2013
Annual Report} Kate CamerlengoMarketing Manager
Unsecured Lending
Melbourne, Australia}P atrick Zhu
Market Manager North Asia,
Transaction Banking
Shanghai, China

ANZ ANNUAL REPORT 2013

ANZ is executing a focused strategy
to build the best connected, most respectedbank 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 franchisein Retail, Commercial and Institutional banking in our home markets of Australia and
New Zealand and we have been operating in Asia Pacific for more than 30 years.
Today, ANZ operates in 33 countries globally. We are the third largest bank in Australia, thelargest banking group in New Zealand and the Pacific, and among the top 20 banks in the world.

Our strategy is based on the belief that the future of ourhome markets of Australia and New Zealand are increasingly
linked to the fast growing region of Asia through trade,
capital and wealth flows. We also believe that people want abank that understands their specific needs, and increasingly
can meet these needs in more than one market through avariety of means.

Our Institutional business in Asia is growing quickly, focusedon the fast-growing cross-border trade and capital flows, withparticular emphasis on regional treasury centres like Hong Kongand Singapore, and products like Cash Management, Trade,
Foreign Exchange and Debt Capital Markets. Returns in our
Asian retail business are improving, with a focus on productivity
and building our brand across the region.

By building a ‘super-regional’ bank, ANZ can better serve ourcustomers and achieve superior financial returns over the
longer term.

Our operations strategy is delivering economies of scale, speed tomarket and a stronger control environment, resulting in lower unit
costs, better quality and lower risk. More generally, our businessrisk profile improved, with a continuing shift to investment-gradeclients and shorter tenor Trade Finance, and greater earnings
diversification across products and geographies.

ANZ’s aspiration is to have 25 to 30% of ANZ Group profit aftertax (including network revenues) sourced from Asia Pacific,
Europe and America, by 2017. ANZ has made good progress
towards this goal.

Achievements and progress during 2013
In 2013, management continued to focus on balancing theneed for investment to meet the needs of our customers anddrive longer-term growth, and the need to generate attractive
returns for our shareholders in the near-term.
We are building stronger positions in our home markets ofAustralia and New Zealand, led by solid market share gains
in Australian Retail and Commercial, emerging productivity
benefits from our program of simplification in New Zealand,
and improved penetration of Wealth products into our existingcustomer base.

Finally, we focused on strengthening management depth
and the alignment between business, operations, support
and technology.
We are committed to delivering above-peer earnings growthwith strong capital and expense disciplines, targeting further
productivity improvements over the next three years while
increasing return on equity from current levels.
This will be achieved by strengthening our position in Australia
and New Zealand, growing in Asia and sharing common
technology, processes, products and services that are designedwith our customers in mind.

ANZ ANNUAL REPORT 20131

2

ANZ ANNUAL REPORT 2013

CONTENTS
Section 1

Section 3

Financial Highlights

5

Five Year Summary

190

Chairman’s Report

6

Principal Risks and Uncertainties

191

Chief Executive Officer’s Report

7

Supplementary Information

200

Directors’ Report8

Shareholder Information

210- Operating and Financial Review

12

Glossary of Financial Terms

217- Remuneration Report

28

Alphabetical Index

220

Corporate Governance

51

Section 2
Financial Statements

72

Notes to the Financial Statements

78

Directors’ Declaration andResponsibility Statement

187

Independent Auditor’s Report

188

CONTENTS

3SECTION 1
Financial Highlights

5

Chairman’s Report

6

Chief Executive Officer’s Report

7

Directors’ Report8- Operating and Financial Review

12- Remuneration Report

28

Corporate Governance

51

4

ANZ ANNUAL REPORT 2013

Financial Highlights
2013

2012

Profit attributable to shareholders of the Company ($m)
Cash profit1 ($m)

6,272
6,498

5,661
5,830

Return on:
Average ordinary shareholders’ equity2
Average ordinary shareholders’ equity (cash basis)1,2
Average assets
Net interest margin
Net interest margin (excluding Global Markets)
Cash profit per average FTE ($)1

14.9%
15.3%
0.93%
2.22%
2.63%
137,230

14.6%
15.1%
0.90%
2.31%
2.71%
117,635

44.6%
1.22%
44.8%
1.22%

48.1%
1.36%
47.7%
1.36%

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

30
1,158

(379)
1,577

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

1,188
0.26%
0.27%

1,198
0.38%
0.29%

73
91

66
79

164
71.8%
69.3%

145
69.4%
67.3%

6

11

Profitability

Efficiency ratios
Operating expenses to operating income
Operating expenses to average assets
Operating expenses to operating income (cash basis)1
Operating expenses to average assets (cash basis)1
Credit impairment provisioning

Ordinary share dividends
Interim – 100% franked (cents)
Final – 100% franked (cents)
Total dividend (cents)
Ordinary share dividend payout ratio3
Cash ordinary share dividend payout ratio1,3
Preference share dividend ($m)
Dividend paid4

1 Statutory profit has been adjusted to exclude non-core items to arrive at cash profit, and has been provided to assist readers to understand the results for the ongoing business activities of theGroup. The adjustments made in arriving at cash profit are included in statutory profit which is subject to audit within the context of the Group statutory audit opinion. Cash profit is not auditedby the external auditor, however, the external auditor has informed the Audit Committee that the adjustments have been determined on a consistent basis across each period presented. Refer topage 15 and pages 208 to 209 for analysis of the adjustments between statutory profit and cash profit.
2 Average ordinary shareholders’ equity excludes non-controlling interests and preference shares.
3 The 2013 dividend payout ratio is calculated using the March 2013 interim and the proposed September 2013 final dividend. The 2012 dividend payout ratio is calculated using the March 2012
interim and September 2012 final dividend.
4 Represents dividends paid on Euro Trust Securities issued on 13 December 2004.

FINANCIAL HIGHLIGHTS

5

Chairman’s Report
A message from John Morschel
I am pleased to report that ANZ’s statutory profit after tax for the 2013 financial year
was $6.3 billion up 11%. This is a strong performance, the result of a distinctive long-term
strategy focused on growth in our domestic franchises in Australia, New Zealand andthe Pacific, and targeted expansion in Asia.

The final dividend of 91 cents brings the total dividend for the year
to 164 cents per share fully franked, an increase of 13%. This will see
us pay out $4.5 billion to shareholders, largely retail shareholders andsuperannuation funds.
ANZ is also delivering for shareholders over the medium term.
Our total shareholder return for the past five years was 121%.
This compares to 110% for the S&P/ASX 200 Banks Accumulation
Index and 13% for the S&P/ASX200 Index as a whole.
We continue to operate from a strong financial position. ANZ is
one of the best capitalised banks in the world with an increasingly
high‑quality balance sheet. A measure of this financial strength is that
ANZ remains one of a small number of banks with a AA credit ratingfrom all three ratings agencies.

Delivering our Strategy
There continue to be significant growth opportunities for ANZ in ourhome markets of Australia and New Zealand.
At the same time, Asia is now the key driver of global economic
growth and the key driver of Australia and New Zealand’s growth.
Our strategy involves a focus on profitable expansion in Asia throughan integrated network connecting customers with faster growing
trade, capital and wealth flows into and across the region. ANZ is the
only Australian bank positioned to fully benefit from Asia’s growth.
The growth of our business in Australia, New Zealand and Asia
Pacific is being supported by an enterprise approach to building thebusiness on common platforms and processes to reduce unit costs,
complexity and risk, and to improve our customers experience.

Board Changes
During the year, we completed a board transition with two directors,
David Meiklejohn and Greg Clark, due to retire at the 2013 Annual
General Meeting. Paula Dwyer joined the board in 2012 as part of a
succession plan for David Meiklejohn and this year Graeme Liebelt
joined to succeed Greg Clark. Graeme was previously Chief Executive
Officer at Orica, a leading global mining services company. On behalfof shareholders I would like to express our thanks to David and Greg
for their enormous contribution to the Board over the past nine years.

OutlookAs we enter the 2014 financial year, the major economies in the
United States, Europe and Japan are gradually strengthening.
In emerging Asia growth rates are expected to remain above thosein the major developed economies. China is well positioned withgrowth expected to be around 7.5% in 2014.
However, there continues to be volatility in global markets. In recent
months this has been seen in response to an expectation that the
US will begin to tighten monetary policy and the political impasseover the US fiscal position.
Australia and New Zealand remain in a strong position withimproving consumer and business confidence and strong tradeand investment links with Asia. The Australian and New Zealandeconomies are expected to expand by around 2.5% in 2014.

ANZ’s performance and the progress we made in delivering ourstrategy in 2013 are detailed in this Annual Report.

ANZ’s super regional strategy means we are well-placed to benefit
from the resilience of our home markets and the growth in Asia.
Together with the expense and capital management disciplines
we have in place, it means we are positioned to continue to deliver
growth and performance to our shareholders in 2014.

Notably, ANZ was again assessed the global banking sector leader inthe Dow Jones Sustainability Index. This is the sixth year in the pastseven that we have received this assessment. Building sustainability
into the way we do business supports delivery of our strategy.

Finally, I would like to acknowledge the hard work and dedicationof our management and staff who achieved so much in 2013.
I would also like to express my thanks to my fellow Directors fortheir commitment and support during the year.

John MorschelChairman

6

ANZ ANNUAL REPORT 2013

Chief Executive Officer’s Report
A message from Michael Smith
ANZ delivered a strong, high quality performance in 2013 demonstrating that our
super regional strategy is creating a better bank for customers and a better bank forshareholders. Total shareholder return in 2013 was 32%.

Some highlights include the market share growth we achieved in
key customer segments, particularly in Australia and Asia. Good
progress was made with our focus on productivity which saw afurther improvement in the cost-to-income ratio. We also invested$1.3 billion in Australia, New Zealand and Asia Pacific to produce
growth and returns for the longer-term.

Divisional Performance1
Looking at our Divisional performance, we continued to grow thealready large franchises we have in our home markets of Australia and
New Zealand.
In the Australia Division profit was up 11% with the strongest overall
growth of the major Australian banks across home lending, deposits
and credit cards.
We also gained market share in commercial banking. Customer
acquisition and loyalty is being driven through new digitalapplications such as ANZ goMoneyTM, Australia’s most popularbanking app with one million active users.
In the New Zealand Division (NZD) profit was up 29% reflecting
progress in simplifying the business, improving productivity andbuilding share in core markets. The result also saw a significant
improvement in provisions.
In the Global Wealth Division we are focused on cross-sell,
simplification and digital innovation. Cash profit was up 36% witha highlight being an 11% increase in Wealth solutions held by
ANZ customers.
We also continued our profitable expansion in Asia through an
integrated network that connects customers with faster growing
regional capital, trade and wealth flows. Our International andInstitutional Banking Division (IIB) grew profit 15%, and Institutional
Asia grew profit 28% driven by strong performances in Trade, Markets
and Cash Management.
ANZ’s balance sheet strengthened in 2013 supported by management
actions to create more diversity by product, by customer and bygeography; and to provide greater quality and predictability throughmore exposure to investment grade and multi‑national customers.
Significant progress was made with our operations and technology
strategy. The outcome was lower unit costs, better management ofrisk through standardisation, and stronger enterprise standards andcontrols. Notably, in 2013 we absorbed business volume increases of
up to 12% while reducing operations expenses by 10%.

Corporate Sustainability
In 2013 we also made progress with our approach to Corporate
Sustainability. By building sustainability into our business we canensure that we achieve the greatest benefits for our customers,
shareholders, people and communities. We have three areas ofparticular focus:}} Sustainable development. Integrating social and environmental
considerations into our business decisions, products and services
to help our customers achieve their sustainability ambitions anddeliver long term value for all our stakeholders.
}} Diversity and inclusion. Building the most diverse and inclusive
workforce of any major bank in our region to help us innovate,
identify new markets, connect with customers and make better,more informed decisions.
}} Financial inclusion and capability. Building the financial capabilityof people across our region to promote financial inclusion andprogression of individuals and communities.

Building on our Momentum
Our super regional strategy is a long term strategy and ourmomentum in 2013 means we are confident ANZ can continue
to perform well in the coming years.
We have set clear priorities within the bank to improve the customer
experience, to diversify revenues, to drive productivity and toincrease shareholder returns. As a result, we have set new targets
to reduce the cost-to-income ratio from 44.8% to below 43% by theend of 2016 and to achieve a return on equity of above 16% over thesame period.
These targets reflect the confidence we have that our super regional
strategy can deliver on its promise to achieve market‑leading
outcomes for our shareholders, our customers and forthe community.

Michael Smith
Chief Executive Officer

1 All figures on a cash basis unless noted otherwise.

CHAIRMAN’S REPORT AND Chief Executive Officer’s REPORT

7

Directors’ Report
THE DIRECTORS PRESENT THEIR REPORT TOGETHER WITH THE FINANCIAL STATEMENTS OF THE
CONSOLIDATED ENTITY (THE GROUP), BEING AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED(THE COMPANY) AND ITS CONTROLLED ENTITIES, FOR THE YEAR ENDED 30 SEPTEMBER 2013 AND THE
INDEPENDENT AUDITOR’S REPORT 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 inthe state of affairs of the Group during the financial year.

Geographically, operations span Australia, New Zealand, a numberof countries in the Asia Pacific region, the United Kingdom and theUnited States. At 30 September 2013, the Group had 1,273 branches
and other points of representation excluding Automatic Teller
Machines (ATMs).

Further review of matters affecting the Group’s state of affairs is
also contained in the Operating and Financial Review section of thisDirectors’ Report on pages 12 to 27 in this Annual Report.

Dividends

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

The Directors propose that a fully franked final dividend of 91 cents
per fully paid ordinary share will be paid on 16 December 2013.
The proposed payment amounts to approximately $2,497 million.1

Results

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

Dividend amount$m1

Final 2012

79

2,150

19 December 2012

Interim 2013

73

2,003

1 July 2013

Consolidated profit after income tax attributable to shareholders of theCompany was $6,272 million, an increase of 11% over the prior year.

Type

Operating income growth of $735 million (4%) was primarily driven
by higher net interest income following a 10% increase in averageinterest earning assets, partially offset by a 9 basis point decline in
net interest margin. Operating expenses decreased $283 million (3%),
impacted by a software impairment charge of $274 million in theprior year.
Provision for credit impairment decreased by $10 million (1%),
with improvements across the New Zealand and International andInstitutional Banking divisions.
Balance sheet growth was strong with total assets increasing by$60.9 billion (9%) and total liabilities increasing by $56.5 billion (9%).
Movements within the major components include:}} Net loans and advances increased by $41.5 billion (10%) primarily
driven by sustained above system housing lending growthof $12.9 billion (7%) in the Australia division and growth of$11.8 billion (12%) in IIB, mainly in Transaction Banking.
}} Growth in customer deposits of $40.9 billion (12%) comprised
growth in Australia of $11.6 billion (8%), growth in IIB of$20.5 billion (14%) driven by strong momentum in Asia Pacific,
Europe and America (APEA) and strong customer deposit growthin New Zealand of $6.9 billion (17%) mainly in Retail and Small
Business Banking.
Further details are contained in the Operating and Financial
Review section of this Directors’ Report on pages 12 to 27 in thisAnnual Report.

Date of payment

The 2013 interim dividend of 73 cents together with the proposed2013 final dividend of 91 cents brings total dividends on ANZ
ordinary shares in relation to the year ended 30 September 2013 to
164 cents per ordinary share fully franked. New Zealand imputationcredits of NZ 9 cents per ordinary share were attached in respectof the 2013 interim dividend and it is proposed that New Zealand
imputation credits of NZ 10 cents per ordinary share will be attached
in respect of the proposed 2013 final dividend. No NZ imputationcredits were attached in respect of the 2012 final dividend.
Further details on dividends provided for or paid during the year
ended 30 September 2013 on ANZ’s ordinary and preference shares
are set out in notes 7, 28, 29 and 30 to the financial statements.

Operating and Financial Review
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 Operating
and Financial Review section of this Directors’ Report in thisAnnual Report.

Events since the end of the Financial Year
There were no significant events from 30 September 2013 to the dateof this report.

1 Amounts are before bonus option plan adjustments.

8

ANZ ANNUAL REPORT 2013

Future Developments
Details of likely developments in the operations of the Group and its
prospects in future financial years are contained in the Chairman’s
Report, the Chief Executive Officer’s Report and the Operating and
Financial Review section of this Directors’ Report in this Annual Report.

Environmental Regulation
The Company recognises the expectations of its stakeholders –customers, shareholders, staff and the community – to operate
in a way that mitigates its environmental impact.
The Company sets and reports against public targets regarding
its environmental performance.
The Company does not believe that its operations are subject toany particular and significant environmental regulation under alaw of the Commonwealth or of a State or Territory. However inAustralia, the Company is subject to two pieces of legislation which
impose environmental reporting requirements: the Energy Efficiency
Opportunities Act 2006 (Cth) (EEO Act) and the National Greenhouseand Energy Reporting Act 2007 (Cth) (NGER Act). In addition, theCompany holds a licence under the Water Act 1989 (Vic) (Water Act)for the extraction of water from the Yarra River.
Under the EEO Act, the Company meets the ‘energy use threshold’2
and, as such, has a mandatory obligation to identify energy efficiency
opportunities and report progress on their implementation to theAustralian Federal Government. As required under the legislation,
the Company identifies a cycle of works that are designed to reduceenergy usage over a 5 year timeframe. The first five-year assessment
cycle was completed with submission of a report in December 2011.
The Company has now commenced its second five-year cycle with its
Assessment Plan approved by the Department of Resources, Energy
and Tourism in June 2013. The Company complies with its obligations
under the EEO Act.
The NGER Act provides a national framework for reporting energy
and associated greenhouse gas emissions. Under the Act registration
and reporting is mandatory for corporations whose energy
production, energy use, or greenhouse gas emissions trigger the
specified corporate or facility threshold.3 The Company is over the
corporate threshold as defined within this legislation and, as a result,submitted its first report in October 2009 and each year thereafter.
The Company also holds a licence under the Water Act, allowing it
to extract water from the Yarra River for thermal regulation of its
Melbourne Head-Office building. The licence specifies daily andannual limits for the extraction of water from the Yarra River withwhich the Company fully complies. The extraction of this river water
reduces reliance on the high-quality potable water supply and is oneof several environmental initiatives that the Company has introduced
at its Melbourne Head-Office building.

The Company may become subject to environmental regulation asa result of its lending activities in the ordinary course of business.
The Company has developed policies to identify and manage suchenvironmental matters.
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 nine 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 52 to 55 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 61
to 64 of this Annual Report. No Directors retired during the 2013
financial year.
Details of directorships of other listed companies held by eachcurrent Director in the three years prior to the end of the 2013
financial year are listed on pages 52 to 55.

Company Secretaries’ Qualifications
and Experience
Currently there are two people appointed as Company Secretariesof the Company. Details of their roles are contained on page 59.
Their qualifications and experience are as follows:}} Bob Santamaria, BCom, LLB (Hons) Group General Counsel.
Mr Santamaria joined ANZ in 2007. He had previously been a
Partner at the law firm Allens Arthur Robinson since 1987. He was
Executive Partner Corporate, responsible for client liaison withsome of Allens Arthur Robinson’s largest corporate clients.
Mr Santamaria brings to ANZ a strong background in leadership ofa major law firm, together with significant experience in securities,
mergers and acquisitions. He holds a Bachelor of Commerce andBachelor of Laws (Honours) from the University of Melbourne. He is
also an Affiliate of the Governance Institute of Australia.

2 ‘energy use threshold’ is defined as annual energy use of over 0.5 PJ. In Australia, ANZ’sannual energy use is 0.67 PJ.
3 The NGER Act specifies corporate reporting thresholds of 50kt or more of greenhouse gases(CO2-e) and consumption or production of 200 TJ or more of energy. ANZ exceeded thesethresholds from 2008-09.

DIRECTORS’ REPORT

9

DIRECTORS’ Report (continued)}} John Priestley, BEc, LLB, FCIS Company Secretary.
Mr Priestley, a qualified lawyer, joined ANZ in 2004. Prior tojoining 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 Fellowof the Governance Institute of Australia and also a memberof the Governance Institute of Australia’s National Legislation
Review Committee.

The non-audit services supplied to the Group by the Group’s external
auditor, KPMG, or by another person or firm on KPMG’s behalf, andthe amount paid or payable by the Group by type of non-audit
service during the year ended 30 September 2013 are as follows:
Amount paid/payable$’000’s
Non-audit services

2013

2012

Review of internal regulatory framework policies
submitted to the UK, US and Indian regulators324–

Non-audit Services

Review operational risk management scenario
analysis process

77–

The Group’s Stakeholder Engagement Model for Relationshipwith the External Auditor (which incorporates requirements of the
Corporations Act 2001 and international best practice) states thatthe external auditor may not provide services that are perceived
to be in conflict with the role of the external auditor. These include
consulting advice and sub-contracting of operational activities
normally undertaken by management, and engagements where theexternal auditor may ultimately be required to express an opinion
on its own work.

Review of accounts for divestment purposes

53

35

Industry benchmarking for Wealth Australia

26

75

Accounting advice for Wealth Australia

22–

Review analysis tool developed by Wealth Australia

20–

Assistance with review of IT controls of ANZ’svendors in Vietnam

13–

Regulatory services related to the UK regulator

13–

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 members ofmanagement) and notified to the Audit Committee; and}} requires that the external auditor does not commence anengagement for the Group until the Group has confirmed thatthe engagement has been pre-approved.

Review terminal stocktake as part of the sale of
EFTPOS New Zealand Limited

8–

Assistance with regulatory registration processes
in Taiwan

7

11

Review of Wealth internal capital adequacy
assessment process
Review application of new Australian consumer
cards legislation
Regulatory benchmarking review (Taiwan)
Accounting advice for Group Centre

–

83

–

50

–
–

49
28

Further details about the Stakeholder Engagement Model can befound in the Corporate Governance Statement on pages 64 to 65.

Total

563

331

The Audit Committee has reviewed the non-audit services provided
by the external auditor (KPMG) for 2013, and has confirmed thatthe provision of non-audit services for 2013 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.
The external auditor has confirmed to the Audit Committee thatit has:}} implemented procedures to ensure it complies with independence
rules both in Australia and the United States (US); and}} complied with domestic policies and regulations, together withthe regulatory requirements of the US Securities and Exchange
Commission, and ANZ’s policy regarding the provision of non-audit
services by the external auditor.

10

Further details on the compensation paid to KPMG is provided
in note 5 to the financial statements including details ofaudit‑related services provided during the year of $3.879 million(2012: $4.313 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 2013 is compatible with the generalstandard of independence for external auditors imposed by the
Corporations Act 2001.

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.

ANZ ANNUAL REPORT 2013

Directors’ and Officers’ Indemnity

Rounding of Amounts

The Company’s Constitution (Rule 11.1) permits the Company toindemnify any officer or employee of the Company against liabilities(so far as may be permitted under applicable law) incurred as suchan officer or employee. It is the Company’s policy that its employees
should be protected from any liability they incur as a result of acting
in the course of their employment, subject to appropriate conditions.

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.

Under the policy, the Company will indemnify employees against
any liability they incur to any third party in carrying out their role.
The indemnity applies to employees and former employees who
incur a liability when acting as an employee, trustee or officer of theCompany, another corporation or other body at the request of theCompany or a related body corporate.
The indemnity is subject to applicable law and in addition will not
apply to liability arising from:}} serious misconduct, gross negligence or lack of good faith;}} illegal, dishonest or fraudulent conduct; or}} material 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.
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
in connection with the fund, being loss, damage, liability or costs
for which 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 officers of
the Company.
The Company has also indemnified certain employees of the Company,
being trustees and administrators of a trust, from and against any
loss, damage, liability, tax, penalty, expense or claim of any kind or
nature arising out of or in connection with the creation, operation or
dissolution of the trust or any act or omission performed or omitted bythem in good faith and in a manner that they reasonably believed to bewithin the scope of the authority conferred by the trust.
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 auditor of
the Company against liabilities incurred as an officer or auditor of
the Company.
During the financial year, the Company has paid premiums for
insurance for the benefit of the directors and employees of
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.

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.

Key Management Personnel and Employee
Share and Option Plans
Details of equity holdings of Non-Executive Directors, the Chief
Executive Officer and Disclosed Executives during the 2013 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 the Chief
Executive Officer and Disclosed Executives during the 2013 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
during the 2013 financial year and on issue as at the date of thisreport are detailed in note 45 of the 2013 financial statements.
Details of shares issued as a result of the exercise during the 2013
financial year of options/rights granted to employees are detailed innote 45 of the 2013 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 innote 45 of the 2013 financial statements. No person entitled to exercise
any option/right has or had, by virtue of an option/right, a right toparticipate in any share issue of any other body corporate.
The names of all persons who currently hold options/rights are enteredin 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 ofthis Directors’ Report for the year ended 30 September 2013.
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 theaudit for the financial year ended 30 September 2013, 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
8 November 2013
DIRECTORS’ REPORT

11

DIRECTORS’ Report (continued)
OPERATING AND FINANCIAL REVIEWThis Operating and Financial Review has been prepared inaccordance with section 299A of the Corporations Act 2001 andAustralian Securities and Investments Commission (ASIC) Regulatory
Guide 247: Effective disclosure in an operating and financial review.
It sets out information that allows shareholders to assess the Group’s
operations, financial position, business strategies and prospects for
future financial years. This information complements and provides
context to the financial report.

Operations of the Group
Overview
ANZ provides a broad range of banking and financial products
and services to retail, high net worth, small business, corporate
and institutional customers. It conducts its operations primarily inAustralia, New Zealand and the Asia Pacific region. ANZ also operates
in a number of other countries including the United Kingdom and theUnited States.
Business Model
ANZ’s business model primarily consists of raising funds throughcustomer deposits and the wholesale debt markets and lending
these funds to customers. In addition, the Group earns revenue
from the Global Wealth business through the provision of insurance,
superannuation and funds management services, and our Global
Markets business from trading and risk management activities.
Our primary lending activities are personal lending coveringresidential mortgages, credit cards and overdrafts, and lending tocorporate and institutional customers.
Our income is derived from a number of sources, primarily:}} Net interest income – represents the difference between theinterest income the Group earns on its lending activities, lessinterest paid on deposits and our wholesale funding;}} Net fee and commission income – represents fee income earnedon lending and non-lending related financial products andservices; and}} Net funds management and insurance income – represents
income earned from the provision of investment, insurance andsuperannuation solutions.

12

Principal activities of segments
The Group operates and manages its results on a divisional structurewith Australia, International & Institutional Banking (IIB), New
Zealand and Global Wealth being the major operating divisions.
Global Technology, Services and Operations (GTSO) provides global
enablement capability to those operating divisions.
Australia
The Australia division comprises Retail and Corporate & Commercial
Banking business units. Retail includes Mortgages, Deposits, Cards
and Payments along with the Retail Distribution Network. Corporate& Commercial Banking includes Corporate Banking, Esanda, Regional
Business Banking, Business Banking and Small Business Banking.
International and Institutional Banking
The IIB division comprises Global Institutional, Retail Asia Pacificand Asia Partnerships business units, along with Relationship& Infrastructure.
New Zealand
The New Zealand division comprises Retail and Commercial business
units, and Operations and Support which includes the central support
functions (including Treasury funding).
Global Wealth
The Global Wealth division comprises Funds Management, Insurance
and Private Wealth which provides investment, superannuation,
insurance products and services as well as Private Banking forcustomers across Australia, New Zealand and Asia.
Global Technology, Services & Operations
GTSO includes Global Services and Operations, Group Technology
and Group Centre. Group Centre comprises Group Human Resources,
Group Risk, Group Strategy, Group Corporate Affairs, Group Corporate
Communications, Group Treasury, Global Internal Audit, Group
Finance, Group Marketing, Innovation and Digital, Shareholder
Functions and discontinued businesses.
A detailed description of each of the segments is included in the
appendix to the Annual Report.

ANZ ANNUAL REPORT 2013

The Group’s strategic priorities and outlook

Super Regional Strategy

To become the best connected and most respected bank across the region

Strengthen our position inAustralia and New ZealandGrow in Asia, focused on
corporate and financial
institutions, supported by ourAsia retail branch network

Share common technology,
processes, products and services
that are designed with ourcustomers in mind, and to reduce
costs, complexity and risk

Manage risk, balance sheet and capital to drive superior return for shareholders.
Develop the best connected and most respected people in banking.

ANZ is executing a focused strategy to build the best connected,
most respected bank across the Asia Pacific region, and in doing so
provide shareholders with above-peer earnings growth.
The bank is pursuing significant organic growth opportunities in
the Asia Pacific region, and with our strong businesses in Australia
and New Zealand, our distinctive footprint and super regional
connectivity we are uniquely positioned to meet the needs ofcustomers, who are increasingly linked to regional capital andtrade flows.
ANZ’s aspiration is to have 25 to 30% of ANZ Group profit after tax(including network revenues) sourced from APEA, by 2017. ANZ has
made good progress towards this aspiration.
Strategic Progress in 2013
While economic conditions across the Asia Pacific region remain morerobust by comparison to much of the rest of the world, conditions forbanking were once again challenging – particularly for institutionalbanking where subdued credit conditions and margin compression
have impacted income growth.
Within that environment, management continued to focus onbalancing the need for investment to meet the needs of ourcustomers and drive longer-term growth, and the need to generate
attractive returns for our shareholders in the near-term. This has beenachieved by focusing on both productivity initiatives and capitalmanagement to improve returns and support strong earnings per
share (EPS) growth.

}} We are building stronger positions in our Australia and
New Zealand markets, led by solid market share gains in Australia
Retail and Commercial, emerging productivity benefits from ourprogram of simplification in New Zealand, and much improved
penetration of Wealth products into our existing customer basein these markets.
}} We have continued to build in Asia, focused on intermediating
the fast growing trade and capital flows in the region withparticular emphasis on regional treasury centres like Hong Kongand Singapore and products like Trade, Foreign Exchange andDebt Capital Markets for Institutional customers. The Commercial
segment in Asia is quickly emerging as a source of valuable Markets
and Trade cross-sell.
}} Our retail business in Asia is maturing, with improving return on
equity (ROE) and cost to income ratio. It is focused on building USD,
AUD and RMB liquidity and building our brand across the region.
}} We reached a level of maturity with Operations and Technology
which are now managed on an equal footing as our other Business
Divisions. Our operations and technology strategy is delivering
economies of scale, speed to market and a stronger control
environment to the business, particularly from our regional hubs
and our use of common platforms and processes, resulting in lower
unit costs, better quality and lower risk.
}} We globalised the operating model for Finance and Human
Resources in line with the existing way we manage Risk, andwe believe these changes will deliver greater consistency, higher
control standards and lower cost.

DIRECTORS’ REPORT

13

DIRECTORS’ Report (continued)}} The Group generated around $4.5 billion of additional capital over
the year, and remains well capitalised with a Common Equity Tier 1
ratio of 10.8% at 30 September 2013 on a Basel 3 internationallyharmonised basis or 8.5% under APRA’s Basel 3 standards.
Customer funding was slightly higher at 62% of total funding.
}} Gross impaired assets reduced, and the Group’s coverage ratios
remain strong with collective provision (CP) to credit risk weighted
asset (CRWA) at 1.00% and individual provision (IP) to gross
impaired assets at 34.4%.
}} Finally, we focused on strengthening management depth and thealignment between business, operations, support and technology.
Medium to Long Term Strategic Goals and Outlook
As we enter 2014 the global economy is continuing to recover slowly.
The major economies in the United States, Europe and Japan are
gradually strengthening and while growth in emerging Asia has come
off recent highs, growth rates are expected to remain above those in
the major developed economies. China has come through a managedslow-down well positioned with growth expected to be around 7.5%
in 2014.
Australia and New Zealand remain in a strong position with economic
growth increasingly linked to Asia with the two economies expected
to expand by around 2.5% in 2014.
ANZ is committed to delivering top quartile total shareholder
returns and above-peer earnings growth, targeting a Group cost to
income ratio of less than 43% and ROE of at least 16% by the end of
September 2016. The target dividend payout ratio remains at around65-70% of cash profit, with a bias towards the upper end of this range,
which we believe to be a sustainable level in a Basel 3 environment.

To do this we will continue to:}} Strengthen our position in our Australia and New Zealand markets
by growing our Retail and Commercial operations, driving
productivity benefits, leveraging the super regional strategy andusing technology to drive better functionality:– In Australia, we are transforming the way we serve our customers
by investing in physical, mobile and digital channels to support
our retail customers, by increasing sales capacity to support
our business banking customers, and by investing in customer
analytics; and– In New Zealand, we will work under one brand on one platform
with more efficient market coverage.
}} Focus our Asia expansion primarily on Institutional Banking,supporting our Australian and New Zealand customers, targeting
profitable markets and segments in which we have expertise
and which are connected through trade and capital flows, while
continuing to build our niche Commercial and Retail businesses.
}} Achieve greater efficiency and control through the use of scalable
common infrastructure and platforms.
}} Maintain strong liquidity and actively manage capital toenhance ROE.
}} Build on our Super Regional capabilities by utilising ourmanagement bench-strength and continuing to deepen ourinternational pool of talent.
}} Apply strict criteria when reviewing existing investment and new
inorganic opportunities.
The ability of the Group to achieve its goals set out above isdependent on the success of the Group’s ability to manage its
material risks which are outlined on pages 26 to 27.
Further information on business strategies which may affect theoperations of the Group in subsequent years are contained in the
Chairman’s Report and the CEO Report.

14

ANZ ANNUAL REPORT 2013

Results of the operations of the GroupANZ reported a profit after tax of $6,272 million for the year ended 30 September 2013.
Income Statement

2013
$m

2012
$m

Net interest income

12,758

12,1105%

Other operating income

5,688

5,601

2%

Operating income

18,446

17,711

4%

Operating expenses(8,236)(8,519)-3%

Profit before credit impairment and income tax

10,2109,192

11%Provision for credit impairment(1,188)(1,198)-1%

Profit before income tax

9,022

7,994

13%

Income tax expense and non-controlling interests(2,750)(2,333)

18%

Profit attributable to shareholders of the Company

6,272

5,661

11%

Movt

Non-IFRS information
The Group provides an additional measure of performance which is prepared on a basis other than in accordance with the accounting standards– cash profit. The guidance provided in ASIC Regulatory Guide 230 has been followed when presenting this information.
Cash Profit
From 1 October 2012, the Group changed to reporting profit on a cash basis from reporting profit on an underlying profit basis. Comparative
information has been restated on a consistent basis.
Statutory profit has been adjusted to exclude non-core items to arrive at cash profit, and has been provided to assist readers to understandthe results for the ongoing business activities of the Group. The adjustments made in arriving at cash profit are included in statutory profit
which is subject to audit within the context of the Group statutory audit opinion. Cash profit is not subject to audit by the external auditor,
however, the external auditor has informed the Audit Committee that the adjustments have been determined on a consistent basis across eachperiod presented.

Statutory profit attributable to shareholders of the Company
Adjustments between statutory profit and cash profit
Cash profit
Adjustments between statutory profit and cash profit ($m)
Treasury shares adjustment

2013
$m

2012
$m

6,272

5,661

11%

226

169

34%

6,498

5,830

11%

2013

2012

Movt

84

96

-13%

Movt

Revaluation of policy liabilities

46

(41)

large

Economic hedging – fair value (gains)/losses

(13)

229

large

Revenue and net investment hedges (gains)/losses

159

(53)

large

Structured credit intermediation trades

(50)

(62)

-19%

Total adjustments between statutory profit and cash profit

226

169

34%

Refer pages 208 to 209 for analysis of the adjustments between statutory profit and cash profit.

DIRECTORS’ REPORT

15

DIRECTORS’ Report (continued)

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

Income Statement

2013
$m

2012
$m

Net interest income

12,772

12,1105%

Other operating income

5,606

5,738

-2%

Operating income

18,378

17,8483%

Operating expenses(8,236)(8,519)-3%

Profit before credit impairment and income tax

10,1429,329

9%Provision for credit impairment(1,197)(1,258)-5%

Movt

Profit before income tax

8,945

8,071

11%

Income tax expense and non-controlling interests(2,447)(2,241)

9%Cash profit

6,498

5,830

11%

2013

2012

Movt

Return on average ordinary shareholders equity1

15.3%

15.1%

20 bps2

Return on average assets

0.96%

0.93%

3 bps

Non-financial key performance metrics3

2013

2012

Employee engagement

72%

70%

- Australia (retail customer satisfaction)4

80%

76%

- New Zealand (retail customer satisfaction)5

84%

89%

- Australia

22- New Zealand

1

1

38.7%

37.8%

2013

2012

Movt

Net interest income ($m)

12,772

12,1105%

Net Interest Margin (%)

2.22%

2.31%

-9 bpsNet Interest Margin (%) (excluding Global Markets)

2.63%

2.71%

-8 bpsAverage interest earnings assets ($m)

575,339

523,461

10%

Average deposits and other borrowings (excluding Global Markets)

342,247

317,977

8%

Financial performance metrics

1 Average ordinary shareholders’ equity excludes non-controlling interests and preference shares.
2 Basis points (bps).

Customer satisfaction- IIB (Institutional Relationship strength index ranking)6

Women in management7

Net Interest Income

3 The Group uses a number of non-financial measures to assess performance. These metrics form part of the balanced scorecard used to measure performance in relation to the Group’s main
incentive programs. Discussion of the non-financial performance metrics is included within the Remuneration report on pages 38 to 39 of this Directors’ report.
4 Source: Roy Morgan Research. Base: ANZ Main Financial Institution Customers, aged 14+, based on six months to September for each year.
5 Camorra Research Retail Market Monitor (2013). The Nielson Company Consumer Finance Monitor (2012) excludes National Bank brand. Base: ANZ main bank customers aged 15+, rolling
6 months moving average to September. Based on responses of excellent, very good and good.
6 Source: Peter Lee Associates 2013 Large Corporate and Institutional Relationship Banking Survey, Australia and New Zealand.
7 Calculation for 2013 includes employees on parental leave.

16

ANZ ANNUAL REPORT 2013

Net interest income increased $662 million (5%), with strong growth in average interest earning assets, up 10%, partially offset by a decline in
the net interest margin.
The Group net interest margin (excluding Global Markets) of 2.63% was 8bps lower than 2012 driven by the impacts of lower interest rates
on capital and rate-insensitive deposits, the impacts of the high growth in lower margin Trade business within IIB, increased competition fordeposits across all businesses and the impacts of lower margins arising from improved credit quality.
These declines were partially offset by improvements in margins in Australia and the benefits of an improved funding mix arising from anincreased proportion of customer deposits and lower reliance on more expensive wholesale funding.
Average interest earning assets (excl. Global Markets) increased $33.3 billion (8%) over the year with increases driven by:}} Australia increased $15.4 billion with mortgages up $10.4 billion and Corporate & Commercial Banking up $4.8 billion primarily in Fixedlending and Tailored Commercial Facilities;}} IIB (excl. Global Markets) increased $10.6 billion due to $1.7 billion increase in Global Loans and a $6.8 billion increase in Trade Financelending; and}} New Zealand increased $6.9 billion driven by an uplift in Retail lending, particularly in mortgages.
Other Operating Income

Fee income1
Foreign exchange earnings1
Net income from wealth management
Share of associates’ profit1
Global Markets other operating income3
Other1,2
Total other operating income

2013
$m

2012
$m

Movt

2,316

2,293

1%

209

288

-27%

1,216

1,099

11%

478

396

21%

1,306

1,213

8%

81

449

-82%

5,606

5,738

-2%

1 Excluding Global Markets.
2 Other income includes a $291 million gain on sale of Visa shares during 2012.
3 During the year the Group recognised a funding valuation adjustment of $61 million for the net cost of funding associated with collateralised and uncollateralised derivative positions.

Other operating income decreased $132 million (2%) during the period. The decline primarily relates to a reduction in ‘other’ due tonon‑recurring gains recorded in 2012 from the sale of Visa inc. shares of $291 million, partially offset by increased Wealth Management andGlobal Markets other operating income during the year.
Fee income increased by $23 million due to trade finance loan volume growth and pricing initiatives partially offset by reductions in advisory
fees due to a reduction in corporate advisory activity and lower levels of non-yield related fee income.
Foreign exchange earnings (FX) income decreased by $79 million as a result of realised FX revenue hedge losses in Group Centre which offset
translation gains elsewhere in the Group.
Net income from wealth management increased $117 million due to increases in Global Wealth of $65 million arising from increased insurance
and funds management income and $11 million in New Zealand arising from an increase in branch distribution of insurance products andimproved Kiwisaver performance. Retail Asia Pacific increased $8 million as a result of improved insurance and investment performance inSingapore and Indonesia and Group Centre increased $34 million due to a reduction in the elimination of OnePath investments in ANZ products(with a corresponding reduction reflected in net interest income).
Share of associates’ profit increased by $82 million as a result of increases across a number of our associates. Shanghai Rural Commercial Bank(SRCB) increased $33 million mainly attributable to growth in interest income driven by loan repricing and reduced low margin lending as well
as lower credit provisions. Bank of Tianjin (BoT) increased $21 million due to an increase in underlying earnings driven by strong asset growth,and AMMB Holdings Berhad (AMMB) increased $15 million mainly attributable to an increase in underlying earnings driven by growth in interest
income and lower credit provisions.
Global Markets income increased $93 million and is affected by mix impacts between the categories within other operating income and net
interest income. The key movements related to:}} Fixed income increased $43 million with Credit and Balance Sheet trading benefiting from contracting spreads during the year which morethan offset the impact of a funding valuation adjustment;}} FX income increased $107 million with growth in the FX business, particularly in the key global FX markets of Singapore and London. FX
income in Asia was up 25% over the year and up 40% in Europe over the same period; and}} Capital Markets increased $22 million mainly driven by increased deal activity in Loan Syndications.

DIRECTORS’ REPORT

17

DIRECTORS’ Report (continued)

Operating Expenses

Personnel expenses

2013
$m

2012
$m

Movt

4,757

4,765

0%

Premises expenses

733

716

2%

Computer expenses

1,243

1,383

-10%

Restructure expenses

85

274

-69%

Other expenses

1,418

1,381

3%

Total operating expenses

8,236

8,519

-3%

44.8%
47,512

47.7%
48,239-290 bps-2%

Key performance metrics
Operating expenses to operating income
Full time equivalent staff (FTE)

Operating expenses reduced by 3%, with all business divisions recording reductions.
Personnel expenses decreased $8 million with annual salary increases and the adverse impact of foreign exchange movements being offset by
reductions in staff numbers, increased utilisation of our hub resources and lower temporary staff costs.
Premises expenses increased $17 million mainly due to rent increases and the transition to new buildings in Sydney and New Zealand.
Computer expenses reduced $140 million due to the $274 million impairment of software assets in 2012, partially offset by an increase indepreciation and amortisation and technology investment.
Restructuring expenses decreased $189 million mainly due to the wind down of NZ Simplification and lower spend on restructuring initiatives.
Other expenses increased $37 million due to higher costs relating to Banking on Australia and investment in technology, along with higher
advertising spends.
Credit impairment provisioning

Individual provision charge / (credit)
Collective provision charge / (credit)
Charge to income statement

2013
$m

2012
$m

Movt

1,167

1,637

-29%

30

(379)

Large

1,197

1,258

-5%

The total individual provision charge decreased $470 million (29%), primarily driven by a reduced number of individual provision charges in
IIB and New Zealand where credit quality improved. This was partially offset by an increase in individual provision in Australia division, driven
primarily by commercial lending.
The collective provision charge increased $409 million from a $379 million release in September 2012 to a $30 million charge in September
2013. The increase was driven primarily by a $98 million increase in Australia division reflecting releases from the economic cycle balancein 2012 and lending growth in 2013, and a $326 million movement in IIB due to crystallisation of individual provisions on a few large legacy
exposures in 2012 and the associated collective provision release.
The $30 million collective provision charge reflects a $49 million charge in Australia division primarily related to volume growth in thecommercial portfolio, a $37 million charge in IIB primarily due to growth, and a release in New Zealand of $58 million reflecting economic
cycle releases.

18

ANZ ANNUAL REPORT 2013

Financial position of the Group
Summary Balance Sheet
2013
$b

2012
$b

Movt

AssetsLiquid assets/due from other financial institutions

61.9

53.7

15%

Trading and available-for-sale assets

69.4

61.2

13%

Derivative financial instruments

45.9

48.9

-6%

Net loans and advances

469.3

427.8

10%

Investments backing policy liabilities

32.1

29.9

7%

Other

24.4

20.6

18%

Total Assets

703.0

642.1

9%

Liabilities
Due to other financial institutions

36.3

30.5

19%

Deposits and other borrowings

439.7

397.1

11%

Derivative financial instruments

47.5

52.6

-10%

Bonds and notes

70.4

63.1

12%

Policy liabilities/external unit holder liabilities

35.9

33.5

7%

Other

27.6

24.1

15%

Total Liabilities

657.4

600.9

9%

Total equity

45.6

41.2

11%

The Group’s balance sheet continued to strengthen during 2013 with stronger capital ratios, a higher level of liquidity, an increased proportionof funding from customer deposits and a reduction in the proportion of impaired assets to gross loans and advances.
Asset growth of $61 billion (9%) was principally driven by:}} Liquid assets/due from other financial institutions increased $8 billion primarily attributable to the impact of the AUD depreciation on
liquidity portfolios held in offshore branches; and}} Net loans and advances increased $42 billion primarily driven by an $18 billion increase in the Australia division from above system growth inMortgages and growth in Corporate & Commercial Banking; an $11 billion increase in New Zealand due to above system growth in mortgages
and favourable exchange rate movements; and a $12 billion increase in IIB with strong growth across all business lines in the APEA geography.
Liabilities growth of $57 billion (9%) was principally driven by:}} Deposits and other borrowings which increased $43 billion due to growth in customer deposits of $41 billion primarily in Australia (increased
by $12 billion) and IIB (increased by $21 billion) with solid growth from new retail savings products and greater penetration in the APEA
region respectively.

DIRECTORS’ REPORT

19

DIRECTORS’ Report (continued)

Credit Provisioning
2013

2012

Movt

Gross impaired assets ($m)

4,264

5,196

-18%

Credit risk weighted assets ($b)1

287.7

254.9

13%

Total provision for credit impairment ($m)

4,354

4,538

-4%

Individual provision as % of gross impaired assets

34.4%

34.1%

30 bpsCollective provision as % of credit risk weighted assets1

1.00%

1.08%

-8 bps

1 September 2013 risk weighted assets under Basel 3 methodology. September 2012 risk weighted assets under Basel 2 methodology. The change from Basel 2 to Basel 3 on 1 January 2013
increased risk weighted assets by $15.2 billion at that date.

Gross impaired assets decreased by 18% driven by several single names returning to performing in IIB and New Zealand, combined with lending
book credit quality improvements reducing the flow of new impaired assets. The Group has an individual provision coverage ratio on impaired
assets of 34.4% at 30 September 2013, up from 34.1% as at 30 September 2012.
The collective provision ratio of 1.00% provides conservative coverage given the ongoing improvement in credit quality, particularly in theInstitutional lending book where credit exposure to investment grade clients now comprises 78% of the book compared with 60% in 2008.
Liquidity and Funding
2013

2012

Movt

Total liquidity portfolio ($b)

121.6

114.6

6%

Total customer liabilities funding (%)

62%

61%

100 bps

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 general market liquidity stress scenarios such that potential cash flow obligations can be met
over the short to medium term.
The Group holds a diversified portfolio of cash and high credit quality securities that may be sold or pledged to provide same-day liquidity.
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.
During the year customer funding increased by $44 billion and now represents 62% of total funding. Wholesale funding increased $13 billion,
with an additional $24 billion of term wholesale debt issued across a well diversified range of domestic and international investors during 2013.
Capital Management
2013

2012

Movt

- APRA Basel 3

8.5%

8.0%

50 bps- Internationally Harmonised1 Basel 3

10.8%

10.0%

80 bpsRisk weighted assets ($b) (APRA Basel 3)2

339.3

315.4

8%

Common Equity Tier 1

1 ANZ’s interpretation of the regulations documented in the Basel Committee publications; “Basel III: A global regulatory framework for more resilient banks and banking systems” (June 2011) and“International Convergence of Capital Measurement and Capital Standards” (June 2006)
2 September 2013 risk weighted assets under Basel 3 methodology. September 2012 risk weighted assets under Basel 2 methodology. The change from Basel 2 to Basel 3 on 1 January 2013
increased risk weighted assets by $15.2 billion at that date.

APRA, under the authority of the Banking Act 1959, sets minimum regulatory capital requirements for banks including what is acceptable ascapital and provide methods of measuring the risks incurred by the Bank.
The Group’s Common Equity Tier 1 ratio increased 50 basis points to 8.5% based upon the APRA Basel 3 standards, exceeding APRA’s minimum
requirements, with cash earnings and capital initiatives (including divestments) outweighing dividends, incremental risk weighted assets
and deductions.

20

ANZ ANNUAL REPORT 2013

Results of major segments of the Group
Australia
Across ANZ’s Retail and Commercial businesses in Australia, we serve approximately six million customers.
During 2013, we have continued to strengthen our Australian domestic franchise with market share gains in our target segments while
maintaining strong margins, cost discipline and asset quality. We continue to leverage ANZ’s Super Regional advantage to bring the whole of
ANZ to our customers.
Banking on Australia Transformation Program
Our Banking on Australia program is transforming the business to position ANZ for growth in a changing environment. We are building our leadin digital and mobile channels to enhance the customer experience, expand our reach and deepen customer loyalty by making it easier for ourcustomers to bank with us, while delivering a lower cost to serve. Our customer connectivity continues to grow with one million active ANZ
goMoneyTM users, more than 7,000 active ANZ FastPayTM merchants and 1,200 frontline bankers enabled with mobility tools (iPads).
We are transforming our distribution network to focus on more complex sales, reduce branch footprint costs, build out contact centre capability
and improve frontline banker productivity. This has resulted in revenue per full time equivalent (FTE) increasing 7% and the expense to income
ratio reducing from 40.8% in 2012 to 37.5% in 2013.
Banking on Australia is delivering. ANZ had the strongest overall growth of the major banks across Home Loans, Deposits, Cards1, and also Shareof Wallet2 in 2013. ANZ has now grown Housing Lending at above system levels for 14 consecutive quarters1 and 53% of Home Loans are now
sold through our proprietary channels, up from 49% in September 2012. Corporate & Commercial Banking has leveraged Banking on Australia
by focusing on delivering an easy, connected and insightful customer experience and utilising ANZ’s super regional footprint. As a result C&CB
has grown net customer numbers3 by 30,000 (8%), delivered strong volume growth and increased cross-sell by 8% over the year.
2013
$m

2012
$m

Movt

Net interest income
Other operating income

6,678
1,189

6,163
1,193

8%
0%

Operating income

7,867

7,356

7%

Operating expenses(2,951)(3,002)-2%

Profit before credit impairment and income tax

4,916

4,354

13%

Income statement

Provision for credit impairment

(820)

(642)

28%

Profit before income tax

4,096

3,712

10%

Income tax expense and non-controlling interests(1,223)(1,114)

10%

Cash profit

2,873

2,598

11%

Number of employees

14,586

14,6060%

Net interest margin (%)

2.53%

2.48%

5 bps

Operating expenses to operating income (%)

37.5%

40.8%

-330 bps

Net loans and advances ($b)

271.6

253.9

7%

Customer deposits ($b)

152.4

140.8

8%

Key performance metrics

1 Source: APRA Monthly Banking Statistics for the year end to June 2013.
2 Source: Roy Morgan research: Aust Population aged 14+, rolling 12 months, Trade Banking Consumer Market (Deposits, Cards and Loans), Peers: CBA (excl. Bankwest), NAB, Westpac (excl. Bank of
Melbourne and St George).
3 Excluding Esanda.

Cash profit increased 11%, with a 7% increase in income and a 2% reduction in expenses, partially offset by a 28% increase in credit provisions.
Key factors affecting the result were:}} Net interest income increased 8% from growth in average net loans and advances of 6%, driven by sustained above system growth inhome loans, including branch originated home loan sales growth of 16%, and strong lending growth in Corporate & Commercial Banking.
Additionally, net interest margin improved 5bps as a result of disciplined margin management, partly offset by deposit pricing pressures.
}} Operating expenses reduced 2% (flat after adjusting for significant software impairments in the prior year). Investment spending was funded
by a reduction in average FTE and benefits from a focus on productivity and expense management.
}} Provision for credit impairment increased 28%. Individual provisions increased driven by lower asset valuations across the rural and vehicle
finance sectors in Corporate & Commercial Banking, partially offset by an improvement in cards delinquency. Collective provisions increased
in both Retail and Corporate & Commercial Banking reflecting asset growth as well as releases in the prior period.

DIRECTORS’ REPORT

21

DIRECTORS’ Report (continued)

International and Institutional Banking
IIB’s result reflected continued progress of the Super Regional Strategy through diversified income streams, improved quality of lending andenhanced connectivity for our customers. We are doing more business with more customers in more products in more countries and this hashelped offset margin pressure compared to prior years.
This result highlights the continued progress of our expansion into Asia with the APEA component of IIB (which consists of our Asian
Partnerships, Asian Retail and Institutional banking operations in APEA geographies) now contributing 48% of income and delivering income
growth of 10% in the current year. This result reflects the ongoing investment in systems and people in the region, building scale and capability
which has helped generate strong volume growth experienced in Asia compared to the more constrained business environments in Australia
and New Zealand.
The division reported a 21% fall in gross impaired assets over the year which reflects our continued actions to reduce risk the Global Institutionalloan portfolio, with 78% of the Institutional lending book now being investment grade (compared to 60% in 2008) and transforming the lending
book to shorter dated Trade exposures.
Income statement
Net interest income
Other operating income

2013
$m

2012
$m

Movt

3,666
2,898

3,667
2,760

0%
5%

Operating income

6,564

6,427

2%

Operating expenses(2,970)(3,069)-3%

Profit before credit impairment and income tax

3,594

3,358

7%

Provision for credit impairment

(317)

(451)

-30%

Profit before income tax

3,277

2,907

13%

Income tax expense and non-controlling interests

(847)

(796)

6%

Cash profit

2,430

2,111

15%

Number of employees

13,182

13,838-5%

Net interest margin (%)

1.61%

1.85%

-24 bpsOperating expenses to operating income (%)

45.2%

47.8%

-260 bps

Net loans and advances ($b)

110.1

98.3

12%

Customer deposits ($b)

163.2

142.7

14%

Key performance metrics

Cash profit increased 15% with strong other operating income growth in Global Markets and Transaction Banking, a 3% reduction in operating
expenses and a 30% reduction in credit provision charges, partially offset by a decrease in net interest margin. The key factors affecting theresult were:}} Net interest income was largely unchanged year on year, with solid growth net loans and advances in APEA (32%), offset by a decrease in net
interest margin from a shift in focus to lower risk, shorter duration trade products coupled with increased competition and a lower interest
rate environment.
}} Other external operating income increased 5%. This increase was driven by the focus on growing Trade and the Markets businesses, alongwith a 15% improvement in the contributions from Asia Partnerships.
}} Operating expenses were 3% lower (2% higher after adjusting for the software impairments in the prior year), with cost savings fromproductivity gains and greater utilisation of the hub resources partially offset by continued re-investment in the business.
}} Provision charges for credit impairment were 30% lower than the prior year. This was due in most part to higher individual provision charges
that were booked in 2012 on a few legacy Global Institutional loans in Australia but also improved quality across the lending book in 2013.

22

ANZ ANNUAL REPORT 2013

New Zealand
The New Zealand division has successfully completed its brand integration and moved to a single core banking system. This has driven
continued benefits as we leverage our scale and work to build a better bank for our customers.
By investing in our digital channels, optimising our branch network and simplifying our business, we are enhancing the experience forcustomers while making it easier for them to deal with us. This has driven an increase in revenue of 12% per FTE and 16% per branch in 2013.
We grew market share in target segments and our brand consideration improved more than any other bank in New Zealand.
Retail update
Under a single brand, the Retail business progressed its optimisation of the branch network which has resulted in increased coverage andcost savings. Lending volumes have held up well in a subdued credit environment and net interest margin has stabilised notwithstanding
unfavourable product mix impacts.
Commercial update
Commercial has focused on growing Small Business Banking and improving the quality of the CommAgri lending portfolio. Small BusinessBanking delivered above-system lending growth through investment in sales capabilities which has more than offset the impact ofmargin compression.
2013
$m

2012
$m

Movt

Net interest income
Other external operating income

1,860
348

1,780
315

4%
10%

Operating income

2,208

2,095

5%

Operating expenses(952)(1,061)-10%

Profit before credit impairment and income tax

1,256

1,034

21%

Income statement

Provision for credit impairment

(37)

(148)

-75%

Profit before income tax

1,219

886

38%

Income tax expense and non-controlling interests

(338)

(244)

39%

Cash profit

881

642

37%

Number of employees

7,400

8,217

-10%

Net interest margin (%)

2.49%

2.63%

-14 bpsOperating expenses to operating income (%)

43.1%

50.6%

-750 bps

Net loans and advances ($b)

81.4

70.3

16%

Customer deposits ($b)

46.5

39.6

17%

Key performance metrics

Cash profit increased 37% (29% after removing the impact of the depreciation of the AUD during the year) predominantly from strong deposit
and lending growth, lower costs and a substantial reduction in provisioning charges, partly offset by net interest margin contraction. Key factors
affecting the result were:}} Average lending growth of 4% in a subdued credit environment was driven by above-system growth in mortgages and small business banklending, with a lower reliance on CommAgri lending. Net interest margin contracted 14 basis points due to strong lending competition,
unfavourable mix impacts from customers preferring lower margin fixed rate products, and higher year on year wholesale funding costs,
partially offset by improved deposit margins, particularly in term deposits.
}} Other operating income increased 10%, driven by the gain on sale of EFTPOS New Zealand Limited and an increase in wealth management
and insurance revenues.
}} Operating expenses reduced 10% (2% after adjusting for the program of Simplification in New Zealand) reflecting productivity benefits from
simplifying our business and leveraging our scale.
}} Credit impairment charges reduced 75% driven by lower individual provisioning levels as credit quality and processes both continued to
improve, particularly in the Commercial book. The collective provision release was $13 million higher due to a larger release of economic cycle
and model risk provisions in 2013.

DIRECTORS’ REPORT

23

DIRECTORS’ Report (continued)

Global Wealth
Global Wealth serves over two million customers and manages over $58 billion in investment and retirement savings in Australia and
New Zealand and is focused on delivering innovative and compelling financial solutions to our customers across the region, that enable themto actively engage in growing and protecting their wealth.
Customers can access ANZ’s Wealth solutions through teams of highly qualified financial planners and advisers, innovative online and mobile
platforms, ANZ Private Bankers and ANZ’s branch network.
Global Wealth is investing in strategic growth initiatives to change the game in wealth. The focus of these initiatives is on digital platforms that
better connect customers to their wealth, innovative solutions for the self-directed customers and programs to leverage capabilities across theregion to deliver service and scale efficiencies.
Funds Management update
The Funds Management business continues to strengthen the core retail superannuation and investment offerings. ANZ’s Smart Choice
Super product experienced strong growth with higher levels of insurance take-up which is an embedded feature of the product. Strategic
initiatives continue to focus on simplifying operational processes, as well as reshaping the business to overcome the impacts of the changing
regulatory environment.
The New Zealand business continues to hold a dominant market position in KiwiSaver with strong growth in net flows and the business’ key
focus is to improve customer experience by offering innovative solutions and enhancing self service capabilities.
Insurance update
The business is focused on strengthening our position in the insurance market with strong growth in inforce premium across Direct and Retailchannels. In an environment that is challenging, continued investment in claims management processes and targeted retention activities havecontributed to an improvement in claims experience and a stabilising of lapse rates over the past 12 months.
Private Wealth update
Business momentum remains strong, with continued focus on building a platform for growth through strengthening resources and improved
product offerings and global investment solutions for our customers.
2013
$m

2012
$m

Movt

Net Funds management and insurance income
Other operating income including net interest income

1,211
299

1,146
294

6%
2%

Operating expenses including credit provision

(948)

(971)

-2%

Profit before income tax

562

469

20%

Income tax expense and non-controlling interests

(93)

(123)

-24%

Cash profit

469

346

36%

- Funds Management1

128

68

88%

- Insurance

221

203

9%

- Private Wealth

50

37

35%

- Corporate and Other²

70

38

84%

Total Global Wealth

469

346

36%

4,267

4,024

6%

Income statement

Consisting of:

Key performance metrics
Number of employees
Operating expenses to operating income (%)

62.5%

67.2%

-470 bps

Funds under management ($m)

58,57851,667

13%

In-force premiums ($m)

1,986

1,822

9%

- Australia

13.7%

13.9%

-20 bps- New Zealand

15.9%

16.6%

-70 bps

Retail insurance lapse rates (%)

1 Funds management includes Pensions & Investments business and E*Trade.
2 Corporate and other includes income from invested capital, profits from advice and distribution business and unallocated corporate tax credits.

24

ANZ ANNUAL REPORT 2013

Cash Profit increased by 36%, with a 6% increase in net funds management and insurance income, a 2% reduction in expenses as well as theimpact of a favourable one-off tax consolidation adjustment. Key factors affecting the result were:}} Funds Management operating income increased by 4%. This was mainly driven by 13% growth in funds under management (FUM) as a resultof strong gains from the investment market, partially offset by net interest margin contraction and losses from the annuity portfolio.
}} Insurance operating income grew 6% driven by improved life insurance related claims and stable lapse experience, along with strong growth
in inforce premium in retail products. General insurance operating margins also improved, delivering a strong result with 11% higher inforce
premium, as well as improved event and working claims.
}} Private Wealth operating income was up by 6% mainly driven by solid growth in volumes. Net loans and advances grew by 15% and customer
deposits increased by 22%.
}} Operating expenses reduced by 2%, with productivity and simplification activities offsetting increased investment in strategic
growth initiatives.
GTSO
GTSO is ANZ’s business support division responsible for the delivery of technology, shared services and operations across the Group and wasformed in 2012 to provide an integrated approach to ANZ’s business transformation agenda and to enable and accelerate the delivery of theGroup’s super regional strategy. This includes a focus on rapid productivity improvements and delivering value to our customers. Group Centre
also houses a number of shared functions.
Income statement

2013
$m

2012
$m

Movt

Operating income
Operating expenses

229
(419)

530
(420)

-57%
0%

Profit/(Loss) before credit impairment and income tax

(190)

110

Large

Provision for credit impairment

(19)

(13)

46%

Profit/(Loss) before income tax

(209)

97

Large

54

36

50%

(155)

133

large

8,077

7,554

7%

Income tax expense and non-controlling interests
Cash profit/(loss)
Key performance metrics
Number of employees

GTSO, including Group Centre, result was impacted by:}} Operating income decreased $301 million mainly due to a $291 million gain on sale of VISA shares in the September 2012.
}} Operating expenses were flat with $24 million software impairment expense in 2012 offset by higher depreciation and amortisation andrestructuring expenses in 2013.
}} Provision for credit impairment increased $6 million due to higher provisions relating to discontinued businesses.

