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

Half Year
31 March 2008

Consolidated Financial Report
Dividend Announcement andAppendix 4D

This document contains the information required by Appendix 4D of the Australian Securities Exchange Listing Rules. It
should be read in conjunction with ANZ’s 2007 Annual Report, and is lodged with the Australian Securities Exchange underlisting rule 4.2A.

This page has been left blank intentionally

RESULTS FOR ANNOUNCEMENT TO THE MARKET

Name of Company:

APPENDIX 4D

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

Report for the half year ended 31 March 2008
A$ million
Operating income! 15%*

to6,437

Profit after tax attributable to shareholders

" 7%*

to

1,963

Proposed interim dividend per ordinary share, fully franked at 30% tax rate

62 cents

Interim 2007 dividend per ordinary share, fully franked at 30% tax rate

62 cents

Record date for the proposed interim dividend

14 May 2008

The proposed interim dividend will be payable to shareholders registered in the books of the Company at
5:00 pm (Melbourne time) on 14 May 2008

Payment date for the proposed interim dividend*

1 July 2008

Compared to March 2007

Highlights
All figures compared to March 2007 half year unless otherwise indicatedProfitProfit after tax $1,963 million
Cash^ profit before provisions $3,335 million
Cash^ profit after tax $1,674 million

down
up
down

7%
11%
14%

Earnings per share and dividend
EPS 102.4 cents
Cash^ EPS 87.1 centsInterim Dividend 62 cents

down
10%
down
16%
unchanged

Other key measures^
Revenue $6,002 million
Cost to income ratio 44.4%
Provisions $980 million
Gross non-performing loans $1,048 million

up
up
up
up

12%
10 bps$740m$408m

Business highlights^#

Record revenue growth of 12% (13% FX adjusted) despite difficult environment.

#

Provision charge significantly higher. Credit losses are isolated and the broader business and consumer book remainstrong.
- Individual Provision charge of $604 million (up $416 million), driven by $226 million US monoline insurer provision
which is expected to significantly reverse over time, $51 million in lower recoveries, and a mining company provisionof $53 million.
- Collective Provision charge of $376 million (up $324 million), with $131 million due to lending growth, $125 million
for an “economic cycle adjustment” and $103 million relating to the downgrading of a large property company
exposure.

#

Very strong growth in Asia Pacific where we have an above average presence and which is less affected by the market
turmoil. Profit up 47%.

#

Renewed momentum in Institutional and across all businesses in that division.

#

Personal impacted most by higher funding costs, particularly in Mortgages business. Revenue growth of 11%, withprofit up 11%.

#

New Zealand Businesses solid. Some early signs of New Zealand economy slowing.

#

Ahead of target on term funding plans; continue to maintain a liquidity portfolio around 80% above normal
requirements (excluding internal mortgage securitisation).

^

Adjusted for non-core items (i.e. significant items and non-core income arising from the use of derivatives in economic hedges and fair value through profit
and loss)This page has been left blank intentionally

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITEDABN 11 005 357 522

CONSOLIDATED FINANCIAL REPORT, DIVIDEND ANNOUNCEMENT and APPENDIX 4D
Half year ended 31 March 2008

CONTENTSPAGEHIGHLIGHTS

1

FINANCIAL HIGHLIGHTS

5

Profit5

Cash profit

5

Earnings per share

6

Condensed balance sheet

6

Financial ratios

7

Business unit analysis

9

CHIEF FINANCIAL OFFICER’S REVIEW

11

Review of Group Results

11

Income and expenses

12

Credit risk

18

Income tax expense

21

Earnings per share

21

Impact of exchange rate movements

22

Impact of acquisitions and disposals

22

Non-core items

23

Dividends

25

EVATM reconciliation

25

Market risk

26

Balance sheet

27

Liquidity risk

29

Capital management

31

Deferred acquisition costs and deferred income

33

Software capitalisation

33

BUSINESS PERFORMANCE REVIEW35

GEOGRAPHIC SEGMENT PERFORMANCE

55

FOUR YEAR SUMMARY BY HALF YEAR

63

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – TABLE OF CONTENTS

66

DIRECTORS’ DECLARATION95

AUDITORS’ REVIEW REPORT AND INDEPENDENCE DECLARATION

96

SUPPLEMENTARY INFORMATION

97

Capital management

97

Average balance sheet and related interest

100

Derivative financial instruments

104

DEFINITIONS

105

ALPHABETICAL INDEX

108This Results Announcement has been prepared for Australia and New Zealand Banking Group Limited (the “Company”) together with its
subsidiaries which are variously described as “ANZ”, “Group”, “ANZ Group”, “us”, “we” or “our”.
All amounts are in Australian dollars unless otherwise stated. The Company has a formally constituted Audit Committee of the Board of
Directors. The report was approved by resolution of a Committee of the Board of Directors on 22 April 2008.
When used in this Results Announcement the words “estimate”, “project”, “intend”, “anticipate”, “believe”, “expect”, “should” and similar
expressions, as they relate to ANZ and its management, are intended to identify forward-looking statements. Readers are cautioned not toplace undue reliance on these forward-looking statements, which speak only as of the date hereof. Such statements constitute“forward-looking statements” for the purposes of the United States Private Securities Litigation Reform Act of 1995. ANZ does not undertake
any obligation to publicly release the result of any revisions to these forward-looking statements to reflect events or circumstances after thedate hereof or to reflect the occurrence of unanticipated events.

This page has been left blank intentionallyHIGHLIGHTSFor Release: 23 April 2008

ANZ 2008 Interim Profit $1,963 million
ProfitProfit after tax $1,963 million

down

7%

*

up

11%

*

down

14%

down

10%

Cash EPS 87.1 cents

down

16%

Interim Dividend 62 centsunchanged

Cash profit before provisions $3,335 million
Cash profit after tax $1,674 million
Earnings per share and dividend

EPS 102.4 cents*

Other key measures*

Revenue $6,002 million

up

12%

Cost to income ratio 44.4%

up

10 bpsProvisions $980 million

up

$740m

Gross non-performing loans $1,048 million

up

$408m

Business highlights*▪

Record revenue growth of 12% (13% FX adjusted) despite difficult environment.

▪

Provision charge significantly higher. Credit losses are isolated and the broader business andconsumer book remain strong.
- Individual Provision charge of $604 million (up $416 million), driven by $226 million US monoline
insurer provision which is expected to significantly reverse over time, $51 million in lower
recoveries, and a mining company provision of $53 million- Collective Provision charge of $376 million (up $324 million), with $131 million due to lending
growth, $125 million for an “economic cycle adjustment” and $103 million relating to thedowngrading of a large property company exposure.

▪ Very strong growth in Asia Pacific where we have an above average presence and which is lessaffected by the market turmoil. Profit up 47%.
▪

Personal impacted most by higher funding costs, particularly in Mortgages business. Revenue
growth of 11%, with profit up 11%.

▪ New Zealand Businesses solid. Some early signs of New Zealand economy slowing.
▪ Renewed momentum in Institutional and across all businesses in that division.
▪ Ahead of target on term funding plans; continue to maintain a liquidity portfolio around 80% above
normal requirements (excluding internal mortgage securitisation).
* Adjusted for non-core items (i.e. significant items and non-core income arising from the use of derivatives in economic
hedges and fair value through profit and loss)
All figures compared to March 2007 unless otherwise indicated1

HIGHLIGHTS (continued)

For Release: 23 April 2008

ANZ 2008 Interim Profit $1,963 million
Australia and New Zealand Banking Group Limited (ANZ) today announced a profit after tax of $1,963 million
for the half year ended 31 March 2008, down 7%.
Adjusting for non-core items*, including the gain on Visa shares and, in the prior period, Fleetpartners sale,profit before provisions growth was a solid 11%.
This was offset by a significant increase in credit impairment charges to $980 million, with the Individual
Provisions charge up $416 million and the Collective Provision charge up $324 million. As a result, cash* profitof $1,674 million was down 14% and cash* EPS was down 16%.
The interim dividend of 62 cents per share is unchanged on the March 2007 half.
Growth in profit before provisions reflected high revenue growth, which was up 12% despite the impact ofmaterially higher funding costs. Adjusted for FX impacts, revenue growth was a record 13%, and was driven
by very strong lending growth (18%) and customer deposit growth (17%). Net interest margin declined
25 basis points, and was impacted by mix impacts, principally from higher growth in lower risk Institutional
lending and liquidity assets (-9 basis points), higher funding costs and basis risk with short term wholesale
rates being well above the cash rate (-3 basis points) and higher funding costs for derivative cash flows whichhave an offset in trading income (-6 basis points). Competitive impacts were in line with previous periods at-6 basis points.
The significant investment in the September 2007 half, including 31 new branches in Australia, contributed to
expense growth of 12% over the March 2007 half. Excluding the impact of ETrade and Stadium Australia,
expense growth was 10%. This expense growth reflected the run rate impact of higher investment last year inAustralia (up 14%) particularly in the Personal division, along with substantial investment in Asia Pacific in thishalf (up 34%), which helped deliver revenue growth of 44% from Asia Pacific. Expense growth slowed to anannualised 8% growth half on half.
Credit impairment costs were up significantly in the half, due to a higher Individual Provision charge of$604 million (up $416 million), which was driven by a $226 million provision relating to a US monoline insurer,
a $53 million mining company provision, and $51 million in lower recoveries in Institutional. The Collective
Provision was also strengthened with a charge of $376 million. ANZ’s Collective Provision balance of$2,404 million is the highest of any bank in Australia. Despite the sharp increase in credit costs, overall credit
quality remains sound.
ANZ Chief Executive Officer Mr Mike Smith said: “Strong revenue growth was a feature of ANZ’s performance inthe first half, helping deliver good growth in profit before provisions despite significantly higher funding costs.
We are getting good traction on our strategy, particularly in Asia Pacific where revenue growth was exceptional.
“Following a prolonged period of economic growth and benign credit conditions, global markets haveexperienced substantial volatility over recent months, commencing with the sub-prime crisis in the UnitedStates and associated contagion into the wider global markets. The market is currently characterised by wider
credit spreads, tightened liquidity conditions and a general weakening in the economic environment. As aconsequence, many financial institutions have reported higher credit impairment costs and reduced
profitability.
“While ANZ has been less affected than most of our global peers, we have seen a sharp increase in credit costs.
We have been warning for some time that they must increase from unsustainably low levels. However someissues are specific to ANZ, and we are looking closely at our portfolio to ensure our exposures are carefully
managed.
“We have also chosen to underwrite our Dividend Reinvestment Plan (DRP). The decision to underwrite our
final dividend last year ensured we went into this period with a strong capital position and it makes sense toagain underwrite our DRP. Together with our high collective provision balance, and increased liquidity position,
we have significantly enhanced our balance sheet, which ensures we are operating from a position of strength,”
Mr Smith said.
* Adjusted for non-core items (including significant items and non-core income arising from the use of derivatives in economic hedges and fair value
through profit and loss)
All figures compared to March 2007 half year unless otherwise indicated2

HIGHLIGHTS (continued)

Outlook
Commenting on the 2008 outlook for ANZ, Mr Smith said: “The global environment is challenging, and in areas
like retail sales, we are seeing early signs of a downturn in our domestic markets. However, with the steps wehave taken to strengthen our balance sheet, we are particularly well placed to weather global volatility.
“Over the course of the first half, we have seen revenue momentum improve each month, and this gives us
confidence for the year as a whole. At the same time, we reduced the rate of growth in expenses in the first
half. We have provided for all known exposures, although in the current environment it is more likely thathigher levels of new problem loans will emerge than has been experienced in recent years.” Mr Smith said.
Divisional Performance
Personal delivered a good result, with profit growth of 11% and revenue growth of 11%. Mortgages, which
represented 25% of Personal’s profit, was the most impacted by higher funding costs with profit falling 3%,
and this had a significant impact on Personal’s profit growth for the half. However the market turmoil isresulting in rationalisation in a number of segments and is likely to strengthen our franchise. Investment andInsurance Products performed well with profit growth of 26%, although investment flows have softened inrecent months due to the market turmoil. Banking Products delivered exceptional performance for a traditional
deposits business, with profit up 32%. Small Business Banking Products (up 23%) and Rural Commercial &Agribusiness Products (up 13%) both performed well.
Expense growth of 13% reflects both the substantial investment in the branch network last year, theinvestment in ETrade, and lower advertising costs in the prior period. Staff numbers were up 8%. Credit costs
continue to be very well managed in Personal, and were down 2% due to collections initiatives and tighter
underwriting standards.
Institutional net profit fell 47% due to a sharp increase in credit costs on a small number of accounts, and ahigher collective provision charge. However, profit before provisions was up 18% on March 2007, and up 16%
half on half, which is its best performance for some time. Revenue growth was also the strongest in recent
years at 16%, or 18% FX adjusted. While costs were up 12%, they were up just 2% half on half reflecting an
improved cost performance.
Each of the major businesses had double-digit revenue growth, driven primarily by strong lending growth.
Business Banking has improved significantly, with revenue up 12%. Working Capital also performed well, withrevenue up 16%. While Markets profit before provisions was up 28%, the impact of three large single namelosses resulted in a net loss of $6 million.
Asia Pacific result was a standout, with net profit up 47%, or 58% FX adjusted. Investment in the region
continued, with expense growth of 34%, and this was rewarded with revenue growth 44%, leading to growth inprofit before provisions of 52%. Institutional Asia Pacific was up 38%, while the Partnerships business was up
205%, supported by the full half impact from AMMB Holdings Berhad and Shanghai Rural Commercial Bank.
New Zealand Businesses (in NZ dollars) profit was up 6%, with solid profit before provisions growth of
12% partly offset by higher provisions, which started to normalise in the second half of last year. Expense
growth was well contained at 2%. ANZ Retail and Rural Banking, delivered very good performance withdouble-digit earnings growth. UDC has turned around, with revenue growth of 17%, however a higher
collective provision impacted net profit growth. The National Bank and Corporate and Commercial Banking
were impacted by higher credit charges.

For media enquiries, contact:

For analyst enquiries, contact:

Paul Edwards
Head of Corporate Communications
Tel: 03-9273 6955 or 0409-655 550
Email: paul.edwards@anz.com

Stephen Higgins
Head of Investor Relations
Tel: 03-9273 4185 or 0417-379 170
Email: stephen.higgins@anz.com

3

HIGHLIGHTS (continued)

Personal Institutional5

Group
Half year
ended Mar 08 Change2

Key Business Drivers1

New ZealandBusinesses(NZD) Asia Pacific5

Change2

Change2

Change2

Change2

Total assets
Deposits & other borrowings
Risk weighted assets3

$m
$m
$m

438,355
263,866
267,486

25%
26%
n/a

13%
13%
n/a

40%
33%
n/a

14%
21%
n/a

89%
42%
n/a

Average interest earning assets
Net interest margin
Net interest income
Other operating income
Total operating income

$m
bps
$m
$m
$m

379,440
1.99
3,780
2,222
6,002

17%
(25bps)
5%
26%
12%

12%
(9bps)
8%
17%
11%

25%
(33bps)
2%
35%
16%

14%
(14bps)
8%
4%
7%

52%
10bps
38%
50%
44%

FTE
Operating expenses

No.
$m

35,482
2,667

7%
12%

8%
13%

7%
12%

1%
2%

32%
34%

Profit before provisions4

$m

3,335

11%

9%

18%

12%

52%

Individual provision charge$mCollective provision charge$mTotal provision for credit impairment $m

604
376
980

416
324
740

10
(13)
(3)

379
326
705

21
19
40

16
16

1,674
87.1
1,214

(14%)
(16%)
8%

11%

(47%)

6%

47%

4%

7%

7%

(62%)

ActualActualActualActualCash profit
Cash EPS
EVA

$m
cents
$m

Other Measures1
Individual provision charge
as a % of average net advances

%

0.38

24bps

0.22

0.80

0.11

0.36

Return on average assets
Cost to income ratio
Cost to average assets

%
%
%

0.78
44.4
1.25

(33bps)10bps(12bps)

0.93
48.9
1.50

0.46
35.9
0.80

0.98
46.0
1.39

1.62
43.4
1.85

1.

All numbers adjusted for non-core items

2.

Compared to half year ended 31 March 2007

3.

2008 risk weighted assets are calculated using Basel II methodology

4.

Profit before credit impairment and income tax

5.

Institutional Asia Pacific is included in both Institutional and Asia Pacific4FINANCIAL HIGHLIGHTS

ProfitHalfyear
Mar 08
$M

Half
year
Sep 07
$M

Half
Movt
Movt
year
Mar 08Mar 08Mar 07 v. Sep 07 v. Mar 07$M%%

Net interest income

3,780

3,691

3,611

2%

5%

Other operating income

2,657

2,081

2,002

28%

33%

Operating income

6,437

5,772

5,613

12%

15%

Operating expenses(2,701)(2,567)(2,386)

5%

13%

Profit before credit impairment and income tax

3,736

3,205

3,227

17%

16%

Provision for credit impairment

(980)

(327)

(240)

large

large

Profit before income tax

2,756

2,878

2,987

-4%

-8%

Income tax expense

(790)

(795)

(883)

-1%

-11%

Minority interest
Profit attributable to shareholders of the Company

(3)

(5)

(2)

-40%

50%

1,963

2,078

2,102

-6%

-7%

Cash profit
Profit has been adjusted to exclude the following non-core items to arrive at cash profit. Throughout this document figuresand ratios that are calculated on a ‘cash’ basis have been shaded to distinguish them from figures calculated on a statutory
basis.

Profit attributable to shareholders of the Company

Half
year
Mar 08
$M

Half
year
Sep 07
$M

Movt
Movt
Half
Mar 08Mar 08year
Mar 07 v. Sep 07 v. Mar 07
%
%
$M

1,963

2,078

2,102

-6%

-7%

Less: Non-core items
Significant items1
Gain on Visa shares

248

-

-

n/a

n/a

Impairment of intangible - Origin Australia

(24)

-

-

n/a

n/a

8

(24)

-

large

n/a
-100%

Restatement of deferred tax balances for announced
New Zealand tax rate change
Gain on sale of Esanda Fleetpartners

-

54

141

-100%

Total significant items

232

30

141

large

65%

Economic hedging - fair value gains/losses2

67

41

28

63%

large

NZD and USD revenue hedge - mark-to-market2

(10)

19

(3)

large

large

Total non-core items
Cash profit

289

90

166

large

74%

1,674

1,988

1,936

-16%

-14%

1.

In the March 2008 half ANZ has classified the gain from the allocation of shares in Visa in March 2008 of $248 million after tax (tax impact: $105 million), costs
associated with a write-down of an intangible asset relating to Origin Australia of $24 million after tax (tax impact: $10 million) and a further positive adjustmentof $8 million following the restatement of deferred tax assets consequent to the reduction in New Zealand tax rate as significant items. In the September 2007
half the after tax impact of the gain on sale of Esanda Fleetpartners was increased by $54 million following the availability of capital losses being applied against
the gain and a negative impact of $24 million following the restatement of deferred tax assets to reflect the recently announced change in the New Zealandcompany tax rate which takes effect from 1 October 2008 as significant items. In the March 2007 half ANZ has classified the gain on sale of Esanda Fleetpartners
of $141 million after tax (tax impact: $54 million) as a significant item. ANZ excludes significant items to eliminate the distorting effect of one-off transactions on
the results of its core business (refer page 23)

2.

The Group enters into economic hedges to manage its interest rate and foreign exchange risk. In the March 2008 half ANZ has classified a gain of $67 million
after tax (Sep 2007 half: $41 million; Mar 2007 half: $28 million) relating to economic hedging as a non-core item (tax impact $29 million (Sep 2007 half:$17 million; Mar 2007 half: $14 million)). Included in this non-core amount is market volatility relating to approved classes of derivatives not designated inaccounting hedge relationships but that are considered to be economic hedges, volatility arising from use of the fair value option, and ineffectiveness fromdesignated accounting hedges. In addition, ANZ has classified a mark-to-market loss after tax of $10 million (Sep 2007 half: $19 million gain; Mar 2007 half:$3 million loss) relating to revenue hedges (NZD and USD) that under the transitional provision of AASB 139 (AASB 2005-1) no longer qualify for hedge
accounting from 1 October 2006 (tax impact $4 million credit (Sep 2007 half: $9 million; Mar 2007 half: $2 million credit)). ANZ excludes volatility associatedwith fair value movements on these transactions to provide a better indication of the core business performance (refer page 24)

5

FINANCIAL HIGHLIGHTS (continued)

Cash profit, cont’d
Analysis of cash1 profit by key line item:
Half
year
Mar 08
$M

Half
year
Sep 07
$M

Half
Movt
Movt
year
Mar 08Mar 08Mar 07 v. Sep 07 v. Mar 07$M%%

Net interest income

3,780

3,691

3,611

2%

5%

Other operating income

2,222

1,995

1,770

11%

26%

Operating income

6,002

5,686

5,381

6%

12%

Operating expenses(2,667)(2,567)(2,386)

4%

12%

Profit before credit impairment and income tax

3,335

3,119

2,995

7%

11%

Provision for credit impairment

(980)

(327)

(240)

large

large

Profit before income tax

2,355

2,792

2,755

-16%

-15%

Income tax expense

(678)

(799)

(817)

-15%

-17%

Minority interest

(3)

(5)

(2)

-40%

50%

1,674

1,988

1,936

-16%

-14%

Half
year
Mar 08Halfyear
Sep 07

Earnings per ordinary share (cents)
Basic

102.4

110.9

Movt
Movt
Half
Mar 08Mar 08year
Mar 07 v. Sep 07 v. Mar 07
%
%
113.2
-8%
-10%

Diluted

98.6

108.3

110.0

-9%

-10%

87.1

106.1

104.2

-18%

-16%

As at
Mar 08As at
Sep 07As at
Mar 07$M$M

Liquid assets

17,803

16,987

15,4335%

Due from other financial institutions

11,850

8,040

6,439

47%

84%

Trading and available-for-sale assets

31,20329,173

24,100

7%29%

Cash1 profit

Earnings per share

1

Cash (basic adjusted for non-core items)

Condensed balance sheet
Movt
Movt
Mar 08Mar 08v. Sep 07 v. Mar 07%%$M

Assets15%

Derivative financial instruments

29,51022,272

12,30332%

large

Net loans and advances including acceptances

333,474

303,347

281,787

10%

18%

Other

14,515

12,954

11,78712%

23%

Total assets

438,355

392,773

351,849

12%

25%

Liabilities
Due to other financial institutions

20,264

19,436

16,1064%

26%

Deposits and other borrowings

263,866

233,423

209,351

13%

26%

Derivative financial instruments

27,831

24,18013,60715%

large

Liability for acceptances

15,756

14,536

14,0138%

12%

Bonds and notes

63,54954,07554,188

18%

17%

Other

23,12525,07523,674-8%-2%

Total liabilities

414,391

370,725

330,939

12%

25%

Total equity

23,96422,04820,910

9%

15%

1.

Refer footnotes 1 and 2 on page 5

6

FINANCIAL HIGHLIGHTS (CONTINUED)

Financial ratios
Half
year
Mar 08
$M

Half
year
Sep 07
$M

Half
year
Mar 07$M

Profit attributable to shareholders of the Company

1,963

2,078

2,102

Cash1 profit

1,674

1,988

1,936

EVATM 2

1,214

1,161

1,119

Average ordinary shareholders' equity3

17.7%

20.5%

21.3%

Average ordinary shareholders' equity3 (cash1 profit basis)

15.1%

19.6%

19.6%

Average assets

0.92%

1.10%

1.21%

Average assets (cash1 profit basis)

0.78%

1.05%

1.11%

Total income

10.6%

13.0%

14.4%

Net interest margin

1.99%

2.15%

2.24%

Profit per average FTE ($)

56,356

61,38564,203Operating expenses to operating income

42.0%

44.5%

42.5%

Operating expenses to average assets

1.27%

1.36%

1.37%

Operating expenses to operating income (cash1)

44.4%

45.1%

44.3%

Operating expenses to average assets (cash1)

1.25%

1.36%

1.37%

Profitability ratios
Return on:

Efficiency ratios

Credit impairment provisioning
Collective provision charge

376

31

52

Individual provision charge

604

296

188

Total provision charge

980

327

240

Individual provision charge as a % of average net advances

0.38%

0.20%

0.14%

Total provision charge as a % of average net advances

0.61%

0.22%

0.17%

Interim - 100% franked (Mar 07: 100% franked)

62

n/a

62

Final - 100% franked (Sep 07: 100% franked)

n/a

74

n/a

61.4%

67.1%

54.9%

72.2%

70.2%

59.6%

23

20

17

Ordinary share dividends (cents)

Ordinary share dividend payout ratio4
1

Cash ordinary share dividend payout ratio

4

Preference share dividend ($M)
Dividend paid5
1.

Refer footnotes 1 and 2 on page 5

2.

EVATM refers to Economic Value Added, a measure of shareholder value. See page 25 for a reconciliation of EVATM to reported profit, a discussion of EVATM and an
explanation of its relevance as a performance measure

3.

Average ordinary shareholders’ equity excludes minority interest and preference share dividend

4.

Dividend payout ratio is calculated using the 30 September 2007 final and 31 March 2007 interim dividends and the proposed 31 March 2008 interim dividend

5.

Represents dividends paid on Euro Hybrid issued on 13 December 2004

7

FINANCIAL HIGHLIGHTS (continued)

Financial ratios, cont’d
As at
Mar 08As at
Sep 07As at
Mar 07Movt
Movt
Mar 08Mar 08v. Sep 07 v. Mar 07%%

Net Assets
1

10.06

9.37

9.01

7%

12%

Net tangible assets attributable to ordinary shareholders ($M)

119,326

17,462

16,61311%

16%

Total number of ordinary shares (M)1,921.4

1,864.7

1,844.7

3%

4%

Capital adequacy ratio (%)
Tier 1Basel II
6.9%

Basel I
6.7%

Basel I
6.7%

-3%

7%

Net tangible assets per ordinary share ($)

Tier 2

3.2%

4.1%

4.3%

Total capital ratio

10.1%

10.1%

10.3%

Adjusted Common Equity ratio

2

Risk weighted assets ($M)

Impaired assets
Collective provision ($M)
Collective provision as a % of risk weighted assets

3

4

4.8%

4.3%

4.4%

267,486

275,018

250,485

2,404

2,028

2,016

19%

19%

0.90%

0.74%

0.80%

22%

13%
64%

1,048

666

640

57%

Individual provisions on non-performing loans ($M)

(295)

(260)

(275)

13%

7%

Net non-performing loans ($M)

753

406

365

85%

large

Net non-performing commitments, contingencies and derivatives ($M)

104

84

82

24%

27%

Gross non-performing loans ($M)
4

4

28.1%

39.0%

43.0%

-28%

-35%

4

0.31%

0.22%

0.23%

41%

35%

4

0.23%

0.13%

0.13%

77%

77%

3.58%

2.22%

2.14%

61%

67%

35,482
12.4

34,353
11.4

33,183
10.6

3%

7%

Assets per FTE ($M)

9%

17%

Market capitalisation of ordinary shares ($M)

43,32855,38254,788-22%-21%

Individual provision as a % of gross non-performing loans
Gross non-performing loans as % of net advances
Net non-performing loans as a % of net advances

Net non-performing loans and commitments, contingencies andderivatives as a % of shareholders' equity

5

Other information
Full time equivalent staff (FTE)

1.

Equals shareholders’ equity less preference share capital, minority interest, unamortised goodwill and other intangibles

2.

Adjusted common equity is calculated as Tier 1 capital, less Innovative and Non-innovative Tier 1 capital instruments (converted at balance date spot rates), lesstransitional Tier 1 capital relief (applicable in 2007) and deductions. This measure is commonly used to assess the adequacy of common equity held. See page 97
for a reconciliation to Tier 1 capital3.

2008 risk weighted assets are calculated using Basel II methodology, prior period numbers reflect Basel I methodology

4.

Excludes non-performing commitments, contingencies and derivatives

5.

Includes minority interest

8

FINANCIAL HIGHLIGHTS (continued)

Business unit analysis

Profit before credit impairment and income tax1

Half
year
Mar 08
$M

Half
year
Sep 07
$M

Movt
Movt
Half
Mar 08Mar 08year
Mar 07 v. Sep 07 v. Mar 07%%$M

Personal

1,218

1,166

1,115

4%

9%

Institutional

1,271

1,098

1,081

16%

18%

New Zealand Businesses

600

584

544

3%

10%

Asia Pacific

271

212

178

28%

52%

INGA

76

80

75

-5%

1%

Group Centre

32

68

79

-53%

-59%
73%

less: Institutional Asia Pacific2

(133)

(89)

(77)

49%

Cash profit

3,335

3,119

2,995

7%

11%

401

86

232

large

73%

Profit

3,736

3,205

3,227

17%

16%

Profit after income tax1

Half
year
Mar 08
$M

Half
year
Sep 07
$M

Half
Movt
Movt
year
Mar 08Mar 08Mar 07 v. Sep 07 v. Mar 07$M%%

Personal

719

679

646

6%

11%

Institutional

405

724

762

-44%

-47%

New Zealand Businesses

361

370

348

-2%

4%

Asia Pacific

182

147

124

24%

47%

INGA

76

80

75

-5%

1%

Group Centre

14

52

41

-73%

-66%

3

Non-core items

less: Institutional Asia Pacific2
Cash profit
Non-core items3
Profit

(83)

(64)

(60)

30%

38%

1,674

1,988

1,936

-16%

-14%

289

90

166

large

74%

1,963

2,078

2,102

-6%

-7%

As at
Mar 08As at
Sep 07As at
Mar 07Movt
Movt
Mar 08Mar 08v. Sep 07 v. Mar 07$M%%

Net loans and advances including
acceptances by business unit1$M$M

Personal

155,539

147,310

138,548

6%

12%

Institutional

98,89982,44873,162

20%

35%

New Zealand Businesses

74,05369,077

66,141

7%

12%

Asia Pacific

10,070

7,300

5,590

38%

80%

Group Centre

1,734

1,741

1,381

0%

26%

less: Institutional Asia Pacific2(6,821)(4,529)(3,035)

51%

large

333,474

303,347

281,787

10%

18%

As at
Mar 08As at
Sep 07As at
Mar 07Net loans and advances including acceptances

Customer deposits by business unit1

Movt
Movt
Mar 08Mar 08v. Sep 07 v. Mar 07
$M
%
%

$M

$M

Personal

69,80765,41061,295

7%

14%

Institutional

75,46068,64960,127

10%

26%

New Zealand Businesses

40,67938,33437,511

6%

8%

Asia Pacific

13,443

11,101

10,64321%

26%

Group Centre

1,684

1,806

1,339

-7%

26%

less: Institutional Asia Pacific2(6,001)(4,071)(3,844)

47%

56%

195,072

181,229

167,071

8%

17%

Customer deposits
1.

Prior period numbers have been adjusted for organisational structure changes. Refer page 35 for an explanation of the changes

2.

Institutional Asia Pacific is included in both Institutional and Asia Pacific business units consistent with how this business is internally managed

3.

Refer footnotes 1 and 2 on page 5

9This page has been left blank intentionally10

CHIEF FINANCIAL OFFICER’S REVIEW

Review of Group Results
Half
year
Mar 08
$M

Half
year
Sep 07
$M

Half
Movt
Movt
year
Mar 08Mar 08Mar 07 v. Sep 07 v. Mar 07$M%%

Profit attributable to shareholders of the Company

1,963

2,078

2,102

-6%

-7%

Less: Non-core items1

(289)

(90)

(166)

large

74%

Cash1 profit

1,674

1,988

1,936

-16%

-14%

Half
year
Mar 08
$M

Half
year
Sep 07
$M

Half
Movt
Movt
year
Mar 08Mar 08Mar 07 v. Sep 07 v. Mar 07$M%%

Net interest income

3,780

3,691

3,611

2%

5%

Other operating income

2,222

1,995

1,770

11%

26%

Cash1 profit

Operating income

6,002

5,686

5,381

6%

12%

Operating expenses(2,667)(2,567)(2,386)

4%

12%

Profit before credit impairment and income tax

3,335

3,119

2,995

7%

11%

Provision for credit impairment

(980)

(327)

(240)

large

large

Profit before income tax

2,355

2,792

2,755

-16%

-15%

Income tax expense

(678)

(799)

(817)

-15%

-17%

Minority interest
Cash1 profit
1.

(3)

(5)

(2)

-40%

50%

1,674

1,988

1,936

-16%

-14%

In the March 2008 half ANZ has classified the gain from the allocation of shares in Visa in March 2008 of $248 million after tax (tax impact: $105 million), costs
associated with a write-down of an intangible asset relating to Origin Australia of $24 million after tax (tax impact: $10 million) and a further positive adjustmentof $8 million following the restatement of deferred tax assets consequent to the reduction in New Zealand tax rate as significant items. In the September 2007
half the after tax impact of the gain on sale of Esanda Fleetpartners was increased by $54 million following the availability of capital losses being applied against
the gain and a negative impact of $24 million following the restatement of deferred tax assets to reflect the recently announced change in the New Zealandcompany tax rate which takes effect from 1 October 2008 as significant items. In the March 2007 half ANZ has classified the gain on sale of Esanda Fleetpartners
of $141 million after tax (tax impact: $54 million) as a significant item. ANZ excludes significant items to eliminate the distorting effect of one-off transactions on
the results of its core business (refer page 23)
The Group enters into economic hedges to manage its interest rate and foreign exchange risk. In the March 2008 half ANZ has classified a gain of $67 million
after tax (Sep 2007 half: $41 million; Mar 2007 half: $28 million) relating to economic hedging as a non-core item (tax impact $29 million (Sep 2007 half:$17 million; Mar 2007 half: $14 million)). Included in this non-core amount is market volatility relating to approved classes of derivatives not designated inaccounting hedge relationships but that are considered to be economic hedges, volatility arising from use of the fair value option, and ineffectiveness fromdesignated accounting hedges. In addition, ANZ has classified a mark-to-market loss after tax of $10 million (Sep 2007 half: $19 million gain; Mar 2007 half:$3 million loss) relating to revenue hedges (NZD and USD) that under the transitional provision of AASB 139 (AASB 2005-1) no longer qualify for hedge
accounting from 1 October 2006 (tax impact $4 million credit (Sep 2007 half: $9 million; Mar 2007 half: $2 million credit)). ANZ excludes volatility associatedwith fair value movements on these transactions to provide a better indication of the core business performance (refer page 24)

March 2008 half year compared to March 2007 half year
The Group recorded a profit after tax of $1,963 million for the half year ended 31 March 2008, a decrease of $139 million(7%). After adjusting for non-core items1 referred to on pages 23 and 24, cash1 profit decreased by $262 million (14%) to$1,674 million. This result includes an increase in provision for credit impairment of $740 million reflecting the changing
global credit environment.
Profit before credit impairment and income tax increased $340 million (11%) to $3,335 million at 31 March 2008.
Institutional contributed a major portion of this increase with growth of 18%, delivering double-digit revenue growth acrossmost business units. Personal continues to perform well, delivering growth of 9%, with Banking Products being the main
contributor driven by solid deposit growth of 16%. Asia Pacific is delivering strong growth (52%) through a combination oforganic growth and recent investments. New Zealand increased 10% with strong lending growth in Corporate & Commercial
Banking and Rural Banking.
March 2008 half year compared to September 2007 half year

Profit after tax decreased by $115 million (6%) to $1,963 million for the half year ended 31 March 2008. After adjusting fornon-core items1 referred to on pages 23 and 24, cash1 profit decreased by $314 million (16%) to $1,674 million. Impacting
this result is an increase of $653 million in provisions for credit impairment.
Profit before credit impairment and income tax increased $216 million (7%) to $3,335 million at 31 March 2008. Institutional
experienced strong growth of 16%, driven by lending asset growth of 20% and deposit growth 19%. Asia Pacific experienced
solid growth of 28% with an increase of $44 million in Institutional Asia Pacific and an increase of $24 million from Asian
Partnerships. Personal contributed growth of 4% and New Zealand Businesses increased 3% (5% excluding the impact of
exchange rates).

11

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Income and expenses
Net Interest Income
Half
year
Mar 08$M
Net interest income
Average interest earning assets

Half
Movt
Movt
year
Mar 08Mar 08Mar 07 v. Sep 07 v. Mar 07
$M
%
%

3,780

3,691

3,611

2%

5%

379,440

343,005

323,667

11%

17%

1.99

2.15

2.24

-7%

-11%

Net interest margin (%)

#

Half
year
Sep 07$M

March 2008 half year compared to March 2007 half year

Net interest income at $3,780 million was 5% ($169 million) higher than the March 2007 half.
VolumeAverage interest earning assets increased $55.8 billion (17%):- Average net advances grew by $44.6 billion (16%). Personal grew by $16.2 billion (12%), primarily in Mortgages($13 billion) and Rural Commercial and Agribusiness Products ($1.3 billion) as a result of continuing customer demand
for retail housing and investment loans. Institutional grew by $19.5 billion (27%), due to corporate re-intermediation
following the tightening of global credit markets with growth primarily in Relationship Lending ($16 billion), BusinessBanking ($2 billion) and Working Capital ($1.2 billion). New Zealand Businesses grew by $7.8 billion or 12% (14% in
NZD) with growth primarily across the Retail & Rural Businesses. Asia Pacific grew by $0.5 billion or 21% with growth
in Retail Asia ($0.3 billion) and Pacific ($0.2 billion). Private Bank grew by $0.6 billion.
- Other interest earning assets increased by $11.2 billion (24%) driven mainly by higher levels of trading and investment
securities ($8.1 billion), primarily in Markets, following our decision to hold a higher liquidity portfolio during thecurrent market turmoil.
Average deposits and other borrowings increased $43.0 billion (21%):- Customer deposits grew by $22.7 billion (14%). Personal grew by $7.9 billion (13%), mainly in Banking Products($5.6 billion), as a result of ongoing marketing campaigns, branch expansion and higher deposit rates. Institutionalgrew by $10.8 billion (18%), mainly in Working Capital ($7.0 billion) due primarily to customer acquisitions. New
Zealand Businesses grew by $2.9 billion or 8%. Asia Pacific increased $0.6 billion or 9%. Private Bank increased$0.5 billion or 55%.
- Wholesale funding grew by $20.3 billion or 47% to fund growth in the asset book, with growth in Group Treasury($10.3 billion), Institutional ($6.8 billion) and New Zealand Businesses ($3.8 billion), partly offset by a decrease in
Personal ($0.6 billion).
Other wholesale funding, comprising Loan capital and Bonds and notes, increased $10.5 billion (16%).
MarginNet interest margin was down 25 basis points to 1.99% from March 2007
- Funding mix (-5 basis points)
Margins were impacted by a decrease in the proportion of free funds (-5 basis points), reflecting principally the rapidbalance sheet growth.
- Asset mix (-4 basis points)
Reduced margin was due mainly to strong growth in both lower yielding lending assets in Institutional (-3 basis points)
and an increase in low yielding liquid assets (-1 basis point).
- Competition (-6 basis points)
Competitive pressures reduced margins, mainly in Esanda/UDC (-1 basis point) and Australian Mortgages (-1 basis
point). In addition, net interest margin declined due to lower growth in lending related fees (-2 basis points) andincreases in the proportion of higher yielding customer deposits (-2 basis points).
- Wholesale rates (-3 basis points)
Lower earnings from non-traded interest rate risk (-2 basis points), the impact of basis risk and funding on mortgages
and credit cards (-4 basis points) and an increase in wholesale funding costs (-1 basis point) were partially offset by
the basis risk on call liabilities (+4 basis points).
- Other items (-7 basis points) principally due to:▪

Higher interest rates on the investment of capital (+2 basis points).

