ANZ Basel II Pillar 3 disclosure

December 2012

2012

+

BASELIIIIBASELPILLAR33DISCLOSUREDISCLOSUREPILLARQUARTER ENDED 31 December 2012
APS 330: CAPITAL ADEQUACY & RISKMANAGEMENT IN ANZ

1

ANZ Basel II Pillar 3 disclosure

December 2012

Important noticeThis document has been prepared by Australia and New Zealand Banking Group Limited (ANZ) tomeet its disclosure obligations under the Australian Prudential Regulation Authority (APRA) Australian
Prudential Standard (APS) 330 Capital Adequacy: Public Disclosure of Prudential Information.
This disclosure was prepared as at 31st December 2012. ANZ has a continuous disclosure policy, underwhich ANZ will immediately notify the market of any material price sensitive information concerning
the Group, in accordance with legislative and regulatory disclosure requirements.

1

ANZ Basel II Pillar 3 disclosure

December 2012

Scope of application
Top corporate entity
The top corporate entity in the reporting group is Australia and New Zealand Banking Group Limited.

Table 16

Capital adequacy - Capital ratios and Risk Weighted Assets 1
Dec 12$M

Sep 12$M

Jun 12$M

Corporate

113,027

111,796

103,738

Sovereign

4,615

4,088

4,503

Bank

11,07910,964

10,579Residential Mortgage

43,66442,95943,029Qualifying Revolving Retail

7,028

7,092

7,396

Other Retail

22,511

21,277

20,984201,924

198,176

190,229

27,286

27,62827,632

Corporate

17,33918,281

26,261

Residential Mortgage

1,863

1,812

1,316

Qualifying Revolving Retail

2,112

2,028

2,007

Other Retail

1,354

1,165

1,328

22,66823,28630,912

1,132

1,170

1,229

918

1,030

1,211

3,729

3,585

3,671

257,657

254,875

254,884

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

Credit risk weighted assets subject to Advanced IRB approach

Credit risk Specialised Lending exposures subject to slotting approach

Subject to Standardised approach

Credit risk weighted assets subject to Standardised approach

Credit risk weighted assets relating to securitisation exposures
Credit risk weighted assets relating to equity exposures
Other assets
Total credit risk weighted assets

Market risk weighted assets

6,193

4,664

4,458

Operational risk weighted assets

28,124

28,12520,072

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

11,634

12,455

11,276

303,608

300,119

290,690

Level 2 Total capital ratio

12.1%

12.2%

12.3%

Level 2 Tier 1 capital ratio

10.9%

10.8%

11.1%

Total risk weighted assets
Capital ratios (%)

Credit Risk Weighted Assets (CRWA)
Total CRWA increased $2.8 billion (1.1%) from September 2012 to $257.7 billion in December 2012. The
majority of the increase was driven by growth in the Australia Commercial business and Institutional banking
portfolios. IRB Residential Mortgages RWA also increased by $0.7 billion driven mainly by growth in theAustralian portfolio.

Market Risk Weighted Assets (RWA)
Market RWA increased $1.5 billion during the quarter as portfolio diversification decreased from higher levels
observed earlier in the year under the new Basel 2.5 Stressed VaR calculation.

Operational Risk Weighted Assets
Increase in Operational RWA by $8.1 billion (40.1%) in the September 2012 quarter includes operationalmodel risk.

1

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

2

ANZ Basel II Pillar 3 disclosure

Table 17

December 2012

Credit risk exposures

Table 17(a) part (i): Period end and average Exposure at Default 2 3 4
Dec 12

Risk Weighted
Assets$M

Exposureat Default$M

Average
Exposureat Default forthree months$M

Corporate

113,027

192,141

191,884

109

127

Sovereign

4,615

73,10968,511

2-

Bank

11,07947,25245,352--

Residential Mortgage

43,664

255,208

253,024

11

15

Qualifying Revolving Retail

7,028

20,83520,874

61

79

Other Retail

22,511

34,59933,27757

80

201,924

623,144

612,918240

301

27,286

31,56831,53635

85

Corporate

17,33917,08417,5089

19

Residential Mortgage

1,863

4,086

3,930

-

-

Qualifying Revolving Retail

2,112

2,105

2,063

(5)

2

Advanced IRB approach

Total Advanced IRB approach

Specialised Lending

Individual
provision
charge forthree months$M

Write-offs forthree months$MStandardised approach

Other Retail
Total Standardised approach

Total

1,354

1,337

1,242

6

6

22,66824,612

24,74710

27251,878

679,324

669,201

285

413

2
Exposure at Default in Table 17(a) includes Advanced IRB, Specialised Lending and Standardised exposures,
however does not include Securitisation, Equities or Other Assets exposures. Exposure at Default in Table 17(a) is
net of credit risk mitigation such as guarantees, credit derivatives, netting and financial collateral.
3

Average Exposure at Default in Table 17(a) for quarter is calculated as the simple average of the balances at thestart and the end of each three month period.