DIRECTORS’ REPORT

25

DIRECTORS’ Report (continued)

Risks
The success of the Group’s strategy is underpinned by sound management of its risks. As the Group progresses on its strategic path of becoming
the best connected and most respected bank across the region, the risks faced by the Group will evolve in line with the strategic direction.
The success of the Group’s strategy is dependent on its ability to manage the broad range of interrelated risks it is exposed to across our
expanding geographic footprint.
Risk Appetite
ANZ’s risk appetite is set by the Board and integrated within ANZ’s strategic objectives. The risk appetite framework underpins fundamental
principles of strong capitalisation, robust balance sheet and sound earnings, which protects ANZ’s franchise and supports the developmentof an enterprise-wide risk culture. The framework provides an enforceable risk statement on the amount of risk ANZ is willing to accept and it
supports strategic and core business activities and customer relationships ensuring that:}} only permitted activities are engaged in;}} the scale of permitted activities, and subsequent risk profile, does not lead to potential losses or earnings volatility that exceeds ANZ
approved risk appetite;}} risk is expressed quantitatively via limits and tolerances;}} management focus is brought to bear on key and emerging risk issues and mitigating actions; and}} risk is linked to the business by informing, guiding and empowering the business in executing strategy.
ANZ’s risk management is viewed as a core competency and to ensure that risks are identified, assessed and managed in an accurate and timely
manner, ANZ has:}} An independent risk management function, with both central and enterprise-wide functions (which typically cover such activities as risk
measurement, reporting and portfolio management), together with embedded risk managers within the businesses.
}} Developed frameworks to provide structured and disciplined processes for managing key risks. These frameworks include articulation of theappetite for these risks, portfolio direction, policies, structures, limits and discretions.
Material Risks
All the Group’s activities involve, to varying degrees, the analysis, evaluation, acceptance and management of risks or combinations of risks.
The material risks facing the Group and its approach to management of those risk are described below:
Credit Risk – is defined as the risk of financial loss resulting from the failure of ANZ’s customers and counterparties to honour or perform fully
the terms of a loan or contract. ANZ has a comprehensive framework to manage credit risk and support sound growth for appropriate returns.
The framework is top down, being defined by credit principles and policies. The effectiveness of the credit risk management framework isassessed through various compliance and monitoring processes. These, together with portfolio selection, define and guide the credit process,organisation and staff.
Market Risk – is defined as the risk to earnings arising from changes in market risk factors, which ANZ may have an exposure to in the Banking
Book and/or Trading Book. The key market risk factors can be summarised as follows:- Interest rate risk: exposure to changes in the level and volatility of interest rates, slope of the yield curve and changes in credit spreads.
- Currency rate risk: exposure to changes in foreign exchange spot and forward prices and the volatility of foreign exchange rates.
- Commodity price risk: exposure to changes in commodity prices and the volatility of commodity prices.
- Equity price risk: exposure to changes in equity prices and the volatility of equity prices.
The Market Risk function is a specialist risk management unit independent of the business that is responsible for measuring and monitoringmarket risk. Market Risk have implemented policies and procedures to ensure that ANZ’s market risk exposures are managed within the appetiteand limit framework set by the Board.
Liquidity Risk – is defined as 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. The timing mismatch of cash flows and therelated 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 liquid assets held is based on a range of ANZ specific and general market
liquidity stress scenarios such that potential cash flow obligations can be met over the short to medium term.

26

ANZ ANNUAL REPORT 2013

Operational Risk – is defined as 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 but excludes strategic risk. The Group Operational Risk function is
responsible for exercising governance over operational risk by ensuring business management usage of the operational risk measurement andmanagement framework. They are also responsible for ensuring that key operational risks and their management are reported to executive
risk committees. Key operational risk themes include business disruption, rogue trader and mis-selling. Business units are responsible for the
day to day management of operational risks through the implementation of the Operational Risk Measurement and Management framework.
This includes the identification, analysis, assessment, monitoring, treatment and escalation of operational risks.
Compliance Risk – is defined as the probability and impact of an event that results in a failure to act in accordance with laws, regulations,industry standards and codes, internal policies and procedures and principles of good governance as applicable to ANZ’s businesses. Group
Compliance is accountable for designing a compliance program that allows ANZ to meet its regulatory obligations. It also provides assurance tothe Board that material risks are identified, assessed and managed by the business.
Reputational Risk – is defined as the risk of loss caused by adverse perceptions of ANZ held by the public, shareholders, investors, regulators,
or rating agencies that directly or indirectly impact earnings, capital adequacy or value. We have established decision-making frameworks andpolicies to ensure our business decisions are guided by sound social and environmental standards and take into account reputation risk.
Insurance Risk – is defined as 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) and longevity risks. For general insurance business,insurance risk arises mainly through weather-related incidents and similar calamities, as well as adverse variability in home, contents, motor,
travel and other insurance claim amounts. Insurance risk is managed primarily by: product design to price all applicable risks into contracts;
reinsurance to reduce liability for large individual risks; underwriting to price/reserve for the level of risk associated with an individual contract;
claims management to admit and pay only genuine claims; insurance experience reviews to update assumptions and portfolio management tomaintain a diversity of individual risks.
Reinsurance Risk – Reinsurance is an agreement in which one insurer (‘the reinsurer’) indemnifies another insurer for all or part of the risk ofa policy originally issued and assumed by that other insurer. Reinsurance is a risk transfer tool between the insurer and reinsurer. The main
risk that arises with reinsurance is counterparty credit risk. This is the risk that a reinsurer fails to meet their contractual obligations, i.e. to pay
reinsurance claims when due. This risk is measured by assigning a counterparty credit rating or probability of default. Reinsurance counterparty
credit risk is mitigated by restricting counterparty exposures on the basis of financial strength and concentration.
Further information on risk management including approach, framework and key areas of focus can be found in the Corporate Governancesection of the Directors’ Report as set out on page 63. A listing of the principal risks and uncertainties facing the Group are set out in the
Supplementary information on pages 191 to 199.

DIRECTORS’ REPORT

27

DIRECTORS’ Report (continued)
Remuneration Report

Contents
1
2
3
4
5
6

Basis of Preparation
Key Management Personnel (KMP)
Role of the Board in Remuneration
HR Committee Activities
Remuneration Strategy and Objectives
The Composition of Remuneration at ANZ
6.1 Fixed Remuneration
6.2 Variable Remuneration
		
6.2.1 Short Term Incentives (STI)		
6.2.2 Long Term Incentives (LTI)
6.3 Other Remuneration Elements
7 Linking Remuneration to Balanced Scorecard Performance
7.1 ANZ Performance
7.2 STI – Performance and Outcomes
7.3 LTI – Performance and Vesting
8 2013 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 Disclosure Table		
Statutory Remuneration Disclosure Table
9 Equity 		
9.1 Equity Valuations

29
29
30
30
31
32
33
33
34
35
36
37
37
38
39
39
39
41
43
46
46
48
50
50

Introduction from the Chair of the Human Resources Committee
Dear Shareholder,I am pleased to present our Remuneration Report for the year ending 30 September 2013.
Our remuneration framework is designed to create value for all stakeholders, to differentiate rewards based on performance and in line with ourrisk management framework, and to provide competitive rewards to attract, motivate and retain the right people.
We are pleased to report that the ANZ Board has assessed the overall 2013 performance as being on or slightly above target for each category
within the balanced scorecard of measures, which reflects both annual priorities and also progress toward broader long term strategic goals.
During 2013 the Human Resources Committee continued to have a strong focus on the relationship between business performance, risk
management and remuneration. The Committee conducted a comprehensive review of the reward structure and agreed the following with
the Board:}} The reduction of the maximum STI opportunity from 250% to 200% of target;}} The introduction of a second LTI comparator group (ASX/S&P 50) with half of future LTI allocations to be based on Total Shareholder
Return (TSR) relative to this group and half on TSR relative to the existing financial services comparator group, better reflecting the range ofinvestors in ANZ;}} Fees paid to Non-Executive Directors would remain unchanged for 2013; and}} No increases to fixed remuneration for the CEO or Disclosed Executives in 2013.
Further detail is provided within the Remuneration Report which we hope you will find informative.

Alison Watkins
Chair – Human Resources Committee

28

ANZ ANNUAL REPORT 2013

1. Basis of Preparation
The 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, in particular 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 responsibility for the strategic direction and management of a major
revenue generating Division or who control material revenue and expenses that fall within the definition of KMP.
The Remuneration Report for the Company and the consolidated entity for 2012 and 2013 has been prepared in accordance with section 300A of
the Corporations Act 2001. Information in Table 6: Non Statutory Remuneration Disclosure has been prepared in accordance with the presentationbasis 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.

2. Key Management Personnel (KMP)The KMP disclosed in this year’s report are detailed in Table 1. The movements which occurred during 2013 are summarised as follows:
NEDs
Effective 1 July 2013, Mr Graeme Liebelt was appointed as a NED.
DISCLOSED EXECUTIVESANZ announced the appointment of Mr Andrew Géczy as CEO International and Institutional Banking effective 16 September 2013, succeeding
Mr Alex Thursby who concluded in this role on 30 April 2013.
Table 1: Key Management Personnel
Name

Term as KMP
in 2013

Position

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

Full Year

P Hay

Director – Appointed November 2008

Full Year

H Lee

Director – Appointed February 2009

Full Year

G Liebelt

Director – Appointed 1 July 2013

Part YearI Macfarlane

Director – Appointed February 2007

Full Year

D Meiklejohn

Director – Appointed October 2004

Full Year

A Watkins

Director – Appointed November 2008

Full Year

Chief Executive Officer (CEO)M SmithChief Executive Officer

Full Year

Disclosed Executives – Current
P Chronican
Chief Executive Officer, Australia

Full YearS Elliott

Chief Financial Officer

Full Year

D HiscoChief Executive Officer, New Zealand

Full YearG Hodges

Deputy Chief Executive Officer

Full YearA Géczy

Chief Executive Officer, International & Institutional Banking – appointed 16 September 2013

Part YearJ Phillips

Chief Executive Officer, Global Wealth and Group Managing Director, Marketing, Innovation and Digital

Full Year

N Williams

Chief Risk Officer

Full Year

Disclosed Executives – Former
P Marriott
Former Chief Financial Officer – concluded in role 31 May 2012, ceased employment 31 August 2012
C PageFormer Chief Risk Officer – retired 16 December 2011

A Thursby

Former Chief Executive Officer, International & Institutional Banking – concluded in role 30 April 2013,ceased employment 30 June 2013--Part Year

Directors’ REPORT

29

Directors’ Report (continued)

3. Role of the Board in Remuneration
The Human Resources (HR) Committee is a Committee of the Board. The HR Committee is responsible for:}} reviewing and making recommendations to the Board in relation to remuneration governance, director and senior executive remunerationand senior executive succession;}} specifically making recommendations to the Board on remuneration and succession matters related to the CEO, and individual 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 Total Incentives
Performance Plan); and}} remuneration 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 website.1
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 HR Committee and Risk Committee, with three Non-Executive Directors currently on both committees.
Throughout the year the HR Committee and management received information from external providers (Ernst & Young, Herbert Smith 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 and interpretation of
governance and regulatory requirements both in Australia and globally.
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 HR Committee/Board, taking
into consideration market 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 2013, the HR Committee met on five occasions, with remuneration 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, with the following activities
occurring during the year:}} annual review of the effectiveness of the Remuneration Policy;}} review of terms and conditions of key senior executive appointments and terminations;}} engagement with APRA on remuneration compliance and application of the APRA Remuneration Standard;}} involvement of the Risk function in remuneration regulatory and compliance related activities;}} monitoring of domestic and international regulatory and compliance matters relating to remuneration governance;}} review of STI and LTI arrangements; and}} review of ANZ’s progress in building a culture aligned to its super regional aspirations.
1 Go to anz.com > about us > our company > corporate governance > HR Committee Charter.

30

ANZ ANNUAL REPORT 2013

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;}} emphasising the ‘at risk’ components of total rewards to increase alignment with shareholders and encourage behaviour that supports boththe long term financial soundness and the risk management framework of ANZ, and to deliver superior long term total shareholder returns;}} differentiating rewards in line with ANZ’s culture of rewarding for outperformance and demonstration of values led behaviours; and}} providing a competitive reward proposition to attract, motivate and retain the highest quality individuals in order to deliver ANZ’s businessand growth strategies.
The core elements of ANZ’s remuneration strategy for the CEO and Disclosed Executives are set out below:
Figure 1: 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.

Directors’ REPORT

31

Directors’ Report (continued)

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; and}} amounts paid in cash and deferred equity.
Figure 2 provides an overview of the target remuneration mix for the CEO and Disclosed Executives.
Figure 2 : Annual Total Reward Mix Percentage (% Based on ‘At Target’ levels of performance)
Target Reward Mix

At risk
67%

LTI
33%

Deferred
Equity50%

STI deferred
16.5%

At risk63%

Fixed
remuneration
33%

Fixed
33%
CEO

STI deferred
21%
STI cash23%

STI cash
16.5%

Cash
50%

Deferred
Equity
40%

LTI
19%

Cash
60%
Fixed
37%

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 allocated as equity and deferred over one, two or three years. The deferredremuneration remains at risk until vesting date.
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, two or
three years. The deferred remuneration remains at risk until vesting date. The Board has adopted this mix as an effective reward mechanism todrive strong performance and value for the shareholder in both the short and longer term. In line with that, the STI balanced scorecard contains
a combination of short and long term objectives. See Section 7.2, STI – Performance and Outcomes.
ANZ’s STI and LTI deferral arrangements are designed to ensure that the CEO and Disclosed Executives are acting in the best long term interestsof ANZ and its shareholders. Deferring part of their STI and all of their LTI over one to three years every year results in a substantial amount of
their variable remuneration being directly linked to long term shareholder value. For example as at 30 September 2013 the CEO held 109,397
unvested STI deferred shares and 908,398 unvested LTI performance rights, the combined value1 of which was around 10 times his fixed
remuneration. Similarly as at 30 September 2013 Disclosed Executives held unvested equity, the value1 of which was around five times theiraverage fixed remuneration. All unvested deferred remuneration is subject to ANZ’s clawback provisions.
1 Value is based on the number of unvested deferred shares and unvested performance rights held at 30 September 2013 multiplied by the ANZ share price as at 30 September 2013.

32

ANZ ANNUAL REPORT 2013

The following diagram demonstrates the time horizon associated with STI and LTI awards.
Figure 3 : STI and LTI time horizon
1 Oct 2012 30 Sept 2013

Nov 2013

Dec 2013

Nov 2014

Nov 2015

50% ofdeferred STI
vests (subject
to Board
discretion)

50% ofdeferred STI
vests (subject
to Board
discretion)

Nov/Dec 2016

AnnualPerformanceandRemuneration
Review

STI
Performance andMeasurement Period

LTI

Oct 2013

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
Executives1

CEO grant of
LTI (subject toshareholder
approval)

1 Year

3 Years

1 YearLTI vests(subject toBoard discretionand meeting
performance
hurdles)

1 CRO allocated deferred share rights.

The reward structure for the CEO and Disclosed Executives is detailed below. The only exception is the Chief Risk Officer (CRO) whose
remuneration arrangements have been structured differently to preserve the independence 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 with more limited
STI leverage for individual performance and none (either positive or negative) for Group performance. LTI is delivered as unhurdled deferredshare rights, with a three year time based hurdle, and is therefore not subject to meeting a relative TSR performance hurdle.
6.1 FIXED REMUNERATION
The fixed remuneration amount is expressed as a total dollar amount which can be taken as cash salary, superannuation contributions and othernominated benefits.
ANZ positions fixed remuneration for the CEO and Disclosed Executives against the relevant financial services market (referencing both
domestic and international financial services companies) and takes into consideration role responsibilities, performance, qualifications,experience and location. The financial services market is considered the most relevant comparator as this is the main pool for sourcing talent
and where key talent may be lost.
6.2 VARIABLE REMUNERATION
Variable remuneration forms a significant part of the CEO’s and Disclosed Executives’ potential remuneration, providing at risk components thatare designed to drive performance in the short, medium and long term. The term ‘variable remuneration’ within ANZ covers both the STI and
LTI arrangements.

Directors’ REPORT

33

Directors’ Report (continued)

6.2.1 Short Term Incentives (Sti)The STI provides an annual opportunity for an incentive award. It is assessed against Group, Divisional and individual objectives based on abalanced scorecard of measures and positive demonstration of values 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. For example the CEOs of
the Australia, New Zealand, Wealth and International and Institutional Banking divisions and also the Chief Financial Officer (CFO) have a heavier
weighting on financial measures.
STI ARRANGEMENTS
PurposeThe STI arrangements support ANZ’s strategic objectives by providing rewards that are significantly differentiated on thebasis 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 poolis then distributed based on 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 in Section 7.2, STI – Performance and Outcomes:}} High Performing – cash profit, economic profit, return on equity and cash earnings per share;}} Most Respected – senior leaders as role models, employee engagement and workforce diversity;}} Well Managed – maintain strong credit rating, core funding ratio, cost to income ratio and number of outstanding
internal audit items;}} Best Connected – strong growth in Asia Pacific, Europe and America, with increasing cross border referrals andrevenues into and out of domestic markets of Australia and New Zealand; and}} Customer Driven – customer satisfaction (based on external survey outcomes).
Targets are set considering prior year performance, industry standards and ANZ’s strategic objectives. 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 at the end of the year, for:}} the CEO involves a review and endorsement by the CRO and CFO, followed by review and endorsement by the
HR Committee, with final outcomes approved by the Board; and}} Disclosed Executives involves a review by the CEO, input on each individual’s risk management from the CRO andinput 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.
This method of assessment 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 performance The 2013 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 the CEO and
Disclosed Executives is up to 200% of the target whereas weaker performers receive a significantly reduced or no
incentive payment at all.
Mandatory deferral

34

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.
The mandatory deferral threshold for STI payments is currently $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; and}} 25% of STI above $100,000 deferred in ANZ equity for two years.
The deferred component of bonuses paid in relation to the 2013 year is delivered as ANZ deferred shares or deferredshare rights. Where deferred share rights are granted, for grants made after 1 November 2012, any portion of theaward which vests may be satisfied by a cash equivalent payment rather than shares at the Board’s discretion. At theend of the deferral period, each deferred share right entitles the holder to one ordinary share. Deferred shares are
ordinary shares.
The deferred amounts remain at risk and are subject to clawback until the vesting date.

ANZ ANNUAL REPORT 2013

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 toshareholder value over the longer term.
LTI awards remain at risk and subject to clawback until vesting and must meet or exceed a relative TSR performance hurdle.
The HR Committee will determine the appropriate quantum of awards to be allocated by reference to the performance achieved in the financial
year to which the awards relate. A grant is then made after the end of the year to which it relates.
Awards granted in November/December 2012 are subject to a TSR performance condition relative to one comparator group only and aredescribed below.
LTI ARRANGEMENTS (granted during the year to 30 September 2013)
Type of equity
awardedLTI is delivered to the CEO and Disclosed Executives as 100% performance rights. A performance right is a right to acquirea share at nil cost, subject to meeting time and performance hurdles. Upon exercise, each performance right entitles 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 the hurdle
and the share price at the time of exercise.
For grants made after 1 November 2012, any portion of the award which vests may be satisfied by a cash equivalent
payment rather than shares at the Board’s discretion.

Time restrictions

Performance rights awarded to the CEO and Disclosed Executives will be tested against the performance hurdle at the endof three years. A three year performance period provides a reasonable period to align reward with shareholder return andalso 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 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 share plus
the value of reinvested dividends paid. TSR was chosen as the most appropriate comparative measure as it focuses on thedelivery of shareholder value and is a well understood and tested mechanism to measure performance.
The performance rights granted to the Disclosed Executives and CEO in November/December 2012 have a single
comparator group outlined below.
Vesting schedule

Comparator group

The proportion of performance rights that become exercisable will depend upon the TSR achieved by ANZ relative to thecompanies 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 TSR of theComparator 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 TSR
Comparator Group100%

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 were considered by the Board as the mostappropriate comparator for ANZ at the time of the grant.

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, ANZ’s target
remuneration structure for the role, their performance and the assessed potential of the Disclosed Executive. Disclosed
Executives are advised of the dollar value of 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 approachand inputs.

Directors’ REPORT

35

Directors’ Report (continued)

LTI ARRANGEMENTS (to be granted after 1 October 2013)
LTI awards which will be granted in November/December 2013 will be divided into two equal tranches and vest based on the Company’s relative
TSR against two different comparator groups over the performance period. One tranche will be measured against the existing select financial
services comparator group. The second tranche will be measured against a comparator group comprising companies making up the S&P/ASX 50
Index as at 22 November 2013.
Each tranche will be measured independently from the other so an allocation may vest against one comparator group but not the other.
LTI ARRANGEMENTS FOR THE CRO
Deferred share rights

The CRO is the only Disclosed Executive to receive LTI deferred share rights, rather than performance 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, any portion of the award which vests may be satisfied by a cash equivalent
payment rather than shares at the Board’s discretion.

6.3 Other Remuneration Elements
Clawback
The Board has on-going and absolute discretion to adjust performance-based 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 ANZ or to meet unexpected or unknown regulatory requirements, or if theBoard 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.
Hedging and Margin Lending Prohibition
As specified in the Trading in ANZ Securities Policy and in accordance with the Corporations Act 2001, equity allocated under ANZ incentive
schemes must remain at risk until fully vested (in the case of deferred shares) or exercisable (in the case of options, deferred share rights or
performance rights). As such, it is a condition of grant that no schemes are entered into, by an individual or their associated persons, thatspecifically protects the unvested value of shares, options, deferred share rights or performance rights allocated. Doing so would constitute a
breach of the grant conditions and would result in the forfeiture of the relevant shares, options, deferred share rights or performance rights.
ANZ also prohibits the CEO and Disclosed Executives from providing ANZ securities in connection with a margin loan or similar financing
arrangements which may be 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 2013 declarations, ANZ can advise that the CEO and Disclosed Executives are fully compliant with this policy.
Shareholding Guidelines
The CEO and Disclosed Executives are expected to accumulate ANZ shares over a five year period, to the value of 200% of their fixed
remuneration and to maintain this shareholding while an executive of ANZ. Shareholdings for this purpose include all vested and allocated(but unvested) equity which is not subject to performance hurdles. The CEO and all Disclosed Executives have met or, if less than five years
tenure, are on track to meet their minimum shareholding guidelines requirement.
Cessation of Employment Provisions
The provisions that apply for STI and LTI awards in the case of cessation of employment are detailed in Sections 8.2, Chief Executive Officer (CEO)and 8.3, Disclosed Executives.
Conditions of Grant
The conditions under which STI (deferred shares and deferred share rights) 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.

36

ANZ ANNUAL REPORT 2013

7. Linking Remuneration to Balanced Scorecard Performance
7.1 ANZ PERFORMANCETABLE 2: ANZ’S FINANCIAL PERFORMANCE 2009 – 2013
2009

2010

2011

2012

2013

Statutory profit ($m)
Cash/Underlying profit1 (unaudited)

2,943
3,772

4,501
5,025

5,355
5,652

5,661
5,830

6,272
6,498

Cash/Underlying return on equity (ROE) (%)

13.3%

15.5%

16.2%

15.1%

15.3%

Cash/Underlying earnings per share (EPS)

168.3

198.7

218.4

218.5

238.5

Share price at 30 September ($)2

24.39

23.68

19.52

24.75

30.78

Total dividend (cents per share)

102

126

140

145

164

40.3
106%

1.9
137%

(12.6)
110%

35.4
117%

31.5
133%

Total shareholder return (12 month %)Average STI as a % of target3

1 From 1 October 2012, the Group has used Cash profit as a measure of the result of the ongoing business activities of the Group enabling shareholders to assess Group and divisional performanceagainst prior periods and against peer institutions. For 2013 and 2012 statutory profit has been adjusted for non-core items to arrive at Cash profit. For 2009 - 2011 statutory profit has beenadjusted for non-core items to arrive at Underlying profit, which like Cash profit is a measure of the ongoing business performance of the Group but used somewhat different criteria for the
adjusting items. Neither Cash profit nor Underlying profit are audited; however, the external auditor has informed the Audit Committee that the Cash/Underlying profit adjustments have been
determined on a consistent basis across the respective periods presented.
2 The opening share price at 1 October 2008 was $19.00.
3 The average STI payments for each year are based on those executives (including the CEO) disclosed in each relevant reporting period.

Figure 4 compares ANZ’s TSR performance against the median TSR and upper quartile TSR of the LTI select financial services comparator groupand the S&P/ASX 200 Banks Accumulation Index (Fin Index) over the 2009 to 2013 measurement period. ANZ’s TSR performance has wellexceeded the upper quartile TSR of the LTI comparator group over the five year period to 30 September 2013.
Figure 4: ANZ 5-Year Cumulative Total Shareholder Return Performance
250.0%

230.0%

210.0%

190.0%ANZ TSRFin Index TSR
Upper Quartile TSRMedian TSR

150.0%

130.0%

110.0%

90.0%

70.0%

Sep 13

Mar 13

Sep 12

Mar 12

Sep 11

Mar 11

Sep 10Mar 10

Sep 09Mar 0950.0%
Sep 08Percentage

170.0%

Performance period

Directors’ REPORT

37

Directors’ 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.
The HR Committee considers a balanced scorecard that is aligned to the Group’s long term strategic intent under the themes of High
Performing, Most Respected, Well Managed, Best Connected and Customer Driven, with each of the five categories having broadly
equal weighting.
The Board has assessed ANZ’s overall 2013 performance as on or slightly above target for each category within the balanced scorecard ofmeasures. The Board has given full consideration to the performance of the Group and the Disclosed Executives in determining their rewards.
Overall spend approved by the Board for the main short term incentive pool was below target levels with a range of underlying outcomes forindividuals, in line with ANZ’s objectives of differentiating reward based on performance.
The following provides examples of some of the key measures within each category of the balanced scorecard of measures used in 2013 forassessing performance for the purpose of determining short term incentive pools.
Category

MeasureHigh Performing

OutcomeSlightly Above Target:
ANZ aims to outperform peers both in terms of financial strength and earnings performance.

Cash profit

A record cash profit after tax of $6,498 million up 11% on 2012.

Economic profit

Economic profit1 of $2,701 million, up 14%.
Both cash profit and statutory profit were up 11% on 2012.

Return on equity

Cash ROE of 15.3%, up 20 bps on the prior year as a result of a higher cash profit and effective
capital management.

Cash earnings per share Cash EPS of 238.5 cents has improved 9% from 2012.
(EPS)
Most Respected

On Target:
Senior leaders asrole models

The overall assessment of Senior Leaders as role models improved from 67% to 71% this year
bringing it higher than the Financial Services norm.

Employee engagement An engaged workforce is regarded as an important driver of sustainable long term performance.
Despite continuing challenging business conditions and significant bank-wide changes over theyear, employee engagement has improved to 72% in 2013.
Workforce diversity

Well Managed

Workforce diversity is core to delivering on our super regional strategy. Management roles filled
by women remain steady year on year. ANZ is continually focused on increasing the diversity of
its workforce.
On Target:

Maintain strong
credit rating

The maintenance of a strong credit rating is fundamental to the ongoing stability of the Groupand there have been no changes to the Group’s credit ratings during the year.

Core funding ratio (CFR) CFR of 93%, improved from 89% in the prior year.
Cost to income ratio

Significant productivity improvement in 2013 with the cost to income ratio reducing 130 bps(excluding VISA sales proceeds, NZ Simplification costs and software impairment charges
in 2012) on the back of tight cost management.

Number of outstanding ANZ Global Internal Audit conducts an ongoing and rigorous review process to identify
internal audit items
weaknesses in procedures and compliance with policies. In 2013 there was an historically low
number of outstanding items.

38

ANZ ANNUAL REPORT 2013

Category

MeasureOutcomeBest Connected

On Target:
Growth in Asia Pacific,
Europe and America

ANZ aspires to be the most respected bank in the Asia Pacific region using super regional
connectivity to better meet the needs of customers which are increasingly linked to regional
capital, trade and wealth flows. One important measure of the success of the super regional
strategy is the growth in total Network revenues (revenue arising from having a meaningfulbusiness in Asia Pacific, Europe and America regardless of whether the revenue is subsequently
booked within the region or in Australia or New Zealand). APEA Network revenues remained
stable at 21% of Group revenue in 2013. This continues to differentiate ANZ from its Australianpeer group.

Customer Driven

On Target:
Customer satisfaction(based on externalsurvey outcomes)

ANZ tracks customer satisfaction across its businesses as part of a group of indicators of longer
term performance trends. ANZ aims to achieve top quartile customer satisfaction scores in eachbusiness based on external surveys.
In 2013 customer satisfaction in Australia, across Retail and Corporate and Commercial
segments has improved significantly on prior year.
However, customer satisfaction in New Zealand has declined slightly as a result of
NZ Simplification but market share has been retained.

1 Economic profit is an unaudited risk adjusted profit measure determined by adjusting cash profit for economic credit costs, the benefit of imputation credits and the cost of capital.

7.3 LTI – PERFORMANCE AND VESTING
Performance rights previously granted to the CEO and Disclosed Executives which reached their third anniversary were tested in November/
December 2012. ANZ’s relative TSR exceeded the 75th percentile of the comparator group over the three year period and therefore the rights
vested in full.
The performance rights granted in November/December 2010 will be tested at their third anniversary in November/December 2013 todetermine the vesting outcome.

8. 2013 Remuneration
8.1 NON-EXECUTIVE DIRECTORS (NEDs)
Principles underpinning the remuneration policy for NEDs.
Principle

Comment

Aggregate Board and Committee fees arewithin the maximum annual aggregate
limit approved by shareholders

The current aggregate fee pool for NEDs of $4 million was approved by shareholders at the 2012
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;}} the responsibilities and risks attached to the role of NEDs;}} the time commitment expected of NEDs on Group and Company matters; and}} reference 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 isconsidered an appropriate group, given similarity in size, nature of work and time commitment
required by NEDs.

The remuneration structure preserves
independence whilst aligning interests of
NEDs and shareholders

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

Directors’ REPORT

39

Directors’ 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 2013. For details of remuneration paid to NEDs for the years 2012 and 2013, refer
to Table 3.
Elements

Details

Board/Committee fees per annum – 2013 Board Chairman Fee$775,000Board NED Base Fee$210,000

Committee Fees

Committee Chair

Committee Member

Audit
Governance
Human Resources
Risk
Technology$65,000$35,000$55,000$57,000$35,000$32,500$15,000$25,000$30,000$15,000

Post-employment Benefits

Superannuation contributions are made in accordance with the current Superannuation Guarantee
legislation (but only up to the Government’s prescribed 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 the Financial
Statements – note 46.
The NED shareholding guidelines require NEDs to accumulate shares, over a five year period from appointment, to the value of 100% (200% for
the Chairman) of the base annual NED fee and to maintain this shareholding while a Director of ANZ. NEDs have agreed that where their holding
is below this guideline they will direct a minimum of 25% of their fees each year toward achieving this shareholding.
All NEDs have met or, if appointed within the last five years, are on track to meet their minimum shareholding guidelines requirement.

40

ANZ ANNUAL REPORT 2013

NED Statutory Remuneration Disclosure
Remuneration details of NEDs for 2012 and 2013 are set out in Table 3. There was no increase in NED fees throughout the year. Overall, there isan increase in total NED remuneration year on year due to the commencement of Ms Dwyer in April 2012, the commencement of Mr Liebelt in
July 2013 and the prescribed increase in Superannuation Guarantee Contributions.
Table 3: NED Remuneration for 2013 and 2012
Short-Term NED Benefits

Post-Employment

Financial
Year

Fees1
$

Non
monetary
benefits$

J Morschel4

2013
2012

775,000
775,000

5,336–

16,796
15,949797,132
790,949

G Clark

2013
2012

300,000
300,000––

16,796
15,949316,796
315,949

P Dwyer5

2013
2012

297,500
136,250––

16,796
8,061

314,296
144,311

P Hay

2013
2012

302,500
302,500––

16,796
15,949319,296
318,449

H Lee

2013
2012

280,000
280,000––

16,796
15,949296,796295,949

G Liebelt5

2013

70,000–4,444

74,444I Macfarlane

2013
2012

314,500
314,500––

16,796
15,949331,296
330,449

D Meiklejohn4

2013
2012

320,000
320,000

1,485
1,322

16,796
15,949338,281
337,271

A Watkins

2013
2012

312,500
312,500––

16,796
15,949329,296
328,449

Total of all Non-Executive Directors

2013
2012

2,972,000
2,740,750

6,821
1,322

138,812
119,704

3,117,633
2,861,776

Super
contributions$

Total
remuneration2,3$

Non-Executive Directors (NEDs)

1 Fees are 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 2012 or 2013.
3 Amounts disclosed for remuneration of Directors exclude insurance premiums paid by the Group in respect of Directors’ and officers’ liability insurance contracts. The total premium, which cannot
be disclosed because of confidentiality requirements, has not been allocated to the individuals covered by the insurance policy as, based on all available information, the Directors believe that noreasonable basis for such allocation exists.
4 For J Morschel, non monetary benefits relate to car parking. For D Meiklejohn, non monetary benefits relate to the provision of office space.
5 P Dwyer commenced as a Non-Executive Director on 1 April 2012 so 2012 remuneration reflects amounts received for the partial service for the 2012 year. G Liebelt commenced as a
Non‑Executive Director on 1 July 2013 so 2013 remuneration reflects amounts received for the partial service for the 2013 year.

8.2 CHIEF EXECUTIVE OFFICER (CEO)Actual remuneration provided to the CEO in 2013 is detailed below, with remuneration tables provided in Section 8.4, Remuneration Tables –CEO and Disclosed Executives.
Fixed pay: The CEO’s fixed remuneration remained unchanged at $3.15 million (with his only increase since commencement being three years
ago, effective 1 October 2010).
Short Term Incentive (STI): The CEO has a target STI opportunity of $3.15 million. The actual amount paid can increase or decrease from thisnumber dependent on his performance as CEO and the performance of the organisation as a whole. Specifically, if, in the Board’s view the CEO
has performed above/below his targets, the Board may exercise its discretion to increase/decrease the STI beyond his target payment.
The Board approved the CEO’s 2013 balanced scorecard objectives at the start of the year and then assessed his performance against theseobjectives at the end of the year. The CEO’s STI payment for 2013 was then determined having regard to his delivery against these objectives
including ANZ’s productivity performance and focus on capital efficiency, his demonstration of values led behaviours, as well as progressachieved in relation to ANZ’s long term strategic goals. The STI payment for 2013 will be $4.0 million with $2.05 million paid in cash and thebalance ($1.95 million) awarded as deferred shares, half deferred for one year and half for two years.
Unvested deferred shares will be forfeited if the CEO resigns. Unvested deferred shares will be retained and released at the vesting date where
the CEO is terminated with notice or where cessation of employment is by mutual agreement, unless the Board determines otherwise.

Directors’ REPORT

41

Directors’ Report (continued)

Long Term Incentive (LTI): Three tranches of performance rights were granted to the CEO in December 2007, covering his first three years in therole. All three tranches have now vested. The third tranche was tested on 18 December 2012 and as a result of the testing 100% (260,642) of theperformance rights vested. There is no re-testing of these grants.
At the 2012 Annual General Meeting shareholders approved an LTI grant to the CEO equivalent to 100% of his 2012 fixed pay, being$3.15 million. This equated to 328,810 performance rights being granted, at an allocation value of $9.58 per right, deferred for three years andsubject to testing against a TSR hurdle relative to a comparator group of selected financial services companies.
For 2013, it is proposed to grant $3.15 million (100% of fixed pay) LTI, subject to shareholder approval at the 2013 Annual General Meeting, tobe delivered as performance rights split into two equal tranches, each subject to a relative TSR performance hurdle, as outlined in Section 6.2.2.
The TSR hurdles will be subject to testing after three years, i.e. November 2016.
The performance rights will be forfeited if the CEO resigns before they have vested and/or been exercised. The performance rights will be
retained and will vest and become exercisable, subject to the relevant time and performance conditions being satisfied, where the CEO isterminated with notice or where cessation of employment is by mutual agreement.
CEO Equity
Details of deferred shares, options and performance rights granted to the CEO during the 2013 year and in prior years which vested, were
exercised/sold or which lapsed/were forfeited during the 2013 year are set out in Table 4 below.
Table 4: CEO Equity Granted, Vested, Exercised/sold and Lapsed/Forfeited
VestedNameType of equity

Numbergranted1

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
$
2013
2013

CEO
M SmithSTI deferred shares
47,448
STI deferred shares
36,730
STI deferred shares3
36,334
STI deferred shares3
36,334
LTI performance rights4 260,642
LTI performance rights5 328,810

12-Nov-10
14-Nov-11
12-Nov-12
12-Nov-12
19-Dec-07
19-Dec-12

12-Nov-12–
14-Nov-12–
12-Nov-13–
12-Nov-14–
19-Dec-12 18-Dec-13
19-Dec-15 19-Dec-17

47,448 100 1,165,683
36,730 100 888,859
–
–
–
–
–
–
260,642 100 6,419,352
–
–
–

–
–
–
–
–
–

–
–
–
–
–
–

– (47,448) 100 1,174,888– (36,730) 100 909,494
–
–
–
–
–
–
–
–
– (260,642) 100 6,453,913
–
–
–
–

–
–
–
–
–
–

–
–
36,33436,334–
328,810

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. (Refer to Table 8: Equity Valution Inputs – Options/Rights
for the fair value of rights at grant and Table 9: Equity Valuation Inputs – Deferred shares for the fair value of shares at grant.) 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 the end of 2013 up to the signing of the Director’sReport on 8 November 2013.
2 The value of shares 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/forfeiture or exercising/sale, multiplied by
the number of shares and/or performance rights.
3 The CEO had a proportion of his STI amount deferred as equity. The Board determined the deferred amount for the CEO. Refer to Table 9 for details of the valuation methodology, inputs andfair value.
4 LTI performance rights granted 19 December 2007 were exercised on 20 December 2012. One day VWAP on date of exercise was $24.7616. The exercise price was $0.00.
5 The 2012 LTI grant for the CEO was delivered as performance rights. Refer to the section on 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 the Financial Statements – note 46.
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 (based on 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 and all unexercised performance rights (or cash equivalent)
will be forfeited.

Termination on noticeby 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.

42

ANZ ANNUAL REPORT 2013

Death or total andOn death or total and permanent disablement, all unvested STI deferred shares and all performance rights (or cash
permanent disablement equivalent) will vest.
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 fromthe date of grant to the date of the change of control event occurring, and vesting will only be determined by theextent 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 for serious
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
and performance rights (or cash equivalent) 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 2013 is summarised below, with remuneration tables provided in Section 8.4,
Remuneration Tables – CEO and Disclosed Executives.
Fixed pay: During 2013, fixed pay for Disclosed Executives remained unchanged. The annual review of ANZ’s fixed remuneration levels forDisclosed Executives identified they were generally competitively positioned within the market and there were no increases to fixed pay.
Short Term Incentive (STI): All incentives actually paid in the 2013 financial year related to performance from the 2012 financial year, and all
deferred components are subject to the Board’s discretion to reduce or adjust to zero before vesting.
For the 2013 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 2013 year (which arepaid in the 2014 financial year) has increased from 2012, reflecting the improvement in company performance, the focus on productivity andcapital efficiency, and progress towards the achievement of longer term targets, demonstrating the link between performance and variable
reward outcomes.
The range in payments to individuals was broad, ranging from on target to well above target.
Long Term Incentive (LTI): LTI performance rights granted to Disclosed Executives during the 2013 financial year were allocated in November
2012. Subject to meeting the relative TSR performance hurdle, these performance rights will vest in November 2015.
For awards to be allocated in November/December 2013, the Board elected to grant LTI awards to Disclosed Executives at or above target,
reflecting the importance of focusing Disclosed Executives on the achievement of longer term strategic objectives and alignment withshareholders interests, and recognising the capabilities of these individuals and the need to retain their expertise over the longer term.
Disclosed Executives Equity
Details of deferred shares, options and performance rights granted to the Disclosed Executives during the 2013 year and granted to theDisclosed Executives in prior years which vested, were exercised/sold or which lapsed/were forfeited during the 2013 year are set out in Table 5.
The movement in shareholdings, options and performance rights of the Disclosed Executives (held directly, indirectly and by related parties)
during the reporting period is provided in the Financial Statements – note 46.

Directors’ REPORT

43

Directors’ Report (continued)

Table 5: Disclosed Executives Equity Granted,
Vested, Exercised/sold and Lapsed/Forfeited
Name

Type of equity

Numbergranted1

Grant
date

First dateDateexercisable of expiry

VestedNumber%Lapsed/Forfeited

Exercised/Sold
Unexer
Vested and -cisable
exercisable
as atValue2 as at 30 Sep 30 Sep
$
2013
2013

%

Value2
$

–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–

–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–

(12,652) 100 310,829(16,588) 100 401,426
–
–
–
–
–
–
(57,726) 100 1,440,697–––(12,125) 100 291,133(9,573) 100 229,857
–
–
–
–
–
–
(5,307) 100
46,259(5,307) 100
46,259(69,238) 100 540,513(69,238) 100 540,513(41,084) 100 995,424
–
–
–
–
–
–
(8,903) 100 218,725(19,072) 100 461,539
–
–
–
–
–
–
(32,867) 100 796,335
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(5,663) 100 173,404(41,084) 100 995,424–––(9,911) 100 233,762(9,911) 100 233,762(9,005) 100 212,393
–
–
–
–
–
–
(36,976) 100 895,892–––(16,343) 100 395,975(13,626) 100 329,746
–
–
–
–
–
–
(21,929) 100 531,318
–
–
–

–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
595,789–––
401,426–––– (16,587) 100 469,883– (20,186) 100 571,837– (20,185) 100 571,809
–
–
–
–
–
–
–
–

(34,602) 100 1,098,686(43,610) 100 1,110,088(12,369) 100 392,742(12,369) 100 392,742(26,316) 100 637,610(24,251) 100 587,577(16,588) 100 401,426
–
–
–
–
–
–
–
–
–
(82,255) 100 662,079(82,254) 100 911,260

–
–
–
–
–
–
–
–
–
–
–
–

–
–
–
–
–
–
–
–
–
–
–
–

(45,193) 100 1,094,981

Value2$ NumberNumber%Current Disclosed Executives
P Chronican3 STI deferred shares
12,652 12-Nov-10 12-Nov-12–
STI deferred shares
16,588 14-Nov-11 14-Nov-12–
STI deferred shares10
15,139 12-Nov-12 12-Nov-13–
STI deferred shares10
15,139 12-Nov-12 12-Nov-14–
LTI performance rights
57,726 24-Dec-09 24-Dec-12 23-Dec-14
LTI performance rights11
63,976 12-Nov-12 12-Nov-15 12-Nov-17
S Elliott4
STI deferred shares
12,125 12-Nov-10 12-Nov-12–
STI deferred shares
9,573 14-Nov-11 14-Nov-12–
STI deferred shares10
20,186 12-Nov-12 12-Nov-13–
STI deferred shares10
20,185 12-Nov-12 12-Nov-14–
STI deferred options
5,307 13-Nov-09 13-Nov-10 12-Nov-14
STI deferred options
5,307 13-Nov-09 13-Nov-11 12-Nov-14
STI deferred options
69,238 12-Nov-10 12-Nov-11 11-Nov-15
STI deferred options
69,238 12-Nov-10 12-Nov-12 11-Nov-15
LTI performance rights
41,084 13-Nov-09 13-Nov-12 12-Nov-14
LTI performance rights11 118,110 12-Nov-12 12-Nov-15 12-Nov-17
A Géczy5 ––––D Hisco6
STI deferred share rights
8,903 12-Nov-10 12-Nov-12 11-Nov-15
STI deferred share rights
19,072 14-Nov-11 14-Nov-12 14-Nov-14
STI deferred share rights10 17,338 12-Nov-12 12-Nov-13 12-Nov-15
STI deferred share rights10 18,382 12-Nov-12 12-Nov-14 12-Nov-16
LTI performance rights
32,867 13-Nov-09 13-Nov-12 12-Nov-14
LTI performance rights11
49,212 12-Nov-12 12-Nov-15 12-Nov-17
G Hodges7 STI deferred shares
9,911 12-Nov-10 12-Nov-12–
STI deferred shares
11,848 14-Nov-11 14-Nov-12–
STI deferred shares10
11,102 12-Nov-12 12-Nov-13–
STI deferred shares10
11,102 12-Nov-12 12-Nov-14–
STI deferred share rights
5,663 31-Oct-08 31-Oct-10 30-Oct-13
LTI performance rights
41,084 13-Nov-09 13-Nov-12 12-Nov-14
LTI performance rights11
49,212 12-Nov-12 12-Nov-15 12-Nov-17
J Phillips8 STI deferred shares
9,911 12-Nov-10 12-Nov-11–
STI deferred shares
9,911 12-Nov-10 12-Nov-12–
STI deferred shares
9,005 14-Nov-11 14-Nov-12–
STI deferred shares10
11,102 12-Nov-12 12-Nov-13–
STI deferred shares10
11,102 12-Nov-12 12-Nov-14–
LTI performance rights
36,976 13-Nov-09 13-Nov-12 12-Nov-14
LTI performance rights11
49,212 12-Nov-12 12-Nov-15 12-Nov-17
N Williams STI deferred shares
16,343 12-Nov-10 12-Nov-12–
STI deferred shares
13,626 14-Nov-11 14-Nov-12–
STI deferred shares10
11,607 12-Nov-12 12-Nov-13–
STI deferred shares10
11,606 12-Nov-12 12-Nov-14–
LTI deferred shares
21,929 13-Nov-09 13-Nov-12–
LTI deferred share rights11 29,225 12-Nov-12 12-Nov-15 12-Nov-17

12,652 100 310,829
16,588 100 401,426
–
–
–
–
–
–
57,726 100 1,440,697–––
12,125 100 297,882
9,573 100 231,665
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
69,238 100
59,37941,084 100 995,424
–
–
–
–
–
–
8,903 100 218,725
19,072 100 461,539
–
–
–
–
–
–
32,867 100 796,335–––
9,911 100 243,489
11,848 100 286,719
–
–
–
–
–
–
–
–
–
41,084 100 995,424
–
–
–
–
–
–
9,911 100 243,489
9,005 100 217,919
–
–
–
–
–
–
36,976 100 895,892–––
16,343 100 401,508
13,626 100 329,746
–
–
–
–
–
–
21,929 100 531,318
–
–
–

–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–

–
–
–
–
– 15,139– 15,139––– 63,976––––– 20,186– 20,185
–
–
–
–
–
–
–
–
–
–
– 118,110
–
–
–
–
–
–
– 17,338– 18,382––– 49,212
9,911–
11,848–– 11,102– 11,102––––– 49,212
–
–
–
–
–
–
– 11,102– 11,102––– 49,212––––– 11,607– 11,606––– 29,225

Former Disclosed Executives
A Thursby9 Other deferred shares
Other deferred shares
STI deferred shares
STI deferred shares
STI deferred shares
STI deferred shares
STI deferred shares
STI deferred shares
STI deferred shares10
STI deferred shares10
STI deferred options
STI deferred options

44

34,602
43,61012,36912,36926,31624,251
16,588
16,587
20,18620,18582,25582,25403-Sep-07
22-Sep-09
31-Oct-08
31-Oct-08
13-Nov-09
12-Nov-10
14-Nov-11
14-Nov-11
12-Nov-12
12-Nov-12
31-Oct-08
31-Oct-08

03-Sep-10–
22-Sep-12–
31-Oct-09–
31-Oct-10–
13-Nov-10–
12-Nov-12–
14-Nov-12–
14-Nov-13–
12-Nov-13–
12-Nov-14–
31-Oct-09 30-Oct-13
31-Oct-10 30-Oct-13

–
–
–
–
–
–
–
–
–
–
24,251 100
16,588 100
–
–
–
–
–
–
–
–
–
–

LTI performance rights

45,193 13-Nov-09 13-Nov-12 12-Nov-14––

LTI performance rights

45,986 12-Nov-10 12-Nov-13 11-Nov-15

45,193 100 1,094,981––– (45,986) 100 1,302,710

–

–

–

–

–

–

–

–

LTI performance rights
LTI performance rights11

77,519 14-Nov-11 14-Nov-14 14-Nov-16
118,110 12-Nov-12 12-Nov-15 12-Nov-17

–
–

–
–

– (77,519) 100 2,195,989– (118,110) 100 3,345,867

–
–

–
–

–
–

–
–

–
–

ANZ ANNUAL REPORT 2013

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. (Refer to Table 8: Equity Valuation Inputs – Options/
Rights for the fair value of rights at grant and Table 9: Equity Valuation Inputs – Deferred shares for the fair value of shares at grant). 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, inclusive of Disclosed Executives or any other Groupand Company executives who participate in making decisions that affect the whole, or a substantial part, of the business of the Company or who have the capacity to significantly affect theCompany’s financial standing. No options/rights have been granted since the end of 2013 up to the signing of the Director’s Report on 8 November 2013.
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 performance rights. The value of options is based on the difference between the one day VWAP and the exercise price, multiplied by
the number of options.
3 P Chronican – LTI performance rights granted 24 December 2009 were exercised on 24 December 2012. One day VWAP on date of exercise was $24.9575. The exercise price was $0.00.
4 S Elliott – STI deferred options granted 13 November 2009 were exercised 2 May 2013. One day VWAP on date of exercise was $31.5166. The exercise price was $22.80. STI deferred options
granted 12 November 2010 were also exercised 2 May 2013. The exercise price was $23.71. LTI performance rights granted 13 November 2009 were exercised 13 November 2012. One day VWAP
on date of exercise was $24.2290. The exercise price was $0.00.
5 A Géczy – A Géczy commenced in role 16 September 2013. No equity transactions were applicable for the period.
6 D Hisco – STI deferred share rights granted 12 November 2010 were exercised on 12 November 2012. One day VWAP on date of exercise was $24.5676. The exercise price was $0.00. STI deferredshare rights granted 14 November 2011 were exercised on 14 November 2012. One day VWAP on date of exercise was $24.1998. The exercise price was $0.00. LTI performance rights granted
13 November 2009 were exercised 13 November 2012. One day VWAP on date of exercise was $24.2290. The exercise price was $0.00.
7 G Hodges – STI deferred share rights granted 31 October 2008 were exercised on 9 May 2013. One day VWAP on date of exercise was $30.6205. The exercise price was $0.00. LTI performance rights
granted 13 November 2009 were exercised on 13 November 2012. One day VWAP on date of exercise was $24.2290. The exercise price was $0.00.
8 J Phillips – LTI performance rights granted 13 November 2009 were exercised 13 November 2012. One day VWAP on date of exercise was $24.2290. The exercise price was $0.00.
9 A Thursby – Ceased employment 30 June 2013 so equity transactions are to that date. Transactions include those that transpired prior to cessation and those that were forfeited on cessation.
STI deferred options granted 31 October 2008 were exercised 2 November 2012. One day VWAP on date of exercise was $25.2291. The exercise price was $17.18. STI deferred options granted
31 October 2008 were exercised 22 February 2013. One day VWAP on date of exercise was $28.2586. The exercise price was $17.18. LTI performance rights granted 13 November 2009 were
exercised 13 November 2012. One day VWAP on date of exercise was $24.2290. The exercise price was $0.00.
10 The Disclosed Executives had a proportion of their STI amount deferred as equity. In 2013 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 cost to the employee. Refer to the STI arrangements section for further details of the mandatory deferralarrangements for the Disclosed Executives and Table 9 for details of the valuation methodology, inputs and fair value.
11 The 2012 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 details of thevaluation, 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 byeither party.

Notice periods

In order to terminate the employment arrangements, Disclosed Executives are required to provide the Company withsix 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 and all deferred share rights are forfeited.

Termination on noticeby 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 and deferred share rights are forfeited at the time notice is given to
the Disclosed Executive; and}} only performance rights 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 vestingdate. Performance rights, LTI deferred shares and LTI deferred share rights are either released in full or on a pro-ratabasis, 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 and allpermanent disablement performance rights will vest.
Termination for serious
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 all deferred shares held in trust will be
forfeited and all performance rights and deferred share rights 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 from the allocation value which varied to reflect the different values at the respective grant dates.

Directors’ REPORT

45

Directors’ Report (continued)

8.4 REMUNERATION TABLES – CEO AND DISCLOSED EXECUTIVES
Table 6: Non Statutory Remuneration Disclosure 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 2012 and 2013. The Board believes presenting information inthis way provides the shareholder with increased clarity and transparency of the CEO and Disclosed Executives’ remuneration, clearly showing
the amounts awarded for each remuneration component (fixed remuneration, STI and LTI) within the financial year. Details of prior year awards
which may have vested in 2012 and 2013 are provided in the footnotes.
Individuals included in table

Fixed remuneration

Non monetary benefits

Long service leave accrualNon
Statutory
Remuneration
Disclosure
Table

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

Statutory
Remuneration
Disclosure
Table

CEO, Current andFormer Disclosed Executives

Cash salary (including
reductions made in relation
to the utilisation of ANZ’s
Lifestyle Leave Policy) andsuperannuation contributions

As aboveLong service leaveaccrued during the year

(pro-rated for periodof year as a KMP)

(pro-rated for periodof year as a KMP)

1 Subject to Shareholder approval for the CEO

Table 6 : N on Statutory Remuneration Disclosure – CEO and Current Disclosed Executive
Remuneration for 2013 and 2012
Fixed
Remuneration1$

Non monetary
benefits$

Cash$

Deferred as
equity
$

2013
2012
2013
2012
2013
2012
2013

3,150,000
3,150,000
1,300,000
1,300,000
1,250,000
1,187,000
50,000145,681
121,900
15,6697,590
15,66940,853–2,050,000
1,900,000
1,050,000
850,000
1,300,000
1,100,000–

1,950,000
1,800,000
950,000
750,000
1,200,000
1,000,000
–

2013
2012
2013
2012
2013
2012

1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
580,000

411,398
309,757
27,404
13,7895,500
5,500

1,050,000
900,000
675,000
650,000
700,000
377,000

950,000
800,000
575,000
550,000
600,000
319,000

2013
2012

1,000,000
790,000

248,328
32,675850,000
533,250750,000
454,250

FinancialYear

CEO and Current Disclosed Executives

M Smith3
Chief Executive Officer
P Chronican4
Chief Executive Officer, Australia
S Elliott5
Chief Financial Officer
A Géczy6
Chief Executive Officer, International & Institutional Banking
D Hisco7
Chief Executive Officer, New Zealand
G Hodges8
Deputy Chief Executive Officer
J Phillips9
Chief Executive Officer, Global Wealth and Global Managing
Director, Marketing, Innovation and Digital
N Williams10
Chief Risk Officer

1 Fixed remuneration was unchanged for Disclosed Executives year on year. The difference for S Elliott year on year reflects his promotion in 2012 where remuneration was increased to reflect
expanded responsibilities. The differences for J Phillips and N Williams year on year reflects partial service as a Disclosed Executive in 2012.
2 The possible range of STI is between 0 and 2 times target STI. The actual STI received is dependent on ANZ and individual performance (refer to Section 6.2.1, Short Term Incentives (STI) for moredetails). 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.
3 M Smith – The 2013 LTI relates to the LTI grant that is proposed for 2013, subject to approval by shareholders at the 2013 Annual General Meeting. The 2012 LTI relates to the LTI grant approvedby shareholders at the 2012 Annual General Meeting. Non monetary benefits include car parking, life insurance and taxation services. In 2013 equity to the value of $2,054,542 vested in respectof previously disclosed deferred STI granted in 2010 and 2011. In addition, equity to the value of $6,419,352 vested in respect of previously disclosed deferred LTI granted in 2007, as approvedby shareholders.
4 P Chronican – Non monetary benefits include car parking and taxation services. In 2013 equity to the value of $712,255 vested in respect of previously disclosed deferred STI granted in 2010 and2011. In addition, equity to the value of $1,440,697 vested in respect of deferred LTI granted in 2009.
5 S Elliott – 2012 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
2012 STI as a % of target). Non monetary benefits include car parking and taxation services. In 2013 equity to the value of $588,926 vested in respect of previously disclosed deferred STI granted
in 2010 and 2011. In addition, equity to the value of $995,424 vested in respect of deferred LTI granted in 2009.

46

ANZ ANNUAL REPORT 2013

The information provided in Table 6 is non statutory information and differs from the information provided in Table 7: Statutory Remuneration
Disclosure, which has been prepared in accordance with Australian Accounting Standards. A description of the difference between the twotables is provided below:

Retirement benefits

STI

LTI

Other equity allocations

Not included

STI awarded in Nov 2013
for the 2013 financial year –expressed as a cash value plus
a deferred equity grant value

Communicated value of
LTI granted in Nov/Dec1 2013

Nil, as nothing awarded
in 2012 or 2013

The equity fair value multiplied by 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 2013 elementonly) and amortised STI for deferred
equity from prior year awards
Amortised STI values relate
to STI awards made in Nov 2010,2011 and 2012

Amortised LTI values relate to
LTI awards made in Nov 2009 andNov/Dec 2010, 2011 and 2012

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

Equity is amortised over the vesting period of the award. Refer to footnote 7 of the
Statutory Remuneration Disclosure Table for details of how amortised values are calculated

STI

LTI

Total Remuneration

As % of maximum
opportunity2%

Total (deferred
as equity)$

Received$

Deferred as equity
$

Total
$

3,150,000
3,150,000
700,000
650,000
1,000,000
1,200,000
625,000

5,345,681
5,171,900
2,365,669
2,157,590
2,565,669
2,327,853
50,0005,100,000
4,950,000
1,650,000
1,400,000
2,200,000
2,200,000
625,000

10,445,681
10,121,900
4,015,669
3,557,590
4,765,669
4,527,853
675,000

699,200
500,000
500,000
500,000
500,000
290,000

2,461,398
2,209,757
1,702,404
1,663,789
1,705,500
962,500

1,649,200
1,300,000
1,075,000
1,050,000
1,100,000
609,000

4,110,598
3,509,757
2,777,404
2,713,789
2,805,500
1,571,500

750,000
474,000

2,098,328
1,355,925

1,500,000
928,250

3,598,328
2,284,175

Total$

As % of target%

4,000,000
3,700,000
2,000,000
1,600,000
2,500,000
2,100,000
–

127%
117%
128%
103%
167%
140%
–

63%

2,000,000
1,700,000
1,250,000
1,200,000
1,300,000
696,000

167%
142%
104%
100%
108%
100%

83%

1,600,000
987,500

133%
104%

64%
83%
–

52%
54%

89%

6 A Géczy – A Géczy commenced in role 16 September 2013 so fixed remuneration reflects amounts received for the partial service for the 2013 year.
7 D Hisco – Non monetary benefits includes expenses related to his relocation to New Zealand, car parking and taxation services. In 2013 equity to the value of $680,264 vested in respect ofdeferred STI granted in 2010 and 2011. In addition, equity to the value of $796,335 vested in respect of deferred LTI granted in 2009.
8 G Hodges – Non monetary benefits include car parking and taxation services. In 2013 equity to the value of $530,208 vested in respect of previously disclosed deferred STI granted in 2010 and2011. In addition, equity to the value of $995,424 vested in respect of previously disclosed deferred LTI granted in 2009.
9 J Phillips – J Phillips commenced in role on 1 March 2012 so 2012 remuneration (fixed, STI and LTI) reflects amounts received for partial service for that year. Non monetary benefits include
taxation services. In 2013 equity to the value of $461,408 vested in respect of previously disclosed deferred STI granted in 2010 and 2011. In addition, equity to the value of $895,892 vested in
respect of previously disclosed LTI granted in 2009.
10 N Williams – N Williams commenced in role on 17 December 2011 so 2012 remuneration (fixed, STI and LTI) reflects amounts received for the partial service for that year. Non monetary benefits
include relocation expenses, car parking and taxation services. In 2013 equity to the value of $731,254 vested in respect of previously disclosed deferred STI granted in 2010 and 2011. In addition,
equity to the value of $531,318 vested in respect of previously disclosed LTI granted in 2009.

Directors’ REPORT

47

Directors’ Report (continued)

Table 7 : Statutory Remuneration Disclosure – CEO and Disclosed Executive Remuneration for 2013 and 2012

Short-Term Employee Benefits

Post-Employment

Total cash
incentive3,4$Supercontributions 5$

Retirement
benefit accrued
during year6$

Cash salary1$

Non monetary
benefits2
$

2013
2012
2013
2012
2013
2012
2013

3,150,000
3,150,000
1,191,9781,192,661
1,146,133
1,088,991
48,942

145,681
121,900
15,6697,590
15,66940,853–2,050,000
1,900,000
1,050,000
850,000
1,300,000
1,100,000–––
108,022
107,339
103,867
98,009
1,058

–
–
–
–
–
–
–

2013
2012
2013
2012
2013
2012

1,000,000
1,000,000
916,906
917,431916,906
532,110

411,398
309,757
27,404
13,7895,500
5,500

1,050,000
900,000
675,000
650,000
700,000
377,000––
83,09482,56983,09447,890

5,436
4,237
5,071
4,237
–
–

2013
2012

899,347
724,771

248,328
32,675850,000
533,250

83,09465,2295,286
20,477

2012

886,239

20,229412,500

79,761

–

2012
2013
2012

211,927
937,500
1,187,000

14,257
10,1307,590––
1,100,000

19,073
–
–

–
–
–

2013
2012

10,207,712
10,891,130

879,779
574,140

7,675,000
7,822,750

462,229
499,870

15,793
28,951

FinancialYear

CEO and Current Disclosed Executives
M Smith11
Chief Executive Officer
P Chronican
Chief Executive Officer, Australia
S Elliott
Chief Financial Officer
A Géczy12
Chief Executive Officer, International& Institutional Banking
D HiscoChief Executive Officer, New Zealand
G Hodges
Deputy Chief Executive Officer
J Phillips12
Chief Executive Officer, Global Wealthand Group Managing Director,
Marketing, Innovation and Digital
N Williams12
Chief Risk Officer

Former Disclosed Executives
P Marriott12
Former Chief Financial Officer
C Page12
Former Chief Risk Officer
A Thursby12
Former Chief Executive Officer,
International & Institutional Banking
Total of all Executive KMPs13

1 Cash salary includes reductions made in relation to the utilisation of ANZ’s Lifestyle Leave Policy, where applicable.
2 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, 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.
3 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 2012 STI deferredcomponents are included in share-based payments. The 2013 STI deferred components will be amortised from the grant date. The cash incentive component was approved by the Board on
24 October 2013. 100% of the cash incentive awarded for the 2012 and 2013 years vested to the Disclosed Executive in the applicable financial year.
4 The possible range of STI is between 0 and 2 times target STI (0 and 2.5 times target STI in 2012). The actual STI received is dependent on ANZ and individual performance (refer to Section 6.2.1,
Short Term Incentives (STI) for more details). The 2013 STI awarded (cash and equity component) as a percentage of target STI was: M Smith 127% (2012: 117%); P Chronican 128% (2012: 103%);
S Elliott 167% (2012: 140%); D Hisco 167% (2012: 142%); G Hodges 104% (2012: 100%); J Phillips 108% (2012: 100%); N Williams 133% (2012: 104%); P Marriott n/a (2012: 86% – pro-rated to dateceased in role, 31 May 2012); A Thursby nil (2012: 140%). 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.
5 For all Australian based Disclosed Executives other than M Smith and A Thursby, the superannuation contribution reflects the Superannuation Guarantee Contribution – individuals may elect totake this contribution as superannuation or a combination of superannuation and cash. As M Smith is and A Thursby was a holder of a long stay visa, their fixed remuneration does not include theSuperannuation Guarantee Contribution, however they are able to elect voluntary superannuation contributions.
6 Accrual relates to Retirement Allowance. As a result of being employed with ANZ prior to November 1992, D Hisco, G Hodges and N Williams are eligible to receive a Retirement Allowance onretirement, retrenchment, death, or resignation for illness, incapacity or domestic reasons. The Retirement Allowance is calculated as follows: three months of preserved 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 value of long service leave (including taken and untaken).
7 In accordance with the requirements of AASB 2 Share-based payments, 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:
Equity Valuation Inputs – Options/Rights. The fair value is determined at grant date and is allocated on a straight-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 shares were granted.
8 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 A Thursby
relates to equity granted on commencement.