▪

Higher funding costs associated with unrealised trading gains (-6 basis points), although this is directly offset by anequivalent increase in trading income.

▪

Discontinuing businesses, principally Esanda Fleetpartners and Corporate Finance (-1 basis point).

▪

One off items (-1 basis point) covered non-repetition of interest on tax refunds, brokerage expenses, NZ mortgage
prepayments, securitisation charges and variations in the non-interest bearing portion of the credit cards portfolio.
12

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Income and expenses, cont’d
Net Interest Income, cont’d#March 2008 half year compared to September 2007 half year

Net interest income at $3,780 million was 2% ($89 million) higher than the September 2007 half.
VolumeAverage interest earning assets increased $36.4 billion (11%):- Average net advances grew by $29.0 billion (10%). Personal division grew by $8.5 billion (6%) mainly in Mortgages($7.1 billion) due to continuing demand for mortgage retail products. Institutional grew by $17.5 billion (23%), mainly
in Relationship Lending ($14.5 billion), Business Banking ($1.1 billion) and Corporate Finance (excl Relationship
Lending) ($1.0 billion), where we have seen corporate re-intermediation following the tightening of global credit
markets. New Zealand Businesses increased by $2.8 billion or 4% (6% in NZD) with growth mainly in the Retail andPrivate Banking ($1.6 billion) and Rural Banking ($0.8 billion).
- Other interest earning assets increased by $7.4 billion (15%), driven mainly by higher levels of investment securities($3.4 billion) and other liquid assets ($2.4 billion), primarily in Markets, following our decision to hold a higher liquidity
portfolio during the current market turmoil.
Average deposits and other borrowings grew by $30.2 billion (14%):- Customer deposits grew by $12.4 billion or 7%. Personal division grew by $4.8 billion (8%) as a result of ongoing
marketing campaigns and higher deposit rates. Institutional grew by $6.1 billion (10%), mainly in Working Capital($3.5 billion) due to customer acquisitions and a flight to cash investments in light of share market volatility. New
Zealand Businesses grew by $1.2 billion (3%). Private Bank increased $0.3 billion or 27%.
- Wholesale funding increased by $17.8 billion (39%) driven by Group Treasury ($10.8 billion), Institutional ($4.6 billion)
and New Zealand Businesses ($2.4 billion) to fund asset growth.
Other wholesale funding, comprising Loan capital and Bonds and notes, increased $4.6 billion (7%).
MarginNet interest margin decreased 16 basis points to 1.99% from the September 2007 half:- Funding mix (-5 basis points)
Margins were impacted by higher proportions of wholesale funding (-1 basis point) within the portfolio, reflecting
principally the rapid balance sheet growth plus a decrease in the proportion of free funds (-4 basis points).
- Asset mix (-4 basis points)
Strong growth in lending to lower yielding Institutional clients increased the weighting of the portfolio towards
Institutional assets (-2 basis points) and away from higher yielding Corporate and Business banking assets (-1 basis
point). Higher holdings for lower yielding liquidity assets further decreased the margin (-1 basis point).
- Competition (-2 basis points)
Competitive pressures were felt through small reductions in margins across all asset portfolio (1 basis point) andincreases in the proportions of higher yielding customer deposits (-1 basis point).
- Wholesale rates (-3 basis points)
Lower earnings from non-traded interest rate risk (-3 basis points), the impact of basis risk on variable rate mortgages
and credit cards (-2 basis points) and an increase in wholesale funding costs (-1 basis point), was partially offset bybasis risk on call liabilities (+3 basis points).
- Other items (-2 basis points) principally due to:▪

Higher interest rates on the investment of capital (+1 basis point).

▪

Higher funding costs associated with unrealised trading gains (-1 basis point), although this is directly offset by anequivalent increase in trading income.

▪

Sundry items (-2 basis points) covering brokerage expenses, NZ mortgage prepayments, securitisation charges andvariations in the non-interest bearing portion of the credit cards portfolio.

13

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Income and expenses, cont’d
Other Operating Income

Movt
Movt
Half
Mar 08Mar 08year
Mar 07 v. Sep 07 v. Mar 07
%
%
$M
1,143
6%
15%

Half
year
Mar 08
$M
1,309

Half
year
Sep 07$M
1,237

Foreign exchange earnings

339

250

237

36%

Profit on trading instruments

249

196

173

27%

44%

Other

325

312

217

4%

50%

2,222

1,995

1,770

11%

26%

96

58

42

66%

large

Total fee income

Core other operating income
1

Ineffective hedge fair value gains/losses

NZD and USD revenue hedges - mark-to-market

1

1

Significant items
Other operating income

43%

(14)

28

(5)

large

large

353

-

195

n/a

81%

2,657

2,081

2,002

28%

33%

(66)

2

53

large

large

Composition of Markets' income
Net interest income
Foreign exchange earnings

265

192

177

38%

50%

Profit on trading instruments

265

193

157

37%

69%

Fee and other income

29

11

19

large

53%

Total Markets' income

493

398

406

24%

21%

1.

Refer footnote 1 on page 11#

March 2008 half year compared to March 2007 half year

Other operating income increased $655 million (33%). Core other operating income increased $452 million (26%) after
excluding non-core items (refer pages 23 and 24) or $413 million (23%) excluding the impact of ETrade and Stadium
Australia.
The following explanations are based on core other operating income:- Fee income increased $166 million (15%):▪

Lending fee income increased $53 million (23%)- Personal increased $26 million. Mortgages increased $12 million due to increased sales volumes and pricing
initiatives. Banking Products increased $12 million reflecting strong new transaction account acquisitions.
- Institutional increased $15 million. Relationship Lending and Business Banking increased $6 million and$3 million respectively as a result of higher lending volumes. Institutional Asia grew $6 million from increased
deal activity in the Corporate Finance business.
- New Zealand increased $8 million, largely in the Retail banks due to increasing volumes as well as pricing
initiatives.

▪

Non-lending fee income increased $113 million (12%)- Personal increased $69 million. Consumer Finance increased $29 million due to increasing account numbers andlending growth. Investment and Insurance Products grew $19 million as more planners generated higher sales,
and from the impact of the ETrade acquisition. Esanda increased $9 million through revenue initiatives. Banking
Products increased $9 million, driven mainly by pricing initiatives.
- Institutional increased $33 million. Corporate Finance increased $32 million driven by strong deal activity in
Structured Debt and Capital Solutions.
- New Zealand increased $7 million due to increasing volumes in the Retail banks.

- Foreign exchange earnings increased $102 million. Institutional increased $95 million with an $88 million increase inMarkets ($24 million increase in Institutional Asia) due to volatility in global currency markets and higher sales
volumes, and a $6 million increase in Working Capital driven mainly by new product initiatives. Group Centre
increased $4 million as a result of a realised gain on NZD revenue hedges due to the weaker NZD.
- Profit on trading instruments increased $76 million. This revenue is mainly derived from Institutional:▪

Markets increased $108 million, which includes a $100 million increase in unrealised trading gains which is directly
offset by an equivalent decrease in net interest income.

▪

ANZ Capital decreased $20 million due to mark-to-market movements in private equity investments.

14

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Income and expenses, cont’d
Other Operating Income, cont’d- Other income increased $108 million (50%):▪

Asia Pacific increased $36 million due mainly to increased equity accounted income from our investments in AMMB
Holdings Berhad (AMMB) and Shanghai Rural Commercial Bank (SRCB).

▪

Personal increased $31 million, excluding the disposal of the remaining MasterCard shares in the March 2007 half.
Investment and Insurance Products increased $32 million with higher brokerage fees following consolidation of ouracquisition of ETrade.

▪

Institutional grew $31 million with a $14 million increase in Markets, due mainly to a gain on conversion of bonds
from our investment in Saigon Securities Incorporation (SSI). ANZ Capital increased $8 million due to higher income
from private equity and infrastructure earnings.

▪

Group Centre increased $35 million, due mainly to higher profit on property sales.

▪

The disposal of the remaining MasterCard shares in the first half of 2007 not repeated this half, reduced otheroperating income by $27 million.

- Movements in average exchange rates decreased total other income by $23 million.

#

March 2008 half year compared to September 2007 half year

Other operating income increased $576 million (28%). After adjusting for non-core items (refer pages 23 and 24), coreother operating income increased $227 million (11%).
The following explanations are based on core other operating income:- Fee income increased $72 million (6%).
▪

Lending fee income increased $26 million (10%):- Personal increased $11 million. Banking Products increased $6 million through strong account acquisition andimproved retention. Mortgages increased $2 million due to higher loan refinancing in the current uncertain
interest rate environment.
- Institutional increased $11 million. Business Banking and Relationship Lending both increased $3 million due tostrong lending growth and Corporate Finance grew $3 million due to increased deal activity.

▪

Non-lending fee income increased $46 million (5%):- Personal increased $21 million. Consumer Finance increased $11 million through growth in account numbers.
Banking Products increased $8 million due mainly to pricing initiatives. Esanda increased $3 million due torevenue initiatives.
- Institutional increased $21 million (9%). Corporate Finance increased $20 million with strong growth in Capital
Solutions.

- Foreign exchange earnings increased $89 million. Institutional increased $76 million due to Markets increasing$74 million ($24 million increase in Institutional Asia) as a result of improved performance by the currency tradingbusiness and higher sales flow, reflecting foreign exchange volatility which drives customer hedging activity. Group
Centre increased $13 million as a result of realised gains on NZD revenue hedges due to the weaker NZD.
- Profit on trading instruments increased $53 million. Institutional increased $53 million with Markets increasing$72 million which includes a $17 million increase from derivative positions, the funding of which is included in net
interest income. The business has benefited from increased volatility in the interest rate market and higher sales
volumes. Relationship Lending increased $11 million due to mark-to-market impacts of credit derivatives used tohedge existing customers. ANZ Capital decreased $22 million due to mark-to-market movements in private equity
investments.
- Other income increased $13 million:▪

Asia Pacific increased $21 million. Retail Asia increased $21 million due to a $10 million increase in equity accounted
income from our investment in SRCB as well as a $7 million increase from our investment in AMMB which were both
entered into during the second half of 2007. There was a $4 million higher return from our investment in
Sacombank.

▪

Institutional decreased $7 million. ANZ Capital decreased $39 million due to private equity sell-downs in the priorhalf as well as seasonality of Stadium Australia income which was also lower due to deconsolidation in March 2008.
Markets increased $18 million due primarily to a gain on conversion of bonds from our investment in SSI.

▪

INGA equity accounted income decreased $3 million due to lower capital investment earnings.

- Movements in average exchange rates decreased total other income by $9 million.

15

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Income and expenses, cont’dExpenses
Halfyear
Mar 08
$M

Half
year
Sep 07
$M

Half
Movt
Movt
year
Mar 08Mar 08Mar 07 v. Sep 07 v. Mar 07$M%%

Personnel expenses

1,625

1,540

1,451

6%

12%

Premises expenses

252

239

223

5%

13%

Computer expenses

299

310

282

-4%

6%

Other expenses

491

478

430

3%

14%

2,667

2,567

2,386

4%

12%

Core operating expenses

34

-

-

n/a

n/a

Total operating expenses

Impairment of intangible - Origin Australia

2,701

2,567

2,386

5%

13%

Total employees

35,482

34,35333,183

3%

7%#

March 2008 half year compared to March 2007 half year

Operating expenses increased $315 million (13%). After adjusting for non-core items (refer pages 23 and 24), core
operating expenses increased $281 million (12%) or $239 million (10%) excluding the impact of ETrade and Stadium
Australia. The growth in operating expenses was also impacted by lower than normal spend in the March 2007 half.
The following explanations are based on core operating expenses:- Personnel costs were up $174 million (12%) as a result of annual salary increases and a 7% increase in staff numbers.
Increases in staff numbers were mainly in the following business units:▪

Personal staff numbers increased 8%. Investment and Insurance Products increased 44% due to the acquisition of
ETrade (252 staff) as well as ongoing recruitment of financial planners. Consumer Finance increased 9% to resource
increased volumes and card growth initiatives. Retail Banking staff numbers increased 3% due to the opening offurther new branches under the distribution footprint expansion.

▪

Asia Pacific staff numbers increased 32%. Asia Retail increased 79% due to continued growth in the business bothorganically and through acquisition, particularly in Cambodia, Laos and Vietnam. Pacific increased 17% due toexpansion of operations in Fiji, Guam, Solomon Islands, Vanuatu and Papua New Guinea.

- Premises costs increased $29 million (13%), driven mainly by a $21 million higher rental expense reflecting additional
space requirements, opening of new branches, additional ATMs and market rental growth. Depreciation andamortisation expense increased $7 million due to a $4 million increase in ANZ Capital as a result of the consolidation of
Stadium Australia and a $3 million increase in Operations, Technology and Shared Services due to new branches andadditional space requirements.
- Computer costs increased $17 million (6%) due to increased software purchase costs of $19 million as a result of alower level of capitalisation of purchases in the March 2008 half.
- Other expenses increased $61 million (14%). Advertising spend increased $18 million due to Personal increasing$11 million. Non-lending losses increased $8 million. Depreciation of furniture and equipment increased $6 million due
to refurbishments. Professional fees increased $6 million with Group Centre up $8 million. Travel costs increased$6 million with a $4 million increase in Personal with small increases spread across the division. ANZ Capital had a$5 million increase in other costs due to Stadium Australia (mainly event costs).
- Movements in exchange rates decreased cost growth by $34 million.

16

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Income and expenses, cont’dExpenses, cont’d#March 2008 half year compared to September 2007 half year

Operating expenses increased $134 million (5%). After adjusting for non-core items (refer pages 23 and 24), core
operating expenses increased $100 million (4%).
- Personnel expenses increased $85 million (6%) as a result of annual salary increases and a 3% increase in staff
numbers mainly in the following business units:▪

Asia Pacific increased 14%. Asia Retail increased 24% due to the continued growth of the business particularly in
Cambodia. Pacific increased 7% due to expansion of operations, particularly in Fiji and Papua New Guinea.

▪

Personal staff numbers increased 3%. Consumer Finance increased 5% reflecting strong frontline focus. Investment
and Insurance Products increased 6% due to ongoing recruitment of financial planners. Retail Banking staff numbers
increased 2% due to additional branches and customer-facing roles as part of the “More Convenient Banking”
proposition.

▪

Institutional staff numbers grew 5% due to a 14% increase in Markets and a 22% increase in Institutional Banking
reflecting business growth.

- Premises costs increased $13 million (5%) with rental expenses growing $15 million reflecting additional spacerequirements, opening of new branches, commissioning of new ATMs and market rental growth.
- Computer costs decreased $11 million (4%). Software written-off decreased $10 million on the second half of 2007
which included reassessment of software projects in Mortgages and Working Capital.
- Other expenses increased $13 million including a $5 million loss on sale of furniture and fittings as a result of relocation
costs and several minor increases across other expense categories.
- Movements in exchange rates decreased costs by $22 million.

17

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Credit risk
Provision for credit impairment charge

The credit impairment charge increased $653 million from the 30 September 2007 half to $980 million. This was driven by
Institutional which experienced large rises in both collective and individual provision charges, with turmoil in global financial
markets impacting a small number of larger Institutional customers.
Half
year
Mar 08
$M

Half
year
Sep 07
$M

Half
Movt
Movt
year
Mar 08Mar 08Mar 07 v. Sep 07 v. Mar 07$M%%

Personal

188

195

191

-4%

-2%

Institutional

698

76

(7)

large

large

New Zealand Businesses

67

36

33

86%

large

Asia Pacific

34

24

18

42%

89%

Group Centre

6

-

2

n/a

large

less: Institutional Asia Pacific

(13)

(4)

3

large

large

Provision for credit impairment charge

980

327

240

large

large

Individual provision charge

The individual provision charge increased $308 million from the 30 September 2007 half to $604 million. The increase
includes a $226 million charge on a derivative position with a US monoline insurer, which has been downgraded to
non-investment grade. We expect a significant portion of this provision, which represents a mark-to-market exposure, will
be written back in future periods. The failure of a resources client has resulted in an additional charge of $53 million.
Personal decreased due to greater focus on collection strategies, lower rates of bankruptcy losses and an improving NSW
property market. The New Zealand charge remains low, with the increase relating mainly to unsecured products in both
Retail brands. The increase is also partly attributable to the high level of recoveries in the March 2007 half.
Half
year
Mar 08
$M

Half
year
Sep 07$M

Personal

168

182

158

-8%

6%

Institutional

371

67

(8)

large

large

New Zealand Businesses

41

29

23

41%

78%

Asia Pacific

15

15

15

0%

0%

Group Centre

6

2

-

large

n/a

less: Institutional Asia Pacific

3

1

-

large

n/a

large

large

Individual provision charge

Half
Movt
Movt
year
Mar 08Mar 08Mar 07 v. Sep 07 v. Mar 07
$M
%
%

604

296

188

0.38%

0.20%

0.14%

Personal

223

239

210

-7%

6%

Institutional

396

108

80

large

large

New Zealand Businesses

54

43

37

26%

46%

Asia Pacific

19

18

19

6%

0%

Group Centre

7

3

-

large

n/a

Individual provision charge as a % of average net advances

New and increased provisions

-

-

(1)

n/a

-100%

699

411

345

70%

large

Personal

(55)

(57)

(52)

-4%

6%

Institutional

(25)

(41)

(88)

-39%

-72%

New Zealand Businesses

(13)

(14)

(14)

-7%

-7%

Asia Pacific

(4)

(3)

(4)

33%

0%

Group Centre

(1)

(1)

-

0%

n/a

less: Institutional Asia Pacific

3

1

1

large

large

Recoveries and writebacks

(95)

(115)

(157)

-17%

-39%

less: Institutional Asia Pacific
New and increased provisions

Recoveries and writebacks

18

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Credit risk, cont’dCollective provision charge

The collective provision charge increased $345 million from the 30 September 2007 half to $376 million. Turmoil in global
markets continues and the global economic outlook is weakening which is likely to impact credit quality in the Institutional
portfolio.
Institutional’s collective provision charge increased reflecting risks which are yet to emerge, including a small number ofdowngrades in selected commercial property and broking industry segments. The faster portfolio growth and an allowance
for secondary impacts of the market turmoil by way of an economic cycle adjustment, have further added to the collective
provision. Asset quality in the consumer, rural and small/medium size business portfolios remains very strong with littlechange in provisioning levels from prior periods. The $19 million increase in New Zealand reflects an increase in unsecured
consumer delinquencies off a very low base.
The analysis of the collective provision charge by business unit is set out below:
Half
year
Mar 08
$M

Half
year
Sep 07$M

Personal

20

13

33

54%

-39%

Institutional

327

9

1

large

large

New Zealand Businesses

26

7

10

large

large

Asia Pacific

19

9

3

large

large

Collective provision charge by business unit

Half
Movt
Movt
year
Mar 08Mar 08Mar 07 v. Sep 07 v. Mar 07
$M
%
%

-

(2)

2

100%

-100%

less: Institutional Asia Pacific

(16)

(5)

3

large

large

Collective provision charge

376

31

52

large

large

Half
year
Mar 08
$M

Half
year
Sep 07$M

Lending growth

131

82

63

60%

Risk profile1

172

(6)

18

large

large

Portfolio mix

(21)

(13)

7

62%

large

Economic cycle adjustment

125

-

-

n/a

n/a

Other

(31)

(32)

(36)

-3%

-14%

Collective provision charge

376

31

52

large

large

Group Centre

Collective provision charge by source

2

1.
2.

Half
Movt
Movt
year
Mar 08Mar 08Mar 07 v. Sep 07 v. Mar 07
$M
%
%
large

Includes movement in the credit valuation adjustment which reflects the market value of counterparty risk arising from derivatives
Other comprises scenario impact including the modelled unwind of the oil price shock (raised in 2005) to offset the emergence of related Individual and Collective
provisions from these scenario impacts and the refinement of estimates including emergence periods

Expected loss1

Management believe that disclosure of modelled expected loss data will assist in assessing the longer term expected loss
rates on the lending portfolio as it removes the volatility in reported earnings created by the use of IFRS credit loss
provisioning. The expected loss methodology is used internally for Economic Value Added (EVA) reporting. Factors are
currently under review to incorporate enhanced measurements from Basel II work, revised modelling on through-the-cycle
losses on unsecured consumer lending and to incorporate higher assumptions regarding usage of undrawn lines and are likely
to increase.
Expected loss was $465 million, an increase of $43 million over the September 2007 half year. Strong lending growth and aslight weakening in risk profile drove the increase in Institutional and New Zealand.
% ofGroup Net
Advances
47%

Half
year
Mar 08
0.29%

Half
year
Sep 07
0.30%

Half
year
Mar 070.28%

Institutional

30%

0.34%

0.33%

0.32%

New Zealand Businesses

22%

0.19%

0.17%

0.17%

Asia Pacific

3%

0.77%

0.83%

0.93%

Group Centre

<1%

0.07%

0.15%

0.17%

less: Institutional Asia Pacific
Total

-2%

0.34%

0.25%

0.23%

100%

0.29%

0.29%

0.28%

465

422

388

Personal

Expected loss ($million)
1.

Expected loss = Annualised expected loss divided by average net lending assets

19

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Credit risk, cont’dGross non-performing loans

Gross non-performing loans at $1,048 million represent a $382 million increase over the 30 September 2007 level. The
increase in Institutional was due mainly to two downgrades in the broking industry segment. The increase in New Zealand
was primarily driven by two customer downgrades.
Net non-performing loans

Net non-performing loans are $753 million (Sep 2007: $406 million). The Group has an individual provision coverage ratio of
28%.
As at
Mar 08As at
Sep 07

Personal

$M
189

$M
170

Movt
Movt
Mar 08Mar 08v. Sep 07 v. Mar 07
%
%
$M
165
11%
15%

Institutional

697

355

357

96%

95%

New Zealand Businesses

133

95

96

40%

39%

Asia Pacific

29

22

23

32%

26%

Group Centre

-

25

-

-100%

n/a

less: Institutional Asia PacificTotal gross non-performing loans

-

(1)

(1)

-100%

-100%

1,048

666

640

57%

64%

As at
Mar 08As at
Sep 07As at
Mar 07

Personal

$M
75

$M
68

Movt
Movt
Mar 08Mar 08v. Sep 07 v. Mar 07
%
%
$M
73
10%
3%

Institutional

575

248

229

large

New Zealand Businesses

89

58

55

53%

62%

Asia Pacific

14

9

8

56%

75%

Group Centre

-

23

-

-100%

n/a

less: Institutional Asia PacificTotal net non-performing loans

-

-

-

n/a

n/a

753

406

365

85%

large

Individual provision coverage

28%

39%

43%

Half
year
Mar 08
$M

Half
year
Sep 07$M

Personal

301

322

285

-7%

6%

Institutional

620

169

156

large

large

New Zealand Businesses

104

75

67

39%

55%

Asia Pacific

18

17

24

6%

-25%

Group Centre

-

28

-

-100%

n/a

less: Institutional Asia Pacific

-

-

(1)

n/a

-100%

1,043

611

531

71%

96%

As at
Mar 08As at
Sep 07As at
Mar 07$M

Gross non-performing loans

Net non-performing loans

New and increased non-performing loans

Total new and increased non-performing loans

As at
Mar 07

large

Half
Movt
Movt
year
Mar 08Mar 08Mar 07 v. Sep 07 v. Mar 07
$M
%
%

Movt
Movt
Mar 08Mar 08v. Sep 07 v. Mar 07%%$M

Net non-performing commitments, contingencies and derivatives$M

Personal

3

3

3

0%

0%

Institutional

85

76

75

12%

13%

New Zealand Businesses

16

5

4

large

large

Net non-performing commitments, contingencies and derivatives

104

84

82

24%

27%

20

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Income tax expense
Half
year
Mar 08$M
Income tax expense charged in the income statement
Effective tax rate
Income tax expense on cash profit1
Effective tax rate (cash profit1)
1.

Refer footnote 1 on page 11#

March 2008 half year compared to March 2007 half year

Movt
Movt
Half
Mar 08Mar 08year
Mar 07 v. Sep 07 v. Mar 07
%
%
$M

Half
year
Sep 07
$M

790

795

883

28.7%

27.6%

29.6%

678

799

817

28.8%

28.6%

29.7%

-1%

-11%

-15%

-17%

The Group's effective tax rate was 28.7%, down 0.9%. The decrease primarily reflects higher equity accounted earnings,
increased concessionally taxed Offshore Banking Unit (OBU) income and a further restatement of deferred tax balances
for the announced New Zealand tax rate change.
Adjusted for non-core items, the effective tax rate decreased by 0.9%, due primarily to higher equity accounted earnings
and increased concessionally taxed OBU income.
#March 2008 half year compared to September 2007 half year

The Group's effective tax rate increased by 1.1% primarily as a result of the usage of capital losses (which offset the gainfrom the sale of Esanda Fleetpartners and some other assets) and the ongoing appraisal of global tax provisioning
requirements partially offset by the restatement of deferred tax balances for the announced New Zealand tax rate change,
all of which occurred in the September 2007 half. The increase was offset by greater concessionally taxed OBU income
and a further restatement of deferred tax balances in New Zealand in the March 2008 half.
Adjusted for non-core items, the effective tax rate increased by 0.2%, due primarily to impacts in the September 2007
half resulting from the usage of capital losses to offset capital gains on the sale of other assets and the ongoing appraisalof global tax provisioning requirements. The increase was offset by greater concessionally taxed OBU income in the
March 2008 half.

Earnings per share1 (cents)
Half
year
Mar 08Halfyear
Sep 07

Half
Movt
Movt
year
Mar 08Mar 08Mar 07 v. Sep 07 v. Mar 07
%
%

Basic

102.4

110.9

113.2

-8%

-10%

Diluted

98.6

108.3

110.0

-9%

-10%

Profit attributable to shareholders of the Company ($M)

1,963

2,078

2,102

-6%

-7%

Less: non-core items included in profit after tax ($M)

(289)

(90)

(166)

large

74%

Cash Profit ($M)

1,674

1,988

1,936

-16%

-14%

(23)

(20)

(17)

15%

35%

1,651

1,968

1,919

-16%

-14%

1,895.1

1,855.3

1,841.6

2%

3%

87.1

106.1

104.2

-18%

-16%

Cash earnings per share

2

Preference share dividend ($M)
Earnings adjusted for non-core items ($M)
Weighted average number of ordinary shares (M)Cash earnings per share (cents)
1.
2.

Refer page 82 for full calculation
The EPS calculation excludes the Euro Hybrid preference shares

Earnings per share decreased 9.5% (10.8 cents) to 102.4 cents on the March 2007 half. Cash EPS for the Group decreased
16.4% or 17.1 cents on the March 2007 half. The main drivers of the decline in Cash EPS on the March 2007 half were:#an after tax increase in the credit impairment charge (27.0%)#

dilution from an increase in the weighted average number of shares (2.5%)#

partly offset by growth in profit before credit impairment (after tax), which contributed 13.1%.

March 2008 half year earnings per share were down 7.7% (8.5 cents) on the September 2007 half. Cash EPS for the Groupdecreased 17.9% or 19.0 cents on the September 2007 half. The main drivers of the decline in Cash EPS on the September
2007 half were:#an after tax increase in the credit impairment charge (23.2%)#

dilution from an increase in the weighted average number of shares (1.8%)#

partly offset by growth in profit before credit impairment (after tax), which contributed 7.1%.

21

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Impact of exchange rate movements1
Presented below is an analysis of the impact of foreign exchange movements on the income statement, net of earnings from
economic revenue hedges put in place to hedge NZD and USD revenue.
Movements in exchange rates have resulted in a $21 million decrease in cash2 profit for the March 2008 half year comparedto March 2007, principally due to the translation of NZD earnings net of associated revenue hedges which are booked inAustralia as foreign exchange earnings and translation of USD earnings net of associated revenue hedges. NZD earnings
were translated at effective exchange rates of 1.126 (2008) and 1.141 (2007). USD earnings were translated at effective
exchange rates of 0.8976 (2008) and 0.7780 (2007).
Half Year Mar 2008v. Half Year Sep 2007
FX
unadjusted% growth
Net interest income
Other operating income
Operating income
Operating expenses
Profit before credit impairment and income tax
Provision for credit impairment
Profit before income tax
Income tax expense
Minority interest
Cash2 profit

Half Year Mar 2008v. Half Year Mar 2007

FX
FX Impact
adjusted$M% growth

2%
11%
6%
4%
7%
large
-16%
-15%
-40%
-16%

3%
12%
6%
5%
8%
large
-15%
-15%
large
-15%

(30)
(9)
(39)
22
(17)
2
(15)
7
(8)

FX
unadjusted% growth
5%
26%
12%
12%
11%
large
-15%
-17%
50%
-14%

FX
FX Impact
adjusted$M% growth
6%
27%
13%
13%
13%
large
-14%
-16%
large
-13%

(43)
(23)
(66)
34
(32)
3
(29)
8
(21)

1.

ANZ has removed the impact of exchange rate movements to provide a better indication of the Group’s performance in local currency terms. Retranslation is netof revenue hedges taken to income in cash profit, refer page 26

2.

Refer footnote 1 on page 11

Impact of acquisitions and disposals
Stadium Australia became a consolidated entity in the March 2007 half as part of the Group’s Alternative Assets strategy.
This entity has been sold down in the March 2008 half, as expected, and has therefore been deconsolidated from the Group’s
result.
ETrade became a wholly owned subsidiary in May 2007.
The consolidation of ETrade and Stadium Australia in 2007 and the subsequent deconsolidation of Stadium Australia during
the March 2008 half have given rise to the following movements within Operating income and Operating expenses:
Operating income has increased by $39 million over the March 2007 half (Sep 2007 half: $14 million decrease):#

ETrade increased $28 million (Sep 2007 half: $2 million)#

Stadium Australia increased $11 million (Sep 2007 half: $16 million decrease).

Operating expenses have increased by $42 million over the March 2007 half (Sep 2007 half: $nil):#

ETrade increased $26 million (Sep 2007 half: $5 million)#

Stadium Australia increased $16 million (Sep 2007 half: $5 million decrease).

22

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Non-core items
ANZ has adjusted the income statement for non-core items, as outlined below, to assist in understanding the core businessperformance by removing the volatility in reported results created by one-off significant items and the non-core income
arising from the use of derivatives in economic hedges and fair value through profit and loss.
Non-core items after tax in the income statement
Half
year
Mar 08
$M

Half
year
Sep 07
$M

Half
Movt
Movt
year
Mar 08Mar 08Mar 07 v. Sep 07 v. Mar 07$M%%

Significant items
Gain on Visa shares

248

-

-

n/a

n/a

Impairment of intangible - Origin Australia

(24)

-

-

n/a

n/a

8

(24)

-

large

n/a
-100%

Restatement of deferred tax balances for announced
New Zealand tax rate change
Gain on sale of Esanda Fleetpartners

-

54

141

-100%

Total significant items

232

30

141

large

65%

Economic hedging - fair value gains/losses

67

41

28

63%

large

NZD and USD revenue hedge - mark-to-market

(10)

19

(3)

large

large

Non-core items

289

90

166

large

74%

#

Significant items

Significant items in the income statement are those items that management believe do not form part of the core businessby virtue of their magnitude and infrequent nature and, as such, should be removed from profit when analysing the corebusiness performance. The following are considered significant items:- Gain on Visa shares
ANZ acquired shares in Visa Inc. preceding the initial public offering in March 2008, resulting in a gain of $353 million($248 million after tax) being the fair value of the shares issued to ANZ. Visa shares not sold into the initial public
offering are held as an available-for-sale asset on the balance sheet.
- Impairment of intangible - Origin Australia
An expense of $34 million ($24 million after tax) has been recognised on an Origin Australia intangible asset reflecting
the winding back of the mortgage manager business model.
- Impact of NZ tax rate change (March 2008 half year and September 2007 half year)
In May 2007, the New Zealand Government announced a reduction in company tax rates from 33% to 30%. For ANZ,
this will take effect from 1 October 2008. This resulted in a negative impact on profit after tax of $24 million following
the restatement of net deferred tax asset balances in the September 2007 half and a further adjustment of $8 million
profit after tax in the March 2008 half following reassessment of timing differences.
- Gain on sale of Esanda Fleetpartners (September 2007 half year and March 2007 half year)
During the March 2007 half, ANZ sold Esanda Fleetpartners, which had operations in Australia and New Zealand, toNikko Principal Investments. Profit on disposal was $195 million ($141 million after tax) with $128 million ($74 million
after tax) recognised in Australia and $67 million (tax impact: $nil) recognised in New Zealand. During the September
2007 half, Australian Taxation Office clearance enabled most of the capital losses realised on the buy-back of TrUEPrS
to be applied against the sale transaction resulting in an increase in the gain on sale of Esanda Fleetpartners of$54 million after tax. The 2007 full year impact is profit after tax of $195 million (tax impact: $nil).
Half Year Mar 2008

Significant items attributable by business unit

Personal
Institutional
New Zealand Businesses

Visa
$M

Origin$M

NZ Tax
Rate
$M

Total
$M

195

(24)

-

171

-

-

8

8

74

-

-

74

Group Centre1

(21)

-

-

(21)

Total significant items

248

(24)

8

232

1.

Comprises $21 million of Australian tax on the equity accounted profits of Cards NZ Limited relating to the gain on the allocation of shares in Visa Inc. which was
not taxable in New Zealand23

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Non-core items, cont’d#

Non-core income arising from the use of derivatives in economic hedges and fair value through profit and loss

The Group enters into economic hedges to manage its interest rate and foreign exchange risk. AASB accounting policies
have introduced volatility within the Income Statement in relation to economic hedges as follows:- approved classes of derivatives not designated in accounting hedge relationships but that are considered to beeconomic hedges, including hedges of NZD and USD revenue- income/(loss) arising from the use of the fair value option (principally the credit spread on liabilities designated at fairvalue), and- ineffectiveness of designated accounting cash flow and fair value hedges.
ANZ separately reports the impact of volatility due to economic hedging as a non-core item, as the profit or loss resulting
from the transactions outlined above does not relate to the current accounting period and will reverse over time to bematched with the profit or loss from the economically hedged item as part of core operating performance. In the case ofvolatility arising from the use of the fair value option, the mark-to-market gain of $122 million in the half is a result ofwidening spreads on the fair value of ANZ’s own-issued paper. During the March 2008 half, ANZ has classified income of$57 million after tax (Sep 2007 half: $60 million; Mar 2007 half: $25 million) relating to economic hedging, including themark-to-market unrealised gain/(loss) on NZD and USD revenue hedges, as non-core items (tax impact: $25 million (Sep2007 half: $26 million; Mar 2007 half: $12 million)).
Impact on income statement

Non-compliant hedges
NZD and USD revenue hedges – mark-to-market
Use of the fair value option
Ineffective portion of effective cash flow and fair value hedges

Half year
Mar 08$m

Half year
Sep 07$m

Half year
Mar 07$m(33 )( 14 )
122
7

14
28
44
-

38
(5)
2
2

Profit/(loss) before tax

82

86

37

Profit/(loss) after tax

57

60

25

On transition to AIFRS at 1 October 2005, the impact of hedge ineffectiveness and economic hedges not designated inaccounting hedge relationships was $144 million (pre-tax). This amount was taken directly to retained earnings as a loss
and is expected to unwind over time through the income statement.
Net unrealised (loss)/gain – balance sheet$m

As at 1 October 2005, transition to AIFRSNet volatility recorded in income statement- half year ended 31 March 2006
- half year ended 30 September 2006
- half year ended 31 March 2007
- half year ended 30 September 2007
- half year ended 31 March 2008

( 144 )

As at 31 March 2008

110

18
31
37
86
82

The net gain recorded in the income statement represents the progressive reversal of the $144 million loss on transition
to AIFRS together with income/(loss) arising on existing and new economic hedge transactions, including the impact ofchanging spreads on ANZ’s own-issued paper.

24

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Dividends
Movt
Half
Movt
Mar 08year
Mar 08Mar 07 v. Sep 07 v. Mar 07
%
%

Half
year
Mar 08Halfyear
Sep 07

Interim (fully franked)

62

n/a

62

n/a

0%

Final (fully franked)

n/a

74

n/a

n/a

n/a

Dividend per ordinary share (cents)

Ordinary share dividend payout ratio (%)

61.4%

67.1%

54.9%

Profit after tax ($M)

1,963

2,078

2,102

-6%

-7%

Non-core items ($M)

(289)

(90)

(166)

large

74%

Cash1 profit ($M)
Dividend payout ratio of cash1 profit (%)

1,674

1,988

1,936

-16%

-14%

72.2%

70.2%

59.6%

1

1.

Refer footnote 1 on page 11

The Directors propose that an interim dividend of 62 cents be paid on each eligible ordinary share. The proposed interim
dividend will be fully franked for Australian tax purposes.
ANZ has a dividend reinvestment plan (DRP) and a bonus option plan (BOP). A number of changes have been made to theterms and conditions of the DRP and BOP, effective for the 2008 interim dividend only. For the 2008 interim dividend, ANZ
intends to provide shares under the DRP and BOP through the issue of new shares. Election notices from shareholders
wanting to commence participation in the DRP or BOP for the 2008 interim dividend or to vary their current participationelection, must be completed and returned to ANZ’s Share Registrar by 5.00 pm (Melbourne time) on 14 May 2008. It is
proposed that the interim dividend will be paid on 1 July 2008. Subject to receiving effective contrary instructions from theshareholder, dividends payable to shareholders with a registered address in Great Britain (including the Channel Islands andthe Isle of Man) or New Zealand will be converted to their local currency at ANZ’s daily forward exchange rate at the close ofbusiness on 16 May 2008 for value on the payment date.
For the 2008 interim dividend only, it is intended that the balance of the dividend not reinvested by shareholders in the DRP
or foregone by shareholders under the BOP, will be fully underwritten by J.P. Morgan Australia Limited. Refer also page 81.

EVATM reconciliation
One measure of shareholder value is Economic Value Added (EVATM) growth relative to prior periods. EVATM for the half year
ended 31 March 2008 was $1,214 million, an increase of $95 million on the March 2007 half and $53 million on the
September 2007 half.

EVATM

Half
year
Mar 08
$M

Half
year
Sep 07
$M

Movt
Movt
Half
Mar 08Mar 08year
Mar 07 v. Sep 07 v. Mar 07%%$M

Profit after tax

1,963

2,078

2,102

-6%

-7%

Non-core items1

(289)

(90)

(166)

large

74%

Cash profit

1,674

1,988

1,936

-16%

-14%

360

(65)

(103)

large

large

2,034

1,923

1,833

6%

11%

407

363

378

12%

8%

Adjusted economic profit

2,441

2,286

2,211

7%

10%

Cost of ordinary capital(1,204)(1,105)(1,075)

9%

12%

Cost of preference share capital

(23)
1,214

(20)
1,161

(17)
1,119

15%
5%

35%
8%

Credit cost adjustment
Economic profit
Imputation credits

EVATM
1.

