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

Full Year
30 September 2008

Consolidated Results
Dividend Announcement andAppendix 4E

The Consolidated Results and Dividend Announcement constitutes the preliminary final report and contains the information
required by Appendix 4E of the Australian Securities Exchange Listing Rules. It should be read in conjunction with ANZ’s
2008 Annual Report, and is lodged with the Australian Securities Exchange under listing rule 4.3A.

RESULTS FOR ANNOUNCEMENT TO THE MARKET

Name of Company:

APPENDIX 4E

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

Report for the full year ended 30 September 2008
A$ million
Operating income

! 7%*

to

12,159Profit after tax attributable to shareholders" 21%*

to3,319

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

74 cents(previous corresponding period 74 cents fully franked at 30% tax rate)
Interim 2008 dividend per ordinary share, fully franked at 30% tax rate

62 cents

Record date for the proposed final dividend

12 November 2008

The proposed final dividend will be payable to shareholders registered in the books of the Company at
5:00 pm (Melbourne time) on 12 November 2008

Payment date for the proposed final dividend*

18 December 2008

Compared to the full year ended 30 September 2007

Highlights
All figures compared to the full year ended 30 September 2007 unless otherwise indicatedProfitProfit after tax $3,319 million
Cash^ profit after tax $3,029 million

down
down

21%
23%

Earnings per share and dividend
EPS 170.4 cents
Cash^ EPS 155.3 cents
Full year dividend 136 cents

down
24%
down
26%
unchanged

Other key measures
Revenue^ $11,495 million
Cost to income ratio^ 47.4%
Provisions $1,948 million
Gross non-performing loans $1,750 million

up
4%
up
2.5%
up $1,426m
up $1,084m

Business highlights^#

A solid underlying result (before provisions and credit risk on derivatives) highlighting quality of franchise and businessresilience in a difficult environment.

#

The Personal division profit increased 12%, income from growth in deposits and lending up 13% and 12% respectively.

#

The flow on effects of global financial disruption including increased credit impairment costs drove a 65% reduction in
profit for the Institutional division.

#

A strong result in the Asia Pacific division with profit up 52%. Operating income increased 46%.

#

Acceptable performance in New Zealand given the economy has slowed significantly. Provisions have increased
significantly from historic lows resulting in a NZD 12% decline in net profit after tax.

#

Credit impairment charges have increased $1.4 billion to $1.9 billion, and $0.7 billion in charges have been taken forthe credit risk on derivatives.

#

The collective provision is above 1 per cent of credit risk weighted assets providing a strong position against thedeterioration in the global credit environment and softened domestic economies.

#

Tier 1 capital ratio is 7.7%.

^

Adjusted for non-core items (i.e. significant items and non-core income arising from the use of derivatives in economic hedges and fair value through profit
and loss)AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITEDABN 11 005 357 522

CONSOLIDATED RESULTS, DIVIDEND ANNOUNCEMENT and APPENDIX 4E
Full year ended 30 September 2008

CONTENTSPAGEHIGHLIGHTS

1

FINANCIAL HIGHLIGHTS

5

ProfitCash profit
Earnings per share
Condensed balance sheet
Financial ratios
Business unit analysis

5
5
6
6
7
9

CHIEF FINANCIAL OFFICER’S REVIEW
Review of Group Results
Income and expenses
Credit risk (including credit risk on derivatives)
Income tax expense
Earnings per share
Impact of exchange rate movements
Impact of acquisitions and disposals
Non-core items
Dividends
Market risk
Balance sheet
Liquidity risk
Capital management
Deferred acquisition costs and deferred income
Software capitalisation

11
11
13
19
24
24
25
25
26
27
28
30
32
34
36
36

BUSINESS PERFORMANCE REVIEW37

GEOGRAPHIC SEGMENT PERFORMANCE

57

FIVE YEAR SUMMARY

65

CONDENSED CONSOLIDATED FINANCIAL INFORMATION – TABLE OF CONTENTS68

APPENDIX 4E STATEMENT

99

SUPPLEMENTARY INFORMATION
Capital management
Average balance sheet and related interest
Derivative financial instruments
Special purpose and off-balance sheet entities
Leveraged finance
Asset-backed securities

100
100
103
109
110
112
113

DEFINITIONS

114

ALPHABETICAL INDEX

117

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

HIGHLIGHTSFor Release: 23 October 2008

ANZ reports 2008 Profit of $3,319 million
Strong underlying performance offset by increased provisions
Highlights (All comparisons are with 2007 full year figures)

Profit $3,319 million

down

21%

Cash* profit $3,029 million

down

23%

Underlying revenue* $12,343 million

up

12%

EPS 170.4 cents

down

24%

Cash* EPS 155.3 cents

down

26%

Proposed full year dividend 136 cents (fully franked)

unchanged

Full year profit
Australia and New Zealand Banking Group Limited (ANZ) today announced a profit after tax of $3,319 million
for the 12 months to 30 September 2008, down 21%. Cash profit* of $3,029 million was down 23%.
The full year dividend has been maintained at 136 cents per share fully franked.
Underlying revenue* grew 12%, with lending growth for the year of 16% and growth in deposits and otherborrowings of 21% highlighting an increased reliance on AA-rated banks during the global financial turmoil, therelative strength of the regional economy and the quality of ANZ’s franchise.
The results were impacted by a $1.4 billion increase in credit impairment charges on lending to $1.9 billion
along with a $0.7 billion charge for credit risk on derivatives. The collective provision has been strengthened
by $829 million to sit at over 1% of credit risk weighted assets providing a strong position against thedeteriorating global credit environment and softening economic conditions. The increase in the individual
provision charge to $1.1 billion was driven principally by a small number of large single name exposures in theInstitutional portfolio.
Net interest margin declined 18 basis points impacted by the dislocation in global credit markets , partly offset
by actions taken by ANZ to recover margin losses incurred in the first half.
Operating expenses* grew 10% year on year reflecting continued substantial investment in the Asia Pacificbusiness, remedial work in the Institutional division, lower than normal spend in the first half of 2007 and thefull year impact of prior period investment in the Personal division.
ANZ Chief Executive Officer Mr Mike Smith said: “The solid underlying result shows the strength of theAustralian banking system and highlights ANZ’s ability to weather an extremely challenging year. We havemaintained our dividend, provided security and confidence for our customers and worked hard to meet
community expectations with responsible, sustainable banking services.

* Adjusted for non-core items (i.e. significant items and non-core income arising from the use of derivatives in economic hedges and fair value
through profit and loss)

1

HIGHLIGHTS (continued)“Since I joined ANZ in October 2007, we have done much to put the Bank on a new footing with a clear
strategy focused on creating a super regional bank. We recognised the new reality in financial markets earlyand strengthened the balance sheet, increased capital and liquidity and systematically tackled somedeficiencies in operating processes and controls. We have also created a new business model to lift customer
focus and drive performance improvement.
“The growth in credit losses is disappointing but our ability to manage and absorb this shows a high level ofresilience.
“Importantly the underlying performance of our business is sound. We delivered an excellent performance in
Personal which has remained one of Australia’s best performing retail banks and one of Australia’s strongest
deposit taking institutions. In Asia Pacific we are building a growth business which is delivering very goodresults leveraging the high economic growth in Asia and the deep regional liquidity pools.
“In Institutional, the business environment and operational issues have been more difficult, however we haveadjusted our business model and tightened risk management to ensure we have a strong core customer
franchise. In New Zealand, we have the leading market position and we are maintaining that franchise whiledriving productivity improvements.
“We are positioned well and will continue to take the necessary action to ensure ANZ remains one of theworld’s leading banks with a strong credit rating.
“In the medium term, the main game at ANZ is our super regional strategy. What is clear is that ANZ has theright foundation to build upon although there will be a continuing period of remedial work in some areas. There
are significant opportunities emerging from the environment. Continuing to manage the Bank in a steadydecisive manner in the near term will set ANZ up to deliver on our aspiration to become a super regional bank.
This is the key to creating greater value and out-performance for our shareholders over the longer term,” Mr
Smith said.

DIVISIONAL PERFORMANCE
Personal
Personal division profit grew 12%, driven by strong income from customer deposits and lending (up 13% and
12% respectively), and continued benefits derived from investment in the business.
Improved operating income (up 11%) reflected good contributions from Banking Products (+18%), Small
Business (+25%) and Consumer Finance (+8%). The Investment and Insurance Products business income,while well up for the year (+13%), had a weaker second half due to reduced trading volumes in ETrade andlower volumes in financial planning.
Expenses increased 9% due to investment in personnel (approximately 50% of total) and premises, increased
marketing and technology spend and the impact of 100% ownership of ETrade (acquired May 2007). ANZ has
opened four new branches this year along with 209 ATMs and increased staff predominantly in customer facingroles.
The increase in provisions year on year largely reflects increased volume as loss rates have remained stable ataround 28 basis points. Delinquency rates while tracking above last year are being tightly managed.
Institutional
Underlying trends in the Institutional business were encouraging with good contributions to profit from Working
Capital, Business Banking and Global Markets. The Division’s result was, however, adversely impacted by the
global credit crisis. Increased provisions on a small number of corporate names along with credit risk onderivatives drove a 65% decrease in net profit.

2

HIGHLIGHTS (continued)

Credit risk on derivatives reduced full year revenue by $721 million. Of this, $156 million related to losses oncontracts with two mining companies and a financial institution. Credit impairment associated with protection
purchased on credit intermediation trades comprised $531 million (USD425 million) and the remaining$34 million related to changes in counterparty credit ratings across the rest of our derivatives portfolio.
We expect the credit impairment associated with the credit intermediation trades to be substantially written
back over time as either credit derivative markets improve and/or the transactions mature. The mark-tomarket value of the protection is impacted by fluctuations in currency (USD versus AUD), movement in credit
spreads and the time value of the derivatives.
A deterioration in the financial position of a small number of Australian corporates significantly increased
individual provisioning, while the collective provision was increased to reflect volume growth, risk in thefinancial institutions and property sectors, and changes in the economic cycle.
Net lending assets grew 27% and margins increased off their low point experienced in early 2008.
Following an extensive internal review, the Institutional business recently announced a new streamlined
structure focused on our client relationship business across three geographies. Refinement of the businessmodel will see Institutional exit a number of businesses enabling greater focus on those areas capable ofdelivering superior growth and returns for shareholders within appropriate risk parameters.
New Zealand Businesses (in NZD)
Net profit declined 12% due a significant increase in provisioning off an historically low base (2008:$286 million; 2007: $78 million).
The second half saw the impacts of a slowing economy flowing through along with margin pressures, increased
funding costs and higher provisions. Corporate and Commercial Banking, Rural, Private Banking and UDC
achieved good growth in profit before provisions while the two retail divisions were in line with last year.
Income grew 4% driven largely by balance sheet growth (lending up 11%, customer deposits up 9%) which
was offset by margin contraction (-21 basis points). Expenses increased 4% driven by increased numbers ofcustomer facing staff and investment in business initiatives however this was offset by strong control of
discretionary expenditure and productivity initiatives.
The New Zealand Businesses improved their market share during the year with gains in most businesssegments while also maintaining customer satisfaction levels.
Asia Pacific
The Asia Pacific division produced an excellent 52% increase in profit reflecting the full year impact of
successful investments in partnership businesses such as AMMB Holdings Berhad and Shanghai Rural
Commercial Bank (acquired in late 2007) along with earnings from PT Bank Pan Indonesia (Panin). The Asia
Pacific Institutional business profit grew 38% reflecting increased Markets business. The Division also
benefited from mark-to-market gains on bonds convertible into shares in Saigon Securities Inc and on warrants
issued by Panin ($43 million before tax).
Operating income grew 46%. As well as an 82% increase in net advances, which benefited interest income,increased product capabilities generated higher fee and other revenue. The Division’s transformation program
was accelerated to provide the base for future growth. Operating expenses increased 46% as the branch
network grew, new technology was installed and increased client relationship and specialist resources were
employed throughout the region (+1,086 FTEs).
Average lending assets grew 56% largely funded by growth in deposits and other borrowings. Provisions grew
$22 million primarily through asset growth along with some increase to collective provision to reflect an
economic cycle adjustment during the first half of the year.

3

HIGHLIGHTS (continued)

CAPITAL AND FUNDING
ANZ’s Tier 1 capital ratio of 7.7% compares well globally and against domestic peers, and represents anincrease of 87 basis points since March 2008. The Group has been proactive throughout the year in its efforts
to further strengthen capital, undertaking a series of initiatives including exchanging StEPS for ordinary equity,
underwriting the interim dividend and raising $1.7 billion in hybrid Tier 1 capital. To further strengthen its
capital ratios ANZ will also underwrite the final 2008 dividend.
Notwithstanding particularly challenging capital market conditions, ANZ has issued a record $39 billion of termwholesale debt during the year to further strengthen our funding and liquidity position. Additionally, since
30 September 2008 the liquid asset portfolio has been significantly increased to over $53 billion, which
provides sufficient cover for over 12 months of all offshore wholesale debt maturities.

OUTLOOK
Commenting on the 2009 outlook for ANZ, Mr Smith said: “Market conditions globally remain difficult andunpredictable. The restructure of our business announced in September is designed to accelerate progresswith our Super Regional Bank strategy, lift customer focus and drive performance improvement.
“Managing a large commercial bank means managing through a range of conditions. While we expect choppy
conditions to continue in 2009, ANZ is well positioned to manage this cycle, to continue to invest and maximise
the opportunities which arise.
“We have the foundation, a clear direction and the capacity to deliver performance and value to ourshareholders over the longer term,” Mr Smith said.

For media enquiries, contact:

For analyst enquiries, contact:

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

Jill Craig
GGM Investor Relations
Tel: 03-9273 4185 or 0412-047 448
Email: jill.craig@anz.com

4FINANCIAL HIGHLIGHTS

ProfitHalf
year
Sep 08$M
4,070

Net interest income
1

Movt
Half
Sep 08year
Mar 08 v. Mar 08
%
$M
3,780
8%

Full
year
Sep 08
$M
7,850

Movt
Full
Sep 08year
Sep 07 v. Sep 07
%
$M
7,302
8%

1,951

2,358

-17%

4,309

4,038

Operating income

6,021

6,138

-2%

12,15911,3407%

Operating expenses(2,995)(2,701)

11%(5,696)(4,953)

15%

Profit before credit impairment and income tax

3,026

3,437

-12%

6,463

6,387

1%

Provision for credit impairment(1,267)

(681)

86%

(1,948)

(522)

large

Profit before income tax

1,759

2,756

-36%

4,515

5,865

-23%

Income tax expense

(398)

(790)

-50%

(1,188)(1,678)-29%

Other operating income

Minority interest
Profit attributable to shareholders of the Company
1.

7%

(5)

(3)

67%

(8)

(7)

14%

1,356

1,963

-31%

3,319

4,180

-21%

Includes share of joint venture and associates profit

Cash profit
Profit has been adjusted to exclude the following non-core items to arrive at cash profit. Throughout this document figuresand ratios that are calculated on a ‘cash’ basis have been shaded to distinguish them from figures calculated on a statutory
basis.
Halfyear
Sep 08$M
1,356

Profit attributable to shareholders of the Company

Half
Movt
Sep 08year
Mar 08 v. Mar 08
%
$M
1,963
-31%

Full
year
Sep 08
$M
3,319

Movt
Full
Sep 08year
Sep 07 v. Sep 07
%
$M
4,180
-21%

Less: Non-core items
Significant items

1

Gain on Visa shares
Organisational transformation costs
Impairment of intangible - Origin Australia
Restatement of deferred tax balances for announced
New Zealand tax rate change
Gain on sale of Esanda Fleetpartners
Total significant items
2

Economic hedging - fair value gains/losses

2

NZD and USD revenue hedge - mark-to-market
Total non-core items
Cash profit

-

248

-100%

248

-

(152)

-

n/a

(152)

-

n/a
n/a

-

(24)

-100%

(24)

-

n/a

(7)

8

large

1

(24)

large

-

-

n/a

-

195

-100%

(159)

232

large

73

171

-57%

176

67

large

243

69

large

(16)

(10)

60%

(26)

16

large

1

289

-100%

290

256

13%

1,355

1,674

-19%

3,029

3,924

-23%

1.

In 2008 ANZ has classified as significant items the gain from the allocation of shares in Visa in March 2008 of $248 million after tax (tax impact: $105 million),costs associated with organisational transformation of $152 million after tax (tax impact: $66 million) including process re-engineering and ATM write-offs relating
to a network upgrade, costs associated with the write-down of an intangible asset relating to Origin Australia of $24 million after tax (tax impact: $10 million) anda further positive adjustment of $1 million (Sep 2008 half: $7 million loss; Mar 2008 half: $8 million gain) following the restatement of deferred tax assets
consequent to the reduction in New Zealand tax rate. In 2007 ANZ classified as significant items the gain on sale of Esanda Fleetpartners of $195 million after tax(tax impact: $nil following the availability of capital losses being applied against the gain) and a negative impact of $24 million following the restatement ofdeferred tax assets to reflect the announced change in the New Zealand company tax rate which takes effect from 1 October 2008. ANZ excludes significant items
to eliminate the distorting effect of one-off transactions on the results of its core business (refer page 26)

2.

The Group enters into economic hedges to manage its interest rate and foreign exchange risk. In 2008 ANZ has classified a gain of $243 million after tax (2007full year: $69 million; Sep 2008 half: $176 million; Mar 2008 half: $67 million) relating to economic hedging as a non-core item (tax impact $107 million (2007 fullyear: $31 million; Sep 2008 half: $78 million; March 2008 half: $29 million)). Included in this non-core amount is market volatility relating to approved classes ofderivatives not designated in accounting hedge relationships but that are considered to be economic hedges, volatility arising from use of the fair value option, andineffectiveness from designated accounting hedges. In addition, ANZ has classified a mark-to-market loss after tax of $26 million (2007 full year: $16 million gain;
Sep 2008 half: $16 million loss; Mar 2008 half: $10 million loss) relating to revenue hedges (NZD and USD) that under the transitional provision of AASB 139(AASB 2005-1) no longer qualify for hedge accounting from 1 October 2006 (tax impact $13 million credit (2007 full year: $7 million expense; Sep 2008 half:$9 million credit; Mar 2008 half: $4 million credit)). ANZ excludes volatility associated with fair value movements on these transactions to provide a better
indication of the core business performance (refer page 27)

5

FINANCIAL HIGHLIGHTS (continued)

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

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

Full
year
Sep 08
$M

Full
Movt
year
Sep 08
Sep 07 v. Sep 07$M%

Net interest income

4,070

3,780

8%

7,850

7,302

8%

Other operating income

1,722

1,923

-10%

3,645

3,720

-2%

Operating income

5,792

5,703

2%

11,495

11,022

4%

Operating expenses(2,777)(2,667)

4%(5,444)(4,953)

10%

Profit before credit impairment and income tax

3,015

3,036

-1%

6,051

6,069

0%

Provision for credit impairment(1,267)

(681)

86%

(1,948)

(522)

large

Profit before income tax

1,748

2,355

-26%

4,103

5,547

-26%

Income tax expense

(388)

(678)

-43%

(1,066)(1,616)-34%

Minority interest
1

Cash profit

(5)

(3)

67%

(8)

(7)

14%

1,355

1,674

-19%

3,029

3,924

-23%

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

Full
year
Sep 08Movt
Full
Sep 08year
Sep 07 v. Sep 07

-33%

170.4

224.1

-24%

Earnings per share

Earnings per ordinary share (cents)
Basic

68.3

102.4

Diluted

65.9

98.6

-33%

162.2

218.3

-26%

68.3

87.1

-22%

155.3

210.3

-26%

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

1Cash (basic adjusted for non-core items)
1.

Refer footnotes 1 and 2 on page 5

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

AssetsLiquid assets

25,03017,803

16,98741%

47%

Due from other financial institutions

9,862

11,850

8,040

-17%

23%

Trading and available-for-sale assets

32,657

31,20329,1735%

12%

Derivative financial instruments

36,941

29,217

22,20426%

66%

350,484

333,766

303,4155%

16%

16,05014,516

12,95411%

24%

471,024

438,355

392,773

7%

20%

Net loans and advances including acceptances
Other
Total assets
Liabilities
Due to other financial institutions

20,092

19,134

19,1165%

5%

Deposits and other borrowings

283,966

264,996

233,743

7%

21%

Derivative financial instruments

31,927

27,831

24,18015%

32%

Liability for acceptances

15,29715,756

14,536-3%

5%

Bonds and notes

67,32363,54954,075

6%

24%

Other
Total liabilities
Total equity

6

25,867

23,12525,07512%

3%444,472

414,391

370,7257%

20%

26,552

23,96422,04811%

20%

FINANCIAL HIGHLIGHTS (CONTINUED)

Financial ratios

Profit attributable to shareholders of the Company
1

Cash profit

Half
year
Sep 08
$M
1,356

Half
year
Mar 08
$M
1,963

Full
year
Sep 08
$M
3,319

Full
year
Sep 07
$M
4,180

1,355

1,674

3,029

3,924

Profitability ratios
Return on:
2

11.4%

17.7%

14.5%

20.9%

Average ordinary shareholders' equity (cash profit basis)

11.4%

15.1%

13.2%

19.6%

Average assets

0.61%

0.92%

0.76%

1.15%

0.61%

0.78%

0.69%

1.08%
13.7%

Average ordinary shareholders' equity

2

1

1

Average assets (cash profit basis)
Total income

7.0%

10.8%

8.9%

Net interest margin

2.02%

1.99%

2.01%

2.19%

Profit per average FTE ($)

37,331

56,356

93,288125,533

Efficiency ratios
Operating expenses to operating income

49.7%

44.0%

46.8%

43.7%

Operating expenses to average assets

1.34%

1.27%

1.30%

1.36%

47.9%

46.8%

47.4%

44.9%

1.25%

1.25%

1.25%

1.36%

470

348

818

83

797

333

1,130

439

1

Operating expenses to operating income (cash )1

Operating expenses to average assets (cash )Credit impairment provisioning
Collective provision charge
Individual provision charge

3

Total provision charge

1,267

681

1,948

522

4

0.41%

0.21%

0.31%

0.15%

Total provision charge as a % of average net advances

0.69%
422

0.42%
299

0.56%
721

0.18%
45

n/a

62

62

62

74
113.4%

n/a
61.4%

74
82.6%

74
60.9%

113.4%

72.2%

90.6%

65.0%

23

23

46

37

Individual provision charge as a % of average net advances
4

Credit risk on derivatives
Ordinary share dividends (cents)
Interim - 100% franked (Mar 07: 100% franked)
Final - 100% franked (Sep 07: 100% franked)
5

Ordinary share dividend payout ratio
15

Cash ordinary share dividend payout ratio
Preference share dividend ($M)
6
Dividend paid
1.

Refer footnotes 1 and 2 on page 5

2.

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

3.

Includes $98 million impairment expense on available-for-sale assets (2007 full year: $nil; Sep 2008 half: $98 million; March 2008 half: $nil)

4.

For the purposes of this ratio the individual provision charge excludes impairment expense on available-for-sale assets of $98 million (2007 full year: $nil; Sep
2008 half: $98 million; March 2008 half: $nil)

5.

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

6.

Represents dividends paid on Euro Hybrid issued on 13 December 2004

7

FINANCIAL HIGHLIGHTS (continued)

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

Net Assets
1

10.72

10.06

9.36

7%

15%

Net tangible assets attributable to ordinary shareholders ($M)

121,87819,326

17,462

13%

25%

Total number of ordinary shares (M)2,040.7

1,921.4

1,864.7

6%

9%

Capital adequacy ratio (%)
Tier 1Basel II
7.7%

Basel II
6.9%

Basel I
6.7%

42%

Net tangible assets per ordinary share ($)

Tier 2
Total capital ratio
2

Risk weighted assets ($M)
Impaired assets
Collective provision ($M)

3.4%

3.2%

4.1%

11.1%

10.1%

10.1%

275,434

267,486

275,018

2,821

2,340

1,992

21%

Collective provision as a % of credit risk weighted assets

1.13%

0.94%

0.73%

20%

3

2

1,750

1,048

666

67%

Individual provisions on non-performing loans ($M)

(646)

(295)

(260)

large

large

Net non-performing loans ($M)

1,104

753

406

47%

large

48

46

27

4%

78%

Gross non-performing loans ($M)
3

Net non-performing commitments and contingencies ($M)
4

large

846

-

-

n/a

n/a

36.9%

28.1%

39.0%

31%

-5%

3

0.50%

0.31%

0.22%

61%

large

3

0.31%

0.23%

0.13%

35%

large

4.35%

3.34%

1.97%

30%

large

36,92512.8

35,482
12.4

34,353
11.4

4%

7%

Assets per FTE ($M)

3%

12%

Market capitalisation of ordinary shares ($M)

38,26343,32855,382-12%-31%

Restructured items

3

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

Net non-performing loans as a % of net advances
Net non-performing loans, commitments and contingencies
5

as a % of shareholders' equity
Other information
Full time equivalent staff (FTE)

1.

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

2.

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

3.

Excludes non-performing commitments and contingencies

4.

Represents customer facilities which for reason of financial difficulty have been re-negotiated on terms which the Bank considers as uncommercial but necessary inthe circumstances, and are not considered non-performing. Includes both on and off balance sheet exposures

5.

Includes minority interest

8

FINANCIAL HIGHLIGHTS (continued)

Business unit analysis
Half
year
Sep 08$M
763

1

Profit after income tax
Personal

125

Institutional

Half
Movt
year
Sep 08Mar 08 v. Mar 08
$M
%
722
6%
401

-69%

Full
year
Sep 08
$M
1,485
526

Full
Movt
year
Sep 08
Sep 07 v. Sep 07
$M
%
1,330
12%
1,482

-65%
-17%

New Zealand Businesses

239

361

-34%

600

720

Asia Pacific

231

182

27%

413

271

52%

INGA

50

76

-34%

126

154

-18%
-45%

Group Centre2

less: Institutional Asia PacificCash profit
3

Non-core items
ProfitProfit before non-derivative credit impairment
1and income tax
Personal

36

15

large

51

92

(89)

(83)

7%

(172)

(125)

38%

1,355

1,674

-19%

3,029

3,924

-23%

1

289

-100%

290

256

13%

1,356

1,963

-31%

3,319

4,180

-21%

Half
year
Sep 08
$M
1,336

Half
Movt
year
Sep 08Mar 08 v. Mar 08
$M
%
1,220
10%

Full
year
Sep 08
$M
2,556

Full
Movt
year
Sep 08
Sep 07 v. Sep 07
$M
%
2,288
12%

Institutional

870

968

-10%

1,838

2,130

-14%

New Zealand Businesses

523

600

-13%

1,123

1,130

-1%

Asia Pacific

298

271

10%

569

390

46%

INGA

51

77

-34%

128

155

-17%

54

33

64%

87

142

-39%

less: Institutional Asia Pacific

(117)

(133)

-12%

(250)

(166)

51%

Cash profit

3,015

3,036

-1%

6,051

6,069

0%

11

401

-97%

412

318

30%

3,026

3,437

-12%

6,463

6,387

1%

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

Personal$M
164,494$M
155,524

Institutional

Group Centre2

3

Non-core items
ProfitNet loans and advances including
acceptances by business unit

1

Movt
Movt
Sep 08
Sep 08v. Mar 08 v. Sep 07$M%%
147,3636%
12%

105,400

99,20582,869

6%

New Zealand Businesses

74,611

74,053

68,672

1%

27%
9%Asia Pacific

13,253

10,070

7,300

32%

82%

1,553

1,735

1,740

-10%

-11%

(8,827)(6,821)(4,529)29%

95%

350,484

333,766

303,415

5%

16%

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

Personal$M
74,207$M
69,778Movt
Movt
Sep 08
Sep 08v. Mar 08 v. Sep 07$M%%
65,394
6%
13%

Institutional

79,62575,48868,665

5%

16%

New Zealand Businesses

40,58740,67938,3330%

6%Asia Pacific

15,726

13,443

11,101

17%

42%Group Centre

1,499

1,685

1,807

-11%

-17%

Group Centre2

less: Institutional Asia Pacific
Net loans and advances including acceptances

Customer deposits by business unit

1

2

less: Institutional Asia PacificCustomer deposits(6,915)(6,001)(4,071)15%

70%

204,729

195,072

181,229

5%

13%

1.

Prior period numbers have been adjusted for organisational structure changes. Refer page 37 for an explanation of the changes

2.

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

3.

Refer footnotes 1 and 2 on page 5

9This page has been left blank intentionally10

CHIEF FINANCIAL OFFICER’S REVIEW

Review of Group Results
Half
year
Sep 08
$M
1,356
(1)
1,355

Profit attributable to shareholders of the Company
1
Non-core items
1
Cash profit

Half
Movt
year
Sep 08Mar 08 v. Mar 08
$M
%
1,963
-31%
(289)
-100%
1,674
-19%

Full
year
Sep 08
$M
3,319
(290)
3,029

Full
Movt
year
Sep 08
Sep 07 v. Sep 07
$M
%
4,180
-21%
(256)
13%
3,924
-23%

ANZ recorded a profit after tax of $3,319 million for the full year ended 30 September 2008, a decrease of $861 million(21%). After adjusting for non-core items1 referred to on pages 26 and 27, cash1 profit decreased by $895 million (23%) to$3,029 million. The cash result includes an increase in provision for credit impairment of $1,426 million, reflecting thedeterioration in the global credit market and a softening in the New Zealand and Australian economies. It also includes a$721 million reduction in operating income from credit risk on derivatives (2007: $45 million).
Cash1 profit

Half
year
Sep 08
$M

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

Full
year
Sep 08
$M

Movt
Full
Sep 08year
Sep 07 v. Sep 07%$M

Net interest income

4,070

3,780

8%

7,850

7,302

8%

Other operating income

1,722

1,923

-10%

3,645

3,720

-2%

Operating income

5,792

5,703

2%

11,495

11,022

4%

Operating expenses(2,777)(2,667)

4%(5,444)(4,953)

10%

Profit before credit impairment and income tax

3,015

3,036

-1%

6,051

6,069

0%

Provision for credit impairment(1,267)

(681)

86%

(1,948)

(522)

large

Profit before income tax

1,748

2,355

-26%

4,103

5,547

-26%

Income tax expense

(388)

(678)

-43%

(1,066)(1,616)

-34%

(5)

(3)

67%

(8)

(7)

14%

1,355

1,674

-19%

3,029

3,924

-23%

Minority interest
1

Cash profit
1.

In 2008 ANZ has classified as significant items the gain from the allocation of shares in Visa in March 2008 of $248 million after tax (tax impact: $105 million),costs associated with organisational transformation of $152 million after tax (tax impact: $66 million) including process re-engineering and ATM write-offs relating
to a network upgrade, costs associated with the write-down of an intangible asset relating to Origin Australia of $24 million after tax (tax impact: $10 million) anda further positive adjustment of $1 million (Sep 2008 half: $7 million loss; Mar 2008 half: $8 million gain) following the restatement of deferred tax assets
consequent to the reduction in New Zealand tax rate. In 2007 ANZ classified as significant items the gain on sale of Esanda Fleetpartners of $195 million after tax(tax impact: $nil following the availability of capital losses being applied against the gain) and a negative impact of $24 million following the restatement ofdeferred tax assets to reflect the announced change in the New Zealand company tax rate which takes effect from 1 October 2008. ANZ excludes significant items
to eliminate the distorting effect of one-off transactions on the results of its core business (refer page 26)
The Group enters into economic hedges to manage its interest rate and foreign exchange risk. In 2008 ANZ has classified a gain of $243 million after tax (2007full year: $69 million; Sep 2008 half: $176 million; Mar 2008 half: $67 million) relating to economic hedging as a non-core item (tax impact $107 million (2007 fullyear: $31 million; Sep 2008 half: $78 million; March 2008 half: $29 million)). Included in this non-core amount is market volatility relating to approved classes ofderivatives not designated in accounting hedge relationships but that are considered to be economic hedges, volatility arising from use of the fair value option, andineffectiveness from designated accounting hedges. In addition, ANZ has classified a mark-to-market loss after tax of $26 million (2007 full year: $16 million gain;
Sep 2008 half: $16 million loss; Mar 2008 half: $10 million loss) relating to revenue hedges (NZD and USD) that under the transitional provision of AASB 139(AASB 2005-1) no longer qualify for hedge accounting from 1 October 2006 (tax impact $13 million credit (2007 full year: $7 million expense; Sep 2008 half:$9 million credit; Mar 2008 half: $4 million credit)). ANZ excludes volatility associated with fair value movements on these transactions to provide a better
indication of the core business performance (refer page 27)

11

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

2008 result
Trends in income, credit costs and tax expense have been distorted by:#treatment of credit risk on derivatives of $721 million (2007: $45 million), mainly related to structured credit
intermediation trades, as negative revenue in the Income Statement (refer also page 20); and#a structured transaction that generated a fee and which also resulted in a $127 million reduction in income offset by a$127 million credit in tax expense.

The table below reclassifies these items to credit impairment expense and tax expense respectively to give a clearer pictureof income growth and credit losses.

Cash profit restated to reclassify credit risk on derivatives and a structured transaction

Half
year
Sep 08
$M

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

Net interest income

4,070

3,780

8%

7,850

7,302

8%

Other operating income

2,261

2,232

1%

4,493

3,765

19%

Full
year
Sep 08
$M

Full
Movt
year
Sep 08
Sep 07 v. Sep 07$M%

Operating income

6,331

6,012

5%

12,343

11,067

12%

Operating expenses(2,777)(2,667)

4%(5,444)(4,953)

10%

Profit before impairment and income tax

3,554

3,345

6%

6,899

6,114

13%

Credit risk on derivatives

(422)

(299)

41%

(721)

(45)

large

Provision for credit impairment(1,267)

(681)

86%

(1,948)

(522)

large

Profit before income tax

1,865

2,365

-21%

4,230

5,547

-24%

Income tax expense

(505)

(688)

-27%

(1,193)(1,616)

-26%

(5)

(3)

67%

(8)

(7)

14%

1,355

1,674

-19%

3,029

3,924

-23%

Minority interest
1

Cash profit
1.

Refer footnote 1 on page 11

After removing these distorting impacts, cash profit before credit impairment and income tax increased $785 million (13%)
over the previous financial year. Net interest income increased $548 million (8%) following strong balance sheet growth,particularly in Institutional and Personal, resulting in an increase in interest earning assets of 17%. This was partially offset
by a reduction in net interest margin of 18 basis points reflecting the impact of the global credit crisis and increased
competition especially on customer deposits.
Underlying other operating income increased $728 million (19%) over the previous financial year. This increase was spread
across all revenue lines and most divisions. Personal increased $156 million (12%) reflecting strong account acquisition,
volume growth and revenue initiatives. Institutional increased $393 million (26%), due mainly to increased non-lending feesfrom strong deal activity and higher foreign exchange earnings in a volatile currency market. Asia Pacific (excluding
Institutional Asia Pacific) increased $137 million (68%) mainly from increased equity accounted earnings.
Operating expenses increased $491 million (10%), largely reflecting substantial investment in Asia Pacific required to drive
the growth agenda, remedial work undertaken in Institutional in relation to the Securities Lending business and the full year
impact of prior period investment in Personal.
Cash profit reduced year on year by 23% as a result of provision for credit impairment increasing by $1,426 million andcredit risk on derivatives growing $676 million. Around 89% of the growth in credit impairment relates to the Institutional
division and reflects mark-to-market losses on credit intermediation trades (refer page 20), losses on a small number oflarger institutional customers, an allowance for concentration risk in the financial institution and property sectors andimpairment of a corporate debt security and certain bonds backed by US Alt-A mortgages held for liquidity purposes.

12CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Income and expenses
Net Interest Income
Half
year
Sep 08$M
4,070

Net interest income
Average interest earning assets

403,388379,440

2.02

1.99

Net interest margin (%)

#

Half
Movt
year
Sep 08Mar 08 v. Mar 08
$M
%
3,780
8%

Full
year
Sep 08$M
7,850

6% 391,414
2%

2.01

Full
Movt
year
Sep 08
Sep 07 v. Sep 07
$M
%
7,302
8%
333,361

17%

2.19

-8%

2008 result

Net interest income at $7,850 million for the year was 8% ($548 million) higher than the September 2007 year.
VolumeAverage interest earning assets increased $58.1 billion (17%):- Net advances grew $45.3 billion (16%). Personal grew $16.3 billion (12%), primarily in Mortgages ($13.3 billion) and
Rural Commercial & Agribusiness Products ($1.3 billion) as a result of continuing customer demand for retail housing
and investment loans. Institutional grew $22.6 billion (30%) due to corporate re-intermediation following thetightening of global credit markets earlier in the year with growth primarily in Relationship Lending ($12.5 billion),
Markets ($4.5 billion), Business Banking ($2.2 billion), Corporate Finance ($1.8 billion) and Working Capital($1.8 billion). New Zealand Businesses grew $5.5 billion or 8% (NZD10.4 billion or 14%) with growth primarily acrossthe Retail and Rural businesses. Asia Pacific (excluding Institutional Asia Pacific) grew $0.6 billion (22%) due tocontinuous business expansion into the Asia Pacific region. Private Bank increased $0.3 billion (24%).
- Other interest earning assets increased $12.8 billion (26%), due to higher trading and investment securities($6.5 billion) and other liquid assets ($3.6 billion) primarily in Markets following our decision to hold a higher liquidity
portfolio during the current market turmoil. Amounts due from other financial institutions increased $2 billion.
Average deposits and other borrowings increased $46.1 billion (22%):- Customer deposits grew $20.2 billion (12%). Personal grew $8.3 billion (14%) as a result of ongoing marketing
campaigns, branch expansion and higher deposit rates. Institutional grew $9.6 billion (16%) due to customer
acquisitions and a flight to cash investments reflecting share market volatility. New Zealand Businesses grew
$1.8 billion (5%) with growth mainly across the Retail and Rural businesses. Asia Pacific (excluding Institutional Asia
Pacific) increased $0.3 billion (4%) and Private Bank increased $0.2 billion (52%).
- Wholesale funding grew $25.9 billion (58%) to fund growth in the asset book with growth in Group Treasury($14.1 billion), Institutional ($9.5 billion) and New Zealand Businesses ($2.7 billion), partly offset by a decrease in
Personal of $0.4 billion.
Other wholesale funding, comprising Loan capital and Bonds and notes, increased $10.0 billion (15%).
MarginNet interest margin decreased by 18 basis points to 2.01% during the year. The turmoil in global credit markets haschanged the dynamics of margin movement, as higher market funding costs and liquidity concerns are inter-linked with
ANZ’s pricing and liquidity decisions. The net impact on margin of this turmoil and other drivers is explained as follows:- Credit market impacts (-7 basis points)▪ Higher wholesale funding costs (-12 basis points).
▪ Competitive pressures on deposits to retain and attract customer funding (-5 basis points).
▪ A higher proportion of low margin liquid assets held (-3 basis points).
▪ Competitive pressures in the asset book partly offset by re-pricing activities (-3 basis points).
▪ Out of cycle rate adjustments (+8 basis points).
▪ Benefit in a rising rate environment on deposits and capital (+8 basis points).
- Funding mix (-5 basis points)
Margins were impacted by a lower proportion of funding through deposits (-4 basis points) and a higher proportion ofwholesale funding (-1 basis point)- Asset mix (-2 basis points)▪ A lower proportion of high margin lending assets in Personal (-1 basis point).
▪ An increase in the proportion of low margin business in Institutional (-1 basis point).
- Other items (-4 basis points) principally due to:▪ Higher funding costs associated with unrealised trading gains (-3 basis points), however this is directly offset by anequivalent increase in trading income.
▪ Lower New Zealand mortgage prepayment income (-1 basis point) due to downward movement in New Zealandmarket rates.
▪ Sundry items including brokerage expenses, earnings on non-traded interest rate risk, securitisation charges andother minor adjustments which had a nil net impact.
13

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Income and expenses, cont’d
Net Interest Income, cont’d#Comparison with March 2008 half

Net interest income at $4,070 million for the September 2008 half was 8% ($290 million) higher than the March 2008
half.
VolumeAverage interest earning assets increased $23.9 billion (6%):- Net advances grew $17.1 billion (5%). Personal division grew $8.1 billion (5%), mainly in Mortgages ($6.5 billion)
which has experienced similar average growth to prior halves despite higher interest rates and a slowing economy.
Institutional grew $8.9 billion (10%) mainly in Relationship Lending ($4.4 billion), Working Capital ($1.5 billion),
Business Banking ($1.0 billion) and Corporate Finance ($1.7 billion), reflecting the full six month impact of thecorporate re-intermediation that occurred during the March 2008 half. Asia Pacific (excluding Institutional Asia Pacific)
grew $0.5 billion (18%). New Zealand Businesses decreased $0.4 billion or -1% (increased in NZD4.9 billion or 6%)
due to exchange rate movements.
- Other interest earning assets increased $6.8 billion (12%) driven mainly by higher levels of liquid assets ($3.1 billion)
and trading and investment securities ($1.5 billion) and amounts due from other financial institutions ($1.3 billion).
Average deposits and other borrowings grew $18.3 billion (7%):- Customer deposits grew $5.3 billion (3%). Personal grew $3.8 billion (6%) as a result of ongoing marketing
campaigns and competitive pricing on deposits. Institutional grew $2.3 billion (3%) mainly in Working Capital($2.4 billion) due to customer acquisitions and a flight to cash investments in light of share market volatility. New
Zealand Businesses decreased $0.6 billion (-1%), due mainly to exchange rate movements, with the underlying
businesses in NZD terms growing by NZD2.3 billion (5%) across the Retail and Rural businesses. Asia Pacific(excluding Institutional Asia Pacific) decreased $0.2 billion (-2%).
- Wholesale funding increased $13.0 billion (20%) driven by Group Treasury ($7.2 billion) and Institutional ($6.9 billion)
to fund asset growth, partly offset by a decrease in New Zealand Businesses ($0.9 billion) and a decrease in Personal($0.2 billion).
Other wholesale funding, comprising Loan capital and Bonds and notes, increased $4.7 billion (6%).
MarginNet interest margin increased by 3 basis points to 2.02% from the March 2008 half. The impact of actions taken to
recover margin losses incurred due to the global credit crisis, are evident in the improvement in margin in the September
half. The net impact on margin of the market turmoil and other drivers is explained as follows:- Credit market impacts (+2 basis points)▪ Higher wholesale funding costs (-11 basis points).
▪ Competitive pressures around deposits to retain and attract customer funding (-5 basis points).
▪ A higher proportion of low margin liquid assets held (-1 basis point).
▪ Flow through impact of re-pricing activities on the asset book (+4 basis points).
▪ Out of cycle rate adjustments (+10 basis points).
▪ Benefit in a rising rate environment on holding deposits and capital (+5 basis points).
- Funding mix (-1 basis point)
Change in funding mix saw a reduction in the proportion of high margin deposits partly offset by an increase in the
proportion of free funds.
- Asset mix (nil net impact)
The mix in assets remained relatively stable in the September half compared to the March half, with minor offsetting
mix changes having a nil net impact.
- Other items (+2 basis points) principally due to:▪ Higher earnings from non-traded interest rate risk (+4 basis points).
▪ Higher funding costs associated with unrealised trading gains (-1 basis point), however this is directly offset by anequivalent increase in trading income.
▪ Lower New Zealand mortgage prepayment income (-1 basis point) due to downward movement in New Zealandmarket rates.
▪ Sundry items including brokerage expenses, securitisation charges and other minor adjustments which had a nil net
impact.