48

ANZ ANNUAL REPORT 2013

Long-Term
Employee
Benefits

Share-Based Payments7
Total amortisation value of
STI

LTI

Other equity allocations8Long service
leave accrued
during the year$

Shares$

Options andRights$Shares$Rights$Shares$

Options$

Termination
benefits$

47,28948,07919,614
19,842
22,03822,985780

1,719,210
1,750,829
723,368
637,349
796,167
438,387–––––
16,708178,342
–

–
–
–
–
–
–
–

2,991,143
2,590,496
672,705
623,306
771,029
540,049
–

–
–
–
–
–
–
–

–
113,189
–
–
–
–
–

–
–
–
–
–
–
–

10,103,323
9,674,493
3,781,356
3,438,087
4,171,611
3,507,616
50,78014,064
15,263
14,42915,263
15,078
10,710–7,788
527,240
477,366
490,516
225,957

768,790
602,172–––––
10,958––––461,622412,856
498,760
493,164
480,192
258,774

–
–
–
–
–
–

–
–
–
–
–
–

–
–
–
–
–
–

3,711,310
3,263,031
2,747,904
2,653,819
2,691,286
1,457,941

14,214
120,504

575,216494,744––

347,119
373,958

176,435
9,198

–
–

–
–

–
–

3,199,039
2,374,806–

778,868––

646,594––

1,154,384

3,978,575––
26,625849,289(78,480)
838,469–––

27,986––39,377(529,830)
586,415––
329,842–––

16,842
127,038–

1,178,751
466,358
4,075,941

147,506
279,271

4,753,237
6,499,046

785,498
780,514347,119
412,9025,522,056
6,200,229–
329,842–
113,189

127,038
1,171,226

30,922,967
35,603,060

Grand total
remuneration9,10$

9 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 KMPof the controlled entities. The total premium, which cannot be disclosed because of confidentiality requirements, has not been allocated to the individuals covered by the insurance policy as, basedon all available information, the directors believe that no reasonable basis for such allocation exists.
10 The disclosed amortised value of rights/options for each KMP as a percentage of Grand Total Remuneration is: M Smith 30%; P Chronican 18%; S Elliott 19%; A Géczy 0%; D Hisco 33%;
G Hodges 18%; J Phillips 18%; N Williams 6%; A Thursby -114%.
11 While the CEO is an Executive Director, he has been included in this table with the Disclosed Executives.
12 A Géczy was appointed to the CEO, International & Institutional Banking role on 16 September 2013 so remuneration reflects amounts received for the partial service of the 2013 year. J Phillips wasappointed to the CEO, Global Wealth and Group Managing Director, Marketing, Innovation and Digital role on 1 March 2012 so remuneration reflects amounts received for the partial service forthe 2012 year. N Williams was appointed to the Chief Risk Officer role on 17 December 2011 so remuneration reflects amounts received for the partial service for the 2012 year. P Marriott ceased
employment 31 August 2012 and remuneration 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.
A Thursby ceased employment 30 June 2013 and remuneration is to this date.
13 For those Disclosed Executives who were disclosed in both 2012 and 2013, the following are noted:- P Chronican – uplift in year-on-year remuneration, driven by a combination of factors including increases in non monetary benefits, cash STI and amortised value of equity.
- S Elliott – uplift in year-on-year remuneration, driven by a combination of factors including fixed remuneration on promotion in 2012, increases in cash STI, superannuation and amortised valueof equity.
- D Hisco – uplift in year-on-year remuneration, driven by a combination of factors including non monetary benefits, cash STI and amortised value of equity.
- G Hodges – uplift in year-on-year remuneration, driven by a combination of factors including non monetary benefits, cash STI and amortised value of equity.
- J Phillips – 2012 remuneration only reflected a partial year as she commenced in role 1 March 2012. Uplift in year-on-year remuneration due to full year in role in 2013.
- N Williams – 2012 remuneration only reflected a partial year as he commenced in role 17 December 2011. Uplift in year-on-year remuneration due to full year in role in 2013.
- A Thursby – 2013 remuneration only reflected a partial year as he concluded in role 30 April 2013 and ceased employment effective 30 June 2013. Decrease in year-on-year remuneration reflects
reversals in the amortised value of equity due to equity forfeiture on resignation. Termination benefits relate to statutory leave entitlements paid on termination.
A Géczy is disclosed only for part of the 2013 year from commencement in a KMP role.

Directors’ REPORT

49

Directors’ Report (continued)

9. Equity
All shares underpinning equity awards may be purchased on market, or be newly issued shares or a combination of both. For the 2012 equity
granted to the CEO and Disclosed Executives, all STI deferred shares were purchased on market and for LTI performance rights, the approach tosatisfy 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 the
instrument, dividend yield and share price at grant date. These valuations are audited by KPMG and ANZ Global Internal Audit. The higher of thetwo valuations is approved by the HR Committee as the allocation and/or expensing/disclosure value (using the higher valuation results in fewer
instruments being granted). The following tables provide details of the valuations of the various equity instruments issued during the year andin prior years for shares and rights where vesting, lapse/forfeiture or exercise/sale has occurred during the year:
Table 8 : Equity Valuation Inputs – Options/Rights
Recipients

Type of equity

Executives
Executives
Executives
Executives
Executives
Executives
Executives
Executives
Executives
Executives
Executives
Executives
CEO
Executives
Executives
Executives
Executives
Executives
CEO

STI deferred options
STI deferred options
STI deferred options
STI deferred options
STI deferred options
STI deferred options
STI deferred share rights
STI deferred share rights
STI deferred share rights
STI deferred share rights
STI deferred share rights
LTI deferred share rights
LTI performance rights
LTI performance rights
LTI performance rights
LTI performance rights
LTI performance rights
LTI performance rights
LTI performance rights

Grant date

Exercise
price$

Equity
fair
value
$

Share
closing priceat grant$

ANZ
expected
volatility%

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

Risk freeinterest
rate%

31-Oct-08
31-Oct-08
13-Nov-09
13-Nov-09
12-Nov-10
12-Nov-10
31-Oct-08
12-Nov-10
14-Nov-11
12-Nov-12
12-Nov-12
12-Nov-12
19-Dec-07
13-Nov-09
24-Dec-09
12-Nov-10
14-Nov-11
12-Nov-12
19-Dec-12

17.18
17.18
22.80
22.80
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

2.80
2.94
4.83
5.09
3.96
4.20
15.45
21.06
19.40
23.07
21.76
20.53
11.51
12.17
11.26
11.96
9.03
10.16
9.58

17.36
17.36
22.48
22.48
23.22
23.22
17.36
23.22
20.66
24.45
24.45
24.45
26.85
22.48
22.39
23.22
20.66
24.45
24.64

30.0
30.0
39.0
39.0
30.0
30.0
30.0
30.0
25.0
22.5
22.5
22.5
17.0
35.0
40.0
30.0
25.0
22.5
22.5

5
5
5
5
5
5
5
5
3
3
4
5
6
5
5
5
5
5
5

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

3
3.5
3
3.5
3
3.5
2
2
1
1
2
3
5
3
3
3
3
3
3

6.00
6.00
5.50
5.50
5.00
5.00
6.00
5.00
6.50
6.00
6.00
6.00
4.50
5.00
4.60
5.00
6.50
6.00
6.00

4.48
4.64
5.04
5.13
5.04
5.11
4.48
4.97
3.70
2.82
2.66
2.58
6.66
5.01
4.71
5.04
3.53
2.58
2.77

Table 9 : Equity Valuation Inputs – Deferred Shares
Recipients

Type of equity

Grant date

Equity fairvalue1$

Executives
Executives
Executives
Executives
CEO and Executives
CEO and Executives
CEO and Executives
CEO and Executives
CEO and Executives
CEO and Executives
CEO and Executives
Executives

Other deferred shares
Other deferred shares
STI deferred shares
STI deferred shares
STI deferred shares
STI deferred shares
STI deferred shares
STI deferred shares
STI deferred shares
STI deferred shares
STI deferred shares
LTI deferred shares

03-Sep-07
22-Sep-09
31-Oct-08
31-Oct-08
13-Nov-09
12-Nov-10
12-Nov-10
14-Nov-11
14-Nov-11
12-Nov-12
12-Nov-12
13-Nov-09

29.05
23.22
17.18
17.18
22.54
23.32
23.32
20.89
20.89
24.57
24.57
22.54

Share closing
price at grant$Vesting period(years)

29.22
23.33
17.36
17.36
22.48
23.22
23.22
20.66
20.66
24.45
24.45
22.48

3
3
1
2
1
1
2
1
2
1
2
3

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.

Signed in accordance with a resolution of the Directors.

John MorschelChairman
8 November 201350

Michael R P Smith
Director

ANZ ANNUAL REPORT 2013

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.

2013 Key Areas of Focus and Achievements}} Continued monitoring of the ongoing volatility anduncertainties in global markets and their impact on therisk culture and management of ANZ.
}} Review of the increasing global regulatory requirements
in relation to capital and funding, and the implications for
ANZ, including both the potential risks and opportunities.
}} Oversight of Management’s execution of ANZ’s
super‑regional strategy.
}} Overview of productivity focus in recognition ofindustry‑wide pressures on revenue growth, particularly
in Australia and New Zealand.
}} Strong focus on ANZ’s technology program, including
upgrading infrastructure to deliver improved systems
security, stability and standardisation and to respond to
growing demand, scale and complexity.

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; and}} take an active role in discussions of corporate governance bestpractice and associated regulation in Australia and overseas.

Compliance with Corporate Governance Codes
Australia
As a company listed on the ASX, ANZ is required to disclose how it hasapplied the Recommendations contained within the ASX Corporate
Governance Council’s Corporate Governance Principles andRecommendations (ASX Governance Principles) during the financial
year, explaining any departures from them. ANZ confirms it has
followed the Recommendations of the ASX Corporate GovernanceCouncil 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. The information in this Statement is current as at
11 October 2013 except where otherwise indicated.

}} Successful implementation of the New Zealandsimplification program which involved the transition to
one technology system and the combination of the ANZ
and National Bank brands into one ANZ brand – ANZ BankNew Zealand.
}} Appointment of Mr Liebelt as a Non-Executive Director(in addition to the appointment of Ms Dwyer in April2012) as part of a managed succession plan having regard
to expected Non-Executive Director retirements.
}} ANZ was assessed the global banking sector leader in the
Dow Jones Sustainability Index (DJSI). This is the sixth year
in the past seven that ANZ has received this assessment.

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 theinformation and notices that it provides to the ASX.
The ASX Governance Principles may differ materially from the NZX’scorporate governance rules and the principles of the NZX’s Corporate
Governance Best Practice Code. More information about thecorporate governance rules and principles of the ASX can be foundat 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 jurisdictions
ANZ also monitors best practice developments in corporate
governance across other relevant jurisdictions.
ANZ deregistered from the US Securities Exchange Commission
with effect from October 2007. Despite no longer being required
to comply with United States corporate governance rules, ANZ’s
corporate governance practices continue to have regard 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 in this Statement.

Corporate governance

51

CORPORATE GOVERNANCE (continued)

WebsiteFurther details of ANZ’s governance framework are set out at anz.com > About us > Our company > Corporate governance.
This section of ANZ’s website also contains copies of all the Board/Board Committee charters and summaries of many of the documents andpolicies mentioned in this Statement, as well as summaries of other ANZ policies of interest to shareholders and stakeholders. The website isregularly updated to ensure it reflects ANZ’s most recent corporate governance information.

Directors
The information below relates to the Directors in office and sets out their Board Committee memberships and other details at the time of
preparation of this Statement.

Mr J P Morschel Chairman, Independent Non-Executive Director
DipQS, FAICD
Non-Executive Director since October 2004. Ex officio member of all
Board Committees.
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).

Former Directorships include
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).
Age: 70. Residence: Sydney, Australia.

Mr M R P Smith, OBE, Chief Executive Officer, Executive Director
BSc (Hons) City Lond., Hon LLD Monash
Chief Executive Officer since 1 October 2007.
Skills, experience and expertise
Mr Smith is an international banker with over 30 years experience inbanking 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).
Executive Chairman: Chongqing Mayor’s International Economic
Advisory Council (from 2013, Member from 2006).

52

Director: ANZ Bank New Zealand Limited (from 2007), the Financial
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: Business Council of Australia (from 2007), Asia BusinessCouncil (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 Chief Executive Officer and Director: The Hongkong andShanghai 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 Member: Visa APCEMEA Senior Client Council (2009–2011).
Age: 57. Residence: Melbourne, Australia.

ANZ ANNUAL REPORT 2013

Dr G J Clark Independent Non-Executive Director, Chair of the Technology Committee
BSc (Hons), PhD, FAPS, FTSE
Non-Executive Director since February 2004. Member of the Risk
Committee and Human Resources Committee.
Skills, experience and expertise
Dr Clark brings to the Board international business experienceand a 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 positions inIBM, News Corporation and Loral Space and Communications.

Current Directorships
Chairman: KaComm Communications Pty Ltd (from 2006) and CUDOS
Advisory Board (from 2011).
Member: The Royal Institution of Australia (from 2010) and Council of
the University of Sydney Physics Foundation (from 2013).
Former Directorships include
Former Principal: Clark Capital Partners (2003–2010).
Age: 70. Residence: Based in New York, United States and also resides
in Sydney, Australia.

Ms P J Dwyer Independent Non-Executive Director
BCom, FCA, SF Fin, FAICD
Non-Executive Director since April 2012. Member of the Audit
Committee, Risk Committee and Human Resources 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
Chairman: Tabcorp Holdings Limited (from 2011, Director from 2005).
Deputy Chairman: Leighton Holdings Limited (from 2013, Director
from 2012).

Director: Lion Pty Ltd (from 2012).
Member: Australian Government Takeovers Panel (from 2008), Kirin
International Advisory Board (from 2012) and ASIC External Advisory
Panel (from 2013).
Former Directorships include
Former Deputy Chairman: Baker IDI Heart and Diabetes ResearchInstitute (2005–2013).
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: 53. Residence: Melbourne, Australia.

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 involvement inadvising governments and government-owned enterprises.
Current Directorships
Director: Alumina Limited (from 2002), Landcare Australia Limited(from 2008), GUD Holdings Limited (from 2009), Myer Holdings

Limited (from 2010), Australian Institute of Company Directors (from2012) and Newcrest Mining Limited (from 2013).
Member: Australian Government Takeovers Panel (from 2009).
Former Directorships include
Former Chairman: Lazard Pty Ltd Advisory Board (2009–2013).
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: 63. Residence: Melbourne, Australia.

CORPORATE GOVERNANCE

53

CORPORATE GOVERNANCE (continued)

Mr Lee Hsien Yang Independent Non-Executive Director
MSc, BA
Non-Executive Director since February 2009. Member of the Technology
Committee, Risk Committee and Human Resources Committee.
Skills, experience and expertise
Mr Lee has considerable knowledge of and operating experience inAsia. 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: Civil Aviation Authority of Singapore (from 2009), The
Islamic Bank of Asia Limited (from 2012, Director from 2007) and
General Atlantic Singapore Fund Pte Ltd (from 2013).

Director: Singapore Exchange Limited (from 2004), Caldecott Inc.
(from 2013) 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).
Special Adviser: General Atlantic (from 2013).
Consultant: Capital International Inc Advisory Board (from 2007).
President: INSEAD South East Asia Council (from 2013).
Former Directorships include
Former Chairman: Republic Polytechnic (2002–2009) and Fraser &Neave, Limited (2007-2013).
Former Member: Merrill Lynch PacRim Advisory Council (2007–2010).
Former Chief Executive Officer: Singapore Telecommunications
Limited (1995–2007).
Age: 56. Residence: Singapore.

Mr G R Liebelt Independent Non-Executive Director
BEc (Hons), FAICD, FTSE, FAIM
Non-Executive Director since July 2013. Member of the Risk Committee,
Human Resources Committee and Technology Committee.
Skills, experience and expertise
Mr Liebelt has extensive international experience and a strong
record of achievement as a senior executive including in strategy
development and implementation. He brings to the Board his
experience of a 23 year executive career with Orica Limited (including
a period as Chief Executive Officer), a global mining services company
with operations in more than 50 countries.

Current Directorships
Deputy Chairman: The Global Foundation (from 2013, Director from2006) and Melbourne Business School (from 2012, Director from 2008).
Director: Amcor Limited (from 2012), The Australian Foundation
Investment Company Limited (from 2012) and Carey Baptist Grammar
School (from 2012).
Former Directorships include
Former Chief Executive Officer and Managing Director: Orica Limited(2005-2012).
Former Director: Business Council of Australia (2010-2012).
Age: 59. Residence: Melbourne, Australia

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.

54

Current Directorships
Director: Woolworths Limited (from 2007) and the Lowy Institute forInternational Policy (from 2004).
Member: Council of International Advisors to the China Banking
Regulatory Commission (from 2009), International Advisory Boardof Goldman Sachs (from 2007) and International Advisory Board of
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).
Former Director: Leighton Holdings Limited (2007–2013).
Age: 67. Residence: Sydney, Australia.

ANZ ANNUAL REPORT 2013

Mr D E Meiklejohn, AM, Independent Non-Executive Director, Chair of the Audit Committee
Current Directorships
Chairman: Manningham Centre Association Board of Governance(from 2011).
Director: Coca Cola Amatil Limited (from 2005) and Mirrabooka
Investments Limited (from 2006).

BCom, DipEd, FCPA, FAICD, FAIM
Non-Executive Director since October 2004. Member of theTechnology Committee and Risk Committee.
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: 71. Residence: Melbourne, Australia.

Ms A M Watkins Independent Non-Executive Director, Chair of the Human Resources Committee
Current Directorships
Chief Executive Officer and Managing Director: GrainCorp Limited(from 2010).
Chairman: Allied Mills Australia Pty Limited (from 2010).
Director: The Centre for Independent Studies (from 2011).
Member: Australian Government Takeovers Panel (from 2010).

BCom, FCA, SF Fin, FAICD
Non-Executive Director since November 2008. Member of the Audit
Committee and Governance Committee.
Skills, experience and expertise
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 Directorships include
Former Chief Executive Officer: Bennelong Group (2008–2010).
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: 50. Residence: Melbourne, Australia.

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

BOARD OF DIRECTORSCEO
Principal Board Committees

AUDIT
COMMITTEE

GOVERNANCE
COMMITTEEHUMAN RESOURCESCOMMITTEERISKCOMMITTEETECHNOLOGYCOMMITTEEManagement Board
Key Management Committees

Corporate
Sustainability &Diversity Committee

TECHNOLOGY RISKMANAGEMENTCOMMITTEECREDIT & MARKETRISK COMMITTEEGROUP ASSET &LIABILITY COMMITTEE

CAPITAL MANAGEMENTPOLICY COMMITTEEOPERATIONALRISK EXECUTIVECOMMITTEE

Global Markets& Loans ProductCommittee

REPUTATION RISKCOMMITTEECREDIT RATINGSSYSTEM OVERSIGHT
COMMITTEECORPORATE GOVERNANCE

55

CORPORATE GOVERNANCE (continued)

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

Role of the Chairman
The Chairman plays an important leadership role and is involved in:}} chairing meetings of the Board and providing effective leadershipto it;}} monitoring the performance of the Board and the mix of skills andeffectiveness of individual contributions;}} being an ex officio member of all principal Board Committees;}} maintaining ongoing dialogue with the Chief Executive Officer andproviding appropriate mentoring and guidance; and}} being a respected ambassador for ANZ, including chairing
meetings of shareholders and dealing with key customer, politicaland regulatory 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 those strategies andfinancial objectives;}} monitoring compliance with regulatory requirements, ethicalstandards and external commitments, and the implementation ofrelated policies; and}} appointing and reviewing the performance of the Chief
Executive Officer.
In addition to the above and any matters expressly required by law tobe approved by the Board, powers specifically reserved for the Board
include approvals of the following (except to the extent delegated by
the Board from time to time):}} the budget and strategic plan, at least annually;}} ANZ’s Remuneration Policy, including various remuneration
matters as detailed in the Charter;}} significant changes to organisational structure;}} the acquisition, establishment, disposal or cessation of any
significant business;}} the issue of any shares, options, equity instruments or other
equity securities;}} where practicable, the substance of any announcements to theAustralian Securities Exchange in relation to matters that have been
the subject of a decision by the Board or any public statements
which reflect significant issues of ANZ policy or strategy; and}} any changes to the discretions delegated from the Board.
Under ANZ’s Constitution, the Board may delegate any of its
powers to Committees of the Board. The roles of the principal Board
Committees are set out on pages 60 to 64. The Charters of the Boardand each of its principal Committees are set out on anz.com in the
Corporate Governance section.

56

Board Meetings
The Board normally meets at least eight times each year, including ameeting to review in detail the Group’s strategy.
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;}} the Chief Financial Officer’s report;}} reports on major projects and current business issues;}} specific business proposals;}} reports from Chairs of Committees which have met shortly prior to
the Board meeting on matters considered at those meetings; and}} the 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, and throughthe Chief Executive Officer to other Senior Management, theauthority and responsibility for managing the everyday affairs of ANZ.
The Board monitors Management and their performance on behalfof shareholders.
The Group Discretions Policy details the comprehensive discretions
framework that applies to all employees and contractors within ANZ
and its controlled entities, including when acting at ANZ’s request inoperational roles or as directors of other 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.
At the time of preparation of this Statement, the following Senior
Management, in addition to the Chief Executive Officer, weremembers of the Management Board: Graham Hodges – Deputy
Chief Executive Officer; Shayne Elliott – Chief Financial Officer;
Phil Chronican – Chief Executive Officer, Australia; Andrew Géczy– Chief Executive Officer, International and Institutional Banking;David Hisco – Chief Executive Officer, New Zealand; Joyce Phillips –Chief Executive Officer, Global Wealth and Group Managing Director,
Marketing, Innovation and Digital; Gilles Planté – Chief Executive
Officer, Asia Pacific; Nigel Williams – Chief Risk Officer; Alistair Currie– Group Chief Operating Officer; Anne Weatherston – Chief
Information Officer; and Susie Babani – Group Managing Director,
Human Resources.

ANZ ANNUAL REPORT 2013

Typically, a sub-group of Management Board meets every weekwith all Management Board members meeting each month todiscuss business performance, review shared initiatives and build
collaboration and synergy across the Group.

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.

Board Composition, Selection and Appointment

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

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 found on
pages 52 to 55.

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.

The Governance Committee (see page 62) has been delegatedresponsibility to review and make recommendations to the Board
regarding Board composition, and to assist in relation to the Director
nomination process.
The Governance Committee conducts an annual review of the sizeand composition of the Board, to assess whether there is a need forany new Non-Executive Director appointments. This review takes thefollowing factors into account:}} relevant guidelines/legislative requirements in relation to
Board composition;}} Board membership requirements as articulated in the Board
Charter; and}} other 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 thefollowing matters:}} specialist skill representation relating to both functions (such asaccounting/finance, law and technology) and industry background(such as banking/financial services, retail and professional 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 organisations ofsignificant size);}} age spread;}} diversity in general (including gender diversity); and}} geographic experience.
Other matters for explicit consideration by the Committee
are personal qualities, communication capabilities, ability
and commitment to devote appropriate time to the task, thecomplementary nature of the distinctive contribution each Director
might make, professional reputation and community standing.
Nominations may be provided from time to time by a Board
member to the Chair of the Governance Committee. The Chair of theGovernance Committee maintains a list of nominees to assist theBoard in the succession planning process.
Where there is a need for any new appointments, a formal assessmentof nominees will be conducted by the members of the GovernanceCommittee and should be documented by the Committee Chair. In
assessing nominees, the Governance Committee has regard to theprinciples set out above.

Appointment Documentation
Each new Non-Executive Director receives an appointment letteraccompanied by a:}} Directors’ handbook – the handbook includes information on abroad range of matters relating to the role of a Director, including
details of all applicable policies; and}} Directors’ 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 ANZ sharesthat is equivalent to at least 100% of a Non-Executive Director’s basefee (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) are set out
in the Remuneration Report on pages 39 to 41.
The ANZ Directors’ Retirement Scheme was closed effective
30 September 2005. Accrued entitlements were fixed on that date for
Non-Executive Directors in office at the time who had the option toconvert those entitlements into ANZ shares. Such entitlements, either
in ANZ shares or cash, will be carried forward and transferred to the
Non-Executive Director when they retire (including interest accruedat 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.
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.
CORPORATE GOVERNANCE

57

CORPORATE GOVERNANCE (continued)

Fit and Proper
ANZ has an effective and robust framework in place to ensure that
individuals appointed to relevant senior positions within the APRA
regulated entities of the Group have the appropriate fitness andpropriety to properly discharge their prudential responsibilities on
appointment and during the course of their appointment.
The framework, set out in ANZ’s Fit and Proper Policy for APRA
Regulated Entities, addresses the requirements of APRA’s Fit andProper Prudential Standards. It involves assessments being carriedout for each Director, relevant senior executives and the lead partnerof ANZ’s external auditor prior to a new appointment to an APRA
regulated entity 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 forassessing the fitness and propriety of the Company’s Non-Executive
Directors. The Human Resources Committee has primary responsibility
for assessing 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 respect ofeach Non-Executive Director, the Chief Executive Officer, key senior
executives and the external auditor during the 2013 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 that would
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 2013 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.
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.

58

In summary, a relationship with ANZ is regarded as material if areasonable person in the position of a Non-Executive Director of ANZ
would expect there to be a real and sensible possibility that it would
influence a Director’s mind in:}} making decisions on matters likely to come regularly before theBoard or its Committees;}} objectively assessing information and advice given by Management;}} setting policy for general application across ANZ; and}} generally carrying out the performance of his or her role asa Director.
During 2013, 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 52 to 55 and on anz.com highlighttheir major associations outside ANZ.
Conflicts of Interest
Over and above the issue of independence, each Director has acontinuing responsibility to determine whether he or she has apotential or actual conflict of interest in relation to any material
matter which relates to the affairs of ANZ. Such a situation may arise
from external associations, interests or personal relationships.
Under the Directors Disclosure of Interest Protocol and Procedures for
Handling Conflicts of Interest, a Director may not exercise any influence
over the Board if an actual or potential conflict of interest 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 principal Committee, at the expense of ANZ, may obtainwhatever professional advice it requires to assist in its work.
Tenure and Retirement
ANZ’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
Non‑Executive 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.

ANZ ANNUAL REPORT 2013

Continuing Education
ANZ Directors take part in a range of training and continuing
education programs. In addition to a formal induction program (seepage 57), Directors also receive regular bulletins designed to keepthem abreast of matters relating to their duties and responsibilities
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 areintended to provide Directors with information on each area of ANZ’sbusiness, in particular regarding performance, key issues, risks andstrategies for growth. In addition, Directors have the opportunity toparticipate in site visits from time to time.
Access in relation to Directors
Management is able to consult Directors as required. Employees haveaccess 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 matters whereappropriate. The Company Secretary also provides advice andsupport to the Directors as required.

Performance Evaluations
Non-Executive Directors
The framework used to evaluate the performance of Non-Executive
Directors is based on the expectation that they are performing
their duties:}} in the interests of shareholders;}} in a manner that recognises the great importance that ANZ placeson the values of honesty, integrity, quality and trust;}} in accordance with the duties and obligations imposed upon themby ANZ’s Constitution, ANZ’s Non-Executive Directors Code of
Conduct and Ethics, and the law; and}} having due regard to ANZ’s corporate sustainability objectives, andthe importance of ANZ’s relationships with all its stakeholders andthe communities and environments in which ANZ operates.
The performance criteria also take into account the Non-Executive
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 in achieving
strategies and budgets approved by the Board;}} setting criteria for and evaluating the Chief Executive Officer’s
performance; and}} the regular and continuing review of executive succession planningand executive development activities.

Role of Company Secretary

The performance evaluation process is set out in ANZ’s Board
Renewal and Performance Evaluation Protocol.

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 andwhen required. He works closely with the Chair of the GovernanceCommittee and the Company Secretary to develop and maintain
ANZ’s corporate governance principles, and is responsible to theBoard for the Company Secretary’s Office function.

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 guide fordiscussion to ensure consistency. When considering the Director’s
meeting attendance record during the previous year and also theirother roles outside ANZ, the Chairman reviews generally whether
the Director has sufficient time to properly carry out their duties as
an ANZ Director and more specifically whether they are making asufficient time commitment to their role at and outside meetings.
A report on the outcome of these performance evaluations isprovided to the Governance Committee and to the Board; and}} Re-election statement – when nominating for re-election,
Non‑Executive Directors are given the opportunity to submit awritten or oral statement to the Board setting out their reasons forseeking re-election. In the Non-Executive Director’s absence, theBoard evaluates this statement (having regard to the performance
criteria) and also considers their capacity to commit the necessary
time to their role as a Director before deciding whether to endorse
the relevant Director’s re-election.

The Company Secretary is responsible for the day-to-day
operations of the Company Secretary’s Office including lodgementswith 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, and oversight of therelationship with ANZ’s Share Registrar.
Profiles of ANZ’s Company Secretaries can be found in the Directors’
Report on pages 9 to 10.

CORPORATE GOVERNANCE

59

CORPORATE GOVERNANCE (continued)

Chairman of the Board
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.

Senior Management
Details of how the performance evaluation process is undertakenby the Board in respect of the Chief Executive Officer and otherkey Senior Management, including how financial, customer,
operational and qualitative measures are assessed, are set out in
the Remuneration Report on pages 30 to 39.

The Chair of the Governance Committee collates the input in order toprovide an overview report to the Governance Committee and to theBoard, as well as feedback to the Chairman of the Board.

Review Processes Undertaken
Board, Director, Board Committee and relevant Senior Management
evaluations in accordance with the above processes have been
undertaken in respect of the 2013 financial year.

The Board
On a periodic basis, the performance of the Board is assessed using
an independent external facilitator. The facilitator seeks input fromeach Director and certain members of senior management whencarrying out the assessment.
The assessment is conducted in accordance with broad terms ofreference agreed by the Governance Committee. The results ofsuch assessment are discussed with the Chair of the GovernanceCommittee and together with any recommendations, are presented
to the Governance Committee and the Board. The last externallyfacilitated review took place in 2011, and it is expected that externallyfacilitated reviews of the Board will occur approximately every
three years. The review process in the intervening years (including
with respect to the year ended 30 September 2013) is conductedinternally based on input sought from 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.
During the year, the Governance Committee considers assessments
by a number of independent bodies regarding the Board and its
performance. The Chair of the Governance Committee reports any
material issues or findings from these evaluations to the Board.
Board Committees
Each 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; and}} the 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.

60

Board Committees
As set out on page 56 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
additional and more focused time on specific issues. The Board has
five principal Board Committees: Audit Committee, GovernanceCommittee, Human Resources Committee, Risk Committee andTechnology Committee.
Membership and AttendanceEach 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. 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 meeting of
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.

ANZ ANNUAL REPORT 2013

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.
Audit Committee
The Audit Committee is responsible for reviewing:}} ANZ’s financial reporting principles and policies, controls andprocedures;}} the effectiveness of ANZ’s internal control and risk management
framework;}} the work of Global Internal Audit which reports directly to the Chairof the Audit Committee (refer to Global Internal Audit on page 64
for more information);}} reports from major subsidiary audit committees;}} prudential supervision procedures required by regulatory bodies tothe extent relating to financial reporting;}} the integrity of ANZ’s financial statements and the independent
audit thereof, and compliance with related legal and regulatory
requirements; and}} any due diligence procedures.
The Audit Committee is also responsible for:}} the appointment, annual evaluation and oversight of the external
auditor, including reviewing their independence, fitness andpropriety and qualifications;}} compensation of the external auditor;}} where deemed appropriate, replacement of the external
auditor; and}} reviewing 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 2013 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.
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 2013 financial year included:}} Global Internal Audit and External Audit – the Committee approved
the annual plans for Global Internal Audit and External Audit
and kept progress against those plans under regular review.
Adjustments to the Global Internal Audit Plan were made during
the year to accommodate 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;}} Whistleblowing – the Committee received and reviewed
information on disclosures made under ANZ’s Global
Whistleblower Protection Policy; and}} Charter Review – the Committee reviewed and recommended to
the Governance Committee for approval proposed changes to the
Audit Committee Charter.

CORPORATE GOVERNANCE

61

CORPORATE GOVERNANCE (continued)

Governance Committee
The Governance Committee is responsible for:}} identifying and recommending prospective Board members andensuring appropriate succession planning for the position of
Chairman (see page 57);}} ensuring there is a robust and effective process for evaluating theperformance of the Board, Board Committees and Non-Executive
Directors (see pages 59 to 60);}} 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 57);}} ensuring an appropriate Board and Board Committee structure isin 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; and}} approving corporate sustainability objectives for ANZ, andreviewing progress in achieving them.
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 2013 financial year included:}} Board succession planning – the Committee monitored theprocess in place to identify potential candidates to replace theNon-Executive Directors who are scheduled to retire in late 2013
(together with the succession planning process for the Chairmanof the Board). Mr Liebelt was appointed as a Non-Executive Director
with effect from 1 July 2013;}} Diversity – the Committee reviewed progress against themeasurable objective for Board gender diversity set for 2012/2013
and approved a new 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 reviews of
the Board, Chairman of the Board, Non-Executive Directors andBoard Committees;}} Board and Committee performance evaluations – the Committee
reviewed the major themes arising from the annual Board
performance review process and received a report on the outcomeof the Board Committee review process; and}} Review 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, andDirector Independence Criteria.
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:}} remuneration matters relating to the Chief Executive Officer (details
in the Remuneration Report on pages 28 to 50);}} remuneration matters, including incentive arrangements, for other
Board Appointees (other than the Group General Manager, Global
Internal Audit);}} the design of remuneration structures and significant incentive
plans; and}} the Group’s Remuneration Policy.
In addition, the Committee considers and approves the appointmentof Board Appointees (other than the Group General Manager, Global
Internal Audit), approves clawback processes and outcomes, reviews
senior executive succession plans, and monitors the effectiveness of
ANZ’s health and safety, culture, engagement 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.

ANZ Board Committee Memberships – as at 30 September 2013
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

Ms P J Dwyer

Ms P J Dwyer

Mr G R Liebelt

Mr I J Macfarlane

Mr J P Morschel (ex officio) Mr P A F Hay

Mr Lee Hsien Yang

Mr D E Meiklejohn
Mr J P Morschel (ex officio)

Ms A M Watkins FE

Mr Lee Hsien Yang

Mr G R Liebelt

Mr J P Morschel (ex officio)

Mr G R Liebelt

Mr D E Meiklejohn

Mr J P Morschel (ex officio) Mr J P Morschel (ex officio)
C – Chair62

FE – Financial Expert

ANZ ANNUAL REPORT 2013

Substantive areas of focus in the 2013 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
and globally;}} 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 thecompensation structure for the Chief Executive Officer and Senior
Management. The Committee also agreed with the Board thecontractual 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;}} Health, 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; and}} Employee Engagement and Culture – the Committee reviewed theannual employee engagement results and action plan and also thecultural alignment with ANZ Strategy and Values.
For more details on the activities of the Human Resources Committee,
please refer to the Remuneration Report on pages 28 to 50.
Risk Committee
The Board is principally responsible for approving the Group’s risk
appetite and risk tolerance, related strategies and major policies, forthe oversight of policy compliance, and for the effectiveness of therisk and compliance management framework that is in place.

The Committee is also authorised to approve credit transactions andother related matters beyond the approval discretion of the Chief
Risk Officer.
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.
Substantive areas of focus in the 2013 financial year included:}} 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 the moresignificant exposures;}} Market, Funding and Liquidity Risk – the Committee received
regular updates on the Group’s exposures and responses tochanges in market conditions;}} Operational Risk and Compliance – the Committee received regular
updates on the Group’s approach and policy implementation in
response to market developments; and}} Business updates – the Committee received updates frombusinesses across the Group.
A risk management and internal control system to manage ANZ’smaterial business risks is in place, and Management reported to theBoard 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
295A of the Corporations Act is founded on a sound system ofrisk management and internal control and that the system isoperating effectively in all material respects in relation to financial
reporting risks.
For further information on how ANZ manages its risks arisingfrom financial instruments, please see the disclosures in relation
to AASB 7 ‘Financial Instruments: Disclosures’ in the notes to thefinancial statements.

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
and reputational risk management and for the oversight of the
management of ANZ’s compliance obligations.

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

11

10

A

B

P J Dwyer

11

11

6

6

P A F Hay

11

11

6

6

Lee Hsien Yang

11

11

G R Liebelt

3

3

I J Macfarlane

11

11

6

6

D E Meiklejohn

11

11

6

6

J P Morschel

11

11

6

6

M R P Smith

1111

A M Watkins

11

11

6

6

GovernanceCommittee
A

4

4
4
4

B

4

Human
Resources
Committee

4Technology
Committee

Executive
Committee1

B

A

B

A

B

5

5

8

8

4

4

5

5

8

8

5

5

5

5

8

8

4

4

2

2

2

2

1

1

8

8

8

8

4

4

1

1

8

8

4

4

3

5
5

5
5

A

B

SharesCommittee1

A

3
4

Risk
Committee

A

Committeeof the Board1

B

A

B

1

1

2

2

1

1

2

2

1

1

6

6

3

6

6

1

1

6

6

1

1

1

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.

CORPORATE GOVERNANCE

63

CORPORATE GOVERNANCE (continued)

For further information on risk management governance and ANZ’s
approach in relation to risk oversight and the management ofmaterial business risks, please see the Corporate Governance sectionof anz.com.
Technology Committee
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:}} monitoring that appropriate key technology related controls arein place;}} approving the technology strategy of ANZ;}} making recommendations to the Board regarding and monitoringmaterial technology investments;}} reviewing and monitoring the progress of the strategic andoperating plans for the management and control of technology
activities and services; and}} the approval and monitoring of ANZ’s information and technology
security strategy.
The Chief Information Officer 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 2013 financial year included:}} 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 progress of
ANZ’s Technology strategy. During the year the Committee visited
the US and met with some of the world’s leading technologybased organisations to discuss the role of technology in driving
competitive advantage;}} Investment – the Committee reviewed Management’s progress indelivering the business investment agenda; and}} Information Security – the Committee monitored the continuing
process of improving information security capability to address
constantly evolving security threats and increasing regulatory
requirements.
Additional Committees
In 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 Acquisition Plan and Share
Option Plan). The Board also forms and delegates authority toad-hoc Committees of the Board as and when needed to carry out
specific tasks.

64

Audit and Financial Governance
Global Internal Audit
Global Internal Audit is a function independent of Management andits role is to provide the Board and Management with an efficient andindependent appraisal of the internal controls established by ANZ’s
first (business) and second (Group and Divisional risk and financefunctions) lines of defence. Operating under a Board approved
Charter, the reporting line for the outcomes of work conducted by
Global Internal Audit is directly and solely to the Chair of the Audit
Committee, with a direct communication 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
promulgated by the professional auditing bodies, and the results
thereof are reported to the Audit Committee, Risk Committee andManagement. These results influence the performance assessmentof business heads.
Furthermore, Global Internal Audit monitors the remediation of audit
issues and highlights the current status of any outstanding audits.
External Audit
The external auditor’s role is to provide an independent opinion that
ANZ’s financial reports are true and fair and comply with applicableregulations. The external auditor performs an independent audit inaccordance 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 the appointment (subject to
ratification by shareholders) and also the compensation, retention
and oversight of the external auditor.
The Stakeholder Engagement Model also stipulates that the
Audit Committee:}} pre-approves all audit, audit related and non-audit services onan engagement by engagement basis or pursuant to specificpre‑approval policies adopted by the Committee;}} regularly reviews the independence of the external auditor; and}} evaluates the effectiveness of the external auditor.
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; and}} the external auditor should not act as an advocate of ANZ.

ANZ ANNUAL REPORT 2013

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 2013 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’ Reporton 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 Controls
The 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 governance framework which evaluates
the design and tests the operational effectiveness of key financial
reporting controls. In addition, half-yearly certifications arecompleted 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.
Any material issues arising from the evaluation and testing
are reported to the Audit Committee. This process assists theChief Executive Officer and Chief Financial Officer in making thecertifications to the Board under the Corporations Act and ASX
Governance Principles as referred to in the Directors’ Report on
page 10.

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 tohelp them make decisions in their day to day work. Having two Codes
recognises the different responsibilities that Directors have under 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 maintain a 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; and}} we 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 Policy;}} ANZ Use of Systems, Equipment and Information Policy;}} ANZ Fraud Policy;}} ANZ Expenses Policy;}} ANZ Equal Opportunity, Bullying and Harassment Policy;}} ANZ Health and Safety Policy;}} Conflict of Interest Policy;}} Trading in ANZ Securities Policy;}} Trading in Non-ANZ Securities Policy;}} ANZ Anti-Bribery and Anti-Corruption Policy; and}} ANZ Whistleblower Protection Policy.
Leaders are encouraged to run sessions for new direct reports andensure they, in turn, brief their teams where required on ANZ’svalues and ethical decision making within the team. The sessions
are designed 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 with theprinciples of the Employee Code, including key relevant extracts ofthe policies set out above.

CORPORATE GOVERNANCE

65

CORPORATE GOVERNANCE (continued)

To support the Employee Code of Conduct and Ethics, ANZ’s
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 theCode that leads to a consequence (such as a warning) will result in an
unacceptable risk/compliance/behaviour flag being given at the timeof the performance assessment. A flag must be taken into accountwhen determining an employee’s performance and remuneration
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 Trading
The Trading in ANZ Securities Policy prohibits trading in ANZ
securities by all employees, Directors and contractors who are awareof information that could be reasonably expected to have a material
or significant effect on the price or value of an ANZ security andwhich is not generally available.
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.
ANZ Directors and Management Board members are also prohibitedfrom using ANZ securities in connection with a margin loan or similar
financing arrangement which 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 and contractors canraise concerns regarding actual or suspected contraventions of
ANZ’s ethical and legal standards 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 hotline.

66

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.
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 ina timely fashion through ANZ’s reporting of results, the Annual
Report, the Shareholder 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 businesspractices, and recognises the impact of quality disclosure on thetrust and confidence of shareholders, the wider investor market andthe community. To this end, ANZ, outside of its scheduled results
announcements, issued additional Trading Updates to the market
during the 2013 financial year.
Should shareholders require any information, contact details for
ANZ and its Share Registrar are set out in ANZ’s Annual Report, the2013 Shareholder Review, the half yearly shareholder newsletter andthe 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 aroundcapital cities 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 > Menu > Investor guide > Investor presentations. Prior to theAnnual General Meeting, shareholders are given the opportunity tosubmit 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
and available 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 from 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.

ANZ ANNUAL REPORT 2013

Continuous Disclosure
ANZ’s practice is to release 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’smedia releases, website and other appropriate channels.
Through ANZ’s Continuous Disclosure Policy, ANZ demonstrates its
commitment to achieving best practice in terms of disclosure byacting in accordance with the spirit, intention and purposes of theapplicable 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 effecton the price or value of ANZ’s securities. Designated Disclosure
Officers have responsibility for reviewing proposed disclosures andmaking decisions in relation to what information can be or should
be disclosed to the market. Each ANZ employee is required to
inform a 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 to review
the effectiveness of ANZ’s systems and procedures for achieving
compliance with applicable regulatory requirements in relation to thedisclosure of price-sensitive information. This Sub-Committee reports
to the Governance Committee of the Board on an annual basis.

Corporate Sustainability
ANZ aims to be a role model for responsible business growth andbehaviour as it pursues its goal of becoming a super regional bank.
ANZ’s purpose is to achieve sustainable growth and prosperity for
its customers, shareholders and people and the communities inwhich ANZ operates. ANZ’s well established Corporate Sustainability
Framework, launched in 2009, supports its purpose.
During 2013, ANZ reviewed its Corporate Sustainability Framework,
taking into account issues of importance to ANZ and its stakeholders
and the areas in which it can achieve greatest impact. Following
review, ANZ’s realigned framework distinguishes between ‘Enhanced
Value’ – areas of the sustainability agenda distinctive to ANZ that could
offer competitive advantage – and fundamental responsibilities that
determine ANZ’s ‘Licence to Operate’.
Enhanced Value contributes to ANZ’s commercial value and isdelivered through:}} Sustainable development – integrating social and environment
considerations into business decisions, products and services tohelp customers achieve their sustainability ambitions and deliver
long term value for stakeholders.
Working with institutional and commercial clients in this way
benefits ANZ customers, strengthens business relationships andopportunities and reduces ANZ’s reputational and commercial risk.

}} Diversity and inclusion – building the most diverse and inclusive
workforce of any major bank in the region.
ANZ employees come from more than 230 different cultural
backgrounds. Diversity assists ANZ to innovate, identify newmarkets, connect with customers effectively and make better, more
informed decisions.
}} Financial inclusion and capability – building the financial capabilityof people across the region to promote financial inclusion andprogression of individuals and communities.
Delivery of financial education programs to the employees of
ANZ institutional and commercial clients strengthens business
relationships and opportunities. Delivery to low income andexcluded groups in many of the countries in which ANZ operates
supports business expansion plans as financial inclusion andbuilding financial capability is a policy aim of many governments.
Financially capable retail customers hold more financial products.
ANZ’s Licence to Operate activities include commitments to ensuringthat ANZ’s customers, people and suppliers, and the communities
and environment in which it operates, are treated in a manner
befitting a responsible corporate citizen.
The Corporate Sustainability and Diversity Committee is chairedby the Chief Executive Officer. It provides strategic leadership on
ANZ’s corporate sustainability agenda and monitors progress andresults. The Committee reports to the Management Board andBoard Governance Committee. Each year, ANZ sets public targets
and a business-wide program of work to respond to key issues andopportunities. This year ANZ achieved or made strong progress on
80% of its public targets. Detail is reported in ANZ’s 2013 Shareholder
Review and 2013 Corporate Sustainability Review.
In 2013 ANZ was again assessed the global banking sector leader inthe Dow Jones Sustainability Index (DJSI). This is the sixth year in thepast seven that ANZ has received this assessment. The Dow Jones
Sustainability Index assessment tracks the approach and performanceof companies across a broad range of criteria such as corporate
governance, risk management, codes of conduct and compliance,
environmental management and reporting, products and services,brand management, HR practices and policies, stakeholder
engagement and community investment. ANZ performed strongly
across all criteria, with particularly notable ratings for risk and brandmanagement, policies and initiatives to create a diverse and highly
engaged workforce and investment in building financial capability
and inclusion in Australia, New Zealand and Asia-Pacific.
ANZ keeps interested stakeholders abreast of sustainability
developments through a monthly e-bulletin, and annual and interim
Corporate Sustainability reporting. ANZ follows the guidelines of the
Global Reporting Initiative for its full online corporate sustainability
reporting. Detailed information on ANZ’s approach and results isavailable on anz.com > About us > Corporate Responsibility.

CORPORATE GOVERNANCE

67

CORPORATE GOVERNANCE (continued)

Diversity at ANZ

Directors would include at least one woman. This objective has beenachieved as evidenced by the appointment of Ms Dwyer in April
2012. The Board has now set a new objective which is to increase
the number of women on the Board over time as vacancies arise
following completion of the current succession process.

Gender Balance and Diversity at ANZ
Having the best connected and most respected workforce is a key‘people’ foundation for achieving ANZ’s goals. ANZ is focused on
attracting, valuing and capitalising on the inherent strength ofa vibrant, diverse and inclusive team to innovate, connect withcustomers and make better, more informed decisions for its business.

ANZ has three women on its Management Board: the CEO Global
Wealth & Group Managing Director Marketing, Innovation & Digital;
the Chief Information Officer; and the Group Managing Director
Human Resources. At Senior Executive and Executive levels, 22.2%
of leadership positions are held by women.

Gender Balance at Board, Senior Executive andManagement Levels
ANZ’s Board currently comprises ten Directors including two women– 20% of the Board. This figure will increase to 25% following theretirement of two Non-Executive Directors at the time of the 2013
AGM at which point the Board will comprise eight Directors.

Overall representation of women in management remains relatively
steady at 38.7% (including those on Parental Leave), and 44.3% in
ANZ’s Australia Division. A low employment growth environment,
together with challenges accessing balanced candidate pools insome geographic and some business areas has slowed ANZ’s progressin achieving its targets, however improvements in particular occurredat senior management from 28.1% to 30.6%.

Ms Watkins and Ms Dwyer joined the Board as Non-Executive Directors
in November 2008 and April 2012 respectively. Ms Watkins is Chairof the Human Resources Committee and a member of the Audit
Committee and Governance Committee. Ms Dwyer is a member of the
Audit Committee, Risk Committee and Human Resources Committee.

Targets and Progress for Improving Outcomes in
Gender Equality
Annual public targets have been set for women in management
since 2004. Progress and results for 2013 are set out below including
a more detailed breakdown on progress in ANZ’s Senior Executiveand Executive ranks, in line with work undertaken by the MaleChampions of Change initiative to improve the consistency and detailof reporting on women in management in Australia. These senior
roles typically involve leading countries, large businesses, operations
or projects, and/or strategy, policy and governance in specific areas
for the Group.

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 unless invited by the Board to extend theirtenure due to special circumstances. In accordance with this policy,
Mr Meiklejohn and Dr Clark will retire at the time of the 2013 AGM
and Mr Morschel will retire following completion of the succession
process relating to the Chairman of the Board. The objective
previously set by the Board in relation to Board gender diversity
was that the new Directors appointed to replace the retiring
Group

Senior Executives and Executives1

2012 Baseline
2013 Target(excludes employees
on Parental Leave)

23.9%

24.9%

2013 Actual %of women*2013 Actual
numberof women*

22.2%

190

• CEO-1: Direct reports to the CEO

23.1%

3

• CEO-2: Direct reports to CEO-1

30.9%

25

• CEO-3: All other Group 1 Senior Executives

20.8%

20

21.4%

142

Senior Manager2• CEO-4: All other Group 2 Executives
28.1%

29.1%

30.6%

604

Manager3

39.7%

40.6%

40.6%

6,457

Total women in management4

37.8%

38.8%

38.7%

7,251

Non-Management5

64.4%

64.6%

18,968ANZ Overall

54.2%

54.6%

26,219Notes* Includes employees on Parental Leave. Parental Leave data is available for Australia, New Zealand and Bangalore employees only.
1 Senior Executives and Executives comprise persons holding roles within ANZ designated as Group 1 and 2 respectively.
2 Senior Manager comprises persons holding roles within ANZ designated as Group 3.
3 Manager comprises persons holding roles within ANZ designated as Group 4.
4 Total women in management represents all roles within ANZ designated as Group 1 to 4.
5 Non-Management comprises persons holding roles within ANZ designated as Group 5 and 6.

682014 Target*

39.7%

ANZ ANNUAL REPORT 2013

Leadership, Governance and Accountability
The ANZ Chairman is actively involved in the Australian Institute ofCompany Directors Chairmen’s Mentoring Program to advance more
women into Board positions. CEO Michael Smith is a member of theMale Champions of Change program convened by the AustralianSex Discrimination Commissioner, Elizabeth Broderick, in April 2010.
The program encourages and supports male CEOs and Directors
to use their individual and collective influence to ensure the issuesof gender equality and women’s representation in leadership areelevated on the national Australian business agenda.

Progress on 2013 publicly stated gender balance and diversity goals

Status

Improve employee engagement to at least 73%, with along term target of 83%.

Partially
achieved1

Improve perceptions of ‘values-based leadership’amongst ANZ employees to at least 70%, with a longterm target of 80%.

Achieved

Achieve a 1% increase in the representation of womenin management in 2013, with a medium term goal of
40% and a long term target of 45% representation.

Did notachieve

The Human Resources Committee plays an important role in relation
to ANZ’s people strategy, remuneration strategy and approachto gender balance and diversity. This includes annual reviews ofprogress on gender balance and diversity priorities (other thangender diversity matters in connection with the Board, which
are the responsibility of the Governance Committee), succession
planning and overall representation of women in management.
The Human Resources Committee also reviews annual performanceand remuneration outcomes to ensure there is no unconscious orsystemic bias in related processes and outcomes.

Achieve gender balance and greater cultural diversity
in ANZ’s key recruitment, talent development andlearning programs.

Achieved

Play a leadership role in advancing women insociety and improving cultural diversity in businessthrough high profile business, government andcommunity partnerships.

Achieved

Provide 230 positions to people from traditionally
excluded groups and disadvantaged backgrounds
through ANZ’s traineeships, graduate program andpermanent employment.

Achieved

Develop and commence implementation of a
global approach to improving age diversity across
ANZ’s business.

In progress

Publicly report outcomes of ANZ’s current
Reconciliation Action Plan and Disability Action Plan.

Partially
achieved2

Management Board sets annual CEO and Group shared targets
for improving the representation of women in management, andcreating a vibrant, diverse and inclusive culture. Progress is reviewed
monthly and results inform performance bonus outcomes.
The Corporate Sustainability and Diversity Committee which ischaired by the CEO and meets five times per year is responsible
for advising the ANZ Board and Management Board on corporate
sustainability and diversity, setting diversity strategies, policies andtargets and monitoring progress. In 2013, the Committee determinedthat ‘Building the most diverse and inclusive workforce in our region’should be one of three sustainability priorities to be pursued by ANZ
over the coming years.
Building a Vibrant, Diverse and Inclusive Workforce
ANZ has prioritised building a vibrant, diverse and inclusive work
environment for all employees regardless of gender, age, ethnicity,
cultural background, disability, religion, sexual orientation, marital
status and caring responsibilities.
In 2013, ANZ conducted a comprehensive review of its workforce
diversity. The survey revealed that ANZ employees come from morethan 230 different cultural backgrounds, 43% identify with an Asian
cultural background and, regardless of gender or other diversity
grouping, there are no material differences in levels of engagement.
Globally, 88% of employees agreed or strongly agreed that their
manager treats them with respect, while 89% agreed or strongly
agreed ANZ is creating a workforce that is open and accepting ofindividual difference.

1 ANZ achieved an improvement in employee engagement to 72%, on track for ANZ’s longterm target.
2 ANZ reported on its Accessibility and Inclusion Plan (formerly Disability Action Plan) in
May 2013. ANZ will refresh its Indigenous Action Plan (formerly Reconciliation Action Plan)in December 2013, reporting on outcomes achieved through the current plan.

Prevention of Sex-Based Harassment and Discrimination
ANZ reviews its Equal Employment Opportunity (EEO) policies andtraining annually to ensure they are up-to-date and proactively
educating employees and their managers on harassment, bullying
and victimisation for sex-based issues. All ANZ employees are
required to complete EEO training on an annual basis, and reported
incidents related to sexual harassment, bullying and victimisation for
sex-based issues are carefully tracked and managed.
Recruitment, Progression and Development Practices
ANZ aims to achieve gender balance and diversity in its key
recruitment, talent development and learning programs to ensure
it is building a strong pipeline of men and women leaders for the
future. For example, ANZ’s 2014 graduate intake is 50% women and
24% of the total intake speaks an Asian language; one graduate
has a self-disclosed disability and four graduates are from an
Indigenous background. ANZ’s latest intake of the Generalist Banker
accelerated development program has 45% women and 73% of
all participants speak an Asian language. Of the participants in the
Building Enterprise Talent program, 50% are women and 60% of allparticipants have had more than three years international experience.
45% of participants in the Leadership Pathway training programs
are women.

CORPORATE GOVERNANCE

69

CORPORATE GOVERNANCE (continued)

Pay Equity
ANZ tracks progress in achieving pay equity across the organisation.
The gender pay differential between males and females (basedon like-for-like job size) continues to be minimal, with further
reductions achieved in 2013. Annual reviews of ANZ’s performanceand remuneration outcomes occur to ensure balance and parity,with absolute performance outcomes and relative performanceassessments (which inform remuneration outcomes) being equitably
applied between males and females.
Parental Leave and Flexible Work Arrangements
ANZ offers flexible work arrangements, breaks from work and othersupport in special circumstances to help balance life priorities withwork and to manage careers. Considerable work was completed
in 2013 to enhance ANZ’s flexible working policies and support
resources, and build awareness and profile of key leaders (male andfemale) who are role models of flexible working. The 2013 employee
survey showed that 82% of employees believe ANZ supports theirefforts to balance their work and personal commitments.
Recognition and Support For Equality and Inclusion in
ANZ’s Communities
In 2013 ANZ was again assessed by the Dow Jones Sustainability
Index as the leading bank globally, including specific recognition
for its gender balance and diversity progress. ANZ also continues tobe recognised as an Employer of Choice for Women by WGEA – theAustralian Government’s Workplace Gender Equality Agency. In
New Zealand ANZ was recognised by the United Nations Women
National Committee for excellence in Equal Opportunity andNon‑discrimination.
ANZ partners and/or participates in the Male Champions of Change
initiative; Chief Executive Women; and Melbourne Business School’s
Gender Equality Project. ANZ is a founding member of the annual
Sustaining Women in Business conference and the Diversity Councilof Australia; a member of Pride in Diversity and the Australian
Network on Disability; and it supports the Australian Government’s‘Racism, it stops with me’ program.
Future Goals
Building the most diverse and inclusive workforce of any major bankin our region.
2014 Gender Balance, Diversity and Inclusion Goals:

Improve employee engagement to at least 74%.
Improve perceptions of ‘values-based leadership’ amongst ANZ
employees to at least 73%.
Increase the representation of women in management by 1%
and achieve gender balance in ANZ’s key recruitment, talent andleadership programs.
Employ 230 people through ANZ’s traineeships, graduate
program and permanent employment from disadvantaged andunder‑represented groups to enhance diversity and support
economic and social inclusion in ANZ’s communities.
Achieve 80% favourable perceptions of ‘Involvement andEmpowerment’ in ANZ’s employee survey as a measure of ANZ’s
progress in building a diverse and inclusive workforce.

70

Community Investment
ANZ has made a long term public commitment to invest in
the communities in which it operates and contributed around$15.1 million in cash, time and in-kind services during the year ended
30 September 2013. Adding ‘foregone revenue’ such as the cost ofproviding low or fee free accounts to government benefit recipients,
ANZ’s total contribution amounted to over $65.1 million.
Building financial inclusion and capability is a key element of ANZ’s
Corporate Sustainability framework, targeting especially thosein disadvantaged communities who are most at risk of financial
exclusion. For this reason approximately $4.7 million was invested inprograms designed to build money management skills and savings:
Saver Plus, MoneyMinded and MoneyBusiness. MoneyMinded isthe most widely used financial literacy program in Australia. In 2013
MoneyMinded received a MoneySmart Award for “Outstanding
Achievement” in the Community category, reflecting its effectivenessand the success of the corporate and community partnershipapproach to program delivery.
MoneyMinded has been adapted for use in Asia and the Pacificand is now delivered in 17 countries in which ANZ operates. RMIT
University estimates that since 2003, more than 240,000 people havecompleted MoneyMinded.
ANZ supports many community causes and organisations throughits Giving, Investing, Volunteering and Emergency (GIVE) program.
This highlights the ways ANZ contributes to local communities
by giving donations to charities, investing in partnerships with
community organisations, volunteering skills and time to support
community causes and responding to emergencies throughsupporting disaster relief and recovery activities. This year ANZ
contributed over $900,000 to communities affected by natural
disasters in the locations in which it operates.
ANZ offers all staff at least one day of paid volunteer leave per year
to make a difference in their local communities. In the past year,
ANZ staff volunteered more than 89,000 hours. A number of staff
contribute to non-profit organisations through workplace giving,which ANZ matches dollar for dollar.
Further details can be accessed at anz.com/cr.

Political Donations
For the year to 30 September 2013, ANZ donated $150,000 to the
Liberal Party of Australia and $75,000 to the Australian Labor Party.

ANZ ANNUAL REPORT 2013

SECTION 2
Financial Statements
Income Statement
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 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
89
91
92
93
94
95
96
97
97
97
97
104
105
106
106
108
109
110
111
111
112
113
113

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 Transfers of Financial Assets
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
Directors’ Declaration and Responsibility Statement
Independent Auditor’s Report

SECTION 2

114
114
115
116
118
120
121
124
125
147
155
156
159
161
162
163
164
164
165
168
173
178
182
182
186
186
187
188

71

FINANCIAL STATEMENTS
INCOME STATEMENT FOR THE YEAR ENDED 30 SEPTEMBER

Consolidated

Interest income
Interest expense

Note

2012
$m

2013
$m

2012
$m

3
4

28,627(15,869)

30,538(18,428)

25,513(16,149)

27,340(18,372)

12,758

12,110

9,364

8,968

4

3,775
1,431
482
18,446(8,236)

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

5,186
203
–
14,753(6,505)

5,015
207
–
14,190(6,715)16

10,210(1,188)

9,192(1,198)

8,248(1,132)

7,475
(985)

9,022

7,994

7,116

6,490

6

(2,740)(2,327)(1,770)(1,615)

6,282

5,667

5,346

4,875

(10)
6,272

(6)
5,661

–
5,346

–
4,875

231.3
224.4
164

213.4
205.6
145

n/a
n/a
164

n/a
n/a
145

Net interest income
Other operating income
Net funds management and insurance income
Share of associates’ profit
Operating income
Operating expenses
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 186 form an integral part of these financial statements.

