2020
BASEL III PILLAR 3DISCLOSURE

AS AT 30 SEPTEMBER 2020
APS 330: PUBLIC DISCLOSURE

ANZ Basel III Pillar 3 Disclosure

September 2020

Important noticeThis document has been prepared by Australia and New Zealand Banking Group Limited (ANZ) to meet its
disclosure obligations under the Australian P r u d e n t i a l Regulation Authority (APRA) ADI Prudential Standard(APS) 330: Public Disclosure.

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ANZ Basel III Pillar 3 Disclosure

September 2020

Table of Contents1
Chapter 1 – Introduction ............................................................................................................................... 3
Purpose of this document .................................................................................................................. 3
Chapter 2 - Risk appetite and governance ...................................................................................................... 4
Risk types ...................................................................................................................................... 4
Risk appetite framework ................................................................................................................... 5
Risk management governance ........................................................................................................... 5
Chapter 3 – Capital reporting and measurement .............................................................................................. 8
Chapter 4 – Capital and capital adequacy ........................................................................................................ 9
Table 1

Capital disclosure template ................................................................................................ 9

Table 2Main features of capital instruments ..................................................................................19

Table 6

Capital adequacy .............................................................................................................19

Chapter 5 – Credit risk .................................................................................................................................23
Table 7
Table 8Credit risk – General disclosures .......................................................................................23
Credit risk – Disclosures for portfolios subject to the Standardised approach andsupervisory risk weights in the IRB approach ......................................................................39

Table 9Credit risk – Disclosures for portfolios subject to Advanced IRB approaches ............................40

Table 10Credit risk mitigation disclosures .......................................................................................50

Table 11

General disclosures for derivative and counterparty credit risk .............................................55

Chapter 6 – Securitisation ...........................................................................................................................59
Table 12Banking Book - Securitisation disclosures ...........................................................................62
Trading Book - Securitisation disclosures ............................................................................69

Chapter 7 – Market risk ................................................................................................................................70
Table 13

Market risk – Standard approach .......................................................................................70

Table 14

Market risk – Internal models approach..............................................................................71

Chapter 8 - Operational risk ..........................................................................................................................75
Table 15

Operational risk ..............................................................................................................75

Chapter 9 – Equities ...................................................................................................................................79
Table 16

Equities – Disclosures for banking book positions ................................................................79

Chapter 10 – Interest Rate Risk in the Banking Book .......................................................................................81
Table 17

Interest Rate Risk in the Banking Book ..............................................................................81

Chapter 11 – Leverage and Liquidity Coverage Ratio ........................................................................................84
Table 18

Leverage Ratio ................................................................................................................84

Table 19

Summary comparison of accounting assets vs. leverage ratio exposure measure ....................85

Table 20

Liquidity Coverage Ratio disclosure template ......................................................................86

Table 21

NSFR disclosure template .................................................................................................87

Glossary .....................................................................................................................................................89

1

Each table reference adopted in this document aligns to those required by APS 330 to be disclosed at full year.

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ANZ Basel III Pillar 3 Disclosure

September 2020

Chapter 1 - Introduction
Purpose of this document
This document has been prepared in accordance with the Australian Prudential Regulation Authority (APRA) ADI
Prudential Standard (APS) 330: Public Disclosure.
APS 330 mandates the release to the investment community and general public of information relating to capital
adequacy and risk management practices. APS 330 was established to implement Pillar 3 of the Basel Committee on
Banking Supervision’s framework for bank capital adequacy2. In simple terms, the Basel framework consists of threemutually reinforcing ‘Pillars’:
Pillar 1

Pillar 2

Pillar 3

Minimum capital requirement

Supervisory review process

Market discipline

Minimum capital requirements for
Credit Risk, Operational Risk, Market
Risk and Interest Rate Risk in the
Banking Book

Firm-wide risk oversight, Internal
CapitalAdequacy
Assessment
Process (ICAAP), consideration of
additional risks, capital buffers andtargets and risk concentrations, etc.

Regular disclosure to the market of
qualitative and quantitative aspectsofrisk
management,
capitaladequacy and underlying risk metrics

APS 330 requires the publication of various levels of information on a quarterly, semi-annual and annual basis. This
document is the annual disclosure.
Basel in ANZIn December 2007, ANZ received accreditation for the most advanced approaches permitted under Basel for credit risk
and operational risk, complementing its accreditation for market risk. Effective January 2013, ANZ adopted APRA
requirements for Basel III with respect to the measurement and monitoring of regulatory capital.
Verification of disclosures
These Pillar 3 disclosures have been verified in accordance with Board approved policy, including ensuring consistency
with information contained in ANZ’s Financial Report and in Pillar 1 returns provided to APRA. In addition, ANZ’s external
auditor has performed an agreed upon procedure review with respect to these disclosures.
Comparison to ANZ’s Financial Reporting
These disclosures have been produced in accordance with regulatory capital adequacy concepts and rules, rather thanwith accounting policies adopted in ANZ’s financial reports. As such, there are different areas of focus and measures insome common areas of disclosures. These differences are most pronounced in the credit risk disclosures, for instance:The principal method for measuring the amount at risk is Exposure at Default (EAD), which is the estimated amountof exposure likely to be owed on a credit obligation at the time of default. Under the Advanced Internal Ratings Based(AIRB) approach in APS 113 Capital Adequacy: Internal Ratings-based Approach to Credit Risk, banks are accredited
to provide their own estimates of EAD for all exposures (drawn, commitments or contingents) reflecting the current
balance as well as the likelihood of additional drawings prior to default.



Loss Given Default (LGD) is an estimate of the amount of losses expected in the event of default. LGD is essentiallycalculated as the amount at risk (EAD) less expected net recoveries from realisation of collateral as well as any post
default repayments of principal and interest.



Most credit risk disclosures split ANZ’s portfolio into regulatory asset classes, which span different areas of ANZ’sinternal divisional and business unit organisational structure.

Unless otherwise stated, all amounts are rounded to AUD millions.

2
Basel Committee on Banking Supervision, International Convergence of Capital Measurement and Capital Standards: A Revised
Framework, 2004.

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ANZ Basel III Pillar 3 Disclosure

September 2020

Chapter 2 – Risk appetite and governanceRisk types: ANZ is exposed to a broad range of inter-related business risks.
Capital Adequacy risk is the risk of loss arising from ANZ failing to maintain the level of capital required by
prudential regulators and other key stakeholders (shareholders, debt investors, depositors, rating agencies etc.) tosupport ANZ's consolidated operations and risk appetite. Losses include those arising from diminished reputation, areduction in investor/counter-party confidence, regulatory non-compliance (e.g. fines and banking license
restrictions) and an inability for ANZ to continue to do business. ANZ pursues an active approach to capitalmanagement, which is designed to protect the interests of depositors, creditors and shareholders.

Compliance risk is the risk of failure to act in accordance with laws, regulations, industry standards and codes,
internal policies and procedures and principles of good governance as applicable to ANZ’s businesses.

Conduct Risk is the risk of loss or damage arising from the failure of ANZ, its employees or agents to appropriately
consider the interests of customers, the integrity of the financial markets and the expectations of the community inconducting its business activities.

Credit risk is the risk of financial loss resulting from a counterparty failing to fulfil its obligations or a decrease incredit quality of a counterparty resulting in a financial loss.

Market risk stems from ANZ’s trading and balance sheet activities and is the risk to ANZ’s earnings arising fromchanges in interest rates, foreign exchange rates, credit spreads, volatility, correlations or from fluctuations in bond,commodity or equity prices.



Liquidity and Funding risk is the risk that the Group is unable to meet its payment obligations as they fall due,
including repaying depositors or maturing wholesale debt, or that the Group has insufficient capacity to fundincreases in assets.



Operational risk is defined as the risk of loss and/or non-compliance with laws resulting from inadequate or failed
internal processes, people and/or systems, or from external events. This definition includes legal risk, and the riskof reputation loss, or damage arising from inadequate or failed internal processes, people and systems, but excludes
strategic risk.

Strategic risk are risks that affect or are created by an organisation’s business strategy and strategic objectives.
A possible source of loss might arise from the pursuit of an unsuccessful business plan. For example, strategic risk
might arise from making poor strategic business decisions, from the substandard execution of decisions, frominadequate resource allocation, or from a failure to respond well to changes in the business environment.

Technology risk covers the risk of loss and/or non-compliance with laws resulting from inadequate or failed internal
processes, people and systems or from external events impacting on Information Technology (IT) assets, including
the compromise of an IT asset’s confidentiality, integrity or availability. An IT asset is any instance of software or
hardware (includes cloud computing) that is either owned by ANZ, or licensed to ANZ by an external entity. The
scope of this risk includes IT assets that are managed and/or supported by a dedicated technology function within
ANZ, service providers and/or ANZ business units outside of technology.

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ANZ Basel III Pillar 3 Disclosure

September 2020

Risk Appetite Framework
ANZ's Board is ultimately responsible for ANZ’s risk management framework, which includes the Group Risk Appetite
Statement (RAS). The Group RAS is the document which sets out the Board’s expectations regarding the degree of riskthat ANZ is prepared to accept in pursuit of its strategic objectives and plans.
The articulation of risk appetite and risk tolerances is central to the risk appetite statement. ANZ’s Group RAS conveys
the following:








The degree of risk (risk appetite) that ANZ is prepared to accept in pursuit of its strategic objectives and plans withconsidering its shareholders’, depositors’ and customers’ interests.
For each key material risk, ANZ sets the maximum level of risk that it is willing to operate within, expressed as arisk tolerance, where appropriate. Risk tolerances translate risk appetite into operational limits for the day-to-day
management of material risks, where possible;
The approach for setting risk tolerances at an appropriate level;
The process for monitoring compliance with each risk tolerance and for taking appropriate action in the event that itis breached;
The timing and process for reviewing of the risk appetite and risk tolerances; andThe cascading and application of Group RAS to Divisions and Business Units.

Risk Management Governance
The Board is principally responsible for overseeing the establishment by Management of a sound risk management
culture with an operational structure and the necessary resources to facilitate effective risk management throughout
ANZ, and which in turn supports the ability of ANZ to operate consistently within its risk appetite and approves the risk
appetite within which management is expected to operate and including ANZ’s risk appetite statement and risk
management strategy. The following lists the Board Committees, in accordance with ANZ Accountability Map under
Banking Executive Accountability Regime (BEAR). From time to time, other ad hoc committees of the Board may beformed.
ANZ Board - is responsible for:
 Approving the operating plan for ANZ and endorsing ANZ’s strategic direction;
 Overseeing ANZ's financial strength and the soundness of ANZ's financial management; Approving ANZ's internal capital adequacy assessment process (ICAAP), and associated documents;
 Overseeing the establishment and maintenance of an effective risk management framework; Overseeing the establishment by management of a sound risk management culture, including by identifying desirable
changes to ANZ's risk culture and seeking the taking of steps to address those changes;
 Approving the ANZ Remuneration Policy and the design of significant incentive plans; Approving significant changes to organisational and governance structures;
 Approving relevant ANZ policies in accordance with the Board's delegations framework; and Appointing and reviewing the performance (including remuneration and incentives) and succession of, the ANZ CEO
and certain senior executive appointees of the Board (Board Appointees).
Risk Committee - assists the Board of Directors in: Approving ANZ's risk management framework, including risk appetite and risk management strategy; Overseeing management's implementation of ANZ's risk management strategy and ongoing effectiveness inseeking to ensure that ANZ remains appropriately within its risk appetite; Advising the Board on ANZ's overall current and future risk position relative to its appetite and risk management
strategy; Overseeing compliance by ANZ with applicable legal and regulatory obligations and significant internal polices
relating to the operation of ANZ's business;
 Approving and overseeing the effectiveness of ANZ's policies and procedures relating to anti-money laundering;and Determining the scope of ANZ's approach to risk and governance culture and overseeing its impact onorganisational behaviour.
Audit Committee - assists the Board of Directors in: Overseeing ANZ's compliance with its financial reporting and professional accounting requirements;
 Overseeing and reviewing ANZ's financial reporting principles and policies, controls and procedures;
 Overseeing the work of internal and external audit, including by regularly reviewing internal and external audit
plans to ensure they meet regulatory requirements and cover all material risks and financial reporting
requirements;
 Overseeing the adequacy and independence of the internal and external audit functions; Regularly reviewing the findings of audits, and seeking to ensure that issues are being managed and rectified in an
appropriate and timely manner; and Seeking to ensure that ANZ maintains, and communicates to employees, policies and procedures for employees tosubmit, confidentially, information about accounting, internal control, compliance, audit and other matters about
which the employee has concerns.

5ANZ Basel III Pillar 3 Disclosure

September 2020

Digital Business and Technology Committee – assists the Board of Directors in: Monitoring and providing guidance as appropriate on matters relating to ANZ's digital transformation, technology
and technology-related innovation strategies; and Monitoring the delivery of the key programs that form part of ANZ's digital transformation, technology andtechnology-related innovation strategies.
Human Resource Committee - assists the Board of Directors in: Reviewing the effectiveness of and, where appropriate, making recommendations to the Board regarding the ANZRemuneration Policy, ANZ incentive plan and other significant business unit incentive plans, remuneration
structures for senior executives and others specifically covered by the remuneration policy and employee equity
plans;
 Making recommendations to the Board regarding appointments, terminations, remuneration (including variable
remuneration arrangements incentives) and succession plans for the CEO and Board Appointees;
 Making initial and annual fit and proper assessments of the CEO and Board Appointees; Approving the remuneration of Non-Executive Directors (including the Chair of the Board);
 Overseeing the recruitment, retention and termination policies for executives;
 Overseeing ANZ's compliance with regulatory and legal disclosure requirements relating to remuneration anddeveloping ANZ's strategy for shareholder and regulator engagement in relation to remuneration issues;
 Overseeing the Consequence Review Group (CRG) in carrying out its responsibilities under the CRG Charter,
including annual reviews of the accountability and consequence framework and BEAR monitoring program; and Reviewing and monitoring strategies and actions being taken to measure monitor and transform culture.
 Reviewing ANZ's annual employee engagement survey results and action plan and cultural alignment with ANZ's
strategy and values; and Monitoring the effectiveness of ANZ's approach to diversity and inclusion.
Ethics, Environment, Social and Governance Committee - assists the Board of Directors in: Reviewing and approving the proposed corporate sustainability objectives for ANZ, and reviewing progress inachieving them; Reviewing the development of and approving applicable corporate governance policies and principles; Reviewing ANZ’s Corporate Governance Statement; and Reviewing regular reports on customer complaints and other conduct related matters.
Nomination and Board Operations Committee - supports the Board of Directors in: Assisting the Board with all matters to do with the proper functioning of the Board, including in relation to its ongoing
composition and overall Board operations; and Reviewing and approving the processes in place for evaluating the performance of the Board, its Standing Committees
and each Director, including the Chairman of the Board but excluding ANZ CEO; and all other matters to do with theeffective and efficient operation of the Board and its Standing Committees.
The above Committees are exclusively comprised of Non-Executive directors. Members, including the Chair are
appointed by the Board and serve at the discretion of the Board and for such term or terms as the Board determines.
Processes and procedures relating to the operation of each of the board committees are documented in the committee
charters and in the Board Committees’ Standing Rules.

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ANZ Basel III Pillar 3 Disclosure

September 2020

Executive Management Committees are responsible for co-ordination of risk matters for each of the areas of risk
management. The Executive Management Committees most relevant to the risks described above and overall capitalmanagement at ANZ are as follows:
Group Asset and Liability Committee (GALCO)GALCO is responsible for the oversight and strategic management of the Group’s balance sheet, liquidity and funding
positions and capital management activities.
Specifically, GALCO will co-ordinate, approve and, where it deems necessary, direct:• Liquidity and funding activities, seek to ensure that these are managed consistently with the Group’s strategy andwithin the Group’s appetite for liquidity risk;• The management of the Group’s capital management framework seek to ensure that ANZ is adequately capitalised
to cover its material risks and exposures in an efficient and effective manner; and• Balance sheet management activities including appropriate management of non-traded related risks and exposures.
In all cases GALCO will act in accordance with the Group’s risk appetite and limits defined by the Board, regulatory
requirements, and international best practice.
The Committee’s main objectives are to ensure balance sheet, liquidity and funding, and capital management activities
are aligned with the following key values and strategies:
1. Add shareholder value by managing and positioning the balance sheet consistently with the Group’s appetite forrisk.
2. Maintain the Group’s preferred AA credit rating.
3. Strive for world’s best-practice corporate governance.
Credit and Market Risk Committee (CMRC)
CMRC is the senior executive management forum responsible for the oversight and control of credit, market, insurance
and other material financial risks across the ANZ Group. The Committee is accountable to the Board Risk Committee
in the effective discharge of its responsibilities.
Operational Risk Executive Committee (OREC)OREC is the primary senior executive management forum responsible for oversight of Operational Risk and Compliance
Risk, expected and unexpected risk profile and the related Control Environment. The purpose of OREC is to assist theBoard Risk Committee in the effective discharge of its responsibilities for Operational Risk Management and the
management of the compliance obligations of ANZ and its controlled entities.
Ethics and Responsible Business Committee (ERBC)ERBC is a leadership and decision making body that exists to advance ANZ’s purpose, namely to shape a world where
people and communities thrive.
The Committee seeks to do this through careful consideration of the industries, customers and communities that ANZ
serves, the products and services ANZ provides, and the manner in which ANZ provides them.
In doing so, the Committee seeks to ensure ANZ operates responsibly and achieves fair and balanced customer
outcomes, adheres to the Banking Code of Practice, and considers evolving community standards and expectations,
including the social and environmental impacts of our decisions.
The Committee is also accountable to the Board’s Ethics, Environment, Social and Governance Committee in theeffective discharge of its responsibilities.
Credit Ratings System Oversight Committee (CRSOC)
CRSOC is a sub-committee of CMRC responsible for the oversight and control of the Internal Ratings System for credit
risk including credit model approvals and performance monitoring. The Committee meets at least 4 times a year, ormore frequently as required.
Capital and Stress Testing Oversight Committee (CSTOC)
CSTOC is a sub-committee of GALCO responsible for the oversight and control of the Group’s stress testing framework,
modelling and processes, economic profit methodology and framework, capital allocation framework and other capitalmanagement (apart from Group ICAAP) and portfolio measurement related recommendations. The Committee meetsa minimum of three times per year, with additional meetings at the discretion of the Chair.
Processes and procedures relating to the operation of each of the Executive Management Committees are documented
in the committee charters.

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ANZ Basel III Pillar 3 Disclosure

September 2020

Chapter 3 – Capital reporting and measurement
Capital reporting and measurement
To ensure that an Authorised Deposit-taking Institution (ADI) is adequately capitalised on both a standalone and groupbasis, APRA adopts a tiered approach to the measurement of an ADI’s capital adequacy by assessing the ADI’s financial
strength at three levels:

Level 1 - being the ADI i.e. Australia and New Zealand Banking Group Limited, consolidated with APRA approved
subsidiaries, to form the ADI’s Extended Licensed Entity (ELE).



Level 2 - being the consolidated group for financial reporting purposes adjusted to exclude associates’ activities andcertain subsidiaries referenced under APS 001: Definitions that undertake the following business activities:







Insurance businesses (including friendly societies and health funds).
Acting as manager, responsible entity, approved trustee, trustee or similar role in relation to funds
management.
Non-financial (commercial) operations.
Securitisation special purpose vehicles to which assets have been transferred in accordance with APRA's
requirements as set out in APS 120: Securitisation.

Level 3 – the consolidated group for financial reporting purposes.

ANZ measures capital adequacy monthly and reports for prudential purposes on a Level 1 and Level 2 basis and is not
yet required to maintain capital on a Level 3 basis; APRA have yet to advise required timing for Level 3 reporting.
This Pillar 3 report is based on the Level 2 prudential structure.
Refer to Note 25 Controlled Entities of ANZ’s 2020 Annual Report for a list of all material subsidiaries and a brief
description of their key activities.

Level 1

Level 2

Level 3
I ns urance Business

A us tralia & N ew
Zealand Banking G roup
L td

A N Z Bank N ew Zealand
L td

O ther I nternational
A D I’s
E xtended L icensed
E ntity Subsidiaries
O ther L evel 2
Subs idiaries
A ll other s ubsidiaries
undertaking financial
ac tivities

8

A N Z L enders M ortgage
I ns urance Pty L imited
A N Zcover I nsurance
P rivate L td
O ther D econsolidated
Subs idiaries
inc luding
A N Z I nvestment Services(N ew Zealand) L imited
A N Z N ew ZealandI nves tments L imited
A N Z Wealth N ew Zealand
L imited
Kingfis her T rust 2 016- 1
Kingfis her T rust 2 019- 1

ANZ Basel III Pillar 3 Disclosure

September 2020

Chapter 4 – Capital and Capital Adequacy
Table 1

Capital Disclosure template

The head of the Level 2 Group to which this prudential standard applies is Australia and New Zealand Banking Group
Limited.
Table 1 of this chapter consists of a Common Disclosure template that assists users in understanding the differences
between the application of the Basel III reforms in Australia and those rules as detailed in the document Basel III: A
global regulatory framework for more resilient banks and banking systems, issued by the Bank for International
Settlements. The capital disclosure template in this chapter is the post January 2018 version as ANZ is fully applying
the Basel III regulatory adjustments, as implemented by APRA. Note that the capital conservation and countercyclicalbuffers referred to in rows 64 to 67 have been effective since 1 January 2016 and the phase out period for capital
instruments began on 1 January 2013.
The information in the lines of the template has been mapped to ANZ’s Level 2 balance sheet, which adjusts for nonconsolidated subsidiaries as required under APS 001: Definitions. Where this information cannot be mapped on a one to
one basis, it is provided in an explanatory table. ANZ’s material non-consolidated subsidiaries are also listed in thischapter.
Restrictions on Transfers of Capital within ANZANZ operates branches and locally incorporated subsidiaries in many countries. These operations are capitalised at an
appropriate level to cover the risks in the business and to meet local prudential requirements. This level of capitalisation
may be enhanced to meet local taxation and operational requirements. Any repatriation of capital from subsidiaries orbranches is subject to meeting the requirements of the local prudential regulator and/or the local central bank. Apartfrom ANZ’s operations in New Zealand, local country capital requirements do not impose any material call on ANZ’scapital base.
ANZ undertakes banking activities in New Zealand principally through its wholly owned subsidiary, ANZ Bank New
Zealand Limited (ANZ New Zealand), which is subject to minimum capital requirements as set by the Reserve Bank of
New Zealand (RBNZ). ANZ New Zealand maintains a buffer above the minimum capital base required by the RBNZ. This
capital buffer has been calculated via the ICAAP undertaken for ANZ New Zealand, to ensure ANZ New Zealand isappropriately capitalised under stressed economic scenarios.
With effect from 2 April 2020, RBNZ amended the conditions of registration for ANZ New Zealand, to (among otherthings) prohibit ANZ New Zealand from making distributions other than discretionary payments payable to holders of
Additional Tier 1 capital instruments. These amendments were also applied to other New Zealand-incorporated registeredbanks to further support the stability of the New Zealand banking financial system during this period of economic
uncertainty. These amendments prevent ANZ New Zealand from paying dividends to ANZ.
The RBNZ has also informed New Zealand-incorporated registered banks (including ANZ New Zealand) that they should
not redeem capital instruments at this time. Accordingly, ANZ New Zealand was not permitted to redeem its NZ$500
million Capital Notes in May 2020, although it can continue making coupon payments on those Capital Notes. As ANZ
New Zealand did not exercise its option to convert in May 2020, the terms of the Capital Notes provide for theirconversion into a variable number of ANZ shares in May 2022 subject to certain conditions.

