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

Half Year
31 March 2007

Consolidated Financial Report
Dividend Announcement andAppendix 4D

This document contains the information required by Appendix 4D of the Australian Securities Exchange Listing Rules, should
be read in conjunction with ANZ’s 2006 Concise Annual and Financial Reports, and is lodged with the Australian Securities
Exchange under listing rule 4.2A

This page has been left blank intentionally

RESULTS FOR ANNOUNCEMENT TO THE MARKET

Name of Company:

APPENDIX 4D

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

Report for the half year ended 31 March 2007
A$ million
Group operating revenue

×13%^

to

5,613

Profit after tax attributable to shareholders

×16%^

to

2,102

Proposed interim dividend per ordinary share, fully franked at 30% tax rate
Interim 2006 dividend per ordinary share, fully franked at 30% tax rate

Record date for the proposed interim dividend

62 cents
56 cents

18 May 2007

The proposed interim dividend will be payable to shareholders registered in the books of the Company at
7:00 pm (Melbourne time) on 18 May 2007.

Payment date for the proposed interim dividend^

2 July 2007

Compared to March 2006

Highlights
All figures compared to March 2006 half year unless otherwise indicatedProfit after tax
Profit $2,102 million

up 16.1%

Cash* profit $1,936 million

up 11.8%

Cash* profit before provisions $2,995 million

up 12.1%

Earnings per share
EPS 113.2 centsup 15.0%

Cash* EPS 104.2 centsup 10.9%

Shareholder return
Interim dividend 62 centsup 10.7%

Total Shareholder Return

17.1%

Cash* Return on equity

19.7%

Business highlights*
Strong revenue momentum and continued investment with 2,120 new FTEs
Strong result in Personal – revenue up 14.4%, profit up 21.6%
Institutional profit up 10.6%. Profit before provisions more modest at 4.2%
Good underlying momentum in New Zealand Businesses up 13.5% but offset by provisioning
Continued growth in customer acquisition in Australia and a successful turnaround in New ZealandAchieved targeted revenue and productivity:
Revenue growth 9.1% (10.4% FX adjusted)
Cost-Income ratio 44.3% (down 1.5% from 45.8%, medium-term target 40%)
Credit quality remains strong, better than expected provisions due to recoveries late in the half
Adjusted Common Equity ratio middle of target range at 4.4%*

Adjusted for non-core items (including significant items, ANZ National Bank incremental integration costs and AIFRS mark to market of certain hedge
gains/losses)

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AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITEDABN 11 005 357 522

CONSOLIDATED FINANCIAL REPORT, DIVIDEND ANNOUNCEMENT and APPENDIX 4D
Half year ended 31 March 2007

CONTENTSPAGEHIGHLIGHTS

1

FINANCIAL HIGHLIGHTS

5

Profit5

Cash profit

5

Earnings per share

6

Balance Sheet

6

Financial ratios

7

Business unit analysis

9

CHIEF FINANCIAL OFFICER’S REVIEW

11March 2007 half year compared to March 2006 half year

11

March 2007 half year compared to September 2006 half year13

Non-core items

13

Income and expenses

15

Credit Risk

21

Income Tax Expense

24

Earnings per share

24

Dividends

25

TM

25

EVA

Reconciliation

Market Risk

26

Balance Sheet

27

Capital Management

29

Deferred acquisition costs and deferred income

31

Software capitalisation

31

BUSINESS PERFORMANCE REVIEW33

GEOGRAPHIC SEGMENT PERFORMANCE

53

FOUR YEAR SUMMARY BY HALF YEAR61

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – TABLE OF CONTENTS

64

DIRECTORS’ DECLARATION

96

AUDITORS’ REVIEW REPORT AND INDEPENDENCE DECLARATION

97

SUPPLEMENTARY INFORMATION

98

Capital Management98

Derivative financial instruments

101

DEFINITIONS

103

ALPHABETICAL INDEX

105

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 Company has a formally constituted Audit Committee of the Board of
Directors. This report was approved by resolution of a Committee of the Board of Directors on 26 April 2007.
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 “forwardlooking 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 the datehereof or to reflect the occurrence of unanticipated events.

This page has been left blank intentionallyHIGHLIGHTSFor Release: 26 April 2007

ANZ 2007 Interim Profit $2,102 million
Profit after tax

Profit $2,102 million

up 16.1%

Cash* profit $1,936 million

up 11.8%

Cash* profit before provisions $2,995 million

up 12.1%

Earnings per share

EPS 113.2 centsup 15.0%

Cash* EPS 104.2 centsup 10.9%

Shareholder return

Interim dividend 62 centsup 10.7%

Total Shareholder Return

17.1%

*

Cash Return on equity

19.7%

Business highlights*
Strong revenue momentum and continued investment with 2,120 new FTEs
Strong result in Personal – revenue up 14.4%, profit up 21.6%
Institutional profit up 10.6%. Profit before provisions more modest at 4.2%
Good underlying momentum in New Zealand Businesses up 13.5% but offset by provisioning
Continued growth in customer acquisition in Australia and a successful turnaround in New ZealandAchieved targeted revenue and productivity:
Revenue growth 9.1% (10.4% FX adjusted)
Cost-Income ratio 44.3% (down 1.5% from 45.8%, medium-term target 40%)
Credit quality remains strong, better than expected provisions due to recoveries late in the half
Adjusted Common Equity ratio middle of target range at 4.4%

* Adjusted for non-core items (including significant items, ANZ National Bank incremental integration costs and AIFRS markto market of certain hedge gains/losses)
All figures compared to March 2006 half year unless otherwise indicated1

HIGHLIGHTS (continued)

For Release: 26 April 2007

ANZ 2007 Interim Profit $2,102 million
Australia and New Zealand Banking Group Limited (ANZ) today announced a record profit after tax of$2,102 million for the half year ended 31 March 2007, up 16.1%. Earnings per share were 113.2 cents,
up 15.0%.
The headline result included a one-off gain on the Fleetpartners sale. Adjusting for non-core items, cash*
profit was $1,936 million, up 11.8% and cash* EPS was up 10.9%. The proposed Interim dividend of
62 cents is up 10.7% on last year.
ANZ Chief Executive Officer Mr John McFarlane said: “This is a good result in a highly competitive market.
It builds on seven years of systematic investment in our customers and our people.
“We achieved strong revenue growth of 9.1%*, or adjusting for exchange rates at 10.4%, which is above
the top end of our target range. Good cost management enabled us to maintain a gap between revenue
and expense growth of 3.5%, which brought down our cost income ratio by 1.5% to 44.3%. Althoughprovisioning rose, it ended below our expectations as a result of large recoveries late in the half. Returnon equity remained broadly stable at 19.7%*.
“We had particularly strong results in Personal, which was the highlight. INGA, Asia and Private Banking
also delivered strong performances. New Zealand Businesses came in with their best underlying result inrecent years, but was impacted by provisions increasing from unsustainably low levels. Institutional
NPAT growth was double-digit, benefiting from net provision recoveries but was weaker in revenue andprofit before provisions.
“We are continuing to invest in the future. Over the past year, we added a further 2,120 people, andopened 26 new branches in Australia and New Zealand. We announced our intention to expand ourinternational franchise in Malaysia, China, Guam and Laos. At the same time we managed to achieve
good revenue/expense productivity. There is also a greater focus on efficiency, partly to help fundinvestment initiatives, but also to enhance bottom line results.
“Net interest margin decline was better than historical experience, falling just 5 basis points. Credit
quality remains strong. Although provisions rose, they were significantly lower than we expected, due tolarge recoveries late in the half. We continue to expect a substantial increase in provisions in the second
half, with no material recoveries expected.
“We continued to advance the foundation and capability of the organisation. Staff engagement again
improved to 64% from 60%, and we have a culture that others would find difficult to replicate. We also
have strong customer, community and shareholder recognition. Although there is still much more to do,
ANZ is now clearly seen as a very different bank.
Outlook
Commenting on the outlook for ANZ, Mr McFarlane said: “Conditions remain supportive of good growth.
Personal should continue to do well, but may find it difficult to sustain such unusually high levels of
growth. We expect to see continued momentum in New Zealand, and Institutional has taken action to
improve revenue and expense performance in the second half. Looking ahead, the growth we are now
seeing from Asia will become more material to the Group.
“For the 2007 year, ANZ’s revenue and expenses are expected to be in line with previous guidance of
7%-10% revenue growth and 5%-7% cost growth. While the credit environment is benign, we expect
provisions to be significantly higher in the second half, with the first half unusually low due to recoveries.
“All in all, this is a good result. It sets us up well for the year as a whole and positions us well for theyears ahead”, Mr McFarlane said.
* Adjusted for non-core items (including significant items, ANZ National Bank incremental integration costs and AIFRS mark to market of certain hedge
gains/losses)
All figures compared to March 2006 half year unless otherwise indicated2

HIGHLIGHTS (continued)

Divisional Performance
Personal delivered another outstanding result with a clear strategy that was well executed. Profit
growth was 21.6% on revenue growth of 14.4%. All businesses delivered double-digit earnings growth,with the exception of Mortgages, which was adversely impacted by the expectations of rising rates andstrong price competition. Investment and Insurance Products (up 47%), Esanda (up 36%), Consumer
Finance (up 39%) assisted by the sale of MasterCard shares, Pacific (up 20%), and Banking Products (up22%), were all particularly strong.
Revenue growth was double the 7% expense growth. Staff numbers were up 8%, and we opened 9 newbranches in the first half, with a further 31 openings planned in the second half. Credit costs increased inline with expectations at 18%, due to portfolio growth and the seasoning of our credit card and personalloan portfolios.
Institutional delivered net profit growth of 10.6%. However, revenue growth was more subdued at 5%with average interest earning asset growth of 9% and deposit growth of 14%, offset by contracting credit
margins. Staff numbers grew 11% and resultant expense growth was 7%, reducing Profit Before
Provisions to 4%. Provisioning showed a net recovery of $6 million with large recoveries late in the half,
offsetting modest new provisions. Over recent years, we have sought to curtail low margin asset growth
and to reduce our reliance on lending over time. This naturally reduces revenue. Encouragingly, Returnon Risk Weighted Assets improved accordingly. Strong revenue growth in Markets and Corporate &Structured Financing was offset by weaker performance from the other units.
New Zealand Businesses profit after tax was up 8.1% in New Zealand dollars, with good revenue
growth of 8%. Profit before provisions was strong at 13%, offset by a large increase in credit costs,
which bounced from unsustainably low levels. Expense growth was well contained at 4%. Corporate andCommercial Banking, ANZ Retail, The National Bank Retail, Rural Banking, and UDC all delivered
double-digit Profit Before Provisions growth. Despite higher credit costs they are still well below cycle
average, and credit quality remains strong, with the level of net non-performing loans (0.08%) andindividual provision charges (0.07%) well below that seen in Australia.
Partnerships delivered very strong growth, with revenue up 38% and profit after tax up 30%. ING
Australia is now delivering good momentum, with profit up 29%, and is well placed to deliver even better
returns as it moves beyond the legacy issues that have constrained performance until now. International
Partnerships profit after tax grew 57% assisted by a full six month return from Bank of Tianjin. Growthin Partnership earnings should accelerate in the second half, with the expected inclusion of earnings from
AMMB Holdings Berhad (AMMB).

For media enquiries, contact:

For analyst enquiries, contact:

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

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

3

HIGHLIGHTS (continued)

Group
1

Key Business Drivers

Personal

Half year
Mar 2007

Change2

Change2

Institutional
Continuing
ChangeNew ZealandBusinesses
(NZD)

2

Change2

Total assets$m

351,724

9%

11%

7%

13%

Deposits & other borrowings$m

210,585

7%

10%

16%

2%

Average interest earning assets$m

323,510

10%

12%

9%

13%

Net interest margin

bps

2.24

(5bps)(2bps)(11bps)(10bps)

Net interest income

$m

3,611

7%

11%

2%

9%

Other operating income

$m

1,770

13%

24%

10%

7%

Total income

$m

5,381

9%

14%

5%

8%

FTE

No.

33,183

7%

8%

11%

4%

Operating expenses

$m

2,386

6%

7%

7%

4%

$m

2,995

12%

21%

4%

13%

Individual provision charge

$m

188

0%

45%

(114%)

136%

Collective provision charge

$m

52

44%

(38%)

(133%)

large

Total provision for credit impairment

$m

240

7%

18%

(112%)

large

Cash profit

$m

1,936

12%

22%

11%

8%

EVA

$m

1,119

10%

24%

-1%

22%

ActualActualActual(0.07)

Profit before provisions

3

1

Other Measures
Individual provision (charge)/credit
as a % of average net advances

%

0.14

(1bps)(0.23)

0.02

Return on average assets

%

1.11

1bps

1.01

1.17

1.06

Return on average RWAs

%

1.59

6bps

1.72

1.41

1.36

Cost to income ratio

%

44.3

(150bps)

47.0

38.9

48.1

Cost to average assets

%

1.37

(7bps)

1.53

1.06

1.55

1.

All numbers adjusted for non-core items

2.

Compared to half year ended 31 March 2006

3.

Profit before credit impairment and income tax

4FINANCIAL HIGHLIGHTS

ProfitHalfyear
Mar 07
$M

Half
year
Sep 06
$M

Half
year
Mar 06
$M

Movt
Movt
Mar 07
Mar 07v. Sep 06 v. Mar 06%%

Net interest income

3,611

3,575

3,368

1%

7%

Other operating income

2,002

1,614

1,595

24%

26%
13%

Operating income

5,613

5,189

4,963

8%

Operating expenses(2,386)(2,346)(2,185)2%

9%Profit before credit impairment and income tax

3,227

2,843

2,778

14%

16%

Provision for credit impairment

(240)

(183)

(224)

31%

7%
17%

Profit before income tax

2,987

2,660

2,554

12%

Income tax expense

(883)

(780)

(742)

13%

19%

Minority interest
Profit attributable to shareholders of the Company

(2)
2,102

(3)
1,877

(1)
1,811

-33%
12%

100%
16%

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

Profit attributable to shareholders of the Company

Movt
Movt
Mar 07
Mar 07v. Sep 06 v. Mar 06
%
%

Half
year
Mar 07
$M

Half
year
Sep 06
$M

Half
year
Mar 06
$M

2,102

1,877

1,811

12%

141

-

-

n/a

n/a

-

-

14

n/a

-100%

16%

Less: Non-core items
1
Significant items
Sale of Esanda Fleetpartners
Settlement of ANZ National Bank claims
Settlement of NHB insurance claim
Total significant items
2

Ineffective hedge fair value gains/losses

2

NZD revenue hedge mark to market volatility

3

ANZ National Bank incremental integration costs
Total non-core items
Cash profit

-

-

79

n/a

-100%

141

-

93

n/a

52%

28

21

13

33%

large

(3)

-

-

n/a

n/a

-

-

(26)

n/a

-100%

166

21

80

large

large

1,936

1,856

1,731

4%

12%

1.

In the March 2007 half ANZ has classified the profit on sale of Esanda Fleetpartners of $195 million ($141 million after tax) as a significant item. In the March
2006 half ANZ classified the $113 million ($79 million after tax) settlement of the NHB insurance matter and the $14 million settlement of a dispute with Lloyds
TSB over the accounting treatment of certain items in the completion accounts for the acquisition of National Bank of New Zealand Limited (tax on settlement:$nil) 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 13)

2.

The Group enters into economic hedges to manage its interest rate and foreign exchange risk. In the March 2007 half ANZ has classified $28 million after tax(Sep 2006 half: $21 million; Mar 2006 half: $13 million) relating to economic hedging as a non-core item (tax impact $13 million (Sep 2006 half: $10 million; Mar2006 half: $5 million)). Included in this non-core amount is ineffectiveness arising from designated accounting hedges, any volatility arising from usage of the fairvalue option and approved classes of derivatives not designated in accounting hedge relationships but that are considered to be economic hedges. In addition,
ANZ has classified a $3 million loss after tax (Sep 2006 half: $nil; Mar 2006 half: $nil) relating to New Zealand 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 $1 million credit). ANZ excludes volatility
associated with fair value movements on these transactions to provide a better indication of the core business performance (refer page 14)

3.

In the March 2006 half ANZ incurred $26 million after tax from ANZ National Bank incremental integration costs. Tax on ANZ National Bank incremental
integration costs was $13 million. The integration program was completed in March 2006. ANZ National Bank incremental integration costs are excluded to betterreflect the core cost base and assist analysis of the cost base following completion of the integration

5

FINANCIAL HIGHLIGHTS (continued)

Cash profit, cont’d
Analysis of Cash1 profit by key line item:
Half
year
Mar 07
$M

Half
year
Sep 06
$M

Half
year
Mar 06
$M

Movt
Movt
Mar 07
Mar 07v. Sep 06 v. Mar 06%%

Net interest income

3,611

3,575

3,368

1%

7%

Other operating income

1,770

1,583

1,563

12%

13%

Operating income

5,381

5,158

4,931

4%

9%

Operating expenses(2,386)(2,346)(2,259)

2%

6%
12%

Profit before credit impairment and income tax

2,995

2,812

2,672

7%

Provision for credit impairment

(240)

(183)

(224)

31%

7%

Profit before income tax

2,755

2,629

2,448

5%

13%

Income tax expense

(817)

(770)

(716)

6%

14%

Minority interest

(2)
1,936

(3)
1,856

(1)
1,731

-33%
4%

100%
12%

Half
year
Mar 07
$M

Half
year
Sep 06
$M

Half
year
Mar 06
$M

Basic

113.2

101.6

98.4

11%

15%

Diluted1
Cash (basic adjusted for non-core items)

110.0

98.5

95.5

12%

15%

104.2

100.5

94.0

4%

11%

As at
Mar 07$M

As at
Sep 06$M

As at
Mar 06$M

15,43315,01913,870

3%

11%

6,439

9,665

8,336

-33%

-23%

1

Cash profit

Earnings per share
Movt
Movt
Mar 07
Mar 07v. Sep 06 v. Mar 06%%

Earnings per ordinary share (cents)

Balance Sheet
Movt
Movt
Mar 07
Mar 07v. Sep 06 v. Mar 06%%

AssetsLiquid assets
Due from other financial institutions
Trading and available for sale assets
Net loans and advances including acceptances
Other
Total assets

24,10019,83222,00822%

10%281,822

269,384

255,7455%

10%23,93020,74022,22215%8%351,724

334,640

322,1815%

9%Liabilities
Due to other financial institutions

14,872

14,11813,3455%

11%

210,585

204,794

196,8503%

7%Liability for acceptances

14,013

13,435

13,692

4%

2%

Bonds and notes

54,18850,05046,923

8%

15%
14%

Deposits and other borrowings

Other
Total liabilities
Total shareholders' equity
1.

Refer footnotes 1 to 3 on page 5

637,15632,33732,57515%

330,814314,734

303,3855%9%20,91019,906

18,796

5%

11%

FINANCIAL HIGHLIGHTS (continued)

Financial ratios

Profit attributable to shareholders of the Company

Half
year
Mar 07
$M

Half
year
Sep 06
$M

Half
year
Mar 06
$M

2,102

1,877

1,811

Cash profit

1

1,936

1,856

1,731

TM 2

1,119

1,069

1,013

20.9%

EVA

Profitability ratios
Return on:
3

21.3%

20.4%

Average ordinary shareholders' equity (cash profit basis)

19.7%

20.2%

20.0%

Average assets

1.21%

1.13%

1.15%

Average ordinary shareholders' equity

3

1

1

Average assets (cash profit basis)

1.11%

1.11%

1.10%

Average risk weighted assets

1.73%

1.59%

1.60%

1

Average risk weighted assets (cash profit basis)

1.59%

1.57%

1.53%

Total income

14.4%

14.2%

14.5%

Net interest margin
Profit per average FTE ($)

2.24

2.33

2.29

64,20359,187

58,202

Efficiency ratios
Operating expenses to operating income

42.5%

45.2%

44.0%

Operating expenses to average assets

1.37%

1.41%

1.39%

44.3%

45.5%

45.8%

1.37%

1.41%

1.44%

1

Operating expenses to operating income (cash )1

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

52

33

36

Individual provision charge

188

150

188

Total provision charge

240

183

224

0.14%

0.11%

0.15%

Interim - 100% franked (Mar 06: 100% franked)

62

n/a

56

Final - 100% franked (Sep 06: 100% franked)

n/a

69

n/a

54.9%

68.0%

56.9%

59.6%

68.8%

59.6%

17

15

12

Individual provision charge as a % of average net advances
Ordinary share dividends (cents)

4

Ordinary share dividend payout ratio
14Cash ordinary share dividend payout ratio
Preference share dividend (cents)
5

Dividend paid
1.

