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ANZ Financial Report 2005

Australia and New Zealand Banking Group Limited
www.anz.com ABN 11 005 357 522

Financial Report 2005

FINANCIAL REPORTCONTENTSStatements of Financial Performance
Statements of Financial Position
Statements of Changes inShareholders’ Equity
Statements of Cash Flows

page
2
3

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

4
5
6
10
11
12
12
13
13
15
16
16
16
17
20
23
25
26
26
27
27
28
28
29
31
31

page
25 Income Tax Liabilities
32
26 Payables and Other Liabilities
32
27 Provisions
33
28 Bonds and Notes
34
29 Loan Capital
35
30 Share Capital
36
31 Outside Equity Interests
39
32 Capital Adequacy
39
33 Average Balance Sheet andRelated Interest
41
34 Interest Spreads and Net Interest
Average Margins
44
35 Market Risk
45
36 Interest Sensitivity Gap
47
37 Net Fair Value of Financial
Instruments
49
38 Derivative Financial Instruments
51
39 Securitisation
56
40 Segment Analysis
57
41 Notes to the Statements ofCash Flows59
42 Controlled Entities
61
43 Associates
62
44 Interests in Joint Venture Entities 62
45 Fiduciary Activities
64
46 Commitments
64
47 Contingent Liabilities, Contingent
Asset and Credit Related
Commitments
65
48 Superannuation Commitments
69
49 Employee Share and Option Plans 71
50 Directors and Specified Executives
Remuneration Disclosures
76
51 Directors and Specified Executives Related Party Transactions
88

page
52 Directors of Controlled Entities of
the Company - Related
Party Transactions
98
53 Transactions with Associates andJoint Venture Entities - Related
Party Disclosures
98
54 Exchange Rates
99
55 Impact of adopting Australianequivalents to International
Financial Reporting Standards
99
56 Events Since the Endof the Financial Year107
Directors’ Declaration
Auditors’ Report
Critical Accounting Policies
Risk Management
Financial Information

108
109
110
113
114

1
2

114

3
4
5
6

Cross Border Outstandings
Certificates of Deposit and Term
Deposit Maturities
Volume and Rate Analysis
Concentrations of Credit Risk
Doubtful Debts – Industry Analysis
Short Term Borrowings

Glossary
Alphabetical Index

anz financial report 2005

114
115
116
118
119
120
122

1

FINANCIAL REPORTCONTENTSStatements of Financial Performance
Statements of Financial Position
Statements of Changes inShareholders’ Equity
Statements of Cash Flows

page
2
3

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

4
5
6
10
11
12
12
13
13
15
16
16
16
17
20
23
25
26
26
27
27
28
28
29
31
31

page
25 Income Tax Liabilities
32
26 Payables and Other Liabilities
32
27 Provisions
33
28 Bonds and Notes
34
29 Loan Capital
35
30 Share Capital
36
31 Outside Equity Interests
39
32 Capital Adequacy
39
33 Average Balance Sheet andRelated Interest
41
34 Interest Spreads and Net Interest
Average Margins
44
35 Market Risk
45
36 Interest Sensitivity Gap
47
37 Net Fair Value of Financial
Instruments
49
51
38 Derivative Financial Instruments
39 Securitisation
56
40 Segment Analysis
57
41 Notes to the Statements of
59
Cash Flows
61
42 Controlled Entities
43 Associates
62
44 Interests in Joint Venture Entities 62
45 Fiduciary Activities
64
46 Commitments
64
47 Contingent Liabilities, Contingent
Asset and Credit Related
Commitments
65
48 Superannuation Commitments
69
49 Employee Share and Option Plans 71
50 Directors and Specified Executives
Remuneration Disclosures
76
51 Directors and Specified Executives Related Party Transactions
88

page
52 Directors of Controlled Entities of
the Company - Related
Party Transactions
98
53 Transactions with Associates andJoint Venture Entities - Related
Party Disclosures
98
54 Exchange Rates
99
55 Impact of adopting Australianequivalents to International
Financial Reporting Standards
99
56 Events Since the Endof the Financial Year107
Directors’ Declaration
Auditors’ Report
Critical Accounting Policies
Risk Management
Financial Information
1
2
3
4
5
6

Cross Border Outstandings
Certificates of Deposit and Term
Deposit Maturities
Volume and Rate Analysis
Concentrations of Credit Risk
Doubtful Debts – Industry Analysis
Short Term Borrowings

Glossary
Alphabetical Index

anz financial report 2005

108
109
110
113
114
114
114
115
116
118
119
120
122

1

STATEMENTS OF FINANCIAL PERFORMANCE FOR THE YEAR ENDED 30 SEPTEMBER 2005
Consolidated
2004$m

The Company
2005
2004
$m
$m

Note

2005
$m

Total Income

220,97917,50813,023

14,042

12,081

Interest income
Interest expense2
317,427(11,629)

14,117(8,863)

10,215(5,904)

10,946(7,646)9,054(6,088)

5,798

5,254

4,311

3,300

2,966

Net interest income

2003
$m

Other operating income
Share of joint venture profit from ING Australia
Share of associates profit (net of writeoffs)

2
2
2

3,395
107
50

3,246
97
48

2,702
55
51

3,096
–
–

3,027
–
–

Operating income
Operating expenses

3

9,350
(4,515)

8,645(4,026)

7,119(3,228)6,396(3,064)

5,993(2,878)

Profit before doubtful debt provision and income tax
Provision for doubtful debts

15

4,835
(580)

4,619
(632)

3,891
(614)

3,332
(388)

3,115
(433)

4,255

3,987

3,277

2,944

2,682

(1,234)(1,168)

(926)

(717)

(710)

Profit after income tax
Net profit attributable to outside equity interests

3,021
(3)

2,819
(4)

2,351
(3)

2,227
–

1,972
–

Net profit attributable to shareholders of the Company1,2

3,018

2,815

2,348

2,227

1,972

Currency translation adjustments, net of hedges after tax
Total adjustments attributable to shareholdersof the company recognised directly into equity

(443)

233

(356)

(213)

5

(443)

233

(356)

(213)

5

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

2,575

3,048

1,992

2,014

1,977

160.9
157.5

153.1
149.7

142.4
141.7

n/a
n/a

n/a
n/a

Profit before income tax
Income tax expense

6

Earnings per ordinary share (cents)
Basic
DilutedThe notes appearing on pages 6 to 107 form an integral part of these financial statements
1 The results of 2005 include the impact of this significant item:
n Gain on sale of NBNZ Life ($14 million profit after tax)
The results of 2004 include the impact of these significant items:n Close out of the TrUEPrS swap ($84 million profit after tax); andn ING Australia completion accounts ($14 million profit after tax)
Further details on these transactions are shown in note 22 Includes NBNZ incremental integration costs of $52 million (2004: $14 million) after tax

2

88

STATEMENTS OF FINANCIAL POSITION AS AT 30 SEPTEMBER 2005
Note

Consolidated
2005
2004
$m
$m

The Company
2005
2004
$m
$m

AssetsLiquid assets
Due from other financial institutions
Trading securities
Investment securities
Net loans and advances
Customer’s liabilities for acceptances
Due from controlled entities
Regulatory deposits
Shares in controlled entities, associates and joint venture entities
Deferred tax assets
Goodwill1
Other assets2
Premises and equipment

9
10
11
12
13
16

11,600
6,348
6,285
6,941
230,952
13,449
–
159
1,872
1,337
2,898
9,903
1,441

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

7,191
3,452
5,309
5,407
153,461
13,4498,309
113
12,551
754
66
6,098
849

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

293,185259,345

217,009

189,801

12,027
185,693
13,449–1,797
11,607914
39,073
9,137

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

9,029
113,089
13,44911,600
1,487
8,790
650
32,7398,452

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

Total liabilities

273,697

241,420

199,285

173,154

Net assets

19,48817,925

17,724

16,647

8,074
1,858
136
9,393

8,005
987
579
8,336

8,074
1,858
446
7,346

8,005
987
659
6,996

19,461
27

17,90718

17,724–

16,647–

19,48817,925

17,724

16,647

17
18
19
20
21
22

Total assets
Liabilities
Due to other financial institutions
Deposits and other borrowings
Liability for acceptances
Due to controlled entities
Income tax liabilities
Payables and other liabilities3
Provisions
Bonds and notes
Loan capital

23
24

25
26
27
28
29

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

30
30

31

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

38
46
47

The notes appearing on pages 6 to 107 form an integral part of these financial statements
1 Excludes notional goodwill of $711 million (September 2004: $754 million) included in the net carrying value of ING Australia Limited
2 Includes life insurance investment assets held by NBNZ Life Insurance Limited $nil (September 2004: $65 million)
3 Includes life insurance policy liabilities held by NBNZ Life Insurance Limited $nil (September 2004: $30 million)anz financial report 2005

3

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEAR ENDED 30 SEPTEMBER 2005
2005$mConsolidated
2004
$m

2003
$m

Ordinary shares
Balance at start of year
Dividend reinvestment plan
Group employee share acquisition scheme
Group share option scheme
Group share buyback
Rights issues

8,005
153
16
104
(204)
–

4,175
135
47
86
–
3,562

3,939
115
48
73
–
–

8,005
153
16
104
(204)
–

4,175
135
47
86
–
3,562

Balance at end of year

8,074

8,005

4,175

8,074

8,005

987
871
–
–

2,212
–
(1,225)
–

1,375
987
–
(150)

987
871
–
–

2,212
–
(1,225)
–

1,858

987

2,212

1,858

987

9,932

8,992

6,387

9,932

8,992

Asset revaluation reserve
Balance at start of year

31

31

31

415

401

Revaluation of investment in controlled entities

–

–

–

–

14

Total asset revaluation reserve

31

31

31

415

415

Note

The Company
2005
2004
$m
$m

Share capitalPreference shares
Balance at start of year
New issues1
Buyback of preference shares
Retranslation of preference shares
Balance at end of year
Total share capital23Foreign currency translation reserve
Balance at start of year
Currency translation adjustments,
net of hedges after tax
Transfer from general reserve

218

(239)

117

233

228

(443)
–

233
224

(356)
–

(213)
–

5
–

Total foreign currency translation reserve (FCTR)

(225)

218

(239)

20

233

General reserve
Balance at start of year
TrUEPrS preference share gain on buy backTransfers (to) from retained profits/FCTR

181
–
–

239
180
(238)

237
–
2

11
–
–

55
180
(224)

Total general reserve

181

181

239

11

11

Capital reserve

149

149

149

–

–

Total reserves

136

579

180

446

659

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

8,336
3,018

7,203
2,815

5,600
2,348

6,996
2,227

6,398
1,972

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

11,354–(1,877)(84)

10,01814(1,598)
(98)

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

9,223
–
(1,877)
–

8,370
224
(1,598)–Retained profits at end of year

9,393

8,336

7,203

7,346

6,996

Total shareholders’ equity attributable to shareholders of the Company

19,461

17,907

13,77017,724

16,6474

4

7
7The notes appearing on pages 6 to 107 form an integral part of these financial statements
1 2005 relates to the issue of 500,000 Euro Trust securities raising $875m net of issue costs of $4m. 2003 relates to the issue of 10 million ANZ Stapled Exchangeable
Preferred Securities (ANZ StEPS), raising $1 billion less issue costs of $13 million. Refer note 30
Nature and purpose of reserves
2 Asset revaluation reserve
Prior to 1 October 2000, the asset revaluation reserve was used to record certain increments and decrements on the revaluation of non-current assets. As the Group has elected to adopt deemed costin accordance with AASB 1041, the balance of the reserve is not available for future non-current asset write downs while the Group remains on the deemed cost basis
3 Foreign currency translation reserve
Exchange differences arising on translation of foreign self-sustaining operations are taken to the foreign currency translation reserve, as described in accounting policy note 1(v)4 General reserve and Capital reserve
The balance of these reserves have resulted from prior period allocations of retained profits and may be released to retained profits

4

STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED 30 SEPTEMBER 2005
Consolidated
2004
$m

2003
$m

17,868144
3,316(11,414)(2,498)(367)(2,126)(1,072)(821)

14,515
3
3,257(8,258)(2,110)(312)(2,122)(247)
514

10,887
7
3,170(5,724)(1,848)(279)(1,951)(1,312)
1,669

10,926475
2,857(7,541)(1,702)
(251)
(931)
(471)
(523)

8,744
650
2,008
(5,711)(1,542)(275)(1,089)107(1,147)

3,030

5,250

4,619

2,839

1,745

(728)
(371)
5
(28,788)
157

(325)
522
(76)
(22,757)
(35)

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

(631)
(180)
22
(20,599)(1,026)

(298)
(153)
(78)
(18,869)(5,361)(17,188)
17,856(14,411)
11,701(8,211)
6,785(13,873)
14,421(5,023)
2,693

(149)
144

(3,224)
–

–
–

–
–

–
–

(325)
86
(1,720)

(300)
53
1,735

(368)
51
1,401

(277)
1
(1,344)

(237)
4
999

(31,021)(27,117)(19,167)(23,486)(26,323)

4,972
19,856–(1,339)(272)
11,216–(1,061)(2,946)13,995
–
1,000

3,422
14,085
1,085(1,375)427
10,003630
1,075

17,968(5,025)

14,181(4,100)8,255(4,095)

13,691(4,665)

13,233(4,100)

1,225
(93)
8
(1,808)
120
(204)
–
–
875
(4)
–

2,694
(368)
(1)
(1,561)
3,695
–
–
–
–
–
(1,045)

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

1,225
–
–
(1,724)
120
(204)
–
–
875
(4)
–

2,694
(368)
–
(1,463)
3,695
–
–
–
–
–
(1,045)

Net cash provided by financing activities

36,551

23,37818,936

26,531

24,781

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

3,030(31,021)36,551

5,250(27,117)
23,378

4,619(19,167)
18,936

2,839(23,486)
26,531

1,745(26,323)
24,781

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

8,560
7,854
(2,712)

1,511
7,315
(972)

4,388
7,925
(4,998)

5,884
4,242
(2,227)

203
4,411
(372)

13,702

7,854

7,315

7,899

4,242

Note

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

41

Cash flows from investing activities
Net (increase) decrease
Liquid assets - greater than three months
Due from other financial institutions
Regulatory deposits
Loans and advances
Shares in controlled entities, associates, and joint venture entities
Investment securities
Purchases
Proceeds from sale or maturity
Controlled entities and associates
Purchased (net of cash acquired)Proceeds from sale (net of cash disposed)
Premises and equipment
Purchases
Proceeds from sale
Other
Net cash (used in) investing activities
Cash flows from financing activities
Net increase (decrease)
Due to other financial institutions
Deposits and other borrowings
Due from/to controlled entities
Payables and other liabilities
Bonds and notes
Issue proceeds
Redemptions
Loan capital
Issue proceeds
Redemptions
Decrease (increase) in outside equity interests
Dividends paid
Share capital issues (ordinary capital)
Share capital buyback
StEPS preference share issue
StEPS issues costs
Euro Trust Security issue
Euro Trust Security issue costs
Preference share buyback (TrUEPrS)

Cash and cash equivalents at end of year

41

2005
$m

The Company
2005
2004
$m
$m

The notes appearing on pages 6 to 107 form an integral part of these financial statements

anz financial report 2005

5

NOTES TO THE
FINANCIAL STATEMENTS

detailed analysis of the impacts ofadopting AIFRS.

Our critical accounting policies aredescribed on pages 110 to 113.

iii) Consolidation

1: ACCOUNTING POLICIESi) Basis of preparation
This general purpose financial reportcomplies with the accounts provisions of
the Banking Act 1959, applicable
Australian Accounting Standards, theaccounts provisions of the Corporations
Act 2001, Urgent Issues Group Consensus
Views and other authoritative
pronouncements of the Australian
Accounting Standards Board. Except as
disclosed below, these accounting
policies are consistent with those of theprevious year.

The financial statements consolidate thefinancial statements of Australia and
New Zealand Banking Group Limited(the Company) and its controlled entities.
Where controlled entities and associates
have been sold or acquired during theyear, their operating results have been
included to the date of disposal or fromthe date of acquisition.
Control means the capacity of an entity todominate decision making, directly or
indirectly, in relation to the financial andoperating policies of another entity so as
to enable that other entity to pursue theobjectives of the controlling entity.

The financial report has been prepared inaccordance with the historical costconvention as modified by the revaluationof trading instruments which are recorded
at market value with gains and losses onrevaluation taken to the statement offinancial performance, and the deemed
cost of properties (deemed cost being thecarrying amount of revalued non-current
assets as at the date of reverting to thecost basis per AASB 1041 - Revaluation of
Non Current Assets) less any accumulated
depreciation.

The capacity of an entity to dominate
decision making is usually present whenthat entity has power over more than onehalf of the voting rights of the other entity;
power to govern the financial andoperating policies of the other entity;
power to appoint or remove the majorityof the members of the board of directors;
or power to cast the majority of votes atmeetings of the board of directors orequivalent governing body of the entity.
However, all the facts of a particularsituation are considered when assessing
control.

The preparation of the financial reportrequires the use of management
estimates. Such estimates may require
review in future periods.

The Group adopts the equity method of
accounting for associates and the Group’s
interest in joint venture entities.

The Company is a company of the kindreferred to in Australian Securities andInvestments Commission class order
98/100, dated 10 July 1998. Consequently,
amounts in the financial report have beenrounded to the nearest million dollars
except where otherwise indicated.
All amounts are expressed in Australian
dollars, unless otherwise stated.
Where necessary, amounts shown for theprevious year have been reclassified tofacilitate comparison.
ii) Changes in Accounting Policies
There have been no changes inaccounting policies for the year ended
30 September 2005.
For reporting periods commencing 1
October 2005, the Group is required toprepare financial statements using
Australian equivalents to International
Financial Reporting Standards (AIFRS). The
move to reporting under AIFRS represents
a major change to reporting processes
and will result in significant changes toaccounting policies. Refer to note 55 for a
6

The Group’s share of results of associates
and joint venture entities is included in
the consolidated statement of financial
performance. Shares in associates andjoint venture entities are stated in the
consolidated statement of financial
position at cost plus the Group’s share ofpost acquisition net assets. Interests inassociates and joint ventures are reviewed
annually for impairment primarily using a
discounted cash flow methodology. In thecourse of completing this valuation othermethodologies are considered todetermine the reasonableness of thevaluation including the multiples of
earnings methodology.
All significant activities of the Group,with the exception of the ING Australia
Joint Venture, are operated throughwholly-owned controlled entities.
The Group may invest in or establish
special purpose vehicles to enable it toundertake specific types of transactions.
Where the Group controls such vehicles,
they are consolidated into the Groupfinancial results.

iv) Goodwill
Goodwill, representing the excess of thepurchase consideration over the fair valueof the identifiable net assets of acontrolled entity at the date of gaining
control, is recognised as an asset andamortised on a straight line basis over theperiod during which the benefits are
expected to arise, not exceeding 20 years.
The unamortised balance of goodwill andthe period of amortisation are reviewed
annually for impairment using a
discounted cash flow or the capitalisationof earnings methodology. Where thebalance exceeds the value of expected
future benefits, the difference is charged
to the statement of financial performance.
v) Foreign currency
Financial assets and liabilities
denominated in foreign currencies aretranslated into Australian dollars at therates of exchange ruling at balance date.
Revenues and expenses of overseas
branches and controlled entities aretranslated at average exchange rates
for the year.
Net translation differences arising fromthe translation of overseas branches andcontrolled entities considered to be selfsustaining operations are included in theforeign currency translation reserve, after
allowing for those positions hedged byforeign exchange contracts and related
currency borrowings (net of tax).
vi) Fee income
Fee and commission income is brought toaccount on an accruals basis. Certain
yield-related front-end application fees
received are deferred and accrued toincome as an adjustment to yield over theperiod of the loan. Non yield-related
application and activation lending fees
received are recognised as income nolater than when the loan is disbursed or
the commitment to lend expires.
Fees and commissions that relate to the
execution of a significant act (for example,
advisory services, placement fees andunderwriting fees) are taken to income
when the fees are receivable.
Fees charged for providing ongoing
services that represent the recoupmentof the costs of providing service (forexample, maintaining and administering
existing facilities) are recognised asrevenue in the period in which theservice is provided.

NOTES TO THE
FINANCIAL STATEMENTS
1: ACCOUNTING POLICIES(CONTINUED)vii) Net loans and advances
Net loans and advances include direct
finance provided to customers such asbank overdrafts, credit cards, term loans,lease finance, hire purchase finance andcommercial bills.
Overdrafts, credit cards and term loans
are carried at principal balances
outstanding. Interest on amounts
outstanding is accounted for on an
accruals basis.
Finance leases, including hire purchase
contracts, are accounted for using thefinance method whereby income is taken
to account progressively over the life of
the lease or the contract in proportion tothe outstanding investment balance.
The finance receivable component ofoperating leases is accounted for using
the finance method and operating leaseresidual value retained is recorded asother assets. At finalisation, goods aredisposed of and proceeds received areapplied against the residual value. Any
resulting gains or losses are recognised
through income.
The operating lease residual value isreflected at estimated future realisablevalue. The residual value is reviewed
semi-annually and compared to estimatedfuture market values. Any impairment onthese residual value assets is recognisedin the statement of financial performancefor the period.
A hire purchase is a contract where
Esanda or UDC (the 'owner') allows thecustomer (the 'hirer') the right to possessand use goods in return for regular
payments. When all payments are
made the title to the goods will passto the hirer.
The gross amount of contractual payments
for finance leases to business customers
that have a fixed rate and a fixed term arerecorded as gross lease receivables andthe unearned interest component isrecognised as income yet to mature.
Customer financing through redeemablepreference shares is included within net
loans and advances. Dividends received
on redeemable preference shares aretaken to the statement of financial
performance as part of interest income.
All loans are subject to regular scrutiny
and graded according to the level of credit
risk. Loans are classified as either
productive or non-accrual. The Group has

adopted the Australian Prudential
Regulation Authority Impaired Assets
Guidelines in assessing non-accrualloans. Non-accrual loans include loans
where the accrual of interest and fees hasceased due to doubt as to full recovery,and loans that have been restructured
with an effective yield below the Group’s
average cost of funds at the date ofrestructuring. A specific provision is raised
to cover the expected loss, where fullrecovery of principal is doubtful.
Restructured loans are loans with aneffective yield above the Group’s cost offunds and below the yield applicable to acustomer of equal credit standing.
Cash receipts on non-accrual loans are, in
the absence of a contrary agreement withthe customer, applied as income or fees inpriority to being applied as a reduction inprincipal, except where the cash receipt
relates to proceeds from the sale of security.
viii) Bad and doubtful debts andother loss contingencies
Bad and doubtful debts:
The Group recognises an expense for
credit losses based on the expected longterm loss ratio for each part of the loan
portfolio. The charge is booked to theGeneral Provision which is maintained tocover losses inherent within the Group’s
existing loan portfolio.
The method used by the Group for
determining this expense charge isreferred to as ‘economic loss provisioning’(ELP). The Group uses ELP models to
calculate the expected loss byconsidering:nnthe history of credit loss for each typeand risk grade of lending; andthe size, composition and risk profile ofthe current loan portfolio.

The Group regularly reviews theassumptions used in the ELP models.
These reviews are conducted inrecognition of the subjective nature of ELP
methodology. Methodologies are updated
as improved analysis becomes available.
In addition, the robustness of outcomes isreviewed considering the Group’s actual
loss experience and losses sustained byother banks operating in similar markets.
To the extent that credit losses are notconsistent with previous loss patterns
used to develop the assumptions within
the ELP methodology, the existing General
Provision may be determined to be either
in excess of or insufficient to cover credit
losses not yet specifically identified.
As a result of the reassessments,
ELP charge levels may be periodicallyincreased or decreased.

Specific provisions are maintained tocover identified doubtful debts. All known
bad debts are written off in the year inwhich they are identified. The specificprovision requirement (representing new
and increased specific provisions lessspecific provision releases) is transferredfrom the General Provision to the Specific
Provision. Recoveries, representing excesstransfers to the Specific Provision, arecredited to the General Provision.
Provisions for doubtful debts are
deducted from loans and advances inthe statement of financial position.
Other loss contingencies:
These items are recorded as liabilities on
the balance sheet when the following
requirements are met:nnthe transaction is probable in thatthe contingency is likely to occur; andcan be reasonably estimated.

Further disclosure is made within note 47,
where the above requirements are not met
but the contingency falls within the
category of “reasonably possible”.
Specific details are provided together withan estimate of the range or a statementthat such an estimate is not possible.
ix) Acceptances
Commercial bills accepted but not heldin portfolio are accounted for anddisclosed as a liability with acorresponding contra asset.
The Group’s own acceptances discounted
are held as part of either the trading
securities portfolio or the loan portfolio,
depending on whether, at the time of suchdiscount, the intention was to hold theacceptances for resale or until maturity.
x) Trading securities
Securities held for trading purposes arerecorded at market value. Unrealised
gains and losses on revaluation are taken
to the statement of financial performance.
Market value for listed and unlisted
securities is determined by the pricedisplayed by a willing buyer in a liquidmarket at the reporting date, adjusted for
liquidity issues around the size of theparcel of securities held by the Group ascompared to the normal daily trading
volumes in the securities. Where a market
price in a liquid market is not readily
available, the market value is determinedby reference to the market price available
for a security with similar credit, maturity
and yield characteristics or by using
industry standard pricing models.

anz financial report 2005

7

NOTES TO THE
FINANCIAL STATEMENTS
1: ACCOUNTING POLICIES(CONTINUED)xi) Investment securities
Investment securities are those which theGroup intends and has the ability to holduntil maturity. Such securities arerecorded at cost or at cost adjusted foramortisation of premiums or discounts.
Premiums and discounts are capitalised
and amortised from the date of purchaseto maturity. Interest and dividend income
is accrued. Changes in market values of
securities are not taken into accountunless there is considered to be an otherthan temporary diminution in value.
The market value of listed and unlisted
investment securities used for consideringother than temporary impairment and fairmarket value disclosures is determinedusing quoted market prices for securities
with the same or similar credit, maturity
and yield characteristics.
Market value, used for impairment issues,
is determined in accordance with themethodology discussed under Trading
Securities.
xii) Repurchase agreements
Securities sold under repurchaseagreements are retained in the financial
statements and a counterparty liability isdisclosed under the classifications of Due
to other financial institutions or Deposits
and other borrowings. The difference
between the sale price and the repurchaseprice is amortised over the life of the
repurchase agreement and charged tointerest expense in the statement offinancial performance.
Securities purchased under agreements toresell are recorded as Liquid assets, Netloans and advances, or Due from otherfinancial institutions, depending on theterm of the agreement and thecounterparty.
xiii) Derivative financial instruments
Derivative financial instruments(derivatives) are contracts whose value isderived from one or more underlying
financial instruments or indices. They
include swaps, forward rate agreements,
futures, options and combinations ofthese instruments.
Trading derivatives, comprising derivatives
entered into for customer-related or
proprietary reasons or for hedging the
trading portfolio, are measured at fairvalue and all gains and losses are taken
to other operating income in thestatement of financial performance.
8

Fair value losses arising from trading
derivatives are not offset against fair value
gains on the statement of financial position
unless a legal right of set-off exists.
For contracts subject to master netting
agreements that create a legal right of setoff for which only the net revaluation
amount is recognised in the statement offinancial performance, unrealised gains
on derivatives are recognised as part ofother assets and unrealised losses arerecognised as part of other liabilities in a
category described as “treasury
instrument revaluations”.
Derivatives designated as hedges ofunderlying non-trading exposures areaccounted for on the same basis as theunderlying exposures. To be designatedas a hedge, the fair value of the hedge
must move inversely with changes in thefair value of the underlying exposure.
Gains and losses resulting from thetermination of a derivative that was
designated as a hedge of non-trading
exposures are deferred and amortisedover the remaining period of the originalterm covered by the terminatedinstrument where the underlying exposure
still exists. The gains or losses arerecorded in the income or expense line
in which the underlying exposure
movements are recorded. Where theunderlying exposure no longer exists,
the gains and losses are recognised in thestatement of financial performance in theother operating income line.
Gains and losses on derivatives related
to hedging exposures arising fromanticipated transactions are deferred andrecognised in the financial statements
when the anticipated transaction occurs.
These gains and losses are deferred only
to the extent that there is an offsetting
unrecognised (unrealised) gain or loss on
the exposures being hedged. Deferredgains and losses are amortised over the
expected term of the hedged exposure andare recorded in the results of operations inthe same line as the underlying exposure.
For hedging instruments designed as
hedging interest rate risk, the amortised
deferred gain or loss is posted to the netinterest line; for items designated as
hedging foreign currency exposures, theamortised deferred gain or loss is recordedin the other operating income line. The
impact of hedges of foreign currency
revenue is recorded in interest income. The
deferred gain or loss is recorded in otherliability or other assets in the statement offinancial position.
Gains and losses that arise prior to andupon the maturity of transactions enteredinto under hedge rollover strategies aredeferred and included in themeasurement of the hedged anticipatedtransaction if the transaction is still
expected to occur. If the forecasted
transaction is no longer expected to occur,
the gains and losses are recognised
immediately in the statement of financial
performance in other income.
Movements in the derivative financial
position are recorded in the cashflow
statement when they are settled on theother financing and investing lines.
xiv) Premises and equipment
Premises and equipment are carried atcost less depreciation or amortisation.
Profit or loss on the disposal of premises
and equipment is determined as thedifference between the carrying amountof the assets at the time of disposal andthe proceeds of disposal, and is includedin the results in the year of disposal.
Assets other than freehold land are
depreciated at rates based upon their
expected useful lives to the Group, using
the straight line method. The depreciation
rates used for each class of asset are:
Buildings
Building integrals
Furniture & equipment
Computer &office equipment
Software

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

Leasehold improvements are amortised
on a straight line basis over the shorterof the useful lives or remaining terms of
the lease.
Costs incurred in acquiring and building
software and computer systems arecapitalised as fixed assets and expensed
as amortisation over periods of between
3 and 5 years except for the branch front
end applications where 7 years is used.
Costs incurred in planning or evaluating
software proposals, or in maintaining
systems after implementation, are notcapitalised.
The carrying values of all non-current
assets, including premises andequipment, have been assessed annually,and have not been found to be in excessof their recoverable amounts. Recoverable
amounts are determined through a
combination of comparisons with market
values and cash flows. If the carrying
value of a non-current asset exceeds its
recoverable amount, the asset is written
down to the lower value. Where assets
working together as a group support thegeneration of cash flows, the recoverable
amount is assessed in relation to thegroup of assets.

NOTES TO THE
FINANCIAL STATEMENTS
1: ACCOUNTING POLICIES(CONTINUED)xv) Income tax
The Group adopts the liability method of
tax effect accounting whereby income tax
expense is calculated based on
accounting profit adjusted for permanentdifferences. Permanent differences are
items of revenue and expense which arerecognised in the statement of financial
performance but are not part of taxable
income or vice versa.

defined benefit schemes have been
provided for in the financial statements,
where a legal or constructive
obligation exists.
The assets and liabilities of the schemes
have not been consolidated as theCompany does not have direct or indirectcontrol of the schemes.
xix) Leasing
Leases entered into by the Group as
lessee are predominantly operatingleases, and the operating lease payments
are included in the statement of financial
performance in equal installments overthe lease term.

Future tax benefits and deferred tax
liabilities relating to timing differences
and tax losses are carried forward at tax
rates applicable to future periods.
These future tax benefits are not broughtto account unless realisation of the asset
is assured beyond reasonable doubt.
Future tax benefits relating to tax losses
are only carried forward where realisationof the benefit is considered virtually certain.

xx) Goods and services tax
Revenues, expenses and assets arerecognised net of the amount of goods
and services tax (GST), except where theamount of GST incurred is not recoverablefrom the Australian Tax Office (ATO). In
these circumstances the GST is recognisedas part of the cost of acquisition of theasset or as part of the expense.

Provision for Australian income tax ismade where the earnings of overseas
controlled entities are subjected toAustralian tax under the attribution rules
for the taxation of foreign sourced income.

Receivables and payables are stated withthe amount of GST included. The net
amount of GST recoverable from orpayable to the ATO is included as another asset or liability in the statementof financial position.

Otherwise, no provision is made foroverseas withholding tax or Australian
income tax which may arise on
repatriation of earnings from overseas
controlled entities, where it is expected
these earnings will be retained by thoseentities to finance their ongoing business.
For details of the impact of Tax
Consolidation, refer note 6.
xvi) Employee entitlements
The amounts expected to be paid in respectof employees’ entitlements to annual leave
are accrued at expected salary rates
including on-costs. Liability for long service
leave is accrued in respect of all applicable
employees at the present value of future
amounts expected to be paid.
xvii) Provisions
Refer to note 27 for the accounting
policies covering various provisions,excluding ELP which is detailed in note
1(viii) above.
xviii) Superannuation commitments
Contributions, which are determined onan actuarial basis, to superannuation
schemes are charged to personnel
expenses in the statement offinancial performance.

Cash flows are included in the statementof cash flows on a gross basis. The GST
components of cash flows arising frominvesting and financing activities which
are recoverable from or payable to the ATO
are classified as operating cash flows.
xxi) Capitalised expenses
Direct external expenses related to theacquisition of interest earning assets,
including structured institutional lending,mortgages and finance leases, are initiallyrecognised as part of the cost of acquiring
the asset and written-off as an adjustment
to its expected yield over its expected life.
For assets subject to prepayment,
expected life is determined on the basisof the historical behaviour of theparticular asset portfolio, taking into
account contractual obligations andprepayment experience assessed on aregular basis. Impairment of capitalised
expenses is assessed through comparing
the actual behaviour of the portfolio
against initial expected life assumptions.

Any aggregate deficiencies arising fromthe actuarial valuations of the Group’s
anz financial report 2005

9

NOTES TO THE FINANCIAL STATEMENTS
2: INCOME
2005$mConsolidated
2004
$m

2003
$m

The Company
2005
2004
$m
$m

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

258
302
363
16,111
393

187
359
275
12,984
312

92
272
180
9,380
291

127
254
255
9,829
286

68
245
210
8,194
200

From controlled entities

17,427–

14,117–

10,215–

10,751
195

8,917
137

Total interest income

17,427

14,117

10,215

10,946

9,054i) Fee income
Lending
Other, commissions

1,043
1,573

1,002
1,419

933
1,115

856
1,023

822
947

From controlled entities

2,616
–

2,421
–

2,048
–

1,879
219

1,769
260

Total fee income

2,616

2,421

2,048

2,098

2,029

ii) Other income
Foreign exchange earnings
Profit on trading instruments
Significant item: Net profit before tax from the sale of NBNZ Life
Significant item: Net profit before tax from sale of business to INGA joint venture
Significant item: Net profit before tax from the close out of the TrUEPrS swap
Hedge of TrUEPrS cash flows1
Life insurance margin on services operating income
Profit (loss) on sale of premises2
Rental income
Other3

454
134
14
–
–
–
18
6
2
151

411
151
–
14
108
2
15
(7)
2
129

348
110
–
–
–
71
–
6
3
116

351
117
–
–
–
–
–
(3)
2
531

232
158
–
14
108
2
–
–
2
482

Total other income3

779

825

654

998

998

3,395

3,246

2,702

3,096

3,027

Share of joint venture profit from ING Australia (refer note 44)
Share of associates profit (net of writeoffs)

107
50

97
48

55
51

–
–

–
–

Total share of joint venture and associates profit

157

145

106

–

–

20,97917,50813,023

14,042

12,081Other operating income

Total other operating income
4

Total income5

1 In prior years, preference shares were issued via the TrUEPrS structure. This income was earned on a fixed receive/floating pay swap of the fixed dividend commitments. The TrUEPrS securities werebought back on 12 December 2003. $2 million in 2004 treated as significant item
2 Consolidated gross proceeds on sale of premises is $9 million (2004: $34 million, 2003: $33 million)
3 The Company’s ‘other income’ include dividends received from controlled entities of $468 million (2004: $648 million)
4 Net of notional goodwill amortisation
5 Includes external dividend income of $106 million (2004: $41 million, 2003: $10 million) for the Group and $7 million (2004: $2 million) for the Company

10

NOTES TO THE FINANCIAL STATEMENTS
3: EXPENSES
2005$mConsolidated
2004
$m

2003
$m

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

345
6,670
528
980
2,483
623

238
5,037
481
770
1,699
638

183
3,502
445
310
1,052
412

251
4,337
–
133
2,076
454

161
3,403
–
201
1,515
529

To controlled entities

11,629
–

8,863
–

5,904
–

7,251
395

5,809
279

Total interest expense

11,629

8,863

5,904

7,646

6,088

i) Personnel
Pension fundEmployee entitlements and taxes
Salaries and wages
Temporary staff
Other

161
190
1,625
111
362

145
149
1,425
92
320

109
122
1,177
81
261

115
130
1,071
66
275

108
108
975
65
238

Total personnel expenses

2,449

2,131

1,750

1,657

1,494

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

16
11
213
122
32

13
11
197
109
23

15
16
154
88
22

9
2
146
91
23

7
2
139
81
17

To controlled entities

394
–

353
–

295
–

271
(9)

246
46

Total premises expenses

394

353

295

262

292

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

53
60
235
58
115
37

25
69
242
59
115
43

18
61
183
70
103
30

49
34
182
48
84
14

23
48
178
62
90
17

Total computer expenses

558

553

465

411

418

iv) OtherAdvertising and public relations
Amortisation of goodwill1
Audit fees (refer note 5)
Depreciation of furniture and equipment
Freight and cartage
Loss on sale of equipment
Non-lending losses, frauds and forgeries
Postage and stationery
Professional fees
Telephone
Travel
Other

161
179
7
43
45
9
62
113
123
55
124
141

130
146
5
43
41
6
49
111
112
57
100
129

91
18
4
33
35
7
48
92
101
49
78
102

92
8
4
29
36
4
45
67
93
29
76
204

72
8
3
27
32
5
30
66
83
30
65
189

1,062

929

658

687

610

52

60

60

47

64

Total operating expenses

4,515

4,026

3,228

3,064

2,878

Total expenses

16,144

12,889

9,132

10,7108,966

The Company
2005
2004
$m
$m

Operating expenses

Total other expensesv) Restructuring

1 In addition, there is a notional goodwill amortisation charge of $43 million (2004: $41 million; 2003: $44 million) included in the calculation of the share of income from the ING Australia joint venture

anz financial report 2005

11

NOTES TO THE FINANCIAL STATEMENTS
4: EQUITY INSTRUMENTS ISSUED TO EMPLOYEESUnder existing Australian Accounting Standards, equity instruments issued to employees are not required to be expensed. The impact ofexpensing options1, and shares issued under the $1,000 employee share plan, has been calculated and is disclosed below.
2005$mConsolidated
2004
$m

2003
$m

Net profit attributable to shareholders of the Company
Expenses attributable to:
Options issued to Group Heads1
Options issued to general management1
Shares issued under $1,000 employee share plan

3,018

2,815

2,348

(5)
(20)
(23)

(8)
(23)
(22)

(8)
(24)
(18)

Total

2,970

2,762

2,298

1 Based on fair values estimated at grant date determined in accordance with the fair value measurement provisions of AASB 1046. Value of options are amortised on a straight-line basis over thevesting period.

5: REMUNERATION OF AUDITORS
2005
$’000

Consolidated
2004
$’000

2003
$’000

4,981
1,060
927

2,981
567
2,934

2,640
2,083
3,891

3,732
630
927

2,357
492
2,899

6,968

6,482

8,614

5,289

5,748

–

563

775

–

443

Total

6,968

7,045

9,389

5,289

6,191

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

1,977
1,475
188

1,834
1,494
77

1,293
1,503
1,473

351
791
8

346
556
32

3,640

3,405

4,269

1,150

934

4

65

83

–

31

Total

3,644

3,470

4,352

1,150

965

Total remuneration of auditors

10,612

10,515

13,741

6,439

7,156

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

Taxation

Taxation

The Company
2005
2004
$’000
$’000

It is Group policy that KPMG Australia or any of its related practices may provide assurance and other audit-related services that, while outside the scope of the statutory audit, are consistent with the roleof auditor. These include regulatory and prudential reviews requested by the Company’s regulators such as the Australian Prudential Regulation Authority. KPMG Australia or any of its related practices
may not provide services that are perceived to be materially in conflict with the role of auditor. These include consulting advice and subcontracting of operational activities normally undertaken bymanagement, and engagements where the auditor may ultimately be required to express an opinion on its own work. However, non-audit services that are not perceived to be materially in conflict withthe role of auditor may be provided by KPMG Australia or any of its related practices subject to the approval of the Audit Committee.
KPMG has confirmed to ANZ that it has policies in place on loans from audit clients that are in accordance with Rule 2-01 of Regulation S-X and that neither KPMG nor any covered person or immediatefamily member have any loans outstanding from the Company and its related parties, that are part of the audit client, that are not in compliance with that rule.
1 2005 includes services in relation to the transition to Australian equivalents to International Financial Reporting Standards
2 Includes services for the audit or review of financial information other than financial reports, including prudential supervision reviews for central banks, prospectus reviews, trust audits and otheraudits required for local statutory purposes
3 2004 includes due diligence oversight review of The National Bank of New Zealand and markets co-sourcing internal audit work which ceased in April 2004. 2003 includes assessing the Group’s
compliance with the requirements of the US Patriot Act.

12

NOTES TO THE FINANCIAL STATEMENTS
6: INCOME TAX EXPENSE
2005$m

Consolidated
2004
$m

2003
$m

4,255

3,987

3,277

2,944

2,682

1,277

1,196

983

883

804

17
(26)
(23)
(5)
56
(45)
(6)
(9)

20
(32)
(20)
(4)
46
(43)
(4)
11

15
(31)
(16)
–
5
(32)
–
5

(3)
(3)
(141)
–
1
–
–
(19)

2
(1)
(194)
–
1
–
(4)
104

Income tax (over) provided in prior years

1,236
(2)

1,170
(2)

929
(3)

718
(1)

712
(2)

Total income tax expense

1,234

1,168

926

717

710

816
418

802
366

672
254

642
75

641
69

1,234

1,168

926

717

710

Reconciliation of the prima facie income tax payable on profit with the income
tax expense charged in the statement of financial performance
Profit before income tax
Prima facie income tax at 30%
Tax effect of permanent differences
Overseas tax rate differential
Other non-assessable income
Rebateable and non-assessable dividends
Life insurance accounting
Goodwill amortisation
Profit from associated and joint venture entities
Sale of businesses to ING joint ventures
Other

Australia
Overseas

The Company
2005
2004
$m
$m

Tax Consolidation
Legislation has been enacted to allow Australian resident entities to elect to consolidate and be treated as a single entity for Australian
taxation purposes. The Company has elected for all Australian wholly owned subsidiaries, trusts and partnerships to be taxed as a single
entity with effect from 1 October 2003.