Refer footnote 1 on page 11

EVATM is a measure of risk adjusted accounting profit used for evaluating business unit performance and is a factor in
determining the variable component of remuneration packages. It is based on profit after tax, adjusted for non-core items,
credit costs, the cost of capital, and imputation credits (measured at 70% of Australian tax). Of these, the major component
is the cost of capital, which is calculated on the risk adjusted or economic capital at a rate of 11%. At the Group level, total
capital is used so the cost of capital reflects the full resources provided by shareholders. The credit cost adjustment replaces
the credit impairment charge with expected losses after tax at the rate applicable in the relevant geography. At ANZ,
economic capital is equity allocated according to a business unit’s inherent risk profile. It is allocated for several categories
including: credit risk, operating risk, interest rate risk, basis risk, mismatch risk, investment risk, trading risk, deferredacquisition costs risk and other risk. The methodology used to allocate capital to business units for risk is designed to help
drive appropriate risk management and business strategies.

25

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Market risk
Below are aggregate Value at Risk (VaR) exposures at 97.5% and 99% confidence levels covering both physical andderivatives trading positions for the Bank’s principal trading centres. Figures are converted from USD at closing exchange
rates. The VaR exposure for the half year ended 31 March 2008 excludes any VaR relating to the credit intermediation trades
associated with a US monoline insurer against which a $226 million individual provision charge has been taken (referpage 18).
97.5% confidence level 1 day holding period
As at
Mar 08

Value at risk at 97.5% confidence
Foreign exchangeInterest rate
Credit Spread
Diversification benefit
Total VaR

Low forperiodMar 08$M

Avg forperiodMar 08$M

As at
Sep 07$M

High for
periodMar 08$M$M

High for
period
Sep 07$M

Low forperiod
Sep 07$M

Avg forperiod
Sep 07
$M

1.2
1.7
0.7
(0.9)
2.7

1.6
3.0
1.2
n/a
3.4

0.6
1.2
0.6
n/a
1.4

1.1
1.8
0.9
(1.6)
2.2

1.2
1.6
1.0
(2.1)
1.7

1.5
7.6
1.9
n/a
8.1

0.2
1.2
0.7
n/a
1.4

0.6
2.6
1.2
(1.6)
2.8

2.5
4.3
1.8
n/a
4.7

0.9
1.3
0.9
n/a
1.7

1.6
2.4
1.3
(2.3)
3.0

1.8
2.3
1.6
(3.0)
2.7

2.2
9.8
3.2
n/a
9.9

0.3
1.7
1.1
n/a
1.7

0.8
3.4
2.1
(2.4)
3.9

99% confidence level 1 day holding period
Value at risk at 99% confidence
Foreign exchangeInterest rate
Credit Spread
Diversification benefit
Total VaR

1.9
2.3
1.2
(1.3)
4.1

Revenue related hedges

The Group has used derivative instruments to economically hedge against the adverse impact on future offshore revenue
streams from exchange rate movements. Movements in average exchange rates, net of associated revenue hedges, resulted
in a decrease of $21 million in the Group’s profit after tax for March 2008 when compared to March 2007 (Sep 2007 half:
decrease $8 million). This included the impact on earnings (cash basis) from associated revenue hedges, which increased by$4 million (before tax) from March 2007 half (Sep 2007 half: $13 million). Hedge revenue is booked in the Group Centre.
The Group has taken out economic hedges against New Zealand Dollar and United States Dollar revenue streams. New
Zealand Dollar exposure is the most significant, covering the New Zealand geography (refer page 58) and the debt
component of New Zealand Dollar intra-group funding of this business, which amounted to NZD1.77 billion at 31 March 2008.
Details of revenue hedges are set out below.

NZD Economic hedges
Net open NZD position (notional principal)
Amount taken to income (pre tax)
Amount taken to income (pre tax cash basis)

Half
year
Mar 08
$M
1,241
(17)
3

Half
year
Sep 07
$M
643
18
(10)

Half
year
Mar 07
$M
869
(6)
(1)

USD Economic hedges
Net open USD position (notional principal)
Amount taken to income (pre tax)
Amount taken to income (pre tax cash basis)

172
3
-

-

-

In the March 2008 half year:#

NZD0.7 billion of economic hedges matured and a realised gain of $3 million (pre-tax) was booked to the income
statement.

#

NZD1.4 billion of economic hedges for the current half and the next twelve months were taken out at a forward rate of
approximately NZD1.16/AUD.

#

USD0.2 billion of economic hedges for the next six months were taken out at a forward rate of approximately
USD0.89/AUD.

#

An unrealised gain of $8 million (pre-tax) on the outstanding NZD1.4 billion and USD0.2 billion of economic hedges wasbooked to the income statement as a non-core item as these are viewed by management as hedges of NZD and USD
revenues for the next twelve months.

The Group has fully hedged anticipated September 2008 half NZD revenue streams (including inter-group funding) and USD
revenue streams at an effective all-in rate of approximately NZD1.156/AUD and USD0.89/AUD respectively. Further, it hashedged approximately 30% of anticipated 2009 NZD revenue streams (including inter-group funding) which will be at aneffective all-in rate of approximately NZD1.16/AUD after allowing for forward points.
26

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Balance sheet
Total assets increased by $86.5 million (25%) from 31 March 2007 to $438.4 billion. Exchange rate movements accounted
for a decrease of $4.0 billion, consisting of decreases of $1.8 billion in New Zealand, $1.1 billion in Asia Pacific and$1.1 billion in the United Kingdom and the United States. Excluding the impact of exchange rate movements, total assets
increased $59.2 billion (24%) in Australia, $10.2 billion (12%) in New Zealand, $11.1 billion (100%) in Asia Pacific,$9.3 billion (134%) in the United Kingdom and the United States and $0.7 billion in India.
The explanations in the table below describe movements in the major asset classes.
Liquid assets !15% (Excl Exchange Rates !19%)
Liquid assets increased by $2.4 billion to $17.8 billion at 31 March 2008 primarily from an increase in bank certificates ofdeposit of $3.2 billion in the United Kingdom and the United States partially offset by lower holdings of liquid assets within
Australia. This should not be confused with our liquidity portfolio.
Due from other financial institutions !84% (Excl Exchange Rates !94%)
Due from other financial institutions increased by $5.4 billion to $11.9 billion at 31 March 2008, due mainly to an increase ininterbank lending volumes in Group Treasury of $3.5 billion and $1.9 billion in the United Kingdom and the United States.
Trading securities !4% (Excl Exchange Rates !5%)
Trading securities volumes increased $0.6 billion to $14.9 billion at 31 March 2008, primarily in Asia and New Zealandpartially offset by a reduction in Markets Australia.
Derivatives !140% (Excl Exchange Rates !143%)
Derivative assets increased $17.2 billion to $29.5 billion at 31 March 2008. The increase is driven principally by volatility inforeign exchange and interest rate markets together with increased trading activities due to customer flows.
Available-for-sale assets !66% (Excl Exchange Rates !73%)
Available-for-sale asset volumes increased $6.5 billion to $16.3 billion at 31 March 2008, due mainly to Treasury holding
highly liquid assets as a result of the current instability in global financial markets.
Net loans and advances !19% (Excl Exchange Rates !20%)
Net loans and advances increased $49.9 billion to $317.7 billion at 31 March 2008. Excluding the impact of exchange rate
movements, the increase was $52.3 billion or 20%.
Growth in Australia was $32.6 billion or 17.6%:-

Personal grew $16.6 billion (12%) with $14 billion as a result of growth in housing loans from Mortgages. Regional &Rural Banking increased $1.0 billion. Consumer Finance increased $0.8 billion, Esanda increased $0.6 billion and
Investment and Insurance Products increased $0.2 billion.

-

Institutional grew $16.0 billion (34%) including $2.3 billion of asset backed commercial paper liquidity facilities. This
growth was largely in Relationship Lending, with growth of $14 billion (59%) driven by re-intermediation of corporate
customers following the ongoing tightening of global credit markets, while Business Banking increased $0.7 billion(5.2%) and Corporate Finance increased $1 billion (15.8%).

New Zealand grew by $7.6 billion (10.5%). After excluding the impact of exchange rates, growth was $9.1 billion, or 13%,with increases in Retail and Private Banking ($5.1 billion or 12.5%), Corporate & Commercial Banking ($1.7 billion or 15%)and Rural Banking ($2.2 billion or 19.6%).
Overseas Markets increased by $9.7 billion (103.7%). After excluding the impact of exchange rates, growth was$10.5 billion (124%) primarily from increases in Asia ($4 billion), the United Kingdom ($4.6 billion) and the United States($1.2 billion), reflecting growth in global corporate lending.
Customers’ liability for acceptances !12% (Excl Exchange Rates !13%)
Customers’ liability for acceptances increased $1.7 billion to $15.8 billion at 31 March 2008, due mainly to increased activity
in Business Banking Australia.
Shares in associates and joint venture entities !70% (Excl Exchange Rates !70%)
Shares in associates and joint venture entities increased $1.6 billion to $3.9 billion at 31 March 2008, including investments
in AMMB Holdings Berhad of $0.9 billion and Shanghai Rural Commercial Bank of $0.3 billion.

27

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Balance sheet, cont’d
Total liabilities increased by $83.5 billion (25%) from 31 March 2007 to $414.4 billion. Exchange rate movements accounted
for a decrease of $4.0 billion consisting of reductions of $1.5 billion in New Zealand, $1.3 billion in Asia Pacific and$1.1 billion in the United Kingdom and the United States.
The explanations in the table below describe movements in the major liability classes.
Due to other financial institutions !26% (Excl Exchange Rates !31%)
Due to other financial institutions increased by $4.2 billion to $20.3 billion at 31 March 2008 due primarily to increased
holdings of interbank borrowings in Asia ($4.1 billion) and the United Kingdom ($1.2 billion) partially offset by a reduction in
Institutional Australia.
Deposits and other borrowings !26% (Excl Exchange Rates !28%)
Deposits and other borrowings increased $54.5 billion to $263.9 billion at 31 March 2008. Excluding the impact of exchange
rate movements, the increase was $57.3 billion (28%).
Australia increased $33.1 billion (25%) largely as a result of increases in the following businesses:-

Institutional increased $10.3 billion (22%) in Working Capital ($6.0 billion), Markets ($2.8 billion) and Business Banking($1.5 billion).

-

Personal increased $8.3 billion (13%) following branch expansion, ongoing marketing campaigns and improved
attractiveness of bank deposits given higher interest rates and share market volatility. Growth was primarily in Banking
Products ($6.5 billion) with minor increases in Mortgages, Rural Commercial & Agribusiness Products, Small BusinessBanking Products and Esanda.

-

Treasury increased $14.2 billion largely due to an increase in certificates of deposit to fund lending growth.

New Zealand increased $7.0 billion (12%). After excluding the impact of exchange rates, growth was $8.1 billion (15%)
with increases largely in Treasury ($4.6 billion) and Retail Banking ($3.1 billion).
Overseas Markets increased by $14.4 billion (84%). After excluding the impact of exchange rates, the increase was$16.1 billion (103%), with increases in the United Kingdom ($5.6 billion), the United States ($5.0 billion) and Asia($4.9 billion). Deposit growth was due to an increase in customer term deposit and higher certificates of deposits issued tofund lending growth.
Derivatives !105% (Excl Exchange Rates !105%)
Derivative liabilities increased $14.2 billion to $27.8 billion at 31 March 2008. The increase is driven principally by volatility
in foreign exchange and interest rate markets together with increased trading activities due to customer flows.
Payables and other liabilities "13% (Excl Exchange Rates "12%)Payables and other liabilities decreased $1.3 billion to $8.9 billion at 31 March 2008. This included a reduction in creditorsof $0.9 billion to $3.6 billion, largely due to decreased securities lending activity.
Bonds and notes !17% (Excl Exchange Rates !18%)
Bonds and notes increased $9.4 billion to $63.5 billion at 31 March 2008 in Australia and New Zealand in response toincreased term funding requirements.
Loan capital !9% (Excl Exchange Rates !10%)
Loan capital increased $1.1 billion to $12.9 billion at 31 March 2008 in response to capital management requirements
including subordinated debt of $0.3 billion.

28

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Liquidity risk
Liquidity risk is the risk that the Group has insufficient capacity to fund increases in assets, or is unable to meet its payment
obligations as they fall due, including repaying depositors or maturing wholesale debt. The timing mismatch of cash flows
and the related liquidity risk is inherent in all banking operations and is closely monitored by the Group.
While global credit and liquidity conditions have become significantly more difficult in recent times, ANZ has continued to
manage this risk through maintaining a strong funding profile.
A feature of ANZ’s management of liquidity risk is the Group’s liquidity risk framework. Key components of the framework
include: daily liquidity reporting and scenario analysis; monitoring wholesale and customer liability composition targeting adiversified funding base (including tenor and source); and holding a portfolio of high quality liquid assets.
#

Funding metrics
To determine appropriate balance sheet liquidity and funding risk strategies the Group employs cash flow based funding
metrics. These metrics are used to measure how the Group’s external assets are funded. Managing these metrics assistsin ensuring that an appropriate proportion of the Group’s assets are funded by either ‘sticky’ customer liabilities or longterm wholesale debt funding (with a remaining term exceeding 1 year). This recognises that long-term debt and other‘sticky’ liabilities have favourable liquidity characteristics, and assist both in reducing adverse impacts or volatility causedby short-term funding and in monitoring the effects of deposit-gathering strategies. Deposit acquisition and term funding
programs operate to ensure minimum ratios are maintained.

#

Scenario modelling
Scenario modelling includes a ‘going-concern’ scenario i.e. the normal behaviour of cash flows in the ordinary course ofbusiness, and ‘name crisis’ scenario whereby a potential name-specific liquidity crisis results in significant difficulty rollingover or replacing liabilities. The Group also models a number of other stress tests and liquidity scenarios over a variety oftime horizons.
It would take an extreme event to challenge the Group’s continued solvency. A more likely outcome is a period of tightliquidity, resulting in increased funding costs. To assess these risks, the Group models and continually monitors theprobability and earnings impact of changes in the Group’s credit margin. These changes may be caused by generalmarket factors and/or credit rating downgrades.

#

Wholesale funding
The Group’s global funding strategy aims to deliver a portfolio of wholesale funds balancing cost and diversification bymarkets, investors, currencies, maturities and funding structures. The strategy also includes the monitoring of wholesalefunding concentration limits. Overall the framework has been effective in managing the growth in short-term wholesaledebt, against actual and modelled scenarios. ANZ has imposed balance sheet disciplines to appropriately manage funding
requirements.
To date, liquidity in shorter dated tenors remains readily accessible and ANZ continues to be able to access termwholesale markets, albeit at higher cost. Despite a tightening in term debt markets, during the March 2008 half theGroup issued approximately $21.4 billion of new term wholesale debt with a final maturity of at least 12 months.

#

Liquidity portfolio
Global liquidity conditions deteriorated over the March 2008 half, with credit spreads widening further and medium/longterm maturity liquidity declining.
To assist in managing market disruptions, the Group holds a diversified portfolio of cash and high-quality, highly-liquid
securities to support payment obligations and contingent funding. We do not include trading assets in our liquidity
portfolio. In order to strengthen this portfolio further, since the start of the liquidity squeeze the Group has increased its
global liquidity portfolio by approximately $8 billion.
In addition, a $11 billion internal mortgage securitisation has also been established. Securities created within this vehicle
are expected to qualify as Eligible Securities pledgeable for cash with the Reserve Bank of Australia.
The Group monitors the ratio of cover provided by the liquidity portfolio to fund both domestic and offshore wholesale
debt maturities. This analysis is undertaken for all major funding centres.
As at
Mar 08
AUD $MAs at
Sep 07
AUD $M

As at
Mar 07
AUD $M

AUD

9,866

9,282

4,957

EUR

149

181

268

GBP

477

423

358

NZD

5,603

5,474

5,311

Global liquidity portfolio (market values)

USD

5,429

4,716

2,581

Total

21,52420,076

13,47529

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Liquidity risk, cont’dCustomer and wholesale funding composition

The following table shows the Group’s customer and wholesale funding composition.
As at
Mar 08As at
Sep 07

$M

$M

Movt
Movt
Mar 08Mar 08v. Sep 07 v. Mar 07
%
%
$M

As at
Mar 071

Customer deposits
Personal

69,80765,41061,295

7%

14%

Institutional

75,46068,64960,127

10%

26%

New Zealand Businesses

40,67938,33437,511

6%

8%

Asia Pacific

13,443

11,101

10,64321%

26%

Group Centre

1,684

1,806

1,339

-7%

26%

less: Institutional Asia Pacific(6,001)(4,071)(3,844)

47%

56%

195,072

181,229

167,0718%

17%

10,194

12,513

11,858-19%-14%205,266

193,742

178,929

6%

15%

17%

Total customer deposits
Other

2

Total customer liabilities (funding)
Wholesale funding
Bonds and notes

63,54954,07554,18818%

Loan Capital

12,931

12,784

11,816

1%

9%

Certificates of deposits (wholesale)

46,92331,90323,004

47%

large
24%

Commercial paper

19,23016,914

15,497

14%

Liability for acceptances

15,756

14,536

14,0138%12%Due to other financial institutions

20,264

19,436

16,1064%

26%

3(2,057)

1,535

1,497

large

large

Total wholesale funding

176,596

151,183

136,121

17%

30%

Shareholders' equity excluding preference share capital

23,093

21,177

20,0399%15%

Short term wholesale funding

16.7%

14.5%

12.7%

Liability for acceptances

3.9%

4.0%

4.2%

Other wholesale borrowings

Total funding maturity

4

Long term wholesale funding- Less than 1 year residual maturity

8.7%

8.0%

4.7%

- Greater than 1 year residual maturity

13.3%

13.7%

18.1%

Total customer liabilities (funding)

50.7%

52.9%

53.4%

Shareholders' equity and hybrid debt

6.7%

6.9%

6.9%

100.0%

100.0%

100.0%

Total wholesale funding and shareholders' equity excluding
preference share capital
1.

Represents term deposits, other deposits excluding Collateralised Loan Obligation and securitisation deposits

2.

Includes payables and other liabilities, provisions and net tax provisions

3.

Includes net derivative balances, special purpose vehicles, other borrowings and preference share capital Euro hybrids

4.

Long term wholesale funding amounts are stated at original hedged exchange rates. Movements due to currency fluctuations in actual amounts borrowed arerestated in short term funding volumes

30

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Capital management
Basel II

Basel I

Basel I

Basel I

As at
Mar 08As at
Mar 08As at
Sep 07As at
Mar 07

Tier 1

6.9%

6.5%

6.7%

6.7%

Tier 2

3.2%

3.8%

4.1%

4.3%

-

(0.6%)(0.7%)(0.7%)
10.3%

Deductions
Total

10.1%

9.7%

10.1%

ACE

4.8%

4.4%

4.3%

4.4%

n/a

4.0%-4.75%

4.0%-4.75%

4.0%-4.75%

267,486

309,344

275,018

250,485

Target ACE
RWA $mFurther details of the components of capital and the capital adequacy calculation are set out on pages 97 to 99

The Basel II Accord principles took effect in Australia and New Zealand from 1 January 2008. For calculation of minimum
capital requirements under Pillar 1 (Capital Requirements) of the Basel II Accord, ANZ has gained accreditation from APRA for
use of Advanced Internal Ratings Based (AIRB) methodology for credit risk weighted assets and Advanced Management
Approach (AMA) for operational risk weighted asset equivalent. Changes to the calculation of market risk weighed assets areminimal.
Whilst accreditation has been received a number of aspects of the measurement of risk weighted assets and regulatory
capital are still under review in conjunction with APRA and changes are likely, including the implementation of the capitalrequirement for Interest Rate Risk in the Banking Book (IRRBB) from 1 July 2008.
Tier 1 Ratio

The Tier 1 ratio at 6.9% increased 14 basis points during the half year, principally due to:#the adoption of the Basel II Accord principles (+53 basis points) due to Basel II risk weighted assets reduction of$41.9 billion (+92 basis points) partly offset by Basel II capital reductions of $1.2 billion (-39 basis points)#

the loss of AIFRS transition relief in January 2008 (-23 basis points)#

net profit, excluding non-core items and after preference share dividends, of $1.65 billion (+60 basis points)#

ordinary share dividend commitments, net of actual and expected reinvestment through the Dividend Reinvestment Plan
(DRP) and Bonus Option Plan (BOP) of $0.7 billion (-26 basis points)#

underwriting and higher participation rate in the DRP and BOP following application of a discount to the issuance price on
the final 2007 dividend raised $1.1 billion (+40 basis points)#

increase in Risk Weighted Assets (RWA) of 25.2% per annum, excluding the impact of exchange rate movements and the
reduction due to the adoption of Basel II on 1 January 2008 (-82 basis points)#

increase in investment/profit retention in funds management businesses, associates and commercial operations (-7 basis
points)#other items (net -1 basis point) include: the impact of exchange rate movements (-2 basis points); movement incapitalised expenses, deferred fee income, capitalised software, other non-core profit items, share issuances to staff andoption conversions (+4 basis points) and business investments and disposals (-3 basis points).

ACE Ratio

As the Group’s proposed new capital targets under Basel II are yet to be confirmed with APRA and Rating Agencies, theGroup also continues to monitor its ACE capital under Basel I principles against the Group’s target capital range of 4.00% to
4.75%. ACE (Basel I) at 4.4% remains within that range, an 8 basis point increase on the September 2007 level (4.3%).
Prudential issues - APRA changes to prudential standards applicable from 1 January 2008

Amendments to the Prudential Standards effective 1 January 2008 include the following changes which have impacted thecapital ratios:#Basel II methodologies for calculating credit Risk Weighted Assets and Expected Loan Losses.

#

Inclusion of a capital charge for operating risk.

#

Loss of Collective Provision for loan losses from Upper Tier 2. This amount is replaced with either an amount in Upper
Tier 2 of Eligible Provisions (net of tax) in excess of Expected Losses, or 50% Tier 1 and 50% Tier 2 deductions ofExpected Losses in excess of Eligible Provisions (net of tax).

#

Deductions from Total Capital under Basel I are now deducted 50% from Tier 1 and 50% from Tier 2.

#

Loss of AIFRS transitional relief of $716 million from Tier 1 Capital and $17 million from Tier 2 Capital.

#

Hybrid Limits become 25% of net Tier 1 capital, split between Innovative (15%) and Non-innovative (10%). ANZ has
been provided $419 million of transitional relief until January 2010 with respect to the Innovative limit.

#

A capital floor based on 90% of capital required under Basel I methodology. At 31 March 2008, the floor has no impact
on ANZ’s reported capital and ratios

The Group has lodged its Internal Capital Adequacy Assessment Process (ICAAP) document with APRA for its review.
31

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Capital management, cont’d
The impact of the material changes on capital calculated at 31 March 2008 is shown below.

1

Basel I

Adjustments
Operating
to Credit
Risk RWA
Risk RWA

Expectedloss/

50%
Tier 1/
2
Tier 2
provisionchange deductions Other

Loss of AIFRS
TransitionalreliefBasel II

$M

$M

$M

$M

$M

$M

$M

$M

Fundamental Tier 1 capital

22,098

-

-

-

-

39

-

22,137

Innovative Tier 1

3,072

-

-

-

-

-

-

3,072

Non-Innovative Tier 1

981

-

-

-

-

-

-

981

AIFRS Transitional relief

716

-

-

-

-

-

(716)

-

Tier 1 capital deductions(6,635)

-

-

(359)

(978)

90

-

(7,882)Tier 1 capital

20,232

-

-

(359)

(978)

129

(716)

18,308General reserve for impairmentof financial assets net of
attributable deferred tax asset

1,681

-

-

(1,675)--

6Upper Tier 2 capital

931

-

-

-

-

1

-

932

AIFRS Transitional relief

17

-

-

-

-

-

(17)

-

9,093

-

-

-

-

-

-

9,093

Lower Tier 2 capital
Tier 2 capital deductions

-

-

-

(358)

(978)

(18)

-

(1,354)Tier 2 capital

11,722--(2,033)

(978)

(17)

(17)

8,677

Total capital deductions(1,956)

-

-

-

1,956

-

-

-

Total Regulatory Capital

29,998--(2,392)

-

112

(733)

26,985Tier 1 capital

20,232

-

-

(359)

(978)

129

(716)

18,308Less Residual Tier 1 capital(4,045)

-

-

-

-

-

-

(4,045)

(716)

-

-

-

-

-

716

-

50% Tier 1/Tier 2 deductions(1,956)

-

-

(358)

978

(18)

-

(1,354)

Adjusted Common Equity

13,515

-

-

(717)

-

111

-

12,909Risk Weighted Assets

309,344

16,388(58,246)

n/a

n/a

n/a

n/a

267,486

AIFRS Transitional relief

RatiosTier 1

6.5%

6.9%

Tier 2

3.8%

3.2%

Deductions(0.6%)-

Total capital

9.7%

10.1%

ACE

4.4%

4.8%

1.

Transitional capital relief of $733 million expired on 31 December 2007

2.

Expected loss deduction in the context of the Capital Adequacy calculation is based on the General Reserve for Credit Loss (for ANZ, this is the Collective Provisionbalance), net of tax $1,681 million, plus Other Eligible provisions (i.e. Individual Provisions) of $529 million, less Basel Expected Loss of $2,927 million (comprising
Individual Provisions of $529 million and Expected Loss of $2,398 million). Expected Loss in this context, is an APRA construct used solely for risk weighted asset
calculation purposes. It is based on extreme stress loss rates and is significantly different to ANZ's measurement of Expected Loss, which is an average "throughthe cycle" methodology

The impact of the RWA methodology for interest rate risk in the banking book has not been included in the above calculation
as implementation of this methodology has been deferred to 1 July 2008. Under Pillar 3 (Market Discipline) of the Basel II
Accord, financial institutions are required to make extensive qualitative and quantitative disclosures with respect to capital
adequacy and credit risk management. ANZ will provide this information for the first time as at 30 September 2008.
With respect to the proposed 2008 interim dividend, ANZ will offer a discount of 1.5% on the DRP and underwrite any
shortfall in participation to raise an additional estimated $830 million of Tier 1 capital of which $120 million has beenrecognised as a higher accrual for the DRP. On 18 April 2008 ANZ National Bank raised $NZD835 million perpetual
subordinated debt which qualifies as Upper Tier 2 capital.
Hybrid Capital and Tier 1 Capital

The Group raises hybrid capital to further strengthen the Group’s capital base and ensure compliance with APRA’s prudential
capital requirements. As at 31 March 2008, the Group had three Innovative Hybrid Tier 1 capital instruments (16.8% of net
Tier 1 – APRA has provided transitional relief of the excess issuance above 15% till January 2010) and one Non-innovative
Hybrid Tier 1 capital instrument (5.4% of net Tier 1).
Hybrid Tier 1 Capital details
Amount (in issue currency)
Accounting classification
Regulatory (APRA) classification
March 2008 balance (A$)
Interest rate

ANZ StEPS$1,000 million
Debt
Innovative - Tier 1$1,000 million
BBSW +1.00%

US Stapled Trust Security
USD1,100 million
Debt
Innovative - Tier 1$1,201 million
Tranche 1 (USD350m) Coupon: 4.48%
Tranche 2 (USD750m) Coupon: 5.36%

32Euro Hybrid€500 million
EquityInnovative - Tier 1$871 million
Euribor +0.66%

UK Hybrid£450 million
Debt
Non-innovative - Tier 1$981 million
Coupon 6.54%

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Deferred acquisition costs and deferred income
The Group recognises deferred acquisition costs relating to the acquisition of interest earning assets as assets. The Groupalso recognised deferred income that is integral to the yield of an originated financial instrument, net of any direct
incremental costs. This income is deferred and recognised as net interest income over the expected life of the financial
instrument under AASB 139: ‘Financial Instruments: Recognition and Measurement’.
The balances of deferred acquisition costs and deferred income at period end were:
Deferred Acquisition Costs1

Personal2

Mar 08$M
474

Deferred Income

Sep 07$M
456

Mar 07$M
444

Mar 08$M83

Sep 07$M
85

Mar 07$M
92

Institutional

16

14

12

188

159

163

New Zealand Businesses

103

103

95

47

43

42

Asia Pacific

2

-

-

20

18

17

Other3

24

29

24

2

1

-

Total

619

602

575

340

306

314

1.

Deferred acquisition costs largely include the amounts of brokerage capitalised and amortised in the Business segments: Personal and New Zealand Businesses.
Deferred acquisition costs also include capitalised debt raising expenses

2.

Includes deferred acquisition costs of $308 million for Esanda (Sep 2007: $299 million; Mar 2007: $292 million) and deferred income of $49 million for Esanda(Sep 2007: $49 million; Mar 2007: $49 million)

3.

Includes Group Centre and Private Bank

Deferred acquisition costs analysis:
Half Year Mar 2008

Personal2
Institutional

Amortisation
Costs
$M
137

Half Year Sep 2007

Capitalised

Amortisation
Costs
$M
130

Costs1$M
155

Capitalised
Costs1
$M
142

-

2

-

2

24

24

21

29

Asia Pacific

-

2

1

1

3

Other

5

-

8

13

Total

166

183

160

187

New Zealand Businesses

1.
2.
3.

Costs capitalised during the year exclude brokerage trailer commissions paid
Comprises amortised costs of $96 million for Esanda (Sep 2007: $93 million) and capitalised costs of $105 million for Esanda (Sep 2007: $100 million)
Includes Group Centre and Private Bank

Software capitalisation
At 31 March 2008, the Group’s intangibles included $509 million in relation to costs incurred in acquiring and developing
software. Details are set out in the table below:
Half
year
Mar 08
$M
462

Half
year
Sep 07$M425

Software capitalised during the period

111

113

90

-2%

Amortisation during the period

(62)

(64)

(58)

-3%

7%

Software written-off

(2)

(12)

(4)

-83%

-50%

509

462

425

10%

20%

Balance at start of period

Total software capitalisation

33

Half
Movt
Movt
year
Mar 08Mar 08Mar 07 v. Sep 07 v. Mar 07
$M
%
%
397
9%
16%
23%

This page has been left blank intentionally

34

BUSINESS PERFORMANCE REVIEW

Organisational structure
From time to time the Group modifies the organisation of its business to facilitate the delivery of the strategic agenda. Prior
period numbers are adjusted for such changes to allow comparability.
The creation of the new Asia Pacific division has been a major change to the divisional structure of the Group. This brings
together the retail Pacific business previously reported within Personal division, the Asian partnerships business previously
reported in the Partnerships and Private Bank division, and the Institutional business across Asia and Pacific. Internally, theGroup manages Institutional Asia Pacific on a matrix structure with the Managing Director Institutional Asia reporting to theGroup Managing Director Asia Pacific and the Group Managing Director Institutional. Accordingly, the divisional analysis on
the following pages reflects this matrix reporting structure. For reconciliation purposes, the Institutional Asia Pacific results,
which are included in both the Asia Pacific and Institutional divisional analysis, are presented on page 50.
Other structure changes include ING Australia reported as a separate unit and Private Bank results aggregated with theGroup Centre.
In addition, there have been a number of minor restatements since 30 September 2007 as a result of changes to customer
segmentation, changes to net interbusiness unit expense methodologies and the realignment of support functions.
Income Statement (including impact of movements in foreign currencies)
Movt
Movt
Half
Mar 08Mar 08year
Mar 07 v. Sep 07 v. Mar 07
%
%
$M

Half
year
Mar 08
$M

Half
year
Sep 07$M

Personal

719

679

646

6%

11%

Institutional

405

724

762

-44%

-47%

New Zealand Businesses

361

370

348

-2%

4%

Asia Pacific

182

147

124

24%

47%

INGA

76

80

75

-5%

1%

Group Centre

14

52

41

-73%

-66%

less: Institutional Asia Pacific

(83)

(64)

(60)

30%

38%

1,674

1,988

1,936

-16%

-14%

289

90

166

large

74%

1,963

2,078

2,102

-6%

-7%

Profit after income tax

Cash profit
Non-core items1

ProfitIncome Statement (prior period figures adjusted to remove the impact of exchange rate movements2)
Half
year
Mar 08
$M

Half
year
Sep 07$M

Personal

719

679

646

6%

11%

Institutional

405

719

753

-44%

-46%

New Zealand Businesses

361

363

342

-1%

6%

Asia Pacific

182

142

115

28%

58%

INGA

76

80

75

-5%

1%

Group Centre

14

60

41

-77%

-66%

Profit after income tax

less: Institutional Asia PacificCash profit2
Non-core items1
Profit
FX impact on reported profit2
Reported profit
1.

Half
Movt
Movt
year
Mar 08Mar 08Mar 07 v. Sep 07 v. Mar 07
$M
%
%

(83)

(62)

(56)

34%

48%

1,674

1,981

1,916

-15%

-13%
75%

289

89

165

large

1,963

2,070

2,081

-5%

-6%

-

8

21

-100%

-100%

1,963

2,078

2,102

-6%

-7%

In the March 2008 half ANZ has classified the gain from the allocation of shares in Visa in March 2008 of $248 million after tax (tax impact: $105 million), costs
associated with a write-down of an intangible asset relating to Origin Australia of $24 million after tax (tax impact: $10 million) and a further positive adjustmentof $8 million following the restatement of deferred tax assets consequent to the reduction in New Zealand tax rate as significant items. In the September 2007
half the after tax impact of the gain on sale of Esanda Fleetpartners was increased by $54 million following the availability of capital losses being applied against
the gain and a negative impact of $24 million following the restatement of deferred tax assets to reflect the recently announced change in the New Zealandcompany tax rate which takes effect from 1 October 2008 as significant items. In the March 2007 half ANZ has classified the gain on sale of Esanda Fleetpartners
of $141 million after tax (tax impact: $54 million) as a significant item. ANZ excludes significant items to eliminate the distorting effect of one-off transactions on
the results of its core business (refer page 23)
The Group enters into economic hedges to manage its interest rate and foreign exchange risk. In the March 2008 half ANZ has classified a gain of $67 million
after tax (Sep 2007 half: $41 million; Mar 2007 half: $28 million) relating to economic hedging as a non-core item (tax impact $29 million (Sep 2007 half:$17 million; Mar 2007 half: $14 million)). Included in this non-core amount is market volatility relating to approved classes of derivatives not designated inaccounting hedge relationships but that are considered to be economic hedges, volatility arising from use of the fair value option, and ineffectiveness fromdesignated accounting hedges. In addition, ANZ has classified a mark-to-market loss after tax of $10 million (Sep 2007 half: $19 million gain; Mar 2007 half:$3 million loss) relating to revenue hedges (NZD and USD) that under the transitional provision of AASB 139 (AASB 2005-1) no longer qualify for hedge
accounting from 1 October 2006 (tax impact $4 million credit (Sep 2007 half: $9 million; Mar 2007 half: $2 million credit)). ANZ excludes volatility associatedwith fair value movements on these transactions to provide a better indication of the core business performance (refer page 24)

2.

ANZ has removed the impact of exchange rate movements to provide readers with a better indication of the business unit performance in local currency terms.
Retranslation is net of revenue hedge earnings

35

BUSINESS PERFORMANCE REVIEW (continued)

Personal
Brian Hartzer
Half
year
Mar 08
$M

Half
year
Sep 07
$M

Half
Movt
Movt
year
Mar 08Mar 08Mar 07 v. Sep 07 v. Mar 07
$M
%
%

1,654

1,589

1,527

4%

8%

729

704

621

4%

17%

Operating income

2,383

2,293

2,148

4%

11%

External operating expenses

(975)

(930)

(851)

5%

15%

Net interest income
Other external operating income

Net inter business unit expenses

(190)

(197)

(182)

-4%

4%

Operating expenses(1,165)(1,127)(1,033)

3%

13%

Profit before credit impairment and income tax

1,218

1,166

1,115

4%

9%

Provision for credit impairment

(188)

(195)

(191)

-4%

-2%

Profit before income tax

1,030

971

924

6%

11%

Income tax expense and minority interest

(311)

(292)

(278)

7%

12%

Profit

719

679

646

6%

11%

Mortgages

180

185

186

-3%

-3%

Banking Products

217

184

164

18%

32%

Consumer Finance

153

144

132

6%

16%

Rural Commercial & Agribusiness Products

61

56

54

9%

13%

Small Business Banking Products

38

31

31

23%

23%

Esanda

60

57

56

5%

7%

Investment and Insurance Products

29

35

23

-17%

26%

Consisting of:

Other1

(19)

(13)

-

46%

n/a

719

679

646

6%

11%

155,539

147,310

138,548

6%

12%

3,569

3,376

2,650

6%

35%

External assets

159,108

150,686

141,198

6%

13%

Customer deposits

69,80765,41061,295

7%

14%

Other deposits and borrowings

3,650

3,774

3,857

-3%

-5%

Deposits and other borrowings

73,457

69,184

65,152

6%

13%

Other external liabilities

3,316

3,230

2,558

3%

30%

Balance Sheet
Net loans & advances including acceptances
Other external assets

External liabilities

76,77372,41467,710

6%

13%

Average net loans & advances including acceptances

151,434

142,959

135,217

6%

12%

Average deposits and other borrowings

71,393

66,66364,045

7%

11%

-8%

6%

54%

-39%

10%

3%

3%

8%

Ratios
Net interest margin

2.16%

2.20%

2.25%

Return on average assets

0.93%

0.93%

0.94%

Operating expenses to operating income

48.9%

49.1%

48.1%

Operating expenses to average assets

1.50%

1.54%

1.50%

Individual provision charge

168

182

158

0.22%

0.25%

0.23%

20

13

33

0.03%

0.02%

0.05%

75

68

73

Net non-performing loans as a % of net advances

0.05%

0.05%

0.05%

Total employees

12,617

12,263

11,695

Individual provision charge as a % of average net advances
Collective provision charge
Collective provision charge as a % of average net advances
Net non-performing loans

1.

Other includes the branch network, whose costs are fully recovered from product business units, marketing and support costs and a gain on disposal ofMasterCard shares of $18 million in the March 2007 half

36

BUSINESS PERFORMANCE REVIEW (continued)

Personal
Brian Hartzer
March 2008 half year compared to March 2007 half year

Profit after tax increased 11% reflecting strong income from average lending and customer deposit growth (12% and 11%
respectively), and the continued benefits from ongoing investment in the business. A full half of ETrade results wereconsolidated as ANZ gained full ownership in May 2007. The net impact of increased funding costs, after the out of cycle
pricing adjustments, was $20 million after tax.
Operating income was up 11% driven by strong volume and customer growth and ongoing benefits of the distribution
footprint expansion. Operating expenses increased 13% due to a full half year of ETrade costs being included, a lower
comparable half year when costs declined for the first half in 2007 and continued investment in revenue initiatives to ensure
the revenue momentum continues and Personal is well placed when conditions improve. These initiatives include additional
branches, ATMs and frontline staff, deposit initiatives, customer acquisition and marketing costs, all aligned to our “MoreConvenient Banking” proposition.
Above system balance sheet growth drove strong earnings in Banking Products, Small Business Banking Products and Rural
Commercial & Agribusiness Products. Mortgages and Consumer Finance experienced margin decline, as out of cycle rateincreases did not recoup the full impact of increased funding costs, however volume growth remains strong. Investment andInsurance Products grew by 26% due primarily to the impact of the acquisition of ETrade, offset by a decline in market
conditions. Esanda grew earnings 7% in a difficult environment for finance companies.
Key factors affecting the result included:#

Net interest income increased 8% with strong balance sheet growth partly offset by margin decline of 9 basis points due
mainly to increased funding costs, competition and shift to low margin products. Banking Products grew 19%, driven bydeposit growth of 16% which was 1.3 times system following investment in marketing and other volume growth
initiatives. Consumer Finance grew 5%, mainly through higher customer acquisition offset by margin decline fromincreased funding costs and funding transactor balances across three RBA interest rate rises. Despite strong lending
growth of 13% (1.3 times system), Mortgages net interest declined 2% due mainly to increased funding costs. Small
Business Banking Products grew by 31% with an expanding sales force driving strong balance sheet growth (lending up
58% and deposits up 13%) and Rural Commercial & Agribusiness Products grew 13%, driven by volume growth.

