2012
ANNUAL REPORTRIGHT PLACE RIGHT TIMEOUR SUPER REGIONAL STRATEGY PUTS ANZ IN THE

RIGHT PLACE AT THE
RIGHT TIMEOUR PEOPLE AND UNIQUE STRATEGY ARE
THE KEYS TO OUR SUCCESSANZ IS EXECUTING A FOCUSED STRATEGY TO BUILD THE BEST CONNECTED,
MOST RESPECTED BANK ACROSS THE ASIA PACIFIC REGION.

WHO WE ARE AND HOW WE OPERATE
ANZ’s history of expansion and growth stretches over 175 years. We have a strong franchise in Retail,Commercial and Institutional banking in our home markets of Australia and New Zealand and we havebeen operating in Asia Pacific for more than 30 years.
Today, ANZ operates in 32 markets globally. We are the third largest bank in Australia, the largest
banking group in New Zealand and the Pacific, and among the top 20 banks in the world.

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» Strengthening our business inAustralia, New Zealand and thePacific, while establishing a significant
presence in key markets in Asia.
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customers who are operating
increasingly within and acrossour region.

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» Providing our customers with theright financial solutions and insights
to help them progress.
» Growing and strengthening the bankby diversifying our earnings.

ANZ ANNUAL REPORT 2012

1

2

ANZ ANNUAL REPORT 2012

CONTENTS
Section 1

Section 3

Financial Highlights

5

Financial Statements

72

Chairman’s Report

6

Notes to the Financial Statements

78

Chief Executive Officer’s Report

7

Directors’ Report

8

Directors’ Declaration andResponsibility Statement

193

Remuneration Report

13

Independent Auditor’s Report

194

Corporate Governance

36

Section 2
Review of Operating Results

55

Principal Risks and Uncertainties

62

Five Year Summary

70

Section 4
Supplementary Information

196

Shareholder Information

207

Glossary of Financial Terms

213

Alphabetical Index

216

CONTENTS

3SECTION 1
Financial Highlights

5

Chairman’s Report

6

Chief Executive Officer’s Report

7

Directors’ Report8

Remuneration Report

13

Corporate Governance

36

4ANZ ANNUAL REPORT 2012

FINANCIAL HIGHLIGHTS
2012

2011

5,661
6,011

5,355
5,652

14.6%
15.6%
0.90%
2.31%
2.71%
122,681

15.3%
16.2%
0.94%
2.42%
2.80%
116,546

48.1%
1.36%
45.6%
1.28%

47.4%
1.40%
45.9%
1.35%

Collective provision charge/(release) ($m)
Individual provision charge ($m)

(379)
1,577

7
1,230

Total provision charge ($m)
Individual provision charge as a % of average net advances
Total provision charge as a % of average net advances

1,198
0.38%
0.29%

1,237
0.32%
0.32%

66
79

64
76

145
69.3%
65.3%

140
68.6%
65.0%

11

12

Profitability
Profit attributable to shareholders of the Company ($m)
Underlying profit1 ($m)
Return on:
Average ordinary shareholders’ equity2
Average ordinary shareholders’ equity (underlying profit basis)1,2
Average assets3
Net interest margin3
Net interest margin (excluding Global Markets)3
Underlying profit per average FTE ($)1,4

Efficiency ratios
Operating expenses to operating income
Operating expenses to average assets3
Operating expenses to operating income (underlying)1
Operating expenses to average assets (underlying)1,3

Credit impairment provisioning

Ordinary share dividends
Interim – 100% franked (cents)
Final – 100% franked (cents)
Total dividend (cents)
Ordinary share dividend payout ratio5
Underlying ordinary share dividend payout ratio1,5

Preference share dividend ($m)
Dividend paid6
1 Profit has been adjusted for certain non-core items to arrive at underlying profit, the result
for the ongoing business activities of the Group. These adjustments have been determinedon a consistent basis with those made in prior years. The adjustments made in arriving at
underlying profit are included in statutory profit which is subject to audit within the context
of the Group statutory audit opinion. Underlying profit is not audited, however, the external
auditor has informed the Audit Committee that the adjustments, and the presentation
thereof, are based on the guidelines released by the Australian Institute of Company
Directors (AICD) and the Financial Services Institute of Australasia (FINSIA), and have been
determined on a consistent basis with those made in prior years. Refer to page 204 to 206
for analysis of the adjustments between statutory profit and underlying profit.

2 Average ordinary shareholders’ equity excludes non-controlling interests and preference shares.
3 Comparative information has been restated to reflect the impact of the current period
reporting treatment of derivative related collateral posted/received and the associatedinterest income/expense. Refer to note 1 of the financial statement for further details.
4 Comparative amounts have changed reflecting an amendment to FTE to align to the current
year methodology.
5 The 2012 dividend payout ratio is calculated using the March 2012 interim and the proposed
September 2012 final dividend. The 2011 dividend payout ratio is calculated using the
March 2011 interim and September 2011 final dividend.
6 Represents dividends paid on Euro Trust Securities issued on 13 December 2004.

FINANCIAL HIGHLIGHTS

5

CHAIRMAN’S REPORTA MESSAGE FROM JOHN MORSCHELANZ DELIVERED A STRONG FINANCIAL RESULT IN 2012 AND MADE CONTINUED PROGRESS WITH ITSSUPER REGIONAL STRATEGY.

I am pleased to report that ANZ’s statutory profit after tax for theyear ended 30 September 2012 was $5.7 billion, up 6%. This good
performance reflected continued progress with our super regional
strategy which saw growth across our key businesses in Australia,
New Zealand and Asia Pacific, together with renewed focus oncost management.

progress with ANZ receiving awards1 as Bank of the Year, Mortgage
Lender of the Year and Business Bank of the Year in 2012.

The final dividend of 79 cents per share brings the total dividend
for the year to 145 cents per share fully franked, an increase of 4%.

Throughout 2012, we have continued to equip our people forhigh performance, continuing to support them to make ethically,socially and environmentally responsible decisions while promoting
their wellbeing.

Our capital position remains strong, placing ANZ among the world’s
best capitalised banks and we remain one of only a small numberof banks globally which have maintained a AA rating from all threecredit ratings agencies.

Super Regional Strategy
Over the past five years we have had a consistent focus on
creating the region’s best connected and most respected bank.
2012 has been another year of achievement. In Asia, we continued
to invest. For example, in our subsidiary bank in China we increased
capital to support growth. Greater China, including Hong Kong andTaiwan, is now ANZ’s largest market outside Australia and New
Zealand. We also opened our first Malaysian branch in Labuan.
In Australia and New Zealand, our largest markets, we also continued
to invest in customer service and innovation, and in leveraging
connectivity with our international network. This is increasingly a sourceof differentiation, particularly in Commercial and Institutional banking.
At the same time, we have increased our focus on simplifying thebank and on containing cost growth. Alistair Currie was appointed to
the role of Group Chief Operating Officer to deliver a more integrated
approach to technology, shared services and operations. In New
Zealand, we made significant progress with our simplification
program, including our migration to one banking and technology
platform, a decision to move to a single brand.

Customers, our People and the Community
Since the onset of the global financial crisis, the reputation of banks
throughout the world has been challenged. Although Australianbanks have remained strong throughout this period, we have also
had to face up to community concerns about our industry andincrease our efforts with customers and with the wider community.
As we made structural changes to our business in 2012 to adjust to
the more difficult operating environment, our leading position onretail customer satisfaction slipped in Australia but has since regained
momentum. Although we have maintained strong customer
satisfaction in New Zealand, management refocused their efforts on
improving satisfaction in Australia. There was early recognition of our

1 Money magazine Bank of the Year and Home Lender of the Year. AFR Capital BusinessBank of the Year 2012. Top 5 Corporate Bank, Greenwich Associates Survey 2012.

6

We were also pleased to be recognised for our long-term
commitment to building the money management skills and savingsof disadvantaged groups, receiving two major awards at the
MoneySmart Week Awards in Australia.

We have linked ANZ’s super regional strategy to our corporate
responsibility framework and continued to work with stakeholders
to guide our activities. This includes reviewing and improving our
responsible lending practices which have been built into ourtraining programs.
ANZ was ranked the most sustainable bank globally in the 2012
Dow Jones Sustainability Index.

Outlook
The global economy is softening as we enter our 2013 financial yearwith many European economies contracting and the United States
continuing to recover slowly.
Although China’s economy is also in a managed slow-down we expect
it will continue to grow at 7–8% in 2013. This will see Asia remain thebest performing region in the world. In Australia and New Zealandconsumer and business confidence remains weak and growth during
2013 is expected to be around 2.7% and 2.5% respectively.
Although the year ahead looks challenging with headwinds in a
number of areas, ANZ’s unique strategy and the momentum we havein adapting to the new environment means for banks we are wellplaced to deliver value to our shareholders, our customers andthe community.
Finally, on behalf of shareholders, I would like to acknowledge thecommitment and dedication of our management team and of all our
48,000 staff who have worked so hard in 2012. My thanks also go to
my fellow Directors for their commitment and support during the year.

JOHN MORSCHELCHAIRMANANZ ANNUAL REPORT 2012

CHIEF EXECUTIVE OFFICER’S REPORTA MESSAGE FROM MICHAEL SMITH
OUR 2012 RESULTS HIGHLIGHT THAT AFTER FIVE YEARS ANZ’S SUPER REGIONAL STRATEGY IS DELIVERINGAND HAS GROWING MOMENTUM.

ANZ has delivered another good performance1 in 2012 througha consistent focus on delivering our super regional strategy bystrengthening our domestic businesses in Australia, New Zealandand the Pacific while driving significant growth in Asia.
Revenue grew 5% with market share gains across key segments
and geographies. We continued to invest in our strategy and future
growth with costs up by 4%, but at the same time we have increased
our focus on productivity which saw cost growth trend lower
during the year.
Our focus on costs resulted in significant change across ANZ which
impacted many of our staff and so I am pleased to report that
employee engagement remained steady at 70%. Our aim remains
to reach global best-in-class standards through a bank-widecommitment to customer service and to ensure ANZ is a greatplace to work.

Divisional Performance
In the Australia Division we produced a solid result with profit up
4% benefiting from market share gains, tighter management ofmargins and a strong productivity focus. Retail lending grew 7%
while average deposits grew at 12%. Commercial also performed
well, with average growth in customer numbers and continued
leverage of our regional capabilities.
Profit grew 3% in the International and Institutional Banking
Division. The division continues to grow and diversify its earnings
by geography, product and customer with 43% of revenue and 54%
deposits now derived from outside Australia and New Zealand.
This includes significant growth in many of our priority segments
based on the connectivity of our international network, although
this was offset by softer demand for loans and significant margin
contraction in Australia.
New Zealand delivered a good performance with profit up 12%.
Business simplification showed benefits with improved financial
results based on productivity improvements and market share
growth in key segments. We also announced we would move to
one brand in New Zealand – the ANZ brand, and in late October
2012 we reached a significant milestone when we moved toa single technology platform.
Profit from the newly-formed Global Wealth and Private Banking
Division was flat, in line with market conditions, however we saw
improving performance trends during the year, particularly ininsurance and investment earnings, and through productivity gains.
Credit quality was stable with ANZ’s provision charge of $1.25 billion
broadly in line with 2011 and the Group’s provision coverageremains strong.

Our Strategy and the Environment for Banking
While ANZ delivered a good performance in 2012, just as important
has been our strategic progress.
Five years ago, we articulated an ambition to create value for ourshareholders, our customers and the wider community by becominga super regional bank – a bank of global quality with regional focus.
This included an aspiration to source 20% of our revenues fromoutside Australia and New Zealand.
I am pleased to report, despite having endured the global financial
crisis, our network in Asia Pacific, Europe and America contributed
21% of Group revenue in 2012.
To deliver this outcome, the scale of transformation has beensignificant involving a systematic and coordinated program of actionin every area of the bank. In our separate Shareholder Review wehave provided a five-year progress report showing how we havestrengthened ANZ in our key domestic markets in Australia and
New Zealand while building a much bigger business in the growthmarkets of Asia Pacific.
While we have made significant progress, the journey is not over.
We have set new aspirations which will see further growth, particularly
in Asia, while also adapting the bank to the post-financial-crisis world.
We believe the lower growth business environment that we haveseen following the financial crisis will be with us for the foreseeable
future. We have been actively responding to these fast-changing andchallenging conditions in different markets by driving both growthand productivity.
Our 2012 results highlight that after five years, ANZ’s super regional
strategy has growing momentum. ANZ has moved from being alargely domestic bank to an integrated and growing, regionallyfocused international bank that is increasingly delivering
differentiated value and performance.

MICHAEL SMITH
CHIEF EXECUTIVE OFFICER

1 All figures on an underlying basis unless noted otherwise.

CHAIRMAN’S REPORT AND CHIEF EXECUTIVE OFFICER’S REPORT

7

DIRECTORS’ REPORTTHE DIRECTORS PRESENT THEIR REPORT TOGETHER WITH THE FINANCIAL STATEMENTS OF THE CONSOLIDATEDENTITY (THE GROUP), BEING AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED (THE COMPANY)
AND ITS CONTROLLED ENTITIES, FOR THE YEAR ENDED 30 SEPTEMBER 2012 AND THE INDEPENDENT AUDITOR’SREPORT THEREON. THE INFORMATION IS PROVIDED IN CONFORMITY WITH THE CORPORATIONS ACT 2001.

Principal Activities

State of Affairs

The Group provides a broad range of banking and financial
products and services to retail, small business, corporate andinstitutional clients.

In the Directors’ opinion there have been no significant changes
in the state of affairs of the Group during the financial year.

The Group conducts its operations primarily in Australia,
New Zealand and the Asia Pacific region. It also operates ina number of other countries including the United Kingdom
and the United States.

Further review of matters affecting the Group’s state of affairs is
also contained in the Review of Operating Results on pages 55 to
61 of this Annual Report.

Dividends

The Group operates on a divisional structure with Australia,
International and Institutional Banking, New Zealand and Global
Wealth and Private Banking being the major operating divisions.

The Directors propose that a fully franked final dividend of 79 cents
per fully paid ordinary share will be paid on 19 December 2012.
The proposed payment amounts to approximately $2,149 million.

At 30 September 2012, the Group had 1,337 branches andother points of representation worldwide excluding Automatic
Teller Machines (ATMs).

During the financial year, the following fully franked dividends were
paid on fully paid ordinary shares:

Results
Consolidated profit after income tax attributable to shareholdersof the Company was $5,661 million, an increase of 6% over theprior year.
Operating income growth of $779 million or 5% was primarily
driven by higher net interest income following a 10% increase inaverage interest earning assets, partially offset by an 11 basis point
decline in net interest margin. Operating expenses increased$496 million or 6%, impacted by a software impairment chargeof $274 million and an increase in restructuring expenses of$126 million.
Provision for credit impairment decreased by $39 million or 3%
with improvements across the Australia and New Zealand divisions.
Balance sheet growth was strong with total assets increasing by$37.9 billion (6%) and total liabilities increasing by $34.6 billion (6%).
Movements within the major components include:
Net loans and advances increased by $30.5 billion (8%) primarily
driven by above system housing lending growth of $12.2 billion(7%) in the Australia division and growth of $10.4 billion (11%) in
International and Institutional Banking, mainly in Global Loans andTransaction Banking.
Growth in customer deposits of $31.1 billion (10%) wasconcentrated in the second half, and reflected growth in Australiaof $13.8 billion (11%), growth in International and Institutional
Banking of $13.0 billion (10%) driven by strong momentum in Asia
Pacific, Europe and America (APEA) and strong customer deposit
growth in New Zealand of $3.7 billion (10%) driven by Retail andSmall Business Banking.
Further details are contained on pages 55 to 61 of this Annual Report.

8

Type

Final 2011
Interim 2012

Cents
per share

Amount before bonus
option plan adjustment$m

Date ofpayment

76
66

2,002
1,769

16 December 2011
2 July 2012

The proposed final dividend of 79 cents together with the interim
dividend of 66 cents brings total dividends in relation to the year
ended 30 September 2012 to 145 cents fully franked.
Further details of dividends provided for or paid during the year
ended 30 September 2012 on ANZ’s ordinary and preference
shares are set out in notes 7, 29 and 30 to the financial statements.

Review of Operations
A review of the Group during the financial year and the results of
those operations, including an assessment of the financial position
and business strategies of the Group, is contained in the Chairman’s
Report, the Chief Executive Officer’s Report and the Review ofOperating Results of this Annual Report.

ANZ ANNUAL REPORT 2012

Events Since the End of the Financial Year
There were no significant events from 30 September 2012 to thedate of this report.

Future Developments
Details of likely developments in the operations of the Group andits prospects in future financial years are contained in this Annual
Report under the Chairman’s Report and Chief Executive Officer’s
Report. In the opinion of the Directors, disclosure of any further
information would be likely to result in unreasonable prejudice
to the Group.

Environmental Regulation
The Company recognises the expectations of its stakeholders –customers, shareholders, staff and the community – to operate
in a way that mitigates the Company’s environmental impact.
The Company sets and reports against public targets regarding
its environmental performance.
The Company is subject to two relevant pieces of legislation.
The Company’s operations in Australia are categorised as a ‘highenergy user’ under the Energy Efficiency Opportunities Act 2006
(Cth) (EEO). The Company has a mandatory obligation to identify
energy efficiency opportunities and report to the Australian Federal
Government progress with the implementation of the opportunities
identified. As required under the legislation, the Company completed
its first five-year assessment cycle through submission of its final
report in December 2011. It has now commenced the second
five-year cycle of the program and is required to submit an updated
assessment plan by December 2012 that assesses cost-effective
opportunities across 90% of its usage. The Company complies
with its obligations under the EEO.
The National Greenhouse Energy Reporting Act 2007 (Cth) has been
designed to create a national framework for energy and associatedgreenhouse gas emissions reporting. The Act makes registration
and reporting mandatory for corporations whose energy production,energy use, or greenhouse gas emissions trigger the specified
corporate or facility threshold. The Company is over the corporate
threshold defined within this legislation and as a result was required
to submit its first report on 31 October 2009. Subsequent reports
have been submitted in 2010, 2011 and 2012.

The Company’s operations are not subject to any site specificor license requirements which could be considered particular or
significant environmental regulation under any law of the AustralianCommonwealth Government or of any state or territory thereof.
The Company may become subject to environmental regulation
as a result of its lending activities in the ordinary course ofbusiness. The Company has developed policies to manage suchenvironmental risks.
Having made due enquiry, and to the best of the Company’s
knowledge, no entity of the Group has incurred any material
environmental liability during the year.
Further details on the Company’s environmental performance,
including progress against its targets and details of its emissions
profile, are available on anz.com > About us > Corporate Responsibility.

Directors’ Qualifications, Experienceand Special Responsibilities
At the date of this report, the Board comprises eight Non-Executive
Directors who have a diversity of business and community experienceand one Executive Director, the Chief Executive Officer, who has
extensive banking experience. The names of Directors and details of
their skills, qualifications, experience and when they were appointed
to the Board are contained on pages 37 to 40 of this Annual Report.
Details of the number of Board and Board Committee meetings
held during the year, Directors’ attendance at those meetings anddetails of Directors’ special responsibilities, are shown on pages
37 to 49 of this Annual Report. No Directors retired during the 2012financial year.
Details of directorships of other listed companies held by eachcurrent Director in the three years prior to the end of the 2012financial year are listed on pages 37 to 40.

DIRECTORS’ REPORT

9

DIRECTORS’ REPORT (continued)

Company Secretaries’ Qualifications
and Experience
Currently there are two people appointed as Company Secretariesof the Company. Details of their roles are contained on page 44.
Their qualifications and experience are as follows:
Bob Santamaria, BCom, LLB (Hons)Group General Counsel.

The external auditor has confirmed to the Audit Committee thatthey have:
implemented procedures to ensure they comply withindependence rules both in Australia and the United States (US);andMr Santamaria joined ANZ in 2007. He had previously beena Partner at the law firm Allens Arthur Robinson since 1987.
He was Executive Partner Corporate, responsible for client liaison
with some of Allens Arthur Robinson’s largest corporate clients.

complied with domestic policies and regulations, together withthe regulatory requirements of the US Securities and Exchange
Commission (SEC), and ANZ’s policy regarding the provision of
non-audit services by the external auditor.

Mr Santamaria brings to ANZ a strong background in leadershipof a major law firm, together with significant experience insecurities, mergers and acquisitions. He holds a Bachelor ofCommerce and Bachelor of Laws (Honours) from the University of
Melbourne. He is also an Affiliate of Chartered Secretaries Australia.

The non-audit services supplied to the Group by the Group’s external
auditor, KPMG, and the amount paid or payable by the Group by typeof non-audit service during the year ended 30 September 2012 are
as follows:

John Priestley, BEc, LLB, FCIS
Company Secretary.
Mr Priestley, a qualified lawyer, joined ANZ in 2004. Prior to
ANZ, he had a long career with Mayne Group and held positions
which included responsibility for the legal, company secretarial,
compliance and insurance functions. He is a Fellow of Chartered
Secretaries Australia and also a member of Chartered Secretaries
Australia’s National Legislation Review Committee.

Non-audit Services
The Company’s Stakeholder Engagement Model for Relationshipwith the External Auditor (which incorporates requirements of
the Corporations Act 2001) states that the external auditor may
not provide services that are perceived to impair or impact theindependence of the external auditor or be in conflict with therole of the external auditor. These include consulting advice andsub-contracting of operational activities normally undertaken bymanagement, and engagements where the external auditor may
ultimately be required to express an opinion on their own work.
Specifically the Stakeholder Engagement Model:
limits the non-audit services that may be provided;
requires that audit, audit-related and permitted non-audit services
must be pre-approved by the Audit Committee, or pre-approvedby the Chairman of the Audit Committee (or up to a specified
amount by a limited number of authorised senior membersof management) and notified to the Audit Committee; andrequires the external auditor to not commence any engagement
for the Group, until the Group has confirmed that the engagement
has been pre-approved.
Further details about the Stakeholder Engagement Model can befound in the Corporate Governance Statement on page 49.
The Audit Committee has reviewed a summary of non-audit services
provided by the external auditor for 2012, and has confirmed thatthe provision of non-audit services for 2012 is consistent with the
Stakeholder Engagement Model and compatible with the generalstandard of independence for external auditors imposed by the
Corporations Act 2001. This has been formally advised by the
Audit Committee to the Board of Directors.

10

Amount paid/payable$’000’s
Non-audit services

Review of Wealth internal capital adequacy
assessment process
Benchmarking review of Wealth IT data
centre transfer
Review application of new Australian consumer
cards legislation
Regulatory benchmarking review (Taiwan)
Review of accounts in relation to potential
divestment
Accounting advice
Assist with Taiwanese brokerage license
application
Group collective provision review (on behalfof APRA)
Wealth managed investment schemes distribution
model review
Review of Wealth scrip for scrip audit validation
model and trust voting analysis models
Wealth R&D claim review
Review output from Group counterparty credit
risk review project
Presentations
Solomon Islands prudential standard impact
assessment
Training courses in China
Witness branch transfer of deposit boxes
in Singapore
Total

2012

2011

83

–

75

–

50
49

–
–

35
28

–
5

11

–

–

101

–

81

–
–

46
40

–
–

20
18

–
–

11
9

–

4

331

335

Further details on the compensation paid to KPMG is provided
in note 5 to the financial statements. Note 5 also provides detailsof audit-related services provided during the year of $4.313 million(2011: $4.444 million).
For the reasons set out above, the Directors are satisfied that theprovision of non-audit services by the external auditor during theyear ended 30 September 2012 is compatible with the generalstandard of independence for external auditors imposed by the
Corporations Act 2001.

ANZ ANNUAL REPORT 2012

Directors and Officers who were previously Partnersof the Auditor
Mr Marriott, the Company’s Chief Financial Officer up to 31 May
2012, was a Partner of KPMG at a time when KPMG was the auditorof the Company. In particular, Mr Marriott was a Partner in the
Melbourne office of the then KPMG Peat Marwick prior to joining
the Company in 1993.

Chief Executive Officer/Chief Financial Officer
Declaration
The Chief Executive Officer and the Chief Financial Officer havegiven the declarations to the Board concerning the Group’s financial
statements and other matters as required under section 295A(2)of the Corporations Act 2001 and Recommendation 7.3 of the ASX
Corporate Governance Principles and Recommendations.

Directors’ and Officers’ Indemnity

The Company has indemnified the trustees and former trustees ofcertain of the Company’s superannuation funds and directors, former
directors, officers and former officers of trustees of various Company
sponsored superannuation schemes in Australia. Under the relevant
Deeds of Indemnity, the Company must indemnify each indemnified
person if the assets of the relevant fund are insufficient to cover any
loss, damage, liability or cost incurred by the indemnified person inconnection with the fund, being loss, damage, liability or costs forwhich the indemnified person would have been entitled to beindemnified out of the assets of the fund in accordance with thetrust deed and the Superannuation Industry (Supervision) Act 1993.
This indemnity survives the termination of the fund. Some of theindemnified persons are or were Directors or executive officersof the Company.

The Company’s Constitution (Rule 11.1) permits the Company toindemnify each officer or employee of the Company against liabilities(so far as may be permitted under applicable law) incurred in theexecution and discharge of the officer’s or employee’s duties. It is theCompany’s policy that its employees should not incur any liability to
any third party as a result of acting in the course of their employment,
subject to appropriate conditions.

The Company has also indemnified certain employees of theCompany, being trustees and administrators of a trust, from andagainst any loss, damage, liability, tax, penalty, expense or claimof any kind or nature arising out of or in connection with thecreation, operation or dissolution of the trust or any act or omission
performed or omitted by them in good faith and in a manner thatthey reasonably believed to be within the scope of the authority
conferred by the trust.

Under the policy, the Company will indemnify employees against any
liability they incur in carrying out their role. The indemnity protects
employees and former employees who incur a liability when acting as
an employee, trustee or officer of the Company, another corporationor other body at the request of the Company or a related body corporate.

Except for the above, neither the Company nor any related body
corporate of the Company has indemnified or made an agreement
to indemnify any person who is or has been an officer or auditorof the Company against liabilities incurred as an officer or auditorof the Company.

The indemnity is subject to applicable law and in addition will not
apply to liability arising from:

During the financial year, the Company has paid premiums
for insurance for the benefit of the directors and employeesof the Company and related bodies corporate of the Company.
In accordance with common commercial practice, the insurance
prohibits disclosure of the nature of the liability insured against
and the amount of the premium.

serious misconduct, gross negligence or lack of good faith;illegal, dishonest or fraudulent conduct; ormaterial non-compliance with the Company’s policies, processes
or discretions.
The Company has entered into Indemnity Deeds with each of
its Directors, with certain secretaries and former Directors of theCompany, and with certain employees and other individuals who
act as directors or officers of related bodies corporate or of anothercompany. To the extent permitted by law, the Company indemnifies
the individual for all liabilities, including costs, damages and expenses
incurred in their capacity as an officer of the company to which they
have been appointed.

Rounding of Amounts
The Company is a company of the kind referred to in Australian
Securities and Investments Commission class order 98/100 (asamended) pursuant to section 341(1) of the Corporations Act 2001.
As a result, amounts in this Directors’ Report and the accompanying
financial statements have been rounded to the nearest million dollars
except where otherwise indicated.

DIRECTORS’ REPORT

11

DIRECTORS’ REPORT (continued)

Key Management Personnel and Employee Shareand Option Plans
Details of equity holdings of Non-Executive Directors, the Chief
Executive Officer and Disclosed Executives during the 2012 financial
year and as at the date of this report are detailed in note 46 of thefinancial statements.
Details of options/rights issued over shares granted to theChief Executive Officer and Disclosed Executives during the2012 financial year and as at the date of this report are detailed
in the Remuneration Report.
Details of options/rights issued over shares granted to employees
and on issue as at the date of this report are detailed in note 45of the 2012 financial statements.

Details of shares issued as a result of the exercise during the 2012financial year of options/rights granted to employees are detailed
in note 45 of the 2012 financial statements.
Other details about the share options/rights issued, including any
rights to participate in any share issues of the Company, are set out
in note 45 of the 2012 financial statements. No person entitled toexercise any option/right has or had, by virtue of an option/right,
a right to participate in any share issue of any other body corporate.
The names of all persons who currently hold options/rights areentered in the register kept by the Company pursuant to section
170 of the Corporations Act 2001. This register may be inspected
free of charge.

Lead Auditor’s Independence Declaration
The lead auditor’s independence declaration given under section 307C of the Corporations Act 2001 is set out below and forms part of thisDirectors’ Report for the year ended 30 September 2012.
THE AUDITOR’S INDEPENDENCE DECLARATION
Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001
To: the Directors of Australia and New Zealand Banking Group Limited
I declare that, to the best of my knowledge and belief, in relation to the audit for the financial year ended 30 September 2012, there have been:(i) no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and(ii) no contraventions of any applicable code of professional conduct in relation to the audit.

KPMG

Andrew Yates
Partner
Melbourne
5 November 201212

ANZ ANNUAL REPORT 2012

REMUNERATION REPORTContents
1 Basis of Preparation

14

2 Key Management Personnel

14

3 Role of the Board in Remuneration

15

4 HR Committee Activities

15

5 Remuneration Strategy and Objectives

16

6 The Composition of Remuneration at ANZ
6.1 Fixed Remuneration
6.2 Variable Remuneration
6.2.1 Short Term Incentives
6.2.2 Long Term Incentives
6.3 Other Remuneration Elements

16
18
18
18
19
20

7 Linking Remuneration to Balanced
Scorecard Performance
7.1 ANZ Performance
7.2 STI – Performance and Outcomes

21
21
22

8 2012 Remuneration
8.1 Non-Executive Directors (NEDs)
8.2 Chief Executive Officer (CEO)8.3 Disclosed Executives
8.4 Remuneration Tables –CEO and Disclosed Executives
Non Statutory Remuneration Table
Statutory Remuneration Table
8.5 STI – Performance and STI Correlation

23
23
25
27

9 Equity
9.1 Equity Valuations
9.2 Legacy LTI Program

34
34
35

30
30
32
34

REMUNERATION REPORT13

REMUNERATION REPORT (continued)

1. Basis of Preparation
This Directors’ Remuneration Report has been prepared in accordancewith section 300A of the Corporations Act 2001 for the Company
and the consolidated entity for 2011 and 2012. Information in Table 6:
Non Statutory Remuneration has been prepared in accordance withthe presentation basis set out in Section 8.4. The information provided
in this Remuneration Report has been audited as required by section
308(3C) of the Corporations Act 2001, unless indicated otherwise,and forms part of the Directors’ Report.
The Directors’ Remuneration Report is designed to provide shareholders
with an understanding of ANZ’s remuneration policies and the link
between our remuneration approach and ANZ’s performance, inparticular regarding Key Management Personnel (KMP) as defined
under the Corporations Act 2001. Individual outcomes are provided
for ANZ’s Non-Executive Directors (NEDs), the Chief Executive Officer(CEO) and Disclosed Executives (current and former).
The Disclosed Executives are defined as those direct reports to
the CEO with key responsibility for the strategic direction andmanagement of a major revenue generating Division or who control
material revenue and expenses that fall within the definition of KMPof the Company and of the Group.

2. Key Management Personnel (KMP)The KMP disclosed in this year’s report are detailed in Table 1. A
number of movements occurred during 2012 which are summarised
as follows:
TABLE 1: KEY MANAGEMENT PERSONNEL
Name

NEDs
Effective 1 April 2012, Ms Paula Dwyer was appointed as a NED.

DISCLOSED EXECUTIVESIn November 2011 ANZ announced the retirement of Mr Chris
Page, Chief Risk Officer (CRO), effective 16 December 2011, andconfirmed the promotion of Mr Nigel Williams into the role of
CRO immediately following Mr Page’s departure.
In February 2012 ANZ announced a number of senior management
and organisational changes to accelerate its super regional strategy,
support its growth and transformation, and strengthen succession
planning within its senior leadership group. Effective 1 March 2012:– Mr Shayne Elliott was promoted from CEO Institutional to Chief
Financial Officer (CFO) (CFO designate from 1 March until 31 May
2012), succeeding Mr Peter Marriott who concluded in the roleon 31 May 2012. Mr Elliott also took on responsibility for Group
Strategy and Mergers and Acquisitions (M&A).
– Mr Alex Thursby was promoted from CEO Asia Pacific, Europe
and America to CEO International and Institutional Banking which
is focused on ANZ’s largest multi-national clients globally andthe growth and transformation of ANZ’s international franchise.
– Ms Joyce Phillips was promoted from Group Managing Director
Strategy, M&A, Marketing and Innovation to a new role of CEO
Global Wealth and Private Banking with responsibility for WealthManagement and Private Banking globally. Ms Phillips retained
responsibility for Marketing, Innovation and Digital.

Position

Term as KMP
in 2012

Non-Executive Directors (NEDs)
J MorschelChairman – Appointed Chairman March 2010 (Director October 2004)

Full Year

G Clark

Director – Appointed February 2004

Full YearP Dwyer

Director – Appointed 1 April 2012

Part Year

P Hay

Director – Appointed November 2008

Full Year

H Lee

Director – Appointed February 2009

Full YearI Macfarlane

Director – Appointed February 2007

Full Year

D Meiklejohn
A Watkins

Director – Appointed October 2004
Director – Appointed November 2008

Full Year
Full Year

Chief Executive Officer (CEO)M SmithCEO

Full Year

Disclosed Executives – Current
P Chronican

Chief Executive Officer, Australia

Full YearS Elliott

Chief Financial Officer – appointed 1 June 2012; Chief Financial Officer Designate from
1 March until 31 May 2012

Full Year

D HiscoChief Executive Officer, New Zealand – appointed 13 October 2010

Full YearG Hodges

Deputy Chief Executive Officer

Full YearJ Phillips

CEO Global Wealth and Private Banking – appointed 1 March 2012

Part Year

A Thursby

Chief Executive Officer, International & Institutional Banking – appointed 1 March 2012

Full Year

N Williams

Chief Risk Officer – appointed 17 December 2011

Part Year

Disclosed Executives – Former
P Marriott

Former Chief Financial Officer – concluded in role 31 May 2012, ceased employment 31 August 2012

Part YearC PageFormer Chief Risk Officer – retired 16 December 2011

Part Year

14

ANZ ANNUAL REPORT 2012

3. Role of the Board in Remuneration
The Board Human Resources (HR) Committee is a Committeeof the Board. The Board HR Committee is responsible for:reviewing and making recommendations to the Board in relation
to remuneration governance, director and senior executive
remuneration and senior executive succession;
specifically making recommendations to the Board on
remuneration and succession matters related to the CEO, andindividual remuneration arrangements for other key executives
covered by the Group’s Remuneration Policy;
the design of significant incentive plans (such as the ANZ Employee
Reward Scheme (ANZERS) and the Institutional Incentive Plan); andremuneration structures for senior executives and others
specifically covered by the Remuneration Policy.
More details about the role of the HR Committee can be found on
the ANZ website1.

The HR Committee did not receive any recommendations from
remuneration consultants during the year in relation to the
remuneration arrangements of KMP. ANZ employs in house
remuneration professionals who provide recommendations to
the Board, taking into consideration information from external
providers. The Board’s decisions were made independently using
the information provided and having careful regard to ANZ’s strategic
objectives and Remuneration Policy and principles.

4. HR Committee Activities
During 2012, the HR Committee met on five occasions, withremuneration matters a standing agenda item on each occasion.
The HR Committee has a strong focus on the relationship between
business performance, risk management and remuneration, withthe following key activities occurring during the year:
annual review of the effectiveness of the Remuneration Policy;

The link between remuneration and risk is considered a key
requirement by the Board, with Committee membership structured
to ensure overlap of representation across the Board HR Committee
and Board Risk Committee, with two Non Executive Directors
currently on both committees.

adjustment of the Short Term Incentive (STI) mandatory deferral
threshold downward from $200,000 to $100,000. Refer to page 19
for more detail on STI mandatory deferral;

Throughout the year the HR Committee and management received
information from external providers (Ernst & Young, Freehills,
Mercer (Australia) Pty Ltd, Hay Group and PricewaterhouseCoopers).
This information related to remuneration market data and analysis,
market practice on the structure and design of incentive programs(both short and long term), legislative requirements andinterpretation of governance and regulatory requirements bothin Australia and globally.

engagement with APRA on remuneration compliance andapplication of the APRA Remuneration Standard;

review of terms and conditions of key senior executive
appointments and terminations;involvement of the Risk function in remuneration regulatory andcompliance related activities; andmonitoring of domestic and international regulatory andcompliance matters relating to remuneration governance.

1 Go to anz.com, about us, our company, corporate governance, HR Committee Charter

REMUNERATION REPORT

15

REMUNERATION REPORT (continued)

5. Remuneration Strategy and Objectives
ANZ’s remuneration strategies and initiatives shape the Group’s
Remuneration Policy, which is approved by the Board. The following
principles underpin ANZ’s Remuneration Policy, which is applied
globally across ANZ:
creating and enhancing value for all ANZ stakeholders;emphasis on ‘at risk’ components of total rewards to increasealignment with shareholders and encourage behaviour that
supports both the long term financial soundness and the risk
management framework of ANZ, and to deliver superior longterm total shareholder returns;

differentiated rewards in line with ANZ’s culture of rewarding foroutperformance and demonstration of values led behaviours; andprovide a competitive reward proposition to attract, motivate
and retain the highest quality individuals in order to deliver ANZ’sbusiness and growth strategies.
The key aspects of ANZ’s remuneration strategy for the CEO and
Disclosed Executives are set out below:

REMUNERATION OBJECTIVES

Shareholder
value creation

Emphasis on ‘at risk’components

Reward differentiation todrive outperformance andvalues led behaviours

Attract, motivate
and retain talent

Total target remuneration set byreference to geographic market

Fixed

At RiskFixed remuneration

Short Term Incentive (STI)Long Term Incentive (LTI)

Fixed remuneration is set based on
financial services market relativities reflecting
responsibilities, performance, qualifications,experience and location.

STI targets are linked to the performancetargets of the Group, Division and individual
using a balanced scorecard approach,which considers short term performanceand contribution towards longer term
objectives, and also the demonstrationof values led behaviours.

LTI targets are linked to relative
Total Shareholder Return (TSR)
over the longer term.

Delivered as:

Cash

Part cash and part equity,with the equity deferredfor 1 and 2 years.

Equity deferred for 3 years.

Deferred equity remains
at risk until vesting.

This is tested onceat vesting date.

Deferred equity remains
at risk until vesting.

6. The Composition of Remuneration at ANZ
The Board aims to find a balance between:
fixed and at-risk remuneration;short term and long term incentives; andamounts paid in cash and deferred equity.

16

Refer Figure 1 for an overview of the target remuneration mix for the
CEO and Disclosed Executives.

ANZ ANNUAL REPORT 2012

FIGURE 1: ANNUAL TOTAL REWARD MIX PERCENTAGE (% BASED ON ‘AT TARGET’ LEVELS OF PERFORMANCE)

Target Reward Mix

At risk
67%

LTI
33%

Deferred
Equity50%

At risk
63%

STI deferred
16.5%

Cash
60%

Fixed
remuneration
33%

Fixed
33%

Fixed
37%

CEO

The target remuneration mix for Disclosed Executives is weighted
between fixed remuneration (37%), STI (44%) and LTI (19%), withapproximately 60% of total target remuneration payable in cash in
the current year and 40% allocated as equity and deferred over one,
30 Sept 2012

Oct 2012

STI deferred
21%

Fixed
remuneration
37%

Disclosed Executives

The CEO’s target remuneration mix is equally weighted between
fixed remuneration, STI and LTI, with approximately half of total target
remuneration payable in cash in the current year and half allocatedas equity and deferred over one, two or three years. The deferredremuneration remains at risk until vesting date.

1 Oct 2011

LTI
19%

STI cash23%

STI cash
16.5%

Cash
50%

Deferred
Equity40%

Nov 2012

two or three years. The deferred remuneration remains at risk until
vesting date. The Board has adopted this mix as the most effective
reward mechanism to drive strong performance and value for theshareholder in both the short and longer term. In line with that,
the STI balanced scorecard contains a combination of short andlong term objectives. See page 22.
The following diagram demonstrates the time horizon associatedwith STI and LTI awards.

Dec 2012

Nov 2013

Nov 2014

50% ofdeferred STI
vests (subject
to Board
discretion)

50% ofdeferred STI
vests (subject
to Board
discretion)

Nov/Dec 2015

AnnualPerformanceandRemuneration
Review

STI
Performance andMeasurement Period

LTI

STI outcomes
determined andapproved by
the Board

Deferred STI
allocated as
equityCash STI paid

LTI outcomes
determined andapproved by
the Board

Deferred LTI
allocated
as equity(performancerights) toDisclosed
Executives#

CEO grant of
LTI (subject toshareholder
approval)

1 Year

3 Years

1 YearLTI vests(subject toBoard discretionand meeting
performance
hurdle)#CRO allocated deferred share rights

The reward structure for the CEO and Disclosed Executives is asdetailed below. The only exception is the CRO whose remuneration
arrangements have been structured differently to preserve theindependence of this role and to minimise any conflicts of interestin carrying out the risk control function across the organisation.

The CRO’s role has a greater weighting on fixed remuneration withmore limited STI leverage for individual performance and none(either positive or negative) for Group performance. LTI is delivered as
unhurdled deferred share rights, with a three year time based hurdle,
and is therefore not subject to meeting a TSR performance hurdle.

REMUNERATION REPORT17

REMUNERATION REPORT (continued)

6.1 FIXED REMUNERATION

6.2 VARIABLE REMUNERATION

The fixed remuneration amount is expressed as a total dollar amountwhich can be taken as cash salary, superannuation contributions,and other nominated benefits.

Variable remuneration forms a significant part of the CEO’s andDisclosed Executives’ potential remuneration, providing at risk
components that are designed to drive performance in the short,medium and long term. The term ‘variable remuneration’ within
ANZ covers both the STI and LTI arrangements.

ANZ positions fixed remuneration for the CEO and Disclosed
Executives against the relevant financial services market (referencing
both domestic and international financial services companies) andtakes into consideration role responsibilities, performance,
qualifications, experience and location. The financial services market
is considered the most relevant comparator as this is the key poolfor sourcing talent and where key talent may be lost.

6.2.1 SHORT TERM INCENTIVES (STI)The STI provides an annual opportunity for an incentive award. It isassessed against Group, Divisional and individual objectives basedon a balanced scorecard of measures and positive demonstration ofvalues led behaviours. Many of the measures relate to contribution
towards medium to longer term performance outcomes aligned to
ANZ’s strategic objectives as well as annual goals. For the CEO and
Disclosed Executives, the weighting of measures in the balanced
scorecard will vary to reflect the responsibilities of each role.

STI ARRANGEMENTS
PurposeThe STI arrangements support ANZ’s strategic objectives by providing rewards that are significantly differentiatedon the basis of achievement against annual performance targets coupled with demonstration of values led behaviours.
ANZ’s Employee Reward Scheme (ANZERS) structure and pool is reviewed by the HR Committee and approved by
the Board. The size of the overall pool is based on an assessment of the balanced scorecard of measures of the Group.
This pool is then distributed between the different Divisions based on their relative performance against a balanced
scorecard of quantitative and qualitative measures.

Performance targets

In order to focus on achieving individual, Divisional and Group performance objectives a mix of quantitative andqualitative short, medium and long term measures are assessed. Examples of these are given below and further detailis provided on page 22, Section 7.2, STI – Performance and Outcomes:
Finance – profit, capital and liquidity, return on equity, core funding ratio and cost to income ratio;
Customer – customer satisfaction and market share;
Shareholder returns – total shareholder returns and credit rating;People – employee engagement, leadership and diversity;
Connectivity – growth in Asia Pacific, Europe and America; andProcess/risk – risk management, audit and compliance measures/standards.
Targets are set considering prior year performance, industry standards and ANZ’s strategic agenda. Many of themeasures also focus on targets which are set for the current year in the context of progress towards longer term goals.
The specific targets and features relating to all these measures have not been provided in detail due to theircommercial sensitivity.
The validation of performance and achievements against these objectives for:the CEO involve an independent review and endorsement by the CRO and CFO, followed by review andendorsement by the HR Committee with final outcomes approved by the Board; andDisclosed Executives involve a review at the end of the year by the CEO, input on each individual’s risk managementfrom the CRO and input on the financial performance of all key Divisions from the CFO. Preliminary and final review
is completed by the HR Committee and final outcomes are approved by the Board.
The Board reviews performance outcomes against target for each metric, combined with a judgmental assessmentof the prioritisation and impact of each outcome relative to overall business performance for both the short andlonger term.
The method of assessment used to measure performance has been adopted to ensure validation from a risk
management and financial performance perspective, along with independent input and recommendation from the
HR Committee to the Board for approval.

Rewarding performance18

The 2012 target STI award level for the CEO represents one third of total target remuneration and for Disclosed
Executives approximately 44% of their total target remuneration. The maximum STI opportunity for top performers is
up to 250% of the target whereas weaker performers receive a significantly reduced or no incentive payment at all.

ANZ ANNUAL REPORT 2012

Mandatory deferral

Mandatory deferral of a portion of the STI places an increased emphasis on having a variable structure that is flexible,
continues to be performance linked, has significant retention elements and aligns the interests of the CEO and
Disclosed Executives to shareholders to drive continued performance over the longer term.
For the financial year ending September 2012, the mandatory deferral threshold for STI payments was reduced from$200,000 to $100,000 (subject to a minimum deferral amount of $25,000) with:the first $100,000 of STI paid in cash;
50% of STI above $100,000 paid in cash;
25% of STI above $100,000 deferred in ANZ equity for one year; and25% of STI above $100,000 deferred in ANZ equity for two years.
The deferred component of bonuses paid in relation to the 2012 year is delivered as ANZ deferred shares or deferredshare rights. Where deferred share rights are granted, for grants made after 1 November 2012 at the Board’s discretion,
any portion of the award which vests may be satisfied by a cash equivalent payment rather than shares.
As the incentive amount has already been earned, there are no further performance measures attached to the sharesor share rights, however, they do remain at risk and subject to clawback until the vesting date.

6.2.2 LONG TERM INCENTIVES (LTI)
The LTI provides an annual opportunity for an equity award deferred
for three years that aligns a significant portion of overall
remuneration to shareholder value over the longer term.

LTI awards remain at risk and subject to clawback until vesting andmust meet or exceed a relative TSR performance hurdle (excluding
the CRO who is allocated deferred share rights).

LTI ARRANGEMENTS
Type of equity awarded LTI is delivered to the CEO and Disclosed Executives as 100% performance rights. A performance right is a right toacquire a share at nil cost, subject to meeting time and performance hurdles. Upon exercise, each performance rightentitles the CEO and Disclosed Executives to one ordinary share.
The future value of the grant may range from zero to an undefined amount depending on performance against thehurdle and the share price at the time of exercise.
For grants made after 1 November 2012, at the Board’s discretion, any portion of the award which vests may besatisfied by a cash equivalent payment rather than shares.
Time restrictions

Performance rights awarded to the CEO and Disclosed Executives will be tested against the performance hurdle atthe end of three years. A three year time based hurdle provides a reasonable period to align reward with shareholder
return and also acts as a vehicle to retain the CEO and Disclosed Executives. If the performance rights do not achieve
the required performance hurdle they are forfeited at that time.

Performance hurdle

The performance rights granted to the CEO and Disclosed Executives have a single long term performance measure.
The performance rights are designed to reward the CEO and Disclosed Executives if the Group’s TSR is at or above themedian TSR of a group of peer companies over a three year period. TSR represents the change in the value of a shareplus the value of reinvested dividends paid. TSR was chosen as the most appropriate comparative measure as it
focuses on the delivery of shareholder value and is a well understood and tested mechanism to measure performance.

Vesting schedule

The proportion of performance rights that become exercisable will depend upon the TSR achieved by ANZ relative tothe companies in the comparator group at the end of the three year period.
An averaging calculation is used for TSR over a 90 day period for start and end values in order to reduce the impact ofshare price volatility. To ensure an independent TSR measurement, ANZ engages the services of an external organisation(Mercer (Australia) Pty Ltd) to calculate ANZ’s performance against the TSR hurdle. The level of performance required
for each level of vesting, and the percentage of vesting associated with each level of performance, are set out below.
The performance rights lapse if the performance condition is not met. There is no re-testing.
If the TSR of ANZ:

The percentage of performance rights which will vest is:

Does not reach the 50th percentile of the TSRof the Comparator Group0%

Reaches or exceeds the 50th percentile of the TSRof the Comparator Group but does not reach the75th percentile

50%, plus 2% for every one percentile increase above the50th percentile

Reaches or exceeds the 75th percentile of the TSRof the Comparator Group100%

REMUNERATION REPORT19

REMUNERATION REPORT (continued)

Comparator group

The ANZ comparator group currently consists of the following nine companies:
AMP Limited

National Australia Bank Limited

ASX Limited

QBE Insurance Group Limited

Commonwealth Bank of Australia Limited

Suncorp-Metway Limited

Insurance Australia Group Limited

Westpac Banking Corporation

Macquarie Group Limited
These companies represent domestic financial services companies and are considered by the Board as the mostappropriate comparator for ANZ at this time, given the majority of our business is generated in Australia and
New Zealand.
Size of LTI grants

Refer to Section 8.2, Chief Executive Officer (CEO) for details on the CEO’s LTI arrangements.
The size of individual LTI grants for Disclosed Executives is determined by reference to market practice, an individual’slevel of responsibility, their performance and the assessed potential of the Disclosed Executive. The target LTI for
Disclosed Executives is around 19% of total target remuneration. Disclosed Executives are advised of the dollar valueof their LTI grant, which is then converted into a number of performance rights based on an independent valuation.
Refer to section 9.1, Equity Valuations for further details on the valuation approach and inputs.
LTI allocations are made annually after the annual performance and remuneration review which occurs in October.
The following example uses the November 2011 allocation value:
LTI award value (communicated value)$500,000

approved allocation value per performance right(independently valued by external advisors)$9.03

number of performance rights allocated ($500,000/$9.03)

55,370LTI ARRANGEMENTS FOR THE CRO
Deferred share rights

The CRO is the only Disclosed Executive to receive LTI deferred share rights.
Deferred share rights are subject to a time-based vesting hurdle of three years, during which time they are held in
trust. The value used to determine the number of LTI deferred share rights to be allocated is based on an independentvaluation, as detailed in Section 9.1, Equity Valuations.
For grants made after 1 November 2012, at the Board’s discretion, any portion of the award which vests may besatisfied by a cash equivalent payment rather than shares.

6.3 OTHER REMUNERATION ELEMENTS
CLAWBACKThe Board has on-going and absolute discretion to adjust performancebased components of remuneration (including previously deferred
equity or cash) downwards, or to zero, at any time, including after
the grant of such remuneration, where the Board considers such an
adjustment is necessary to protect the financial soundness of ANZor to meet unexpected or unknown regulatory requirements, or if
the Board subsequently considers that having regard to information
which has come to light after the grant of deferred equity/cash,
the deferred equity/cash was not justified.
Prior to any scheduled release of deferred equity/cash, the Board
considers whether any downward adjustment should be made.

Doing so would constitute a breach of the grant conditions andwould result in the forfeiture of the relevant shares, options, deferredshare rights or performance rights.
ANZ also prohibits the CEO and Disclosed Executives providing
ANZ securities in connection with a margin loan or similar financing
arrangements which maybe subject to a margin call or loan to value
ratio breach.
To monitor adherence to this policy, ANZ’s CEO and Disclosed Executives
are required to sign an annual declaration stating that they and theirassociated persons have not entered into (and are not currently
involved in) any schemes to protect the value of their interests in any
ANZ securities. Based on the 2012 declarations, ANZ can advise that
the CEO and Disclosed Executives are fully compliant with this policy.
SHAREHOLDING GUIDELINESHEDGING AND MARGIN LENDING PROHIBITION
As specified in the Trading in ANZ Securities Policy and in accordancewith the Corporations Act 2001, equity allocated under ANZ
incentive schemes must remain at risk until fully vested (in the caseof deferred shares) or exercisable (in the case of options, deferredshare rights or performance rights). As such, it is a condition of
grant that no schemes are entered into, by an individual or theirassociated persons, that specifically protects the unvested value ofshares, options, deferred share rights or performance rights allocated.

20

The CEO and Disclosed Executives are:expected to accumulate ANZ shares over a five year period, tothe value of 200% of their fixed remuneration and to maintain thisshareholding while an executive of ANZ;
shareholdings for this purpose include all vested and allocated (butunvested) equity which is not subject to performance hurdles; andthe CEO and all Disclosed Executives have met or, if less than five
years tenure, are on track to meet their minimum shareholding
guidelines requirement.

ANZ ANNUAL REPORT 2012

CESSATION OF EMPLOYMENT PROVISIONSCONDITIONS OF GRANT

The provisions that apply for STI and LTI awards in the caseof cessation of employment are detailed in Sections 8.2 CEO’s
Contract Terms and 8.3 Disclosed Executives’ Contract Terms.

The conditions under which STI (deferred shares and deferred sharerights) and LTI (performance rights and deferred share rights) are granted
are approved by the Board in accordance with the rules of the ANZ
Employee Share Acquisition Plan and/or the ANZ Share Option Plan.

7. Linking Remuneration to Balanced Scorecard Performance
7.1 ANZ PERFORMANCETABLE 2: ANZ’S FINANCIAL PERFORMANCE 2008 – 2012
Statutory profit ($m)
Underlying profit1 (Unaudited)
Underlying return on equity (ROE) (%)
Underlying earnings per share (EPS)
Share price at 30 September ($)
Total dividend (cents per share)
Total shareholder return (12 month %)

2012

2011

2010

2009

2008

5,661
6,011
15.6%
225.3
24.75
145
35.4

5,355
5,652
16.2%
218.4
19.52
140
(12.6)

4,501
5,025
15.5%
198.7
23.68
126
1.9

2,943
3,772
13.3%
168.3
24.39
102
40.3

3,319
3,426
15.1%
175.9
18.75
136
(33.5)

1 Profit has been adjusted for non-core items to arrive at underlying profit, the result forthe ongoing business activities of the Group. These adjustments have been determinedon a consistent basis with those made in prior periods. The adjustments made in arriving
at underlying earnings are included in statutory profit which is subject to audit within thecontext of the Group statutory audit opinion. Underlying profit is not audited; however,

the external auditor has informed the Audit Committee that the adjustments, and thepresentation thereof, are based on the guidelines released by the Australian Instituteof Company Directors (AICD) and the Financial Services Institute of Australasia (FINSIA).
Further details on underlying profit are provided on page 55.

Figure 2 compares ANZ’s TSR performance against the median TSR
and upper quartile TSR of the LTI comparator group and the S&P/ASX
200 Banks Accumulation Index (Fin Index) over the 2008 to 2012

measurement period. ANZ’s TSR performance has well exceeded theupper quartile TSR of the LTI comparator group during 2012.

FIGURE 2: ANZ 5-YEAR CUMULATIVE TOTAL SHAREHOLDER RETURN PERFORMANCE
120

110

100

Upper Quartile TSRMedian TSR
Fin Index TSR
ANZ TSR

80

70

60

Sep 12

Mar 12

Sep 11

Mar 11

Sep 10Mar 10

Sep 09Mar 09

Sep 08Mar 0850

Sep 07

Percentage

90

Performance period

REMUNERATION REPORT21

REMUNERATION REPORT (continued)

7.2 STI – PERFORMANCE AND OUTCOMES
ANZ uses a balanced scorecard to measure performance in relation
to the Group’s main incentive programs. The scorecard provides
a framework whereby a combination of measures can be applied
to ensure a broader long term strategic focus on driving shareholder
value as well as a focus on annual priorities.
In 2012, the Human Resources Committee refined the balanced
scorecard to align it to the Group’s key strategic priorities, resulting
in six categories containing a range of measures. Each of the six
categories are broadly equal in weight. These measures were agreed
at the beginning of the financial year.

Category

MeasureFinance
ProfitCapital and Liquidity

The Board has assessed the Bank’s overall 2012 performance as solid
across the range of balanced score card measures. Overall spend
approved by the Board for the main short-term incentive pools was at
below target levels with a range of underlying outcomes for business
units and individuals, in line with ANZ’s objectives of differentiating
reward based on performance.
The following table provides examples of some of the key measuresused in 2012 for assessing performance for the purpose of determining
short term incentive pools. The list provides examples of some of
the measures under each of the balanced scorecard categories.

Outcome1

On Target:
A record underlying profit after tax of $6,011m, up 6% on the prior year. The total dividend for 2012
was $1.45 per share up 4%. Economic profit2 of $2,539 million was up 1% on 2011 and was impacted
by continuing regulatory requirements to hold higher capital levels and by the impact of lower interest
rates on capital earnings.
Building long term shareholder value requires a resilient balance sheet. In the current economic
environment, measures for Capital, Liquidity and Funding are regarded as particularly important.
At balance date the Group’s Tier 1 Capital Ratio was 10.8% and Liquid Assets held were well in excess
of regulatory requirements.
The Bank is currently carrying $17 billion more in capital than pre the Global Financial Crisis (with$11 billion being balance sheet strengthening and $6 billion to support growth).

Return on Equity

Underlying ROE is measured against longer-term targets and while 2012 was slightly lower than 2011,
this was as a result of the requirement to build our capital ratios in a lower interest environment.

Core Funding Ratio(CFR)

Over the year, ANZ has maintained its CFR at comfortable levels.

Cost to Income Ratio

Overall business growth was good and in line with strategic objectives. Productivity improved withthe cost to income ratio reduced 20bps year on year and 110bps half on half based on significant cost
reduction programs across the bank.

Customer

Slightly below Target:
Customer satisfaction ANZ tracks customer satisfaction across its businesses as part of a group of indicators of longer term(based on external
performance trends. ANZ aims to achieve top quartile customer satisfaction scores in each businesssurvey outcomes)
based on external surveys.
In 2012 top quartile scores were achieved in Australia in the Corporate and Institutional segments
and in the Institutional segment in New Zealand. Asia scores improved significantly and New Zealand
Retail scores remained steady.
However, in Australia Retail the initial reaction to changes to our mortgage pricing methodology
contributed to a decline in scores although they have started to return to a competitive level andthere was no impact to customer acquisition, retention or market share.

Shareholder
returns

22

Out Performed:
Total Shareholder
return (TSR)

ANZ aims to outperform peers both in terms of financial strength and earnings performance. TSR in2012 was very strong at 35.4% placing us in the top quartile of Australian peers (comparator group).

Maintain Strong
Credit Rating

The maintenance of a strong credit rating is fundamental to the ongoing stability of the Group andthere have been no changes to the Group’s rating during the period.

ANZ ANNUAL REPORT 2012

Category

MeasureOutcome1

Employeeengagement

On Target:
An engaged workforce is regarded as an important driver of long term performance. Despite difficult
business conditions and significant bank-wide changes over the year, employee engagement remained
steady at 70% in 2012.

Senior leaders
as role models

Strong score improvements were seen in key areas like ‘Inspirational Leadership’ with various programs
and activities re-energising the approach and focus on values-led leadership.

Workforce Diversity

ANZ is focused on increasing the diversity of its workforce and targeted an increase in women in
management; however results at senior levels remained flat year on year.

PeopleConnectivity

On Target:
Growth in Asia Pacific, ANZ aspires to be the most respected bank in the Asia Pacific region using super regional connectivity
Europe and America
to better meet the needs of customers which are increasingly linked to regional capital, trade and wealthflows. One important measure of the success of the super regional strategy is the growth in total Network
revenues (revenue arising from having a meaningful business in Asia Pacific, Europe and America
regardless of whether the revenue is subsequently booked within the region or in Australia or New
Zealand). Network revenues reached 21% of Group revenue in 2012. This significantly differentiates
ANZ against its Australian peer group.

Process/ Risk

On Target:
Number ofoutstanding
internal audit items

ANZ Global Internal Audit conducts an ongoing and rigorous review process to identify weaknesses inprocedures and compliance with policies. In 2012 there was a low, stable number of outstanding items.

Risk Culture

During 2012 there was a continued strengthening of the risk culture across ANZ.

1 Software impairment charges of $274 million have been taken into account in assessing performance against measures.
2 Economic profit is an unaudited risk adjusted profit measure determined by adjusting underlying profit for economic credit costs, the benefit of imputation credits and the cost of capital.

8. 2012 Remuneration
8.1 NON EXECUTIVE DIRECTORS (NEDs)
Principles underpinning the remuneration policy for NEDs.
Principle

Comment

Aggregate Board and Committee
fees are within the maximum
annual aggregate limit approvedby shareholders

The current aggregate fee pool for NEDs of $3.5 million was approved by shareholders at the 2008
Annual General Meeting. The annual total of NEDs’ fees, including superannuation contributions, is within
this agreed limit. Retirement benefits accrued as at September 2005 are not included within this limit.

Fees are set by reference to
key considerations

Board and Committee fees are set by reference to a number of relevant considerations including:
general industry practice and best principles of corporate governance;

Shareholder approval will be sought at the 2012 Annual General Meeting for an increase to the NED
fee pool from $3.5 million to $4 million, the first increase to the pool since 2008. Refer to the 2012
Notice of Meeting for more detail.

the responsibilities and risks attached to the role of NEDs;
the time commitment expected of the NEDs on Group and Company matters; andreference to fees paid to NEDs of comparable companies.
ANZ compares NED fees to a comparator group of Australian listed companies with a similar size market
capitalisation, with particular focus on the major financial services institutions. This is considered an
appropriate group, given similarity in size, nature of work and time commitment required by NEDs.
The remuneration structure
preserves independence whilstaligning interests of NEDs
and shareholders

So that independence and impartiality is maintained, fees are not linked to the performance of theCompany and NEDs are not eligible to participate in any of the Group’s incentive arrangements.

REMUNERATION REPORT23

REMUNERATION REPORT (continued)

Components of NED Remuneration
NEDs receive a fee for being a Director of the Board, and additional
fees for either chairing or being a member of a Board Committee.
The Chairman of the Board does not receive additional fees for service
on a Board Committee.

The Board agreed not to increase the individual NED fees for 2012.
For details of remuneration paid to NEDs for the years 2011 and 2012,refer to Table 3.

Elements

Details

Board/Committee fees
per annum – 2012

Board Chairman Fee$775,000Board NED Base Fee$210,000

Committee Fees

Committee Chair

Committee Member

Audit$65,000$32,500

Governance$35,000$15,000

Human Resources$55,000$25,000

Risk$57,000$30,000

Technology$35,000$15,000

Post – employment Benefits

Superannuation contributions are made at a rate of 9% of base fee (but only up to the Government’sprescribed maximum contributions limit) which satisfies the Company’s statutory superannuation
contributions. Contributions are not included in the base fee.
The ANZ Directors’ Retirement Scheme was closed effective 30 September 2005. Accrued entitlements
relating to the ANZ Directors’ Retirement Scheme were fixed at 30 September 2005 and NEDs had
the option to convert these entitlements into ANZ shares. Such entitlements, either in ANZ shares or
cash, have been carried forward or will be transferred to the NED when they retire from the ANZ Board(including interest accrued at the 30 day bank bill rate for cash entitlements).
The accrued entitlements for current NEDs fixed under the ANZ Directors’ Retirement Scheme as at
30 September 2005 were as follows:
G Clark$83,197

D Meiklejohn$64,781

J Morschel$60,459

Shareholdings of NEDs
The movement in shareholdings during the reporting period(held directly, indirectly and by related parties) is provided in Notes
to the Financial Statements – note 46 on page 184.

All NEDs have met or, if less than five years appointment, are on track
to meet their minimum shareholding guidelines requirement.

The NED shareholding guidelines require Directors to accumulateshares, over a five year period from appointment, to the value of
100% (200% for the Chairman) of the base annual NED fee and tomaintain this shareholding while a Director of ANZ. Directors haveagreed that where their holding is below this guideline they will
direct a minimum of 25% of their fees each year toward achieving
this shareholding.

Remuneration details of NEDs for 2011 and 2012 are set out in Table 3.
There was no increase in NED fees throughout the year. Overall, there
is an increase in total NED remuneration year on year due to thecommencement of Ms Dwyer in April 2012 and the prescribed
increase in Superannuation Guarantee Contributions.

24

NED Statutory Remuneration

ANZ ANNUAL REPORT 2012

TABLE 3: NED REMUNERATION FOR 2012 AND 2011
Short-Term NED Benefits

Non-Executive Directors (NEDs)
J Morschel
G Clark
P Dwyer4
P Hay
H Lee
I Macfarlane
D Meiklejohn5
A Watkins
Total of all Non-Executive Directors

Post-Employment

Financial
Year

Fees1
$

Non
monetary
benefits$

Super
contributions
$

2012
2011
2012
2011
2012
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011

775,000
775,000
300,000
300,000
136,250
302,500
302,500
280,000
280,000
314,500
314,500
320,000
320,000
312,500
312,500

–
–
–
–
–
–
–
–
–
–
–
1,322
186
–
–

15,94915,343
15,94915,343
8,061
15,94915,343
15,94915,343
15,94915,343
15,94915,343
15,94915,343790,949
790,343
315,949
315,343
144,311
318,449
317,843
295,949
295,343
330,449
329,843
337,271335,529
328,449
327,8432012
2011

2,740,750
2,604,500

1,322
186

119,704
107,401

2,861,776
2,712,087

1 Fees is the sum of Board fees and Committee fees, as included in the Annual Report.
2 Long-term benefits and share-based payments are not applicable for the Non-Executive
Directors. There were no termination benefits for the Non-Executive Directors in either 2011or 2012.
3 Amounts disclosed for remuneration of Directors exclude insurance premiums paid by theGroup in respect of Directors’ and officers’ liability insurance contracts. The total premium,

Total
remuneration2,3$

which cannot be disclosed because of confidentiality requirements, has not been allocatedto the individuals covered by the insurance policy as, based on all available information, theDirectors believe that no reasonable basis for such allocation exists.
4 P Dwyer commenced as a Non-Executive Director on 1 April 2012 so remuneration reflects
amounts received for the partial service for the 2012 year.
5 For D Meiklejohn, non monetary benefits relate to the provision of office space.

8.2 CHIEF EXECUTIVE OFFICER (CEO)Actual remuneration provided to the CEO in 2012 is detailed below,
with remuneration tables provided on pages 30 to 33.
Fixed pay: The CEO’s fixed remuneration remains unchanged at$3.15 million (with his only increase since commencement being
two years ago, effective 1 October 2010).
Short Term Incentive (STI): The CEO has a target STI opportunityof $3.15 million. The actual amount paid can increase or decrease
from this number dependent on his performance as CEO and theperformance of the organisation as a whole. Specifically, if, in the
Board’s view the CEO has performed above/below his targets, theBoard may exercise its discretion to increase/decrease the STI beyond
his target payment.
The Board approved the CEO’s 2012 balanced scorecard objectives
at the start of the year and then assessed his performance against
these objectives at the end of the year. The CEO’s STI payment for2012 was then determined having regard to his delivery against theseobjectives including ANZ’s productivity performance and focus on
capital efficiency, his demonstration of values led behaviours, as wellas progress achieved in relation to ANZ’s long term strategic goals.
The STI payment for 2012 will be $3.7 million with $1.9 million paidin cash and the balance ($1.8 million) awarded as deferred shares,
half deferred for one year and half for two years.

Long Term Incentive (LTI): Three tranches of performance rights
were granted to the CEO in December 2007, covering his first three
years in the role. Two tranches have now vested. The second tranche
was tested on 19 December 2011 and as a result of the testing 100%
(259,740) of the performance rights vested. There is no re-testingof these grants.
At the 2011 Annual General Meeting shareholders approved an
LTI grant to the CEO equivalent to 100% of his 2011 fixed pay, being$3.15 million. This equated to 326,424 performance rights being
granted, at an allocation value of $9.65 per right, deferred for three
years and subject to testing against a relative TSR hurdle.
For 2012, it is proposed to grant $3.15 million (100% of Fixed Pay) LTI,
subject to shareholder approval at the 2012 Annual General Meeting,to be delivered as performance rights which will be subject to testing
against the relative TSR hurdle after three years, i.e. December 2015.
Special Equity Allocation: At the 2008 Annual General Meeting,shareholders approved a grant of 700,000 options to the CEO at an
exercise price of $14.18 and with a vesting date of 18 December 2011.
The amortised value of these options has been disclosed as part of
Mr Smith’s remuneration since 2009. At vesting, the one day volume
weighted average price (VWAP) was $20.9407 per share. No options
have been granted subsequently.

REMUNERATION REPORT25

REMUNERATION REPORT (continued)

CEO Equity
Details of deferred shares, options and performance rights granted to
the CEO during the 2012 year and in prior years which vested,

were exercised/sold or which lapsed/were forfeited during the 2012
year are set out in Table 4 below.

TABLE 4: CEO EQUITY GRANTED, VESTED, EXERCISED/SOLD AND LAPSED/FORFEITED
VestedNameType of equity

Numbergranted1

STI deferred shares
STI deferred shares
STI deferred shares3
STI deferred shares3
Special options4

46,05247,44836,73036,729700,000

Grant First date
date exercisable

Dateof expiry Number

Lapsed/Forfeited%

Value2$ Number%

Exercised/Sold

Value2$

Number%Unexer
Vested and -cisable
exercisable
as atValue2 as at 30 Sep 30 Sep
$
2012
2012

CEO
M SmithLTI performance rights 259,740
LTI performance rights5 326,424

13-Nov-09
12-Nov-10
14-Nov-11
14-Nov-11
18-Dec-08

13-Nov-11–
12-Nov-11–
14-Nov-12–
14-Nov-13–
18-Dec-11 17-Dec-13

46,052 100 953,640
47,448 100 982,548
–
–
–
–
–
–
700,000 100 4,732,490

–
–
–
–
–

–
–
–
–
–

19-Dec-07 19-Dec-11 18-Dec-12
16-Dec-11 17-Dec-14 16-Dec-16

259,740 100 5,370,176
–
–
–

–
–

–
–

1 The maximum value at the time of the grant is determined by multiplying the number
granted by the fair value of the equity instruments. The minimum value of the grants, if
the applicable conditions are not met at vesting date, is nil. Options/rights granted include
those granted as remuneration to the CEO. No options/rights have been granted since theend of 2012 up to the signing of the Director’s Report on 5 November 2012.
2 The value of shares and/or performance rights is based on the one day VWAP of theCompany’s shares traded on the ASX on the date of vesting, lapsing/forfeiture or exercising,multiplied by the number of shares and/or performance rights. The value of options is basedon the difference between the one day VWAP and the exercise price, multiplied by the
number of options.

– (46,052) 100 961,916– (47,448) 100 991,075
–
–
–
–
–
–
–
–
– (260,000) 37 2,022,904(440,000) 63 4,624,356– (259,740) 100 5,359,579
–
–
–
–

–
–
–
–

–
–
36,73036,729––––– 326,424

3 The CEO had a proportion of his STI amount deferred as equity. The Board determined thedeferred amount for the CEO. Refer to Table 9 for details of the valuation methodology,
inputs and fair value.
4 Of the 700,000 special options granted 18 December 2008, 260,000 were exercised on
21 February 2012. One day VWAP on date of exercise was $21.9604. The remaining 440,000
special options were exercised on 20 August 2012. One day VWAP on date of exercise was$24.6899. The exercise price was $14.18. LTI performance rights granted 19 December 2007
were exercised on 22 December 2011. One day VWAP on date of exercise was $20.6344.
5 The 2011 LTI grant for the CEO was delivered as performance rights. Refer to section CEO LTI
for further details of the LTI grant and Table 8 for details of the valuation, inputs and fair value.

The movement during the reporting period in shareholdings, options and performance rights of the CEO (held directly, indirectly and by relatedparties) is provided in Notes to the Financial Statements – note 46 on page 184.

CEO’s Contract Terms
The following sets out details of the contract terms relating to the CEO. The contract terms are in line with industry practice (basedon external advice on Australian and international peer company benchmarks) and ASX Corporate Governance Principles.
Length of contract

Mr Smith commenced as CEO and Executive Director of ANZ on 1 October 2007 and is on a permanent contract,which is an ongoing employment contract until notice is given by either party.

Notice periods

Mr Smith or ANZ may terminate the employment agreement by providing 12 months’ written notice.

Resignation

On resignation, all unvested STI deferred shares, all unexercised performance rights (or cash equivalent) and all
unvested and all vested unexercised options will be forfeited.

Termination on
notice by ANZANZ may terminate Mr Smith’s employment by providing 12 months’ written notice or payment in lieu of the notice
period based on fixed remuneration.
On termination on notice by ANZ all unvested STI deferred shares will be released at the original vesting date unlessthe Board determines otherwise; all performance rights (or cash equivalent) which have vested or vest during thenotice period will be retained and become exercisable; all performance rights (or cash equivalent) which have not yet
vested will be retained and will vest and become exercisable subject to the relevant time and performance hurdles
being satisfied. All unvested options will be forfeited.

Death or total andOn death or total and permanent disablement, all unvested STI deferred shares, all performance rights (or cash
permanent disablement equivalent) and all options will vest.

26

ANZ ANNUAL REPORT 2012

Change of control

In the event of takeover, scheme of arrangement or other change of control event occurring, the performance
condition applying to the performance rights will be tested and the performance rights will vest based on the extent
the performance condition is satisfied. No pro rata reduction in vesting will occur based on the period of time from thedate of grant to the date of the change of control event occurring, and vesting will only be determined by the extent
to which the performance condition is satisfied.
Any performance rights which vest based on satisfaction of the performance condition will vest at a time (being nolater than the final date on which the change of control event will occur) determined by the Board.
Any performance rights which do not vest will lapse with effect from the date of the change of control event
occurring, unless the Board determines otherwise.
Any unvested STI deferred shares will vest at a time (being no later than the final date on which the change of control
event will occur) determined by the Board.

Termination forserious misconduct

ANZ may immediately terminate Mr Smith’s employment at any time in the case of serious misconduct, and Mr Smith
will only be entitled to payment of fixed remuneration up to the date of termination.
On termination without notice by ANZ in the event of serious misconduct all STI deferred shares remaining in trust,
performance rights (or cash equivalent) and options will be forfeited.

Statutory Entitlements

Payment of statutory entitlements of long service leave and annual leave applies in all events of separation.

8.3 DISCLOSED EXECUTIVES
Actual remuneration provided to the Disclosed Executives in 2012is summarised below, with remuneration tables provided on pages
30 to 33.
Fixed pay: During 2012, fixed pay for Disclosed Executives remained
unchanged except where individuals were promoted to roles toreflect increased responsibilities. The annual review of ANZ’s fixed
remuneration levels for Disclosed Executives identified they weregenerally competitively positioned within the market and there
were no increases to fixed pay.
During the year, two Disclosed Executives from 2011 (Mr Thursby
and Mr Elliott) were promoted into new roles. At this time, theBoard undertook a review of their remuneration arrangements
against the relevant financial services market for roles of similar
size and accountability. The Board made the decision to adjust
fixed remuneration levels for both individuals at the time of theirpromotion to reflect their expanded roles.
Short Term Incentive (STI): All incentives actually paid in the 2012financial year related to performance from the 2011 financial year,
and all deferred components are subject to the Board’s discretion
to reduce or adjust to zero before vesting.
For the 2012 year, the Board took into consideration overall Company
performance against the balanced scorecard of measures, along withindividual performance against set objectives. Overall, the total
amount of STI payments to Disclosed Executives for the 2012 year
(which are paid in the 2013 financial year) has increased from 2011,reflecting the improvement in company performance, the focus on
productivity and capital efficiency, and progress towards theachievement of longer term targets, demonstrating the link
between performance and variable reward outcomes.

The range in payments to individuals was broad, and for the five
Executives disclosed in both 2012 and 2011, two received the sameamount, one received a minimal increase and two received moresignificant year on year increases.
Long Term Incentive (LTI): LTI performance rights granted toDisclosed Executives during the 2012 financial year were allocatedin November 2011. Subject to meeting the relative TSR performance
hurdle, these performance rights will vest in November 2014.
The LTI grants made in October 2008 were tested against the
TSR performance of the comparator group in October 2011. ANZ’s
TSR performance was ranked the highest, and hence above the75th percentile of the comparator group. Accordingly, 100% of
the performance rights vested in October 2011.
For the 2012 year, the Board elected to grant LTI awards to Disclosed
Executives on average above target, reflecting the importance offocusing Disclosed Executives on the achievement of longer term
strategic objectives and alignment with shareholders interests, andrecognising the capabilities of these individuals and the need toretain their expertise over the longer term.

Disclosed Executives Equity
Details of deferred shares, options and performance rights granted
to the Disclosed Executives during the 2012 year and granted to theDisclosed Executives in prior years which vested, were exercised/soldor which lapsed/were forfeited during the 2012 year are set out inTable 5 following.
The movement in shareholdings, options and performance rightsof the Disclosed Executives (held directly, indirectly and by relatedparties) during the reporting period is provided in Notes to the
Financial Statements – note 46 on page 184.

REMUNERATION REPORT27

REMUNERATION REPORT (continued)

TABLE 5: DISCLOSED EXECUTIVES EQUITY GRANTED,VESTED, EXERCISED/SOLD AND LAPSED/FORFEITED
Name

Type of equity

Numbergranted1

Grant First date
date exercisable

VestedDateof expiry Number

Lapsed/Forfeited%

Value2$ Number

Exercised/Sold%

Value2$

Number

–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5
–
–
–
–
–
–
–
–
5
–
–
–
–
–
–
–
–
–
–
–
–

%

Unexer
Vested and -cisable
exercisable
as atValue2 as at 30 Sep 30 Sep
$
20123
2012

Current Disclosed Executives
P Chronican STI deferred shares
STI deferred shares11
STI deferred shares11
LTI performance rights12
S Elliott
Other deferred shares
Other deferred shares
STI deferred shares
STI deferred shares
STI deferred shares
STI deferred shares11
STI deferred shares11
STI deferred options
STI deferred options
LTI performance rights12
4
D HiscoSTI deferred shares
STI deferred shares
LTI deferred shares
Hurdled options
STI deferred share rights
STI deferred share rights11
STI deferred share rights11
LTI performance rights12
G Hodges5 STI deferred shares
STI deferred shares
STI deferred shares11
STI deferred shares11
Hurdled options
LTI performance rights
LTI performance rights12
J Phillips6 –A Thursby7 Other deferred shares
Other deferred shares
STI deferred shares
STI deferred shares
STI deferred shares11
STI deferred shares11
LTI performance rights
LTI performance rights12
N Williams8 –12,653
16,588
16,587
71,982
7,530
7,530
1,096
1,096
12,126
9,573
9,573
5,307
69,23871,982
5,866
5,866
23,282
10,5308,480
19,072
20,31855,3707,236
9,911
11,848
11,84860,00050,05055,370–62,73543,61026,31524,251
16,588
16,58755,05577,519–12-Nov-10
14-Nov-11
14-Nov-11
14-Nov-11
11-Jun-09
11-Jun-09
13-Nov-09
13-Nov-09
12-Nov-10
14-Nov-11
14-Nov-11
13-Nov-09
12-Nov-10
14-Nov-11
13-Nov-09
13-Nov-09
31-Oct-08
5-Nov-04
12-Nov-10
14-Nov-11
14-Nov-11
14-Nov-11
13-Nov-09
12-Nov-10
14-Nov-11
14-Nov-11
5-Nov-04
31-Oct-08
14-Nov-11–
28-Aug-08
22-Sep-09
13-Nov-09
12-Nov-10
14-Nov-11
14-Nov-11
31-Oct-08
14-Nov-11–

12-Nov-11–
14-Nov-12–
14-Nov-13–
14-Nov-14 14-Nov-16
11-Jun-10–
11-Jun-11–
13-Nov-10–
13-Nov-11–
12-Nov-11–
14-Nov-12–
14-Nov-13–
13-Nov-11 12-Nov-14
12-Nov-11 11-Nov-15
14-Nov-14 14-Nov-16
13-Nov-10–
13-Nov-11–
31-Oct-11–
5-Nov-07 4-Nov-11
12-Nov-11 11-Nov-15
14-Nov-12 14-Nov-14
14-Nov-13 14-Nov-15
14-Nov-14 14-Nov-16
13-Nov-11–
12-Nov-11–
14-Nov-12–
14-Nov-13–
5-Nov-07 4-Nov-11
31-Oct-11 30-Oct-13
14-Nov-14 14-Nov-16––
28-Aug-11–
22-Sep-12–
13-Nov-11–
12-Nov-11–
14-Nov-12–
14-Nov-13–
31-Oct-11 30-Oct-13
14-Nov-14 14-Nov-16––

12,653 100 262,017
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,096 100
22,696
12,126 100 251,104
–
–
–
–
–
–
5,307 100–
69,238 100
–
–
–
–
–
–
–
5,866 100 121,473
23,282 100 508,199–––
8,480 100 175,603
–
–
–
–
–
–
–
–
–
7,236 100 149,842
9,911 100 205,236
–
–
–
–
–
–
–
–
–
50,050 100 1,092,491
–
–
–
–
–
–
–
–
–
43,610 100 1,081,040
26,315 100 544,928
24,251 100 502,187
–
–
–
–
–
–
55,055 100 1,201,741
–
–
–
–
–
–

–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(527)
–
–
–
–
–
–
–
–
(3,000)
–
–
–
–
–
–
–
–
–
–
–
–

–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
363
–
–
–
–
–
–
–
–
2,067
–
–
–
–
–
–
–
–
–
–
–
–

(12,653) 100 266,275
–
–
–
–
–
–
–
–
–
(7,530) 100 163,384(7,530) 100 163,384(1,096) 100
23,781(1,096) 100
23,781(12,126) 100 263,106
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(5,866) 100 126,516(5,866) 100 126,516–––(10,003) 95
3,134(8,480) 100 177,127
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(5,400)9
1,692(50,050) 100 1,092,822
–
–
–
–
–
–
(62,735) 100 1,369,794–––(26,315) 100 549,657(24,251) 100 506,545
–
–
–
–
–
–
(55,055) 100 1,155,786
–
–
–
–
–
–

–
–
–
–
–
–
–
–
–
–
–
5,307
69,238–––23,282
–
–
–
–
–
7,236
9,911
–
–
–
–
–
–
–
43,610
–
–
–
–
–
–
–

–
16,588
16,587
71,982
–
–
–
–
–
9,573
9,573
–
–
71,982–––––
19,072
20,31855,370––11,848
11,848––55,370–––––16,588
16,587–77,519–P Marriott9 STI deferred shares
STI deferred shares
STI deferred shares
STI deferred shares
STI deferred shares
STI deferred shares
STI deferred shares11
STI deferred shares11
LTI deferred shares
LTI deferred shares
Hurdled options
STI deferred options
STI deferred options
LTI performance rights
LTI performance rights
LTI performance rights
LTI performance rights12

5,962
5,963
5,476
5,475
7,127
9,911
14,692
14,691
5,700
5,500
67,60024,19324,19250,05041,08441,80655,37024-Oct-01
24-Oct-01
24-Apr-02
24-Apr-02
13-Nov-09
12-Nov-10
14-Nov-11
14-Nov-11
24-Oct-01
24-Apr-02
5-Nov-04
31-Oct-08
31-Oct-08
31-Oct-08
13-Nov-09
12-Nov-10
14-Nov-11

24-Oct-02–
24-Oct-04–
24-Apr-03–
24-Apr-05–
13-Nov-11–
12-Nov-11–
14-Nov-12–
14-Nov-13–
24-Oct-04–
24-Apr-05–
5-Nov-07 4-Nov-11
31-Oct-09 30-Oct-13
31-Oct-10 30-Oct-13
31-Oct-11 30-Oct-13
31-Aug-12 3-Dec-12
12-Nov-13 11-Nov-15
14-Nov-14 14-Nov-16

–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7,127 100 147,585–––
9,911 100 205,236
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– (3,380)
5
2,329
–
–
–
–
–
–
–
–
–
–
–
–
50,050 100 1,092,491–––
38,310 93 951,345 (2,774)
7 68,886––– (8,583) 21 213,140––– (29,908) 54 742,699(5,962) 100 124,532(5,963) 100 124,553(5,476) 100 128,649(5,475) 100 128,625
–
–
–
–
–
–
–
–
–
–
–
–
(5,700) 100 119,059(5,500) 100 129,213(64,220) 95
20,120(24,193) 100 118,284(24,192) 100 118,280(50,050) 100 1,031,115
–
–
–
–
–
–
–
–
–

–
–
–
–
7,127
9,911
–
–
–
–
–
–
–
–
38,310
–
–

–
–
–
–
–
–
14,692
14,691
–
–
–
–
–
–
–
33,22325,462

C Page10

STI deferred shares

15,350 13-Nov-09 13-Nov-11–

15,350 100

317,866–––(15,350) 100

315,375––

STI deferred shares

11,809 12-Nov-10 12-Nov-11–

11,809 100

244,540–––(11,809) 100

242,623––

STI deferred shares11

15,403 14-Nov-11 14-Nov-12

–

–

–

–

–

–

–

–

–

–

–

15,403

STI deferred shares11

15,402 14-Nov-11 14-Nov-13

–

–

–

–

–

–

–

–

–

–

–

15,402

LTI performance rights
LTI performance rights

38,038 31-Oct-08 31-Oct-11 30-Oct-13
34,921 13-Nov-09 16-Dec-11 16-Mar-12(38,038) 100––

794,523––
24,250––Former Disclosed Executives

28

38,038 100
24,250 69

830,293–––
507,812 (10,671) 31 223,458

ANZ ANNUAL REPORT 2012

1 The maximum value at the time of the grant is determined by multiplying the number
granted by the fair value of the equity instruments. The minimum value of the grants, if
the applicable conditions are not met at vesting date, is nil. Options/rights granted include
those granted as remuneration to the five highest paid executives in the Company and
the Group (being the five highest paid, relevant Group and Company executives who
participate in making decisions that affect the whole, or a substantial part, of the businessof the Company or who have the capacity to significantly affect the Company’s financial
standing). No options/rights have been granted since the end of 2012 up to the signing of
the Director’s Report on 5 November 2012.
2 The value of shares and/or share rights and/or performance rights is based on the one
day VWAP of the Company’s shares traded on the ASX on the date of vesting, lapsing or
exercising, multiplied by the number of shares and/or share rights and/or performancerights. The value of options is based on the difference between the one day VWAP and theexercise price, multiplied by the number of options.
3 For KMP who ceased employment during 2012, the number of equity instruments “Vested
and exercisable” are as at their date of cessation.
4 D Hisco – Hurdled options granted 5 November 2004 were exercised on 4 November 2011.
One day VWAP on date of exercise was $20.9933. The exercise price was $20.68. STI deferredshare rights granted 12 November 2010 were exercised on 14 November 2011. One day
VWAP on date of exercise was $20.8876.
5 G Hodges – Hurdled options granted 5 November 2004 were exercised on 4 November
2011. One day VWAP on date of exercise was $20.9933. The exercise price was $20.68. LTI
performance rights granted 31 October 2008 were exercised on 9 November 2011. One day
VWAP on date of exercise was $21.8346.
6 J Phillips – was appointed to the CEO Global Wealth & Private Banking role on 1 March 2012
and no equity transactions were applicable for the period.