7: DIVIDENDS
2005$mConsolidated
2004
$m

2003
$m

The Company
2005
2004
$m
$m

Ordinary dividends
Interim dividend
Final dividend
Bonus option plan adjustment

930
9831
(36)

850
7771
(29)

666
–1
(25)

930
9831
(36)

850
7771
(29)

Dividends on ordinary shares

1,877

1,598

641

1,877

1,598

1 Following a change in accounting standards in 2003 dividends are no longer accrued and are recorded when declared. Final dividend of $1,077 million for 2005 not included in above table

A final dividend of 59 cents, fully franked, is proposed to be paid on each fully paid ordinary share on 16 December 2005 (2004: final
dividend of 54 cents, paid 17 December 2004, fully franked, 2003: final dividend of 51 cents, paid 19 December 2003, fully franked).
The 2005 interim dividend of 51 cents, paid 1 July 2005, was fully franked (2004: interim dividend of 47 cents, paid 1 July 2004,
fully franked, 2003: interim dividend of 44 cents, paid 1 July 2003, fully franked).
The tax rate applicable to the franking credits attached to the interim dividend and to be attached to the proposed final dividend is 30%(2004: 30%, 2003: 30%).
2005$mConsolidated
2004
$m

2003
$m

The Company
2005
2004
$m
$m

Trust Securities Issues
ANZ Stapled Exchangeable Preferred Securities (ANZ StEPS)
Euro Trust Securities

–
66
18

36
62
–

102
–
–

–
–
–

–
–
–

Dividends on preference shares

84

98

102

–

–

Preference dividends

anz financial report 2005

13

NOTES TO THE FINANCIAL STATEMENTS
7: DIVIDENDS (CONTINUED)
Trust Securities Issues (ANZ TrUEPrS)In 1998 ANZ TrUEPrS issued 124,032,000 preference shares, raising USD 775 million via Trust Securities issues. The Trust Securities carried
an entitlement to a distribution of 8% (USD 400 million) or 8.08% (USD 375 million). The amounts were payable quarterly in arrears.
Payment dates were the fifteenth day of January, April, July and October in each year. The preference shares were bought back on
12 December 2003.
ANZ Stapled Exchangeable Preferred Securities (ANZ StEPS)
On 23 September 2003, the Group issued 10 million ANZ StEPS at $100 each raising $1 billion ($987 million net of issue costs of$13 million). ANZ StEPS comprise 2 fully paid securities - an interest paying unsecured note issued by a New Zealand subsidiary (ANZ
Holdings (New Zealand) Limited) which is stapled to a fully paid preference share issued by the Company.
Distributions on ANZ StEPS are non-cumulative and are payable quarterly in arrears (on 15 March, 15 June, 15 September, 15 December of
each year) based upon a floating distribution rate equal to the 90 day bank bill rate plus a 100 basis point margin. At each payment date the
90 day bank bill rate is reset for the next quarter. Dividends are not payable on the preference share while it is stapled to the note. If
distributions are not paid on ANZ StEPS, the Company may not pay dividends or return capital on its ordinary shares or any other sharecapital or security ranking equal or below the preference share component.
Euro Trust Securities
On 13 December 2004, the Group issued 500,000 Euro Floating Rate Non-cumulative Trust Securities (“Euro Trust Securities”) at €1,000 each
into the European market, raising €500 million (A$871 million at the spot rate at the date of issue, net of issue costs). The Euro Trust
Securities are similar in structure to ANZ StEPS and US Trust Security issuances, in that they comprise 2 fully paid securities – an interest
paying unsecured note issued by a United Kingdom subsidiary (ANZ Jackson Funding PLC) stapled to a fully paid €1,000 preference shareissued by the Company, which are stapled together and issued as a Euro Trust Security by ANZ Capital Trust III.
Distributions on Euro Trust Securities are non-cumulative and are payable quarterly in arrears (on 15 March, 15 June, 15 September,
15 December of each year) based upon a floating distribution rate equal to 3 month EURIBOR rate plus a 66 basis point margin. At eachpayment date the 3 month EURIBOR rate is reset for the next quarter. Dividends are not payable on the preference share while it is stapled to
the note. If distributions are not paid on Euro Trust Securities, the Company may not pay dividends or return capital on its ordinary shares or
any other share capital or security ranking equal or below the preference share component.
Dividend Franking Account
The amount of franking credits available to the Company for the subsequent financial year is $78 million (2004: $111 million and2003: nil), after adjusting for franking credits that will arise from the payment of tax on Australian profits for the 2005 financial year,$462 million of franking credits which will be utilised in franking the proposed final dividend and franking credits that may not be accessible by
the Company at present.
Restrictions which Limit the Payment of Dividends
There are presently no significant restrictions on the payment of dividends from controlled entities to the Company. Various capital
adequacy, liquidity, statutory reserve and other prudential requirements must be observed by certain controlled entities and the impact
on these requirements caused by the payment of cash dividends is monitored.
Payments of dividends from overseas controlled entities may attract withholding taxes which have not been provided for in thesefinancial statements.
There are presently no restrictions on payment of dividends by the Company. Reductions of shareholders’ equity through payment ofcash dividends is monitored having regard to the regulatory requirements to maintain a specified capital adequacy ratio. In particular,
the Australian Prudential Regulation Authority has advised Australian banks that a bank under its supervision must consult with it
before declaring a coupon payment on a Tier 1 instrument, including a dividend if the bank has incurred a loss, or proposes to pay coupon
payments on Tier 1 instruments (including dividends), which exceed the level of current year profits.
Dividend Reinvestment Plan
During the year, 3,900,116 ordinary shares were issued at $19.95 per share, and 3,406,775 ordinary shares at $21.85 per share, under the
Dividend Reinvestment Plan (2004: 3,909,659 ordinary shares at $16.61 per share, and 3,906,171 ordinary shares at $17.84 per share)

14

NOTES TO THE FINANCIAL STATEMENTS
7: DIVIDENDS (CONTINUED)
Bonus Option Plan
Dividends paid during the year have been reduced by way of certain shareholders participating in the Bonus Option Plan and forgoing all orpart of their right to dividends in return for the receipt of bonus shares.
During the year, 1,749,584 ordinary shares were issued under the Bonus Option Plan (2004: 1,771,864 ordinary shares).
Declared Bonus options
dividend
exercised$m$mFinal dividend 2004
Interim dividend 2005

Amount
paid
$m

983
930

(19)
(17)

964
913

1,913

(36)

1,877

2005
$m

Consolidated
2004
$m

2003
$m

Basic earnings per share (cents)1

160.9

153.1

142.4

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

3,021
3
84
2,934

2,819
4
98
2,717

2,351
3
102
2,246

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

1,823.7

1,774.1

1,577.8

Diluted earnings per share (cents)

157.5

149.7

141.7

Earnings reconciliation
Profit after income tax
Less: net profit attributable to outside equity interests
Less: preference share dividend paid
Add: US Trust Securities interest expense
Earnings used in calculating diluted earnings per share

3,021
3
84
48
2,982

2,819
4
98
44
2,761

2,351
3
102
–
2,246

1,823.7
9.7
60.1
1,893.5

1,774.1
6.2
64.5
1,844.8

1,577.8
7.2–
1,585.0

8: EARNINGS PER ORDINARY SHARE

1

Weighted average number of ordinary shares (millions)1
Used in calculating basic earnings per share
Add: potential conversion of options to ordinary shares1
potential conversion of US Trust Securities to ordinary shares
Used in calculating diluted earnings per share
1 Discounted for rights issue

The weighted average number of converted and lapsed options, weighted with reference to the date of conversion or lapse,
and included in the calculation of diluted earnings per share is approximately 1.0 million.
ANZ StEPS and Euro Trust Securities have not been included in the calculation of diluted EPS as they are not dilutive. Refer to note 30.

anz financial report 2005

15

NOTES TO THE FINANCIAL STATEMENTS
9: LIQUID ASSETS
Consolidated
2005
2004
$m
$m

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

The Company
2005
2004
$m
$m

887
1,013
1,405

696
157
568

865
958
1,394

678
121
552

3,305

1,421

3,217

1,351

474
3,707
3,865
249

418
2,289
2,080
155

119
1,980
1,875
–

103
1,087
1,203
–

8,295

4,942

3,974

2,393

Total liquid assets

11,600

6,363

7,191

3,744

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

9,600
2,000

4,999
1,364

5,315
1,876

2,408
1,336

Total liquid assets

11,600

6,363

7,191

3,744

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

10: DUE FROM OTHER FINANCIAL INSTITUTIONS
Consolidated
2005
2004
$m
$m

The Company
2005
2004
$m
$m

Australia
Overseas

917
5,431

498
4,283

899
2,553

488
2,049

Total due from other financial institutions

6,348

4,781

3,452

2,537

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

802
3,591
424
393
1,138

370
2,692
824
790
105

741
2,158
359
58
136

299
1,729
349
58
102

Total due from other financial institutions

6,348

4,781

3,452

2,537

11: TRADING SECURITIES
Trading securities are allocated between Australia and Overseas based on the domicile of the issuer
Consolidated
2005
2004
$m
$m

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

The Company
2005
2004
$m
$m

551
1,646
1,182
1,364

164
1,693
1,875
627

551
1,646
1,182
1,260

164
1,693
1,875
568

4,743

4,359

4,639

4,300

370
1,172

631
488

27
643

241
242

1,542

1,119

670

483

Total unlisted

6,285

5,478

5,309

4,783

Total trading securities

6,285

5,478

5,309

4,783

Unlisted – Overseas
Other government securities
Other securities and equity securities

16

NOTES TO THE FINANCIAL STATEMENTS
12: INVESTMENT SECURITIESConsolidated
2005
2004
$m
$m

The Company
2005
2004
$m
$m

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

–

4

–

–

–

4

–

–

196
1,411

1,070
1,354

196
1,410

1,070
1,354

1,607

2,424

1,606

2,424

Total listed

1,607

2,428

1,606

2,424

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

1,412
2,344

895
2,786

1,412
2,274

895
2,660

3,756

3,681

3,686

3,555

1,096
431
51

914
357
366

–
108
7

–
133
5

1,578

1,637

115

138

Total unlisted

5,334

5,318

3,801

3,693

Total investment securities

6,941

7,746

5,407

6,117

12

–

–

–

12

–

–

197
1,409

1,072
1,358

197
1,409

1,072
1,358

1,606

2,430

1,606

2,430

Total market value of listed investment securities

1,606

2,442

1,606

2,430

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

1,412
2,344

895
2,785

1,412
2,274

895
2,659

3,756

3,680

3,686

3,554

1,096
433
52

913
361
366

–
110
7

–
137
5

1,581

1,640

117

142

Total market value of unlisted investment securities

5,337

5,320

3,803

3,696

Total market value of investment securities

6,943

7,762

5,409

6,126

Listed – Overseas
Other government securities
Other securities and equity investments

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

Market value information
Listed – Australia
Other securities and equity investments

Listed – Overseas
Other government securities
Other securities and equity investments

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

anz financial report 2005

17

NOTES TO THE FINANCIAL STATEMENTS
12: INVESTMENT SECURITIES (CONTINUED)
Investment Securities by Maturities and Yields
Based on remaining term to maturity at 30 September 2005
Less than
3 months$m

Between 3
months and
12 months$m

Between
1 year and5 years$m

Between
5 years and
10 years$m

After
10 years$mNomaturity
specified
$m

Total
$m

Market
Value
$m

972
2,085

440
250

–
–

–
–

–
–

–
9

1,412
2,344

1,412
2,344

3,057

690

–

–

–

9

3,756

3,756

760
452
42

333
100
370

–
75
1,043

3
–
3

–
–
4

–
–
–

1,096
627
1,462

1,096
630
1,461

1,254

803

1,118

6

4

–

3,185

3,187

Total book value

4,311

1,493

1,118

6

4

9

6,941

n/a

Total market value

4,313

1,490

1,121

5

5

9

n/a

6,943

Less than
1 year%

Between
1 year and5 years%

Between
5 years and
10 years%

After
10 years%

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

5.55
5.69

–
–

–
–

–
–

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

6.51
3.98
3.90

–
6.78
3.54

7.20
–
2.00

–
3.00
2.68

At book value

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

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

Weighted average yields1

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

18

NOTES TO THE FINANCIAL STATEMENTS
12: INVESTMENT SECURITIES (CONTINUED)
Investment Securities by Maturities and Yields
Based on remaining term to maturity at 30 September 2004
Less than
3 months$m

Between 3
months and
12 months$m

Between
1 year and5 years$m

Between
5 years and
10 years$m

After
10 years$mNomaturity
specified
$m

Total
$m

Market
Value
$m

695
2,480

200
50

–
51

–
162

–
–

–
47

895
2,790

895
2,797

3,175

250

51

162

–

47

3,685

3,692

589
861
194

325
491
442

–
75
1,077

–
–
1

–
–
6

–
–
–

914
1,427
1,720

913
1,433
1,724

1,644

1,258

1,152

1

6

–

4,061

4,070

Total book value

4,819

1,508

1,203

163

6

47

7,746

n/a

Total market value

4,784

1,508

1,251

165

6

48

n/a

7,762

Less than
1 year%

Between
1 year and5 years%

Between
5 years and
10 years%

After
10 years%

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

5.37
5.33

–
6.49

–
6.56

–
–

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

6.08
4.37
3.00

–
7.89
2.71

–
–
2.84

–
–
2.18

At book value

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

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

Weighted average yields1

1 Based on effective yields for fixed interest and discounted securities and dividend yield for equity investments at 30 September 2004

anz financial report 2005

19

NOTES TO THE FINANCIAL STATEMENTS
13: NET LOANS AND ADVANCES
Loans and advances are classified between Australia, New Zealand and Overseas markets based on the domicile of the lending point
Consolidated
2005
2004
$m
$m

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

The Company
2005
2004
$m
$m

5,276
5,434
89,55848,993
2,855
8,060
1,575

4,390
4,523
78,66042,056
2,667
7,093
1,091

5,276
5,434
89,55844,187
1,222
641
1,575

4,390
4,523
78,66036,937
1,061
497
1,066

161,751

140,480

147,893

127,134

1,647
1,026
34,86025,012
639
347
859

1,604
1,032
31,51922,472
493
517
584

–
–
–
–
–
–
–

–
–
–
–
–
–
–

64,39058,221

–

–

303
134
592
7,511
217
61
7

558
128
464
8,730
111
78
44

214
6
467
6,428
97
61
5

408
7
363
7,314
79
78
40

8,825

10,113

7,278

8,289

234,966

208,814155,171

135,423

Provisions for doubtful debts (refer note 15)(2,440)(2,376)(1,709)(1,655)

Income yet to mature(1,574)(1,476)(1)(1)(4,014)(3,852)(1,710)(1,656)230,952

204,962

153,461

133,767

653
3,058

555
2,716

206
1,113

102
1,038

3,711

3,271

1,319

1,140

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

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

Total gross loans and advances

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

20

NOTES TO THE FINANCIAL STATEMENTS
13: NET LOANS AND ADVANCES (CONTINUED)
Maturity Distribution and Concentrations of Credit Risk
Based on remaining term to maturity at 30 September 2005
Overdraft1$m

BetweenLess than 3 months and3 months
12 months$m$m

Between
1 year and5 years$m

After
5 years
$m

Total
$m

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

478
177
58
388
–
–
258
8,477
156
110
457
151

1,072
491
690
1,657
19
79
2,039
1,283
532
3,107
2,423
1,182

447
415
521
1,150
5
289
705
145
165
3,208
673
880

1,530
1,440
1,128
969
14
1,992
1,750
5,837
1,385
3,362
1,846
3,122

1,776
1,389
1,241
476
23
495
984
7,511
844
83,488
3,152
2,110

5,303
3,912
3,638
4,640
61
2,855
5,736
23,253
3,082
93,2758,551
7,445

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

427
28
37
83
13
23
93
1,548
26
185
65
145

625
36
26
444
111
116
382
73
84
2,411
300
250

591
94
59
50
4
59
159
269
132
2,488
142
589

6,045
269
510
1,302
131
254
1,279
648
274
4,954
578
1,782

2,620
235
246
132
61
187
310
89
109
29,011
492
705

10,308
662
878
2,011
320
639
2,223
2,627
625
39,0491,577
3,471

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

12
5
3
3
22
58
118
9
10
13
69
115

337
22
10
179
13
26
893
64
37
183
469
455

99
4
30
33
24
3
169
44
10
40
140
189

388
3
78
146
40
106
934
96
118
107
241
1,036

133
7
37
4
4
24
160
182
4
242
37
788

969
41
158
365
103
217
2,274
395
179
585
956
2,583

13,82022,12014,02445,694

139,308

234,966

(273)
–

–
(316)

–
(297)

–
(952)

–
(9)

(273)
(1,574)

(273)

(316)

(297)

(952)

(9)

(1,847)

13,54721,804

13,72744,742

139,299

233,119

–

–

–

–

(2,167)(2,167)Net loans and advances

13,54721,804

13,72744,742

137,132

230,952

Interest rate sensitivity
Fixed interest rates4
Variable interest rates

197
13,623

9,317
12,803

9,495
4,529

23,066
22,62855,13984,16997,214
137,752

13,82022,12014,02445,694

139,308

234,966

Gross loans and advances
Specific provision for doubtful debts
Income yet to mature

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

1
2
3
4

Overdraft includes credit cards and unsecured lending
Personal includes non-business loans to individuals through overdrafts, personal loans, credit cards and fully drawn advances
Real estate-mortgage includes residential and commercial property exposure. Loans within this category are for the purchase of such properties and must be secured by property
Housing loans and other loans that are capped for an initial period are fixed interest rate loans and their maturities based on the principal repayments due over the term of the loananz financial report 200521

NOTES TO THE FINANCIAL STATEMENTS
13: NET LOANS AND ADVANCES (CONTINUED)
Maturity Distribution and Concentrations of Credit Risk
Based on remaining term to maturity at 30 September 2004
1

Overdraft$m

BetweenLess than 3 months and3 months
12 months$m$m

Between
1 year and5 years$m

After
5 years
$m

Total
$m

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

378
150
53
254
1
–
215
7,068
144
95
415
140

957
625
837
966
87
90
1,527
1,129
248
2,928
2,142
2,502

583
358
850
1,297
2
238
613
143
192
2,406
510
925

1,156
1,025
820
625
15
1,820
1,507
10,656
1,100
2,382
1,822
1,662

1,518
1,188
1,100
406
21
519
872
495
684
73,959
2,737
1,323

4,592
3,346
3,660
3,548
126
2,667
4,734
19,491
2,368
81,7707,626
6,552

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

113
242
75
75
7
15
186
867
98
620
189
149

792
52
25
316
106
2
342
82
130
2,776
249
349

512
100
198
98
24
137
143
234
91
2,147
158
336

5,388
285
415
2,175
129
333
972
792
216
4,554
634
1,168

2,613
167
178
69
71
6
326
180
89
24,628
314
484

9,418
846
891
2,733
337
493
1,969
2,155
624
34,725
1,544
2,486

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

13
10
4
14
26
73
59
6
12
10
216
243

120
7
14
88
4
–
878
46
6
40
243
380

230
5
7
47
11
–
312
53
34
18
95
268

446
54
32
294
69
15
1,110
73
39
374
93
1,105

324
9
20
112
14
23
354
164
6
233
42
1,516

1,133
85
77
555
124
111
2,713
342
97
675
689
3,512

12,23521,085

13,37545,355

116,764

208,814

(384)
(12)

–
(355)

–
(287)

–
(816)

–
(6)

(384)
(1,476)

(396)

(355)

(287)

(816)

(6)

(1,860)11,83920,73013,08844,539116,758

206,954

–

–

–

–

(1,992)(1,992)Net loans and advances

11,83920,73013,08844,539114,766

204,962Interest rate sensitivity
Fixed interest rates4
Variable interest rates

278
11,957

8,568
12,517

8,060
5,315

21,21324,14245,32571,43983,444125,370

12,23521,085

13,37545,335

116,764

208,814Gross loans and advances
Specific provision for doubtful debts
Income yet to mature

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

1
2
3
4

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

22

NOTES TO THE FINANCIAL STATEMENTS
14: IMPAIRED ASSETS
Consolidated

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

The Company

2005
$m

2004
$m

2005
$m

2004
$m

642
28
43

829
32
29

380
28
36

644
32
29

Gross impaired assets
Specific provisions
Non-accrual loans
Unproductive facilities

713

890

444

705

(256)
(17)

(378)
(6)

(135)
(10)

(268)
(6)

Net impaired assets

440

506

299

431

Non-accrual loans
Non-accrual loans
Specific provisions

642
(256)

829
(378)

380
(135)

644
(268)

Total net non-accrual loans

386

451

245

376

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

28

32

28

32

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

–

–

–

–

Unproductive facilities
Unproductive facilities
Specific provisions

43
(17)

29
(6)

36
(10)

29
(6)

Net unproductive facilities

26

23

26

23

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

381

293

267

175

Consolidated average non-accrual loans: September 2005 $705 million; September 2004 $912 million; September 2003 $1,103 million
Further analysis of impaired assets at 30 September 2005 and interest and/or other income received during the year under Australian Prudential
Regulation Authority guidelines is as follows:Grossbalanceoutstanding$m

Non-accrual loans
Without provisions
Australia
New ZealandOverseas markets

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

Gross
balanceoutstanding$m

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

82
3
46

–
–
–

1
–
1

82
–
43

–
–
–

1
–
1

131

–

2

125

–

2

264
130
44

152
68
18

5
1
7

213
–
31

123
–
10

5
–
6

438

238

13

244

133

11

With provisions and full performance
Australia
New ZealandOverseas markets

9
61
3

1
15
2

3
4
2

9
–
2

1
–
1

3
–
1

Total non-accrual loans

73
642

18
256

9
24

11
380

2
135

4
17

Restructured loans
Unproductive facilities

28
43

–
17

1
–

28
36

–
10

1
–

Total impaired assets

713

273

25

444

145

18

1

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

1

1 A loan’s performance is assessed against its contractual repayment scheduleanz financial report 2005

23

NOTES TO THE FINANCIAL STATEMENTS
14: IMPAIRED ASSETS (CONTINUED)
Interest and other income forgone on impaired assets
The following table shows the estimated amount of interest and other income that would have been recorded had interest and other income
on non-accrual loans and unproductive facilities been accrued to income (or, in the case of restructured loans, had interest and other income
been accrued at the original contract rate), and the amount of interest and other income received with respect to such loans.
Consolidated
2005
2004
$m
$m

The Company
2005
2004
$m
$m

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

26
9
16

29
8
25

21
–
11

24
–
15

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

51

62

32

39

Interest and other income received
Australia
New ZealandOverseas markets

(10)
(5)
(10)

(6)
(1)
(12)

(10)
–
(8)

(4)
–
(11)

Total interest and other income received

(25)

(19)

(18)

(15)

Net interest and other income forgone
Australia
New ZealandOverseas markets

16
4
6

23
7
13

11
–
3

20
–
4

Total net interest and other income forgone

26

43

14

24

24

NOTES TO THE FINANCIAL STATEMENTS
15: PROVISIONS FOR DOUBTFUL DEBTS
2005$m

Consolidated
2004
$m

2003
$m

General provision
Balance at start of year
Acquisition (disposal) of provisions
Adjustment for exchange rate fluctuations
Charge to statement of financial performance
Transfer to specific provision
Recoveries

1,992
(13)
(35)
580
(471)
114

1,534
216
53
632
(525)
82

1,496
–
(49)
614
(588)
61

1,381
(13)
(24)
388
(250)
82

1,283
–
16
433
(399)
48

Total general provision

2,167

1,992

1,534

1,564

1,381

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

384
–
(11)
(571)
471

484
57
(2)
(680)
525

585
–
(49)
(640)
588

274
–
(3)
(376)
250

429
–
(7)
(547)
399

Total specific provision

273

384

484

145

274

2,440

2,376

2,018

1,709

1,655

New and increased provisions
Australia
New Zealand
Other overseas markets

378
146
80

459
80
86

418
45
212

312
–
33

404
–
60

Provision releases

604
(133)

625
(100)

675
(87)

345
(95)

464
(65)

Recoveries of amounts previously written off

471
(114)

525
(82)

588
(61)

250
(82)

399
(48)

Net specific provision
Net credit to general provision

357
223

443
189

527
87

168
220

351
82

Charge to statement of financial performance

580

632

614

388

433

%

%

%

%

%

0.1
0.9

0.2
1.0

0.3
0.9

0.1
0.9

0.2
0.9

0.1
1.0

0.2
1.0

0.3
1.0

0.1
1.0

0.2
1.0

Bad debts written off as a % of total advances2

0.2

0.3

0.4

0.2

0.4

2

0.1

0.2

0.3

0.1

0.2

Total provisions for doubtful debts

The Company
2005
2004
$m
$m

Provision movement analysis

RatiosProvisions1 as a % of total advances2
Specific
GeneralProvisions1 as a % of risk weighted assets
Specific
General

Net specific provision as a % of total advances
1 Excludes provisions for unproductive facilities
2 See Glossary on page 120

anz financial report 2005

25

NOTES TO THE FINANCIAL STATEMENTS
16: CUSTOMER’S LIABILITIES FOR ACCEPTANCES
Consolidated
2005
2004
$m
$m

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

Overseas
Financial, investment and insurance
Manufacturing
Retail and wholesale trade
Other

Total customer’s liabilities for acceptances

The Company
2005
2004
$m
$m

900
596
539
1,192
1,647
5
145
5,551
1,701
1,045

813
572
502
1,081
1,710
5
132
5,073
1,524
994

900
596
539
1,192
1,647
5
145
5,551
1,701
1,045

813
572
502
1,081
1,710
5
132
5,073
1,524
994

13,321

12,406

13,321

12,406

16
37
68
7

6
44
10
–

16
37
68
7

6
44
10
–

128

60

128

60

13,44912,466

13,44912,466

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

17: REGULATORY DEPOSITS

Overseas central banks

26

Consolidated
2005
2004
$m
$m

The Company
2005
2004
$m
$m

159

113

176

144

NOTES TO THE FINANCIAL STATEMENTS
18: SHARES IN CONTROLLED ENTITIES, ASSOCIATES AND JOINT VENTURE ENTITIESRefer notes 42 to 44 for details.
Consolidated
2005
2004
$m
$m

The Company
2005
2004
$m
$m

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

–
262
1,610

–
263
1,697

12,45596–

11,47245–

Total shares in controlled entities, associates and joint venture entities

1,872

1,960

12,551

11,517ACQUISITIONS OF CONTROLLED ENTITIESThere were no material controlled entities acquired during the year ended 30 September 2005.
During the year ended 30 September 2004 the following material controlled entities were acquired:
On 1 December 2003, the Company acquired NBNZ Holdings Ltd and its controlled entities (NBNZ). Details of the acquisition are disclosed
in note 41. The operating results of these acquired entities have been included in consolidated operating profit since acquisition.
A restructuring provision of $25 million was established for restructuring the operations of the acquired entities. A balance of $12 million
remains in the provision at 30 September 2005. On 26 June 2004, NBNZ was amalgamated into ANZ Banking Group (New Zealand) Limited.
ANZ Banking Group (New Zealand) Limited changed its name to ANZ National Bank Limited on 28 June 2004.

DISPOSALS OF CONTROLLED ENTITIESIn September 2005 ANZ National Bank Limited entered into a joint venture with ING Insurance International Limited (INGII). The joint venture,
ING (NZ) Holdings Ltd (INGNZ), is 49% owned by ANZ National Bank Ltd and 51% owned by INGII.
On 30 September 2005:n

ANZ National Bank Limited and INGII invested NZD163 million and NZD170 million respectively into INGNZ.
ANZ National Bank Limited sold NBNZ Life Insurance Limited and NBNZ Investment Services Limited to INGNZ for NZD158 million resulting
in the following impact on the Group’s financial statements:- reduction in unamortised goodwill of NZD114 million;- recognition of approximately NZD16 million ($14 million) profit on sale of 51% of the NBNZ Life and Funds Management businesses;- an investment in INGNZ of NZD145 million (being initial investment adjusted for unrecognised profit on ANZ National Bank’s; and49% share of the profit on sale of the NBNZ Life and Funds Management businesses joint venture and costs).
n INGNZ acquired at market value the New Zealand-based businesses previously owned by INGA. The profit on sale of the New Zealandbased businesses of approximately $40 million is recognised in INGA, however, ANZ’s share of this profit is eliminated on consolidation.
n

There were no material controlled entities disposed of during the year ended 30 September 2004.

19: DEFERRED TAX ASSETS
Consolidated
2004
2005
$m
$m

The Company
2005
2004
$m
$m

719
335
283

650
340
464

505
218
31

442
238
57

Total deferred tax assets

1,337

1,454

754

737

Future income tax assets
Australia
Overseas

862
475

959
495

674
80

636
101

Total deferred tax assets

1,337

1,454

754

737

Future income tax assets comprises
General provision for doubtful debts
Other provisions
Other

Certain potential future income tax assets within the Group have not been recognised as assets because recovery cannot be regarded as
virtually certain. These potential benefits arise from tax losses and timing differences (benefits could amount to $23 million, 2004: nil), andfrom realised capital losses (benefits could amount to $66 million, 2004: $67 million).
These benefits will only be obtained if:i) the relevant entities derive future assessable income of a nature and amount sufficient to enable the benefit of the taxation
deductions to be realised;ii) the relevant entities continue to comply with the conditions for deductibility imposed by law; andiii) there are no changes in taxation legislation adversely affecting the benefit of the taxation deductions.
anz financial report 2005

27

NOTES TO THE FINANCIAL STATEMENTS
20: GOODWILL
Consolidated
2005
2004
$m
$m

The Company
2005
2004
$m
$m

Goodwill – at cost
Accumulated amortisation

3,298
(400)

3,509
(240)

123
(57)

123
(49)

Total goodwill1

2,898

3,269

66

74

1 Excludes notional goodwill related to the ING Australia joint venture of $711 million (September 2004: $754 million) and the ING New Zealand joint venture of $82 million (September 2004: nil)

21: OTHER ASSETS
Consolidated
2005
2004
$m
$m

The Company
2005
2004
$m
$m

Accrued interest/prepaid discounts
Accrued commission
Prepaid expenses
Treasury instruments revaluations
Security settlements
Operating leases residual valueLife insurance business investments
Capitalised Expenses
Other

1,441
78
153
3,750
2,144
712
–
524
1,101

1,568
82
71
4,456
952
535
65
463
966

1,165
47
46
3,267
785
2
–
176
610

1,181
55
10
3,738
10
–
–
165
592

Total other assets

9,903

9,158

6,098

5,751

28

NOTES TO THE FINANCIAL STATEMENTS
22: PREMISES AND EQUIPMENT

Freehold and leasehold land and buildings
At cost1
Provision for depreciation

Leasehold improvements
At costProvision for amortisation

Furniture and equipment
At costProvision for depreciation

Computer and office equipment
At costProvision for depreciation

SoftwareAt costProvision for amortisation

Capital works in progress
At costTotal premises and equipment

Consolidated
2005
2004
$m
$m

The Company
2005
2004
$m
$m

639
(201)

680
(182)

83
(40)

80
(40)

438

498

43

40

239
(149)

209
(148)

147
(84)

117
(78)

90

61

63

39

691
(445)

694
(443)

499
(308)

451
(290)

246

251

191

161

947
(717)

983
(726)

646
(470)

665
(475)

230

257

176

190

776
(395)

728
(298)

676
(327)

614
(239)

381

430

349

375

56

35

27

21

1,441

1,532

849

826

1 In accordance with AASB 1041 this represents deemed cost

From 1 October 2000 as allowed by AASB 1041 ‘Revaluation of Non-Current Assets’ the Group elected to revert to the cost basis formeasuring the class of assets ‘land and buildings’.
As all properties are carried at deemed cost subject to individually meeting a recoverable amount test, valuations are carried out on allproperties with a carrying value in excess of $2 million every three years. Properties carrying values are not increased to market values if
valuations exceed carrying amounts. However, if the valuation of an individual property is determined to be less than its carrying amount,
it will be written down to the lower amount, where considered appropriate.
The properties are subject to external valuation by independent valuers. Valuations are based on the estimated open market value andassume that the properties concerned continue to be used in their existing manner by the Group.
The last independent valuation of the Group’s freehold land and buildings was carried out for 30 September 2002 purposes. For
30 September 2005, the valuations were carried out by Jones Lang La Salle Advisory for Australia. New Zealand property values wereassessed based on valuations by Telfer Young. This resulted in a valuation of $466 million and $25 million for the Group and Company
respectively (excludes leasehold land and buildings). As land and buildings are recorded at deemed cost, the valuation was not brought toaccount.
Further, a recoverable amount review of all properties at 30 September 2005 was completed. This involved properties being reviewed forthe existence of impairment indicators that might provide evidence that the property’s recoverable amount exceeded its carrying value(also using the independent valuations performed), and hence a writedown being required.
As a result of this review, some properties were identified as impaired and a loss of $3m was recorded (2004: $2 million).
Group accounting policy covering the amortisation of software costs capitalised is detailed in note 1(xiv). As at 30 September 2005 theweighted average amortization period is 5 years.

anz financial report 2005

29

NOTES TO THE FINANCIAL STATEMENTS
22: PREMISES AND EQUIPMENT (CONTINUED)
Reconciliations of the carrying amounts for each class of premises and equipment are set out below:
Consolidated
2005
2004
$m
$m

The Company
2005
2004
$m
$m

Freehold and leasehold land and buildings1
Carrying amount at beginning of year
Additions
Acquisitions2
Disposals3
Depreciation
Net foreign currency exchange difference

498
22
–
(68)
(11)
(3)

463
26
67
(46)
(11)
(1)

40
6
–
–
(2)
(1)

29
15
–
(1)
(2)
(1)

Carrying amount at end of year

438

498

43

40

Leasehold improvements
Carrying amount at beginning of year
Additions
Acquisitions2
Disposals
Amortisation
Net foreign currency exchange difference

61
46
–
–
(16)
(1)

52
17
10
(6)
(13)
1

39
33
–
–
(9)
–

37
9
–
–
(7)
–

Carrying amount at end of year

90

61

63

39

Furniture and equipment
Carrying amount at beginning of year
Additions
Acquisitions2
Disposals
Depreciation
Net foreign currency exchange difference

251
81
–
(41)
(43)
(2)

182
84
64
(35)
(43)
(1)

161
64
–
(5)
(29)
–

156
39
–
(6)
(27)
(1)

Carrying amount at end of year

246

251

191

161

Computer and office equipment
Carrying amount at beginning of year
Additions
Acquisitions2
Disposals
Depreciation
Net foreign currency exchange difference

257
92
–
(3)
(114)
(2)

302
96
17
(47)
(113)
2

190
69
–
(3)
(80)
–

239
81
–
(58)
(74)
2

Carrying amount at end of year

230

257

176

190

SoftwareCarrying amount at beginning of year
Additions
Acquisitions2Writeoffs4
Amortisation

430
96
–
(24)
(121)

465
114
17
(37)
(129)

375
94
–
(18)
(102)

421
92
–
(34)
(104)

Carrying amount at end of year

381

430

349

375

Capital works in progress
Carrying amount at beginning of year
Net additions
Acquisitions2

35
21
–

24
8
3

21
6
–

18
3
–

Carrying amount at end of year

56

35

27

21

Total premises and equipment

1,441

1,532

849

826

1
2
3
4

Includes integrals
Relates to NBNZ acquisition at 1 December 2003. Additions after this date are included in the “Additions” lines
Includes $2 million writedown in carrying value of one property in 2004
Software writeoffs arose where projects were terminated and the software no longer utilised

30

NOTES TO THE FINANCIAL STATEMENTS
23: DUE TO OTHER FINANCIAL INSTITUTIONS
Consolidated
2005
2004
$m
$m

The Company
2005
2004
$m
$m

Australia
Overseas

3,396
8,631

1,346
6,003

3,394
5,635

1,345
4,515

Total due to other financial institutions

12,027

7,349

9,029

5,860

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

4,381
5,632
1,029
123
862

2,255
4,152
662
280
–

3,711
4,367
930
21
–

1,853
3,346
661
–
–

Total due to other financial institutions

12,027

7,349

9,029

5,860

24: DEPOSITS AND OTHER BORROWINGS
Deposits and other borrowings are classified between Australia and Overseas based on the location of the deposit taking point
Consolidated
2005
2004
$m
$m

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

The Company
2005
2004
$m
$m

17,51225,82950,707
4,310
6,199
7,700
–
308

12,221
22,61545,155
4,005
4,708
7,214
78
509

17,512
26,64250,707
4,310
2,929
–
–
308

12,221
23,27345,155
4,005
2,099
–
78
509

112,565

96,505

102,408

87,3405,112
30,003
16,102
5,085
14,808
1,938
80

4,844
30,941
15,891
4,207
14,072
2,034
63

845
8,198
806
752
–
–
80

1,365
9,629
782
632
–
–
63

73,12872,052

10,681

12,471

Total deposits and other borrowings

185,693

168,557

113,089

99,811Maturity analysis based on remaining term to maturity at 30 September
At callLess than 3 months
Between 3 months and 12 months
Between 1 year and 5 years
After 5 years

77,99975,452
22,432
9,682
128

71,037
71,57017,9237,923
104

57,61039,616
8,707
7,139
17

52,62935,167
7,337
4,662
16

Total deposits and other borrowings

185,693

168,557

113,089

99,811

Overseas
Certificates of deposit
Term deposits
Other deposits bearing interest
Deposits not bearing interest
Commercial paper
Borrowing corporations’ debt 2
Other borrowings

1 Included in this balance is debenture stock of controlled entities. $7.7 billion of debenture stock of the consolidated subsidiary company Esanda together with accrued interest thereon, is secured bya trust deed and collateral debentures, giving floating charges upon the undertaking and all the assets of the entity other than land and buildings ($13,244 million). All controlled entities of Esanda(except for some controlled entities which have been placed or are expected to be placed in voluntary deregistration and have minimal book value) have guaranteed the payment of principal, interest
and other monies in relation to all debenture stock and unsecured notes issued by Esanda. The only loans pledged as collateral are those in Esanda and its subsidiaries
2 This balance represents NZ$2.1 billion of secured debenture stock of the consolidated subsidiary UDC Finance Limited and the accrued interest thereon are secured by a floating charge over all assetsof UDC Finance Limited and its subsidiaries (NZ$2,470 million)anz financial report 2005

31

NOTES TO THE FINANCIAL STATEMENTS
25: INCOME TAX LIABILITIESConsolidated
2005
2004
$m
$m

Australia
Provision for income tax
Provision for deferred income tax

Overseas
Provision for income tax
Provision for deferred income tax

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

The Company
2005
2004
$m
$m

289
1,346

242
1,354

269
1,094

203
921

1,635

1,596

1,363

1,124

(93)
255

93
225

12
112

18
109

162

318

124

127

1,797

1,914

1,487

1,251

229
687
131
554

166
497
118
798

89
687
47
383

79
497
43
411

1,601

1,579

1,206

1,030

26: PAYABLES AND OTHER LIABILITIESConsolidated
2005
2004
$m
$m

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

Overseas
PayablesAccrued interest and unearned discounts
Treasury instruments revaluations1
Accrued charges
Security settlements
Life insurance policy liabilities
Other liabilities

Total payables and other liabilities

The Company
2005
2004
$m
$m

2,797
1,266
3,853
350
–
838

4,746
1,169
3,274
297
1
438

2,770
1,141
4,376
320
–
584

4,700
1,051
3,781
255
1
291

9,104

9,925

9,191

10,079

207
732
374
228
317
–
645

145
647
2,382
237
378
30
468

5
256
(833)1
57
–
–
114

1
259
143
43
–
–
365

2,503

4,287

(401)

811

11,607

14,212

8,790

10,8901 Overseas Treasury instruments revaluations includes cash collateral paid under credit support agreements in ANZ’s London branch, an offsetting mark to market loss is recorded in Australia

32

NOTES TO THE FINANCIAL STATEMENTS
27: PROVISIONS
Consolidated
2005
2004
$m
$m

The Company
2005
2004
$m
$m

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

360
77
184
293

333
106
171
235

260
57
136
197

248
66
125
179

Total provisions

914

845

650

618

1 The aggregate liability for employee benefits largely comprise employee entitlements provisions plus liability for payroll tax and fringe benefits tax. The aggregate liability as at 30 September 2005
was $468 million for the Group and $288 million for the Company (30 September 2004: was $456 million for the Group and $284 million for the Company)

Reconciliations of the carrying amounts of each class of provisions, except for employee entitlements, are set out below:
Consolidated
2005
2004
$m
$m

The Company
2005
2004
$m
$m

Restructuring costs and surplus leased space1
Carrying amount at beginning of the year
Acquisition provision (NBNZ)
Provision made during the year
Payments made during the year
Release of provisions
Adjustment for exchange rate fluctuations

106
–
57
(47)
(38)
(1)

92
27
69
(68)
(15)
1

66
–
52
(34)
(27)
–

68
–
63
(50)
(15)
–

Carrying amount at the end of the year

77

106

57

66

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

171
37
(8)
(16)

164
18
(7)
(4)

125
23
(2)
(10)

128
4
(3)
(4)

Carrying amount at the end of the year

184

171

136

125

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

235
222
(132)
(31)
(1)

244
209
(173)
(46)
1

179
142
(93)
(31)
–

181
165
(127)
(40)
–

Carrying amount at the end of the year

293

235

197

179

2

3

1 Restructuring costs and surplus leased space provisions arise from exit activities related to material changes in the scope of business undertaken by the Group or the manner in which that business isundertaken, and includes termination benefits. Costs related to on-going activities are not provided for. Provision is made when the Group is demonstrably committed, it is probable that the costs will
be incurred, though its timing is uncertain, and the costs can be reliably estimated
2 Non-lending losses, frauds and forgeries provisions arise from inadequate or failed internal processes and systems, or from external events
3 Other provisions comprise various other provisions including fringe benefits tax, fleet maintenance, workers’ compensation and other non-employee entitlement provisions

anz financial report 2005

33

NOTES TO THE FINANCIAL STATEMENTS
28: BONDS AND NOTES
Consolidated
2005
2004
$m
$m

The Company
2005
2004
$m
$m

Bonds and notes by currency
USD
United States dollars
GBP
Great British pounds
AUD
Australian dollars
NZD
New Zealand dollars
JPY
Japanese yen
EUR
Euro
HKD
Hong Kong dollars
CHF
Swiss francs
CAD
Canadian dollars
NOK
Norwegian krone
SGD
Singapore dollars
CZK
Czech koruna11,401
5,268
1,138
1,140
1,173
11,138
3,381
1,929
2,284
81
71
69

4,718
3,896
979
667
1,433
10,863
2,805
831
1,258
82
70
–

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

4,262
3,896
979
33
1,433
9,571
2,619
831
1,258
82
70
–

Total bonds and notes

39,07327,602

32,73925,034

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

1,823
6,463
29,249
1,538

419
4,238
22,870
75

1,818
5,906
23,533
1,482

419
4,145
20,39575

Total bonds and notes

39,07327,602

32,73925,03434

NOTES TO THE FINANCIAL STATEMENTS
29: LOAN CAPITAL
Interest
Rate%

Consolidated
2005
2004
$m
$m

The Company
2005
2004
$m
$m

4.484
5.36

459
984

488
1,047

459
984

488
1,047

1,443

1,535

1,443

1,535

394

419

394

419

394

419

394

419

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

698
6
11
7
14
110
–
93
93
400
100
118
118
280
93
768
516
350
380
860
–
–
502
1,004

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

698
6
11
7
14
110
–
–
–
400
100
–
–
–
–
768
516
350
380
860
–
–
502
1,004

7,300

6,521

6,615

5,726

Total loan capital

9,137

8,475

8,452

7,680

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

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

1,230
795
3,555
1,506
1,376
13

1,930
–
3,862
1,383
1,265
12

1,230
–
3,555
1,506
1,376
13

9,137

8,475

8,452

7,680

654
536
7,553

–
846
7,210

654
536
6,868

–
846
6,415

394

419

394

419

9,137

8,475

8,452

7,680

Hybrid loan capital (subordinated)
US Stapled Trust Security issue
USD 350m non-cumulative trust securities due 2053
USD 750m non-cumulative trust securities due 2053

Perpetual subordinated notes
USD 300m floating rate notes

Subordinated notes
USD 500m fixed notes due 2006
JPY 482m floating rate notes due 2007
USD 7.9m floating rate notes due 2007
JPY 568.8m floating rate notes due 2008
USD 9mfloating rate notes due 2008
USD 79m
floating rate notes due 2008
AUD 400m floating rate notes due 2010
NZD 100m fixed notes due 2010 (called April 2005)
NZD 100m fixed notes due 20111
AUD 400m fixed notes due 20122
AUD 100m floating rate notes due 20121
NZD 125m fixed notes due 20121
NZD 125m fixed notes due 20121
NZD 300m fixed notes due 20121
NZD 100m fixed notes due 20131
USD 550m floating rate notes due 20131
EUR 300m floating rate notes due 20131
AUD 350m fixed notes due 20142
AUD 380m floating rate notes due 20141
EUR 500m fixed notes due 20152
USD 400m floating rate notes due 2015
AUD 300m fixed notes due 20152
GBP 200m fixed notes due 20151
GBP 400m fixed notes due 20182

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

LIBOR + 0.15

7.55
LIBOR + 0.50
LIBOR + 0.50
LIBOR + 0.55
LIBOR + 0.50
LIBOR + 0.53
BBSW + 0.29
8.36
6.87
6.75
BBSW + 0.57
7.40
7.61
7.04
6.46
LIBOR + 0.55
EURIBOR + 0.375
6.50
BBSW + 0.41
4.45
LIBOR + 0.20
6.00
5.625
4.75

1 Callable five years prior to maturity
2 Callable five years prior to maturity and reverts to floating rate notes
Loan capital is subordinated in right of payment to the claims of depositors and all other creditors of the Company and its controlled entities which have issued the notes. The loan capital, except for the
US Trust Security Issue, constitutes tier 2 capital as defined by the Australian Prudential Regulation Authority (APRA) for capital adequacy purposes. The US Trust Security Issue constitutes tier 1 capital,
as defined by APRA, for capital adequacy purposesanz financial report 2005

35

NOTES TO THE FINANCIAL STATEMENTS
29: LOAN CAPITAL (CONTINUED)
US TRUST SECURITIESOn 27 November 2003, the Company issued 1.1 million USD non-cumulative Trust Securities (“US Trust Securities”) at USD1000 eachpursuant to offering memorandum dated 19 November 2003 raising USD1.1 billion. US Trust Securities comprise two fully paid securities –an interest paying unsecured note (issued by Samson Funding Limited, a wholly owned NZ subsidiary of the Company) and a fully paid
USD1,000 preference share (issued by the Company), which are stapled together and issued as a US Trust Security by ANZ Capital Trust I or
ANZ Capital Trust II (the “Trusts”). Investors have the option to redeem the US Trust Security from the Trusts and hold the underlying staped
security.
The issue was made in two tranches:nn

USD350 million tranche with a coupon of 4.484% and was issued through ANZ Capital Trust I. After 15 January 2010 and at any coupon
date thereafter, ANZ has the discretion to redeem the US Trust Security for cash. If it does not exercise this discretion, the investor isentitled to require ANZ to exchange the US Trust Security into a number of ordinary shares based on the formula in the offering
memorandum.
USD750 million tranche with a coupon of 5.36% and was issued through ANZ Capital Trust II. It has the same conversion features as the
USD350 million tranche but from 15 December 2013.