Refer footnotes 1 to 3 on page 5

2.

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

3.

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

4.

Dividend payout ratio is calculated using the proposed interim dividend as at 31 March 2007, the 30 September 2006 and 31 March 2006 dividends

5.

Represents dividends paid on Euro Hybrid issued on 13 December 2004

7

FINANCIAL HIGHLIGHTS (continued)

Financial ratios, cont’d
As at
Mar 07As at
Sep 06As at
Mar 06Movt
Movt
Mar 07
Mar 07v. Sep 06 v. Mar 06%%

Net Assets
1

9.01

8.53

7.99

6%

13%

Net tangible assets attributable to ordinary shareholders ($M)

1

16,613

15,664

14,6196%

14%

Total number of ordinary shares (M)1,844.7

1,836.6

1,828.7

0%

1%

6.7%

6.8%

6.8%

Net tangible assets per ordinary share ($)

Capital adequacy ratio (%)
Tier 1
Tier 2

4.3%

4.2%

4.0%

10.3%

10.6%

10.4%

Adjusted Common Equity ratio

4.4%

4.7%

5.0%

Risk weighted assets EOP ($M)

250,485

240,219

230,653

Collective provision ($M)

1,981

1,940

1,903

2%

4%

Collective provision as a % of risk weighted assets

0.79%

0.81%

0.83%

-2%

-5%

Total capital ratio
2

Impaired assets

Gross non-performing loans ($M)

640

661

726

-3%

-12%

Individual provisions on non-performing loans ($M)

(275)

(279)

(305)

-1%

-10%

Net non-performing loans ($M)

365

382

421

-4%

-13%

Individual provision as a % of total non-performing loans

43.0%

42.2%

42.0%

2%

2%

Gross non-performing loans as % of net advances

0.23%

0.25%

0.28%

-8%

-18%

0.13%

0.14%

0.16%

-7%

-19%

1.7%

1.9%

2.2%

-11%

-23%

33,18332,256

31,063

3%

7%

10.6

10.4

10.4

2%

2%

54,78849,331

48,461

11%

13%

3

Net non-performing loans as a % of net advances4

Net non-performing loans as a % of shareholders' equity
Other information
Full time equivalent staff (FTEs)
Assets per FTE ($M)
Market capitalisation of ordinary shares ($M)
1.

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

2.

Adjusted common equity is calculated as Tier 1 capital, less Innovative Tier 1 capital instruments (converted at balance date spot rates), less transitional Tier 1
capital relief and deductions. This measure is commonly used to assess the adequacy of common equity held. See page 98 for a reconciliation to Tier 1 capital3.

Excludes individual provision on unproductive facilities

4.

Includes minority interest

8

FINANCIAL HIGHLIGHTS (continued)

Business unit analysis
Movt
Movt
Half
Mar 07
Mar 07year
Mar 06 v. Sep 06 v. Mar 06
%
%
$M

Half
year
Mar 07
$M

Half
year
Sep 06$M

Personal

709

654

583

8%

22%

Institutional

750

701

678

7%

11%

351

339

337

4%

4%

103

91

79

13%

30%
-100%

1

Profit after income tax

New Zealand Businesses

2Partnerships & Private Bank
Non-continuing businesses
Group Centre
Cash profit
3

Non-core items
Profit
1.

-

22

31

-100%

23

49

23

-53%

0%

1,936

1,856

1,731

4%

12%

166

21

80

large

large

2,102

1,877

1,811

12%

16%

Prior period numbers have been adjusted for organisational structure changes. Refer page 33 for an explanation of the changes

2.

New Zealand Businesses growth rates in NZD terms were (1%) and 8% compared to the September 2006 half year and March 2006 half year respectively

3.

Refer footnotes 1 to 3 on page 5

Movt
Movt
Mar 07
Mar 07v. Sep 06 v. Mar 06
%
%

As at
Mar 07$M

As at
Sep 06$M

As at
Mar 06$M

140,226

133,652

126,7765%73,30871,43669,4743%

6%

66,672

61,93756,9358%

17%Partnerships & Private Bank

1,592

1,270

1,204

25%

32%

Non-continuing businesses

-

1,054

1,337

-100%

-100%

24
281,82235
269,38419
255,745

-31%
5%

26%
10%

Net loans and advances including
acceptances by business unit

1

Personal
Institutional
New Zealand Businesses

2Group Centre
Net loans and advances including acceptances
1.

Prior period numbers have been adjusted for organisational structure changes. Refer page 33 for an explanation of the changes

2.

New Zealand Businesses growth rates in NZD terms were 6% and 13% compared to the September 2006 half year and March 2006 half year respectively

11%

Movt
Movt
Mar 07
Mar 07v. Sep 06 v. Mar 06
%
%

As at
Mar 07$M

As at
Sep 06$M

As at
Mar 06$M

Personal

67,74864,977

61,8184%

10%Institutional

76,094

69,23965,38110%

16%

42,467

41,987

40,135

1%

6%

1,233

1,159

983

6%

25%

23,043
210,585

27,432
204,794

28,533
196,850

-16%
3%

-19%
7%

Deposits and other borrowings by business unit

New Zealand Businesses

12Partnerships & Private Bank
Group Centre
Deposits and other borrowings
1.

Prior period numbers have been adjusted for organisational structure changes. Refer page 33 for an explanation of the changes

2.

New Zealand Businesses growth rates in NZD terms were 0% and 2% compared to the September 2006 half year and March 2006 half year respectively

Movt
Movt
Mar 07
Mar 07v. Sep 06 v. Mar 06
%
%

As at
Mar 07$M

As at
Sep 06$M

As at
Mar 06$M

Customer funding

170,450

158,905

145,602

7%

17%

Wholesale funding
Deposits and other borrowings

40,135
210,585

45,889204,794

51,248
196,850

-13%
3%

-22%
7%

Deposits and other borrowings by funding type9

This page has been left blank intentionally10

CHIEF FINANCIAL OFFICER’S REVIEWMarch 2007 half year compared to March 2006 half year
ANZ recorded a profit after tax of $2,102 million for the half year ended 31 March 2007, an increase of 16% over the March
2006 half year. Earnings per share increased 15% to 113.2 cents over the March 2006 half year. After adjusting fornon-core items1 referred to on pages 13 to 14, Cash1 profit increased 12% to $1,936 million and Cash EPS increased 11% to104.2 cents.

Profit attributable to shareholders of the Company
1

Less: Non-core items (refer to page 13)
1Cash profit

Movt
Movt
Mar 07
Mar 07v. Sep 06 v. Mar 06
%
%

Half
year
Mar 07
$M

Half
year
Sep 06
$M

Half
year
Mar 06
$M

2,102

1,877

1,811

12%

16%

(166)
1,936

(21)
1,856

(80)
1,731

large
4%

large
12%

Half
year
Mar 07
$M

Half
year
Sep 06
$M

Half
year
Mar 06$M

Cash1 profit

Movt
Movt
Mar 07
Mar 07v. Sep 06 v. Mar 06%%

Net interest income

3,611

3,575

3,368

1%

7%

Other operating income

1,770

1,583

1,563

12%

13%
9%

Operating income

5,381

5,158

4,931

4%

Operating expenses(2,386)(2,346)(2,259)2%

6%

Profit before credit impairment and income tax

2,995

2,812

2,672

7%

12%

Provision for credit impairment

(240)

(183)

(224)

31%

7%

Profit before income tax

2,755

2,629

2,448

5%

13%

Income tax expense

(817)

(770)

(716)

6%

14%

Minority interest

(2)
1,936

(3)
1,856

(1)
1,731

-33%
4%

100%
12%

1

Cash profit

Profit growth

Cash profit increased 12% to $1,936 million. Core1 revenue increased 9% with growth in average interest earning assets
offset by reduced margins (-5 basis points), higher fee income from volume growth and pricing initiatives, higher markets
income and higher other income from equity accounting earnings and other investments. Operating expense growth of 6%
reflected ongoing investment in the business. Provision for credit impairment increased 7% with growth in Personal and New
Zealand offset by high recoveries in Institutional.
In Australia, cash profit increased 19% over the March 2006 half year with solid growth across all Personal businesses andhigher Institutional revenue, primarily in Markets. Provision for credit impairment reduced with large recoveries during the
March 2007 half.
Cash profit in New Zealand decreased 2% (an increase of 2% in NZD terms) reflecting weaker Markets income and anincrease in collective provision charge. Operating income increased 4% in NZD terms with lending growth of 11% partly
offset by a decline in net interest margin of 9 basis points and lower revenue in Markets following the strong performance in
the March 2006 half. Operating expense growth was contained to 2%.
Within Overseas Markets, cash profit in Asia and Pacific increased 40% and 7% respectively, driven by strong growth in theInstitutional business in Singapore, higher equity accounting income in Asia and balance sheet growth in the Pacific. Cashprofit in the UK and US decreased driven by reduced profit in non-continuing businesses and repatriation of capital, partly
offset by revenue growth in the March 2007 half with increased trading income in Markets.
1.

In the March 2007 half ANZ has classified the profit on sale of Esanda Fleetpartners of $195 million ($141 million after tax) as a significant item. In the March
2006 half ANZ classified the $113 million ($79 million after tax) settlement of the NHB insurance matter and the $14 million settlement of a dispute with Lloyds
TSB over the accounting treatment of certain items in the completion accounts for the acquisition of National Bank of New Zealand Limited (tax on settlement:$nil) 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 13)
The Group enters into economic hedges to manage its interest rate and foreign exchange risk. In the March 2007 half ANZ has classified $28 million after tax(Sep 2006 half: $21 million; Mar 2006 half: $13 million) relating to economic hedging as a non-core item (tax impact $13 million (Sep 2006 half: $10 million; Mar2006 half: $5 million)). Included in this non-core amount is ineffectiveness arising from designated accounting hedges, any volatility arising from usage of the fairvalue option and approved classes of derivatives not designated in accounting hedge relationships but that are considered to be economic hedges. In addition,
ANZ has classified a $3 million loss after tax (Sep 2006 half: $nil; Mar 2006 half: $nil) relating to New Zealand 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 $1 million credit). ANZ excludes volatility
associated with fair value movements on these transactions to provide a better indication of the core business performance (refer page 14)
In the March 2006 half ANZ incurred $26 million after tax from ANZ National Bank incremental integration costs. Tax on ANZ National Bank incremental
integration costs was $13 million. The integration program was completed in March 2006. ANZ National Bank incremental integration costs are excluded to betterreflect the core cost base and assist analysis of the cost base following completion of the integration

11

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

March 2007 half year compared to March 2006 half year, cont’d
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 New Zealand revenue.
Movements in exchange rates have resulted in a $22 million decrease in Cash2 profit for the March 2007 half year, principally
due to the translation of NZD earnings net of associated revenue hedges which are booked in Australia as foreign exchangeearnings. 2006 NZD earnings were translated at an effective exchange rate of 1.105 and the March 2007 half year NZD
earnings were translated at an effective rate of 1.145.
Half Year Mar 07
v. Half Year Sep 06
FX
unadjusted% growth

Net interest income

3

FX
adjusted% growth

Half Year Mar 07
v. Half Year Mar 06

FX impact$M

FX
unadjusted% growth

FX
adjusted% growth

FX impact
$M

(38)

1%

1%

(9)

7%

8%

12%

11%

15

13%

15%

(22)

Operating income

4%

4%

6

9%

10%

(60)

Operating expenses

2%

1%

(25)

6%

7%

27

Other operating income

4

Profit before credit impairment and income tax

7%

7%

(19)

12%

13%

(33)

Provision for credit impairment

31%

30%

(1)

7%

8%

1

Profit before income tax

5%

6%

(20)

13%

14%

(32)

Income tax expense

6%

7%

5

14%

16%

10

-33%

-33%

-

100%

100%

-

4%

5%

(15)

12%

13%

(22)

Minority interest
2
Cash profit
1.

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

2.

Refer footnote 1 on page 11

3.

In 2006, revenue hedge earnings were included in net interest income which resulted in an impact in the March 2007 half of an increase over the March 2006 halfof $3 million and a decrease of $49 million over the September half4.

In 2007, revenue hedge earnings were included in other operating income which resulted in an impact in the March 2007 half of a decrease over the March 2006
half of $1 million and a decrease of $1 million over the September 2006 half

Profit drivers

Profit after tax increased 16% over the March 2006 half year and Cash1 profit increased 12% over the March 2006 half year.
For a discussion of the impact of non-core items refer pages 13 to 14. Key influences on profit are shown below.
Explanations are on cash profit adjusted for non-core items:
Net interest ×7% - Adjusted for non-core items1 ×7%:

Net interest income was driven by growth of 10% in average interest earning assets (11% excluding the impact of exchange rates)with strong growth in New Zealand (9%, or 13% excluding exchange rate impact) and Personal (12%). Average deposits and otherborrowings grew 6% (8% excluding exchange rates) following strong growth in Institutional (14%), Personal (11%) and New
Zealand (1%, or 5% excluding exchange rates). Volume growth was offset by a 5 basis point decline in margin, primarily fromcompetitive pressures.
Other income ×26% - Adjusted for non-core items1 ×13%:

Adjusted for non-core items, other income growth was underpinned by volume growth initiatives, strong Markets income andincreased equity accounting income and a $27 million profit on the sale of MasterCard shares.
Operating expenses ×9% - Adjusted for non-core items1 ×6%:

Operating expense growth was primarily due to annual salary increases and a 7% increase in staff numbers, largely in Personal andInstitutional, as we continue to invest in the business.
Provision for credit impairment ×7% - Adjusted for non-core items1 ×7%:

Individual provisions were unchanged with an increase in Personal due to higher provisions primarily in the Cards portfolio, offset by
Institutional with lower provisions raised and higher recoveries. The collective provision charge increased by $16 million driven
largely by different trends in risk levels in New Zealand’s ANZ Retail and strong volume growth in Corporate & Commercial andvolume increases in Institutional, partially offset by a reduction in Personal from moderating portfolio growth in Consumer Finance.
Income tax ×19% - Adjusted for non-core items1 ×14%:

The increase in tax expense is driven by growth in profit before tax and an increase in the effective tax rate by 0.5% reflecting therun-off of certain structured finance transactions.
1.

Refer footnote 1 on page 11

12

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

March 2007 half year compared to September 2006 half year
The Group recorded a profit after tax of $2,102 million for the half year ended 31 March 2007, an increase of 12% over the
September 2006 half. Basic earnings per share increased 11% (11.6 cents) to 113.2 cents.
Cash profit increased 4% over the September 2006 half which reflects seasonality in the halves and higher provisions for
credit impairment. Cash earnings per share (refer page 24) increased 4% (3.7 cents) to 104.2 cents.
Operating income increased 8% assisted by the profit on sale of Esanda Fleetpartners. After adjusting for non-core items,
operating income increased 4%. Net interest income increased 1%, impacted by a reduction in interest income on revenue
hedges ($50 million or -3 basis points) and lower net interest income on derivative transactions ($35 million offset in otherincome). Average interest earning assets grew 6%, primarily in Personal and New Zealand, which was partially offset by adecline in net interest margin of 6 basis points (excluding the impact of revenue hedges). Other income increased 12%
reflecting increased profit on trading instruments in Institutional, which includes unrealised gains which are partly offset in
net interest income. Operating expense growth was contained to 2% following the strong growth in the September 2006
half.

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, ANZ National Bank
incremental integration costs which ceased in the half year March 2006, and the timing differences in the recognition of fairvalue gains in profit on ineffective hedging contracts.
Non-core items in the income statement

Significant items
Sale of Esanda Fleetpartners
Settlement of ANZ National Bank claims
Settlement of NHB insurance claim

Half
year
Mar 06
$M

Movt
Movt
Mar 07
Mar 07v. Sep 06 v. Mar 06
%
%

Half
year
Mar 07
$M

Half
year
Sep 06
$M

141

-

-

n/a

n/a

-

-

14

n/a

-100%
-100%

-

-

79

n/a

141

-

93

n/a

52%

Ineffective hedge fair value gains/losses

28

21

13

33%

large

NZD revenue hedge mark to market volatility

(3)

-

-

n/a

n/a

166

21

(26)
80

n/a
large

-100%
large

Total significant items

ANZ National Bank incremental integration costs
Non-core items



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:- Sale of Esanda Fleetpartners (March 2007 half year)
During the March 2007 half ANZ sold Esanda Fleetpartners, which had operations in Australia and New Zealand, toNikko Principal Investments in Australia. Profit on disposal was $195 million ($141 million after tax) with $128 million($74 million after tax) recognised in Australia and $67 million ($67 million after tax) recognised in New Zealand.
- Settlement of the NHB insurance claim (March 2006 half year)
During the March 2006 half ANZ settled its $130 million claim against a number of reinsurers in relation to the National
Housing Bank (NHB) matter. ANZ has reported the $113 million ($79 million after tax) cost recovery as a significant
item in 2006. $1 million was received in 2005 and not treated as significant as it was immaterial.
- Settlement of ANZ National Bank claims (March 2006 half year)
Following the purchase of National Bank of New Zealand Limited on 1 December 2003, a dispute arose with Lloyds TSB
in relation to the accounting treatment in the Completion Accounts of the provision for retirement gratuities. The
dispute was referred to arbitration and, as a result, ANZ National Bank received $14 million in March 2006 ($14 million
after tax) in final settlement.

13

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Non-core items, cont’dVolatility resulting from the application of hedge accounting

The Group enters into economic hedges to manage its interest rate and foreign exchange risk. The implementation of
AIFRS accounting policies on hedge accounting from 1 October 2005 (1 October 2006 in respect of hedges of NZDrevenue) introduced volatility within the Income Statement in respect of ineffective hedges as follows:- ineffectiveness of designated accounting cash flow and fair value hedges; and- approved classes of derivatives not designated in accounting hedge relationships but that are considered to beeconomic hedges.
ANZ has separately reported the impact of volatility due to hedge ineffectiveness as a non-core item as the profit reported
on hedge transactions is asymmetrical to the treatment of the hedged item and will reverse over time and as such is notpart of the core operating performance. During the March 2007 half year ANZ has classified $25 million after tax (Sep2006 half: $21 million; Mar 2006 half: $13 million) relating to ineffective hedging and, from 1 October 2006, NZD
revenue hedges as non-core items (tax on hedges $12 million (Sep half 2006: $10 million; Mar 2006 half: $5 million)).
Ineffective hedge fair value gains (income statement)

Half year
Mar 07$m

Half year
Sep 06$m

Half year
Mar 06$m

Non-compliant hedges
NZD revenue hedges
Ineffective portion of effective cash flow and fair value hedges

40
(5)
2

18
13

27
(9 )

Volatility resulting from the application of hedge accounting (before tax)

37

31

18

Volatility resulting from the application of hedge accounting (after tax)

25

21

13

On transition to AIFRS at 1 October 2005, the life to date impact of hedge ineffectiveness and economic hedges notdesignated in accounting hedge relationships was $144 million (pre-tax). This amount was taken directly to retained
earnings as a loss.
Net unrealised loss (balance sheet)$m

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

( 144 )Net unrealised loss 31 March 2007

( 58 )

18
31
37

The net volatility recorded in the income statement represents the progressive reversal of the $144 million loss ontransition to AIFRS together with volatility arising on existing and new ineffective hedge transactions.



ANZ National Bank incremental integration costs

Expenditure on the integration of ANZ National Bank, which was completed in March 2006, included both the reallocationof existing resources to integration and incremental integration costs. Incremental costs were those costs that did notrecur once integration was completed and thus did not form part of the core ongoing cost base. During the March 2006
half year $26 million after tax or $39 million before tax of incremental integration costs was incurred.