7 A Thursby – LTI performance rights granted 31 October 2008 were exercised on 4 November
2011. One day VWAP on date of exercise was $20.9933.
8 N Williams – was appointed to the Chief Risk Officer role on 17 December 2011 and noequity transactions were applicable for the period.
9 P Marriott – ceased employment 31 August 2012 so equity transactions are to that date.
Transactions include those that transpired prior to cessation and those that were forfeitedon cessation. Hurdled options granted 5 November 2004 were exercised on 4 November
2011. One day VWAP on date of exercise was $20.9933. The exercise price was $20.68. STI
deferred options granted 31 October 2008 were exercised on 11 May 2012. One day VWAP
on date of exercise was $22.0692. The exercise price was $17.18. LTI performance rights
granted 31 October 2008 were exercised on 10 November 2011. One day VWAP on date of
exercise was $20.6017.
10 C Page – retired 16 December 2011 so equity transactions are to that date. Transactions
include those that transpired prior to cessation and those that were forfeited on cessation.
Treatment of equity on retirement is in line with treatment of equity on redundancy. LTI
performance rights granted 31 October 2008 were exercised on 14 November 2011. One day
VWAP on date of exercise was $20.8876. Due to cessation, 11,452 LTI deferred shares granted
12 November 2010 were forfeited and processed by Computershare on 20 December 2011.
11 The Disclosed Executives had a proportion of their STI amount deferred as equity. In 2012 D
Hisco received share rights rather than shares due to taxation regulations in New Zealand.
A share right effectively provides a right in the future to acquire a share in ANZ at nil costto the employee. Refer to the STI arrangements section for further details of the mandatorydeferral arrangements for the Disclosed Executives and Tables 8 and 9 for details of thevaluation methodology, inputs and fair value.
12 The 2011 LTI grants for Disclosed Executives were delivered as performance rights excluding
for the CRO. Refer to section 6.2.2 LTI Arrangements for further details and Table 8 for detailsof the valuation, inputs and fair value.

Disclosed Executives’ Contract Terms
The following sets out details of the contract terms relating to the Disclosed Executives. The contract terms for all Disclosed Executives are
similar, but do on occasion, vary to suit different needs.
Length of contract

Disclosed Executives are on a permanent contract, which is an ongoing employment contract until notice is given
by either party.

Notice periods

In order to terminate the employment arrangements, Disclosed Executives are required to provide the Company
with six months’ written notice. ANZ must provide Disclosed Executives with 12 months’ written notice.

Resignation

On resignation, unless the Board determines otherwise, all unvested deferred shares, all unvested or vested but
unexercised performance rights, all options and all deferred share rights are forfeited.

Termination on
notice by ANZANZ may terminate the Disclosed Executive’s employment by providing 12 months’ written notice or payment
in lieu of the notice period based on fixed remuneration. On termination on notice by ANZ, unless the Board
determines otherwise:
all unvested deferred shares, performance rights, options and deferred share rights are forfeited at the time notice
is given to the Disclosed Executive; andonly performance rights, options and deferred share rights that are vested may be exercised.

Redundancy

If ANZ terminates employment for reasons of redundancy, a severance payment will be made that is equal to
12 months’ fixed remuneration.
All STI deferred shares and STI deferred share rights remain subject to clawback and are released at the original
vesting date. Options, performance rights, LTI deferred shares and LTI deferred share rights are either released infull or on a pro-rata basis, at the discretion of the Board with regard to the circumstances.

Death or total andOn death or total and permanent disablement all unvested STI deferred shares, all deferred share rights, performancepermanent disablement rights and all options will vest.
Termination forserious misconduct

ANZ may immediately terminate the Disclosed Executive’s employment at any time in the case of serious misconduct,
and the employee will only be entitled to payment of fixed remuneration up to the date of termination.
On termination without notice by ANZ in the event of serious misconduct any options, performance rights, deferredshares and deferred share rights still held in trust will be forfeited.

Statutory Entitlements

Payment of statutory entitlements of long service leave and annual leave applies in all events of separation.

Other arrangements

P Chronican
As Mr Chronican joined ANZ in November 2009 he was not included in the LTI grants made to other Management
Board members in early November 2009. Accordingly, a separate LTI grant was made in December 2009 providing
performance rights on the same terms and conditions as those provided to Management Board for 2009, apart fromthe allocation value which varied to reflect the different values at the respective grant dates.
A Thursby
As part of Mr Thursby’s employment arrangement, he was granted three separate tranches of deferred shares to thevalue of $1 million per annum, subject to Board approval. The first tranche was granted in September 2007 and vested
in September 2010, the second tranche was granted in August 2008 and vested in August 2011, and the third tranche
was granted in September 2009 and vested in September 2012.
REMUNERATION REPORT29

REMUNERATION REPORT (continued)

8.4 REMUNERATION TABLES – CEO AND DISCLOSED EXECUTIVES
Table 6: Non Statutory Remuneration, has been prepared to provide
shareholders with a view of remuneration structure and how
remuneration was paid or communicated to the CEO and Disclosed
Executives for 2011 and 2012. The Board believes presenting

Non
Statutory
Table

information in this way provides the shareholder with increased
clarity and transparency of the CEO and Disclosed Executives’
remuneration, clearly showing the amounts awarded for eachremuneration component (fixed remuneration, STI and LTI) within

Individuals included in table

Fixed remuneration

Non monetary benefits

Long service leave

CEO andCurrent Disclosed Executives

Total of cash salary andsuperannuation contributions

Non monetary benefits
which typically consistsof company-funded benefits
and fringe benefits tax
payable on these benefits

Not included

Cash salary and superannuation
contributions, when totalled
the value is the same as above

As aboveLong service leaveaccrued during the year

(pro rated for periodof year as a KMP)

Statutory
Table

CEO, Current andFormer Disclosed Executives(pro rated for periodof year as a KMP)

1 Subject to Shareholder approval for the CEO

Fixed

TABLE 6: NON STATUTORY REMUNERATION

Remuneration1$

Non monetary
benefits$

Cash$

Deferred as
equity
$

2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012

3,150,000
3,150,000
1,300,000
1,300,000
1,187,000
1,050,000
1,000,000
960,000
1,000,000
1,000,000
580,000

121,900
105,515
7,590
5,744
40,853
10,191
309,757
357,283
13,78924,3505,500

1,900,000
1,750,000
850,000
900,000
1,100,000
604,000
900,000
902,400
650,000
700,000
377,000

1,800,000
1,550,000
750,000
700,000
1,000,000
404,000
800,000
710,400
550,000
500,000
319,000

2012
2011
2012

1,187,000
1,050,000
790,000

7,590
7,375
32,675

1,100,000
900,000
533,250

1,000,000
700,000
454,250

FinancialYear

CEO and Current Disclosed Executives
M Smith2
Chief Executive Officer
P Chronican3
Chief Executive Officer, Australia
S Elliott4
Chief Financial Officer
D Hisco5
Chief Executive Officer, New Zealand
G Hodges6
Deputy Chief Executive Officer
J Phillips7
CEO Global Wealth & Private Banking
A Thursby8
Chief Executive Officer, International & Institutional Banking
N Williams9
Chief Risk Officer

1 Fixed remuneration was unchanged for Disclosed Executives, other than those promoted
during the year whose remuneration was increased to reflect expanded responsibilities.
2 M Smith – The 2012 LTI relates to the LTI grant that is proposed for 2012, subject to approvalby shareholders at the 2012 Annual General Meeting. The 2011 LTI relates to the LTI grant
approved by shareholders at the 2011 Annual General Meeting. Non monetary benefits
include car parking, life insurance and taxation services. In 2012 equity to the value of$1,936,189 vested in respect of previously disclosed deferred STI granted in 2009 and 2010.
Also, equity to the value of $5,370,176 vested in respect of previously disclosed deferred LTI
granted in 2007, as approved by shareholders. In addition, equity to the value of $4,732,490
vested in respect of previously disclosed Special Options granted in 2008, as approvedby shareholders.

30

3 P Chronican – Non monetary benefits include car parking expenses. In 2012 equity to thevalue of $262,017 vested in respect of previously disclosed deferred STI granted in 2010.
4 S Elliott – Fixed remuneration represents what was paid during the year (an increase to$1,250,000 occurred at date of promotion, 1 March 2012 – this figure has been referenced
to calculate STI as a % of target and maximum opportunity). Non monetary benefits include
car parking and taxation services/expenses. In 2012 equity to the value of $273,800 vested
in respect of previously disclosed deferred STI granted in 2009 and 2010.
5 D Hisco – Commenced in role on 13 October 2010 so 2011 remuneration reflects amounts
received for the partial service for the 2011 year. Non monetary benefits include relocation
expenses such as housing assistance, and car parking and taxation services expenses.

ANZ ANNUAL REPORT 2012

the financial year. Details of prior year awards which may have vested
in 2011 and 2012 are provided in the footnotes.
The information provided in Table 6 is non statutory informationand differs from the information provided in Table 7: Statutory

Remuneration on page 32, which has been prepared in accordancewith Australian Accounting Standards. A description of the difference
between the two tables is provided below:

Retirement benefits

STI

LTI

Other equity allocations

Not included

STI awarded in Nov 2012
for the 2012 financial year –expressed as a cash value plus
a deferred equity grant value

Communicated value of
LTI granted in Nov/Dec1 2012

Nil, as nothing awaredin 2011 or 2012

The equity fair value multipliedby the number of instruments granted
equals the STI/LTI deferred equity dollar value
Retirement benefit accrued
during the year. This relates
to a retirement allowanceavailable to individuals
employed prior to Nov 1992

Includes cash STI (Nov 2012 elementonly) and amortised STI for deferred
equity from prior year awards

Amortised LTI values relate to LTI
awards made in Nov 2008 and 2009,
and Nov/Dec 2010 and 2011

Amortised values for equity
awards made in prior years,
excluding STI and LTI awards

Amortised STI values relate
to STI awards made in Nov 2009,2010 and 2011
Equity is equally amortised over the vesting period of the award.
Refer to footnote 6 of the Statutory Table for details of how amortised values are calculated

STI

LTI

Total Remuneration

Total
$

As % of target%

As % of maximum
opportunity%

Total (deferred as
equity)$Received$

Deferred as equity
$

Total
$

3,700,000
3,300,000
1,600,000
1,600,000
2,100,000
1,008,000
1,700,000
1,612,800
1,200,000
1,200,000
696,000

117%
105%
103%
103%
140%
80%
142%
140%
100%
100%
100%

47%
42%
41%
41%
56%
32%
57%
56%
40%
40%
40%

3,150,000
3,150,000
650,000
650,000
1,200,000
650,000
500,000
480,000
500,000
500,000
290,000

5,171,900
5,005,515
2,157,590
2,205,744
2,327,853
1,664,191
2,209,757
2,219,683
1,663,789
1,724,350
962,500

4,950,000
4,700,000
1,400,000
1,350,000
2,200,000
1,054,000
1,300,000
1,190,400
1,050,000
1,000,000
609,000

10,121,900
9,705,515
3,557,590
3,555,744
4,527,853
2,718,191
3,509,757
3,410,083
2,713,789
2,724,350
1,571,500

2,100,000
1,600,000
987,500

140%
127%
104%

56%
51%
42%

1,200,000
700,000
474,000

2,294,590
1,957,375
1,355,925

2,200,000
1,400,000
928,250

4,494,590
3,357,375
2,284,175

In 2012 equity to the value of $297,076 vested in respect of deferred STI granted in 2009 and2010. In addition, equity to the value of $508,199 vested in respect of deferred LTI granted
in 2008.
6 G Hodges – Non monetary benefits include car parking and taxation services. In 2012 equity
to the value of $355,078 vested in respect of previously disclosed deferred STI granted in2009 and 2010. In addition, equity to the value of $1,092,491 vested in respect of previously
disclosed deferred LTI granted in 2008.
7 J Phillips – Commenced in role 1 March 2012 so remuneration (fixed, STI and LTI) reflects
amounts received for the partial service for the 2012 year. Non monetary benefits include
taxation services.

8 A Thursby – Fixed remuneration represents what was paid during the year (an increase to$1,250,000 occurred at date of promotion, 1 March 2012 – this figure has been referenced to
calculate STI as a % of target and maximum opportunity). Non monetary benefits include car
parking expenses. In 2012 equity to the value of $1,047,116 vested in respect of previously
disclosed deferred STI granted in 2009 and 2010 and equity to the value of $1,201,741
vested in respect of previously disclosed deferred LTI granted in 2008. In addition, equity to
the value of $1,081,040 vested in respect of previously disclosed equity granted in 2009 inconnection with his commencement with ANZ.
9 N Williams – Commenced in role 17 December 2011 so remuneration (fixed, STI and LTI)
reflects amounts received for the partial service for the 2012 year. Non monetary benefits
include relocation, car parking and taxation services expenses.

REMUNERATION REPORT

31

REMUNERATION REPORT (continued)

TABLE 7: STATUTORY REMUNERATION – CEO AND DISCLOSED EXECUTIVE REMUNERATION FOR 2012 AND 2011

Short-Term Employee Benefits

Post-Employment

Total cash
incentive2,3$Supercontributions 4$

Retirement
benefit accrued
during year5$

Cash salary$

Non monetary
benefits1
$

2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012

3,150,000
3,150,000
1,192,661
1,191,030
1,088,991
963,3031,000,000
960,000
917,431
917,431
532,110

121,900
105,515
7,590
5,744
40,853
10,191
309,757
357,283
13,78924,3505,500

1,900,000
1,750,000
850,000
900,000
1,100,000
604,000
900,000
902,400
650,000
700,000
377,000––
107,339
107,339
98,00986,697––
82,56982,56947,890

–
–
–
–
–
–
4,237
4,107
4,237
4,278
–

A Thursby
Chief Executive Officer International& Institutional Banking

2012
2011

1,187,000
1,050,000

7,590
7,375

1,100,000
900,000––––

N Williams11
Chief Risk Officer

2012724,771

32,675533,250

65,22920,477

2012
2011
2012
2011
2012
2011

886,239915,830
211,927
1,009,174
10,891,130
10,156,768

20,2295,774
14,257
7,375
574,140
523,607412,500
820,000–
850,000
7,822,750
7,426,400

79,761
82,56919,07390,826499,870
450,000––––
28,951
8,385

FinancialYear

CEO and Current Disclosed Executives
M Smith10
Chief Executive Officer
P Chronican
Chief Executive Officer, Australia
S Elliott
Chief Financial Officer
D Hisco11, 12
Chief Executive Officer, New Zealand
G Hodges12
Deputy Chief Executive Officer
J Phillips11
CEO Global Wealth & Private Banking

Former Disclosed Executives
P Marriott11
Former Chief Financial Officer
C Page11
Former Chief Risk Officer
Total of all Executive KMPs13

1 Non monetary benefits generally consist of company-funded benefits such as car parking
and taxation services. This item also includes costs met by the company in relation to
relocation, such as housing assistance, gifts received on leaving ANZ for former Disclosed
Executives, and for the CEO, life insurance. The fringe benefits tax payable on any benefits
is also included in this item.
2 The total cash incentive relates to the cash component only, with the deferred equity
component to be amortised from the grant date. The relevant amortisation of the 2011
STI deferred components are included in share-based payments. The 2012 STI deferredcomponents will be amortised from the grant date in the 2013 Remuneration Report. The
cash incentive component was approved by the Board on 23 October 2012. 100% of the
cash incentive awarded for the 2011 and 2012 years vested to the Disclosed Executive in
the applicable financial year.
3 The possible range of STI is between 0 and 2.5 times target STI. The actual STI received isdependent on ANZ, Division and individual performance (refer to Section 6.2.1 for moredetails). The 2012 STI awarded (cash and equity component) as a percentage of target STI
was: M Smith 117% (2011: 105%); P Chronican 103% (2011: 103%); S Elliott 140% (2011:80%); D Hisco 142% (2011: 140%); G Hodges 100% (2011: 100%); J Phillips 100%; A Thursby
140% (2011: 127%); N Williams 104%; P Marriott 86% – prorated to date ceased in role, 31
May 2012 (2011: 120%); C Page (2011: 114%). Anyone who received less than 100% of target
forfeited the rest of their STI entitlement. The minimum value is nil and the maximum value
is what was actually paid.
4 As M Smith and A Thursby are holders of long stay visas, their fixed remuneration does notinclude the 9% Superannuation Guarantee Contribution, however they are able to electvoluntary superannuation contributions. For all other Australian based Disclosed Executives,
the superannuation contribution reflects the 9% Superannuation Guarantee Contribution– individuals may elect to take this contribution as superannuation or a combination ofsuperannuation and cash.

32

5 Accrual relates to Retirement Allowance. As a result of being employed with ANZ priorto November 1992, D Hisco, G Hodges and N Williams are eligible to receive a Retirement
Allowance on retirement, retrenchment, death, or resignation for illness, incapacity or
domestic reasons. The Retirement Allowance is calculated as follows: three months ofpreserved notional salary (which is 65% of Fixed Remuneration) plus an additional 3% of
notional salary for each year of fulltime service above 10 years, less the total accrual valueof long service leave (including taken and untaken).
6 In accordance with the requirements of AASB 2, the amortisation value includes a
proportion of the fair value (taking into account market-related vesting conditions) of allequity that had not yet fully vested as at the commencement of the financial year. It is
assumed that deferred shares will vest after three years. Assumptions for options/rights
are detailed in Table 8. The fair value is determined at grant date and is allocated on astraight-line basis over the relevant vesting period. The amount included as remuneration
is not related to nor indicative of the benefit (if any) that may ultimately be realised should
the options/rights become exercisable. For deferred shares, the fair value is the volume
weighted average price of the Company’s shares traded on the ASX on the day the shareswere granted.
7 Amortisation of other equity allocations for M Smith relates to the special equity allocation
which was approved by shareholders at the 2008 Annual General Meeting. Amortisation for
S Elliott and A Thursby relates to equity granted on commencement.
8 Remuneration amounts disclosed exclude insurance premiums paid by the consolidated
entity in respect of directors’ and officers’ liability insurance contracts which cover current
and former KMP of the controlled entities. The total premium, which cannot be disclosed
because of confidentiality requirements, has not been allocated to the individuals coveredby the insurance policy as, based on all available information, the directors believe that noreasonable basis for such allocation exists.

ANZ ANNUAL REPORT 2012

Long-Term
Employee
Benefits

Share-Based Payments6
Total amortisation value of
STI

LTI

Other equity allocations7Long service
leave accrued
during the year$

Shares$

Options andRights$Shares$Rights$Shares$

Options$

Termination
benefits$

48,07954,804
19,842
19,78822,985
16,99815,263
14,613
15,263
15,222
10,7101,750,829
2,103,407
637,349
390,271438,387
389,245
7,788
78,245477,366
406,248
225,957––––
178,342
386,466
602,172
238,076
–
7,688
–

–
–
–
–
–
–
10,958
127,644–––2,590,496
2,346,954
623,306
406,838
540,049
327,641
412,856
248,567
493,164
498,629
258,774–––––
43,921–––––

113,189
528,216
–
–
–
–
–
–
–
–
–

–
–
–
–
–
–
–
–
–
–
–

9,674,493
10,038,896
3,438,087
3,021,010
3,507,616
2,828,462
3,263,031
2,930,935
2,653,819
2,656,415
1,457,941

26,62518,326

838,469
1,121,512

–
9,938

–
–

586,415542,653

329,842642,574––––

4,075,941
4,292,378

120,504

494,744–

373,958

9,198

–

–

–

2,374,806–
15,222–
16,744279,271
171,717

778,868
407,040
849,289
577,532
6,499,046
5,473,500

–
2,923
–
–
780,514645,091––
27,986
122,803412,902250,447

646,594498,629
39,377
267,465
6,200,229
5,137,376––––
329,842
686,495––––
113,189
528,216

1,154,384–
16,842–
1,171,226–

3,978,575
2,747,987
1,178,751
2,941,919
35,603,060
31,458,002

9 The disclosed amortised value of rights/options for each KMP as a percentage of Grand Total
Remuneration is: M Smith 28%; P Chronican 18%; S Elliott 20%; D Hisco 31%; G Hodges 19%;
J Phillips 18%; A Thursby 14%; N Williams 0.5%; P Marriott 16%; C Page 3%.
10 While the CEO is an Executive Director, he has been included in this table with theDisclosed Executives.
11 D Hisco was appointed to the CEO, New Zealand role on 13 October 2010 so remunerationreflects amounts received for the partial service for the 2011 year. J Phillips was appointed
to the CEO, Global Wealth & Private Banking role on 1 March 2012 so remuneration reflects
amounts received for the partial service for the 2012 year. N Williams was appointed to theChief Risk Officer role on 17 December 2011 so remuneration reflects amounts received forthe partial service for the 2012 year. P Marriott ceased employment 31 August 2012 andremuneration is to this date; the STI has been pro-rated to date ceased in role, 31 May 2012.
C Page retired 16 December 2011 and remuneration is to this date.
12 2011 amortisation of STI shares and STI share rights for G Hodges and D Hisco, included in
the 2011 Annual Report under STI shares and share rights, has been included separately
with the amortisation of STI shares and STI options and rights in the table above.

Grand total
remuneration8,9$

13 For those Disclosed Executives who were disclosed in both 2011 and 2012, the following
are noted:– P Chronican – moderate uplift on year-on-year remuneration, driven by an increasein the amortised value of equity.
– S Elliott – uplift on year-on-year remuneration, driven by a combination of factors
including increases in fixed remuneration on promotion, non monetary benefits andcash STI.
– D Hisco – 2011 remuneration only reflected a partial year as he moved from Australia
to take up the assignment of CEO, New Zealand in that year. Uplift on year-on-year
remuneration due to an increase in the amortised value of equity.
– G Hodges – fixed remuneration remains unchanged and year on year remuneration
is similar.
– A Thursby – a decrease year-on-year overall, despite an increase in fixed remunerationand cash STI, due to a decrease in the amortised value of equity.
– P Marriott – 2012 remuneration only reflected a partial year as he concluded in the
Chief Financial Officer role 31 May 2012 and ceased employment 31 August 2012.
Uplift on year-on-year remuneration with a decrease in partial year cash STI, an increasein amortised value of equity and the receipt of termination benefits (of which nearly
half were statutory leave entitlements).
– C Page – 2012 remuneration only reflected a partial year as he retired and therefore
concluded in the Chief Risk Officer role 16 December 2011. Only in role partial year
(2.5 months), accordingly year-on-year comparisons are not appropriate.
J Phillips and N Williams are disclosed only for part of the 2012 year from commencementin KMP roles.

REMUNERATION REPORT33

REMUNERATION REPORT (continued)

8.5 STI – PERFORMANCE AND STI CORRELATIONANZ has had another successful year with performance assessedby the Board as largely being solid and on target across the full rangeof quantitative and qualitative measures. Metrics associated withshareholder returns have outperformed overall, metrics associatedwith finance, connectivity and people have been on target overall,and customer satisfaction was assessed as slightly below target
overall. The Board has given full consideration to the performance of
the Group and the Disclosed Executives in determining their rewards.

FIGURE 3: ANZ – UNDERLYING PROFIT1(UNAUDITED) & AVERAGE
6,011
STI ($ MILLION)
5,652
5,025

3,772
3,426

For 2012 the average STI for the CEO and Disclosed Executives
was 117% of target compared to 110% of target for the prior year.
This increase (7%) broadly aligns with the year on year increasein underlying profit (6%).
Figure 3 illustrates the relationship between the average actual
STI (cash and deferred equity components) against target and theGroup’s performance measured using underlying profit over the last
5 years. The average STI payments for each year are based on those
executives (including the CEO) disclosed in each relevant
reporting period.

Underlying Profit

STI as % of Target
76%

106%

137%

110%

117%

2008

2009

2010

2011

2012

1 Profit has been adjusted for non-core items to arrive at underlying profit, the result for the ongoing business activities of the Group. These adjustments have been determined on a consistentbasis with those made in prior periods. The adjustments made in arriving at underlying earnings are included in statutory profit which is subject to audit within the context of the Group statutory
audit opinion. Underlying profit is not audited, however, the external auditor has informed the Audit Committee that the adjustments, and the presentation thereof, are based on the guidelines
released by the Australian Institute of Company Directors (AICD) and the Financial Services Institute of Australasia (FINSIA). Further details on underlying profit are provided on page 55.

9. Equity
All shares underpinning equity awards may be purchased on market, or be newly issued shares or a combination of both. For the 2011 equity
granted to the CEO and Disclosed Executives, all STI deferred shares were purchased on market and for LTI performance rights, the approachto satisfy awards will be determined closer to the time of vesting.

9.1 EQUITY VALUATIONSANZ engages two external experts (Mercer (Australia) Pty Ltd and PricewaterhouseCoopers) to independently value any required options,deferred share rights and performance rights, taking into account factors including the performance conditions, share price volatility, life of
instrument, dividend yield and share price at grant date. These valuations are then audited by KPMG and ANZ Global Internal Audit. The higherof the two valuations is then approved by the HR Committee as the allocation and/or expensing/disclosure value (referencing the higher
valuation results in fewer instruments being granted). The following table provides details of the valuations of the various equity instruments
issued during the year:
TABLE 8: EQUITY VALUATION INPUTS – OPTIONS/RIGHTS
Recipients

Type of equity

Grant date

Exercise
price$

Executives
Executives
Executives
CEO

STI deferred share rights 14-Nov-11
STI deferred share rights 14-Nov-11
LTI performance rights 14-Nov-11
LTI performance rights 16-Dec-11

0.00
0.00
0.00
0.00

Equity
fair
value
$

Share
closing priceat grant$

ANZ
expected
volatility%

Equityterm(years)Vesting
period(years)Expected
life(years)Expected
dividendyield%

Risk freeinterest
rate
%

19.40
18.21
9.03
9.65

20.66
20.66
20.66
20.93

25
25
25
25

3
4
5
5

1
2
3
3

1
2
3
3

6.50
6.50
6.50
7.00

3.70
3.65
3.53
3.06

TABLE 9: EQUITY VALUATION INPUTS – DEFERRED SHARES
Grant date

Equity fairvalue1$

Share
closing priceat grant$

Vesting period(years)Recipients

Type of equity

CEO and Executives

STI deferred shares

14-Nov-11

20.89

20.66

1

CEO and Executives

STI deferred shares

14-Nov-11

20.89

20.66

2

1 The volume weighted average share price of all ANZ shares sold on the ASX on the date of grant is used to calculate the fair value of shares. No dividends are incorporated into the measurementof the fair value of shares.

34

ANZ ANNUAL REPORT 2012

9.2 LEGACY LTI PROGRAM
Following are details relating to a legacy LTI program which is no longer offered but which has existing participants.
Type of Equity

Details

Hurdled options (Hurdled B)(granted November 2004)

In November 2004 hurdled options were granted with a relative TSR performance hurdle attached.
The proportion of options that become exercisable will depend upon the TSR achieved by ANZ relative
to the companies in the comparator group. Performance equal to the median TSR of the comparatorgroup will result in half the options becoming exercisable. Performance above median will result infurther options becoming exercisable, increasing on a straight-line basis until all of the options become
exercisable where ANZ’s TSR is at or above the 75th percentile in the comparator group. Where ANZ’s
performance falls between two of the comparators, TSR is measured on a pro rata basis. The exercise
period concluded on 4 November 2011.

Plan Features

an exercise price is set equal to the weighted average sale price of all fully paid ordinary sharesin the Company sold on the ASX during the one week prior to and including the date of grant;
a maximum life of seven years and an exercise period that commences three years after the dateof grant, subject to performance hurdles being met;
options are re-tested monthly (if required) after the commencement of the exercise period;
upon exercise, each option entitles the option-holder to one ordinary share;in case of resignation or termination on notice or dismissal for misconduct: options are forfeited;in case of redundancy: options are pro-rated and a grace period is provided in which to exercise
the remaining options (with hurdles waived, if applicable); andin case of retirement, death or total and permanent disablement: a grace period is provided
in which to exercise all options (with hurdles waived, if applicable).

Signed in accordance with a resolution of the Directors.

John MorschelMichael R P Smith

Chairman

Director

5 November 2012

REMUNERATION REPORT35

CORPORATE GOVERNANCE
THE FOLLOWING STATEMENT SETS OUT THE GOVERNANCE FRAMEWORK THE BOARD HAS ADOPTED
AT ANZ AS WELL AS HIGHLIGHTS OF THE SUBSTANTIVE WORK UNDERTAKEN BY THE BOARD AND
ITS COMMITTEES DURING THE FINANCIAL YEAR.

2012 Key Areas of Focus and Achievements
Oversight of strategic initiatives, including ANZ’s growth in
the Asia Pacific region and the challenges facing the banking
industry in the Australian and New Zealand domestic
environments.
Continued careful monitoring of increasing regulatory
requirements in relation to capital and funding, andof the management of ANZ’s businesses in thatchanging environment.
Review of the impacts arising from the continuing volatility
and uncertainties in global markets (including Europe inparticular) and the implications for ANZ, including both thepotential risks and opportunities.

Completion of a performance review of the Board by anindependent external assessor who presented the outcomesto Directors in October 2011.
Appointment of Ms Dwyer as a new Non-Executive
Director as part of a managed succession plan having regard
to the scheduled retirement of three Non-Executive Directors
in late 2013.
Recognition of ANZ as the leading bank globally on the Dow
Jones Sustainability Index. ANZ has sustained a high level of
performance on this Index for eleven years in succession. This
year ANZ received a rating of 95/100 for Corporate Governanceas part of the assessment – this represents the global sector
leading score compared to a global sector average of 71/100.

Approach to GovernanceIn relation to corporate governance, the Board seeks to:embrace principles and practices it considers to be bestpractice internationally;be an ‘early adopter’, where appropriate, by complying before
a published law or recommendation takes effect; andtake an active role in discussions of corporate governance bestpractice and associated regulation in Australia and overseas.

Compliance with Corporate Governance Codes
ANZ has equity securities listed on the Australian Securities Exchange(ASX) and the New Zealand Stock Exchange (NZX), and debt securities
listed on these and other overseas Securities Exchanges. ANZ must
therefore comply (and has complied) with a range of listing andcorporate governance requirements from Australia and overseas.
AUSTRALIA
As a company listed on the ASX, ANZ is required to disclose how
it has applied the Recommendations contained within the ASX
Corporate Governance Council’s Corporate Governance Principles
and Recommendations (ASX Governance Principles) during thefinancial year, explaining any departures from them. ANZ confirms
it has followed the Recommendations of the ASX Corporate
Governance Council during the reporting period.
Full details of the location of the references in this statement (andelsewhere in this Annual Report) which specifically set out how ANZ
applies each Recommendation of the ASX Governance Principles
are contained on anz.com > About us > Our company > Corporate
governance.

36

Changes to the ASX Governance Principles came into effect for
ANZ’s financial year beginning on 1 October 2011. ANZ has taken
steps to comply with these changed requirements.
NEW ZEALAND
As an overseas listed issuer on the NZX, ANZ is deemed to comply
with the NZX Listing Rules provided that it remains listed on the
ASX, complies with the ASX Listing Rules and provides the NZX
with all the information and notices that it provides to the ASX.
The ASX Governance Principles may materially differ from the
NZX’s corporate governance rules and the principles of the NZX’s
Corporate Governance Best Practice Code. More information
about the corporate governance rules and principles of the ASX
can be found at asx.com.au and, in respect of the NZX, at nzx.com.
ANZ has complied with all applicable governance principles in
New Zealand throughout the financial year.
OTHER JURISDICTIONSANZ also monitors best practice developments in corporate
governance across other relevant jurisdictions.
ANZ deregistered from the US Securities Exchange Commission (SEC)with effect from October 2007. Despite no longer being required
to comply with United States of America (US) corporate governancerules, ANZ’s corporate governance practices continue to haveregard to US corporate governance regulations in relation to the
independence of Directors, the independence of the external auditor
and the financial expertise of the Audit Committee, as described inthis statement.

ANZ ANNUAL REPORT 2012

WebsiteDirectors

Further details of ANZ’s governance framework are set out at anz.com> About us > Our company > Corporate governance.

The information below relates to the Directors in office andsets out their Board Committee memberships and other details,
as at 30 September 2012.

This section of ANZ’s website also contains copies of all the Board/
Board Committee charters and summaries of many of the documents
and policies mentioned in this statement, as well as summaries
of other ANZ policies of interest to shareholders and stakeholders.
The website is regularly updated to ensure it reflects ANZ’s mostrecent corporate governance information.

Mr J P Morschel Chairman, Independent Non-Executive Director
DIPQS, FAICD

Former Directorships include

Non-Executive Director since October 2004. Ex officio memberof all Board Committees.

Former Chairman: Rinker Group Limited (Chairman and Director
2003–2007), Leighton Holdings Limited (Chairman and Director
2001–2004) and CSR Limited (Director 1996–2003, Chairman
2001–2003).
Former Director: Singapore Telecommunications Limited (2001–2010), Rio Tinto Plc (1998–2005), Rio Tinto Limited (1998–2005),
Westpac Banking Corporation (1993–2001), Lend Lease Corporation
Limited (1983–1995) and Tenix Pty Ltd (1998–2008).

Skills, experience and expertise

Mr Morschel has a strong background in banking, financial services
and property and brings the experience of being a Chairman and
Director of major Australian and international companies.
Current Directorships

Director: CapitaLand Limited (from 2010), Tenix Group Pty Limited(from 2008) and Gifford Communications Pty Limited (from 2000).

Age: 69. Residence: Sydney, Australia.

Mr M R P Smith, OBE, Chief Executive Officer, Executive Director
BSC (HONS)

Chief Executive Officer since 1 October 2007.
Skills, experience and expertise

Mr Smith is an international banker with over 30 years experiencein banking operations in Asia, Australia and internationally.
Until June 2007, he was President and Chief Executive Officer,
The Hongkong and Shanghai Banking Corporation Limited,
Chairman, Hang Seng Bank Limited, Global Head of Commercial
Banking for the HSBC Group and Chairman, HSBC Bank Malaysia
Berhad. Previously, Mr Smith was Chief Executive Officer of HSBC
Argentina Holdings SA.
Mr Smith joined the HSBC Group in 1978 and during his international
career he has held a wide variety of roles in Commercial, Institutionaland Investment Banking, Planning and Strategy, Operations andGeneral Management.
Current Directorships

Chairman: Australian Bankers’ Association Incorporated (from 2011,
Member from 2007).

Director: ANZ Bank New Zealand Limited (from 2007), theFinancial Markets Foundation for Children (from 2008), Financial
Literacy Australia Limited (from 2012), the International Monetary
Conference (from 2012) and the Institute of International Finance(from 2010).
Member: Chongqing Mayor’s International Economic Advisory
Council (from 2006), Business Council of Australia (from 2007),
Asia Business Council (from 2008), Australian Government Financial
Literacy Advisory Board (from 2008) and Shanghai International
Financial Advisory Council (from 2009).
Fellow: The Hong Kong Management Association (from 2005).
Former Directorships include

Former Chairman: HSBC Bank Malaysia Berhad (2004–2007) andHang Seng Bank Limited (2005–2007).
Former CEO and Director: The Hongkong and Shanghai Banking
Corporation Limited (2004–2007).
Former Director: HSBC Australia Limited (2004–2007), HSBC
Finance Corporation (2006–2007) and HSBC Bank (China) Company
Limited (2007).
Former Board Member: Visa International (Asia Pacific) Limited(2005–2007).
Age 56. Residence: Melbourne, Australia.
CORPORATE GOVERNANCE

37

CORPORATE GOVERNANCE (continued)

Dr G J Clark Independent Non-Executive Director, Chair of the Technology Committee
BSC (HONS), PHD, FAPS, FTSE

Current Directorships

Non-Executive Director since February 2004. Member of the Risk
Committee and Human Resources Committee.

Chairman: KaComm Communications Pty Ltd (from 2006) and
CUDOS Advisory Board (from 2011).
Member: The Royal Institution of Australia (from 2010).

Skills, experience and expertise

Dr Clark brings to the Board international business experience anda distinguished career in micro-electronics, computing andcommunications. He was previously Principal of Clark Capital Partners,
a US based firm that has advised internationally on technology and thetechnology market place, and he has held senior executive positionsin IBM, News Corporation and Loral Space and Communications.

Former Directorships include

Former Director: Eircom Holdings Ltd (formerly Babcock & Brown
Capital Limited) (2006–2009).
Former Principal: Clark Capital Partners (2003–2010).
Age: 69. Residence: Based in New York, United States of America andalso resides in Sydney, Australia.

Ms P J Dwyer Independent Non-Executive Director
BCOM, FCA, F FIN, FAICD

Non-Executive Director since April 2012. Member of the Audit
Committee and Risk Committee.
Skills, experience and expertiseMs Dwyer is an established non-executive director with extensive
experience in financial services and a strong accounting background,and has previously held executive roles in the investment
management, corporate finance and accounting industries.
Current Directorships

Director: Leighton Holdings Limited (from 2012) and Lion Pty Ltd(from 2012).
Member: Australian Government Takeovers Panel (from 2008).
Former Directorships include

Former Director: Suncorp Group Limited (2007-2012), Foster’s Group
Limited (2011), Astro Japan Property Group Limited (2005-2011),
Healthscope Limited (2010) and CCI Investment Management Limited(1999-2011).
Age: 52. Residence: Melbourne, Australia.

Chairman: Tabcorp Holdings Limited (from 2011, Director from 2005).
Deputy Chairman: Baker IDI Heart and Diabetes Institute (from 2005).

Mr P A F Hay Independent Non-Executive Director, Chair of the Governance Committee
LLB (MELB), FAICD

Non-Executive Director since November 2008. Member of the Audit
Committee and Human Resources Committee.
Skills, experience and expertise

Mr Hay has a strong background in company law and investmentbanking advisory work, with a particular expertise in relation tomergers and acquisitions. He has also had significant involvementin advising governments and government-owned enterprises.
Current Directorships

Chairman: Lazard Pty Ltd Advisory Board (from 2009).

38

Director: Alumina Limited (from 2002), Landcare Australia Limited(from 2008), GUD Holdings Limited (from 2009) and Myer Holdings
Limited (from 2010).
Member: Australian Government Takeovers Panel (from 2009).
Former Directorships include

Former Chief Executive Officer: Freehills (2000–2005).
Former Director: NBN Co Limited (2009–2012), Myer Pty Limited(2010-2011) and Lazard Pty Ltd (2007–2009).
Age: 62. Residence: Melbourne, Australia.

ANZ ANNUAL REPORT 2012

Mr Lee Hsien Yang Independent Non-Executive Director
MSC, BA

Non-Executive Director since February 2009. Member of theTechnology Committee, Risk Committee and Human Resources
Committee.
Skills, experience and expertise

Mr Lee has considerable knowledge and operating experience in Asia.
He has a background in engineering and brings to the Board his
international business and management experience across a wide
range of sectors including telecommunications, food and beverages,
properties, publishing and printing, financial services, education, civil
aviation and land transport.
Current Directorships

Chairman: Fraser & Neave, Limited (from 2007), The Islamic Bank ofAsia Limited (from 2012, Director from 2007), Asia Pacific Investments

Pte Ltd (from 2012, Director from 2009) and Civil Aviation Authorityof Singapore (from 2009).
Director: Singapore Exchange Limited (from 2004) and Kwa Geok
Choo Pte Ltd (from 1979).
Member: Governing Board of Lee Kuan Yew School of Public
Policy (from 2005) and Rolls Royce International Advisory Council(from 2007).
Consultant: Capital International Inc Advisory Board (from 2007).
Former Directorships include

Former Chairman: Republic Polytechnic (2002–2009).
Former Member: Merrill Lynch PacRim Advisory Council (2007–2010).
Former Chief Executive Officer: Singapore Telecommunications
Limited (1995–2007).
Age: 55. Residence: Singapore.

Mr I J Macfarlane, AC, Independent Non-Executive Director, Chair of the Risk Committee
BEC (HONS), MEC, HON DSC (SYD), HON DSC (UNSW), HON DCOM (MELB), HON DLITT(MACQ), HON LLD (MONASH)

Non-Executive Director since February 2007. Member of theGovernance Committee and Audit Committee.
Skills, experience and expertise

During his 28 year career at the Reserve Bank of Australia including
a 10 year term as Governor, Mr Macfarlane made a significant
contribution to economic policy in Australia and internationally.
He has a deep understanding of financial markets as well as a long
involvement with Asia.

Member: Council of International Advisors to the China Banking
Regulatory Commission (from 2009), International Advisory Board ofGoldman Sachs JB Were (from 2007) and International Advisory Boardof CHAMP Private Equity (from 2007).
Former Directorships include

Former Chairman: Payments System Board (1998–2006) andAustralian Council of Financial Regulators (1998–2006).
Former Governor: Reserve Bank of Australia (Member 1992–2006,
Chairman 1996–2006).
Age: 66. Residence: Sydney, Australia.

Current Directorships

Director: Woolworths Limited (from 2007), Leighton Holdings Limited(from 2007) and the Lowy Institute for International Policy (from 2004).

Mr D E Meiklejohn, AM, Independent Non-Executive Director, Chair of the Audit Committee
BCOM, DIPED, FCPA, FAICD, FAIM

Current Directorships

Non-Executive Director since October 2004. Member of theTechnology Committee and Risk Committee.

Chairman: Manningham Centre Association Board of Governance(from 2011).
Director: Coca Cola Amatil Limited (from 2005) and Mirrabooka
Investments Limited (from 2006).

Skills, experience and expertise

Mr Meiklejohn has a strong background in finance and accounting.
He also brings to the Board his experience across a number of
directorships of major Australian companies spanning a range
of industries.

Former Directorships include

Former Chairman: PaperlinX Limited (1999–2011).
Former Director and Chief Financial Officer: Amcor Limited (1985–2000).
Former President: Melbourne Cricket Club (2007–2011).
Age: 70. Residence: Melbourne, Australia.

CORPORATE GOVERNANCE

39

CORPORATE GOVERNANCE (continued)

Ms A M Watkins Independent Non-Executive Director, Chair of the Human Resources Committee
Chairman: Allied Mills Australia Pty Limited (from 2010).
Member: Australian Government Takeovers Panel (from 2010).

BCOM, FCA, F FIN, FAICD

Non-Executive Director since November 2008. Member of the
Audit Committee and Governance Committee.

Former Directorships include

Skills, experience and expertise

Former CEO: Bennelong Group (2008–2010).

Ms Watkins is an experienced CEO and established director witha grounding in strategy, finance and accounting. Her industry
experience includes retailing, agriculture, food processing andfinancial services. Ms Watkins held senior executive roles with
ANZ from 1999 to 2002.

Former Director: Woolworths Limited (2007–2010) and AICD National
Board and Victorian Council (2009–2011).
Former Member: The Nature Conservancy Australian Advisory
Board (2007-2011).
Age: 49. Residence: Melbourne, Australia.

Current Directorships

Chief Executive Officer and Managing Director: GrainCorp Limited(from 2010).

Corporate Governance Framework
Audit and Financial
GovernanceInternal audit
External audit
Financial controls

BOARD OF DIRECTORSCEOPRINCIPAL BOARD COMMITTEES

AUDITCOMMITTEE

GOVERNANCE
COMMITTEEHUMAN RESOURCESCOMMITTEERISKCOMMITTEETECHNOLOGYCOMMITTEEMANAGEMENT BOARD

KEY MANAGEMENT COMMITTEESCORPORATERESPONSIBILITY &DIVERSITY COMMITTEETECHNOLOGY RISKMANAGEMENTCOMMITTEE40

CREDIT &MARKET RISKCOMMITTEEGROUP ASSET& LIABILITYCOMMITTEECAPITAL
MANAGEMENT POLICYCOMMITTEEOPERATINGRISK EXECUTIVECOMMITTEEGLOBAL MARKETSPRODUCTCOMMITTEEREPUTATIONRISKCOMMITTEECREDIT RATINGSSYSTEM OVERSIGHT
COMMITTEEANZ ANNUAL REPORT 2012

Board Responsibility and Delegation of Authority

Board Meetings

The Board is chaired by an independent Non-Executive Director.
The roles of the Chairman and Chief Executive Officer are separate,
and the Chief Executive Officer is the only executive Director
on the Board.

The Board normally meets at least eight times each year, including
a meeting to review in detail the Group’s strategy.

Role of the Chairman
The Chairman plays an important leadership role and is involved in:

Typically at Board meetings the agenda will include:
minutes of the previous meeting, and outstanding issues raised
by Directors at previous meetings;
the Chief Executive Officer’s report;

chairing meetings of the Board and providing effective leadershipto it;

the Chief Financial Officer’s report;monitoring the performance of the Board and the mix of skills
and effectiveness of individual contributions;specific business proposals;

being an ex officio member of all principal Board Committees;
maintaining ongoing dialogue with the Chief Executive Officer
and providing appropriate mentoring and guidance; andbeing a respected ambassador for ANZ, including chairing meetingsof shareholders and dealing with key customer, political andregulatory bodies.

Board Charter
The Board Charter sets out the Board’s purpose, powers, andspecific responsibilities.
The Board is responsible for:charting the direction, strategies and financial objectives for
ANZ, and monitoring the implementation of these strategies
and financial objectives;
monitoring compliance with regulatory requirements, ethicalstandards and external commitments, and the implementationof related policies; andappointing and reviewing the performance of the Chief
Executive Officer.
In addition to the above and any matters expressly required bylaw to be approved by the Board, powers specifically reserved for
the Board include:
approval of ANZ’s Remuneration Policy, including various
remuneration matters as detailed in the Charter;
any matters in excess of any discretions delegated to Board
Committees or the Chief Executive Officer;
annual approval of the budget and strategic plan;significant changes to organisational structure; andthe acquisition, establishment, disposal or cessation of any
significant business.
Under ANZ’s Constitution, the Board may delegate any of its
powers and responsibilities to Committees of the Board. The rolesof the principal Board Committees are set out on pages 46 to 48.
The Charters of the Board and each of its principal Committees
are set out on anz.com in the Corporate Governance section.

reports on major projects and current business issues;
reports from Chairs of Committees which have met shortly prior to
the Board meeting on matters considered at those meetings; andthe minutes of previous Committee meetings for review.
There are two private sessions held at the end of each Board meeting
which are each chaired by the Chairman of the Board.
The first involves all Directors including the CEO, and the second
involves only the Non-Executive Directors.
The Chief Financial Officer, Group General Counsel and Company
Secretary are also present at all Board meetings. Members of Senior
Management attend Board meetings when an issue under their areaof responsibility is being considered or as otherwise requested by
the Board.

CEO and Delegation to Management
The Board has delegated to the Chief Executive Officer, andthrough the Chief Executive Officer to other Senior Management,
the authority and responsibility for managing the everyday affairsof ANZ. The Board monitors Management and their performanceon behalf of shareholders.
The Group Discretions Policy details the comprehensive discretions
framework that applies within ANZ and to employees appointed tooperational roles or directorships of controlled entities and minority
interest entities.
The Group Discretions Policy is maintained by the Chief Financial
Officer and reviewed annually by the Audit Committee with theoutcome of this review reported to the Board.
At a Senior Management level, ANZ has a Management Board
which comprises the Chief Executive Officer and ANZ’s mostsenior executives.
As at 30 September 2012, the following Senior Management,in addition to the Chief Executive Officer, were members of theManagement Board: Graham Hodges – Deputy Chief Executive Officer;
Shayne Elliott – Chief Financial Officer; Phil Chronican – Chief
Executive Officer, Australia; David Hisco – Chief Executive Officer,
New Zealand; Joyce Phillips – Chief Executive Officer, Global Wealthand Private Banking and Group Managing Director, Marketing,Innovation and Digital; Alex Thursby – Chief Executive Officer,
International & Institutional Banking; Susie Babani – Group Managing
Director, Human Resources; Alistair Currie – Group Chief Operating
Officer; Anne Weatherston – Chief Information Officer; and Nigel
Williams – Chief Risk Officer.
Typically, a sub-group of Management Board meets every weekwith all Management Board members meeting each month todiscuss business performance, review shared initiatives andbuild collaboration and synergy across the Group.

CORPORATE GOVERNANCE

41

CORPORATE GOVERNANCE (continued)

Board Composition, Selection and Appointment
The Board strives to achieve an appropriate mix of skills, tenure,experience and diversity among its Directors. Details regarding each
Director in office at the date of this Annual Report can be foundon pages 37 to 40.

Professional intermediaries may be used from time to time
where deemed necessary and appropriate to assist in the processof identifying and considering potential candidates for Board
membership.

The Governance Committee (see page 46) has been delegatedresponsibility to review and make recommendations to the Board
regarding Board composition, and to assist in relation to the Director
nomination process.

If found suitable, potential candidates are recommended to theBoard. The Chairman of the Board is responsible for approachingpotential candidates.

The Governance Committee conducts an annual review of the sizeand composition of the Board, to assess whether there is a needfor any new Non-Executive Director appointments. This review takes
the following factors into account:relevant guidelines/legislative requirements in relation to
Board composition;
Board membership requirements as articulated in the Board
Charter; andother considerations including ANZ’s strategic goals and theimportance of having appropriate diversity within the Board
including in relation to matters such as skills, tenure, experience,
age and gender.
The overarching guiding principle is that the Board’s composition
should reflect an appropriate mix having regard to the following
matters:
specialist skill representation relating to both functions(such as accounting/finance, law and technology) and industry
background (such as banking/ financial services, retail andprofessional services);
tenure;Board experience (amongst the members of the Board, there
should be a significant level of familiarity with formal board andgovernance processes and a considerable period of time previously
spent working at senior level within one or more organisationsof significant size);
age spread;diversity in general (including gender diversity); andgeographic experience.
Other matters for explicit consideration by the Committee
are personal qualities, communication capabilities, ability andcommitment to devote appropriate time to the task, thecomplementary nature of the distinctive contribution each Director
might make, professional reputation and community standing.
Potential candidates for new Directors may be provided at any
time by a Board member to the Chair of the Governance Committee.
The Chair of the Governance Committee maintains a list of nominees
to assist the Board in the succession planning process.
Where there is a need for any new appointments, a formal assessmentof nominees will be conducted by the Governance Committee.
In assessing nominees, the Governance Committee has regard to
the principles set out above.

42

The Committee also reviews and recommends the process forthe election of the Chairman of the Board and reviews succession
planning for the Chairman of the Board, making recommendations
to the Board as appropriate.
APPOINTMENT DOCUMENTATION
Each new Non-Executive Director receives an appointment letteraccompanied by a:
Directors’ handbook –the handbook includes information
on a broad range of matters relating to the role of a Director,
including details of all applicable policies; andDirectors’ Deed – each Director signs a Deed in a form approvedby shareholders at the 2005 Annual General Meeting which covers
a number of issues including indemnity, directors’ and officers’
liability insurance, the right to obtain independent advice andrequirements concerning confidential information.
UNDERTAKING INDUCTION TRAINING
Every new Director takes part in a formal induction program which
involves the provision of information regarding ANZ’s values andculture, the Group’s governance framework, the Non-Executive
Directors Code of Conduct and Ethics, Director related policies,
Board and Committee policies, processes and key issues, financial
management and business operations. Briefings are also provided
by Senior Management about matters concerning their areasof responsibility.
MEETING SHARE QUALIFICATION
Non-Executive Directors are required to accumulate within five
years of appointment, and thereafter maintain, a holding in ANZshares that is equivalent to at least 100% of a Non-Executive
Director’s base fee (and 200% of this fee in the case of the Chairman).
NON-EXECUTIVE DIRECTOR REMUNERATION
Details of the structure of the Non-Executive Directors’ remuneration(which is clearly distinguished from the structure of the remunerationof the Chief Executive Officer and other senior executives) is set
out in the Remuneration Report on pages 23 to 25.
The ANZ Directors’ Retirement Scheme was closed effective
30 September 2005. Accrued entitlements were fixed on that datefor Non-Executive Directors in office at the time who had the option
to convert those entitlements into ANZ shares. Such entitlements,
either in ANZ shares or cash, will be carried forward and transferredto the Non-Executive Director when they retire (including interest
accrued at the 30 day bank bill rate for cash entitlements). Only
three current Non-Executive Directors have entitlements under the
Scheme, namely Messrs Morschel and Meiklejohn and Dr Clark.
Further details are set out in the Remuneration Report.

ANZ ANNUAL REPORT 2012

ELECTION AT NEXT ANNUAL GENERAL MEETING
Subject to the provisions of ANZ’s Constitution and the Corporations
Act 2001, the Board may appoint a person as a Non-Executive
Director of ANZ at any time but that person must retire and, if theywish to continue in that role, must seek election by shareholders
at the next Annual General Meeting.

ANZ’s criteria are more comprehensive than those set in many
jurisdictions including in particular the additional criteria stipulated
specifically for Audit Committee members in the Audit Committee
Charter. Further details of the criteria and review process are set
out in the Corporate Governance section of ANZ’s website.

FIT AND PROPER

In summary, a relationship with ANZ is regarded as material if
a reasonable person in the position of a Non-Executive Directorof ANZ would expect there to be a real and sensible possibility
that it would influence a Director’s mind in:

ANZ has an effective and robust framework in place to ensure that
individuals appointed to relevant senior positions within the Group
have the appropriate fitness and propriety to properly discharge theirprudential responsibilities on appointment and during the courseof their appointment.
The framework, set out in ANZ’s Fit and Proper Policy, addresses therequirements of APRA’s Fit and Proper Prudential Standard. It involves
assessments being carried out for each Director, relevant senior
executives and the lead partner of ANZ’s external auditor prior toa new appointment being made. These assessments are carried out
against a benchmark of documented competencies which have been
prepared for each role, and also involve attestations being completed
by each individual, as well as the obtaining of evidence of material
qualifications and the carrying out of checks such as criminal record,
bankruptcy and regulatory disqualification checks. These assessments
are reviewed thereafter on an annual basis.
The Governance Committee and the Board have responsibility
for assessing the fitness and propriety of Non-Executive Directors.
The Human Resources Committee has primary responsibility forassessing the fitness and propriety of the Chief Executive Officer
and key senior executives, and the Audit Committee carries out
assessments of the fitness and propriety of the external auditor.
Fit and Proper assessments were successfully carried out in respectof each Non-Executive Director, the Chief Executive Officer, key senior
executives and the external auditor during the 2012 financial year.
DIRECTOR INDEPENDENCE
Under ANZ’s Board Charter, the Board must include a majority of
Non-Executive Directors who satisfy ANZ’s criteria for independence.
The Board Charter sets out criteria that are considered in orderto determine whether a Non-Executive Director is to be regarded
as independent.
All Non-Executive Directors are required to notify the Chairman
before accepting any new outside appointment. The Chairman will
review the proposed new appointment and will consider the issue
on an individual basis and, where applicable, also the issue of morethan one Director serving on the same outside board or other body.
When carrying out the review, the Chairman will consider whether
the proposed new appointment is likely to impair the Director’sability to devote the necessary time and focus to their role as
an ANZ Director and, where it will involve more than one ANZ
Director serving on an outside board or other entity, whether thatwould create an unacceptable risk to the effective operation of the
ANZ Board. Non-Executive Directors are not to accept a new outside
appointment until confirmed with the Chairman who will consult theother Directors as the Chairman deems appropriate.
In the 2012 financial year, the Governance Committee conducted
its annual review of the criteria for independence against the ASX
Governance Principles and APRA Prudential Standards, as well as
US director independence requirements.

making decisions on matters likely to come regularly before
the Board or its Committees;
objectively assessing information and advice given
by Management;setting policy for general application across ANZ; andgenerally carrying out the performance of his or her role
as a Director.
During 2012, the Board reviewed each Non-Executive Director’s
independence and concluded that the independence criteria weremet by each Non-Executive Director.
Directors’ biographies on pages 37 to 40 and on anz.com highlighttheir major associations outside ANZ.
CONFLICTS OF INTEREST
Over and above the issue of independence, each Director has
a continuing responsibility to determine whether he or she has
a potential or actual conflict of interest in relation to any material
matter which comes before the Board. Such a situation may arise
from external associations, interests or personal relationships.
Under the Directors Disclosure of Interest Protocol and Proceduresfor Handling Conflicts of Interest, a Director may not exercise any
influence over the Board if an actual or potential conflict ofinterest exists.
In such circumstances, unless a majority of other Directors who do
not have an interest in the matter resolve to the contrary, the Director
may not be present for Board deliberations on the subject, and may
not vote on any related Board resolutions. In addition, the Director
may not receive relevant Board papers. These matters, should theyoccur, are recorded in the Board minutes.
INDEPENDENT ADVICE
In order to assist Directors in fulfilling their responsibilities, each
Director has the right (with the prior approval of the Chairman)
to seek independent professional advice regarding his/her
responsibilities, at the expense of ANZ. In addition, the Board andeach Committee, at the expense of ANZ, may obtain whatever
professional advice it requires to assist in its work.
TENURE AND RETIREMENTANZ’s Constitution, consistent with the ASX Listing Rules, provides
that a Non-Executive Director must seek re-election by shareholders
every three years if they wish to continue in their role as a NonExecutive Director.
In addition, ANZ’s Board Renewal and Performance Evaluation
Protocol confirms that Non-Executive Directors will retire once they
have served a maximum of three 3-year terms after first being electedby shareholders, unless invited by the Board to extend their tenure
due to special circumstances.

CORPORATE GOVERNANCE

43

CORPORATE GOVERNANCE (continued)

CONTINUING EDUCATIONANZ Directors take part in a range of training and continuing
education programs. In addition to a formal induction program(see page 42), Directors also receive regular bulletins designed
to keep them abreast of matters relating to their duties andresponsibilities as Directors.
Each Committee also conducts its own continuing education
sessions from time to time as appropriate. Internal and/or external
experts are engaged to conduct all education sessions. Directors also
receive regular business briefings at Board meetings. These briefings
are intended to provide Directors with information on each areaof ANZ’s business, in particular regarding performance, key issues,
risks and strategies for growth. In addition, Directors have theopportunity to participate in site visits from time to time.
ACCESS IN RELATION TO DIRECTORSManagement is able to consult Directors as required. Employees
have access to the Directors directly or through the Company
Secretary. Shareholders who wish to communicate with the Directors
may direct correspondence to a particular Director, or to the
Non-Executive Directors as a whole.
Directors have unrestricted access to Management and, in addition
to the regular presentations made by Management to Board andBoard Committee meetings, Directors may seek briefings or otheradditional information from Management on specific matterswhere appropriate. The Company Secretary also provides advice
and support to the Directors as required.

Role of Company Secretary
The Board is responsible for the appointment of ANZ’s Company
Secretaries. The Board has appointed two Company Secretaries.
The Group General Counsel provides legal advice to the Board as
and when required. He works closely with the Chair of theGovernance Committee to develop and maintain ANZ’s corporate
governance principles, and is responsible to the Board for theCompany Secretary’s Office function.
The Company Secretary is responsible for the day-to-day operationsof the Company Secretary’s Office including lodgements with
relevant Securities Exchanges and other regulators, theadministration of Board and Board Committee meetings (including
preparation of meeting minutes), the management of dividend
payments and associated share plans, the administration of theGroup’s Australian subsidiaries and oversight of the relationshipwith ANZ’s Share Registrar.
The former Chief Financial Officer (Peter Marriott) was alsoa Company Secretary of ANZ during the year, until he ceasedin this role at the end of May 2012. Profiles of ANZ’s Company
Secretaries in office as at 30 September 2012 can be found in
the Directors’ Report on page 10.

44

Performance Evaluations
OVERVIEW
The framework used to assess the performance of Directors isbased on the expectation that they are performing their duties:
in the interests of shareholders;in a manner that recognises the great importance that ANZplaces on the values of honesty, integrity, quality and trust;in accordance with the duties and obligations imposed uponthem by ANZ’s Constitution, ANZ’s Non-Executive Directors
Code of Conduct and Ethics, and the law; andhaving due regard to ANZ’s corporate responsibility objectives,
and the importance of ANZ’s relationships with all its stakeholders
and the communities and environments in which ANZ operates.
The performance criteria also take into account the Director’s
contribution to:charting the direction, strategy and financial objectives of ANZ;
monitoring compliance with regulatory requirements andethical standards;
monitoring and assessing Management’s performance inachieving strategies and budgets approved by the Board;
setting criteria for and evaluating the Chief Executive Officer’s
performance; andthe regular and continuing review of executive succession
planning and executive development activities.
The performance evaluation process is set out in ANZ’s Board
Renewal and Performance Evaluation Protocol.
NON-EXECUTIVE DIRECTORS
Performance evaluations of the Non-Executive Directors are
conducted in two ways:
Annual review – on an annual basis, or more frequently if
appropriate, the Chairman has a one-on-one meeting with each
Non-Executive Director specifically addressing the performance
criteria including compliance with the Non-Executive Directors
Code of Conduct and Ethics. To assist the effectiveness of thesemeetings, the Chairman is provided with objective information
about each Director (e.g. number of meetings attended, Committee
memberships, other current directorships/roles etc) and a guidefor discussion to ensure consistency. When considering the
Director’s meeting attendance record during the previous year
and also their other roles outside ANZ, the Chairman reviews
generally whether the Director has sufficient time to properly carryout their duties as an ANZ Director and more specifically whether
they are making a sufficient time commitment to the role both atand outside meetings. A report on the outcome of these meetings
is provided to the Governance Committee and to the Board; andRe-election statement – when nominating for re-election, NonExecutive Directors are given the opportunity to submit a written
or oral statement to the Board setting out their reasons for seeking
re-election. In the Non-Executive Director’s absence, the Board
evaluates the statement, has regard to the performance criteria
used in evaluating the performance of Non-Executive Directors as
referred to above, and also considers their capacity to commit thenecessary time to their role as a Director before deciding whether
to endorse the relevant Director’s re-election.

ANZ ANNUAL REPORT 2012

CHAIRMAN OF THE BOARD

REVIEW PROCESSES UNDERTAKEN

An annual review of the performance of the Chairman of the Board
is facilitated by the Chair of the Governance Committee who seeks
input from each Director individually on the performance of the
Chairman of the Board against the competencies for the Chairman’srole approved by the Board.

Board, Director, Board Committee and relevant Senior Management
evaluations in accordance with the above processes have been
undertaken in respect of the 2012 financial year.

The Chair of the Governance Committee collates the input in orderto provide an overview report to the Governance Committee andto the Board, as well as feedback to the Chairman of the Board.

As set out on page 41 of this statement, the Board has the ability
under its Constitution to delegate its powers and responsibilities
to Committees of the Board. This allows the Board to spend additionaland more focused time on specific issues. The Board has five principal
Board Committees: Audit Committee, Governance Committee,
Human Resources Committee, Risk Committee and Technology
Committee.

THE BOARD
For the year ended 30 September 2011 the performance of theBoard was assessed using an independent external assessor, whosought input from each Director and certain members of Senior
Management when carrying out the assessment.
The assessment was conducted in accordance with broad termsof reference agreed by the Governance Committee, and included
a review of Board papers and decision processes for a range of key
decisions made over the previous year.
Based on the information and materials reviewed, the external
assessor rated the Board’s practices as delivering superior capabilities
across all of the critical elements of board effectiveness. The resultsof the assessment were discussed with the Chair of the GovernanceCommittee and were presented at a meeting of the GovernanceCommittee in October 2011 which was attended by
all Directors.
It is expected that externally facilitated reviews of the Board will
occur approximately every three years. The review process withrespect to the intervening years (including the year ended 30
September 2012) is conducted internally based on input soughtfrom each Director and also members of the Management Board,and considers progress against any recommendations implemented
arising from the most recent externally facilitated review, together
with any new issues that may have arisen.
BOARD COMMITTEESEach of the principal Board Committees conducts an annual
Committee performance self-assessment to review performanceusing Guidelines approved by the Governance Committee.
The Guidelines set out that at a minimum, the self-assessments
should review and consider the following:
the Committee’s performance having regard to its role andresponsibilities as set out in its Charter;whether the Committee’s Charter is fit for purpose, or whether
any changes are required; andthe identification of future topics for training/education of
the Committee.
The outcomes of the performance self-assessments are reported
to the Governance Committee (or to the Board, if there are any
material issues relating to the Governance Committee) for discussion
and noting.
SENIOR MANAGEMENT
Details of how the performance evaluation process is undertakenby the Board in respect of the Chief Executive Officer and other key
Senior Management, including how financial, customer, operationaland qualitative measures are assessed, are set out in the
Remuneration Report on pages 15 to 23.

Board Committees

MEMBERSHIP AND ATTENDANCE
Each of the principal Board Committees is comprised solely of
independent Non-Executive Directors (a minimum of three isrequired), has its own Charter and has the power to initiate any
special investigations it deems necessary.
Membership criteria are based on each Director’s skills andexperience, as well as his/her ability to add value and commit time to
the Committee. Board Committee composition is reviewed annually.
The Chairman is an ex-officio member of each principal Board
Committee but does not chair any of the Committees. The Chief
Executive Officer is invited to attend Board Committee meetings asappropriate. His presence is not automatic, however, and he does notattend where his remuneration is considered or discussed, nor does
he attend the Non-Executive Director private sessions of Committees
unless invited. Non-Executive Directors may attend any meetingof any Committee.
Each Board Committee may, within the scope of its responsibilities,
have unrestricted access to Management, employees and information
it considers relevant to the carrying out of its responsibilities under
its Charter.
Each Board Committee may require the attendance of any ANZ
officer or employee, or request the attendance of any external party,
at meetings as appropriate.
MEETINGS
Prior to the commencement of each year, each principal Board
Committee prepares a calendar of business which details the items
to be included on the agenda for each scheduled Committee meetingin the coming year. In addition, any training/education topics thathave been identified as part of the Committee’s annual performanceself-assessment process are also included in the calendar. In advanceof each Board Committee meeting, at least one planning sessionis held by the Committee Chair with relevant internal and external
stakeholders to ensure that all emerging issues are also captured
in the agenda for the forthcoming meeting as appropriate.
Minutes from Committee meetings are included in the papers forthe following Board meeting. In addition, Committee Chairs update
the Board regularly about matters relevant to the Committee’s role,
responsibilities, activities and matters considered, discussed andresolved at Committee meetings. When there is a cross-Committee
item, the Committees will communicate with each other throughtheir Chairs.

CORPORATE GOVERNANCE

45

CORPORATE GOVERNANCE (continued)

ANZ BOARD COMMITTEE MEMBERSHIPS – as at 30 September 2012
Audit

Governance

Human Resources

Risk

Technology

Mr D E Meiklejohn FE, C

Mr P A F Hay C

Ms A M Watkins C

Mr I J Macfarlane C

Dr G J Clark C

Ms P J Dwyer FE

Mr I J Macfarlane

Dr G J Clark

Dr G J Clark

Mr Lee Hsien Yang

Mr P A F Hay

Ms A M Watkins

Mr P A F Hay

Ms P J Dwyer

Mr D E Meiklejohn

Mr I J Macfarlane

Mr J P Morschel (ex officio)

Mr Lee Hsien Yang

Mr Lee Hsien Yang

Mr J P Morschel (ex officio)

Mr J P Morschel (ex officio)

Mr D E Meiklejohn

Ms A M Watkins FE
Mr J P Morschel (ex officio)
C – Chair

Mr J P Morschel (ex officio)

FE – Financial Expert

AUDIT COMMITTEE
The Audit Committee is responsible for reviewing:
ANZ’s financial reporting principles and policies, controls
and procedures;the effectiveness of ANZ’s internal control and risk management
framework;
the work of Global Internal Audit which reports directly to the
Chair of the Audit Committee (refer to Global Internal Audit on
page 49 for more information);
the activities of the audit committees of key subsidiary companies;
prudential supervision procedures required by regulatory bodies
to the extent relating to financial reporting;the integrity of ANZ’s financial statements and the independent
audit thereof, compliance with related legal and regulatory
requirements; andany due diligence procedures.
The Audit Committee is also responsible for:the appointment, annual evaluation and oversight of theexternal auditor, including reviewing their independence,
fitness and propriety and qualifications;compensation of the external auditor;
where deemed appropriate, replacement of the external auditor;
andreviewing the performance and remuneration of the Group
General Manager, Global Internal Audit and making
recommendations to the Board as appropriate.
Under the Committee Charter, all members of the Audit Committee
must be appropriately financially literate. Mr Meiklejohn (Chair),Ms Dwyer and Ms Watkins were determined to be ‘financial experts’during the 2012 financial year under the definition set out in the
Audit Committee Charter. While the Board determined that
Mr Meiklejohn, Ms Dwyer and Ms Watkins each have the necessary
attributes to be a ‘financial expert’ in accordance with the relevant
requirements, it is important to note that this does not give rise
to Mr Meiklejohn, Ms Dwyer or Ms Watkins having responsibilities
additional to those of other members of the Audit Committee.
The Audit Committee meets with the external auditor and internal
auditor without Management being present. The Chair of the Audit
Committee meets separately and regularly with Global Internal Audit,
the external auditor and Management.

46

The Deputy Chief Financial Officer is the executive responsible
for assisting the Chair of the Committee in connection with theadministration and efficient operation of the Committee.
Substantive areas of focus in the 2012 financial year included:
Global Internal and External Audit – the Committee approved
the annual plans for Global Internal and External Audit and kept
progress against those plans under regular review. Adjustments
to the Global Internal Audit Plan were made during the year toaccommodate changing circumstances, risk profiles and business
unit requests;
Accounting and regulatory developments – reports ondevelopments were provided to the Committee outlining relevantchanges and implications for ANZ;
Financial Reporting Governance Program – the Committeemonitored the financial reporting process and the controls inplace to ensure the integrity of the financial statements; andWhistleblowing – the Committee received and reviewed
information on disclosures made under ANZ’s Global Whistleblower
Protection Policy.
GOVERNANCE COMMITTEEThe Governance Committee is responsible for:identifying and recommending prospective Board members
and ensuring appropriate succession planning for the positionof Chairman (see page 42);
ensuring there is a robust and effective process for evaluating
the performance of the Board, Board Committees and NonExecutive Directors (see pages 44 to 45);
monitoring the effectiveness of the Gender Balance and Diversity
Policy to the extent it relates to Board diversity and reviewing andapproving measurable objectives for achieving gender diversity on
the Board (see page 42);
ensuring an appropriate Board and Board Committee structure
is in place;reviewing and approving the Charters for each Board Committee
except its own, which is reviewed and approved by the Board;
reviewing the development of and approving corporate
governance policies and principles applicable to ANZ; andapproving corporate responsibility objectives for ANZ, andreviewing progress in achieving them.

ANZ ANNUAL REPORT 2012

The Group General Counsel is the executive responsible for assisting
the Chair of the Committee in connection with the administrationand efficient operation of the Committee.
Substantive areas of focus in the 2012 financial year included:
Board succession planning – the Committee monitored theprocess in place to identify potential candidates to replace thethree Non-Executive Directors who are scheduled to retire in late2013 (including the succession planning process for the Chairmanof the Board). Ms Dwyer was appointed as a new Non-Executive
Director with effect from 1 April 2012;
New diversity requirements – the Committee approved ameasurable objective in relation to gender diversity at Board
level and reviewed progress against that objective;
Board governance framework – the Committee conducted its
annual review of the Board’s governance framework and principles
including in relation to Board composition and size, Director
tenure, outside commitments, Board and Committee education,
nomination procedures and Director independence criteria;
Performance evaluation processes – the Committee reviewed
existing processes relating to the annual performance reviewsof the Board, Chairman of the Board, Non-Executive Directors
and Board Committees;
Board and Committee performance evaluations – the Committee
reviewed the report from the independent external assessor
who was engaged to facilitate the 2011 performance reviewof the Board, as well as the outcomes of the annual performanceself-assessments conducted in relation to each of the otherprincipal Board Committees; andReview and approval of Group policies – the Committee reviewed
and, where appropriate, approved amendments to existing Group
policies including the Continuous Disclosure Policy, Board Renewal
and Performance Evaluation Protocol, Fit and Proper Policy, andTrading in ANZ Securities Policy.
HUMAN RESOURCES COMMITTEE
The Human Resources Committee assists and makes
recommendations to the Board in relation to remuneration mattersand senior executive succession, including for the Chief Executive
Officer. The Committee also assists the Board by reviewing andapproving certain policies, as well as monitoring performance withrespect to health and safety issues and diversity (excluding Board
diversity which is monitored by the Governance Committee).
The Committee is responsible for reviewing and making
recommendations to the Board on:

In addition, the Committee considers and approves the appointmentof Board Appointees (other than the Group General Manager Global
Internal Audit) and senior executive succession plans, and monitors
the effectiveness of ANZ’s health, safety and diversity programs.
The Group Managing Director, Human Resources is the executive
responsible for assisting the Chair of the Committee in connection
with the administration and efficient operation of the Committee.
Substantive areas of focus in the 2012 financial year included:
Management roles and performance – the Committee reviewed
the performance of the Chief Executive Officer, the Chief Executive
Officer’s direct reports and other key roles, and the succession
plans in place for Management Board and business critical roles;
Regulatory changes – the Committee closely monitored regulatory
developments and the implications for ANZ both in Australia andglobally;
Fitness and propriety – the Committee completed fit and proper
assessments for all existing and new Board Appointees;
Remuneration – the Committee conducted an annual review
of remuneration for Non-Executive Directors and also reviewed
the compensation structure for the Chief Executive Officer andSenior Management. The Committee also agreed with the Board
the contractual arrangements for a number of senior appointments
and departures at Board Appointee level;
Remuneration Policy – the Committee reviewed ANZ’s
Remuneration Policy to ensure it remains appropriate for
its intended purpose; andHealth, Safety and Diversity – the Committee received reports on
health and safety performance and related initiatives, and reviewed
ANZ’s diversity strategy and performance towards stated targets.
For more details on the activities of the Human Resources Committee,
please refer to the Remuneration Report on pages 14 to 35.
RISK COMMITTEEThe Board is principally responsible for approving the Group’s risk
appetite and risk tolerance, related strategies and major policies,
for the oversight of policy compliance, and for the effectivenessof the risk and compliance management framework that is in place.
The purpose of the Risk Committee is to assist the Board in theeffective discharge of its responsibilities for business, market, credit,
equity and other investment, financial, operational, liquidity andreputational risk management and for the oversight of the
management of ANZ’s compliance obligations.

remuneration matters relating to the Chief Executive Officer(details in the Remuneration Report on pages 25 to 27);

The Committee is also authorised to approve credit transactions
and other related matters beyond the approval discretion of the
Chief Risk Officer.

remuneration matters, including incentive arrangements,
for other Board Appointees (other than the Group General
Manager, Global Internal Audit);

The Chief Risk Officer is the executive responsible for assisting the
Chair of the Committee in connection with the administration andefficient operation of the Committee.

the design of remuneration structures and significant incentive
plans; andthe Group’s Remuneration Policy.

CORPORATE GOVERNANCE

47

CORPORATE GOVERNANCE (continued)

Substantive areas of focus in the 2012 financial year included:

TECHNOLOGY COMMITTEE

Regulatory change – the Committee monitored proposed new
regulations, both local and global, including in particular in relation
to capital and liquidity requirements for banks;Credit portfolios – the Committee received regular updates
on the quality of ANZ’s credit portfolios and the status of themore significant exposures;Market, Funding and Liquidity Risk – the Committee received
regular updates on the Group’s exposures and responses tochanges in market conditions;

The Technology Committee assists the Board in the effective
discharge of its responsibilities in relation to technology and related
operations. The Committee is responsible for making recommendations
to the Board on material technology investments, investigating andreviewing security issues relevant to ANZ’s technology processes andsystems, reviewing and approving Management recommendations
for long-term technology and related operations planning, and theapproval of policies, strategies and control frameworks for the
management of technology risk.

Operational Risk and Compliance – the Committee received regular
updates on the Group’s approach and policy implementation in
response to market developments; andThe Chief Information Officer is the executive responsible forassisting the Chair of the Committee in connection with theadministration and efficient operation of the Committee.

Business updates – the Committee received updates frombusinesses across the Group.

Substantive areas of focus in the 2012 financial year included:

A risk management and internal control system to manage ANZ’smaterial business risks is in place, and Management reported to
the Board during the year as to the effectiveness of the managementof ANZ’s material business risks. In addition, the Board received
assurance from the Chief Executive Officer and the Chief Financial
Officer that the declaration provided in accordance with section 295Aof the Corporations Act is founded on a sound system of risk
management and internal control and that the system is operating
effectively in all material respects in relation to financial reporting risks.
For further information on how ANZ manages its material financial
risks, please see the disclosures in relation to AASB 7 ‘Financial
instruments: Disclosure’ in the notes to the financial statements.

Operational performance and major projects – the Committee
reviewed reports on operational performance (including service
and systems stability and performance) and monitored theprogress of major projects;
Strategy – the Committee received updates on the progressof ANZ’s long-term strategy and reviewed the priorities set for
2012/13;
Investment – the Committee reviewed Management’s
progress in delivering the business investment agenda; andInformation Security – the Committee monitored the continuing
process of improving information security capability toaddress constantly evolving security threats and increasing
regulatory requirements.

For further information on risk management governance and
ANZ’s approach in relation to risk oversight and the managementof material business risks, please see the Corporate Governancesection of anz.com.

DIRECTORS’ MEETINGS
The number of Board meetings and meetings of Committees during the year the Director was eligible to attend, and the number of meetings
attended by each Director were:
Board

Audit
CommitteeAB

G J Clark

99A

P J Dwyer

4

4

2

2

P A F Hay

9

9

6

6

Lee Hsien Yang

99

I J Macfarlane

9

9

6

5

D E Meiklejohn

9

9

6

6

J P Morschel

9

9

6

6

M R P Smith

99A M Watkins

9

9

6

B

6

GovernanceCommittee
A

4
4
4
4

B

4

Human
Resources
Committee

4Technology
Committee

Executive
Committee1

SharesCommittee1

A

B

A

B

A

B

A

B

5

5

8

8

3

3

1

1

4

4

1

1

8

8

1

1

8

8

1

1

8

8

3

3

1

1

1

8

8

3

3

1

1

1

1

1

1

5

5

5

5

4
4

Risk
Committee

5
5

5
5

A

A

B

1

1

1

1

1

1

1

1

1

5

5

1

1

5

5

1

1

3

3

1

1

2

2

1
3

3

B

Committeeof the Board1

1

Column A – Indicates the number of meetings the Director was eligible to attend.
Column B – Indicates the number of meetings attended. The Chairman is an ex-officio member of the Audit, Governance, Human Resources, Risk and Technology Committees.
With respect to Committee meetings, the table above records attendance of Committee members. Any Director is entitled to attend these meetings and from time to time Directors attend meetingsof Committees of which they are not a member.
1 The meetings of the Executive Committee, Shares Committee and Committee of the Board as referred to in the table above include those conducted by written resolution.

48

ANZ ANNUAL REPORT 2012

ADDITIONAL COMMITTEESIn addition to the five principal Board Committees, the Board hasconstituted an Executive Committee and a Shares Committee, eachconsisting solely of Directors, to assist in carrying out specific tasks.
The Executive Committee has the full power of the Board and isconvened as necessary between regularly scheduled Board meetings
to deal with urgent matters. The Shares Committee has the power
to manage on behalf of the Board the issue of shares and options(including under ANZ’s Employee Share Plan and Share Option Plan).
The Board also forms and delegates authority to ad-hoc Committeesof the Board as and when needed to carry out specific tasks.

Audit and Financial Governance
GLOBAL INTERNAL AUDIT
Global Internal Audit is a function independent of Management
whose role is to provide the Board and Management with an effective
and independent appraisal of the internal controls established by
Management. Operating under a Board approved Charter, thereporting line for the outcomes of work conducted by Global Internal
Audit is direct to the Chair of the Audit Committee, with a directcommunication line to the Chief Executive Officer and the external
auditor.
The Global Internal Audit Plan is developed utilising a risk based
approach and is refreshed on a quarterly basis. The Audit Committee
approves the plan, the associated budget and any changes thereto.
All audit activities are conducted in accordance with ANZ policies
and values, as well as local and international auditing standards,
and the results thereof are reported to the Audit Committee,
Risk Committee and Management. These results influence theperformance assessment of business heads.
Furthermore, Global Internal Audit monitors the remediationof audit issues and highlights the current status of any
outstanding audits.
EXTERNAL AUDITThe external auditor’s role is to provide an independent opinion
that ANZ’s financial reports are true and fair and comply withapplicable regulations. The external auditor performs an independent
audit in accordance with Australian Auditing Standards. The Audit
Committee oversees ANZ’s Stakeholder Engagement Model for
Relationship with the External Auditor. Under the Stakeholder
Engagement Model, the Audit Committee is responsible for theappointment (subject to ratification by shareholders) and also thecompensation, retention and oversight of the external auditor.
The Stakeholder Engagement Model also stipulates that the
Audit Committee:
pre-approves all audit and non-audit services on an engagement
by engagement basis or pursuant to specific pre-approval policies
adopted by the Committee;

The Stakeholder Engagement Model also requires that all services
provided by the external auditor, including the non-audit services
that may be provided by the external auditor, must be in accordancewith the following principles:the external auditor should not have a mutual or conflicting
interest with ANZ;
the external auditor should not audit its own work;
the external auditor should not function as part of Management or
as an employee; andthe external auditor should not act as an advocate of ANZ.
The Stakeholder Engagement Model, which sets out in detail thetypes of services the external auditor may and may not provide, canbe found on the Corporate Governance section of anz.com.
Details of the non-audit services provided by the external auditor,
KPMG, during the 2012 financial year, including their dollar value,
together with the statement from the Board as to their satisfaction
with KPMG’s compliance with the related independence requirementsof the Corporations Act 2001, are set out in the Directors’ Report on
page 10. In addition, the auditor has provided an independence
declaration under Section 307C of the Corporations Act 2001.
ANZ requires a two year period before any former partner or
employee of the external auditor is appointed as a Director or senior
executive of ANZ. The lead partner of the external auditor is required
to rotate off the audit after five years and cannot return for a further
five years. Certain other senior audit staff are required to rotate off
after a maximum of seven years. Any appointments of ex-partners
or ex-employees of the external auditor as ANZ finance staff,
at senior manager level or higher, must be pre-approved by the
Chair of the Audit Committee.
FINANCIAL CONTROLSThe Audit Committee oversees ANZ’s financial reporting policies andcontrols, the integrity of ANZ’s financial statements, the relationshipwith the external auditor, the work of Global Internal Audit, and theaudit committees of various significant subsidiary companies.
ANZ maintains a Financial Reporting Governance (FRG) Program
which evaluates the design and tests the operational effectiveness of
key financial reporting controls. In addition, half-yearly certifications
are completed by Senior Management, including senior financeexecutives. These certifications comprise representations andquestions about financial results, disclosures, processes and controls
and are aligned with ANZ’s external obligations. This process is testedby the FRG Program.
Any issues arising from the evaluation and testing are reported to
the Audit Committee. This process assists the Chief Executive Officer
and Chief Financial Officer in making the certifications to the Board
under the Corporations Act and ASX Governance Principles asreferred to in the Directors’ Report on page 11.

regularly reviews the independence of the external auditor; andevaluates the effectiveness of the external auditor.

CORPORATE GOVERNANCE

49

CORPORATE GOVERNANCE (continued)

Ethical and Responsible Decision-making
CODES OF CONDUCT AND ETHICS
ANZ has two main Codes of Conduct and Ethics, the Employee
Code and the Non-Executive Directors Code. These Codes provide
employees and Directors with a practical set of guiding principles
to help them make decisions in their day to day work. Having two
Codes recognises the different responsibilities that Directors haveunder law but enshrines the same values and principles.
The Codes embody honesty, integrity, quality and trust, andemployees and Directors are required to demonstrate thesebehaviours and comply with the Codes whenever they are
identified as representatives of ANZ.
The principles underlying ANZ’s Codes of Conduct and Ethics are:
We act in ANZ’s best interests and value ANZ’s reputation;
We act with honesty and integrity;
We treat others with respect, value difference and maintaina safe working environment;
We identify conflicts of interest and manage them responsibly;
We respect and maintain privacy and confidentiality;
We do not make or receive improper payments, benefits or gains;
We comply with the Codes, the law and ANZ’s policies andprocedures; andWe immediately report any breaches of the Codes, the law or
ANZ policies and procedures.
The Codes are supported by the following detailed policies thattogether form ANZ’s Conduct and Ethics Policy Framework:
ANZ Anti-Money Laundering and Counter-Terrorism Financing
Program;
ANZ Use of Systems, Equipment and Information Policy;
ANZ Global Fraud and Corruption Policy;
ANZ Group Expenses Policy;
ANZ Equal Opportunity, Bullying and Harassment Policy;
ANZ Health and Safety Policy;
ANZ Global Employee Securities Trading and Conflict ofInterest Policy;
ANZ Global Anti-Bribery Policy; and
ANZ Global Whistleblower Protection Policy.
Leaders are encouraged to run sessions for new direct reports andensure they, in turn, brief their teams where required on ANZ’s values
and ethical decision making within the team. The sessions aredesigned to build line manager capability, equipping ANZ leaders
and their teams with tools and knowledge to make carefully
considered, values-based and ethical business decisions and to create
team behaviour standards that are in line with the ANZ Values.
Within two months of starting work with ANZ, and thereafter onan annual basis, all employees are required to complete a training
course that takes each employee through the eight Code principles
and a summary of their obligations under each of the policies in the
Conduct and Ethics Policy Framework. Employees are required todeclare that they have read, understand and have complied withthe principles of the Employee Code, including key relevant extractsof the policies set out above.