4Some prior period comparatives have been restated to reflect reclassification between asset classes.

3

ANZ Basel II Pillar 3 disclosure

December 2012

Sep 12

Risk Weighted
Assets$M

Exposureat Default$M

Average
Exposureat Default forthree months$M

Corporate

111,796

191,628

185,457284

307

Sovereign

4,088

63,91463,442--

Bank

10,96443,451

42,955--Residential Mortgage

42,959250,839

249,878

17

14

Qualifying Revolving Retail

7,092

20,91221,007

63

77

Other Retail

21,277

31,954

31,66059

61

198,176

602,698594,399

423

459

27,62831,50531,59678

46

Corporate

18,281

17,933

21,832

49

12

Residential Mortgage

1,812

3,775

3,623

3

1

Qualifying Revolving Retail

2,028

2,021

2,010

(4)

2

Other Retail

1,165

1,146

1,227

4

5

23,28624,87528,69252

20

249,090659,078654,687553

525

Advanced IRB approach

Total Advanced IRB approach

Specialised Lending

Individual
provision
charge for Write-offs forthree months three months$M$M

Standardised approach

Total Standardised approach

Total

Jun 12

Risk Weighted
Assets$M

Exposureat Default$M

Average
Exposureat Default forthree months$M

Corporate

103,738

179,286

177,379

169

78

Sovereign

4,503

62,97059,538--Bank

10,57942,45841,851--

Residential Mortgage

43,029248,917

246,555

16

21

Qualifying Revolving Retail

7,396

21,102

21,24470

84

Other Retail

20,98431,36630,92572

70

190,229

586,099

577,492

327

253

27,632

31,686

31,53030

31Corporate

26,26125,73025,021

5

11

Residential Mortgage

1,316

3,473

3,306

1

-

Qualifying Revolving Retail

2,007

1,999

1,962

9

16

Advanced IRB approach

Total Advanced IRB approach

Specialised Lending

Individual
provision
charge for Write-offs forthree months three months$M$M

Standardised approach

Other Retail
Total Standardised approach

Total

1,328

1,307

1,205

(38)

5

30,91232,50931,494(23)

32

248,773

650,294

640,516

334

316

4

ANZ Basel II Pillar 3 disclosure

December 2012

Table 17(a) part (ii): Exposure at Default by portfolio type

Portfolio TypeCash and liquid assets

Dec 12$M
33,133

Sep 12$M
26,435

Jun 12$M
24,862Average for thequarter ended
Dec 12$M
29,784

Contingents liabilities, commitments, andother off-balance sheet exposures

125,808

121,752

119,559

123,780

Derivatives

27,37527,33927,24327,357

Due from other financial institutions

15,898

8,721

13,907

12,310Investment securities

17,905

18,116

17,67518,011Loans, advances and acceptances

430,836

426,803421,299

428,820

Other assets

1,231

839

1,494

1,034

Trading securities

27,13829,07324,255

28,105

Total exposures679,324

659,078

650,294

669,201

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ANZ Basel II Pillar 3 disclosure

December 2012

Table 17(b):5 Impaired asset 6 7, Past due loans 8, Provisions and Write-offs
Dec 12
Impairedloans/
facilities$M

Impairedderivatives$M

Past dueloans ≥
90 days$M

Individual
provisionbalance$M

Individual
provision
charge forthree months$M

Write-offs
for threemonths$M

Portfolios subject to Advanced IRB approach
Corporate

14

2,521

266

817

109

127

Sovereign

-

-

-

2

2

-

Bank

-

-

-

-

-

-

Residential Mortgage

-

454

883

154

11

15

Qualifying Revolving Retail

-

-

81

-

61

79

Other Retail

-

278

230

178

57

80

Total Advanced IRB approach

14

3,253

1,460

1,151

240

301

Specialised Lending

79

1,194

119

270

35

85

Corporate

2

235

46

146

9

19

Residential Mortgage

-

26

4

17

-

-

Qualifying Revolving Retail

-

50

1

50

(5)

2

Portfolios subject to Standardised approach

Other Retail

-

26

14

33

6

6

Total Standardised approach

2

337

65

246

10

27

95

4,784

1,644

1,667

285

413

Total

5

Some prior period comparatives have been restated to reflect reclassification between asset classes.

