value for the CGU and hence thecarrying value of the goodwill was notconsidered impaired.
At 30 September 2006, impairment testing
via a management review was conducted
to determine whether there were any
indicators of impairment in the carrying
value of ANZ National Bank Ltd’s goodwill.
The assessment involved review of thefollowing indicators of impairment:
Performance
Operational and regulatory factors
Economic and industry factors
The assessment did not indicate theexistence of impairment indicators andaccordingly no write-down was required.

Notes to the financial statements
3: IncomeConsolidated

The Company

2006
$m

2005
$m

2006
$m

2005
$m

Interest income
Other financial institutions
Trading securities
Available-for-sale assets
Loans and advances
Acceptances
Other

407
526
736
18,802
969
861

258
303
519
16,178
–
461

254
384
448
11,791
969
507

127
254
242
9,826
–
286

Controlled entities

22,301–

17,719–14,353265

10,735
213

Total interest income

22,301

17,71914,618

10,948

Lending1
Non lending fees and commissions

430
1,956

1,043
1,800

336
1,343

856
1,190

Controlled entities

2,386
–

2,843
–

1,679
173

2,046
218

Total fee and commission income
Fee and commission expense

2,386
(241)

2,843
(232)

1,852
(175)

2,264
(169)

Net fee and commission income

2,145

2,611

1,677

2,095

ii) Other income
Net foreign exchange earnings
Net gains/(losses) from trading securities2
Net gains/(losses) from trading derivatives
Fair value movements on financial instruments measured at fair value through profit or loss3
Significant item: Net profit before tax from the sale of NBNZ Life to new joint venture ING NZ
Significant item: Settlement of ANZ National Bank Limited claimsLife insurance margin on services operating income
Profit (loss) on sale of premises4
Rental income
Dividends received from controlled entities
Other

447
(7)
216
49
–
14
–
2
2
–
147

454
33
101
–
14
–
18
6
2
–
138

203
(17)
167
36
–
–
–
–
2
1,145
83

351
40
77
–
–
–
–
(3)
2
478
49

Total other income

870

766

1,619

994

3,015

3,377

3,296

3,089

Share of joint venture profit from ING Australia and ING NZ5 (refer note 42)
Share of associates profit (net of write-offs) (refer note 41)

138
56

149
52

–
–

–
–

Total share of joint venture and associates profit

194

201

–

–

25,51021,297

17,914

14,037

Other operating income

Total other operating income

Total income6

1 Lending fees in 2006 exclude fees treated as part of the effective yield calculation and included in interest income (refer note 1(iv)).
2 Does not include interest income.
3 Includes any fair value movements (excluding realised and accrued interest) on derivatives entered into to manage interest rate and foreign exchange risk on funding instruments,
not designated as accounting hedges, ineffective portions of cashflow hedges, and fair value movements in bonds and notes designated at fair value.
4 Gross proceeds on sale of premises is $4 million (2005: $9 million).
5 A joint venture entity from 30 September 2005.
6 Total income includes external dividend income of $53 million (2005: $106 million) for the Group and $6 million (2005: $7 million) for the Company.

16 ANZ Full Financial Report 2006

Notes to the financial statements
4: Expenses
Consolidated

The Company

2006
$m

2005
$m

2006
$m

2005
$m

Interest expense
Financial institutions
Deposits
Borrowing corporations’ debt
Commercial paper
Acceptances
Loan capital, bonds and notes
Other

636
8,000
652
1,440
809
3,387
434

345
6,732
643
1,135
–
2,477
569

527
5,296
–
245
809
2,537
299

251
4,337
–
133
–
2,070
453

Controlled entities

15,358–

11,901
–

9,713
628

7,244
404

Total interest expense

15,358

11,901

10,3417,648i) Personnel
Employee entitlements and taxes
Salaries and wages
Superannuation costs – defined benefit plans (refer note 46)
Superannuation costs – defined contribution plans
Equity-settled share-based payments (refer note 47)
Temporary staff
Other

207
1,746
11
160
76
121
408

190
1,625
16
143
80
111
364

137
1,201
6
121
65
75
297

130
1,071
10
105
71
66
274

Total personnel expenses

2,729

2,529

1,902

1,727

ii) Premises
Amortisation of leasehold improvements (refer note 22)
Depreciation of buildings and integrals (refer note 22)
Rent
Utilities and other outgoings
Other

18
15
228
128
25

16
11
213
122
32

12
2
146
92
24

9
2
137
91
23

Total premises expenses

414

394

276

262

iii) Computer
Computer contractors
Data communication
Depreciation and amortisation1
Rentals and repairs
Software purchased
Other

47
57
208
68
117
52

53
60
235
58
115
37

39
33
170
49
84
29

49
34
182
48
84
14

Total computer expenses

549

558

404

411

iv) OtherAdvertising and public relations
Amortisation of other intangible assets (refer note 20)
Audit fees (refer note 5)
Depreciation of furniture and equipment (refer note 22)
Freight and cartage
Loss on sale of equipment
Non-lending losses, frauds and forgeries
Postage and stationery
Professional fees
Significant item: Settlement of NHB insurance claim
Telephone
Travel
Other

175
3
9
48
47
4
55
116
127
(113)
56
136
125

161
3
7
43
45
9
62
113
123
–
55
124
140

123
3
6
36
40
2
18
73
96
(113)
30
89
224

92
3
4
29
36
4
45
67
93
–
29
76
201

Total other expenses

788

885

627

679

v) Restructuring

51

52

41

47

Total operating expenses

4,531

4,418

3,250

3,126

Total expenses

19,88916,31913,591

10,774

Operating expenses

1 Comprises software amortisation of $114 million (2005: $125 million), refer note 20 and computer depreciation of $94 million (2005: $110 million), refer note 22. The Company comprises softwareamortisation of $100 million (2005: $106 million), refer note 20 and computer depreciation of $70 million (2005: $76 million), refer note 22.

17

Notes to the financial statements
5: Compensation of Auditors
Consolidated

The Company

2006
$’000

2005
$’000

2006
$’000

2005
$’000

KPMG Australia
Audit or review of financial reports of the Company or any entity in the Group1
Other audit-related services2
Other assurance services3

6,462
1,152
209

4,981
1,150
1,296

5,572
878
209

3,732
712
1,296

Total

7,823

7,427

6,659

5,740

Overseas Related practices of KPMG Australia
Audit or review of financial reports of Group entities
Other audit-related services2
Other assurance services3

2,654
1,031
38

2,343
1,292
5

527
497
–

655
487
5

3,723

3,640

1,024

1,147

–

4

–

–

Total

3,723

3,644

1,024

1,147

Total compensation of auditors

11,546

11,071

7,683

6,887

Taxation3

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 withthe role of auditor. 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 not provide 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, and engagements 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 materiallyin conflict with the role of auditor may be provided by KPMG Australia or any of its related practices subject to the approval of the Audit Committee.
1 2006 and 2005 includes services in relation to the transition to Australian equivalents to International Financial Reporting Standards. 2006 includes additional audit fees in relation to SarbanesOxley matters. In 2005 KPMG provided Sarbanes-Oxley advisory services which have been included within other assurance services, refer footnote 3 below.
2 Includes prudential supervision reviews for central banks and prospectus reviews.
3 Other assurance services includes:

Consolidated

2006
$’000

2005
$’000

Tax compliance and related services
Controls and process reviews
Sarbanes-Oxley matters
Accounting advice
Sustainability review
Training course
Other

–
–
–
–
203
44
–

4
254
885
74
82
6

Total

247

1,305

18 ANZ Full Financial Report 2006

Notes to the financial statements
6: Income Tax Expense
Consolidated

The Company

2006
$’000

2005
$’000

2006
$’000

2005
$’000

1,754
(4)

1,046
(2)

1,206
–

541
(1)

(225)

176

(333)

160

(3)

–

(2)

–

1,522

1,220

871

700

Operating profit before income tax

5,214

4,398

4,045

2,875

Prima facie income tax expense at 30%

1,564

1,320

1,214

863

25
(6)
(9)
(57)
–
9

22
(23)
(32)
(59)
(5)
(1)

(5)
(345)
–
–
–
7

(2)
(141)
(3)
–
–
(16)

1,526

1,222

871

701

(4)

(2)

–

(1)

Total income tax expense charged in the Income Statement

1,522

1,220

871

700

Effective Tax Rate

29.2%

27.7%

21.5%

24.3%

Australia

984

803

784

625

Overseas

538

417

87

75

2

23

(3)

9

(a) Income tax recognised in the Income Statement
Tax expense/(income) comprises:
Income tax expense/(income)
Adjustments recognised in the current year in relation to the current tax of prior years
Deferred tax expense/(income) relating to the origination and reversal of
temporary differences
Benefits arising from previously unrecognised tax losses, tax credits,or temporary differences of a prior period that is used to reduce:- current tax expense
Total income tax expense charged in the Income Statement
Reconciliation of the prima facie income tax expense on pre-tax profit
with the income tax expense charged in the Income Statement.

Change in income tax expense due to:Overseas tax rate differential
Rebateable and non-assessable dividends
Other non-assessable income
Profit from associated and joint venture entities
Life insurance accounting
Other

Income tax under/(over) provided in previous years(b) Income tax recognised directly in equity
The following income tax amounts were charged directly to equity during the period

Tax consolidation
The Company and all its wholly owned Australian resident entities are part of a tax-consolidated group under Australian taxation law.
The Company is the head entity in the tax-consolidated group. Tax expense/income and deferred tax liabilities/assets arising from temporary
differences of the members of the tax-consolidated group are recognised in the separate financial statements of the members of the taxconsolidated group on a ‘group allocation’ basis. Current tax liabilities and assets of the tax consolidated group are recognised by the Company(as head entity in the tax-consolidated group).
Due to the existence of a tax funding arrangement between the entities in the tax-consolidated group, amounts are recognised as payable to or
receivable by the Company and each member of the group in relation to the tax contribution amounts paid or payable between the Company
and the other members of the tax-consolidated group in accordance with the arrangement.
Members of the tax-consolidated group have also entered into a tax sharing agreement that provides for the allocation of income tax liabilities
between the entities should the head entity default on its income tax payment obligations.

19Notes to the financial statements
7: Dividends
Consolidated

The Company

2006
$m

2005
$m

2006
$m

2005
$m

Ordinary dividends
Interim dividend
Final dividend
Bonus option plan adjustment

1,024
1,0781
(34)

930
9831
(36)

1,024
1,0781
(34)

930
9831
(36)

Dividends on ordinary shares

2,068

1,877

2,068

1,877

1 Dividends are not accrued and are recorded when determined. Final dividend of $1,267 million for 2006 is not included in the table above.

A final dividend of 69 cents, fully franked, is proposed to be paid on each fully paid ordinary share on 15 December 2006 (2005: final dividendof 59 cents, paid 16 December 2005, fully franked). The 2006 interim dividend of 56 cents, paid 3 July 2006, was fully franked (2005: interim
dividend of 51 cents, paid 1 July 2005, 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%(2005: 30%).
Dividends paid in cash or satisfied by the issue of shares under the dividend reinvestment plan during the years ended 30 September 2006 and2005 were as follows:
Consolidated

Paid in cash
Satisfied by issue of shares

The Company

2006
$m

2005
$m

2006
$m

2005
$m

1,903
165

1,724
153

1,903
165

1,724
153

2,068

1,877

2,068

1,877

Consolidated

The Company

2006
$m

2005
$m

2006
$m

2005
$m

Preference dividends
ANZ Stapled Exchangeable Preferred Securities (ANZ StEPS)1
Euro Trust Securities

–
27

66
18

–
–

–
–

Dividends on preference shares

27

84

–

–

1 Under AIFRS, the ANZ Stapled Exchangeable Preferred Securities are now treated as loan capital (refer note 29), with distributions being reported as an interest expense in the financial year ended
30 September 2006.

ANZ Stapled Exchangeable Preferred Securities (ANZ StEPS)
On 23 September 2003, the Group issued 10 million ANZ StEPS at $100 each, raising $1 billion ($987 million net of issue costs of $13 million).
ANZ StEPS comprise 2 fully paid securities – an interest paying unsecured note issued by a New Zealand subsidiary (ANZ Holdings (New
Zealand) Limited) which is stapled to a fully paid preference share issued by the Company.
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 or security ranking equal or below the preference sharecomponent of ANZ StEPS. Distributions are reported as interest expense from 1 October 2005, due to the reclassification of the preference
securities as loan capital under AIFRS.
Further details in relation to ANZ StEPS are set out in note 29.

20 ANZ Full Financial Report 2006

Notes to the financial statements
7: Dividends (continued)
Euro Trust Securities
On 13 December 2004, the Group issued 500,000 Euro Floating Rate Non-cumulative Trust Securities (“Euro Trust Securities”) at €1,000 each
into the European market, raising €500 million (A$871 million at the spot rate at the date of issue, net of issue costs). The Euro Trust Securities
comprise 2 fully paid securities – an interest paying unsecured note issued by a United Kingdom subsidiary (ANZ Jackson Funding PLC) anda fully paid €1,000 preference share issued by the Company, which are stapled together and issued as a Euro Trust Security by ANZ Capital
Trust III.
Distributions on Euro Trust Securities are non-cumulative and are payable quarterly in arrears (on 15 March, 15 June, 15 September, 15
December of each year) based upon a floating distribution rate equal to 3 month EURIBOR rate plus a 66 basis point margin. At each payment
date the 3 month EURIBOR rate is reset for the next quarter. Dividends are not payable on the preference share while it is stapled to the note.
If distributions are not paid on Euro Trust Securities, the Company may not pay dividends or return capital on its ordinary shares or any othershare capital or security ranking equal or below the preference share component. (Refer to note 30 for further details.)

Dividend Franking Account
The amount of franking credits available to the Company for the subsequent financial year is $341 million (2005: $78 million) after adjustingfor franking credits that will arise from the payment of tax on Australian profits for the 2006 financial year, $543 million of 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.

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 theserequirements caused by the payment of cash dividends is monitored.
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 that a bank under its supervision must consult with it before declaring a coupon payment on a
Tier 1 instrument, including a dividend if the bank has incurred a loss, or proposes to pay coupon payments on Tier 1 instruments (including
dividends), which exceed the level of current year profits.

Dividend Reinvestment Plan
During the year, 3,545,901 ordinary shares were issued at $23.85 per share, and 3,039,401 ordinary shares at $26.50 per share, under thedividend reinvestment plan (2005: 3,900,116 ordinary shares at $19.95 per share, and 3,406,775 ordinary shares at $21.85 per share).
All eligible shareholders can elect to participate in the dividend reinvestment plan.

Bonus Option Plan
Dividends paid during the year have been reduced as a result of certain shareholders participating in the bonus option plan and foregoing allor part of their right to dividends. These shareholders were issued bonus shares.
During the year, 1,384,144 ordinary shares were issued under the bonus option plan (2005: 1,749,584 ordinary shares).

Final dividend 2005
Interim dividend 2006

21

Determined
dividend$m

Bonus
option planadjustment$m

Amount
paid
$m

1,078
1,024

(18)
(16)

1,060
1,008

2,102

(34)

2,068

Notes to the financial statements
8: Earnings per Ordinary Share
Consolidated

Basic earnings per share (cents)
Earnings reconciliation ($millions)
Profit for the year
Less: net profit attributable to minority interests
Less: preference share dividend paid
Earnings used in calculating basic earnings per share
Weighted average number of ordinary shares (millions)
Diluted earnings per share (cents)
Earnings reconciliation ($millions)
Earnings used in calculating basic earnings per share
Add: US Trust Securities interest expense
Add: ANZ StEPS interest expense
Earnings used in calculating diluted earnings per share
Weighted average number of ordinary shares (millions)
Used in calculating basic earnings per share
Add: potential conversion of options to ordinary sharespotential conversion of US Trust Securities to ordinary sharespotential conversion of ANZ StEPS to ordinary shares
Used in calculating diluted earnings per share

2006

2005

200.0

169.5

3,692
4
27
3,661
1,830.3

3,178
3
84
3,091
1,823.7

194.0

164.4

3,661
53
45

3,091
48
44

3,759

3,183

1,830.3
13.9
54.8
38.2

1,823.7
9.7
60.1
42.7

1,937.2

1,936.2

The weighted average number of converted and lapsed options, weighted with reference to the date of conversion or lapse, and included in thecalculation of diluted earnings per share is approximately 1.6 million.

9: Liquid Assets
Consolidated

Australia
Coins, notes and cash at bankers
Money at call, bills receivable and remittances in transit
Securities purchased under agreement to resell in less than 90 days
New ZealandCoins, notes and cash at bankers
Money at call, bills receivable and remittances in transit
Other banks’ certificates of deposit
Securities purchased under agreement to resell in less than 90 days
Overseas markets
Coins, notes and cash at bankers
Money at call, bills receivable and remittances in transit
Other banks’ certificates of deposit
Securities purchased under agreement to resell in less than 90 days
Total liquid assets
Maturity analysis based on original term to maturity
Less than 90 days
More than 90 days
Total liquid assets

The Company

2006
$m

2005
$m

2006
$m

2005
$m

1,286
938
4,776
7,000

888
1,013
1,405
3,306

1,242
892
4,776
6,910

865
958
1,394
3,217

913
1,398
1,351
260
3,922

242
1,405
1,896
249
3,792

–
–
–
–
–

–
–
–
–
–

251
2,279
1,566
1
4,097
15,019

232
2,302
1,969
–
4,503
11,601

111
1,946
1,460
–
3,517
10,427

119
1,980
1,875
–
3,974
7,191

11,633
3,386
15,0199,600
2,001
11,6018,050
2,377
10,427

5,315
1,876
7,191

10: Due from Other Financial Institutions
Consolidated

Australia
New ZealandOverseas markets
Total due from other financial institutions
Maturity analysis based on original term to maturity
Less than 90 days
More than 90 days
Total due from other financial institutions
22 ANZ Full Financial Report 2006

The Company

2006
$m

2005
$m

2006
$m

2005
$m

3,090
3,236
3,339
9,665

917
2,731
2,700
6,348

3,068
–
3,185
6,253

899
–
2,553
3,452

8,711
954
9,665

4,102
2,246
6,348

5,520
733
6,253

2,584
868
3,452

Notes to the financial statements
11: Trading Securities
Trading securities are allocated between Australia, New Zealand and Overseas markets based on the domicile of the issuer
Consolidated

Listed – Australia
Other securities and equity securities

Listed – Overseas markets
Other government securities

Total listed
Unlisted – Australia
Commonwealth securities
Local, semi-government and other government securities
ANZ accepted bills
Other securities and equity securities

Unlisted – New Zealand
Other government securities
Other securities and equity securities

Unlisted – Overseas markets
Other government securities
Other securities and equity securities

The Company

2006
$m

2005
$m

2006
$m

2005
$m

5

–

5

–

5

–

5

–

44

–

44

–

44

–

44

–

49

–

49

–

328
2,635
1,569
2,639

551
1,646
1,182
1,594

328
2,635
1,569
2,363

551
1,646
1,182
1,490

7,171

4,973

6,895

4,869

210
1,220

343
551

37
–

–
24

1,430

894

37

24

–
529

27
391

–
527

27
389

529

418

527

416

Total unlisted

9,130

6,285

7,459

5,309

Total trading securities

9,179

6,285

7,508

5,309

12: Derivative Financial Instruments
Derivative instruments are contracts whose value is derived from one or more underlying financial instruments or indices. They include swaps,
forward rate agreements, futures, options and combinations of these instruments. The use of derivatives and their sale to customers as risk
management products is an integral part of the Group’s trading activities. Derivatives are also used to manage the Group’s own exposure tofluctuations in exchange and interest rates as part 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 aconsistent manner.
The principal exchange rate contracts used by the Group are forward foreign exchange contracts, currency swaps and currency options. Forward
foreign exchange 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 exchangeinterest 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 of a currency at a specified rate on or before a future date. As compensation for assuming theoption risk, the option writer generally receives a premium at the start 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 rate agreements 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 astandardised 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. Interest rate options provide the buyer
with the right but not the obligation either to receive or pay interest 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 the start of the option period.
The principal credit contracts used by the Group are default swaps. Default swaps are contracts that provide for a specified payment to be madeto the purchaser of the swap following a defined credit event.
The credit risk of derivative financial instruments arises from the potential for a counterparty to default on its contractual obligation. Credit riskarises when market movements are such that the derivative has a positive value to the Group. It is the cost of replacing the contract in the eventof 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.

23

Notes to the financial statements
12: Derivative Financial Instruments (continued)
The Group further restricts its exposure to credit losses by entering into master agreements with counterparties with which it undertakes asignificant volume of transactions. The use of a master agreement does not generally result in an offset of balance sheet assets and liabilities.
However, the credit risk is reduced by a master agreement to the extent that if an event of default occurs, all contracts with the counterparty are
terminated and settled on a net basis. Despite this, as a result of the number of transactions that are usually subject to such master agreements,
the Group’s overall exposure to credit risk on derivative instruments can change substantially within a short period.
The following table provides an overview of the Group’s and the Company’s foreign 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 outstanding transactions. They are not a measure of the risk associated with a derivative. The
derivative instruments become favourable (assets) or unfavourable (liabilities) as a result of fluctuations in market rates relative to their terms.
The aggregate contractual or notional amount of derivative financial instruments on hand, the extent to which instruments are favourable orunfavourable, and thus the aggregate fair values of derivative financial assets and liabilities, can fluctuate significantly from time to time.
The fair values of derivative instruments held and notional principal amounts are set out below.
Sept–06

Sept–05

Fair value
Total fair valueof derivatives

Hedging
Net investment
in foreign operations
Assets Liabilities
$m
$m

Net
Notional Fair value
principal
amount Assets$m$m

Consolidated at
30 September 2006

Notional
principal
amount$m

Trading
Assets Liabilities$m$m

Foreign exchange andcommodities contracts
Spot and forward contracts
Swap agreements
Futures contracts
Options purchased
Options sold
Other contracts
Collateral1

217,522
110,638
557
9,166
13,916
7,397
–

2,054
2,714
45
259
–
1,055
(1,279)(2,195)(2,247)
(29)
–
(202)
(916)
1,256

–
114
–
–
–
–
–

–
(64)
–
–
–
–
–

–
–
–
–
–
–
–

–
–
–
–
–
–
–

1
–
–
–
–
–
–

(34)
–
–
–
–
–
–

2,055
2,828
45
259
–
1,055
(1,279)(2,229) 184,958(2,311) 68,892
(29)
256
–
9,340
(202) 14,925
(916)
4,963
1,256
–

(413)
(746)
4
186
(174)
(2)
586

359,196

4,848(4,333)

114

(64)

–

–

1

(34)

4,963

(4,431) 283,334(559)

96,147589,135
99,184
17,733
33,638

14
3,296
249
141
–

(10)
(3,566)
(242)
–
(100)

–
212
–
–
–

–
(263)
–
–
–

–
211
2
–
–

–
(61)
(2)
–
–

–
–
–
–
–

–
–
–
–
–

14
3,719
251
141
–

(10) 47,734(3,890) 405,152(244) 35,111
12,810–(100) 16,715

1
431
8
62
(42)

835,837

3,700(3,918)

212

(263)

213

(63)

–

–

4,125

(4,244) 517,522

460

23,965

76

(78)

–

–

–

–

–

–

76

1,218,998

8,624(8,329)

326

(327)

213

(63)

1

(34)

9,164

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

Credit contracts
Credit default swaps

Fair value
Assets Liabilities$m$mCash flow
Assets Liabilities$m$m

1 Collateral relates predominantly to Foreign Exchange contracts.

24 ANZ Full Financial Report 2006

Assets$m

Liabilities
$m

(78)

15,437(1)(8,753) 816,293(100)

Notes to the financial statements
12: Derivative Financial Instruments (continued)
Sept–06

Sept–05

Fair value
Total fair valueof derivatives

HedgingCompany at
30 September 2006

Notional
principal
amount$m

Trading
AssetsLiabilities$m$m

Foreign exchange andcommodities contracts
Spot and forward contracts
Swap agreements
Futures contracts
Options purchased
Options sold
Other contracts
Collateral1

201,577
149,823557
8,798
13,654
7,678
–

1,902
3,086
45
250
–
1,056
(1,279)(1,948)(2,292)
(29)
–
(193)
(917)
571

–
112
–
–
–
–
–

–
(64)
–
–
–
–
–

–
–
–
–
–
–
–

382,087

5,060(4,808)112(64)85,514
460,101
84,25917,86334,092

7
2,843
248
124
–

(6)
(2,992)
(241)
–
(100)

–
121
–
–
–

681,829

3,222(3,339)23,94076

1,087,856

8,358Interest rate contracts
Forward rate agreements
Swap agreements
Futures contracts
Options purchased
Options sold

Credit contracts
Credit default swaps

Net
Fair value
Assets$m

Assets$m

Liabilities$m

Notional
principal
amount
$m

–
–
–
–
–
–
–

1,902
3,198
45
250
–
1,056
(1,279)(1,948)(2,356)
(29)
–
(193)
(917)
571

174,092
64,990256
9,111
14,748
4,963
–

(607)
(618)
4
178
(166)
(2)
586

–

–

5,172

(4,872)

268,160

(625)

–
(106)
–
–
–

–
194
2
–
–

–
(45)
(2)
–
–

7
3,158
250
124
–

(6)
(3,143)
(243)
–
(100)

38,554
312,205
25,141
13,712
17,906

–
459
9
54
(45)

121

(106)

196

(47)

3,539

(3,492)

407,518

477

(78)

–

–

–

–

76

(78)

15,412(1)(8,225)

233

(170)

196

(47)

8,787

(8,442)

691,090(149)

Fair value
AssetsLiabilities$m$m

1 Collateral relates predominantly to Foreign Exchange contracts.

25

Cash flow
AssetsLiabilities$m$mNotes to the financial statements
12: Derivative Financial Instruments (continued)
Cashflow Hedges (consolidated)
The effective portion of changes in the fair value of derivatives qualifying and designated as cash flow hedges is deferred to the hedging reserve
which forms part of shareholders’ equity. Amounts deferred in equity are recognised in the income statement in the period during which thehedged forecast transactions take place. As at 30 September 2006, net gains on derivative financial instruments designated as cash flow
hedges deferred to the hedging reserve were $227 million.

Concentrations of Credit Risk (consolidated)
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.
Approximately 72% (2005: 57%) of the Group’s exposures are with counterparties which are either Australian banks or banks based in otherOECD countries.

Consolidated at
30 September 2006

Australia
New ZealandOverseas markets

Consolidated at
30 September 2005

Australia
New ZealandOverseas markets

26 ANZ Full Financial Report 2006

OECD
governments$mAustralianand OECD
banks$m

Corporations,
non-OECD
banks andothers$m

Totalcreditequivalentamount
$m

133
57
19

10,099
2,134
912

3,900
736
359

14,132
2,927
1,290

209

13,145

4,995

18,349OECD
governments$mAustralianand OECD
banks$m

Corporations,
non-OECD
banks andothers$m

Totalcreditequivalentamount
$m

140
55
31

6,185
1,610
236

4,997
606
224

11,322
2,271
491

226

8,031

5,827

14,084

Notes to the financial statements
13: Available-for-sale Assets/Investment Securities
Consolidated

The Company

Available-for-saleassets2006$m

Investment
securities1
2005$m

Available-for-saleassets2006$m

Investment
securities1
2005
$m

6

–

6

–

6

–

6

–

102
2,198

196
1,411

102
2,198

196
1,410

2,300

1,607

2,300

1,606

Total listed

2,306

1,607

2,306

1,606

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

1,908
2,971
1,946

1,412
4,886
–

1,908
2,421
1,946

1,412
2,168
–

6,825

6,298

6,275

3,580

285
29

1,096
173

–
–

–
–

314

1,269

–

–

532
676

431
437

71
5

108
7

1,208

868

76

115

Total unlisted

8,347

8,435

6,351

3,695

Total investment securities and available-for-sale assets

10,653

10,042

8,657

5,301

Investment securities and available-for-sale are allocated between Australia,
New Zealand and Overseas markets based on the domicile of the issuer
Listed – Australia
Other securities and equity investments

Listed – Overseas Markets
Other government securities
Other securities and equity investments

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

Unlisted – Overseas markets
Other government securities
Other securities and equity investments

1 Investment securities have been classified as available-for-sale assets following the adoption of AIFRS on 1 October 2005. Investment securities were recorded at cost or at cost adjusted foramortisation of premiums or discounts. Changes in market values of investment securities were not taken into account unless there was considered to be other than temporary diminution in value.

No impairment loss was recognised or reversed in the Income Statement.

27

Notes to the financial statements
13: Available-for-sale Assets/Investment Securities (continued)
Available-for-sale assets by maturities and yields
Based on remaining term to maturity at 30 September 2006
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
fair
value
$m

1,224
2,544
1,080

684
–
359

–
308
507

–
–
–

–
107
–

–
18
–

1,908
2,977
1,946

4,848

1,043

815

–

107

18

6,831

273
474
342

–
108
622

12
51
1,460

–
–
96

–
1
336

–
–
47

285
634
2,903

1,089

730

1,523

96

337

47

3,822

5,937

1,773

2,338

96

444

65

10,653

Less than
1 year%

Between
1 year and5 years%

Between
5 year and
10 years%

After
10 years%

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

6.08
6.14
6.77

–
6.41
6.99

–
–
–

–
8.37
–

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

7.19
5.20
3.94

6.90
4.20
5.18

–
–
4.86

–
7.50
4.54

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

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

Total (fair value)

Weighted average yields1

1 Based on effective yields for loans and advances, fixed interest and discounted securities and dividend yield for equity investments at 30 September 2006.

28 ANZ Full Financial Report 2006

Notes to the financial statements
13: Available-for-sale Assets/Investment Securities (continued)
Investment securities by maturities and yields
Based on remaining term to maturity at 30 September 2005
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

972
4,390

440
280

–
100

–
–

–
107

–
9

1,412
4,886

1,412
4,862

5,362

720

100

–

107

9

6,298

6,274

760
452
197

333
100
370

–
75
1,279

3
–
40

–
–
135

–
–
–

1,096
627
2,021

1,096
630
2,020

1,409

803

1,354

43

135

–

3,744

3,746

Total book value

6,771

1,523

1,454

43

242

9

10,042n/aTotal market value

6,773

1,520

1,457

42

219

9

n/a

10,020Less than
1 year%

Between
1 year and5 years%

Between
5 year and
10 years%

After
10 years%

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

5.55
5.71

–
6.37

–
–

–
7.14

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

6.51
3.98
4.86

–
6.78
3.99

7.20
–
2.00

–
–
2.68

At book value

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

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

Weighted average yields1

1 Based on effective yields for fixed interest and discounted securities and dividend yield for equity investments at 30 September 2005.

29

Notes to the financial statements
14: 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

The Company

2006
$m

2005
$m

2006
$m

2005
$m

6,237
6,190
101,945
53,905
2,580
9,650

5,276
5,434
91,19648,893
2,854
9,636

6,237
6,190
100,874
49,774
1,006
1,482

5,276
5,434
89,55844,086
1,222
2,216

180,507163,289

165,563

147,792

1,666
1,081
37,84526,979
421
937

1,647
1,026
34,85925,012
639
1,207

–
–
–
–
–
–

–
–
–
–
–
–

68,92964,390

–

–

518
198
766
8,347
179
192
2

303
134
592
7,510
217
62
7

333
8
599
7,160
112
192
2

213
7
466
6,428
97
62
6

10,202

8,825

8,406

7,279

259,638

236,504

173,969

155,071

Less: Provision for credit impairment (refer note 16)(2,226)(2,440)(1,566)(1,709)Less: Unearned income(2,002)(1,574)

(248)

(1)

(4,228)(4,014)(1,814)(1,710)Total net loans and advances

255,410

232,490

172,155

153,361

Lease receivablesa) Finance lease receivables
Gross finance lease receivables
Less than 1 year
1 to 5 years
Later than 5 years

606
1,488
256

924
1,432
515

140
751
227

238
693
386

Less: unearned future finance income on finance leases

(474)

(375)

(248)

(1)

Net investment in finance lease receivables

1,876

2,496

870

1,316

411
398
21

397
430
12

–
–
–

1
1
–

830

839

–

2

Total lease receivables

2,706

3,335

870

1,318

Present value of net investment in finance lease receivables
Less than 1 year
1 to 5 years
Later than 5 years

516
1,172
188

639
1,345
512

55
657
158

237
692
387

1,876

2,496

870

1,316

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

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

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

Total gross loans and advancesb) Operating lease receivables
Gross operating lease receivables
Less than 1 year
1 to 5 years
Later than 5 years

30 ANZ Full Financial Report 2006

Notes to the financial statements
15: Impaired Financial Assets
Consolidated

Summary of impaired financial assets
Non-performing loans
Restructured loans
Unproductive facilities

The Company

2006
$m

2005
$m

2006
$m

2005
$m

661
–
37

642
28
43

452
–
30

380
28
36

Gross impaired financial assets
Individual provisions
Non-performing loans
Unproductive facilities

698

713

482

444

(279)
(7)

(256)
(17)

(179)
(6)

(135)
(10)

Net impaired financial assets

412

440

297

299

Restructured loans

–

28

–

28

Real estate or other assets acquired through the enforcement of security
In the event of customer default, any loan security is held as mortgagee in possession and therefore
the Group does not hold any real estate or other assets acquired through the enforcement of security

–

–

–

–

499

381

381

267

Accruing loans past due 90 days or more1
These amounts are not classified as impaired assets as they are either 90 days or more past
due and well secured, or are portfolio managed facilities that can be held on an accrual basis
for up to 180 days past due

Interest and other income forgone on impaired financial assets
The following table shows the estimated amount of interest and other income not recognised, net of interest recoveries and unwind of discount,on average impaired financial assets during the period.
Consolidated

The Company

2006
$m

2005
$m

2006
$m

2005
$m

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

34
13
7

26
9
16

29
–
2

21
–
11

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

54

51

31

32

Interest recognised2
Australia
New ZealandOverseas markets

(20)
(6)
–

(10)
(5)
(10)

(20)
–
–

(10)
–
(8)

Total interest recognised

(26)

(25)

(20)

(18)

Net interest and other income not recognised
Australia
New ZealandOverseas markets

14
7
7

16
4
6

9
–
2

11
–
3

Total net interest and other income not recognised

28

26

11

14

1 Includes unsecured credit card and personal loans 90 day past due accounts which are allowed by APRA to be retained on a performing basis for up to 180 days past due amounting to $64 million(2005: $51 million). The remainder of 90 day past due accounts are predominately ‘well secured’, for example no loss of principal or interest is expected.
2 The impairment loss on a non-performing loan is calculated as the difference between the asset’s carrying amount and the estimated future cashflows discounted to their present value.
As this discount unwinds during the period it is recognised as interest income. Refer note 1(xi) for explanation on how it arises. The comparatives do not reflect this change and representinterest and other income received.