14

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Income and expenses, cont’d
Other Operating Income

Half
year
Sep 08$M
1,347

Fee income

Half
Movt
year
Sep 08Mar 08 v. Mar 08
$M
%
1,309
3%

Full
year
Sep 08
$M
2,656

Full
Movt
year
Sep 08
Sep 07 v. Sep 07
$M
%
2,380
12%

Foreign exchange earnings

406

339

20%

745

495

Profit on trading instruments

95

249

-62%

344

358

-4%

(422)

(299)

41%

(721)

(45)

large

296

325

-9%

621

532

17%

1,923

-10%

3,645

3,720

-2%

252

96

large

348

100

large

(23)

(14)

64%

(37)

23

large

-

353

-100%

353

195

81%

1,951

2,358

-17%

4,309

4,038

7%

Credit risk on derivatives

1

Other
Core other operating income

1,722
2

Ineffective hedge fair value gains/losses

2

NZD and USD revenue hedges - mark-to-market
2

Significant items
Other operating income

51%

Composition of Markets income
Net interest income

39

(49)

large

(10)

74

large

Foreign exchange earnings

280

265

6%

545

377

45%

Profit on trading instruments

203

266

-24%

469

342

37%
large

1

(422)

(299)

41%

(721)

(45)

Fee and other income

29

29

0%

58

31

87%

Total Markets income

129

212

-39%

341

779

-56%

Credit risk on derivatives

1.

Reflects fair value adjustments on derivative financial instruments to reflect changes in counterparty credit worthiness. Refer page 20 for further details.

2.

Refer footnote 1 on page 11#2008 result

Other operating income increased $271 million (7%) for the year. Core other operating income decreased $75 million
after excluding non-core items (refer pages 26 and 27) or increased $689 million excluding the impact of credit risk onderivatives, a loss on a structured transaction in Corporate Finance and the full year impact of ETrade.
The following explanations are based on core other operating income:- Fee income increased $276 million (12%):▪

Lending fee income increased $104 million (21%). Personal increased $47 million: Banking Products increased$21 million reflecting strong account acquisitions, Mortgages increased $16 million due to increased sales volumes
and pricing initiatives and Consumer Finance increased $6 million as a result of volume growth. Institutional
increased $43 million reflecting volume growth in Relationship Lending, Corporate Finance, Markets and BusinessBanking. New Zealand Businesses increased $10 million largely in the retail banks due to pricing initiatives.

▪

Non-lending fee income increased $172 million (9%). Personal increased $112 million with a $53 million increase inConsumer Finance due to increasing account numbers and lending growth. Banking Products increased $31 million,
driven mainly by pricing initiatives and new account acquisitions and Esanda increased $14 million through revenue
initiatives. Institutional increased $65 million with strong deal activity in Corporate Finance (up $50 million) andvolume growth in Working Capital (up $11 million).

- Foreign exchange earnings increased $250 million. Institutional increased $182 million, due mainly to a $168 million
increase in Markets due to volatility in global currency markets and higher sales volumes and an $11 million increase in
Working Capital driven mainly by new product initiatives. Group Centre increased $62 million, driven mainly by hedge
gains due to the weaker NZD and USD.
- Profit on trading instruments decreased $14 million. This revenue is mainly derived from Institutional, with Corporate
Finance decreasing $122 million primarily as a result of a structured transaction which has an offsetting credit in tax
expense. ANZ Capital decreased $36 million due to mark-to-market movements in private equity investments.
Partially offsetting these reductions, Markets increased $127 million, which included a $138 million increase inunrealised trading gains directly offset by an equivalent decrease in net interest income. Relationship Lending
increased $14 million due to mark-to-market impacts of credit derivatives used to hedge existing customers.
- Credit risk on derivatives increased $676 million mainly reflecting the increase in the credit valuation adjustments anddefaults relating to structured credit intermediation trades, a general decline in the value of corporate credit spreads
which impacts derivative financial instruments and the defaults by two mining companies and a financial institution.
Refer page 20 for further details.

15

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Income and expenses, cont’d
Other Operating Income, cont’d- Other income increased $89 million (17%). Asia Pacific increased $116 million, due mainly to increased equity
accounted income from our investments during the second half of 2007 in AMMB Holdings Berhad (AMMB) and
Shanghai Rural Commercial Bank (SRCB) as well as increased income from Panin Bank. Group Centre increased$20 million due mainly to higher profit on property sales. Personal increased $14 million, excluding the disposal of theremaining MasterCard shares in 2007. Investment and Insurance Products increased $22 million with higher brokerage
fees following consolidation of our investment in ETrade. The disposal of the remaining MasterCard shares in 2007, notrepeated this year, reduced other operating income by $27 million. INGA decreased $26 million with a decline inearnings due to the downturn in the investment market. Institutional decreased $7 million with a $50 million decreasein ANZ Capital due to lower income from private equity and infrastructure earnings. Corporate Finance increased$29 million as a result of increased income from Capital Solutions and Leasing and Structured Asset Finance. Markets
increased $21 million due mainly to a mark-to-market gain on Saigon Securities Incorporation (SSI) options.
- Movements in average exchange rates decreased total other operating income by $15 million.

#

Comparison with March 2008 half

Other operating income decreased $407 million (17%) from the March 2008 half. After adjusting for non-core items(refer pages 26 and 27), core other operating income decreased $201 million (10%) or increased $29 million excluding
the impact of the credit risk on derivatives and loss on a structured transaction in Corporate Finance.
The following explanations are based on core other operating income:- Fee income increased $38 million (3%).
▪

Lending fee income increased $25 million (9%):- Institutional increased $16 million. Relationship Lending increased $5 million due to lending growth. Markets
increased $5 million and Corporate Finance grew $3 million, both due to increased deal activity.
- Personal increased $10 million. Banking Products increased $3 million through account acquisitions. Consumer
Finance and Mortgages both grew $2 million as a result of volume growth.

▪

Non-lending fee income increased $13 million (1%):- Personal increased $21 million. Banking Products increased $14 million due mainly to pricing initiatives.
Consumer Finance increased $14 million through growth in account numbers. Investment and Insurance
Products decreased $9 million as a result of lower sales volumes.
- Institutional increased $12 million (5%). Working Capital increased $6 million reflecting stronger growth intransaction volumes. Markets increased $6 million as a result of fees earned by the Securitisation business.
- New Zealand Businesses decreased $14 million (NZD decreased 3 million).

- Foreign exchange earnings increased $67 million. Group Centre increased $45 million as a result of hedge gains due tothe weaker NZD and USD. Institutional increased $19 million driven mainly by higher sales flows in Markets.
- Profit on trading instruments decreased $154 million. Institutional decreased $159 million with Corporate Finance$109 million lower mainly as a result of a structured transaction. Markets was $63 million lower, including a$22 million increase from derivative positions, offset in net interest income. Relationship lending increased $7 million
due to mark-to-market impacts of credit derivatives used to hedge existing customers. ANZ Capital increased$5 million due to mark-to-market movements in private equity investments.
- Credit risk on derivatives increased $123 million largely reflecting a widening of credit spreads of counterparty financial
guarantors and underlying credit on credit intermediation trades and the impact of currency fluctuations (USD versus
AUD).
- Other income decreased $29 million:▪

Institutional decreased $28 million. ANZ Capital decreased $18 million due to lower earnings in Alternative Assets
and the deconsolidation of Stadium Australia income in March 2008. Markets decreased $12 million due primarily tomark-to-market gains on the convertible options on the SSI investment in the March 2008 half not repeated this half.

▪

Group Centre decreased $23 million due mainly to lower profit on property sales.

▪

INGA decreased $24 million with reduced earnings due to the downturn in the investment market.

▪

Personal decreased $11 million with Insurance and Investment Products $7 million lower due to a reduction in ETradebrokerage income.

▪

Asia Pacific increased $59 million. Retail Asia increased $55 million due to higher equity accounted income from ourinvestments in AMMB, SRCB and Bank of Tianjin, and increased income from Panin Bank.

- Movements in average exchange rates increased total other operating income $6 million.

16

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Income and expenses, cont’dExpenses
Halfyear
Sep 08$M
1,635

Personnel expenses

Half
Movt
year
Sep 08Mar 08 v. Mar 08
$M
%
1,625
1%

Full
year
Sep 08
$M
3,260

Full
Movt
year
Sep 08
Sep 07 v. Sep 07
$M
%
2,991
9%

Premises expenses

260

252

3%

512

462

11%

Computer expenses

308

299

3%

607

592

3%

Other expenses
Core operating expenses

574

491

17%

1,065

908

17%

2,777

2,667

4%

5,444

4,953

10%
n/a

Impairment of intangible - Origin Australia

-

34

-100%

34

-

1

218

-

n/a

218

-

n/a

Total operating expenses

2,995

2,701

11%

5,696

4,953

15%

Total employees

36,92535,482

4%

36,92534,353

7%

Transformation initiatives

1.

Comprises personnel costs of $172 million, computer costs of $2 million and other costs of $44 million (refer page 26)#

2008 result

Operating expenses increased $743 million (15%) for the year. After adjusting for non-core items (refer pages 26 and27), core operating expenses increased $491 million (10%) or $460 million excluding the full year impact of ETrade. Asia
Pacific contributed 3% of this increase in costs with substantial investment in expanding branch networks across theregion and increased resources to provide leadership and support to drive the growth agenda. Personal was impacted bya lower than normal spend in the March 2007 half and the full year impact of prior period investment, including new
branches in the latter half of 2007 and additional collections staff. Institutional costs grew driven by growth in staff
numbers of 13% with increases concentrated in our strategic growth areas of Asia and Markets, and in our frontline
relationship staff. Institutional software amortisation and other IT costs increased $16 million, and the Division incurredcosts of $22 million as a result of the Securities Lending Review.
The following explanations are based on core operating expenses:- Personnel costs were up $269 million (9%) as a result of annual salary increases and a 7% increase in staff numbers.
Increases in staff numbers were mainly in the following business units:▪

Asia Pacific (excluding Institutional Asia Pacific) staff numbers increased 30%. Asia Retail increased 57% due tocontinued growth in the business, particularly in Cambodia and Vietnam. Pacific increased 10% resulting frombusiness growth strategies particularly in Fiji and Papua New Guinea.

▪

Institutional staff numbers increased 13%. Markets grew 27% with growth in Asia and Australia focused on revenue
generating initiatives. Institutional Banking increased 45% driven mainly by expansion in Asia.

▪

Personal staff numbers increased 3%. Mortgages increased 6% to support increased volumes. Consumer Financeincreased 4% to resource increased volumes and to increase collections capacity.

- Premises costs increased $50 million (11%), driven mainly by a $51 million higher rental expense reflecting additional
space requirements, the impact of the sale and leaseback program and market rental growth.
- Computer costs increased $15 million (3%), due mainly to an increase in computer contractors to enhance technology
risk management and for architecture investment programs.
- Other expenses increased $157 million (17%). Professional fees increased $32 million with Institutional increasing$16 million, due mainly to the Securities Lending Review, and Asia Pacific up $8 million as a result of initiatives in linewith the growth strategy. Advertising spend increased $25 million, with Personal increasing $12 million, due mainly toan $8 million increase in Mortgages directed at loan volume growth and Banking Products up $8 million as a result of
the deposit growth strategy. Group Centre advertising spend increased $9 million, which included ANZ Stadium
sponsorship. Non-lending losses increased $29 million with Personal up $13 million as a result of small increases
spread throughout the Division. Travel costs grew $15 million with Asia Pacific up $9 million and Institutional$6 million higher with small increases spread across both divisions. Depreciation of furniture and equipment increased$9 million due to refurbishments. A number of other smaller cost increases included stamp and other duties up$8 million, a rise in postage and stationery of $7 million from increased customer communications and a $5 million
increase in losses on sale of furniture and equipment.
- Movements in exchange rates decreased costs $95 million.

17

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Income and expenses, cont’dExpenses, cont’d#Comparison with March 2008 half

Operating expenses increased $294 million (11%) from the March 2008 half. After adjusting for non-core items (referpages 26 and 27), core operating expenses increased $110 million (4%).
The following explanations are based on core operating expenses:- Personnel expenses increased $10 million (1%) as a result of a 4% increase in staff numbers mainly in the following
business units:▪

Asia Pacific (excluding Institutional Asia Pacific) increased 15%. Asia Retail increased 27% due to the continued
growth of the business particularly in Cambodia and Vietnam.

▪

Institutional staff numbers grew 8% due to an 11% increase in Markets with growth in Asia and Australia focused onrevenue generating initiatives and a 7% increase in Business Banking due to frontline growth initiatives.

- Premises costs increased $8 million (3%) with rental expenses growing $16 million reflecting the impact of the sale andleaseback program and market rental growth offset by a $6 million reduction in utilities and other outgoings due tolower repairs and maintenance costs.
- Computer costs increased $9 million (3%). Computer contractors grew $3 million due to project work on risk
information security.
- Other expenses increased $83 million, including a $27 million increase in Professional fees with Institutional up$22 million due mainly to the Securities Lending Review. Non lending losses grew $24 million, with a $7 million
increase in Institutional driven by a $6 million increase in Working Capital, and a $6 million increase in Personal due
mainly to a $3 million increase in Retail Banking. Travel costs grew $7 million with Asia Pacific up $5 million. Stampand other duties increased $5 million.
- Movements in exchange rates decreased costs $40 million.

18

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Credit risk (including credit risk on derivatives)
Provision for credit impairment charge

The credit impairment charge relating to lending assets, commitments and debt securities classified as available-for-saleassets increased $1,426 million during the year to $1,948 million as a result of the ongoing deterioration in the global credit
market and a softening in the New Zealand and Australian economies. The collective and individual provision charges
increased in all divisions, with Institutional booking the largest increase. The increase in provisions reflects a combination of
a prudent approach taken to recognising impairment in the current volatile conditions by increasing the collective provision,as well as actual losses booked in difficult and tightening market conditions. The Group has also booked $721 million of
credit risk on derivatives as a deduction from income, up from $45 million in 2007 (refer page 20 for further details).
Half
year
Sep 08
$M
250
818
173
30
3
(7)

Personal
Institutional
New Zealand Businesses
Asia PacificGroup Centre
less: Institutional Asia Pacific
Provision for credit impairment charge

1,267

Half
Movt
year
Sep 08Mar 08 v. Mar 08
$M
%
187
34%
400
large
67
large
34
-12%
6
-50%
(13)
-46%
681

86%

Full
year
Sep 08
$M
437
1,218
240
64
9
(20)
1,948

Full
Movt
year
Sep 08
Sep 07 v. Sep 07
$M
%
386
13%
24
large
69
large
42
52%
2
large
(1)
large
522

large

Individual provision charge

The individual provision charge increased $691 million to $1,130 million. The increase in Institutional of $532 million reflects
the deterioration in global credit markets and a softening Australian economy, with the majority of the individual provision
raised in the second half of 2008 following downgrades for a small number of customers in the broking, finance, mining,business services and manufacturing sectors together with an impairment expense of $98 million relating to securities backed
by US Alt-A mortgages and corporate debt instruments held in the liquidity portfolio accounted for on an available-for-salebasis. The increase in New Zealand Businesses of $105 million was driven by higher retail consumer and small to medium
business provisioning charges as weak economic conditions impacted household income, consumer spending and small
businesses. The Personal increase of $44 million was driven by higher losses in Esanda, Personal Loans and Small BusinessBanking Products, which have been mostly offset by an improved loss rate in Consumer Credit Cards. The overall loss rate in
Personal has remained relatively stable.
Half
year
Sep 08
$M
216
348
116
16
3
-

Personal
Institutional
New Zealand Businesses
Asia PacificGroup Centre
less: Institutional Asia Pacific
Individual provision charge for loans
and advances
Individual provision charge as a % of average net advances

Half
Movt
year
Sep 08Mar 08 v. Mar 08
$M
%
168
29%
100
large
41
large
15
7%
6
-50%
3
-100%

699

333

0.41%

0.21%

large

Full
year
Sep 08
$M
384
448
157
31
9
3

Full
Movt
year
Sep 08
Sep 07 v. Sep 07
$M
%
340
13%
14
large
52
large
30
3%
2
large
1
large

1,032

439

0.31%

0.15%

large

Impairment on AFS assets (Institutional)
Total individual provision charge

98

-

n/a

98

-

n/a

797

333

large

1,130

439

large

New and increased provisions
Personal
Institutional
New Zealand Businesses
Asia PacificGroup Centre
less: Institutional Asia Pacific
New and increased provisions for loans and advances

275
380
131
20
3
809

223
125
54
18
8
428

23%
large
large
11%
-63%
n/a
89%

498
505
185
38
11
1,237

449
142
80
37
3
711

11%
large
large
3%
large
n/a
74%

Recoveries and writebacks
Personal
Institutional
New Zealand Businesses
Asia PacificGroup Centre
less: Institutional Asia Pacific
Recoveries and writebacks

(59)
(32)
(15)
(4)
(110)

(55)
(25)
(13)
(3)
(2)
3
(95)

7%
28%
15%
33%
-100%
-100%
16%

(114)
(57)
(28)
(7)
(2)
3
(205)

(109)
(128)
(28)
(7)
(1)
1
(272)

5%
-55%
0%
0%
100%
large
-25%

19

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Credit risk, cont’dCollective provision charge

The collective provision charge increased $735 million during the year to $818 million. This included an economic cycle
adjustment charge of $225 million due to the deterioration in global credit markets and a slowing New Zealand economy, as
well as an incremental risk charge of $300 million to reflect higher portfolio concentration risk within the Institutional
portfolio. The increase in Institutional of $662 million was due to portfolio growth and risk movements of $181 million, an
economic cycle adjustment charge of $180 million to reflect the impact of deterioration in global credit markets, and anincremental risk charge of $300 million to reflect higher concentration risk within the financial institutions exposures(including securities lending industry) and commercial property portfolios. The increase in New Zealand Businesses of$66 million includes a $36 million economic cycle adjustment charge taken to reflect the expected impact from a slowing New
Zealand economy and a $30 million charge for an increase in unsecured consumer delinquencies and weakening in the small
to medium business risk profiles. The increase in Asia Pacific was driven by the Institutional Asia Pacific portfolio due togrowth. Personal experienced a small increase of $7 million driven by higher delinquencies in cards, adverse risk movementsin the Regional and Rural and Small Business Banking portfolios, and an economic cycle adjustment of $7 million. This waspartly offset by a lower increase in charges relating to Consumer Finance bankruptcies.
The analysis of the collective provision charge by business unit is set out below:
Half
year
Sep 08$M
66

Collective provision charge by source
Lending growth

Half
Movt
year
Sep 08Mar 08 v. Mar 08
$M
%
131
-50%

Full
year
Sep 08
$M
197

Full
Movt
year
Sep 08
Sep 07 v. Sep 07
$M
%
145
36%

Risk profile

56

144

-61%

200

12

large

Portfolio mix

(15)

(21)

-29%

(36)

(6)

large

Economic cycle adjustment

100

125

-20%

225

-

n/a

Concentration risk

300

-

n/a

300

-

n/a

(37)

(31)

19%

(68)

(68)

0%

470

348

35%

818

83

large

1

Other
Collective provision charge

Collective provision charge by business unit
Personal

34

19

79%

53

46

15%

Institutional

372

300

24%

672

10

large

New Zealand Businesses

57

26

large

83

17

large

Asia Pacific

14

19

-26%

33

12

large

Group Centre

-

-

n/a

-

-

n/a

less: Institutional Asia PacificCollective provision charge

(7)

(16)

-56%

(23)

(2)

large

470

348

35%

818

83

large

1.

Other comprises scenario impact including the modelled unwind of the oil price shock (raised in 2005) to offset the emergence of related Individual and Collective
provisions from these scenario impacts and the refinement of estimates including emergence periods

Credit risk on derivatives

ANZ recognised $721 million of credit risk on derivatives during the year (2007: $45 million).
Half
year
Sep 08$M
305

Credit risk on derivatives
Credit intermediation trade related
Counterparty defaults
Other counterparties
Credit risk on derivatives

Half
Movt
year
Sep 08Mar 08 v. Mar 08
$M
%
226
35%

Full
year
Sep 08
$M
531

Full
Movt
year
Sep 08
Sep 07 v. Sep 07
$M
%
n/a

111

45

large

156

-

n/a

6

28

-79%

34

45

-24%

422

299

41%

721

45

large

Credit intermediation trade related impairment of $531 million or USD425 million compares to USD369 million figure provided at the 28 July trading update.

This charge arose from:#changes to the creditworthiness of counterparties to our structured credit intermediation trades (USD425 million or$531 million),#

defaults on customer derivative exposures with two mining companies and a financial institution ($156 million), and#changes in counterparty credit ratings on the remainder of our derivatives portfolio ($34 million).

20

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Credit risk, cont’dCredit risk on derivatives, cont’d
Structured credit intermediation trades

ANZ entered into a series of structured credit intermediation trades from 2004 to 2007. The underlying structures involve
credit default swaps (CDS) over synthetic collateralised debt obligations (CDOs) (80%), portfolios of external collateralised
loan obligations (CLOs) (12%) or specific bonds/floating rate notes (FRNs) (8%).
ANZ sold protection using credit default swaps over these structures and then to mitigate risk purchased protection via credit
default swaps over the same trades from eight US financial guarantors many of which are rated AAA.
Notional exposure on credit intermediation trades

The total notional exposure is USD11.24 billion, all of which relates to corporate (including financial institutions) names.
There are no mortgage exposures.
There are 38 structures, i.e. 20 synthetic CDOs with approximately 650 underlying reference assets, 10 CLOs withapproximately 700 underlying reference assets and eight bonds/floating rate notes over five corporate names. Although theunderlying names in the CDOs (and CLOs) are referenced in more than one structure there is minimal overlap of reference
assets (less than 5%) between CDOs and CLOs.
The maturity profile for the CDOs and CLOs runs from 2010 to 2022, with an average remaining term of 6.65 years.
First loss protection

The CDOs and CLOs transactions have a defined subordination level or level of first loss protection; this averages over 19%.
The amount of subordination varies with each deal. Typically, the lower range attachment points reflect structures with agreater concentration of more highly rated names. The detachment points similarly reflect the relative risk of the structure,with the average detachment point being 50%.
Each transaction can sustain highly significant levels of default to the portfolios before ANZ incurs a cash loss. ANZ
conducted a scenario test on the portfolio using Moody’s historical corporate default rates going back to 1920. Only under agreat depression scenario were any of the attachment points breached. Even under a great depression scenario the majorityof trades remained safe, with total realised cash losses of approximately USD400 million (only if financial guarantors default
as well).
Erosion of the attachment point depends on whether defaults occur, and the loss given default on each occasion. Despite
defaults having occurred in relation to nine names, the transactions continue to remain investment grade rated.
Credit Risk – mark-to-market impact

As derivatives, both the sold protection and purchased protection are marked-to-market. Prior to the commencement of the
global credit crisis, gains and losses were not significant and offset each other in income.
The value of the obligation under the sold protection has grown to USD1.4 billion, for which the purchased protection has
provided only a partial offset as:#

one of the purchased protection counterparties has defaulted, and#

ANZ has made a credit valuation adjustment on the remaining counterparties. Although many of the US financial
guarantors are AAA or AA, their credit spreads have increased significantly.

As a result of the above, the aggregate of credit risk expense for credit intermediation trades is USD425 million($531 million) for the financial year 2008.
Since balance date, global financial and equity markets have exhibited abnormal volatility and the Australian dollar has
depreciated materially against the US dollar.
The mark-to-market for credit risk on structured credit derivatives purchased has therefore moved significantly since
30 September (around $400 million mark-to-market) reflecting the depreciation of the AUD against the USD (thesederivative trades are in USD) and the impact of the market dislocation on credit spreads and correlations.
It is likely there will continue to be substantial volatility in this market value, however ANZ expects the mark-to-market
adjustment for credit risk on these structured credit derivatives to substantially reverse as either credit spreads contract
and/or the derivatives reach maturity.
Information regarding the credit intermediation trades is available on the ANZ website in the analysts’ toolkit.

21

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Credit risk, cont’dGross non-performing loans

Gross non-performing loans at $1,750 million represent a $1,084 million increase over 30 September 2007. The increase isprincipally in Institutional and due to a number of downgrades spread across the finance sector (including broking andfinancial asset investors), health care and business services segments. The New Zealand Businesses increase was primarily
driven by customer downgrades in the retail and small to medium business portfolios. The increase in Personal was driven
by higher retail chattel default rates in Esanda (particularly in the commercial and used car sectors), margin lending andresidential investment loan defaults relating to a very small number of Private Banking customers and an increase in defaults
across commercial and agriculture customers in Regional and Rural Banking. The increase in Asia Pacific was due to two
downgrades within Institutional Asia Pacific and rising defaults in Papua New Guinea, Tonga and Fiji.

Net non-performing loans

Net non-performing loans are $1,104 million (Sep 2007: $406 million). The Group has an individual provision coverage ratioof 37%.

Gross non-performing loans
Personal

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

$M
281

$M
189

Movt
Movt
Sep 08
Sep 08v. Mar 08 v. Sep 07
$M
%
%
170
49%
65%

1,161

697

355

67%

New Zealand Businesses

267

133

95

large

large

Asia Pacific

128

29

22

large

large

Institutional

Group Centre
less: Institutional Asia PacificTotal gross non-performing loans

large

5

-

25

n/a

-80%

(92)

-

(1)

n/a

large

1,750

1,048

666

67%

large

Net non-performing loans
Personal

129

75

68

72%

90%

Institutional

795

575

248

38%

large

New Zealand Businesses

160

89

58

80%

large

Asia Pacific

109

14

9

large

large
-87%

Group Centre
less: Institutional Asia PacificTotal net non-performing loans
Individual provision coverage

Personal

Halfyear
Sep 08$M
432

Institutional

New and increased non-performing loans

3

-

23

n/a

(92)

-

-

n/a

n/a

1,104

753

406

47%

large

37%

28%

39%

Half
Movt
year
Sep 08Mar 08 v. Mar 08
$M
%
301
44%

Full
year
Sep 08
$M
733

Full
Movt
year
Sep 08
Sep 07 v. Sep 07
$M
%
607
21%

1,005

620

62%

1,625

325

large

New Zealand Businesses

274

104

large

378

142

large

Asia Pacific

126

18

large

144

41

large

Group Centre

6

-

n/a

6

28

-79%

less: Institutional Asia PacificTotal new and increased non-performing loans

22

(97)

-

n/a

(97)

(1)

large

1,746

1,043

67%

2,789

1,142

large

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Credit risk, cont’d
As at
Sep 08As at
Mar 08Institutional

$M
846

$M
-

Movt
Movt
Sep 08
Sep 08v. Mar 08 v. Sep 07
$M
%
%
n/a
n/a

Total restructured items

846

-

-

1

Restructured items

1.

As at
Sep 07n/an/a

Represents customer facilities which for reason of financial difficulty have been re-negotiated on terms which the Bank considers as uncommercial but necessary inthe circumstances, and are not considered non-performing. Includes both on and off balance sheet exposures

As at
Sep 08As at
Mar 08Personal

$M
-

$M
4

Movt
Movt
Sep 08
Sep 08v. Mar 08 v. Sep 07
$M
%
%
3
-100%
-100%

Institutional

43

26

19

65%

5

16

5

-69%

0%

48

46

27

4%

78%

Net non-performing commitments and contingencies

New Zealand Businesses
Net non-performing commitments and contingencies

23

As at
Sep 07large

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Income tax expense

Income tax expense charged in the income statement

Half
year
Sep 08
$M
398

Half
Movt
year
Sep 08Mar 08 v. Mar 08
$M
%
790
-50%

Full
year
Sep 08$M
1,188

Effective tax rate

22.6%

28.7%

26.3%

28.6%

388

678

1,066

1,616

22.3%

28.8%

26.0%

29.1%

1

Income tax expense on cash profit
1

Effective tax rate (cash profit )1.

Refer footnote 1 on page 11#2008 result

-43%

Full
Movt
year
Sep 08
Sep 07 v. Sep 07
$M
%
1,678
-29%
-34%

The Group's effective tax rate was 26.3%, down 2.3%. The decrease primarily reflects higher equity accounted earnings,
increased concessionally taxed Offshore Banking Unit (OBU) income mainly as a result of the structured transaction, therestatement of deferred tax balances in 2007 for the announced New Zealand tax rate change and non-assessable markto-market gains on fair valued assets related to our associate investments. These items, which reduced the effective tax
rate, were partially offset by the usage of capital losses (which offset the gain from the sale of Esanda Fleetpartners) in2007.
Adjusted for non-core items, the effective tax rate decreased 3.1%, due primarily to higher equity accounted earnings,
increased concessionally taxed OBU income and non-assessable market movements on derivatives related to ourassociate investments.

#

Comparison with March 2008 half

The Group's effective tax rate decreased 6.1% primarily resulting from increased concessionally taxed OBU income, areduction in profits generated from countries taxed at a higher rate (NZ and US) and non-assessable mark-to-market
gains on fair valued assets related to our associate investments. These reductions were offset by further restatements ofdeferred tax balances for the announced New Zealand tax rate change.
Adjusted for non-core items, the effective tax rate decreased by 6.5%, due primarily to the reasons mentioned above(excluding the tax rate change offset which is considered a significant item).

Earnings per share1 (cents)
Half
year
Sep 08

Half
Movt
year
Sep 08Mar 08 v. Mar 08
%
102.4
-33%

170.4

Full
Movt
year
Sep 08
Sep 07 v. Sep 07
%
224.1
-24%

-33%

162.2

218.3

-26%

1,963

-31%

3,319

4,180

-21%

(289)

-100%

(290)

(256)

13%

1,674

-19%

3,029

3,924

-23%

Basic

68.3

Diluted

65.9

98.6

1,356
(1)
1,355

Full
year
Sep 08Cash earnings per share
Profit attributable to shareholders of the Company ($M)
Less: non-core items included in profit after tax ($M)
Cash Profit ($M)
2

(23)

(23)

0%

(46)

(37)

24%

1,332

1,651

-19%

2,983

3,887

-23%

1,950.7

1,895.1

3% 1,921.1

1,848.5

4%

68.3

87.1

210.3

-26%

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

Refer page 86 for full calculation

2.

The EPS calculation excludes the Euro Hybrid preference shares

-22%

155.3

2008 full year earnings per share decreased 24.0% (53.7 cents) to 170.4 cents over full year 2007. Cash EPS for the Groupdecreased 26.2% or 55.0 cents over full year 2007. The main drivers of the decline in Cash EPS on September 2007 were:#an after tax increase in the credit impairment charge (25.3%)#

dilution from an increase in the weighted average number of shares (2.9%)#

partly offset by growth in profit before credit impairment (after tax), which contributed 2.1%.

September 2008 half year earnings per share were down 33.3% (34.1 cents) on the March 2008 half. Cash EPS for theGroup decreased 21.6% or 18.8 cents on the March 2008 half. The main drivers of the decline in Cash EPS on the
March 2008 half were:#an after tax increase in the credit impairment charge (24.1%)#

dilution from an increase in the weighted average number of shares (2.3%)#

partly offset by growth in profit before credit impairment (after tax), which contributed 4.8%.
24

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Impact of exchange rate movements1
Presented below is an analysis of the impact of foreign exchange movements on the income statement, net of earnings from
economic revenue hedges put in place to hedge NZD and USD revenue.
Movements in exchange rates have resulted in a $31 million decrease in cash2 profit for the 2008 year, principally due to thetranslation of NZD earnings net of associated revenue hedges which are booked in Australia as foreign exchange earnings
and translation of USD earnings net of associated revenue hedges. NZD earnings were translated at effective exchange rates
of 1.1470 (2008) and 1.140 (2007). USD earnings were translated at effective exchange rates of 0.8945 (2008) and 0.8084(2007).
Half Year Sep 2008v. Half Year Mar 2008

Net interest income
Other operating income
Operating income
Operating expenses
Profit before credit impairment and income tax
Provision for credit impairment
Profit before income tax
Income tax expense
Minority interest
2

Cash profit

FX
unadjusted% growth
8%
-10%
2%
4%
-1%
86%
-26%
-43%
67%
-19%

FX
adjusted FX Impact% growth
$M
9%
(60)
-11%
6
2%
(54)
-6%
40
0%
(14)
-88%
6
-26%
(8)
42%
3
-47%
-19%
(5)

Full Year Sep 2008
v. Full Year Sep 2007
FX
unadjusted% growth
8%
-2%
4%
10%
0%
large
-26%
-34%
14%
-23%

FX
adjusted FX Impact% growth
$M
10%
(135)
-2%
(15)
6%
(150)
-12%
95
1%
(55)
large
9
-25%
(46)
33%
15
-26%
0
-22%
(31)

1.

ANZ has removed the impact of exchange rate movements to provide a better indication of the Group’s performance in local currency terms. Retranslation is netof revenue hedges taken to income in cash profit, refer page 29

2.

Refer footnote 1 on page 11

Impact of acquisitions and disposals
Acquisitions and disposals of consolidated entities give rise to impacts on growth rates when analysing Operating income andOperating expenses. Outlined below are the major acquisitions and disposals.
#

Stadium Australia became a consolidated entity in the March 2007 half as part of the Group’s Alternative Assets strategy.
This entity was partly sold down in the March 2008 half, and has therefore been deconsolidated from the Group’s result.

#

ETrade became a wholly owned subsidiary in May 2007.

The impact of these acquisitions and disposals on Operating income and Operating expenses is shown below:#

Operating income increased by $10 million over the 2007 year (Sep 2008 half: $15 million decrease):- ETrade increased $30 million (Sep 2008 half: $nil)- Stadium Australia decreased $20 million (Sep 2008 half: $15 million decrease).

#

Operating expenses have increased by $22 million over the 2007 year (Sep 2008 half: $20 million decrease):- ETrade increased $31 million (Sep 2008 half: $nil)- Stadium Australia decreased $9 million (Sep 2008 half: $20 million decrease).

25

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

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

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

Full
year
Sep 08
$M

Full
Movt
year
Sep 08
Sep 07 v. Sep 07$M%

Significant items (after tax)
Gain on Visa shares
Organisational transformation costs
Impairment of intangible - Origin Australia
Restatement of deferred tax balances for announced
New Zealand tax rate change
Gain on sale of Esanda Fleetpartners

-

248

-100%

248

-

n/a

(152)

-

n/a

(152)

-

n/a

-

(24)

-100%

(24)

-

n/a

(7)

8

large

1

(24)

large

-

-

n/a

-

195

-100%

Total significant items

(159)

232

large

73

171

-57%

Economic hedging - fair value gains/losses

176

67

large

243

69

large

NZD and USD revenue hedge - mark-to-market

(16)

(10)

60%

(26)

16

large

1

289

-100%

290

256

13%

Non-core items

Non-core items after tax in the income statement#

Significant items

Significant items in the income statement are those items that management believe do not form part of the core businessby virtue of their magnitude and infrequent nature and, as such, should be removed from profit when analysing the corebusiness performance. The following are considered significant items:- Gain on Visa shares
ANZ acquired shares in Visa Inc. preceding the initial public offering in March 2008, resulting in a gain of $353 million($248 million after tax) being the fair value of the shares issued to ANZ. Visa shares not sold into the initial public
offering are held as an available-for-sale asset on the balance sheet.
- Organisational transformation costs
ANZ has incurred costs associated with an organisational transformation of $218 million ($152 million after tax)
including process re-engineering within Operations, Technology and Shared Services, an ATM write-off relating to a
network upgrade and organisational transformation within our New Zealand business. ANZ expects approximately$130 million of benefits from this transformation in 2009. It is expected a further $100 million before tax(approximately) will be incurred in future years in relation to this transformation with full annualised benefits of$200 million by 2010. In addition to the above transformation projects, on 9 September 2008, ANZ announced a newcustomer centric business model and structure called One ANZ. This Group-wide transformation will accelerate
progress towards becoming a super regional bank. Annualised benefits from One ANZ are expected in the order of$100 million with the full benefits realised in 2010 and beyond. These benefits will build up progressively across 2009
and are likely to be substantially offset by the costs of implementing the program.
- Impairment of intangible - Origin Australia
An expense of $34 million ($24 million after tax) has been recognised on an Origin Australia intangible asset reflecting
the winding back of the mortgage manager business model.
- Impact of NZ tax rate change
In May 2007, the New Zealand Government announced a reduction in company tax rate from 33% to 30%. For ANZ,
this will take effect from 1 October 2008. This resulted in a negative impact on profit after tax of $24 million following
the restatement of net deferred tax asset balances in the September 2007 half and a further adjustment of $1 million
profit after tax in the current year following reassessment of timing differences.
- Gain on sale of Esanda Fleetpartners
During 2007, ANZ sold Esanda Fleetpartners, which had operations in Australia and New Zealand, to Nikko Principal
Investments. Profit on disposal was $195 million ($195 million after tax following the availability of capital losses being
applied against the gain) with $128 million recognised in Australia and $67 million recognised in New Zealand.