72

The Company

2013
$m

8
8
7

ANZ ANNUAL REPORT 2013

STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 SEPTEMBER

Consolidated
2012
$m

2013
$m

2012
$m

6,282

5,667

5,346

4,875

28

(54)

(19)

(35)

(14)

10

(2)

6

30

1,712

(416)

234

(174)

30

13
3

259
(246)

32
4

153
(171)

30

(186)
–
18

43
17
(31)

(78)
24
–

32
27
–

–
(7)
52

(1)
(17)
(17)

–
(20)
16

–
4
(17)

Note

Profit for the year
Other comprehensive income
Items that will not be reclassified subsequently to profit or loss
Actuarial gain/(loss) on defined benefit plans
Income tax on items that will not be reclassified subsequently to profit or loss
Actuarial gain/(loss) on defined benefit plans
Items that may be reclassified subsequently to profit or loss
Foreign currency translation reserve
Exchange differences taken to equity
Available-for-sale assets
Valuation gain/(loss) taken to equity
Transferred to income statement
Cash flow hedges
Valuation gain/(loss) taken to equity
Transferred to income statement
Share of associates’ other comprehensive income1
Income tax on items that may be reclassified subsequently to profit or loss
Foreign currency translation reserve
Available-for-sale assets revaluation reserve
Cash flow hedge reserve

The Company

2013
$m

44

Other comprehensive income net of tax

1,619

(453)

191

(175)

Total comprehensive income for the year

7,901

5,214

5,537

4,700

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

15
7,886

3
5,211

–
5,537

–
4,700

1 Share of associates’ other comprehensive income for 2013 is comprised of available-for-sale assets $18 million (2012: $(28) million), foreign currency translation reserve$(1) million (2012: $1 million) and cash flow hedge reserve $1 million (2012: $(4) million).
The notes appearing on pages 78 to 186 form an integral part of these financial statements.

FINANCIAL STATEMENTS73

Balance Sheet as at 30 September

Consolidated

The Company

2013
$m

2012
$m

2013
$m

2012
$m

39,737
22,17741,28845,87828,135469,295
2,106
–
–
4,123
20
721
7,690
32,0837,574
2,164

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

33,83818,947
31,46441,011
23,823
372,467990
71,354
14,955
841
18
936
2,124
–
5,246
983

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

702,991

642,127

618,997

573,00736,306439,674
47,509–972
1432,3883,511
12,594
1,228
70,376
12,80430,538397,123
52,639–781
1829,537
3,949
10,1091,201
63,098
11,91434,149359,01341,82764,649
882
12
–
–
9,545
825
56,96812,06228,394
333,536
46,04757,729
726
12
–
–
7,554
745
49,975
11,246

Total liabilities

657,376

600,907579,932

535,964

Net Assets

45,61541,22039,06537,04323,641871(907)
21,94823,070871(2,498)19,72823,914871(473)
14,75323,350871(686)
13,508

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

45,5536241,171
49

39,065–37,043–

Total shareholders' equity

45,61541,22039,06537,043

Note

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 assets1
Investments relating to insurance business
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 (insurance funds)
Payables and other liabilities
Provisions
Bonds and notes
Loan Capital

Shareholders' equity
Ordinary share capitalPreference share capital
Reserves
Retained earnings

1 Excludes notional goodwill in equity accounted entities.
The notes appearing on pages 78 to 186 form an integral part of these financial statements.

74

22
23
12
24
24
48
25
26
27
28

29
29
30
30

ANZ ANNUAL REPORT 2013

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
Other operating expenses paid1
Income taxes (paid)/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)/income received
Cash flows from operating activities before changes in operating assets and liabilities
Changes in operating assets and liabilities arising from cash 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 assets2
Proceeds from sale/maturity of insurance assets
Increase/(decrease) in operating liabilities:
Deposits and other borrowings2
Due to other financial institutions
Payables and other liabilities
Changes in operating assets and liabilities arising from cash 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

37(A)

37(C)
37(C)

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
Share buyback

The Company

2013
$m

2012
$m

2013
$m

2012
$m

28,752(16,333)
114
9,616(7,351)(2,494)30,421(18,827)80
7,432(7,890)(2,835)25,706(16,613)
1,340
9,437
(5,874)(2,043)27,255(18,742)
1,437
6,300
(6,509)(2,454)

6,093
198(4,983)
(446)

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

152
–
–
51

150
–
–
58

13,166

9,547

12,156

7,495

(72)
674
768
(28,952)–435(4,256)(4,589)(32,748)
–

860
746
(736)
(24,295)(3,734)419(3,886)(2,275)(28,592)(283)(3,505)
4,341(6,917)
7,866

–
–

–
–

27,184
3,033
969

32,6304,184
209

23,6684,283
929

30,834
4,836
441

4,440

(3,186)

1,721

1,494

17,606

6,361

13,877

8,989(16,320)
10,224(30,441)
31,200(12,944)
8,042(28,558)
28,839

(2)
81

(1)
18

(484)
25

(327)
36

(356)
–
(1,234)

(319)
20
(702)

(354)
–
(507)

(264)
–
(473)

(7,607)(225)(6,222)(747)

18,895(19,773)

24,352(15,662)

16,658(15,766)

19,442(12,038)

1,868(1,465)(3,226)
30
(425)

2,724
(2,593)(2,219)60–

1,869(1,465)(3,239)
30
(425)

2,502
(2,121)(2,230)60–

Net cash provided by/(used in) financing activities(4,096)

6,662(2,338)5,615

Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Effects of exchange rate changes on cash and cash equivalents

5,903
41,4501,670

12,79830,021(1,369)5,317
36,2681,130

13,85723,651(1,240)49,02341,45042,71536,268Cash and cash equivalents at end of year

37(B)

1 During the year, the Group and The Company reclassified on market share purchases used to satisfy equity-settled share-based payments from financing to operating cash flows(2012: $55 million).
2 During the year, the Group reclassified certain transactions undertaken by the Wealth business in relation to investments in securities issued by entities within the Group in order to better reflect
the nature of the cash flows for the Group (2012: $1,032 million).
The notes appearing on pages 78 to 186 form an integral part of these financial statements.

FINANCIAL STATEMENTS

75

Statement of changes IN equity for the year ended 30 September

Consolidated

As at 1 October 2011

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

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 in theircapacity 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:
Share-based payments/(exercises)
OnePath Australia Treasury sharesGroup share option scheme
Group employee share acquisition scheme
Transfer of options/rights lapsed

–

–

(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)

–
78
60
128
–

–
–
–
–
–

6
–
–
–
(2)

–
–
–
–
2

6
78
60
128
–

–
–
–
–
–

6
78
60
128
–

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

49

41,220

Profit for the year
Other comprehensive income

–
–

–
–

–
1,600

6,272
14

6,272
1,614

10
5

6,282
1,619

Total comprehensive income for the year
Transactions with equity holders in theircapacity 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:
Share-based payments/(exercises)
OnePath Australia Treasury sharesGroup share option scheme
Group employee share acquisition scheme
Group share buyback
Transfer of options/rights lapsed

–

–

1,600

6,286

7,886

15

7,901

–

–

–

(4,088)(4,088)(1)(4,089)

–
843
–

–
–
–

–
–
(10)

20
–
–

20
843
(10)

–
–
(1)

20
843
(11)

–
7
30
116
(425)
–

–
–
–
–
–
–

3
–
–
–
–
(2)

–
–
–
–
–
2

3
7
30
116
(425)
–

–
–
–
–
–
–

3
7
30
116
(425)
–

23,641871(907)

21,94845,55362

45,615As at 30 September 2012

As at 30 September 2013

1 Further information on other comprehensive income is disclosed in note 30 to the financial statements.
The notes appearing on pages 78 to 186 form an integral part of these financial statements.

76

ANZ ANNUAL REPORT 2013

The Company

As at 1 October 2011

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

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 in theircapacity as equity holders:
Dividends paid
Dividend reinvestment plan
Other equity movements:
Share-based payments/(exercises)
Group share option scheme
Group employee share acquisition scheme
Transfer of options/rights lapsed

–

–

(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)

13,50837,043–37,043

–
–
–

–
–
–

–
212
212

5,346
(21)
5,325

5,346
191
5,537

–
–
–

5,346
191
5,537

–
–
843

–
–
–

–
–
–

–
(4,082)––(4,082)
843

–
–
–

–
(4,082)
843

–
30
116
(425)
–

–
–
–
–
–

3
–
–
–
(2)

–
–
–
–
2

3
30
116
(425)
–

–
–
–
–
–

3
30
116
(425)
–

23,914871(473)

14,75339,065–39,065As at 30 September 2012
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Transactions with equity holders in theircapacity as equity holders:
Dividends paid
Dividend reinvestment plan
Other equity movements:
Share-based payments/(exercises)
Group share option scheme
Group employee share acquisition scheme
Group share buyback
Transfer of options/rights lapsed
As at 30 September 2013

1 Further information on other comprehensive income is disclosed in note 30 to the financial statements.
The notes appearing on pages 78 to 186 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 2013 were authorised for issue inaccordance with the resolution of the Directors on 8 November 2013.

There has been no other change in accounting policy during the year.

The principal accounting policies adopted in the preparation of thesefinancial statements are set out below. These policies have been
consistently applied by the Company and all Group entities for all
years presented in these financial statements.

v) Rounding
The Company 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.

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.

vi) Comparatives
Certain amounts in the comparative information have been reclassified
to conform with current period financial statement presentations.

The Company and Group are for-profit entities.
A) BASIS OF PREPARATION
i) Statement of compliance
The financial statements of the Company and Group are general purpose
financial statements which have been prepared in accordance withthe relevant provisions of the Banking Act 1959, Australian AccountingStandards (AASs) and other authoritative pronouncements of theAustralian Accounting Standards Board (AASB) and the Corporations
Act 2001.
International Financial Reporting Standards (IFRS) are Standards andInterpretations adopted by the International Accounting Standards Board(IASB). IFRS forms the basis of AASs. The Group’s application of AASs
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.
Discussion of the critical accounting treatments, which include
complex or subjective decisions or assessments, are covered in note 2.
Such estimates 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 arestated 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; and}} assets and liabilities designated at fair value through profit and loss.
In accordance with AASB 1038 Life Insurance Contracts (AASB
1038), life insurance liabilities are measured using the Margin on
Services model.
In accordance with AASB 119 Employee Benefits (AASB 119),
defined benefit obligations are measured using the Projected Unit
Credit Method.
iv) Changes in Accounting Policy and early adoptions
All new Accounting Standards and Interpretations applicable toannual reporting periods commencing on or before 1 October 2012
have been applied to the Group effective from their required
date of 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.

78

During the current year the reporting treatment of chattel mortgages
changed from ‘hire purchase’ to ‘term loans – non housing’ within
the net loans and advances balance to better reflect the nature of
the asset financing transactions. As a result, 30 September 2012hire purchase was reduced by $7,100 million; unearned income
reduced by $994 million; and term loans – non housing increased by$6,106 million for both the Company and the Group.
vii) Principles of consolidation
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.
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 the otherentity; or}} power to govern the financial and operating policies of the otherentity; or}} power to appoint or remove the majority of the members of theboard of directors or equivalent governing body; or}} power to cast the majority of votes at meetings of the board of
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 toexist where:}} in substance, the majority of the residual risks and rewards fromtheir activities accrue to the Group; or}} in 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).
The effect of all transactions between entities in the Group is eliminated.
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 arecarried at cost less accumulated impairment losses.

ANZ ANNUAL REPORT 2013

1: Significant Accounting Policies (continued)
Associates
The Group applies the equity method of accounting for associates.

When a foreign operation is disposed, exchange differences arerecognised in the income statement as part of the gain or loss on sale.

The Group’s share of results of associates is included in the
consolidated income statement. Shares in associates are carried in the
consolidated balance sheet at cost plus the Group’s share of changes
in post-acquisition net assets less accumulated impairment. Interests
in associates are reviewed for any indication of impairment at leastat each reporting date. Where an indication of impairment exists
the recoverable amount of the associate is determined based on thehigher of the associate’s fair value less costs to sell and its value in use.
A discounted cash flow (DCF) methodology and other methodologies
such as the capitalisation of earnings methodology (CEM) are used todetermine the resonableness of the recoverable amount calculation.

Goodwill arising on the acquisition of a foreign operation is treated as
an asset of the foreign operation and translated at the rate ruling atreporting date.

In the Company’s financial statements, investments in associates arecarried at cost less accumulated impairment losses.
viii) 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
the transactions.
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 in which
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 ruling atreporting 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; and}} all resulting exchange differences are recognised in the foreign
currency translation reserve.

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 of afinancial 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 withrelated 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 asincome 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, net of incremental disposal
costs. This is recognised as an item of other income in the year inwhich the significant risks and rewards of ownership transfer tothe 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 isrecognised as it accrues using the effective interest rate method.
ii) Loan origination expenses
Certain loan origination expenses are an integral part of the effective
interest rate of a financial asset measured at amortised cost. Theseloan origination expenses include:}} fees and commissions payable to brokers and certain customer
incentive payments in respect of originating lending business; and}} other 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 part ofthe cost of acquiring the financial asset and amortised as part of theeffective yield of the financial asset over its expected life using theeffective 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 asshare‑based compensation expense with a corresponding increasein the share options reserve.
The option pricing model takes into account the exercise price ofthe option, the risk-free interest rate, the expected volatility of ANZ’sordinary share price and other factors. Market vesting conditions aretaken into account in estimating the fair value.
A deferred share right or a performance right is a right to acquire ashare at nil cost to the employee subject to satisfactorily meetingtime and/or performance hurdles. For equity grants made after
1 November 2012, any portion of the award which vests may
be satisfied by a cash equivalent payment rather than shares at
the Board’s discretion. The fair value of deferred share rights or
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 as share-based compensation expensewith a corresponding increase in 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 tosatisfy the minimum service period specified in the award upon
resignation, termination or notice of dismissal for serious misconduct.
The expense is not reversed where the award does not vest due tothe 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 aliability (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 tocontrol 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 arerecognised only to the extent that it is probable that the temporary
difference will reverse in the foreseeable future and there will be
sufficient taxable profits against which to utilise the benefits of thetemporary difference.
Deferred tax assets and liabilities are measured at the tax rates thatare expected to apply to the period(s) when the asset and liability
giving rise to them are realised or settled, based on tax rates (andtax laws) that have been enacted or substantively enacted by thereporting date. The measurement reflects the tax consequencesthat would follow from the manner in which the Group, at thereporting 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 2013

1: Significant Accounting Policies (continued)E) ASSETS
Financial assetsi) Financial assets and liabilities at fair value throughprofit 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 thebalance sheet at their fair value.
Derivatives that are not effective accounting hedging instruments arecarried at fair value through profit or loss.
Certain financial assets and liabilities may be designated andmeasured at fair value through profit or loss where any of thefollowing 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 or losses
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; or}} the 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 fair value
with gains or losses from subsequent measurement at fair value
being recognised in the income statement. Valuation adjustments
are integral in determining the fair value of derivatives. This includes
a credit valuation adjustment (CVA) to reflect the credit worthiness ofthe counterparty and funding valuation adjustment (FVA) to accountfor the funding cost inherent in the portfolio.

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 theincome 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 theinstrument 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 ofchanges in the fair value of derivatives qualifying and designatedas cash flow hedges is deferred in the hedging reserve, which forms
part of shareholders’ equity. Any ineffective portion is recognised
immediately in the income statement. Amounts deferred in equity
are recognised in the income statement in the period during which
the hedged forecast transactions take place. When the hedging
instrument expires, is sold, terminated, or no longer qualifies forhedge 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 to occur,
the amount deferred in equity is recognised immediately in theincome 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 reserve inequity and the ineffective portion is recognised immediately in theincome statement.
Derivatives that do not qualify for hedge accounting
All gains and losses from changes in the fair value of derivatives thatare not designated in a hedging relationship but are entered into to
manage the interest rate and foreign exchange risk of the Group arerecognised in the income statement. Under certain circumstances,the component of the fair value change in the derivative which
relates to current period realised and accrued interest is included
in net interest income. The remainder of the fair value movement isincluded in other income.

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:

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, and include
equity investments 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 non‑interest
income for equity instruments. If, in a subsequent period, theamount of an impairment loss relating to an available-for-sale debt
instrument decreases and the decrease can be linked objectively toan 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 tocustomers such as bank overdrafts, credit cards, term loans, financelease receivables 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 of similar
assets with similar risk characteristics. The required provision isestimated 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 discount unwinds
during the period between recognition of impairment and recoveryof the cash flow, it is recognised in interest income.
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.
Securities purchased under agreements to resell, where the Group
does not acquire the risks and rewards of ownership, are recorded asreceivables 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.

ANZ ANNUAL REPORT 2013

1: Significant Accounting Policies (continued)
Securities borrowed are not recognised in the balance sheet, unlessthese are sold to third parties, at which point the obligation to
repurchase is recorded as a financial liability at fair value with fairvalue movements included in the income statement.
vii) Derecognition
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 notderecognised from the balance sheet.
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 overthe 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. The amortisation period for software assets is reviewed at least
annually. Where the expected useful life of the asset is different fromprevious estimates the amortisation period is changed accordingly.
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, or inmaintaining systems after implementation, are not capitalised.
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 areamortised over the period of expected benefit of between 15 to 23 years.

xi) Deferred acquisition costs
Refer to note 1(I)(vi).
xii) Other intangible assets
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.
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 the fund,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 anddistribution agreements 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 years
The amortisation period is reviewed at least at the end of each annual
reporting period and changed if there has been a significant change
in the pattern of expected future benefits from the asset.
xiii) 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.
The depreciation rate is reviewed at least at the end of each annual
reporting period and changed if there has been a significant change
in the pattern of expected future benefits from the asset.
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 recognised in
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 or loss
on initial recognition.
v) Financial guarantee contracts
Financial guarantee contracts that require the issuer to makespecified payments to reimburse the holder for a loss the holder
incurs because a specified debtor fails to make payments when due,
are initially recognised in the financial statements at fair value on thedate the guarantee was given; typically this is the premium received.
Subsequent to initial recognition, the Group’s liabilities under suchguarantees are measured at the higher of their amortised amountand the best estimate of the expenditure required to settle any
financial obligation arising at the reporting date. These estimates
are determined based on experience of similar transactions and thehistory of past losses.

Defined contribution superannuation schemes
The Group operates a number of defined contribution schemes andalso contributes, according to local law, in the various countries inwhich 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.
Defined benefit superannuation schemes
The Group operates a small number of defined benefit schemes.
The liability and expense related to providing benefits toemployees under each defined benefit scheme are calculated byindependent actuaries.
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; and}} contributions 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.

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

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.

Non-financial liabilitiesG) EQUITYvii) 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 dateon national government bonds with terms to maturity that match, as
closely as possible, the estimated future cash outflows.

i) Ordinary shares
Ordinary shares in the Company are recognised at the amount paid
per ordinary share net of directly attributable issue costs.

84ii) 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 astreasury shares (to the extent that they relate to unvested employee
share‑based awards) and are deducted from Capital.

ANZ ANNUAL REPORT 2013

1: Significant Accounting Policies (continued)
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 number ofordinary shares used in the earnings per share calculations.
iii) Non-controlling interest
Non-controlling interests represent the share in the net assets ofsubsidiaries attributable to equity interests not owned directly or
indirectly by the Company.
iv) Reserves
Foreign currency translation reserve
As indicated in note 1 (A)(viii), 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 statement for debt
instruments and in the case of equity instruments to other 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)).

ii) Offsetting assets and liabilities
Assets and liabilities are offset and the net amount reported in thebalance sheet only where there is:}} a current enforceable legal right to offset the asset and liability; and}} an 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.
iv) Segment reporting
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 be allocatedto the segment and assess its performance and for which discrete
information is available. Changes in the internal organisational
structure of the Group can cause the composition of the Group’sreportable 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.
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 cost of
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 gross basis.
The GST components of cash flows arising from investing andfinancing activities which are recoverable from or payable to the
ATO are classified as operating cash flows.
I) LIFE INSURANCE AND FUNDS MANAGEMENT BUSINESSH) PRESENTATION
i) Offsetting of income and expenses
Income and expenses are not offset unless required or permitted byan accounting standard. At the Group level, this generally arises in thefollowing 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; or}} where gains and losses relating to fair value hedges are assessed as
being effective; or}} where gains and losses arise from a group of similar transactions,such as foreign exchange gains and losses.

The 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) and in New Zealand through OnePath Life (NZ) Limited and
OnePath Insurance Services (NZ) Limited which are licensed underthe Insurance (Prudential Supervision) Act 2010.
The operations of the Life Business are conducted within separate
statutory funds. The assets of the Life Business in Australia areallocated between policyholder and shareholder funds in accordancewith the requirements of the Life Act. Under AASs, the financial
statements must include all assets, liabilities, revenues, expenses
and equity, irrespective of whether they are designated as relating
to shareholders or policyholders. Accordingly, the consolidated
financial statements include both policyholder (statutory) andshareholders’ funds.

NOTES TO THE FINANCIAL STATEMENTS85

Notes to the financial statements (continued)
1: Significant Accounting Policies (continued)(i) Policy liabilities
Policy liabilities include liabilities arising from life insurance contracts
and life investment contracts.

Life investment contract liabilities
Life investment contracts involve both the origination of a financial
instrument and the provision of investment management services.

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.

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.

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.

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.

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 isguaranteed a minimum return or asset value. The Group derives fee
income from the administration of the underlying assets.

(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.

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 determined as
the net present value of the expected future cash flows, plus planned
margins of revenues over expenses relating to services yet to beprovided, discounted using a risk-free discount rate that reflects
the nature, structure and term of the liabilities. Expected future
cash flows include premiums, expenses, redemptions and benefit
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 Valuationof Policy Liabilities (formerly AS 1.04) as issued by the APRA under theLife Act and Professional Standard 3 Determination of Life Insurance
Policy Liabilities as issued by the New Zealand Society of Actuaries.
Under MoS, profit is recognised as premiums are received andservices are provided to policyholders. When premiums are received
but the service has not been provided, the profit is deferred. Losses
are expensed when identified.
Costs associated with the acquisition of policies are recognised overthe life of the policy. Costs may only be deferred, however, to theextent that a contract is expected to be profitable.
Participating contracts, defined as those contracts that entitle thepolicyholder to participate in the performance and value of certain
assets in addition to the guaranteed benefit, are entitled to sharein 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 part oflife insurance liabilities.

86(iii) Claims
Claims are recognised when the liability to the policyholder under
the policy contract has been established or upon notification of theinsured 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’ in thebalance 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.

ANZ ANNUAL REPORT 2013

1: Significant Accounting Policies (continued)
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.
(v) Reinsurance contracts
Reinsurance premiums, commissions and claim settlements, aswell as the reinsurance element of insurance contract liabilities, areaccounted 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. Thesedeferred acquisition costs are presented in the balance sheet as anintangible asset and are amortised over the period that they will berecovered from future policy charges.

(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.
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 the estimate of the expenditure required tosettle 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 theperiod 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
are recognised 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.

NOTES TO THE FINANCIAL STATEMENTS87

Notes to the financial statements (continued)
1: Significant Accounting Policies (continued)iii) Accounting Standards not early adopted
The following standards (except AASB 2011-4) were available for early adoption, but have not been applied by the Company or Groupin these financial statements.
AASB standard

AASB 10 Consolidated
Financial Statements

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

Mandatory application
date for the Company
and GroupThis standard replaces the guidance on control and consolidation in AASB 127 Consolidated andSeparate 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 the ability
to affect those returns through its power over the investee. The standard also provides guidanceon 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, forexample, where relevant activities are directed through contractual means.
The most significant impact of applying this standard relates to the judgemental approachrequired when assessing control over the Group’s OnePath fund entities. While it is likely that
additional fund entities will be consolidated, the financial impact is expected to be minimal on
the net assets and earnings of the Group.

1 October 2013

AASB 12 Disclosure ofThis standard applies where an entity has an ‘interest in another entity’ (essentially, anyInterests in Other Entities 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 which assist users toevaluate the nature, extent and financial effects and risks associated with an entity’s interest
in other entities. These disclosures replace and significantly enhance those in other standards
applicable to subsidiaries, joint arrangements or associates and impose new disclosures
particularly around structured entities, a much broader concept than special purpose entity.
As the amendments only relate to disclosure, there will be no impact on the Company or 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. It does not change when fair value is required tobe applied, but rather provides guidance on how to determine fair value when fair value
measurement is required or permitted. Application of this standard may result in different fairvalues being determined for certain assets and liabilities of the Group. For example, the standard
permits, subject to certain criteria, financial instruments to be measured at mid market rates,
removing the requirement to incorporate the impact of the bid/ask spread from the valuation.
The financial impact of changes arising from this standard is not expected to be material to theCompany or Group.

1 October 2013

AASB 119 Employee
Benefits

Amendments to this standard will result in changes to the measurement of interest costfrom defined benefit obligations, as well as additional disclosures for all employee benefits.
The amendments will not have a material impact on the Group.

1 October 2013

AASB 2012-2
Amendments toAustralian AccountingStandards – Disclosures– Offsetting Financial
Assets and Financial
Liabilities

This standard amends AASB 7 Financial Instruments: Disclosures to require disclosure of the effector potential effect of netting arrangements, including rights of set-off associated with an entity’srecognised financial assets and recognised financial liabilities, and on an entity’s financial position,
when all the offsetting criteria in AASB 132 Financial Instruments: Presentation are not met.
As the amendments only relate to disclosure, there will be no impact on the Company or Group.

1 October 2013

AASB 2011- 4
This amendment deletes from AASB 124 Related Party Disclosures individual key management
Amendments topersonnel (KMP) disclosure requirements for all disclosing entities in relation to equity holdings,
Australian Accounting
loans and other related party transactions.
Standards to Remove
As the amendments only relate to disclosure, there will be no impact on the Company or Group.
Individual Key
Management Personnel
Disclosure Requirements

1 October 2013

AASB 2012-3
Amendments toAustralian AccountingStandards – Offsetting
Financial Assets andFinancial Liabilities

1 October 2014

88

This standard adds application guidance to AASB 132 to clarify the offsetting criteria of AASB 132(as amended by AASB 2012-2).
This is not expected to have a material impact on the Company or Group.

ANZ ANNUAL REPORT 2013

1: Significant Accounting Policies (continued)
AASB standard

Mandatory application
date for the Company
and Group

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

AASB 2013-4
Amendments to Australian
Accounting Standards –Novation of the Derivatives
and Continuation of Hedge
Accounting

This standard amends AASB 139 Financial Instruments: Recognition and Measurement topermit the continuation of hedge accounting where a derivative which has been designatedas a hedging instrument is novated from one counterparty to a central counterparty as aconsequence of laws or regulations.

AASB 9 Financial
Instruments

This standard is being released in phases when combined will form AASB 9. To date only newrecognition and measurement requirements for financial assets and financial liabilities havebeen released.
The main recognition and measurement requirements of AASB 9 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 throughthe income statement except for certain instruments which may be classified at fair value
through other comprehensive 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 this eliminates or significantly reduces an accounting
mismatch; and}} financial 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 AASB 9 project will cover impairment of financial assets measured atamortised cost and hedge accounting.
Until all phases of AASB 9 are completed, it remains impractical to quantify the impact of
this standard.

1 October 2014

This is not expected to have a material impact on the Company or Group.
1 October 2015

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

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, which 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.

current observable data and events and an assessment of the impact
of model risk. The provision also takes into account management’s
assessment of the impact of large concentrated losses within theportfolio and the economic cycle.

A brief explanation of the critical estimates and judgements follows.

ii) Impairment of non-lending assetsi) Provisions for credit impairment

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.

The measurement of impairment of loans and advances requires
management’s best estimate of the losses incurred in the loan
portfolio at reporting date.
Individual and collective provisioning involves the use of assumptions
for estimating the amount and timing of expected future cash flows.
The process of estimating the amount and timing of cash flows
involves considerable management judgement. These judgements
are regularly revised to reduce any differences between loss estimatesand actual loss experience.
The collective provision involves estimates regarding the historicalloss experience for assets with credit characteristics similar to those in
the collective pool. The historical loss experience is adjusted based on

The use of such judgements and reasonable estimates is consideredby management to be an essential part of the process and does not
impact on the reliability of the provision.

Impairment testing involves identifying appropriate internal andexternal indicators of impairment and whether these exist at eachreporting date. Where an indication of impairment exists, therecoverable amount of the asset is determined based on the higher of
the assets fair value less costs to sell and its value in use. Judgement
is applied when determining the assumptions supporting therecoverable amount calculations.

NOTES TO THE FINANCIAL STATEMENTS89

Notes to the financial statements (continued)
2: Critical Estimates and Judgements Used in Applying Accounting Policies (continued)iii) Special purpose and off-balance sheet entitiesv) Provisions (other than loan impairment)

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.

The Group holds provisions for various obligations including
employee entitlements, restructurings and litigation related
claims. The provision for long-service leave is supported by anindependent actuarial 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
such obligations.

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 canbe complex to determine whether the Group has control of a SPE, theGroup makes judgements about its exposure to the risks and rewardsof 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 arestated in note 1 (A)(iii). In estimating fair value the Group uses,
wherever possible, quoted market prices in an active market for thefinancial 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.
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 (CVA) to reflect the credit
worthiness of the counterparty. This is influenced by the mark-tomarket of the derivative trades and by the movement in the market
cost of credit. Further adjustments are made to account for thefunding costs inherent in the derivative. Judgment is required todetermine the appropriate cost of funding and the future expectedcashflows used in this funding valuation adjustment (FVA).

90vi) Life insurance contract liabilities
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 ofthe particular 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.
The key factors that affect the estimation of these liabilities andrelated assets are:}} the cost of providing the benefits and administering theseinsurance 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; and}} the 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 ofthese liabilities.
The total value of policy liabilities for life insurance contracts havebeen appropriately calculated in accordance with these principles.
vii) Taxation
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.

ANZ ANNUAL REPORT 2013

3: IncomeConsolidated

The Company

2013
$m

2012
$m

2013
$m

2012
$m

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

290
1,315
529
25,994
499

329
1,368
621
27,737
483

222
955
433
20,850
349

260
1,010
531
22,896308

Total interest income
Controlled entities

28,627–30,538–22,8092,704

25,005
2,335

Total interest income

28,62730,53825,51327,340Interest 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 loss

27,2981,315
14

29,1591,368
1124,551955
726,3251,010
528,62730,53825,51327,340Controlled entities

744
2,085
2,829
–

697
2,060
2,757
–

659
1,482
2,141
968

621
1,504
2,125
753

Total fee and commission income
Fee and commission expense2

2,829
(370)

2,757
(345)

3,109
(279)

2,878
(265)

Net fee and commission income

2,459

2,412

2,830

2,613

844
300
63
(5)
–
53
(26)
–
(3)
–
–
–
90

1,081
280
73
(327)
–
55
(31)
10
28
291
10
–
121

648
291
63
21
1,314
–
(21)
–
(3)
–
–
18
25

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

Total other income

1,316

1,591

2,356

2,402

Other operating income

3,775

4,003

5,186

5,015

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

862
4,135
1,348
(446)
(709)
(3,669)
(90)

825
2,730
1,237
(438)
(598)
(2,449)
(104)

109
–
43
51
–
–
–

111
–
38
58
–
–
–

Total net funds management and insurance income

1,431

1,203

203

207

Total other operating income

5,206

5,206

5,389

5,222

i) Fee and commission income
Lending fees1
Non-lending fees and commissionsii) 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
Write-down of investment in Saigon Securities Inc
Gain on sale of investment in Sacombank
Private equity and infrastructure earnings
Gain on sale of Visa shares
Dilution gain on investment in Bank of Tianjin
Profit on liquidation/(write-down) of investment in subsidiaries and branches
Other

Share of associates’ profit
Total income

482

395

–

–

34,31536,13930,90232,562

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, and notdesignated 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 through profit or loss was $6 million gain (2012: $141 million loss) for the Groupand $5 million gain (2012: $140 million loss) for the Company.
5 Dividends received from controlled entities are subject to meeting applicable regulatory and corporate law requirements, including solvency requirements.

NOTES TO THE FINANCIAL STATEMENTS

91

Notes to the financial statements (continued)
4: Expenses
Interest expense
Financial institutions
Deposits
Borrowing corporations’ debt
Commercial paper
Loan capital, bonds and notes
Other
Total interest expense
Controlled entities
Total interest expense
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
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
Total personnel expenses (excl. restructuring)ii) Premises
Amortisation and depreciation of buildings and integrals (refer note 21)
Rent
Utilities and other outgoings
Other
Total premises expenses (excl. restructuring)iii) Computer
Computer contractors
Data communication
Depreciation and amortisation (refer notes 19 and 21)
Rentals and repairs
Software purchased
Software impairment
Other
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 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) Restructuring1
Total operating expenses

Consolidated
2012
$m

2013
$m

2012
$m

484
11,071
60
439
3,558
257
15,869–473
12,962
69
633
4,127
164
18,428
–

438
9,229
–
311
2,834
191
13,003
3,146

422
11,299
–
510
3,387
138
15,756
2,616

15,86918,42816,14918,372

15,391478
15,86917,801627
18,42815,799350
16,14917,868504
18,372

264
3,103
7
283
200
148
752
4,757

288
3,066
13
292
189
218
699
4,765

196
2,353
2
237
171
109
592
3,660

218
2,382
8
251
160
158
564
3,741

88
435
170
40
733

90
412
168
46
716

45
344
115
33
537

54
300
117
43
514

181
115
496
142
275
8
26
1,243

150
106
424
131
253
274
45
1,383

112
70
391
112
219
8
3
915

133
64
337
87
188
239
19
1,067

241
18
97
65
15
54
128
268
70
187
100
175
1,418
85
8,236

229
18
99
65
8
52
137
253
69
170
110
171
1,381
274
8,519

146
9
88
48
6
38
84
223
39
134
9
503
1,327
66
6,505

141
10
84
51
5
42
91
210
40
125
8
460
1,267
126
6,715

1 Includes $18 million (2012: $148 million) relating to costs associated with the New Zealand Simplification program in the Group (Company: nil).

92

The Company

2013
$m

ANZ ANNUAL REPORT 2013

5: Compensation of Auditors

Consolidated

The Company

2013
$’000

2012
$’000

2013
$’000

2012
$’000

8,644
2,886
198

8,752
3,147
236

5,327
1,747
130

5,614
2,216
160

11,72812,135

7,204

7,990

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

5,093
993
365

4,955
1,166
95

1,143
471
222

1,483
571
60

6,451

6,216

1,836

2,114

Total compensation of auditors

18,17918,351

9,040

10,104

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

1 Inclusive of goods and services tax.
2 For the Group, comprises prudential and regulatory services of $2.908 million (2012: $3.067 million), comfort letters $0.508 million (2012: $0.930 million) and other $0.463 million(2012: $0.316 million). For the Company, comprises prudential and regulatory services of $1.541 million (2012: $1.979 million), comfort letters of $0.374 million (2012: $0.688 million) and other$0.303 million (2012: $0.120 million).
3 The nature of the non-audit services include reviews of compliance with legal and regulatory requirements, benchmarking reviews and accounting advice. 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.

NOTES TO THE FINANCIAL STATEMENTS

93

Notes to the financial statements (continued)
6: Income Tax Expense

Consolidated

The Company

2013
$m

2012
$m

2013
$m

2012
$m

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

2,662
2
76

2,523
2
(198)

1,911
2
(143)

1,690
(3)
(72)

Total income tax expense charged in the income statement

2,740

2,327

1,770

1,615

9,022
2,707

7,994
2,398

7,116
2,135

6,490
1,947

(41)
(4)
(144)
–
8
(6)
–
261
(50)
(4)
58
–
(47)

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

4
(394)
–
–
6
(6)
27
–
–
–
58
(24)
(38)

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

2,738

2,325

1,768

1,618

2

2

2

(3)

Total income tax expense charged in the income statement

2,740

2,327

1,770

1,615

Effective tax rate

30.4%

29.1%

24.9%

24.9%

Australia

2,125

1,823

1,626

1,511

Overseas

615

504

144

104

Reconciliation of the prima facie income tax expense on pre-tax profit
with the income tax expense charged in the Income statement
Profit before income tax
Prima facie income tax expense at 30%
Tax effect of permanent differences:
Overseas tax rate differential
Rebateable and non-assessable dividends
Profit from associates
Gain on sale 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
OnePath Australia – Tax Consolidation adjustment
Tax provisions no longer required
Interest on Convertible Instruments
Adjustment between members of the Australian tax-consolidated group
Other
Income tax (over) provided in previous years

Tax consolidation

Taxation of Financial Arrangements ‘TOFA’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 groupare recognised in the separate financial statements of the membersof the tax‑consolidated group on a ‘group allocation’ basis. Current tax
liabilities and assets of the tax consolidated group are recognised by
the Company (as head entity in the tax-consolidated group).

The Group adopted the new tax regime for financial arrangements(TOFA) in Australia effective from 1 October 2009. The regime
aims to more closely align the tax and accounting recognition andmeasurement of the financial arrangements within scope and theirrelated flows. Deferred tax balances for financial arrangementsthat existed on adoption at 1 October 2009 will reverse over afour year period.

Due to the existence of a tax funding arrangement between theentities in the tax-consolidated group, amounts are recognised aspayable to or receivable by the Company and each member of thetax-consolidated group in relation to the tax contribution amounts
paid or payable between the Company and the other members of thetax‑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.

94

ANZ ANNUAL REPORT 2013

7: Dividends

Consolidated1

The Company

2013
$m

2012
$m

2013
$m

2012
$m

Ordinary share dividends2
Interim dividend
Final dividend
Bonus option plan adjustment

2,003
2,150
(71)

1,769
2,002
(80)

2,003
2,150
(71)

1,769
2,002
(80)

Dividend on ordinary shares

4,082

3,691

4,082

3,691

1 Dividends paid to ordinary equity holders of the Company. Excludes dividends paid by subsidiaries of the Group to non-controlling equity holders (2013: $1 million; 2012: $2 million).
2 Dividends are not accrued and are recorded when paid.

A final dividend of 91 cents, fully franked for Australian tax purposes,
is proposed to be paid on each eligible fully paid ordinary shareon 16 December 2013 (2012: final dividend of 79 cents, paid
19 December 2012, fully franked for Australian tax purposes). It is
proposed New Zealand imputation credits of NZ 10 cents per
ordinary share will also be attached to the 2013 final dividend(2012: nil). The 2013 interim dividend of 73 cents, paid 1 July 2013,
was fully franked for Australian tax purposes (2012: interim dividendof 66 cents, paid 2 July 2012, fully franked for Australian tax purposes).

New Zealand imputation credits of NZ 9 cents per ordinary share
were attached to the 2013 interim dividend (2012: nil).
The tax rate applicable to the Australian franking credits attached to
the 2013 interim dividend and to be attached to the proposed 2013
final dividend is 30% (2012: 30%).
Dividends paid in cash or satisfied by the issue of shares under
the Dividend Reinvestment Plan during the years ended
30 September 2013 and 2012 were as follows:
Consolidated

Paid in cash1
Satisfied by share issue2

The Company

2013
$m

2012
$m

2013
$m

2012
$m

3,239
843

2,230
1,461

3,239
843

2,230
1,461

4,082

3,691

4,082

3,691

Consolidated
2013$m

The Company

2012
$m

2013
$m

2012
$m

Preference share dividend3
Euro Trust Securities4

6

11

–

–

Dividend on preference shares

6

11

–

–

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 Australian franking credits available to the Company
for the subsequent financial year is $265 million (2012: $386 million)
after adjusting for franking credits that will arise from the payment of
tax on Australian profits for the 2013 financial year, $1,070 million of
franking credits which will be utilised in franking the proposed 2013
final dividend and franking credits that may not be accessible by theCompany 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
reserve and other prudential and legal requirements must be
observed by certain controlled entities and the impact of theserequirements 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 are monitored having
regard to the following:}} There are regulatory and other legal requirements to maintain aspecified level of capital. Further, APRA has advised that a bankunder its supervision, including the Company, must obtain its
written approval before paying dividends (i) on ordinary shares
which exceed its after tax earnings after taking into account any
payments on more senior capital instruments in the financial year
to which they relate or (ii) where the Company’s Common Equity
Tier 1 capital ratio falls within capital range buffers specified 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 terms of the Group’s Euro Trust Securities, US Trust Securities
and ANZ Convertible Preference Shares also limit the payment ofdividends on these securities in certain circumstances. Whilst theterms of the securities vary, generally the Company may not pay
a dividend if to do so would result in the Company becoming, or
likely to become, insolvent or breaching specified capital adequacy
ratios, if the dividend would exceed its after tax prudential profits(as defined by APRA from time to time) or if APRA so directs; andNOTES TO THE FINANCIAL STATEMENTS

95

Notes to the financial statements (continued)
7: Dividends (continued)}} If any dividend, interest or redemption payments or other
distributions are not paid on the scheduled payment date, or sharesor other qualifying Tier 1 securities are not issued on the applicableconversion or redemption dates, on the Group’s Euro Trust Securities,
US Trust Securities, ANZ Convertible Preference Shares or ANZ Capital
Notes in accordance with their terms, the Group may be restrictedfrom 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.
Dividend Reinvestment Plan
During the year ended 30 September 2013, 19,090,655 ordinary
shares were issued at $23.64 per share and 13,535,178 ordinary
shares at $28.96 per share to participating shareholders under the
Dividend Reinvestment Plan (2012: 39,662,663 ordinary shares at$19.09 per share, and 34,448,302 ordinary shares at $20.44 per share).
All eligible shareholders can elect to participate in the Dividend
Reinvestment Plan.
Refer to note 29 for details of the on-market buyback of ordinary
shares issued under the Dividend Reinvestment Plan and Bonus
Option Plan in connection with the 2013 interim dividend.

For the 2013 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 ten trading days commencing on
13 November 2013 (unless otherwise determined by the Directors
and announced on the ASX). The Company intends to neutralise theimpact of ordinary shares issued under the Dividend Reinvestment
Plan and Bonus Option Plan in connection with the 2013 final
dividend through an on-market buyback of ordinary shares in an
amount equal to the value of those ordinary shares issued under the
Dividend Reinvestment Plan and Bonus Option Plan.
Bonus Option Plan
The amount paid in dividends during the year has been reduced asa result of certain eligible shareholders participating in the Bonus
Option Plan and foregoing all or part of their right to dividends. Theseshareholders were issued ordinary shares under the Bonus Option Plan.
During the year ended 30 September 2013, 2,719,008 ordinary
shares were issued under the Bonus Option Plan (2012: 4,090,494
ordinary shares).

8: Earnings per Ordinary Share

Consolidated
2013
$m

2012
$m

Basic earnings per share (cents)

231.3

213.4

Earnings reconciliation ($millions)
Profit for the year
Less: profit attributable to non-controlling interests
Less: preference share dividend paid

6,282
10
6

5,667
6
11

6,266
2,709.4

5,650
2,647.4

Diluted earnings per share (cents)

224.4

205.6

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
Add: ANZ Capital Notes interest expense

6,266
31
–
186
7

5,650
30
31
225
–

Earnings used in calculating diluted earnings per share

Earnings used in calculating basic earnings per share
Weighted average number of ordinary shares (millions)1

6,490

5,936

Weighted average number of ordinary shares (millions)1
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 Stapled Securities
weighted average number of ANZ Convertible Preference Sharesweighted average number of convertible ANZ Capital Notes

2,709.4
5.0
27.5
–
144.6
5.5

2,647.4
5.3
30.5
24.6
179.8
–

Used in calculating diluted earnings per share

2,892.0

2,887.6

1 Weighted average number of shares excludes 12.6 million shares held in OnePath (2012: 13.1 million) and 15.8 million shares in ANZEST Pty Ltd (2012: 15.7 million) for the Group employee shareacquisition scheme.

The weighted average number of converted and lapsed options, weighted with reference to the date of conversion or lapse, and included in thecalculation of diluted earnings per share is approximately 1.3 million (2012: approximately 0.5 million).

96

ANZ ANNUAL REPORT 2013

9: Liquid Assets

Consolidated

The Company

2013
$m

2012
$m

2013
$m

2012
$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

2,907
24,966
1,970
9,894

3,056
21,112
2,257
10,153954
22,901
191
9,792

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

Total liquid assets

39,73736,57833,83832,782

10: Due from Other Financial Institutions

Consolidated

The Company

2013
$m

2012
$m

2013
$m

2012
$m

Cash collateral
Other receivables from financial institutions

6,530
15,647

6,878
10,225

5,638
13,309

5,875
8,292

Total due from other financial institutions

22,177

17,103

18,947

14,167

11: Trading Securities

Consolidated

The Company

2013
$m

2012
$m

2013
$m

2012
$m

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

3,445
16,63821,205

2,168
14,332
24,102

3,198
11,834
16,432

2,073
7,468
20,949Total trading securities

41,28840,602

31,46430,490

12: Derivative Financial Instruments
Derivative financial instruments are contracts whose value isderived from one or more underlying variables or indices, require
little or no initial net investment and are settled at a future date.
Derivatives include contracts traded on registered exchanges andcontracts agreed between counterparties. The use of derivatives
and their sale to customers as risk management products is an
integral part of the Group’s trading and sales activities. Derivatives
are also used to manage the Group’s own exposure to fluctuations
in foreign exchange 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 structuring andmarketing of derivative products which enable customers to manage
their own risks. Market making activities consist of derivatives enteredinto 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 from expected changes inmarket rates.
Gains or losses, including any current period interest, from thechange in fair value of trading positions are recognised in the income
statement as ‘other income’ in the period in which they occur.

NOTES TO THE FINANCIAL STATEMENTS

97

Notes to the financial statements (continued)
12: Derivative Financial Instruments (continued)
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 thehedging relationship. Any ineffectiveness is recognised in the income
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 the Group’s
and the Company’s foreign exchange, interest rate, commodity
and credit derivatives. They include all trading and balance sheet
risk management contracts. Notional principal amounts measure
the amount of the underlying physical or financial commodity andrepresent the volume of outstanding transactions. They are nota 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 the terms of thederivative. The aggregate notional amount of derivative financial
instruments on hand, the extent to which instruments are favourable
or unfavourable, and as a consequence the aggregate fair values ofderivative financial assets and liabilities, can fluctuate significantly
from time to time. The fair values of derivative instruments held andtheir notional principal amounts are set out below.

Fair Value
Trading

Total fair valueof derivatives

Hedging

Consolidated at
30 September 2013

Notional
Principal
Amount$m

Assets Liabilities$m$m

Foreign exchange contracts
Spot and forward contracts
Swap agreements
Futures contracts
Options purchased
Options sold463,606
377,385546
65,991
78,352

7,593 (7,514)
10,276 (12,641)
22
(23)
1,376
–
– (1,449)

–
76
–
–
–

–
(10)
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

(25)
(41)
–
–
–

7,593 (7,539)
10,352 (12,692)
22
(23)
1,376
–
– (1,449)

985,880

19,267 (21,627)

76

(10)

–

–

–

(66)

19,343 (21,703)

23,1691,346(1,232)

–

–

–

–

–

–

1,346

84,5472,076,377
100,849
26,90935,282

3(5)
21,249 (20,735)
452
(459)
1,049
–
– (1,233)

–
1,272
1
–
–

–
(998)
(39)
–
–

–
838
3
–
–

–
(743)
–
–
–

–
–
–
–
–

–
–
–
–
–

3
(5)
23,359 (22,476)
456
(498)
1,049
–
– (1,233)

2,323,964

22,753 (22,432)

1,273(1,037)

841

(743)

–

–

24,867 (24,212)

Commodity contracts
Derivative contracts
Interest rate contracts
Forward rate agreements
Swap agreements
Futures contracts
Options purchased
Options soldFair value

Cash flow

Net investment

Assets Liabilities$m$m

Assets Liabilities$m$m

Assets Liabilities$m$m

Assets Liabilities$m$m(1,232)Credit default swaps
Structured credit
derivatives purchased
Other credit derivatives purchased

4,811
14,332

136
122

–
(143)

–
–

–
–

–
–

–
–

–
–

–
–

136
122

–
(143)

Total credit derivatives purchased

19,143

258

(143)

–

–

–

–

–

–

258

(143)

Structured credit derivatives sold
Other credit derivatives sold

4,811
13,045

–
64

(169)
(50)

–
–

–
–

–
–

–
–

–
–

–
–

–
64

(169)
(50)

17,856

64

(219)

–

–

–

–

–

–

64

(219)

36,999

322

(362)

–

–

–

–

–

–

322

(362)

43,688 (45,653)

1,349(1,047)

841

(743)

–

(66)

Total credit derivatives sold
Total

98

3,370,012

45,878 (47,509)

ANZ ANNUAL REPORT 2013

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

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)

810,040

13,047 (18,242)

171

(4)

–

–

119

–

13,337 (18,246)

Commodity contracts
Derivative contracts

34,8201,600(1,803)

–

–

–

–

–

–

1,600

Interest 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)

Fair value

Cash flow

Net investment

Assets Liabilities$m$m

Assets Liabilities$m$m

Assets Liabilities$m$m

Assets Liabilities$m$m(1,803)Credit default swaps
Structured credit derivatives
purchased
Other credit derivatives purchased

7,634
11,632

243
277

–
(62)

–
–

–
–

–
–

–
–

–
–

–
–

243
277

–
(62)

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)

37,770

564

(530)

–

–

–

–

–

–

564

(530)

45,531 (50,887)

1,982

(822)

1,297

(930)

119

–

Total credit derivatives soldTotal

2,881,844

48,929 (52,639)

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

The Company at
30 September 2013

Notional
Principal
Amount$m

Assets Liabilities$m$m

Foreign exchange contracts
Spot and forward contracts
Swap agreements
Futures contracts
Options purchased
Options sold438,555
334,548
499
65,51078,001

7,391 (6,803)
9,418 (10,977)
22
(22)
1,370
–
– (1,427)

–
75
–
–
–

–
(10)
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
(41)
–
–
–

7,391 (6,803)
9,493 (11,028)
22
(22)
1,370
–
– (1,427)

917,113

18,201 (19,229)

75

(10)

–

–

–

(41)

18,276 (19,280)

Commodity contracts
Derivative contracts

22,662

1,339(1,231)

–

–

–

–

–

–

1,339

Interest rate contracts
Forward rate agreements
Swap agreements
Futures contracts
Options purchased
Options sold72,112
1,723,852
78,72825,87934,372

3(4)
17,684 (17,655)
451
(454)
1,047
–
– (1,218)

–
1,127
1
–
–

–
(930)
(39)
–
–

–
758
3
–
–

–
(654)
–
–
–

–
–
–
–
–

–
–
–
–
–

3
(4)
19,569 (19,239)
455
(493)
1,047
–
– (1,218)

1,934,943

19,185 (19,331)

1,128

(969)

761

(654)

–

–

21,074 (20,954)

Fair value

Cash flow

Net investment

Assets Liabilities$m$m

Assets Liabilities$m$m

Assets Liabilities$m$m

Assets Liabilities$m$m(1,231)Credit default swaps
Structured credit derivatives
purchased
Other credit derivatives purchased

4,811
14,332

136
122

–
(143)

–
–

–
–

–
–

–
–

–
–

–
–

136
122

–
(143)

Total credit derivatives purchased
Structured credit derivatives sold
Other credit derivatives sold

19,143
4,811
13,045

258
–
64

(143)
(169)
(50)

–
–
–

–
–
–

–
–
–

–
–
–

–
–
–

–
–
–

258
–
64

(143)
(169)
(50)

Total credit derivatives sold17,856

64

(219)

–

–

–

–

–

–

64

(219)

36,999

322

(362)

–

–

–

–

–

–

322

(362)

39,047 (40,153)

1,203

(979)

761

(654)

–

(41)

Total

100

2,911,717

41,011 (41,827)

ANZ ANNUAL REPORT 2013

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

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)

764,754

12,755 (16,485)

169

(4)

–

–

84

–

13,008 (16,489)

Commodity contracts
Derivative contracts

34,2881,595(1,801)

–

–

–

–

–

–

1,595

Interest 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)

Fair value

Cash flow

Net investment

Assets Liabilities$m$m

Assets Liabilities$m$m

Assets Liabilities$m$m

Assets Liabilities$m$m(1,801)Credit default swaps
Structured credit derivatives
purchased
Other credit derivatives purchased

7,634
11,632

243
277

–
(62)

–
–

–
–

–
–

–
–

–
–

–
–

243
277

–
(62)

Total credit derivatives purchased
Structured credit derivatives sold
Other credit derivatives sold

19,266
7,634
10,870

520
–
44

(62)
(346)
(122)

–
–
–

–
–
–

–
–
–

–
–
–

–
–
–

–
–
–

520
–
44

(62)
(346)
(122)

Total credit derivatives sold

18,504

44

(468)

–

–

–

–

–

–

44

(468)

37,770

564

(530)

–

–

–

–

–

–

564

(530)

40,284 (44,508)

1,793

(667)

1,105

(872)

84

–

Total

2,441,100

43,266 (46,047)

NOTES TO THE FINANCIAL STATEMENTS101

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 forthe fair value changes in the hedging relationship. For details on theaccounting treatment of each type of hedging relationship refer tonote 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’ asa part of the gain or loss on disposal.
Consolidated

Gain/(loss) arising from fair value hedges
Hedged item
Hedging Instrument

The Company

2013
$m

2012
$m

2013
$m

2012
$m

534
(532)

91
(103)

476
(466)

63
(68)

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 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

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
Closing Balance

102

The Company

2013
$m

2012
$m

2013
$m

2012
$m

208
–
–
(185)
52

169
17
(5)
39
(12)

89
24
(7)
(78)
23

47
27
(8)
32
(9)

75

208

51

89

ANZ ANNUAL REPORT 2013

12: Derivative Financial Instruments (continued)
The table below shows the breakdown of the hedging reserve attributable to each type of cash flow hedging relationship:
Consolidated

Variable rate assets
Variable rate liabilities
Re-issuances of short term fixed rate liabilities
Total hedging reserve

The mechanics of a cash flow hedge results in the gain (or loss) inthe hedging 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.

The Company

2013
$m

2012
$m

2013
$m

2012
$m

446
(184)
(187)

922
(330)
(384)

457
(192)
(214)

755
(307)
(359)

75

208

51

89

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 (2012: nil).

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 (2012: 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 $1 million
loss for the Group (2012: $3 million loss) and a $1 million loss for theCompany (2012: $3 million loss).

NOTES TO THE FINANCIAL STATEMENTS103

Notes to the financial statements (continued)
13: Available-for-sale Assets

Consolidated

The Company

2013
$m

2012
$m

2013
$m

2012
$m

ListedOther government securities
Other securities and equity securities

1,197
7,976

756
3,664

422
7,737

313
3,569

Total listed

9,173

4,420

8,159

3,882

Unlisted
Local and semi-government securities
Other government securities
Other securities and equity securities

9,468
5,402
4,092

7,311
5,323
3,508

8,366
3,893
3,405

6,131
4,871
2,957

Total unlisted

18,962

16,142

15,664

13,959Total available-for-sale assets

28,135

20,562

23,823

17,841

During the year net gains recognised in the income statement in respect of available-for-sale assets amounted to nil for both the Group(2012: $281 million) and for the Company (2012: $206 million). In 2012, the net gains recognised included $301 million for the Group and$234 million for the Company on the sale on investments in Visa Inc. and Sacombank.
In addition, a loss of $3 million (2012: $35 million) for both Group and Company was recycled from equity (the Available-for-sale revaluation
reserve) into the income statement on the impairment of assets previously reclassified from available-for-sale into loans and advances(refer note 16).
Available-for-sale by maturities at 30 September 2013
Less than
3 months$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

1,018
3,604
446

819
1,342
1,376

2,201
1,566
6,948

3,741
78
602

1,689
9
2,632

–
–
64

9,468
6,599
12,068

Total available-for-sale assets

5,068

3,537

10,715

4,421

4,330

64

28,135Less 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

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

20,562Available-for-sale by maturities at 30 September 2012104

ANZ ANNUAL REPORT 2013

14: Net Loans and Advances

Consolidated

The Company

2013
$m

2012
$m

2013
$m

2012
$m

Overdrafts
Credit card outstandings
Term loans – housing
Term loans – non-housing1
Hire purchase1
Lease receivables
Commercial bills
Other

8,833
11,247253,277
177,963
2,760
1,858
16,536488

8,014
10,741
230,706
156,605
3,285
1,885
19,469
861

6,945
9,213
206,711
132,505
2,010
1,395
16,257
125

6,598
9,222
192,912120,353
2,667
1,363
19,342
243

Total gross loans and advances

472,962431,566

375,161

352,700(4,354)(1,067)942
812(4,538)(1,241)797
1,239(3,242)
(723)
787
484

(3,407)
(952)
707
1,012

Less: Provision for credit impairment (refer to note 16)
Less: Unearned income1
Add: Capitalised brokerage/mortgage origination fees
Add: Customer liability for acceptances
Adjustments to gross loans and advances(3,667)(3,743)(2,694)(2,640)469,295

427,823

372,467

350,060

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

531
433
365

438
647
286

350
320
202

226
507
129

Less: unearned future finance income on finance leases

(114)

(141)

(91)

(107)

Net investment in finance lease receivables

Net loans and advances

1,215

1,230

781

755

b) Operating lease receivables
Gross operating lease receivables
Less than 1 year
1 to 5 years
Later than 5 years

133
395
1

76
374
64

130
392
1

71
366
64

Total operating lease receivables

529

514

523

501

1,744

1,744

1,304

1,256

500
403
312

409
586
235

335
297
149

210
467
78

Total

1,215

1,230

781

755

Hire purchase receivables
Less than 1 year
1 to 5 years
Later than 5 years

907
1,838
15

1,079
2,191
15

641
1,354
15

867
1,785
15

Total

2,760

3,285

2,010

2,667

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

1 Comparative information has been restated to reflect the reclassification of chattel mortgages from hire purchase (2012: $7,100 million) and unearned income (2012: ($994 million)) to term loans– non-housing (2012: $6,106 million) for the Group and the Company (refer note 1).

NOTES TO THE FINANCIAL STATEMENTS

105

Notes to the financial statements (continued)
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 fairvalue, 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

Summary of impaired financial assets
Impaired loans
Restructured items1
Non-performing commitments and contingencies

The Company

2013
$m

2012
$m

2013
$m

2012
$m

3,751
341
172

4,364
525
307

2,723
284
149

3,146
377
287

Gross impaired financial assets
Individual provisions
Impaired loans
Non-performing commitments and contingencies

4,264

5,196

3,156

3,810

(1,440)(27)(1,729)(44)(1,046)(10)(1,242)(27)

Net impaired financial assets

2,797

3,423

2,100

2,541

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

1,818

1,713

1,576

1,455

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 days past due accounts which are retained on a performing basis for up to 180 days past due amounting to $151 million (2012: $127 million)
for the Group and $106 million (2012: $104 million) for the Company.

16: Provision for Credit Impairment

Consolidated

The Company

Provision movement analysis

2013
$m

2012
$m

2013
$m

2012
$m

New and increased provisions
Australia
New Zealand
Asia Pacific, Europe & America

1,304
310
275

1,730
376
187

1,304
15
157

1,628
16
154

Write-backs

1,889
(487)

2,293
(537)

1,476
(255)

1,798
(333)

Recoveries of amounts previously written off

1,402
(247)

1,756
(214)

1,221
(194)

1,465
(180)

Individual provision charge
Impairment on available-for-sale assets
Collective provision charge/(credit) to income statement

1,155
3
30

1,542
35
(379)

1,027
3
102

1,285
35
(335)

Charge to income statement

1,188

1,198

1,132

985

106

ANZ ANNUAL REPORT 2013

16: Provision for Credit Impairment (continued)
Movement in provision for credit impairment by financial asset class
Liquid assets and duefrom other financial
institutions
Consolidated

Net loans
and advances

Other financial assets

Credit related
commitments1

Total provisions

2013
$m

2012
$m

2013
$m

2012
$m

2013
$m

2012
$m

2013
$m

2012
$m

2013
$m

2012
$m

Collective provision
Balance at start of year
Adjustment for exchange rate fluctuations
and transfers
DisposalCharge/(credit) to income statement

–

–

2,236

2,604

–

–

529

572

2,765

3,176

–
–
–

–
–
–

63
–
(7)

(21)
(4)
(343)

–
–
–

–
–
–

29
–
37

(7)
–
(36)

92
–
30

(28)
(4)
(379)

Total collective provision

–

–

2,292

2,236

–

–

595

529

2,887

2,765

Individual provision
Balance at start of year
New and increased provisions
Adjustment for exchange rate fluctuations
and transfers
Write-backs
Discount unwind
Bad debts written off

–
–

–
–

1,729
1,889

1,687
2,259

–
–

–
–

44
–

10
34

1,773
1,889

1,697
2,293

–
–
–
–

–
–
–
–

62
(481)
(102)
(1,657)

(34)
(537)
(143)
(1,503)

–
–
–
–

–
–
–
–

(11)
(6)
–
–

–
–
–
–

51
(487)
(102)
(1,657)

(34)
(537)
(143)
(1,503)

Total individual provision

–

–

1,440

1,729

–

–

27

44

1,467

1,773

Total provision for credit impairment

–

–

3,732

3,965

–

–

622

573

4,354

4,538

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.
Australia1
Consolidated

Individual provision
Balance at start of year
New and increased provisions
Adjustment for exchange rate fluctuations
and transfers
Write-backs
Discount unwind
Bad debts written off
Total individual provisionInternationaland Institutional
Banking1

New Zealand2

Global Wealth

2013
$m

2012
$m

2013
$m

2012
$m

2013
$m

2012
$m

2013
$m

2012
$m

2013
$m

GTSO2
2012
$m

2013
$m

Total
2012
$m

716
1,132

679
1,066

650
447

585
891

348
294

396
362

15
4

12
9

–
12

15
(69)

1,729
1,889

1,687
2,259

–
(229)
(34)
(838)

–
(227)
(43)
(759)

22
(70)
(45)
(587)

(100)
(144)
(59)
(523)

34
(180)
(23)
(231)

5
(159)
(41)
(215)

(1)
(2)
–
(1)

1
(4)
–
(3)

7
–
–
–

60
62
(34)
(3)
(481)
(537)
–
(102)
(143)
(3) (1,657) (1,503)

747

716

417

650

242

348

15

15

19

–

1,440

1,729

1 Corporate Banking Australia transferred from IIB to Australia Division, effective 1 October 2012. Comparatives have been restated accordingly.
2 Divisional transfers occurred in the 2013 year and comparatives were updated accordingly.