31

Notes to the financial statements
16: Provision for Credit Impairment
Movement in provision for credit impairment
Consolidated

The Company

2006
$m

Previous
AGAAP
2005
$m

2006
$m

Previous
AGAAP
2005
$m

Collective provision
Balance at start of year
Adjustment due to adoption of accounting standard AASB139
Provisions acquired (disposed)
Adjustment for exchange rate fluctuations
Charge to income statement
Transfer to individual provision1
Recoveries1

2,167
(288)
–
(8)
69
–
–

1,992
–
(13)
(35)
580
(471)
114

1,564
(238)
–
3
52
–
–

1,381
–
(13)
(24)
388
(250)
82

Total collective provision2

1,940

2,167

1,381

1,564

Individual provision
Balance at start of year
Adjustment due to adoption of accounting standard AASB139
Charge to income statement
Adjustment for exchange rate fluctuations
Discount unwind
Bad debts written off
Recoveries of amounts previously written off
Transfer from collective provision1

273
(1)
338
(4)
(26)
(421)
127
–

384
–
–
(11)
–
(571)
–
471

145
4
226
(1)
(20)
(259)
90
–

274
–
–
(3)
–
(376)
–
250

Total individual provision

286

273

185

145

2,226

2,440

1,566

1,709

New and increased provisions
Australia
New Zealand
Asia
Other overseas markets

508
81
24
5

378
146
19
61

417
–
–
2

312
–
4
29

Provision releases

618
(153)

604
(133)

419
(103)

345
(95)

Recoveries of amounts previously written off

465
(127)

471
(114)

316
(90)

250
(82)

Individual provision charge
Net credit to collective provision

338
69

357
223

226
52

168
220

Charge to income statement

407

580

278

388

%

%

%

%

0.1
0.7

0.1
0.9

0.1
0.7

0.1
0.9

0.1
0.8

0.1
1.0

0.1
0.8

0.1
1.0

0.2

0.2

0.1

0.2

Total provision for credit impairment

Provision movement analysis

RatiosProvisions3 as a % of total advances4
IndividualCollective
Provisions3 as a % of risk weighted assets
IndividualCollective
Bad debts written off as a % of total advances

1 Under AIFRS, the impairment calculation results in a nil amount for these lines from 1 October 2005.
2 The Collective Provision includes amounts for off balance sheet credit exposures, $260 million at September 2006 ($255 million at 1 October 2005). The charge to the income statement for the year
ended 30 September 2006 relating to off balance sheet credit exposures was $5 million.
3 Excludes provisions for unproductive facilities.
4 See Glossary on page 120.

32 ANZ Full Financial Report 2006

Notes to the financial statements
17: Regulatory Deposits
Consolidated

The Company

2006
$m

2005
$m

2006
$m

2005
$m

Overseas central banks

205

159

132

113

Maturity:Less than 90 days
After 5 years

70
135

62
97

61
71

54
59

205

159

132

113

18: Shares in Controlled Entities, Associates and Joint Venture Entities
Consolidated

The Company

2006
$m

2005
$m

2006
$m

2005
$m

Total shares in controlled entities
Total shares in associates1 (refer note 41)
Total shares in joint venture entities2 (refer note 42)

–
592
1,608

–
265
1,661

11,424307–

11,99892–

Total shares in controlled entities, associates and joint venture entities

2,200

1,926

11,731

12,090

1 Investments in associates are accounted for in the consolidated financial statements using the equity method of accounting and are carried at cost by the parent entity
2 Investments in joint venture entities are accounted for in the consolidated financial statements using the equity method of accounting and are carried at cost by the parent entity

ACQUISITIONS OF CONTROLLED ENTITIESThe following securitisation special purpose entities were consolidated as part of the Group from 1 October 2004 because of the application of
UIG Interpretation 112: ‘Consolidation – Special Purpose Entities’.
Arc Funding Pty Ltd
Eos TrustKingfisher Trust No 1
Kingfisher Trust No 2

Kingfisher Trust 2001–1G
Kingfisher Trust 2004–1G
Kingfisher Securitisation Pty Ltd
Omeros Trust

Omeros II Trust
Solera Trust
Stellar Funding Pty Ltd
Coral Finance Ltd

The impact of the consolidation of these entities is explained in note 51.
There were no material controlled entities acquired during the years ended 30 September 2006 and 2005.
DISPOSAL OF CONTROLLED ENTITIESThere were no material controlled entities disposed of during the year ended 30 September 2006.
In respect of the year ended 30 September 2005, ANZ National Bank Limited entered into a joint venture with ING Insurance International
Limited (INGII) in September 2005. The joint venture, ING (NZ) Holdings Ltd (INGNZ), is 49% owned by ANZ National Bank Ltd and 51% owned
by INGII.
On 30 September 2005:
ANZ National Bank Limited and INGII invested NZD163 million and NZD170 million respectively into INGNZ.
ANZ National Bank Limited sold NBNZ Life Insurance Limited and NBNZ Investment Services Limited to INGNZ for NZD158 million resulting
in the following impact on the Group’s financial statements:- reduction in unamortised goodwill of NZD114 million;- recognition of approximately NZD16 million ($14 million) profit on sale of 51% of the NBNZ Life and Funds Management businesses;- an investment in INGNZ of NZD145 million.
INGNZ acquired at market value the New Zealand-based businesses previously owned by INGA. The profit on sale of the New Zealand-based
businesses of approximately $40 million is recognised in INGA, however, ANZ’s share of this profit is eliminated on consolidation.

33

Notes to the financial statements
19: Deferred Tax Assets
Consolidated

The Company

2006
$m

2005
$m

2006
$m

2005
$m

596
92
107
270
247

719
–
105
230
304

417
70
75
182
56

505
–
73
145
39

1,312

1,358

800

762

67
2
3

44
–
(13)

66
1
–

44
–
–

72

31

67

44

Total deferred tax assets

1,384

1,389

867

806

Movements
Restated balance 1 October
Change on adoption of accounting policy AASB 139
Movements in temporary differences during the year

1,389
64
(69)

1,514
n/a
(125)

806
41
20

797
n/a
9

Closing balance at 30 September

1,384

1,389

867

806

Deferred tax assets by geography
Australia
New ZealandOverseas markets

924
296
164

874
377
138

732
–
135

686
–
120

1,384

1,389

867

806

Unused realised tax losses (on revenue account)
Unused realised capital losses

20
63

23
66

9
63

11
66

Total unrecognised deferred tax assets

83

89

72

77

Deferred tax assets recognised in profit and loss
Collective provision for impaired loans and advances
Deferred fee revenue
Provision for employee entitlements
Other provisions
Other

Deferred tax assets recognised directly in equity
Defined benefit obligations
Available for sale reserve
Foreign currency translation reserve

Total deferred tax assets
Unrecognised deferred tax assets
The following deferred tax assets will only be obtained if:
assessable income is derived of a nature and an amountsufficient to enable the benefit to be realised
the conditions for deductibility imposed by tax legislation are complied with; andno changes in tax legislation adversely affect the Group in realising the benefit.

34 ANZ Full Financial Report 2006

Notes to the financial statements
20: Goodwill and Other Intangible Assets
Consolidated

The Company

2006
$m

2005
$m

2006
$m

2005
$m

Gross carrying amountRestated balance at start of year
Additions through business combinations
Derecognised on disposal
Foreign currency exchange differences
Other

3,015
2
–
(117)
–

3,210
–
(112)
(87)
4

15
–
–
–
–

15
–
–
–
–

Balance at end of year1

2,900

3,015

15

15

Gross carrying amountRestated balance at start of year
Impact of adoption of AIFRS (refer to note 51)
Additions
Additions from internal developments
Foreign currency exchange differences
Other

898
(38)
2
135
(3)
(7)

844
–
3
96
(2)
(43)

793
(38)
2
128
–
(12)

727
–
3
94
–
(31)

Balance at end of year

987

898

873

793

Accumulated amortisation and impairment
Restated balance at start of year
Impact of adoption of AIFRS (refer to note 51)
Amortisation expense2 (refer note 4)
Foreign currency exchange differences
Other

455
(23)
117
(1)
2

351
–
128
(1)
(23)

386
(23)
103
–
3

292
–
109
–
(15)

Balance at end of year

550

455

469

386

Net book value
Balance at start of year

443

493

407

435

Balance at end of year

437

443

404

407

Net book value
Balance at start of the year

3,458

3,703

422

450

Balance at end of the year1

3,337

3,458

419

422

Goodwill

Software and other intangible assets

Goodwill, software and other intangible assets

1 Excludes notional goodwill related to the ING Australia joint venture of $826 million (September 2005: $826 million) and the ING New Zealand joint venture of $79 million(September 2005: $82 million).
2 Includes software amortisation expense of $114 million (September 2005: $125 million) and amortisation of other intangible assets $3 million (September 2005: $3 million). The Company includes
software amortisation expense of $100 million (September 2005: $106 million) and amortisation of other intangible assets $3 million (September 2005: $3 million).

Goodwill allocated to cash-generating units
The goodwill balance above largely comprises the goodwill purchased on acquisition of NBNZ Holdings Limited in December 2003.
Discussion of the goodwill and impairment testing for the cash generating unit containing this goodwill is discussed in note 2(iv).

35

Notes to the financial statements
21: Other Assets
Consolidated

The Company

2006
$m

2005
$m

2006
$m

2005
$m

Accrued interest/prepaid discounts
Accrued commission
Defined benefit superannuation plan surplus (see note 46)
Prepaid expenses
Issued securities settlements
Operating leases residual value
Capitalised expenses
Other

1,569
102
5
69
1,377
799
570
520

1,443
78
7
153
2,144
712
524
1,112

1,088
74
–
30
1,074
3
189
232

1,164
47
–
46
785
2
176
613

Total other assets

5,011

6,173

2,690

2,833

22: Premises and Equipment
Consolidated

Freehold and leasehold land and buildings
At costDepreciation

Leasehold improvements
At costAmortisation

Furniture and equipment
At costDepreciation

Computer and office equipment
At costDepreciation

Capital works in progress
At costTotal premises and equipment

36 ANZ Full Financial Report 2006

The Company

2006
$m

2005
$m

2006
$m

2005
$m

632
(195)

639
(201)

80
(36)

83
(40)

437

438

44

43

253
(158)

239
(149)

159
(93)

147
(84)

95

90

66

63

734
(467)

691
(445)

538
(332)

499
(308)

267

246

206

191

906
(688)

924
(700)

674
(505)

625
(454)

218

224

169

171

92

56

42

27

1,109

1,054

527

495

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

The Company

2006
$m

2005
$m

2006
$m

2005
$m

Freehold and leasehold land and buildings1
Carrying amount at beginning of year
Additions
Disposals
Depreciation
Foreign currency exchange difference

438
21
(5)
(15)
(2)

498
22
(68)
(11)
(3)

43
4
–
(2)
(1)

40
6
–
(2)
(1)

Carrying amount at end of year

437

438

44

43

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

90
26
(5)
(18)
2

61
46
–
(16)
(1)

63
16
(5)
(12)
4

39
33
–
(9)
–

Carrying amount at end of year

95

90

66

63

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

246
72
(3)
(48)
–

251
81
(41)
(43)
(2)

191
53
(2)
(36)
–

161
64
(5)
(29)
–

Carrying amount at end of year

267

246

206

191

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

224
95
(6)
(94)
(1)

252
92
(8)
(110)
(2)

171
73
(5)
(70)
–

185
65
(3)
(76)
–

Carrying amount at end of year

218

224

169

171

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

56
36

35
21

27
15

21
6

Carrying amount at end of year

92

56

42

27

Total premises and equipment

1,109

1,054

527

495

1 Includes integrals.

37

Notes to the financial statements
23: Due to Other Financial Institutions
Consolidated

The Company

2006
$m

2005
$m

2006
$m

2005
$m

Australia
New ZealandOverseas markets

6,656
2,448
5,014

3,396
2,976
5,655

6,654
–
4,998

3,394
–
5,635

Total due to other financial institutions

14,11812,027

11,652

9,029

24: Deposits and Other Borrowings
Deposits and other borrowings are classified between Australia, New Zealand and Overseas markets based on the location of the deposit
taking point.
Consolidated

Australia
Certificates of deposit
Term deposits
Other deposits bearing interest
Deposits not bearing interest
Commercial paper
Borrowing corporations’ debt1
Other borrowings

New ZealandCertificates of deposit
Term deposits
Other deposits bearing interest
Deposits not bearing interest
Commercial paper
Borrowing corporations’ debt2

Overseas markets
Certificates of deposit
Term deposits
Other deposits bearing interest
Deposits not bearing interest
Commercial paper
Other borrowings

Total deposits and other borrowings

The Company

2006
$m

2005
$m

2006
$m

2005
$m

16,65026,21961,245
4,749
8,092
8,843
458

17,51225,82950,707
4,310
8,994
9,338
308

16,65027,206
61,245
4,749
3,842
–
458

17,512
26,64250,707
4,310
2,929
–
308

126,256

116,998

114,150

102,408

3,428
23,12817,335
3,421
6,028
1,813

4,211
21,056
14,843
4,021
8,434
1,938

–
–
–
–
–
–

–
–
–
–
–
–

55,15354,503––

3,170
10,329
1,538
1,182
6,630
536

901
8,948
1,259
1,064
6,569
80

3,117
9,165
1,062
788
–
39

845
8,198
806
752
–
80

23,385

18,821

14,171

10,681

204,794

190,322

128,321113,089

1 Included in this balance is debenture stock of controlled entities. $7.9 billion of debenture stock of the consolidated subsidiary company Esanda, together with accrued interest thereon, is secured
by a trust deed and collateral debentures, giving floating charges upon the undertaking and all the assets of the entity other than land and buildings ($14.1 billion). All controlled entities of Esanda(except for some controlled entities which have been placed or are expected to be placed in voluntary deregistration and have minimal book value) have guaranteed the payment of principal,
interest and other monies in relation to all debenture stock and unsecured notes issued by Esanda. The only loans pledged as collateral are those in Esanda and its subsidiaries.
2 This balance represents NZD2.1 billion of secured debenture stock of the consolidated subsidiary UDC Finance Limited and the accrued interest thereon which are secured by a floating charge over
all assets of UDC Finance Limited and its subsidiaries (NZD2.4 billion).

38 ANZ Full Financial Report 2006

Notes to the financial statements
25: Income Tax Liabilities
Consolidated

The Company

2006
$m

2005
$m

2006
$m

2005
$m

700
1,075

294
1,341

698
912

269
1,099

1,775

1,635

1,610

1,368

(163)
211

(129)
138

–
–

–
–

48

9

–

–

32
98

34
123

3
87

12
112

130

157

90

124

1,953

1,801

1,700

1,492

Total current tax payable

569

199

701

281

Deferred tax liabilities recognised in profit and loss
Lease Finance
Treasury instruments
Capitalised expenses
Other

252
385
131
576

229
687
131
555

82
388
44
465

89
687
47
388

1,344

1,602

979

1,211

40

–

20

–

40

–

20

–

Total deferred tax liability

1,384

1,602

999

1,211

Movements
Opening balance at 1 October
Change on adoption of AIFRS
Movements in temporary differences during the year

1,602
25
(243)

1,579
7
16

1,211
(49)
(163)

1,030
14
167

Closing Balance at 30 September

1,384

1,602

999

1,211

Unrecognised deferred tax liabilities
The following deferred tax liabilities have not been brought to account as liabilities:
Other unrealised taxable temporary differences

33

25

–

–

Total unrecognised deferred tax liabilities

33

25

–

–

2006
$m

2005
$m

2006
$m

2005
$m

Creditors
Accrued interest and unearned discounts
Defined benefit plan obligations (see note 46)
Accrued charges
Security settlements
Other liabilities

4,282
2,488
229
604
1,236
1,840

2,949
2,002
154
596
317
1,600

4,030
1,832
229
392
1,104
1,236

2,723
1,400
154
377
–
818

Total payables and other liabilities

10,679

7,618

8,823

5,472

Australia
Current tax payable
Deferred tax liabilities

New ZealandCurrent tax payable
Deferred tax liabilities

Overseas markets
Current tax payable
Deferred tax liabilities

Total current and deferred income tax liability

Deferred tax liabilities recognised directly in equity
Cash flow hedges

26: Payables and Other Liabilities
Consolidated

39

The Company

Notes to the financial statements
27: Provisions
Consolidated

The Company

2006
$m

2005
$m

2006
$m

2005
$m

Employee entitlements1
Restructuring costs and surplus leased space2
Non-lending losses, frauds and forgeries3
Other4

366
74
187
330

360
77
184
293

267
61
125
235

260
57
136
197

Total provisions

957

914

688

650

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

The Company

2006
$m

2005
$m

2006
$m

2005
$m

Restructuring costs and surplus leased space2
Carrying amount at beginning of the year
Provision made during the year
Payments made during the year
Transfer/release of provision
Adjustment for exchange rate fluctuations

77
51
(43)
(10)
(1)

106
52
(47)
(33)
(1)

57
41
(33)
(4)
–

66
47
(34)
(22)
–

Carrying amount at the end of the year

74

77

61

57

Non-lending losses frauds and forgeries3
Carrying amount at beginning of the year
Provision made during the year
Transfer/release of provision
Release of provisions

184
52
(19)
(30)

171
37
(8)
(16)

136
17
(3)
(25)

125
23
(2)
(10)

Carrying amount at the end of the year

187

184

125

136

Other provisions4
Carrying amount at beginning of the year
Provision made during the year
Payments made during the year
Transfer/release of provision
Adjustment for exchange rate fluctuations

293
235
(161)
(37)
–

235
222
(132)
(31)
(1)

197
197
(137)
(23)
1

179
142
(93)
(31)
–

Carrying amount at the end of the year

330

293

235

197

1 The aggregate liability for employee benefits largely comprises employee entitlements provisions for annual leave and long service leave.
2 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 businessis undertaken 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 their timing is uncertain, and the costs can be reliably estimated.
3 Non-lending losses, frauds and forgeries provisions arise from inadequate or failed internal processes and systems, or from external events.
4 Other provisions comprise various other provisions including loyalty programs, workers’ compensation and make-good provisions on leased premises.

28: Bonds and Notes
Consolidated

The Company

2006
$m

2005
$m

2006
$m

2005
$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
CZK
Czech koruna16,957
6,528
1,371
1,350
787
14,821
3,153
2,216
2,631
85
73
78

11,401
5,268
1,138
1,140
1,173
11,138
3,381
1,929
2,284
81
71
69

11,004
5,423
1,371
303
685
13,337
2,633
2,216
2,631
85
73
78

8,598
4,343
1,133
323
1,173
9,794
2,941
1,929
2,284
81
71
69

Total bonds and notes

50,05039,07339,83932,73940 ANZ Full Financial Report 2006

Notes to the financial statements
29: Loan Capital
Consolidated

The Company

Interest rate
%

2006
$m

2005
$m

2006
$m

2005
$m

BBSW + 1.00

1,000

–

1,000

–

4.484
5.36

468
1,003

459
984

468
1,003

459
984

2,471

1,443

2,471

1,443

401

394

401

394

401

394

401

394

–
6
3
8
106
5
400
–
400
100
263
109
109
735
88
510
380
350
535
295
506
861
298
300
613
306
968

654
11
6
10
103
6
400
91
400
100
273
115
115
722
91
474
380
350
525
300
462
791
–
–
–
–
921

–
6
3
8
106
5
400
–
400
100
–
–
–
735
–
510
380
350
535
295
506
861
298
300
613
–
968

654
11
6
10
103
6
400
–
400
100
–
–
–
722
–
474
380
350
525
300
462
791
–
–
–
–
921

8,254

7,300

7,379

6,615

Total loan capital

11,126

9,137

10,251

8,452

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

3,523
875
3,262
2,087
1,371
8

1,930
685
3,862
1,383
1,265
12

3,523
–
3,262
2,087
1,371
8

1,930
–
3,862
1,383
1,265
12

11,126

9,137

10,251

8,452

Hybrid loan capital (subordinated)
ANZ Stapled Exchangeable Preferred securities (ANZ StEPS)1,2
US Trust Securities
USD 350m non-cumulative trust securities due 2053
USD 750m non-cumulative trust securities due 2053

Perpetual subordinated notes
USD
300m
floating rate notes

Subordinated notes
USD
500m
USD
4.4m
JPY
279.9m
USD
6.1m
USD
79m
JPY
434.1m
AUD
400m
NZD
100m
AUD
400m
AUD
100m
NZD
300m
NZD
125m
NZD
125m
USD
550m
NZD
100m
EUR
300m
AUD
380m
AUD
350m
USD
400m
AUD
300m
GBP
200m
EUR
500m
AUD
300m
AUD
300m
GBP
250m
NZD
350m
GBP
400m

1
2
3
4

fixed notes due 2006
floating rate notes due 2007
floating rate notes due 2007
floating rate notes due 2008
floating rate notes due 2008
floating rate notes due 2008
floating rate notes due 2010
fixed notes due 20113 (called April 2006)
fixed notes due 20124
floating rate notes due 20123
fixed notes due 20123
fixed notes due 20123
fixed notes due 20123
floating rate notes due 20133
fixed notes due 20133
floating rate notes due 20133
floating rate notes due 20143
fixed notes due 20144
floating rate notes due 20153
fixed notes due 20154
floating rate notes due 20153
fixed notes due 20154
fixed notes due 20164
floating rate notes due 20163
fixed notes due 20164
fixed notes due 20164
fixed notes due 20184

LIBOR + 0.15

7.55
LIBOR + 0.50
LIBOR + 0.50
LIBOR + 0.50
LIBOR + 0.53
LIBOR + 0.55
BBSW + 0.29
6.87
6.75
BBSW + 0.57
7.04
7.61
7.40
LIBOR + 0.55
6.46
EURIBOR + 0.375
BBSW + 0.41
6.50
LIBOR + 0.20
6.00
5.625
4.45
6.25
BBSW + 0.22
4.75
7.16
4.75

On 23 September 2008 the margin of 1.00% can be reduced if the security is not redeemed or converted.
Under AIFRS, ANZ StEPS securities are now classified Loan Capital instead of Share Capital.
Callable five years prior to maturity.
Callable five years prior to maturity and reverts to floating rate notes.

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. The loan capital, except
for the ANZ StEPS and US Trust Securities, constitutes Tier 2 capital as defined by the Australian Prudential Regulation Authority (APRA) for capital adequacy purposes. ANZ StEPS and the US Trust
Securities constitutes Tier 1 capital, as defined by APRA, for capital adequacy purposes.

41Notes to the financial statements
29: Loan Capital (continued)
ANZ STAPLED EXCHANGEABLE PREFERREDSECURITIES (ANZ STEPS)On 23 September 2003, the Company
issued 10 million ANZ StEPS at $100 eachpursuant 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 New Zealand subsidiary of theCompany) stapled to a fully paid $100
preference share (issued by the Company).
Distributions on ANZ StEPS are noncumulative and are payable quarterly inarrears based upon a floating distribution
rate equal to the 90 day bank bill rate plus
a 100 basis point margin. At each payment
date the 90 day bank bill rate is reset for the
next quarter. Distributions are subject tocertain 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, 15June, 15 September and 15 December of
each year. Dividends are not payable on thepreference share while it is stapled to thenote. If distributions are not paid on ANZStEPS, the Company may not pay dividends
or return capital on its ordinary shares or any
other share capital or security ranking equal
or junior to 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, or viceversa), margin and the frequency and timingof the distribution payment dates. The firstreset 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 inaccordance 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 resetdate.
Upon the occurrence of an assignment
event, ANZ StEPS become unstapled. In
this case, the note will be assigned to a
subsidiary of the company, however, theholder will retain the preference share andthe rights to exchange the preference share.

The preference shares forming part of ANZ
StEPS rank equally with the preference
shares issued in connection with US
Trust Securities and Euro Trust Securities
in all respects. Except in certain limited
circumstances, holders of ANZ StEPS do nothave 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 determinedby the preference share component of ANZ
StEPS. Those preference shares rank behindall depositors and creditors, but ahead ofordinary shareholders.
ANZ StEPS qualify as Tier 1 capital as
defined by the Australian Prudential
Regulation Authority.
US TRUST SECURITIESOn 27 November 2003, the Company
issued 1.1 million USD non-cumulative
Trust Securities (“US Trust Securities”)
at USD1000 each pursuant to offering
memorandum dated 19 November 2003
raising USD1.1 billion. US Trust Securities
comprise two fully paid securities – aninterest paying unsecured note (issued by
Samson Funding Limited, a wholly owned NZ
subsidiary of the Company) and a fully paid
USD1,000 preference share (issued by theCompany), which are stapled together andissued as a US Trust Security by ANZ Capital
Trust I or ANZ Capital Trust II (the “Trusts”).
Investors have the option to redeem the US
Trust Security from the Trusts and hold theunderlying stapled security.
The issue was made in two tranches:
USD350 million tranche with a couponof 4.48% and was issued through ANZ
Capital Trust I. After 15 January 2010 andat any coupon date thereafter, ANZ has
the discretion to redeem the US Trust
Security for cash. If it does not exercise
this discretion, the investor is entitled
to require ANZ to exchange the US Trust
Security into a number of ordinary sharesbased on the formula in the offering
memorandum.
USD750 million tranche with a couponof 5.36% and was issued through ANZ
Capital Trust II. It has the same conversion
features as the USD350 million tranche
but from 15 December 2013.
Distributions on US Trust Securities are
non-cumulative and are payable half yearlyin arrears and are funded by payments
received by the respective Trusts on

42 ANZ Full Financial Report 2006

the underlying note. Distributions are
subject to certain payment tests (eg. APRA
requirements and distributable profits being
available). Distributions are expected to bepayable on 15 June and 15 December of
each year. Dividends are not payable on thepreference share while it is stapled to thenote. If distributions are not paid on the US
Trust Securities, the Company may not pay
dividends or return capital on its ordinary
shares or any other share capital or security
ranking equal or junior to the preference
share component.
At any time in the Company’s discretionor upon the occurrence of certain other“conversion events”, such as the failureof the respective Trust to pay in full a
distribution within seven business days of
the relevant distribution payment date, thenotes that are represented by the relevant
US Trust Securities will be automaticallyassigned to a subsidiary of the Company andthe preference shares that are represented
by the relevant US Trust Securities will be
distributed to investors in redemption ofsuch US Trust Securities. The distributed
preference shares will immediately become
dividend paying and holders will receive
non-cumulative dividends equivalent tothe scheduled payments in respect of the
US Trust Securities for which the preference
shares were distributed. If the US Trust
Securities are not redeemed or bought backprior to the 15 December 2053, they will
be converted into preference shares, which
in turn will be mandatorily converted into a
number of ordinary shares based upon theformula in the offering memorandum.
The preference shares forming part of
the US Trust Securities rank equal to thepreference shares issued in connection with
the ANZ StEPS and Euro Trust Securities inall respects. Except in limited circumstances,
holders of US Trust Securities do not have
any right to vote in general meetings of thecompany.
On winding up of the Company, the rights of
US Trust Security holders will be determinedby the preference share component of US
Trust Security. These preference shares rankbehind all depositors and creditors, butahead of ordinary shareholders.
The US Trust Securities qualify as Tier
1 capital as defined by the Australian
Prudential Regulation Authority.

Notes to the financial statements
30: Share Capital
The Company
Number of issued shares

2006

2005

Ordinary shares each fully paid
Preference shares each fully paid

1,836,572,115
500,000

1,826,449,480
10,500,000

Total number of issued shares

1,837,072,115

1,836,949,480

ORDINARY SHARES
Ordinary shares have no par value and entitle the holder to participate in dividends and the proceeds on winding up of the Company inproportion to the number of the shares held.
On a show of hands every holder of fully paid ordinary shares present at a meeting in person or by proxy is entitled to one vote, and upona poll one vote for each share held.
The Company
Number of issued shares

2006

2005

Balance at start of year
Bonus option plan1
Dividend reinvestment plan1
ANZ employee share acquisition plan2
ANZ share option plan2
Share capital buyback3

1,826,449,480
1,384,144
6,585,302
1,590,457
6,654,818(6,092,086)

1,818,401,807
1,749,584
7,306,891
1,979,649
6,642,326(9,630,777)

Balance at end of year

1,836,572,115

1,826,449,480

Consolidated

The Company

2006
$m

2005
$m

2006
$m

2005
$m

Ordinary share capital
Balance at start of year
Dividend reinvestment plan1
ANZ employee share acquisition plan2
ANZ share option plan2
Share Capital buyback3

8,053
165
90
109
(146)

7,943
153
57
104
(204)

8,053
165
90
109
(146)

7,943
153
57
104
(204)

Balance at end of year

8,271

8,053

8,271

8,053

1 Refer to note 7 for details of plan.
2 Refer to note 47 for details of plan.
3 Between January 2005 to March 2006, the Group bought back ordinary shares for a total value of $350 million.

43

Notes to the financial statements
30: Share Capital (continued)
PREFERENCE SHARESEuro Trust Securities
On 13 December 2004, the Company issued 500,000 Euro Floating Rate Non-cumulative Trust Securities (“Euro Trust Securities”) at €1000 eachpursuant to the offering circular dated 9 December 2004, raising $871 million (at the spot rate at the date of issue, net of issue costs). Euro
Trust Securities comprise two fully paid securities – an interest paying unsecured note (issued by ANZ Jackson Funding PLC, a United Kingdom
subsidiary of the Company) and a fully paid, €1000 preference share (issued by the Company), which are stapled together and issued as aEuro Trust Security by ANZ Capital Trust III (the “Trust”). Investors have the option to redeem the Euro Trust Security from the Trust and hold theunderlying stapled security.
Distributions on Euro Trust Securities are non-cumulative and are payable quarterly in arrears and are funded by payments received by the Truston the underlying note and or preference share. The distribution is based upon a floating distribution rate equal to the 3 month EURIBOR rateplus a 66 basis point margin up until 15 December 2014, after which date the distribution rate is the 3 month EURIBOR rate plus a 166 basis
point margin. At each payment date the 3 month EURIBOR rate is reset for the next quarter. Distributions are subject to certain payment tests(eg APRA requirements and distributable profits being available). Distributions are expected to be payable on 15 March, 15 June, 15 Septemberand 15 December of each year. Dividends are not payable on the preference shares while they are stapled to the note, except for the period
after 15 December 2014 when the preference share will pay 100bpts to fund the increase in the margin. If distributions are not paid on Euro
Trust Securities, the Company may not pay dividends or return capital on its ordinary shares or any other share capital or security ranking equal
or junior to the preference share component.
At any time at ANZ’s discretion or upon the occurrence of certain other “conversion events”, such as the failure of the Trust to pay in full a
distribution within seven business days of the relevant distribution payment date or the business day prior to 15 December 2053, the notesthat are represented by the relevant Euro Trust Securities will be automatically assigned to a Branch of the Company and the preference sharesthat are represented by the relevant Euro Trust Securities will be distributed to investors in redemption of such Euro Trust Securities. The
distributed preference shares will immediately become dividend paying and holders will receive non-cumulative dividends equivalent to thescheduled payments in respect of the Euro Trust Securities for which the preference shares were distributed.
The preference shares forming part of the Euro Trust Security rank equal to the preference shares issued in connection with the ANZ StEPS andUS Trust Securities in all respects. Except in limited circumstances, holders of Euro Trust Securities do not have any right to vote in general
meetings of the Company.
On winding up of the Company, the rights of Euro Trust Security holders will be determined by the preference share component of the Euro Trust
Security. These preference shares rank behind all depositors and creditors, but ahead of ordinary shareholders.
The transaction costs arising on the issue of these instruments were recognised directly in equity as a reduction to the proceeds of the equity
instruments to which the costs relate.
Consolidated

Preference share balance at start of year
- Euro Trust Securities1- ANZ StEPS2

The Company

2006
$m

2005
$m

2006
$m

2005
$m

871
987

–
987

871
987

–
987

1,858

987

1,858

987

Less ANZ StEPS securities reclassified under AIFRS2

(987)

n/a

(987)

n/a

Adjusted preference share balance at start of year

871

987

871

987

–

871

–

871

871

1,858

871

1,858

Preference share balance at end of year
- Euro Trust Securities1- ANZ StEPS2

871
–

871
987

871
–

871
987

Balance at end of year

871

1,858

871

1,858

Preference share net proceeds from new issues during the year
- Euro Trust Securities1

1 There was no transaction cost relating to the Euro Trust Securities in the financial year ended 30 September 2006 (2005: $5 million).
2 Under AIFRS, ANZ StEPS securities are now classified as loan capital (refer note 29).

44 ANZ Full Financial Report 2006

Notes to the financial statements
31: Reserves and Retained Earnings
Consolidated

The Company

2006
$m

2005
$m

2006
$m

2005
$m

–

–

–

–

Restated balance at beginning of year
Currency translation adjustments net of hedges

(443)
(203)

–
(443)

(213)
97

–
(213)

Total foreign currency translation reserve

(646)

(443)

(116)

(213)

Restated balance at beginning of year
Share-based payments
Transfer (to) retained earnings

67
(3)
(1)

44
23
–

67
(3)
(1)

44
23
–

Total share option reserve

63

67

63

67

d) Available-for-sale revaluation reserve
Balance at start of year
Adjustments on adoption of accounting policies speciﬁed by AASB 132 and AASB 1392

n/a
(10)

n/a
n/a

n/a
(11)

n/a
n/a

Restated balance at beginning of year
Valuation gain recognised after tax
Cumulative (gain) transferred to the income statement on sale of ﬁnancial assets

(10)
20
(8)

n/a
n/a
n/a

(11)
15
(7)

n/a
n/a
n/a

2

n/a

(3)

n/a

e) Hedging reserve
Balance at start of year
Adjustments on adoption of accounting policies speciﬁed by AASB 132 and AASB 1392

n/a
162

n/a
n/a

n/a
11

n/a
n/a

Restated balance at beginning of year
Gain (loss) recognised after tax
Transferred (to) income statement

162
121
(56)

n/a
n/a
n/a

11
36
(7)

n/a
n/a
n/a

Total hedging reserve

227

n/a

40

n/a

f) General reserve
Balance at start of year
Transfer (to) retained earnings3

181
(181)

181
–

11
(11)

11
–

–

181

–

11

149
(149)

149
–

–
–

–
–

–

149

–

–

(354)

(46)

(16)

(135)

a) Asset revaluation reserve
Restated balance at beginning of yearb) Foreign currency translation reservec) Share option reserve1

Total available-for-sale revaluation reserve

Total general reserveg) Capital reserve
Balance at start of year
Transfer (to) retained earnings3
Total capital reserve
Total reserves

45

Notes to the financial statements
31: Reserves and Retained Earnings (continued)
Consolidated

The Company

2006
$m

2005
$m

2006
$m

2005
$m

9,646

8,407

7,310

6,989

(431)

n/a

(201)

n/a

Restated balance at beginning of year
Proﬁt attributable to shareholders of the Company
Transfers from (to) reserves
Actuarial gain (loss) on deﬁned beneﬁt plans after tax5
Ordinary share dividends paid
Preference share dividends paid

9,215
3,688
331
(55)
(2,068)
(27)

8,407
3,175
–
25
(1,877)
(84)

7,109
3,174
12
(54)
(2,068)
–

6,989
2,175
–
23
(1,877)–Retained earnings at end of year

11,084

9,646

8,173

7,310

Total reserves and retained earnings

10,730

9,600

8,157

7,175

Retained earnings
Restated balance at start of year
Adjustment on adoption of accounting policies speciﬁed by AASB 4, AASB 132
and AASB 1394

1 Further information about share based payments to employees is disclosed in note 47 to the ﬁnancial statements.
2 ANZ has taken the election, pursuant to accounting standard AASB 1 (36A), to not comply with accounting standards AASB 132 and AASB 139 in the comparative information in its ﬁrst AIFRS
ﬁnancial report. Therefore the 2005 year is nil for this line item.
3 The transfer of balances from the general and capital reserves to retained earnings represent items of a distributable nature.
4 Comprises:- Remeasurement of the carrying value of the Group’s investment in INGA as at 1 October 2005
- Adjustment in respect of hedging derivative ﬁnancial instruments as at 1 October 2005
- Recognition of the fair value of derivatives relating to securitisation and structured ﬁnance transactions as at 1 October 2005
- Deferral of previously recognised fees now treated as an adjustment to yield on 1 October 2005
- Recalculation of the loan impairment provision on 1 October 2005 in line with change in policy as covered in note 1(xi).
5 ANZ has taken the option available under AASB 119 to recognise actuarial gains/losses on deﬁned beneﬁt superannuation plans directly in retained proﬁts (refer note 1(xx) and note 46).

a) Asset Revaluation Reserve
The asset revaluation reserve related to the revaluation of premises and equipment and investments in shares in controlled entities. The impactof adoption of AIFRS reset the asset revaluation reserve to nil.
b) Foreign Currency Translation Reserve
The translation reserve comprises exchange differences, net of hedges, arising on translation of the ﬁnancial statements of foreign operations,as described in note 1(iii). Refer note 51(v) for the impact of adopting AIFRS on the foreign currency translation reserve. When a foreign
operation is sold, attributable exchange differences are recognised in the income statement.
c) Share Option Reserve
The share options reserve arises on the grant of share options to selected employees under the ANZ share option plan. Amounts are transferredout of the reserve and into share capital when the options are exercised. Refer to note 1(xx).
d) Available-for-sale Revaluation Reserve
Changes in the fair value and exchange differences on the revaluation of available-for-sale ﬁnancial assets are taken to the available-for-salerevaluation reserve. Where a revalued available-for-sale ﬁnancial asset is sold, that portion of the reserve which relates to that ﬁnancial asset,
is realised and recognised in the income statement. Where the available-for-sale ﬁnancial asset is impaired, that portion of the reserve which
relates to that asset is recognised in the income statement. Refer to note 1(ix).
e) Hedging Reserve
The hedging reserve represents hedging gains and losses recognised on the effective portion of cashﬂow hedges. The cumulative deferred gainor loss on the hedge is recognised in the income statement when the hedged transaction impacts the income statement. Refer to note 1(viii).
f) General Reserve and g) Capital Reserve
The transfer of balances from the general and capital reserves to retained earnings represent items of a distributable nature.