26

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Non-core items, cont’d#

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

The Group enters into economic hedges to manage its interest rate and foreign exchange risk. AASB accounting policies
have introduced volatility within the Income Statement in relation to economic hedges as follows:- approved classes of derivatives not designated in accounting hedge relationships but that are considered to beeconomic hedges, including hedges of NZD and USD revenue,- income/(loss) arising from the use of the fair value option (principally the credit spread on liabilities designated at fairvalue), and- ineffectiveness of designated accounting cash flow and fair value hedges.
ANZ separately reports the impact of volatility due to economic hedging as a non-core item, as the profit or loss resulting
from the transactions outlined above does not relate to the current accounting period and will reverse over time to bematched with the profit or loss from the economically hedged item as part of core operating performance. In the case ofvolatility arising from the use of the fair value option, the mark-to-market gain of $193 million (2007: $46 million; Sep
2008 half: $71 million; Mar 2008 half: $122 million) is a result of widening spreads on the fair value of ANZ’s own-issued
paper. The significant increase in the ineffective portion of cash flow and fair value hedges ($97 million gain) arises fromthe impact of global financial market turmoil on short term interest rates in the last few days of the financial year
affecting the valuation of floating legs of swaps.
Impact on income statement

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

Half year
Sep 08$M

Half year
Mar 08$M

Full year
Sep 08$M

Full year
Sep 07$M91( 23 )
71
90(33 )( 14 )
122
7

58( 37 )
193
97

52
23
46
2

Profit before tax

229

82

311

123

Profit after tax

160

57

217

85

Dividends
Halfyear
Sep 08Movt
Half
Sep 08year
Mar 08 v. Mar 08

Full
year
Sep 08Movt
Full
Sep 08year
Sep 07 v. Sep 07

Dividend per ordinary share (cents)
Interim (fully franked)

n/a

62

n/a

62

62

0%

Final (fully franked)

74

n/a

n/a

74

74

0%

136

136

0%

Total
Ordinary share dividend payout ratio (%)

113.4%

61.4%

Profit after tax ($M)

1,356

1,963

-31%

1

Non-core items ($M)
1Cash profit ($M)
1
Dividend payout ratio of cash profit (%)
1.

82.6%

60.9%

3,319

4,180

-21%

(1)

(289)

-100%

(290)

(256)

13%

1,355

1,674

-19%

3,029

3,924

-23%

113.4%

72.2%

90.6%

65.0%

Refer footnote 1 on page 11

The Directors propose that a final dividend of 74 cents be paid on each eligible ordinary share on 18 December 2008. It will
be fully franked for Australian tax purposes and brings the total dividends for 2008 to 136 cents, no change on 2007.
ANZ has a Dividend Reinvestment Plan (DRP) and a Bonus Option Plan (BOP). For the 2008 final dividend, ANZ intends toprovide shares under the DRP and BOP through the issue of new shares. A discount of 1.5% will be applied when calculating
the “Acquisition Price” under the DRP and BOP terms and conditions. This discount will apply in respect of the 2008 final
dividend and to future dividends until such time as ANZ announces otherwise. For the 2008 final dividend only, the “Pricing
Period” under the DRP and BOP terms and conditions will be the 15 trading days commencing on and including
14 November 2008. Election notices from shareholders to commence, cease or vary participation in the DRP or BOP for the2008 final dividend must be received by ANZ’s Share Registrar by 5.00 pm (Melbourne time) on 12 November 2008. Subject
to receiving effective contrary instructions from the shareholder, dividends payable to shareholders with a registered address
in Great Britain (including the Channel Islands and the Isle of Man) or New Zealand will be converted to pounds sterling and
New Zealand dollars respectively at ANZ’s exchange rate at 5.00 pm (Melbourne time) on 14 November 2008. For the 2008
final dividend, it is intended that the issue of a specified number of shares in respect of the balance of the dividend which has
not been reinvested by shareholders under the DRP or foregone by shareholders under the BOP will be underwritten by UBSAG, Australia Branch. Refer also page 85.

27

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Market risk
Traded Market Risk

Below are aggregate Value at Risk (VaR) exposures at 97.5% and 99% confidence levels covering both physical andderivatives trading positions for the Bank’s principal trading centres. Figures are converted from USD at closing exchange
rates.
#

97.5% confidence level (1 day holding period)
As at
Sep 08

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

Low forperiod
Sep 08$M

Avg forperiod
Sep 08$M

As at
Sep 07$M

High for
period
Sep 08$M$M

High for
period
Sep 07$M

Low forperiod
Sep 07$M

Avg forperiod
Sep 07
$M

2.4
2.8
1.2
1.3
(3.6)
4.1

2.4
3.6
2.6
1.5
n/a
4.7

0.4
1.2
0.6
0.4
n/a
1.4

0.8
1.9
1.0
1.0
(2.2)
2.5

0.7
1.6
1.0
1.0
(2.6)
1.7

1.3
7.6
1.9
1.1
n/a
8.1

0.2
1.2
0.7
n/a
1.4

0.6
2.6
1.2
0.2
(1.8)
2.8

$M

High for
period
Sep 08$M

Low forperiod
Sep 08$M

Avg forperiod
Sep 08$M

As at
Sep 07$M

High for
period
Sep 07$M

Low forperiod
Sep 07$M

Avg forperiod
Sep 07
$M

3.2
5.0
1.8
2.0
(6.1)
5.9

3.2
5.4
3.9
2.3
n/a
8.2

0.5
1.3
0.9
0.6
n/a
1.7

1.2
2.7
1.6
1.4
(3.4)
3.5

1.1
2.3
1.6
1.4
(3.7)
2.7

2.1
9.8
3.2
1.5
n/a
9.9

0.3
1.7
1.1
0.1
n/a
1.7

0.8
3.4
2.1
0.3
(2.7)
3.9

99% confidence level (1 day holding period)
As at
Sep 08

Value at risk at 99% confidence
Foreign exchangeInterest rate
Credit Spread
Commodities
Diversification benefit
Total VaR

Non-Traded Interest Rate Risk

Non-traded interest rate risk relates to the potential adverse impact of changes in market interest rates on future net interest
income. Interest rate risk is reported using various techniques including VaR and scenario analysis to a 1% rate shock.
#97.5% confidence level (1 day holding period)
As at
Sep 08

Value at risk at 97.5% confidence
Australia
New ZealandOverseas Markets
Diversification benefit
Total VaR#

Low forperiod
Sep 08$M

Avg forperiod
Sep 08$M

As at
Sep 07$M

High for
period
Sep 08$M$M

High for
period
Sep 07$M

Low forperiod
Sep 07$M

Avg forperiod
Sep 07
$M

11.7
3.4
3.1
(2.8)
15.4

11.7
3.4
3.6
n/a
15.4

5.6
1.8
1.7
n/a
7.9

8.3
2.7
2.7
(2.9)
10.8

9.2
2.4
3.3
(3.0)
11.9

12.8
2.6
4.1
n/a
14.9

3.2
1.5
1.5
n/a
3.4

8.2
2.0
2.3
(3.1)
9.4

As at
Sep 08%As at
Sep 07
%

0.94%
0.94%
(0.55%)
0.47%(0.53%)
0.69%(0.96%)
0.38%

Impact of 1% rate shock on the next 12 months’ net interest income1

As at 30 September
Maximum exposure
Minimum exposure
Average exposure (in absolute terms)
1.

The impact is expressed as a percentage of net interest income. A positive result indicates that a rate increase is positive for net interest income.
Conversely, a negative indicates a rate increase is negative for net interest income

28

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Market risk, cont’d
Revenue related hedges

The Group has used derivative instruments to economically hedge against the adverse impact on future offshore revenue
streams from exchange rate movements. Movements in average exchange rates, net of associated revenue hedges, resulted
in a decrease of $31 million in the Group’s profit after tax for 2008 when compared to 2007 (Sep 2008 half: decrease$5 million). This included the impact on earnings (cash basis) from associated revenue hedges, which increased by$58 million (before tax) from September 2007 (Sep 2008 half: $41 million). Hedge revenue is booked in the Group Centre.
The Group has taken out economic hedges against New Zealand Dollar and United States Dollar revenue streams. New
Zealand Dollar exposure is the most significant, covering the New Zealand geography (refer page 60) and the debt
component of New Zealand Dollar intra-group funding of this business, which amounted to NZD1.77 billion at 30 September
2008. Details of revenue hedges are set out below.

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

Half
year
Sep 08
$M
1,474
32
39

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

Full
year
Sep 08
$M
1,474
15
42

Full
year
Sep 07
$M
643
12
(11)

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

69
(7)
5

172
3
-

69
(4)
5

-

In the September 2008 year:#

NZD1.5 billion of economic hedges matured and a realised gain of $42 million (pre-tax) was booked to the income
statement.

#

NZD1.8 billion of economic hedges are in place at a forward rate of approximately NZD1.19/AUD hedging anticipated2009 earnings and approximately 25% of anticipated 2010 earnings.

#

USD0.1 billion of economic hedges matured and a realised gain of $5 million (pre-tax) was booked to the income
statement.

#

USD0.1 billion of economic hedges are in place at a forward rate of approximately USD0.91/AUD hedging approximately
18% of 2009 earnings.

#

An unrealised loss of $12 million (pre-tax) on the outstanding NZD1.8 billion and USD0.1 billion of economic hedges wasbooked to the income statement and has been treated as a non-core item as these are hedges of future years’ NZD and
USD revenues.

29

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Balance sheet
Total assets increased $78.3 billion (20%) from 30 September 2007 to $471.0 billion at 30 September 2008. The net impact
of exchange rate movements were minimal at Group level, however a decrease of $2.2 billion in New Zealand was offset by
an increase of $2.2 billion in Asia Pacific, the United Kingdom and the United States.
Excluding the impact of exchange rate movements:#

Australia increased $48.7 billion (18%) driven by increases of $16.6 billion in Markets Australia primarily in derivatives
and net loans and advances, and in Mortgages ($14.3 billion) and Relationship Lending ($6.6 billion) following growth innet loans and advances.

#

New Zealand increased $11.5 billion (13%) with an increase of $4.2 billion in the Institutional business, mainly inderivatives, and strong lending growth of $2.9 billion and $2.8 billion in Retail Banking and Rural Banking respectively.

#

Asia Pacific increased $13.4 billion (75%) with growth across the majority of countries, however Korea, Singapore andHong Kong were the significant growth areas. Korea increased $4.1 billion mainly in available-for-sale assets andderivatives, Singapore increased $3.7 billion with growth in lending assets, liquid assets and derivatives and Hong Kong
increased $2.4 billion following growth in liquid assets and lending assets.

#

The United Kingdom and the United States grew $4.2 billion (34%) with increases of $2.9 billion in both liquid assets andnet loans and advances.

#

India increased $0.5 billion.

The explanations in the table below describe the major movements in asset categories.
Liquid assets !47% (Excl Exchange Rates !44%)
Liquid assets increased $8.0 billion to $25.0 billion at 30 September 2008 mainly from an increase in bank certificates ofdeposit of $5.1 billion primarily in the United Kingdom, Singapore and the United States. Repurchase agreements increased$1.6 billion in Group Treasury and cash holdings increased $1.2 billion, primarily in New Zealand.
Due from other financial institutions !23% (Excl Exchange Rates !19%)
Due from other financial institutions increased $1.8 billion to $9.9 billion at 30 September 2008 due mainly to an increase ininterbank lending volumes of $1.7 billion across various countries in Asia Pacific, $0.8 billion in the United Kingdom and theUnited States and $0.8 billion in Working Capital Australia. This was partially offset by a reduction in interbank lending
volumes of $1.2 billion in Group Treasury.
Derivatives !66% (Excl Exchange Rates !68%)
Derivative assets increased $14.7 billion to $36.9 billion at 30 September 2008 driven by significant volatility in the foreignexchange, interest rate and credit derivative markets.
Available-for-sale assets !25% (Excl Exchange Rates !22%)
Available-for-sale asset volumes increased $3.5 billion to $17.5 billion at 30 September 2008 due mainly to Markets
Australia holding highly liquid assets as a result of the current instability in global financial markets and an increase ingovernment bonds held in Korea.
Net loans and advances !16% (Excl Exchange Rates !16%)
Net loans and advances increased $46.3 billion to $335.2 billion at 30 September 2008. Excluding the impact of exchange
rate movements, the increase was $47.2 billion or 16%.
Growth in Australia was $30.8 billion or 15%:-

Personal grew by $16.7 billion (11%) of which $14.5 billion was due to growth in housing loans from Mortgages.
Regional & Rural and Small Business Banking increased by $1.0 billion due to ongoing customer expansion. Consumer
Finance increased by $1.0 billion due to customer acquisition and new product offering, Esanda increased $0.6 billion.

-

Institutional grew by $14.1 billion (26%) largely driven by re-intermediation of corporate customer following thetightening of global credit markets in Relationship Lending ($6.7 billion) and Markets ($3.9 billion). Corporate Financegrew by $3.7 billion driven by customer transactions and Business Banking was up $0.5 billion.

New Zealand grew by $6.6 billion (9%). After excluding the impact of exchange rates, loans and advances increased by$8.4 billion (11%) due to increases in Retail and Private Banking $3.0 billion, Rural Banking $2.8 billion, Corporate &Commercial Banking $1.7 billion, and Institutional Markets & Treasury $0.9 billion.
Overseas Markets increased $8.9 billion (76%). After excluding the impact of exchange rates, growth was $7.9 billion due
primarily to growth in corporate lending in Asia ($4.2 billion), the United Kingdom ($2.1 billion) and the United States($0.8 million).

30

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Balance sheet, cont’d
Total liabilities increased $73.7 billion (20%) from 30 September 2007 to $444.5 billion at 30 September 2008. Exchange
rate movements accounted for an increase of $0.9 billion, consisting of increases of $1.5 billion in Asia Pacific and $1.3 billion
in the United Kingdom and the United States partially offset by a reduction of $1.9 billion in New Zealand.
Excluding the impact of exchange rate movements:#

Australia increased $43.3 billion (16%). Strong growth in deposits and other borrowings was delivered in Banking
Products ($7.9 billion), Working Capital ($3.6 billion) and Business Banking ($3.3 billion) and Markets Australia, which
increased $3.5 billion primarily in derivatives. The increase was also attributable to an increase of $22.2 billion in
Treasury within deposits and other borrowings, bonds and notes and loan capital.

#

New Zealand increased $12.6 billion (17%) with an increase of $7.4 billion in Treasury in deposits and bonds and notes.
The Institutional business increased $2.3 billion in derivatives and deposits and other borrowings increased $1.9 billion inretail banking.

#Asia Pacific increased $12.0 billion (66%) with increases of $3.3 billion in Japan and $0.9 billion in Philippines due togrowth in deposits and other borrowings, $2.4 billion in Korea mainly in amounts due to other financial institutions and$2.0 billion in Singapore in derivatives and deposits and other borrowings.

#

The United Kingdom and the United States grew $4.9 billion (45%) with an increase of $3.1 billion in the United States indeposits and other borrowings and an increase of $1.1 billion in the United Kingdom also in deposits and other borrowings
partially offset by a reduction in amounts due to other financial institutions.

The explanations in the table below describe the major movements in liability categories.
Deposits and other borrowings !21% (Excl Exchange Rates !21%)
Deposits and other borrowings increased $50.2 billion to $284.0 billion at 30 September 2008.
Australia increased $29.6 billion (19%) largely as a result of increases in the following businesses:-

Personal increased $8.1 billion (12%) following branch expansion, ongoing marketing campaigns and improved
attractiveness of bank deposits given higher interest rates and share market volatility. Growth was primarily in cash
management account products and term deposit balances in Banking Products ($7.6 billion).

-

Institutional increased $7.2 billion (13%) in Working Capital ($3.2 billion) due to growth in term and other high interest
deposit accounts and higher volumes in Corporate Finance ($1.8 billion) and Business Banking ($1.7 billion).

-

Treasury increased $14.3 billion largely due to an increase in certificates of deposit to fund lending growth.

New Zealand increased $4.6 billion (8%). After excluding the impact of exchange rates, growth was $6.1 billion (10%) withincreases largely in Treasury ($2.8 billion) and Retail Banking ($1.7 billion).
Overseas Markets increased $16.1 billion (82%). After excluding the impact of exchange rates, the increase was$14.0 billion (65%), with increases in the United Kingdom ($5.0 billion), the United States ($2.6 billion) and Asia($5.8 billion). Deposit growth was due to an increase in customer term deposit and higher certificates of deposit issued tofund lending growth.
Derivatives !32% (Excl Exchange Rates !33%)
Derivative liabilities increased $7.7 billion to $31.9 billion at 30 September 2008. The increase was driven principally byvolatility in foreign exchange, interest rate and credit derivative markets.
Bonds and notes !24% (Excl Exchange Rates !10%)
Bonds and notes increased $13.2 billion to $67.3 billion at 30 September 2008 in Australia and New Zealand. $5.6 billion of
the growth was in response to increased term funding requirements and $7.6 billion was the result of exchange rate
movements.
Loan capital !12% (Excl Exchange Rates !7%)
Loan capital increased $1.5 billion to $14.3 billion at 30 September 2008 in response to capital management requirements
including two new issuances of hybrid Tier 1 capital of $1.7 billion, issuance of perpetual subordinated notes of $0.7 billion
and conversion of ANZ StEPS to ordinary shares.

31

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Liquidity risk
Liquidity risk is the risk that the Group has insufficient capacity to fund increases in assets or is unable to meet its payment
obligations as they fall due, including repaying depositors or maturing wholesale debt. The timing mismatch of cash flows
and the related liquidity risk is inherent in all banking operations and is closely monitored by the Group.
Global liquidity conditions have remained difficult over the last 12 to 18 months, following the onset of the global credit crisis.
The cost of wholesale debt has increased significantly compared to pre-crisis levels. ANZ has continued to manage liquidity
risks by maintaining a strong funding profile and increasing its portfolio of highly liquid assets.
The management of the Group’s liquidity and funding risk incorporates the following key components.
#

Scenario Modelling
Scenario modelling includes a ‘going-concern’ scenario, i.e. the normal behaviour of cash flows in the ordinary course ofbusiness, and ‘name crisis’ scenario whereby a potential name-specific liquidity crisis results in significant difficulty rollingover or replacing liabilities as well as deposit withdrawals by customers. The Group also models a number of other stresstests and liquidity scenarios over a variety of time horizons.

#

Funding metrics
ANZ actively uses balance sheet disciplines to prudently manage funding requirements. Also, the Group employs funding
metrics to ensure that an appropriate proportion of the Group’s assets are funded by stable funding sources including
customer liabilities, longer-dated wholesale debt (with a remaining term exceeding one year), and equity. At
30 September 2008 the volume of customer deposits and other liabilities had increased to $216.3 billion (50.3% of total
funding) from $193.5 billion (52.9% of total funding) at 30 September 2007.

#

Wholesale funding
Despite the challenging environment, the Group maintained access to the major global capital markets to meet its
borrowing requirement in full. Highlights for the year included:- ANZ issued the largest Eurobond for an Australian borrower (ANZ EUR2 billion May 2013 Fixed Rate Notes), sold toapproximately 200 investors in 23 different countries.
- ANZ's broad debt investor base was further diversified via the inaugural issuance of two Samurai bonds in the Japanesemarket, raising JPY224.3 billion in aggregate.
- The funding profile of ANZ National Bank Limited was strengthened by the issuance of two significant Rule 144a bondissues in the United States, including USD2 billion July 2013 Fixed Rate Notes.
In aggregate the Group raised $39 billion of new term wholesale debt during 2008 from 338 transactions, comprising$24 billion of debt issued with a tenor greater than one year, an additional $9 billion of debt with an effective term tomaturity of approximately one year and an additional $6 billion of extendible notes. The weighted average tenor of new
term debt issued in 2008 (greater than one year) was 4.0 years. The average cost of new term debt increased by
64 basis points in 2008 as a result of credit market conditions.
Despite periods of instability in offshore short term markets, the Group was able to access all required short term funding
during 2008. Offshore commercial paper markets experienced a decline in average duration towards the end of the year.
However this was offset by ANZ's issuance of higher volumes of one year debt than previous years, which was the resultof a strategic decision to lengthen the short-end maturity profile.

#

Liquidity portfolio
The Group holds a diversified portfolio of cash and unencumbered high-quality, highly-liquid securities that may be sold or
pledged to provide same-day liquidity. This portfolio helps protect the Group’s liquidity position by providing cash in aseverely stressed environment. All assets held in this portfolio are eligible securities for repurchase agreements with theapplicable central bank (repo eligible). From March to September 2008, the Group has increased the volume of eligible
securities held, post repurchase (i.e. repo) discounts applied by the applicable central bank, by approximately$13.2 billion to $34.7 billion. This includes the current market value of the $10.3 billion Australian internal mortgage
securitisation (RMBS) announced to the market in April 2008.
Since 30 September 2008 $20.6 billion of additional repo eligible internal mortgage securitisation has been executed(being $17.4 billion ($15.7 billion post repo discount) in Australia and NZD3.5 billion (NZD $2.9 billion post repo discount)
in New Zealand). Together with the impact of the Reserve Bank of Australia’s reduction in the repo discount (initial
margin) applied to internal mortgage securitisations from 19% to 10%, the balance of the prime liquid asset portfolio asat the end of September plus the new internal securitisations increased by $19.2 billion to $53.9 billion.
Supplementing the liquidity position, the Group holds additional cash and liquid asset balances. In addition, our Markets
business holds secondary sources of liquidity in the form of highly liquid instruments in its trading portfolios. Theseassets are not included in the Eligible securities held in the prime liquidity portfolio outlined on the following page.

32

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Liquidity risk, cont’d

Eligible securities (Market Values )As at
Sep 08
AUD $M

Australia

12,899

9,867

9,281

New Zealand

6,620

5,603

5,474

United States

2,739

3,305

3,070

United Kingdom

4,157

2,749

2,251

Internal RMBS (Australia)

8,305

-

-

34,72021,52420,076

1

Total

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

New internal securitisations occurring in October 2008
923

Internal RMBS (Australia) RBA initial margin adjustment

15,685Internal RMBS (Australia) second trancheInternal RMBS (New Zealand)

2

2,560
19,168Total
1.

Market value is post the repo discount applied by the applicable central bank

2.

NZD3.5 billion

Funding composition

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

$M

$M

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

1

Customer deposits and other liabilities
Personal

74,207

69,77865,394

6%

13%

Institutional

79,62575,48868,665

5%

16%

New Zealand Businesses

40,58740,67938,3330%

6%Asia Pacific

15,726

13,443

11,101

17%

42%Group Centre

1,499

1,685

1,807

-11%

-17%

less: Institutional Asia Pacific(6,915)(6,001)(4,071)15%

70%

204,729

195,072

181,229

5%

13%

Total customer deposits
Other

2

Total customer deposits and other liabilities (funding)

11,601

10,194

12,291

14%-6%

216,330

205,266

193,520

5%

12%

24%

Wholesale funding
Bonds and notes

67,32363,54954,075

6%

Loan Capital

14,266

12,931

12,784

10%

12%

Certificates of deposit (wholesale)

52,34646,92331,903

12%

64%

Commercial paper

22,422

19,23016,91417%

33%

Liability for acceptances

15,29715,756

14,536-3%

5%

Due to other financial institutions

20,092

19,134

19,116

5%

5%
large

Other wholesale borrowings

3

Total wholesale funding
5

Shareholders' equity(3,532)

(634)

1,924

large

188,214

176,889

151,252

6%

24%

25,681

23,093

21,177

11%

21%

18.0%

16.7%

14.5%

8%

24%

3.6%

3.9%

4.0%

-9%

-11%
-16%

Total funding maturity
Short term wholesale funding
Liability for acceptances
4

Long term wholesale funding- Less than 1 year residual maturity- Greater than 1 year residual maturity
Total customer deposits and other liabilities (funding)5

Shareholders' equity and hybrid debt

5

Total funding and shareholders' equity

6.8%

8.7%

8.0%

-22%

14.2%

13.3%

13.7%

6%

3%

50.3%

50.7%

52.9%

-1%

-5%

7.1%

6.7%

6.9%

6%

3%

100.0%

100.0%

100.0%

0%0%1.

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

2.

Includes interest accruals, payables and other liabilities, provisions and net tax provisions

3.

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

4.

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

5.

Shareholders’ equity excludes preference share capital

33

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Capital management
Basel II

Basel I

Basel II

Basel IAs at
Sep 08As at
Sep 08As at
Mar 08As at
Sep 07

Tier 1

7.7%

7.1%

6.9%

6.7%

Tier 2

3.4%

3.9%

3.2%

4.1%

n/a

(0.6%)

n/a(0.7%)

11.1%

10.4%

10.1%

10.1%

minimum 7.0%

n/a322,543n/a
267,486n/a
275,018

Deductions
Total
Target Tier 1
Risk Weighted Assets $M

275,434

Further details of the components of capital and the capital adequacy calculation are set out on pages 100 to 102

The Basel II Accord principles took effect in Australia and New Zealand from 1 January 2008. For calculation of minimum
capital requirements under Pillar 1 (Capital Requirements) of the Basel II Accord, ANZ has been accredited by Australian
Prudential Regulation Authority (APRA) to use Advanced Internal Ratings Based (AIRB) methodology for credit risk weighted
assets and Advanced Measurement Approach (AMA) for the operational risk weighted asset equivalent. Changes to thecalculation of market risk weighted assets are minimal other than the inclusion of capital requirements for Interest Rate Riskin the Banking Book (IRRBB) from 1 July 2008.
While accreditation has been received, a number of aspects of the measurement of risk weighted assets and regulatory
capital are still under review in conjunction with APRA and we expect some changes as a result.
Prudential issues - APRA changes to prudential standards applicable from 1 January 2008

Amendments to the Prudential Standards effective 1 January 2008 included the following changes which have impacted thecapital ratios:#Basel II methodologies for calculating credit risk weighted assets and expected loan losses (Expected Losses).

#

Inclusion of a capital charge for operating risk and a charge for IRRBB from 1 July 2008.

#

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

#

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

#

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

#

Hybrid limits are now 25% of net Tier 1 capital, with Innovative limited to 15% of net Tier 1.

#

A capital floor was introduced based on 90% of capital required under Basel I methodology. At 30 September 2008, thefloor has no impact on ANZ’s reported capital and ratios.

Following APRA’s review of the Group’s Internal Capital Adequacy Assessment Process (ICAAP) document, APRA has advised
ANZ of its Prudential Capital Minimums (PCRs) for both Tier 1 and Total Capital at both Level 1 and Level 2. ANZ maintains
capital ratios well in excess of these minimum levels.
Tier 1 Ratio (Basel II)

With the adoption of Basel II from January 2008, ANZ has adopted the Tier 1 capital ratio (Tier 1 ratio) as its principal capitalmanagement target. Since March 2008 ANZ has set a minimum management operating target of 7%, however management
seeks to operate well above this minimum given the current economic and financial markets conditions.
The Tier 1 ratio at September 2008 of 7.71% represents an increase from March 2008 of 87 basis points. The key
contributors to the increase were:#

net profit excluding non-core items and after preference share dividends of $1.3 billion (+50 basis points)#

ordinary share dividend commitments net of expected reinvestment through the Dividend Reinvestment Plan (DRP) and
Bonus Option Plan (BOP) of $1.1 billion (-40 basis points)#

underwrite of the non-participation in the DRP and BOP for the interim 2008 dividend, which raised $0.7 billion (+27 basis
points)#issuance of $1.7 billion in hybrid Tier 1 instruments, including ANZ Convertible Preference Shares (+63 basis points)#

increase in risk weighted assets (excluding the impact of exchange rate movements) from portfolio growth, credit
downgrades and introduction of IRRBB offset by refinements to methodology following initial adoption of Basel II(-18 basis points)#

increase in investment/profit retention in funds management businesses, associates and commercial operations (-3 basis
points)#other items (net +8 basis points) including: the impact of exchange rate movements (+10 basis points) and business
investments (-2 basis points).

With respect to the proposed 2008 final dividend, ANZ will offer a discount of 1.5% on the DRP/BOP and underwrite any
shortfall in participation to raise an additional estimated $1.1 billion of Tier 1 capital.

34

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Capital management, cont’d
The impact of the material changes on capital calculated at 30 September 2008 is shown below.

Basel I1
Fundamental Tier 1 capitalMarketand Adjustments
Operating
to Credit
Risk RWA
Risk RWA

Expected
50%
loss/
Tier 1/
Loss of AIFRS
2
Tier 2
Transitional
provisionchange deductions Other
reliefBasel II

$M

$M

$M

$M

$M

$M

$M

$M

24,105

-

-

-

-

38

-

24,143

Non-Innovative Tier 1

2,095

-

-

-

-

-

-

2,095

Innovative Tier 1

2,847

-

-

-

-

-

-

2,847

AIFRS Transitional relief

716

-

-

-

-

-

(716)

-

Tier 1 capital deductions(6,807)

-

-

(167)

(995)

113

-

(7,856)Tier 1 capital

22,956

-

-

(167)

(995)

151

(716)

21,229General reserve for impairmentof financial assets net of
attributable deferred tax asset

1,973

-

-

(1,919)--54

Upper Tier 2 capital

1,320

-

-

-

-

-

-

1,320

17

-

-

-

-

-

(17)

-

9,170

-

-

-

-

-

-

9,170

AIFRS Transitional relief
Lower Tier 2 capital
Tier 2 capital deductions

-

-

-

(167)

(995)

(44)

Tier 2 capital

12,480--(2,086)

(995)

(44)

(17)

(1,206)
9,338

Total capital deductions(1,990)

-

-

-

1,990

-

-

-

Total Regulatory Capital

33,446--(2,253)

-

107

(733)

30,567

Risk Weighted Assets

322,543

22,294(69,403)

n/a

n/a

n/a

n/a

275,434

RatiosTier 1

7.1%

7.7%

Tier 2

3.9%

3.4%

Deductions(0.6%)-

Total capital

10.4%

11.1%

1.

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

2.

Expected loss deduction in the context of the Capital Adequacy calculation is based on the General Reserve for Credit Loss (for ANZ, this is the Collective Provisionbalance), net of tax $1,973 million, less the standardised component of $54 million (after tax) plus Other Eligible provisions of $799 million, less Basel Expected
Loss of $3,052 million (comprising Individual Provisions of $656 million and Expected Loss of $2,396 million). Expected Loss in this context, is an APRA constructused solely for risk weighted asset calculation purposes. It is based on extreme stress loss rates and is significantly different to ANZ's measurement of Expected
Loss, which is an average "through the cycle" methodology

Under Pillar 3 (Market Discipline) of the Basel II Accord, financial institutions are required to make extensive qualitative andquantitative disclosures with respect to capital adequacy and credit risk management. ANZ will provide this information for
the first time as at 30 September 2008 and is due for publication on the ANZ website by 26 November 2008.
Hybrid Capital and Tier 1 Capital

ANZ raises hybrid Tier 1 capital to further strengthen the Group’s capital base, ensure compliance with APRA’s prudential
capital requirements and meet Group operating targets for Tier 1. As at 30 September 2008, ANZ had three Innovative
hybrid Tier 1 capital instruments (13.4% of net Tier 1) and two Non-innovative hybrid Tier 1 capital instruments (9.9% of net
Tier 1).
Hybrid Tier 1 Capital details##

Non-innovative instruments
Amount (in issue currency)

UK Hybrid£450 million

ANZ Convertible Preference Shares$1,081 million

Accounting classification
September 2008 balance (AUD)
Interest rate

Debt
$1,014 million
Coupon 6.54%

Debt$1,081 million
90 day BBSW + 2.5% (gross pay equivalent)

US Stapled Trust Security
USD1,100 million
Debt$1,376 million
Tranche 1 (USD350 million) Coupon: 4.48%
Tranche 2 (USD750 million) Coupon: 5.36%

Euro Hybrid€500 million
Equity$871 million
Euribor (3 month)+0.66%

Innovative instruments
Amount (in issue currency)
Accounting classification
September 2008 balance (AUD)
Interest rate

35

ANZ Convertible Notes$600 million
Debt$600 million
30 day BBSW + 2.0%

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Deferred acquisition costs and deferred income
The Group recognises deferred acquisition costs relating to the acquisition of interest earning assets as assets. The Groupalso recognised deferred income that is integral to the yield of an originated financial instrument, net of any direct
incremental costs. This income is deferred and recognised as net interest income over the expected life of the financial
instrument under AASB 139: ‘Financial Instruments: Recognition and Measurement’.
The balances of deferred acquisition costs and deferred income at period end were:1

Deferred Income

Deferred Acquisition Costs

Personal2

Sep 08$M
494

Mar 08$M
474

Sep 07$M456

Sep 08$M
78

Mar 08$M83

Sep 07$M
85
159

Institutional

12

16

14

206

188

New Zealand Businesses

91

103

103

41

47

43

Asia Pacific

3

2

-

24

20

18

3

42

24

29

2

2

1

Total

642

619

602

351

340

306

Other

1.

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

2.

Includes deferred acquisition costs of $312 million for Esanda (Mar 2008: $308 million Sep 2007: $299 million) and deferred income of $51 million for Esanda (Mar2008: $49 million Sep 2007: $49 million)

3.

Includes Group Centre and Private Bank

Deferred acquisition costs analysis:
Full Year Sep 2008

Full Year Sep 2007
Capitalised

Costs
$M
309

Amortisation
Charge
$M
261

4

2

3

(4)

New Zealand Businesses

48

36

39

62

Asia Pacific

1

4

1

1

3

8

21

11

12

Total

332

372

315

348

Amortisation
Charge$M
271

Capitalised

Institutional

Personal

Other

2

1

1

Costs
$M
277

1.

Costs capitalised during the year exclude brokerage trailer commissions paid

2.

Comprises amortisation charge of $195 million for Esanda (Sep 2007: $184 million) and capitalised costs of $208 million for Esanda (Sep 2007: $194 million)

3.

Includes Group Centre and Private Bank

Software capitalisation
At 30 September 2008, the Group’s intangibles included $625 million in relation to costs incurred in acquiring and developing
software. Details are set out in the table below:
Half
year
Sep 08$M509

Balance at start of period

Movt
Half
Sep 08year
Mar 08 v. Mar 08
%
$M
462
10%

Full
year
Sep 08
$M
462

Movt
Full
Sep 08year
Sep 07 v. Sep 07
%
$M
397
16%

Software capitalised during the period

175

111

58%

286

203

Amortisation during the period

(59)

(62)

-5%

(121)

(122)

-1%

-

(2)

-100%

(2)

(16)

-88%

625

509

23%

625

462

35%

Software written-off
Total software capitalisation

36

41%

BUSINESS PERFORMANCE REVIEW

Organisational structure
There have been no major structure changes between 31 March 2008 and 30 September 2008, however there have been anumber of minor restatements as a result of changes to customer segmentation, changes to net interbusiness unit expense
methodologies and the realignment of support functions. Prior period numbers are adjusted for such changes to allow
comparability.
Income Statement (including impact of movements in foreign currencies)
Half
year
Sep 08$M
763

Profit after income tax
Personal

Half
Movt
Sep 08year
Mar 08 v. Mar 08
%
$M
722
6%

Full
year
Sep 08
$M
1,485

Movt
Full
Sep 08year
Sep 07 v. Sep 07
%
$M
1,330
12%

Institutional

125

401

-69%

526

1,482

-65%

New Zealand Businesses

239

361

-34%

600

720

-17%

Asia Pacific

231

182

27%

413

271

52%

INGA

50

76

-34%

126

154

-18%
-45%

Group Centre

36

15

large

51

92

less: Institutional Asia Pacific

(89)

(83)

7%

(172)

(125)

38%

1,355

1,674

-19%

3,029

3,924

-23%

1

289

-100%

290

256

13%

1,356

1,963

-31%

3,319

4,180

-21%

Cash profit
Non-core items
Profit1

Income Statement (prior period figures adjusted to remove the impact of exchange rate movements2)
Half
year
Sep 08$M
763

Profit after income tax
Personal

Half
Movt
year
Sep 08Mar 08 v. Mar 08
$M
%
722
6%

Full
year
Sep 08
$M
1,485

Full
Movt
year
Sep 08
Sep 07 v. Sep 07
$M
%
1,329
12%

Institutional

125

393

-68%

526

1,463

-64%

New Zealand Businesses

239

339

-29%

600

684

-12%

Asia Pacific

231

179

29%

413

255

62%

INGA

50

76

-34%

126

155

-19%
-58%

Group Centre

36

41

-12%

51

121

less: Institutional Asia Pacific

(89)

(81)

10%

(172)

(117)

47%

1,355

1,669

-19%

3,029

3,890

-22%

1

284

-100%

290

256

13%

1,356

1,953

-31%

3,319

4,146

-20%

-

10

-100%

-

34

-100%

1,356

1,963

-31%

3,319

4,180

-21%

Cash profit2

Non-core items
Profit1

2

FX impact on reported profit
Reported profit
1.

In 2008 ANZ has classified as significant items the gain from the allocation of shares in Visa in March 2008 of $248 million after tax (tax impact: $105 million),costs associated with organisational transformation of $152 million after tax (tax impact: $66 million) including process re-engineering and ATM write-offs relating
to a network upgrade, costs associated with the write-down of an intangible asset relating to Origin Australia of $24 million after tax (tax impact: $10 million) anda further positive adjustment of $1 million (Sep 2008 half: $7 million loss; Mar 2008 half: $8 million gain) following the restatement of deferred tax assets
consequent to the reduction in New Zealand tax rate. In 2007 ANZ classified as significant items the gain on sale of Esanda Fleetpartners of $195 million after tax(tax impact: $nil following the availability of capital losses being applied against the gain) and a negative impact of $24 million following the restatement ofdeferred tax assets to reflect the announced change in the New Zealand company tax rate which takes effect from 1 October 2008. ANZ excludes significant items
to eliminate the distorting effect of one-off transactions on the results of its core business (refer page 26)
The Group enters into economic hedges to manage its interest rate and foreign exchange risk. In 2008 ANZ has classified a gain of $243 million after tax (2007full year: $69 million; Sep 2008 half: $176 million; Mar 2008 half: $67 million) relating to economic hedging as a non-core item (tax impact $107 million (2007 fullyear: $31 million; Sep 2008 half: $78 million; March 2008 half: $29 million)). Included in this non-core amount is market volatility relating to approved classes ofderivatives not designated in accounting hedge relationships but that are considered to be economic hedges, volatility arising from use of the fair value option, andineffectiveness from designated accounting hedges. In addition, ANZ has classified a mark-to-market loss after tax of $26 million (2007 full year: $16 million gain;
Sep 2008 half: $16 million loss; Mar 2008 half: $10 million loss) relating to revenue hedges (NZD and USD) that under the transitional provision of AASB 139(AASB 2005-1) no longer qualify for hedge accounting from 1 October 2006 (tax impact $13 million credit (2007 full year: $7 million expense; Sep 2008 half:$9 million credit; Mar 2008 half: $4 million credit)). ANZ excludes volatility associated with fair value movements on these transactions to provide a better
indication of the core business performance (refer page 27)

2.