9ANZ Basel III Pillar 3 Disclosure
Table 1

September 2020

Capital disclosure templateSep-20$M

Reconciliation
Table
Reference

26,228

Table A

2

Directly issued qualifying ordinary shares (and equivalent for mutually-owned entities)
capitalRetained earnings

3

Accumulated other comprehensive income (and other reserves)

1,636

4

Directly issued capital subject to phase out from CET1 (only applicable to mutually-owned
companies)
Ordinary share capital issued by subsidiaries and held by third parties (amount allowed ingroup CET1)
Common Equity Tier 1 capital before regulatory adjustments

Common Equity Tier 1 Capital: instruments and reserves
15
6

33,240
Table Bn/a3

Table C

61,107

Common Equity Tier 1 capital : regulatory adjustments
7

Prudential valuation adjustments

8

Goodwill (net of related tax liability)

3,265

9

Other intangibles other than mortgage servicing rights (net of related tax liability)

1,114

Table D

10-

Table H

11

Deferred tax assets that rely on future profitability excluding those arising from temporary
differences (net of related tax liability)
Cash-flow hedge reserve

12

Shortfall of provisions to expected losses

13

Securitisation gain on sale

14

Gains and losses due to changes in own credit risk on fair valued liabilities

(38)

15

Defined benefit superannuation fund net assets

207

16

Investments in own shares (if not already netted off paid-in capital on reported balance
sheet)-

17

Reciprocal cross-holdings in common equity-

18

Investments in the capital of banking, financial and insurance entities that are outside thescope of regulatory consolidation, net of eligible short positions, where the ADI does not
own more than 10% of the issued share capital (amount above 10% threshold)-

19

Significant investments in the ordinary shares of banking, financial and insurance entities
that are outside the scope of regulatory consolidation, net of eligible short positions(amount above 10% threshold)-

20

Mortgage service rights (amount above 10% threshold)-21

Deferred tax assets arising from temporary differences (amount above 10% threshold, netof related tax liability)
Amount exceeding the 15% threshold

-

22

-

1,038
43

of which: significant investments in the ordinary shares of financial entities-

24

of which: mortgage servicing rights-

26

of which: deferred tax assets arising from temporary differences
National specific regulatory adjustments (sum of rows 26a - 26j)

Table F

Table G-

23
25

Table E

-

6,776

26a

of which: treasury shares

-

26b

-

26c

of which: offset to dividends declared under a dividend reinvestment plan (DRP), to theextent to that the dividends are used to purchase new ordinary shares issued by the ADI
of which: deferred fee income

26dof which: equity investment in financial institutions not reported in rows 18, 19 and 23

3,658

Table G26eof which: deferred tax assets not reported in rows 10, 21 and 25

2,128

Table H26f

of which: capitalised expenses

922

Table I

26g

37

Table J26h

of which: investments in commercial (non-financial) entities that are deducted under
APRA rulesof which: covered bonds in excess of asset cover in pools

26iof which: undercapitalisation of a non-consolidated subsidiary26j
27of which: other national specific reg ulatory adjustments not reported in rows 26a to 26i

15

16

28

Regulatory adjustments applied to CET1 due to insufficient Additional Tier 1 and Tier 2 tocover deductions
Total regulatory adjustments to CET1

12,40529

Common Equity Tier 1 capital (CET1)

48,702

10-

ANZ Basel III Pillar 3 Disclosure
Table 1

September 2020

Capital disclosure templateSep-20$M

Reconciliation
Table
Reference

7,660

Table K

Additional Tier 1 Capital: instruments
30
31

Directly issued qualifying Additional Tier 1 instrumentsof which: classified as equity under applicable accounting standards

32of which: classified as liabilities under applicable accounting standards

33

Directly issued capital instruments subject to phase out from Additional Tier 1

34
35

Additional Tier 1 instruments (and CET1 instruments not included in row 5) issued bysubsidiaries and held by third parties (amount allowed in group AT1)of which: instruments issued by subsidiaries subject to phase out

36

Additional Tier 1 capital before regulatory adjustments

7,660

Table K

282

Table Kn/a
7,942

Additional Tier 1 Capital: regulatory adjustments
37

Investments in own Additional Tier 1 instruments-

38

Reciprocal cross-holdings in Additional Tier 1 instruments-

39

Investments in the capital of banking, financial and insurance entities that are outside thescope of regulatory consolidation, net of eligible short positions, where the ADI does not
own more than 10% of the issued share capital (amount above 10% threshold)
Significant investments in the capital of banking, financial and insurance entities that areoutside the scope of regulatory consolidation, (net of eligible short positions)
National specific regulatory adjustments (sum of rows 41a - 41c)

-

40
41
41a

155
8

43

of which: holdings of capital instruments in group members by other group members onbehalf of third partiesof which: investments in the capital of financial institutions that are outside the scope of
regulatory consolidations not reported in rows 39 and 40
of which: other national specific regulatory adjustments not reported in rows 41a and41b
Regulatory adjustments applied to Additional Tier 1 due to insufficient Tier 2 coverdeductions
Total regulatory adjustments to Additional Tier 1 capital

44

Additional Tier 1 capital (AT1)

7,779

Tier 1 Capital (T1=CET1+AT1)

56,481

41b
41c
42

45

Tier 2 Capital: instruments and provisions

Table K

8

Table K-

Table K

163

-

46

Directly issued qualifying Tier 2 instruments

11,85547

Directly issued capital instruments subject to phase out from Tier 2

422

Table L48

59

Table L49

Tier 2 instruments (and CET1 and AT1 instruments not included in rows 5 or 34) issued bysubsidiaries and held by third parties (amount allowed in group T2)of which: instruments issued by subsidiaries subject to phase out

50

Provisions

51

Tier 2 capital before regulatory adjustments

1,813

Table L14,149Tier 2 Capital: regulatory adjustments
52

Investments in own Tier 2 instruments

53

Reciprocal cross-holdings in Tier 2 instruments-

54

Investments in the Tier 2 capital of banking, financial and insurance entities that areoutside the scope of regulatory consolidation, net of eligible short positions, where the ADI
does not own more than 10% of the issued share capital (amount above 10%
Significant investments in the Tier 2 capital of banking, financial and insurance entities thatare outside the scope of regulatory consolidation, net of eligible short positions
National specific regulatory adjustments (sums of rows 56a - 56c)

-

55
56
56a

50

57

of which: holdings of capital instruments in group members by other group members onbehalf of third partiesof which: investments in the capital of financial institutions that are outside the scope of
regulatory consolidation not reported in rows 54 and 55
of which: other national specific regulatory adjustments not reported in rows 56a and56b
Total regulatory adjustment to Tier 2 capital

58

Tier 2 capital (T2)59

Total capital (TC=T1+T2)

60

Total risk-weighted assets based on APRA standards

56b
56c

85

Table L

57
57
192
13,95770,438429,384

11

Table L

Table LANZ Basel III Pillar 3 Disclosure
Table 1

September 2020

Capital disclosure template3
Reconciliation
Table
Reference

Capital ratios and buffers
61

Common Equity Tier 1 ( as a percentage of risk-weighted assets)

11.3%

62

Tier 1 (as a percentage of risk-weighted assets)

13.2%

63

Total capital (as a percentage of risk-weighted assets)

16.4%

64

Institution specific buffer requirement (minimum CET1 requirement plus capital conservationbuffer plus countercyclical buffer requirements plus G-SIBs buffer requirement, expressed asa percentage of risk-weighted assets)of which: capital conservation buffer requirement 3

8.013%

65
66
67
68

3.5%

of which: ADI-specific countercyclical buffer requirements

0.013%of which: G-SIB buffer requirement (not applicable)n/aCommon Equity Tier 1 available to meet buffers (as a percentage of risk-weighted assets)

6.8%

National minima (if different from Basel III)69

National Common Equity Tier 1 minimum ratio (if different from Basel III minimum)

n/a

70

National Tier 1 minimum ratio (if different from Basel III minimum)n/aNational total capital minimum ratio (if different from Basel III minimum)

n/a

71

Amount below thresholds for deductions (not risk-weighted)
72

Non-significant investments in the capital of other financial entities

212

73

Significant investments in the ordinary shares of financial entities

3,510

74

Mortgage servicing rights (net of related tax liability)

75

Table G

n/aDeferred tax assets arising from temporary differences (net of related tax liability)

2,128

Table H

206

Table E

Applicable caps on the inclusion of provisions in Tier 2
76
77
78

Provisions eligible for inclusion in Tier 2 in respect of exposures subject to standardised
approach (prior to application of cap)
Cap on inclusion of provisions in Tier 2 under standardised approach

256
1,606

79

Provisions eligible for inclusion in Tier 2 in respect of exposures subject to internal ratingsbased approach (prior to application of cap)
Cap for inclusion of provisions in Tier 2 under internal ratings-based approach-80

Capital instruments subject to phase-out arrangements (only application between
1 January 2018 to 1 January 2022)
Current cap on CET1 instruments subject to phase out arrangements

81

Amount excluded from CET1 due to cap (excess over cap after redemptions and maturities)

n/a

82

Current cap on AT1 instruments subject to phase out arrangements

n/a

83
84

Amount excluded from AT1 instruments due to cap (excess over cap after redemptions andmaturities)
Current cap on T2 instruments subject to phase out arrangements

85

Amount excluded from T2 due to cap (excess over cap after redemption and maturities)

2,037

n/a

n/a
-

Counter Cyclical Capital Buffer
Geographic breakdown of Private Sector Credit
Exposures
RWA for all private sector credit exposures

3

Hong Kong$M$4,145

Luxembourg$M$41

Norway
$M
$128

Other
$M
$329,138

Total$M$333,452

Jurisdictional buffer set by national authorities

1.00%

0.25%

1.00%

-

-

Countercyclical buffer requirement

0.012%

0.00003%0.00038%-

0.013%

Includes 1.0% buffer applied by APRA to ADIs deemed as domestic systemically important.

12

ANZ Basel III Pillar 3 Disclosure

September 2020

The following table shows ANZ's consolidated balance sheet and the adjustments required to derive the Level 2 Balance
Sheet. The adjustments remove the external assets and liabilities of the entities deconsolidated for prudential purposes
and reinstate any intragroup assets and liabilities, treating them as external to the Level 2 Group.

AssetsBalance
Sheet as inpublishedfinancialstatements$M

Adjustments$M

Balancesheet underscope ofregulatory
consolidation$M

107,923(105)

107,818

Cash and Cash Equivalents
Settlement Balances owed to ANZ

7,541

7,541

Collateral Paid

14,30814,308

Trading securities

50,91350,913

Derivative financial instruments

135,331

135,331

Investment Securities

93,391of which: Financial Institutions capital instruments

85
(567)

Template andReconciliation
Table
Reference

Table L92,824of which: significant investment in financial institutions
equity instrumentsof which: non-significant investment in financial
institutions equity instrumentsof which: Other entities equity investments

935

Table G

148

Table G

30

Table Jof which: collectively assessed provision(20)

Net loans and advances

617,093(1,793)of which: deferred fee income

615,300
15

of which: collectively assessed provision

Row 26c(4,130)

Table Eof which: individual provisions(851)

Table Eof which: capitalised brokerage

868

Table Iof which: CET1 margin lending adjustment

16

Row 26j-

Table Kof which: AT1 margin lending adjustment
Regulatory deposits
Due from controlled entitiesof which: Significant investments in the Tier 2 "capital ofbanking, financial and insurance entities" that are outside
the scope of regulatory consolidation
Shares in controlled entities

801

-

801

-

1,881

1,881
85

-

of which: Investment in deconsolidated financial
subsidiaries
of which: AT1 significant investment in banking, financial
and insurance entities that are outside the scope of
regulatory consolidation
Investments in associates

644

2,164

644
489

Table G

155

Table K

2,164

of which: Financial Institutionsof which: Other Entities
Current tax assets

Table L

161

2,157

Table G

7

Table J

161

Deferred tax assets

2,124

(2)

2,122

Goodwill and other intangible assets

4,379

(72)

4,307

of which: Goodwill

Table H

3,264

of which: Software

1,039

Premises and equipment

3,013

Other assets

3,144

(200)

2,944

1,042,286(214)

1,042,072

of which: Defined benefit superannuation fund net assets

274

Total Assets

13

Table D

3,013
Table F

ANZ Basel III Pillar 3 Disclosure

Liabilities

September 2020
Balance
Sheet as inpublishedfinancialstatements$M

Adjustments$M

Balancesheet underscope ofregulatory
consolidation$M

22,241

Template andReconciliation
Table
Reference

Settlement Balances owed by ANZ
Collateral Received

22,241

-

9,304

-

9,304

Deposits and other borrowings

682,333-

682,333

Derivative financial instruments

134,711-

134,711

-

2,366

2,366

Current tax liabilities

349

(21)

328

Deferred tax liabilities

80

-

80

Table H

1

Table D

Due to controlled entitiesof which: related to intangible assetsof which: related to capitalised expenses

5

Table Iof which: related to defined benefit super assets

67

Table F

Payables and other liabilities

9,128

Employee Entitlements

(560)

8,568

(76)

2,503

596

Provisions

2,579

596

of which: individually assessed provision

40

Table Eof which: collectively assessed provision

858

Table E

Debt Issuances

119,668(1,824)of which: Directly issued qualifying Additional Tier 1
instrumentsof which: Additional Tier 1 Instrumentsof which: Directly issued capital instruments subject tophase out from Tier 2of which: Directly issued qualifying Tier 2 instruments
Total Liabilities

117,844
7,734

Table K

463

Table K

422

Table L

12,228

Table L980,989(115)

980,874

61,297(99)

61,198Adjustments

Shareholders' equity

Balance
Sheet as inpublishedfinancialstatements$M$M

Balancesheet underscope ofregulatory
consolidation$M

Ordinary Share Capital

26,531(76)

26,455

Table A

227

Tables A & B

1,493

Table B

1,038

Row 11
Row 2

Net Assetsof which: Share reserve
Reserves

1,501

(8)

of which: Cash flow hedging reserves
Retained earnings

33,255(15)

33,240Share capital and reserves attributable to shareholdersof the company
Non-controlling interests

61,287(99)

61,188

Total Shareholders' Equity

61,297(99)

61,1981014

10Template andReconciliation
Table
Reference

Table CANZ Basel III Pillar 3 Disclosure

September 2020

The following reconciliation tables provide additional information on the difference between Table 1 Capital Disclosure
Template and the Level 2 Balance Sheet.
Table A
Issued capitalLess

Sep 20

Table 1

$M

Reference

26,455

Reclassification to Reserves
Regulatory Directly Issued qualifying ordinary shares

Table B
Reserves(227)

Table B

26,228Row 1

Sep 20

Table 1

$M

Reference

1,493

Add

Reclassification from Issued Capital

227

Less

Non qualifying reserves(84)

Reserves for Regulatory capital purposes (amount allowed in group CET1)

Table C
Less

1,636

Table 1

$M

ReferenceNon-controlling interests

10(7)

Table D
SoftwareRow 3

Sep 20Surplus capital attributable to minority shareholders
Ordinary share capital issued by subsidiaries and held by third parties

Table A3

Row 5

Sep 20

Table 1

$M

Reference

1,039

Add

Other intangible assets

Less

Associated deferred tax liabilities

(1)

5

Add

Regulatory reclassification from significant investments in the ordinary shares of banking,financial and insurance entities outside the scope of regulatory consolidation
Other intangibles other than mortgage servicing rights (net of related tax liability)

71

Table G

1,114

Row 9

Table ESep 20

Table 1

$M

Reference

Qualifying collective provisionCollectively assessed provision on Loans and advances(4,130)

Collectively assessed provision on Investment Securities(20)

Collectively assessed provision on Undrawn commitments

(858)

Less

Non-qualifying collectively assessed provision

484

Less

Standardised collectively assessed provision

206

Less

Non-defaulted expected loss

Row 76

2,710

Non-Defaulted: Expected Loss - Eligible Provision Shortfall-

Qualifying individual provision
Individually assessed provision on Loans and advances(851)

Individually assessed provision on Undrawn and contingent facilities

(40)

Add

Additional individually assessed provision for partial write offs

(302)

Less

Standardised individually assessed provision

Add

Collectively assessed provision on advanced defaulted

(455)

Less

Defaulted expected loss

1,641

50

Defaulted: Expected Loss - Eligible Provision Shortfall

43

Gross deduction

43

15

Row 12

ANZ Basel III Pillar 3 Disclosure

September 2020

Table FLess

Sep 20

Table 1

$M

Reference

Defined benefit superannuation fund net assets

274

Associated deferred tax liabilities(67)

Defined benefit superannuation fund net assets

207

Table G

Sep 20

Table 1

$M

Reference

Investment in deconsolidated financial subsidiaries

489

Less

Regulatory reclassification to Retained Earnings and Other Intangible Assets

(71)

Add

Investment in financial associates

Table D

2,157

Add

Investment in financial institutions Investment Securities

Less

Amount below 10% threshold of CET1

Add

Significant investments in the ordinary shares of banking, financial and insurance entities thatare outside the scope of regulatory consolidation, net of eligible short positions (amount above
10% threshold
Deduction amount below the 10% threshold of CET 1

Add

Row 15935(3,510)-

Row 193,510

Row 73

Investments in the capital of banking, financial and insurance entities that are outside thescope of regulatory consolidation, net of eligible short positions, where the ADI does not own
more than 10% of the issued share capital - Investment Securities
Equity investment in financial institutions not reported in rows 18, 19 and 23

148

3,658

Deduction for equity holdings in financial institutions - APRA regulations

3,658

Row 26dTable 1
Table H

Reference
Deferred tax assets

Add

2,122

Deferred tax liabilities(80)

Deferred tax asset less deferred tax liabilities

2,042

Less

Deferred tax assets that rely on future profitability

AddDeferred tax liabilities on intangible assets, capitalised expenses and defined benefit superassets
Impact of calculating the deduction on a jurisdictional basis

Add-

Deferred tax assets not reported in rows 10, 21 and 25 of the Common Disclosure
Template

Table I
Capitalised brokerage costs
Less

Row 10

73
13
2,128

Row 26e

Sep 20

Table 1

$M

Reference

868

Capitalised debt and capital issuance expenses

59

Associated deferred tax liabilities(5)

Capitalised expenses

922

Table J

Sep 20

Table 1

$M

Reference

Investments in non financial Investment Securities equities

30

Investments in non financial associates

7

Non financial equity exposures (loans)

Row 26f-

Equity exposures to non financial entities

37

16

Row 26g

ANZ Basel III Pillar 3 Disclosure

September 2020

Table K
Directly issued qualifying Additional Tier 1 Capital Instruments classified as liabilities

Sep 20

Table 1

$M

Reference

7,734

Add

Issue costs

Add

Fair value adjustment

(100)

26

Directly issued qualifying Additional Tier 1 Capital Instruments classified as liabilities

7,660

Additional Tier 1 instruments issued by subsidiaries held by third parties
Add

Issue costs

Less

Surplus capital attributable to third party holders

Add

AT1 Instruments issued by subsidiaries and held by third parties (amounts allowed in Group
AT1)
Additional Tier 1 capital before regulatory adjustments

Less

Significant investments in the capital of banking, financial and insurance entities that areoutside the scope of regulatory consolidation
Investments in the capital of financial institutions that are outside the scope of regulatory
consolidations not reported in rows 39 and 40
Other national specific regulatory adjustments not reported
Additional Tier 1 capitalLess

Row 30463(181)

Table L
Directly issued capital instruments subject to phase out from Tier 2

282

Row 34

7,942

Row 36(155)

Row 40(8)

Row 41b-Row 41c

7,779

Row 44

Sep 20

Table 1

$M

Reference

422

Less

Amortisation of Tier 2 Capital Instruments subject to Phase out

-

Less

Fair value adjustment-

Add

Surplus capital attributable to third party holders

Add

Directly issued qualifying Tier 2 instruments

Directly issued capital instruments subject to phase out from Tier 2

422

Row 4759

Row 48

12,228Add

Issue costs

Add

Fair value adjustment

18

Add

Provisions

1,813

Row 50Tier 2 capital before regulatory adjustments

14,149Row 51

(391)

Less

Investments in own Tier 2 instruments (trading limit)(50)

Row 52Less

Significant investments in the Tier 2 capital of banking, financial and insurance entities that areoutside the scope of regulatory consolidation, net of eligible short positions
Investments in the capital of financial institutions that are outside the scope of regulatory
consolidation not reported in rows 54 and 55
Tier 2 capital(85)

Row 55(57)

Row 56b

13,957

Row 58Less

17

ANZ Basel III Pillar 3 Disclosure

September 2020

The following table provides details of entities included within the accounting scope of consolidation but excluded from
regulatory consolidation.
Total Assets

Total Liabilities$M$M

EntityActivity

ACN 008 647 185 Pty Ltd

Holding Company--

ANZ ILP Pty Ltd

2-

ANZ Investment Services (New Zealand) Limited

Incorporated Legal
PracticeFunds Management

37

9

ANZ Lenders Mortgage Insurance Pty. Limited

Mortgage insurance

973

512

ANZ Pensions (UK) Limited

Trustee/Nominee

ANZ New Zealand Investments Limited

Funds Management

-

-

121

30

ANZ New Zealand Investments Nominees Limited

Nominee

ANZ Wealth Australia Limited
ANZ Wealth New Zealand Limited

Holding Company /Corporate
Holding Company

-

-

55

17

120

-

ANZcover Insurance Private Ltd

Captive-Insurance

169

75

Kingfisher Trust 2016-1

Securitisation Trust

769

769

Kingfisher Trust 2019-1

Securitisation Trust

1,062

1,062

Looking Together Pty Ltd

Property Price Information--

Shout for Good Pty. Ltd.

Corporate

1

1

18

ANZ Basel III Pillar 3 Disclosure
Table 2September 2020

Main features of capital instruments

As the main features of ANZ’s capital instruments are updated on an ongoing basis, ANZ has provided this information
separately in the Regulatory Disclosures section of its website.

Table 3 Capital adequacy, Table 4 Credit risk, Table 5 Securitisation
The above tables are produced at the quarters ending 30 June and 31 December.

Table 6

Capital adequacy

Capital management
ANZ pursues an active approach to capital management, which is designed to protect the interests of depositors,
creditors and shareholders. This involves the on-going review and Board approval of the level and composition of ANZ’scapital base, assessed against the following key policy objectives:
Regulatory compliance such that capital levels exceed APRA’s, ANZ’s primary prudential supervisor, minimum
Prudential Capital Ratios (PCRs) both at Level 1 (the Company and specified subsidiaries) and Level 2 (ANZ
consolidated under Australian prudential standards), along with US Federal Reserve’s minimum Level 2 requirements
under ANZ’s Foreign Holding Company Licence in the United States of America;Capital levels are aligned with the risks in the business and to meet strategic and business development; andAn appropriate balance between maximising shareholder returns and prudent capital management principles.

ANZ achieves these objectives through an Internal Capital Adequacy Assessment Process (ICAAP) where by ANZ
conducts detailed strategic and capital planning over a medium term time horizon. The Capital Plan is maintained andupdated through a monthly review of forecast financial performance, economic conditions and development of businessinitiatives and strategies. The Board and senior management are provided with monthly updates of ANZ’s capital position.
Any actions required to ensure ongoing prudent capital management are submitted to the Board for approval. ANZ
annually conducts a detailed strategic planning process over a three year time horizon, the outcomes of which areembodied in the Strategic Plan. This process involves forecasting key economic variables which Divisions use todetermine key financial data for their existing business. New strategic initiatives to be undertaken over the planning
period and their financial impact are then determined. These processes are used for the following:

Review capital ratios, targets, and levels of different classes of capital against ANZ’s risk profile and risk appetite
outlined in the Strategic Plan. ANZ’s capital targets reflect the key policy objectives above, and the desire to ensurethat under specific stressed economic scenarios that capital levels are sufficient to remain above PCR requirements;

Stress tests are performed under different economic conditions to provide a comprehensive review of ANZ’s capital
position both before and after mitigating actions. The stress tests determine the level of additional capital (i.e. the‘stress capital buffer’) needed to absorb losses that may be experienced during an economic downturn; andStress testing is integral to strengthening the predictive approach to risk management and is a key component inmanaging risks, asset writing strategies and business strategies. It creates greater understanding of the impacts onfinancial performance through modelling relationships and sensitivities between geographic, industry and Divisional
exposures under a range of macro-economic scenarios. ANZ has a dedicated stress testing team within Risk
Management that models and reports to management and the Board’s Risk Committee on a range of scenarios andstress tests.

Results are subsequently used to:

Recalibrate ANZ’s management targets for minimum and operating ranges for its respective classes of capital suchthat ANZ will have sufficient capital to remain above regulatory requirements; and

Identify the level of organic capital generation and hence determine current and future capital issuance requirementsfor Level 1 and Level 2.

From these processes, a Capital Plan is developed and approved by the Board which identifies the capital issuancerequirements, capital securities maturity profile, and options around capital products, timing and markets to execute theCapital Plan under differing market and economic conditions.
The Capital Plan is maintained and updated through a monthly review of forecast financial performance, economic
conditions and development of business initiatives and strategies. The Board and senior management are provided withmonthly updates of ANZ’s capital position. Any actions required to ensure ongoing prudent capital management are
submitted to the Board for approval.

19

ANZ Basel III Pillar 3 Disclosure

September 2020

Regulatory environment
ANZ’s regulatory capital calculation is governed by APRA’s Prudential Standards which adopt a risk-based capitalassessment framework based on the Basel III capital measurement standards. This risk-based approach requires eligible
capital to be divided by total risk weighted assets (RWA), with the resultant ratio being used as a measure of an
Authorised Deposit-taking Institution’s (ADIs) capital adequacy. APRA determines PCRs for Common Equity Tier 1(CET1), Tier 1 and Total Capital, with capital as the numerator and RWAs as the denominator.
Regulatory capital is divided into Tier 1, carrying the highest capital elements, and Tier 2, which has lower capitalelements, but still adds to the overall strength of the ADI.
Tier 1 capital is comprised of Common Equity Tier 1 capital less deductions and Additional Tier 1 capital instruments.
Common Equity Tier 1 capital comprises shareholders’ equity adjusted for items which APRA does not allow as regulatory
capital or classifies as lower forms of regulatory capital. Common Equity Tier 1 capital includes the following significant
adjustments:


Reserves exclude the hedging reserve and reserves of insurance and funds management subsidiaries;

Retained and current year earnings excluding those of insurance and funds management subsidiaries, but includes
capitalised deferred fees forming part of loan yields that meet the criteria set out in the prudential standard;

Additional Tier 1 capital instruments are high quality components of capital that provide a permanent and unrestrictedcommitment of funds, are available to absorb losses, are subordinated to the claims of depositors and senior creditors
in the event of the winding up of the issuer and provide for fully discretionary capital distributions.
Deductions from the capital base comprise mainly deductions to the Common Equity Tier 1 component. These deductions
are largely intangible assets, investments in insurance entities and associates, capitalised expenses (including loan andorigination fees), and net deferred tax assets.
Tier 2 capital mainly comprises perpetual subordinated debt instruments and dated subordinated debt instruments whichhave a minimum term of five years at issue date.
Total Capital is the sum of Tier 1 capital and Tier 2 capital.
In addition to the prudential capital oversight that APRA conducts over the Company and the Group, the Company’s
branch operations and major banking subsidiary operations are overseen by local regulators such as the Reserve Bankof New Zealand, the US Federal Reserve, the UK Prudential Regulation Authority, the Monetary Authority of Singapore,
the Hong Kong Monetary Authority and the China Banking Regulatory Commission who may impose minimum
capitalisation rates on those operations.
Throughout the financial year, the Company and the Group maintained compliance with the minimum Common Equity
Tier 1, Tier 1 and Total Capital ratios set by APRA and the US Federal Reserve (as applicable) as well as applicable
capitalisation rates set by regulators in countries where the Company operates branches and subsidiaries.
Regulatory development
There are a number of matters currently outstanding that may have an impact on ANZ’s regulatory capital in the future.
Details of these matters are available in ANZ’s 2020 Full Year Results Announcement Group Results section, pages 49
and 50, available on ANZ’s website: anz.com/shareholder/centre/reporting/results-announcement.