32: Minority Interests
Consolidated
2006
$m

2005
$m

Share capital
Retained proﬁts

14
20

11
16

Total minority interests

34

27

46 ANZ Full Financial Report 2006

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.
Impaired loans are included under the interest earning asset category ‘loans and advances’. Intragroup interest earning assets and interest
bearing liabilities are treated as external assets and liabilities for the geographic segments. The data in the table below is not comparable as
the 2005 comparatives have not been restated to reflect the impact of AASB 132 – “Financial Instruments: Presentation and Disclosure” andAASB 139 – “Financial Instruments: Recognition and Measurement”.
2006
Averagebalance$m

Due from other financial institutions
Australia
New ZealandOverseas markets

2005

Interest$m

Averagerate%

Averagebalance$mInterest$m

Average
rate
%

1,442
2,236
4,061

71
146
190

4.9
6.5
4.7

807
2,242
2,664

42
126
90

5.2
5.6
3.4

Trading and available-for-sale assets/investment securities
Australia
New ZealandOverseas markets

15,957
2,459
2,883

946
182
134

5.9
7.4
4.6

10,799
2,226
2,992

589
133
100

5.5
6.0
3.3

Loans and advances
Australia
New ZealandOverseas markets

170,118
65,134
9,538

12,478
5,653
671

7.3
8.7
7.0

152,91261,035
9,060

10,671
5,071
461

7.0
8.3
5.1

Customer’s liabilities for acceptances1
Australia
Overseas markets

13,786
216

958
11

6.9
5.1

–
–

–
–

–
–

Other assets
Australia
New ZealandOverseas markets

3,833
4,361
4,155

317
283
261

8.3
6.5
6.3

2,215
2,912
3,319

110
162
189

5.0
5.6
5.7

4.9

3.5

Interest earning assets

Intragroup assets
Overseas markets
Intragroup elimination

11,501

559

9,473

330

311,680

22,860262,656

18,074(11,501)(559)(9,473)(330)

300,179

22,301

253,183

17,7447.4

7.0

Non-interest earning assets
Derivative financial instruments
Australia
New ZealandOverseas markets
Customer’s liabilities for acceptances1
Premises and equipment
Other assets
Provision for credit impairment
Australia
New ZealandOverseas markets

9,600
2,593
(579)
–
1,074
13,223

5,082
1,645
(404)
13,2401,094
13,100(1,567)
(419)
(191)

(1,823)(608)(15)

23,73431,311

Total assets

323,913284,494

Total average assets
Australia
New ZealandOverseas markets

220,71081,072
33,632

190,595
74,47328,899335,414

293,967(11,501)(9,473)323,913284,494

31.9%

33.0%

Intragroup elimination% of total average assets attributable to overseas activities

1 Customer’s liabilities for acceptances have been classified as interest earning assets following the adoption of AIFRS on 1 October 2005. This is consistent with the reclassification of commercial bill
margins from fees to net interest.

47

Notes to the financial statements
33: Average Balance Sheet and Related Interest (continued)
2006

2005

Interest$m

Averagerate%

Averagebalance$mInterest$m

Averagerate%

42,90726,363
13,699

2,445
1,839
646

5.7
7.0
4.7

39,38825,582
11,075

2,126
1,659
383

5.4
6.5
3.5

Savings deposits
Australia
New ZealandOverseas markets

15,087
6,841
566

480
305
10

3.2
4.5
1.8

13,896
7,210
417

413
291
3

3.0
4.0
0.7

Other demand deposits
Australia
New ZealandOverseas markets

38,935
8,494
1,003

1,751
502
22

4.5
5.9
2.2

33,950
7,992
794

1,432
412
13

4.2
5.2
1.6

Due to other financial institutions
Australia
New ZealandOverseas markets

4,151
1,961
5,965

223
107
306

5.4
5.5
5.1

1,456
1,680
4,642

86
93
166

5.9
5.5
3.6

Commercial paper
Australia
New ZealandOverseas markets

10,858
6,315
7,373

637
470
333

5.9
7.4
4.5

7,879
7,717
6,260

443
521
171

5.6
6.8
2.7

Borrowing corporations’ debt
Australia
New Zealand

9,117
1,863

522
130

5.7
7.0

9,336
1,954

518
125

5.5
6.4

Liability for acceptances1
Australia
Overseas markets

13,786
216

799
10

5.8
4.6

–
–

–
–

–
–

Loan capital, bonds and notes
Australia
New ZealandOverseas markets

45,244
9,293
135

2,677
703
7

5.9
7.6
5.2

38,305
4,757
137

2,138
335
4

5.6
7.0
2.9

Other liabilities
Australia
New ZealandOverseas markets

5,122
149
510

304
94
36

n/a
n/a
n/a

4,593
106
90

451
101
17

n/a
n/a
n/a

Intragroup liabilities
Australia
New Zealand

5,146
6,355

169
390

3.3
6.1

3,648
5,825

(13)
343

(0.4)
5.9

287,454

15,917

238,689

12,231(11,501)(559)(9,473)(330)

275,953

15,358229,216

11,901

Averagebalance$mTime deposits
Australia
New ZealandOverseas markets

Interest bearing liabilities

Intragroup elimination

5.6

5.2

1 Liability for acceptances have been classified as interest bearing liabilities following the adoption of AIFRS on 1 October 2005. This is consistent with the reclassification of commercial bill margins
from fees to net interest.

48 ANZ Full Financial Report 2006

Notes to the financial statements
33: Average Balance Sheet and Related Interest (continued)
2006
Averagebalance$m

2005
Averagebalance$m

Deposits
Australia
New ZealandOverseas markets

4,412
3,682
1,123

4,147
3,535
976

Derivative financial instruments
Australia
New ZealandOverseas markets

8,642
2,663
(635)

4,519
2,104
(483)

–

13,240

9,457

8,607

29,34436,645

Total liabilities

305,297

265,861

Total average liabilities
Australia
New ZealandOverseas markets

210,364
75,331
31,103

180,325
70,03824,971

316,798

275,334(11,501)(9,473)

305,297

265,861

17,745871

16,9491,684

18,616

18,633323,913284,494

32.8%

33.5%

Non-interest bearing liabilities

Liability for acceptances1
Other liabilities

Intragroup elimination

Total average shareholders’ equity
Ordinary share capital2
Preference share capital

Total average liabilities and shareholders’ equity% of total average liabilities attributable to overseas activities

1 Liability for acceptances have been classified as interest bearing liabilities following the adoption of AIFRS on 1 October 2005. This is consistent with the reclassification of commercial bill margins
from fees to net interest.
2 Includes reserves and retained earnings.

49

Notes to the financial statements
34: Interest Spreads and Net Interest Average Margins
2006
$m

2005
$m

4,763
1,724
456

3,818
1,612
413

6,943

5,843

205,136
74,19032,354(11,501)

166,733
68,41527,508(9,473)

300,179

253,183%%

Gross earnings rate2,4Australia
New ZealandOverseas markets
Group

7.20
8.44
5.64
7.43

6.84
8.03
4.25
7.01

Interest spreads and net interest average margins may be analysed as follows4
Australia
Gross interest spread
Interest forgone on impaired assets3

1.95(0.01)

1.87(0.01)Net interest spread
Interest attributable to net non-interest bearing items

1.94
0.38

1.86
0.43

Net interest average margin – Australia

2.32

2.29

New ZealandGross interest spread
Interest forgone on impaired assets3

1.74(0.01)

1.86(0.01)Net interest spread
Interest attributable to net non-interest bearing items

1.73
0.59

1.85
0.51

Net interest average margin – New Zealand

2.32

2.36

Overseas markets
Gross interest spread
Interest forgone on impaired assets3

1.02(0.02)

1.04(0.02)Net interest spread
Interest attributable to net non-interest bearing items

1.00
0.41

1.02
0.48

Net interest average margin – Overseas markets

1.41

1.50

Group
Gross interest spread
Interest forgone on impaired assets3

1.87(0.01)

1.83(0.01)Net interest spread
Interest attributable to net non-interest bearing items

1.86
0.45

1.82
0.48

Net interest average margin – Group

2.31

2.30

Net interest income1,4Australia
New ZealandOverseas markets

Average interest earning assets
Australia
New ZealandOverseas markets
Intragroup elimination

1
2
3
4

On a tax equivalent basis.
Average interest rate received on interest earning assets. Overseas markets includes intragroup assets.
Refer note 15.
Interest in the 2006 year includes deferred fees and costs that are considered part of the effective yield and have therefore been reclassified as interest.

50 ANZ Full Financial Report 2006

Notes to the financial statements
35: Financial Risk Management
STRATEGY IN USING FINANCIAL
INSTRUMENTS
Financial instruments are fundamental
to the Group’s business, constituting thecore element of its operations. The risks
associated with financial instruments
are a significant component of the risks
faced by the Group. Financial instruments
create, modify or reduce the credit, market(including traded or fair value risks andnon-traded or interest and foreign currency
related risks) and liquidity risks of theGroup’s balance sheet. These risks andthe Group’s policies and objectives for
managing such risks are outlined below.
The Group’s overall risk management
programme focuses on the unpredictabilityof financial markets and seeks to minimise
potential adverse effects on the financial
performance of the Group.
The Group uses derivative financial
instruments such as foreign exchange
contracts, and interest rate contracts
to hedge certain risk exposures. This isoutlined in Note 12.
CREDIT RISK
Credit risk is the risk of financial loss
from counterparties being unable to fulfil
their contractual loan or credit equivalentobligations.
The Group has an overall lending objectiveof sound growth for appropriate returns. The
credit risk management framework exists toprovide a structured and disciplined process
to support this objective.

Credit Risk Management
This risk management framework exists
across the Group with the aim of ensuring
a structured and disciplined approach ismaintained in achieving the objective set
by the Board. The framework is top-down
and focuses on policies, people, skills,
vision, values, controls, concentrations andportfolio balance. It is supported by portfolio
analysis and asset-writing strategies whichassist asset-writing direction and identify
areas requiring attention. The effectivenessof the framework is validated througha series of compliance and monitoringprocesses overseen within a risk committee
structure.
All credit decisions greater than apredetermined amount require approval
by both business writers and independentrisk personnel.

The Group sets strict limits on the acceptablelevel of credit risk. Acceptance of credit risk
is firstly based on a counterparty’s assessedcapacity to meet contractual obligations, inparticular interest and capital repayments.
Obtaining collateral further supports this.

Credit Risk Measurement
The relative ‘Probability of Default’ (PD) for
all counterparties is captured by the Group’s
Credit Rating process, which assigns aninternal risk rating to all borrowers andcounterparties. The risk rating assessment
utilises quantitative and independently
validated measurement tools and eachinternal risk rating corresponds to thestatistical probability of a customer (in thatrating class) defaulting within the next
12-month period. This is the foundationof the Group’s risk grade profile.
The Group’s risk grade profiles are subject
to change through new counterparty
acquisitions and/or existing counterparty
movements in either risk or volume. All
counterparty risk grades are subject tofrequent review, including statistical andbehavioural reviews in consumer andsmall business segments and individual
counterparty reviews in segments with larger
single name borrowers.

Credit Risk Mitigation
The Credit Risk objectives of the Groupare set by the Board and are strategically
implemented and monitored within a tiered
structure of delegated authority, designed
to oversee multiple facets of credit risk,
including asset writing strategies, credit
policies/controls, single exposures, portfolio
monitoring and risk concentrations. Credit
Risk is mitigated by the independenceof the Credit chain and is supported bycomprehensive risk analysis, risk tools,
monitoring processes and policies.

Concentrations of credit risk
Concentrations of credit risk arise when anumber of customers are engaged in similarbusiness activities or activities within thesame geographic region, or when they have
similar risk characteristics that would cause
their ability to meet contractual obligations
to be similarly affected by changes in
economic or other conditions.
The Group monitors its portfolio, largely
comprising net loans and advances,
customer’s liabilities for acceptances andavailable-for-sale loan assets, to assess risk
concentrations. Concentration limits areused to guard against large single customer
or correlated credit risks.

51

Notes to the financial statements
35: Financial Risk Management (continued)
Concentrations of credit risk by industry and geographic analysis:
Based on carrying amount at 30 September 2006 and 30 September 2005
Net loans and advances
Consolidated

Customer liability
for acceptances

Available-for-saleloans and advances

Total

2006
$m

2005
$m

2006
$m

2005
$m

2006
$m

2005
$m

2006
$m

2005
$m

7,079
4,882
3,757
4,408
4,795
52
2,580
7,050
15,57910,229100,362
9,811
9,923

5,626
4,151
3,270
3,861
4,924
65
2,854
6,087
13,702
10,97089,909
9,074
8,796

1,116
687
202
1,186
970
7
–
1,508
239
4,108
–
2,155
1,060

1,023
600
173
1,201
1,215
4
–
1,759
251
4,079
–
1,942
1,074

1,030
12
146
243
132
–
–
113
–
–
–
–
270

–
–
–
–
–
–
–
–
–
–
–
–
–

9,225
5,581
4,105
5,837
5,897
59
2,580
8,671
15,81814,337
100,362
11,966
11,253

6,649
4,751
3,443
5,062
6,139
69
2,854
7,846
13,953
15,04989,90911,016
9,870

180,507163,289

13,23813,321

1,946–

195,691

176,610

11,180
627
554
756
2,573
656
421
1,991
3,041
5,071
37,063
1,540
3,456

10,310
662
625
877
2,011
319
639
2,224
2,626
4,453
34,593
1,578
3,473

–
–
–
–
–
–
–
–
–
–
–
–
–

–
–
–
–
–
–
–
–
–
–
–
–
–

–

–
–
–
–
–
–
–
–
–
–
–
–

–
–
–
–
–
–
–
–
–
–
–
–
–

11,180
627
554
756
2,573
656
421
1,991
3,041
5,071
37,063
1,540
3,456

10,310
662
625
877
2,011
319
639
2,224
2,626
4,453
34,593
1,578
3,473

68,92964,390––––68,92964,390

718
209
73
681
536
237
179
2,562
651
205
881
1,137
2,133

558
134
141
219
345
285
133
2,250
475
213
743
940
2,389

9
–
–
4
68
–
–
86
–
–
–
30
–

–
–
–
–
16
–
–
37
6
–
–
68
1

–
–
–
–
–
–
–
–
–
–
–
–
–

–
–
–
–
–
–
–
–
–
–
–
–
–

727
209
73
685
604
237
179
2,648
651
205
881
1,167
2,133

558
134
141
219
361
285
133
2,287
481
213
743
1,008
2,390

10,202

8,825

197

128

–

–

10,3998,953

259,638

236,504

13,435

13,4491,946–

275,019

249,953(286)(1,940)(273)(2,167)

–
–

–
–

–
–

–
–

(286)
(1,940)(273)(2,167)(2,226)(2,440)

–

–

–

–

(2,226)(2,440)(2,002)(1,574)

–

–

–

–

(2,002)(1,574)

255,410

232,490

13,435

13,4491,946–

270,791

245,939

Australia
Agriculture, forestry, fishing and mining
Business service
Construction
Entertainment, leisure and tourism
Financial, investment and insurance
Government and official institutions
Lease finance
Manufacturing
Personal1
Real estate – commercial2
Real estate – mortgage3
Retail and wholesale trade
Other

New Zealand
Agriculture, forestry, fishing and mining
Business service
Construction
Entertainment, leisure and tourism
Financial, investment and insurance
Government and official institutions
Lease finance
Manufacturing
Personal1
Real estate – commercial2
Real estate – mortgage3
Retail and wholesale trade
Other

Overseas Markets
Agriculture, forestry, fishing and mining
Business service
Construction
Entertainment, leisure and tourism
Financial, investment and insurance
Government and official institutions
Lease finance
Manufacturing
Personal1
Real estate – commercial2
Real estate – mortgage3
Retail and wholesale trade
Other

Gross total
Individual provision for credit impairment
Collective provision for credit impairment4

Income yet to mature
Net total
12
34Personal includes consumer lending except for lease finance facilities and those facilities secured by a mortgage.
Real Estate Commercial includes all business lending relating to commercial property.
Real Estate Mortgage includes all consumer lending secured by a mortgage.
2005 comparatives are calculated under previous AGAAP.

52 ANZ Full Financial Report 2006

Notes to the financial statements
35: Financial Risk Management (continued)
Aggregate concentrations of credit risk by industry analysis1
Consolidated

Agriculture, forestry, fishing and mining
Business service
Construction
Entertainment, leisure and tourism
Financial, investment and insurance
Government and official institutions
Lease finance
Manufacturing
Personal2
Real estate – commercial3
Real estate – mortgage4
Retail and wholesale trade
Other

1
2
3
4

2006
$m

2005
$m

21,132
6,417
4,732
7,278
9,074
952
3,180
13,31019,51019,613
138,306
14,673
16,842

17,517
5,547
4,209
6,158
8,511
673
3,626
12,357
17,06019,715125,245
13,602
15,733275,019

249,953

Calculated prior to deduction for provisions and unearned income.
Personal includes consumer lending except for lease finance facilities and those facilities secured by a mortgage.
Real Estate commercial includes all business lending relating to commercial property.
Real Estate mortgage includes all consumer lending secured by a mortgage.

MARKET RISK
Market risk is the risk to the Group’s earnings arising from changes in interest rates, currency exchange rates, credit spreads, or fromfluctuations in bond, commodity or equity prices.

Market risk management and control responsibilities
To facilitate the management, control, measurements and reporting of market risk, ANZ has grouped market risk into two broad categories:a) Traded market risk:This is the risk of loss from changes in the value of financial instruments due to movements in price factors for both physical and derivative
trading positions. They arise in trading transactions where ANZ acts as principal with clients or with the market.
The principal risk categories monitored are:
Currency risk is the potential loss arising from the decline in the value of a financial instrument due to changes in foreign exchange rates ortheir implied volatilities.
Interest rate risk is the potential loss arising from the change in the value of a financial instrument due to changes in market interest rates ortheir implied volatilities.
Credit Spread risk is the potential loss arising from a decline in value of an instrument due to a deterioration in the credit worthiness of theissuer of the instrument.
b) Non-traded market risk (or balance sheet risk):This embraces the management of non-traded interest rate risk, liquidity, and the risk to the AUD denominated value of the Group’s capital andearnings as a result of foreign exchange rate movements.
The Board of Directors through the Risk 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. The Credit and Trading Risk Committee, chaired by the
Chief Risk Officer, is responsible for traded market risk, while the Group Asset and Liability Committee, chaired by the Chief Financial Officer,
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. In addition, the Group Asset and Liability Committee delegates to the Credit and Trading Risk
Committee responsibility for the monthly monitoring of non-traded market risk exposures. The Group Asset and Liability Committee reviewsbalance sheet based risk measures and strategies quarterly, or more frequently if required.

53

Notes to the financial statements
35: Financial Risk Management (continued)
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% or 99% probability that the loss will not exceed the VaR estimate on any given day. The 99%
confidence level encompasses a wider range of potential outcomes.
The Group’s standard VaR approach for both traded and non-traded risk is historical simulation. The Group calculates VaR using historicalchanges 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 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 associated detailed control limits to measure and manage market risk.
Traded and non-traded market risks are 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 06$m

High foryear
Sep 06$m

Low foryear
Sep 06$m

Averagefor year
Sep 06$m

As at
Sep 05$m

High foryear
Sep 05$m

Low foryear
Sep 05$m

Averagefor year
Sep 05$m

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

0.5
1.7
1.1
(1.4)

1.6
3.2
1.7
n/a

0.3
0.8
0.7
n/a

0.7
1.8
1.1
(1.5)

0.8
1.3
0.8
(1.2)

1.7
2.2
1.5
n/a

0.3
0.2
0.2
n/a

0.8
0.9
0.8
(0.9)

Total VaR

1.9

3.6

0.9

2.1

1.7

3.0

0.8

1.6

Value at risk at 99% confidence
Foreign exchangeInterest rate
Credit spread
Diversification benefit

0.6
2.0
2.8
(2.9)

2.0
4.4
3.6
n/a

0.3
1.3
1.1
n/a

0.8
2.4
2.3
(2.6)

0.9
1.7
1.4
(1.8)

2.1
2.8
2.4
n/a

0.4
0.2
0.4
n/a

1.1
1.2
1.2
(1.3)

Total VaR

2.5

4.9

1.2

2.9

2.2

4.0

1.0

2.2

VaR is calculated separately for Foreign Exchange/Commodities and for Interest Rate/Debt Markets businesses as well as for the Group. The
diversification benefit reflects the correlation implied by historical rates between Foreign Exchange/Commodities and Interest Rate/Debt Markets.

54 ANZ Full Financial Report 2006

Notes to the financial statements
35: Financial Risk Management (continued)
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 manage the market value of the Group’s capital. Liquidity risk is dealt with in the next section.

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 12months) and long term. 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 risk arises from two principal sources: mismatches between the repricing dates of interest bearing assets andliabilities; and the investment of capital and other non-interest bearing liabilities in interest bearing assets. Interest rate risk is reported using
three measures: VaR; scenario analysis (to a 1% shock); and disclosure of the interest rate sensitivity gap (refer note 36).
a) VaR Interest Rate Risk
Below are aggregate VaR figures covering non-traded interest rate risk.

Value at risk at 97.5% confidence
Group

As at
Sep 06$m

High foryear
Sep 06$m

Low foryear
Sep 06$m

Averageyear
Sep 06$m

As at
Sep 05$m

High foryear
Sep 05$m

Low foryear
Sep 05$m

Averageyear
Sep 05
$m

17.7

19.3

13.7

16.2

14.2

24.0

13.7

18.1

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
succeeding 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 percentageof reported net interest income. The sign indicates the nature of the rate sensitivity with a positive number signifying that a rate increase ispositive for net interest income over the next 12 months. Conversely, a negative number signifies that a rate increase is negative for the next
12 months’ net interest income.
Consolidated

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

2006

2005

1.50%
1.85%
0.81%
1.51%

1.73%
1.87%
0.25%
1.21%

The extent of mismatching between the repricing characteristics and timing of interest bearing assets and liabilities at any point has
implications for future net interest income. On a global basis, the Group quantifies the potential variation in future net interest income
as a result of these repricing mismatches each month using a static gap model.
The repricing gaps themselves are constructed based on contractual repricing information. However, for those assets and liabilities where thecontractual 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 theGroup 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 separate 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 toaccurately quantify the interest rate risks associated with the balance sheet and to formulate strategies to manage current and future risk
profiles.

Foreign Currency Related Risks
This risk relates to the potential loss arising from the decline in the value of foreign currency positions due to changes in foreign exchange rates.
The Group’s investment of capital in non-Australian operations generates an exposure to changes in the relative value of individual currencies
against the Australian Dollar. Variations in the value of these foreign currency investments are reflected in the foreign currency translation
reserve.
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 in accordance with policy and where it is likely to add shareholder value.

55

Notes to the financial statements
35: Financial Risk Management (continued)
LIQUIDITY RISK
The primary objective of the Group’s liquidity management framework and processes is to ensure that the Group has sufficient liquidity to meetits obligations as they fall due across a wide range of operating circumstances.
The following key principles underpin the Group’s Board-approved liquidity management framework.
The Group aims to adopt a conservative, low risk approach to liquidity management.
The Group holds a portfolio of high quality liquid assets to buffer it against short term adverse conditions and to support day-to-day
operations.
Liquidity management reporting includes scenario analyses which quantify the Group’s forecast position under both normal and extreme,
name-crisis conditions.
The Group has detailed contingency plans in the event of a liquidity crisis.
The Group targets a diversified funding base, avoiding undue concentrations by investor type, maturity, source and currency.
Minimum compositional requirements based on the liquidity term of the Group’s funding base are established and regularly monitored toensure that the Group remains well positioned relative to the other major Australian trading banks.
Analysis of the Group’s liquidity position under differing scenarios is an important part of daily liquidity risk management. Future cashflows
are projected under two scenarios: a) a short term crisis which assumes that a number of extreme liquidity events occur concurrently puttingpressure on the Group’s ability to meet its obligations to depositors; and b) normal business conditions which projects cashflows on the basisthat future business conditions will be much the same as now.
These cashflow projections make use of contractual liquidity information to which are applied assumptions about the likely behaviour ofindividual customer product classes under each scenario.

Maturity analysis of the Group’s assets and liabilities
The tables below analyse the Group’s assets and liabilities, as required by AASB 130 ‘Disclosures in the Financial Statements of Banks andSimilar Financial Institutions’, into relevant maturity groupings based on the remaining period at balance sheet date to the contractual maturity
date.
This is not how the Group manages its liquidity risk. The management of this risk is detailed above.
Maturity analysis for selected assets and liabilities at 30 September 2006:

Consolidated

Less than1
3 months$m

3 to 122months$m

1 to
5 years$m

After
5 years$mNomaturity
specified
$m

Total
$m

AssetsDue from other financial institutions
Available-for-sale assets
Net loans and advances
Customer’s liabilities for acceptances

8,420
5,937
24,545
13,435820
1,773
36,139–372
2,338
48,227–53
540
146,499
–

–
65
–
–

9,665
10,653
255,410
13,435

Liabilities
Due to other financial institutions
Deposits and other borrowings
Bonds and notes
Loan capital

13,407
165,145662–

659
27,094
5,633–

10
12,383
41,984
528

42
15
1,771
10,197

–
157
–
401

14,118204,794
50,05011,126

Consolidated

Less than1
3 months$m

3 to 122months$m

1 to
5 years$m

After
5 years$mNomaturity
specified
$m

Total
$m

AssetsDue from other financial institutions
Available-for-sale assets
Net loans and advances
Customer’s liabilities for acceptances

4,393
6,771
22,432
13,449424
1,523
30,337–393
1,454
46,788–1,138
285
132,933
–

–
9
–
–

6,348
10,042
232,490
13,449Liabilities
Due to other financial institutions
Deposits and other borrowings
Bonds and notes
Loan capital

10,013
157,135
1,823
–

1,029
22,432
6,463
654

123
10,58029,249
536

862
21
1,538
7,553

–
154
–
394

12,027
190,32239,073
9,137

Maturity analysis for selected assets and liabilities at 30 September 2005:

1 Includes credit cards.
2 Includes revolving facilities.

56 ANZ Full Financial Report 2006

Notes to the financial statements
36: Interest Rate Risk
The Group has an exposure to the effects of fluctuations in market interest rates on both cashflow and fair value risks associated with its
financial assets and liabilities. Interest margins are impacted as a result of such changes and there are Group strategies in place to manage
these risks.
The tables following summarises the Group’s exposure to interest rate risks as at 30 September 2006 and 30 September 2005.
The tables show the interest rate sensitivity (or repricing profile) of the Group’s financial assets and liabilities based on the earlier of contractual
maturity or repricing.
Repricing gaps are based upon the earliest of contractual repricing or maturity dates information except where the contractual terms are notconsidered to be reflective of actual interest rate sensitivity (eg. 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.
Repricing gaps arise 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 which have been approved by the Board.
The majority 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 thematurity of loans and deposits. 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 derivatives is 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 is positioned to take advantage of the expected movement in interest rates. However, such positions are taken within the overall risk limits
specified by policy.
The objectives and policies in managing the interest risks are also covered under note 35 ‘Financial Risk Management’, under the heading‘Market risk’.
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 available-for-sale assets
Derivative financial instruments
Net loans and advances
Other assets1

21,572
11,493–
176,511
13,890

1,121
1,874
–
9,250
32

175
697
–
14,327
55

200
4,051
–
54,244
336

–
1,697
–
1,078
49

1,616
20
9,164
–
12,31924,684
19,832
9,164
255,410
26,681

Total assets

223,466

12,277

15,254

58,831

2,824

23,119335,771

Certificates of deposit and term deposits
Other deposits
Other borrowings and due to other financial institutions
Derivative financial instruments
Other liabilities1
Bonds, notes and loan capital

58,543
71,39431,808–17,23035,858

11,209
776
4,994
–
3
1,961

6,985
1,556
3,874
–
3
1,014

6,142
5,025
3,996
–
658
19,850

25
1
875
–
291
2,493

20
10,718
971
8,753
8,839
–

82,924
89,47046,518
8,753
27,024
61,176

Total liabilities

214,833

18,943

13,43235,671

3,685

29,301

315,865

Total equity
Derivative items affecting interest rate sensitivity

–
(563)

–
8,896

–
596

–
(10,789)–
1,860

19,906–

19,906–

Interest sensitivity gap– net– cumulative

8,070
8,070

2,230
10,3002,418
12,71812,371
25,089999
26,088(26,088)–––

At 30 September 2006

1 Customer’s liabilities for acceptances have been classified as interest earning assets following the adoption of AIFRS on 1 October 2005.

57

Notes to the financial statements
36: Interest Rate Risk (continued)
Less than
3 months$m

Between 3
months and6 months$m

Between 6
months and
12 months$m

Between
1 years and5 years$m

After
5 years$m

Notbearing
interest
$m

Total
$m

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

13,511
11,044–
164,892
318

984
1,263
–
8,621
55

286
627
–
14,061
111

259
2,489
–
45,461
570

1,082
807
–
1,032
77

1,827
97
6,511
(1,577)
26,477

17,94916,327
6,511
232,490
27,608

Total assets

189,765

10,92315,085

48,7792,998

33,335300,885

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

58,51558,49735,113–
169
28,207

10,176
898
4,055
–
1
2,585

5,190
1,771
3,007
–
14
1,235

4,565
4,614
2,495
–
479
11,830

11
46
1,020
–
286
4,353

–
10,3781,998
7,006
22,833–78,457
76,20447,688
7,006
23,782
48,210Total liabilities

180,501

17,715

11,21723,983

5,716

42,215281,347

Total equity
Derivative items affecting interest rate sensistivity

–
2,013

–
9,271

–
(2,879)–(11,737)–
3,332

19,538–19,538–Interest sensitivity gap– net– cumulative

11,277
11,2772,479
13,756989
14,745

13,05927,804614
28,418(28,418)–––

At 30 September 2005

58 ANZ Full Financial Report 2006

Notes to the financial statements
37: Fair Value of Financial Assets and Financial Liabilities
AIFRS requires disclosure of the fair value of financial instruments. The disclosures exclude all non-financial instruments, such as income taxes
and regulatory deposits. The aggregate 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 lengthtransaction.
Quoted market prices, where available, are used as the measure of fair value. In cases where quoted market prices are not available, fair values
are based on present value estimates or other valuation techniques. For the majority of short-term financial instruments, defined as thosewhich reprice or mature in 90 days or less, with no significant change in credit risk, the fair value was assumed to equate to the carrying amountin the Group’s balance sheet.
The fair values are based on relevant information available as at 30 September 2006. While judgement is used in obtaining the fair value offinancial instruments, there are inherent weaknesses in any estimation technique. Many of the estimates involve uncertainties and matters ofsignificant judgement and changes in underlying assumptions could significantly affect these estimates. Furthermore, market prices or rates
of discount are not available for many of the financial instruments valued and surrogates have been used which may not reflect the price thatwould apply in an actual sale.
The fair value amounts have not been updated for the purposes of these financial statements since 30 September 2006, and therefore thefair value of the financial instruments subsequent to 30 September 2006 may be different from the amounts reported.
Financial assets have been classed into categories following the adoption of AIFRS on 1 October 2005, namely amortised cost, financial
assets at fair value through profit and loss, and available-for-sale financial assets. Similarly financial liabilities have been classified into two
categories, namely amortised cost and financial liabilities at fair value through profit and loss.
The significant accounting policies in note 1 describe how the categories of financial assets and financial liabilities are measured and how
income and expenses, including fair value gains and losses, are recognised. The carrying amount and fair value (2005: net fair value) of theGroup’s financial assets and financial liabilities are set out below.
Carrying amount

Fair value

Total
2006
$m

At
amortised
cost
2006
$m

At fair value
through
profit or
loss
2006
$m

Availablefor-saleassets
2006
$m

Total
2006
$m

–
–
–
–
10,653–15,019
9,665
9,179
9,164
10,653
255,410

15,0199,665–––
255,072

–
–
9,179
9,164
–
–

–
–
–
–
10,653–15,019
9,665
9,179
9,164
10,653
255,072

11,601
11,601
6,348
6,348
6,285
6,285
6,511
7,103
10,042
10,020232,490 232,299

–
–
–

–
–
–

2,200
13,4355,379

2,807
13,435
5,379

–
–
–

–
–
–

2,807
13,435
5,379

1,926
13,4496,464

301,108

18,343

10,653

330,104

301,377

18,343

10,653

330,373

295,116 295,878

Financial liabilities
Due to other financial institutions
Derivative financial instruments
Deposits and other borrowings
Liability for acceptances
Payables and other liabilities
Bonds and notes1
Loan capital1

14,118–204,794
13,4359,910
46,439
8,348

–
8,753
–
–
–
3,611
2,778

–
–
–
–
–
–
–

14,118
8,753
204,794
13,435
9,910
50,05011,126

14,118–204,752
13,4359,910
46,440
8,344

–
8,753
–
–
–
3,611
2,778

–
–
–
–
–
–
–

14,118
8,753
204,752
13,435
9,910
50,051
11,122

12,027
12,027
7,006
7,203
190,322 190,274
13,44913,4496,914
6,914
39,07339,1379,137
9,215

Total financial liabilities

297,044

15,142–

312,186

296,999

15,142–

312,141

277,928 278,219

At
amortised
cost
2006
$m

At fair value
through
profit or
loss
2006
$m

Availablefor-saleassets2006$m

15,019
9,665–––
255,410

–
–
9,179
9,164
–
–

2,200
13,435
5,379

Total financial assets

Consolidated

Financial assets
Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances1
Shares in associates and joint
venture entities
Customer’s liabilities for acceptances
Other financial assets

Total
carrying
amount
2005
$m

Net
fair
value
2005
$m

2,309
13,4496,464

1 Fair value hedging is applied to financial assets within net loans and advances and liabilities within bonds and notes and loan capital. The resulting fair value adjustments mean that the carrying
value differs from the amortised cost.