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

37

BUSINESS PERFORMANCE REVIEW (continued)

Personal
Brian Hartzer
Half
year
Sep 08$M
1,770

Net interest income
Other external operating income

Half
Movt
Sep 08year
Mar 08 v. Mar 08
%
$M
1,654
7%

Full
year
Sep 08
$M
3,424

Movt
Full
Sep 08year
Sep 07 v. Sep 07
%
$M
3,112
10%

751

730

3%

1,481

1,326

Operating income

2,521

2,384

6%

4,905

4,438

11%

External operating expenses(1,014)(1,006)1%(2,020)(1,839)10%

Net inter business unit expenses

12%

(171)

(158)

8%

(329)

(311)

6%

Operating expenses(1,185)(1,164)2%(2,349)(2,150)9%Profit before credit impairment and income tax

1,336

1,220

10%

2,556

2,288

12%

Provision for credit impairment

(250)

(187)

34%

(437)

(386)

13%

Profit before income tax

1,086

1,033

5%

2,119

1,902

11%

Income tax expense and minority interest

(323)

(311)

4%

(634)

(572)

11%

Profit

763

722

6%

1,485

1,330

12%

Consisting of:
Banking Products

27%

225

217

4%

442

347

Mortgages

215

180

19%

395

372

6%

Consumer Finance

158

153

3%

311

277

12%

Rural Commercial & Agribusiness Products

65

63

3%

128

114

12%
28%

Small Business Banking Products

41

37

11%

78

61

Esanda

57

61

-7%

118

112

5%

Investment and Insurance Products

22

29

-24%

51

58

-12%

1

(20)

(18)

11%

(38)

(11)

large

763

722

6%

1,485

1,330

12%

164,494

155,524

6% 164,494

147,363

12%

3,369

3,359

External assets

167,863

158,883

Customer deposits

74,207

Other deposits and borrowings

3,218

Deposits and other borrowings

77,425

Other external liabilities

3,723

Other

Balance Sheet
Net loans & advances including acceptances
Other external assets

0%

3,369

3,160

7%

6% 167,863

150,523

12%

69,778

6%

74,20765,394

13%

3,650

-12%

3,218

3,774

-15%

73,428

5%

77,425

69,168

12%

3,665

2%

3,723

3,753

-1%
11%

External liabilities

81,14877,093

5%

81,14872,921

Average net loans & advances including acceptances

159,525

151,413

5% 155,469

139,140

12%

Average deposits and other borrowings

74,94071,364

5%

73,152

65,342

12%

Ratios
Net interest margin

2.20%

2.17%

2.19%

2.22%

Return on average assets

0.94%

0.93%

0.94%

0.94%

Operating expenses to operating income

47.0%

48.8%

47.9%

48.4%

Operating expenses to average assets

1.46%

1.51%

1.48%

1.52%

216

168

0.27%

0.22%

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

34

19

0.04%

0.03%

129

75

Net non-performing loans as a % of net advances

0.08%

0.05%

Total employees

13,132

13,113

1.

29%
79%
72%
0%

384

340

0.25%

0.24%

53

46

0.03%

0.03%

129

68

0.08%

0.05%

13,132

12,767

13%
15%
90%
3%

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

38

BUSINESS PERFORMANCE REVIEW (continued)

Personal
Brian Hartzer
2008 result

Profit after tax increased 12% reflecting strong income from average lending and customer deposit growth (both at 12%),and the continued benefits from ongoing investment in the business.
Operating income was up 11% driven by strong volume and customer growth. Operating expenses increased 9% mainly
through investment in personnel, premises and advertising/marketing costs to support revenue momentum, as part of our“More Convenient Banking” proposition.
Solid balance sheet growth drove earnings in all business units despite difficult economic conditions.
Key factors affecting the result included:#

Net interest income increased 10% with strong balance sheet growth while margins reduced 3 basis points affected byincreased funding costs, competition and a shift to lower margin products. Banking Products grew 17%, driven by 15%
deposit growth following volume growth initiatives and favourable margins. Mortgages net interest grew 4%, on the backof strong lending growth of 13% but was impacted by an extremely volatile funding environment. Consumer Financegrew 6% mainly through higher account acquisition, partially offset by margin decline. Small Business Banking Products
grew 30% with an expanding sales force driving strong balance sheet growth and increased margins, and Rural
Commercial & Agribusiness Products grew 14% driven mainly by volume growth.

#

Other external operating income increased 12%. Banking Products increased 21% driven by new customer accountacquisition. Investment and Insurance Products grew 12% due mainly to effect of the ETrade acquisition (100%ownership from 34% in May 2007). Esanda was up 26% due to revenue initiatives. Small Business Banking Products
grew 13% due mainly to an increase in new customer accounts. Mortgages increased 12% due to increased sales
volumes. Consumer Finance increased 10% through stronger acquisition income. Rural Commercial & Agribusiness
Products grew 5% due to greater volumes.

#

Operating expenses increased 9% or $199 million. The main drivers included a $96 million increase in personnel costs,
mainly from increased customer facing and support roles and the impact of 100% ownership of ETrade from May 2007.
Premises costs increased $27 million and marketing costs increased $12 million to drive footprint expansion and revenue
growth. The branch investment program concluded, meaning we incurred nearly a full year of costs relating to our
expanded branch operations. There were 209 new ATMs for the year. Non-lending losses increased $13 million, while
technology expenses to support initiatives and the branch network increased $13 million.

#

Credit costs increased 13% or $51 million with the major drivers being volume growth, acquisition growth and a decline inmarket conditions leading to higher delinquencies and bankruptcies.

Comparison with March 2008 half

Profit after tax increased 6% over the previous half. Income growth of 6% was driven by average lending growth of 5% anddeposit growth of 5%, and margin improvement of 3 basis points.
Net interest income increased 7%. Mortgages increased 14% driven by a 6% increase in lending volumes and a morefavourable funding situation in the second half. Small Business Banking Products increased 11% as business expansion
generated strong lending growth of 28% and higher margins. Rural Commercial & Agribusiness Products increased 9%
driven by 9% lending growth and higher deposit margins. Consumer Finance increased 6% due to greater outstandings per
account. Esanda lending growth of 3% drove 3% growth in income. Banking Products increased 2% though volume growth
but at reduced margins. Investment and Insurance Products decreased 4% reflecting market conditions.
Other external operating income increased 3%. Banking Products grew 13% through revenue initiatives. Small BusinessBanking Products increased 8% due to increase in new customer accounts and fee initiatives. Consumer Finance grew 6%
through account growth. Esanda increased 6% through revenue initiatives. Mortgages decreased 2% due mainly to lower
mortgage insurance earnings. Investment and Insurance Products declined 12% due to lower trades in ETrade and lower
volumes in Financial Planning.
Operating expenses increased 2% or $21 million largely due to a $6 million increase in non-lending losses, an increase of$2 million in consulting costs to support revenue growth, an increase of $3 million relating to premises and 149 extra ATMs
to drive footprint expansion. Technology expenses increased $12 million to support initiatives and the branch network.
Credit costs increased 34% or $63 million due mainly to volume growth, seasonality and a decline in market conditions
leading to higher delinquencies and bankruptcies.

39

BUSINESS PERFORMANCE REVIEW (continued)

Personal
Brian Hartzer
Personal division by business unit
Comparison to Full Year Sep 2007
Full Year Sep 2008
Growth Rate
Revenue

Expenses

PBP1

CreditNPAT

Revenue

Expenses

PBP1

Credit2

NPAT

Banking Products

1,272

625

647

14

442

18%

9%

28%

56%

27%

Mortgages

1,116

534

582

22

395

5%

5%

5%

0%

6%

Consumer Finance

1,184

470

714

269

311

8%

6%

9%

4%

12%

361

157

204

21

128

13%

7%

18%

large

12%

262

125

137

26

78

25%

16%

37%

large

28%

Esanda

408

154

254

85

118

6%

3%

8%

12%

5%

Investment andInsurance Products

299

227

72

-

51

13%

25%

-12%

-100%

-12%

Rural Commercial &Agribusiness Products
Small BusinessBanking Products

Other

3

Personal Division

2

3

57

(54)

-

(38)

-84%

58%

large

n/a

large

4,905

2,349

2,556

437

1,485

11%

9%

12%

13%

12%

2

NPAT

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

Revenue

Expenses

PBP1

CreditNPAT

Revenue

Expenses

PBP1

CreditBanking Products

649

319

330

8

225

4%

4%

4%

14%

4%

Mortgages

588

272

316

14

215

12%

4%

19%

75%

19%

Consumer Finance

610

232

378

152

158

6%

-3%

12%

30%

3%

187

80

107

14

65

8%

5%

9%

100%

3%

137

64

73

16

41

10%

3%

16%

60%

11%

Esanda

207

79

128

47

57

3%

5%

2%

24%

-7%

Investment andInsurance Products

141

110

31

-

22

-11%

-6%

-24%

n/a

-24%

Rural Commercial &Agribusiness Products
Small BusinessBanking Products

Other

3

Personal Division

2

29

(27)

(1)

(20)

-33%

4%

4%

n/a

11%

2,521

1,185

1,336

250

763

6%

2%

10%

34%

6%

Half
year
Sep 08$M
89

Net loans & advances including acceptances
Banking Products
Mortgages

Half
Movt
year
Sep 08Mar 08 v. Mar 08
$M
%
93
-4%

Full
year
Sep 08$M
89

128,691

121,065

114,175

13%

Consumer Finance

8,992

8,564

5%

8,992

8,009

12%

Rural Commercial &Agribusiness Products

9,126

8,299

10%

9,126

7,947

15%
45%

Small Business Banking Products

6% 128,691

Full
Movt
year
Sep 08
Sep 07 v. Sep 07
$M
%
82
9%

726

612

19%

726

499

Esanda15,112

14,9401%

15,112

14,5144%Investment and Insurance Products

1,759

1,949

-10%

1,759

2,134

-18%

(1)

2

large

(1)

3

large

164,494

155,524

6% 164,494

147,363

12%

Other

3

1.

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

2.

Credit impairment expense

3.

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

40

BUSINESS PERFORMANCE REVIEW (continued)

This page has been left blank intentionally41

BUSINESS PERFORMANCE REVIEW (continued)

Institutional
Alex Thursby
Half
year
Sep 08$M
1,244

Net interest income
Other external operating income

Half
Movt
year
Sep 08Mar 08 v. Mar 08
$M
%
1,015
23%

Full
year
Sep 08
$M
2,259

Full
Movt
year
Sep 08
Sep 07 v. Sep 07
$M
%
1,984
14%

404

667

-39%

1,071

1,481

Operating income

1,648

1,682

-2%

3,330

3,465

-28%
-4%

External operating expenses

(646)

(585)

10%

(1,231)(1,086)13%

Net inter business unit expenses

(132)

(129)

2%

(261)

(249)

5%

Operating expenses

(778)

(714)

9%

(1,492)(1,335)

12%-14%

Profit before credit impairment and income tax

870

968

-10%

1,838

2,130

Provision for credit impairment

(818)

(400)

large

(1,218)

(24)

large

Profit before income tax

52

568

-91%

620

2,106

-71%

Income tax expense and minority interest

73

(167)

large

(94)

(624)

-85%

Profit

125

401

-69%

526

1,482

-65%

Consisting of:Working Capital

99

128

-23%

227

313

-27%

1

(139)

16

large

(123)

298

large

Business Banking

146

144

1%

290

268

8%

- Relationship Lending

82

139

-41%

221

540

-59%

- Corporate Finance (excluding Relationship Lending)

39

61

-36%

100

148

-32%

(20)

(4)

large

(24)

59

large

(82)

(83)

-1%

(165)

(144)

15%

125

401

-69%

526

1,482

-65%

Markets

Corporate Finance

ANZ Capital
Relationships & Infrastructure

2

Balance Sheet
Net loans & advances including acceptances

105,400

99,205

6% 105,400

82,86927%

Other external assets

102,640

86,614

19% 102,640

74,79237%

External assets

208,040

185,819

12% 208,040

157,661

32%

Customer deposits

79,62575,488

5%

79,62568,665

16%

Other deposits and borrowings

21,69919,971

9%

21,699

11,19894%

Deposits and other borrowings

101,324

95,4596% 101,324

79,863

27%

Other external liabilities

74,17567,795

9%74,17464,65415%

External liabilities

175,499

163,254

8% 175,498

144,517

21%

Average net loans & advances including acceptances

102,198

93,31910%

97,75875,11730%

Average deposits and other borrowings

96,072

86,83911%

91,454

72,19827%

Ratios
Net interest margin

1.56%

1.40%

1.48%

1.66%

Return on average assets

0.13%

0.45%

0.29%

1.09%

Operating expenses to operating income

47.2%

42.4%

44.8%

38.5%

Operating expenses to average assets

0.82%

0.81%

0.81%

0.98%

Individual provision charge

3

446

100

4

0.87%

0.21%

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

372

300

0.73%

0.64%

795

575

Net non-performing loans as a % of net advances

0.75%

0.58%

Total employees

6,051

5,609

large
24%
38%
8%

546

14

0.56%

0.02%

672

10

0.69%

0.01%

795

248

0.75%

0.30%

6,051

5,373

large
large
large
13%

1.

The Markets results for 2008 are impacted by credit risk on derivatives and mark-to-market losses on credit intermediation trades (refer page 20). The Markets
results also include the global interest rate mismatch results and the offshore funding results for which net profit after tax for 2008 was $10 million (2007 full year:$28 million; Sep 2008 half: $14 million; Mar 2008 half: $-4 million)

2.

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

3.

Includes $98 million impairment expense on available-for-sale assets (2007 full year: $nil; Sep 2008 half: $98 million; Mar 2008 half: $nil)

4.

For the purposes of this ratio the individual provision charge excludes impairment expense on available-for-sale assets of $98 million (2007 full year: $nil; Sep
2008 half: $98 million; Mar 2008 half: $nil)

42

BUSINESS PERFORMANCE REVIEW (continued)

Institutional
Alex Thursby
2008 result

Institutional’s results have been adversely impacted by the global credit crisis, including recognition of significant credit risk
on derivatives of $721 million, $531 million of which relates to structured credit intermediation trades.
The unprecedented events in the global financial services sector have increased concentration risk in the sector, and we haverecognised this with a $200 million collective provision charge. A further collective provision charge of $100 million has beentaken for concentration risk in the property sector. We booked individual provisions of $427 million in Australia and$119 million in Europe and the US, representing difficulties with securities lending clients in Australia, a limited number ofcorporate names and a global financial institution, and impairment on securities held for liquidity purposes.
Our Relationship teams (Institutional Banking, Financial Institutions, Corporate Banking and Business Banking) continued towork closely with product partners and grew other external operating income by 17%, excluding the impact of the credit risk
on derivatives. Net lending assets grew by 27%, and margins increased from a low point early in the year in response to
widening credit spreads. Business Banking achieved market share gains with good growth in both deposits and lending. Key
enablers included the opening of new business centres, increased footprint and improvements in transaction banking
offerings. Working Capital had solid growth in deposits and trade, offset by costs associated with the issues in the Securities
Lending business. Strong growth was recorded in the Clearing and International Payments businesses. Corporate Finance(excluding Relationship Lending) grew revenue by 30% excluding the impact of a structured transaction, however the overall
result declined from increased provisions. Markets underlying business growth remained strong, accelerating the momentumof the last two years. Increased volatility in the global interest rate and currency markets and disciplined investment in Asia
supported growth in customer sales, new customer acquisitions and product cross-sell. ANZ Capital’s result declined fromthe impact of weakened economic conditions on private equity investments.
Significant factors affecting the result were as follows:#

Net Interest Income increased 14%, however increased 19% excluding a $138 million reduction in Markets (offset inother income) associated with the recording of income on trading securities. Average net lending assets increased 30%
and average deposit volumes increased 27%. Excluding the Markets income above, the main impacts on margins werehigher funding costs partially offset by repricing of the book which led to an improved margin performance in the second
half of the year. Other significant impacts on margin were a change in the funding mix (-5 basis points) with a decline in
the proportion of customer deposits and an increase in wholesale funding and a change in the asset mix(-2 basis points) due to re-intermediation of large low risk / low margin customers in the first half. These impacts werepartly offset by the wholesale benefit of holding deposits in a rising rate environment.

#

Other external operating income (excluding credit risk on derivatives) increased by 17% and now represents 54% ofincome (Sep 2007: 44%). Non-lending fees increased by 14%, and foreign exchange earnings by 30%. Growth rates in
New Zealand (50%) and Asia (58%) were particularly strong.

#

Operating costs grew 12% driven by growth in staff numbers of 13% with increases concentrated in our strategic growthareas of Asia and Markets, and in our frontline relationship staff. Software amortisation and other IT costs increased$16 million, and the Division incurred further unexpected costs of $22 million as a result of the Securities Lending issues.

#

Provisioning for credit impairment on lending and debt securities classified as available-for-sale assets increasedmaterially. The collective provision charge for the year of $672 million reflected the increase in the balance sheet, ageneral (to date modest) deterioration in the overall quality of the lending portfolio, and the charges taken to reflectincreased concentration risk to financial institutions and the property sector. Individual provisions are mainly within
Australia, and were dominated by two large securities firms’ exposures, two mining exposures, and the collapse of an
offshore financial institution. Offshore, impairment expense largely reflected write-down and sales of certain corporate
debt securities and certain bonds backed by US Alt-A mortgages held for liquidity purposes.

#

Income tax expense decreased as a result of a structured transaction that had a positive outcome after tax. Thistransaction reduced income tax expense $127 million, with an offsetting reduction to revenue.

Comparison with March 2008 half

Profit for the half declined by 69%, with underlying revenue growth offset by increases in the credit valuation adjustment
from the decline in the AUD against the USD and widening in credit spreads. Credit loss charges increased significantly.
Net interest income increased off the back of strong lending and deposit volume growth in the first half, and stabilisation of
margins. Relationship Lending margins improved to 1.53% from 1.39% in the first half.
Other income, excluding the credit risk on derivatives, increased from strong growth in lending fees.
Expenses were higher than expected, driven mainly by the additional costs associated with the remediation of the Securities
Lending business. The Division is continuing to increase its investment in technology, and amortisation and other computercharges increased by $11 million during the half.
The increased individual provision charge was driven by several large exposures in Australia. The collective provision wasincreased by $300 million to recognise increased concentration risk in the financial institutions and property sectors. A
further net $55 million collective provision charge was taken for an economic cycle adjustment.

43

BUSINESS PERFORMANCE REVIEW (continued)

Institutional
Alex Thursby
Institutional division by business unit
Comparison to Full Year Sep 2007
Full Year Sep 2008
Working Capital

Growth Rate

Revenue

Expenses

PBP1

Credit2

NPAT

Revenue

Expenses

PBP1

Credit

2

NPAT

901

366

535

212

227

17%

15%

18%

large

-27%

Markets

341

391

(50)

131

(123)

-56%

16%

large

large

large

Business Banking

754

259

495

78

290

13%

8%

15%

70%

8%

- Relationship Lending

952

41

911

592

221

28%

-9%

31%

large

-59%

- Corp. Finance (excl.
Relationship Lending)

314

122

192

190

100

-8%

7%

-15%

large

-32%

65

78

(13)

15

(24)

-57%

20%

large

large

large

3

235

(232)

-

(165)

-77%

9%

15%

n/a

15%

3,330

1,492

1,838

1,218

526

-4%

12%

-14%

large

-65%

Corporate Finance

ANZ Capital
Relationships &3Infrastructure
Institutional Division

Comparison to Half Year Mar 2008
Half Year Sep 2008
Working Capital

Growth Rate

Revenue

Expenses

PBP1

Credit2

NPAT

Revenue

Expenses

PBP1

Credit

2

NPAT

472

197

275

141

99

10%

17%

6%

96%

-23%

Markets

129

208

(79)

130

(139)

-39%

14%

large

large

large

Business Banking

388

134

254

44

146

6%

7%

5%

26%

1%

- Relationship Lending

516

21

495

376

82

18%

11%

19%

74%

-41%

- Corp. Finance (excl.
Relationship Lending)

110

60

50

113

39

-46%

-5%

-65%

47%

-36%

27

37

(10)

15

(20)

-27%

-8%

large

n/a

large

6

121

(115)

(1)

(82)

n/a

5%

0%

0%

-1%

1,648

778

870

818

125

-2%

9%

-10%

large

-69%

Corporate Finance

ANZ Capital
Relationships &3Infrastructure
Institutional Division

Net loans & advances including acceptances
Working Capital

Half
year
Sep 08
$M
8,281

Half
Movt
year
Sep 08Mar 08 v. Mar 08
$M
%
8,556
-3%

Business Banking

18,632

17,741- Relationship Lending

58,41455,076

6%

58,414

46,41726%- Corporate Finance (excl. Relationship Lending)

15,377

13,377

15%

15,377

11,500

34%

5%

Full
year
Sep 08$M
8,281
18,632

Full
Movt
year
Sep 08
Sep 07 v. Sep 07
$M
%
6,907
20%
16,665

12%

Corporate Finance

ANZ Capital
Other

4

93

88

6%

93

99

-6%

4,603

4,367

5%

4,603

1,281

large

105,400

99,205

6% 105,400

82,86927%

1.

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

2.

Credit impairment expense

3.

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

4.

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

44

BUSINESS PERFORMANCE REVIEW (continued)

This page has been left blank intentionally45

BUSINESS PERFORMANCE REVIEW (continued)

New Zealand Businesses1
Graham Hodges
Half
year
Sep 08
NZD M
975

Table reflects NZD results for New Zealand Businesses
AUD results shown on page 49

Net interest income
Other external operating income

Half
Movt
year
Sep 08Mar 08 v. Mar 08
NZD M
%
984
-1%

Full
year
Sep 08
NZD M
1,959

Full
Movt
year
Sep 08
Sep 07 v. Sep 07
NZD M
%
1,879
4%

306

298

3%

604

575

5%

Operating income

1,281

1,282

0%

2,563

2,454

4%

External operating expenses

(636)

(593)

7%

(1,229)(1,173)

5%

1

3

-67%

4

(1)

large

Operating expenses

(635)

(590)

8%

(1,225)(1,174)

4%

Profit before credit impairment and income tax

646

692

-7%

1,338

1,280

5%

Provision for credit impairment

(209)

(77)

large

(286)

(78)

large

Net inter business unit expenses

Profit before income tax

437

615

-29%

1,052

1,202

-12%

Income tax expense and minority interest

(139)

(198)

-30%

(337)

(387)

-13%

Profit (NZD)

298

417

-29%

715

815

-12%

Consisting of:
The National Bank Retail

87

129

-33%

216

262

-18%

ANZ Retail

58

95

-39%

153

183

-16%

Corporate & Commercial Banking

61

90

-32%

151

173

-13%

Rural Banking

57

56

2%

113

101

12%

25

25

0%

50

46

9%

10

17

-41%

27

29

-7%

Private Banking & Retail Specialist Units

2

UDC
Central Support

3

New Zealand Businesses
Balance Sheet
Net loans & advances including acceptances

-

5

-100%

5

21

-76%

298

417

-29%

715

815

-12%

89,041

85,531

4%

89,041

79,954

11%

Other external assets

1,963

2,221

-12%

1,963

2,188

-10%

External assets

91,00487,752

4%

91,004

82,142

11%

Customer deposits

48,436

46,984

3%

48,43644,632

9%

Other deposits and borrowings

12,67010,932

16%

12,6709,319

36%

Deposits and other borrowings

61,106

57,916

6%

61,106

53,951

13%

Other external liabilities

19,853

17,54413%

19,853

14,20640%

External liabilities

80,95975,4607%80,95968,15719%

Average net loans & advances including acceptances

87,527

82,581

6%

85,05474,622

14%

Average deposits and other borrowings

58,94356,954

3%

57,94949,99816%

Ratios
Net interest margin

2.20%

2.36%

2.28%

2.49%

Return on average assets

0.66%

0.98%

0.82%

1.07%

Operating expenses to operating income

49.6%

46.0%

47.8%

47.8%

Operating expenses to average assets

1.42%

1.39%

1.41%

1.54%

140

47

0.32%

0.11%

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

69

30

0.16%

0.07%

191

103

Net non-performing loans as a % of net advances

0.21%

0.12%

Total employees

9,178

9,214

large
large
85%
0%

187

59

0.22%

0.08%

99

19

0.12%

0.03%

191

67

0.21%

0.08%

9,178

9,087

1.

For a reconciliation of New Zealand Businesses results to the New Zealand Geographic results refer page 61

2.

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

3.

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

46

large
large
large
1%

BUSINESS PERFORMANCE REVIEW (continued)

New Zealand Businesses
Graham Hodges
New Zealand commentary reflects NZD
2008 result

The combination of domestic recession, which is emerging as the worst economic downturn since the early 1990’s, and theimpact of the global credit crunch has had a significant impact on business performance in 2008. Costs have been managed
to reflect the changing environment, albeit with some phasing into the second half. Profit for New Zealand Businesses has
reduced 12% compared to the 2007 year with the result including a NZD139 million after tax increase in credit impairment
expense. Profit before credit impairment and income tax increased 5%.
The Retail businesses have been most affected by the economic slowdown which has been led by the household sector. The
Businesses have seen a marked slowdown in the volume of new business, increasing levels of household sector stress (driven
by higher interest rates, fuel and food costs) and a switch to intense competition for domestic deposits as global funding
conditions have tightened.
Underlying performance in Corporate & Commercial Banking and UDC has been solid with growth in profit before provisionsof 9% and 16% respectively. These results have been impacted by an increase in collective provisioning costs in the second
half with the weakness in the household sector, also expected to be incurred in the business sector. Rural Banking had astrong performance for the year with a 15% profit before provisions growth in line with the ongoing good performance of therural economy.
Key factors driving the result were:#

Net interest income increased 4%, driven by robust balance sheet growth (lending 11% and customer deposits 9%).
Rural Banking, Corporate & Commercial Banking and UDC delivered double digit lending growth. The Retail banks bothachieved 7% growth, with housing lending growth slowing more significantly in the second half of the year. The balance
sheet growth was offset by a 21 basis point contraction in margins. Deposit margins contracted as a result of increased
competition and unfavourable mix in a high rate environment with migration of customers from low to high yielding
products.

#

Other external operating income increased 5%. The main contribution was from the Retail banks which achieved growthacross lending, cards and commission income.

#Operating expenses increased 4%. Cost growth was due to annual increases in salaries, an increase in the number ofcustomer-facing staff and investment in businesses initiatives which have been partly offset by strong control of
discretionary expenditure. The cost to income ratio was stable at 47.8%.

#

The individual provision charge increased NZD128 million, largely reflecting increasing mortgage, consumer and small-tomedium business arrears in response to the significant downturn in the economy and resultant stress in the household
sector. Net non-performing loans as a percentage of net advances was 0.21%, up from the exceptionally low level of
0.08% in 2007. The collective provision charge increase of NZD80 million mainly reflects the impact of the economic
environment on mortgages, personal loans, credit cards and small-to-medium size business lending, and an economic
cycle adjustment of NZD40 million (spread across business and retail segments) in the second half to reflect the rapid
deterioration in the economy during 2008.

Comparison with March 2008 half

The slowing New Zealand economy and the adverse developments in the global economy were more significant in the second
half of the year. Profit for New Zealand Businesses reduced 29%, with the result including an $88 million after tax increasein credit impairment expense. Profit before credit impairment and income tax reduced 7%.
Net interest income reduced 1% with balance sheet growth (lending 4%, customer deposits 3%) being offset by margin
contraction of 16 basis points. Continued competition for customer deposits driven by the significant increase in wholesalefunding spreads has placed pressure on deposit margins. Unfavourable product mix also had a negative impact on deposit
margins.
Other external operating income increased 3% with growth constrained across most businesses by competitive pressures.
Operating expenses increased 8% largely due to the phasing of business investment initiatives, non-lending losses and theacquisition of a subsidiary as part of a debt restructure (4% for the full year).
The individual provision charge increased NZD93 million, largely reflecting increasing mortgage, consumer and small-tomedium business arrears in response to the tighter economic conditions. The collective provision charge increased
NZD39 million, reflecting the economic cycle adjustment (spread across business and retail segments).

47

BUSINESS PERFORMANCE REVIEW (continued)

New Zealand Businesses
Graham Hodges
New Zealand Businesses by business unit
Comparison to Full Year Sep 2007
Full Year Sep 2008 (NZD M)
Expenses

PBP1

CreditNPAT

Revenue

Expenses

PBP1

Credit2

NPAT

The National Bank Retail

898

472

426

104

216

1%

2%

1%

large

-18%

ANZ Retail

752

450

302

74

153

2%

3%

1%

large

-16%

Corporate &Commercial Banking

453

150

303

78

151

11%

15%

9%

large

-13%

Rural Banking

264

88

176

8

113

11%

5%

15%

large

12%

Private Banking &Retail Specialist Units

104

40

64

-

50

8%

5%

10%

n/a

9%

UDC

85

26

59

22

27

10%

-21%

37%

large

-7%

7

(1)

8

-

5

-46%

-91%

-68%

n/a

-76%

2,563

1,225

1,338

286

715

4%

4%

5%

large

-12%

Central Support

3

New Zealand Businesses

2

Growth Rate

Revenue

Comparison to Half Year Mar 2008
Half Year Sep 2008 (NZD M)
Expenses

PBP1

CreditNPAT

Revenue

Expenses

PBP1

Credit2

NPAT

The National Bank Retail

444

243

201

72

87

-2%

6%

-10%

large

-33%

ANZ Retail

367

228

139

53

58

-5%

3%

-15%

large

-39%

Corporate &Commercial Banking

233

80

153

62

61

6%

14%

2%

large

-32%

Rural Banking

136

44

92

6

57

5%

2%

8%

large

2%

Private Banking &Retail Specialist Units

52

19

33

-

25

0%

-5%

6%

n/a

0%

UDC

43

14

29

15

10

2%

17%

-3%

large

-41%

6

7

(1)

1

-

large

large

large

large

-100%

1,281

635

646

209

298

0%

8%

-7%

large

-29%

Central Support

3

New Zealand Businesses

2

Growth Rate

Revenue

Net loans & advances including acceptances
The National Bank Retail

Half
year
Sep 08
NZD M
32,037

Half
Movt
year
Sep 08Mar 08 v. Mar 08
NZD M%
31,648
1%

Full
year
Sep 08
NZD M
32,037

Full
Movt
year
Sep 08
Sep 07 v. Sep 07
NZD M%
29,937
7%

ANZ Retail

20,67020,436

1%

20,67019,3397%

Corporate & Commercial Banking

15,505

14,906

4%

15,505

13,521

15%

Rural Banking

17,95015,785

14%

17,95014,648

23%

877

790

11%

877

677

30%

2,002

1,966

2%

2,002

1,832

9%

89,041

85,531

4%

89,041

79,954

11%

Private Banking & Retail Specialist Units
UDC

1.

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

2.

Credit impairment expense

3.

Central Support includes Treasury funding and shared services48

BUSINESS PERFORMANCE REVIEW (continued)

New Zealand Businesses1
Graham Hodges
Half
year
Sep 08$M
791

Table reflects AUD results for New Zealand Businesses
NZD results shown on page 46

Net interest income
Other external operating income

Half
Movt
year
Sep 08Mar 08 v. Mar 08
$M
%
853
-7%

Full
year
Sep 08
$M
1,644

Full
Movt
year
Sep 08
Sep 07 v. Sep 07
$M
%
1,658
-1%

248

258

-4%

506

508

0%

Operating income

1,039

1,111

-6%

2,150

2,166

-1%

External operating expenses

(517)

(514)

1%

(1,031)(1,035)

0%

1

3

-67%

4

(1)

large

Operating expenses

(516)

(511)

1%

(1,027)(1,036)-1%

Profit before credit impairment and income tax

523

600

-13%

1,123

1,130

-1%

Provision for credit impairment

(173)

(67)

large

(240)

(69)

large

Net inter business unit expenses

Profit before income tax

350

533

-34%

883

1,061

-17%

Income tax expense and minority interest

(111)

(172)

-35%

(283)

(341)

-17%

Profit

239

361

-34%

600

720

-17%

Consisting of:
The National Bank Retail

69

112

-38%

181

231

-22%

ANZ Retail

46

82

-44%

128

162

-21%

Corporate & Commercial Banking

48

78

-38%

126

153

-18%

Rural Banking

47

48

-2%

95

89

7%

Private Banking & Retail Specialist Units

2

UDC
Central Support

3

New Zealand Businesses
Balance Sheet
Net loans & advances including acceptances

21

21

0%

42

41

2%

8

15

-47%

23

25

-8%

-

5

-100%

5

19

-74%

239

361

-34%

600

720

-17%

74,611

74,053

1%

74,611

68,672

9%

Other external assets

1,645

1,923

-14%

1,645

1,878

-12%

External assets

76,25675,976

0%

76,25670,5508%

Customer deposits

40,58740,6790%40,58738,333

6%

Other deposits and borrowings

10,6169,465

12%10,6168,004

33%

Deposits and other borrowings

51,20350,1442%

51,203

46,337

11%

Other external liabilities

16,63615,18910%

16,636

12,20236%

External liabilities

67,83965,333

4%

67,83958,53916%

Average net loans & advances including acceptances

71,18471,549-1%

71,36665,8628%

Average deposits and other borrowings

47,90049,345-3%

48,62344,12910%

Ratios
Net interest margin

2.20%

2.36%

2.28%

2.49%

Return on average assets

0.66%

0.98%

0.82%

1.07%

Operating expenses to operating income

49.6%

46.0%

47.8%

47.8%

Operating expenses to average assets

1.42%

1.39%

1.41%

1.54%

116

41

0.32%

0.11%

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

57

26

0.16%

0.07%

160

89

Net non-performing loans as a % of net advances

0.21%

0.12%

Total employees

9,178

9,214

1.

For a reconciliation of New Zealand Businesses results to the New Zealand Geographic results refer page 61

2.

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

3.

Central Support includes Treasury funding and shared services

49

large
large
80%
0%

157

52

0.22%

0.08%

83

17

0.12%

0.03%

160

58

0.21%

0.08%

9,178

9,087

large
large
large
1%

BUSINESS PERFORMANCE REVIEW (continued)

Asia PacificAlex Thursby
Half
year
Sep 08$M
253

Net interest income

Half
Movt
year
Sep 08Mar 08 v. Mar 08
$M
%
227
11%

Full
year
Sep 08
$M
480

Full
Movt
year
Sep 08
Sep 07 v. Sep 07
$M
%
347
38%

Other external operating income

307

252

22%

559

365

Operating income

560

479

17%

1,039

712

53%
46%

External operating expenses

(240)

(188)

28%

(428)

(285)

50%

Net inter business unit expenses

(22)

(20)

10%

(42)

(37)

14%

Operating expenses

(262)

(208)

26%

(470)

(322)

46%

Profit before credit impairment and income tax

298

271

10%

569

390

46%

Provision for credit impairment

(30)

(34)

-12%

(64)

(42)

52%

Profit before income tax

268

237

13%

505

348

45%

Income tax expense and minority interest

(37)

(55)

-33%

(92)

(77)

19%

Profit

231

182

27%

413

271

52%

Consisting of:Retail Asia

9

16

-44%

25

28

-11%

Asia Partnerships

111

61

82%

172

56

large

Institutional Asia Pacific

89

83

7%

172

125

38%

Retail Pacific

41

36

14%

77

70

10%

Exec & Support

(19)

(14)

36%

(33)

(8)

large

231

182

27%

413

271

52%

Balance Sheet
Net loans & advances including acceptances

13,253

10,07032%

13,253

7,300

82%

Other external assets

18,894

12,86147%

18,894

9,751

94%

External assets

32,14722,93140%

32,147

17,051

89%

Customer deposits

15,726

13,44317%

15,726

11,101

42%

Other deposits and borrowings

3,380

1,986

70%

3,380

407

large

Deposits and other borrowings

19,106

15,42924%

19,106

11,50866%

Other external liabilities

11,234

8,199

37%

11,234

5,254

large

External liabilities

30,34023,62828%

30,34016,76281%

Average net loans & advances including acceptances

10,897

8,448

29%

9,672

6,216

56%

Average deposits and other borrowings

15,357

12,96618%

14,162

10,98729%

Ratios
Net interest margin

2.18%

2.48%

2.31%

2.39%

Return on average assets

1.75%

1.62%

1.69%

1.62%

Operating expenses to operating income

46.8%

43.4%

45.2%

45.2%

Operating expenses to average assets

1.98%

1.85%

1.92%

1.93%

16

15

31

30

0.29%

0.36%

0.32%

0.48%

14

19

0.26%

0.45%

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

109

14

Net non-performing loans as a % of net advances

0.82%

0.14%

Total employees

4,394

3,776

50

7%
-26%
large
16%

33

12

0.34%

0.19%

109

9

0.82%

0.12%

4,394

3,308

3%
large
large
33%

BUSINESS PERFORMANCE REVIEW (continued)

Asia PacificAlex Thursby
2008 result

Profit increased by 52%. This growth was driven mainly by partnerships in Asia with full year earnings received forinvestments in AMMB Holdings Berhad (AMMB) and Shanghai Rural Commercial Bank (SRCB) which were acquired in the
September 2007 half and mark-to-market gains on warrants in P.T. Bank Pan Indonesia (Panin). Institutional Asia Pacificprofit grew by 38% reflecting increased Markets capability and income from our investment in Saigon Securities Inc (SSI).
These gains were partly offset by increased investment in our organic business particularly in front office markets capability
and investments in branches in key strategic markets such as Vietnam and Indonesia.
Income and expense growth were equal with operating income growing strongly by 46% to $1,039 million, while operating
expense growth was held to 46% notwithstanding the significant investment made into the respective businesses.
Significant influences on the result were as follows:#

Net interest income increased 38% driven by a 56% growth in average lending assets and 29% growth in averagedeposits. The growth in the loan book was largely funded through increased customer deposits as we leveraged thecorporate and retail network throughout the region. In addition, the increased Markets capability resulted in a significant
increase in currency trading and sales.

#

Other external operating income grew by 53%, which was due mainly to increased equity accounted earnings from ourvarious partnerships in Asia. Other factors contributing to the increase include higher income in Markets Asia Pacific on
the back of volatility in the global markets, increased product offering and sales strength in Asia, increased trade flows in
Papua New Guinea and the booking of mark-to-market gains on bonds convertible into shares in SSI and warrants inPanin.

#

Operating expenses increased 46% as we extended the branch networks in Vietnam, Cambodia, Papua New Guinea,
Indonesia and Solomon Islands. In the Pacific, a new branch telling platform was installed while the transformation
program was accelerated to provide the base for future growth and reduced operating risk. Core banking systems were
deployed into American Samoa and Laos. Client relationship and specialist resources were boosted in Asia in order tobuild the business notwithstanding underlying inflationary pressures brought about by strong economic growth in the
Asian countries. Our regional hubs in Hong Kong and Singapore were also extended to house the increased leadershipand support resources required to drive the growth agenda.

#

Provision for credit impairment increased by 52% or $22 million due primarily to asset growth and increases in collective
provisions to reflect global credit market turmoil during the first half of 2008.

Comparison with March 2008 half

Profit increased by 27%. Profits from partnerships in Asia grew by 82% with contributions from investments in Panin, AMMB
and increased profits from both the Chinese partnerships (SRCB and Bank of Tianjin) while the Institutional Asian businesses
grew by 7%.
Total revenue grew by 17% with net interest income up 11% on the previous half driven by average loan and deposit growthof 29% and 18% respectively. Other operating income increased by 22% boosted by contributions from AMMB, Panin and
SSI.
Operating expenses increased by 26% as we invested in additional distribution including 6 new branches, 49 ATMs and morethan 450 point of sale (POS) terminals across the region and we accelerated the transformation programs in the Pacific.
Employees in the Asia Pacific region grew by 618, mainly in the Retail network branches and customer-facing Institutionalroles. As a result of growth in scale and complexity of the business, support areas have also been boosted to enable thisbusiness growth.
Provision for credit impairment decreased $4 million due to the additional collective provision booked in the March halfreflecting global credit market turmoil.