20

ANZ Basel III Pillar 3 Disclosure
Table 6

September 2020

Capital adequacy - Capital Ratio and Risk Weighted Assets 4 5

The following table provides the composition of capital used for regulatory purposes and capital adequacy ratios.
Sep 20Mar 20

Sep 19$M$M$M

Corporate

139,415150,290

136,885

Sovereign

7,545

6,915

6,199

Bank

12,734

18,615

15,968Residential Mortgage

105,491

Risk weighted assets
Subject to Advanced Internal Rating Based (IRB) approach

110,353

107,351

Qualifying Revolving Retail

4,337

4,956

5,255

Other Retail

21,79425,08026,258296,178

313,207

296,056

39,001

41,07236,318

Corporate

10,185

14,626

11,645

Sovereign

220

-

-

Residential Mortgage

210

228

216

Credit risk weighted assets subject to Advanced IRB approach
Credit risk Specialised Lending exposures subject to slotting approach4
Subject to Standardised approach

Other Retail

33

46

50

10,64814,90011,911Credit Valuation Adjustment and Qualifying Central Counterparties

7,710

9,679

8,682

Credit risk weighted assets relating to securitisation exposures

2,125

2,142

1,859

Other assets

4,375

4,997

3,280

360,037

385,997358,106

Credit risk weighted assets subject to Standardised approach

Total credit risk weighted assets
Market risk weighted assets

8,237

7,102

5,307

Operational risk weighted assets

47,56347,902

46,626

Interest rate risk in the banking book (IRRBB) risk weighted assets
Total risk weighted assets

13,547

8,011

6,922

429,384

449,012416,961

Capital ratios (%)5
Level 2 Common Equity Tier 1 capital ratio

11.3%

10.8%

11.4%

Level 2 Tier 1 capital ratio

13.2%

12.5%

13.2%

Level 2 Total capital ratio

16.4%

15.5%

15.3%

Level 1: Extended licensed Common Equity Tier 1 capital ratio

11.2%

10.6%

11.4%

Level 1: Extended licensed entity Tier 1 capital ratio

13.2%

12.6%

13.4%

Level 1: Extended licensed entity Total capital ratio

16.7%

15.8%

15.7%

ANZ Bank New Zealand Limited – Common Equity Tier 1 capital ratio

11.7%

11.1%

10.8%

ANZ Bank New Zealand Limited - Tier 1 capital ratio

14.4%

13.9%

13.6%

ANZ Bank New Zealand Limited - Total capital ratio

14.4%

13.9%

13.6%

Other significant Authorised Deposit-taking Institution (ADI) or overseas bank subsidiary:

Specialised Lending exposures subject to slotting approach are those where the main servicing and repayment is from the asset being
financed, and includes specified commercial property development/investment lending, project finance and object finance.

45
ANZ Bank New Zealand Limited’s capital ratios have been calculated in accordance with Reserve Bank of New Zealand prudential
standards.

21

ANZ Basel III Pillar 3 Disclosure

September 2020

Credit Risk Weighted Assets (CRWA)
Total CRWA decreased $26 billion (-6.7%) from March 2020 to $360 billion at September 2020. The decrease wasdriven by the Institutional business across Corporate and Bank asset classes mainly from volume driven reduction
combined with the impact of foreign exchange movements across the portfolio.
Market Risk, Operational Risk and IRRBB RWA
IRRBB RWA increased $5.54 billion due to greater Repricing and Yield Curve risk arising from market volatility anddeterioration in embedded gains.
Traded Market Risk RWA increased $1.14 billion over the half year due to increased volatility.

22

ANZ Basel III Pillar 3 Disclosure

September 2020

Chapter 5 – Credit risk
Table 7

Credit risk – General disclosures

Definition of credit risk
Credit risk is the risk of financial loss resulting from a counterparty failing to fulfil its obligations or a decrease in credit
quality of a counterparty resulting in a financial loss.
Regulatory approval to use the Advanced Internal Ratings-based approach
ANZ has been given approval by APRA to use the Advanced Internal Ratings (AIRB) based approach to credit risk, under
APS 113 Capital Adequacy: Internal Ratings-based Approach to Credit Risk. As an AIRB bank, ANZ’s internal models
generate the inputs into regulatory capital adequacy to determine the risk weighted exposure calculations for both on
and off-balance sheet exposures, including undrawn portions of credit facilities, committed and contingent exposuresand expected loss (EL) calculations.
ANZ’s internal models are used to generate three key risk components that serve as inputs to the IRB approach to creditrisk:

Probability of Default (PD) is an estimate of the level of the risk of borrower default

Exposure at Default (EAD) is defined as the expected facility exposure at the date of default



Loss Given Default (LGD) is an estimate of the potential economic loss on a credit exposure, incurred as aconsequence of obligor default.

There are however several small portfolios (mainly retail, local corporates and non-bank financial institutions in
Asia/Pacific,) where ANZ applies the Standardised approach to credit risk, under APS 112 Capital Adequacy: Standardised
Approach to Credit Risk.
Credit risk management framework and policies
ANZ has a comprehensive framework to manage Wholesale Credit Risk. The framework is top down, being defined bycredit principles and policies. Credit policies, requirements and procedures cover all aspects of the credit life cycle suchas transaction structuring, risk grading, initial approval, ongoing management and problem debt management, as well
as specialist policy topics.
The effectiveness of the credit risk management framework is assessed through various compliance and monitoringprocesses. These, together with portfolio selection and risk appetite setting, define and guide the credit process,organisation and staff.
Organisation
The Credit and Market Risk Committee (CMRC) is a senior executive level committee responsible for the oversight andcontrol of credit, market, insurance and material financial risks across the ANZ Group. The Credit Rating System
Oversight Committee (CRSOC) supports the CMRC, by providing oversight and control of the internal ratings system for
credit risk in the wholesale and retail sectors, including credit model approvals and performance monitoring.
The primary responsibility for prudent and profitable management of credit risk assets and customer relationships rests
with the business units. An independent credit risk management function is staffed by risk specialists. Independence isachieved by having all credit risk staff ultimately report to the Chief Risk Officer (CRO), even where they are embedded
in business units. Risk performs key roles in portfolio management such as development and validation of credit risk
measurement systems, loan asset quality reporting, and development of credit policies and requirements. In ANZ’s
wholesale businesses, Risk also provides independent credit assessment and approval on lending decisions.
The authority to make credit decisions is delegated by the Board to the CEO who in turn delegates authority to the CRO.
The CRO in turn delegates some of their credit discretion to individuals as part of a ‘cascade’ of authority from senior tothe most junior credit officers. Within ANZ, credit approval for material wholesale lending is judgementally made on a‘dual approval’ basis, jointly by the business writer in the business unit and the respective independent credit risk officer.
Individuals must be suitably skilled and accredited in order to be granted and retain credit discretion. Credit discretions
are reviewed on an annual basis, and may be varied based on the holder’s performance.
Programmed credit assessment typically covers retail and some small business lending, and refers to the automatedassessment of credit applications using a combination of scoring (application and behavioural), policy rules and external
credit reporting information. Where an application does not meet the automated assessment criteria it will be referredout for manual assessment, with assessors considering the decision tool recommendation.

23

ANZ Basel III Pillar 3 Disclosure

September 2020

Portfolio direction and performance
The credit risk management framework contains several portfolio direction and performance tools which enable Risk toplay a fundamental role in monitoring the direction and performance of the portfolio. These include:Group and divisional level risk appetite strategies, business writing strategies and segment transaction guidelines
are prepared by the businesses and set out appetite, planned portfolio growth, capital usage and risk/return profile,and also identify areas that may require attention to mitigate and improve risk management;Regular portfolio reviews; andExposure concentration limits, covering single customers, industries and cross border risk, to ensure a diversified
portfolio.

ANZ uses portfolio monitoring and analysis tools, technologies and techniques to assist with portfolio risk assessmentand management. These assist in:Monitoring, analysing and reporting ANZ’s credit risk profile and progress in meeting portfolio objectives;

Calculating and reporting ANZ’s collectively assessed provision, economic capital, expected loss, regulatory risk
weighted assets (RWA) and regulatory expected loss;Assessing impact of emerging issues, and conducting ad-hoc investigations and analysis;Validating rating/scoring tools and credit estimates; and

Ongoing review and refinement of ANZ's credit risk measurement and policy framework.

Credit Risk Reporting
Credit risk management information systems, reporting and analysis are managed centrally and at the divisional andbusiness unit level.
Periodic reporting assists in analysing the effectiveness of strategies and processes identifying emerging issues andmonitoring of portfolio trends by all levels of management and the Board.
Examples of reports include EAD, portfolio mix, risk grade profiles and migrations, RWAs, large exposure reporting, credit
watch and control lists, impaired assets and provisions.
Exposure at default
EAD is defined as the expected facility exposure at the date of default. Unless otherwise stated, throughout this disclosure
EAD represents credit exposure net of offsets for credit risk mitigation such as guarantees, credit derivatives, netting
and financial collateral.
Past due facilities
Facilities where a contractual payment has not been met or the customer is outside of contractual arrangements for amaterial length of time are deemed past due. Past due facilities include those operating in excess of approved
arrangements or where scheduled repayments are outstanding, but do not include impaired assets.
Impaired assets6
A facility for which there is doubt about timely payment of principal, interest and fees being achieved and / or a material
credit obligation is 90 days or more past due and is not well secured. It includes all problem assets, off-balance sheet
exposures (including derivatives) and assets brought to ANZ’s balance sheet through the enforcement of security.
Impaired derivatives have a credit valuation adjustment, which is a market assessment of the credit risk of the relevant
counterparties.
Restructured items
Restructured items comprise facilities in which the original contractual terms have been modified for reasons related to
the financial difficulties of the customer. Restructuring may consist of reduction of interest, principal or other payments
legally due, or an extension in maturity materially beyond those typically offered to new facilities with similar risk.

6
The definition of Impaired Assets for accounting purposes is a default occurs when there are indicators that a debtor is unlikely to fully
satisfy contractual credit obligations to the Group, or the exposure is 90 days past due. Financial assets, including those that are wellsecured, are considered credit impaired for financial reporting purposes when they are in default.

24

ANZ Basel III Pillar 3 Disclosure

September 2020

Collectively Assessed Provisions for Credit Impairment
Collectively assessed provisions for credit impairment represent the Expected Credit Loss (ECL) calculated in accordancewith AASB 9 Financial Instruments (AASB 9) which commenced 1 October 2018. These incorporate forward looking
information and do not require an actual loss event to have occurred for an impairment provision to be recognised.
Under AASB 9, ECL is either measured over 12 months or the expected lifetime of the financial asset, depending on thecredit deterioration since origination, according to the following three-stage approach:Stage 1: At the origination of a financial asset, and where there has not been a significant increase in credit risk sinceorigination, a provision equivalent to 12 months ECL is recognised. For instruments with a remaining maturity of lessthan 12 months, a provision calculated on the remaining term of the maturity is recognised.

Stage 2: Where there has been a significant increase in credit risk (SICR) since origination, a provision equivalent tolifetime ECL is recognised.

Stage 3: Where there is objective evidence of impairment, a provision equivalent to lifetime ECL is recognised.

In determining what constitutes a SICR, ANZ considers both qualitative and quantitative information, including CCR at
origination and at the reporting date.
ECL is calculated as the product of PD, LGD and EAD at a facility level, discounted for incorporating the effect of timevalue of money. These credit risk factors are adjusted for current and forward looking information through the use of
macro-economic variables in the model.
Individually Assessed Provisions for Credit Impairment
Individually assessed provisions for credit impairment are calculated in accordance with AASB 9. They are assessed on acase-by-case basis for all individually managed impaired assets taking into consideration factors such as the realisablevalue of security (or other credit mitigants), the likely return available upon liquidation or bankruptcy, legal uncertainties,
estimated costs involved in recovery, the market price of the exposure in secondary markets and the amount and timingof expected receipts and recoveries.
Write-offs
Facilities are written off against the related provision for impairment when they are assessed as partially or fully
uncollectable, and after proceeds from the realisation of any collateral have been received. Where individually assessed
provisions recognised in previous periods have subsequently decreased or are no longer required, such impairment losses
are reversed in the current period income statement.
Definition of default
ANZ uses the following definition of default:

ANZ considers that the customer is unlikely to pay its credit obligations in full, without recourse to actions such as
realising security, orthe customer is at least 90 days past due on a credit obligation, orthe customer’s overdraft or other revolving facility(ies) have been continuously outside approved limits for 90 or moreconsecutive days.

Specific Provision and General Reserve for Credit Losses
Due to definitional differences, there is a difference in the split between ANZ’s individually assessed provision andcollectively assessed provision for accounting purposes and the specific provision and general reserve for credit losses(GRCL) for regulatory purposes. This does not impact total provisions, and essentially relates to the classification ofcollectively assessed provisions on defaulted accounts. The disclosures in this document are based on individuallyassessed provision and collectively assessed provision, for ease of comparison with other published results.
APRA has flagged that the adoption of the forward looking ECL approach means that a GRCL will no longer be required.
This is likely to take effect at the commencement of the revised APS 220 prudential standard expected January 2022.
Exposure at Default in Table 7 represents credit exposure net of offsets for credit risk mitigation such as guarantees,credit derivatives, netting and financial collateral. It includes Advanced IRB, Specialised Lending and Standardised
exposures, and excludes Securitisation, Equities or Other Assets exposures.

25

ANZ Basel III Pillar 3 Disclosure

September 2020

Table 7(b) part (i): Period end and average Exposure at Default 7
Sep 20
Advanced IRB approach

Risk
Weighted
Assets$M

Exposureat Default$M

Corporate

139,415

Sovereign

7,545

Bank
Residential Mortgage
Qualifying Revolving Retail
Other Retail
Total Advanced IRB approach
Specialised Lending

274,414

Average
Exposureat Default
for half year$M291,198

Individual
provision
charge forhalf year$M
126

186,605

191,941--

12,73442,171

52,910--110,353

392,312386,197

39

32

4,337

14,846

15,487

79

107

340

21,79431,931

33,474133

131

296,178

942,279

971,207

377

610

-

-

39,001

46,43047,433

3

2--Standardised approach
Corporate

Write-offs
for half year$M

10,185

11,344

13,657

-

-

12

18

Sovereign

220

212

106

-

-

Residential Mortgage

210

435

453

2

2

Other Retail
Total Standardised approach
Credit Valuation Adjustment andQualifying Central Counterparties
Total

33

33

40

1

8

10,64812,024

14,256

15

28

7,710

9,684

9,845

-

-

353,537

1,010,417

1,042,741

395

640

7
Average Exposure at Default for half year is calculated as the simple average of the balances at the start and the end of each six month
period.

26

ANZ Basel III Pillar 3 Disclosure

September 2020

Table 7(b) part (i): Period end and average Exposure at Default (continued)
Mar 20
Advanced IRB approach

Risk
Weighted
Assets$M

Exposureat Default$M

Corporate

150,290

Sovereign

6,915

Bank
Residential Mortgage
Qualifying Revolving Retail
Other Retail
Total Advanced IRB approach
Specialised Lending

307,981

Average
Exposureat Default
for half year$M292,290

Individual
provision
charge forhalf year$M
356

197,277

175,109--18,61563,64959,397--

107,351

380,082376,729

30

47

4,956

16,12816,38881

113

Sovereign
Residential Mortgage
Other Retail87

25,08035,01735,670155

196

313,2071,000,134

955,583622

443

41,072

48,43645,8929---Standardised approach
Corporate

Write-offs
for half year$M

14,626

15,971--

14,484

(5)

24

-

-

-

-

-

228

471

458

-

1

46

46

48

-

1

14,900

16,48814,990

(5)

26

9,679

10,005

9,677

-

-

378,858

1,075,063

1,026,142

626

469

Risk
Weighted
Assets$M

Exposureat Default$M

136,885

276,599

Individual
provision
charge forhalf year$M
75

Write-offs
for half year
$M

Corporate

Average
Exposureat Default
for half year$M267,302

Sovereign

6,199

152,940

151,300

-

-

Bank

15,96855,14555,087--

Residential Mortgage

105,491

373,376

376,444

37

67

5,255

16,647

17,11887

126

Total Standardised approach
Credit Valuation Adjustment andQualifying Central Counterparties
Total

Sep 19Advanced IRB approach

Qualifying Revolving Retail
Other Retail
Total Advanced IRB approach
Specialised Lending

26,25836,32237,432

187

264

296,056

911,029904,683386

546

36,31843,34843,005

(2)

1

-

-

Standardised approach
Corporate
Sovereign
Residential Mortgage
Other Retail
Total Standardised approach
Credit Valuation Adjustment andQualifying Central Counterparties
Total

89

11,645

12,99813,258

-

-

11

26

-

-

-

-

-

216

445

581

3

1

50

49

65

-

4

11,911

13,492

13,904

14

31

8,682

9,348

10,939--352,967

977,217

972,531

398

578

27

ANZ Basel III Pillar 3 Disclosure

September 2020

Table 7(b) part (ii): Exposure at Default by portfolio type8
Sep 20

Portfolio TypeSep 19Averageforhalf year
Sep 20
$M

$M

$M

$M

Cash

71,92696,86555,08384,396

Contingents liabilities, commitments, and other off-balance sheet
exposures
Derivatives

171,397

170,345

160,293

170,870

50,963

61,96253,71656,463

133

225

26

179

Investment Securities

89,977

84,11282,28987,045

Net Loans, Advances & Acceptances

612,437

Settlement Balances

8

Mar 20593,904

630,971597,084

Other assets

8,728

4,939

4,627

6,834

Trading Securities

23,38925,64424,09924,517

Total exposures

1,010,417

1,075,063

977,217

1,042,741

Average for half year is calculated as the simple average of the balances at the start and the end of each six month period.

28

ANZ Basel III Pillar 3 Disclosure

September 2020

Table 7(c): Geographic distribution of Exposure at Default
Sep 20Australia

New Zealand$M

Asia Pacific,
Europe andAmericas
$M

$M

Total
$M

Corporate
Sovereign

154,805

41,41389,540285,758

79,134

24,465

83,218186,817Bank

18,131

2,883

21,15742,171

Residential Mortgage

303,867

88,445435

392,747

Portfolio Type

Qualifying Revolving Retail

14,846--

14,846

Other Retail

22,7479,184

33

31,964

Qualifying Central Counterparties

4,053

2,175

3,456

9,684

Specialised Lending

33,46012,698272

46,430Total exposures

631,043

181,263

198,1111,010,417

Australia

New Zealand$M$M

Asia Pacific,
Europe andAmericas
$M

Total
$M

Corporate

160,963

50,455112,534

323,952

Sovereign

62,481

18,308116,488

197,277

Bank

25,443

4,948

33,25863,649Residential Mortgage

289,578

90,504471

380,553

Mar 20

Portfolio Type

Qualifying Revolving Retail

16,128--16,128Other Retail23,14011,87746

35,063

Qualifying Central Counterparties

4,088

2,123

3,794

10,005Specialised Lending

35,087

13,210139

48,436

Total exposures

616,908

191,425

266,730

1,075,063

Australia

New Zealand$M$M

Asia Pacific,
Europe andAmericas
$M

Total
$M

Corporate148,488

47,74793,362289,597

Sovereign

53,287

12,984

86,669152,940

Bank

23,6304,108

27,40755,145Residential Mortgage

290,239

83,137445

373,821

Sep 19Portfolio Type

Qualifying Revolving Retail

16,647--

16,647

Other Retail24,734

11,58849

36,371

Qualifying Central Counterparties

4,717

1,735

2,896

9,348

Specialised Lending

31,328

11,907

113

43,348

Total exposures

593,070

173,206

210,941

977,21729

ANZ Basel III Pillar 3 Disclosure

September 2020

Table 7(d): Industry distribution of Exposure at Default9 10
Sep 20
Portfolio Type

Corporate
SovereignBank
Residential Mortgage
Qualifying Revolving
RetailOther Retail
Qualifying Central
Counterparties
Specialised Lending
Total exposures% of Total

Agriculture,
Forestry,
Fishing &Mining$M
45,440531-

Business
Services$M

Construction$M

10,594
1
-

5,414
15
1
-

Electricity,
Gas &
Water
Supply$M
11,511
608
24-Entertainment,
Leisure &Tourism$M
15,041
2-

Financial,
Investment&
Insurance$M
52,381
99,40742,096-

Government
and Official
Institutions$M

Manufacturing$M

Personal$M

Property
Services$M

Wholesale
Trade$M

RetailTrade$M

Transport&
Storage
$M

Other
$M

Total
$M

42
83,099-43,594
1,461
2
-

448
1
392,747

24,4881,581
5-22,22827
9-13,884-

18,58072
28-

22,11316
2-285,758
186,817
42,171
392,747

-

-

-

-

-

-

-

-

14,846

-

-

-

-

-

14,846

2,267

2,401

3,234

76

1,956

557

10

1,386

9,168

1,005

1,035

3,315

1,041

4,513

31,964

-

-

-

-

-

9,684

-

-

-

-

-

-

-

-

9,684

1,964

10

362

2,016

423

1

-

2

-

40,004

26

-

1,166

456

46,43050,202

13,006

9,026

14,235

17,422

204,126

83,15146,445417,21067,08323,325

17,19920,887

27,1001,010,417

5.0%

1.3%

0.9%

1.4%

1.7%

20.2%

8.2%

4.6%

41.3%

6.6%

2.3%

1.7%

2.1%

2.7%

100.0%

9
Property Services includes Commercial property operators, Residential property operators, Retirement village operators/developers, Real estate agents, Non-financial asset investors and Machinery and equipment
hiring and leasing.
10

Other industry includes Health & Community Services, Education, Communication Services and Personal & Other Services.

30

ANZ Basel III Pillar 3 disclosure

September 2019

Table 7(d): Industry distribution of Exposure at Default (continued)
Mar 20
Portfolio Type

Corporate
SovereignBank
Residential Mortgage
Qualifying Revolving
RetailOther Retail
Qualifying Central
Counterparties
Specialised Lending
Total exposures% of Total

Agriculture,
Forestry,
Fishing &Mining$M
48,913821-

Business
Services$M

Construction$M

11,537
1
-

5,921
16
-

Electricity,
Gas &
Water
Supply$M
12,257667
4-Entertainment,
Leisure &Tourism$M
14,45310
1-Financial,
Investment&
Insurance$M62,027
120,719
63,596-

Government
and Official
Institutions$M

Manufacturing$M

Personal$M

Property
Services$M

Wholesale
Trade$M

RetailTrade$M

Transport&
Storage
$M

Other
$M

Total
$M

4,211
71,117-51,565
1,925
2
-

630
380,553

23,9861,652
1-29,2904
9-

14,635
3-

20,836179
32-

23,691
167-

323,952
197,277
63,649380,553

-

-

-

-

-

-

-

-

16,128

-

-

-

-

-

16,128

2,644

2,538

3,617

90

1,927

561

14

1,488

11,632

1,044

1,091

3,419

1,191

3,807

35,063

-

-

-

-

-

10,005

-

-

-

-

-

-

-

-

10,005

1,660

6

387

1,839

440

1

-

2

-

42,466

22

-

1,209

404

48,43654,03814,082

9,941

14,857

16,831

256,90975,342

54,982408,943

69,14930,416

18,05723,44728,069

1,075,063

5.0%

1.3%

0.9%

1.4%

1.6%

23.9%

7.0%

5.1%

38.1%

6.4%

2.8%

1.7%

2.2%

2.6%

100.0%

Agriculture,
Forestry,
Fishing &Mining$M
45,938999
115-

Business
Services$M

Construction$M

Entertainment,
Leisure &Tourism$M

Manufacturing$M

Personal$M

Property
Services$M

Wholesale
Trade$M

RetailTrade$M

Transport&
Storage
$M

Other
$M

Total
$M

5,666
18
-

Financial,
Investment&
Insurance$M
50,91879,87054,906-

Government
and Official
Institutions$M

10,4001
4-Electricity,
Gas &
Water
Supply$M
10,530
467
4
-

4,189
67,603-45,441
1,248
2
-

607
373,821

21,8642,025
2-26,581
58-

14,46645-

18,243231
29-

20,744419
38-

289,597
152,940
55,145373,821

Sep 19Portfolio Type

Corporate
SovereignBank
Residential Mortgage
Qualifying Revolving
RetailOther Retail
Qualifying Central
Counterparties
Specialised Lending
Total exposures% of Total

14,010
1
-

-

-

-

-

-

-

-

-

16,647

-

-

-

-

-

16,647

2,754

2,643

3,740

96

2,045

600

15

1,534

11,986

1,092

1,122

3,617

1,253

3,874

36,371

-

-

-

-

-

9,348

-

-

-

-

-

-

-

-

9,348

1,394

3

372

1,835

366

1

-

-

-

37,769

22

-

1,161

425

43,34851,20013,051

9,796

12,932

16,422

195,643

71,80748,225403,061

62,752

27,783

18,12820,91725,500977,217

5.2%

1.3%

1.0%

1.3%

1.7%

20.1%

7.4%

4.9%

41.3%

6.4%

2.8%

1.9%

2.1%

2.6%

100.0%

31

ANZ Basel III Pillar 3 disclosure

September 2020

Table 7(e): Residual contractual maturity of Exposure at Default11
Sep 20
Portfolio Type< 12 mths$M

1 - 5 years$M> 5 years$M

Corporate

123,849

145,885

Sovereign

102,470

58,241

Bank

26,165272

Residential Mortgage
Qualifying Revolving Retail

15,925No Maturity
Specified$M
99285,758

26,106-

186,817

15,596410-

42,171925

366,032

25,518392,747

Total
$M

-

-

-

14,846

14,846

Other Retail

11,8304,586

15,548-31,964

Qualifying Central Counterparties

7,025

1,199

906

554

9,684

Specialised Lending

19,56824,8242,008

30

46,430Total exposures

291,179

251,256

426,935

41,0471,010,417

Portfolio Type< 12 mths$M

1 - 5 years$M> 5 years
$M

Total
$M

Corporate148,359

155,699

19,772No Maturity
Specified$M
122

323,952

Sovereign131,162

47,317

18,798-

197,277

Bank

45,90917,175565-

63,649292

978352,414

26,869380,553

Mar 20Residential Mortgage
Qualifying Revolving Retail

-

-

-

16,12816,128Other Retail

13,206

5,483

16,374-35,063

Qualifying Central Counterparties

7,004

1,774

638

589

10,005Specialised Lending

17,57327,9862,839

38

48,436

Total exposures

363,505

256,412411,400

43,746

1,075,063

Portfolio Type< 12 mths$M

1 - 5 years$M> 5 years
$M

Total
$M

Corporate

130,830

140,947

17,694No Maturity
Specified$M
126

289,597

Sovereign

87,943

46,864

18,133-

152,940

Bank

39,751

15,026368-

55,145278

832

345,496

27,215373,821

Sep 19Residential Mortgage
Qualifying Revolving Retail

-

-

-

16,647

16,647

Other Retail

13,208

5,975

17,188-36,371

Qualifying Central Counterparties

6,522

1,584

808

434

9,348

Specialised Lending

17,86623,243

2,197

42

43,348

Total exposures

296,398

234,471401,884

44,464

977,21711No Maturity Specified predominately includes credit cards and residential mortgage equity manager accounts.