#

Other external operating income increased by 17%. Excluding the disposal of the remaining MasterCard shares($18 million in the March 2007 half) and the uplift of $50 million from the 100% ownership of ETrade (from 34%), theincrease was 13%. All operating units experienced growth due to increased sales volumes, strong customer acquisition
and investment in other growth initiatives.

#

Operating expenses increased 13% following the negative growth in the March 2007 half. Excluding the impact from theconsolidation of ETrade, growth was 11% and as market conditions tightened cost run rates were controlled with costs
declining 5% over the last three months of the current half. The main drivers include increased personnel and premises
cost to drive footprint expansion and revenue growth. Advertising and marketing expenses were up $12 million to
support business growth and investment in brand awareness. Investment in the footprint continued with 31 extra
branches, a further 312 ATMs and additional staff mainly in customer-facing roles.

#

Credit costs decreased 2%, due mainly to targeted acquisition, a tightening of credit standards, initiatives to increase
collection management and lower delinquency rates in Consumer Finance.

March 2008 half year compared to September 2007 half year

Profit after tax increased 6% over the previous half. Income growth was driven by average lending growth of 6% anddeposit growth of 7%, offset by margin compression of 4 basis points due mainly to higher funding costs. The net impact ofhigher funding costs was $16 million.
Total operating income increased by 4% in line with the growth achieved in the first half of 2007.
Net interest income increased 4%. Small Business Banking Products grew 16%. Banking Products net interest income grew
12% driven by above system deposit growth and increased account numbers. Investment and Insurance Products grew 8%,
Rural Commercial & Agribusiness Products was up 7% while Consumer Finance and Esanda were flat. Mortgages declined
marginally, with above system volume growth offset by higher funding costs.
Other external operating income increased 4%. Esanda was up 11% due to the investment in revenue initiatives. Banking
Products grew 11% through strong account acquisition and improved retention. Small Business Banking Products and Rural
Commercial & Agribusiness Products grew 7% and 4% respectively and Consumer Finance other income increased by 4%
through account growth and investment in other revenue generating initiatives. Mortgages other income was up 3% due
mainly to higher loan refinancing with interest rate uncertainty. Investment and Insurance Products declined 2%.
Operating expenses increased 3% or $38 million. This was largely due to a $36 million increase in staff andmarketing/branding costs to support revenue growth, $7 million relating to new branch investment to drive footprint
expansion, partially offset by lower technology costs of $8 million. ANZ added four branches, 60 extra ATMs and
354 additional staff, of which the majority were customer-facing and revenue generating roles.
Credit costs decreased 4% due mainly to initiatives to target acquisition, improved collections and lower delinquency rates inConsumer Finance.
37

BUSINESS PERFORMANCE REVIEW (continued)

Personal
Brian Hartzer
Personal division by business unit
Comparison to Half Year Mar 2007
Half Year Mar 2008
Growth Rate
2

2

Revenue

Expenses

PBP1

CreditNPAT

Revenue

Expenses

PBP1

CreditMortgages

527

262

265

8

180

1%

7%

-5%

-27%

-3%

Banking Products

622

306

316

7

217

18%

8%

31%

0%

32%

Consumer Finance

575

238

337

117

153

8%

10%

6%

-9%

16%

171

76

95

8

61

13%

7%

17%

100%

13%

126

62

64

10

38

26%

24%

28%

100%

23%

Esanda

202

78

124

38

60

5%

1%

7%

6%

7%

Investment andInsurance Products

158

117

41

-

29

55%

63%

37%

-100%

26%

Rural Commercial &Agribusiness Products
Small BusinessBanking Products

3

2

26

(24)

-

(19)

-90%

44%

large

n/a

n/a

2,383

1,165

1,218

188

719

11%

13%

9%

-2%

11%

2

NPAT

Other

Personal Division

NPAT

Comparison to Half Year Sep 2007
Half Year Mar 2008
Growth Rate
2

Revenue

Expenses

PBP1

CreditNPAT

Revenue

Expenses

PBP1

CreditMortgages

527

262

265

8

180

-2%

-1%

-3%

-27%

-3%

Banking Products

622

306

316

7

217

12%

6%

19%

large

18%

Consumer Finance

575

238

337

117

153

2%

3%

1%

-10%

6%

171

76

95

8

61

6%

0%

12%

60%

9%

126

62

64

10

38

15%

7%

23%

43%

23%

Esanda

202

78

124

38

60

1%

0%

2%

-7%

5%

Investment andInsurance Products

158

117

41

-

29

-3%

5%

-21%

n/a

-17%

2

26

(24)

-

(19)

0%

30%

33%

-100%

46%

2,383

1,165

1,218

188

719

4%

3%

4%

-4%

6%

Rural Commercial &Agribusiness Products
Small BusinessBanking Products

Other3
Personal Division

Net loans & advances including acceptances
Mortgages

Half
year
Mar 08
$M

Half
year
Sep 07
$M

Movt
Movt
Half
Mar 08Mar 08year
Mar 07 v. Sep 07 v. Mar 07%%$M

121,065

114,175

107,108

6%

13%

Banking Products

93

82

64

13%

45%

Consumer Finance

8,564

8,009

7,751

7%

10%

Rural Commercial &Agribusiness Products

8,256

7,841

7,048

5%

17%
58%

Small Business Banking Products

600

471

380

27%

Esanda15,012

14,597

14,4233%

4%

Investment and Insurance Products

1,949

2,134

1,776

-9%

10%

Other3

-

1

(2)

-100%

-100%

155,539

147,310

138,548

6%

12%

1.

PBP (profit before provisions) is profit before credit impairment and income tax

2.

Credit impairment expense

3.

Other includes the branch network, whose costs are fully recovered from product business units and marketing & support costs

38

BUSINESS PERFORMANCE REVIEW (continued)

This page has been left blank intentionally

39

BUSINESS PERFORMANCE REVIEW (continued)

InstitutionalPeter Hodgson
Half
year
Mar 08$M
Net interest income

Half
year
Sep 07
$M

Half
Movt
Movt
year
Mar 08Mar 08Mar 07 v. Sep 07 v. Mar 07
$M
%
%

1,015

980

998

4%

2%

967

812

716

19%

35%

Operating income

1,982

1,792

1,714

11%

16%

External operating expenses

(572)

(561)

(501)

2%

14%

Net inter business unit expenses

(139)

(133)

(132)

5%

5%

Operating expenses

(711)

(694)

(633)

2%

12%

Profit before credit impairment and income tax

1,271

1,098

1,081

16%

18%

Provision for credit impairment

(698)

(76)

7

large

large

Profit before income tax

573

1,022

1,088

-44%

-47%

Income tax expense and minority interest

(168)

(298)

(326)

-44%

-48%

Profit

405

724

762

-44%

-47%

Other external operating income

Consisting of:Working Capital

131

167

147

-22%

-11%

(6)

139

157

large

large

144

143

126

1%

14%

- Relationship Lending

161

238

304

-32%

-47%

- Corporate Finance (excluding Relationship Lending)Markets1
Business Banking
Corporate Finance

61

69

82

-12%

-26%

ANZ Capital

(4)

38

16

large

large

Relationships & Infrastructure2

(82)

(70)

(70)

17%

17%

405

724

762

-44%

-47%

Net loans & advances including acceptances

98,89982,44873,162

20%

35%

Other external assets

86,716

74,64859,27916%

46%

External assets

185,615

157,096

132,441

18%

40%

Balance Sheet

Customer deposits

75,46068,64960,127

10%

26%

Other deposits and borrowings

18,841

10,878

10,77073%75%

Deposits and other borrowings

94,301

79,52770,897

19%

33%

Other external liabilities

68,92564,97951,566

6%

34%

External liabilities

163,226

144,506

122,463

13%

33%

Average net loans & advances including acceptances

93,29775,76073,71823%

27%

Average deposits and other borrowings

86,43275,66068,665

14%

26%

large

large

large

large

large

large

5%

7%

Ratios
Net interest margin

1.40%

1.60%

1.73%

Return on average assets

0.46%

1.01%

1.19%

Operating expenses to operating income

35.9%

38.7%

36.9%

Operating expenses to average assets

0.80%

0.96%

0.99%

Individual provision charge/(credit)

371

67

(8)

0.80%

0.18%

(0.02%)

327

9

1

0.70%

0.02%

0.00%

575

248

229

Net non-performing loans as a % of net advances

0.58%

0.30%

0.31%

Total employees

5,321

5,061

4,986

Individual provision charge/(credit) as a % of average net advances
Collective provision charge
Collective provision charge as a % of average net advances
Net non-performing loans

1.

The Markets results for the March 2008 half are impacted by individual provision charges, including an exposure to a US monoline insurer and the failure of a
resource client. The Markets results also include the global interest rate mismatch results and the offshore funding results: NPAT for March 2008 was -$17 million(Sep 2007 half: $5 million; Mar 2007 half: $10 million)

2.

Relationships & Infrastructure includes Institutional Banking, Financial Institutions, Corporate Banking and Non-continuing businesses. The three relationshipbusinesses hold management costs associated with our customers, with associated revenue booked in the product businesses

40

BUSINESS PERFORMANCE REVIEW (continued)

InstitutionalPeter Hodgson
March 2008 half year compared to March 2007 half year

Profit has declined from prior periods as a result of significantly increased credit charges. The individual provision charge of$371 million (up $379 million) included two large specific items: $226 million individual provision on exposure to US
monoline insurer (based on the mark-to-market exposure at balance date); and the failure of a resource client resulting in an
additional individual provision charge of $53 million. The collective provision charge of $327 million (up $326 million) reflects
risks which are yet to emerge, including a number of downgrades in selected commercial property and broking industry
segments. In addition, the faster portfolio growth and a $125 million allowance for secondary impacts of the market turmoil
generally have added to the collective provision. The credit charge in the March 2007 half was particularly low, as a result ofa high level of recoveries, continued stable credit conditions and lower lending volume growth.
Profit before provisions delivered a pleasing turnaround in performance increasing 18%, with strong revenue growth of 15%1
the highlight. This came as most business units delivered double-digit income growth for the half - Markets 21%, Working
Capital 16%, Relationship Lending 17%, Business Banking 12%, and Corporate Finance (excluding Relationship Lending)
22%. Institutional lending assets have grown 35% over the corresponding period last year, while customer deposits haveincreased 26%. Investment in the business, and in particular Asia, continued resulting in a 10%1 operating expense
increase. Institutional is commencing a period of greater investment in technology and straight-through processing. This willbuild a sound platform for future business growth, however costs are expected to increase.
Our Relationship teams (Institutional Banking, Financial Institutions, Corporate Banking) continue to work with all productpartners, and the strength of their cross-sell is shown by the 33%1 increase in other external operating income. The Markets
business benefited from increased volatility in global currency markets and strong customer flow. Working Capital was aided
by a change in funding rates, and higher overdraft and deposit volumes. The Relationship Lending result was driven by verystrong lending growth from opportunities arising in the current economic environment. Business Banking had solid lending
and deposit volume growth, offsetting margin compression. The Corporate Finance (excluding Relationship Lending) result
was driven by strong deal activity in Structured Debt and Capital Solutions. The ANZ Capital (which includes Stadium
Australia) result declined following strong results from private equity investment exits in the March 2007 half.
Significant factors affecting the result were:#

Net interest income increased by 2%, but increased 12% excluding a $100 million reduction in Markets (offset in otherincome) associated with the recording of income on trading securities. Average net lending assets increased 27% andaverage deposit volumes increased 26%. Net interest margin declined 17 basis points in Relationship Lending due to thevery high growth in low-risk lending to well rated counterparties which has a lower margin than the book’s average. Net
interest margin in Business Banking declined 14 basis points primarily as a result of a change in product mix.

#

Other external operating income increased by 33%1 and now represents 49% of income (42% Mar 2007). Corporate
Finance (excluding Relationship Lending) increased by 70% as deals continued to show good penetration of our customer
base. Markets increased by 59% due to the change in the composition of the trading securities result referred to above,and strong sales volumes coupled with good trading income. Business Banking increased by 9% driven by higher lending
fees on solid volume growth. Working Capital increased by 6% driven by an increase in foreign exchange earnings inInternational Payments and Clearing.

#Operating expenses increased 10%1, reflecting an increase of 7% in personnel numbers, weighted toward customerfacing roles, continued investment in technology in Working Capital and investment in Asia Pacific, where cost growth was
31%.

#

Provision for credit impairment increased materially as detailed above. Notwithstanding the specific issues impacting the
March 2008 result, overall credit quality remains sound with the ELP rate increased only 2 basis points to 34 basis points.

March 2008 half year compared to September 2007 half year

Profit decreased by 44% to $405 million driven by a $622 million increase in credit impairment costs, which increased largely
due to the factors mentioned above. Profit before credit impairment and income tax, increased a very strong 17%1. Thiswas driven by 12%1 revenue growth, with well-constrained operating expense growth of 3%1. Lending assets have grown
20%, while deposits have increased 19%.
Net interest income increase of 4% included a $17 million reduction in Markets (offset in other income) relating toderivatives. Revenue in Markets increased 24% with strong sales revenue. Relationship Lending revenue increased 22%
with 33% growth in average net lending assets offsetting a 13 basis point margin decline. Corporate Finance (excluding
Relationship Lending) revenue increased 21% with strong income growth in Structured Debt. Working Capital increased 7%with solid average deposit growth of 10% driving the Cash Management business. Business Banking revenue increased 7%with 7% average lending and 8% average deposit growth offsetting a 9 basis point margin decline. ANZ Capital declined
following very strong results from private equity exits in the prior half.
Operating expenses increased by 3%1, with a 5% increase in personnel numbers offset by well managed other expenditureand lower computer amortisation costs. Revenue growth exceeded cost growth by 9%1, leading to the Cost to income ratio
favourably decreasing 2.9%1 to 35.1%1.
1.

Institutional’s result includes the consolidation for part of the half year of Stadium Australia, which became a wholly owned subsidiary during 2007 as part of ourAlternative Assets business and was deconsolidated during the March 2008 half. The resulting income of $15 million (Sep 2007 half: $31 million, Mar 2007 half:$4 million) and expenses of $20 million (Sep 2007 half: $25 million, Mar 2007 half: $4 million) have been removed from the analysis where appropriate to show
underlying business performance

41

BUSINESS PERFORMANCE REVIEW (continued)

InstitutionalPeter Hodgson
Institutional division by business unit
Comparison to Half Year Mar 2007
Half Year Mar 2008

Growth Rate

Revenue

Expenses

PBP1

Credit2

NPAT

Revenue

Expenses

PBP1

Credit2

NPAT

Working Capital

429

166

263

72

131

16%

8%

21%

large

-11%

Markets

493

182

311

315

(6)

21%

12%

28%

large

large

Business Banking

367

126

241

34

144

12%

6%

15%

21%

14%

- Relationship Lending

453

22

431

201

161

17%

5%

18%

large

-47%

- Corp. Finance (excl.
Relationship Lending)

202

60

142

77

61

22%

20%

22%

large

-26%

37

40

(3)

-

(4)

-29%

67%

large

-100%

large

1

115

(114)

(1)

(82)

-75%

12%

15%

n/a

17%

1,982

711

1,271

698

405

16%

12%

18%

large

-47%

Corporate Finance

ANZ Capital
Relationships &Infrastructure3
Institutional Division

Comparison to Half Year Sep 2007
Half Year Mar 2008

Growth Rate

Revenue

Expenses

PBP1

Credit2

NPAT

Revenue

Expenses

PBP1

Credit2

NPAT

Working Capital

429

166

263

72

131

7%

1%

11%

n/a

-22%

Markets

493

182

311

315

(6)

24%

5%

39%

large

large

Business Banking

367

126

241

34

144

7%

4%

8%

89%

1%

- Relationship Lending

453

22

431

201

161

22%

0%

23%

large

-32%

- Corp. Finance (excl.
Relationship Lending)

202

60

142

77

61

21%

11%

26%

large

-12%

37

40

(3)

-

(4)

-62%

-15%

large

-100%

large

1

115

(114)

(1)

(82)

-91%

3%

13%

n/a

17%

1,982

711

1,271

698

405

11%

2%

16%

large

-44%

Corporate Finance

ANZ Capital
Relationships &Infrastructure3
Institutional Division

Half
year
Mar 08$M

Net loans & advances including acceptances

Half
year
Sep 07
$M

Half
Movt
Movt
year
Mar 08Mar 08Mar 07 v. Sep 07 v. Mar 07$M%%

Working Capital

8,556

6,907

5,797

24%

48%

Business Banking

17,797

16,80015,425

6%

15%- Relationship Lending

61,71649,99542,29523%

46%- Corporate Finance (excl. Relationship Lending)

13,306

11,33911,463

17%

16%

88

99

107

-11%

-18%

Corporate Finance

ANZ Capital
Other4(2,564)(2,692)(1,925)-5%

33%

98,89982,44873,162

20%

35%

1.

PBP (profit before provisions) is profit before credit impairment and income tax

2.

Credit impairment expense

3.

Relationships & Infrastructure includes Institutional Banking, Financial Institutions, Corporate Banking and Non-continuing businesses. The three relationshipbusinesses hold management costs associated with our customers, with associated revenue booked in the product businesses

4.

Other includes Markets, Relationship Businesses, Non-continuing businesses and bills held in portfolio

42

BUSINESS PERFORMANCE REVIEW (continued)

This page has been left blank intentionally

43

BUSINESS PERFORMANCE REVIEW (continued)

New Zealand Businesses1
Graham Hodges
Half
year
Mar 08
NZD M

Half
year
Sep 07NZD M

Net interest income

984

969

912

2%

8%

Other external operating income

298

289

286

3%

4%

Operating income

1,282

1,258

1,198

2%

7%

External operating expenses

(593)

(593)

(580)

0%

2%
n/a

Table reflects NZD results for New Zealand Businesses
AUD results shown on page 47

Net inter business unit expenses

Half
Movt
Movt
year
Mar 08Mar 08Mar 07 v. Sep 07 v. Mar 07
NZD M
%
%

3

(5)

-

large

Operating expenses

(590)

(598)

(580)

-1%

2%

Profit before credit impairment and income tax

692

660

618

5%

12%

Provision for credit impairment

(77)

(41)

(37)

88%

large

Profit before income tax

615

619

581

-1%

6%

Income tax expense and minority interest

(198)

(200)

(186)

-1%

6%

Profit (NZD)

417

419

395

0%

6%

The National Bank Retail

129

130

132

-1%

-2%

ANZ Retail

95

98

85

-3%

12%

Consisting of:Corporate & Commercial Banking

90

89

84

1%

7%

Rural Banking

56

53

48

6%

17%

Private Banking & Retail Specialist Units2

25

25

21

0%

19%

UDC

17

16

13

6%

31%

Central Support3

5

8

12

-38%

-58%

417

419

395

0%

6%

85,53180,42674,819

6%

14%

New Zealand Businesses
Balance Sheet
Net loans & advances including acceptances
Other external assets

2,221

2,203

1,869

1%

19%

External assets

87,752

82,62976,688

6%

14%

Customer deposits

46,984

44,63242,432

5%

11%

Other deposits and borrowings

10,932

9,319

5,570

17%

96%

Deposits and other borrowings

57,916

53,951

48,002

7%

21%

Other external liabilities

17,544

14,206

13,471

23%

30%

External liabilities

75,46068,157

61,473

11%

23%

Average net loans & advances including acceptances

82,58177,70872,466

6%

14%

Average deposits and other borrowings

56,954

51,581

48,406

10%

18%

42%

81%

large

large

54%

66%

1%

1%

Ratios
Net interest margin

2.36%

2.46%

2.50%

Return on average assets

0.98%

1.05%

1.06%

Operating expenses to operating income

46.0%

47.5%

48.4%

Operating expenses to average assets

1.39%

1.50%

1.56%

Individual provision charge
Individual provision charge as a % of average net advances
Collective provision charge
Collective provision charge as a % of average net advances
Net non-performing loans

47

33

26

0.11%

0.08%

0.07%

30

8

11

0.07%

0.02%

0.03%

103

67

62

Net non-performing loans as a % of net advances

0.12%

0.08%

0.08%

Total employees

9,214

9,087

9,156

1.

For a reconciliation of New Zealand Businesses results to the New Zealand Geographic results refer page 59

2.

Private Banking & Retail Specialist Units include ING New Zealand joint venture

3.

Central Support includes Treasury funding, shared services and a gain on disposal of MasterCard shares of NZD10 million in the March 2007 half

44

BUSINESS PERFORMANCE REVIEW (continued)

New Zealand Businesses
Graham Hodges
New Zealand commentary reflects NZDMarch 2008 half year compared to March 2007 half year

Profit increased 6% over the March 2007 half, with the result moderated by a NZD27 million after tax increase in credit
impairment expense. Profit before credit impairment and income tax increased 12%, reflecting strong underlying growth in
the businesses. This is a good result in the context of a slowing New Zealand economy, an intensely competitive banking
sector and turmoil in the global credit markets. New Zealand Businesses have continued to improve their market position,with gains in market share in most of our business segments while also maintaining customer satisfaction levels.
Rural Banking and Corporate & Commercial Banking maintained strong earnings momentum, increasing profit before
provisions by 16% and 11% respectively. UDC also experienced strong growth as it continues to turn around its
performance. Growth in the Retail Banks was solid, with strong balance sheet growth and market share gains in mortgages.
Credit impairment expenses have increased from a very low base and overall credit quality remains solid.
Key factors driving the result were:#

Net interest income increased 8%, driven by robust balance sheet growth (lending 14%, customer deposits 11%). All
businesses delivered double-digit lending growth. The growth in net interest income was partially offset by a 14 basis
point contraction in margins, with all businesses impacted. The main drivers of lower margin were continued competitive
pressures, and unfavourable funding and deposit product mix, as well as higher wholesale funding spreads.

#

Other external operating income increased 4% (8% after allowing for NZD10 million of revenue from the sale ofMasterCard shares included in the March 2007 half). The main contribution was from the Retail Banks, achieving growthacross lending, cards and commission income. Fee growth in other businesses was constrained by competitive conditions.

#Operating expenses increased 2%. Cost growth was due to annual increases in salaries, an increase in the number ofcustomer-facing staff and investment in businesses initiatives which have been partly offset by strong control of
discretionary expenditure and a run-off of Fleetpartner warranty provisions. The cost to income ratio reduced 240 basis
points to 46.0%.

#

Provision for credit impairment increased NZD40 million. The individual provision charge increased NZD21 million,
largely reflecting the trend in consumer arrears, and a small increase in the business segment, in response to tighter
economic conditions. Net non-performing loans as a percentage of net advances remains very low at 12 basis points andthe increase has been largely from a number of business customers. The collective provision charge increased
NZD19 million, mainly reflecting the lift in arrears in personal loans and cards. Overall credit quality remains solid acrossall segments.

March 2008 half year compared to September 2007 half year

Profit was flat, with the result impacted by a NZD24 million after tax increase in credit impairment expense. Profit before
provisions increased 5% which is a solid result given increasing funding costs, the highly competitive market, and slowing
economic conditions.
Key influences on the result included the following:#

Net interest income increased 2%, with solid lending growth of 6% across the businesses. Customer deposit volumes
increased 5%, largely in term deposits which was market-driven. The high interest rate environment and increased risk
in other investment sectors have made bank deposits more attractive. Net interest margin reduced 10 basis points, with
reductions for all businesses. This reduction reflected competition, unfavourable funding and deposit product mix, andthe impact of higher wholesale funding spreads.

#

Other external operating income increased 3%, with the main contribution from fee initiatives in ANZ Retail.

#Operating expense reduced 1% with investment in customer-facing roles and the annual rate rise being more than offset
by strong control of discretionary expenditure.

#

Provision for credit impairment increased NZD36 million. The individual provision charge increased NZD14 million, largely
reflecting the trend in consumer arrears, and a small increase in the business segments, in response to tighter economic
conditions. The collective provision charge increased NZD22 million, mainly reflecting the lift in arrears in personal loans
and cards. Overall credit quality remains solid across all segments.

45

BUSINESS PERFORMANCE REVIEW (continued)

New Zealand Businesses
Graham Hodges
New Zealand Businesses by business unit
Comparison to Half Year Mar 2007
Half Year Mar 2008 (NZD M)
2

Growth Rate
2

Revenue

Expenses

PBP1

CreditNPAT

Revenue

Expenses

PBP1

CreditThe National Bank Retail

453

229

224

32

129

5%

0%

9%

large

-2%

ANZ Retail

385

222

163

21

95

8%

3%

14%

31%

12%

Corporate &Commercial Banking

220

70

150

16

90

10%

8%

11%

78%

7%

Rural Banking

128

43

85

2

56

13%

8%

16%

0%

17%

Private Banking &Retail Specialist Units

51

20

31

-

25

11%

5%

15%

n/a

19%

UDC

42

12

30

7

17

17%

-25%

50%

large

31%

Central Support3

3

(6)

9

(1)

5

-77%

100%

-40%

n/a

-58%

1,282

590

692

77

417

7%

2%

12%

large

6%

2

NPAT

New Zealand Businesses

NPAT

Comparison to Half Year Sep 2007
Half Year Mar 2008 (NZD M)
2

Growth Rate

Revenue

Expenses

PBP1

CreditNPAT

Revenue

Expenses

PBP1

CreditThe National Bank Retail

453

229

224

32

129

0%

-3%

3%

39%

-1%

ANZ Retail

385

222

163

21

95

2%

1%

4%

large

-3%

Corporate &Commercial Banking

220

70

150

16

90

4%

1%

5%

78%

1%

Rural Banking

128

43

85

2

56

3%

-2%

6%

100%

6%

Private Banking &Retail Specialist Units

51

20

31

-

25

2%

5%

0%

n/a

0%

UDC

42

12

30

7

17

5%

-29%

30%

large

6%

Central Support3

3

(6)

9

(1)

5

large

-25%

0%

n/a

-38%

1,282

590

692

77

417

2%

-1%

5%

88%

0%

Net loans & advances including acceptances

Half
year
Mar 08
NZD M

Half
year
Sep 07
NZD M

Half
Movt
Movt
year
Mar 08Mar 08Mar 07 v. Sep 07 v. Mar 07
NZD M
%
%

The National Bank Retail31,64829,93628,1396%

12%

ANZ Retail

20,436

19,34018,220

6%

12%

Corporate & Commercial Banking

14,90613,993

12,964

7%

15%

Rural Banking

15,785

14,648

13,202

8%

20%

New Zealand Businesses

Private Banking & Retail Specialist Units
UDC

1.

PBP (profit before provisions) is profit before credit impairment and income tax

2.

Credit impairment expense

3.

Central Support includes Treasury funding and shared services

46

790

677

627

17%

26%

1,966

1,832

1,667

7%

18%

85,53180,42674,8196%

14%

BUSINESS PERFORMANCE REVIEW (continued)

New Zealand Businesses1
Graham Hodges
Half
year
Mar 08
$M

Half
year
Sep 07$M

Net interest income

853

857

803

0%

6%

Other external operating income

258

256

252

1%

2%

Operating income

1,111

1,113

1,055

0%

5%

External operating expenses

(514)

(524)

(511)

-2%

1%

3

(5)

-

large

n/a

Operating expenses

(511)

(529)

(511)

-3%

0%

Profit before credit impairment and income tax

600

584

544

3%

10%

Table reflects AUD results for New Zealand Businesses
NZD results shown on page 44

Net inter business unit expenses

Half
Movt
Movt
year
Mar 08Mar 08Mar 07 v. Sep 07 v. Mar 07$M%%

Provision for credit impairment

(67)

(36)

(33)

86%

large

Profit before income tax

533

548

511

-3%

4%

Income tax expense and minority interest

(172)

(178)

(163)

-3%

6%

Profit

361

370

348

-2%

4%

The National Bank Retail

112

115

116

-3%

-3%

ANZ Retail

82

87

75

-6%

9%

Corporate & Commercial Banking

78

79

74

-1%

5%

Rural Banking

48

47

42

2%

14%

Private Banking & Retail Specialist Units2

21

22

19

-5%

11%

UDC

15

14

11

7%

36%

Central Support3

5

6

11

-17%

-55%

361

370

348

-2%

4%

Net loans & advances including acceptances

74,05369,077

66,141

7%

12%

Other external assets

1,923

1,892

1,652

2%

16%

External assets

75,97670,96967,793

7%

12%

Customer deposits

40,67938,33437,511

6%

8%

Consisting of:

New Zealand Businesses
Balance Sheet

Other deposits and borrowings

9,465

8,004

4,924

18%

92%

Deposits and other borrowings

50,144

46,33842,435

8%

18%

Other external liabilities

15,18912,201

11,90824%

28%

External liabilities

65,33358,53954,34312%

20%

Average net loans & advances including acceptances

71,54868,74963,796

4%

12%

Average deposits and other borrowings

49,34545,63542,615

8%

16%

41%

78%

large

large

53%

62%

1%

1%

Ratios
Net interest margin

2.36%

2.46%

2.50%

Return on average assets

0.98%

1.05%

1.06%

Operating expenses to operating income

46.0%

47.5%

48.4%

Operating expenses to average assets

1.39%

1.50%

1.56%

Individual provision charge
Individual provision charge as a % of average net advances
Collective provision charge
Collective provision charge as a % of average net advances
Net non-performing loans

41

29

23

0.11%

0.08%

0.07%

26

7

10

0.07%

0.02%

0.03%

89

58

55

Net non-performing loans as a % of net advances

0.12%

0.08%

0.08%

Total employees

9,214

9,087

9,156

1.

For a reconciliation of New Zealand Businesses results to the New Zealand Geographic results refer page 59

2.

Private Banking & Retail Specialist Units include ING New Zealand joint venture

3.

Central Support includes Treasury funding and shared services

47

BUSINESS PERFORMANCE REVIEW (continued)

Asia PacificAlex Thursby
Half
year
Mar 08
$M

Half
year
Sep 07
$M

Half
Movt
Movt
year
Mar 08Mar 08Mar 07 v. Sep 07 v. Mar 07$M%%

Net interest income

227

182

165

25%

Other external operating income

252

197

168

28%

50%

Operating income

479

379

333

26%

44%

External operating expenses

(188)

(148)

(137)

27%

37%

38%

Net inter business unit expenses

(20)

(19)

(18)

5%

11%

Operating expenses

(208)

(167)

(155)

25%

34%

Profit before credit impairment and income tax

271

212

178

28%

52%

Provision for credit impairment

(34)

(24)

(18)

42%

89%

Profit before income tax

237

188

160

26%

48%

Income tax expense and minority interest

(55)

(41)

(36)

34%

53%

Profit

182

147

124

24%

47%

Retail Asia

16

17

11

-6%

45%

Asia Partnerships

61

36

20

69%

large
38%

Consisting of:Institutional Asia Pacific

83

64

60

30%

Retail Pacific

36

34

36

6%

0%

Exec & Support

(14)

(4)

(3)

large

large

182

147

124

24%

47%

Net loans & advances including acceptances

10,070

7,300

5,590

38%

80%

Other external assets

12,861

9,751

6,573

32%

96%

External assets

22,931

17,051

12,16334%

89%

Customer deposits

13,443

11,101

10,643

21%

26%

Other deposits and borrowings

1,986

407

259

large

large

Deposits and other borrowings

15,42911,508

10,902

34%

42%

Other external liabilities

8,199

5,254

3,821

56%

large

External liabilities

23,628

16,762

14,72341%

60%

Balance Sheet

Average net loans & advances including acceptances

8,448

6,639

5,790

27%

46%

Average deposits and other borrowings

12,966

11,228

10,74515%

21%

Net interest margin

2.48%

2.39%

2.38%

Return on average assets

1.62%

1.63%

1.61%

Operating expenses to operating income

43.4%

44.1%

46.5%

Operating expenses to average assets

1.85%

1.85%

2.01%

15

15

15

0%

0%

0.36%

0.45%

0.52%
large

large

56%

75%

14%

32%

RatiosIndividual provision charge
Individual provision charge as a % of average net advances
Collective provision charge
Collective provision charge as a % of average net advances
Net non-performing loans

19

9

3

0.45%

0.27%

0.10%

14

9

8

Net non-performing loans as a % of net advances

0.14%

0.12%

0.14%

Total employees

3,776

3,308

2,856

48

BUSINESS PERFORMANCE REVIEW (continued)

Asia PacificAlex Thursby
March 2008 half year compared to March 2007 half year

Profit increased by 47%, (59% excluding exchange rate impact). Income from partnerships in Asia led this growth with thefull half contributions from the investments in AMMB Holdings Berhad (AMMB) and Shanghai Rural Commercial Bank (SRCB)
which were acquired in the September 2007 half and the booking of gains on the conversion of bond options to shares in
Saigon Securities Incorporation (SSI). All business areas registered double-digit organic growth on an exchange-adjusted
basis, leveraging on the strong economies of the region.
Profit before provisions grew strongly at 52% (64% excluding exchange rate impact). It was pleasing to note that 54% of
this growth was from core businesses through organic growth. Notwithstanding a 46% increase in the average loan book,the proportion of interest income to total revenue was maintained as we boosted our product capabilities in order to generatehigher fee and other revenue. This growth in the loan book was funded through increased customer deposits as weleveraged the corporate and retail network throughout the region. In addition, the increased markets capability resulted in asignificant increase in the trading books and is reflected in the increase in other external assets and liabilities.
Significant influences on the result were:#

Net interest income increased by 38%, driven by a 46% growth in average lending, 26% growth in customer deposits andhigher income from fixed income securities. Lending growth resulted from intra-Asia and Asia-Australasia trade andinvestment flows while customer deposit growth was driven by increased focus on both corporate and retail deposits andflight-to-safety by customers due to turmoil in the global equity markets.

#

Other external operating income grew by 50%, of which half was contributed by equity accounted earnings frompartnerships in Asia. A further 36% of the increase came from Markets Asia Pacific on the back of volatility in the global
markets, increased product offering and sales strength in Asia, increased trade flows in Papua New Guinea and thebooking of gains from converting bond options in SSI into shares.

#

Operating expenses increased 34% due to the full half impact of Citizens Security Bank (CSB) in Guam (acquired in June2007) together with the extension of the branch networks in Cambodia, Vietnam, Papua New Guinea, Solomon Islands
and American Samoa. In the Pacific, a new branch telling platform was installed while the transformation program wasaccelerated to provide the base for future growth. Client relationship and specialist resources were boosted in Asia inorder to build the business notwithstanding underlying inflationary pressures brought about by strong economic growth in
the Asian countries. Leadership and support resources were also increased in order to drive the growth agenda.

#

Provision for credit impairment increased by $16 million due primarily to asset growth and a $5 million increase incollective provisions to reflect global credit market turmoil. The impact of writebacks in Fiji in the March 2007 half werelargely offset by improved quality in the portfolio of the credit card business in Indonesia. Overall, notwithstanding theincrease in collective provisions, Asian credit quality improved with investment grade loans constituting a higher
proportion of the portfolio.

March 2008 half year compared to September 2007 half year

Profit increased by 24% (29% excluding exchange rate impact). Profits from partnerships in Asia grew by 69% with full half
contributions from investments in AMMB and SRCB, while the Institutional Asia Pacific businesses grew by 30%.
Total revenue grew by 26% with net interest income up 25% on the previous half driven by average loan and deposit growthof 27% and 15% respectively and higher volumes in fixed income instruments. Other operating income increased by 28%
boosted by contributions from AMMB, SRCB and SSI. Strong trading and sales results in Markets were driven by volatility inglobal currency markets, an increased product offering and the boosting of sales resources while higher trade volumes due toincreased commodity prices and trade flows grew fee revenue in Working Capital.
Operating expenses increased by 25% as we invested in additional distribution including new branches, ATMs and EFTPOS
terminals across the region and implementation of a new telling system and accelerated transformation programs in the
Pacific. Staff in the Asia Pacific region grew by 468, mainly in the Retail network and customer-facing Institutional roles. As
a result of growth in scale and complexity of the business, support areas have also been boosted to enable this businessgrowth.
Growth was tempered by higher collective provision charges of $10 million due mainly to asset growth and additional
provisioning to reflect global credit market turmoil.

49

BUSINESS PERFORMANCE REVIEW (continued)

Institutional Asia Pacific
The contribution from Institutional Asia Pacific is included in both the Institutional results (page 40 to 42) and Asia Pacific’s
results (pages 48 to 49). This is consistent with how this business is internally managed. The following information ispresented purely for reconciliation purposes.

Half
year
Mar 08
$M

Half
year
Sep 07
$M

Half
Movt
Movt
year
Mar 08Mar 08Mar 07 v. Sep 07 v. Mar 07$M%%

Net interest income

77

48

45

60%

Other external operating income

115

87

77

32%

49%

Operating income

192

135

122

42%

57%

71%

External operating expenses

(36)

(27)

(27)

33%

33%

Net inter business unit expenses

(23)

(19)

(18)

21%

28%

Operating expenses

(59)

(46)

(45)

28%

31%

Profit before credit impairment and income tax

133

89

77

49%

73%
large

Provision for credit impairment

(13)

(4)

3

large

Profit before income tax

120

85

80

41%

50%

Income tax expense and minority interest

(37)

(21)

(20)

76%

85%

Profit

83

64

60

30%

38%

Net loans & advances including acceptances

6,821

4,529

3,035

51%

large

Other external assets

9,523

6,688

4,950

42%

92%

External assets

16,344

11,217

7,985

46%

large

Customer deposits

6,001

4,071

3,844

47%

56%
large

Balance Sheet

Other deposits and borrowings

1,874

268

192

large

Deposits and other borrowings

7,875

4,339

4,036

81%

95%

Other external liabilities

7,845

4,828

3,470

62%

large

External liabilities

15,720

9,167

7,506

71%

large

379

292

265

30%

43%

Total employees

50

BUSINESS PERFORMANCE REVIEW (CONTINUED)INGABob Edgar
Halfyear
Mar 08
$M

Half
year
Sep 07
$M

255

258

243

- planned margin

149

130

117

15%

27%

- experience variation1

11

16

13

-31%

-15%

Funds management income

Half
Movt
Movt
year
Mar 08Mar 08Mar 07 v. Sep 07 v. Mar 07
$M
%
%
-1%

5%

Risk income- assumption changes1

8

-

8

n/a

0%

Operating income

423

404

381

5%

11%

Funds management expenses

(151)

(146)

(148)

3%

2%

Life risk expenses

(78)

(72)

(67)

8%

16%

Remediation expenses2

(7)

-

(12)

n/a

-42%

Capitalised software write-offs

-

-

(29)

n/a

-100%

Gross tax on operating profit

(46)

(53)

(15)

-13%

large

Profit after tax, before
capital investment earnings

141

133

110

6%

28%

Capital investment earnings after tax

12

27

42

-56%

-71%

Profit after tax before minority interest

153

160

152

-4%

1%

-

-

(1)

n/a

-100%

153

160

151

-4%

1%

ANZ share @ 49%

75

78

74

-4%

1%

Net funding

1

2

1

-50%

0%

Net return to ANZ

76

80

75

-5%

1%

1%

2%

Minority interest
ProfitANZ share

Carrying value of investment3

1,540

1,519

1,507

Annualised return on ANZ investment

9.8%

10.4%

10.0%

Performance measures at 100%
Value of new business4

54

77

63

-30%

-14%

54.1%

54.0%

56.4%

0%

-4%

Retail & mezzanine funds under management

43,94345,993

43,797-4%

0%

Net retail & mezzanine flows

1,037

2,110

1,202

-51%

-14%

800

751

624

7%

28%

95

0%

12%
Sep 07

Cost to income5
Funds Management

Life Risk
Total in-force
New premiums

106

106

Mar 08

In-

Out-

Other

$M

flows

flows

flows6$M

OneAnswer

18,622

2,707(1,766)(1,300)18,981Other Personal Investment

7,253

206

(668)

(357)

8,072

Mezzanine

2,269

519

(493)

(401)

2,644

Employer Super

10,663

912

(664)

(591)

11,006

Funds management growth (Retail & mezzanine)

Oasis

5,136

640

(356)

(438)

5,290

Total

43,943

4,984(3,947)(3,087)45,993

1.