50

To support the Employee Code of Conduct and Ethics, ANZ’s Global
Performance Improvement and Unacceptable Behaviour Policy sets
out the process to be followed to determine whether the Code has
been breached and the consequences that should be applied to
employees who are found to have breached the Code. Under the
ANZ Global Performance Management Framework, any breach of
the Code that leads to a consequence (such as a warning) will resultin an unacceptable risk/compliance/behaviour flag being given
at the time of the performance assessment. A flag must be taken
into account when determining an employee’s performance andremuneration outcome and will almost always negatively impact
those outcomes for the financial year in question.
Directors’ compliance with the Non-Executive Directors Codecontinues to form part of their annual performance review.
SECURITIES TRADINGThe Trading in ANZ Securities Policy prohibits trading in ANZ
securities by all employees and Directors who are aware of
unpublished price-sensitive information.
The Policy specifically prohibits certain ‘restricted persons’ (which
includes ANZ Directors, senior executives and their associates) fromtrading in ANZ securities during ‘blackout periods’ as defined in the
Policy. The Policy also provides that certain types of trading are
excluded from the operation of the trading restrictions under the
Policy, and for exceptional circumstances where trading may bepermitted during a prohibited period with prior written clearance.
ANZ Directors are required to obtain written approval from the
Chairman in advance before they or their associates trade in ANZ
securities. The Chairman of the Board is required to seek written
approval from the Chair of the Audit Committee. Senior executives
and other restricted persons are also required to obtain written
approval before they, or their associates, trade in ANZ securities.
The Policy also prohibits employees from hedging interests that havebeen granted under any ANZ employee equity plan that are either
unvested or subject to a holding lock. Any breach of this prohibition
would result in the forfeiture of the relevant shares, options or rights.
ANZ Directors and Management Board members are also prohibitedfrom providing ANZ securities as security in connection with any
margin loan or similar financing arrangement under which they
may be subject to a margin call or loan to value ratio breach.
WHISTLEBLOWER PROTECTION
The ANZ Global Whistleblower Protection Policy provides amechanism by which ANZ employees, contractors and consultants
may report serious issues on a confidential basis, without fear of
victimisation or disadvantage.
Complaints may be made under the Policy to Managers, designated
Whistleblower Protection Officers, or via an independently managed
Whistleblower Protection hotline.

Commitment to Shareholders
Shareholders are the owners of ANZ and the approaches described
below are enshrined in ANZ’s Shareholder Charter, a copy of which
can be found on the Corporate Governance section of anz.com.

ANZ ANNUAL REPORT 2012

COMMUNICATION
In order to make informed decisions about ANZ, and to communicate
views to ANZ, it is important for shareholders to have an
understanding of ANZ’s business operations and performance.
ANZ encourages shareholders to take an active interest in ANZ,
and seeks to provide shareholders with quality information in a timely
fashion through ANZ’s reporting of results, the Annual Report, theShareholder Review, announcements and briefings to the market,
half yearly newsletters and via its dedicated shareholder site on
anz.com. ANZ strives for transparency in all its business practices,and recognises the impact of quality disclosure on the trust andconfidence of shareholders, the wider investor market and thecommunity. To this end, ANZ, outside of its scheduled results
announcements, issued additional Trading Updates to the market
during the 2012 financial year.
Should shareholders require any information, contact details for
ANZ and its Share Registrar are set out in ANZ’s Annual Report,
the 2012 Shareholder Review, the half yearly shareholder newsletter,and the Shareholder centre section of anz.com.
MEETINGS
To allow as many shareholders as possible to have an opportunity
to attend shareholder meetings, ANZ rotates meetings around capitalcities and makes them available to be viewed online using webcast
technology.
Further details on meetings and presentations held throughout thisfinancial year are available on anz.com > About us >Shareholder
centre > My shareholding > Presentations and Webcasts. Prior to theAnnual General Meeting, shareholders are provided the opportunity
to submit any questions they have for the Chairman or Chief
Executive Officer to enable key common themes to be considered.
The external auditor is present at ANZ Annual General Meetings andavailable to answer shareholder questions on any matter thatconcerns them in their capacity as auditor.
Directors are also required to attend the Annual General Meeting
each year, barring unusual circumstances, and be available afterwards
to meet with and answer questions of shareholders.
Shareholders have the right to vote on various resolutions related
to company matters. Shareholders are encouraged to attend andparticipate in meetings but, if shareholders are unable to attend
a meeting, they can submit their proxies via post or electronically.
Where votes are taken on a poll, which is usual ANZ practice,
shareholders are able to cast their votes on a confidential basis.
ANZ appoints an independent party to verify the results, normally
KPMG, which are reported as soon as possible to the ASX and posted
on anz.com.

Continuous Disclosure
ANZ’s practice is to release all price-sensitive information to the
ASX in a timely manner as required under the ASX Listing Rules
and then to all relevant overseas Securities Exchanges on which
ANZ’s securities are listed, and to the market and community
generally through ANZ’s media releases, website and otherappropriate channels.

Through ANZ’s Continuous Disclosure Policy, ANZ demonstrates
its commitment to achieving best practice in terms of disclosureby acting in accordance with the spirit, intention and purposes of
the applicable regulatory requirements and by looking beyond form
to substance. The Policy reflects relevant obligations under applicablesecurities exchange listing rules and legislation.
For disclosure purposes, price-sensitive information is informationthat a reasonable person would expect to have a material effect on
the price or value of ANZ’s securities. Designated Disclosure Officers
have responsibility for reviewing proposed disclosures and making
decisions in relation to what information can be or should be
disclosed to the market. Each ANZ employee is required to informa Disclosure Officer regarding any potentially price-sensitive
information concerning ANZ as soon as they become aware of it.
A committee of senior executives (the Continuous Disclosure
Review Sub-Committee) also meets on a regular basis each quarterto overview the effectiveness of ANZ’s systems and procedures forachieving compliance with applicable regulatory requirements inrelation to the disclosure of price-sensitive information. This SubCommittee reports to the Governance Committee of the Board onan annual basis.

Corporate Responsibility
ANZ aims to be a role model for responsible business growthand business behaviour as it pursues its goal to become a superregional bank.
ANZ’s corporate responsibility framework responds to the prioritiesof customers, shareholders, employees, community groups,
regulators and governments across ANZ’s business. It emphasises
the role ANZ plays in society – helping to create prosperity and build
thriving communities while growing ANZ’s business responsibly.
The following five priority areas guide ANZ’s behaviour, corporate
responsibility investments, initiatives and decisions globally:
responsible practices;education and employment;
financial inclusion and capability;
bridging urban and rural social and economic divides; andurban sustainability.
The Corporate Responsibility and Diversity Committee is chairedby the Chief Executive Officer. The Committee provides strategic
leadership on the corporate responsibility agenda and monitors
progress and results.
Each year, ANZ sets public targets and a business-wide program ofwork to respond to the most material issues and opportunities for
ANZ as a bank and with regard to the wider industry. This year ANZ
achieved or made strong progress on 90% of its public targets,
which are reported in more detail in ANZ’s 2012 Shareholder Review
and specialist Corporate Responsibility reporting online.
ANZ keeps interested stakeholders abreast of developments througha monthly e-bulletin, and annual and interim corporate responsibility
reporting. ANZ reports on issues that are material to its business andreflect its stakeholders’ stated interests. ANZ follows the guidelinesof the Global Reporting Initiative for its full online Corporate
Responsibility reporting. Detailed information on ANZ’s approach andresults is available on anz.com> About us> Corporate Responsibility.

CORPORATE GOVERNANCE

51

CORPORATE GOVERNANCE (continued)

Diversity at ANZ

Baseline(30 Sept 2011)

30 September
2012 Target

30 September
2012 results

Senior executives

22.8%

24.0%

23.9%

Senior manager

28.5%

31.5%

28.1%

Manager

40.3%

42.0%

39.6%

Total women in management

38.2%

40.0%

37.8%

GENDER BALANCE AT ANZGroup

ANZ considers a gender-balanced, diverse and inclusive workforce,
where employee differences in areas like gender, age, culture, disability
and sexual orientation are valued, a strategic asset for its businessand critical to achieving its super regional strategy. The ANZ
Corporate Responsibility and Diversity Committee, established in
2004, is responsible for setting the strategic direction and identifying
focus areas in relation to diversity. It consists of senior executives andis chaired by the Chief Executive Officer.
Gender balance is a key priority in this strategy and ANZ’scommitment includes Management Board level accountability for
year-on-year improvements in gender balance, particularly acrosssenior executives, as well as other management positions.
GENDER BALANCE AT BOARD, SENIOR EXECUTIVE
AND MANAGEMENT LEVELS
ANZ’s Board currently comprises nine Directors, and it is not theBoard’s current intention to make any new Board appointments toincrease the size of the Board, other than as a part of the succession
planning process referred to below.
The Board has two female Directors (22% of the Board), namely Ms
Watkins and Ms Dwyer who joined the Board in November 2008 andApril 2012 respectively as Non-Executive Directors. Ms Watkins is
Chair of the Human Resources Committee and a member of the Audit
Committee and Governance Committee. Ms Dwyer is a member ofthe Audit Committee, Risk Committee and Human Resources
Committee.

PROGRESSION AND DEVELOPMENT PRACTICESANZ aims to achieve gender balance in its key talent development
and learning programs.
This year ANZ invested significantly in its core Leadership Pathway
programs which target entry level managers through to enterpriseleaders, and provide comprehensive training in the skills andcompetencies required to lead at ANZ. 46% of participants in all
Leadership Pathway programs were female.
The total of all current Generalist Bankers and Graduate cohorts from2012 comprises 44% and 45% female participation respectively; and62% and 46% people from an Asian or Pacific cultural backgroundrespectively. The graduate intake for 2013 will comprise 53% women(up from 48% in 2011) and 43% people from an Asian or Pacificcultural background.
ANZ introduced a new Building Enterprise Talent approach in 2012.
This process targets executive employees, and of the 2012
participants, 40% are female and 12% are from an Asian or Pacificcultural background. This percentage meets the target representationof females in management positions. Achieving further genderbalance and cultural diversity in this program is an ongoing priority.

The Board has a tenure policy which limits the period of serviceof a Non-Executive Director to three 3-year terms after first being
elected by shareholders. In accordance with this policy, three
Non-Executive Directors are scheduled to retire at the 2013 AGM.

ANZ launched a new program “Accelerating Banking Experiences for
Women”. The program has been sponsored by the CEO Australia
Division and is designed to give more of ANZ’s talented women theopportunity to develop broad based banking careers at ANZ.

The Board’s objective is that the new Director appointments whowill replace the retiring Directors will include at least one woman.
This objective is being effectively progressed with Ms Dwyer being
the first of these three new appointments. It is expected theremaining two appointments will be made in the period leading
up to the 2013 AGM in order to provide an appropriate transition.

Awareness and education programs to eliminate any unconscious
bias in ANZ’s policies, practice and workplace culture are underway.
ANZ is a key partner in Melbourne Business School’s Gender Equality
Project. Through this partnership significant research has been
completed on gender equality along with ANZ investing in thedevelopment and launch of a learning program to better understandthe economic and business case for gender balancing ANZ and how
to best understand, inspire and capitalise on the talents of both
female and male employees in ANZ’s workforce.

ANZ has the highest proportion of women on its Management Boardof any Australian bank at 27%. There are female leaders of at least
three of ANZ’s major global businesses including Global Wealth andPrivate Banking, Global Loans and Transaction Banking and Global
Relationship Banking. Women also lead key countries in the capacityof CEO or Country Manager in ANZ’s Asia Pacific growth marketsof Hong Kong, American Samoa, Malaysia, Philippines and Thailand.
Annual gender targets have been set since 2004. ANZ’s goals forthe year ended 30 September 2012 and the results achieved are set
out in the table following. While ANZ did not achieve targets over all
the sub-categories, performance improved at the Senior Executive
level. With respect to the total number of women across theorganisation, the percentage fell slightly from 55% to 54.5%.
See ‘Future Goals’ below for ANZ’s 2013 measurable objectives
for achieving gender diversity.

PAY EQUITY
ANZ is committed to achieving pay equity for like roles across its
business. ANZ tracks its progress annually and publicly reports its
performance (see the 2012 Shareholder Review, which is available
at anz.com).
The gender pay differential between males and females (withcomparisons based on like-for-like job size) continues to be minimal,
and reductions in the gender differentials in fixed pay were achieved.
Every year ANZ conducts a review of performance-based
compensation to ensure there is no systemic gender bias in its
reward allocation. In 2012, the proportion of women achieving
ANZ’s two highest levels of relative performance outcome (RPO),
which determines bonus levels, was equal to men. 5% of females andmales achieved RPO 1 and 17% of females and males achieved RPO 2.
In addition, 57% of award recipients in ANZ’s prestigious annual CEO
Recognition Program were women.

52

ANZ ANNUAL REPORT 2012FLEXIBLE ARRANGEMENTS AND PARENTAL LEAVE

FUTURE GOALSANZ offers flexible work arrangements, breaks from work and support
in special circumstances to help balance life priorities with work andto manage careers. These include formal and informal arrangements,
such as compressed work weeks (where employees work the usual
number of hours in fewer days), flexible start and finish times, job
sharing, telecommuting, part time work arrangements and lifestyle
leave (which offers up to four weeks unpaid leave for any purpose).
See the 2012 Shareholder Review for information on the numberof employees in flexible work arrangements.

ANZ has set the following global goals for gender balance anddiversity for 2013. The 2012 Shareholder Review contains further
information on these targets.

ANZ provides equal paid parental leave to males and females inAustralia along with a lumpsum childcare allowance to help thetransition back to work after parental leave. Superannuation is also
paid on all forms of paid parental leave.
WORKPLACE CULTURE
ANZ is building a vibrant, diverse and inclusive culture as a criticalfoundation for its super regional strategy. This year, in the annual
My Voice employee survey, 79% of all respondents supported thestatement that ‘ANZ is creating a work environment that is open andaccepting of individual differences’ and 80% of respondents agreed
that ‘My manager supports my efforts to balance my work andpersonal life’ – key indicators of the success of ANZ’s diversity
priorities.
SUPPORT FOR GENDER EQUALITY IN OUR COMMUNITIESThe ANZ Chairman is actively involved in the Australian Institute ofCompany Directors Chairman’s Mentoring Program to advance more
women into Board positions.
The Chief Executive Officer is a member of the Male Champions of
Change program (MCC), through which CEOs and Directors use theirinfluence to ensure that the issues of gender equality and women’s
representation in leadership are elevated onto the national businessagenda.
In 2012 ANZ was recognised as an Employer of Choice for Womenby the Australian Equal Opportunity in the Workplace Agency forthe eighth time. This followed similar achievements in the last year,
including the Australian Human Resources Institute (AHRI) Indigenous
Employment Award and the AHRI Disability Employment Award.
Also in 2012, ANZ was recognised as the Banking sector leader in the
Dow Jones Sustainability Index for effective labour practices and its
strong focus on diversity – with particular mention made of ANZ’s full
public disclosure of workforce diversity and the high retention of
females in management positions. ANZ’s best in class performance isreflected in the last Dow Jones Sustainability Index report,
highlighting the value placed on performance-linked gender
diversity targets, low gender pay differential and the organisation’s
public reporting of progress in achieving a gender equal workforce.
Saver Plus, MoneyMinded, MoneyBusiness and Progress Loans, ANZ’sfinancial capability initiatives, include mostly female participants andaim to encourage and support their economic empowerment,
education and broader inclusion in society. ANZ was awarded an‘Outstanding’ award for two of the four categories, in the inaugural
MoneySmart Week Awards. The awards recognised two ANZ
initiatives that have greatly contributed to financial wellbeing inAustralia over the past ten years: the ANZ Survey of Adult Financial
Literacy in Australia and some Pacific and Asian countries, which won
within the research category, and ANZ’s Saver Plus Program which
received an award for the ‘Community’ category. ANZ’s long term,
multi-million dollar investment in these programs continues tobenefit tens of thousands of women on low incomes and fromdisadvantaged communities.

Public Gender Balance and Diversity Targets
Improve employee engagement to at least 73%, with a long term targetof 83%.
Improve perceptions of “values-based leadership” amongst ouremployees to at least 70%, with a long term target of 80%.
Achieve a 1% increase in the representation of women in
management in 2013, with a medium term goal of 40% and a longterm target of 45% representation.
Achieve gender balance and greater cultural diversity in our key
recruitment, talent development and learning programs
Play a leadership role in advancing women in society and improving
cultural diversity in business through high profile business,government and community partnerships.
Provide 230 positions to people from traditionally excluded groups
and disadvantaged backgrounds through our traineeships, graduate
program and permanent employment.
Develop and commence implementation of a global approach to
improving age diversity across our business.
Publicly report outcomes of ANZ's current Reconciliation Action Plan
and Disability Action Plan.

Donations and Community Investment
ANZ has made a long term public commitment to invest in thecommunities in which it operates and contributed around $14.9 million
in cash, time and in-kind services during the year ended 30 September
2012. This does not include ‘forgone revenue’ such as the cost ofproviding low or fee free accounts to government benefit recipients.
Building financial capability is a key element of ANZ’s Corporate
Responsibility framework, targeting especially those in disadvantaged
communities who are most at risk of financial exclusion. For thisreason more than $3.5 million of this contribution was invested
in financial literacy and inclusion programs such as Saver Plus,
MoneyMinded and MoneyBusiness. MoneyMinded is the most widelyused financial literacy program in Australia and in 2011-12 wasadapted for use in India, Indonesia, Vietnam, the Solomon Islands,
Timor-Leste and Vanuatu, taking to 13 the number of countries where
MoneyMinded is delivered.
ANZ offers all staff at least one day of paid volunteer leave per
year to make a difference in their local communities. Where possible
activities have been aligned with ANZ’s corporate responsibility focus
areas of financial inclusion and capability, education and employment
opportunities and bridging urban and rural social and economic
divides. In the past year, ANZ staff volunteered almost 87,000 hours.
A number of staff contribute to non-profit organisations throughworkplace giving, which ANZ matches.
Further details can be accessed at anz.com/cr.
In addition, for the year to 30 September 2012, ANZ donated$80,000 to the Liberal Party of Australia and $80,000 to theAustralian Labor Party.
CORPORATE GOVERNANCE

53

SECTION 2
Review of Operating Results

55

Principal Risks and Uncertainties

62

Five Year Summary

70

54

REVIEW OF OPERATING RESULTS
A MESSAGE FROM SHAYNE ELLIOTT, CHIEF FINANCIAL OFFICER

ANZ reported a profit after tax of $5,661 million for the year ended 30 September 2012.
2012
$m

2011
$m

Movt

Net interest income1

Other operating income1

12,1105,601

11,500
5,432

5%
3%

Operating income
Operating expenses

17,711(8,519)16,932(8,023)

5%
6%

Profit before credit impairment and income tax
Provision for credit impairment

9,192(1,198)

8,909(1,237)

3%-3%

Profit before income tax
Income tax expense
Non-controlling interests

7,994(2,327)(6)

7,672(2,309)
(8)

4%
1%
-25%

Profit attributable to shareholders of the Company

5,661

5,355

6%

Income Statement

1 Comparative information has been changed. Refer to note 1 of the financial statements for further details.

NON-IFRS INFORMATIONThe Group provides an additional measure of performance which is prepared on a basis other than in accordance with the accounting
standards; namely underlying profit. The guidance provided in Australian Securities and Investments Commission Regulatory Guide 230 has
been followed when presenting this information.
UNDERLYING PROFIT
Profit has been adjusted for certain non-core items to arrive at underlying profit, the result for the ongoing business activities of the Group.
These adjustments have been determined on a consistent basis with those made in prior years. The adjustments made in arriving at underlying
profit are included in statutory profit, which is subject to audit within the context of the Group audit opinion. Underlying profit is not audited,
however, the external auditor has informed the Audit Committee that the adjustments, and the presentation thereof, are based on theguidelines released by the Australian Institute of Company Directors (AICD) and the Financial Services Institute of Australasia (FINSIA), andhave been determined on a consistent basis with those made in prior years.
2012
$m

2011
$m

Movt

Statutory profit attributable to shareholders of the Company
Adjustments between statutory profit and underlying profit

5,661
350

5,355
297

6%
18%

Underlying profit

6,011

5,652

6%

Adjustments between statutory profit and underlying profit ($m)

2012

2011

Movt

Gain on sale of Visa shares
New Zealand Simplification programmeAcquisition related adjustments
Treasury shares adjustment
Changes in New Zealand tax legislation
Economic hedging – fair value (gains)/losses
Revenue and net investment hedges (gains)/losses

(224)
105
41
96
–
229
(53)
220
1
(65)
350

–
86
126
(41)
(2)
117
51
–
(39)
(1)
297

n/a
22%
-67%
large
-100%
96%
large
n/a
large
large
18%

Capitalised software impairment

NZ managed funds impacts
Non continuing businesses
Total adjustments between statutory profit and underlying profit
Refer pages 204 to 206 for analysis of the adjustments between statutory profit and underlying profit.

REVIEW OF OPERATING RESULTS

55

REVIEW OF OPERATING RESULTS (continued)

2012
$m

2011
$m

Movt

Net interest income1

Other operating income1

12,111
5,468

11,498
5,314

5%
3%

Operating income
Operating expenses

17,579(8,022)

16,812(7,718)

5%
4%

Profit before credit impairment and income tax
Provision for credit impairment

9,557(1,246)

9,094(1,211)

5%
3%

Profit before income tax
Income tax expense
Non-controlling interests

8,311(2,294)(6)

7,883(2,222)
(9)

5%
3%
-33%

Underlying profit

6,011

5,652

6%

Income Statement

1 Comparative information has been changed. Refer to note 1 of the financial statements for further details.

Analysis of the business performance by major income and expense, and by Division, is on an underlying basis.

Net Interest Income
Net Interest income increased 5% with growth in average interest
earning assets partially offset by a decline in the net interest margin.
Growth in average interest earning assets (+$49.2 billion or 10%).
Major movements include:
Australia division increased $16.3 billion (7%): Mortgages increased$13.0 billion (8%) and Commercial increased $3.1 billion (6.9%),
primarily in Business Banking; andInternational and Institutional Banking increased $32.3 billion(18%): Global Markets increased $16.6 billion (19%) due to growthin liquid assets, trading and investment securities, combined with
a $7.6 billion (2%) growth in Global Loans and a $6.3 billion (50%)
uplift in trade finance lending in Transaction Banking.
Growth in average deposits and other borrowings was $45.3 billion(13%). Major movements include:
Australia division increased $13.9 billion (12%): reflecting increased
customer deposits in Retail from higher volumes on Progress,
Online and Business Premium Saver products and term deposits,
along with growth in deposits in Commercial;

Net interest margin decreased by 11 basis points to 2.31%. Excluding
the impact of the Global Markets business, the Group margindecreased by 9 basis points. The main drivers of margin performance,
including Global Markets, were:
funding and asset mix changes (+1 bps): reduced the relianceon more expensive wholesale funding due to increased customer
deposits, partially offset by unfavourable asset mix with higher
growth in lower margin products (for example Trade Loans);
funding costs (-8 bps): increased wholesale funding costs and lower
returns on capital due to declining interest rate environment inAustralia and New Zealand;
deposit costs (-10 bps): reflecting strong competition for retailand commercial deposits, predominantly in Australia; andassets (+6 bps): primarily benefits of re-pricing mortgages inAustralia, partially offset by margin compression in Global Loans.

Other Operating Income
Other Operating Income increased 3%. Major movements include:

International and Institutional Banking increased $15.8 billion(12%) mainly due to increased customer deposits within the
APEA region; andfee income (excluding Global Markets) increased $35 million(2%): Transaction Banking increased $34 million driven
by volume growth;Group Centre increased $11.3 billion (25%) reflecting increased
wholesale funding raised during the year.

foreign exchange earnings (excluding Global Markets) decreased$17 million (-6%): Group Centre decreased $43 million mainly due tolower realised revenue hedge gains. Transaction Banking increased$15 million driven by higher volumes and Consumer Cards andUnsecured Lending increased $6 million driven by pricing
initiatives and increased travel card volumes.

56

ANZ ANNUAL REPORT 2012

net income from Wealth Management increased $3 million (0%):
Global Wealth and Private Banking increased $43 million primarily
due to the impact of interest and inflation rates on insurance andannuity reserves, higher advice income and higher income from
Asian operations, partially offset by lower funds management
income. Retail Asia Pacific increased $11 million mainly due toimproved performance in Taiwan, Indonesia and Singapore. Group
Centre decreased $53 million due to an increase in the eliminationon consolidation of OnePath investments in ANZ products;
share of associates’ profit decreased $20 million (-5%): Shanghai
Rural Commercial Bank (SRCB) decreased $63 million mainly as aresult of one-off adjustments included in the prior year and higher
provision charges in 2012. Panin Bank increased $18 million mainly
due to underlying business growth. Bank of Tianjin (BoT) increased$18 million as a result of underlying business growth;
other income (excluding Global Markets) decreased $16 million(-11%): Group Centre decreased $21 million due to the
profit on sale of 20 Martin Place (Sydney) in 2011. Global Wealthand Private Banking decreased $19 million mainly driven
by adverse investor sentiment and the uncertain economic
environment which negatively impacted on E*Trade brokeragevolumes. Global Institutional decreased $10 million due
to mark-to-market movements on credit default swap bought
protection. Asia Partnerships increased $20 million reflecting
a $10 million gain on sale of Sacombank and $10 million dilution
gain relating to the Bank of Tianjin investment. Global Loans
increased $11 million mainly due to a gain on restructuringa transaction. Mortgages increased $9 million mainly due tothe gain on sale of the Origin business; andGlobal Markets income increased through both other operating
income and net interest income categories. Total Global Markets
income increased $241 million (14%) with Foreign Exchange up$109 million (17%) and Fixed Income up $153 million (25%), withincreasing contribution coming from APEA. Sales continues to be
the primary revenue driver, now representing over 60% of income.
Trading and Balance Sheet results experienced strong growthwith more stable markets and tightening credit spreads.

Operating Expenses
Operating expense growth was contained at 4%, with Australia
and New Zealand delivering solid cost outcomes (2% growth year
on year), driven primarily by cost savings from productivity initiatives
and greater utilisation of our hub resources. This was partially offset
by International and Institutional Banking and Group Centre due
to higher amortisation charges, restructuring costs and increased
technology investments.
Movement by expense category was:personnel expenses increased $87 million (2%) as a result ofannual salary increases and the continued build out of our regional
capability, partly offset by a 4% reduction in staff numbers;
premises expenses increased $35 million (5%) reflecting rent
increases and our regional expansion;
computer expenses increased $84 million (8%) due toincreased depreciation and amortisation from increased
investment in technology; andrestructuring expenses increased $103 million as a result of
productivity initiatives being undertaken across the Group.

Provision for Credit Impairment
Total credit impairment charge relating to lending assets,commitments, impaired derivative exposures and debt securities
classified as available-for-sale assets increased by $35 million from
September 2011 to $1,246 million.
The individual provision charge increased $426 million over the year,
due mainly to an increase in International and Institutional Banking,reflecting an increase in provisions for a few legacy loans and lower
levels of recoveries and writebacks than in 2011, partially offset bya decrease in New Zealand division.
The collective provision charge reduced by $391 million during theyear, due mainly to a release in International and Institutional Banking
of $300 million driven by a reduction in the concentration risk
provision associated with a few legacy exposures and an improved
risk profile across most portfolios in 2012, partially offset byunderlying growth across the portfolio. A release in New Zealanddivision of $45 million was driven by economic cycle releases andan improving risk portfolio, partially offset by portfolio growth.

REVIEW OF OPERATING RESULTS

57

REVIEW OF OPERATING RESULTS (continued)

Balance Sheet Summary1
2012
$m

2011
$m

Movt

AssetsLiquid assets
Due from other financial institutions
Trading and available-for-sale assets
Derivative financial instruments
Net loans and advances
Regulatory deposits
Investments backing policy liabilities
Other

36,578
17,103
61,16448,929427,823
1,478
29,895
19,15725,627
13,29858,33858,641
397,307
1,505
29,85919,638

43%
29%
5%
-17%
8%
-2%
0%
-2%

Total Assets

642,127604,213

6%

Liabilities
Due to other financial institutions
Customer deposits
Other deposits and other borrowings

30,538327,876
69,247

27,535
296,754
71,975

11%
10%
-4%

Deposits and other borrowings
Derivative financial instruments
Bonds and notes
Policy liabilities/external unit holder liabilities
Other

397,123
52,63963,09833,48624,023368,72955,29056,551
32,536
25,618

8%
-5%
12%
3%
-6%

Total Liabilities

600,907566,259

6%

Total equity

41,22037,9549%

1 Certain comparative amounts have changed. Refer to note 1 of the Financial Statements for details.

The Group’s balance sheet continued to strengthen during 2012
with increased capital ratios, a higher level of liquidity, an increased
proportion of funding from customer deposits and a reduction in
the proportion of impaired assets to gross loans and advances.

partially offset by an increase in non-performing commitments andcontingencies. Net impaired assets as a % of net advances decreased
from 0.98% in 2011 to 0.80% in 2012.

The Group’s Common Equity Tier 1 ratio increased 30 basis points
to 8.8% based upon the APRA Basel II standards, with underlying
earnings and capital initiatives (including divestments) outweighing
dividends, incremental risk weighted assets and deductions.

net loans and advances increased $30.5 billion (8%) primarily
driven by a $16.2 billion (7%) increase in the Australia divisionfrom above system growth in Mortgages (8%) and growth inBusiness Banking (11%) and International and Institutional Banking
increased $10.4 billion (11%) with strong growth across all businesslines in the APEA geography.

The level of prime and supplementary liquid asset holdings increased
from September 2011 by $23.1 billion to $114.6 billion at September
2012, sufficient to cover the maturities of all short and long term
offshore wholesale debt securities.
During the year to September 2012 the total increase in customer
funding was $29.5 billion. The proportion of customer funding stands
at 61%.
Gross impaired assets decreased 7% to $5.2 billion driven by areduction in impaired loans and a reduction in the restructured items,

58

Asset growth of $37.9 billion (6%) was principally driven by:

Liabilities growth of $34.6 billion (6%) is principally driven by:deposits and other borrowings increased $28.4 billion (8%) due
to growth in customer deposits of $31.1 billion (10%), driven by$13.8 billion (11%) in Australia and $12.9 billion from Institutionaland International Banking, with solid growth from new retailsavings products and greater penetration in APEA region
respectively.

ANZ ANNUAL REPORT 2012

Australia
Income statement

2012
$m

2011
$m

Movt

Net interest income
Other operating income

5,924
1,194

5,782
1,185

2%
1%

Operating income
Operating expenses

7,118(2,893)

6,967(2,836)

2%
2%

Profit before credit impairment and income tax
Provision for credit impairment

4,225
(666)

4,131
(719)

2%
-7%

Profit before income tax
Income tax expense

3,559(1,067)3,412(1,022)

4%
4%

Profit

2,492

2,390

4%

Number of employees

13,982

14,635-4%

Profit increased 4%, with profit before credit impairment and income
tax up 2%.
Key factors affecting the result were:
net interest income increased 2% as a result of strong growth inaverage net loans and advances of 7%, partially offset by a decline
in net interest margin of 12 basis points;
growth in average net loans and advances of 7% was driven by
above system growth in Mortgages of 8% and growth in BusinessBanking of 11%. Asset growth was largely self-funded with averagedeposit growth of 12% in the year coming primarily fromsavings products.

net interest margin declined 12 basis points over the year as aresult of deposit pricing pressures and higher wholesale funding
costs partly offset by benefits from asset pricing and disciplined
margin management;
operating expenses increased 2% due to higher restructuringcosts and annual salary increases, partially offset by the benefits
from productivity initiatives (reducing average FTE) procurement
saves and lower discretionary spending throughout the year; andprovision for credit impairment decreased 7% reflecting lower
collective provisions due to the release of surplus flood provisions
partly offset by an increase in individual provisions due to a large
provision raised for a merchant facility and the impact of softer
economic conditions.

International and Institutional Banking
Income statement

2012
$m

2011
$m

Movt

Net interest income1
Other operating income1

3,842
2,750

3,667
2,523

5%
9%

Operating income
Operating expenses

6,592(2,933)6,190(2,757)

6%
6%

Profit before credit impairment and income tax
Provision for credit impairment

3,659
(427)

3,433
(293)

7%
46%

Profit before income tax
Income tax expense
Non-controlling interests

3,232
(854)
(6)

3,140
(830)
(9)

3%
3%
-33%

Profit

2,372

2,301

3%

Number of employees2

16,04916,527-3%

1 Comparative information has been changed. Refer to note 1 of the financial statement for further details.
2 Comparative information has changed to align to the current year methodology.

Profit increased 3%, with strong growth in Global Markets andTransaction Banking partially offset by by higher individual provision
charges in the Global Loans business.

other operating income increased 9% mainly from increases in
Global Institutional in APEA (in particular, Transaction Banking and
Global Markets);

Key factors affecting the result were:operating expenses were up 6%, driven by higher amortisation
charges and restructuring costs with continued re-investment in
the business, partially offset by cost savings from productivity gains
and greater utilisation of our hub resources; andnet interest income increased 5%. Solid growth in APEA accounted
for most of the overall increases in customer deposits (up 10%)and net loans and advances (up 11%). However, net interest margin(excluding Global Markets) declined 40 basis points reflecting
the higher funding costs, margin compression in the competitiveenvironment in Australia and the impact of the change in lending
mix tilted towards Asia where margins are lower;

Provision charges for credit impairment were 46% higher, driven
by individual provision charges on a few legacy Global Institutionalloans in Australia, partially offset by collective provision releases
from associated concentration risk provisions.
REVIEW OF OPERATING RESULTS

59

REVIEW OF OPERATING RESULTS (continued)

New Zealand
Income statement

2012
$m

2011
$m

Movt

Net interest income
Other external operating income

1,772
325

1,701
316

4%
3%

Operating income
Operating expenses

2,097
(921)

2,017
(906)

4%
2%

Profit before credit impairment and income tax
Provision for credit impairment

1,176
(148)

1,111
(166)

6%
-11%

Profit before income tax
Income tax expense

1,028
(285)

945
(283)

9%
1%

743

662

12%

7,841

8,195

-4%

ProfitNumber of employees
Profit increased by 12% driven by strong balance sheet growth,
improved margins, lower provisions and the benefit of a lower
tax rate.
Key factors affecting the result were:lending volumes increased 4%, driven primarily by strong growth
in mortgages;
strong customer deposits growth 10%, driven by Retail and Small
Business Banking, resulted in an improvement in the funding mix
year on year;
net interest margin improved by 10 basis points, driven by afavorable lending mix, a reduction in unproductive balancesand lower mortgage break costs;

productivity initiatives enabled costs to be held flat during theyear, resulting in the cost to income ratio falling 100bps to 43.9%.
provisioning was 11% lower over the year, reflecting an
improvement in the quality of the loan book and improved
recovery rates;
The individual provision loss rate is down 9 basis points to 0.29%
and net impaired assets fell 23% to represent 1.11% of net
advances; andtax benefit of NZD26 million from the reduction in the corporate
tax rate from 30% to 28% during the year.

Global Wealth and Private Banking
Income statement

2012
$m

2011
$m

Movt

Net interest income
Other operating income
Net funds management and insurance income

123
172
1,183

135
191
1,159

-9%
-10%
2%

Operating income
Operating expenses

1,478
(857)

1,485
(853)

0%
0%

Profit before credit impairment and income tax
Provision for credit impairment

621
(4)

632
8

-2%
large

Profit before income tax
Income tax expense

617
(166)

640
(183)

-4%
-9%

Profit

451

457

-1%

2,109

2,183

-3%

Number of employees1
1 Comparative information has changed to align to the current year methodology.

Profit was 1% lower driven by adverse investor sentiment andsubdued market returns negatively impacting volumes and resulting
in lower net interest and other operating income.
Key factors affecting the result were:
net interest income and other operating income declined by 9%
and 10% respectively as a result of challenging market conditionsin 2012;60

net funds management and insurance income increased by 2%
mainly due to higher capital investment earnings as a result of thepositive impact of interest and inflation rates on insurance andannuity reserves; andflat operating expenses were mainly driven by the investment
in growth initiatives, offsetting benefits realised from businesssimplification initiatives.

ANZ ANNUAL REPORT 2012

Global Technology, Services and Operations1
Income statement

2012
$m

2011
$m

Movt

Net interest income
Other operating income

450
(156)

213
(60)

large
large

Operating income
Operating expenses

294
(418)

153
(366)

92%
14%

Profit before credit impairment and income tax
Provision for credit impairment

(124)
(1)

(213)
(41)

-42%
-98%

Profit before income tax
Income tax expense

(125)
78

(254)
96

-51%
-19%

Profit

(47)

(158)

-70%

5,919

5,981

-1%

Number of employees2
1 Includes Group Centre and shareholder functions.
2 Comparative information has changed to align to the current year methodology.

The underlying loss of $47 million was $111 million lower than theprior year, with higher income and lower credit impairment charges,
partially offset by higher expense.
Key factors affecting the result were:operating income improved $141 million largely due to higher
earnings on centrally held capital partly offset by lower realised
revenue hedge profits in 2012 and the 2011 benefit from the saleof Martin Place;

operating expenses increased $52 million largely as a resultof increased investment in technology infrastructure; andprovision for credit impairment reduced $40 million due to acentrally held provision made in 2011 for emerging issues resulting
from global uncertainty.

REVIEW OF OPERATING RESULTS

61

PRINCIPAL RISKS AND UNCERTAINTIES
1. Introduction
The Group’s activities are subject to risks that can adversely impact
its business, operations and financial condition. The risks anduncertainties described below are not the only ones that the Groupmay face. Additional risks and uncertainties that the Group is unawareof, or that the Group currently deems to be immaterial, may also
become important factors that affect it. If any of the listed or unlisted
risks actually occur, the Group’s business, operations, financial
condition, or reputation could be materially and adversely affected,
with the result that the trading price of the Group’s equity or debt
securities could decline, and investors could lose all or part oftheir investment.

2. Changes in general business and economic
conditions, including disruption in regional or global
credit and capital markets, may adversely affect theGroup’s business, operations and financial condition
The Group’s financial performance is primarily influenced by the
economic conditions and the level of business activity in the majorcountries and regions in which it operates or trades, i.e. Australia,
New Zealand, the Asia Pacific region, Europe and the United Statesof America. The Group’s business, operations, and financial condition
can be negatively affected by changes to these economic andbusiness conditions.
The economic and business conditions that prevail in the Group’s
major operating and trading markets are affected by domestic andinternational economic events, political events and natural disasters,
and by movements and events that occur in global financial markets.
The global financial crisis in 2008 and 2009 saw a sudden andprolonged dislocation in credit and equity capital markets, acontraction in global economic activity and the creation of many
challenges for financial services institutions worldwide that still
persist in many regions. More recently, sovereign risk (particularly inEurope) and its potential impact on financial institutions in Europe
and globally has emerged as a significant risk to the growth prospectsof the global economy. The impact of the global financial crisis and its
aftermath (such as heightened sovereign risk) continue to affectglobal economic activity, confidence and capital markets.
The economic effects of the global financial crisis and the more
recent European sovereign debt crisis have been widespread andfar-reaching with unfavourable ongoing impacts on retail spending,personal and business credit growth, housing credit, and businessand consumer confidence. While some of these economic factors
have since improved, lasting impacts from the global financial crisisand subsequent volatility in financial markets and the more recent
European sovereign debt crisis (and potential contagion from it)suggest ongoing vulnerability and potential adjustment of consumer
and business behaviour.

62

The sovereign debt crisis could have serious implications for
the European Union and the euro which, depending on thecircumstances in which they take place, could adversely impact
the Group’s business operations and financial condition. The New
Zealand economy is also vulnerable to more volatile markets anddeteriorating funding conditions. Economic conditions in Australia,
New Zealand, and some Asia Pacific countries remain difficult for
many businesses, albeit less so than in many European countries
and in the United States of America.
Should the difficult economic conditions of these countries persist
or worsen, asset values in the housing, commercial or rural property
markets could decline, unemployment could rise and corporate andpersonal incomes could suffer. Also, deterioration in global markets,
including equity, property, currency and other asset markets, could
impact the Group’s customers and the security the Group holds
against loans and other credit exposures, which may impact its
ability to recover some loans and other credit exposures.
All or any of these negative economic and business impacts could
cause a reduction in demand for the Group’s products and services
and/or an increase in loan and other credit defaults and bad debts,
which could adversely affect the Group’s business, operations, andfinancial condition.
The Group’s financial performance could also be adversely affected
if it were unable to adapt cost structures, products, pricing or
activities in response to a drop in demand or lower than expected
revenues. Similarly, higher than expected costs (including credit andfunding costs) could be incurred because of adverse changes in theeconomy, general business conditions or the operating environment
in the countries in which it operates.
Other economic and financial factors or events which may adversely
affect the Group’s performance and results, include, but are notlimited to, the level of and volatility in foreign exchange rates andinterest rates, changes in inflation and money supply, fluctuations
in both debt and equity capital markets, declining commodity prices
due to, for example, reduced demand in Asia, especially North Asia/
China, and decreasing consumer and business confidence.
Geopolitical instability, such as threats of, potential for, or actual
conflict, occurring around the world, such as the ongoing unrest
and conflicts in the Middle East, may also adversely affect global
financial markets, general economic and business conditions andthe Group’s ability to continue operating or trading in a country,
which in turn may adversely affect the Group’s business, operations,and financial condition.
Natural disasters such as (but not restricted to) cyclones, floods andearthquakes, and the economic and financial market implicationsof such disasters on domestic and global conditions can adversely
impact the Group’s ability to continue operating or trading in the
country or countries directly or indirectly affected, which in turn
may adversely affect the Group’s business, operations and financial
condition. For more specific risks in relation to earthquakes and therecent Christchurch earthquakes, see the risk factor entitled “TheGroup may be exposed to the impact of future climate change,
geological events, plant and animal diseases, and other extrinsic
events which may adversely affect its business, operations andfinancial condition”.

ANZ ANNUAL REPORT 2012

3. Changes in exchange rates may adversely affect
the Group’s business, operations and financial condition
The previous appreciation in and continuing high level of the valueof the Australian and New Zealand dollars relative to other currencies
has adversely affected, and could continue to have an adverse effecton, certain portions of the Australian and New Zealand economies,
including some agricultural exports, tourism, manufacturing, retailingsubject to internet competition, and import-competing producers.
Recently, commodity prices have fallen and the Australian and New
Zealand dollars have remained high, removing some of the traditional“natural hedge” the currencies have played for commodity producers
and the broader economy. A depreciation in the Australian or New
Zealand dollars relative to other currencies would increase the debt
service obligations in Australia or New Zealand dollar terms ofunhedged exposures. Appreciation of the Australian dollar against
the New Zealand, United States dollar and other currencies has anegative earnings translation effect, and future appreciation could
have a greater negative impact, on the Group’s results from its othernon-Australian businesses, particularly its New Zealand and Asianbusinesses, which are largely based on non-Australian dollar
revenues. The Group has put in place hedges to partially mitigate theimpact of currency appreciation, but notwithstanding this there canbe no assurance that the Group’s hedges will be sufficient or effective,
and any further appreciation could have an adverse impact upon theGroup’s earnings.

4. Competition may adversely affect the Group’sbusiness, operations and financial condition, especiallyin Australia, New Zealand and the Asian markets inwhich it operates
The markets in which the Group operates are highly competitiveand could become even more so, particularly in those countries andsegments that are considered to provide higher growth prospects or
are in greatest demand (for example, customer deposits or the Asian
region). Factors that contribute to competition risk include industry
regulation, mergers and acquisitions, changes in customers’ needs
and preferences, entry of new participants, development of new
distribution and service methods, increased diversification of products
by competitors, and regulatory changes in the rules governing theoperations of banks and non-bank competitors. For example, changes
in the financial services sector in Australia and New Zealand havemade it possible for non-banks to offer products and services
traditionally provided by banks, such as automatic payments systems,
mortgages, and credit cards. In addition, banks organised injurisdictions outside Australia and New Zealand are subject todifferent levels of regulation and consequently some may have lower
cost structures. Increasing competition for customers could also
potentially lead to a compression in the Group’s net interest margins,or increased advertising and related expenses to attract andretain customers.

Additionally, the Australian Government announced in late 2010
a set of measures with the stated purpose of promoting a competitiveand sustainable banking system in Australia. Any regulatory or
behavioural change that occurs in response to this policy shift could
have the effect of limiting or reducing the Group’s revenue earned
from its banking products or operations. These regulatory changes
could also result in higher operating costs. A reduction or limitationin revenue or an increase in operating costs could adversely affect
the Group’s profitability.
The effect of competitive market conditions, especially in theGroup’s main markets and products, may lead to erosion in theGroup’s market share or margins, and adversely affect the Group’sbusiness, operations, and financial condition.

5. Changes in monetary policies may adversely affect
the Group’s business, operations and financial condition
Central monetary authorities (including the Reserve Bank ofAustralia (RBA) and the Reserve Bank of New Zealand (RBNZ),
the US Federal Reserve and the monetary authorities in Asian
jurisdictions in which ANZ carries out business) set official interest
rates so as to affect the demand for money and credit in their relevant
jurisdictions (in some Asian jurisdictions currency policy is used toinfluence general business conditions and the demand for money
and credit). These policies can significantly affect the Group’s costof funds for lending and investing and the return that the Groupwill earn on those loans and investments. Both these factors impact
the Group’s net interest margin and can affect the value of financial
instruments it holds, such as debt securities and hedging instruments.
The policies of the central monetary authorities can also affect theGroup’s borrowers, potentially increasing the risk that they may failto repay loans. Changes in such policies are difficult to predict.

6. Sovereign risk may destabilise global financial markets
adversely affecting all participants, including the Group
Sovereign risk, or the risk that foreign governments will default on
their debt obligations, increase borrowings as and when requiredor be unable to refinance their debts as they fall due or nationalise
participants in their economy, has emerged as a risk to the recovery
prospects of many economies. This risk is particularly relevant toa number of European countries though it is not limited to theseplaces and includes the US. Should one sovereign default, there
could be a cascading effect to other markets and countries, theconsequences of which, while difficult to predict, may be similar
to or worse than those currently being experienced or which wereexperienced during the global financial crisis. Such an event could
destabilise global financial markets adversely affecting all
participants, including the Group.

PRINCIPAL RISKS AND UNCERTAINTIES63

PRINCIPAL RISKS AND UNCERTAINTIES (continued)

7. The Group is exposed to liquidity and funding risk,
which may adversely affect its business, operations
and financial condition

9. The Group may experience challenges in managing
its capital base, which could give rise to greater volatility
in capital ratios

Liquidity risk is the risk that the Group is unable to meet its
payment obligations as they fall due, including repaying depositors
or maturing wholesale debt, or that the Group has insufficient
capacity to fund increases in assets. Liquidity risk is inherent in allbanking operations due to the timing mismatch between cash
inflows and cash outflows.

The Group’s capital base is critical to the management of its
businesses and access to funding. The Group is required by regulators
including, but not limited to, APRA, RBNZ, the UK Financial Services
Authority, United States of America regulators and regulators invarious Asia Pacific jurisdictions (such as KKMA, MAS) where theGroup has operations, to maintain adequate regulatory capital.

Reduced liquidity could lead to an increase in the cost of theGroup’s borrowings and possibly constrain the volume of new lending,which could adversely affect the Group’s profitability. A significant
deterioration in investor confidence in the Group could materially
impact the Group’s cost of borrowing, and the Group’s ongoing
operations and funding.

Under current regulatory requirements, risk-weighted assets andexpected loan losses increase as a counterparty’s risk grade worsens.
These additional regulatory capital requirements compound any
reduction in capital resulting from lower profits in times of stress.
As a result, greater volatility in capital ratios may arise and may
require the Group to raise additional capital. There can be no
certainty that any additional capital required would be available
or could be raised on reasonable terms.

The Group raises funding from a variety of sources including
customer deposits and wholesale funding in Australia and offshore
markets to ensure that it continues to meet its funding obligations
and to maintain or grow its business generally. In times of systemic
liquidity stress, in the event of damage to market confidence in theGroup or in the event that funding inside or outside of Australia is
not available or constrained, the Group’s ability to access sources offunding and liquidity may be constrained and it will be exposed toliquidity risk. In any such cases, ANZ may be forced to seek alternative
funding. The availability of such alternative funding, and the terms
on which it may be available, will depend on a variety of factors,
including prevailing market conditions and ANZ’s credit ratings.
Even if available, the cost of these alternatives may be more
expensive or on unfavourable terms.
Future deterioration in market conditions may limit the Group’s
ability to replace maturing liabilities and access funding in a timely
and cost-effective manner necessary to fund and grow its business.

8. The Group is exposed to the risk that its credit
ratings could change, which could adversely affectits ability to raise capital and wholesale funding
ANZ’s credit ratings have a significant impact on both its access
to, and cost of, capital and wholesale funding. Credit ratings are
not a recommendation by the relevant rating agency to invest in
securities offered by ANZ. Credit ratings may be withdrawn, subject
to qualifiers, revised or suspended by the relevant credit rating
agency at any time and the methodologies by which they are
determined may be revised. A downgrade or potential downgrade
to ANZ’s credit rating may reduce access to capital and wholesale
debt markets, potentially leading to an increase in funding costs, aswell as affecting the willingness of counterparties to transact with it.
In addition, the ratings of individual securities (including, but notlimited to, certain Tier 1 capital and Tier 2 capital securities) issued
by ANZ (and banks globally) could be impacted from time to timeby changes in the ratings methodologies used by rating agencies.
Ratings agencies may also revise their methodologies in response
to legal or regulatory changes or other market developments.

64

The Group’s capital ratios may be affected by a number of factors,
such as lower earnings (including lower dividends from its
deconsolidated subsidiaries including insurance and funds
management businesses and associates), increased asset growth,changes in the value of the Australian dollar against other currencies
in which the Group operates (particularly the New Zealand dollar andU.S. dollar) which impacts risk weighted assets or the foreign currencytranslation reserve and changes in business strategy (including
acquisitions and investments or an increase in capital intensive
businesses).
Global and domestic regulators have released proposals, including
the Basel III proposals, to strengthen, among other things, theliquidity and capital requirements of banks, funds management
entities, and insurance entities. These proposals, together with any
risks arising from any regulatory changes, are described below inthe risk factor entitled “Regulatory changes or a failure to comply
with regulatory standards, law or policies may adversely affect theGroup’s business, operations or financial condition”.

10. The Group is exposed to credit risk, which
may adversely affect its business, operations andfinancial condition
As a financial institution, the Group is exposed to the risks
associated with extending credit to other parties. Less favourable
business or economic conditions, whether generally or in a specificindustry sector or geographic region, or natural disasters, could
cause customers or counterparties to fail to meet their obligationsin accordance with agreed terms. For example, our customers andcounterparties in the natural resources sector could be adversely
impacted in the event of a prolonged slowdown in the Chinese
economy. Also, our customers and counterparties in the agriculture,
tourism and manufacturing industries may have been adversely
impacted by the sustained strength of the Australian and New
Zealand dollar relative to other currencies. The Group holds
provisions for credit impairment. The amount of these provisions
is determined by assessing the extent of impairment inherent
within the current lending portfolio, based on current information.
This process, which is critical to the Group’s financial condition andresults, requires difficult, subjective and complex judgments,
including forecasts of how current and future economic conditions
might impair the ability of borrowers to repay their loans. However,ANZ ANNUAL REPORT 2012

if the information upon which the assessment is made proves to beinaccurate or if the Group fails to analyse the information correctly,
the provisions made for credit impairment may be insufficient,which could have a material adverse effect on the Group’s business,
operations and financial condition.
In addition, in assessing whether to extend credit or enter into
other transactions with customers, the Group relies on information
provided by or on behalf of customers, including financial statements
and other financial information. The Group may also rely on
representations of customers as to the accuracy and completenessof that information and, with respect to financial statements, onreports of independent auditors. The Group’s financial performance
could be negatively impacted to the extent that it relies on
information that is inaccurate or materially misleading.

11. An increase in the failure of third parties tohonor their commitments in connection with theGroup’s trading, lending, derivatives and other activities
may adversely affect its business, operations andfinancial condition
The Group is exposed to the potential risk of credit-related losses
that can occur as a result of a counterparty being unable or unwillingto honour its contractual obligations. As with any financial services
organisation, the Group assumes counterparty risk in connection with
its lending, trading, derivatives and other businesses where
it relies on the ability of a third party to satisfy its financial obligations
to the Group on a timely basis. The Group is also subject to the riskthat its rights against third parties may not be enforceable incertain circumstances.
Credit exposure may also be increased by a number of factors
including deterioration in the financial condition of the economy,
including a sustained high level unemployment, a deteriorationof the financial condition of the Group’s counterparties, the valueof assets the Group holds as collateral, and the market value of thecounterparty instruments, and obligations it holds. Credit losses
can and have resulted in financial services organisations realising
significant losses and in some cases failing altogether. Should material
unexpected credit losses occur they could have a materially adverse
effect on the Group’s business, operations and financial condition.

12. Weakening of the real estate markets in Australia,
New Zealand or other markets where it does businessmay adversely affect the Group’s business, operations
and financial condition
Residential, commercial and rural property lending, together withproperty finance, including real estate development and investment
property finance, constitute important businesses to the Group.
A decrease in property valuations in Australia, New Zealand or othermarkets where it does business could decrease the amount of newlending the Group is able to write and/or increase the losses that theGroup may experience from existing loans, which, in either case,could materially and adversely impact the Group’s financial condition
and results of operations. A significant slowdown in the Australianand New Zealand housing markets or in other markets where it does
business could adversely affect the Group’s business, operations andfinancial conditions.

13. The Group is exposed to market risk which
may adversely affect its business, operations andfinancial condition
The Group is subject to market risk, which is the risk to the Group’s
earnings arising from changes in interest rates, foreign exchange
rates, credit spreads, equity prices and indices, prices of commodities,
debt securities and other financial contracts, including derivatives.
Losses arising from these risks may have a material adverse effecton the Group. As the Group conducts business in several different
currencies, its businesses may be affected by a change in currency
exchange rates. Additionally, the Group’s annual and interim reports
are prepared and stated in Australian dollars, any appreciation in theAustralian dollar against other currencies in which the Group earns
revenues (particularly to the New Zealand dollar and U.S. dollar)
may adversely affect the reported earnings.
The profitability of the Group’s funds management and insurance
businesses is also affected by changes in investment markets andweaknesses in global securities markets.

14. The Group is exposed to the risks associatedwith credit intermediation and financial guarantors
which may adversely affect its business, operations
and financial condition
The Group entered into a series of structured credit intermediation
trades from 2004 to 2007. The Group sold protection using credit
default swaps over these structures and then, to mitigate risk,
purchased protection via credit default swaps over the samestructures from eight U.S. financial guarantors. The underlying
structures involve credit default swaps (CDSs) over synthetic
collateralised debt obligations (CDOs), portfolios of external
collateralised loan obligations (CLOs) or specific bonds/floating rate
notes (FRNs).
Being derivatives, both the sold protection and purchased protection
are marked-to-market. Prior to the commencement of the global
financial crisis, movements in valuations of these positions were notsignificant and the credit valuation adjustment (CVA) charge on theprotection bought from the non-collateralised financial guarantors
was minimal.
During and after the global financial crisis, the market value of thestructured credit transactions increased and the financial guarantors
were downgraded. The combined impact of this was to increase the
CVA charge on the purchased protection from financial guarantors.
Volatility in the market value and hence CVA will continue to persist
given the volatility in credit spreads and USD/AUD rates.
Credit valuation adjustments are included as part of the Group’s profit
and loss statement, and accordingly, increases in the CVA charge orvolatility in that charge could adversely affect the Group’s profitability.

PRINCIPAL RISKS AND UNCERTAINTIES65PRINCIPAL RISKS AND UNCERTAINTIES (continued)

15. The Group is exposed to operational risk, which
may adversely affect its business, operations andfinancial condition
Operational Risk is the risk of loss resulting from inadequate or
failed internal processes, people and systems or from external events.
This definition includes legal risk, and the risk of reputational loss ordamage arising from inadequate or failed internal processes, people
and systems, but excludes strategic risk.
Loss from operational risk events could adversely affect the Group’s
financial results. Such losses can include fines, penalties, loss ortheft of funds or assets, legal costs, customer compensation, lossof shareholder value, reputation loss, loss of life or injury to people,
and loss of property and/or information.
Operational risk is typically classified into risk event type categories
to measure and compare risks on a consistent basis. Examplesof operational risk events according to category are as follows:
Internal Fraud: Risk that fraudulent acts are planned, initiatedor executed by employees (permanent, temporary or contractors)
from inside ANZ e.g. Rogue Trader.
External Fraud: Fraudulent acts or attempts which originate
from outside ANZ e.g. valueless cheques, counterfeit credit
cards, loan applications in false names, stolen identity etc.
Employment Practices & Workplace Safety: Employee relations,diversity and discrimination, and health and safety risks to
ANZ employees.
Clients, Products & Business Practices: Risk of market manipulation,
product defects, incorrect advice, money laundering, misuse ofcustomer information etc.
Business Disruption (including Systems Failures): Risk that
ANZ’s banking operating systems are disrupted or fail. At ANZ,
technology risks are key Operational Risks which fall under
this category.
Damage to Physical Assets: Risk that a natural disaster, terrorist
or vandalism attack damages ANZ’s buildings or property.
Execution, Delivery & Process Management: Risk that ANZ
experiences losses as a result of data entry errors, accounting
errors, vendor, supplier or outsource provider errors, or failed
mandatory reporting.
Direct or indirect losses that occur as a result of operational failures,
breakdowns, omissions or unplanned events could adversely affect
the Group’s financial results.

16. Disruption of information technology systems
or failure to successfully implement new technology
systems could significantly interrupt the Group’sbusiness which may adversely affect its business,
operations and financial condition
The Group is highly dependent on information systems andtechnology and there is a risk that these, or the services the Group
uses or is dependent upon, might fail, including because ofunauthorised access or use.

66

Most of the Group’s daily operations are computer-based andinformation technology systems are essential to maintaining effective
communications with customers. The exposure to systems risks
includes the complete or partial failure of information technology
systems or data centre infrastructure, the inadequacy of internal andthird-party information technology systems due to, among otherthings, failure to keep pace with industry developments and thecapacity of the existing systems to effectively accommodate growth,prevent unauthorised access and integrate existing and futureacquisitions and alliances.
To manage these risks, the Group has disaster recovery andinformation technology governance practices and security in place.
However, any failure of these systems could result in businessinterruption, loss of customers, financial compensation, damage to
reputation and/or a weakening of the Group’s competitive position,
which could adversely impact the Group’s business and havea material adverse effect on the Group’s financial conditionand operations.
In addition, the Group has an ongoing need to update andimplement new information technology systems, in part to assist
it to satisfy regulatory demands, ensure information security, enhancecomputer-based banking services for the Group’s customers andintegrate the various segments of its business. The Group may not
implement these projects effectively or execute them efficiently,
which could lead to increased project costs, delays in the ability
to comply with regulatory requirements, failure of the Group’s
information security controls or a decrease in the Group’s ability
to service its customers.

17. The Group is exposed to risks associated withinformation security, which may adversely affect its
financial results and reputation
Information security means protecting information and information
systems from unauthorised access, use, disclosure, disruption,
modification, perusal, inspection, recording or destruction. As abank, the Group handles a considerable amount of personal andconfidential information about its customers and its own internal
operations. The Group also uses third parties to process and manage
information on its behalf. The Group employs a team of information
security subject matter experts who are responsible for thedevelopment and implementation of the Group’s Information Security
Policy. The Group is conscious that threats to information security
are continuously evolving and as such the Group conducts regularinternal and external reviews to ensure new threats are identified,evolving risks are mitigated, policies and procedures are updated, andgood practice is maintained. However, there is a risk that information
may be inadvertently or inappropriately accessed or distributed orillegally accessed or stolen. Any unauthorised use of confidential
information could potentially result in breaches of privacy laws,
regulatory sanctions, legal action, and claims for compensation or
erosion to the Group’s competitive market position, which could
adversely affect the Group’s financial position and reputation.

ANZ ANNUAL REPORT 2012

18. The Group is exposed to reputation risk, which
may adversely impact its business, operations andfinancial condition

21. Regulatory changes or a failure to comply withregulatory standards, law or policies may adversely affect
the Group’s business, operations or financial condition

Damage to the Group’s reputation may have wide-ranging impacts,
including adverse effects on the Group’s profitability, capacity and costof sourcing funding, and availability of new business opportunities.

The Group is subject to laws, regulations, policies and codes ofpractice in Australia, New Zealand, the United Kingdom, the UnitedStates of America, Hong Kong, Singapore, Japan, China and othercountries within the Asia Pacific region in which it has operations,trades or raises funds or in respect of which it has some otherconnection. In particular, the Group’s banking, funds management
and insurance activities are subject to extensive regulation, mainly
relating to its liquidity levels, capital, solvency, provisioning, andinsurance policy terms and conditions.

Reputation risk may arise as a result of an external event or theGroup’s own actions, and adversely affect perceptions about theGroup held by the public (including the Group’s customers),
shareholders, investors, regulators or rating agencies. The impactof a risk event on the Group’s reputation may exceed any direct costof the risk event itself and may adversely impact the Group’s business,
operations and financial condition.

19. The unexpected loss of key staff or inadequate
management of human resources may adversely affect
the Group’s business, operations and financial condition
The Group’s ability to attract and retain suitably qualified and skilledemployees is an important factor in achieving its strategic objectives.
The Chief Executive Officer and the management team of the Chief
Executive Officer have skills and reputation that are critical to setting
the strategic direction, successful management and growth of theGroup, and whose unexpected loss due to resignation, retirement,
death or illness may adversely affect its operations and financial
condition. In addition, the Group may in the future have difficulty
attracting highly qualified people to fill important roles, which could
adversely affect its business, operations and financial condition.

20. The Group may be exposed to the impact of futureclimate change, geological events, plant and animal
diseases, and other extrinsic events which may adversely
affect its business, operations and financial condition
ANZ is exposed to climate related events (including climate change).
These events may include severe storms, drought, fires, cyclones,
hurricanes, floods and rising sea levels. The impact of these events
may temporarily interrupt or restrict the provision of some Group
services, and also adversely affect the Group’s collateral position in
relation to credit facilities extended to customers.
ANZ may also be exposed to other events such as geological events(volcanic or seismic activity, tsunamis); plant and animal diseases ora flu pandemic. These may severely disrupt normal business activity
and have a negative effect on the Group’s business, operations andfinancial condition. The most recent example of this would be themajor earthquakes in Christchurch New Zealand. Whilst much of
the widespread property damage was covered by public (Earthquake
Commission) and private insurance, there will potentially be negative
impacts on property (and hence security) values and on futurelevels of insurance and reinsurance coverage across New Zealand.
A reduction in value of New Zealand property as a result of geologicalevents such as earthquakes could increase lending losses which
may adversely affect the Group’s business, operations andfinancial condition.

Regulations vary from country to country but generally are designed
to protect depositors, insured parties, customers with other banking
products, and the banking and insurance system as a whole. Someof the jurisdictions in which the Group operates do not permit local
deposits to be used to fund operations outside of that jurisdiction.
In the event the Group experiences reduced liquidity, these deposits
may not be available to fund the operations of the Group.
The Australian Government and its agencies, including APRA,
the RBA and other financial industry regulatory bodies including
the Australian Securities and Investments Commission (ASIC), and
the Australian Competition and Consumer Commission (ACCC), havesupervisory oversight of the Group. The New Zealand Government
and its agencies, including the RBNZ, the Financial Markets Authority
and the Commerce Commission, have supervisory oversight of theGroup’s operations in New Zealand. To the extent that the Group has
operations, trades or raises funds in, or has some other connection
with, countries other than Australia or New Zealand, then suchactivities may be subject to the laws of, and regulation by agencies
in, those countries. Such regulatory agencies include, by way of
example, the U.S. Federal Reserve Board, the U.S. Department ofTreasury, the U.S. Office of the Comptroller of the Currency, the U.S.
Office of Foreign Assets Control, the UK Financial Services Authority,
the Monetary Authority of Singapore, the Hong Kong Monetary
Authority, the China Banking Regulatory Commission, the Kanto
Local Finance Bureau of Japan, and other financial regulatory bodies
in those countries and in other relevant countries. In addition, theGroup’s expansion and growth in the Asia Pacific region gives rise
to a requirement to comply with a number of different legal andregulatory regimes across that region.
A failure to comply with any standards, laws, regulations or policies
in any of those jurisdictions could result in sanctions by these or otherregulatory agencies, the exercise of any discretionary powers that theregulators hold or compensatory action by affected persons, which
may in turn cause substantial damage to the Group’s reputation.
To the extent that these regulatory requirements limit the Group’s
operations or flexibility, they could adversely impact the Group’s
profitability and prospects.

PRINCIPAL RISKS AND UNCERTAINTIES67PRINCIPAL RISKS AND UNCERTAINTIES (continued)

These regulatory and other governmental agencies (including
revenue and tax authorities) frequently review banking and tax
laws, regulations, codes of practice and policies. Changes to laws,
regulations, codes of practice or policies, including changes ininterpretation or implementation of laws, regulations, codes ofpractice or policies, could affect the Group in substantial andunpredictable ways and may even conflict with each other. Thesemay include increasing required levels of bank liquidity and capital
adequacy, limiting the types of financial services and products theGroup can offer, and/or increasing the ability of non-banks to offer
competing financial services or products, as well as changes toaccounting standards, taxation laws and prudential regulatory
requirements.
As a result of the global financial crisis, regulators have proposed
various amendments to financial regulation that will affect theGroup. APRA, the Basel Committee on Banking Supervision (the“Basel Committee“) and regulators in other jurisdictions where theGroup has a presence have released discussion papers and in someinstances draft regulations in regard to strengthening the resilienceof the banking and insurance sectors, including proposals tostrengthen capital and liquidity requirements for the banking sector.
In addition, the U.S. has passed into law the Dodd-Frank Wall Street
Reform and Consumer Protection Act which significantly affects
financial institutions and financial activities in the U.S.
Uncertainty remains as to the final form that the proposed regulatorychanges will take in Australia, New Zealand, the U.S. and othercountries in which the Group operates and any such changes could
adversely affect the Group’s business, operations and financial
condition. The changes may lead the Group to, among other things,
change its business mix, incur additional costs as a result of increased
management attention, raise additional amounts of higher-quality
capital (such as ordinary shares) or retain capital (through lower
dividends), and hold significant levels of additional liquid assets
and undertake additional long-term wholesale funding to replaceshort-term wholesale funding to more closely match the Group’s
asset maturity profile.

22. Unexpected changes to the Group’s license
to operate in any jurisdiction may adversely affectits business, operations and financial condition
The Group is licensed to operate in the various countries, states
and territories. Unexpected changes in the conditions of the licenses
to operate by governments, administrations or regulatory agencies
which prohibit or restrict the Group from trading in a manner thatwas previously permitted may adversely impact the Group’s
operations and subsequent financial results.

68

23. The Group is exposed to insurance risk, which
may adversely affect its business, operations andfinancial condition
Insurance risk is the risk of loss due to unexpected changes in current
and future insurance claim rates. In life insurance business, insurance
risk arises primarily through mortality (death) and morbidity (illness
and injury) risks being greater than expected and, in the case ofannuity business, should annuitants live longer than expected.
For general insurance business, insurance risk arises mainly throughweather-related incidents (including floods and bushfires) and othercalamities, such as earthquakes, tsunamis and volcanic activities,
as well as adverse variability in home, contents, motor, travel andother insurance claim amounts. For further details on climate andgeological events see also the risk factor entitled “The Group may
be exposed to the impact of future climate change, geological events,
plant and animal diseases, and other extrinsic events which may
adversely affect its business, operations and financial condition”.
The Group has exposure to insurance risk in both life insurance
and general insurance business, which may adversely affect its
business, operations and financial condition.

24. The Group may experience reductions in thevaluation of some of its assets, resulting in fair value
adjustments that may have a material adverse effecton its earnings
Under Australian Accounting Standards, the Group recognises atfair value:financial instruments classified as “held-for-trading“ or“designated as at fair value through profit or loss”;
financial assets classified as “available-for-sale”; andderivatives.
Generally, in order to establish the fair value of these instruments,
the Group relies on quoted market prices or, where the market fora financial instrument is not sufficiently active, fair values are basedon present value estimates or other accepted valuation techniques.
In certain circumstances, the data for individual financial instruments
or classes of financial instruments used by such estimates ortechniques may not be available or may become unavailable due tochanges in market conditions. In these circumstances, the fair value
is determined using data derived and extrapolated from market data,
and tested against historic transactions and observed market trends.
The valuation models incorporate the impact of factors thatwould influence the fair value determined by a market participant.
Principal inputs used in the determination of the fair value of financial
instruments based on valuation techniques include data inputs suchas statistical data on delinquency rates, foreclosure rates, actual
losses, counterparty credit spreads, recovery rates, implied default
probabilities, credit index tranche prices and correlation curves.
These assumptions, judgments and estimates need to be updated
to reflect changing trends and market conditions. The resulting
change in the fair values of the financial instruments could havea material adverse effect on the Group’s earnings.

ANZ ANNUAL REPORT 2012

25. Changes to accounting policies may adversely affect
the Group’s business, operations and financial condition
The accounting policies and methods that the Group applies arefundamental to how it records and reports its financial position
and results of operations. Management must exercise judgment
in selecting and applying many of these accounting policies andmethods so that they not only comply with generally accepted
accounting principles but they also reflect the most appropriatemanner in which to record and report on the financial position andresults of operations. However, these accounting policies may be
applied inaccurately, resulting in a misstatement of financial position
and results of operations.

28. The Group regularly considers acquisition anddivestment opportunities, and there is a risk that
ANZ may undertake an acquisition or divestmentthat could result in a material adverse effect on its
business, operations and financial condition
The Group regularly examines a range of corporate opportunities,
including material acquisitions and disposals, with a view todetermining whether those opportunities will enhance the Group’s
financial performance and position. Any corporate opportunity thatis pursued could, for a variety of reasons, turn out to have a material
adverse effect on the Group.

In some cases, management must select an accounting policy or
method from two or more alternatives, any of which might comply
with generally accepted accounting principles and be reasonable
under the circumstances, yet might result in reporting materiallydifferent outcomes than would have been reported underanother alternative.

The successful implementation of the Group’s corporate strategy,
including its strategy to expand in the Asia Pacific region, will depend
on a range of factors including potential funding strategies, andchallenges associated with integrating and adding value to acquired
businesses, as well as new regulatory, market and other risks
associated with increasing operations outside of Australia and
New Zealand.

26. The Group may be exposed to the risk of impairment
to capitalised software, goodwill and other intangible
assets that may adversely affect its business, operations
and financial condition

There can be no assurance that any acquisition would have theanticipated positive results, including results relating to the total
cost of integration, the time required to complete the integration,
the amount of longer-term cost savings, the overall performanceof the combined entity, or an improved price for the Group’s
securities. Integration of an acquired business can be complex andcostly, sometimes including combining relevant accounting and dataprocessing systems, and management controls, as well as managing
relevant relationships with employees, customers, counterparties,
suppliers and other business partners. Integration efforts could divert
management attention and resources, which could adversely affect
the Group’s operations or results. Additionally, there can be noassurance that employees, customers, counterparties, suppliers andother business partners of newly acquired businesses will remain
as such post-acquisition, and the loss of employees, customers,
counterparties, suppliers and other business partners could adversely
affect the Group’s operations or results.

In certain circumstances the Group may be exposed to a reductionin the value of intangible assets. As at 30 September 2012, the Group
carried goodwill principally related to its investments in New Zealandand Australia, intangible assets principally relating to assets recognisedon acquisition of subsidiaries, and capitalised software balances.
The Group is required to assess the recoverability of the goodwill
balances on at least an annual basis. For this purpose the Group uses
either a discounted cash flow or a multiple of earnings calculation.
Changes in the assumptions upon which the calculation is based,
together with expected changes in future cash flows, could materially
impact this assessment, resulting in the potential write-off of a partor all of the goodwill balances.
Capitalised software and other intangible assets (including Acquired
portfolio of insurance and investment business and deferredacquisition costs) are assessed for indicators of impairment at least
annually. In the event that an asset is no longer in use, or that the
cash flows generated by the asset do not support the carrying value,
an impairment may be recorded, adversely impacting the Group’s
financial condition.

27. Litigation and contingent liabilities may
adversely affect the Group’s business, operations
and financial condition
From time to time, the Group may be subject to material litigation,
regulatory actions, legal or arbitration proceedings and othercontingent liabilities which, if they crystallise, may adversely affect
the Group’s results. The Group’s material contingent liabilities aredescribed in note 43 of the 2012 financial statements. There is a riskthat these contingent liabilities may be larger than anticipated orthat additional litigation or other contingent liabilities may arise.

Acquisitions and disposals may also result in business disruptions
that cause the Group to lose customers or cause customers to remove
their business from the Group to competing financial institutions.
It is possible that the integration process related to acquisitions
could result in the disruption of the Group’s ongoing businesses orinconsistencies in standards, controls, procedures and policies that
could adversely affect the Group’s ability to maintain relationships
with employees, customers, counterparties, suppliers and otherbusiness partners, which could adversely affect the Group’s ability to
conduct its business successfully. The Group’s operating performance,risk profile or capital structure may also be affected by these
corporate opportunities and there is a risk that any of the Group’s
credit ratings may be placed on credit watch or downgraded if theseopportunities are pursued.

PRINCIPAL RISKS AND UNCERTAINTIES69

FIVE YEAR SUMMARY

2012
$m

2011
$m

2010
$m

2009
$m

2008
$m

Underlying financial performance1
Net interest income2
Other operating income2
Operating expenses
Profit before credit impairment and income tax
Provision for credit impairment
Income tax expense
Non-controlling interests
Underlying profit1
Adjustments between statutory profit and underlying profit1

12,111
5,468(8,022)
9,557(1,246)(2,294)
(6)
6,011
(350)

11,4985,314(7,718)9,094(1,211)(2,222)
(9)
5,652
(297)

10,862
4,920(6,971)8,811(1,820)(1,960)
(6)
5,025
(524)

9,890
4,477
(6,068)8,299(3,056)(1,469)
(2)
3,772
(829)

7,855
4,440
(5,406)
6,889(2,090)(1,365)
(8)
3,426
(107)

Profit attributable to shareholders of the Company

5,661

5,355

4,501

2,943

3,319

Financial position
Assets2,3
Net assets
Tier 1 capital ratio4
Return on average ordinary equity5
Return on average assets2
Cost to income ratio1

642,127
41,220
10.8%
14.6%
0.9%
45.6%

604,21337,954
10.9%
15.3%
0.9%
45.9%

531,703
34,155
10.1%
13.9%
0.9%
44.2%

476,987
32,429
10.6%
10.3%
0.6%
42.2%

470,293
26,552
7.7%
14.5%
0.8%
44.0%

Shareholder value – ordinary shares
Total return to shareholders (share price movement plus dividends)
Market capitalisation
Dividend
Franked portion– interim– final35.4%
67,255145 cents
100%
100%

-12.6%
51,319140 cents
100%
100%

1.9%
60,614126 cents
100%
100%

40.3%
61,085102 cents
100%
100%

-33.5%
38,263136 cents
100%
100%

$25.12$20.26$24.75$25.96$17.63$19.52$26.23$19.95$23.68$24.99$11.83$24.39$31.74$15.07$18.75213.4c69.3%$12.22
2,717.4

208.2c68.6%$11.44
2,629.0

178.9c71.6%$10.382,559.7

131.0c82.3%$11.022,504.5

170.4c82.6%$10.722,040.7$20.44–$21.69$19.09$21.32$22.60$15.16$21.75$20.82$13.58

1,337
48,239438,958

1,381
50,297442,943

1,394
47,099411,692

1,352
37,687396,181

1,346
36,925
376,813

Share price– high– low– closing

Share information(per fully paid ordinary share)
Earnings per share
Dividend payout ratio
Net tangible assets per ordinary share6
No. of fully paid ordinary shares issued (millions)
Dividend Reinvestment Plan (DRP) issue price– interim– finalOther information
Points of representation7
No. of employees (full time equivalents)8
No. of shareholders9
1 Profit has been adjusted for certain non-core items to arrive at underlying profit, the result
for the ongoing business activities of the Group. These adjustments have been determinedon a consistent basis with those made in prior years. The adjustments made in arriving at
underlying profit are included in statutory profit which is subject to audit within the context
of the Group statutory audit opinion. Underlying profit is not audited, however, the external
auditor has informed the Audit Committee that the adjustments, and the presentation
thereof, are based on the guidelines released by the Australian Institute of Company
Directors (AICD) and the Financial Services Institute of Australasia (FINSIA), and have been
determined on a consistent basis with those made in prior years. Refer to page 204 to 206
for analysis of the adjustments between statutory profit and underlying profit.
2 The 2011 comparative information has been restated to reflect the impact of the current
period reporting treatment of derivative related collateral posted/received and the associatedinterest income/expense. Refer to note 1 of the financial statement for further details.
The 2008 to 2010 comparative information has not been restated.

70

3 In 2010, consolidated assets included assets from ANZ Wealth Australia (formerly OnePath
Australia), OnePath NZ (formerly ING NZ), Landmark and RBS acquired during thefinancial year.
4 Calculated in accordance with APRA requirements effective at the relevant date. Basel II
has been applied from 1 January 2008.
5 Average ordinary equity excludes non-controlling interests and preference shares.
6 Equals shareholders’ equity less preference share capital, goodwill, software and otherintangible assets divided by the number of ordinary shares.
7 Includes branches, offices, representative offices and agencies.
8 Comparative amounts have changed reflecting an amendment to FTE to align to thecurrent year methodology (2011: FTE increased by 1,359).
9 Excludes employees whose only ANZ shares are held in trust under ANZ employee
share schemes.

ANZ ANNUAL REPORT 2012

SECTION 3
Financial Statements
Income Statements
Statement of Comprehensive Income
Balance Sheet
Cash Flow Statement
Statement of Changes in Equity

72
72
73
74
75
76

Notes to the Financial Statements
1 Significant Accounting Policies
2 Critical Estimates and Judgements Usedin Applying Accounting Policies
3 Income
4 Expenses
5 Compensation of Auditors
6 Current 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
14 Net Loans and Advances
15 Impaired Financial Assets
16 Provision for Credit Impairment
17 Shares in Controlled Entities and Associates
18 Tax Assets
19 Goodwill and Other Intangible Assets
20 Other Assets
21 Premises and Equipment
22 Due to Other Financial Institutions
23 Deposits and Other Borrowings
24 Income Tax Liabilities

78
78
90
92
93
94
95
96
97
98
98
98
99
105
106
107
107
109
110
111
112
112
114
114
115

Notes to the Financial Statements (continued)
25 Payables and Other Liabilities
26 Provisions
27 Bonds and Notes
28 Loan Capital
29 Share Capital
30 Reserves and Retained Earnings
31 Capital Management
32 Assets Charged as Security for Liabilities andCollateral Accepted as Security for Assets
33 Financial Risk Management
34 Fair Value of Financial Assets and Financial Liabilities
35 Maturity Analysis of Assets and Liabilities
36 Segment Analysis
37 Notes to the Cash Flow Statements
38 Controlled Entities
39 Associates
40 Securitisations and Covered Bonds
41 Fiduciary Activities
42 Commitments
43 Credit Related Commitments, Guarantees,
Contingent Liabilities and Contingent Assets
44 Superannuation and Other Post Employment
Benefit Schemes
45 Employee Share and Option Plans
46 Key Management Personnel Disclosures
47 Transactions with Other Related Parties
48 Life Insurance Business
49 Exchange Rates
50 Events since the End of the Financial Year

115
116
116
117
120
122
123
127
128
152
161
162
165
167
168
169
170
170
171
175
180
184
188
188
192
192

Directors’ Declaration and Responsibility Statement

193

Independent Auditor’s Report

194

SECTION 3

71

FINANCIAL STATEMENTS

INCOME STATEMENT FOR THE YEAR ENDED 30 SEPTEMBER

Consolidated

Interest income
Interest expense

Note

2011
$m

2012
$m

2011
$m

3
4

30,538(18,428)

30,443(18,943)

27,340(18,372)

27,070(18,542)

12,11011,500

8,968

8,528

4

4,003
1,203
395
17,711(8,519)

3,591
1,405
436
16,932(8,023)

5,015
207
–
14,190(6,715)

4,111
183
–
12,822(6,256)16

9,192(1,198)

8,909(1,237)

7,475
(985)

6,566
(994)

7,994

7,672

6,490

5,572

6

(2,327)(2,309)(1,615)(1,421)

5,667

5,363

4,875

4,151

(6)
5,661

(8)
5,355

–
4,875

–
4,151

213.4
205.6
145

208.2
198.8
140

n/a
n/a
145

n/a
n/a
140

Net interest income
Other operating income
Net funds management and insurance income
Share of associates’ profit
Operating income
Operating expense
Profit before credit impairment and income tax
Provision for credit impairment

3
3
3

Profit before income tax
Income tax expense
Profit for the year
Comprising:
Profit attributable to non-controlling interests
Profit attributable to shareholders of the Company

Earnings per ordinary share (cents)
Basic
DilutedDividend per ordinary share (cents)
The notes appearing on pages 78 to 192 form an integral part of these financial statements.

72

The Company

2012
$m

8
8
7

ANZ ANNUAL REPORT 2012

STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 SEPTEMBER

Consolidated

The Company

2012
$m

2011
$m

2012
$m

2011
$m

5,667

5,363

4,875

4,151

30

(416)

330

(174)

97

Available-for-sale assets
Valuation gain/(loss) taken to equity(Gain)/loss transferred to the income statement

30

259
(246)

77
19

153
(171)

(10)
57

Cash flow hedges reserve
Valuation gain/(loss) taken to equity
Transferred to income statement for the period

30

43
17

229
(9)

32
27

183
(12)

(31)

(15)

–

–

(54)

(15)

(35)

34

(1)
(17)
(17)
10

(5)
(35)
(63)
5

–
4
(17)
6

–
(17)
(51)
(10)

Note

Profit for the year
Other comprehensive income
Foreign currency translation reserve
Exchange differences taken to equity

Share of associates’ other comprehensive income1
Actuarial gain/(loss) on defined benefit plans
Income tax on items transferred directly to/from equity
Foreign currency translation reserve
Available-for-sale reserve
Cash flow hedge reserve
Actuarial gain/(loss) on defined benefits plan

44

Other comprehensive income net of tax

(453)

518

(175)

271

Total comprehensive income for the year

5,214

5,881

4,700

4,422

Comprising total comprehensive income attributable to:Non-controlling interests
Shareholders of the Company

3
5,211

8
5,873

–
4,700

–
4,422

1 Share of associates’ other comprehensive income for 2012 comprises available-for-sale assets $(28) million (2011: $(15) million), foreign currency translation reserve $1 million (2011: $(1) million)
and cash flow hedge reserve $(4) million (2011: $1 million).

The notes appearing on pages 78 to 192 form an integral part of these financial statements.

FINANCIAL STATEMENTS

73

BALANCE SHEET AS AT 30 SEPTEMBER

Consolidated

The Company

2012
$m

2011
$m

2012
$m

2011
$m

36,578
17,10340,602
48,92920,562427,823
1,478
–
–
3,520
33
785
7,082
29,895
5,623
2,114

25,627
13,29836,07458,641
22,264397,307
1,505
–
–
3,513
41
599
6,964
29,8596,396
2,125

32,782
14,16730,49043,266
17,841350,060
514
63,66011,516
897
13
768
1,752
–
3,747
1,534

21,283
10,07028,36751,72019,017
323,974497
46,446
9,098
971
40
552
1,544
–
3,856
1,502

642,127604,213573,007518,937

30,538397,123
52,639–781
1829,537
3,949
10,1091,201
63,098
11,91427,535
368,72955,290–1,128
28
27,503
5,033
11,221
1,248
56,551
11,99328,394
333,536
46,04757,729
726
12
–
–
7,554
745
49,975
11,246

24,709307,254
48,74738,561
1,079
27
–
–
7,696
798
44,87010,817

Total liabilities

600,907566,259

535,964484,558

Net assets

41,22037,95437,04334,379Note

AssetsLiquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances
Regulatory deposits
Due from controlled entities
Shares in controlled entities
Shares in associates
Current tax assets
Deferred tax assets
Goodwill and other intangible assets
Investments backing policy liabilities
Other assets
Premises and equipment

9
10
11
12
13
14
17
17
18
18
19
48
20
21

Total assets
Liabilities
Due to other financial institutions
Deposits and other borrowings
Derivative financial instruments
Due to controlled entities
Current tax liabilities
Deferred tax liabilities
Policy liabilities
External unit holder liabilities (life insurance funds)
Payables and other liabilities
Provisions
Bonds and notes
Loan capital

22
23
12
24
24
48
25
26
27
28

Shareholders’ equity
Ordinary share capitalPreference share capital
Reserves
Retained earnings

29
29
30
30

23,070871(2,498)19,72821,343871(2,095)
17,78723,350871(686)
13,50821,701871(544)
12,351

Share capital and reserves attributable to shareholders of the Company
Non-controlling interests

29

41,171
49

37,90648

37,043–34,379–41,22037,95437,04334,379Total equity
Commitments
Contingent liabilities
The notes appearing on pages 78 to 192 form an integral part of these financial statements.

74

43
43

ANZ ANNUAL REPORT 2012

CASH FLOW STATEMENT FOR THE YEAR ENDED 30 SEPTEMBER

Consolidated

Note

Cash flows from operating activities
Interest received
Interest paid
Dividends received
Other operating income received
Personnel expenses paid
Other operating expenses paid
Net cash (paid)/received on derivatives
Income taxes (paid)/received refunds received
Net cash flows from funds management & insurance businessPremiums, other income and life investment deposits received
Investment income and policy deposits received/(paid)
Claims and policy liability payments
Commission expense paid
Cash flows from operating activities before changes inoperating assets and liabilities:
Changes in operating assets and liabilities arising fromcash flow movements:(Increase)/decrease in operating assets:
Liquid assets
Due from other financial institutions
Trading Securities
Loans and advances
Net intragroup loans and advances
Net cash flows from investments backing policy liabilities
Purchase of insurance assets
Proceeds from sale/maturity of insurance assets
Increase/(decrease) in operating liabilities:
Deposits and other borrowings
Due to other financial institutions
Payables and other liabilities
Changes in operating assets and liabilities arising fromcash flow movements:
Net cash provided by/(used in) operating activities
Cash flows from investing activities
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 assets
Net cash provided by/(used in) investing activities
Cash flows from financing activities
Bonds and notes
Issue proceeds
Redemptions
Loan capital
Issue proceeds
Redemptions
Dividends paid
Share capital issues
On market share purchases
Net cash provided by/(used in) by financing activities
Net cash provided by/(used in) operating activities
Net cash provided by/(used in) investing activities
Net cash provided by/(used in) financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Effects of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at end of period
The notes appearing on pages 78 to 192 form an integral part of these financial statements.