Distributions on US Trust Securities are non-cumulative and are payable half yearly in arrears and are funded by payments received by therespective Trusts on the underlying note. Distributions are subject to certain payment tests (eg. APRA requirements and distributable profits
being available). Distributions are expected to be payable on 15 June and 15 December of each year. Dividends are not payable on thepreference share while it is stapled to the note. If distributions are not paid on the US Trust Securities, the Company may not pay dividends
or return capital on its ordinary shares or any other share capital or security ranking equal or junior to the preference share component.
At any time in the Company’s discretion or upon the occurrence of certain other “conversion events”, such as the failure of the respective
Trust to pay in full a distribution within seven business days of the relevant distribution payment date, the notes that are represented by therelevant US Trust Securities will be automatically assigned to a subsidiary of the Company and the preference shares that are represented by
the relevant US Trust Securities will be distributed to investor in 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 for which the preference shares were distributed. If the US Trust Securities are not redeemed or boughtback prior to the 15 December 2053, they will be converted into preference shares, which in turn will be mandatorily convert into a numberof ordinary shares based upon the formula in the offering memorandum.
The preference shares forming part of the US Trust Securities rank equal to the preference shares issued in connection with the ANZ StEPS
and Euro Trust Securities in all respects. Except in limited circumstances, holders of US Trust Securities do not have any right to vote ingeneral meetings of the company.
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. These preference shares rank behind all depositors and creditors, but ahead of ordinary shareholders.
The US Trust Securities qualify as Tier 1 capital as defined by the Australian Prudential Regulation Authority, however, the US Trust Securities
are reported as debt under Australian, International and US Accounting Standards with the coupon payment classified as interest expense.

30: SHARE CAPITAL
Number of issued shares

2005

The Company
2004

2003

Ordinary shares each fully paid
Preference shares each fully paid

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

1,818,401,807
10,000,000

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

Total number of issued shares

1,836,949,480

1,828,401,807

1,655,718,560

36

NOTES TO THE FINANCIAL STATEMENTS
30: SHARE CAPITAL (CONTINUED)
ORDINARY SHARES
Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the company in proportion to the number ofand amounts paid on the shares held.
On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll eachshare is entitled to one vote.
Number of issued shares

2005

The Company
2004

2003

Balance at start of year
Bonus option plan
Dividend reinvestment plan
ANZ employee share acquisition plan
ANZ share option plan
Share capital buyback
ANZ share purchase scheme ANZ rights issue

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

1,521,686,560
1,771,864
7,815,830
3,891,9786,387,809–
276,847,766

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

Balance at end of year

1,826,449,480

1,818,401,807

1,521,686,560

For a reconciliation of the movement in ordinary share capital refer to Statement of Changes in Shareholders’ Equity on page 4

PREFERENCE SHARESa) Trust Securities Issues (ANZ TrUEPrS)ANZ TrUEPrS were 124,032,000 fully paid
non-converting non-cumulative preference
shares issued for USD6.25 per share via
Trust Securities Issues in 1998.
The Trust Securities were mandatorily
exchangeable for the preference sharesissued by the Company, and carried anentitlement to a non-cumulative trust
distribution of 8.00% or 8.08% perannum payable quarterly in arrears.
The Trust Securities were issued by anon diversified closed end management
investment company registered under the
US Investment Company Act of 1940.
The preference shares themselves carried
no present entitlement to dividends.
Distributions to investors in the Trust
Securities were funded by income
distributions made by the Group.
Upon maturity of the Trust Securities in
2048, investors would have mandatorily
exchanged the Trust Securities for the
preference shares and thereupon thepreference shares would have carried anentitlement to non-cumulative dividendsof 8.00% or 8.08% per annum payable
quarterly in arrears. The mandatoryexchange of the Trust Securities for the
preference shares could have occurredearlier at the Company’s option or in
specified circumstances.
With the prior consent of the Australian
Prudential Regulation Authority, thepreference shares were redeemable at theCompany’s option after 5 years, or within
5 years in limited circumstances. The

entitlement of investors to distributions
on the Trust Securities would have ceasedon redemption of the preference shares.
The transaction costs arising on the issueof these instruments were recognised
directly in equity as a reduction of theproceeds of the equity instruments towhich the costs related.
On 12 December 2003, the Group boughtback its 124,032,000 preference sharesissued via Trust Securities Issues for$1,045 million.
b) ANZ Stapled Exchangeable Preferred
Securities (ANZ StEPS)
On 23 September 2003, the Company
issued 10 million ANZ StEPS at $100
each pursuant to a prospectus dated
14 August 2003 raising $1 billion(excluding issue costs of $13 million:
net raising $987 million). ANZ StEPS
comprise two fully paid securities - aninterest paying unsecured note (issued
by ANZ Holdings (New Zealand) Limited,a New Zealand subsidiary of the Company)
stapled to a fully paid $100 preference
share (issued by the Company).
Distributions on ANZ StEPS are noncumulative and are payable quarterly inarrears based upon a floating distribution
rate equal to the 90 day bank bill rate plus
a 100 basis point margin. At each payment
date the 90 day bank bill rate is reset for
the next quarter. Distributions are subject
to certain payment tests (ie APRA
requirements and distributable profits
being available) and the basis for theircalculation may change on any reset date.
Distributions are expected to be payable

on 15 March, 15 June, 15 September and
15 December of each year. Dividends are
not payable on the preference share while
it is stapled to the note. If distributions
are not paid on ANZ StEPS, the Company
may not pay dividends or return capital on
its ordinary shares or any other share capitalor security ranking equal or junior to thepreference share component.
On any reset date, ANZ may change certain
terms (subject to certain restrictions)
including the next reset date, market reset(from floating rate to a fixed rate, or viceversa), margin and the frequency andtiming of the distribution payment dates.
The first reset date is 15 September 2008.
Holders of ANZ StEPS can require exchange
on any reset date or earlier if certain
specified events occur. On exchange, aholder will receive (at the Company’s
discretion) either $100 cash for each ANZStEPS exchanged or a number of ordinary
shares calculated in accordance with aconversion ratio based on $100 divided
by the market price of ordinary shares atthe date of conversion less 2.5%. In certain
circumstances, the Company may also
require exchange other than on a reset date.
Upon the occurrence of an assignment
event, ANZ StEPS become unstapled.
In this case, the note will be assigned to a
subsidiary of the company, however, theholder will retain the preference share andthe rights to exchange the preference share.
The preference shares forming part of
ANZ StEPS rank equally with thepreference shares issued in connection
with US Trust Securities and Euro Trust
Securities in all respects. Except inanz financial report 2005

37

NOTES TO THE
FINANCIAL STATEMENTS
30: SHARE CAPITAL (CONTINUED)
PREFERENCE SHARES (CONTINUED)b) ANZ Stapled Exchangeable Preferred
Securities (ANZ StEPS) (continued)
certain limited circumstances, holders of
ANZ StEPS do not have any right to vote ingeneral meetings of the Company.
On a winding up of the Company, the rights
of ANZ StEPS holders will be determinedby the preference share component of ANZ
StEPS. Those preference shares rankbehind all depositors and creditors, butahead of ordinary shareholders.
The transactions costs arising on the issueof these instruments were recognised
directly in equity as a reduction of theproceeds of the equity instruments towhich the costs relate.
c) Euro Trust Securities
On 13 December 2004, the Company
issued 500,000 Euro Floating Rate Noncumulative Trust Securities (“Euro Trust
Securities”) at €1000 each pursuant to
the offering circular dated 9 December
2004, raising $871 million (at the spot
rate at the date of issue, net of issue
costs). Euro Trust Securities comprise two
fully paid securities – an interest paying
unsecured note (issued by ANZ Jackson
Funding PLC, a United Kingdom subsidiaryof the Company) and a fully paid, €1000
preference share (issued by the Company),
which are stapled together and issued as aEuro Trust Security by ANZ Capital Trust III(the “Trust”). Investors have the option toredeem the Euro Trust Security from theTrust and hold the underlying stapled
security.

Distributions on Euro Trust Securities are
non-cumulative and are payable quarterly
in arrears and are funded by payments
received by the Trust on the underlying
note and or preference share. The
distribution is based upon a floating
distribution rate equal to the 3 month
EURIBOR rate plus a 66 basis point margin
up until 15 December 2014, after whichdate the distribution rate is the 3 month
EURIBOR rate plus a 166 basis point
margin. At each payment date the 3 month
EURIBOR rate is reset for the next quarter.
Distributions are subject to certain
payment tests (eg APRA requirements anddistributable profits being available).
Distributions are expected to be payable
on 15 March, 15 June, 15 September and
15 December of each year. Dividends are
not payable on the preference shares while
they are stapled to the note, except for theperiod after 15 December 2014 when thepreference share will pay 100bpts to fundthe increase in the margin. If distributions
are not paid on Euro Trust Securities, theCompany may not pay dividends or return
capital on its ordinary shares or any othershare capital or security ranking equal or
junior to the preference share component.
At any time at ANZ’s discretion or upon
the occurrence of certain other“conversion events”, such as the failure of
the Trust to pay in full a distribution withinseven business days of the relevant
distribution payment date or the business
day prior to 15 December, 2053, the notesthat are represented by the relevant Euro

Trust Securities will be automaticallyassigned to a Branch of the Company andthe preference shares that are
represented by the relevant Euro Trust
Securities will be distributed to investor inredemption of such Euro Trust Securities.
The distributed preference shares will
immediately become dividend paying andholders will receive non-cumulative
dividends equivalent to the scheduled
payments in respect of the Euro Trust
Securities for which the preference shareswere distributed.
The preference shares forming part of theEuro Trust Security rank equal to thepreference shares issued in connection
with the ANZ StEPS and US Trust
Securities in all respects. Except in limited
circumstances, holders of Euro Trust
Securities do not have any right to vote ingeneral meetings of the company.
On winding up of the Company, the rights
of Euro Trust Security holders will be
determined by the preference sharecomponent of the Euro Trust Security.
These preference shares rank behind all
depositors and creditors, but ahead ofordinary shareholders.
The transaction costs arising on the issueof these instruments were recognised
directly in equity as a reduction to theproceeds of the equity instruments towhich the costs relate.

Consolidated
2005
2004
$m
$m

The Company
2005
2004
$m
$m

Preference share balance at start of year
- ANZ TrUEPrS (USD748 million)1- ANZ StEPS1

–
987

1,225
987

–
987

1,225
987

Buyback of ANZ TrUEPrS2

987
–

2,212
(1,225)

987
–

2,212
(1,225)

987

987

987

987

871

–

871

–

1,858

987

1,858

987

871
987

–
987

871
987

–
987

1,858

987

1,858

987

Preference share net proceeds from new issues during the year
- Euro Trust Securities1
Preference share balance at end of year
- Euro Trust Securities1- ANZ StEPS1Balance at end of year
1 Net of issue costs
2 ANZ TrUEPrS bought back on 12 December 2003 for $1,045 million

38

NOTES TO THE FINANCIAL STATEMENTS
31: OUTSIDE EQUITY INTERESTS
Consolidated
2005
2004
$m
$m

Share capital
Retained Profits

11
16

1
17

Total outside equity interests

27

18

32: CAPITAL ADEQUACY
The Australian Prudential Regulation Authority (APRA) adopts a risk-based capital assessment framework for Australian banks based oninternationally accepted capital measurement standards. This risk-based approach requires eligible capital to be divided by total risk
weighted assets, with the resultant ratio being used as a measure of a bank’s capital adequacy.
Capital is divided into tier 1, or ‘core’ capital, and tier 2, or ‘supplementary’ capital. For capital adequacy purposes, eligible tier 2 capitalcannot exceed the level of tier 1 capital. Banks are required to deduct from total capital any strategic holdings of other banks’ capital
instruments and investments in entities engaged in life insurance, funds management and securitisation activities. Under APRA guidelines,banks must maintain a ratio of qualifying capital to risk weighted assets of at least 8 per cent.
The measurement of risk weighted assets is based on: a) a credit risk-based approach wherein risk weightings are applied to statement offinancial position assets and to credit converted off balance sheet exposures. Categories of risk weights are assigned based upon the natureof the counterparty and the relative liquidity of the assets concerned; and b) the recognition of risk weighted assets attributable to market
risk arising from trading and commodity positions. Trading and commodity balance sheet positions do not attract a risk weighting under thecredit risk-based approach.
Consolidated
2005
2004
$m
$m

Qualifying capital
Tier 1
Total shareholders’ equity and outside equity interests
Hybrid loan capital1
Asset revaluation reserve
Dividend2
Accumulated retained profits and reserves of insurance, funds management and securitisation entities
Unamortised goodwill and other intangibles
Capitalised expenses3
Investment in ANZ Lenders Mortgage Insurance

19,4881,443(31)(1,077)(213)(3,902)(524)(27)

17,925
1,535
(31)
(983)
(218)
(4,170)(465)(27)

Tier 1 capital

15,157

13,566Tier 2
Asset revaluation reserve
Perpetual subordinated notes
General provision for doubtful debts4

31
394
1,448

31
419
1,342

1,873

1,792

Subordinated notes

6,701

6,052

Tier 2 capital

8,574

7,844

Deductions
Investment in Funds Management and securitisation entities
Investment in joint ventures with ING6
Other

(84)
(528)
(172)

(107)
(708)
(204)

(784)

(1,019)5

Total qualifying capital

22,947

20,391

7

Adjusted common equity

11,14010,012

Total risk weighted assets

219,573

196,664

%
6.9
3.9
(0.3)

%
6.9
4.0
(0.5)

10.5

10.4

5.1

5.1

Capital adequacy ratios
Tier 1
Tier 2
Deductions
Total
7

Adjusted common equity
1
2
3
4
5
6
7

Represents the US Trust Securities Issue approved by APRA as qualifying for Tier 1 status. Refer note 29
Relates to final dividend not provided forComprises loan and lease origination fees, capitalised securitisation establishment costs and costs associated with debt raisings
Net of attributable future income tax benefit
For capital adequacy calculation purposes, subordinated note issues are reduced by 20% of the original amount during each of the last five years to maturity
Joint ventures with ING in Australia and New ZealandTier 1 capital, less preference share capital (converted at 30 September 2005 rates), less deductions
anz financial report 2005

39

NOTES TO THE FINANCIAL STATEMENTS
32: CAPITAL ADEQUACY (CONTINUED)
AssetsRisk weighted assets
2005
2004
$m
$m

2005
$m

2004
$m

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

23,16016,054
118,895
127,204

24,467
12,593106,013113,218–
3,211
59,448127,204–
2,519
53,007113,218

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

285,313
7,872

256,291
3,054

189,863n/a

168,744n/aTotal statement of financial position assets

293,185259,345

189,863

168,744

Contract/
notional amount
2005
2004
$m
$m

2005
$m

Creditequivalent
2004$m

Off balance sheet exposures
Direct credit substitutes

Riskweighted assets
2005
2004
$m
$m

9,657

10,262

9,657

10,262

7,337

8,173

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

13,17587,319782,380

11,887
78,914
672,500

5,683
14,017
12,3095,265
12,385
11,692

4,953
12,2493,681

4,728
10,2393,790

Total off balance sheet exposures – credit risk

892,531

773,563

41,666

39,60428,22026,930218,083

195,674

1,490

990

219,573

196,664

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

40

NOTES TO THE FINANCIAL STATEMENTS
33: AVERAGE BALANCE SHEET AND RELATED INTEREST
Averages used in the following table are predominantly daily averages. Interest income figures are presented on a tax-equivalent basis.
Non-accrual loans are included under the interest earning asset category ‘Loans, advances and bills discounted’. Intragroup interest earning
assets and interest bearing liabilities are treated as external assets and liabilities for the geographic segments.
2005

2004

2003

Averagebalance$mInterest$m

Averagerate%

Averagebalance$mInterest$m

Averagerate%

Averagebalance$mInterest$m

Averagerate%

Due from other financial institutions
Australia
New ZealandOverseas markets

807
2,242
2,664

42
126
90

5.2
5.6
3.4

578
2,284
2,322

29
115
43

5.0
5.0
1.9

432
582
2,046

21
23
48

4.9
4.0
2.3

Investments in public securities
Australia
New ZealandOverseas markets

8,202
2,226
2,647

444
133
88

5.4
6.0
3.3

7,231
3,038
3,175

389
150
95

5.4
4.9
3.0

6,390
1,642
1,870

301
73
78

4.7
4.4
4.2

151,066
61,035
9,060

10,543
5,132
461

7.0
8.4
5.1

129,658
48,346
9,810

8,893
3,701
421

6.9
7.7
4.3

110,260
20,365
12,213

7,263
1,637
503

6.6
8.0
4.1

Other assets
Australia
New ZealandOverseas markets

2,124
2,912
3,319

101
101
191

4.8
3.5
5.8

1,524
2,252
1,935

127
58
127

8.3
2.6
6.6

1,606
1,353
3,395

105
46
140

6.5
3.4
4.1

Intragroup assets
Overseas markets

9,473

330

3.5

10,670

225

2.1

9,858

200

2.0

257,777(9,473)

17,782(330)

222,823(10,670)

14,373(225)

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

248,304

17,452

212,153

14,148

162,154

10,2386.3

anz financial report 2005

41

Interest earning assets

Loans, advances and bills discounted
Australia
New ZealandOverseas markets

Intragroup elimination

7.0

6.7

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

13,16674
1,507
18,784

13,39854
1,460
18,224

13,492
88
1,436
15,781(1,823)(608)(15)(1,762)(481)(66)(1,838)(211)(75)

31,08530,82728,673

Total assets

279,389

242,980

190,827

Total average assets
Australia
New ZealandOverseas markets

185,990
74,37428,498

162,944
61,027
29,679142,491
25,33332,861

Intragroup elimination

288,862(9,473)

253,650(10,670)

200,685(9,858)279,389

242,980

190,827

33.4%

32.9%

25.3%

% of total average assets attributable
to overseas activities

NOTES TO THE FINANCIAL STATEMENTS
33: AVERAGE BALANCE SHEET AND RELATED INTEREST (CONTINUED)
2005

2004

2003

Averagebalance$mInterest$m

Averagerate%

Averagebalance$mInterest$m

Averagerate%

Averagebalance$mInterest$m

Averagerate%

Time deposits
Australia
New ZealandOverseas markets

39,38825,582
11,075

2,126
1,597
383

5.4
6.2
3.5

30,83920,91012,772

1,589
1,138
296

5.2
5.4
2.3

25,171
10,666
14,738

1,165
570
336

4.6
5.3
2.3

Savings deposits
Australia
New ZealandOverseas markets

13,896
7,210
417

413
291
3

3.0
4.0
0.7

13,017
6,463
386

352
212
3

2.7
3.3
0.8

11,959
3,285
405

279
79
3

2.3
2.4
0.7

Other demand deposits
Australia
New ZealandOverseas markets

33,950
7,992
794

1,432
412
13

4.2
5.2
1.6

29,737
6,428
662

1,182
256
9

4.0
4.0
1.4

26,718
2,108
642

963
98
9

3.6
4.6
1.4

Due to other financial institutions
Australia
New ZealandOverseas markets

1,456
1,680
4,642

86
93
166

5.9
5.5
3.6

1,452
1,608
3,736

85
76
77

5.9
4.7
2.1

957
631
6,446

49
23
111

5.1
3.6
1.7

Commercial paper
Australia
New ZealandOverseas markets

5,355
7,717
5,915

299
521
160

5.6
6.8
2.7

5,824
6,764
6,485

313
383
74

5.4
5.7
1.1

5,216
–
4,740

252
–
58

4.8
–
1.2

Borrowing corporations’ debt
Australia
New Zealand

7,344
1,954

403
125

5.5
6.4

7,092
1,925

371
110

5.2
5.7

6,626
1,824

337
108

5.1
5.9

Loan capital, bonds and notes
Australia
New ZealandOverseas markets

38,305
4,757
137

2,144
335
4

5.6
7.0
2.9

29,631
2,009
150

1,575
121
3

5.3
6.0
2.0

19,783
521
184

1,011
37
4

5.1
7.1
2.2

Other liabilities1
Australia
New ZealandOverseas markets

4,593
106
90

443
163
17

n/a
n/a
n/a

4,232
40
82

538
83
17

n/a
n/a
n/a

2,714
96
33

292
97
23

n/a
n/a
n/a

Intragroup Liabilities
Australia
New Zealand

3,648
5,825

(13)
343

-0.4
5.9

5,644
5,026

(19)
244

-0.3
4.9

7,926
1,932

134
66

1.7
3.4

Intragroup elimination

233,828(9,473)

11,959(330)

202,914(10,670)

9,088
(225)

155,321(9,858)

6,104
(200)

224,355

11,629192,244

8,863

145,4635,904Interest bearing liabilities

1 Includes foreign exchange swap costs

42

5.2

4.6

4.1

NOTES TO THE FINANCIAL STATEMENTS
33: AVERAGE BALANCE SHEET AND RELATED INTEREST (CONTINUED)
2005
Averagebalance$m

2004
Averagebalance$m

2003
Averagebalance$m

Deposits
Australia
New ZealandOverseas markets

4,147
3,535
976

3,958
2,619
867

3,656
1,159
683

Acceptances
Australia
Overseas markets
Other liabilities

13,16674
14,452

13,39854
13,611

13,492
88
14,11336,35034,50733,191

Total liabilities

260,705

226,751

178,654

Total average liabilities
Australia
New ZealandOverseas markets

175,691
70,03724,450

153,927
57,55025,944

134,462
24,071
29,979Intragroup elimination

270,178(9,473)

237,421(10,670)

188,512(9,858)260,705

226,751

178,654

17,0001,684

15,0001,229

10,9291,244

18,684

16,22912,173279,389

242,980

190,827

34.0%

34.6%

29.2%

Non-interest bearing liabilities

Total average shareholders’ equity
Ordinary share capital1
Preference share capital

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

anz financial report 2005

43

NOTES TO THE FINANCIAL STATEMENTS
34: INTEREST SPREADS AND NET INTEREST AVERAGE MARGINS
2005
$m

2004
$m

2003
$m

3,797
1,612
414

3,450
1,400
433

3,210
699
425

5,823

5,283

4,334

162,199
68,415
27,163(9,473)

138,991
55,92027,912(10,670)

118,688
23,942
29,382(9,858)248,304

212,153

162,154%%%

Gross earnings rate2
Australia
New ZealandOverseas markets
Group

6.86
8.03
4.27
7.03

6.79
7.20
3.27
6.67

6.48
7.43
3.30
6.31

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

1.92(0.01)

2.11(0.02)

2.31(0.02)Net interest spread
Interest attributable to net non-interest bearing items

1.91
0.43

2.09
0.39

2.29
0.41

Net interest average margin – Australia

2.34

2.48

2.70

New ZealandGross interest spread
Interest forgone on impaired assets3

1.86(0.01)

2.08(0.01)

2.30–

Net interest spread
Interest attributable to net non-interest bearing items

1.85
0.51

2.07
0.43

2.30
0.62

Net interest average margin – New Zealand

2.36

2.50

2.92

Overseas markets
Gross interest spread
Interest forgone on impaired assets3

1.05(0.02)

1.34(0.04)

1.37(0.07)Net interest spread
Interest attributable to net non-interest bearing items

1.03
0.49

1.30
0.25

1.30
0.15

Net interest average margin – Overseas markets

1.52

1.55

1.45

Group
Gross interest spread
Interest forgone on impaired assets3

1.86(0.01)

2.08(0.02)

2.28(0.03)Net interest spread
Interest attributable to net non-interest bearing items

1.85
0.50

2.06
0.43

2.25
0.42

Net interest average margin – Group

2.35

2.49

2.67

Net interest income1
Australia
New ZealandOverseas markets

Average interest earning assets
Australia
New ZealandOverseas markets
Intragroup elimination

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

44

NOTES TO THE FINANCIAL STATEMENTS
35: MARKET RISK
Market risk is the risk to earnings arising from changes in interest rates, currency exchange rates, or from fluctuations in bond,commodity or equity prices.
The Board of Directors through the Risk Management Committee, a Committee of the Board, has responsibility for oversight of market risk
within the Group. Routine management of market risk is delegated to two senior management committees. The Credit and Trading Risk
Committee, chaired by the Chief Risk Officer, is responsible for traded market risk, while the Group Asset and Liability Committee, chaired by
the Chief Financial Officer, is responsible for non-traded market risk (or balance sheet risk).
The Credit and Trading Risk Committee monitors traded market risk exposures (including Value at Risk and Stress Testing) and is responsible
for authorising the trading risk limit framework. The Group Asset and Liability Committee reviews balance sheet based risk measures andstrategies on a monthly basis.
The Value at Risk (VaR) Measure
A key measure of market risk is Value at Risk (VaR). VaR is a statistical estimate of the likely daily loss and is based on historical market
movements.
The confidence level is such that there is 97.5% or 99% probability that the loss will not exceed the VaR estimate on any given day.
The 99% confidence level encompasses a wider range of potential outcomes.
The Group's standard VaR approach for both traded and non-traded risk is historical simulation. The Group calculates VaR using historicalchanges in market rates and prices over the previous 500 business days.
It should be noted that because VaR is driven by actual historical observations, and as such is not an estimate of the maximum loss that theGroup could experience from an extreme market event. As a result of this limitation, the Group utilises a number of other risk measures(eg. stress testing) and associated detailed control limits to measure and manage traded market risk.
Traded and non-traded market risks have been considered separately below.
Traded Market Risks
Trading activities are focused on customer trading, distribution and underwriting of a range of securities and derivative instruments.
The principal activities include foreign exchange, interest rate and debt markets. These activities are managed on a global product basis.
Below are aggregate VaR exposures covering both derivative and non-derivative trading positions for the Group's principal trading centres.
As at
Sep 05$m

High for
period
Sep 05$m

Low forperiod
Sep 05$m

Average for
period
Sep 05$m

As at
Sep 04$m

High for
period
Sep 04$m

Low forperiod
Sep 04$m

Averageperiod
Sep 04$m

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

0.8
1.3
0.8
(1.2)

1.7
2.2
1.5
n/a

0.3
0.2
0.2
n/a

0.8
0.9
0.8
(0.9)

0.5
1.0
0.5
(0.7)

1.9
1.6
1.0
n/a

0.3
0.2
0.3
n/a

0.7
0.6
0.6
(0.5)

Total VaR

1.7

3.0

0.8

1.6

1.3

2.5

0.8

1.4

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

0.9
1.7
1.4
(1.8)

2.1
2.8
2.4
n/a

0.4
0.2
0.4
n/a

1.1
1.2
1.2
(1.3)

0.9
0.8
1.0
(0.9)

2.8
2.0
1.5
n/a

0.4
0.1
0.5
n/a

1.0
0.7
0.8
(0.6)

Total VaR

2.2

4.0

1.0

2.2

1.8

3.4

1.0

1.9

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

anz financial report 2005

45

NOTES TO THE FINANCIAL STATEMENTS
35: MARKET RISK (CONTINUED)
Non-Traded Market Risks (Balance Sheet Risk)
The principal objectives of balance sheet management are to manage interest income sensitivity while maintaining acceptable levels ofinterest rate and liquidity risk and to hedge the market value of the Group's capital.
Interest Rate Risk
The objective of balance sheet interest rate risk management is to secure stable and optimal net interest income over both the short(next 12 months) and long term. Non-traded interest rate risk relates to the potential adverse impact of changes in market interest rates on
the Group's future net interest income. This risk arises from two principal sources: mismatches between the repricing dates of interest
bearing assets and liabilities; and the investment of capital and other non-interest bearing liabilities in interest bearing assets. Interest raterisk is reported as follows using three measures: VaR, scenario analysis (to a 1% shock) and disclosure of the interest rate sensitivity gap(refer note 36).
a) VaR Interest Rate Risk
Below are aggregate VaR figures covering non-traded interest rate risk.

Value at risk at 97.5% confidence
Group

As at
Sep 05$m

High for
period
Sep 05$m

Low forperiod
Sep 05$m

Average for
period
Sep 05$m

As at
Sep 04$m

High for
period
Sep 04
$m

14.2

24.0

13.7

18.1

21.0

37.2

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 theimmediate forward period of 12 months. This is a standard risk quantification tool.
The figures in the table below indicate the outcome of this risk measure for the current and previous financial years - expressed as apercentage of reported net interest income. The sign indicates the nature of the rate sensitivity with a positive number signifying that a rateincrease is positive for net interest income over the next 12 months. Conversely, a negative number signifies that a rate increase is negative
for the next 12 months' net interest income.
Consolidated
2005
2004

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

1.73%
1.87%
0.25%
1.21%

1.48%
1.53%
(0.07)%
0.71%

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 aresult of these repricing mismatches each month using a static gap model.
The repricing gaps themselves are constructed based on contractual repricing information. However, for those assets and liabilities where
the contractual term to repricing is not considered to be reflective of the actual interest rate sensitivity (for example, products priced at theGroup's discretion), a profile based on historically observed and/or anticipated rate sensitivity is used. This treatment excludes the effect ofbasis risk between customer pricing and wholesale market pricing. For example, when wholesale market rates are anticipating an official rateincrease the Group does not reprice certain customer business until the first repricing date after the official rate rise.
The majority of the Group's non-traded interest exposure exists in Australia and New Zealand. In these centres, a separate balance sheet
simulation process supplements this static gap information. This allows the net interest income outcomes of a number of different scenarios- with different market interest rate environments and future balance sheet structures - to be identified. This better enables the Groupto accurately quantify the interest rate risks associated with the balance sheet, and to formulate strategies to manage current andfuture risk profiles.

46

NOTES TO THE FINANCIAL STATEMENTS
35: MARKET RISK (CONTINUED)
Foreign Currency Related Risks
The Group's investment of capital in non-Australian operations generates an exposure to changes in the relative value of individual
currencies against the Australian Dollar. Variations in the value of these foreign currency investments are reflected in the Foreign Currency
Translation Reserve.
The Group incurs some non-traded foreign currency risk related to the potential repatriation of profits from non-Australian business units.
This risk is routinely monitored and hedging is conducted where it is likely to add shareholder value. NZD revenue related hedge contracts
outstanding at 30 September 2005 were AUD 3,957 million.
The risk relating to mismatching of non-traded foreign currency assets and liabilities has not been presented, as this type of risk is minimal
for the Group.

36: INTEREST SENSITIVITY GAP
The following table represents the interest rate sensitivity as at 30 September 2005 of the Group’s assets, liabilities and off balance sheet
instruments repricing (that is, when interest rates applicable to each asset or liability can be changed) in the periods shown.
Repricing gaps are based upon contractual repricing information except where the contractual terms are not considered to be reflective of
actual interest rate sensitivity, for example, those assets and liabilities priced at the Group’s discretion. In such cases, the rate sensitivity isbased upon historically observed and/or anticipated rate sensitivity.
Sensitivity to interest rates arises from mismatches in the period to repricing of assets and that of the corresponding liability funding. Thesemismatches are managed within policy guidelines for mismatch positions.

At 30 September 2005

BetweenBetweenLess than 3 months and 6 months and3 months
6 months
12 months$m$m$m

Between
1 year and5 years$m

After
5 years$m

Notbearing
interest
$m

Total
$m

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

13,5108,050
164,347
318

984
1,263
8,698
55

286
627
14,061
112

259
2,489
44,391
570

1,082
700
1,032
77

1,827
97
(1,577)29,927

17,94813,226230,952
31,059Total assets

186,225

11,00015,08647,7092,891

30,274

293,185

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

58,51558,497
31,381
169
28,207

10,176
898
4,055
1
2,585

5,190
1,771
3,007
14
1,235

4,565
4,614
1,596
479
11,830

10
45
1,023
286
4,353

–
10,378
1,998
26,819–78,45676,20343,06027,76848,210Total liabilities

176,769

17,715

11,21723,084

5,717

39,195

273,697

Shareholders’ equity and outside equity interests
Off balance sheet items affecting interest rate sensitivity

2,013

9,271

(2,879)(11,737)

3,332

19,488–19,488–Interest sensitivity gap– net– cumulative

11,46911,4692,556
14,025990
15,015

12,88827,903506
28,409(28,409)–––

The bulk of the Group’s loan/deposit business is conducted in the domestic balance sheets of Australia and New Zealand and is priced on a
floating rate basis. The mix of repricing maturities in these books is influenced by the underlying financial needs of customers.
Offshore operations, which are generally wholesale in nature, are able to minimise interest rate sensitivity through closely matching thematurity of loans and deposits. Given both the size and nature of their business, the interest rate sensitivities of these balance sheets
contribute little to the aggregate risk exposure, which is primarily a reflection of the positions in Australia and New Zealand.
In Australia and New Zealand, a combination of pricing initiatives and off-balance sheet instruments is used in the management of interest
rate risk. For example, where a strong medium to long term rate view is held, hedging and pricing strategies are used to modify the profile’s
rate sensitivity so that it is positioned to take advantage of the expected movement in interest rates. However, such positions are taken
within the overall risk limits specified by policy.

anz financial report 2005

47

NOTES TO THE FINANCIAL STATEMENTS
36: INTEREST SENSITIVITY GAP (CONTINUED)
The following table represents the interest rate sensitivity as at 30 September 2004 of the Group’s assets, liabilities and off balance sheet
instruments repricing (that is, when interest rates applicable to each asset or liability can be changed) in the periods shown.

At 30 September 2004

BetweenBetweenLess than 3 months and 6 months and3 months
6 months
12 months$m$m$m

Between
1 year and5 years$m

After
5 years$m

Notbearing
interest
$m

Total
$m

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

8,030
8,326
147,883
383

788
1,261
8,415
134

508
1,538
12,914
127

823
1,667
36,740
607

6
293
673
5

989
139
(1,663)28,759

11,144
13,224204,962
30,015

Total assets

164,622

10,59815,087

39,837977

28,224259,345

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

54,24553,84327,733
127
18,738

7,596
843
2,784
151
2,474

4,574
1,648
2,844
186
962

4,199
4,997
1,805
749
9,955

7
–
7
166
3,948

–
7,927
854
28,058–70,621
69,25836,02729,43736,077

Total liabilities

154,686

13,848

10,21421,705

4,128

36,839241,420

Shareholders’ equity and outside equity interests
Off balance sheet items affecting interest rate sensitivity

–
6,655

–
3,114

–
(8,887)–(4,777)–
3,895

17,925–

17,925–Interest sensitivity gap– net– cumulative

16,591
16,591(136)
16,455(4,014)
12,441

13,35525,796744
26,540(26,540)
–

–
–

48

NOTES TO THE FINANCIAL STATEMENTS
37: NET FAIR VALUE OF FINANCIAL INSTRUMENTS
Australian Accounting Standard AASB 1033: Presentation and Disclosure of Financial Instruments (AASB 1033) requires disclosure of the net
fair value of on and off balance sheet financial instruments. The disclosures exclude all non-financial instruments, such as income taxes andregulatory deposits, and specified financial instruments, such as interests in controlled entities. The aggregate net fair value amounts do not
represent the underlying value of the Group.
Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s
length transaction. Net fair value is the fair value adjusted for transaction costs.
Quoted market prices, where available, are adjusted for material transaction costs and used as the measure of net fair value. In cases where
quoted market values are not available, net fair values are based on present value estimates or other valuation techniques. For the majorityof short-term financial instruments, defined as those which reprice or mature in 90 days or less, with no significant change in credit risk, thenet fair value was assumed to equate to the carrying amount in the Group’s statement of financial position.
The fair values are based on relevant information available as at 30 September 2005. While judgement is used in obtaining the net fair valueof financial instruments, there are inherent weaknesses in any estimation technique. Many of the estimates involve uncertainties andmatters of significant judgement, and changes in underlying assumptions could significantly affect these estimates. Furthermore, market
prices or rates of discount are not available for many of the financial instruments valued and surrogates have been used which may notreflect the price that would apply in an actual sale.
The net fair value amounts have not been updated for the purposes of these financial statements since 30 September 2005, and therefore
the net fair value of the financial instruments subsequent to 30 September 2005 may be different from the amounts reported.
Financial Assets

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

Net fair value
2005
2004
$m
$m

11,600
6,348
6,285
9,252
232,724
13,449
9,866

6,363
4,781
5,478
9,878
206,788
12,466
9,458

Carrying value
2005
2004
$m
$m

11,600
6,348
6,285
8,813
230,952
13,449
9,751

6,363
4,781
5,478
9,706
204,962
12,466
9,088

LIQUID ASSETS AND DUE FROM OTHER FINANCIAL INSTITUTIONS
The carrying values of these financial instruments are considered to approximate their net fair values as they are short-term in nature or are
receivable on demand.

TRADING SECURITIES
Trading securities are carried at market value. Market value is generally based on quoted market prices, broker or dealer price quotations,or prices for securities with similar credit risk, maturity and yield characteristics.

INVESTMENT SECURITIESNet fair value is based on quoted market prices or broker or dealer price quotations. If this information is not available, net fair value has
been estimated using quoted market prices for securities with similar credit, maturity and yield characteristics.

SHARES IN ASSOCIATES AND JOINT VENTURE ENTITIESNet fair value is based on quoted market prices or broker or dealer price quotations. If this information is not available, net fair value has
been estimated using quoted market prices for securities with similar credit, maturity and yield characteristics, independent valuation, or byreference to the net tangible asset backing of the investee.

anz financial report 2005

49

NOTES TO THE FINANCIAL STATEMENTS
37: NET FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
LOANS, ADVANCES AND CUSTOMERS’ LIABILITIES FOR ACCEPTANCESThe carrying value of loans, advances and acceptances is net of specific and general provisions for doubtful debts and income yet to mature.
The estimated net fair value of loans, advances and acceptances is based on the discounted amount of estimated future cash flows andaccordingly has not been adjusted for either specific or general provisions for doubtful debts.
Estimated contractual cash flows for performing loans are discounted at estimated current bank credit spreads to determine fair value.
For loans with doubt as to collection, expected cash flows (inclusive of the value of security) are discounted using a rate which includes
a premium for the uncertainty of the flows.
The difference between estimated net fair values of loans, advances and acceptances and carrying value reflects changes in interest rates
and the credit worthiness of borrowers since loan origination.
Net lease receivables, with a carrying value of $3,523 million (2004: $3,079 million) and a net fair value of $3,523 million(2004: $3,080 million), are included in loans and advances.

OTHER FINANCIAL ASSETS
Included in this category are accrued interest, fees receivable and derivative financial instruments. The carrying values of accrued interestand fees receivable are considered to approximate their net fair values as they are short term in nature or are receivable on demand.
The fair values of derivative financial instruments such as interest rate swaps and currency swaps were calculated using discounted cash
flow models based on current market yields for similar types of instruments and the maturity of each instrument. Foreign exchange contracts
and interest rate option contracts were valued using market prices and option valuation models as appropriate.
Properties held for resale, deferred tax assets and prepaid expenses are not considered financial assets.
Net fair value
2005
2004
$m
$m

Financial Liabilities

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

12,027
185,645
13,44939,137
9,215
10,9397,349
168,542
12,466
27,747
8,540
13,665Carrying value
2005
2004
$m
$m

12,027
185,693
13,44939,073
9,137
10,921

7,349
168,557
12,466
27,602
8,475
13,525

DUE TO OTHER FINANCIAL INSTITUTIONS
The carrying value of amounts due to other financial institutions is considered to approximate the net fair value.

DEPOSITS AND OTHER BORROWINGSThe net fair value of a deposit liability without a specified maturity or at call is deemed by AASB 1033 to be the amount payable on demandat the reporting date. The fair value is not adjusted for any value expected to be derived from retaining the deposit for a future period of time.
For interest bearing fixed maturity deposits and other borrowings and acceptances without quoted market prices, market borrowing rates ofinterest for debt with a similar maturity are used to discount contractual cash flows.

BONDS AND NOTES AND LOAN CAPITAL
The aggregate net fair value of bonds and notes and loan capital at 30 September 2005 was calculated based on quoted market prices.
For those debt issues where quoted market prices were not available, a discounted cash flow model using a yield curve appropriate for theremaining term to maturity of the instrument was used.

OTHER FINANCIAL LIABILITIESThis category includes accrued interest and fees payable for which the carrying amount is considered to approximate the fair value.
Also included are derivative financial instruments, where fair value is determined on the basis described under ‘Other financial assets’.
Income tax liabilities, other provisions and accrued charges are not considered financial liabilities.

50

NOTES TO THE
FINANCIAL STATEMENTS
37: NET FAIR VALUE OF FINANCIAL
INSTRUMENTS (CONTINUED)COMMITMENTS AND CONTINGENCIESAs outlined in note 47, the Group hasvarious credit related commitments.
Based upon the level of fees currently
charged for granting such commitments,
taking into account maturity and interest
rates, together with any changes in thecreditworthiness of counterparties sinceorigination of the commitments, theirestimated replacement or net fair value
is not material.

TRANSACTION COSTS
The fair value of financial instruments
required to be disclosed under US
accounting standard, Statement of
Financial Accounting Standards No. 107‘Disclosures about Fair Value of Financial
Instruments’ (SFAS 107) is calculated
without regard to estimated transaction
costs. Such transaction costs are notmaterial, and accordingly the fair values
shown above would not differ materiallyfrom fair values calculated in accordancewith SFAS 107.

38: DERIVATIVE FINANCIAL
INSTRUMENTS
Derivative instruments are contracts
whose value is derived from one or more
underlying financial instruments orindices. They include swaps, forward rateagreements, futures, options andcombinations of these instruments.
The use of derivatives and their sale tocustomers as risk management products
is an integral part of the Group’s trading
activities. Derivatives are also used to
manage the Group’s own exposure tofluctuations in exchange and interest rates
as part of its asset and liability
management activities and are classified
as other than trading. Derivatives are
subject to the same types of credit andmarket risk as other financial instruments,
and the Group manages these risks in aconsistent manner.

The principal exchange rate contracts
used by the Group are forward foreignexchange contracts, currency swaps andcurrency options. Forward foreignexchange contracts are agreements to buy
or sell a specified quantity of foreign
currency on a specified future date at anagreed rate. A currency swap generally
involves the exchange, or notional
exchange, of equivalent amounts of twocurrencies and a commitment to exchangeinterest periodically until the principal
amounts are re-exchanged on a futuredate. Currency options provide the buyer
with the right, but not the obligation,either to purchase or sell a fixed amountof a currency at a specified rate on or
before a future date. As compensation forassuming the option risk, the option
writer generally receives a premium at thestart of the option period.
The principal interest rate contracts usedby the Group are forward rate agreements,
interest rate futures, interest rate swaps
and options. Forward rate agreements arecontracts for the payment of the difference
between a specified interest rate and areference rate on a notional deposit at afuture settlement date. There is no
exchange of principal. An interest rate
future is an exchange traded contract forthe delivery of a standardised amount of a
fixed income security or time deposit at afuture date. Interest rate swap
transactions generally involve theexchange of fixed and floating interest
payment obligations without the exchangeof the underlying principal amounts.
Derivative transactions generate income
for the Group from buy/sell spreads andfrom trading positions taken by the Group.
Income from these transactions is taken to
net interest income, foreign exchangeearnings or profit on trading instruments.
Income or expense on derivatives enteredinto for balance sheet and revenue
hedging purposes is accrued and recorded
as an adjustment to the interest income or
expense of the related hedged item.