59Notes to the financial statements
37: Fair Value of Financial Assets and Financial Liabilities (continued)
LIQUID ASSETS AND DUE FROM/TO OTHER
FINANCIAL INSTITUTIONS
The carrying values on these financial
instruments are considered to approximate
their net fair values as they are short-term innature or are receivable on demand.
TRADING SECURITIES
Trading securities are carried at fairvalue. Fair value is generally based onquoted market prices, broker or dealer
price quotations, or prices for securities
with similar credit risk, maturity and yieldcharacteristics.
DERIVATIVE FINANCIAL INSTRUMENTS
The fair values of derivative financial
instruments such as interest rate swaps
and currency swaps are calculated using
discounted cash flow models based on
current market yields for similar typesof instruments and the maturity of each
instrument. Foreign exchange contracts andinterest rate option contracts are valued
using market prices and options valuation
models as appropriate.
AVAILABLE-FOR-SALE ASSETS ANDINVESTMENT SECURITIESFair value is based on quoted market prices
or broker or dealer price quotations. If thisinformation is not available, fair value isestimated using quoted market prices forsecurities with similar credit, maturity andyield characteristics.
NET LOANS AND ADVANCES AND
ACCEPTANCESThe carrying value of loans and advances
and acceptances includes deferred fees andexpenses, and is net of provision for credit
impairment and income yet to mature. The
estimated fair value of loans, advances andacceptances is based on the discounted
amount of estimated future cash flows
and accordingly has not been adjusted forprovision for credit impairment.
Estimated contractual cash flows for
performing loans are discounted at
estimated current bank credit spreads todetermine fair value.

For loans with doubt as to collection,
expected cash flows (inclusive of thevalue of security) are discounted usinga rate, which includes a premium for theuncertainty of the flows.

PAYABLES AND OTHER FINANCIAL LIABILITIESThis category includes accrued interest andfees payable for which the carrying amountis considered to approximate the fair value.

The difference between estimated fair values
for loans and advances and acceptances
and their carrying value reflects changes ininterest rates and the credit worthiness ofborrowers since loan origination.

COMMITMENTS AND CONTINGENCIESAs outlined in note 45, the Group hasvarious credit related commitments. Basedupon the level of fees currently charged for
granting such commitments, taking into
account maturity and interest rates, together
with any changes in the creditworthinessof counterparties since origination of thecommitments, their estimated replacement
or net fair value is not material.

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 fairvalue has been estimated using quoted
market prices for securities with similar
credit, maturity and yield characteristics,
independent valuation, or by reference
to the net tangible asset backing of theinvestee.
OTHER FINANCIAL ASSETS
Included in this category are accrued interestand fees receivable. The carrying values ofaccrued interest and fees receivable areconsidered to approximate their net fairvalues as they are short term in nature or are
receivable on demand.
DEPOSITS AND OTHER BORROWINGSThe fair value of a deposit liability without
a specified maturity or at call is deemed tobe the amount payable on demand at thereporting date. The fair value is not adjusted
for any value expected to be derived fromretaining the deposit for a future period oftime.
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 discountcontractual cash flows.
BONDS AND NOTES AND LOAN CAPITAL
The aggregate fair value of bonds andnotes and loan capital is calculated basedon quoted market prices. For those debt
issues where quoted market prices were
not available, a discounted cash flow
model using a yield curve appropriate forthe remaining term to maturity of the debt
instrument is used.

60 ANZ Full Financial Report 2006

TRANSACTION COSTS (USED IN THE NET FAIRVALUE CALCULATION AS AT 30 SEPTEMBER
2005)
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. Suchtransaction costs are not material, andaccordingly the fair values shown above
as at 30 September 2005 would not differ
materially from fair values calculated inaccordance with SFAS 107.

38: Segment Analysis
For management purposes the Group is organised into three major business segments being Personal, Institutional and New Zealand Business.
An expanded description of the principal activities for each of the business segments is contained in the Glossary on pages 120 to 121.
A summarised description of each business segment is shown below:
Personal

Provides:Regional, Commercial and Agribusiness Products, Banking Products, Consumer Finance,
Investment and Insurance Products, Mortgages and other (including the branch network)in Australia;
Retail banking services in the Pacific region, including ANZ’s share of PT Panin Bank
Indonesia; andVehicle and equipment finance, rental services and fixed and at call investments.

Institutional

Provides:A full range of financial services to the Group’s business banking, corporate and institutionalcustomers including Corporate and Structured Financing, Client Relationship Group, Markets
and Trade and Transaction Services; andRetail banking services in the Asia region.

New Zealand Businesses

Provides:A full range of banking services for personal, small business and corporate customers
in New Zealand.
Comprises ANZ Retail, NBNZ retail Corporate Banking, Investment Insurance Products,
Rural Banking and Central Support.

As the composition of segments was amended during the year, September 2005 comparatives have been adjusted to be consistent with the2006 segment definitions.
BUSINESS SEGMENT ANALYSIS1, 2
Consolidated
At 30 September 2006

Personal$m

Institutional$m

New
ZealandBusinesses$mOther3$m

Consolidated
total
$m

External interest income
External interest expense
Adjust for intersegment interest

9,323(2,663)(3,647)

7,393(4,774)
(550)

5,421
(3,450)(452)

164(4,471)
4,649

22,301(15,358)–

Net interest income
Other external operating income
Share of net profit/(expense) of equity accounted investments
Net intersegment income

3,013
1,180
7
34

2,069
1,245
15
(70)

1,519
463
20
(2)

342
127
152
38

6,943
3,015
194
–

Segment revenue

4,234

3,259

2,000

659

10,152Other external expenses
Net intersegment expenses(1,745)(358)(1,020)
(193)

(984)
(2)

(782)
553

(4,531)–

Operating expenses
Impairment losses on loans and advances(2,103)(341)(1,213)
(58)

(986)
(6)

(229)
(2)

(4,531)(407)

Segment result

1,790

1,988

1,008

428

5,214

Income tax expense
Minority interests

(533)
(1)

(588)
(4)

(325)
–

(76)
1

(1,522)(4)

Profit after income tax attributable to shareholders of the company

1,256

1,396

683

353

3,688

Non-Cash Expenses
Depreciation & amortisation
Equity-settled share-based payment expenses
Provision for credit impairment
Provisions for employee entitlements
Provision for restructuring

(126)
(25)
(341)
(21)
(4)

(26)
(30)
(58)
(13)
–

(43)
(9)
(6)
(51)
(1)

(97)
(12)
(2)
(10)
(46)

(292)
(76)
(407)
(95)
(51)

Financial Position
Total external assets4
Share of associate and joint venture companies
Total external liabilities5
Goodwill
Intangibles

136,730
22
67,44939
269

119,104
152
108,686
13
95

66,064
164
57,15320
19

13,873
1,862
82,5772,828
54335,771
2,200
315,8652,900
437

1 Results are equity standardised.
2 Intersegment transfers are accounted for and determined on an arm’s length or cost recovery basis.
3 Includes Partnerships & Private Bank, Treasury, Operations, Technology & Shared Services, Corporate Centre, Risk Management, Group Financial Management and significant items.
Also includes the London headquartered project finance and certain structured finance transactions that ANZ has exited as part of its de-risking strategy.
4 Includes deferred tax assets of $0.2 billion in Personal, $0.1 billion in Institutional and $0.1 billion in New Zealand Businesses.
5 Includes income tax liabilities of $0.4 billion In Personal, $1.1 billion in Institutional and nil in New Zealand Businesses.

61Notes to the financial statements
38: Segment Analysis (continued)
The following analysis details financial information by business segment.
BUSINESS SEGMENT ANALYSIS1, 2
Consolidated
At 30 September 2005

Personal$m

Institutional$m

New
ZealandBusiness$mExternal interest income
External interest expense
Adjust for intersegment interest

7,996(2,294)(3,113)

4,603(3,721)
508

4,779(3,058)(223)

341(2,828)2,828

17,719(11,901)–

Net interest income
Other external operating income
Share of net profit of equity accounted investments
Net intersegment income/expense

2,589
1,117
7
41

1,390
1,680
5
(75)

1,498
530
8
4

341
50
181
30

5,818
3,377
201
–

Segment revenue

3,754

3,000

2,040

602

9,396

Other external expenses
Net intersegment expenses(1,580)
(350)

(922)
(157)

(984)
(13)

(932)
520

(4,418)–Operating expenses
Impairment losses on loans and advances(1,930)(261)(1,079)
(195)

(997)
(102)

(412)
(22)

(4,418)(580)

Segment result

1,563

1,726

941

168

4,398

Income tax expense
Minority interests

(467)
(1)

(511)
(2)

(302)
–

60
–

(1,220)(3)

Profit after income tax attributable to the shareholders of the Company

1,095

1,213

639

228

3,175

Non-Cash Expenses
Depreciation & amortisation
Equity-settled share-based payment expenses
Provision for credit impairment
Provisions for employee entitlements
Provision for restructuring

(144)
24
(261)
(18)
(1)

(26)
28
(195)
(12)
–

(49)
7
(102)
(42)
1

(89)
21
(22)
(9)
(52)

(308)
80
(580)
(81)
52

122,37217
60,35051
301

105,455
92
91,755–57

61,9802
55,45821
18

11,078
1,815
73,7842,943
67

300,855
1,926
281,347
3,015
443

Financial Position
Total external assets4
Share of associate and joint venture entities
Total external liabilities5
Goodwill
Intangibles

Other3$m

Consolidated
total
$m

1 Results are equity standardised.
2 Intersegment transfers are accounted for and determined on an arm’s length or cost recovery basis.
3 Includes Partnerships & Private Bank, Treasury, Operations, Technology & Shared Services, Corporate Centre, Risk Management and Group Financial Management and significant items.
Also includes the London headquartered project finance and certain structured finance transactions that ANZ has exited as part of its de-risking strategy.
4 Includes deferred tax assets of $0.1 billion in Personal, $0.1 billion in Institutional and $0.2 billion in New Zealand Businesses.
5 Includes income tax liabilities of $0.3 billion In Personal, $0.8 billion in Institutional and $0.1 billion in New Zealand Businesses.

62 ANZ Full Financial Report 2006

Notes to the financial statements
38: Segment Analysis (continued)
The following analysis details financial information by geographic location.
GEOGRAPHIC SEGMENT ANALYSIS1, 2
2006
Consolidated

IncomeAustralia
New ZealandOverseas markets
Total assets
Australia
New ZealandOverseas markets
Profit before tax3
Australia
New ZealandOverseas markets

1 Intersegment transfers are accounted for and determined on an arm’s length or cost recovery basis.
2 The geographic segments represent the locations in which the transaction was booked.
3 Includes minority interests.

63

2005

$m

%

$m

%

16,861
6,962
1,687

66%
27%
7%

13,804
6,210
1,283

65%
29%
6%

25,510100%

21,297100%

230,898
83,06721,80669%25%
6%202,778
78,655
19,45267%26%
7%

335,771100%

300,885

100%

3,472
1,241
501

67%
24%
9%

2,950
1,000
448

67%
23%
10%

5,214

100%

4,398

100%

Notes to the financial statements
39: Notes to the Cash Flow Statements
Consolidated

The Company

2006
$m

2005
$m

2006
$m

2005
$m

Inflows(Outflows)

Inflows(Outflows)

Inflows(Outflows)

Inflows(Outflows)

3,688

3,175

3,174

2,175

Adjustments to reconcile operating profit after income tax
to net cash provided by operating activities
Provision for credit impairment
Depreciation and amortisation
Provision for employee entitlements, restructuring and other provisions
Payments from provisions(Profit)/loss on sale of premises and equipment
Liquid assets greater than three months(Increase)/decrease in Due from other banks-more than 90 days
(Increase) in loans and advances
Regulatory deposits
Profit /(loss) on sale of available for sale securities

407
292
250
(223)
4
(1,300)1,318(26,848)
(42)
(2)

580
484
556
(498)
22
(728)
(371)
(28,788)
5
–

278
223
106
(83)
5
(441)
177
(18,732)
(17)
1

388
230
363
(334)
25
(631)
(180)
(20,599)22–

Net (increase)/decrease
Share based payments
Trading securities
Interest receivable
Accrued income
Current tax liability
Deposits and other borrowings
Due to other financial institutions
Payables and other liabilities
Amortisation of discounts/premiums included in investing activities

31(1,681)
(119)
(24)
297
16,129
1,859
541
(151)

–
(821)
88
4
162
19,856
4,972(1,339)
(93)

31
(182)
4
(27)
32
14,736
2,462
1,221
–

–
(523)
(8)
8
246
14,085
3,422(1,375)
(12)

482
10
(73)

214
52
(895)

830
13
555

105
82
94

Total adjustments(8,843)(6,538)

1,192(4,592)

Net cash provided by operating activities(5,155)(3,363)4,366(2,417)a) Reconciliation of net profit after income tax to net cash provided by operating activities

Operating profit after income tax attributable to shareholders of the Company

Net increase/(decrease)
Interest payable
Accrued expenses
Otherb) Reconciliation of cash and cash equivalents
Cash and cash equivalents include liquid assets and amounts due from other financial institutions with an original term to maturity of less than 90days. Cash and cash equivalents at the end of the financial year as shown in the statements of cash flows are reconciled to the related items in thestatements of financial position as follows
Consolidated

The Company

2006
$m

2005
$m

2006
$m

2005
$m

Liquid assets – less than 90 days (refer note 9)
Due from other financial institutions – less than 90 days (refer note 10)

11,633
8,711

9,600
4,102

8,050
5,520

5,315
2,584

Cash and cash equivalents in the statement of cashflows

20,344

13,702

13,5707,899

64 ANZ Full Financial Report 2006

Notes to the financial statements
39: Notes to the Cash Flow Statements (continued)
Consolidated

The Company

2006
$m

2005
$m

2006
$m

2005
$m

165

153

165

153

Available$m

Unused$m

Available$m

Unused$mc) Acquisitions and disposals
No material acquisitions and disposals have occured in 2006 or 2005d) Non-cash financing and investing activities
Share capital issues
Dividend reinvestment planse) Financing arrangements
2006

2005

Credit standby arrangements
Standby Lines
Other financing arrangements
Overdraft and other financing arrangements

827

821

865

851

3,466

985

3,694

890

Total finance available

4,293

1,806

4,559

1,741

65

Notes to the financial statements
40: Controlled Entities
Incorporated in

Nature of Business

Australia

Banking

American Samoa
Australia
Australia
Australia
Australia
USA
Australia
Australia
Australia
EnglandSamoa
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New ZealandHong Kong
Hong Kong
VanuatuSingapore
Singapore
Cambodia
Kiribati
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Papua New Guinea
England
Australia
Australia
Australia
Australia
Indonesia

Banking
Investment Banking
Funding
Hedging
Captive-Insurance
Finance
Trustee/Nominee
Investment
Holding Company
Banking
Banking
Holding Company
Banking
Fund Manager
FinanceFinance
Investment
Holding Company
Investment
Investment
FinanceFinanceFinanceFinanceFinance
Custodians
Investment
Holding Company
NomineeFinance
Leasing
Holding Company
Banking
Banking
Holding Company
Merchant Banking
Banking
Banking
Holding Company
Holding Company
Investment
Mortgage Insurance
Nominee
Holding Company
Investment
Banking
Securitisation
General Finance
FinanceSecuritisation
Investment
Banking

Ultimate parent of the Group
Australia and New Zealand Banking Group Limited
All controlled entities are 100% owned unless otherwise noted.
The material controlled entities of the Group are:Amerika Samoa BankANZ Capel Court Limited
ANZ Capital Funding Pty Ltd
ANZ Capital Hedging Pty Ltd
ANZcover Insurance Pty Ltd
ANZ (Delaware) Inc
ANZ Executors & Trustee Company Limited
ANZ Financial Products Pty Ltd
ANZ Funds Pty Ltd
ANZ Bank (Europe) Limited*
ANZ Bank (Samoa) Limited*
ANZ Holdings (New Zealand) Limited*
ANZ National Bank Limited*
ANZ Investment Services (New Zealand)*
ANZ National (Int’l) Limited*
Arawata Finance Limited*
Cortland Finance Limited*
Arawata Holdings Limited*
Harcourt Corporation Limited*
Airlie Investments Limited*
Nerine Finance No. 21
Arawata Trust Company*
Arawata Trust*
Endeavour Finance Limited*
Tui Endeavour Limited*
National Bank of New Zealand Custodians Limited*
Alos Holdings Limited*
NBNZ Holdings Ltd*Private Nominees Limited*
UDC Finance Limited*
Truck Leasing Limited*
ANZ International (Hong Kong) Limited*
ANZ Asia Limited*
ANZ Bank (Vanuatu) Limited*
ANZ International Private Limited*
ANZ Singapore Limited*
ANZ Royal Bank (Cambodia) Limited*1
Bank of Kiribati Ltd*1
LFD Limited
ANZ Investment Holdings Pty Ltd
530 Collins Street Property Trust
ANZ Lenders Mortgage Insurance Pty Limited
ANZ Nominees Limited
ANZ Orchard Investments Pty Ltd
ANZ Rural Products Pty Ltd
Australia and New Zealand Banking Group (PNG) Limited*
Coral Finance Limted1
Esanda Finance Corporation Limited
Fleet Partners Pty Limited2
Kingfisher Trust 2004-1G1
NMRSB Pty Ltd
PT ANZ Panin Bank*1* Audited by overseas KPMG firms.
1 Minority interests hold ordinary shares or units in the controlled entities listed above as follows: Bank of Kiribati - 150,000 $1 ordinary shares (25%) (2005 : 150,000 $1 ordinary shares 25%);
PT ANZ Panin Bank – 7,500 IDR 1M shares (15%) (2005: 7,500 IDR 1M shares 15%); Nerine Finance No. 2 – 3,650 NZD100,000 redeemable preference shares and 35 NZD1 Class ‘A’ shares (42%)(2005: 3,650 NZD100,000 redeemable preference shares and 35 NZD1 Class ‘A’ shares (42%)); ANZ Royal Bank (Cambodia) Limited – 99,000 $100 USD ordinary shares (45%) (2005: 81,000
100 USD ordinary shares (45%)); Coral Finance Limted – GBP 1 ordinary share (67%) (2005: GBP 1 ordinary share (67%)) and Kingfisher Trust 2004 – 1G $5 residual capital unit (50%) (2005: $5
residual capital unit (50%)).
2 Sold after year end, see note 52.

66 ANZ Full Financial Report 2006

Notes to the financial statements
41: Associates
Significant associates of the Group are as follows:
Ownership
interest
held

Votinginterest

Incorporated
in

P.T. Bank Pan Indonesia1
Tianjin City Commercial Bank2

29%
20%

29%
20%

Metrobank Card Corporation Inc3
ETrade Australia Limited4
Other associates

40%
34%

40%
34%

Indonesia
Peoples Republicof China
Philippines
Australia

Total shares in associates
1
2
3
4
5
6

Carrying
value5$m

Fairvalue6$m

Reportingdate

Principal
activity

222
164

321
n/a

31 December
31 December

Banking
Banking

28
22
156

n/a
79
n/a

31 December
30 JuneCards Issuing
Online Stockbroking

592

An associate from 1 April 2001.
An associate from 13 June 2006.
An associate from 9 October 2003.
An associate from 1 October 2002.
2005 carrying values as follows: P.T. Bank Pan Indonesia $133 million, Metrobank Card Corporation Inc $18 million, ETrade $17 million, and Other associates $97million. Total $265 million.
Applicable to those investments in associates where there are published price quotations.

Aggregate assets of significant associates
Aggregate liabilities of significant associates
Aggregate revenue of significant associates

2006
$m

2005
$m

16,784
15,356586

15,66914,426557

Consolidated
2006
$m

2005
$m

Share of associates profit before income tax
Share of income tax expense

70
(17)

70
(19)

Share of associates net profit – as disclosed by associates
Adjustments- withholding tax- provisioning- other

53

51

(2)
4
1

(4)
–
5

Share of associates net profit accounted for using the equity method

56

52

Results of Associates

42: Interests in Joint Venture Entities
The Group has interests in joint venture entities as follows:
Ownership
interest
held

Votinginterest
held

Incorporatedin

Carrying
value6$m

Reportingdates

Principal
activity

ING Australia Limited1, 5

49%2

49%2

Australia

1,462

31 December

Funds Management
and Insurance

ING (NZ) Holdings Limited3,5

49% 4

50%4

New Zealand146

31 December

Funds Management
and Insurance

Total interests in Joint Venture entities

1,608

1 A joint venture entity from 1 May 2002.
2 This represents the Group’s 49% share of the assets and liabilities of ING Australia Limited. The Group has joint control of the joint venture, and accordingly the entity is not consolidated.
Key details of the joint venture are:
■ ING Australia Limited is owned 51% by ING Group and 49% by ANZ.
■ Both shareholders have an equal say in strategic decisions with a number of matters requiring the approval of both shareholders (ie require unanimous approval).
These include major items of capital expenditure, acquisitions or disposals in excess of $20 million and changes to the board structure.
■ Equal board representation with four Group nominees and four ING Group nominees. All key issues (including business plans, major capital expenditure, acquisitions etc) require unanimous
Board approval.
■ Refer to Critical Accounting Estimate item (ii) for details regarding valuation of investment in ING Australia Limited.
The Joint Venture includes the majority of the Group’s and ING’s funds management and insurance activities in Australia.
3 A joint venture entity from 30 September 2005.
4 This represents the Group’s 49% share of assets and liabilities of ING (NZ) Holdings Limited. The Group has joint control of the joint venture, and accordingly the entity is not consolidated.
Key details of the joint venture are:
■ ING (NZ) Holdings Limited is owned 51% by ING Group and 49% by ANZ.
■ Both shareholders have an equal say in strategic decisions with a number of matters requiring the approval of both shareholders (ie require unanimous approval). These include major
items of capital expenditure, acquisitions or disposals in excess of $20 million and changes to the Board structure.
■ Equal board representation with four Group nominees and four ING Group nominees. All key decisions (including business plans, major capital expenditure, acquisitions etc) require
unanimous board approval.
■ Refer to Critical Accounting Policies item (iii) for details regarding valuation of investment in ING (NZ) Holdings Limted
The joint venture includes the majority of the Group’s and ING’s funds management and insurance activities in New Zealand.
5 ING Australia Limited and ING (NZ) Holdings Limited have different reporting dates than the Consolidated Group to align with the ING Group parent entity.
6 2005 carrying values as follows: ING Australia Limited $1,530 million; and ING (NZ) Holdings Limited $131 million.

67

Notes to the financial statements
42: Interests in Joint Venture Entities (continued)
ING Australia Limited

ING (NZ) Holdings
Limited

2006
$m

2005
$m

2006
$m

2005
$m

2006
$m

2005
$m

183
256

116
183

–
19

–
–

183
275

116
183

1,530

1,697

131

–

1,661

1,697

n/a
119
(46)
–
(3)
(138)
–

n/a
149
(82)
(245)
2
9
–

n/a
19
–
–
–
–
(4)

131
–
–
–
–
–
–

n/a
138
(46)
–
(3)
(138)
(4)

131
149
(82)
(245)
2
9
–

Carrying amount at the end of the year

1,462

1,530

146

131

1,608

1,661

Share of assets and liabilities1
Investments
Other assets

12,493
1,570

11,347
851

70
154

98
133

12,563
1,724

11,445984

Share of total assets

14,063

12,198224

231

14,287

12,429

Policy holder liabilities
Other liabilities

12,430735

10,656
697

45
16

60
23

12,475751

10,716720

Share of total liabilities

13,165

11,35361

83

13,226

11,436

Share of net assets

898

845

163

148

1,061

993

Share of revenues, expenses and results
Revenues
Expenses

372
(216)

383
(184)

59
(39)

–
–

431
(255)

383
(184)

Profit before income tax

156

199

20

–

176

199

Income tax expense

(37)

(50)

(1)

–

(38)

(50)

Profit after income tax

119

149

19

–

138

149

Net equity accounted profit

119

149

19

–

138

149

Share of commitments
Lease commitments
Other commitments

154
18

163
9

3
–

3
–

157
18

166
9

Share of total expenditure commitments

172

172

3

3

175

175

Share of contingent liabilities
In relation to its interest in the joint venture entity2

65

80

–

–

65

80

65

80

–

–

65

80

Retained profits attributable to the joint venture entity
At the beginning of the year
At the end of the year
Movement in the carrying amount of the joint venture entity
Carrying amount at the commencementof the year/from acquisition
Carrying amount at the commencementof the joint venture entity
Share of net profit
Dividend received
Capital return
Movement in reserves
IFRS opening balance sheet adjustments
Adjustment for exchange rate fluctuations

Consolidated
Total

1 This represents the Group’s share of the assets and liabilities of ING Australia Limited and ING (NZ) Holdings Limited, less minority interests and including goodwill on acquisition of ANZ Funds
Management entities.
2 This represents Deeds of Subordination with ASIC and buyer of last resort.

68 ANZ Full Financial Report 2006

Notes to the financial statements
43: Fiduciary Activities
The Group conducts various fiduciary activities as follows:

Investment fiduciary activities for trusts
The Group conducts investment fiduciary activities for trusts, including deceased estates. These trusts have not been consolidated as theCompany does not have direct or indirect control.
Where the Company or its controlled entities incur liabilities in respect of these operations as trustee, where the primary obligation isincurred in an agency capacity as trustee of the trust rather than on the Group’s own account, a right of indemnity exists against the assetsof the applicable 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:
Consolidated

Trusteeships

2006
$m

2005
$m

2,080

1,927

Funds management activities
Funds management activities are conducted through the ING Australia Limited and ING (NZ) Holdings Limited Joint Ventures. As stated in note
1 (ii), shares in joint venture entities are stated in the consolidated balance sheet at cost plus the Group’s share of post acquisition earnings.
Funds under management on behalf of customers are not consolidated.
As at 30 September 2006, the ING Australia Limited Joint Venture had funds under management of $42,783 million (30 September 2005:$34,569 million), the ING (NZ) Holdings Limited Joint Venture had funds under management of $7,256 million (30 September 2005: $6,839
million) and certain subsidiaries of ANZ National Bank Limited had funds under management of $3,721 million (30 September 2005: $3,371
million).

Custodian services activities
Custodian services are conducted through ANZ Custodian Services. ANZ Custodian Services holds investment assets under custody on behalfof external customers and as a consequence the assets are not consolidated in the Group’s accounts. As at 30 September 2006, ANZ CustodianServices had funds under custody of $120.2 billion (30 September 2005: $98.3 billion).

44: Commitments
Consolidated

The Company

2006
$m

2005
$m

2006
$m

2005
$m

Capital expenditure
Contracts for outstanding capital expenditure
Not later than 1 year

55

80

16

26

Total capital expenditure commitments1

55

80

16

26

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

227
567
433

205
547
431

151
399
399

136
390
405

1,227

1,183

949

931

24
19
1

17
17
–

17
10
–

13
13
–

44

34

27

26

Total lease rental commitments

1,271

1,217

976

957

Total commitments

1,326

1,297

992

983

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

1 Relates to premises and equipment.

69Notes to the financial statements
45: Contingent Liabilities, Contingent Assets and Credit Related Commitments
CUSTOMER RELATED CREDIT RELATED COMMITMENTS AND CONTINGENT LIABILITIESCredit related commitments
Facilities provided
Consolidated

The Company

2006
Contract
amount$m

2005
Contract
amount$m

2006
Contract
amount$m

2005
Contract
amount$m

Undrawn facilities1

98,55487,31977,72068,491

Australia
New ZealandOverseas markets

62,746
18,84016,96855,451
17,001
14,867

61,741–
15,97954,485–14,006

Total

98,55487,31977,72068,491

1 The credit risk of the undrawn facilities may be less than the contract amount, however the credit risk has been taken to be the contract amount. The majority of undrawn facilities are subject tocustomers maintaining specific credit standards. The amount does not necessarily represent future cash requirements as many of these facilities are expected to be partially used or to expire
unused.

Contingent liabilities
The qualitative details of the estimated maximum amount of contingent liabilities that may become payable relate to non-customer contingent
liabilities. These contingent liabilities relate to transactions that the Group has entered into as principal. By contrast, the quantitative tabularpresentation below relates to customer contingent liabilities, ie direct credit substitutes and trade and performance related items.
Guarantees, Standby letters of credit, Bill endorsements and Other are classified by APRA as direct credit substitutes and exhibit the same
credit risk characteristics as a direct extension of credit. The maximum potential amount of future payments represents the contract amountthat could be lost if the counterparty fails to meet its financial obligations.
Documentary letters of credit involve the issue of letters of credit guaranteeing payment in favour of an exporter secured against an underlying
shipment of goods or backed by a confirmatory letter of credit from another bank.
Performance related contingencies are liabilities that oblige the Group to make payments to a third party should the customer fail to fulfil the
non-monetary terms of the contract.
The Group guarantees the performance of customers by issuing standby letters of credit and guarantees to third parties. The risk involved isessentially the same 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, however the credit risk has been taken to be the contract amount.

70 ANZ Full Financial Report 2006

Notes to the financial statements
45: Contingent Liabilities, Contingent Assets and Credit Related Commitments (continued)
Consolidated

The Company

2006
Contract
amount$m

2005
Contract
amount$m

2006
Contract
amount$m

2005
Contract
amount$m

Guarantees
Standby letters of credit
Bill endorsements
Documentary letters of credit
Performance related contingencies
Other

4,690
1,468
100
3,078
11,710
1,009

4,878
1,446
125
3,015
10,160
1,433

4,611
1,296
100
2,939
11,265
628

4,744
1,277
125
2,763
9,864
1,128

Total customer contingent liabilities

22,05521,057

20,83919,901

Australia
New ZealandOverseas markets

9,473
1,011
11,5719,448
1,006
10,603

9,462–
11,377

9,445–
10,456

Total customer contingent liabilities

22,05521,057

20,83919,901ASSETS PLEDGED AS SECURITY AND SECURED LIABILITIESAssets are pledged as collateral:mandatory reserve deposits held with local central banks in accordance with statutory requirements. These deposits are not available tofinance the Group’s day to day operations; andin relation to debenture undertakings covering the assets of Esanda and its subsidiaries and UDC Finance Limited. The debenture stock ofEsanda and its subsidiaries and UDC Finance Limited is secured by a trust deed and collateral debentures, giving floating charges upon theundertaking of all the assets of the entity, other than land and buildings. All controlled entities of Esanda and UDC Finance Limited haveguaranteed the payment of principal, interest and other monies in relation to all debenture stock and unsecured notes issued by Esanda and
UDC Finance Limited respectively. Note that the only loans pledged are those in Esanda and UDC Finance Limited.
The value of assets pledged as security is as follows:
Consolidated

Regulatory deposits
Assets pledged as collateral under debenture undertakings1

The Company

2006
$m

2005
$m

2006
$m

2005
$m

205
16,028159
15,482

132
–

113
–

16,233

15,641132

113

1 Related liabilities is $9,757 million (2005: $9,639 million).

The Group has accepted collateral that it is permitted to sell or repledge in connection with its stock-lending activities. The fair value of thecollateral accepted is $3.3 billion (2005: $3.1 billion) and this equates to our obligation to our counterparties.

71

Notes to the financial statements
45: Contingent Liabilities, Contingent Assets and Credit Related Commitments (continued)
OTHER BANK RELATED CONTINGENT
LIABILITIESThe details and estimated maximum amountof contingent liabilities that may become
payable are set out below.

i) Clearing and settlement obligations
In accordance with the clearing andsettlement arrangements set out:in the Australian Payments Clearing
Association Limited (APCA) Regulations
for the Australian Paper Clearing System,
the Bulk Electronic Clearing System, theConsumer Electronic Clearing System andthe High Value Clearing System (HVCS),
the Company has a commitment to comply
with rules which could result in a bilateralexposure and loss in the event of a failure
to settle by a member institution; andin the Austraclear System Regulations
and the CLS Bank International Rules, theCompany has a commitment to participate
in loss-sharing arrangements in theevent of a failure to settle by a member
institution.
For both the APCA HVCS and Austraclear,
the obligation arises only in limited
circumstances.

ii) Nominee activities
The Group will indemnify each customerof controlled entities engaged in nominee
activities against loss suffered by reasonof such entities failing to perform any
obligation undertaken by them to acustomer.

iii) Interbank deposit agreement
ANZ has entered into an Interbank Deposit
Agreement with the major banks in thepayments system. This agreement is apayment 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 todeposit equal amounts of up to $2 billion fora period of 30 days. At the end of 30 days
the deposit holder has the option to repay
the deposit in cash or by way of assignmentof mortgages to the value of the deposit.

iv) Contingent tax liability

The ATO is also reviewing the taxation
treatment of certain other transactions,
including legacy structured financetransactions, undertaken by the Group in thecourse of normal business activities.
The ATO’s review of the sale of Grindlays
in 2000 and of the transfer of the life andfunds management businesses into thejoint venture with ING Australia in 2002 was
finalised during the year.
The Inland Revenue Department (IRD) in New
Zealand is reviewing a number of conduitrelieved structured finance transactions
as part of normal revenue authority audit
procedures. This is part of an industry-wide
review by the IRD of these transactions
undertaken in New Zealand. The IRD has
issued Notices of Proposed Adjustment(the ‘Notices’) in respect of some of thosestructured finance transactions. The
Notices are not tax assessments and do notestablish a tax liability, but are the first stepin a formal dispute process. In addition,some tax assessments have been received.
Should the same position be adopted by the
IRD on the remaining transactions of thatkind as reflected in the Notices and in the
tax assessments received, the maximum
potential tax liability would be approximately
NZD469 million (including interest tax
effected) for the period to 30 September
2006. Of that maximum potential liability,
approximately NZD133 million is subject
to tax indemnities provided by Lloyds TSB
Bank PLC under the agreement by which ANZ
acquired the National Bank of New Zealand
and which relate to transactions undertakenby the National Bank of New Zealand before
December 2003. All of these conduitrelieved transactions have now been either
matured or been terminated.
Additional or issue-specific audits and otherinvestigations are being undertaken by the
New Zealand IRD, and by revenue authorities
in the United States, the United Kingdom
and in other jurisdictions as part of normal
revenue authority activity in those countries.
The Company has assessed these and othertaxation claims arising in Australia, New
Zealand and elsewhere, including seeking
independent advice where appropriate,and considers that it holds appropriate
provisions.

The Group in Australia was during 2005
subjected to client risk reviews by theAustralian Taxation Office (ATO) across a
broad spectrum of matters, as part of normal
ATO procedures. The reviews mainly covered
years up to 2003. Some matters listed by
the ATO for further investigation remain
outstanding.