Consolidated

Ratios (as a percentage of total gross loans and advances)
Individual provisionCollective provision
Bad debts written off

2013
%

2012
%

0.31
0.61
0.35

0.41
0.64
0.35

NOTES TO THE FINANCIAL STATEMENTS107

Notes to the financial statements (continued)
16: Provision for Credit Impairment (continued)
Liquid assets and duefrom other financial
institutions

Net loans
and advances

Other financial
assetsCredit related
commitments1

Total provisions

2013
$m

2012
$m

2013
$m

2012
$m

2013
$m

2012
$m

2013
$m

2012
$m

2013
$m

2012
$m

Collective provision
Balance at start of year
Adjustment for exchange rate fluctuations
DisposalCharge/(credit) to income statement

–
–
–
–

–
–
–
–

1,728
(55)
–
56

2,042
(8)
(4)
(302)

–
–
–
–

–
–
–
–

410
1
–
46

454
(11)
–
(33)

2,138
(54)
–
102

2,496
(19)
(4)
(335)

Total collective provision

–

–

1,729

1,728

–

–

457

410

2,186

2,138

Individual provision
Balance at start of year
New and increased provisions
Adjustment for exchange rate fluctuations
Write-backs
Discount unwind
Bad debts written off

–
–
–
–
–
–

–
–
–
–
–
–

1,242
1,476
(51)
(249)
(75)
(1,297)

1,144
1,777
(45)
(333)
(91)
(1,210)

–
–
–
–
–
–

–
–
–
–
–
–

27
–
(11)
(6)
–
–

6
21
–
–
–
–

1,269
1,476
(62)
(255)
(75)
(1,297)

1,150
1,798
(45)
(333)
(91)
(1,210)

The Company

Total individual provision

–

–

1,046

1,242

–

–

10

27

1,056

1,269

Total provision for credit impairment

–

–

2,775

2,970

–

–

467

437

3,242

3,407

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

17: Shares in Controlled Entities and Associates

2013
%

2012
%

0.28
0.58
0.35

0.36
0.61
0.34

Consolidated

The Company

2013
$m

2012
$m

2013
$m

2012
$m

Total shares in controlled entities1
Total shares in associates2 (refer note 39)

–
4,123

–
3,520

14,955841

11,516897

Total shares in controlled entities and associates

4,123

3,520

15,796

12,413

1 The increase during the year related primarily to the acquisition of ANZ Wealth Australia Limited and its associated subsidiaries from ANZ Orchard Investments Pty Ltd, a wholly owned subsidiaryof the Company; the creation of the ANZ Centre Trust and ANZ Centre Chattels Trust.
2 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 2013 or the year ended
30 September 2012.

108

ANZ ANNUAL REPORT 2013

18: Tax Assets

Consolidated

The Company

2013
$m

2012
$m

2013
$m

2012
$m

–
530

13
520

–
815

13
610

530

533

815

623

1
33

20
73

–
6

–
6

34

93

6

6

19
158

–
192

18
115

–
152

177

192

133

152

Total current and deferred tax assets

741

818

954

781

Total current tax assets

20

33

18

13

Total deferred tax assets

721

785

936

768

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

764
359
318
154
67
323

732
454
310
154
269
349

612
279
223
119
–
134

578
333
188
119
–
156

1,985

2,268

1,367

1,374

16
–

37
–

7
–

14
5

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

16

37

7

19

(1,280)(1,520)

(438)

(625)

721

785

936

768

5

5

–

–

Net deferred tax assets
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; and}} no changes in tax legislation adversely affect the Group in realising the benefit.
Unused realised tax losses (on revenue account)
Unrealised losses on investments2

–

205

–

–

Total unrecognised deferred tax assets

5

210

–

–

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 Unrecognised deferred tax assets arose from unrealised losses on investments backing the superannuation business held in OnePath Life Limited. At 30 September 2013, the unrecognised
deferred tax assets is nil (2012: $205 million) due to an improvement in the performance of the investments backing the superannuation business during the year.

NOTES TO THE FINANCIAL STATEMENTS109

Notes to the financial statements (continued)
19: Goodwill and Other Intangible Assets
Consolidated

The Company

2013
$m

2012
$m

2013
$m

2012
$m

Gross carrying amount
Balances at start of the year
Additions through business combinations
Reclassifications3
Impairment/write off expense
Derecognised on disposal
Foreign currency exchange differences

4,212
–
–
–
(23)
310

4,163
11
7
(1)
–
32

92
–
–
–
(23)
8

87
10
–
–
–
(5)

Balance at end of year

4,499

4,212

77

92

Balances at start of the year
Software Capitalisation during the period
Amortisation expense
Impairment expense/write-offs
Foreign currency exchange differences

1,762
780
(383)
(8)
19

1,572
786
(320)
(274)
(2)

1,613
710
(315)
(8)
7

1,402
720
(268)
(239)
(2)

Balance at end of year

2,170

1,762

2,007

1,613

Cost
Accumulated amortisation
Accumulated impairment

4,258(1,884)
(204)

3,502
(1,537)
(203)

3,866
(1,663)
(196)

3,180
(1,372)(195)

Carrying amount

2,170

1,762

2,007

1,613

Balances at start of the year
Amortisation expense
Foreign currency exchange differences

928
(78)
6

1,013
(85)
–

–
–
–

–
–
–

Balance at end of year

856

928

–

–

1,187
(331)

1,179
(251)

–
–

–
–

856

928

–

–

Balances at start of the year
Other additions
Reclassification3
Amortisation expense2
Impairment expense
Derecognised on disposal
Foreign currency exchange differences

180
3
–
(21)
(1)
–
4

216
5
(7)
(24)
(1)
(8)
(1)

47
–
–
(8)
(1)
–
2

55
1
–
(8)
–
–
(1)

Balance at end of year

165

180

40

47

Cost
Accumulated amortisation
Accumulated impairment

272
(102)
(5)

260
(76)
(4)

74
(35)
1

74
(27)
–

Carrying amount

165

180

40

47

Net book value
Balances at start of the year

7,082

6,964

1,752

1,544

Balance at end of year

7,690

7,082

2,124

1,752

Goodwill1

SoftwareAcquired Portfolio of Insurance and Investment Business

Cost
Accumulated amortisation
Carrying amount

Other intangible assets

Goodwill, software and other intangible assets

1 Excludes notional goodwill in equity accounted entities.
2 Comprises brand names $2 million (2012: $1 million), aligned advisor relationships $6 million (2012: $6 million), distribution agreements and management fee rights $3 million (2012: $8 million),credit card relationships $2 million (2012: $2 million) and other intangibles $8 million (2012: $7 million). The Company comprises distribution agreements and management fee rights $2 million(2012: $2 million), credit card relationships $2 million (2012: $2 million) and other intangibles $4 million (2012: $4 million).
3 Reclassification in 2012 of $7 million from other intangible assets to goodwill.

110

ANZ ANNUAL REPORT 2013

19: Goodwill and Other Intangible Assets (continued)
Goodwill allocated to cash–generating units
The goodwill balance 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 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 the businesses and markets in which each CGU operates.
The earnings are based on the current forecast earnings of thedivisions. The aggregate fair value less cost to sell across the Groupis compared to the Group’s market capitalisation to validate theconclusion that goodwill is not impaired.

20: Other Assets

Key assumptions on which management has based its determinationof fair value less cost to sell include assumptions as to the market
multiples being reflective of the segment’s businesses, cost to sellestimates and the ability to achieve forecast earnings. Changes inassumptions upon which the valuation is based could materially
impact the assessment of the recoverable amount of each CGU. As at
30 September 2013, the impairment testing performed did not resultin any material impairment being identified.

Consolidated

The Company

2013
$m

2012
$m

2013
$m

2012
$m

Accrued interest/prepaid discounts
Accrued commissions
Prepaid expenses
Insurance contract liabilities ceded
Outstanding premiums
Issued securities settlements
Operating leases residual value
Capitalised expenses
Others

1,300
134
319
519
315
3,384
378
–
1,225

1,433
144
232
509
273
1,481
331
21
1,199

890
98
140
–
–
3,140
378
–
600

1,087
100
96
–
–
1,349
321
21
773

Total other assets

7,574

5,623

5,246

3,747

21: Premises and Equipment
Consolidated

Freehold and leasehold land and buildings
At costDepreciation
Leasehold improvements
At costAmortisation
Furniture and equipment
At costDepreciation
Computer equipment
At costDepreciation
Capital works in progress
At costTotal premises and equipment

The Company

2013
$m

2012
$m

2013
$m

2012
$m

1,219
(315)

1,207
(281)

94
(49)

696
(88)

904

926

45

608

587
(394)

548
(353)

406
(262)

373
(232)

193

195

144

141

1,377
(880)

1,327
(811)

1,077
(639)

1,084
(633)

497

516

438

451

1,342
(951)

1,244
(895)

998
(693)

923
(667)

391

349

305

256

179

128

51

78

2,164

2,114

983

1,534

NOTES TO THE FINANCIAL STATEMENTS

111

Notes to the financial statements (continued)
21: Premises and Equipment (continued)
Reconciliations of the carrying amounts for each class of premises and equipment are set out below:
Consolidated

The Company

2013
$m

2012
$m

2013
$m

2012
$m

Freehold and leasehold land and buildings
Carrying amount at beginning of year
Additions1
Disposals2
Depreciation
Foreign currency exchange difference

926
43
(42)
(36)
13

936
33
(6)
(35)
(2)

608
1
(558)
(9)
3

625
5
(2)
(19)
(1)

Carrying amount at end of year

904

926

45

608

Leasehold improvements
Carrying amount at beginning of year
Additions1
Disposals
Amortisation
Foreign currency exchange difference

195
48
(7)
(52)
9

193
64
(5)
(55)
(2)

141
37
(2)
(36)
4

102
79
(3)
(35)
(2)

Carrying amount at end of year

193

195

144

141

Furniture and equipment
Carrying amount at beginning of year
Additions1
Disposals2
Depreciation
Foreign currency exchange difference

516
84
(14)
(97)
8

541
83
(8)
(99)
(1)

451
248
(176)
(88)
3

471
73
(7)
(84)
(2)

Carrying amount at end of year

497

516

438

451

Computer equipment
Carrying amount at beginning of year
Additions1
Disposals2
Depreciation
Impairment
Foreign currency exchange difference

349
161
(13)
(113)
(3)
10

324
137
(6)
(104)
–
(2)

256
129
(4)
(76)
(3)
3

223
108
(5)
(69)
–
(1)

Carrying amount at end of year

391

349

305

256

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

128
51

131
(3)

78
(27)

81
(3)

Carrying amount at end of year

179

128

51

78

Total premises and equipment

2,164

2,114

983

1,534

1 Includes transfers.
2 On the 31st of December 2012, “the Company” transferred the ownership of all Land and Buildings, Furniture and Equipment and Computer Equipment relating to the premises known as“ANZ Centre” located at 833 Collins Street, Docklands into two fully owned Unit Trusts – ANZ Centre Trust and ANZ Centre Chattels Trust. Land and Buildings were transferred at market value of$545.1 million. Furniture and Equipment and Computer Equipment were transferred at their written down value of $167.4 million.

22: Due to Other Financial Institutions

Consolidated

The Company

2013
$m

2012
$m

2013
$m

2012
$m

Deposits from central banks
Cash collateral
Other

13,223
3,921
19,162

13,1852,531
14,822

13,221
3,531
17,397

13,026
2,326
13,042

Total due to other financial institutions

36,30630,53834,14928,394112

ANZ ANNUAL REPORT 2013

23: Deposits and Other Borrowings

Consolidated

The Company

2013
$m

2012
$m

2013
$m

2012
$m

Certificates of deposit
Term Deposits
Other deposits bearing interest and other borrowings
Deposits not bearing interest
Commercial Paper
Borrowing corporations’ debt1

58,276
186,691
166,659
14,446
12,255
1,347

56,838172,313
142,753
11,782
12,164
1,273

56,453
148,593
138,378
7,574
8,015
–

55,326141,042
122,794
6,556
7,818
–

Total deposits and other borrowings

439,674

397,123

359,013

333,536

1 Included in this balance is debenture stock of $19 million (2012: $96 million) 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 of $0.3 billion (2012: $0.4 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 arethose 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 (2012: 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 2.2 billion (2012: NZD 2.1 billion).

24: Income Tax Liabilities

Consolidated

The Company

2013
$m

2012
$m

2013
$m

2012
$m

811
–

660
–

811
–

660
–

811

660

811

660

–
–

–
–

16
–

15
–

–

–

16

15

161
14

121
18

55
12

51
12

175

139

67

63

Total current and deferred income tax liability

986

799

894

738

Total current tax payable

972

781

882

726

Total deferred income tax liabilities

14

18

12

12

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

258
108
227
–
–
581

278
99
230
149
46
570

–
–
39
–
–
373

–
–
59
148
46
345

1,174

1,372

412

598

30
38
52

82
38
46

21
–
17

39
–
–

120

166

38

39

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(1,280)(1,520)

(438)

(625)

Net deferred tax liability

14

18

12

12

Unrecognised deferred tax liabilities
The following deferred tax liabilities have not been bought to account as liabilities:
Other unrealised taxable temporary differences2

216

163

38

23

Total unrecognised deferred tax liabilities

216

163

38

23

Set-off of deferred tax liabilities pursuant to set-off provision1

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.

NOTES TO THE FINANCIAL STATEMENTS

113

Notes to the financial statements (continued)
25: Payables and Other Liabilities

Consolidated

The Company

2013
$m

2012
$m

2013
$m

2012
$m

Creditors
Accrued interest and unearned discounts
Defined benefits plan obligations
Accrued expenses
Security settlements
Liability for acceptances
Other liabilities

1,182
2,135
74
1,517
3,210
812
3,664

984
2,539
149
1,478
1,115
1,239
2,605

431
1,644
29
1,133
3,117
484
2,707

468
2,032
67
1,174
915
1,012
1,886

Total payables and other liabilities

12,594

10,109

9,545

7,554

26: Provisions
Consolidated

The Company

2013
$m

2012
$m

2013
$m

2012
$m

533
57
155
483

533
140
163
365

403
38
131
253

404
51
139
151

Total provisions

1,228

1,201

825

745

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

140
49
(116)
(16)

135
189
(157)
(27)

51
45
(41)
(17)

78
82
(86)
(23)

Carrying amount at the end of the year

57

140

38

51

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

163
23
(16)
(15)

205
29
(16)
(55)

139
12
(7)
(13)

149
17
(6)
(21)

Carrying amount at the end of the year

155

163

131

139

Other provisions3
Carrying amount at beginning of the year
Provisions made during the year
Payments made during the year
Transfer/release of provision

365
463
(336)
(9)

368
353
(305)
(51)

151
147
(31)
(14)

153
75
(30)
(47)

Carrying amount at the end of the year

483

365

253

151

Employee entitlements1
Restructuring costs and surplus leased space2
Non-lending losses, frauds and forgeries
Other

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.

114

ANZ ANNUAL REPORT 2013

27: Bonds and Notes
ANZ utilises a variety of established and flexible funding programmes issuing medium term notes featuring either senior or subordinateddebt status (details of subordinated debt are presented in note 28: Loan Capital). All risks associated with originating term funding are closely
managed. Refer to description 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

2013
$m

2012
$m

2013
$m

2012
$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
TRY
Turkish Lira
ZAR
South African rand
MXN
Mexico peso
CNH
Chinese yuan

33,094
2,711
7,329
2,939
6,681
10,443
1,285
3,460
901
592
259
171
146
190
175

27,035
2,114
6,054
2,531
9,532
9,109
1,422
3,253
857
557
265
79
111
–
179

28,645
2,277
6,572
488
6,356
7,545
1,201
1,621
901
592
88
171
146
190
175

20,718
1,725
5,691
392
9,167
7,256
1,310
1,823
857
557
110
79
111
–
179

Total bonds and notes

70,37663,09856,96849,975NOTES TO THE FINANCIAL STATEMENTS

115

Notes to the financial statements (continued)
28: Loan Capital
Consolidated

The Company

2013
$m

2012
$m

2013
$m

2012
$m

812

752

805

715

1,081
1,963
1,329
1,106

1,078
1,958
1,326
–

1,081
1,963
1,329
1,106

1,078
1,958
1,326
–

6,291

5,114

6,284

5,077

322
743

287
666

322
–

287
–

1,065

953

322

287

699
–
–
–
–
1,211
500
1,496
793
749

633
285
297
355
500
1,057
500
1,505
715
–

699
–
–
–
–
1,214
500
1,500
793
750

633
290
310
365
500
1,060
500
1,509
715
–

5,448

5,847

5,456

5,882

Total loan capital

12,804

11,914

12,062

11,246

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

8,224
743
1,927
699
1,211

7,804
666
1,754
633
1,057

8,229
–
1,920
699
1,214

7,836
–
1,717
633
1,060

12,804

11,914

12,062

11,246

Additional Tier 1 capital (subordinated)
US Trust Securities
ANZ Convertible Preference Shares (ANZ CPS)1ANZ CPS1
ANZ CPS2
ANZ CPS3
ANZ Capital Notes
Tier 2 capital – perpetual subordinated notes
USD
300m
floating rate notes
NZD
835m
fixed rate notes2
Tier 2 Capital – term subordinated notes
GBP
400m
fixed rate notes due 20184
AUD
290m
fixed rate notes due 20174
AUD
310m
floating rate notes due 20173
AUD
365m
floating rate notes due 20183
AUD
500m
floating rate notes due 20183
EUR
750m
fixed rate notes due 2019
AUD
500m
floating rate notes due 20223
AUD
1509m
floating rate notes due 20223
USD
750m
fixed rate notes due 20223
AUD
750m
floating rate notes due 20233

1 Fully franked preference share dividends recognised as interest expense and paid during the year ended 30 September 2013:
Consolidated
The Company

ANZ CPS1
ANZ CPS2
ANZ CPS3

2013
$m

2012
$m

2013
$m

2012
$m

43
86
59

53
105
67

43
86
59

53
105
67

2 Rate reset on 18 April 2013 to the five year swap rate +2.00% 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 iscallable on any interest payment date thereafter.
3 Callable five years prior to maturity.
4 Callable five years prior to maturity and reverts to floating rate if not called.

Loan capital is subordinated in right of payment to the claims of depositors and other creditors of the Company and its controlled entities whichhave issued the notes or preference shares.
As defined by APRA for capital adequacy purposes, the US Trust Securities, ANZ CPS and ANZ Capital Notes constitute Additional Tier 1 capitaland all other subordinated notes constitute Tier 2 capital. The US Trust Securities, ANZ CPS and all outstanding Tier 2 subordinated notes havebeen granted transitional Basel 3 capital treatment by APRA. Transition will apply until the relevant security’s first call date, except in the case of
the outstanding USD and NZD perpetual subordinated notes and ANZ CPS3 where the transition treatment will apply up until the earlier of theend of the transition period (1 January 2021) and the first call date when either a step-up event (i.e. an increase in credit margin) or a conversion
to ANZ ordinary shares is to occur.

116

ANZ ANNUAL REPORT 2013

28: Loan Capital (continued)
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’).
Dividends are not payable on the preference share while it is stapled
to the note. Distributions on US Trust Securities are non‑cumulative
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).
ANZ has announced that it will redeem the US Trust Securities
for cash on 16 December 2013. If the US Trust Securities are notredeemed, the investor is entitled to exchange the US Trust Security
into a variable number of ANZ ordinary shares based on the average
market price of ANZ ordinary shares less a 5% discount.
At any time at the Company’s discretion or upon the occurrence of
certain other ‘conversion events’, the notes that are represented by the
US Trust Securities will be automatically assigned to a subsidiary of theCompany 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 scheduled payments in respect of the US
Trust Securities. If the US Trust Securities are not converted, redeemedor bought back prior to the 15 December 2053, they will be converted
into preference shares, which in turn will be mandatorily converted intoa variable number of ANZ ordinary shares (as described above).
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 to thepreference shares, and similar.
On winding up of the Company, the rights of US Trust Security holders
will be determined by the preference share component of US Trust
Security. The preference shares forming part of the US Trust Securities
rank equally with each of the ANZ CPS, the ANZ Capital Notes and thepreferences shares issued in connection with the Euro Trust Securities.
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, 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 case of
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 aggregate of
the 90 day bank bill rate plus a 250 basis point margin (ANZ CPS1) ora 310 basis point margin (ANZ CPS2) and the 180 day bank bill rateplus 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 forthe 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 ANZ ordinary shares less a 2.5%
discount (ANZ CPS1) or 1.0% discount (ANZ CPS2 and ANZ CPS3),
subject to a maximum conversion number.
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 capital trigger event
occurs the ANZ CPS3 will immediately convert into ANZ ordinary
shares, subject to a maximum conversion number. A common equity
capital trigger event occurs if ANZ’s Common Equity Tier 1 capitalratio is equal to or less than 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 similar terms as mandatory
conversion on a conversion date.
The ANZ CPS rank equally with each other, the ANZ Capital Notes and thepreference shares issued in connection with the US Trust Securities andEuro Trust Securities. Except in limited circumstances, holders of ANZ CPS
do not have any right to vote in general meetings of the Company.
ANZ CAPITAL NOTES
On 7 August 2013, the Company issued 11.2 million convertible
notes at $100 each, raising $1,120 million before issue costs.
The ANZ Capital Notes are fully paid mandatorily convertible
subordinated perpetual notes. The notes are listed on the Australian
Stock Exchange.
Distributions on the notes are non-cumulative and payablesemi‑annual in arrears in March and September in each year andwill be franked in line with the franking applied to ANZ ordinary
shares. The distributions will be based on a floating rate equal to theaggregate of the 180 day bank bill rate plus a 340 basis point margin,
multiplied by one minus the Australian Company tax rate. Should the
distribution not be fully-franked, the terms of the notes provide fora cash gross-up for the amount of the franking benefit not provided.
Distributions are subject to ANZ’s absolute discretion and certain
payment conditions being satisfied (including APRA requirements).
If distributions are not paid on the notes, ANZ may not pay dividends
or distributions, or return capital, on ANZ ordinary shares for a
specified period (subject to certain exceptions).

NOTES TO THE FINANCIAL STATEMENTS

117

Notes to the financial statements (continued)
28: Loan Capital (continued)
On 1 September 2023 (a conversion date), or an earlier date undercertain circumstances, the notes will mandatorily convert into avariable number of ANZ ordinary shares based on the average
market price of ordinary shares less a 1% discount, subject toa maximum conversion number. The mandatory conversion to
ANZ ordinary shares is however deferred for a specified period if
the conversion tests are not met.
If a common equity capital trigger event or a non-viability trigger
event occurs the notes will immediately convert into ANZ ordinary
shares, subject to a maximum conversion number. A common equity
capital trigger event occurs if ANZ’s Common Equity Tier 1 capitalratio is equal to or less than 5.125%. A non-viability trigger event
occurs if APRA notifies the Company that, without the conversion or
write-off of certain securities or a public sector injection of capital(or equivalent support), it considers that the Company would
become non-viable.

On 1 September 2021, subject to receiving APRA’s prior approvaland satisfying certain conditions, the Company has the right toredeem or convert into ANZ ordinary shares all or some of the notes
at its discretion on similar terms as mandatory conversion on aconversion date.
The notes rank equally with each of the ANZ CPS and the preference
shares issued in connection with the US Trust Securities and Euro
Trust Securities. Holders of the notes do not have any right to vote ingeneral meetings of the Company.

29: Share Capital
The Company
Numbers of issued shares

2013

2012

Ordinary shares each fully paid
Preference shares each fully paid

2,743,655,310
500,000

2,717,356,961
500,000

Total number of issued shares

2,744,155,310

2,717,856,961

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 upon a poll
one vote for each share held.
The Company
Numbers of issued shares

2013

2012

Balance at start of the year
Bonus option plan1
Dividend reinvestment plan1
Group employee share acquisition scheme2
Group share option scheme2
Group share buyback3

2,717,356,961
2,719,008
32,625,833
4,850,856
1,354,856(15,252,204)

2,629,034,037
4,090,494
74,110,965
6,983,162
3,138,303–

Balance at end of year

2,743,655,310

2,717,356,961

Consolidated

The Company

2013
$m

2012
$m

2013
$m

2012
$m

Ordinary share capital
Balance at start of the year
Dividend reinvestment plan1
Group employee share acquisition scheme2,4
OnePath Australia Treasury shares5
Group share option scheme2
Group share buyback3

23,070
843
116
7
30
(425)

21,343
1,461
128
78
60
–

23,350
843
116
–
30
(425)

21,701
1,461
128
–
60
–

Balance at end of year

23,641

23,07023,91423,350

1 Refer to note 7 for details of plan.
2 Refer to note 45 for details of plan.
3 Following the issue of 14,766,019 ordinary shares under the Dividend Reinvestment Plan and Bonus Option Plan for the 2013 interim dividend, the Company repurchased $425 million of ordinary
shares via an on-market share buy-back resulting in 15,252,204 ordinary shares being cancelled. The Company intends to neutralise the impact of the ordinary shares issued under the Dividend
Reinvestment Plan and Bonus Option Plan in connection with the 2013 final dividend through an on-market buyback of ordinary shares in an amount equal to the value of those ordinary sharesissued under the Dividend Reinvestment Plan and Bonus Option Plan.
4 Includes on-market purchase of shares for settlement of amounts due under share-based compensation plans. In addition, 4,850,856 shares were issued during the year ended 30 September
2013 to the Group’s Employee Share Trust for settlement of amounts due under share-based compensation plans (2012: 6,983,162). As at 30 September 2013, there were 15,821,529 Treasury
Shares outstanding (2012: 15,673,505).
5 OnePath Australia Limited (OPA) Treasury Shares include shares held in statutory funds as assets backing policyholder liabilities. OPA Treasury Shares outstanding as at 30 September 2013 were
12,573,976 (2012: 13,081,042).

118

ANZ ANNUAL REPORT 2013

29: Share Capital (continued)
Non-controlling INterests
Consolidated
2013
$m

2012
$m

Share capital
Retained earnings

43
19

40
9

Total non-controlling interests

6249

Preference shares
Euro 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).
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
rate plus a 66 basis point margin up until 15 December 2014, after
which date 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 therelevant Euro Trust Securities will be automatically assigned toa branch of the Company and the preference shares that are
represented by the relevant Euro Trust Securities will be distributed toinvestors in redemption of such Euro Trust Securities. The distributed
preference shares will immediately become dividend paying andholders will receive non-cumulative dividends equivalent to thescheduled 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 to thepreference 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 behind all
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, the ANZ Capital Notes and thepreferences shares issued in connection with the US Trust Securities.
Euro Trust Securities currently qualify as Additional Tier 1 Capital as
defined by APRA for capital adequacy purposes. APRA has granted
ANZ transitional Basel 3 capital treatment for the Euro Trust Securities
until their first call date on 16 December 2014.
Consolidated

The Company

2013
$m

2012
$m

2013
$m

2012
$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

119

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

The Company

2013
$m

2012
$m

2013
$m

2012
$m

a) Foreign currency translation reserve
Balance at beginning of the year
Currency translation adjustments, net of hedges after tax(2,831)
1,706(2,418)
(413)

(850)
234

(676)
(174)

Total foreign currency translation reserve(1,125)(2,831)

(616)

(850)

Balance at beginning of the year
Share-based payments/(exercises)
Transfer of options/rights lapsed to retained earnings2

54
3
(2)

50
6
(2)

54
3
(2)

50
6
(2)

Total share option reserve

55

54

55

54

c) Available-for-sale revaluation reserve
Balance at beginning of the year
Gain/(loss) recognised after tax
Transferred to income statement

94
(6)
33

126
193
(225)

21
14
2

35
110
(124)

Total available-for-sale revaluation reserve

121

94

37

21

d) Hedging reserve
Balance at beginning of the year
Gains/(loss) recognised after tax
Transferred to income statement

208
(133)
–

169
27
12

89
(55)
17

47
23
19

Total hedging reserve

75

208

51

89

e) Transactions with non-controlling interests reserve
Balance at beginning of the year
Transactions with non-controlling interests3

(23)
(10)

(22)
(1)

–
–

–
–

Total transactions with non-controlling interests reserve

(33)

(23)

–

–

Total reserves(907)(2,498)

(473)

(686)

b) Share option reserve1

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

2013
$m

2012
$m

2013
$m

2012
$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

19,728
6,272
2
14
20
(4,082)(6)

17,787
5,661
2
(44)
24
(3,691)(11)

13,508
5,346
2
(21)
–
(4,082)–

12,351
4,875
2
(29)
–
(3,691)–Retained earnings at end of year

21,94819,72814,753

13,508

Total reserves and retained earnings

21,041

17,23014,28012,822

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).

a) Foreign currency translation reservec) Available-for-sale revaluation 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(viii). When a foreign operation
is sold, attributable exchange differences are recognised in theincome statement.

Changes in the fair value and exchange differences on the revaluationof available-for-sale financial assets are taken to the available-for-salerevaluation reserve. Where a revalued available-for-sale financial
asset is sold, that portion of the reserve which relates to that financial
asset, is realised and recognised in the income statement. Where
the available-for-sale financial asset is impaired, that portion of
the reserve which relates to that asset is recognised in the income
statement. Refer to note 1 E(iii).

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 reserve andinto share capital when the equity investments are exercised. Refer tonote 1 C(iii).

120d) Hedging reserve
The hedging reserve represents hedging gains and losses recognised on
the effective portion of cash flow hedges. The cumulative deferred gainor loss on the hedge is recognised in the income statement when thehedged transaction impacts the income statement. Refer to note 1 E(ii).

ANZ ANNUAL REPORT 2013

31: Capital Management
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) andLevel 2 (ANZ consolidated under Australian prudential standards),
along with US Federal Reserve’s minimum Level 2 requirements
under ANZ’s Foreign Holding Company Licence in the United Statesof America;}} capital levels are aligned with the risks in the business and to meetstrategic and business development plans through ensuring thatavailable capital exceeds the level of Economic Capital required tosupport the Ratings Agency ‘default frequency’ confidence level fora ‘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; and}} an appropriate balance between maximising shareholder returns
and prudent capital management principles.
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.
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 undertaken overthe planning period and their financial impact are then determined.
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 thelevel of additional capital (i.e. the ‘stress capital buffer’) needed
to absorb losses that may be experienced during an economic
downturn; and}} stress 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 and theBoard’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 andregulatory requirements; and}} identify 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 approved by
the Board which identifies the capital issuance requirements, capitalsecurities 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 anddevelopment of business initiatives and strategies. The Board andsenior 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.
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 3 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 ameasure of an Authorised Deposit-taking Institution’s (ADIs) capital
adequacy. APRA determines PCRs for Common Equity Tier 1 (CET1),
Tier 1 and Total Capital, with capital as the numerator 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); and}} Level 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 yet required toreport on 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.

NOTES TO THE FINANCIAL STATEMENTS

121

Notes to the financial statements (continued)
31: Capital Management (continued)
Tier 1 capital is comprised of Common Equity Tier 1 capital lessdeductions and Additional Tier 1 capital instruments. Common Equity
Tier 1 capital comprises shareholders’ equity adjusted for items which
APRA does not allow as regulatory capital or classifies as lower formsof regulatory capital. Common Equity Tier 1 capital includes thefollowing significant adjustments:}} Additional Tier 1 capital instruments included within shareholders’equity are excluded;}} Reserves excluding the hedging reserve and reserves of insurance
and funds management subsidiaries excluded for Level 2 purposes;}} Retained earnings excluding retained earnings of insurance andfunds management subsidiaries excluded for Level 2 purposes, but
includes capitalised deferred fees forming part of loan yields thatmeet the criteria set out in the prudential standard;}} Inclusion of qualifying treasury shares; and}} Current year net of tax earnings less profits of insurance and funds
management subsidiaries excluded for Level 2 purposes.
Additional Tier 1 capital instruments are high quality components
of capital that provide a permanent and unrestricted commitment offunds, are available to absorb losses, are subordinated to the claims ofdepositors and senior creditors in the event of the winding up of theissuer and provide for fully discretionary capital distributions.
Deductions from the capital base comprise mainly deductions to
the Common Equity Tier 1 component. These deductions are largely
intangible assets, investments in insurance and funds management
entities and associates, capitalised expenses (including loan andorigination fees) and the amount of regulatory expected losses (EL)in excess of eligible provisions.
Tier 2 capital mainly comprises perpetual subordinated debt
instruments and dated subordinated debt instruments which havea 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 Prudential Regulation Authority, the Monetary
Authority of 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 Common Equity Tier 1,
Tier 1 and Total Capital ratios 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.

122

Regulatory change
The Basel Committee on Banking Supervision has released a seriesof consultation papers (Basel 3) containing a number of proposals tostrengthen the global capital and liquidity framework to improve thebanking sector’s ability to absorb shocks arising from financial andeconomic stress.
Following the above, APRA’s released its new prudential capital
standards in September 2012 detailing the implementation of the
majority of Basel 3 capital reforms in Australia. ANZ has implemented
APRA’s Basel 3 capital reforms from 1 January 2013, and is also wellplaced to meet the future implementation of the capital conservation
measures included in the reforms, including the capital conservationbuffer from 1 January 2016.
APRA is still to finalise capital standards on the Basel 3 reforms
dealing with the leverage ratio, contingent capital and measures toaddress systematic and inter‑connected risks.
APRA has announced that it will proceed with implementing Level 3
Conglomerates framework on 1 January 2015, with final Level 3
Prudential Standards on capital adequacy to be released by January
2014. The standards will regulate a bancassurance group such as ANZ
as a single economic entity with minimum capital requirements andadditional reporting on risk exposure levels. Based upon APRA’s draft
prudential standards covering group governance and risk exposuresin December 2012 and draft Level 3 capital adequacy standards
released in May 2013, ANZ is not expecting any material impact on
its operations.

ANZ ANNUAL REPORT 2013

31: Capital Management (continued)
Capital Adequacy
The table below provides the composition of capital used for regulatory purposes and capital adequacy ratios.
Basel 32013$mBasel 22012$m

Tier 1
Shareholders' equity and non-controlling interests
Prudential adjustments to shareholders equity

45,615(932)

41,220(3,857)Gross Common Equity Tier 1 Capital
Deductions

44,683(15,892)

37,363(10,839)

Common Equity Tier 1 Capital
Additional Tier 1 capital

28,791
6,401

26,524
5,977

Tier 1 capital

35,19232,501

Qualifying capital

Tier 2 capital

6,190

4,073

Total qualifying capital

41,382

36,574

Capital adequacy ratios
Common Equity Tier 1
Tier 1
Tier 2

8.5%
10.4%
1.8%

8.8%
10.8%
1.4%

Total

12.2%

12.2%

339,265

300,119

Risk Weighted Assets

Regulatory environment – insurance and funds
management business
Under APRA’s Prudential Standards, life insurance and funds
management activities are de-consolidated for the purposes ofcalculating capital adequacy and excluded from the risk based
capital adequacy framework for the ANZ Level 2 Group. Under
APRA’s Basel 3 framework, investment in these controlled entities
is deducted from CET 1 capital (previously, under Basel 2, only theintangible component of the investment in these controlled entities
was deducted from Tier 1 capital with the balance of the investment
deducted 50% from Tier 1 and 50% from Tier 2 capital). Additionallyany profits from these activities included in ANZ’s results are excluded
from the determination of CET 1 capital to the extent they have notbeen remitted to the Level 2 Group.
ANZ’s insurance companies in Australia are regulated by APRA ona stand-alone basis. Prudential Standards issued under the Life
Insurance Act 1995 and Insurance Act 1973 determine the minimum
capital requirements these companies are required to meet.

APRA reviewed its capital standards for life and general insurers,
and introduced new prudential standards that came into effecton 1 January 2013. Life insurance companies in New Zealand are
required to meet minimum capital requirements as determined by
the Insurance (Prudential Supervision) Act.
Fund managers in Australia are subject to ‘Responsible Entity’regulation by the Australian Securities and Investment Commission(ASIC). ASIC’s new financial requirements for Responsible Entities
became effective from 1 November, 2012. The regulatory capitalrequirements vary depending on the type of Australian Financial
Services Licence or Authorised Representatives’ Licence held.
APRA supervises approved trustees of superannuation funds and it
introduced new financial requirements which became effective from
1 July 2013.
ANZ’s insurance and funds management companies held assets inexcess of regulatory capital requirements at 30 September 2013.

NOTES TO THE FINANCIAL STATEMENTS

123

Notes to the financial statements (continued)
32: Assets Charged as Security for Liabilities and Collateral Accepted as Security for Assets
Assets charged as security for liabilities 1
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.
}} Specified residential mortgages provided as security for notes and bonds issued to investors as part of our covered bond programs.
}} Collateral provided to central banks.
The carrying amounts of assets pledged as security are as follows:
Consolidated

Regulatory deposits
Securities sold under arrangements to repurchase
Assets pledged as collateral under debenture undertakings
Covered bonds1
Other

The Company

Carrying Amount

Related Liability

Carrying Amount

Related Liability

2013
$m

2012
$m

2013
$m

2012
$m

2013
$m

2012
$m

2013
$m

2012
$m

2,106
1,547
2,179
21,770
277

1,478
536
2,073
15,276
165

n/a
1,540
1,347
17,639
145

n/a
528
1,273
11,162
58

990
1,347
–
16,558
258

514
289
–
11,304
164

n/a
1,341
–
16,558
132

n/a
286
–
11,30458

1 The consolidated related liability represents covered bonds issued to external investors. The related liability for the Company represents the liability to the covered bond SPE.

Collateral accepted as security for assets 1
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 agreement
Fair value of assets which can be soldAmount of collateral that has been resold

The Company

2013
$m

2012
$m

2013
$m

2012
$m

10,164
3,073

10,007
3,246

9,974
3,073

9,661
2,903

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 partof the International Swaps and Derivatives Association Master Agreement.

124

ANZ ANNUAL REPORT 2013

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 and non-tradedinterest rate 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 measuring 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 tocustomers, but also from inter-bank, treasury, international trade andcapital 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.
Credit Risk Management Overview
The credit risk management framework ensures a consistent
approach is applied across the Group in measuring, monitoring andmanaging the credit risk appetite set by the Board.
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.
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).
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.
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 on ajudgemental credit basis. Rating models provide a consistent andstructured assessment, with judgement required around the useof out-of-model factors. Credit approval for judgemental lending istypically on a dual approval basis, jointly by the business writer inthe business unit and an independent credit officer; and}} 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.
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 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.
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; and}} 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 the 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.
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).

NOTES TO THE FINANCIAL STATEMENTS

125

Notes to the financial statements (continued)
33: Financial Risk Management (continued)
Collateral management
Collateral is used to mitigate credit risk, as the secondary source of
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; and}} 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 requirements set out the acceptable types of collateral,
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 other relevant external
data to assist in determining the discount that each type of collateral
would be expected to incur in a forced sale. This discounted value isused 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.

126

The Group generally uses Master Agreements with its
counterparties for derivatives activities. Generally, International
Swaps and Derivatives Association (ISDA) Master Agreements will be
used. Under the ISDA Master Agreement, if a default of a counterparty
occurs, all contracts with the counterparty are terminated. They
are then settled on a net basis at market levels current at the timeof default.
In addition to the terms noted above, ANZ’s preferred practice is touse 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 isout of the money. Upon termination of the trade, payment is required
only for the final daily mark-to-market movement rather than themark-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 to be
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 Group also
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 the nature ofcounterparty, probability of default and collateral provided.

ANZ ANNUAL REPORT 2013

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 and   water supply
Entertainment, leisure   and tourism
Financial, investment   and insurance
Government and   official 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 and   water supply
Entertainment, leisure   and tourism
Financial, investment   and insurance
Government and   official institutions
Manufacturing
Personal lending
Property services
Retail trade
Transport and storage
Wholesale trade
Other

1
2
3
4
5
6

Trading and AFS1

Derivatives

Loans
and advances2,6

Other
financialassets3

Credit related
commitments4

Total5,6

2013
$m

2012
$m

2013
$m

2012
$m

2013
$m

2012
$m

2013
$m

2012
$m

2013
$m

2012
$m

2013
$m

2012
$m

2013
$m

2012
$m

11
7
–

101
11
23

3
–
2

6
–
4

274
101
68

83
65
109

13,132
5,679
5,141

12,666
5,490
4,989

213
94
91

154
68
66

8,519
3,658
4,090

8,136
3,003
3,650

22,152
9,539
9,392

21,146
8,637
8,841

–

–

162

162

715

928

3,284

3,316

–

–

3,091

2,245

7,252

6,651

–

40

–

2

118

264

7,431

7,075

108

78

2,146

2,370

9,803

9,829

14,527

9,131

19,30518,85327,55830,680

9,878

8,986

138

101

5,920

4,051

77,32671,802

–
54
–
–
2
8
281
107

32
63
–
345
35
5
264
14

20,930
41
–
10
112
66
3
23

16,642
53
–
24
122
104
6
280

155
472
–
552
146
411
448
1,084

281
653
484
906
6,929
8,124
– 215,540 202,042
1,007 24,821 25,006
194 10,535
9,203
669
6,592
6,413
207
5,684
6,429
705
8,118
8,675

5
145
3,233
424
163
97
102
145

3
105
2,428
307
118
70
74
105

329
8,132
38,477
9,759
4,204
3,206
5,738
4,805

312 22,072 17,754
7,646 15,773 16,897
34,525 257,250 238,995
8,681 35,566 35,370
4,074 15,162 13,746
3,208 10,380 10,469
5,739 12,256 12,719
5,012 14,282 14,791

14,997

10,06440,65736,25832,10236,098 323,417 308,898

4,958

3,677 102,074

92,652 518,205 487,647

13
9
–

19
10
–

26
–
–

–
–
–

29
6
–

59
9
2

16,365835
921

14,555
1,154
812

82
4
5

75
6
4

1,590
414
447

1,491
428
491

18,105
1,268
1,373

16,199
1,607
1,309

17

10

27

23

322

463

665

748

3

4

1,321

1,251

2,355

2,499

–

–

–

–

24

33

919

931

5

5

259

306

1,207

1,275

1,389

1,232

4,557

2,950

5,939

6,880

747

400

231

59

736

832

13,59912,353

20
48
–
12
91
17
78
–

283
34
–
5
22
20
43
–

5,226
–
–
–
–
3
–
41

6,843
5
–
–
5
40
–
26

221
61
–
15
36
48
12
55

322
78
–
32
34
74
17
18

1,094
2,595
53,978
7,065
1,529
1,293
1,092
601

1,063
2,327
45,304
6,056
1,416
1,322
954
689

5
13
270
35
8
6
5
3

5
12
234
31
7
7
5
4

861
1,437
9,099
990
627
542
1,185
891

855
1,632
6,973
899
807
462
1,055
415

7,427
4,154
63,347
8,117
2,291
1,909
2,372
1,591

9,371
4,088
52,511
7,023
2,291
1,925
2,074
1,152

1,694

1,678

9,880

9,892

6,768

8,021

89,69977,731675

458

20,39917,897 129,115 115,677

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.
Prior period restatement due to account reclassification.
Comparative information has been restated to reflect the reclassification of Chattel Mortgages (refer note 1).

NOTES TO THE FINANCIAL STATEMENTS

127

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
Consolidated

Overseas Markets
Agriculture, forestry   fishing and mining
Business services
Construction
Electricity, gas and   water supply
Entertainment, leisure   and tourism
Financial, investment   and insurance
Government and   official 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 insurance
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
Income yet to mature
Capitalised brokerage/
mortgage origination
fees
Excluded from analysis
above

Net Total
1
2
3
4
5
6

Trading and
AFS1 assets

Loans
and advances2,6

Derivatives

Credit related
commitments4

Total6

2013
$m

2012
$m

2013
$m

2012
$m

2013
$m

2012
$m

2013
$m

2012
$m

2013
$m

2012
$m

2013
$m

2012
$m

2013
$m

2012
$m

–
3
1

7
1
1

–
–
–

–
–
–

308
4
14

48
2
10

2,850
919
610

1,590
492
457

45
30
11

36
24
9

5,530
2,953
2,826

4,002
2,155
2,662

8,733
3,909
3,462

5,683
2,674
3,139

–

–

36

29

121

127

2,054

1,603

–

–

2,316

1,687

4,527

3,446

–

–

–

–

9

5

1,057

825

22

18

424

258

1,512

1,106

42,161

38,62911,662

8,442

5,401

3,992

8,795

6,686

73

59

10,646

6,836

78,73864,644

16
32
1
–
1
–
101
–

29
11
–
–
1
3
74
127

6,444
81
–
84
8
69
21
422

5,525
220
–
–
13
1
4
709

39
371
–
159
32
60
140
350

8
269
–
111
22
78
86
52

364
14,198
9,143
4,238
1,172
2,890
9,739
2,629

281
11,404
6,469
3,312
934
2,416
7,315
2,392

12
347
183
103
30
73
165
149

10
279
147
83
24
59
133
120

1,041
26,598
7,821
1,877
1,253
1,891
17,564
1,989

1,059
18,804
6,444
1,349
690
1,211
13,171
2,861

7,916
41,627
17,148
6,461
2,496
4,983
27,7305,539

6,912
30,987
13,060
4,855
1,684
3,768
20,783
6,261

42,31638,883

18,827

14,943

7,008

4,810

60,65846,176

1,243

1,001

84,72963,189 214,781 169,002

24
19
1

127
22
24

29
–
2

6
–
4

611
111
82

190
76
121

32,347
7,433
6,672

28,811
7,136
6,258

340
128
107

265
98
79

15,6397,025
7,363

13,6295,586
6,803

48,99014,716
14,22743,02812,91813,289

17

10

225

214

1,158

1,518

6,003

5,667

3

4

6,728

5,183

14,134

12,596

–

40

–

2

151

302

9,407

8,831

135

101

2,829

2,934

12,522

12,21058,077

48,99235,52430,24538,89841,552

19,42016,072442

219

17,302

11,719 169,663 148,799

36
134
1
12
94
25
460
107

344
108
–
350
58
28
381
141

32,600
122
–
94
120
138
24
486

29,010
278
–
24
140
145
10
1,015

415
904
–
726
214
519
600
1,489

611
2,111
1,828
1,253 23,722 21,855– 278,661 253,815
1,150 36,124 34,374
250 13,236 11,553
821 10,775 10,151
310 16,515 14,698
775 11,348 11,756

22
505
3,686
562
201
176
272
297

18
396
2,809
421
149
136
212
229

2,231
36,16755,397
12,626
6,084
5,639
24,487
7,685

2,226 37,415 34,037
28,082 61,554 51,972
47,942 337,745 304,566
10,929 50,144 47,248
5,571 19,949 17,721
4,881 17,272 16,162
19,965 42,358 35,576
8,288 21,412 22,204

59,00750,62569,36461,09345,87848,929 473,774 432,805

6,876

5,136 207,202 173,738 862,101 772,326

–

–

–

–

–

–
59,007–50,625–69,364–61,093–45,878

–

–

–

–

–

–
59,007–50,625–69,364–61,093

2,907
61,914

3,056
53,681

59
69,423

71
61,164–(1,729)––(2,292) (2,236)
48,929 470,042 428,840

–
6,876

–

(1,440)(1,067)

–

(27)

(44)

(1,467)(1,773)–(595)(529) (2,887) (2,765)
5,136 206,580 173,165 857,747 767,788(1,241)––45,878–942
797
48,929 469,917 428,396

–
6,876

–
–
–
942
797
5,136 206,580 173,165 857,622 767,344–
45,878–––48,929 469,917 428,396

–
6,876

–
–
–
2,966
3,127
5,136 206,580 173,165 860,588 770,471

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.
Prior period restatement due to account reclassification.
Comparative information has been restated to reflect the reclassification of Chattel Mortgages (refer note 1).

128

Other
financialassets3–––(1,067)(1,241)

ANZ ANNUAL REPORT 2013

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 and   water supply
Entertainment, leisure   and tourism
Financial, investment   and insurance5
Government and   official 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 and   water supply
Entertainment, leisure  and tourism
Financial, investment   and insurance5
Government and   official institutions
Manufacturing
Personal lending
Property services
Retail trade
Transport and storage
Wholesale trade
Other

1
2
3
4
5
6

Trading and AFS1

Loans
and advances2,6

Derivatives

Otherfinancialassets3

Credit related
commitments4

Total6

2013
$m

2012
$m

2013
$m

2012
$m

2013
$m

2012
$m

2013
$m

2012
$m

2013
$m

2012
$m

2013
$m

2012
$m

2013
$m

2012
$m

11
7
–

101
11
23

3
–
2

6
–
4

274
101
68

83
65
109

12,9485,670
5,129

12,295
5,451
4,952

161
75
72

103
48
46

8,517
3,658
4,086

6,362
2,354
2,860

21,914
9,511
9,357

18,950
7,929
7,994

–

–

53

56

715

928

3,275

3,292

–

–

3,088

–

7,131

4,276

–

40

–

2

118

264

7,412

7,021

86

55

2,144

1,857

9,760

9,239

14,3089,169

20,173

19,224

32,83735,149

9,974

10,299

122

78

6,030

23,88583,44497,804

–
53
–
–
2
8
276
107

32
63
–
345
35
5
264
14

20,929
41
–
10
112
66
3
23

16,642
53
–
24
122
104
6
280

155
472
–
552
146
411
448
1,084

281
651
481
906
6,905
8,059
– 214,958 200,586
1,007 24,768 24,826
194 10,519
9,135
669
6,592
6,358
207
5,684
6,383
705
8,059
8,665

5
116
2,669
339
130
78
81
117

3
74
1,710
217
83
50
52
75

329
8,132
38,437
9,749
4,204
3,206
5,738
4,746

244 22,069 17,683
5,991 15,719 15,146
27,056 256,064 229,352
6,828 35,418 33,247
3,192 15,113 12,761
2,513 10,361
9,699
4,497 12,230 11,409
4,996 14,136 14,735

14,772

10,102

41,41536,52337,381

40,567 322,544 307,803

4,051

2,594 102,064

92,635 522,227 490,224

–
–
–

–
–
–

–
–
–

–
–
–

–
–
–

–
–
–

–
–
–

–
–
–

–
–
–

–
–
–

–
–
–

–
–
–

–
–
–

–
–
–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

11

10

–

–

–

–

–

–

11

10

–
–
–
–
–
–
–
–

–
–
–
–
–
–
–
–

–
–
–
–
–
–
–
–

–
–
–
–
–
–
–
–

–
–
–
–
–
–
–
–

–
–
–
–
–
–
–
–

–
–
8,252
–
–
–
–
–

–
–
7,518
–
–
–
–
–

–
–
–
–
–
–
–
–

–
–
–
–
–
–
–
–

–
–
48
–
–
–
–
–

–
–
82
–
–
–
–
–

–
–
8,300
–
–
–
–
–

–
–
7,600
–
–
–
–
–

–

–

–

–

11

10

8,252

7,518

–

–

48

82

8,311

7,610

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.
Comparative information has been restated to reflect the reclassification of Chattel Mortgages (refer note 1).

NOTES TO THE FINANCIAL STATEMENTS

129

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

Overseas Markets
Agriculture, forestry   fishing and mining
Business services
Construction
Electricity, gas and   water supply
Entertainment, leisure   and tourism
Financial, investment   and insurance5
Government and   official 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 and   water supply
Entertainment, leisure   and tourism
Financial, investment   and insurance5
Government and   official 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
Income yet to mature
Capitalised brokerage/
mortgage origination
fees
Excluded from analysis   above

Net total
1
2
3
4
5
6

Trading and
AFS1 assets

Loans
and advances2,6

Derivatives

Credit related
commitments4

Total6

2013
$m

2012
$m

2013
$m

2012
$m

2013
$m

2012
$m

2013
$m

2012
$m

2013
$m

2012
$m

2013
$m

2012
$m

2013
$m

2012
$m

–
2
1

2
–
–

–
–
–

–
–
–

173
2
7

25
1
5

2,363
778
414

988
422
296

17
13
4

18
14
4

4,335
2,361
2,737

3,655
2,040
2,560

6,888
3,156
3,163

4,688
2,477
2,865

–

–

–

27

56

69

1,759

1,493

–

–

1,743

–

3,558

1,589

–

–

–

–

5

3

815

598

11

12

307

180

1,138

793

36,95235,720

9,765

6,671

2,804

2,269

7,875

6,466

47

49

7,859

6,731

65,302

57,906

12
8
–
–
1
–
81
2

25
3
–
–
1
3
46
37

3,608
7
–
76
–
62
–
310

4,332
204
–
–
–
1
–
507

22
158
–
83
17
32
63
197

5
113
–
79
11
40
41
28

222
8,385
5,708
3,559
627
2,291
7,885
2,168

255
9,149
5,300
2,938
563
1,940
6,117
1,866

8
196
93
65
13
36
93
81

8
207
98
68
14
38
98
85

963
21,024
3,647
1,441
691
1,461
14,2471,543

1,053
16,021
5,672
1,165
454
1,191
11,7802,861

4,835
29,778
9,448
5,224
1,349
3,882
22,3694,301

5,678
25,697
11,070
4,250
1,043
3,213
18,082
5,384

37,05935,837

13,828

11,742

3,619

2,689

44,84938,391

677

713

64,35955,363 164,391 144,735

11
9
1

103
11
23

3
–
2

6
–
4

447
103
75

108
66
114

15,311
6,448
5,543

13,283
5,873
5,248

178
88
76

121
62
50

12,852
6,019
6,823

10,0174,394
5,420

28,802
12,667
12,52023,638
10,406
10,859

–

–

53

83

771

997

5,034

4,785

–

–

4,831

–

10,689

5,865

–

40

–

2

123

267

8,227

7,619

97

67

2,451

2,037

10,89810,032

51,26044,88929,93825,89535,65237,428

17,84916,765169

127

13,88930,616 148,757 155,720

12
61
–
–
3
8
357
109

57
66
–
345
36
8
310
51

24,537
48
–
86
112
128
3
333

20,974
257
–
24
122
105
6
787

177
630
–
635
163
443
511
1,281

286
873
736
1,019 15,290 17,208– 228,918 213,404
1,086 28,327 27,764
205 11,146
9,698
709
8,883
8,298
248 13,569 12,500
733 10,227 10,531

13
312
2,762
404
143
114
174
198

11
281
1,808
285
97
88
150
160

1,292
29,15642,132
11,190
4,895
4,667
19,985
6,289

1,297 26,904 23,361
22,012 45,497 40,843
32,810 273,812 248,022
7,993 40,642 37,497
3,646 16,462 13,804
3,704 14,243 12,912
16,277 34,599 29,491
7,857 18,437 20,119

51,83145,93955,24348,26541,011

43,266 375,645 353,712

4,728

3,307 166,471 148,080 694,929 642,569

–

–

–

–

–

–

–

–

–

–

51,83145,93955,24348,26541,011

–

–

–

–

–

–

(1,046)(1,242)–(1,729)(1,728)–43,266 372,870 350,742

4,728

–

–

(723)

(952)

–

787

707

–

43,266 372,934 350,497

4,728

–

–

–

–

–

51,83145,93955,24348,26541,011

954

1,010

44

66

–

–

52,78546,94955,287

48,33141,011

43,266––––372,934 350,497

4,728

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.
Comparative information has been restated to reflect the reclassification of Chattel Mortgages (refer note 1).

130

Other
financialassets3

–

(10)

(27)

(1,056)(1,269)

–

(457)

(410)

(2,186)(2,138)3,307 166,004 147,643 691,687 639,162
–

–

–

(723)

(952)

–

–

–

787

707

3,307 166,004 147,643 691,751 638,917
–

–

–

998

1,076

3,307 166,004 147,643 692,749 639,993

ANZ ANNUAL REPORT 2013

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 theGroup would have to pay if the instrument is called upon. For undrawn facilities, the maximum exposure to credit risk is the full amount of thecommitted 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 on
Balance Sheet

Maximum exposure
to credit risk

Exclude1

2013
$m

2012
$m

2013
$m

2012
$m

2013
$m

2012
$m

On-balance sheet positions
Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments2
Available-for-sale assets

39,737
22,17741,28845,87828,13536,578
17,10340,602
48,92920,562

2,907
–
–
–
59

3,056
–
–
–
71

36,83022,17741,28845,87828,07633,522
17,10340,602
48,92920,491

Net loans and advances3– Australia4– International and Institutional Banking4– New Zealand4– Global Wealth
Other financial assets5,6

271,619
110,075
81,414
6,187
6,876

253,892
98,30270,268
5,361
5,136

–
–
–
–
–

–
–
–
–
–

271,619
110,075
81,414
6,187
6,876

253,892
98,30270,2685,361
5,136

On-balance sheet sub total

653,386

596,733

2,966

3,127

650,420593,606

Off-balance sheet positions
Undrawn facilities
Contingent facilities

170,670
36,532

141,355
32,383––––

170,670
36,532

141,355
32,383Off-balance sheet sub total

207,202173,738––

207,202173,738

Total

860,588

770,471

2,966

3,127

857,622

767,344

Consolidated

Reported onbalance Sheet

Maximum exposure
to credit risk

Exclude1

2013
$m

2012
$m

2013
$m

2012
$m

2013
$m

2012
$m

On-balance sheet positions
Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments2
Available-for-sale assets
Net loans and advances3
Other financial assets6

33,83818,947
31,46441,011
23,823
372,467
4,728

32,782
14,16730,49043,266
17,841350,060
3,307

954
–
–
–
44
–
–

1,010
–
–
–
66
–
–

32,884
18,947
31,46441,011
23,779372,467
4,728

31,772
14,16730,49043,266
17,775350,060
3,307

On-balance sheet sub total

526,278

491,913

998

1,076

525,280

490,837

Off-balance sheet positions
Undrawn facilities
Contingent facilities

134,622
31,849118,461
29,619––––134,622
31,849118,461
29,619Off-balance sheet sub total

166,471

148,080––

166,471

148,080

Total

692,749

639,993

998

1,076

691,751

638,917

NOTES TO THE FINANCIAL STATEMENTS

131

The Company

1
2
3
4
5
6

Includes bank notes and coins and cash at bank within liquid assets and equity instruments within available-for-sale financial assets.
Derivative financial instruments are net of credit valuation adjustments.
Includes individual and collective provisions for credit impairment held in respect of credit related commitments.
Includes impact of divisional reclassification.
Prior period restatement due to account reclassification.
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 quality
The 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

2013
$m

2012
$m

2013
$m

2012
$m

2013
$m

2012
$m

2013
$m

2012
$m

2013
$m

2012
$m

Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments1
Available-for-sale assets

36,83022,17741,28845,78628,07633,522
17,10340,602
48,784
20,491

–
–
–
–
–

–
–
–
–
–

–
–
–
25
–

–
–
–
29
–

–
–
–
67
–

–
–
–
116
–

36,83022,17741,28845,87828,07633,522
17,10340,602
48,92920,491

Net loans and advances2– Australia3– International and Institutional Banking3– New Zealand3– Global Wealth
Other financial assets4,5
Credit related commitments6

261,250
108,450
79,136
6,069
6,876
207,124

244,196
96,49967,621
5,241
5,136
173,591

9,447
443
1,770
103
–
–

8,550
623
1,863
99
–
–

3
300
13
–
–
–

39
309
148
–
–
–

919
882
495
15
–
78

1,107
871
636
21
–
147

271,619
110,075
81,4146,187
6,876
207,202

253,892
98,30270,2685,361
5,136
173,738

Total

843,062752,786

11,763

11,135

341

525

2,456

2,898

857,622

767,344

Consolidated

Restructured

Impaired

Maximum exposure
to credit risk

Neither past
due nor
impaired

Past due but not
impaired

2013
$m

2012
$m

2013
$m

2012
$m

2013
$m

2012
$m

2013
$m

2012
$m

2013
$m

2012
$m

Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments1
Available-for-sale assets
Net loans and advances2
Other financial assets4
Credit related commitments6

32,884
18,947
31,46440,91923,779360,814
4,728
166,399

31,772
14,16730,49043,122
17,775
338,7173,307
147,935

–
–
–
–
–
9,717
–
–

–
–
–
–
–
9,091
–
–

–
–
–
25
–
259
–
–

–
–
–
29
–
348
–
–

–
–
–
67
–
1,677
–
72

–
–
–
115
–
1,904
–
145

32,884
18,947
31,46441,011
23,779372,467
4,728
166,471

31,772
14,16730,49043,266
17,775350,060
3,307
148,080

Total

679,934

627,285

9,717

9,091

284

377

1,816

2,164

691,751

638,917

The Company

1
2
3
4
5
6

Derivative assets, considered impaired, are net of credit valuation adjustments.
Includes individual and collective provisions for credit impairment held in respect of credit related commitments.
Includes impact of divisional reclassification.
Mainly comprises trade dated assets and accrued interest.
Prior period restatement due to account reclassification.
Comprises undrawn facilities and customer contingent liabilities.

132

Restructured

Impaired

Maximum exposure
to credit risk

ANZ ANNUAL REPORT 2013

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.

Strong credit profile
Consolidated

Satisfactory risk

Sub-standard
but not pastdue or impaired

Neither past due nor
impaired total

2013
$m

2012
$m

2013
$m

2012
$m

2013
$m

2012
$m

2013
$m

2012
$m

Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances1– Australia2– International and Institutional Banking2– New Zealand2– Global Wealth
Other financial assets3,4
Credit related commitments5

36,704
21,206
41,28844,531
26,78132,790
16,29640,503
46,577
19,065

112
967
–
1,104
1,280

664
792
99
1,962
1,420

14
4
–
151
15

68
15
–
245
6

36,83022,17741,28845,78628,07633,522
17,10340,602
48,784
20,491

194,152
84,07054,512
3,378
6,536
175,609

181,060
73,172
43,532
2,464
4,742
142,037

54,603
21,42922,381
2,667
289
29,27551,99020,105
21,2622,701
334
29,535

12,495
2,951
2,243
24
51
2,240

11,146
3,222
2,827
76
60
2,019

261,250
108,450
79,136
6,069
6,876
207,124

244,196
96,49967,621
5,241
5,136
173,591

Total

688,767

602,238

134,107

130,864

20,188

19,684

843,062752,786

Strong credit profile

Satisfactory risk

Sub-standard
but not pastdue or impaired

Neither past due nor
impaired total

2013
$m

2012
$m

2013
$m

2012
$m

2013
$m

2012
$m

2013
$m

2012
$m

Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances1
Other financial assets3
Credit related commitments5

32,82018,526
31,46439,76323,707
272,401
4,510
143,669

31,107
13,80630,46041,09017,707
253,522
3,032
125,774

43
421
–
1,011
63
73,628182
20,939

609
357
30
1,837
62
71,334230
20,500

21
–
–
145
9
14,785
36
1,791

56
4
–
195
6
13,86145
1,661

32,884
18,947
31,46440,91923,779360,814
4,728
166,399

31,772
14,16730,49043,122
17,775
338,7173,307
147,935

Total

566,860

516,498

96,287

94,95916,787

15,828679,934

627,285

NOTES TO THE FINANCIAL STATEMENTS

133

The Company

1
2
3
4
5

Includes individual and collective provisions for credit impairment held in respect of credit related commitments.
Includes impact of divisional reclassification.
Mainly comprises trade dated assets and accrued interest.
Prior period restatement due to account reclassification.
Comprises undrawn commitments 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 personal loans) 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.
Consolidated
As at 30 Sep 13

Liquid assets
Due from other financial
institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances1– Australia– I nternational andInstitutional Banking– New Zealand– Global Wealth
Other financial assets2
Credit related commitments3
Total

The Company

1-5
days
$m

6-29
days
$m

30-59
days
$m

60-89
days
$m

>90
days
$m

–

–

–

–

–
–
–
–
3,096
2,231

–
–
–
–
4,416
3,622

–
–
–
–
1,506
1,295

–
852
13
–
–

299
435
60
–
–

3,096

4,416

Total
$m

1-5
days
$m

6-29
days
$m

30-59
days
$m

60-89
days
$m

>90
days
$m

Total
$m

–

–

–

–

–

–

–

–

–
–
–
–
927
745

–
–
–
–
1,818
1,554

–
–
–
–
11,763
9,447

–
–
–
–
2,240
–

–
–
–
–
3,798
–

–
–
–
–
1,313
–

–
–
–
–
790
–

–
–
–
–
1,576
–

–
–
–
–
9,717
–

1
209
1
–
–

88
83
11
–
–

55
191
18
–
–

443
1,770
103
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

1,506

927

1,818

11,763

2,240

3,798

1,313

790

1,576

9,717

Consolidated
As at 30 Sep 12

Liquid assets
Due from other financial
institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances1– Australia4– I nternational andInstitutional Banking4– New Zealand– Global Wealth
Other financial assets2
Credit related commitments3
Unknown
Total
1
2
3
4

The Company

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

–

–

–

–

–

–

–

–

–

–

–

–

–
–
–
–
2,285
1,454

–
–
–
–
4,926
3,823

–
–
–
–
1,478
1,263

–
–
–
–
733
561

–
–
–
–
1,713
1,449

–
–
–
–
11,135
8,550

–
–
–
–
1,544
–

–
–
–
–
4,197
–

–
–
–
–
1,289
–

–
–
–
–
606
–

–
–
–
–
1,455
–

–
–
–
–
9,091
–

46
772
13
–
–
–

409
619
75
–
–
–

4
208
3
–
–
–

80
84
8
–
–
–

84
180
–
–
–
–

623
1,863
99
–
–
–

–
–
–
–
–
–

–
–
–
–
–
–

–
–
–
–
–
–

–
–
–
–
–
–

–
–
–
–
–
–

–
–
–
–
–
–

2,285

4,926

1,478

733

1,713

11,135

1,544

4,197

1,289

606

1,455

9,091

Includes individual and collective provisions for credit impairment held in respect of credit related commitments.
Mainly comprises trade dated assets and accrued interest.
Comprises undrawn commitments and customer contingent liabilities.
Prior period restatement includes impact of divisional reclassification.