51

BUSINESS PERFORMANCE REVIEW (continued)

Institutional Asia Pacific
The contribution from Institutional Asia Pacific is included in both the Institutional results (pages 42 to 44) and the Asia
Pacific results (pages 50 to 51). This is consistent with how this business is internally managed. The following information ispresented purely for reconciliation purposes.
Half
year
Sep 08$M
93

Net interest income

Half
Movt
year
Sep 08Mar 08 v. Mar 08
$M
%
77
21%

Full
year
Sep 08
$M
170

Full
Movt
year
Sep 08
Sep 07 v. Sep 07
$M
%
93
83%

Other external operating income

106

115

-8%

221

164

35%

Operating income

199

192

4%

391

257

52%

External operating expenses

(56)

(36)

56%

(92)

(54)

70%

Net inter business unit expenses

(26)

(23)

13%

(49)

(37)

32%

Operating expenses

(82)

(59)

39%

(141)

(91)

55%

Profit before credit impairment and income tax

117

133

-12%

250

166

51%

(7)

(13)

-46%

(20)

(1)

large

Provision for credit impairment
Profit before income tax

110

120

-8%

230

165

39%

Income tax expense and minority interest

(21)

(37)

-43%

(58)

(40)

45%

Profit

89

83

7%

172

125

38%

Consisting of:Institutional Asia

61

55

11%

116

75

55%

28

28

0%

56

50

12%

89

83

7%

172

125

38%

Institutional Pacific

Balance Sheet
Net loans & advances including acceptances

8,827

6,821

29%

8,827

4,529

95%

Other external assets

14,6469,523

54%

14,646

6,688

large

External assets

23,473

16,34444%

23,473

11,217large

Customer deposits

6,915

6,001

15%

6,915

4,071

70%

Other deposits and borrowings

3,317

1,874

77%

3,317

268

large

Deposits and other borrowings

10,232

7,875

30%

10,232

4,339

large

Other external liabilities

10,6477,845

36%

10,647

4,828

large

External liabilities

20,87915,72033%

20,879

9,167

large

486

379

28%

486

292

66%

Total employees

52

BUSINESS PERFORMANCE REVIEW (CONTINUED)INGABob Edgar
Half
Movt
year
Sep 08Mar 08 v. Mar 08
$M
%
255
-5%

Half
year
Sep 08$M
242

Funds management income

Full
year
Sep 08
$M
497

Full
Movt
year
Sep 08
Sep 07 v. Sep 07
$M
%
501
-1%

Risk income- planned margin1- experience variation

1

154

149

3%

303

247

23%

6

11

-45%

17

29

-41%
0%

-

8

-100%

8

8

Operating income

402

423

-5%

825

785

5%

Funds management expenses

(152)

(151)

1%

(303)

(294)

3%

Life risk expenses

(79)

(78)

1%

(157)

(139)

13%

(1)

(7)

-86%

(8)

(12)

-33%

Capitalised software write-offs

-

-

n/a

-

(29)

-100%

Gross tax on operating profit

(41)

(45)

-9%

(86)

(68)

26%

Profit after tax, before
capital investment earnings

129

142

-9%

271

243

12%

Capital investment earnings after tax

(30)

12

large

(18)

69

large

Profit after tax before minority interest

99

154

-36%

253

312

-19%

- assumption changes

Remediation expenses

2

Minority interest

-

-

n/a

-

(1)

-100%

Profit

99

154

-36%

253

311

-19%

ANZ share
ANZ share @ 49%

49

75

-35%

124

152

-18%

Net funding

1

1

0%

2

3

-33%

50

76

-34%

126

155

-19%

Carrying value of investment

Net return to ANZ

1,589

1,540

3%

1,589

1,519

5%

Annualised return on ANZ investment

6.2%

9.8%

7.9%

10.3%

3

Performance measures at 100%
4

53

54

-2%

107

140

-24%

57.5%

54.1%

6%

55.8%

55.2%

1%

41,892

43,943-5%

41,89245,993

-9%

(151)

1,037

large

886

3,312

-73%

Total in-force

875

800

9%

875

751

17%

New premiums

124

106

17%

230

201

14%

Sep-08$M

Inflows

Outflows

Other

Funds management growth (Retail & mezzanine)flows

Sep 07$M

OneAnswer

17,955

4,348(3,411)(1,963)

18,981Other Personal Investment

6,735

377

(1,217)

(497)

8,072

Mezzanine

2,036

709

(746)

(571)

2,644

Employer Super

10,4901,765(1,197)(1,084)

11,006

Value of new business
Cost to income

5

Funds Management
Retail & mezzanine funds under management
Net retail & mezzanine flows
Life Risk

6

Oasis

4,676

999

(741)

(872)

5,290

Total

41,892

8,198(7,312)(4,987)45,993

1.

Experience variations are gains or losses arising from actual experience differing from plan, primarily death and sickness. Assumption changes are gains or losses
arising from a change in valuation methods and best estimate assumptions

2.

Remediation expenses in first half 2008 represent costs incurred to improve an investment property for future sale. Remediation costs in first half 2007 represent
costs incurred in rectifying historical unit pricing errors and fully compensating customers

3.

The carrying value of the investment in INGA has been tested for impairment by comparing the carrying value with the recoverable amount of INGA. INGAManagement performed an actuarial assessment of the Economic Value (EV) of INGA for 31 December 2007. The economic valuation was based on a discounted
cash flow approach. The Group engaged Ernst & Young ABC Pty Limited to provide an independent review of the reasonableness of INGA management’s valuation(including reasonableness of methodologies, assumptions and the valuation results). The review revealed no impairment to the carrying value of the investment in
INGA

4.

Value of new business represents the present value of future profits arising from the new business written over the periods less the present value of the cost ofcapital applying to that new business. It does not include the value of any associated imputation credits. Note prior period comparatives have been re-stated using
a consistent discount rate to that applicable in the March 2008 half year5.

Cost to Income ratio is management expenses (excluding Remediation Expenses & Capitalised Software Write-offs) / Total Income

6.

Other Flows includes investment income net of taxes, fees and charges, distributions and timing

53

BUSINESS PERFORMANCE REVIEW (CONTINUED)INGABob Edgar
2008 result

In a year characterised by investment market weakness and volatility in the wake of the global credit crisis, there were somereassuring aspects to the financial performance of the joint venture. Despite the adverse market conditions, the joint
venture achieved 12% year-on-year growth in operating profit after tax before capital investment earnings. Other highlights
included strong growth in the aligned financial adviser force, Standard & Poor's Ratings Services raising its insurer financial
strength rating on the core life company ING Life Ltd to 'AA-' from 'A+' (outlook stable) and a significant organisational
restructure.
In the wealth management businesses, client funds under management (FUM) fell 9% over the course of the year,
attributable to weakening in underlying investment asset prices, while net flows remained in positive territory. The fall in thevalue of FUM adversely impacted fee income and consequently operating profit before capital investment earnings. In
addition, annuity and capital-guarantee reserves were adversely impacted. INGA’s products continue to receive favourable
ratings and industry awards including INGA’s Corporate Super product retaining its No. 1 ranking amongst employer superproviders (as rated by Heron Partnership). The Personal Investments business further upgraded its flagship OneAnswer
platform during the March 2008 half and the Nielsen Company rated INGA No. 1 for customer service in their wealthmanagement industry online consumer survey.
The insurance operations continued to perform strongly in a competitive market, showing solid growth year-on-year.
In-force premiums continued to grow, up 17% over last year. Both individual and group life business experienced growth.
Latest available industry statistics indicate that in the year to 31 March 2008, INGA grew in-force premium above theindustry average rate, improving its ranking to No. 2 in the industry for total risk in-force premiums, with market share of
12.7%1. INGA has achieved a position of leadership in the life insurance industry, being awarded the overall Risk Companyof the Year at the 2008 Money Management / Dexx&r Adviser Choice Risk Awards.
A core component of INGA’s strategy continues to be growing the number of aligned advisers. In December the acquisitionof the Financial Services Partners Group was completed, adding 139 advisers to the aligned force. Total aligned advisers now
number 1,514, a year-on-year increase of 180 or 13%. INGA ranks 2nd in the industry for aligned adviser numbers.
Profit after tax was 19% lower than 2007, with the uplift in operating profit noted above being more than offset by lower
capital investment earnings. Notable influences were:#

Wealth management income fell 1% despite the 9% reduction in FUM, due mainly to the timing (and non-recurrence) of
the exceptional inflows into superannuation products driven by tax incentives experienced during mid-2007.

#

Risk income was 15% higher than the prior comparative period. The increase was driven by growth in the in-force booksof term life, group life and consumer credit and was assisted by reinsurance recoveries on income protection claims in2008 and continued favourable mortality and morbidity experience.

#

Funds management expenses were well contained (up 3%) due to scale efficiencies and increased automation. Life risk
expenses increased 13% due to the increased cost base associated with supporting the growth in retail risk and consumer
credit business. Remediation expenses in both years relate to expenses incurred to improve an investment property for
future sale.

#Tax on operating profit was significantly higher due to the non-recurrence of prior year one-off deductions.

#

Capital investment earnings after tax were significantly lower than 2007 due to:- the cost of meeting capital-guaranteed obligations on a closed book of business caused the market value declines on
the assets which back this liability. If financial markets return to long-term average growth rates, the cost of theguarantee will largely reverse;- the non-recurrence in 2008 of a one-off realisation of capital gains ($12 million) following a capital restructure in
February 2007;- a more defensive investment asset mix and significantly lower realisable investment gains, and- the impact of rising domestic interest rates on the value of the risk reserves, and on the cost of servicing parent
company loans.

1.

Source of market statistics: Plan For Life – March 2008

Adviser Numbers

Sales by Channel
Retail Funds Management(by Dealer Group)
Sep 08

Sep 07Mvmt

ANZ Financial Planning

395

432

-9%

RetireInvest

214

198

8%

FSP Tandem

199

75

Millennium3

679

604

ING Financial Planning
Total

1

Life Insurance2

Sep 08

Sep 07

Sep 08

Sep 07

ANZ

28%

31%

12%

13%

IFAs aligned to ING

19%

19%

10%

12%

large

Direct

7%

6%

34%

20%

12%

Open Market

46%

44%

44%

55%

Total

100%

100%

100%

100%

27

25

8%

1,514

1,334

13%

1.
2.

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

54

BUSINESS PERFORMANCE REVIEW (CONTINUED)INGABob Edgar
Comparison with March 2008 half

Profit after tax was 36% lower than the half year to 31 March 2008, due primarily to the negative capital investment
earnings in the September half. Operating profit after tax was also lower, attributable to the volatile equity and credit
markets adversely impacting wealth management income, and normal seasonality through the insurance operations, which
are traditionally stronger in the first half.
Notable influences on the September half result were:#

Reduced wealth management income due to lower average funds under management during the September half, as aresult of falling values in underlying investment assets and rising interest rates.

#

Higher risk income from in-force premium growth, offset by the non-recurrence in the September half of a pre-tax profit
release of $8 million in the March half from the annual review of risk assumptions conducted in the fourth quarter of
2007.

#

Wealth management and insurance expenses were flat. The remediation expenses in both halves relate to expenses
incurred to improve an investment property for future sale.

#

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

Capital investment earnings were significantly reduced due to:#the cost of meeting capital-guaranteed obligations on a closed book of business caused the market value declines on theassets which back this liability. If financial markets return to long-term average growth rates, the cost of the guarantee
will largely reverse;#

lower realised capital gains on investment assets;#a more defensive investment asset mix, and#the impact of rising interest rates on the value of the risk reserves and on the cost of servicing parent company loans.

55

BUSINESS PERFORMANCE REVIEW (CONTINUED)

Group Centre1
Half
year
Sep 08$M
104

Net interest income

Half
Movt
year
Sep 08Mar 08 v. Mar 08
$M
%
106
-2%

Full
year
Sep 08
$M
210

Full
Movt
year
Sep 08
Sep 07 v. Sep 07
$M
%
290
-28%

Other external operating income

67

56

20%

123

52

large

Operating income

171

162

6%

333

342

-3%

External operating expenses

(415)

(411)

1%

(826)

(763)

8%

Net inter business unit expenses

298

282

6%

580

563

3%

Operating expenses

(117)

(129)

-9%

(246)

(200)

23%
-39%

Profit before credit impairment and income tax

54

33

64%

87

142

Provision for credit impairment

(3)

(6)

-50%

(9)

(2)

large

Profit before income tax

51

27

89%

78

140

-44%

Income tax expense and minority interest

(15)

(12)

25%

(27)

(48)

-44%

Profit

36

15

large

51

92

-45%

4,344

4,149

5%

4,344

4,110

6%

Total employees
1.

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

2008 result

Profit of $51 million in 2008 was $41 million lower than for the 2007 year.
#

Operating income reduced $9 million due primarily to reduced interest earned on surplus capital following investments in
Asia, a reduction in interest received on tax refunds, higher funding costs relating to less favourable tax timing differences
and lower Treasury income. These factors were mostly offset by a $58 million improvement in earnings from matured
revenue hedges and an increase of $16 million in profits on the sale of properties.

#

Operating expenses increased by $46 million due mainly to costs associated with the development of ANZ’s Anti-Money
Laundering (AML) and Basel II programs, increased sponsorship and public relations expenditure, increased property
costs and the continued investment in our Private Bank business, partly offset by lower long service leave costs. The
increase in employee numbers was largely driven by increased resourcing required for the AML and Basel II programs,
additional staffing while non-customer facing functions were being transitioned to Bangalore, and increased customerfacing roles within Private Bank.

#

The provision for credit impairment charge of $9 million in 2008 was due mainly to a $6 million loss on settlement of the
final residual loan relating to the exited Grindlays business.

Comparison with March 2008 half

Profit of $36 million was $21 million higher than in the March half.
#

Operating income improved by $9 million due primarily to a $41 million improvement in earnings from matured revenue
hedges and higher interest earned on surplus capital. These factors were mostly offset by increased funding costs
relating to less favourable tax timing differences and a reduction in profits from the sale of properties by $17 million to$18 million.

#

Operating expenses reduced $12 million due mainly to lower legal costs, higher cost recoveries and lower incentive
scheme costs, partly offset by higher costs associated with the development of our AML program, annual leave accruals
and continued investment in our Private Bank business. The increase in employee numbers was driven largely byincreased staff involved with the AML program, additional staffing while non-customer facing functions were beingtransitioned to Bangalore and increased customer-facing roles within Private Bank.

56

GEOGRAPHIC SEGMENT PERFORMANCE

Geographic performance

Half
year
Sep 08$M
840

ProfitAustralia

Half
Movt
year
Sep 08Mar 08 v. Mar 08
$M
%
1,224
-31%

Full
year
Sep 08
$M
2,064

Full
Movt
year
Sep 08
Sep 07 v. Sep 07
$M
%
2,889
-29%

New Zealand

302

529

-43%

831

917

-9%

Asia

157

111

41%

268

171

57%

Pacific

69

64

8%

133

121

10%

Other

(12)

35

large

23

82

-72%

1,356

1,963

-31%

3,319

4,180

-21%

Cash profit
Australia

Half
year
Sep 08
$M
821

Half
Movt
year
Sep 08Mar 08 v. Mar 08
$M
%
1,010
-19%

Full
year
Sep 08
$M
1,831

Full
Movt
year
Sep 08
Sep 07 v. Sep 07
$M
%
2,688
-32%

New Zealand

318

451

-29%

769

861

Asia

162

116

40%

278

172

62%

Pacific

69

64

8%

133

121

10%

1

Other

-11%

(15)

33

large

18

82

-78%

1,355

1,674

-19%

3,029

3,924

-23%

Comparison to Full Year Sep 2007
Full Year Sep 2008

Growth Rate

Revenue

Expenses

PBP2

Credit3

NPAT

Revenue

Expenses

PBP2

Credit3

NPAT

Australia

7,639

3,714

3,925

1,490

1,831

2%

10%

-5%

large

-32%

New Zealand

-11%

2,558

1,177

1,381

253

769

0%

0%

0%

large

Asia

644

288

356

47

278

57%

70%

48%

34%

62%

Pacific

358

155

203

16

133

13%

12%

14%

100%

10%

Other

296

110

186

142

18

29%

6%

48%

large

-78%

11,495

5,444

6,051

1,948

3,029

4%

10%

0%

large

-23%

3,047

1,401

1,646

302

916

5%

5%

5%

large

-6%

New Zealand (NZD)

Comparison to Half Year Mar 2008
Half Year Sep 2008

Growth Rate

Revenue

Expenses

PBP2

Credit3

NPAT

Revenue

Expenses

PBP2

Credit3

NPAT

Australia

3,853

1,883

1,970

946

821

2%

3%

1%

74%

-19%

New Zealand

1,235

594

641

172

318

-7%

2%

-13%

large

-29%

Asia

355

167

188

22

162

23%

38%

12%

-12%

40%

Pacific

183

78

105

8

69

5%

1%

7%

0%

8%

Other

166

55

111

119

(15)

28%

0%

48%

large

large

5,792

2,777

3,015

1,267

1,355

2%

4%

-1%

86%

-19%

1,520

728

792

209

396

0%

8%

-7%

large

-24%

New Zealand (NZD)
1.

In 2008 ANZ has classified as significant items the gain from the allocation of shares in Visa in March 2008 of $248 million after tax (tax impact: $105 million),costs associated with organisational transformation of $152 million after tax (tax impact: $66 million) including process re-engineering and ATM write-offs relating
to a network upgrade, costs associated with the write-down of an intangible asset relating to Origin Australia of $24 million after tax (tax impact: $10 million) anda further positive adjustment of $1 million (Sep 2008 half: $7 million loss; Mar 2008 half: $8 million gain) following the restatement of deferred tax assets
consequent to the reduction in New Zealand tax rate. In 2007 ANZ classified as significant items the gain on sale of Esanda Fleetpartners of $195 million after tax(tax impact: $nil following the availability of capital losses being applied against the gain) and a negative impact of $24 million following the restatement ofdeferred tax assets to reflect the announced change in the New Zealand company tax rate which takes effect from 1 October 2008. ANZ excludes significant items
to eliminate the distorting effect of one-off transactions on the results of its core business (refer page 26)
The Group enters into economic hedges to manage its interest rate and foreign exchange risk. In 2008 ANZ has classified a gain of $243 million after tax (2007full year: $69 million; Sep 2008 half: $176 million; Mar 2008 half: $67 million) relating to economic hedging as a non-core item (tax impact $107 million (2007full year: $31 million; Sep 2008 half: $78 million; March 2008 half: $29 million)). Included in this non-core amount is market volatility relating to approved
classes of derivatives not designated in accounting hedge relationships but that are considered to be economic hedges, volatility arising from use of the fair value
option, and ineffectiveness from designated accounting hedges. In addition, ANZ has classified a mark-to-market loss after tax of $26 million (2007 full year:$16 million gain; Sep 2008 half: $16 million loss; Mar 2008 half: $10 million loss) relating to revenue hedges (NZD and USD) that under the transitional provisionof AASB 139 (AASB 2005-1) no longer qualify for hedge accounting from 1 October 2006 (tax impact $13 million credit (2007 full year: $7 million expense; Sep
2008 half: $9 million credit; Mar 2008 half: $4 million credit)). ANZ excludes volatility associated with fair value movements on these transactions to provide a
better indication of the core business performance (refer page 27)

2.

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

3.

Credit impairment expense

57

GEOGRAPHIC SEGMENT PERFORMANCE (continued)

Australia
Halfyear
Sep 08$M
2,950

Net interest income
Other external operating income

Movt
Half
Sep 08year
Mar 08 v. Mar 08
%
$M
2,664
11%

Full
year
Sep 08
$M
5,614

Movt
Full
Sep 08year
Sep 07 v. Sep 07
%
$M
5,036
11%

903

1,122

-20%

2,025

2,472

Operating income

3,853

3,786

2%

7,639

7,508

2%

Operating expenses(1,883)(1,831)

3%(3,714)(3,365)

10%

Profit before credit impairment and income tax

1,970

1,955

1%

3,925

4,143

-5%

Provision for credit impairment

(946)

(544)

74%

(1,490)

(410)

large

Profit before income tax

1,024

1,411

-27%

2,435

3,733

-35%

Income tax expense

(201)

(401)

-50%

(602)

(1,042)-42%

Minority interest
Cash1 profit
Non-core items

1

Profit
Net interest average margin

(2)

-

n/a

(2)

(3)

-33%

821

1,010

-19%

1,831

2,688

-32%

19

214

-91%

233

201

16%

840

1,224

-31%

2,064

2,889

-29%

2.10%

2.03%

2.07%

2.19%

Operating expenses to operating income

1

50.8%

44.8%

47.8%

43.5%

1

1.32%

1.27%

1.30%

1.35%

48.9%

48.4%

48.6%

44.8%

1.21%

1.25%

1.23%

1.35%

544

270

0.45%

0.24%

Operating expenses to average assets
1

Operating expenses to operating income (cash )1

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

402

274

0.33%

0.24%

819

620

Net non-performing loans as a % of net advances

0.33%

0.27%

large
47%
32%
1%

814

357

0.35%

0.18%

676

53

0.29%

0.03%

819

310

0.33%

0.16%

Total employees

20,375

20,213

20,375

19,868

Lending growth

5.5%

8.5%

14.5%

13.1%

External assets

321,705

301,126

7% 321,705

272,969

1.

-18%

large
large
large
3%
18%

In 2008 ANZ has classified as significant items the gain from the allocation of shares in Visa in March 2008 of $174 million after tax (tax impact $107 million, which
includes $21 million Australian tax on the tax free gain on sale of shares in New Zealand), costs associated with organisational transformation of $128 million aftertax (tax impact:$54 million) including process re-engineering and ATM write-offs relating to a network upgrade and costs associated with a write-down of ourinvestment in Origin Australia of $24 million after tax (tax impact: $10 million). In 2007 ANZ has classified the gain on sale of Esanda Fleetpartners of$128 million after tax (tax impact: $nil following the availability of capital losses being applied against the gain) as a significant item. ANZ excludes significant
items to eliminate the distorting effect of one-off transactions on the results of its core business (refer page 26)
The Group enters into economic hedges to manage its interest rate and foreign exchange risk. In 2008 ANZ has classified a gain of $237 million after tax (2007full year: $57 million; Sep 2008 half: $163 million; Mar 2008 half: $74 million) relating to economic hedging as a non-core item (tax impact $103 million (2007 fullyear: $24 million; Sep 2008 half: $70 million; Mar 2008 half: $33 million)). Included in this non-core amount is volatility relating to approved classes ofderivatives not designated in accounting hedge relationships but that are considered to be economic hedges, volatility arising from use of the fair value option, andineffectiveness from designated accounting hedges. In addition, ANZ has classified a mark-to-market market loss after tax of $26 million (2007 full year:$16 million gain; Sep 2008 half: $16 million loss; Mar 2008 half: $10 million loss) relating to NZD and USD revenue hedges that under the transitional provision of
AASB 139 (AASB 2005-1) no longer qualify for hedge accounting from 1 October 2006 (tax impact $13 million credit (2007 full year: $7 million expense; Sep 2008
half: $9 million credit; Mar 2008 half: $4 million credit)). ANZ excludes volatility associated with fair value movements on these transactions to provide a better
indication of the core business performance (refer page 27)

58

GEOGRAPHIC SEGMENT PERFORMANCE (continued)

Australia, cont’d
2008 result

Profit after tax decreased 29%. After adjusting for the impact of non-core items cash profit decreased 32%. Significant
influences on cash profit were:#

Net interest income increased 11% as average net advances grew 17% and average deposits and other borrowings
increased 25%, offset by a 12 basis point reduction in net interest margin. Growth in average net advances was driven
by Institutional (28%) reflecting the re-intermediation of commercial customers during the March half year as a result oftightening global credit conditions. Average net advances in Personal increased 12% primarily in Mortgages. Net interest
margin decline was largely in Institutional due to declining Markets mismatch income and the higher cost of funding
derivative revaluations (-$47 million offset in other income), change in the funding and deposit mix, lags in passing on
higher funding costs and growth in low risk, low margin lending to well rated corporates. In Personal, margins declined
across most lending businesses, due mainly to higher funding costs partly offset by out of cycle rate rises. Strong
competition for deposits saw term deposit margins decline and a switch into high yield/low margin products.

#

Other external income decreased 18%. The decline was impacted by the treatment of credit risk on derivatives as
negative revenue (-$676 million), the impact of a structured transaction on income (-$127 million) and the consolidationof Stadium Australia (-$21 million) and ETrade (+$39 million). Excluding these, Other external income increased 14%
driven by Institutional (16%), with higher Markets income due to market volatility (including +$47 million offset in net
interest income), and higher deal related fee income in Corporate Finance partly offset by lower private equity mark-tomarket earnings and higher impairment write-downs. Personal increased 8% with higher fee income due to customer
acquisition and fee initiatives across several businesses. In the Corporate Centre an additional $16 million contribution
from property sales was offset by MasterCard IPO proceeds in 2007 of $18 million.

#

Operating expenses increased 10%. Personal operating costs increased 10% due to higher personnel and premises
expenses associated with investment in the branch network with 44 new branches and 600 ATMs opened during 2007 and2008. There were also additional financial planners, higher marketing costs and additional servicing costs related tocustomer acquisition. Increased expenses within Institutional (+9%) were attributable to higher consultant and legal fees
associated with the review of the Securities Lending business and the cost of revenue initiatives, reflected in higher staff
and technology costs.

#

Provision for credit impairment on lending assets increased $1.1 billion. Individual provisions were up $457 million, of
which $258 million relates to six individual customers. Underlying growth was driven by volume growth, a recovery in2007 and the impact of deteriorating economic conditions mainly on corporate customers. The collective provision
increased by $623 million; $461 million relates to an economic cycle adjustment and allowances for stress in the financial
and property sectors, with the residual due to volume growth and observed decline in credit ratings.

#

The effective tax rate declined from 27.9% to 24.7% benefiting from a structured transaction.

Comparison with March 2008 half

Profit after tax decreased by 31%. Cash profit decreased 19%. Significant influences on cash profit were as follows:#

Net interest income increased 11% with average net advances up 7%, average deposits and other borrowings up 9% anda 7 basis point increase in net interest margin. The March half year margin was fully impacted by higher funding costs
associated with the global credit crisis, while the benefit from subsequent related repricing and repositioning activities arereflected in the September 2008 half margin. Institutional margin increased as a result of repricing activities and higher
Markets mismatch income after a low March half result, partly offset by higher funding cost of derivatives (-$42 million
offset in other income). Personal experienced modest margin improvement with the benefit from repricing activities
flowing into the September half, partly offset by strong competition for deposits.

#

Other external operating income decreased 20%. This was impacted by the treatment of credit risk on derivatives treatedas negative revenue (-$123 million), the impact of a structured transaction on income (-$107 million) and theconsolidation of Stadium Australia (-$19 million). Excluding these, underlying other external income increased 2%.
Institutional increased 1% driven by stronger fee income due to seasonal factors, new product and fee changes acrossseveral businesses. There were also improved profits from sale of trading and investment securities, lower mark-tomarket write-downs in private equity and the change in the composition of the derivatives result (+$42 million offset in
net interest income). Personal increased 3%, due mainly to higher fee income from customer acquisition and fee
initiatives partly offset by lower Investment sales and commissions due to the downturn in equity markets. Property sales
in the September half were $17 million lower.

#

Operating expenses increased 3%. Institutional expenses increased 7% driven by higher consultant and legal costs
associated with the Securities Lending Review, the consolidation of some equity investments and the cost of an increasein customer facing staff in our relationship businesses. Personal increased 2% reflecting increased personnel andpremises expenses associated with branch expansion and higher marketing costs.

#

Provision for credit impairment on lending assets increased $401 million. The Individual provision charge increased by$274 million, $194 million of which relates to six large customers. The remaining increase is driven by volume growth
and the impact of the current economic climate on both corporate and personal customers. The Collective provision
charge increased $128 million, largely due to an economic cycle adjustment due to deterioration in global credit markets
and with allowances for stress in the financial and property sectors.

#

The effective tax rate declined from 28.4% to 19.6% benefiting from a structured transaction.
59

GEOGRAPHIC SEGMENT PERFORMANCE (continued)

New Zealand
Half
year
Sep 08
NZD M
1,019

Net interest income
Other external operating income

Half
Movt
year
Sep 08Mar 08 v. Mar 08
NZD M
%
1,010
1%

Full
year
Sep 08
NZD M
2,029

Full
Movt
year
Sep 08
Sep 07 v. Sep 07
NZD M
%
2,059
-1%

501

517

-3%

1,018

841

21%

Operating income

1,520

1,527

0%

3,047

2,900

5%
5%

Operating expenses

(728)

(673)

8%

(1,401)(1,334)

Profit before credit impairment and income tax

792

854

-7%

1,646

1,566

5%

Provision for credit impairment

(209)

(93)

large

(302)

(74)

large

Profit before income tax

583

761

-23%

1,344

1,492

-10%

Income tax expense

(187)

(241)

-22%

(428)

(517)

-17%

-

-

n/a

-

-

n/a

396

520

-24%

916

975

-6%
16%

Minority interest
1

Cash profit
1

Non-core items

(16)

90

large

74

64

Profit (NZD)

380

610

-38%

990

1,039

-5%

Profit (AUD)

302

529

-43%

831

917

-9%

Net interest average margin
1

Operating expenses to operating income
1

Operating expenses to average assets
1

Operating expenses to operating income (cash )1

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

1.92%

2.00%

1.96%

2.20%

49.5%

42.0%

45.7%

44.5%

1.34%

1.21%

1.27%

1.31%

47.9%

44.1%

46.0%

46.0%

1.28%

1.21%

1.24%

1.31%

143

47

0.30%

0.10%

66

46

0.14%

0.10%

195

108

Net non-performing loans as a % of net advances

0.20%

0.12%

large
43%
81%

55
0.07%

112

19

0.12%

0.02%

195

72

0.20%

0.08%

Total employees

9,548

9,552

9,548

9,409

Lending growth

5.7%

5.5%

11.5%

12.1%

External assets

119,780

110,834

8% 119,780

105,997

1.

0%

190
0.21%

large
large
large
1%
13%

In 2008 ANZ has classified as significant items the gain from the allocation of shares in Visa in March 2008 of NZD85 million after tax (tax impact: $nil), costs
associated with organisational transformation of NZD28 million after tax (tax impact: NZD14 million) and a further positive adjustment of NZD1 million (Sep 2008
half: NZD8 million loss; Mar 2008 half: NZD9 million gain) following the restatement of deferred tax assets to reflect the reduction in New Zealand tax rate as
significant items. In 2007 ANZ has classified the gain on sale of Esanda Fleetpartners of NZD76 million (tax impact: $nil) and a negative impact of NZD27 million
profit after tax following the restatement of deferred tax assets to reflect recently announced change in the New Zealand company tax rate which takes effect from
1 October 2008 as significant items. ANZ excludes significant items to eliminate the distorting effect of one-off transactions on the results of its core business(refer page 26)
The Group enters into economic hedges to manage its interest rate and foreign exchange risk. In 2008 ANZ has classified a gain of NZD13 million after tax (2007full year: NZD15 million gain; Sep 2008 half: NZD8 million gain; Mar 2008 half: NZD5 million loss) relating to economic hedging as a non-core item (tax impact
NZD6 million (2007 full year: NZD8 million; Sep 2008 half: NZD8 million; Mar 2008 half: NZD2 million credit)). Included in this non-core amount is volatility
relating to approved classes of derivatives not designated in accounting hedge relationships but that are considered to be economic hedges, volatility arising fromuse of the fair value option, and ineffectiveness from designated accounting hedges. ANZ excludes volatility associated with fair value movements on thesetransactions to provide a better indication of the core business performance (refer page 27)

60

GEOGRAPHIC SEGMENT PERFORMANCE (continued)

New Zealand, cont’d
Reconciliation of Geographic profit
Half
year
Sep 08
NZD M
298

New Zealand Businesses

Half
Movt
year
Sep 08Mar 08 v. Mar 08
NZD M
%
417
-29%

Full
year
Sep 08
NZD M
715

Full
Movt
year
Sep 08
Sep 07 v. Sep 07
NZD M
%
815
-12%

NZ Institutional

135

127

6%

263

215

New Zealand Banking

433

544

-20%

978

1,030

-5%

NZ shareholder functions

(37)

(24)

54%

(62)

(55)

13%

New Zealand geography adjusted for non-core items

396

520

-24%

916

975

-6%

Non-core items

(16)

90

large

74

64

16%

Total New Zealand geography

380

610

-38%

990

1,039

-5%

1

1.

22%

Refer footnote 1 on page 60

2008 result

The combination of domestic recession, which is emerging as the worst economic downturn since the early 1990’s, and theimpact of the global credit crunch has had a significant impact on business performance in 2008. Costs have been managed
to reflect the changing environment, albeit with some phasing into the second half. Profit reduced 6% after adjusting fornon-core items with the result including a NZD153 million after tax increase in credit impairment expense. Profit before
credit impairment and income tax increased 5%.
Institutional, particularly in Markets, delivered a very strong profit result for the year (22%), which in part reflects increased
customer activity as a result of a more volatile market environment. New Zealand Businesses growth was most affected by
the economic slowdown which has been led by the household sector and the switch to intense competition for domestic
deposits as global funding conditions have tightened.
#

Net interest income reduced 1%, with the result impacted by a number of factors within Institutional, including the
reduction in net interest income from derivative positions (NZD29 million - offset by an increase in trading income), andthe repayment of structured finance transactions. The underlying increase in net interest income was driven by lending
growth across the New Zealand Businesses (11%), offset by margin decline in these businesses of 21 basis points.
Deposit margins contracted as a result of increased competition, unfavourable mix in a high rate environment with
migration of customers from low, to high yielding products.

#

Other external operating income increased 21%, driven by a stronger Markets result and the change in composition of thederivatives result referred to above. Growth in the New Zealand Businesses was 5%, with the main contribution comingfrom the Retail banks, achieving growth across lending, cards and commission income.

#Operating expenses increased 5%. Cost growth was due to annual increases in salaries, an increase in the number ofcustomer-facing staff and investment in the businesses which have been partly offset by strong control of discretionary
expenditure. The cost to income ratio was stable at 46.0%.

#

The individual provision charge increased NZD136 million, largely reflecting increasing mortgage, consumer and small to
medium business arrears in response to the significant downturn in the economy and resultant stress in the household
sector. The collective provision charge increased NZD92 million, mainly reflecting arrears in mortgages, personal loans,credit cards and small business to medium size lending, together with economic cycle adjustments booked to reflect thecurrent financial environment (NZD50 million spread across wholesale and retail businesses).

Comparison with March 2008 half

The slowing New Zealand economy and the adverse developments in the global economy were more significant in the second
half of the year. Profit reduced 24% over the March 2008 half after adjusting for non-core items, with the result including a
NZD80 million after tax increase in credit impairment expense. Profit before credit impairment and tax reduced 7%(Institutional +3%, New Zealand Businesses -7%).
#

Net interest income increased 1%. Lending growth (6%) was moderated by margin contraction of 8 basis points.
Increased competition for customer deposits driven by the significant increase in wholesale funding spreads has placedpressure on deposit margins. Unfavourable product mix has also had a negative impact. An increase in net interest
income from derivative positions (NZD22 million), offset in trading income assisted the net interest income result.

#

Other external operating income reduced 3%, largely reflecting lower contributions from Corporate Finance and thechange in composition of the derivatives result referred to above.

#

Operating expenses increased 8% largely due to the phasing of business investment initiatives, non-lending losses andthe acquisition of a subsidiary as part of a debt restructure (5% for full year).

#

The individual provision charge increased NZD96 million, largely reflecting increasing mortgage, consumer and small to
medium business arrears in response to tighter economic conditions. The collective provision charge increased
NZD20 million, reflecting economic cycle adjustments booked in the respective halves (NZD40 million in the September
2008 half, and NZD10 million in the March 2008 half).

61

GEOGRAPHIC SEGMENT PERFORMANCE (continued)

Asia
Half
year
Sep 08$M
137

Net interest income

Half
Movt
year
Sep 08Mar 08 v. Mar 08
$M
%
124
10%

Full
year
Sep 08
$M
261

Full
Movt
year
Sep 08
Sep 07 v. Sep 07
$M
%
206
27%

Other external operating income

218

165

32%

383

203

89%

Operating income

355

289

23%

644

409

57%
70%

Operating expenses

(167)

(121)

38%

(288)

(169)

Profit before credit impairment and income tax

188

168

12%

356

240

48%

Provision for credit impairment

(22)

(25)

-12%

(47)

(35)

34%

Profit before income tax

166

143

16%

309

205

51%

Income tax expense

(1)

(25)

-96%

(26)

(30)

-13%

Minority interest

(3)

(2)

50%

(5)

(3)

67%

162

116

40%

278

172

62%

(5)

(5)

0%

(10)

(1)

large

157

111

41%

268

171

57%

47.9%

43.2%

45.6%

41.4%

47.0%

41.9%

44.7%

41.4%

Individual provision charge

10

9

11%

19

27

-30%

Collective provision charge

12

16

-25%

28

8

large

Net non-performing loans

92

-

n/a

92

-

n/a

2,184

1,684

30%

2,184

1,313

66%

1

Cash profit
1

Non-core items
ProfitOperating expenses to operating income
1

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

The Group enters into economic hedges to manage its interest rate and foreign exchange risk. In 2008 ANZ has classified $10 million loss after tax (2007 fullyear: $1 million loss; Sep 2008 half: $5 million loss; Mar 2008 half: $5 million loss) relating to economic hedging as a non-core item. Included in this non-coreamount is volatility relating to approved classes of derivatives not designated in accounting hedge relationships but that are considered to be economic hedges,
volatility arising from use of the fair value option, and ineffectiveness from designated accounting hedges. ANZ excludes volatility associated with fair value
movements on these transactions to provide a better indication of the core business performance (refer page 27)

2008 result

Profit grew 57%. With strong growth in ANZ’s Asian partnerships (including full year contributions from AMMB Holdings
Berhad (AMMB) and Shanghai Rural Commercial Bank (SRCB) which were acquired in the September 2007 half year)
contributing significantly to the result. Investment in the organic business has driven significant revenue growth and is being
accelerated to drive even further growth.
Key factors affecting the result were:#

Net interest income increased by 27%. The strong Asian economies led to a significant increase in customer loans which
has been matched by similar volume growth in customer deposits. In addition, significant increases in our Markets
trading activities, together with more efficient management of the balance sheet have led to strong interest income
growth in Markets.

#

Other external operating income grew by 89%, of which more than half was contributed by equity accounted income frompartnerships (including full year contributions from AMMB and SRCB which were acquired in the September 2007 halfyear). Fees and other income were significantly higher in the Markets and Corporate Finance businesses following an
increase in product offering and sales capability, participation in large projects and the leveraging of volatility in thecurrency markets. Markets other income was also boosted by the booking of mark-to-market gains on bonds convertible
into shares in SSI, and warrants in P.T. Bank Pan Indonesia (Panin).

#

Operating expenses increased 70% through a combination of new investment, including new branches in Vietnam,
Indonesia and Cambodia and inflationary pressures across the region. Employees increased by 871, largely in the
network businesses and in specialist institutional product areas including deal origination and structuring (client
relationship management).

#

Provision for credit impairment increased by $12 million due to asset growth and additional provisions for economic cycle
impacts. Overall credit quality improved, with investment grade loans constituting a higher proportion of the portfolio.

Comparison with March 2008 half

Profit increased 41%. The result was boosted by increased equity accounted earnings from partnership investments together
with significant revenue growth from the network business. Operating expenses increased due to the flow through impact
from staff recruited in first half 2008, together with additional front office staff taken on during the second half.