CREDIT RISKThe credit risk of derivative financial
instruments arises from the potential for acounterparty to default on its contractual
obligation. Credit risk arises when market
movements are such that the derivative
has a positive value to the Group. It is thecost of replacing the contract in the eventof counterparty default. The Group limits
its credit risk within a conservative
framework by dealing with creditworthy
counterparties, setting credit limits on
exposures to counterparties, andobtaining collateral where appropriate.
The following table provides an overview
of the Group’s exchange rate, credit,
commodity and interest rate derivatives.
It includes all trading and other than
trading contracts. Notional principal
amounts measure the amount of theunderlying physical or financial commodity
and represent the volume of outstandingtransactions. They are not a measure of
the risk associated with a derivative.
The credit equivalent amount is calculated
in accordance with the Australian
Prudential Regulation Authority’s Capital
Adequacy guidelines. It combines
the aggregate gross replacement cost withan allowance for the potential increase invalue over the remaining term of thetransaction should market
conditions change.
The fair value of a derivative represents
the aggregate net present value of the
cash inflows and outflows required toextinguish the rights and obligations
arising from the derivative in an orderly
market as at the reporting date. Fair value
does not indicate future gains or losses,
but rather the unrealised gains and losses
from marking to market all derivatives at aparticular point in time.

anz financial report 2005

51

NOTES TO THE FINANCIAL STATEMENTS
38: DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)

Consolidated

Foreign exchange contracts1
Spot and forward contracts
Swap agreements
Futures contracts2
Options purchased
Options sold3
Other contracts

Interest rate contracts
Forward rate agreements
Swap agreements
Futures contracts2
Options purchased
Options sold3

Credit contracts
Credit default swaps4

1
2
3
4

Notional
principal
amount2005$mCreditequivalentamount2005$m

Fair value
2005$mNotional
principal
amount2004$mCreditequivalentamount2004$m

Fair value
2004$m

184,958
68,892256
9,340
14,925
4,963

3,082
3,638
n/a
315
n/a
573

(178)
(561)
4
186
(174)
(2)

183,825
51,437251
13,28818,852
2,686

3,216
3,095
n/a
398
n/a
436

(1,411)
(25)
2
224
(226)
115

283,334

7,608

(725)

270,339

7,145(1,321)47,734405,152
35,111
12,81016,715

8
3,443
n/a
96
n/a

1
431
8
62
(42)

39,572
321,585
38,27012,81015,214

9
3,682
n/a
111
n/a

5
424
4
64
(35)

517,522

3,547

460

427,451

3,802

462

15,4372,929(1)

11,7433,381

31816,293

14,084(266)

709,533

14,328(828)

The fair value of foreign exchange contracts includes a net additional $586 million (September 2004: net $(519) million) in respect of cash collateral paid/(received) under credit support agreements
Credit equivalent amounts have not been included as there is minimal credit risk associated with exchange traded futures where the clearing house is the counterparty
Options sold have no credit exposure, as they represent obligations rather than assets
Credit default swaps include structured financing transactions that expose the Group to the performance of certain assets. The total investment of the Group in these transactions is USD 500 million(2004: USD 750 million)

The maturity structure of derivative activity is a primary component of potential credit exposure. The table below shows the remaining
maturity profile by class of derivatives, based on notional principal amounts. The table also shows the notional principal amounts of thederivatives held for trading and other than trading purposes.
Remaining life
Consolidated
At 30 September 2005

Less than
1 year$m

1 to 5 years$mGreater than
5 years
$m

Total
$m

Trading$m

Other than
Trading$m

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

178,705
17,148254
8,536
14,1672,439

6,107
40,788
2
692
696
2,339

146
10,956
–
112
62
185

184,958
68,892256
9,340
14,925
4,963

165,781
15,906256
9,340
14,925
4,961

19,17752,986–––2

221,249

50,624

11,461

283,334

211,169

72,16547,168145,049
30,909
7,694
9,725

566
198,495
4,202
4,552
6,447

–
61,608–564
543

47,734405,152
35,111
12,81016,71545,961
305,862
27,58912,774
16,715

1,773
99,2907,522
36–240,545

214,262

62,715517,522408,901

108,6212,666

12,041730

15,437

13,1592,278

464,460

276,927

74,906816,293633,229

183,064

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

Credit contracts
Credit default swaps
Total

52

NOTES TO THE FINANCIAL STATEMENTS
38: DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
Remaining life
Consolidated
At 30 September 2004

Less than
1 year$m

1 to 5 years$mGreater than
5 years
$m

Total
$m

Trading$m

Other than
Trading$m

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

178,501
9,945
243
12,361
18,001
1,015

5,033
33,631
8
863
789
1,436

291
7,861
–
64
62
235

183,825
51,437251
13,28818,852
2,686

162,072
13,670251
13,28818,852
2,681

21,75337,767–––
5

220,066

41,7608,513

270,339

210,81459,52539,514
121,594
35,759
4,546
7,506

58
153,556
2,511
7,680
7,267

–
46,435–584
441

39,572
321,585
38,27012,81015,21431,437248,186
32,498
12,773
15,2148,135
73,3995,772
37–208,919

171,072

47,460427,451

340,108

87,343

1,310

9,472

961

11,743

8,775

2,968

430,295

222,304

56,934

709,533

559,697

149,836

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

Credit contracts
Credit default swaps
Total

Concentrations of credit risk exist for groups of counterparties when they have similar economic characteristics. Major concentrationsof credit risk arise by location and type of customer.
The following table shows the concentrations of credit risk, by class of counterparty and by geographic location, measured by credit
equivalent amount.
Approximately 57% (2004: 47%) of the Group’s exposures are with counterparties which are either Australian banks or banks basedin other OECD countries.

Consolidated
At 30 September 2005

OECD
governments$mAustralian
andOECD banks$mCorporations,
non-OECD
banks andothers
$m

Total
$m

Australia
New ZealandOverseas markets

140
55
31

6,185
1,610
236

4,997
606
224

11,322
2,271
491

226

8,031

5,827

14,084

Consolidated
At 30 September 2004

OECD
governments$mAustralian
andOECD banks$mCorporations,
non-OECD
banks andothers
$m

Total
$m

Australia
New ZealandOverseas markets

147
12
2

5,258
1,228
212

6,534
839
96

11,939
2,079
310

161

6,698

7,469

14,328anz financial report 2005

53

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

Consolidated

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

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

Credit contracts
Credit default swaps
Gross unrealised gains
Gross unrealised losses

Total

Other than Trading
Fair value1
Fair value1
as at
as at
2005
2004
$m
$m

Fair value1
as at
2005
$m

Fair value
Average
2005
$m

Total
Fair value
Average
2004
$m

552
(3,233)875(2,392)6642
1,8392

6872(581)2

1,729(2,670)

1,719
(927)

447
(629)

532
(430)

(48)2
(331)2

1102(237)2558(1,011)

498
(254)

–
–
–
–

–
–
–
–

18
(14)
186
(174)

8
(6)
224
(226)

6
(3)
214
(190)

–
–
352
(337)

–
–

–
–

377
(379)

298
(183)

313
(249)

247
(111)

(2,863)(1,415)2,138

94(1,303)

1,187

–
–

–
–

5
(4)

8
(3)

3
(4)

6
(4)

512
(256)

467
(181)

1,112
(937)

1,825
(1,687)

1,569(1,271)

2,127(1,790)

11
(6)
11
–

6
(4)
8
–

141
(138)
51
(42)

54
(52)
56
(35)

114
(111)
58
(47)

52
(43)
65
(36)

–
–

–
–

–
–

–
–

–
–

–
–

272

296

188

166

311

377

6
(3)

42
(6)

111
(115)

44
(49)

92
(99)

37
(42)

3

36

(4)

(5)

(7)

(5)

(2,588)(1,083)

2,322

255

(999)

1,559

1 The fair values of derivatives vary over time depending on movements in interest and exchange rates and the trading or hedging strategies used
2 The fair value of foreign exchange contracts trading is impacted by netting arrangements and timing of collateral paid under credit support agreements

54

Trading
Fair value1
as at
2004
$m

NOTES TO THE FINANCIAL STATEMENTS
38: DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)The Group classifies derivatives into two types according to the purpose they are entered into: trading or hedging.
In addition to customer and trading activities, the Group uses, inter alia, derivatives to manage the risk associated with its balance sheet
and future revenue streams. The principal objectives of asset and liability management are to hedge the market value of the Group’s capitaland to manage and control the sensitivity of the Group’s income while maintaining acceptable levels of interest rate and liquidity risk.
The Group also uses a variety of foreign exchange derivatives to hedge against adverse movements in the value of foreign currency
denominated assets and liabilities and future revenue streams.
Income and loss relating to trading derivatives is reported in the statement of financial performance as other operating income. The fair valueof trading derivatives is recorded on a gross basis as other assets or other liabilities as appropriate unless there is a legal right of set off. The
fair value of a derivative financial instrument is the net present value of future expected cash flows arising from that instrument.
In order to be classified as a hedging derivative the hedging relationship must be expected to be effective.
An effective hedging relationship is one where there is expected to be a high degree of negative correlation between changes in the fairvalue of the financial asset being hedged and the derivative nominated as the hedging instrument. This effectiveness is assessed on initialclassification of the hedging relationship. A hedging relationship is either effective or non-effective in its entirety, no accounting adjustment
is made for an assessed percentage of ineffectiveness. Where a hedging relationship is deemed effective it is accounted for in the samemanner as the underlying asset or liability it is hedging.
During the year NZD0.7 billion hedge of NZD revenue were put in place to lock in historically high NZD exchange rates. Hedge contracts
outstanding at 30 September 2005 totalled NZD4.4 billion (AUD 4.0 billion).
The table below shows the notional principal amount, credit equivalent amount and fair value of derivatives held by the Group, split between
those entered into for customer-related and trading purposes, and those entered into for balance sheet hedging and revenue related hedging.

Consolidated

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

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

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

Total

Notional
principal
amount2005$mCreditequivalentamount
2005
$m

Fair
value
2005
$m

Notional
principal
amount2004$mCreditequivalentamount
2004
$m

Fair
value
2004
$m

211,169
68,208
3,957

4,676
2,852
80

2,138
(2,904)
41

210,81456,039
3,486

4,511
2,585
49

94
(1,371)(44)283,334

7,608

(725)

270,339

7,145(1,321)

408,901
108,621

2,902
645

188
272

340,108
87,343

3,163
639

166
296

517,522

3,547

460

427,451

3,802

462

13,159
2,278

1,154
1,775

(4)
3

8,775
2,968

745
2,636

(5)
36

15,4372,929(1)

11,7433,381

31816,293

14,084(266)

709,533

14,328(828)

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

Consolidated

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

Foreign Exchange
Contracts
2004
$m

2005
$m

Interest Rate and Credit
Contracts
2005
2004
$m
$m

Total
2005
$m

Total
2004
$m

7
14
20
–

(37)
(14)
–
–

45
60
(5)
(23)

71
127
40
(3)

52
74
15
(23)

34
113
40
(3)

41

(51)

77

235

118

184

anz financial report 2005

55

NOTES TO THE FINANCIAL STATEMENTS
39: SECURITISATION
During the year ended 30 September 2005, the Group did not securitise any residential mortgage loans (2004: $1,481 million).
All securitised loans have been removed from the Group’s balance sheet and transferred to third party special purpose entities (SPEs).
The Group retains servicing and (for some loans) custodian responsibilities for the loans sold. Following a securitisation, the Group receives
fees for servicing the loans, custodian fees, fees for facilities provided and any excess income derived by the SPE after interest has been paid
to investors and net credit losses and expenses absorbed.
The Group does not hold any material retained interest in the loans that have been sold. There is no recourse against the Group if cash flows
from the securitised loans are inadequate to service the obligations of the SPE except to the limited extent provided in the transaction
documents through the provision of arm’s length services and facilities.
The securities issued by the SPEs do not represent deposits or other liabilities of the Company or the Group. Neither the Company nor theGroup in any way stands behind the capital value or performance of the securities or the assets of the SPEs except to the limited extent
provided in the transaction documents through the provision of arm’s length services and facilities.
The Group may also provide liquidity facilities and other forms of credit enhancement to ensure adequate funds are available to the SPEs.
The facilities are undrawn. The Group also provides hedging facilities to the SPEs to mitigate interest rate and currency risks. All thesetransactions are completed on an arm’s length basis.
The following table summarises the cash flows from the SPEs to the Group in respect of assets securitised by the Group.

Proceeds from securitising loans
Servicing fees received
Other cash inflows

56

2005
$m

2004
$m

–
6
11

1,481
4
7

NOTES TO THE FINANCIAL STATEMENTS
40: SEGMENT ANALYSIS
For management purposes the Group is organised into six major business segments including Personal, Institutional, New Zealand Business,
Corporate, Esanda and UDC and Asia Pacific. An expanded description of the principal activities for each of the business segments is
contained in the Glossary on pages 120 to 121.
A summarised description of each business segment is shown below:
Personal

Comprises the activities of Regional Commercial and Agribusiness Products, Banking Products, Consumer Finance, WealthManagement, Mortgages and other (including the branch network)

Institutional

Comprises businesses that provide a full range of financial services to the Group’s largest corporate and institutionalcustomers including Corporate and Structured Financing, Client Relationship Group, Markets and Trade andTransaction Services

New Zealand Business

Provides a full range of banking services for personal, small business and corporate customers in New Zealand andcomprises ANZ Retail, NBNZ Retail, Corporate Banking, Rural Banking and Central Support

Corporate

Comprises Corporate Banking, Business Banking and Small Business banking in Australia

Esanda and UDC

Provides vehicle and equipment finance, rental services and fixed and at call investments. Operates in Australia as Esanda
and Esanda FleetPartners and in New Zealand as UDC and Esanda FleetPartners

Asia Pacific

Provides retail banking services in the Pacific region and Asia, including ANZ’s share of PT Panin Bank in Indonesia. Thisbusiness excludes Institutional businesses in the Asia Pacific region that are included in the Institutional division.

As the composition of segments has changed over time, September 2004 comparatives have been adjusted to be consistent with the 2005
segment definitions. Comparatives for the year ended 30 September 2003 have not been provided because the data could not reasonably bedisaggregated into the amended segments.

BUSINESS SEGMENT ANALYSIS1, 2
Consolidated
30 September 2005

Personal$m

Institutional$m

New
ZealandBusiness$m

Corporate$m

Esandaand UDC$m

Asia
Pacific$m

Other3$m

Consolidated
Total
$m

External interest income
External interest expense
Net intersegment interest

6,817(1,585)(3,128)3,169(2,581)
174

4,581(2,932)
(215)

1,078
(623)
242

1,143
(695)
(79)

172
(163)
154

467
(3,050)2,852

17,427(11,629)–

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

2,104
919

762
1,429

1,434
513

697
293

369
121

163
108

269
12

5,798
3,395

94
125

4
(30)

–
6

1
(94)

–
(9)

41
–

17
2

157
–

Operating income

3,242

2,165

1,953

897

481

312

300

9,350

Other external expenses
Net intersegment expenses(1,363)
(276)

(623)
(143)

(950)
(5)

(232)
(62)

(162)
(26)

(172)
1

(1,013)511(4,515)–

Operating expenses(1,639)

(766)

(955)

(294)

(188)

(171)

(502)

(4,515)Charge for doubtful debts
Income tax expense
Outside equity interests

(198)
(392)
–

(139)
(336)
(1)

(92)
(292)
–

(66)
(161)
–

(62)
(72)
–

(23)
(22)
(1)

–
41
(1)

(580)
(1,234)(3)

Profit after income tax

1,013

923

614

376

159

95

(162)

3,018

Non-Cash Expenses
Depreciation
Amortisation of goodwill

(119)
–

(18)
–

(49)
–

(6)
–

(16)
–

(10)
–

(87)
(179)

(305)
(179)

Financial Position
Total external assets
Associate investments
Total external liabilities

106,04315
44,34070,901
52
53,35060,157
151
53,426

21,26340
24,11015,405–
13,306

2,890
152
5,811

16,526
1,462
79,354

293,185
1,872
273,697

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

anz financial report 2005

57

NOTES TO THE FINANCIAL STATEMENTS
40: SEGMENT ANALYSIS (CONTINUED)
The following analysis details financial information by business segment.

BUSINESS SEGMENT ANALYSIS1, 2
Consolidated
30 September 2004

Personal$m

Institutional$m

New
ZealandBusiness$m

Corporate$m

Esandaand UDC$m

Asia
Pacific$m

Other3$m

Consolidated
Total
$m

External interest income
External interest expense
Net intersegment interest

5,784(1,334)(2,538)2,782(2,647)573

3,002(1,623)
(168)

919
(529)
250

1,060
(593)
(107)

167
(123)
109

403
(2,014)
1,881

14,117(8,863)–

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

1,912
828

708
1,355

1,211
453

640
274

360
103

153
102

270
131

5,254
3,246

84
118

1
(23)

–
6

1
(86)

1
(8)

45
–

13
(7)

145
–

Operating income

2,942

2,041

1,670

829

456

300

407

8,645

Other external expenses
Net intersegment expenses(1,263)
(270)

(576)
(144)

(801)
(17)

(214)
(66)

(159)
(27)

(145)
2

(868)
522

(4,026)–

Operating expenses(1,533)

(720)

(818)

(280)

(186)

(143)

(346)

(4,026)Charge for doubtful debts
Income tax expense
Outside equity interests

(183)
(343)
–

(160)
(303)
(1)

(97)
(242)
–

(61)
(147)
–

(67)
(60)
–

(23)
(20)
(3)

(41)
(53)
–

(632)
(1,168)(4)

Profit after income tax

883

857

513

341

143

111

(33)

2,815

Non-Cash Expenses
Depreciation
Amortisation of goodwill

(112)
–

(19)
–

(52)
–

(6)
–

(25)
–

(10)
–

(85)
(146)

(309)
(146)

93,23214

60,14455

53,4342

19,09814

14,524
1

2,446
176

16,467
1,698

259,345
1,960–
40,454

11,22548,74728,521
47,247–
21,836–
12,261

–
5,298

3,265
65,57743,011
241,420

Financial Position
Total external assets
Associate investments
Acquisition of NBNZ assets including
goodwill
Total external liabilities

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

The following analysis details financial information by geographic location.

GEOGRAPHIC SEGMENT ANALYSIS4, 5
Consolidated

IncomeAustralia
New ZealandOverseas markets

Total assets
Australia
New Zealand6
Overseas markets

$m

2005
%

$m

2004
%

$m

2003
%

13,496
6,211
1,272

64
30
6

11,767
4,632
1,109

67
27
6

9,508
2,149
1,366

73
17
10

20,979100

17,508100

13,023

100

195,500
78,474
19,21167
27
6

170,455
69,801
19,08966
27
7151,538
25,696
18,35777
13
10293,185100

259,345100

195,591

100

2,975
832
448

70
20
10

2,785
763
439

70
19
11

2,371
495
411

72
15
13

4,255

100

3,987

100

3,277

100

7

Net profit before tax
Australia
New ZealandOverseas markets

4
5
6
7

Intersegment transfers are accounted for and determined on an arm’s length or cost recovery basis
The geographic segments represent the locations in which the transaction was booked
2004 amount includes NBNZ assets, including goodwill acquired of $3.1 billion
Includes outside equity interests

58

NOTES TO THE FINANCIAL STATEMENTS
41: NOTES TO THE STATEMENTS OF CASH FLOWS
2005$mConsolidated
2004
$m

2003
$m

The Company
2005
2004
$m
$m

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

Inflows(Outflows)

Net profit after income tax

3,018

2,815

2,348

2,227

1,972

Adjustments to reconcile net profit after income tax to net cash
provided by operating activities
Provision for doubtful debts
Depreciation and amortisation
Provision for employee entitlements, restructuring and other provisions
Payments from provisions(Profit) loss on sale of premises and equipment
Provision for surplus lease space
Unrealised (gain) loss on revaluation of treasury instruments

580
484
556
(498)
22
–
(723)

632
455
429
(395)
5
7
(169)

614
265
219
(349)
5
(11)
262

388
230
363
(334)
25
–
51

433
220
352
(390)
5
7
(535)

Net decrease (increase)
Trading securities
Interest receivable
Accrued income
Tax balances
Amortisation of discounts/premiums included in interest income

(821)
88
4
162
(93)

514
(478)
–
921
(27)

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

(523)
(8)
8
246
(12)

(1,147)
(326)
–
817
16

Net increase (decrease)
Interest payable
Accrued expenses
Other

214
52
(15)

605
75
(139)

180
69
(109)

105
82
(9)

377
(49)
(7)

Total adjustments

12

2,435

2,271

612

(227)

3,030

5,250

4,619

2,839

1,745

Net cash provided by operating activitiesb) Reconciliation of cash and cash equivalents
Cash and cash equivalents include liquid assets and amounts due from other financial institutions with an original term to maturity of lessthan 90 days. Cash and cash equivalents at the end of the financial year as shown in the statements of cash flows are reconciled to therelated items in the statements of financial position as follows

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

2005
$m

Consolidated
2004
$m

2003
$m

The Company
2005
2004
$m
$m

9,600
4,102

4,998
2,856

5,509
1,806

5,315
2,584

2,408
1,834

13,702

7,854

7,315

7,899

4,242

anz financial report 2005

59

NOTES TO THE FINANCIAL STATEMENTS
41: NOTES TO THE STATEMENTS OF CASH FLOWS (CONTINUED)c) Acquisitions

2005
$m

Consolidated
2004
$m

2003
$m

Details of aggregate assets and liabilities of controlled entities and branches acquiredby the Group are as follows:
Fair value of net assets acquired
Liquid assets
Due from other financial institutions
Net loans and advances
Trading securities
Investment securities
Other assets
Premises and equipment
Due to other financial institutions
Payables and other liabilities
Deposits and other borrowings
Provisions
Unsubordinated debt
Loan capital

–
–
–
–
–
–
–
–
–
–
–
–
–

842
2,737
32,215
1,742
225
1,815
169
(1,151)(2,588)(32,352)(115)(1,179)
(514)

–
–
–
–
–
–
–
–
–
–
–
–
–

Fair value of net assets acquired
Goodwill on acquisition

–
–

1,846
3,266

–
–

Consideration paid
Cash consideration paid
Foreign currency translation

–
–
–

5,112
4,842
270

–
–
–

d) Non-cash financing and investing activities

Share capital issues
Dividend reinvestment plan

2005
$m

Consolidated
2004
$m

2003
$m

The Company
2005
2004
$m
$m

153

135

115

153

135

e) Financing arrangements
Consolidated
2005

2004

Available$m

Unused$m

Available$m

Unused$m

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

865

851

889

884

3,694

890

4,115

433

Total finance available

4,559

1,741

5,004

1,317

60

NOTES TO THE FINANCIAL STATEMENTS
42: CONTROLLED ENTITIESAll controlled entities are 100% owned unless otherwise noted.
The material controlled entities of the Group are:Amerika Samoa BankANZ Capel Court Limited
ANZ Capital Funding Pty Ltd
ANZ Capital Hedging Pty Ltd
ANZcover Insurance Pty Ltd
ANZ (Delaware) Inc
ANZ Executors & Trustee Company Limited
ANZ Financial Products Pty Ltd
ANZ Funds Pty Ltd
ANZ Bank (Europe) Limited*
ANZ Bank (Samoa) Limited*
ANZ Holdings (New Zealand) Limited*
ANZ National Bank Limited*
ANZ National (Int’l) Limited*
Arawata Finance Limited*
Arawata Capital Limited*
APAC Investments Limited*1
Burnley Investments Limited*
Cortland Finance Limited*
Arawata Holdings Limited*
Harcourt Corporation Limited*
Airlie Investments Limited*
Nerine Finance No. 21
Endeavour Finance Limited*
Tui Endeavour Limited*
National Bank of New Zealand Custodians Limited*
Alos Holdings Limited*
NBNZ Holdings Ltd*Tui Securities Limited*
UDC Finance Limited*
Truck Leasing Limited*
ANZ International (Hong Kong) Limited*
ANZ Asia Limited*
ANZ Bank (Vanuatu) Limited*
ANZ International Private Limited*
ANZ Singapore Limited*
ANZ Royal Bank (Cambodia) Limited*1
Bank of Kiribati Ltd*1
LFD Limited
Minerva Holdings Limited*
ANZEF Limited*
Votraint No. 1103 Pty Limited
ANZ Investment Holdings Pty Ltd
530 Collins Street Property Trust
ANZ Lenders Mortgage Insurance Pty Limited
ANZ Orchard Investments Pty Ltd
ANZ Rural Products Pty Ltd
Australia and New Zealand Banking Group (PNG) Limited*
Esanda Finance Corporation Limited
Fleet Partners Pty Limited
NMRSB Pty Ltd
PT ANZ Panin Bank*1
Upspring Limited*

Incorporated in

Nature of BusinessAmerica Samoa
Australia
Australia
Australia
Australia
USA
Australia
Australia
Australia
EnglandSamoa
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New ZealandHong Kong
Hong Kong
VanuatuSingapore
Singapore
Cambodia
Kiribati
Australia
EnglandEngland
Australia
Australia
Australia
Australia
Australia
Australia
Papua New Guinea
Australia
Australia
Australia
Indonesia
England

Banking
Investment Banking
Funding
Hedging
Self-Insurance
Finance
Trustee/Nominee
Investment
Holding Company
Banking
Banking
Holding Company
Banking
FinanceFinance
Investment
Finance
Investment
Investment
Holding Company
Investment
Investment
FinanceFinanceFinance
Custodians
Investment
Holding Company
Investment
Finance
Leasing
Holding Company
Banking
Banking
Holding Company
Merchant Banking
Banking
Banking
Holding Company
Holding Company
Finance
Investment
Investment
Investment
Mortgage Insurance
Holding Company
Investment
Banking
General Finance
Finance
Investment
Banking
Investment* Audited by overseas KPMG firms
1 Outside equity interests hold ordinary shares or units in the controlled entities listed above as follows: Bank of Kiribati - 150,000 $1 ordinary shares (25%) (2004 : 150,000 $1 ordinary shares 25%);
PT ANZ Panin Bank – 7,500 IDR 1M shares (15%) (2004: 7,500 IDR 1M shares 15%); Nerine Finance No. 2 - 3,650 NZ$100,000 redeemable preference shares (42%) (2004: 3,650 NZ$100,000
redeemable preference shares 42%); ANZ Royal Bank (Cambodia) Limited – 8,100,000 $1 ordinary shares (45%); APAC Investments Limited – 3,500 $1 ordinary shares (35%)

anz financial report 2005

61

NOTES TO THE FINANCIAL STATEMENTS
43: ASSOCIATES
Significant associates of the Group are as follows:

PT Panin Indonesia Bank1
Bush’s International Pty Ltd2
Metrobank Card Corporation Inc3
ETrade Australia Limited4
Sleepmaster Pty Ltd5
Other associates

Ownership
Interest
held

VotingInterest

Incorporated Carrying Value6
in
$m

29%
15%
40%
34%
70%

29%
15%
40%
34%
49%

Indonesia
Australia
Philippines
Australia
Australia

Total shares in associates
1
2
3
4
5
6

133
22
17
15
11
64

Reportingdate

Principal
activity

31 December
30 June31 December
30 June30 JuneBanking
Manufacturing
Cards Issuing
Online Stockbroking
Manufacturing

262

An associate from 1 April 2001. In 2004 the Group exercised options over a further 18% of PT Panin Indonesia Bank
An associate from 21 June 2005
An associate from 9 October 2003
An associate from 1 October 2002
An associate from 10 December 2004
2004 carrying values as follows: PT Panin Indonesia Bank $160 million, Metrobank Card Corporation Inc $16 million, ETrade $14 million, and Other associates $73 million. Total $263 million

44: INTERESTS IN JOINT VENTURE ENTITIESThe Group has interests in joint venture entities as follows:
Interest
held

VotingInterest

Incorporated Carrying Valuein$m

ING Australia Limited1

49%2

49%2

Australia

ING (NZ) Holdings Limited3

49%4

50%4

New Zealand

Total interests in Joint Venture entities

Reportingdate

Principal
activity

1,479

31 December

131

31 December

Funds
Management
and Insurance
Funds
Management
and Insurance

1,610

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

62

NOTES TO THE FINANCIAL STATEMENTS
44: INTERESTS IN JOINT VENTURE ENTITIES (CONTINUED)ING Australia Limited
2005
2004
$m
$m

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

ING (NZ) Holdings Limited
2005
2004
$m
$m

Total
2005
$m

2004
$m

116
141

57
116

–
_

–
–

116
141

57
116

1,697

1,648

_

–

1,697

1,648

n/a
107
–
(82)
(245)
2

n/a
97
(10)
(38)
–
–

131
–
–
–
–
–

–
–
–
–
–
–

131
107
–
(82)
(245)
2

–
97
(10)
(38)
–
–

Carrying amount at the end of the year

1,479

1,697

131

–

1,610

1,697

Share of assets and liabilities1
Investments
Other assets

11,424904

10,301
768

98
133

–
–

11,522
1,037

10,301
768

Total assets

12,328

11,069231–

12,55911,069

Policy holder liabilities
Other liabilities

10,710
720

9,565
375

60
23

–
–

10,770
743

9,565
375

Total liabilities

11,430

9,940

83

–

11,513

9,940

Net assets

898

1,129

148

–

1,046

1,129

Share of revenues, expenses and results
Revenues
Expenses

430
(239)

386
(220)

–
–

–
–

430
(239)

386
(220)

Profit from ordinary activities before income tax

191

166

–

–

191

166

Income tax expense

(41)

(28)

–

–

(41)

(28)

Profit from ordinary activities after income tax

150

138

–

–

150

138

Amortisation of notional goodwill

(43)

(41)

–

–

(43)

(41)

Net equity accounted profit

107

97

–

–

107

97

Share of commitments
Lease commitments
Other commitments

163
9

173
16

3
–

–
–

166
9

173
16

Total expenditure commitments

172

189

3

–

175

189

Share of contingent liabilities2

80

73

–

–

80

73

Movement in the carrying amount of the joint venture entity
Carrying amount at the commencementof the year/from acquisition
Carrying amount at the commencementof the joint venture entity
Share of net profit
Completion accounts adjustment
Dividend received
Capital return
Foreign currency translation adjustment

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

anz financial report 2005

63

NOTES TO THE FINANCIAL STATEMENTS
45: FIDUCIARY ACTIVITIESThe Group conducts investment fiduciary activities for trusts, including deceased estates. These trusts have not been consolidated as theCompany does not have direct or indirect control.
Where the Company or its controlled entities incur liabilities in respect of these operations as trustee, where the primary obligation isincurred in an agency capacity as trustee of the trust rather than on the Group's own account, a right of indemnity exists against the assets of
the applicable funds or trusts. As these assets are sufficient to cover the liabilities and it is therefore not probable that the Company or its
controlled entities will be required to settle the liabilities, the liabilities are not included in the financial statements.
The aggregate amounts of funds concerned are as follows:

Trusteeships

2005
$m

2004
$m

1,927

1,632

Funds management activities are conducted through the ING Australia Joint Venture and certain subsidiaries of ANZ National Bank Limited.
During the period, ANZ National Bank Limited and ING in New Zealand established the ING NZ Joint Venture. In doing so, ANZ National Bank
Limited transferred some of its managed funds activities into the new joint venture and INGA transferred its NZ business.
As at 30 September 2005, the ANZ/ING Australia Joint Venture had funds under management of $34,569 million (30 September 2004:$35,780 million), the ING NZ Joint Venture had funds under management of $6,839 million (30 September 2004: $nil) and certain
subsidiaries of ANZ National Bank Limited had funds under management of $3,371 million (30 September 2004: $3,764 million).
Custodian services are conducted through ANZ Custodian Services. As at 30 September 2005, ANZ Custodian Services had funds undercustody of $98.3 billion (30 September 2004: $59.8 billion).

46: COMMITMENTS
Consolidated
2005
2004
$m
$m

The Company
2005
2004
$m
$m

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

80
–

60
–

26
–

20
–

Total capital expenditure commitments

80

60

26

20

205
547
431

201
495
442

136
390
405

135
336
405

1,183

1,138

931

876

21
21

13
19

13
13

7
12

42

32

26

19

Total lease rental commitments

1,225

1,170

957

895

Total commitments

1,305

1,230

983

915

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

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

The Group leases land and buildings under operating leases expiring from one to five years. Leases generally provide the Group with a rightof renewal at which time all terms are renegotiated. Lease payments comprise a base amount plus an incremental contingent rental.
Contingent rentals are based on either movements in the Consumer Price Index or operating criteria. Contingent rentals are not included inlease rental commitments, are not provisioned for due to their immateriality, therefore are expensed as incurred.

64

NOTES TO THE FINANCIAL STATEMENTS
47: CONTINGENT LIABILITIES, CONTINGENT ASSET AND CREDIT RELATED COMMITMENTS
CREDIT RELATED COMMITMENTS
The credit risk of the following facilities may be less than the contract amount, but as it cannot be accurately determined, the credit risk has
been taken to be the contract amount.
The majority of undrawn facilities are subject to customers maintaining specific credit standards. The amount does not necessarily represent
future cash requirements as many of these facilities are expected to be partially used or to expire unused.

Undrawn facilities
Underwriting facilities

Consolidated
2005
2004
Contract
Contract
amountamount$m$m

The Company
2005
2004
Contract
Contract
amountamount$m$m

Controlled Entities
2005
2004
Contract
Contract
amountamount$m$m

87,319–78,851
63

68,491–

62,118–18,828–16,73363

87,31978,914

68,491

62,11818,828

16,796

CONTINGENT LIABILITIESThe qualitative details of the estimated maximum amount of contingent liabilities that may become payable relate to non-customer
contingent liabilities. These contingent liabilities relate to transactions that the Group has entered into as principal. By contrast, thequantitative tabular presentation relates to customer contingent liabilities, ie direct credit substitutes and trade and performance related
items. Hence, as the contingent liabilities refer to different aspects of Group operations, there are no reconciling items.
Guarantees, Credit derivatives – sold, Standby letters of credit, Bill endorsements and Other are classified by APRA as direct credit
substitutes and exhibit the same credit risk characteristics as a direct extension of credit. The maximum potential amount of future payments
represents the contract amount that could be lost if the counterparty fails to meet its financial obligations.
Documentary letters of credit involve the issue of letters of credit guaranteeing payment in favour of an exporter secured against anunderlying shipment of goods or backed by a confirmatory letter of credit from another bank.
Performance related contingents are liabilities that oblige the Group to make payments to a third party should the customer fail to fulfil the
non-monetary terms of the contract.
The Group guarantees the performance of customers by issuing standby letters of credit and guarantees to third parties. The risk involved isessentially the same as the credit risk involved in extending loan facilities to customers, therefore these transactions are subjected to thesame credit origination, portfolio management and collateral requirements for customers applying for loans. As the facilities may expire
without being drawn upon, the notional amounts do not necessarily reflect future cash requirements.
The credit risk of these facilities may be less than the contract amount, but as it cannot be accurately determined, the credit risk has beentaken to be the contract amount.
Consolidated
2005
2004
Contract
Contract
amountamount$m$m

The Company
2005
2004
Contract
Contract
amountamount$m$m

Controlled Entities
2005
2004
Contract
Contract
amountamount$m$m

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

4,878
1,775
1,446
125
3,015
10,160
1,433

5,065
2,636
1,057
168
2,262
9,625
1,336

4,744
1,775
1,277
125
2,763
9,864
1,128

4,923
2,636
1,036
168
2,045
9,352
931

134
–
169
–
252
296
305

142
–
21
–
217
273
405

Total contingent liabilities

22,832

22,14921,67621,091

1,156

1,058

anz financial report 2005

65

NOTES TO THE
FINANCIAL STATEMENTS
47: CONTINGENT LIABILITIES,CONTINGENT ASSET AND CREDIT
RELATED COMMITMENTS (CONTINUED)
The details and estimated maximum
amount of contingent liabilities that may
become payable are set out below.
i) Clearing and Settlement Obligations
In accordance with the clearing andsettlement arrangements set out:nnin the Australian Payments Clearing
Association Limited (APCA) 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 rules which could
result in a bilateral exposure and loss
in the event of a failure to settle by amember institution; andin the Austraclear System Regulations,the Company has a commitment toparticipate in loss-sharing
arrangements in the event of a failure tosettle by a member institution. For both
the APCA HVCS and Austraclear, theobligation arises only in limited
circumstances.

ii) Nominee Activities
The Group will indemnify each customerof controlled entities engaged in nominee
activities against loss suffered by reasonof such entities failing to perform any
obligation undertaken by them to acustomer.
iii) Interbank Deposit Agreement
ANZ has entered into an Interbank Deposit
Agreement with the major banks in thepayments system. This agreement is apayment system support facility certified
by the Australian Prudential Regulation
Authority, where the terms are such that
if any bank is experiencing liquidity
problems, the other participants are
required to deposit equal amounts of up
to $2 billion for a period of 30 days. At theend of 30 days the deposit holder has theoption to repay the deposit in cash or by
way of assignment of mortgages to thevalue of the deposit.
iv) Contingent Tax Liability
The Group in Australia was during the year
subjected to client risk reviews by theAustralian Taxation Office (ATO) acrossa broad spectrum of matters, as part ofnormal ATO procedures. The reviews
mainly covered years up to 2003.

66

Some matters have been listed by the ATO
for further investigation.
The ATO is also reviewing the taxation
treatment of certain other transactions
undertaken by the Group in the course of
normal business activities.
In addition, at the Company’s request the
ATO is reviewing the taxation treatment of
the sale of Grindlays in 2000. It is also
reviewing the transfer of the life and funds
management businesses into the joint
venture with ING in 2002.
During the year the Company and the ATO
settled the remaining outstanding issues
from the large case tax audit which
commenced in 1995. The settlement waswithin existing provisions.
The Group in New Zealand is being
audited by the Inland Revenue
Department (IRD) as part of normal
revenue authority procedures, with aparticular focus on certain kinds ofstructured finance transactions. The IRD
has issued Notices of Proposed
Adjustment (the ‘Notices’) in respect ofsome of those structured financetransactions. The Notices are not tax
assessments and do not establish a tax
liability, but are the first step in a formal
disputes process. In addition, some tax
assessments have been received. Should
the same position be adopted by the IRD
on the remaining transactions of that kindas reflected in the Notices and tax
assessments received, the maximum
potential tax liability would beapproximately NZD432 million (includinginterest tax effected) for the period to
30 September 2005. Of that maximum
potential liability, approximately NZD124
million is subject to tax indemnities
provided by Lloyds TSB Bank PLC under
the agreement by which ANZ acquired the
National Bank of New Zealand and which
relate to transactions undertaken by the
National Bank of New Zealand before
December 2003.
General or issue-specific audits and otherinvestigations are being undertaken byrevenue authorities in the United States,
the United Kingdom and in otherjurisdictions as part of normal revenue
authority activity in those countries.
The Company has assessed these andother taxation claims arising in Australia,
New Zealand and elsewhere, including
seeking independent advice whereappropriate, and believes that it holds
appropriate provisions.

v) Sale of Grindlays businesses
On July 31 2000, ANZ completed the saleto Standard Chartered Bank (“SCB”) of
ANZ Grindlays Bank Limited and theprivate banking business of ANZ in the
United Kingdom and Jersey, together withANZ Grindlays (Jersey) Holdings Limited
and its subsidiaries, for USD1.3 billion in
cash. ANZ provided warranties and certain
indemnities relating to those businesses
and, where it anticipated that payments
would be likely under the warranties orindemnities, made provisions to cover the
anticipated liability. The issues below havenot impacted the reported results. All
settlements and costs have been covered
within the provisions established at thetime. ANZ remains liable in relation to theForeign Exchange Regulation Act (FERA)
and differential cheques mattersdescribed below.
FERA
In 1991, amounts of INR 689m (AUD 21m)
were transferred from non-convertible
Indian Rupee accounts maintained with
Grindlays in India, mainly to theconvertible vostro account at Girobank,maintained at Bombay. These transactions
may not have complied with theprovisions of the Foreign Exchange
Regulation Act, 1973. Grindlays, on its
own initiative, brought these transactions
to the attention of the Reserve Bank ofIndia. The Indian authorities have served
notices on Grindlays and certain of its
officers in India that could lead topossible penalties. Grindlays hascommenced proceedings in the courts
contesting the validity of these notices.
In November 1998 the Bombay High Court
dismissed the writ petitions. In March
1999 the Supreme Court granted leave
to appeal and ordered that, pending thedisposal of the appeals, the prosecutions
and adjudications against the officers
shall not be proceeded with further.
Final hearing of the appeals before theSupreme Court of India is expected inlate 2005.

NOTES TO THE FINANCIAL STATEMENTS
47: CONTINGENT LIABILITIES, CONTINGENT ASSET AND CREDIT RELATED COMMITMENTS (CONTINUED)
Differential Cheques
In June 2003, Grindlays was successful in its appeal against orders to repay, with interest, two payments it received from a stockbroker in1991 in connection with securities transactions Grindlays had entered into with counterparty banks. These orders, requiring Grindlays toshow cause why the payments made by the stockbroker should not be set aside on the grounds that they were not made in the ordinary
course of business and were not genuine, had directed repayment of Indian Rupees 24 million (AUD 0.7m), plus interest accruing at 24%
since 1991. The Custodian has yet to file an appeal against this judgment. Grindlays is awaiting the outcome of proceedings in relation to afurther ten payments received by it in 1991 in similar circumstances totalling Indian Rupees 202 million (AUD 6.0m), including interest at
24% this is approximately Indian Rupees 884 million (AUD 26.4 m).
In addition, ANZ provided an indemnity relating to tax liabilities of Grindlays (and its subsidiaries) and the Jersey Sub-Group to the extent towhich such liabilities were not provided for in the Grindlays accounts as at 31 July 2000. Claims have been made under this indemnity also,with no material impact on the Group expected.
vi) Pursuant to class order 98/1418 (as amended) dated 13 August 1998, relief was granted to a number of wholly owned controlled entities
from the Corporations Act 2001 requirements for preparation, audit, and publication of individual financial statements. The results of thesecompanies are included in the consolidated Group results. The entities to which relief was granted are:
n

n

n

n

n

n

ANZ Properties (Australia) Pty Ltd1ANZ Capital Hedging Pty Ltd1
1n ANZ Nominees Ltd
3n ANZ Infrastructure Investments Limited

Alliance Holdings Pty Ltd1
Jikk Pty Ltd1
2n ANZ Orchard Investments Pty Ltd
3n ANZ Securities (Holdings) Limited

E S & A Holdings Pty Ltd1ANZ Funds Pty Ltd1
2n Votraint No. 1103 Pty Ltd

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

It is the condition of the class order that the Company and each of the above controlled entities enter into a Deed of Cross Guarantee. A Deedof Cross Guarantee under the class order was lodged and approved by the Australian Securities and Investments Commission. The effect of
the Deed is that the Company guarantees to each creditor payment in full of any debt in the event of winding up any of the controlled entities
under certain provisions of the Corporations Act 2001. The Company will only be liable in the event that after six months any creditor has notbeen paid in full. The controlled entities have also given similar guarantees in the event that the Company is wound up. The consolidated
statement of financial performance and consolidated statement of financial position of the Company and its wholly owned controlled entities
which have entered into the Deed of Cross Guarantee are:Consolidated
2005
2004
$m
$m

Profit before tax
Income tax expense

3,107
(754)

3,017
(771)

Profit after income tax
Retained profits at start of year 1

2,353
6,825

2,246
6,100

Total available for appropriation
Ordinary share dividends provided for or paid
Transfer from reserves

9,178(1,877)–

8,346(1,598)224

Retained profits at end of year

7,301

6,972

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

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

3,747
6,107
134,566
35,806
1,114

Total assets

207,775

181,340

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

113,089
1,566
74,746650

99,811
1,551
62,713618

Total liabilities

190,051

164,693

Net assets

17,724

16,647

Shareholders’ equity2

17,724

16,647

1 The Companies included in the class order changed in 2005, accordingly retained profits did not carry forward in 2005
2 Shareholders' equity excludes retained profits and reserves of controlled entities within the class orderanz financial report 2005

67

NOTES TO THE FINANCIAL STATEMENTS
47: CONTINGENT LIABILITIES, CONTINGENT ASSET AND CREDIT RELATED COMMITMENTS (CONTINUED)vii) The Company has guaranteed payment on maturity of the principal and accrued interest of commercial paper notes issued by
ANZ (Delaware) Inc. of $6,400 million as at 30 September 2005 (2004: $7,081 million).
viii) The Company is party to an underpinning agreement with ANZ National Bank Limited whereby the Company undertakes to assume riskin relation to credit facilities extended by ANZ National Bank Limited to individual customers which exceed 35% of ANZ National Bank
Limited’s capital base.
ix) The Company is party to an underpinning agreement with Australia and New Zealand Banking Group (PNG) Limited whereby the Company
undertakes to assume risk in relation to credit facilities extended by Australia and New Zealand Banking Group (PNG) Limited to individual
customers which exceed 25% of Australia and New Zealand Banking Group (PNG) Limited’s capital base.
x) On 10 March 2005, leave was given by the High Court in London to certain parties to make a claim against ANZ over its role in 1996 as
arranger and escrow agent in respect of a buyback of Nigerian Government bills of exchange (“the Noga claim”). The claim was disclosed by
ANZ in view of its potential size (DEM 973 million [$833 million at 31 March 2005 exchange rates] plus interest). ANZ considered the Noga
claim to be opportunistic and that the chances of it being successful were very remote. ANZ took the opportunity to settle the proceedings
at an early stage at a level which is not material to the bank.

GENERAL
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 have been made.
The gross amounts of accruals made for material litigation contingencies is $233 million (2004: $168 million).
Contingent Asset
National Housing Bank
In 1992, Grindlays received a claim aggregating approximately Indian Rupees 5.06 billion from the National Housing Bank (NHB) in India. The
claim arose out of cheques drawn by NHB in favour of Grindlays, the proceeds of which were credited to the account of a Grindlays customer.
Grindlays won an arbitration award in March 1997, under which NHB paid Grindlays an award of Indian Rupees 9.12 billion. NHB
subsequently won an appeal to the Special Court of Mumbai, after which Grindlays filed an appeal with the Supreme Court of India. Grindlays
paid the disputed money including interest into court. Ultimately, the parties settled the matter and agreed to share the moneys paid into
court which by then totalled Indian Rupees 16.45 billion (AUD 661 million at 19 January 2002 exchange rates), with Grindlays receiving
Indian Rupees 6.20 billion (AUD 248 million at 19 January 2002 exchange rates) of the disputed monies. ANZ in turn received a payment of
USD124 million (USD equivalent of the Indian Rupees received by Grindlays) from Standard Chartered Bank under the terms of an indemnity
given in connection with the sale of Grindlays to Standard Chartered Bank.
ANZ Claims
ANZ is pursuing two separate actions arising from the above.
(a) A $130 million plus compound interest claim against its insurers. $130 million is the balance of the limit of indemnity under ANZ’s
insurance arrangements for the 1991–92 policy year.
The proceedings, in the Supreme Court of Victoria, are against ANZ’s captive insurance company ANZcover Insurance Pty Ltd (ANZcover).
ANZcover is an authorised general insurer restricted to insuring the interests of ANZ and its subsidiaries. ANZcover in turn purchases
reinsurance from global reinsurers, primarily in the London reinsurance market. ANZcover has no retained exposure to the NHB claim, which
is fully reinsured, save for a small exposure arising from the insolvency of some reinsurers in the London market.
The insurers contest liability and the proceedings remain on foot. The trial before the Supreme Court of Victoria is scheduled to be heard inearly 2006.
(b) ANZ is entitled to share with NHB in the proceeds of any recovery from the estate of the customer whose account was credited with thecheques drawn by NHB. However, the Indian Taxation Department is claiming a statutory priority to all of the funds available for distribution
to creditors of that customer.
No amounts receivable under either of these actions have been recognised in these accounts, except for $0.9 million which has been
received from insurers, by way of settlement or distributions from schemes of arrangement, representing, in aggregate, $1.1 million ofindemnity.