134

ANZ ANNUAL REPORT 2013

33: Financial Risk Management (continued)
Estimated value of collateral for all financial assets
Financial effectof collateral
Consolidated

Maximum exposure tocredit risk

Unsecured portion of
credit exposure

2013
$m

2012
$m

2013
$m

2012
$m

2013
$m

2012
$m

Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances1– Australia2– International and Institutional Banking2– New Zealand2– Global Wealth
Other financial assets3,4
Credit related commitments5

9,640
–
1,037
3,921
330

9,103
–
705
2,531
210

36,83022,17741,28845,87828,07633,522
17,10340,602
48,92920,491

27,19022,17740,251
41,957
27,746

24,41917,10339,897
46,39820,281

242,647
38,80376,3285,587
1,188
35,938225,934
39,091
66,0475,088
1,263
35,604

271,619
110,075
81,4146,187
6,876
207,202

253,892
98,30270,2685,361
5,136
173,738

28,972
71,272
5,086
600
5,688
171,264

27,95859,211
4,221
273
3,873
138,134

Total

415,419

385,576

857,622

767,344442,203381,768

Financial effectof collateral

Maximum exposure tocredit risk

Unsecured portion of
credit exposure

2013
$m

2012
$m

2013
$m

2012
$m

2013
$m

2012
$m

Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances1
Other financial assets3
Credit related commitments5

9,292
–
671
3,531
222
296,307843
29,394

8,619
–
346
2,326
102
270,895
1,008
29,74432,884
18,947
31,46441,011
23,779372,467
4,728
166,471

31,772
14,16730,49043,266
17,775350,060
3,307
148,080

23,592
18,94730,79337,48023,557
76,1603,885
137,077

23,153
14,16730,14440,94017,673
79,165
2,299
118,336

Total

340,260

313,040

691,751

638,917351,491

325,877

NOTES TO THE FINANCIAL STATEMENTS

135

The Company

1
2
3
4
5

Includes individual and collective provisions for credit impairment held in respect of credit related commitments.
Includes impact of divisional reclassification.
Mainly comprises trade dated assets and accrued interest.
Prior period restatement due to account reclassification.
Comprises undrawn commitments and customer contingent liabilities.

Notes to the financial statements (continued)
33: Financial Risk Management (continued)
Financial assets that are individually impaired
Consolidated
Impaired assets
2013
2012
$m
$m

The Company

Individual provisionbalance
2013
2012
$m
$m

Impaired assets
2013
2012
$m
$m

Individual provisionbalance
2013
2012
$m
$m

Australia
Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Loans and advances
Other financial assets1
Credit related commitments2

–
–
–
67
–
2,353
–
82

–
–
–
111
–
2,838
–
173

–
–
–
–
–
934
–
10

–
–
–
–
–
1,100
–
27

–
–
–
67
–
2,260
–
82

–
–
–
111
–
2,664
–
172

–
–
–
–
–
896
–
10

–
–
–
–
–
1,009
–
27

Subtotal

2,502

3,122

944

1,127

2,409

2,947

906

1,036

New ZealandLiquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Loans and advances
Other financial assets1
Credit related commitments2

–
–
–
–
–
814
–
23

–
–
–
–
–
991
–
18

–
–
–
–
–
244
–
17

–
–
–
–
–
351
–
17

–
–
–
–
–
30
–
–

–
–
–
–
–
31
–
–

–
–
–
–
–
8
–
–

–
–
–
–
–
9
–
–

Subtotal

837

1,009

261

368

30

31

8

9

Overseas
Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Loans and advances
Other financial assets1
Credit related commitments2

–
–
–
–
–
584
–
–

–
–
–
5
–
535
–
–

–
–
–
–
–
262
–
–

–
–
–
–
–
277
–
–

–
–
–
–
–
433
–
–

–
–
–
4
–
451
–
–

–
–
–
–
–
142
–
–

–
–
–
–
–
224
–
–

Subtotal

584

540

262

277

433

455

142

224

Aggregate
Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Loans and advances
Other financial assets1
Credit related commitments2

–
–
–
67
–
3,751
–
105

–
–
–
116
–
4,364
–
191

–
–
–
–
–
1,440
–
27

–
–
–
–
–
1,729
–
44

–
–
–
67
–
2,723
–
82

–
–
–
115
–
3,146
–
172

–
–
–
–
–
1,046
–
10

–
–
–
–
–
1,242
–
27

Total

3,923

4,671

1,467

1,773

2,872

3,433

1,056

1,269

1 Mainly comprises trade dated assets and accrued interest.
2 Comprises undrawn commitments and customer contingent liabilities.

136

ANZ ANNUAL REPORT 2013

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 and volatilities
lead to a decline in the value of assets and liabilities, including
financial derivatives. Market risk is generated through both 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 both market risks
and compliance with market risk policy is delegated by the Risk
Committee to the Credit and Market Risk Committee (CMRC) and theGroup Asset & Liability Committee (GALCO). The CMRC, chaired by
the Chief Risk Officer, is responsible for the oversight of market risk.
All committees receive regular reporting on the range of trading andbalance 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 (tomonitor 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 thevalue of a financial instrument due to changes in foreign exchange
rates or their implied volatilities.
}} Interest rate risk is the potential loss arising from the change in thevalue 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 invalue of an instrument due to a movement of its margin or spread
relative to a benchmark.
}} Commodity risk is the potential loss arising from the decline in thevalue 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 the valueof a financial instrument due to changes in stock prices or theirimplied 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 historicalmarket 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 physical andderivative trading positions. Trading positions arise from transactions
where ANZ acts as principal with customers, financial exchanges orinterbank counterparties.

NOTES TO THE FINANCIAL STATEMENTS

137

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 2013

30 September 2012

Consolidated

As at
$m

High foryear$mValue at risk at 99% confidence
Foreign exchangeInterest rate
CreditCommodity
EquityDiversification benefit

3.0
3.9
4.2
1.6
1.4
(8.5)

12.6
11.6
8.6
4.2
3.4
n/a

2.3
2.8
2.8
1.2
0.6
n/a

5.2
5.8
4.2
2.3
1.6
(10.4)

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)

5.6

13.6

4.9

8.7

8.1

13.6

5.7

9.3

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
Foreign exchangeInterest rate
CreditCommodity
EquityDiversification benefit

3.0
3.7
3.8
1.6
1.4
(8.6)

11.5
12.8
8.6
4.2
3.4
n/a

2.3
2.6
2.7
1.2
0.6
n/a

5.2
5.8
4.1
2.3
1.6
(10.4)

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)

4.9

12.9

4.7

8.6

7.8

13.3

5.4

8.9

Low foryear$mAverage for
year
$m

As at
$m

High foryear$m

Low foryear$mAverage foryear$m

30 September 2013

30 September 2012

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 forregulatory 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.

138

ANZ ANNUAL REPORT 2013

33: Financial Risk Management (continued)
Non-traded Market Risk (Balance Sheet Risk)
The principal objectives of balance sheet management are to maintain acceptable levels of interest rate and liquidity risk to mitigate thenegative impact of movements in interest rates on the earnings and market value of the Group’s banking book, while ensuring the Group
maintains sufficient liquidity to meet its obligations as they fall due.
Interest rate risk
The objective of balance sheet interest rate risk management is to secure stable and optimal net interest income over both the short(next 12 months) and long-term. Non-traded interest rate risk relates to the potential adverse impact of changes in market interest rates on theGroup’s future net interest income. This risk arises from two principal sources: mismatches between the repricing dates of interest bearing assets
and liabilities; 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.
2013

2012

Consolidated

As at
$m

High foryear$mValue at risk at 99% confidence
Australia
New Zealand
Asia Pacific, Europe & America
Diversification benefit

66.3
12.6
9.7
(11.4)

71.8
17.9
11.1
n/a

25.5
10.0
4.2
n/a

49.3
13.2
6.3
(16.1)

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)

77.2

79.6

27.3

52.7

27.7

29.4

15.7

22.6

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

66.3
0.2
9.2
(1.8)

71.8
0.6
10.3
n/a

25.5
0.1
3.0
n/a

49.3
0.3
5.3
(3.3)

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)

73.9

76.3

26.5

51.6

26.7

28.9

12.9

20.3

Low foryear$mAverage for
year
$m

As at
$m

High foryear$m

Low foryear$mAverage for
year
$m

2013

2012

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

2013

2012

2013

2012

Impact of 1% rate shock
As at period end
Maximum exposure
Minimum exposure

1.00%
1.72%
1.00%

1.55%
2.45%
1.26%

1.16%
2.04%
1.16%

1.92%
2.99%
1.47%

Average exposure (in absolute terms)

1.29%

1.95%

1.55%

2.36%

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 resultof these repricing mismatches.

NOTES TO THE FINANCIAL STATEMENTS

139

Notes to the financial statements (continued)
33: Financial Risk Management (continued)
Interest rate risk (continued)
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 are also
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 equity securities can fluctuate.
The table below outlines the composition of the equity holdings.
Consolidated

The Company

2013
$m

2012
$m

2013
$m

2012
$m

Other equity holdings

59

71

44

66

Impact on equity of 10% variation in value

6

7

4

7

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 foreignexchange rates.
The main operating (or functional) currencies of Group entities
are the Australian dollar, the New Zealand dollar and the US dollar,
with a number of overseas undertakings operating in various othercurrencies. 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 byexchange differences between the Australian dollar and functional
currencies of foreign operations. Variations in the value of theseoverseas operations arising as a result of exchange differences arereflected 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 ofchanges in exchange rates.
Selective hedges were in place during the 2013 and 2012 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
maturing wholesale debt, or that the Group has insufficient capacity
to fund increases in assets. The timing mismatch of cash flows andthe related liquidity risk is inherent in all banking operations and isclosely monitored by the Group. The Group maintains a portfolioof 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 general market liquidity stress scenarios
such that potential cash flow obligations can be met over the short tomedium term.

140

The Group’s liquidity and funding risks are governed by a set ofprinciples which are approved by the ANZ Board Risk Committee.
The core objective of the overall framework is to ensure that theGroup has sufficient liquidity to meet obligations as they fall due,
without incurring unacceptable losses. In response to the impactof the global financial crisis, the framework has been reviewed
and updated. The following key components underpin theoverall framework:}} Maintaining the ability to meet all payment obligations in theimmediate term;}} Ensuring that the Group has the ability to meet ‘survival horizons’
under a range of ANZ specific and general market liquidity stressscenarios, 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 toensure 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
under stress;}} Ensuring the liquidity management framework is compatible withlocal 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; and}} Establishing 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).

ANZ ANNUAL REPORT 2013

33: Financial Risk Management (continued)
Scenario modelling
A key component of the Group’s liquidity management frameworkis 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 theordinary course of business. APRA requires that the Group must beable to meet all commitments and obligations under a going concern
scenario, within the ADIs normal funding capacity (‘available to fund’limit), over at least the following 30 calendar days. In estimating
the funding requirement, the Group models expected cashflows byreference to historical behaviour and contractual maturity data.
‘Name-crisis’: refers to a potential name-specific liquidity crisis whichmodels the behaviour of cash flows where there is a problem (realor perceived) which may include, but is not limited to, operational
issues, doubts about the solvency of the Group or adverse ratingchanges. Under this scenario the Group may have significant difficultyrolling over or replacing funding. Under a name crisis, APRA requires
the Group to be cashflow 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 stress events. As a result, the Group hasenhanced 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 a positive cashflow 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 stressduring a period of market stress.

}} Short Term Crisis Scenario (NSTC): A name-specific stress during aperiod of normal markets conditions.
}} Global Funding Market Disruption (GFMD): Stressed global
wholesale funding markets leading to a closure of domestic andoffshore 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 compliancewith all scenarios that are required to be modelled. Additionally, wemeasure, 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 withthe 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 andcontinue to be repo eligible.
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 $21.2 billion,}} Australian Commonwealth and State Government securities of$6.9 billion and gold & precious metals of $2.9 billion, and,}} cash and other securities to satisfy local country regulatory liquidity
requirements which are not included in the liquid assets below.

Eligible securities
2013
$m

2012
$m

Australia
New ZealandUnited States
United Kingdom
Singapore
Hong KongJapan

27,787
11,095
2,067
5,129
3,106
596
1,359

24,05010,990
1,367
3,260
4,491
608
1,340

Prime Liquidity Portfolio (excluding Internal RMBS)Internal RMBS (Australia)
Internal RMBS (New Zealand)

51,13935,677
3,738

46,10634,871
2,981

Total Prime Portfolio

90,554

83,958

Prime liquidity portfolio (market values1)

Other Eligible Securities

31,01330,605

Total

121,567

114,563

1 Market value is post the repo discount applied by the applicable central bank

NOTES TO THE FINANCIAL STATEMENTS

141

Notes to the financial statements (continued)
33: Financial Risk Management (continued)
Liquidity Crisis Contingency Planning
The Group maintains APRA-endorsed liquidity crisis contingency
plans defining an approach for analysing and responding to aliquidity 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.

Group Funding
ANZ manages its funding profile using a range of funding metrics
and balance sheet disciplines. This approach is designed to ensurethat an appropriate proportion of the Group’s assets are fundedby stable funding sources including core customer deposits,
longer‑dated wholesale funding (with a remaining term exceeding
one year) and equity.

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, andmechanisms 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 andliability 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; and}} Assigned responsibilities for internal and external communications.

The Group’s global wholesale funding strategy is designed todeliver a sustainable portfolio of wholesale funds that balances cost
efficiency against prudent diversification and duration.

Regulatory change
The Basel 3 Liquidity changes include the introduction of two new
liquidity ratios to measure liquidity risk (the Liquidity Coverage Ratio(LCR) and the Net Stable Funding Ratio (NSFR)). A component of theliquidity required under the proposed standards will likely be met
via the previously announced Committed Liquidity Facility from theReserve Bank of Australian (RBA), however the size and availabilityof the facility has not yet been agreed with APRA and the RBA.
While ANZ has an existing stress scenario framework and structuralliquidity risk metrics and limits in place, the requirements proposed
are in general more challenging. These changes may impact the
future composition and size of ANZ’s liquidity portfolio, the sizeand composition of the Bank’s funding base and consequently
could affect future profitability. The Basel Committee on Banking
Supervision released revised LCR details in January 2013 which
included the re-calibration of certain balance sheet ‘run-off factors’.
APRA released a second draft Prudential Standard on its requirements
in May 2013 which largely adopted the recalibrated Basel runoff
factors. ANZ is expecting a final Prudential Standard from APRA
before the end of the 2013 calendar year as well as draft standards on
Basel 3 Liquidity implementation from some offshore regulators fromlate 2013 onwards.

142

Funding plans and performance relative to those plans are reported
regularly to senior management via the Group Asset and Liability
Committee (GALCO). These plans address customer balance sheet
growth and changes in wholesale funding including, targetedfunding volumes, markets, investors, tenors and currencies for senior,subordinated and hybrid transactions. Plans are supplemented witha monthly forecasting process which reviews the funding position
to‑date in light of market conditions and balance sheet requirements.
Funding plans are generated through the three-year strategicplanning process. Asset and deposit plans are submitted at thebusiness segment level 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 ismanaged and executed through Group Treasury operations inAustralia and New Zealand.
Funding Position 2013
ANZ targets a diversified funding base, avoiding undue concentrations
by investor type, maturity, market source and currency.
$23.7 billion of term wholesale debt (with a remaining term greaterthan one year as at September 30, 2013) was issued during thefinancial year ended 30 September 2013. In addition, $1.1 billion of
ANZ Capital Notes and $0.4 billion of ANZ Wealth bonds were issued.
}} Access to all major global wholesale funding markets remained
available to ANZ during 2013.
}} All wholesale funding needs were comfortably met.
}} The weighted average tenor of new term debt was 4.3 years(4.6 years in 2012).
}} The weighted average cost of new term debt issuance decreased in
FY13 as a result of improved market conditions. Although average
portfolio costs remain substantially above pre-crisis levels, they
have started to decrease from these elevated levels during 2013.

ANZ ANNUAL REPORT 2013

33: Financial Risk Management (continued)
The following tables show the Group’s funding composition:
Consolidated
2013
$m

2012
$m

Customer deposits and other liabilities1
Australia2
International & Institutional Banking2
New ZealandGlobal WealthGroup Centre

152,403
163,151
46,494
11,569(4,788)140,810
142,651
39,622
9,449(4,656)

Total customer deposits

368,829

327,876

Other3

13,158

9,841

Total customer deposits and other liabilities (funding)

381,987

337,717Wholesale funding4,5
Bonds and notes6
Loan capital
Certificates of deposit (wholesale)Commercial paper
Due to other financial institutions
Other wholesale borrowings7

69,57012,80458,276
12,25536,306
2,507

62,693
11,91456,838
12,16430,538
4,585

Total wholesale funding

191,718

178,732

Shareholders equity

44,74440,349Funding composition

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

12%
3%

11%
3%

3%
12%
62%
8%

5%
12%
61%
8%

Total funding and shareholders’ equity

100%

100%

1
2
3
4

Includes term deposits, other deposits and an adjustment to the Group Centre to eliminate ANZ Wealth investments in ANZ deposit products.
Includes impact of divisional reclassification.
Includes interest accruals, payables and other liabilities, provisions and net tax provisions, excluding other liabilities in ANZ Wealth.
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 term wholesale funding.
5 Liability for acceptances have been removed as they do not provide net funding.
6 Excludes term debt issued externally by ANZ Wealth.
7 Includes net derivative balances, special purpose vehicles, other borrowings and Euro Trust Securities (preference shares).

NOTES TO THE FINANCIAL STATEMENTS

143

Notes to the financial statements (continued)
33: Financial Risk Management (continued)
Contractual maturity analysis of the Group’s liabilities
The table below analyses the Group 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 2013

Due to other financial institutions
Deposits and other borrowings
Certificates of deposit
Term deposits
Other deposits interest bearing
Deposits not bearing interest
Commercial paper
Borrowing corporations' debt
Other borrowing
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 2012

Due to other financial institutions
Deposits and other borrowings
Certificates of deposit
Term deposits
Other deposits interest bearing
Deposits not bearing interest
Commercial paper
Borrowing corporations' debt
Other borrowing
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

34,154

2,161

8

–

–

36,32334,310137,218
166,587
14,446
6,021
372
315
812
3,116
1,570
31,703
3,511
39,557

10,36147,934
–
–
6,246
687
–
–
10,624
1,525––

15,492
4,601
–
–
–
351
–
–
51,256
7,334
–
–

–
111
–
–
–
–
–
–
10,858
3,993
–
–

–
–
–
–
–
–
–
–
–
1,065
685
–

60,163
189,864
166,587
14,446
12,267
1,410
315
812
75,854
15,48732,3883,511
39,557(17,475)
18,469(28,736)
30,560(79,312)81,302(23,167)
23,474––(148,690)
153,805(9,127)
9,258(11,791)
11,924(14,640)
14,656(5,645)
5,593––(41,203)
41,431Less 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)
26,528

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.

144

ANZ ANNUAL REPORT 2013

33: Financial Risk Management (continued)
The Company at 30 September 2013

Due to other financial institutions
Deposits and other borrowings
Certificates of deposit
Term deposits
Other deposits interest bearing
Deposits not bearing interest
Commercial paper
Other borrowing
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 2012

Due to other financial institutions
Deposits and other borrowings
Certificates of deposit
Term deposits
Other deposits interest bearing
Deposits not bearing interest
Commercial paper
Other borrowing
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

31,996

2,160

8

–

–

34,16432,486117,209138,372
7,574
3,926
208
484
1,613
1,552
35,89010,331
31,056
–
–
4,097
–
–
9,982
1,504

15,522
2,301
–
–
–
–
–
40,337
7,334

–
101
–
–
–
–
–
9,541
3,993

–
–
–
–
–
–
–
–
322

58,339150,667
138,372
7,574
8,023
208
484
61,473
14,70535,890(10,426)
11,234(19,887)
21,073(64,244)
65,310(21,332)
21,643––(115,889)
119,260(7,760)7,857(9,343)
9,464(10,091)
10,161(4,983)
4,948––(32,177)
32,430Less 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)
21,645

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

145

Notes to the financial statements (continued)
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 of thesefacilities 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 2013

Less than
1 year$mMore than
1 year$m

Undrawn facilities
Issued guarantees

170,670
36,532––30 September 2012

Less than
1 year$m

Undrawn facilities
Issued guarantees

141,355
32,383

The Company
Total
$m

Less than
1 year$mMore than
1 year
$m

Total
$m

170,670
36,532

134,622
31,849––134,622
31,849More than
1 year
$m

Total
$m

Less than
1 year$mMore than
1 year
$m

Total
$m

–
–

141,355
32,383

118,461
29,619––118,461
29,619Consolidated

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 aremanaged separately from the Group’s banking businesses. The natureof these risks and the manner in which they are managed is set out innote 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 orfrom external events. This definition includes legal risk, and the risk ofreputational loss or damage arising from inadequate or failed internal
processes, people and systems, but excludes strategic risk.
The ANZ Board has delegated its powers to the Risk Committee toapprove the ANZ Operational Risk Framework which is in accordancewith Australian Prudential Standard APS 115 Capital Adequacy:
Advanced Measurement Approaches to Operational Risk. Operational
Risk Executive Committee (OREC) is the primary senior executive
management forum responsible for the oversight of operational risk
and the compliance risk control environment. OREC supports the Risk
Committee in relation to the carrying out of its role in connection
with operational risk and compliance.
OREC monitors the state of operational risk and compliancemanagement and will instigate any necessary corrective actions.
Key responsibilities of OREC include:}} Ensuring the execution of ANZ’s Operational Risk Measurement
and Management Framework and Compliance Framework}} Ensuring the execution of Board approved Operational Risk andCompliance Policies}} Monitor and approve the treatment plans for Extreme rated risks}} Review material (actual, potential and near miss) operational risk
and compliance events

146

The Company

Membership of OREC comprises senior executives and the committee
is chaired by the Chief Risk Officer.
ANZ’s Operational Risk Measurement and Management Framework(ORMMF) outlines the approach to managing operational risk.
It specifically covers the minimum requirements that divisions/business units must undertake to identify, assess, measure, monitor,
control and manage operational risk in accordance to the Board
approved risk appetite. ANZ does not expect to eliminate all risks,
but to ensure that the residual risk exposure is managed as low asreasonably practical based on a sound risk/reward analysis in thecontext of an international financial institution. ANZ’s ORMMF is
supported by specific policies and procedures with the effectivenessof the framework assessed through a series of governance andassurance reviews. This is supported by an independent review
programme by Internal Audit.
Divisional Risk Committees and Business Unit Risk Forums manage
and maintain oversight of operational and compliance risks
supported by thresholds for escalation and monitoring which
is used to inform and support senior management strategic
business decision making. Day to day management of operationaland compliance risk is the accountability of every employee.
Business Units undertake operational risk activities as part ofthis accountability. Divisional risk personnel provide oversight ofoperational risk undertaken in the Business Units.
Group Operational Risk is responsible for exercising governance over
operational risk through the management of the operational risk
frameworks, policy development, framework assurance, operationalrisk measurement and capital allocations and reporting of operationalrisk issues to executive committees.

ANZ ANNUAL REPORT 2013

33: Financial Risk Management (continued)
Group Compliance has global oversight responsibility for the ANZCompliance Framework, and each division has responsibility forembedding the framework into its business operations, identifying
applicable regulatory compliance obligations, and escalatingwhen breaches occur. The Compliance Framework fosters an
integrated approach where staff are responsible and accountablefor compliance, either within their job role, or within their areaof influence.
The integration of the Operational Risk Measurement andManagement and Compliance Frameworks, supported by common
policies, procedures and tools allows for a simple and consistent way
to identify, assess, measure and monitor risks across ANZ.
In line with industry practice, ANZ obtains insurance cover fromthird party and captive providers to cover those operational risks
where cost-effective premiums can be obtained. In conducting theirbusiness, business units are advised to act as if uninsured and not

to use insurance as a guaranteed mitigation for operational risk.
Business disruption is a critical risk to a bank’s ability to operate,
so ANZ has comprehensive business continuity, recovery andcrisis 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.
Operational risk capital is held to protect depositors and shareholdersof the bank from rare and severe unexpected losses. ANZ maintains
and calculates operational risk capital (including regulatory andeconomic capital), on at least a six monthly basis. The capital iscalculated using scaled external loss data, internal loss data andscenarios as a direct input and risk registers as an indirect input.

34: Fair Value of Financial Assets and Financial Liabilities
Fair value is the amount for which an asset could be exchanged, or aliability settled, between knowledgeable, willing parties in an arm’s
length transaction. 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, withthe exception of those financial instruments carried at amortised cost,
are remeasured at fair value in subsequent periods.

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-salefinancial 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 throughprofit and loss.

The fair value of a financial instrument on initial recognition isnormally the transaction price, however, in certain circumstances
the initial fair value may be based on other observable current
market transactions in the same instrument, without modification
or repackaging, or on a valuation technique whose variables include
only data from observable markets.

The fair values are based on relevant information available as at therespective balance sheet dates and have not been updated to reflectchanges in market condition after the balance sheet date.

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 notavailable, 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 estimatedbased on other observable market data, historical trends and otherfactors 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
instruments that 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.

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
those which 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 adjusted to account for funding risk inherent in thederivative financial instrument, the maturity of each instrument andan adjustment reflecting the credit worthiness of the counterparty.

In the tables below, financial instruments have been allocated basedon their accounting treatment. The significant accounting policies innote 1 describe how the categories of financial assets and financial
liabilities are measured and how income and expenses, including fairvalue gains and losses, are recognised.

NOTES TO THE FINANCIAL STATEMENTS

147

Notes to the financial statements (continued)
34: Fair Value of Financial Assets and Financial Liabilities (continued)
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 similartypes of instruments and the maturity of each instrument.
Net loans and advances
The carrying value of loans and advances includes deferred feesand expenses, and is net of provision for credit impairment andunearned income.

Investments relating to insurance business
Investments backing policy liabilities are carried at fair value. Fairvalue is based on quoted market prices, broker or dealer pricequotations where available. Where substantial trading markets do notexist for a specific financial instrument modelled valuations are used
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.

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.

Financial assets
Carrying amountAt amortised
cost

Consolidated 30 September 2013

Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments1
Available-for-sale assets
Net loans and advances2
Regulatory deposits
Investments relating to insurance business
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

39,737
22,177–––469,159
2,106
–
6,876

–
–
–
–
–
136
–
32,083–––41,28843,688
–
–
–
–
–

–
–
41,28843,688–136–
32,083
–

–
–
–
2,190
–
–
–
–
–

–
–
–
–
28,135––––39,737
22,17741,28845,87828,135469,295
2,106
32,0836,876

39,737
22,17741,28845,87828,135469,818
2,106
32,083
6,876

540,055

32,21984,976

117,195

2,190

28,135687,575

688,098

Hedging

Available-forsale 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
Net loans and advances2
Regulatory deposits
Investments relating to insurance business
Other financial assets

At fair value through profit or loss

Fair value
Total

$m

Held fortrading$m

Sub-total
$m

$m

$m

$m

$m

36,578
17,103–––427,719
1,478
–
5,136

–
–
–
–
–
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
1,478
29,895
5,136

36,578
17,10340,602
48,92920,562
428,483
1,478
29,895
5,136

488,014

29,99986,133

116,132

3,398

20,562

628,106

628,679

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.

148

Total

Designatedon initialrecognition$mANZ ANNUAL REPORT 2013

34: Fair Value of Financial Assets and Financial Liabilities (continued)
Financial assets (continued)
Carrying amountAt amortised
cost

The Company 30 September 2013

Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments1
Available-for-sale assets
Net loans and advances2
Regulatory deposits
Due from controlled entities
Other financial assets

Fair value
Hedging

Available-forsale assets

Sub-total
$m

$m

$m

$m

$m

–
–
31,46439,047
–
–
–
–
–

–
–
31,46439,047
–
94
–
–
–

–
–
–
1,964
–
–
–
–
–

–
–
–
–
23,823––––

33,83818,947
31,46441,011
23,823
372,467990
71,354
4,728

33,83818,947
31,46441,011
23,823372,963990
71,354
4,728

70,51170,605

1,964

23,823598,622599,118

Hedging

Available-forsale assets

At fair value through profit or loss$m

Designatedon initialrecognition$mHeld fortrading$m

33,83818,947–––372,373990
71,354
4,728

–
–
–
–
–
94
–
–
–

502,230

94

Total

Carrying amountAt amortised
cost

The Company 30 September 2012

Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments1
Available-for-sale assets
Net loans and advances2
Regulatory deposits
Due from controlled entities
Other financial assets

At fair value through profit or loss

Total

Fair value
Total

Total

$m

Designatedon initialrecognition$mHeld fortrading$m

Sub-total
$m

$m

$m

$m

$m

32,782
14,167–––349,995
514
63,660
3,307

–
–
–
–
–
65
–
–
–

–
–
30,49040,284
–
–
–
–
–

–
–
30,49040,284
–
65
–
–
–

–
–
–
2,982
–
–
–
–
–

–
–
–
–
17,841––––32,782
14,16730,49043,266
17,841350,060
514
63,6603,307

32,782
14,16730,49043,266
17,841
350,572
514
63,6603,307

464,42565

70,77470,8392,982

17,841

556,087556,599

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

149

Notes to the financial statements (continued)
34: Fair Value of Financial Assets and Financial Liabilities (continued)
Deposits and other borrowings
For 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 at fairvalue 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.

value is based on a discounted cash flow model based on current
market yields for similar types of instruments and the maturity ofeach instrument. The fair value includes the effects of the appropriate
credit spreads applicable to ANZ for that instrument.
External Unit Holder Liabilities (Life Insurance Funds)
The carrying amount represents the external unit holder’s share of
net assets which are carried at fair value in the fund.
Policy liabilities
Life investment contract liabilities are carried at fair value.
Payables and other financial liabilities
This category includes accrued interest and fees payable for which
the carrying amount is considered to approximate the fair value.
Commitments and contingencies
Adjustments to fair value for commitments and contingencies thatare not financial instruments recognised in the balance sheet, are notincluded in this note.

Certain bonds and notes and loan capital have been designated atfair value through profit or loss and are carried at fair value. The fair

Financial liabilities
Carrying amountAt amortised
cost

Consolidated 30 September 2013

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

At fair value through profit or loss

Fair value
Hedging

Total$m

Held fortrading$m

Sub-total
$m

$m

$m

$m

36,306–435,434
64,776
12,104685–
12,518

–
–
4,240
5,600
700
31,7033,511––
45,653
–
–
–
–
–
–

–
45,653
4,240
5,600
700
31,703
3,511
–

–
1,856
–
–
–
–
–
–

36,30647,509439,674
70,376
12,80432,3883,511
12,51836,30647,509439,912
71,235
12,97332,3883,511
12,518561,823

45,75445,65391,4071,856

655,086

656,352

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

Total

Designatedon initialrecognition$m

At fair value through profit or loss

Fair value
Hedging

Total

Total

$m

Designatedon initialrecognition$mHeld fortrading$m

Sub-total
$m

$m

$m

$m

30,538–392,777
56,633
11,281
774
–
9,958

–
–
4,346
6,465
633
28,763
3,949––
50,887
–
–
–
–
–
–

–
50,887
4,346
6,465
633
28,763
3,949
–

–
1,752
–
–
–
–
–
–

30,53852,639397,123
63,098
11,91429,537
3,949
9,958

30,53852,639397,571
63,78011,86929,537
3,949
9,958

501,961

44,15650,887

95,043

1,752

598,756

599,841

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 $685 million (2012: $774 million) measured in accordance with AASB 1038 Life insurance contract liabilities and life investment contract liabilities of$31,703 million (2012: $28,763 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.

150

ANZ ANNUAL REPORT 2013

34: Fair Value of Financial Assets and Financial Liabilities (continued)
Financial liabilities (continued)
Carrying amountAt amortised
cost

The Company 30 September 2013

Due to other financial institutions
Derivative financial instruments1
Deposits and other borrowings
Due to controlled entities
Bonds and notes2
Loan capital2
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

34,149–359,01364,64951,36811,362
9,517

–
–
–
–
5,600
700
–

–
40,153––––––40,153
–
–
5,600
700
–

–
1,674
–
–
–
–
–

34,14941,827359,01364,64956,96812,062
9,517

34,14941,827359,199
64,64957,631
12,262
9,517

530,058

6,300

40,15346,453

1,674

578,185579,234

Carrying amountAt amortised
cost

The Company 30 September 2012

Due to other financial institutions
Derivative financial instruments1
Deposits and other borrowings
Due to controlled entities
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
57,72943,51010,613
7,485

–
–
–
–
6,465
633
–

–
44,508––––––44,508
–
–
6,465
633
–

–
1,539
–
–
–
–
–

28,39446,047
333,536
57,72949,975
11,246
7,485

28,39446,047
333,91757,72950,476
11,2307,485

481,267

7,098

44,50851,606

1,539

534,412535,278

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 $685 million (2012: $774 million) measured in accordance with AASB 1038 Life insurance contract liabilities and life investment contract liabilities of$31,703 million (2012: $28,763 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.

(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
accepted valuation techniques. The valuation models incorporate theimpact of bid/ask spreads, counterparty credit spreads, funding costs
and other factors that would influence the fair value determined by amarket 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 thesecases valuation inputs (or components of the overall value) are
derived and extrapolated from other relevant market data andtested 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.
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 fullto the category in a fair value hierarchy which most appropriatelyreflects the determination of the fair value. This allocation is basedon the categorisation of the lowest level input or component into avaluation model that is significant to the reported fair value of thefinancial 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.

NOTES TO THE FINANCIAL STATEMENTS

151

Notes to the financial statements (continued)
34: Fair Value of Financial Assets and Financial Liabilities (continued)
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 identicalfinancial 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 throughvaluation 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 thefinancial 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 147 to 151. 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 priceConsolidated

Financial assets
Trading securities1
Derivative financial instruments
Available–for–sale financial assets
Investments relating to insurance business2
Loans and advances (designated at fair value)

Financial liabilities
Trading securities
Derivative financial instruments
Deposits and other borrowings(designated at 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

With significant
non–observable inputs

Total

2013
$m

2012
$m

2013
$m

2012
$m

2013
$m

2012
$m

2013
$m

2012
$m

37,645826
23,90021,029–36,797678
16,09820,909–3,643
44,852
4,199
10,949136

3,804
47,916
4,433
8,673
104

–
200
36
105
–

1
335
31
313
–

41,28845,87828,13532,083136

40,602
48,92920,56229,895104

83,40074,482

63,77964,930341

680

147,520140,092

2,505
803

1,742
750

56
46,26912
51,414

–
437

–
475

2,561
47,5091,754
52,639

–
–
–

–
–
–

4,240
5,600
31,703

4,346
6,465
28,763

–
–
–

–
–
–

4,240
5,600
31,703

4,346
6,465
28,763

–
–

–
–

3,511
700

3,949
633

–
–

–
–

3,511
700

3,949
633

3,308

2,492

92,07995,582437

475

95,82498,549Valuation techniques
Quoted market price
The Company

Financial assets
Trading securities
Derivative financial instruments
Available-for-sale financial assets
Loans and advances (designated at fair value)

Financial liabilities
Trading securities
Derivative financial instruments
Bonds and notes (designated at fair value)
Loan capital (designated at fair value)

Using observable inputs

With significant
non–observable inputs

Total

2013
$m

2012
$m

2013
$m

2012
$m

2013
$m

2012
$m

2013
$m

2012
$m

27,939826
20,905–26,855676
14,901–

3,525
39,985
2,889
94

3,634
42,255
2,914
65

–
200
29
–

1
335
26
–

31,46441,011
23,82394

30,49043,266
17,841
65

49,67042,432

46,49348,868229

362

96,392

91,662

1,919
803
–
–

1,244
746
–
–

56
40,587
5,600
700

12
44,826
6,465
633

–
437
–
–

–
475
–
–

1,975
41,827
5,600
700

1,256
46,047
6,465
633

2,722

1,990

46,94351,936437

475

50,10254,401

1 $3.7 billion (Company: nil) of trading securities which were categorised as Level 2 in 2012 have been restated to Level 1 for the 2012 year as they are valued using quoted yields.
2 $5.9 billion (Company: nil) of Investments relating to insurance business which were categorised as Level 2 in 2012 have been restated to Level 1 for the 2012 year as they are valued
using quoted prices or yields.

152

ANZ ANNUAL REPORT 2013

34: Fair Value of Financial Assets and Financial Liabilities (continued)(iii) A dditional 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

Investments relating
Available-for-sale to insurance business

Derivatives

2013
$m

2012
$m

2013
$m

2012
$m

2013
$m

2012
$m

2013
$m

2012
$m

2013
$m

2012
$m

Asset backed securities
Illiquid corporate bonds
Structured credit productsManaged funds (suspended)
Alternative assets
Other derivatives

–
–
–
–
–
–

1
–
–
–
–
–

–
–
137
–
–
63

–
–
243
–
–
92

2
11
–
–
23
–

2
9
–
–
20
–

2
–
–
31
72
–

–
–
94
133
86
–

–
–
(169)
–
–
(268)

–
–
(346)
–
–
(129)

Total

–

1

200

335

36

31

105

313

(437)

(475)

Asset backed securities
Illiquid corporate bonds
Structured credit products
Alternative assets
Other derivatives

–
–
–
–
–

1
–
–
–
–

–
–
137
–
63

–
–
243
–
92

–
9
–
20
–

–
6
–
20
–

n/a
n/a
n/a
n/a
n/a

n/a
n/a
n/a
n/a
n/a

–
–
(169)
–
(268)

–
–
(346)
–
(129)

Total

–

1

200

335

29

26

n/a

n/a

(437)

(475)

Consolidated

The Company

Asset backed securities and illiquid corporate bonds comprise illiquidbonds where the effect on fair value of issuer credit cannot be directly
or indirectly observed in the market.

Managed funds (suspended) are comprised of fixed income andmortgage investments in managed funds that are illiquid and are notcurrently redeemable.

Structured credit products categorised as derivatives comprise thestructured credit intermediation trades that the Group entered intofrom 2004 to 2007 whereby it sold protection using credit default
swaps over certain structures, and mitigated risk by purchasingprotection via credit default swaps from US financial guarantors overthe 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.

Alternative assets are largely comprised of various investments
in unlisted equity securities. No active market exists for thesesecurities and the valuation model incorporates significant
unobservable inputs.

Structured credit products categorised as investments relating toinsurance business comprise collateralised debt and loan obligations
where there is a lack of active trading and limited observable
market data.

Other derivatives predominantly comprise interest rate swaptions
containing multi-callable features. Modelling uncertainties andcomplexities are inherent in the valuation model which result in asignificant range of possible valuation outcomes for these financial
assets and liabilities.

NOTES TO THE FINANCIAL STATEMENTS

153

Notes to the financial statements (continued)
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
Consolidated

Derivatives

Financial liabilities

Available-for-sale Insurance investments

Derivatives

2013
$m

2012
$m

2013
$m

2012
$m

2013
$m

2012
$m

2013
$m

2012
$m

2013
$m

2012
$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

1
–
–

62
–
(60)

335
–
(79)

609
5
–

31
3
(3)

519
–
–

313
11
(183)

359
29
(79)

(475)
–
57

(789)
(1)
–

–
(1)
–
–

–
–
(1)
–

16
–
(72)
–

84
(4)
(359)
–

4
–
–
1

24
(508)
(4)
–

–
–
(36)
–

–
–
4
–

(7)
–
(12)
–

(128)
1
442
–

Closing balance

–

1

200

335

36

31

105

313

(437)

(475)

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

1
–
–

62
–
(60)

335
–
(79)

609
5
–

26
–
(2)

372
–
–

n/a
n/a
n/a

n/a
n/a
n/a

(475)
–
57

(789)
(1)
–

–
(1)
–
–

–
–
(1)
–

16
–
(72)
–

84
(4)
(359)
–

4
–
–
1

20
(366)
–
–

n/a
n/a
n/a
n/a

n/a
n/a
n/a
n/a

(7)
–
(12)
–

(128)
1
442
–

Closing balance

–

1

200

335

29

26

n/a

n/a

(437)

(475)

Transfers out of Level 3 relate principally to certain assets andliabilities where the valuation model has been altered to include
only observable inputs.
Transfers in to Level 3 predominantly comprise reverse mortgage
swaps where certain valuation parameters became unobservable
during the year.
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 Group’s
exposure to financial instruments whose valuations incorporatesignificant unobservable inputs is limited to a small number of financial
instruments which comprise an insignificant component to total
assets and liabilities measured at fair value. In these circumstances,changes in the assumptions generally have minimal impact on theincome statement and net assets of ANZ. An exception to this is the‘back-to-back’ structured credit intermediation trades which although
do not have a significant impact on the current year’s sensitivity
analysis due to the benign current market environment, could have alarger impact should market conditions change. This is as a result of
their 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, thepotential effect of changing prevailing assumptions to reasonably
possible alternative assumptions for valuing these financial instruments
could result in an increase of $10 million (2012: $27 million) or a decreaseof $7 million (2012: $18 million) in net derivative financial instruments
as at 30 September 2013. The ranges of reasonably possible alternative
assumptions are established by application of professional judgement
and analysis of the data available to support each assumption.

154

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 andthe amount determined based on the valuation technique arising on
initial recognition of the financial instrument (day one gain or loss) isdeferred on the balance sheet. Subsequently, the day one gain or 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 andthe modelled valuation price was not fully supported by inputs thatwere observable, amounted to $4 million (2012: $4 million). $1 million(2012: $3 million) in unrecognised gains was added during the yearwith $1 million (2012: $1 million) being recognised in the income
statement during the year through the amortisation process.
(iv) A dditional 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 designatedat fair value through profit or loss in order to eliminate an accounting
mismatch which would arise if the asset were otherwise carriedat amortised cost. This mismatch arises as the derivative financial
instruments, which were acquired to mitigate interest rate risk of theloans and advances, are measured at fair value through profit or loss.
By designating the economically hedged loans, the movements inthe fair value attributable to changes in interest rate risk will also berecognised in the income statement in the same periods.
At balance date, the credit exposure of the Group on these assets was$136 million (2012: $104 million) and for the Company was $94 million(2012: $65 million). For the Group and Company $66 million (2012:$66 million) of this exposure was mitigated by collateral held.

ANZ ANNUAL REPORT 2013

34: Fair Value of Financial Assets and Financial Liabilities (continued)
The cumulative change in fair value attributable to change incredit risk was, for the Group, a reduction to the assets of $2 million(2012: $4 million). For the Company the cumulative change to the assets
was $nil (2012: $nil). The amount recognised in the income statement
attributable to changes in credit risk for the Group was a gain of$2 million (2012: $1 million loss) and for the Company $nil (2012: $nil).

mismatch which would arise if the liabilities were otherwise carriedat amortised cost. This mismatch arises as the derivatives acquired tomitigate 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 change in fair value of the designated financial assets attributable
to changes in credit risk has been calculated by determining thechange in credit rating and credit spread implicit in the loans andadvances issued by entities with similar credit characteristics.

External unitholder liabilities, which are not included in the tablebelow, represent the external unitholder share of the ‘Investments
relating to insurance business’ which are designated at fair value
through the profit or loss.

Financial liabilities designated at fair value through profit or loss
Parts of loan capital, bonds and notes and deposits and otherborrowings have been designated as financial liabilities at fair value
through profit or loss in order to eliminate an accounting

Consolidated

Carrying AmountAmount by which the consideration payable at maturity
is greater/(less) than carrying amount
Cumulative change in liability value attributableto own credit risk:- opening cumulative (gain)/loss- gain (loss) recognised during the year
- closing cumulative (gain)/loss

The table below compares the carrying amount of financial liabilities
carried at full fair value, to the contractual amount payable atmaturity 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.

Life investment
contract liabilities

Deposits and otherborrowings

Bonds and notes

2013
$m

2012
$m

2013
$m

2012
$m

2013
$m

2012
$m

2013
$m

2012
$m

31,70328,763

4,240

4,346

5,600

6,465

700

633

–

–

–

(3)

(158)

(123)

(5)

(12)

–
–
–

–
–
–

–
–
–

–
–
–

(60)
47
(13)

(151)
91
(60)

(4)
16
12

(32)
28
(4)

The Company

Carrying AmountAmount by which the consideration payable at maturity isgreater/(less) than carrying amount
Cumulative change in liability value attributableto own credit risk:- opening cumulative (gain)/loss- gain (loss) recognised during the year
- closing cumulative (gain)/loss

Loan capital

Deposits and otherborrowings

Bonds and notes

2013
$m

2012
$m

2013
$m

2012
$m

2013
$m

2012
$m

–

–

5,600

6,465

700

633

–

–

(158)

(123)

(5)

(12)

–
–
–

–
–
–

(60)
47
(13)

(151)
91
(60)

(4)
16
12

(32)
28
(4)

Loan capital

For each of loan capital, bonds and notes and deposits and other borrowings, the change in fair value attributable to changes in credit risk has
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.
2013
Due within
one year$m

Greater than
one year$m

Due from other financial institutions
Available-for-sale assets
Net loans and advances
Investments relating to insurance business

22,096
8,605
110,778
3,336

Due to other financial institutions
Deposits and other borrowings
Bonds and notes
Policy liabilities
External unit holder liabilities (life insurance funds)
Loan capital

36,298420,965
10,222
31,7033,511
1,893

Consolidated

2012
No maturity
specified
$m

Total
$m

Due within
one year$m

Greater than
one year$m

81
19,466
358,517
6,548– 22,177
64 28,135– 469,295
22,199 32,083

17,037
8,936
101,577
3,938

66
11,494326,246
6,168– 17,103132 20,562– 427,823
19,789 29,895

8
18,70960,154––
9,846– 36,306– 439,674– 70,376
685 32,388–
3,511
1,065 12,804

30,502
377,113
15,00528,7633,949–

36
20,01048,093––
10,961– 30,538– 397,123– 63,098
774 29,537–
3,949
953 11,914

No maturity
specified$m

NOTES TO THE FINANCIAL STATEMENTS

Total
$m

155

Notes to the financial statements (continued)
36: Segment Analysis(i) Description of segments
The Group operates on a divisional structure with Australia, IIB, New Zealand and Global Wealth being the major operating divisions. The IIB and
Global Wealth 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.
The primary sources of external revenue across all divisions are interest income, 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, andinstitutional and commercial products and services. Global Wealth derives revenue from wealth products and private banking. GTSO (includingGroup Centre) provides support to all divisions, including risk management, financial management, strategy and marketing, human resources
and corporate affairs.
Effective 1 October 2012, Corporate Banking Australia transferred to Australia Division from IIB and comparatives have been restated accordingly.
(ii) Operating segments
Transactions between business units across segments within ANZ are conducted on an arms length basis.

Year ended 30 September 2013 ($m)

Australia

InternationalandInstitutional
Banking

External interest income
External interest expense
Adjustment for intersegment interest

16,424(5,726)(4,020)7,384(2,670)(1,048)4,452(2,137)
(455)

317
(406)
214

50
(4,916)
5,309

–
(14)
–

28,627(15,869)–

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

6,678
1,186

3,666
2,421

1,860
347

125
1,385

443
(215)

(14)
82

12,758
5,206

3

477

1

–

1

–

482

New
Zealand

Global Wealth

GTSO

Other
items1

Group
Total

Segment revenue

7,867

6,564

2,208

1,510

229

68

18,446

Other external expenses
Net intersegment expenses(2,088)(863)(2,395)
(575)

(997)
45

(807)
(137)

(1,949)1,530––(8,236)–

Operating expenses(2,951)(2,970)

(952)

(944)

(419)

–

(8,236)

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

4,916
(820)

3,594
(317)

1,256
(37)

566
(4)

(190)
(19)

68
9

10,210(1,188)Segment result before tax

4,096

3,277

1,219

562

(209)

77

9,022

Income tax expense
Non-controlling interests(1,223)
–

(837)
(10)

(338)
–

(93)
–

54
–

(303)
–

(2,740)(10)

Profit after income tax attributed to shareholdersof the company

2,873

2,430

881

469

(155)

(226)

6,272
(681)
(200)
(1,188)4,499
4,123
702,991
657,376

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

(114)
(23)
(820)

(210)
(120)
(317)

(76)
(18)
(37)

(33)
(14)
(4)

(246)
(23)
(19)

–
(2)
(2)
9

–
9
274,533
165,903

1,122
4,017
296,524
254,7021,763
385,22964,5651,614
949,01051,237–85(2,113)
121,040

–
–
(192)
(71)

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 performance ofthe segment and are evaluated separately. These items are set out in part (iii) of this note (refer pages 208 to 209 for further analysis).

156

ANZ ANNUAL REPORT 2013

36: Segment Analysis (continued)
Year ended 30 September 2012 ($m)

Australia

InternationalandInstitutional
Banking

External interest income
External interest expense
Adjustment for intersegment interest

17,825(6,643)(5,019)7,980(3,146)(1,167)

4,286(1,857)
(649)

325
(416)
213

122
(6,365)
6,621

–
(1)
1

30,538(18,428)–

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

6,163
1,195

3,667
2,361

1,780
315

122
1,318

378
154

–
(137)

12,110
5,206

(2)

399

–

–

(2)

–

395

New
Zealand

Global Wealth

GTSO

Other
items1

Group
Total

Segment revenue

7,356

6,427

2,095

1,440

530

(137)

17,711Other external expenses
Net intersegment expenses(2,207)(795)(2,540)(529)(1,082)
21

(828)
(139)

(1,861)
1,441––(8,518)(1)

Operating expenses(3,002)(3,069)(1,061)

(967)

(420)

–

(8,519)Profit before income tax and provision
for credit impairment
Provision for credit impairment

4,354
(642)

3,358
(451)

1,034
(148)

473
(4)

110
(13)

(137)
60

9,192
(1,198)Segment result before tax

3,712

2,907

886

469

97

(77)

7,994

Income tax expense
Non-controlling interests(1,114)
–

(790)
(6)

(244)
–

(123)
–

36
–

(92)
–

(2,327)(6)

Profit after income tax attributed to shareholdersof the company

2,598

2,111

642

346

133

(169)

5,661

Non-cash expenses
Depreciation and amortisation
Equity-settled share based payment expenses
Provision for credit impairment

(115)
(27)
(642)

(181)
(104)
(451)

(60)
(16)
(148)

(38)
(12)
(4)

(223)
(29)
(12)

4
(1)
59

(613)
(189)
(1,198)–6
256,805
158,289

1,014
3,426
267,467
228,333

1,604
2
73,807
57,9171,594
945,472
46,245–68(1,256)110,252

–
9
(168)
(129)

4,212
3,520
642,127
600,907

Financial position
Goodwill
Shares in associates
Total external assets
Total external liabilities

1 In evaluating the performance of the operating segments, the results are adjusted for certain items where they are not considered integral to the ongoing performance of the segment andare evaluated separately. These items are set out in part (iii) of this note (refer pages 208 to 209 for further analysis). From 1 October 2012, the Group revised its methodology for determining
non‑core items. 30 September 2012 information has been restated on a consistent basis.

(iii) Other items
The table below sets out the profit after tax impact of other items.
Profit after tax
Item

Related segment

2013
$m

Treasury shares adjustment
Revaluation of policy liabilities
Economic hedging – fair value (gains)/losses
Revenue and net investment hedges (gains)/losses
Structured credit intermediation trades

Australia
Australia and New ZealandAustralia, IIB and New Zealand
GTSO
IIB

(84)
(46)
13
(159)
50

(96)
41
(229)
53
62

(226)

(169)

NOTES TO THE FINANCIAL STATEMENTS

157

Total

2012
$m

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

2013
$m

2012
$m

6,602
4,204
1,510
5,302
403
425

6,120
4,037
1,440
5,232
347
535

18,446

17,711(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

2013
$m

APEA
2012
$m

2013
$m

New Zealand
2012
$m

2013
$m

2012
$m

Total
2013
$m

2012
$m

Total external revenue1

12,447

12,117

3,180

2,801

2,819

2,793

18,446

17,711

Non-current assets2

307,162

288,171

33,64021,162

66,07354,562406,875

363,895

1 Includes net interest income.
2 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.

158

ANZ ANNUAL REPORT 2013

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

2013
$m

2012
$m

2013
$m

2012
$m

Operating profit after income tax attributable to shareholders of the Company

6,272

5,661

5,346

4,875

Adjustment to reconcile operating profit after income tax to net cash
provided by/(used in) operating activities
Provision for credit impairment
Depreciation and amortisation(Profit)/loss on sale of businesses(Profit)/loss on sale of premises and equipment(Profit)/loss on sale of available-for-sale assets
Impairment on available-for-sale assets transferred to profit and loss
Net derivatives/foreign exchange adjustment
Equity settled share-based payments expense1
Other non-cash movements

1,188
781
(20)
2
–
3
5,814
119
(303)

1,198
723
(4)
23
(225)
44
3,568
134
(27)

1,132
533
(11)
(1)
–
3
5,664
90
(8)

985
483
(20)
17
(164)
35
2,384
134
289

Net (increase)/decrease in operating assets
Trading securities
Liquid assets
Due from other banks
Loans and advances
Investments backing policy liabilities2
Net intra-group loans and advancesInterest receivable
Accrued income
Net tax assets

768
(72)
674
(28,952)(3,402)
–
133
(25)
246

(4,589)435(4,256)(32,748)(1,537)
–
(110)
25
(525)

(736)
860
746
(24,295)–(3,734)
197
(59)
(273)

(2,275)419(3,886)(28,592)
–
(283)
(88)
4
(839)

Net (decrease)/increase in operating liabilities
Deposits and other borrowings2
Due to other financial institutions
Change in policy liabilities
Payables and other liabilities
Interest payable
Accrued expenses
Provisions including employee entitlements

27,184
3,033
3,669
969
(464)
(17)
6

32,630
4,184
2,449
209
(399)
(455)
(47)

23,668
4,283
–
929
(464)
(74)
81

30,834
4,836
–
441
(179)
(368)
(53)

Total adjustments

11,334

700

8,531

4,114

Net cash provided by/(used in) operating activities

17,606

6,361

13,877

8,989

1 The equity settled share-based payments expense is net of on-market share purchases of $81 million (2012: $55 million) in the Group and the Company used to satisfy the obligation.
Comparatives have been restated.
2 During the year the Group reclassified certain transactions undertaken by the Wealth business in relation to investments in securities issued by entities within the Group in order to better reflect
the nature of the cash flows for the Group (2012: $1,032 million).

NOTES TO THE FINANCIAL STATEMENTS

159

Notes to the financial statements (continued)
37: Notes to the Cash Flow Statements (continued)b) Reconciliation of cash and cash equivalents
Cash at the end of the period as shown in the statement of cash flows is reflected in the related items in the balance sheet as follows:
Consolidated

The Company

2013
$m

2012
$m

2013
$m

2012
$m

Liquid assets
Due from other financial institutions

38,552
10,47135,583
5,867

33,646
9,069

31,787
4,481

Cash and cash equivalents in the statement of cash flows

49,02341,45042,71536,268c) 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

2013
$m

2012
$m

2013
$m

2012
$m

1
–
1

11
–
–

–
483
1

10
327
–

2

11

484

337

56
25

–
18

–
25

–
36

81

18

25

36

843
71

1,461
80

843
71

1,461
80

914

1,541

914

1,541

d) Non-cash financing activities
Share capital issues
Dividends satisfied by share issue
Dividends satisfied by bonus share issuee) Financing arrangements
There were no financing arrangements in place in 2013 or 2012.

160

ANZ ANNUAL REPORT 2013

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) Limited3
ANZ Bank (Taiwan) 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
ANZcover Insurance Pte Ltd1ANZ Holdings (New Zealand) Limited1
		 ANZ Bank New Zealand Limited1
			 ANZ Investment Services (New Zealand) Limited1
			 ANZ New Zealand (Int’l) Limited1
			ANZNZ Covered Bond Trust1
			 ANZ Wealth New Zealand Limited1 (formerly OnePath Holdings (NZ) Limited)				 OnePath Insurance Holdings (NZ) Limited1					OnePath Life (NZ) Limited1
			Arawata Holdings 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 Residential Covered Bond Trust
ANZ Wealth Australia Limited
OnePath Custodians Pty Limited
OnePath Funds Management Limited
OnePath General Insurance Pty Limited
OnePath Life Australia Holdings Pty Limited
		 OnePath Life 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
ANZ Guam Inc.5
Esanda Finance Corporation Limited
ETRADE Australia Limited
ETRADE Australia Securities Limited
PT Bank ANZ Indonesia1,2

Incorporated in

Nature of business

Australia

Banking

Laos
TaiwanVietnam
Australia
Australia
Australia
Australia
Australia
Australia
United Kingdom
Kiribati
Samoa
Singapore
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New ZealandHong Kong
Hong Kong
VanuatuSingapore
Singapore
Cambodia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Papua New Guinea
China
China
Guam
Guam
Australia
Australia
Australia
Indonesia

Banking
Banking
Banking
Securitisation Manager
Hedging
Finance
Captive-Insurance
Trustee/Nominee
Holding Company
Banking
Banking
Banking
Captive-Insurance
Holding Company
Banking
Funds Management
FinanceFinance
Holding Company
Holding Company
Insurance
Property Holding Company
NomineeFinance
Holding Company
Banking
Banking
Holding Company
Merchant Banking
Banking
Investment
Mortgage Insurance
Finance
Holding Company
TrusteeFunds Management
Insurance
Holding Company
Insurance
Banking
Banking
Banking
Holding Company
Banking
General FinanceHolding Company
Online Stockbroking
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%) (2012: 150,000 $1 ordinary
shares (25%)); PT Bank ANZ Indonesia – 16,500 IDR 1 million shares (1%) (2012: 16,500 IDR 1 million shares (1%)); ANZ Royal Bank (Cambodia) Limited – 319,500 USD100 ordinary shares (45%)(2012: 319,500 USD100 ordinary shares (45%)).
3 Audited by Ernst & Young.
4 Audited by Hawkes Law.
5 Audited by Deloitte Guam.

NOTES TO THE FINANCIAL STATEMENTS

161

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 Bank
Bank of Tianjin3
Saigon Securities Inc.2,3,4
Metrobank Card Corporation
Other associates

Votinginterest

Incorporatedin

Malaysia
Indonesia
Peoples Republicof China
Peoples Republicof China
VietnamPhilippines

May 2007
April 2001

24%
39%

24%
39%

September 2007

20%

20%

June 2006
July 2008
October 2003

18%
18%
40%

18%
18%
40%

Total carrying value of associates
12
3
4

Carrying
value
2013
$m

1,282
692

Carrying
value
2012
$m

Fair
value1$m

Reportingdate

Principal
activity

1,143 1,753
668
542

31 March
31 December

Banking
Banking

1,261

959

n/a

31 December

Banking

601
54
58
175

448
74
50
178

n/a
52
n/a

31 December
31 December
31 December

Banking
Stockbroking
Cards Issuing

4,123

3,520

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.
Significant influence is established via representation on the Board of Directors.
During the 2013 year the investment in Saigon Securities Inc. was written down by $26 million (2012: $31 million).

Aggregated assets of significant associates (100%)
Aggregated liabilities of significant associates (100%)
Aggregated revenues of significant associates (100%)
Aggregated profits of significant associates (100%)

2013
$m

2012
$m

192,480
177,542
9,806
2,013

140,610
128,245
8,244
1,761

Consolidated
2013
$m

2012
$m

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

637
(160)

542
(135)

Share of associates net profit – as disclosed by associates
Adjustments1

477
5

407
(12)

Share of associates net profit accounted for using the equity method

482

395

1 The results differ from the published results of these entities due to the application of IFRS, Group Policies and acquisition adjustments.

162

ANZ ANNUAL REPORT 2013

40: Transfers of Financial Assets
The Group enters into transactions in the normal course of businessby which it transfers financial assets directly to third parties or to
special purpose entities (SPEs). These transfers may give rise to thefull 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 theright but assumes an obligation to pass on the cash flows fromthe asset, and transfers substantially all the risks and rewardsof ownership. These risks include credit, interest rate, currency,
prepayment and other price risks.
}} Partial derecognition occurs when the Group sells or otherwisetransfers financial assets in such a way that some, but not
substantially all, of the risks and rewards of ownership aretransferred but control is retained. These financial assets continue
to be recognised on the balance sheet to the extent of the Group’s
continuing involvement.

the majority of 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 afinancial liability of the Company. As the Group has control over theSPEs’ activities, they are consolidated by the Group.

Group-originated financial assets that do not qualify for
derecognition typically relate to repurchase agreements and loansthat have been transferred under arrangements by which the Groupretains 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 derivativetransactions with the SPEs. In such instances, the Group continues
to be exposed to risks associated with these transactions.