6

Impaired derivatives is net of credit valuation adjustment (CVA) of $117 million, being a market value based
assessment of the credit risk of the relevant counterparties (September 2012: $105 million; June 2012: $57 million).

7

Impaired loans / facilities include restructured items of $524 million for customer facilities in which the originalcontractual terms have been modified for reasons related to the financial difficulties of the customer. Restructuring
may consist of reduction of interest, principal or other payments legally due, or an extension in maturity materiallybeyond those typically offered to new facilities with similar risk (September 2012: $525 million; June 2012:$351million).
8
Past due loans ≥ 90 days includes $1,418 million well secured loans (September 2012: $1,475 million; June 2012:$1,664 million).

6

ANZ Basel II Pillar 3 disclosure

December 2012

Sep 12

Impairedderivatives$M

Impairedloans/
facilities$M

Past dueloans ≥ 90
days
$M

Individual
provisionbalance$M

Individual
provision
charge forthree months$M

Write-offs
for threemonths$M

Portfolios subject to Advanced IRB approach
Corporate

15

2,631

358

854

284

307

Sovereign

-

-

-

-

-

-

Bank

-

-

-

-

-

-

Residential Mortgage

-

468

898

163

17

14

Qualifying Revolving Retail

-

-

83

1

63

77

Other Retail

-

286

198

182

59

61

Total Advanced IRB approach

15

3,385

1,537

1,200

423

459

Specialised Lending

99

1,343

117

326

78

46

Corporate

2

209

30

142

49

12

Residential Mortgage

-

23

4

17

3

1

Qualifying Revolving Retail

-

65

13

53

(4)

2

Other Retail

-

55

12

35

4

5

Total Standardised approach

2

352

59

247

52

20

116

5,080

1,713

1,773

553

525

Portfolios subject to Standardised approach

Total

Jun 12

Impairedderivatives$M

Impairedloans/
facilities$M

Past dueloans ≥
90 days$M

Individual
provisionbalance$M

Individual
provision
charge forthree months$M

Write-offs
for threemonths$M

Portfolios subject to Advanced IRB approach
Corporate

3

2,566

385

887

169

78

Sovereign

-

-

3

-

-

-

Bank

-

80

-

49

-

-

Residential Mortgage

-

486

1,021

164

16

21

Qualifying Revolving Retail

-

1

97

1

70

84

Other Retail

-

291

207

181

72

70

Total Advanced IRB approach

3

3,424

1,713

1,282

327

253

121

1414

62

282

30

31

11

Specialised Lending

Portfolios subject to Standardised approach
Corporate

-

130

78

62

5

Residential Mortgage

-

21

4

15

1

-

Qualifying Revolving Retail

-

70

16

70

9

16

Other Retail

-

43

9

36

(38)

5

Total Standardised approach

-

264

107

183

(23)

32

124

5,102

1,882

1,747

334

316

Total

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ANZ Basel II Pillar 3 disclosure

December 2012

Table 17(c): Specific Provision Balance and General Reserve for Credit Losses 9
Dec 12
Specific Provision
Balance$M

General Reserve for
Credit Losses
$M

Total
$M

Collective Provision

330

2,448

2,778

Individual Provision

1,667

-

Total Provision for Credit Impairment

1,667
4,445

Sep 12
Specific Provision
Balance$M

General Reserve for
Credit Losses
$M

Total
$M

Collective Provision

334

2,431

2,765

Individual Provision

1,773

-

Total Provision for Credit Impairment

1,773
4,538

Jun 12
Specific Provision General Reserve forBalance
Credit Losses$M$M
Collective Provision

325

2,683

Individual Provision

1,747

-

Total Provision for Credit Impairment

Total
$M
3,008
1,747
4,755

9
Due to definitional differences, there is a variation in the split between ANZ’s Individual Provision and Collective
Provision for accounting purposes and the Specific Provision and General Reserve for Credit Losses (GRCL) for
regulatory purposes. This does not impact total provisions, and essentially relates to the classification of collectively
assessed provisions on defaulted accounts. The disclosures in this document are based on Individual Provision andCollective Provision, for ease of comparison with other published results.