68

NOTES TO THE FINANCIAL STATEMENTS
48: SUPERANNUATION COMMITMENTS
A number of pension and superannuation schemes have been established by the Group worldwide. The Group may be obliged to contributeto the schemes as a consequence of legislation and provisions of trust deeds. Legal enforceability is dependent on the terms of thelegislation and trust deeds. The major schemes with assets in excess of $25 million are:Contribution levels
Country

SchemeScheme type

Australia

ANZ Australian Staff
Superannuation Scheme1,2

Defined Contribution Scheme
Section C3
orDefined Contribution Scheme
Section A
orDefined Benefit Scheme
Pension Section4

New Zealand

ANZGROUP (New Zealand)
Staff Superannuation Scheme1,2

National Bank Staff
Superannuation Fund1,2
England

ANZ UK Staff Pension Scheme1

Defined Benefit Scheme5orDefined Contribution Scheme
Defined Benefit Scheme6orDefined Contribution Scheme

Employee

Employer

optional7

Balance of cost9

optional

9% of salary10

nil

Balance of cost11

nil

Balance of cost12

minimum of 2.5% of salary
5.0% of salary

7.5% of salary13
Balance of cost14

minimum of 2.0% of salary

11.2% of salary15

5.0% of salary8

Balance of cost16

Defined Benefit Scheme

Balance of cost: the Group’s contribution is assessed by the actuary after taking account of members’ contributions and the value of the schemes’ assets
1 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 dependents
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 dependents
6 Closed to new members on 1 October 1991
7 Optional but with minimum of 1% of salary
8 From 1 October 2003, members of the Senior Management section commenced contributions at the rate of 5% of salary, and all new members at the rate of 5% of salary
9 As determined by the Trustee on the recommendation of the actuary – currently 9% (2004: 9%) of members’ salaries
10 2004: 9% of salary
11 As determined by the Trustee on the recommendation of the actuary – currently nil (2004: nil)
12 As recommended by the actuary – currently nil (2004: nil)
13 2004: 7.5% of salary
14 As recommended by the actuary – currently 22.3% (2004: 22.3%) of members’ salaries
15 2004: 11.2% of salary
16 The Group recommenced contributions to the Scheme, effective from 1 October 2003. Contributions are currently 25% of pensionable salaries. Additional half yearly contributions of GBP 500,000
for 15 years have commenced, with the first payment made in November 2004

The details of defined benefit sections of the schemes are as follows:
Excess of
Net market
net market
value of value of assets
assets held over accruedby scheme
benefits$m$m

Employer’s
contribution$mAccruedbenefits$m

ANZ Australian Staff Superannuation Scheme
Pension Section1
ANZ UK Staff Pension Scheme1
ANZ Group (New Zealand) Staff Superannuation Scheme1
National Bank Staff Superannuation Fund2
Other 3,4

–
11
–
7
1

40
855
6
173
6

35
811
6
165
5

(5)
(44)
–
(8)
(1)

40
835
6
176
7

Totals

19

1,080

1,022

(58)

1,064

2005
Schemes1234Vestedbenefits$mAmounts were measured at 31 December 2004
Amounts were measured at 31 March 2005
Amounts were measured at 30 September 2005
Other includes the defined benefit arrangements in Japan, Philippines and Taiwan

anz financial report 2005

69

NOTES TO THE FINANCIAL STATEMENTS
48: SUPERANNUATION COMMITMENTS (CONTINUED)
Excess of
Net market
net market
value of value of assets
assets held over accruedby scheme
benefits$m$m

Employer’s
contribution$mAccruedbenefits$m

ANZ Australian Staff Superannuation Scheme
Pension Section1
ANZ UK Staff Pension Scheme1
ANZ Group (New Zealand) Staff Superannuation Scheme2
National Bank Staff Superannuation Fund3
Other 4

–
8
–
3
1

41
869
6
175
3

35
844
6
164
4

(6)
(25)
–
(11)
1

41
844
6
179
7

Totals

12

1,094

1,053

(41)

1,077

2004
Schemes1234Vestedbenefits$mAmounts were measured at 31 December 2003
Amounts were measured at 30 June 2004
Amounts were measured at 30 September 2004
Other includes the defined benefit arrangements in Japan, Philippines and Taiwan

ANZ Australian Staff Superannuation Scheme Pension Section
The Pension Section of the ANZ Australian Staff Superannuation Scheme is closed to new members. A full actuarial valuation, conductedby the Scheme Actuary, Russell Employee Benefits, as at 31 December 2004 showed a deficit of $5 million and the expectation is that thisdeficit has remained materially unchanged since that date.
The Group has no present liability under the Scheme's Trust Deed to commence contributions or fund the deficit. An interim actuarial
valuation will be conducted as at 31 December 2005, at which time the funding position will be reassessed. The next full actuarial valuationis due to be conducted as at 31 December 2007.
ANZ UK Staff Pension Scheme
The deficit disclosed above for the UK Staff Pension Scheme has been determined for the purpose of AASB1028 “Employee Benefits”.
Consulting actuaries Watson Wyatt LLP have advised that as at 31 December 2003 the Scheme would have met the minimum funding
requirement (MFR) test as defined in UK legislation, being 115% funded on that basis. Following an interim actuarial valuation of the Scheme
at 31 December 2004, the actuary expects the Scheme’s funding level to be comfortably within the MFR and statutory surplus limits.
The Group has no present liability under the Scheme’s Trust Deed to fund the deficit, but it does have a contingent liability if the Scheme
was wound up. If this were to happen, the Trustee would be able to pursue the Bank for additional contributions under the UK Employer Debt
Regulations. This is calculated based on an insurance buy-out of the Scheme. This is considered unlikely, given the Group intends tocontinue the Scheme on an on-going basis and the financial strength of the Group.
From 1 October 2003, the Group recommenced contributions at the rate of 25% of pensionable salaries. These contributions are sufficient
to cover the cost of accruing benefits. In order to address the deficit, the Group has agreed to pay half yearly additional contributions of GBP
500,000 for a period of 15 years, commencing for the year beginning 1 October 2004, with the first payment made in November 2004.
National Bank Staff Superannuation FundThe last full actuarial valuation of the pension section of the National Bank Staff Superannuation Fund was conducted by Aon Consulting NZ
as at 31 March 2004, and showed a deficit of NZD6 million ($6 million). Based on an interim actuarial valuation, a deficit of NZD12 million($11 million) was disclosed as at 30 September 2004. An actuarial valuation conducted as at 31 March 2005 showed a deficit of NZD8.6
million ($8 million). The Group has no present liability under the Scheme’s Trust Deed to fund the deficit, but it does have a contingent
liability if the Scheme was wound up. Under the Scheme’s Trust Deed, if the Scheme were wound up, the Group is required to pay theTrustees of the Scheme an amount sufficient to ensure members do not suffer a reduction in benefits to which they would otherwise beentitled.

70

NOTES TO THE FINANCIAL STATEMENTS
49: EMPLOYEE SHARE AND OPTION PLANS
The Company has three share purchase and option incentive plans available for employees and directors of the Group: the ANZ Employee
Share Acquisition Plan1; the ANZ Share Option Plan; and the ANZ Directors' Share Plan. Shareholders of the Company have approved theimplementation of each of the current plans. Fully paid ordinary shares issued under these plans are held in trust on behalf of participants
and generally rank equally with other existing fully paid ordinary shares, other than in respect of voting rights while the shares remain intrust. However, Performance Shares issued to the ANZ CEO on 31 December 2004, do not attract a dividend.
Each option granted under the ANZ Share Option Plan entitles a holder to purchase one ordinary share subject to any terms and conditions
imposed on issue. The exercise price of the options, determined in accordance with the rules of the plan, is based on the weighted average
price of the Company's shares traded during the five business days preceding the date of granting the options.
An offer to employees and directors cannot be made under any of the plans if an issue pursuant to that offer will result in the aggregate ofshares issued and options granted over unissued shares held for employees under various employee share and option incentive schemes
exceeding 7% of the issued capital (and unexercised options) of the Company. The closing market price of one ordinary share at 30
September 2005 was $24.00.
1 The ANZ Employee Share Acquisition Plan includes the $1,000 Share Plan, the Deferred Share Plan and the Employee Share Save Scheme

ANZ EMPLOYEE SHARE ACQUISITION PLAN
$1,000 Share Plan
Subject to Board approval this plan allows for the issue of up to $1,000 of shares to all eligible employees each financial year.
The shares are generally issued for no consideration, except in New Zealand where employees are required to pay NZD 1 cent per share at
the time the shares are transferred to them. During the financial year, 1,151,157 shares with an average issue price of $20.03 were issued
under the $1,000 Share Plan (2004: 1,244,654 shares with an average issue price of $18.04 were issued). These shares are issued from the
Share Capital account, hence only an increase in the number of shares on issue results.
Details of the movement in employee shares under the $1,000 Share Plan are as follows:
The Company
2005

2004

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

5,229,252
1,394,587(946,224)(71,997)

4,537,676
1,512,886(787,873)(33,437)

Number of shares at end of the year1

5,605,618

5,229,252

1 Includes shares issued under the bonus option plan and the dividend reinvestment plan
The Company
1

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

2005

2004

9,409,732

8,258,575

1 Excludes shares issued under the bonus option plan and the dividend reinvestment plan

Deferred Share Plan
Selected employees may also be issued deferred shares, which vest in the employee up to three years from the date of issue. Ordinary
shares issued under this plan may be held in trust for up to 10 years, and may be required to meet performance hurdles before being able
to be traded after the restriction period has expired. The issue price is based on the volume weighted average price of the shares tradedon the ASX in the 5 trading days leading up to and including the date of issue. Unvested shares are forfeited on resignation, dismissal,
or termination on notice (LTI deferred shares only), or if a performance condition has not been met.
During the financial year, 655,261 (2004: 2,750,277) deferred shares were issued under this Plan.
Details of the movement in employee shares under the Deferred Share Plan are as follows:
The Company
2005

2004

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

8,715,896
732,032(1,766,494)(228,116)

8,020,848
2,851,886(2,034,234)(122,604)

Number of shares at end of the year1

7,453,318

8,715,896

1 Includes shares issued under the bonus option plan and the dividend reinvestment plan
The Company

Number of shares acquired since commencement of the Deferred Share Plan1

2005

2004

17,283,723

16,628,462

1 Excludes shares issued under the bonus option plan and the dividend reinvestment plananz financial report 2005

71

NOTES TO THE FINANCIAL STATEMENTS
49: EMPLOYEE SHARE AND OPTION PLANS (CONTINUED)ANZ EMPLOYEE SHARE SAVE SCHEME
Eligible employees have the opportunity to request that a proportion of their income be directed to the purchase of ANZ shares. The amountthey elect to contribute is deducted fortnightly and shares are purchased on market quarterly in arrears by the trust. The Company
contributes 5% of the purchase price and pays for brokers fees and stamp duty. Senior executives may participate but are not eligible toreceive the 5% discount. Employees are eligible to participate in the Scheme if they are permanent full-time or part-time employees of theCompany and have been employed since 1 October immediately prior to the invitation being made by the Company. Employees nominate a
restriction period between 1 to 10 years during which period the shares are held in trust. Dividends are paid to the employees.
Details of the movement in employee shares under the ANZ Employee Share Save Scheme are as follows:
The Company
2005

2004

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

452,130
306,377
23,789(268,184)

394,405
279,723
24,243(246,241)

Number of shares at end of the year

514,112452,130
The Company

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

2005

2004

1,349,752

1,043,375

Costs associated with the ANZ Employee Share Save Scheme were recognised in Personnel Expenses and Liquid Assets(amounts were less than $500,000).

ANZ SHARE PURCHASE SCHEME
The ANZ Share Purchase Scheme is a closed scheme. Shares have been progressively paid up by eligible officers, with the last remaining
shares held under the scheme fully paid up and redeemed during the 2004 financial year. No fully paid ordinary shares have been issued
under this Scheme since 1996.
Details of the movement in employee shares under the ANZ Share Purchase Scheme are as follows:
The Company
2005

2004

Number of shares at beginning of the year
Number of shares redeemed by employees1––

229,500(229,500)

Number of shares at end of the year––

1 Redeemed once paid out by employee

72

NOTES TO THE FINANCIAL STATEMENTS
49: EMPLOYEE SHARE AND OPTION PLANS (CONTINUED)ANZ SHARE OPTION PLAN
Selected employees may be granted options, which entitle them to purchase ordinary fully paid shares in the Company at or greater than aprice fixed at the time when the options are issued (depending on whether the exercise price is indexed or not). Voting and dividend rights
will be attached to the unissued ordinary shares when the options have been exercised.
Details of the options over unissued ordinary shares as at the beginning and end of the financial year and movements during the year
are set out below.

Grant date

Exercise
price$

Earliest
exercisedate

23/02/2000
23/05/2000
26/09/2000
21/11/2000
27/12/2000
27/01/2001
21/02/2001
27/02/2001
24/04/2001
24/04/2001
07/05/2001
01/06/2001
23/08/2001
27/08/2001
24/10/2001
24/10/2001
24/10/2001
31/12/2001
31/12/2001
28/02/2002
24/04/2002
24/04/2002
24/04/2002
31/05/2002
27/06/2002
21/07/2002
23/10/2002
23/10/2002
20/11/2002
31/12/2002
20/05/2003
20/05/2003
09/06/2003
05/11/2003
05/11/2003
31/12/2003
11/05/2004
11/05/2004
05/11/2004
05/11/2004
05/11/2004
08/12/2004
31/12/2004
13/05/2005

9.39
11.09
12.03
13.62
13.91
13.91
14.20
14.75
12.98
12.98
12.98
14.61
15.77
16.09
16.33
16.33
16.33
16.48
16.80
17.49
18.03
18.03
18.03
18.55
18.55
17.18
17.34
17.34
17.56
16.69
17.60
17.60
18.12
17.55
17.55
17.48
18.22
18.22
20.68
20.68
0.00
0.00
20.49
0.00

23/02/2003
23/05/2003
26/09/2003
22/11/2003
25/10/2003
07/02/2004
21/02/2004
27/02/2004
25/04/2004
25/04/2004
07/05/2004
01/06/2004
21/08/2004
27/08/2004
24/10/2004
25/10/2004
25/10/2004
31/12/2004
31/12/2003
26/02/2005
24/04/2005
24/04/2005
24/04/2005
14/05/2005
28/06/2005
22/07/2005
23/10/2005
23/10/2005
20/11/2005
31/12/2004
20/05/2006
20/05/2006
09/06/2006
05/11/2006
05/11/2006
31/12/2005
11/05/2007
11/05/2007
05/11/2007
05/11/2007
05/11/2004
08/12/2007
31/12/2006
13/05/2005

TotalsNo. options outstandingat 30 September 2005

Options
grantedOptions
lapsedandsurrendered

Options
exercised

On issue

VestedHurdle147,000
163,750
30,000705,219994,722
671,800
2,971,568
25,000531,300
1,668,527
104,100
310,000
76,00063,00050,000753,300
2,811,600
500,000
500,000
20,000380,000
760,501
2,880,641
145,000
261,810
17,0002,120,765
2,288,527
40,0001,000,000
2,027,696
2,597,240
10,0001,195,665
2,658,242
1,000,000
1,630,235
2,690,420
–
_
–
–
–
–

–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,486,617
3,048,066
11,69942,435500,000
10,671

–
–
–
–
9,000
12,75021,000––14,175
1,100
3,000
–
3,000
–
3,600
50,650–––1,112
10,119128,856–
15,947–
167,399
141,111––
145,398
246,741–
92,648
190,959–
97,318205,886
78,788
169,455––––

25,00078,2507,500
252,415
306,972
194,250
978,476
25,000361,600
583,938
62,200136,750–
15,000–461,300
1,007,780
500,000–
20,00033,888314,282589,907
20,00051,028–58,481
144,194––
37,659135,639–
69,21342,097–62,762
25,563
1,348
17,464
11,699––10,671122,000
85,50022,500452,804
678,750
464,800
1,972,092–
169,700
1,070,414
40,800170,250
76,00045,00050,000288,400
1,753,170–
500,000–
345,000
436,100
2,161,878
125,000
194,835
17,0001,894,885
2,003,222
40,0001,000,000
1,844,639
2,214,860
10,0001,033,804
2,425,186
1,000,000
1,470,155
2,458,971
1,406,481
2,861,147–
42,435500,000
–

Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
50%
No
No
No
50%
No
No
No
No
No
No
No
No
No
No
Yes
No
No
Yes

B
N
N
B
N
N
N
B
B
N
N
N
B
N
B
B
N
E
F
B
C
C
N
N
N
C
N
D
D
F
N
D
N
C
N
F
C
N
G
N
N
DSR
F
N

36,800,628

5,099,488

1,810,012

6,642,326

33,447,778

Expirydate

No. options
at beginningof the year

22/02/2007
23/05/2007
25/09/2007
21/11/2007
07/02/2008
07/02/2008
20/02/2008
26/02/2008
24/04/2008
24/04/2008
06/05/2008
31/05/2008
20/08/2008
26/08/2008
23/10/2008
24/10/2008
24/10/2008
31/12/2005
31/12/2007
25/02/2009
24/04/2009
24/04/2009
24/04/2009
13/05/2009
27/06/2009
21/07/2009
22/10/2009
22/10/2009
19/11/2009
31/12/2007
19/05/2010
19/05/2010
08/06/2010
04/11/2010
04/11/2010
31/12/2008
10/05/2011
10/05/2011
04/11/2011
04/11/2011
04/11/2006
08/12/2011
31/12/2008
12/05/2007

The aggregate fair value of shares issued as a result of the exercise of options during the 2005 financial year was $141 million.

anz financial report 2005

73

NOTES TO THE FINANCIAL STATEMENTS
49: EMPLOYEE SHARE AND OPTION PLANS (CONTINUED)
On 24 October 2003 the Company issued a prospectus to invite shareholders to participate in a pro-rata renounceable rights issue.
In accordance with the rules set out in the ANZ Share Option Plan in the event of a rights issue, the exercise price of options granted under
the plan is to be reduced in accordance with ASX Listing Rule 6.22. As as result, the exercise price of each option issued under the ANZ Share
Option Plan is reduced by 72 cents from the amount previously disclosed.
Details of performance hurdles applicable to options are as follows:
A The percentage change of the ANZ Total Shareholder Return (ANZ TSR) to exceed the percentage change of the S&P/ASX 200 Banks(Industry Group) Accumulation Index from date of issue to any time from the third anniversary date up to and including the proposed
exercise date.
B & C During the four-year period commencing three years, and ending seven years, after the issue date of the options:nn

50% of the options allocated may be exercised by the option holder subject to the ANZ TSR exceeding the percentage change in the
S&P/ASX 200 Banks (Industry Group) Accumulation Index measured over the same period and calculated as at the last trading day of any
month; and50% of the options allocated may be exercised by the option holder subject to the ANZ TSR exceeding the percentage change in the
S&P/ASX 100 Accumulation Index measured over the same period and calculated as at the last trading day of any month.

D Options may be exercised at month’s end during the four-year period commencing three years, and ending seven years, after the issue
date of the options. The exercise price will be set according to the movement in the S&P/ASX 200 Banks (Industry Group) Accumulation
Index (excluding ANZ) since issue date, and can be no lower than the base issue price.
DSR No performance hurdles apply. Deferred Share Rights may only be exercised between the third and seventh anniversary of their issue.
E The options may be exercised only if the ANZ Accumulation Index over the period from the date on which the options are granted to thelast trading day of any month occurring during the relevant exercise period, equals or exceeds the S&P/ASX 100 Accumulation Index
calculated over the same period (applicable to the CEO only).
F One half of the options may be exercised only if the ANZ TSR calculated over the period commencing on the date of grant and ending on
the last day of any month after the second anniversary of their date of grant exceeds the percentage change in the S&P/ASX 200 Banks(Industry Group) Accumulation Index over that same period; and the other half of the options may be exercised only if the ANZ TSR
calculated over the relevant period exceeds the percentage change in the S&P/ASX 100 Accumulation Index over that same period(applicable to the CEO only).
G Exercise of options is subject to the satisfaction of time and performance based hurdles. Options may be exercised during the four year
period commencing three years, and ending seven years, after the issue date of the Options subject to meeting the following performance
hurdle. The performance hurdle will be measured during the exercise period by comparing ANZ’s Total Shareholder Return (ANZ’s TSR)
against a comparator group of major financial services companies in the ASX Top 50, excluding the ANZ, as determined by the Board
Compensation and Human Resources Committee. The options become exercisable depending on ANZ’s ranking within the comparator group.
ANZ must rank at the 50th percentile for 50% of the options to become exercisable. For each 1% increase above the 50th percentile anadditional 2% of options will become exercisable, with 100% being exercisable where ANZ ranks at or above the 75th percentile. This will becalculated as at the last trading day of any month (once the exercise period has commenced).
N No performance hurdles apply. Once the exercise period has been reached, the options may be exercised. As their purpose ispredominately retention and to share in any growth in the share price, additional hurdles are not applied.
These options will expire immediately on termination of employment, except in the event of retirement, retrenchment, death or disablement
or where agreed by the directors of the Company, in which case the exercise of the options may be allowed.
In the event of a takeover offer or takeover announcement, the directors of the Company may allow the options to be exercised.
If there is a bonus issue prior to the expiry or exercise of the options, then upon exercise of the options, option holders are entitled to thoseshares as if the options had been exercised prior to that issue. Those shares will be allotted to the option holder when the options are exercised.

74

NOTES TO THE FINANCIAL STATEMENTS
49: EMPLOYEE SHARE AND OPTION PLANS (CONTINUED)
The following options were exercised by employees and former employees during the financial year:
Exercise price$No. of shares issued

Proceeds received$

Exercise price$No. of shares issued

Proceeds received
$

0.00
0.00
9.39
11.09
12.03
12.98
12.98
12.98
13.62
13.91
13.91
14.20
14.61
14.75
16.09
16.33
16.33
16.48
17.34
17.49
17.55
17.55
17.60

10,671
11,69925,00078,2507,500
62,200361,600
583,938
252,415
194,250
306,972
978,476
136,750
25,00015,000461,300
1,007,780
500,000
58,481
20,00042,097
69,21337,6590.00
0.00
234,750
867,793
90,225807,356
4,693,568
7,579,515
3,437,892
2,702,018
4,269,981
13,894,359
1,997,918
368,750
241,350
7,533,029
16,457,047
8,240,000
1,014,061
349,800
738,8021,214,688
662,798

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

33,888314,282589,907
25,56362,76220,00051,028
6,183
8,458
597
8,044
827
6,909
1,348
17,464
26,583
4,232
42,00090,00086,000611,001
5,666,504
10,636,023
465,758
1,143,524
371,000
946,569
117,106
163,239
11,970
162,489
16,896142,187
27,877361,156
563,825
89,761
907,620
2,121,300
2,064,860

For those options exercised by employees and former employees during the financial year, the market price of the Company’s shares during
the year were as follows:High$24.45Low$19.02As at 30 September 2005
$24.00As at the date of the Financial Report, unexercised options over ordinary shares are as per the table on page 73, adjusted for the exercise of
the following options which were exercised by employees and former employees since the end of the financial year.
Exercise price$No. of shares issued

Proceeds received$

Exercise price$No. of shares issued

Proceeds received
$

13.91
13.91
14.20
12.98
12.98
16.09
16.33
18.03
18.03

17,575
13,50053,35026,4061,850
1,500
43,74963,35034,000244,468
187,785
757,570
342,750
24,01324,135
714,421
1,142,201
613,020

18.55
18.55
17.34
17.60
17.55
18.22
18.22
20.68

15,00011,125
114,245
5,499
6,347
260
5,221
1,605

278,250
206,369
1,981,008
96,782
111,390
4,737
95,12733,191

Amounts received from exercising options under the ANZ Share Option Plan during the financial year were recognised as follows:
The Company
2004
2005
$m
$m

Share capital
Liquid assets

104
104

86
86

ANZ DIRECTORS' SHARE PLAN
Directors may elect to forgo remuneration to which they may have otherwise become entitled and receive shares to the value of the
remuneration forgone. Participation in the Plan is voluntary.
Details of the movement in shares under this Scheme are as follows:
The Company
2005
2004

Number of shares at beginning of the year
Number of shares purchased
Number of shares soldNumber of shares forfeited

662,122
175,356(6,563)–

464,467
197,655––

Number of shares at end of the year1

830,915

662,122

1 Include shares issued under the dividend reinvestment plananz financial report 2005

75

NOTES TO THE FINANCIAL STATEMENTS
50: DIRECTORS AND SPECIFIED EXECUTIVES REMUNERATION DISCLOSURESThe remuneration details concerning the Directors of the Company (Table 1) and the Corporations Act 2001 and AASB 1046 “Director andExecutive Disclosures by Disclosing Entities” Specified Executives of the Group and Company (Table 2) are detailed as follows.

SECTION A: REMUNERATION TABLES

PRIMARY1
Cashsalary/fees

TABLE 1: DIRECTOR REMUNERATION
For the year ended 30 September 2005 detailsof the remuneration of the directors are set out below:

Value of sharesacquired inlieu of cash
salary/fees2$

Associated entity
Board fees (cash)$

Long service
leave accrued
duringthe year$$Non-executive Directors
CB Goode (Appointed director July 1991;
appointed Chairman August 1995)
Independent Non Executive Director, Chairman

2005
2004

79,41591,000n/an/a

420,585
338,000––

GJ Clark (Appointed February 2004)
Independent Non Executive Director

2005
2004

130,000
86,667

n/a
n/a

–
–

–
–

JC Dahlsen (Appointed May 1985; retired February 2005)
Independent Non Executive Director

2005
2004

44,417130,000

n/a
n/a

–
–

–
–

RS Deane (Appointed September 1994)
Independent Non Executive Director

2005
2004

130,000
130,000

n/a
n/a

–
–

122,3849
117,9589

JK Ellis (Appointed October 1995)
Independent Non Executive Director

2005
2004

103,000
103,000

n/a
n/a

27,00027,000––DM Gonski (Appointed February 2002)
Independent Non Executive Director

2005
2004

88,970130,000

n/an/a

41,030–22,15050,150MA Jackson (Appointed March 1994)
Independent Non Executive Director

2005
2004

130,000
130,000

n/a
n/a

–
–

–
–

DE Meiklejohn (Appointed October 2004)
Independent Non Executive Director

2005
2004

130,000
–

n/a
n/a

–
–

–
–

JP Morschel (Appointed October 2004)
Independent Non Executive Director

2005
2004

100,000–

n/a
n/a

30,000–––

BW Scott (Appointed August 1985; retired April 2005)
Independent Non Executive Director

2005
2004

72,857130,000

n/a
n/a

–
–

28,51624,389TOTAL OF NON-EXECUTIVE DIRECTORS

2005
200413

1,008,659
930,667n/a
n/a

518,615
365,000

173,050
192,497

2005
2004

44
43

31,242
78,211

1,882,896
1,882,831

–
–

2005
200413

1,008,703
930,710

31,242
78,2112,401,511
2,247,831

173,050
192,497

Executive Director
J McFarlane (Appointed October 1997)8
Chief Executive Officer
TOTAL OF ALL DIRECTORSCOMMENTARY ON CHANGES BETWEEN
2004 AND 2005
Non-Executive Directors (NEDs)
Primary Total Remuneration has increased
by $212,114. This increase is as a result of:i) Timing differences between theappointment of DE Meiklejohn and
JP Morschel, and the retirement of
BW Scott and JC Dahlsen.
ii) Increase in Chairman’s fees of $71,000
in recognition of increased demands of therole, relativity to peers, and to maintainequitable relativity with other NEDs.
iii) The full year effect of the addition
of GJ Clark to the Board.

76

The Post-Employment Retirement Benefit
accrued during the year has increased by$511,120 from the previous period dueto the following:i) $95,286 resulting from fee increases
over the last 3 years being taken into
account for the purpose of the directors’
retirement benefits.
ii) $415,634 of this is due to amendments
made during the year to the individual
agreements with NEDs to make theformula for calculating the amount payable
under them consistent for all NEDs. In
some instances this has resulted in theamount accrued during the year being
increased to take account of the impactof the change to the formula on previous
years’ accrued benefits. In each caseunder the relevant agreement, themaximum amount that may be paid toa NED as a retirement benefit is subject tothe limits in the Corporations Act.
Executive Director (Chief Executive Officer)
There was no change to J McFarlane’s fixed
remuneration which remained at $2,000,000,
including superannuation contributions.
His short-term incentive target for 2005 wasincreased to $2,000,000 (100% of his fixed
remuneration) in accordance with his contract
extension announced on 26 October 2004.
His actual payment was $2,100,000(compared to $1,850,000 in 2004) reflecting
the Board’s assessment of his performanceagainst agreed balanced scorecard
objectives which include ANZ’s financial
performance and its performance against
specified measures for shareholders,customers, staff and the community.

EQUITY5

POST EMPLOYMENT

OTHER
Total7

Committee
fees(cash)

Value of sharesacquired in lieu 2,3ofcash incentive

Primary
total

Super
contributions

Retirement
benefit accrued4
during the year

Total
amortisation of
LTI shares

Total
amortisation of
LTI options

$

$

$

$

$

$

$

$

$

–
–

n/a
n/a

500,000
429,000

11,723
11,297

243,284
99,586

n/a
n/a

n/a
n/a

–
–

755,007539,883

25,44010,834n/an/a155,440
97,501

11,723
7,597

50,18933,008

n/a
n/a

n/a
n/a

–
–

217,352
138,106

18,80965,050n/an/a63,226
195,050

4,423
11,296111,303
74,356

n/a
n/a

n/a
n/a

–
–

178,952
280,702

17,61819,500n/an/a

270,002
267,458

11,723
10,321

49,16970,998

n/a
n/a

n/a
n/a

–
–

330,894348,777

42,25052,250n/an/a172,250
182,250

11,723
11,297110,981
65,780

n/a
n/a

n/a
n/a

–
–

294,954259,327

22,512
16,050n/an/a174,662
196,200

11,723
11,297104,001
67,227

n/a
n/a

n/a
n/a

–
–

290,386
274,724

42,25042,250n/an/a172,250
172,250

11,723
10,899122,008
56,352

n/a
n/a

n/a
n/a

–
–

305,981239,501

31,027–n/an/a161,027–

11,723–64,781
–

n/a
n/a

n/a
n/a

–
–

237,531–

19,500–n/an/a149,500–

11,723–60,459
–

n/a
n/a

n/a
n/a

–
–

221,682–

17,23430,750n/an/a118,607
185,139

6,803
11,297127,089
64,839

n/a
n/a

n/a
n/a

–
–

252,499
261,275

236,640
236,684n/an/a

1,936,964
1,724,848

105,01085,301

1,043,264
532,146

n/a
n/a

n/a
n/a

–
–

3,085,238
2,342,295––

2,100,004
1,850,006

4,014,186
3,811,091

417,00010
417,00010––

982,987–

1,791,7186
2,584,880

4,0311290,61911

7,209,922
6,903,590

236,640
236,684

2,100,004
1,850,006

5,951,150
5,535,939

522,010502,301

1,043,264
532,146

982,987–

1,791,718
2,584,880

4,031
90,61910,295,160
9,245,885

1 Non-monetary benefits for all directors are nil.
2 Shares acquired through participation in Directors’ Share Plan (relates to CEO only in relation to cash incentive, as NEDs do not participate in Short-Term Incentive
arrangements). Value reflects the price at which the shares were purchased on market (amortisation not applicable).
3 100% of the CEO’s cash incentive vested during the financial year.
4 Accrual relates to Directors’ Retirement Scheme. The following benefits were paid under the Directors’ Retirement Scheme to the following former directors: JC Dahlsen (retired 3 February 2005)– $513,668; BW Scott (retired 23 April 2005)– $516,214. If each of the current NEDs had ceased to be a director as at 30 September 2005, the following benefits would have been
payable under the Directors’ Retirement Scheme: CB Goode – $1,312,539; GJ Clark – $83,197; RS Deane – $693,285; JK Ellis – $523,039; DM Gonski – $249,445; MA Jackson – $487,022;
DE Meiklejohn – $64,781; JP Morschel – $60,459. The Directors’ Retirement Scheme will be discontinued effective 30 September 2005. Refer to section B2 for more information pertaining to the
Directors’ Retirement Scheme.
5 In accordance with the requirements of AASB1046A, the amortisation value includes a proportion of the fair value (taking into account market-related vesting conditions) of all equity that had not yet
fully vested as at the commencement of the financial year. It is assumed that 100% of the options will vest at the commencement of their exercise period (i.e. the shortest possible vesting period isassumed). The fair value is determined at grant date and is allocated on a straight-line basis over the expected vesting period. The fair value is determined using a binomial option-pricing model that is
explained in Note 51 Equity Instruments Transactions section I. The amount included as remuneration is not related to nor indicative of the benefit (if any) that may ultimately be realised should theoptions become exercisable. For deferred shares, the fair value is the weighted average price of the Company’s shares traded on the ASX on the day the shares were granted.
6 Amortisation value of options as a percentage of his total remuneration (as shown in the Total column above) was 25% in 2005 (37% in 2004).
7 Amounts disclosed for remuneration of directors exclude insurance premiums paid by the consolidated entity in respect of directors’ and officers’ liability insurance contracts which cover current
and former directors and officers, including executive officers of the entity and directors, executive officers and secretaries of 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, based on all available information, the directors believe that no reasonablebasis for such allocation exists.
8 J McFarlane elected to use almost all his cash salary and incentive to purchase on market deferred shares under the Directors’ Share Plan.
9 Amounts paid in NZD are converted to AUD at an average rate for the year of 1.0847 (1.1254 in 2004).
10 Includes $300,000 additional employer contribution, agreed as part of contract extension announced 26 October 2004. Refer section D2
11 Relates to reimbursement to J McFarlane for the additional tax liability on his UK Pension Plan holdings, arising as a result of Australian Foreign Investment Fund rules, and J McFarlane’s continuing
Australian residency (in accordance with the contractual arrangements detailed in section D2.
12 Relates to professional services rendered in respect of taxation matters.
13 2004 aggregate amounts relate to those directors reported in 2004.

anz financial report 2005

77

NOTES TO THE FINANCIAL STATEMENTS
50: DIRECTORS AND SPECIFIED EXECUTIVES REMUNERATION AND SHARE AND OPTION DISCLOSURES (CONTINUED)TABLE 2: SPECIFIED EXECUTIVES REMUNERATION
For the year ended 30 September 2005 details of the remuneration of the top seven executives (Specified Executives), other than the
Chief Executive Officer, are set out below and include the five most highly remunerated executives in the Company and the Group(as required under the Corporations Act 2001) and the top executives in the Group by authority (as required by AASB1046):

PRIMARY
Cashsalary/fees

Non monetary
benefits1

Total cash
short term
Incentive2,3$Long service
leave accrued
duringthe year
$

$

$

$

Primary
total

Specified Executives
Sir J Anderson8,9
Chief Executive & Director,
ANZ National Bank Ltd New Zealand

2005
2004

838,110
672,792––––

460,960
449,618

1,299,070
1,122,410

Dr RJ Edgar
Chief Operating Officer

2005
2004

727,696
723,651

13,92856,21228,281
31,552800,000
393,000

1,569,905
1,204,415

E Funke KupperGroup Managing Director Asia-Pacific

2005
2004

654,550
654,550

10,86010,846

7,277
7,277

770,000
385,500

1,442,687
1,058,173

BC Hartzer
Group Managing Director Personal Banking

2005
2004

694,435
543,062

19,46915,69461,54257,091

1,080,000
424,000

1,855,446
1,039,847

GK Hodges
Group Managing Director Corporate

2005
2004

648,556
510,081

46,14039,006

11,465
17,357

863,000
343,000

1,569,161
909,444

PR Marriott
Chief Financial Officer

2005
2004

748,700
728,451

12,42229,098

7,277
7,277

920,000
482,000

1,688,399
1,246,826

S Targett9Group Managing Director Institutional

2005
2004

748,700
305,407

12,497
5,101

7,277
2,934

880,000
267,000

1,648,474
580,442

TOTAL

2005
2004

5,060,747
4,179,538

115,316
128,629

123,119
113,408

5,773,960
2,726,118

11,073,142
7,147,693

Specified Executivesiii) With the exception of Sir J Anderson,change in STI delivery to 100% cash in2005 versus 75% cash and 25% deferredshares (amortised over 3 years) for 2004.

The differences in Total Remuneration
between 2004 and 2005 for Specified
Executives are as a result of the following:iv) Sir J Anderson and S Targett commenced
part way through 2004, being 1 December
2003 and 5 May 2004 respectively.

i) Total Employment Costs (TEC) or fixed
remuneration increases between 2004
and 2005 are in line with ANZ’s guiding
principles (refer to sections C1 and C3),and to reflect role changes for BC Hartzer;
increased responsibility for GK Hodges
and market pressures.

v) Two of S Targett’s deferred share grants
fell into the 2005 financial year (refer
to footnote 6).

COMMENTARY ON CHANGES BETWEEN
2004 AND 2005

ii) Increase in target short term incentive(STI) amounts (for all Specified Executives
except for Sir J Anderson), from 67% of
TEC to 100% of TEC in order to meetcompetitive pressures.

78vi) 2004 aggregate amounts relate tothose Specified Executives reported in 2004.

EQUITY5

POST EMPLOYMENTAnnualremuneration(Primary plus
Post Employment)$

Retirement
benefitaccrued during
year4$

83,811
67,279Super
contributions

Total
amortisation
value of LTI
shares$Totalamortisation
value of LTI
options$

Total
amortisation ofother equity
allocations6
$

Total

$

Total
amortisation
value of STI
shares$33,36732,1601,416,248
1,221,849

–
–

–
–

–
–

477,452
219,168

1,893,700
1,441,017

46,80046,752

1,672
7,163

1,618,377
1,258,330

173,907
197,681555,470
342,662

264,095
256,110––

2,611,849
2,054,783

40,95040,950––1,483,637
1,099,123

184,924232,208

221,068
232,024

239,523
333,500––

2,129,152
1,896,855

46,80037,224––

1,902,246
1,077,071

149,259
201,364

237,943
192,239

282,929
298,814––2,572,377
1,769,488

40,83832,600

1,635
2,919

1,611,634
944,963

131,825
147,516

186,089
127,584

218,920
195,847––

2,148,468
1,415,910

46,80045,542––

1,735,199
1,292,368

208,525
243,435

295,175
276,714317,175
369,376––

2,556,074
2,181,893

46,80018,976––

1,695,274
599,418––

40,544–39,059–789,238
188,0812,564,115
787,499352,799
300,598

36,67442,27011,462,615
7,490,561

848,440
1,089,594

1,536,289
1,250,614

1,361,701
1,551,766

1,266,690
407,249

16,475,735
11,789,784

7,10

$

1
2
3
4

Non monetary benefits provided to Specified Executives consist of salary packaged items such as car parking and novated lease motor vehicles.
Total cash incentive relates to the full incentive amount for the financial year ended 30 September 2005. A portion of the STI was delivered as deferred shares in 2004.
100% of the Specified Executives’ cash incentive vested to the person in the financial year.
Accrual relates to Retirement Allowance. As a result of being employed with ANZ prior to November 1992, RJ Edgar and GK Hodges are eligible to receive a Retirement Allowance on retirement,
retrenchment, death, or resignation for illness, incapacity or domestic reasons. The Retirement Allowance is calculated as follows: 3 months of notional salary (which is 65% of fixed remuneration)plus an additional 3% of notional salary for each year of full-time service above 10 years, less the total accrual value of long service leave (including taken and untaken).
5 In accordance with the requirements of AASB1046A, the amortisation value includes a proportion of the fair value (taking into account market-related vesting conditions) of all equity that had not yet
fully vested as at the commencement of the financial year. It is assumed that 100% of the options will vest at the commencement of their exercise period (i.e. the shortest possible vesting period isassumed) and that deferred shares will vest after 3 years. The fair value is determined at grant date and is allocated on a straight-line basis over the 3-year vesting period. For options, the fair value isdetermined using a Binomial Option Pricing model that is explained in Note 51 section I. The amount included as remuneration is not related to nor indicative of the benefit (if any) that may ultimately
be realised should the options become exercisable. For deferred shares, the fair value is the weighted average price of the Company’s shares traded on the ASX on the day the shares were granted.
6 Amortisation of other equity allocations for Sir J Anderson relates to the granting of zero priced options (ZPO). ZPOs are granted as part of his employment contract. Refer to section E2 for further
details. Amortisation of other equity allocations for S Targett relates to the grant of deferred shares beginning on 11 May 2004 (four tranches to the value of $700,000 each to be issued at 6 monthintervals in May and November in 2004 and 2005, subject to Board approval and continued employment) and hurdled A options (refer to Note 51 Equity Instruments Transactions section K for
performance hurdle details) to compensate S Targett for the loss of access to equity as a result of his resignation from his previous employer.
7 Amounts disclosed for remuneration of Specified Executives exclude insurance premiums paid by the consolidated entity in respect of directors’ and officers’ liability insurance contracts which covercurrent and former directors and officers, including executive officers of the entity and directors, executive officers and secretaries of 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, based on all available information, the directors believe that noreasonable basis for such allocation exists.
8 Amounts paid in NZD are converted to AUD at an average rate for the year of 1.0847 (1.1254 in 2004).
9 Sir J Anderson was appointed 1 December 2003 (i.e. 2 months after the start of the 2004 financial year) and S Targett was appointed 5 May 2004 (i.e. 7 months after the start of the 2004
financial year)
10 Amortisation value of options as a % of total remuneration for the 2005 financial year was as follows; Sir J Anderson - 25% (15% in 2004); Dr R J Edgar - 10% (12% in 2004);
E Funke Kupper - 11% (18% in 2004); B C Hartzer - 11% (17% in 2004); G K Hodges - 10% (14% in 2004); P R Marriott - 12% (17% in 2004); S Targett - 11% (12% in 2004)

anz financial report 2005

79

SECTION B. NON-EXECUTIVEDIRECTORS’ REMUNERATION
B1. NON-EXECUTIVE DIRECTORS’REMUNERATION POLICY
Non-executive Directors’ (NEDs) fees arereviewed annually and are determined by
the Board of Directors based on advice
from external advisors and with reference
to fees paid to other NEDs of comparable
companies. NEDs’ fees are within the
maximum aggregate limit agreed to byshareholders at the Annual General
Meeting held on 13 December 2002($2.5 million, excluding retirement
allowances and superannuation), andare set at levels that fairly represent the
responsibilities of, and the time spent by,
the NEDs on Group matters. NEDs receive
a fee for being a director of the Board,and additional fees for either chairing or
being a member of a committee. Work on
special committees may attract additional
fees of an amount considered appropriate
in the circumstances. An additional fee isalso paid if a NED serves as a director of
ANZ National Bank Limited, ING Australia
Ltd or Metrobank Card Corporation. NEDs
do not receive any performance/incentive
payments and are not eligible to participate
in any of the Group’s incentive arrangements.
The Chairman Fee was increased to$500,000 effective 1 October 2004 inrecognition of the demands of the role,market practice and in order to maintain
desired relativity with other directors. No
other adjustments were made to NED fees
for the year ending 30 September 2005.
The fee structure is illustrated inTable 3 below:

their base fee annually via the Director’s
Share Plan or other means, towards thepurchase of ANZ shares in order toachieve/ maintain the desired holding
level. This is a new guideline which wasapproved by the Board in September 2005.

B2. NON-EXECUTIVE DIRECTORS’RETIREMENT POLICYAll NEDs participated in the ANZ Directors’
Retirement Scheme up to the year ended
30 September 2005. Under this scheme,
a lump-sum retirement benefit was payable
to NEDs upon their ceasing to be adirector. The lump-sum retirement benefit
payable where the NED held office for
8 years or more was equal to the total
remuneration (excluding retirement benefit
accrual) of the NED in respect of the 3 years
immediately preceding the NED ceasing to
be a NED. For periods of less than 8 years,
a proportionate part of such remuneration
was payable. The NEDs are not entitled tothe statutory entitlements of long service
leave and annual leave.
Consistent with Principle 9.3 of theAustralian Stock Exchange (ASX) Corporate
Governance Rules, which states that
NEDs should not be provided withretirement benefits other than statutory
superannuation, the ANZ Directors’
Retirement Scheme was closed effective
30 September 2005.
Accrued entitlements were fixed at
30 September 2005 and will be carriedforward to retirement, and collected by the
NED when they retire. The entitlements
may be carried forward as:n

TABLE 3
2004 Fee2005 Fee$429,000
Chairman
Non-Executive$130,000
Director
Committee Chair1$32,500
Committee Member1 $9,750$500,000Role$130,000$32,500$9,750

1 Except Nominations & Corporate Governance Committee
and Technology Committee, where the current Chair andMember Fees are $21,000 and $6,300 respectively.