2.

3.

4.

5.
6.

Experience variations are gains or losses arising from actual experience differing from plan, primarily death and sickness. Assumption changes are gains or losses
arising from a change in valuation methods and best estimate assumptions
Remediation expenses in the March 2008 half represent costs incurred to improve an investment property for future sale. Remediation costs in the March 2007
half represent costs incurred in rectifying historical unit pricing errors and fully compensating customers
The carrying value of the investment in INGA has been tested for impairment by comparing the carrying value with the recoverable amount of INGA. INGAManagement performed an actuarial assessment of the Economic Value (EV) of INGA for 31 March 2008. The economic valuation was based on a discounted cash
flow approach. The Group engaged Ernst & Young ABC Pty Limited to provide an independent review of the reasonableness of INGA management’s valuation(including reasonableness of methodologies, assumptions and the valuation results). The review revealed no impairment to the carrying value of the investment
in INGA.
Value of new business represents the present value of future profits arising from the new business written over the periods less the present value of the cost ofcapital applying to that new business. It does not include the value of any associated imputation credits. Note prior period comparatives have been re-statedusing a consistent discount rate to that applicable in the March 2008 half year
Cost to Income ratio is management expenses (excluding Remediation Expenses & Capitalised Software Write-offs) / Total Income
Other Flows includes investment income net of taxes, fees and charges, distributions and timing

51

BUSINESS PERFORMANCE REVIEW (CONTINUED)INGABob Edgar
March 2008 half year compared to March 2007 half year

Highlights of the half included continued in-force insurance business growth, further expansion of the aligned financial adviser
force and a major organisational re-structure. The half was also characterised by investment market weakness and a highlevel of volatility in the wake of the global credit crisis, adversely impacting client fund balances and consequently fee
income. Furthermore, rising domestic interest rates adversely impacted capital investment earnings.
As a consequence of the underlying investment market weakness funds under management (FUM) growth was flat, withpositive net flows fully offset by market-related movements. Funds management income was nonetheless up 5% due tohigher average FUM balances in force during the March 2008 half. These positive net flows were driven in part by the funds
management businesses receiving favourable ratings and industry awards including INGA’s Corporate Super productretaining its number 1 ranking amongst employer super providers (as rated by Heron Partnership in 2008). The Personal
Investments business further upgraded its flagship OneAnswer platform during the March 2008 half, and the Nielsen
Company rated INGA number 1 for customer service in their wealth management industry online consumer survey.
In-force premiums continued to grow steadily during the half, growing 28% over the March 2007 half. Reflecting the ongoing
success of the product OneCare and online offering, OneCare Express was launched in the second quarter of 2007. INGA
enjoyed the second highest growth in new annual premium among the major institutions in the industry, and retained its
number 3 ranking for total in-force premiums. Market share in individual life risk new annual premiums1 has increased from
12.3% in the year to 31 December 2006 to 12.6% in the year to 31 December 2007.
A core component of INGA’s strategy continues to be growing the number of aligned advisers. In December the acquisitionof the Financial Services Partners Group was completed, adding 139 advisers to the aligned force. Total aligned advisers now
number 1,490, a year-on-year increase of 308, of which 42 were in ANZ Financial Planning. INGA ranks 2nd in the industry
for aligned adviser number.
Profit after tax was 1% higher than the March 2007 half, with the uplift in operating profit of 28% being mostly offset bylower capital investment earnings. Significant contributors to profit growth were:#Funds management income increased 5% due to slightly higher average funds under management underpinned by
exceptional inflows into superannuation products during the middle period of 2007, offset by market value negative
movements due to substantially weaker investment markets since November 2007.

#

Risk income was 22% higher than the prior comparative period, driven by growth in the in-force books of term life, grouplife and consumer credit, together with continued favourable mortality and morbidity experience.

#

Funds management expenses were well contained (up 2%), due to scale efficiencies and increased automation. Life risk
expenses increased 16% due to the increased cost base associated with supporting the growth in retail risk and consumer
credit business. Remediation in the March 2008 half relates to expenses incurred to improve an investment property for
future sale.

#Tax on operating profit was significantly higher due to the booking of much-reduced prior period tax adjustments (March
2008: $8 million; March 2007: $25 million), as well as the non-recurrence of deductions based on capitalised software
write-offs and remediation expense in the March 2008 half.

#

Capital investment earnings after tax were significantly lower than the March 2007 half due to:- the non-recurrence in the March 2008 half of a one-off realisation of capital gains ($12 million) following a capital
restructure in February 2007;- a more defensive investment asset mix and significantly lower realisable investment gains in the March 2008 half, and- the impact of rising interest rates on the cost of servicing parent company loans in the March 2008 half.

1.

Source of market statistics: Plan For Life – December 2007

Advisor Numbers

Sales by Channel
Retail Funds Management1(by Dealer Group)
Mar 08Mar 07Mvmt

ANZ Financial Planning

419

377

11%

RetireInvest

216

209

3%

Life Insurance2

Mar 08Mar 07

Mar 08Mar 07

ANZ

28%

40%

12%

12%

IFAs aligned to ING

20%

19%

9%

10%

FSP Tandem

224

86

large

Direct

7%

7%

32%

32%

Millenium3

601

489

23%

Open Market

45%

34%

47%

46%

ING Financial Planning

30

21

43%

1,490

1,182

26%

Total

100%

100%

100%

100%

Total

1.
2.

Includes mezzanine funds management business
Includes directly marketed life insurance and consumer credit life insurance

52

BUSINESS PERFORMANCE REVIEW (CONTINUED)INGABob Edgar
March 2008 half year compared to September 2007 half year

Profit after tax was 4% lower than the half year to 30 September 2007, however growth in profit after tax, before capital
investment earnings was 6%. Significant contributors to the profit result were:#

Marginally reduced funds management income based on lower average funds under management during the March half,
as a result of significantly weaker underlying investment markets and rising interest rates.

#

Higher risk income from in-force premium growth, further assisted by a pre-tax profit release of $8 million from theannual review of risk assumptions conducted in the fourth quarter of 2007.

#

Funds management expenses grew by 3%, including a component share of organisational re-structure costs incurred in
the March half, while the 8% increase in life risk expenses was also attributable to organic business growth. There was a
one-off remediation item in the March half, relating to expenses incurred to improve an investment property for future
sale.

#

Tax on operating profit was lower due to the booking of $8 million of prior period tax adjustments in the March half.

Capital investment earnings were significantly reduced due to lower realised capital gains on investment assets, a moredefensive investment asset mix, and the impact of rising interest rates on the cost of servicing parent company loans.

53

BUSINESS PERFORMANCE REVIEW (CONTINUED)

Group Centre1

Half
year
Mar 08
$M

Half
year
Sep 07$M

Net interest income

106

128

162

-17%

-35%

Other external operating income

56

35

16

60%

large

Operating income

162

163

178

-1%

-9%

External operating expenses

(454)

(431)

(414)

5%

10%

Net inter business unit expenses

324

336

315

-4%

3%

Operating expenses

(130)

(95)

(99)

37%

31%

Profit before credit impairment and income tax

32

68

79

-53%

-59%

Provision for credit impairment

(6)

-

(2)

n/a

large

Profit before income tax

26

68

77

-62%

-66%

Income tax expense and minority interest

(12)

(16)

(36)

-25%

-67%

Profit

14

52

41

-73%

-66%

4,933

4,926

4,755

0%

4%

Total employees
1.

Half
Movt
Movt
year
Mar 08Mar 08Mar 07 v. Sep 07 v. Mar 07$M%%

Group Centre comprises Group People Capital, Group Risk Management, Treasury (includes the funding component of Treasury results with the mismatchcomponent being included in the Markets business of Institutional), Group Strategic Development, Group Financial Management, Shareholder Functions,Operations, Technology & Shared Services and Private Bank

March 2008 half year compared to March 2007 half year

Profit of $14 million was $27 million lower than the March 2007 half.
#

Operating income reduced by $16 million due primarily to reduced interest earned on surplus capital following
investments in Asia, a reduction in interest received on tax refunds and higher funding costs relating to less favourable
tax timing differences. These factors were partly offset by an increase of $31 million in profits on sale of properties.

#

Operating expenses increased by $31 million, due mainly to costs associated with the development of ANZ’s Anti-Money
Laundering (AML) program together with incentive scheme costs, provisioning for operating risks and continued
investment in the Private Bank business. The increase in employee numbers was driven largely by a change in the mix ofIT staff from contractors towards employees, increased staff involved with the AML program and increased customerfacing roles within Private Bank.

#

The provision for credit impairment charge of $6 million is due to the final residual loan relating to the exited Grindlays
business which was settled this half year.

March 2008 half year compared to September 2007 half year

Profit reduced by $38 million. Operating income reduced by $1 million. Moderate profits were made from the hedging of
foreign exchange risks on revenue streams compared with moderate losses in the September 2007 half was offset by lower
earnings on surplus capital and higher funding costs relating to less favourable tax timing differences. Operating expenses
increased by $35 million due mainly to costs associated with the development of ANZ’s Anti-Money Laundering (AML)
program together with higher software costs, higher remuneration and incentive scheme costs, provisioning for operating
risks and continued investment in the Private Bank business. These were partially offset by costs incurred in the September
2007 half year to provide for earlier long service leave entitlements to employees. The increase in employee numbers was
driven largely by ANZ’s AML program and increased customer-facing roles in Private Bank. The credit impairment charge
relates to the final residual loan of the exited Grindlays business which was settled this half year. The higher effective tax
rate resulted primarily from settlements with tax authorities in the September 2007 half year and the ongoing appraisal of
global tax provisioning requirements.

54

GEOGRAPHIC SEGMENT PERFORMANCE

Geographic performance

ProfitHalfyear
Mar 08
$M

Half
year
Sep 07
$M

Half
Movt
Movt
year
Mar 08Mar 08Mar 07 v. Sep 07 v. Mar 07$M%%

Australia

1,224

1,472

1,417

-17%

New Zealand

529

415

502

27%

-14%
5%

Asia

111

97

74

14%

50%

Pacific

64

62

59

3%

8%

Other

35

32

50

9%

-30%

1,963

2,078

2,102

-6%

-7%

Cash1 profit

Half
year
Mar 08
$M

Half
year
Sep 07
$M

Half
Movt
Movt
year
Mar 08Mar 08Mar 07 v. Sep 07 v. Mar 07$M%%

Australia

1,010

1,365

1,323

-26%

New Zealand

451

435

426

4%

-24%
6%

Asia

116

95

77

22%

51%

Pacific

64

62

59

3%

8%

Other

33

31

51

6%

-35%

1,674

1,988

1,936

-16%

-14%

Comparison to Half Year Mar 2007
Half Year Mar 2008

Growth Rate

Revenue

Expenses

PBP

CreditNPAT

Revenue

Expenses

PBP2

Credit3

NPAT

Australia

4,085

1,831

2,254

843

1,010

12%

14%

10%

large

-24%

New Zealand

1,323

583

740

81

451

6%

1%

10%

large

6%

289

121

168

25

116

51%

48%

54%

47%

51%

Pacific

175

77

98

8

64

16%

15%

17%

large

8%

Other

130

55

75

23

33

-2%

-4%

0%

large

-35%

6,002

2,667

3,335

980

1,674

12%

12%

11%

large

-14%

1,527

673

854

93

520

Asia

New Zealand (NZD)

2

3Comparison to Half Year Sep 2007
Half Year Mar 2008

Growth Rate

Revenue

Expenses

PBP2

CreditNPAT

Revenue

Expenses

PBP2

Credit3

NPAT

Australia

4,085

1,831

2,254

843

1,010

5%

4%

6%

large

-26%

New Zealand

1,323

583

740

81

451

1%

-3%

4%

large

4%

289

121

168

25

116

33%

39%

28%

39%

22%

Asia

3

Pacific

175

77

98

8

64

6%

8%

4%

33%

3%

Other

130

55

75

23

33

33%

17%

47%

large

6%

6,002

2,667

3,335

980

1,674

6%

4%

7%

large

-16%

1,527

673

854

93

520

New Zealand (NZD)
1.

In the March 2008 half ANZ has classified the gain from the allocation of shares in Visa in March 2008 of $248 million after tax (tax impact: $105 million), costs
associated with a write-down of an intangible asset relating to Origin Australia of $24 million after tax (tax impact: $10 million) and a further positive adjustmentof $8 million following the restatement of deferred tax assets consequent to the reduction in New Zealand tax rate as significant items. In the September 2007
half the after tax impact of the gain on sale of Esanda Fleetpartners was increased by $54 million following the availability of capital losses being applied against
the gain and a negative impact of $24 million following the restatement of deferred tax assets to reflect the recently announced change in the New Zealandcompany tax rate which takes effect from 1 October 2008 as significant items. In the March 2007 half ANZ has classified the gain on sale of Esanda Fleetpartners
of $141 million after tax (tax impact: $54 million) as a significant item. ANZ excludes significant items to eliminate the distorting effect of one-off transactions on
the results of its core business (refer page 23)
The Group enters into economic hedges to manage its interest rate and foreign exchange risk. In the March 2008 half ANZ has classified a gain of $67 million
after tax (Sep 2007 half: $41 million; Mar 2007 half: $28 million) relating to economic hedging as a non-core item (tax impact $29 million (Sep 2007 half:$17 million; Mar 2007 half: $14 million)). Included in this non-core amount is market volatility relating to approved classes of derivatives not designated inaccounting hedge relationships but that are considered to be economic hedges, volatility arising from use of the fair value option, and ineffectiveness fromdesignated accounting hedges. In addition, ANZ has classified a mark-to-market loss after tax of $10 million (Sep 2007 half: $19 million gain; Mar 2007 half:$3 million loss) relating to revenue hedges (NZD and USD) that under the transitional provision of AASB 139 (AASB 2005-1) no longer qualify for hedge
accounting from 1 October 2006 (tax impact $4 million credit (Sep 2007 half: $9 million; Mar 2007 half: $2 million credit)). ANZ excludes volatility associatedwith fair value movements on these transactions to provide a better indication of the core business performance (refer page 24)

2.

PBP (profit before provisions) is profit before credit impairment and income tax

3.

Credit impairment expense

55

GEOGRAPHIC SEGMENT PERFORMANCE (continued)

Australia

Net interest income

Half
year
Mar 08
$M
2,664

Half
year
Sep 07
$M
2,561

Half
Movt
Movt
year
Mar 08Mar 08Mar 07 v. Sep 07 v. Mar 07
$M
%
%
2,475
4%
8%

Other external operating income

1,421

1,333

1,184

7%

20%

Operating income

4,085

3,894

3,659

5%

12%

Operating expenses(1,831)(1,761)(1,604)

4%

14%

Profit before credit impairment and income tax

2,254

2,133

2,055

6%

10%

Provision for credit impairment

(843)

(261)

(194)

large

large

Profit before income tax

1,411

1,872

1,861

-25%

-24%

Income tax expense

(401)

(505)

(537)

-21%

-25%

-

(2)

(1)

-100%

-100%

1,010

1,365

1,323

-26%

-24%

214

107

94

100%

large

1,224

1,472

1,417

-17%

-14%

2.03%

2.15%

2.24%

41.9%

44.4%

42.0%

1.27%

1.36%

1.34%

44.8%

45.2%

43.8%

1.25%

1.36%

1.34%
large

large

large

large

100%

large

2%

5%

10%

24%

Minority interest
1

Cash profit
1

Non-core items
Profit

Net interest average margin
1

Operating expenses to operating income
1

Operating expenses to average assets
1

Operating expenses to operating income (cash )1

Operating expenses to average assets (cash )Individual provision charge
Individual provision charge as a % of average net advances
Collective provision charge
Collective provision charge as a % of average net advances
Net non-performing loans

542

249

153

0.48%

0.24%

0.16%

301

12

41

0.27%

0.01%

0.04%

620

310

291

Net non-performing loans as a % of net advances

0.27%

0.14%

0.15%

Total employees

20,213

19,867

19,198

Lending growth

8.4%

8.1%

4.6%

External assets

301,126

273,129

242,139

1.

In the March 2008 half ANZ has classified the gain from the allocation of shares in Visa in March 2008 of $174 million after tax (tax impact $107 million, which
includes $21 million Australian tax on the tax free gain on sale of shares in New Zealand) and costs associated with a write-down of our investment in Origin
Australia of $24 million after tax (tax impact: $10 million) as significant items. In the March 2007 half ANZ has classified the gain on sale of Esanda Fleetpartners
of $128 million after tax (tax impact: $54 million) as a significant item. In the September 2007 half the after tax impact of the gain on sale of Esanda
Fleetpartners was increased by $54 million following the provision of capital losses being applied against the gain. ANZ excludes significant items to eliminate thedistorting effect of one-off transactions on the results of its core business (refer page 23)
The Group enters into economic hedges to manage its interest rate and foreign exchange risk. In the 2008 half ANZ has classified a gain of $74 million after tax(Sep 2007 half: $34 million; Mar 2007 half: $23 million) relating to economic hedging as a non-core item (tax impact $33 million (Sep 2007 half: $14 million; Mar2007 half: $10 million)). Included in this non-core amount is volatility relating to approved classes of derivatives not designated in accounting hedge relationships
but that are considered to be economic hedges, volatility arising from use of the fair value option, and ineffectiveness from designated accounting hedges. In
addition, ANZ has classified a mark-to-market loss of $10 million after tax (Sep 2007 half: $19 million gain; Mar 2007 half: $3 million loss) relating to NZD and
USD revenue hedges that under the transitional provision of AASB 139 (AASB 2005-1) no longer qualify for hedge accounting from 1 October 2006 (tax impact$4 million credit (Sep 2007 half: $8 million; Mar 2007 half: $1 million credit)). ANZ excludes volatility associated with fair value movements on these transactions
to provide a better indication of the core business performance (refer page 24)

56

GEOGRAPHIC SEGMENT PERFORMANCE (continued)

Australia, cont’dMarch 2008 half year compared to March 2007 half year

Profit decreased 14%. After adjusting for the impact of non-core items, cash profit decreased 24%. Significant influences oncash profit were:#

Net interest income increased 8% as average net advances grew 16% and average deposits and other borrowings
increased 24%, offset by a 21 basis points reduction in net interest margin. Growth in average net advances was driven
by Institutional (23%) with increasing re-intermediation of commercial customers seeking funding from a bank rather
than directly from external markets as a result of global credit conditions. Average net advances in Personal increased by
12% driven by growth in Mortgages. Net interest margin declined across both Institutional and Personal. Margin decline
in Institutional was a function of declining Markets interest in the mismatch and liquidity portfolio and higher cost offunding derivative revaluations (-$10 million offset in other income), lags in passing on higher funding costs to corporate
customers and high growth in low risk, low margin lending to well rated corporates. In Personal, declining margin in the
Mortgages and Consumer Finance businesses due to higher funding costs was only partly offset by improved margins on
deposits in Banking Products.

#

Other external income increased 20%. Excluding impacts relating to the consolidation of Stadium Australia, other income
increased 19%. Personal increased 17%, including the acquisition of ETrade and an $18 million gain from the sale ofMasterCard shares in the March 2007 half. Excluding these gains, Personal other income increased 13% reflecting
continued investment in growth initiatives delivering higher transaction volumes, and fee initiatives across mostbusinesses. Institutional increased 19%, while after adjusting for Stadium Australia growth was 16%. Markets revenue
increased 36% due to strong customer flow and the change in the composition of the derivatives result ($10 million offset
in net interest income). Working Capital and Business Banking also benefited from continued volume growth, fee
initiatives and product development. The ongoing sale of properties contributed an additional $31 million.

#

Operating expenses increased 14%. Excluding impacts from the consolidation of Stadium Australia and the ETradeacquisition, operating expenses increased 11% reflecting costs associated with improving the customer service
proposition and other revenue initiatives. Personal operating costs increased due to higher personnel and premises
expenses associated with ongoing investment in the branch network with 31 new branches and 312 ATMs opened since
March 2007. There was also higher staff to support growth in Consumer Finance and additional financial planners as partof the ongoing growth strategy. Increased expenses within Institutional were attributable to continuing investment incustomer facing staff and technology as part of the strategic plan to increase revenue in selected businesses and takeadvantage of volatility in the market.

#

Provision for credit impairment increased by $649 million impacted by the downgrade of a small number of customers andthe flow on effects of global credit turmoil. Individual provisions were up $389 million of which $226 million relates to a
provision on exposure to US monoline insurer (based on the mark-to-market exposure at balance date), $53 million
relates to a mining company and $24 million to a broking industry customer. The March 2007 half also included a large
debt recovery. Underlying growth is driven by volume growth and lower recoveries in Institutional. The collective
provision increased by $260 million, $103 million of which relates to a credit rating change on a large commercial
property client, with the remaining increase reflecting a small number of downgrades, lending volume growth and anallowance for secondary impacts of the market turmoil for losses yet to emerge.

March 2008 half year compared to September 2007 half year

Profit decreased by 17%. Cash profit decreased 26%. Significant influences on cash profit were:#

Net interest income increased 4% with average net advances up by 10%, average deposits and other borrowings up by
16%, partly offset by a 12 basis point decline in net interest margin. The lag in passing on higher funding costs, growth
in low risk, low margin customer lending due to the global credit market conditions and declining Markets mismatch
income were the main drivers of the decline in margin in Institutional. Personal also experienced margin decline in
Mortgages and Consumer Finance partly offset by improved margin on deposit products.

#

Other external operating income increased by 7%. Excluding the impact of the consolidation of Stadium Australia, otherincome increased by 8%. Institutional increased by 8% (excluding Stadium Australia, underlying growth was 12%), with
Markets’ experiencing significant upside as a result of current market volatility. This was partly offset by lower gains on
private equity investments within ANZ Capital. Personal increased 4%, with Esanda increasing by 11% due to successful
revenue initiatives, Banking Products increased 10% due to robust account activity and the benefits of revenue initiatives
and Mortgages up by 3% from increased loan refinancing activity by customers seeking to fix their interest rate exposure.

#

Operating expenses increased 4%. Excluding the impact of the consolidation of Stadium Australia and acquisition of
ETrade, operating expenses increased 4% reflecting increased personnel and premises expenses associated withinvestment in footprint expansion in Personal, whilst Institutional expenses have remained flat with tight costmanagement across all expenditure items offsetting a 4% increase in personnel.

#

Provision for credit impairment increased by $582 million. Individual Provision increased by $293 million of which threelarge provisions accounted for $303 million (as noted above). Excluding these provisions, individual provisions declined
by 7% with improved collection management within Personal, partly offset by growth in the Institutional loan book.
Collective Provision increased by $289 million, of which $103 million relates to the downgrade of a single commercial
property customer. The remaining increase was due to downgrades in the Institutional book, higher lending volumes andan allowance for the secondary impacts of the market turmoil for losses yet to emerge.
57

GEOGRAPHIC SEGMENT PERFORMANCE (continued)

New Zealand
Half
year
Mar 08
NZD M

Half
year
Sep 07
NZD M

Half
Movt
Movt
year
Mar 08Mar 08Mar 07 v. Sep 07 v. Mar 07
NZD M
%
%

1,010

1,045

1,014

-3%

0%

517

437

404

18%

28%

Operating income

1,527

1,482

1,418

3%

8%

Operating expenses

(673)

(680)

(654)

-1%

3%

Profit before credit impairment and income tax

854

802

764

6%

12%

Provision for credit impairment

(93)

(44)

(30)

large

large

Net interest income
Other external operating income

Profit before income tax

761

758

734

0%

4%

Income tax expense

(241)

(267)

(250)

-10%

-4%
n/a

Minority interest

-

-

-

n/a

Cash1 profit

520

491

484

6%

7%

Non-core items1

90

(22)

86

large

5%

Profit (NZD)

610

469

570

30%

7%

Profit (AUD)

529

415

502

27%

5%

42%

large

large

large

52%

50%

2%

1%

5%

12%

Net interest average margin

2.00%

2.16%

2.23%

Operating expenses1 to operating income

42.0%

45.7%

43.3%

1.21%

1.28%

1.34%

Operating expenses1 to average assets
1

Operating expenses to operating income (cash )

44.1%

45.9%

46.1%

Operating expenses to average assets (cash1)

1.21%

1.28%

1.34%

Individual provision charge
Individual provision charge as a % of average net advances
Collective provision charge
Collective provision charge as a % of average net advances
Net non-performing loans

47

33

22

0.10%

0.08%

0.06%

46

11

8

0.10%

0.03%

0.02%

108

71

72

Net non-performing loans as a % of net advances

0.12%

0.08%

0.09%

Total employees

9,552

9,409

9,489

Lending growth

5.5%

7.0%

4.8%

External assets

110,834

105,997

99,054

1.

In the March 2008 half ANZ has classified the gain from the allocation of shares in Visa in March 2008 of NZD85 million after tax (tax impact: $nil) and a further
positive adjustment of NZD9 million following the restatement of deferred tax assets to reflect the reduction in New Zealand tax rate as significant items. In the
September 2007 half ANZ has classified a negative impact of NZD27 million profit after tax following the restatement of deferred tax assets to reflect recently
announced change in the New Zealand company tax rate which takes effect from 1 October 2008 as a significant item. In the March 2007 half ANZ has classified
the gain on sale of Esanda Fleetpartners of NZD76 million (tax impact: $nil) as a significant item. ANZ excludes significant items to eliminate the distorting effectof one-off transactions on the results of its core business (refer page 23)
The Group enters into economic hedges to manage its interest rate and foreign exchange risk. In the March 2008 half ANZ has classified a loss of NZD5 million
after tax (Sep 2007 half: NZD5 million gain; Mar 2007 half: NZD10 million gain) relating to economic hedging as a non-core item (tax impact NZD2 million credit(Sep 2007 half: NZD2 million; Mar 2007 half: NZD6 million)). Included in this non-core amount is volatility relating to approved classes of derivatives notdesignated in accounting hedge relationships but that are considered to be economic hedges, volatility arising from use of the fair value option, and ineffectivenessfrom designated accounting hedges. ANZ excludes volatility associated with fair value movements on these transactions to provide a better indication of the corebusiness performance (refer page 24)

58

GEOGRAPHIC SEGMENT PERFORMANCE (continued)

New Zealand, cont’d
Reconciliation of Geographic profit
Half
year
Mar 08
NZD M

Half
year
Sep 07NZD M

New Zealand Businesses

417

419

395

0%

6%

NZ Institutional

128

101

115

27%

11%

New Zealand Banking

545

520

510

5%

7%

NZ shareholder functions

(25)

(29)

(26)

-14%

-4%

New Zealand geography adjusted for non-core items1

520

491

484

6%

7%

Non-core items

90

(22)

86

large

5%

Total New Zealand geography

610

469

570

30%

7%

1.

Half
Movt
Movt
year
Mar 08Mar 08Mar 07 v. Sep 07 v. Mar 07
NZD M
%
%

Refer footnote 1 on page 58

March 2008 half year compared to March 2007 half year

Profit increased 7% after adjusting for non-core items with the result including a NZD42 million after tax increase in credit
impairment expense. Profit before credit impairment and income tax increased 12% with solid growth of 12% in the New
Zealand Businesses, and a very strong increase of 24% in Institutional (primarily from Markets).
#

Net interest income was flat, with the result impacted by a number of factors within Institutional, including: reduction in
net interest income from derivative positions (NZD41 million, offset by an increase in trading income); and the repaymentof structured finance transactions. The underlying increase in net interest income was driven by robust lending growthacross the NZ Businesses (14%), offset by margin decline in these businesses (14 basis points), from continued
competitive pressures and unfavourable funding and product mix. Increased wholesale funding spreads and timing ofdividend payments also impacted the New Zealand result.

#

Other external operating income increased 28%, driven by a stronger Markets result and by the change in composition of
the derivatives result referred to above. Fee income in the NZ Businesses increased 9%, with the main contribution beingfrom the Retail Banks which achieved growth across lending, cards and commission income.

#Operating expenses increased 3%. Cost growth was due to annual increases in salaries, an increase in the number ofcustomer-facing staff and investment in businesses initiatives which have been partly offset by strong control of
discretionary expenditure and a run-off of Fleetpartners warranties. The cost to income ratio reduced 200 basis points to
44.1%.

#

Provision for credit impairment increased NZD63 million. The individual provision charge increased NZD25 million,
largely reflecting the trend in consumer arrears, and a small increase in the business segment, in response to tighter
economic conditions. Net non-performing loans as a percentage of net advances remains very low at 12 basis points andthe increase has been largely from a small number of business customers. The collective provision charge increased
NZD38 million with NZD19 million in the NZ Businesses, mainly reflecting the lift in arrears in personal loans and cards.
The charge in Institutional increased NZD19 million, with the main component a credit cycle adjustment given the current
global financial environment. Overall credit quality remains solid across all segments.

March 2008 half year compared to September 2007 half year

Profit increased 30% over the September 2007 half. After adjusting for non-core items, cash profit increased 6%. Growth inprofit before provisions was also 6%, driven by a strong contribution from Institutional (31% growth, led by Markets andCorporate Finance) and a solid result from the New Zealand Businesses (5%) in the context of increased funding costs, thehighly competitive market, and slowing economic conditions.
#

Net interest income reduced 3%, with the result adversely impacted by the repayment of structured finance transactions
and a reduction in net interest income from derivative positions (NZD10 million, offset by an increase in trading income).
Lending growth of 6% was largely delivered from the NZ Businesses. Net interest margin reduced 16 basis points, with
reductions across all business. This reduction reflected competition, unfavourable deposit product mix and the impact ofincreases in wholesale funding spreads. The timing of dividend payments also impacted the New Zealand result.

#

Other external operating income increased 18%, largely reflecting strong contributions from Corporate Finance, and fromMarkets, including the change in composition of the derivatives result referred to above.

#

Operating expenses reduced 1%, with the cost of annual increases in salaries, an increase in the number of customerfacing staff and investment in businesses initiatives being more than offset by strong control of discretionary expenditure
and a run-off of Fleetpartners warranties. The cost to income ratio reduced 180 basis points to 44.1%.

#

Provision for credit impairment increased NZ49 million. The individual provision charge increased NZD14 million, largely
reflecting the trend in consumer arrears, and a small increase in the business segment, in response to tighter economic
conditions. The collective provision charge increased NZD35 million, with NZD22 million in the NZ Businesses, mainlyreflecting the lift in arrears in personal loans and cards. The charge in Institutional increased NZD12 million, largely
reflecting the credit cycle adjustment given the current global financial environment.

59

GEOGRAPHIC SEGMENT PERFORMANCE (continued)

Asia
Half
year
Mar 08
$M

Half
year
Sep 07
$M

Half
Movt
Movt
year
Mar 08Mar 08Mar 07 v. Sep 07 v. Mar 07$M%%

Net interest income

124

106

100

17%

24%

Other external operating income

165

112

91

47%

81%

Operating income

289

218

191

33%

51%

Operating expenses

(121)

(87)

(82)

39%

48%

Profit before credit impairment and income tax

168

131

109

28%

54%

Provision for credit impairment

(25)

(18)

(17)

39%

47%

Profit before income tax

143

113

92

27%

55%

Income tax expense

(25)

(16)

(14)

56%

79%
100%

Minority interest

(2)

(2)

(1)

0%

116

95

77

22%

51%

(5)

2

(3)

large

67%

111

97

74

14%

50%

42.9%

39.4%

43.9%

41.9%

39.9%

42.9%

Individual provision charge

9

13

14

-31%

-36%

Collective provision charge

16

5

3

large

large

Net non-performing loans

-

-

-

n/a

n/a

1,684

1,313

1,098

28%

53%

Cash1 profit
Non-core items1
ProfitOperating expenses to operating income
1

Operating expenses to operating income (cash )Total employees
1.

The Group enters into economic hedges to manage its interest rate and foreign exchange risk. In the March 2008 half ANZ has classified $5 million loss after tax(Sep 2007 half: $2 million gain; Mar 2007 half: $3 million loss) relating to economic hedging as a non-core item. Included in this non-core amount is volatility
relating to approved classes of derivatives not designated in accounting hedge relationships but that are considered to be economic hedges, volatility arising fromuse of the fair value option, and ineffectiveness from designated accounting hedges. ANZ excludes volatility associated with fair value movements on thesetransactions to provide a better indication of the core business performance (refer page 23)

March 2008 half year compared to March 2007 half year

Profit grew by 50% (62% excluding exchange rate impact). Strong underlying business growth in the ANZ network and in
partnerships (including full half contributions from AMMB Holdings Berhad (AMMB) and Shanghai Rural Commercial Bank(SRCB) which were acquired in the September 2007 half year) contributed significantly to the result. Investment in theorganic business has driven significant revenue growth and is being accelerated to drive even further growth.
Excluding exchange rate movements:#

Net interest income increased by 43%. The strong Asian economies led to a significant increase in customer loans which
has been matched by similar volume growth in customer deposits. In addition, significant increases in our markets
trading activities, together with more efficient management of the balance sheet has led to strong interest income growthin the Relationship Lending, Markets and Retail businesses.

#

Other external operating income grew by 98%, of which more than half was contributed by income from partnerships(including full half contributions from AMMB and SRCB which were acquired in the September 2007 half year). Fees andother income were significantly higher in the Markets and Corporate Finance businesses following an increase in productoffering and sales capability, participation in large projects and the leveraging of volatility in the currency markets.
Markets other income was also boosted by the booking of gains from the conversion of bonds to shares in Saigon
Securities Incorporation (SSI).

#

Operating expenses increased 70% through a combination of new investment (including new branches in Cambodia andVietnam) and inflationary pressures across the region. Staff numbers increased by 586, largely in the network businesses
and in specialist institutional product areas including deal origination and structuring and client relationship management.

#

Provision for credit impairment increased by $8 million due to asset growth and additional provisions for asset cycle
impacts, with customer loans doubling as mentioned above. Overall credit quality improved, with investment grade loans
constituting a higher proportion of the portfolio.

March 2008 half year compared to September 2007 half year

Profit increased 14%. After adjusting for non-core items, profit increased 22% (29% excluding exchange rate impact). The
results was boosted by contributions from AMMB, SRCB and SSI and strong loan and deposit volumes in Vietnam, Singapore
and Cambodia. The contribution from Institutional product lines grew by 42% over the last half, with revenue being the key
driver of growth, albeit tempered by higher loan provision charges due to asset growth and additional provision for the
economic cycle adjustment.

60

GEOGRAPHIC SEGMENT PERFORMANCE (continued)

Pacific
Halfyear
Mar 08
$M

Half
year
Sep 07
$M

Half
Movt
Movt
year
Mar 08Mar 08Mar 07 v. Sep 07 v. Mar 07$M%%

Net interest income

88

81

73

9%

Other external operating income

87

84

78

4%

12%

Operating income

175

165

151

6%

16%

Operating expenses

(77)

(71)

(67)

8%

15%

Profit before credit impairment and income tax

98

94

84

4%

17%

Provision for credit impairment

(8)

(6)

(2)

33%

large

21%

Profit before income tax

90

88

82

2%

10%

Income tax expense

(26)

(25)

(23)

4%

13%

-

(1)

-

-100%

n/a

Cash profit

64

62

59

3%

8%

Profit

64

62

59

3%

8%

44.4%

Minority interest

Operating expenses to operating income

44.0%

43.0%

Individual provision charge

6

3

1

100%

large

Collective provision charge

2

3

1

-33%

100%

Net non-performing loans
Total employees

14

9

8

56%

75%

1,991

1,867

1,693

7%

18%

March 2008 half year compared to March 2007 half year

Profit increased 8% (16% excluding exchange rate impact). Double-digit profit growth in Fiji, Papua New Guinea, Cook
Islands, Solomon Islands and Timor Leste and the full half year impact from the acquisition of Citizens Security Bank (CSB) in
Guam were partly offset by increased investment in infrastructure.
Excluding exchange rate movements:#

Net interest income increased 29% due primarily to growth in lending of 15% (Papua New Guinea and Timor Leste growthof 18%, Vanuatu up 24%, Solomon Islands up 54% and Cook Islands growth of 26%) and a full half impact from theacquisition of CSB in Guam.

#

Other external operating income increased 19% predominantly due to strong foreign exchange earnings growth in Papua
New Guinea.

#

Operating expenses increased 22% due mainly to the inclusion of the first full half result from CSB and increased
distribution channels including the rolling out of a new branch telling platform, and an additional 110 new ATMs,
1,000 Point of Sale (POS) terminals and 15 new branches. The transformation program was accelerated to increase
efficiency and reduce operating risk. Staff numbers increased by 298 including 73 from the CSB acquisition.

#

While credit quality remains sound, provision for credit impairment increased by $6 million as provisions returned to morenormal levels following writebacks in Fiji in the March 2007 half.

March 2008 half year compared to September 2007 half year

Profit increased 3% (7% excluding exchange rate impact) with continued growth in Papua New Guinea and the Solomon
Islands. Operating income increased 6% (10% excluding exchange rate impact ) as a result of improved interest margins inFiji, strong asset growth in Papua New Guinea (16%), foreign exchange growth in Solomon Islands and a full half of revenue
from CSB. Operating expenses increased 8% as a result of annual pay increases, infrastructure investment, acceleration of
the transformation program and a full half of expenses from the acquisition of CSB. The increase in provision for credit
impairment is due to a combination of asset growth and normalisation from a low base in 2007.