14

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Income and expenses
Net Interest Income

Half
year
Mar 07$M
Net interest income
Average interest earning assets
Net interest margin (%)



Half
year
Sep 06
$M

Half
year
Mar 06
$M

Movt
Movt
Mar 07
Mar 07v. Sep 06 v. Mar 06
%
%

3,611

3,575

3,368

1%

7%

323,510305,962

294,364

6%

10%

2.24

2.33

2.29

-4%

-2%

March 2007 half year compared to March 2006 half year

Net interest income increased $243 million (7%) over the March 2006 half.
VolumeAverage interest earning assets increased $29.1 billion (10%):- Average net advances grew by $24.4 billion (10%). Growth in net advances in Australia was attributable to: Personal($13.7 billion or 11%), with $10.6 billion or 11% in Mortgages; Institutional Australia ($5.1 billion or 10%), with
$2.0 billion or 14% in Business Banking, $2.5 billion or 8% in Debt Product Group, $0.3 billion or 10% in Trade andTransaction Services Australia; and Non-continuing Businesses (-$0.5 billion). New Zealand’s average net advances
increased by $5.0 billion or 8% (increased $8.6 billion or 12% in NZD terms). Average net advances increased by$1.1 billion (12%) in Overseas Markets.
- Other interest earning assets increased $4.7 billion (8%), driven by higher levels of liquid assets ($2.6 billion) andtrading securities ($2.2 billion).
Average deposits and other borrowings grew $12.3 billion or 6%. Growth in Australia was attributable to: Personal($6.2 billion or 11%), with $4.6 billion or 13% in Banking Products and $0.9 billion or 18% in Regional, Rural and Small
Business Banking; Institutional Australia ($6.1 billion or 16%), with $5.7 billion or 28% in Trade and Transaction Services
Australia; and $2.9 billion or 15% in Treasury. Average deposits and other borrowings increased in New Zealand$1.8 billion or 3% (increased $4.5 billion or 7% in NZD terms comprising core deposits growth of 10%, partially offset bya decrease in Treasury Certificates of Deposit and Commercial Paper due to a switch to longer term funding). Averagedeposits and other borrowings decreased ($4.8 billion or 20%) in Overseas Markets including an exchange rate impact of-$0.6 billion.
MarginNet interest margin decreased 5 basis points from the March 2006 half:- Funding mix (+1 basis point)
Margins were assisted by substitution of customer deposits for wholesale funding (+1 basis point) and a small increasein the proportion of free funds.
- Asset mix (-2 basis points)
Reduction in margin was due to an increase in the proportion of lower yielding liquid assets and trading securities inGroup Treasury and Markets (-2 basis points).
- Competition (-7 basis points)
Competitive pressures reduced margins, mainly in Australian and New Zealand Mortgages (-2 basis points),
Institutional lending (-2 basis points) and leasing businesses (-1 basis point). In addition, migration to high yielding
customer deposits and lower rate credit cards reduced margins (-2 basis points).
- Wholesale rates (+2 basis points)
Increased income on the investment of capital and rate insensitive deposits (+3 basis points) partially offset by areduction in basis risk on variable rate mortgages and credit cards (-1 basis point).
- Other items (+1 basis point) include:▪

Lower funding costs associated with unrealised trading gains (+2 basis points), however this is directly offset by anequivalent decrease in trading income.

▪

Reduced effective yield fee income (-2 basis points).

▪

Benefits from customer prepayment behaviour in New Zealand (+1 basis point).

15

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Income and expenses, cont’d
Net Interest Income, cont’dMarch 2007 half year compared to September 2006 half year

Net interest income at $3,611 million was 1% ($36 million) higher than the September 2006 half.
VolumeAverage interest earning assets increased $17.5 billion (6%):- Average net advances grew by $15.0 billion (6%). Growth in Australia was attributable to: Personal ($6.2 billion or5%), with $4.8 billion or 5% in Mortgages; Institutional Australia ($2.3 billion or 4%) with $0.7 billion or 5% inBusiness Banking, $1.3 billion or 4% in Debt Product Group; and Non-continuing Businesses (-$0.2 billion). New
Zealand’s average net advances increased by $6.5 billion or 10% (NZD3.4 billion or 5% in NZD terms). Average net
advances grew by $0.2 billion (3%) in Overseas Markets.
- Other interest earning assets increased $2.5 billion (4%), driven by higher levels of liquid assets ($1.5 billion), trading
securities ($0.1 billion), available-for-sale assets and interbank lending ($1.3 billion).
Average deposits and other borrowings grew $6.2 billion or 3%. Growth in Australia was attributable to: Personal($3.3 billion or 5%), with $2.8 billion or 8% in Banking Products and $0.6 billion or 12% in Regional, Rural and Small
Business Banking; and Institutional Australia ($3.5 billion or 9%) with $4.1 billion or 19% in Trade & Transaction Services
Australia; and -$1.1 billion or 5% in Treasury. Average deposits and other borrowings increased in New Zealand$4.8 billion or 9% (NZD2.3 billion increase or 4% in NZD terms). Average deposits and other borrowings decreased$4.3 billion (18%) in Overseas Markets, with exchange rate impacts -$0.6 billion.
MarginNet interest margin was down 9 basis points to 2.24% from the September 2006 half:- Funding mix (+1 basis point)
Margins were assisted by substitution of customer deposits for wholesale funding (+1 basis point) and a small increasein proportions of free funds.
- Asset mix (-2 basis points)
Reduction in margin was due to an increase in the proportion of lower yielding liquid assets and trading securities inGroup Treasury and Markets (-2 basis points).
- Competition (-4 basis points)
Competitive pressures reduced margins, mainly in Australian and New Zealand Mortgages (-2 basis points) andInstitutional lending (-1 basis point). In addition, margins have reduced given migration into high yielding customer
deposits (-1 basis point).
- Wholesale rates (+2 basis points)
Wholesale rate movements benefited margins through increases in earnings on the investment of capital and rateinsensitive deposits (+2 basis points) partially offset by increased basis risk on variable rate mortgages and credit
cards.
- Other items (-6 basis points) include:Foreign exchange revenue hedging no longer classified as interest income (-3 basis points or $50 million).

Higher funding costs associated with unrealised trading gains (-2 basis points), however this is directly offset by anequivalent increase in trading income.

Interest received on tax refunds in the prior period (-2 basis points).



Benefits from customer prepayment behaviour in New Zealand (+1 basis point).



Other impacts include reduced effective yield fee income, increases in the proportion of retail broker payments, adecrease in the proportion of credit card balances earning interest and impacts from non-continuing businesses.

16

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Income and expenses, cont’d
Other Operating Income

Half
year
Mar 07
$M

Half
year
Sep 06
$M

Half
year
Mar 06
$M

Movt
Movt
Mar 07
Mar 07v. Sep 06 v. Mar 06%%

Other operating income
Total fee income

1,143

1,116

1,029

2%

Foreign exchange earnings

237

220

227

8%

4%

Profit on trading instruments

173

65

144

large

20%
33%

Other
Core other operating income
1

Ineffective hedge fair value gains/losses

NZD revenue hedge mark to market volatility
Significant items
Total other income

1

11%

217

182

163

19%

1,770

1,583

1,563

12%

13%

41

31

18

32%

large

(4)

-

-

n/a

n/a

195
2,002

1,614

14
1,595

n/a
24%

large
26%

79%

Composition of Markets' income
Net interest income

50

85

28

-41%

Foreign exchange earnings

178

166

172

7%

3%

Profit on trading instruments

156

74

146

large

7%

Fee and other income
Total Markets' income

13
397

19
344

6
352

-32%
15%

large
13%

1.

Refer footnote 1 on page 11March 2007 half year compared to March 2006 half year

Other operating income increased $407 million (26%). Core other operating income increased $207 million (13%) after
excluding non-core items (refer pages 13 to 14). The following explanations are based on core other operating income:- Fee income increased $114 million (11%):▪

Lending fee income increased $17 million (8%)- Personal increased $23 million. Banking Products increased $8 million as a result of growth in the number oftransaction accounts and pricing initiatives. Mortgages increased $7 million due to growth in account numbers aswell as pricing initiatives and Esanda increased $4 million as a result of higher predetermination fee income.
- New Zealand increased $4 million (NZD increase $6 million) due to a $2 million increase in National Bank Retailas a result of increased revenue from overdraft management fees and a $2 million increase in ANZ Retail as aresult of pricing initiatives.
- Institutional decreased $13 million. Corporate & Structured Financing decreased $8 million with a change inbusiness mix (higher non-lending fees) and Working Capital decreased $6 million due to lower loan administration
fees.

▪

Non-lending fee income increased $97 million (12%)- Personal increased $69 million. Consumer Finance increased $41 million due to volume growth and pricing
initiatives. Banking Products increased $15 million driven by new product and pricing initiatives. Investment andInsurance Products grew $13 million due to an increase in income generated by financial planners.
- Institutional increased $42 million. Corporate & Structured Financing increased $28 million with significant
growth experienced within the advisory, private equity and structured finance portfolios. Working Capitalincreased $7 million reflecting stronger growth in transaction volumes and higher fee revenue in commodity tradefinance deals from China. Markets increased $6 million reflecting the strategic focus to grow the credit business.
- Non-continuing businesses decreased $9 million due to the sale of Esanda Fleetpartners.

- Foreign exchange earnings increased $10 million. Institutional increased $11 million with a $7 million increase inMarkets due to growth particularly in the currency trading business and a $5 million increase in Working Capital as aresult of continuing growth particularly from international payments revenue.
- Profit on trading instruments increased $29 million:▪

Corporate & Structured Financing increased $13 million as a result of mark to market gains on private equity
securities held in a trading portfolio.

▪

Markets increased $10 million driven by good performance within the Rates business. Included within the Markets
growth was a $23 million decrease due to unrealised positions which were offset in net interest income.

▪

Working Capital increased $5 million due to the mark to market of the credit derivative swap portfolio.

17

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Income and expenses, cont’d
Other Operating Income, cont’d- Other operating income increased $54 million (33%):▪

Partnerships & Private Bank increased $30 million. INGA equity accounted income rose $17 million reflecting
improved funds management and life risk performances, increased capital investment earnings and reduced
remediation expenses. International Partnerships increased $11 million due mainly to equity accounted income fromBank of Tianjin (formerly Tianjin City Commercial Bank).

▪

Personal increased $35 million. Consumer Finance increased $17 million due mainly to the sale of MasterCard
shares. Mortgages increased $11 million from higher sales volumes and associated LMI policy premiums.

▪

New Zealand increased $10 million due mainly to the sale of MasterCard shares.

▪

Non-continuing businesses decreased $13 million as the first half of 2006 included a $12 million gain from settlementof the sale warranties relating to the sale of the London headquartered project finance business.

▪

Institutional decreased $5 million largely in Corporate & Structured Financing as the first half of 2006 included a$6 million gain on sale of power assets.

- Movements in average exchange rates over the March 2006 half year decreased total other income by $22 million.
Total Markets income is impacted by mix impacts between the categories within other operating income and net interest
income. The effect for the 2007 half year was to decrease total other income by $23 million (offset in net interest
income).



March 2007 half year compared to September 2006 half year

Other operating income increased $388 million (24%). After adjusting for non-core items (refer pages 13 to 14), coreother operating income increased $187 million (12%).
The following explanations are based on core other operating income:- Fee income increased $27 million (2%). Growth is typically slower in the first half:▪

Lending fee income increased $17 million (8%):- Personal increased $11 million with Banking Products increasing $7 million as a result of growth in the number oftransaction accounts and pricing initiatives.
- New Zealand increased $5 million due to pricing initiatives.

▪

Non-lending fee income increased $10 million (1%):- New Zealand increased $7 million (NZD decreased $4 million) due to the impact of movements in exchange rates.
The decrease in NZD terms is due to the highly competitive fee environment and the impact of a realignment of
product and fee structures to improve customer offerings.
- Institutional increased $10 million (4%). Working Capital increased $10 million reflecting increased deposit
volumes, higher commodity trade fees and higher volumes in custody and clearing.
- Non-continuing businesses decreased $9 million due to the sale of Esanda Fleetpartners.

- Foreign exchange earnings increased $17 million (8%). Institutional increased $16 million due to Markets increasing$12 million as a result of growth principally in the currency trading business, and Working Capital increasing $4 million
as a result of continuing growth particularly from international payments revenue.
- Profit on trading instruments increased $108 million largely in Institutional. Markets increased $82 million driven by astrong performance within the Rates business. Included within the Markets growth was a $34 million increase due tounrealised gains which were offset in net interest income. Corporate & Structured Financing increased $12 million as aresult of mark to market gains on private equity securities held in a trading portfolio and mark to market impacts ofWorking Capital’s credit derivatives were up $13 million.
- Other operating income increased $35 million (19%):▪

Partnerships & Private Bank increased $18 million. INGA equity accounted profits grew $12 million with a 12%
increase in core operating profit and a 45% increase in capital investment earnings. International Partnerships
increased $7 million due to a $5 million increase in Bank of Tianjin as the March 2007 half includes a full 6 months ofequity accounted income.

▪

Personal increased $16 million. Consumer Finance increased $11 million due mainly to the sale of MasterCard
shares.

▪

New Zealand increased $5 million due mainly to the sale of MasterCard shares.

▪

Institutional decreased $9 million largely in Markets as the second half of 2006 included $6 million from bond sales
which was not repeated in 2007.

- Movements in average exchange rates over the September 2006 half increased total other income by $15 million.
The Markets mix impact increased total other income by $34 million (offset in net interest income).
18

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Income and expenses, cont’dExpenses

Movt
Movt
Mar 07
Mar 07v. Sep 06 v. Mar 06
%
%

Half
year
Mar 07
$M

Half
year
Sep 06
$M

Half
year
Mar 06$M

Personnel expenses

1,451

1,390

1,365

4%

Premises expenses

223

207

204

8%

9%

Computer expenses

278

284

258

-2%

8%

Operating expenses

Other expenses

6%

434

465

432

-7%

0%

2,386

2,346

2,259

2%

6%

-

-

(113)

n/a

-100%

ANZ National Bank incremental integration costs
Total operating expenses

2,386

2,346

39
2,185

n/a
2%

-100%
9%

Total employees

33,18332,256

31,063

3%

7%Core operating expenses
Significant items - settlement of NHB insurance claim
1

1.

For March 2006 these costs are personnel costs of $27 million, computer costs of $7 million, and other costs of $5 million

March 2007 half year compared to March 2006 half year

Operating expenses increased $201 million (9%) or $127 million (6%) adjusting for non-core items (refer pages 13
to 14). The following explanations exclude non-core items:- Personnel costs were up $86 million (6%) with a 7% increase in staff numbers. Increases in staff numbers weremainly in the following business units:▪

Personal staff numbers increased 8%. Retail Banking staff numbers increased 7% due to the opening of new
branches under the Branch Investment Program together with extending opening hours of branches. Mortgages
increased 11% due to increased volumes. Consumer Finance increased 12% to resource increased volumes, cards
initiatives and additional collections staff.

▪

Institutional increased 11% due to a 15% increase in Working Capital reflecting new operations sites and Markets
increasing 21% with higher levels of frontline staff to support the revenue strategy in Commodities, Corporate Sales
and Asia business.

▪

New Zealand grew 4% due to increases in frontline staff to facilitate business growth and compliance staff requiredfor Basel II projects.

▪

Partnership & Private Bank increased 43% driven mainly by the branch expansion program in Cambodia andincreased specialist staff to further the growth agenda in Private Banking.

- Premises costs increased $19 million (9%) mainly driven by higher rental expense reflecting additional spacerequirements, opening of new branches and ATMs as well as market rental growth.
- Computer costs increased $20 million (8%) due to increased software purchases of $10 million which includes
additional software and software licence fees and a $4 million increase in data communication costs.
- Other expenses were $2 million higher. Non lending losses decreased $20 million compared with the first half of 2006
due to Institutional and New Zealand (the latter included a NZD10 million New Zealand Commerce Commission
settlement impact). Advertising spend decreased $9 million as a result of Consumer Finance cost initiatives and March
2006 half including the cost of launching ANZ Everyday Visa Debit. Travel expenses increased $10 million andprofessional fees rose $8 million with small increases spread across most business units. Freight costs grew $4 million,
depreciation charges increased $3 million and indirect taxes increased $3 million.
- Movements in exchange rates decreased cost growth by $27 million.

19

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Income and expenses, cont’dExpenses, cont’dMarch 2007 half year compared to September 2006 half year

Operating expenses increased $40 million (2%).
- Personnel expenses increased $61 million (4%) as a result of annual salary increases and a 3% increase in staff
numbers mainly in the following business units:▪

Personal staff numbers increased 4%. Mortgages increased 7% due to increased volumes. Investment andInsurance Products increased 9% due to the ongoing recruitment of financial planners.

▪

Institutional staff numbers increased 5% due to a 5% increase in Working Capital reflecting increased investment in
Asia, new international payment sites and Corporate & Structured Financing increased 14% particularly due to growthin Structured Debt.

- Premises costs increased $16 million (8%) reflecting additional space requirements, opening of new branches andATMs as well as market rental growth.
- Computer costs decreased $6 million (2%). A $9 million reduction in other computer costs due to Mortgages
reassessment of software projects in September 2006 half year was offset by a $4 million increase in computer repairs
due to the timing of computer maintenance contracts.
- Other expenses decreased $31 million (7%):▪

Advertising spend decreased $24 million due to Consumer Finance decreasing $14 million as the second half of 2006
included expenditure relating to the launch of new products including chip cards, designmycard and Platinum. New
Zealand decreased $5 million with National Bank Retail marketing spend greater in the September 2006 half.

▪

Card processing expense decreased $13 million, due mainly to the second half of 2006 expenditure on microchip
rollout costs.

- Movements in exchange rates increased costs by $25 million.

20

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Credit Risk
Provision for credit impairment charge

The credit impairment charge was $240 million, up $16 million from the March 2006 half and up $57 million from theSeptember 2006 half. Personal and New Zealand predominantly drove the increases, partially offset by a decrease in
Institutional.

Personal
Institutional

Movt
Movt
Mar 07
Mar 07v. Sep 06 v. Mar 06
%
%

Half
year
Mar 07
$M

Half
year
Sep 06
$M

Half
year
Mar 06
$M

192

173

163

11%

18%

(6)

8

50

large

large

New Zealand Businesses

33

1

3

large

large

Partnerships & Private Bank

19

15

9

27%

large

-

(14)

(1)

-100%

-100%

2
240

183

224

n/a
31%

n/a
7%

Non-continuing businesses
Group Centre
Provision for credit impairment charge

Individual provision charge

The individual provision charge was $188 million, which was flat in relation to the March 2006 half and up $38 million fromthe September 2006 half. Since the March 2006 half, Institutional has continued to record a net release due to provisions
being lower than recoveries and particularly influenced by large recoveries late in the March 2007 half. This was partly offset
by a higher charge in Personal, largely in consumer businesses, primarily driven by strong asset growth in prior periods
maturing to expected default rates and a modest rise in bankruptcy losses. The New Zealand charge increased, reflecting a
return to more expected levels following the benefit of higher than usual writebacks in the September 2006 half.