72 ANZ Full Financial Report 2006v) Sale of Grindlays businesses
On 31 July 2000, ANZ completed the saleto Standard Chartered Bank (SCB) of ANZ
Grindlays Bank Limited and the privatebanking business of ANZ in the United
Kingdom and Jersey, together with ANZ
Grindlays (Jersey) Holdings Limited and its
subsidiaries, for USD1.3 billion in cash. ANZ
provided warranties and certain indemnities
relating to those businesses and, where it
was anticipated that payments would be
likely under the warranties or indemnities,
made provisions to cover the anticipatedliability. The issues below have not impacted
the reported results. All settlements
and costs have been covered within theprovisions established at the time. ANZ may
be held liable in relation to the following:
FERA
In 1991 certain amounts were transferredfrom non-convertible Indian Rupee accounts
maintained with Grindlays in India. Thesetransactions may not have complied withthe provisions of the Foreign Exchange
Regulation Act, 1973. Grindlays, on its
own initiative, brought these transactions
to the attention of the Reserve Bank ofIndia. The Indian authorities have served
notices on Grindlays and certain of its
officers in India that could lead to possible
penalties. Criminal prosecutions have also
been foreshadowed and, in the case of twoformer officers and the bank, commenced.
Grindlays is contesting the validity of these
prosecutions.
Differential Cheques
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 (plusinterest accruing at 24% since 1991). Since
the appeal decision was handed down,no further action has been taken against
Grindlays in relation to notices in respectof a further eleven payments received by it
in 1991 in similar circumstances totalling
Indian Rupees 225 million.
In addition, ANZ provided an indemnity
relating to tax liabilities of Grindlays (and its
subsidiaries) and the Jersey Sub-Group to
the extent to which such liabilities were notprovided for in the Grindlays accounts as at
31 July 2000. Claims have been made under
this indemnity also, with no material impact
on the Group expected.

Notes to the financial statements
45: Contingent Liabilities, Contingent Assets and Credit Related Commitments (continued)vi) Deed of Cross Guarantee in respect of certain controlled entities
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 individual financial statements. The results of thesecompanies are included in the consolidated Group results. The entities to which relief was granted are:
ANZ Properties (Australia) Pty Ltd1ANZ Capital Hedging Pty Ltd1
Alliance Holdings Pty Ltd1ANZ Orchard Investments Pty Ltd2ANZ Securities (Holdings) Limited3

ANZ Funds Pty Ltd1
Votraint No. 1103 Pty Ltd2

1 Relief originally granted on 21 August 2001.
2 Relief originally granted on 13 August 2002.
3 Relief originally 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 executed by them and lodged with the Australian Securities and Investments Commission. The Deedof Cross Guarantee is dated 1 March 2006. 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. If a winding up occurs, 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 in the event that the Company is wound up. The consolidated statement of financial performance and consolidated statement offinancial position of the Company and its wholly owned controlled entities which have entered into the Deed of Cross Guarantee are:Consolidated
2006
$m

2005
$m

Profit before tax
Income tax expense

4,161
(922)

3,107
(754)

Profit after income tax
Retained profits at start of year1

3,239
7,103

2,353
6,825

Total available for appropriation
Ordinary share dividends provided for or paid
Transfer from reserves
Adjustment on adoption of AIFRS

10,342(2,068)
49
(83)

9,178
(1,877)––Retained profits at end of year

8,240

7,301

AssetsLiquid assets
Available-for-sale assets/investment securties
Net loans and advances
Other assets
Premises and equipment

10,428
5,388
172,155
54,533
603

7,193
5,398
153,461
40,591
1,132

Total assets

243,107

207,775

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

128,321
1,799
95,000688

113,089
1,566
74,746650

Total liabilities

225,808

190,051

Net assets

17,29917,724

Shareholders’ equity2

17,29917,724

1 The Companies included in the class order changed in 2006, accordingly retained profits did not carry forward in 2006.
2 Shareholders’ equity excludes retained profits and reserves of controlled entities within the class order.

Pursuant to a Revocation Deed dated 1 March 2006, earlier Deeds of Cross Guarantee dated 9 September 2003 and 21 August 2005, to which
the Company and certain wholly-owned controlled entities were parties, have been revoked. The revocation became effective on 1 September
2006. The controlled entities in respect of which this revocation was effective are the controlled entities (listed above) that are parties to theDeed of Cross Guarantee dated 1 March 2006, and the following additional controlled entities:
ANZ Infrastructure Investments Limited

ES & A Holdings Pty Ltd

ANZ Nominees Limited

Jikk Pty Ltd

Because these last four controlled entities were not parties to a Deed of Cross Guarantee as at 30 September 2006, they are ineligible for therelief under the class order.
73

Notes to the financial statements
45: Contingent Liabilities, Contingent Assets and Credit Related Commitments (continued)vii) Commercial paper notes
The Company has guaranteed payment
on maturity of the principal and accrued
interest of commercial paper notes issued by
ANZ (Delaware) Inc. of $6,667 million as at
30 September 2006 (2005: $6,400 million).

viii) Underpinning agreement – ANZ
National Bank Limited
The Company is party to an underpinningagreement with ANZ National Bank Limited
whereby the Company undertakes to assume
risk in relation to credit facilities extended
by ANZ National Bank Limited to individual
customers which exceed 35% of ANZ
National Bank Limited’s capital base.

ix) Underpinning agreement – Australia
and New Zealand Banking Group (PNG)
LimitedThe Company is party to an underpinningagreement with Australia and New Zealand
Banking Group (PNG) Limited whereby
the Company undertakes to assume riskin relation to credit facilities extended byAustralia and New Zealand Banking Group(PNG) Limited to individual customers which
exceed 25% of Australia and New Zealand
Banking Group (PNG) Limited’s capital base.
GENERAL
There are outstanding court proceedings,
claims and possible claims against theGroup, the aggregate amount of whichcannot readily be quantified. Appropriate
legal advice has been obtained and, in thelight of such advice, provisions as deemednecessary have been made. The grossamounts of accruals made for material
litigation contingencies is $405 million(2005: $233 million).
CONTINGENT ASSETS

National Housing Bank
In 1992, Grindlays received a claim
aggregating to approximately Indian Rupees
5.06 billion from the National Housing
Bank (NHB) in India. The claim arose outof cheques drawn by NHB in favour of
Grindlays, the proceeds of which werecredited to the account of a Grindlays
customer.

Grindlays won an arbitration award in March
1997, under which NHB paid Grindlays anaward of Indian Rupees 9.12 billion. NHB
subsequently won an appeal to the Special
Court of Mumbai, after which Grindlays filed
an appeal with the Supreme Court of India.
Grindlays paid the disputed money includinginterest into court. Ultimately, the parties
settled the matter and agreed to sharethe moneys paid into court which by thentotalled Indian Rupees 16.45 billion ($661
million at 19 January 2002 exchange rates),with Grindlays receiving Indian Rupees 6.20
billion ($248 million at 19 January 2002
exchange rates) of the disputed monies.
ANZ in turn received a payment of USD124
million (USD equivalent of the Indian Rupees
received by Grindlays) from Standard
Chartered Bank under the terms of anindemnity given in connection with the saleof Grindlays to Standard Chartered Bank.
ANZ Claims
ANZ has pursued two separate actions
arising from the above.
(a) A $130 million plus interest claim against
its insurers. $130 million being the balanceof the limit of indemnity under ANZ’s
insurance arrangements for the 1991–92
policy year.
ANZ settled the claim for $114 million which
has been recognised in these accounts,
less an amount of $1 million which wasrecognised in the accounts at 30 September
2005.
(b) ANZ is entitled to share with NHB in theproceeds of any recovery from the estate of
the customer whose account was creditedwith the cheques drawn by NHB. However,the Indian Taxation Department is claiming astatutory priority to all of the funds available
for distribution to creditors of that customer.
Proceedings are currently on foot in theSpecial Court, Mumbai to determine theseissues.

Harris Scarfe
The Receiver and Manager of Harris Scarfe
Limited (HSL) and related companies,
together with ANZ, have initiatedproceedings in the Supreme Court of South
Australia to recover damages for breach ofcontract, negligence and statutory causesof action against the former auditors of HSL.
These proceedings are continuing. It is notpracticable to reliably estimate the financial
effect of these proceedings.

74 ANZ Full Financial Report 2006

Notes to the financial statements
46: Superannuation and Other Post Employment Benefit Schemes
Description of the Group’s post employment benefit schemes
The Group has established a number of pension, superannuation and post retirement medical benefit schemes throughout the world. The
Group may be obliged to contribute to the schemes as a consequence of legislation and provisions of trust deeds. Legal enforceability isdependent on the terms of the legislation and trust deeds.
The major schemes with assets in excess of $25m are:Contribution levels
Country

SchemeScheme type

Employee/participant

Employer

Australia

ANZ Australian Staff
Superannuation Scheme1,2

Defined contribution scheme
Section C3 or

Optional8

Balance of cost10

Defined contribution scheme
Section A or

Optional

9% of salary11

Defined benefit scheme
Pension Section4

Nil

Balance of cost12

Defined benefit scheme5 or

Nil

Balance of cost13

Defined contribution scheme

Minimum of
2.5% of salary

7.5% of salary14

Defined benefit scheme6 or

5.0% of salary

Balance of cost15

Defined contribution scheme7

Minimum of
2.0% salary

11.5% of salary16

Defined benefit scheme7

5.0% of salary9

Balance of cost17

New Zealand

ANZ Group (New Zealand)
Staff Superannuation
Scheme1,2National Bank Staff
Superannuation Fund1,2

England

ANZ UK Staff
Pension Scheme1

Balance of cost: the Group’s contribution is assessed by the actuary after taking account of members’ contributions and the value of theschemes’ assets.
1 These schemes provide for pension benefits.
2 These schemes provide for lump sum benefits.
3 Closed to new members in 1997.
4 Closed to new members. Operates to make pension payments to retired members or their dependants.
5 Closed to new members on 31 March 1990. Operates to make pension payments to retired members of that section of the scheme or their dependants.
6 Closed to new members on 1 October 1991.
7 Closed to new members on 1 October 2004.
8 Optional but with minimum of 1% of salary.
9 From 1 October 2003, all members contributions are at a rate of 5% of salary.
10 As determined by the Trustee on the recommendation of the actuary - currently 9% (2005: 9%) of members’ salaries.
11 2005: 9% of salary.
12 As determined by the Trustee on the recommendation of the actuary - currently nil (2005: nil).
13 As recommended by the actuary - currently nil (2005: nil).
14 2005: 7.5% of salary.
15 As recommended by the actuary - currently 24.7% (2005: 22.3%) of members’ salaries.
16 2005: 11.2% of salary.
17 As agreed by the Trustee and Group after taking the advice of the actuary - currently 26% (2005: 25%) of pensionable salaries and additional quarterly contributions of GBP 3.5 million until
December 2015.

75

Notes to the financial statements
46: Superannuation and Other Post Employment Benefit Schemes (continued)
Funding and contribution information for the defined benefit sections of the schemes
The funding and contribution information for the defined benefit sections of the schemes as extracted from the schemes’ most recent financial
reports are set out below.
In this financial report, the net (liability)/asset arising from the defined benefit obligation recognised in the balance sheet has been determinedin accordance with AASB 119 “Employee Benefits”. However, the excess or deficit of the net market value of assets over accrued benefits
shown below has been determined in accordance with AAS 25 ‘Financial Reporting by Superannuation Plans’. The excess or deficit for funding
purposes below differs from the net (liability)/asset in the balance sheet because AAS 25 prescribes a different measurement date and basis
to those used for AASB 119 purposes.
Excess/(deficit)
of netmarket valueof assets overaccrued benefits$m2006 Schemes

Accruedbenefits*$m

Net market
value ofassets heldby scheme$m

ANZ Australian Staff Superannuation Scheme Pension Section2
ANZ UK Staff Pension Scheme2
ANZ UK Health Benefits Scheme4
ANZ Group (New Zealand) Staff Superannuation Scheme1
National Bank Staff Superannuation Fund3
Other4, 5

39
1,249
13
6
170
7

35
997
–
6
166
5

(4)
(252)
(13)
–
(4)
(2)

Total

1,484

1,209

(275)

* Determined in accordance with AAS 25 ‘Financial Reporting by Superannuation Plans’, which prescribes a different measurement date and basis to those applied in this financial report under AASB
119 ‘Employee Benefits’.
1 Amounts were measured at 31 December 2004.
2 Amounts were measured at 31 December 2005.
3 Amounts were measured at 31 March 2006.
4 Amounts were measured at 30 September 2006.
5 Other includes the defined benefit arrangements in Japan, Philippines and Taiwan.

2005 Schemes

ANZ Australian Staff Superannuation Scheme Pension Section1
ANZ UK Staff Pension Scheme1
ANZ UK Health Benefits Scheme3
ANZ Group (New Zealand) Staff Superannuation Scheme1
National Bank Staff Superannuation Fund2
Other3, 4
Total

Accruedbenefits*$m

Net market
value ofassets heldby scheme$m

Excess/(deficit)
of netmarket valueof assets overaccrued benefits
$m

40
855
13
6
173
6

35
811
–
6
165
5

(5)
(44)
(13)
–
(8)
(1)

1,093

1,022

(71)

* Determined in accordance with AAS 25 ‘Financial Reporting by Superannuation Plans’, which prescribes a different measurement date and basis to those applied in this financial report under
AASB 119 ‘Employee Benefits’.
12
3
4

Amounts were measured at 31 December 2004.
Amounts were measured at 31 March 2005.
Amounts were measured at 30 September 2005.
Other includes the defined benefit arrangements in Japan, Philippines and Taiwan.

Employer contributions to the defined benefit sections are based on recommendations by the schemes’ actuaries. Funding recommendations
are made by the actuaries based on assumptions of various matters such as future investment performance, interest rates, salary increases,
mortality rates and turnover levels. The funding methods adopted by the actuaries are intended to ensure that the benefit entitlements of
employees are fully funded by the time they become payable.
The Group expects to make contributions of $45 million to the defined benefit sections of the schemes during the next financial year.

76 ANZ Full Financial Report 2006

Notes to the financial statements
46: Superannuation and Other Post Employment Benefit Schemes (continued)
The current contribution recommendations for the major defined sections of the schemes are described below.

ANZ Australian Staff Superannuation Scheme Pension Section
The Pension Section of the ANZ Australian Staff Superannuation Scheme is closed to new members. A full actuarial valuation, conducted byconsulting actuaries Russell Employee Benefits as at 31 December 2004 showed a deficit of $5 million and the actuary recommended thatGroup contributions to the Pension Section remain suspended. An interim actuarial valuation conducted as at 31 December 2005 showed a
deficit of $4 million and the expectation is that this deficit has remained materially unchanged since that date. The next full actuarial valuationis due to be conducted as at 31 December 2007, at which time the funding position will be reassessed.
The following economic assumptions were used in formulating the actuary’s funding recommendations:
Rate of investment return
Pension indexation rate

8% p.a.
3% p.a.

The Group has no present liability under the Scheme’s Trust Deed to commence contributions or fund the deficit.

ANZ UK Staff Pension Scheme
A full actuarial valuation, conducted by consulting actuaries Watson Wyatt LLP, as at 31 December 2005 showed a deficit of GBP 100 million($252 million at 30 September 2006 exchange rates).
Following the actuarial valuation as at 31 December 2005, the Group agreed to make regular contributions at the rate of 26% of pensionablesalaries. These contributions are sufficient to cover the cost of accruing benefits. To address the deficit, the Group also agreed to pay additional
quarterly contributions of GBP 3.5 million until 31 December 2015. These contributions will be reviewed at the next actuarial valuation which isscheduled to be undertaken as at 31 December 2007.
The following economic assumptions were used in formulating the actuary’s funding recommendations:
Rate of investment return on existing assets
Rate of investment return for determining ongoing contributions
Salary increases
Pension increases

4.75% p.a.
6.6% p.a.
4.6% p.a.
2.8% p.a.

The Group has no present liability under the Scheme’s Trust Deed to fund the deficit measured under AAS 25. A contingent liability may arise
if the Scheme was wound up. If this were to happen, the Trustee would be able to pursue the Group for additional contributions under the UK
Employer Debt Regulations. The Group intends to continue the Scheme on an on-going basis.
On adoption of AIFRS, a net liability representing the defined benefit obligation calculated under AASB 119 was recognised on the balance
sheet. The basis of calculation under AASB 119 is detailed in note 1(xx).

National Bank Staff Superannuation FundA full actuarial valuation of the National Bank Staff Superannuation Fund, conducted by consulting actuaries AON Consulting NZ, as at 31 March
2006 showed a deficit of NZD5 million ($4 million at 30 September 2006 exchange rates). The actuary recommended that the Group makecontributions of 24.7% of salaries in respect of members of the defined benefit section.
The following economic assumptions were used in formulating the actuary’s funding recommendations:
Rate of investment return (net of income tax)
Salary increases
Pension increases

5.5% p.a.
3.0% p.a.
2.5% p.a.

The Group has no present liability under the Scheme’s Trust Deed to fund the deficit measured under AAS 25. A contingent liability may arise if
the Scheme was wound up. Under the Fund’s Trust Deed, if the Fund were wound up, the Group is required to pay the Trustees of the Scheme
an amount sufficient to ensure members do not suffer a reduction in benefits to which they would otherwise be entitled. The Group intends tocontinue the Scheme on an on-going basis.
On adoption of AIFRS, a net asset representing the defined benefit surplus calculated under AASB 119 was recognised on the balance sheet.
The basis of calculation under AASB 119 is detailed in Note 1(xx).

77Notes to the financial statements
46: Superannuation and Other Post Employment Benefit Schemes (continued)
The following tables summarise the components of the expense recognised in the income statement and the amounts recognised in thebalance sheet under AASB 119 for the defined benefit sections of the schemes:
Consolidated

The Company

2006
$m

2005
$m

2006
$m

2005
$m

Amount recognised in income in respect of defined benefit schemes
Current service cost
Interest cost
Expected return on assets
Past service cost
Adjustment for contributions tax

12
64
(70)
3
2

14
67
(68)
1
2

9
55
(61)
3
–

11
56
(58)
1
–

Total included in personnel expenses (refer note 4)

11

16

6

10

(1,462)
1,238(1,246)
1,099(1,296)
1,067(1,076)922

Present value of net obligation

(224)

(147)

(229)

(154)

Amounts recognised in the balance sheet
Other assets (refer note 21)
Payables and other liabilities (refer note 26)

5
(229)

7
(154)

–
(229)

–
(154)

Present value of net obligation

(224)

(147)

(229)

(154)

78
43

(35)
(35)

77
48

(29)
(29)

Amounts included in the balance sheet in respect of its defined benefit schemes
Present value of funded defined benefit obligation
Fair value of scheme assets

Amounts recognised in equity in respect of defined benefit schemes
Actuarial losses/(gains) incurred during the year and recognised directly in retained earnings
Cumulative actuarial losses/(gains) recognised directly in retained earnings

The Group has a legal liability to fund deficits in the schemes, but no legal right to use any surplus in the schemes to further its own interests.
The Group has no present liability to settle deficits with an immediate contribution. For more information about the Group’s legal liability to funddeficits, refer to the earlier description of the current contribution recommendations for the schemes.
Movements in the present value of the defined benefit obligation in the relevant period
Opening defined benefit obligation
Current service cost
Interest cost
Contributions from scheme participants
Actuarial losses
Past service cost
Exchange differences on foreign schemes
Benefits paid

1,246
12
64
1
126
3
84
(74)

1,254
14
67
2
65
1
(87)
(70)

1,076
9
55
–
121
3
89
(57)

1,084
11
56
1
61
1
(84)
(54)

Closing defined benefit obligation

1,462

1,246

1,296

1,076

Movements in the fair value of scheme assets in the relevant period
Opening fair value of scheme assets
Expected return on scheme assets
Actuarial gains/(losses)
Exchange differences on foreign schemes
Contributions from the employer
Contributions from scheme participants
Benefits paid

1,099
70
48
70
24
1
(74)

1,056
68
100
(72)
15
2
(70)

922
61
44
77
20
–
(57)

884
58
90
(68)
11
1
(54)

Closing fair value of scheme assets1

1,238

1,099

1,067

922

118

168

105

148

Actual return on scheme assets

1 Scheme assets include the following financial instruments issued by the Group: Cash and short term debt instruments $2.5 million (September 2005: $4.9 million), fixed interest securities$5.7 million ( September 2005: $1.5 million) and equities $0.6 million (September 2005: nil).

78 ANZ Full Financial Report 2006

Notes to the financial statements
46: Superannuation and Other Post Employment Benefit Schemes (continued)
Consolidated

The Company

Fair value of scheme
assetsFair value of scheme
assets

2006
%

2005
%

2006
%

2005
%

Analysis of the scheme assets
Equities
Debt securities
Property
Other

50
33
14
3

50
37
13
–

51
30
16
3

50
35
15
–

Total assets

100

100

100

100

2006
%

2005
%

5.50
5.00
5.10
6.00
6.00

5.25
5.00
5.00
6.00
6.00

7.50
6.50
n/a
4.50
5.50

7.50
6.50
n/a
4.50
5.50

4.75
3.00

4.60
3.00

3.00
2.95
2.50
2.50

2.50
2.80
2.00
2.00

7.30

8.00

4.50

4.50

Key actuarial assumptions used (expressed as weighted averages)
Discount rate
ANZ Australian Staff Superannuation Scheme – Pension Section
ANZ UK Staff Pension Scheme
ANZ UK Health Benefits Scheme
ANZ Group (New Zealand) Staff Superannuation Scheme
National Bank Staff Superannuation Fund
Expected rate of return on scheme assets
ANZ Australian Staff Superannuation Scheme – Pension Section
ANZ UK Staff Pension Scheme
ANZ UK Health Benefits Scheme
ANZ Group (New Zealand) Staff Superannuation Scheme
National Bank Staff Superannuation Fund
Future salary increases
ANZ UK Staff Pension Scheme
National Bank Staff Superannuation Fund
Future pension increases
ANZ Australian Staff Superannuation Scheme – Pension Section
ANZ UK Staff Pension Scheme
ANZ Group (New Zealand) Staff Superannuation Scheme
National Bank Staff Superannuation Fund
Future medical cost trend – short term
ANZ UK Health Benefits Scheme
Future medical cost trend – long term
ANZ UK Health Benefits Scheme

To determine the expected returns of each of the asset classes held by the relevant scheme, the directors assessed historical return trends andmarket expectations for the asset classes. The overall expected rate of return on assets for each scheme is determined as the weighted averageof the expected returns for the asset classes.
Assumed medical cost trend rates do not have a material effect on the amounts recognised as income or included in the balance sheet.
Consolidated

History of experience adjustments
Defined benefit obligation
Fair value of scheme assets
Surplus/(deficit)
Experience adjustments on scheme liabilities
Experience adjustments on scheme assets

79

The Company

2006
$m

2005
$m

2006
$m

2005
$m

(1,462)
1,238(1,246)
1,099(1,296)
1,067(1,076)
922

(224)
7
48

(147)
(6)
100

(229)
5
44

(154)
(7)
90

Notes to the financial statements
47: Employee Share and Option Plans
ANZ operates a number of employee shareand option schemes which operate underthe ANZ Employee Share Acquisition Plan
and the ANZ Share Option Plan.
ANZ EMPLOYEE SHARE ACQUISITION PLAN
ANZ Employee Share Acquisition Plan (ESAP)
schemes that existed during the 2005
and 2006 financial years were the $1,000
Share Plan, the Restricted Share Plan, theDeferred Share Plan, the Performance SharePlan and the Employee Share Save Scheme(ESSS). Note the ESSS is an employee
salary sacrifice plan and is not captured as
an expense in the share based payment
expense model.

$1,000 share plan
Each permanent employee (excluding senior
executives) who has had continuous service
for one year is eligible to participate in the$1,000 scheme enabling the grant of up
to $1,000 of ANZ shares in each financial
year, subject to ANZ’s performance and theapproval of the Board. At a date approvedby the Board, the shares will be granted toall eligible employees using the five-day
weighted average price of ANZ shares tradedon the ASX in the five trading days leading
up to and including the date of grant.
In Australia and most overseas locations,shares are granted to eligible employees
for nil consideration and vest immediately
when granted, as there is no forfeitureprovision. It is a requirement, however,that shares are held in trust for three years
from the date of grant, after which timethey may remain in trust, be transferred tothe employee’s name or sold. In general,dividends received on the shares areautomatically reinvested into the Dividend
Reinvestment Plan.
Shares granted to eligible New Zealandemployees under this plan vest subject
to the satisfaction of a three year service
period, after which time they may remain
in trust, be transferred into the employee’s
name or sold. At the time of transfer,
employees are required to pay NZD
1 cent per share. Shares may be forfeitedin the event of dismissal for serious
misconduct or resignation. Dividends arereceived as cash.
During the 2006 year, 1,012,008 shareswith an issue price of $23.81 were granted
under the plan to employees on 5 December
2005. (2005 year: 1,151,157 shares with
an issue price of $20.03 were granted on
8 December 2004).

Deferred share plan
Selected employees may also be granted
long term incentive (LTI) deferred shares
which vest to the employee up to three
years from the date of grant. Ordinary
shares granted under this LTI plan may beheld in trust beyond the deferral period.
Unvested LTI deferred shares are forfeitedon resignation, dismissal for serious
misconduct or termination on notice. Incase of redundancy, unvested LTI deferredshares will be pro-rated, and in the event ofdeath or total and permanent disablement,
all shares will be released to the employee
in full.
Short-term incentive (STI) three year
deferred shares were granted under ahistorical ANZ STI program, and may be heldin trust beyond the deferral period. The last
grant of three year STI deferred shares wasmade on 11 May 2004 (with the vestingdate being 11 May 2007). There were no 3
year STI deferred share grants in the 2005
or 2006 financial years. STI deferred shareswith a one to two year deferral period arestill granted under business unit specificincentive plans (primarily as a retentiontool), and may be held in trust beyond thedeferral period. The deferral period will vary
according to bonus plan rules. Unvested
STI deferred shares are only forfeitedon resignation or dismissal for serious
misconduct.
The employee receives all dividends on LTI
and STI deferred shares while held in trust(cash or dividend reinvestment plan). The
issue price for LTI and STI deferred shares isbased on the volume weighted average priceof the shares traded on the ASX in the five
trading days leading up to and including thedate of grant.
During the 2006 year, 269,032 deferredshares (STI and LTI) with a weighted average
grant price of $23.68 were granted under
the deferred share plan (2005 year: 517,352
shares with a weighted average grant priceof $20.76 were granted).

Restricted share plan
Management level employees and above
may elect a pre-tax sacrifice of part or all of
their annual cash bonus for ANZ shares. The
shares are subject to a 12 month restriction
period, however, they may be left in trust
beyond the restriction period. The shares
are subject to forfeiture on dismissal forserious misconduct. The shares are released
to the employee on termination for any otherreason. The employee receives all dividends

80 ANZ Full Financial Report 2006

on restricted shares (cash or dividend
reinvestment plan). The issue price is basedon the volume weighted average price of theshares traded on the ASX on the five trading
days leading up to and including the dateof grant.
During the 2006 year, 401,575 shareswith an issue price of $23.49 were granted
under the Restricted Share Plan (2005year: 137,909 shares with an issue priceof $20.68 were granted).

Performance share plan
Performance shares are essentially LTI
deferred shares with a performance hurdle.
They were granted to i) a small number of
US based employees on 7 November 2005
to accommodate local taxation laws, and ii)
to the CEO on 31 December 2004 (as per his
employment contract).
The proportion of performance shares thatvest will depend upon the total shareholder
return (TSR) achieved by ANZ relative to
a comparator group of major financial
services companies. Performance equal tothe median TSR of the comparator groupwill result in half the performance shares
vesting. Vesting will increase on a straightline basis until all of the performance shares
vest where ANZ TSR is at or above the 75th
percentile of TSRs in the comparator group.
Where ANZ’s performance falls between twoof the comparators, TSR is measured on a
pro-rata basis.
The CEO was granted performance shares tobe held in trust for two years from the dateof grant. The shares will vest two years after
the date of grant subject to the achievementof the performance hurdle. The hurdle will
be tested monthly at the end of the two year
restriction period. Monthly retesting willcontinue until all performance shares havevested or until 5 years after the grant date. In
the event of resignation not approved by the
Board or dismissal for serious misconduct,
all performance shares will be forfeited.
No dividends will be payable on the shares
until they vest. 175,000 shares with anissue price of $15.02 were granted (on 31
December 2004).

Notes to the financial statements
47: Employee Share and Option Plans (continued)
Share valuations
The fair value of shares granted in the 2006 year under the $1,000 share plan, the deferred share plan and the restricted share plan, measured
as at the date of grant of the shares, is $40m based on 1,682,615 shares at a weighted average price of $23.66 (2005 year: fair value of shares
granted is $37m based on 1,806,418 shares at a weighted average price of $20.30). The volume weighted average share price of all ANZ shares
sold on the Australian Stock Exchange on the date of grant is used to calculate the fair value of shares. No dividends are incorporated into themeasurement of the fair value of shares.
A range of outcomes is possible given the uncertainty and assumptions in relation to share valuation. In determining the fair value below, ANZ
used standard market techniques for valuation including Monte Carlo and/or Binomial pricing models. The models take into account early
exercise, non-transferability and performance hurdles.
The significant assumptions used to measure the fair value of performance shares granted during the 2006 and 2005 financial years arecontained in the table below.

Share Type

Grant Date

Number of
SharesFair Value (A$)

Share priceat date of
grant

ANZ
expected
Volatility 1

Term of
SharesVesting
periodExpectedlife

Expected
Dividend Yield

Risk Free
Interest Rate

LTI Performance
Shares

7-Nov-05

4,115$14.63$23.6015%

5 years

3 years

4 years

5.00%

5.49%

CEO Performance
Shares31-Dec-04

175,000$15.02$20.5916.5%

5 years

2 years

2 years2

5.40%

5.00%

1 Expected volatility represents a measure of the amount by which ANZ’s share price is expected to fluctuate over the life of the plan. The measure of volatility used in the model is the annualised
standard deviation of the continuously compounded rates of return on the historical share price over a defined period of time preceding the date of grant. This historical average annualised volatility
is then used to estimate a reasonable expected volatility over the expected life.
2 In terms of factoring in early exercise, the model assumes that the recipient will exercise at the time the options vest.

ANZ SHARE OPTION PLAN
Selected employees may be granted options / rights, which entitle them to purchase ordinary fully paid shares in ANZ at a price fixed at thetime when the options / rights are granted (with the exception of index-linked options). Voting and dividend rights will be attached to theunissued ordinary shares when the options / rights have been exercised. Each option / right entitles the holder to one ordinary share subject tothe terms and conditions imposed on grant. The exercise price of the options, determined in accordance with the rules of the plan, is generally
based on the weighted average price of the shares traded in the five business days up to and including the date of grant. For zero priced options
and performance rights, the exercise price is nil. Index-linked options have a dynamic exercise price that is adjusted in line with the movementin the S&P/ASX 200 Banks (Industry Group) Accumulation Index (excluding ANZ).
ANZ Share Option Plan schemes expensed in the 2005 and 2006 years are as follows:

Current Option Plans
Performance rights plan (Hurdle H)
Performance rights are granted to certain employees as part of ANZ’s current long-term incentive (LTI) program. The first grant of performancerights was in November 2005, and provides the right to acquire ANZ shares at nil cost, subject to a three-year vesting period and a Total
Shareholder Return (TSR) performance hurdle. The proportion of LTI performance rights that become exercisable will depend upon the TSR
achieved by ANZ relative to a comparator group of major financial services companies, measured over the same period (since grant) andcalculated at the third anniversary of grant. Performance equal to the median TSR of the comparator group will result in half the performancerights becoming exercisable. Vesting will increase on a straight-line basis until all of the performance rights become exercisable where ANZ
TSR is at or above the 75th percentile of TSRs in the comparator group. Where ANZ’s performance falls between two of the comparators, TSR ismeasured on a pro-rata basis. The performance hurdle will only be tested once at the end of the three year vesting period. If the performancerights do not pass the hurdle on the testing date, or they are not exercised by the end of the exercise period (5 years from the date of grant),
they will lapse. In the case of dismissal for serious misconduct, all unexercised performance rights will be forfeited. In the case of resignationor termination on notice, only performance rights that become exercisable (and pass the performance hurdle) by the end of the notice period
may be exercised. In the case of retrenchment or retirement, performance rights will be performance tested at the date of termination andwhere performance hurdles have been met, performance rights will be pro-rated. In the case of death or total and permanent disablement,
all performance rights are available for exercise (with the performance hurdle waived).
Deferred share rights(DSR2: No performance hurdles)
Deferred Share Rights are granted instead of deferred shares to accommodate off-shore taxation implications. They provide the right to acquire
ANZ shares at nil cost after a specified vesting period. For STI rights granted in November 2005 (relating to a business unit incentive plan),the vesting period was one year. These rights must be exercised by the seventh anniversary of the grant date. In the case of resignation, only
rights that become exercisable by the end of the notice period may be exercised. All other rights will lapse. In the case of termination on notice,retrenchment, retirement, death or total and permanent disablement, all rights will be available for exercise. The fair value of rights is adjusted
for the absence of dividends during the restriction period.

81Notes to the financial statements
47: Employee Share and Option Plans (continued)
Legacy Option Plans
The following legacy plans are no longer
being offered to Group employees, but were
expensed during the 2005 and 2006 years.
Performance options plan
(Hurdle N: No performance hurdle applies)
Performance options were granted to certain
employees (below executive levels) as partof a historical LTI program. Performance
options are no longer part of ANZ’s current
equity strategy, with 7 November 2005
being the last grant of performance options.
The options can only be exercised after athree-year vesting period and before theseventh anniversary of the grant date. There
are no performance conditions attachedto these options as they were primarily
granted as a retention tool. All unexercised
options are forfeited on dismissal for serious
misconduct, resignation and termination
on notice. On retrenchment, entitlements
to options will be pro-rated over the threeyear vesting period. On death or total andpermanent disablement, all unvested
options will become available for exercise.
Zero-price options (ZPOs)A ZPO is a right to acquire an ANZ shareat nil cost. ZPOs were granted to Sir John
Anderson (former CEO of ANZ National
Bank Limited NZ) as part of his employment
contract (refer to Remuneration Report in
the Concise Annual Report 2006 / Part 2 of
2 for further details). The ZPOs had no time
based vesting criteria, so were able to be
exercised at any time during his employment
and within six months of termination of his
employment.
Deferred share rights(DSR: No performance hurdle)
Special Deferred Share Rights were
granted to a small number of New Zealandemployees in December 2004. They provide
the right to acquire ANZ shares at nil cost
after a three year vesting period. Rights must
be exercised by the seventh anniversaryof the grant date. They may be forfeited at
the Company’s discretion if the employee
ceases employment for any reason. The fairvalue of rights is adjusted for the absence ofdividends during the restriction period.