37(a)

37(b)

The Company

Inflows(Outflows)2012$mInflows(Outflows)2011$mInflows(Outflows)2012$mInflows(Outflows)2011$m30,421(18,827)80
2,698(4,773)(3,062)
4,734(2,835)30,310(18,797)
84
3,879(4,547)(2,630)(2,038)(2,033)27,255(18,742)
1,437
2,613
(3,718)(2,736)
3,687(2,454)26,948(17,874)
974
3,747(3,560)(2,535)(3,751)(1,792)

5,955
78(4,428)
(439)

5,858
(21)
(4,531)
(491)

150
–
–
58

134
–
–
49

9,602

5,043

7,550

2,340

435
(4,256)(4,589)(32,748)–

1,593(1,476)(7,614)(25,568)–419(3,886)(2,275)(28,592)
(283)

1,106
(1,586)(5,558)(25,753)336(7,949)7,866(9,127)
10,182––––

33,662
4,184
209

43,8341,350
584

30,8344,836
441

42,542
1,415
835(3,186)

13,7581,494

13,337

6,416

18,801

9,044

15,677(30,441)
31,200(40,657)
39,518(28,558)
28,839(37,402)35,409

(1)
18

(304)
74

(327)
36

(260)
36

(319)
20
(702)
(225)

(319)
6
(849)
(2,531)

(264)
–
(473)
(747)

(194)
–
(127)
(2,538)24,352(15,662)

12,213(17,193)

19,442(12,038)

10,600(15,415)2,724(2,593)(2,219)
60
(55)
6,607
6,416
(225)
6,607
12,79830,021(1,369)41,4501,341(1,579)(2,113)43(137)(7,425)18,801(2,531)(7,425)
8,845
20,610566
30,021

2,502(2,121)(2,230)
60
(55)
5,560
9,044
(747)
5,560
13,85723,651(1,240)36,268

1,341(1,322)(2,124)43(137)(7,014)
15,677(2,538)(7,014)
6,125
16,934592
23,651FINANCIAL STATEMENTS

75

STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 SEPTEMBER

Consolidated

As at 1 October 2010

Ordinaryshare capital$m

Preference
shares$m

Reserves1$m

Retainedearnings$m

Shareholders’equityattributable
to equity
holders of
the Bank$m

Non-controllinginterests$m

Totalshareholders’equity$m

19,886871(2,587)

15,921

34,091

64

34,155

Profit for the year
Other comprehensive income

–
–

–
–

–
528

5,355
(10)

5,355
518

8
–

5,363
518

Total comprehensive income for the year
Transactions with equity holders intheir capacity as equity holders:
Dividends paid
Dividend income on Treasury shares
held within the Group’s life insurance
statutory funds
Dividend reinvestment plan
Transactions with non-controlling interests
Other equity movements:
ANZ employee share acquisition scheme
Share-based payments/(exercises)
Treasury shares OnePath Australia adjustment
ANZ employee share option scheme
Other changes

–

–

528

5,345

5,873

8

5,881

–

–

–

(3,503)(3,503)–(3,503)

–
1,367
–

–
–
–

–
–
(22)

23
–
–

23
1,367
(22)

–
–
(22)

23
1,367
(44)

45
–
2
43
–

–
–
–
–
–

–
(14)
–
–
–

–
–
–
–
1

45
(14)
2
43
1

–
–
–
–
(2)

45
(14)
2
43
(1)

As at 30 September 2011

21,343871(2,095)

17,78737,90648

37,954

Profit for the year
Other comprehensive income

–
–

–
–

–
(406)

5,661
(44)

5,661
(450)

6
(3)

5,667
(453)

Total comprehensive income for the year
Transactions with equity holders intheir capacity as equity holders:
Dividends paid
Dividend income on Treasury shares
held within the Group’s life insurance
statutory funds
Dividend reinvestment plan
Transactions with non-controlling interests
Other equity movements:
ANZ employee share acquisition plan
Share-based payments/(exercises)
Treasury shares OnePath Australia adjustment
ANZ employee share option plan
Other changes

–

–

(406)

5,617

5,211

3

5,214

–

–

–

(3,702)(3,702)(2)(3,704)

–
1,461
–

–
–
–

–
–
(1)

24
–
–

24
1,461
(1)

–
–
–

24
1,461
(1)

128
–
78
60
–

–
–
–
–
–

–
6
–
–
(2)

–
–
–
–
2

128
6
78
60
–

–
–
–
–
–

128
6
78
60
–

As at 30 September 2012

23,070871(2,498)19,72841,171

49

41,220

1 Further information on other comprehensive income is disclosed in note 30 to the financial statements.

The notes appearing on pages 78 to 192 form an integral part of these financial statements.

76

ANZ ANNUAL REPORT 2012

The Company

As at 1 October 2010

Ordinaryshare capital$m

Preference
shares$m

Reserves1$m

Retainedearnings$m

Shareholders’equityattributable
to equity
holders of
the Bank$m

Non-controllinginterests$m

Totalshareholders’equity$m

20,246871(777)

11,66632,006–32,006

Profit for the year
Other comprehensive income

–
–

–
–

–
247

4,151
24

4,151
271

–
–

4,151
271

Total comprehensive income for the year
Transactions with equity holders intheir capacity as equity holders:
Dividends paid
Dividend reinvestment plan
Other equity movements:
Share-based payments/(exercises)
ANZ employee share option scheme
ANZ employee share acquisition scheme
Other changes

–

–

247

4,175

4,422

–

4,422

–
1,367

–
–

–
–

(3,491)–(3,491)
1,367––(3,491)
1,367

–
43
45
–

–
–
–
–

(14)
–
–
–

–
–
–
1

(14)
43
45
1

–
–
–
–

(14)
43
45
1

As at 30 September 2011

21,701871(544)

12,351

34,379–34,379Profit for the year
Other comprehensive income

–
–

–
–

–
(146)

4,875
(29)

4,875
(175)

–
–

4,875
(175)

Total comprehensive income for the year
Transactions with equity holders intheir capacity as equity holders:
Dividends paid
Dividend reinvestment plan
Other equity movements:
Share-based payments/(exercises)
ANZ employee share option plan
ANZ employee share acquisition plan
Other changes

–

–

(146)

4,846

4,700

–

4,700

–
1,461

–
–

–
–

(3,691)–(3,691)
1,461––(3,691)
1,461

–
60
128
–

–
–
–
–

6
–
–
(2)

–
–
–
2

6
60
128
–

–
–
–
–

6
60
128
–

23,350871(686)

13,50837,043–37,043As at 30 September 2012

1 Further information on other comprehensive income is disclosed in note 30 to the financial statements.

The notes appearing on pages 78 to 192 form an integral part of these financial statements.

FINANCIAL STATEMENTS

77

NOTES TO THE FINANCIAL STATEMENTS
1: Significant Accounting Policies
The financial statements of Australia and New Zealand Banking
Group Limited (the Company) and its controlled entities (the Group)for the year ended 30 September 2012 was authorised for issue inaccordance with the resolution of the Directors on 5 November, 2012.
The principal accounting policies adopted in the preparation ofthese financial statements are set out below. These policies havebeen consistently applied by the Company and all consolidated
entities and to all years presented in these financial statements.
The Company is incorporated and domiciled in Australia. The addressof the Company’s registered office is ANZ Centre, Level 9, 833 Collins
Street, Docklands, Victoria, Australia 3008.

iv) Changes in Accounting Policy and early adoptions
All new Accounting Standards and Interpretations applicable toannual reporting periods beginning on or after 1 October 2011
have been applied to the Group effective from the required dateof application. The initial application of these Standards andInterpretations has not had a material impact on the financial
position or the financial results of the Group.
There has been no other change in accounting policy during the year.

v) RoundingA) BASIS OF PREPARATIONThe Parent entity is an entity of the kind referred to in Australian
Securities and Investments Commission class order 98/100 dated
10 July 1998 (as amended). Consequently, amounts in the financial
statements have been rounded to the nearest million dollars, except
where otherwise indicated.

i) Statement of compliancevi) Principles of consolidation

The financial statements of the Company and Group are general
purpose financial statements which have been prepared in accordancewith the accounts provisions of the Banking Act 1959 (as amended),
Australian Accounting Standards (AASs) and the Australian
Accounting Interpretations issued by the Australian AccountingStandards Board (AASB), other authoritative pronouncements of the
AASB and the Corporations Act 2001.

Subsidiaries
The consolidated financial statements of the Group comprise thefinancial statements of the Company and all its subsidiaries where
it is determined that there is a capacity to control.

The Company and Group are for-profit entities.

International Financial Reporting Standards (IFRS) are Standards andInterpretations adopted by the International Accounting Standards
Board (IASB). IFRS forms the basis of AASs and Interpretations issued
by the AASB. The Group’s application of AASs and Interpretations
ensures that the financial statements of the Company and Group
comply with IFRS.

ii) Use of estimates and assumptions
The preparation of these financial statements requires the use ofmanagement judgement, estimates and assumptions that affectreported amounts and the application of accounting policies.
The estimates and associated assumptions are based on historicalexperience and various other factors that are believed to bereasonable. Actual results may differ from these estimates. Discussionof the critical accounting treatments, which include complex or
subjective decisions or assessments, are covered in note 2. Suchestimates and judgements are reviewed on an ongoing basis.

iii) Basis of measurement
The financial information has been prepared in accordance with thehistorical cost basis except that the following assets and liabilities
are stated at their fair value:
derivative financial instruments, including in the case of fair value
hedging (refer note 1 (E)(ii)) the fair value adjustment on theunderlying hedged exposure;available-for-sale financial assets;financial instruments held for trading; andassets and liabilities designated at fair value through profit
and loss.
In accordance with AASB 1038 Life Insurance Contracts, life insurance
liabilities are measured using the Margin on Services model.
In accordance with AASB 119 Employee Benefits, defined benefit
obligations are measured using the Projected Unit Credit Method.

78

Control means the power to govern, directly or indirectly, thefinancial and operating policies of an entity so as to obtain benefits
from its activities. All the facts of a particular situation are consideredwhen determining whether control exists. Control is usually present
when an entity has:power over more than one-half of the voting rights of theother entity; or
power to govern the financial and operating policies of theother entity; or
power to appoint or remove the majority of the membersof the board of directors or equivalent governing body; or
power to cast the majority of votes at meetings of the boardof directors or equivalent governing body of the entity.
In addition, potential voting rights that are presently exercisable
or convertible are taken into account in determining whether
control exists.
In relation to special purpose entities, control is deemed to exist
where:
in substance, the majority of the residual risks and rewards fromtheir activities accrue to the Group; orin substance, the Group controls decision making powers so as toobtain the majority of the risks and rewards from their activities.
Further detail on special purpose entities is provided in note 2(iii).
Where subsidiaries have been sold or acquired during the year, theiroperating results have been included to the date of disposal or fromthe date of acquisition.
In the Company’s financial statements investments in subsidiaries
are carried at cost less accumulated impairment losses.

ANZ ANNUAL REPORT 2012

1: Significant Accounting Policies (continued)
Associates
The Group applies the equity method of accounting for associates.
The Group’s share of results of associates is included in the
consolidated income statement. Shares in associates are carriedin the consolidated balance sheet at cost plus the Group’s shareof post-acquisition net assets less any impairment. Interests inassociates are reviewed for any indication of impairment at least at
each reporting date. This impairment review uses a discounted cash
flow (DCF) methodology and other methodologies to determine thereasonableness of the valuation, including the capitalisationof earnings methodology (CEM).
In the Company’s financial statements, investments in associates
are carried at cost less accumulated impairment losses.

vii) Foreign currency translation
Functional and presentation currency
Items included in the financial statements of each of the Group’s
entities are measured using the currency of the primary economic
environment in which the entity operates (the functional currency).
The consolidated financial statements are presented in Australian
dollars, which is the Company’s functional and presentation currency.
Foreign currency transactions
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of thetransactions.
Monetary assets and liabilities resulting from foreign currencytransactions are subsequently translated at the spot rate atreporting date.
Exchange differences arising on the settlement of monetary items
or on translating monetary items at rates different to those at which
they were initially recognised or included in a previous financial
report, are recognised in the income statement in the period inwhich they arise.
Translation differences on non-monetary items measured at fair value
through profit or loss, are reported as part of the fair value gain orloss on these items.
Translation differences on non-monetary items measured at fairvalue through equity, such as equities classified as available-for-salefinancial assets, are included in the available-for-sale reserve in equity.
Translation to presentation currency
The results and financial position of all Group entities (none ofwhich has the currency of a hyperinflationary economy), that have afunctional currency different from the Group’s presentation currency,
are translated into the Group’s presentation currency as follows:
assets and liabilities are translated at the rates of exchange rulingat balance date;revenue and expenses are translated at the average exchange
rate for the period, unless this average is not a reasonableapproximation of the rate prevailing on transaction date, in whichcase revenue and expenses are translated at the exchange rateruling at transaction date; andall resulting exchange differences are recognised in the foreign
currency translation reserve.

When a foreign operation is disposed, exchange differences
are recognised in the income statement as part of the gain orloss on sale.
Goodwill arising on the acquisition of a foreign operation is treatedas an asset of the foreign operation and translated at the rate rulingat balance date.
B) INCOME RECOGNITION

i) Interest income
Interest income is recognised as it accrues using the effective interest
rate method.
The effective interest rate method calculates the amortised cost ofa financial asset or financial liability and allocates the interest income
or interest expense over the expected life of the financial asset or
financial liability so as to achieve a constant yield on the financial
asset or liability.
For assets subject to prepayment, expected life is determined on
the basis of the historical behaviour of the particular asset portfolio,
taking into account contractual obligations and prepayment
experience. This is assessed on a regular basis.

ii) Fee and commission income
Fees and commissions received that are integral to the effective
interest rate of a financial asset are recognised using the effective
interest method. For example, loan origination fees, together
with related direct costs, are deferred and recognised as an
adjustment to the effective interest rate on a loan once drawn.
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.
Fees charged for providing ongoing services (for example,
maintaining and administering existing facilities) are recognised
as income over the period the service is provided.

iii) Dividend income
Dividends are recognised as revenue when the right to receive
payment is established.

iv) Leasing income
Finance income on finance leases is recognised on a basis that reflectsa constant periodic return on the net investment in the finance lease.

v) Gain or loss on sale of assets
The gain or loss on the disposal of assets is determined as thedifference between the carrying amount of the asset at the time ofdisposal and the proceeds of disposal. This is recognised as an item ofother income in the year in which the significant risks and rewards ofownership transfer to the buyer.

NOTES TO THE FINANCIAL STATEMENTS

79

NOTES TO THE FINANCIAL STATEMENTS (continued)
1: Significant Accounting Policies (continued)C) EXPENSE RECOGNITION

i) Interest expense
Interest expense on financial liabilities measured at amortised
cost is recognised in the income statement as it accrues using
the effective interest rate method.

ii) Loan origination expenses
Certain loan origination expenses that are an integral part of theeffective interest rate of a financial asset measured at amortised
cost. These loan origination expenses include:
fees and commissions payable to brokers and certain customer
incentive payments in respect of originating lending business; andother expenses of originating lending business, such as external
legal costs and valuation fees, provided these are direct andincremental costs related to the issue of a financial asset.
Such loan origination expenses are initially recognised as partof the cost of acquiring the financial asset and amortised as partof the effective yield of the financial asset over its expected life
using the effective interest rate method.

iii) Share-based compensation expense
The Group has various equity settled share-based compensationplans. These are described in note 45 and comprise the ANZ
Employee Share Acquisition Plan and the ANZ Share Option Plan.
ANZ Employee Share Acquisition Plan
The fair value of ANZ ordinary shares granted under the Employee
Share Acquisition Plan is measured at grant date, using the one-day
volume weighted average market price of ANZ shares. The fair value
is expensed immediately when shares vest or on a straight-line basis
over the relevant vesting period.
ANZ Share Option Plan
The fair value of share options is measured at grant date, using an
option pricing model. The fair value is expensed on a straight-line
basis over the relevant vesting period. This is recognised as sharebased compensation expense with a corresponding increasein the share options reserve.
The option pricing model takes into account the exercise priceof the option, the risk-free interest rate, the expected volatilityof ANZ’s ordinary share price and other factors. Market vesting
conditions are taken into account in estimating the fair value.
A performance right is a right to acquire a share at nil cost to theemployee subject to satisfactorily meeting time and/or performance
hurdles. Upon exercise, each performance right entitles the holder
to one ordinary share in ANZ. The fair value of performance rights
is determined at grant date using an option pricing model, taking
into account market-based performance conditions. The fair value
is expensed over the relevant vesting period. This is recognised asshare-based compensation expense with a corresponding increasein the share options reserve.
Other adjustments
Subsequent to the grant of an equity-based award, the amountrecognised as an expense is reversed when an employee fails
to satisfy the minimum service period specified in the award.
However, the expense is not reversed where the award does notvest due to the failure to meet a market-based performance condition.

80iv) Lease payments
Leases entered into by the Group as lessee are predominantly
operating leases. Operating lease payments are recognised
as an expense on a straight-line basis over the lease term.
D) INCOME TAXi) Income tax expense
Income tax on earnings for the year comprises current and deferred
tax and is based on the applicable tax law in each jurisdiction. 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 recordedin equity, or where it arises from the initial accounting for a businesscombination, in which case it is included in the determinationof goodwill.

ii) Current tax
Current tax is the expected tax payable on taxable income for theyear, based on tax rates (and tax laws) which are enacted at thereporting date, including any adjustment for tax payable in previous
periods. Current tax for current and prior periods is recognised as
a liability (or asset) to the extent that it is unpaid (or refundable).

iii) Deferred tax
Deferred tax is accounted for using the comprehensive tax balance
sheet method. It is generated by temporary differences between
the carrying amounts of assets and liabilities for financial reporting
purposes and their tax base.
Deferred tax assets, including those related to the tax effects ofincome tax losses and credits available to be carried forward, arerecognised only to the extent that it is probable that future taxable
profits will be available against which the deductible temporary
differences or unused tax losses and credits can be utilised.
Deferred tax liabilities are recognised for all taxable temporary
differences, other than those relating to taxable temporary
differences arising from goodwill. They are also recognised fortaxable temporary differences arising on investments in controlled
entities, branches, and associates, except where the Group is able
to control the reversal of the temporary differences and it is probablethat temporary differences will not reverse in the foreseeable future.
Deferred tax assets associated with these interests are recognised
only to the extent that it is probable that the temporary difference
will reverse in the foreseeable future and there will be sufficienttaxable profits against which to utilise the benefits of thetemporary difference.
Deferred tax assets and liabilities are measured at the tax rates
that are expected to apply to the period(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 thetax consequences that would follow from the manner in which
the Group, at the reporting date, recovers or settles the carrying
amount of its assets and liabilities.

iv) Offsetting
Current and deferred tax assets and liabilities are offset only to theextent that they relate to income taxes imposed by the same taxation
authority, there is a legal right and intention to settle on a net basis
and it is allowed under the tax law of the relevant jurisdiction.

ANZ ANNUAL REPORT 2012

1: Significant Accounting Policies (continued)E) ASSETS

Financial assetsi) Financial assets and liabilities at fair value through profit or loss
Trading securities are financial instruments acquired principallyfor the purpose of selling in the short-term or which are a part ofa portfolio which is managed for short-term profit-taking. Trading
securities are initially recognised and subsequently measured in
the balance sheet at their fair value.
Derivatives that are neither financial guarantee contracts nor effective
hedging instruments are carried at fair value through profit or loss.
Certain financial assets and liabilities may be designated and measured
at fair value through profit or loss where any of the following applies:
the asset represents investments backing policy liabilities (refer note
1 (I)(viii));
it is a life investment contract liability (refer note 1 (I)(i));
doing so eliminates or significantly reduces a measurement
or recognition inconsistency that would otherwise arise frommeasuring assets and liabilities, or recognising the gains orlosses thereon, on different bases;a group of financial assets or financial liabilities or both is managed
and its performance evaluated on a fair value basis; orthe financial instrument contains an embedded derivative, unlessthe embedded derivative does not significantly modify the cash
flows or it is clear, with little or no analysis, that it would not be
separately recorded.
Changes in the fair value (gains or losses) of these financial
instruments are recognised in the income statement in the period
in which they occur.
Purchases and sales of trading securities are recognised on trade date.

ii) Derivative financial instruments
Derivative financial instruments are contracts whose value isderived from one or more underlying price, index or other variable.
They include swaps, forward rate agreements, futures, options andcombinations of these instruments.
Derivative financial instruments are entered 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 otherexposures relating to non-trading positions.
Derivative financial instruments are recognised initially at fairvalue with gains or losses from subsequent measurement at fairvalue being recognised in the income statement. Included in thedetermination of the fair value of derivatives is a credit valuation
adjustment to reflect the credit worthiness of the counterparty.
The valuation adjustment is influenced by the mark-to-marketof the derivative trades and by movement in credit spreads.
Where the derivative is effective as a hedging instrument and isdesignated as such, the timing of the recognition of 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 value of a recognised asset
or liability or firm commitment, changes in the fair value of thederivative designated as a fair value hedge are recognised in theincome statement. Changes in the fair value of the hedged item
attributable to the hedged risk are reflected in adjustments to thecarrying value of the hedged item, which are also recognised in
the income statement.
Hedge accounting is discontinued when the hedge instrument
expires or is sold, terminated, exercised or no longer qualifies forhedge accounting. The resulting adjustment to the carrying amountof the hedged item arising from the hedged risk is amortised to theincome statement over the period to maturity of the hedged item.
If the hedged item is sold or repaid, the unamortised fair value
adjustment is recognised immediately in the income statement.
Cash flow hedge
The Group designates derivatives as cash flow hedges where
the instrument hedges the variability in cash flows of a recognised
asset or liability, a foreign exchange component of a firm
commitment or a highly probable forecast transaction. The effective
portion of changes in the fair value of derivatives qualifying anddesignated as cash flow hedges is deferred in the hedging reserve,
which forms part of shareholders’ equity. Any ineffective portion isrecognised immediately in the income statement. Amounts deferredin equity are recognised in the income statement in the period
during which the hedged forecast transactions take place. When thehedging instrument expires, is sold, terminated, or no longer qualifies
for hedge accounting, the cumulative amount deferred in equity
remains in the hedging reserve, and is subsequently transferred tothe income statement when the hedged item is recognised in theincome statement.
When a forecast hedged transaction is no longer expected tooccur, the amount deferred in equity is recognised immediately
in the income statement.
Net investment hedge
Hedges of net investments in foreign operations are accounted forsimilarly to cash flow hedges. The gain or loss from remeasuring thefair value of the hedging instrument relating to the effective portionof the hedge is deferred in the foreign currency translation reservein equity and the ineffective portion is recognised immediately in
the income statement.
Derivatives that do not qualify for hedge accounting
All gains and losses from changes in the fair value of derivatives
that are not designated in a hedging relationship but are enteredinto to manage the interest rate and foreign exchange risk offunding instruments are recognised in the income statement. Undercertain circumstances, the component of the fair value change inthe derivative which relates to current period realised and accrued
interest is included in net interest income. The remainder of the fairvalue movement is included in other income.

NOTES TO THE FINANCIAL STATEMENTS

81

NOTES TO THE FINANCIAL STATEMENTS (continued)
1: Significant Accounting Policies (continued)iii) Available-for-sale financial assets
Available-for-sale financial assets comprise non-derivative financial
assets which the Group designates as available-for-sale but which
are not deemed to be held principally for trading purposes, andinclude equity investments, certain loans and advances, and quoted
debt securities.
They are initially recognised at fair value plus transaction costs.
Subsequent gains or losses arising from changes in fair value areincluded as a separate component of equity in the available-forsale revaluation reserve except for interest, dividends and foreignexchange gains and losses on monetary assets, which are recognised
directly in the income statement. When the asset is sold, thecumulative gain or loss relating to the asset is transferred from theavailable-for-sale revaluation reserve to the income statement.
Where there is objective evidence of impairment on an availablefor-sale financial asset, the cumulative loss related to that asset isremoved from equity and recognised in the income statement,
as an impairment expense for debt instruments or as other noninterest income for equity instruments. If, in a subsequent period,
the amount of an impairment loss relating to an available-for-saledebt instrument decreases and the decrease can be linked objectively
to an event occurring after the impairment event, the loss is reversed
through the income statement through the impairment expense line.
Purchases and sales of available-for-sale financial assets arerecognised on trade date being the date on which the Group
commits to purchase or sell the asset.

iv) Net loans and advances
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 nointention of trading the loans and advances. The loans and advances
are initially recognised at fair value plus transaction costs that are
directly attributable to the issue of the loan or advance. They aresubsequently measured at amortised cost using the effective interest
rate method (refer note 1 (B)(i)) unless specifically designated on
initial recognition at fair value through profit or loss.
All loans are graded according to the level of credit risk.
Net loans and advances includes direct finance provided to customers
such as bank overdrafts, credit cards, term loans, finance leasereceivables and commercial bills.
Impairment of loans and advances
Loans and advances are reviewed at least at each reporting datefor impairment.
Credit impairment provisions are raised for exposures that are known
to be impaired. Exposures are impaired and impairment losses arerecorded if, and only if, there is objective evidence of impairment
as a result of one or more loss events that occurred after the initialrecognition of the loan and prior to the reporting date, and that loss
event, or events, has had an impact on the estimated future cash
flows of the individual loan or the collective portfolio of loans thatcan be reliably estimated.
Impairment is assessed for assets that are individually significant(or on a portfolio basis for small value loans) and then on a collective
basis for those exposures not individually known to be impaired.

82

Exposures that are assessed collectively are placed in pools ofsimilar assets with similar risk characteristics. The required provision
is estimated on the basis of historical loss experience for assets withcredit risk characteristics similar to those in the collective pool. The
historical loss experience is adjusted based on current observabledata such as changed economic conditions. The provision also takes
account of the impact of inherent risk of large concentrated losses
within the portfolio and an assessment of the economic cycle.
The estimated impairment losses are measured as the difference
between the asset’s carrying amount and the estimated future
cash flows discounted to their present value. As the discountunwinds during the period between recognition of impairment
and recovery of the cash flow, it is recognised in interest income.
The process of estimating the amount and timing of cash flows
involves considerable management judgement. These judgements
are reviewed regularly to reduce any differences between loss
estimates and actual loss experience.
Impairment of capitalised acquisition-related expenses is assessed
through comparing the actual behaviour of the portfolio against
initial expected life assumptions.
The provision for impairment loss (individual and collective)
is deducted from loans and advances in the balance sheet
and the movement for the reporting period is reflected in theincome statement.
When a loan is uncollectable, either partially or in full, it is written-off
against the related provision for loan impairment. Unsecured facilities
are normally written-off when they become 180 days past due or
earlier in the event of the customer’s bankruptcy or similar legal
release from the obligation.
However, a certain level of recoveries is expected after the write-off,which is reflected in the amount of the provision for credit losses.
In the case of secured facilities, remaining balances are written-off
after proceeds from the realisation of collateral have been received
if there is a shortfall.
Where impairment losses recognised in previous periods havesubsequently decreased or no longer exist, such impairment
losses are reversed in the income statement.
A provision is also raised for off-balance sheet items such as loan
commitments that are considered to be onerous.

v) Lease receivables
Contracts to lease assets and hire purchase agreements are classified
as finance leases if they transfer substantially all the risks and rewardsof ownership of the asset to the customer or an unrelated third party.
All other lease contracts are classified as operating leases.

vi) Repurchase agreements
Securities sold under repurchase agreements are retained in thefinancial statements where substantially all the risks and rewardsof ownership remain with the Group. A counterparty liability isrecognised and classified as due to other financial institutions or
payables and other liabilities. The difference between the sale priceand the repurchase price is accrued over the life of the repurchaseagreement and charged to interest expense in the income statement.

ANZ ANNUAL REPORT 2012

1: Significant Accounting Policies (continued)
Securities purchased under agreements to resell, where the Group
does not acquire the risks and rewards of ownership, are recorded
as receivables in liquid assets, or due from other financial institutions.
The security is not included in the balance sheet. Interest income isaccrued on the underlying loan amount.
Securities borrowed are not recognised in the balance sheet,
unless these are sold to third parties, at which point the obligation
to repurchase is recorded as a financial liability at fair value withfair value movements included in the income statement.

x) Acquired portfolio of insurance and life investment business
Identifiable intangible assets in respect of acquired portfolios
of insurance and life investment business acquired in a businesscombination are stated initially at fair value at acquisition date.
These are amortised over the period of expected benefit of between
15 to 23 years.

xi) Deferred acquisition costs
Refer to note 1(I)(vi).

vii) Derecognitionxii) Other intangible assets

The Group enters into transactions where it transfers financial assets
recognised on its balance sheet yet retains either all or a portion of
the risks and rewards of the transferred assets. If all, or substantiallyall, of the risks and rewards are retained, the transferred assets are
not derecognised from the balance sheet.

Other intangible assets include management fee rights, distribution
relationships and distribution agreements where they are clearly
identifiable, can be reliably measured and where it is probable they
will lead to future economic benefits that the Group can control.

In transactions where substantially all the risks and rewards ofownership of a financial asset are neither retained nor transferred,
the Group derecognises the asset if control over the asset is lost.
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 the transferred asset. The rights andobligations retained or created in the transfer are recognised
separately as assets and liabilities as appropriate.

Non-financial assetsviii) Goodwill
Goodwill represents the excess of the purchase consideration
over the fair value of the identifiable net assets of a controlled entity
at the date of gaining control. Goodwill is recognised as an asset
and not amortised, but assessed for impairment at least annuallyor more frequently if there is an indication that the goodwill may
be impaired. This involves using the DCF or CEM methodology todetermine the expected future benefits of the cash-generating units(CGU) to which the goodwill relates. Where the goodwill balanceexceeds the assessed value of expected future benefits, the differenceis charged to the income statement. Any impairment of goodwill
is not subsequently reversed.

ix) Software and computer system costs
Software and computer system costs include costs incurred inacquiring and building software and computer systems (software).
Software is amortised using the straight-line method over its
expected useful life to the Group. The period of amortisation is
between 3 and 5 years, except for certain major core infrastructure
projects where the useful life has been determined to be 7 or
10 years.
At each reporting date, software assets are reviewed for impairment
indicators. If any such indication exists, the recoverable amount of
the assets are estimated and compared against the existing carrying
value. Where the existing carrying value exceeds the recoverable
amount, the difference is charged to the income statement.
Costs incurred in planning or evaluating software proposals, orin maintaining systems after implementation, are not capitalised.

Where, based on historical observation, there is an expectation that,for the foreseeable future, the level of investment in the funds will
not decline significantly and the Group will continue to manage thefund, the management fee right is assessed to have an indefinite life
and is carried at cost less any impairment losses.
Other management fee rights, distribution relationships, distributionagreements and licenses are amortised over the expected useful
lives to the Group using the straight line method. The period ofamortisation is as follows:
Management fee rights
7 years
Aligned advisor relationships
15 years
Distribution agreements
3 yearsxiii) Premises and equipment
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
1.5%
Building integrals
10%
Furniture & equipment
10%
Computer & office equipment
12.5%–33%
Leasehold improvements are amortised on a straight-line basis overthe shorter of their useful lives or remaining terms of the lease.
At each reporting date, the carrying amounts of premises andequipment are reviewed for impairment. If any such indication exists,
the recoverable amount of the assets are estimated and comparedagainst the existing carrying value. Where the existing carrying value
exceeds the recoverable amount, the difference is charged to theincome statement. If it is not possible to estimate the recoverable
amount of an individual asset, the Group estimates the recoverable
amount of the cash generating unit to which the asset belongs.
A previously recognised impairment loss is reversed if there has beena change in the estimates used to determine the recoverable amount.

xiv) Borrowing costs
Borrowing costs incurred for the construction of qualifying assets
are capitalised into the cost of the qualifying asset during the periodof time that is required to complete and prepare the asset for its
intended use. The calculation of borrowing costs is based on aninternal measure of the costs associated with the borrowing of funds.

NOTES TO THE FINANCIAL STATEMENTS

83

NOTES TO THE FINANCIAL STATEMENTS (continued)
1: Significant Accounting Policies (continued)F) LIABILITIESFinancial liabilitiesi) Deposits and other borrowings
Deposits and other borrowings include certificates of deposit, interest
bearing deposits, debentures and other related interest bearing
financial instruments. Deposits and other borrowings not designatedat fair value through profit or loss on initial recognition are measured
at amortised cost. The interest expense is recognised using theeffective interest rate method.

ii) Financial liabilities at fair value through profit or loss
Refer to note 1(E)(i).

iii) Acceptances
The exposure arising from the acceptance of bills of exchange thatare sold into the market is recognised as a liability. An asset of equalvalue is recognised to reflect the offsetting claim against the drawerof the bill. Bill acceptances generate fee income that is recognisedin the income statement when earned.

iv) Bonds, notes and loan capital
Bonds, notes and loan capital are accounted for in the same way
as deposits and other borrowings, except for those bonds andnotes which are designated as at fair value through profit orloss on initial recognition.

v) Financial guarantee contracts
Financial guarantee contracts that require the issuer to make specified
payments to reimburse the holder for a loss the holder incurs because
a specified debtor fails to make payments when due, are initiallyrecognised in the financial statements at fair value on the date theguarantee was given; typically this is the premium received. Subsequent
to initial recognition, the Group’s liabilities under such guarantees
are measured at the higher of their amortised amount and the best
estimate of the expenditure required to settle any financial obligation
arising at the balance sheet date. These estimates are determined basedon experience of similar transactions and the history of past losses.

vi) Derecognition
Financial liabilities are derecognised when the obligation specified
in the contract is discharged, cancelled or expires.

Non-financial liabilitiesvii) Employee benefits
Leave benefits
The liability for long service leave is calculated and accrued for in
respect of all applicable employees (including on-costs) using an
actuarial valuation. The amounts expected to be paid in respect of
employees’ entitlements to annual leave are accrued at expectedsalary rates including on-costs. Expected future payments for longservice leave are discounted using market yields at the reporting
date on national government bonds with terms to maturity thatmatch, as closely as possible, the estimated future cash outflows.
Defined contribution superannuation schemes
The Group operates a number of defined contribution schemes
and also contributes, according to local law, in the various countries
in which it operates, to government and other plans that have thecharacteristics of defined contribution schemes.
The Group’s contributions to these schemes are recognised as an
expense in the income statement when incurred.

84

Defined benefit superannuation schemes
The Group operates a small number of defined benefit schemes.
The liability and expense related to providing benefits to employees
under each defined benefit scheme are calculated by independentactuaries.
A defined benefit liability is recognised to the extent that the present
value of the defined benefit obligation of each scheme, calculatedusing the Projected Unit Credit Method, is greater than the fair valueof each scheme’s assets. Where this calculation results in an asset of
the Group, a defined benefit asset is recognised, which is cappedat the recoverable amount. In each subsequent reporting period,
ongoing movements in the defined benefit liability or asset carrying
value is treated 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 theincome statement;
movements relating to actuarial gains and losses are recognised
directly in retained earnings; andcontributions made by the Group are recognised directly against
the net defined benefit position.

viii) Provisions
The Group recognises provisions when there is a present obligation,
the future sacrifice of economic benefits is probable, and the amountof the provision can be measured reliably.
The amount recognised is the best estimate of the consideration
required to settle the present obligation at reporting date, taking
into account the risks and uncertainties surrounding the obligation
at reporting date. Where a provision is measured using the cash flows
estimated to settle the present obligation, its carrying amount is thepresent value of those cash flows.
G) EQUITYi) Ordinary shares
Ordinary shares in the Company are recognised at the amount paid
per ordinary share net of directly attributable issue costs.

ii) Treasury shares
Shares in the Company which are purchased on-market by the ANZ
Employee Share Acquisition Plan or issued by the Company to the
ANZ Employee Share Acquisition Plan are classified as treasury shares(to the extent that they relate to unvested employee share-based
awards) and are deducted from Capital.
In addition, the life insurance business may also purchase and holdshares in the Company to back policy liabilities in the life insurance
statutory funds. These shares are also classified as treasury shares anddeducted from Capital. These assets, plus any corresponding income
statement fair value movement on the assets and dividend income,are eliminated when the life statutory funds are consolidated into
the Group. The cost of the investment in the shares is deducted from
Capital. However, the corresponding life investment contract andinsurance contract liabilities, and related changes in the liabilities
recognised in the income statement, remain upon consolidation.
Treasury shares are excluded from the weighted average numberof ordinary shares used in the earnings per share calculations.

ANZ ANNUAL REPORT 2012

1: Significant Accounting Policies (continued)iii) Non-controlling interestiv) Segment reporting

Non-controlling interests represent the share in the net assetsof subsidiaries attributable to equity interests not owned directly
or indirectly by the Company.

An operating segment is a component of the Group that engages
in business activities from which it may earn revenues and incur
expenses, whose operating results are regularly reviewed by the
Chief Executive Officer to make decisions about resources to beallocated to the segment and assess its performance and forwhich discrete information is available. Changes in the internalorganisational structure of the Group can cause the compositionof the Group’s reportable segments to change. Where this occurs
corresponding segment information for the previous financial year
is changed, unless the information is not available and the cost to
develop it would be excessive.

iv) Reserves
Foreign currency translation reserve
As indicated in note 1 (A)(vii), exchange differences arising ontranslation of the assets and liabilities of all Group entities arereflected in the foreign currency translation reserve. Any offsetting
gains or losses on hedging these balances, together with any tax
effect, are also reflected in this reserve.
Available-for-sale revaluation reserve
This reserve includes changes in the fair value of available-for-salefinancial assets, net of tax. These changes are transferred to theincome statement (in other operating income) when the asset
is derecognised. Where the asset is impaired, the changes aretransferred to impairment expense in the income statementfor debt instruments and in the case of equity instruments toother income.
Cash flow hedging reserve
This reserve includes the fair value gains and losses associated withthe effective portion of designated cash flow hedging instruments.
Share-based payment reserves
Share-based payment reserves include the share options reserve andother equity reserves which arise on the recognition of share-based
compensation expense (see note 1 (C)(iii)).
H) PRESENTATION

i) Offsetting of income and expenses
Income and expenses are not offset unless required or permitted
by an accounting standard. At the Group level, this generally arisesin the following circumstances:where transaction costs form an integral part of the effective
interest rate of a financial instrument which is measured atamortised cost, these are offset against the interest income
generated by the financial instrument; orwhere gains and losses relating to fair value hedges are assessed
as being effective; orwhere gains and losses arise from a group of similar transactions,such as foreign exchange gains and losses.

ii) Offsetting 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 andsettle the liability simultaneously.

iii) Cash and cash equivalents
For cash flow statement presentation purposes, cash and cash
equivalents includes cash on hand, deposits held at call with otherfinancial institutions and other short-term highly liquid investmentswith terms to maturity of three months from the date of acquisitionor less that are readily convertible to known amounts of cash andwhich are subject to an insignificant risk of changes in value.

v) Goods and services tax
Income, expenses and assets are recognised net of the amountof goods and services tax (GST), except where the amount of GST
incurred is not recoverable from the Australian Tax Office (ATO).
In these circumstances the GST is recognised as part of the costof acquisition of the asset or as part of the expense.
Receivables and payables are stated with the amount of GST
included. The net amount of GST recoverable from or payable to the
ATO is included as an other asset or liability in the balance sheet.
Cash flows are included in the cash flow statement on a grossbasis. The GST components of cash flows arising from investing
and financing activities which are recoverable from or payable
to the ATO are classified as operating cash flows.
I) LIFE INSURANCE AND FUNDS MANAGEMENT BUSINESSThe Group conducts its life insurance and funds managementbusiness (the Life Business) in Australia primarily through OnePath
Life Limited, which is registered under the Life Insurance Act 1995
(Life Act), amended by the Financial Sector Legislation Amendment(Simplifying Regulation and Review) Act 2007 (SRR Act) and in New
Zealand through OnePath Life (NZ) Limited and OnePath Insurance
Services (NZ) Limited which are registered under the New ZealandLife Insurance Act 1908.
The operations of the Life Business in Australia are conducted within
separate statutory funds as required by the Life Act. The assets of theLife Business are allocated between policyholder and shareholder
funds in accordance with the requirements of the Life Act. Under
AASs, the financial statements must include all assets, liabilities,
revenues, expenses and equity, irrespective of whether they aredesignated as relating to shareholders or policyholders. Accordingly,
the consolidated financial statements include both policyholder(statutory) and shareholders’ funds.

(i) Policy liabilities
Policy liabilities include liabilities arising from life insurance contracts
and life investment contracts.
Life insurance contracts are insurance contracts regulated under
the Life Act and similar contracts issued by entities operating
outside Australia. An insurance contract is a contract under which
an insurer accepts significant insurance risk from another party(the policyholder) by agreeing to compensate the policyholder if a
specified uncertain future event adversely affects the policyholder.
All contracts written by registered life insurers that do not meet thedefinition of an insurance contract are referred to as life investment
contracts. Life investment contract business relates to funds
management products in which the Group issues a contract where
the resulting liability to policyholders is linked to the performanceand value of the assets that back those liabilities.
NOTES TO THE FINANCIAL STATEMENTS

85

NOTES TO THE FINANCIAL STATEMENTS (continued)
1: Significant Accounting Policies (continued)
Whilst the underlying assets are registered in the name of the life
insurer and the policyholder has no direct access to the specificassets, the contractual arrangements are such that the policyholder
bears the risks and rewards of the fund’s investment performancewith the exception of guaranteed products where the policyholder
is guaranteed a minimum return or asset value. The Group derives
fee income from the administration of the underlying assets.
Life investment contracts that include a discretionary participation
feature (participating contracts) are accounted for as if they are life
insurance contracts under AASB 1038 Life Insurance Contracts.
Life insurance liabilities
Life insurance liabilities are determined using the ‘Margin on Services’(MoS) model using a projection method or using an accumulation
method. Under the projection method, the liability is determinedas the net present value of the expected future cash flows, plus
planned margins of revenues over expenses relating to services
yet to be provided, discounted using a risk-free discount rate thatreflects the nature, structure and term of the liabilities. Expected
future cash flows include premiums, expenses, redemptions andbenefit payments, including bonuses.
An accumulation method is used where the policy liabilities
determined are not materially different from those determined
under the projection method.
Profits from life insurance contracts are brought to account using
the MoS model in accordance with Actuarial Standard LPS 1.04
Valuation of Policy Liabilities (formerly AS 1.04) as issued by the APRA
under the Life Act and Professional Standard 3 Determination of Life
Insurance Policy Liabilities as issued by the New Zealand Society ofActuaries. Under MoS, profit is recognised as premiums are received
and services are provided to policyholders. When premiums arereceived but the service has not been provided, the profit is deferred.
Losses are expensed when identified.
Costs associated with the acquisition of policies are recognisedover the life of the policy. Costs may only be deferred, however,to the extent that a contract is expected to be profitable.
Participating contracts, defined as those contracts that entitle
the policyholder to participate in the performance and value ofcertain assets in addition to the guaranteed benefit, are entitled toshare in the profits that arise from participating business. This profit
sharing is governed by the Life Act and the life insurance company’s
constitution. The profit sharing entitlement is treated as an expensein the consolidated financial statements. Any benefits which remainpayable at the end of the reporting period are recognised as partof life insurance liabilities.
Life investment contract liabilities
Life investment contracts involve both the origination of a financial
instrument and the provision of investment management services.
The financial instrument component of the life investment
contract liabilities is designated as at fair value through profit orloss. The management services component, including associatedacquisition costs, is recognised as revenue as services are performed.
See note 1 (I)(vi) for the deferral and amortisation of life investment
contract acquisition costs and entry fees.

86

For investment-linked products, the life investment contract liability
is directly linked to the performance and value of the assets thatback them and is determined as the fair value of those assets aftertax. For fixed income policies the liability is determined as the netpresent value of expected cash flows subject to a minimum of
current surrender value.

(ii) External unit holder liabilities (life insurance funds)
The life insurance business includes controlling interests in trusts andcompanies, and the total amounts of each underlying asset, liability,
revenue and expense of the controlled entities are recognised in theGroup’s consolidated financial statements. When a controlled unit
trust is consolidated, the share of the unit holder liability attributable
to the Group is eliminated but amounts due to external unit holders
remain as liabilities in the Group’s consolidated balance sheet.

(iii) Claims
Claims are recognised when the liability to the policyholder under
the policy contract has been established or upon notification of
the insured event depending on the type of claim.
Claims incurred in respect of life investment contracts represent
withdrawals and are recognised as a reduction in life investment
contract liabilities.
Claims incurred that relate to the provision of services and bearing
of insurance risks are treated as expenses and these are recognisedon an accruals basis once the liability to the policyholder has been
established under the terms of the contract.

(iv) Revenue
Life insurance premiums
Life insurance premiums earned by providing services and bearing
risks are treated as revenue. Life insurance deposit premiums
are recognised as an increase in policy liabilities. For annuity, risk
and traditional business, all premiums are recognised as revenue.
Premiums with no due date are recognised as revenue on a cash
received basis. Premiums with a regular due date are recognised asrevenue on an accruals basis. Unpaid premiums are only recognised
as revenue during the days of grace or where secured by thesurrender value of the policy and are included as ‘Other assets’ inthe balance sheet.
Life investment contract premiums
There is no premium revenue in respect of life investment contracts.
Amounts received from policyholders in respect of life investment
contracts are recognised as an investment contract liability where
the receipt is in the nature of a deposit.
Fees
Fees are charged to policyholders in connection with life insurance
and life investment contracts and are recognised when the service
has been provided. Entry fees from life investment contracts aredeferred and recognised over the average expected life of thecontracts. Deferred entry fees are presented within ‘Other liabilities’in the balance sheet.

ANZ ANNUAL REPORT 2012

1: Significant Accounting Policies (continued)(v) Reinsurance contracts
Reinsurance premiums, commissions and claim settlements,
as well as the reinsurance element of insurance contract liabilities,
are accounted for on the same basis as the underlying direct
insurance contracts for which the reinsurance was purchased.

(vi) Policy acquisition costs
Life insurance contract acquisition costs
Policy acquisition costs are the fixed and variable costs of acquiring
new business. The appointed actuary assesses the value and future
recoverability of these costs in determining policy liabilities. The net
profit impact is presented in the income statement as a change inpolicy liabilities. The deferral is determined as the actual costs are
incurred subject to an overall limit that future profits are anticipated
to cover these costs. Losses arising on acquisition are recognisedin the income statement in the year in which they occur. Amounts
which are deemed recoverable from future premiums or policy
charges are deferred and amortised over the life of the policy.
Life investment contract acquisition costs
Incremental acquisition costs, such as commissions, that are directly
attributable to securing a life investment contract are recognised
as an asset where they can be identified separately and measured
reliably and if it is probable that they will be recovered. These deferredacquisition costs are presented in the balance sheet as an intangible
asset and are amortised over the period that they will be recoveredfrom future policy charges.

J) OTHERi) Contingent liabilities
Contingent liabilities acquired in a business combination are individually
measured at fair value at the acquisition date. At subsequent reporting
dates the value of such contingent liabilities is reassessed based on theestimate of the expenditure required to settle the contingent liability.
Other contingent liabilities are not recognised in the balance sheet
but disclosed in note 43 unless it is considered remote that the Groupwill be liable to settle the possible obligation.

ii) Earnings per share
The Group presents basic and diluted earnings per share (EPS) datafor its ordinary shares. Basic EPS is calculated by dividing the profit
or loss attributable to ordinary shareholders of the Company by theweighted average number of ordinary shares outstanding during
the period after eliminating treasury shares.
Diluted EPS is determined by adjusting the profit or loss attributable
to ordinary shareholders and the weighted average number ofordinary shares outstanding for the effect of dilutive ordinary shares.

Any impairment losses arising on deferred acquisition costs arerecognised in the income statement in the period in which they occur.

(vii) Basis of expense apportionment
All life investment contracts and insurance contracts are categorised
based on individual policy or products. Expenses for these products
are then allocated between acquisition, maintenance, investment
management and other expenses.
Expenses which are directly attributable to an individual policy or
product are allocated directly to a particular expense category, fund,class of business and product line as appropriate. Where expenses are
not directly attributable to an individual policy or product, they areappropriately apportioned based on detailed expense analysis having
regard to the objective in incurring that expense and the outcome
achieved. The apportionment has been made in accordance with
Actuarial Standard LPS 1.04 Valuation of Policy Liabilities (formerly
AS 1.04), issued by the Australian Prudential Regulation Authority,and on an equitable basis to the different classes of business inaccordance with Division 2 of Part 6 of the Life Act.

(viii) Investments backing policy liabilities
All investments backing policy liabilities are designated as at fairvalue through profit or loss. For OnePath Australia, all policy holder
assets, being those assets held within the statutory funds of the life
company that are not segregated and managed under a distinct
shareholder investment mandate are held to back life insurance andlife investment contract liabilities (collectively referred to as policy
liabilities). These investments are designated as at fair value throughprofit or loss.

NOTES TO THE FINANCIAL STATEMENTS87

NOTES TO THE FINANCIAL STATEMENTS (continued)
1: Significant Accounting Policies (continued)iii) Comparatives
Certain amounts in the comparative information have been
reclassified to conform with current period financial statement
presentations. Below is an overview of material adjustments
for comparatives:“Customer liability for acceptances” and “liability for acceptances”
previously shown on the face of the balance sheet have been
included in “net loans and advances” and “payables and otherliabilities” respectively. The comparative balances of $970 million for
the Group and $688 million for the Company have been reclassified
accordingly;“Regulatory deposits” previously included in “other assets” has beenshown as a separate item on the face of the balance sheet with thecomparative balances reclassified accordingly;“Securities purchased under agreement to resell” previously
presented as “Due from other financial institutions” was reclassified
to “Liquid assets” to ensure consistent classification across theGroup. The comparative balances of $728 million for the Group andCompany have been reclassified accordingly;

September 2011 undrawn facilities have been restated by $2,646
million using the revised methodology for undrawn overdrafts thatwas implemented during 2012; andthe reporting treatment of collateral received on derivative asset
positions and collateral posted on derivative liability positions haschanged to better reflect the nature of the asset/liabilities andto be consistent with market practice. The table below sets out
the consequential changes to previously reported balance sheet
classifications, with no impact on net assets.
The income statement presentation of interest paid/received oncollateral balances has changed to align with the revised balance
sheet classification. Comparative information has been reclassified
and the net interest earned on collateral of $17 million for theGroup and $17 million for the Company previously shown as “otherincome” has been presented on a gross basis as “interest income”($75 million for the Group and $73 million for the Company) and“interest expense” ($58 million for the Group and $56 million for
the Company).
Sep 11
Previously
reported$m

Change$mCurrently
reported$mLiquid assets1
Due from other financial institutions1
Derivative financial instruments

24,8998,824
54,118

728
4,474
4,523

25,627
13,29858,641

Total assets

594,488

9,725

604,213

Due to other financial institutions
Derivative financial instruments

23,01250,088

4,523
5,202

27,53555,290Total liabilities

556,534

9,725

566,259

Consolidated

1 “Due from other financial institutions” at 30 September 2011 was also reduced by the reclassification of $728 million of “securities purchased under agreements to resell” to “liquid assets”.

Sep 11
Previously
reported$m

Change$mCurrently
reported$mLiquid assets1
Due from other financial institutions1
Derivative financial instruments

20,555
6,338
48,356

728
3,732
3,364

21,283
10,07051,720Total assets

511,113

7,824

518,937

Due to other financial institutions
Derivative financial instruments

21,34544,287

3,364
4,460

24,70948,747

Total liabilities

476,734

7,824

484,558

The Company

1 “Due from other financial institutions” at 30 September 2011 was also reduced by the reclassification of $728 million of “securities purchased under agreements to resell” to “liquid assets”.

88ANZ ANNUAL REPORT 2012

1: Significant Accounting Policies (continued)iv) Accounting Standards not early adopted
The following standards were available for early adoption, but have not been applied by the Company or Group in these financial statements.
Mandatory application
date for the Company
and Group

AASB standard

Possible impact on the Company and the Group’s financial report in period of initial adoption

AASB 9 Financial
Instruments

This standard specifies new recognition and measurement requirements for financial assets
and financial liabilities previously addressed by AASB 139 Financial Instruments: Recognition
and Measurement. This standard represents the first phase of the project to replace AASB 139
and will result in fundamental changes in the way that the Company and the Group accounts
for financial instruments.

1 October 2015

The main changes from AASB 139 include:
all financial assets, except for certain equity instruments, will be classified into two categories:– amortised cost, where they generate solely payments of interest and principal and thebusiness model is to collect contractual cash flows that represent principal and interest; or– fair value through the income statement;
equity instruments not held for trading purposes will be classified at fair value through the income
statement except for certain instruments which may be classified at fair value through othercomprehensive income (OCI) with dividends recognised in net income;financial assets which meet the requirements for classification at amortised cost are permitted
to be measured at fair value if that eliminates or significantly reduces an accounting
mismatch; andfinancial liabilities – gains and losses attributable to own credit arising from financial liabilities
designated at fair value through profit or loss will be taken to OCI.
Future phases of the project to replace AASB 139 will cover impairment of financial assets
measured at amortised cost and hedge accounting.
The Group is currently assessing the impact of this standard.
AASB 10 Consolidated
Financial Statements

This standard replaces the guidance on control and consolidation in AASB 127 Consolidated
and Financial Statements and Interpretation 112 Consolidation – Special Purpose Entities.
The standard provides a single definition of ‘control’ based on whether the investor is exposed
to, or has rights to, the variable returns from its involvement with an investee and has theability to affect those returns through its power over the investee. The standard also provides
guidance on how the control principle is applied in certain situations, such as where potential
voting rights exist or where voting rights are not the dominant factor in determining whether
control exists, e.g. where relevant activities are directed through contractual means.

1 October 2013

The assessment of the impact of this standard is well progressed and is not expected to haveany material impact on the net assets or earnings of the Group.
AASB 12 Disclosure ofInterests in Other Entities

This standard applies where an entity has an ‘interest in another entity’ (essentially, any
contractual or non-contractual interest that exposes an entity to the returns from theperformance of the other entity). Such interests include a subsidiary, joint arrangement,
associate or an unconsolidated structured entity. A range of disclosures is required whichassist users to evaluate the nature, extent and financial effects and risks associated with anentity’s interest in other entities. These disclosures replace and significantly enhance thosein other standards applicable to subsidiaries, joint arrangements or associates and impose new
disclosures. As the amendments are only related to disclosure, there will be no material impact
on the Group.

1 October 2013

AASB 13 Fair Value
Measurement

This standard provides a single source of guidance on fair value measurement and requires
certain disclosures regarding fair value. This standard aims to improve the consistency andreduce the complexity of fair value measurement. The Group is currently assessing the impactof this standard.

1 October 2013

AASB 119 Employee
Benefits

Amendments to this standard will result in changes to the recognition and measurementof defined benefit pension expense and termination benefits, as well as disclosures for all
employee benefits. The amendments are not expected to have a material impact on the Group.

1 October 2013

A number of other AASB standards are also available for early adoption, but have not been applied by the Company or Group in these financial
statements. These relate to standards that have limited application to the Company or Group.

NOTES TO THE FINANCIAL STATEMENTS

89

NOTES TO THE FINANCIAL STATEMENTS (continued)
2: Critical Estimates and Judgements Used in Applying Accounting Policies
The preparation of the financial statements of the Company andGroup involves making estimates and judgements that affect thereported amounts within the financial statements. The estimates andjudgements are continually evaluated and are based on historicalfactors, including expectations of future events, that are believed
to be reasonable under the circumstances. All material changes toaccounting policies and estimates and the application of these policies
and judgements are approved by the Audit Committee of the Board.
A brief explanation of the critical estimates and judgements follows.

i) Provisions for credit impairment
The measurement of impairment of loans and advances requires
management’s best estimate of the losses incurred in the loan
portfolio at balance date.
Individual and collective provisioning involves the use of assumptions
for estimating the amount and timing of expected future cash flows.
These assumptions are regularly revised to reduce any differences
between loss estimates and actual loss experience.
The collective provision involves estimates regarding the historicalloss experience for assets with credit characteristics similar to thosein the collective pool. The historical loss experience is adjusted
based on current observable data and events and an assessmentof the impact of model risk. The provision also takes into accountmanagement’s assessment of the impact of large concentrated
losses within the portfolio and the economic cycle.
The use of such judgements and reasonable estimates is consideredby management to be an essential part of the process and does not
impact on reliability.

ii) Impairment of non-lending assets
The carrying values of non-lending assets are subject to impairment
assessments at each reporting date. Judgement is required in
identifying the cash-generating units to which goodwill and otherassets are allocated for the purpose of impairment testing.
Where there is an indicator of impairment, the recoverable amountof the asset is determined based on the higher of the asset’s fairvalue less costs to sell and its value in use. Impairment is recognised
where the recoverable amount is less than the carrying value. This
assessment involves consideration of both internal and external
indicators of potential impairment. Where an indicator exists,judgement is applied when determining the assumptions supporting
the recoverable amount calculations.
During the second half of the year, the results of the impairment
testing of software assets resulted in an impairment charge of$273 million (before tax) being recognised (full year impairment,$274 million before tax).

90iii) Special purpose and off-balance sheet entities
The Group invests in or establishes special purpose entities (SPEs)to enable it to undertake specific types of transactions such as
structured finance arrangements, covered bond issuances andsecuritisations.
An SPE is consolidated where it is controlled by the Group inaccordance with the Group’s policy outlined in note 1 (A)(vi). As it
can be complex to determine whether the Group has control ofa SPE, the Group makes judgements about its exposure to the risks
and rewards of the SPE, as well as about its ability to make
operational decisions regarding the SPE.
The main types of unconsolidated SPEs with which the Group is
involved are structured finance entities. These entities are set up to
assist with the structuring of client financing. ANZ may manage thesevehicles, hold minor amounts of capital in these vehicles or provide
financing or derivatives to these vehicles. Any resulting lending
arrangements with these SPEs are at arm’s length and ANZ typicallyhas limited ongoing involvement with the entity.

iv) Financial instruments at fair value
The Group’s financial instruments measured at fair value are statedin note 1 (A)(iii). In estimating fair value the Group uses, wherever
possible, quoted market prices in an active market for the financial
instrument.
In the event that there is no active market for the instrument, fairvalue is based on present value estimates or other market acceptedvaluation techniques. The valuation models incorporate the impactof bid/ask spread, counterparty credit spreads and other factors thatwould influence the fair value determined by a market participant.
The selection of appropriate valuation techniques, methodology
and inputs requires judgement. These are reviewed and updated as
market practice evolves.
The majority of valuation techniques employ only observable
market data. However, for certain financial instruments, the fair value
cannot be determined with reference to current market transactions
or valuation techniques whose variables only include data fromobservable markets. In respect of the valuation component where
market observable data is not available, the fair value is determinedusing data derived and extrapolated from market data and tested
against historic transactions and observed market trends. Thesevaluations are based upon assumptions established by applicationof professional judgement to analyse the data available to support
each assumption. Changing the assumptions changes the resulting
estimate of fair value.

ANZ ANNUAL REPORT 2012

2: Critical Estimates and Judgements Used in Applying Accounting Policies (continued)
The majority of outstanding derivative positions are transacted
over-the-counter and therefore need to be valued using valuation
techniques. Included in the determination of the fair value ofderivatives is a credit valuation adjustment to reflect the credit
worthiness of the counterparty, representing the credit risk
component of the overall fair value movement on a particularderivative asset. The total valuation adjustment is influenced by the
mark-to-market of the derivative trades and by the movement in themarket cost of credit.

v) Provisions (other than loan impairment)
The Group holds provisions for various obligations including
employee entitlements, restructurings and litigation related claims.
The provision for long-service leave is supported by an independentactuarial report and involves assumptions regarding employee
turnover, future salary growth rates and discount rates. Other
provisions involve judgements regarding the outcome of future
events including estimates of expenditure required to satisfy suchobligations.

The key factors that affect the estimation of these liabilities andrelated assets are:the cost of providing the benefits and administering these insurance
contracts;
mortality and morbidity experience on life insurance products,
including enhancements to policyholder benefits;
discontinuance experience, which affects the Company’s ability
to recover the cost of acquiring new business over the lives of thecontracts; andthe amounts credited to policyholders’ accounts compared to thereturns on invested assets through asset-liability management andstrategic and tactical asset allocation.
In addition, factors such as regulation, competition, interest rates,
taxes and general economic conditions affect the level of theseliabilities.
The total value of policy liabilities for life insurance contracts havebeen appropriately calculated in accordance with these principles.

vi) Life insurance contract liabilitiesvii) Taxation

Policy liabilities for life insurance contracts are computed using
statistical or mathematical methods, which are expected to give
approximately the same results as if an individual liability wascalculated for each contract. The computations are made by suitably
qualified personnel on the basis of recognised actuarial methods,
with due regard to relevant actuarial principles and standards. The
methodology takes into account the risks and uncertainties of theparticular class of life insurance business written. Deferred policy
acquisition costs are connected with the measurement basis of life
insurance liabilities and are equally sensitive to the factors that areconsidered in the liability measurement.

Judgement is required in determining provisions held in respect of
uncertain tax positions. The Group estimates its tax liabilities basedon its understanding of the relevant law in each of the countries inwhich it operates.

NOTES TO THE FINANCIAL STATEMENTS

91

NOTES TO THE FINANCIAL STATEMENTS (continued)
3: IncomeConsolidated

The Company

2012
$m

2011
$m

2012
$m

2011
$m

329
1,368
621
27,737483
30,538–30,538

295
1,481
570
27,614483
30,443–30,443

260
1,010
531
22,896308
25,005
2,335
27,340

240
1,166
481
22,716299
24,902
2,168
27,07029,1591,368
1130,53828,9471,481
1530,443

26,3251,010
527,34025,8951,166
927,070Controlled entities
Total fee and commission income
Fee and commission expense 2
Net fee and commission income

697
2,060
2,757
–
2,757
(345)
2,412

652
2,053
2,705
–
2,705
(314)
2,391

621
1,504
2,125
753
2,878
(265)
2,613

583
1,511
2,094
651
2,745
(236)
2,509

ii) Other income
Net foreign exchange earnings
Net gains from trading securities and derivatives3
Credit risk on intermediation trades
Movement on financial instruments measured at fair value through profit or loss4
Dividends received from controlled entities5
Brokerage income
NZ managed funds impacts
Write-down of assets in non-continuing business
Write-down of investment in Saigon Securities Inc
Gain on sale/(write-down) of investment in Sacombank
Private equity and infrastructure earnings
Profit on sale of property
Gain on sale of Visa shares
Dilution gain on investment in Bank of Tianjin
Write-down of investment in subsidiaries and branches
Other
Total other income
Other operating income

1,081
280
73
(327)
–
55
–
–
(31)
10
28
1
291
10
–
120
1,591
4,003

817
295
4
(167)
–
61
61
(13)
–
(35)
26
24
–
–
–
127
1,200
3,591

707
265
73
(284)
1,411
–
–
–
(31)
10
28
–
224
10
(34)
23
2,402
5,015

528
280
2
(87)
941
–
–
(13)
–
(35)
26
–
–
–
(39)
(1)
1,602
4,111

iii) Net funds management and insurance income
Funds management income
Investment income
Insurance premium income
Commission income (expense)
ClaimsChanges in policy liabilities
Elimination of treasury share (gain)/loss
Total net funds management and insurance income
Total other operating income
Share of associates’ profit
Total income6,7

825
2,730
1,237
(438)
(598)
(2,449)
(104)
1,203
5,206
395
36,139

868
(511)
1,184
(490)
(548)
854
48
1,405
4,996
436
35,875

111
–
38
58
–
–
–
207
5,222
–
32,562

101
–
33
49
–
–
–
183
4,294
–
31,364

Interest income
Other financial institutions
Trading securities
Available-for-sale assets
Loans and advances
Other
Controlled entities
Total interest income
Interest income is analysed by types of financial assets as follows
Financial assets not at fair value through profit or loss
Trading securities
Financial assets designated at fair value through profit or lossi) Fee and commission income
Lending fees1
Non-lending fees and commissions

1
2
3
4

Lending fees exclude fees treated as part of the effective yield calculation and included in interest income (refer note 1 B(ii)).
Includes interchange fees paid.
Does not include interest income relating to trading securities.
Includes fair value movements (excluding realised and accrued interest) on derivatives entered into for management of interest rate and foreign exchange risk on funding instruments, andnot designated as accounting hedges (refer to note 12 for further discussion on Balance Sheet Management), ineffective portions of cash flow hedges, and fair value movements in financial
assets and liabilities designated at fair value. The net gain (loss) on financial assets and liabilities designated at fair value was $(171) million (2011: $219 million) for the Group and $(170) million(2011: $223 million) for the Company.
5 Dividends received from controlled entities are subject to meeting applicable regulatory and corporate law requirements, including solvency requirements.
6 Total income includes external dividend income of $4 million (2011: $11 million) for the Group and $3 million (2011: $9 million) for the Company.
7 Comparative information has changed for certain income line items. Refer to note 1 for details of material changes.

92

ANZ ANNUAL REPORT 2012

4: Expenses
Consolidated

The Company

2012
$m

2011
$m

2012
$m

2011
$m

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

473
12,962
69
633
4,127
164

585
12,661
101
489
4,828
279

422
11,299
–
510
3,387
138

542
10,900
–
378
4,018
216

Controlled entities

18,428–18,943–15,756
2,616

16,054
2,488

Total interest expense

18,42818,943

18,372

18,542

Interest expense is analysed by types of financial liabilities as follows:
Financial liabilities not at fair value through profit or loss
Financial liabilities designated at fair value through profit or loss

17,801627

18,202741

17,868504

17,912630

18,42818,943

18,372

18,542

Operating expensesi) Personnel
Employee entitlements and taxes
Salaries and wages
Superannuation costs – defined benefit plans– defined contribution plans
Equity-settled share-based payments
Temporary staff
Other

288
3,066
13
292
189
218
699

306
2,960
13
287
165
250
743

218
2,382
8
251
160
158
564

238
2,321
7
249
145
192
581

Total personnel expenses (excl restructuring)

4,765

4,724

3,741

3,733

ii) Premises
Amortisation and depreciation of buildings and integrals (refer note 21)
Rent
Utilities and other outgoings
Other

90
412
168
46

89
387
165
44

54
300
117
43

50
251
114
38

Total premises expenses (excl restructuring)

716

685

514

453

iii) Computer
Computer contractors
Data communication
Depreciation and amortisation1
Rentals and repairs
Software purchased
Software impairment2
Other

150
106
424
131
253
274
45

143
125
348
130
241
20
33

133
64
337
87
188
239
19

117
83
266
91
181
7
7

1,383

1,040

1,067

752

229
18
99
65
8
52
137
253
69
170
110
171

235
18
97
65
4
53
130
269
75
208
122
150

141
10
84
51
5
42
91
210
40
125
8
460

139
10
81
51
2
27
88
230
38
150
8
471

1,381

1,426

1,267

1,295

274

148

126

23

Total computer expenses (excl restructuring)iv) OtherAdvertising and public relations
Audit fees and other fees (refer note 5)
Depreciation of furniture and equipment (refer note 21)
Freight and cartage
Loss on sale and write-off of equipment
Non-lending losses, frauds and forgeries
Postage and stationery
Professional fees
Telephone
Travel and entertainment expenses
Amortisation and impairment of other intangible assets (refer note 19)
Other
Total other expenses (excl restructuring)v) Restructuring3
Total operating expenses

8,519

8,023

6,715

6,256

Total expenses4

26,947

26,96625,087

24,798

1 Comprises software amortisation $320 million (2011: $249 million) (refer note 19) and computer depreciation $104 million (2011: $99 million) (refer note 21). The Company comprises
software amortisation $268 million (2011: $199 million) (refer note 19) and computer depreciation $69 million (2011: $67 million) (refer note 21).
2 In 2011, $24 million of software impairment expense has been booked as restructuring expenses by the Group (2012: nil).
3 Consolidated includes $148 million (2011: $125 million) relating to costs associated with the New Zealand simplification program.
4 Comparative information has changed for certain expense line items. Refer to note 1 for details of material changes.

NOTES TO THE FINANCIAL STATEMENTS

93

NOTES TO THE FINANCIAL STATEMENTS (continued)
5: Compensation of Auditors
Consolidated

KPMG Australia1
Audit or review of financial reports of the Company or Group entities
Audit-related services2
Non-audit services3

Overseas related practices of KPMG Australia
Audit or review of financial reports of the Company or Group entities
Audit-related services2
Non-audit services3
Total compensation of auditors

The Company

2012
$’000

2011
$’000

2012
$’000

2011
$’000

8,752
3,147
236

8,620
3,636
266

5,614
2,216
160

5,479
2,806
138

12,135

12,522

7,990

8,423

4,955
1,166
95

4,522
808
69

1,483
571
60

1,187
454
15

6,216

5,399

2,114

1,656

18,351

17,921

10,104

10,0791 Inclusive of goods and services tax.
2 For the Group, comprises prudential and regulatory services of $3.067 million (2011: $3.578 million), comfort letters $0.930 million (2011: $0.446 million) and other $0.316 million(2011: $0.420 million).
3 The nature of the non-audit services include training, reviews of compliance with legal and regulatory requirements, benchmarking reviews, accounting advice and project assurance.
Further details are provided in the Directors’ Report.

Group Policy allows KPMG Australia or any of its related practices to provide assurance and other audit-related services that, while outside thescope of the statutory audit, are consistent with the role of external auditor. These include regulatory and prudential reviews requested by theCompany’s regulators such as APRA. Any other services that are not audit or audit-related services are non-audit services. Group Policy allows
certain non-audit services to be provided where the service would not contravene auditor independence requirements. KPMG Australia or anyof its related practices may not provide services that are perceived to be in conflict with the role of the external 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.

94

ANZ ANNUAL REPORT 2012

6: Current Income Tax Expense
Consolidated

The Company

2012
$m

2011
$m

2012
$m

2011
$m

2,523
2

2,364
3

1,690
(3)

1,624
3

Income tax recognised in the income statement
Tax expense/(income) comprises:
Current 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

(198)

(58)

(72)

(206)

2,327

2,309

1,615

1,421

Profit before income tax

7,994

7,672

6,490

5,572

Prima facie income tax expense at 30%

2,398

2,302

1,947

1,672

Tax effect of permanent differences:
Overseas tax rate differential
Rebateable and non-assessable dividends
Profit from associates(Gain on sale)/write-down of investment in Sacombank
Write-down of investment in Saigon Securities Inc.
Offshore Banking Units
Foreign exchange translation of US hybrid loan capital
OnePath Australia – policyholder income and contributions tax
Tax provisions no longer required
Interest on Convertible Preference Shares
Adjustment between members of the Australian tax-consolidated group
Other

(48)
(4)
(118)
(3)
9
(12)
–
106
(70)
68
–
(1)

(29)
(5)
(131)
11
–
–
–
146
(43)
50
–
5

(9)
(423)
–
(3)
9
(12)
(16)
–
(60)
68
108
9

(18)
(282)
–
11
–
–
(2)
–
(40)
50
–
27

2,325

2,306

1,618

1,418

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

Income tax (over) provided in previous years

2

3

(3)

3

Total income tax expense charged in the income statement

2,327

2,309

1,615

1,421

Effective tax rate

29.1%

30.1%

24.9%

25.5%

Australia

1,823

1,845

1,511

1,322

Overseas

504

464

104

99

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 thetax-consolidated group on a ‘group allocation’ basis. Current tax liabilities and assets of the tax consolidated group are recognised by theCompany (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.

Taxation of Financial Arrangements ‘TOFA’The Group adopted the new tax regime for financial arrangements (TOFA) in Australia effective from 1 October 2009. The regime aims tomore closely align the tax and accounting recognition and measurement of the financial arrangements within scope and their related flows.
Deferred tax balances for financial arrangements that existed on adoption at 1 October 2009 will reverse over a four year period.

NOTES TO THE FINANCIAL STATEMENTS

95

NOTES TO THE FINANCIAL STATEMENTS (continued)
7: Dividends
Consolidated1

The Company

2012
$m

2011
$m

2012
$m

2011
$m

Ordinary share dividends2
Interim dividend
Final dividend
Bonus option plan adjustment

1,769
2,002
(80)

1,662
1,895
(66)

1,769
2,002
(80)

1,662
1,895
(66)

Dividend on ordinary shares

3,691

3,491

3,691

3,491

1 Dividends paid to ordinary equity holders of the Company. Excludes dividends paid by subsidiaries of the Group to non-controlling equity holders (2012: $2 million; 2011: nil).
2 Dividends are not accrued and are recorded when paid.

A final dividend of 79 cents, fully franked, is proposed to be paid on each eligible fully paid ordinary share on 19 December 2012(2011: final dividend of 76 cents, paid 16 December 2011, fully franked). The 2012 interim dividend of 66 cents, paid 2 July 2012, was fully
franked (2011: interim dividend of 64 cents, paid 1 July 2011, fully franked).
The tax rate applicable to the franking credits attached to the 2012 interim dividend and to be attached to the proposed 2012 final dividend
is 30% (2011: 30%).
Dividends paid in cash or satisfied by the issue of shares under the Dividend Reinvestment Plan during the years ended 30 September 2012
and 2011 were as follows:
Consolidated

Paid in cash1
Satisfied by share issue2

The Company

2012
$m

2011
$m

2012
$m

2011
$m

2,230
1,461

2,124
1,367

2,230
1,461

2,124
1,367

3,691

3,491

3,691

3,491

Consolidated

The Company

2012
$m

2011
$m

2012
$m

2011
$m

Preference share dividend3
Euro Trust Securities4

11

12

–

–

Dividend on preference shares

11

12

–

–

1
2
3
4

Refers to cash paid to shareholders who did not elect to participate in the dividend reinvestment plan or the bonus option plan.
Includes shares issued to participating shareholders under the dividend reinvestment plan.
Dividends are not accrued and are recorded when paid.
Refer to note 29 for details.

Dividend franking account
The amount of franking credits available to the Company for thesubsequent financial year is $386 million (2011: $363 million) after
adjusting for franking credits that will arise from the payment of
tax on Australian profits for the 2012 financial year, $921 millionof franking credits which will be utilised in franking the proposed
2012 final dividend and franking credits that may not be accessibleby the Company at present.

Restrictions which limit the payment of dividends
There are presently no significant restrictions on the payment ofdividends from material controlled entities to the Company. Various
capital adequacy, liquidity, foreign currency controls, statutory reserveand other prudential and legal requirements must be observed bycertain controlled entities and the impact of these requirements on
the payment of cash dividends is monitored.
There are presently no significant restrictions on the payment ofdividends by the Company, although reductions in shareholders’equity through the payment of cash dividends is monitored having
regard to the following:
There are regulatory and other legal requirements to maintainspecified capitalisations. Further, APRA has advised that a bankunder its supervision must consult with it before declaring

96

a coupon payment or dividend on a Tier 1 or Upper Tier 2
instrument, if the bank proposes to pay coupons or dividends
on Tier 1 or Upper Tier 2 instruments which exceed its after tax
prudential profits (as defined by APRA from time to time);
The Corporations Act 2001 (Cth) provides that the Company must
not pay a dividend on any instrument unless (i) it has sufficient net
assets for the payment, (ii) the payment is fair and reasonable to
the Company’s shareholders as a whole, and (iii) the payment does
not materially prejudice the Company’s ability to pay its creditors;
The Company may not pay a dividend if to do so would result in
the Company becoming, or likely to become, insolvent or breachingspecified capital adequacy ratios or if APRA so directs; andIf any dividend, interest or redemption payments or other distributions
are not paid on the scheduled payment date, or shares or otherqualifying Tier 1 securities are not issued on the applicable conversion
or redemption dates, on the Group’s Euro Trust Securities, US Trust
Securities or ANZ Convertible Preference Shares in accordance with
their terms, the Group may be restricted from declaring or paying
any dividends or other distributions on Tier 1 securities including
ANZ ordinary shares and preference shares. This restriction is
subject to a number of exceptions.

ANZ ANNUAL REPORT 2012

7: Dividends (continued)
Dividend Reinvestment Plan

Bonus Option Plan

During the year ended 30 September 2012, 39,662,663 ordinary
shares were issued at $19.09 per share and 34,448,302 ordinary sharesat $20.44 per share to participating shareholders under the Dividend
Reinvestment Plan (2011: 31,506,936 ordinary shares at $22.60
per share, and 30,178,811 ordinary shares at $21.69 per share).
All eligible shareholders can elect to participate in the Dividend
Reinvestment Plan.

The amount paid in dividends during the year has been reduced
as a result of certain eligible shareholders participating in the
Bonus Option Plan and foregoing all or part of their right todividends. These shareholders were issued ordinary shares underthe Bonus Option Plan.

For the 2012 final dividend, no discount will be applied whencalculating the ‘Acquisition Price’ used in determining the numberof ordinary shares to be provided under the Dividend Reinvestment
Plan and Bonus Option Plan terms and conditions, and the ‘Pricing
Period’ under the Dividend Reinvestment Plan and Bonus Option Planterms and conditions will be the seven trading days commencing on
16 November 2012 (unless otherwise determined by the Directors
and announced on the ASX).

During the year ended 30 September 2012, 4,090,494 ordinary shareswere issued under the Bonus Option Plan (2011: 3,013,239 ordinary
shares).

8: Earnings per Ordinary Share
Consolidated
2012
$m

2011
$m

213.4

208.2

5,667
6
11

5,363
8
12

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

5,650
2,647.4

5,343
2,565.9

Diluted earnings per share (cents)
Earnings reconciliation ($millions)
Earnings used in calculating basic earnings per share
Add: US Trust Securities interest expense
Add: UK Stapled Securities interest expense
Add: ANZ Convertible Preference Shares interest expense

205.6

198.8

5,650
30
31
225

5,343
28
46
168

Earnings used in calculating diluted earnings per share

5,936

5,585

Weighted average number of ordinary shares (millions)
Used in calculating basic earnings per share
Add: weighted average number of options/rights potentially convertible to ordinary sharesweighted average number of convertible US Trust Securities at current market prices
weighted average number of convertible UK Hybrid Securities
weighted average number of ANZ Convertible Preference Shares

2,647.4
5.3
30.5
24.6
179.8

2,565.9
4.5
41.6
38.9
158.7

Used in calculating diluted earnings per share

2,887.6

2,809.6

Basic earnings per share (cents)
Earnings reconciliation ($millions)
Profit for the year
Less: profit attributable to minority interests
Less: preference share dividend paid

The weighted average number of converted and lapsed options, weighted with reference to the date of conversion or lapse,
and included in the calculation of diluted earnings per share is approximately 0.5 million (2011: approximately 1.5 million).

NOTES TO THE FINANCIAL STATEMENTS

97

NOTES TO THE FINANCIAL STATEMENTS (continued)
9: Liquid Assets
Consolidated

The Company

2012
$m

2011
$m

2012
$m

2011
$m

Coins, notes and cash at bankMoney at call, bills receivable and remittances in transit
Other banks' certificates of deposit
Securities purchased under agreements to resell in less than three months

3,056
21,112
2,257
10,153

2,805
12,769
3,377
6,676

1,010
19,792
2,177
9,803

958
11,5392,149
6,637

Total liquid assets

36,57825,62732,782

21,283

10: Due from Other Financial Institutions
Consolidated

The Company

2012
$m

2011
$m

2012
$m

2011
$m

Cash collateral
Other receivables from financial institutions

6,878
10,225

5,202
8,096

5,875
8,292

4,460
5,610

Total due from other financial institutions

17,103

13,298

14,167

10,070

11: Trading Securities
Consolidated

The Company

2012
$m

2011
$m

2012
$m

2011
$m

Commonwealth securities
Local, semi-government and other government securities
Other securities and equity securities

2,168
14,332
24,102

4,505
13,56318,006

2,073
7,468
20,9494,505
8,879
14,983

Total trading securities

40,602

36,07430,49028,36798

ANZ ANNUAL REPORT 2012

12: Derivative Financial Instruments
Derivative financial instruments are contracts whose value is derived
from one or more underlying variables or indices, require little orno initial net investment and are settled at a future date. Derivatives
include contracts traded on registered exchanges and contracts
agreed between counterparties. The use of derivatives and theirsale to customers as risk management products is an integral partof the Group’s trading and sales activities. Derivatives are also used
to manage the Group’s own exposure to fluctuations in foreignexchange and interest rates as part of its asset and liability
management activities.
Derivative financial instruments are subject to market and credit risk,
and these risks are managed in a manner consistent with the risks
arising on other financial instruments.
Types of derivative financial instruments
The Group transacts principally in foreign exchange, interest rate,commodity and credit derivative contracts. The principal types ofderivative contracts include swaps, forwards, futures and options
contracts and agreements.
Derivatives, except for those that are specifically designated as
effective hedging instruments, are classified as held for trading.
The held for trading classification includes two categories ofderivative financial instruments: those held as trading positions andthose used in the Group’s balance sheet risk management activities.
Trading positions
Trading positions arise from both sales to customers and market
making activities. Sales to customers include the structuringand marketing of derivative products which enable customers
to manage their own risks. Market making activities consist ofderivatives entered into principally for the purpose of generating
profits from short-term fluctuations in prices or margins. Positions
may be traded actively or held over a period of time to benefit fromexpected changes in market rates.

Balance sheet risk management
The Group designates balance sheet risk management derivatives
into hedging relationships in order to minimise income statement
volatility. This volatility is created by differences in the timing ofrecognition of gains and losses between the derivative and thehedged item. Hedge accounting is not applied to all balance sheet
risk management positions.
Gains or losses from the change in fair value of balance sheet
risk management derivatives that form part of an effective hedging
relationship are recognised in the income statement based on
the hedging relationship. Any ineffectiveness is recognised in theincome statement as ‘other income’ in the period in which it occurs.
Gains or losses, excluding any current period interest, from thechange in fair value of balance sheet risk management positions thatare not designated into hedging relationships are recognised in theincome statement as ‘other income’ in the period in which they occur.
Current period interest is included in interest income and expense.
The tables on the following pages provide an overview of theGroup’s and the Company’s foreign exchange, interest rate,commodity and credit derivatives. They include all trading andbalance sheet risk management 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 theterms of the derivative. The aggregate notional amount of derivative
financial instruments on hand, the extent to which instruments arefavourable or unfavourable, and as a consequence the aggregate
fair values of derivative financial assets and liabilities, can fluctuatesignificantly from time to time. The fair values of derivative
instruments held and their notional principal amounts are set
out below.

Gains or losses, including any current period interest, from the change
in fair value of trading positions are recognised in the income statementas ‘other income’ in the period in which they occur.

NOTES TO THE FINANCIAL STATEMENTS

99

NOTES TO THE FINANCIAL STATEMENTS (continued)
12: Derivative Financial Instruments (continued)
Fair Value
Trading

Total fair valueof derivatives

Hedging

Consolidated at
30 September 2012

Notional
Principal
Amount$m

Assets Liabilities$m$m

Fair value

Cash flow

Net investment

Assets Liabilities$m$m

Assets Liabilities$m$m

Assets Liabilities$m$m

Foreign exchange contracts
Spot and forward contracts
Swap agreements
Futures contracts
Options purchased
Options sold390,756
280,664
954
66,34871,3184,112 (5,336)
7,608 (11,681)
99
(134)
1,228
–
– (1,091)

–
171
–
–
–

–
(4)
–
–
–

–
–
–
–
–

–
–
–
–
–

35
84
–
–
–

–
–
–
–
–

4,147 (5,336)
7,863 (11,685)
99
(134)
1,228
–
– (1,091)

171

(4)

–

–

119

–

13,337 (18,246)(1,803)

–

–

–

–

–

–

1,600

Assets Liabilities$m$m

810,040

13,047 (18,242)

Commodity contracts
Derivative contracts

34,8201,600Interest rate contracts
Forward rate agreements
Swap agreements
Futures contracts
Options purchased
Options sold240,576
1,583,257
113,974
26,04035,36724(23)
29,185 (29,035)
148
(138)
963
–
– (1,116)

–
1,811
–
–
–

–
(788)
(30)
–
–

–
1,288
9
–
–

–
(922)
(8)
–
–

–
–
–
–
–

–
–
–
–
–

24
(23)
32,284 (30,745)
157
(176)
963
–
– (1,116)

1,999,214

30,320 (30,312)

1,811

(818)

1,297

(930)

–

–

33,428 (32,060)

–
(62)

–
–

–
–

–
–

–
–

–
–

–
–

243
277

(1,803)Credit default swaps
Structured credit derivatives
purchased
Other credit derivatives purchased

7,634
11,632

243
277

Total credit derivatives purchased

19,266

520

(62)

–

–

–

–

–

–

520

(62)

Structured credit derivatives sold
Other credit derivatives sold

7,634
10,870

–
44

(346)
(122)

–
–

–
–

–
–

–
–

–
–

–
–

–
44

(346)
(122)

18,504

44

(468)

–

–

–

–

–

–

44

(468)

564

(530)

–

–

–

–

–

–

564

(530)

45,531 (50,887)

1,982

(822)

1,297

(930)

119

–

Total credit derivatives sold37,770Total

100

2,881,844–(62)

48,929 (52,639)

ANZ ANNUAL REPORT 2012

12: Derivative Financial Instruments (continued)
Fair Value
Trading

Total fair valueof derivatives

Hedging

Consolidated at
30 September 2011

Notional
Principal
Amount$m

Assets Liabilities$m$m

Fair value

Cash flow

Net investment

Assets Liabilities$m$m

Assets Liabilities$m$m

Assets Liabilities$m$m

Foreign exchange contracts
Spot and forward contracts
Swap agreements
Futures contracts
Options purchased
Options sold328,740
223,074886
57,05360,182

10,657
15,536812
1,318–(8,940)(16,034)(949)–(1,290)

–
289
–
–
–

–
(114)
–
–
–

–
–
–
–
–

–
–
–
–
–

1
12
–
–
–

–
–
–
–
–

10,65815,837812
1,318–(8,940)(16,148)(949)–(1,290)Assets Liabilities$m$m

669,935

28,323(27,213)

289

(114)

–

–

13

–

28,625(27,327)

Commodity contracts
Derivative contracts

25,916

1,885(1,386)

–

–

–

–

–

–

1,885

(1,386)

Interest rate contracts
Forward rate agreements
Swap agreements
Futures contracts
Options purchased
Options sold155,215
1,478,261
86,25343,92640,221

34
22,621
1,029
611
–

(29)
(22,356)(1,011)
–
(765)

–
1,525
–
–
–

–
(417)
–
–
–

1
893
3
–
–

(1)
(612)
(13)
–
–

–
–
–
–
–

–
–
–
–
–

35
25,039
1,032
611
–

(30)
(23,385)(1,024)–(765)

1,803,876

24,295(24,161)

1,525

(417)

897

(626)

–

–

26,717(25,204)

Credit default swaps
Structured credit derivatives
purchased
Other credit derivatives purchased

8,976
15,641

609
781

–
(29)

–
–

–
–

–
–

–
–

–
–

–
–

609
781

–
(29)

Total credit derivatives purchased

24,617

1,390

(29)

–

–

–

–

–

–

1,390

(29)

Structured credit derivatives sold
Other credit derivatives sold

8,475
14,867

–
24

(788)
(556)

–
–

–
–

–
–

–
–

–
–

–
–

–
24

(788)
(556)

23,34224(1,344)

–

–

–

–

–

–

24

(1,344)

Total credit derivatives soldTotal1

47,9591,414(1,373)

–

–

–

–

–

–

1,414

(1,373)

2,547,686

55,917(54,133)

1,814

(531)

897

(626)

13

–

58,641(55,290)

1 Comparative information has been restated to reflect the impact of the current period reporting treatment of the derivative related collateral posted/received. Refer to note 1 for further details.