32

ANZ Basel III Pillar 3 disclosure

September 2020

Table 7(f) part (i): Impaired assets12 13, Past due loans14, Provisions and Write-offs by Industry sector
Sep 20Industry Sector

Impairedderivatives$M

Impairedloans/
facilities$M

Past dueloans ≥ 90
days
$M

Individual
provisionbalance
$M

101

104

Individual
provision
charge forhalf year$M
30

Write-offs
for halfyear$M

Agriculture, Forestry, Fishing &MiningBusiness Services

-

601

30

-

104

50

57

27

25

Construction

-

91

63

44

23

10

Electricity, gas and water supply

-

10

1

9

11

11

Entertainment Leisure & Tourism

-

118

59

63

21

8

Financial, Investment & Insurance

-

62

35

27

5

4

Government & Official Institutions

-

-

-

-

-

-

Manufacturing

-

77

28

35

11

13

Personal

-

777

3,107

312

189

232

Property Services

-

142

49

35

4

3

Retail Trade

-

304

80

90

16

24

Transport & Storage

1

113

26

46

18

6

Wholesale Trade

-

68

38

20

19

256

Other

-

75

123

49

21

18

Total

1

2,542

3,760

891

395

640

Impaired derivatives are net of credit value adjustment (CVA) of $2 million, being a market value based assessment of the credit riskof the relevant counterparties (March 2020: $3 million; September 2019: $7 million).

12

Impaired loans / facilities include restructured items of $254 million for customer facilities in which the original contractual terms havebeen modified for reasons related to the financial difficulties of the customer. Restructuring may consist of reduction of interest, principal
or other payments legally due, or an extension in maturity materially beyond those typically offered to new facilities with similar risk
(March 2020: $226 million; September 2019: $267 million).

13

For regulatory reporting, not well secured portfolio managed retail exposures have been reclassified from past due loans ≥ 90 days to
impaired loans / facilities.

14

33

ANZ Basel III Pillar 3 disclosure

September 2020

Table 7(f) part (i): Impaired assets, Past due loans, Provisions and Write-offs by Industry sector(continued)
Mar 20Industry Sector

Impairedderivatives$M

Impairedloans/
facilities$M

Past dueloans ≥ 90
days
$M

Individual
provisionbalance
$M

-

519

116

104

Individual
provision
charge forhalf year$M(14)

Write-offs
for halfyear$M

Agriculture, Forestry, Fishing &MiningBusiness Services

8

-

81

46

49

13

20

Construction

-

90

67

43

9

25

Electricity, gas and water supply

-

11

1

10

-

1

Entertainment Leisure & Tourism

-

120

64

55

30

17

Financial, Investment & Insurance

-

69

18

26

11

29

Government & Official Institutions

-

-

-

-

-

-

Manufacturing

-

74

38

42

20

28

Personal

-

786

2,822

254

183

273

Property Services

-

143

52

52

12

3

Retail Trade

-

292

88

115

76

23

Transport & Storage

1

116

25

39

17

7

Wholesale Trade

-

348

38

259

248

22

Other

-

81

114

45

21

13

Total

1

2,730

3,489

1,093

626

469

Impairedderivatives$M

Impairedloans/
facilities$M

Past dueloans ≥ 90
days
$M

Individual
provisionbalance$M

Write-offs
for half
year
$M

-

538

133

107

Individual
provision
charge forhalf year$M
23

Sep 19Industry Sector

Agriculture, Forestry, Fishing &MiningBusiness Services

18

-

104

42

58

24

11

Construction

-

117

77

58

17

25

Electricity, gas and water supply

-

13

1

13

-

1

Entertainment Leisure & Tourism

-

101

59

42

22

24

Financial, Investment & Insurance

-

59

16

40

-

17

Government & Official Institutions

-

-

-

-

-

-

Manufacturing

-

71

44

37

8

36

Personal

-

712

2,974

265

219

358

Property Services

-

53

52

30

7

4

Retail Trade

-

112

98

58

26

24

Transport & Storage

-

71

22

28

10

10

Wholesale Trade

-

111

33

34

11

10

Other

-

87

73

44

31

40

Total

-

2,149

3,624

814

398

578

34

ANZ Basel III Pillar 3 disclosure

September 2020

Table 7(f) part (ii): Impaired asset, Past due loans, Provisions and Write-offs
Sep 20
Impairedderivatives$M

Impairedloans/
facilities$M

Past dueloans ≥
90 days$M

Individual
provisionbalance$M

Individual
provision
charge forhalf year$M

Writeoffs
for half
year$M

Corporate

-

1,298

212

385

126

340

Sovereign

-

-

-

-

-

-

Bank

-

-

-

-

-

-

Residential Mortgage

-

549

3,004

136

39

32
107

Portfolios subject to Advanced IRB approach

Qualifying Revolving Retail

-

47

-

-

79

Other Retail

-

416

469

248

133

131

Total Advanced IRB approach

-

2,310

3,685

769

377

610

Specialised Lending

-

79

31

14

3

2

Portfolios subject to Standardised
approachCorporate

1

135

28

106

12

18

Residential Mortgage

-

9

16

2

2

2

Other Retail

-

9

-

-

1

8

Total Standardised approach

1

153

44

108

15

28

Qualifying Central Counterparties

-

-

-

-

-

-

Total

1

2,542

3,760

891

395

640

35

ANZ Basel III Pillar 3 disclosure

September 2020

Table 7(f) part (ii): Impaired asset, Past due loans, Provisions and Write-offs (continued)
Mar 20
Impairedderivatives$M

Impairedloans/
facilities$M

Past dueloans ≥
90 days$M

Individual
provisionbalance$M

Individual
provision
charge forhalf year$M

Writeoffs
for half
year$M

Corporate

-

1,500

218

645

356

87

Sovereign

-

-

-

-

-

-

Bank

-

-

-

-

-

-

Residential Mortgage

-

504

2,791

128

30

47
113

Portfolios subject to Advanced IRB approach

Qualifying Revolving Retail

-

78

-

-

81

Other Retail

-

417

425

225

155

196

Total Advanced IRB approach

-

2,499

3,434

998

622

443

Specialised Lending

-

71

27

14

9

-

Portfolios subject to Standardised
approachCorporate

1

139

14

74

(5)

24

Residential Mortgage

-

10

9

7

-

1

Other Retail

-

11

5

-

-

1

Total Standardised approach

1

160

28

81

(5)

26

Qualifying Central Counterparties

-

-

-

-

-

-

Total

1

2,730

3,489

1,093

626

469

Impairedderivatives$M

Impairedloans/
facilities$M

Past dueloans ≥
90 days$M

Individual
provisionbalance$M

Individual
provision
charge forhalf year$M

Writeoffs
for half
year$M

Corporate

-

1,038

248

369

75

89

Sovereign

-

-

-

-

-

-

Bank

-

-

-

-

-

-

Residential Mortgage

-

438

2,943

137

37

67
126

Sep 19Portfolios subject to Advanced IRB approach

Qualifying Revolving Retail

-

69

-

-

87

Other Retail

-

442

379

221

187

264

Total Advanced IRB approach

-

1,987

3,570

727

386

546

Specialised Lending

-

31

33

5

(2)

1

Portfolios subject to Standardised
approachCorporate

-

106

14

75

11

26

Residential Mortgage

-

10

6

7

3

1

Other Retail

-

15

1

-

-

4

Total Standardised approach

-

131

21

82

14

31

Qualifying Central Counterparties

-

-

-

-

-

-

Total

-

2,149

3,624

814

398

578

36

ANZ Basel III Pillar 3 disclosure

September 2020

Table 7(g): Impaired assets15 16, Past due loans17 and Provisions18 by Geography
Sep 20Geographic region-

Impairedloans/
facilities
$M
1,973

New Zealand

-

392

467

119

Asia Pacific, Europe and America

1

177

48

84

610

Total

1

2,542

3,760

891

5,008

Impairedderivatives$M

Past dueloans≥ 90 days$M
3,106

Individual
provisionbalance$M
670

Collective
provisionbalance
$M
3,222
657

Australia

Impairedderivatives$M

Past dueloans≥ 90 days$M
3,245

Individual
provisionbalance$M
688

Collective
provisionbalance
$M
3,727
671

Mar 20Geographic region-

Impairedloans/
facilities
$M
1,961

New Zealand

-

312

356

96

Asia Pacific, Europe and America

1

457

27

327

622

Total

1

2,730

3,489

1,093

4,501

Impairedderivatives$M

Past dueloans≥ 90 days$M
3,312

Individual
provisionbalance$M
598

Collective
provisionbalance
$M
2,470
451

Australia

Sep 19Geographic region

Australia-

Impairedloans/
facilities
$M
1,678

New Zealand

-

301

292

101

Asia Pacific, Europe and America

-

170

20

115

455

Total

-

2,149

3,624

814

3,376

Impaired derivatives are net of credit value adjustment (CVA) of $2 million, being a market value based assessment of the credit riskof the relevant counterparties (March 2020: $3 million; September 2019: $7 million).

15

Impaired loans / facilities include restructured items of $254 million for customer facilities in which the original contractual terms havebeen modified for reasons related to the financial difficulties of the customer. Restructuring may consist of reduction of interest, principal
or other payments legally due, or an extension in maturity materially beyond those typically offered to new facilities with similar risk
(March 2020: $226 million; September 2019: $267 million).

16

17
For regulatory reporting, not well secured portfolio managed retail exposures have been reclassified from past due loans ≥ 90 days to
impaired loans / facilities.

Due to definitional differences, there is a variation in the split between ANZ’s Individual Provision and Collective Provision for accounting
purposes and the Specific Provision and General Reserve for Credit Losses (GRCL) for regulatory purposes. This does not impact total
provisions, and essentially relates to the classification of collectively assessed provisions on defaulted accounts. The disclosures in thisdocument are based on Individual Provision and Collective Provision, for ease of comparison with other published results.

18

37

ANZ Basel III Pillar 3 disclosure

September 2020

Table 7(h): Provision for Credit Impairment

Half year
Sep 20$M

Half year
Mar 20$M

Half year
Sep 19
$M

4,501

3,376

3,378

669

1,048

4

Adjustment for exchange rate fluctuations and transfers

(114)

77

6

UDC Divestment

(48)

-

-

Asia divestment

-

-

(11)

less: Investment securities at FVOCI

-

-

1

5,008

4,501

3,376

1,093

814

891

675

900

750

Write-backs

(165)

(170)

(233)

Adjustment for exchange rate fluctuations and transfers

(38)

28

2

Discount unwind

(12)

(10)

(12)

Bad debts written off

(640)

(469)

(578)

UDC Divestment

(22)

-

-

Asia divestment

-

-

(6)

Total Individually Assessed Provision

891

1,093

814

Total Provisions for Credit Impairment

5,899

5,594

4,190

General Reserve for
Credit Losses
$M
4,524

Total
$M

Collectively Assessed Provision

Specific Provision
Balance
$M
484

5,008

Individually Assessed Provision

891

-

891

1,375

4,524

5,899

General Reserve for
Credit Losses
$M
4,028

Total
$M

Collectively Assessed Provision

Specific Provision
Balance
$M
473

4,501

Individually Assessed Provision

1,093

-

1,093

Total Provision for Credit Impairment

1,566

4,028

5,594

General Reserve for
Credit Losses
$M
2,941

Total
$M

Collectively Assessed Provision

Specific Provision
Balance$M
435

Individually Assessed Provision

814

-

814

1,249

2,941

4,190

Collectively Assessed Provision
Balance at start of period
Charge/(Release) to Income Statement

Total Collectively Assessed Provision

Individually Assessed Provision
Balance at start of period
New and increased provisions

Table 7(j): Specific Provision Balance and General Reserve for Credit Losses19
S

Sep 20Total Provision for Credit Impairment

Mar 20

Sep 19Total Provision for Credit Impairment

3,376

Due to definitional differences, there is a variation in the split between ANZ’s Individual Provision and Collective Provision for accounting
purposes and the Specific Provision and General Reserve for Credit Losses (GRCL) for regulatory purposes. This does not impact total
provisions, and essentially relates to the classification of collectively assessed provisions on defaulted accounts. The disclosures in thisdocument are based on Individual Provision and Collective Provision, for ease of comparison with other published results.

19

38

ANZ Basel III Pillar 3 disclosure
Table 8September 2020

Credit risk – Disclosures for portfolios subject to the Standardised approach and supervisoryrisk weights in the IRB approach

Table 8(b): Exposure at Default by risk bucket20
Sep 20Mar 20

Sep 19

$M

$M

$M

0%

-

4

1

20%

241

369

277

Standardised approach exposures

35%

195

210

195

50%

2,429

2,826

2,680

75%

-

-

-

100%

8,830

12,790

10,152

150%

329

277

184

>150%

-

12

3

Capital deductions

-

-

-

12,024

16,48813,492

Total
Other Asset exposures
0%

-

-

-

20%

708

649

767

35%

-

-

-

50%

-

-

-

75%

-

-

-

100%

4,234

4,867

3,127

150%

-

-

-

>150%

-

-

-

Capital deductions

-

-

-

4,942

5,516

3,894

Total
Specialised Lending exposures
0%

158

165

181

70%

20,78723,87820,691

90%

22,235

20,864

19,869

115%

2,731

2,401

1,900

250%

519

1,128

707

Total

46,43048,436

43,34820

Table 8(b) shows exposure at default after credit risk mitigation in each risk category.

39

ANZ Basel III Pillar 3 disclosure
Table 9September 2020

Credit risk – Disclosures for portfolios subject to Advanced IRB
approaches

Portfolios subject to the Advanced IRB (AIRB) approach
The following table summarises the types of borrowers and the rating approach adopted within each of ANZ’s AIRB
portfolios:
IRB Asset Class

Borrower Type

Rating Approach

Corporate

Corporations, partnerships or proprietorships that do not fit
into any other asset class

AIRB

Sovereign

Central governments
Central banks
Certain multilateral development banks

AIRB

Bank

Banks21
In Australia only, other authorised deposit taking institutions(ADI) incorporated in Australia

AIRB

Residential Mortgages

Exposures secured by residential property

AIRB

Qualifying Revolving
RetailConsumer credit cards <$100,000 limit

AIRB

Other Retail

Small business lending
Other lending to consumers

AIRB

Specialised Lending

Income Producing Real Estate22
Project financeObject finance

AIRB – Supervisory
Slotting23

Other Assets

All other assets not falling into the above classes e.g. margin
lending, fixed assets

AIRB – fixed risk
weights

In addition, ANZ has applied the Standardised approach to some portfolio segments (mainly retail and local corporates
in Pacific, and local corporates in Asia) where currently available data does not enable development of advanced internal
models for PD, LGD and EAD estimates. Under the Standardised approach, exposures are mapped to several regulatory
risk weights, mainly based on the type of counterparty and its external rating. For these counterparties, external ratings
by Standard & Poor’s and Moody’s Investors Service are used as inputs into the RWA calculation. As described in thesection on the ANZ rating system, ANZ has mapped its master scale to the grading of these two External Credit
Assessment Institutions (ECAIs).
ANZ applies its full normal risk measurement and management framework to these segments for internal management
purposes, such as for economic capital. Standardised segments will be migrated to AIRB if they reach a volume thatgenerates sufficient data for development of advanced internal models.
ANZ has not applied the Foundation IRB approach to any portfolios.
The ANZ rating system
As an AIRB bank, ANZ’s internal models generate the inputs into regulatory capital adequacy to determine the risk
weighted exposure calculations for both on and off-balance sheet exposures, including undrawn portions of credit
facilities, committed and contingent exposures and EL calculations. ANZ’s internal models are used to generate the three
key risk components that serve as inputs to the IRB approach to credit risk:PD is an estimate of the level of the risk of borrower default. Borrower ratings are derived by way of rating models
used both at loan origination and for ongoing monitoring.



EAD is defined as the expected facility exposure at the date of default.



LGD is an estimate of the potential economic loss on a credit exposure, incurred as a consequence of obligor default
and expressed as a percentage of the facility’s EAD. ANZ’s LGD also includes recognition of the different legal andinsolvency regimes in different countries, where this has been shown to influence recovery outcomes.

21

The IRB asset classification of investment banks is Corporate, rather than Bank.

Since 2009, APRA has agreed that some large, well-diversified commercial property exposures may be treated as corporate exposures,in line with the original Basel Committee’s definition of Specialised Lending.

22

23

ANZ uses an internal assessment which is mapped to the appropriate Supervisory Slot.

40

ANZ Basel III Pillar 3 disclosure

September 2020

Effective maturity is also calculated as an input to the risk weighted exposure calculation for bank, sovereign andcorporate IRB asset classes.
ANZ’s rating system has two separate and distinct dimensions that:

Measure the PD, which is expressed by the Customer Credit Rating (CCR), reflecting the ability to service and repay
debt.



Measure the LGD as expressed by the Security Indicator (SI) ranging from A to G. The SI is calculated by reference
to the percentage of a loan covered by security which can be realised in the event of default. This calculation uses
standard ratios to adjust the current market value of collateral items to allow for historical realisation outcomes. The
security-related SIs are supplemented with a range of other SIs which cover such factors as cash cover, mezzanine
finance, intra-group guarantees and sovereign backing as ANZ’s LGD research indicates that these transaction
characteristics have different recovery outcomes. ANZ’s LGD also includes recognition of the different legal andinsolvency regimes in different countries, where this has been shown to influence recovery outcomes.

ANZ’s corporate PD master scale is APRA approved, and is made up of 27 rating grades. Each level/grade is separately
defined and has a range of default probabilities attached to it. The PD master scale enables ANZ’s rating system to bemapped to the grading’s of external rating agencies, using the PD as a common element after ensuring that default
definitions and other key attributes are aligned.
The following table demonstrates this alignment (for one year PDs):
ANZ CCR

Moody’sStandard & Poor’s

PD Range

0+ to 1-

Aaa to Aa3

AAA to AA-

0.0000 - 0.0346%

2+ to 3+

A1 to Baa1

A+ to BBB+

0.0347 - 0.1636%

3= to 4+

Baa2 to > Baa3

BBB to > BB+

0.1637 - 0.4004%

4= to 6=

Ba1 to B1

BB+ to B+

0.4005 – 2.7550%

6- to 7=

B2 to B3

B to B-

2.7551 – 9.7980%

7- to 8+Caa

CCC

9.7981 – 27.1109%

8=

Ca, C

CC, C

27.1110 – 99.9999%

8-, 9 and 10

Default

Default

100%

In the retail asset classes, most facilities utilise credit rating scores. The scores are calibrated to PDs, and used to allocate
exposures to homogenous pools, along with LGD and EAD.
Use of internal estimates other than for regulatory capital purposes
ANZ’s rating system is a fundamental part of credit management and plays a key role in:Lending discretions,

Minimum origination standards,

Concentration limits,Portfolio reporting,Customer profitability measurement,Collectively assessed provision measurement,Management of deteriorating customers (where certain CCR/SI combinations trigger increasing scrutiny),and

Pricing decisions.

41

ANZ Basel III Pillar 3 disclosure

September 2020

PD, LGD and EAD are used in the calculation of capital and in the collectively assessed provisioning process. Regulatory
and economic capital are calculated from the same data sources and starting from the same basis, however there aresome differences between the factors used because several aspects of ANZ’s rating system are adjusted in accordancewith APRA requirements for regulatory capital purposes. The most significant of these adjustments are the use forregulatory capital purposes of downturn LGDs; the imposition of a 20% LGD floor for exposures secured by Australianresidential real estate and the mandatory use of the supervisory slotting approach for project finance and mostcommercial real estate exposures.
Controls surrounding the ratings system
ANZ’s rating system and credit risk estimates are governed by the Board Risk Committee and several executive
management committees, and are underpinned by a comprehensive framework of controls that operate throughout
ANZ. All policies, methodologies, model designs, model reviews, validations, responsibilities, systems and processes
supporting the ratings systems are documented, and subject to review by Global Internal Audit.
The design, build and implementation of credit rating models resides with a specialist Group-level team. Credit rating
models are owned by central Risk teams. The use (including overrides) and performance of credit rating models ismonitored by the relevant business and their counterparts in Risk, and validated regularly by a separate specialist
Group-level function. This cycle of design, build, implementation, monitoring and validation is overseen by the CRSOC,
and informs the need for new models or recalibration of existing models.
Group Credit Assurance (within Global Internal Audit) provides third line independent credit related assurance activities,
including providing an independent assessment of both the asset quality in the portfolio and the quality of credit decision
making. It also assesses management controls from a “top down” portfolio oversight perspective as well as credit risk
processes from a “bottom up” perspective based on individual customer file reviews.
Risk grades are an integral part of reporting to the Board and executives.
In addition, the use of the rating system’s outputs in key business unit performance measures in processes such asprovisioning and the allocation of capital ensure that the rating system receives robust input from the business units,
not just the specialist modelling teams.
Rating process by asset class
Building reliable and accurate rating tools requires balancing of many factors including data availability (external data
may be used in some circumstances, where it is relevant), the size of the segment (the more customers within thesegment, the more likely that statistically reliable models can be built), and the need to be able to validate the model.
Rating tool approaches include:

Statistical models producing a PD or a LGD, which are developed from internal or external data on defaults.



Statistical models producing an internal rating, which involve calibrating ANZ’s models to external rating data wheredata on defaults is insufficient for statistical purposes (such as banks).

Hybrid statistical and expert models producing an internal rating, which use a mixture of default data and expert
input.



Expert models/processes that produce an internal rating, including external rating agency replication models.

Ongoing data collection and testing processes ensure enhanced or new models are introduced as required to maintainand improve the accuracy and reliability of rating processes.

42

ANZ Basel III Pillar 3 disclosure

September 2020

Regardless of what credit risk rating tool is used, lending staff rating a customer are required to review the modelgenerated PD (or CCR) and take into account any out-of-model factors or policy overlays to decide whether or not tooverride the model rating. Overrides of a rating model to a better rating require approval from the independent credit
risk function. The significance of the model for risk grading varies with the customer segment: models will dominate
risk grading of homogenous, simple and data-rich segments such as in Retail, however for complex, specialised businesssegments expert knowledge and the highly customised nature of transactions will influence the rating outcome.
The following table summarises the types of internal rating approaches used in ANZ:IRB Asset Class

Borrower type

Rating Approach

Corporate

Corporations, partnerships or
proprietorships that do not fit into any otherasset class

Mainly statistical models
Some use of expert models and policy
processes

Sovereign

Central governments
Central banks
Certain multilateral development banks
Australian state governments

External rating and expert
judgement

Bank

Banks
In Australia only, other ADIs
incorporated in Australia

Statistically-based models
Review of all relevant and material
information including externalratings

Residential
Mortgages

Exposures secured by residential property

Statistical models

Qualifying Revolving
RetailConsumer credit cards <$100,000 limit

Statistical models

Other Retail

Small business lending
Other lending to consumers

Statistical models

Specialised Lending

Income Producing Real Estate
Project financeObject financeExpert models/Supervisory
Slotting24

Estimation of LGD and EAD
ANZ’s LGD modelling takes into account data on secured recovery, unsecured recovery rates and debt seniority,
geography and internal management costs from several major data sources. Internal data is used as the basis for LGD
estimation in the retail asset class, and is supplemented by external data for the corporate asset class. Given the scarcity
of internal data for Bank and Sovereign Basel asset classes, LGD modelling for these classes is primarily based on
external data.
EAD represents the expected facility exposure at the date of default, including an estimate of additional drawings prior
to default, as well as post-default drawings that were legally committed to prior to default.

Specialised Lending exposures are rated with internal rating tools to produce a PD and LGD. These are used in internal processes, but
not for regulatory capital purposes where the exposures are mapped to Supervisory Slots.

24

43

ANZ Basel III Pillar 3 disclosure

September 2020

Table 9(d): Non Retail Exposure at Default subject to Advanced Internal Ratings Based (IRB) approach25 26
27

Sep 20
AAA
< A+
$M

A+
< BBB
$M

BBB
< BB+
$M

BB+
< B+
$M

B+
< CCC
$M

CCC
$M

Default
$M

Total
$M

Corporate

24,60382,12891,67956,616

14,593

2,239

2,556

274,414

Sovereign

155,797

23,676

3,109

2,253

1,737

13

20

186,605

Bank

8,054

28,841

4,099

1,129

43

5

-

42,171

Total

188,454

134,645

98,88759,99816,373

2,257

2,576

503,190

37.5%

26.7%

19.7%

11.9%

3.3%

0.4%

0.5%

100.0%

Exposure at Default% of Total

Undrawn commitments (included in above)
Corporate

8,736

33,47529,496

9,381

1,658

263

180

83,189Sovereign

1,680

86

113

181

23

-

-

2,083

Bank

1

555

26

-

1

-

-

583

Total

10,417

34,116

29,635

9,562

1,682

263

180

85,855

Average Exposure at Default
Corporate

15.011

10.685

2.206

0.856

0.300

0.473

0.830

1.582

Sovereign

168.430215.233

37.45818.77548.251

1.636

2.479

144.655

6.820

7.889

5.654

7.953

1.190

0.235

-

7.321
47.6%

Bank

Exposure-weighted average Loss Given Default (%)
Corporate

58.4%

56.1%

46.7%

36.5%

31.6%

43.3%

40.8%

Sovereign

6.3%

12.0%

35.6%

22.6%

54.8%

63.0%

11.6%

8.2%

Bank

57.4%

59.1%

64.3%

67.9%

69.7%

66.9%

-

59.5%
49.5%

Exposure-weighted average risk weight (%)
Corporate

19.0%

32.3%

53.1%

63.4%

79.6%

225.7%

135.4%

Sovereign

1.4%

3.3%

33.6%

43.1%

148.7%

280.7%

-

4.0%

Bank

15.5%

25.4%

65.5%

120.4%

220.5%

422.3%-

30.2%

In accordance with APS 330, EAD in Table 9(d) includes Advanced IRB exposures and excludes Specialised Lending, Standardised,
Securitisation, Equities or Other Assets exposures. Specialised Lending is excluded from Table 9(d) as it follows the Supervisory Slotting
treatment, and a breakdown of risk weightings is provided in Table 8(b).

25

26

Average EAD is calculated as total EAD post risk mitigants divided by the total number of credit risk generating exposures.

27

Exposure-weighted average risk weight (%) is calculated as CRWA divided by EAD.