Personal

Halfyear
Mar 07
$M

Half
year
Sep 06
$M

Half
year
Mar 06
$M

Movt
Movt
Mar 07
Mar 07v. Sep 06 v. Mar 06
%
%

159

146

110

9%

45%

Institutional

(8)

(7)

56

14%

large

New Zealand Businesses

23

8

10

large

large

Partnerships & Private Bank

14

14

8

0%

75%

Non-continuing businesses
Individual provision charge

188

(11)
150

4
188

-100%
25%

-100%
0%

Half
year
Mar 07
$M

Half
year
Sep 06
$M

Half
year
Mar 06$M

Movt
Mar 07v. Sep 06%

Movt
Mar 07v. Mar 06%

Personal

213

198

156

8%

37%

Institutional

80

58

106

38%

-25%

New Zealand Businesses

37

39

29

-5%

28%

Partnerships & Private Bank

15

16

9

-6%

67%

Non-continuing businesses
New and increased provisions

345

311

7
307

n/a
11%

-100%
12%

Half
year
Mar 07
$M

Half
year
Sep 06
$M

Half
year
Mar 06
$M

(54)

(52)

(46)

New and increased provisions

Recoveries and writebacks
Personal

Movt
Movt
Mar 07
Mar 07v. Sep 06 v. Mar 06
%
%
4%

17%

Institutional

(88)

(65)

(50)

35%

76%

New Zealand Businesses

(14)

(31)

(19)

-55%

-26%

Partnerships & Private Bank

(1)

(2)

(1)

-50%

0%

Non-continuing businesses
Recoveries and writebacks

(157)

(11)
(161)

(3)
(119)

-100%
-2%

-100%
32%

21

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Credit Risk, cont’dCollective provision charge

The collective provision charge was $52 million, up $16 million from the March 2006 half and up $19 million from theSeptember 2006 half. The charge for both halves was driven by asset growth and changes in portfolio risk. This waspartially offset by the continued release of the scenario impact provision taken in 2005 to reflect the risk change of materiallyhigher and sustained oil prices.
The increase on both halves was predominantly driven by New Zealand, due to strong portfolio growth, reduced oil shock
releases and a stable risk profile relative to a modest improvement last year. Personal offset the increase since the March
2006 half due mainly to slowing growth rates across the division, particularly in the unsecured portfolios, coupled with alower rate of risk movement than in the first half of 2006. Institutional offset the increase since the September 2006 half
due to slowing growth rates across the division and a higher oil shock provision release.
Movt
Movt
Mar 07
Mar 07v. Sep 06 v. Mar 06
%
%
3%
-10%

Half
year
Mar 07
$M
63

Half
year
Sep 06
$M
61

Half
year
Mar 06$M
70

Risk profile

18

22

(5)

-18%

large

Portfolio mix

7

(2)

8

large

-13%

(36)

(45)

(32)

-20%

13%

-

(3)

(5)

-100%

-100%

52

33

36

58%

44%

Lending growth

Scenario impact1

Non-continuing businessCollective provision charge
1.

Scenario impact includes oil price shock and offshore risk provision in 2005 and the modelled unwind of the oil price shock provision to offset the emergence ofrelated Individual and Collective provisions from these scenario impacts

The analysis of the collective provision charge by business unit is set out below:
Half
year
Mar 07
$M

Half
year
Sep 06
$M

Half
year
Mar 06
$M

Movt
Movt
Mar 07
Mar 07v. Sep 06 v. Mar 06%%

Collective provision charge
Personal

33

27

53

22%

Institutional

2

15

(6)

-87%

large

New Zealand Businesses

10

(7)

(7)

large

large

Partnerships & Private Bank

5

1

1

large

large

Non-continuing businesses

-

(3)

(5)

-100%

-100%

2
52

33

36

n/a
58%

n/a
44%

Group Centre
Collective provision charge-38%

Expected loss

Management believe that disclosure of modelled expected loss data will assist in assessing the longer term expected loss
rates on the lending portfolio as it removes the volatility in reported earnings created by the use of AIFRS credit loss
provisioning. The expected loss concept also aligns with the Basel II advanced approach to capital management. The
expected loss methodology is used internally for Economic Value Added (EVA) reporting and as a factor when determining
the dividend payout ratio. Expected loss outcomes are subject to change as Basel II validation work is completed.
Expected loss was $388 million, an increase of $54 million over the March 2006 half and an increase of $31 million over the
September 2006 half. The increase in both halves was predominantly driven by growth and product mix movements in
Personal, particularly in Consumer Finance, and moderately higher losses in Esanda due to lower recovery values on
defaulted motor vehicle facilities, however the risk movement is slowing in comparison to the previous two halves.

22

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Credit Risk, cont’d% ofGroup Net
Advances

Halfyear
Mar 07

Halfyear
Sep 06Halfyear
Mar 06

Personal

49%

0.29%

0.28%

0.26%

Institutional

26%

0.32%

0.31%

0.30%

New Zealand Businesses

24%

0.17%

0.16%

0.18%

Partnerships & Private Bank

1%

2.33%

2.68%

1.65%

Non-continuing businesses

<1%

0.36%

0.34%

0.43%

Total

100%

0.28%

0.27%

0.26%

388

357

334

Expected loss by segment

1

Expected loss ($million)
1.

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

Gross non-performing loans

Gross non-performing loans decreased to $640 million, down $86 million from 31 March 2006 and down $21 million from30 September 2006. Institutional has primarily driven the decrease in both halves due to low levels of downgrades andstrong asset realisation and repayments since September 2006. Partially offsetting this was Personal driven by slightly
higher Mortgage defaults.
Movt
Movt
Mar 07
Mar 07v. Sep 06 v. Mar 06
%
%

As at
Mar 07$M

As at
Sep 06$M

As at
Mar 06$M

Personal

180

138

126

30%

43%

Institutional

357

408

441

-13%

-19%

New Zealand Businesses

96

99

138

-3%

-30%

Partnerships & Private Bank

7

7

5

0%

40%

Non-continuing businesses

-

9

16

-100%

-100%

640

661

726

-3%

-12%

Gross non-performing loans

Total gross non-performing loans

Net non-performing loans

Net non-performing loans are $365 million (Sep 2006: $382 million; Mar 2006: $421 million) representing 1.7% ofshareholders’ equity as at 31 March 2007 (Sep 2006: 1.9%; Mar 2006: 2.2%). The Group has an individual provision
coverage ratio of 43%.
As at
Mar 07$M

Net non-performing loans

As at
Sep 06$M

As at
Mar 06
$M

Movt
Movt
Mar 07
Mar 07v. Sep 06 v. Mar 06%%

Personal

81

61

55

33%

47%

Institutional

229

266

279

-14%

-18%

New Zealand Businesses

55

53

78

4%

-29%

Non-continuing businesses

-

2

9

-100%

-100%

Total net non-performing loans

365

382

421

-4%

-13%

Individual provision coverage

43%

42%

42%

As at
Mar 07$M

As at
Sep 06$M

As at
Mar 06$M

Personal

3

3

4Institutional

75

20

55

large

36%

New Zealand Businesses

4

7

6

-43%

-33%

Total net unproductive facilities

82

30

65

large

26%

Net unproductive facilities

23

Movt
Movt
Mar 07
Mar 07v. Sep 06 v. Mar 06
%
%
0%

-25%

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Income Tax Expense
Half
year
Mar 07$M
Income tax expense charged in the income statement
Effective tax rate
1

Income tax expense on cash profit
1
Effective tax rate (cash profit )1.

Refer footnote 1 on page 11March 2007 half year compared to March 2006 half year

Half
year
Sep 06
$M

Half
year
Mar 06
$M

883

780

742

29.6%

29.3%

29.1%

817

770

716

29.7%

29.3%

29.2%

Movt
Movt
Mar 07
Mar 07v. Sep 06 v. Mar 06
%
%
13%

19%

6%

14%

The Group's income tax expense increased by $141 million to $883 million resulting in an effective tax rate of 29.6%, up
0.5% from the March 2006 half year. This movement results mainly from the continued run-off of certain structured
finance transactions, the non-taxable settlement of the ANZ National Bank warranty claim which was included in the
March 2006 half year and withholding tax payable on future remittances of present profits from offshore operations.
These were offset by the non-assessable gain on the sale of MasterCard shares and Fleetpartners in New Zealand.
Adjusted for non-core items, the Group's income tax expense increased by $101 million to $817 million resulting in an
effective tax rate of 29.7%, an increase of 0.5%, as described above.
March 2007 half year compared to September 2006 half year

The Group's income tax expense increased by $103 million to $883 million, a rise of 0.3% in the effective tax rate. Thisis due mainly to the continued run-off of certain structured finance transactions, higher earnings in higher tax rate
jurisdictions in the March 2007 half and favourable prior period adjustments included in the September 2006 half. These
were offset by the non-assessable gain on the sale of Fleetpartners in New Zealand.
Adjusted for non-core items, the group's income tax expense increased by $47 million to $817 million resulting in an
effective tax rate of 29.7%, up 0.4%, as described above.

Earnings per share

Earnings per share (cents)

Half
year
Sep 06
$M

Basic

113.2

101.6

98.4

11%

15%

Diluted

110.0

98.5

95.5

12%

15%

1

Half
year
Mar 06
$M

Movt
Movt
Mar 07
Mar 07v. Sep 06 v. Mar 06
%
%

Half
year
Mar 07$M

Cash earnings per share
Profit attributable to shareholders of the Company ($M)

2,102

1,877

1,811

12%

16%

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

(166)

(21)

(80)

large

large

Cash Profit ($M)

1,936

1,856

1,731

4%

12%

(17)

(15)

(12)

13%

42%

1,919

1,841

1,719

4%

12%

1,841.6

1,832.2

1,828.4

1%

1%

104.2

100.5

94.0

4%

11%

2

3

Preference share dividend ($M)
Earnings adjusted for non-core items ($M)
Weighted average number of ordinary shares (M)Cash earnings per share (cents)
1.
2.
3.

Refer page 80 for full calculation
Refer pages 13 to 14
The EPS calculation excludes the Euro Hybrid preference shares

Earnings per share increased 15.0% (14.8 cents) to 113.2 cents on the March 2006 half. Cash EPS for the Group increased
10.9% or 10.2 cents on the March 2006 half. The main drivers of the increase in Cash EPS on the March 2006 half are:

Growth in continuing business profit before credit impairment (after tax), which contributed 13.9%.

Partly offset by an after tax increase in the continuing businesses credit impairment charge (0.4%), run-off of
non-continuing businesses (1.8%) and dilution from an increase in the weighted average number of shares (0.8%).

Earnings per share increased 11.4% (11.6 cents) cents on the September 2006 half. Cash EPS for the Group increased 3.7%
or 3.7 cents on the September 2006 half. The main drivers of the increase in Cash EPS on the September 2006 half are:

Growth in continuing business profit before credit impairment (after tax) and preference shares, which contributed 7.0%.

Partly offset by an after tax increase in the continuing businesses credit impairment charge (1.6%), run-off of
non-continuing businesses (1.2%) and dilution from an increase in the weighted average number of shares (0.5%).

24

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Dividends
Movt
Movt
Mar 07
Mar 07v. Sep 06 v. Mar 06
%
%

Half
year
Mar 07

Halfyear
Sep 06Halfyear
Mar 06

Interim (fully franked)

62

n/a

56

n/a

11%

Final (fully franked)

n/a

69

n/a

n/a

n/a

Ordinary share dividend payout ratio (%)

54.9%

68.0%

56.9%

Profit after tax ($M)

2,102

1,877

1,811

12%

16%

(166)

(21)

(80)

large

large

1,936

1,856

1,731

4%

12%

59.6%

68.8%

59.6%

Dividend per ordinary share (cents)

1

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

Refer footnote 1 on page 11

The Directors propose that an interim dividend of 62 cents be paid on each eligible ordinary share, up 6 cents (11%) on the2006 interim dividend and broadly in line with the growth in Cash EPS (adjusted for non-core items). The proposed interim
dividend will be fully franked for Australian tax purposes.
The Group has a dividend reinvestment plan (DRP) and a bonus option plan (BOP). Recent changes to the terms andconditions of the DRP and BOP, notified to shareholders, removed the participating cap in respect of both plans and allowed
ANZ the discretion to either issue new shares or purchase existing shares in order to satisfy its obligation to provide shares
under the DRP; shares provided under the BOP will continue to be satisfied through the issue of new shares. In respect ofthe 2007 interim dividend, ANZ intends to provide shares under the DRP through the issue of new shares. Election notices
from shareholders wanting to commence participation in the DRP or BOP for the 2007 interim dividend or to vary theircurrent participation election, must be completed and returned to ANZ’s Share Registrar by 5.00 pm (Melbourne time) on therecord date, namely 18 May 2007. It is proposed that the interim dividend will be paid on 2 July 2007. Subject to receiving
effective contrary instructions from the shareholder, dividends payable to shareholders with a registered address in GreatBritain (including the Channel Islands and the Isle of Man) or New Zealand will be converted to their local currency at ANZ’s
daily forward exchange rate at the close of business on 30 May 2007 for value on the payment date.
The Group expects current timing differences will generate future Australian franking credits and therefore the Group expects
it will be able to maintain full franking for the foreseeable future.
EVATM Reconciliation
One measure of shareholder value is EVATM (Economic Value Added) growth relative to prior periods. EVATM for the half year
ended 31 March 2007 at $1,119 million, an increase of $106 million on the March 2006 half and $50 million on the
September 2006 half.
Movt
Movt
Mar 07
Mar 07v. Sep 06 v. Mar 06
%
%

Half
year
Mar 07
$M

Half
year
Sep 06
$M

Half
year
Mar 06$M

Profit after tax

2,102

1,877

1,811

12%

16%

1

(166)

(21)

(80)

large

large

1,936

1,856

1,731

4%

12%
39%

EVA

TM

Non-core items
Cash Profit

Credit cost adjustment

(103)

(120)

(74)

-14%

Economic profit

1,833

1,736

1,657

6%

11%

378

351

313

8%

21%

Imputation credits
Adjusted economic profit

2,211

2,087

1,970

6%

12%

Cost of ordinary capital(1,075)(1,003)

(945)

7%

14%

Cost of preference share capital

(17)
1,119

(15)
1,069

(12)
1,013

13%
5%

42%
10%

EVA
1.

TM

Refer footnote 1 on page 11

EVATM is a measure of risk adjusted accounting profit used for evaluating business unit performance and is a factor in
determining the variable component of remuneration packages. It is based on net profit after tax, adjusted for non-core
items, credit costs, the cost of capital, and imputation credits (measured at 70% of Australian tax). Of these, the major
component is the cost of capital, which is calculated on the risk adjusted or economic capital at a rate of 11%. At the Grouplevel, total capital is used so the cost of capital reflects the full resources provided by shareholders. The credit costadjustment replaces the credit impairment charge with expected losses after tax at the rate applicable in the relevant
geography. At ANZ, economic capital is equity allocated according to a business unit’s inherent risk profile. It is allocated forseveral categories including: credit risk, operating risk, interest rate risk, basis risk, mismatch risk, investment risk, tradingrisk deferred acquisition costs risk and other risk. The methodology used to allocate capital to business units for risk isdesigned to help drive appropriate risk management and business strategies.
25

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Market Risk
Below are aggregate Value at Risk (VaR) exposures at 97.5% and 99% confidence levels covering both physical andderivatives trading positions for the Bank’s principal trading centres. Figures are converted from USD at closing exchange
rates.
97.5% confidence level 1 day holding period

As at
Mar 07$M

High for
periodMar 07$M

Low forperiodMar 07$M

Ave forperiodMar 07$M

As at
Sep 06$M

High for
period
Sep 06$M

Low forperiod
Sep 06$M

Ave forperiod
Sep 06$M

Value at risk at 97.5% confidence
Foreign exchange

0.5

1.3

0.2

0.6

0.5

1.6

0.3

0.7

Interest rate

3.2

4.9

1.3

2.3

1.7

3.2

0.8

1.8

Credit Spread

1.6

1.7

0.7

1.1

1.1

1.7

0.7

1.1

(1.9)

n/a

n/a

(1.5)

(1.4)

n/a

n/a

(1.5)

3.4

4.4

1.4

2.5

1.9

3.6

0.9

2.1

High for
periodMar 07$M

Low forperiodMar 07$M

Ave forperiodMar 07$M

As at
Sep 06

High for
period
Sep 06$M

Low forperiod
Sep 06$M

Ave forperiod
Sep 06$M

Diversification benefit
Total VaR

99% confidence level 1 day holding period
As at
Mar 07$M$M

Value at risk at 99% confidence
Foreign exchange

0.7

1.7

0.3

0.7

0.7

2.0

0.3

0.8

Interest rate

3.6

6.2

1.7

3.1

2.0

4.4

1.3

2.4

Credit Spread

2.8

2.9

1.1

2.1

2.8

3.6

1.1

2.3

(2.3)

n/a

n/a

(2.5)

(2.9)

n/a

n/a

(2.6)

4.8

6.7

1.7

3.4

2.6

4.9

1.2

2.9

Diversification benefit
Total VaR
Revenue related hedges

The Group has used derivative instruments to hedge against the adverse impact on future offshore revenue streams fromexchange rate movements. Movements in average exchange rates, net of associated revenue hedges, resulted in a decreaseof $21 million in the Group’s profit after tax for March 2007 half when comparing to the March 2006 half (Sep 2006 half:
decrease $15 million). This included the impact on earnings (cash basis) from associated revenue hedges, which increased
by $2 million (before tax) from March 2006 half (Sep 2006 half: decrease $50 million). Hedge revenue is booked in theGroup Centre.
From 1 October 2006, new AIFRS rules do not permit economic hedging of offshore revenue streams to be accounted for in
the same manner as that permitted under first year AIFRS transitional rules or AGAAP. As a consequence, from 1 October
2006 revenue hedges of the Group’s offshore revenue streams are marked to market through the income statement. In
addition, AIFRS requires that realised and unrealised positions on revenue hedges at 1 October 2006 be taken directly toretained earnings. This resulted in a realised gain of $141 million being transferred to retained earnings at 1 October 2006.
The most significant offshore revenue stream is derived from the New Zealand geography (refer page 56) and the debt
component of New Zealand Dollar intra-group funding of this business, which amounted to NZD1.77 billion at 31 March 2007.
Details of revenue hedges are set out below.

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

Half
year
Mar 07
$M

Half
year
Sep 06
$M

Half
year
Mar 06
$M

869
(6)
(1)

49
49

2,486
(3)
(3)

At 30 September 2006 the Group had NZD1.55 billion of capital hedges with the accumulated unrealised losses ofapproximately $23 million (net of tax) which had been taken to the Foreign Currency Translation Reserve. During the March
2007 half, these capital hedges were no longer designated as capital hedges and were marked to market through the income
statement as a partial economic hedge of the expected 2007 NZD earnings. In the March 2007 half:

NZD780 million of economic hedges were matured and a realised loss of $1.4 million (pre-tax) was booked to the income
statement.



NZD220 million of economic hedges for 2008 were taken out at a spot rate of approximately NZD1.12/AUD.

An unrealised loss of $4.6 million (pre-tax) on the outstanding NZD1.0 billion of economic hedges was booked to theincome statement as a non-core item as these are viewed by management as hedges of NZ revenue in the second half of2007 and 2008.

Approximately 90% of the anticipated September 2007 half NZD revenue streams (including inter-group funding) have been
hedged at an effective all-in rate of NZD1.145/AUD.
26

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Balance Sheet
Total assets increased by $29.5 billion (9%) since 31 March 2006 to $351.7 billion. Exchange rate movements accounted fora net increase of $1.1 billion, consisting of an increase of $2.8 billion in New Zealand partly offset by a reduction of$1.7 billion in Overseas Markets. Excluding the impact of exchange rate movements, total assets increased $21.7 billion(10%) in Australia, $5.1 billion (6%) in New Zealand and $1.6 billion (8%) in Overseas Markets.
The explanations in the table below describe movements in the major asset classes.

Liquid assets ×11% (Excl Exchange Rates ×13%)
Liquid assets increased by $1.6 billion to $15.4 billion at 31 March 2007. Australia increased $2.2 billion from
customer-related repurchase agreement activity in Institutional offset by lower holdings of liquid assets in Group Treasury.
New Zealand increased $0.8 billion primarily from higher liquidity. Overseas Markets decreased by $1.4 billion due to aswitch from bank certificates of deposits to available for sale assets in the United Kingdom and the United States.

Due from other financial institutions Ø23% (Excl Exchange Rates Ø21%)
Due from other financial institutions decreased by $1.9 billion to $6.4 billion at 31 March 2007 due mainly to a reduction ininterbank lending volumes in New Zealand and America.

Trading securities ×64% (Excl Exchange Rates ×63%)
Trading securities volumes increased $5.5 billion to $14.3 billion at 31 March 2007 primarily in Institutional in Australia
reflecting a strategic decision to increase participation in the Debt Capital Markets to support customer issuance andinvestment needs.