For details of remuneration paid to
directors for the year ended 30 September
2005, refer to Table 1 in section A.
NED Shareholding Guidelines
NEDs have agreed to accumulate ANZ
shares, over a five-year period, to thevalue of 100% (200% for Chairman) of
the base annual NED Fee and to maintainthis shareholding while a director of ANZ.
NEDs have agreed to apply up to 25% of80nCash Alternative: A cash payment,
being the entitlement accrued to 30
September 2005, plus escalation basedon the 30 day bank bill rate until
retirement date; and/or
Shares Alternative: A number of ANZshares purchased on market on 27
October 2005 to the value of the accrued
entitlement, plus escalation based on
the 30-day bank bill rate for the period
1 October 2005 to 26 October 2005
(subject to Shareholder approval at the2005 Annual General Meeting). Shares
will then be held in ANZ Employee
Share Trust for the benefit of the
Director until retirement.

NEDs have been asked to nominate theproportion of their accrued entitlement tobe directed towards each alternative,
subject to shareholder approval.
Fees for NEDs will be increased by 27.5%
effective 1 October 2005 to compensate
for the removal of this contractual
benefit. This amount was determinedbased on an independent actuarial
valuation of the scheme by Mercer
Finance & Risk Consulting and advice
from expert remuneration consultants
PricewaterhouseCoopers. This increaseis also in line with market practice inrelation to fee increases due to theremoval of the Directors’ Retirement
Scheme, where increases have typicallyranged from 25% to 30%.
NED Fee Cap
There has been no increase in the NED
fee pool since 2002. Shareholder approval
will be sought at the 2005 Annual General
Meeting for an increase to the NED Fee
Cap by $500,000. This proposed increase
would take the maximum aggregate amountfrom $2.5m to $3.0m – an amount whichis considered necessary in order to:nnn

accommodate the fee adjustment tocompensate for the removal of the
Directors’ Retirement Scheme (27.5%)– while the discontinued retirement
benefits under the Constitution are
outside the maximum aggregate limit,
the compensating increase to fees will
be within the limit;
allow for annual adjustments in linewith market NED movements; andallow for the addition of another NED
in either 2006 or early 2007.

It is critical that the Company has thecapacity to pay adequate fees to NEDs inorder to attract and retain directors of thehighest calibre.

B3. DIRECTORS’ SHARE PLAN
The Directors’ Share Plan is available
to both non-executive and executive
directors. Directors may elect to forgo
remuneration to which they may haveotherwise become entitled and receive
shares to the value of the remuneration
forgone. Participation in the plan isvoluntary, except to the extent that the
NED Shareholding Guidelines must be met
and therefore the shares acquired are notsubject to performance conditions.
Shares acquired under the plan arepurchased on market and are held in
trust for up to 10 years. Shares are subject
to a minimum 1 year restriction, during
which the shares cannot be traded, andare subject to forfeiture for serious
misconduct. All costs associated withthe plan are met by the Company.

SECTION C. EXECUTIVEREMUNERATION STRUCTURE
C1. REMUNERATION GUIDING
PRINCIPLESANZ’s reward policy guides theCompensation & Human Resources
Committee and management in shaping
remuneration strategies and initiatives.
The following principles underpin
ANZ’s reward policy:
1. Focus on creating and enhancing value
for ANZ’s shareholders;
2. Differentiation of individual rewards
commensurate with contribution to overall
results and according to individual
accountability, performance and potential;
3. Significant emphasis on “at risk”
components of total rewards linked to theenhancement of shareholder value throughimprovements in Economic Value Added™
(EVA™); and4. The provision of a competitive reward
proposition to successfully attract, motivate
and retain the highest quality individuals
required to deliver ANZ’s business andgrowth strategies.
During 2005 a comprehensive review
of reward structures has been conductedagainst the backdrop of these principles
and against the Company’s growth strategy
and corporate governance principles. As
a result, a number of changes have beenmade. These changes are detailed in
section C4.
Shareholding Guidelines
Direct Reports to the CEO are expected toaccumulate ANZ shares, over a five year
period, to the value of 200% of their Total
Employment Cost (TEC) and to maintainthis shareholding while an executive ofANZ. Our next most senior executives are
expected to accumulate ANZ shares to thevalue of 100% of their TEC and to maintainthis shareholding while an executive ofANZ. This guideline was introduced inJune 2005. New executives will be
expected to accumulate the required
holdings within five years of appointment.

opportunities on a consistent basis for
similar roles and levels. There is a strongemphasis on variable remuneration
opportunities with total employee
remuneration differentiated significantly
on the basis of performance.
The executive remuneration program(which includes the remuneration ofsenior managers and the company
secretaries) is designed to support the
reward principles detailed in section
C1, and to underpin the Company’s
growth strategy. This program aims todifferentiate remuneration on the basisof achievement against group, business
unit and individual performance targets
which are aligned to sustained growthin shareholder value using a balanced
scorecard approach.
The program comprises the following
components:nn

fixed remuneration component(TEC): salary, non-monetary benefits
and superannuation contributions(Refer to C3).
variable or “at risk” component(Refer to C4):
- Short-Term Incentive (STI); and- Long-Term Incentive (LTI).

The relative weighting of fixed andvariable components, for target
performance, is set according to thesize of the role and competitive market
in which the role operates, with theproportion of remuneration “at risk”
increasing for the most senior or complex
roles, or for those roles where there isstrong market pressure to provide greaterlevels of remuneration. Figure 1 below
shows the relative mix of Fixed, STI and
LTI at target payment levels.

Fixed remuneration is set around the
median of the market. STI and LTI
payments for on target performance arealso set at market median, however theplan design allows for the opportunity
to earn upper quartile total remuneration
for significant out performance, andsignificantly reduced payment forunderperformance. In this way the
remuneration structure is heavily weighted
towards “reward for performance”.

C3. FIXED REMUNERATION
For most executives, fixed remunerationconsists of what is referred to as Total
Employment Cost (TEC). TEC comprises
cash salary, a superannuation contribution,and the remainder as nominated benefits.
The types of benefits that can be packaged
by executives include novated car leases,
additional superannuation contributions,car parking, child care, laptops andcontributions towards the Employee Share
Save Scheme (see note 49 of the 2005
Financial Report for details of the Employee
Share Save Scheme).
To ensure fixed remuneration remains
competitive, the TEC component ofexecutive remuneration is reviewed
annually based on individual performanceand market data. ANZ operates with a
midpoint targeted to the market medianbeing paid in the finance industry in therelevant global markets in which ANZ
operates, and a range around thismidpoint. International remunerationlevels are considered in assessing market
competitiveness where an executive’s
primary place of residence is outside ofAustralia or New Zealand, in which casethe local market is considered.

Specified Executives1

Larger Senior Exec. Roles2

Smaller Senior Exec. Roles2

C2. REMUNERATION STRUCTURE
OVERVIEW
ANZ’s reward structures are designed tomeet the needs of ANZ’s specialised
business units as well as the markets inwhich they operate. As a result, the mix of
remuneration components can vary acrossthe organisation although, wherepracticable, ANZ applies structures and1 Specified Executives’ reward mix pertains to Dr R J Edgar, E Funke Kupper, B C Hartzer, G K Hodges, P R Marriott and S Targett.
Refer to E2 for composition of Sir J Anderson’s remuneration
2 The reward mix for larger senior executive roles and smaller senior executive roles is based on average dataanz financial report 2005

81

C4. VARIABLE REMUNERATION
Variable remuneration forms a significant
part of executives’ potential remuneration,
providing an at-risk component that isdesigned to drive performance in both theshort-term (annually) and in the medium
and long-term (over 3 years or more).
The opportunities available to executives
under ANZ’s variable reward programs arecalibrated to reflect executives’ potential
impact on the business, to manage internal
relativities, and to ensure competitivenessin the relevant markets in which they operate.
Most executives participate in the
short-term incentive (STI) plan detailed in
section C4.1 and the long-term incentive(LTI) plan detailed in section C4.2, subject
to individual performance thresholds.
In some instances, customised STI plans
will exist for executives to ensure closeralignment of their rewards with businessobjectives and market practice. For example,
staff in ANZ’s Institutional Divisionparticipate in a customised incentive plan
more closely aligned with that market.
No executive, however, may participate
in more than one STI plan.
Equity allocated under ANZ incentive
schemes remain at risk until fully vested(in the case of Deferred Shares) or are
exercisable (in the case of options or
Performance Rights). As such, it is acondition of grant that no schemes areentered into that specifically protect theunvested value of shares, options andPerformance Rights allocated. Doing sowould constitute a breach of the grantconditions and would result in the forfeitureof the relevant shares or options.
C4.1 Short-Term Incentives
ANZ’s STI approach supports our strategic
objectives by providing rewards that are
significantly differentiated on the basis ofachievement against performance targets.
Most executives participate in the plan
explained below. All STI plans are reviewed
and approved by the Compensation &Human Resources Committee.
Determination of Award Levels
The size of the overall pool available eachyear is determined based on ANZ Group
performance against a balanced scorecardof financial and qualitative measures.
This pool is then distributed amongst
divisions and then individuals basedon relative performance.

82

Each executive has a target STI which
is determined according to seniority andmarket relativities. The size of the actual
STI payment made at the end of eachfinancial year to individuals may be at,above or below the target and this will
be determined according to ANZ Group,
Division and Individual Performance.
Performance objectives are set at thestart of each financial year according
to a balanced scorecard of measures at
the Group, Division and Individual level.
These measures are aligned with theachievement of ANZ’s business plan,
and are the most appropriate indicatorsof performance. Division and Individual
objectives are a subset of the Groupobjectives, which ensures there isalignment of objectives through theexecutive population.
Performance objectives under ANZ’sbalanced scorecard include a numberof qualitative and quantitative measures
which include, but are not limited to:
n

n

n

n

Financial Measures including: Economic
Value Added (EVATM); Revenue and Net
Profit After Tax
Customer Measures including: Customer
Satisfaction and Market Share
Employee Engagement, Risk
Management and Compliance Measures
Environment, Health & Safety andCommunity Measures.

The STI is payable 100% in cash
(except where specific business plans
require otherwise). Executives are able
to elect to sacrifice part or all of their
incentive towards the purchase of ANZshares which are restricted from salefor 12 months, or towards additional
superannuation contributions.
The target STI award level for Specified
Executives is 100% of TEC in 2005
(increasing from 67% of TEC), with amaximum STI award of 150% of TEC.
For larger senior executive roles in thegeneral ANZ STI plan, the target STI is
67% of TEC, with a maximum of 100%of TEC, and for smaller senior executiveroles the target is 43% of TEC and the
maximum 65% of TEC. Note, the target
and maximum STI amounts for larger
and smaller senior executive roles mayvary for customised incentive schemes.

C4.2 Long-Term Incentives
Long-term incentives (LTIs) are used as amechanism to link a significant portion of
executives’ remuneration to the attainmentof sustained growth in shareholder value.
A comprehensive review of ANZ’s
Long-Term Incentive Program wasconducted in 2005 which resulted ina number of changes. The annual LTI
allocation to be made in November
2005 will now be delivered as 100%
Performance Rights. It was previously
delivered as Hurdled Options (50% ofgrant LTI value) and Deferred Shares (50%of grant LTI value). It was decided that theentire LTI allocation should be linked toa single long-term performance measure.
The size of individual LTI grants isdetermined by an individual’s levelof responsibility, performance and theassessed potential of the executive.
Typically at the most senior levels theTarget LTI value will range from around
10% to 24% of the individual’s target
reward mix, as shown in Figure 1 in
Section C2.
Executives are advised of their LTI dollar
value, which is then converted into a
number of Performance Rights basedon an audited valuation. ANZ engages
external experts (PricewaterhouseCoopers
and Mercer Finance & Risk Consulting) toindependently value the Performance
Right, taking into account factors including
the performance conditions, life of
instrument, share price at grant date etc.
These valuations are then audited by KPMG.
The Board then approves use of thehighest value. The LTI dollar value is thendivided by the approved value of the
Performance Right to determine thenumber of rights to be allocated.
EXAMPLEn

Executive granted LTI value of $60,000nApproved Performance Right Valuation
is $10.85 per Performance Rightn$60,000 / $10.85 = 5,530 Performance
Rights allocated to executive
LTI allocations are made annually in or
around November.

Performance Rights(To be granted from October 2005)
A Performance Right is a right to acquirea share at nil cost, subject to satisfactorily
meeting time and performance hurdles.
Upon exercise, each Performance Right
entitles the holder to one ordinary share.
Performance Rights are ANZ’s preferred LTI
delivery vehicle as they provide a clearer,
more tangible value to the executive,
subject to satisfactorily performing relative
to the performance hurdle for vesting.
Performance Rights are designed to reward
executives for share price growth dependent
upon the Company’s Total Shareholder
Return (TSR) outperforming peers. TSR
represents the change in the value of ashare plus the value of reinvested dividends
paid. TSR was chosen as the mostappropriate comparative measure as it
focuses on the delivery of shareholder
value and is a well understood and tested
mechanism to measure performance.
The TSR vesting scale is designed
to ensure that executive rewards are
directly linked to the Company’s TSR and
are therefore aligned to the outcomes
experienced by other shareholders.
The proportion of Performance Rightsthat become exercisable will depend
upon the TSR achieved by ANZ relative tothe companies in the comparator group(shown below) over a three-year period.
There will not be any retesting feature.
Performance equal to the 50th percentileof the comparator group will result in half
the Performance Rights becoming
exercisable. Performance above the 50th
percentile will result in further Performance
Rights becoming exercisable, increasing
on a straight-line basis until all of the
Performance Rights become exercisable
where ANZ’s TSR is at or above the 75th
percentile when compared with thecomparator group. TSR is measured ona pro-rata basis; where ANZ’s performancefalls between two of the comparators, theactual relative level of TSR, rather thansimple ranking, will determine the levelof vesting.
An averaging calculation will be used
for TSR over a 90 day period for startand end values in order to reduce shareprice volatility.

It should also be noted that where medianperformance is achieved, executives’ total
remuneration will typically be below market
median for the financial services industry.
75th percentile performance is required
for full vesting which enables executives
to receive the full value of their LTI. To
ensure an independent TSR measurement,
ANZ engages the services of an externalorganisation (Macquarie Financial Services)
to calculate ANZ’s performance against
the TSR hurdle.

Comparator GroupThe peer group of companies against
which ANZ’s TSR performance is measured,comprises the following companies:

The conditions under which Performance
Rights are granted are approved by the
Board in accordance with the rules of the
ANZ Share Option Plan. Performance
conditions are explained in moredetail below.

QBE Insurance Group Limited

Each Performance Right has thefollowing featuresn The performance hurdle is tested at
the end of three years;
n

n

n

n

n

n

n

n

No dividends will be payable on the
Performance Rights until they vest;
A two-year exercise period thatcommences three years after the grant
date subject to the performance hurdle
being cleared;

AMP Limited
AXA Asia Pacific Holdings Limited
Commonwealth Bank of Australia
Insurance Australia Group Limited
Macquarie Bank Limited
National Australia Bank Limited
St George Bank Limited
Suncorp-Metway Limited
Westpac Banking Corporation
This comparator group was chosenbecause it represents ANZ’s key competitors
in the financial services industry, are an
appropriate reference group for investors
and are of sufficient size by market
capitalisation and weight in ASX Top 50.
Refer to Equity Instruments Transactions
Section K in Note 51 for details pertaining
to legacy LTI equity vehicles (which are
yet to vest).

Upon exercise, each Performance Right
entitles the holder to one ordinary
share;
In case of dismissal for misconduct,
Performance Rights are forfeited;
In case of resignation or termination
on notice, only Performance Rights that
become exercisable by the end of thenotice period may be exercised;
In case of retrenchment or retirement,
Performance Rights will be performancetested at the date of termination, andwhere performance hurdles have beenmet, Performance Rights will be prorated and a grace period provided inwhich to exercise;
In case of death or total and permanent
disablement, a grace period is provided
in which to exercise all Performance
Rights. The hurdles would be waived;
andPerformance hurdle, which is
explained above.

anz financial report 2005

83

C5. PERFORMANCE OF ANZ
Table 4 shows ANZ’s annual performance over the five-year period spanning 1 October 2000 to 30 September 2005. The table illustrates
the impact of ANZ’s performance on shareholder wealth, taking into account dividend payments, share price changes and returns on capitalduring the financial year.
TABLE 4

FY 2001

FY 2002

FY 2003

FY 2004

FY 2005

Basic Earnings Per Share (EPS)
NPAT ($m)
Total Dividend (cps)
Share price at 30 September ($)
Total Shareholder Return (%)

112.7
1,870
73
15.28
26.2

141.4
2,322
85
16.88
15.3

142.4
2,348
95
17.17
6.7

153.1
2,815
101
19.02
17.0

160.9
3,018
110
24.00
32.6

In table 4, ANZ’s Total Shareholder
Return (TSR, which includes share pricegrowth, dividends and other capitaladjustments) has been shown for eachindividual financial year between 2001
and 2005. Figure 2 however, compares
ANZ’s TSR performance against themedian TSR of the LTI comparatorgroup and the S&P/ASX 200 Banks
Accumulation Index over the 2000
to 2005 measurement period. The
difference between S&P/ASX 200
Banks Accumulation Index and the
median of ANZ’s comparator group overthe 2004 and 2005 financial years isdue to the weightings in the Index of
the large banking institutions that haveunderperformed comparatively during
this period; whereas the organisations
in ANZ’s comparator group areweighted evenly.

84

SECTION D. CHIEF EXECUTIVEOFFICER’S REMUNERATION

in September 2005 and adherence to thisguideline will be regularly monitored.

D2. CEO’S CONTRACT TERMS
D1. CEO REMUNERATION OVERVIEW
The structure of J McFarlane’s remuneration,
which is in accordance with his
employment agreement, is as follows:n

Fixed Remuneration: Consists ofsalary, benefits and superannuation
contributions. Since October 2003,
J McFarlane has elected to receive almost
all of his Fixed Remuneration in the formof shares purchased under the Directors’
Share Plan. These shares are not subject
to a performance condition as they areprovided in place of cash remuneration
at the CEO’s choice. However, they are
subject to forfeiture in case of termination
for serious misconduct.

n Short-Term Incentive: The Board sets
J McFarlane’s balanced scorecard at the
beginning of the financial year. The Board
then assesses performance against theseobjectives at the end of the year. These
objectives are aligned with the achievementof ANZ’s business plan, and are the mostappropriate indicators of performance.
These objectives include a number ofquantitative and qualitative measures,
which include (but are not limited to)financial, customer, people, environmentand community measures. J McFarlane’s
STI may be paid in cash or in sharespurchased under the Directors’ SharePlan. J McFarlane has typically elected
to receive shares.
nLong-Term Incentive: J McFarlane’sLong-Term Incentive is made up of Hurdled
Options and Performance Shares asapproved by shareholders at the 2001 and2004 Annual General Meetings respectively.
The performance conditions pertaining tothe options issued during the year are
indicated in Equity Instruments
Transactions Section K1 Hurdled A optionsof Note 51.
The remuneration of J McFarlane for theyear ended 30 September 2005 is set out
in Table 1 in Section A. The mix of
remuneration for J McFarlane under his
current contract is made up as follows:n Fixed Remuneration of $2,000,000
per annum;
n Target variable Short-Term Incentive of$2,000,000 per annum;
n Long-Term Incentive of $2,600,000 –one allocation only (based on valuationof 175,000 performance shares at issue).

Shareholding Guideline
The Chief Executive Officer of ANZ is
expected to accumulate ANZ shares, overa five year period, to the value of 200% of
his Fixed Remuneration and to maintainthis shareholding while CEO of ANZ. This
shareholding guideline was introduced

On 26 October 2004, the Company
announced an extension to
J McFarlane’s contract:
n The term of the contract was extended
by one year to 30 September 2007;
n In addition to mandatory
superannuation contributions, theCompany makes additional employer
contributions of $300,000 per annum(effective from 1 October 2003), paid
quarterly to J McFarlane’s chosen
superannuation fund; andn J McFarlane was granted 175,000
Performance Shares on 31 December 2004.

A separate agreement, made on
23 October 2001, provides forreimbursements to J McFarlane for any
additional tax liabilities that may ariseon his UK Pension Plan holdings as
a result of his continuing Australianresidency. Under this agreement, ANZ
reimburses J McFarlane for any additional
tax liability incurred on his UK Pension
Plan during his employment with ANZ,
arising as a consequence of Australian
Foreign Investment Fund rules. In theevent of decreased Australian tax
liabilities due to a decreased value in
J McFarlane’s UK Pension Plan, thereduced liability will be used to offset
potential subsequent reimbursements.

D3. CEO’S RETIREMENT AND
TERMINATION BENEFITS
In accordance with J McFarlane’scontract variation (refer section D2),
J McFarlane’s nominated superannuation
fund receives $300,000 per annum(effective from 1 October 2003, paid
quarterly) in addition to mandatory
superannuation contributions.
J McFarlane can terminate his employment
agreement by providing 12 months’
notice. ANZ may terminate the employment
agreement by providing notice equal tothe unexpired term of the employment
agreement (which ends on 30 September2007). If ANZ terminates the employment
agreement without notice and thus
breaches its obligation to provide therequired notice, ANZ has agreed withJ McFarlane that the damages payable by
ANZ for breach of contract would be equal
to the Total Employment Cost (TEC) thatwould otherwise be received over theremainder of the contract (TEC comprises
salary or fees, non-monetary benefits andmandatory superannuation contributions).
In circumstances of serious misconduct,
J McFarlane is only entitled to payment
of TEC up to the date of termination.
Payment of accumulated superannuation
benefits plus statutory entitlements oflong service leave and annual leave(calculated on the basis of salary or fees)
applies in all events of separation.
In the event of resignation not approvedby the Board or dismissal for serious
misconduct, all unexercised options andPerformance Shares will be forfeited.
In the event of termination on notice or
agreed separation, all vested options andPerformance Shares must be exercised
within 6 months of the termination or
agreed separation date, subject tomeeting the relevant performance hurdles.
In the event of serious misconduct, shares
held in the Directors’ Share Plan will be
forfeited. On resignation or termination on
notice, shares held under the Directors’
Share Plan will be released.

D4. CEO’S PARTICIPATION IN
EQUITY PROGRAMS
Hurdled Options
At the 2001 Annual General Meeting, fourtranches of options were approved for
granting by the Board: 500,000 in 2001;
1,000,000 in 2002; 1,000,000 in 2003
and 500,000 in 2004. For options granted
to the CEO, the exercise price is equal to
the weighted average share price on the
ASX during the 5 trading days immediately
before or after the Company’s Annual
General Meeting that immediately
precedes the allocation. The exercise of
these options is subject to performance
hurdles being satisfied. J McFarlane’s
specific performance hurdles, for options
granted during the year, are indicated in
Equity Instruments Transactions Section
K1 (Hurdled A) of Note 51, and for
Performance Shares in Equity Instruments
Transactions Section K3 of Note 51. For
options granted to the CEO, the life andexercise period may differ, as disclosed in
Equity Instruments Transactions Section C of
Note 51.
Performance Shares
175,000 Performance Shares were issued
to J McFarlane on 31 December 2004 as
part of his contract extension, as approvedby shareholders at the 2004 Annual
General Meeting. No dividends will bepayable on the shares until they vest.
Vesting will be subject to time andperformance hurdles being satisfied as
detailed in Equity Instruments Transactions
Section K3 of Note 51. As these
Performance Shares were granted as part ofJ McFarlane’s contract extension, as
opposed to a new contract, the conditions ofgrant were aligned with those of theoriginal contract apart from the applicationof a TSR performance hurdle.
Directors’ Share Plan
J McFarlane participates in the Directors’
Share Plan, which is explained in section B3.
Please refer to Equity Instruments
Transactions in Note 51 for details ofgrants and holdings.
anz financial report 200585

SECTION E. SPECIFIED EXECUTIVES’ CONTRACT TERMS
Contractual terms for most executives are similar, but do, on occasion, vary to suit different needs. Section E1 details the contractual terms
for those Specified Executives who are on open-ended contracts. Section E2 details the contractual terms for Sir J Anderson, who is on a
fixed term contract.

E1. OPEN-ENDED CONTRACTS (Dr RJ EDGAR, E FUNKE KUPPER, BC HARTZER, GK HODGES, PR MARRIOTT, S TARGETT)
Length of Contract

Open-ended.

Fixed Remuneration

Remuneration consists of salary, mandatory employer superannuation contributions and benefits.

Short-Term Incentive

Eligible to participate. Target opportunity of 100% of Total Employment Cost (refer to section C4.1 fordetails of short-term incentive arrangements).

Long-Term Incentive

Eligible to participate at the Board’s discretion – refer to section C4.2 for long-term incentive arrangements.

Resignation

Employment may be terminated by giving 6 months’ written notice.
On resignation any options and unvested deferred shares will be forfeited.

Retirement

On retirement, shares and options are released in full.

Termination on Noticeby ANZANZ may terminate the executive’s employment by providing 12 months’ written notice or payment inlieu of the notice period based on Total Employment Cost (TEC).
On termination on notice by ANZ any options or LTI deferred shares that have vested, or will vest
during the notice period will be released, in accordance with the ANZ Share Option Plan Rules.
LTI shares that have not yet vested will generally be forfeited, although for some executives(E Funke Kupper, BC Hartzer and PR Marriott) these shares will be released in full. Deferred shares
granted under STI arrangements will vest in full for all executives.
There is discretion to pay incentives on a pro-rata basis (depending on termination date and subject tobusiness performance).

Redundancy

If ANZ terminates employment for reasons of bona fide redundancy, a severance payment will bemade that is equal to 12 months TEC.
All STI deferred shares are released. All options granted since 24 April 2002 are released on a pro-ratabasis – all prior grants may be exercised. All LTI deferred shares granted since 23 October 2002 arereleased on a pro-rata basis – all prior grants will vest.
There is discretion to pay incentives on a pro-rata basis (depending on termination date and subject tobusiness performance).

Death or Total andPermanent Disablement

All options and shares released; pro-rata incentive.

Termination forserious misconduct

ANZ may immediately terminate the executive’s employment at any time without notice in the caseof serious misconduct, and the employee will only be entitled to payment of TEC up to the dateof termination.
On termination for serious misconduct any options and any deferred shares still held in trust will
be forfeited.

Other Aspects

86

S Targett: Subject to continued employment and the approval of the Board, four tranches to the valueof $700,000 each of deferred shares to be granted at six month intervals in May and November in2004 and 2005, and Hurdled Options with a value of $750,000 granted within 3 months ofcommencement of employment, to compensate for the loss of equity from S Targett’s previous
employer. On Termination on Notice, sign-on options can be exercised as a pro-rata proportion to theperiod of employment. Sign-on deferred shares will vest in full, including any scheduled to be granted
during the notice period.

E2. FIXED TERM CONTRACT (SIR J ANDERSON)
Length of Contract

Contract was effective from 1 December 2003 to 30 September 2005, and extended to 15 April 2006.

Fixed Remuneration

The Total Employment Cost (TEC) package is NZD1,000,000 per annum and is inclusive of employer
contributions to the superannuation fund.

Short-Term Incentive

STI payments are subject to both business and individual performance. The target payment is 50% of TEC.

Equity Participation

A Zero priced option (ZPO) is a right to acquire a share at nil cost. ZPOs are granted as part ofSir J Anderson’s contract under the ANZ Share Option Plan. They were designed to deliver equity to the
CEO of The National Bank of New Zealand (NBNZ) and to meet the particular needs and circumstances at
the time of the acquisition of NBNZ. Grants are fixed at NZD500,000 worth of ZPOs annually, grantedin two tranches per annum and with a nil exercise price. The ZPOs have no time based vesting criteria,
and so can be exercised at any time during employment and within 6 months of the terminationof employment.

Resignation

Sir J Anderson may terminate his employment by giving 12 months’ written notice. On resignation any
ZPOs which have not been exercised as at the termination date will lapse.

Retirement

A policy for payment of retirement gratuities was in place with NBNZ employees prior to theacquisition by the Company of NBNZ. This policy has been continued for eligible staff who were ANZ
National Bank Limited employees as at 1 December 2003, including Sir J Anderson. Under this policy,
a payment will be made to Sir J Anderson on his retirement that is equal to the number of full years’service divided by 35 and multiplied by 85% of finishing salary (where finishing salary is fixed
remuneration less any superannuation contribution). This value is then grossed up for tax (i.e. divided
by 0.61) and from this value the total accrual value of long service leave taken is deducted.

Termination on Noticeby ANZANZ National Bank Limited may terminate Sir J Anderson’s employment by providing notice or payment
in lieu of notice equal to the unexpired term of the employment agreement (which ends on 15 April2006). On termination on notice, any options may be exercised in accordance with the ANZ Share
Option Plan Rules.

Death or Total andPermanent Disablement

Exercise any ZPOs; pro-rata incentive.

Termination forserious misconduct

ANZ National Bank Limited may terminate Sir J Anderson’s employment at any time without notice forserious misconduct, and Sir J Anderson will only be entitled to payment up to the date of termination.
On termination for serious misconduct any ZPOs which have not been exercised as at the termination
date will lapse.

E3. PARTICIPATION IN EQUITY PROGRAMS
A number of shares and options are granted to executives under the remuneration programs detailed in Section C. For Specified Executives,
details of all grants made during the year and legacy LTI programs are listed in Equity Instruments Transactions Section K, of Note 51.
Aggregate holdings of shares and options are also shown. The deferred shares component of the LTI is administered under the ANZ Employee
Share Acquisition Plan. For executives, the shares are deferred for three years.
The directors and specified executives shares and options disclosures are detailed in Note 51: Directors and Specified Executives –Related Party Transactions.

anz financial report 2005

87

NOTES TO THE FINANCIAL STATEMENTS
51: DIRECTORS AND SPECIFIED EXECUTIVES - RELATED PARTY TRANSACTIONSThis note covers the related party transactions (excluding remuneration information as detailed in Note 50) of the directors of the Company
and the specified executives as required by AASB1046 “Director and Executive Disclosures by Disclosing Entities” and the Corporations Act
2001.
Directors

Specified Executives

Non Executive
CB Goode
GJ Clark
JC Dahlsen (retired 3 February 2005)
RS Deane
JK Ellis
DM Gonski
MA Jackson
DE Meiklejohn
JP Morschel
BW Scott (retired 23 April 2005)

Sir J Anderson
Dr RJ Edgar
E Funke Kupper
BC Hartzer
GK Hodges
PR Marriott
S TargettExecutive
J McFarlane
Australian Securities and Investments Commission (ASIC) Class Order 98/110 dated 10 July 1998 (as amended)
The directors and specified executives have been exempted, subject to certain conditions, by an ASIC class order, 98/110 dated 10 July
1998 (as amended), from making disclosures of loans regularly made, guaranteed or secured directly or indirectly by the Group to relatedparties or in respect of a financial instrument transaction regularly made by the Group to related parties (other than shares and shareoptions), other than to the director or specified executive, or to an entity controlled or significantly influenced by the director or specified
executive, where the loan or financial instrument transaction is lawfully made and occurs in the course of ordinary banking business either
at arm’s length or with the approval of a general meeting of the relevant entity and its ultimate chief entity (if any).
The class order does not apply to a loan or financial instrument transaction of which any director or specified executive should reasonably beaware that, if not disclosed, would have the potential to adversely affect the decisions made by users of the financial statements about theallocation of scarce resources.
A condition of the class order is that for each financial year to which it applies, the Company must provide evidence to ASIC that theCompany has systems of internal controls and procedures which:i) in the case of any material financial instrument transaction, ensure that; andii) in any other case, are designed to provide a reasonable degree of assurance that, any financial instrument transaction of a bank which
may be required to be disclosed in the Company’s financial statements and which is not entered into regularly, is drawn to the attentionof the directors.

88

NOTES TO THE FINANCIAL STATEMENTS
51: DIRECTORS AND SPECIFIED EXECUTIVES - RELATED PARTY TRANSACTIONS (CONTINUED)
LOAN TRANSACTIONS
Details regarding loans outstanding at the reporting date to directors and specified executives including personally related parties (subject to
the ASIC Class Order 98/110 (as amended) disclosure limitation as described above), where the individuals aggregate loan balanceexceeded $100,000 at any time in the reporting period, are as follows:
Balance
1 October 2004

Balance
30 September 2005

Interest paid andpayable in thereporting period

Highest balancein the reporting period

$

$

$

$

Non-executive Directors
J P Morschel
J C Dahlsen1
D M Gonski

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

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

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

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

Executive Directors
J McFarlane2

10,349,429

6,264,681

495,517

16,249,944

Specified executives
R J Edgar
E Funke Kupper
B C Hartzer
G K Hodges

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

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

17,001
4,7973163,0283
61,6581,130,316
680,000
2,771,944
2,869,921

Directors

1 J C Dahlsen ceased to be a director in February 2005
2 The loan balances as at 30 September 2005 largely relate to loans for the purchase of ANZ shares, including the exercise of options
3 Interest payments were reduced as a result of a linked offset account

Details regarding the aggregate of loans made, guaranteed or secured by any entity in the Group to each group of directors and specified
executives including related parties (subject to the ASIC Class Order 98/110 (as amended) disclosure limitation as described above)
are as follows:
Balance
1 October 2004

Balance
30 September 2005

Interest paid andpayable in thereporting period

$

$

$

Directors
2005

46,696,540

40,060,168

2,668,844

43

Specified executives
2005

4,680,083

5,321,152

246,483

43

Number in group at
30 September

3 Number in the Group includes directors and specified executive with loan balances greater than zero

Loans made to the non-executive directors are made in the course of ordinary business on normal commercial terms and conditions. Loansto the executive director are made pursuant to the Executive Directors’ Loan Scheme authorised by shareholders on 18 January 1982, on thesame terms and conditions applicable to other employees within the Group in accordance with established policy.
No amounts have been written down or recorded as allowances, as the balances are considered fully collectible.

OTHER TRANSACTIONS OF DIRECTORS AND SPECIFIED EXECUTIVES
Other transactions (other than shares and share options)
Under the ASIC class order referred to above, disclosure of other transactions regularly made by the Group is limited to disclosure of suchtransactions with a director of the Company, specified executives of the Group and to an entity controlled or significantly influenced by the
directors and specified executives, on the basis the transactions are:- on arm’s length terms and conditions no more favourable than those entered into by other employees or unrelated customers;- information about them does not have the potential to affect adversely decisions about the allocations of scarce resources made by usersof the financial report, or the discharge of accountability by the director or specified executive; and- are deemed trivial or domestic in nature.
Transactions between the directors, specified executives and related entities and the Group during the financial year were in the nature of
normal personal banking, debentures, investment and deposit transactions. These transactions occurred on an arm’s length basis and on
normal commercial terms and conditions no more favourable than those given to other employees or customers and were trivial anddomestic in nature.

anz financial report 200589

NOTES TO THE FINANCIAL STATEMENTS
51: DIRECTORS AND SPECIFIED EXECUTIVES - RELATED PARTY TRANSACTIONS (CONTINUED)EQUITY INSTRUMENTS TRANSACTIONSThe Company equity instruments and transactions relating to the Directors of the Company and the Corporations Act 2001 and AASB 1046
specified executives of the Group and Company are detailed as follows:

A. SHAREHOLDINGS OF NON-EXECUTIVE DIRECTORS (INCLUDING MOVEMENTS DURING THE YEAR)
NameBalance ofshares as
at 1 October
20041

Sharesacquired
during the year
in lieu of salary2

Shares resulting
from any otherchange during
the year3

Balance ofshares held
as at 30 Sept
20051,4Balance ofshares held as
at Financial Reportsign-off date1

CB Goode
GJ Clark
JC Dahlsen (retired 3 February 2005)
RS Deane
JK Ellis
DM Gonski
MA Jackson
DE Meiklejohn
JP Morschel
BW Scott (retired 23 April 2005)

502,464
2,000
121,91575,36484,476
52,612
93,2974,185
4,000
72,47520,781
–
–
–
1,703
2,055
–
–
1,502
–

12,392–(8,441)
–
5,017
237
–
2,141
–
(6,494)535,637
2,000
113,474
75,364
91,19654,90493,297
6,326
5,502
65,981

559,451
3,766
113,474
75,364
92,65857,217
93,297
6,326
7,268
65,981

1 Balance of shares held at 1 October 2004, 30 September 2005 and 2 November 2005 (Financial Report sign-off date), includes directly held shares, nominally held shares and shares held bypersonally related entities.
2 All shares acquired in lieu of salary were done so under the Directors’ Share Plan (refer to Section B3 of Note 50, for an overview of the Directors’ Share Plan).
3 Other shares resulting from any other changes during the year include the net result of any shares purchased, sold or acquired under the Dividend Reinvestment Plan.
4 The following shares were nominally held as at 30 September 2005: CB Goode – 141,860; RS Deane – 73,000; JK Ellis – 23,900; DM Gonski – 52,159; MA Jackson – 10,632;
DE Meiklejohn – 2,656; JP Morschel – 1,502.

B. SHAREHOLDINGS OF CHIEF EXECUTIVE OFFICER (CEO) (INCLUDING MOVEMENTS DURING THE YEAR)
Balance ofshares as at
1 Oct 20041

Shares acquired
during the year
in lieu of salary2

Performance
shares granted
during the year3,4

Value of performance
shares granted
during the year5$

Shares acquired
during the year
through the exercise
of options6

Shares resulting
from any otherchange during
the year7

Balanceof shares
held as at
30 Sep 20051,8

Balance of shares
held as at
Financial Reportsign-off date1

1,690,507

89,995

175,000

2,628,500

500,000(635,787)

1,819,715

1,820,056

1 Balance of shares held at 1 October 2004, 30 September 2005 and 2 November 2005 (Financial Report sign-off date) includes directly held shares, nominally held shares and shares held bypersonally related entities.
2 All shares acquired in lieu of salary were done so under the Directors’ Share Plan (refer to Section B3 of Note 50) for an overview of the Directors’ Share Plan).
3 The grant of performance shares on 31 December 2004 was approved by shareholders at the 2004 AGM, with the earliest vesting date being 31 December 2006. Refer to Section K3 for further details.
4 Nil performance shares forfeited or vested. The maximum amortisation balance (i.e. 1 October 2005 to vesting date) is $1,645,513 for subsequent financial years, however the value will be nil if theminimum performance hurdle is not achieved.
5 The fair value of performance shares granted during the year is based on the fair value of the shares as at 31 December 2004 ($15.02) multiplied by the number granted.
6 All options held/exercised by the CEO have been approved by shareholders (December 1999 and December 2001).
7 Other shares resulting from any other changes during the year includes the net result of any shares purchased, sold, or acquired under the Dividend Reinvestment Plan. It also includes thoseshares received on 28 October 2004 in regards to the 2004 incentive (for the period ending 30 September 2004).
8 1,270,176 shares were held nominally as at 30 September 2005.

C. OPTIONS GRANTED TO CEO1
Type ofoptions

Hurdled2
Hurdled A
Hurdled A
Hurdled A
Hurdled A3

Grant date

First date
exercisable

Date ofexpiry4

Exercise price5$

Numbergranted6,7

Number vested
during the year

Percentage thatvested during
the year %31-Dec-01
31-Dec-01
31-Dec-02
31-Dec-03
31-Dec-04

31-Dec-04
31-Dec-03
31-Dec-04
31-Dec-05
31-Dec-06

31-Dec-05
31-Dec-07
31-Dec-07
31-Dec-08
31-Dec-08

16.48
16.80
16.69
17.48
20.49

500,000
500,000
1,000,000
1,000,000
500,000

500,000–
1,000,000
–
–

100
–
100
–
–

3,500,000

1,500,000

Total

Vested and
Vested andexercisable as at unexercisable as
30 Sep 2005
at 30 Sep 2005–
500,000
500,000––––
500,000––

1,000,000

500,000

1 All options held/exercised by the CEO have been approved by shareholders (December 1999 and December 2001).
2 The options may be exercised only if the “ANZ Accumulation Index” over the period from the date on which the options are granted to the last trading day of any month occurring during the relevant
exercise period equals or exceeds the “ASX 100 Accumulation Index” calculated over the same period. Refer to Section K1 for Hurdled A details.
3 The fair value per option at the 31 December 2004 grant date is $1.98. Refer to Section I for details of the valuation methodology and inputs.
4 Treatment of options on termination of employment is explained in Section D3 of Note 50.
5 The exercise price is equal to the weighted average share price during the 5 trading days immediately after the Company’s Annual General Meeting. Note, the original exercise price of options issued
prior to the Renounceable Rights issue in November 2003, have been reduced by 72 cents because of the dilution of share capital associated with the Renounceable Rights issue.
6 Nil options forfeited or expired during the period.
7 The maximum amortisation balance (i.e. 1 October 2005 to vesting date) is $885,321 for subsequent financial years, however the value will be nil if the minimum performance hurdles are not achieved.

D. OPTION HOLDINGS OF CEO (INCLUDING MOVEMENTS DURING THE YEAR)1
Granted during
the year as
Balance as
at 1 Oct 2004
remuneration

3,000,000

500,000

Value ofoptions granted
during the year2$

Exercisedduringthe year

Date ofexerciseof options

Number ofordinary sharesissued on exercise
of options

Value ofoptions exercised
during the year3$

Share priceon date of
exercise ofof options$

990,000

500,000

08-Aug-05

500,000

2,530,000

21.54

Balance
as at
30 Sep 2005

Total value of
options granted
and exercised
during the year$

16.48 3,000,000

3,520,000

Amount paid
per share$

1 All options held/exercised by the CEO have been approved by shareholders (December 1999 and December 2001).
2 The value of options granted during the year is based on the fair value of the option ($1.98) multiplied by the number granted. Refer to section I. for details of the valuation methodology and inputs.
3 The value per option used in this calculation is based on the difference between the volume weighted average price of the Company’s shares traded on the ASX on the day the options were exercised,
and the exercise price. This is then multiplied by the number granted.