Hurdled Options (Hurdles B, C & G)
Hurdled options were granted to certain
employees as part of an historical LTI
program. The options can only be exercised
subject to the satisfaction of time andperformance based hurdles. Options may
be exercised during the four year period
commencing three years, and ending sevenyears after the grant date, subject to meeting
the relevant performance hurdle. The
performance hurdle will be measured during
the exercise period by comparing ANZ’s Total
Shareholder Return (ANZ’s TSR) against thecomparator group relevant to the hurdled
option grant.
Hurdle G: Hurdled options granted in
November 2004 will be tested against
a comparator group consisting of major
financial services companies, excluding
ANZ. The options become exercisable
depending on ANZ’s ranking within thecomparator group. ANZ must rank at the50th percentile for 50% of the options tobecome exercisable. For each 1% increase
above the 50th percentile an additional 2%of options will become exercisable, with
100% being exercisable where ANZ ranks
at or above the 75th percentile. This will
be calculated as at the last trading day ofany month (once the exercise period hascommenced).
Hurdles B & C: These hurdled option grants
will be measured against the S&P/ASX 200
Banks Accumulation Index, and with the
S&P / ASX 100 Accumulation Index. Halfthe options may only be exercised once
ANZ’s TSR exceeds the percentage change
in the S&P/ASX 200 Banks (Industry Group)
Accumulation Index, measured over thesame period (since grant) and calculated asat the last trading day of any month (oncethe exercise period has commenced); andthe other half of hurdled options may only
be exercised once the ANZ TSR exceeds thepercentage change in the S&P/ASX 100
Accumulation Index, measured over thesame period (since grant) and calculated asat the last trading day of any month (oncethe exercise period has commenced). The
forfeiture provisions are the same as theperformance option plan.
Index Linked Options (Hurdle D)
Index linked options have a dynamic
exercise price that acts as a built-in
performance hurdle, i.e. the exercise priceis adjusted in line with the movement in
the S&P/ASX 200 Banks (Industry Group)

82 ANZ Full Financial Report 2006

Accumulation Index (excluding ANZ) since
the grant date. As an additional constraint,
the adjusted exercise price can only be set
at or above the original exercise price. Index
linked options are exercisable between the
3rd and 7th year after grant date, subject
to the adjusted exercise price being above
the prevailing share price. Unexercised
options are forfeited on dismissal for serious
misconduct, resignation and termination on
notice. On retrenchment, and death or total
and permanent disablement, entitlements tooptions will be pro-rated over the three-year
vesting period.
CEO Options (Hurdles E & F)
Options were granted to the CEO as per his
employment contract and were approvedby shareholders at the December 1999 andDecember 2001 Annual General Meetings.
Refer to Remuneration Report in the Concise
Annual Report 2006 / Part 2 of 2 for further
details. In the event of termination on noticeor agreed separation, all vested options
must be exercised within 6 months of thetermination or agreed separation date,subject to meeting the relevant performance
hurdles.
Hurdle E: 500,000 of the options granted
to the CEO in 2001 may be exercised only
if the ANZ Accumulation Index over theperiod 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 thesame period.
Hurdle F: 500,000 of the options granted to
the CEO in 2001 may be exercised subject tothe following: one half of the options may be
exercised only if the ANZ TSR calculated overthe period commencing on the date of grantand ending on the last day of any monthafter the second anniversary of the 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 percentagechange in the S&P/ASX 100 Accumulation
Index over that same period. In the eventof resignation not approved by the Boardor dismissal for serious misconduct, allunexercised options will be forfeited.

Notes to the financial statements
47: Employee Share and Option Plans (continued)
Option Movements
Details of options over unissued ANZ shares and their related weighted average exercise prices as at the beginning and end of the 2006
financial year and movements during the 2006 financial year are set out below:
Opening Balance
1 October 2005

Options Granted

Options
Forfeited3

Options
Expired3

23/02/03 - 22/02/07

122,000–––

102,000

20,000

Yes

B$11.0923/05/03 - 23/05/07

85,500–––28,50057,000Yes

N

26/09/2000$12.03

26/09/03 - 25/09/07

22,500–––12,50010,000Yes

N

21/11/2000$13.62

22/11/03 - 21/11/07

452,804–––

101,000

351,804Yes

B

27/12/2000$13.91

25/10/03 - 07/02/08

678,750–

11,250–185,825

481,675

YesN

27/01/2001$13.91

07/02/04 - 07/02/08

464,800

–

3,750

–

108,500

352,550

Yes

N

21/02/2001$14.2021/02/04 - 20/02/08

1,972,092

–

9,250

–

568,869

1,393,973

YesN

24/04/2001$12.9825/04/04 - 24/04/08

169,700–––

49,500120,200

Yes

B

24/04/2001$12.9825/04/04 - 24/04/08

1,070,414

–

8,275

–

286,725

775,414Yes

N

07/05/2001$12.9807/05/04 - 06/05/08

40,800

–

1,400

–

5,150

34,250Yes

N

01/06/2001$14.61

01/06/04 - 31/05/08

170,250

–

1,500

–

59,950108,800

YesN

23/08/2001$15.7721/08/04 - 20/08/08

76,000––––76,000Yes

B

27/08/2001$16.0927/08/04 - 26/08/08

45,000

–

–

–

5,000

40,000Yes

N

24/10/2001$16.3325/10/04 - 24/10/08

288,400–––

140,000

148,400

Yes

B

24/10/2001$16.3325/10/04 - 24/10/08

1,753,170–

16,175–

485,949

1,251,046

YesN

24/10/2001$16.3324/10/04 - 23/10/08

50,000––––50,000Yes

B

31/12/2001$16.8031/12/03 - 31/12/07

500,000–––

500,000–

Yes

F

24/04/2002$18.03

24/04/05 - 24/04/09

2,161,878–

17,839–650,837

1,493,202

YesN

24/04/2002$18.03

24/04/05 - 24/04/09

436,100–––

193,200

242,900

Yes

C

24/04/2002$18.03

24/04/05 - 24/04/09

345,000–––

140,000

205,000

Yes

C

31/05/2002$18.55

14/05/05 - 13/05/09

125,000–––

110,000

15,000Yes

N

27/06/2002$18.5528/06/05 - 27/06/09

194,835

–

9,750

–

63,185

121,900

Yes

N

21/07/2002$17.1822/07/05 - 21/07/09

17,000––––17,00050%

C23/10/2002$17.342

23/10/05 - 22/10/09

2,003,222–

259,091––

1,744,131

No

D

23/10/2002$17.34

23/10/05 - 22/10/09

1,894,885–

23,979–741,736

1,129,170

NoN

20/11/2002$17.562

20/11/05 - 19/11/09

40,000––––40,000NoD

31/12/2002$16.6931/12/04 - 31/12/07

1,000,000–––

500,000

500,000

50%

F

20/05/2003$17.602

20/05/06 - 19/05/10

2,214,860–

186,123––

2,028,737

No

D

20/05/2003$17.6020/05/06 - 19/05/10

1,844,639–

78,839–395,687

1,370,113

No

N

09/06/2003$18.12

09/06/06 - 08/06/10

10,000

–

1,389

–

8,611

–

No

N

05/11/2003$17.55

05/11/06 - 04/11/10

2,425,186–

142,263–

54,972

2,227,951

NoN

05/11/2003$17.55

05/11/06 - 04/11/10

1,033,804–

90,206–35,385908,213

NoC

31/12/2003$17.4831/12/05 - 31/12/08

1,000,000–––

1,000,000

–

No

F

11/05/2004$18.22

11/05/07 - 10/05/11

2,458,971–

170,581–

40,8752,247,515

NoN

11/05/2004$18.22

11/05/07 - 10/05/11

1,470,155–

159,985–

20,884

1,289,286

NoC

05/11/2004$20.6805/11/07 - 04/11/11

1,406,481–

172,439–

22,131

1,211,911

NoG

05/11/2004$20.6805/11/07 - 04/11/11

2,861,147–

209,822–

27,8862,623,439

NoN

08/12/2004$0.00

08/12/07 - 08/12/11

42,435

–

4,171

–

–

38,264No

DSR

31/12/2004$20.4931/12/06 - 31/12/08

500,000

–

–

–

–

500,000

NoF

07/11/2005$0.00

07/11/05 - 15/10/06

–

9,961

–

–

9,961

–

Yes

N

Grant Date

Exercise
price1

Exercise period

23/02/2000$9.39

23/05/2000

Closing Balance
Options Exercised 30 September 2006

VestedHurdle07/11/2005$0.00

07/11/06 - 06/11/12–

10,845–––

10,845No

DSR2

07/11/2005$23.4907/11/08 - 06/11/12–

2,905,812

210,548––

2,695,264

NoN

18/11/2005$0.00

19/11/08 - 18/11/10–

1,565,258

154,905––

1,410,353

No

H

15/05/2006$0.00

19/11/08 - 18/11/10–

59,400–––59,400No

H33,447,778

4,551,276

1,943,530–

6,654,818

29,400,706$17.35$15.00$17.39–$16.45$17.18Weighted Average Exercise Price

1 Reflects the current exercise price. Note that the exercise price for all options on issue at 31 October 2003 was reduced (effective 1 November 2003) by $0.72 as a result of the Rights Issue.
2 The exercise price for these options is “index linked” and adjusted on a monthly basis. The exercise price shown above reflects the original exercise price less the $0.72 Rights Issue adjustment.
3 Numbers in the “Options Forfeited” column includes any options which may have expired due to a termination of employment whereby the employee was offered a grace period in which to exercise.
The number of options to expire under these circumstances is immaterial.

The weighted average share price during the year ended 30 September 2006 was $25.25.
The weighted average remaining contractual life of share options outstanding at 30 September 2006 was 3.7 years.

83Notes to the financial statements
47: Employee Share and Option Plans (continued)
Details of options over unissued ANZ shares and their related weighted average exercise prices as at the beginning and end of the 2005
financial year and movements during the 2005 financial year are set out below:
Options
Expired3

Options
Exercised––

25,000122,000

Yes

B

–

–

–

78,25085,500Yes

N

30,000

–

–

–

7,500

22,500Yes

N705,219–––

252,415452,804

Yes

B

994,722

–

9,000

–

306,972

678,750

Yes

N

07/02/04 - 07/02/08

671,800–

12,750–194,250

464,800

Yes

N

21/02/04 - 20/02/08

2,971,568–

21,000–978,476

1,972,092

YesN$14.7527/02/04 - 26/02/08

25,000–––25,000–Yes

B

24/04/2001$12.9825/04/04 - 24/04/08

531,300–––

361,600

169,700

Yes

B

24/04/2001$12.9825/04/04 - 24/04/08

1,668,527–

14,175–583,938

1,070,414

YesN

07/05/2001$12.9807/05/04 - 06/05/08

104,100

–

1,100

–

62,20040,800Yes

N

01/06/2001$14.61

01/06/04 - 31/05/08

310,000

–

3,000

–

136,750

170,250

Yes

N

23/08/2001$15.7721/08/04 - 20/08/08

76,000––––76,000Yes

B

27/08/2001$16.0927/08/04 - 26/08/08

63,000

–

3,000

–

15,00045,000Yes

N

24/10/2001$16.3325/10/04 - 24/10/08

753,300

–

3,600

–

461,300

288,400

Yes

B

24/10/2001$16.3325/10/04 - 24/10/08

2,811,600–

50,650–1,007,780

1,753,170

YesN

24/10/2001$16.3324/10/04 - 23/10/08

50,000––––50,000Yes

B

31/12/2001$16.4831/12/04 - 31/12/05

500,000–––

500,000–

Yes

E

31/12/2001$16.8031/12/03 - 31/12/07

500,000

–

–

–

–

500,000

Yes

F

28/02/2002$17.4926/02/05 - 25/02/09

20,000–––20,000–Yes

B

24/04/2002$18.03

24/04/05 - 24/04/09

2,880,641–

128,856–

589,9072,161,878

YesN

24/04/2002$18.03

24/04/05 - 24/04/09

760,501–

10,119–314,282

436,100

Yes

C

24/04/2002$18.03

24/04/05 - 24/04/09

380,000

–

1,112

–

33,888345,000

Yes

C

31/05/2002$18.55

14/05/05 - 13/05/09

145,000–––

20,000125,000

Yes

N

27/06/2002$18.5528/06/05 - 27/06/09

261,810–

15,947–51,028

194,835

Yes

N

21/07/2002$17.1822/07/05 - 21/07/09

17,000––––17,00050%

C23/10/2002$17.342

23/10/05 - 22/10/09

2,288,527–

141,111–

144,194

2,003,222

NoD

23/10/2002$17.34

23/10/05 - 22/10/09

2,120,765–

167,399–

58,481

1,894,885

NoN

20/11/2002$17.562

20/11/05 - 19/11/09

40,000––––40,000NoD

31/12/2002$16.6931/12/04 - 31/12/07

1,000,000

–

–

–

–

1,000,000

50%

F

20/05/2003$17.602

20/05/06 - 19/05/10

2,597,240–

246,741–

135,6392,214,860

NoD

20/05/2003$17.6020/05/06 - 19/05/10

2,027,696–

145,398–

37,6591,844,639

NoN

09/06/2003$18.12

09/06/06 - 08/06/10

10,000––––10,000NoN

05/11/2003$17.55

05/11/06 - 04/11/10

2,658,242–

190,959–

42,0972,425,186

NoN

05/11/2003$17.55

05/11/06 - 04/11/10

1,195,665–

92,648–69,213

1,033,804

NoC

31/12/2003$17.4831/12/05 - 31/12/08

1,000,000

–

–

–

–

1,000,000

NoF

11/05/2004$18.22

11/05/07 - 10/05/11

2,690,420–

205,886–

25,563

2,458,971

NoN

11/05/2004$18.22

11/05/07 - 10/05/11

1,630,235–

97,318–62,762

1,470,155NoC

05/11/2004$20.6805/11/07 - 04/11/11–

1,486,617

78,788–1,348

1,406,481

NoG

05/11/2004$20.6805/11/07 - 04/11/11–

3,048,066

169,455–

17,464

2,861,147

NoN

05/11/2004$0.00

05/11/04 - 04/11/06–

11,699––

11,699–Yes

N

08/12/2004$0.00

08/12/07 - 08/12/11–

42,435–––42,435No

DSR

31/12/2004$20.4931/12/06 - 31/12/08–

500,000–––

500,000

NoF

13/05/2005$0.00

13/05/05 - 12/05/07–

10,671––

10,671–YesN

36,800,628

5,099,488

1,810,012–

6,642,326

33,447,778$16.61$20.40$17.95–$15.43$17.35Grant Date

Exercise
price1

Exercise period

23/02/2000$9.39

23/02/03 - 22/02/07

147,000–

23/05/2000$11.0923/05/03 - 23/05/07

163,750

26/09/2000$12.03

26/09/03 - 25/09/07

21/11/2000$13.62

22/11/03 - 21/11/07

27/12/2000$13.91

25/10/03 - 07/02/08

27/01/2001$13.91

21/02/2001$14.2027/02/2001

TOTALS
Weighted Average Exercise Price

Opening Balance
1 October 2004

Options
GrantedOptions
Forfeited3

Closing Balance
30 September 2005

VestedHurdle1 Reflects the current exercise price. Note that the exercise price for all options on issue at 31 October 2003 was reduced (effective 1 November 2003) by $0.72 as a result of the Rights Issue.
2 The exercise price for these options is “index linked” and adjusted on a monthly basis. The exercise price shown above reflects the original exercise price less the $0.72 Rights Issue adjustment.
3 Numbers in the “Options Forfeited” column includes any options which may have expired due to a termination of employment whereby the employee was offered a grace period in which to exercise.
The number of options to expire under these circumstances is immaterial.

The weighted average share price during the year ended 30 September 2005 was $21.09
The weighted average remaining contractual life of share options outstanding at 30 September 2005 was 4.2 years.

84 ANZ Full Financial Report 2006

Notes to the financial statements
47: Employee Share and Option Plans (continued)
The following options over ordinary shares have been granted since the end of the 2006 financial year up to the signing of the directors’ reporton 1 November 2006.

Performance rights

Grant date

Exercise price

Earliest exercise date

Expiry date

Options granted

Hurdle24/10/2006$0.00

24/10/2009

24/10/2011

1,223,018

H

Total

1,223,018

Details of shares issued as a result of the exercise of options during the year ended 30 September 2006 are as follows:
Exercise price
$

0.00
9.39
11.09
12.03
12.98
12.98
12.98
13.62
13.91
13.91
14.20
14.61
16.09
16.33
16.33
16.69

No. of shares issued

9,961
102,000
28,50012,50049,500286,725
5,150
101,000
185,825
108,500
568,869
59,9505,000
140,000
485,949
500,000

Proceeds received$

Exercise price$

0.00
957,780
316,065
150,375
642,510
3,721,691
66,847
1,375,620
2,584,826
1,509,235
8,077,940
875,870
80,4502,286,200
7,935,547
8,345,000

16.80
17.34
17.48
17.55
17.55
17.60
18.03
18.03
18.03
18.12
18.22
18.22
18.55
18.55
20.68
20.68

No. of shares issued

500,000
741,736
1,000,000
54,97235,385395,687
650,837
193,200
140,000
8,611
40,87520,884110,000
63,185
22,131
27,886

Proceeds received$

8,400,000
12,861,702
17,480,000
964,759
621,0076,964,091
11,734,591
3,483,396
2,524,200
156,031744,743
380,506
2,040,500
1,172,082
457,669
576,682

Details of shares issued as a result of the exercise of options during the year ended 30 September 2005 are as follows:
Exercise price
$

0.00
0.00
9.39
11.09
12.03
12.98
12.98
12.98
13.62
13.91
13.91
14.20
14.61
14.75
16.09
16.33
16.33
16.48
17.34
17.49
17.55
17.55

No. of shares issued

10,671
11,69925,00078,2507,500
62,200361,600
583,938
252,415
194,250
306,972
978,476
136,750
25,00015,000461,300
1,007,780
500,000
58,481
20,00042,097
69,213

Proceeds received$

Exercise price
$

0.00
0.00
234,750
867,793
90,255807,356
4,693,568
7,579,515
3,437,892
2,702,018
4,269,981
13,894,359
1,997,918
368,750
241,350
7,533,029
16,457,047
8,240,000
1,014,061
349,800
738,8021,214,688

17.60
18.03
18.03
18.03
18.22
18.22
18.55
18.55
18.94
19.30
20.05
20.20
20.43
20.58
20.68
20.68
21.21
21.21
21.61
23.57
24.01

No. of shares issued

37,65933,888314,282589,907
25,56362,76220,00051,028
6,183
8,458
597
8,044
827
6,909
1,348
17,464
26,583
4,232
42,00090,00086,000

Proceeds received$

662,798
611,001
5,666,504
10,636,023
465,758
1,143,524
371,000
946,569
117,106
163,239
11,970
162,489
16,896142,187
27,877361,156
563,825
89,761
907,620
2,121,300
2,064,860

Details of shares issued as a result of the exercise of options since the end of the 2006 financial year up to the signing of the directors’ reporton 1 November 2006 are as follows:
Exercise price
$

12.98
13.91
13.91
14.20
14.61
16.09
16.33
17.34
17.55

No. of shares issued

13,8006,750
8,250
20,2505,000
1,500
17,40017,4198,956

Proceeds received$

Exercise price$

179,124
93,893
114,758
287,550
73,05024,135284,142
302,045
157,178

17.55
17.60
18.03
18.22
18.22
18.55
20.68
20.68

85

No. of shares issued

24,994
27,832
26,712
8,592
22,696325
3,284
23,938Proceeds received$

438,645489,843
481,617
156,546
413,521
6,029
67,913495,038

Notes to the financial statements
47: Employee Share and Option Plans (continued)
A range of outcomes is possible given the uncertainty and assumptions in relation to option valuation. In determining the fair value below,
we used standard market techniques for valuation including Monte Carlo and/or Binomial pricing models were used. The models take into
account early exercise, non-transferability and performance hurdles.
The significant assumptions used to measure the fair value of instruments granted during the 2006 financial year are contained in the tablebelow.

Option Type

Grant Date
Number of Options
Option Fair Value (A$)
Exercise Price (5 day VWAP)
Share price at date of grant
ANZ expected Volatility3
Option Term
Vesting period
Expected life
Expected Dividend Yield
Risk Free Interest Rate

Performance Options

Deferred Share Rights

Performance Rights

Zero-priced options

7-Nov-05
2,905,812$3.05$23.49$23.6017%
7 years
3 years
n/a1
5.41%
5.30%

7-Nov-05
10,845$22.48$0.00$23.6015%
7 years
1 year
1 year5.00%
5.54%

18-Nov-05
1,624,6582$11.64$0.00$24.0515%
5 years
3 years
4 years
5.00%
5.31%

7-Nov-05
9,961$23.57$0.00$23.60n/a
1 yearImmediate
n/a
n/a
n/a

1 To allow for maturity/marketability a 10% pa turnover rate (post vesting) has been assumed, as well as that option holders will exercise their options if the share price is greater than twice theexercise price.
2 This number includes an additional 59,400 Rights allocated in May 2006, with the same terms and conditions as the 18 November 2005 grant.
3 Expected volatility represents a measure of the amount by which ANZ’s share price is expected to fluctuate over the life of the options. The measure of volatility used in the model is the annualised
standard deviation of the continuously compounded rates of return on the historical share price over a defined period of time preceding the date of grant. This historical average annualised volatility
is then used to estimate a reasonable expected volatility over the expected life of the options.

The significant assumptions used to measure the fair value of instruments granted during the 2005 financial year are contained in the tablebelow.

Option Type

Performance Options

Hurdled Options

Deferred Share Rights

Zero Priced Options

CEO options

Zero-priced options

Grant Date
Number of Options
Option Fair Value (A$)
Exercise Price (5 day VWAP)
Share price at date of grant
ANZ expected Volatility2
Option Term
Vesting period
Expected life
Expected Dividend Yield
Risk Free Interest Rate

5-Nov-04
3,048,066$2.71$20.68$20.7718.5%
7 years
3 years
n/a1
5.30%
5.24%

5-Nov-04
1,486,617$2.62$20.68$20.7718.5%
7 years
3 years
n/a1
5.30%
5.24%

8-Dec-04
42,435$16.97$0.00$20.03n/a
7 years
3 years
3 years
5.30%
5.5%

5-Nov-04
11,699$20.70$0.00$20.77n/a
2 years
Immediate
n/a
n/a
n/a

31-Dec-04
500,000$1.98$20.49$20.5916.50%
4 years
2 years
2 years
5.50%
5.16%

13-May-05
10,671$22.05$0.00$22.15n/a
2 years
Immediate
n/a
n/a
n/a

1 This model assumes that option holders will only exercise at the expiration date, except for 10% (per annum) of option holders who choose to, or must exercise their options or allow them to lapse.
2 Expected volatility represents a measure of the amount by which ANZ’s share price is expected to fluctuate over the life of the options. The measure of volatility used in the model is the annualised
standard deviation of the continuously compounded rates of return on the historical share price over a defined period of time preceding the date of grant. This historical average annualised volatility
is then used to estimate a reasonable expected volatility over the expected life of the options.

86 ANZ Full Financial Report 2006

Notes to the financial statements
48: Key Management Personnel DisclosuresCompensation details concerning the Directors of the Company and AASB 124 “Related Party Disclosures” concerning the other key
management personnel for the Group and Company and the Corporations Act 2001 are detailed as follows:

Section A.
Remuneration Tables
Refer to disclosures from page 70 to page 73 in the Concise Annual Report 2006 .

Section B.
Non-executive Directors’ remuneration
Refer to disclosures on page 74 in the Concise Annual Report 2006 .

Section C.
Executive remuneration structure
Refer to disclosures from page 75 to page 78 in the Concise Annual Report 2006 .

Section D.
Chief Executive Officer’s remuneration
Refer to disclosures from page 78 to page 79 in the Concise Annual Report 2006 .

Section E.
Disclosed Executives contract terms
Refer to disclosures from page 80 to page 81 in the Concise Report.

Section F.
Equity instruments relating disclosed directors and executives
Refer to disclosures from page 82 to page 91 in the Concise Report.

OTHER TRANSACTIONS OF DIRECTORS AND OTHER KEY MANAGEMENT PERSONNEL

Other transactions (other than shares, share options and loans)
Transactions between the directors, other key management personnel and their personally related entities and the Group during the financial
year were in the nature of normal personal banking, debentures, investment and deposit transactions. These transactions occurred on an arm’s
length basis and on normal commercial terms and conditions no more favourable than those given to other employees or customers and weretrivial and domestic in nature.

87

Notes to the financial statements
48: Key Management Personnel Disclosures (continued)
KEY MANAGEMENT PERSONNEL LOAN TRANSACTIONS
Details regarding loans outstanding at the reporting date to directors of the Company and other key management personnel of the Group
including their personally related parties, where the individuals aggregate loan balance exceeded $100,000 at any time in the reporting period,
are as follows:
Opening balance
1 October

Closing balance
30 September

Interest paid andpayable in thereporting period

Highest balancein the reporting
period$$$$Non-executive Directors
2006
J P Morschel
D M Gonski

716,880
18,342,000

705,489
18,342,000

51,567
1,088,498

716,880
18,342,000

2005
J P Morschel
J C Dahlsen1
D M Gonski

310,000
17,695,111
18,342,000

716,880
14,736,607
18,342,000

51,127
1,024,458
1,097,742

779,933
17,695,111
18,342,000

Executive Director
2006
J McFarlane2

6,264,681–

335,603

25,624,811

2005
J McFarlane2

10,349,429

6,264,681

495,517

16,249,944

2006
R J Edgar
E Funke Kupper3,4
B C Hartzer3
G K Hodges
P R Marriot
S Targett

918,284
680,000
2,703,626
1,019,242––

1,453,114
n/a
3,486,967
2,986,598
2,614,674
600,000

85,329624
209,367
133,617160,485
52,2781,458,129
680,000
3,868,314
3,616,438
2,614,674
600,000

2005
R J Edgar5
E Funke Kupper3,4
B C Hartzer3
G K Hodges

181,814680,000
2,645,581
1,172,688

918,284
680,000
2,703,626
1,019,242

24,9684,797
163,028
61,6581,130,316
680,000
2,771,944
2,869,921

Directors

Other key management personnel

1
2
3
4
5

J C Dahlsen ceased to be a director in February 2005.
The loan balances largely relate to loans for the purchase of ANZ shares, including the exercise of options.
Interest payments on the loan balances outstanding during the year were reduced as a result of a linked offset account.
E Funke Kupper resigned effective 1 February 2006.
Interest paid by R J Edgar includes additional interest previously omitted.

Details regarding the aggregate of loans made, guaranteed or secured by any entity in the Group to each group of directors and other key
management personnel including related parties are as follows:
Opening balance
1 October

Closing balance
30 September

Interest paid andpayable in thereporting period

Number in group at
30 September1

$

$

$

$

Directors
20062
2005

25,323,561
46,696,540

19,047,489
40,060,168

1,475,668
2,668,844

3
4

Other key management personnel
2006
2005

5,321,152
4,680,083

11,141,353
5,321,152

641,700
254,451

5
4

1 Number in the Group includes directors and specified executive with loan balances greater than zero.
2 Opening balance as 1 October 2006 does not include loans made to J C Dahlsen. J C Dahlsen ceased to be a director in February 2005.

88 ANZ Full Financial Report 2006

Notes to the financial statements
49: Transactions with Other Related Parties
Joint Venture Entities
During the course of the financial year the Company and the Group conducted transactions with joint venture entities on normal commercial
terms and conditions as shown below:
Consolidated

Amounts receivable from joint venture entities
Interest revenue
Dividend revenue
Commissions received from joint venture entities
Costs recovered from joint venture entities

The Company

2006
$’000

2005
$’000

2006
$’000

2005
$’000

398,714
18,09345,570162,172
11,033

302,649
12,314
81,830122,153
9,430

301,999
13,607–142,072
9,022

272,954
12,314–
114,509
9,430

There have been no guarantees given or received. No outstanding amounts have been written down or recorded as allowances, as they are
considered fully collectible.

Associates
During the course of the financial year the Company and Group conducted transactions with associates on normal terms and conditions asshown below:
Consolidated

Amounts receivable from associates
Interest revenue
Dividend revenue

The Company

2006
$’000

2005
$’000

2006
$’000

2005
$’000

78,417
9,070
5,487

38,267
3,606
25,46837,761
5,973
5,487

32,5392,150
6,647

There have been no guarantees given or received. No outstanding amounts have been written down or recorded as allowances, as they are
considered fully collectible.

Subsidiaries
During the course of the financial year subsidiaries conducted transactions with each other and joint ventures and associates on normal terms
and conditions. They are fully eliminated on consolidation. No outstanding amounts have been written down or recorded as allowances, as they
are considered fully collectible.

50: 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:
2006

Euro
Great British pound
New Zealand dollar
United States dollar

2005

2004

Closing

Average

Closing

Average

Closing

Average

0.5882
0.3982
1.14550.74760.60710.41501.14330.74680.63250.43251.09980.76230.60240.4142
1.08470.76570.5814
0.39831.07000.71650.59680.40541.12540.726389Notes to the financial statements
51: Impact of Adopting Australian Equivalents to International Financial Reporting Standards (AIFRS)The Company and the Group implemented
accounting policies in accordance with
Australian Equivalents to International
Financial Reporting Standards (AIFRS) on
1 October 2004, except for those relating
to financial instruments and insurance
contracts, which were implemented
on 1 October 2005.
The transition was accounted for inaccordance with Accounting Standard
AASB 1: ‘First time adoption of Australian
Equivalents to International Financial
Reporting Standards’.
The impacts set out below are separated
between those applicable from 1 October
2004 (and impacting the comparative
periods) and those applicable from 1
October 2005. All amounts are stated on a
before tax basis, unless otherwise noted.
The reconciliation tables set out in pages 94
to 107 reconcile previous AGAAP to AIFRS
and cross reference to the notes below.

AIFRS adjustments with effectfrom 1 October 2004(i) Goodwill
Initial reduction in retained earnings.
Potential volatility in future earnings.

The adoption of AIFRS reduced the carrying
amount of goodwill by $5 million (Company:$6 million) at 1 October 2004 (refer Table 1)
and $15 million (Company: $15 million) at
1 October 2005 (refer Table 4) related to theacquisition of assets and liabilities that did
not meet the AIFRS definition of a businesscombination. The Group elected not torestate the classification and accounting
treatment of past business combinations
that occurred prior to 1 October 2004.
Under AIFRS, the past practice ofsystematically amortising goodwill over the
expected period of benefit ceased and was
replaced by impairment testing annually or
more frequently if events or circumstancesindicate that goodwill might be impaired.
This change in accounting policy resulted in:a decrease in the amortisation expenseof $224 million (Company: $8 million) for
the year to 30 September 2005, including
notional INGA and associates’ goodwillof $45 million (Company: nil) (refer
Table 2); anda corresponding increase in the carrying
value of goodwill, associates and joint
venture entities (refer Table 3).

(ii) Defined benefit superannuation schemes
Initial reduction in retained earnings. Actuarial
movements recognised in retained earnings.
Immaterial impact on net profit.

On adoption of AASB 119: ‘Employee
Benefits’, surpluses (assets) and/or deficits(liabilities) that arise within defined benefit
superannuation schemes are recognised on
the Balance Sheet.
Under previous AGAAP, the Groupaccounted for the defined benefit
superannuation schemes on a cash basis
and did not recognise an asset or liability
for the net position of the defined benefit
superannuation schemes.
The Group elected to apply the option
available under AASB 119 to recognise
actuarial gains and losses in the Balance
Sheet (i.e. the ‘direct to retained earnings’
approach). The non-cash expense reflecting
the notional cost of the benefits accruing tomembers of the defined benefit schemes
in respect of service provided over thereporting period is charged to the Income
Statement. All transitional adjustments
were, and ongoing movements reported foreach scheme are, actuarially determined inaccordance with AASB 119. Contributions tothe schemes are made in accordance withthe governing rules of the relevant schemes
and there is no present liability to fund any
deficits.
At 1 October 2004, the Group recognised
a liability of $200 million (Company: $200
million), an asset of $2 million (Company:nil), and a deferred tax asset of $57 million(Company: $57 million), resulting in a $141
million (Company: $143 million) decrease
in retained earnings (refer Table 1).
For the AIFRS comparative year ended 30
September 2005, the Group recogniseda decrease in the liability of $34 million(Company: $37 million) and an increasein the asset of $6 million (Company: nil)largely representing an actuarial gain anda deferred tax adjustment of $16 million(Company: $13 million). The actuarial gainof $25 million (Company: $23 million) after
tax was adjusted against retained earnings(refer Table 3).
(iii) Share based payments
Initial reduction in shareholders’ equity.
Higher ongoing expenses.

Under previous AGAAP, the Group
recognised an expense equal to the full fairvalue of all deferred shares issued as partof the short term and long term incentive

90 ANZ Full Financial Report 2006

arrangements. The deferred shares vest
over one to three years and may be forfeitedunder certain conditions. The Group did notrecognise an expense for options issued tostaff or for shares issued under the $1,000
employee share plan. On adoption of
AASB 2: ‘Share-based Payment’, the Group
recognised an expense for all share based
remuneration, including deferred sharesand options, and recognises this expense
over the relevant vesting period.
The Group elected to retrospectively apply
AASB 2 to share based payments granted
prior to 7 November 2002.
On 1 October 2004, this change inaccounting policy resulted in:
the establishment of a share options
reserve of $44 million (Company: $44
million) to reflect the fair value of options
granted to employees;
a reduction in paid up capital of$64 million (Company: $64 million)
representing the fair value of unvested
shares;recognition of a deferred tax liability of$24 million (Company: $21 million);recognition of an amount due fromcontrolled entities of nil (Company:$2 million); anda net decrease to retained earnings of $4
million after tax (Company: net increaseof $1 million after tax) (refer Table 1).
For the AIFRS comparative year ended
30 September 2005, the impact of thechange was:an increase in the share options reserveof $23 million (Company: $23 million);
an increase in paid up capital of $41
million (Company: $41 million);an accrual for $1,000 shares of $16
million (Company: $16 million);a decrease in deferred tax liabilities of$12 million (Company: $12 million) andan increase in deferred tax assets of $5
million (Company: $5 million);
an increase in amounts due fromcontrolled entities of nil (Company:$2 million); anda decrease in profit before tax of $80
million (Company: $78 million) (refer
Tables 2 and 3).

Notes to the financial statements
51: Impact of Adopting Australian Equivalents to International Financial Reporting Standards (AIFRS) (continued)(iv) Securitisation
Additional assets/liabilities recognised for theGroup. Immaterial impact on net profit.

AIFRS has introduced new requirements forthe recognition of financial assets, including
those transferred to special purpose entities
for securitisation. The accounting treatmentof existing securitisations has beenreassessed. Consequently, some vehicles,
which were previously not consolidated,
are being consolidated by the Group.
This resulted in an increase in assets andliabilities recorded on the Balance Sheet of$5 billion as at 1 October 2004 for the Group(refer Table 1). For the comparative AIFRS
year ended 30 September 2005, the Group
recognised a decrease of $388 million inboth assets and liabilities, reflecting the net
impact of repayment and securitisation of
new assets during the year (refer Table 3).
With special purpose entities controlled
by the Group being consolidated, someassets and liabilities (mainly investment
securities and net loans and advances)were transferred to due to and due fromcontrolled entities in the Company’s Balance
Sheet (refer Tables 1 and 3).
The impact on the Income Statement for
the Group is that income and expenses
increased to recognise the income andexpense items recorded within thesevehicles, with the overall impact on net
profit being immaterial.
(v) Foreign currency translation reserve
Initial increase in retained earnings. No change
to shareholders’ equity.

The Group has elected to apply the option
under AASB 121: ‘The Effects of Changes in
Foreign Exchange Rates’, to reset amounts
recorded within the foreign currencytranslation reserve to zero. On 1 October
2004, adopting this election resulted in an
increase in retained earnings of $218 million(Company: $233 million) (refer Table 1).
(vi) Asset revaluation reserve
Initial increase in retained earnings. No change
to shareholders’ equity for the Group. Decreasein shareholders’ equity for the Company.

The Group’s asset revaluation reserve underprevious AGAAP related to revaluations ofland and buildings. The Group has elected
to apply the option under AASB 1: ‘First
time Adoption of Australian Equivalents toInternational Financial Reporting Standards’,
to recognise the value of land and buildings
at deemed cost. As a result, the Group’s
asset revaluation reserve of $31 million
was reset to zero as at 1 October 2004 andadjusted against retained earnings (refer
Table 1).