Derivatives ×7% (Excl Exchange Rates ×7%)
Derivative assets increased $0.8 billion to $12.3 billion at 31 March 2007 driven principally by the significant appreciation of
the AUD against all major currencies throughout the half together with increased trading activities.

Available-for-sale assets Ø26% (Excl Exchange Rates Ø25%)
Available-for-sale asset volumes decreased $3.5 billion to $9.8 billion at 31 March 2007 due to the de-consolidation of two
Special Purpose Vehicles at September 2006 and the sale/closure of customer facilities within Debt Products Group,
Institutional.

Net loans and advances ×11% (Excl Exchange Rates ×10%)
Net loans and advances increased $25.8 billion to $267.8 billion at 31 March 2007. Excluding the impact of exchange rate
movement, the increase was $24.2 billion (10%).
Growth in Australia was $16.8 billion or 10%:-

Personal ($12.6 billion or 10%) with $10.1 billion as a result of growth in housing loans from Mortgages. Consumer
Finance increased $0.9 billion, reflecting the success of the Low Rate MasterCard product.

-

Institutional Australia ($4.2 billion or 10%) largely in Debt Products Group, with growth of $2.8 billion driven byincreased demand for funding of mergers and acquisition activity. Business Banking increased $1.3 billion (10%).

New Zealand grew by $9.1 billion (14%). After excluding the impact of exchange rates, growth was $6.9 billion, or 11%,
with increases in ANZ Retail Banking ($2.2 billion or 15%), The National Bank Retail ($2.5 billion or 11%), Corporate &Commercial Banking NZ ($1.7 billion or 17%), and Rural Banking ($1.4 billion or 13%) offset by a decrease in NZ
Institutional (0.7 billion or 10%).
Overseas Markets decreased by $0.1 billion (-2%). After excluding the impact of exchange rates, growth was $0.5 billion(6%) primarily from an increase in Asia of $0.3 billion and an increase in Pacific of $0.3 billion.

27

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Balance Sheet, cont’d
Total liabilities increased by $27.4 billion (9%) from 31 March 2006. Exchange rate movements accounted for a net decreaseof $0.4 billion consisting of a $2.3 billion increase in New Zealand offset by a reduction of $2.7 billion in Overseas Markets.
The explanations in the table below describe movements in the major liability classes.

Due to other financial institutions ×11% (Excl Exchange Rates ×14%)
Due to other financial institutions increased by $1.5 billion to $14.9 billion at 31 March 2007. Volumes in Australia
increased $2.6 billion principally in the Markets business in Institutional with increased interbank repurchase agreement
activity partly offset by decreases in New Zealand and International Markets.

Deposits and other borrowings ×7% (Excl Exchange Rates ×7%)
Deposits and other borrowings increased $13.7 billion to $210.6 billion at March 2007. Excluding the impact of exchange
rate movement, the increase was $14.2 billion (7%).
Australia increased $16.9 billion (14%) largely as a result of increases in the following businesses:-

Institutional increased $8.3 billion (21%) with increased deposits in Working Capital ($8.0 billion) following theCollateralised Loan Obligation issuance in September 2006 and growth in current accounts, Business Banking($1.5 billion) and Markets ($1.2 billion) partly offset by a reduction in Corporate & Structured Financing ($2.3 billion).

-

Personal increased $5.6 billion (10%) due mainly to the growth in cash management account products and term deposit
balances in Banking Products ($4.6 billion), Regional, Rural and Small Business Banking ($0.9 billion) and Mortgages($0.5 billion), partly offset by a reduction in deposits in Esanda ($0.5 billion).

-

Treasury increased $3.0 billion largely due to an increased requirement for short term domestic funding.

New Zealand increased $4.5 billion (9%). After excluding the impact of exchange rates, growth was $2.7 billion (5%) withincreases largely in ANZ Retail Banking ($1.1 billion), The National Bank Retail ($1.2 billion), Institutional ($1.7 billion) andPrivate Banking ($0.5 billion), offset by a reduction in Treasury ($2.1 billion).
Overseas Markets decreased by $7.7 billion (-31%). After excluding the impact of exchange rates, the decline was$5.5 billion (-24%), largely due to decreased certificates of deposits in Europe and North America ($8.0 billion), partially
offset by an increase in Asia ($2.1 billion) and Pacific ($0.5 billion).

Derivatives ×35% (Excl Exchange Rates ×35%)
Derivative liabilities increased $3.5 billion to $13.6 billion at 31 March 2007. The increase is driven by the significant
appreciation of the AUD against all major currencies throughout the half together with increased trading activities.

Payables and other liabilities ×5% (Excl Exchange Rates ×6%)
Payables and other liabilities increased $0.5 billion to $10.2 billion at 31 March 2007 primarily due to an increase in trade
dated liabilities in Treasury.

Bonds and Notes ×15% (Excl Exchange Rates ×15%)
Bonds and notes increased $7.3 billion to $54.2 billion at 31 March 2007. Excluding exchange rate movements, bonds andnotes increased by $5.1 billion (14%) in Australia and $1.8 billion (20%) in New Zealand in response to increased term
funding requirements.

Loan Capital ×6% (Excl Exchange Rates ×6%)
Loan capital increased $0.7 billion to $11.8 billion at 31 March 2007 in response to term funding requirements.

28

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Capital Management

Tier 1
Tier 2
Deductions
Total
ACE
Transitional Tier 1 Capital Relief
Adjusted ACE
Target ACE
RWA $m

As at
Mar 07As at
Sep 06As at
Mar 066.7%
4.3%(0.7%)
10.3%
4.7%(0.3%)
4.4%
4.0%-4.75%
250,485

6.8%
4.2%(0.4%)
10.6%
5.0%(0.3%)
4.7%
4.0%-4.75%
240,2196.8%
4.0%(0.4%)
10.4%
5.0%
0%
5.0%
4.5%-5.0%
230,653

Further details of the components of capital and the capital adequacy calculation are set out on pages 98 to 100

ACE Ratio

The ACE ratio at 4.4% remains within the Group’s targeted capital range of 4.00% to 4.75%. During the half, the ACE ratio
declined 26 basis points principally due to:net profit, excluding non-core items and after preference share dividends, of $1.9 billion (+80 basis points);ordinary share dividend commitments, net of expected reinvestment through the BOP and DRP Plans, of $1.0 billion(-43 basis points);

increase in risk weighted assets, excluding the impact of exchange rate movements and sale of Esanda Fleetpartners(-24 basis points);

increase in investment/profit retention in funds management businesses, associates and commercial operations (-8 basis
points);business investments and disposal (-50 basis points) including deductions for contingent offers and commitments as
required by APRA to purchase interests in AMMB Holdings Berhad (-35 basis points), Shanghai Rural Commercial Bank(-13 basis points), ETRADE Australia Limited (-9 basis points) and smaller Asian and Pacific banks (-2 basis points) offset
by the disposal of Esanda Fleetpartners (+9 basis points);policy and regulatory changes (+19 basis points) including first time accrual of the BOP and DRP Plans (+5 basis points);
AIFRS (AASB 2005-1) requirement to recognise in retained earnings at 1 October 2006 a $141 million unbooked gain on
New Zealand revenue hedges (+6 basis points), refer note 1(i) page 70; netting of New Zealand deferred tax assets
against deferred tax liabilities following our obtaining the verification letters required under the prudential standards(+8 basis points); andother items net to zero and include the impact of exchange rate movements; movement in capitalised expenses, deferred
fee income, capitalised software, other non-core items and share issuances to staff and option conversions.

Prudential issues - APRA changes to prudential standards covering AIFRS impacts and Tier 1 hybrid capital

APRA changes to prudential standards, APS 110: ‘Capital Adequacy’ and APS 111: ‘Capital Adequacy: Measurement ofCapital’ became effective on 1 July 2006. Transitional rules mean that some changes are not fully effective until January
2008 and potentially January 2010.

AIFRS and capital deductions

Changes to the prudential standards impacted the Group’s capital base in the following ways:


The Group’s Tier 1 capital base was reduced by $716 million at 1 July 2006 due to new or higher deductions for suchitems as capitalised software, net deferred tax assets, hedge accounting ineffectiveness and defined pension plan deficits,
offset by a small release in the collective provision for loan losses. APRA now requires verification letters from theGroup’s auditors and tax advisors before netting of deferred tax assets and liabilities is permitted in individual offshore
jurisdictions and as such ANZ has taken a Tier 1 deduction for net deferred tax assets from July 2006. ANZ has
subsequently obtained the requisite verification letter for ANZ Holdings (New Zealand) Limited and now nets deferred tax
assets and liabilities for New Zealand.



The Group’s upper Tier 2 capital base was reduced by $17 million at 1 July 2006 due to the release of the collective
provision for loan losses, offset by an allowance for the recognition of post acquisition earnings and movement in reserves
for associates.



APRA introduced transitional rules to January 2008, whereby the Group can add back to its capital base the adverse
impact of adopting the new prudential standards on 1 July 2006. The Group has taken Tier 1 and Upper Tier 2transitional relief of $716 million and $17 million respectively. These amounts are fixed for the period to January 2008.

29

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Capital Management, cont’dHybrid Capital and Tier 1 Capital

The Group raises hybrid capital to further strengthen the Group’s capital base and ensure compliance with APRAs prudential
capital requirements.
There was no issuance of new hybrid capital during the half and, as at 31 March 2007, the Group had three Innovative hybrid
Tier 1 capital instruments outstanding.
At 31 March 2007, ANZ has an Innovative hybrid useage rate of 19.2% (nil for Non-innovative), which is above the limit
applicable from 1 January 2008 and as such expects to apply for the transitional relief contemplated in the prudential
standard.
Innovative Hybrid Capital details

Amount (in issue currency)

ANZ StEPS

US Stapled Trust Security

Euro Hybrid$1,000 million

USD1,100 million€500 million

Accounting classification

Debt (post AIFRS)

Debt

EquityRegulatory (APRA) classification

Tier 1

Tier 1

Tier 1March 2007 balance (A$)

$1,000 million$1,362 million$871 million

Interest rate

BBSW +1.00%

Tranche 1 (US$350m) Coupon: 4.48%

Euribor +0.66%

Tranche 2 (US$750m) Coupon: 5.36%

30

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Deferred acquisition costs and deferred income
The Group recognises assets that represent deferred acquisition costs relating to the acquisition of interest earning assets,
and liabilities that represent deferred income relating to income received in advance of services performed.
Deferred acquisition costs

At 31 March 2007 the Group’s assets included $575 million (Sep 2006: $569 million; Mar 2006: $549 million) in relation tocosts incurred in acquiring interest earning assets. During the half year, amortisation of $155 million (Sep 2006 half:$155 million; Mar 2006 half: $138 million) was recognised as an adjustment to the yield earned on interest earning assets.
Deferred income

At 31 March 2007, the Group had deferred income of $370 million (Sep 2006: $406 million; Mar 2006: $426 million) in
relation to income received in advance. At 31 March 2007, this includes $4 million (Sep 2006: $3 million; Mar 2006:$5 million) deferred service type fees. These fees are deferred and will be amortised over the period of service under
AASB 118: ‘Revenue’.
At 31 March 2007, fee income of $314 million (Sep 2006: $343 million; Mar 2006: $364 million) that is integral to the yieldof an originated financial instrument, net of any direct incremental costs, has been capitalised. This income is deferred andrecognised as net interest income over the expected life of the financial instrument under AASB 139: ‘Financial Instruments:
Recognition and Measurement’. At 31 March 2007, the Group’s liabilities included other deferred income of $52 million(Sep 2006: $60 million; Mar 2006: $57 million).
The balances of deferred acquisition costs and deferred income at period end were:1

Deferred Acquisition Costs

Personal

2

Institutional
New Zealand Businesses

Deferred Income

Mar 07$M

Sep 06$M

Mar 06$M

Mar 07$M

Sep 06$M

Mar 06
$M

444

440

447

138

149

143

12

21

10

189

212

240
39

95

80

67

42

42

3

24

28

25

1

3

4

Total

575

569

549

370

406

426

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 $292 million for Esanda (Sep 2006: $289 million; Mar 2006: $294 million) and deferred income of $49 million for Esanda(Sep 2006: $50 million; Mar 2006: $52 million)

3.

Includes Group Centre and Partnerships & Private Bank

Deferred acquisition costs analysis:
March 2007
Amortisation
Capitalised
1
Costs
Costs
$M
$M
Personal

2130

September 2006
Amortisation
Capitalised
1
Costs
Costs
$M
$M

134

137

131

(6)

-

12

33

18

26

3

3

New Zealand Businesses

18

4

4

-

-

1

Total

155

161

155

170

Institutional
Other

1.
2.
3.
4.

Costs capitalised during the year exclude brokerage trailer commissions paid
Comprises amortised costs of $91 million for Esanda (Sep 2006: $88 million) and capitalised costs of $94 million for Esanda (Sep 2006: $94 million)
Includes reversal of break costs on Stadium acquisition
Includes Group Centre and Partnerships & Private Bank

Software capitalisation
At 31 March 2007, the Group’s intangibles included $425 million in relation to costs incurred in acquiring and developing
software. Details are set out in the table below:
Movt
Half
Movt
Mar 07
Mar 07year
Mar 06 v. Sep 06 v. Mar 06
%
%
$M

Half
year
Mar 07
$M

Half
year
Sep 06$M

Balance at start of period

397

390

386

2%

3%

Software capitalised during the period

90

75

62

20%

45%

Amortisation during the period

(58)

(57)

(57)

2%

2%

Software written-off

(4)

(9)

(1)

-56%

large

425

(2)
397

390

-100%
7%

n/a
9%

Other
Total software capitalisation

31

This page has been left blank intentionally

32

BUSINESS PERFORMANCE REVIEW

Income Statement (including effect of movements in foreign currencies)
Movt
Movt
Half
Mar 07
Mar 07year
Mar 06 v. Sep 06 v. Mar 06
%
%
$M

Half
year
Mar 07
$M

Half
year
Sep 06$M

Personal

709

654

583

8%

22%

Institutional

750

701

678

7%

11%

New Zealand Businesses

351

339

337

4%

4%

Partnerships & Private Bank

103

91

79

13%

30%

Profit after income tax

Non-continuing businesses
Group Centre
Cash profit
Non-core items

1

Profit

-

22

31

-100%

-100%

23

49

23

-53%

0%

1,936

1,856

1,731

4%

12%

166

21

80

large

large

2,102

1,877

1,811

12%

16%

Income Statement (prior period figures adjusted to remove the impact of exchange rate movements2)
Movt
Movt
Half
Mar 07
Mar 07year
Mar 06 v. Sep 06 v. Mar 06
%
%
$M

Half
year
Mar 07
$M

Half
year
Sep 06$M

Personal

709

654

582

8%

22%

Institutional

750

705

670

6%

12%

New Zealand Businesses

351

355

324

-1%

8%

Partnerships & Private Bank

103

91

79

13%

30%
-100%

Profit after income tax

Non-continuing businesses
Group Centre
Cash profit2

Non-core items

1

Profit2

FX impact on reported profit
Reported profit

-

22

31

-100%

23

14

23

64%

0%

1,936

1,841

1,709

5%

13%
large

166

21

81

large

2,102

1,862

1,790

13%

17%

-

15

21

-100%

-100%

2,102

1,877

1,811

12%

16%

The Group from time to time modifies the organisation of its businesses to facilitate delivery of the strategic agenda. Prior
period numbers are adjusted for such changes to allow comparability. Changes since 30 September 2006 have been:Institutional: Within the Institutional division there have been a number of changes impacting all units including a review
of customer segmentation between businesses. Business Banking now includes certain customers that were previously
reported in Corporate Banking. Corporate Banking moved to a "product neutral model" with lending and deposit products
booked in Working Capital, structured products reported in Corporate & Structured Financing and vanilla hire purchaseand leasing products booked in Esanda. Costs for Corporate Banking are included in the Relationship & Infrastructure
unit. Markets includes the New Zealand interest rate risk management activities previously reported in New ZealandBusinesses. Debt & Transaction Services has been renamed Working Capital.

Personal: Prior period results for Esanda Fleetpartners in Australia have been transferred to Non-continuing businesses.
In addition, the asset finance activities from Institutional have been added to the division.



New Zealand: Prior period results for Esanda Fleetpartners have been transferred to Non-continuing businesses. In
addition, the interest rate risk management activities are now included in Institutional.



There were also a number of minor restatements as a result of customer segmentation, changes to internal transfer
pricing methodologies and the realignment of support functions.

1.

In the March 2007 half ANZ has classified the profit on sale of Esanda Fleetpartners of $195 million ($141 million after tax) as a significant item. In the March
2006 half ANZ classified the $113 million ($79 million after tax) settlement of the NHB insurance matter and the $14 million settlement of a dispute with Lloyds
TSB over the accounting treatment of certain items in the completion accounts for the acquisition of National Bank of New Zealand Limited (tax on settlement:$nil) 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 13)
The Group enters into economic hedges to manage its interest rate and foreign exchange risk. In the March 2007 half ANZ has classified $28 million after tax(Sep 2006 half: $21 million; Mar 2006 half: $13 million) relating to economic hedging as a non-core item (tax impact $13 million (Sep 2006 half: $10 million; Mar2006 half: $5 million)). Included in this non-core amount is ineffectiveness arising from designated accounting hedges, any volatility arising from usage of the fairvalue option and approved classes of derivatives not designated in accounting hedge relationships but that are considered to be economic hedges. In addition,
ANZ has classified a $3 million loss after tax (Sep 2006 half: $nil; Mar 2006 half: $nil) relating to New Zealand 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 $1 million credit). ANZ excludes volatility
associated with fair value movements on these transactions to provide a better indication of the core business performance (refer page 14)

2.

In the March 2006 half ANZ incurred $26 million after tax from ANZ National Bank incremental integration costs. Tax on ANZ National Bank incremental
integration costs was $13 million. The integration program was completed in March 2006. ANZ National Bank incremental integration costs are excluded to betterreflect the core cost base and assist analysis of the cost base following completion of the integration
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

33

BUSINESS PERFORMANCE REVIEW (continued)

Personal
Brian Hartzer

Net interest income
Other external operating income
Operating income

Half
year
Mar 07
$M

Half
year
Sep 06
$M

Half
year
Mar 06$M

Movt
Mar 07v. Sep 06%

Movt
Mar 07v. Mar 06
%

1,609

1,560

1,453

3%

11%

664

630

534

5%

24%

2,273

2,190

1,987

4%

14%

External operating expenses

(906)

(923)

(843)

-2%

7%

Net inter business unit expenses

(162)

(161)

(151)

1%

7%

Operating expenses(1,068)(1,084)

(994)

-1%

7%

Profit before credit impairment and income tax

1,205

1,106

993

9%

21%

Provision for credit impairment

(192)

(173)

(163)

11%

18%

Profit before income tax

1,013

933

830

9%

22%

Income tax expense and minority interest

(304)

(279)

(247)

9%

23%

Profit

709

654

583

8%

22%

Mortgages

191

190

178

1%

7%

Banking Products

182

168

149

8%

22%

146

132

105

11%

39%

81

79

73

3%

11%

Consisting of:Consumer FinanceRegional, Rural and Small Business Banking

1

Esanda

61

51

45

20%

36%

Pacific

36

35

30

3%

20%

Investment and Insurance Products

22

18

15

22%

47%

Other2

(10)

(19)

(12)

-47%

-17%

709

654

583

8%

22%

140,226

133,652

126,776

5%

11%

3,631

3,289

3,030

10%

20%

External assets

143,857

136,941

129,806

5%

11%

Balance Sheet
Net loans & advances including acceptances
Other external assets

Customer funding

63,82360,00356,5296%13%Wholesale funding

3,925

4,974

5,289

-21%

-26%

Deposits and other borrowings

67,74864,977

61,818

4%

10%

Other external liabilities

2,632

2,431

2,154

8%

22%

External liabilities

70,38067,40863,972

4%

10%
11%

Risk Weighted Assets

84,71780,65076,552

5%

Average net loans & advances including acceptances

136,671

129,997

122,390

5%

12%

Average deposits and other borrowings

66,53963,03860,103

6%

11%

Net interest margin

2.33%

2.35%

2.35%

Return on assets

1.01%

0.98%

0.93%

Return on risk weighted assets

1.72%

1.67%

1.57%

Operating expenses to operating income

47.0%

49.5%

50.0%

O pe rating expenses to average assets

1.53%

1.62%

1.59%

Individual provision (charge)/credit

(159)

(146)

(110)

9%

45%

(0.23%)(0.22%)(0.18%)

(33)

(27)

(53)

22%

-38%

(0.05%)(0.04%)(0.09%)

81

61

55

33%

47%

Ne t non-performing loans as a % of net advances

0.06%

0.05%

0.04%

Total employees

13,38912,932

12,385

4%

8%

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

1.