NOTES TO THE FINANCIAL STATEMENTS101

NOTES TO THE FINANCIAL STATEMENTS (continued)
12: Derivative Financial Instruments (continued)
Fair Value
Trading

Total fair valueof derivatives

Hedging

The Company at
30 September 2012

Notional
Principal
Amount$m

Assets Liabilities$m$m

Fair value

Cash flow

Net investment

Assets Liabilities$m$m

Assets Liabilities$m$m

Assets Liabilities$m$m

Foreign exchange contracts
Spot and forward contracts
Swap agreements
Futures contracts
Options purchased
Options sold390,283
236,951840
65,80370,8773,921 (4,603)
7,511 (10,675)
99
(134)
1,224
–
– (1,073)

–
169
–
–
–

–
(4)
–
–
–

–
–
–
–
–

–
–
–
–
–

–
84
–
–
–

–
–
–
–
–

3,921 (4,603)
7,764 (10,679)
99
(134)
1,224
–
– (1,073)

169

(4)

–

–

84

–

13,008 (16,489)(1,801)

–

–

–

–

–

–

1,595

Assets Liabilities$m$m

764,754

12,755 (16,485)

Commodity contracts
Derivative contracts

34,2881,595Interest rate contracts
Forward rate agreements
Swap agreements
Futures contracts
Options purchased
Options sold204,539
1,247,578
90,176
26,17335,82222(21)
24,240 (24,420)
146
(135)
962
–
– (1,116)

–
1,624
–
–
–

–
(633)
(30)
–
–

–
1,096
9
–
–

–
(864)
(8)
–
–

–
–
–
–
–

–
–
–
–
–

22
(21)
26,960 (25,917)
155
(173)
962
–
– (1,116)

1,604,288

25,370 (25,692)

1,624

(663)

1,105

(872)

–

–

28,099 (27,227)

–
(62)

–
–

–
–

–
–

–
–

–
–

–
–

243
277

(1,801)Credit default swaps
Structured credit derivatives
purchased
Other credit derivatives purchased

7,634
11,632

243
277

Total credit derivatives purchased

19,266

520

(62)

–

–

–

–

–

–

520

(62)

Structured credit derivatives sold
Other credit derivatives sold

7,634
10,870

–
44

(346)
(122)

–
–

–
–

–
–

–
–

–
–

–
–

–
44

(346)
(122)

18,504

44

(468)

–

–

–

–

–

–

44

(468)

564
(530)
40,284 (44,508)

–
1,793

–
(667)

–
1,105

–
(872)

–
84

–
–

Total credit derivatives sold
Total

102

37,7702,441,100

–
(62)

564
(530)
43,266 (46,047)

ANZ ANNUAL REPORT 2012

12: Derivative Financial Instruments (continued)
Fair Value
Trading

Total fair valueof derivatives

Hedging

The Company at
30 September 2011

Notional
Principal
Amount$m

Assets Liabilities$m$m

Fair value

Cash flow

Net investment

Assets Liabilities$m$m

Assets Liabilities$m$m

Assets Liabilities$m$m

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

326,868
196,031886
57,706
60,7909,748
14,758812
1,299–(8,718)(14,375)(949)–(1,267)

–
286
–
–
–

–
(114)
–
–
–

–
–
–
–
–

–
–
–
–
–

–
12
–
–
–

–
–
–
–
–

9,748
15,056812
1,299–(8,718)(14,489)(949)–(1,267)

Assets Liabilities$m$m

642,281

26,617(25,309)

286

(114)

–

–

12

–

26,915(25,423)

Commodity contracts
Derivative contracts

25,874

1,881(1,382)

–

–

–

–

–

–

1,881

(1,382)

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

98,7001,125,305
65,61041,321
37,23824
17,888
1,015
598
–

(20)
(18,119)(1,004)
–
(745)

–
1,304
–
–
–

–
(117)
–
–
–

1
677
3
–
–

(1)
(557)
(6)
–
–

–
–
–
–
–

–
–
–
–
–

25
19,869
1,018
598
–

(21)
(18,793)(1,010)–(745)

1,368,174

19,525(19,888)

1,304

(117)

681

(564)

–

–

21,510(20,569)

Credit default swaps
Structured credit derivatives
purchased
Other credit derivatives purchased

8,976
15,641

609
781

–
(29)

–
–

–
–

–
–

–
–

–
–

–
–

609
781

–
(29)

Total credit derivatives purchased

24,617

1,390

(29)

–

–

–

–

–

–

1,390

(29)

Structured credit derivatives sold
Other credit derivatives sold

8,475
14,867

–
24

(788)
(556)

–
–

–
–

–
–

–
–

–
–

–
–

–
24

(788)
(556)

23,34224(1,344)

–

–

–

–

–

–

24

(1,344)

Total credit derivatives soldTotal1

47,9591,414(1,373)

–

–

–

–

–

–

1,414

(1,373)2,084,288

49,437(47,952)

1,590

(231)

681

(564)

12

–

51,720(48,747)

1 Comparative information has been restated to reflect the impact of the current period reporting treatment of the derivative related collateral posted/received. Refer to note 1 for further details.

NOTES TO THE FINANCIAL STATEMENTS103

NOTES TO THE FINANCIAL STATEMENTS (continued)
12: Derivative Financial Instruments (continued)
Hedging relationships
There are three types of hedging relationships: fair value hedges,
cash flow hedges and hedges of a net investment in a foreign
operation. Each type of hedging has specific requirements when
accounting for the fair value changes in the hedging relationship.
For details on the accounting treatment of each type of hedging
relationship refer to note 1.
Fair value hedges
The risk being hedged in a fair value hedge is a change in the fairvalue of an asset or liability or unrecognised firm commitment that
may affect the income statement. Changes in fair value might arise
through changes in interest rates or foreign exchange rates. The
Group’s fair value hedges consist principally of interest rate swaps
and cross currency swaps that are used to protect against changes

in the fair value of fixed-rate long-term financial instruments due tomovements in market interest rates and exchange rates.
The application of fair value hedge accounting results in the fair value
adjustment on the hedged item attributable to the hedged risk being
recognised in the income statement at the same time the hedging
instrument impacts the income statement. If a hedging relationshipis terminated, the fair value adjustment to the hedged item continues
to be recognised as part of the carrying amount of the item orgroup of items and is amortised to the income statement as a partof the effective yield over the period to maturity. Where the hedged
item is derecognised from the Group’s balance sheet, the fair value
adjustment is included in the income statement as ‘other income’as a part of the gain or loss on disposal.
Consolidated

Gain/(loss) arising from fair value hedges
Hedged item
Hedging Instrument

Cash flow hedges
The risk being hedged in a cash flow hedge is the potential variability
in future cash flows that may affect the income statement. Variability
in the future cash flows may result from changes in interest rates or
exchange rates affecting recognised financial assets and liabilities andhighly probable forecast transactions. The Group’s cash flow hedges
consist principally of interest rate swaps, forward rate agreements
and cross currency swaps that are used to protect against exposures
to variability in future cash flows on non-trading assets and liabilities
which bear interest at variable rates or which are expected to berefunded or reinvested in the future. The Group primarily applies cash
flow hedge accounting to its variable rate loan assets, variable rate
liabilities and short-term re-issuances of fixed rate customer andwholesale deposit liabilities. The amounts and timing of future cash
flows, representing both principal and interest flows, are projected for

The Company

2012
$m

2011
$m

2012
$m

2011
$m

91
(103)

(15)
19

63
(68)

(43)
43

each portfolio of financial assets and liabilities on the basis of theirforecast repricing profile. This forms the basis for identifying gains
and losses on the effective portions of derivatives designated as cash
flow hedges.
The effective portion of changes in the fair value of derivatives
qualifying and designated as cash flow hedges is deferred to thehedging reserve which forms part of shareholders’ equity. Amounts
deferred in equity are recognised in the income statement in the
period during which the hedged forecast transactions take place.
The ineffective portion of a designated cash flow hedge relationshipis recognised immediately in the income statement. The schedule
below shows the movements in the hedging reserve:

Consolidated

The Company

2012
$m

2011
$m

2012
$m

2011
$m

Opening
Item recorded in net interest income
Tax effect on items recorded in net interest income
Valuation gain taken to equity
Tax effect on net gain on cash flow hedges

169
17
(5)
39
(12)

11
(9)
3
230
(66)

47
27
(8)
32
(9)

(73)
(12)
4
183
(55)

Closing Balance

208

169

89

47

The table below shows the breakdown of the hedging reserve attributable to each type of cash flow hedging relationship:
Consolidated

The Company

2012
$m

2011
$m

2012
$m

2011
$m

Variable rate assets
Variable rate liabilities
Re-issuances of short term fixed rate liabilities

922
(330)
(384)

614
(188)
(257)

755
(307)
(359)

445
(163)
(235)

Total hedging reserve

208

169

89

47

104

ANZ ANNUAL REPORT 2012

12: Derivative Financial Instruments (continued)
The mechanics of a cash flow hedge results in the gain (or loss) in thehedging reserve being released into the income statement at thesame time that the corresponding loss (or gain) attributable to thehedged item impacts the income statement. It will not necessarily bereleased to the income statement uniformly over the period of thehedging relationship as the fair value of the derivative is driven bychanges in market rates over the term of the instrument. As market
rates do not always move uniformly across all time periods, a change
in market rates may drive more value in one forecast period thananother, which impacts when the hedging reserve balance is released
to the income statement.
All underlying hedged cash flows are expected to be recognised in
the income statement in the period in which they occur which isanticipated to take place over the next 0 –10 years (2011: 0–10 years).
All gains and losses associated with the ineffective portion of thehedging derivatives are recognised immediately as ‘other income’in the income statement. Ineffectiveness recognised in the income
statement in respect of cash flow hedges amounted to a $3 million
loss for the Group (2011: $9 million loss) and a $3 million loss for theCompany (2011: $9 million loss).

Hedges of net investments in foreign operations
In a hedge of a net investment in a foreign operation, the risk being
hedged is the exposure to exchange rate differences arising on
consolidation of foreign operations with a functional currency otherthan the Australian Dollar. Hedging is undertaken using foreignexchange derivative contracts or by financing with borrowings in thesame currency as the applicable foreign functional currency.
Ineffectiveness arising from hedges of net investments in foreign
operations and recognised as ‘other income’ in the income statement
amounted to nil (2011: $3 million gain).

13: Available-for-sale Assets

Consolidated

The Company

2012
$m

2011
$m

2012
$m

2011
$m

ListedOther government securities
Other securities and equity securities

756
3,664

2,223
3,065

313
3,569

1,755
2,791

Total listed

4,420

5,288

3,882

4,546

Unlisted
Local and semi-government securities
Other government securities
Other securities and equity securities
Loans and advances1

7,311
5,323
3,508
–

4,219
7,517
4,885
355

6,131
4,871
2,957
–

2,946
6,657
4,513
355

Total unlisted

16,142

16,976

13,95914,471

Total available-for-sale assets

20,562

22,264

17,841

19,017

1 In July 2012, the Group reclassified loans of $300 million (2011: $236 million) from Available-for-sale into loans and advances measured at amortised cost as it is now the Group’s intention
to hold these assets for the foreseeable future. The Available-for-sale reserve at that date was insignificant.

During the year a net gain of $281 million was recognised in theincome statement in respect of Available-for-sale assets for the Group(2011: $18 million) and $206 million for the Company (2011: $20 million
net loss). This includes a gain on the sale of investments in Visa Inc.
and Sacombank of $301 million for the Group and $234 million for thecompany. In 2011 an impairment loss of $35 million was recognised inrelation to the investment in Sacombank for both Group and Company.

Available-for-sale by maturities at 30 September 2012

In addition, a loss of $35 million (2011: $37 million) for both Groupand Company was recycled from equity (the Available-for-salerevaluation reserve) into the income statement on the impairmentof assets previously reclassified from available-for-sale into loans
and advances (refer note 16).

Less than
3 months$m

Between3 and 12months$m

Between
1 and
5 years$m

Between5 and 10
years
$m

After
10 years$mNomaturity
specified
$m

Total
fair
value
$m

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

1,325
4,896
421
–

464
808
1,022
–

1,406
369
2,443
–

2,880
–
296
–

1,236
6
2,858
–

–
–
132
–

7,311
6,079
7,172
–

Total available-for-sale assets

6,642

2,294

4,218

3,176

4,100

132

20,562Less than
3 months$m

Between3 and 12months$m

Between
1 and
5 years$m

Between5 and 10
years
$m

After
10 years$mNomaturity
specified
$m

Total
fair
value
$m

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

3,397
7,471
2,491
–

764
1,551
2,256
–

24
628
1,634
100

2
31
298
255

32
59
736
–

–
–
535
–

4,219
9,740
7,950
355

Total available-for-sale assets

13,359

4,571

2,386

586

827

535

22,264

Available-for-sale by maturities at 30 September 2011

NOTES TO THE FINANCIAL STATEMENTS

105

NOTES TO THE FINANCIAL STATEMENTS (continued)
14: Net Loans and Advances
Consolidated

The Company

2012
$m

2011
$m

2012
$m

2011
$m

Overdrafts
Credit card outstandings
Term loans – housing
Term loans – non-housing
Hire purchase
Lease receivables
Commercial bills1
Other

8,014
10,741
230,706
150,499
10,385
1,885
19,469861

8,133
11,189215,382
136,388
9,968
2,084
18,334
1,319

6,598
9,222
192,912114,247
9,767
1,363
19,342
243

6,626
9,662
179,992
101,767
9,481
1,452
18,228
1,083

Total gross loans and advances

432,560

402,797353,694328,291(4,538)(2,235)797
1,239(4,873)(2,216)629
970(3,407)(1,946)707
1,012(3,646)(1,961)
602
688(4,737)(5,490)(3,634)(4,317)

427,823

397,307350,060

323,974a) Finance lease receivables
Gross finance lease receivables
Less than 1 year
1 to 5 years
Later than 5 years

438
647
286

507
838
260

226
507
129

395
576
39

Less: unearned future finance income on finance leases

(141)

(84)

(107)

(59)

Net investment in finance lease receivables

1,230

1,521

755

951

76
374
64

71
408
–

71
366
64

58
384
–

Less: Provision for credit impairment (refer note 16)
Less: Unearned income
Add: Capitalised brokerage/mortgage origination fees
Add: Customer’s liability for acceptances2
Net loans and advances
Lease receivablesb) Operating lease receivables
Gross operating lease receivables
Less than 1 year
1 to 5 years
Later than 5 years
Total operating lease receivables
Net lease receivables
Present value of net investment in finance lease receivables
Less than 1 year
1 to 5 years
Later than 5 years
Hire purchase receivables
Less than 1 year
1 to 5 years
Later than 5 years

514

479

501

442

1,744

2,000

1,256

1,393

409
586
235

491
791
239

210
467
78

389
527
35

1,230

1,521

755

951

3,412
6,927
46

3,310
6,577
81

3,200
6,521
46

3,132
6,268
81

10,385

9,968

9,767

9,481

1 In 2011 the Group ceased re-discounting Commercial bill acceptances. This has impacted balance sheet classifications as there is no intention to trade the Commercial bills as negotiable instruments.
2 Previously customer liability for acceptances was presented as a separate balance on the face of the Balance Sheet; Net Loans and Advances comparatives have been restated accordingly.

106

ANZ ANNUAL REPORT 2012

15: Impaired Financial Assets
Presented below is a summary of impaired financial assets that are measured on the balance sheet at amortised cost. For these items,
impairment losses are recorded through the provision for credit impairment. This contrasts to financial assets carried on the balance sheet
at fair value, for which any impairment loss is recognised as a component of the overall fair value.
Detailed information on impaired financial assets is provided in note 33 Financial Risk Management.
Consolidated

The Company

2012
$m

2011
$m

2012
$m

2011
$m

Summary of impaired financial assets
Impaired loans
Restructured items1
Non-performing commitments and contingencies

4,364
525
307

4,650
700
231

3,146
377
287

3,038
684
211

Gross impaired financial assets

5,196

5,581

3,810

3,933

Individual provisions
Impaired loans
Non-performing commitments and contingencies
Net impaired financial assets(1,729)(44)(1,687)(10)(1,242)(27)(1,144)
(6)

3,423

3,884

2,541

2,783

1,713

1,834

1,455

1,510

Accruing loans past due 90 days or more2
These amounts are not classified as impaired assets as they are either 90 daysor more past due and well secured, or are portfolio managed facilities that canbe held on an accrual basis for up to 180 days past due

1 Restructured items are facilities in which the original contractual terms have been modified for reasons related to the financial difficulties of the customer. Restructuring may consist of reductionof interest, principal or other payments legally due, or an extension in maturity materially beyond those typically offered to new facilities with similar risk.
2 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 $127 million(2011: $137 million) for the Group and $104 million (2011: $106 million) for the Company.

16: Provision for Credit Impairment
Consolidated

The Company

2012
$m

2011
$m

2012
$m

2011
$m

Recoveries of amounts previously written off

1,730
376
187
2,293
(537)
1,756
(214)

1,362
459
212
2,033
(613)
1,420
(227)

1,628
16
154
1,798
(333)
1,465
(180)

1,347
15
80
1,442
(402)
1,040
(203)

Individual provision charge
Impairment on available-for-sale assets
Collective provision charge/(credit) to income statement

1,542
35
(379)

1,193
37
7

1,285
35
(335)

837
37
120

Charge to income statement

1,198

1,237

985

994

Provision movement analysis
New and increased provisions
Australia
New Zealand
Asia Pacific, Europe & America
Write-backs

NOTES TO THE FINANCIAL STATEMENTS

107

NOTES TO THE FINANCIAL STATEMENTS (continued)
16: Provision for Credit Impairment (continued)
Movement in provision for credit impairment by financial asset class
Liquid assets and duefrom other financial
institutions

Net loans
and advances

Other financial assets

Credit related
commitments1

Total provisions

2012
$m

2011
$m

2012
$m

2011
$m

2012
$m

2011
$m

2012
$m

2011
$m

2012
$m

2011
$m

–

–

2,604

2,577

–

–

572

576

3,176

3,153

–
–
–

–
–
–

(21)
(4)
(343)

13
–
14

–
–
–

–
–
–

(7)
–
(36)

3
–
(7)

(28)
(4)
(379)

16
–
7

Total collective provision

–

–

2,236

2,604

–

–

529

572

2,765

3,176

Individual provision
Balance at start of year
New and increased provisions
Write-backs
Adjustment for exchange rate fluctuations
Discount unwind
Bad debts written off

–
–
–
–
–
–

–
–
–
–
–
–

1,687
2,259
(537)
(34)
(143)
(1,503)

1,849
2,049
(613)
8
(185)
(1,421)

–
–
–
–
–
–

–
–
–
–
–
–

10
34
–
–
–
–

26
(16)
–
–
–
–

1,697
2,293
(537)
(34)
(143)
(1,503)

1,875
2,033
(613)
8
(185)
(1,421)

Total individual provision

–

–

1,729

1,687

–

–

44

10

1,773

1,697

Total provision for credit impairment

–

–

3,965

4,291

–

–

573

582

4,538

4,873

Consolidated

Collective provision
Balance at start of year
Adjustment for exchange rate fluctuations
and transfers
DisposalCharge/(credit) to income statement

1 Comprises undrawn facilities and customer contingent liabilities.

The table below contains a detailed analysis of the movements in individual provision for net loans and advances.

Australia

InternationalandInstitutional
Banking

New ZealandGlobal
Wealthand Private
Banking

Other

Total

Consolidated

2012
$m

2011
$m

2012
$m

2011
$m

2012
$m

2011
$m

2012
$m

2011
$m

2012
$m

2011
$m

Individual provision
Balance at start of year
New and increased provisions
Write-backs
Adjustment for exchange rate fluctuations
Discount unwind
Bad debts written off

561
447
1,002
940
(202) (190)––(21) (25)(717) (611)

709
925
(169)
(76)
(81)
(565)

947
595
(234)
18
(98)
(519)

399
359
(159)
5
(41)
(215)

436
454
(185)
16
(60)
(262)

12
9
(4)
1
–
(3)

20
3
(4)
(1)
(1)
(5)

6
(36)
(3)
36
–
(3)

(1) 1,687 1,849
57 2,259 2,049– (537) (613)
(25)
(34)
8
(1) (143) (185)(24) (1,503) (1,421)

743

709

348

399

15

12

–

6 1,729 1,687

Total individual provision

623

561

2012
$m

2011
$m

Consolidated

Ratios (as a percentage of total gross loans and advances)
Individual provisionCollective provision
Bad debts written off

108

2012
%

2011
%

0.41
0.64
0.35

0.42
0.79
0.35

ANZ ANNUAL REPORT 2012

16: Provision for Credit Impairment (continued)
Movement in provision for credit impairment by financial asset class (continued)
Liquid assets and duefrom other financial
institutions

Net loans
and advances

Other financial
assetsCredit related
commitments1

Total provisions

2012
$m

2011
$m

2012
$m

2011
$m

2012
$m

2011
$m

2012
$m

2011
$m

2012
$m

2011
$m

–

–

2,042

1,950

–

–

454

436

2,496

2,386

–
–
–

–
–
–

(8)
(4)
(302)

(8)
–
100

–
–
–

–
–
–

(11)
–
(33)

(2)
–
20

(19)
(4)
(335)

(10)
–
120

Total collective provision

–

–

1,728

2,042

–

–

410

454

2,138

2,496

Individual provision
Balance at start of year
New and increased provisions
Write-backs
Adjustment for exchange rate fluctuations
Discount unwind
Bad debts written off

–
–
–
–
–
–

–
–
–
–
–
–

1,144
1,777
(333)
(45)
(91)
(1,210)

1,253
1,456
(402)
(3)
(123)
(1,037)

–
–
–
–
–
–

–
–
–
–
–
–

6
21
–
–
–
–

20
(14)
–
–
–
–

1,150
1,798
(333)
(45)
(91)
(1,210)

1,273
1,442
(402)
(3)
(123)
(1,037)

Total individual provision

–

–

1,242

1,144

–

–

27

6

1,269

1,150

Total provision for credit impairment

–

–

2,970

3,186

–

–

437

460

3,407

3,646

The Company

Collective provision
Balance at start of year
Adjustment for exchange rate fluctuations
and transfers
Disposal
Change/(credit) to income statement

1 Comprises undrawn facilities and customer contingent liabilities.

The Company

Ratios (as a percentage of total gross loans and advances)
Individual provisionCollective provision
Bad debts written off

2012
%

2011
%

0.36
0.61
0.34

0.35
0.76
0.32

17: Shares in Controlled Entities and Associates
Consolidated

The Company

2012
$m

2011
$m

2012
$m

2011
$m

Total shares in controlled entities
Total shares in associates1 (refer note 39)

–
3,520

–
3,513

11,516
897

9,098
971

Total shares in controlled entities and associates

3,520

3,513

12,413

10,0691 Investments in associates are accounted for using the equity method of accounting by the Group and are carried at cost by the Company.

Acquisition or disposal of controlled entities
There were no material controlled entities acquired or disposed of during the year ended 30 September 2012 or the year ended
30 September 2011.

NOTES TO THE FINANCIAL STATEMENTS

109

NOTES TO THE FINANCIAL STATEMENTS (continued)
18: Tax Assets
Consolidated

The Company

2012
$m

2011
$m

2012
$m

2011
$m

13
520

25
276

13
610

25
372

533

301

623

397

20
73

–
98

–
6

–
6

93

98

6

6

–
192

16
225

–
152

15
174

192

241

152

189

Total current and deferred tax assets

818

640

781

592

Total current tax assets

33

41

13

40

Total deferred tax assets

785

599

768

552

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

732
454
310
154
269
349

862
411
334
156
261
347

578
333
188
119
–
156

707
282
192
123
–
148

2,268

2,371

1,374

1,452

37
–

39
–

14
5

20
–

Australia
Current tax asset
Deferred tax asset
New ZealandCurrent tax asset
Deferred tax asset
Asia Pacific, Europe & America
Current tax asset
Deferred tax asset

Deferred tax assets recognised directly in equity
Defined benefits obligation
Available-for-sale revaluation reserve
Set-off of deferred tax assets pursuant to set-off provisions1
Net deferred tax assets

37

39

19

20

(1,520)(1,811)

(625)

(920)

785

599

768

552

Unrecognised deferred tax assets
The following deferred tax assets will only be recognised if:
assessable income is derived of a nature and an amount sufficient 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.
Unused realised tax losses (on revenue account)

5

5

–

–

Unrealised losses on investments2

205

386

–

–

Total unrecognised deferred tax assets

210

391

–

–

1 Deferred tax assets and liabilities are set-off where they relate to income tax levied by the same taxation authority on either the same taxable entity or different taxable entities within the same
taxable group.
2 The Group has unrecognised deferred tax assets arising from superannuation funds in OnePath Life Limited.

110

ANZ ANNUAL REPORT 2012

19: Goodwill and Other Intangible Assets
Consolidated

The Company

2012
$m

2011
$m

2012
$m

2011
$m

Goodwill1
Balance at start of the year
Additions through business combinations
Reclassification3
Impairment/write off expense
Foreign currency exchange differences

4,163
11
7
(1)
32

4,086
(5)
–
–
82

87
10
–
–
(5)

102
(16)
–
–
1

Balance at end of year

4,212

4,163

92

87

SoftwareBalance at start of the year
Software capitalised during the period
Amortisation expense
Impairment/write off expense
Foreign currency exchange differences

1,572
786
(320)
(274)
(2)

1,217
645
(249)
(44)
3

1,402
720
(268)
(239)
(2)

1,059
549
(199)
(7)
–

Balance at end of year

1,762

1,572

1,613

1,402

Cost
Accumulated amortisation
Accumulated impairment

3,502(1,537)
(203)

2,850
(1,273)(5)

3,180(1,372)
(195)

2,553
(1,146)(5)

Carrying amount

1,762

1,572

1,613

1,402

Acquired Portfolio of Insurance and Investment Business
Balance at start of the year
Amortisation expense
Foreign currency exchange differences

1,013
(85)
–

1,100
(89)
2

–
–
–

–
–
–

Balance at end of year

928

1,013

1,179
(251)

1,179
(166)

–
–
–

–
–
–

Carrying amount

928

1,013

–

–

Other intangible assets
Balance at start of the year
Additions through business combinations
Other additions
Reclassification3
Amortisation expense2
Impairment expense
Derecognised on disposal
Foreign currency exchange differences

216
–
5
(7)
(24)
(1)
(8)
(1)

227
30
5
–
(20)
(13)
(15)
2

55
–
1
–
(8)
–
–
(1)

37
26
–
–
(8)
–
–
–

Balance at end of year
Cost
Accumulated amortisation
Accumulated impairment

180
260
(76)
(4)

216
272
(53)
(3)

47
74
(27)
–

55
74
(19)
–

Carrying amount

180

216

47

55

6,964
7,082

6,630
6,964

1,544
1,752

1,198
1,544

Cost
Accumulated amortisation

Total goodwill and other intangible assets
Net book value
Balance at start of the year
Balance at end of year

1 Excludes notional goodwill in equity accounted entities.
2 Comprises brand names $1 million (2011: $1 million), aligned advisor relationships $6 million (2011: $4 million), distribution agreements and management fee rights $8 million (2011: $4 million),credit card relationships $2 million (2011: $2 million) and other intangibles $7 million (2011: $9 million). The Company comprises distribution agreements and management fee rights $2 million(2011: $2 million), card relationships $2 million (2011: $2 million) and other intangibles $4 million (2011: $4 million).
3 Reclassification of $7 million from other intangible assets to goodwill.

NOTES TO THE FINANCIAL STATEMENTS

111

NOTES TO THE FINANCIAL STATEMENTS (continued)
19: Goodwill and Other Intangible Assets (continued)
Goodwill allocated to cash–generating units
The goodwill balance above largely comprises the goodwill purchased on acquisition of NBNZ Holdings Limited in December 2003 (included in
the New Zealand division) and ANZ Wealth Australia Limited (formerly OnePath Australia Limited) on 30 November 2009 (included in the Global
Wealth and Private Banking division).
The recoverable amount of the CGU to which each goodwill component is allocated is estimated using a market multiple approach as
representative of the fair value less cost to sell of each CGU. The price earnings multiples are based on observable multiples reflecting thebusinesses and markets in which each CGU operates. The earnings are based on the current forecast earnings of the divisions. The aggregate fairvalue less cost to sell across the Group is compared to the Group’s market capitalisation to validate the conclusion that goodwill is not impaired.
Key assumptions on which management has based its determination of fair value less cost to sell include assumptions as to the market multiples
being reflective of the segment’s businesses, cost to sell estimates and the ability to achieve forecast earnings. Changes in assumptions uponwhich the valuation is based could materially impact the assessment of the recoverable amount of each CGU. As at 30 September 2012, theimpairment testing performed did not result in any material impairment being identified.
Following a change to the organisational structure during the year, the operating segments changed from those reported previously andgoodwill has been reallocated accordingly.

20: Other Assets1
Consolidated

The Company

2012
$m

2011
$m

2012
$m

2011
$m

Accrued interest/prepaid discounts
Accrued commissions
Prepaid expenses
Insurance contract liabilities ceded (refer to note 48)
Outstanding premiums
Issued securities settlements
Operating leases residual value
Capitalised expenses
Other

1,433
144
232
509
273
1,481
331
21
1,199

1,323
163
169
427
267
2,235
290
12
1,510

1,087
100
96
–
–
1,349
321
21
773

999
112
74
–
–
1,560
274
12
825

Total other assets

5,623

6,396

3,747

3,856

1 Previously Regulatory deposits were included in Other Assets. In the current period these have been presented on the face of the Balance Sheet, and comparative information for Other Assets
has been restated accordingly.

21: Premises and Equipment
Consolidated

Freehold and leasehold land and buildings
At costAccumulated depreciation
Leasehold improvements
At costAccumulated amortisation
Furniture and equipment
At costAccumulated depreciation
Computer equipment
At costAccumulated depreciation
Capital works in progress
At costTotal premises and equipment

112

The Company

2012
$m

2011
$m

2012
$m

2011
$m

1,207
(281)

1,187
(251)

696
(88)

696
(71)

926

936

608

625

548
(353)

518
(325)

373
(232)

314
(212)

195

193

141

102

1,327
(811)

1,283
(742)

1,084
(633)

1,041
(570)

516

541

451

471

1,244
(895)

1,177
(853)

923
(667)

851
(628)

349

324

256

223

128

131

78

81

2,114

2,125

1,534

1,502

ANZ ANNUAL REPORT 2012

21: Premises and Equipment (continued)
Reconciliations of the carrying amounts for each class of premises and equipment are set out below:
Consolidated

The Company

2012
$m

2011
$m

2012
$m

2011
$m

936
33
(6)
(35)
(2)
926

1,009
30
(68)
(40)
5
936

625
5
(2)
(19)
(1)
608

646
–
(1)
(20)
–
625

Carrying amount at end of year

193
64
(5)
(55)
(2)
195

197
46
(2)
(49)
1
193

102
79
(3)
(35)
(2)
141

110
22
–
(30)
–
102

Furniture and equipment
Carrying amount at beginning of year
Additions1
Disposals
Depreciation
Foreign currency exchange difference

541
83
(8)
(99)
(1)

567
72
(3)
(97)
2

471
73
(7)
(84)
(2)

498
57
(2)
(81)
(1)

Carrying amount at end of year

516

541

451

471

Carrying amount at end of year

324
137
(6)
(104)
(2)
349

317
104
(1)
(99)
3
324

223
108
(5)
(69)
(1)
256

224
64
–
(67)
2
223

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

131
(3)

68
63

81
(3)

30
51

Carrying amount at end of year

128

131

78

81

Total premises and equipment

2,114

2,125

1,534

1,502

Freehold and leasehold land and buildings
Carrying amount at beginning of year
Additions1
Disposals
Depreciation
Foreign currency exchange difference
Carrying amount at end of year
Leasehold improvements
Carrying amount at beginning of year
Additions1
Disposals
Amortisation
Foreign currency exchange difference

Computer equipment
Carrying amount at beginning of year
Additions1
Disposals
Depreciation
Foreign currency exchange difference

1 Includes transfers.

NOTES TO THE FINANCIAL STATEMENTS

113

NOTES TO THE FINANCIAL STATEMENTS (continued)
22: Due to Other Financial Institutions
Consolidated

Deposits from central banks
Cash collateral
Other
Total due to other financial institutions

The Company

2012
$m

2011
$m

2012
$m

2011
$m

13,1852,531
14,82230,538

8,789
4,524
14,222
27,53513,026
2,326
13,04228,3948,750
3,365
12,59424,70923: Deposits and Other Borrowings
Consolidated

The Company

2012
$m

2011
$m

2012
$m

2011
$m

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

56,838172,313
142,753
11,782
12,164
1,273

55,554
153,200
132,812
11,334
14,333
1,496

55,326141,042
122,794
6,556
7,818
–

53,904
123,625
113,182
5,974
10,569–Total deposits and other borrowings

397,123

368,729

333,536

307,254

1 Included in this balance is debenture stock of $0.1 billion (September 2011: $0.2 billion) of Esanda Finance Corporation Limited (Esanda), together with accrued interest thereon which is secured
by a trust deed and collateral debentures, giving floating charges upon the undertaking and all the assets of the entity $0.4 billion (September 2011: $0.6 billion) other than land and buildings.
All controlled entities of Esanda 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. Effective from 18 March 2009, Esanda ceased to write new debentures and since September 2009 stopped writing new loans.
In addition, this balance also includes NZD 1.5 billion (September 2011: NZD 1.5 billion) of secured debenture stock of the consolidated subsidiary UDC Finance Limited (UDC), and the accrued
interest thereon, which are secured by a floating charge over all assets of UDC NZD 2.1 billion (September 2011: NZD 2.0 billion).

114

ANZ ANNUAL REPORT 2012

24: Income Tax Liabilities
Consolidated

The Company

2012
$m

2011
$m

2012
$m

2011
$m

660
–

1,007
–

660
–

1,007
–

660

1,007

660

1,007

–
–

3
–

15
–

16
–

–

3

15

16

121
18

118
28

51
12

56
27

139

146

63

83

Total current and deferred income tax liability

799

1,156

738

1,106

Total current tax payable

781

1,128

726

1,079

Total deferred income tax liabilities

18

28

12

27

Deferred tax liabilities recognised in profit and loss
Acquired portfolio of insurance and investment businessInsurance related deferred acquisition costs
Lease finance
Treasury instruments
Capitalised expenses
Other

278
99
230
149
46
570

303
79
229
317
76
701

–
–
59
148
46
345

–
–
90
319
79
435

1,372

1,705

598

923

82
38
46

65
37
32

39
–
–

22
–
2

166

134

39

24

Australia
Current tax payable
Deferred tax liabilities
New ZealandCurrent tax payable
Deferred tax liabilities
Asia Pacific, Europe & America
Current tax payable
Deferred tax liabilities

Deferred tax liabilities recognised directly in equity
Cash flow hedges
Foreign currency translation reserve
Available-for-sale revaluation reserve
Set-off of deferred tax liabilities pursuant to set-off provision1(1,520)(1,811)

(625)

(920)

Net deferred tax liability

18

28

12

27

Unrecognised deferred tax liabilities
The following deferred tax liabilities have not been bought to account as liabilities:
Other unrealised taxable temporary differences2

163

126

23

17

Total unrecognised deferred tax liabilities

163

126

23

17

1 Deferred tax assets and liabilities are set-off where they relate to income tax levied by the same taxation authority on either the same taxable entity or different taxable entities within
the same taxable group.
2 Represents additional potential foreign tax costs should all retained earnings in offshore branches and subsidiaries be repatriated.

25: Payables and Other Liabilities
Consolidated

The Company

2012
$m

2011
$m

2012
$m

2011
$m

Creditors
Accrued interest and unearned discounts
Defined benefits plan obligations
Accrued expenses
Security settlements
Other Liabilities
Liability for acceptances1

984
2,539
149
1,478
1,115
2,605
1,239

896
2,735
148
1,413
2,026
3,033
970

468
2,032
67
1,174
915
1,886
1,012

308
2,212
82
1,127
1,219
2,060
688

Total payables and other liabilities

10,10911,221

7,554

7,696

1 Previously customer liability for acceptances was presented as a separate balance on the face of the Balance Sheet; comparatives for Payables and Other Liabilities have been restated accordingly.

NOTES TO THE FINANCIAL STATEMENTS

115

NOTES TO THE FINANCIAL STATEMENTS (continued)
26: Provisions
Consolidated

Employee entitlements1
Restructuring costs and surplus leased space2
Non-lending losses, frauds and forgeries
Other

The Company

2012
$m

2011
$m

2012
$m

2011
$m

533
140
163
365

540
135
205
368

404
51
139
151

418
78
149
153

1,201

1,248

745

798

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

The Company

2012
$m

2011
$m

2012
$m

2011
$m

Restructuring costs and surplus leased space2
Carrying amount at beginning of the year
Provisions made during the year
Payments made during the year
Transfer/release of provision

135
189
(157)
(27)

119
148
(125)
(7)

78
82
(86)
(23)

100
23
(53)
8

Carrying amount at the end of the year

140

135

51

78

Non-lending losses, frauds and forgeries
Carrying amount at beginning of the year
Provisions made during the year
Payments made during the year
Transfer/release of provision

205
29
(16)
(55)

188
53
(17)
(19)

149
17
(6)
(21)

153
27
(3)
(28)

Carrying amount at the end of the year

163

205

139

149

Carrying amount at beginning of the year
Provisions made during the year
Payments made during the year
Transfer/release of provision

368
353
(305)
(51)

493
350
(333)
(142)

153
75
(30)
(47)

220
81
(34)
(114)

Carrying amount at the end of the year

365

368

151

153

Other provisions3

1 The aggregate liability for employee entitlements largely comprises provisions for annual leave and long service leave.
2 Restructuring costs and surplus leased space provisions arise from 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 relating to on-going activities are not provided for. Provision is made when the Group is demonstrably committed, it is probable that thecosts will be incurred, though their timing is uncertain, and the costs can be reliably estimated.
3 Other provisions comprise various other provisions including loyalty programs, workers’ compensation, make-good provisions on leased premises and contingent liabilities recognised as partof a business combination.

27: Bonds and Notes
ANZ utilises a variety of established and flexible funding programmes issuing medium term notes featuring either senior or subordinated debt status(details of subordinated debt are presented in note 28: Loan Capital). All risks associated with originating term funding are closely managed. Refer todescription of ANZ risk management practices in note 33 Financial Risk Management in relation to market risks such as interest rate and foreign currency
risks, as well as liquidity risk.
The table below presents Bonds and Notes by currency of issue which broadly is representative of the investor base location.
Consolidated

The Company

2012
$m

2011
$m

2012
$m

2011
$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 dollar
NOK
Norwegian krone
SGD
Singapore dollars
CNH
Chinese yuan
Other27,035
2,114
6,054
2,531
9,532
9,109
1,422
3,253
857
557
265
179
190

29,089
1,782
1,701
2,148
8,555
7,679
2,265
2,218
800
47
235
32
–

20,718
1,725
5,691
392
9,167
7,256
1,310
1,823
857
557
110
179
190

21,321
917
1,897
325
8,230
7,679
2,125
1,420
800
47
77
32
–

Total bonds and notes

63,09856,551

49,97544,870116

ANZ ANNUAL REPORT 2012

28: Loan Capital
Consolidated

Hybrid loan capital (subordinated)
US Trust Securities
UK Stapled Securities1
ANZ Convertible Preference Shares (ANZ CPS)2
ANZ CPS1
ANZ CPS2
ANZ CPS3
Perpetual subordinated notes
USD
300m
floating rate notes
NZD
835m
fixed rate notes3
Subordinated notes
USD
250m
AUD
350m
AUD
350m
AUD
100m
AUD
100m
GBP
175m
NZD
250m
NZD
350m
AUD
290m
AUD
310m
GBP
400m
AUD
365m
AUD
500m
EUR
750m
AUD
500m
AUD
1,509mUSD
750m

floating rate notes due 2016 4
fixed rate notes due 20174
floating rate notes due 2017 4
fixed rate notes due 20174
floating rate notes due 2017 4
fixed rate notes due 2017 4
fixed rate notes due 2017 5
fixed rate notes due 20175
fixed rate notes due 20175
floating rate notes due 2017 4
fixed rate notes due 2018 5
floating rate notes due 2018 4
floating rate notes due 2018 4
fixed rate notes due 2019floating rate notes due 2022 4
floating rate notes due 20224
fixed rate notes due 2022 4

The Company

2012
$m

2011
$m

2012
$m

2011
$m

752
–

835
720

715
–

768
720

1,078
1,958
1,326

1,075
1,954
1,322

1,078
1,958
1,326

1,075
1,954
1,322

5,114

5,906

5,077

5,839

287
666

308
656

287
–

308
–

953

964

287

308

–
–
–
–
–
–
–
–
285
297
633
355
500
1,057
500
1,505
715

257
342
347
100
100
292
195
275
289
310
638
359
500
1,119
–
–
–

–
–
–
–
–
–
–
–
290
310
633
365
500
1,060
500
1,509
715

257
350
350
100
100
292
–
–
289
310
638
365
500
1,119
–
–
–

5,847

5,123

5,882

4,670

Total loan capital

11,914

11,993

11,246

10,817

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

7,804
666
1,754
633
1,057

6,698
1,126
1,400
1,650
1,119

7,836
–
1,717
633
1,060

6,715
–
1,333
1,650
1,119

11,914

11,993

11,246

10,817

1 The UK stapled securities were bought back and cancelled on 15 June 2012.
2 Fully franked preference share dividends recognised as interest expense during the year ended 30 September 2012:

Consolidated

ANZ CPS1
ANZ CPS2
ANZ CPS3 (issued in September 2011)

The Company

2012
$m

2011
$m

2012
$m

2011
$m

53
105
67

57
111
–

53
105
67

57
111
–

3 Fixed until the first call date, 18 April 2013, whereupon the rate resets to the five year swap rate +2.00% if not called andremains fixed until the next call date, 18 April 2018, whereupon, if not called, reverts to a floating rate at the three month
FRA rate +3.00% and is callable on any interest payment date thereafter.
4 Callable five years prior to maturity.
5 Callable five years prior to maturity and reverts to floating rate if not called.

NOTES TO THE FINANCIAL STATEMENTS

117

NOTES TO THE FINANCIAL STATEMENTS (continued)
28: Loan Capital (continued)
Loan capital is subordinated in right of payment to the claims ofdepositors and other creditors of the Company and its controlled
entities which have issued the notes. As defined by APRA for capital
adequacy purposes, the US Trust Securities currently constituteInnovative Residual Tier 1 capital, whereas the UK Stapled Securities
constituted and each of the ANZ CPS currently constitute Noninnovative Residual Tier 1 capital, all other subordinated notes
constitute Tier 2 capital. The loan capital outstanding on
31 December 2012 is expected to be eligible for transitional
Basel III treatment from 1 January 2013 as agreed with APRA.

payments in respect of the US Trust Securities. If the US Trust
Securities are not redeemed or bought back prior to the 15 December
2053, they will be converted into preference shares, which in turnwill be mandatorily converted into a variable number of ANZ
ordinary shares.

US TRUST SECURITIESOn 27 November 2003, the Company issued 750,000 non-cumulative
Trust Securities (‘US Trust Securities’) at USD1,000 each raising
USD750 million. US Trust Securities comprise an interest paying
unsecured note and a preference share, which are stapled together
and issued by ANZ Capital Trust II (the ‘Trust’).

On winding up of the Company, the rights of US Trust Security
holders will be determined by the preference share componentof US Trust Security. The preference shares forming part of the US
Trust Securities and rank equally with each of the ANZ CPS and thepreferences shares issued in connection with the Euro Trust Securities.

Dividends are not payable on the preference share while it isstapled to the note. Distributions on US Trust Securities are noncumulative and are payable half yearly in arrears at a fixed rate of
5.36%. Distributions are subject to certain payment tests (i.e. APRA
requirements and distributable profits being available) and are
expected to be payable on 15 June and 15 December of each year.
If distributions are not paid on the US Trust Securities, the Group may
not pay dividends or distributions, or return capital, on ANZ ordinary
shares or any other share capital or security ranking equal or junior
to the preference share component (subject to certain exceptions).

UK STAPLED SECURITIESOn 15 June 2007, the Company issued 9,000 non-cumulative,
mandatory convertible stapled securities (‘UK Stapled Securities’)at £50,000 each raising £450 million. UK Stapled Securities comprised
an interest paying unsecured subordinated £50,000 note anda £50,000 preference share, which were stapled together.

On 15 December 2013 and at any coupon date thereafter, ANZ has
the discretion to redeem the US Trust Securities for cash. If it does
not exercise this discretion, the investor is entitled to exchange
the US Trust Security into a variable number of ANZ ordinary sharesat a 5% discount.
At any time at the Company’s discretion or upon the occurrenceof certain other ‘conversion events’, the notes that are represented by
the US Trust Securities will be automatically assigned to a subsidiaryof the Company and the preference shares that are represented
by the US Trust Securities will be distributed to investors on
redemption of such US Trust Securities. The distributed preference
shares will immediately become dividend paying and holders will
receive non-cumulative dividends equivalent to the scheduled118

The preference share forming part of the US Trust Securities confers
protective voting rights that allow the holder to vote in the Company,in limited circumstances, such as a capital reduction, Company
restructure involving a disposal of the whole of the Company’sbusiness and undertaking, proposals affecting rights attached tothe preference shares, and similar.

Dividends were not payable on a preference share while it was
stapled to a note. Distributions on UK Stapled Securities were noncumulative and were payable half yearly in arrears at a fixed rate of
6.54%. Distributions were subject to certain payment tests (including
APRA requirements and distributable profits being available).
Distributions were payable on 15 June and 15 December of eachyear. If distributions were not paid on UK Stapled Securities, theGroup may not pay dividends or distributions, or returning capital,on ANZ ordinary shares or any other share capital or security ranking
equal or junior to the preference share component (subject tocertain exceptions).
The preference shares forming part of the UK Stapled Securities
ranked equally with each of the ANZ CPS and the preference sharesissued in connection with US Trust Securities and Euro Trust Securities.
On 15 June 2012 the UK Stapled Securities were bought back andcancelled by ANZ.

ANZ ANNUAL REPORT 2012

28: Loan Capital (continued)
ANZ CONVERTIBLE PREFERENCE SHARES (ANZ CPS)
On 30 September 2008, the Company issued 10.8 million
convertible preference shares (‘ANZ CPS1’) at $100 each, raising$1,081 million before issue costs.
On 17 December 2009, the Company issued 19.7 million
convertible preference shares (‘ANZ CPS2’) at $100 each, raising$1,969 million before issue costs.
On 28 September 2011, the Company issued 13.4 million
convertible preference shares (‘ANZ CPS3’) at $100 each raising$1,340 million before issue costs.
ANZ CPS are fully paid, preferred, non-cumulative, mandatorily
convertible preference shares. ANZ CPS are listed on the Australian
Stock Exchange.
Dividends on ANZ CPS are non-cumulative and are payable quarterly
in arrears in December, March, June and September (in the caseof ANZ CPS1 and ANZ CPS2) and semi-annually in arrears in Marchand September (in the case of ANZ CPS3) in each year and will befranked in line with the franking applied to ANZ ordinary shares.
The dividends will be based on a floating rate equal to the aggregateof the 90 day bank bill rate plus a 250 basis point margin (ANZ CPS1)
and a 310 basis point margin (ANZ CPS2) and the 180 day bankbill rate plus 310 basis point margin (ANZ CPS3), multiplied by one
minus the Australian Company tax rate. Should the dividend not be
fully franked, the terms of the securities provide for a cash gross up
for the amount of the franking benefit not provided. Dividends are
subject to the absolute discretion of the Board of Directors of theCompany and certain payment tests (including APRA requirements
and distributable profits being available). If dividends are not paid on

ANZ CPS, the Group may not pay dividends or distributions, or return
capital, on ANZ ordinary shares or (in the case of ANZ CPS1 and ANZ
CPS2 only) any other share capital or security ranking equal or junior
to the ANZ CPS for a specified period (subject to certain exceptions).
On 16 June 2014 (ANZ CPS1), 15 December 2016 (ANZ CPS2) or
1 September 2019 (ANZ CPS3) (each a ‘conversion date’), or an
earlier date under certain circumstances, the relevant ANZ CPS will
mandatorily convert into a variable number of ANZ ordinary sharesbased on the average market price of ordinary shares less a 2.5%
discount (ANZ CPS1) or 1.0% discount (ANZ CPS2 and ANZ CPS3).
The mandatory conversion to ANZ ordinary shares is howeverdeferred for a specified period if the conversion tests are not met.
In respect of ANZ CPS3 only, if a common equity trigger event occurs
the ANZ CPS3 will immediately convert into ANZ ordinary shares,
subject to a maximum conversion number of 10.2407 ANZ ordinary
shares per ANZ CPS3. A common equity capital trigger event occurs if
ANZ’s Common Equity Tier 1 capital ratio is equal to or lessthan 5.125%.
In respect of ANZ CPS3 only, on 1 September 2017 and eachsubsequent semi annual Dividend Payment Date, subject to receiving
APRA’s prior approval and satisfying certain conditions, the Company
has the right to redeem or convert into ANZ ordinary shares all orsome ANZ CPS3 at its discretion on the same terms as mandatory
conversion on a conversion date.
The ANZ CPS rank equally with each other and the preference
shares issued in connection with US Trust Securities and Euro Trust
Securities. Except in limited circumstances, holders of ANZ CPS do
not have any right to vote in general meetings of the Company.

NOTES TO THE FINANCIAL STATEMENTS

119

NOTES TO THE FINANCIAL STATEMENTS (continued)
29: Share Capital

The Company
Numbers of issued shares

2012

2011

Ordinary shares each fully paid
Preference shares each fully paid

2,717,356,961
500,000

2,629,034,037
500,000

Total number of issued shares

2,717,856,961

2,629,534,037

ORDINARY SHARES
Ordinary shares have no par value and entitle holders to receive dividends payable to ordinary shareholders and to participate in the proceeds
available to ordinary shareholders on winding up of the Company in proportion to the number of fully paid ordinary 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
Numbers of issued shares

Balance at start of the year
Bonus option plan1
Dividend reinvestment plan1
ANZ employee share acquisition plan2
ANZ share option plan2
Balance at end of year

2012

2011

2,629,034,037
4,090,494
74,110,965
6,983,162
3,138,303
2,717,356,961

2,559,662,425
3,013,239
61,685,747
2,340,296
2,332,330
2,629,034,037

Consolidated

Ordinary share capital
Balance at start of the year
Dividend reinvestment plan1
ANZ employee share acquisition plan2,3
OnePath Australia Treasury shares4
ANZ share option plan2
Balance at end of year

The Company

2012
$m

2011
$m

2012
$m

2011
$m

21,343
1,461
128
78
60
23,07019,886
1,367
45
2
43
21,34321,701
1,461
128
–
60
23,35020,246
1,367
45
–
43
21,701NON-CONTROLLING INTERESTS
Consolidated
2012
$m

2011
$m

Share capital
Retained profit

40
9

43
5

Total non-controlling interests

49

48

1 Refer to note 7 for details of plan.
2 Refer to note 45 for details of plan.
3 Includes on-market purchase of shares for settlement of amounts due under share-based compensation plans. In addition, 6,983,162 shares were issued during the year ended 30 September
2012 to the Group’s Employee Share Trust for settlement of amounts due under share-based compensation plans (2011: 2,340,296). As at 30 September 2012, there were 15,673,505 Treasury
Shares outstanding (2011: 13,795,601).
4 ANZ acquired OnePath Australia Limited (OPA) on 30 November 2009. OPA Treasury Shares include shares held in statutory funds as assets backing policyholder liabilities. OPA Treasury Shares
outstanding as at 30 September 2012 were 13,081,042 (2011: 16,469,102).

120

ANZ ANNUAL REPORT 2012

29: 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 €1,000
each, raising $871 million net of issue costs. Euro Trust Securities
comprise an interest paying unsecured note and a €1,000 preference
share, which are stapled together and issued as a Euro Trust Security
by ANZ Capital Trust III (the Trust). Investors have the option to redeem
the Euro Trust Security from the Trust and hold the underlying
stapled security.
Dividends are not payable on the preference shares while they arestapled to the note, except for the period after 15 December 2014
when the preference share will pay 100 basis points in addition to the
distributions on the note. Distributions on Euro Trust Securities are
non-cumulative and are payable quarterly in arrears. The distributions
are based upon a floating rate equal to the three month EURIBOR rateplus a 66 basis point margin up until 15 December 2014, after whichdate the distribution rate is the three month EURIBOR rate plusa 166 basis point margin. At each payment date the three month
EURIBOR rate is reset for the next quarter.
Distributions are subject to certain payment tests (i.e. APRA
requirements and distributable profits being available). Distributions
are expected to be payable on 15 March, 15 June, 15 September and
15 December of each year. If distributions are not paid on Euro Trust
Securities, the Group may not pay dividends or distributions, or return
capital on ANZ ordinary shares or any other share capital or security
ranking equal or junior to the preference share component (subject
to certain exceptions).

At any time at ANZ’s discretion or upon the occurrence of
certain other ‘conversion events’, the notes that are represented
by the relevant Euro Trust Securities will be automatically assigned
to a branch of the Company and the preference shares that 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 the scheduled payments in respect of the Euro Trust Securities.
The preference share forming part of the Euro Trust Securities confers
protective voting rights that allow the holder to vote in the Company,in limited circumstances, such as a capital reduction, Company
restructure involving a disposal of the whole of the Company’sbusiness and undertaking, proposals affecting rights attached tothe preference shares, and similar.
On winding up of the Company, the rights of Euro Trust Security
holders will be determined by the preference share componentof the Euro Trust Security. These preference shares rank behindall depositors and creditors, but ahead of ordinary shareholders.
The preference shares forming each part of each Euro Trust Security
rank equally with each of the ANZ CPS and the preferences sharesissued in connection with the US Trust Securities.
Euro Trust Securities currently qualify as Innovative Residual Tier 1
Capital as defined by APRA, for capital adequacy purposes and are
expected to be eligible for transitional Basel III treatment from
1 January 2013 as agreed with APRA.
Consolidated

The Company

2012
$m

2011
$m

2012
$m

2011
$m

Preference share balance at start of year
– Euro Trust Securities

871

871

871

871

Preference share balance at end of year
– Euro Trust Securities

871

871

871

871

NOTES TO THE FINANCIAL STATEMENTS

121

NOTES TO THE FINANCIAL STATEMENTS (continued)
30: Reserves and Retained Earnings
Consolidated

The Company

2012
$m

2011
$m

2012
$m

2011
$m

a) Foreign currency translation reserve
Balance at beginning of the year
Currency translation adjustments, net of hedges after tax(2,418)(413)(2,742)
324

(676)
(174)

(773)
97

Total foreign currency translation reserve(2,831)(2,418)

(850)

(676)

b) Share option reserve1
Balance at beginning of the year
Share-based payments/(exercises)
Transfer of options/rights lapsed to retained earnings2

50
6
(2)

64
(13)
(1)

50
6
(2)

64
(13)
(1)

Total share option reserve

54

50

54

50

126
193
(225)

80
30
16

35
110
(124)

5
(13)
43

Total available-for-sale revaluation reserve

94

126

21

35

d) Hedging reserve
Balance at beginning of the year
Gains/(loss) recognised after tax
Transfer (to)/from income statement

169
27
12

11
164
(6)

47
23
19

(73)
128
(8)

Total hedging reserve

208

169

89

47

e) Transactions with non-controlling interests reserve
Balance at beginning of the year
Transactions with non-controlling interests3

(22)
(1)

–
(22)

–
–

–
–

c) Available-for-sale revaluation reserve
Balance at beginning of the year
Valuation gain/(loss) recognised after tax
Cumulative (gain)/loss transferred to the income statement

Total transactions with non-controlling interests reserve
Total reserves

(23)

(22)

–

–

(2,498)(2,095)

(686)

(544)

1 Further information about share-based payments to employees is disclosed in note 45.
2 The transfer of balances from the share option reserve to retained earnings represents items of a distributable nature.
3 The premium in excess of the book value paid to acquire an additional interest in a controlled entity from the non-controlling shareholder.

Consolidated

The Company

2012
$m

2011
$m

2012
$m

2011
$m

Retained earnings
Balance at beginning of the year
Profit attributable to shareholders of the Company
Transfer of options/rights lapsed from share option reserve1,2Actuarial gain/(loss) on defined benefit plans after tax3
Dividend income on Treasury shares
Ordinary share dividends paid
Preference share dividends paid

17,787
5,661
2
(44)
24
(3,691)(11)

15,921
5,355
1
(10)
23
(3,491)(12)

12,351
4,875
2
(29)
–
(3,691)–

11,6664,151
1
24–(3,491)–Retained earnings at end of year

19,72817,787

13,50812,351

Total reserves and retained earnings

17,23015,692

12,822

11,807

1 Further information about share-based payments to employees is disclosed in note 45.
2 The transfer of balances from the share option reserve to retained earnings represents items of a distributable nature.
3 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 F(vii) and note 44).

122

ANZ ANNUAL REPORT 2012

30: Reserves and Retained Earnings (continued)

31: Capital Managementa) Foreign currency translation reserve
The translation reserve comprises exchange differences, net ofhedges, arising on translation of the financial statements of foreign
operations, as described in note 1 A(vii). When a foreign operation
is sold, attributable exchange differences are recognised in theincome statement.

ANZ pursues an active approach to capital management, which
is designed to protect the interests of depositors, creditors andshareholders. This involves the on-going review and Board approvalof the level and composition of ANZ’s capital base, assessed against
the following key policy objectives:
Regulatory compliance such that capital levels exceed APRA’s,
ANZ’s primary prudential supervisor, minimum Prudential
Capital Ratios (PCRs) both at Level 1 (the Company and specified
subsidiaries) and Level 2 (ANZ consolidated under Australianprudential standards), along with US Federal Reserve’s minimum
Level 2 requirements under ANZ’s Foreign Holding Company
Licence in the United States of America;
Capital levels are aligned with the risks in the business and tomeet strategic and business development plans through ensuringthat available capital exceeds the level of Economic Capitalrequired to support the Ratings Agency ‘default frequency’
confidence level for a ‘AA’ credit rating category bank. Economic
Capital is an internal estimate of capital levels required to support
risk and unexpected losses above a desired target solvency level;
Capital levels are commensurate with ANZ maintaining its preferred‘AA’ credit rating category for senior long-term unsecured debt
given its risk appetite outlined in its strategic plan; andAn appropriate balance between maximising shareholder returns
and prudent capital management principles.

b) Share option reserve
The share option reserve arises on the grant of options, performancerights and deferred share rights to selected employees under the
ANZ share option plan. Amounts are transferred out of the reserveand into share capital when the equity investments are exercised.
Refer to note 1 C(iii).
c) Available-for-sale revaluation reserve
Changes in the fair value and exchange differences on the revaluationof available-for-sale financial assets are taken to the available-forsale revaluation 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 E(iii).
d) Hedging reserve
The hedging reserve represents hedging gains and losses recognisedon the effective portion of cash flow hedges. The cumulative deferredgain or loss on the hedge is recognised in the income statement
when the hedged transaction impacts the income statement. Refer tonote 1 E(ii).

ANZ achieves these objectives through an Internal Capital Adequacy
Assessment Process (ICAAP) whereby ANZ conducts detailed strategic
and capital planning over a medium term time horizon.

NOTES TO THE FINANCIAL STATEMENTS

123

NOTES TO THE FINANCIAL STATEMENTS (continued)
31: Capital Management (continued)
Annually, ANZ conducts a detailed strategic planning process overa three year time horizon, the outcomes of which are embodied in
the Strategic Plan. This process involves forecasting key economic
variables which Divisions use to determine key financial data for
their existing business. New strategic initiatives to be undertakenover the planning period and their financial impact are thendetermined. These processes are used for the following:
Review capital ratios, targets, and levels of different classes ofcapital against ANZ’s risk profile and risk appetite outlined in theStrategic Plan. ANZ’s capital targets reflect the key policy objectives
above, and the desire to ensure that under specific stressed
economic scenarios that capital levels have sufficient capital toremain above both Economic Capital and Prudential Capital Ratio(PCR) requirements;
Stress tests are performed under different economic conditions
to ensure a comprehensive review of ANZ’s capital position both
before and after mitigating actions. The stress tests determine
the level of additional capital (i.e. the ‘capital buffer’) needed
to absorb losses that may be experienced during an
economic downturn; andStress testing is integral to strengthening the predictive approach
to risk management and is a key component in managing risks,
asset writing strategies and business strategies. It creates greater
understanding of the impacts on financial performance throughmodelling relationships and sensitivities between geographic,
industry and Divisional exposures under a range of macro economic
scenarios. ANZ has a dedicated stress testing team within Risk
Management that models and reports to management andthe Board’s Risk Committee on a range of scenarios and stress tests.
Results are subsequently used to:recalibrate ANZ’s management targets for minimum and operating
ranges for its respective classes of capital such that ANZ will havesufficient capital to remain above both Economic Capital and PCR
requirements; andidentify the level of organic capital generation and hence
determine current and future capital issuance requirements forLevel 1 and Level 2.
From these processes, a Capital Plan is developed and approvedby the Board which identifies the capital issuance requirements,
capital securities maturity profile, and options around capital
products, timing and markets to execute the Capital Plan under
differing market and economic conditions.
The Capital Plan is maintained and updated through a monthly
review of forecast financial performance, economic conditions
and development of business initiatives and strategies. The Boardand senior management are provided with monthly updates of ANZ’scapital position. Any actions required to ensure ongoing prudent
capital management are submitted to the Board for approval.

124

Regulatory environment
ANZ’s regulatory capital calculation is governed by APRA’s Prudential
Standards which adopt a risk-based capital assessment framework
based on the Basel II capital measurement standards. This risk-based
approach requires eligible capital to be divided by total risk weighted
assets (RWAs), with the resultant ratio being used as a measure of an
Authorised Deposit-taking Institution’s (ADIs) capital adequacy. APRA
determines PCRs for Tier 1 and Total Capital, with capital as thenumerator and RWAs as the denominator.
To ensure that ADIs are adequately capitalised on both a stand-alone
and group basis, APRA adopts a tiered approach to the measurementof an ADI’s capital adequacy by assessing the ADIs financial strength
at three levels:
Level 1 – the ADI on a stand-alone basis (i.e. the Company andapproved subsidiaries which are consolidated to form the ADIs’
Extended Licensed Entity);
Level 2 – the consolidated banking group (i.e. the consolidated
financial group less certain subsidiaries and associates excluded
under the prudential standards); andLevel 3 – the conglomerate group at the widest level.
ANZ is a Level 1 and Level 2 reporter, and measures capital adequacy
monthly on a Level 1 and Level 2 basis, and is not required to reporton a Level 3 basis.
Regulatory capital is divided into Tier 1, carrying the highest capitalelements, and Tier 2, which has lower capital elements, but still adds
to the overall strength of the ADI.
Tier 1 capital is comprised of ‘Fundamental’ capital, ‘Residual’ capital,
and Tier 1 deductions. Fundamental capital comprises shareholders’equity adjusted for items which APRA does not allow as regulatory
capital or classifies as lower forms of regulatory capital. Fundamental
capital includes the following significant adjustments:
Residual Tier 1 capital instruments included within shareholders’equity are excluded;
Reserves exclude the hedging reserve and available-for-salerevaluation reserve, and reserves of insurance and funds management
subsidiaries and associates excluded for Level 2 purposes;
Retained earnings excludes retained earnings of insurance andfunds management subsidiaries and associates excluded for Level 2
purposes, but includes capitalised deferred fees forming part of loan
yields that meet the criteria set out in the prudential standard; andCurrent year net of tax earnings is net of any interim and special
dividends paid during the current year, and the expected final
dividend payment, net of the expected dividend reinvestment
under the Dividend Reinvestment Plan and Bonus Option Plan, andexcludes profits of insurance and funds management subsidiaries
and associates excluded for Level 2 purposes.

ANZ ANNUAL REPORT 2012

31: Capital Management (continued)
Residual capital covers Non-innovative and Innovative Tier 1 capital
instruments with limits restricting the volume that can be counted
as Tier 1 capital.
Tier 1 capital deductions include amounts deducted solely fromTier 1 capital. These deductions are mainly intangible assets being:
goodwill;value in force as to acquired insurance/investment
business portfolios;
capitalised software;
capitalised brokerage and borrowing expenses; andnet deferred tax assets.
Tier 1 deductions also include deductions taken 50% from Tier 1
and 50% from Tier 2, which mainly include the investments inassociates regulated by APRA, or their overseas equivalent, thetangible component of investments in insurance and funds
management subsidiaries excluded for Level 2 purposes and theamount of Expected Losses (EL) in excess of Eligible Provisions for
Loan Losses (net of tax).
Tier 2 capital is comprised of Upper and Lower Tier 2 capital lesscapital deductions taken 50% from Tier 2 capital. Upper Tier 2 capital
mainly comprises perpetual subordinated debt instruments, whilst
Lower Tier 2 capital includes dated subordinated debt instruments
which have a minimum term of five years at issue date.
Total Capital is the sum of Tier 1 capital and Tier 2 capital.
In addition to the prudential capital oversight that APRA conducts
over the Company and the Group, the Company’s branch operations
and major banking subsidiary operations are overseen by local
regulators such as the Reserve Bank of New Zealand, the US Federal
Reserve, the UK Financial Services Authority, the Monetary Authorityof Singapore, the Hong Kong Monetary Authority and the China
Banking Regulatory Commission who may impose minimum
capitalisation rates on those operations.
Throughout the financial year, the Company and the Group
maintained compliance with the minimum Tier 1 and Total Capitalratios set by APRA and the US Federal Reserve (as applicable) as well
as applicable capitalisation rates set by regulators in countries where
the Company operates branches and subsidiaries.

Regulatory change
The Basel Committee on Banking Supervision has released a seriesof consultation papers (Basel III) containing a number of proposals
to strengthen the global capital and liquidity framework to improvethe banking sector’s ability to absorb shocks arising from financial
and economic stress.
Following on from the December 2010 Basel Committee paper on
prudential capital reforms, APRA released its new prudential capital
standards in September 2012 detailing the implementation of the
majority of Basel III capital reforms in Australia. APRA is adopting theBasel III reforms with increased capital deductions from Common
Equity Tier 1 (CET1) capital, an increase in capitalisation rates(including prescribed minimum capital buffers), tighter requirements
around new Tier 1 and Tier 2 securities and transitional arrangements
for existing Tier 1 and Tier 2 securities that do not conform to the
new regulations.
Based upon the APRA Basel III standards, ANZ would have reported
a CET1 capital ratio of 8.0% as at 30 September 2012.
ANZ is well placed to meet APRA’s early adoption of the Basel III
capital reforms on 1 January 2013, and the implementation of thecapital conservation measures, including the capital conservationbuffer, on 1 January 2016.
APRA is still to finalise capital standards on the Basel III reforms
dealing with the improvements in capital disclosures, leverage ratio,
counterparty credit risk, contingent capital and measures to address
systematic and inter-connected risks.
Level 3 Conglomerates (Level 3)
APRA has announced that it will proceed with implementing
Level 3 Conglomerates Prudential Standards in 2014, with an
update to the March 2010 discussion paper expected in early 2013.
The standards will regulate a bancassurance group such as ANZ
as a single economic entity with minimum capital requirements
and additional reporting on risk exposure levels. Based on APRA’s
March 2010 Discussion Paper, ANZ is not expecting any material
impact on its operations.

NOTES TO THE FINANCIAL STATEMENTS

125

NOTES TO THE FINANCIAL STATEMENTS (continued)
31: Capital Management (continued)
The table below provides the composition of Basel II capital used for regulatory purposes and capital adequacy ratios.
2012
$m

2011
$m

Regulatory capital – qualifying capital
Tier 1
Shareholders’ equity and minority interests
Prudential adjustments to shareholders' equity

41,220(3,857)

37,954(3,479)Fundamental capital
Deductions1
Common Equity Tier 1 capital
Non-innovative Tier 1 capital instruments
Innovative Tier 1 capital instruments

37,363(10,839)
26,524
4,390
1,587

34,475(10,611)23,864
5,111
1,641

Tier 1 capital

32,501

30,616Tier 2Upper Tier 2 capital
Subordinated notes2
Deductions

1,185
5,702
(2,814)

1,228
5,017
(3,071)

Tier 2 capital

4,073

3,174

Total qualifying capital

36,57433,790Capital adequacy ratios
Common Equity Tier 1
Tier 1
Tier 2

8.8%
10.8%
1.4%

8.5%
10.9%
1.2%

Total

12.2%

12.1%

1 Includes goodwill (excluding ANZ Wealth Australia Limited (formerly OnePath Australia Limited) and OnePath New Zealand Limited) of $3,008 million (2011: $2,968 million) and $2,074 million(2011: $2,071 million) intangible component of investment in OnePath Australia Limited and OnePath New Zealand Limited.
2 For capital adequacy calculation, subordinated note issues are reduced by 20% of the original amount over the last four years to maturity and are limited to 50% of Tier 1 capital.

Regulatory environment – insurance and funds management business
Under APRA’s Prudential Standards, life insurance and funds management activities are de-consolidated for the purposes of calculating
capital adequacy and excluded from the risk based capital adequacy framework for the ANZ Level 2 Group. The intangible component of
the investment in these controlled entities is deducted from Tier 1 capital with the balance of the investment deducted 50% from Tier 1
and 50% from Tier 2 capital. Additionally any profits from these activities included in ANZ’s results are excluded from the determinationof Tier 1 capital to the extent they have not been remitted to the Level 2 Group.
ANZ’s life insurance business in Australia is regulated by APRA as a separate business. The Life Act (1995) includes a two tiered framework
for the calculation of regulatory capital requirements for life insurance companies – ‘solvency’ and ‘capital adequacy’. Life insurance companies
in New Zealand are required to meet minimum capital requirements as determined by the Insurance (Prudential Supervision) Act 2010 andprofessional standards of the New Zealand Society of Actuaries.
Fund managers in Australia are subject to ‘Responsible Entity’ regulation by the Australian Securities and Investment Commission (ASIC).
The regulatory capital requirements vary depending on the type of Australian Financial Services Licence or Authorised Representatives’
Licence held, but a requirement of up to $5 million of net tangible assets applies.
APRA supervises approved trustees of superannuation funds and requires them to also maintain net tangible assets of at least $5 million.
These requirements are not cumulative where an entity is both an approved trustee for superannuation purposes and a responsible entity.
ANZ’s insurance and funds management companies held assets in excess of regulatory capital requirements at 30 September 2012.

126

ANZ ANNUAL REPORT 2012

32: Assets Charged as Security for Liabilities and Collateral Accepted as Security for Assets
Assets charged as security for liabilities
The following assets are pledged as collateral:
Mandatory reserve deposits with local central banks in accordance with statutory requirements. These deposits are not available to financethe Group’s day to day operations.
Securities provided as collateral for repurchase transactions. These transactions are governed by standard industry agreements.
Debenture undertakings covering the assets of Esanda Finance Corporation Limited (Esanda), and its subsidiaries, and UDC Finance Limited(UDC). The debenture stock of Esanda, and its subsidiaries, and UDC is secured by a trust deed and collateral debentures, giving floating
charges upon the undertakings and all the tangible assets of the entity, other than land and buildings (of Esanda only). All controlled entities
of Esanda and UDC have guaranteed the payment of principal, interest and other monies in relation to all debenture stock and unsecured
notes issued by Esanda and UDC respectively. The only loans pledged as collateral are those in Esanda, UDC and their subsidiaries.
Cash placed on deposit with a third party that was provided as collateral for a liability in a structured funding transaction. The funding
was raised through a subsidiary, and to achieve more favourable pricing terms, ANZ provided cash collateral, given by the Company.
Collateral provided to central banks.
Specified residential mortgages provided as security for notes and bonds issued to investors as part of our securitisation and coveredbond programs.
The carrying amounts of assets pledged as security are as follows1:
Consolidated

Regulatory deposits
Securities sold under arrangements to repurchase
Assets pledged as collateral under debenture undertakings
Cash deposited in structured funding transaction
Securitisation
Covered bonds2
Other

The Company

Carrying Amount

Related Liability

Carrying Amount

Related Liability

2012
$m

2011
$m

2012
$m

2011
$m

2012
$m

2011
$m

2012
$m

2011
$m

1,478
536
2,073
–
–
15,276
165

1,505
1,872
2,146
840
166
–
52

n/a
528
1,274
–
–
11,162
58

n/a
1,869
1,372
2,000
166
–
42

514
289
–
–
–
11,304
164

497
1,511
–
840
–
–
52

n/a
286
–
–
–
8,798
58

n/a
1,510
–
–
–
–
42

Collateral accepted as security for assets1
ANZ has received collateral as part of entering reverse repurchase agreements. These transactions are governed by standard industry agreements.
The fair value of collateral received and sold or repledged is as follows:
Consolidated

Collateral received on standard repurchase agreement3
Fair value of assets which can be sold or repledged
Amount of collateral that has been resold or repledged

The Company

2012
$m

2011
$m

2012
$m

2011
$m

10,007
3,246

7,238
4,125

9,661
2,903

6,451
3,341

1 The value of cash collateral for derivatives is included in notes 10 and 22. The terms and conditions of the collateral agreements are included in the standard Credit Support Annex that forms
part of the International Swaps and Derivatives Association Master Agreement.
2 The related liability for Covered Bonds represents the Covered Bonds issued by entities in the Group to external investors.
3 Balance in 2012 includes $143 million where the underlying securities are equities (2011: $36 million).

NOTES TO THE FINANCIAL STATEMENTS

127

NOTES TO THE FINANCIAL STATEMENTS (continued)
33: Financial Risk Management
STRATEGY IN USING FINANCIAL INSTRUMENTS
Financial instruments are fundamental to the Group’s business,
constituting the core element of its operations. Accordingly, the risks
associated with financial instruments are a significant componentof 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 the Group’s balance sheet. These risks, and the Group’s
objectives, policies and processes for managing and methods used
to measure such risks are outlined below.
CREDIT RISK
Credit risk is the risk of financial loss resulting from the failure of
ANZ’s customers and counterparties to honour or perform fully theterms of a loan or contract. The Group assumes credit risk in a wide
range of lending and other activities in diverse markets and in many
jurisdictions. Credit risks arise not only from traditional lending
to customers, but also from inter-bank, treasury, international tradeand capital market activities around the world.
The Group has an overall objective of sound growth for appropriate
returns. The credit risk principles of the Group have been set by the
Board and are implemented and monitored within a tiered structureof delegated authority designed to oversee multiple facets of credit
risk, including business writing strategies, credit policies/controls,
portfolio monitoring and risk concentrations.

The authority to make credit decisions is delegated by the Board
to the CEO who in turn delegates authority to the CRO. The CRO
in turn delegates some of his credit discretion to individuals as
part of a ‘cascade’ of authority from senior to the most junior credit
officers. Individuals must be suitably skilled and accredited in order
to be granted and retain a credit discretion. Credit discretions arereviewed on an annual basis, and may be varied based on theholder’s performance.
The Group has two main approaches to assessing credit risk arisingfrom transactions:
The larger and more complex credit transactions are assessed ona judgemental credit basis. Rating models provide a consistent andstructured assessment, with judgement required around the useof out-of-model factors. Credit approval for judgemental lending
is typically on a dual approval basis, jointly by the business writerin the business unit and an independent credit officer.
Programmed credit assessment typically covers retail and somesmall business lending, and refers to the automated assessment ofcredit applications using a combination of scoring (application andbehavioural), policy rules and external credit reporting information.
Where an application does not meet the automated assessment
criteria it will be referred out for manual assessment, with assessors
considering the decision tool recommendation.

CREDIT RISK MANAGEMENT OVERVIEW
The credit risk management framework ensures a consistent
approach is applied across the Group in measuring, monitoringand managing the credit risk appetite set by the Board.

Central and divisional credit risk teams perform key roles in portfolio
management such as the development and validation of credit risk
measurement systems, loan asset quality reporting, stress testing,and the development of credit policies and requirements. Credit
policies and requirements cover all aspects of the credit life cycle
such as transaction structuring, risk grading, initial approval, ongoing
management and problem debt management, as well as specialist
policy topics.

The Board is assisted and advised by the Board Risk Committee indischarging its duty to oversee credit risk. The Board Risk Committee
sets the credit risk appetite and credit strategies, as well as approving
credit transactions beyond the discretion of executive management.

The Group’s grading system is fundamental to the management ofcredit risk, seeking to measure the probability of default (PD), theexposure at default (EAD) and the loss in the event of default (LGD)
for all transactions.

Responsibility for the oversight and control of the credit risk
framework (including the risk appetite) resides with the Credit andMarket Risk Committee (CMRC), which is an executive management
committee comprising senior risk, business and Group executives,chaired by the Chief Risk Officer (CRO).

From an operational perspective, the Group’s credit grading system
has two separate and distinct dimensions that:
Measure the PD, which is expressed by a 27-grade Customer Credit
Rating (CCR), reflecting the ability to service and repay debt. Within
the programmed credit assessment sphere, the CCR is typically
expressed as a score which maps back to the PD.
Measure the LGD, which is expressed by a Security Indicator(SI) ranging from A to G. The SI is calculated by reference to thepercentage of loan covered by security which can be realised in
the event of default. The security-related SIs are supplemented witha range of other SIs to cover situations where ANZ’s LGD research
indicates certain transaction characteristics have different recovery
outcomes. Within the programmed credit assessment sphere,
exposures are grouped into large homogenous pools – and the
LGD is assigned at the pool level.

Central to the Group’s management of credit risk is the existence ofan independent credit risk management function that is staffed byrisk specialists. Independence is achieved by having all credit risk staff
ultimately report to the CRO, including where they are embedded inbusiness units. The primary responsibility for prudent and profitable
management of credit risk and customer relationships rests with thebusiness units.

128

ANZ ANNUAL REPORT 2012

33: Financial Risk Management (continued)
The development and regular validation of rating models isundertaken by specialist central risk teams. The outputs from thesemodels drive many day-to-day credit decisions, such as origination,
pricing, approval levels, regulatory capital adequacy, economic
capital allocation and provisioning. The risk grading process includes
monitoring of model-generated results to ensure appropriate
judgement is exercised (such as overrides to take into account any
out-of-model factors).

COLLATERAL MANAGEMENT
Collateral is used to mitigate credit risk, as the secondary sourceof repayment in case the counterparty cannot meet its contractual
repayment obligations.
ANZ credit principles specify to only lend when the counterparty
has the capacity and ability to repay, and the Group sets limits on
the acceptable level of credit risk. Acceptance of credit risk is firstly
based on the counterparty’s assessed capacity to meet contractual
obligations (such as the scheduled repayment of principal and interest).
In certain cases, such as where the customer risk profile is consideredvery sound or by the nature of the product (for instance, small limit
products such as credit cards), a transaction may not be supported bycollateral. For some products, the collateral provided is fundamental
to its structuring so is not strictly the secondary source of repayment.
For example, lending secured by trade receivables is typically repaidby the collection of those receivables.
The most common types of collateral typically taken by ANZ include:
Charges over cash deposits.
Security over real estate including residential, commercial, industrial
or rural property.
Other security includes charges over business assets, security over
specific plant and equipment, charges over listed shares, bonds or
securities and guarantees and pledges.
Credit policy and requirements set out the acceptable types ofcollateral, as well as a process by which additional instruments
and/or asset types can be considered for approval. ANZ’s credit risk
modelling approach uses historical internal loss data and otherrelevant external data to assist in determining the discount that eachtype would be expected to incur in a forced sale. This discounted
value is used in the determination of the SI for LGD purposes.

In the event of customer default, any loan security is usually held as
mortgagee in possession while the Group is actively seeking to realise
it. Therefore the Group does not usually hold any real estate or otherassets acquired through the enforcement of security.
The Group generally uses Master Agreements with its counterparties
for derivatives activities. Generally, International Swaps andDerivatives Association (ISDA) Master Agreements will be used. Under
the ISDA Master Agreement, if a default of a counterparty occurs, allcontracts with the counterparty are terminated. They are then settled
on a net basis at market levels current at the time of default.
In addition to the terms noted above, ANZ’s preferred practice isto use a Credit Support Annex (CSA) to the ISDA Master Agreement.
Under a CSA, open derivative positions with the counterparty are
aggregated and cash collateral (or other forms of eligible collateral)is exchanged daily. The collateral is provided by the counterparty
that is out of the money. Upon termination of the trade, payment
is required only for the final daily mark-to-market movement rather
than the mark-to-market movement since inception.

CONCENTRATIONS OF CREDIT RISK
Concentrations of credit risk arise when a number of customers areengaged in similar business activities or activities within the samegeographic region, or when they have similar risk characteristics
that would cause their ability to meet contractual obligations tobe similarly affected by changes in economic or other conditions.
The Group monitors its portfolios, to identify and assess risk
concentrations. The Group’s strategy is to maintain well-diversified
credit portfolios focused on achieving an acceptable risk-return
balance. Credit risk portfolios are actively monitored and frequently
reviewed to identify, assess and guard against unacceptablerisk concentrations. Concentration analysis will typically include
geography, industry, credit product and risk grade. The Groupalso applies single customer counterparty limits to protect against
unacceptably large exposures to single name risk. These limits are
established based on a combination of factors including natureof counterparty, probability of default and collateral provided.

NOTES TO THE FINANCIAL STATEMENTS

129

NOTES TO THE FINANCIAL STATEMENTS (continued)
33: Financial Risk Management (continued)
Concentrations of credit risk analysis
Composition of financial instruments that give rise to credit risk by industry:
Liquid assets and duefrom other financial
institutions
Consolidated

Australia
Agriculture, forestry
fishing and mining
Business services
Construction
Electricity, gas andwater supply
Entertainment, leisureand tourism
Financial, investment
and insurance5
Government andofficial institutions
Manufacturing
Personal lending
Property services
Retail trade
Transport and storage
Wholesale trade
Other
New Zealand
Agriculture, forestry
fishing and mining
Business services
Construction
Electricity, gas andwater supply
Entertainment, leisureand tourism
Financial, investment
and insurance5
Government andofficial institutions
Manufacturing
Personal lending
Property services
Retail trade
Transport and storage
Wholesale trade
Other

1
2
3
4
5

Trading and
AFS1 assets

Derivatives

Loans andadvances2

Credit related
commitments4

Total

2012
$m

2011
$m

2012
$m

2011
$m

2012
$m

2011
$m

2012
$m

2011
$m

2012
$m

2011
$m

2012
$m

2011
$m

2012
$m

2011
$m

101
11
23

–
28
10

6
–
4

–
2
2

83
65
109

264
91
150

12,666
5,490
5,121

12,143
5,384
5,156

154
68
66

176
78
75

8,136
3,003
3,650

7,106
2,485
3,352

21,146
8,637
8,973

19,689
8,068
8,745

–

–

162

458

928

593

3,316

2,309

–

–

2,245

2,795

6,651

6,155

40

–

2

–

264

283

7,075

6,151

78

89

2,370

2,860

9,829

9,383

9,131

5,771

18,853

16,42730,68036,710

8,986

7,921

101

115

4,051

6,885

71,80273,829

32
63
–
345
35
5
264
14

907
292
–
1
10
12
295
41

16,642
53
–
24
122
104
6
280

15,311
358
–
40
85
59
2
953

281
906
–
1,007
194
669
207
705

187
484
218
676
8,124
8,252
– 202,710 191,052
810 25,006 24,108
176
9,397
9,295
469
6,413
5,533
390
6,429
5,826
493
8,675
5,976

3
105
2,428
307
118
70
74
105

3
120
2,771
350
135
80
84
120

312
7,646
34,525
8,681
4,074
3,208
5,739
5,012

228 17,754 16,854
7,986 16,897 17,684
34,931 239,663 228,754
8,037 35,370 33,346
3,529 13,940 13,230
2,889 10,469
9,042
4,801 12,719 11,398
4,665 14,791 12,248

10,064

7,367

36,25833,69736,09841,292 309,892 289,324

3,677

4,196

92,652

92,549 488,641 468,425

19
10
–

30
4
–

–
–
–

–
–
–

59
9
2

84
15
3

14,555
1,154
812

14,023
898
732

75
6
4

79
5
4

1,491
428
491

1,404
320
536

16,1991,607
1,309

15,620
1,242
1,275

10

17

23

18

463

305

748

697

4

5

1,251

746

2,499

1,788

–

–

–

–

33

33

931

880

5

5

306

252

1,275

1,170

1,232

3,137

2,950

2,751

6,880

9,023

400

728

59

682

832

1,153

12,353

17,474

283
34
–
5
22
20
43
–

184
–
–
–
–
–
12
11

6,843
5
–
–
5
40
–
26

4,913
8
–
–
2
45
–
25

322
78
–
32
34
74
17
18

451
155
–
25
33
83
17
–

1,063
2,327
45,304
6,056
1,416
1,322
954
689

1,136
2,015
43,574
5,855
1,222
1,247
925
759

5
12
234
31
7
7
5
4

6
11
247
33
7
7
5
5

855
1,632
6,973
899
807
462
1,055
415

803
1,513
6,482
652
583
463
873
913

9,371
4,088
52,511
7,023
2,291
1,925
2,074
1,152

7,493
3,702
50,303
6,565
1,847
1,845
1,832
1,713

1,678

3,395

9,892

7,762

8,021

10,227

77,731

74,691458

1,101

17,897

16,693 115,677 113,869

Available-for-sale assets.
Excludes individual and collective provisions for credit impairment held in respect of credit related commitments.
Mainly comprises trade dated assets and accrued interest.
Credit related commitments comprise undrawn facilities and customer contingent liabilities.
Includes amounts due from other Group entities.