The Company, as an issuer of covered bonds is required to maintainthe cover pool at a level sufficient to cover the bond obligations.
Therefore, the majority of the credit risk associated with theunderlying mortgages within the cover pool is retained by theCompany. In addition, the Company is entitled to any residual incomeof the covered bond SPE and where the SPE includes 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 have retained the majorityof the risks and rewards of the residential mortgages and as suchcontinues 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 coveredbonds issued are included within Bonds and Notes.

Securitisations
Net loans and advances include residential mortgages securitised
under the Group’s securitisation programs which are assigned tobankruptcy remote 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 notbeen externalised, the interest rate and foreign currency risk are heldin the Company. The Company is therefore deemed to have retained

Covered bonds
The Group operates various global covered bond programs toraise funding in the primary market. Net loans and advances
include residential mortgages assigned to bankruptcy remote SPEsassociated with these covered bond programs to provide security forthe obligations payable on the covered bonds issued by the Group.
The covered bond holders have dual recourse to the issuer and thecover pool of assets. The issuer cannot otherwise pledge or disposeof the transferred assets, however, it may repurchase and substituteassets as long as the required cover is maintained.

Repurchase agreements
Securities sold subject to repurchase agreements are consideredtransferred assets that do not qualify for derecognition whensubstantially all the risks and rewards of ownership remain with theGroup. An associated liability is recognised for the consideration
received from the counterparty.
The table below sets out the balance of assets transferred that do not
qualify for derecognition, along with the associated liabilities.

Consolidated

The Company

2013
$m

2012
$m

2013
$m

2012
$m

Securitisations1,2
Current carrying amount of assets transferred
Carrying amount of associated liabilities

–
–

–
–

41,71841,71841,78941,789Covered bonds1
Current carrying amount of assets transferred
Carrying amount of associated liabilities3

–
–

–
–

16,55816,55811,304
11,304

Repurchase agreements
Current carrying amount of assets transferred
Carrying amount of associated liabilities

1,547
1,540

536
528

1,347
1,341

289
286

1 The consolidated 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 2013 was $17,639 million (2012: $11,162 million), secured by $21,770 million (2012: $15,276 million) of specified residential mortgages.
2 The securitisation noteholders have recourse only to the pool of residential mortgages which have been securitised. The carrying value of securitised assets and the associated liabilities
approximate their fair value value.
3 The associated liability represents the Company’s liability to the covered bond SPE. Covered bonds issued by the Company to external investors at 30 September 2013 was $14,146 million(2012: $8,798 million).

NOTES TO THE FINANCIAL STATEMENTS

163

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 the Group
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

2013
$m

2012
$m

4,875

3,958

Funds management activities
Funds management activities are conducted through Group controlled entities ANZ Wealth Australia Limited and ANZ Wealth New Zealand
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
ANZ Wealth New Zealand Limited
Other controlled entities – New Zealand
Other controlled entities – Australia

2013
$m

2012
$m

8,331
7,335
7,751
10

7,079
5,845
6,673
22

23,427

19,61942: Commitments
Consolidated
2013$m

The Company

2012
$m

2013
$m

2012
$m

Property capital expenditure
Contracts for outstanding capital expenditure

77

78

54

70

Total capital expenditure commitments for property

77

78

54

70

Lease rentals
Land and buildings
Furniture and equipment

1,633
201

1,561
177

1,918
185

1,313
161

Total lease rental commitments

1,834

1,738

2,103

1,474

423
945
466

400
887
451

375
981
747

330
767
377

1,834

1,738

2,103

1,474

Not later than 1 year
Later than one year but not later than 5 years
Later than 5 years
Total lease rental commitments

164

ANZ ANNUAL REPORT 2013

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
amount2013$m

Contract
amount2012$m

Contract
amount2013$m

Contract
amount2012$m

Undrawn facilities

170,670

141,355

134,622

118,461

Australia
New ZealandOverseas markets

85,091
18,754
66,825

77,137
16,82247,39685,081–49,541

77,119–41,342

Total

170,670

141,355

134,622

118,461

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
amount2013$m

Contract
amount2012$m

Contract
amount2013$m

Contract
amount2012$mFinancial guarantees
Standby letters of credit
Documentary letter of credit
Performance related contingencies
Other

8,223
4,437
3,197
19,960
715

6,711
2,450
3,201
19,440
581

6,713
3,873
2,312
18,242
709

5,812
2,156
2,689
18,330632

Total

36,53232,38331,84929,619Australia
New Zealand
Asia Pacific, Europe & America

16,983
1,645
17,904

15,516
1,075
15,792

16,983–
14,866

15,516–
14,103

Total

36,53232,38331,84929,619OTHER 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
Litigation funder IMF (Australia) Ltd commenced a class action against
ANZ in 2010, followed by a second similar class action in March 2013.
The separate actions are claimed to be on behalf of more than 40,000
ANZ customers for more than $50 million in fees claimed to havebeen charged to those customers. The second of the class actions isscheduled for trial commencing 2 December 2013. ANZ is defending
it. In June 2013, litigation funder Litigation Lending Services (NZ)
commenced a representative action against ANZ for certain fees
charged to New Zealand customers since 2007. There is a risk thatfurther claims could emerge in Australia, New Zealand or elsewhere.

ii) Security recovery actions
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.
iii) Contingent tax liability
The Australian Taxation Office (ATO) is reviewing the taxation
treatment of certain transactions undertaken by the Group in thecourse of normal business activities.
Risk reviews and audits are also being undertaken by revenue
authorities in other jurisdictions, as part of normal revenue authority
activity in those countries.
The Group has assessed these and other taxation claims arising inAustralia and elsewhere, including seeking independent advice
where appropriate, and considers that it holds appropriate provisions.

NOTES TO THE FINANCIAL STATEMENTS

165

Notes to the financial statements (continued)
43: Credit Related Commitments, Guarantees, Contingent Liabilities and Contingent Assets (continued)iv) Interbank Deposit Agreement
ANZ has entered into an Interbank Deposit Agreement with the majorbanks 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 other participants
are required to deposit equal amounts of up to $2 billion for a periodof 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 of mortgages tothe value of the deposit.
v) 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 in abilateral exposure and loss in the event of a failure to settle by amember institution; and}} in the Austraclear System Regulations (Austraclear) and the
CLS Bank International Rules, the Company has a commitment toparticipate 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.

166vi) Deed of Cross Guarantee in respect of certain
controlled entities
Pursuant to class order 98/1418 (as amended) dated 13 August 1998,
relief was granted to a number of wholly owned controlled entities
from the Corporations Act 2001 requirements for preparation,
audit, and lodgement of individual financial statements in Australia.
The results of these companies are included in the consolidated
Group results.
The entities to which relief was granted are:}} ANZ Properties (Australia) Pty Ltd1}} ANZ Capital Hedging Pty Ltd1}} ANZ Orchard Investments Pty Ltd2}} ANZ Securities (Holdings) Limited3}} ANZ Commodity Trading Pty Ltd4}} ANZ Funds Pty Ltd1}} Votraint No. 1103 Pty Ltd2}} ANZ Nominees Limited5
1
2
3
4
5

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.

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 theAustralian Securities and Investments Commission. The Deed of Cross
Guarantee is dated 1 March 2006. The effect of the Deed is that theCompany guarantees to each creditor payment in full of any debt in
the event of winding up any of the controlled entities under certain
provisions of the Corporations Act 2001. If a winding up occurs in
any other case, the Company will only be liable in the event thatafter six months any creditor has not been paid in full. The controlled
entities have also given similar guarantees in the event that theCompany is wound up.

ANZ ANNUAL REPORT 2013

43: Credit Related Commitments, Guarantees, Contingent Liabilities and Contingent Assets (continued)
The consolidated statement of comprehensive income and consolidated balance sheet of the Company and its wholly owned controlled entities
which have entered into the Deed of Cross Guarantee in the relevant financial years are:Consolidated
2013
$m

2012
$m

Profit before tax
Income tax expense

7,196(1,784)

6,497(1,549)Profit after income tax

5,412

4,948

310
15
(37)
(19)

(275)
(15)
39
(28)

Foreign exchange differences taken to equity, net of tax
Change in fair value of available-for-sale financial 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

269

(279)

Total comprehensive income

5,681

4,669

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

15,145
5,412(4,082)
1(19)

13,914
4,948(3,691)
2(28)

Retained profits at end of year

16,457

15,145

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

33,83823,823371,983
180,992
1,034

32,782
17,841
349,048
171,362
1,573

Total assets

611,670

572,606

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

359,013932
211,835
825

333,536804
200,479745

Total liabilities

572,605

535,564

Net assets

39,06537,042

Shareholders’ equity1

39,06537,042

1 Shareholders’ equity excludes retained profits and reserves of controlled entities within the class order.

vii) Sale of Grindlays businesses
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
with ANZ Grindlays (Jersey) Holdings Limited and its subsidiaries,
for USD1.3 billion in cash. ANZ provided warranties and certain
indemnities relating to those businesses and, where it was
anticipated that payments would be likely under the warranties
or indemnities, made provisions to cover the anticipated liability.
The issues below have not impacted adversely the reported results.
All settlements, penalties and costs have been covered within
existing provisions.
Foreign Exchange Regulation Act (India)
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 andcertain 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 to whichsuch liabilities were not provided for in the Grindlays accounts as at
31 July 2000. Claims have been made under this indemnity, with nomaterial impact on the Group expected.
CONTINGENT ASSETS
National Housing BankANZ is pursuing recovery of the proceeds of certain disputed cheques
which were credited to the account of a former Grindlays customer inthe early 1990s.
The disputed cheques were drawn on the National Housing Bank
(NHB) in India. Proceedings between Grindlays and NHB concerning
the proceeds of the cheques were resolved in early 2002.
Recovery is now being pursued from the estate of the Grindlays
customer who received the cheque proceeds. Any amounts recovered
are to be shared between ANZ and NHB.

NOTES TO THE FINANCIAL STATEMENTS

167

Notes to the financial statements (continued)
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
Country

SchemeScheme type

Employee/participant

Employer

Australia

ANZ Australian Staff
Superannuation Scheme1,2

Defined contribution scheme Section C3 or

Optional8

Balance of cost10

Defined contribution scheme Section A or

Optional

9.25% of salary11

Defined benefit scheme Pension Section4

Nil

Balance of cost12

ANZ National Bank Staff
Superannuation Scheme1,2

Defined benefit scheme5 or

Nil

Balance of cost13

Defined contribution scheme

Minimum of 2.5%of salary

7.5% of salary14

National Bank Staff Superannuation Fund1,2

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 ZealandUnited Kingdom ANZ UK Staff Pension Scheme1

Balance of cost: the Group’s contribution is assessed by the actuary after taking account of members’ contributions and the value of theschemes’ assets.
1 These schemes provide for pension benefits.
2 These schemes provide for lump sum benefits.
3 Closed to new members in 1997.
4 Closed to new members. Operates to make pension payments to retired members or their dependants.
5 Closed to new members on 31 March 1990. Operates to make pension payments to retired members of that section of the scheme or their dependants.
6 Closed to new members on 1 October 1991.
7 Closed to new members on 1 October 2004.
8 Optional but with minimum of 1% of salary.
9 From 1 October 2003, all member contributions are at a rate of 5% of salary.
10 As determined by the Trustee on the recommendation of the actuary – currently 9.25% (2012: 9%) of members’ salaries.
11 2012: 9% of salary.
12 As determined by the Trustee on the recommendation of the actuary – $4.7 million p.a. (2012: $4.7 million p.a.).
13 As recommended by the actuary – currently nil (2012: nil).
14 2012: 7.5% of salary.
15 As recommended by the actuary – currently 24.8% (2012: 24.8%) of members’ salaries and net additional contributions of NZD 5 million p.a.
16 2012: 11.5% of salary.
17 As agreed by the Trustee and Group after taking the advice of the actuary – currently 26% (2012: 26%) of pensionable salaries and additional quarterly contributions of GBP 7.5 million until
September 2016.

168

ANZ ANNUAL REPORT 2013

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. 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 to those used for
AASB 119 purposes.

2013 Schemes

Accruedbenefits1$m

Net market
value ofassets heldby scheme$m

Excess/(deficit)
of netmarket valueof assets overaccrued benefits$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
Other5,6

26
1,097
7
4
328
42

18
929
–
4
298
33

(8)
(168)
(7)
–
(30)
(9)

Total

1,504

1,282

(222)

1 Determined in accordance with AAS 25, which prescribes a different measurement date and basis to those applied in this financial report under AASB 119. Under AASB 119, the discount rates
used are based on prevailing government and corporate bonds at the reporting date (30 September 2013), rather than the expected return on scheme assets as at the most recent actuarial
valuation date (set out below) as prescribed by AAS 25.
2 Amounts were determined at 31 December 2012.
3 Amounts were determined at 31 December 2010.
4 Amounts were determined at 31 March 2012.
5 Amounts were determined at 30 September 2013.
6 Other includes the defined benefit arrangement in Japan, Philippines and Taiwan.

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
Other5,6

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, which prescribes a different measurement date and basis to those applied in this financial report under AASB 119. Under AASB 119, the discount rates
used are based on prevailing government and corporate bond rates at the reporting date (30 September 2012), rather than the 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 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 fundedby the time they become payable.
The Group expects to make contributions of $67 million (2012: $61 million) to the defined benefit sections of the schemes during the next
financial year.

NOTES TO THE FINANCIAL STATEMENTS

169

Notes to the financial statements (continued)
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 2012, showed a deficit of $8 million and the actuary recommended that
the Group make contributions to the Pension Section of $4.7 million p.a. for the two years to 31 December 2014. The next full actuarial valuationis 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

6.5% p.a.
2.5% 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 actuarial valuation, conducted by consulting actuaries Towers Watson as at 31 December 2012, showed a deficit of GBP 97 million($168 million at 30 September 2013 exchange rates).
Following the actuarial valuation as at 31 December 2012, 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 2015.
The following economic assumptions were used for the interim actuarial valuation as at 31 December 2012:
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.
6.0% p.a.
3.4% p.a.
2.9% p.a.
2.2% p.a.

The Group has no present liability under the Scheme’s Trust Deed to fund the deficit measured under AAS 25. A contingent liability may arise in
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 ($30 million at 30 September 2013 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 theevent 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 Fundan amount sufficient to ensure members do not suffer a reduction in benefits to which they would otherwise be entitled. The Group intends tocontinue the Fund on an on-going basis.
The basis of calculation under AASB119 is detailed in note 1 F(vii).

170

ANZ ANNUAL REPORT 2013

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

2013
$m

2012
$m

2013
$m

2012
$m

8
44
(46)
1

7
48
(44)
2

4
38
(40)
–

5
42
(39)
–

7

13

2

8

(1,256)
1,182(1,109)960(1,054)
1,025

(913)
846

Net liability arising from defined benefit obligation

(74)

(149)

(29)

(67)

Amounts recognised in the balance sheet
Payables and other liabilities

(74)

(149)

(29)

(67)

Net liability arising from defined benefit obligation

(74)

(149)

(29)

(67)

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

(28)
270

54
298

19
227

35
208

Amount recognised in income in respect of defined benefit schemes
Current service cost
Interest cost
Expected return on assets
Adjustment for contributions tax
Total included in personnel expenses
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
Transfer of Taiwan liabilities to subsidiary1

1,109
8
44
–
24
129
(58)
–

1,033
7
48
1
105
(24)
(61)
–

913
4
38
–
66
107
(44)
(30)

857
5
42
–
79
(25)
(45)
–

Closing defined benefit obligation

1,256

1,109

1,054

913

960
46
52
115
67
–
(58)
–

885
44
51
(21)
61
1
(61)
–

846
40
47
99
59
–
(44)
(22)

775
39
44
(22)
55
–
(45)
–

Closing fair value of scheme assets2

1,182

960

1,025

846

Actual return on scheme assets

98

95

87

83

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
Transfer of Taiwan assets to subsidiary1

1 During 2013, the assets and liabilities of the Taiwan defined benefit scheme were transferred from the Taiwan branch of the Company to a subsidiary of the Company. There was no gain or loss ontransfer. As a result of this transfer, the assets and liabilities of the Taiwan defined benefit scheme are no longer included in the Company balances.
2 Scheme assets include the following financial instruments issued by the Group: cash and short-term debt instruments $1.8 million (September 2012: $1.4 million), fixed interest securities$0.7 million (September 2012: $0.6 million) and equities nil (September 2012: nil).

Consolidated

The Company

Fair value of scheme
assets
2013
2012
%
%

Fair value of scheme
assets
2013
2012
%
%

Analysis of the scheme assets
Equities
Debt securities
Property
Other assets

40
46
6
8

38
43
7
12

38
48
7
7

36
44
8
12

Total assets

100

100

100

100

NOTES TO THE FINANCIAL STATEMENTS

171

Notes to the financial statements (continued)
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

2013
%

2012
%

4.00
4.30
4.30
4.60
4.60

2.75
4.40
4.40
3.50
3.50

6.50
4.70
n/a
4.50
5.00

6.50
4.70
n/a
4.50
5.00

3.80
3.00

4.50
3.00

2.50

2.50

3.30
2.40
2.50
2.50

2.70
2.00
2.50
2.50

6.10

6.60

6.10

6.60

To determine the expected returns of each of the asset classes held by the relevant scheme, the actuaries assessed historical return trends andmarket 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 therelevant 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

172

The Company

2013
$m

2012
$m

2011
$m

2010
$m

2009
$m

2013
$m

2012
$m

2011
$m

2010
$m

2009
$m

(1,256)1,182(74)(1,109)960(149)(1,033)885(148)(1,059)873(186)(1,095)849(246)(1,054)
1,025
(29)

(913)
846
(67)

(857)
775
(82)

(928)
761
(167)

(938)
738
(200)

15
52

1
51

(11)
(25)

(2)
36

7
(49)

10
47

2
45

(10)
(21)

1
26

7
(32)

ANZ ANNUAL REPORT 2013

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 2012 and 2013 years were the Employee Share Offer, 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
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 ANZ shares in each financial year, subject to approval of the Board. At a date 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 theweek leading up to and including the date of grant.
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, that shares 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.
In New Zealand shares are granted to eligible employees upon payment of NZD one cent per share.
Shares granted in New Zealand and the remaining overseas locations under this plan vest subject to the satisfaction of a three year service period,
after which time they may, remain in trust, be transferred into the employee’s name or sold. 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 2013 year, 1,450,558 shares with an issue price of $24.44 were granted under the plan to employees on 6 December 2012 (2012 year:
1,822,760 shares with an issue price of $20.21 were granted on 5 December 2011).
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, STI deferred equity could be taken as 100% shares or 50% shares and 50% options. From 2011, all STI
deferred equity is taken as 100% shares.
Selected employees may also be granted Long Term Incentive (LTI) deferred shares which vest to the employee three years from the date of
grant. Ordinary shares granted under this LTI plan may be held in trust beyond the deferral period.
In exceptional circumstances, deferred shares are granted to certain employees upon commencement with ANZ to compensate forremuneration forgone from their previous employer. The vesting period generally aligns with the remaining vesting period of remuneration
forgone, and therefore varies between grants. Retention deferred shares may also be granted occasionally to high performing employees who
are regarded as a significant retention risk to ANZ.
Unless the Board decides otherwise, unvested STI, LTI or other deferred shares are forfeited on resignation, termination on notice or dismissal forserious misconduct.
The employee receives dividends on deferred shares while those shares are held in trust (cash or Dividend Reinvestment Plan).
Deferred share rights may be granted instead of deferred shares in some countries to accommodate offshore taxation regulations (refer toDeferred Share Rights section).
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 andincluding the date of grant.
During the 2013 year, 6,233,626 deferred shares with a weighted average grant price of $25.00 were granted under the deferred share plan(2012 year: 7,001,566 shares with a weighted average grant price of $21.19 were granted).
In accordance with the clawback provisions detailed in Section 6.3, Other Remuneration Elements of the 2013 Remuneration Report, Board
discretion was exercised during 2013 resulting in 5,691 shares granted in 2013 being clawed back under the deferred share plan.
Share Valuations
The fair value of shares granted in the 2013 year under the Employee Share Offer and the Deferred Share Plan, measured as at the date of grantof the shares, is $190.6 million based on 7,684,184 shares at a volume weighted average price of $24.81 (2012 year: fair value of shares granted
was $185.4 million based on 8,824,326 shares at a weighted average price of $21.01). 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 measurement of the fairvalue 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 the options/rights.
Each option/right entitles the holder to one ordinary share subject to the terms and conditions imposed on grant. The exercise price of theoptions, determined in accordance with the rules of the plan, is generally based on the weighted average price of the shares traded on the ASX
in the week leading up to and including the date of grant. For rights, the exercise price is nil.
NOTES TO THE FINANCIAL STATEMENTS

173

Notes to the financial statements (continued)
45: 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 new issue orreorganisation 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 of the option
will be adjusted in the manner set out in the ASX Listing Rules; and}} in respect of rights, if there is a bonus issue or reorganisation of ANZ’s share capital, the number of rights or the number of underlying 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 2012 and 2013 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 (LTI) in the 2013 Remuneration Report.
For equity grants made after 1 November 2012, any portion of the award which vests may be satisfied by a cash equivalent payment rather thanshares at the Board’s discretion.
The provisions that apply in the case of cessation of employment are detailed in Section 8.3, Disclosed Executives in the 2013 Remuneration Report.
During the 2013 year, 641,728 performance rights (excluding CEO performance rights) were granted (2012: 586,925).
CEO Performance Rights
At the 2012 Annual General Meeting shareholders approved an LTI grant to the CEO equivalent to 100% of his 2012 fixed pay, being$3.15 million. This equated to a total of 328,810 performance rights being allocated, which will be subject to testing against a TSR hurdle after
three years, i.e. December 2015.
For equity grants made after 1 November 2012, any portion of the award which vests may be satisfied by a cash equivalent payment rather thanshares at the Board’s discretion.
At the 2010 and 2011 Annual General Meetings shareholders approved LTI grants to the CEO equivalent to 100% of his fixed pay, being$3.15 million. This equated to a total of 253,164 (2010) and 326,424 (2011) performance rights being allocated, which will be subject to testing
against a TSR hurdle after three years, i.e. December 2013 and 2014 respectively.
At the 2007 Annual General Meeting shareholders approved an LTI grant consisting of three tranches of performance rights, each to a maximum
value of $3 million. The performance periods for each tranche began on the date of grant of 19 December 2007 and ended on the third,
fourth and fifth anniversaries respectively (i.e. only one performance measurement for each tranche). The first of these tranches was tested in
December 2010 and 258,620 performance rights vested and were exercised in 2011. The second tranche was tested in December 2011 and259,740 performance rights vested and were exercised in 2012. The third tranche was tested in December 2012 and 260,642 performance rights
vested and were exercised in 2013.
The provisions that apply in the case of cessation of employment are detailed in Section 8.2, Chief Executive Officer (CEO) in the 2013
Remuneration Report.
Deferred Share Rights (no performance hurdles)
Deferred share rights provide the right to acquire ANZ shares at nil cost after a specified vesting period. The fair value of rights is adjusted forthe absence of dividends during the restriction period. Treatment of rights in respect of cessation relates to the purpose of the grant (refer toDeferred Share Plan section above).
For deferred share rights grants made after 1 November 2012, any portion of the award which vests may be satisfied by a cash equivalent
payment rather than shares at the Board’s discretion.
During the 2013 year 1,133,780 deferred share rights (no performance hurdles) were granted (2012: 1,013,185).
Legacy Option Plans
The following legacy option plans are no longer being offered, but were expensed in the 2012 and 2013 years.
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 of$14.18 per share. Upon exercise, each option entitled the CEO to one ordinary ANZ share. The options vested on 18 December 2011 and were
exercised during 2012.

174

ANZ ANNUAL REPORT 2013

45: Employee Share and Option Plans (continued)
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).
Options, deferred share rights and performance rights on issue
As at 8 November 2013, there were 15 holders of 192,424 options on issue, 1,836 holders of 2,142,901 deferred share rights on issue and13 holders of 2,485,640 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 2013 andmovements during 2013 follow:

Weighted average exercise priceOpening balance
1 October 2012

Options/rights
grantedOptions/rights
forfeited

Options/rights
expiredOptions/rights
exercised

Closing balance
30 September 2013

5,941,291$6.53

2,104,318$0.00(295,701)$0.35(185,617)$23.48(2,693,773)$10.814,870,518$1.07

The weighted average closing share price during the year ended 30 September 2013 was $27.68 (2012: $21.88).
The weighted average remaining contractual life of options/rights outstanding at 30 September 2013 was 2.9 years (2012: 2.5 years).
The weighted average exercise price of all exercisable options/rights outstanding at 30 September 2013 was $17.53 (2011: $20.93).
A total of 297,018 exercisable options/rights were outstanding at 30 September 2013 (2012: 1,629,751).
Details of options/rights over unissued ANZ shares and their related weighted average exercise prices as at the beginning and end of 2012 andmovements during 2012 are set out below:

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

No options/rights over ordinary shares have been granted since the end of 2013 up to the signing of the Directors’ Report on 8 November 2013.
Details of shares issued as a result of the exercise of options/rights during 2013 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
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00

46,061
3,968
186
5,861
12,820144
404
38,462
174,762
3,701
1,102
11,27767,967
3,841
1,625
2,799
17,03730,85080,146
2,929
22,03918,547
13,98911,524
713
57
788
3,295

–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–

0.00
0.00
0.00
23.49
17.18
17.18
17.18
17.18
17.18
17.18
22.80
22.80
22.80
22.80
22.80
22.80
23.71
23.71
23.71
23.71
23.71
23.71
0.00
0.00
0.00
0.00
0.00

10,610612
1,536
631,388245,093
90,48390,479
4,076
1,185
1,184
17,071
656
8,792
17,070656
8,791
113,492
4,251
1,225
113,489
4,250
1,225
260,642
225,963
41,08457,726
163,850–––
14,831,304
4,210,698
1,554,498
1,554,429
70,026
20,35820,341
389,219
14,957200,458
389,196
14,957200,435
2,690,895
100,791
29,0452,690,824
100,768
29,045–––––NOTES TO THE FINANCIAL STATEMENTS

175

Notes to the financial statements (continued)
45: Employee Share and Option Plans (continued)
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 since the end of 2013 up to the signing of the Directors’ Report on
8 November 2013 are as follows:

176

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

2,773
262
491
3,115
2,319
1,026
48

–
–
–
–
–
–
–

0.00
0.00
17.18
22.80
22.80
23.71
23.71

96
57
15,804
7,430
7,430
1,444
1,444

–
–
271,513
169,404
169,404
34,237
34,237

ANZ ANNUAL REPORT 2013

45: Employee Share and Option Plans (continued)
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 payments. 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 2013 are contained in the table below:

Type of equity

Number of
Grant date options/rights

Exercise Equity fair
price
value
($)
($)

Share
closing
price at
grant
($)

ANZ
expected
volatility1(%)

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

Risk freeinterest
rate(%)

STI deferred share rights

12-Nov-12
12-Nov-12
12-Nov-12
12-Nov-12

54,511
240,751
255,250
28,694

0.00
0.00
0.00
0.00

24.45
23.07
21.76
20.53

24.45
24.45
24.45
24.45

n/a
22.5
22.5
22.5

2.4
3
4
5

0.4
1
2
3

0.4
1
2
3

n/a
6.00
6.00
6.00

n/a
2.82
2.66
2.58

LTI deferred share rights

12-Nov-12

415,056

0.00

20.53

24.45

22.5

5

3

3

6.00

2.58

LTI performance rights

12-Nov-12
19-Dec-12

641,728
328,810

0.00
0.00

10.16
9.58

24.45
24.64

22.5
22.5

5
5

3
3

3
3

6.00
6.00

2.58
2.77

Other deferred share rights

6-Dec-1227-Feb-13
27-Feb-13
20-Aug-13
20-Aug-13
20-Aug-13
20-Aug-13
20-Aug-13
20-Aug-13
12-Nov-12
12-Nov-12

72,05912,941
13,623
9,795
2,392
7,935
2,518
8,735
1,830
3,732
3,958

0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00

20.80
26.87
25.53
28.78
28.09
27.34
26.68
25.98
25.35
23.07
21.76

24.72
28.28
28.28
29.56
29.56
29.56
29.56
29.56
29.56
24.45
24.45

22.5
20.0
20.0
20.0
20.0
20.0
20.0
20.0
20.0
22.5
22.5

3
3
4
2.5
3
3.5
4
4.5
5
3
4

3
1
2
0.5
1
1.5
2
2.5
3
1
2

3
1
2
0.5
1
1.5
2
2.5
3
1
2

6.00
5.25
5.25
5.25
5.25
5.25
5.25
5.25
5.25
6.00
6.00

2.63
2.62
2.63
2.38
2.38
2.47
2.47
2.73
2.73
2.82
2.66

The significant assumptions used to measure the fair value of instruments granted during 2012 are contained in the table below:

Type of equity

Number of
Grant date options/rights

Exercise Equity fair
price
value
($)
($)

Share
closing
price at
grant
($)

ANZ
expected
volatility1(%)

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

Risk freeinterest
rate(%)

STI deferred share rights

14-Nov-11
14-Nov-11
14-Nov-11
14-Nov-11

51,241
143,711
153,099
21,968

20.66
19.40
18.21
17.10

0.00
0.00
0.00
0.00

20.66
20.66
20.66
20.66

25
25
25
25

2.4
3
4
5

0.4
1
2
3

0.4
1
2
3

6.50
6.50
6.50
6.50

4.48
3.70
3.65
3.53

LTI deferred share rights

14-Nov-11

510,804

17.10

0.00

20.66

25

5

3

3

6.50

3.53

LTI performance rights

14-Nov-11
16-Dec-11

586,925
326,424

9.03
9.65

0.00
0.00

20.66
20.93

25
25

5
5

3
3

3
3

6.50
7.00

3.53
3.06

Deferred share rights

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

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

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

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
n/a
n/a
n/a
25
25
n/a
25
25
25
25
25
25

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

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

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
6.30
6.30
6.30
5.20
6.90
7.50
6.50
6.50
6.50
6.50
6.50
6.50

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

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 STATEMENTS

177

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:
2013

Short-term benefits
Post-employment benefits
Long-term benefits
Termination benefits
Share-based payments

2012

NonExecutives$

Executives$

2,978,821
138,812–––3,117,633

Total$

NonExecutives$

Executives
$

Total
$

18,762,491
478,022
147,506
127,038
11,407,910

21,741,312
616,834
147,506
127,038
11,407,910

2,742,072
119,704–––

19,288,020
528,821279,271
1,171,226
14,335,722

22,030,092
648,525
279,271
1,171,226
14,335,722

30,922,967

34,040,600

2,861,776

35,603,060

38,464,836

SECTION B: KEY MANAGEMENT PERSONNEL LOAN TRANSACTIONS
Loans made to directors of the Company and other KMP of the Group are made in the ordinary course of business on normal commercial terms
and conditions no more favourable than those given to other employees or customers, including the term of the loan, security required and theinterest rate.
Details of loans outstanding at the reporting date to directors of the Company and other KMP of the Group including their related parties, where
the individual’s aggregate loan balance exceeded $100,000 at any time during the year, are as follows:

Directors
Executive Director 2013
M Smith
Executive Director 2012
M Smith
Non–Executive Directors 2013
A Watkins
Non–Executive Directors 2012
P Hay
A Watkins
Other key management personnel 2013
G Hodges
A Thursby1
D HiscoS Elliott
N Williams
Other key management personnel 2012
G Hodges
A Thursby
C Page2
D HiscoS Elliott
N Williams3

Opening balance
1 October$

Closing balance
30 September$

Interest paid andpayable in thereporting period$

Highest balancein the reporting
period$1,000,000

1,000,000

49,9001,000,000

18,380,409

1,000,000

81,957

18,380,409

3,600,000

3,600,000

192,890

3,600,000

661,793
3,320,081–
3,600,000

12,746
233,540

674,5393,600,146

5,150,773
2,859,500
2,000,000
3,200,000–

5,094,023
1,650,000
2,039,869
2,000,000
1,581,874

289,143
80,685
116,352
117,880
48,826

5,564,383
2,859,500
2,963,156
3,200,000
1,658,411

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

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 October2$

Closing balance
30 September$

Interest paid andpayable in thereporting period$

Number inGroup at
30 September4

Directors
2013
2012

4,600,000
22,362,283

4,600,000
4,600,000

242,790328,243

2
3

Other key management personnel
2013
2012

13,210,273
11,427,703

12,365,766
13,949,773

652,866
663,374

5
6

1 The closing balance represents the balance on cessation as a KMP on 30 June 2013.
2 The closing balance represents the balance on cessation as a KMP on 16 December 2011. This amount is not included in the opening balance of all loans exceeding $100,000 as at 1 October 2012of $13,210,273.
3 The opening balance represents the balance on appointment as a KMP on 17 December 2011.
4 Number in the Group includes directors and other KMP with loan balances greater than $100,000 at any time during the year.

178

ANZ ANNUAL REPORT 2013

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

Openingbalance at
1 October

Grantedduring theyear asremuneration1

840,230

328,810700,000
773,546

Resulting fromany other change
during the year

Closingbalance at
30 September2

Vested andexercisable at
30 September3(260,642)–

908,398––
326,424(700,000)(259,740)–––
840,230––

184,055
149,090
159,052–
121,681
48,293
138,260
5,663
129,971–
164,509
168,698

63,976–
118,110–
49,21235,72049,212–
49,212
29,225–
118,110(57,726)(149,090)(41,084)–(32,867)(27,975)(41,084)(5,663)(36,976)–(164,509)(45,193)

–
–
–
–
–
–
–
–
–
–
–
(241,615)

190,305–
236,078–
138,026
56,038146,388–
142,207
29,225
–
–

–
–
–
–
–
–
–
–
–
–
–
–

LTI performance rights
STI deferred options
LTI performance rights
Hurdled options
LTI performance rights
STI deferred share rights
Hurdled options
LTI performance rights
STI deferred share rights
LTI performance rights–
STI deferred options
LTI performance rights
Hurdled options
STI deferred options
LTI performance rights

112,073
149,09087,07010,53066,311
17,3838,400
132,940
5,663
129,971–
164,509146,234
67,60048,385
132,940

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)

–
–
–
(527)
–
–
(3,000)––––––(3,380)–(41,265)

184,055
149,090
159,052–
121,681
48,293–
138,260
5,663
129,971–
164,509
168,698––
96,995–79,852
–
–
–
–
–
–
5,663
–
–
164,509–––38,310LTI performance rights

72,959–(38,038)(10,671)

24,25024,250Type of options/rights

Executive Director 2013
M SmithLTI performance rights
Executive Director 2012
M SmithSpecial options
LTI performance rights
Other Key Management Personnel 2013
P Chronican
LTI performance rights
S Elliott
STI deferred options
LTI performance rights
A Géczy4–
D HiscoLTI performance rights
STI deferred share rights
G Hodges
LTI performance rights
STI deferred share rights
J Phillips
LTI performance rights
N Williams
LTI deferred share rights
STI deferred options
A Thursby5
LTI performance rights

Exercisedduringthe year

Other Key Management Personnel 2012
P Chronican
S Elliott
D Hisco
G Hodges
J Phillips6
N Williams7
A Thursby
P Marriott8

C Page91 Details of options/rights granted as remuneration during 2013 are provided in tables 4 and 5 of the 2013 Remuneration Report. Details of options/rights granted as remuneration during 2012 areprovided in tables 4 and 5 of the 2012 Remuneration Report.
2 There was no change in the balance as at report sign-off date.
3 No options/rights were vested and unexerciseable as at 30 September 2013, or at cessation date for those who ceased being a KMP in 2013 (2012: nil).
4 Opening balance is based on holdings at the date of appointment as a KMP on 16 September 2013.
5 Closing balance is based on holdings at the date of cessation as a KMP on 30 June 2013.
6 Opening balance is based on holdings at the date of appointment as a KMP on 1 March 2012.
7 Opening balance is based on holdings at the date of appointment as a KMP on 17 December 2011.
8 Closing balance is based on holdings at the date of cessation as a KMP on 31 August 2012.
9 Closing balance is based on holdings at the date of cessation as a KMP on 16 December 2011.

NOTES TO THE FINANCIAL STATEMENTS

179

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

Type

Openingbalance at
1 October

Shares granted
during the year
as remuneration1

7,860
15,742
1,000
–
5,479
10,000

–
–
–
–
–
–

Received during
the year on
Resulting fromexercise of any other change Closing balance
options or rights
during the year2 at 30 September3,4

Non-Executive Directors 2013
J Morschel

G Clark

Directors’ Share Plan
Ordinary shares
CPS2
Capital Notes
Directors’ Share Plan
Ordinary shares

–
–
–
–
–
–

–
–
–
1,000
–
2,000

7,860
15,742
1,000
1,000
5,479
12,000P DwyerOrdinary shares

4,000

–

–

1,500

5,500

P Hay

Directors’ Share Plan
Ordinary shares

3,209
9,290

–
–

–
–

191
3,374

3,400
12,664

H Lee

Directors’ Share Plan
Ordinary shares

1,888
8,000

–
–

–
–

112
–

2,000
8,000

G Liebelt5

Ordinary Shares
CPS1
Capital Notes

9,748
2,500
–

–
–
–

–
–
–

–
–
1,500

9,748
2,500
1,500

I Macfarlane

Ordinary shares
CPS2
CPS3
Capital Notes

17,616
500
1,000
–

–
–
–
–

–
–
–
–

–
–
–
1,000

17,616
500
1,000
1,000

D Meiklejohn

Ordinary shares

16,198–––16,198A Watkins

Ordinary Shares
Capital Notes

19,461
–

–
–

–
–

650
300

20,111300

J Morschel

Directors’ Share Plan
Ordinary shares
CPS2

7,860
11,042
–

–
–
–

–
–
–

–
4,700
1,000

7,860
15,742
1,000

G Clark

Directors’ Share Plan
Ordinary shares

5,479
10,000

–
–

–
–

–
–

5,479
10,000P Dwyer6

Ordinary shares

–

–

–

4,000

4,000

P Hay7

Directors’ Share Plan
Ordinary shares

2,990
8,653

–
–

–
–

219
637

3,209
9,290

H Lee

Directors’ Share Plan
Ordinary shares

1,759
8,000

–
–

–
–

129
–

1,888
8,000

I Macfarlane

Ordinary shares
CPS2
CPS3

17,616
500
1,000

–
–
–

–
–
–

–
–
–

17,616500
1,000

D Meiklejohn

Ordinary shares

16,198–––16,198A Watkins

Directors’ Share Plan
Ordinary shares

3,419
16,042––––(3,419)3,419–
19,461

Deferred shares
Ordinary shares

129,780
1,042,590

72,668––260,642(90,294)(2,184)112,154
1,301,048

Deferred shares
Ordinary shares

150,600
679,698

73,459––959,740(94,279)(596,848)

129,780
1,042,590

Non-Executive Directors 2012

Executive Director 2013
M Smith
Executive Director 2012
M Smith

1 Details of shares granted as remuneration during 2013 are provided in table 4 of the 2013 Remuneration Report. Details of shares granted as remuneration during 2012 are provided in table 4 ofthe 2012 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 2013 (and for former KMPs as at cessationdate): J Morschel – 18,560 (2012: 17,560); G Clark – 17,479 (2012: 15,479); P Dwyer – 5,500 (2012: 4,000); P Hay – 15,752 (2012: 12,204); H Lee – 2,000 (2012: 1,888); G Liebelt – 13,748;
I Macfarlane – 20,116 (2012: 19,116); D Meiklejohn – 13,698 (2012: 13,698); A Watkins – 20,411 (2012: 19,461); M Smith – 112,154 (2012: 129,780).
4 There was no change in the balance as at report sign-off date except for G Clark whose Director’s Share Plan balance at report sign-off date was nil and whose Ordinary shares balance at reportsign-off date was 17,479 and P Dwyer whose ordinary shares balance at report sign-off date was 7,500.
5 Opening balance is based on holdings at the date of appointment as a KMP on 1 July 2013.
6 Opening balance is based on holdings at the date of appointment as a KMP on 1 April 2012.
7 Shareholdings for P Hay excludes 19,855 shares which are held indirectly where P Hay has no beneficial interest.

180

ANZ ANNUAL REPORT 2013

46: Key Management Personnel Disclosures (continued)ii) Shares (continued)
Name

Type

Other Key Management Personnel 2013
P Chronican
Deferred shares
Ordinary shares
CPS2

Openingbalance at
1 October

Received during
the year on
Shares granted
exercise ofduring the year
as remuneration1 options or rights

Resulting fromany other change Closing balance
during the year2 at 30 September3,4

49,741
25,3991,499

30,278–––57,726–(30,367)
33,154–49,652
116,279
1,499

32,2801,116

40,371––
190,174(18,959)(189,844)

53,692
1,446

–

–

–

–

–

S Elliott

Deferred shares
Ordinary shares

A Géczy5–

D HiscoDeferred shares
Ordinary shares

34,587
10,000–––60,842–(50,842)

34,58720,000G Hodges

Deferred shares
Ordinary shares

148,271
89,78522,204––
46,747

5,142–

175,617
136,532

J Phillips

Deferred shares
Ordinary shares

71,761–

22,204––36,976(59,797)(27,243)

34,1689,733

N Williams

Deferred shares

114,811

23,213–(54,211)83,813A Thursby6

Deferred shares
Ordinary shares

206,902–40,371––
209,702(247,273)(209,702)––

P Chronican

Deferred shares
Ordinary shares
CPS2

26,0516,000
1,499

33,175–––––(9,485)
19,399–49,741
25,3991,499

S Elliott

Deferred shares
Ordinary shares

44,177–

19,146–––(31,043)
1,116

32,280
1,116

D HiscoDeferred shares
Ordinary shares

47,364
9,023

–
–

–
18,483(12,777)(17,506)

34,587
10,000G Hodges

Deferred shares
Ordinary shares

120,181
109,735

23,696––55,4504,394(75,400)

148,271
89,785J Phillips7

Deferred shares

70,471

–

–

1,290

71,761Other Key Management Personnel 2012

N Williams8

Deferred shares

113,307

–

–

1,504

114,811

A Thursby

Deferred shares
Ordinary shares

278,230–

33,175––55,055(104,503)(55,055)

206,902–

P Marriott9

Deferred shares
Ordinary shares
CPS3

156,072
480,052
5,000

29,383–––
162,655–(28,634)(253,529)–

156,821389,178
5,000

C Page10

Deferred shares
Ordinary shares
CPS3

59,075
12,1292,500

30,805–––38,038–(25,235)(24,028)–

64,645
26,1392,500

1 Details of shares granted as remuneration during 2013 are provided in table 5 of the 2013 Remuneration Report. Details of shares granted as remuneration during 2012 are provided in table 5 of
the 2012 Remuneration Report.
2 Shares resulting from any other change during the year include the net result of any shares purchased, forfeited, 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 2013 (and for former KMPs as at cessationdate): P Chronican – 49,652 (2012: 49,741); S Elliott – 53,692 (2012: 32,280); A Géczy – nil; D Hisco – 49,587 (2012: 39,587); G Hodges – 218,352 (2012: 191,006); J Phillips – 34,168 (2012: 71,761);
N Williams – 83,813 (2012: 114,811); A Thursby – nil (2012: 206,902); P Marriott – (2012: 156,821); C Page – (2012: 64,645).
4 There was no change in the balance as at report sign-off date.
5 Opening balance is based on holdings at the date of appointment as a KMP on 16 September 2013.
6 Closing balance is based on holdings at the date of cessation on 30 June 2013.
7 Opening balance is based on holdings at the date of appointment as a KMP on 1 March 2012.
8 Opening balance is based on holdings at the date of appointment as a KMP on 17 December 2011.
9 Closing balance is based on holdings at 31 August 2012.
10 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.

Section d: other transactions of Key Management Personnel and their related parties
All other transactions of the directors of the Company and other KMP of the Group and their related parties are conducted on normal
commercial terms and conditions no more favourable than those given to other employees or customers, and are deemed trivial or domestic
in nature.

NOTES TO THE FINANCIAL STATEMENTS

181

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 thoseon an arm’s length basis as shown below:
Consolidated

Amounts receivable from associates1
Amounts payable to associates
Interest revenue1
Interest expense
Dividend revenue
Cost recovered from associates

The Company

2013
$000

2012
$000

2013
$000

2012
$000

96,62778,265992
1,870
113,874
1,548

126,944
70,9182,035
1,844
74,804
1,930

95,6542,661
869–
45,828356

122,984
3,105
1,704
–
20,110328

1 Comparative information has been updated to reflect the inclusion of two additional loans to associates and the related interest revenue omitted from the prior year disclosures.

There have been no guarantees given or received. No outstanding amounts have been written down or recorded as allowances, as they are
considered fully collectible.
Subsidiaries
During the course of the financial year subsidiaries conducted transactions with each other and associates on terms equivalent to those on anarm’s length basis. As of 30 September 2013, all outstanding 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.
CAPITAL ADEQUACY OF LIFE INSURER
Australian life insurers are required to hold reserves in excess of policy liabilities to support capital requirements under the Life Act (LIA).
The life insurance business in New Zealand is not governed by the Life Act as these are foreign domiciled life insurance companies.
These companies are however required to meet similar capital tests.
The summarised capital information below in respect of capital requirements under the Life Act has been extracted from the financial
statements prepared by OnePath Life Limited. For detailed capital adequacy 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

Capital Base
Prescribed Capital Amount (PCA)
Capital Adequacy Multiple (times)

2013
$m

20121
$m

568
294
1.93

n/a
n/a
n/a

1 APRA reviewed its capital standards for life and general insurers, and introduced new prudential standards that came into effect on 1 January 2013. Equivalent figures for 2012 are not available.
In 2012 OnePath Life Limited reported under the previous Solvency standards. At 30 September 2012 it reported assets available for solvency reserves of $652 million and a Solvency Reserve of$339 million for a Solvency Reserve coverage of 1.92 times.

182

ANZ ANNUAL REPORT 2013

48: Life Insurance Business (continued)
LIFE INSURANCE BUSINESS PROFIT ANALYSIS
Life insurance
contracts

Life investment
contracts

Consolidated

2013
$m

2012
$m

2013
$m

2012
$m

2013
$m

2012
$m

Net shareholder profit after income tax

186

259

152

115

338

374

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

181
(51)
1
55
–

178
(29)
1
88
21

109
9
–
34
–

77
30
–
8
–

290
(42)
1
89
–

255
1
1
96
21

Net policyholder profit in statutory funds after income tax

15

18

–

–

15

18

Net policyholder profit in statutory funds after income tax is represented by:
Emergence of planned profits
Investment earnings on retained profits

13
2

10
8

–
–

–
–

13
2

10
8

INVESTMENTS RELATING TO INSURANCE BUSINESS
Consolidated
2013
$m

2012
$m

Equity securities
Debt securities
Investments in managed investment schemes
Derivative financial assets
Other investments

10,901
8,870
11,378
9
925

9,383
9,226
9,195
28
2,063

Total investments backing policy liabilities designated at fair value through profit or loss1

32,08329,895

1 This includes $3,511 million (2012: $3,949 million) in respect of investments relating to external unitholders. In addition, the investment balance has been reduced by $3,982 million(2012: $4,203 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 whensolvency and capital adequacy requirements of the LIA and Insurance (Prudential Supervision) Act 2010 are met. Accordingly, with the exceptionof 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

Life insurance contract liabilities
Best estimate liabilities
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)

Consolidated
2013
$m

2012
$m

6,312
1,809
(9,426)
13

6,651
1,891
(10,021)
15

31
1,379
5

21
1,663
3

123
43
519

223
42
509

Total life insurance contract liabilities

685

774

Life investment contract liabilities2,3

31,70328,763

Total policy liabilities

32,38829,537

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 $1,671 million (2012: $1,803 million). Life investment contract liabilities subject to investment performance
guarantees is $1,064 million (2012: $1,108 million).

NOTES TO THE FINANCIAL STATEMENTS

183

Notes to the financial statements (continued)
48: Life Insurance Business (continued)b) Reconciliation of movements in policy liabilities

Life investment
contracts

Life insurance
contracts

2013
$m

2012
$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 liabilities
Fees recognised as a change in life investment contract liabilities
Withdrawal recognised as a change in other life investment contract liabilities

28,763
3,758
3,947
(457)
(4,308)Gross policy liabilities closing balance
Liabilities ceded under reinsurance1
Balance brought forward
Increase in reinsurance assets
Closing balance
Total policy liabilities net of reinsurance asset

Consolidated

2013
$m

2012
$m

2013
$m

2012
$m

26,619
2,559
3,920
(435)
(3,900)

774
(89)
–
–
–

884
(110)
–
–
–

29,537
3,669
3,947
(457)
(4,308)27,503
2,449
3,920
(435)
(3,900)31,70328,763685

774

32,38829,537

–
–

–
–

509
10

427
82

509
10

427
82

–

–

519

509

519

509

31,70328,763166

265

31,86929,028

1 Liabilities ceded under insurance contracts are shown as ‘other assets’.

c) Sensitivity analysis – Life investment contract liabilities
Market risk arises on the Group’s life insurance business in respectof life investment contracts where an element of the liability to thepolicyholder is guaranteed by the Group. The value of the guarantee
is impacted by changes in underlying asset values and interest rates.
As at September 2013, a 10% decline in equity markets would havedecreased profit by $7 million (2012: $20 million) and a 10% increase
would have increased profit by $nil (2012: $3 million). A 1% increase
in interest rates at 30 September would have decreased profit by$1 million (2012: $14 million) and 1% decrease would have increased
profit by $nil (2012: $3 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 2013.
In Australia, the actuarial report was prepared by Mr Nick Kulikov,
FIAA, Appointed Actuary. The actuarial reports indicate Mr Kulikov issatisfied as to the accuracy of the data upon which policy liabilities
have been determined.
The amount of policy liabilities has been determined in accordancewith methods and assumptions disclosed in this financial report andthe requirements of the LIA, 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 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, a fellow of the Institute of Actuaries of Australia
and a fellow of the New Zealand Society of Actuaries. The amount ofpolicy 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 is satisfied as to the accuracy of the data upon which
policy liabilities have been determined.

184

Critical assumptions
The valuation of the policy liabilities is dependant on a numberof variables including interest rate, equity prices, future expenses,
mortality, morbidity and inflation. The critical estimates andjudgements used in determining the policy liabilities is set out innote 2 (vi) on page 90.
Sensitivity analysis – life insurance contracts
The Group conducts sensitivity analysis 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 andthe 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 andas 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 2013.

ANZ ANNUAL REPORT 2013

48: Life Insurance Business (continued)
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%

26
(21)

(35)
28

26
(21)

Expense risk

An increase in the level or inflationary growth of expenses overassumed levels will decrease profit and shareholder equity.

-10%
+10%

–
–

–
–

–
–

Mortality risk

Greater mortality rates would lead to higher levels of claims
occurring, increasing associated claims cost and therefore
reducing profit and shareholder equity.

-10%
+10%

(16)
(61)

22
87

(16)
(61)

Morbidity risk

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%

–
(3)

–
4

–
(3)

Discontinuance risk

An increase in discontinuance rates at earlier durations has anegative effect as it affects the ability to recover acquisition
expenses and commissions.

-10%
+10%

–
(15)

–
15

–
(15)

LIFE INSURANCE RISK
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 and longevity risks.
Insurance risk exposure arises in insurance business as the risk thatclaims payments are greater than expected. In the life insurance
business this 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 over claims management practices to assist in the correct
and timely payment of insurance claims. Regular monitoring ofexperience is conducted at a 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 thatare appropriate for each. The assets are regularly monitored by the
Global Wealth Investment Risk Management Committee to ensurethat there are no material asset and liability mismatching issues andother risks 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 contracts or life investment
contracts. Market risk arises for the Group on contracts where theliabilities to policyholders are guaranteed. The Group manages
this risk by the monthly monitoring and rebalancing of assets
to policy liabilities. However, for some contracts the ability tomatch asset characteristics with policy obligations is constrainedby a number of factors including regulatory constraints, the lackof suitable investments as well as by the nature 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 ofthe 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 and operational 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, astrategy 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 the identification of risks by type, impact andlikelihood, the implementation of processes and controls to mitigate
the risks, and continuous monitoring and improvement of theprocedures in place to minimise the chance of an adverse complianceor operational risk event occurring. Included in this strategy are theprocesses and controls over underwriting, claims management andproduct pricing. Capital management is also a key aspect of theGroup’s risk management strategy.
Allocation of capital
The Group’s insurance businesses are subject to regulatory capitalrequirements which prescribe the amount of capital to be held
depending on the contract liability.
Solvency margin requirements established by APRA are in place
to reinforce safeguards for policyholders’ interest, which areprimarily the ability to meet future claims payments in respect ofexisting policies.
Methods to limit or transfer insurance risk exposures
Reinsurance – Reinsurance treaties are analysed using a numberof analytical modelling tools to assess the impact on the Group’s
exposure to risk with the objective of achieving the desired choice oftype 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 delegatedauthorities and signing powers.
Claims management – Strict claims management procedures arein place to assist in the timely and correct payment of claims inaccordance with policy conditions.

NOTES TO THE FINANCIAL STATEMENTS

185

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:2013

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.

186

2012

Closing

Average

Closing

Average

5.69760.6896
0.576058.5306
10,860.1
3.0334
1.12372.23850.9312

6.13950.75650.636056.1479
9,861.4
3.0925
1.21322.1472
0.99296.58480.80920.643755.1714
10,022.6
3.20771.25292.1773
1.04626.51500.79140.652253.9494
9,476.4
3.19981.28832.16571.0278ANZ ANNUAL REPORT 2013

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:i) section 296, that they comply with the Australian Accounting Standards and any further requirements of the Corporations Regulations
2001; andii) section 297, that they give a true and fair view of the financial position of the Company and of the consolidated entity as at 30
September 2013 and of their performance for the year ended on that date;b) the notes to the financial statements of the Company and the consolidated entity include a statement that the financial statements andnotes of the Company and the consolidated entity comply with International Financial Reporting Standards;c) the Directors have been given the declarations required by section 295A of the Corporations Act 2001;d) 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 MorschelChairmanMichael R P Smith
Director

8 November 2013

Responsibility statement of the Directors in accordance with the Disclosure and Transparency Rule 4.1.12 (3)(b) of theUnited Kingdom Financial Conduct 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 MorschelChairmanMichael R P Smith
Director

8 November 2013

Directors’ Declaration

187

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS
OF AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITEDREPORT ON THE FINANCIAL REPORTINDEPENDENCE

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 2013, and income statements,
statements of comprehensive income, statements of changes inequity and statements of cash flow for the year ended on that date,notes 1 to 50 comprising a summary of significant accounting policies
and other explanatory information and the directors’ declarationof the Company and the Group comprising the Company and theentities it controlled at the year’s end or from time to time during thefinancial year.

In conducting our audit, we have complied with the independence
requirements of the Corporations Act 2001.

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 thatis free from material misstatement whether due to fraud or error.
In note 1(A)(i), the directors also state, in accordance with Australian
Accounting Standard AASB 101 Presentation of Financial Statements,that the financial statements comply with International Financial
Reporting Standards.
AUDITOR’S RESPONSIBILITY
Our responsibility is to express an opinion on the financial reportbased on our audit. We conducted our audit in accordance with
Australian Auditing Standards. These Auditing Standards requirethat we comply with relevant ethical requirements relating toaudit engagements and plan and perform the audit to obtainreasonable assurance whether the financial report is free frommaterial 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 the assessment of the risks of material misstatement of thefinancial report, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to theentity’s preparation of the financial report that gives a true and fairview in order to design audit procedures that are appropriate in thecircumstances, but not for the purpose of expressing an opinion on
the effectiveness of the entity’s internal control. An audit also includes
evaluating the appropriateness of accounting policies used and thereasonableness of accounting estimates made by the directors, as well
as evaluating the overall presentation of the financial report.

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 2013 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 28 to
50 of the directors’ report for the year ended 30 September 2013.
The directors of the Company are responsible for the preparationand presentation of the remuneration report in accordance with
Section 300A of the Corporations Act 2001. Our responsibility is toexpress an opinion on the remuneration report, based on our audit
conducted in accordance 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 2013,
complies with Section 300A of the Corporations Act 2001.

KPMG
MelbourneAndrew Yates
Partner

8 November 2013

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 and fair view which is consistent with our understandingof the Company’s and the Group’s financial position and of
their performance.
We believe that the audit evidence we have obtained is sufficientand appropriate to provide a basis for our audit opinion.

188

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.

ANZ ANNUAL REPORT 2013

SECTION 3
Five Year Summary

190

Principle Risks and Uncertainties

191

Supplementary Information

200

Shareholder Information

210

Glossary of Financial Terms

217

Alphabetical Index

220

SECTION 3

189Five year summary
2013
$m

2012
$m

2011
$m

2010
$m

2009
$m

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

12,772
5,606(8,236)
10,142(1,197)(2,437)(10)

12,1105,738(8,519)9,329(1,258)(2,235)(6)

11,5005,385(8,023)
8,862(1,220)(2,167)(8)

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

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

Cash/underlying profit1
Adjustments to arrive at statutory profit1

6,498
(226)

5,830
(169)

5,467
(112)

5,025
(524)

3,772
(829)

Profit attributable to shareholders of the Company

6,272

5,661

5,355

4,501

2,943

Financial position
Assets2,3
Net assets
Common Equity Tier 14
Common Equity Tier 1 – Internationally Harmonised Basel 35
Return on average ordinary equity6
Return on average assets2,3
Cost to income ratio (cash/underlying)1

702,991
45,615
8.5%
10.8%
14.9%
0.9%
44.8%

642,127
41,220
8.0%
10.0%
14.6%
0.9%
47.7%

604,21337,954
8.5%
n/a
15.3%
0.9%
47.5%

531,703
34,155
8.0%
n/a
13.9%
0.9%
44.2%

476,987
32,429
9.0%
n/a
10.3%
0.6%
42.2%

Shareholder value – ordinary shares
Total return to shareholders (share price movement plus dividends)
Market capitalisation
Dividend
Franked portion– interim– final31.5%
84,450164 cents
100%
100%

35.4%
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%

$32.09$23.42$30.78$25.12$18.60$24.75$25.96$17.63$19.52$26.23$19.95$23.68$24.99$11.83$24.39231.3c71.8%$13.482,743.7

213.4c69.4%$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$28.96–$20.44$23.64$21.69$19.09$21.32$22.60$15.16$21.75

1,274
47,512
468,343

1,337
48,239438,958

1,381
50,297442,943

1,394
47,099411,692

1,352
37,687396,181

Share price– high– low– closing

Share information(per fully paid ordinary share)
Earnings per share
Dividend payout ratio
Net tangible assets per ordinary share7
No. of fully paid ordinary shares issued (millions)
Dividend Reinvestment Plan (DRP) issue price– interim– finalOther information
Points of representation8
No. of employees (full time equivalents)
No. of shareholders9

1 Since 1 October 2012, the Group has used Cash Profit as a measure of the result of the ongoing business activities of the Group enabling shareholders to assess Group and divisional performanceagainst prior periods and against peer institutions. For 2013 and 2012 statutory profit has been adjusted for non-core items to arrive at Cash Profit. For 2009 – 2011 statutory profit has beenadjusted for non-core items to arrive at Underlying Profit, which like Cash Profit, is a measure of the ongoing business performance of the Group but used somewhat different criteria for the
adjusting items. Neither Cash Profit nor Underlying Profit are audited; however, the external auditor has informed the Audit Committee that the adjustments have been determined on a consistentbasis across each period presented.
2 The reporting treatment of derivative related collateral posted/received and the associated interest income/expense changed in 2012 and 2011 comparatives were restated. The 2009 and 2010
comparative information has not been restated.
3 The 2010 year onwards includes assets resulting from the acquisition of ANZ Wealth Australia, OnePath NZ, Landmark Financial Services and certain assets from the Royal Bank of Scotland.
4 Calculated in accordance with APRA Basel 3 requirements for 2013 and 2012. Comparatives for 2009 – 2011 are calculated on an APRA Basel 2 basis.
5 ANZs interpretation of the regulations documented in the Basel Committee publications: ‘Basel III: A global regulatory framework for more resilient banks and banking systems’ (June 2011)and ‘International Convergence of Capital Measurement and Capital Standards’ (June 2006).
6 Average ordinary equity excludes non-controlling interests and preference shares.
7 Equals shareholders’ equity less preference share capital, goodwill, software and other intangible assets divided by the number of ordinary shares.
8 Includes branches, offices, representative offices and agencies.
9 Excludes employees whose only ANZ shares are held in trust under ANZ employee share schemes.

190

ANZ ANNUAL REPORT 2013

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
and uncertainties described below are not the only ones that theGroup may face. Additional risks and uncertainties that the Groupis unaware of, 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 partof their investment.

2. Changes in general business and economic
conditions, including disruption in regional
or global credit and capital markets, may
adversely affect the Group’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 saw a sudden and prolonged dislocationin credit and equity capital markets, a contraction in global economic
activity and the creation of many challenges for financial services
institutions worldwide to some extent in many regions. Sovereignrisk and its potential impact on financial institutions in Europe andglobally subsequently emerged as a significant risk to the growthprospects of the various regional economies and the global economy.
The impact of the global financial crisis and its aftermath (such asheightened sovereign risk) continue to affect regional and global
economic activity, confidence and capital markets. Prudential
authorities have implemented increased regulation to mitigate therisk of such events recurring, although there can be no assurance thatsuch regulations will be effective.
The economic effects of the global financial crisis and the European
sovereign debt crisis have been widespread and far-reachingwith unfavourable ongoing impacts on retail spending, personaland business credit growth, housing credit, and business andconsumer confidence. While some of these economic factors havesince improved, lasting impacts from the global financial crisis andsubsequent volatility in financial markets and the European sovereign
debt crisis suggest ongoing vulnerability and potential adjustment ofconsumer and business behaviour.

A sovereign debt crisis could have serious implications for
the European Union and the Euro which, depending on thecircumstances in which it takes place and the countries andcurrencies affected, could adversely impact the Group’s business
operations and financial condition. Likewise, if one or more European
countries re-introduce national currencies, and the Euro de-stabilises,
the Group’s business operations could be disrupted by currency
fluctuations and difficulties in hedging against such fluctuations.
The New Zealand economy is also vulnerable to more volatile
markets and deteriorating funding conditions. Economic conditions
in Australia, New Zealand, and some Asia Pacific countries remaindifficult for many businesses.
Should the difficult economic conditions described above 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 the negative economic and business impacts describedabove 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, and financial 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 and funding
costs) could be incurred because of adverse changes in the economy,
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 inboth 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 andconflicts in North Korea, Syria, Egypt, Afghanistan and elsewhere, mayalso adversely affect global financial markets, general economic andbusiness conditions and the Group’s ability to continue operating or
trading in a country, which in turn may adversely affect the Group’sbusiness, 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 theChristchurch earthquakes, refer to the risk factor entitled “The Groupmay be exposed to the impact of future climate change, geologicalevents, plant and animal diseases, and other extrinsic events which
may adversely affect its business, operations and financial condition”.