Comprises Regional & Rural Banking and Small Business Banking

2.

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

34

BUSINESS PERFORMANCE REVIEW (continued)

Personal
Brian Hartzer
March 2007 half year compared to March 2006 half year

Overall profit after tax increased 22% reflecting strong income performance from lending and customer deposit growth (11%and 13% respectively), and the benefits from ongoing investment in the business.
Operating income was up 14% driven by strong volumes, partly from our expanded footprint across all businesses.
Operating expenses increased 7% due to additional frontline staff to service higher business volumes, more branches andATMs demonstrating our continued investment in our More Convenient Banking customer proposition.
Key factors driving the result included:Net interest income increased 11% with strong balance sheet growth partly offset by margin decline of 2 basis points.
Banking Products grew 16% with deposits up 13% and Consumer Finance grew by 11% with lending growth of 13%
offset by a reduction in margins due to higher growth in lower margin products. Mortgages grew 6% with lending growthof 10% offset by declining margins reflecting increased competition, increased sales of fixed rate products and higher
funding costs. Pacific grew 12% reflecting benefits from revenue initiatives. Small Business Banking grew 24% reflecting
our expanded sales force driving strong balance sheet growth (lending up 40% and deposits up 24%). Regional & Rural
Banking grew 10% and Esanda increased 6%.

Other operating income increased 24%. There was a one-off benefit of $18 million in Consumer Finance from the sale of
the remaining MasterCard shares from the initial public offer in May 2006, offset in part by a $9 million reduction
compared with first half 2006 from debit interchange reform (mirrored by lower interchange expense). Consumer Financegrew by 19% (excluding the MasterCard profit) due to increasing volumes and related growth in issuing and lending fees.
Mortgages grew other income 44%, benefiting from the full effect of fee alignments implemented last half, higher
premium income from our mortgage insurance business and residual income from securitisation. Banking Products grewother income by 23% as account numbers increased. Esanda grew other operating income significantly as one-off
charges in the first half 2006 were not repeated and the finance company was repositioned for profitable growth.
Investment and Insurance Products income was up by 23% as more planners generated higher sales volumes. Pacificgrew other income 19%. Small Business Banking grew other income 10% while Regional & Rural Banking other income
was up 8%.

Operating costs increased 7%. Debit interchange reform reduced costs by $9 million. Investment in the footprint
continued with 24 extra branches since 31 March 2006, a further 344 ATMs and 1004 additional staff, mainly incustomer-facing and transformation roles.

Credit costs increased 18% reflecting volume growth in unsecured lending and a slightly higher risk mix in the credit card
portfolio with greater growth from low rate card products.

March 2007 half year compared to September 2006 half year

Profit after tax increased 8% over the previous half. Income growth was driven by lending and customer deposit growthacross the business (up 5% and 6% respectively) offset by margin compression of 2 basis points in the half. Debit
interchange reform (broadly neutral impact on earnings) saw both income and costs $9 million lower. Investment in theretail footprint expanded with 9 more branches and 148 extra ATMs, as well as increasing our sales force.
Above system balance sheet growth drove strong earnings in Banking Products, while Mortgages, Consumer Finance,
Regional & Rural Banking and Small Business Banking experienced slower system growth and declining margins from higher
funding costs and competition impacts. Investment and Insurance Products showed strong growth driven by our financial
planning business while Esanda increased earnings 20% over the half.
Net interest income increased 3%. Small Business Banking net interest income grew 14% as business expansion continued.
Banking Products net interest income grew 7% on deposit growth of 6%. Margin pressure saw Mortgages net interest
income flat as margin decline of 4 basis points offset lending growth of 5%. Consumer Finance net interest income increased
2%, with lending growth of 7% mainly in lower margin products. Net interest income in Regional & Rural Banking was up
3%, Esanda increased 2% and Pacific grew 1%.
Other operating income increased 5%. The prior half included $9 million higher debit interchange income. Mortgages otherincome was up 11% as mortgage insurance earnings and residual securitisation income rose, Banking Products other income
grew 7%. Consumer Finance other income growth is seasonally lower in the March half as more annual fees are charged in
the second half and the sale of MasterCard shares this half generated $18 million in income compared to $9 million last half.
Investment & Insurance Products income was up 7%, while Esanda and Pacific grew by 14% and 13%. Small BusinessBanking other income was flat and Regional & Rural Banking other income fell 3%.
Operating costs decreased 1% following the high growth in the September 2006 half. Main drivers included: debit
interchange reform ($9 million), lower marketing and software amortisation and savings in consulting spend, travel,
restructure costs and card expenses.
Credit costs increased 11% reflecting write-offs from growth in credit card and personal loan balances.

35

BUSINESS PERFORMANCE REVIEW (continued)

Personal
Brian Hartzer
Personal division by business unit

Comparison to March 2006
Growth Rate

March 2007
Mortgages

Revenue

Expenses

PBP1

Credit2

NPAT

Revenue

Expenses

PBP1

Credit

2

NPAT

530

246

284

11

191

9%

8%

10%

83%

7%

Banking Products

527

260

267

7

182

17%

10%

25%

n/a

22%

Consumer Finance

553

216

337

128

146

19%

5%

30%

17%

39%

Regional & Rural Banking

148

70

78

4

51

10%

11%

8%

100%

4%

Small Business Banking

98

51

47

5

30

20%

19%

21%

25%

25%

Esanda

198

75

123

36

61

11%

6%

15%

-16%

36%

Pacific

117

65

52

2

36

15%

7%

27%

large

20%

Investment andInsurance Products

100

71

29

(1)

22

23%

20%

32%

n/a

47%

Other

3

Personal Division

2

14

(12)

-

(10)

-80%

-52%

-37%

n/a

-17%

2,273

1,068

1,205

192

709

14%

7%

21%

18%

22%

Comparison to September 2006
March 2007
Mortgages

Revenue

Expenses

PBP1

530

246

284

Growth Rate
Credit2

NPAT

Revenue

Expenses

PBP1

Credit

2

NPAT

11

191

1%

0%

2%

22%

1%

Banking Products

527

260

267

7

182

7%

5%

9%

17%

8%

Consumer Finance

553

216

337

128

146

5%

-6%

13%

15%

11%

Regional & Rural Banking

148

70

78

4

51

2%

-1%

5%

100%

0%

Small Business Banking

98

51

47

5

30

10%

13%

7%

67%

7%

Esanda

198

75

123

36

61

3%

-1%

6%

-12%

20%

Pacific

117

65

52

2

36

5%

5%

6%

100%

3%

Investment andInsurance Products

100

71

29

(1)

22

8%

4%

16%

n/a

22%

2

14

(12)

-

(10)

-85%

-64%

-54%

n/a

-47%

2,273

1,068

1,205

192

709

4%

-1%

9%

11%

8%

Other

3

Personal Division
1.

PBP (profit before provision) 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

36

BUSINESS PERFORMANCE REVIEW (continued)

This page has been left blank intentionally37

BUSINESS PERFORMANCE REVIEW (continued)

Institutional (Continuing)
Steve Targett
Half
year
Mar 06$M

Movt
Mar 07v. Sep 06%

Movt
Mar 07v. Mar 06
%

Half
year
Mar 07
$M

Half
year
Sep 06
$M

1,016

1,059

993

-4%

2%

725

601

662

21%

10%

Operating income

1,741

1,660

1,655

5%

5%

External operating expenses

(535)

(523)

(493)

2%

9%

Net inter business unit expenses

(142)

(136)

(141)

4%

1%

Operating expenses

(677)

(659)

(634)

3%

7%

Profit before credit impairment and income tax

1,064

1,001

1,021

6%

4%

Net interest income
Other external operating income

6

(8)

(50)

large

large

Profit before income tax

Provision for credit impairment

1,070

993

971

8%

10%

Income tax expense and minority interest

(320)

(292)

(293)

10%

9%

Profit

750

701

678

7%

11%

18%

Consisting of:Working Capital

1

442

394

374

12%

2

156

137

149

14%

5%

Business Banking

121

131

128

-8%

-5%

Corporate & Structured Financing

100

111

95

-10%

5%

3

(69)
750

(72)
701

(68)
678

-4%
7%

1%
11%

73,30871,43669,4743%

6%

Markets

Relationships and Infrastructure

Balance Sheet
Net loans & advances including acceptances
Other external assets

59,15648,32854,83022%

8%External assets

132,464

119,764

124,304

11%

7%

Customer funding

67,46961,34254,40810%24%

Wholesale funding

8,625

7,897

10,9739%-21%

Deposits and other borrowings

76,094

69,23965,381

10%

16%

Other external liabilities

50,543

43,773

46,19515%

9%External liabilities

126,637

113,012111,576

12%

13%

Risk Weighted Assets

108,438

105,279

104,395

3%

4%

Average net loans & advances including acceptances

73,71071,44567,894

3%

9%

Average deposits and other borrowings

73,76969,15664,867

7%

14%

1.76%

1.88%

1.87%

14%

large

-87%

large

-14%

-18%

5%

11%

Ratios
Net interest margin
Return on assets

1.17%

1.10%

1.19%

Return on risk weighted assets

1.41%

1.31%

1.34%

Operating expenses to operating income

38.9%

39.7%

38.3%

Operating expenses to average assets

1.06%

1.04%

1.11%

8

7

(56)

0.02%

0.02%

(0.17%)

(2)

(15)

6

(0.01%)(0.04%)

0.02%

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

229

266

279

Net non-performing loans as a % of net advances

0.31%

0.37%

0.40%

Total employees

5,686

5,395

5,127

1.

Working Capital consists of the Debt Product Group and Trade & Transaction Services

2.

Markets includes interest rate mismatch component of Treasury result. NPAT for March 2007 was $9 million (Sep 2006 half: $3 million; Mar 2006 half: $8 million)

3.

Relationships and Infrastructure includes Personal & Private Banking Asia, Institutional Banking, Financial Institutions and Corporate Banking. The latter three
relationship businesses hold management costs associated with Institutional customers, with associated revenue booked in the product businesses

38

BUSINESS PERFORMANCE REVIEW (continued)

Institutional (Continuing)
Steve Targett
March 2007 half year compared to March 2006 half year

Profit after tax grew by 11% on the strong performance in the March 2006 half. Working Capital increased by 18% driven by
a 31% increase in Debt Product Group, with the continued benign credit environment and large recoveries positively
impacting the first half of 2007, offset by Trade & Transaction Services which fell 3%, although after allowing for the March
2006 release of revenue relating to prior years, profit growth was 11%. Corporate & Structured Financing increased by 5%,with higher fees partly offset by increased provisions in the first half of 2007. Markets profit after tax increased by 5%, fromthe first half of 2006 that was positively impacted by unusually strong trading income in New Zealand. Business Banking had
6% income growth, offset by 6% expense growth reflecting increasing costs of people and distribution points. The
investment in Relationship increased as the Division further developed its Financial Institution business and Personal &Private Banking in Asia. The Division continues to maintain a low cost to income ratio, notwithstanding significant pressure
on personnel costs in the investment banking market.
Margin decline continues to impact growth in net interest income, with declines of 32 basis points in Business Banking and7 basis points in Debt Product Group. Lending assets grew 6%, with growth of 4% in Debt Product Group reflecting a
run-off of low margin assets and growth of 12% in Business Banking. Customer deposits grew a pleasing 24%, with verystrong growth in cash management and transaction services and the benefits of new sites in International Payments.



The 10% growth in other operating income was mainly driven by non-lending fees and profit and loss on trading
securities. The growth in non-lending fees reflects strong performances within our advisory, private equity and structured
finance portfolios. Markets had strong growth in sales in Australia and Asia with the 2006 investment in frontline staff
bringing increased deal volumes.

Operating expense growth in Markets reflects investment required in both frontline revenue generating staff, andmodernising technology platforms. Corporate & Structured Financing continues to invest in the alternative assets funds
management business, Asia and debt capital markets. Other discretionary costs were reduced.

Provisions for credit impairment decreased $56 million. Individual provisions decreased with two large provisions in the
March 2006 half and two large credits in the March 2007 half. Collective provisions reduced $8 million with an
improvement in credit quality offsetting volume growth.

March 2007 half year compared to September 2006 half year

Profit after tax increased by $49 million (7%) with solid revenue growth of 5% on the seasonally stronger September half,
and reduced provision for credit impairment with two large credits during the half. The balance sheet is being actively
managed, with risk weighted assets growing by only 3% in the half.
Markets’ profit increased by 14%, with solid growth in sales revenue and favourable trading conditions in the Australianmarket. Working Capital profit increased by 12% with a significant volume of debt recoveries during the half, strong deposit
growth and increased activity in Asia partly offset by the impact of the drought in Australia and margin decline in the Debt
Product Group. Business Banking profit decreased by 8% with lending and deposit growth offset by margin contraction,
investment in front-line staff and an increase in provision for credit losses in the half. Profit in Corporate & Structured
Financing, which traditionally has a weaker first half, reduced 10% with declining net interest income and increased individual
provisions.
Net interest income reduced by 4% principally due to the funding of trading positions in Markets, competition and changes inbusiness mix. Corporate & Structured Financing reduced 4% driven largely by the impact of non-accrual status of two
project finance loans and margin contraction within our capital solutions portfolio. Markets net interest income reduced$34 million, with an increase in the funding cost of trading positions due to an increase in net unrealised gains and collateraldeposits. This reduction is more than offset in other operating income.
Other operating income increased 21%, with an $87 million increase in Markets (partly offset in net interest) resulting fromincreased revenue in the trading business, notably in Australia following rate increases, the credit business benefiting fromtightening credit spreads and a number of large structured credit transactions. Working Capital increased 15% with volume
driven fee growth in Trade & Transaction Services, and increased foreign exchange revenue from new sites including Sydney
Airport and CBD, and growth in Asia. Corporate & Structured Financing increased 7% from the strong September half.
Business Banking grew 7% due to higher volumes.
Our expense growth was constrained to 3%, and our cost to income ratio continues at a low 38.9%.
Provision for credit impairment decreased by $14 million. This was driven by both a lower collective provision charge andhigher new individual provisions and top ups were offset by large writebacks and recoveries.

39

BUSINESS PERFORMANCE REVIEW (continued)

Institutional (Continuing)
Steve Targett
Institutional division by business unit

Comparison to March 2006
March 2007

Growth Rate
2

2

Revenue

Expenses

PBP1

CreditNPAT

Revenue

Expenses

PBP1

CreditNPAT- Debt Product Group

383

15

368

(68)

306

-1%

67%

-3%

large

31%

- Trade & Transaction
Services

367

165

202

7

136

0%

2%

-2%

17%

-3%

Working CapitalMarkets

397

156

241

17

156

13%

12%

13%

large

5%

Business Banking

332

131

201

28

121

6%

6%

6%

large

-5%

Corporate &Structured Financing

229

82

147

10

100

13%

15%

12%

large

5%

Relationships &Infrastructure

3

Institutional

33

128

(95)

-

(69)

0%

-2%

-2%

n/a

1%

1,741

677

1,064

(6)

750

5%

7%

4%

large

11%

Comparison to September 2006
March 2007

Growth Rate
2

2

Revenue

Expenses

PBP1

CreditNPAT

Revenue

Expenses

PBP1

CreditNPAT- Debt Product Group

383

15

368

(68)

306

3%

15%

2%

large

24%

- Trade & Transaction
Services

367

165

202

7

136

3%

6%

2%

large

-8%

Working CapitalMarkets

397

156

241

17

156

15%

4%

24%

n/a

14%

Business Banking

332

131

201

28

121

2%

5%

0%

large

-8%

Corporate &Structured Financing

229

82

147

10

100

1%

8%

-3%

large

-10%

Relationships &Infrastructure

3

Institutional

33

128

(95)

-

(69)

-6%

-8%

-9%

n/a

-4%

1,741

677

1,064

(6)

750

5%

3%

6%

large

7%

1.

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

2.

Credit impairment expense

3.

Relationships & Infrastructure includes Personal & Private Banking Asia, Institutional Banking, Financial Institutions and Corporate Banking

40

BUSINESS PERFORMANCE REVIEW (continued)

This page has been left blank intentionally41

BUSINESS PERFORMANCE REVIEW (continued)

New Zealand Businesses1
Graham Hodges

Table reflects NZD results for New Zealand Businesses
AUD results shown on page 45

Net interest income
Other external operating income

Half
year
Mar 07
NZD M

Half
year
Sep 06
NZD M

Half
year
Mar 06
NZD M

Movt
Mar 07v. Sep 06%

Movt
Mar 07v. Mar 06
%

915

885

839

3%

9%

286

281

268

2%

7%

Operating income

1,201

1,166

1,107

3%

8%

External operating expenses

(573)

(566)

(557)

1%

3%
large

Net inter business unit expenses

(5)

(4)

(1)

25%

Operating expenses

(578)

(570)

(558)

1%

4%

Profit before credit impairment and income tax

623

596

549

5%

13%

Provision for credit impairment

(37)

(2)

(4)

large

large

Profit before income tax

586

594

545

-1%

8%

Income tax expense and minority interest

(188)

(191)

(176)

-2%

7%

Profit (NZD)

398

403

369

-1%

8%

The National Bank Retail

138

134

124

3%

11%

ANZ Retail

93

97

87

-4%

7%

Corporate & Commercial Banking

84

92

78

-9%

8%

Rural Banking

48

47

43

2%

12%

21

20

22

5%

-5%

13

12

12

8%

8%

1
398

1
403

3
369

0%
-1%

-67%
8%

75,41970,94966,614

6%

13%

Consisting of:Private Banking & Retail Specialist Units

2

UDC
Central Support

3

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

1,867

2,331

1,712

-20%

9%

External assets

77,28673,28068,326

5%

13%

Customer funding

42,46941,20239,0393%

9%Wholesale funding

5,570

6,894

7,919

-19%

-30%

Deposits and other borrowings

48,03948,096

46,9580%

2%

Other external liabilities

13,961

12,468

10,56112%

32%

External liabilities

62,00060,56457,5192%

8%

Risk Weighted Assets

61,73757,21553,0298%

16%

Average net loans & advances including acceptances

73,046

68,72364,333

6%

14%

Average deposits and other borrowings

48,442

47,14946,123

3%

5%

large

large

large

large

3%

-32%

2%

4%

Ratios
Net interest margin

2.48%

2.55%

2.58%

Return on assets

1.06%

1.14%

1.12%

Return on risk weighted assets

1.36%

1.45%

1.45%

Operating expenses to operating income

48.1%

48.9%

50.4%

Operating expenses to average assets

1.55%

1.61%

1.70%

Individual provision (charge)/credit

(26)

(10)

(11)

(0.07%)(0.03%)(0.03%)

(11)

8

7

(0.03%)

0.02%

0.02%

62

60

91

Net non-performing loans as a % of net advances

0.08%

0.08%

0.14%

Total employees

8,990

8,785

8,667

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

1.

For a reconciliation of New Zealand Businesses results to the New Zealand Geographic results refer page 57

2.

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

3.