44

ANZ Basel III Pillar 3 disclosure

September 2020

Table 9(d): Non Retail Exposure at Default subject to Advanced Internal Ratings Based (IRB) approach(continued)
Mar 20
AAA
< A+
$M

A+
< BBB
$M

BBB
< BB+
$M

BB+
< B+
$M

B+
< CCC
$M

CCC
$M

Default
$M

Total
$M

Corporate

34,797

97,236

96,962

58,955

15,175

2,436

2,420

307,981

Sovereign

160,894

31,038

2,212

1,037

2,082

14

-

197,277

Bank

20,51036,251

5,767

1,087

27

7

-

63,649

Total

216,201

164,525

104,941

61,07917,284

2,457

2,420

568,907

38.0%

28.9%

18.4%

10.7%

3.0%

0.4%

0.4%

100.0%

Exposure at Default% of Total

Undrawn commitments (included in above)
Corporate

9,265

36,31522,743

8,587

1,743

311

67

79,031

Sovereign

1,515

19

1

20

24

-

-

1,579

Bank

-

519

33

3

1

-

-

556

Total

10,78036,853

22,777

8,610

1,768

311

67

81,166

Average Exposure at Default
Corporate

15.79510.623

1.988

0.730

0.136

0.239

0.669

1.160

Sovereign

192.458

408.39438.13812.20026.3522.293-

172.596

3.743

4.551

4.372

5.275

0.671

0.314

-

4.264
48.7%

Bank

Exposure-weighted average Loss Given Default (%)
Corporate

56.1%

56.8%

47.7%

37.0%

33.1%

40.5%

41.3%

Sovereign

5.1%

13.2%

39.0%

42.7%

51.8%

54.5%

-

7.4%

Bank

63.4%

61.9%

65.4%

68.6%

72.0%

67.9%

-

62.8%
48.8%

Exposure-weighted average risk weight (%)
Corporate

17.2%

32.9%

53.5%

62.9%

84.9%

200.1%

127.0%

Sovereign

0.8%

3.4%

37.5%

75.6%

139.6%

282.1%

-

3.5%

Bank

19.9%

26.1%

66.3%

121.2%

224.4%

416.2%

-

29.3%

AAA
< A+
$M

A+
< BBB
$M

BBB
< BB+
$M

BB+
< B+
$M

B+
< CCC
$M

CCC
$M

Default
$M

Total
$M

Corporate

28,676

83,29288,656

56,847

14,923

2,151

2,054

276,599

Sovereign

121,380

26,556

2,315

898

1,768

22

1

152,940

Bank

17,972

31,295

4,321

1,529

24

4

-

55,145

Total

168,028

141,143

95,292

59,274

16,715

2,177

2,055

484,684

34.8%

29.1%

19.7%

12.2%

3.4%

0.4%

0.4%

100.0%

Sep 19Exposure at Default% of Total

Undrawn commitments (included in above)
Corporate

7,689

32,16822,657

8,018

1,620

205

58

72,415

Sovereign

1,194

54

1

10

4

-

-

1,263

Bank

47

442

28

-

2

-

-

519

Total

8,930

32,664

22,686

8,028

1,626

205

58

74,197

Average Exposure at Default
Corporate

12.281

10.124

1.790

0.698

0.133

0.217

0.730

1.039

Sovereign

166.960

491.771

38.586

11.66221.047

5.615

0.204

151.426

6.600

6.072

4.163

4.444

0.654

0.240

-

5.922
47.7%

Bank

Exposure-weighted average Loss Given Default (%)
Corporate

54.6%

56.5%

46.8%

36.8%

33.8%

39.2%

41.2%

Sovereign

5.1%

12.9%

40.8%

42.5%

51.4%

58.3%

5.6%

7.7%

Bank

63.9%

61.7%

64.3%

68.5%

67.7%

72.5%

-

62.8%
48.5%

Exposure-weighted average risk weight (%)
Corporate

17.1%

32.9%

52.9%

62.6%

88.3%

190.5%

108.0%

Sovereign

0.9%

3.3%

42.0%

80.8%

138.1%

318.9%

-

4.1%

Bank

19.5%

25.3%

63.7%

113.7%

183.3%

391.1%

-

29.0%

45

ANZ Basel III Pillar 3 disclosure

September 2020

Table 9(d): Retail Exposure at Default subject to Advanced Internal Ratings Based (IRB) approach by risk
grade
Sep 200.00%<0.11%$M

0.11%<0.30%$M

0.30%<0.51%$M

0.51%<3.49%$M

3.49%<10.09%$M

10.09%<100.00%$M

Default
$M

Total
$M

Residential Mortgage

87,86385,491

61,628141,183

9,430

3,117

3,600

392,312

Qualifying Revolving Retail

5,305

3,405

1,176

3,371

983

565

41

14,846

732

4,075

1,784

15,508

6,538

2,138

1,156

31,931

Total

93,90092,97164,588160,062

16,951

5,820

4,797

439,089% of Total

21.4%

21.2%

14.7%

36.5%

3.8%

1.3%

1.1%

100.0%

Exposure at Default

Other Retail

Undrawn commitments (included in above)
Residential Mortgage

21,988

5,682

1,656

6,792

32

29

1

36,180Qualifying Revolving Retail

3,999

2,641

800

1,506

298

58

2

9,304

672

3,297

900

3,088

869

180

29

9,035

26,659

11,6203,356

11,386

1,199

267

32

54,519Other Retail
Total
Average Exposure at Default
Residential Mortgage

0.260

0.220

0.270

0.280

0.310

0.310

0.280

0.259

Qualifying Revolving Retail

0.010

0.010

0.010

0.010

0.010

0.010

0.010

0.009

Other Retail

0.010

0.010

0.010

0.020

0.020

0.010

0.030

0.016

Exposure-weighted average Loss Given Default (%)
Residential Mortgage

19.7%

17.7%

19.6%

20.8%

20.2%

20.0%

19.7%

19.7%

Qualifying Revolving Retail

72.6%

76.0%

74.7%

78.8%

82.1%

81.1%

75.7%

75.9%

Other Retail

57.7%

64.3%

44.3%

41.1%

42.3%

53.5%

42.1%

45.7%

Exposure-weighted average risk weight (%)
Residential Mortgage

4.4%

10.8%

19.3%

40.8%

96.8%

144.7%

170.1%

26.1%

Qualifying Revolving Retail

3.4%

7.8%

15.6%

43.4%

102.1%

211.1%

117.5%

29.2%

Other Retail

37.6%

44.0%

34.4%

54.6%

79.2%

141.8%

190.1%

67.5%

46

ANZ Basel III Pillar 3 disclosure

September 2020

Table 9(d): Retail Exposure at Default subject to Advanced Internal Ratings Based (IRB) approach by risk
grade
Mar 200.00%<0.11%$M

0.11%<0.30%$M

0.30%<0.51%$M

0.51%<3.49%$M

3.49%<10.09%$M

10.09%<100.00%$M

Default
$M

Total
$M

Residential Mortgage

72,10398,98963,456

Qualifying Revolving Retail

5,464

3,607

1,242

132,126

6,725

3,336

3,347

380,082

3,872

1,245

624

74

Other Retail

1,132

5,585

16,128

1,943

19,367

4,056

1,959

975

Total

78,69935,017108,181

66,641

155,365

12,026

5,919

4,396

431,227% of Total

18.3%

25.1%

15.5%

35.9%

2.8%

1.4%

1.0%

100.0%

Exposure at Default

Undrawn commitments (included in above)
Residential Mortgage

15,431

7,705

3,061

7,497

33

29

-

33,756

Qualifying Revolving Retail

4,013

2,694

758

1,414

304

68

2

9,253

871

3,652

1,262

2,919

487

80

10

9,281

20,315

14,051

5,081

11,830

824

177

12

52,290

Other Retail
Total
Average Exposure at Default
Residential Mortgage

0.258

0.230

0.265

0.271

0.349

0.330

0.270

0.257

Qualifying Revolving Retail

0.009

0.008

0.008

0.010

0.010

0.007

0.009

0.009

Other Retail

0.008

0.017

0.011

0.024

0.008

0.012

0.025

0.016

Exposure-weighted average Loss Given Default (%)
Residential Mortgage

19.7%

18.0%

19.3%

20.8%

20.3%

20.0%

19.8%

19.6%

Qualifying Revolving Retail

72.9%

76.8%

75.0%

78.9%

82.2%

81.3%

75.7%

76.4%

Other Retail

55.0%

54.7%

71.7%

46.6%

68.2%

54.0%

46.0%

52.5%

Exposure-weighted average risk weight (%)
Residential Mortgage

5.8%

11.1%

19.0%

39.7%

93.9%

127.3%

178.0%

25.3%

Qualifying Revolving Retail

3.4%

7.8%

15.7%

44.2%

102.1%

203.6%

54.9%

30.7%

Other Retail

29.6%

37.0%

53.8%

59.4%

118.2%

166.3%

212.1%

71.6%

0.00%
<0.11%$M

0.11%<0.30%$M

0.30%<0.51%$M

0.51%<3.49%$M

3.49%<10.09%$M

10.09%<100.00%$M

Default
$M

Total
$M

Residential Mortgage

71,73898,31559,839129,754

6,916

3,383

3,431

373,376

Qualifying Revolving Retail

5,635

3,681

1,317

3,996

1,334

617

67

16,647

Other Retail

1,050

5,289

2,307

20,070

4,672

1,969

965

36,322

Total

78,423

107,285

63,463

153,820

12,922

5,969

4,463

426,345% of Total

18.4%

25.2%

14.9%

36.1%

3.0%

1.4%

1.0%

100.0%

Sep 19Exposure at Default

Undrawn commitments (included in above)
Residential Mortgage

15,322

7,393

2,870

7,233

33

32

-

32,883

Qualifying Revolving Retail

4,106

2,757

819

1,463

290

53

2

9,490

803

3,354

1,488

2,666

488

76

9

8,884

20,231

13,504

5,177

11,362

811

161

11

51,257

Other Retail
Total
Average Exposure at Default
Residential Mortgage

0.253

0.228

0.255

0.262

0.343

0.326

0.274

0.251

Qualifying Revolving Retail

0.009

0.008

0.008

0.010

0.010

0.006

0.009

0.009

Other Retail

0.008

0.016

0.011

0.024

0.009

0.011

0.027

0.016

Exposure-weighted average Loss Given Default (%)
Residential Mortgage

19.7%

18.3%

19.2%

20.8%

20.3%

20.0%

19.9%

19.6%

Qualifying Revolving Retail

75.6%

80.1%

77.7%

81.3%

84.9%

82.6%

83.5%

79.2%

Other Retail

55.9%

54.0%

73.6%

45.4%

67.3%

54.8%

45.6%

52.1%

Exposure-weighted average risk weight (%)
Residential Mortgage

5.9%

11.3%

19.0%

39.6%

93.9%

127.1%

197.0%

25.6%

Qualifying Revolving Retail

3.5%

8.1%

16.2%

45.0%

105.5%

203.0%

230.7%

32.0%

Other Retail

14.4%

22.7%

51.4%

59.1%

116.5%

170.9%

236.9%

70.2%

47

ANZ Basel III Pillar 3 disclosure

September 2020

Table 9(e): Actual Losses by portfolio type
Half year Sep 20
Basel Asset Class

Write-offs$M

Corporate

Individual provision
charge$M
126

Sovereign

-

-

Bank

-

-

39

32

Qualifying Revolving Retail

79

107

Other Retail

133

131

Total Advanced IRB

377

610

Residential Mortgage

340

Specialised Lending

3

2Standardised approach

15

28

395

640

Total

Half year Mar 20
Basel Asset Class

Write-offs$M

Corporate

Individual provision
charge$M
356

Sovereign

-

-

Bank

-

-

30

47

Qualifying Revolving Retail

81

113

Other Retail

155

196

Total Advanced IRB

622

443

Residential Mortgage

Specialised Lending

87

9

-

Standardised approach

(5)

26

Total

626

469

Half year Sep 19
Basel Asset Class

Write-offs$M

Corporate

Individual provision
charge$M
75

Sovereign

-

-

Bank

-

-

37

67

Qualifying Revolving Retail

87

126

Other Retail

187

264

Total Advanced IRB

386

546

Specialised Lending(2)

1Standardised approach

14

31

398

578

Residential Mortgage

Total

89

Factors impacting the loss experience
The individually assessed credit impairment charge decreased by $231 million driven by a single name impairment in
the March 2020 half in the AIRB Corporate asset class.
Write-offs increased $171 million over the half predominantly driven by a small number of single named exposures in
AIRB Corporate.

48

ANZ Basel III Pillar 3 disclosure

September 2020

Table 9(f): Average estimated vs. actual PD, EAD and LGD – Advanced IRB
Sep 20
Portfolio Type

Average
Estimated
PD%

Average
Actual PD%

Averageestimated toactual EAD
ratio

Average
Estimated
LGD%

Average
Actual LGD%

Corporate

2.04

1.85

1.14

41.72

34.47

Sovereign

0.41

-

n/a

n/a

n/a

Bank

0.64

0.07

1.02

46.00

58.30

Specialised Lending

n/a

1.94

1.06

n/a

26.30

Residential Mortgage

0.77

0.85

1.01

20.4

Qualifying Revolving Retail

1.6

2.13

1.74

1.09

77.4

Other Retail

4.05

3.05

1.05

52.4

69.0
41.4

APS 330 Table 9(f) compares internal credit risk estimates used in calculating regulatory capital with realised outcomesby portfolio types. It covers the PD, EAD and LGD estimates for the IRB portfolios.
Estimated PD and LGD for Specialised Lending exposures have not been provided, since APRA requires the use of
supervisory slotting for Regulatory EL calculations. Actual PD, EAD ratio, Estimated LGD and Actual LGD for Sovereign
exposures have not been provided, since there were no Sovereign defaults observed in ANZ Sovereign exposures forthe observation period.
Wholesale Portfolios
The estimated PD is based on the average of the internally estimated long-run PDs for obligors that are not in default at
the beginning of each financial year over the period of observation being 2009 to 2019. The actual PD is based on thenumber of defaulted obligors up to August 2020 compared to the total number of obligors measured.
The EAD ratio compares internally estimated EAD prior to default to realised EAD for defaulted obligors over the 11 yearsof observation being 2009 to August 2020. A ratio greater than 1.0 signifies that on average, the actual defaulted
exposures are lower than the estimated exposures at the time of default.
The estimated LGD is the downturn LGD for accounts that defaulted at the beginning of each year during the observation
period being 2009 to September 2018. The actual LGD is based on the average realised losses captured over the period
for the accounts observed at the beginning and defaulted during the observation period. For non-retail portfolios, theestimated and actual LGDs are based on accounts that defaulted up to September 2018. Defaults occurring after
September 2018 have been excluded from the analysis to allow sufficient time for workout period. Actual LGD for defaults
where workouts were not finalised have been estimated to approximate the final actual loss. Defaults where no loss data
has been captured are excluded from the LGD calculation.
Retail Portfolios
The estimated PD is based on the average of the internally estimated long-run PDs for obligors that are not in default at
the beginning of each financial year over the period of observation being 2015 to 2019. The actual PD is based on thenumber of defaulted obligors up to September 2020 compared to the total number of obligors measured.
The EAD ratio compares internally estimated EAD prior to default to realised EAD for defaulted obligors over the periodof observation being 2015 to 2019. A ratio greater than 1.0 signifies that on average, the actual defaulted exposures
are lower than the estimated exposures at the time of default.
The estimated LGD is the downturn LGD for accounts that defaulted at the beginning of each year during the observation
period being 2014 to 2018. The actual LGD is based on the average realised losses over the period for the accounts
observed at the beginning and defaulted during the observation period. Defaults occurring after September 2019 havebeen excluded from the analysis to allow sufficient time for workout period.

49

ANZ Basel III Pillar 3 disclosure

Table 10

September 2020

Credit risk mitigation disclosures

Main types of collateral taken by ANZ
Collateral is used to mitigate credit risk, as the secondary source of repayment in case the counterparty cannot meetits contractual repayment obligations.28 Types of collateral typically taken by ANZ include:Charges over residential, commercial, industrial or rural property,Charges over business assets,

Charges over specific plant and equipment,Charges over listed shares, bonds or securities,

Charges over cash deposits, and

Guarantees and pledges.

Cash and securities under Credit Support Annex (CSA) and Global Master Repurchase Agreement (GMRA) for
Counterparty credit risk in derivative and repo transactions

In some cases, such as where the customer risk profile is considered very sound or by the nature of the product, atransaction may not be supported by collateral.
Our credit policy, requirements and processes set out the acceptable types of collateral, as well as a process by which
additional instruments and/or asset types can be considered for approval. ANZ’s credit risk modelling teams use
historical internal loss data and other relevant external data to assist in determining the discount that each type would
be expected to incur in a forced sale. The discounted value is used in the determination of the SI and LGD.
For derivative transactions, APRA’s CPS 226 “Margining and risk mitigation for non-centrally cleared derivatives” hasmandated Variation Margin and Initial Margin arrangements between covered entities, subject to trading volume
thresholds. The operation of collateral agreements falls under a policy which establishes the control framework designed
to ensure a robust and globally consistent approach to the management of collateralised exposures, as well ascompliance with CPS 226 obligations.
Policies and processes for collateral valuation and management
ANZ has well established policies, requirements and processes around collateral valuation and management that are
reviewed regularly. The concepts of legal enforceability, certainty and current valuation are central to collateralmanagement.
In order to achieve legal enforceability and certainty, ANZ uses standard collateral instruments or has specificdocumentation drawn up by external legal advisers, and where applicable, security interests are registered. The use ofcollateral management systems also provides certainty that the collateral has been properly taken, registered andstored.
In order to rely on the valuation of collateral assets, ANZ has developed comprehensive rules around acceptable typesof valuations (including who may value an asset), the frequency of revaluations and standard extension ratios for typicalasset types. Upon receipt of a new valuation in wholesale lending, the information is used to recalculate the SI (or toreassess the adequacy of the provision, in the case of an impaired asset), thereby ensuring that the exposure has an
updated LGD attached to it for risk quantification purposes.
Guarantee support
Within wholesale lending, guarantee support for lending proposals is an integral component in transaction structuring
for ANZ. The guarantee of a financially stronger party can help improve the PD or LGD of a transaction through its
explicit support of the weaker rated borrower.
Guarantees that are recognised for risk rating purposes may be provided by parties that include associated entities,banks, sovereigns or individuals. Credit requirements provide threshold parameters to determine acceptablecounterparties in achieving risk grade enhancement of the transaction.
The suitability of the guarantor is determined by risk rating that guarantor. Not all guarantees or guarantors arerecognised for risk grading purposes.

For some products, the collateral provided is fundamental to its structuring so is not strictly the secondary source of repayment. For
example, lending secured by trade receivables is typically repaid by the collection of those receivables.

28

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ANZ Basel III Pillar 3 disclosure

September 2020

Use of credit derivatives for risk mitigation
ANZ uses purchased credit derivatives to mitigate credit risk by lowering exposures to reference entities that generatehigh concentration risk exposures or to improve risk return performance. Only certain credit derivatives such as credit
default swaps (CDS) are recognised for risk mitigation purposes in the determination of regulatory capital. Standard,
legally enforceable documentation applies.
For regulatory capital purposes, ANZ only recognises protection using credit derivatives where they meet several policy
and regulatory requirements around the strength of the protection offered such as being irrevocable.
A CDS may only be transacted with banks and non-bank financial institutions that have been credit assessed andapproved by a designated specialist credit officer. All parties must meet minimum credit standards and be allocated a
related credit limit. In the event that the creditworthiness of a credit protection provider falls below the minimum
required to provide effective protection, the protection is no longer recognised as an effective risk mitigant for regulatory
purposes.
Additionally, ANZ uses market instruments, mainly interest rate and foreign exchange derivatives, as well as CDS
Indices to hedge the Credit value adjustment (CVA) mark to market volatility of the markets derivative portfolio.
The use of netting
Netting is a form of credit risk mitigation in that it reduces EAD, by offsetting a customer’s positive and negativebalances with ANZ.
In order to apply on-balance sheet netting, the arrangement must be specifically documented with the customer andmeet a number of legally enforceable requirements.
Netting is also used where the credit exposure arises from off-balance sheet market related transactions. For close-out
netting to be utilised with counterparties, a legally enforceable eligible netting agreement in an acceptable jurisdiction
must be in place. This means that each transaction is aggregated into a single net amount and transactions are netted
to arrive at a single overall sum.
Transaction structuring to mitigate credit risk
Besides collateral, guarantee support and derivatives described above, credit risk mitigation can also be furthered by
prudent transaction structuring. For example, the risk in project finance lending can be mitigated by lending covenants,
loan syndication and political risk insurance.
Concentrations of credit risk mitigation
Taking collateral raises the possibility that ANZ may inadvertently increase its risk by becoming exposed to collateralconcentrations. For example, in the same way that an over-exposure to a particular industry may mean that a bank ismore sensitive to the fortunes of that industry, an over-exposure to a particular collateral asset type may make ANZ
more sensitive to the performance of that asset type.
ANZ does not believe that it has any material concentrations of collateral types, given the well diversified nature of its
portfolio and conservative asset extension ratios.
Additional credit risk mitigation for markets derivatives
Right to break clauses are used in master agreements or in trade confirmations to reduce the term of long dated
derivative trades. Additional termination triggers (close out of exposure) such as credit rating downgrade clauses andchange in ownership clauses included in documentation are used to reduce credit exposure under specific credit events.
ANZ uses central clearing houses to clear certain derivative transactions and reduce bilateral exposure. Settlement
through Continuous Linked Settlement (CLS) is used to eliminate settlement risk for foreign exchange transactions with
CLS members. On top of exchange of Variation margin and Initial Margin, APRA’s CPS 226 also requires to apply risk
mitigation practices for un-cleared derivatives between covered counterparties in the areas of trading relationshipdocumentation, trade confirmation, portfolio reconciliation, portfolio compression, valuation processes and dispute
resolution processes.

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ANZ Basel III Pillar 3 disclosure

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Table 10(b): Credit risk mitigation on Standardised approach portfolios – collateral 29 30
Sep 20
Exposure at
Default$M

Eligible Financial
Collateral$M

Other Eligible
Collateral$M% Coverage

Corporate

11,344

6,436

-

36.1%

Sovereign

212

1,532

-

87.8%

Residential Mortgage

435

-

-

-

Other Retail

33

-

-

-

12,024

7,968

-

39.9%

Exposure at
Default$M

Eligible Financial
Collateral$M

Other Eligible
Collateral$M% Coverage

Corporate

15,971

5,269

-

24.8%

Sovereign

-

-

-

-

Residential Mortgage

471

-

-

-

Other Retail

46

-

-

-

16,488

5,269

-

24.2%

Exposure at
Default$M

Eligible Financial
Collateral$M

Other Eligible
Collateral$M% Coverage

Corporate

12,998

7,389

-

36.2%

Sovereign

-

-

-

-

Residential Mortgage

445

-

-

-

Other Retail

49

-

-

-

13,492

7,389

-

35.4%

Standardised approach

Total

Mar 20Standardised approach

Total

Sep 19Standardised approach

Total

Eligible Collateral could include cash collateral (cash, certificates deposits and bank bills issued by the lending ADI), gold bullion andhighly rated debt securities.

29

Exposure at Default represents credit exposure net of offsets for credit risk mitigation such as guarantees, credit derivatives, netting
and financial collateral.

30

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ANZ Basel III Pillar 3 disclosure

September 2020

Table 10(c): Credit risk mitigation – guarantees and credit derivatives31
Sep 20
Exposure at
Default$M

Exposurescovered by
Guarantees$M

Exposurescovered by
Credit Derivatives$M% Coverage

Corporate (incl. Specialised Lending)

320,844

1,746

1,070

0.9%

Sovereign

186,605

4,907

-

2.6%

Bank

42,171-

19-

Residential Mortgage

392,312---

Qualifying Revolving Retail

14,846---

Advanced IRB

Other Retail

31,931---

988,709

6,653

1,089

0.8%

Corporate

11,344

29

11

0.4%

Sovereign

212

-

-

Residential Mortgage

435

-

-

-

Other Retail

33

-

-

-

12,024

29

11

0.3%

9,684

-

-

-

Total
Standardised approach

Total
Qualifying Central Counterparties

Mar 20
Exposure at
Default$M

Exposurescovered by
Guarantees$M

Exposurescovered by
Credit Derivatives$M% Coverage

Corporate (incl. Specialised Lending)

356,417

3,810

1,197

1.4%

Sovereign197,277

5,652

-

2.9%

Bank

63,649---Residential Mortgage

380,082---

Qualifying Revolving Retail

16,128---Advanced IRB

Other Retail35,017---

1,048,570

9,462

1,197

1.0%

Corporate

15,971

39

-

0.2%

Sovereign

-

-

-

-

Residential Mortgage

471

-

-

-

Other Retail

46

-

-

-

Total

16,488

39

-

0.2%

Qualifying Central Counterparties

10,005

-

-

-

Total
Standardised approach

Exposure at Default represents credit exposure net of offsets for credit risk mitigation such as guarantees, credit derivatives, netting
and financial collateral.

31

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ANZ Basel III Pillar 3 disclosure

September 2020

Table 10(c): Credit risk mitigation – guarantees and credit derivatives (continued)
Sep 19Exposure at
Default$M

Exposurescovered by
Guarantees$M

Exposurescovered by
Credit Derivatives$M% Coverage

Corporate (incl. Specialised Lending)319,947

4,217

1,029

1.6%

Sovereign

152,940

5,957

-

3.9%

Bank

55,145---Residential Mortgage

373,376---

Qualifying Revolving Retail

16,647---

Advanced IRB

Other Retail36,322---

954,377

10,174

1,029

1.2%

Corporate

12,998

23

-

0.2%

Sovereign

-

-

-

-

Residential Mortgage

445

-

-

-

Other Retail

49

-

-

-

13,492

23

-

0.2%

9,348

-

-

-

Total
Standardised approach

Total
Qualifying Central Counterparties

54

ANZ Basel III Pillar 3 disclosure
Table 11

September 2020

General disclosures for derivatives and counterparty credit risk

Definition of Counterparty Credit Risk
Counterparty credit risk in derivative transactions arises from the risk of counterparty default before settlement date ofderivative contracts and the counterparty is unable to fulfil present and future contractual payment obligations. The
amount at risk may change over time as a function of the underlying market parameters up to the positive value of thecontract in favour of ANZ.
Counterparty credit risk is present in market instruments (derivatives and forward contracts), and comprises:Settlement risk, which arises where one party makes payment or delivers value in the expectation but withoutcertainty that the counterparty will perform the corresponding obligation in a bilateral contract at settlement date.