Principal risks and uncertainties

191

PRINCIPAL RISKS AND UNCERTAINTIES (continued)
3. Changes in exchange rates may adversely
affect the Group’s business, operations andfinancial 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.
The relationship between exchange rates and commodity prices
is volatile. Since April 2013, the Australian dollar has depreciatedagainst the US dollar and New Zealand dollar. A depreciation in theAustralian or New Zealand dollars relative to other currencies would
increase the debt service obligations in Australia or New Zealanddollar terms of unhedged exposures. Appreciation of the Australian
dollar against the New Zealand dollar, United States dollar andother currencies has a potential negative earnings translation
effect on non-hedged exposures, and future appreciation could
have a greater negative impact on the Group’s results from itsother non-Australian businesses, particularly its New Zealand andAsian businesses, which are largely based on non-Australian dollar
revenues. The Group has put in place hedges to partially mitigate theimpact of currency changes, but notwithstanding this there can be
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,
especially in Australia, New Zealand and the
Asian markets in which it operates
The markets in which the Group operates are highly competitiveand could become even more so, particularly in those countries thatare considered to provide higher growth prospects (such as thosein the Asian region) and segments that are in the greatest demand(for example, customer deposits in Australia and New Zealand).
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 the operations of banks and non-bank competitors.
For example, changes in the financial services sector in Australia and
New Zealand have made 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, it ispossible that existing companies from outside of the traditional
financial services sector may seek to obtain banking licences todirectly compete with the Group by offering products and services
provided by banks. In addition, banks organised in jurisdictions
outside Australia and New Zealand are subject to different levels of
regulation and consequently some may have lower cost structures.
Increasing competition for customers could also potentially leadto a compression in the Group’s net interest margins, or increased
advertising and related expenses to attract and retain 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. The reforms consistedof a variety of actions, including but not limited to, a ban on exit fees
for new home loans, implementation of easier switching processes

192

for deposits and mortgages customers, empowerment of the ACCC
to investigate and prosecute anti-competitive price signalling,changes in the way fees and interest are charged on credit cards andreforms which allow Australian banks, credit unions and building
societies to issue covered bonds. While many of these reforms havebeen implemented since 2011, and have the potential to change
the competitive position of all banks in Australia, the Group has
adapted to these reforms and has maintained its competitive
position. Nevertheless any regulatory or behavioural change that
occurs in response to these reforms 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 limitation in revenue or an increasein operating costs could adversely affect the Group’s profitability.
The effect of competitive market conditions, especially in the Group’s
main markets and products, may lead to erosion in the Group’s
market share or margins, and adversely affect the Group’s business,
operations, and financial condition.

5. Changes in monetary policies may adversely
affect the Group’s business, operations andfinancial condition
Central monetary authorities (including the Reserve Bank ofAustralia (RBA) and the Reserve Bank of New Zealand (RBNZ), theUnited States Federal Reserve and the monetary authorities in the
Asian jurisdictions in which ANZ carries out business) set official
interest rates or take other measures to affect the demand formoney and credit in their relevant jurisdictions. Also, in some Asian
jurisdictions currency policy is used to influence general businessconditions and the demand for money and credit. These policies
can significantly affect the Group’s cost of funds for lending andinvesting and the return that the Group will 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 thecentral monetary authorities can also affect the Group’s borrowers,
potentially increasing the risk that they may fail to 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 many
economies. This risk is particularly relevant to a number of European
countries though it is not limited to these places and includes
the United States. Should one sovereign default, there could be acascading effect to other markets and countries, the consequences ofwhich, while difficult to predict, may be similar to or worse than thosecurrently being experienced or which were experienced during the
global financial crisis. Such an event could destabilise global financial
markets adversely affecting all participants, including the Group.

ANZ ANNUAL REPORT 2013

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 inmanaging its capital base, which could giverise 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 maturingwholesale debt, or that the Group has insufficient capacity to fundincreases in assets. Liquidity risk is inherent in all banking 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 United Kingdom
Prudential Regulation Authority and Financial Conduct Authority,
United States regulators and regulators in various Asia Pacificjurisdictions (such as the Hong Kong Monetary Authority, and theMonetary Authority of Singapore) where the Group has operations, tomaintain adequate regulatory capital.

Reduced liquidity could lead to an increase in the cost of the Group’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.
The Group raises funding from a variety of sources including
customer deposits and wholesale funding in Australia and offshore
markets to meet its funding obligations and to maintain or grow its
business generally. In times of systemic liquidity stress, in the eventof damage to market confidence in the Group or in the event thatfunding inside or outside of Australia is not available or constrained,
the Group’s ability to access sources of funding and liquidity may beconstrained and it will be exposed to liquidity risk. In any such cases,
ANZ may be forced to seek alternative funding. The availability ofsuch 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 thesealternatives may be more expensive or on unfavourable terms.
Since the advent of the global financial crisis, developments in
the United States mortgage industry and in the United States andEuropean markets more generally, including recent European andUnited States sovereign debt concerns, have adversely affected theliquidity in global capital markets and increased funding costs. Future
deterioration in market conditions may limit the Group’s ability toreplace maturing liabilities and access funding in a timely and costeffective 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 affect its ability to raise capital andwholesale 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 aresult, greater volatility in capital ratios may arise and may require theGroup to raise additional capital. There can be no certainty that any
additional capital required would be available or could be raised onreasonable terms.
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 its 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
and United States dollar) that impacts risk weighted assets or theforeign currency translation reserve and changes in business strategy(including acquisitions and investments or an increase in capitalintensive businesses).
APRA’s new Prudential Standards implementing Basel 3 are now
in effect, and other regulators in jurisdictions where ANZ operates
have either implemented or are in the process of implementing
regulations, including Basel 3, which seek to strengthen, among
other things, the liquidity and capital requirements of banks, funds
management entities, and insurance entities, though there can be
no assurance that these regulations will have their intended effect.
These regulations, together with any risks arising from any regulatorychanges, are described below in the risk factor entitled “Regulatorychanges or a failure to comply with regulatory standards, law orpolicies may adversely affect the Group’s business, operations or
financial condition”.

ANZ’s credit ratings have a significant impact on both its access to,and cost of, capital and wholesale funding. Credit ratings are not arecommendation by the relevant rating agency to invest in securities
offered by ANZ. Credit ratings may be withdrawn, subject toqualifiers, 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, as well 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 andcovered bonds) issued by ANZ (and banks globally) could be impacted
from time to time by changes in the ratings methodologies used byrating agencies. On 5 September 2013, Moody’s Investors Service
downgraded the subordinated debt ratings of eight Australian banks
including ANZ. Ratings agencies may also revise their methodologies in
response to legal or regulatory changes or other market developments.

Principal risks and uncertainties

193

PRINCIPAL RISKS AND UNCERTAINTIES (continued)
10. The Group is exposed to credit risk, which
may adversely affect its business, operations
and financial condition
As a financial institution, the Group is exposed to the risks associatedwith extending credit to other parties. Less favourable business or
economic conditions, whether generally or in a specific industry
sector or geographic region, or natural disasters, could cause
customers or counterparties to fail to meet their obligations inaccordance 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 have been and may continue
to be adversely impacted by the sustained strength of the Australianand 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
and results, 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,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 completeness ofthat information and, with respect to financial statements, on reports
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 tohonour their commitments in connection
with the Group’s trading, lending, derivatives
and other activities may adversely affect its
business, operations and financial 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 therisk that its rights against third parties may not be enforceable incertain circumstances.
The risk of credit-related losses may also be increased by a numberof factors, including deterioration in the financial condition of theeconomy, a sustained high level of unemployment, a deteriorationof the financial condition of the Group’s counterparties, a reductionin the value of assets the Group holds as collateral, and a reductionin the market value of the counterparty instruments and obligations
it holds.

194

For example, the Group is directly and indirectly exposed to theAustralian mining sector and mining-related contractors andindustries. Should commodity prices materially decrease due to,for example, reduced demand in Asia, especially North Asia/China,
and/or mining activity, demand for resources, or corporate
investment in the mining sector suffer material decreases from
historical levels, the amount of new lending the Group is able to write
may be adversely affected, and the weakening of the sector could beof sufficient magnitude to lead to an increase in lending losses fromthis sector.
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 to the Group’s credit
exposures, it could have an adverse effect on the Group’s business,
operations and financial condition.

12. Weakening of the real estate markets inAustralia, New Zealand or other markets
where it does business may adversely
affect the Group’s business, operations andfinancial 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
the Group 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
and financial 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 United States
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.

ANZ ANNUAL REPORT 201314. 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 same structuresfrom eight United States 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.

15. The Group is exposed to operational risk,
which may adversely affect its business,
operations and financial 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, loss ofshareholder value, reputation loss, loss of life or injury to people, andloss of property and/or information.
Operational risk is typically classified into the risk event type
categories to measure and compare risks on a consistent basis.
Examples of operational risk events according to category are
as follows:}} internal fraud: risk that fraudulent acts are planned, initiated or
executed by employees (permanent, temporary or contractors)
from inside ANZ e.g. a rogue trader.
}} external fraud: fraudulent acts or attempts which originate fromoutside 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 and misuse ofcustomer information;}} 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 or terrorist or
vandalism attack damages ANZ’s buildings or property; and}} 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 significantlyinterrupt the Group’s business which may
adversely affect its business, operations andfinancial condition
The Group is highly dependent on information systems andtechnology and there is a risk that these, or the services theGroup uses or is dependent upon, might fail, including because ofunauthorised access or use.
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 in place. However, any
failure of these systems could result in business interruption,customer dissatisfaction and ultimately loss of customers, financial
compensation, damage to reputation and/or a weakening of theGroup’s competitive position, which could adversely impact theGroup’s business and have a material adverse effect on the Group’s
financial condition and 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 toservice its customers.

Principal risks and uncertainties

195

PRINCIPAL RISKS AND UNCERTAINTIES (continued)
17. The Group is exposed to risks associatedwith information 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 andmanage information on its behalf. The Group employs a team of
information security subject matter experts who are responsible forthe development 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
regular internal and external reviews to ensure new threats are
identified, evolving risks are mitigated, policies and procedures are
updated, and good practice is maintained. However, there is a riskthat information may be inadvertently or inappropriately accessedor distributed or illegally accessed or stolen. Any unauthorised useof 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.

18. The Group is exposed to reputation risk,
which may adversely impact its business,
operations and financial condition
Damage to the Group’s reputation may have wide-ranging
impacts, including adverse effects on the Group’s profitability,
capacity and cost of sourcing funding, and availability of new
business opportunities.
Reputation risk may arise as a result of an external event or theGroup’s own actions, and adversely affect perceptions about
the Group held by the public (including the Group’s customers),
shareholders, investors, regulators or rating agencies. The impact ofa risk event on the Group’s reputation may exceed any direct cost of
the risk event itself and may adversely impact the Group’s business,
operations and financial condition.

19. The unexpected loss of key staff orinadequate management of humanresources may adversely affect the Group’sbusiness, 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. The Group may in the future have difficulty retaining or
attracting highly qualified people for important roles, which could
adversely affect its business, operations and financial condition.

196

20. The Group may be exposed to the impactof future climate change, geologicalevents, plant and animal diseases, andother extrinsic events which may adversely
affect its business, operations andfinancial condition
ANZ and its customers are exposed to climate related events(including climate change). These events include severe storms,
drought, fires, cyclones, hurricanes, floods and rising sea levels.
ANZ and its customers may also be exposed to other events such as
geological events (volcanic or seismic activity, tsunamis); plant andanimal diseases or a pandemic. Examples include earthquakes in
New Zealand and floods in Australia and the Philippines.
Depending on their severity, events such as these may temporarily
interrupt or restrict the provision of some local or Group services, andmay also adversely affect the Group’s financial condition or collateralposition in relation to credit facilities extended to customers.

21. Regulatory changes or a failure to comply
with regulatory standards, law or policies
may adversely affect the Group’s business,
operations or financial condition
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.
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 theAustralian Securities and Investments Commission (ASIC), and theAustralian 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 United States Federal Reserve Board, the United States
Department of Treasury, the United States Office of the Comptrollerof the Currency, the United States Office of Foreign Assets Control,
the United Kingdom Prudential Regulation Authority and the
Financial Conduct Authority, the Monetary Authority of Singapore,
the Hong Kong Monetary Authority, the China Banking Regulatory

ANZ ANNUAL REPORT 2013

Commission, the Kanto Local Finance Bureau of Japan, and otherfinancial regulatory bodies in those countries and in other relevant
countries. In addition, the Group’s expansion and growth in the Asia
Pacific region gives rise to a requirement to comply with a number ofdifferent legal and regulatory regimes across that region.
A failure to comply with any standards, laws, regulations or policies inany 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.
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.
These may include increasing required levels of bank liquidity
and capital adequacy, limiting the types of financial services andproducts the Group can offer, and/or increasing the ability ofnon‑banks to offer competing financial services or products, as well
as changes to accounting standards, taxation laws and prudential
regulatory requirements.
As a result of the global financial crisis, the Basel Committee
released capital reform packages to strengthen the resilience of thebanking and insurance sectors, including proposals to strengthen
capital and liquidity requirements for the banking sector. APRA has
released Prudential Standards implementing Basel 3 with effect from
1 January 2013. Other regulators in jurisdictions where the Group
has a presence have also either implemented or are in the processof implementing Basel 3 and equivalent reforms. In addition, theUnited States has passed into law the Dodd-Frank Wall Street Reformand Consumer Protection Act which significantly affects financial
institutions and financial activities in the United States. There can be
no assurance that any of the foregoing will be effective.

22. The Group may face increased tax reporting
compliance costs
In March 2010, the United States enacted legislation (Foreign AccountTax Compliance Act - “FATCA”) that requires non-United States banks
and other financial institutions to provide information on UnitedStates account holders to the United States Federal tax authority,
the Internal Revenue Service (“IRS”). In addition, it is likely that
future laws will be adopted by jurisdictions (including Australia and
New Zealand), that enter into intergovernmental agreements (“IGAs”)
with the United States in furtherance of FATCA and will require thatsuch information be reported to a non-United States institution’s
local revenue authority to forward to the IRS. If this information is notprovided in a manner and form meeting the applicable requirements,
a non-United States institution may be subjected to penalties andpotentially a 30% withholding tax applied to certain amounts paid toit. No such withholding tax will be imposed on any payments derived
from sources within the United States that are made prior to 1 July
2014, and no such withholding tax will be imposed on any payments
derived from sources outside the United States that are madeprior to 1 January 2017, at the earliest. Australia and New Zealandhave not yet entered into IGAs as described above. ANZ Group is
expected to make significant investments in order to comply with therequirements of FATCA or, if applicable, any local laws implementing
an IGA.

23. Unexpected changes to the Group’s
license to operate in any jurisdiction may
adversely affect its business, operations
and financial condition
The Group is licensed to operate in the various countries, states andterritories. Unexpected changes in the conditions of the licenses tooperate by governments, administrations or regulatory agencies
which prohibit or restrict the Group from trading in a mannerthat was previously permitted may adversely impact the Group’s
operations and subsequent financial results.

Uncertainty remains as to the final form that some of the proposed
regulatory changes will take in certain jurisdictions outside Australia
in which the Group operates (including the United Sates) 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 aresult of increased management attention, raise additional amountsof higher-quality capital (such as Ordinary Shares, Additional Tier 1
Capital or Tier 2 Capital instruments) or retain capital (through lower
dividends), and hold significant levels of additional liquid assets andundertake further lengthening of the funding base.

Principal risks and uncertainties

197

PRINCIPAL RISKS AND UNCERTAINTIES (continued)
24. The Group is exposed to insurance risk,
which may adversely affect its business,
operations and financial condition

26. Changes to accounting policies may
adversely affect the Group’s business,
operations and financial 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 andgeneral insurance business, which may adversely affect its 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.

In addition, the Group has various direct and indirect pension
obligations towards its current and former staff. These obligations
entail various risks which are similar to, among others, risks involving
a capital investment. Risks, however, may also arise due to changes in
tax or other legislation, and/or in judicial rulings, as well as inflation
rates or interest rates. Any of these risks could have a material adverse
effect on the Group’s business, operations and financial condition.

25. The Group may experience reductions in
the valuation of some of its assets, resulting
in fair value adjustments that may have amaterial adverse effect on its earnings
Under Australian Accounting Standards, the Group recognises
the following instruments at fair value with changes in fair value
recognised in earnings:}} derivative financial instruments, including in the case of fairvalue hedging, the fair value adjustment on the underlying
hedged exposure;}} financial instruments held for trading; and}} assets and liabilities designated at fair value through profit and loss.
In addition, the Group recognised available-for-sale financial assets
at fair value with changes in fair value recognised in equity unless theasset is impaired, in which case, the decline if fair value is recognisedin earnings.
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
which incorporate the impact of factors that would influence thefair value as determined by a market participant. The fair valueof these instruments is impacted by changes in market prices orvaluation inputs which could have a material adverse effect on theGroup’s earnings.

198

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

27. The Group may be exposed to the riskof impairment to non-lending related
assets including investments in associates,
capitalised software, goodwill and otherintangible assets that may adversely
affect its business, operations andfinancial condition
In certain circumstances the Group may be exposed to a reductionin the value of non-lending related assets.
As at 30 September 2013, the Group carried goodwill principally
related to its investments in New Zealand and Australia, intangible
assets principally relating to assets recognised on acquisition ofsubsidiaries, and capitalised software balances and investment inequity accounted associates.
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 part or
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,
impairment may be recorded, adversely impacting the Group’s
financial condition.
Investments in associates are assessed for indicators of impairment
at least annually. In the event that the equity accounted carrying
value is above the recoverable value, impairment may be recorded,
adversely impacting the Group’s financial condition.

ANZ ANNUAL REPORT 201328. 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 to the audited annual consolidated financial
statements for the year ended 30 September 2013. There is a risk thatthese contingent liabilities may be larger than anticipated or that
additional litigation or other contingent liabilities may arise.

29. The Group regularly considers acquisitionand divestment opportunities, and there is arisk that ANZ may undertake an acquisition
or divestment that 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.
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,
and challenges associated with integrating and adding value toacquired businesses, as well as new regulatory, market and otherrisks associated with increasing operations outside of Australia and
New Zealand.
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 performance ofthe combined entity, or an improved price for the Group’s securities.
Integration of an acquired business can be complex and costly,
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.

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.

30. The Group may be exposed to risks
pertaining to the provision of advice,recommendations or guidance about
financial products and services in the courseof its sales and marketing activities which
may adversely affect the Group’s businessand operations
Such risks can include:}} the provision of unsuitable or inappropriate advice (commensuratewith a customer’s objectives and appetite for risk),}} the representation of, or disclosure about, a product or service
which is inaccurate, or does not provide adequate information
about risks and benefits to customers,}} a failure to appropriately manage conflicts of interest withinsales and /or promotion processes (including incentives andremuneration for staff engaged in promotion, sales and/or theprovision of advice),}} a failure to deliver product features and benefits in accordance withterms, disclosures, recommendations and/or advice.
Exposure to such risk may increase during periods of declining
investment asset values (such as during a period of economic
downturn or investment market volatility), leading to sub-optimal
performance of investment products and/or portfolios that were notaligned with the customer’s objectives and risk appetite.
ANZ is regulated under various legislative mechanisms in the
countries in which it operates that provide for consumer protection
around advisory, marketing and sales practices. These may include,
but are not limited to, appropriate management of conflicts ofinterest, appropriate accreditation standards for staff authorised
to provide advice about financial products and services, disclosure
standards, standards for ensuring adequate assessment of client/product suitability, quality assurance activities, adequate record
keeping, and procedures for the management of complaints
and disputes.
Risks pertaining to advice about financial products and services may
result in material litigation (and associated financial costs), regulatory
actions, and/or reputational consequences.

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

Principal risks and uncertainties

199

Supplementary Information
1: Capital Adequacy
Basel 32013$mBasel 22012$m

Qualifying capital
Tier 1
Shareholders' equity and non-controlling interests
Prudential adjustments to shareholders’ equity

Table 145,615(932)

41,220(3,857)Gross Common Equity Tier 1 Capital
Deductions

Table 2

44,683(15,892)

37,363(10,839)

Common Equity Tier 1 Capital
Additional Tier 1 capital

Table 3

28,791
6,401

26,524
5,977

35,19232,501

6,190

4,073

Total qualifying capital

41,382

36,574

Capital adequacy ratios
Common Equity Tier 1
Tier 1
Tier 2

8.5%
10.4%
1.8%

8.8%
10.8%
1.4%

Tier 1 capital
Tier 2 capital

Table 4

Total
Risk Weighted Assets

200

Table 5

12.2%

12.2%

339,265

300,119

ANZ ANNUAL REPORT 2013

1: Capital Adequacy (continued)
Basel 32013$mBasel 22012$m

Table 1: Prudential adjustments to shareholders’ equity
Treasury Shares attributable to OnePath policy holders
Reclassification of preference share capital
Accumulated retained profits & reserves of insurance, funds management & securitisation entities
Deferred fee revenue including fees deferred as part of loan yields
Hedging reserve
Available-for-sale reserve attributable to deconsolidated subsidiaries
Dividend not provided for
Accrual for Dividend Reinvestment Plans
Other

272
(871)
(583)
381
n/a
(90)
n/a
n/a
(41)

280
(871)
(1,660)
415
(208)
(94)
(2,149)
430
–

Total

(932)

(3,857)

Table 2: Deductions from Common Equity Tier 1 capital
Unamortised goodwill & other intangibles (excluding OnePath Australia and New Zealand)
Intangible component of investments in OnePath Australia and New Zealand
Capitalised software
Capitalised expenses including loan and lease origination fees
Applicable deferred net tax assets
Expected losses in excess of eligible provisions
Investment in ANZ insurance and funds management subsidiaries
Investment in OnePath Australia and New ZealandInvestment in banking associates
Other deductions(3,970)(2,096)(2,102)(979)(1,102)(376)(453)(1,059)(3,361)(394)(3,052)(2,074)(1,702)
(850)
(301)
(542)
(327)
(721)
(1,070)
(200)

Total

(15,892)(10,839)

Table 3: Additional Tier 1 capital
Convertible Preference Shares
ANZ CPS1
ANZ CPS2
ANZ CPS3
ANZ Capital Notes
Preference Shares
Hybrid Securities
Regulatory adjustments and deductions
Transitional adjustments

1,081
1,963
1,329
1,106
871
812
(78)
(683)

1,078
1,958
1,326
–
871
752
(8)
n/a

Total

6,401

5,977

Table 4: Tier 2 capital
General reserve for impairment of financial assets
Perpetual subordinated notes
Subordinated Debt
Regulatory adjustments and deductions
Transitional adjustments

245
1,065
5,448
(340)
(228)

234
953
5,847
(2,961)
n/a

Total

6,190

4,073

Supplementary Information

201

Supplementary Information (continued)
1: Capital Adequacy (continued)
Basel 32013$mBasel 22012$m

Table 5: Risk Weighted Assets
On balance sheet
Commitments
Contingents
Derivatives

208,326
47,80911,184
20,332

190,21042,807
9,962
11,896

Total credit risk
Traded Market Risk
Total Interest Rate Risk RWA – IRRBB
Operational Risk RWA

287,651
4,303
18,28729,024

254,875
4,664
12,45528,125

Total Risk Weighted Assets

339,265

300,119

Table 6: Risk Weighted Assets
Subject to Advanced IRB approach
Corporate
SovereignBank
Residential mortgage
Qualifying revolving retail (credit cards)
Other retail

121,586
4,360
16,27047,5597,219
24,328111,796
4,088
11,07742,959
7,092
21,277

Credit risk weighted assets subject to advanced approach

221,322

198,289

Credit Risk Specialised lending exposures subject to slotting criteria

27,64027,628

Subject to Standardised approach
Corporate
Residential mortgage
Qualifying revolving retail (credit cards)
Other retail

19,285
1,922
1,728
985

18,168
1,812
2,028
1,165

Credit risk weighted assets subject to standardised approach

23,92023,173Credit Valuation Adjustment and Qualifying Central Counterparties

8,501

n/a

Credit risk weighted assets relating to securitisation exposures
Credit risk weighted assets relating to equity exposures
Other assets

2,724
n/a
3,544

1,170
1,030
3,585

287,651

254,875

Total credit risk weighted assets

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;}} the recognition of risk weighted assets attributable to market risk arising from trading positions and interest rate movements; and}} a risk weighted asset equivalent of a charge for operational risk.
For calculation of minimum capital requirements under Pillar 1 (Capital Requirements) of the Basel 2 Accord implemented from January 2008,
ANZ gained accreditation from APRA for use of Advanced Internal Ratings Based (AIRB) methodology for credit risk weighted assets andAdvanced Measurement Approach (AMA) for operational risk weighted asset equivalent. Basel 3 reforms were introduced on 1 January 2013.
In addition to the disclosures in this section, ANZ provides capital information as required under APRA’s prudential standard
APS 330: Public Disclosure Attachment A. This information is located in the Regulatory Disclosures section of ANZ’s website:shareholder.anz.com/pages/regulatory-disclosure.

202

ANZ ANNUAL REPORT 2013

1: Capital Adequacy (continued)
Regulatory
Expected Loss

Collective Provision
2013
$m

2012
$m

2013
$m

2012
$m

Table 7: Collective provision and regulatory expected loss by division
Australia
International and Institutional Banking
New ZealandGlobal WealthGroup Centre

1,123
1,310
399
12
43

1,073
1,224
413
11
44

2,393
1,037
763
21
19

2,309
1,270
814
23
1

Cash collective provision and regulatory expected loss
Adjustments between statutory and cash

2,887
–

2,765
–

4,233
9

4,417
20

Collective provision and regulatory expected loss

2,887

2,765

4,242

4,437

Table 8: Expected loss in excess of eligible provisions
Basel expected loss
Defaulted
Non-defaulted

Less: Qualifying collective provisionCollective provisionNon-qualifying collective provision
Standardised collective provision
Deferred tax asset

Less: Qualifying individual provision
Individual provision
Standardised individual provisionCollective provision on advanced defaulted

Basel 32013$mBasel 2
2012
$m

1,854
2,388

2,168
2,269

4,242

4,437

(2,887)
346
245
n/a

(2,765)
334
269
625

(2,296)(1,537)(1,467)219(322)(1,773)268(312)(1,570)(1,817)Gross deduction

376

1,083

50/50 deduction

n/a

542

Supplementary Information203

Supplementary Information (continued)
2: Average Balance Sheet and Related Interest
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.
2013
Averagebalance$m

Due from other financial institutions
Australia
Asia Pacific, Europe & America
New Zealand

2012

Interest$m

Averagerate%

Averagebalance$mInterest$m

Average
rate
%

3,649
14,353
1,435

107
169
14

2.9%
1.2%
1.0%

3,283
12,461
1,509

125
188
16

3.8%
1.5%
1.1%

Regulatory deposits
Asia Pacific, Europe & America

1,014

8

0.8%

1,026

7

0.7%

Trading and available-for-sale assets
Australia
Asia Pacific, Europe & America
New Zealand

37,728
16,970
9,823

1,234
256
354

3.3%
1.5%
3.6%

33,56815,022
8,877

1,372
265
353

4.1%
1.8%
4.0%

Net loans and advances
Australia
Asia Pacific, Europe & America
New Zealand

315,582
53,14681,316

19,308
1,862
4,824

6.1%
3.5%
5.9%

302,063
41,90573,994

21,400
1,766
4,572

7.1%
4.2%
6.2%

Other assets
Australia
Asia Pacific, Europe & America
New Zealand

8,566
29,340
2,417

257
121
113

3.0%
0.4%
4.7%

4,216
23,304
2,233

175
167
132

4.2%
0.7%
5.9%

Intragroup assets
Australia
Asia Pacific, Europe & America

2,554
8,121

433
(9)

17.0%
-0.1%

4,318
7,293

575
(24)

13.3%
-0.3%

586,014(10,675)

29,051(424)

535,072(11,611)31,089(551)

575,339

28,627523,461

30,538Interest earning assets

Intragroup elimination

5.0%

Non-interest earning assets
Derivatives
Australia
Asia Pacific, Europe & America
New Zealand

33,3494,879
6,784

36,492
4,783
9,974

Premises and equipment

2,092

2,085

Insurance assets

30,84029,973

Other assets

26,40425,217

Provisions for credit impairment
Australia
Asia Pacific, Europe & America
New Zealand(2,804)
(801)
(816)

(3,037)
(793)
(885)

99,927

103,809675,266

627,270

Total average assets

204

5.8%

ANZ ANNUAL REPORT 2013

2: Average Balance Sheet and Related Interest (continued)
2013
Averagebalance$mTime deposits
Australia
Asia Pacific, Europe & America
New Zealand

2012

Interest$m

Averagerate%

Averagebalance$mInterest$m

Averagerate%

135,747
75,05929,633

5,313
666
1,158

3.9%
0.9%
3.9%

134,508
60,64327,981

6,821
741
1,130

5.1%
1.2%
4.0%

Savings deposits
Australia
Asia Pacific, Europe & America
New Zealand

24,166
5,276
7,035

837
25
234

3.5%
0.5%
3.3%

21,779
4,280
3,757

862
24
119

4.0%
0.6%
3.2%

Other demand deposits
Australia
Asia Pacific, Europe & America
New Zealand

85,104
10,916
16,400

2,408
33
398

2.8%
0.3%
2.4%

77,581
9,817
15,135

2,845
29
391

3.7%
0.3%
2.6%

Due to other financial institutions
Australia
Asia Pacific, Europe & America
New Zealand

11,311
25,375
1,572

293
164
27

2.6%
0.6%
1.7%

7,308
21,624
1,851

260
181
32

3.6%
0.8%
1.7%

Commercial paper
Australia
New Zealand

10,306
4,212

311
128

3.0%
3.0%

11,676
3,669

510
123

4.4%
3.4%

Borrowing corporations’ debts
Australia
New Zealand

63
1,215

5
55

7.9%
4.5%

220
1,124

14
55

6.4%
4.9%

Loan capital, bonds and notes
Australia
Asia Pacific, Europe & America
New Zealand

64,7492,240
13,839

2,873
31
653

4.4%
1.4%
4.7%

63,62089
13,278

3,461
2
664

5.4%
1.8%
5.0%

Other liabilities1
Australia
Asia Pacific, Europe & America
New Zealand

1,803
1,797
286

170
37
50

n/a
n/a
n/a

2,060
1,394
200

206
53
(95)

n/a
n/a
n/a

Intragroup liabilities
New Zealand

10,675424

4.0%

11,611551

4.7%

Intragroup elimination

538,779(10,675)

16,293(424)

495,205(11,611)

18,979(551)

528,104

15,869483,594

18,428Interest bearing liabilities

3.0%

3.8%

Non-interest bearing liabilities
Deposits
Australia
Asia Pacific, Europe & America
New Zealand

5,511
3,202
4,380

5,103
2,387
3,863

Derivatives
Australia
Asia Pacific, Europe & America
New Zealand

30,4475,226
6,845

31,3295,044
9,207

Insurance liabilities
External unit holder liabilities
Other liabilities

30,625
3,839
13,98328,386
4,779
14,014

104,058

104,112632,162

587,706

Total average liabilities
1 Includes foreign exchange swap costs.

Supplementary Information

205

Supplementary Information (continued)
2: Average Balance Sheet and Related Interest (continued)
2013
$m

2012
$m

443,975
136,502
105,464(10,675)

425,515
113,341
100,025(11,611)675,266

627,270

34.6%

32.9%

368,079
122,944
94,991(10,675)

347,448
101,01186,613(11,611)575,339

523,461

414,046
131,22197,570(10,675)

398,639
107,562
93,116(11,611)

632,162

587,706

34.5%

32.2%

333,249
120,663
84,867(10,675)

318,752
97,84778,606(11,611)528,104

483,594

Total average shareholders’ equity1
Ordinary share capital, reserves and retained earnings
Preference share capital

42,233871

38,693871

43,10439,564

Total average liabilities and shareholders’ equity

675,266

627,270

Total average assets
Australia
Asia Pacific, Europe & America
New ZealandLess intragroup elimination% of total average assets attributable to overseas activities
Average interest earning assets
Australia
Asia Pacific, Europe & America
New ZealandLess intragroup elimination

Total average liabilities
Australia
Asia Pacific, Europe & America
New ZealandLess intragroup elimination% of total average assets attributable to overseas activities
Average interest bearing liabilities
Australia
Asia Pacific, Europe & America
New ZealandLess intragroup elimination

1 Average shareholders equity includes OnePath Australia shares that are eliminated from the closing shareholders equity balance of $273 million (2012: $280 million).

206

ANZ ANNUAL REPORT 2013

3: Interest Spreads and Net Interest Average Margins
2013
$m

2012
$m

9,131
1,450
2,177

8,668
1,339
2,103

12,758

12,110

%

%

5.80
1.96
5.58
4.98

6.81
2.35
5.86
5.83

Australia
Net interest spread
Interest attributable to net non-interest bearing items

2.14
0.34

2.10
0.39

Net interest margin – Australia

2.48

2.49

Asia Pacific, Europe & America
Net interest spread
Interest attributable to net non-interest bearing items

1.17
0.01

1.30
0.03

Net interest margin – Asia Pacific, Europe & America

1.18

1.33

New Zealand
Net interest spread
Interest attributable to net non-interest bearing items

1.90
0.39

2.08
0.35

Net interest margin – New Zealand

2.29

2.43

Group
Net interest spread
Interest attributable to net non-interest bearing items

1.98
0.24

2.02
0.29

Net interest margin

2.22

2.31

Net interest margin (excluding Global Markets)

2.63

2.71

Net interest income
Australia
Asia Pacific, Europe & America
New ZealandGross earnings rate1
Australia
Asia Pacific, Europe & America
New Zealand
Total GroupInterest spread and net interest average margin may be analysed as follows:

1 Average interest rate received on average interest earning assets.

Supplementary Information207

Supplementary Information (continued)
4. Explanation of adjustments between statutory profit and cash profit
TREASURY SHARES ADJUSTMENT
ANZ shares held by the Group in the consolidated managed funds
and life business are deemed to be Treasury shares for accounting
purposes. Dividends and realised and unrealised gains and losses
from these shares are reversed as these are not permitted to berecognised in income for statutory reporting purposes. In deriving
cash profit, these earnings are included to ensure there is no
asymmetrical impact on the Group’s profits because the Treasury
shares support policy liabilities which are revalued in deriving
income. Accordingly, an adjustment to statutory profit of $84 million
gain after tax (2012: $96 million gain after tax), pre-tax $90 million
gain (2012: $104 million gain) has been recognised.
Revaluation of Policy Liabilities
When calculating policy liabilities, the projected future cash flows
on insurance contracts are discounted to reflect the present
value of the obligation, with the impact of changes in the market
discount rate each period being reflected in the income statement.
ANZ includes the impact on the remeasurement of the insurance
contract attributable to changes in the market discount rates as an
adjustment to cash profit to remove the volatility attributable tochanges in market interest rates which reverts to zero over the life of
the insurance contract.
ECONOMIC HEDGING AND 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 and losses being recognised within the income statement.
ANZ includes the mark-to-market adjustments as an adjustment
to cash profit as the profit or loss resulting from the transactions
will reverse over time to match with the profit or loss from theeconomically hedged item as part of cash profit. This includes gains
and losses 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 thevaluation of the ‘own name’ credit spread on debt issues designatedat fair value); and}} ineffectiveness from designated accounting cash flow, fair value
and net investment hedges.
In the table below, funding and lending related swaps are primarily
cross currency interest rate swaps which are being used to convert
the proceeds of foreign currency debt issuances into floating rate
Australian dollar and New Zealand dollar debt. As these swaps do
not qualify for hedge accounting, movements in the fair values
are recorded in the Income Statement. The main drivers of thesefair 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 selectstructured finance and specialised leasing transactions that do not
qualify for hedge accounting. The main drivers of these fair value
adjustments are Australian and New Zealand yield curves.
Gains in funding and lending related swaps were the result of asignificant weakening in AUD across the major currencies, most notably
USD and EUR in the second half of 2013 partially offsetting losses fromcontraction in currency basis spreads in the first half of 2013.
Losses arising from the use of the fair value option on own namedebt hedged by derivatives are a result of a contraction of the Group’s
credit spreads in the first half of 2013, with spreads stabilising in thesecond half of 2013.
The losses from revenue and net investment hedges for 2013 wereprincipally attributable to the depreciation of the AUD against the
USD in 2012.
2013
$m

2012
$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

(78)
63
224
(8)

194
119
(75)
16

Profit/(loss) before tax

201

254

Profit/(loss) after tax

146

176
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

208

2013
$m

2012
$m

678
(1)
179
(25)

756
(64)
(45)
(17)

831

(630)

ANZ ANNUAL REPORT 2013

4. Explanation of adjustments between statutory profit and cash profit (continued)
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 toprovision for credit impairment of $9 million (2012: $60 million).
The reclassification has been made to reflect the manner in which
the defaulted and impaired derivatives are managed.
POLICYHOLDERS TAX GROSS UP(NIL PROFIT AFTER TAX IMPACT)
For statutory reporting purposes policyholder income tax andother 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 $371 million (2012: $151 million) has
been excluded from the underlying results as it does not reflect theunderlying performance of the business which is assessed on a net ofpolicyholder tax basis.
STRUCTURED CREDIT INTERMEDIATION TRADES
ANZ entered into a series of structured credit intermediation tradesfrom 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 samestructures 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 thecredit 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; and}} a credit valuation adjustment is applied to the remaining
counterparties to the purchased protection reflective of changes totheir credit worthiness.
ANZ is actively monitoring this portfolio with a view to reducing theexposure via termination and restructuring of both the bought andsold protection if and when ANZ deems it cost effective relative tothe perceived risk associated with a specific trade or counterparty.
During the year ANZ terminated all bought CDSs with one financial
guarantor along with the corresponding sold CDSs for a net
profit of $7 million (including termination costs and release of theassociated credit valuation adjustment (CVA)). The bought and soldprotection trades are by nature largely offsetting, with notionalamounts on the outstanding bought CDSs and outstanding sold
CDSs at 30 September 2013 each amounting to USD 4.5 billion(2012: USD 8.0 billion).
The profit and loss impact of credit risk on structured credit
derivatives remains volatile reflecting the impact of market
movements in credit spreads and AUD/USD rates. The (gain)/loss on
structured credit intermediation trades is included as an adjustment
to cash profit as it relates to a legacy non-core business where thecumulative mark-to-market movements are expected to reverse tozero in future periods.
The (gain)/loss included in income for these transactions is set
out below.
2013
$m

2012
$m

Credit risk on intermediation trades
Profit before income tax
Income tax expense

(63)
13

(73)
11

Profit after income tax

(50)

(62)
As at

2013
$m

2012
$m

179

359

Credit valuation adjustment for outstanding transactions
Realised close out and hedge costs

42
333

116
322

Cumulative life to date charges

375

438

Financial impacts on credit intermediation trades
Mark-to-market exposure to financial guarantors
Cumulative costs relating to financial guarantors1

1 The cumulative costs in managing the positions include realised losses relating to restructuring of trades in order to reduce risks and realised losses on termination of sold protection trades.
It also includes foreign exchange hedging losses.

Supplementary Information

209

Shareholder information
Ordinary Shares
At 11 October 2013, the twenty largest holders of ordinary shares held 1,607,188,663 ordinary shares, equal to 58.58% of the total issued
ordinary capital.
Number of% ofshares shares

Name

1 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED2 J P MORGAN NOMINEES AUSTRALIA LIMITED
3 NATIONAL NOMINEES LIMITED
4 CITICORP NOMINEES PTY LIMITED
5 BNP PARIBAS NOMS PTY LTD <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 NOMINEES PTY LIMITED <PI POOLED A/C>
10 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED <NT-COMNWLTH SUPER CORP A/C>
11 ANZEST PTY LTD <DEFERRED SHARE PLAN A/C>
12 UBS WEALTH MANAGEMENT AUSTRALIA NOMINEES PTY LTD
13 BNP PARIBAS NOMINEES PTY LTD <AGENCY LENDING DRP A/C>
14 ARGO INVESTMENTS LIMITED
15 AUSTRALIAN FOUNDATION INVESTMENT COMPANY LIMITED
16 ANZEST PTY LTD <DEA CONTROL A/C>
17 NAVIGATOR AUSTRALIA LTD <MLC INVESTMENT SETT A/C>
18 ANZEST PTY LTD <ESAP SHARE PLAN A/C>
19 QUESTOR FINANCIAL SERVICES LIMITED <TPS RF A/C>
20 NULIS NOMINEES (AUSTRALIA) LIMITED <NAVIGATOR MAST PLAN SETT A/C>

507,116,677 18.48
395,036,175 14.40
322,644,976 11.76
113,824,497 4.15
63,540,677 2.32
42,063,789 1.53
31,977,893 1.17
23,179,585 0.84
18,276,818 0.67
13,577,446 0.49
12,367,959 0.45
12,109,214 0.44
10,010,830 0.37
9,073,698 0.33
8,487,710 0.31
5,513,148 0.20
5,079,699 0.19
4,678,899 0.17
4,426,108 0.16
4,202,865 0.15

Total

1,607,188,663 58.58

Distribution of shareholdings
At 11 October 2013
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

253,137
174,359
26,863
14,350
445

53.96
37.16
5.73
3.06
0.09

105,518,479
394,739,961
186,709,161
290,465,141
1,766,230,221

3.85
14.39
6.81
10.58
64.37

Total

469,154100.002,743,662,963

100.00

At 11 October 2013:– there were no persons with a substantial shareholding in the Company;– the average size of holdings of ordinary shares was 5,848 (2012: 6,195) shares; and– there were 8,907 holdings (2012: 9,505 holdings) of less than a marketable parcel (less than $500 in value or 16 shares based on the market price of $31.29 per share), which is less than 1.90%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)

210

ANZ ANNUAL REPORT 2013

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 11 October 2013, the twenty largest holders of ANZ CPS1 held 2,269,433 securities, equal to 20.99% of the total issued securities.
Number of% ofsecurities securitiesName

1 UBS WEALTH MANAGEMENT AUSTRALIA NOMINEES PTY LTD
2 QUESTOR FINANCIAL SERVICES LIMITED <TPS RF A/C>
3 UCA CASH MANAGEMENT FUND LTD
4 NAVIGATOR AUSTRALIA LTD <MLC INVESTMENT SETT A/C>
5 J P MORGAN NOMINEES AUSTRALIA LIMITED
6 NULIS NOMINEES (AUSTRALIA) LIMITED <NAVIGATOR MAST PLAN SETT A/C>
7 CITICORP NOMINEES PTY LIMITED <DPSL>
8 UBS NOMINEES PTY LTD
9 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
10 BOND STREET CUSTODIANS LIMITED <MPPMIM - V16636 A/C>
11 BNP PARIBAS NOMS PTY LTD <DRP>
12 NATIONAL NOMINEES LIMITED
13 NETWEALTH INVESTMENTS LIMITED <WRAP SERVICES A/C>
14 AUSTRALIAN EXECUTOR TRUSTEES LIMITED <NO 1 ACCOUNT>
15 RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED <NMSMT A/C>
16 BALLARD BAY PTY LTD <BALLARD BAY DISCRETIONARY AC>
17 JMB PTY LIMITED
18 SPINETTA PTY LTD
19 EASTCOTE PTY LTD <VAN LIESHOUT FAMILY A/C>
20 KOLL PTY LTD <NO 1 ACCOUNT>
Total

416,653
223,441
213,903
191,530
152,040
112,714106,262
104,249
102,671
98,884
79,664
67,99962,93958,24753,23750,00050,00045,00040,00040,000

3.85
2.07
1.98
1.77
1.41
1.04
0.98
0.96
0.95
0.92
0.74
0.63
0.58
0.54
0.49
0.46
0.46
0.42
0.37
0.37

2,269,433

20.99

Distribution of ANZ CPS1 holdings
At 11 October 2013
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

15,762
1,226
67
49
9

92.11
7.16
0.39
0.29
0.05

4,796,913
2,452,559
523,850
1,415,339
1,623,463

44.37
22.68
4.85
13.09
15.01

Total

17,113100.0010,812,124

100.00

At 11 October 2013: There were 5 holdings (2012: 5 holdings) of less than a marketable parcel (less than $500 in value or 5 securities based on the market price of $100.77 per security), which is lessthan 0.03% of the total holdings of ANZ CPS1.

Voting rights of ANZ CPS1
An ANZ CPS1 holder has the right to vote at a meeting of members of
ANZ in the following circumstances and in no others:i) on any proposal to reduce ANZ’s share capital, other than aresolution 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 entitledto 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)

SHAREHOLDER Information

211

Shareholder INFORMATION (continued)
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 11 October 2013, the twenty largest holders of ANZ CPS2 held 3,475,960 securities, equal to 17.66% of the total issued securities.
Number of% ofsecurities securitiesName

1 UBS WEALTH MANAGEMENT AUSTRALIA NOMINEES PTY LTD
2 J P MORGAN NOMINEES AUSTRALIA LIMITED
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 NATIONAL NOMINEES LIMITED
7 NULIS NOMINEES (AUSTRALIA) LIMITED <NAVIGATOR MAST PLAN SETT A/C>
8 AUSTRALIAN EXECUTOR TRUSTEES LIMITED <NO 1 ACCOUNT>
9 RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED <NMSMT A/C>
10 NETWEALTH INVESTMENTS LIMITED <WRAP SERVICES A/C>
11 JMB PTY LIMITED
12 RHI HOLDINGS PTY LTD <RONI HUBAY INVESTMENT A/C>
13 WINCHELADA PTY LIMITED
14 RANDAZZO C & G DEVELOPMENTS PTY LTD
15 CITICORP NOMINEES PTY LIMITED <COLONIAL FIRST STATE INV A/C>
16 CITICORP NOMINEES PTY LIMITED
17 PERSHING AUSTRALIA NOMINEES PTY LTD <IMPLEMENTED PORTFOLIOS 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

618,073
420,943
335,099
264,405
257,893
225,429
212,164
148,955
140,642
101,670
100,600
100,000
86,30078,50071,00070,93064,16960,00060,00059,188

3.14
2.14
1.70
1.34
1.31
1.15
1.08
0.76
0.71
0.52
0.51
0.51
0.44
0.40
0.36
0.36
0.33
0.30
0.30
0.30

3,475,960

17.66

Distribution of ANZ CPS2 holdings
At 11 October 2013
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

29,111
2,134
160
69
11

92.46
6.78
0.51
0.22
0.03

9,053,455
4,506,610
1,256,524
2,044,762
2,825,873

45.99
22.89
6.38
10.39
14.35

Total

31,485100.0019,687,224

100.00

At 11 October 2013: There were 7 holdings (2012: 10 holdings) of less than a marketable parcel (less than $500 in value or 5 securities based on the market price of $102.42 per security), which is lessthan 0.03% of the total holdings of ANZ CPS2.

Voting rights of ANZ CPS2
An ANZ CPS2 holder has the right to vote at a meeting of members of
ANZ in the following circumstances and in no others:i) on any proposal to reduce ANZ’s share capital, other than aresolution 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.

212

On a resolution or proposal on which an ANZ CPS2 holder is entitledto 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)

ANZ ANNUAL REPORT 2013

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 11 October 2013, the twenty largest holders of ANZ CPS3 held 2,252,333 securities, equal to 16.81% of the total issued securities.
Number of% ofsecurities securitiesName

1 UBS WEALTH MANAGEMENT AUSTRALIA NOMINEES PTY LTD
2 NAVIGATOR AUSTRALIA LTD <MLC INVESTMENT SETT A/C>
3 RAKIO PTY LTD <PIEKARSKI GYMPIE A/C>
4 QUESTOR FINANCIAL SERVICES LIMITED <TPS RF A/C>
5 NULIS NOMINEES (AUSTRALIA) LIMITED <NAVIGATOR MAST PLAN SETT A/C>
6 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
7 RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED <NMSMT A/C>
8 DIMBULU PTY LTD
9 MICHAEL COPPEL VENTURES P/L <MICHAEL COPPEL VENTURES A/C>
10 JMB PTY LIMITED11 NATIONAL NOMINEES LIMITED
12 BNP PARIBAS NOMS PTY LTD <DRP>
13 EASTCOTE PTY LTD <VAN LIESHOUT FAMILY A/C>
14 MR TERRENCE E PEABODY + MRS MARY G PEABODY <SUPER FUND A/C>
15 RANDAZZO C & G DEVELOPMENTS PTY LTD
16 TANDOM PTY LTD
17 UCA CASH MANAGEMENT FUND LTD
18 AUSTRALIAN EXECUTOR TRUSTEES LIMITED <NO 1 ACCOUNT>
19 SIR MOSES MONTEFIORE JEWISH HOME <INCOME A/C>
20 RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED <MULTIPORT A/C>
Total

623,497
213,535
200,000
146,843
120,971
110,208
102,62085,00080,00070,00063,39153,41550,00050,00050,00050,00050,00047,25744,14041,456

4.65
1.60
1.49
1.10
0.90
0.82
0.77
0.64
0.60
0.52
0.47
0.40
0.37
0.37
0.37
0.37
0.37
0.35
0.33
0.32

2,252,333

16.81

Distribution of ANZ CPS3 holdings
At 11 October 2013
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

19,081
1,424
89
68
7

92.32
6.89
0.43
0.33
0.03

6,045,475
3,158,152
704,922
1,973,777
1,517,674

45.11
23.57
5.26
14.73
11.33

Total

20,669100.0013,400,000

100.00

At 11 October 2013: There were no holdings (2012: 1) of less than a marketable parcel (less than $500 in value or 5 securities based on the market price of $101.9010 per security).

Voting rights of ANZ CPS3
An ANZ CPS3 holder has the right to vote at a meeting of membersof ANZ in the following circumstances and in no others:i) on any proposal to reduce ANZ’s share capital, other than aresolution 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 entitledto 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)

SHAREHOLDER INFORMATION

213

Shareholder INFORMATION (continued)
ANZ Capital Notes
On 7 August 2013 ANZ issued convertible subordinated perpetual notes (ANZ Capital Notes) which were offered pursuant to a prospectus dated
10 July 2013.
At 11 October 2013 the twenty largest holders of ANZ Capital Notes held 1,735,908 securities, equal to 15.50% of the total issued securities.
Number of% ofsecurities securitiesName

1 UBS WEALTH MANAGEMENT AUSTRALIA NOMINEES PTY LTD
2 J P MORGAN NOMINEES AUSTRALIA LIMITED
3 NAVIGATOR AUSTRALIA LTD <MLC INVESTMENT SETT A/C>
4 CITICORP NOMINEES PTY LIMITED
5 BNP PARIBAS NOMS PTY LTD <DRP>
6 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
7 NETWEALTH INVESTMENTS LIMITED <WRAP SERVICES A/C>
8 NATIONAL NOMINEES LIMITED
9 UCA CASH MANAGEMENT FUND LIMITED
10 NULIS NOMINEES (AUSTRALIA) LIMITED <NAVIGATOR MAST PLAN SETT A/C>
11 PACIFIC DEVELOPMENT CORPORATION PTY LTD
12 RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED <NMSMT A/C>
13 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED – A/C 2
14 DIMBULU PTY LTD
15 RANDAZZO C & G DEVELOPMENTS PTY LTD
16 MS YANG YANG
17 SPINETTA PTY LTD
18 AUSTRALIAN MASTERS YIELD FUND NO 5 LIMITED
19 RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED <MULTIPORT A/C>
20 ADCO CONSTRUCTIONS PTY LTD
Total

254,925
156,530
138,314129,070
115,000
107,154
88,153
87,97878,90376,97370,00054,97053,27150,00050,00050,00047,50045,41041,75740,000

2.28
1.40
1.23
1.15
1.03
0.96
0.79
0.78
0.70
0.69
0.62
0.49
0.48
0.45
0.45
0.45
0.42
0.40
0.37
0.36

1,735,908

15.50

Distribution of ANZ Capital notes holdings
At 11 October 2013
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

14,301
1,335
89
53
6

90.60
8.46
0.56
0.34
0.04

4,972,094
3,064,067
730,820
1,532,026
900,993

44.39
27.36
6.53
13.68
8.04

Total

15,784100.00

11,200,000

100.00

At 11 October 2013: There were no holdings of less than a marketable parcel (less than $500 in value or 5 securities based on the market price of $102.56 per security).

Voting rights of ANZ Capital Notes
ANZ Capital Notes do not confer on holders a right to vote at any
meeting of members of ANZ.
A register of holders of ANZ Capital Notes is held at:
452 Johnston Street
Abbotsford
Victoria, Australia(Telephone: +61 3 9415 4010)

214

ANZ ANNUAL REPORT 2013

US Trust Securities

Euro Trust Securities

On 27 November 2003, the Company issued 750,000 USD
non‑cumulative Trust Securities (‘US Trust Securities’). For
more details on the US Trust Securities refer to page 117.

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 119.

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 Euro Trust Securities were issued in global form and are registeredin 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 thename of The Bank of New York (as trustee for ANZ Capital Trust III) 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-backagreement;}} 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, and}} on 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 dividend on
the preference shares within a prescribed time period.
On a resolution or proposal on which a preference share holder isentitled to vote, the holder has on a poll one vote per preference
share held.

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 (otherthan 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; and}} on 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 dividend on
the preference shares within a prescribed time period.
On a resolution or proposal on which a preference share holder isentitled to vote, the holder has on a show of hands one vote, and on apoll, one vote per preference share held.

SHAREHOLDER INFORMATION

215

Shareholder INFORMATION (continued)
Employee Shareholder Information

American Depositary Receipts

In order to comply with the requirements of the ANZ Employee Share
Acquisition Plan Rules and the ANZ Share Option Plan Rules, sharesor options must not be issued under these Plans if the aggregate
number of shares and options that remain subject to the Rulesof either Plan exceed 7% of the total number of ANZ shares of allclasses on issue (including preference shares). At 30 September 2013
participants under the following plans/schemes held 1.17%(2012: 1.21%) of the total number of ANZ shares of all classes on issue:}} ANZ Employee Share Acquisition Plan;}} ANZ Employee Share Save Scheme;}} ANZ Share Option Plan;}} ANZ Directors’ Share Plan; and}} ANZ Directors’ Retirement Benefit Plan.

The Group has American Depositary Receipts (ADRs) representing
American Depositary Shares (ADSs) that are traded on theover-the-counter 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.

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) and ANZ Capital Notes [Australia and
New Zealand Banking Group Limited]; senior (including coveredbonds) and subordinated (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 – 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]; and}} SIX 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 US Trust Securities, Euro Trust Securities,
ANZ CPS and ANZ Capital Notes please refer to notes 28 and 29 to the
Financial Statements.

216

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
and download 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.

ANZ ANNUAL REPORT 2013

Glossary
AASs – Australian Accounting Standards.
AASB – Australian Accounting Standards Board.
ADIs – Authorised Deposit-taking Institutions.
AFS – Available-for-sale financial assets.
APRA – Australian Prudential Regulation Authority.
Australia division
The Australia division comprises Retail and Corporate andCommercial Banking businesses. Retail includes Mortgages,
Consumer Cards and Unsecured Lending and Deposits. Corporate
and Commercial includes Corporate Banking, Business Banking,Regional Business Banking, Small Business Banking and Esanda.
}} Retail– Retail Distribution delivers banking solutions to customers
via the Australian branch network, ANZ Direct and specialist
sales channels.
– 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.
}} Corporate and Commercial Banking– Corporate Banking provides traditional relationship banking
and sophisticated financial solutions to corporate businesses,
including largely privately owned companies in the mid-market
business segment.
– 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.
– Regional Business Banking provides a full range of banking
services to personal customers and to small business andagribusiness customers in rural and regional Australia.
– Small Business Banking provides a full range of banking services
for metropolitan-based small businesses in Australia with lending
up to A$1 million.

Cash profit is a measure of profit which is prepared on a basis
other than in accordance with accounting standards. Cash profit
represents a measure of the result of the ongoing business activitiesof the Group, enabling shareholders to assess Group and Divisional
performance against prior periods and against peer institutions.
To calculate cash profit, the Group excludes items from statutory
net profit as set out below. These items are calculated consistently
period on period so as not to discriminate between positive andnegative adjustments.
Gains and losses are adjusted where they are significant, or havethe potential to be significant in any one period, and fall into one ofthree categories:
1. non-core gains and losses included in earnings arising fromchanges in tax, legal, accounting legislation or other non-core
items not associated with the ongoing operations of the Group;
2. treasury shares, revaluation of policy liabilities, economic hedging
impacts and similar accounting items that represent timing
differences that will reverse through earnings in the future; and3. accounting reclassifications between individual line items that do
not impact reported results, such as policyholder tax gross up.
The adjustments made in arriving at cash profit are included instatutory profit which is subject to audit within the context of theGroup statutory audit opinion. Cash profit is not subject to audit by
the external auditor however, the external auditor has informed the
Audit Committee that the adjustments have been determined on aconsistent basis across each period presented.
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.
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.
Credit equivalent represents the calculation of on-balance sheet
equivalents for market related items.
Customer deposits represent term deposits, other deposits bearing
interest, deposits not bearing interest and borrowing corporations
debt excluding securitisation deposits.

– Esanda provides motor vehicle and equipment finance andinvestment products.

GLOSSARY217

GLOSSARY (continued)
Global Wealth
The Global Wealth division comprises Funds Management, Insurance
and Private Banking which provides investment, superannuation,
insurance products and services as well as Private Banking forcustomers across Australia, New Zealand and Asia}} Global Private Banking specialises in assisting individuals andfamilies to manage, grow and preserve their wealth. The businesses
within Private Banking & Other Wealth include Private Bank,ANZ Trustees, E*Trade, Investment Lending, Super Concepts andOther 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.
Global Technology, Services and Operations comprises Global
Services & Operations, Group Technology and Group Centre. Group
Centre includes Group Human Resources, Group Risk, Group Strategy,Group Corporate Affairs, Group Corporate Communications, Group
Treasury, Global Internal Audit, Group Finance, Group Marketing,Innovation and Digital, Shareholder Functions and discontinued
businesses.
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 comprise 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 accountexpected cash flow over the lives of those financial instruments.

218

International and Institutional Banking division
The International and Institutional Banking division comprises Global
Institutional, Transaction Banking, Global Markets, Global Loans,
Retail Asia Pacific and Asia Partnerships business units, together withRelationship & 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. This includes:– 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. Global Markets provides
origination, underwriting, structuring and risk management
services, advice and sale of credit and derivative products
globally. Global Markets also manages the Group’s interest raterisk position and liquidity portfolio.
– Global Loans provides term loans, working capital facilities andspecialist loan structuring. It provides specialist credit analysis,
structuring, execution and ongoing monitoring of strategicallysignificant customer transactions, including project andstructured finance, debt structuring and acquisition finance,
loan product structuring and management, structured asset andexport finance.
}} Retail Asia Pacific provides retail and small business banking
services to customers 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
Securities Incorporation.
}} 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.

ANZ ANNUAL REPORT 2013

Net interest margin is net interest income as a percentage of averageinterest 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.
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 the central support
functions (including Treasury funding).
}} Retail– Includes Mortgages, Credits Cards and Unsecured Lending topersonal 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 are provided under
the UDC brand.
– Small Business Banking provides a full range of banking
services to small enterprises, typically with turnover of less than
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 otheroperating 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 of areduction of interest, principal or other payments legally due, or an
extension in maturity materially beyond those typically offered to
new facilities with similar risk.
Segment revenue includes net interest income, share of associates’
profit and other operating income.
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.

Glossary219

ALPHABETICAL INDEX
Assets Charged as Security for Liabilities andCollateral Accepted as Security for Assets
Associates
Available-for-sale Assets
Average Balance Sheet and Related Interest
Balance Sheet
Bonds and Notes
Capital Adequacy
Capital Management
Cash Flow Statement
Chairman’s Report
Chief Executive Officer’s Report
Commitments
Compensation of Auditors
Controlled Entities
Corporate Governance
Credit Related Commitments, Guarantees, Contingent
Liabilities and Contingent Assets
Critical Estimates and Judgements Used in Applying
Accounting Policies
Deposits and Other Borrowings
Derivative Financial Instruments
Directors’ Declaration and Responsibility Statement
Directors’ Report
Dividends
Due from Other Financial Institutions
Due to Other Financial Institutions
Earnings per Ordinary Share
Employee Share and Option Plans
Events Since the End of the Financial Year
Exchange Rates
Expenses
Fair Value of Financial Assets and Financial Liabilities
Fiduciary Activities
Financial Highlights
Financial Statements
Financial Risk Management
Five Year Summary
Glossary

220

124
162
104
204
74
115
200
121
75
6
7
164
93
161
51
165
89
113
97
187
8
95
97
112
96
173
186
186
92
147
164
5
72
125
190
217

Goodwill and Other Intangible Assets
Impaired Financial Assets
Income Statements
Income Tax Expense
Income Tax Liabilities
IncomeIndependent Auditor’s Report
Interest Spreads and Net Interest Average Margins
Key Management Personnel Disclosures
Life Insurance Business
Liquid Assets
Loan Capital
Maturity Analysis of Assets and Liabilities
Net Loans and Advances
Notes to the Cash Flow Statements
Notes to the Financial Statements
Operating and Financial Review
Other Assets
Payables and Other Liabilities
Premises and Equipment
Principal Risks and Uncertainties
Provision for Credit Impairment
Provisions
Remuneration ReportReserves and Retained Earnings
Transfers of Financial Assets
Segment Analysis
Share Capital
Shareholder Information
Shares in Controlled Entities and Associates
Significant Accounting Policies
Statement of Changes in Equity
Statement of Comprehensive Income
Superannuation and Other Post Employment Benefit Schemes
Supplementary Information
Tax Assets
Trading Securities
Transactions with Other Related Parties

110
106
72
94
113
91
188
207
178
182
97
116
155
105
159
78
12
111
114
111
191
106
114
28
120
163
156
118
210
108
78
76
73
168
200
109
97
182

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 AFFAIRSLevel 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*
Event 				Date

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 STATESBNY Mellon Depositary Receipts
P.O. Box 43006
Providence, RI 02940-3006
Callers outside USA: 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

1 May 2014

Interim Dividend Ex-Date		

8 May 2014

Interim Dividend Record Date

14 May 2014

Interim Dividend Payment Date

1 July 2014

Our International Presence

Annual Results Announcement

31 October 2014

} Australia

Final Dividend Ex-Date 		

6 November 2014

} New ZealandFinal Dividend Record Date 		

12 November 2014

Final Dividend Payment Date

16 December 2014

} Asia – Cambodia, China, Hong Kong, India, Indonesia,
Japan, Korea, Laos, Malaysia, Myanmar, the Philippines,
Singapore, Taiwan, Thailand, Vietnam

Annual General Meeting 		18 December 2014

} 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

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