Central support includes Treasury funding and shared services

42

BUSINESS PERFORMANCE REVIEW (continued)

New Zealand Businesses
Graham Hodges

New Zealand commentary reflects NZDMarch 2007 half year compared to March 2006 half year

Profit after tax increased 8% over the March 2006 half, with the result including a NZD22 million after tax increase in credit
impairment expense. Profit before credit impairment and income tax increased 13% with good contributions across all
businesses. This is a strong result in a highly competitive market. Market share has been successfully defended in all
sectors and we have further invested in the business. Each business unit has placed additional focus on strengthening its
customer proposition to enhance customer retention and attract new customers. This is being recognised by our customers,
with ANZ Retail Banking’s customer satisfaction at the highest level for many years, and The National Bank maintaining its
already strong customer satisfaction levels.
Growth in profit before credit impairment expense and income tax was led by Corporate & Commercial (15%) and Rural(14%) from continued buoyant lending growth. National Bank Retail growth was 16% and ANZ Retail growth was 13%, fromstrong lending and deposit growth with some reinvestment in the business. UDC increased 11%, showing a good turnaround from last year’s disappointing result.
Key factors driving the result are as follows:

Net interest income increased 9%, driven by robust balance sheet growth, with lending volumes increasing 13% andcustomer deposits increasing 9%. Lending growth was strongest in Corporate & Commercial (17%) and ANZ Retail(15%), with good growth also in Rural (13%) and National Bank Retail (11%), while UDC (1%) was impacted by
repayments. The growth in net interest income was moderated by a 10 basis point contraction in net interest margin,
with all businesses apart from UDC impacted. The main drivers of the lower margin were continued competitive pressure
and unfavourable funding and product mix, partially offset by customer prepayment behaviour.



Other external operating income grew 7% and included NZD10 million revenue on sale of MasterCard shares for the Retailbusinesses. National Bank Retail increased 8%, with growth across lending, cards and transactional fees. Fee growth in
the remaining businesses was constrained by the competitive conditions.



Operating expenses increased 4%, with the March 2006 half including costs of NZD10 million in relation to the CommerceCommission’s action on disclosure of optional issuer fees. Operating costs were higher due to annual increases in salaries,
increased front line staff and investment in business initiatives, partly offset by control of discretionary expenditure. The
cost to income ratio reduced 230 basis points to 48.1%.

Provision for credit impairment increased NZD33 million from negligible levels in 2006. The individual provision charge
increased NZD15 million, mainly reflecting an exceptionally low charge on the business banking portfolio last year due tothe timing of writebacks. The collective provision charge increased NZD18 million, largely due to a credit following thereassessment of the retail portfolio risk profile in the December 2005 period. The collective provision charge for March
2007 half was largely driven by lending growth, with minimal impact from changes to the risk profile across the portfolio.
Credit conditions remain benign, with net non-performing loans reducing 32%.

March 2007 half year compared to September 2006 half year

Profit after tax decreased 1% (NZD5 million) relative to the September 2006 half, impacted by a NZD23 million after tax
increase in credit impairment expense. Profit before credit impairment expense and income tax increased 5%, with soundcontributions from most businesses. The ANZ Retail result was somewhat lower due to the impact of the realignment of
product and fee structures and the timing of initiatives to reposition the business in the first half. The Rural result for the
first half reflects the impact of seasonality on the balance sheet. The current half includes revenue from the MasterCard
shares sale (NZD10 million) while the September 2006 half included NZD5 million from the redemption of MasterCard shares.
Key influences on the result include the following:

Net interest income increased 3%, driven by robust balance sheet growth, with lending volumes increasing 6%.
Customer deposit volumes increased 3%, with growth particularly strong in ANZ Retail, reflecting the continued success of
the Online Call account. Net interest margin reduced 7 basis points driven by intense competition, the impact of increases
in wholesale rates on lending spreads and unfavorable product mix. This was partially offset by a favorable impact on
deposit spreads from increases to wholesale rates and the impact of customer prepayment behaviour.



Other external operating income was flat after adjusting for the MasterCard income in the respective halves, with fee
growth across the businesses constrained due to competitive conditions.



Operating expenses increased 1% with growth from annual salary rate rises and increased front line staff being partly
offset by reduced discretionary spend.

Provision for credit impairment increased NZD35 million. The individual provision charge remains at low levels despite
increasing NZD16 million, reflecting the exceptionally low result in the September 2006 half, which benefited from anumber of Corporate & Commercial and Business Banking recoveries. The collective provision charge increased
NZD19 million partially from a reduced benefit from scenario modeling in the March 2007 half.

43

BUSINESS PERFORMANCE REVIEW (continued)

New Zealand Businesses
Graham Hodges
New Zealand Businesses by business unit

Comparison to March 2006
March 2007 (NZD M)
Revenue Expenses

Growth Rate

1

PBP

Credit2

NPAT

Revenue Expenses

PBP

1

Credit2

NPAT

The National Bank Retail

439

226

213

9

138

8%

2%

16%

large

11%

ANZ Retail

368

215

153

16

93

7%

3%

13%

large

7%

Corporate &Commercial Banking

199

64

135

9

84

12%

7%

15%

n/a

8%

Rural Banking

113

40

73

2

48

10%

3%

14%

n/a

12%

Private Banking &Retail Specialist Units

45

18

27

-

21

10%

20%

4%

n/a

-5%

UDC

36

16

20

1

13

0%

-11%

11%

0%

8%

Central Support

1

(1)

2

-

1

-50%

-67%

-60%

n/a

-67%

1,201

578

623

37

398

8%

4%

13%

large

8%

2

NPAT

New Zealand Businesses

Comparison to September 2006
March 2007 (NZD M)
Revenue Expenses

1

PBP

Growth Rate

Credit2

NPAT

Revenue Expenses

1

PBP

CreditThe National Bank Retail

439

226

213

9

138

3%

1%

5%

large

3%

ANZ Retail

368

215

153

16

93

3%

4%

2%

large

-4%

Corporate &Commercial Banking

199

64

135

9

84

5%

5%

5%

large

-9%

Rural Banking

113

40

73

2

48

1%

-2%

3%

n/a

2%

Private Banking &Retail Specialist Units

45

18

27

-

21

2%

0%

4%

-100%

5%

UDC

36

16

20

1

13

3%

-6%

11%

n/a

8%

Central Support
New Zealand Businesses

1

(1)

2

-

1

-75%

large

n/a

n/a

0%

1,201

578

623

37

398

3%

1%

5%

large

-1%

1.

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

2.

Credit impairment expense

ING New Zealand joint venture

In September 2005 ANZ National Bank Limited entered into a joint venture with ING Insurance International Limited (INGII).
The joint venture, ING (NZ) Holdings Ltd (INGNZ), is 49% owned by ANZ National Bank Limited and 51% owned by INGII.
For the March 2007 half, INGNZ contributed NZD10 million in equity accounted earnings, which was flat against the
September 2006 half (NZD10 million).

44

BUSINESS PERFORMANCE REVIEW (continued)

New Zealand Businesses1
Graham Hodges

Table reflects AUD results for New Zealand Businesses
NZD results shown on page 42

Half
year
Mar 07
$M

Half
year
Sep 06
$M

Half
year
Mar 06$M

Movt
Mar 07v. Sep 06%

Net interest income

805

740

768

9%

5%

Other external operating income

252

235

245

7%

3%

Operating income

1,057

975

1,013

8%

4%

External operating expenses

(504)

(471)

(510)

7%

-1%

(5)

(4)

(1)

25%

large

Operating expenses

(509)

(475)

(511)

7%

-0%

Profit before credit impairment and income tax

548

500

502

10%

9%

Provision for credit impairment

(33)

(1)

(3)

large

large

Profit before income tax

515

499

499

3%

3%

Income tax expense and minority interest

(164)

(160)

(162)

3%

1%

Profit

351

339

337

4%

4%

The National Bank Retail

122

112

114

9%

7%

ANZ Retail

82

81

80

1%

3%

Corporate & Commercial Banking

74

78

72

-5%

3%

Rural Banking

42

40

39

5%

8%

19

17

18

12%

6%

11

10

11

10%

0%

1
351

1
339

3
337

0%
4%

-67%
4%

Net inter business unit expenses

Movt
Mar 07v. Mar 06%

Consisting of:Private Banking & Retail Specialist Units

2

UDC
Central Support

3

New Zealand Businesses
Balance Sheet
Net loans & advances including acceptances

66,672

61,93756,935

8%

17%

Other external assets

1,650

2,035

1,463

-19%

13%

External assets

68,322

63,97258,398

7%

17%

Customer funding

37,54335,96933,3674%

13%

Wholesale funding

4,924

6,018

6,768

-18%

-27%

Deposits and other borrowings

42,467

41,987

40,135

1%

6%Other external liabilities

12,342

10,884

9,027

13%

37%

External liabilities

54,80952,871

49,162

4%

11%

Risk Weighted Assets

54,57749,94745,324

9%

20%

Average net loans & advances including acceptances

64,30757,48658,907

12%

9%

Average deposits and other borrowings

42,64639,35942,233

8%

1%

large

large

large

large

4%

-29%

2%

4%

Ratios
Net interest margin

2.48%

2.55%

2.58%

Return on assets

1.06%

1.14%

1.12%

Return on risk weighted assets

1.36%

1.45%

1.45%

Operating expenses to operating income

48.1%

48.9%

50.4%

Operating expenses to average assets

1.55%

1.61%

1.70%

Individual provision (charge)/credit

(23)

(8)

(10)

(0.07%)(0.03%)(0.03%)

(10)

7

7

(0.03%)

0.02%

0.02%

Individual provision (charge)/credit as a % of average net advances
Collective provision (charge)/credit
Collective provision (charge)/credit as a % of average net advances

55

53

78

Net non-performing loans as a % of net advances

Net non-performing loans

0.08%

0.08%

0.14%

Total employees

8,990

8,785

8,667

1.

For a reconciliation of New Zealand Businesses results to the New Zealand Geographic results refer page 57

2.

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

3.

Central support includes Treasury funding and shared services

45

BUSINESS PERFORMANCE REVIEW (continued)

Partnerships & Private Bank
Bob Edgar
Halfyear
Mar 07
$M

Half
year
Sep 06
$M

Half
year
Mar 06$M

Movt
Mar 07v. Sep 06%

Movt
Mar 07v. Mar 06%

Net interest income

46

39

34

18%

35%

Other external operating income

121

103

87

17%

39%

Operating income

167

142

121

18%

38%

External operating expenses

(52)

(44)

(42)

18%

24%

Net inter business unit expenses

10

13

11

-23%

-9%

Operating expenses

(42)

(31)

(31)

35%

35%

Profit before credit impairment and income tax

125

111

90

13%

39%

Provision for credit impairment

(19)

(15)

(9)

27%

large

Profit before income tax

106

96

81

10%

31%

(3)

(5)

(2)

-40%

50%

103

91

79

13%

30%

75

64

58

17%

29%

22

18

14

22%

57%

6

9

7

-33%

-14%

Income tax expense and minority interest
ProfitConsisting of:
INGA
International Partnerships
Other

1

2

Total employees
1.
2.

103

91

79

13%

30%

764

635

533

20%

43%

PT Panin, Metrobank Card Corporation and Bank of Tianjin are equity accounted. Indonesia Cards and ANZ Royal are controlled entities
Other comprises ANZ Private Bank and Support Units

March 2007 half year compared to March 2006 half year

Profit after tax increased 30%. INGA earnings were up 29% ($17 million) supported by double-digit funds management andrisk income growth from higher funds under management, strong investment markets and growth in premium income.
Earnings from the new partnership investments of Bank of Tianjin (formerly Tianjin City Commercial Bank) and Sacombank
together with higher revenue from ANZ Royal and continued solid results from Metrobank Card Corporation (MCC) and Paninwere the other key drivers of the strong result. These uplifts were partly offset by the impact of increased provisioning in theIndonesia Cards business. Significant influences on the result were:

Net interest income increased 35% primarily due to volume growth and lower funding costs in Indonesia Cards and both
asset and deposit growth in Cambodia. ANZ Private Bank net interest income increased 22% driven by an increase of
19% in funds under management.



Other operating income increased 39% due to increased INGA equity accounted income reflecting both higher core
operating profit (25%) and capital investment earnings (50%) benefiting from underlying market strength, earnings fromexisting (MCC and Panin) and new partnerships (Bank of Tianjin and Sacombank), increased fee income in Indonesia
Cards due to volume growth and strong fee revenue growth in Cambodia. ANZ Private Bank other income increased 53%
due to improved alternative investment and advisory products distribution.



Operating expenses increased $11 million largely as a result of ongoing investment across the International Partnerships
and ANZ Private Bank businesses.

Provision for credit impairment increased $10 million due to the impact of regulatory changes and business volume
growth in Indonesia Cards.

March 2007 half year compared to September 2006 half year

Profit after tax increased 13%. Stronger performances in INGA and Panin, a full half year result from the Bank of Tianjin
investment and the annual dividend received from the Sacombank investment were partly offset by the impact of increased
provisioning in Indonesia Cards and continued investment in the partnerships business.
Net interest income increased 18%, driven by strong volume growth and lower funding costs in Indonesia Cards and both
asset and deposit growth in ANZ Royal. Other operating income increased 17% reflecting stronger Panin earnings andincreased INGA equity accounted income of $12 million with a 12% increase in core operating profit and a 45% increase incapital investment earnings. ANZ Private Bank other income increased 18% from an increase in the distribution ofalternative investment and advisory products. Equity accounted income from Bank of Tianjin increased due to the first full
half result and Sacombank income increased due to the annual dividend received from the investment.
Operating expenses increased 35% from increased investment across the businesses. Provision for credit impairment
increased by 27% primarily due to Indonesia Cards business volume growth and regulatory changes in Indonesia.
46

BUSINESS PERFORMANCE REVIEW (continued)

Partnerships & Private Bank
Bob Edgar
ING Australia performance

Half
year
Mar 07
$M
243

Half
year
Sep 06
$M
237

Half
year
Mar 06$M
208

Movt
Mar 07v. Sep 06
%
3%

Movt
Mar 07v. Mar 06
%
17%

117
13
8
138

96
16
112

89
18
15
122

22%
-19%
n/a
23%

31%
-28%
-47%
13%

Total Income
Funds management expenses
Life risk expenses
2
Remediation expenses
Capitalised software write-offs
Gross tax on operating profit

381
(148)
(67)
(12)
(29)
(15)

349
(139)
(63)
(15)
(34)

330
(133)
(63)
(24)
(4)
(18)

9%
6%
6%
-20%
n/a
-56%

15%
11%
6%
-50%
large
-17%

Operating profit after tax, before

110

98

88

12%

25%

Funds management income
Life Risk Income- planned margin1- experience variation1- assumption changes

capital investment earnings
Capital investment earnings after tax

42

29

28

45%

50%

152

127

116

20%

31%

(1)
151

127

116

n/a
19%

n/a
30%

54
20
74
1
75

48
14
62
2
64

43
14
57
1
58

13%
43%
19%
-50%
17%

26%
43%
30%
0%
29%

Carrying value of investment

1,507

1,461

1,407

3%

7%

Annualised return on ANZ investment

9.8%

8.5%

8.1%
34%

85%

Profit after tax before minorities
Minority interest
Profit after tax
ANZ share of INGA earnings @ 49%
JV operating profit
JV capital investment earnings
Net funding
Net return to ANZ
3

Performance measures @ 100%
4

Value of new business
Cost to income

5

Funds Management
Retail & mezzanine funds under management
Net retail & mezzanine flows
Life Risk
Total in-force
6
New premiums

Funds management growth (Retail & mezzanine)
OneAnswer
Other Personal Investment
Mezzanine
Employer Super
Oasis
Total
1.

2.
3.

4.

5.
6.
7.

7

63

47

34

56%

58%

60%

43,797
1,202

38,849842

33,731
415

13%
43%

30%
large

624
95

596
103

536
65

5%
-8%

16%
46%

Mar 07$M
17,0828,453
2,888
10,5294,845
43,797

Inflows
2,072
245
481
777
789
4,364

Outflows(1,237)
(666)
(459)
(555)
(245)
(3,162)

Other
flows
2,170
(84)
236
955
469
3,746

Sep 06$M
14,076
8,959
2,630
9,352
3,832
38,849Experience variations are gains or losses arising from actual experience differing from plan, primarily death and sickness. Assumption changes are gains or losses
arising from a change in valuation methods and best estimate assumptions
Remediation expenses represent costs incurred in rectifying historical unit pricing errors and fully compensating customers
ANZ adopts the equity method of accounting for its 49% interest in INGA. The carrying value of the investment in INGA has been tested for impairment bycomparing the carrying value with the recoverable amount of INGA. The Group engaged Ernst & Young ABC Pty Limited to provide an independent valuation of
INGA for 31 March 2007 assessment purposes (the recoverable amount), and there has been no evidence of subsequent impairment. The independent economic
valuation was based on a discounted cash flow approach, with allowance for the cost of capital. Based on the results of this valuation, no change is required to thecarrying value of the investment in INGA
Value of new business represents the present value of future profits arising from the new business written over the periods less the present value of the cost ofcapital applying to that new business
Cost to Income ratio is management expenses (excluding Remediation Expenses & Capitalised Software Write-offs) / Total Income
The spike in new premiums in the September 2006 half year is in respect of a significant mastertrust new business win
Other Flows includes investment income net of taxes, fees and charges

47

BUSINESS PERFORMANCE REVIEW (continued)

Partnerships & Private Bank
Bob Edgar
ING Australia performance, cont’dMarch 2007 half year compared to March 2006 half year

Highlights of the half included improved performance in both core funds management and risk businesses, the completion ofremediation work, and improved customer service.
Life Risk sales reflected the ongoing success of INGA’s retail risk product ‘OneCare’, which is now the market leading
individual risk product for retail new business. The funds management business enjoyed increased inflows and improved
retention, while strength in underlying investment markets ensured steady growth in funds under management (FUM),
generating higher gross fee income. Margins came under continued pressure however, reflecting increasing levels of market
competition as well as the effect of higher FUM balances on tiered fee bases, and a shift towards externally-managed
investment options on INGA’s platforms which attract lower net fee rates.
INGA continues to hold strong market shares in its chosen segments. Funds management market share (retail andmezzanine) for INGA grew from 7.6% at 30 September 2005 to 8.2% at 30 September 2006. The Personal Investments
business further upgraded its flagship “OneAnswer” platform during the March 2007 half. The Employer Super businessmaintained its market share (13%), and the ING Corporate Super product is currently ranked #1 amongst employer superproviders by Heron Partnership. The success of OneCare has translated into increased market share in individual life risk new
annual premiums, up from 9.6% in the year to 30 September 2005 to 14.4% in the year to 30 September 2006. INGA
enjoyed the highest growth in new annual premium among the major institutions in the industry, and is now ranked #3 fortotal in-force premiums. (Source of market statistics: Plan For Life - September 2006)
Oasis Asset Management, INGA’s badged platform subsidiary acquired in May 2006, is performing ahead of expectations.
A core component of INGA’s strategy continues to be growing the number of aligned advisers. The total number of INGAaligned advisers grew to 1,182 by March 2007, a year-on-year increase of 69 planners, of which 29 were ANZ financial
planners. INGA ranks 4th in the industry for adviser numbers.
Profit after tax was 30% higher than the March 2006 half, with both operating profit (+25%) and capital investment earnings(+50%) making strong contributions towards the result. Significant contributors to profit growth were:

Funds management income increased 17% due to higher average funds under management underpinned by strong
investment markets, improved net flows in both personal investments and employer super businesses and the acquisitionof Oasis. The increase was achieved in an environment of increasing pressure on margins.



Risk income was 13% higher than the equivalent period to March 2006, driven by strong growth in premium income inboth term life and consumer credit, together with continued favourable mortality and morbidity experience. The uplift
was achieved despite assumption changes having a lesser favourable impact in the March 2007 half compared to theprevious year.



Underlying funds management expenses increased by 11% due largely to the acquisition of Oasis Asset Management.
Risk expenses increased 6% due to the increased cost base associated with supporting the strong growth in retail riskbusiness. Remediation expenses were lower following completion of the unit pricing remediation project. Two capitalised
software assets were written-off as part of INGA’s normal impairment testing of carrying values.



Tax on operating profit was lower despite the 18% increase in pre-tax operating profit over the March 2006 half, due tothe booking of $25 million of prior period tax adjustments.



Capital investment earnings after tax were significantly higher than the March 2006 half due to:- improved average yields across various asset classes in which shareholder capital is invested; and- the one-off realisation of previously unrealised capital gains ($12 million) following a capital restructure in February
2007.