61

GEOGRAPHIC SEGMENT PERFORMANCE (continued)

Other: United Kingdom, Europe, United States and South Asia (including Bangalore)
Half
year
Mar 08
$M

Half
year
Sep 07
$M

Half
Movt
Movt
year
Mar 08Mar 08Mar 07 v. Sep 07 v. Mar 07$M%%

Net interest income

29

18

71

61%

-59%

Other external operating income

101

80

61

26%

66%

Operating income

130

98

132

33%

-2%

Operating expenses

(55)

(47)

(57)

17%

-4%

Profit before credit impairment and income tax

75

51

75

47%

0%

Provision for credit impairment

(23)

(3)

(1)

large

large

Profit before income tax

52

48

74

8%

-30%

Income tax expense

(19)

(17)

(23)

12%

-17%

Cash1 profit

33

31

51

6%

-35%

Non-core items1

2

1

(1)

100%

large

Profit

35

32

50

9%

-30%

Operating expenses to operating income

40.9%

46.0%

44.6%

Operating expenses to operating income (cash1)

42.3%

48.0%

43.2%

Individual provision charge

6

2

1

large

large

Collective provision charge

17

1

-

large

n/a

Net non-performing loans

25

26

3

-4%

large

2,042

1,897

1,706

8%

20%

Total employees
1.

The Group enters into economic hedges to manage its interest rate and foreign exchange risk. In the March 2008 half ANZ has classified a gain of $2 million aftertax (Sep 2007 half: $1 million; Mar 2007 half: $1 million loss) relating to economic hedging as a non-core item. Included in this non-core amount is volatility
relating to approved classes of derivatives not designated in accounting hedge relationships but that are considered to be economic hedges, volatility arising fromuse of the fair value option, and ineffectiveness from designated accounting hedges. ANZ excludes volatility associated with fair value movements on thesetransactions to provide a better indication of the core business performance (refer page 23)

March 2008 half year compared to March 2007 half year

Profit decreased 30%. After adjusting for non-core items, cash profit decreased 35%. The reduction in profit is significantly
impacted by the appreciation of the AUD against other currencies resulting in a 7% overall decrease to the March 2008
result. Significant influences on cash profit excluding exchange rate movements were:#

Net interest income decreased 52%, due to reduced impact from movement in the derivatives position ($57 million,
largely offset in other income). Further diversification of client and product mix in the Trade Finance business resulted inlower interest earnings fully offset by strong relationship lending balance sheet growth.

#

Other operating income decreased 19% after removing the impact of the derivatives position. Higher fee income fromstructured financing was offset by lower Markets revenue with decreased investment flows in the current half compared toa particularly strong result in the March 2007 half.

#

Operating expenses increased 14% with investment in revenue generating staff in Europe and the United States and anincrease in personnel numbers within the operations and technology area in India. These costs were charged to thesponsoring business units.

#

Provision for credit impairment increased with net lending assets reaching $10 billion at March 2008 resulting in a higher
collective provision charge. In addition, an individual provision was recognised on a long-term workout offset by asignificant recovery of previously provided for exposure.

March 2008 half year compared to September 2007 half year

Profit increased 9%. The movement in profit is impacted by the appreciation of the AUD against other currencies resulting in
a 4% overall decrease to the March 2008 result. Excluding exchange rate movements:#

Net interest income increased 55% including a reduction from movement in the derivatives position ($10 million, offset inother income). Strong relationship lending and corporate finance balance sheet growth were contributing factors to thisincrease.

#

Other operating income increased 23% after removing the impact of the derivatives position, with a sound performanceby the markets foreign exchange and treasury desks partially offset by a slow down in corporate finance structured deals
attributed to the current credit environment.

#

Operating expenses increased 24% with further investment in revenue generating staff in Europe and the United States
together with impact of relocating to new premises. Continued increases in personnel numbers in the operations andtechnology area in India whose costs are charged to the sponsoring business units.

#

Provision for Impairment increased with net lending assets balance reaching $10 billion at March 2008. In addition an
individual provision was recognised on a long-term workout offset by a significant recovery of previously provided for
exposure.
62

FOUR YEAR SUMMARY BY HALF YEAR
Previous
AGAAP
Mar 08$M

Sep 07$M

Mar 07$M

Sep 06$M

Mar 06$M

Sep 05$M

Mar 05$M

Sep 04$M

Income Statement
Net interest income

3,780

3,691

3,611

3,575

3,368

3,231

3,140

2,745

Other operating income

2,222

1,995

1,770

1,583

1,563

1,528

1,407

1,694

Operating expense(2,103)(2,667)(2,567)(2,386)(2,346)(2,259)(2,213)(2,127)

Provision for credit impairment

(980)

(327)

(240)

(183)

(224)

(325)

(240)

(319)

Profit before income tax

2,355

2,792

2,755

2,629

2,448

2,221

2,180

2,017

Income tax expense

(678)

(799)

(817)

(770)

(716)

(636)

(611)

(597)

(3)

(5)

(2)

(3)

(1)

(2)

(1)

(1)

1,674

1,988

1,936

1,856

1,731

1,583

1,568

1,419

289

90

166

21

80

37

(13)

-

1,963

2,078

2,102

1,877

1,811

1,620

1,555

1,419

Assets438,355

392,773

351,849

334,640

322,181

300,885

282,775

259,345

Net assets

23,96422,04820,91019,906

18,796

19,53818,927

17,925Return on average ordinary equity2

17.7%

20.5%

21.3%

20.4%

20.9%

18.3%

18.3%

17.3%

Return on average assets

0.92%

1.10%

1.21%

1.13%

1.15%

1.10%

1.14%

1.11%

Tier 1 capital ratio

6.9%

6.7%

6.7%

6.8%

6.8%

6.9%

7.0%

6.9%

Total capital ratio

10.1%

10.1%

10.3%

10.6%

10.4%

10.5%

10.3%

10.4%

Minority interest
Cash profit1
Non-core items1
Profit attributable to shareholders of theCompany
Balance Sheet

RatiosAdjusted Common Equity

4.8%

4.3%

4.4%

4.7%

5.0%

5.1%

5.1%

5.1%

Operating expenses3 to operating income
Operating expenses3 to operating income (cash)

42.0%

44.5%

42.5%

45.2%

44.0%

47.1%

47.0%

45.8%

44.4%

45.1%

44.3%

45.5%

45.8%

46.5%

46.8%

45.5%

Shareholder value - ordinary shares
Total return to shareholders(share price movement plus dividends)(22.1%)

2.1%

13.2%

3.4%

13.2%

19.2%

11.3%

3.0%

43,32855,38254,78849,331

48,461

43,83437,584

34,58662 cents

74 cents

62 cents

69 cents

56 cents

59 cents

51 cents

54 cents

100%

100%

100%

100%

100%

100%

100%

100%

- high$31.74$31.50$30.24$28.66$26.70$24.45$22.02$19.44- low$19.38$25.75$26.75$24.45$22.70$20.53$19.02$17.45- closing$22.55$29.70$29.70$26.86$26.50$24.00$20.62$19.02

Earnings per share - basic

102.4c110.9c113.2c101.6c

98.4c

86.3c

83.2c

76.4c

Dividend payout ratio

61.4%

67.1%

54.9%

68.0%

56.9%

68.4%

61.3%

71.0%

Market capitalisation
Dividend
Franked portion
Share price4

Share information (per fully paid)

Net tangible assets$10.06

$9.37

$9.01

$8.53

$7.99

$7.77

$7.38

$7.51

Number of fully paid ordinary shares (M)1,921.4

1,864.7

1,844.7

1,836.6

1,828.7

1,826.4

1,822.7

1,818.4

Permanent employees (FTE)

34,19033,00431,81830,64429,61729,471

28,38827,383

Temporary employees (FTE)

1,292

1,349

1,365

1,612

1,446

1,505

1,444

1,372

Total employees (FTE)
Number of shareholders4

35,482

34,35333,18332,256

31,06330,976

29,83228,755355,809327,703

300,987

291,262

273,503

263,467

255,655

252,072

Other information

1.

In the March 2008 half ANZ has classified the gain from the allocation of shares in Visa in March 2008 of $248 million after tax (tax impact: $105 million), costs
associated with a write-down of an intangible asset relating to Origin Australia of $24 million after tax (tax impact: $10 million) and a further positive adjustmentof $8 million following the restatement of deferred tax assets consequent to the reduction in New Zealand tax rate as significant items. In the September 2007
half the after tax impact of the gain on sale of Esanda Fleetpartners was increased by $54 million following the availability of capital losses being applied against
the gain and a negative impact of $24 million following the restatement of deferred tax assets to reflect the recently announced change in the New Zealandcompany tax rate which takes effect from 1 October 2008 as significant items. In the March 2007 half ANZ has classified the gain on sale of Esanda Fleetpartners
of $141 million after tax (tax impact: $54 million) as a significant item. ANZ excludes significant items to eliminate the distorting effect of one-off transactions on
the results of its core business (refer page 23)
The Group enters into economic hedges to manage its interest rate and foreign exchange risk. In the March 2008 half ANZ has classified a gain of $67 million
after tax (Sep 2007 half: $41 million; Mar 2007 half: $28 million) relating to economic hedging as a non-core item (tax impact $29 million (Sep 2007 half:$17 million; Mar 2007 half: $14 million)). Included in this non-core amount is market volatility relating to approved classes of derivatives not designated inaccounting hedge relationships but that are considered to be economic hedges, volatility arising from use of the fair value option, and ineffectiveness fromdesignated accounting hedges. In addition, ANZ has classified a mark-to-market loss after tax of $10 million (Sep 2007 half: $19 million gain; Mar 2007 half:$3 million loss) relating to revenue hedges (NZD and USD) that under the transitional provision of AASB 139 (AASB 2005-1) no longer qualify for hedge
accounting from 1 October 2006 (tax impact $4 million credit (Sep 2007 half: $9 million; Mar 2007 half: $2 million credit)). ANZ excludes volatility associatedwith fair value movements on these transactions to provide a better indication of the core business performance (refer page 24)

2.

Average ordinary shareholders’ equity excludes minority interest and preference share dividend

3.

Operating expenses excludes goodwill amortisation of $nil (Sep 2007: $nil; Mar 2007: $nil; Sep 2006: $nil; Mar 2006: $nil; Sep 2005: $nil; Mar 2005: $nil;
Sep 2004: $83 million). Under AIFRS goodwill is not amortised and therefore was not recognised from 2005 onwards

4.

Excludes employees whose only ANZ shares are held in trust under ANZ employee share schemes

63This page has been left blank intentionally64

Australia and New Zealand Banking Group Limited

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND OTHER DISCLOSURES

Half year ended
31 March 2008

65

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – TABLE OF CONTENTSCONTENTS

PAGE

Directors’ Report67

Condensed Consolidated Income Statement

68

Condensed Consolidated Balance Sheet

69

Condensed Consolidated Statement of Recognised Income and Expense

70

Condensed Consolidated Cash Flow Statement

71

Notes to Condensed Financial Statements

72

1.

Significant accounting policies

72

2.

Income78

3.

Operating expenses

79

4.

Income tax expense

80

5.

Dividends

81

6.

Earnings per share

82

7.

Net loans and advances

83

8.

Impaired financial assets

84

9.

Provision for credit impairment

85

10. Deposits and other borrowings

86

11. Loan capital86

12. Share capital87

13. Shareholders’ equity

87

14. Contingent liabilities, contingent assets and commitments

89

15. Note to the Cash Flow Statement91

16. Segment analysis

92

17. Changes in composition of the Group92

18. Associates, joint venture entities and investments

93

19. Special purpose and off balance sheet entities

93

20. Related party disclosure

94

21. Exchange rates

94

22. Significant events since balance date94

Directors’ Declaration

95

Auditors’ Review Report and Independence Declaration

96

66

DIRECTORS’ REPORTThe directors present their report on the consolidated financial statements for the half year ended 31 March 2008.
Directors

The names of the directors of the Company who held office during and since the end of the half year are:
Mr CB Goode, AC - Chairman

Director since 24 July 1991, Chairman since 24 August 1995

Mr MRP Smith, OBE – Chief Executive Officer

CEO and director since 1 October 2007

Dr GJ Clark

Director since 1 February 2004

Mr JK Ellis

Director since 1 October 1995

Ms MA Jackson, AC

Director since 22 March 1994

Mr IJ Macfarlane, AC

Director since 16 February 2007

Mr DE Meiklejohn

Director since 1 October 2004

Mr JP Morschel

Director since 1 October 2004

Result

The consolidated profit attributable to shareholders of the Company was $1,963 million. Further details are contained in the
Chief Financial Officer’s Review and Business Performance Review on pages 11 to 54 and in the financial report.

Review of operations

A review of the operations of the consolidated entity during the half year and the results of those operations are contained in
the Chief Financial Officer’s Review and Business Performance Review on pages 11 to 54.

Lead auditor’s independence declaration

The lead auditor’s independence declaration given under section 307C of the Corporations Act 2001 (as amended) is set out
on page 96 and forms part of the Directors’ Report for the half year ended 31 March 2008.

Rounding of amounts

The Company is a company of the kind referred to in the Australian Securities and Investments Commission class order
98/100 (as amended) dated 10 July 1998 pursuant to section 341(1) of the Corporations Act 2001 (as amended).
Consequently, amounts in this report and the accompanying financial report have been rounded to the nearest million dollars
except where otherwise indicated.
Signed in accordance with a resolution of the directors.

Charles Goode
ChairmanMichael R P Smith
Director

22 April 2008

67

CONDENSED CONSOLIDATED INCOME STATEMENT

Total income

Note

Half
year
Mar 08
$M

Half
year
Sep 07
$M

Half
Movt
Movt
year
Mar 08Mar 08Mar 07 v. Sep 07 v. Mar 07
$M
%
%

2

18,26915,773

14,52016%

26%

15,612

13,692

12,51814%

25%

Interest income
Interest expense(11,832)(10,001)(8,907)18%

33%

Net interest income

2

3,780

3,691

3,611

2%

5%

Other operating income

2

2,438

1,943

1,881

25%

30%

Share of joint venture profit from ING Australia and
ING New Zealand

85

89

83

-4%

2%

Share of associates' profit

134

49

38

large

large

Operating income

6,437

5,772

5,613

12%

15%

(2,701)(2,567)(2,386)

5%

13%

3,736

3,205

3,227

17%

16%

(980)

(327)

(240)

large

large

2,756

2,878

2,987

-4%

-8%

(790)

(795)

(883)

-1%

-11%

1,966

2,083

2,104

-6%

-7%

Profit attributable to minority interest

3

5

2

-40%

50%

Profit attributable
to shareholders of the Company

1,963

2,078

2,102

-6%

-7%

Operating expenses

3

Profit before credit impairment and income tax
Provision for credit impairment

9

Profit before income tax
Income tax expense

4

Profit for the period
Comprising:

Earnings per ordinary share (cents)
Basic

6

102.4

110.9

113.2

-8%

-10%

Diluted

6

98.6

108.3

110.0

-9%

-10%

Dividend per ordinary share (cents)

5

62

74

62

-16%

0%

The notes appearing on pages 72 to 94 form an integral part of these financial statements

68CONDENSED CONSOLIDATED BALANCE SHEETAs at
Mar 08

As at

As at

Sep 076

Mar 076

Movt
Movt
Mar 08Mar 08v. Sep 07 v. Mar 07
$M
%
%

$M

$M

Liquid assets

17,803

16,987

15,4335%

15%

Due from other financial institutions

11,850

8,040

6,439

47%

84%

Trading securities1

14,87015,167

14,265-2%

4%Derivative financial instruments

29,51022,272

12,30332%

large

Available-for-sale assets

16,33314,006

9,835

17%

66%

317,718

288,811267,77410%

19%

15,756

14,536

14,0138%

12%

AssetsNet loans and advances

Note

7

Customers' liability for acceptances
Regulatory deposits

320

235

219

36%

46%

3,869

3,430

2,281

13%

70%

203

113

205

80%

-1%

Goodwill and other intangible assets2

3,716

3,677

3,394

1%

9%

Other assets3,5

4,980

4,006

4,279

24%

16%

Shares in associates and joint venture entities
Deferred tax assets

Premises and equipment
Total assets

1,427

1,493

1,409

-4%

1%

438,355

392,773

351,849

12%

25%
26%

Liabilities
Due to other financial institutions

20,264

19,436

16,106

4%

Deposits and other borrowings

263,866

233,423

209,351

13%

26%

Derivative financial instruments

27,831

24,18013,60715%

large

Liability for acceptances

15,756

14,536

14,013

8%

12%

Current tax liabilities

61

628

528

-90%

-88%

Deferred tax liabilities

259

135

190

92%

36%

8,917

10,507

10,221

-15%

-13%

957

1,021

919

-6%

4%

63,54954,07554,188

18%

17%

10

Payables and other liabilities
Provisions
Bonds and notes

12,931

12,784

11,8161%

9%

Total liabilities

414,391

370,725

330,939

12%

25%

Net assets

23,96422,04820,910

9%

15%
23%

Loan capital4

11

Shareholders' equity
Ordinary share capital

12,13

10,381

8,946

8,414

16%

Preference share capital

12,13

871

871

871

0%

0%

Reserves

13(1,012)

(889)

(524)

14%

93%

Retained earnings

13

13,67313,082

12,1175%

13%

23,91322,01020,8789%

15%

Share capital and reserves attributable toshareholders of the Company

51

38

32

34%

59%

23,96422,04820,9109%15%Minority interest
Total equity
1.

Includes bills held in portfolio $2,621 million (Sep 2007: $2,305 million; Mar 2007:$1,540 million)

2.

Excludes notional goodwill in equity accounted entities

3.

Includes interest revenue receivable $1,700 million (Sep 2007: $1,571 million; Mar 2007: $1,632 million)

4.

Includes $3,182 million (Sep 2007: $3,281 million Mar 2007: $2,362 million) hybrid loan capital that qualifies for Tier 1 capital as defined by APRA

5.

Other assets include current tax assets of $290 million (Sep 2007: $160 million; Mar 2007: $125 million)

6.

Prior period balances are reclassified in certain instances to aid comparability with current disclosures

The notes appearing on pages 72 to 94 form an integral part of these financial statements

69

CONDENSED CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE

Items recognised directly in equity

Movt
Movt
Half
Mar 08Mar 08year
Mar 07 v. Sep 07 v. Mar 07
%
%
$M

Half
year
Mar 08
$M

Half
year
Sep 07
$M

74

(474)

(89)

large

large

(189)

93

16

large

large

(5)

3

(17)

large

-71%

(14)

14

60

large

large

6

(1)

(6)

large

large

1

Currency translation adjustments
Exchange differences taken to equity
Available-for-sale assets
Valuation gain (loss) taken to equity
Cumulative (gain) loss transferred to the income
statement on sale
Cash flow hedges
Valuation gain (loss) taken to equity
Transferred to income statement for the period
Actuarial gain (loss) on defined benefit plans

(5)

22

55

large

large

Income/(expense) recognised directly in equity

(133)

(343)

19

-61%

large

Profit for the period

1,966

2,083

2,104

-6%

-7%

Total recognised income and expense for the period

1,833

1,740

2,123

5%

-14%

3

5

2

-40%

50%

1,830

1,735

2,121

5%

-14%

Comprising:Total recognised income and expense
attributable to minority interest
Total recognised income and expense attributable
to shareholders of the company
1.

These items are disclosed net of tax

The notes appearing on pages 72 to 94 form an integral part of these financial statements

70

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

Note
Cash flows from operating activities
Interest received
Dividends received
Fee income received
Other income received
Interest paid
Personnel expenses paid
Premises expenses paid
Other operating expenses paid
Net cash paid from settlement of derivatives
Income taxes paid
Australia
Overseas
Goods and Services Tax paid
(Increase)/decrease in operating assets:
Liquid assets - greater than three months
Due from other financial institutions - greater than three months
Trading Securities
Regulatory deposits
Loans and advances
Increase/(decrease) in operating liabilities
Deposits and other borrowings
Due to other financial institutions
Payables and other liabilities
Net cash provided by/(used in) operating activities
Cash flows from investing activities
Net decrease/(increase)
Available-for-sale assets
Purchases
Proceeds from sale or maturity
Controlled entities and associates
Purchased (net of cash acquired)Proceeds from sale (net of cash disposed)
Premises and equipment
Purchases
Proceeds from sale
Other
Net cash provided by/(used in) investing activities
Cash flows from financing activities
Net (decrease)/increase
Bonds and notes
Issue proceeds
Redemptions
Loan capital
Issue proceeds
Redemptions
Net dividends paid
Share capital issues
Net cash provided by financing activities
Net cash provided by/(used in) operating activities
Net cash provided by/(used in) investing activities
Net cash provided by financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Foreign currency translation
Cash and cash equivalents at end of period
1.

Comparative information has been restated to conform with current year’s presentation

The notes appearing on pages 72 to 94 form an integral part of these financial statements

71

15(a)

15(b)

Half
Half
Half
year
year
year
1
1
Mar 08Mar 07
Sep 07
Inflows
Inflows
Inflows(Outflows) (Outflows) (Outflows)$M$M$M
15,404
65
1,351
195(11,819)(1,572)(226)(709)(3,005)

13,67868
1,221
37(9,579)(1,514)(214)(476)(1,395)

12,41031
1,106
99(8,865)(1,466)
(204)
(698)
(759)

(1,035)
(315)
(3)

(479)
(310)
(7)

(902)
(190)
(4)

(1,919)
(813)
273
(88)
(29,527)(2,545)
(52)
(531)
(29)
(23,880)903(358)(5,382)(25)(13,063)

30,208
1,197(1,624)(3,962)

26,826
3,451
159
4,429

7,138
875
(136)
(9,490)(16,958)
14,444(4,943)725(8,272)
8,976

(173)
98

(1,397)
44

(53)
400

(260)
78
(249)
(3,020)

(210)
63
(131)
(5,849)

(199)
16
172
1,040

15,825(6,553)

4,946(3,250)11,497(4,372)

965
(996)
(23)
59
9,277
(3,962)(3,020)9,277
2,295
19,074(211)
21,158

1,872
(480)
(795)
69
2,362
4,429
(5,849)2,362
942
18,254(122)
19,0741,141(500)(1,163)
63
6,666(9,490)1,040
6,666(1,784)
20,344(306)
18,254NOTES TO CONDENSED FINANCIAL STATEMENTS

1.

Significant accounting policies(i)Basis of preparation
These condensed consolidated financial statements comprise a general purpose financial report and:#should be read in conjunction with the ANZ Annual Report for the year ended 30 September 2007 and any
public announcements made by the Parent entity and its controlled entities (the Group) for the half year
ended 31 March 2008 in accordance with the continuous disclosure obligations under the Corporations Act
2001 (as amended) and the ASX Listing Rules#

are presented in Australian dollars unless otherwise stated#comply with the accounts provisions of the Banking Act 1959#

have been prepared in accordance with Australian Accounting Standards (AAS), other authoritative
pronouncements of the Australian Accounting Standards Board, AASB and Urgent Issues GroupInterpretations and the Corporations Act 2001#

are condensed financial statements as defined in AASB 134: ‘Interim Financial Reporting’. This report does
not include all notes of the type normally included in the annual financial report. Compliance with AASB 134
ensures compliance with International Reporting Standard IAS 34 ‘Interim Financial Reporting’ and#have been prepared in accordance with the historical cost convention except that the following assets andliabilities are stated at their fair value: derivative financial instruments including the fair value of any
applicable underlying exposure, assets treated as available-for-sale, financial instruments held for trading,assets and liabilities designated at fair value through profit and loss and defined benefit plan assets andliabilities.

These condensed consolidated interim financial statements were approved by the Board of Directors on 22 April
2008.
All amounts in the financial report have been rounded to the nearest million dollars in accordance with classorder 98/100, dated 10 July 1998 (as amended).
The accounting policies and methods of computation adopted in the preparation of these condensed consolidated
interim financial statements are consistent with those adopted and disclosed in the Group’s 2007 Annual Report.
Certain amounts in the comparative information have been reclassified to conform with current period financial
statement presentations.
The Group’s key accounting policies that have been applied in preparing these condensed consolidated interim
financial statements follow.
(ii)

Consolidation
These financial statements comprise the financial statements of Australia and New Zealand Banking Group
Limited (the Company) and all its controlled entities where it is determined that there is a capacity to control.
Control means the power to govern directly or indirectly the financial and operating policies of an entity so as toobtain benefits from its activities.
In relation to special purpose entities, such control is deemed to exist where:#in substance, the majority of the residual risks and rewards from their activities accrue to the Group, or#in substance, the Group controls their decision making powers so as to obtain the majority of the risks andrewards from their activities.

Further details on special purpose entities is provided in Note 19.
The Group adopts the equity method of accounting for associates and the Group’s investments in joint venture
entities.
(iii)

Interest income and interest expense
Interest income and interest expense are recognised in the income statement as they accrue using the effective
interest method. The effective interest method calculates the amortised cost of a financial asset or financial
liability and allocates the interest income or interest expense, including fees and directly related transaction
costs that are an integral part of the effective interest rate, over the expected life of the financial instrument.
Income and expense on the financial instruments are recognised on an effective yield basis in proportion to theamount outstanding over the period to maturity or repayment.

72

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

1.

Significant accounting policies, cont’d(iii)

Interest income and interest expense, cont’d
Loan commitment fees, together with related direct costs, are deferred and recognised as an adjustment to theinterest yield on the loan once drawn or immediately to the income statement for expired commitments.
Fees and commissions payable to brokers in respect of originating lending business, where these are direct andincremental costs related to the issue of a financial instrument, are deferred in net loans and advances andrecognised in interest income as part of the effective interest rate.

(iv)

Fee and commission income
Fees and commissions that are integral to the effective interest rate of a financial asset or liability are included in
the determination of the effective interest rate.
Fees and commissions that relate to the execution of a significant act (for example, advisory or arrangement
services, placement fees and underwriting fees) are recognised when the significant act has been completed.
Fees charged for providing ongoing services (for example, maintaining and administering existing facilities) arerecognised as income over the period the service is provided.

(v)

Offsetting of income and expenses
Income and expenses are not offset unless required or permitted by an accounting standard. At the Group level,
this generally arises in the following circumstances:#(vi)

where transaction costs form an integral part of the effective interest rate of a financial instrument which ismeasured at amortised cost, these are offset against the interest income generated by the financial
instrument#

where gains and losses relating to fair value hedges are assessed as being effective#

where gains and losses arise from a group of similar transactions, such as foreign exchange gains and losses#

where amounts are collected on behalf of third parties, where the Group is acting as an agent only#

where costs are incurred on behalf of customers from whom the Group is reimbursed.

Derivative financial instruments
Derivative financial instruments are contracts whose value is derived from one or more underlying price, index orother variables. They include swaps, forward rate agreements, futures, options and combinations of these
instruments.
Derivative financial instruments are entered into by the Group for trading purposes (including customer-related
reasons), or for hedging purposes (where the derivative instruments are used to hedge the Group’s exposures tointerest rate risk, currency risk, price risk, credit risk and other exposures relating to non-trading positions).
Derivative financial instruments are recognised initially at fair value with gains or losses from subsequent
measurement at fair value being recognised in the income statement. Where the derivative is designatedeffective as a hedging instrument, the timing of the recognition of any resultant gain or loss in the income
statement is dependent on the hedging designation. These hedging designations and associated accounting are
as follows:#

Fair value hedge
Where the Group hedges the fair value of a recognised asset or liability or firm commitment, changes in thefair value of the derivative designated as a fair value hedge are recognised in the income statement.
Changes in the fair value of the hedged item attributable to the hedged risk are reflected in adjustments tothe carrying value of the hedged items, which are also recognised in the income statement.
Hedge accounting is discontinued when the hedge instrument expires or is sold, terminated, exercised or nolonger qualifies for hedge accounting. The resulting adjustment to the carrying amount of the hedged item
arising from the hedged risk is amortised to the income statement over the period to maturity of the hedged
item.
If the hedged item is sold or repaid, the unamortised fair value adjustment is recognised immediately in theincome statement.

73

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

1.

Significant accounting policies, cont’d(vi)

Derivative financial instruments, cont’d#Cash flow hedge
The Group designates derivatives as cash flow hedges where the instrument hedges the variability in cash
flows of a recognised asset or liability, a foreign exchange component of a firm commitment or a highly
probable forecast transaction. The effective portion of changes in the fair value of derivatives qualifying anddesignated as cash flow hedges is deferred to the hedging reserve which forms part of shareholders’ equity.
Any ineffective portion is recognised immediately in the income statement. Amounts deferred in equity arerecognised in the income statement in the period during which the hedged forecast transactions take place.
When the hedge expires, is sold, terminated, exercised, or no longer qualifies for hedge accounting, thecumulative amount deferred in equity remains in the hedging reserve, and is subsequently transferred to theincome statement when the hedged item is recognised in the income statement.
When a forecast hedged transaction is no longer expected to occur, the amount deferred in equity isrecognised immediately in the income statement.

#

Net investment hedge
Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. The gain orloss from remeasuring the fair value of the hedging instrument relating to the effective portion of the hedge isdeferred in equity and the ineffective portion is recognised immediately in the income statement.

All gains and losses from changes in the fair value of derivatives, that are not designated in a hedging
relationship but are entered into to manage the interest rate and foreign exchange risk of funding instruments,
are recognised in the income statement. Under certain circumstances, the component of the fair value change inthe derivative which relates to current period realised and unrealised interest, is included in net interest income.
The remainder of the fair value movement is included in other income.
Derivatives embedded in financial instruments or other host contracts are treated as separate derivatives when
their economic characteristics and risks are not closely related to those of the host contracts, and the hostcontracts are not measured at fair value via the profit and loss. The embedded derivative is measured at fairvalue with changes in fair value immediately recognised in the income statement.
(vii)

Trading Securities and other financial assets at fair value through profit or loss
Trading securities are financial instruments acquired principally for the purpose of selling in the short-term or
which are part of a portfolio which is managed for short-term profit-taking. Trading Securities are initiallyrecognised and subsequently measured in the balance sheet at their fair value.
Derivatives that are not financial guarantee contracts or effective accounting hedging instruments are carried atfair value through profit or loss. In addition, certain financial assets and liabilities are designated and measured
at fair value through profit or loss where the following applies:#

doing so eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise
arise from measuring assets or liabilities, or recognising the gains or losses on them, on different bases;#a group of financial assets, financial liabilities or both is managed and its performance evaluated on a fairvalue basis; or#the financial instrument contains an embedded derivative, unless the embedded derivative does not
significantly modify the cash flows or it is clear, with little or no analysis, that it would not be separately
recorded.

Changes in the fair value (gains or losses) of financial instruments are recognised in the income statement in the
period in which they occur.
(viii) Available-for-sale assets
Available-for-sale assets comprise non-derivative financial assets which the Group designates as available-forsale but which are not deemed to be held principally for trading purposes, and include equity investments,
certain loans and advances and fixed term securities. They are initially recognised at fair value plus transaction
costs. Subsequent gains or losses arising from changes in fair value are included as a separate component ofequity, the ‘available-for-sale revaluation reserve’. When an available-for-sale asset is sold, the cumulative gainor loss relating to the asset is transferred to the income statement.
Where there is objective evidence of impairment of an available-for-sale asset, the cumulative loss related tothat asset is removed from equity and recognised in the income statement. If, in a subsequent period, theamount of an impairment loss relating to an available-for-sale debt instrument decreases and the decrease canbe linked objectively to an event occurring after the impairment event, the loss is reversed through the income
statement.
Premiums and discounts are included within the calculation of the fair value of the security. Interest income isaccrued on an effective yield basis and dividend income is recognised when the right to receive payment isestablished.
74

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

1.

Significant accounting policies, cont’d(ix)

Impairment of loans and advances
Loans and advances are reviewed at least each reporting date for impairment.
Credit impairment provisions are raised for exposures that are known to be impaired. Exposures are impaired
and impairment losses are recorded if, and only if, there is objective evidence of impairment as a result of one ormore loss events that occurred after the initial recognition of the loan and prior to the reporting date, and thatloss event or events has had an impact on the estimated future cash flows of the individual loan or the collective
portfolio of loans that can be reliably estimated.
Impairment is assessed for assets that are individually significant (or on a portfolio basis for small value loans),
and then on a collective basis for those exposures not individually known to be impaired.
Exposures that are assessed collectively are placed in pools of similar assets with similar risk characteristics.
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 provision for impairment loss includes the market value of counterparty risk arising from derivatives whereloss arises from a credit event.
The estimated impairment loss is measured as the difference between the asset’s carrying amount and theestimated future cash flows discounted to their present value. As this discount unwinds during the period
between recognition of impairment and recovery of the cash flow, it is recognised in interest income. The
process of estimating the amount and timing of cash flows involves considerable management judgement.
These judgements are reviewed regularly to reduce any differences between loss estimates and actual loss
experience.
The provision for impairment loss (individual and collective) is deducted from loans and advances in the balance
sheet and the movement for the reporting period is reflected in the income statement. When a loan is
uncollectible, it is written-off against the related provision for loan impairment. Subsequent recoveries ofamounts previously written-off are indirectly credited back to the income statement.
Where impairment losses recognised in previous periods have subsequently decreased or no longer exist, such
impairments are indirectly reversed in the income statement.
A provision is also raised for off balance sheet items such as commitments and guarantees that are considered to
be onerous.

(x)

Goodwill and other intangible assets#

Goodwill
Goodwill, representing the excess of the purchase consideration over the fair value of the identifiable net
assets of a controlled entity at the date of gaining control, is recognised as an asset and not amortised, but
assessed for impairment annually and whenever there is an indication that the goodwill may be impaired.
This involves, where required, using the discounted cash flow (DCF) or the capitalisation of earnings
methodology (CEM) to determine the expected future benefits of the cash-generating unit. Where theassessment results in the goodwill balance exceeding the value of expected future benefits the difference ischarged to the income statement.
Any impairment of goodwill is not subsequently reversed.

#

Other intangible assets
Other intangible assets include costs incurred in acquiring and building software and computer systems(“software”).
Software is amortised using the straight-line method over its expected useful life to the Group. The period ofamortisation is between 3 and 5 years, except for branch front-end applications where 7 years is used.
At each reporting date, software assets are reviewed for impairment. If any such indication exists, therecoverable amount of the assets are estimated and compared against the existing carrying value. Where theexisting carrying value exceeds the recoverable amount, the difference is charged to the income statement.
Costs incurred in planning or evaluating software proposals, or in maintaining systems after implementation,
are not capitalised.

75

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

1.

Significant accounting policies, cont’d(xi)

Premises and equipment impairment assessment
At each reporting date, the carrying amounts of premises and equipment are reviewed for impairment. If any
such indication exists, the recoverable amount of the assets are estimated and compared against the existing
carrying value. Where the existing carrying value exceeds the recoverable amount, the difference is charged tothe income statement. If it is not possible to estimate the recoverable amount of an individual asset, the Groupestimates the recoverable amount of the cash generating unit to which the asset belongs.
A previously recognised impairment loss is reversed if there has been a change in the estimates used todetermine the recoverable amount.

(xii) Employee benefits#

Defined benefit superannuation schemes
The Group operates a number of defined benefit schemes. The liability and expense related to providing
benefits to employees under each defined benefit scheme are calculated by independent actuaries. A defined
benefit liability is recognised to the extent that the present value of the defined benefit obligation of eachscheme, calculated using the Projected Unit Credit Method, is greater than the fair value of each scheme’s
assets. Where this calculation results in a benefit to the Group, a defined benefit asset is recognised, which iscapped at the recoverable amount. In each subsequent reporting period, ongoing movements in the defined
benefit liability or asset carrying value is treated as follows:-#

the net movement relating to the current period’s service cost, interest cost, expected return on scheme
assets, past service costs and other costs (such as the effects of any curtailments and settlements) is
recognised as an employee expense in the income statement-

movements relating to actuarial gains and losses are recognised directly in retained earnings-

contributions made are recognised directly against the net defined benefit position.

Defined contribution superannuation schemes
The Group operates a number of defined contribution schemes and also contributes, according to local law inthe various countries in which it operates, to government and other plans that have the characteristics ofdefined contribution schemes. The Group’s contribution to these schemes is recognised as an expense in theincome statement when incurred.

#

Share-based compensation
The Group has various equity settled share-based compensation plans. These are described in Note 47 of the2007 Annual Report and comprise largely the Employee Share Acquisition Plan and the ANZ Share Option
Plan.
ANZ ordinary shares
The fair value of ANZ ordinary shares granted under the Employee Share Acquisition Plan are measured at
grant date, using the one-day volume weighted average market price of ANZ shares. The fair value isexpensed immediately when shares vest immediately or on a straight-line basis over the relevant vesting
period. This is recognised as an employee compensation expense with a corresponding increase in equity.
Share options
The fair value of share options is measured at grant date, using an option pricing model. The fair value isexpensed on a straight-line basis over the relevant vesting period. This is recognised as an employeecompensation expense with a corresponding increase in the share options reserve. The option pricing modeltakes into account the exercise price of the option, the risk free interest rate, the expected volatility of ANZ’sordinary share price and other factors. Market vesting conditions are taken into account in estimating the fairvalue.
Performance Rights
A Performance Right is a right to acquire a share at nil cost to the employee, subject to satisfactorily meetingtime and performance hurdles. Upon exercise, each Performance Right entitles the holder to one ordinary
share in ANZ. The fair value of Performance Rights is determined at grant date using an option pricing
model, taking into account market conditions. The fair value is expensed over the relevant vesting period.
This is recognised as an employee expense with a corresponding increase in the share option reserve.
Other adjustments
Subsequent to the grant of an equity-based award, the amount recognised as an expense is adjusted forvesting conditions other than market conditions so that, ultimately, the amount recognised as an expense isbased on the number of equity instruments that eventually vest.
Treasury shares
Shares in the Company which are issued or purchased on-market by the ANZ Employee Share Acquisition
Plan are classified as treasury shares (to the extent that they relate to unvested employee share-based
awards) and deducted from share capital.
76

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

1.

Significant accounting policies, cont’d(xiii) Offsetting of assets and liabilities
Assets and liabilities are offset and the net amount reported in the balance sheet only where:#

there is a current enforceable legal right to offset the asset and liability#

there is an intention to settle on a net basis, or to realise the asset and settle the liability simultaneously.

(xiv) Income tax#

Income tax expense
Income tax on earnings for the period comprises current and deferred tax and is based on the applicable tax
law in each jurisdiction. It is recognised in the income statement as tax expense, except when it relates toitems credited directly to equity, in which case it is recorded in equity, or where it arises from the initialaccounting for a business combination, in which case it is included in the determination of goodwill.

#

Current tax
Current tax is the expected tax payable on taxable income for the period, based on tax rates (and tax laws)
which are enacted or substantively enacted by the reporting date, including any adjustment for tax payable inprevious periods. Current tax for current and prior periods is recognised as a liability (or asset) to the extent
that it is unpaid (or refundable).

#

Deferred tax
Deferred tax is accounted for using the tax balance sheet method. It is generated by temporary differences
between the carrying amounts of assets and liabilities for financial reporting purposes and their tax base.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period(s)when the asset and liability giving rise to them are realised or settled, based on tax rates (and tax laws) thathave been enacted or substantively enacted by the reporting date. The measurement reflects the tax
consequences that would follow from the manner in which the Group, at the reporting date, recovers or
settles the carrying amount of its assets and liabilities.
Deferred tax liabilities are recognised for all taxable temporary differences, other than those in relation totaxable temporary differences arising from the initial recognition of goodwill. Deferred tax liabilities arerecognised for taxable temporary differences arising on investments in controlled entities, branches,
associates and joint ventures, except where the Group is able to control the reversal of the temporary
differences and it is probable that temporary differences will not reverse in the foreseeable future. Deferred
tax assets associated with these interests are recognised only to the extent that it is probable that thetemporary difference will reverse in the foreseeable future and there will be sufficient taxable profits against
which to utilise the benefits of the temporary difference.
Deferred tax assets, including those related to the tax effects of income tax losses and credits available to be
carried forward, are recognised only to the extent that it is probable that future taxable profits will beavailable against which the deductible temporary differences or unused tax losses and credits can be utilised.