90

NOTES TO THE FINANCIAL STATEMENTS
51: DIRECTORS AND SPECIFIED EXECUTIVES - RELATED PARTY TRANSACTIONS (CONTINUED)
E. DEFERRED SHARES GRANTED TO SPECIFIED EXECUTIVESLTI Deferred Shares1

Name

Dr RJ Edgar

24-Oct-01
24-Apr-02
23-Oct-02
20-May-03
05-Nov-03
05-Nov-03
11-May-04
05-Nov-04
05-Nov-04

24-Oct-04
24-Apr-05
23-Oct-05
20-May-06
05-Nov-06
05-Nov-06
11-May-07
05-Nov-07
05-Nov-07

2,700
3,200
7,600
8,500
8,889
25,0008,452
6,519
26,000

n/a
n/a
n/a
n/a
n/a
n/a
n/a
134,941
538,189

2,700
3,200
–
–
–
–
–
–
–

100
100
–
–
–
–
–
–
–

96,860673,130

5,900

6

6,000
4,500
8,000
6,800
6,838
6,256
6,018

n/a
n/a
n/a
n/a
n/a
n/a
124,570

6,000
4,500
–
–
–
–
–

100
100
–
–
–
–
–

44,412

124,570

10,500

24

2,800
4,600
6,600
6,500
7,408
7,135
9,127

n/a
n/a
n/a
n/a
n/a
n/a
188,925

2,800
4,600
–
–
–
–
–

100
100
–
–
–
–
–

44,170188,925

7,400

17

1,000
1,400
3,800
6,500
5,699
6,586
7,522

n/a
n/a
n/a
n/a
n/a
n/a
155,702

1,000
1,400
–
–
–
–
–

100
100
–
–
–
–
–

32,507

155,702

2,400

7

5,700
5,500
9,300
9,100
9,573
9,275
8,475

n/a
n/a
n/a
n/a
n/a
n/a
175,429

5,700
5,500
–
–
–
–
–

100
100
–
–
–
–
–

56,923

175,429

11,20020

6,519

134,941––

24-Oct-01
24-Apr-02
23-Oct-02
20-May-03
05-Nov-03
11-May-04
05-Nov-04

24-Oct-04
24-Apr-05
23-Oct-05
20-May-06
05-Nov-06
11-May-07
05-Nov-07

24-Oct-01
24-Apr-02
23-Oct-02
20-May-03
05-Nov-03
11-May-04
05-Nov-04

24-Oct-04
24-Apr-05
23-Oct-05
20-May-06
05-Nov-06
11-May-07
05-Nov-07

Total
GK Hodges

24-Oct-01
24-Apr-02
23-Oct-02
20-May-03
05-Nov-03
11-May-04
05-Nov-04

24-Oct-04
24-Apr-05
23-Oct-05
20-May-06
05-Nov-06
11-May-07
05-Nov-07

Total
PR Marriott

24-Oct-01
24-Apr-02
23-Oct-02
20-May-03
05-Nov-03
11-May-04
05-Nov-04

24-Oct-04
24-Apr-05
23-Oct-05
20-May-06
05-Nov-06
11-May-07
05-Nov-07

Total
S Targett

Percentagethat vested
during the year%

Vesting date

Total
BC Hartzer

Number thatvested during
the year

Grant date

Total
E Funke Kupper

Value of deferredshares granted
during the year4$

Numbergranted2,305-Nov-04

05-Nov-07

1 Deferred shares issued as LTI shares were granted under the ANZ Long-Term Incentive Program and relate to those deferred shares granted or vested during the year, and those yet to vest. The sharesare restricted for 3 years and may be held in trust for up to ten years. Refer to Section K2 for more details
2 Nil shares forfeited during the year
3 The maximum amortisation balance (i.e. 1 October 2005 to vesting date) for each Specified Executive for subsequent financial years is as follows: Dr RJ Edgar $801,535; E Funke Kupper $220,014;
BC Hartzer $275,486; GK Hodges $235,101; PR Marriott $311,436; S Targett $94,397
4 The value of deferred shares granted during the year is based on the volume weighted average price of the Company’s shares traded on the ASX on the day the shares were granted,
multiplied by the number granted

anz financial report 200591

NOTES TO THE FINANCIAL STATEMENTS
51: DIRECTORS AND SPECIFIED EXECUTIVES - RELATED PARTY TRANSACTIONS (CONTINUED)
E. DEFERRED SHARES GRANTED TO SPECIFIED EXECUTIVES (continued)
STI Deferred Shares1

Name

Dr RJ Edgar

Grant date

Vesting date

Numbergranted2,3

24-Oct-01
24-Apr-02
23-Oct-02
20-May-03
05-Nov-03
11-May-04

24-Oct-04
24-Apr-05
23-Oct-05
20-May-06
05-Nov-06
11-May-07

3,891
4,302
6,423
5,622
6,781
7,683

3,891
4,302
–
–
–
–

100
100
–
–
–
–

34,702

8,193

24

6,510
5,724
8,554
4,148
7,636
7,052

6,510
5,724
–
–
–
–

100
100
–
–
–
–

39,624

12,234

31

7,058
6,364
4,457
1,992
7,322
7,244

7,058
6,364
–
–
–
–

100
100
–
–
–
–

34,437

13,422

39

3,128
3,324
4,761
4,503
5,129
5,653

3,128
3,324
–
–
–
–

100
100
–
–
–
–

26,498

6,452

24

5,963
5,475
8,527
5,403
7,978
9,604

5,963
5,475
–
–
–
–

100
100
–
–
–
–

42,95011,43827

Total
E Funke Kupper

24-Oct-01
24-Apr-02
23-Oct-02
20-May-03
05-Nov-03
11-May-04

24-Oct-04
24-Apr-05
23-Oct-05
20-May-06
05-Nov-06
11-May-07

Total
BC Hartzer

24-Oct-01
24-Apr-02
23-Oct-02
20-May-03
05-Nov-03
11-May-04

24-Oct-04
24-Apr-05
23-Oct-05
20-May-06
05-Nov-06
11-May-07

Total
GK Hodges

24-Oct-01
24-Apr-02
23-Oct-02
20-May-03
05-Nov-03
11-May-04

24-Oct-04
24-Apr-05
23-Oct-05
20-May-06
05-Nov-06
11-May-07

Total
PR Marriott

Total

Percentagethat vested
during the year%

Number thatvested during
the year

24-Oct-01
24-Apr-02
23-Oct-02
20-May-03
05-Nov-03
11-May-04

24-Oct-04
24-Apr-05
23-Oct-05
20-May-06
05-Nov-06
11-May-07

1 Deferred shares issued as STI shares were granted under a historical ANZ Short-Term Incentive Program and relate to those deferred shares vested during the year and those yet to vest (STI is now
delivered generally as 100% cash, therefore no STI deferred shares were granted to Specified Executives during the year. Refer Section C4.1 of Note 50). The shares are restricted for 3 years and may
be held in trust for up to ten years
2 Nil shares forfeited during the year
3 The maximum amortisation balance (i.e. 1 October 2005 to vesting date) for each Specified Executive for subsequent financial years is as follows: Dr RJ Edgar $141,285; E Funke Kupper $135,693;
BC Hartzer $125,786; GK Hodges $106,248; PR Marriott $167,451

92

NOTES TO THE FINANCIAL STATEMENTS
51: DIRECTORS AND SPECIFIED EXECUTIVES - RELATED PARTY TRANSACTIONS (CONTINUED)
E. DEFERRED SHARES GRANTED TO SPECIFIED EXECUTIVES (continued)
Other Deferred Shares1

Name

S Targett

Grant date

Vesting date

Numbergranted2,3

Value of deferredshares granted
during the year4$

11-May-04
05-Nov-04
13-May-05

11-May-07
05-Nov-07
13-May-08

38,41935,10532,080n/a
726,659
707,339

–
–
–

–
–
–

105,604

1,433,998

–

–

Total

Number thatvested during
the year

Percentagethat vested
during the year%

1 Other deferred shares issued to S Targett relate to the issue of deferred shares (four tranches to the value of $700,000 each to be issued at 6 month intervals in May and November in 2004 and 2005,
subject to Board approval and continuing employment) to compensate S Targett for the loss of access to equity as a result of his resignation from his previous employer
2 Nil shares forfeited during the year
3 The maximum amortisation balance (i.e. 1 October 2005 to vesting date) is $1,498,908 for subsequent financial years
4 The value of deferred shares granted during the year is based on the volume weighted average price of the Company’s shares traded on the ASX on the day the shares were granted, multiplied by the
number granted

F. SHAREHOLDINGS OF SPECIFIED EXECUTIVES (INCLUDING MOVEMENTS DURING THE YEAR)

Name

Sir J Anderson
Dr RJ Edgar
E Funke Kupper4
BC Hartzer
GK Hodges
PR Marriott
S TargettBalanceof shares as at
1 Oct 20041

Sharesgrantedduring the year
as remuneration

Number of sharesacquired during theyear throughexercise of options

Shares resulting
from any otherchange during
the year2

Balanceof shares
held as at
30 Sep 20051,3

12,022384,214185,008
79,046
139,397
677,867
38,419–32,519
6,018
9,127
7,522
8,475
73,704

22,37075,000134,000–
55,00080,000––(70,000)(135,134)465(55,000)(124,709)
1,000

34,392421,733
189,892
88,638146,919
641,633
113,123

1 Balance of shares held at 1 October 2004 and 30 September 2005, include directly held shares, nominally held shares and shares held by personally related entities
2 Other shares resulting from any other changes during the year include the net result of any shares purchased, sold or acquired under the Dividend Reinvestment Plan
3 The following shares were held nominally as at 30 September 2005: Sir J Anderson – 55; Dr RJ Edgar – 213,510; E Funke Kupper – 189,242; BC Hartzer –78,607; GK Hodges – 104,012;
PR Marriott – 177,930; S Targett – 112,123
4 Amounts shown do not include ANZ Stapled Exchangeable Preferred Securities (ANZ StEPS).E Funke Kupper held 500 ANZ StEPS as at 1 October 2004; this holding remained unchanged
up to and including 30 September 2005. No other Specified Executives held ANZ StEPSanz financial report 2005

93

NOTES TO THE FINANCIAL STATEMENTS
51: DIRECTORS AND SPECIFIED EXECUTIVES - RELATED PARTY TRANSACTIONS (CONTINUED)
G. OPTIONS GRANTED TO SPECIFIED EXECUTIVES1First date
exercisable

Date ofexpiry3

Exercise
price4$

Numbergranted5,6

Value per option
at grant datefor options
granted during
the year7

20.70
22.05

11,69910,671
22,370

100

–

n/a
n/a
n/a
n/a
n/a
n/a
2.50

34,00041,000
–
–
–
–
–

100
100
–
–
–
–
–

–
–
–
–
–
–
–

75,00014–

77,00057,000
–
–
–
–
–

100
100
–
–
–
–
–

–
–
–
–
–
–
–

134,000

25––
36,00059,00050,000
–
–
–
–
–

–
100
100
100
–
–
–
–
–

42,00036,00059,00050,000–––––145,000

25

187,000

Name

Type of options2

Grant
date

Sir J Anderson

Zero-Priced
Zero-Priced

05-Nov-04
13-May-05

05-Nov-04
13-May-05

04-Nov-06
12-May-07––

11,69910,671

Hurdled A
Hurdled A
Index Linked
Index Linked
Hurdled A
Hurdled A
Hurdled B

24-Oct-01
24-Apr-02
23-Oct-02
20-May-03
05-Nov-03
11-May-04
05-Nov-04

25-Oct-04
24-Apr-05
23-Oct-05
20-May-06
05-Nov-06
11-May-07
05-Nov-07

24-Oct-08
24-Apr-09
22-Oct-09
19-May-10
04-Nov-10
10-May-11
04-Nov-11

16.33
18.03
17.34
17.60
17.55
18.22
20.68

34,00041,000125,000
147,000
66,666
63,11552,000Total
Dr RJ Edgar

22,370Total
E Funke Kupper

528,781
Hurdled A
Hurdled A
Index Linked
Index Linked
Hurdled A
Hurdled A
Hurdled B

24-Oct-01
24-Apr-02
23-Oct-02
20-May-03
05-Nov-03
11-May-04
05-Nov-04

25-Oct-04
24-Apr-05
23-Oct-05
20-May-06
05-Nov-06
11-May-07
05-Nov-07

24-Oct-08
24-Apr-09
22-Oct-09
19-May-10
04-Nov-10
10-May-11
04-Nov-11

16.33
18.03
17.34
17.60
17.55
18.22
20.68

Total
BC Hartzer

77,00057,000131,000
119,000
51,282
46,72248,000

n/a
n/a
n/a
n/a
n/a
n/a
2.50

530,004
Hurdled A
Hurdled A
Hurdled A
Hurdled A
Index Linked
Index Linked
Hurdled A
Hurdled A
Hurdled B

24-Apr-01
24-Oct-01
24-Apr-02
24-Apr-02
23-Oct-02
20-May-03
05-Nov-03
11-May-04
05-Nov-04

25-Apr-04
25-Oct-04
24-Apr-05
24-Apr-05
23-Oct-05
20-May-06
05-Nov-06
11-May-07
05-Nov-07

24-Apr-08
24-Oct-08
24-Apr-09
24-Apr-09
22-Oct-09
19-May-10
04-Nov-10
10-May-11
04-Nov-11

12.98
16.33
18.03
18.03
17.34
17.60
17.55
18.22
20.68

Total

42,00036,00059,00050,000109,000
113,000
55,55553,27972,800

n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
2.50

590,634

Numbervested during
the year

Percentagethat vested
during the year%

Vested andexercisable
as at
30 Sep 2005

100
100

–
–

H. OPTION HOLDINGS OF SPECIFIED EXECUTIVES (INCLUDING MOVEMENTS DURING THE YEAR)
Resultingfrom anyother change
during year

Value ofoptions granted
during the year1$

Name

Type of options

Balance as
at 1 Oct 2004

Granted during
the year as
remuneration

Sir J Anderson

Zero-priced1–

22,370–477,452

11,69910,671Dr RJ Edgar

Hurdled

204,781

52,000–130,000

Index-Linked

272,000–––

34,00041,000–

Hurdled

232,004

48,000–120,000

Index-Linked

250,000–––

77,00057,000–BC Hartzer

HurdledIndex-Linked

295,834
222,000

72,800–––

182,000–––

GK Hodges

Hurdled214,316

60,000–150,000

Index-Linked

176,000–––

26,00016,00013,000–PR Marriott

HurdledIndex-Linked
Other4

559,057
311,000
11,00067,600
–
–

–
–
442

169,000––

80,000––S Targett

Hurdled307,377

52,000–130,000–

E Funke Kupper

Exercisedduring the year

1 The value of options granted during the year is based on the fair value of the option multiplied by the number granted. Refer to section I for details of the valuation methodology and inputs
2 The value per option used in this calculation is based on the difference between the volume weighted average price of the Company’s shares traded on the ASX on the day the options were
exercised, and the exercise price. This is then multiplied by the number granted

94

NOTES TO THE FINANCIAL STATEMENTS
51: DIRECTORS AND SPECIFIED EXECUTIVES - RELATED PARTY TRANSACTIONS (CONTINUED)

Name

Type of options2

Grant
date

First date
exercisable

Date ofexpiry3

Exercise
price4$

GK Hodges

Hurdled A
Hurdled A
Hurdled A
Hurdled A
Hurdled A
Index Linked
Index Linked
Hurdled A
Hurdled A
Hurdled B

21-Nov-00
24-Apr-01
24-Oct-01
24-Apr-02
24-Apr-02
23-Oct-02
20-May-03
05-Nov-03
11-May-04
05-Nov-04

22-Nov-03
25-Apr-04
25-Oct-04
24-Apr-05
24-Apr-05
23-Oct-05
20-May-06
05-Nov-06
11-May-07
05-Nov-07

21-Nov-07
24-Apr-08
24-Oct-08
24-Apr-09
24-Apr-09
22-Oct-09
19-May-10
04-Nov-10
10-May-11
04-Nov-11

13.62
12.98
16.33
18.03
18.03
17.34
17.60
17.55
18.22
20.68

Total
Hurdled A
Hurdled A
Hurdled A
Hurdled A
Hurdled A
Index Linked
Index Linked
Hurdled A
Hurdled A
Hurdled B

23-Feb-00
21-Nov-00
24-Apr-01
24-Oct-01
24-Apr-02
23-Oct-02
20-May-03
05-Nov-03
11-May-04
05-Nov-04

23-Feb-03
22-Nov-03
25-Apr-04
25-Oct-04
24-Apr-05
23-Oct-05
20-May-06
05-Nov-06
11-May-07
05-Nov-07

22-Feb-07
21-Nov-07
24-Apr-08
24-Oct-08
24-Apr-09
22-Oct-09
19-May-10
04-Nov-10
10-May-11
04-Nov-11

9.39
13.62
12.98
16.33
18.03
17.34
17.60
17.55
18.22
20.68

Total
Hurdled A
Hurdled B

11-May-04
05-Nov-04

11-May-07
05-Nov-07

10-May-11
04-Nov-11

18.22
20.68

Total

7
8

Percentagethat vested
during the year%

Vested andexercisable
as at
30 Sep 2005

26,00016,00013,00017,40050,00063,000113,000
42,73549,18160,000

n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
2.50

–
–
13,00017,40050,000
–
–
–
–
–

–
–
100
100
100
–
–
–
–
–

–
–
–
17,40050,000–––––80,40018

67,400–––73,00070,000
–
–
–
–
–

–
–
–
100
100
–
–
–
–
–

25,000170,000–
73,00070,000–––––143,000

15

338,000

–
–

–
–

–
–

–

–

–

25,000170,000
80,00073,00070,000153,000
158,000
71,794
69,26367,600

n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
2.50

937,657

S Targett5
6

Numbervested during
the year

450,316PR Marriott

1
2
3
4

Numbergranted5,6

Value per option
at grant datefor options
granted during
the year78

307,377
52,000n/a
2.50

359,377

Options granted to Specified Executives pertains to these options granted, vested or exercised during the year, options yet to vest and any unexercised options
Refer to Section K1 for more details pertaining to hurdled A, hurdled B and index linked options. Refer to Section E2 of Note 50, for further information on zero priced options granted to Sir J Anderson
Treatment of options on termination of employment is explained in Section E of Note 50
The exercise price is equal to the weighted average share price over the 5 trading days up to and including the grant date. Note, the original exercise price of options issued prior to the Renounceable
Rights issue in November 2003, have been reduced by 72 cents because of the dilution of share capital associated with the Renounceable Rights issue. Given index-linked options have a dynamic
exercise price, the original exercise price is shown in G (refer to Section K1 for more details)
No additional options were granted in the period up to and including 2 November 2005, and nil options forfeited or expired
The maximum amortisation balance (i.e. 1 October 2005 to vesting date) for each Specified Executive for subsequent financial years is as follows: Dr RJ Edgar $266,582; E Funke Kupper $218,793;
BC Hartzer $272,560; GK Hodges $232,767; PR Marriott $309,425; S Targett $493,628. The value will be nil however, if the minimum performance hurdles are not achieved
Refer to section I for details of the valuation methodology and inputs
S Targett was granted Hurdled Options to compensate for the loss of equity from S Targett’s previous employer

Date ofexerciseof options

Number ofordinary sharesissued on exercise
of options

Value ofoptions exercised
during the year2$

Share price ondate of exercise
of options$

Amount paid
per share$

Balance
as at
30 Sep 2004

Total value of
options granted
and exercised
during the year3 $10-Nov-04
17-May-05

11,69910,671

233,515
229,533

19.96
21.51

–
–

–

940,500

20-May-05
20-May-05–

34,00041,000–187,982
156,984
–

21.86
21.86
–

16.33
18.03
–

181,781474,966

272,000–

27-Oct-04
06-May-05–

77,00057,000–264,403214,666
–

19.76
21.80
–

16.33
18.03
–

146,004

599,069

250,000

–

–
–

–
–

–
–

–
–

–
–

368,634
222,000

182,000–

20-May-05
20-May-05
20-May-05–

26,00016,00013,000–214,211142,062
71,875
–

21.86
21.86
21.86
–

13.62
12.98
16.33
–

219,316

578,148

176,000–

11-May-05––

80,000––693,116
–

21.64
–
–

12.98
–
–

546,657
311,000
11,442

862,116
–
–

–

–

–

–

–

359,377

130,000

3 Nil options lapsed during the year
4 Other refers to share options granted to a personally related entity. 11,000 of these options were vested and exercisable as at 30 September 2005

anz financial report 2005

95

NOTES TO THE FINANCIAL STATEMENTS
51: DIRECTORS AND SPECIFIED EXECUTIVES - RELATED PARTY TRANSACTIONS (CONTINUED)
I. OPTION VALUATIONS
Option type

HurdledHurdled (CEO)Zero-priced
Zero-priced

Grant date

Option value1$

Exercise price(5 day VWAP)$

Share priceat grant$

ANZ expectedvolatility2%

Option term
(years)Vesting
period(years)Expected
life(years)Expected
dividend
yield3 %Risk freeinterest
rate4 %

05-Nov-04
31-Dec-04
05-Nov-04
13-May-05

2.50
1.98
20.70
22.05

20.68
20.49
–
–

20.70
20.56
n/a
n/a

18.50
16.50
n/a
n/a

7
4
2
2

3
2
–
–

3
2
n/a
n/a

5.30
5.50
n/a
n/a

5.24
5.10
n/a
n/a

1 The Binomial Option Pricing Model (“the model”) is used to assess the value of ANZ’s options (other than zero priced options, for which the value is the volume weighted average price of theCompany’s shares traded on the ASX on the day the options were granted). The model utilises probability theory to determine the value of an ANZ option based on likely share prices at the expiry
date of the option. In accordance with AASB 1046 and 1046A, the model reflects both the performance hurdles that currently apply to the Hurdled Options and the non-transferability of the options.
Under the terms of the Options, the hurdle conditions (outlined in section K) must be met before the options may be exercised during the exercise period
2 Expected volatility represents a measure of the amount by which ANZ’s share price is expected to fluctuate over the life of the options. The measure of volatility used in the model is the annualised
standard deviation of the continuously compounded rates of return on the historical share price over a defined period of time preceding the date of grant. This historical average annualised volatility isthen used to estimate a reasonable expected volatility over the expected life of the options
3 In estimating the fair value of the ANZ option grant, expected dividends were included in the application of the model. The expected dividend yield applied to the model was based on an analysis of
ANZ’s historical dividend payments and yields
4 The risk-free interest rate is based on the implied yield currently available on zero-coupon bonds issued by the Australian government, with a remaining term equal to the expected life of ANZ’s options

J. PERFORMANCE SHARE VALUATION
Share typeCEO Performance Shares

Grant date

Share value1$

Share priceat grant$

ANZ expectedvolatility2%

Term ofshares(years)Vesting
period(years)Expected
life(years)Expected
dividend
yield3 %Risk freeinterest
rate4 %

31-Dec-04

15.02

20.56

16.50

5

2

2

5.40

5.00

1 The Binomial Pricing Model (“the model”) is used to assess the value of the Performance Shares. In accordance with AASB 1046 and 1046A, the model utilises probability theory to determine thevalue of the performance shares which also reflects the performance hurdle. Under the terms of the performance shares, the hurdle conditions (outlined in Section K) must be met before theshares can vest
2 Expected volatility represents a measure of the amount by which ANZ’s share price is expected to fluctuate over the life of the options. The measure of volatility used in the model is the annualised
standard deviation of the continuously compounded rates of return on the historical share price over a defined period of time preceding the date of grant. This historical average annualised volatility isthen used to estimate a reasonable expected volatility over the expected life of the performance shares
3 In estimating the fair value of the performance shares, expected dividends were included in the application of the model. The expected dividend yield applied to the model was based on an analysis
of ANZ’s historical dividend payments and yields
4 The risk-free interest rate is based on the implied yield currently available on zero-coupon bonds issued by the Australian government, with a remaining term equal to the expected life of theperformance sharesin which to exercise the remaining
options (with hurdles waived, if
applicable);

K. LEGACY LONG TERM INCENTIVE (LTI)
PROGRAMS
K1 Options (Granted prior to
October 2005)
Each option has the following features:
n

n

n

n

n

An exercise price (or for index-linked
options, the original exercise price) thatis set equal to the weighted averagesale price of all fully paid ordinary
shares in the Company sold on theAustralian Stock Exchange during the 1week prior to and including the date of
grant;
A maximum life of 7 years and an
exercise period that commences 3 years
after the date of grant, subject toperformance hurdles being cleared.
Options are re-tested monthly (ifrequired) after the commencement of
the exercise period;
Upon exercise, each option entitles theoption-holder to one ordinary share;
In case of resignation or termination on
notice or dismissal for misconduct:
options are forfeited;
In case of redundancy: options are
pro-rated and a grace period is provided
96

n

n

In case of retirement, death or total andpermanent disablement: A grace period
is provided in which to exercise all
options (with hurdles waived, if
applicable); andPerformance hurdles, which are
explained below for each type of option.

Comparator GroupAMP Limited
AXA Asia Pacific Holdings Limited
Commonwealth Bank of Australia
Insurance Australia Group Limited
Macquarie Bank Limited
National Australia Bank Limited
QBE Insurance Group Limited
St George Bank Limited

Hurdled Options (Hurdled B)(Granted November 2004)
In November 2004 hurdled options were
granted with a relative Total Shareholder
Return (TSR) performance hurdle attached.
The proportion of options that become
exercisable will depend upon the TSR
achieved by ANZ relative to the companies
in the comparator group shown below.
Performance equal to the median TSR of
the comparator group will result in half theoptions becoming exercisable.
Performance above median will result infurther options becoming exercisable,
increasing on a straight-line basis until allof the options become exercisable
where ANZ’s TSR is at or above the 75th
percentile in the comparator group.

Suncorp-Metway Limited
Westpac Banking Corporation

NOTES TO THE FINANCIAL
STATEMENTS
51: DIRECTORS AND SPECIFIEDEXECUTIVES - RELATED PARTY
TRANSACTIONS (CONTINUED)
Hurdled Options (Hurdled A)(Granted to Executives fromFebruary 2000 until July 2002, andfrom November 2003 until May 2004.
Granted to CEO from December 2001
until December 2004.)
Until May 2004, hurdled options were
granted to executives with the following
performance hurdles attached. The
following performance hurdles also
pertain to the options granted to the CEO
during the year:
1. Half the options may only be exercised
once ANZ’s TSR exceeds the percentagechange in the S&P/ASX 200 Banks(Industry Group) Accumulation Index,
measured over the same period (sinceissue) and calculated as at the last trading
day of any month (once the exercise
period has commenced); and2. The other half of hurdled options may
only be exercised once the ANZ TSR
exceeds the percentage change in the
S&P/ASX 100 Accumulation Index,
measured over the same period (sinceissue) and calculated as at the last trading
day of any month (once the exercise
period has commenced).
Index-linked options (Granted from
October 2002 to May 2003)
Index-linked options have a dynamic
exercise price that acts as a built-in
performance hurdle, i.e. the exercise priceis adjusted in line with the movement in
the S&P/ASX 200 Banks (Industry Group)
Accumulation Index (excluding ANZ). As
an additional constraint, the adjusted
exercise price can only be set at or above
the original exercise price. They are
exercisable between the 3rd and 7th year
after grant date, subject to the adjusted
exercise price being above the prevailingshare price.

n

n

n

n

n

n

During the deferral period, theemployee is entitled to any dividends
paid on the shares;
Shares issued under this plan may beheld in trust for up to 10 years;

Comparator GroupAMP Limited
AXA Asia Pacific Holdings Limited
Commonwealth Bank of Australia

The value used to determine thenumber of LTI deferred shares to beallocated has been based on thevolume weighted average price of theshares traded on the ASX in the weekleading up to and including the date ofissue;

Insurance Australia Group Limited

In case of resignation or termination
on notice or dismissal for misconduct:
LTI shares are forfeited;

Westpac Banking Corporation

Macquarie Bank Limited
National Australia Bank Limited
QBE Insurance Group Limited
St George Bank Limited
Suncorp-Metway Limited

In case of redundancy: the number of
LTI shares that are released is pro-rated
according to the time held as aproportion of the vesting period; andIn case of retirement, death or total& permanent disablement: LTI sharesare released to executives.

Deferred Shares no longer form partof ANZ’s Senior Executive LTI program,
however there may be circumstances(such as retention) where this type ofequity (including Deferred Share Rights)
will be issued.
K3 Performance Shares(Granted December 2004 to CEO)In December 2004 Performance Shareswere granted to the CEO of ANZ with arelative TSR performance hurdle attached.
The proportion of shares that vest will
depend upon the TSR achieved by ANZ
relative to the companies in thecomparator group shown below.
Performance equal to the median TSR of
the comparator group will result in half the
Performance Shares becoming
exercisable. Performance above median
will result in further Performance Shares
becoming exercisable, increasing on astraight-line basis until all of the
Performance Shares become exercisable
where ANZ’s TSR is at or above the 75th
percentile in the comparator group. No
dividends will be payable on the shares
until they vest, with the earliest possible
vesting date being 31 December 2006.

K2 Deferred Shares(Granted from February 2000)
Deferred Shares granted under the Long
Term Incentive (LTI) arrangements were
designed to reward executives for superior
growth whilst also encouraging executive
retention and an increase in the
Company’s share price.
n

Shares are subject to a time-based
vesting hurdle of 3 years, during whichtime they are held in trust;anz financial report 2005

97

NOTES TO THE FINANCIAL STATEMENTS
52: DIRECTORS OF CONTROLLED ENTITIES OF THE COMPANY - RELATED PARTY TRANSACTIONS1LOAN TRANSACTIONS
Loans to executive directors of controlled entities are made pursuant to the Executive Directors’ Loan Scheme authorised by shareholders on
18 January 1982. These loans were in the nature of normal personal loans and were made on the same terms and conditions applicable toother eligible employees within the Group in accordance with established policy.

OTHER TRANSACTIONS OF DIRECTORS AND PERSONALLY RELATED ENTITIESi) Financial instrument transactions
ASIC class order 98/110 dated 10 July 1998 (as amended).
Disclosure of financial instrument transactions regularly made by a bank is limited to disclosure of such transactions with a director of thecontrolled entity concerned or an entity controlled or significantly influenced by the director of the controlled entity.
Financial instrument transactions between the directors of the controlled entities or their personally related entities and the Bank during thefinancial year were in the nature of normal personal banking, investment and deposit transactions. These transactions occurred on an arm’s
length basis and on normal commercial terms and conditions no more favourable than those given to other employees or customers.
ii) Transactions other than financial instrument transactions of banks
All other transactions with directors of the controlled entities of the Company and their personally related entities are conducted on arm’s
length terms and conditions, and are deemed trivial or domestic in nature. These transactions are in the nature of deposits, debentures,or investment transactions conducted with non-bank controlled entities.
All other transactions with directors’ personally related entities occur within a normal customer or supplier relationship and are on arm’s
length terms and conditions.
1 Relates to all other related party disclosures not concerning directors of Australia and New Zealand Banking Group Limited as disclosed in note 51

53: TRANSACTIONS WITH ASSOCIATES AND JOINT VENTURE ENTITIES - RELATED PARTY DISCLOSURES
During the course of the financial year the Company and the Group conducted transactions with associates and joint venture entities on
normal commercial terms and conditions as shown below:
Consolidated
2005
2004
$’000
$’000

The Company
2005
2004
$’000
$’000

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

98

340,916
15,920107,298
122,1539,430

101,835
4,078
38,35387,026
9,776

305,493
14,464
6,647
114,509
9,430

27,5532,422
365
80,127
9,761

NOTES TO THE FINANCIAL STATEMENTS
54: EXCHANGE RATESThe exchange rates used in the translation of the results and the assets and liabilities of major overseas branches and controlled entities are:
2005

Euro
Great British pound
New Zealand dollar
United States dollar

Closing

Average

0.63250.43251.09980.76230.60240.4142
1.08470.7657

2004
Closing

0.5814
0.39831.07000.7165

Average

Closing

2003
Average

0.59680.40541.12540.72630.58470.40701.14310.67950.56490.3822
1.11390.612455: IMPACT OF ADOPTING AUSTRALIAN EQUIVALENTS TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (AIFRS)Management of the Group’s transition to AIFRS
For reporting periods commencing 1 October 2005, the Group is required to prepare financial statements using Australian Equivalents toInternational Financial Reporting Standards (AIFRS), issued by the Australian Accounting Standards Board.
On 1 October 2005, the Group commenced application of AIFRS, covering all financial systems and records. The Group will report for the firsttime in compliance with AIFRS when the results for the half year ending 31 March 2006 are released.
The Group is required to prepare an opening balance sheet in accordance with AIFRS as at 1 October 2004. Most accounting policy
adjustments to retrospectively apply AIFRS will be made against retained earnings in this opening balance sheet. However, transitional
adjustments relating to those standards for which comparatives are not required will only be made on 1 October 2005. The standards are
AASB 132: ‘Financial Instruments: Disclosure and Presentation’, AASB 139: ‘Financial Instruments: Recognition and Measurement’, and
AASB 4: ‘Insurance Contracts’.
Impact of transition to AIFRSThe key impacts identified below are based on accounting policy decisions current at the date of this financial report. Further developments
in AIFRS attributable to:nnew or revised accounting standards or interpretations issued by the Australian Accounting Standards Board;nadditional guidance on the application of AIFRS to the financial industry; ornchanges to the Group’s operations

if any, may result in changes to accounting policy decisions made to date and, consequently, the likely impacts outlined below. Any suchchanges will be reflected within the Group’s first AIFRS compliant statement for the half year ending 31 March 2006, or a later financial report
as appropriate.
The key impacts identified below are separated between those applicable for the comparative financial year (ie from 1 October 2004), andthose applicable from 1 October 2005.
All amounts are stated on an after tax basis, unless otherwise stated.

anz financial report 2005

99

NOTES TO THE FINANCIAL STATEMENTS
55: IMPACT OF ADOPTING AUSTRALIAN EQUIVALENTS TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (AIFRS) (CONTINUED)
Issues with effective impact from 1 October 2004
i) Goodwill
No initial impact on retained earnings
Potential volatility in future earnings

The adoption of AIFRS does not impact the carrying amount of goodwill on transition as theGroup has elected not to restate past business combinations. Under AIFRS, the past practice ofsystematically amortising goodwill over the expected period of benefit ceases and is replaced by
impairment testing annually or more frequently if events or circumstances indicate that goodwill
might be impaired. As a result, the Group amortisation expense for the AIFRS comparative
financial year ended 30 September 2005 will decrease by $224 million (including notional INGA
goodwill of $43 million).

ii) Defined benefits superannuation plan
Initial reduction in retained earnings
Actuarial movements through retained
earnings

On adoption of AASB 119: ‘Employee Benefits’, surpluses (assets) and/or deficits (liabilities)
that arise within defined benefit superannuation schemes will be recognised in the statement offinancial position.
Under AGAAP, the Group accounts for the defined benefit superannuation schemes on a cash
basis and does not currently recognise an asset or liability for the net position of the defined
benefit superannuation schemes.
The Group has elected to apply the option available under AASB 119 to recognise actuarial gains
and losses in the statement of financial position (i.e. the ‘direct to retained earnings’ approach).
The non-cash expense reflecting the notional cost of the benefits accruing to members of thedefined benefit schemes in respect of service provided over the reporting period is charged tothe statement of financial performance. All transitional adjustments and ongoing movements
reported for each scheme will be actuarially determined in accordance with AASB 119.
At 1 October 2004, the Group will recognise a net liability position of $142 million (Company:$143 million) after recognising a net deferred tax asset of $56 million (Company: $57 million)
which will be applied against retained earnings.
For the AIFRS comparative year ended 30 September 2005, a $35 million adjustment will bemade to retained earnings to recognise a decrease in the Group’s pension liability, representing
largely a net actuarial gain (Company: $32 million). The impact on the statement of financial
performance of moving from a contributions basis to a service cost basis is not expected to bematerial for either the Group and Company.

iii) Share based payments
Initial reduction in shareholders’equityHigher ongoing expenses

The Group currently recognises immediately an expense equal to the full fair value of all deferredshares issued as part of the short term and long term incentive arrangements. The deferredshares vest over one to three years and may be forfeited under certain conditions. The Group does
not currently recognise an expense for options issued to staff or for shares issued under the$1,000 employee share plan.
On adoption of AASB 2: ‘Share-based Payment’, the Group will recognise an expense for all sharebased remuneration, including deferred shares and options, and will recognise this expense over
the relevant vesting period.
The Group has elected to retrospectively apply AASB 2 to share based payments granted prior to
7 November 2002.
On 1 October 2004, this change in accounting policy will result in:
the establishment of a share options reserve of $43 million (Company: $43 million) to reflect
the fair value of options granted to employees;

n

n

100

a reduction in paid up capital of $49 million (Company: $49 million), in order to reflect the fairvalue of vested shares;nrecognition of a deferred tax liability of $18 million (Company: $16 million); andna net decrease to retained earnings of $12 million (Company: $13 million).

NOTES TO THE FINANCIAL STATEMENTS
55: IMPACT OF ADOPTING AUSTRALIAN EQUIVALENTS TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (AIFRS) (CONTINUED)
Issues with effective impact from 1 October 2004 (continued)iii) Share based payments (continued)iv) Fee Revenue –financial service fees
recognised over the period of service
Initial reduction in retained earnings

For the AIFRS comparative year ended 30 September 2005, the impact of the change is
expected to be:n an increase in the share options reserve of $23 million (Company: $23 million);nan increase in paid up capital of $41 million (Company: $41 million); andna decrease in profit after tax of $64 million (Company: $57 million).

Under AASB 118: ‘Revenue’, certain service type fees (such as administration fees) will
be deferred and amortised over the period of service. On 1 October 2004, $3 million(Company: $2 million) of fees that have previously been recognised in the statement offinancial performance will be recognised as a liability in the statement of financial position,with a corresponding reduction to retained earnings. For the AIFRS comparative year ended
30 September 2005, the impact of this change on the statement of financial performance for
the Group and the Company are expected to be immaterial.

v) Securitisation
Additional assets/liabilities recognised

AIFRS has introduced new requirements for the recognition of financial assets, including
those transferred to a special purpose entity for securitisation. The accounting treatment ofexisting securitisations has been reassessed. Consequently, some vehicles, which werepreviously not consolidated, are being consolidated by the Group. This will result in an
increase in assets and liabilities recorded within the statement of financial position of$4,900 million as at 1 October 2004 for the Group.
Vehicles set up for assisting customers securitise their own assets will continue to not be
consolidated under AIFRS.
For the comparative AIFRS year ended 30 September 2005, the Group will recognise adecrease of $400 million in both assets and liabilities, reflecting the net impact of
repayment and securitisation of new assets during the year.
Within the Group statement of financial performance, income and expenses will be increased
to recognise the income and expense items recorded within these vehicles. The overall
impact on net profit is expected to be immaterial.

vi) Foreign currency translation reserve
Initial increase in retained earnings –no change to shareholders’ equityvii) Asset revaluation reserve – balance
relating to land and buildings
Initial increase in retained earnings –no change to shareholders’ equity

The Group has elected to apply the option under AASB 121: ‘The Effects of Changes in Foreign
Exchange Rates’, to reset amounts recorded within the Foreign currency translation reserve tozero. On 1 October 2004, adopting this election will result in an increase in retained earnings
of $218 million and $233 million for the Group and the Company respectively.

The Group has elected to apply the option under AASB 1: ‘First time Adoption of Australian
Equivalents to International Financial Reporting Standards’, to recognise the value of Land
and Buildings at deemed cost. As a result, the Group and the Company Asset revaluation
reserve of $31 million relating to Land and Buildings will be reset to zero as at 1 October
2004 and adjusted against retained earnings.

viii) Taxation
Change in methodology
Immaterial impacts

Under AASB 112: ‘Income taxes’, a balance sheet method of tax effect accounting will be
adopted, replacing the ‘statement of financial performance’ approach currently used by theGroup.
Income tax expense comprises current and deferred taxes, with income tax expense
recognised in the statement of financial performance, or recognised in equity to the extent
that it relates to items recognised directly in equity.

anz financial report 2005

101

NOTES TO THE FINANCIAL STATEMENTS
55: IMPACT OF ADOPTING AUSTRALIAN EQUIVALENTS TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (AIFRS) (CONTINUED)
Issues with effective impact from 1 October 2004 (continued)viii) Taxation (continued)

Deferred tax is calculated using the balance sheet method by determining temporary
differences between the carrying amount of assets and liabilities for financial reporting
purposes and the tax base of those assets and liabilities as used for taxation purposes.
At 1 October 2004, an additional net deferred tax asset of $14 million (Company:$11 million) will be recognised with a corresponding increase to retained earnings.

ix) Intangible assets – software
No impact on earnings
Reclassification only

Capitalised software assets will be reclassified from Premises and Equipment to a separately
identifiable intangible asset on transition to AIFRS. For the Group, this will result in areclassification of $430 million (Company: $375 million) as at 1 October 2004. There will
be no impact on the statement of financial performance.

x) Business Combinations
No impact

At 1 October 2004, the Group has elected under AASB 1: ‘First time Adoption of Australian
Equivalents for International Financial Reporting Standards’, to not restate the classification
and accounting treatment of business combinations that occurred prior to 1 October 2004.

Issues with effective impact from 1 October 2005xi) Credit loss provisioning
Initial increase on retained earnings
Volatility in future earnings

AASB 139: ‘Financial Instruments: Recognition and Measurement’ adopts an incurred loss
approach for credit loss provisioning and provides guidance on the measurement of incurred
losses. Provisions are raised for losses that have already been incurred for exposures thatare known to be impaired. The estimated losses on these impaired exposures are thendiscounted to their present value. As this discount unwinds during the period between
recognition of impairment and recovery of the written down amount, it is recognised in thestatement of financial performance as interest income.
The current General Provision in the statement of financial position will be replaced on
adoption of AIFRS by a Collective Provision.
Exposures not individually known to be impaired are placed into pools of similar assets withsimilar risk characteristics to be collectively assessed for losses that have been incurred, but
not identified yet. The required provision is estimated on the basis of historical loss
experience for assets with credit risk characteristics similar to those in the collective pool.
The historical loss experience is adjusted based on current observable data.
The Collective Provision under AIFRS shares the same underlying measurement objectives as
the current General Provision. However, as a result of the application of a new estimation
methodology, certain judgemental risk measures have changed.
The Group believes that the resulting Collective Provision, while lower than the current
General Provision, comfortably falls within the probable range of losses that have been
incurred but not identified in our portfolio.
On adoption of AIFRS, the current Economic Loss Provisioning (ELP) charge to profit will be
replaced by a charge for individual provisions on impaired exposures together with a charge
for movements in the Collective Provision.
As a result of these changes:
n at 1 October 2005, there will be a reduction of $6 million to retained earnings for theGroup (Company: $3 million) relating to individual provisions on impaired exposures as aresult of discounting estimated future cash flows;
n

n

n

102

at 1 October 2005, the Collective Provision for the Group will be $307 million less than the
AGAAP General Provision (Company: $151 million). After tax, this will result in an increase
to retained earnings of $197 million at 1 October 2005 (Company: $102 million). Due tocurrent uncertainty around AIFRS accounting interpretations and the development ofAustralian industry practice in this area, this Collective Provision on impaired exposures
may be subject to further refinement;
individual provisions and movements in the Collective Provision will be charged direct tothe statement of financial performance, driving increased earnings volatility; andmovements in the Collective Provision will be driven by changes in portfolio size, portfolio
mix, credit risk and economic cycles.

NOTES TO THE FINANCIAL STATEMENTS
55: IMPACT OF ADOPTING AUSTRALIAN EQUIVALENTS TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (AIFRS) (CONTINUED)
Issues with effective impact from 1 October 2005 (continued)xii) Fee Revenue – financial service fees
recognised as an adjustment to yield
Initial reduction in retained earnings

Under AASB 139: ‘Financial Instruments: Recognition and Measurement’, fee income (such as loan
approval fees) integral to the yield of an originated financial instrument (such as loans andadvances measured at amortised cost), net of any direct incremental costs, will be capitalised anddeferred over the expected life of the financial instrument.
On 1 October 2005, certain fees that have previously been recognised in the statement of financial
performance, will be deferred and recognised against net loans and advances in the statementof financial position with a corresponding reduction to retained earnings. The impact will be$266 million and $195 million for the Group and the Company respectively. The annual impact
on net profit from this change is not expected to be material. However, there will be an increase
in interest income (offset by a reduction in fee income) and a reclassification to interest earning
assets of customer’s liabilities for acceptances of $13,449 million.

xiii) Derivative financial instruments
including hedging
Initial reduction in retained earnings
Volatility in future earnings
New assets and liabilities recognised

Under AIFRS, all derivative financial instruments, including those used as hedging
instruments, will be measured at fair value and recognised in the statement of financial
position. This will require an adjustment to reflect the market value of counterparty risk in
the fair value of derivatives. This will result in a decrease in retained earnings of $24 million
and $22 million at 1 October 2005 for the Group and Company respectively. (Under AGAAP,
counterparty risk is notionally allowed for as part of the General Provision.)
At 1 October 2005, recognition of the fair value of derivatives relating to securitisation
vehicles and structured finance transactions will reduce retained earnings by $64 million for
the Group (Company: $50 million). The Group continues to evaluate hedging relationships
and effectiveness for certain structured finance transactions, which may introduce volatility
within the statement of financial performance. Accordingly, the likely AIFRS impact cannot be
reliably estimated at present.
AIFRS permits hedge accounting (if certain criteria are met) for fair value hedges, cash flow
hedges and hedges of investments in foreign operations. Fair value and cash flow hedge
accounting can only be considered where prospective and retrospective effectiveness tests
are met and the hedge relationship has been adequately documented. Ineffectivenessprecludes the use of hedge accounting. The Group uses cash flow and fair value hedging inrespect of its interest rate risk exposures.
As at 1 October 2005, the Group has designated certain fair value and cash flow hedges andfinancial liabilities as fair value through profit and loss, resulting in an increase in net assets
of $97 million (Company: decrease in net assets of $53 million), represented by a decrease
in retained earnings of $65 million (Company: $64 million), and an increase in reserves of$162 million (Company: $11 million). Any volatility through the statement of financial
performance due to hedge ineffectiveness is not expected to be material.

xiv) Financial instruments classificationand measurement
Certain assets reclassified and measured
at fair value
Initial decrease in retained earnings

Under AIFRS, certain financial assets of the Group currently carried at amortised cost will beeither:nn

reclassified as available for sale, resulting in measurement at fair value with movements
being taken to an ‘Available for Sale’ equity reserve; orreclassified as financial assets held at fair value through the profit and loss, withmovements in fair value being taken to the statement of financial performance.

On 1 October 2005, the reclassification of financial assets as either available for salefinancial assets or financial assets designated at fair value, will not result in a material
adjustment for the Group and the Company.
Under AIFRS, most financial liabilities will continue to be recognised at amortised cost and,as a result, there will be no material adjustment to the statements of financial position andperformance.
Financial instruments will be measured under AIFRS at ‘bid’ or ‘offer’ prices rather than thecurrent use of ‘mid’ prices. On 1 October 2005, this change in measurement will result in adecrease to retained earnings of $5 million for the Group and $4 million for the Company.
anz financial report 2005

103

NOTES TO THE FINANCIAL STATEMENTS
55: IMPACT OF ADOPTING AUSTRALIAN EQUIVALENTS TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (AIFRS) (CONTINUED)
Issues with effective impact from 1 October 2005 (continued)xv) Classification of hybrid financial
instruments
Reclassification of ANZ StEPS fromequity to debt

Under AASB 132: ‘Financial Instruments: Disclosure and Presentation’, ANZ StEPS, a hybrid
Tier 1 instrument currently treated as equity, will be reclassified as debt. Prepaid issue costs,
currently offset against the preference share capital balance, will be capitalised andamortised to interest over a 5 year period from the date of issue.
At 1 October 2005, an amount of $987 million will be transferred from Preference Share
Capital to Loan Capital, and capitalised prepaid issue costs of $5 million will have beenamortised. Ongoing distributions to the holders of ANZ StEPS will be treated as an interest
expense in the statement of financial performance rather than as dividends.

xvi) Accounting for INGA
Initial reduction in retained earnings

Under AASB 131: ‘Interests in Joint Ventures’, and in line with current policy, the Group isrequired to equity account for its interest in INGA. The adoption of AIFRS by INGA will resultin the following significant measurement and recognition differences to AGAAP:nnnincreased policy liabilities resulting from a change in the discount rates applied in theactuarial calculation of policy liabilities and the separate presentation and change in basisof deferred acquisition costs (largely commissions) previously included within net policy
liabilities;
write-off of the excess of the market value over net assets (EMVONA) for INGA’s life
insurance controlled entities, which under AIFRS will no longer be recognised, together
with a reassessment of other non-allowable intangibles; andinitial entry fee income previously taken upfront will be deferred and amortised to income
over time.