Market replacement risk (pre-settlement risk), which is the risk that a counterparty will default during the life of a
derivative contract and that a loss will be incurred in covering the position.

ANZ transacts market instruments with the following counterparties:

End users – would typically use Over the Counter (OTC) derivative instruments provided by ANZ to manage pricemovement risk associated with their core business activity.

Professional counterparties – ANZ may hedge price movement risks by entering into transactions with professionalcounterparties that conduct two way (buy and sell) business.

Counterparty credit risk requires a different method to calculate exposure at default because actual and potential market
movements impact ANZ’s exposure or replacement cost over the life of derivative contracts. The markets covered bythis treatment include the derivative activities associated with interest rate, foreign exchange, CDS, equity, commodity
and repurchase agreement (repo) products.
Counterparty credit risk governance
ANZ’s counterparty credit risk management is governed by its credit principles, policies and procedures. The Markets
Risk function is responsible for determining the counterparty credit risk exposure methodology applied to market
instruments, in the framework for counterparty credit limit management, measurement and reporting.
The counterparty credit risk associated with derivative transactions is governed by credit limit setting consistent with allcredit exposures to the ANZ Group. Counterparty credit limits are approved by the appropriate credit delegation holders.
Counterparty credit risk measurement and reporting
The approach to measure counterparty credit risk exposure is based on internal models. These measures are referred toas potential credit risk exposure (PCRE) and potential future exposure (PFE) and measure the maximum credit exposureof derivative transactions at future time points to ANZ. PFE is measured at the 97.5th percentile at future pre-describedtime points, and PCRE is a 97.5th percentile averaged over time points.
PCRE factors recognise that prices may change over the remaining period to maturity, and that risk decreases as thecontract’s remaining term to maturity decreases. In general terms PCRE is calculated by applying a risk weighting or
volatility factor to the face value of the notional principal of individual trades.
PFE simulates relevant risk factors in a portfolio by taking into account the relevant volatilities and correlations calibrated
to historical market data.
Exposure at default for regulatory capital
For regulatory capital the Exposure at Default captures the expected positive mark-to-market of a portfolio in the eventof a counterparty default across a one-year time horizon at a 99% confidence level, taking into account any legal
documents in force. It is calculated following Standardised Approach for Counterparty Credit Risk (SA-CCR) under APRA’s
APS180: Capital Adequacy: Counterparty Credit Risk.

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ANZ Basel III Pillar 3 disclosure

September 2020

Credit valuation adjustment (CVA)
Over the life of a derivative instrument, ANZ uses a CVA model to adjust fair value to take into account the impact ofcounterparty credit quality. The methodology calculates the present value of expected losses over the life of the financial
instrument as a function of PD, LGD, and expected credit risk exposure.
APRA requires banks, including ANZ, to hold additional risk based capital to cover the risk of CVA mark to market losses
associated with deterioration in counterparty credit worthiness when entering into derivatives transactions.
ANZ uses market instruments, mainly interest rate and foreign exchange derivatives, as well as CDS Indices to hedge
the CVA mark to market volatility.
Wrong way risk
ANZ’s management of counterparty credit risk also considers the possibility of wrong way risk, which emerges when PD
is adversely correlated with counterparty credit risk exposures.
Counterparty credit risk mitigation and credit enhancements
ANZ’s primary tools to mitigate counterparty credit risk include:

A bilateral netting master agreement (e.g. by International Swaps and Derivatives Association – (ISDA)) allowing
close-out netting of exposures in a portfolio with offsetting contracts, with a single net payment with the same legal
counterparty.
Use of collateral agreements in some transactions based on standard market documentation (i.e. ISDA masteragreement with credit support annex or CSA for derivatives and Global Master Repurchase Agreement or GMRA
for repo) that governs the amount of collateral required to be posted or received by ANZ throughout the life of
the contract. Reasons for requiring collateral include:

Variation Margin – reflects the current mark-to-market exposure.

Initial Margin – covers the future potential exposure that could arise from future changes in market value

Since March 2017, APRA’s CPS 226 “Margining and risk mitigation for non-centrally cleared derivatives” hasmandated Variation Margin and Initial Margin arrangements between covered entities, subject to trading volume
thresholds. The operation of collateral agreements falls under a policy which establishes the control framework
designed to ensure a robust and globally consistent approach to the management of collateralised exposures,
as well as compliance with CPS 226 obligations.



APRA’s CPS 226 also requires ADIs to apply risk mitigation practices for un-cleared derivatives between covered
counterparties in the areas of trading relationship documentation, trade confirmation, portfolio reconciliation,
portfolio compression, valuation processes and dispute resolution processes.



Use of right to break clauses in master agreements or in trade confirmation to reduce the term of long dated derivativetrades.



Independent limit setting, credit exposure control, monitoring and reporting of excesses against approved credit
limits.



Additional termination triggers (close out of exposure) such as credit rating downgrade clauses and change inownership clauses included in documentation to reduce credit exposure under specific credit events.

Linking covenants and events of default in existing loan facility agreements to master agreements.

Settlement through Continuous Linked Settlement (CLS) to eliminate settlement risk for foreign exchangetransactions with CLS members.



Clearing certain derivative transactions through central counterparties clearing houses.

A specific risk appetite for Credit Valuation Adjustment (CVA) exposures, approved by the Board.

Design and implementation of limit framework and monitoring of CVA exposures, to ensure CVA exposure is within
Risk appetite.

Use of credit derivatives and market instruments to hedge CVA.

In the event of a downgrading of ANZ’s rating by one notch from AA- to A+, as at 30 September 2020, ANZ would not
be required to lodge additional collateral with its counterparties.

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ANZ Basel III Pillar 3 disclosure

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Table 11(b): Counterparty credit risk – net derivative credit exposure32

Gross positive fair value of contracts
Netting benefits

Sep 20Mar 20$M$M

Sep 19$M

135,331

173,677

120,667(103,509)(118,097)(144,910)

Netted current credit exposure

17,23428,767

17,158Collateral held

(6,287)(13,732)(6,277)

Net derivatives credit exposure

10,947

15,035

10,881

Sep 20Mar 20

Sep 19$M$M$M

20,22227,804

23,276Counterparty credit risk exposure - by portfolio type
Portfolio Type
Corporate
Sovereign

5,212

3,826

2,863

Bank

14,645

18,60016,733

Qualifying Central Counterparties

9,223

10,005

9,348

Specialised Lending

1,661

1,727

1,496

Total exposures

50,963

61,96253,716

Sep 20Mar 20

Sep 19

Notional Value of Credit Derivative Hedges
Product Type

$M

$M

$M

Credit Default Swaps

343

351

344

Interest Rate Swaps

-

-

-

Currency Swaps

-

-

-

Other

-

-

-

343

351

344

Total exposures

32

Prior period comparatives have been restated due to revision of netting benefits for September 2019 and March 2020.

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ANZ Basel III Pillar 3 disclosure

September 2020

Table 11(c): Counterparty credit risk exposure – credit derivative transactions
Sep 20Protection
Bought$M

Protection
Sold
$M

Total
$M

Credit derivative products used for own credit portfolio
Credit default swaps

4,157

636

4,793

Total notional value

4,157

636

4,793

343

343

686

-

-

-

343

343

686

4,500

979

5,479

Protection
Bought$M

Protection
Sold$M

Credit derivative products used for intermediation
Credit default swaps
Total return swaps
Total notional value
Total credit derivative notional value

Mar 20Total$M

Credit derivative products used for own credit portfolio
Credit default swaps

5,073

2,321

7,394

Total notional value

5,073

2,321

7,394

351

355

706

-

-

-

351

355

706

5,424

2,676

8,100

Protection
Bought$M

Protection
Sold$M

Credit derivative products used for intermediation
Credit default swaps
Total return swaps
Total notional value
Total credit derivative notional value

Sep 19Total$M

Credit derivative products used for own credit portfolio
Credit default swaps

7,091

4,940

12,031

Total notional value

7,091

4,940

12,031

344

344

688

-

-

-

344

344

688

7,435

5,284

12,719Credit derivative products used for intermediation
Credit default swaps
Total return swaps
Total notional value
Total credit derivative notional value

58

ANZ Basel III Pillar 3 disclosure

September 2020

Chapter 6 – Securitisation
Table 12Securitisation disclosures

Definition of securitisation
A securitisation is a financial structure where the cash flow from a pool of assets is used to service obligations to at least
two different tranches or classes of creditors, typically holders of debt securities, with each class or tranche reflecting a
different degree of credit risk. This stratification of credit risk means that one class of creditors is entitled to receive
payments from the pool before another class.
Securitisation of ANZ originated assets
Securitisations may be categorised as:Traditional securitisations, where legal ownership of the underlying asset pool is transferred to investors, with principal
and interest paid from realisation of or regular cash flows from the assets. The Special Purpose Vehicle (SPV) assets
are insulated from bankruptcy of the seller or servicer.

Synthetic securitisations, where credit risk is transferred to a third party but legal ownership of the underlying assets
remain with the originator e.g. by using credit derivatives or guarantees.

Covered bond transactions, whereby bonds issued by ANZ are secured by assets held in a special purpose vehicle, arenot securitisation exposures.
ANZ adopts securitisation as a funding, capital and liquidity management tool using assets it has originated. This may
involve the transfer of credit risk i.e. may provide regulatory capital relief. ANZ also operates a self-securitisation
program, backed by a pool of residential mortgages, which forms part of the Bank’s liquidity arrangements through accessto government sponsored facilities including the Committed Liquidity Facility and the Term Funding Facility.
For these securitisation programs, ANZ will undertake roles including as the originator, sponsor, servicer and trust
manager. ANZ may retain an exposure to these securitisation programs (including as facility provider and swap provider),consistent with the roles described below in ‘Third Party Securitisation Activities’ and facilities provided as described below
in ‘Risk Management’.
Third Party Securitisation Activities
ANZ’s involvement with securitisation of third-party originated assets, including residential mortgages, auto andequipment loans and trade receivables, comprises of:

Provision of facilities – this may include providing facilities to securitisation vehicles in the form of funding facility
provider and interest rate swap provider. Funding may be provided via an ANZ-sponsored securitisation vehicle whichis consolidated onto the Bank’s financial statements, to certain clients wishing to access securitisation.

Services to securitisation programs may include structuring and arranging services and distributing securities.



Investment in securities – ANZ may purchase notes issued by securitisation programs.

For any assets ANZ has securitised or for SPVs that ANZ sponsors, any role provided by ANZ or its subsidiaries is subject
to market based terms and conditions, and ANZ’s normal approval and review processes. Further, any securitisation
exposures retained by ANZ or its affiliated entities are subject to ANZ’s normal approval and review processes as well as
satisfying the requirements under APS 120: Securitisation.
Governance and Risk Management
Similar to other exposures, securitisation exposures are subject to credit, market, operational liquidity and compliancerisks. Governance of securitisation activities is managed in accordance with ANZ’s established risk management
framework, including the credit risk and market risk frameworks described in Chapters 5 and 7. Roles and responsibilities
are clearly outlined in the Bank’s policies and procedures, including:Appropriate risk management systems to identify, measure, monitor and manage the risks arising from its
involvement in securitisation exposures;Impact of ANZ’s involvement in securitisation exposures on its risk profile; and

How ANZ ensures that it does not provide any implicit support to securitisations with ANZ originated assets.

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ANZ Basel III Pillar 3 disclosure

September 2020

Funding third party originated exposures and investment in securities are via balance sheet funded arrangements wheresuch arrangements satisfy ANZ’s credit, due diligence and other business requirements.
Many functions within ANZ are involved in securitisation activities given the range of activities undertaken and risks thatneed to be managed. For origination and structuring of securitisation transactions, ANZ has a specialist securitisationteam with independent Risk personnel overseeing operations. Credit decisions require joint approval by Risk business
unit and respective independent credit risk officer. The securitisation team must be involved in all non-trading
securitisation transactions across ANZ, which ensures consistent expert treatment. Where ANZ invests in instruments
issued by securitisation programs, oversight of these exposures by securitisation specialists continue until the
securitisation exposures are repaid in full or sold.
All facilities provided to our investments in securitisation programs (across both the banking and trading books) undergo
initial and ongoing due diligence requirements as outlined by APRA. This includes analysing the risk characteristics of the
securitisation exposure, structure of the transaction and monitoring performance of the underlying assets of thetransaction. In addition, such securitisation exposures are formally reviewed at least annually with credit discretions
being exercised.
Risk reporting of securitisation exposures
Credit risk management information systems, reporting and analysis are managed centrally for all securitisation
exposures. In addition to the formal credit review process for ANZ’s securitisation exposures, internal reporting to theappropriate Risk and management functions provides oversight at the portfolio level. These reports include securitisation
program performance, EAD, portfolio mix, and RWA.
The use and treatment of Credit Risk Mitigation (CRM) techniques with respect to securitisation exposures is assessed ona case-by-case basis in a manner consistent with the bank-wide CRM methodology33.
Regulatory capital approaches
For securitisation exposures held in ANZ’s banking book34, ANZ adopts a Standardised approach (as outlined in APS 120:
Securitisation) to determine the credit risk regulatory capital charge via a hierarchy of approaches.
The primary rating approach is the External Ratings Based Approach (ERBA). For externally rated securitisation exposuresthat satisfy the operational requirements for external credit assessments, ANZ calculates credit risk regulatory capital
based upon the ratings assigned by Standard & Poor’s, Moody’s Investor Services and/or Fitch Ratings as appropriate,seniority of the securitisation exposure and the tenor of the securitisation exposure.
If ERBA is not applicable, ANZ adopts the Supervisory Formula Approach (SFA) for securitisation exposures. In this case,the credit risk regulatory capital calculation takes into account the type and performance of the underlying assets of the
securitisation and the credit support provided to the securitisation exposure.
In relation to securitisation of ANZ originated assets, where:the significant credit risk transfer requirements have been satisfied under APS 120, ANZ is not required to holdcredit risk regulatory capital for the underlying assets of the securitisation, however credit risk regulatory capital iscalculated for the facilities provided to the securitisation;

in absence of significant credit risk transfer being satisfied under APS 120, ANZ holds credit risk regulatory capitalfor the underlying assets of the securitisation however the credit risk regulatory capital for facilities provided to thesecuritisation is not required to be calculated.

Chapter 7 outlines regulatory capital treatment for securitisation exposures held in ANZ’s trading book. In addition, theoperational requirements for the recognition of external credit assessments outlined in APS 120 also apply to these
exposures.

For example, various types of analysis including quantitative analysis of credit enhancements are performed for non-externally rated
transactions. Factors such as geography, facility/transaction type and ANZ’s role will determine the applicable CRM techniques to apply.

33

Exposures are classified into either the trading book or the banking book. In general terms, the trading book consists of positions infinancial instruments and commodities held with trading intent or in order to hedge other elements of the trading book, and the banking
book contains all other exposures. Banking book exposures are typically held to maturity, in contrast to the shorter term, trading
nature of the trading book.

34

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ANZ Basel III Pillar 3 disclosure

September 2020

Accounting policies
A key consideration in determining the treatment of transactions involving ANZ assets is whether the securitisation
special purpose vehicles (SPVs) should be consolidated under AASB 10: Consolidated Financial Statements. If these
SPVs meet the criteria for consolidation, the assets remain on ANZ’s balance sheet and are classified and valued inaccordance with AASB 9: Financial Instruments. Currently, transactions with all of ANZ’s securitisation SPVs are treatedas financing transactions. Securitisation services based on customer’s generated assets include warehouse and term
fund facilities which are treated as loans.
For synthetic securitisations of ANZ originated assets, any transferred credit exposure is recognised through the fairvalue measurement of the credit derivative established within the structure.
For full details of the principal accounting policies governing ANZ’s securitisation activities are outlined in ANZ’s 2020
Annual Report, Notes to the Financial Statements. These include the valuation, derecognition, consolidation and income
recognition principles outlined in the accounting policies and key judgements and estimates disclosures in each relevant
note. Note 27 – Structured Entities and Note 28 – Transfers of Financial Assets also provides details about the nature of
ANZ’s securitisation activities and certain accounting policies as they specifically apply to these activities. The impact of
the application of these policies to securitisation activities have not changed since the prior year.
To the extent that ANZ has exposures intended to be securitised, they could reside in either the banking or trading book.
To the extent that ANZ has entered into contractual arrangements that could require it to provide financial support for
securitised assets e.g. liquidity facilities, these are recognised in accordance with the accounting policies set out in ANZ’s
2020 Annual Report.

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ANZ Basel III Pillar 3 disclosure

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Banking Book
Table 12(g): Banking Book: Traditional and synthetic securitisation exposuresSep 20
Traditional securitisations Underlying asset
Residential mortgage

ANZ Originated
$M
1,793

ANZ Self Securitised$M
85,239ANZ Sponsored$M-

Credit cards and other personal loans

-

-

-

Auto and equipment finance

-

-

-

Commercial loans

-

-

-

Other

-

-

-

Total

1,793

85,239-ANZ Originated$M-

ANZ Self Securitised$M-

ANZ Sponsored$M-

Synthetic securitisations Underlying asset
Residential mortgage
Credit cards and other personal loans

-

-

-

Auto and equipment finance

-

-

-

Commercial loans

-

-

-

Other

-

-

-

Total

-

-

-

ANZ Originated
$M
1,793

ANZ Self Securitised$M
85,239ANZ Sponsored$M-

Aggregate of traditional and synthetic
securitisations Underlying asset
Residential mortgage
Credit cards and other personal loans

-

-

-

Auto and equipment finance

-

-

-

Commercial loans

-

-

-

Other

-

-

-

Total

1,793

85,239-62

ANZ Basel III Pillar 3 disclosure

September 2020

Table 12(g): Banking Book: Traditional and synthetic securitisation exposures (continued)
Mar 20
Traditional securitisations Underlying asset
Residential mortgage

ANZ Originated
$M
2,108

ANZ Self Securitised$M
133,650

ANZ Sponsored$M-

Credit cards and other personal loans

-

-

-

Auto and equipment finance

-

-

-

Commercial loans

-

-

-

Other

-

-

-

Total

2,108

133,650-ANZ Originated$M-

ANZ Self Securitised$M-

ANZ Sponsored$M-

Synthetic securitisations Underlying asset
Residential mortgage
Credit cards and other personal loans

-

-

-

Auto and equipment finance

-

-

-

Commercial loans

-

-

-

Other

-

-

-

Total

-

-

-

ANZ Originated
$M
2,108

ANZ Self Securitised$M
133,650

ANZ Sponsored$M-

Aggregate of traditional and synthetic
securitisations Underlying asset
Residential mortgage
Credit cards and other personal loans

-

-

-

Auto and equipment finance

-

-

-

Commercial loans

-

-

-

Other

-

-

-

Total

2,108

133,650-ANZ Originated
$M
2,369

ANZ Self Securitised$M
70,863

Sep 19Traditional securitisations Underlying asset
Residential mortgage

ANZ Sponsored$M-

Credit cards and other personal loans

-

-

-

Auto and equipment finance

-

-

-

Commercial loans

-

-

-

Other

-

-

-

Total

2,369

70,863-

ANZ Originated$M-

ANZ Self Securitised$M-

ANZ Sponsored$M-

Synthetic securitisations Underlying asset
Residential mortgage
Credit cards and other personal loans

-

-

-

Auto and equipment finance

-

-

-

Commercial loans

-

-

-

Other

-

-

-

Total

-

-

-

ANZ Originated
$M
2,369

ANZ Self Securitised$M
70,863

ANZ Sponsored$M-

Aggregate of traditional and synthetic
securitisations Underlying asset
Residential mortgage
Credit cards and other personal loans

-

-

-

Auto and equipment finance

-

-

-

Commercial loans

-

-

-

Other

-

-

-

Total

2,369

70,863-63

ANZ Basel III Pillar 3 disclosure

September 2020

Table 12(h): Banking Book: Impaired and Past due loans relating to ANZ originated securitisations

Sep 20Underlying asset

1,793

85,239-214

Lossesrecognised
for the six
month ended$M-

Credit cards and other personal loans

-

-

-

-

-

Auto and equipment finance

-

-

-

-

-

Commercial loans

-

-

-

-

-

Other

-

-

-

-

-

Total

1,793

85,239

-

214

-

ANZ
originated$M

ANZ Self
Securitised$M

Impaired$M

Past due$M

Residential mortgage

ANZ
originated$M

ANZ Self
Securitised$M

Impaired$M

Past due$M

Mar 20Underlying asset

2,108

133,650-

65

Lossesrecognised
for the six
month ended$M-

Credit cards and other personal loans

-

-

-

-

-

Auto and equipment finance

-

-

-

-

-

Commercial loans

-

-

-

-

-

Other

-

-

-

-

-

Total

2,108

133,650

-

65

-

ANZ
originated$M

ANZ Self
Securitised$M

Impaired$M

Past due$M

Residential mortgage

Sep 19Underlying asset

2,369

70,863-71

Lossesrecognised
for the six
month ended$M-

Credit cards and other personal loans

-

-

-

-

-

Auto and equipment finance

-

-

-

-

-

Commercial loans

-

-

-

-

-

Other

-

-

-

-

-

Total

2,369

70,863-

71-

Residential mortgage

Table 12(i): Banking Book: Total amount of outstanding exposures intended to be securitised
No assets from ANZ's Banking Book were intended to be securitised as at the reporting date.

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ANZ Basel III Pillar 3 disclosure

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Table 12(j): Banking Book: Securitisation - Summary of current period’s activity by underlying asset typeand facility 35
Sep 20

Securitisation activity by underlying asset
type

ANZ Originated$M

Original value
securitised
ANZ Self
Securitised
$M

(315)

(48,411)-

Recognised
gain
or loss on sale$M-

Credit cards and other personal loans

-

-

-

-

Auto and equipment finance

-

-

-

-

Commercial loans

-

-

-

-

Other

-

-

-

-

Total

(315)

(48,411)--

Residential mortgage

ANZ Sponsored$M

Securitisation activity by facility provided

Liquidity facilities

Notional
amount$M-

Funding facilities

701

Underwriting facilities-

Lending facilities-

Credit enhancements-

Holdings of securities (excluding trading book)

(117)

Other

23

Total

607
Mar 20

Securitisation activity by underlying asset
type

(261)

62,787-

Recognised
gain
or loss on sale$M-

Credit cards and other personal loans

-

-

-

-

Auto and equipment finance

-

-

-

-

Commercial loans

-

-

-

-

Other

-

-

-

-

Total

(261)

62,787--

Residential mortgage

ANZ Originated$M

Original value
securitised
ANZ Self
Securitised$M

Securitisation activity by facility provided

ANZ Sponsored$M

Liquidity facilities

Notional
amount$M-

Funding facilities

1,210

Underwriting facilities-

Lending facilities-

Credit enhancements-

Holdings of securities (excluding trading book)

474

Other

268

Total

1,952

35

Activity represents net movement in outstandings.

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ANZ Basel III Pillar 3 disclosure

September 2020

Table 12(j): Banking Book: Securitisation - Summary of current period’s activity by underlying asset typeand facility (continued)
Sep 19Securitisation activity by underlying asset
type

ANZ Originated$M

Original value
securitised
ANZ Self
Securitised
$M

1,277

(591)

-

Recognised
gain
or loss on sale$M-

Credit cards and other personal loans

-

-

-

-

Auto and equipment finance

-

-

-

-

Commercial loans

-

-

-

-

Other

-

-

-

-

Total

1,277

(591)

-

-

Residential mortgage

Securitisation activity by facility provided

ANZ Sponsored$M

Liquidity facilities

Notional
amount$M
15

Funding facilities

1,135

Underwriting facilities-

Lending facilities-

Credit enhancements-

Holdings of securities (excluding trading book)

163

Other

153

Total

1,466

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ANZ Basel III Pillar 3 disclosure

September 2020

Table 12(k): Banking Book: Securitisation - Regulatory credit exposures by exposure typeSep 20Mar 20

Sep 19$M$M$M

Liquidity facilities

-

-

-

Funding facilities

8,480

8,799

7,679

Underwriting facilities

-

-

-

Lending facilities

-

-

-

Credit enhancements

-

-

-

2,280

2,397

1,923

-

-

-

Other

330

432

437

Total

11,09011,62810,039Sep 20Mar 20

Sep 19$M$M$M

Securitisation exposure type - On balance sheet

Holdings of securities (excluding trading book)Protection provided

Securitisation exposure type - Off Balance
Sheet
Liquidity facilities

19

22

25

2,112

1,818

1,598

Underwriting facilities

-

-

-

Lending facilities

-

-

-

Credit enhancements

-

-

-

Funding facilities

Holdings of securities (excluding trading book)

-

-

-

Protection provided

-

-

-

Other

-

-

-

Total

2,131

1,840

1,623

Sep 20Mar 20

Sep 19Total Securitisation exposure type

$M

$M

$M

Liquidity facilities

19

22

25

Funding facilities

10,592

10,617

9,278

Underwriting facilities

-

-

-

Lending facilities

-

-

-

Credit enhancements

-

-

-

2,280

2,397

1,923

-

-

-

Other

330

432

437

Total

13,221

13,468

11,662

Holdings of securities (excluding trading book)Protection provided

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ANZ Basel III Pillar 3 disclosure

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Table 12(l) part (i): Banking Book: Securitisation - Regulatory credit exposures by risk weight bandSep 20Mar 20

Sep 19Regulatory
creditexposure$M
13,221Risk
weighted
assets$M
2,125

Regulatory
creditexposure$M
13,468Riskweighted
assets$M
2,142

Regulatory
creditexposure$M
11,662Riskweighted
assets$M
1,859>25 ≤ 35%

-

-

-

-

-

-

>35 ≤ 50%

-

-

-

-

-

-

>50 ≤ 75%

-

-

-

-

-

-

>75 ≤ 100%

-

-

-

-

-

-

>100 ≤ 650%

-

-

-

-

-

-

Securitisation risk
weights≤ 25%

1250% (Deduction)

-

-

-

-

-

-

13,221

2,125

13,4682,142

11,662

1,859

Regulatory
creditexposure$M-

Riskweighted
assets$M-

Regulatory
creditexposure$M-

Riskweighted
assets$M-

Regulatory
creditexposure$M-

Riskweighted
assets$M->25 ≤ 35%

-

-

-

-

-

-

>35 ≤ 50%

-

-

-

-

-

-

>50 ≤ 75%

-

-

-

-

-

-

>75 ≤ 100%

-

-

-

-

-

-

>100 ≤ 650%

-

-

-

-

-

-

Total

Sep 20
Resecuritisation risk
weights≤ 25%

Mar 20

Sep 191250% (Deduction)

-

-

-

-

-

-

Total

-

-

-

-

-

-

Regulatory
creditexposure$M
13,221Risk
weighted
assets$M
2,125

Regulatory
creditexposure$M
13,468Riskweighted
assets$M
2,142

Regulatory
creditexposure$M
11,662Riskweighted
assets$M
1,859>25 ≤ 35%

-

-

-

-

-

-

>35 ≤ 50%

-

-

-

-

-

-

>50 ≤ 75%

-

-

-

-

-

-

>75 ≤ 100%

-

-

-

-

-

-

>100 ≤ 650%

-

-

-

-

-

-

Sep 20Total Securitisation risk
weights≤ 25%

1250% (Deduction)
Total

Mar 20

Sep 19

-

-

-

-

-

-

13,221

2,125

13,4682,142

11,662

1,859

Table 12(l) part (ii): Banking Book: Securitisation - Aggregate securitisation exposures deducted from
CapitalNo longer required under Basel III; defaulted exposures are given a risk weight of 1250% and no longer deductedfrom Capital.