#

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

(xv)

Contingent Liabilities
A contingent liability is a liability of sufficient uncertainty that it does not qualify for recognition as a provision.
Further disclosure is made in Note 14 where the above requirements are not met, but there is a possible
obligation that is higher than remote. Specific details of the nature of the contingent liability are provided wherepracticable.

77

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

2.

IncomeHalfyear
Mar 08
$M

Half
year
Sep 07
$M

Half
Movt
Movt
year
Mar 08Mar 08Mar 07 v. Sep 07 v. Mar 07$M%%

Interest income

15,612

13,692

12,51814%

25%

Interest expense(11,832)(10,001)(8,907)

18%

33%

3,780

3,691

3,611

2%

5%

285

259

232

10%

23%

Non-lending fees and commissions

1,156

1,093

1,033

6%

12%

Total fee and commission income

1,441

1,352

1,265

7%

14%

Fee and commission expense1

(132)

(115)

(122)

15%

8%

Net fee and commission income

1,309

1,237

1,143

6%

15%

325

278

232

17%

40%

(9)

(22)

(25)

-59%

-64%

258

218

198

18%

30%

Net interest incomei) Fee and commission income
Lending feesii) Other income
Foreign exchange earnings2
Net gains/(losses) from trading securities
Net gains from trading derivatives
Movement on financial instruments measured at fairvalue through profit & loss3

96

58

42

66%

large

Brokerage income

47

52

3

-10%

large

Gain on Visa shares4

281

-

-

n/a

n/a

-

-

195

n/a

-100%

Gain from the sale of Fleetpartners
Profit/(loss) on sale of premises

35

34

4

3%

large

Stadium Australia income

19

34

4

-44%

large

Other

77

54

85

43%

-9%

Total other income

1,129

706

738

60%

53%

Total other operating income

2,438

1,943

1,881

25%

30%

219

138

121

59%

81%

Total income

18,26915,773

14,52016%

26%

Profit before income tax as a % of total income

15.09%

18.25%

20.57%

Share of joint venture and associates' profit5 (refer page 93)

1.

Includes interchange fees paid

2.

March 2008 half comprises core foreign exchange earnings $339 million and $14 million non-core NZD and USD revenue hedge volatility loss (Sep 2007
half: $250 million core and $28 million non-core profit; Mar 2007 half: $237 million core and $5 million non-core loss)

3.

Includes any fair value movements on derivatives entered into to manage interest rate and foreign exchange risk on funding instruments not designated as
accounting hedges, ineffective portions of cash flow hedges and fair value movement in bonds and notes designated at fair value

4.

Comprises gain arising from the allocation of shares in Visa Inc. measured at fair value. In addition, the Group has recognised a $72 million gain through its
associate, Cards NZ Limited, on that associate’s allocation of Visa Inc. shares (see Note 5 below), bringing the total benefit to the Group on the Visa Inc.
share allocation in the half year to $353 million

5.

March 2008 half includes a $72 million equity accounted gain arising from the allocation of shares in Visa Inc. through the Group’s associate, Cards NZ
Limited, on Visa shares in New Zealand78

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

3.

Operating expenses
Half
year
Mar 08
$M

Half
year
Sep 07
$M

Half
Movt
Movt
year
Mar 08Mar 08Mar 07 v. Sep 07 v. Mar 07$M%%

Personnel
Employee entitlements and taxes
Salaries and wages
Superannuation costs - defined benefit plans

122

127

109

-4%

12%

1,032

950

942

9%

10%
-67%

2

5

6

-60%

Superannuation costs - defined contribution plans

100

93

87

8%

15%

Equity-settled share-based payments

44

26

36

69%

22%

Temporary staff

64

67

64

-4%

0%

Other

261

272

207

-4%

26%

1,625

1,540

1,451

6%

12%

Depreciation and amortisation

26

25

19

4%

37%

Rent

145

130

124

12%

17%

Utilities and other outgoings

71

73

65

-3%

9%

Other

10

11

15

-9%

-33%

252

239

223

5%

13%

Computer contractors

22

24

26

-8%

-15%

Data communications

34

36

35

-6%

-3%

Depreciation and amortisation

103

106

102

-3%

1%

Rentals and repairs

40

36

37

11%

8%

Software purchased

79

74

60

7%

32%

Software written-off

2

12

4

-83%

-50%

Other

19

22

18

-14%

6%

299

310

282

-4%

6%

Advertising and public relations

89

86

71

3%

25%

Audit fees

4

6

4

-33%

0%

Depreciation of furniture and equipment

32

31

26

3%

23%

Impairment of intangible - Origin Australia

34

-

-

n/a

n/a

Freight and cartage

28

26

27

8%

4%

Non-lending losses, frauds and forgeries

24

27

16

-11%

50%

Postage and stationery

60

58

57

3%

5%

Professional fees

67

69

61

-3%

10%

Telephone

28

27

28

4%

0%

Travel

80

78

74

3%

8%

Other

79

70

66

13%

20%

Total personnel expenses
Premises

Total premises expenses
Computer

Total computer expenses
Other

Total other expenses
Operating expenses

79

525

478

430

10%

22%

2,701

2,567

2,386

5%

13%

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

4.

Income tax expense

Reconciliation of the prima facie income tax expenseon pre-tax profit with the income tax expensecharged in the Income Statement

Half
year
Mar 08
$M

Half
year
Sep 07
$M

Half
Movt
Movt
year
Mar 08Mar 08Mar 07 v. Sep 07 v. Mar 07$M%%

Profit before income tax

2,756

2,878

2,987

-4%

-8%

827

864

896

-4%

-8%

Overseas tax rate differential

18

17

13

6%

38%

Rebateable and non-assessable dividends

(4)

(4)

(6)

0%

-33%

Prima facie income tax expense at 30%
Tax effect of permanent differences:

Other non-assessable income

-

-

(3)

n/a

-100%

Profit from associates and joint venture entities

(64)

(39)

(36)

64%

78%

Recognition of previously unrecognised tax losses
on sale of Esanda Fleetpartners

-

(54)

-

-100%

n/a

Restatement of deferred tax balances
for announced New Zealand tax rate change

(8)

24

-

large

n/a

Other1

21

(11)

19

large

11%

790

797

883

-1%

-11%

Income tax (over) provided in previous years

-

(2)

-

-100%

n/a

Total income tax expense charged in theincome statement

790

795

883

-1%

-11%

Australia

523

473

600

11%

-13%

Overseas

267

322

283

-17%

-6%

790

795

883

-1%

-11%

28.7%

27.6%

29.6%

Effective Tax Rate - Group1.

The March 2008 half includes $21 million of Australian tax on the equity accounted profits of Cards NZ Limited relating to the gain on the allocation of sharesin Visa Inc. which was not taxable in New Zealand80

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

5.

Dividends
Ordinary Shares
Half
year
Mar 08Halfyear
Sep 07

Interim (fully franked)

62

n/a

62

n/a

0%

Final (fully franked)

n/a

74

n/a

n/a

n/a

Ordinary share dividend

$M

$M

$M

%

%

-

1,144

-

n/a

n/a

1,381

-

1,267

n/a

9%

(37)

(29)

(19)

28%

95%

Total1

1,344

1,115

1,248

21%

8%

Ordinary share dividend payout ratio2 (%)

61.4%

67.1%

54.9%

Dividend per ordinary share (cents)

Interim dividend
Final dividend
Bonus option plan adjustment

Half
Movt
Movt
year
Mar 08Mar 08Mar 07 v. Sep 07 v. Mar 07%%

1.

Dividends recorded when paid

2.

Dividend payout ratio calculated using proposed interim dividend of $1,192 million not included in the above table. The proposed interim dividend of$1,192 million is based on the forecast number of ordinary shares on issue at the dividend record date. Dividend payout ratios for the September 2007 halfyear and March 2007 half year calculated using $1,381 million and $1,144 million respectively

There are a number of changes to the terms and conditions of ANZ’s Dividend Reinvestment Plan (DRP) and Bonus
Option Plan (BOP). For the 2008 interim dividend, the “Pricing Period” defined under the DRP and BOP terms andconditions which is used to calculate the “Acquisition Price” to be applied in determining the number of shares to beprovided under the DRP and BOP will be the fifteen trading days (as defined in the DRP and BOP terms and conditions)commencing on, and including, 20 May 2008. In addition, a discount of 1.5% will be applied when calculating the“Acquisition Price” under the DRP and BOP terms and conditions for the purposes of the 2008 interim dividend only.
For the 2008 interim dividend only, the balance of the dividend not reinvested by shareholders in the DRP or foregone byshareholders under the BOP, will be fully underwritten by J.P. Morgan Australia Limited.
Preference Shares
Half
year
Mar 08
$M

Half
year
Sep 07
$M

23

20

17

15%

35%

€ 27.80€ 24.18€ 20.89

15%

33%

Half
Movt
Movt
year
Mar 08Mar 08Mar 07 v. Sep 07 v. Mar 07$M%%

Preference dividend
Euro Trust Securities
Dividend per preference share
Euro Trust Securities

81

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

6.

Earnings per share
Half
year
Mar 08Halfyear
Sep 07

Half
Movt
Movt
year
Mar 08Mar 08Mar 07 v. Sep 07 v. Mar 07%%

1,921.4

1,864.7

1,844.7

1,963

2,078

2,102

-6%

-7%

(23)

(20)

(17)

15%

35%

Profit excluding preference share dividends ($M)

1,940

2,058

2,085

-6%

-7%

Weighted average number of ordinary shares (M)1,895.1

1,855.3

1,841.6

2%

3%

102.4

110.9

113.2

-8%

-10%

1,940

2,058

2,085

-6%

-7%

Number of fully paid ordinary shares on issue (M)

3%

4%

Basic
Profit attributable to shareholders of the Company ($M)
Less Preference share dividends ($M)

Basic earnings per share (cents)
DilutedProfit excluding preference share dividends ($M)
1Interest on US Trust securities ($M)

20

22

22

-9%

-9%

Interest on ANZ StEPS2 ($M)

28

26

24

8%

17%

Interest on UK Hybrid securities3 ($M)

33

21

-

57%

n/a

2,021

2,127

2,131

-5%

-5%

1,895.1

1,855.3

1,841.6

2%

3%

10.8

11.5

14.4

-6%

-25%

53.3

42.0

45.9

27%

16%

Weighted average number of convertible ANZ StEPS2
securities (M)

45.5

34.5

34.5

32%

32%

Weighted average number of convertible UK Hybrid3
securities (M)

45.8

21.5

-

large

n/a

2,050.5

1,964.8

1,936.4

4%

6%

98.6

108.3

110.0

-9%

-10%

Profit attributable to shareholders of the Company
excluding interest on US Trust securities, ANZ StEPS
and UK Hybrid ($M)
Weighted average number of shares on issue (M)Weighted average number of convertible options (M)Weighted average number of convertible US Trust
securities at current market price1 (M)Adjusted weighted average number of shares - diluted (M)Diluted earnings per share (cents)
1.

The US Stapled Trust securities issued on 27 November 2003 mandatorily convert to ordinary shares in 2053 unless redeemed or bought back prior to that
date. The US Stapled Trust Security issue can be de-stapled and the investor left with coupon paying preference shares at ANZ’s discretion at any time, orat the investor’s discretion under certain circumstances. AASB 133 requires that potential ordinary shares for which conversion to ordinary share capital ismandatory must be included in the calculation of diluted EPS. The inclusion of this issue in EPS increased the diluted number of shares by 53.3 million

2.

ANZ StEPS (issued on 23 September 2003) convert to either $100 for each ANZ StEPS share or a number of ordinary shares calculated at the market priceof ANZ ordinary shares less 2.5%. The inclusion of this issue in EPS increased the diluted number of shares by 45.5 million

3.

UK Hybrid (issued on 15 June 2007) is a GBP denominated stapled security that mandatorily converts to ordinary shares on the fifth anniversary of the issue
date at the market price of ANZ ordinary shares less 5% (subject to certain conversion conditions). AASB 133 requires that potential ordinary shares forwhich conversion to ordinary share capital is mandatory must be included in the calculation of diluted EPS. The inclusion of this issue in EPS increased the
diluted number of shares by 45.8 million for the half year ended 31 March 200882

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

7.

Net loans and advances
Half
year
Mar 08
$M

Half
year
Sep 07
$M

Half
Movt
Movt
year
Mar 08Mar 08Mar 07 v. Sep 07 v. Mar 07$M%%

Australia
Overdrafts

7,026

7,464

6,457

-6%

9%

Credit card outstandings

7,061

6,641

6,506

6%

9%

Term loans - housing

120,807

113,994

106,953

6%

13%

Term loans - non-housing

74,46564,26057,217

16%30%

Lease finance

1,756

1,813

1,884

-3%

-7%

Hire purchase

10,361

9,824

9,393

5%

10%

Other

1,059

852

699

24%

52%

222,535

204,848

189,109

9%

18%

New Zealand
Overdrafts

1,938

1,728

1,822

12%

6%

Credit card outstandings

1,222

1,149

1,152

6%

6%

Term loans - housing

45,40142,35040,841

7%

11%

Term loans - non-housing

31,22429,67228,145

5%

11%

Lease finance

215

215

239

0%

-10%

Hire purchase

466

431

426

8%

9%

Other

379

447

475

-15%

-20%

80,84575,992

73,100

6%

11%

593

532

513

11%

16%

Overseas Markets
Overdrafts
Credit card outstandings

212

201

200

5%

6%

Term loans - housing

1,242

1,040

847

19%

47%

Term loans - non-housing

large

16,454

9,699

7,567

70%

Lease finance

193

186

183

4%

5%

Other

495

350

239

41%

large

19,18912,008

9,549

60%

large

322,569

292,848271,758

10%

19%

Less provisions for credit impairment (refer note 9)(2,948)(2,330)(2,318)27%

27%

Less income yet to mature1(2,494)(2,277)(2,214)10%

13%

Total gross loans and advances

Add capitalised brokerage/mortgage origination fees
Total net loans and advances
1.

591

570

548

4%

8%

(4,851)(4,037)(3,984)20%

22%

317,718

288,811267,77410%

19%

Includes fees and expenses capitalised and amortised using the effective interest method of $340 million (Sep 2007: $306 million Mar 2007: $314 million)

The following table shows gross loans and advances for New Zealand in NZD terms.
Half
year
Mar 08NZD M

New Zealand

Half
year
Sep 07
NZD M

Half
Movt
Movt
year
Mar 08Mar 08Mar 07 v. Sep 07 v. Mar 07
NZD M
%
%

Overdrafts

2,238

2,012

2,061

11%

9%

Credit card outstandings

1,412

1,338

1,303

6%

8%

Term loans - housing

52,43849,30846,1996%

14%

Term loans - non-housing

36,06334,54831,838

4%

13%

Lease finance

248

250

270

-1%

-8%

Hire purchase

538

502

482

7%

12%

Other

439

520

538

-16%

-18%

93,37688,47882,691

6%

13%

83

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

8.

Impaired financial assets
As at
Mar 08
Summary of impaired financial assets

As at
Sep 07Movt
Movt
Mar 08Mar 08v. Sep 07 v. Mar 07
%
%
$M

As at
Mar 07

$M

$M

1,048

666

640

57%

-

-

-

n/a

n/a

353

126

109

large

large

1,401

792

749

77%

87%

Non-performing loans

(295)

(260)

(275)

13%

7%

Non-performing commitments, contingencies and derivatives

(249)

(42)

(27)

large

large

Net impaired financial assets

857

490

447

75%

92%

Australia

852

514

507

66%

68%

New Zealand

138

99

105

39%

31%

Overseas Markets

58

53

28

9%

large

1,048

666

640

57%

64%

Australia

232

204

216

14%

7%

New Zealand

44

38

42

16%

5%
12%

Non-performing loans
Restructured loans
Non-performing commitments, contingencies and derivatives
Gross impaired financial assets

64%

Less individual provisions:Non-performing loans

Gross non-performing loans
Less individual provisions:

Overseas Markets

19

18

17

6%

Individual provisions

295

260

275

13%

7%

Net non-performing loans

753

406

365

85%

large

As at
Mar 08As at
Sep 07As at
Mar 07Movt
Movt
Mar 08Mar 08v. Sep 07 v. Mar 07
$M
%
%

$M

$M

Australia

337

121

105

large

large

New Zealand

16

5

4

large

large

-

-

-

n/a

n/a

353

126

109

large

large

Non-performing commitments, contingencies and derivatives

Overseas Markets
Gross non-performing commitments, contingencies
and derivatives
Less individual provisions:
Australia

249

42

27

large

large

New Zealand

-

-

-

n/a

n/a

Overseas Markets

-

-

-

n/a

n/a

Individual provisions

249

42

27

large

large

Net non-performing commitments, contingencies
and derivatives

104

84

82

24%

27%

Half
year
Mar 08
$M

Half
year
Sep 07$M

Australia

893

491

430

82%

large

New Zealand

104

75

74

39%

41%

New and increased non-performing loans

Overseas Markets
Total new and increased non-performing loans1
1.

Movt
Movt
Half
Mar 08Mar 08year
Mar 07 v. Sep 07 v. Mar 07
%
%
$M

46

45

27

2%

70%

1,043

611

531

71%

96%

Includes $160 million relating to Consumer Finance (Sep 2007 half: $166 million; Mar 2007 half: $145 million)

Movt
Movt
Half
Mar 08Mar 08year
Mar 07 v. Sep 07 v. Mar 07
%
%
$M

Half
year
Mar 08
$M

Half
year
Sep 07$M

Australia1

296

25

83

large

New Zealand

17

-

-

n/a

n/a

-

-

-

n/a

n/a

313

25

83

large

large

New and increased non-performing commitments,
contingencies and derivatives

Overseas Markets
Total new and increased non-performing
commitments, contingencies and derivatives
1.

Includes $226 million on a derivative position with a US monoline insurer

84

large

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

8.

Impaired financial assets, cont’d
The following amounts are not classified as individually impaired financial assets and therefore are not included within
the summary on page 84.
As at
Mar 08As at
Sep 07

Accruing loans past due 90 days or more 1
Australia

$M
489

$M
446

Movt
Movt
Mar 08Mar 08v. Sep 07 v. Mar 07
$M
%
%
459
10%
7%

New Zealand

196

88

106

large

Overseas Markets

20

27

20

-26%

0%

705

561

585

26%

21%

1.

As at
Mar 0785%

Includes unsecured credit card and personal loans 90 days past due accounts which are allowed by APRA to be retained on an accrual basis for up to
180 days past due amounting to $85 million (Sep 2007: $87 million; Mar 2007: $101 million). The remainder of 90 day past due accounts are
predominantly held on an accrual basis having been assessed as ‘well secured’

In the event of customer default, any loan security is held as mortgagee in possession and therefore the Group does nothold any other real estate owned assets.

9.

Provision for credit impairment

Collective provision

Half
year
Mar 08
$M

Half
year
Sep 07
$M

Movt
Movt
Half
Mar 08Mar 08year
Mar 07 v. Sep 07 v. Mar 07%%$M

Balance at start of period

2,028

2,016

1,975

1%

3%

376

31

52

large

large

Charge to income statement
Provisions disposed

-

-

(4)

n/a

-100%

Adjustment for exchange rate fluctuations

-

(19)

(7)

-100%

-100%

2,404

2,028

2,016

19%

19%

Total collective provision1
Individual provision
Balance at start of period

302

302

286

0%

6%

Charge to income statement

604

296

188

large

large
-100%

Adjustment for exchange rate fluctuations

-

(9)

(6)

-100%

Discount unwind

(10)

(10)

(10)

0%

0%

Bad debts written off

(398)

(331)

(253)

20%

57%

Recoveries of amounts previously written off
Total individual provision
Total provision for credit impairment
1.

46

54

97

-15%

-53%

544
2,948

302
2,330

302
2,318

80%
27%

80%
27%

The Collective Provision includes amounts for off balance sheet credit exposures: $343 million at 31 March 2008 (Sep 2007: $261 million; Mar 2007:$256 million). The impact on the income statement for the period ended 31 March 2008 was an $81 million charge (Sep 2007 half year: $11 million charge;
Mar 2007 half year: $3 million release)

Movt
Movt
Half
Mar 08Mar 08year
Mar 07 v. Sep 07 v. Mar 07
%
%
$M

Half
year
Mar 08
$M

Half
year
Sep 07$M

Australia

616

347

285

78%

large

New Zealand

53

43

38

23%

39%

Overseas Markets

30

21

22

43%

36%

699

411

345

70%

large
-18%

Provision movement analysis
New and increased provisions

Provision releases

(49)

(61)

(60)

-20%

650

350

285

86%

large

(46)

(54)

(97)

-15%

-53%

Individual provision charge

604

296

188

large

large

Increase to collective provision
Charge to Income Statement

376
980

31
327

52
240

large
large

large
large

Recoveries of amounts previously written off

85

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

9.

Provision for credit impairment, cont’d

Individual provision balance
Australia

As at
Mar 08As at
Sep 07

$M
481

$M
246

Movt
Movt
Mar 08Mar 08v. Sep 07 v. Mar 07
%
%
$M
243
96%
98%

As at
Mar 07

New Zealand

44

38

42

16%

5%

Domestic Markets

525

284

285

85%

84%

Overseas Markets
Total individual provision

19

18

17

6%

12%

544

302

302

80%

80%

Half
year
Mar 08$M
46,923

Halfyear
Sep 07$M
31,903

10. Deposits and other borrowings

Certificates of deposit

Half
Movt
Movt
year
Mar 08Mar 08Mar 07 v. Sep 07 v. Mar 07$M%%
23,00447%
large

Term Deposits

81,78069,60063,36318%

29%

Other deposits bearing interest

95,93894,08886,5512%

11%

Deposits not bearing interest

9,656

10,143

9,415

-5%

3%

Commercial paper

19,23016,914

15,497

14%

24%

Borrowing corporations' debt

10,245

10,10910,660

1%

-4%

94

666

861

-86%

-89%

263,866

233,423

209,351

13%

26%

Half
year
Mar 08
$M

Half
year
Sep 07
$M

Half
Movt
Movt
year
Mar 08Mar 08Mar 07 v. Sep 07 v. Mar 07$M%%

US stapled trust security issue1

1,201

1,248

1,362

-4%

-12%

ANZ Stapled Exchangeable Preferred Securities(ANZ StEPS)

1,000

1,000

1,000

0%

0%

Other borrowings
Total deposits and other borrowings

11. Loan capitalHybrid loan capital

UK Hybrid2
Perpetual subordinated notes
Subordinated notes
Total Loan Capital

981

1,033

-

-5%

n/a

678

690

721

-2%

-6%

9,071
12,931

8,813
12,784

8,733
11,816

3%
1%

4%
9%

1.

Loan capital of USD1.1 billion is subordinated in right of payment to the claims of depositors and all other creditors of the parent entity and its controlled
entities which have issued the notes. Hybrid loan capital constitutes Tier 1 capital as defined by APRA for capital adequacy purposes2.

Loan capital of GBP450 million is subordinated in right of payment to the claims of depositors and all other creditors of the parent entity and its controlled
entities which have issued the notes. Hybrid loan capital constitutes Tier 1 capital as defined by APRA for capital adequacy purposes

86

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

12. Share capital
Issued and quoted securities
Number quoted

Issue priceper share

Amount paid
up per share€ 1,000€ 1,000

Ordinary shares
As at 31 March 2008

1,921,364,031

Issued during the half year

56,685,211

Preference shares
As at 31 March 2008
Euro Trust Securities1
1.

500,000

On 13 December 2004 the Group issued €500 million hybrid capital into the European market. The instruments consist of Floating Rate Non-cumulative
Trust Securities issued by ANZ Capital Trust III each representing a unit consisting of €1,000 principal amount of subordinated rate notes due 2053 issued
by ANZ Jackson Funding PLC stapled to a fully paid up €1,000 preference share issued by Australia and New Zealand Banking Group Limited

Profit1 as a % of shareholders' equity
including preference shares at end of period (annualised)
1.

Half
year
Mar 08Halfyear
Sep 07Halfyear
Mar 07

16.4%

18.8%

20.2%

Profit attributable to shareholders

13. Shareholders’ equity
Half
year
Mar 08
$M

Half
year
Sep 07
$M

Half
Movt
Movt
year
Mar 08Mar 08Mar 07 v. Sep 07 v. Mar 07
$M
%
%

9,817

9,285

9,142

6%

7%

1,344

340

102

large

large

42

33

24

27%

75%

Treasury shares

(10)

(9)

(46)

11%

-78%

Group share option scheme

59

69

63

-14%

-6%

Share capital
Balance at start of period
Ordinary share capital
Dividend reinvestment plan
Group employee share acquisition scheme
1,2Consideration for purchase of Etrade
Total share capital

-

99

-

-100%

n/a

11,252

9,817

9,285

15%

21%

(1,209)

(735)

(646)

64%

87%

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

74

(474)

(89)

large

large

(1,135)(1,209)

(735)

-6%

54%

Balance at start of period

70

70

63

0%

11%

Share-based payments

5

-

7

n/a

-29%

Total share option reserve

75

70

70

7%

7%

Total foreign currency translation reserve
Share option reserve3

1.

On-market purchase of shares for settlement of amounts due under share-based compensation plans. In addition, 2,257,736 shares were issued during the
March 2008 half to the Group’s Employee Share Trust for settlement of amounts due under share-based compensation plans2.

As at 31 March 2008, there were 4,496,912 treasury shares outstanding

3.

The share option reserve arises on the grant of share options to selected employees under the ANZ share option plan. Amounts are transferred out of thereserve and into share capital when the options are exercised87

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

13. Shareholders’ equity, cont’d
Half
year
Mar 08
$M

Half
year
Sep 07
$M

Movt
Movt
Half
Mar 08Mar 08year
Mar 07 v. Sep 07 v. Mar 07%%$M

Available-for-sale revaluation reserve4
Balance at start of period
Valuation gain (loss) recognised after tax

97

1

2

large

large

(189)

93

16

large

large

Cumulative (gain) loss transferred to the income
statement on sale of financial assets

(5)

3

(17)

large

-71%

Total available-for-sale revaluation reserve

(97)

97

1

large

large

153

140

227

9%

-33%

-

-

(141)

n/a

-100%

Restated balance at beginning of period

153

140

86

9%

78%

Gain (loss) recognised after tax

(14)

14

60

large

large
large

Hedging reserve5
Balance at start of period
Adjustment on adoption of AASB 2005-16

Transferred to income statement
Total hedging reserve
Total reserves

6

(1)

(6)

large

145

153

140

-5%

4%

(1,012)

(889)

(524)

14%

93%

13,082

12,117

11,0848%

18%

Retained earnings
Balance at start of period
Adjustment on adoption of AASB 2005-1

6

-

-

141

n/a

-100%

Restated balance at beginning of period

13,082

12,117

11,225

8%

17%

Profit attributable to shareholders of the Company

1,963

2,078

2,102

-6%

-7%

Total available for appropriation

15,045

14,195

13,327

6%

13%
large

Actuarial gain (loss) on defined benefit plans after tax7

(5)

22

55

large

(1,344)(1,115)(1,248)

21%

8%

(23)

(20)

(17)

15%

35%

Retained earnings at end of period

13,67313,082

12,117

5%

13%

Share capital and reserves attributable toshareholders of the Company

23,91322,01020,878

9%

15%

51

38

32

34%

59%

23,96422,04820,9109%15%

Ordinary share dividends paid
Preference share dividends paid

Minority interest
Total equity
4.

The available-for-sale revaluation reserve arises on the revaluation of available-for-sale financial assets. Where a revalued financial asset is sold, that
portion of the reserve which relates to that financial asset is realised and recognised in the profit or loss. Where a revalued financial asset is impaired, that
portion of the reserve which relates to that financial asset is recognised in the profit or loss

5.

The hedging reserve represents hedging gains and losses recognised on the effective portion of cash flow hedges. The cumulative deferred gain or loss on
the hedge is recognised in the profit or loss when the hedged transaction impacts profit or loss, consistent with the applicable accounting policy

6.

Under the provisions of AASB 2005-1, hedge accounting is not available for the NZD and USD revenue hedges

7.

ANZ has taken the option available under AASB 119 to recognise actuarial gains/losses on defined benefit superannuation plans directly in retained earnings

88

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

14. Contingent liabilities, contingent assets and commitments
Contingent liabilities#

GeneralThere are outstanding court proceedings, claims and possible claims against the Group, the aggregate amount of
which cannot readily be quantified. Appropriate legal advice has been obtained and, in the light of such advice,provisions as deemed necessary have been made. In some instances we have not disclosed the estimated financial
impact as this may prejudice the interests of the Group.
#

Sale of Grindlays businesses

On 31 July 2000, ANZ completed the sale to Standard Chartered Bank (SCB) of ANZ Grindlays Bank Limited and theprivate banking business of ANZ in the United Kingdom and Jersey, together with ANZ Grindlays (Jersey) Holdings
Limited and its subsidiaries, for USD1.3 billion in cash. ANZ provided warranties and certain indemnities relating tothose businesses and, where it was anticipated that payments would be likely under the warranties or indemnities,
made provisions to cover the anticipated liability. The issues below have not impacted adversely the reported results.
All settlements, penalties and costs have been covered within the provisions established at the time.
- FERAIn 1991 certain amounts were transferred from non-convertible Indian Rupee accounts maintained with Grindlays
in India. These transactions may not have complied with the provisions of the Foreign Exchange Regulation Act,
1973. Grindlays, on its own initiative, brought these transactions to the attention of the Reserve Bank of India.
The Indian authorities have served notices on Grindlays and certain of its officers in India and civil penalties havebeen imposed which are the subject of appeals. Criminal prosecutions are pending and will be defended. The
amounts in issue are not material.
- Tax Indemnity

ANZ provided an indemnity relating to tax liabilities of Grindlays (and its subsidiaries) and the Jersey
Sub-Group to the extent to which such liabilities were not provided for in the Grindlays accounts as at 31 July
2000. Claims have been made under this indemnity with no material impact on the Group expected.
#

Contingent tax liability

The Australian Taxation Office (ATO) is reviewing the taxation treatment of certain transactions, including legacy
structured finance transactions, undertaken by the Group in the course of normal business activities. Someassessments have been received which are being challenged in the normal manner.
The Inland Revenue Department (IRD) in New Zealand is reviewing a number of conduit-relieved structured financetransactions as part of normal revenue authority audit procedures. This is part of an industry-wide review by the IRDof these transactions undertaken in New Zealand. The IRD has issued Notices of Proposed Adjustment (the ‘Notices’)
in respect of some of those structured finance transactions. The Notices are not tax assessments and do notestablish a tax liability, but are the first step in a formal dispute process. In addition, the IRD has issued some tax
assessments as a follow up to the Notices in some cases. Should the same position be adopted by the IRD on theremaining transactions of that kind as reflected in the Notices and in the tax assessments received, the maximum
potential tax liability would be approximately NZD523 million (including interest tax effected) for the period to
31 March 2008. Of that maximum potential liability, approximately NZD147 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 andwhich relate to transactions undertaken by the National Bank of New Zealand before December 2003. All of these
conduit-relieved transactions have now either matured or terminated.
Additional audits and other investigations are being undertaken by the IRD, and by revenue authorities in otherjurisdictions, as part of normal revenue authority activity in those countries.
The Company has assessed these and other taxation claims arising in Australia, New Zealand and elsewhere,
including seeking independent advice where appropriate, and considers that it holds appropriate provisions.
#Interbank Deposit Agreement

ANZ has entered into an Interbank Deposit Agreement with the major banks in the payments system. Thisagreement is a payment system support facility certified by the Australian Prudential Regulation Authority, where theterms are such that if any bank is experiencing liquidity problems, the other participants are required to deposit equalamounts of up to $2 billion for a period of 30 days. At the end of 30 days the deposit holder has the option to repay
the deposit in cash or by way of assignment of mortgages to the value of the deposit.
#

Nominee activities

The Group will indemnify each customer of controlled entities engaged in nominee activities against loss suffered byreason of such entities failing to perform any obligation undertaken by them to a customer.

89

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

14. Contingent liabilities, contingent assets and commitments, cont’d#

Clearing and Settlement Obligations

In accordance with the clearing and settlement arrangements set out:
- in the Australian Payments Clearing Association Limited Regulations for the Australian Paper Clearing System, theBulk Electronic Clearing System, the Consumer Electronic Clearing System and the High Value Clearing System(HVCS), the Company has a commitment to comply with rules which could result in a bilateral exposure and loss inthe event of a failure to settle by a member institution; and- in the Austraclear System Regulations and the CLS Bank International Rules, the Company has a commitment toparticipate in loss-sharing arrangements in the event of a failure to settle by a member institution.
For HVCS and Austraclear, the obligation arises only in limited circumstances.
#

New Zealand Commerce Commission

In November 2006, the New Zealand Commerce Commission brought proceedings under the Commerce Act 1986
against Visa, MasterCard and all New Zealand issuers of Visa and MasterCard credit cards, including ANZ National
Bank Limited. The Commission alleges price fixing and substantially lessening competition in relation to the settingof credit card interchange fees and is seeking penalties and orders under the Commerce Act.
Subsequently, several major New Zealand retailers have issued proceedings against ANZ National Bank and the otherabovementioned defendants seeking unquantified damages, based on allegations similar to those contained in theCommerce Commission proceedings. ANZ National Bank is defending the proceedings. At this stage, the risks andany potential liabilities cannot be assessed. The court has now allocated a ten week fixture for the proceedings
beginning in October 2009.
#

Trade Sanctions

On 1 February 2007, following a review of its compliance with United States (US) economic sanctions and discussions
with US regulators, the Group announced that it had curtailed financial transactions with US sanctioned countries andhad taken further action to ensure compliance with US sanction regulations. A small number of transactions, 42 in
total, involved parties from US sanctioned countries. The Group has made voluntary disclosures to US financial
regulators and remains in discussion with US regulators regarding the transactions. The Group has also briefed
Australian and New Zealand regulators. The US sanctions regime includes the possibility of fines. Based on current
knowledge, it is difficult to predict the level of fines. Nonetheless, the Group considers that it holds appropriate
provisions for these issues.
#

Opes Prime Stockbroking Limited

There are outstanding court proceedings and claims against the Group in relation to the Opes Prime Stockbroking
Limited receivership. No material loss is expected.
#

ING New Zealand Funds

ANZ markets and distributes a range of wealth management products in New Zealand, which are managed by
ING (NZ) Limited (of which ANZ holds 49%). Trading in the New Zealand ING Diversified Yield Fund and the ING
Regular Income Fund was suspended on 13 March 2008 by the fund manager, ING (NZ) Limited, due to thedeterioration in liquidity in credit markets.
The matter is being reviewed by both ANZ and ING(NZ) and it is too early to assess the nature or quantum of any
potential liability.
Contingent assets#

National Housing Bank

In 1992, Grindlays received a claim aggregating to approximately Indian Rupees 5.06 billion from the National
Housing Bank (NHB) in India. The claim arose out of cheques drawn by NHB in favour of Grindlays, the proceeds ofwhich 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 theSpecial Court of Mumbai, after which Grindlays filed an appeal with the Supreme Court of India. Grindlays paid thedisputed money including interest into court. Ultimately, the parties settled the matter and agreed to share themonies paid into court which by then totalled Indian Rupees 16.45 billion (AUD 661 million at 19 January 2002
exchange rates), with Grindlays receiving Indian Rupees 6.20 billion (AUD 248 million at 19 January 2002 exchange
rates) of the disputed monies. ANZ in turn received a payment of USD124 million (USD 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 recovered $114 million in 2006 from its insurers in respect of the above.
In addition, ANZ is entitled to share with NHB in the proceeds of any recovery from the estate of the customer whose
account was credited with the cheques drawn from NHB. However, the Indian Taxation Department is claiming astatutory priority to all of the funds available for distribution to creditors of that customer. The Special Court passed
an order in late 2007 scaling down the Income Tax Department’s priority, an order that has now been appealed by
the Income Tax Department to the Supreme Court of India. The appeal is expected to be heard in mid to late 2008.
90

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

15. Note to the Cash Flow Statement(a) Reconciliation of profit after income tax to net cash provided by operating activities
Half
Half
Half
year
year
year
Mar 08
Sep 07
Mar 07
Inflows
Inflows
Inflows(Outflows) (Outflows) (Outflows)$M$M$M
Reconciliation of profit after income tax to net cash provided
by operating activities
Profit after income tax

1,963

2,078

2,102

Adjustments to reconcile to net cash provided by operating activities
Provision for credit impairment

980

327

240

Depreciation and amortisation

166

166

149

Profit on sale of businesses

(2)

(79)

(155)

Provision for employee entitlements, restructuring
and other provisions

224

214

122

Payments from provisions

(257)

(109)

(198)

(Profit) loss on sale of premises and equipment

(30)

(30)

(3)

(Profit) loss on sale of available-for-sale securities

(358)

3

(17)

Amortisation of discounts/premiums included in interest income

(88)

(49)

(31)

5

34

(27)

Net foreign exchange earnings

(325)

(279)

(232)

Net gains/losses on trading derivatives

(258)

(218)

(198)
(5,382)

1

Share based payments reserve(Increase)/decrease in operating assets:

Trading securities

273

(531)

(1,919)(2,545)

903

(813)

(52)

(358)

Loans and advances(29,527)(23,880)(13,063)

Net derivative financial instruments(3,005)(1,395)(759)

Regulatory deposits

(88)

(29)

(25)

Interest receivable

Liquid assets - greater than three months
Due from other banks - greater than three months

(131)

25

(81)

Accrued income

8

(13)

(10)

Net tax assets

(560)

6

(209)

Deposits and other borrowings

30,20826,826

7,138

Due to other financial institutions

1,197

3,451

875

Payables and other liabilities(1,624)

159

(136)

Interest payable

13

382

(15)

Accrued expenses

25

63

(40)

Increase/(decrease) in operating liabilities:

(39)

(96)

(80)

(3,962)

4,429(9,490)Liquid assets - less than three months

11,35912,307

13,089Due from other financial institutions - less than three months

9,799

6,767

5,165

21,15819,074

18,254

1,344

340

102

Other
Net cash provided by/(used in) operating activities(b) Reconciliation of cash and cash equivalents
Reconciliation of cash and cash equivalents
Cash at the end of the period as shown in the statement ofcash flows is reconciled to the related items in the balance sheet as
follows

Non-cash financing activities
Share capital issues
Dividend reinvestment plan2

1.

Includes $353 million gain arising from the allocation of shares in Visa Inc.

2.