130

Other
financialassets3

ANZ ANNUAL REPORT 2012

33: Financial Risk Management (continued)
Concentrations of credit risk analysis (continued):Composition of financial instruments that give rise to credit risk by industry (continued):
Liquid assets and duefrom other financial
institutions
Consolidated

Asia Pacific, Europe& America
Agriculture, forestry
fishing and mining
Business services
Construction
Electricity, gas andwater supply
Entertainment, leisureand tourism
Financial, investment
and insurance6
Government andofficial institutions
Manufacturing
Personal lending
Property services
Retail trade
Transport and storage
Wholesale trade
Other
Consolidated –aggregate
Agriculture, forestry
fishing and mining
Business services
Construction
Electricity, gas andwater supply
Entertainment, leisureand tourism
Financial, investment
and insurance6
Government andofficial institutions
Manufacturing
Personal lending
Property services
Retail trade
Transport and storage
Wholesale trade
Other
Gross Total
Individual provision for
credit impairment
Collective provision for
credit impairment
Unearned income
Capitalised brokerage/
mortgage origination
fees
Excluded from analysis
above7

Trading and
AFS1 assets

Otherfinancialassets3

Loans andadvances2

Derivatives

Credit related
commitments4,5

Total

2012
$m

2011
$m

2012
$m

2011
$m

2012
$m

2011
$m

2012
$m

2011
$m

2012
$m

2011
$m

2012
$m

2011
$m

2012
$m

2011
$m

7
1
1

43
9
–

–
–
–

–
–
–

48
2
10

63
5
51

1,590
492
457

1,389
914
336

36
24
9

24
16
6

4,002
2,155
2,662

3,721
1,255
1,978

5,683
2,674
3,139

5,240
2,199
2,371

–

7

29

10

127

244

1,603

1,952

–

–

1,687

1,861

3,446

4,074

–

–

–

–

5

–

825

730

18

12

258

282

1,106

1,024

38,62924,687

8,442

6,512

3,992

5,654

6,686

2,382

59

40

6,836

9,103

64,644

48,378

29
11
–
–
1
3
74
127

104
160
–
–
–
–
140
208

5,525
220
–
–
13
1
4
709

8,839
2
–
–
–
–
–
1,037

8
269
–
111
22
78
86
52

52
484
–
100
3
82
182
202

281
11,404
6,469
3,312
934
2,416
7,315
2,392

437
11,121
5,817
3,309
921
2,343
5,289
2,812

10
279
147
83
24
59
133
120

7
189
99
56
16
40
90
81

1,059
18,804
6,444
1,349
690
1,211
13,171
2,861

1,340
16,591
6,580
581
692
1,102
10,1391,986

6,912
30,987
13,060
4,855
1,684
3,768
20,783
6,261

10,77928,547
12,496
4,046
1,632
3,567
15,8406,326

38,88325,358

14,943

16,400

4,810

7,122

46,17639,752

1,001

676

63,18957,211 169,002 146,519

127
22
24

73
41
10

6
–
4

–
2
2

190
76
121

411
111
204

28,811
7,136
6,390

27,555
7,196
6,224

265
98
79

279
99
85

13,6295,586
6,803

12,231
4,060
5,866

43,02812,91813,42140,54911,50912,391

10

24

214

486

1,518

1,142

5,667

4,958

4

5

5,183

5,402

12,596

12,017

40

–

2

–

302

316

8,831

7,761

101

106

2,934

3,394

12,21011,577

48,992

33,59530,24525,69041,552

51,387

16,072

11,031

219

837

11,71917,141 148,799 139,681

344
108
–
350
58
28
381
141

1,195
452
–
1
10
12
447
260

29,010
278
–
24
140
145
10
1,015

29,063
368
–
40
87
104
2
2,015

611
1,253
–
1,150
250
821
310
775

690
1,828
1,791
1,315 21,855 21,388– 254,483 240,443
935 34,374 33,272
212 11,747 11,438
634 10,151
9,123
589 14,698 12,040
695 11,756
9,547

18
396
2,809
421
149
136
212
229

16
320
3,117
439
158
127
179
206

2,226
28,082
47,942
10,9295,571
4,881
19,9658,288

2,371 34,037 35,126
26,090 51,972 49,933
47,993 305,234 291,553
9,270 47,248 43,957
4,804 17,915 16,709
4,454 16,162 14,454
15,813 35,576 29,070
7,564 22,204 20,287

50,62536,12061,09357,85948,92958,641 433,799 403,767

5,136

5,973 173,738 166,453 773,320 728,813

–

–

–

–

–

–

(1,729)(1,687)––(2,236)(2,604)–58,641 429,834 399,476

5,136

–

(44)

(10)

(1,773)(1,697)

–

(529)

(572)

(2,765)(3,176)

–

–

–

–

–

50,62536,12061,09357,85948,929

–

–

–

–

–

–

(2,235)(2,216)

–

–

–

–

(2,235)(2,216)

–

–

–

–

–

–

797

629

–

–

–

–

797

629

50,62536,12061,09357,85948,92958,641 428,396 397,889

5,136

3,056

2,805

71

479

–

53,681

38,925

61,16458,33848,929–––58,641 428,396 397,889

5,136

1 Available-for-sale assets.
2 Excludes individual and collective provisions for credit impairment held in respect of credit
related commitments.
3 Mainly comprises trade dated assets and accrued interest.
4 Credit related commitments comprise undrawn facilities and customer contingent liabilities.

–

5,973 173,165 165,871 768,782 723,940

5,973 173,165 165,871 767,344 722,353
–

–

–

3,127

3,284

5,973 173,165 165,871 770,471 725,637

5 September 2011 undrawn facilities have been restated by $2,646 million using the revised
methodology for undrawn overdrafts that was implemented during 2012.
6 Includes amounts due from other Group entities.
7 Equity instruments and cash are excluded from maximum exposure amount.

NOTES TO THE FINANCIAL STATEMENTS

131

NOTES TO THE FINANCIAL STATEMENTS (continued)
33: Financial Risk Management (continued)
Concentrations of credit risk analysis (continued):Composition of financial instruments that give rise to credit risk by industry (continued):
Liquid assets and duefrom other financial
institutions
The Company

Australia
Agriculture, forestry
fishing and mining
Business services
Construction
Electricity, gas andwater supply
Entertainment, leisureand tourism
Financial, investment
and insurance5
Government andofficial institutions
Manufacturing
Personal lending
Property services
Retail trade
Transport and storage
Wholesale trade
Other
New Zealand
Agriculture, forestry
fishing and mining
Business services
Construction
Electricity, gas andwater supply
Entertainment, leisureand tourism
Financial, investment
and insurance5
Government andofficial institutions
Manufacturing
Personal lending
Property services
Retail trade
Transport and storage
Wholesale trade
Other

1
2
3
4
5

Trading and
AFS1 assets

Credit related
commitments4

Total

2012
$m

2011
$m

2012
$m

2011
$m

2012
$m

2011
$m

2012
$m

2011
$m

2012
$m

2011
$m

2012
$m

2011
$m

2012
$m

2011
$m

101
11
23

–
30
11

6
–
4

–
2
2

83
65
109

263
90
150

12,2955,451
5,084

11,425
5,373
5,145

103
48
46

118
55
53

6,362
2,354
2,860

7,099
2,482
3,349

18,9507,929
8,126

18,905
8,032
8,710

–

–

56

359

928

591

3,292

2,304

–

–

–

2,793

4,276

6,047

40

–

2

–

264

282

7,021

6,130

55

63

1,857

2,858

9,239

9,333

9,169

5,815

19,224

16,78635,14942,794

10,299

8,651

78

89

23,885

6,878

97,80481,013

32
63
–
345
35
5
264
14

1,280
314
–
1
11
13
316
45

16,642
53
–
24
122
104
6
280

15,653
366
–
41
87
60
2
974

281
906
–
1,007
194
669
207
705

187
481
218
676
8,059
8,227
– 201,254 190,661
807 24,826 24,056
176
9,329
9,275
468
6,358
5,491
390
6,383
5,811
492
8,665
5,955

3
74
1,710
217
83
50
52
75

3
85
1,956
248
95
57
60
86

244
5,991
27,056
6,828
3,192
2,513
4,497
4,996

228 17,683 17,569
7,978 15,146 17,646
34,892 230,020 227,509
8,029 33,247 33,182
3,525 12,955 13,169
2,887
9,699
8,976
4,796 11,409 11,375
4,660 14,735 12,212

10,102

7,836

36,52334,33240,56747,366 308,797 288,722

2,594

2,968

92,63592,454 491,218 473,678

–
–
–

–
–
–

–
–
–

–
–
–

–
–
–

–
–
–

–
–
–

–
–
–

–
–
–

–
–
–

–
–
–

–
–
–

–
–
–

–
–
–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

10

21

–

–

–

–

–

–

10

21

–
–
–
–
–
–
–
–

–
–
–
–
–
–
–
–

–
–
–
–
–
–
–
–

–
–
–
–
–
–
–
–

–
–
–
–
–
–
–
–

–
–
–
–
–
–
–
–

–
–
7,518
–
–
–
–
–

–
–
7,820
–
–
–
–
–

–
–
–
–
–
–
–
–

–
–
–
–
–
–
–
–

–
–
82
–
–
–
–
–

–
–
69
–
–
–
–
–

–
–
7,600
–
–
–
–
–

–
–
7,889
–
–
–
–
–

–

–

–

–

10

21

7,518

7,820

–

–

82

69

7,610

7,910

Available-for-sale assets.
Excludes individual and collective provisions for credit impairment held in respect of credit related commitments.
Mainly comprises trade dated assets and accrued interest.
Credit related commitments comprise undrawn facilities and customer contingent liabilities.
Includes amounts due from other Group entities.

132

Other
financialassets3

Loans andadvances2

Derivatives

ANZ ANNUAL REPORT 2012

33: Financial Risk Management (continued)
Concentrations of credit risk analysis (continued):Composition of financial instruments that give rise to credit risk by industry (continued):
Liquid assets and duefrom other financial
institutions
The Company

Asia Pacific, Europe& America
Agriculture, forestry
fishing and mining
Business services
Construction
Electricity, gas andwater supply
Entertainment, leisureand tourism
Financial, investment
and insurance5
Government andofficial institutions
Manufacturing
Personal lending
Property services
Retail trade
Transport and storage
Wholesale trade
Other
The Company –aggregate
Agriculture, forestry
fishing and mining
Business services
Construction
Electricity, gas andwater supply
Entertainment, leisureand tourism
Financial, investment
and insurance5
Government andofficial institutions
Manufacturing
Personal lending
Property services
Retail trade
Transport and storage
Wholesale trade
Other
Gross Total
Individual provision for
credit impairment
Collective provision for
credit impairment
Unearned income
Capitalised brokerage/
mortgage origination
fees
Excluded from analysis
above6

1
2
3
4
5
6

Trading and
AFS1 assets

Otherfinancialassets3

Loans andadvances2

Derivatives

Credit related
commitments4

Total

2012
$m

2011
$m

2012
$m

2011
$m

2012
$m

2011
$m

2012
$m

2011
$m

2012
$m

2011
$m

2012
$m

2011
$m

2012
$m

2011
$m

2
–
–

40
8
–

–
–
–

–
–
–

25
1
5

38
3
30

988
422
296

817
604
176

18
14
4

13
10
3

3,655
2,040
2,560

3,032
1,071
1,829

4,688
2,477
2,865

3,940
1,696
2,038

–

6

27

–

69

149

1,493

1,742

–

–

–

1,542

1,589

3,439

–

–

–

–

3

–

598

558

12

9

180

258

793

825

35,72022,035

6,671

5,601

2,269

3,440

6,466

2,035

49

36

6,731

8,291

57,90641,438

25
3
–
–
1
3
46
37

2
142
–
–
–
–
128
198

4,332
204
–
–
–
1
–
507

6,305
2
–
–
–
–
–
766

5
113
–
79
11
40
41
28

30
293
–
61
3
51
111
124

255
9,149
5,300
2,938
563
1,940
6,117
1,866

362
9,544
4,465
3,111
596
1,760
4,471
2,196

8
207
98
68
14
38
98
85

6
154
72
50
10
28
72
63

1,053
16,021
5,672
1,165
454
1,191
11,7802,861

1,259
14,682
5,587
534
527
982
9,166
1,447

5,678
25,697
11,070
4,250
1,043
3,213
18,082
5,384

7,964
24,817
10,124
3,756
1,136
2,821
13,9484,794

35,83722,55911,742

12,674

2,689

4,333

38,391

32,437713

526

55,36350,207 144,735 122,736

103
11
23

40
38
11

6
–
4

–
2
2

108
66
114

301
93
180

13,283
5,873
5,380

12,242
5,977
5,321

121
62
50

131
65
56

10,017
4,394
5,420

10,131
3,553
5,178

23,638
10,406
10,991

22,845
9,728
10,748

–

6

83

359

997

740

4,785

4,046

–

–

–

4,335

5,865

9,486

40

–

2

–

267

282

7,619

6,688

67

72

2,037

3,116

10,032

10,15844,88927,85025,89522,38737,42846,255

16,765

10,686127

125

30,61615,169 155,720 122,472

57
66
–
345
36
8
310
51

1,282
456
–
1
11
13
444
243

20,974
257
–
24
122
105
6
787

21,958
368
–
41
87
60
2
1,740

286
1,019
–
1,086
205
709
248
733

217
736
580
969 17,208 17,771– 214,072 202,946
868 27,764 27,167
179
9,892
9,871
519
8,298
7,251
501 12,500 10,282
616 10,531
8,151

11
281
1,808
285
97
88
150
160

9
239
2,028
298
105
85
132
149

1,297
22,01232,810
7,993
3,646
3,704
16,277
7,857

1,487 23,361 25,533
22,660 40,843 42,463
40,548 248,690 245,522
8,563 37,497 36,938
4,052 13,998 14,305
3,869 12,912 11,797
13,962 29,491 25,323
6,107 20,119 17,006

45,93930,39548,26547,00643,266

51,720 354,706 328,979

3,307

3,494 148,080 142,730 643,563 604,324

–

–

–

–

–

–

–

–

–

–

45,93930,39548,26547,00643,266

–

–

–

–

–

–

–

–

–

–

45,93930,39548,26547,00643,266–(1,242)(1,144)––(1,728)(2,042)–

51,720 351,736 325,793

3,307

–

(1,946)(1,961)

–

707

602

–

51,720 350,497 324,434

3,307

1,010

958

66

378

–

–

46,94931,353

48,331

47,38443,266

51,720––––350,497 324,434

3,307

Available-for-sale assets.
Excludes individual and collective provisions for credit impairment held in respect of credit related commitments.
Mainly comprises trade dated assets and accrued interest.
Credit related commitments comprise undrawn facilities and customer contingent liabilities.
Includes amounts due from other Group entities.
Equity instruments and cash are excluded from maximum exposure amount.

–

(27)

(6)

(1,269)(1,150)

–

(410)

(454)

(2,138)(2,496)3,494 147,643 142,270 640,156 600,678–––(1,946)(1,961)

–

–

–

707

602

3,494 147,643 142,270 638,917 599,319
–

–

–

1,076

1,336

3,494 147,643 142,270 639,993 600,655

NOTES TO THE FINANCIAL STATEMENTS

133

NOTES TO THE FINANCIAL STATEMENTS (continued)
33: Financial Risk Management (continued)
CREDIT QUALITY

Maximum exposure to credit risk
For financial assets recognised on the balance sheet, the maximum exposure to credit risk is the carrying amount. In certain circumstances,
there may be differences between the carrying amounts reported on the balance sheet and the amounts reported in the tables below.
Principally, these differences arise in respect of financial assets that are subject to risks other than credit risk, such as equity investments
which are primarily subject to market risk, or bank notes and coins. For contingent exposures, the maximum exposure to credit risk is the
maximum amount the Group would have to pay if the instrument is called upon. For undrawn facilities, the maximum exposure to credit
risk is the full amount of the committed facilities.
The following tables present the maximum exposure to credit risk of on-balance sheet and off-balance sheet financial assets before taking
account of any collateral held or other credit enhancements.

Reported
Consolidated

Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances– Australia– International and Institutional Banking– New Zealand– Global Wealth and Private Banking

Other financial assets2
Undrawn facilities
Contingent facilities
Total

2012
$m

2011
$m

2012
$m

2011
$m

2012
$m

2011
$m

36,578
17,10340,602
48,92920,562

25,627
13,29836,07458,641
22,264

3,056
–
–
–
71

2,805
–
–
–
479

33,522
17,10340,602
48,92920,491

22,822
13,29836,07458,641
21,785

244,684
107,636
70,142
5,361
5,136

228,507
96,497
67,166
5,137
5,973

–
–
–
–
–

–
–
–
–
–

244,684
107,636
70,142
5,361
5,136

228,507
96,497
67,166
5,137
5,973

596,733

559,184

3,127

3,284

593,606

555,900

141,355
32,383

135,243
31,210––––141,355
32,383

135,243
31,210173,738

166,453––

173,738

166,453

770,471725,637

3,127

3,284

767,344722,353

1 Includes bank notes and coins and cash at bank within liquid assets and equity instruments within available-for-sale financial assets.
2 Mainly comprises trade dated assets and accrued interest.

134

Maximum exposure
to credit risk

Excluded1

ANZ ANNUAL REPORT 2012

33: Financial Risk Management (continued)
Maximum exposure to credit risk (continued)
Reported
The Company

Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances
Other financial assets2
Undrawn facilities
Contingent facilities
Total

Maximum exposure
to credit risk

Excluded1

2012
$m

2011
$m

2012
$m

2011
$m

2012
$m

2011
$m

32,782
14,16730,49043,266
17,841350,060
3,307

21,283
10,07028,36751,72019,017
323,974
3,494

1,010
–
–
–
66
–
–

958
–
–
–
378
–
–

31,772
14,16730,49043,266
17,775350,060
3,307

20,325
10,07028,36751,72018,639323,974
3,494

491,913457,925

1,076

1,336

490,837

456,589

118,461
29,619114,461
28,269––––118,461
29,619114,461
28,269148,080

142,730––

148,080

142,730

639,993

600,655

1,076

1,336

638,917599,319

NOTES TO THE FINANCIAL STATEMENTS

135

1 Includes bank notes and coins and cash at bank within liquid assets and equity instruments within available-for-sale financial assets.
2 Mainly comprises trade dated assets and accrued interest.

NOTES TO THE FINANCIAL STATEMENTS (continued)
33: Financial Risk Management (continued)
DISTRIBUTION OF FINANCIAL ASSETS BY CREDIT QUALITYThe Group has a comprehensive rating system that is used to quantify credit risk. The use of masterscales ensures consistency across exposure
types at the Group, providing a consistent framework for reporting and analysis.
All customers with whom ANZ has a credit relationship including guarantors, are assigned a Customer Credit Rating (CCR) or score at origination
either by programmed credit assessment or by judgemental assessment. In addition, the CCR or score is reviewed on an ongoing basis to ensure
it accurately reflects the credit risk of the customer and the prevailing economic conditions.
The Group’s risk grade profile therefore changes dynamically through new lending, repayment and/or existing counterparty movements ineither risk or volume.

Restructured items
Restructured items are facilities in which the original contractual terms have been modified for reasons related to the financial difficulties of
the customer. Restructuring may consist of reduction of interest, principal or other payments legally due or an expansion in maturity materiallybeyond those typically offered to new facilities with similar risk.
Neither past
due nor
impaired

Past due but not
impaired

2012
$m

2011
$m

2012
$m

2011
$m

2012
$m

2011
$m

2012
$m

2011
$m

2012
$m

2011
$m

33,522
17,10340,602
48,784
20,491

22,822
13,29836,07458,602
21,785

–
–
–
–
–

–
–
–
–
–

–
–
–
29
–

–
–
–
1
–

–
–
–
116
–

–
–
–
38
–

33,522
17,10340,602
48,92920,491

22,822
13,29836,07458,641
21,785

235,392
105,428
67,4955,241
5,136
173,591

218,861
93,78764,148
4,998
5,973
166,270

8,538
635
1,863
99
–
–

9,007
712
2,014
118
–
–

–
349
148
–
–
–

–
683
16
–
–
–

754
1,224
636
21
–
147

639
1,315
988
21
–
183

244,684
107,636
70,142
5,361
5,136
173,738

228,507
96,497
67,166
5,137
5,973
166,453752,785

706,618

11,135

11,851

526

700

2,898

3,184

767,344722,353

Consolidated

Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances– Australia– International and Institutional Banking– New Zealand– Global Wealth and Private Banking
Other financial assets1
Credit related commitments2

Past due but not
impaired

2012
$m

2011
$m

2012
$m

2011
$m

2012
$m

2011
$m

2012
$m

2011
$m

2012
$m

2011
$m

31,772
14,16730,49043,122
17,775
338,7173,307
147,935

20,325
10,07028,367
51,681
18,639311,902
3,494
142,563

–
–
–
–
–
9,091
–
–

–
–
–
–
–
9,495
–
–

–
–
–
29
–
348
–
–

–
–
–
1
–
683
–
–

–
–
–
115
–
1,904
–
145

–
–
–
38
–
1,894
–
167

31,772
14,16730,49043,266
17,775350,060
3,307
148,080

20,325
10,07028,36751,72018,639323,974
3,494
142,730

627,285

587,041

9,091

9,495

377

684

2,164

2,099

638,917599,319

1 Mainly comprises trade dated assets and accrued interest.
2 Comprises undrawn facilities and customer contingent liabilities.

136

Total

Neither past
due nor
impaired
The Company

Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances
Other financial assets1
Credit related commitments2

Net
Impaired

Restructured

Restructured

Net
ImpairedTotal

ANZ ANNUAL REPORT 2012

33: Financial Risk Management (continued)
Credit quality of financial assets neither past due nor impaired
The credit quality of financial assets is managed by the Group using internal CCRs based on their current probability of default. The Group’s
masterscales are mapped to external rating agency scales, to enable wider comparisons.

Internal rating
Strong credit profile

Customers that have demonstrated superior stability in their operating and financial performance over the long-term,
and whose debt servicing capacity is not significantly vulnerable to foreseeable events. This rating broadly corresponds
to ratings ‘Aaa’ to ‘Baa3’ and ‘AAA’ to ‘BBB-’ of Moody’s and Standard & Poor’s respectively.

Satisfactory risk

Customers that have consistently demonstrated sound operational and financial stability over the medium to longterm, even though some may be susceptible to cyclical trends or variability in earnings. This rating broadly corresponds
to ratings ‘Ba2’ to ‘Ba3’ and ‘BB’ to ‘BB-’ of Moody’s and Standard & Poor’s respectively.

Sub-standard but notpast due or impaired

Customers that have demonstrated some operational and financial instability, with variability and uncertainty
in profitability and liquidity projected to continue over the short and possibly medium term. This rating broadly
corresponds to ratings ‘B1’ to ‘Caa’ and ‘B+’ to ‘CCC’ of Moody’s and Standard & Poor’s respectively.

Satisfactory risk

Sub-standard
but not pastdue or impaired

2012
$m

2011
$m

2012
$m

2011
$m

2012
$m

2011
$m

2012
$m

2011
$m

32,790
16,29640,503
46,577
19,06522,212
12,091
35,52856,451
20,081

664
792
99
1,962
1,420

552
980
546
1,461
1,664

68
15
–
245
6

58
227
–
690
40

33,522
17,10340,602
48,784
20,491

22,822
13,29836,07458,602
21,785

175,758
78,59943,4062,464
4,742
142,037

163,338
70,30139,3762,354
5,412
133,61248,861
23,234
21,2622,701
334
29,53545,421
17,814
20,4742,507
431
29,75910,773
3,595
2,827
76
60
2,019

10,102
5,672
4,298
137
130
2,899

235,392
105,428
67,4955,241
5,136
173,591

218,861
93,78764,148
4,998
5,973
166,270

602,237

560,756

130,864

121,609

19,68424,253752,785

706,618

Strong credit profile
Consolidated

Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances– Australia– International and Institutional Banking– New Zealand– Global Wealth and Private Banking
Other financial assets1
Credit related commitments2

Strong credit profile
The Company

Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances
Other financial assets1
Credit related commitments2

Satisfactory risk

Sub-standard
but not pastdue or impaired

Total

Total

2012
$m

2011
$m

2012
$m

2011
$m

2012
$m

2011
$m

2012
$m

2011
$m

31,107
13,80630,46041,09017,707
253,522
3,032
125,774

19,813
9,328
28,01749,782
18,336229,2123,040
117,272

609
357
30
1,837
62
71,334230
20,500

473
738
350
1,226
263
67,548346
23,598

56
4
–
195
6
13,861
45
1,661

39
4
–
673
40
15,142
108
1,693

31,772
14,16730,49043,122
17,775
338,7173,307
147,935

20,325
10,07028,367
51,681
18,639311,902
3,494
142,563

516,498474,800

94,95994,542

15,828

17,699627,285

587,041

NOTES TO THE FINANCIAL STATEMENTS

137

1 Mainly comprises trade dated assets and accrued interest.
2 Comprises undrawn facilities and customer contingent liabilities.

NOTES TO THE FINANCIAL STATEMENTS (continued)
33: Financial Risk Management (continued)
Ageing analysis of financial assets that are past due but not impaired
Ageing analysis of past due loans is used by the Group to measure and manage emerging credit risks. Financial assets that are past due but not impaired
include those which are assessed, approved and managed on a portfolio basis within a centralised environment (for example credit cards and personalloans) that can be held on a productive basis until they are 180 days past due, as well as those which are managed on an individual basis.
A large portion of retail credit exposures, such as residential mortgages, are generally well secured. That is, the value of associated security is sufficient
to cover amounts outstanding.

Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances:– Australia– International and Institutional
Banking– New Zealand– Global Wealth and Private
Banking
Other financial assets
Credit related commitments1

2012

2011

Consolidated

Consolidated

1-5
days
$m

6-29
days
$m

30-59
days
$m

60-89
days
$m

>90
days
$m

Total
$m

1-5
days
$m

6-29
days
$m

30-59
days
$m

60-89
days
$m

>90
days
$m

Total
$m

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

1,454

3,812

1,262

561

1,449

8,538

2,123

3,446

1,280

639

1,519

9,007

46
772

420
619

5
208

80
84

84
180

635
1,863

29
858

458
550

29
274

124
92

72
240

712
2,014

13
–
–

75
–
–

3
–
–

8
–
–

–
–
–

99
–
–

18
–
–

86
–
–

1
–
–

10
–
–

3
–
–

118
–
–

2,285

4,926

1,478

733

1,713

11,135

3,028

4,540

1,584

865

1,834

11,851

1-5
days
$m

6-29
days
$m

30-59
days
$m

60-89
days
$m

>90
days
$m

Total
$m

1-5
days
$m

6-29
days
$m

30-59
days
$m

60-89
days
$m

>90
days
$m

Total
$m

–
–
–
–
–
1,544
–
–

–
–
–
–
–
4,197
–
–

–
–
–
–
–
1,289
–
–

–
–
–
–
–
606
–
–

–
–
–
–
–
1,455
–
–

–
–
–
–
–
9,091
–
–

–
–
–
–
–
2,222
–
–

–
–
–
–
–
3,760
–
–

–
–
–
–
–
1,308
–
–

–
–
–
–
–
695
–
–

–
–
–
–
–
1,510
–
–

–
–
–
–
–
9,495
–
–

1,544

4,197

1,289

606

1,455

9,091

2,222

3,760

1,308

695

1,510

9,495

The Company

Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances
Other financial assets
Credit related commitments1

1 Comprises undrawn facilities and customer contingent liabilities.

138

The Company

ANZ ANNUAL REPORT 2012

33: Financial Risk Management (continued)
Estimated value of collateral for all financial assets
Financial effectof collateral1
Consolidated

Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances– Australia– International and Institutional Banking– New Zealand– Global Wealth and Private Banking
Other financial assets2
Credit related commitments3

Maximum
exposure tocredit risk

Unsecuredportion of
credit exposure

2012
$m

2011
$m

2012
$m

2011
$m

2012
$m

2011
$m

9,103
–
705
2,531
210

7,716
–
644
4,524
421

33,522
17,10340,602
48,92920,491

22,822
13,29836,07458,641
21,78524,41917,10339,897
46,39820,281

15,106
13,29835,43054,117
21,364220,067 205,423 244,684 228,507 24,617 23,084
44,958 38,237 107,636 96,497 62,678 58,260
66,047 63,810 70,142 67,166
4,095
3,356
5,088
4,971
5,361
5,137
273
166
1,263
1,205
5,136
5,973
3,873
4,768
35,604 30,369 173,738 166,453 138,134 136,084
385,576 357,320 767,344 722,353 381,768 365,033

Financial effectof collateral1
The Company

Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances
Other financial assets2
Credit related commitments3

2012
$m

2011
$m

Maximum
exposure tocredit risk
2012
$m

2011
$m

Unsecuredportion of
credit exposure
2012
$m

2011
$m

8,619
6,846 31,772 20,325 23,153 13,479–– 14,167 10,070 14,167 10,070
346
385 30,490 28,367 30,144 27,982
2,326
3,365 43,266 51,720 40,940 48,355
102
267 17,775 18,639 17,673 18,372
270,895 251,011 350,060 323,974 79,165 72,963
1,008
792
3,307
3,494
2,299
2,702
29,744 23,946 148,080 142,730 118,336 118,784
313,040 286,612 638,917 599,319 325,877 312,707

1 Represents the security held against the exposure, limited to the maximum exposure to the secured credit risk.
2 Mainly comprises trade dated assets and accrued interest.
3 Comprises undrawn facilities and customer contingent liabilities.

NOTES TO THE FINANCIAL STATEMENTS

139

NOTES TO THE FINANCIAL STATEMENTS (continued)
33: Financial Risk Management (continued)
Financial assets that are individually impaired
Consolidated
Impaired assets
2012
2011
$m
$m

Australia
Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances
Other financial assets1
Credit related commitments2
New ZealandLiquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances
Other financial assets1
Credit related commitments2
Asia Pacific, Europe & America
Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances
Other financial assets1
Credit related commitments2
Aggregate
Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances
Other financial assets1
Credit related commitments2

1 Mainly comprises trade dated trading assets and accrued interest.
2 Comprises undrawn facilities and customer contingent liabilities.

140

The Company

Individual provisionbalances
2012
2011
$m
$m

Impaired assets
2012
2011
$m
$m

Individual provisionbalances
2012
2011
$m
$m

–
–
–
111
–
2,838
–
173

–
–
–
35
–
2,592
–
180

–
–
–
–
–
1,100
–
27

–
–
–
–
–
902
–
7

–
–
–
111
–
2,664
–
172

–
–
–
35
–
2,430
–
173

–
–
–
–
–
1,009
–
27

–
–
–
–
–
864
–
6

3,122

2,807

1,127

909

2,947

2,638

1,036

870

–
–
–
–
–
991
–
18

–
–
–
–
–
1,392
–
13

–
–
–
–
–
351
–
17

–
–
–
–
–
398
–
3

–
–
–
–
–
31
–
–

–
–
–
–
–
52
–
–

–
–
–
–
–
9
–
–

–
–
–
–
–
14
–
–

1,009

1,405

368

401

31

52

9

14

–
–
–
5
–
535
–
–

–
–
–
3
–
666
–
–

–
–
–
–
–
277
–
–

–
–
–
–
–
387
–
–

–
–
–
4
–
451
–
–

–
–
–
3
–
556
–
–

–
–
–
–
–
224
–
–

–
–
–
–
–
266
–
–

540

669

277

387

455

559

224

266

–
–
–
116
–
4,364
–
191

–
–
–
38
–
4,650
–
193

–
–
–
–
–
1,729
–
44

–
–
–
–
–
1,687
–
10

–
–
–
115
–
3,146
–
172

–
–
–
38
–
3,038
–
173

–
–
–
–
–
1,242
–
27

–
–
–
–
–
1,144
–
6

4,671

4,881

1,773

1,697

3,433

3,249

1,269

1,150

ANZ ANNUAL REPORT 2012

33: Financial Risk Management (continued)
MARKET RISK (Excludes Insurance and Funds Management
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 arises when changes in market rates, prices andvolatilities lead to a decline in the value of assets and liabilities,
including financial derivatives. Market risk is generated throughboth trading and banking book activities.
ANZ conducts trading operations in interest rates, foreign exchange,commodities, securities and equities.
ANZ has a detailed risk management and control framework to
support its trading and balance sheet activities. The framework
incorporates a risk measurement approach to quantify themagnitude of market risk within trading and balance sheet portfolios.
This approach and related analysis identifies the range of possible
outcomes that can be expected over a given period of time,
establishes the relative likelihood of those outcomes and allocatesan appropriate amount of capital to support these activities.
Group-wide responsibility for the strategies and policies relating
to the management of market risk lies with the Board Risk
Committee. Responsibility for day to day management of bothmarket risks and compliance with market risk policy is delegatedby the Risk Committee to the Credit and Market Risk Committee(CMRC) and the Group Asset & Liability Committee (GALCO).
The CMRC, chaired by the Chief Risk Officer, is responsible for theoversight of market risk. All committees receive regular reporting on
the range of trading and balance sheet market risks that ANZ incurs.
Within overall strategies and policies, the control of market risk
at the Group level is the joint responsibility of Business Units andRisk Management, with the delegation of market risk limits fromthe Board and CMRC allocated to both Risk Management and theBusiness Units.
The management of Risk Management is supported by acomprehensive limit and policy framework to control the amountof risk that the Group will accept. Market risk limits are allocated atvarious levels and are reported and monitored by Market Risk on adaily basis. The detailed limit framework allocates individual limits
to manage and control asset classes (e.g. interest rates, equities),
risk factors (e.g. interest rates, volatilities) and profit and loss limits(to monitor and manage the performance of the trading portfolios).

Market risk management and control responsibilities
To facilitate the management, measurement and reporting of market
risk, ANZ has grouped market risk into two broad categories:

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 foreignexchange rates or their 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 or their implied volatilities.
Credit spread risk is the potential loss arising from a change
in value of an instrument due to a movement of its marginor spread relative to a benchmark.
Commodity risk is the potential loss arising from the decline in
the value of a financial instrument due to changes in commodity
prices or their implied volatilities.
Equity risk is the potential loss arising from the decline in thevalue of a financial instrument due to changes in stock prices
or their implied volatilities.
b) Non-traded market risk (or balance sheet risk)This comprises the management of non-traded interest rate risk,
liquidity, and the risk to the Australian dollar denominated valueof the Group’s capital and earnings as a result of foreign exchange
rate movements.
Some instruments do not fall into either category that also expose
ANZ to market risk. These include equity securities classified asavailable-for-sale financial assets.

Value at Risk (VaR) measure
A key measure of market risk is Value at Risk (VaR). VaR is a statisticalestimate of the possible daily loss and is based on historical market
movements.
ANZ measures VaR at a 99% confidence interval. This means that
there is a 99% chance that the loss will not exceed the VaR estimate
on any given day.
The Group’s standard VaR approach for both traded and non-tradedrisk is historical simulation. The Group calculates VaR using historicalchanges in market rates, prices and volatilities over the previous
500 business days. Traded and non-traded VaR is calculated using
a one-day holding period.
It should be noted that because VaR is driven by actual historicalobservations, it is not an estimate of the maximum loss that theGroup could experience from an extreme market event. As a resultof this limitation, the Group utilises a number of other risk measures(e.g. stress testing) and risk sensitivity limits to measure and manage
market risk.

a) Traded market riskThis is the risk of loss from changes in the value of financial
instruments due to movements in price factors for both physicaland derivative trading positions. Trading positions arise fromtransactions where ANZ acts as principal with customers, financial
exchanges or interbank counterparties.

NOTES TO THE FINANCIAL STATEMENTS

141

NOTES TO THE FINANCIAL STATEMENTS (continued)
33: Financial Risk Management (continued)
Traded Market Risk
Below are the aggregate Value at Risk (VaR) exposures at a 99% confidence level covering both physical and derivatives trading positions for the
Bank’s principal trading centres.
30 September 2012

30 September 2011

Consolidated

As at
$m

High foryear$m

Low foryear$mAverage for
year
$m

As at
$m

High foryear$m

Low foryear$mAverage foryear$mValue at risk at 99% confidence
Foreign exchangeInterest rate
CreditCommodity
EquityDiversification benefit

3.5
4.5
4.0
1.8
1.2
(6.9)

10.0
8.1
7.5
4.8
4.0
n/a

3.5
2.8
2.6
1.5
0.7
n/a

5.9
5.4
4.7
3.3
1.6
(11.6)

7.8
7.0
4.9
3.2
3.4
(14.6)

10.9
26.4
10.5
6.5
3.5
n/a

1.0
5.4
3.2
2.4
0.6
n/a

4.2
13.5
6.9
4.1
1.3
(14.2)

8.1

13.6

5.7

9.3

11.7

29.5

8.3

15.8

The Company

As at
$m

High foryear$m

Low foryear$mAverage for
year
$m

As at
$m

High foryear$m

Low foryear$mAverage foryear$mValue at risk at 99% confidence
Foreign exchangeInterest rate
CreditCommodity
EquityDiversification benefit

3.5
4.0
4.0
1.8
1.2
(6.7)

9.9
7.5
7.5
4.8
4.0
n/a

3.5
2.3
2.6
1.5
0.7
n/a

5.9
4.6
4.6
3.3
1.6
(11.1)

7.8
6.7
4.8
3.2
3.4
(14.4)

10.9
26.3
10.5
6.5
3.5
n/a

1.0
5.0
3.2
2.4
0.6
n/a

4.2
13.2
6.9
4.1
1.3
(14.2)

7.8

13.3

5.4

8.9

11.5

29.3

8.1

15.5

30 September 2012

30 September 2011

VaR is calculated separately for foreign exchange, interest rate, credit, commodity and equities and for the Group. The diversification benefit
reflects the historical correlation between these products. Electricity commodities risk is measured under the standard approach for regulatory
purposes.
To supplement the VaR methodology, ANZ applies a wide range of stress tests, both on individual portfolios and at a Group level. ANZ ‘sstress-testing regime provides senior management with an assessment of the financial impact of identified extreme events on market risk
exposures of ANZ. Standard stress tests are applied on a daily basis and measure the potential loss arising from applying extreme market
movements to individual and groups of individual price factors. Extraordinary stress tests are applied monthly and measure the potential
loss arising as a result of scenarios generated from major financial market events.

142

ANZ ANNUAL REPORT 2012

33: Financial Risk Management (continued)
Non-Traded Market Risk (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
various techniques including: VaR and scenario analysis (to a 1% shock).
a) VaR non-traded interest rate risk
The repricing assumptions used to determine the VaR and 1% rate shock have been independently validated. Below are aggregate VaR figures
covering non-traded interest rate risk.
2012

2011

Consolidated

As at
$m

High foryear$m

Low foryear$mAverage for
year
$m

As at
$m

High foryear$m

Low foryear$mAverage foryear$mValue at risk at 99% confidence
Australia
New Zealand
Asia Pacific, Europe & America
Diversification benefit

25.9
11.2
5.5
(14.9)

28.5
14.6
6.0
n/a

13.7
10.3
4.5
n/a

20.4
12.3
5.2
(15.3)

15.3
9.7
4.8
(10.8)

28.0
18.9
7.2
n/a

13.2
9.7
2.8
n/a

19.7
12.2
4.6
(12.2)

27.7

29.4

15.7

22.6

19.0

32.8

16.4

24.3

The Company

As at
$m

High foryear$m

Low foryear$mAverage for
year
$m

As at
$m

High foryear$m

Low foryear$mAverage foryear$mValue at risk at 99% confidence
Australia
New Zealand
Asia Pacific, Europe & America
Diversification benefit

25.9
0.1
4.5
(3.8)

28.5
0.2
5.1
n/a

13.7
0.1
3.9
n/a

20.4
0.1
4.5
(4.7)

15.3
0.1
3.9
(3.6)

28.0
0.7
6.5
n/a

13.2
0.1
2.0
n/a

19.7
0.2
3.8
(3.1)

26.7

28.9

12.9

20.3

15.7

27.4

14.0

20.6

2012

2011

VaR is calculated separately for the Australia, New Zealand and APEA geographies, as well as for the Group.
To supplement the VaR methodology, ANZ applies a wide range of stress tests, both on individual portfolios and at Group level. ANZ’s stresstesting regime provides senior management with an assessment of the financial impact of identified extreme events on market risk exposuresof ANZ.
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 measure which assumes the parallel shift is reflected in all wholesale and customer rates.
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.
Consolidated

The Company

2012
$m

2011
$m

2012
$m

2011
$m

Impact of 1% rate shock
As at period end
Maximum exposure
Minimum exposure

1.55%
2.45%
1.26%

1.36%
1.51%
0.50%

1.92%
2.99%
1.47%

1.53%
1.85%
0.54%

Average exposure (in absolute terms)

1.95%

1.08%

2.36%

1.26%

NOTES TO THE FINANCIAL STATEMENTS

143

NOTES TO THE FINANCIAL STATEMENTS (continued)
33: Financial Risk Management (continued)
Interest rate risk (continued)
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.
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.
Equity securities classified as available-for-sale
The portfolio of financial assets, classified as available-for-sale for measurement and financial reporting purposes, also contains equity
investment holdings which predominantly comprise investments held for longer term strategic intentions. These equity investments arealso subject to market risk which is not captured by the VaR measures for traded and non-traded market risks. Regular reviews are performed
to substantiate valuation of the investments within the portfolio and the equity investments are regularly reviewed by management for
impairment. The fair value of the constituents of equity securities classified as available-for-sale can fluctuate considerably.
The table below outlines the composition of the equity holdings.
Consolidated

Visa Inc.1
Sacombank 1
Other equity holdings
Impact on equity of 10% variation in value

The Company

2012
$m

2011
$m

2012
$m

2011
$m

–
–
71

315
73
91

–
–
66

247
73
58

71

479

66

378

7

48

7

38

1 Disposed during 2012.

Foreign currency risk – structural exposures
The investment of capital in foreign operations, such as branches, subsidiaries or associates with functional currencies other than theAustralian dollar, exposes the Group to the risk of changes in foreign exchange rates.
The main operating (or functional) currencies of Group entities are the Australian dollar, the New Zealand dollar and the US dollar, with anumber of overseas undertakings operating in various other currencies. The Group presents its consolidated financial statements in Australian
dollars, as the Australian dollar is the dominant currency. The Group’s consolidated balance sheet is therefore affected by exchange differences
between the Australian dollar and functional currencies of foreign operations. Variations in the value of these overseas operations arising
as a result of exchange differences are reflected in the foreign currency translation reserve in equity.
The Group routinely monitors this risk and conducts hedging, where it is expected to add shareholder value, in accordance with approved
policies. The Group’s exposures to structural foreign currency risks are managed with the primary objective of ensuring, where practical,
that the consolidated capital ratios are neutral to the effect of changes in exchange rates.
Selective hedges were in place during the 2012 and 2011 financial years. For details on the hedging instruments used and effectivenessof hedges of net investments in foreign operations, refer to note 12 to these financial statements. The Group’s economic hedges against
New Zealand Dollar and US Dollar revenue streams are included within ‘Trading derivatives’ at note 12.

LIQUIDITY RISK (Excludes Insurance and Funds Management)
Liquidity risk is the risk that the Group is unable to meet its payment obligations as they fall due, including repaying depositors or maturingwholesale debt, or that the Group has insufficient capacity to fund increases in assets. The timing mismatch of cash flows and the related liquidity
risk is inherent in all banking operations and is closely monitored by the Group. The Group maintains a portfolio of liquid assets to manage
potential stresses in funding sources. The minimum level of liquidity portfolio assets to hold is based on a range of ANZ specific and generalmarket liquidity stress scenarios such that potential cash flow obligations can be met over the short to medium term.
The Group’s liquidity and funding risks are governed by a set of principles which are approved by the ANZ Board. The core objective of theoverall framework is to ensure that the Group has sufficient liquidity to meet obligations as they fall due, without incurring unacceptable losses.
In response to the impact of the global financial crisis, the framework has been reviewed and updated. The following key components underpin
the overall framework:

144

ANZ ANNUAL REPORT 2012

33: Financial Risk Management (continued)
LIQUIDITY RISK (Excludes Insurance and Funds Management)
maintaining the ability to meet all payment obligations in the immediate term;
ensuring that the Group has the ability to meet ‘survival horizons’ under a range of ANZ specific and general market liquidity stress scenarios,
at the site and Group-wide level, to meet cash flow obligations over the short to medium term;
maintaining strength in the Group’s balance sheet structure to ensure long term resilience in the liquidity and funding risk profile;
limiting the potential earnings at risk implications associated with unexpected increases in funding costs or the liquidation of assets understress;ensuring the liquidity management framework is compatible with local regulatory requirements;
preparation of daily liquidity reports and scenario analysis, quantifying the Group’s positions;targeting a diversified funding base, avoiding undue concentrations by investor type, maturity, market source and currency;
holding a portfolio of high quality liquid assets to protect against adverse funding conditions and to support day-to-day operations; andestablishing detailed contingency plans to cover different liquidity crisis events.
Management of liquidity and funding risks are overseen by the Group Asset and Liability Committee (GALCO).

Scenario modelling
A key component of the Group’s liquidity management framework is scenario modelling. APRA requires ADIs to assess liquidity under different
scenarios, including the ‘going-concern’ and ‘name-crisis’.
‘Going-concern’: reflects the normal behaviour of cash flows in the ordinary course of business. APRA requires that the Group must be able tomeet all commitments and obligations under a going concern scenario, within the ADIs normal funding capacity (‘available to fund’ limit), overat least the following 30 calendar days. In estimating the funding requirement, the Group models expected cash flows by reference to historicalbehaviour and contractual maturity data.
‘Name-crisis’: refers to a potential name-specific liquidity crisis which models the behaviour of cash flows where there is a problem (real or
perceived) which may include, but is not limited to, operational issues, doubts about the solvency of the Group or adverse rating changes.
Under this scenario the Group may have significant difficulty rolling over or replacing funding. Under a name crisis, APRA requires the Groupto be cash flow positive over a five business day period.
‘Survival horizons’: The Global financial crisis has highlighted the importance of differentiating between stressed and normal market conditions
in a name-specific crisis, and the different behaviour that offshore and domestic wholesale funding markets can exhibit during market stressevents. As a result, the Group has enhanced its liquidity risk scenario modelling, to supplement APRA’s statutory requirements.
The Group has linked its liquidity risk appetite to defined liquidity ‘survival horizons’ (i.e. the time period under which ANZ must maintain apositive cash flow position under a specific scenario or stress). Under these scenarios, customer and/or wholesale balance sheet asset/liability
flows are stressed. The following stressed scenarios are modelled:
Extreme Short Term Crisis Scenario (ESTC): A name-specific stress during a period of market stress.
Short Term Crisis Scenario (NSTC): A name-specific stress during a period of normal markets conditions.
Global Funding Market Disruption (GFMD): Stressed global wholesale funding markets leading to a closure of domestic and offshore markets.
Offshore Funding Market Disruption (OFMD): Stressed global wholesale funding markets leading to a closure of offshore markets only.
Each of ANZ’s operations is responsible for ensuring its compliance with all scenarios that are required to be modelled. Additionally, we measure,monitor and manage all modelled liquidity scenarios on an aggregated Group-wide level.

Liquidity portfolio management
The Group holds a diversified portfolio of cash and high credit quality securities that may be sold or pledged to provide same-day liquidity.
This portfolio helps protect the Group’s liquidity position by providing cash in a severely stressed environment. All assets held in the prime
portfolio are securities eligible for repurchase under agreements with the applicable central bank (i.e. ‘repo eligible’).
The liquidity portfolio is well diversified by counterparty, currency and tenor. Under the liquidity policy framework, securities purchased for
ANZ’s liquidity portfolio must be of a similar or better credit quality to ANZ’s external long-term or short-term credit ratings and continue to be
repo eligible.

NOTES TO THE FINANCIAL STATEMENTS

145

NOTES TO THE FINANCIAL STATEMENTS (continued)
33: Financial Risk Management (continued)
Supplementing the prime liquid asset portfolio, the Group holds additional liquidity:
central bank deposits with the US Federal Reserve, Bank of England, Bank of Japan and European Central Bank of $18.0 billion;
Australian Commonwealth and State Government securities and gold of $12.6 billion; andcash and other securities to satisfy local country regulatory liquidity requirements which are not included in the liquid assets below:

Eligible securities
2012
$m

2011
$m

Australia
New ZealandUnited States
United Kingdom
Singapore
Hong KongJapan

24,05010,990
1,367
3,260
4,491
608
1,340

20,815
9,141
1,353
2,654
6,409
273
–

Prime Liquidity Portfolio (excluding Internal RMBS)Internal RMBS (Australia)
Internal RMBS (New Zealand)
Total Prime Portfolio

46,10634,871
2,981
83,95840,645
26,831
3,899
71,375

Other Eligible Securities including gold and cash on deposit with central banks

30,605

20,130

Total

114,563

91,505

Prime liquidity portfolio (market values1)

1 Market value is post the repo discount applied by the applicable central bankLiquidity crisis contingency planning
The Group maintains APRA-endorsed liquidity crisis contingency plans defining an approach for analysing and responding to a liquidity
threatening event at a country and Group-wide level. To align with the enhanced liquidity scenario analysis framework, crisis management
strategies are assessed against the Group’s crisis stress scenarios.
The framework is compliant with APRA’s key liquidity contingency crisis planning requirements and guidelines and includes:
the establishment of crisis severity/stress levels;
clearly assigned crisis roles and responsibilities;
early warning signals indicative of an approaching crisis, and mechanisms to monitor and report these signals;
crisis declaration assessment processes, and related escalation triggers set against early warning signals;
outlined action plans, and courses of action for altering asset and liability behaviour;
procedures for crisis management reporting, and making up cash-flow shortfalls;
guidelines determining the priority of customer relationships in the event of liquidity problems; andassigned responsibilities for internal and external communications.

146

ANZ ANNUAL REPORT 2012

33: Financial Risk Management (continued)
Regulatory Change
The Basel III Liquidity proposals remain subject to finalisation from both the Basel Committee and APRA. The proposed changes include theintroduction of two new liquidity ratios to measure liquidity risk (the Liquidity Coverage Ratio (LCR) and the Net Stable Funding Ratio (NSFR)).
A component of the liquidity required under the proposed standards will likely be met via the previously announced Committed Liquidity
Facility from the Reserve Bank of Australian (RBA), however the size and availability of the facility is not yet agreed with APRA and the RBA. While
ANZ has an existing stress scenario framework and structural liquidity risk metrics and limits in place, the requirements proposed are in generalmore challenging. These changes may impact the future composition and size of ANZ’s liquidity portfolio, the size and composition of the Bank’s
funding base and consequently could affect future profitability. APRA is proposing to release further details on its requirements during the firstquarter of 2013 following an anticipated release of further information from the Basel Committee on Banking Supervision early in 2013. APRA
currently proposes to implement the LCR on 1 January 2015 and the NSFR on 1 January 2018 in line with the Basel Committee’s timetable forliquidity risk.

Group funding
ANZ manages its funding profile using a range of funding metrics and balance sheet disciplines. This approach is designed to ensure that an
appropriate proportion of the Group’s assets are funded by stable funding sources including core customer deposits, longer-dated wholesalefunding (with a remaining term exceeding one year) and equity.
The Group’s global wholesale funding strategy is designed to deliver a sustainable portfolio of wholesale funds that balances cost efficiency
against prudent duration.
Funding plans and performance relative to those plans are reported regularly to senior management via the GALCO. These plans address
customer balance sheet growth and changes in wholesale funding including, targeted funding volumes, markets, investors, tenors andcurrencies for senior, subordinated and hybrid transactions. Plans are supplemented with a monthly forecasting process which reviews thefunding position to-date in light of market conditions and balance sheet requirements.
Funding plans are generated through the three-year strategic planning process. Asset and deposit plans are submitted at the business segmentlevel with the wholesale funding requirements then derived at the geographic level. To the extent that asset growth exceeds funding generated
from customer deposits, additional wholesale funds are sourced.
Short-term wholesale funding requirements, with a contractual maturity of less than one year, are managed through Group Treasury and local
Markets operations. Long-term wholesale funding is managed and executed through Group Treasury operations in Australia and New Zealand.

Funding position 2012
ANZ targets a diversified funding base, avoiding undue concentrations by investor type, maturity, market source and currency. Diversification
was further enhanced during the year with the introduction of a covered bond funding programme.
As at September 2012, the composition of the Group’s funding profile was:Term wholesale funding with a remaining maturity of more than one year of $68.4 billion (12% of total funding)Term wholesale funding with a remaining maturity of one year or less of $25.4 billion (5% of total funding)
Short-term wholesale funding (including central bank deposits) of $78.9 billion (14% of total funding)Shareholders’ equity and hybrids of $46.3 billion (8% of total funding)$25.8 billion of term wholesale debt (with a remaining term greater than one year as at 30 September 2012) was issued during the September
2012 financial year, of which $4.5 billion is pre-funding for the September 2013 financial year.
ANZ maintained access to all major global wholesale funding markets during 2012:
Benchmark term debt issues were completed in AUD, USD, EUR, JPY, CHF, GBP, CNH and NZD.
All short-term wholesale funding needs were met.
The weighted average tenor of new term debt issuance remained relatively flat at 4.6 years (4.7yrs in 2011).
The weighted average cost of new term debt issuance increased further in 2012 as a result of volatility in global markets. Conditions improved
towards the end of the year, however average portfolio costs remain substantially above pre-crisis levels and continue to increase as maturing
term wholesale funding is replaced at higher spreads.

NOTES TO THE FINANCIAL STATEMENTS

147

NOTES TO THE FINANCIAL STATEMENTS (continued)
33: Financial Risk Management (continued)
The following tables show the Group’s funding composition:
Consolidated
2012
$m

2011
$m

140,798
142,662
39,622
9,449(4,655)
327,876

126,969
129,683
35,9388,129(3,965)
296,754

9,841

11,450Total customer deposits and other liabilities (funding)

337,717308,204

Wholesale funding4,5
Bonds and notes6
Loan capital
Certificates of deposit (wholesale)Commercial paper
Due to other financial institutions
Other wholesale borrowings3

62,693
11,91456,838
12,16430,5384,585

56,551
11,99355,554
14,333
27,535(450)

Total wholesale funding

178,732

165,516

Shareholders’ equity

40,34937,083

11%
3%

11%
2%

5%
12%
61%
8%

6%
12%
60%
9%

100%

100%

Funding composition

Customer deposits and other liabilities1
Australia
International & Institutional Banking
New ZealandGlobal Wealth & Private Banking
Group Centre
Total customer deposits
Other2

Total funding maturity
Short term wholesale funding (excl Central Banks)Central Bank Deposits
Long term wholesale funding– Less than 1 year residual maturity– Greater than 1 year residual maturity5
Total customer deposits and other liabilities (funding)Shareholders’ equity and hybrid debt
Total funding and shareholders’ equity

1 Includes term deposits, other deposits and an adjustment to the Group Centre to eliminate OnePath Australia investments in ANZ deposit products.
2. Includes interest accruals, payables and other liabilities, provisions and net tax provisions, excluding other liabilities in OnePath.
3. Includes net derivative balances, special purpose vehicles, other borrowings and preference share capital Euro hybrids.
4. Long term wholesale funding amounts are stated at original hedged exchange rates. Movements due to currency fluctuations in actual amounts borrowed are classified as short termwholesale funding.
5. Liability for acceptances have been removed as they do not provide net funding.
6. Excludes term debt issued externally by OnePath.

Liquidity risk – Insurance and Funds Management
The Group’s insurance and fund management businesses, such as ANZ Wealth Australia Limited (formerly OnePath Australia Limited), also apply
their own liquidity and funding methods to address their specific needs.
As at 30 September 2012 a number of investment options in the life insurance statutory funds were suspended due to the prescribed limits on
their liquidity facilities being reached. These suspensions are not a consequence of any performance issue of the Life Company and do not affect
the Group’s future performance or distributions. The Net Market Value of suspended funds is $282 million (2011: $524 million).

148

ANZ ANNUAL REPORT 2012

33: Financial Risk Management (continued)
Contractual maturity analysis of the Group’s liabilities
The tables below analyse the Group’s and Company’s contractual liabilities, within relevant maturity groupings based on the earliest date on
which the Group or Company may be required to pay. The amounts represent principal and interest cash flows and hence may differ comparedto the amounts reported on the balance sheet.
It should be noted that this is not how the Group manages its liquidity risk. The management of this risk is detailed above.
Contractual maturity analysis of financial liabilities at 30 September:

Consolidated at 30 September 2012

Due to other financial institutions
Deposits and other borrowings
Certificates of deposit
Term deposits
Other deposits bearing interest
Deposits not bearing interest
Commercial paper
Borrowing corporations’ debt
Other borrowings
Liability for acceptances
Bonds and notes3
Loan capital3,4
Policy liabilities
External unit holder liabilities (life insurance funds)
Derivative liabilities (trading)5
Derivative assets and liabilities (balance sheet management)– FundingReceive leg (-ve is an inflow)
Pay leg– Other balance sheet management
Receive leg (-ve is an inflow)
Pay leg

Consolidated at 30 September 2011

Due to other financial institutions
Deposits and other borrowings
Certificates of deposit
Term deposits
Other deposits bearing interest
Deposits not bearing interest
Commercial paper
Borrowing corporations’ debt
Other borrowings
Liability for acceptances
Bonds and notes3
Loan capital3,4
Policy liabilities
External unit holder liabilities (life insurance funds)
Derivative liabilities (trading)5
Derivative assets and liabilities (balance sheet management)– FundingReceive leg (-ve is an inflow)
Pay leg– Other balance sheet management
Receive leg (-ve is an inflow)
Pay leg
12345Less than
3 months1$m

3 to 12months$m

1 to
5 years$m

After
5 years$mNomaturity
specified2
$m

Total
$m

29,345

1,177

36

–

–

30,55830,058126,137
142,527
11,782
7,373
353
246
1,239
5,708
722
28,763
3,949
39,725

13,462
43,676
–
–
4,795
715
–
–
11,133
2,028–––

15,072
5,918
–
–
–
269
–
–
41,813
7,768
–
–
–

–
108
–
–
–
–
–
–
8,770
2,552
–
–
–

–
–
–
–
–
–
–
–
–
953
774
–
–

58,592
175,839
142,527
11,782
12,168
1,337
246
1,239
67,424
14,02329,537
3,949
39,725(23,932)
25,714(35,200)
36,402(69,846)
75,419(18,033)
19,073––(147,011)
156,608(5,570)5,593(6,471)
6,663(11,254)
11,009(3,475)
3,263––(26,770)
26,528Less than
3 months1$m

3 to 12months$m

1 to
5 years$m

After
5 years$mNomaturity
specified2
$m

Total
$m

26,049

1,427

37

49

–

27,562

33,740110,265
130,741
11,334
9,907
773
2,053
921
4,854
352
26,6195,033
44,263

5,949
42,039
–
–
4,433
487
–
49
11,7772,211–––

18,440
4,230
–
–
–
328
–
–
36,773
5,166
–
–
–

–
38
–
–
–
–
–
–
6,997
5,273
–
–
–

–
–
–
–
–
–
–
–
–
964
884
–
–

58,129156,572
130,741
11,334
14,340
1,588
2,053
970
60,401
13,96627,503
5,033
44,263(24,477)
25,202(24,133)
26,749(78,670)
81,837(13,827)
14,970––(141,107)
148,758(2,763)
2,785(4,677)
4,835(10,865)
10,910(1,812)
1,746––(20,117)
20,276

Includes at call instruments.
Includes perpetual investments brought in at face value only.
Any callable wholesale debt instruments have been included at their next call date.
Includes instruments that may be settled in cash or in equity, at the option of the Company.
The full mark-to-market of derivative liabilities held for trading purposes has been included in the ’less than 3 months’ category.

NOTES TO THE FINANCIAL STATEMENTS

149

NOTES TO THE FINANCIAL STATEMENTS (continued)
33: Financial Risk Management (continued)

The Company at 30 September 2012

Due to other financial institutions
Deposits and other borrowings
Certificates of deposit
Term deposits
Other deposits bearing interest
Deposits not bearing interest
Commercial paper
Other borrowings
Liability for acceptances
Bonds and notes3
Loan capital3,4Derivative liabilities (trading)5
Derivative assets and liabilities (balance sheet management)– FundingReceive leg (-ve is an inflow)
Pay leg– Other balance sheet management
Receive leg (-ve is an inflow)
Pay leg

The Company at 30 September 2011

Due to other financial institutions
Deposits and other borrowings
Certificates of deposit
Term deposits
Other deposits bearing interest
Deposits not bearing interest
Commercial paper
Other borrowings
Liability for acceptances
Bonds and notes3
Loan capital3,4Derivative liabilities (trading)5
Derivative assets and liabilities (balance sheet management)– FundingReceive leg (-ve is an inflow)
Pay leg– Other balance sheet management
Receive leg (-ve is an inflow)
Pay leg
12345Less than
3 months1$m

3 to 12months$m

1 to
5 years$m

After
5 years$mNomaturity
specified2
$m

Total
$m

27,198

1,173

36

–

–

28,407

28,685
109,924
122,614
6,556
5,272
197
1,012
3,883
669
36,07013,32230,023
–
–
2,549
–
–
8,841
2,010
–

15,072
3,587
–
–
–
–
–
33,466
7,803
–

–
106
–
–
–
–
–
7,047
2,552
–

–
–
–
–
–
–
–
–
287
–

57,079143,640
122,614
6,556
7,821
197
1,012
53,237
13,321
36,070(16,166)
17,511(21,771)
23,142(53,558)
57,983(15,506)
16,523––(107,001)
115,159(5,028)
4,992(4,816)
4,962(9,030)8,703(3,197)2,988––(22,071)
21,645Less than
3 months1$m

3 to 12months$m

1 to
5 years$m

After
5 years$mNomaturity
specified2
$m

Total
$m

23,353

1,344

37

–

–

24,73432,16593,805
113,140
5,974
7,259
–
645
3,626
271
39,8785,867
30,048
–
–
3,317
–
42
9,596
2,175
–

18,440
2,142
–
–
–
–
–
27,775
5,183
–

–
39
–
–
–
–
–
6,736
4,803
–

–
–
–
–
–
–
–
–
308
–

56,472126,034
113,140
5,974
10,576–687
47,733
12,741
39,878(8,773)
10,122(14,565)
16,550(53,934)
57,263(13,827)
14,970––(91,099)
98,905(2,167)2,109(3,485)3,539(8,808)8,759(1,619)1,547––(16,079)
15,954

Includes at call instruments.
Includes perpetual investments brought in at face value only.
Any callable wholesale debt instruments have been included at their next call date.
Includes instruments that may be settled in cash or in equity, at the option of the Company.
The full mark-to-market of derivative liabilities held for trading purposes has been included in the ’less than 3 months’ category.

150

ANZ ANNUAL REPORT 2012

33: Financial Risk Management (continued)
CREDIT RELATED CONTINGENCIES
Undrawn facilities and issued guarantees comprise the nominal principal amounts of commitments, contingencies and other undrawn
facilities and represents the maximum liquidity at risk position should all facilities extended be drawn.
The majority of undrawn facilities are subject to customers maintaining specific credit and other requirements or conditions. Many ofthese facilities are expected to be partially used, whereas others may never be required to be drawn upon. As such, the total of the nominal
principal amounts is not necessarily representative of future liquidity risks or future cash requirements.
The tables below analyse the Group’s and Company’s undrawn facilities and issued guarantees into relevant maturity groupings based on theearliest date on which ANZ may be required to pay.
Consolidated
30 September 2012

Less than
1 year$mMore than
1 year$m

Undrawn facilities
Issued guarantees

141,355
32,383––30 September 2011

Less than
1 year$m

Undrawn facilities1
Issued guarantees

135,243
31,210

The Company
Total
$m

Less than
1 year$mMore than
1 year
$m

Total
$m

141,355
32,383

118,461
29,619––118,461
29,619More than
1 year
$m

Total
$m

Less than
1 year$mMore than
1 year
$m

Total
$m

–
–

135,243
31,210114,461
28,269––114,461
28,269Consolidated

The Company

1 September 2011 undrawn facilities have been restated by $2,646 million using the revised methodology for undrawn overdrafts that was implemented during 2012.

LIFE INSURANCE RISK
Although not a significant contributor to the Group’s balance sheet, the Group’s insurance businesses give rise to unique risks which are managed
separately from the Group’s banking businesses. The nature of these risks and the manner in which they are managed is set out in note 48.
OPERATIONAL RISK MANAGEMENT
Within ANZ, operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems or fromexternal events. This definition includes legal risk, and the risk of reputational loss or damage arising from inadequate or failed internal
processes, people and systems, but excludes strategic risk.
The authority for operational risk oversight is delegated by the Board to the Board Risk Committee. The Operational Risk Executive Committee(OREC) supports the Board Risk Committee in respect of operational risk oversight which includes compliance with regulatory obligations.
The key responsibilities of OREC include:
endorse ANZ’s Operational Risk Management and Measurement Framework for approval by the Risk Committee of the Board;
approve Operational Risk and Compliance policies;
approve ANZ’s Group Compliance Framework;
monitoring the state of operational risk management and instigating any necessary corrective actions;review all material actual, potential or near miss risk events;
approve extreme rated risk treatment plans; andmonitor associated treatment plans.

NOTES TO THE FINANCIAL STATEMENTS

151

NOTES TO THE FINANCIAL STATEMENTS (continued)
33: Financial Risk Management (continued)
Membership of OREC comprises senior executives and the committee is chaired by the Chief Risk Officer.
Business unit staff and line management have first line accountability for the day-to-day management of operational risk. This includes
implementation of the operational risk framework and involvement in decision making processes concerning all material operational risk
matters. Divisional risk governance functions provide oversight of operational risk undertaken in the business units.
Divisional Risk Committees and Business Unit Risk Forums manage and maintain oversight of operational risks supported by thresholds for
escalation and monitoring. Group Operational Risk are responsible for exercising governance over operational risk through the managementof the operational risk framework, policy development, framework assurance, operational risk measurement and capital allocation, fraud
strategy and reporting of operational risk matters to executive committees.
ANZ’s Operational Risk Management and Measurement Framework outlines the approach to managing operational risk and specifically covers
the minimum requirements that divisions/business units must undertake in the management of operational risk. ANZ’s Operational Risk
Management and Measurement Framework is supported by specific policies and procedures with the effectiveness of the framework assessed
through a series of assurance reviews. This is supported by an independent review programme by Internal Audit.
The operational risk management process adopted by ANZ consists of a staged approach involving establishing the context, identification,
analysis, assessment, treatment and monitoring of current, new and emerging operational risks.
In line with industry practice, ANZ obtains insurance cover from third party and captive providers to cover those operational risks where costeffective premiums can be obtained. In conducting their business, business units are advised to act as if uninsured and not to use insurance as aguaranteed mitigation for operational risk. Business disruption is a critical risk to a bank’s ability to operate, so ANZ has comprehensive business
continuity, recovery and crisis management plans. The intention of the business continuity and recovery plans is to ensure critical business
functions can be maintained, or restored in a timely fashion, in the event of material disruptions arising from internal or external events.
Group Operational Risk is responsible for maintaining ANZ’s Advanced Measurement Approach (AMA) for operational risk regulatory capital
calculations. ANZ uses a scenario analysis based methodology to assess exposure to unexpected operational risk events and uses probability
distributions and monte carlo simulations to model, calculate and allocate its operational risk regulatory capital (ORRC). This methodology
incorporates the use of business risk profiles which consider the current business environment and internal control factors over a 12 month time
horizon along with external loss event data.

34: Fair value of financial assets and financial liabilities
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. The determination of the fair value of financial instruments is fundamental to the financial reporting framework as all financial
instruments are recognised initially at fair value and, with the exception of those financial instruments carried at amortised cost, are remeasured
at fair value in subsequent periods.
The fair value of a financial instrument on initial recognition is normally the transaction price, however, in certain circumstances the initial fairvalue may be based on other observable current market transactions in the same instrument, without modification or repackaging, or on avaluation technique whose variables include only data from observable markets.
Subsequent to initial recognition, the fair value of financial instruments measured at fair value is based on quoted market prices, where available.
In cases where quoted market prices are not available, fair value is determined using market accepted valuation techniques that employ
observable market data. In limited cases where observable market data is not available, the input is estimated based on other observable market
data, historical trends and other factors that may be relevant.

(i) Fair values of financial assets and financial liabilities
A significant number of financial instruments are carried at fair value in the balance sheet. Below is a comparison of the carrying amounts,
as reported on the balance sheet, and fair values of all financial assets and liabilities. The fair value disclosure does not cover those instrumentsthat are not considered financial instruments from an accounting perspective such as income tax and intangible assets. In management’s view,
the aggregate fair value amounts do not represent the underlying value of the Group.
In the tables below, financial instruments have been allocated based on their accounting treatment. 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.
Financial asset classes have been allocated into the following groups: amortised cost; financial assets at fair value through profit or loss; derivatives
in effective hedging relationships; and available-for-sale financial assets. Similarly, each class of financial liability has been allocated into three groups:
amortised cost; derivatives in effective hedging relationships; and financial liabilities at fair value through profit and loss.
The fair values are based on relevant information available as at the respective balance sheet dates and have not been updated to reflectchanges in market condition after the balance sheet date.

152

ANZ ANNUAL REPORT 2012

34: Fair Value of Financial Assets and Financial Liabilities (continued)
FINANCIAL ASSETS
Carrying amountAt amortised
cost

Consolidated 30 September 2012

Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments1
Available-for-sale assets
Loans and advances2
Investments backing policy liabilities
Other financial assets

At fair value through profit or loss

Fair value
Hedging

Available-forsale assets

Total

$m

Held fortrading$m

Sub-total
$m

$m

$m

$m

$m

36,578
17,103–––427,719
–
5,794

–
–
–
–
–
104
29,895–––40,60245,531––––––40,60245,531–
104
29,895
–

–
–
–
3,398
–
–
–
–

–
–
–
–
20,562–––

36,578
17,10340,602
48,92920,562427,823
29,895
5,794

36,578
17,10340,602
48,92920,562
428,483
29,895
5,794

487,194

29,99986,133

116,132

3,398

20,562627,286

627,946

Hedging

Available-forsale assets

Carrying amountAt amortised
cost

Consolidated 30 September 2011

Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments1
Available-for-sale assets
Loans and advances2
Investments backing policy liabilities
Other financial assets

At fair value through profit or loss

Fair value
Total

$m

Held fortrading$m

Sub-total
$m

$m

$m

$m

$m

25,627
13,298–––397,169
–
6,485

–
–
–
–
–
138
29,859–––36,07455,917––––––36,07455,917–
138
29,859
–

–
–
–
2,724
–
–
–
–

–
–
–
–
22,264–––25,627
13,29836,07458,641
22,264397,30729,8596,485

25,627
13,29836,07458,641
22,264
397,596
29,8596,485

442,579

29,99791,991

121,988

2,724

22,264

589,555

589,844

Hedging

Available-forsale assets

Total

Total

Carrying amountLiquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments1
Available-for-sale assets
Loans and advances2
Other financial assets

Total

Designatedon initialrecognition$m

At amortised
cost

The Company 30 September 2012

Total

Designatedon initialrecognition$m

At fair value through profit or loss

Fair value$m

Designatedon initialrecognition$mHeld fortrading$m

Sub-total
$m

$m

$m

$m

$m

32,782
14,167–––349,995
3,473

–
–
–
–
–
65
–

–
–
30,49040,284–––––30,49040,284
–
65
–

–
–
–
2,982
–
–
–

–
–
–
–
17,841––32,782
14,16730,49043,266
17,841350,060
3,473

32,782
14,16730,49043,266
17,841
350,5723,473

400,41765

70,77470,8392,982

17,841

492,079

492,591

1 Derivative financial instruments classified as ‘held for trading’ include derivatives entered into as economic hedges which are not designated as accounting hedges.
2 Fair value hedging is applied to financial assets within loans and advances. The resulting fair value adjustments mean that the carrying value differs from the amortised cost.

NOTES TO THE FINANCIAL STATEMENTS

153

NOTES TO THE FINANCIAL STATEMENTS (continued)
34: Fair Value of Financial Assets and Financial Liabilities (continued)
FINANCIAL ASSETS (continued)
Carrying amountAt amortised
cost

The Company 30 September 2011

Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments1
Available-for-sale assets
Loans and advances2
Other financial assets

At fair value through profit or loss

Fair value
Hedging

Available-forsale assets

Total

Total

$m

Designatedon initialrecognition$mHeld fortrading$m

Sub-total
$m

$m

$m

$m

$m

21,283
10,070–––323,877
3,463

–
–
–
–
–
97
–

–
–
28,36749,437–––––28,36749,437
–
97
–

–
–
–
2,283
–
–
–

–
–
–
–
19,017––

21,283
10,07028,36751,72019,017
323,974
3,463

21,283
10,07028,36751,72019,017
324,087
3,463

358,69397

77,804

77,901

2,283

19,017457,894

458,007

1 Derivative financial instruments classified as ‘held for trading’ include derivatives entered into as economic hedges which are not designated as accounting hedges.
2 Fair value hedging is applied to financial assets within loans and advances. The resulting fair value adjustments mean that the carrying value differs from the amortised cost.

LIQUID ASSETS AND DUE FROM/TO OTHER
FINANCIAL INSTITUTIONS
The carrying values of these financial instruments where there has
been no significant change in credit risk is considered to approximate
their net fair values as they are short-term in nature, defined as thosewhich reprice or mature in 90 days or less, or are receivable on demand.
TRADING SECURITIES
Trading securities are carried at fair value. Fair value is based onquoted market prices, broker or dealer price quotations, or modelledvaluations using prices for securities with similar credit risk, maturity
and yield characteristics.
DERIVATIVE FINANCIAL INSTRUMENTS
Derivative financial instruments are carried at fair value. Exchange
traded derivative financial instruments are valued using quoted
prices. Over-the-counter derivative financial instruments are valued
using accepted valuation models (including discounted cash flow
models) based on current market yields for similar types of instruments
and the maturity of each instrument and an adjustment reflecting thecredit worthiness of the counterparty.
AVAILABLE-FOR-SALE ASSETS
Available-for-sale assets are carried at fair value. Fair value is basedon quoted market prices or broker or dealer price quotations. If thisinformation is not available, fair value is estimated using quoted market
prices for securities with similar credit, maturity and yield characteristics,
or market accepted valuation models as appropriate (including
discounted cash flow models) based on current market yields for
similar types of instruments and the maturity of each instrument.

154

NET LOANS AND ADVANCESThe carrying value of loans and advances includes deferred feesand expenses, and is net of provision for credit impairment andunearned income.
Fair value has been determined through discounting future cash
flows. For fixed rate loans and advances, the discount rate applied
incorporates changes in wholesale market rates, the Group’s cost ofwholesale funding and the customer margin. For floating rate loans,
only changes in wholesale market rates and the Group’s cost ofwholesale funding are incorporated in the discount rate. For variable
rate loans where the Group sets the applicable rate at its discretion,
the fair value is set equal to the carrying value.
INVESTMENTS BACKING POLICY LIABILITIESInvestments backing policy liabilities are carried at fair value.
Fair value is based on quoted market prices, broker or dealer pricequotations where available. Where substantial trading markets do
not exist for a specific financial instrument modelled valuations areused to estimate their approximate fair values.
OTHER FINANCIAL ASSETS
Included in this category are accrued interest and fees receivable.
The carrying values of accrued interest and fees receivable areconsidered to approximate their net fair values as they are short-term
in nature or are receivable on demand.

ANZ ANNUAL REPORT 2012

34: Fair Value of Financial Assets and Financial Liabilities (continued)
FINANCIAL LIABILITIES
Carrying amountAt amortised
cost

Consolidated 30 September 2012

Due to other financial institutions
Derivative financial instruments1
Deposits and other borrowings
Bonds and notes2
Loan capital2
Policy liabilities3
External unit holder liabilities (life insurance funds)
Payables and other liabilities

Fair value

At fair value through profit or loss

Hedging

Total

Total

Sub-total
$m

$m

$m

$m

–
50,887
–
–
–
–
–
–

–
50,887
4,346
6,465
633
28,763
3,949
–

–
1,752
–
–
–
–
–
–

30,53852,639397,123
63,098
11,91429,5373,949
8,095

30,53852,639397,571
63,78011,86929,5373,949
8,095

50,887

95,043

1,752

596,893597,978$m

Designatedon initialrecognition$mHeld fortrading$m

30,538–392,777
56,633
11,281
774
–
8,095

–
–
4,346
6,465
633
28,7633,949–

500,098

44,156

Carrying amountAt amortised
cost

Consolidated 30 September 2011

Due to other financial institutions
Derivative financial instruments1
Deposits and other borrowings
Bonds and notes2
Loan capital2
Policy liabilities3
External unit holder liabilities (life insurance funds)
Payables and other liabilities

Fair value

At fair value through profit or loss

Hedging

Total$m

Held fortrading$m

Sub-total
$m

$m

$m

$m

27,535–364,965
48,55911,355
884
–
9,391

–
–
3,764
7,992
638
26,6195,033––
54,133
–
–
–
–
–
–

–
54,133
3,764
7,992
638
26,619
5,033
–

–
1,157
–
–
–
–
–
–

27,53555,290368,72956,551
11,99327,503
5,033
9,391

27,53555,290369,035
56,403
11,84927,503
5,033
9,391

462,689

44,04654,13398,1791,157

562,025

562,039

Carrying amountAt amortised
cost

The Company 30 September 2012

Due to other financial institutions
Derivative financial instruments1
Deposits and other borrowings
Bonds and notes2
Loan capital2
Payables and other liabilities

Total

Designatedon initialrecognition$m

Fair value

At fair value through profit or loss

Hedging

Total

Total

$m

Designatedon initialrecognition$mHeld fortrading$m

Sub-total
$m

$m

$m

$m

28,394–
333,536
43,51010,613
5,821

–
–
–
6,465
633
–

–
44,508–––––44,508
–
6,465
633
–

–
1,539
–
–
–
–

28,39446,047
333,536
49,975
11,246
5,821

28,39446,047
333,91750,476
11,2305,821

421,874

7,098

44,50851,6061,539

475,019475,885

1 Derivative financial instruments classified as ‘held for trading’ include derivatives entered into as economic hedges which are not designated as accounting hedges.
2 Fair value hedging is applied to financial liabilities within bonds and notes and loan capital. The resulting fair value adjustments mean that the carrying value differs from the amortised cost.
3 Includes life insurance contract liabilities of $774 million (2011: $884 million) measured in accordance with AASB 1038 Life insurance contract liabilities and life investment contract liabilities of$28,763 million (2011: $26,619 million) which have been designated at fair value through profit or loss in terms under AASB 139. None of the fair value is attributable to changes in the credit riskof the life investment contract liabilities.

NOTES TO THE FINANCIAL STATEMENTS

155

NOTES TO THE FINANCIAL STATEMENTS (continued)
34: Fair Value of Financial Assets and Financial Liabilities (continued)
FINANCIAL LIABILITIES (continued)
Carrying amountAt amortised
cost

Hedging

Total

Total

$m

Designatedon initialrecognition$mHeld fortrading$m

Sub-total
$m

$m

$m

$m

24,709–307,254
36,878
10,179
6,332

–
–
–
7,992
638
–

–
47,952–––––
47,952
–
7,992
638
–

–
795
–
–
–
–

24,70948,747307,254
44,87010,817
6,332

24,70948,747
307,477
44,677
10,705
6,332

385,352

8,630

47,95256,582795

442,729442,647

The Company 30 September 2011

Due to other financial institutions
Derivative financial instruments1
Deposits and other borrowings
Bonds and notes2
Loan capital2
Payables and other liabilities

At fair value through profit or loss

Fair value

1 Derivative financial instruments classified as ‘held for trading’ include derivatives entered into as economic hedges which are not designated as accounting hedges.
2 Fair value hedging is applied to financial liabilities within bonds and notes and loan capital. The resulting fair value adjustments mean that the carrying value differs from the amortised cost.

DEPOSITS AND OTHER BORROWINGSFor interest bearing fixed maturity deposits and other borrowings
and acceptances with quoted market prices, market borrowing
rates of interest for debt with a similar maturity are used to discountcontractual cash flows. The fair value of a deposit liability without aspecified maturity or at call is deemed to be the amount payable on
demand at the reporting date. The fair value is not adjusted for any
value expected to be derived from retaining the deposit for a future
period of time.
Certain deposits and other borrowings have been designated atfair value through profit or loss and are carried at fair value.
BONDS AND NOTES AND LOAN CAPITAL
The aggregate fair value of bonds and notes and loan capital iscalculated based on quoted market prices or observable inputs
where applicable. For those debt issues where quoted market prices
were not available, a discounted cash flow model using a yield
curve appropriate for the remaining term to maturity of the debt
instrument is used.
Certain bonds and notes and loan capital have been designatedat fair value through profit or loss and are carried at fair value.
The fair value is based on a discounted cash flow model basedon current market yields for similar types of instruments and thematurity of each instrument. The fair value includes the effects of theappropriate credit spreads applicable to ANZ for that instrument.
EXTERNAL UNIT HOLDER LIABILITIES (LIFE INSURANCE FUNDS)
The carrying amount represents the external unit holder’s shareof net assets which are carried at fair value in the fund.
POLICY LIABILITIESLife investment contract liabilities are carried at fair value.
PAYABLES AND OTHER FINANCIAL LIABILITIESThis category includes accrued interest and fees payable for which
the carrying amount is considered to approximate the fair value.

156

COMMITMENTS AND CONTINGENCIES
Adjustments to fair value for commitments and contingencies
that are not financial instruments recognised in the balance sheet,
are not included in this note.

(ii) Valuation methodology
A significant number of financial instruments are carried on balance
sheet at fair value.
The best evidence of fair value is a quoted price in an active market.
Accordingly, wherever possible fair value is based on the quoted
market price of the financial instrument.
In the event that there is no quoted market price for the instrument,
fair value is based on present value estimates or other market acceptedvaluation techniques. The valuation models incorporate the impactof bid/ask spreads, counterparty credit spreads and other factors thatwould influence the fair value determined by a market participant.
The majority of valuation techniques employ only observable
market data. However, for certain financial instruments the valuation
technique may employ some data (valuation inputs or components)
which is not readily observable in the current market. In these cases
valuation inputs (or components of the overall value) are derived
and extrapolated from other relevant market data and tested against
historic transactions and observed market trends. Valuations using one
or more non-observable data inputs require professional judgement.
ANZ has a control framework that ensures that the fair value is either
determined or validated by a function independent of the party that
undertakes the transaction.
Where quoted market prices are used, independent pricedetermination or validation is obtained. For fair values determinedusing a valuation model, the control framework may include, asapplicable, independent development or validation of: (i) valuation
models; (ii) any inputs to those models; and (iii) any adjustments
required outside of the valuation model, and, where possible,
independent validation of model outputs.

ANZ ANNUAL REPORT 2012

34: Fair Value of Financial Assets and Financial Liabilities (continued)
The tables below provide an analysis of the methodology used for valuing financial assets and financial liabilities carried at fair value. The
fair value of the financial instrument has been allocated in full to the category in a fair value hierarchy which most appropriately reflects thedetermination of the fair value. This allocation is based on the categorisation of the lowest level input into a valuation model or a valuation
component that is significant to the reported fair value of the financial instrument. The significance of an input is assessed against the reported
fair value of the financial instrument and considers various factors specific to the financial instrument.
The allocation into the fair value hierarchy is determined as follows:
Level 1 – Financial instruments that have been valued by reference to unadjusted quoted prices in active markets for identical financial assets
or liabilities. This category includes financial instruments valued using quoted yields where available for specific debt securities.
Level 2 – Financial instruments that have been valued through valuation techniques incorporating inputs other than quoted prices within
Level 1 that are observable for the financial asset or liability, either directly or indirectly.
Level 3 – Financial instruments that have been valued using valuation techniques which incorporate significant inputs for the financial asset
or liability that are not based on observable market data (unobservable inputs).
The methods used in valuing different classes of financial assets or liabilities are described in section (i) on pages 152 to 156. There havebeen no substantial changes in the valuation techniques applied to different classes of financial instruments since the previous year. The Group
continuously monitors the relevance of inputs used and calibrates its valuation models where there is evidence that changes are required
to ensure that the resulting valuations remain appropriate.
Valuation techniques
Quoted market price(Level 1)
Consolidated

Financial assets
Trading securities1
Derivative financial instruments
Available-for-sale financial assets
Investment backing policy liabilities
Loans and advances (designated at fair value)

Financial liabilities
Derivative financial instruments
Deposits and other borrowings (designatedat fair value)
Bonds and notes (designated at fair value)Life investment contract liabilities
External unit holder liabilities (life insurance funds)
Loan capital (designated at fair value)
Total

Using observable inputs(Level 2)

With significant
non-observable inputs(Level 3)

Total

2012
$m

2011
$m

2012
$m

2011
$m

2012
$m

2011
$m

2012
$m

2011
$m

33,105678
16,098
14,968–30,5982,711
19,21914,766–

7,496
47,916
4,433
14,614104

5,414
55,321
2,526
14,734
138

1
335
31
313
–

62
609
519
359
–

40,602
48,92920,56229,895
104

36,07458,641
22,26429,859138

64,84967,29474,56378,133680

1,549

140,092

146,976

750

2,847

51,41451,654475

789

52,63955,290

–
–
–
–
–

–
–
–
–
–

4,346
6,465
28,763
3,949
633

3,764
7,992
26,619
5,033
638

–
–
–
–
–

–
–
–
–
–

4,346
6,465
28,763
3,949
633

3,764
7,992
26,619
5,033
638

750

2,847

95,57095,700475

789

96,79599,336

1 $6.3 billion (Company: $6.3 billion) of Trading securities which were categorised as level 2 in 2011 have been restated to level 1 in 2011 since they are valued using quoted yields.

Valuation techniques
Quoted market price(Level 1)
The Company

Financial assets
Trading securities1
Derivative financial instruments
Available-for-sale financial assets
Loans and advances (designated at fair value)

Financial liabilities
Derivative financial instruments
Bonds and notes (designated at fair value)
Loan capital (designated at fair value)

Using observable inputs(Level 2)

With significant
non-observable inputs(Level 3)

Total

2012
$m

2011
$m

2012
$m

2011
$m

2012
$m

2011
$m

2012
$m

2011
$m

26,855676
14,901–

26,033
2,689
17,724–

3,634
42,255
2,914
65

2,272
48,422
921
97

1
335
26
–

62
609
372
–

30,49043,266
17,841
65

28,36751,72019,01797

42,432

46,446

48,86851,712362

1,043

91,662

99,201

746
–
–

2,833
–
–

44,826
6,465
633

45,125
7,992
638

475
–
–

789
–
–

46,047
6,465
633

48,747
7,992
638

746

2,833

51,92453,755475

789

53,14557,377

1 $6.3 billion (Company: $6.3 billion) of Trading securities which were categorised as level 2 in 2011 have been restated to level 1 in 2011 since they are valued using quoted yields.