Table 12(m): Banking Book: Securitisations subject to early amortisation treatment
ANZ does not have any Securitisations subject to early amortisation treatment or using Standardised approach.

Table 12(n): Banking Book: Resecuritisation - Aggregate amount of resecuritisation exposures retained orpurchased
ANZ does not have any retained or purchased Resecuritisation exposures.

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ANZ Basel III Pillar 3 disclosure

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Trading Book
Table 12(o): Trading Book: Traditional and synthetic securitisation exposures
No assets from ANZ's Trading Book were securitised during the reporting period.

Table 12(p): Trading Book: Total amount of outstanding exposures intended to be securitised
No assets from ANZ's Trading Book were intended to be securitised as at the reporting date.

Table 12(q): Trading Book: Securitisation - Summary of current year's activity by underlying asset typeand facility
No assets from ANZ's Trading Book were securitised during the reporting period.

Table 12(r): Trading Book: Traditional and synthetic securitisation exposures
No assets from ANZ's Trading Book were securitised during the reporting period.
Table 12(s): Trading Book: Securitisation – Regulatory credit exposures by exposure type
ANZ does not have any Regulatory credit exposures by exposure type.
Table 12(t)(i) & Table 12(u)(i): Trading Book: Aggregate securitisation exposures subject to Internal
Models Approach (IMA) and the associated Capital requirements
ANZ does not have any Securitisation exposures subject to Internal Models Approach.

Table 12(t)(ii) & Table 12(u)(ii): Trading Book: Aggregate securitisation exposures subject to APS 120
and the associated Capital requirements
ANZ does not have any aggregate Securitisation exposures subject to APS120 and the associated Capital requirements.

Table 12(u)(iii): Trading Book: Securitisation - Aggregate securitisation exposures deducted from Capital
ANZ does not have any Securitisation exposures deducted from Capital.

Table 12(v): Trading Book: Securitisations subject to early amortisation treatment
ANZ does not have any Securitisation exposures subject to early amortisation or using Standardised approach.

Table 12(w): Trading Book: Resecuritisation - Aggregate amount of resecuritisation exposures retained orpurchased
ANZ does not have any retained or purchased Resecuritisation exposures.

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ANZ Basel III Pillar 3 disclosure

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Chapter 7 – Market risk
Table 13

Market risk – Standard approach

ANZ uses the standard model approach to measure market risk capital for specific risk36 (APRA does not currently permit
Australian banks to use an internal model approach for this).
Table 13(b): Market risk – Standard approach 37
Sep 20Mar 20

Sep 19

$M

$M

$M

138

186

142

Equity position risk

-

-

-

Foreign exchange risk

-

-

-

Commodity risk

-

-

-

138

186

142

1,725

2,325

1,775

Interest rate risk

Total
Risk Weighted Assets equivalentSpecific risk is the risk that the value of a security will change due to issuer-specific factors. It applies to interest rate and equity
positions related to a specific issuer.

36

37

RWA equivalent is the capital requirement multiplied by 12.5 in accordance with APS 110.

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ANZ Basel III Pillar 3 disclosure
Table 14

September 2020

Market risk – Internal models approach

Definition and scope of market risk
Market Risk stems from ANZ’s trading and balance sheet activities and is the risk to ANZ’s earnings or economic value
arising from changes in interest rates, foreign exchange rates, credit spreads, volatility, correlations or from fluctuations
in bond, commodity or equity prices.
Market risk management of IRRBB is described in Chapter 10 and is excluded from this Chapter.
Regulatory approval to use the Internal Models Approach
ANZ has been approved by APRA to use the Internal Models Approach (IMA) under APS 116 Capital Adequacy: Market
Risk for general market risk and under APS 117 Capital Adequacy: Interest Rate Risk in the Banking Book (Advanced
ADIs) for interest rate risk in the banking book (IRRBB).
Governance of market risk
The Board Risk Committee supervision of market risk is supported by the Credit and Market Risk Committee (CMRC).
CMRC is responsible for the oversight and control of credit, market, insurance and material financial risks across the ANZGroup and meets at least monthly.
The Market Risk function is a specialist risk management unit independent of the business that is responsible for:

Designing and implementing policies and procedures to ensure market risk exposures are managed within the appetiteand limit framework set by the Board.

Measuring and monitoring market risk exposures, and approving counterparty and associated risks.

The ongoing effectiveness and appropriateness of the risk management framework.

Traded Market Risk
Traded Market Risk is the risk of loss from changes in the value of financial instruments due to movements in price factors
for both physical and derivative trading positions. Trading positions arise from transactions where ANZ acts as principalwith customers, financial exchanges or inter-bank counterparties.
The Traded, Foreign Exchange and Commodity Market Risk Policy and accompanying procedures (together the “TFC
Framework”) governs the management of traded market risk and its key components include:

A clear definition of the trading book.

A comprehensive set of requirements that promote the proactive identification and communication of risk.



A robust Value at Risk (VaR) quantification approach supplemented by comprehensive stress testing.



A comprehensive limit framework that controls all material market risks.

An independent Market Risk function with specific responsibilities.



Regular and effective reporting of market risk to executive management and the Board.

Non-Traded Market Risk
Non-Traded Market Risk is the market risk associated with the management of non-traded interest rate risk, liquidity risk
and foreign exchange exposures from the Group’s foreign currency capital and earnings.
Included in Non-Traded Market risk is Interest Rate Risk in the Banking Book (IRRBB). This is the risk of loss arising fromadverse changes in the overall and relative level of interest rates for different tenors, differences in the actual versus
expected net interest margin, and the potential valuation risk associated with embedded options in financial instruments
and bank products.

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ANZ Basel III Pillar 3 disclosure

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ANZ has a detailed market risk management and control framework, to support its balance sheet activities, which
incorporates an independent risk measurement approach to quantify the magnitude of market risk within the trading andbalance sheet portfolios. This approach, along with related analysis, identifies the range of possible outcomes that canbe expected over a given period of time, and establishes the likelihood of those outcomes and allocates an appropriate
amount of capital to support these activities.
Markets Risk is a specialist risk management unit independent of the business that is responsible for measuring andmonitoring market risk. Markets Risk has implemented policies and procedures to keep ANZ’s market risk exposuresmanaged within the appetite and limit framework set by the Board.
Measurement of Traded Market Risk
ANZ’s traded market risk management framework incorporates a risk measurement approach to quantify the magnitudeof market risk within trading books. This approach and related analysis identifies the range of possible outcomes that canbe expected over a given period of time and establishes the relative likelihood of those outcomes.
ANZ’s key tools to measure and manage traded market risk on a daily basis are VaR, sensitivity measures and stresstests. VaR is calculated using a historical simulation with a 500 day observation period for standard VaR, and a one-year
stressed period for stressed VaR. Traded VaR is calculated at a 99% confidence level for both standard VaR and Stressed
VaR. Standard VaR is calculated over both a one-day and a ten-day holding period, while Stressed VaR is calculated overa ten-day holding period.
ANZ also undertakes a wide range of stress tests on the Group trading portfolio and to individual trading portfolios.
Standard stress tests are applied daily measuring the potential loss that could arise from the largest market movements
observed since 2008 over specific holding periods. Holding periods used to calculate stress parameters differ and reflect
the relative liquidity of each product type. Results from stress testing on plausible severe scenarios are also calculated
daily.
VaR and stress tests are supplemented by loss limits and detailed control limits. Loss limits are designed to ensure thatin the event of continued losses from a trading activity, the trading activity is stopped and senior management reviews
before trading resumed. Where necessary, detailed control limits such as sensitivity or position limits are also in place toensure appropriate control is exercised over a specific risk or product.
Comparison of VaR estimates to gains/losses
Back testing involves comparing VaR calculations with corresponding profit and loss to identify how often trading losses
exceed the calculated VaR. For APRA back testing purposes, VaR is calculated at the 99% confidence interval with a oneday holding period.
Back testing is conducted daily, and outliers are analysed to determine whether they are the result of trading decisions,systemic changes in market conditions or issues related to the VaR model (historical data or model calibration).
ANZ uses actual and hypothetical profit and loss data. Hypothetical data is designed to remove the impacts of intraday
trading and sales margins. It is calculated as the difference between the value of the prior day portfolio at prior day
closing rates and the value at current day closing rates. Markets Finance calculates actual profit and loss while Market
Risk calculates hypothetical profit and loss.

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ANZ Basel III Pillar 3 disclosure

September 2020

Table 14(f): Value at Risk (VaR) and stressed VaR over the reporting period 38
Six months ended Sep 20
99% 1 Day Value at Risk (VaR)

Mean
$M
3.5

Maximum$M
5.2

Minimum$M
2.0

Interest Rate

9.3

14.0

4.5

9.6

Credit

13.1

17.1

3.6

13.9

Commodity

2.9

4.7

1.3

3.0

-

-

-

-

Foreign Exchange

EquityPeriod end$M
2.0

Six months ended Mar 20
99% 1 Day Value at Risk (VaR)

Mean
$M
2.8

Maximum$M
6.1

Minimum$M
1.2

Period end$M
2.7

Interest Rate

5.2

8.9

3.3

4.9

Credit

4.2

5.5

1.8

3.1

Commodity

2.2

3.4

1.3

1.4

-

-

-

-

Foreign Exchange

EquitySix months ended Sep 19
99% 1 Day Value at Risk (VaR)

Mean
$M
3.4

Maximum$M
8.1

Minimum$M
1.2

Period end$M
1.4

Interest Rate

5.0

7.0

3.7

3.8

Credit

3.8

5.4

2.3

5.1

Commodity

2.2

2.9

1.5

1.6

-

-

-

-

Period end$M
32.7

Foreign Exchange

EquitySix months ended Sep 20
99% 10 Day Stressed VaR

Mean
$M
29.6

Maximum$M
54.9

Minimum$M
11.4

Interest Rate

65.7

111.3

37.7

59.1

Credit

48.8

77.0

32.5

41.3

Commodity

11.8

18.5

5.0

16.3

-

-

-

-

Period end$M
33.8

Foreign Exchange

EquitySix months ended Mar 20
99% 10 Day Stressed VaR

Mean
$M
48.6

Maximum$M
146.8

Minimum$M
15.6Interest Rate

63.9

181.4

33.8

87.1

Credit

41.5

59.0

24.8

32.9

Commodity

11.5

16.3

6.7

6.7

-

-

-

-

Foreign Exchange

EquitySix months ended Sep 19
99% 10 Day Stressed VaR

Mean
$M
70.7

Maximum$M
133.5

Minimum$M
24.0

Period end$M
24.0

Interest Rate

42.3

65.5

26.1

54.9

Credit

48.0

59.6

37.6

53.7

Commodity

11.0

16.4

7.3

11.1

-

-

-

-

Foreign Exchange

Equity38

The Foreign exchange VaR excludes foreign exchange translation exposures outside of the trading book.

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ANZ Basel III Pillar 3 disclosure

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Comparison of VaR estimates with actual gains/losses experienced

Reporting of Traded Market Risk
Market Risk reports daily VaR and stress testing results to senior management in Market Risk and the Markets business.
Market Risk expediently escalates details of any limit breach to the appropriate discretion holder within Market Risk andto Group Risk, and reports to the CMRC each month.
Market Risk monitors and analyses back testing results daily and reports results to the CMRC quarterly.
Total traded market risks back testing exceptions were within the APS 116 green zone for the period.
Mitigation of market risk
The Market Risk team’s responsibilities, including the reporting and escalation processes described above, arefundamental to how market risk is managed. Market Risk has a presence in all the major dealing operations centres inAustralia, New Zealand, Asia, Europe and America.
Commodities risk
Commodity price risk arises as a result of movement in prices or the implied volatilities of various commodities. All directcommodity price exposures are managed in the trading book by the Markets business and monitored by Market Risk inaccordance with the TFC framework.
Foreign exchange risk
Foreign exchange risk arises as a result of movements in values or the implied volatilities of exchange rates.
Exposures from ANZ’s normal operating business and trading activities are recorded in core multi-currency systems andmanaged within the trading book in accordance with the TFC framework.
Structural exposures from foreign investments and capital management activities are managed in accordance with
policies approved by the Board Risk Committee, with the main objective of ensuring that ANZ’s capital ratio is largely
protected from changes in foreign exchange. As at 30 September 2020, ANZ’s investment in ANZ Bank New Zealand
Limited is the main source of the structural foreign exchange exposure.

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ANZ Basel III Pillar 3 disclosure

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Chapter 8 – Operational risk
Table 15 Operational risk
Definition of operational risk
Operational Risk is defined as the risk of loss and/or non-compliance with laws resulting from inadequate or failed
internal processes, people and/or systems, or from external events. This definition includes legal risk, and the risk ofreputation loss, or damage arising from inadequate or failed internal processes, people and systems, but excludes
strategic risk.
ANZ’s I.AM (Identify, Act, Monitor) - Operational Risk and Compliance Framework, taking into consideration the internaland external environment in which ANZ operates at any point in time, allows for more targeted focus on particularareas of operational risk. Currently, ANZ has identified the following types of operational risk as separate Key Material
Risks:
Compliance Risk: ANZ uses the same policies, governance, management and systems for Operational Risk
and Compliance Risk. These are described below.



Reputation Risk: ANZ uses some additional policies, governance, management and systems for managing
Reputation Risk.

Technology Risk: ANZ uses some additional policies, governance, management and systems for managing
Technology Risk.

ANZ has been authorised by APRA to use the advanced measurement approach (AMA) for calculation of Operational
Risk capital requirements under APS 115 Capital Adequacy: Advanced Measurement Approaches to Operational Risk.
This methodology applies across all of ANZ. For the purposes of RBNZ capital adequacy, ANZ Bank New Zealand Ltd
uses Reserve Bank of New Zealand standardised approach to Operational risk capital calculation.
Operational risk governance and structure
The primary responsibilities for operational risk are vested by the Operational Risk Approach in the Board Risk
Committee and Operational Risk Executive Committee.
The Board Risk Committee:
approve the Operational Risk Approach

identify, act on and monitor Operational Risk, at a group level

promote a culture that supports the organisation to identify, act on and monitor Operational Risk

Operational Risk Executive Committee:
endorse the Operational Risk Approachmonitor the implementation of the Operational Risk Approach, at a group level

assist the Board Risk Committee to identify, act on and monitor Operational Risk, at a group level

promote a culture that supports the organisation to identify, act on and monitor Operational Risk

Risk management framework
ANZ operates three lines of defence model for the management of Operational Risk. Each line of defence has definedroles, responsibilities and escalation paths to support effective two way communication and management of Operational
Risk at ANZ. There are also on-going review mechanisms in place to ensure the I.AM - Operational Risk and Compliance
Framework continues to meet organisational needs and regulatory requirements.
First line
The Business has first line of defence responsibility for managing Operational Risk including obligations to:take primary accountability for the identification, measurement and management of key risks and the related control
environment.

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ANZ Basel III Pillar 3 disclosure

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Second line
Operational Risk functions (Division and Group) form the second line of defence.
Division Risk is accountable for:


undertaking review and challenge of business activities and ensuring that the strategy is maintained across thedivision.

Group Operational Risk is accountable for:

developing and maintaining relevant policies and procedures to ensure continuing appropriateness of the I.AM Operational Risk and Compliance Framework and to support its consistent execution, andsetting and monitoring compliance with the Group Operational Risk, Risk Appetite Statements (RAS).

Third line
Internal Audit forms the third line of defence and is accountable for:


providing independent and objective assurance to management and the ANZ Board regarding compliance with policy
and regulatory requirements;

performing objective assessments across all geographies, divisions, lines of business and processes, and

undertaking independent review of the adequacy of the I.AM - Operational Risk and Compliance Framework.

Collectively Internal Audit, Operational Risk functions, Divisions and Business Units are responsible for monitoring andreporting to Executive Management, the Board, Regulators and others on all matters related to the measurement andmanagement of Operational Risk.
Operational Risk Framework
ANZ’s I.AM - Operational Risk and Compliance Framework is delivered through:

Level 1 ANZ Board Operational Risk Approach (the policy) – approved by the Board Risk Committee, outlines thecore standards, roles and responsibilities and minimum requirements of the way in which operational risks andobligations are identified, acted on and monitored across ANZ, sets the Operational Risk principles for governing theoverall measurement and management of Operational Risk across ANZ.

Level 2A Operational Risk Procedures (the Requirements, and Lifecycle, Roles and Responsibilities) – owned by GroupOperational Risk, provide the procedures to support the consistent application of Level 1 Policy across ANZ. The
procedures are further augmented by tools, templates, systems and on-going training.

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ANZ Basel III Pillar 3 disclosure

September 2020

Operational risk mitigation
In line with industry practice, ANZ obtains insurance to cover those Operational Risks where cost-effective premiums canbe obtained. In conducting their business, Business Units are advised to act as if uninsured and not to use insurance asa guaranteed mitigants for operational risk.
ANZ has business continuity, recovery and crisis management plans. The intention of the business continuity and recovery
plans is to ensure critical business functions can be maintained, or restored in a timely fashion, in the event of material
disruptions arising from internal or external events.
Crisis management planning at Group and country levels supplement business continuity plans in the event of a broader
group or country crisis. Crisis management plans include crisis team structures, roles, responsibilities and contact lists,
and are subject to testing.
Operational risk reporting
ANZ’s I.AM - Operational Risk and Compliance Framework includes a global, web-based Risk, Compliance and IT
Governance tool that provides ANZ the source of truth and provides greater transparency and integrity of Risk, Controls,
Obligations and Events information across ANZ.
OREC’s role is to monitor and oversight at an enterprise level the state of Operational Risk and compliance management
and to instigate any necessary corrective actions.
ANZ has been authorised by APRA to use the advanced measurement approach (AMA) for calculation of operational risk
capital requirements under APS 115 Capital Adequacy: Advanced Measurement Approaches to Operational Risk. Thismethodology applies across all of ANZ. However, for the purposes of RBNZ reporting, ANZ Bank New Zealand Ltd uses
Reserve Bank of New Zealand standardised approach to Operational risk capital calculation.
Operational risk management
The objective of ANZ’s approach to Operational Risk is to ensure that risks are identified, assessed, measured,
evaluated, treated, monitored and reported in a structured environment with appropriate governance oversight.
The I.AM - Operational Risk and Compliance Framework includes management and measurement of operational risks
and compliance with laws, regulations, industry standards, codes and principles of good governance, and internal
policies and procedures. It is founded on ANZ’s values and culture, which focus on doing what’s right and being ethical,
accountable, trustworthy and transparent in our decisions.
ANZ takes a risk based approach to the management of Operational Risks and obligations. This enables ANZ to beconsistent in proactively identifying, assessing, managing, reporting and escalating Operational Risk related risk
exposures, while respecting the specific obligations of each jurisdiction in which we operate.
Day-to-day management of Operational Risk is the responsibility of business unit line management and staff. Risk
management, supported by a strong Risk Culture, ensures all staff are thinking about and managing risk on a daily
basis – “Risk is Everyone’s Responsibility”. However, Senior Management needs visibility of Key Risks. These are therisks that if they materialised, would adversely affect the achievement of business objectives, ANZ’s reputation, legal
and regulatory compliance or impact key processes.
ANZ’s advanced measurement approach
Group Operational Risk is responsible for maintaining ANZ’s AMA for the measurement and allocation of operational risk
capital.
Operational Risk Capital is held to protect depositors and shareholders of the bank from rare and severe unexpected
losses. In order to quantify the overall Operational Risk profile, ANZ maintains and calculates Operational Risk Capital(including regulatory and economic capital), on at least a six monthly basis. The capital model uses the following data as
inputs:historical internal losses captured and reported in the bank wide Compliance and Operational Risk platform;
relevant external losses, sourced from the Operational Risk Data Exchange (ORX), an industry data base comprising
the anonymised loss data from over 90 member banks;scenario analysis - unexpected potential loss estimates for severe but plausible risk events which are calculated using
exposure models developed using business data and inputs from subject matter experts.

Once calculated, the capital is allocated to divisions based on the historic loss experience and exposure to scenarios.
Understanding the divisional exposure to scenarios (and their underlying risk drivers) allows lines of business to consider
capital impacts when making decisions. Accordingly, capital allocations are structured to encourage businesses toeffectively manage their operational risk exposures e.g. improve controls, reduce losses etc.

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ANZ Basel III Pillar 3 disclosure

September 2020

Operational Risk Regulatory Capital to meet the regulatory capital soundness standard is based on a 99.9% confidence
interval in accordance with APS 115. Operational Risk Economic Capital is based on 99.97% confidence interval.
Definition of compliance risk
Compliance Risk is a subset of Operational Risk. It covers the risk of failure to act in accordance with laws, regulations,industry standards and codes, internal policies and procedures and principles of good governance as applicable to ANZ’sbusinesses.
Compliance
The consequences of Compliance failure may include significant legal or regulatory sanctions, material financial loss
(fines, civil penalties, damages) diminished reputation or restrictions on the ability of ANZ to do business.
In order for the Business to be able to identify and manage Compliance Risk, they must identify their Regulatory
Obligations and their impacted business activities, and maintain and monitor key controls.
Compliance specific approaches include:Centralised management of key obligations via a Global Obligations Library, enabling ANZ's change management
capability in relation to new and revised obligations.



An emphasis on the identification of changing regulations and the business environment, to enable proactive
assessment of emerging compliance risks.



Recognition of incident management as a separate element to enhance ANZ's ability to identify, manage and reporton incidents/breaches in a timely manner.

Management of the Whistle-blower Protection Policy
ANZ ensures there is an effective and fit for purpose channel, allowing employees and contractors to make confidential,
anonymous submissions regarding concerns relating to accounting, internal control, compliance, audit and other matters.

78

ANZ Basel III Pillar 3 disclosure

September 2020

Chapter 9 – Equities
Table 16

Equities – Disclosures for banking book positions

Definition and categorisation of equity investments held in the banking book
Equity risk is the risk of financial loss arising from the unexpected reduction in value of equity investments not held in
the trading book including those of the Group’s joint ventures associates. ANZ’s equity exposures in the banking bookare primarily categorised as follows:

Equity investments that are taken for strategic reasons - These transactions represent strategic business initiatives
and include ANZ’s investments in partnership arrangements with financial institutions in Asia. These investments areundertaken after extensive analysis and due diligence by Group Strategy, internal specialists and external advisors,
where appropriate. Board approval is required prior to committing to any investments over delegated authorities, andall regulatory notification requirements are met. Performance of these investments is monitored by both the owningbusiness unit and Group Strategy to ensure that it is within expectations.
Equity investments made as the result of a work out of a problem exposure - From time to time, ANZ will take anequity stake in a customer as part of a work out arrangement for problem exposures. These investments are madeonly where there is no other viable option available and form an immaterial part of ANZ’s equity exposures.

Valuation of and accounting for equity investments in the banking bookIn line with Group Accounting Policy the accounting treatment of equity investments depends on whether ANZ has
significant influence over the investee.
Investments in associates
Where significant influence exists, the investment is classified as an Investment in Associate in the financial statements.
ANZ adopts the equity method of accounting for associates. ANZ’s share of the profit or loss of associates is included in
the consolidated income statement. The associate investments are recognised at cost plus ANZ’s share of postacquisition net assets. Interests in associates are reviewed semi-annually for impairment, using either market value, ora discounted cash flow methodology to assess value in-use (VIU). As at 31 March 2020, neither the market values of
the investments in AMMB Holdings Berhad (AmBank) and PT Bank Pan Indonesia (PT Panin) (based on share price) nor
VIU calculation supported the carrying value of either investment. Accordingly, the Group recorded an impairment
charge of $815 million ($595 million for AmBank and $220 million for PT Panin). As at 30 September 2020 the carrying
value of these investments were supported by VIU assessments.
Where ANZ does not have significant influence over the investee, the instrument is categorised as an investment security
and classified as fair value through profit and loss, with changes in fair value recognised in the income statement, unlessdesignated irrevocably on acquisition as fair value through other comprehensive income (FVOCI). If this election is made,gains or losses are not reclassified from other comprehensive income to profit or loss on disposal of the investment.
However, gains or losses may be reclassified within equity.

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ANZ Basel III Pillar 3 disclosure

September 2020

Table 16(b) and 16(c): Equities – Types and nature of Banking Book investments
Sep 20Equity investments$M
Balance sheet value

Fair value

Value of listed (publicly traded) equities

3,075

2,314

Value of unlisted (privately held) equities

201

199

3,276

2,513

Total

Mar 20Equity investments$M
Balance sheet value

Fair value

Value of listed (publicly traded) equities

3,344

2,498

Value of unlisted (privately held) equities

137

137

3,481

2,635

Total

Sep 19Equity investments$M
Balance sheet value

Fair value

Value of listed (publicly traded) equities

4,043

3,459

Value of unlisted (privately held) equities

135

135

4,178

3,594

Half Year

Half Year

Half Year

Sep-20Mar 20

Sep 19Realised gains (losses) on equity investments

$M

$M

$M

Cumulative realised gains (losses) from disposals
and liquidations in the reporting period
Cumulative realised losses from impairment and writedowns
in the reporting period

(2)

-

-

-

(815)

-

(2)

(815)

-

Half Year

Half Year

Half YearSep 20Mar 20

Sep 19

$M

$M

$M

(112)

(40)

(88)

-

-

-

(112)

(40)

(88)

Total

Table 16(d) and 16(e): Equities – gains (losses)39

Unrealised gains (losses) on equity investments
Total unrealised gains (losses)
Reversal of prior period unrealised gains (losses) from disposals andliquidations in the reporting period
Total unrealised gains (losses) included in Common
Equity Tier 1, Tier 1 and/or Tier 2 capital

Table 16(f): Equities Risk Weighted Assets
From 1 January 2013 all banking book equity exposures are deducted from Common Equity Tier 1 capital.