62

GEOGRAPHIC SEGMENT PERFORMANCE (continued)

Pacific
Halfyear
Sep 08$M
95

Net interest income

Half
Movt
year
Sep 08Mar 08 v. Mar 08
$M
%
88
8%

Full
year
Sep 08
$M
183

Full
Movt
year
Sep 08
Sep 07 v. Sep 07
$M
%
154
19%

Other external operating income

88

87

1%

175

162

8%

Operating income

183

175

5%

358

316

13%

Operating expenses

(78)

(77)

1%

(155)

(138)

12%

Profit before credit impairment and income tax

105

98

7%

203

178

14%

(8)

(8)

0%

(16)

(8)

100%

Provision for credit impairment
Profit before income tax

97

90

8%

187

170

10%

Income tax expense

(27)

(26)

4%

(53)

(48)

10%

Minority interest

(1)

-

n/a

(1)

(1)

0%

Cash profit

69

64

8%

133

121

10%

Profit

69

64

8%

133

121

10%

43.3%

43.7%

Operating expenses to operating income

42.6%

44.0%

Individual provision charge

6

6

0%

12

4

Collective provision charge

2

2

0%

4

4

0%

Net non-performing loans

17

14

21%

17

9

89%

2,048

1,991

3%

2,048

1,867

10%

Total employees

large2008 result

Profit increased by 10%. Double-digit profit growth in Fiji, Papua New Guinea, Cook Islands, Solomon Islands, Kiribati andTimor Leste and the full year impact from the acquisition of Citizens Security Bank (CSB) in Guam were partly offset bycontinued investment in network infrastructure.
Key factors affecting the result were:#

Net interest income increased 19% due to volume gains notably in Papua New Guinea and the Solomon Islands, the fullyear impact from the acquisition of CSB and a return to more normal cost of funds in Fiji following the coup in November
2006.

#

Other external operating income increased 8% predominantly due to strong foreign exchange earnings growth in Papua
New Guinea.

#

Operating expenses increased 12% due mainly to the inclusion of the first full year result from CSB and increased
distribution channels including the rolling out of a new branch telling software as well as investment in additional ATMs,
point of sale (POS) terminals and branches. The transformation program was accelerated to increase efficiency andreduce operating risk. Employees increased by 181 as a result of the accelerated transformation program along withinvestment in high growth countries including Papua New Guinea and the Solomon Islands.

#

While credit quality remains sound, provision for credit impairment increased by $8 million driven by higher provisioningin Tonga, Kiribati and Samoa.

Comparison with March 2008 half

Profit increased 8% with continued growth in Papua New Guinea and Fiji. Operating income increased 5% as a result of
improved interest margins in Fiji and growth in Papua New Guinea. Operating expenses remained relatively stable comparedto the previous half. The provision for credit impairment was also in line with provisioning in the March half.

63

GEOGRAPHIC SEGMENT PERFORMANCE (continued)

Other: United Kingdom, Europe, United States and South Asia (including Bangalore)
Half
year
Sep 08$M
60

Net interest income

Half
Movt
year
Sep 08Mar 08 v. Mar 08
$M
%
29
large

Full
year
Sep 08
$M
89

Full
Movt
year
Sep 08
Sep 07 v. Sep 07
$M
%
89
0%

Other external operating income

106

101

5%

207

141

47%

Operating income

166

130

28%

296

230

29%

Operating expenses

(55)

(55)

0%

(110)

(104)

6%

Profit before credit impairment and income tax

111

75

48%

186

126

48%

Provision for credit impairment

(119)

(23)

large

(142)

(4)

large

Profit before income tax

(8)

52

large

44

122

-64%

Income tax expense

(7)

(19)

-63%

(26)

(40)

-35%

(15)

33

large

18

82

-78%

3

2

50%

5

-

n/a

(12)

35

large

23

82

-72%

32.7%

40.9%

36.5%

45.2%

33.1%

42.3%

37.2%

45.2%

Individual provision charge

120

6

large

126

3

large

Collective provision charge

(1)

17

large

16

1

large

13

25

-48%

13

25

-48%

2,772

2,042

36%

2,772

1,897

46%

1

Cash profit
Non-core items

1

ProfitOperating expenses to operating income
1

Operating expenses to operating income (cash )Net non-performing loans
Total employees
1.

The Group enters into economic hedges to manage its interest rate and foreign exchange risk. In 2008 half ANZ has classified a gain of $5 million after tax (2007full year: $nil; Sep 2008 half: $3 million; Mar 2008 half: $2 million) relating to economic hedging as a non-core item. Included in this non-core amount is volatility
relating to approved classes of derivatives not designated in accounting hedge relationships but that are considered to be economic hedges, volatility arising fromuse of the fair value option, and ineffectiveness from designated accounting hedges. ANZ excludes volatility associated with fair value movements on thesetransactions to provide a better indication of the core business performance (refer page 27)

2008 result

Cash profit decreased by 78% with the appreciation of the AUD against other currencies providing a 4% offset to the 2008
result.
Significant influences on profit:#

Net interest income remained flat with higher margins from new and repricing portfolios, strong balance sheet growth inRelationship Lending and Working Capital offset by higher costs associated with liquidity maintenance together withmovements in the derivative and collateral positions.

#

Other external operating income increased 47% of which 24% relates to the realisation of credit default swaps
economically hedging items in the liquidity portfolio. The remaining increase reflects higher fee income on repricing
commitments and contingent assets in line with the current credit environment.

#

Operating expenses increased 6% with investment in revenue generating staff in Europe and the United States andincreased costs associated with the relocation to new premises together with the costs associated with opening a
Representative Office in Dubai. Personnel numbers also increased within operations and technology support in India
however, these costs were charged to the sponsoring business units.

#

Provision for credit impairment increased, with $98 million relating to credit losses on assets held in the liquidity portfolio
and a $25 million specific loss on the loan portfolio. Growth in net lending assets resulted in a higher collective provision
charge.

Comparison with March 2008 half

Key factors driving the profit reduction:#

Net interest income increased 107% including $23 million from movement in the derivatives position (offset in otherincome). Other factors include strong Relationship lending growth and higher margins in Corporate Finance were offset
by an overall reduction in lending growth due primarily to the repayment of one large facility in the March 2008 half.

#

Other external operating income increased 5%, due primarily to the impact of the realisation of credit default swaps
economically hedging items in the liquidity portfolio, with the remainder attributed to movement in the collateral andunderlying derivatives position (offset in net interest income) together with a reduced asset writing strategy in Corporate
Finance.

#

Operating expenses remained flat.

#

Provision for credit impairment increased, with $98 million recorded in the September 2008 half relating to credit loss on
assets held in the liquidity portfolio and a further $25 million specific loss on the loan portfolio. Collective provision
reduced with lower net lending assets reported in the last quarter of September 2008.

64

FIVE YEAR SUMMARY
Previous
AGAAP
Sep 08$M

Sep 07$M

Sep 06$M

Sep 05$M

Sep 04
$M

7,850

7,302

6,943

6,371

5,252

Income Statement
Net interest income
Other operating income

3,645

3,720

3,146

2,935

3,267

Operating expense(5,444)(4,953)(4,605)(4,340)(4,005)

Provision for credit impairment(1,948)

(522)

(407)

(565)

(632)

Profit before income tax

4,103

5,547

5,077

4,401

3,882

Income tax expense(1,066)(1,616)(1,486)(1,247)(1,147)

(8)

(7)

(4)

(3)

(4)

3,029

3,924

3,587

3,151

2,731

Minority interest
Cash profit

1
1

290

256

101

24

84

3,319

4,180

3,688

3,175

2,815

Assets471,024

392,773

334,640

300,885259,345

Net assets

26,552

22,04819,906

19,53817,925Return on average ordinary equity

14.5%

20.9%

20.7%

18.3%

19.1%

Return on average assets

0.8%

1.2%

1.1%

1.1%

1.2%

7.7%

6.7%

6.8%

6.9%

6.9%

11.1%

10.1%

10.6%

10.5%

10.4%

46.8%

43.7%

44.6%

47.0%

44.9%

47.4%

44.9%

45.6%

46.6%

45.3%

Non-core items
Profit attributable to shareholders of the Company
Balance Sheet

Ratios2

3

Tier 1 capital ratio

3

Total capital ratio

4

Operating expenses to operating income
4
Operating expenses to operating income (cash)
Shareholder value - ordinary shares
Total return to shareholders(share price movement plus dividends)-33.5%

15.6%

17.1%

32.6%

17.0%

38,26355,38249,331

43,834

34,586136 cents

136 cents

125 cents

110 cents

101 cents

100%

100%

100%

100%

100%

- high$31.74$31.50$28.66$24.45$19.44- low$15.07$25.75$22.70$19.02$15.94- closing$18.75$29.70$26.86$24.00$19.02

Earnings per share - basic

170.4c224.1c200.0c169.5c153.1cDividend payout ratio

82.6%

60.9%

62.6%

65.0%

67.5%

Net tangible assets$10.72

$9.36

$8.53

$7.77

$7.51

Number of fully paid ordinary shares (M)2,040.7

1,864.7

1,836.6

1,826.4

1,818.4

Permanent employees (FTE)

35,42333,00430,64429,471

27,383

Temporary employees (FTE)

1,502

1,349

1,612

1,505

1,372

Total employees (FTE)

36,92534,35332,25630,97628,755

Points of representation
5
Number of shareholders

1,346

1,327

1,265

1,223

1,190

376,813327,703291,262

263,467

252,072

Market capitalisation
Dividend
Franked portion
Share price

Share information (per fully paid)
5

Other information

1.

In 2008 ANZ has classified as significant items the gain from the allocation of shares in Visa in March 2008 of $248 million after tax (tax impact: $105 million),costs associated with organisational transformation of $152 million after tax (tax impact: $66 million) including process re-engineering and ATM write-offs relating
to a network upgrade, costs associated with the write-down of an intangible asset relating to Origin Australia of $24 million after tax (tax impact: $10 million) anda further positive adjustment of $1 million (Sep 2008 half: $7 million loss; Mar 2008 half: $8 million gain) following the restatement of deferred tax assets
consequent to the reduction in New Zealand tax rate. In 2007 ANZ classified as significant items the gain on sale of Esanda Fleetpartners of $195 million after tax(tax impact: $nil following the availability of capital losses being applied against the gain) and a negative impact of $24 million following the restatement ofdeferred tax assets to reflect the announced change in the New Zealand company tax rate which takes effect from 1 October 2008. ANZ excludes significant items
to eliminate the distorting effect of one-off transactions on the results of its core business (refer page 26)
The Group enters into economic hedges to manage its interest rate and foreign exchange risk. In 2008 ANZ has classified a gain of $243 million after tax (2007full year: $69 million; Sep 2008 half: $176 million; Mar 2008 half: $67 million) relating to economic hedging as a non-core item (tax impact $107 million (2007 fullyear: $31 million; Sep 2008 half: $78 million; March 2008 half: $29 million)). Included in this non-core amount is market volatility relating to approved classes ofderivatives not designated in accounting hedge relationships but that are considered to be economic hedges, volatility arising from use of the fair value option, andineffectiveness from designated accounting hedges. In addition, ANZ has classified a mark-to-market loss after tax of $26 million (2007 full year: $16 million gain;
Sep 2008 half: $16 million loss; Mar 2008 half: $10 million loss) relating to revenue hedges (NZD and USD) that under the transitional provision of AASB 139(AASB 2005-1) no longer qualify for hedge accounting from 1 October 2006 (tax impact $13 million credit (2007 full year: $7 million expense; Sep 2008 half:$9 million credit; Mar 2008 half: $4 million credit)). ANZ excludes volatility associated with fair value movements on these transactions to provide a better
indication of the core business performance (refer page 27)

2.

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

3.

2008 numbers calculated using Basel II methodology; prior period numbers reflect Basel I methodology

4.

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

5.

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

65This page has been left blank intentionally66

Australia and New Zealand Banking Group Limited

CONDENSED CONSOLIDATED FINANCIAL INFORMATION AND OTHER DISCLOSURES

Full year ended
30 September 2008

67

CONDENSED CONSOLIDATED FINANCIAL INFORMATION – TABLE OF CONTENTSCONTENTSPAGE

Condensed Consolidated Income Statement69

Condensed Consolidated Balance Sheet70

Condensed Consolidated Statement of Recognised Income and Expense

71

Condensed Consolidated Cash Flow Statement72

Notes to Condensed Financial information

73

1.

Significant accounting policies

73

2.

Income82

3.

Operating expenses

83

4.

Income tax expense

84

5.

Dividends

85

6.

Earnings per share

86

7.

Net loans and advances

878.

Impaired financial assets

88

9.

Provision for credit impairment

89

10. Deposits and other borrowings

90

11. Loan capital90

12. Share capital91

13. Shareholders’ equity

91

14. Contingent liabilities and contingent assets

93

15. Note to the Cash Flow Statement96

16. Changes in composition of the Group97

17. Associates, joint venture entities and investments

97

18. Exchange rates

97

19. Significant events since balance date98

Appendix 4E Statement

99

68CONDENSED CONSOLIDATED INCOME STATEMENT

Australia and New Zealand Banking Group Limited

Total income

Note

Half
year
Sep 08
$M

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

2

18,943

17,970

Full
year
Sep 08$M

5%36,913

Full
Movt
year
Sep 08
Sep 07 v. Sep 07$M%
30,24822%

Interest income

16,992

15,612

9%32,604

26,21024%

Interest expense(12,922)(11,832)

9% (24,754)(18,908)31%

Net interest income

2

4,070

3,780

8%

7,850

7,302

8%

Other operating income

2

1,809

2,139

-15%

3,948

3,779

4%

58

85

-32%

143

172

-17%

Share of joint venture profit from ING Australia and
ING New ZealandShare of associates' profit
Operating income
Operating expenses

3

Profit before credit impairment and income tax
Provision for credit impairment

9

Profit before income tax
Income tax expense

4

84

134

-37%

218

87

large

6,021

6,138

-2%

12,15911,3407%(2,995)(2,701)

11%(5,696)(4,953)

15%

3,026

3,437

-12%

6,463

6,387

1%

(1,267)

(681)

86%

(1,948)

(522)

large

1,759

2,756

-36%

4,515

5,865

-23%

(398)

(790)

-50%

(1,188)(1,678)

-29%

1,361

1,966

-31%

3,327

4,187

-21%

Profit attributable to minority interest

5

3

67%

8

7

14%

Profit attributable
to shareholders of the Company

1,356

1,963

-31%

3,319

4,180

-21%

Profit for the period
Comprising:

Earnings per ordinary share (cents)
Basic

6

68.3

102.4

-33%

170.4

224.1

-24%

Diluted

6

65.9

98.6

-33%

162.2

218.3

-26%

Dividend per ordinary share (cents)

5

74.0

62.0

136

136

0%

The notes appearing on pages 73 to 98 form an integral part of these financial statements

69

CONDENSED CONSOLIDATED BALANCE SHEET

Australia and New Zealand Banking Group Limited

AssetsLiquid assets

Note

As at

As at
Sep 08Mar 08$M
25,030$M
17,803

5

As at

Movt
Movt
Sep 08
Sep 08v. Mar 08 v. Sep 07$M%%
16,98741%
47%

Sep 075

Due from other financial institutions

9,862

11,850

8,040

-17%

1

15,177

14,87015,1672%

0%36,941

29,217

22,20426%

66%

Trading securities

Derivative financial instruments
Current tax assets
Available-for-sale assets
Net loans and advances

7

Customers' liability for acceptances
Shares in associates and joint venture entities
Deferred tax assets
2

Goodwill and other intangible assets
Other assets

3

Premises and equipment
Total assets

23%

809

290

160

large

large

17,48016,33314,006

7%

25%

335,187

318,010

288,8795%

16%

15,29715,756

14,536

-3%

5%

4,375

3,869

3,430

13%

28%
large

455

203

113

large

3,741

3,716

3,677

1%

2%

5,078

5,011

4,081

1%

24%

1,592

1,427

1,493

12%

7%

471,024

438,355

392,7737%

20%

20,092

19,134

19,1165%

5%Liabilities
Due to other financial institutions

283,966

264,996

233,743

7%

21%

Derivative financial instruments

31,927

27,831

24,18015%

32%

Liability for acceptances

15,29715,756

14,536

-3%

5%

61

61

468

0%

-87%
83%

Deposits and other borrowings

10

Current tax liabilities
Deferred tax liabilities
Payables and other liabilities
Provisions
Bonds and notes
Loan capital

4

11

Total liabilities
Net assets

247

259

135

-5%

10,076

8,917

10,667

13%

-6%

1,217

957

1,021

27%

19%

67,32363,54954,0756%

24%

14,266

12,931

12,78410%

12%444,472

414,391

370,7257%

20%

26,552

23,96422,048

11%

20%
41%

Shareholders' equity
Ordinary share capital

12,13

12,58910,381

8,946

21%

Preference share capital

12,13

871

871

871

0%

0%

Reserves

13

(742)

(1,012)

(889)

-27%

-17%

Retained earnings

13

13,772

13,67313,082

1%

5%

26,49023,91322,010

11%

20%

62

51

38

22%

63%

26,552

23,96422,04811%

20%

Share capital and reserves attributable toshareholders of the Company
Minority interest
Total equity
1.

Includes bills held $3,736 million (Mar 2008:$2,621 million; Sep 2007: $2,305 million)

2.

Excludes notional goodwill in equity accounted entities

3.

Includes interest revenue receivable $1,819 million (Mar 2008: $1,700 million; Sep 2007: $1,571 million)

4.

Includes $4,071 million (Mar 2008: $3,182 million; Sep 2007: $3,281 million) hybrid loan capital that qualifies for Tier 1 capital as defined by APRA

5.

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

The notes appearing on pages 73 to 98 form an integral part of these financial statements

70

CONDENSED CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE

Australia and New Zealand Banking Group Limited
Half
year
Sep 08
$M

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

Full
year
Sep 08
$M

Full
Movt
year
Sep 08
Sep 07 v. Sep 07$M%

1

Items recognised directly in equity
Currency translation adjustments

Exchange differences taken to equity

319

74

large

393

(563)

large

(116)

(189)

-39%

(305)

109

large

65

(5)

large

60

(14)

large

60

-

n/a

60

-

n/a

Valuation gain (loss) taken to equity

(25)

(14)

79%

(39)

74

large

Transferred to income statement for the period

(41)

6

large

(35)

(7)

large

Actuarial gain (loss) on defined benefit plans

(74)

(5)

large

(79)

77

large

Adjustment on step acquisition of associate

1

-

n/a

1

-

n/a

Available-for-sale assets
Valuation gain (loss) taken to equity
Cumulative (gain) loss transferred to the income
statement
Transfer on step acquisition of associate
Cash flow hedges

Income/(expense) recognised directly in equity

189

(133)

large

56

(324)

large

Profit for the period

1,361

1,966

-31%

3,327

4,187

-21%

Total recognised income and expense for the period

1,550

1,833

-15%

3,383

3,863

-12%

5

3

67%

8

7

14%

1,545

1,830

-16%

3,375

3,856

-12%

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

These items are disclosed net of tax

The notes appearing on pages 73 to 98 form an integral part of these financial statements

71

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

Australia and New Zealand Banking Group Limited
Half
Half
Full
Full
year
year
year
year
Sep 08Mar 08
Sep 08
Sep 07
Inflows
Inflows
Inflows
Inflows(Outflows) (Outflows) (Outflows) (Outflows)
Note
$M
$M
$M
$M
Cash flows from operating activities
Interest received
Dividends received
Fee income received
Other income received
Interest paid
Personnel expenses paid
Premises expenses paid
Other operating expenses paid
Net cash paid from settlement of derivatives
Income taxes paid
Australia
Overseas
Goods and Services Tax paid
(Increase)/decrease in operating assets:
Liquid assets - greater than three months
Due from other financial institutions - greater than three months
Trading securities
Regulatory deposits
Loans and advances
Increase/(decrease) in operating liabilities
Deposits and other borrowings
Due to other financial institutions
Payables and other liabilities
Net cash provided by/(used in) operating activities
Cash flows from investing activities
Net decrease/(increase)
Available-for-sale assets
Purchases
Proceeds from sale or maturity
Controlled entities and associates
Purchased (net of cash acquired)Proceeds from sale (net of cash disposed)
Premises and equipment
Purchases
Proceeds from sale
Other assets
Net cash provided by/(used in) investing activities
Cash flows from financing activities
Net (decrease)/increase
Bonds and notes
Issue proceeds
Redemptions
Loan capital
Issue proceeds
Redemptions
Net dividends paid
Share capital issues
Net cash provided by financing activities
Net cash provided by/(used in) operating activities
Net cash provided by/(used in) investing activities
Net cash provided by financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Foreign currency translation
Cash and cash equivalents at end of period
1.

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

The notes appearing on pages 73 to 98 form an integral part of these financial statements

72

15(a)

15(b)

16,785
19
1,345
497(12,367)(1,584)
(239)
(575)
1,377

15,404
65
1,351
195(11,819)(1,572)(226)(709)(3,005)32,18984
2,696
692(24,186)(3,156)(465)(1,284)(1,628)26,08899
2,327
136(18,444)(2,980)(418)(1,174)(2,154)

(971)
(149)
(7)

(1,035)(315)(3)(2,006)(464)(10)(1,381)(500)(11)(2,773)
74
(242)
(144)
(17,328)(1,919)
(813)
273
(88)
(29,527)(4,692)
(739)
31
(232)
(46,855)(1,642)(410)(5,913)(54)(36,943)

19,588
(221)
435
3,520

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

49,796976(1,189)(442)

33,9644,326
23(5,061)(13,270)
12,470(16,958)
14,444(30,228)
26,914(13,215)
9,701

(277)
30

(173)
98

(1,450)
444

(299)
20
(852)
(2,178)

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

(450)
128
(559)
98
(1,101)(5,198)(4,809)13,375(14,538)

15,825(6,553)

29,200(21,091)

16,443(7,622)

2,858
(979)
(23)
8
701
3,520
(2,178)701
2,043
21,158286
23,487

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

3,823(1,975)
(46)
67

3,013
(980)
(1,958)
132

9,978
(442)
(5,198)
9,978
4,338
19,07475
23,487

9,028(5,061)(4,809)9,028(842)
20,344(428)
19,074

(409)
79
41

NOTES TO CONDENSED FINANCIAL INFORMATION

1.

Significant accounting policies(a)Basis of preparation
The information set out in the Condensed Consolidated Financial Information and Other Disclosures:#

should be read in conjunction with the ANZ Annual Report for the year ended 30 September 2008 whenreleased and any public announcements made by the Parent Entity and its controlled entities (the Group) for
the year ended 30 September 2008 in accordance with the continuous disclosure obligations under the
Corporations Act 2001 (as amended) and the ASX Listing Rules;#

summarises the key accounting policies that have been applied in preparing and presenting this financial
information, which are consistent with the policies applied in preparing and presenting the financial report of
the Group for the year ended 30 September 2008;#

does not include all notes of the type normally included in the annual financial report;#

is presented in Australian dollars unless otherwise stated; and#was approved by the Board of Directors on 22 October, 2008.

i)Statement of compliance

The Condensed Consolidated Financial Information and Other Disclosures have been prepared inaccordance with the accounts provisions of the Banking Act 1959 (as amended), Australian AccountingStandards (AASs), AASB Interpretations, other authoritative pronouncements of the Australian AccountingStandards Board (AASB), and the Corporations Act 2001.
ii)

Use of estimates and assumptions

The preparation of the financial information requires the use of management judgement, estimates andassumptions that affect reported amounts and the application of policies. The estimates and associatedassumptions are based on historical experience and various other factors that are believed to bereasonable. Actual results may differ from these estimates. Such estimates may require review in future
periods.
iii)

Basis of measurement

The financial information has been prepared in accordance with the historical cost basis except that thefollowing assets and liabilities are stated at their fair value: derivative financial instruments, including in
the case of fair value hedging the fair value of any applicable underlying exposure; assets treated asavailable-for-sale; financial instruments held for trading; assets and liabilities designated at fair value
through profit and loss, and defined benefit plan assets and liabilities.
iv)

Changes in accounting policy and early adoptions

There has been no material change in accounting policies or early adoption of AAS’s in the preparation orpresentation of the financial report.
This is the first financial year that AASB 7 Financial Instruments: Disclosures will be applied in the Group’s
full financial statements (not included in the Condensed Consolidated Financial Information). This standard
requires disclosures about the significance of financial instruments to the Group’s financial position andresult, and the nature and extent of credit, market and liquidity risks arising from financial instruments,
including how they are managed. This Standard has no impact on the recognition or measurement offinancial instruments, and therefore does not impact the Group’s financial position or results.
v)

Rounding

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

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

Principles of consolidation

The financial statements consolidate the financial statements of the Australia and New Zealand Banking
Group Limited (the Company) and all its subsidiaries where it is determined that there is a capacity tocontrol. Control means the power to govern, directly or indirectly, the financial and operating policies ofan entity so as to obtain benefits from its activities.

73

NOTES TO CONDENSED FINANCIAL INFORMATION (continued)

1.

Significant accounting policies, cont’d(a)Basis of preparation, cont’dvii)

Principles of consolidation, cont’d

In relation to special purpose entities, control is deemed to exist where:#in substance, the majority of the residual risks and rewards from their activities accrue to the Group; or#in substance, the Group controls decision making powers so as to obtain the majority of the risks andrewards from their activities.

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

Income recognitioni)Interest income

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

Fee and commission income

Fees and commissions received that are integral to the effective interest rate of a financial asset arerecognised using the effective interest method as summarised in note 1(b) i). For example, loan
commitment fees, together with related direct costs, are deferred and recognised as an adjustment to theeffective interest rate on a loan once drawn. Commitment fees to originate a loan which is unlikely to be
drawn down are recognised as fee income as the service is provided.
Fees and commissions that relate to the execution of a significant act (for example, advisory or
arrangement services, placement fees and underwriting fees) are recognised when the significant act has
been completed.
Fees charged for providing ongoing services (for example, maintaining and administering existing facilities)
are recognised as income over the period the service is provided.
(c)

Expense recognitioni)Interest expense

Interest expense on financial liabilities measured at amortised cost is recognised in the income statement
as it accrues using the effective interest method as described in note 1 (b) i).
ii)

Loan origination expenses

Certain loan origination expenses are an integral part of the effective interest rate of a financial asset
measured at amortised cost. These loan origination expenses include:#

fees and commissions payable to brokers in respect of originating lending business; and#other expenses of originating lending business, such as external legal costs and valuation fees, provided
these are direct and incremental costs related to the issue of a financial asset.

Such loan origination expenses are initially recognised as part of the cost of acquiring the financial asset
and amortised as part of the expected yield of the financial asset over its expected life using the effective
interest method.
iii)

Share-based compensation expense

The Group has various equity settled share-based compensation plans. These are described in the ANZ
Annual Report when released and largely comprise the Employee Share Acquisition Plan and the ANZ
Share Option Plan.
#

ANZ ordinary shares
The fair value of ANZ ordinary shares granted under the Employee Share Acquisition Plan is measured
at grant date, using the one-day volume weighted average market price of ANZ shares. The fair value
is expensed immediately when shares vest immediately or on a straight-line basis over the relevant
vesting period.

74

NOTES TO CONDENSED FINANCIAL INFORMATION (continued)

1.

Significant accounting policies, cont’d(c)Expense recognition, cont’d#

Share options
The fair value of share options is measured at grant date, using an option pricing model. The fair value
is expensed on a straight-line basis over the relevant vesting period. This is recognised as an
employee compensation expense with a corresponding increase in the share options reserve.
The option pricing model takes into account the exercise price of the option, the risk-free interest rate,
the expected volatility of ANZ’s ordinary share price and other factors. Market vesting conditions aretaken into account in estimating the fair value.

#

Performance Rights
A Performance Right is a right to acquire a share at nil cost to the employee, subject to satisfactorily
meeting time and performance hurdles. Upon exercise, each Performance Right entitles the holder toone ordinary share in ANZ. The fair value of Performance Rights is determined at grant date using an
option pricing model, taking into account market conditions. The fair value is expensed over the
relevant vesting period. This is recognised as an employee expense with a corresponding increase in
the share options reserve.

#

Other adjustments
Subsequent to the grant of an equity-based award, the amount recognised as an expense is adjusted
for vesting conditions other than market conditions so that, ultimately, the amount recognised as an
expense is based on the number of equity instruments that eventually vest.

(d)Income tax
i)Income tax expense

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

Current tax

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

Deferred tax

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

Offsetting

Current and deferred tax assets and liabilities are offset only to the extent that they relate to income taxes
imposed by the same taxation authority, there is a legal right and intention to settle on a net basis and it
is allowed under the tax law of the relevant jurisdiction.
75

NOTES TO CONDENSED FINANCIAL INFORMATION (continued)

1.

Significant accounting policies, cont’d(e)Assetsi)

Financial assets#

Financial assets and liabilities at fair value through profit or loss
Trading securities are financial instruments acquired principally for the purpose of selling in the
short term or which are a part of a portfolio which is managed for short term profit taking. Trading
securities are initially recognised and subsequently measured in the balance sheet at their fair value.
Derivatives that are neither financial guarantee contracts nor effective hedging instruments are carriedat fair value through profit or loss. In addition, certain financial assets and liabilities are designatedand measured at fair value through profit or loss where the following applies:- doing so eliminates or significantly reduces a measurement or recognition inconsistency that would
otherwise arise from measuring assets and liabilities, or recognising the gains or losses thereon, on
different bases;- a group of financial assets or financial liabilities or both is managed and its performance evaluatedon a fair value basis; or- the financial instrument contains an embedded derivative, unless the embedded derivative does not
significantly modify the cash flows or it is clear, with little or no analysis, that it would not be
separately recorded.
Changes in the fair value (gains or losses) of these financial instruments are recognised in the income
statement in the period in which they occur.

#

Derivative financial instruments
Derivative financial instruments are contracts whose value is derived from one or more underlying
price, index or other variables. They include swaps, forward rate agreements, futures, options andcombinations of these instruments. Derivative financial instruments are entered into for trading
purposes (including customer-related reasons), or for hedging purposes (where the derivative
instruments are used to hedge the Group’s exposures to interest rate risk, currency risk, price risk,
credit risk and other exposures relating to non-trading positions).
Derivatives are recognised initially at fair value with gains or losses from subsequent measurement at
fair value recognised in the income statement. Included in the determination of the fair value ofderivatives is a credit valuation adjustment (CVA). CVA reflects the credit worthiness of thecounterparty and is modelled using the counterparty’s credit spreads. The quantum of CVA is
influenced by the mark-to-market of the derivative trades and by movements in credit spreads.
Where the derivative is designated and is effective as a hedging instrument, the timing of therecognition of any resultant gain or loss in the income statement is dependent on the hedging
designation. These hedging designations and associated accounting are as follows:- Fair value hedge
Where the Group hedges the fair value of a recognised asset or liability or firm commitment,changes in the fair value of the derivative designated as a fair value hedge are recognised in theincome statement. Changes in the fair value of the hedged item attributable to the hedged risk arereflected in adjustments to the carrying value of the hedged items through the income statement.
Hedge accounting is discontinued when the hedge instrument expires or is sold, terminated,
exercised or no longer qualifies for hedge accounting. The resulting adjustment to the carrying
amount of the hedged item arising from the hedged risk is amortised to the income statement overthe period to maturity of the hedged item. If the hedged item is sold or repaid, the unamortised fairvalue adjustment is recognised immediately in the income statement.
- Cash flow hedge
The Group designates derivatives as cash flow hedges where the instrument hedges the variability incash flows of a recognised asset or liability, a foreign exchange component of a firm commitment or
a highly probable forecast transaction. The effective portion of changes in the fair value ofderivatives qualifying and designated as cash flow hedges is deferred to the hedging reserve whichforms part of shareholders’ equity. Any ineffective portion is recognised immediately in the income
statement. Amounts deferred in equity are recognised in the income statement in the period during
which the hedged forecast transactions take place.
When the hedge expires, is sold, terminated, exercised, or no longer qualifies for hedge accounting,the cumulative amount deferred in equity remains in the hedging reserve, and is subsequently
transferred to the income statement when the hedged item is recognised in the income statement.
When a forecast hedged transaction is no longer expected to occur, the amount deferred in equity isrecognised immediately in the income statement.

76

NOTES TO CONDENSED FINANCIAL INFORMATION (continued)

1.

Significant accounting policies, cont’d(e)Assets, cont’di)Financial assets, cont’d#

Derivative financial instruments, cont’d- Net investment hedge
Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges.
The gain or loss from remeasuring the fair value of the hedging instrument relating to the effective
portion of the hedge is deferred in the foreign currency translation reserve in equity and theineffective portion is recognised immediately in the income statement.
- Derivatives that do not qualify for hedge accounting
All gains and losses from changes in the fair value of derivatives that are not designated in a hedging
relationship but are entered into to manage the interest rate and foreign exchange risk of funding
instruments are recognised in the income statement. Under certain circumstances, the componentof the fair value change in the derivative which relates to current period realised and accrued
interest is included in net interest income. The remainder of the fair value movement is included inother income.
- Set-off arrangements
Fair value gains/losses arising from trading derivatives are not offset against fair value gains/losseson the balance sheet unless a legal right of set-off exists and there is an intention to settle net.
For contracts subject to master netting agreements that create a legal right of set-off for which only
the net revaluation amount is recognised in the income statement, net unrealised gains onderivatives are recognised as part of other assets and net unrealised losses are recognised as part ofother liabilities.

#

Available-for-sale financial assets
Available-for-sale assets comprise non-derivative financial assets which the Group designates asavailable-for-sale but which are not deemed to be held principally for trading purposes, and include
equity investments, certain loans and advances and quoted debt securities. They are initiallyrecognised at fair value plus transaction costs. Subsequent gains or losses arising from changes in fairvalue are included as a separate component of equity, in the ‘available-for-sale revaluation reserve’.
When the asset is sold, the cumulative gain or loss relating to the asset is transferred to the income
statement.
Where there is objective evidence of impairment of an available-for-sale asset, the cumulative loss
related to that asset is removed from equity and recognised in the income statement, as an
impairment expense for debt instruments or as non-interest income for equity instruments. If, in a
subsequent period, the amount of an impairment loss relating to an available-for-sale debt instrument
decreases and the decrease can be linked objectively to an event occurring after the impairment event,the loss is reversed through the income statement through the impairment expense line.
Purchases and sales of available-for-sale financial assets are recognised on trade date as with all
regular way assets, being the date on which the Group commits to purchase or sell the asset.

#

Net loans and advances
Net loans and advances are non-derivative financial assets with fixed or determinable payments thatare not quoted in an active market. They arise when the Group provides money to a debtor with nointention of trading the loans and advances. The loans and advances are initially recognised at fairvalue plus transaction costs that are directly attributable to the issue of the loan or advance. They aresubsequently measured at amortised cost using the effective interest rate method (refer note 1 (b) i)),
unless specifically designated on initial recognition at fair value through profit or loss.
All loans are graded according to the level of credit risk.
Net loans and advances includes direct finance provided to customers such as bank overdrafts, credit
cards, term loans, finance lease receivables and commercial bills.

#

Impairment of loans and advances
Loans and advances are reviewed at least each reporting date for impairment.
Credit impairment provisions are raised for exposures that are known to be impaired. Exposures are
impaired and impairment losses are recorded if, and only if, there is objective evidence of impairment
as a result of one or more loss events that occurred after the initial recognition of the loan and prior to
the reporting date, and that loss event, or events, has had an impact on the estimated future cash
flows of the individual loan or the collective portfolio of loans that can be reliably estimated.
Impairment is assessed for assets that are individually significant (or on a portfolio basis for smallvalue loans), and then on a collective basis for those exposures not individually known to be impaired.
77

NOTES TO CONDENSED FINANCIAL INFORMATION (continued)

1.

Significant accounting policies, cont’d(e)Assets, cont’di)Financial assets, cont’d#

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

ii)

Non-financial assets#

Goodwill
Goodwill represents the excess of the purchase consideration over the fair value of the identifiable net
assets of a controlled entity at the date of gaining control. Goodwill is recognised as an asset and notamortised, but assessed for impairment at least annually or more frequently if there is an indicationthat the goodwill may be impaired. This involves using the discounted cash flow (DCF) or thecapitalisation of earnings methodology (CEM) to determine the expected future benefits of the cashgenerating units. Where the assessment results in the goodwill balance exceeding the value of
expected future benefits, the difference is charged to the income statement. Any impairment of
goodwill may not be subsequently reversed.

#

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

#

Premises and equipment
Premises and equipment are carried at cost less accumulated depreciation and impairment.
Borrowing costs incurred for the construction of qualifying assets (principally the new office building inDocklands, Melbourne Australia) are capitalised during the period of time that is required to complete
and prepare the asset for its intended use. The calculation of borrowing costs is based upon theGroup’s internal cost of capital.
Assets other than freehold land are depreciated at rates based upon their expected useful lives to theGroup, using the straight-line method.
78

NOTES TO CONDENSED FINANCIAL INFORMATION (continued)

1.

Significant accounting policies, cont’d(e)Assets, cont’dii)

Non-financial assets, cont’d#Premises and equipment, cont’dAt each reporting date, the carrying amounts of premises and equipment are reviewed for impairment.
If any such indication exists, the recoverable amount of the assets are estimated and compared against
the existing carrying value. Where the existing carrying value exceeds the recoverable amount, thedifference is charged to the income statement. If it is not possible to estimate the recoverable amountof an individual asset, the Group estimates the recoverable amount of the cash generating unit towhich the asset belongs.
A previously recognised impairment loss is reversed if there has been a change in the estimates used
to determine the recoverable amount.

(f)Liabilities
i)Financial Liabilities#

Deposits and other borrowings
Deposits and other borrowings include certificates of deposit, interest bearing deposits, debentures andother related interest bearing financial instruments. They are measured at amortised cost. Theinterest expense is recognised using the effective interest method as explained in note 1 (b) i).

#

Acceptances
Commercial bills accepted but not held in portfolio are accounted for as a liability with a corresponding
contra asset. The liability is disclosed as liability for acceptances, and the asset is disclosed as
Customer’s liability for acceptances.
The Group’s own acceptances discounted are held as part of the trading securities portfolio.

#

Bonds, notes and loan capital
Bonds, notes and loan capital are accounted for in the same way as deposits and other borrowings,
except for those bonds and notes which are stated designated at fair value through profit or loss on
initial recognition, with fair value movements recorded in the income statement.

#

Financial guarantee contracts
Financial guarantee contracts are contracts that require the issuer to make specified payments toreimburse the holder for a loss it incurs because a specified debtor fails to make payments when due.
Financial guarantees are issued in the ordinary course of business, consisting of letters of credit,
guarantees and acceptances. Financial guarantees are initially recognised in the financial statements
at fair value on the date the guarantee was given; typically this is the premium received. Subsequent
to initial recognition, the Group’s liabilities under such guarantees are measured at the higher of theiramortised amount and the best estimate of the expenditure required to settle any financial obligation
arising at the balance sheet date. These estimates are determined based on experience of similartransactions and history of past losses.

ii)

Non-financial Liabilities#

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

79

NOTES TO CONDENSED FINANCIAL INFORMATION (continued)

1.

Significant accounting policies, cont’d(f)Liabilities, cont’dii)

Non-financial Liabilities, cont’d#

Employee benefits, cont’d- Defined benefit superannuation schemes
The Group operates a small number of defined benefit schemes. The liability and expense related toproviding benefits to employees under each defined benefit scheme are calculated by independentactuaries.
A defined benefit liability is recognised to the extent that the present value of the defined benefit
obligation of each scheme, calculated using the Projected Unit Credit Method, is greater than the fairvalue of each scheme’s assets. Where this calculation results in a benefit to the Group, a defined
benefit asset is recognised, which is capped at the recoverable amount. In each subsequent
reporting period, ongoing movements in the defined benefit liability or asset carrying value is treatedas follows:· the net movement relating to the current period’s service cost, interest cost, expected return on
scheme assets, past service costs and other costs (such as the effects of any curtailments andsettlements) is recognised as an employee expense in the income statement;· movements relating to actuarial gains and losses are recognised directly in retained earnings; and· contributions incurred are recognised directly against the net defined benefit position.

#

Provisions
The Group recognises provisions when there is a present obligation, the future sacrifice of economic
benefits is probable, and the amount of the provision can be measured reliably.
The amount recognised is the best estimate of the consideration required to settle the present
obligation at reporting date, taking into account the risks and uncertainties surrounding the obligation
at reporting date. Where a provision is measured using the cash flows estimated to settle the present
obligation, its carrying amount is the present value of those cash flows.