NOTES TO THE FINANCIAL STATEMENTS

157

NOTES TO THE FINANCIAL STATEMENTS (continued)
34: Fair Value of Financial Assets and Financial Liabilities (continued)(iii) Additional information for financial instruments carried at fair value where the valuation incorporates non-observable market data
CHANGES IN FAIR VALUE
The following table presents the composition of financial instruments measured at fair value with significant non-observable inputs.
Financialliabilities

Financial assets
Trading securities

Derivatives

Available-for-sale

Investments backing
policy liabilities

Derivatives

2012
$m

2011
$m

2012
$m

2011
$m

2012
$m

2011
$m

2012
$m

2011
$m

2012
$m

2011
$m

Asset backed securities
Illiquid corporate bonds
Structured credit productsManaged funds (suspended)
Alternative assets
Other derivatives

1
–
–
–
–
–

62
–
–
–
–
–

–
–
243
–
–
92

–
–
605
–
–
4

2
9
–
–
20
–

5
514
–
–
–
–

–
–
94
133
86
–

–
–
110
159
90
–

–
–
(346)
–
–
(129)

–
–
(788)
–
–
(1)

Total

1

62

335

609

31

519

313

359

(475)

(789)

Asset backed securities
Illiquid corporate bonds
Structured credit products
Alternative assets
Other derivatives

1
–
–
–
–

62
–
–
–
–

–
–
243
–
92

–
–
605
–
4

–
6
–
20
–

–
372
–
–
–

n/a
n/a
n/a
n/a
n/a

n/a
n/a
n/a
n/a
n/a

–
–
(346)
–
(129)

–
–
(788)
–
(1)

Total

1

62

335

609

26

372

n/a

n/a

(475)

(789)

Consolidated

The Company

Asset backed securities and illiquid corporate bonds comprise illiquid bonds where the effect on fair value of issuer credit cannot be directly
or indirectly observed in the market.
Structured credit products categorised in derivatives comprise the structured credit intermediation trades that the Group entered into from2004 to 2007 whereby it sold protection using credit default swaps over certain structures, and mitigated risk by purchasing protection via credit
default swaps from US financial guarantors over the same structures. These trades are valued using complex models with certain inputs relating
to the reference assets and derivative counterparties not being observable in the market.
Structured credit products catergorised in investments backing policy liabilities comprise collateralised debt and loan obligations where there
is a lack of active trading and limited observable market data.
Managed funds (suspended) are comprised of fixed income and mortgage investments in managed funds that are illiquid and are notcurrently redeemable.
Alternative assets are largely comprised of various investments in unlisted equity securities. No active market exists for these securities and thevaluation model incorporates significant unobservable inputs.
Other derivatives predominantly comprise interest rate swaptions containing multi-callable features. Modelling uncertainties and complexities
are inherent in the valuation model which result in a significant range of possible valuation outcomes for these financial assets and liabilities.

158

ANZ ANNUAL REPORT 2012

34: Fair Value of Financial Assets and Financial Liabilities (continued)
The following table details movements in the balance of level 3 financial assets and liabilities. Derivatives are categorised on a portfolio basis
and classified as either financial assets or financial liabilities based on whether the closing balance is an unrealised gain or loss. This could be
different to the opening balance.
Financial assets
Trading securities

Derivatives

Financial liabilities

Available-for-sale

Investments backing
policy liabilities

Derivatives

Consolidated

2012
$m

2011
$m

2012
$m

2011
$m

2012
$m

2011
$m

2012
$m

2011
$m

2012
$m

2011
$m

Opening balance
New purchases and issues
Disposals (sales) and cash settlements
Transfers:
Transfers into the category
Transfers out of the category
Fair value gain/(loss) recorded in the income statement
Fair value gain (loss) recognised in equity

62
–
(60)
–
–
–
(1)
–

50
–
–
–
–
–
12
–

609
5
–
–
84
(4)
(359)
–

450
–
(18)
–
–
(3)
180
–

519
–
–
–
24
(508)
(4)
–

646
9
(139)
–
–
–
20
(17)

359
29
(79)
–
–
–
4
–

471
–
(92)
–
–
–
(20)
–

(789)
(1)
–
–
(128)
1
442
–

(646)
–
21
–
–
17
(181)
–

1

62

335

609

31

519

313

359

(475)

(789)

62
–
(60)
–
–
–
(1)
–
1

50
–
–
–
–
–
12
–
62

609
5
–
–
84
(4)
(359)
–
335

450
–
(18)
–
–
(3)
180
–
609

372
–
–
–
20
(366)
–
–
26

409
–
(7)
–
–
–
–
(30)
372

n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a

n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a

(789)
(1)
–
–
(128)
1
442
–
(475)

(646)
–
21
–
–
17
(181)
–
(789)

Closing balance
The Company

Opening balance
New purchases and issues
Disposals (sales) and cash settlements
Transfers:
Transfers into the category
Transfers out of the category
Fair value gain/(loss) recorded in the income statement
Fair value gain (loss) recognised in equity
Closing balance

Transfers out of level 3 relate principally to certain assets where the credit spread component has become observable during the year or whereassets have been reclassified and are no longer measured at fair value.
Transfers into level 3 predominantly comprise interest rate swaptions containing multi-callable features. Market conditions prevalent in thecurrent financial year have generated modelling uncertainties and complexities in their valuation, resulting in a significant range of possible
valuation outcomes for these exposures. Transfers-in are assumed to occur at the time these instruments were deemed to be level 3. Transfersout are assumed to occur at the beginning of the reporting period.

NOTES TO THE FINANCIAL STATEMENTS

159

NOTES TO THE FINANCIAL STATEMENTS (continued)
34: Fair Value of Financial Assets and Financial Liabilities (continued)
SENSITIVITY TO DATA INPUTS
Where valuation techniques use assumptions due to significant data inputs not being directly observed in the market place, changing theseassumptions changes the resultant estimate of fair value. The majority of transactions in this category are ‘back-to-back’ in nature where ANZ
either acts as a financial intermediary or hedges market risks. Similarly, the performance of investments backing policyholder liabilities directly
impacts the associated life investment contracts they relate to. In these circumstances, changes in the assumptions generally have minimal
impact on the income statement and net assets of ANZ. An exception to this is the ‘back-to-back’ structured credit intermediation trades which
create significant exposure to market risk and/or credit risk.
Principal inputs used in the determination of fair value of financial instruments included in this group include counterparty credit spreads,
market-quoted CDS prices, recovery rates, default probabilities, correlation curves and other inputs, some of which may not be directly
observable in the market. For both the Group and the Company, the potential effect of changing prevailing assumptions to reasonably possible
alternative assumptions for valuing those financial instruments could result in an increase of $27 million (2011: $46 million) or a decrease of$18 million (2011: $30 million) in net derivative financial instruments as at 30 September 2012. The ranges of reasonably possible alternative
assumptions are established by application of professional judgement and analysis of the data available to support each assumption.

DEFERRED FAIR VALUE GAINS AND LOSSES
Where the fair value of a financial instrument is determined using non-observable data that has a significant impact on the valuationof the instrument, any difference between the transaction price and the amount determined based on the valuation technique arisingon initial recognition of the financial instrument (day one gain or loss) is deferred on the balance sheet. Subsequently, the day one gainor loss is recognised in the income statement only to the extent that it arises from a change in factors (including time) that a market
participant would consider in setting the price for the instrument.
The aggregate amount of day one gain/(loss) not recognised in the income statement on the initial recognition of the financial instrument,
because the difference between the transaction price and the modelled valuation price was not fully supported by inputs that were observable,amounted to $4 million (2011: $2 million). $3 million (2011: $nil) in unrecognised gains was added during the year with $1 million(2011: $1 million) being recognised in the income statement during the year through the amortisation process.

(iv) Additional information for financial instruments designated at fair value through profit or loss
FINANCIAL ASSETS DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS
The category loans and advances includes certain loans designated at fair value through profit or loss in order to eliminate an accounting
mismatch which would arise if the asset were otherwise carried at amortised cost. This mismatch arises as the derivative financial instruments,
which were acquired to mitigate interest rate risk of the loan and advances, are measured at fair value through profit or loss. By designating the
economically hedged loans, the movements in the fair value attributable to changes in interest rate risk will also be recognised in the income
statement in the same periods.
At balance date, the credit exposure of the Group on these assets was $104 million (2011: $138 million) and for the Company was $65 million(2011: $97 million). For the Group and Company $66 million (2011: $84 million) was mitigated by collateral held.
The cumulative change in fair value attributable to change in credit risk was, for the Group, a reduction to the assets of $4 million (2011: $3 million).
For the Company the cumulative change to the assets was $nil (2011: $nil). The amount recognised in the income statement attributable tochanges in credit risk for the Group was a loss of $1 million (2011: $1 million gain) and for the Company $nil (2011: $nil).
The change in fair value of the designated financial assets attributable to changes in credit risk has been calculated by determining the change
in credit rating and credit spread implicit in the loans and advances issued by entities with similar credit characteristics.

160

ANZ ANNUAL REPORT 2012

34: Fair Value of Financial Assets and Financial Liabilities (continued)
FINANCIAL LIABILITIES DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS
Parts of loan capital, bonds and notes and deposits and other borrowings have been designated as financial liabilities at fair value through profit
or loss in order to eliminate an accounting mismatch which would arise if the liabilities were otherwise carried at amortised cost. This mismatcharises as the derivatives acquired to mitigate interest rate risk within the financial liabilities are measured at fair value through profit or loss.
Life investment contracts are designated at fair value through profit or loss in accordance with AASB 1038.
The table below compares the carrying amount of financial liabilities carried at full fair value, to the contractual amount payable at maturity
and fair value gains and losses recognised during the period on liabilities carried at full fair value that are attributable to changes in ANZ’s own
credit rating.

Consolidated

Carrying AmountAmount at which carrying value is greater/(less) thanamount payable at maturity
Cumulative change in liability value attributable to own
credit risk:– opening cumulative increase/(decrease)– increase/(decrease) recognised during the year
– closing cumulative increase/(decrease)

Life investment
contract liabilities
and external
unitholder liabilities

Deposits and otherborrowings

Bonds and notes

2012
$m

2011
$m

2012
$m

2011
$m

2012
$m

2011
$m

2012
$m

2011
$m

32,712

31,652

4,346

3,764

6,465

7,992

633

638

–

–

(3)

–

(123)

8

(12)

3

–
–
–

–
–
–

–
–
–

–
–
–

(151)
91
(60)

(10)
(141)
(151)

(32)
28
(4)

(18)
(14)
(32)

Loan capital

Bonds and notes
The Company

Carrying amountAmount at which carrying value is greater/(less) thanamount payable at maturity
Cumulative change in liability value attributable to own
credit risk:– opening cumulative increase/(decrease)– increase/(decrease) recognised during the year
– closing cumulative increase/(decrease)

Loan capital

2012
$m

2011
$m

2012
$m

2011
$m

6,465
(123)

7,992
8

633
(12)

638
3

(151)
91
(60)

(10)
(141)
(151)

(32)
28
(4)

(18)
(14)
(32)

For each of loan capital, bonds and notes and deposits and other borrowings, the change in fair value attributable to changes in credit riskhas been determined as the amount of change in fair value that is not attributable to changes in market conditions that give rise to market
risks (benchmark interest rate and foreign exchange rates).

35: Maturity Analysis of Assets and Liabilities
The following is an analysis, by remaining contractual maturities at balance date, of selected asset and liability accounts and represents theactual obligation date expected for the asset or liability to be recovered or settled within one year, and greater than one year.
2012
Due within
one year$m

Greater than
one year1$m

Due from other financial institutions
Available-for-sale assets
Net loans and advances
Investments backing policy liabilities

17,037
8,936
101,577
3,938

Due to other financial institutions
Deposits and other borrowings
Bonds and notes
Policy liabilities
External unit holder liabilities (life insurance funds)
Loan capital

30,502
377,113
15,00528,763
3,949–

Consolidated

2011
Total
$m

Due within
one year$m

Greater than
one year1
$m

Total
$m

66
11,626326,246
25,957

17,103
20,562427,823
29,895

13,16817,93097,459
2,242

130
4,334
299,848
27,617

13,29822,264397,30729,85936
20,01048,093774–
11,91430,538397,123
63,09829,537
3,949
11,91427,449347,885
13,874
26,619
5,033
720

86
20,84442,677884–
11,273

27,535
368,72956,551
27,503
5,033
11,993NOTES TO THE FINANCIAL STATEMENTS

161

1 Includes items where no maturity is specified.

NOTES TO THE FINANCIAL STATEMENTS (continued)
36: Segment Analysis(i) Description of segments
The Group operates on a divisional structure with Australia, International and Institutional Banking (IIB), New Zealand and Global Wealthand Private Banking being the major operating divisions. The IIB and Global Wealth and Private Banking divisions are co-ordinated globally.
The segments and product and services categories as reported below are consistent with internal reporting provided to the chief operating
decision maker, being the Chief Executive Officer.
In order to support the Group’s super regional strategy and give focus to the Group’s areas of growth and opportunity, the divisional segments
were changed from those used in the prior year. This involved the combination of the former APEA and Institutional divisions into one division,
IIB, and the creation of a new division, Global Wealth and Private Banking. Comparative information has been restated accordingly.
The primary sources of external revenue across all divisions are interest, fee income and trading income. The Australia and New Zealanddivisions derive revenue from products and services from retail banking and commercial banking. IIB derives its revenue from retail banking,and institutional and commercial products and services. Global Wealth and Private Banking derives revenue from wealth products and privatebanking. Group Centre provides support to all divisions, including risk management, financial management, strategy and marketing,human resources and corporate affairs.

(ii) Operating segments
Transactions between business units across segments within ANZ are conducted on an arms length basis.

Year ended 30 September 2012 ($m)

Australia

InternationalandInstitutional
Banking

External interest income
External interest expense
Adjustment for intersegment interest
Net interest income
Other external operating income
Share of net profit/(loss) of equity
accounted investments
Segment revenue
Other external expenses
Net intersegment expenses
Operating expenses
Profit before income tax and provision
for credit impairment
Provision for credit impairment
Segment result before tax
Income tax expense
Non-controlling interests
Profit after income tax attributed toshareholders of the company
Non-cash expenses
Depreciation and amortisation
Equity-settled share-based payment
expenses
Provision for credit impairment
Financial position
Goodwill
Shares in associates
Total external assets
Total external liabilities

17,175(6,463)(4,788)
5,924
1,196

8,631
(3,327)(1,462)
3,842
2,351

4,285
(1,857)
(656)
1,772
325

325
(416)
214
123
1,355

119
(6,365)
6,696
450
(157)

3
–
(4)
(1)
136

30,538(18,428)–
12,110
5,206

(2)
7,118
(2,045)(848)(2,893)399
6,592(2,543)(390)(2,933)

–
2,097
(948)
27
(921)

–
1,478
(744)
(113)
(857)

1
294
(1,771)
1,353
(418)

(3)
132
(467)
(30)
(497)

395
17,711(8,518)(1)(8,519)

4,225
(666)
3,559
(1,067)
–

3,659
(427)
3,232
(854)
(6)

1,176
(148)
1,028
(285)
–

621
(4)
617
(166)
–

(124)
(1)
(125)
78
–

(365)
48
(317)
(33)
–

9,192
(1,198)
7,994(2,327)
(6)

2,492

2,372

743

451

(47)

(350)

5,661

(114)

(196)

(55)

(39)

(206)

(3)

(613)

(26)

(106)

(16)

(12)

(29)

–

(189)

(666)

(427)

(148)

(4)

(1)

48

(1,198)–6
247,531
154,666

1,014
3,426
276,306
231,966

1,604
2
71,816
57,8421,594
945,351
46,251–
68
1,232
110,209

–
9
(109)
(27)

4,212
3,520
642,127
600,907

New
Zealand

Global Wealthand Private
Banking

Group
CentreOther
items1

Group
Total

1 In evaluating the performance of the operating segments, certain items are removed from the operating segment results, where they are not considered integral to the ongoing performanceof the segment and are evaluated separately. These items are set out in part (iii) of this note (refer pages 204 to 206 for further analysis).

162

ANZ ANNUAL REPORT 2012

36: Segment Analysis (continued)

Year ended 30 September 2011 ($m)

Australia

InternationalandInstitutional
Banking

External interest income
External interest expense
Adjustment for intersegment interest
Net interest income
Other external operating income
Share of net profit/(loss) of equity
accounted investments
Segment revenue
Other external expenses
Net intersegment expenses
Operating expenses
Profit before income tax and provision
for credit impairment
Provision for credit impairment
Segment result before tax
Income tax expense
Non-controlling interests
Profit after income tax attributed toshareholders of the company
Non-cash expenses
Depreciation and amortisation
Equity-settled share-based payment
expenses
Provision for credit impairment
Financial position
Goodwill
Shares in associates
Total external assets
Total external liabilities

17,197(6,197)(5,218)
5,782
1,187

8,194
(3,631)
(896)
3,667
2,092

4,513
(1,948)
(864)
1,701
316

345
(342)
132
135
1,350

189
(6,826)
6,850
213
(61)

5
1
(4)
2
112

30,443(18,943)–
11,500
4,996

(2)
6,967
(1,995)(841)(2,836)431
6,190(2,402)(355)(2,757)

–
2,017
(929)
23
(906)

–
1,485
(746)
(107)
(853)

1
153
(1,667)
1,301
(366)

6
120
(284)
(21)
(305)

436
16,932(8,023)–(8,023)

4,131
(719)
3,412
(1,022)
–

3,433
(293)
3,140
(830)
(9)

1,111
(166)
945
(283)
–

632
8
640
(183)
–

(213)
(41)
(254)
96
–

(185)
(26)
(211)
(87)
1

8,909
(1,237)
7,672(2,309)
(8)

2,390

2,301

662

457

(158)

(297)

5,355

(114)

(148)

(49)

(47)

(175)

(1)

(534)

(22)

(90)

(16)

(2)

(35)

–

(165)

(719)

(293)

(166)

8

(41)

(26)

(1,237)–9
231,113138,168

1,009
3,376
259,397
223,4201,579
2
69,07253,0391,575
2143,97043,456–67593
108,137

–
38
68
39

4,163
3,513
604,213566,259

New
Zealand

Global Wealthand Private
Banking

Group
CentreOther
items1

Group
Total

1 In evaluating the performance of the operating segments, the results are adjusted for certain non-core items where they are not considered integral to the ongoing performance of the segment
and are evaluated separately. These items are set out in part (iii) of this note (refer pages 205 to 206 for further analysis).

(iii) Other items
The table below sets out the profit after tax impact of other items.
Profit after tax
Item

Gain on sale of Visa shares
New Zealand Simplification programmeAcquisition related adjustments
Treasury shares adjustment
Changes in New Zealand tax legislation
Economic hedging – fair value (gains)/losses
Revenue and net investment hedges (gains)/losses
Capitalised software impairment
New Zealand managed funds impacts
Non continuing businesses
Total

2012
$m

2011
$m

224
(105)
(41)
(96)
–
(229)
53
(220)
(1)
65
(350)

–
(86)
(126)
41
2
(117)
(51)
–
39
1
(297)

NOTES TO THE FINANCIAL STATEMENTS

163

Related segment

New Zealand and Group Centre
New ZealandGlobal Wealth and Private Banking and IIB
Global Wealth and Private Banking
New Zealand and IIB
IIBGroup Centre
Australia, IIB, Global Wealth and Private Banking, and Group Centre
New Zealand
IIBNOTES TO THE FINANCIAL STATEMENTS (continued)
36: Segment Analysis (continued)(iv) External segment revenue by products and services
The table below sets out revenue from external customers for groups of similar products and services.
Revenue

RetailCommercial
WealthInstitutional
Partnerships
Other

2012
$m

2011
$m

6,312
3,786
1,478
5,320
328
487
17,711

6,112
3,700
1,485
4,961
327
347
16,932(v) Geographical information
The following table sets out revenue and non-current assets1 based on the geographical locations in which the Group operates.
Australia
Consolidated

Total external revenue
Non-current assets1

APEA

New Zealand

Total

2012
$m

2011
$m

2012
$m

2011
$m

2012
$m

2011
$m

2012
$m

2011
$m

12,117288,171

11,904260,004

2,801
21,162

2,425
22,401

2,793
54,562

2,603
49,524

17,711
363,895

16,932331,929

1 Non-current assets referred to are assets that are expected to be recovered more than 12 months after balance date. They do not include financial instruments, deferred tax assets,
post-employment benefits assets or rights under insurance contracts.

164

ANZ ANNUAL REPORT 2012

37: Notes to the Cash Flow Statementsa) Reconciliation of net profit after income tax to net cash provided by/(used in) operating activities
Consolidated

The Company

Inflows(Outflows)2012$mInflows(Outflows)2011$mInflows(Outflows)2012$mInflows(Outflows)2011$mOperating profit after income tax attributable to shareholders of the Company

5,661

5,355

4,875

4,151

Adjustment to reconcile operating profit after income tax to net cash
provided by/(used in) operating activities
Provision for credit impairment
Impairment on available for sale assets transferred to profit and loss
Credit risk on intermediation trades
Depreciation and amortisation(Profit)/Loss on sale of businesses

1,198
44
(73)
723
(4)

1,237
72
(4)
645
(6)

985
35
(73)
483
(20)

994
72
(2)
403
–

Provision for employee entitlements, restructuring and other provisions
Payments from provisions(Profit)/loss on sale of premises and equipment(Profit)/loss on sale of available-for-sale assets
Amortisation of discounts/premiums included in interest income
Share-based payments expense
Change in policy liabilities
Net derivatives/foreign exchange adjustment

798
(845)
23
(225)
(7)
189
2,449
(1,093)

822
(852)
(20)
(68)
(13)
167
(854)
187

373
(426)
17
(164)
3
189
–
(1,230)

345
(518)
7
(31)
6
167
–
711

Net (increase)/decrease in operating assets
Trading securities
Liquid assets
Due from other banks
Loans and advances
Investments backing policy liabilities
Net derivative financial instruments
Net intra-group loans and advancesInterest receivable
Accrued income
Net tax assets(4,589)435(4,256)(32,748)(2,569)
4,734
–
(110)
25
(525)

(7,614)
1,593(1,476)(25,568)
1,319(2,038)
–
(45)
80
277

(2,275)419(3,886)(28,592)
–
3,687
(283)
(88)
4
(839)

(5,558)1,106(1,586)(25,753)–(3,751)
336
(55)
82
(371)

Net (decrease)/increase in operating liabilities:
Deposits and other borrowings
Due to other financial institutions
Payables and other liabilities
Interest payable
Accrued expenses
Other

33,662
4,184
209
(399)
(455)
(20)

43,834
1,350
584
124
21
(308)

30,834
4,836
441
(179)
(368)
286

42,542
1,415
835
119
23
(12)

755

13,446

4,169

11,526

6,416

18,801

9,044

15,677

Total adjustments
Net cash provided by/(used in) operating activities

NOTES TO THE FINANCIAL STATEMENTS

165

NOTES TO THE FINANCIAL STATEMENTS (continued)
37: Notes to the Cash Flow Statements (continued)b) 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
three months, from the date of acquisition. 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 the statements of financial position as follows:
Consolidated

The Company

2012
$m

2011
$m

2012
$m

2011
$m

Liquid assets
Due from other financial institutions

35,583
5,867

24,1295,892

31,787
4,481

19,801
3,850

Cash and cash equivalents in the statement of cash flows

41,45030,021

36,26823,651c) Acquisitions and disposals
Consolidated

Cash (inflows)/outflows from acquisitions and investments (net of cash acquired)
Purchases of controlled entities and businesses
Investments in controlled entities
Purchases of interest in associates
Cash inflows from disposals (net of cash disposed)
Disposals of controlled entities
Disposals of associates

The Company

2012
$m

2011
$m

2012
$m

2011
$m

11
–
–

44
–
260

10
327
–

–
–
260

11

304

337

260

–
18

6
68

–
36

–
36

18

74

36

36

1,461
80

1,367
66

1,461
80

1,367
66

1,541

1,433

1,541

1,433

d) Non-cash financing and investing activities
Share capital issues
Dividends satisfied by share issue
Dividends satisfied by bonus share issuee) Financing arrangements

Consolidated
2012

2011

Available$m

Unused$m

Available$m

Unused
$m

978

978

Credit stand by arrangements
Standby lines
Other financing arrangements
Over and other financing arrangements

–

–

–

–

–

–

Total finance available

–

–

978

978

166

ANZ ANNUAL REPORT 2012

38: Controlled Entities
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:
ANZ Bank (Lao) Limited1
ANZ Bank (Vietnam) Limited1
ANZ Capel Court Limited
ANZ Capital Hedging Pty Ltd
ANZ Commodity Trading Pty Ltd
ANZcover Insurance Pty Ltd
ANZ Trustees Limited
ANZ Funds Pty Ltd
ANZ Bank (Europe) Limited1
ANZ Bank (Kiribati) Limited1,2
ANZ Bank (Samoa) Limited1
ANZ Holdings (New Zealand) Limited1
ANZ Bank New Zealand Limited1 (formerly ANZ National Bank Limited 3)
ANZ Investment Services (New Zealand) Limited1
ANZ New Zealand (Int’l) Limited1 (formerly ANZ National (Int’l) Limited3)
OnePath Holdings (NZ) Limited1
OnePath Insurance Holdings (NZ) Limited1
OnePath Life (NZ) Limited1
Private Nominees Limited1
UDC Finance Limited1
ANZ International (Hong Kong) Limited1
ANZ Asia Limited1
ANZ Bank (Vanuatu) Limited4
ANZ International Private Limited1
ANZ Singapore Limited1
ANZ Royal Bank (Cambodia) Limited1,2
Votraint No. 1103 Pty Ltd
ANZ Lenders Mortgage Insurance Pty Ltd
ANZ Orchard Investments Pty Ltd
ANZ Wealth Australia Limited (formerly OnePath Australia Limited)
OnePath Life Limited
OnePath General Insurance Pty Limited
OnePath Funds Management Limited
OnePath Custodians Limited
Australia and New Zealand Banking Group (PNG) Limited1
Australia and New Zealand Bank (China) Company Limited1
Chongqing Liangping ANZ Rural Bank Company Limited1
Citizens Bancorp Inc
ANZ Guam Inc.5
Esanda Finance Corporation Limited
ETRADE Australia Limited
ETRADE Australia Securities Limited
LFD Pty Ltd
PT Bank ANZ Indonesia (formerly PT ANZ Panin Bank)1,2

Incorporated in

Nature of business

Australia

Banking

Laos
Vietnam
Australia
Australia
Australia
Australia
Australia
Australia
United Kingdom
Kiribati
Samoa
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New ZealandHong Kong
Hong Kong
VanuatuSingapore
Singapore
Cambodia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Papua New Guinea
China
China
Guam
Guam
Australia
Australia
Australia
Australia
Indonesia

Banking
Banking
Investment Banking
Hedging
Finance
Captive-Insurance
Trustee/Nominee
Holding Company
Banking
Banking
Banking
Holding Company
Banking
Funds Management
Finance
Holding Company
Holding Company
Insurance
NomineeFinance
Holding Company
Banking
Banking
Holding Company
Merchant Banking
Banking
Investment
Mortgage Insurance
Holding Company
Holding Company
Insurance
Insurance
Funds Management
Trustee
Banking
Banking
Banking
Holding Company
Banking
General FinanceHolding Company
Online Stockbroking
Holding Company
Banking

1 Audited by overseas KPMG firms.
2 Non-controlling interests hold ordinary shares or units in the controlled entities listed above as follows: ANZ Bank (Kiribati) Limited – 150,000 $1 ordinary shares (25%) (2011: 150,000 $1 ordinary
shares (25%)); PT Bank ANZ Indonesia – 16,500 IDR 1 million shares (1%) (2011: 16,500 IDR 1 million shares (1%)); ANZ Royal Bank (Cambodia) Limited – 319,500 USD100 ordinary shares (45%)(2011: 319,500 USD100 ordinary shares (45%)).
3 Name changes occurred on 29 October 2012.
4 Audited by Hawkes Law.
5 Audited by Deloitte Guam.

NOTES TO THE FINANCIAL STATEMENTS

167

NOTES TO THE FINANCIAL STATEMENTS (continued)
39: Associates
Significant associates of the Group are as follows:
Date Ownership
becameinterest
an associate
held

AMMB Holdings Berhad
PT Bank Pan Indonesia2
Shanghai Rural Commercial Bank3
Bank of Tianjin4
Saigon Securities Inc.2,5Diversified Infrastructure TrustMetrobank Card Corporation
Other associates

Votinginterest

Incorporatedin

Malaysia
Indonesia
Peoples Republicof China
Peoples Republicof China
Vietnam
Australia
Philippines

May 2007
April 2001

24%
39%

24%
39%

September 2007

20%

20%

June 2006
July 2008
March 2008
October 2003

18%
18%
37%
40%

18%
18%
37%
40%

Total carrying value of associates

Carrying
value
2012
$m

1,143
668

Carrying
value
2011
$m

Fair
value1$m

Reportingdate

Principal
activity

1,111 1,421
685
644

31 March
31 December

Banking
Banking

959

952

n/a

31 December

Banking

448
74
81
50
97

384
115
82
44
140

n/a
46
118
n/a

31 December
31 December
30 September
31 December

Banking
Stockbroking
Investment
Cards Issuing

3,520

3,513

1
2
3
4

Applicable to those investments in associates where there are published price quotations. Fair value is based on a price per share and does not include any adjustments for holding size.
A value-in-use estimation supports the carrying value of this investment.
During the year ended 30 September 2011 the Group invested an additional RMB 1.65 billion ($255 million) in Shanghai Rural Commercial Bank (SRCB) as part of a major capital raising by SRCB.
In the current year the Group elected not to participate in the rights issue of Bank of Tianjin. Consequently, the Group’s ownership interest has reduced from 20% to 18%. The Group maintains
significant influence via the representation on the Board of Directors. A net dilution gain of $10 million was recognised as a result of the dilution of the Group’s ownership interest.
5 Significant influence was established via representation on the Board of Directors.

Aggregated assets of significant associates (100%)
Aggregated liabilities of significant associates (100%)
Aggregated revenues of significant associates (100%)
Aggregated profits of significant associates (100%)

2012
$m

2011
$m

140,610
128,245
8,244
1,761

131,297
119,664
6,898
1,465

Consolidated
2012
$m

2011
$m

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

542
(135)

476
(121)

Share of associates net profit – as disclosed by associates
Adjustments1
Share of associates net profit accounted for using the equity method

407
(12)
395

355
81
436

1 The results differ from the published results of these entities due to the application of IFRS, Group Policies and acquisition adjustments.

168

ANZ ANNUAL REPORT 2012

40: Securitisations and Covered Bonds
The Group enters into transactions in the normal course of business by which it transfers financial assets directly to third parties or to special
purpose entities. These transfers may give rise to the full or partial derecognition of those financial assets.
Full derecognition occurs when the Group transfers its contractual right to receive cash flows from the financial assets, or retains the right but
assumes an obligation to pass on the cash flows from the asset, and transfers substantially all the risks and rewards of ownership. These risks
include credit, interest rate, currency, prepayment and other price risks.
Partial derecognition occurs when the Group sells or otherwise transfers financial assets in such a way that some but not substantially all of
the risks and rewards of ownership are transferred but control is retained. These financial assets continue to be recognised on the balance
sheet to the extent of the Group’s continuing involvement.
Group-originated financial assets that do not qualify for derecognition typically relate to loans that have been transferred under arrangements
by which the Group retains a continuing involvement in the transferred assets. Continuing involvement may entail retaining the rights to future
cash flows arising from the assets after investors have received their contractual terms, providing subordinated interests, liquidity support,
continuing to service the underlying asset and entering into derivative transactions with the securitisation vehicles. In such instances, theGroup continues to be exposed to risks associated with these transactions.

Securitisations
Net loans and advances include residential mortgages securitised under the Group’s securitisation programs which are assigned to bankruptcy
remote special purpose entities (SPEs) to provide security for obligations payable on the notes issued by the SPEs. This includes mortgages thatare held for potential repurchase agreement (REPO) with central banks. The noteholders have full recourse to the pool of residential mortgages
which have been securitised. The Company cannot otherwise pledge or dispose of the transferred assets.
As holder of the securitised notes the Company retains the credit risk associated with the securitised mortgages. In addition, the Company
is entitled to any residual income of the SPEs and, where the SPEs include interest rate and foreign currency derivatives that have not beenexternalised, the interest rate and foreign currency risk are held in the Company. The Company is therefore deemed to have retained the majorityof the risks and rewards of the residential mortgages and as such continues to recognise the mortgages as financial assets. The obligations to
repay this amount to the SPE is recognised as a financial liability of the Company. As the Group has control over the SPEs activities, they are
consolidated by the Group.

Covered bonds
During the financial year ended 30 September 2012, the Group established two global covered bond programs. Net loans and advances include
residential mortgages assigned to bankruptcy remote SPEs associated with these covered bond programs to provide security for the obligations
payable on the covered bonds issued by the Group. The covered bond holders have dual recourse to the issuer and the covered pool assets.
The Company cannot otherwise pledge or dispose of the transferred assets, however, it may repurchase and substitute assets as long as therequired cover is maintained.
The Company, as issuer of the covered bonds, is required to maintain the cover pool at a level sufficient to cover the bond obligations. Therefore,
the majority of the credit risk associated with the underlying mortgages within the cover pool is retained by the Company. In addition, theCompany is entitled to any residual income of the covered bond SPEs and where the SPEs include interest rate and foreign currency derivatives
that have not been externalised, the interest rate and foreign currency risk are held in the Company. The Company is therefore deemed to haveretained the majority of the risks and rewards of the residential mortgages and as such continues to recognise the mortgages as financial assets.
The obligation to repay this amount to the SPE is recognised as a financial liability of the Company. As the Group has control over the SPE’s
activities, they are consolidated by the Group. The external covered bonds issued are included within the Bonds and Notes.
The table below sets out the balance of assets transferred by the Company to special purpose entities (consolidated by the Group) that continue
to be recognised by the Company because they do not qualify for derecognition, along with the associated liabilities.
Consolidated1

The Company

2012
$m

2011
$m

2012
$m

2011
$m

Securitisations2Current carrying amount of assets recognised
Carrying amount of associated liabilities

–
–

–
–

41,78941,78931,28031,280Covered bonds
Current carrying amount of assets recognised
Carrying amount of associated liabilities3

–
–

–
–

11,304
8,798––

1 The balances are nil as the Company balances relate to transfers to internal special purpose vehicles. The total covered bonds issued by the Group to external investors at 30 September 2012
was $11,162 million, secured by $15,276 million of specified residential mortgages.
2 The securisation noteholders have recourse only to the pool of residential mortgages which have been securitised. The carrying value of securitised assets and the associated liabilities
approximate their fair value value.
3 The associated liability represents the Covered Bonds issued by the Company to external investors. As a result of over collateralisation held in the covered bond SPE, the Company’s liability
to the covered bond SPE is $11,304 million (2011: $nil).

NOTES TO THE FINANCIAL STATEMENTS

169

NOTES TO THE FINANCIAL STATEMENTS (continued)
41: 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 theGroup 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 is incurred inan agency capacity as trustee of the trust rather than on the Group’s own account, a right of indemnity exists against the assets of the applicablefunds or trusts. As these assets are sufficient to cover the liabilities and it is therefore not probable that the Company or its controlled entities
will be required to settle the liabilities, the liabilities are not included in the financial statements.
The aggregate amounts of funds concerned are as follows:

Trusteeships

2012
$m

2011
$m

3,958

3,418

Funds management activities
Funds management activities are conducted through Group controlled entities ANZ Wealth Australia Limited (formerly OnePath Australia Limited)
and OnePath Holdings (NZ) Limited and certain other subsidiaries of the Group. Funds under management in these entities are included in these
consolidated financial statements where they are controlled by the Group.
The aggregate funds under management which are not included in these consolidated financial statements are as follows:

ANZ Wealth Australia Limited
OnePath Holdings (NZ) Limited
Other controlled entities – New Zealand
Other controlled entities – Australia

2012
$m

2011
$m

7,079
5,845
6,673
22

6,420
5,271
6,295
50

19,61918,036

42: Commitments
Consolidated

The Company

2012
$m

2011
$m

2012
$m

2011
$m

Property
Capital expenditure
Contracts for outstanding capital expenditure

78

61

70

51

Total capital expenditure commitments1

78

61

70

51

Lease rentals
Land and buildings
Furniture and equipment

1,561
177

1,502
130

1,313
161

1,306
116

Total lease rental commitments

1,738

1,632

1,474

1,422

400
887
451

377
863
392

330
767
377

307
746
369

1,738

1,632

1,474

1,422

Not later than 1 year
Later than one year but not later than 5 years
Later than 5 years
Total lease rental commitments
1 Relates to premises and equipment.

170

ANZ ANNUAL REPORT 2012

43: Credit Related Commitments, Guarantees, Contingent Liabilities and Contingent Assets
CREDIT RELATED COMMITMENTS, GUARANTEES AND CONTINGENT LIABILITIESCredit related commitments
Facilities provided

Consolidated

The Company

Contract
amount2012$m

Contract
amount2011$mContract
amount2012$m

Contract
amount2011$m

Undrawn facilities

141,355

135,243

118,461

114,461

Australia1

New Zealand
Asia Pacific, Europe & America

77,137
16,82247,39677,367
15,56942,307

77,119–41,342

77,273–37,188

Total

141,355

135,243

118,461

114,461

1 September 2011 undrawn facilities have been restated by $2,646 million using the revised methodology for undrawn overdrafts that was implemented during 2012.

Guarantees and contingent liabilities
Details of the estimated maximum amount of guarantees and contingent liabilities that may become payable are disclosed on the following
pages. These guarantees and contingent liabilities relate to transactions that the Group has entered into as principal.
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.
To reflect the risk associated with these transactions, they are subjected to the same credit origination, portfolio management and collateralrequirements for customers that apply for loans. The contract amount represents the maximum potential amount that could be lost if thecounterparty fails to meet its financial obligations. As the facilities may expire without being drawn upon, the notional amounts do notnecessarily reflect future cash requirements.
Consolidated

The Company

Contract
amount2012$m

Contract
amount2011$mContract
amount2012$m

Contract
amount2011$mFinancial guarantees
Standby letters of credit
Documentary letter of credit
Performance related contingencies
Other

6,711
2,450
3,201
19,440
581

6,923
2,672
2,964
17,770
881

5,812
2,156
2,689
18,330
632

5,942
2,307
2,561
16,793666

Total

32,38331,21029,61928,269Australia
New Zealand
Asia Pacific, Europe & America

15,516
1,075
15,792

15,182
1,122
14,906

15,516–
14,103

15,182–
13,087

Total

32,38331,21029,61928,269NOTES TO THE FINANCIAL STATEMENTS

171

NOTES TO THE FINANCIAL STATEMENTS (continued)
43: Credit Related Commitments, Guarantees, Contingent Liabilities and Contingent Assets (continued)
OTHER BANK RELATED CONTINGENT LIABILITIESGENERAL
There are outstanding court proceedings, claims and possible claims
against the Group, the aggregate amount of which cannot readily
be quantified. Appropriate legal advice has been obtained and,in the light of such advice, provisions as deemed necessary havebeen made. In some instances we have not disclosed the estimatedfinancial impact as this may prejudice the interests of the Group.

i) Exception fees class action
In September 2010, litigation funder IMF (Australia) Ltd commenced
a class action against ANZ. The action is claimed to be on behalf ofapproximately 38,000 ANZ customers for more than $50 million in
exception fees claimed to have been charged to those customers.
The case is at an early stage. ANZ is defending it. There is a risk thatfurther claims could emerge.

ii) Security recovery actionsv) Clearing and settlement obligations
In accordance with the clearing and settlement arrangements set out:in the Australian Payments Clearing Association Limited’s
Regulations for the Australian Paper Clearing System, the Bulk
Electronic Clearing System, the Consumer Electronic Clearing
System and the High Value Clearing System (HVCS), the Company
has a commitment to comply with rules which could result ina bilateral exposure and loss in the event of a failure to settle bya member institution; andin the Austraclear System Regulations (Austraclear) and the
CLS Bank International Rules, the Company has a commitment
to participate in loss-sharing arrangements in the event of a failure
to settle by a member institution.
For HVCS and Austraclear, the obligation arises only in limited
circumstances.

vi) Deed of Cross Guarantee in respect of certain controlled entitiesiii) Contingent tax liability

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 lodgement of individual financial statements in Australia. The
results of these companies are included in the consolidated Group
results.

The Australian Taxation Office (ATO) is reviewing the taxation
treatment of certain transactions undertaken by the Group in
the course of normal business activities.

The entities to which relief was granted are:
ANZ Properties (Australia) Pty Ltd1

Various claims have been made or are anticipated, arising fromsecurity recovery actions taken to resolve impaired assets over recent
years. ANZ will defend these claims and any future claims.

ANZ Capital Hedging Pty Ltd1

Risk reviews and audits are also being undertaken by revenue
authorities in other jurisdictions, as part of normal revenue authority
activity in those countries.

Alliance Holdings Pty Ltd1,6
ANZ Orchard Investments Pty Ltd2The Group has assessed these and other taxation claims arisingin Australia and elsewhere, including seeking independent advice
where appropriate, and considers that it holds appropriate provisions.

ANZ Securities (Holdings) Limited3iv) Interbank Deposit Agreement

Votraint No. 1103 Pty Ltd2ANZ has entered into an Interbank Deposit Agreement with the
major banks in the payment system. This agreement is a payment
system support facility certified by APRA, where the terms are
such that if any bank is experiencing liquidity problems, the otherparticipants are required to deposit equal amounts of up to $2 billion
for a period of 30 days. At the end of 30 days the deposit holder has
the option to repay the deposit in cash or by way of assignment ofmortgages to the value of the deposit.

ANZ Nominees Limited5172

ANZ Commodity Trading Pty Ltd4ANZ Funds Pty Ltd1

1
2
3
4
5
6

Relief originally granted on 21 August 2001.
Relief originally granted on 13 August 2002.
Relief originally granted on 9 September 2003.
Relief originally granted on 2 September 2008.
Relief originally granted on 11 February 2009.
Removed by a Revocation Deed on 10 August 2012.

ANZ ANNUAL REPORT 2012

43: Credit Related Commitments, Guarantees, Contingent Liabilities and Contingent Assets (continued)
It is a 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 or subsequent Assumption Deeds under the class order were executed by them and lodged with the Australian Securities andInvestments Commission. The Deed of Cross Guarantee is dated 1 March 2006. The effect of the Deed is that the Company guarantees to eachcreditor 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 in any other case, the Company will only be liable in the event that after six months any creditor has not been paidin full. The controlled entities have also given similar guarantees in the event that the Company is wound up. The consolidated statement ofcomprehensive income and consolidated balance sheet of the Company and its wholly owned controlled entities which have entered into theDeed of Cross Guarantee are:Consolidated

Profit before tax
Income tax expense
Profit after income tax
Foreign exchange differences taken to equity, net of tax
Change in fair value of available-for-salefinancial assets, net of tax
Change in fair value of cash flow hedges, net of tax
Actuarial gains/(loss) on defined benefit plans, net of tax
Other comprehensive income, net of tax
Total comprehensive income
Retained profits at start of year
Profit after income tax
Ordinary share dividends provided for or paid
Transfer from reserves
Actuarial gains/(loss) on defined benefit plans after tax

2012
$m

2011
$m

6,497
(1,549)
4,948

5,809
(1,476)
4,333

(275)

103

(15)
39
(28)
(279)
4,669
13,914
4,948(3,691)
2
(28)

26
121
24
274
4,607
13,047
4,333(3,491)
1
24

Retained profits at end of year
AssetsLiquid assets1
Available-for-sale assets/investment securities
Net loans and advances
Other assets1
Premises and equipment
Total assets

15,145

13,91432,782
17,841
349,048
171,362
1,573
572,606

21,28419,017323,286
147,3941,539
512,520

Liabilities
Deposits and other borrowings
Income tax liability
Payables and other liabilities1
Provisions

333,536804
200,479745

307,254
1,169
168,920798

Total liabilities

535,564

478,141

Net assets

37,042

34,379

Shareholders’ equity2

37,042

34,3791 Following the restatements set out in note 1 to the financial statements, comparative information in this note has been restated.
2 Shareholders’ equity excludes retained profits and reserves of controlled entities within the class order.

NOTES TO THE FINANCIAL STATEMENTS173

NOTES TO THE FINANCIAL STATEMENTS (continued)
43: Credit Related Commitments, Guarantees, Contingent Liabilities and Contingent Assets (continued)vii) Sale of Grindlays businesses

CONTINGENT ASSETS

On 31 July 2000, ANZ completed the sale to Standard Chartered
Bank (SCB) of ANZ Grindlays Bank Limited and the private banking
business of ANZ in the United Kingdom and Jersey, together withANZ 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 anticipated liability.
The issues below have not impacted adversely the reported results.
All settlements, penalties and costs have been covered within theprovisions established at the time.

National Housing BankFERA
In 1991 certain amounts were transferred from non-convertible
Indian Rupee accounts maintained with Grindlays in India. Thesetransactions may not have complied with the provisions of theForeign Exchange Regulation Act, 1973. Grindlays, on its own
initiative, brought these transactions to the attention of the Reserve
Bank of India. The Indian authorities served notices on Grindlays
and certain of its officers in India and civil penalties have been
imposed which are the subject of appeals. Criminal prosecutions are
pending and will be defended. The amounts in issue are not material.
Tax Indemnity
ANZ provided an indemnity relating to tax liabilities of Grindlays(and its subsidiaries) and the Jersey Sub-Group to the extent towhich such liabilities were not provided for in the Grindlays accounts
as at 31 July 2000. Claims have been made under this indemnity,with no material impact on the Group expected.

174

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 out of cheques drawn by NHB in favour of
Grindlays, the proceeds of which were credited to the account ofa Grindlays customer.
Grindlays won an arbitration award in March 1997, under which
NHB paid Grindlays an award 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 including interest into court.
Ultimately, the parties settled the matter and agreed to share themonies paid into court which by then totalled Indian Rupees
16.45 billion (AUD 661 million at 19 January 2002 exchange rates),with Grindlays receiving Indian Rupees 6.20 billion (AUD 248 million
at 19 January 2002 exchange rates) of the disputed monies.
ANZ in turn received a payment of USD124 million (USD equivalentof the Indian Rupees received by Grindlays) from Standard Chartered
Bank under the terms of an indemnity given in connection with thesale of Grindlays to Standard Chartered Bank.
ANZ recovered $114 million in 2006 from its insurers in respectof the above.
In addition, ANZ is entitled to share with NHB in the proceeds of any
recovery from the estate of the customer whose account was creditedwith the cheques drawn from NHB. Recovery is still being pursued.

ANZ ANNUAL REPORT 2012

44: 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
is dependent on the terms of the legislation and trust deeds.
The major schemes are:Contribution levels
Employee/participant

Employer

Country

SchemeScheme type

Australia

ANZ Australian Staff
Superannuation Scheme1,2

Defined contribution scheme
Section C3 or

Optional

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% of salary

11.5% of salary16

Defined benefit scheme7

5.0% of salary9

Balance of cost17

New Zealand

ANZ National Bank Staff Superannuation
Scheme (formerly ANZ Group (New Zealand)
Staff Superannuation Scheme)1,2

National Bank Staff
Superannuation Fund1,2

United Kingdom

ANZ UK Staff
Pension Scheme1

8

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
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17

These schemes provide for pension benefits.
These schemes provide for lump sum benefits.
Closed to new members in 1997.
Closed to new members. Operates to make pension payments to retired members or their dependants.
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.
Closed to new members on 1 October 1991.
Closed to new members on 1 October 2004.
Optional but with minimum of 1% of salary.
From 1 October 2003, all member contributions are at a rate of 5% of salary.
As determined by the Trustee on the recommendation of the actuary – currently 9% (2011: 9%) of members’ salaries.
2011: 9% of salary.
As determined by the Trustee on the recommendation of the actuary – $4.7 million p.a. (2011: $1.2 million p.a.).
As recommended by the actuary – currently nil (2011: nil).
2011: 7.5% of salary.
As recommended by the actuary – currently 24.8% (2011: 24.8%) of members’ salaries and additional contributions of NZD 5 million p.a.
2011: 11.5% of salary.
As agreed by the Trustee and Group after taking the advice of the actuary – currently 26% (2011: 26%) of pensionable salaries and additional quarterly contributions of GBP 7.5 million
until December 2015.

NOTES TO THE FINANCIAL STATEMENTS

175

NOTES TO THE FINANCIAL STATEMENTS (continued)
44: 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, is 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
shown below differs from the net (liability)/asset in the balance sheet because AAS 25 prescribes a different measurement date and basis tothose used for AASB 119 purposes.
Excess/(deficit)
of netmarket valueof assets overaccrued benefits$m2012 Schemes

Accruedbenefits1$m

Net market
value ofassets heldby scheme$m

ANZ Australian Staff Superannuation Scheme Pension Section2
ANZ UK Staff Pension Scheme2
ANZ UK Health Benefits Scheme5
ANZ National Bank Staff Superannuation Scheme3
National Bank Staff Superannuation Fund4
Other6,7

26
1,028
7
4
294
38

15
749
–
4
267
28

(11)
(279)
(7)
–
(27)
(10)

Total

1,397

1,063

(334)

1 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. Under AASB 119, the discount rates used are based on prevailing government and corporate bond rates at the reporting date (30 September 2012), rather thanthe expected return on scheme assets as at the most recent actuarial valuation date (set out below) as prescribed by AAS 25.
2 Amounts were measured at 31 December 2011.
3 Amounts were measured at 31 December 2010.
4 Amounts were measured at 31 March 2012.
5 Amounts were measured at 30 September 2012.
6 Amounts were measured at 30 September 2012.
7 Other includes the defined benefit arrangements in Japan, Philippines and Taiwan.

2011 Schemes

ANZ Australian Staff Superannuation Scheme Pension Section2
ANZ UK Staff Pension Scheme2
ANZ UK Health Benefits Scheme5
ANZ National Bank Staff Superannuation Scheme3
National Bank Staff Superannuation Fund4
Other6,7
Total

Accruedbenefits1$m

Net market
value ofassets heldby scheme$m

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

27
912
6
4
296
39

17
727
–
4
282
29

(10)
(185)
(6)
–
(14)
(10)

1,284

1,059

(225)

1 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. Under AASB 119, the discount rates used are based on prevailing government and corporate bond rates at the reporting date (30 September 2011), rather thanthe expected return on scheme assets as at the most recent actuarial valuation date (set out below) as prescribed by AAS 25.
2 Amounts were measured at 31 December 2010.
3 Amounts were measured at 31 December 2010.
4 Amounts were measured at 31 March 2011.
5 Amounts were measured at 30 September 2011.
6 Amounts were measured at 30 September 2011.
7 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 $61 million (2011: $58 million) to the defined benefit sections of the schemes during the next
financial year.

176

ANZ ANNUAL REPORT 2012

44: 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. An interim actuarial valuation, conductedby consulting actuaries Russell Employee Benefits as at 31 December 2011, showed a deficit of $11 million and the actuary recommended
that the Group make contributions to the Pension Section of $4.7 million p.a. for the three years to 31 December 2014. The next full actuarial
valuation is due to be conducted as at 31 December 2013.
The following economic assumptions were used in formulating the actuary’s funding recommendations:
Rate of investment return
Pension indexation rate

7.5% p.a.
2.75% 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
An interim actuarial valuation, conducted by consulting actuaries Towers Watson as at 31 December 2010, showed a deficit of GBP 180 million($279 million at 30 September 2012 exchange rates).
Following the actuarial valuation as at 31 December 2010, 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 agreed to continue to pay
additional quarterly contributions of GBP 7.5 million. These contributions will be reviewed following the next actuarial valuation which isscheduled to be undertaken as at 31 December 2012.
The following economic assumptions were used for the interim actuarial valuation as at 31 December 2011:
Rate of investment return on existing assets– to 31 December 2018
– to 31 December 2033
Rate of investment return for determining ongoing contributions
Salary increases
Pension increases
In deferment increases

4.1% p.a.
2.8% p.a.
6.7% p.a.
4.8% p.a.
3.0% p.a.
2.3% 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 arisein the event that 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.

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 2012 showed a deficit of NZD 34 million ($27 million at 30 September 2012 exchange rates). The actuary recommended that
the Group make contributions of 24.8% of salaries plus a lump sum contribution of NZD 5 million p.a. (net of employer superannuation
contribution tax) 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

5.0% p.a.
3.0% p.a.
2.5% p.a.

The Group has no present liability under the Fund’s Trust Deed to fund the deficit measured under AAS 25. A contingent liability may arise in
the event that the Fund 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 Fund an amount sufficient to ensure members do not suffer a reduction in benefits to which they would otherwise be entitled. The Groupintends to continue the Fund on an on-going basis.
The basis of calculation under AASB119 is detailed in note 1 F(vii).

NOTES TO THE FINANCIAL STATEMENTS

177

NOTES TO THE FINANCIAL STATEMENTS (continued)
44: 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

2012
$m

2011
$m

2012
$m

2011
$m

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

7
48
(44)
2

8
50
(47)
2

5
42
(39)
–

6
42
(41)
–

Total included in personnel expenses

13

13

8

7

(1,109)960(1,033)
885

(913)
846

(857)
775

Net liability arising from defined benefit obligation

(149)

(148)

(67)

(82)

Amounts recognised in the balance sheet
Payables and other liabilities

(149)

(148)

(67)

(82)

Net liability arising from defined benefit obligation

(149)

(148)

(67)

(82)

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

54
298

15
244

35
208

(34)
173

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

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.
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 (gains)/losses
Exchange difference on foreign schemes
Benefits paid

1,033
7
48
1
105
(24)
(61)

1,059
8
50
1
(10)
(18)
(57)

857
5
42
–
79
(25)
(45)

928
6
42
–
(55)
(22)
(42)

Closing defined benefit obligation

1,109

1,033

913

857

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

885
44
51
(21)
61
1
(61)

873
47
(25)
(13)
59
1
(57)

775
39
44
(22)
55
–
(45)

761
41
(21)
(17)
53
–
(42)

Closing fair value of scheme assets1

960

885

846

775

Actual return on scheme assets

95

22

83

20

1 Scheme assets include the following financial instruments issued by the Group: cash and short-term debt instruments $1.4 million (September 2011: $1.0 million), fixed interest securities$0.6 million (September 2011: $0.6 million) and equities nil (September 2011: nil).

Consolidated

The Company

Fair value of scheme
assets
2012
2011
%
%

Fair value of scheme
assets
2012
2011
%
%

Analysis of the scheme assets
Equities
Debt securities
Property
Other assets

38
43
7
12

36
47
8
9

36
44
8
12

34
48
9
9

Total assets

100

100

100

100

178

ANZ ANNUAL REPORT 2012

44: Superannuation and Other Post Employment Benefit Schemes (continued)
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 National Bank 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 National Bank 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– In payment– In deferment
ANZ National Bank 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

2012
%

2011
%

2.75
4.40
4.40
3.50
3.50

4.25
5.40
5.40
4.40
4.40

6.50
4.70
n/a
4.50
5.00

8.00
5.30
n/a
4.50
5.50

4.50
3.00

4.90
3.00

2.50

2.75

2.70
2.00
2.50
2.50

3.10
2.10
2.50
2.50

6.60

4.50

6.60

6.50

To determine the expected returns of each of the asset classes held by the relevant scheme, the actuaries assessed historical return trends and market
expectations for the asset class returns applicable for the period over which the obligation is to be settled. The overall expected rate of return on
assets for each scheme was then determined as the weighted average of the expected returns for the classes of assets held by the relevant scheme.
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 benefits obligation
Fair value of scheme assets
Surplus/(deficit)
Experience adjustments on scheme liabilities
Experience adjustments on scheme assets

The Company

2012
$m

2011
$m

2010
$m

2009
$m

2008
$m

2012
$m

2011
$m

2010
$m

2009
$m

2008
$m

(1,109)960(149)(1,033)885(148)(1,059)873(186)(1,095)849(246)(1,160)
1,006
(154)

(913)
846
(67)

(857)
775
(82)

(928)
761
(167)

(938)
738
(200)

(1,003)
871
(132)

1
51

(11)
(25)

(2)
36

7
(49)

12
(195)

2
45

(10)
(21)

1
26

7
(32)

8
(177)

NOTES TO THE FINANCIAL STATEMENTS

179

NOTES TO THE FINANCIAL STATEMENTS (continued)
45: Employee Share and Option Plans
ANZ operates a number of employee share and option schemes
under the ANZ Employee Share Acquisition Plan and the ANZ Share
Option Plan.
ANZ EMPLOYEE SHARE ACQUISITION PLAN
ANZ Employee Share Acquisition Plan (ESAP) schemes that existed
during the 2011 and 2012 years were the Employee Share Offer(previously known as the $1,000 Share Plan), the Deferred Share Plan
and the Employee Share Save Scheme (ESSS). Note the ESSS is an
employee salary sacrifice plan and is not captured as a share based
payment expense.

Employee Share Offer (previously known as the $1,000 Share Plan)
Each permanent employee (excluding senior executives) who has
had continuous service for one year is eligible to participate in the
Employee Share Offer enabling the grant of up to $1,000 of ANZshares in each financial year, subject to approval of the Board. At adate approved by the Board, the shares will be granted to all eligible
employees using the one week weighted average price of ANZ shares
traded on the ASX in the week leading up to and including the dateof grant.

Selected employees may also be granted Long Term Incentive (LTI)
deferred shares which vest to the employee three years from the dateof grant. Ordinary shares granted under this LTI plan may be held in
trust beyond the deferral period. Unvested LTI deferred shares areforfeited on resignation, termination on notice or dismissal forserious misconduct.
In exceptional circumstances, deferred shares are granted tocertain employees upon commencement with ANZ to compensate
for remuneration forgone from their previous employer. The
vesting period generally aligns with the remaining vesting periodof remuneration forgone, and therefore varies between grants.
Retention deferred shares may also be granted occasionally tohigh performing employees who are regarded as a significant
retention risk to ANZ. Unvested deferred shares are forfeited on
resignation, termination on notice or dismissal for serious
misconduct.
The employee receives dividends on deferred shares while thoseshares are held in trust (cash or Dividend Reinvestment Plan).
Deferred share rights are granted instead of deferred shares toaccommodate offshore taxation regulations (refer to Deferred
Share Rights section).

In Australia and three overseas locations (Cook Islands, Kiribati
and Solomon Islands), ANZ ordinary shares are granted to eligible
employees for nil consideration and vest immediately when granted,
as there is no forfeiture provision. It is a requirement, however, thatshares are held in trust for three years from the date of grant, after
which time they may remain in trust, be transferred to the employee’s
name or sold. Dividends received on the shares are automatically
reinvested into the Dividend Reinvestment Plan.

The issue price for deferred shares is based on the volume weighted
average price of the shares traded on the ASX in the week leading
up to and including the date of grant.

In New Zealand shares are granted to eligible employees upon
payment of NZD one cent per share.

Share Valuations

From 2011, shares granted in New Zealand and the remaining
overseas locations under this plan vest subject to the satisfactionof a three year service period, after which time they may remain
in trust, be transferred into the employee’s name or sold. Unvested
shares are forfeited in the event of resignation or dismissal for serious
misconduct. Dividends are either received as cash or reinvested into
the Dividend Reinvestment Plan.
During the 2012 year, 1,822,760 shares with an issue price of $20.21
were granted under the plan to employees on 5 December 2011
(2011 year: 1,472,882 shares with an issue price of $23.05 were
granted on 6 December 2010).

Deferred Share Plan
A Short Term Incentive (STI) mandatory deferral program was
implemented from 2009, with equity deferral relating to half of
all STI amounts above a specified threshold. Prior to 2011, deferred
equity could be taken as 100% shares or 50% shares and 50% options.
From 2011, all deferred equity is taken as 100% shares. Unvested STI
deferred shares are forfeited on resignation, termination on noticeor dismissal for serious misconduct.

180

During the 2012 year, 7,001,566 deferred shares with a weighted
average grant price of $21.19 were granted under the deferred shareplan (2011 year: 6,393,787 shares with a weighted average grant priceof $23.55 were granted).

The fair value of shares granted in the 2012 year under the Employee
Share Offer and the Deferred Share Plan, measured as at the dateof grant of the shares, is $185.4 million based on 8,824,326 sharesat a volume weighted average price of $21.01 (2011 year: fair valueof shares granted was $182.7 million based on 7,866,669 shares at
a weighted average price of $23.22). The volume weighted average
share price of all ANZ shares sold on the ASX on the date of grant isused to calculate the fair value of shares. No dividends areincorporated into the measurement of the fair value of shares.
ANZ SHARE OPTION PLAN
Selected employees may be granted options/rights, which entitle
them to acquire ordinary fully paid shares in ANZ at a price fixed at
the time the options/rights are granted. Voting and dividend rights
will be attached to the ordinary shares allocated on exercise of theoptions/rights.
Each option/right entitles the holder to one ordinary share subject
to the terms and conditions imposed on grant. The exercise price ofthe options, determined in accordance with the rules of the plan, is
generally based on the weighted average price of the shares tradedon the ASX in the week leading up to and including the date of grant.
For rights, the exercise price is nil.

ANZ ANNUAL REPORT 201245: Employee Share and Option Plans (continued)
The option plan rules set out the entitlements a holder of options/rights has prior to exercise in the event of a bonus issue, pro-rata newissue or reorganisation of ANZ’s share capital. In summary:if ANZ has issued bonus shares during the life of an option and prior
to the exercise of the option, then when the option is exercised theoption holder is also entitled to be issued such number of bonus
shares as the holder would have been entitled to if the option
holder had held the underlying shares at the time of the bonus
issue;
if ANZ makes a pro-rata offer of securities during the life of an
option and prior to the exercise of the option, the exercise price ofthe option will be adjusted in the manner set out in the ASX Listing
Rules; andin respect of rights, if there is a bonus issue or reorganisation of
the Bank’s share capital, the number of rights or the number ofunderlying shares may be adjusted so that there is no advantage
or disadvantage to the holder.
Holders otherwise have no other entitlements to participate in any
new issue of ANZ securities prior to exercise of their options/rights.
Holders also have no right to participate in a share issue of a body
corporate other than ANZ (e.g. a subsidiary).
ANZ Share Option Plan schemes expensed in the 2011 and 2012
years are as follows:

Current Option Plans
Performance Rights Plan (excluding CEO Performance Rights)
Performance rights are granted to selected employees as part of
ANZ’s LTI program. Performance rights provide the right to acquire
ANZ shares at nil cost, subject to a three year vesting period and a
Total Shareholder Return (TSR) performance hurdle. Further details
in relation to performance rights are detailed in Section 6.2.2 Long
Term Incentives in the 2012 Remuneration Report.
The provisions that apply in the case of cessation of employment are
detailed in Section 8.3 Disclosed Executives in the 2012 Remuneration
Report, pages 27 to 29.
During the 2012 year, 586,925 performance rights (excluding CEO
performance rights) were granted (2011: 466,133).
CEO Performance Rights
At the 2011 Annual General Meeting shareholders approved an LTI
grant to the CEO equivalent to 100% of his 2011 Total Employment
Cost (TEC), being $3.15 million. This equated to a total of 326,424
performance rights being allocated, which will be subject to testing
against a TSR hurdle after three years, i.e. December 2014.
At the 2010 Annual General Meeting shareholders approved an LTI
grant to the CEO equivalent to 100% of his 2010 TEC, being $3 million.
This equated to a total of 253,164 performance rights being allocated,which will be subject to testing against a TSR hurdle after three years,
i.e. December 2013.

At the 2007 Annual General Meeting shareholders approved an
LTI grant consisting of three tranches of performance rights, eachto a maximum value of $3 million. The performance periods for eachtranche begin on the date of grant of 19 December 2007 and end
on the third, fourth and fifth anniversaries respectively (i.e. only
one performance measurement for each tranche). The first of thesetranches was tested against a relative TSR hurdle after three years,
i.e. December 2010. As a result of the testing, 258,620 performancerights vested and were exercised during the year. The second tranche
was tested in December 2011 against a relative TSR hurdle. As a resultof the testing, 259,740 performance rights vested and were exercised
during the year.
The provisions that apply in the case of cessation of employment
are detailed in Section 8.2 Chief Executive Officer in the 2012
Remuneration Report, pages 25 to 27.
CEO Options
At the 2008 Annual General Meeting, shareholders approved a special
grant to the CEO of 700,000 options, granted on 18 December 2008.
At grant the options were independently valued with a fair value of$2.27 each (total value of $1.589 million) and an option exercise price$14.18 per share. Upon exercise, each option entitles the CEO to one
ordinary ANZ share. The options vested on 18 December 2011 andwere exercised during the year.
Deferred Options (no performance hurdles)
Under the STI deferral program half of all amounts above a specified
threshold are provided as deferred equity. Previously deferred equity
could be taken as 100% shares or 50% shares and 50% options. From
2011, all deferred equity is taken as 100% shares (refer to Deferred
Share Plan section above).
During the 2012 year no deferred options (no performance hurdles)
were granted (2011: 395,564).
Deferred Share Rights (no performance hurdles)
Deferred share rights are granted instead of deferred shares toaccommodate offshore taxation regulations. They provide the right toacquire ANZ shares at nil cost after a specified vesting period. The fairvalue of rights is adjusted for the absence of dividends during the
restriction period. Treatment of rights in respect of cessation relates
to the purpose of the grant (refer to Deferred Share Plan section
above).
During the 2012 year 1,013,185 deferred share rights (no performance
hurdles) were granted (2011: 541,213).
Options, deferred share rights and performance rights on issue
As at 5 November 2012, there were 178 holders of 1,175,199 options
on issue, 840 holders of 1,649,971 deferred share rights on issue and13 holders of 2,511,050 performance rights on issue.

Option Movements
Details of options/rights over unissued ANZ shares and their related
weighted average exercise prices as at the beginning and end of 2012and movements during 2012 follow:

NOTES TO THE FINANCIAL STATEMENTS

181

NOTES TO THE FINANCIAL STATEMENTS (continued)
45: Employee Share and Option Plans (continued)

Weighted average exercise priceOpening balance
1 October 2011

Options/rights
grantedOptions/rights
forfeited

Options/rights
expiredOptions/rights
exercised

Closing balance
30 September 2012

8,961,579$12.44

1,926,534$0.00(192,972)$9.63(474,499)$21.37(4,279,351)$14.18

5,941,291$6.53

The weighted average closing share price during the year ended 30 September 2012 was $21.88 (2011: $22.35).
The weighted average remaining contractual life of options/rights outstanding at 30 September 2012 was 2.5 years (2011: 2.1 years).
The weighted average exercise price of all exercisable options/rights outstanding at 30 September 2012 was $20.93 (2011: $20.87).
A total of 1,629,751 exercisable options/rights were outstanding at 30 September 2012 (2011: 4,286,317).
Details of options/rights over unissued ANZ shares and their related weighted average exercise prices as at the beginning and end of 2011 andmovements during 2011 are set out below:

Weighted average exercise priceOpening balance
1 October 2010

Options/rights
grantedOptions/rights
forfeited

Options/rights
expiredOptions/rights
exercised

Closing balance
30 September 2011

11,539,878$13.01

1,656,074$5.66(131,689)$12.72(160,071)$20.34(3,942,613)$10.93

8,961,579$12.44No options/rights over ordinary shares have been granted since the end of 2012 up to the signing of the Directors’ Report on 5 November 2012.
Details of shares issued as a result of the exercise of options/rights during 2012 are as follows:
Exercise price$No. of shares issued

Proceeds received$

Exercise price$No. of shares issued

Proceeds received
$

0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00

3,486
13,491
1959
63
249,166
3,945
1,224
17,47478,287
20,677
8,576
3,259
1,860
2,916
10,741
65,994
3,658
8,329
3,149

–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–

0.00
0.00
0.00
0.00
0.00
14.18
17.18
17.18
17.18
17.18
17.18
17.18
20.68
20.68
22.80
22.80
22.80
22.80
23.49

259,740
268,268
90,52025,748399
700,000
314,660
124,835
124,832
13,841
380
760
218,637
785,41135,823
2,388
35,822
2,388
778,526–––––
9,926,000
5,405,859
2,144,665
2,144,614
237,788
6,528
13,057
4,521,413
16,242,299
816,764
54,446
816,742
54,446
18,287,576

Details of shares issued as a result of the exercise of options/rights during 2011 are as follows:

182

Exercise price$No. of shares issued

Proceeds received$

Exercise price$No. of shares issued

Proceeds received
$

0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00

12,481
185,723
10,4219,623
1,662
15,420648,296
6,089
119,251
17,351
22,633
258,62082
33,45983,19765,687
12,69678,422
5,095
13,152

–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–

0.00
0.00
0.00
0.00
17.55
17.55
18.22
18.22
20.68
20.68
20.68
23.49
17.18
17.18
17.18
17.18
17.18
17.18
22.80

3,118
5,347
2,439
19
440,251
69,106
829,957
270,465
2,908
127,788
202,80274,259101,861
36,096129,283
3,081
1,587
35,456
7,430

–
–
–
–
7,726,405
1,212,810
15,121,817
4,927,872
60,1372,642,656
4,193,945
1,744,344
1,749,972
620,129
2,221,082
52,932
27,265609,134
169,404

ANZ ANNUAL REPORT 201245: Employee Share and Option Plans (continued)
Details of shares as a result of the exercise of options/rights since the end of 2012 up to the signing of the Directors’ Report on 5 November 2012
are as follows:
Exercise price$No. of shares issued

Proceeds received$

Exercise price$No. of shares issued

Proceeds received
$

0.00
0.00
0.00
0.00
0.00
0.00
0.00

336
1,601
253
285
1,102
2,799
43

–
–
–
–
–
–
–

23.49
17.18
17.18
17.18
22.80
22.80
23.71

477,006
6,529
82,255
1,233
8,792
8,791
10,000

11,204,871
112,168
1,413,141
21,183
200,458
200,435
237,100

In determining the fair value below, the standard market techniques for valuation including Monte Carlo and/or Black Scholes pricing models
were applied in accordance with the requirements of AASB 2 Share-based Payment. The models take into account early exercise of vested
equity, non-transferability and market based performance hurdles (if any). The significant assumptions used to measure the fair value of
instruments granted during 2012 are contained in the table below:

Type of equity

STI deferred share rights

LTI deferred share rights
LTI performance rights
Deferred share rights

Number of
Grant date options/rights

14-Nov-11
14-Nov-11
14-Nov-11
14-Nov-11
14-Nov-11
14-Nov-11
16-Dec-11
14-Nov-11
14-Nov-11
14-Nov-11
14-Nov-11
5-Dec-11
27–Feb–12
27–Feb–12
8–Jun–12
8–Jun–12
8–Jun–12
23–Jul–12
23–Jul–12
23–Jul–12
23–Jul–12
23–Jul–12
23–Jul–12

51,241
143,711
153,099
21,968510,804
586,925
326,424
11,524
13,98912,081
12,26913,211
788
839
3,295
3,301
2,172
10,61011,455
7,491
12,822
5,928
10,587

Equity
fair
value
($)

Exercise
price(5 day
VWAP)
($)

Share
closing
price at
grant
($)

ANZ
expected
volatility1(%)

Equityterm(years)Vesting
period(years)Expected
life(years)Expected
dividendyield(%)

Risk freeinterest
rate
(%)

20.66
19.40
18.21
17.10
17.10
9.03
9.65
19.09
18.80
18.21
17.93
17.42
20.73
19.46
20.73
19.21
17.63
21.91
21.43
20.62
20.12
19.31
18.89

0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00

20.66
20.66
20.66
20.66
20.66
20.66
20.93
20.66
20.66
20.66
20.66
21.05
22.08
22.08
21.56
21.56
21.56
22.82
22.82
22.82
22.82
22.82
22.82

25
25
25
25
25
25
25
25
25
25
25
n/a
n/a
n/a
25
25
n/a
25
25
25
25
25
25

2.4
3
4
5
5
5
5
3.3
3.5
4
4.3
3
3
4
2.8
3.7
4.8
2.7
3
3.6
4
4.7
5

0.4
1
2
3
3
3
3
1.3
1.5
2
2.3
3
1
2
0.8
1.7
2.8
0.7
1
1.6
2
2.7
3

0.4
1
2
3
3
3
3
1.3
1.5
2
2.3
3
1
2
0.8
1.7
2.8
0.7
1
1.6
2
2.7
3

6.50
6.50
6.50
6.50
6.50
6.50
7.00
6.50
6.50
6.50
6.50
6.30
6.30
6.30
5.20
6.90
7.50
6.50
6.50
6.50
6.50
6.50
6.50

4.48
3.70
3.65
3.53
3.53
3.53
3.06
3.70
3.65
3.65
3.65
n/a
n/a
n/a
2.70
2.41
2.31
3.43
2.40
2.28
2.28
2.17
2.17

The significant assumptions used to measure the fair value of instruments granted during 2011 are contained in the table below:

Type of equity

STI deferred options
STI deferred share rights
LTI deferred share rights
LTI performance rights
Deferred share rights

Number of
Grant date options/rights

12-Nov-10
12-Nov-10
12-Nov-10
12-Nov-10
12-Nov-10
12-Nov-10
17-Dec-10
12-Nov-10
6-Dec-10
10-May-11
10-May-11
25-Jul-11
25-Jul-11
25-Jul-11
25-Jul-11
29-Aug-11
29-Aug-11
29-Aug-11

197,786
197,778
83,12587,273323,757
466,133
253,164
3,988
3,130
8,329
1,625
2,799
3,115
1,055
1,119
3,149
17,0371,712

Equity
fair
value
($)

Exercise
price(5 day
VWAP)
($)

Share
closing
price at
grant
($)

ANZ
expected
volatility1(%)

Equityterm(years)Vesting
period(years)Expected
life(years)Expected
dividendyield(%)

Risk freeinterest
rate
(%)

3.96
4.20
22.11
21.06
20.06
11.96
11.85
20.06
20.10
21.97
20.92
20.10
18.96
19.90
18.78
19.05
17.96
16.93

23.71
23.71
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00

23.22
23.22
23.22
23.22
23.22
23.22
23.59
23.22
23.27
23.07
23.07
21.31
21.31
21.31
21.31
20.21
20.21
20.21

30
30
30
30
30
30
30
30
30
25
25
25
25
25
25
n/a
n/a
n/a

5
5
5
5
5
5
4
5
3
2
3
2
3
2.2
3.2
2
3
4

1
2
1
2
3
3
3
3
3
1
2
1
2
1.2
2.2
1
2
3

3
3.5
1
2
3
3
3
3
3
1
2
1
2
1.2
2.2
1
2
3

5.00
5.00
5.00
5.00
5.00
5.00
5.00
5.00
5.00
5.00
5.00
6.00
6.00
6.00
6.00
5.90
5.90
5.90

5.04
5.11
4.70
4.97
5.04
5.04
5.15
5.04
4.94
4.96
5.02
4.41
4.34
4.41
4.34
n/a
n/a
n/a

1 Expected volatility represents a measure of the amount by which ANZ’s share price is expected to fluctuate over the life of the options/rights. The measure of volatility used in the model is theannualised 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 averageannualised volatility is then used to estimate a reasonable expected volatility over the expected life of the options/rights.

NOTES TO THE FINANCIAL STATEMENTS183

NOTES TO THE FINANCIAL STATEMENTS (continued)
46: Key Management Personnel Disclosures
SECTION A: KEY MANAGEMENT PERSONNEL COMPENSATIONThe Key Management Personnel (KMP) compensation included in the personnel disclosure expenses is as follows:
2012

Short-term benefits
Post-employment benefits
Long-term benefits
Termination benefits
Share-based payments

NonExecutives$

Executives$

2,742,072
119,704–––
2,861,776

19,288,020
528,821279,271
1,171,226
14,335,722
35,603,060

2011
Total
$

NonExecutives$

Executives
$

Total
$

22,030,092
648,525
279,271
1,171,226
14,335,722
38,464,836

2,604,686
107,401–––
2,712,087

18,106,775
458,385
171,717–
12,721,125
31,458,002

20,711,461
565,786
171,717–
12,721,125
34,170,089

SECTION B: KEY MANAGEMENT PERSONNEL LOAN TRANSACTIONS
Loans made to directors of the Company and other key management personnel of the Group are made in the ordinary course of businesson an arm’s length commercial basis, including the term of the loan, security required and the interest rate.
Details of loans outstanding at the reporting date to directors of the Company and other key management personnel of the Group including
their related parties, where the individuals aggregate loan balance exceeded $100,000 at any time in the year, are as follows:

Directors
Executive Director 2012
M Smith
Executive Director 2011
M SmithOpening balance
1 October$

Closing balance
30 September$

Interest paid andpayable in thereporting period$

Highest balancein the reporting
period$18,380,409

1,000,000

81,957

18,380,409

6,840,953

18,380,409

1,510,088

18,403,779

Non–Executive Directors 2012
P Hay
A Watkins661,793
3,320,081–
3,600,000

12,746
233,540

674,5393,600,146

Non–Executive Directors 2011
P Hay
A Watkins

1,125,000
3,490,211

661,793
3,320,081

63,607
237,748

1,131,263
3,490,388

Other key management personnel 2012
G Hodges
A Thursby
C Page1
D HiscoS Elliott
N Williams2

5,202,380
2,984,500
511,6052,000,000–
729,218

5,150,773
2,859,500
739,500
2,000,000
3,200,000–

311,475
161,276
5,115
84,031
79,362
22,1155,671,775
2,984,500
739,7772,000,000
3,900,000
864,755

Other key management personnel 2011
G Hodges
A Thursby
C PageD Hisco3

8,018,058
1,596,910
559,4712,000,000

5,202,380
2,984,500
511,6052,000,000

441,857
248,615
6,624
140,564

8,753,988
4,581,410
559,4712,000,000

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

Closing balance
30 September$

Interest paid andpayable in thereporting period$

Number inGroup at
30 September4

Directors
2012
2011

22,362,283
11,456,164

4,600,000
22,362,283

328,243
1,811,443

3
3

Other key management personnel
2012
2011

11,427,703
12,174,439

13,949,773
10,698,485

663,374
837,660

6
4

1
2
3
4

The closing balance represents the balance on cessation as a KMP on 16 December 2011.
The opening balance represents the balance on appointment as a KMP on 17 December 2011.
The opening balance represents the balance on appointment as a KMP on 13 October 2010.
Number in the Group includes directors and other KMP with loan balances greater than $100,000 at any time during the year.

184

ANZ ANNUAL REPORT 2012

46: Key Management Personnel Disclosures (continued)
SECTION C: KEY MANAGEMENT PERSONNEL EQUITY INSTRUMENT HOLDINGSi) Options, deferred share rights and performance rights
Details of options, deferred share rights and performance rights held directly, indirectly or beneficially by each KMP, including their relatedparties, are provided below:

Name

Type of options/rights

Executive Director 2012
M SmithSpecial options
LTI performance rights
Executive Director 2011
M SmithSpecial options
LTI performance rights
Other Key Management Personnel 2012
P Chronican
LTI performance rights
S Elliott
STI deferred options
LTI performance rights
D HiscoHurdled options
LTI performance rights
STI deferred share rights
G Hodges
Hurdled options
LTI performance rights
STI deferred share rights
J Phillips4
LTI performance rights
A Thursby
STI deferred options
LTI performance rights
P Marriott5
Hurdled options
STI deferred options
LTI performance rights
C Page6
LTI performance rights

Openingbalance at
1 October

Grantedduring theyear asremuneration1

Exercisedduringthe year

700,000
773,546–
326,424(700,000)(259,740)

700,000
779,002–
253,164

112,073
149,09087,07010,53066,311
17,3838,400
132,940
5,663
129,971
164,509146,234
67,60048,385
132,940
72,95957,726
10,61441,08432,506
74,631–
52,19133,869149,004
5,663
164,509
146,544
136,863
48,385
149,004
72,959Resulting fromany other change
during the year

Closingbalance at
30 September2

Vested andexercisable at
30 September3–––
840,230–––(258,620)––

700,000
773,546––

71,982–
71,982–
55,37039,390–55,370–––77,519––55,370––––(10,003)–(8,480)(5,400)(50,050)–––(55,055)(64,220)(48,385)(50,050)(38,038)

–
–
–
(527)
–
–
(3,000)–––––(3,380)–(41,265)(10,671)

184,055
149,090
159,052–
121,681
48,293–
138,260
5,663
129,971
164,509
168,698––
96,99524,250–79,852
–
–
–
–
–
–
5,663
–
164,509–––38,31024,25054,347
138,476
45,986–33,444
17,383––41,806––45,986––41,806––––(21,976)(41,764)–(43,791)(33,869)(57,870)––(46,296)(69,263)–(57,870)
–

–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–

112,073
149,09087,07010,53066,311
17,3838,400–
132,940
5,663
164,509146,234
67,60048,385
132,940
72,959–5,307–
10,003
–
–
5,400
–
–
5,663
164,509–
64,22048,385––

Other Key Management Personnel 2011
P Chronican
S Elliott
D Hisco7
G Hodges

A Thursby
P Marriott
C PageLTI performance rights
STI deferred options
LTI performance rights
Hurdled options
LTI performance rights
STI deferred share rights
Hurdled options
STI deferred options
LTI performance rights
STI deferred share rights
STI deferred options
LTI performance rights
Hurdled options
STI deferred options
LTI performance rights
LTI performance rights

1 Details of options/rights granted as remuneration during 2012 are provided in Tables 4 and 5 of the 2012 Remuneration Report. Details of options/rights granted as remuneration during 2011are provided in Table 11 of the 2011 Remuneration Report.
2 There was no change in the balance as at report sign-off date except for A Thursby whose STI deferred options balance at report sign-off date was 82,254.
3 No options/rights were vested and unexerciseable as at 30 September 2012, or at cessation date for those who ceased being a KMP in 2012 (2011: nil).
4 Opening balance is based on holdings at the date of appointment as a KMP on 1 March 2012.
5 Closing balance is based on holdings at the date of cessation as a KMP on 31 August 2012.
6 Closing balance is based on holdings at the date of cessation as a KMP on 16 December 2011.
7 Opening balance is based on holdings at the date of appointment as a KMP on 13 October 2010.

NOTES TO THE FINANCIAL STATEMENTS

185

NOTES TO THE FINANCIAL STATEMENTS (continued)
46: Key Management Personnel Disclosures (continued)ii) Shares
Details of shares held directly, indirectly or beneficially by each KMP, including their related parties, are provided below:

Name

Non-Executive Directors 2012
J Morschel

G Clark
P Dwyer5
P Hay6H Lee
I Macfarlane

D Meiklejohn
A Watkins
Non-Executive Directors 2011
J Morschel
G Clark
P Hay6H Lee
I Macfarlane

D Meiklejohn
A Watkins
Executive Director 2012
M Smith
Executive Director 2011
M SmithOpeningbalance at
1 October

Shares granted
during the year
as remuneration1

Received during
the year on
exercise of
options or rights

Directors’ Share Plan
Ordinary shares
CPS2
Directors’ Share Plan
Ordinary shares
Ordinary shares
Directors’ Share Plan
Ordinary shares
Directors’ Share Plan
Ordinary shares
Ordinary shares
CPS2
CPS3
Ordinary shares
Directors’ Share Plan
Ordinary shares

7,860
11,042–
5,479
10,000
–
2,990
8,653
1,759
8,000
17,616500
1,000
16,1983,419
16,042

–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–

–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–

–
4,700
1,000
–
–
4,000
219
637
129
–
–
–
–
–
(3,419)
3,419

7,860
15,742
1,000
5,479
10,000
4,000
3,209
9,290
1,888
8,000
17,616500
1,000
16,198–19,461

Directors’ Share Plan
Ordinary shares
Directors’ Share Plan
Ordinary shares
Directors’ Share Plan
Ordinary shares
Directors’ Share Plan
Ordinary shares
Directors’ Share Plan
Ordinary shares
CPS2
CPS3
Ordinary shares
Directors’ Share Plan
Ordinary shares

7,860
8,042
5,479
10,000
2,812
6,231
1,654
8,000
2,574
11,042500–
16,1983,419
16,042

–
–
–
–
–
–
–
–
–
–
–
–
–
–
–

–
–
–
–
–
–
–
–
–
–
–
–
–
–
–

–
3,000
–
–
178
2,422
105
–
(2,574)
6,574
–
1,000
–
–
–

7,860
11,042
5,479
10,000
2,990
8,653
1,759
8,000
–
17,616500
1,000
16,1983,419
16,042

Deferred shares
Ordinary shares

150,600
679,698

73,459––959,740(94,279)(596,848)

129,780
1,042,590

Deferred shares
Ordinary shares

204,362
265,014

94,896––258,620(148,658)
156,064

150,600
679,698

Type

Resulting fromany other change Closing balance
during the year2 at 30 September3,4

1 Details of shares granted as remuneration during 2012 are provided in Tables 4 and 5 of the 2012 Remuneration Report. Details of shares granted as remuneration during 2011 are provided inTable 11 of the 2011 Remuneration Report.
2 Shares resulting from any other change during the year include the net result of any shares purchased, sold or acquired under the Dividend Reinvestment Plan.
3 The following shares (included in the holdings above) were held on behalf of the KMP (i.e. indirect beneficially held shares) as at 30 September 2012 (and for former KMPs as at cessation date):
J Morschel – 17,560 (2011: 11,860); G Clark – 15,479 (2011: 15,479); P Dwyer – 4,000; P Hay – 12,204 (2011: 11,369); H Lee – 1,888 (2011: 1,759); I Macfarlane – 19,116 (2011: 19,116); D Meiklejohn –13,698 (2011: 13,698); A Watkins – 19,461 (2011: 18,419); M Smith – 129,780 (2011: 150,600).
4 There was no change in the balance as at report sign-off date except for P Hay whose ordinary shares balance at report sign-off date was 11,290.
5 Opening balance is based on holdings at the date of appointment as a KMP on 1 April 2012.
6 Shareholdings for P Hay excludes 19,855 shares (2011: 19,855) which are held indirectly where P Hay has no beneficial interest.