The dividend reinvestment plan is fully underwritten

91

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

16. Segment analysis
The following analysis shows revenue and the result for each business segment.

Segment Revenue1

Half
year
Mar 08
$M

Half
year
Sep 07
$M

Half
Movt
Movt
year
Mar 08Mar 08Mar 07 v. Sep 07 v. Mar 07$M%%

Personal

2,383

2,293

2,148

4%

11%

Institutional

1,982

1,792

1,714

11%

16%

New Zealand Businesses

1,111

1,113

1,055

0%

5%

479

379

333

26%

44%

Asia Pacific
INGA
2

Other

less: Institutional Asia Pacific3

77

81

75

-5%

3%

597

249

410

large

46%

(192)

(135)

(122)

42%

57%

6,437

5,772

5,613

12%

15%

Segment result4
1,030

971

924

6%

11%

Institutional

573

1,022

1,088

-44%

-47%

New Zealand Businesses

533

548

511

-3%

4%

Asia Pacific

237

188

160

26%

48%

Personal

76

80

75

-5%

1%

Other

427

154

309

large

38%

less: Institutional Asia Pacific3

(120)

(85)

(80)

41%

50%

2,756

2,878

2,987

-4%

-8%

INGA
2

1.

Segment revenue includes equity standardised net interest income and other income

2.

Other includes Private Bank, Treasury, Operations, Technology and Shared Services, Corporate Centre, Risk Management and Group Financial Management.
Other also includes non-core items and Esanda Fleetpartners discontinued business

3.

Institutional Asia Pacific is included in both Institutional and Asia Pacific business units consistent with how this business is internally managed (referpage 35)

4.

Segment result represents equity standardised profit before income tax expense

17. Changes in composition of the GroupAcquisition of material controlled entities

There were no material controlled entities acquired during the half year to 31 March 2008.
In the half year ended 30 September 2007, ANZ obtained a controlling interest in ETRADE Australia Limited at a cost of$319 million. In addition, the Group obtained a 100% interest in Diversified Infrastructure Trust (Stadium Australia) at a
cost of $174 million.
Disposal of material controlled entities

In March 2008, the Group disposed of 46% of its investment in Diversified Infrastructure Trust (Stadium Australia). Dueto the distribution of voting power to non-ANZ unit holders, ANZ no longer holds a controlling interest.
On 31 October 2006, the controlled entities Fleet Partners Pty Limited and Truck Leasing Limited were sold. The profit
before tax on disposal was $195 million (tax impact: $nil).

92

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

18. Associates, joint venture entities and investments

Profit after income tax

Half
year
Mar 08
$M

Half
year
Sep 07
$M

Half
year
Mar 07
$M

219

138

121

Key contributions to profit1
Contribution toGroup pre-tax profit

Associates

Ownership interest
held by Group

Half
year
Mar 08
$M

Half
year
Sep 07
$M

Half
year
Mar 07$M

As at
Mar 08
%

%

%

13

14

12

30

30

30

P.T. Bank Pan Indonesia

As at
Sep 07As at
Mar 07

Metrobank Card Corporation Inc

4

4

3

40

40

40

Bank of Tianjin

8

9

10

20

20

20

AMMB Holdings Berhad2

21

14

-

19

19

-

Shanghai Rural Commercial Bank3

11

1

-

20

20

-

4

72

-

-

15

15

15

Cards NZ Limited
Joint ventures

ING Australia Limited

75

78

74

49

49

49

ING (NZ) Holdings Limited

10

11

9

49

49

49

1.

The results may differ from the published results of these entities due to the application of AIFRS, Group Policies and acquisition adjustments

2.

An associate from 18 May 20073.

An associate from 20 September 2007

4.

Equity accounted gain arising from the allocation of shares in Visa Inc. through the Group’s associate, Cards NZ Limited, on Visa shares in New Zealand

19. Special purpose and off balance sheet entities
The Group may invest in or establish special purpose entities (SPEs) to enable it to undertake specific types oftransactions. The main types of these SPEs are securitisation vehicles, structured finance entities, and entities used tosell credit protection.
Where the Group has established SPEs which are controlled by the Group to facilitate transactions undertaken for Grouppurposes, these are consolidated in the Group’s financial statements. The Group does not consolidate SPEs that it does
not control in accordance with the Group’s policy outlined in Note 1(ii) on page 72. As it can sometimes be difficult todetermine whether the Group has control of an SPE, it makes judgments about its exposure to the risks and rewards, aswell as about its ability to make operational decisions for the SPE in question.
The table below summarises the main types of SPEs that are not consolidated into the Group, the reason for theirestablishment, and the key risks associated with them. ANZ does not bear the majority of residual risks and rewards ofthese SPEs.
SPE Assets
As at
As at
Mar 08
Sep 07
Type of SPE

Reason for establishment

Key risks

Securitisation
vehiclesAssets are transferred to an SPE whichfunds the purchase by issuing securities.
This enables ANZ or customers toincrease diversity of funding sources.
The amount disclosed here is the total
assets of SPEs managed or arranged by
ANZ. It includes SPEs that purchaseassets from sellers other than ANZ.

ANZ may manage securitisation vehicles,
service assets in a vehicle or provide
liquidity or other support and retains therisks associated with the provision of

Structured

These entities are set up to assist withfinance entities2 the structuring of client financing.
Creditprotection

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

$M

$M

7,583

7,786

n/a

n/a

2,145

2,145

these services1. Credit and market risks
associated with the underlying assets are
not retained or assumed by ANZ except
to the limited extent that ANZ provides
arm's length services and facilities.
ANZ may manage these vehicles and also
provide derivatives.
ANZ may manage these vehicles.

1.

Liquidity support facilities provided in relation to ANZ sponsored securitisation vehicles totalled $5.8 billion (Sep 2007: $5.9 billion), of which $2.1 billion(Sep 2007: $2.9 billion) had been drawn as at that date2.

ANZ’s net investment in the structured finance entities is $172 million (Sep 2007: $229 million)

93

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

20. Related party disclosure
There have been no significant changes to the arrangements with related parties, refer Notes 48 and 49 of the 2007
Annual Report.

21. Exchange rates
Major exchange rates used in translation of results of offshore controlled entities and branches into the Group’s accounts
for each reporting period were as follows:
Balance sheet
As at
Mar 08

Profit and loss average

As at
Sep 07As at
Mar 07Halfyear
Mar 08Halfyear
Sep 07Halfyear
Mar 070.5983Euro

0.57950.62230.60540.60910.6161

Great British pound

0.45890.43550.41130.44630.4186

0.4020

New Zealand dollar

1.15501.1643

1.1312

1.15421.13011.1359

United States dollar

0.91580.88160.80770.89760.8386

0.778022. Significant events since balance dateSince balance date, the Group has announced a review into ANZ’s involvement in the Securities Lending industry and inparticular events surrounding the Opes Prime Stockbroking Limited receivership. The Australian Securities andInvestments Commission is also conducting an investigation into Opes Prime Stockbroking Limited. As outlined in
Note 14, there are court proceedings and claims against the Group in relation to the Opes Prime Stockbroking
receivership. No material loss is expected.
There have been no other significant events from 31 March 2008 to the date of this report.

94

DIRECTORS’ DECLARATION

The directors of Australia and New Zealand Banking Group Limited declare that:
1. in the directors’ opinion the financial statements and notes of the consolidated entity set out on pages 65 to 94 are inaccordance with the Corporations Act 2001 (as amended), including:(a) that they comply with the Australian Accounting Standard AASB 134: ‘Interim Financial Reporting’, and the
Corporations Regulations 2001; and(b) that they give a true and fair view of the financial position of the consolidated entity as at 31 March 2008 and of its
performance as represented by the results of its operations and cash flows for the half year ended on that date; and2. in the directors’ opinion at the date of this declaration there are reasonable grounds to believe that the Company will beable to pay its debts as and when they become due and payable.
Signed in accordance with a resolution of the directors.

Charles Goode
ChairmanMichael R P Smith
Director

22 April 200895

AUDITORS’ REVIEW REPORT AND INDEPENDENCE DECLARATION

Independent auditors’ review report to the members of Australia and New Zealand Banking Group Limited
Report on the Financial Report

We have reviewed the accompanying interim financial report of Australia and New Zealand Banking Group Limited (“theCompany”), which comprises the consolidated interim condensed balance sheet as at 31 March 2008, condensed income
statement, statement of recognised income and expense and cash flow statement for the half year ended on that date, adescription of significant accounting policies and other explanatory Notes 1 to 22 and the directors’ declaration set out on
pages 68 to 95 of the consolidated entity comprising the Company and the entities it controlled at the half year’s end or fromtime to time during the half year.
Directors’ responsibility for the Financial Report
The directors of the Company are responsible for the preparation and fair presentation of the half year financial report inaccordance with Australian Accounting Standard AASB 134: Interim Financial Reporting and the Corporations Act 2001. This
responsibility includes establishing and maintaining internal control relevant to the preparation and fair presentation of thehalf year financial report that is free from material misstatement, whether due to fraud or error; selecting and applying
appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Auditors’ responsibility
Our responsibility is to express a conclusion on the half year financial report based on our review. We conducted our review
in accordance with Auditing Standard on Review Engagements ASRE 2410: Review of an Interim Financial Report Performedby the Independent Auditor of the Entity, in order to state whether, on the basis of the procedures described, we havebecome aware of any matter that makes us believe that the half year financial report is not in accordance with the
Corporations Act 2001 including: giving a true and fair view of the consolidated entity’s financial position as at 31 March 2008
and its performance for the half year ended on that date; and complying with Australian Accounting Standard AASB 134:
Interim Financial Reporting and the Corporations Regulations 2001. As auditor of Australia and New Zealand Banking Group
Limited, ASRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial
report.
A review of a half year financial report consists of making enquiries, primarily of persons responsible for financial andaccounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an
audit conducted in accordance with Australian Auditing Standards and consequently does not enable us to obtain assurance
that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express anaudit opinion.
Conclusion
Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the halfyear financial report of Australia and New Zealand Banking Group Limited is not in accordance with the Corporations Act
2001, including:(a)giving a true and fair view of the consolidated entity’s financial position as at 31 March 2008 and of its performance forthe half year ended on that date; and(b)complying with Australian Accounting Standard AASB 134: Interim Financial Reporting and the Corporations Regulations
2001.

KPMG
MelbourneMichelle Hinchliffe
Partner

22 April 2008

Lead Auditor’s Independence Declaration under section 307C of the Corporations Act 2001
To the directors of Australia and New Zealand Banking Group Limited
I declare that, to the best of my knowledge and belief, in relation to the review for the half year ended 31 March 2008 there
have been:(a)no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to thereview; and(b)no contraventions of any applicable code of professional conduct in relation to the review.

KPMG
MelbourneMichelle Hinchliffe
Partner

22 April 2008
96

SUPPLEMENTARY INFORMATION

Capital management

Qualifying CapitalBasel II
As at
Mar 08Basel IAs at
Sep 07

Basel I
As at
Mar 07$M$M$M

23,96422,04820,910(1,827)(2,318)(2,120)22,137

19,73018,790Tier 1
Shareholders' equity and outside equity interests
Table 1

Prudential adjustments to shareholders' equity
Fundamental Tier 1 capital
Non-innovative Tier 1 capital instrument
Innovative Tier 1 capital instruments
Gross Tier 1 capital
Deductions

Table 2

Transitional Tier 1 capital relief
Tier 1 capital

981

1,033

-

3,072

3,119

3,233

26,19023,882

22,023(7,882)(6,170)(5,943)

-

716

716

18,30818,428

16,796

938

2,296

2,320
8,398

Tier 2Upper Tier 2 capital

Table 3

Subordinated notes

Table 4

9,093

8,826

Deductions

Table 2

(1,354)

-

-

8,677

11,122

10,718-(1,837)(1,810)26,98527,71325,70418,30818,428

16,796(981)(1,033)-(3,064)(3,052)(3,188)Tier 2 capital
Deductions

Table 5

Total qualifying capital
Adjusted Common Equity
Tier 1 capital
Less: Non-innovative Tier 1 capital instrument
Innovative Tier 1 capital instruments

1

1

Transitional Tier 1 capital relief

-

(716)

(716)

(1,354)(1,837)(1,810)12,909

11,79011,082Tier 1

6.9%

6.7%

6.7%

Tier 2

3.2%

4.1%

4.3%

10.1%

10.8%

11.0%

Deductions

2

Adjusted Common Equity (ACE)Capital adequacy ratios

Deductions

0.0%

-0.7%

-0.7%

Total

10.1%

10.1%

10.3%

Adjusted Common Equity

4.8%

4.3%

4.4%

267,486

275,018

250,485

Risk Weighted Assets

Table 6

1.

Converted at balance date spot rates

2.

Under Basel II, comprises Tier 2 component of deductions taken 50% from Tier 1 and 50% from Tier 2

97

SUPPLEMENTARY INFORMATION (continued)

Capital management, cont’dBasel II
As at
Mar 08Basel IAs at
Sep 07

Basel I
As at
Mar 07$M$M$M

Reclassification of preference share capital

(871)

(871)

(871)

Accumulated retained profits and reserves of insurance, funds
management and securitisation entities and associates

(533)

(398)

(386)

Deferred fee revenue including fees deferred aspart of loan yields

340

306

314

Hedging reserve(140)

Table 1: Prudential adjustments to shareholders' equity

(145)

(153)

Available-for-sale reserve

97

(97)

(2)

Dividend not provided for(1,192)(1,381)(1,144)

Accrual for Dividend Reinvestment Plans

477

276

109

(1,827)(2,318)(2,120)(4,972)(4,911)(4,039)

Capitalised software

(509)

(462)

(425)

Capitalised expenses including loan and lease origination fees,
capitalised securitisation establishment costs and costs associatedwith debt raisings

(619)

(602)

(575)

Applicable deferred tax assets (excluding the component relating
to the general reserve for impairment of financial assets)

(103)

(57)

(85)

Investment in ANZ Lenders Mortgage Insurance

-

(101)

(31)

Current estimate of goodwill component of purchase commitments

-

-

(792)

Total
Table 2: Deductions from Tier 1 capital
Unamortised goodwill & other intangibles

Earnings not recognised for prudential purposes

(113)

-

-

Other deductions

(212)

(37)

4

(6,528)(6,170)(5,943)Sub-total
Deductions taken 50% from Tier 1 and 50% from Tier 2

Gross

50%

Investment in ANZ Lenders Mortgage Insurance

(106)

-

-

Investment in Funds Management and Securitisation entities

(68)

-

-

Investment in joint ventures with ING in Australia
and New Zealand

(525)

-

-

(1,136)--

Investment in other Authorised Deposit Taking Institutions
and overseas equivalents
Expected losses in excess of eligible provisions

(717)

-

-

Investment in other commercial operations

(54)

-

-

-

-

Other deductions(102)

Sub-total(2,708)(1,354)--(7,882)(6,170)(5,943)

Eligible component of post acquisition earnings and reserves inassociates and joint ventures

254

197

210

Perpetual subordinated notes

678

690

721

6

1,392

1,372

Total
Table 3: Upper Tier 2 capital

General reserve for impairment of financial assets net of
attributable deferred tax asset

1

Transitional Upper Tier 2 capital relief
Total
1.

-

17

17

938

2,296

2,320

Under Basel II, this consists of the surplus of the general reserve for impairment of financial assets net of tax and/or the provisions attributable to the standardised
portfolio

98

SUPPLEMENTARY INFORMATION (continued)

Capital management, cont’dBasel II
As at
Mar 08Basel IAs at
Sep 07

Basel I
As at
Mar 07$M$M$M

Table 4: Subordinated notes
For capital adequacy calculation purposes, subordinated note issues are reduced by
20% of the original amount over the last four years to maturity and are limited to 50% of Tier 1 capital.
Table 5: Deductions from Total capital1
Investment in Funds Management and Securitisation entities

-

(85)

(88)

Investment in joint ventures with ING in Australia and New Zealand

-

(525)

(526)

Investment in other Authorised Deposit Taking Institutions (ADIs)
and overseas equivalents-(1,025)(386)

Investment in other commercial operations

-

(124)

(88)

Current estimate of purchase commitments

-

-

(627)

Other

-

(78)

(95)

Total

-

(1,837)(1,810)On balance sheet

174,117

236,883

215,421

Commitments

50,013

15,791

15,054

Contingents

14,95812,018

11,629Derivatives

10,098

8,379

6,191

Total credit risk

249,186

273,071248,295

Market risk

1,912

1,947

2,190

Operational risk

16,388--

Total risk weighted assets

267,486

275,018

250,485

Table 6: Risk weighted assets2

1.

Not applicable under Basel II

2.

Risk weighted asset data is based on risk weighted asset calculations as at 29 February 2008 adjusted for estimated movements during March 2008

99

SUPPLEMENTARY INFORMATION (continued)

Average balance sheet and related interest
Averages used in the following tables are predominantly daily averages. Interest income figures are presented on a
tax-equivalent basis. Impaired loans are included under the interest earning asset category, ‘loans and advances’.
Intra-group interest earning assets and interest bearing liabilities are treated as external assets and liabilities for thegeographic segments.

Half year Mar 08
Ave bal
Int
Rate
$M
$M
%

Half year Sep 07
Ave bal
Int
Rate
$M
$M
%

Half year Mar 07
Ave bal
Int
Rate
$M
$M
%

Interest earning assets
Due from other financial institutions
Australia

2,880

90

6.3%

1,825

51

5.6%

2,199

New ZealandOverseas Markets

1,304

48

7.4%

5,738

128

4.5%

Australia

22,345760

6.8%

19,951New Zealand

2,246

91

8.1%

2,763

Overseas Markets

5,913

153

5.2%

4,401

121

Australia

213,079

8,814

8.3%

193,474

New Zealand

78,468

3,754

9.6%

75,958Overseas Markets

16,489530

6.4%

10,63515,027

642

8.5%

387

11

5.7%

Australia

3,973

161

New Zealand

5,417

225

Overseas Markets

6,174

Australia
Overseas Markets

63

5.7%

1,427

51

7.2%

5,236

139

5.3%

1,770

59

6.7%

4,735

125

5.3%

645

6.5%

16,367

512

6.3%

111

8.0%

2,639

101

7.7%

5.5%

3,406

94

5.5%

7,649

7.9%

183,663

7,104

7.8%

3,463

9.1%

70,881

3,073

8.7%

384

7.2%

10,138377

7.5%

13,926542

7.8%

13,777

512

7.5%

335

11

6.8%

251

7

5.6%

8.1%

4,398

181

8.2%

5,192

174

6.7%

8.3%

5,160

215

8.3%

4,948

189

7.7%

205

6.6%

3,516

129

7.3%

3,701

128

6.9%

4,984

186

7.5%

4,048

158

7.8%

1,766

75

8.5%

1,527

48

6.3%

3,208

87

5.4%

4,883

141

5.8%

385,951

15,846350,261

13,937

330,316

12,734(6,511)(234)(7,256)(245)(6,649)(216)

379,440

15,612

343,005

13,692

323,667

12,518

Trading and available-for-sale assets

Loans and advances

Customers' liability for acceptances
Australia
Overseas Markets
Other assets

Intragroup assets

Intragroup elimination

8.2%

8.0%

Non-interest earning assets
Derivatives
Australia

24,70914,87910,526

New Zealand

6,037

4,437

2,010

Overseas Markets

1,605

1,544

(216)

Premises and equipment

1,559

1,460

1,176

Other assets

15,617

14,412

14,225

Provisions for credit impairment
Australia(1,785)(1,726)(1,650)

New Zealand

(427)

(409)

(414)

Overseas Markets

(184)

(166)

(169)

Total average assets

47,131

34,431

25,488426,571377,436

349,155

100

7.8%

SUPPLEMENTARY INFORMATION (continued)

Average balance sheet and related interest, cont’d
Half year Mar 08
Ave bal
Int
Rate
$M
$M
%

Half year Sep 07
Ave bal
Int
Rate
$M
$M
%

Half year Mar 07
Ave bal
Int
Rate
$M
$M
%

Interest bearing liabilities
Time deposits
Australia

66,833

2,310

6.9%

51,439

1,640

6.4%

46,548

1,430

6.2%

New Zealand

29,791

1,214

8.2%

29,270

1,110

7.6%

27,283985

7.2%

Overseas Markets

22,336524

4.7%

15,763402

5.1%

14,477379

5.3%

Australia

17,975366

4.1%

16,900312

3.7%

16,171285

3.5%

New Zealand

1,958

31

3.2%

2,414

38

3.1%

2,628

43

3.3%

590

4

1.4%

516

2

0.8%

492

2

0.8%

Australia

54,452

1,532

5.6%

49,031

1,279

5.2%

44,898

1,132

5.1%

New Zealand

15,995546

6.8%

16,461536

6.5%

15,412462

6.0%

Overseas Markets

1,315

11

1.7%

1,115

13

2.3%

1,217

16

2.6%

Australia

7,199

226

6.3%

8,568

263

6.1%

6,735

202

6.0%

New Zealand

1,875

58

6.2%

2,037

61

6.0%

1,638

43

5.3%

Overseas Markets

11,100

260

4.7%

7,921

207

5.2%

5,521

150

5.4%

Australia

9,572

338

7.1%

9,473

306

6.4%

10,492330

6.3%

New Zealand

9,726

427

8.8%

7,195

297

8.2%

5,933

228

7.7%

-

-

-

-

-

-

1,858

49

5.3%

Australia

8,636

293

6.8%

8,595

273

6.3%

8,910

271

6.1%

New Zealand

1,532

63

8.2%

1,667

63

7.5%

1,777

64

7.2%

15,027555

7.4%

13,926462

6.6%

13,777

436

6.3%

387

11

5.7%

335

11

6.5%

251

6

4.8%

Australia

60,958

2,188

7.2%

58,208

1,936

6.6%

52,932

1,717

6.5%

New Zealand

13,922615

8.8%

11,967506

8.4%

11,715

452

7.7%

429

13

6.1%

491

15

6.1%

131

4

6.1%

Savings deposits

Overseas Markets
Other demand deposits

Due to other financial institutions

Commercial paper

Overseas Markets
Borrowing corporations' debt

Liability for acceptances
Australia
Overseas Markets
Loan capital, bonds and notes

Overseas Markets
1

Other liabilities
Australia

4,050

180

n/a

5,444

192

n/a

5,022

162

n/a

New Zealand

77

54

n/a

109

60

n/a

155

37

n/a

Overseas Markets

52

13

n/a

338

17

n/a

505

22

n/a

6,511

234

7.2%

7,256

245

6.7%

6,649

216

6.5%

362,298

12,066

326,439

10,246303,127

9,123

Intragroup liabilities
New Zealand
Intragroup elimination(6,511)(234)

355,787

11,832

6.7%(7,256)(245)

319,183

10,001

6.2%(6,649)(216)

296,478

8,907

Non-interest bearing liabilities
Deposits
Australia

4,904

4,810

4,657

New Zealand

3,772

3,796

3,860

Overseas Markets

1,187

1,291

1,149

Australia

23,317

13,103

10,328

New Zealand

4,476

3,693

2,066

Overseas Markets(1,002)

(701)

(287)

Other liabilities

11,33011,312

10,39647,98437,30432,169Total average liabilities

403,771356,487

328,647

Derivatives

1.

Includes foreign exchange swap costs

101

6.0%

SUPPLEMENTARY INFORMATION (continued)

Average balance sheet and related interest, cont’d
Half
year
Mar 08
$M

Half
year
Sep 07
$M

Half
year
Mar 07$M

Australia

294,216

258,872

240,448

New Zealand

96,76893,541

86,383

Overseas Markets

42,09832,27928,973(6,511)(7,256)(6,649)426,571377,436

349,155

32.2%

32.5%

31.6%

Australia

262,288237,622

222,964

New Zealand

87,43585,30880,238Overseas Markets

36,22827,331

27,114(6,511)(7,256)(6,649)379,440

343,005

323,667

Australia

280,957

247,067

228,407

New Zealand

91,00187,75080,582

Overseas Markets

38,32428,92626,307(6,511)(7,256)(6,649)403,771356,487

328,647

30.4%

30.7%

30.5%

21,92920,078

19,637

871

871

871

22,80020,94920,508426,571377,436

349,155

Total average assets

less intragroup elimination% of total average assets attributable to overseas activities
Average interest earning assets

less intragroup elimination

Total average liabilities

less intragroup elimination% of total average liabilities attributable to overseas activities
Total average shareholders' equity
Ordinary share capital, reserves and retained earnings
Preference share capital
Total average liabilities and shareholders' equity

102

SUPPLEMENTARY INFORMATION (continued)

Average balance sheet and related interest, cont’d
Half
year
Mar 08%Halfyear
Sep 07%Halfyear
Mar 07%Australia

8.12

7.74

7.59

New Zealand

9.42

8.98

8.55

Overseas Markets

5.94

6.36

6.45

Total Group

8.23

7.96

7.76

Gross interest spread

1.60

1.75

1.78

Interest foregone on impaired assets(0.01)(0.01)(0.01)

Gross earnings rate1

Interest spread and net interest average margin may be analysed as follows:

Australia

Net interest spread

1.59

1.74

1.77

Interest attributable to net non-interest bearing items

0.44

0.41

0.47

Net interest margin - Australia

2.03

2.15

2.24

New ZealandGross interest spread

1.46

1.56

1.63

Interest foregone on impaired assets(0.01)(0.01)(0.01)Net interest spread

1.45

1.55

1.62

Interest attributable to net non-interest bearing items

0.55

0.61

0.61

Net interest margin - New Zealand

2.00

2.16

2.23

Gross interest spread

1.35

1.36

1.33

Interest foregone on impaired assets(0.02)(0.03)(0.03)

Overseas Markets

Net interest spread

1.33

1.33

1.30

Interest attributable to net non-interest bearing items

0.00

0.16

0.50

Net interest margin - Overseas Markets

1.33

1.49

1.80

Group
Gross interest spread

1.58

1.72

1.75

Interest foregone on impaired assets(0.01)(0.01)(0.01)Net interest spread

1.57

1.71

1.74

Interest attributable to net non-interest bearing items

0.42

0.44

0.50

Net interest margin

1.99

2.15

2.24

1.

Average interest rate received on interest earning assets

103

SUPPLEMENTARY INFORMATION (continued)

Derivative financial instruments
Derivatives

Derivative instruments are contracts whose value is derived from one or more underlying financial instruments or indices.
They include swaps, forward rate contracts, futures, options and combinations of these instruments. The use of derivatives
and their sale to customers as risk management products is an integral part of the Group’s trading activities. Derivatives arealso used to manage the Group’s own exposure to fluctuations in exchange and interest rates as part of its asset and liability
management activities. Derivatives are subject to the same types of credit and market risk as other financial instruments,
and the Group manages these risks in a consistent manner.
The following table provides an overview of the Group’s exchange rate, interest rate, commodity and credit derivatives. It
includes all contracts, both trading and hedging.
Notional principal amount is the face value of the contract and represents the volume of outstanding transactions. Fair value
is the net position of contracts with positive market values and negative market values.

As at 31 March 2008
Notional
Principal
amountAssets$M$M

As at 30 September 2007

Liabilities

Notional
Principal
amountAssetsLiabilities

$M

$M

$M

$M

Total fair value

Total fair value

Foreign exchange contracts
Spot and forward contracts

264,212

4,404(4,564)278,479

4,637(6,570)Swap agreements

185,882

9,075(8,078)141,881

6,710(6,907)

Futures contracts

307

8

(11)

144

7

(6)

Options purchased

5,809

548

-

6,476

1,047

-

Options sold

12,373

-

(528)

9,718

-

(1,001)

Collateral1-(2,856)2,966-(1,875)

1,612

468,583

11,179(10,215)436,698

10,526(12,872)

7,764

1,707

(1,817)

15,4291,664(1,600)Commodity Contracts
Derivative contracts
Interest rate contracts
Forward rate agreements

103,6179(9)137,039

15(15)

Swap agreements

1,043,891

12,853(12,082)

944,079

8,639(8,300)Futures contracts

55,3091,928(1,959)96,815979(996)

Options purchased

17,421229-

26,621

142-

Options sold26,856-(210)

22,711-(115)

Other contracts

814

35

(46)

-

-

-

1,247,908

15,054(14,306)

1,227,265

9,775(9,426)23,392

1,541

(35)

21,946223(84)

22,29329(1,458)18,66584(198)

45,685

1,570(1,493)40,611307(282)

1,769,940

29,510(27,831)1,720,003

22,272(24,180)

Credit default swaps
2

Credit derivatives purchased
2

Credit derivatives sold
Total
1.

Collateral relates predominantly to Foreign Exchange contracts

2.

Includes credit derivatives purchased and sold in credit intermediation trades

104

DEFINITIONSAAS - Australian Accounting Standards (also known as AIFRS).
AASB - Australian Accounting Standards Board.
Adjusted Common Equity (ACE) is Tier 1 capital less preference shares and other Hybrid Capital at current exchange
rates, regulatory deductions from total capital and transitional capital relief as approved by the Australian Prudential
Regulation Authority (APRA).
AIFRS - Australian Equivalents to International Financial Reporting Standards (also known as AAS).
Business Unit description:
Personal
Personal is a division comprising Mortgages, Banking Products, Consumer Finance, Rural Commercial & Agribusiness
Products, Small Business Banking Products, Esanda, Investment and Insurance Products, and a number of other areas,
including the branch network and marketing and support costs in Australia.
- Mortgages provides housing finance to consumers in Australia for both owner occupied and investment purposes.
- Banking Products provides transaction banking and savings products, such as term deposits, V2+ and cash
management accounts.
- Consumer Finance provides consumer and commercial credit cards, ePayment products, personal loans, merchantpayment facilities in Australia and ATM facilities.
- Rural Commercial & Agribusiness Products provides a full range of banking services to personal customers and tosmall business and agribusiness customers in rural and regional Australia.
- Small Business Banking Products provides a full range of banking services for metropolitan-based small businesses inAustralia with unsecured loans up to $100,000.
- Esanda provides motor vehicle and equipment finance, operating leases and investment products.
- Investments and Insurance Products comprises ANZ Australia’s Financial Planning, Margin Lending, insurance
distribution and Trustees businesses in addition to ETrade, an online broking business.
Institutional
Institutional division provides a full range of financial services principally to Australia and New Zealand corporate andinstitutional customers in all geographies. Institutional has a major presence in Australia and New Zealand and also has
operations in Asia, Europe and the United States.
- Working Capital provides working capital solutions including lending and deposit products, cash transaction banking
management, trade finance, international payments, securities lendings, clearing and custodian services principally toinstitutional and corporate customers.
- Markets provides risk management services to corporate and institutional clients globally in relation to foreign exchange,interest rates, credit and commodities. This includes the business providing origination, underwriting, structuring andrisk management services, advice and sale of credit and derivative products globally. Markets also manages the Group’s
interest rate risk position.
- Business Banking provides a full range of banking services, including risk management, to metropolitan based small to
medium sized business clients with up to $50 million turnover.
- Relationship Lending manages the Institutional and Corporate balance sheets with a particular focus on credit quality,
diversification and maximising risk adjusted returns.
- Corporate Finance (excluding Relationship Lending) provides complex financing and advisory services, structured
financial products, leasing, private equity finance, project finance, leveraged finance and infrastructure investment
products to our global client set.
- Relationships & Infrastructure includes Institutional Banking, Financial Institutions and Corporate Banking. These
units are our client relationship teams for our global Institutional and Financial Institutions customers, and our Corporate
customers in Australia.
- Non-continuing business includes the London headquartered project finance business, the run-off of New Zealandconduit transactions and certain structured finance transactions that ANZ has exited.
New Zealand Businesses
New Zealand Businesses includes the following:- National Bank Retail, operating under the National Bank brand in New Zealand, provides a full range of banking
services to personal and business banking customers.
- ANZ Retail, operating under the ANZ brand in New Zealand, provides a full range of banking services to personal andbusiness banking customers.
- Corporate & Commercial Banking incorporates the ANZ and National Bank brands 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 of banking services to rural and agribusiness customers.
- Private Banking and Retail Specialist Units includes ANZ’s 49% stake in ING New Zealand, Private Banking operating
under the ANZ and National Bank brands and Bonus Bonds.
- UDC provides motor vehicle and equipment finance, operating leases and investment products.
- Central Support includes Treasury funding and shared services.

105

DEFINITIONS (continued)‘

Business Unit description, continued:
Asia PacificAsia Pacific includes the following:- Retail Asia includes the Personal and Private Banking Asia business.
- Asian Partnerships is a portfolio of strategic retail partnerships in Asia. This includes partnerships in Indonesia withPT Panin Bank, in the Philippines with Metrobank, in Cambodia with the Royal Group, in China with Bank of Tianjin andShanghai Rural Commercial Bank, in Malaysia with AMMB Holdings Berhad and in Vietnam with investments in
Sacombank and Saigon Securities Incorporation.
- Institutional Asia Pacific includes the trade finance, relationship lending, markets and corporate finance businesses in
Asia and foreign exchange activities in the Pacific region- Retail Pacific provides retail and corporate banking services to customers in the Pacific Region.
- Executive & Support includes the central support functions for the division.
INGA
INGA includes the equity accounted earnings from our 49% stake in ING Australia Ltd, a joint venture between ANZ and ING.
Group Centre- Group Centre includes Operations, Technology & Shared Services, Treasury (funding component), Group People Capital,
Group Strategic Development, Group Financial Management, Group Risk Management, Capital Funding and Group Items.
- Private Bank specialises in assisting high net worth individuals and families to manage, grow and preserve their assets.
The contribution of the Private Bank business in the Group Centre includes only sales commissions. Other revenue
earned is recognised in Personal division.
‘

Collective provision is the Provision for Credit Losses that are inherent in the portfolio but not able to be individually
identified; presently unidentified impaired assets. A collective provision may only be recognised when a loss event has
already occurred. Losses expected as a result of future events, no matter how likely, are not recognised.
‘

Customer deposits represent term deposits, other deposits bearing interest, deposits not bearing interest and borrowing
corporations debt excluding collateralised loan obligation and securitisation vehicle funding.
‘

Expected loss is determined based on the expected average annual loss of principal over the economic cycle for the current
risk profile of the lending portfolio.
Equity standardisation Economic Value Added (EVATM) principles are in use throughout the Group, whereby risk adjusted
capital is allocated and charged against business units. Equity standardised profit is determined by eliminating the impact ofearnings on each business unit’s book capital and attributing earnings on the business unit’s risk adjusted capital. Thisenhances comparability of business unit performance. Geographic results are not equity standardised.
Impaired assets are those financial assets where doubt exists as to whether the full contractual amount will be received ina timely manner, or where concessional terms have been provided because of the financial difficulties of the customer.
Financial Assets are impaired if there is objective evidence of impairment as a result of a loss event that occurred prior to thereporting date, and that loss event has had an impact, which can be reliably estimated, on the expected future cash flows of
the individual asset or portfolio of assets.
Individual provision charge is the amount of expected credit losses on those financial instruments assessed for
impairment on an individual basis (as opposed to on a collective basis). It takes into account expected cash flow over the
lives of those financial instruments.
Liquid assets are cash and cash equivalent assets. Cash equivalent assets are highly liquid investments with short periods
to maturity, are readily convertible to cash at ANZ’s option and are subject to an insignificant risk of changes in value.
Net advances includes gross loans and advances and acceptances and capitalised brokerage/mortgage origination fees,
less income yet to mature and allowances for credit on impairment.
Net inter business unit expenses (also known as Service Transfer Pricing) consists of the charges made between
business units for the provision of support services. Both payments and receipts by business units are shown as net interbusiness unit expenses.
Net interest average margin is net interest income as a percentage of average interest earning assets. Non-assessableinterest income is grossed up to the equivalent 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-assessable interest income is grossed up to the equivalent before tax amount for the
purpose of these calculations.

106

DEFINITIONS (continued)

Net non-interest bearing items which are referred to in the analysis of interest spread and net interest average margin,
include shareholders’ equity, provision for impairment of loans and advances, deposits not bearing interest and otherliabilities not bearing interest, offset by premises and equipment and other non-interest earning assets. Non-performing
loans are included within interest bearing loans, advances and bills discounted.
Net tangible assets equals share capital and reserves attributable to shareholders of the Group less preference sharecapital and unamortised intangible assets (including software).
Non-performing commitments, contingencies and derivatives comprises undrawn facilities, derivative exposures andcontingent facilities where the customer’s status is defined as impaired.
Non-performing loans comprises drawn facilities where the customer’s status is defined as impaired.
Operating expenses excludes the provision for impairment of loans and advances charge.
Operating income in business segments includes equity standardised net interest and other operating income.
Overseas includes the results of all operations outside Australia, except if New Zealand is separately identified.
Overseas Markets includes all operations outside of Australia and New Zealand. The Group’s geographic segments are
Australia, New Zealand and Overseas Markets.
Return on asset ratios include net intra group assets which are risk weighted at 0% for return on risk weighted assets
calculations.
Revenue includes net interest income and other operating income.
Segment assets represents total external assets excluding deferred tax assets.
Segment result represents equity standardised profit before income tax expense.
Segment revenue includes equity standardised net interest income and other operating income.
Significant items are items that typically have a substantial impact on profit after tax, or the earnings used in the earnings
per share calculation. Significant items also do not arise in the normal course of business and are infrequent in nature.
Divestments are typically defined as significant items.
Sticky deposits exhibit a longer duration than the actual contractual term due to favourable behavioural characteristics.

107

ALPHABETICAL INDEX

PAGE
Associates, joint venture entities and investments.......................................................................................................83
Auditors’ Review Report and Independence Declaration ...............................................................................................96
Business Performance Review ...................................................................................................................................35
Chief Financial Officer’s Review .................................................................................................................................11
Changes in the composition of the Group ...................................................................................................................92
Condensed Consolidated Cash Flow Statement............................................................................................................71
Condensed Consolidated Income Statement ...............................................................................................................68
Condensed Consolidated Balance Sheet .....................................................................................................................69
Condensed Consolidated Statement of Recognised Income and Expense ........................................................................70
Contingent liabilities and contingent assets.................................................................................................................89
Definitions............................................................................................................................................................105
Deposits and other borrowings..................................................................................................................................86
Directors’ Declaration ..............................................................................................................................................95
Directors’ Report .....................................................................................................................................................67
Dividends ...............................................................................................................................................................81
Earnings per share ..................................................................................................................................................82
Exchange rates .......................................................................................................................................................94
Financial Highlights .................................................................................................................................................. 5
Four year summary by half year ...............................................................................................................................63
Geographic Segment Performance.............................................................................................................................55
Highlights................................................................................................................................................................ 1
Impaired financial assets..........................................................................................................................................84
Income ..................................................................................................................................................................78
Income tax expense ................................................................................................................................................80
Loan capital............................................................................................................................................................86
Net loans and advances ...........................................................................................................................................83
Note to the Cash Flow Statement ..............................................................................................................................91
Operating expenses .................................................................................................................................................79
Provision for credit impairment .................................................................................................................................85
Related party disclosure ...........................................................................................................................................94
Segment analysis ....................................................................................................................................................92
Share capital ..........................................................................................................................................................87
Shareholders’ equity ................................................................................................................................................87
Significant accounting policies...................................................................................................................................72
Significant events since balance date .........................................................................................................................94
Special purpose and off balance sheet entities ............................................................................................................93
Supplementary information - Capital Management ......................................................................................................97
Supplementary information - Average balance sheet and related interest .....................................................................100
Supplementary information - Derivative financial instruments.....................................................................................104108