(g)

Equityi)

Ordinary shares

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

Treasury shares

Shares in the Company which are purchased on-market by the ANZ Employee Share Acquisition Plan orissued by the Company to the ANZ Employee Share Acquisition Plan are classified as treasury shares (tothe extent that they relate to unvested employee share-based awards) and deducted from share capital.
iii)

Reserves#

Foreign currency translation reserve
Exchange differences arising on translation of the assets and liabilities of all Group entities are reflectedin the foreign currency translation reserve. Any offsetting gains or losses on hedging these balances,
together with any tax effect, are also reflected in this reserve.

#

Available-for-sale revaluation reserve
This reserve includes changes in the fair value of available-for-sale financial assets, net of tax. Thesechanges are transferred to the income statement in non-interest income when the asset isderecognised. Where the asset is impaired, the changes are transferred to impairment expense line in
the Income Statement for debt instruments and in the case of equity instruments to non-interest
income.

#Cash flow hedging reserve
This reserve includes the fair value gains and losses associated with the effective portion of designatedcash flow hedging instruments.

#

Share-based payment reserves
Share-based payment reserves include the share options reserve and other equity reserves which ariseon the recognition of share-based compensation expense (see note 1 (c) iii)).

80

NOTES TO CONDENSED FINANCIAL INFORMATION (continued)

1.

Significant accounting policies, cont’d(h)Presentationi)

Offsetting of income and expenses

Income and expenses are not offset unless required or permitted by an accounting standard. At the Grouplevel, this generally arises in the following circumstances:ii)#

Where transaction costs form an integral part of the effective interest rate of a financial instrument
which is measured at amortised cost, these are offset against the interest income generated by thefinancial instrument;#

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

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

Where amounts are collected on behalf of third parties, where the Group is acting as an agent only; or#Where costs are incurred on behalf of customers from whom the Group is reimbursed.

Offsetting assets and liabilities

Assets and liabilities are offset and the net amount reported in the balance sheet only where there is:(i)#a current enforceable legal right to offset the asset and liability; and#an intention to settle on a net basis, or to realise the asset and settle the liability simultaneously.

Other
i)

Contingent liabilities

A contingent liability is a liability of sufficient uncertainty that it does not qualify for recognition as aprovision.
Further disclosure is made in note 14 where the above requirements are not met, but there is a possible
obligation that is higher than remote. Specific details of the nature of the contingent liability are provided
and, where practicable, an estimate of its financial effect. Alternatively, where no disclosure is made of its
financial effect because it is not practicable to do so, a statement to that effect.

81

NOTES TO CONDENSED FINANCIAL INFORMATION (continued)

2.

IncomeHalfyear
Sep 08
$M

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

Full
year
Sep 08
$M

Full
Movt
year
Sep 08
Sep 07 v. Sep 07$M%

Interest income

16,992

15,612

9%32,604

26,21024%

Interest expense(12,922)(11,832)

9% (24,754)(18,908)

31%

4,070

3,780

8%

7,850

7,302

8%

310

285

9%

595

491

21%

Net interest incomei) Fee and commission income
Lending fees
Non-lending fees and commissions

1,161

1,156

0%

2,317

2,126

9%

Total fee and commission income

1,471

1,441

2%

2,912

2,617

11%

1

Fee and commission expense

(124)

(132)

-6%

(256)

(237)

8%

Net fee and commission income

1,347

1,309

3%

2,656

2,380

12%

383

325

18%

708

518

37%

9

(9)

large

-

(47)

-100%

ii) Other income2

Foreign exchange earnings

Net gains/(losses) from trading securities
Net gains from trading derivatives

86

258

-67%

344

405

-15%

(422)

(299)

41%

(721)

(45)

large

252

96

large

348

100

large

31

47

-34%

78

55

42%

Gain on Visa shares

-

281

-100%

281

-

n/a

Gain from the sale of Fleetpartners

-

-

n/a

-

195

-100%

Credit risk on derivatives
Movement on financial instruments measured at fair3

value through profit & loss
Brokerage income
4

Profit on sale of premises
Stadium Australia income

5

22

35

-37%

57

38

50%

-

19

-100%

19

38

-50%

Other

101

77

31%

178

142

25%

Total other income

462

830

-44%

1,292

1,399

-8%

1,809

2,139

-15%

3,948

3,779

4%

142
18,943219
17,970-35%

Total income

361
36,913259
30,24822%

Profit before income tax as a % of total income

9.29%

15.34%

12.23%

19.39%

Total other operating income
Share of joint venture and associates' profit(refer page 97)

6

5%

39%

1.

Includes interchange fees paid

2.

2008 comprises core foreign exchange earnings $745 million and $37 million non-core NZD and USD revenue hedge volatility loss (2007 full year:$495 million core and $23 million non-core profit; Sep 2008 half: $406 million core and $23 million non-core loss; Mar 2008 half: $339 million core and$14 million non-core loss)

3.

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

4.

Comprises gain arising from the allocation of shares in Visa Inc. measured at fair value. In addition, the Group has recognised a $72 million gain through its
associate, Cards NZ Limited, on that associate’s allocation of Visa Inc. shares (see Note 6 below), bringing the total benefit to the Group on the Visa Inc.
share allocation in the half year to $353 million

5.

Deconsolidated after March 2008

6.

March 2008 half includes a $72 million equity accounted gain arising from the allocation of shares in Visa Inc. through the Group’s associate, Cards NZ
Limited, on Visa shares in New Zealand82

NOTES TO CONDENSED FINANCIAL INFORMATION (continued)

3.

Operating expenses
Half
year
Sep 08
$M

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

Full
year
Sep 08
$M

Full
Movt
year
Sep 08
Sep 07 v. Sep 07$M%

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

134

122

10%

256

236

8%

1,035

1,032

0%

2,067

1,892

9%
-55%

3

2

50%

5

11

Superannuation costs - defined contribution plans

108

100

8%

208

180

16%

Equity-settled share-based payments

40

44

-9%

84

62

35%
13%

Temporary staff

84

64

31%

148

131

Other

243

250

-3%

493

455

8%

1,647

1,614

2%

3,261

2,967

10%

Total personnel expenses
Premises
Depreciation and amortisation

23

26

-12%

49

44

11%

Rent

160

145

10%

305

254

20%

Utilities and other outgoings

65

71

-8%

136

138

-1%

Other

14

10

40%

24

26

-8%

262

252

4%

514

462

11%

Computer contractors

38

35

9%

73

50

46%

Data communications

35

34

3%

69

71

-3%

Depreciation and amortisation

105

103

2%

208

208

0%

Rentals and repairs

41

40

3%

81

73

11%

Software purchased

65

66

-2%

131

134

-2%

Software written-off

-

2

-100%

2

16

-88%

Total premises expenses
Computer

Other
Total computer expenses

26

19

37%

45

41

10%

310

299

4%

609

593

3%

Other
Advertising and public relations

93

89

4%

182

157

16%

Audit fees

5

4

25%

9

10

-10%

Depreciation of furniture and equipment

34

32

6%

66

57

16%

Impairment of intangible - Origin Australia

-

34

-100%

34

-

n/a

Freight and cartage

26

28

-7%

54

53

2%

Non-lending losses, frauds and forgeries

48

24

100%

72

43

67%

Postage and stationery

62

60

3%

122

115

6%
42%

Professional fees

118

67

76%

185

130

Telephone

30

28

7%

58

55

5%

Travel

89

80

11%

169

152

11%
32%

101

79

28%

180

136

Total other expenses

Other

606

525

15%

1,131

908

25%

Restructuring
1
Operating expenses

170

11

large

181

23

large

2,995

2,701

11%

5,696

4,953

15%

1.

Includes organisational transformation costs $218 million (2007 full year: $nil; Sep 2008 half: $218 million; Mar 2008 half: $nil)83

NOTES TO CONDENSED FINANCIAL INFORMATION (continued)

4.

Income tax expense

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

Half
year
Sep 08
$M

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

Full
year
Sep 08
$M

Full
Movt
year
Sep 08
Sep 07 v. Sep 07$M%Profit before income tax

1,759

2,756

-36%

4,515

5,865

-23%

528

827

-36%

1,355

1,760

-23%

Overseas tax rate differential

5

18

-72%

23

30

-23%

Rebateable and non-assessable dividends

(5)

(4)

25%

(9)

(10)

-10%

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

-

-

n/a

-

(3)

-100%

Profit from associates and joint venture entities

Other non-assessable income

(48)

(64)

-25%

(112)

(75)

49%

Recognition of previously unrecognised tax losses
on sale of Esanda Fleetpartners

-

-

n/a

-

(54)

-100%

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

7

(8)

large

(1)

24

large

(82)

(8)

large

(90)

-

n/a

Structured transaction
1

(8)

29

large

21

8

large

397

790

-50%

1,187

1,680

-29%

Income tax (over) provided in previous years

1

-

n/a

1

(2)

large

Total income tax expense charged in theincome statement

398

790

-50%

1,188

1,678

-29%

Australia

210

523

-60%

733

1,073

-32%

Overseas

188

267

-30%

455

605

-25%

398

790

-50%

1,188

1,678

-29%

22.6%

28.7%

26.3%

28.6%

Other

Effective Tax Rate - Group1.

The March 2008 half includes $21 million of Australian tax on the equity accounted profits of Cards NZ Limited relating to the gain on the allocation of sharesin Visa Inc. which was not taxable in New Zealand84

NOTES TO CONDENSED FINANCIAL INFORMATION (continued)

5.

Dividends
Ordinary Shares
Half
year
Sep 08

Half
Movt
year
Sep 08Mar 08 v. Mar 08

Full
year
Sep 08

Full
Movt
year
Sep 08
Sep 07 v. Sep 07

Dividend per ordinary share (cents)
Interim (fully franked)

n/a

62

n/a

62

62

0%

Final (fully franked)

74

n/a

n/a

74

74

0%

136

136

0%

Total
Ordinary share dividendInterim dividend
Final dividend
Bonus option plan adjustment
Total

1
2

Ordinary share dividend payout ratio (%)

$M

$M

1,192

-

%
n/a

$M

$M

%

1,192

1,144

4%

-

1,381

n/a

1,381

1,267

9%

(30)

(37)

-19%

(67)

(48)

40%

1,162

1,344

-14%

2,506

2,363

6%

113.4%

61.4%

82.6%

60.9%

1.

Dividends recorded when paid

2.

Dividend payout ratio calculated using proposed final dividend of $1,511 million not included in the above table. The proposed final dividend of$1,511 million is based on the forecast number of ordinary shares on issue at the dividend record date. Dividend payout ratios for the March 2008 half year
and September 2007 half year calculated using $1,192 million and $1,381 million respectively

A discount of 1.5% will be applied when calculating the “Acquisition Price” used in determining the number of shares tobe provided under ANZ’s Dividend Reinvestment Plan (DRP) and Bonus Option Plan (BOP) terms and conditions. This
discount will apply in respect of the 2008 final dividend and will continue to apply to future dividends until such time as
ANZ announces any removal or amendment of the discount. For the 2008 final dividend only, the “Pricing Period” under
the DRP and BOP terms and conditions will be the fifteen trading days commencing on and including 14 November 2008.
For the 2008 final dividend, it is intended that the issue of a specified number of shares in respect of the balance of the2008 final dividend which has not been reinvested by shareholders under the DRP or foregone by shareholders under the
BOP will be underwritten by UBS AG, Australia Branch.
Preference Shares

Half
year
Sep 08
$M

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

Full
year
Sep 08
$M

Full
Movt
year
Sep 08
Sep 07 v. Sep 07$M%

Preference dividend
Euro Trust Securities

23

23

0%

46

37

24%

€ 27.51€ 27.80-1%€ 55.31€ 45.07

23%

Dividend per preference share
Euro Trust Securities

85

NOTES TO CONDENSED FINANCIAL INFORMATION (continued)

6.

Earnings per share
Half
year
Sep 08
Number of fully paid ordinary shares on issue (M)2,040.7

Basic
Profit attributable to shareholders of the Company ($M)

Half
Movt
Full
year
Sep 08year
Mar 08 v. Mar 08
Sep 08%
1,921.4
6% 2,040.7

Full
Movt
year
Sep 08
Sep 07 v. Sep 07%
1,864.7
9%

1,356

1,963

-31%

3,319

4,180

(23)

(23)

0%

(46)

(37)

24%

Profit excluding preference share dividends ($M)

1,333

1,940

-31%

3,273

4,143

-21%

Weighted average number of ordinary shares (M)

3% 1,921.1

Less Preference share dividends ($M)-21%

1,950.7

1,895.1

1,848.5

4%

Basic earnings per share (cents)

68.3

102.4

-33%

170.4

224.1

-24%

DilutedProfit excluding preference share dividends ($M)

1,333

1,940

-31%

3,273

4,143

-21%

21

20

5%

41

44

-7%

27

28

-4%

55

50

10%

30

33

-9%

63

21

large

-

-

n/a

-

-

n/a

1

-

n/a

1

-

n/a

1,412

2,021

-30%

3,433

4,258

-19%

1,950.7

1,895.1

3% 1,921.1

1,848.5

4%

5.2

10.8

-52%

6.7

15.2

-56%

73.4

53.3

38%

73.4

42.0

75%

55.4

45.5

22%

57.9

34.5

68%

56.9

45.8

24%

56.9

10.7

large

0.3

-

n/a

0.2

-

n/a

0.7

-

n/a

0.4

-

n/a

2,142.6

2,050.5

4% 2,116.6

1,950.9

8%

65.9

98.6

218.3

-26%

1

Interest on US Trust securities ($M)
2Interest on ANZ StEPS ($M)
3Interest on UK Hybrid securities ($M)
4Interest on Convertible Preference Shares ($M)
5Interest on Convertible Perpetual Notes ($M)
Profit attributable to shareholders of the Company
excluding interest on US Trust securities, ANZ StEPS,
UK Hybrid, Convertible Preference Shares andConvertible Perpetual Notes ($M)
Weighted average number of shares on issue (M)Weighted average number of convertible options (M)Weighted average number of convertible US Trust1securities at current market price (M)2Weighted average number of convertible ANZ StEPS
securities (M)3Weighted average number of convertible UK Hybrid
securities (M)4Weighted average number of convertible preference shares(M)
5

Weighted average number of convertible perpetual notes(M)

Adjusted weighted average number of shares - diluted (M)Diluted earnings per share (cents)

-33%

162.2

1.

The US Stapled Trust securities issued on 27 November 2003 mandatorily convert to ordinary shares in 2053 unless redeemed or bought back prior to that
date. The US Stapled Trust Security issue can be de-stapled and the investor left with coupon paying preference shares at ANZ’s discretion at any time, orat the investor’s discretion under certain circumstances. AASB 133 requires that potential ordinary shares for which conversion to ordinary share capital ismandatory must be included in the calculation of diluted EPS. The inclusion of this issue in EPS increased the diluted number of shares by 73.4 million

2.

ANZ StEPS (issued on 23 September 2003) were converted to ordinary shares on 15 September 2008. The inclusion of this issue in EPS, for the period toconversion, increased the diluted number of shares by 57.9 million for the full year ended 30 September 2008 and 55.4 million for the half year ended
30 September 2008

3.

UK Hybrid (issued on 15 June 2007) is a GBP denominated stapled security that mandatorily converts to ordinary shares on the fifth anniversary of the issue
date at the market price of ANZ ordinary shares less 5% (subject to certain conversion conditions). AASB 133 requires that potential ordinary shares forwhich conversion to ordinary share capital is mandatory must be included in the calculation of diluted EPS. The inclusion of this issue in EPS increased the
diluted number of shares by 56.9 million

4.

Convertible preference shares (issued on 30 September 2008) mandatorily convert to ordinary shares on the fifth anniversary of the issue date at themarket price of ANZ ordinary shares less 2.5% (subject to certain conversion conditions). AASB 133 requires that potential ordinary shares for whichconversion to ordinary share capital is mandatory must be included in the calculation of diluted EPS. The inclusion of this issue in EPS increased the diluted
number of shares by 0.2 million for the full year ended 30 September 2008 and 0.3 million for the half year ended 30 September 2008

5.

Convertible perpetual notes (issued on 26 September 2008) may be converted to a number of ordinary shares calculated at the market price of ANZ
ordinary shares, plus a conversion premium of 1% if the instruments are not redeemed by ANZ. The inclusion of this issue in EPS increased the diluted
number of shares by 0.4 million for the year ended 30 September 2008 and by 0.7 million for the half year ended 30 September 2008

86

NOTES TO CONDENSED FINANCIAL INFORMATION (continued)

7.

Net loans and advances
Half
year
Sep 08
$M

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

Full
year
Sep 08
$M

Full
Movt
year
Sep 08
Sep 07 v. Sep 07$M%

Australia
Overdrafts

6,790

7,026

-3%

6,790

7,464

-9%

Credit card outstandings

7,412

7,061

5%

7,412

6,641

12%

Term loans - housing

128,809

120,8077% 128,809

113,994

13%

Term loans - non-housing

79,14974,465

6%

64,26023%-2%79,149Lease finance

1,772

1,756

1%

1,772

1,813

Hire purchase

10,731

10,361

4%

10,731

9,824

9%

Other

2,234

1,059

large

2,234

852

large

236,897

222,535

6% 236,897

204,848

16%

1,636

1,938

-16%

1,728

-5%
5%

New Zealand
Overdrafts

1,636

Credit card outstandings

1,201

1,222

-2%

1,201

1,149

Term loans - housing

45,30745,4010%45,30742,3507%

Term loans - non-housing

33,62831,2248%

33,62829,672

13%-3%

Lease finance

208

215

-3%

208

215

Hire purchase

443

466

-5%

443

431

3%

Other

363

379

-4%

363

447

-19%

82,78680,8452%

82,78675,9929%

Overseas Markets
Overdrafts

489

593

-18%

489

532

-8%

Credit card outstandings

279

212

32%

279

201

39%

Term loans - housing

1,710

1,242

38%

1,710

1,040

64%

Term loans - non-housing

17,97816,454

9%

17,9789,699

85%

Lease finance

254

193

32%

254

186

37%

Other

290

495

-41%

290

350

-17%
75%

Total gross loans and advances
Less provisions for credit impairment (refer note 9)Less income yet to mature1

Add capitalised brokerage/mortgage origination fees
Total net loans and advances1.

21,00019,1899%21,00012,008340,683

322,569

6% 340,683

292,848

16%(3,496)(2,656)32%(3,496)(2,262)55%(2,600)(2,494)4%(2,600)(2,277)

14%

600

591

2%

600

570

5%

(5,496)(4,559)21%(5,496)(3,969)38%

335,187

318,010

5% 335,187

288,879

16%

Includes fees and expenses capitalised and amortised using the effective interest method of $351 million (Mar 2008: $340 million; Sep 2007: $306 million)

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

New Zealand

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

Full
year
Sep 08
NZD M

Full
Movt
year
Sep 08
Sep 07 v. Sep 07
NZD M%

Overdrafts

1,953

2,238

-13%

1,953

2,012

Credit card outstandings

1,434

1,412

2%

1,434

1,338

-3%
7%

Term loans - housing

54,07052,4383%

54,07049,308

10%

Term loans - non-housing

40,131

36,063

11%

40,131

34,548

16%

Lease finance

248

248

0%

248

250

-1%

Hire purchase

529

538

-2%

529

502

5%

Other

431

439

-2%

431

520

-17%

98,796

93,376

6%

98,79688,47812%

87

NOTES TO CONDENSED FINANCIAL INFORMATION (continued)

8.

Impaired financial assets

Summary of impaired financial assets
Non-performing loans
1

Restructured items

Non-performing commitments and contingencies
Gross impaired financial assets

As at
Sep 08As at
Mar 08

$M
1,750

$M
1,048

As at
Sep 07Movt
Movt
Sep 08
Sep 08v. Mar 08 v. Sep 07
$M
%
%
666
67%
large

846

-

-

n/a

n/a

77

66

36

17%

large

2,673

1,114

702

large

large

(646)

(295)

(260)

large

large

(29)

(20)

(9)

45%

large

1,998

799

433

large

large

Less individual provisions:Non-performing loans
Non-performing commitments and contingencies
Net impaired financial assets
1.

Represents customer facilities which for reason of financial difficulty have been re-negotiated on terms which the Bank considers as uncommercial but
necessary in the circumstances, and are not considered non-performing. Includes both on and off balance sheet exposures

Non-performing loans
Australia
New ZealandOverseas Markets

1,306

852

514

53%

large

274

138

99

99%

large

170

58

53

large

large

1,750

1,048

666

67%

large

Australia

(487)

(232)

(204)

large

large

New Zealand

(111)

(46)

(38)

large

large

Gross non-performing loans
Less individual provisions:

(48)

(17)

(18)

large

large

(646)

(295)

(260)

large

large

72

50

31

44%

large

5

16

5

-69%

0%

77

66

36

17%

large

Australia

(29)

(20)

(9)

45%

large

Individual provisions

(29)

(20)

(9)

45%

large

Half
Movt
year
Sep 08Mar 08 v. Mar 08
$M
%
893
47%

Full
year
Sep 08$M
2,210

Overseas Markets
Individual provisions

Non-performing commitments and contingencies
Australia
New ZealandGross non-performing commitments andcontingencies
Less individual provisions:

Half
year
Sep 08$M
1,317

New and increased non-performing loans
Australia

Full
Movt
year
Sep 08
Sep 07 v. Sep 07
$M
%
921
large

New Zealand

276

104

large

380

149

Overseas Markets

153

46

large

199

72

large

1,746

1,043

67%

2,789

1,142

large

1

Total new and increased non-performing loans
1.

Includes $345 million relating to Consumer Finance (2007 full year: $311 million; Sep 2008 half: $185 million; Mar 2008 half: $160 million)

88

large

NOTES TO CONDENSED FINANCIAL INFORMATION (continued)

8.

Impaired financial assets, cont’d
The following amounts are not classified as individually impaired financial assets and therefore are not included within
the summary on page 88.

As at
Sep 08As at
Mar 08

Accruing loans past due 90 days or more
Australia

$M
776

$M
489

Movt
Movt
Sep 08
Sep 08v. Mar 08 v. Sep 07
$M
%
%
446
59%
74%

New Zealand

259

196

88

32%

25

20

27

25%

-7%

1,060

705

561

50%

89%

1

Overseas Markets

1.

As at
Sep 07large

Includes unsecured credit card and personal loans 90 days past due accounts which are allowed by APRA to be retained on an accrual basis for up to
180 days past due amounting to $115 million (Mar 2008: $85 million; Sep 2007: $87 million). The remainder of 90 day past due accounts are
predominantly held on an accrual basis having been assessed as ‘well secured’

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

9.

Provision for credit impairment

Collective provision

Half
year
Sep 08$M

Balance at start of period

2,340Charge to income statement
Provisions disposed

Half
Movt
year
Sep 08Mar 08 v. Mar 08
$M
%
17%
1,992

1,992

Full
year
Sep 08
$M

Full
Movt
year
Sep 08
Sep 07 v. Sep 07
$M
%
3%
1,940

470

348

35%

818

83

large

-

-

n/a

-

(4)

-100%

11

-

n/a

11

(27)

large

1

2,821

2,340

21%

2,821

1,992

42%

Balance at start of period

316

270

17%

270

286

-6%

Charge to income statement for loans and advances

699

333

large

1,032

439

large
-100%

Adjustment for exchange rate fluctuations
Total collective provision
Individual provision

Adjustment for exchange rate fluctuations
Discount unwind
Bad debts written-off
Recoveries of amounts previously written-off
Total individual provision
Total provision for credit impairment
1.

-

-

n/a

-

(14)

(18)

(10)

80%

(28)

(20)

40%

(376)

(323)

16%

(699)

(572)

22%

54

46

17%

100

151

-34%

675
3,496

316
2,656

large

675
3,496

270
2,262

large

32%

55%

The Collective Provision includes amounts for off-balance sheet credit exposures: $353 million at 30 September 2008 (Mar 2008: $343 million; Sep 2007:$261 million). The impact on the income statement for the period ended 30 September 2008 was a $86 million charge (Sep 2007 full year: $8 million
charge; Sep 2008 half year: $5 million charge; Mar 2008 half year: $81 million charge)

Half
year
Sep 08$M

Provision movement analysis

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

Full
year
Sep 08
$M

Full
Movt
year
Sep 08
Sep 07 v. Sep 07$M%

New and increased provisions
Australia

535

345

55%

880

587

50%

New Zealand

134

53

large

187

81

large

Overseas Markets

140

30

large

170

43

large

809

428

89%

1,237

711

74%

(56)

(49)

14%

(105)

(121)

-13%

Provision releases

753

379

99%

1,132

590

92%

Recoveries of amounts previously written-off

(54)

(46)

17%

(100)

(151)

-34%

Individual provision charge for loans and advances

699

333

large

1,032

439

large

Impairment on available-for-sale assets

98

-

n/a

98

-

n/a

470
1,267

348
681

35%

818
1,948

83
522

large

Increase to collective provision
Charge to Income Statement

89

86%

large

NOTES TO CONDENSED FINANCIAL INFORMATION (continued)

9.

Provision for credit impairment, cont’d

Individual provision balance
Australia

As at
Sep 08As at
Mar 08

$M
516

$M
253

As at
Sep 07Movt
Movt
Sep 08
Sep 08v. Mar 08 v. Sep 07
$M
%
%
214
large
large

New Zealand

111

44

38

large

Domestic Markets

627

297

252

large

large

48

19

18

large

large

675

316

270

large

large

Full
year
Sep 08$M

Overseas Markets
Total individual provisionlarge

10. Deposits and other borrowings

Certificates of deposit

52,346Movt
Half
Sep 08year
Mar 08 v. Mar 08%$M
12%
46,92352,346Movt
Full
Sep 08year
Sep 07 v. Sep 07%$M
64%
31,903

Term Deposits

89,22581,7809%89,22569,60098,566

94,0885%

9,367

10,143

-8%
33%

Half
year
Sep 08$M

Other deposits bearing interest

98,566

95,9383%

Deposits not bearing interest

9,367

9,656

-3%

28%

Commercial paper

22,422

19,23017%

22,422

16,914

Borrowing corporations' debt

10,031

10,245-2%

10,031

10,109-1%

Other borrowings

2,009
283,966

1,224
264,99664%

2,009
7% 283,966

986
233,743

large

Total deposits and other borrowings

21%

11. Loan capital
Half
year
Sep 08
$M

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

Full
year
Sep 08
$M

Movt
Full
Sep 08year
Sep 07 v. Sep 07
%
$M

1,376

1,201

15%

1,376

1,248

10%

-

1,000

-100%

-

1,000

-100%

600

-

n/a

600

-

n/a

Innovative hybrid loan capital
1

US stapled trust security issue
ANZ Stapled Exchangeable Preferred Securities(ANZ StEPS)

2

Convertible Notes (ANZ CN)

3

Non-innovative hybrid loan capital
4

1,081

-

n/a

1,081

-

n/a

5

1,014

981

3%

1,014

1,033

-2%

Perpetual subordinated notes

1,075

678

59%

1,075

690

56%

Subordinated notes

9,120

9,071

1%

9,120

8,813

3%

Total Loan Capital

14,266

12,931

10%

14,266

12,78412%

ANZ Convertible Preference Shares
UK Hybrid

1.

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

2.

ANZ StEPS (issued on 23 September 2003) were converted to ordinary shares on 15 September 2008

3.

Convertible perpetual notes (issued on 26 September 2008) may be converted to a number of ordinary shares calculated at the market price of ANZ
ordinary shares, plus a conversion premium of 1% if the instruments are not redeemed by ANZ

4.

Convertible preference shares (issued on 30 September 2008) mandatorily convert to ordinary shares on the fifth anniversary of the issue date at themarket price of ANZ ordinary shares less 2.5% (subject to certain conversion conditions)

5.

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

90

NOTES TO CONDENSED FINANCIAL INFORMATION (continued)

12. Share capital
Issued and quoted securities

Number quoted

Issue priceper share

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

Ordinary shares
As at 30 September 2008

2,040,656,484

Issued during the year

175,977,664

Preference shares
As at 30 September 2008
1
Euro Trust Securities
1.

500,000

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

Half
year
Sep 08Halfyear
Mar 08Fullyear
Sep 08Fullyear
Sep 07

10.2%

16.4%

12.5%

19.0%

Half
year
Sep 08
$M

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

Full
year
Sep 08
$M

Movt
Full
Sep 08year
Sep 07 v. Sep 07%$M

11,252

9,817

15%

9,817

9,142

7%

1,162

1,344

-14%

2,506

442

large

38

42

-10%

80

57

40%

-

(10)

-100%

(10)

(55)

-82%
-49%

1

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

Profit attributable to shareholders

13. Shareholders’ equity

Share capital
Balance at start of period
Ordinary share capital
Dividend reinvestment plan
Group employee share acquisition scheme
1,2Treasury sharesGroup share option scheme
Conversion of StEPS
Consideration for purchase of ETrade
Total share capital

8

59

-86%

67

132

1,000

-

n/a

1,000

-

n/a

-

-

n/a

-

99

-100%

13,460

11,252

20%

13,4609,817

37%Foreign currency translation reserve
Balance at start of period(1,135)(1,209)-6%(1,209)

(646)

87%

Currency translation adjustments
net of hedges after tax

319

74

large

393

(563)

large

Total foreign currency translation reserve(816)(1,135)

-28%

(816)

(1,209)-33%

Balance at start of period

75

70

7%

70

63

11%

Share-based payments

9

5

80%

14

7

100%

Share option reserve

3

Transfer of options lapsed to retained earnings

(1)

-

n/a

(1)

-

n/a

Total share option reserve

83

75

11%

83

70

19%

1.

On-market purchase of shares for settlement of amounts due under share-based compensation plans. In addition, 2,356,857 shares were issued during the
September 2008 year to the Group’s Employee Share Trust for settlement of amounts due under share-based compensation plans2.

As at 30 September 2008, there were 4,374,248 treasury shares outstanding (Sep 2007: 2,592,893)

3.

The share option reserve arises on the grant of share options to selected employees under the ANZ share option plan. Amounts are transferred out of thereserve and into share capital when the options are exercised91

NOTES TO CONDENSED FINANCIAL INFORMATION (continued)

13. Shareholders’ equity, cont’d
Half
year
Sep 08$M
Available-for-sale revaluation reserve

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

Full
year
Sep 08
$M

Full
Movt
year
Sep 08
Sep 07 v. Sep 07$M%

4

Balance at start of period

(97)

97

large

97

2

large

Valuation gain (loss) recognised after tax

(116)

(189)

-39%

(305)

109

large

Cumulative (gain) loss transferred to the income
statement

65

(5)

large

60

(14)

large

Transfer on step acquisition of associate

60

-

n/a

60

-

n/a

Total available-for-sale revaluation reserve

(88)

(97)

-9%

(88)

97

large

145

153

-5%

153

227

-33%

-

-

n/a

-

(141)

-100%

Restated balance at beginning of period

145

153

-5%

153

86

78%

Gain (loss) recognised after tax

(25)

(14)

79%

(39)

74

large

Transferred to income statement

(41)

6

large

(35)

(7)

large

Total hedging reserve

79

145

-46%

79

153

-48%

(742)

(1,012)

-27%

(742)

(889)

-17%

13,67313,082

5%

13,082

11,084

18%

-

-

n/a

-

141

-100%

Restated balance at beginning of period

13,67313,082

5%

13,082

11,225

17%

Profit attributable to shareholders of the Company

1,356

1,963

-31%

3,319

4,180

-21%

Adjustment on step acquisition of associate

1

-

n/a

1

-

n/a

Transfer of options lapsed from share option reserve

1

-

n/a

1

-

n/a

15,031

15,0450%

16,403

15,405

6%
large

Hedging reserve

5

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

6

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

6

Total available for appropriation
7

(74)

(5)

large

(79)

77

(1,162)(1,344)-14%(2,506)(2,363)

6%

(23)

(23)

0%

(46)

(37)

24%

Retained earnings at end of period

13,772

13,673

1%

13,772

13,082

5%

Share capital and reserves attributable toshareholders of the Company

26,49023,913

11%

26,49022,010

20%

62

51

22%

62

38

63%

26,552

23,964

11%

26,552

22,04820%

Actuarial gain (loss) on defined benefit plans after tax
Ordinary share dividends paid
Preference share dividends paid

Minority interest
Total equity
4.

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

5.

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

6.

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

7.

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

92

NOTES TO CONDENSED FINANCIAL INFORMATION (continued)

14. Contingent liabilities and contingent assets
Contingent liabilities#

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

Opes Prime Stockbroking Limited

ANZ entered into Australian Master Securities Lending Agreements (AMSLAs) with Opes Prime and a related company
on 26 July 2006. Under the AMSLAs, ANZ acquired shares in various companies listed on the ASX. On 20 March
2008, there was a reorganisation of security arrangements between Opes Prime and ANZ. On 27 March 2008, ANZ
appointed a receiver and manager to Opes Prime and related companies.
In relation to Opes Prime:- There are outstanding court proceedings and claims against ANZ including a class action on behalf of some clientsof Opes Prime.
- ASIC is conducting an investigation into Opes Prime generally. As part of that investigation, ASIC and ANZ have
had extensive correspondence concerning Opes Prime. ASIC has raised concerns about disclosure requirements in
respect of interests in entities (arising under transactions entered into pursuant to the AMSLAs) and various otherpotential breaches of the Corporations Act. From investigations to date, ANZ believes it has in all material
respects acted in accordance with the applicable laws.
- It has been suggested that the reorganisation of security arrangements between Opes Prime and ANZ might bechallenged under the Corporations Act by the liquidators of Opes Prime. In a Notice to Creditors of Opes Primeissued on 6 October 2008, the liquidators valued these potential claims in the region of $205 million to$270 million and also flagged potential claims against another financier, Merrill Lynch. They also pointed out tothe creditors that there would be complexities, risks and considerable time periods involved, if these potential
claims were to be pursued by litigation.
ANZ and Merrill Lynch have engaged in a mediation process with the liquidators and ASIC.
There are ongoing developments concerning the events surrounding Opes Prime which may continue for some time.
There is a risk that further actions (court proceedings or regulatory actions) may be commenced against various
parties, including ANZ. The potential impact or outcome of future claims (if any) cannot presently be ascertained.
ANZ would review and defend any claim, as appropriate.
No material impact on the Group is expected in respect of the claims currently anticipated or commenced.
#

Contingent tax liability

The Australian Taxation Office (ATO) is reviewing the taxation treatment of certain transactions, including structured
finance transactions, undertaken by the Group in the course of normal business activities. Some assessments havebeen received which are being challenged in the normal manner.
The Inland Revenue Department (IRD) in New Zealand is reviewing a number of conduit-relieved structured financetransactions as part of normal revenue authority audit procedures. This is part of an industry-wide review by the IRDof these transactions undertaken in New Zealand. The IRD has issued Notices of Proposed Adjustment (the ‘Notices’)
in respect of some of those structured finance transactions. The Notices are not tax assessments and do notestablish a tax liability, but are the first step in a formal dispute process. In addition, the IRD has issued some tax
assessments as a follow up to the Notices in some cases. Should the same position be adopted by the IRD on theremaining transactions of that kind as reflected in the Notices and in the tax assessments received, the maximum
potential tax liability would be approximately NZD541 million (including interest tax effected) for the period to
30 September 2008. Of that maximum potential liability, approximately NZD151 million is subject to tax indemnities
provided by Lloyds TSB Bank PLC under the agreement by which ANZ acquired the National Bank of New Zealand andwhich relate to transactions undertaken by the National Bank of New Zealand before December 2003. All of these
conduit-relieved transactions have now either matured or been terminated.
Other audits and risk reviews are being undertaken by the ATO, the IRD and by revenue authorities in otherjurisdictions, as part of normal revenue authority activity in those countries.
The Company has assessed these and other taxation claims arising in Australia, New Zealand and elsewhere,
including seeking independent advice where appropriate, and considers that it holds appropriate provisions.
#Interbank Deposit Agreement

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

93

NOTES TO CONDENSED FINANCIAL INFORMATION (continued)

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

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

Clearing and Settlement Obligations

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

New Zealand Commerce Commission

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

Trade Sanctions

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

ING New Zealand Funds

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

Sale of Grindlays businesses

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

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

94

NOTES TO CONDENSED FINANCIAL INFORMATION (continued)

14. Contingent liabilities and contingent assets, cont’dContingent assets#

National Housing Bank

In 1992, Grindlays received a claim aggregating to approximately Indian Rupees 5.06 billion from the National
Housing Bank (NHB) in India. The claim arose out of cheques drawn by NHB in favour of Grindlays, the proceeds ofwhich were credited to the account of a Grindlays customer. Grindlays won an arbitration award in March 1997,
under which NHB paid Grindlays an award of Indian Rupees 9.12 billion. NHB subsequently won an appeal to theSpecial Court of Mumbai, after which Grindlays filed an appeal with the Supreme Court of India. Grindlays paid thedisputed money including interest into court. Ultimately, the parties settled the matter and agreed to share themonies paid into court which by then totalled Indian Rupees 16.45 billion (AUD 661 million at 19 January 2002
exchange rates), with Grindlays receiving Indian Rupees 6.20 billion (AUD 248 million at 19 January 2002 exchange
rates) of the disputed monies. ANZ in turn received a payment of USD124 million (USD equivalent of the Indian
Rupees received by Grindlays) from Standard Chartered Bank under the terms of an indemnity given in connection
with the sale of Grindlays to Standard Chartered Bank.
ANZ recovered $114 million in 2006 from its insurers in respect of the above.
In addition, ANZ is entitled to share with NHB in the proceeds of any recovery from the estate of the customer whose
account was credited with the cheques drawn from NHB. However, the Indian Taxation Department is claiming astatutory priority to all of the funds available for distribution to creditors of that customer. The Special Court passed
an order in late 2007 scaling down the Income Taxation Department’s priority, however, the order has been appealedby the Income Taxation Department to the Supreme Court of India. The appeal was heard in late August 2008 and adecision by the Supreme Court of India is now pending.

95

NOTES TO CONDENSED FINANCIAL INFORMATION (continued)

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

1,356

1,963

3,319

4,180
522

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

1,267

681

1,948

Credit risk on derivatives

422

299

721

45

Depreciation and amortisation

164

166

330

315

Profit on sale of businesses

-

(2)

(2)

(234)

Provision for employee entitlements, restructuring
and other provisions

360

224

584

336

Payments from provisions

(145)

(257)

(402)

(307)

(2)

(30)

(32)

(33)

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

(3)

(358)

(361)

(14)

Amortisation of discounts/premiums included in interest income

(88)

(88)

(176)

(80)

(Profit) loss on sale of premises and equipment
1

Share based payments reserve

9

5

14

7

Net foreign exchange earnings

(383)

(325)

(708)

(518)

Net gains/losses on trading derivatives

(86)

(258)

(344)

(405)

(242)

273

31

(5,913)(2,773)(1,919)(4,692)(1,642)

74

(813)

(739)

(410)

(17,328)(29,527)(46,855)(36,943)

Net derivative financial instruments

1,377(3,005)(1,628)(2,154)

Regulatory deposits

(144)

(88)

(232)

(54)

Interest receivable

(117)

(131)

(248)

(56)

Accrued income

32

8

40

(23)

Net tax assets

(722)

(560)

(1,282)(203)

19,58830,20849,79633,964Due to other financial institutions

(221)

1,197

976

4,326

Payables and other liabilities

435(1,624)(1,189)23

Interest payable

741

13

754

367

(Increase)/decrease in operating assets:
Trading securities
Liquid assets - greater than three months
Due from other banks - greater than three months
Loans and advances

Increase/(decrease) in operating liabilities:
Deposits and other borrowings

90

25

115

23

(141)

(39)

(180)

(180)

3,520

(3,962)(442)(5,061)Liquid assets - less than three months

15,645

11,35915,64512,307

Due from other financial institutions - less than three months

7,842

9,799

7,842

6,767

23,487

21,15823,487

19,074

1,162

1,344

2,506

442

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

Non-cash financing activities
Share capital issues
2

Dividend reinvestment plan
1.