39

Table 16(d) and Table 16 (e) are reported on an after-tax basis

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ANZ Basel III Pillar 3 disclosure

September 2020

Chapter 10 – Interest Rate Risk in the Banking Book
Table 17

Interest Rate Risk in the Banking Book

Definition of Interest Rate Risk in the Banking Book (IRRBB)Interest rate risk in the banking book (IRRBB) relates to the potential adverse impact of changes in market interest rates
on ANZ’s future earnings or economic value. The risk generally arises from:

Repricing and yield curve risk - the risk to earnings or economic value as a result of changes in the overall levelof interest rates and/or the relativity of these rates across the yield curve.

Basis risk - the risk to earnings or market value arising from volatility in the interest margin applicable to banking
book items.



Optionality risk – the risk to earnings or market value arising from the existence of stand-alone or embedded
options in banking book items.

Regulatory capital approach
ANZ has received approval from APRA to use the IMA for the calculation of regulatory capital for IRRBB, under APS 117
Capital Adequacy: Interest Rate Risk in the Banking Book (Advanced ADIs).
Governance
The Board Risk Committee has established a risk appetite for IRRBB and delegated authority to the Group Asset andLiability Committee (GALCO) to manage the strategic position (capital investment term) and oversee the interest raterisk arising from the repricing of asset and liabilities (mismatch risk) in the banking book. GALCO has delegated the
management of this mismatch risk to the Markets business.
Market Risk is the independent function responsible for:

Designing and implementing policies and procedures to ensure that IRRBB exposure is managed within the limit
framework set by the Board Risk Committee.



Monitoring and measuring IRRBB market risk exposure, compliance with limits and policies.

Ensuring ongoing effectiveness and appropriateness of the risk management framework.

Risk Management framework
IRRBB is managed under a comprehensive measurement and reporting framework, supported by an independent Market
Risk function. Key components of the framework include:

A comprehensive set of policies that promote proactive risk identification and communication.

Funds Transfer Pricing framework to transfer interest rate risk from business units so it can be managed by theMarkets business and monitored by Market Risk.



Quantifying the magnitude of risks and controlling the potential impact that changes in market interest rates can haveon the net interest income and balance sheet market value of ANZ.

Regular and effective reporting of IRRBB to executive management and the Board.

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ANZ Basel III Pillar 3 disclosure

September 2020

Measurement of interest rate risk in the banking book
ANZ uses the following principal techniques to quantify and monitor IRRBB:Interest Rate Sensitivity - this is an estimate of the change in economic value of the banking book due to a 1 basis
point move in a specific part of the yield curve.

Earnings at risk (EaR) - this is an estimate of the amount of income that is at risk from interest rate movements overa given holding period, expressed to a 97.5% level of statistical confidence.

Value at risk (VaR) - this is an estimate of the impact of interest rate changes on the banking book’s market value,
expressed to a 99% level of statistical confidence for a given holding period.

Market Value loss limits - this mitigates the potential for embedded losses within the banking book.

Stress testing - standard extraordinary forward looking and repricing term assumptions tests are used to highlightpotential risk which may not be captured by VaR, and how the portfolio might behave under extraordinary
circumstances.

The calculations used to quantify IRRBB require assumptions to be made about the repricing term of exposures that do
not have a contractually defined repricing date, such as deposits with no set maturity dates, and prepayments. Changes
to these assumptions require GALCO approval.
Basis and optionality risks are measured using Monte Carlo simulation techniques, to generate a theoretical worst
outcome at a specified confidence level (typically no less than at a 99% level of statistical confidence) less the averageoutcome.
Reporting of interest rate risk in the banking bookMarket Risk analyses the output of ANZ’s VaR, EaR and Stress Testing calculations daily. Compliance with the risk appetiteand limit framework is reported to CMRC, GALCO and the Board Risk Committee.
ANZ’s interest rate risk in the banking book capital requirement
The IRRBB regulatory capital requirements includes a value for repricing and yield curve risk, basis and optionality risks
based on a 99% confidence interval, one year holding period and a six year historical data set.
Embedded losses also contribute to make up the capital requirement and are calculated as the difference between thebook value and the current economic value of banking book items not accounted for on a marked-to-market basis.
Results of standard shock scenario
The Basel II framework sets out a standard shock scenario of a 200 basis point parallel shift change in interest rates, inorder to establish a comparable test across banks.
Table 17(b) that follows shows the results of this shock by currency of ANZ’s banking book exposures.

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ANZ Basel III Pillar 3 disclosure

September 2020

Table 17(b): Interest Rate Risk in the Banking Book
Change in Economic Value
Standard Shock Scenario Stress Testing:Sep 20Mar 20

Sep 19$M$M$M

200 basis point parallel increase

(229)

(267)

(508)

200 basis point parallel decrease

227

262

527

200 basis point parallel increase

(121)

(133)

(136)

200 basis point parallel decrease

101

116

126

200 basis point parallel increase

(45)

(84)

(34)

200 basis point parallel decrease

52

93

38

Interest rate shock applied
AUD

NZD

USD

GBP
200 basis point parallel increase

38

13

18

200 basis point parallel decrease

(38)

(13)

(19)

200 basis point parallel increase

(122)

(74)

(44)

200 basis point parallel decrease

132

82

50

Other

IRRBB regulatory capital

1,084

641

554

IRRBB regulatory RWA

13,547

8,011

6,922

IRRBB stress testing methodology
Stress tests within ANZ include standard extraordinary forward looking and repricing term assumptions tests. These tests
are used to highlight potential risk which may not be captured by VaR, and how the portfolio might behave under
extraordinary circumstances. Standard stress tests include statistically derived scenarios based on historical yield curve
movements. These combine parallel shocks with twists and bends in the curve to produce a wide range of hypotheticalscenarios at high statistical confidence levels, with the single worst scenario identified and reported. Other stress tests
include interest rate moves from historical periods of stress possible future stress test as well as stresses to assumptions
made about the repricing term of exposures. The extraordinary rate move scenarios include rate changes over the
stressed periods in financial market history. Forward looking stress tests include interest rate moves from plausible
future severe scenarios. Stresses of the repricing term assumptions investigate scenarios where actual repricing terms
are significantly different to those modelled.

83

ANZ Basel III Pillar 3 disclosure

September 2020

Chapter 11 – Leverage and Liquidity Coverage Ratio
Leverage Ratio
The Leverage Ratio requirements are part of the Basel Committee on Banking Supervision (BCBS) Basel III capitalframework. It is a simple, non-risk based supplement or backstop to the current risk based capital requirements and isintended to restrict the build-up of excessive leverage in the banking system.
Consistent with the BCBS definition, APRA’s Leverage Ratio compares Tier 1 Capital to the Exposure Measure (expressed
as a percentage) as defined by APS 110: Capital Adequacy. APRA has not finalised a minimum Leverage Ratio
requirement for Australian ADIs, although they have proposed a minimum of 3.5% for ADIs authorised to use the internalratings based approach to credit risk.
At 30 September 2020, the Group’s Leverage Ratio of 5.4% was above the 3% minimum currently required by the BCBS.
Table 18 below shows the Group’s Leverage Ratio calculation as at 30 September 2020 and Table 19 summarises thereconciliation of accounting assets and leverage ratio exposure measure at 30 September 2020.
Table 18

Leverage Ratio
Sep 20Mar 20

Sep 19$M$M$M

On-balance sheet exposures1

On-balance sheet items (excluding derivatives and SFTs, but including collateral)

853,357

911,565

823,620

2(Asset amounts deducted in determining Basel III Tier 1 capital)(11,527)(12,154)(12,976)3

Total on-balance sheet exposures (excluding derivatives and SFTs)

841,830

899,411810,644

11,287

16,277

11,56530,36036,10032,713

777

887

1,384

(10,499)(10,850)(11,893)

Derivative exposures4
5
6

Replacement cost associated with all derivatives transactions (ie net of eligible cash
variation margin)
Add-on amounts for PFE associated with all derivatives transactions

8

Gross-up for derivatives collateral provided where deducted from the balance sheet
assets pursuant to the operative accounting framework(Deductions of receivables assets for cash variation margin provided in derivatives
transactions)(Exempted CCP leg of client-cleared trade exposures)

9

Adjusted effective notional amount of written credit derivatives

10(Adjusted effective notional offsets and add-on deductions for written credit
derivatives)
Total derivative exposures

7

11

-

-

-

979

2,001

3,906

(608)

(1,547)(3,417)32,29642,86834,25853,38464,40535,980

Securities financing transaction exposures
12
13

Gross SFT assets (with no recognition of netting), after adjusting for sale accounting
transactions(Netted amounts of cash payables and cash receivables of gross SFT assets)(1,206)(1,143)(1,426)14

CCR exposure for SFT assets

6,238

4,181

2,369

15

Agent transaction exposures

-

-

-

16

Total securities financing transaction exposures

58,41667,44336,923

Other off-balance sheet exposures
17

Off-balance sheet exposure at gross notional amount

267,614

269,417

253,79118(Adjustments for conversion to credit equivalent amounts)(153,486)(154,740)(146,391)

Off-balance sheet items

114,128

114,677

107,400

19

Capital and Total Exposures
20

Tier 1 capital

21

Total exposures

22

Basel III leverage ratio

56,481

56,29555,221

1,046,670

1,124,399

989,225

5.4%

5.0%

5.6%

Leverage ratio

84

ANZ Basel III Pillar 3 disclosure
Table 19

September 2020

Summary comparison of accounting assets vs. leverage ratio exposure measure1

Total consolidated assets as per published financial statements

2

4

Adjustment for investments in banking, financial, insurance or commercial
entities that are consolidated for accounting purposes but outside the scope of
regulatory consolidation.
Adjustment for assets held on the balance sheet in a fiduciary capacity pursuant
to the Australian Accounting Standards but excluded from the leverage ratio
exposure measure
Adjustments for derivative financial instruments.

5

Adjustment for SFTs (i.e. repos and similar secured lending)

6

Adjustment for off-balance sheet exposures (i.e. conversion to credit equivalentamounts of off-balance sheet exposures)
Other adjustments

3

7

Leverage ratio exposure85

Sep 20Mar 20$M$M

Sep 19$M

1,042,286

1,149,955

981,137

(214)

(308)

(871)

-

-

-

(103,034)(130,809)(86,409)

5,032

3,038

944

114,128

114,677

107,400(11,528)(12,154)(12,976)

1,046,670

1,124,399

989,225

ANZ Basel III Pillar 3 disclosure
Table 20

September 2020

Liquidity Coverage Ratio disclosure templateSep 20
Total
Unweighted
Value
$M

Total
WeightedValue$M

Jun 20
Total
Unweighted
Value
$M

Total
WeightedValue$M

Mar 20
Total
Unweighted
Value
$M

Total
Weighted
Value$M

Liquid assets, of which:1High-quality liquid assets (HQLA)

172,617

176,310

178,751

2

Alternative liquid assets (ALA)

42,47244,75929,290

3

Reserve Bank of New Zealand(RBNZ) securities
Cash outflows

146

300

4,511

4
5

Retail deposits and deposits fromsmall business customersof which: stable deposits

101,925

5,096

96,3604,818

82,5494,127

6

of which: less stable deposits

130,416

18,792

127,895

18,406125,980

17,343

234,284

118,912252,193

131,113232,218

127,180

87,824

21,38587,016

21,10871,606

17,398134,334

85,401

152,462

97,290149,352

98,522

12,126

12,126

12,715

12,715

11,26011,26078910Unsecured wholesale fundingof which: operational deposits (allcounterparties) and deposits in
networks for cooperative banksof which: non-operational
deposits (all counterparties)of which: unsecured debt

11

Secured wholesale funding

12

Additional requirements

232,341

23,888224,255333

23,224

208,529

1,968

21,4701,140

151,159

44,447

154,399

51,185

149,498

47,05813

of which: outflows related toderivatives exposures and othercollateral requirements

27,42627,42634,21434,214

31,15031,15014

of which: outflows related to lossof funding on debt products

-

-

-

-

-

-

15

123,733

17,021

120,185

16,971

118,348

15,90816

of which: credit and liquidity
facilities
Other contractual funding obligations

8,569

-

9,724

-

11,345-

17

Other contingent funding obligations

101,226

6,076

91,3544,754

85,308

4,377

18

Total cash outflows

193,656

212,244

201,225

Cash inflows
19

Secured lending (e.g. reverse repos)

29,0991,883

29,1691,987

36,5422,243

20

25,704

17,13532,161

22,43730,416

19,071

21

Inflows from fully performing
exposures
Other cash inflows

20,226

20,226

27,07927,07924,34524,34522

Total cash inflows

75,02939,244

88,40951,50391,30345,65923

Total liquid assets

215,235

221,369

212,552

24

Total net cash outflows

154,412160,741

155,566

25

Liquidity Coverage Ratio (%)

139.4%

137.7%

136.6%

66

65

64

Number of data points used (simple
average)

Liquidity Coverage Ratio (LCR)
ANZ’s average LCR for the 3 months to 30 September 2020 was 139.4% with total liquid assets exceeding net outflows
by an average of $60.8 billion.
The main contributors to net cash outflows were modelled outflows associated with the bank’s corporate and retaildeposit portfolios, offset by inflows from maturing loans. While cash outflows associated with derivatives are material,
these are effectively offset by derivative cash inflows.
The composition of the liquid asset portfolio has remained relatively stable through the quarter, with HQLA securities
and cash making up on average 80% of total liquid assets.
ANZ has a well diversified deposit and funding base avoiding undue concentrations by investor type, maturity, market
source and currency.
ANZ monitors and manages its liquidity risk on a daily basis including LCR by geography and currency, ensuring ongoingcompliance across the network.

86

ANZ Basel III Pillar 3 disclosure
Table 21

September 2020

NSFR disclosure templateSep 20
Unweighted value by
residual maturity
No<66
maturity
monthsmonths
to <
1yr
$M
$M
$M

Available Stable Funding (ASF) Item1of which: regulatory capital3of which: other capital instruments

4

Retail deposits and deposits from small business customers≥ 1yr

Weighted
value

$M

$M

61,092--

19,77780,86961,092--

19,77780,869

-

-

-

-

-

217,118

67,846

7,384

2,820

271,673

Capital

2

BLANK

5

of which: stable deposits

100,576

15,612--

110,378

6of which: less stable deposits

116,542

52,234

7,384

2,820

161,295
198,5547

138,155

236,567

31,736

81,2978

Wholesale fundingof which: operational deposits

90,600---45,3009of which: other wholesale funding

47,555236,567

31,736

81,297

153,254

-

-

-

-

-

32,855

6,907

-

167

167

10

Liabilities with matching interdependent assets

11

Other liabilities

12
13
14

of which: NSFR derivative liabilitiesof which: All other liabilities and equity not included in theabove categories
Total ASF

32,855

6,907

-

-

-

-

167

167
551,263

Required Stable Funding (RSF) Item
15a

Total NSFR (HQLA)

8,039

15b

ALA

5,390

15c

RBNZ securities

16

Deposits held at other financial institutions for operational
purposes
Performing loans and securities

17
18

911
-

-

-

-

-

13,213

120,938

46,418430,581

390,428-

47,823

1

-

4,783

346

19,773

5,961

16,90823,201

11,89745,37432,139115,093

146,281

10

1,134

319

2,069

2,077

22

of which: Performing loans to financial institutions secured by
Level 1 HQLA
of which: Performing loans to financial institutions secured by
non-Level 1 HQLA and unsecured performing loans to financial
institutionsof which: Performing loans to non- financial corporate clients,
loans to retail and small business customers, and loans tosovereigns, central banks and public sector entities (PSEs)
of which: With a risk weight of less than or equal to 35%
under APS 112
of which: Performing residential mortgages

-

6,879

7,837

295,543

211,973

23

of which: With a risk weight equal to 35% under APS 112

-

6,126

7,003

260,647

181,518

24

970

1,089

480

3,037

4,190

25

of which: Securities that are not in default and do not qualify
as HQLA, including exchange-traded equities
Assets with matching interdependent liabilities

26

Other assets:

19

20

21

27

of which: Physical traded commodities, including gold28

of which: Assets posted as initial margin for derivative contracts andcontributions to default funds of central counterparties (CCPs)
of which: NSFR derivative assets

29
30
31

-

-

-

-

-

24,64832,568874

3,917

32,712

2,264

-

-

1,924

3,369

of which: NSFR derivative liabilities before deduction ofvariation margin postedof which: All other assets not included in the above categories

21,2802,863

11,287

-

-

4,380

17,501

-

-

3,500

1,516

874

3,917

20,045--

197,30232

Off-balance sheet items

33

Total RSF

445,230

7,750

34

Net Stable Funding Ratio (%)

123.81%

ANZ's NSFR as at 30 September 2020 was 123.8%, up 4.3% in the quarter since June 2020.
The main sources of Available Stable Funding (ASF) at September 2020 were deposits from Retail and SME customers,
at 49%, with other wholesale funding (including Term Funding Facilities) at 28% and capital at 15% of the total ASF.
The majority of ANZ's Required Stable Funding (RSF) at September 2020 was driven by mortgages at 48% and otherlending to non-FI customers at 33% of the total RSF.

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Table 21

September 2020

NSFR disclosure template (continued)
Jun 20
Unweighted value by
residual maturity
No<66
maturity
monthsmonths
to <
1yr
$M
$M
$M

Available Stable Funding (ASF) Item
1

Capital2of which: regulatory capital3of which: other capital instruments

4

Retail deposits and deposits from small business customers

BLANK
≥ 1yr

Weighted
value

$M

$M

61,129--18,92480,053

61,129--18,92480,053

-

-

-

-

-

203,516

69,808

7,042

2,883

260,700

5of which: stable deposits

93,906

15,847--104,266

6of which: less stable deposits

109,61053,961

7,042

2,883

156,434
201,098

7

136,191

271,627

30,492

77,4088Wholesale fundingof which: operational deposits

87,102---43,551

9of which: other wholesale funding

49,089271,627

30,492

77,408

157,547

-

-

-

-

-

29,191

7,455

-

1,507

1,507

10

Liabilities with matching interdependent assets

11

Other liabilities

12
13
14

of which: NSFR derivative liabilitiesof which: All other liabilities and equity not included in theabove categories
Total ASF

29,191

7,455

-

-

-

-

1,507

1,507
543,358

Required Stable Funding (RSF) Item15(a)Total NSFR (HQLA)

7,845

15(b)

ALA

5,451

15(c)

RBNZ securities

16

Deposits held at other financial institutions for operational
purposes
Performing loans and securities

17
18

706
-

-

-

-

-

14,277

131,534

47,201

426,652

393,035-

46,092

-

-

4,609

449

27,844

8,603

12,13321,05912,87050,61130,159123,968

156,872

7

699

796

3,744

3,186

22

of which: Performing loans to financial institutions secured by
Level 1 HQLA
of which: Performing loans to financial institutions secured by
non-Level 1 HQLA and unsecured performing loans tofinancial institutionsof which: Performing loans to non- financial corporate clients,
loans to retail and small business customers, and loans tosovereigns, central banks and public sector entities (PSEs)
of which: With a risk weight of less than or equal to 35%
under APS 112
of which: Performing residential mortgages

-

6,111

8,034

287,971

206,847

23

of which: With a risk weight equal to 35% under APS 112

-

5,447

7,190

252,714

176,125

24

958

876

405

2,580

3,648

25

of which: Securities that are not in default and do not qualify
as HQLA, including exchange-traded equities
Assets with matching interdependent liabilities

26

Other assets:

19

20

21

-

-

-

-

-

30,311

33,772

2,021

4,728

39,754

2,449

-

-

2,082

11,225

-

-

3,770

19,936

-

-

3,987

161

2,021

4,728

27,320--200,855

27

of which: Physical traded commodities, including gold28

of which: Assets posted as initial margin for derivative contracts andcontributions to default funds of central counterparties (CCPs)
of which: NSFR derivative assets

29
30

3,053

2,595

32

of which: NSFR derivative liabilities before deduction ofvariation margin postedof which: All other assets not included in the above
categories
Off-balance sheet items

33

Total RSF

454,56234

Net Stable Funding Ratio (%)

119.53%31

88

27,258

7,771

ANZ Basel III Pillar 3 disclosure

September 2020

Glossary
ADI

Authorised Deposit-taking Institution.

Basel III Credit Valuation
adjustment (CVA) capitalcharge

CVA charge is an additional capital requirement under Basel III for bilateralderivative exposures. Derivatives not cleared through a central
exchange/counterparty are subject to this additional capital charge andalso receive normal CRWA treatment under Basel II principles.

Collectively Assessed
Provision for Credit
Impairment

Collectively assessed provisions for credit impairment represent the
Expected Credit Loss (ECL) calculated in accordance with AASB 9 Financial
Instruments (AASB 9). These incorporate forward looking information anddo not require an actual loss event to have occurred for an impairment
provision to be recognised.

Credit exposure

The aggregate of all claims, commitments and contingent liabilities arisingfrom on- and off-balance sheet transactions (in the banking book andtrading book) with the counterparty or group of related counterparties.

Credit risk

The risk of financial loss resulting from a counterparty failing to fulfil its
obligations, or from a decrease in credit quality of a counterparty resulting
in a loss in value.

Credit Valuation Adjustment(CVA)

Over the life of a derivative instrument, ANZ uses a CVA model to adjust
fair value to take into account the impact of counterparty credit quality.
The methodology calculates the present value of expected losses over thelife of the financial instrument as a function of probability of default, loss
given default, expected credit risk exposure and an asset correlation factor.
Impaired derivatives are also subject to a CVA.

Days past due

The number of days a credit obligation is overdue, commencing on the datethat the arrears or excess occurs and accruing for each completed calendar
day thereafter.

Exposure at Default (EAD)

Exposure At Default is defined as the expected facility exposure at the dateof default.

Impaired assets (IA)Facilities are classified as impaired when there is doubt as to whether thecontractual amounts due, including interest and other payments, will be
met in a timely manner. Impaired assets include impaired facilities, andimpaired derivatives. Impaired derivatives have a credit valuation
adjustment (CVA), which is a market assessment of the credit risk of therelevant counterparties.

Impaired loans (IL)Impaired loans comprise of drawn facilities where the customer’s status isdefined as impaired.

Individual provision charge(IPC)

Individual provision charge is the amount of expected credit losses on
financial instruments assessed for impairment on an individual basis (asopposed to on a collective basis). It takes into account expected cash flows
over the lives of those financial instruments.

Individually Assessed
Provisions for Credit
Impairment

Individually assessed provisions for credit impairment are calculated inaccordance with AASB 9 Financial Instruments (AASB 9). They areassessed on a case-by-case basis for all individually managed impaired
assets taking into consideration factors such as the realisable value of
security (or other credit mitigants), the likely return available uponliquidation or bankruptcy, legal uncertainties, estimated costs involved inrecovery, the market price of the exposure in secondary markets and theamount and timing of expected receipts and recoveries.

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Internationally Comparable
Basel III Capital Ratio

The Internationally Comparable Basel III CET1 ratios are ANZ’sinterpretation of the regulations documented in the Basel Committee
publications; “Basel 3: A global regulatory framework for more resilientbanks and banking systems” (June 2011) and “International Convergenceof Capital Measurement and Capital Standards” (June 2006). They also
include differences identified in APRA’s information paper entitledInternational Capital Comparison Study (13 July 2015).

Market risk

The risk to ANZ’s earnings arising from changes in interest rates, foreignexchange rates, credit spreads, volatility, correlations or from fluctuations
in bond, commodity or equity prices. ANZ has grouped market risk into two
broad categories to facilitate the measurement, reporting and control ofmarket risk:
Traded market risk - the risk of loss from changes in the value of financial
instruments due to movements in price factors for both physical andderivative trading positions. Trading positions arise from transactions
where ANZ acts as principal with customers, financial exchanges or interbank counterparties.
Non-traded market risk (or balance sheet risk) - comprises interest raterisk in the banking book and the risk to the AUD denominated value of
ANZ’s capital and earnings due to foreign exchange rate movements.

Operational risk

The risk of loss resulting from inadequate or failed internal processes,
people and systems, or from external events including legal risk but
excluding reputation risk.

Past due facilities

Facilities where a contractual payment has not been met or the customer
is outside of contractual arrangements are deemed past due. Past due
facilities include those operating in excess of approved arrangements or
where scheduled repayments are outstanding but do not include impaired
assets.

Qualifying Central
Counterparties (QCCP)QCCP is a central counterparty which is an entity that interposes itself
between counterparties to derivative contracts. Trades with QCCP attracta more favorable risk weight calculation.

Recoveries

Payments received and taken to profit for the current period for theamounts written off in prior financial periods.

Restructured items

Restructured items comprise facilities in which the original contractual
terms have been modified for reasons related to the financial difficulties of
the customer. Restructuring may consist of reduction of interest, principal
or other payments legally due, or an extension in maturity materiallybeyond those typically offered to new facilities with similar risk.

Risk Weighted Assets (RWA)

Assets (both on and off-balance sheet) are risk weighted according to each
asset’s inherent potential for default and what the likely losses would be in
the case of default. In the case of non-asset backed risks (i.e. market andoperational risk), RWA is determined by multiplying the capitalrequirements for those risks by 12.5.

Securitisation risk

The risk of credit related losses greater than expected due to asecuritisation failing to operate as anticipated, or of the values and risks
accepted or transferred, not emerging as expected.

Write-Offs

Facilities are written off against the related provision for impairment when
they are assessed as partially or fully uncollectable, and after proceedsfrom the realisation of any collateral have been received. Where individual
provisions recognised in previous periods have subsequently decreased or
are no longer required, such impairment losses are reversed in the current
period income statement.

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ANZ Basel III Pillar 3 Disclosure

June 2017