186

ANZ ANNUAL REPORT 2012

46: Key Management Personnel Disclosures (continued)ii) Shares (continued)

Name

Type

Other Key Management Personnel 2012
Deferred shares
P Chronican

S Elliott
D Hisco
G Hodges
J Phillips5
A Thursby
N Williams6
P Marriott7

C Page8Ordinary shares
CPS2
Deferred shares
Ordinary shares
Deferred shares
Ordinary shares
Deferred shares
Ordinary shares
Deferred shares
Deferred shares
Ordinary shares
Deferred shares
Deferred shares
Ordinary shares
CPS3
Deferred shares
Ordinary shares
CPS3

Other Key Management Personnel 2011
Deferred shares
P Chronican

S Elliott
D Hisco9
G Hodges
P Marriott

C PageA Thursby

Ordinary shares
CPS2
Deferred shares
Deferred shares
Ordinary shares
Deferred shares
Ordinary shares
Deferred shares
Ordinary shares
CPS3
Deferred shares
Ordinary shares
CPS3
Deferred shares

Openingbalance at
1 October

Shares granted
during the year
as remuneration1

Received during
the year on
exercise of
options or rights

26,0516,000
1,499
44,177–47,364
9,023
120,181
109,735
70,471
278,230–
113,307
156,072
480,052
5,000
59,075
12,1292,500

33,175––
19,146–––
23,696––33,175––29,383––30,805
–
–

–
–
–
–
–
–
18,483–55,450––55,055––
162,655––
38,038–(9,485)
19,399–(31,043)
1,116(12,777)(17,506)
4,394(75,400)
1,290(104,503)(55,055)
1,504(28,634)(253,529)–(25,235)(24,028)–

49,741
25,3991,499
32,2801,116
34,587
10,000148,271
89,78571,761
206,902–
114,811
156,821389,178
5,000
64,645
26,139
2,500

–
3,000
1,499
18,06946,605
6,042
98,838148,042
134,218
419,596–
31,449––223,103

25,305––24,251––
19,822–
19,822––
41,542––
48,502–––––
63,740–135,530–
127,133––––
46,296

746
3,000
–
1,857
759
(60,759)
1,521(173,837)
2,032(66,677)
5,000(13,916)
12,1292,500(39,671)

26,0516,000
1,499
44,17747,364
9,023
120,181
109,735
156,072
480,052
5,000
59,075
12,1292,500
278,230

Resulting fromany other change Closing balance
during the year2 at 30 September3,4

1 Details of shares granted as remuneration during 2012 are provided in Tables 4 and 5 of the 2012 Remuneration Report. Details of shares granted as remuneration during 2011 are provided inTable 11 of the 2011 Remuneration Report.
2 Shares resulting from any other change during the year include the net result of any shares purchased, sold or acquired under the Dividend Reinvestment Plan.
3 The following shares (included in the holdings above) were held on behalf of the KMP (i.e. indirect beneficially held shares) as at 30 September 2012 (and for former KMPs as at cessation date):
P Chronican – 49,741 (2011: 26,051); S Elliott – 32,280 (2011: 44,177); D Hisco – 39,587 (2011: 52,364); G Hodges – 191,006 (2011: 162,916); J Phillips – 71,761; A Thursby – 206,902 (2011: 278,230);
N Williams – 114,811; P Marriott – 156,821 (2011: 156,072); C Page – 64,645 (2011: 59,075).
4 There was no change in the balance as at report sign-off date except for A Thursby whose deferred shares balance at report sign-off date was 163,292 and whose ordinary shares balance at reportsign-off date was 125,865.
5 Opening balance is based on holdings at the date of appointment as a KMP on 1 March 2012.
6 Opening balance is based on holdings at the date of appointment as a KMP on 17 December 2011.
7 Closing balance is based on holdings at 31 August 2012.
8 Closing balance is based on holdings as at the date of cessation as a KMP on 16 December 2011. Due to cessation, 11,452 LTI deferred shares granted to C Page on 12 November 2010 were
forfeited and processed by Computershare on 20 December 2011.
9 Opening balance is based on holdings at the date of appointment as a KMP on 13 October 2010.
.

NOTES TO THE FINANCIAL STATEMENTS187

NOTES TO THE FINANCIAL STATEMENTS (continued)
47: Transactions with Other Related Parties
Associates
During the course of the financial year the Company and Group conducted transactions with associates on terms equivalent to those on
an arm’s length basis as shown below:
Consolidated

Amounts receivable from associates1
Amounts payable to associates
Interest revenue
Interest expense
Dividend revenue1
Cost recovered from associates

The Company

2012
$000

2011
$000

2012
$000

2011
$000

11,78070,918331
1,844
74,804
1,930

56,68670,1994,428
1,864
80,435
1,921

7,819
3,105
–
–
20,110328

25,891
3,433––
28,471255

1 In the prior year the Company amounts included entities only related at a consolidated level. The 2011 comparative has been restated to exclude these entities.

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 conductedtransactions with each other and associates on terms equivalent
to those on an arm’s length basis. As of 30 September 2012, alloutstanding amounts are considered fully collectible.

48: Life Insurance Business
The Group conducts its life insurance business through OnePath Life
Limited, OnePath Life (NZ) Limited and OnePath Insurance Services(NZ) Limited. This note is intended to provide disclosures in relation
to the life businesses conducted through these controlled entities.
SOLVENCY POSITION OF LIFE INSURER
Australian life insurers are required to hold reserves in excess of policy
liabilities to meet certain solvency requirements under the Life Act.

The life insurance business in New Zealand is not governed by theLife Act as these are foreign domiciled life insurance companies.
These companies are however required to meet similar solvency tests.
The summarised solvency information below in respect of solvency
requirements under the Life Act has been extracted from the financial
statements prepared by OnePath Life Limited. For detailed solvency
information on a statutory fund basis, users of this annual financial
report should refer to the separate financial statements prepared by
OnePath Life Limited.
OnePath Life Limited

Solvency requirements as at 30 September
represented by:– minimum termination value– other liabilities– solvency reserve
Assets available for solvency reserves
Coverage of solvency reserves (times)

LIFE INSURANCE BUSINESS PROFIT ANALYSIS

Life insurance
contracts

Life investment
contracts

2012
$m

2011
$m

32,132

29,946

31,105
688
339
652
1.92

28,735
855
356
619
1.74

Consolidated

2012
$m

2011
$m

2012
$m

2011
$m

2012
$m

2011
$m

Net shareholder profit after income tax

259

251

115

126

374

377

Net shareholder profit after income tax is represented by:
Emergence of planned profit margins
Difference between actual and assumed experience(Loss recognition)/reversal of previous losses on groups of related products
Investment earnings on retained profits and capital
Changes in assumptions

178
(29)
1
88
21

173
–
(10)
83
5

77
30
–
8
–

136
(15)
–
5
–

255
1
1
96
21

309
(15)
(10)
88
5

Net policyholder profit in statutory funds after income tax

18

12

–

–

18

12

Net policyholder profit in statutory funds after income tax is represented by:
Emergence of planned profits
Investment earnings on retained profits

10
8

11
1

–
–

–
–

10
8

11
1

188

ANZ ANNUAL REPORT 2012

48: Life Insurance Business (continued)
INVESTMENTS RELATING TO INSURANCE BUSINESS

Consolidated
2012
$m

2011
$m

Equity securities
Debt securities
Investments in managed investment schemes
Derivative financial assets
Other investments

9,383
9,226
9,195
28
2,063

9,980
9,040
8,913
27
1,899

Total investments backing policy liabilities designated at fair value through profit or loss1

29,89529,8591 This includes $3,949 million (2011: $5,033 million) in respect of investments relating to external unitholders. In addition, the investment balance has been reduced by $4,203 million(2011: $3,106 million) in respect of the elimination of intercompany balances, Treasury Shares and the re-allocation of policyholder tax balances.

Investments held in statutory funds can only be used to meet the liabilities and expenses of that fund, or to make profit distributions
when solvency and capital adequacy requirements of the Life Act are met. Accordingly, with the exception of permitted profit distributions,the investments held in the statutory funds are not available for use by other parties of the Group.
INSURANCE POLICY LIABILITIESa) Policy liabilities

Consolidated
2012
$m

2011
$m

6,651
1,891
(10,021)
15

6,059
1,736
(8,882)
11

21
1,663
3
223
42
509

34
1,454
3
415
42
427

Total life insurance contract liabilities

774

884

Life investment contract liabilities2,3

28,76329,537

26,61927,503

Life insurance contract liabilities
Best estimate liability
Value of future policy benefits
Value of future expenses
Value of future premium
Value of declared bonuses
Value of future profits
Policyholder bonus
Shareholder profit margin
Business valued by non-projection method
Total net life insurance contract liabilities
Unvested policyholder benefits
Liabilities ceded under reinsurance contracts1 (refer note 20)

Total policy liabilities

1 Liabilities ceded under insurance contracts are shown as ‘other assets’.
2 Designated at fair value through profit or loss.
3 Life investment contract liabilities that relate to the capital guaranteed element is $1,803 million (2011: $1,946 million). Life investment contract liabilities subject to investment performance
guarantees is $1,108 million (2011: $1,107 million).

b) Reconciliation of movements in policy liabilities

Life investment
contracts

Life insurance
contracts

Consolidated

2012
$m

2011
$m

2012
$m

2011
$m

2012
$m

2011
$m

Policy liabilities
Gross liability brought forward
Movements in policy liabilities reflected in the income statement
Deposit premium recognised as a change in life investment contract liability
Fees recognised as a change in life investment contract liabilities
Withdrawal recognised as a change in other life investment contract liability

26,619
2,559
3,920
(435)
(3,900)28,002
(759)
3,834
(471)
(3,987)

884
(110)
–
–
–

979
(95)
–
–
–

27,503
2,449
3,920
(435)
(3,900)28,981
(854)
3,834
(471)
(3,987)Gross policy liability closing balance

28,763

26,619774

884

29,53727,503Liabilities ceded under reinsurance1
Balance brought forward
Increase in reinsurance asset

–
–

–
–

427
82

360
67

427
82

360
67

Closing balance

–

–

509

427

509

427

28,763

26,619265

457

29,02827,076NOTES TO THE FINANCIAL STATEMENTS

189

Total policy liability net of reinsurance asset
1 Liabilities ceded under insurance contracts are shown as ‘other assets’.

NOTES TO THE FINANCIAL STATEMENTS (continued)
48: Life Insurance Business (continued)c) Sensitivity analysis – Life investment contract liability
Market risk arises on the Group’s life insurance business in respect of contracts where an element of the liability to the policyholder is guaranteedby the Group. The value of the guarantee is impacted by changes in underlying asset values and interest rates. As at September 2012, a 10%
decline in equity markets would have decreased profit by $20 million (2011: $26 million) and a 10% increase would have increased profit by$3 million (2011: $10 million). A 1% increase in interest rates at 30 September would have decreased profit by $14 million (2011: $16 million)and 1% decrease would have increased profit by $3 million (2011: $10 million).
METHODS AND ASSUMPTIONS LIFE INSURANCE CONTRACTS

Significant actuarial methods
The effective date of the actuarial report on policy liabilities (which includes insurance contract liabilities and life investment contract liabilities)
and solvency requirements is 30 September 2012.
In Australia, the actuarial report was prepared by Mr Nick Kulikov, FIAA, Appointed Actuary. The actuarial reports indicate Mr Kulikov is satisfied
as to the accuracy of the data upon which policy liabilities have been determined.
The amount of policy liabilities has been determined in accordance with methods and assumptions disclosed in this financial report and therequirements of the Life Act, which includes applicable standards of the APRA.
Policy liabilities have been calculated in accordance with Prudential Standard LPS 1.04 Valuation of Policy Liabilities issued by the APRA in
accordance with the requirements of the Life Insurance Act (LIA). For life insurance contracts the Standard requires the policy liabilities to be
calculated in a way which allows for the systematic release of planned margins as services are provided to policyholders.
The profit carriers used to achieve the systematic release of planned margins are based on the product groups.
In New Zealand, the actuarial report was prepared by Mr Michael Bartram FIAA FNZSA, who is a fellow of the Institute of Actuaries of Australia
and a fellow of the New Zealand Society of Actuaries. The amount of policy liabilities has been determined in accordance with Professional Standard
3: Determination of Life Insurance Policy Liabilities of the New Zealand Society of Actuaries. The actuarial reports indicate that Mr Bartram issatisfied as to the accuracy of the data upon which policy liabilities have been determined.

Critical assumptions
The valuation of the policy liabilities is dependant on a number of variables including interest rate, equity prices, future expenses, mortality,
morbidity and inflation. The critical estimates and judgements used in determining the policy liability is set out in note 2 (vi) on page 91.

Sensitivity analysis – life insurance contracts
The Group conducts sensitivity analyses to quantify the exposure of the life insurance contracts to risk of changes in the key underlying variables
such as interest rate, equity prices, mortality, morbidity and inflation. The valuations included in the reported results and the Group’s best
estimate of future performance is calculated using certain assumptions about these variables. The movement in any key variable will impact
the performance and net assets of the Group and as such represents a risk. The table below illustrates how changes in key assumptions would
impact the reported profit, policy liabilities and equity at 30 September 2012.

Variable

Impact of movement in underlying variable

Change invariable

Profit/(loss)
net ofreinsurance

Insurance
contract
liabilities
net ofreinsurance

Equity% change

$m

$m

$m

Market interest rates

A change in market interest rates affects the value placed on
future cash flows. This changes profit and shareholder equity.

-1%
+1%

57
(45)

(71)
56

57
(45)

Expense rate

An increase in the level or inflationary growth of expenses overassumed levels will decrease profit and shareholder equity.

-10%
+10%

1
(1)

(1)
1

1
(1)

Mortality rate

Greater mortality rates would lead to higher levels of claims
occurring, increasing associated claims cost and therefore
reducing profit and shareholder equity.

-10%
+10%

(17)
(1)

24
1

(17)
(1)

Morbidity rate

The cost of health-related claims depends on both theincidence of policyholders becoming ill and the duration
which they remain ill. Higher than expected incidence andduration would increase claim costs, reducing profit andshareholder equity.

-10%
+10%

2
(11)

(2)
14

2
(11)

190

ANZ ANNUAL REPORT 2012

48: Life Insurance Business (continued)
LIFE INSURANCE RISK
Insurance risk is the risk of loss due to increases in policy benefits arising from variations in the incidence or severity of insured events.
Insurance risk exposure arises in insurance business as the risk that claims payments are greater than expected. In the life insurance businessthis arises primarily through mortality (death) or morbidity (illness or injury) risks being greater than expected.
Insurance risks are controlled through the use of underwriting procedures and reinsurance arrangements. Controls are also maintained overclaims management practices to assist in the correct and timely payment of insurance claims. Regular monitoring of experience is conducted ata sufficiently detailed level in order to identify any deviation from expected claim levels.
Financial risks relating to the Group’s insurance business are generally monitored and controlled by selecting appropriate assets to backinsurance and life investment contract liabilities. Wherever possible within regulatory constraints, the Group segregates policyholders funds
from shareholders funds and sets investment mandates that are appropriate for each. The assets are regularly monitored by the Global Wealthand Private Bank Investment Risk Management Committee to ensure that there are no material asset and liability mismatching issues and otherrisks such as liquidity risk and credit risk are maintained within acceptable limits.
All financial assets within the life insurance statutory funds directly support either the Group’s life insurance or life investment contracts. Market
risk arises for the Group on contracts where the liabilities to policyholders are guaranteed by the life company. The Group manages this riskby the monthly monitoring and rebalancing of assets to policy liabilities. However, for some contracts the ability to match asset characteristics
with policy obligations is constrained by a number of factors including regulatory constraints, the lack of suitable investments as well as by thenature of the policy liabilities themselves.
A market risk also arises from those life investment contracts where the benefits paid are directly impacted by the value of the underlying
assets. The Group is exposed to the risk of future decreased asset management fees as a result of a decline in assets under management andoperational risk associated with the possible failure to administer life investment contracts in accordance with the product terms and conditions.

Risk strategy
In compliance with contractual and regulatory requirements, a strategy is in place to monitor that the risks underwritten satisfy policyholders’risk and reward objectives whilst not adversely affecting the Group’s ability to pay benefits and claims when due. The strategy involves theidentification of risks by type, impact and likelihood, the implementation of processes and controls to mitigate the risks, and continuous
monitoring and improvement of the procedures in place to minimise the chance of an adverse compliance or operational risk event occurring.
Included in this strategy are the processes and controls over underwriting, claims management and product pricing. Capital management is also
a key aspect of the Group’s risk management strategy.

Allocation of capital
The Group’s insurance businesses are subject to regulatory capital requirements which prescribe the amount of capital to be held dependingon the contract liability.
Solvency margin requirements established by APRA are in place to reinforce safeguards for policyholders’ interest, which are primarily the ability
to meet future claims payments in respect of existing policies.

Methods to limit or transfer insurance risk exposures
Reinsurance – Reinsurance treaties are analysed using a number of analytical modeling tools to assess the impact on the Group’s exposure
to risk with the objective of achieving the desired choice of type of reinsurance and retention levels.
Underwriting procedures – Strategic underwriting decisions are put into effect using the underwriting procedures detailed in the Group’s
underwriting manual. Such procedures include limits to delegated authorities and signing powers.
Claims management – Strict claims management procedures are in place to assist in the timely and correct payment of claims in accordancewith policy conditions.

NOTES TO THE FINANCIAL STATEMENTS

191

NOTES TO THE FINANCIAL STATEMENTS (continued)
49: 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:2012

Chinese Yuan
Euro
Great British Pound
Indian Rupee
Indonesian Rupiah
Malaysian Ringgit
New Zealand Dollar
Papua New Guinea Kina
United States Dollar

50: Events Since the End of the Financial Year
There have been no material events since the end of the financial year.

192

2011

Closing

Average

Closing

Average

6.58480.80920.643755.1714
10,022.6
3.20771.25292.1773
1.04626.51500.79140.652253.9494
9,476.4
3.19981.28832.16571.02786.21490.71940.624347.5992
8,573.0
3.1052
1.27272.1794
0.97316.70360.73530.638646.2575
8,985.7
3.12701.30512.54131.0251

ANZ ANNUAL REPORT 2012

DIRECTORS’ DECLARATION AND RESPONSIBILITY STATEMENT
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 are in accordance with the
Corporations Act 2001, including that they:i) comply with applicable Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations
Regulations 2001; andii) give a true and fair view of the financial position of the Company and of the consolidated entity as at 30 September 2012 and of theirperformance for the year ended on that date; andb) the notes of the Company and the consolidated entity include a statement that the financial statements and notes of the Company and theconsolidated entity comply with International Financial Reporting Standards; andc) the Directors have been given 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 43) have executed a Deed of Cross Guarantee enablingthem to take advantage of the accounting and audit relief offered by class order 98/1418 (as amended), issued by the Australian Securities
and Investments Commission. The nature of the Deed of Cross Guarantee is to guarantee to each creditor payment in full of any debt inaccordance with the terms of the Deed of Cross Guarantee. At the date of this declaration, there are reasonable grounds to believe that theCompany and its controlled entities which executed the Deed of Cross Guarantee are able, as an economic entity, to meet any obligations
or liabilities to which they are, or may become, subject by virtue of the Deed of Cross Guarantee.
Signed in accordance with a resolution of the Directors.

John MorschelMichael R P Smith

Chairman

Director

5 November 2012

Responsibility statement of the Directors in accordance with the Disclosure and Transparency Rule 4.1.12 (3)(b) of the United Kingdom
Financial Services Authority
The Directors of Australia and New Zealand Banking Group Limited confirm to the best of their knowledge that:
The Group’s Annual Report includes:i) a fair review of the development and performance of the business and the position of the Group and the undertakings included in the
consolidation taken as a whole; together withii) a description of the principal risks and uncertainties faced by the Group.
Signed in accordance with a resolution of the Directors.

John MorschelMichael R P Smith

Chairman

Director

5 November 2012

DIRECTORS’ DECLARATION

193

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF
AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITEDINDEPENDENCE
In conducting our audit, we have complied with the independence
requirements of the Corporations Act 2001.
REPORT ON THE FINANCIAL REPORT
We have audited the accompanying financial report of Australia and
New Zealand Banking Group Limited (the Company), which comprises
the balance sheets as at 30 September 2012, and income statements,
statements of comprehensive income, statements of changes in equity
and cash flow statements for the year ended on that date, notes 1 to50 comprising a summary of significant accounting policies and otherexplanatory information and the directors’ declaration of the Company
and the Group comprising the Company and the entities it controlled
at the year’s end or from time to time during the financial year.
DIRECTORS’ RESPONSIBILITY FOR THE FINANCIAL REPORTThe directors of the Company are responsible for the preparationof the financial report that gives a true and fair view in accordancewith Australian Accounting Standards and the Corporations Act 2001
and for such internal control as the directors determine is necessary
to enable the preparation of the financial report that is free frommaterial misstatement whether due to fraud or error. In note 1(A)(i), the directors also state, in accordance with Australian AccountingStandard AASB 101 Presentation of Financial Statements, that thefinancial statements comply with International Financial ReportingStandards.
AUDITOR’S RESPONSIBILITY
Our responsibility is to express an opinion on the financial report basedon our audit. We conducted our audit in accordance with Australian
Auditing Standards. These Auditing Standards require that we comply
with relevant ethical requirements relating to audit engagements andplan and perform the audit to obtain reasonable assurance whether
the financial report is free from material misstatement.
An audit involves performing procedures to obtain audit evidence
about the amounts and disclosures in the financial report. The
procedures selected depend on the auditor’s judgement, including theassessment of the risks of material misstatement of the financial report,
whether due to fraud or error. In making those risk assessments, theauditor considers internal control relevant to the entity’s preparationof the financial report that gives a true and fair view in order to design
audit procedures that are appropriate in the circumstances, but notfor the purpose of expressing an opinion on the effectiveness ofthe entity’s internal control. An audit also includes evaluating theappropriateness of accounting policies used and the reasonableness ofaccounting estimates made by the directors, as well as evaluating theoverall presentation of the financial report.
We performed the procedures to assess whether in all material
respects the financial report presents fairly, in accordance with the
Corporations Act 2001 and Australian Accounting Standards, a true andfair view which is consistent with our understanding of the Company’s
and the Group’s financial position and of their performance.

AUDITOR’S OPINION
In our opinion:(a) the financial report of Australia and New Zealand Banking Group
Limited is in accordance with the Corporations Act 2001, including:(i) giving a true and fair view of the Company’s and the Group’s
financial position as at 30 September 2012 and of theirperformance for the year ended on that date; and(ii) complying with Australian Accounting Standards and the
Corporations Regulations 2001.
(b) the financial report also complies with International Financial
Reporting Standards as disclosed in note 1(A)(i).
REPORT ON THE REMUNERATION REPORT
We have audited the remuneration report included in pages 13 to 35of the directors’ report for the year ended 30 September 2012. The
directors of the Company are responsible for the preparation andpresentation of the remuneration report in accordance with Section
300A of the Corporations Act 2001. Our responsibility is to express an
opinion on the remuneration report, based on our audit conducted inaccordance with Australian Auditing Standards
AUDITOR’S OPINION
In our opinion, the remuneration report of Australia and New Zealand
Banking Group Limited for the year ended 30 September 2012,
complies with Section 300A of the Corporations Act 2001.

KPMG
MelbourneAndrew Yates
Partner

5 November 2012

We believe that the audit evidence we have obtained is sufficient andappropriate to provide a basis for our audit opinion.
KPMG, an Australian partnership and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”),
a Swiss entity.
Liability limited by a scheme approved under Professional Standards Legislation.

194

ANZ ANNUAL REPORT 2012

SECTION 4
Supplementary Information

196

Shareholder Information

207

Glossary of Financial Terms

213

Alphabetical Index

216

SECTION 4

195

SUPPLEMENTARY INFORMATION
1: Capital Adequacy
2012
$m

2011
$m

41,220(3,857)

37,954(3,479)37,363(10,839)
26,524
4,390
1,587

34,475(10,611)23,864
5,111
1,641

32,501

30,616

1,185
5,702(2,814)

1,228
5,017
(3,071)

Tier 2 capital

4,073

3,174

Total qualifying capital

36,57433,790Capital adequacy ratios
Core Tier 1
Tier 1
Tier 2

8.8%
10.8%
1.4%

8.5%
10.9%
1.2%

Total

12.2%

12.1%

300,119

279,964

Qualifying capital

Regulatory capital – qualifying capital
Tier 1
Shareholders' equity and minority interests
Prudential adjustments to shareholders' equity
Fundamental Tier 1 capital
Deductions
Common Equity Tier 1 capital
Non-innovative Tier 1 capital instruments
Innovative Tier 1 capital instruments

Table 1
Table 2Tier 1 capital
Tier 2Upper Tier 2 capital
Subordinated notes
Deductions

Risk weighted assets

196

Table 3
Table 4
Table 2

Table 5

ANZ ANNUAL REPORT 2012

1: Capital Adequacy (continued)

Table 1: Prudential adjustments to shareholders’ equity
Treasury shares attributable to OnePath policy holders
Reclassification of preference share capital
Accumulated retained profits and reserves of insurance, funds
management and securitisation entities and associates
Deferred fee revenue including fees deferred aspart of loan yields
Hedging reserve
Available-for-sale reserve
Dividend not provided for
Accrual for Dividend Reinvestment Plans
Total

Table 2: Deductions from Tier 1 capital
Unamortised goodwill & other intangibles(excluding OnePath Australia and New Zealand)
Intangible component of investments in
OnePath Australia and New Zealand1
Capitalised software
Capitalised expenses including loan and lease origination fees
Applicable deferred tax assets (excluding the component relating
to the general reserve for impairment of financial assets)
Mark-to-market impact of own credit spread
Negative Available-for-sale reserve
Sub-total

2012
$m

2011
$m

280
(871)

358
(871)

(1,660)(1,686)

415
(208)
(94)
(2,149)
430

414
(169)
(126)
(1,999)600(3,857)(3,479)(3,052)(3,027)(2,074)(1,702)(850)(2,071)(1,490)
(688)

(301)
(44)
(2)

(136)
(128)
–

(8,025)(7,540)

Deductions taken 50% from Tier 1 and 50% from Tier 2
Investment in ANZ insurance subsidiaries
Investment in funds management entities
Investment in OnePath in Australia
and New ZealandInvestment in other Authorised Deposit Taking Institutions
and overseas equivalents
Expected losses in excess of eligible provisions2
Other deductions

Gross
(599)
(55)

50%
(300)
(27)

50%
(200)
(29)

(1,441)

(721)

(906)

(2,141)(1,083)(309)(1,070)
(542)
(154)

(1,151)
(475)
(310)

Sub-total(5,628)(2,814)(3,071)(10,839)(10,611)

951

962

Total

Table 3: Upper Tier 2 capital
Perpetual subordinated notes
General reserve for impairment of financial assets net of
attributable deferred tax asset2
Total

234

266

1,185

1,228

Table 4: Subordinated notes3

For capital adequacy calculation purposes, subordinated note issues are reduced by 20% of
the original amount over the last four years to maturity and are limited to 50% of Tier 1 capital.
1 Calculation based on prudential requirements.
2 Under Basel II, this consists of the surplus general reserve for impairment of financial assets net of tax and/or the provisions attributable to the standardised portfolio.
3 The fair value adjustment is excluded for prudential purposes as the prudential standard only permits inclusion of cash received and makes no allowance for hedging.

SUPPLEMENTARY INFORMATION

197

SUPPLEMENTARY INFORMATION (continued)
1: Capital Adequacy (continued)
2012
$m

2011
$m

Table 5: Risk Weighted Assets
On Balance Sheet
Commitments RWA
Contingents RWA
Derivatives RWA

190,21042,807
9,962
11,896

183,039
43,041
9,536
13,212

Total credit risk
Market Risk – Traded
Market Risk – IRRBB
Operational risk

254,875
4,664
12,45528,125

248,828
3,046
8,439
19,651

Total Risk Weighted Assets

300,119

279,964

Table 6: Credit risk weighted assets by Basel asset class
Subject to Advanced IRB approach
Corporate
SovereignBank
Residential Mortgage
Qualifying revolving retail (credit cards)
Other retail

111,796
4,088
11,07742,959
7,092
21,277106,1204,365
9,456
41,041
7,468
19,240Credit risk weighted assets subject to advanced approach

198,289

187,690

Credit risk specialised lending exposures subject to slotting criteria

27,62827,757

Subject to Standardised approach
Corporate
Residential mortgage
Qualifying revolving retail (credit cards)
Other retail

18,168
1,812
2,028
1,165

22,484
845
2,344
1,650

Credit risk weighted assets subject to standardised approach

23,17327,323Credit risk weighted assets relating to securitisation exposures
Credit risk weighted assets relating to equity exposures
Other Assets

1,170
1,030
3,585

1,136
1,399
3,523

254,875

248,828

Total credit risk weighted assets

198

ANZ ANNUAL REPORT 2012

1: Capital Adequacy (continued)
Collective provision

Table 7: Collective provision and regulatory expected loss
Australia
International and Institutional Banking
New ZealandGlobal Wealth and Private Banking
Group Centre
Underlying collective provision and regulatory expected loss
Adjustments between statutory and underlying
Collective provision and regulatory expected loss

Table 8: Expected loss in excess of eligible provisions
Basel expected loss
Defaulted
Non-defaulted

Less: Qualifying collective provision after tax
Collective provisionNon-qualifying collective provision
Standardised collective provision
Deferred tax asset

Less: Qualifying individual provision after tax
Individual provision
Standardised individual provisionCollective provision on advanced defaulted

Gross deduction
50/50 deduction (refer table 2)

Regulatory Expected Loss

2012
$m

2011
$m

2012
$m

2011
$m

1,015
1,282
413
11
41
2,762
3
2,765

1,058
1,610
454
12
39
3,173
3
3,176

2,154
1,446
814
23
–
4,437
–
4,437

1,878
1,450
896
21
–
4,245
16
4,261

2012
$m

2011
$m

2,168
2,269

1,975
2,286

4,437

4,261

(2,765)
334
269
625

(3,176)
375
340
730

(1,537)(1,731)(1,773)268(1,697)
477

(312)

(359)

(1,817)(1,579)

1,083

951

542

475

The measurement of risk weighted assets is based on:a credit risk-based approach whereby 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; andthe recognition of risk weighted assets attributable to market risk arising from trading positions.
The Basel II Accord principles took effect from 1 January 2008. For calculation of minimum capital requirements under Pillar 1 (Capital
Requirements) of the Basel II Accord, ANZ has gained accreditation from APRA for use of Advanced Internal Ratings Based (AIRB)
methodology for credit risk weighted assets and Advanced Measurement Approach (AMA) for operational risk weighted asset equivalent.

SUPPLEMENTARY INFORMATION

199

SUPPLEMENTARY INFORMATION (continued)
2: Average Balance Sheet and Related Interest1
Averages used in the following tables 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’. Intra-group interest earning assets and interest
bearing liabilities are treated as external assets and liabilities for the geographic segments.
2012

2011

Averagebalance$mInterest$m

Averagerate%

Averagebalance$mInterest$m

Averagerate%

Due from other financial institutions
Australia
Asia Pacific, Europe & America
New Zealand

3,283
12,461
1,509

125
188
16

3.8%
1.5%
1.1%

3,284
11,642
1,720

152
127
16

4.6%
1.1%
0.9%

Trading and available-for-sale assets
Australia
Asia Pacific, Europe & America
New Zealand

33,56815,022
8,877

1,372
265
353

4.1%
1.8%
4.0%

32,685
11,460
7,212

1,520
192
336

4.7%
1.7%
4.7%

Net loans and advances
Australia
Asia Pacific, Europe & America
New Zealand

302,063
41,90573,994

21,400
1,766
4,572

7.1%
4.2%
6.2%

280,82132,83273,736

21,533
1,426
4,654

7.7%
4.3%
6.3%

Other assets
Australia
Asia Pacific, Europe & America
New Zealand

4,216
24,330
2,233

175
174
132

4.2%
0.7%
5.9%

4,370
12,305
2,235

220
115
152

5.0%
0.9%
6.8%

Intragroup assets
Australia
Asia Pacific, Europe & America

4,318
7,293

575
(24)

13.3%
-0.3%

2,977
9,073

574
9

19.3%
0.1%

535,072(11,611)31,089(551)

486,352(12,050)

31,026(583)

523,461

30,538474,30230,443

Interest earning assets

Intragroup elimination

5.8%

6.4%

Non-interest earning assets
Derivatives
Australia
Asia Pacific, Europe & America
New Zealand

36,492
4,783
9,974

28,632
4,977
8,377

Premises and equipment

2,085

2,163

Insurance assets

29,97332,448Other assets

25,21726,300

Provisions for credit impairment
Australia
Asia Pacific, Europe & America
New Zealand(3,037)
(793)
(885)

(3,046)
(877)
(973)

Total average assets

103,809

98,001

627,270

572,303

1 As set out in note 1 to the financial statements comparative information has been restated to reflect the impact of the current period reporting treatment of derivative related collateral posted/received and the associated interest income/expense. Previously, collateral received was shown as part of the non-interest earning derivative asset balance and collateral posted as part of the
non-interest earning derivative liability balance. In line with the current treatment, comparative information has been restated to reflect collateral received as part of the interest earning “Due fromother financial institutions” balance and derivative collateral posted as part of the interest bearing “Due to other financial institutions” balance.
Following the restatements set out in note 1 to the financial statements, comparative information in this note has been restated. As a result, the comparative average interest earning assets
increased by $6.9 billion (associated interest income increased by $75 million and average interest rate percentage reduced by 10 basis points) and average non-interest earning assets increased
by $1.6 billion. The comparative average interest earning liabilities increased by $2.8 billion (associated interest expense increased by $58 million and average interest rate percentage wasunchanged) and average non-interest earning liabilities increased by $5.7 billion.

200

ANZ ANNUAL REPORT 2012

2: Average Balance Sheet and Related Interest (continued)
2012
Averagebalance$mTime deposits
Australia
Asia Pacific, Europe & America
New Zealand

2011

Interest$m

Averagerate%

Averagebalance$mInterest$m

Averagerate%

134,508
60,64327,981

6,821
741
1,130

5.1%
1.2%
4.0%

124,080
46,36429,310

6,862
549
1,305

5.5%
1.2%
4.5%

Savings deposits
Australia
Asia Pacific, Europe & America
New Zealand

21,779
4,280
3,757

862
24
119

4.0%
0.6%
3.2%

20,109
5,097
2,023

821
23
47

4.1%
0.5%
2.3%

Other demand deposits
Australia
Asia Pacific, Europe & America
New Zealand

77,581
9,817
15,135

2,845
29
391

3.7%
0.3%
2.6%

66,053
6,985
13,696

2,646
28
379

4.0%
0.4%
2.8%

Due to other financial institutions
Australia
Asia Pacific, Europe & America
New Zealand

7,308
21,624
1,851

260
181
32

3.6%
0.8%
1.7%

9,249
16,222
1,352

420
141
24

4.5%
0.9%
1.8%

Commercial paper
Australia
New Zealand

11,676
3,669

510
123

4.4%
3.4%

7,570
3,384

378
111

5.0%
3.3%

Borrowing corporations’ debts
Australia
New Zealand

220
1,124

14
55

6.4%
4.9%

519
1,190

34
68

6.6%
5.7%

Loan capital, bonds and notes
Australia
Asia Pacific, Europe & America1
New Zealand

63,62089
13,278

3,461
2
664

5.4%
1.8%
5.0%

67,51739
15,042

4,102
–
725

6.1%
0.7%
4.8%

Other liabilities
Australia
Asia Pacific, Europe & America
New Zealand

2,060
1,394
200

206
53
(95)

n/a
n/a
n/a

4,260
745
141

328
29
(77)

n/a
n/a
n/a

Intragroup liabilities
New Zealand

11,611551

4.7%

12,050583

4.8%

Intragroup elimination

495,205(11,611)

18,979(551)

452,997(12,050)

19,526(583)

483,594

18,428440,947

18,943

Interest bearing liabilities

3.8%

4.3%

Non-interest bearing liabilities
Deposits
Australia
Asia Pacific, Europe & America
New Zealand

5,103
2,387
3,863

4,947
2,034
3,718

Derivatives
Australia
Asia Pacific, Europe & America
New Zealand

31,3295,044
9,207

23,4374,055
7,067

Insurance liabilities
External unitholder liabilities

28,386
4,779

29,285
5,476

Other liabilities
Total average liabilities

14,014

15,470104,112

95,489587,706

536,436

1 Includes foreign exchange swap costs.

SUPPLEMENTARY INFORMATION

201

SUPPLEMENTARY INFORMATION (continued)
2: Average Balance Sheet and Related Interest (continued)
2012
$m

2011
$m

Total average assets
Australia
Asia Pacific, Europe & America
New Zealand

425,515
113,341
100,025

398,297
89,107
96,949Less intragroup elimination

638,881(11,611)584,353(12,050)

627,270

572,303

32.9%

30.9%

Average interest earning assets
Australia
Asia Pacific, Europe & America
New Zealand

347,448
101,01186,613324,137
77,312
84,903

Less intragroup elimination

535,072(11,611)486,352(12,050)

523,461474,302

Total average liabilities
Australia
Asia Pacific, Europe & America
New Zealand

398,639
107,562
93,116374,008
83,73390,745Less intragroup elimination

599,317(11,611)548,486(12,050)

587,706

536,436

32.2%

30.3%

Average interest bearing liabilities
Australia
Asia Pacific, Europe & America
New Zealand

318,752
97,84778,606299,357
75,452
78,188Less intragroup elimination

495,205(11,611)452,997(12,050)

483,594440,947

38,693871
39,56434,996871
35,867627,270

572,303% of total average assets attributable to overseas activities% of total average assets attributable to overseas activities

Total average shareholders’ equity
Ordinary share capital, reserves and retained earnings
Preference share capital
Total average liabilities and shareholders’ equity

202

ANZ ANNUAL REPORT 2012

3: Interest Spreads and Net Interest Average Margins1
2012
$m

2011
$m

8,668
1,339
2,103

8,410
1,097
1,993

12,11011,500

%

%

6.81
2.35
5.86
5.83

7.40
2.42
6.07
6.42

Net interest spread
Interest attributable to net non-interest bearing items

2.10
0.39

2.19
0.40

Net interest margin – Australia

2.49

2.59

Asia Pacific, Europe & America
Net interest spread
Interest attributable to net non-interest bearing items

1.30
0.03

1.40
0.02

Net interest margin – Asia Pacific, Europe & America

1.33

1.42

New Zealand
Net interest spread
Interest attributable to net non-interest bearing items

2.08
0.35

2.03
0.32

Net interest margin – New Zealand

2.43

2.35

Group
Net interest spread
Interest attributable to net non-interest bearing items

2.02
0.29

2.12
0.30

Net interest margin

2.31

2.42

Net interest margin (excluding Global Markets)

2.71

2.80

Net interest income
Australia
Asia Pacific, Europe & America
New ZealandGross earnings rate2
Australia
Asia Pacific, Europe & America
New Zealand
Total GroupInterest spread and net interest average margin may be analysed as follows:
Australia

1 Comparative information has been restated to reflect the impact of the current period reporting treatment of derivative related collateral posted/received and the associated interest income/expense. Further information is included in note 1 to the financial statements, with the average balance sheet impact discussed on page 200.
2 Average interest rate received on average interest earning assets.

SUPPLEMENTARY INFORMATION

203

SUPPLEMENTARY INFORMATION (continued)
4. Explanation of adjustments between statutory profit and underlying profit
GAIN ON SALE OF VISA SHARES
During the year the Group disposed of its equity interest in Visa International which it has held since Visa’s initial IPO in 2008. The gain
recognised on the sale has not been recognised in underlying profit as the gain is not reflective of the core business performance.
NEW ZEALAND SIMPLIFICATION PROGRAMMEThe New Zealand Simplification programme (which commenced in 2011) will deliver a single core banking system, a single banking brandand an optimised branch network in New Zealand. This programme is expected to result in lower operational and technology costs. Costsof $105 million after tax (2011: $86 million), pre-tax $146 million (2011: $123 million), were incurred in the year. This includes a restructuringprovision raised in September 2012 upon the announcement of the brand and branch phase of the programme. Given the size and significanceof the changes to the operations in New Zealand, the associated costs have been excluded from underlying profit.
ACQUISITION RELATED ADJUSTMENTS
Acquisition related adjustments arose following the acquisition of OnePath Australia, OnePath New Zealand and selected Royal Bank of Scotland
Group PLC businesses in Asia during 2010 and include the following:
Pre-tax

After tax

2012
$m

2011
$m

2012
$m

2011
$m

Available-for-sale reserve write-off recovery1
Integration and transaction costs
Amortisation of acquisition related intangibles2

(6)
17
44

(3)
110
54

(4)
12
33

(2)
89
39

Total

55

161

41

126

1 Adjusted to reverse recoveries on available-for-sale assets written down through equity by OnePath Australia before obtaining control
2 The acquisition of OnePath and RBS resulted in the recognition of intangible assets which previously were not recognised in the underlying business acquired

These items are not recognised in underlying profit as they are not representative of the Group’s expected ongoing financial performance
following integration.
TREASURY SHARES ADJUSTMENT
ANZ shares held by ANZ in the consolidated managed funds and life business are deemed to be Treasury shares. Realised and unrealised gains
and losses from these shares and dividends received on these shares are reversed as these are not permitted to be recognised in income forstatutory reporting purposes. In deriving underlying profit, these earnings are included to ensure there is no asymmetrical impact on theGroup’s profits because the Treasury shares support policyholder liabilities which are revalued in deriving income. Accordingly, an adjustment
to statutory profit of $96 million gain after tax (2011: $41 million loss after tax), pre-tax $104 million gain (2011: $48 million loss) has beenrecognised.
CHANGES IN NEW ZEALAND TAX LEGISLATION
In 2010 legislation was passed to reduce the New Zealand corporate tax rate from 30% to 28% and to remove the ability to claim tax
depreciation on buildings with an estimated useful life greater than 50 years, effective for the 2011-2012 income tax year. A residual component
relating to the impact on the value of deferred tax was recognised in 2011. There was no impact in the current year.
ECONOMIC HEDGING – FAIR VALUE GAINS/(LOSSES) AND MARK-TO-MARKET ADJUSTMENTS ON REVENUE AND NET INVESTMENT HEDGESThe Group enters into economic hedges to manage its interest rate and foreign exchange risk. The application of AASB 139: Financial
Instruments – Recognition and Measurement results in fair value gains/(losses) and mark-to-market adjustments being recognised within theincome statement. ANZ includes the mark-to-market adjustments relating to economic hedges as an adjustment to underlying profit as the
profit or loss resulting from the transactions will reverse over time to match with the profit or loss from the economically hedged item as partof underlying profit. This includes income/(loss) arising from:approved classes of derivatives not designated in accounting hedge relationships but which are considered to be economic hedges, including
hedges of NZD and USD revenue;
the use of the fair value option (principally arising from the valuation of the ‘own name’ credit spread on debt issues designated at fair value);andineffectiveness from designated accounting cash flow, fair value and net investment hedges.

204

ANZ ANNUAL REPORT 2012

4. Explanation of adjustments between statutory profit and underlying profit (continued)
In the table below, funding and lending related swaps are primarily foreign exchange rate swaps which are being used to convert theproceeds of foreign currency debt issuances into floating rate Australian dollar and New Zealand dollar debt (‘funding swaps’). As these swaps
do not qualify for hedge accounting, movements in the fair values are recorded in the Income Statement. The main drivers of these fair values
are currency basis spreads and the Australian dollar and New Zealand dollar fluctuation against other major funding currencies. This category
also includes economic hedges of select structured finance and leasing transactions that do not qualify for hedge accounting. The main driversof these fair value adjustments are Australian and New Zealand yield curves.
Losses in 2012 from funding and lending related swaps have been strongly impacted by the falling yield curves in both Australia and
New Zealand. Additionally, the appreciation of the Australian dollar during 2012 drove losses from the currency components of the Group’s
offshore funding hedges.
Losses arising from the use of the fair value option on own name debt hedged by derivatives have been driven by contraction of credit spreads
during the year.
The gains from revenue and net investment hedges for 2012 were principally attributable to the appreciation of the AUD against the USD
in 2012.
2012
$m

2011
$m

Impact on income statement
Timing differences where IFRS results in asymmetry between the hedge and hedged items
Funding and lending related swaps
Use of the fair value option on own debt hedged by derivatives
Revenue and net investment hedges
Ineffective portion of cash flow and fair value hedges

(194)
(119)
75
(16)

(317)
155
(76)
(5)

Profit/(loss) before tax

(254)

(243)

Profit/(loss) after tax

(176)

(168)
As at

Cumulative pre-tax timing differences relating to economic hedging
Timing differences where IFRS results in asymmetry between the hedge and hedged items (before tax)
Funding and lending related swaps
Use of the fair value option on own debt hedged by derivatives
Revenue and net investment hedges
Ineffective portion of cash flow and fair value hedges

2012
$m

2011
$m

(756)
64
45
17

(562)
183
(30)
33

(630)

(376)

CAPITALISED SOFTWARE IMPAIRMENT
Following the identification of impairment triggers, an impairment assessment was performed on intangible assets, including internallygenerated software assets. A detailed review of the recoverable amount was performed, and where the benefits associated with the asset were
substantially reduced from what had originally been anticipated, the assets were written down to their recoverable amount. This resulted ina write-down of $220 million after tax ($273 million pre-tax) during the second half of the year. Given the size and nature of the write-down andthe infrequency of such large impairments, the write-down has been excluded from underlying profit.
NZ MANAGED FUNDS IMPACTS
During 2011, the collateralised debt obligations held within the Diversified Yield Fund and the Regular Income Fund were sold and the funds
wound up. This resulted in a profit after tax of $39 million ($61 million pre-tax). There was no material impact in the current year.
CREDIT RISK ON IMPAIRED DERIVATIVES (NIL PROFIT AFTER TAX IMPACT)
Reclassification of a charge to income for credit valuation adjustments on defaulted and impaired derivative exposures to provision for credit
impairment of $60 million (2011: $17 million reversal). The reclassification has been made to reflect the manner in which the defaulted andimpaired derivatives are managed.
POLICYHOLDERS TAX GROSS UP (NIL PROFIT AFTER TAX IMPACT)
For statutory reporting purposes policyholder income tax and other related taxes paid on behalf of policyholders are included in net income
from wealth management and the Group’s income tax expense. The gross up of $151 million (2011: $208 million) has been excluded from theunderlying results as it does not reflect the underlying performance of the business which is assessed on a net of policyholder tax basis.

SUPPLEMENTARY INFORMATION

205

SUPPLEMENTARY INFORMATION (continued)
4. Explanation of adjustments between statutory profit and underlying profit (continued)
NON CONTINUING BUSINESSESIn 2009, Global Institutional reviewed its existing business portfolio in light of its new strategic and business goals to determine the optimal
structure for the division. As a result, new business ceased in several product areas, including the Alternative Assets and Private Equity
businesses. The Group’s structured credit intermediation trades are also included within non continuing businesses and will result in the profit/(loss) fluctuating as the credit risk adjustment is impacted by market movements in credit spreads and exchange rates. These have been
excluded from underlying earnings in line with how management assesses the performance of the underlying business. A summary of
the impact of non continuing businesses including structured credit intermediation trades follows:
Non continuing businesses

2012
$m

2011
$m

Net interest income
Other operating income

1
100

(2)
23

Operating income
Operating expenses

101
(14)

21
(14)

Profit before credit impairment and income tax
Provision for credit impairment

87
(12)

7
(9)

Profit before income tax
Income tax expense

75
(10)

(2)
3

Profit65

1

STRUCTURED CREDIT INTERMEDIATION TRADES
ANZ entered into a series of structured credit intermediation trades from 2004 to 2007. The underlying structures involve credit default swaps(CDS) over synthetic collateralised debt obligations (CDOs), portfolios of external collateralised loan obligations (CLOs) or specific bonds/floating
rate notes (FRNs). ANZ sold protection using credit default swaps over these structures and then to mitigate risk, purchased protection via credit
default swaps over the same structures from eight US financial guarantors.
Being derivatives, both the sold protection and purchased protection are marked-to-market. Prior to the commencement of the global credit
crisis, movements in valuations of these positions were not significant and largely offset each other in income. Following the onset of the credit
crisis, the purchased protection has provided only a partial offset against movements in valuation of the sold protection because:
one of the counterparties to the purchased protection defaulted and many of the remaining counterparties were downgraded; anda credit valuation adjustment is applied to the remaining counterparties to the purchased protection reflective of changes to their credit
worthiness.
ANZ is actively monitoring this portfolio with a view to reducing the exposure via termination and restructuring of both the bought and soldprotection if and when ANZ deems it cost effective relative to the perceived risk associated with a specific trade or counterparty. Costs wereincurred in prior periods managing these positions. The notional amount on the outstanding sold trades was US$8.0 billion at 30 September
2012 (2011: $8.3 billion).
The cumulative costs include realised losses relating to restructuring of trades in order to reduce risks and realised losses on termination of soldprotection trades. It also includes foreign exchange hedging losses.
The credit risk expense on structured credit derivatives remains volatile reflecting the impact of market movements in credit spreads and AUD/
USD rates. It is likely there will continue to be volatility in this market value.
The (gain)/loss included in income for these transactions is set out below.

Credit risk on intermediation trades

2012
$m

2011
$m

(73)

(4)

As at
2012
$m

2011
$m

Financial impacts on credit intermediation trades
Mark-to-market exposure to financial guarantors

359

803

Cumulative costs relating to financial guarantors
Credit valuation adjustment for outstanding transactions
Realised close out and hedge costs

116
322

197
314

Cumulative life to date charges

438

511

206

SHAREHOLDER INFORMATION
Ordinary Shares
At 12 October 2012, the twenty largest holders of ordinary shares held 1,621,761,030 ordinary shares, equal to 59.68% of the total issued
ordinary capital.
Number ofshares% ofshares496,877,028
388,520,632
355,787,235
95,326,902
52,382,287

18.28
14.30
13.09
3.51
1.93

48,693,510

1.79

36,747,189

1.35

26,021,302
20,089,562

0.96
0.74

14,032,348

0.52

Name

1.
2.
3.
4.
5.

HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITEDJ P MORGAN NOMINEES AUSTRALIA LIMITEDNATIONAL NOMINEES LIMITEDCITICORP NOMINEES PTY LIMITEDBNP PARIBAS NOMS PTY LTD<MASTER CUST DRP>
6. CITICORP NOMINEES PTY LIMITED<COLONIAL FIRST STATE INV A/C>
7. JP MORGAN NOMINEES AUSTRALIA LIMITED<CASH INCOME A/C>
8. AMP LIFE LIMITED
9. RBC INVESTOR SERVICES AUSTRALIA NOMINEESPTY LIMITED <PI POOLED A/C>
10. BNP PARIBAS NOMS PTY LTD<SMP ACCOUNTS DRP>

Name

11. BNP PARIBAS NOMS PTY LTD <DRP>
12. ANZEST PTY LTD <DEFERRED SHARE PLAN A/C>
13. UBS WEALTH MANAGEMENT AUSTRALIANOMINEES PTY LTD
14. HSBC CUSTODY NOMINEES (AUSTRALIA)
LIMITED <NT-COMNWLTH SUPER CORP A/C>
15. AUSTRALIAN FOUNDATION INVESTMENTCOMPANY LIMITED
16. ARGO INVESTMENTS LIMITED
17. PERPETUAL TRUSTEE COMPANY LIMITED
18. HSBC CUSTODY NOMINEES (AUSTRALIA)
LIMITED-GSCO ECA
19. QIC LIMITED
20. ANZEST PTY LTD <ESAP SHARE PLAN A/C>

Total

Number ofshares% ofshares12,947,217
12,643,018
11,245,296

0.48
0.47
0.41

10,414,732

0.38

8,187,710

0.30

7,902,915
6,936,856
5,961,974

0.29
0.26
0.22

5,787,257
5,256,060

0.21
0.19

1,621,761,030

59.68

Distribution of shareholdings
At 12 October 2012
Range of shares

Number ofholders% ofholders

Number ofshares% ofshares1 to 1,000
1,001 to 5,000
5,001 to 10,000
10,001 to 100,000
Over 100,000

231,911
166,971
25,627
13,681
429

52.87
38.07
5.84
3.12
0.10

96,665,046
377,204,439
177,598,813
277,923,886
1,788,065,328

3.56
13.88
6.53
10.23
65.80

Total

438,619100.002,717,457,512

100.00

At 12 October 2012:
there were no persons with a substantial shareholding in the Company;
the average size of holdings of ordinary shares was 6,195 (2011: 5,935) shares; andthere were 9,505 holdings (2011: 10,698 holdings) of less than a marketable parcel (less than $500 in value or 20 shares based on the market price of $25.66 per share),which is less than 2.17% of the total holdings of ordinary shares.

Voting rights of ordinary shares
The Constitution provides for votes to be cast as follows:i)on show of hands, 1 vote for each shareholder; andii) on a poll, 1 vote for each fully paid ordinary share.
A register of holders of ordinary shares is held at:
452 Johnston Street
Abbotsford
Victoria, Australia(Telephone: +61 3 9415 4010)

SUPPLEMENTARY INFORMATION

207

SHAREHOLDER INFORMATION (continued)
ANZ Convertible Preference Shares (ANZ CPS)ANZ CPS1
On 30 September 2008 ANZ issued convertible preference shares (ANZ CPS1) which were offered pursuant to a prospectus dated
4 September 2008.
At 12 October 2012, the twenty largest holders of ANZ CPS1 held 2,367,385 securities, equal to 21.90% of the total issued securities.
Name

1. UBS WEALTH MANAGEMENT AUSTRALIANOMINEES PTY LTD
2. UCA CASH MANAGEMENT FUND LTD
3. QUESTOR FINANCIAL SERVICES LIMITED<TPS RF A/C>
4. NAVIGATOR AUSTRALIA LTD<MLC INVESTMENT SETT A/C>
5. HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
6. J P MORGAN NOMINEES AUSTRALIA LIMITED
7. NULIS NOMINEES (AUSTRALIA) LIMITED<NAVIGATOR MAST PLAN SETT A/C>
8. UBS NOMINEES PTY LTD
9. CITICORP NOMINEES PTY LIMITED <DPSL>
10. NETWEALTH INVESTMENTS LIMITED<WRAP SERVICES A/C>

Number of% ofsecurities securities

454,2174.20

230,244
213,074

2.13
1.97

210,662

1.95

189,723
172,300
124,973

1.76
1.59
1.16

92,93583,00273,591

0.86
0.77
0.68

Number of% ofsecurities securities

Name

11. NATIONAL NOMINEES LIMITED
12. BNP PARIBAS NOMS PTY LTD <MASTER CUST DRP>
13. AUSTRALIAN EXECUTOR TRUSTEES LIMITED<NO 1 ACCOUNT>
14. RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY
LIMITED <NMSMT A/C>
15. BALLARD BAY PTY LTD <BALLARD BAYDISCRETIONARY AC>
16. JMB PTY LIMITED
17. SPINETTA PTY LTD
18. CITICORP NOMINEES PTY LIMITED
19. HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED –A/C 2
20. KOLL PTY LTD <NO 1 ACCOUNT>

Total

69,28068,30758,376

0.64
0.63
0.54

57,6580.53

50,0000.46

50,00045,00042,063
41,980

0.46
0.42
0.39
0.39

40,0000.37

2,367,385

21.90

Distribution of ANZ CPS1 holdings
At 12 October 2012
Range of securities

Numberof holders% ofholders

Number of
securities% ofsecurities

1 to 1,000
1,001 to 5,000
5,001 to 10,000
10,001 to 100,000
Over 100,000

15,822
1,166
73
51
7

92.42
6.81
0.43
0.30
0.04

4,762,373
2,393,151
592,863
1,468,544
1,595,193

44.05
22.14
5.48
13.58
14.75

Total

17,119100.0010,812,124

100.00

At 12 October 2012: There were 5 holdings (2011: 6 holdings) of less than a marketable parcel (less than $500 in value or 6 securities based on the market price of $99.48 per security), which is lessthan 0.03% of the total holdings of ANZ CPS1.

Voting rights of ANZ CPS1
An ANZ CPS1 does not entitle its holder to vote at any general meeting of ANZ except in the following circumstances:i) on any proposal to reduce ANZ’s share capital, other than a resolution to approve a Redemption of the ANZ CPS1;ii) on a proposal that affects the rights attached to the ANZ CPS1;
iii) on any resolution to approve the terms of a buy-back agreement, other than a resolution to approve a Redemption of ANZ CPS1;
iv) on a proposal to wind up ANZ;v) on a proposal for the disposal of the whole of ANZ’s property, business and undertaking;vi) on any matter during a winding up of ANZ; andvii) on any matter during a period in which a dividend remains unpaid.
On a resolution or proposal on which an ANZ CPS1 holder is entitled to vote, the ANZ CPS1 holder has:i) on a show of hands, one vote; andii) on a poll, one vote for each ANZ CPS1 held.
A register of holders of ANZ CPS1 is held at:
452 Johnston Street
Abbotsford
Victoria, Australia(Telephone: +61 3 9415 4010)

208

ANZ ANNUAL REPORT 2012

ANZ CPS2
On 17 December 2009 ANZ issued convertible preference shares (ANZ CPS2) which were offered pursuant to a prospectus dated
18 November 2009.
At 12 October 2012, the twenty largest holders of ANZ CPS2 held 3,355,266 securities, equal to 17.04% of the total issued securities.
Name

Number of% ofsecurities securities

1. UBS WEALTH MANAGEMENT AUSTRALIA NOMINEES 669,741
PTY LTD
2. J P MORGAN NOMINEES AUSTRALIA LIMITED
415,655
3. QUESTOR FINANCIAL SERVICES LIMITED <TPS RF A/C> 302,910
4. NAVIGATOR AUSTRALIA LTD
255,411<MLC INVESTMENT SETT A/C>
5. HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
244,602
6. NULIS NOMINEES (AUSTRALIA) LIMITED
175,909<NAVIGATOR MAST PLAN SETT A/C>
7. RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY 149,501
LIMITED <NMSMT A/C>
8. AUSTRALIAN EXECUTOR TRUSTEES LIMITED
125,547<NO 1 ACCOUNT>
9. ABN AMRO CLEARING SYDNEY NOMINEES PTY LTD
113,086<NEXT CUSTODIAN A/C>
10. WINCHELADA PTY LIMITED
102,976

3.40
2.11
1.54
1.30
1.24
0.89
0.76
0.64
0.57
0.52

Number of% ofsecurities securities

Name

11. JMB PTY LIMITED
12. RHI HOLDINGS PTY LTD <RONI HUBAY INVESTMENT
A/C>
13. NATIONAL NOMINEES LIMITED
14. NETWEALTH INVESTMENTS LIMITED<WRAP SERVICES A/C>
15. CITICORP NOMINEES PTY LIMITED
16. RANDAZZO C & G DEVELOPMENTS PTY LTD
17. CITICORP NOMINEES PTY LIMITED<COLONIAL FIRST STATE INV A/C>
18. MR PHILIP WILLIAM DOYLE
19. W MITCHELL INVESTMENTS PTY LTD<W MITCHELL SUPER FUND>
20. AVANTEOS INVESTMENTS LIMITED<ENCIRCLE IMA A/C>

Total

100,600
100,000

0.51
0.51

97,667
91,6870.50
0.47

84,06878,50068,000

0.43
0.40
0.35

60,00060,0000.30
0.30

59,4060.30

3,355,266

17.04

Distribution of ANZ CPS2 holdings
At 12 October 2012
Range of securities

Numberof holders% ofholders

Number of
securities% ofsecurities

1 to 1,000
1,001 to 5,000
5,001 to 10,000
10,001 to 100,000
Over 100,000

28,386
2,199
162
86
11

92.03
7.13
0.52
0.28
0.04

8,777,303
4,665,034
1,266,997
2,321,952
2,655,938

44.58
23.70
6.44
11.79
13.49

Total

30,844100.0019,687,224

100.00

At 12 October 2012: There were 10 holdings (2011: 7 holdings) of less than a marketable parcel (less than $500 in value or 6 securities based on the market price of $99.98 per security), which is lessthan 0.04% of the total holdings of ANZ CPS2.

Voting rights of ANZ CPS2
An ANZ CPS2 does not entitle its holder to vote at any general meeting of ANZ except in the following circumstances:i) on any proposal to reduce ANZ’s share capital, other than a resolution to approve a Redemption of the ANZ CPS2;ii) on a proposal that affects the rights attached to the ANZ CPS2;
iii) on any resolution to approve the terms of a buy-back agreement, other than a resolution to approve a Redemption of ANZ CPS2;
iv) on a proposal to wind up ANZ;v) on a proposal for the disposal of the whole of ANZ’s property, business and undertaking;vi) on any matter during a winding up of ANZ; andvii) on any matter during a period in which a dividend remains unpaid.
On a resolution or proposal on which an ANZ CPS2 holder is entitled to vote, the ANZ CPS2 holder has:i) on a show of hands, one vote; andii) on a poll, one vote for each ANZ CPS2 held.
A register of holders of ANZ CPS2 is held at:
452 Johnston Street
Abbotsford
Victoria, Australia(Telephone: +61 3 9415 4010)

SHAREHOLDER INFORMATION

209

SHAREHOLDER INFORMATION (continued)
ANZ CPS3
On 28 September 2011 ANZ issued convertible preference shares (ANZ CPS3) which were offered pursuant to a prospectus dated 31 August 2011.
At 12 October 2012, the twenty largest holders of ANZ CPS3 held 2,233,178 securities, equal to 16.67% of the total issued securities.
Name

1. UBS WEALTH MANAGEMENT AUSTRALIA NOMINEESPTY LTD
2. RAKIO PTY LTD <PIEKARSKI GYMPIE A/C>
3. NAVIGATOR AUSTRALIA LTD <MLC INVESTMENTSETT A/C>
4. CITICORP NOMINEES PTY LIMITED
5. QUESTOR FINANCIAL SERVICES LIMITED<TPS RF A/C>
6. RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY
LIMITED <NMSMT A/C>
7. HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
8. NULIS NOMINEES (AUSTRALIA) LIMITED<NAVIGATOR MAST PLAN SETT A/C>
9. DIMBULU PTY LTD

Number of% ofsecurities securities

531,994

3.97

200,000
198,041

1.50
1.48

195,910140,8211.46
1.05

120,1640.90

104,537
92,5710.78
0.69

85,0000.64

Number of% ofsecurities securities

Name

10. MICHAEL COPPEL VENTURES P/L<MICHAEL COPPEL VENTURES A/C>
11. JMB PTY LIMITED
12. EASTCOTE PTY LTD <VAN LIESHOUT FAMILY A/C>
13. MR TERRENCE E PEABODY + MRS MARY G PEABODY<SUPER FUND A/C>
14. RANDAZZO C & G DEVELOPMENTS PTY LTD
15. TANDOM PTY LTD
16. WINCHELADA PTY LIMITED
17. SIR MOSES MONTEFIORE JEWISH HOME
<INCOME A/C>
18. BNP PARIBAS NOMS PTY LTD <MASTER CUST DRP>
19. MR RONALD MAURICE BUNKER
20. GAINSDALE PTY LTD <G F TURNER FAMILY A/C>

Total

80,0000.60

70,00050,00050,000

0.52
0.37
0.37

50,00050,00050,00044,140

0.37
0.37
0.37
0.33

40,00040,00040,000

0.30
0.30
0.30

2,233,178

16.67

Distribution of ANZ CPS3 holdings
At 12 October 2012
Range of securities

Numberof holders% ofholders

Number of
securities% ofsecurities

1 to 1,000
1,001 to 5,000
5,001 to 10,000
10,001 to 100,000
Over 100,000

18,302
1,473
97
72
7

91.73
7.38
0.49
0.36
0.04

5,788,413
3,326,986
780,9102,012,224
1,491,467

43.20
24.83
5.83
15.01
11.13

Total

19,951100.0013,400,000

100.00

At 12 October 2012: There was 1 holding (2011: nil) of less than a marketable parcel (less than $500 in value or 6 securities based on the market price of $98.80 per security), which is less than 0.01%
of the total holdings of ANZ CPS3.

Voting rights of ANZ CPS3
An ANZ CPS3 does not entitle its holder to vote at any general meeting of ANZ except in the following circumstances:i) on any proposal to reduce ANZ’s share capital, other than a resolution to approve a Redemption of the ANZ CPS3;ii) on a proposal that affects the rights attached to the ANZ CPS3;iii) on any resolution to approve the terms of a buy-back agreement, other than a resolution to approve a Redemption of ANZ CPS3;
iv) on a proposal to wind up ANZ;v) on a proposal for the disposal of the whole of ANZ’s property, business and undertaking;vi) on any matter during a winding up of ANZ; andvii) on any matter during a period in which a dividend remains unpaid.
On a resolution or proposal on which an ANZ CPS3 holder is entitled to vote, the ANZ CPS3 holder has:i) on a show of hands, one vote; andii) on a poll, one vote for each ANZ CPS3 held.
A register of holders of ANZ CPS3 is held at:
452 Johnston Street
Abbotsford
Victoria, Australia(Telephone: +61 3 9415 4010)

210

ANZ ANNUAL REPORT 2012

US Trust Securities
On 27 November 2003, the Company issued 750,000 USD noncumulative Trust Securities (‘US Trust Securities’). For more details
on the US Trust Securities refer to page 118.
The US Trust Securities were issued in global form and are registeredin the name of Cede & Co as the sole holder. The fully paid preference
shares and the unsecured notes that form part of the US Trust
Securities are registered in the name of The Bank of New York
(Delaware) (as trustee of ANZ Capital Trust II) as the sole holder.
The preference shares forming part of the US Trust Securities confer
voting rights in the Company in the following limited circumstances:
any proposal to reduce the Company’s share capital;
on a proposal that affects rights attached to the preference shares;
any resolution to approve the terms of a share buy-back agreement;
any proposal for the disposal of the whole of the Company’s
property, business and undertaking;on any proposal to wind up the Company and any matter during
the Company’s winding up, andon all matters on which the holders of ANZ ordinary shares areentitled to vote during a special voting period. A “special voting
period” is a period from any dividend payment date where
preference share dividends are not paid in full in respect of theimmediately preceding semi-annual dividend period or the 24th
business day after the failure of Samson Funding Limited to makean interest payment in full on the notes that form part of the US
Trust Securities and the Company does not make the payment
pursuant to the relevant guarantee or pay an optional dividendon the preference shares within a prescribed time period.
On a resolution or proposal on which a preference share holder
is entitled to vote, the holder has on a poll one vote per preference
share held.

Euro Trust Securities
On 13 December 2004, the Company issued 500,000 Euro Floating
Rate Non-cumulative Trust Securities (‘Euro Trust Securities’). For moredetails on the Euro Trust Securities refer to page 121.
The Euro Trust Securities were issued in global form and areregistered in the name of The Bank of New York Depositary(Nominees) Limited as the sole holder. The fully paid preference
shares and unsecured notes that form part of the Euro Trust Securities
are registered in the name of The Bank of New York (as trustee for
ANZ Capital Trust III) as the sole holder.
The preference shares forming part of the Euro Trust Securities confer
voting rights in the Company in the following limited circumstances:
any proposal to reduce the Company’s share capital, other thana resolution to approve a redemption or reduction of capital inconnection with the preference shares;
on a proposal that affects rights attached to the preference shares;
any resolution to approve the terms of a share buy-backagreement, other than a resolution to approve a buy-back(other than an on market buy-back) of preference shares;
any proposal for the disposal of the whole of the Company’s
property, business and undertaking;on any proposal to wind up the Company and any matter
during the Company’s winding-up; andon all matters on which the holders of ANZ ordinary shares areentitled to vote during a special voting period. A “special voting
period” is a period from any dividend payment date where
preference share dividends are not paid in full in respect of theimmediately preceding quarterly dividend period or the 24th
business day after the failure of ANZ Jackson Funding plc to makean interest payment in full on the notes that form part of the Euro
Trust Securities and the Company does not make the payment
pursuant to the relevant guarantee or pay an optional dividendon the preference shares within a prescribed time period.
On a resolution or proposal on which a preference share holder
is entitled to vote, the holder has on a show of hands one vote,and on a poll, one vote per preference share held.

Employee Shareholder Information
At the Annual General Meeting in January 1994, shareholders
approved an aggregate limit of 7% of all classes of shares and options,which remain subject to the rules of a relevant incentive plan, being
held by employees and directors. At 30 September 2012 participants
held 1.21% (2011: 1.27%) of the issued shares and options of ANZ
under the following incentive plans:
ANZ Employee Share Acquisition Plan;
ANZ Employee Share Save Scheme;
ANZ Share Option Plan;ANZ Directors’ Share Plan; andANZ Directors’ Retirement Benefit Plan.

Stock Exchange Listings
Australia and New Zealand Banking Group Limited’s ordinary sharesare listed on the Australian Securities Exchange and the New Zealand
Stock Exchange.
The Group’s other stock exchange listings include:
Australian Securities Exchange – ANZ Convertible Preference
Shares (ANZ CPS1, CPS2 and CPS3) [Australia and New Zealand
Banking Group Limited]; senior (including covered bonds) andsubordinated (including ANZ Subordinated Notes) debt [Australia
and New Zealand Banking Group Limited];
Channel Islands Stock Exchange – Senior debt [ANZ Jackson
Funding 4 Limited]; subordinated debt [ANZ Jackson Funding plc];
London Stock Exchange – Senior (including covered bonds) andsubordinated debt [Australia and New Zealand Banking Group
Limited]; senior (including covered bonds) debt [ANZ New Zealand(Int’l) Limited];
Luxembourg Stock Exchange – Senior and subordinated debt
[Australia and New Zealand Banking Group Limited]; non-cumulative
Trust Securities (Euro Trust Securities) [ANZ Capital Trust III];New Zealand Stock Exchange – Senior debt and perpetual callable
subordinated notes [ANZ Bank New Zealand Limited]; andSIX Swiss Exchange – Senior debt (including covered bonds)[Australia and New Zealand Banking Group Limited and ANZ
New Zealand (Int’l) Limited].
For more information on the Euro Trust Securities and ANZ CPS pleaserefer to notes 28 and 29 to the Financial Statements.

SHAREHOLDER INFORMATION211

SHAREHOLDER INFORMATION (continued)
American Depositary Receipts
The Group has American Depositary Receipts (ADRs) representing
American Depositary Shares (ADSs) that are traded on the over-thecounter securities market “OTC Pink” electronic platform operated by
OTC Markets Group Inc. in the United States under the ticker symbol:
ANZBY and the CUSIP number: 052528304.
With effect from 23 July 2008, the ADR ratio changed from one ADS
representing five ANZ ordinary shares to one ADS representing one
ANZ ordinary share.
The Bank of New York Mellon Corporation (BNY Mellon) is the
Depositary for the Company’s ADR program in the United States.
Holders of the Company’s ADRs should deal directly with BNY Mellon
on all matters relating to their ADR holdings. Registered Depositary
Receipt shareholders can sell shares, access account balances andtransaction history, find answers to frequently asked questions anddownload commonly needed forms. To speak directly to a BNY
Mellon representative, please call 1-888-BNY-ADRS (1-888-269-2377)
if you are calling from within the United States. If you are calling fromoutside the United States, please call 201-680-6825. You may also
send an e-mail inquiry to shrrelations@bnymellon.com or visit thewebsite at www.bnymellon.com/shareowner.

212

ANZ ANNUAL REPORT 2012

GLOSSARY
AASs – Australian Accounting Standards.
AASB – Australian Accounting Standards Board.
ADIs – Authorised Deposit-taking Institutions.
AFS – Available-for-sale financial assets.
AIFRS – Australian Equivalents to International Financial
Reporting Standards.
APRA – Australian Prudential Regulation Authority.

Covered Bonds are bonds issued by an ADI to external investors
secured against a pool of the ADI’s assets (the cover pool) assigned
to a bankruptcy remote special purpose entity. The primary assets
forming the cover pool are mortgage loans. The mortgages remainon the issuer’s balance sheet. The covered bond holders have dual
recourse to the issuer and the cover pool assets. The mortgages
included in the cover pool cannot be otherwise pledged or disposedof but may be repurchased and substituted in order to maintain thecredit quality of the pool. The Group issues covered bonds as part ofits funding activities.

Australia division

Credit equivalent represents the calculation of on-balance sheet
equivalents for market related items.

The Australia division comprises Retail and Commercial and business
units. Retail includes Mortgages, Consumer Cards and Unsecured
Lending and Deposits. Commercial includes Esanda, Regional andCommercial Banking, Business Banking and Small Business Banking.

Customer deposits represent term deposits, other deposits bearing
interest, deposits not bearing interest and borrowing corporations
debt excluding securitisation deposits.

RetailGlobal Wealth and Private Banking division– Retail Distribution delivers banking solutions to customers via
the Australian branch network, ANZ Direct and specialist sales
channels.

The Global Wealth and Private Banking division comprises Funds
Management, Insurance and Private Banking which provides
investment, superannuation, insurance products and services(including Private Banking) for customers across Australia, New
Zealand and Asia

– Retail Products is responsible for delivering a range of products
including mortgages, credit cards, personal loans, transaction
banking, savings accounts and deposits, using capabilities in
product, analytics, customer research, segmentation, strategy
and marketing. It also provides online and electronic payment
solutions for businesses:– Mortgages provides housing finance to consumers in Australia
for both owner occupied and investment purposes.
– Cards and Payments provides consumer and commercial
credit cards, personal loans and merchant services.
– Deposits provides transaction banking, savings andinvestment products, such as term deposits and cash
management accounts.
Commercial– Esanda provides motor vehicle and equipment finance andinvestment products.
– Regional Commercial Banking provides a full range ofbanking services to personal customers and to small businessand agribusiness customers in rural and regional Australia, andincludes the acquisition of loans and deposits from Landmark
Financial Services.
– Business Banking provides a full range of banking services,
including risk management, to metropolitan based small to
medium sized business clients with a turnover of up to
A$125 million.
– Small Business Banking provides a full range of banking
services for metropolitan-based small businesses in Australia
with lending up to A$1 million.
Collective provision is the provision for credit losses that are inherent
in the portfolio but not able to be individually identified. A collective
provision may only be recognised when a loss event has alreadyoccurred. Losses expected as a result of future events, no matter
how likely, are not recognised.

Private Banking specialises in assisting individuals and families tomanage, grow and preserve their wealth. The businesses within
Private Banking & Other Wealth include Private Bank, ANZ Trustees,
E*Trade, Investment Lending, Super Concepts and Other Wealth.
Funds Banking Management and Insurance includes OnePath
Group (in Australia and New Zealand), ANZ Financial Planning,
ANZ General insurance, Lender’s Mortgage Insurance and Online
Investment Account.
Group Centre comprises Global Services & Operations, Group
Technology, Group Human Resources, Group Risk, Group Strategy,Group Corporate Affairs, Group Corporate Communications, Group
Treasury, Global Internal Audit, Group Finance, and Group Marketing,Innovation and Digital and Shareholder Functions.
IFRS – International Financial Reporting Standards.
Impaired assets are those financial assets where doubt exists as
to whether the full contractual amount will be received in a timely
manner, or where concessional terms have been provided because of
the financial difficulties of the customer. Financial assets are impaired
if there is objective evidence of impairment as a result of a loss eventthat occurred prior to the reporting date, and that loss event has had
an impact, which can be reliably estimated, on the expected future
cash flows of the individual asset or portfolio of assets.
Impaired commitments and contingencies comprises undrawn
facilities and contingent facilities where the customer’s status isdefined as impaired.
Impaired loans comprises drawn facilities where the customer’s
status is defined as impaired.
Income includes external interest income, funds management andinsurance income, share of associates’ profit and other external
operating income.
Individual provision charge is the amount of expected credit
losses on financial instruments assessed for impairment on
an individual basis (as opposed to on a collective basis). It takes
into account expected cash flow over the lives of thosefinancial instruments.
GLOSSARY213

GLOSSARY (continued)
International and Institutional Banking division
The International and Institutional Banking division comprises
Global Institutional, Retail Asia Pacific and Asia Partnerships
business units, together with Relationship & Infrastructure.
Global Institutional provides global financial services togovernment, corporate and institutional clients with a focus on
solutions for clients with complex financial needs based on a deep
understanding of their businesses and industries with particularexpertise in natural resources, agriculture and infrastructure.
Institutional delivers transaction banking, specialised lending andmarkets solutions in Australia, New Zealand, Asia Pacific, Europe
and America.
Transaction Banking provides working capital solutions including
deposit products, cash transaction banking management, tradefinance, international payments, and clearing services principally
to institutional and corporate customers.
Global Markets provides risk management services to corporate
and institutional clients globally in relation to foreign exchange,interest rates, credit, commodities, debt capital markets, wealthsolutions and equity derivatives. Markets provides origination,
underwriting, structuring and risk management services, advice
and sale of credit and derivative products globally. Markets also
manages the Group’s interest rate risk position and liquidity
portfolio.
Global Loans (including Corporate Banking) provides term loans,working capital facilities and specialist loan structuring. It provides
specialist credit analysis, structuring, execution and ongoing
monitoring of strategically significant customer transactions,
including project and structured finance, debt structuring andacquisition finance, loan product structuring and management,
structured asset and export finance.
Retail provides retail and small business banking services tocustomers in the Asia Pacific region and also includes investment
and insurance products and services for Asia Pacific customers.
Asia Partnerships which is a portfolio of strategic partnerships
in Asia. This includes investments in Indonesia with PT Bank Pan
Indonesia, in the Philippines with Metrobank Cards Corporation,
in China with Bank of Tianjin and Shanghai Rural Commercial
Bank, in Malaysia with AMMB Holdings Berhad and in Vietnam
with Saigon Thuong Tin Commercial Joint-Stock (Sacombank)and Saigon Securities Incorporation. During the March 2012 half,
the investment in Saigon Thuong Tin Commercial Joint-Stock(Sacombank) was sold.
Relationship & Infrastructure includes client relationshipmanagement teams for global institutional and financial institution
and corporate customers in Australia and Asia, corporate advisory
and central support functions. Relationship and infrastructure
also includes businesses within IIB which are discontinued.
Net interest average margin is net interest income as a percentageof average interest earning assets.
Net interest spread is the average interest rate received on interest
earning assets less the average interest rate paid on interest bearing
liabilities. Non-assessable interest income is grossed up to theequivalent before tax amount for the purpose of these calculations.
Net loans and advances include gross loans and advances andacceptances and capitalised brokerage/mortgage origination fees,
less unearned income and provisions for credit impairment.

214

Net non-interest bearing items, which are referred to in theanalysis of interest spread and 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 other non-interest earning assets.
Non-performing loans are included within interest bearing loans,advances and bills discounted.
Net tangible assets equals share capital and reserves attributable
to shareholders of the Group less preference share capital andunamortised intangible assets (including goodwill and software).
New Zealand division
The New Zealand division comprises Retail and Commercial
business units, and Operations and Support which includes thecentral support functions (including Treasury funding).
Retail– Includes Mortgages, Credits Cards and Unsecured Lending
to personal customers in New Zealand.
Commercial– Commercial & Agri provides financial solutions through arelationship management model for medium-sized businesses,
including agri-business, with a turnover of up to NZ$150
million. Asset Finance (including motor vehicle and equipment
finance), operating leases and investment products areprovided under the UDC brand.
– Small Business Banking provides a full range of banking
services to small enterprises, typically with turnover of lessthan NZ$5 million.
Operating expenses includes personnel expenses, premises
expense and other operating expenses (excluding the provision
for impairment of loans and advances charge).
Operating income includes net interest income, funds management
and insurance income, share of associates’ profit and other operating
income.
Regulatory deposits are mandatory reserve deposits lodged withlocal central banks in accordance with statutory requirements.
Return on asset ratio include net intra group assets.
Repo discount is a discount applicable on the repurchase by a central
bank of an eligible security pursuant to a repurchase agreement.
Restructured items comprise facilities in which the originalcontractual terms have been modified for reasons related to thefinancial difficulties of the customer. Restructuring may consist ofa reduction of interest, principal or other payments legally due oran extension in maturity materially beyond those typically offeredto new facilities with similar risk.
Segment revenue includes net interest income, share of associates’
profit and other operating income.

ANZ ANNUAL REPORT 2012

Sub-standard assets are customers that have demonstrated some
operational and financial instability, with variability and uncertainty
in profitability and liquidity projected to continue over the short andpossibly medium term.
Total advances include gross loans and advances and acceptancesless unearned income (for both as at and average volumes). Loans
and advances classified as available-for-sale are excluded fromtotal advances.
Underlying profit is a measure of profit which is prepared on a basis
other than in accordance with accounting standards. Underlying
profit represents the profit from the ongoing business activities of
the Group, and is based on guidelines published by the AustralianInstitute of Company Directors (AICD) and the Financial Services
Institute of Australasia (FINSIA). ANZ applies this guidance byadjusting statutory profit to exclude non-core items to arrive atunderlying profit, the result for the ongoing business activities of theGroup. These adjustments have been determined on a consistentbasis with those made in prior periods. The adjustments made inarriving at underlying profit are included in statutory profit which
is subject to audit within the context of the Group audit opinion.
Underlying profit is not audited, however, the external auditor
has informed the Audit Committee that the adjustments, and thepresentation thereof, are based on the guidelines released by the
AICD and FINSIA, and have been determined on a consistent basiswith those made in prior periods.

NOTES TO THE FINANCIAL STATEMENTS

215

ALPHABETICAL INDEX
Assets Charged as Security for Liabilities andCollateral Accepted as Security for Assets

Glossary

213

127

Goodwill and Other Intangible Assets

111

Associates

168

Impaired Financial Assets

107

Available-for-sale Assets

105

Income Statements

72

Average Balance Sheet and Related Interest

200

Income Tax Liabilities

115

Balance Sheet

74

Income92

Bonds and Notes

116

Independent Auditor’s Report

194

Capital Adequacy

196

Interest Spreads and Net Interest Average Margins

203

Capital Management

123

Key Management Personnel Disclosures

184

Cash Flow Statement

75

Life Insurance Business

188

Chairman’s Report6

Liquid Assets

98

Chief Executive Officer’s Report

7

Loan Capital

117

Commitments

170

Maturity Analysis of Assets and Liabilities

161

Compensation of Auditors

94

Net Loans and Advances

106

Controlled Entities

167

Notes to the Cash Flow Statements

165

Corporate Governance Statement

36

Notes to the Financial Statements

78

Other Assets

112

Payables and Other Liabilities

115

Premises and Equipment

112

Provision for Credit Impairment

107

Provisions

116

Credit Related Commitments, Guarantees,
Contingent Liabilities and Contingent Assets

171

Critical Estimates and Judgements Usedin Applying Accounting Policies

90

Current Income Tax Expense

95

Deposits and Other Borrowings

114

Derivative Financial Instruments

99

Directors’ Declaration and Responsibility Statement

193

Directors’ Report8

Dividends

96

Due from Other Financial Institutions

98

Due to Other Financial Institutions

114

Earnings per Ordinary Share97

Employee Share and Option Plans

180

Events Since the End of the Financial Year

192

Exchange Rates

192

Expenses

93

Fair Value of Financial Assets and Financial Liabilities

152

Fiduciary Activities

170

Financial Statements

72

Financial Risk Management

128

Five Year Summary

70

216

Remuneration Report13

Reserves and Retained Earnings

122

Review of Operating Results

55

Securitisations and Covered Bonds

169

Segment Analysis

162

Share Capital

120

Shareholder Information

207

Shares in Controlled Entities and Associates

109

Significant Accounting Policies

78

Statement of Changes in Equity

76

Statement of Comprehensive Income

73

Superannuation and Other Post Employment
Benefit Schemes

175

Supplementary Information

196

Tax Assets

110

Trading Securities

98

Transactions with Other Related Parties

188

Handy Contacts

Share Registrar

REGISTERED OFFICEANZ Centre Melbourne
Level 9, 833 Collins Street
Docklands VIC 3008 Australia
Telephone +61 3 9273 5555
Facsimile +61 3 8542 5252
Company Secretary: John Priestley

AUSTRALIA
Computershare Investor Services Pty Ltd
GPO Box 2975 Melbourne
VIC 3001 Australia
Telephone 1800 11 33 99 (Within Australia)+61 3 9415 4010 (International Callers)
Facsimile +61 3 9473 2500
anzshareregistry@computershare.com.au

INVESTOR RELATIONS
Level 10, 833 Collins Street
Docklands VIC 3008 Australia
Telephone +61 3 8654 7682
Facsimile +61 3 8654 8886
Email: investor.relations@anz.com
Website: shareholder.anz.com
Group General Manager Investor Relations: Jill Craig
CORPORATE AFFAIRS/CORPORATE RESPONSIBILITY
Level 10, 833 Collins Street
Docklands VIC 3008 Australia
Telephone +61 3 8654 3276
Facsimile +61 3 8654 8886
Group General Manager Corporate Affairs: Gerard Brown

Important Dates for
Shareholders*Date				Event

NEW ZEALAND
Computershare Investor Services Limited
Private Bag 92119 Auckland 1142
New Zealand
Telephone 0800 174 007
Facsimile +64 9 488 8787
UNITED KINGDOM
Computershare Investor Services plc
The Pavilions
Bridgwater Road Bristol BS99 6ZZ
United Kingdom
Telephone +44 870 702 0000
Facsimile +44 870 703 6101
UNITED STATESThe Bank of New York Mellon
P.O. Box 358516
Pittsburgh, PA 15252-8516
Callers outside USA: 1-201-680-6825
Callers within USA (toll free): 1-888-269-2377(1-888-BNY-ADRS)Email: shrrelations@bnymellon.com
www.bnymellon.com/shareowner

Interim Results Announcement

30 April 2013

Interim Dividend Ex-Date		

9 May 2013

Interim Dividend Record Date

15 May 2013

Interim Dividend Payment Date

1 July 2013

Our International Presence

Annual Results Announcement

29 October 2013

» Australia

Final Dividend Ex-Date 		

7 November 2013

» New ZealandFinal Dividend Record Date 		

13 November 2013

Final Dividend Payment Date

18 December 2013

» Asia – Cambodia, China, Hong Kong, India, Indonesia,
Japan, Korea, Laos, Malaysia, the Philippines,
Singapore, Taiwan, Thailand, Vietnam

Annual General Meeting 		18 December 2013

» Europe and United Kingdom* If there are any changes to these dates, the Australian Securities
Exchange will be notified accordingly.

» Pacific – American Samoa, Cook Islands, Fiji, Guam,
Kiribati, New Caledonia, Papua New Guinea, Samoa,
Solomon Islands, Timor-Leste, Tonga, Vanuatu» Middle East
» United States of America

anz.com

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