The Company’s asset revaluation reserveat 30 September 2004 under previous
AGAAP of $415 million consisted of $31
million related to the revaluation of landand buildings and $384 million related to
the revaluation of investments in controlled
entities. The Company has elected torecognise the value of land and buildings
at deemed cost and the $31 million asset
revaluation reserve was reset to zero as at
1 October 2004 and adjusted against
retained earnings.
The Company has under AASB 127:
‘Consolidated and Separate Financial
Statements’, accounted for its investment
in controlled entities at cost. On transition
this involved the reversal of revaluations
under previous AGAAP and a review for
impairment. As a result, the $384 million
asset revaluation reserve was reset to zeroas at 1 October 2004 and adjusted bydecreasing investments in controlled entities
by $457 million and decreasing retained
earnings by $73 million (refer Table 1).
(vii) Taxation
Change in methodology. Immaterial impacts.

Under AASB 112: ‘Income Taxes’, a balance
sheet method of tax effect accounting
has been adopted, replacing the income
statement approach previously used by theGroup.
Income tax expense comprises current anddeferred taxes, with income tax expense
recognised in the Income Statement, or
recognised in equity to the extent that it
relates to items recognised directly in equity.
Deferred tax is calculated using the balance
sheet method by determining temporary
differences between the carrying amount ofassets and liabilities for financial reporting
purposes and the tax base of those assets
and liabilities as used for taxation purposes.
At 1 October 2004, a reduction to deferred
tax liabilities of $18 million (Company:$7 million) was recognised with acorresponding increase of $16 million(Company: $5 million) to retained earnings
and an increase to share capital of $2
million (Company: $2 million) representing
share issue costs previously offset against
share capital (refer Table 1).

91(viii) Software reclassification
Reclassification only.

On transition to AIFRS, capitalised software
assets were reclassified from premises
and equipment to a separately identifiableintangible asset. This resulted in areclassification of $435 million (Company:$380 million) as at 1 October 2004 (refer
Table 1). The amount reclassified decreased
by $48 million (Company: $26 million)
as at 30 September 2005 (refer Table 3).
(ix) Derivatives reclassification
Reclassification only.

At 1 October 2004, there was areclassification of $4.5 billion (Company:$3.7 billion) from other assets and $5.7
billion (Company: $3.9 billion) frompayables and other liabilities, to the new
AIFRS Balance Sheet line items of derivative
financial assets and derivative financial
liabilities respectively (refer Table 1).
(x) Other

The comparative AIFRS year ended 30
September 2005 Income Statement contains
minor leasing and tax remeasurement
adjustments together with the impact of
securitisation and defined benefit schemes
adjustments.
The Balance Sheets, as reflected inTables 1 and 3 also contain other minor
remeasurements.

AIFRS adjustments with effect from
1 October 2005 (refer Table 4)(a) Credit loss provisioning
Initial increase in retained earnings.
Substantial volatility in future earnings.

AASB 139: ‘Financial Instruments:
Recognition and Measurement’ adopts
an incurred loss approach for credit loss
provisioning and provides guidance on
the measurement of incurred losses.
Provisions are raised for losses that havealready been incurred for exposures thatare known to be impaired. The estimatedlosses on these impaired exposures arethen discounted to their present value using
the original effective interest rate. As this
discount unwinds during the period between
recognition of impairment and recovery of
the written down amount, it is recognised in
the Income Statement as interest income.

Notes to the financial statements
51: Impact of Adopting Australian Equivalents to International Financial Reporting Standards (AIFRS) (continued)(a) Credit loss provisioning (continued)

The general provision in the Balance Sheetwas replaced on adoption of AIFRS by acollective provision.
Exposures not individually known to be
impaired are placed into pools of similar
assets with similar risk characteristics to becollectively assessed for losses that havebeen incurred, but not identified yet. The
required provision is estimated on the basisof historical loss experience for assets withcredit risk characteristics similar to thosein the collective pool. The historical loss
experience is adjusted based on current
observable data.
The collective provision under AIFRS
shares the same underlying measurement
objectives as the previous AGAAP
general provision. However, as a resultof the application of a new estimation
methodology, certain judgemental risk
measures have changed.
The Group believes that the resulting
collective provision, while lower than theprevious general provision, comfortably falls
within the probable range of losses thathave been incurred but not identified in our
portfolio.
On adoption of AIFRS, the previous
Economic Loss Provisioning (ELP) charge
to profit was replaced by a charge forindividual provisions on impaired exposures
together with a charge for movements in thecollective provision.
As a result of these changes:
at 1 October 2005, there was an increaseof $1 million (Company: decrease of $4
million) to retained earnings relating
to individual provisions on impaired
exposures as a result of the net impact ofincluding expected interest cash flows in
the calculation of the individual provisionand discounting estimated future cash
flows;
at 1 October 2005, the collective provision
was $288 million (Company: $238 million)
less than the AGAAP general provision.
After tax, this resulted in an increase
to retained earnings of $206 million(Company: $167 million) and a decreasein the foreign currency translation reserveof $23 million (Company: nil) at 1
October 2005;individual provisions and movementsin the collective provision are charged
directly to the Income Statement, driving
increased earnings volatility; andmovements in the collective provision
are driven by changes in portfolio size,
portfolio mix, credit risk and economic
cycles.
(b) Fee revenue – financial service fees
recognised as an adjustment to yield
Initial reduction in retained earnings.
Immaterial impact on net profit.

Under AASB 139: ‘Financial Instruments:
Recognition and Measurement’, fee income(such as loan approval fees) integral
to the yield of an originated financial
instrument (such as loans and advances
measured at amortised cost), net of any
direct incremental costs, are capitalised
and deferred over the expected life of thefinancial instrument.
On 1 October 2005, certain fees thathave previously been recognised in the
Income Statement, were deferred andrecognised against net loans and advancesin the Balance Sheet with a corresponding
reduction to retained earnings of $276
million (Company: $196 million) aftertax. The annual impact on net profit fromthis change is not material. However,there was an increase in interest income(offset by a reduction in fee income) and areclassification to interest earning assetsof customer’s liabilities for acceptancesof $13.4 billion for the Company and theGroup.
(c) Derivative financial instruments,
including hedging
Initial reduction in retained earnings. Volatility
in future earnings. New assets and liabilities
recognised.

At 1 October 2005, recognition of the fairvalue of derivatives relating to securitisation
vehicles and structured finance transactions
reduced retained earnings by $78 million(Company: $68 million). The Group
continues to evaluate hedging relationships
and effectiveness for certain structured
finance transactions, which introduces
volatility within the Income Statement.
AIFRS permits hedge accounting (if certain
criteria are met) for fair value hedges, cash
flow hedges and hedges of investments inforeign operations. Fair value and cash flow
hedge accounting can only be considered
where prospective and retrospective
effectiveness tests are met and thehedge relationship has been adequately
documented. Ineffectiveness precludes theuse of hedge accounting.
At 1 October 2005, the Group designatedcertain fair value and cash flow hedges andfinancial liabilities as fair value throughother income in the profit and loss, resulting

92 ANZ Full Financial Report 2006

in an increase in net assets of $86 million(Company: decrease of $52 million)
represented by a decrease in retained
earnings of $75 million (Company: $63
million), and an increase in reserves of$161 million (Company: $11 million).
(d) Financial instruments classificationand measurement
Certain assets reclassified and measured atfair value. Initial decrease in retained earnings.
Immaterial impact on net profit.

Under AIFRS, certain financial assets of theGroup previously carried at amortised costwere either:reclassified as available-for-sale assets,
resulting in measurement at fair value withmovements being taken to an availablefor-sale equity reserve. This resulted inan available for sale reserve at 1 October2005 of $17 million (Company: $11
million); or
reclassified as financial assets held at fairvalue through the profit and loss, withmovements in fair value through otherincome in the profit and loss resulting in adecrease in retained earnings at 1 October2005 of $3 million (Company: nil).
All derivative financial instruments,
including those used as hedging
instruments, are measured at fair value
and recognised in the Balance Sheet. Thisrequires an adjustment to reflect the market
value of counterparty risk in the fair value ofderivatives, which resulted in a decrease inretained earnings of $29 million (Company:$28 million) at 1 October 2005. (Under
AGAAP, counterparty risk was notionallyallowed for as part of the general provision.)
Financial instruments are measured underAIFRS at bid or offer prices rather than theprevious AGAAP use of mid prices. On 1
October 2005, this change in measurement
resulted in a decrease in retained earnings
of $5 million (Company: $4 million).
(e) Classification of hybrid financial
instruments
Reclassification of ANZ StEPS from equity
to debt. Reduction in net profit.

Under AASB 132: ‘Financial Instruments:
Disclosure and Presentation’, ANZ StEPS,
a hybrid Tier 1 instrument treated as equity
under previous AGAAP, was reclassified as
debt. Prepaid issue costs, offset against
the preference share capital balance underprevious AGAAP, were capitalised andamortised to interest over a five year period
from the date of issue.

Notes to the financial statements
51: Impact of Adopting Australian Equivalents to International Financial Reporting Standards (AIFRS) (continued)
At 1 October 2005, the Company and theGroup’s loan capital increased by $1 billion
representing the transfer of $987 million
from preference share capital to loan capital,
capitalised prepaid issue costs of $11
million, a decrease in the deferred tax assetof $4 million and a decrease in retained
earnings after tax of $6 million representing
amortisation of prepaid issue costs. Ongoing
distributions to the holders of ANZ StEPS
will be treated as an interest expense in the
Income Statement rather than as dividends
under previous AGAAP.

Explanation of material AIFRS adjustments
to the AGAAP cash flow statement as at
30 September 2005
Various assets and liabilities (principallyloans and advances and deposits andother borrowings) which were classified as
investing or financing cash flows, are now
reclassified as operating cash flows underAIFRS. The Company and the Group’s net
cash position has not changed. There are noother material differences between the cash
flow statement presented under AIFRS andthat presented under previous AGAAP.

(f) Accounting for INGA
Initial reduction in retained earnings andincrease in notional goodwill for the Group.
Reduction in earnings volatility.

Under AASB 131: ‘Interests in Joint
Ventures’, and in line with previous AGAAP,
the Group is required to equity account for
its interest in INGA. The adoption of AIFRS
by INGA resulted in the following significant
measurement and recognition differences toprevious AGAAP:
reclassification and measurement ofshareholder investments as available-forsale assets. This change in measurement
results in a reduction in investment return
volatility experienced by INGA, as only
realised gains and losses are reported in
its net profit;
increased policy liabilities resulting from achange in the discount rates applied in theactuarial calculation of policy liabilities
and the separate presentation and change
in basis of deferred acquisition costs(largely commissions) previously included
within net policy liabilities (total impact isa decrease to retained earnings of $107
million) for the Group;
initial entry fee income previously taken
upfront is deferred and amortised toincome over time (total impact is adecrease to retained earnings of $23
million for the Group); andother sundry items (total impact is adecrease to retained earnings of $16
million for the Group)
Under AIFRS, the excess of the market value
over net assets (EMVONA) for INGA’s life
insurance controlled entities is no longer
recognised. Accordingly, an adjustment
has been made to reclassify $72 million
from intangibles to notional goodwill
for the Group.
The Group’s 49% share of INGA’s net AIFRS
adjustment is a decrease of $146 million
to retained earnings and an increase of $8
million to the available-for-sale reserve,
resulting in a reduction in the carrying valueof the Group’s interest in INGA of $138
million as at 1 October 2005.
93

Notes to the financial statements
51: Impact of Adopting Australian Equivalents to International Financial Reporting Standards (AIFRS) (continued)
Reconciliation tables
References are to the notes on pages 90 to 93.
TABLE 1: BALANCE SHEET AS AT 1 OCTOBER 2004
Defined benefit
superannuation
schemes

Share
based
payments

Securitisation
vehiclesnote (ii)note (iii)note (iv)

$m

$m

$m

$m

AssetsLiquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Investment securities
Net loans and advances
Customer’s liability for acceptances
Regulatory deposits
Shares in associates and joint venture entities
Deferred tax assets
Goodwill and other intangible assets
Other assets
Premises and equipment

6,363
4,781
5,478
–
7,746
204,962
12,466
176
1,960
1,454
3,269
9,158
1,532

–
–
–
–
–
–
–
–
–
57
–
2
–

–
–
–
–
–
–
–
–
–
–
–
–
–

2
–
–
(8)
2,797
2,144
–
–
–
2
–
89
–

Total assets

259,345

59

–

5,026

Liabilities
Due to other financial institutions
Deposits and other borrowings
Derivative financial instruments
Liability for acceptances
Income tax liabilities
Payables and other liabilities
Provisions
Bonds and notes
Loan capital

7,349
168,557–
12,466
1,914
14,212845
27,602
8,475

–
–
–
–
–
200
–
–
–

–
–
–
–
24
–
–
–
–

–
5,037
(2)
–
–
(6)
–
–
–

Total liabilities

241,420

200

24

5,029

Net assets

17,925

(141)

(24)

(3)

8,005
987

–
–

(64)
–

–
–

218
31
–
330

–
–
–
–

–
–
44
–

–
–
–
–

Total reserves
Retained earnings

579
8,336

–
(141)

44
(4)

–
(3)

Share capital and reserves attributable
to shareholders of the Company
Minority interests

17,907
18

(141)
–

(24)
–

(3)
–

Total equity

17,925

(141)

(24)

(3)

AGAAP1

Consolidated

EquityOrdinary share capitalPreference share capital
Reserves
Foreign currency translation reserve
Asset revaluation reserve
Share options reserve
Other reserves

1 Reported financial position as at 30 September 2004.
2 Other includes $39 million relating to the reclassification of legacy foreign currency translation and asset revaluation balances at 1 October 2004 and goodwill adjustments (note(i)).

94 ANZ Full Financial Report 2006

Effect of transition to AIFRS

ResettingTaxation

Softwarereclassification

Derivatives
reclassification

Other2

Total AIFRS
adjustments

notes (v) & (vi)note (vii)note (viii)

note (ix)note (x)

AIFRS

$m

$m

$m

$m

$m

$m

$m

–
–
–
–
–
–
–
–
–
–
–
–
–

–
–
–
–
–
–
–
–
–
–
–
–
–

–
–
–
–
–
–
–
–
–
–
435
–
(435)

–
–
–
4,456
–
–
–
–
–
–
–
(4,456)
–

–
–
–
–
–
–
–
–
9
1
(5)
–
–

2
–
–
4,448
2,797
2,144
–
–
9
60
430
(4,365)
(435)

6,365
4,781
5,478
4,448
10,543
207,106
12,466
176
1,969
1,514
3,699
4,793
1,097

–

–

–

–

5

5,090

264,435

–
–
–
–
–
–
–
–
–

–
–
–
–
(18)
–
–
–
–

–
–
–
–
–
–
–
–
–

–
–
5,656
–
–
(5,656)
–
–
–

–
–
–
–
1
50
–
–
–

–
5,037
5,654
–
7
(5,412)
–
–
–

7,349
173,594
5,654
12,466
1,921
8,800
845
27,602
8,475

–

(18)

–

–

51

5,286

246,706

–

18

–

–

(46)

(196)

17,729

–
–

2
–

–
–

–
–

–
–

(62)
–

7,943
987

(218)
(31)
–
–

–
–
–
–

–
–
–
–

–
–
–
–

–
–
–
–

(218)
(31)
44
–

–
–
44
330

(249)
249

–
16

–
–

–
–

–
(46)

(205)
71

374
8,407

–
–

18
–

–
–

–
–

(46)
–

(196)
–

17,711
18

–

18

–

–

(46)

(196)

17,72995

Notes to the financial statements
51: Impact of Adopting Australian Equivalents to International Financial Reporting Standards (AIFRS) (continued)
Reconciliation tables (continued)
References are to the notes on pages 90 to 93.
TABLE 1: BALANCE SHEET AS AT 1 OCTOBER 2004 (CONTINUED)
Defined benefit
superannuation
schemes

Share
based
payments

Securitisation
vehiclesnote (ii)note (iii)note (iv)

$m

$m

$m

$m

AssetsLiquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Investment securities
Net loans and advances
Customer’s liability for acceptances
Due from controlled entities
Regulatory deposits
Shares in controlled entities and associates
Deferred tax assets
Goodwill and other intangible assets
Other assets
Premises and equipment

3,744
2,537
4,783
–
6,117
133,767
12,466
7,338
144
11,517
737
74
5,751
826

–
–
–
–
–
–
–
–
–
–
57
–
–
–

–
–
–
–
–
–
–
2
–
–
–
–
–
–

–
–
–
(20)
(196)
(136)
–
346
–
–
2
–
93
–

Total assets

189,80157

2

89

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

5,860
99,811–
12,4669,544
1,251
10,890618
25,034
7,680

–
–
–
–
–
–
200
–
–
–

–
–
–
–
–
21
–
–
–
–

–
–
(2)
–
105
–
(14)
–
–
–

Total liabilities

173,154

200

21

89

Net assets

16,647

(143)

(19)

–

8,005
987

–
–

(64)
–

–
–

233
415
–
11

–
–
–
–

–
–
44
–

–
–
–
–

Total reserves
Retained earnings

659
6,996

–
(143)

44
1

–
–

Total equity

16,647

(143)

(19)

–

AGAAP1The Company

EquityOrdinary share capitalPreference share capital
Reserves
Foreign currency translation reserve
Asset revaluation reserve
Share options reserve
Other reserves

1 Reported financial position as at 30 September 2004.
2 Other includes $42 million relating to the reclassification of legacy foreign currency translation and asset revaluation balances at 1 October 2004 and goodwill adjustments (note(i)).

96 ANZ Full Financial Report 2006

Effect of transition to AIFRS

ResettingTaxation

Softwarereclassification

Derivatives
reclassification

Other2

Total AIFRS
adjustments

notes (v) & (vi)note (vii)note (viii)

note (ix)note (x)

AIFRS

$m

$m

$m

$m

$m

$m

$m

–
–
–
–
–
–
–
–
–
(457)
–
–
–
–

–
–
–
–
–
–
–
–
–
–
–
–
–
–

–
–
–
–
–
–
–
–
–
–
–
380
–
(380)

–
–
–
3,738
–
–
–
–
–
–
–
–
(3,738)
–

–
–
–
–
–
–
–
(5)
–
–
1
(6)
1
–

–
–
–
3,718
(196)
(136)
–
343
–
(457)
60
374
(3,644)
(380)

3,744
2,537
4,783
3,718
5,921
133,631
12,466
7,681
144
11,060
797
448
2,107
446

(457)

–

–

–

(9)

(318)

189,483

–
–
–
–
–
–
–
–
–
–

–
–
–
–
–
(7)
–
–
–
–

–
–
–
–
–
–
–
–
–
–

–
–
3,924
–
–
–
(3,924)
–
–
–

–
–
–
–
–
–
52
–
–
–

–
–
3,922
–
105
14
(3,686)
–
–
–

5,860
99,811
3,922
12,466
9,649
1,265
7,204
618
25,034
7,680

–

(7)

–

–

52

355

173,509

(457)

7

–

–

(61)

(673)

15,974

–
–

2
–

–
–

–
–

–
–

(62)
–

7,943
987

(233)
(415)
–
–

–
–
–
–

–
–
–
–

–
–
–
–

–
–
–
–

(233)
(415)
44
–

–
–
44
11

(648)
191

–
5

–
–

–
–

–
(61)

(604)
(7)

55
6,989

(457)

7

–

–

(61)

(673)

15,97497

Notes to the financial statements
51: Impact of Adopting Australian Equivalents to International Financial Reporting Standards (AIFRS) (continued)
Reconciliation tables (continued)
References are to the notes on pages 90 to 93.
TABLE 2: INCOME STATEMENT FOR THE YEAR ENDED 30 SEPTEMBER 2005

Effect of transition to AIFRS

AGAAPGoodwill
amortisation

Share based
payments

Other1

note (i)note (iii)note (ii) & (x)Total AIFRS
adjustments

AIFRS

Consolidated

$m

$m

$m

$m

$m

$m

Total income

20,979

45

–

273

318

21,297

Interest income
Interest expense

17,427(11,629)

–
–

–
–

292
(272)

292
(272)

17,719(11,901)

Net interest income
Other operating income

5,798
3,552

–
45

–
–

20
(19)

20
26

5,818
3,578

Operating income
Operating expenses

9,350(4,515)

45
179

–
(80)

1
(2)

46
97

9,396
(4,418)

Profit before provision for credit impairment
and income tax
Provision for credit impairment

4,835
(580)

224
–

(80)
–

(1)
–

143
–

4,978
(580)

Profit before income tax
Income tax expense

4,255(1,234)

224
–

(80)
17

(1)
(3)

143
14

4,398
(1,220)

Profit for the year
Profit attributable to minority interests
Profit attributable to shareholders of the Company

3,021
(3)
3,018

224
–
224

(63)
–
(63)

(4)
–
(4)

157
–
157

3,178
(3)
3,175

1 Mainly relates to the impact of additional securitisation vehicles brought onto Balance Sheet.

98 ANZ Full Financial Report 2006

Notes to the financial statements
51: Impact of Adopting Australian Equivalents to International Financial Reporting Standards (AIFRS) (continued)
Reconciliation tables (continued)
References are to the notes on pages 90 to 93.
TABLE 2: INCOME STATEMENT FOR THE YEAR ENDED 30 SEPTEMBER 2005 (CONTINUED)

Effect of transition to AIFRS

AGAAPGoodwill
amortisation

Share based
payments

Other1

note (i)note (iii)note (ii) & (x)Total AIFRS
adjustments

AIFRS

The Company

$m

$m

$m

$m

$m

$m

Total income

14,042

–

(7)

2

(5)

14,037

Interest income
Interest expense

10,946(7,646)

–
–

–
–

2
(2)

2
(2)

10,948(7,648)Net interest income
Other operating income

3,300
3,096

–
–

–
(7)

–
–

–
(7)

3,300
3,089

Operating income
Operating expenses

6,396(3,064)

–
8

(7)
(71)

–
1

(7)
(62)

6,389
(3,126)

Profit before provision for credit impairment
and income tax
Provision for credit impairment

3,332

8

(78)

1

(69)

3,263

(388)

–

–

–

–

(388)

Profit before income tax
Income tax expense

2,944
(717)

8
–

(78)
17

1
–

(69)
17

2,875
(700)

Profit for the year

2,227

8

(61)

1

(52)

2,175

99

Notes to the financial statements
51: Impact of Adopting Australian Equivalents to International Financial Reporting Standards (AIFRS) (continued)
Reconciliation tables (continued)
References are to the notes on pages 90 to 93.
TABLE 3: BALANCE SHEET AS AT 30 SEPTEMBER 2005
1 October2004 AIFRS
adjustments

Goodwill

Defined benefit
superannuation
schemes

From Table 1

note (i)note (ii)

$m

$m

$m

$m

AssetsLiquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Investment securities
Net loans and advances
Customer’s liability for acceptances
Regulatory deposits
Shares in associates and joint venture entities
Deferred tax assets
Goodwill and other intangible assets
Other assets
Premises and equipment

11,600
6,348
6,285
6,531
6,941
230,952
13,449
159
1,872
1,337
2,898
6,153
1,441

2
–
–
(8)
2,797
2,144
–
–
9
60
430
91
(435)

–
–
–
–
–
–
–
–
45
–
179
–
–

–
–
–
–
–
–
–
–
–
(13)
–
6
–

Total assets

295,966

5,090

224

(7)

Liabilities
Due to other financial institutions
Deposits and other borrowings
Derivative financial instruments
Liability for acceptances
Income tax liabilities
Payables and other liabilities
Provisions
Bonds and notes
Loan capital

12,027
185,693
7,008
13,449
1,797
7,380
914
39,073
9,137

–
5,037
(2)
–
7
244
–
–
–

–
–
–
–
–
–
–
–
–

–
–
–
–
3
(34)
–
–
–

Total liabilities

276,478

5,286

–

(31)

Net assets

19,488

(196)

224

24

8,074
1,858

(62)
–

–
–

–
–

(225)
31
–
330

(218)
(31)
44
–

–
–
–
–

–
–
–
–

Total reserves
Retained earnings
Actuarial gain on defined benefit plans

136
9,393
–

(205)
71
–

–
224
–

–
(1)
25

Total retained earnings
Share capital and reserves attributable
to shareholders of the Company
Minority interests

9,393

71

224

24

19,461
27

(196)
–

224
–

24
–

Total equity

19,488

(196)

224

24

AGAAP1

Consolidated

EquityOrdinary share capitalPreference share capital
Reserves
Foreign currency translation reserve
Asset revaluation reserve
Share options reserve
Other reserves

1 Derivative financial assets of $3.7 billion have been reclassified from other assets and derivative financial liabilities of $4.2 billion have been reclassified from payables and other liabilities, to the new
AIFRS balance sheet line items of derivative financial assets and derivative liabilities respectively. In addition derivative financial assets and liabilities not intended to be settled on a net basis havebeen grossed up by $2.8 billion compared to the 30 September 2005 reported previous AGAAP Balance Sheet to enhance comparability.

100 ANZ Full Financial Report 2006

Effect of transition to AIFRS
Share
based
payments

Securitisation
vehiclesSoftwarereclassification

Other

note (iii)note (iv)note (viii)

note (x)

$m

$m

$m

–
–
–
–
–
–
–
–
–
5
–
–
–

(1)
–
–
(12)
304
(606)
–
–
–
–
–
(73)
–

5

Total AIFRS
adjustments

AIFRS

$m

$m

$m

–
–
–
–
–
–
–
–
–
–
(48)
–
48

–
–
–
–
–
–
–
–
–
–
(1)
(4)
–

1
–
–
(20)
3,101
1,538
–
–
54
52
560
20
(387)

11,601
6,348
6,285
6,511
10,042
232,490
13,449
159
1,926
1,389
3,458
6,173
1,054

(388)

–

(5)

4,919

300,885

–
–
–
–
(12)
16
–
–
–

–
(408)
–
–
4
16
–
–
–

–
–
–
–
–
–
–
–
–

–
–
–
–
2
(4)
–
–
–

–
4,629
(2)
–
4
238
–
–
–

12,027
190,322
7,006
13,449
1,801
7,618
914
39,073
9,137

4

(388)

–

(2)

4,869

281,347

1

–

–

(3)

50

19,538

41
–

–
–

–
–

–
–

(21)
–

8,053
1,858

–
–
23
–

–
–
–
–

–
–
–
–

–
–
–
–

(218)
(31)
67
–

(443)
–
67
330

23
(63)
–

–
–
–

–
–
–

–
(3)
–

(182)
228
25

(46)
9,621
25

(63)

–

–

(3)

253

9,646

1
–

–
–

–
–

(3)
–

50
–

19,511
27

1

–

–

(3)

50

19,538101

Notes to the financial statements
51: Impact of Adopting Australian Equivalents to International Financial Reporting Standards (AIFRS) (continued)
Reconciliation tables (continued)
References are to the notes on pages 90 to 93.
TABLE 3: BALANCE SHEET AS AT 30 SEPTEMBER 2005 (CONTINUED)
1 October2004 AIFRS
adjustments

Goodwill

Defined benefit
superannuation
schemes

From Table 1

note (i)note (ii)

$m

$m

$m

$m

AssetsLiquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Investment securities
Net loans and advances
Customer’s liability for acceptances
Due from controlled entities
Regulatory deposits
Shares in controlled entities and associates
Deferred tax assets
Goodwill and other intangible assets
Other assets
Premises and equipment

7,191
3,452
5,309
6,047
5,407
153,461
13,4498,309
113
12,551
754
66
2,832
849

–
–
–
(20)
(196)
(136)
–
343
–
(457)
60
374
94
(380)

–
–
–
–
–
–
–
–
–
–
–
8
–
–

–
–
–
–
–
–
–
–
–
–
(13)
–
–
–

Total assets

219,790

(318)

8

(13)

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

9,029
113,089
6,324
13,44911,600
1,487
5,247
650
32,739
8,452

–
–
(2)
–
105
14
238
–
–
–

–
–
–
–
–
–
–
–
–
–

–
–
–
–
–
–
(37)
–
–
–

Total liabilities

202,066

355

–

(37)

Net assets

17,724

(673)

8

24

8,074
1,858

(62)
–

–
–

–
–

20
415
–
11

(233)
(415)
44
–

–
–
–
–

–
–
–
–

Total reserves
Retained earnings
Actuarial gain on defined benefit plans

446
7,346
–

(604)
(7)
–

–
8
–

–
1
23

Total retained earnings

7,346

(7)

8

24

Total equity

17,724

(673)

8

24

AGAAP1The Company

EquityOrdinary share capitalPreference share capital
Reserves
Foreign currency translation reserve
Asset revaluation reserve
Share options reserve
Other reserves

1 Derivative financial assets of $3.2 billion have been reclassified from other assets and derivative financial liabilities of $3.5 billion have been reclassified from payables and other liabilities, to the new
AIFRS balance sheet line items of derivative financial assets and derivative liabilities respectively. In addition derivative financial assets and liabilities not intended to be settled on a net basis havebeen grossed up by $2.8 billion compared to the 30 September 2005 reported previous AGAAP Balance Sheet to enhance comparability.

102 ANZ Full Financial Report 2006

Effect of transition to AIFRS
Share
based
payments

Securitisation
vehiclesSoftwarereclassification

Other

note (iii)note (iv)note (viii)

note (x)

$m

$m

$m

–
–
–
–
–
–
–
2
–
–
5
–
–
–

–
–
–
–
90
36
–
(29)
–
–
–
–
(97)
–

7

Total AIFRS
adjustments

AIFRS

$m

$m

$m

–
–
–
–
–
–
–
–
–
–
–
(26)
–
26

–
–
–
–
–
–
–
–
–
(4)
–
–
4
–

–
–
–
(20)
(106)
(100)
–
316
–
(461)
52
356
1
(354)

7,191
3,452
5,309
6,027
5,301
153,361
13,4498,625
113
12,090
806
422
2,833
495

–

–

–

(316)

219,474

–
–
–
–
–
(12)
16
–
–
–

–
–
–
–
(11)
–
11
–
–
–

–
–
–
–
–
–
–
–
–
–

–
–
–
–
–
3
(3)
–
–
–

–
–
(2)
–
94
5
225
–
–
–

9,029
113,089
6,322
13,449
11,694
1,492
5,472
650
32,739
8,452

4

–

–

–

322

202,388

3

–

–

–

(638)

17,086

41
–

–
–

–
–

–
–

(21)
–

8,053
1,858

–
–
23
–

–
–
–
–

–
–
–
–

–
–
–
–

(233)
(415)
67
–

(213)
–
67
11

23
(61)
–

–
–
–

–
–
–

–
–
–

(581)
(59)
23

(135)
7,287
23

(61)

–

–

–

(36)

7,310

3

–

–

–

(638)

17,086103

Notes to the financial statements
51: Impact of Adopting Australian Equivalents to International Financial Reporting Standards (AIFRS) (continued)
Reconciliation tables (continued)
References are to the notes on pages 90 to 93.
TABLE 4: BALANCE SHEET AS AT 1 OCTOBER 2005

30 September
2005 AIFRS
adjustments

Credit loss
provisioningFeerevenue

Derivative
accounting
includinghedging

From Table 3

note (a)note (b)note (c)

$m

$m

$m

$m

$m

AssetsLiquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Investment securities
Net loans and advances
Customer’s liability for acceptances
Regulatory deposits
Shares in associates and joint venture entities
Deferred tax assets
Goodwill and other intangible assets
Other assets
Premises and equipment

11,600
6,348
6,285
6,531
–
6,941
230,952
13,449
159
1,872
1,337
2,898
6,153
1,441

1
–
–
(20)
–
3,101
1,538
–
–
54
52
560
20
(387)

–
–
–
–
–
–
289
–
–
–
(105)
–
–
–

–
–
–
–
–
–
(382)
–
–
–
121
–
(15)
–

–
–
–
275
1
(11)
(214)
–
–
–
49
–
(11)
–

Total assets

295,966

4,919

184

(276)

89

Liabilities
Due to other financial institutions
Deposits and other borrowings
Derivative financial instruments
Liability for acceptances
Income tax liabilities
Payables and other liabilities
Provisions
Bonds and notes
Loan capital

12,027
185,693
7,008
13,449
1,797
7,380
914
39,073
9,137

–
4,629
(2)
–
4
238
–
–
–

–
–
–
–
–
–
–
–
–

–
–
–
–
–
–
–
–
–

–
(70)
35
–
54
4
–
(7)
65

Total liabilities

276,478

4,869

–

–

81

Net assets

19,488

50

184

(276)

8

8,074
1,858

(21)
–

–
–

–
–

–
–

(225)
31
–
–
–
330

(218)
(31)
67
–
–
–

(23)
–
–
–
–
–

–
–
–
–
–
–

–
–
–
162
(1)
–

Total reserves
Retained earnings
Actuarial gain on defined benefit plans

136
9,393
–

(182)
228
25

(23)
207
–

–
(276)
–

161
(153)
–

Total retained earnings
Share capital and reserves attributable
to shareholders of the Company
Minority interests

9,393

253

207

(276)

(153)

19,461
27

50
–

184
–

(276)
–

8
–

Total equity

19,488

50

184

(276)

8

AGAAP1

Consolidated

EquityOrdinary share capitalPreference share capital
Reserves
Foreign currency translation reserve
Asset revaluation reserve
Share options reserve
Cashflow hedging reserve
Available-for-sale reserve
Other reserves

1 Reported financial position as at 30 September 2005. Derivative financial assets of $3.7 billion have been reclassified from other assets and derivative financial liabilities of $4.2 billion have been
reclassified from payables and other liabilities, to the new AIFRS balance sheet line items of derivative financial assets and derivative liabilities respectively. In addition derivative financial assets andliabilities not intended to be settled on a net basis have been grossed up by $2.8 billion compared to the 30 September 2005 reported previous AGAAP Balance Sheet to enhance comparability.
2 Includes goodwill adjustments (note(i)).