8

ANZ Basel II Pillar 3 disclosure

Table 18

December 2012

Securitisation

Table 18(a) part (i): Banking Book - Summary of current period’s activity by underlying
asset type and facility 10
Dec 12
Original value securitised
ANZ
Originated$M-

ANZ Self
Securitised
$M
566

ANZ
Sponsored$M-

Recognised gainor loss on sale$M-

Credit cards and other personal loans

-

-

-

-

Auto and equipment finance

-

-

-

-

Commercial loans

-

-

-

-

Other

-

-

-

-

Total

-

566

-

-

Securitisation activity by underlying asset type
Residential mortgage

Notional amount$M

Securitisation activity by facility provided
Liquidity facilities

-

-

-

-

Funding facilities

-

-

-

450

Underwriting facilities

-

-

-

-

Lending facilities

-

-

-

-

Credit enhancements

-

-

-

-

Holdings of securities (excluding trading book)

-

-

-

201

Other

-

-

-

-

Total

-

-

-

651

Sep 12
Original value securitised
ANZ
Originated$M-

ANZ Self
Securitised$M
11,640ANZ
Sponsored$M-

Recognised gainor loss on sale$M-

Credit cards and other personal loans

-

-

-

-

Auto and equipment finance

-

-

-

-

Commercial loans

-

-

-

-

Other

-

-

-

-

Total

-

11,640--

Securitisation activity by underlying asset type
Residential mortgage

Notional amount$M

Securitisation activity by facility provided
Liquidity facilities

-

-

-

-

Funding facilities

-

-

-

396

Underwriting facilities

-

-

-

-

Lending facilities

-

-

-

-

Credit enhancements

-

-

-

-

Holdings of securities (excluding trading book)

-

-

-

264

Other

-

-

-

-

Total

-

-

-

660

10

Activity represents net movement in outstandings.

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ANZ Basel II Pillar 3 disclosure

December 2012

Jun 12
Original value securitised
ANZ
Originated$M-

ANZ Self
Securitised
$M
617

ANZ
Sponsored$M-

Recognised gainor loss on sale$M-

Credit cards and other personal loans

-

-

-

-

Auto and equipment finance

-

-

-

-

Commercial loans

-

-

-

-

Other

-

-

-

-

Total

-

617

-

-

Securitisation activity by underlying asset type
Residential mortgage

Notional amount$M

Securitisation activity by facility provided
Liquidity facilities

-

-

-

-

Funding facilities

-

-

-

-

Underwriting facilities

-

-

-

-

Lending facilities

-

-

-

-

Credit enhancements

-

-

-

-

Holdings of securities (excluding trading book)

-

-

-

363

Other

-

-

-

-

Total

-

-

-

363

Table 18(a) part (ii): Trading Book - Summary of current period's activity by underlying
asset type and facility
No assets from ANZ's Trading Book were securitised during the reporting period.

Securitisation activities:
ANZ’s key securitisation activities are:
• Securitisation of ANZ originated assets (including self-securitisation) – use of securitisation as afunding, liquidity and capital management tool which may or may not involve the transfer of credit
risk i.e. may or may not provide regulatory capital relief.
• Securitisation of third-party originated assets.
• Provision of facilities and services to securitisations or resecuritisations (where the underlying assets
may be ANZ or third-party originated) e.g. liquidity, funding derivatives and/or credit support,
structuring and arranging services, conduit management and (via ANZ Capel Court Limited) trust
management services.
• Investment in securities - ANZ may purchase notes issued by securitisation programmes.

10

ANZ Basel II Pillar 3 disclosure

December 2012

Table 18(b) part (i): Banking Book – Exposure at Default by exposure type

Dec 12$M

Securitisation exposure type - On balance sheet

Sep 12$M

Jun 12$M

Liquidity facilities

-

128

1,758

Funding facilities

5,384

5,007

3,198

Underwriting facilities

-

-

-

Lending facilities

-

-

-

Credit enhancements

-

-

-

2,309

2,925

2,873

Protection provided

-

-

-

Other

-

-

-

Total

7,693

8,060

7,829

Securitisation exposure type - Off balance sheet

Dec 12$M

Sep 12$M

Jun 12$M

Liquidity facilities

234

233

344

Funding facilities

6

60

-

Underwriting facilities

-

-

-

Lending facilities

-

-

-

Credit enhancements

-

-

-

Holdings of securities (excluding trading book)

-

-

-

Protection provided

-

-

-

Other

-

-

-

Total

240

293

344

Dec 12$M

Sep 12$M

Jun 12$M

Holdings of securities (excluding trading book)Total Securitisation exposure type
Liquidity facilities