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

2.

The dividend reinvestment plan is fully underwritten

96

NOTES TO CONDENSED FINANCIAL INFORMATION (continued)

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

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

On 1 March 2008 the Group disposed of 46% of its investment in Diversified Infrastructure Trust (Stadium Australia).
Due to the distribution of voting power to non-ANZ unit holders, ANZ no longer holds a controlling interest.
On 31 October 2006, the controlled entities Fleet Partners Pty Limited and Truck Leasing Limited were sold. The profit
before tax on disposal was $195 million (tax impact: $nil).

17. Associates, joint venture entities and investments
Half
year
Sep 08$M
Profit after income tax

142

Half
Movt
year
Sep 08Mar 08 v. Mar 08
$M
%
219

Full
year
Sep 08
$M

-35%

361

Full
Movt
year
Sep 08
Sep 07 v. Sep 07
$M
%
259

39%

Key contributions to profit1
Contribution toGroup profit

Ownership interest
held by Group

Half
year
Sep 08
$M

Half
year
Mar 08
$M

Full
year
Sep 08
$M

Full
year
Sep 07$M

As at
Sep 08%%%

P.T. Bank Pan Indonesia

23

13

36

26

30

30

30

Metrobank Card Corporation Inc

5

4

9

7

40

40

40

Associates

Bank of Tianjin
2

AMMB Holdings Berhad

3

Shanghai Rural Commercial Bank
4

Cards NZ Limited

As at
Mar 08As at
Sep 07

12

8

20

19

20

20

20

32

21

53

14

19

19

19

18

11

29

1

20

20

20

2

72

74

-

15

15

15

Joint ventures
ING Australia Limited

49

75

124

152

49

49

49

ING (NZ) Holdings Limited

9

10

19

20

49

49

49

1.

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

2.

An associate from 18 May 20073.

An associate from 20 September 2007

4.

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

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

Profit & Loss Average

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

Halfyear
Sep 08Halfyear
Mar 08Fullyear
Sep 08Fullyear
Sep 07Euro

0.55680.57950.62230.59690.60910.60300.6072

Great British pound

0.44400.45890.43550.47390.44630.46010.4103

New Zealand dollar

1.1934

1.15501.1643

1.2294

1.1542

1.19181.1330

United States dollar

0.79950.91580.88160.91620.89760.90690.808497

NOTES TO CONDENSED FINANCIAL INFORMATION (continued)

19. Significant events since balance dateSince balance date, global financial and equity markets have exhibited significant volatility. The impact of this volatility
on future earnings is not capable of reliable measurement.
The adjustment for credit risk on structured credit derivatives purchased has moved significantly since balance date,reflecting the depreciation of the AUD against the USD (these derivative trades are in USD) and the impact of extreme
market turmoil impacting spreads and correlation, and there will continue to be substantial volatility in this adjustment.
However, ANZ expects the adjustment for credit risk on these structured credit derivatives to substantially reverse as
either credit spreads contract and/or the derivatives reach maturity.

98

APPENDIX 4E STATEMENT

The directors of Australia and New Zealand Banking Group Limited confirm that the financial information and notes of theconsolidated entity set out on pages 69 to 98 are in the process of being audited.

Charles Goode
ChairmanMichael R P Smith
Director

22 October 2008

99

SUPPLEMENTARY INFORMATION

Capital management

Qualifying CapitalBasel IIAs at
Sep 08Basel II
As at
Mar 08Basel IAs at
Sep 07$M$M$M

26,552

23,96422,048(2,409)(1,827)(2,318)24,143

22,137

19,730Tier 1
Shareholders' equity and outside equity interests
Table 1

Prudential adjustments to shareholders' equity
Fundamental Tier 1 capital
Non-innovative Tier 1 capital instruments

2,095

981

1,033

Innovative Tier 1 capital instruments

2,847

3,072

3,119

29,08526,19023,882(7,856)(7,882)(6,170)--716

21,22918,30818,428Gross Tier 1 capital
Deductions

Table 2

Transitional Tier 1 capital relief
Tier 1 capital
Tier 2Upper Tier 2 capital

Table 3

1,374

938

2,296

Subordinated notes

Table 4

9,170

9,093

8,826

Deductions

Table 2

(1,206)(1,354)

-

9,338

8,677

11,122--(1,837)30,567

26,98527,713Tier 1

7.7%

6.9%

6.7%

Tier 2

3.4%

3.2%

4.1%

11.1%

10.1%

10.8%

Tier 2 capital
Deductions

Table 5

Total qualifying capital
Capital adequacy ratios

Deductions

n/a

Total
Risk weighted assets

Table 6

100

n/a

-0.7%

11.1%

10.1%

10.1%

275,434

267,486

275,018

SUPPLEMENTARY INFORMATION (continued)

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

Table 1: Prudential adjustments to shareholders' equity
Reclassification of preference share capital

(871)

(871)

(871)

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

(841)

(533)

(398)

Deferred fee revenue including fees deferred aspart of loan yields

351

340

306
(153)

Hedging reserve

(78)

(145)

Available-for-sale reserve

88

97

(97)

Dividend not provided for(1,511)(1,192)(1,381)

Accrual for Dividend Reinvestment Plans
Total

453

477

276

(2,409)(1,827)(2,318)

Table 2: Deductions from Tier 1 capital
Unamortised goodwill & other intangibles(4,889)(4,972)(4,911)

Capitalised software

(625)

(509)

(462)

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

(642)

(619)

(602)

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

(92)

(103)

(57)
(101)

Investment in ANZ Lenders Mortgage Insurance--

Earnings not recognised for prudential purposes

(117)

(113)

-

Other deductions

(285)

(212)

(37)

(6,650)(6,528)(6,170)50%

Sub-total
Deductions taken 50% from Tier 1 and 50% from Tier 2
Investment in ANZ Lenders Mortgage Insurance
Investment in Funds Management and Securitisation entities
Investment in joint ventures with ING in Australia
and New ZealandInvestment in other Authorised Deposit Taking Institutions
and overseas equivalents
Expected losses in excess of eligible provisions
Investment in other commercial operations
Other deductions
Sub-total
Total

Gross

50%

(131)

(65)

(53)

-

(68)

(34)

(34)

-

(524)

(262)

(263)

-

(1,219)

(610)

(568)

-

(334)

(167)

(358)

-

(72)

(36)

(27)

-

(64)

(32)

(51)

(2,412)(1,206)(1,354)-(7,856)(7,882)(6,170)

248

254

197

1,072

678

690

54

6

1,392

Table 3: Upper Tier 2 capital
Eligible component of post acquisition earnings and reserves inassociates and joint ventures
Perpetual subordinated notes
General reserve for impairment of financial assets net of1

attributable deferred tax asset

Transitional Upper Tier 2 capital relief
Total
1.

-

-

17

1,374

938

2,296

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

101

SUPPLEMENTARY INFORMATION (continued)

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

Table 4: Subordinated notes
For capital adequacy calculation purposes, subordinated note issues are reduced by
20% of the original amount over the last four years to maturity and are limited to 50% of Tier 1 capital.
The fair value adjustment is also excluded for prudential purposes as the prudential standard only
permits inclusion of cash received and makes no allowance for hedging.
Table 5: Deductions from Total capital

1

Investment in Funds Management and Securitisation entities

-

-

(85)

Investment in joint ventures with ING in Australia and New Zealand

-

-

(525)

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

-

-

(124)

Other

-

-

(78)

Total

-

-

(1,837)

236,883

Table 6: Risk weighted assets
On balance sheet

177,570

174,117

Commitments

47,39850,013

15,791

Contingents

14,51914,95812,018Derivatives

11,263

10,098

8,379

250,750

249,186

273,071

Market risk - Traded

2,609

1,912

1,947

Market risk - IRRBB

4,058

-

-

Total credit risk

Operational risk
Total risk weighted assets
1.

Not applicable under Basel II

102

18,017

16,388-275,434

267,486

275,018

SUPPLEMENTARY INFORMATION (continued)

Average balance sheet and related interest
Averages used in the following tables are predominantly daily averages. Interest income figures are presented on a
tax-equivalent basis. Impaired loans are included under the interest earning asset category, ‘loans and advances’.
Intra-group interest earning assets and interest bearing liabilities are treated as external assets and liabilities for thegeographic segments.
Full year Sep 08
Ave bal
Int
$M
$M

Rate
%

Full year Sep 07
Ave bal
Int
$M
$M

Rate
%

Interest earning assets
Due from other financial institutions
Australia

3,002

193

6.4%

2,011

113

5.6%

New Zealand

1,390

92

6.6%

1,598

111

6.9%

Overseas Markets

6,171

250

4.1%

4,987

264

5.3%

Australia

22,733

1,633

7.2%

18,164

1,157

6.4%

New Zealand

2,316

187

8.1%

2,701

212

7.8%

Overseas Markets

6,223

313

5.0%

3,904

215

5.5%

Australia

221,006

18,884

8.5%

188,582

14,752

7.8%

New Zealand

78,103

7,491

9.6%

73,426

6,536

8.9%

Overseas Markets

17,299

1,042

6.0%

10,387761

7.3%

15,397

1,347

8.7%

13,852

1,054

7.6%

463

23

5.0%

293

18

6.1%

Australia

4,512

366

8.1%

4,794

355

7.4%

New Zealand

5,152

401

7.8%

5,054

404

8.0%

Overseas Markets

7,647

382

5.0%

3,608

258

7.2%

Australia

4,753

344

7.2%

2,910

232

8.0%

Overseas Markets

1,476

92

6.2%

4,043

228

5.6%

397,643

33,040340,314

26,670

Trading and available-for-sale assets

Loans and advances

Customers' liability for acceptances
Australia
Overseas Markets
Other assets

Intragroup assets

Intragroup elimination(6,229)(436)

391,41432,604

8.3%(6,953)(460)

333,361

26,210Non-interest earning assets
Derivatives
Australia

24,656

12,708

New Zealand

4,358

3,227

Overseas Markets

1,889

667

Premises and equipment

1,513

1,318

Other assets

15,136

14,319(2,040)(1,688)

New Zealand

(442)

(412)

Overseas Markets

(193)

(167)

44,877

29,972436,291

363,333

Provisions for credit impairment
Australia

Total average assets

103

7.9%

SUPPLEMENTARY INFORMATION (continued)

Average balance sheet and related interest, cont’d
Full year Sep 08
Ave bal
Int
$M
$M

Rate
%

Full year Sep 07
Ave bal
Int
$M
$M

Rate
%

Australia

71,698

5,224

7.3%

49,000

3,071

6.3%

New Zealand

29,653

2,444

8.2%

28,279

2,096

7.4%

Overseas Markets

25,274

1,016

4.0%

15,122781

5.2%

Australia

18,062778

4.3%

16,536597

3.6%

New Zealand

1,819

60

3.3%

2,520

82

3.3%

584

8

1.4%

504

4

0.8%

Australia

54,900

3,193

5.8%

46,429

2,376

5.1%

New Zealand

15,720

1,063

6.8%

15,938997

6.3%

Overseas Markets

1,273

19

1.5%

1,166

29

2.5%

Australia

6,234

412

6.6%

8,186

500

6.1%

New Zealand

1,746

106

6.1%

1,838

105

5.7%

Overseas Markets

10,804

447

4.1%

6,724

357

5.3%

Australia

11,293

834

7.4%

9,981

636

6.4%

New Zealand

9,282

819

8.8%

6,566

525

8.0%

-

-

0.0%

926

49

5.3%

Australia

8,637

618

7.2%

8,752

544

6.2%

New Zealand

1,484

123

8.3%

1,722

127

7.4%

15,397

1,160

7.5%

13,852

898

6.5%

463

23

5.0%

293

17

5.8%

Australia

62,458

4,653

7.4%

55,577

3,651

6.6%

New Zealand

14,848

1,322

8.9%

11,841

958

8.1%

359

25

7.0%

311

19

6.1%

Interest bearing liabilities
Time deposits

Savings deposits

Overseas Markets
Other demand deposits

Due to other financial institutions

Commercial paper

Overseas Markets
Borrowing corporations' debt

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

Overseas Markets
Other liabilities

1

Australia

4,495

280

n/a

5,243

355

n/a

New Zealand

87

95

n/a

132

96

n/a

Overseas Markets

38

32

n/a

421

38

n/a

6,229

436

7.0%

6,953

460

6.6%

372,837

25,190314,812

19,368Intragroup liabilities
New Zealand
Intragroup elimination(6,229)(436)

366,608

24,754

6.8%(6,953)(460)

307,859

18,908Non-interest bearing liabilities
Deposits
Australia

4,787

4,734

New Zealand

3,432

3,829

Overseas Markets

1,200

1,220

Australia

22,841

11,719New Zealand

3,542

2,882

Overseas Markets

(884)

(494)

Other liabilities

11,242

10,855

Total average liabilities

46,160412,768

34,745
342,604

Derivatives

1.

Includes foreign exchange swap costs

104

6.1%

SUPPLEMENTARY INFORMATION (continued)

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

Rate
%

Half year Mar 08
Ave bal
Int
$M
$M

Rate
%

Interest earning assets
Due from other financial institutions
Australia

3,124

103

6.6%

2,880

90

6.3%

New Zealand

1,477

44

6.0%

1,304

48

7.4%

Overseas Markets

6,604

121

3.7%

5,738

128

4.5%

Australia

23,122873

7.6%

22,345760

6.8%

New Zealand

2,387

95

8.0%

2,246

91

8.1%

Overseas Markets

6,533

159

4.9%

5,913

153

5.2%

Australia

228,930

10,071

8.8%

213,079

8,814

8.3%

New Zealand

77,738

3,737

9.6%

78,468

3,754

9.6%

Overseas Markets

18,109510

5.6%

16,489530

6.4%

15,767706

9.0%

15,027

642

8.5%

539

12

4.5%

387

11

5.7%

Australia

5,051

205

8.1%

3,973

161

8.1%

New Zealand

4,887

176

7.2%

5,417

225

8.3%

Overseas Markets

9,120

180

3.9%

6,174

205

6.6%

Australia

4,518

157

6.9%

4,984

186

7.5%

Overseas Markets

1,425

45

6.3%

1,527

48

6.3%

409,331

17,194385,951

15,846(5,943)(202)(6,511)(234)

403,388

16,992

379,440

15,612

Trading and available-for-sale assets

Loans and advances

Customers' liability for acceptances
Australia
Overseas Markets
Other assets

Intragroup assets

Intragroup elimination

8.4%

Non-interest earning assets
Derivatives
Australia

24,60324,709New Zealand

2,679

6,037

Overseas Markets

2,172

1,605

Premises and equipment

1,467

1,559

Other assets

14,656

15,617(2,295)(1,785)

(457)

(427)

Provisions for credit impairment
Australia
New ZealandOverseas Markets
Total average assets

(201)

(184)

42,624

47,131

446,012426,571

105

8.2%

SUPPLEMENTARY INFORMATION (continued)

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

Rate
%

Half year Mar 08
Ave bal
Int
$M
$M

Rate
%

Australia

76,562

2,914

7.6%

66,833

2,310

6.9%

New Zealand

29,515

1,230

8.3%

29,791

1,214

8.2%

Overseas Markets

28,213492

3.5%

22,336524

4.7%

Australia

18,150412

4.5%

17,975366

4.1%

New Zealand

1,681

28

3.3%

1,958

31

3.2%

579

4

1.4%

590

4

1.4%

Australia

55,348

1,662

6.0%

54,452

1,532

5.6%

New Zealand

15,446516

6.7%

15,995546

6.8%

Overseas Markets

1,231

8

1.3%

1,315

11

1.7%

Australia

5,647

193

6.8%

6,822

219

6.4%

New Zealand

1,618

49

6.0%

1,875

58

6.2%

Overseas Markets

10,508187

3.6%

11,100260

4.7%Australia

13,015

496

7.6%

9,572

338

7.1%

New Zealand

8,838

392

8.9%

9,726

427

8.8%

Australia

8,638

325

7.5%

8,636

293

6.8%

New Zealand

1,437

61

8.5%

1,532

63

8.2%

15,767604

7.7%

15,027

555

7.4%

539

12

4.5%

387

11

5.7%

Australia

63,958

2,465

7.7%

60,958

2,188

7.2%

New Zealand

15,774707

9.0%

13,922

615

8.8%

290

12

8.3%

429

13

6.1%

Interest bearing liabilities
Time deposits

Savings deposits

Overseas Markets
Other demand deposits

Due to other financial institutions

Commercial paper

Borrowing corporations' debt

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

Overseas Markets
Other liabilities

1

Australia

4,565

92

n/a

4,427

187

n/a

New Zealand

97

41

n/a

77

54

n/a

Overseas Markets

25

20

n/a

52

13

n/a

5,943

202

6.8%

6,511

234

7.2%

383,384

13,124362,298

12,066

Intragroup liabilities
New Zealand
Intragroup elimination(5,943)(202)

377,441

12,922

6.8%(6,511)(234)

355,787

11,832

Non-interest bearing liabilities
Deposits
Australia

4,669

4,904

New Zealand

3,091

3,772

Overseas Markets

1,214

1,187

Australia

22,36523,317

New Zealand

2,609

4,476

Overseas Markets(765)(1,002)Other liabilities

11,154

11,330Total average liabilities

44,337421,778

47,984
403,771

Derivatives

1.

Average interest rate received on interest earning assets

106

6.7%

SUPPLEMENTARY INFORMATION (continued)

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

Half
year
Mar 08
$M

Full
year
Sep 08
$M

Full
year
Sep 07$M

Australia

312,291

294,216

303,257

249,686

New Zealand

92,766

96,76894,76589,969Overseas Markets

46,89942,09844,49830,631

Total average assets

less intragroup elimination(5,943)(6,511)(6,229)(6,953)446,013426,571436,291

363,333

31.0%

32.2%

31.6%

32.1%

Australia

280,512262,288271,403230,313

New Zealand

86,48987,43586,961

82,779Overseas Markets

42,33036,22839,27927,222(5,943)(6,511)(6,229)(6,953)403,388379,440

391,414333,361

Australia

297,628

280,957

289,291

237,762

New Zealand

87,04291,00189,022

84,176

Overseas Markets

43,051

38,324

40,684

27,619(5,943)(6,511)(6,229)(6,953)421,778

403,771

412,768

342,604

29.4%

30.4%

29.9%

30.6%

23,36421,92922,652

19,858

871

871

871

871

24,23522,80023,523

20,729446,013426,571436,291

363,333% of total average assets attributable to overseas activities
Average interest earning assets

less intragroup elimination

Total average liabilities

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

107

SUPPLEMENTARY INFORMATION (continued)

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

8.64

8.12

8.39

7.67

New Zealand

9.37

9.42

9.40

8.77

Overseas Markets

4.85

5.94

5.35

6.41

Total Group

8.42

8.23

8.33

7.86

Gross interest spread

1.64

1.60

1.62

1.77

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

1.63

1.59

1.61

1.76

Interest attributable to net non-interest bearing items

0.47

0.44

0.46

0.43

Net interest margin - Australia

2.10

2.03

2.07

2.19

Gross interest spread

1.37

1.46

1.42

1.60

Interest foregone on impaired assets(0.03)(0.01)(0.02)(0.01)Net interest spread

1.34

1.45

1.40

1.59

Gross earnings rate

1

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

Australia

New ZealandInterest attributable to net non-interest bearing items

0.57

0.55

0.56

0.61

Net interest margin - New Zealand

1.91

2.00

1.96

2.20

Gross interest spread

1.32

1.35

1.33

1.35

Interest foregone on impaired assets(0.02)(0.02)(0.02)(0.03)Net interest spread

1.30

1.33

1.31

1.32

Interest attributable to net non-interest bearing items

0.08

0.00

0.05

0.33

Net interest margin - Overseas Markets

1.38

1.33

1.36

1.65

Overseas Markets

Group
Gross interest spread

1.59

1.58

1.59

1.73

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

1.58

1.57

1.58

1.72

Interest attributable to net non-interest bearing items

0.44

0.42

0.43

0.47

Net interest margin

2.02

1.99

2.01

2.19

1.

Average interest rate received on interest earning assets

108

SUPPLEMENTARY INFORMATION (continued)

Derivative financial instruments
Derivatives

Derivative instruments are contracts whose value is derived from one or more underlying financial instruments or indices.
They include swaps, forward rate contracts, futures, options and combinations of these instruments. The use of derivatives
and their sale to customers as risk management products is an integral part of the Group’s trading activities. Derivatives arealso used to manage the Group’s own exposure to fluctuations in exchange and interest rates as part of its asset and liability
management activities. Derivatives are subject to the same types of credit and market risk as other financial instruments,
and the Group manages these risks in a consistent manner.
The following table provides an overview of the Group’s exchange rate, interest rate, commodity and credit derivatives. It
includes all contracts, both trading and hedging.
Notional principal amount is the face value of the contract and represents the volume of outstanding transactions. Fair value
is the net position of contracts with positive market values and negative market values.
As at 30 September 2008
Notional
Principal
amountAssets$M$M

As at 30 September 2007

Liabilities

Notional
Principal
amountAssetsLiabilities

$M

$M

$M

$M

Total fair value

Total fair value

Foreign exchange contracts
Spot and forward contracts

222,003

7,740(7,956)

278,479

4,637(6,570)Swap agreements

205,894

16,667(8,635)

141,881

6,699(6,907)(6)

Futures contracts

134

72

(17)

144

7

Options purchased

8,929

899

-

6,476

1,047

-

Options sold17,761

-

(942)

9,718

-

(1,001)

Collateral1-(4,400)2,607-(1,875)

1,612

454,721

20,978(14,943)436,698

10,515(12,872)

27,3491,609(1,692)

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

150,30233(32)

137,039

15(15)

Swap agreements

1,087,769

10,837(11,408)

944,079

8,582(8,300)Futures contracts

92,841

1,798(1,705)96,815979(996)

Options purchased

23,156

225-

26,621

142-

Options sold

22,743-(115)

22,711-(115)

1,376,811

12,893(13,260)

1,227,265

9,718(9,426)

12,455

1,212-

10,976

152-

Credit default swaps
Structured credit derivatives
2purchased

Other credit derivatives
3

purchased

14,414201(32)

10,97071(84)

Total credit derivatives purchased

426,869

1,413

(32)

21,946

223

(84)

2

(119)

Structured credit derivatives sold14,060-(1,704)

10,976-

3

Other credit derivatives sold11,256

48

(296)

7,689

84

(79)

4

25,31648(2,000)18,665

84(198)

Total credit derivatives sold
Total
1.

52,185

1,461(2,032)

40,611307(282)

1,911,066

36,941(31,927)

1,720,003

22,204(24,180)

Collateral relates predominantly to Foreign Exchange contracts

2.

Refer page 21 for further information

3.

The notional amounts comprise vanilla credit default swap transactions including credit indices such a Itraxx (Europe and Australia) and CDX. In the case of backto-back deals, where a risk position from one counterparty is “closed out” with another counterparty, the notional amounts are not netted down in the above table.
For example, ANZ may sell credit protection over a particular corporate bond (or reference asset) to a counterparty and simultaneously offset that credit exposure
by buying credit protection over the same corporate bond (or reference asset) from another counterparty. Netting may only occur where there is an offsetting
deal with the same counterparty

4.

These credit default swap trades are transacted in conjunction with other financial instruments by reference to the traded market risk limit framework which
includes VaR, name and rating specific concentration limits, sensitivity limits and stress testing limits. VaR exposures are disclosed on page 28

109

SUPPLEMENTARY INFORMATION (continued)

Special purpose and off-balance sheet entities
The Group may invest in or establish special purpose entities (SPEs) to enable it to undertake specific types of transactions.
The main types of these SPEs are securitisation vehicles, structured finance entities, and entities used to sell credit
protection.
Where the Group has established SPEs which are controlled by the Group to facilitate transactions undertaken for Grouppurposes, these are consolidated in the Group’s financial statements. The Group does not consolidate SPEs that it does notcontrol in accordance with the Group’s policy outlined in note 1(a) vii) on page 73. As it can sometimes be difficult todetermine whether the Group has control of an SPE, it makes judgements about its exposure to the risks and rewards, aswell as about its ability to make operational decisions for the SPE in question.
The table below summarises the main types of SPEs with which the Group is involved, the reason for their establishment, andthe control factors associated with ANZ’s interest in them. Although there may be some indicators of control ANZ does notbear the majority of residual risks and rewards of the SPEs which are not consolidated. The disclosures do not include everytransaction that the Group has entered into with an SPE. This note is designed to reflect the nature of the Group’s main
exposures to SPEs.

Type of SPE

Reason for establishment

Control factors

Securitisation vehicles

Securitisation is a financing technique
whereby assets are transferred to an
SPE which funds the purchase byissuing securities. This enables ANZ (inthe case where transferred assets
originate within ANZ) or customers toincrease diversity of funding sources.

ANZ may manage these securitisation
vehicles, service assets in the vehicle orprovide liquidity or other support. ANZ
retains the risks associated with theprovision of these services.

Structured finance entities

These entities are set up to assist theGroup’s Corporate Finance function withthe structuring of client financing. The
resulting lending arrangements are atarms length and ANZ typically has
limited ongoing involvement with theentity.

ANZ may manage these vehicles, holdminor amounts of capital, provide
financing or provide derivatives.

Credit protection

There is one SPE in this category which
was created to allow ANZ to purchasecredit protection. The entity is notconsolidated but has issued credit
linked notes to the external market.
This SPE is a collateralised debt
obligation (CDO).

ANZ manages this vehicle and holds asmall proportion of the most seniornotes.

The following tables include all significant SPEs which ANZ has established or currently manages.

110

SUPPLEMENTARY INFORMATION (continued)

Special purpose and off-balance sheet entities, cont’d
Below is an analysis of the assets of consolidated and non-consolidated SPEs which ANZ has established or managed. This
excludes vehicles that are used in connection with stock-based compensation programs.
Non-consolidated
SPEs
Sep 08
Sep 07$M$M

Total assets of SPEs
Securitisation vehicles

Consolidated
SPEs
Sep 08
Sep 07
$M
$M

8,021

7,786

11,8842,328

Structured finance entities

n/a

n/a

147

95

Credit Protection

2,145

2,145

-

-

Total

10,166

9,931

12,031

2,423

1

1.

ANZ’s net investment in non-consolidated Structured Finance entities is $166 million at 30 September 2008 (30 September 2007: $229 million)#

Total assets of SPEs
Australia
Sep 08
Sep 07$M$M

New Zealand
Sep 08
Sep 07$M$M

Other
Sep 08
Sep 07$M$M

Total
Sep 08
Sep 07$M$M

Non-consolidated SPEs which
ANZ established or manage
Corporate Loans

1

2,145

2,145

-

-

-

-

2,145

2,145

Rural loans

2,064

1,737

-

-

-

-

2,064

1,737

Trade receivables

2,096

2,166

-

-

-

-

2,096

2,166

Residential mortgages
Credit cards and other personal
loans

1,442

1,520

-

215

-

-

1,442

1,735

13

34

557

557

-

-

570

591

Car loans and equipment finance

577

621

-

-

-

-

577

621

1,018

658

254

278

-

-

1,272

936

9,355

8,881

811

1,050

-

-

10,166

9,931

Other

2

Total
Consolidated SPEs
Corporate Loans

-

-

-

-

410

415

410

415

Trade receivables

185

162

-

-

-

-

185

162

Residential mortgages

10,731

1,019

-

-

-

-

10,731

1,019

Car loans and equipment finance

69

182

-

-

77

83

146

265

Other

559

529

-

-

-

33

559

562

11,544

1,892

-

-

487

531

12,031

2,423

Total

#

1.

Exposures to corporate loans created through derivatives and a deposit with ANZ

2.

Includes investment loans and insurance premiums

Maximum exposure to SPEs
Non-consolidated
SPEs
Sep 08
Sep 07$M$M

1

Maximum exposures to Non-consolidated SPEs
2

1,237

1,976

Liquidity support facilities (undrawn)

3,290

2,753

Credit default swaps (net fair value)

33

3

Other facilities (drawn)

1,768

872

Other facilities (undrawn)

958

315

Notes held in credit protection entities

393-

Other derivatives (net fair value)

21

(4)

7,700

5,915

Liquidity support facilities (drawn)

Total
1.

Excluding structured finance entities

2.

Facilities amounting to $0.9 billion were drawn on consolidated special purpose entities as at September 2007

111

SUPPLEMENTARY INFORMATION (continued)

Leveraged finance
The Group has a dedicated Leveraged & Acquisition Finance team, which provides secured financing for the acquisition ofcompanies through the use of debt.
Leveraged & Acquisition Finance provides acquisition finance for private equity firms and other corporations with operations
in Australia and New Zealand and concentrates on company cash flows. Target businesses are those with stable andestablished earnings and the ability to reduce borrowing levels.
The tables below provide an analysis of the credit exposures arising from the provision of leverage finance. This excludes all
public company acquisition finance which may be undertaken by the Leveraged & Acquisition Finance team because it has adifferent risk profile.

Exposure byindustry

Unfundedcommitments
Sep 08
Sep 07$M$M

Funded exposure
Sep 08
Sep 07$M$M

Total grossexpenditureSep 08
Sep 07$M$M

Individual
provision
Sep 08
Sep 07$M$M

Net Exposure
Sep 08
Sep 07$M$M

Manufacturing

141

270

744

548

885

818

(9)

(10)

876

Business Service

139

145

628

436

767

581

(13)

-

754

808
581

Healthcare

46

55

131

133

177

188

-

177

188

Retail

103

83

532

330

635

413

-

635

413

Media

34

89

146

47

180

136

-

180

136

Other

50

110

666

293

716

403

-

716

403

Total

513

752

2,847

1,787

3,360

2,539

(22)

(10)

3,338

2,529

Australia

271

588

1,507

977

1,778

1,565

(22)

(10)

1,756

1,555

New Zealand

175

164

1,156

771

1,331

935

-

1,331

935

Other

67

-

184

39

251

39

-

251

39

Total

513

752

2,847

1,787

3,360

2,539

(10)

3,338

2,529

Sep 08$M

Sep 07$M

Exposure bygeography

Movements in individual
provision
Balance at start of year

103Charge to income statement30

16

Bad debts written-off

(18)

(9)

Total individual provision

22

10

112

(22)

SUPPLEMENTARY INFORMATION (continued)

Asset-backed securities
The Group may acquire asset-backed securities primarily as part of the trading activities (classified as trading securities),
liquidity management (classified as available-for-sale assets) or through investments in special purpose vehicles. Assetbacked securities are debt instruments that are based on pools of assets or are collateralised by the cash flows from a
specified pool of underlying assets. All asset-backed securities held by the Group are carried at fair value on the balance
sheet.
Summary of asset-backed securities

Face Value
Sep 08 Sep 07$M$M
1

Carrying
amountSep 08 Sep 07
$M
$M

395

33

393

28

Commercial mortgage backed securities

140

156

138

154

Residential mortgage backed securities

892

1,118

655

1,070

Other asset-backed securities

461

549

453

543

1,888

1,856

1,639

1,795

Collateralised debt obligations

Total

Asset-backed securities by underlying asset
Trading
portfolio
Sep 08 Sep 07$M$M
Sub-prime

-

Alt-A

Liquidity
portfolio
Sep 08 Sep 07
$M
$M

-

-

-

Other
Sep 08 Sep 07
$M
$M
-

-

Total
Sep 08 Sep 07
$M
$M
-

-

-

-

318

530

-

-

318

530

A rated (mortgage) paper and other assets

161

174

211

243

949

848

1,321

1,265

Total

161

174

529

773

949

848

1,639

1,795

Asset-backed securities by credit rating and geography

AAA & AA
Sep 08 Sep 07$M$M
Australia and New Zealand

552

158

A
Sep 08 Sep 07
$M
$M
557

821

BBB
Sep 08 Sep 07$M$M
1

BB and below
inc not rated
Sep 08 Sep 07
$M
$M

1

-

14

Total
Sep 08 Sep 07
$M
$M
1,110

994

USA

412

801

117

-

-

-

-

-

529

801

Total

964

959

674

821

1

1

-

14

1,639

1,795

1.

September 2008 comprises notes held in a credit protection SPE, refer page 110

113

DEFINITIONSAAS - Australian Accounting Standards
AASB - Australian Accounting Standards Board.
AIFRS - Australian Equivalents to International Financial Reporting Standards.
Alt-A – Alternative A-paper, US mortgages underwritten with lower or alternative documentation than a full documentation
mortgage loan or with higher loan to valuation ratios than mortgages guaranteed by US Government sponsored enterprises.
Alt-A mortgages have a stronger risk profile than sub-prime mortgages.
Business Unit description:
Personal
Personal is a division comprising Mortgages, Banking Products, Consumer Finance, Rural Commercial & Agribusiness
Products, Small Business Banking Products, Esanda, Investment and Insurance Products, and a number of other areas,
including the branch network and marketing and support costs in Australia.
- Mortgages provides housing finance to consumers in Australia for both owner occupied and investment purposes.
- Banking Products provides transaction banking and savings products, such as term deposits, V2+ and cash
management accounts.
- Consumer Finance provides consumer and commercial credit cards, ePayment products, personal loans, merchantpayment facilities in Australia and ATM facilities.
- Rural Commercial & Agribusiness Products provides a full range of banking services to personal customers and tosmall business and agribusiness customers in rural and regional Australia.
- Small Business Banking Products provides a full range of banking services for metropolitan-based small businesses inAustralia with unsecured loans up to $100,000.
- Esanda provides motor vehicle and equipment finance, operating leases and investment products.
- Investments and Insurance Products comprises ANZ Australia’s Financial Planning, Margin Lending, insurance
distribution and Trustees businesses in addition to ETrade, an online broking business.
Institutional
Institutional division provides a full range of financial services principally to Australia and New Zealand corporate andinstitutional customers in all geographies. Institutional has a major presence in Australia and New Zealand and also has
operations in Asia, Europe and the United States.
- Working Capital provides working capital solutions including lending and deposit products, cash transaction banking
management, trade finance, international payments, securities lendings, clearing and custodian services principally toinstitutional and corporate customers.
- Markets provides risk management services to corporate and institutional clients globally in relation to foreign exchange,interest rates, credit and commodities. This includes the business providing origination, underwriting, structuring andrisk management services, advice and sale of credit and derivative products globally. Markets also manages the Group’s
interest rate risk position.
- Business Banking provides a full range of banking services, including risk management, to metropolitan based small to
medium sized business clients with up to $50 million turnover.
- Relationship Lending manages the Institutional and Corporate balance sheets with a particular focus on credit quality,
diversification and maximising risk adjusted returns.
- Corporate Finance (excluding Relationship Lending) provides complex financing and advisory services, structured
financial products, leasing, private equity finance, project finance, leveraged finance and infrastructure investment
products to our global client set.
- Relationships & Infrastructure includes Institutional Banking, Financial Institutions and Corporate Banking. These
units are our client relationship teams for our global Institutional and Financial Institutions customers, and our Corporate
customers in Australia.
- Non-continuing business includes the London headquartered project finance business, the run-off of New Zealandconduit transactions and certain structured finance transactions that ANZ has exited.
New Zealand Businesses
New Zealand Businesses includes the following:- National Bank Retail, operating under the National Bank brand in New Zealand, provides a full range of banking
services to personal and business banking customers.
- ANZ Retail, operating under the ANZ brand in New Zealand, provides a full range of banking services to personal andbusiness banking customers.
- Corporate & Commercial Banking incorporates the ANZ and National Bank brands and provides financial solutions
through a relationship management model for medium-sized businesses with a turnover up to NZD100 million.
- Rural Banking provides a full range of banking services to rural and agribusiness customers.
- Private Banking and Retail Specialist Units includes ANZ’s 49% stake in ING New Zealand, Private Banking operating
under the ANZ and National Bank brands and Bonus Bonds.
- UDC provides motor vehicle and equipment finance, operating leases and investment products.
- Central Support includes Treasury funding and shared services.
114

DEFINITIONS (continued)‘

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

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

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

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

115

DEFINITIONS (continued)

Net interest spread is the average interest rate received on interest earning assets less the average interest rate paid on
interest bearing liabilities. Non-assessable interest income is grossed up to the equivalent before tax amount for the
purpose of these calculations.
Net non-interest bearing items which are referred to in the analysis of interest spread and net interest average margin,
include shareholders’ equity, provision for impairment of loans and advances, deposits not bearing interest and otherliabilities not bearing interest, offset by premises and equipment and other non-interest earning assets. Non-performing
loans are included within interest bearing loans, advances and bills discounted.
Net tangible assets equals share capital and reserves attributable to shareholders of the Group less preference sharecapital and unamortised intangible assets (including goodwill and software).
Non-performing commitments and contingencies comprises undrawn facilities and contingent facilities where thecustomer’s status is defined as impaired.
Non-performing loans comprises drawn facilities where the customer’s status is defined as impaired.
Operating expenses excludes the provision for impairment of loans and advances charge.
Operating income in business segments includes equity standardised net interest and other operating income.
Overseas includes the results of all operations outside Australia, except if New Zealand is separately identified.
Overseas Markets includes all operations outside of Australia and New Zealand. The Group’s geographic segments are
Australia, New Zealand and Overseas Markets.
Return on asset ratios include net intra group assets which are risk weighted at 0% for return on risk weighted assets
calculations.
Repo discount is a discount applicable on the repurchase by a central bank of an eligible security pursuant to a repurchaseagreement.
Revenue includes net interest income and other operating income.
Segment assets represents total external assets excluding deferred tax assets.
Segment result represents equity standardised profit before income tax expense.
Segment revenue includes equity standardised net interest income and other operating income.
Significant items are items that typically have a substantial impact on profit after tax, or the earnings used in the earnings
per share calculation. Significant items also do not arise in the normal course of business and are infrequent in nature.
Divestments are typically defined as significant items.
Sub-prime represents mortgages granted to borrowers with a poor or limited credit history. Sub-prime loans carry higher
interest rates to compensate for potential losses from default.

116

ALPHABETICAL INDEXPAGEAppendix 4E Statement ...........................................................................................................................................99
Associates, joint venture entities and investments.......................................................................................................97
Business Performance Review ...................................................................................................................................37
Chief Financial Officer’s Review .................................................................................................................................11
Changes in the composition of the Group ...................................................................................................................97
Condensed Consolidated Cash Flow Statement............................................................................................................72
Condensed Consolidated Income Statement ...............................................................................................................69
Condensed Consolidated Balance Sheet .....................................................................................................................70
Condensed Consolidated Statement of Recognised Income and Expense ........................................................................71
Contingent liabilities and contingent assets.................................................................................................................93
Definitions............................................................................................................................................................114
Deposits and other borrowings..................................................................................................................................90
Dividends ...............................................................................................................................................................85
Earnings per share ..................................................................................................................................................86
Exchange rates .......................................................................................................................................................97
Financial Highlights .................................................................................................................................................. 5
Five year summary..................................................................................................................................................65
Geographic Segment Performance.............................................................................................................................57
Highlights................................................................................................................................................................ 1
Impaired financial assets..........................................................................................................................................88
Income ..................................................................................................................................................................82
Income tax expense ................................................................................................................................................84
Loan capital............................................................................................................................................................90
Net loans and advances ...........................................................................................................................................87
Note to the Cash Flow Statement ..............................................................................................................................96
Operating expenses .................................................................................................................................................83
Provision for credit impairment .................................................................................................................................89
Share capital ..........................................................................................................................................................91
Shareholders’ equity................................................................................................................................................91
Significant accounting policies...................................................................................................................................73
Significant events since balance date .........................................................................................................................98
Supplementary information - Asset-backed securities ................................................................................................113
Supplementary information - Average balance sheet and related interest .....................................................................103
Supplementary information - Capital management ....................................................................................................100
Supplementary information - Derivative financial instruments.....................................................................................109
Supplementary information - Leveraged finance........................................................................................................112
Supplementary information - Special purpose and off-balance sheet entities ................................................................110117