The Group’s 49% share of INGA’s net AIFRS adjustment is $181 million, thus reducing theGroup’s retained earnings and the carrying value of its interest in INGA as at 1 October 2005.
Following the adoption of AIFRS, the Group’s investment in INGA will also be impacted by
INGA’s adoption of classifying and measuring its shareholder investments as “available forsale” assets. This change in measurement is likely to result in a reduction in investment
return volatility experienced by INGA, as only realised gains and losses will be reported in
its net profit.
xvii) Accounting for ING New Zealand
Immaterial impacts

104

On 30 September 2005, ANZ announced its funds management and life insurance joint
venture with ING had been extended through the creation of a New Zealand joint venture.
The adoption of AIFRS by ING New Zealand is not expected to have a material impact on theGroup’s financial statements.

NOTES TO THE FINANCIAL STATEMENTS
55: IMPACT OF ADOPTING AUSTRALIAN EQUIVALENTS TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (AIFRS) (CONTINUED)
Summary of Financial Impacts
A summary of the material after-tax financial impacts of conversion to AIFRS is set out in the following tables:
Table 1 represents the impact of the transition to AIFRS on Shareholders’ Equity as at 1 October 2004, for those standards with an effective
date of 1 October 2004.
Table 2 sets out the additional impacts on Shareholders’ Equity as at 1 October 2005 including those standards with an effective date of
1 October 2005.
Table 3 sets out the expected comparative adjustment to the result for the year ended 30 September 2005.
References are provided within the tables to the detailed narrative disclosure in the section above.
Table 1: Shareholders’ Equity Reconciliation as at 1 October 2004
Group
$m

The Company$m17,925

16,647

ii)
iii)
vi)
vii)
viii)

(142)
(12)
218
31
14
(5)

(143)
(13)
233
31
11
(4)

Foreign Currency Translation Reserve
Transfer to Retained Earnings

vi)

(218)

(233)

Asset Revaluation Reserve
Transfer to Retained Earnings

vii)

(31)

(31)

iii)
iii)

43
(49)
2

43
(49)
2

17,776

16,494

Reference

Shareholders’ Equity Reconciliation
Total Shareholders’ Equity under AGAAP as at 1 October 2004
AIFRS 1 October 2004 After Tax Adjustments to Shareholders’ Equity
Retained Earnings Impacts:
Initial recognition of defined benefit superannuationplans net obligation
Net adjustment for share based payments
Transfer from Foreign Currency Translation Reserve
Transfer from Asset Revaluation Reserve
Initial recognition of balance sheet tax effect accounting
Other

Other Reserves and Share Capital Impacts
Initial recognition of Share Options Reserve
Decrease in paid up capital in respect of share based payments
Other
AIFRS restated Shareholders’ Equity as at 1 October 2004

anz financial report 2005

105

NOTES TO THE FINANCIAL STATEMENTS
55: IMPACT OF ADOPTING AUSTRALIAN EQUIVALENTS TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (AIFRS) (CONTINUED)
Table 2: Shareholders’ Equity Reconciliation as at 1 October 2005

AIFRS restated Shareholders’ Equity as at 1 October 2004
Other current AGAAP shareholders’ equity movements
for the year ended 30 September 2005 1
AIFRS net profit after tax for the year ended 30 September 2005
AIFRS 1 October 2005 after tax adjustments to shareholders’ equity
Retained Earnings Impacts:
Actuarial movements within defined benefit superannuation plans
Adjustment to credit loss provision
Deferral of financial services fees recognised as an adjustment to yield
Adjustment to reflect counterparty risk in the fair value of derivatives
Recognition of fair value of derivatives2
49% share of INGA joint venture opening AIFRS adjustments
Other
Other Reserves and Share Capital impacts:
Movements in share options reserve
Movement in paid up capital in respect of share based payments
Hedge accounting adjustment to establish cash flow hedging reserve
Reclassification of ANZ StEPS hybrid financial instrument from preference
share capital to liabilities
Other

Reference

Group
$m

The Company$mTable 1

17,776

16,494

Table 3

(1,455)
3,182(1,150)
2,178

ii)
xi)
xii)
xiii)
xiii)
xvi)

35
191
(266)
(24)
(129)
(181)
(12)

32
99
(195)
(22)
(114)
–
(11)

iii)
iii)
xiii)

23
41
162

23
41
11

xv)

(987)
2

(987)
2

18,35816,401940(443)
9(1,961)

940
(213)
–
(1,877)(1,455)(1,150)Group$m

The Company
$m

3,018

2,227

224
(64)
4
164

–
(57)
8
(49)

3,182

2,178

AIFRS Restated Shareholder’s Equity as at 1 October 2005
1

Represents movements in Shareholders’ Equity other than profit for the year:
Change in Share Capital
Change in Reserves
Change in Outside Equity Interests
Dividends paid
Net adjustment

2

Represents the fair value of derivativesn that no longer meet hedge accounting criteria of $65 million for the Group and $64 million for the Company; andn relating to securitisation and structured finance transactions of $64 million for the Group and $50 million for the Company including
the impact of designating certain financial liabilities as fair value through profit and loss

Table 3: Restatement of AGAAP after tax profit and loss for the year ended 30 September 2005
to an AIFRS comparative basis
Reference

AGAAP Net Profit After Tax for the year ended 30 September 2005
Writeback of goodwill amortisation
Recognition of share based payments expense
Other1
Total AIFRS after tax adjustments to Net Profit After Tax for the year ended 30 September 2005
AIFRS Net Profit after tax for the year ended 30 September 2005: comparative basis
1

Comprises after tax profit impact forn financial services fees recognised over the period of servicen income and expense items recorded within securitisation vehicles, andn recognition of non-cash pensions expense for defined benefit superannuation plans, net of AGAAP contributions expense

106

i)
iii)

NOTES TO THE FINANCIAL STATEMENTS
56: EVENTS SINCE THE END OF THE FINANCIAL YEAR
There were no significant events from 30 September 2005 to the date of this report.

anz financial report 2005

107

DIRECTORS’ DECLARATION
The directors of Australia and New Zealand Banking Group Limited declare that:a) in the directors’ opinion the financial statements and notes of the Company and the consolidated entity have been prepared inaccordance with the Corporations Act 2001, including that they:i) comply with applicable Australian Accounting Standards, and other mandatory professional reporting requirements; andii) give a true and fair view of the financial position of the Company and of the consolidated entity as at 30 September 2005 and of
their performance as represented by the results of their operations and their cash flows, for the year ended on that date; andb) that the directors have received the declaration under section 295A of the Corporations Act 2001; andc) 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.
The Company and certain of its wholly owned controlled entities (listed in note 47) have executed a Deed of Cross Guarantee enabling themto take advantage of the accounting and audit relief offered by class order 98/1418 (as amended), issued by the Australian Securities andInvestments Commission.
The nature of the Deed of Cross Guarantee is to guarantee each creditor payment in full of any debt in accordance with the terms of the Deedof Cross Guarantee.
At the date of this declaration, there are reasonable grounds to believe that the Company and its controlled entities which executed the Deedof Cross Guarantee are able, as an economic entity, to meet any obligations or liabilities to which they are, or may become, subject by virtueof the Deed of Cross Guarantee.
Signed in accordance with a resolution of the directors.

Charles Goode
Director
2 November 2005

108

John McFarlane
Chief Executive Officer

INDEPENDENT AUDIT REPORT TO THE MEMBERS OF AUSTRALIA AND
NEW ZEALAND BANKING GROUP LIMITEDSCOPE
We have audited the financial report of Australia and New Zealand Banking Group Limited for the financial year ended 30 September 2005,
consisting of the statements of financial performance, statements of financial position, statement of changes in shareholders’ equity,
statements of cash flows, accompanying notes 1 to 56 and the directors’ declaration, set out on pages 2 to 108. The financial report includes
the consolidated financial statements of the consolidated entity, comprising the Company and the entities it controlled at the end of the year
or from time to time during the financial year. The Company’s directors are responsible for the financial report.
We have conducted an independent audit of this financial report order to express an opinion on it to the members of the Company. Our audit
has been conducted in accordance with Australian Auditing Standards to provide reasonable assurance whether the financial report is free ofmaterial misstatement. Our procedures included examination, on a test basis, of evidence supporting the amounts and other disclosures in
the financial report, and the evaluation of accounting policies and significant accounting estimates. These procedures have been undertaken
to form an opinion whether, in all material respects, the financial report is presented fairly in accordance with Accounting Standards andother mandatory professional reporting requirements in Australia and statutory requirements so as to present a view which is consistent with
our understanding of the Company’s and the consolidated entity’s financial position, and performance as represented by the results of theiroperations and their cash flows.
The audit opinion expressed in this report has been formed on the above basis.

AUDIT OPINION
In our opinion, the financial report of Australia and New Zealand Banking Group Limited is in accordance with:a) the Corporations Act 2001, including:i) giving a true and fair view of the Company’s and the consolidated entity’s financial position as at 30 September 2005 and of theirperformance for the year ended on that date; andii) complying with Accounting Standards in Australia and the Corporations Regulations 2001; andb) other mandatory financial reporting requirements in Australia.

KPMG

Mitch Craig
Partner

Melbourne, Australia
2 November 2005

anz financial report 2005

109

CRITICAL ACCOUNTING POLICIESThe Group prepares its consolidated
financial statements in accordance with
Australian Accounting Standards andother authoritative accounting
pronouncements. However,notwithstanding the existence of relevant
accounting standards, there are a numberof critical accounting treatments, which
include complex or subjective decisions orassessments. All material changes toaccounting policy are approved by the
Audit Committee of the Board.

HISTORICAL CHANGES
There have been no material changes to
the Group’s critical accounting policies
or their related methodologies over thelast 3 years.
A brief discussion of critical accounting
policies, and their impact on theGroup, follows:a) Economic Loss Provisioning
Description and Significance
The Group recognises an expense for
credit losses ‘provision for doubtful debts’based on the average one year loss
expected to be incurred if the same loan
portfolio was held over an economic cycle.
The provision for doubtful debts is booked
to the General Provision which ismaintained to cover the losses inherent
in the Group’s existing loan portfolio.
The method used by the Group for
determining the expense charge isreferred to as ‘Economic Loss
Provisioning’ (ELP). The Group uses
ELP models to calculate the expected loss
by considering:nn

the size, composition and risk profile ofthe current loan portfolio; andthe history of credit losses for each loan
portfolio.

Ongoing reviews
The Group regularly reviews theassumptions used in the ELP models.
These reviews are conducted inrecognition of the subjective nature of the
ELP methodology. Methodologies are
updated as improved analysis becomes
available. In addition, the robustness ofoutcomes is reviewed considering theGroup’s actual loss experience, andlosses sustained by other banks operatingin similar markets.
To the extent that credit losses are notconsistent with previous loss patterns
used to develop the assumptions within
the ELP methodology, the existing General

110

Provision may be determined to be either
in excess of or insufficient to cover credit
losses not yet specifically identified.
As a result of the reassessments, ELP
charge levels may be periodicallyincreased or decreased with a direct
impact on profitability.
As part of its review of the ELP model
outputs, the Group also regularly
evaluates the overall level of the General
Provision. The Group is required, by APRA
prudential standards, to have policies
which cover the level of General
Provisions that are needed to absorb
estimated losses inherent in the credit
portfolio. In some limited circumstances,
the assessment of the inherent losses in
the portfolio may require an additionalcharge to profits to ensure the adequacyof the General Provision. The Groupconsiders it appropriate to maintain
its General Provision in excess of the
APRA guidelines.
Quantification of Sensitivity
The average charge to profit for ELP was
0.25% of average net lending assets or$580 million (Sep 2004: 0.31% or$632 million; Sep 2003: 0.39% or$614 million).
As at September 2005, the balance of theGeneral Provision of $2,167 million(Sep 2004: $1,992 million) represents
0.99% (Sep 2004: 1.01%) of risk
weighted assets).
b) Specific Provisioning
Description and Significance
The Group maintains a specific provision
for doubtful debts arising from its
exposure to organisations and credit
counterparties.
When a specific debt loss is identified as
being probable, its value is transferredfrom the general provision to the specificprovision. Specific provisioning is applied
when the full recovery of one of theGroup’s exposures is identified as being
doubtful resulting in the creation of a
specific provision equal to the full amountof the expected loss plus any
enforcement/recovery expenses.
Recoveries resulting from proceeds
received from accounts which were written
off in prior years are transferred back to
the General Provision.
Quantification of Sensitivity
The recognition of losses has an impact
on the size of the General Provision rather
than directly impacting profit. However,to the extent that the General Provision

is drawn down beyond a prudent amountit will be restored through a transfer fromthe current year’s earnings. The amountof net transfer from the General Provision
to the Specific Provision, net of recoveries,
during the year was $357 million(Sept 2004: $443 million; Sep 2003:$527 million).
c) Deferred acquisition costs, software
assets and deferred income
Description and Significance
The Group recognises assets andliabilities that represent:nnnDeferred acquisition costs – direct
costs from the acquisition ofinterest earning assets;
Software assets – direct costs
incurred in developing softwaresystems; andDeferred income – liabilities
representing income received inadvance of services performed.

Deferred acquisition costs – Initially,
expenses related to the acquisition ofinterest earning assets are recognised aspart of the cost of acquiring the asset andwritten-off as an adjustment to its yieldover its expected life. For assets subject toprepayment, expected life is determinedon the basis of the historical behaviour of
the asset portfolio, taking into accountprepayments. Commissions paid to third
party mortgage brokers are an example ofexpenditure that is deferred andamortised over the expected average lifeof a mortgage of 4 years.
Software assets – Costs incurred inacquiring and building software andcomputer systems are capitalised as fixed
assets and expensed as depreciation overperiods of between 3 and 5 years except
for the branch front end applications
where 7 years is used. The carrying valueof these assets is subject to a ‘recoverable
amount test’ to determine their value tothe Group. If it is determined that thevalue of the asset is less than its ‘book’
value, the asset is written down to therecoverable amount. Costs incurred inplanning or evaluating software
proposals, or in maintaining systems after
implementation, are not capitalised.
Deferred income – Income received inadvance of the Group’s performance ofservices or in advance of having been
earned, is initially recorded as a liability.
Once the recognition criteria are met, itis then recognised as income.

CRITICAL ACCOUNTING POLICIES (CONTINUED)
Quantification of Sensitivity
Deferred acquisition costs – At 30 September, the Group’s assets included $524 million (Sep 2004: $465 million) in relation to costs
incurred in acquiring interest earning assets. During the year, amortisation of $258 million (Sep 2004: $218 million) was recognised as
an adjustment to the yield earned on interest earning assets.
Software assets – At 30 September, the Group’s fixed assets included $381 million (Sep 2004: $430 million) in relation to costs incurredin acquiring and developing software. During the year, depreciation expense of $121 million (Sep 2004: $129 million) was recognised.
Following prior periods of above average project activity which replaced significant parts of the Group’s core infrastructure, the software
depreciation expense is expected to stabilise going forward. Consistent with US accounting rules on software capitalisation, only costs
incurred during configuration, coding and installation stages are capitalised. Administrative, preliminary project and post implementation
costs including determining performance requirements, vendor selection and training costs are expensed as incurred.
Deferred income – At 30 September, the Group’s liabilities included $79 million (Sep 2004: $156 million) in relation to income received
in advance. This income is largely comprised of two components: (1) fees received for services not yet completed; and (2) profit made on
interest rate swaps from a shortening of the investment term of capital. Under Australian Accounting Standards, this profit is deferred andrecognised when the hedged transaction occurs, or immediately if the hedged transaction is no longer expected to occur.
The balances of deferred assets and liabilities at 30 September were:
Deferred Acquisition Costs
2005
2004
$m
$m

Software Assets
2005
2004
$m
$m

Deferred Income
2005
2004
$m
$m

Personal
EsandaNew Zealand BusinessInstitutional
Other1

153
284
61
6
20

145
250
38
10
22

241
5
15
47
73

296
8
30
43
53

27
–
15
19
18

36
–
41
11
68

Total

524

465

381

430

79

156

Brokerage
amortised$m

2005
Brokerage
capitalised2$m

Balance3$m

Brokerage
amortised$m

2004
Brokerage
capitalised2$m

Balance3$mPersonal
EsandaNew Zealand BusinessInstitutional
Other1

63
165
20
4
6

71
199
43
–
4

153
284
61
6
20

64
147
7
–
–

66
170
30
–
24

145
250
38
10
22

Total

258

317

524

218

290

465

Deferred acquisition costs analysis

1 Includes Group Centre, Corporate Australia and Asia Pacific2 Costs capitalised during the year exclude trailer commissions paid, relating to the acquisition of mortgage assets of $83 million (2004: $87 million)
3 Includes capitalised debt raising expensesd) Derivatives and Hedging
Description and Significance
The Group buys and sells derivatives aspart of its trading operations and to hedge
its interest rate risk, foreign exchange risk
and equity risks (in ING Australia). The
derivative instruments used to hedge theGroup’s exposures include:nswaps;

nforeign exchange contactsnforward rate agreements;nfutures;n

options; andncombinations of the above instruments.

The Group classifies derivatives into two
types according to the purpose they are
entered into: trading or hedging.
Income and loss relating to trading
derivatives is reported in the statement offinancial performance as trading income.
The fair value of trading derivatives isrecorded on a gross basis as other assets
or other liabilities as appropriate unlessthere is a legal right of set off. The fairvalue of a derivative financial instrument
is the net present value of future expectedcash flows arising from that instrument.

be expected to be effective. Hedging
derivatives are accounted for in the samemanner as the underlying asset or liability
they are hedging. For example, if thehedged instrument is accounted for using
the accrual method, the hedging
instrument will also be accounted forusing the accrual method.
Accounting treatment – Derivative
instruments entered into for the purposeof hedging are accounted for on the same
basis as the underlying exposures or risks.

In order to be classified as a hedging
derivative the hedging relationship mustanz financial report 2005

111

CRITICAL ACCOUNTING POLICIES(CONTINUED)d) Derivatives and Hedging
Description and Significance (continued)
Derivative instruments entered into tohedge exposures that are not recorded atfair value, do not have their fair values
recorded in the Group’s Statement of
Financial Position.
Exposures hedged by derivatives notrecorded at their fair value include risks
related to:nrevenues from and capital invested into
foreign operations;nstructured lending transactions;nlending assets; andnfunding liabilities.

Hedge accounting is only applied when
the hedging relationship is identified at
the time the Group enters into thehedging derivative transaction. If a hedge
ceases to be effective, the hedging
derivative transaction will be recognised
at fair value. Gains and losses onderivative instruments not carried at theirfair value amounts are recognised at thesame time as the gain or loss on thehedged exposure is booked.

Fair value determination – Derivatives
entered into as part of the Group’s trading
operations are carried at their fair values
with any change in fair value being
immediately recognised as part of trading
income. Where liquid markets exist, fairvalue is based on quoted market prices.
For certain complex or illiquid derivative
instruments, it may be necessary to use
projections, estimates and models todetermine fair value.

Movements in the value of foreignexchange contracts that are hedging
overseas operations are not recognised asincome or expenses. Instead these
movements are recognised in the Foreign
Currency Translation Reserve together with
the net difference arising from thetranslation of the overseas operation.

e) Special purpose and off balance sheet vehicles
The Group may invest in or establish special purpose entities (SPEs), to enable it to undertake specific types of transactions.
Where the Group has established SPEs which are controlled by the Group to facilitate transactions undertaken for Group purposes, these areconsolidated into the Group’s financial statements.
The table below summarises the main types of SPEs that are not consolidated into the Group, the reason for their establishment, and the key
risks associated with them.
Type of Special
Purpose Entity (SPE)Securitisation vehicles

SPE Assets
2005
2004
$m
$m

Reason for establishment

Key Risks

Assets are transferred to an SPE which funds
the purchase by issuing securities.

ANZ may manage securitisation vehicles,
15,181
service assets in a vehicle or provide
liquidity or other support and retains therisks associated with the provision of these
services. Credit and market risks associatedwith the underlying assets are not retainedor assumed by ANZ except to the limited
extent that ANZ provides arm’s length services
and facilities.

13,013

Enables ANZ or customers to increase
diversity of funding sources.
The amount disclosed here is the total
assets of SPEs managed or arranged by ANZ.
It includes SPEs that purchase assets fromsellers other than ANZ.
Structured finance entities

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

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

1,243

1,993

Managed funds

These funds invest in specified
investments on behalf of clients.

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

44,77939,544f) Valuation of investment in
ING Australia Limited (INGA)
Description and significance
The Group adopts the equity method of
accounting for its 49% interest in INGA.
As at 30 September 2005, the Group's
carrying value was $1,479 million(September 2004: $1,697 million).
The carrying value is subject to arecoverable amount test to ensure that
this does not exceed its recoverable
amount at the reporting date.

112

Any excess of carrying value above
recoverable amount is written off to thestatement of financial performance.
Quantification of sensitivity
During the year the Group engaged Ernst& Young ABC Limited (EY ABC) to provide
an independent valuation of INGA for 31
March 2005 assessment purposes. The
valuation was a stand alone market based
assessment of economic value, andexcluded the Group's specific synergies
and hedging arrangements. The
independent valuation was based on a

discounted cashflow approach, withallowance for the cost of capital. EY ABC
presented an independent valuation
range of $3,458 million to $3,727 million,
reflecting a range of sales and cost baseassumptions. Based on this review, ANZ
believed that no change was required tothe carrying value of the investment as at
31 March 2005.
A review for 30 September 2005 reporting
purposes revealed there were no
indicators of impairment and a further
independent review was not required.

CRITICAL ACCOUNTING POLICIES(CONTINUED)
g) Valuation of goodwill in ANZ National
Bank Ltd
Goodwill arising from the acquisition of
National Bank of New Zealand (NBNZ) is
systematically amortised over the periodof time during which the benefits of theacquisition are expected to arise, such
period of benefit not exceeding 20 years.
The carrying value of goodwill is reviewed
at each balance date and is written down,
to the extent that it is no longer supported
by probable future benefits.
The Group obtained an independentvaluation of ANZ National Bank Limited
as at 31 March 2005. This valuation,
based on a capitalisation of earnings
methodology, calculated the value of ANZ
National Bank Limited at a New Zealandgeographic and New Zealand business
unit reporting level. Based on the resultsof this valuation, no write-down in the
carrying value of goodwill was required.
At 30 September 2005, a management
review was conducted to determine
whether there were any indicators of
impairment in the carrying value of NBNZ
goodwill. The assessment did not indicate
the existence of impairment indicators
and accordingly no write-down was
required.

RISK MANAGEMENTANZ recognises the importance ofeffective risk management to its businesssuccess. Management is committed toachieving strong control and a distinctive
risk management capability that enables
ANZ business units to meet theirperformance objectives.
ANZ approaches risk through managing
the various elements of the system as
a whole rather than viewing them as
independent and unrelated parts. The
Risk function is independent of thebusiness with clear delegations fromthe Board and operates within acomprehensive framework comprising:nnn

The Board, providing leadership, setting
risk appetite/strategy and monitoring
progress.
A strong framework for development
and maintenance of Group-wide risk
management policies, procedures andsystems, overseen by an independent
team of risk professionals.
The use of sophisticated risk tools,
applications and processes to execute
the global risk management strategy
across the Group.

nnBusiness Unit level accountability,
as the “first line of defence”, and for the
management of risks in alignment with
the Group's strategy.
Independent oversight to ensure
Business Unit compliance with policies,
regulations and laws, and to provide
regular risk evaluation and reporting.

The various risks inherent in theoperations of the Group may be broadlygrouped together under the following
major categories:
Credit Risk
The Group has an overall lending objectiveof sound growth for appropriate returns.
The credit risk management framework
exists to provide a structured anddisciplined process to support thisobjective.
This framework is top down, being defined
firstly by the Group's Vision and Values
and secondly, by Credit Principles andPolicies. The effectiveness of the credit
risk management framework is validated
through compliance and monitoringprocesses. These, together with portfolio
selection, define and guide the credit
process, organisation and staff.
Risk Management's responsibilities for
credit risk policy and management are
executed through dedicated departments,
which support the Group's business units.
All major Business Unit credit decisions
require approval by both business writers
and independent risk personnel.
Market Risk
ANZ has a detailed market risk
management and control framework,
to support trading activities, which
incorporates an independent risk
measurement approach to quantify themagnitude of market risk within the
trading books. This approach, along withrelated analysis, identifies the range ofpossible outcomes that can be expected
over a given period of time, andestablishes the relative likelihood of
those outcomes.
Market risk also includes the risk that theGroup will incur increased interest
expense arising from funding
requirements during periods of poor
market liquidity (balance sheet or nontraded market risk). ANZ has a separate
risk management and control frameworkfor such risks, which is built around a
Board-approved policy and limit
framework.

who work closely with the Markets,
and Treasury business units.
Operational Risk
Risk Management is responsible forestablishing the Group's operational risk
framework and associated Group-level
policies. Business Units are responsible
for the identification, analysis,
assessment and treatment of operationalrisks on a day-to-day basis.
A Risk Drivers and Controls (or“Scorecards”) Approach to operationalrisk measurement is used to measure theoperational risk profile of individual
business units, and to allocate
operational risk economic capital. Thisapproach gives business managers astrong and clear incentive to reduce
operational risk.
Compliance
ANZ conducts its business in accordancewith all relevant compliance requirementsin each point of representation.
In order to assist the Group identify,
manage, monitor and measure its
compliance obligations, the Group has
a comprehensive regulatory complianceframework in place, which is consistent
with the Australian Standard on
Compliance Programs (AS 3806) andwhich addresses both external(regulatory) and internal compliance.
In addition, Group Compliance, a discrete
function within Risk Management, is
responsible for working in conjunction
with Business Unit Compliance teams andother risk management areas to provide acompliance infrastructure and framework
to facilitate planning, reporting andmanagement of new and changing
business obligations and processes.
Assocations with Related Entities
ANZ has a policy and compliance plan toprovide a framework for managing therisks resulting from associations between
the Company, as an Authorised Deposittaking Institution (ADI), and its “related
entities”. Under this policy, all dealings
between the Company and its related
entities are conducted on an arm’s-length
basis, unless approved by the ANZ Board.

Within overall strategies and policies,
control of market risk exposures at Grouplevel is the responsibility of Market Risk,

anz financial report 2005

113

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

Other
commercial
and industrial
$m

Total
$m

% of
Group
assetsAt 30 September 2005
USA
United Kingdom
China

158
94
4

3,671
2,192
2,393

878
2,320
159

4,707
4,606
2,556

1.6
1.6
0.9

At 30 September 2004
United Kingdom
USA

217
177

2,400
3,157

2,652
1,184

5,269
4,518

2.0
1.7

2: CERTIFICATES OF DEPOSIT AND TERM DEPOSIT MATURITIESThe following table shows the maturity profile of the Group’s certificates of deposit and term deposits in excess of $100,000
issued at 30 September 2005.

Australia
Certificates of deposit
Term deposits

Overseas
Certificates of deposit
Term deposits

Total

114

BetweenBetweenLess than 3 months and 6 months and3 months
6 months
12 months
$m
$m
$m

After
1 year
$m

Total
$m

9,129
17,127

1,453
2,090

200
1,350

6,730
210

17,512
20,777

26,256

3,543

1,550

6,940

38,2893,733
18,017

721
2,887

487
2,044

142
1,004

5,083
23,952

21,750

3,608

2,531

1,146

29,03548,006

7,151

4,081

8,086

67,324

FINANCIAL INFORMATION (CONTINUED)
3: VOLUME AND RATE ANALYSISThe following table allocates changes in interest income and interest expense between changes in volume and changes in rate for the past
two years. Volume and rate variances have been calculated on the movement in average balances and the change in the interest rates on
average interest earning assets and average interest bearing liabilities. The variance caused by the change of both volume and rate has been
allocated in proportion to the relationship of the absolute dollar amounts of each change to the total.
2005 over 2004
Change due to
Rate
$m

Total
$m

Volume
$m

12
(2)
7

1
13
40

13
11
47

53
(45)
(17)

2
28
10

1,492
1,041
(34)

2004 over 2003
Change due to
Rate
$m

Total
$m

7
84
6

1
8
(11)

8
92
(5)

55
(17)
(7)

42
68
43

46
9
(26)

88
77
17

158
390
74

1,650
1,431
40

1,320
2,146
(102)

310
(82)
20

1,630
2,064
(82)

40
20
81

(66)
23
(17)

(26)
43
64

(6)
25
(75)

28
(13)
62

22
12
(13)

(28)

133

105

17

8

25

2,620

789

3,409

3,575

360

3,935

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

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

Change in net interest income

28

(133)

(105)

(17)

(8)

(25)

2,648

656

3,304

3,558

352

3,910

458
277
(43)

79
182
130

537
459
87

282
557
(45)

142
11
5

424
568
(40)

25
26
–

36
53
–

61
79
–

26
97
–

47
36
–

73
133
–

175
71
2

75
85
2

250
156
4

115
174
–

104
(16)
–

219
158
–

–
4
22

1
13
67

1
17
89

28
44
(53)

8
9
19

36
53
(34)

(26)
58
(7)

12
80
93

(14)
138
86

31
383
20

30
–
(4)

61
383
16

13
2

19
13

32
15

24
6

10
(4)

34
2

482
190
–

87
24
1

569
214
1

522
90
(1)

42
(6)
–

564
84
(1)

43
106
2

(138)
(26)
(2)

(95)
80
–

186
(78)
18

60
64
(24)

246
(14)
(6)

7
42

(1)
57

6
99

(30)
141

(123)
37

(153)
178

1,929

942

2,871

2,537

447

2,984

28

(133)

(105)

(17)

(8)

(25)

1,957

809

2,766

2,520

439

2,959

691

(153)

538

1,038

(87)

951

anz financial report 2005

115

FINANCIAL INFORMATION (CONTINUED)
4: CONCENTRATIONS OF CREDIT RISK
Concentrations of credit risk exist if a number of counterparties are engaged in similar activities and have similar economic characteristics
that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions. Off balance
sheet transactions of the Group are substantially with other banks.

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

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

Total portfolio

2005
Loans andSpecific
provision
advances1$m$m

Loans andadvances1$mSpecific
provision
$m

5,303
3,912
3,638
4,640
61
2,855
5,736
23,253
3,082
93,275
8,551
7,445

22
13
3
4
–
2
35
26
3
9
18
29

4,592
3,346
3,660
3,548
126
2,667
4,734
19,491
2,368
81,770
7,626
6,552

26
4
7
5
–
1
26
24
3
8
21
84

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

71
4
23
5
–
2
5
23
4
11
54
65

161,751

164

140,480

209

121,320267

11,277
703
1,036
2,376
423
856
4,497
3,022
804
39,634
2,533
6,054

1
2
7
14
–
–
28
17
1
8
14
17

10,551
931
968
3,288
461
604
4,682
2,497
721
35,400
2,233
5,998

43
4
3
9
–
3
21
4
9
6
9
64

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

12
1
5
5
–
–
17
19
1
4
9
144

73,215

109

68,334175

31,467

217

234,966273

208,814384

152,787

484

2004

2003
Loans andSpecific
provision
advances1$m$m

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

116

FINANCIAL INFORMATION (CONTINUED)
4: CONCENTRATIONS OF CREDIT RISK (CONTINUED)

2002

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

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

Total portfolio

2001

Loans andadvances1$mSpecific
provision$m

Loans andadvances1$mSpecific
provision
$m

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

16
5
28
13
–
2
7
27
5
32
15
61

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

104
7
27
3
–
5
11
36
11
13
16
70

102,538

211

92,455

303

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

3
1
4
21
–
1
34
7
1
5
15
282

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

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

32,811

374

34,235

197

135,349585

126,690500

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

anz financial report 2005

117

FINANCIAL INFORMATION (CONTINUED)
5: DOUBTFUL DEBTS – INDUSTRY ANALYSIS
2005
$m

2004
$m

2003
$m

2002
$m

2001
$m

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

2,376
(46)
(13)
(571)
580
114

2,018
51
273
(680)
632
82

2,081
(98)
–
(640)
614
61

1,886
(28)
–
(697)
860
60

2,082
32
–
(834)
531
75

Total provisions for doubtful debts

2,440

2,376

2,018

2,081

1,886

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

(20)
(20)
–
(1)
(14)
(16)
(209)
(2)
(4)
(29)
(45)

(86)
(4)
(5)
–
(2)
(15)
(203)
(2)
(8)
(38)
(105)

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

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

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

Other

(211)

(212)

(326)

(229)

(326)

Total write-offs

(571)

(680)

(640)

(697)

(834)

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

–
–
–
–
1
–
50
1
–
1
3

–
1
–
1
2
–
46
3
1
2
2

2
1
1
1
2
6
24
3
1
3
–

3
1
2
–
2
3
27
2
4
3
1

5
1
1
2
1
2
30
1
3
2
1

Overseas
Other

58

24

17

12

26

Total recoveries

114

82

61

60

75

Net write-offs

(457)

(598)

(579)

(637)

(759)

Ratio of net write-offs to average loans and acceptances

0.2%

0.3%

0.4%

0.4%

0.5%

i) Total write-offs by industryii) Total recoveries by industry

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

118

FINANCIAL INFORMATION (CONTINUED)
6: SHORT TERM BORROWINGSThe Group’s short-term borrowings comprise commercial paper, as well as unsecured notes issued by subsidiary borrowing corporations withan original term to maturity of less than one year. The Group has commercial paper programs in the United States, where it issues paper
through ANZ (Delaware) Inc., and in Europe and Asia, where the Group issues paper direct.
2005
$m

2004
$m

2003
$m

Balance at end of year
Commercial paper – ANZ (Delaware) Inc.
Commercial paper – otherUnsecured notes

6,373
14,634–

7,068
11,712
–

6,981
5,458
–

Weighted average interest rate at end of year
Commercial paper – ANZ (Delaware) Inc.
Commercial paper – otherUnsecured notes

3.66%
6.40%
–

1.68%
5.41%
–

1.07%
4.76%
–

Maximum amount outstanding at any month end during year
Commercial paper – ANZ (Delaware) Inc.
Commercial paper – otherUnsecured notes

6,822
14,925–

7,068
18,387
–

6,988
7,407
7

Average amount outstanding during year
Commercial paper – ANZ (Delaware) Inc.
Commercial paper – otherUnsecured notes

5,915
13,072–

6,485
12,588
–

4,740
5,216
7

Weighted average interest rate during year
Commercial paper – ANZ (Delaware) Inc.
Commercial paper – otherUnsecured notes

2.71%
6.26%
–

1.14%
5.53%
–

1.22%
4.83%
5.85%

anz financial report 2005

119

GLOSSARY
Asia Pacific provides primarily retail andcorporate banking services in the PacificRegion and Asia, including ANZ's share of
PT Panin Bank in Indonesia; this division
excludes Institutional businesses in the
Asia Pacific region that are included in theInstitutional result.
Corporate consists of Corporate Banking,Business Banking and Small BusinessBanking in Australia.
nnnSmall Business Banking - provides
business banking services tometropolitan-based small businesses,with business banking funds undermanagement of up to $50,000.

Impaired assets are loans or other credit
facilities where there is reasonable doubt
about the collectability of interest, fees
(past and future) or principal outstanding,or where concessional terms have been
provided because of the financial
difficulties of the customer.
ING Australia (INGA), the joint venture
between the Group and ING Group.
Institutional is a segment encompassing
businesses that provide a full range offinancial services to the Group's largest
corporate and institutional customers.
nBusiness Banking - provides a full rangeof banking services to metropolitanbased small to medium businesses,with turnover up to $10 million andbusiness banking funds undermanagement of more than $50,000.
Corporate Banking - manages customer
relationships and develops financial
solutions for medium-sized businesses,with a turnover of $10 million to$150 million.

Economic loss provisioning (ELP) charge
is determined based on the expected
average annual loss of principal over the
economic cycle for the current risk profileof the lending portfolio.
Equity standardisation. Economic Value
Added (EVATM) principles are in use
throughout the Group, whereby risk
adjusted capital is allocated and charged
against business units. Equity
standardised profit is determined byeliminating the impact of earnings oneach business unit’s book capital andattributing earnings on the business unit’s
risk adjusted capital. This enhances
comparability of business unit
performance. Geographic results are notequity standardised.
Esanda and UDC comprises Esanda
Finance Corporation Limited and UDC
Finance Corporation Limited. They provide
vehicle and equipment finance, rental
services and fixed and at call investments.
Operating in Australia as Esanda andEsanda FleetPartners, and in New Zealandas UDC and Esanda FleetPartners.
Group Centre provides support to theother segments in the areas of People
Capital, Risk Management, Finance,
Operations, Technology, Strategy andTreasury.

120

n

n

n

Client Relationship Group - manages
customer relationships and develops
financial services solutions andstrategies for large businesses with aturnover greater than $150 million inAustralia and New Zealand and, throughcorporate clients where the Group has
an existing customer relationship, in the
United Kingdom, United States andAsia.

Net non-interest bearing items, which arereferred to in the analysis of interest
spread and net interest average margin,
includes shareholders’ equity, provisions
for doubtful debts, and deposits notbearing interest and other liabilities notbearing interest, offset by premises andequipment and other non-interest earning
assets. Non-accrual loans are included
within interest bearing loans, advancesand bills discounted.
Net specific provision is the transfer fromthe general provision to the specificprovision (representing new andincreased specific provisions less specificprovision releases on impaired assets)less recoveries.
New Zealand Business comprisesnnTrade and Transaction Services provides cash management, tradefinance, international payments,
clearing and custodian services
principally to corporate and institutionalcustomers.
Markets - provides origination,
underwriting, structuring, risk
management, advice and sale of credit
and derivative products, foreignexchange and commodity trading andsales-related services, globally.
Corporate and Structured Financing provides complex financing andadvisory services, structured financial
products, leasing, private equity, project
and leveraged finance andinfrastructure investment to ANZ's
corporate, institutional, and small
business customers.

Net advances include gross loans andadvances and acceptances less income
yet to mature and provisions (for both asat and average volumes).
Net interest average margin is net interest
income as a percentage of averageinterest earning assets. Non-assessableinterest income is grossed up to theequivalent before tax amount for the
purpose of these calculations.
Net interest spread is the average interest
rate received on interest earning assets
less the average interest rate paid on
interest bearing liabilities. Non-assessableinterest income is grossed up to theequivalent before tax amount for the
purpose of these calculations.

n

n

n

ANZ Retail - operating under the ANZ
brand in New Zealand, provides a fullrange of banking service to personaland business banking customers.
NBNZ Retail - operating under the
National Bank brand in New Zealand,
provides a full range of banking services
to personal customers from youth
through to private banking, andbusiness banking customers withturnover up to NZD5 million.
Corporate Banking - incorporates the
ANZ and NBNZ brands in New Zealand,and provides financial solutions
through a relationship management
model for medium-sized businesses
with a turnover up to NZD100 million.
Rural Banking - provides a full range ofbanking services to rural andagribusiness customers in New Zealand.
NBNZ - refers to the operations of the
National Bank of New Zealand Limited
purchased on 1 December 2003. These
operations were amalgamated with ANZ
Banking Group (New Zealand) Limited
on 26 June 2004 to form ANZ National
Bank Limited. NBNZ was reported as aseparate business unit until 30
September 2004.

Operating expenses exclude the charge
for doubtful debts.
Operations, Technology and Shared
Services comprises the Group's core
support units responsible for operating
the Group's global technology platforms,
development and maintenance ofbusiness applications, information
security, the Group's payments back-officeprocessing, and the provision of otheressential shared services to the Group,
including property, human resources
operations, procurement and outsourcing.

Overseas includes the results of all
operations outside Australia, except if
New Zealand is separately shown.
Overseas markets includes all operations
outside of Australia and New Zealand.
The Group’s geographic segments are
Australia, New Zealand and Overseas
markets.
Personal comprises the following
business in Australia:
n

n

n

n

n

n

Banking Products - manufactures
deposit, transaction account andmargin lending products.
Consumer Finance - provides consumer
and commercial credit cards, ePayment
products, personal loans, and merchantpayment and ATM facilities.

Total advances include gross loans
and advances and acceptances lessincome yet to mature (for both as at
and average volumes).
Treasury is the banker to all ANZ
businesses charged with providing
cashflow support, ensuring liquidity,
managing interest rate risk and providing
capital to the businesses.
Unproductive facilities comprise certain
facilities (such as standby letters of credit,
bill endorsements, documentary letters ofcredit and guarantees to third parties,
undrawn facilities to which the Group isirrevocably committed and market related
exposures) where the customer status isdefined as non-accrual.

Mortgages - provides mortgage financesecured by residential real estate inAustralia.
Regional Commercial and Agribusiness
Products - provides a full range ofbanking services to personal customers
across Australia, and to small businessand agricultural customers in rural
Australia.
Wealth Management - comprises theequity accounted earnings from INGA’s
core business operations (excludes
investment earnings) and the Financial
Planning distribution business.
Other - includes the branch network,whose costs are full recovered fromproduct business units, Private Banking
and marketing and support costs.

Service transfer pricing is used to allocate
services that are provided by central areas
to each of its business units. The objectiveof service transfer pricing is to remove
cross-subsidies between business units,
and ensure each business accounts forthe cost of the services it uses.
Service transfer pricing charges arereported in the profit and loss statementof each business unit as:nn

Net inter business unit fees - includes
intra-group receipts or payments forsales commissions and branch service
fees. A product business will pay a
distribution channel for product sales.
Both the payment and receipt are
shown as net inter business unit fees.
Net inter business unit expenses consists of the charges made tobusiness units for the provision of
support services. Both payments bybusiness units and receipts by service
providers are shown as net interbusiness unit expenses.

anz financial report 2005

121

ALPHABETICAL INDEX
Accounting Policies
6
Associates
62
Auditors’ Report
109
Average Balance Sheetand Related Interest
41
Bonds and Notes
34
39
Capital Adequacy
Certificates of Deposit andTerm Deposit Maturities
114
Commitments
64
116
Concentrations of Credit Risk
Contingent Liabilities, Contingent Assetand Credit Related Commitments 65
Controlled Entities
27
110
Critical Accounting Policies
Cross Border Outstandings
114
Customer’s Liabilities for Acceptances 26
Deferred Tax Assets
27
Deposits and Other Borrowings
31
Derivative Financial Instruments
51
Directors’ Declaration
108
Directors and Specified Executives Related Party Transactions
88
Directors of Controlled Entitiesof the Company - Related
Party Transactions
98
Dividends
13
Doubtful Debts – Industry Analysis 118
Due from Other Financial Institutions 16
Due to Other Financial Institutions
31
Earnings Per Ordinary Share15
Employee Share and Option Plans
71

122

Equity Instruments Issued
to Employees
12
Events Since the Endof the Financial Year107
Exchange Rates
99
Expenses
11
64
Fiduciary Activities
Glossary
120
Goodwill
28
Impaired Assets
23
10
IncomeIncome Tax Expense
13
Income Tax Liabilities
32
Interest Sensitivity Gap
47
Interest Spreads andNet Interest Average Margins
44
Interests in Joint Venture Entities
62
International Financial
Reporting Standards
99
Investment Securities
17
Liquid Assets
16
Loan Capital
35
Market Risk
45
Net Fair Value of Financial Instruments 49
Net Loans and Advances
20
Notes to the Statements of Cash Flows 59
Other Assets
28
Outside Equity Interests
39
Payables and Other Liabilities
32
Premises and Equipment
29
Provisions
33
Provisions for Doubtful Debts
25

Regulatory Deposits
26
Remuneration of Auditors
12
Remuneration Report
76
Risk Management
113
Securitisation
56
Segment Analysis
57
36
Share Capital
Shares in Controlled Entities,
Associates andJoint Venture Entities
61
119
Short Term Borrowings
Statements of Cash Flows
5
Statements of Changes
in Shareholders’ Equity
4
2
Statements of Financial Performance
Statements of Financial Position
3
Superannuation Commitments
69
Trading Securities
16
Transactions with Associates andJoint Venture Entities Related Party Disclosures
98
Volume and Rate Analysis
115

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When people are inspired.

ANZ Financial Report 2005

Australia and New Zealand Banking Group Limited
www.anz.com ABN 11 005 357 522

Financial Report 2005