104 ANZ Full Financial Report 2006

Effect of transition to AIFRS
Effect of transition on adoption of AASB 4, AASB 132 and AASB 139

Financial
instruments
remeasurement

Reclassificationof StEPS

Accounting
for INGA

note (d)note (e)note (f)

$m

$m

–
–
(112)
(42)
11,153(10,031)(1,129)
–
–
–
–
–
(38)
–

Other2

Total

Total AIFRS
adjustments

AIFRS

$m

$m

$m

$m

$m

–
–
–
–
–
–
–
–
–
–
(4)
–
11
–

–
–
–
–
–
–
–
–
–
(138)
–
–
–
–

–
–
–
–
–
–
–
–
–
–
3
(15)
(2)
–

–
–
(112)
233
11,154(10,042)(1,436)
–
–
(138)
64
(15)
(55)
–

1
–
(112)
213
11,154(6,941)
102
–
–
(84)
116
545
(35)
(387)

11,601
6,348
6,173
6,744
11,154–
231,054
13,449
159
1,788
1,453
3,443
6,118
1,054

(199)

7

(138)

(14)

(347)

4,572

300,538

–
–
6
–
(20)
(131)
–
–
–

–
–
–
–
–
–
–
–
1,000

–
–
–
–
–
–
–
–
–

–
–
–
–
(9)
(1)
16
–
–

–
(70)
41
–
25
(128)
16
(7)
1,065

–
4,559
39
–
29
110
16
(7)
1,065

12,027
190,252
7,047
13,449
1,826
7,490
930
39,066
10,202

(145)

1,000

–

6

942

5,811

282,289

(54)

(993)

(138)

(20)

(1,289)(1,239)18,249

–
–

–
(987)

–
–

–
–

–
(987)

(21)
(987)

8,053
871

–
–
–
–
(17)
–

–
–
–
–
–
–

–
–
–
–
8
–

–
–
–
–
–
–

(23)
–
–
162
(10)
–

(241)
(31)
67
162
(10)
–

(466)
–
67
162
(10)
330

(17)
(37)
–

–
(6)
–

8
(146)
–

–
(20)
–

129
(431)
–

(53)
(203)
25

83
9,190
25

(37)

(6)

(146)

(20)

(431)

(178)

9,215

(54)
–

(993)
–

(138)
–

(20)
–

(1,289)–(1,239)–18,222
27

(54)

(993)

(138)

(20)

(1,289)(1,239)18,249105

Notes to the financial statements
51: Impact of Adopting Australian Equivalents to International Financial Reporting Standards (AIFRS) (continued)
Reconciliation tables (continued)
References are to the notes on pages 90 to 93.
TABLE 4: BALANCE SHEET AS AT 1 OCTOBER 2005 (CONTINUED)

30 September
2005 AIFRS
adjustments

Credit loss
provisioningFeerevenue

Derivative
accounting
includinghedging

From Table 3

note (a)note (b)note (c)

$m

$m

$m

$m

$m

AssetsLiquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Investment securities
Net loans and advances
Customer’s liability for acceptances
Due from controlled entities
Regulatory deposits
Shares in controlled entities and associates
Deferred tax assets
Goodwill and other intangible assets
Other assets
Premises and equipment

7,191
3,452
5,309
6,047
–
5,407
153,461
13,4498,309
113
12,551
754
66
2,832
849

–
–
–
(20)
–
(106)
(100)
–
316
–
(461)
52
356
1
(354)

–
–
–
–
–
–
234
–
–
–
–
(71)
–
–
–

–
–
–
–
–
–
(283)
–
–
–
–
87
–
–
–

–
–
–
(11)
–
–
(42)
–
1
–
–
23
–
–
–

Total assets

219,790

(316)

163

(196)

(29)

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

9,029
113,089
6,324
13,44911,600
1,487
5,247
650
32,739
8,452

–
–
(2)
–
94
5
225
–
–
–

–
–
–
–
–
–
–
–
–
–

–
–
–
–
–
–
–
–
–
–

–
–
56
–
–
(27)
–
–
(7)
69

Total liabilities

202,066

322

–

–

91

Net assets

17,724

(638)

163

(196)

(120)

8,074
1,858

(21)
–

–
–

–
–

–
–

20
415
–
–
–
11

(233)
(415)
67
–
–
–

–
–
–
–
–
–

–
–
–
–
–
–

–
–
–
11
–
–

Total reserves
Retained earnings
Actuarial gain on defined benefit plans

446
7,346
–

(581)
(59)
23

–
163
–

–
(196)
–

11
(131)
–

Total retained earnings

7,346

(36)

163

(196)

(131)

Total equity

17,724

(638)

163

(196)

(120)

AGAAP1The Company

EquityOrdinary share capitalPreference share capital
Reserves
Foreign currency translation reserve
Asset revaluation reserve
Share options reserve
Cashflow hedging reserve
Available-for-sale reserve
Other reserves

1 Reported financial position as at 30 September 2005. Derivative financial assets of $3.2 billion have been reclassified from other assets and derivative financial liabilities of $3.5 billion have been
reclassified from payables and other liabilities, to the new AIFRS balance sheet line items of derivative financial assets and derivative liabilities respectively. In addition derivative financial assets andliabilities not intended to be settled on a net basis have been grossed up by $2.8 billion compared to the 30 September 2005 reported previous AGAAP Balance Sheet to enhance comparability.
2 Includes goodwill adjustments (note(i)).

106 ANZ Full Financial Report 2006

Effect of transition to AIFRS
Effect of transition on adoption of AASB 4, AASB 132 and AASB 139

Financial
instruments
remeasurement

Reclassificationof StEPS

note (d)note (e)

$m

$m

–
–
–
–
–
–
–
–
–
–
–

Other2

Total

Total AIFRS
adjustments

AIFRS

$m

$m

$m

$m

–
–
(112)
(49)
6,434
(5,301)(1,042)
–
1
–
–
41
(15)
50
–

–
–
(112)
(69)
6,434
(5,407)(1,142)
–
317
–
(461)
93
341
51
(354)

7,191
3,452
5,197
5,978
6,434
–
152,319
13,4498,626
113
12,090
847
407
2,883
495

–
–
(112)
(38)
6,434
(5,301)
(951)
–
–
–
–
5
–
41
–

(4)
–
11
–

–
–
–
–
–
–
–
–
–
–
–
1
(15)
(2)
–

78

7

(16)

7

(309)

219,481

–
–
5
–
–
(13)
129
–
–
–

–
–
–
–
–
–
–
–
–
1,000

–
–
–
–
–
(9)
(23)
15
–
–

–
–
61
–
–
(49)
106
15
(7)
1,069

–
–
59
–
94
(44)
331
15
(7)
1,069

9,029
113,089
6,383
13,449
11,694
1,443
5,578
665
32,732
9,521

121

1,000

(17)

1,195

1,517

203,583

(43)

(993)

1

(1,188)(1,826)

15,898

–
–

–
(987)

–
–

–
(987)

(21)
(987)

8,053
871

–
–
–
–
(11)
–

–
–
–
–
–
–

–
–
–
–
–
–

–
–
–
11
(11)
–

(233)
(415)
67
11
(11)
–

(213)
–
67
11
(11)
11

(11)
(32)
–

–
(6)
–

–
1
–

–
(201)
–

(581)
(260)
23

(135)
7,086
23

(32)

(6)

1

(201)

(237)

7,109

(43)

(993)

1

(1,188)(1,826)

15,898107

Notes to the financial statements
52: Events Since the End of the Financial Year
On 1 September 2006, the Group announced that it had agreed to sell Esanda Fleetpartners in Australia and New Zealand to Nikko Principal
Investments Australia, the Australian private equity arm of Nikko Cordial Corporation for approximately $380 million. The profit after tax
on sale is anticipated to be approximately $130 million. This sale was completed during October 2006. Esanda Fleetpartners contributed
approximately $20 million to the Group’s net profit after tax for the year ended 30 September 2006.
There have been no other significant events from 30 September 2006 to the date of this report.

108 ANZ Full Financial Report 2006

Notes to the financial statements
This page has been left blank intentionally109

Directors’ Declaration
The directors of Australia and New Zealand Banking Group Limited declare that:a) in the directors’ opinion, the financial statements and notes of the Company and the consolidated entity have been prepared in accordancewith the Corporations Act 2001, including that they:i) comply with applicable Australian Accounting Standards, and other mandatory professional reporting requirements; andii) give a true and fair view of the financial position of the Company and of the consolidated entity as at 30 September 2006 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, the remuneration disclosures that are contained on pages 70 to 91 of the Remuneration Report in the Directors’
Report located in Part 2 of 2 of the Company’s Concise Annual Report 2006 comply with Australian Accounting Standard AASB 124 “Related
Party Disclosures” when read in conjunction with class order 06/50 issued by the Australian Securities and Investments Commission; andc) the directors have received the declarations required by section 295A of the Corporations Act 2001; andd) in the directors’ opinion, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they becomedue and payable; ande) the Company and certain of its wholly owned controlled entities (listed in note 45) have executed a Deed of Cross Guarantee enabling themto take advantage of the accounting and audit relief offered by class order 98/1418 (as amended), issued by the Australian Securities andInvestments Commission. The nature of the Deed of Cross Guarantee is to guarantee each creditor payment in full of any debt in accordancewith the terms of the Deed of Cross Guarantee. At the date of this declaration, there are reasonable grounds to believe that the Company andits controlled entities which executed the Deed of Cross Guarantee are able, as an economic entity, to meet any obligations or liabilities towhich they are, or may become, subject by virtue of the Deed of Cross Guarantee.
Signed in accordance with a resolution of the directors.

Charles Goode
Director

John McFarlane
Chief Executive Officer

1 November 2006

110 ANZ Full Financial Report 2006

Independent audit report to the members ofAustralia and New Zealand Banking Group Limited
SCOPE
We have audited the financial report of Australia and New Zealand Banking Group Limited (“the Company”) for the financial year ended 30
September 2006, consisting of the income statements, statements of recognised income and expense, balance sheets, statements of cash
flow, accompanying notes 1 to 52 and the directors’ declaration set out on pages 2 to 110. 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.
We have audited the disclosures made by the Company, as permitted by the Corporations Regulations 2001, about the remuneration of
directors and executives (“remuneration disclosures”), including those required by Australian Accounting Standard AASB 124 Related
Party Disclosures, under the heading “Remuneration report” on pages 70 to 91 of the director’s report and not in the financial report. The
Company’s directors are responsible for the financial report and the Remuneration report. The directors are also responsible for preparing therelevant reconciling information regarding the adjustments required under the Australian Accounting Standard AASB 1 First-time Adoption ofAustralian equivalents to International Financial Reporting Standards. We have conducted an independent audit of this financial report and the
remuneration report in order to express an opinion on them to the members of the Company.
Our audit has been conducted in accordance with Australian Auditing Standards to provide reasonable assurance whether the financial report isfree of material misstatement and the remuneration disclosures comply with AASB 124. Our procedures included examination, on a test basis,of evidence supporting the amounts and other disclosures in the financial report and the remuneration report, and the evaluation of accounting
policies and significant accounting estimates. These procedures have been undertaken to form an opinion whether, in all material respects,
the financial report is presented fairly in accordance with Australian 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 the Company’s andthe consolidated entity’s financial position, and performance as represented by the results of their operations and their cash flow and whether
the remuneration disclosures comply with Australian Accounting Standard AASB 124.
The audit opinion expressed in this report has been formed on the above basis.
AUDIT OPINION
In our opinion:(1) 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 the consolidated entity’s financial position as at 30 September 2006 and of theirperformance for the year ended on that date; andii) complying with Australian Accounting Standards and the Corporations Regulations 2001; andb) other mandatory financial reporting requirements in Australia; and(2) the Remuneration report on pages 70 to 91 of the director’s report complies with Australian Accounting Standard AASB 124 Related
Party Disclosures.

KPMG
Melbourne, Australia
1 November 2006

Michelle Hinchliffe
Partner111

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 individual and collective
provisions.
Governments
and other
official
institutions
$m

Banks
and otherfinancialinsitutions
$m

Other
commercial
and industrial
$m

Total
$m

% of
Group’sassetsAt 30 September 2006
United Kingdom
China
USA

19
4
14

2,231
3,166
2,753

2,685
372
459

4,935
3,542
3,226

1.5
1.1
1.0

At 30 September 2005
USA
United Kingdom
China

158
94
4

3,671
2,192
2,393

878
2,320
159

4,707
4,606
2,556

1.6
1.5
0.8

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 2006.

Australia
Certificates of deposit
Term deposits

New ZealandCertificates of deposit
Term deposits

Overseas Markets
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

6,548
17,577

1,526
2,287

556
1,481

8,020
126

16,65021,471

24,125

3,813

2,037

8,146

38,121

2,713
10,776

295
3,167

349
2,274

69
1,758

3,426
17,975

13,489

3,462

2,623

1,827

21,401

2,539
8,583

87
438

504
429

17
175

3,147
9,625

11,122

525

933

192

12,772

48,736

7,800

5,593

10,16572,294112 ANZ Full Financial Report 2006

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 averageinterest earning assets and average interest bearing liabilities. The variance caused by the change of both volume and rate has been allocatedin proportion to the relationship of the absolute dollar amounts of each change to the total.
Volume
$m

Rate
$m

31
–
58

(2)
20
42

302
15
(4)

2006 over 2005
Change due to
Other
$m

2005 over 2004
Change due to
Rate
$m

Total
$m

Volume
$m

Total
$m

–
–
–

29
20
100

12
(2)
7

1
13
40

13
11
47

55
34
38

–
–
–

357
49
34

195
(45)
(6)

5
28
11

200
(17)
5

–
–
–

–
–
–

958
–
11

958
–
11

–
–
–

–
–
–

–
–
–

1,243
350
25

564
232
185

–
–
–

1,807
582
210

1,620
1,034
(34)

158
336
74

1,778
1,370
40

108
91
51

99
30
21

–
–
–

207
121
72

45
21
81

(62)
83
(19)

(17)
104
62

80

149

–

229

(28)

133

105

2,350

1,467

969

4,786

2,900

801

3,701

(80)

(149)

–

(229)

28

(133)

(105)

2,270

1,318

969

4,557

2,928

668

3,596

196
52
104

123
128
159

–
–
–

319
180
263

458
280
(43)

79
241
130

537
521
87

37
(15)
1

30
29
6

–
–
–

67
14
7

25
26
–

36
53
–

61
79
–

220
27
4

99
63
5

–
–
–

319
90
9

175
71
2

75
85
2

250
156
4

145
15
55

(8)
(1)
85

–
–
–

137
14
140

–
4
22

1
13
67

1
17
89

174
(101)
35

20
50
127

–
–
–

194
(51)
162

115
58
(3)

15
80
100

130
138
97

(12)
(6)

16
11

–
–

4
5

123
2

24
13

147
15

–
–

–
–

799
10

799
10

–
–

–
–

–
–

405
341
–

134
27
3

–
–
–

539
368
3

481
190
–

82
24
1

563
214
1

48
33
35

(195)
(40)
(16)

–
–
–

(147)
(7)
19

43
82
2

(129)
(64)
(2)

(86)
18
–

(3)
32

186
14

–
–

183
46

7
43

(2)
57

5
100

1,822

1,055

809

3,686

2,163

981

3,144

(80)

(149)

–

(229)

28

(133)

(105)

1,742

906

809

3,457

2,191

848

3,039

528

412

160

1,100

737

(180)

557

Interest earning assets
Due from other financial institutions
Australia
New ZealandOverseas markets
Investments in public securities and AFS
Australia
New ZealandOverseas markets
Customer’s liability for acceptances
Australia
New ZealandOverseas markets
Loans, advances and bills discounted
Australia
New ZealandOverseas markets
Other interest earning 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
New ZealandOverseas markets
Borrowing Corporation debt
Australia
New ZealandCustomer ‘s liability for acceptances
Australia
Overseas markets
Loan capital, bonds and notes
Australia
New ZealandOverseas markets
Other interest bearing liabilities
Australia
New ZealandOverseas markets
Intragroup liabilities
Australia
New Zealand
Change in interest expense
Intragroup elimination
Change in net interest income

113

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 thatwould cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions. Off balance sheettransactions of the Group are substantially with other banks.

Australia
Agriculture, forestry, fishing and mining
Business service
Construction
Entertainment, leisure and tourism
Financial, investment and insurance
Government and official institutions
Lease finance
Manufacturing
Personal1
Real estate – commercial3
Real estate – mortgage4
Retail and wholesale trade
Other

Overseas
Agriculture, forestry, fishing and mining
Business service
Construction
Entertainment, leisure and tourism
Financial, investment and insurance
Government and official institutions
Lease finance
Manufacturing
Personal2
Real estate – commercial3
Real estate – mortgage4
Retail and wholesale trade
Other

Total portfolio
1
2
3
4
5

2006
Individual5
provisionfor credit
Loans and
impairment
advances
$m
$m

2005

Loans andadvances$mSpecific5
provision
$m

7,079
4,882
3,757
4,408
4,795
52
2,580
7,050
15,57910,229100,362
9,811
9,923

15
13
4
5
2
–
12
59
28
2
19
31
23

5,626
4,151
3,270
3,861
4,924
65
2,854
6,087
13,702
10,97089,909
9,074
8,796

20
12
3
3
4
–
2
32
26
4
9
17
18

180,507213

163,289

150

11,898
836
627
1,437
3,109
893
600
4,553
3,692
5,276
37,944
2,677
5,589

3
–
–
–
8
–
–
26
21
–
2
–
6

10,868
796
766
1,096
2,356
604
772
4,474
3,101
4,666
35,336
2,518
5,862

1
2
1
6
13
–
–
26
17
2
8
13
17

79,131

66

73,215

106259,638279

236,504

256

Loans and advances exclude acceptances.
Personal includes consumer lending except for lease finance facilities and those facilities secured by a mortgage.
Real estate commercial includes all business lending relating to commercial property.
Real estate mortgage includes all consumer lending secured by a mortgage.
Individual provision for credit impairment/specific provisions above relate to on balance sheet exposures. Individual provisions in respect of off balance sheet facilities were $7 million in 2006 and$17 million in 2005.

114 ANZ Full Financial Report 2006

Financial information
5: Provisions for Credit Impairment – Industry Analysis
2006
$m

2005
$m

Australia
Agriculture, forestry, fishing and mining
Business service
Construction
Entertainment, leisure and tourism
Financial, investment and insurance
Lease finance
Manufacturing
Personal1
Real estate – commercial2
Real estate – mortgage3
Retail and wholesale trade
Other
New ZealandOverseas

(1)
(10)
(5)
(3)
–
(1)
(11)
(264)
(1)
(5)
(10)
(20)
(68)
(22)

(20)
(20)
(2)
–
(1)
(14)
(16)
(209)
(2)
(4)
(29)
(43)
(102)
(109)

Total write-offs

(421)

(571)

Australia
Agriculture, forestry, fishing and mining
Lease finance
Manufacturing
Personal1
Real estate – commercial2
Real estate – mortgage3
Retail and wholesale trade
Other
New ZealandOverseas

3
–
6
53
1
–
12
16
19
17

–
1
–
50
1
–
1
3
19
39

Total recoveries

127

114

Net write-offs

(294)

(457)

Ratio of net write-offs to average loans and acceptances

0.1%

0.2%

i) Total write-offs by industryii) Total recoveries by industry

1 Personal includes all consumer lending except for lease finance facilities and those facilities secured by a mortgage.
2 Real estate – commercial includes all business lending relating to commercial property.
3 Real estate – mortgage includes all consumer lending secured by a mortgage.

115

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 withan original term to maturity of less than one year. The Group has commercial paper programs in the United States, where it issues paper through
ANZ (Delaware) Inc., and in Europe and Asia, where the Group issues paper direct.

Balance at end of year
Commercial paper – ANZ (Delaware) Inc.
Commercial paper – other
Weighted average interest rate at end of year
Commercial paper – ANZ (Delaware) Inc.
Commercial paper – otherMaximum amount outstanding at any month end during year
Commercial paper – ANZ (Delaware) Inc.
Commercial paper – otherAverage amount outstanding during year
Commercial paper – ANZ (Delaware) Inc.
Commercial paper – other
Weighted average interest rate during year
Commercial paper – ANZ (Delaware) Inc.
Commercial paper – other
1 Information not restated to include short term borrowings of subsidiaries consolidated on adoption of AIFRS.

116 ANZ Full Financial Report 2006

2006
$m

20051
$m

2004
$m

6,630
14,1206,373
14,634

7,068
11,712

5.35%
6.16%

3.66%
6.40%

1.68%
5.41%

7,528
19,018

6,822
14,925

7,068
18,387

7,373
17,173

5,915
13,072

6,485
12,588

4.51%
6.43%

2.71%
6.26%

1.14%
5.53%

Financial information
7: Capital Management
The Australian Prudential Regulation Authority (APRA) adopts a risk-based capital assessment framework for Australian banks based oninternationally 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, carrying the highest capital elements, and Tier 2, which has lower capital elements but still adds to the overall
strength of the entity. Tier 1 is divided into ‘Fundamental’ and ‘Residual’ capital, and Tier 1 deductions. ‘Residual’ capital covers hybrid Tier 1
instruments with limits restricting the volume that can be counted as Tier 1 capital. Tier 2 capital is divided into Upper and Lower Tier 2 capital;
with Lower Tier 2 capital being dated subordinated debt. Limits apply to the volume of Tier 2 and Lower Tier 2 that can be counted as capital for
prudential purposes. Further, in calculating the total capital, deductions are taken for any strategic holdings of other banks’ capital instruments
and investments in entities engaged in life insurance, funds management and securitisation activities. APRA introduced new prudential capital
standards as at 1st July 2006 which contain various transitional rules which run through to different dates in 2008 and 2010 to coincide with
Basel II implementation.
The measurement of risk weighted assets is based on: a) a credit risk-based approach wherein risk weightings are applied to balance sheet
assets and to credit converted off balance sheet exposures. Categories of risk weights are assigned based upon the nature of the counterparty
and the relative liquidity 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
2006
$m

20051
$m

19,906(871)

19,538(1,858)

(289)
343
(227)
(1,267)
(22)

(213)
–
–
(1,077)(81)

Fundamental Tier 1 capital
Innovative Tier 1 capital instruments

17,573
3,342

16,3093,301

Gross Tier 1 capital

20,915

19,610

Deductions
Unamortised goodwill & other intangibles
Capitalised software
Capitalised expenses4
Deferred tax assets5
Investments in ANZ Lenders Mortgage Insurance
Other adjustments
Transitional Tier 1 capital relief(3,996)
(397)
(569)
(290)
(31)
9
716

(3,902)
–
(524)
–
(27)
–
–

Tier 1 capital

16,35715,157

Qualifying Capital
Tier 1AIFRS equity and minority interests
Reclassification of preference share capital
Accumulated retained profits & reserves of insurance,
funds management and securitisation entities and associates
Deferred fee revenue2
Cash flow hedging reserve
Dividend3
Other adjustments

Tier 2
Asset Revaluation Reserve
Eligible component of post acquisition earnings and reservesin associates and joint ventures
Perpetual subordinated notes
General reserve for impairment of financial assets6
Transitional Upper Tier 2 capital relief

–

31

184
401
1,344
17

–
394
1,448
–

Upper Tier 2 capital

1,946

1,873

Subordinated notes7

8,177

6,701

Tier 2 capital

10,123

8,574

86
526

84
528

370
91

159
13

Total deductions

1,073

784

Total qualifying capital

25,407

22,947

Deductions
Investment in funds management, life insurance & securitisation entities
Investment in joint ventures with ING8
Investment in other Authorised Deposit Taking Institutions andoverseas equivalents
Other

Footnotes 1-8 refer to page 118.

117

Financial information
7: Capital Management (continued)
Adjusted common equity
Tier 1 capital
Less: Innovative Tier 1 capital instruments
Transitional Tier 1 capital relief
Deductions

16,357
3,321
716
1,073

15,157
3,233–
784

Adjusted common equity (ACE)911,247

11,140Capital adequacy ratios
Tier 1
Tier 2

6.8%
4.2%

6.9%
3.9%

Deductions

11.0%
-0.4%

10.8%
-0.3%

Total

10.6%

10.5%

Adjusted common equity

4.7%

5.1%

240,219

219,573

Risk Weighted Assets
1
2
3
4
5
6
7
8
9

Calculated in accordance with Australian Prudential Regulation Authority requirements effective at this date.
Includes fees deferred under AIFRS forming part of loan yields. Value at September 2006 is pre tax, as allowed under the current prudential standard.
Relates to dividend not provided for.
Comprises loan and lease origination fees, capitalised securitisation establishment costs and costs associated with debt raisings.
Deferred tax assets (excluding the component relating to the collective provision) attributable to operations in countries outside Australia.
Net of attributable deferred tax asset.
For capital adequacy calculation purposes, subordinated note issues are reduced by 20% of the original amount over the last four years to maturity.
Joint ventures with ING in Australia and New Zealand.
Tier 1 capital, less Innovative Tier 1 capital instruments (converted at balance date spot rates), less transitional Tier 1 capital relief and deductions.
AssetsRisk weighted assets

2006
$m

2005
$m

2006
$m

2005
$m

Balance Sheet
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 assets1
Claims on approved banks and local Governments
Advances secured by residential mortgages eligible for 50% risk weighting
Other assets – credit risk

35,246
19,584
131,134
138,119

25,941
16,054
118,895
127,204–
3,917
65,567138,119–
3,211
59,448127,204

Total balance sheet assets – credit risk
Trading assets – market risk
Impact of adoption of AIFRS

324,083
11,688n/a

288,094
7,872
4,919

207,603n/a
n/a

189,863n/a–Total balance sheet assets

335,771

300,885

207,603

189,863

Contract/notional amount

Off balance sheet exposures2
Direct credit substitutes

Credit equivalent

Risk weighted assets

2006
$m

2005
$m

2006
$m

2005
$m

2006
$m

2005
$m

7,588

9,657

7,588

9,657

5,432

7,337

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

14,78898,554

13,17587,3196,470
17,0305,683
14,017

5,657
14,611

4,953
12,2491,169,553

782,380

18,01012,309

5,240

3,681

Total off balance sheet exposures – credit risk

1,290,483

892,531

49,09841,66630,94028,220238,543

218,083

1,676

1,490

240,219

219,573

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

1 Includes $1,938 million (September 2005: n/a) in assets of subsidiaries consolidated on adoption of AIFRS excluded for risk weighting calculations for Australian Prudential Regulation Authority
reporting purposes.
2 Excludes off balance sheet exposures in subsidiaries consolidated on adoption of AIFRS as required by Australian Prudential Regulation Authority.

118 ANZ Full Financial Report 2006

This page has been left blank intentionally119

Glossary
AIFRS – Australian Equivalents toInternational Financial Reporting Standards.
Collective provision is the provision for
Credit Losses that are inherent in theportfolio but not able to be individually
identified; presently unidentified impaired
assets. A collective provision may only berecognised when a loss event has alreadyoccurred. Losses expected as a result of
future events, no matter how likely, are notrecognised.
Equity standardisation. Economic Value
Added (EVATM) principles are in use
throughout the Group, whereby risk adjusted
capital is allocated and charged against
business units. Equity standardised profit
is determined by eliminating the impactof earnings on each business unit’s bookcapital and attributing earnings on thebusiness unit’s risk adjusted capital. Thisenhances comparability of business unit
performance. Geographic results are notequity standardised.
Group Centre division includes Operations,Technology and Shared Services, Treasury(funding component), Group People
Capital, Group Strategic Development,Group Financial Management, Group Risk
Management, Capital Funding and Group
Items.
Impaired assets are those whose carrying
value is greater than the amount expected tobe recovered over its life. More specifically,in relation to loans or other credit facilities,
impairment may arise where there isreasonable doubt about the collectability ofinterest, fees (past and future) or principal
outstanding, or where the concessionalterms have been provided because of thefinancial difficulties of the customer.
Income includes external interest income
and other external operating income.
Individual provision charge is the amountof impairment on those loans and advances
assessed for impairment on an individual
basis (as opposed to on a collective basis).
It takes into account expected discounted
cash flows over the lives of those loans andadvances.
Institutional is a division encompassing
businesses that provide a full rangeof financial services to corporate andinstitutional customers in all geographies:

Institutional & Corporate Relationships- manages customer relationships anddevelops financial services solutions andstrategies for Business Banking clientswith funds under management (“FUM”) in
excess of A$50,000, for Corporate clientswith FUM in excess of A$10 million andfor Institutional clients with FUM in excessof A$150 million in Australia and New
Zealand and, for global corporate clientswith whom ANZ Australia has an existingcustomer relationship, in the United
Kingdom, United States and Asia.
Debt and Transaction Services - combinesmanaging Institutional and Corporate’sbalance sheet with a particular focus
on credit quality, diversification andmaximising risk adjusted returns. Also
provides cash transaction banking
management, trade finance, international
payments, clearing and custodian services
principally to institutional and corporate
customers.
Markets - provides foreign exchange
and commodity trading sales-related
services to corporate and institutional
clients globally. In addition, the businessprovides origination, underwriting,structuring and risk management services,
advice and sale of credit and derivative
products globally.
Corporate & Structured Financing- provides complex financing andadvisory services, structured financial
products, leasing, private equity finance,
project finance, leveraged finance andinfrastructure investment products.
Personal and Private Banking Asia
- provides banking services in selected
Asian geographies.
Net advances include gross loans andadvances and acceptances less income
yet to mature and allowance for credit
impairment.
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 thesecalculations.
Net interest spread is the average interest
rate received on interest earning assets lessthe average interest rate paid on interest
bearing liabilities. Non-assessable interest
income is grossed up to the equivalent
before tax amount for the purpose of thesecalculations.

120 ANZ Full Financial Report 2006

Net non-interest bearing items, which arereferred to in the analysis of interest spreadand net interest average margin, includes
shareholders’ equity, impairment of loans
and advances, deposits not bearing interest
and other liabilities not bearing interest,
offset by premises and equipment and othernon-interest earning assets. Non-performing
loans are included within interest bearing
loans, advances and bills discounted.
Net tangible assets equals share capitaland reserves attributable to shareholders of
the Group less preference share capital andunamortised intangible assets (including
software).
New Zealand Businesses includes thefollowing businesses:
ANZ Retail - operating under the ANZ
brand in New Zealand provides a full rangeof banking services to personal and small
business banking customers.
NBNZ Retail - operating under the National
Bank brand in New Zealand, provides afull range of banking services to personaland small business banking customers.
Corporate Banking in New Zealand- incorporates the ANZ and National Bank
brands and provides financial solutions
through a relationship management
model for medium-sized businesses witha turnover up to NZD100 million.
Rural Banking in New Zealand - provides afull range of banking services to rural andagribusiness customers.
Central support - includes Operations,Technology, Treasury, ANZ’s 49% stakein ING New Zealand, Risk Management,
People Capital, Financial Management
and Property New Zealand.
UDC - provides motor vehicle andequipment finance, operating leases andmanagement services, fleet management
services, and investment products.
Non Performing loans comprise loans
where there is reasonable doubt about thecollectability of interest, fees (past andfuture) or principal outstanding, or where
the concessional terms have been provided
because of the financial difficulties of thecustomer.
Operating expenses exclude the provision
for impairment of loans and advancescharge.
Operating income in business segments
includes equity standardised net interest
and other operating income.

Glossary
Operations, Technology and Shared
Services comprises the Group’s core support
units responsible for operating the Group’s
global technology platforms, development
and maintenance of business applications,information security, the Group’s payments
back-office processing, and the provisionof other essential shared services to theGroup, including property, people capital
operations, procurement and outsourcing.
Overseas includes the results of all
operations outside Australia, except if New
Zealand is separately shown.
Overseas markets includes all operations
outside of Australia and New Zealand. The
Group’s geographic segments are Australia,
New Zealand and Overseas markets.
Partnerships & Private Bank is responsible
for ANZ’s partnerships with other institutions
in Australia and Asia, along with ANZ’s
Private Bank business, and includes thefollowing:
INGA includes the equity accounted
earnings from ANZ’s 49% stake in ING
Australia Ltd, a joint venture between ANZ
and ING.
International Partnerships - ANZ continues
to develop a portfolio of strategic retailpartnerships in Asia. ANZ currently has
partnerships in Indonesia with PT Panin
Bank, in the Philippines with Metrobank,in Cambodia with the Royal Group, in
China with Tianjin City Commercial Bankand in Vietnam with Sacombank. These
partnerships are focused on leveraging
ANZ Australia’s capabilities into fastergrowing personal and small businessbanking markets via the established client
bases of the local partners.
Other includes Private Bank and support
units within the division.
Personal is a division comprised of Regional,
Rural and Small Business Banking, Banking
Products, Mortgages, Consumer Finance,
Investments and Insurance, Esanda, PacificBanking and a number of other areas,
including the branch network and marketingin Australia.
Regional & Rural Banking - provides afull range of banking services to personalcustomers across regional and rural
Australia, and to small business andagribusiness customers in rural andregional Australia.
Small Business Banking - provides
a full range of banking services for
metropolitan-based small businesses inAustralia with funds under management
up to A$50,000.

Banking Products - provides transaction
banking and savings products, suchas term deposits, V2+, and cash
management accounts.
Mortgages - provides housing finance toconsumers in Australia for both owneroccupied and investment purposes.
Consumer Finance - provides consumer
and commercial credit cards, ePayment
products, personal loans, merchantpayment facilities in Australia and ATM
facilities.
Investments and Insurance - comprises
ANZ Australia’s Financial Planning, Margin
Lending, insurance distribution, andTrustees businesses in addition to theequity accounted earnings from E*Trade
Australia, an online broking business.
Esanda - provides motor vehicle andequipment finance, operating leases andmanagement services, fleet management
services and investment products.
Pacific - provides retail and corporatebanking services to customers in the
Pacific Region.
Service transfer pricing is used to allocate
services that are provided by central areas
to each of its business units. The objectiveof service transfer pricing is to remove crosssubsidies between business units, andensure each business accounts for the costof the services it uses.
Service transfer pricing charges are reported
in the profit and loss statement of eachbusiness unit as:
Net inter business unit fees – includes
intra-group receipts or payments for salescommissions and branch service fees. A
product business will pay a distribution
channel for product sales. Both thepayment and receipt are shown as net
inter business unit fees.
Net inter business unit expenses –consists of the charges made to business
units for the provision of support services.
Both payments by business units andreceipts by service providers are shownas net inter business unit expenses.
Significant items are items that have amaterial impact (typically > $10 million) on
profit after tax, or the earnings used in theearnings per share calculation. Significant
items also do not arise in the normal courseof business and are infrequent in nature.
Divestments are typically defined
as significant items.

121

Total advances include gross loans andadvances and acceptances less income
yet to mature (for both as at and averagevolumes). Loans and advances classified
as available for sale are excluded from total
advances.
Unproductive facilities comprise off balance
sheet facilities (such as standby lettersof credit and guarantees to third parties)
and undrawn on balance sheet facilities
where the customer’s status is defined as
impaired.

Alphabetical Index
Associates
Available-for-sale Assets/
Investment Securities
Average Balance Sheetand Related Interest
Balance Sheets
Bonds and Notes
Capital Management
Cash Flow Statements
Certificates of Deposit andTerm Deposit Maturities
Commitments
Compensation of Auditors
Concentrations of Credit Risk
Contingent Liabilities, Contingent
Assets and Credit Related
Commitments
Controlled Entities
Critical Estimates and Judgements
Used in Applying Accounting
Policies
Cross Border Outstandings
Deferred Tax Assets
Deposits and Other Borrowings
Derivative Financial Instruments
Directors’ Declaration
Dividends
Due from Other Financial Institutions
Due to Other Financial Institutions

67
27
47
3
40
117
5
112
69
18
114

70
66

14
112
34
38
23
110
20
22
38

Earnings Per Ordinary Share
Employee Share and Option Plans
Events Since the End of the
Financial Year
Exchange Rates
Expenses
Fair Value of Financial Assets
and Financial Liabilities
Fiduciary Activities
Financial Risk Management
Glossary
Goodwill and Other Intangibles
Assets
Impact of Adopting Australian
Equivalents to International
Financial Reporting Standards
Impaired Financial Assets
IncomeIncome Statements
Income Tax Expense
Income Tax Liabilities
Independent Audit Report
Interest Rate Risk
Interest Spreads andNet Interest Average Margins
Interests in Joint Venture Entities
Key Management Personnel
Disclosures
Liquid Assets

122 ANZ Full Financial Report 2006

22
80
108
89
17
59
69
51
120
35

90
31
16
2
19
39
111
57
50
67
87
22

Loan Capital
Minority interests
Net Loans and Advances
Notes to the Cash Flow Statements
Other Assets
Payables and Other Liabilities
Premises and Equipment
Provisions
Provisions for Credit Impairment
Provision for Credit Impairment –Industry Analysis
Regulatory Deposits
Reserves and Retained Earnings
Segment Analysis
Share Capital
Shares in Controlled Entities,
Associates and Joint
Venture Entities
Short Term Borrowings
Significant Accounting Policies
Statements of Recognised
Income and Expense
Superannuation and Other
Post Employment Benefit Schemes
Trading Securities
Transactions with Other
Related Parties
Volume and Rate Analysis

41
46
30
64
36
39
36
40
32
115
33
45
61
43

33
116
6
4
75
23
89
113

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124 ANZ Full Financial Report 2006

Australia and New Zealand Banking Group Limited
www.anz.com ABN 11 005 357 522