234

361

2,102

Funding facilities

5,390

5,067

3,198

Underwriting facilities

-

-

-

Lending facilities

-

-

-

Credit enhancements

-

-

-

2,309

2,925

2,873

Protection provided

-

-

-

Other

-

-

-

Total

7,933

8,353

8,173

Holdings of securities (excluding trading book)

11

ANZ Basel II Pillar 3 disclosure

December 2012

Table 18(b) part (ii): Trading Book - Exposure at Default by exposure type

Dec 12$M

Sep 12$M

Jun 12$M

Liquidity facilities

-

-

-

Funding facilities

-

-

-

Underwriting facilities

-

-

-

Lending facilities

-

-

-

Credit enhancements

-

-

-

Holdings of securities

26

10

24

Protection provided

-

-

-

Other

-

-

-

Total

26

10

24

Dec 12$M

Sep 12$M

Jun 12$M

Liquidity facilities

-

-

-

Funding facilities

-

-

-

Underwriting facilities

-

-

-

Lending facilities

-

-

-

Credit enhancements

-

-

-

Holdings of securities

-

-

-

Protection provided

-

-

-

Other

-

-

-

Total

-

-

-

Dec 12$M

Sep 12$M

Jun 12$M

Liquidity facilities

-

-

-

Funding facilities

-

-

-

Underwriting facilities

-

-

-

Lending facilities

-

-

-

Credit enhancements

-

-

-

Holdings of securities

26

10

24

Protection provided

-

-

-

Other

-

-

-

Total

26

10

24

Securitisation exposure type - On balance sheet

Securitisation exposure type - Off balance sheet

Total Securitisation exposure type12

ANZ Basel II Pillar 3 disclosure

December 2012

Glossary
Collective provision (CP)Collective provision is the provision for credit losses that are
inherent in the portfolio but not able to be individually
identified. A collective provision may only be recognised when aloss event has already occurred. Losses expected as a result of
future events, no matter how likely, are not recognised.

Credit exposure

The aggregate of all claims, commitments and contingent
liabilities arising from on- and off-balance sheet transactions (inthe banking book and trading book) with the counterparty orgroup of related counterparties.

Credit risk

The risk of financial loss resulting from the failure of ANZ’scustomers and counterparties to honour or perform fully theterms of a loan or contract.

Credit Valuation Adjustment (CVA)

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

Days past due

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

Exposure at Default (EAD)

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

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

Impaired loans (IL)Impaired loans comprise of drawn facilities
customer’s status is defined as impaired.

Individual provision charge (IPC)

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

Individual provisions (IP)Individual provisions are assessed on a case-by-case basis for
all individually managed impaired assets taking into
consideration factors such as the realisable value of security (orother credit mitigants), the likely return available uponliquidation or bankruptcy, legal uncertainties, estimated costs
involved in recovery, the market price of the exposure insecondary markets and the amount and timing of expected
receipts and recoveries.

13

where

the

ANZ Basel II Pillar 3 disclosure

December 2012

Market risk

The risk to ANZ’s earnings arising from changes in interest
rates, currency exchange rates and credit spreads, or fromfluctuations in bond, commodity or equity prices. ANZ has
grouped market risk into two broad categories to facilitate themeasurement, reporting and control of market risk:
Traded market risk - the risk of loss from changes in the valueof financial instruments due to movements in price factors forphysical and derivative trading positions. Trading positions arise
from transactions where ANZ acts as principal with clients orwith the market.
Non-traded market risk (or balance sheet risk) - comprises
interest rate risk in the banking book and the risk to the AUD
denominated value of ANZ’s capital and earnings due to foreignexchange rate movements.

Operational risk

The risk of loss resulting from inadequate or failed internal
controls or from external events, including legal risk but
excluding reputation risk.

Past due facilities

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

Recoveries

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

Restructured items

Restructured items comprise facilities in which the originalcontractual terms have been modified for reasons related to thefinancial difficulties of the customer. Restructuring may consistof reduction of interest, principal or other payments legally due,or an extension in maturity materially beyond those typicallyoffered to new facilities with similar risk.

Risk Weighted Assets (RWA)

Assets which are weighted for credit risk according to a set
formula (APS 112/113).

Securitisation risk

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

Write-Offs

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

14

ANZ Basel II Pillar 3 disclosure

December 2012

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ANZ Basel II Pillar 3 disclosure

December 201216