Sales by Channel
Retail Funds Management1(12 mths )Mar 07

Sep 06ANZ Bank

40%

IFAs aligned to ING

19%

Direct7%

Life Insurance

2
3

Mar 07

Sep 06

45%

12%

12%

18%

10%

9%

6%

32%

19%

Open Market

34%

31%

46%

60%

Total

100%

100%

100%

100%

1.
2.
3.

Includes mezzanine funds management business
Includes directly marketed life insurance and consumer credit life insurance
Open Market channel in September 2006 includes a substantial mastertrust client win

48

BUSINESS PERFORMANCE REVIEW (continued)

Partnerships & Private Bank
Bob Edgar
ING Australia performance, cont’dMarch 2007 half year compared to September 2006 half year

Profit after tax was 19% higher than the half year to 30 September 2006, with both operating profit (+12%) and capital
investment earnings (+45%) making strong contributions towards the result. Significant contributors to profit growth were:

Growth in funds management income based on higher average funds under management during the half-year, as a resultof improved net flows and buoyant investment markets. There was further pressure on margins during the period.

Higher risk income from in-force premium growth, further assisted by a pre-tax profit release of $8 million from theannual review of risk assumptions conducted in the fourth quarter of 2006.



Funds management expenses rose 6% due to the acquisition of Oasis Asset Management, while the 6% increase in life
risk expenses arose from organic business growth. Spending on remediation was reduced in the March half as the project
was completed. Two capitalised software assets related to systems conversion were written-off, as part of INGA’s normal
impairment testing of carrying values.



Tax on operating profit was lower due to the booking of $25 million of prior period tax adjustments in the March half.

Capital investment earnings were significantly higher due to both continued strong underlying investment markets
throughout the March 2007 half, and a one-off capital gain ($12 million) following a restructure of INGA’s shareholder capitalin February 2007.

49

BUSINESS PERFORMANCE REVIEW (continued)

Non-continuing businesses1

Net interest income

Half
year
Mar 07
$M

Half
year
Sep 06
$M

Half
year
Mar 06$M

Movt
Mar 07v. Sep 06%

Movt
Mar 07v. Mar 06
%

2

19

27

-89%

-93%

Other external operating income

2

10

25

-80%

-92%

Operating income

4

29

52

-86%

-92%

External operating expenses

(4)

(18)

(16)

-78%

-75%
-100%

Net inter business unit expenses

-

2

1

-100%

Operating expenses

(4)

(16)

(15)

-75%

-73%

Profit before credit impairment and income tax

-

13

37

-100%

-100%

Provision for credit impairment

-

14

1

-100%

-100%

Profit before income tax

-

27

38

-100%

-100%

Income tax expense and minority interest

-

(5)

(7)

-100%

-100%

Profit

-

22

31

-100%

-100%

1.

Non-continuing businesses comprises the London headquartered project finance business, the run-off of New Zealand conduit transactions and certain structured
finance transactions that ANZ has exited as part of its de-risking strategy and Esanda Fleetpartners which was sold in October 2006

March 2007 half year compared to March 2006 half year

Profit after tax reduced from $31 million at the March 2006 half to nil at the March 2007 half year. The sale of Esanda
Fleetpartners contributed to $2 million of this reduction with the remaining $29 million from the continued run-off of legacy
project finance assets in Institutional. Since March 2006, the volume of structured loans in the discontinued book has
reduced to nil.

March 2007 half year compared to September 2006 half year

Profit after tax reduced from $22 million at the September 2006 half year to nil at the March 2007 half year. The sale of
Esanda Fleetpartners contributed to $13 million of this reduction with the remaining $9 million from the run-off of legacy
project finance assets in Institutional.

50

BUSINESS PERFORMANCE REVIEW (continued)

Group Centre1

Net interest income
Other external operating income

Half
year
Mar 07
$M

Half
year
Sep 06
$M

Half
year
Mar 06$M

Movt
Mar 07v. Sep 06%

Movt
Mar 07v. Mar 06
%

133

158

93

-16%

43%

6

4

10

50%

-40%

Operating income

139

162

103

-14%

35%

External operating expenses

(385)

(367)

(355)

5%

8%

Net inter business unit expenses

299

286

281

5%

6%

Operating expenses

(86)

(81)

(74)

6%

16%

Profit before credit impairment and income tax

53

81

29

-35%

83%

Provision for credit impairment

(2)

-

-

n/a

n/a

Profit before income tax

51

81

29

-37%

76%

Income tax expense and minority interest

(28)

(32)

(6)

-13%

large

Profit

23

49

23

-53%

0%

4,354

4,239

4,014

3%

8%

Total employees
1.

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

March 2007 half year compared to March 2006 half year

The half-year profit of $23 million was in line with the March 2006 half.


Revenue increased by $36 million primarily from increased interest earned on surplus capital ($22 million) together with
the investment of funds raised via the Euro Hybrid at higher interest rates and improved interest income from theinvestment of central tax balances pertaining to tax timing differences. These favourable impacts were partly offset by
reduced interest received on tax refunds.



Operating expenses increased by $12 million due largely to offshoring and IT project costs in Operations, Technology &Shared Services. The increase in employee numbers was also driven largely by the transitional impact of offshoring
technology and back office work to India, together with an increase in IT project work.

The higher effective tax rate resulted primarily from withholding tax payable on future remittances of present profits from
offshore operations and the ongoing appraisal of global tax provisioning requirements.

March 2007 half year compared to September 2006 half year

Profit of $23 million was $26 million lower than for the previous half year. Operating income reduced by $23 million,
primarily due to a $50 million reduction in income on contracts put in place to hedge NZD earnings and a reduction in interest
received on tax refunds compared with the prior half. These factors were partially offset by additional interest on surplus
capital, an improvement in interest income from the investment of central tax balances pertaining to tax timing differences,and lower term debt funding costs. Operating expenses increased by $5 million due mainly to offshoring and IT project costs
in Operations, Technology & Shared Services, partly offset by lower non-lending losses. The increase in employee numbers
was driven largely by an increase in IT project work. The higher effective tax rate resulted from the ongoing appraisal of
global tax provisioning requirements.

51

This page has been left blank intentionally52

GEOGRAPHIC SEGMENT PERFORMANCE

Geographic performance
Movt
Movt
Mar 07
Mar 07v. Sep 06 v. Mar 06
%
%

Half
year
Mar 07
$M

Half
year
Sep 06
$M

Half
year
Mar 06
$M

1,417

1,292

1,196

10%

New Zealand

502

408

422

23%

19%

Asia

74

70

55

6%

35%

Pacific

59

58

55

2%

7%

Other

50
2,102

49
1,877

83
1,811

2%
12%

-40%
16%

Half
year
Mar 07
$M

Half
year
Sep 06
$M

Half
year
Mar 06$M

ProfitAustralia

18%

Movt
Movt
Mar 07
Mar 07v. Sep 06 v. Mar 06%%

1

Cash profit
Australia

1,323

1,269

1,108

4%

New Zealand

426

408

434

4%

-2%

Asia

77

70

55

10%

40%

Pacific

59

58

55

2%

7%

Other

51
1,936

51
1,856

79
1,731

0%
4%

-35%
12%

Half Year March 2007

19%

Growth Rate (on March 2006 half)

Revenue

Expenses

PBP2

Credit3

NPAT

Revenue

Expenses

PBP2

Credit3

NPAT

Australia

3,659

1,604

2,055

194

1,323

13%

8%

16%

-11%

19%

New Zealand

1,248

576

672

26

426

0%

-2%

2%

86%

-2%

Asia

191

82

109

17

77

29%

11%

47%

large

40%

Pacific

151

67

84

2

59

8%

6%

9%

large

7%

Other

132
5,381

57
2,386

75
2,995

1
240

51
1,936

-15%
9%

6%
6%

-26%
12%

large
7%

-35%
12%

New Zealand (NZD)

1,418

654

764

30

484

4%

2%

7%

large

2%

Half Year March 2007

Growth Rate (on September 2006 half)

CreditNPAT

Revenue

Expenses

PBP2

Credit3

NPAT

2,055

194

1,323

3%

0%

5%

0%

4%

576

672

26

426

7%

7%

8%

large

4%

191

82

109

17

77

9%

6%

11%

31%

10%

Pacific

151

67

84

2

59

3%

3%

4%

100%

2%

Other

132
5,381

57
2,386

75
2,995

1
240

51
1,936

17%
4%

-14%
2%

60%
7%

large
31%

0%
4%

New Zealand (NZD)

1,418

654

764

30

484

2%

2%

2%

large

-1%

Revenue

Expenses

PBP

Australia

3,659

1,604

New Zealand

1,248

Asia

1.

2

3

In the March 2007 half ANZ has classified the profit on sale of Esanda Fleetpartners of $195 million ($141 million after tax) as a significant item. In the March
2006 half ANZ classified the $113 million ($79 million after tax) settlement of the NHB insurance matter and the $14 million settlement of a dispute with Lloyds
TSB over the accounting treatment of certain items in the completion accounts for the acquisition of National Bank of New Zealand Limited (tax on settlement:$nil) 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 13)
The Group enters into economic hedges to manage its interest rate and foreign exchange risk. In the March 2007 half ANZ has classified $28 million after tax(Sep 2006 half: $21 million; Mar 2006 half: $13 million) relating to economic hedging as a non-core item (tax impact $13 million (Sep 2006 half: $10 million; Mar2006 half: $5 million)). Included in this non-core amount is ineffectiveness arising from designated accounting hedges, any volatility arising from usage of the fairvalue option and approved classes of derivatives not designated in accounting hedge relationships but that are considered to be economic hedges. In addition,
ANZ has classified a $3 million loss after tax (Sep 2006 half: $nil; Mar 2006 half: $nil) relating to New Zealand 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 $1 million credit). ANZ excludes volatility
associated with fair value movements on these transactions to provide a better indication of the core business performance (refer page 14)
In the March 2006 half ANZ incurred $26 million after tax from ANZ National Bank incremental integration costs. Tax on ANZ National Bank incremental
integration costs was $13 million. The integration program was completed in March 2006. ANZ National Bank incremental integration costs are excluded to betterreflect the core cost base and assist analysis of the cost base following completion of the integration

2.

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

3.

Credit impairment expense

53

GEOGRAPHIC SEGMENT PERFORMANCE (continued)

Australia
Halfyear
Mar 07
$M

Half
year
Sep 06
$M

Half
year
Mar 06$M

Movt
Mar 07v. Sep 06%

Movt
Mar 07v. Mar 06%

Net interest income

2,475

2,470

2,291

0%

8%

Other external operating income

1,184

1,093

952

8%

24%

Operating income

3,659

3,563

3,243

3%

13%

Operating expenses(1,604)(1,600)(1,479)0%

8%Profit before credit impairment and income tax

2,055

1,963

1,764

5%

16%
-11%

Provision for credit impairment

(194)

(194)

(218)

0%

Profit before income tax

1,861

1,769

1,546

5%

20%

Income tax expense

(537)

(499)

(438)

8%

23%

Minority interest
1

Cash profit
Non-core items

1

Profit

(1)

(1)

-

0%

n/a

1,323

1,269

1,108

4%

19%

94

23

88

large

7%

1,417

1,292

1,196

10%

18%

9%

-9%

-23%

-16%

-1%

-5%

3%

5%

Net interest average margin

2.23%

2.33%

2.31%

Return on risk weighted assets

1.74%

1.64%

1.59%

Operating expenses to operating income

1

42.0%

44.5%

42.0%

1

1.34%

1.39%

1.29%

1.62%

1.61%

1.47%

43.8%

44.9%

45.6%

Operating expenses to average assets (cash )

1.34%

1.39%

1.40%

Individual provision (charge)/credit

(153)

(141)

(169)

(0.16%)(0.15%)(0.19%)

Operating expenses to average assets
1

Return on risk weighted assets (cash )1

Operating expenses to operating income (cash )1

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

(41)

(53)

(49)

(0.04%)(0.06%)(0.06%)

291

295

305

Net non-performing loans as a % of net advances

0.15%

0.15%

0.18%

Total employees

19,19818,723

18,221

Lending growth

4.6%

4.5%

5.1%

External assets

242,014229,978

220,141

5%

10%

Risk weighted assets

167,705

160,719

154,115

4%

9%

1.

In the March 2007 half ANZ has classified the profit on sale of Esanda Fleetpartners of $128 million ($74 million after tax) as a significant item
In the March 2006 half ANZ classified the $113 million ($79 million after tax) settlement of the NHB insurance matter 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 pages 13 to 14)
The Group enters into economic hedges to manage its interest rate and foreign exchange risk. In the March 2007 half ANZ has classified $20 million after tax(Sep 2006 half: $23 million; Mar 2006 half: $9 million) relating to economic hedging as a non-core item (tax on hedge gains $9 million (Sep 2006 half:$11 million; Mar 2006 half: $3 million)). Included in this non-core amount is ineffectiveness arising from designated accounting hedges, any volatility arising fromusage of the fair value option and approved classes of derivatives in the 2006 year not designated in accounting hedge relationships but that are considered to beeconomic hedges. ANZ excludes volatility associated with fair value movements on these transactions to provide a better indication of the core businessperformance

54

GEOGRAPHIC SEGMENT PERFORMANCE (continued)

Australia, cont’dMarch 2007 half year compared to March 2006 half year

Profit after tax increased 18%. After adjusting for the impact of non-core items (refer pages 13 to 14), cash profit increased
19%.
Key influences on cash profit were:

Net interest income increased 8% as average net advances increased 10% and average deposits and other borrowings
increased 12% while the net interest margin decreased 8 basis points. Market’s net interest income increased $29 million
due to a reduction in the funding cost associated with unrealised gains with a higher proportion of revenue booked asinterest, offset in other income. Net interest income also benefited from earnings on higher levels of capital.



Other income increased 24%. Institutional increased 27%, including $29 million lower Market’s other income offset in net
interest income. Excluding this impact, Institutional increased 35% due to solid deal flow in Corporate & Structured
Financing and higher Markets revenue from increased deal volumes, while Personal increased 24% including an$18 million gain from the sale of MasterCard shares. Excluding this gain other income increased 22% due to strong
volume and fee growth across all businesses as the investment in growth initiatives delivered higher transaction volumes
and fee initiatives benefited several businesses. INGA increased $17 million following improved operating performance,
the completion of remediation work on legacy issues and the strong equity markets during the half.

Operating expenses increased 8% reflecting a 5% increase in staff numbers and annual salary increases effective
1 October 2006, higher premises and computer charges due to the ongoing investment in the branch network in Personaland continued investment in frontline staff, and staff and systems investment in Institutional.

Provision for credit impairment decreased 11% as the individual provision charge decreased $16 million, due to asignificant debt recovery in the March 2007 half, partly offset by higher provisions in Personal due to increased volumes
and slightly higher risk mix in the portfolio.

March 2007 half year compared to September 2006 half year

Profit after tax increased by 10%. After adjusting for the impact of non-core items (refer pages 13 to 14), cash profit
increased 4% and cash profit before credit impairment and income tax increased 5%. Adjusting for the benefit in the
September half from gains on the NZD revenue hedges of $34 million after tax, cash profit increased by 5% and cash profit
before provisions increased 7%.
Key influences on cash profit were:

Net interest income was flat: excluding NZD revenue hedge income of $49 million in September 2006 half, net interest
income increased by 2%. Average net advances increased 4%. Average deposit and other borrowing volumes increased
3%. Net interest margin decreased 10 basis points. Excluding the NZD revenue hedge income in September 2006 half,
the margin decreased 5 basis points with a change in the asset mix and competitive pressures in the lending books ofMortgages, Consumer Finance, Debt Product Group and Business Banking, partly offset by an increased margin on deposit
products.



Other operating income increased by 8%. Institutional increased 13% due to higher deal fees in Corporate & Structured
Financing, higher Markets earnings with increased deal volumes and volume driven fee growth and increased foreignexchange revenue in Working Capital. Personal other income increased 3% with higher income in Mortgages due tovolume growth and higher transaction volumes in Banking Products. INGA increased $11 million following improved
operating performance and the strong equity markets during the half.

Operating expenses were flat reflecting an increased investment in frontline staff with a 3% increase in personnel
numbers and annual salary increases, effective 1 October 2006, offset by lower computer expenses due to lower softwareamortisation and lower other expenses as discretionary expenditure was contained and lower restructuring costs wereincurred. Debit interchange reform reduced other expenses by $9 million and lower card processing expenses wereincurred.

Provision for credit impairment was unchanged. This was driven by a combination of increased lending volumes and aslight risk mix change in Personal offset by a decrease in Institutional, due to large recoveries. The March 2007 half also
included a lower collective provision charge with an improvement in credit quality offsetting volume growth.

55

GEOGRAPHIC SEGMENT PERFORMANCE (continued)

New Zealand

Net interest income
Other external operating income

Half
year
Mar 07
NZD M

Half
year
Sep 06
NZD M

Half
year
Mar 06
NZD M

Movt
Mar 07v. Sep 06%

Movt
Mar 07v. Mar 06
%

1,014

1,028

943

-1%

8%
-3%

404

364

417

11%

Operating income

1,418

1,392

1,360

2%

4%

Operating expenses

(654)

(644)

(644)

2%

2%

Profit before credit impairment and income tax

764

748

716

2%

7%

Provision for credit impairment

(30)

(5)

(14)

large

large

Profit before income tax

734

743

702

-1%

5%

Income tax expense

(250)

(253)

(227)

-1%

10%

Minority interest
1

Cash profit
1

-

-

(1)

n/a

-100%

484

490

474

-1%

2%
large

Non-core items

86

-

(13)

n/a

Profit (NZD)

570

490

461

16%

24%

Profit (AUD)

502

408

422

23%

19%

Net interest average margin

2.23%

2.33%

2.32%

Return on risk weighted assets

1.49%

large

-4%

large

large

-23%

-39%

1%

2%

1.66%

1.41%

Operating expenses to operating income

1

43.3%

46.2%

49.9%

1

1.34%

1.34%

1.54%

Operating expenses to average assets
1

Return on risk weighted assets (cash )1

Operating expenses to operating income (cash )1

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

1.41%

1.41%

1.54%

46.1%

46.3%

47.4%

1.34%

1.34%

1.45%

(22)

(7)

(23)

(0.06%)(0.02%)(0.06%)(8)2

9(0.02%)

0.01%

0.03%

72

93

119

Net non-performing loans as a % of net advances

0.09%

0.12%

0.16%

Total employees

9,489

9,392

9,304

Lending growth

4.8%

5.5%

6.1%

External assets

99,054

94,911

93,232

4%

6%

Risk weighted assets

71,97568,496

65,216

5%

10%

1.

In March 2007 half ANZ has classified the profit on sale of Esanda Fleetpartners of NZD76 million (tax impact: $nil) as a significant item
In the March 2006 half ANZ classified the NZD$16 million settlement of a dispute with Lloyds TSB over the accounting treatment of certain items in the completionaccounts for the acquisition of National Bank of New Zealand Limited (tax on settlement: $nil) as a significant item. ANZ also incurred NZD29 million after tax
ANZ National Bank incremental integration costs (tax impact: NZD14 million). ANZ National Bank incremental integration costs are excluded to better reflect thecore cost base following completion of the integration
The Group enters into economic hedges to manage its interest rate and foreign exchange risk. In the March 2007 half ANZ has classified NZD10 million after tax(Sep 2006 half: $nil; Mar 2006 half: $nil) relating to economic hedging as a non-core item. Included in this non-core amount is ineffectiveness arising fromdesignated accounting hedges, any volatility arising from usage of the fair value option and approved classes of derivatives in the 2006 year not designated inaccounting hedge relationships but that are considered to be economic hedges. ANZ excludes volatility associated with fair value movements on thesetransactions to provide a better indication of the core business performance

56

GEOGRAPHIC SEGMENT PERFORMANCE (continued)

New Zealand, cont’d
Reconciliation of Geographic profit

Half
year
Mar 07
NZD M

Half
year
Sep 06
NZD M

Half
year
Mar 06
NZD M

Movt
Mar 07v. Sep 06%

Movt
Mar 07v. Mar 06%

New Zealand Businesses

398

403

369

-1%

8%

NZ Institutional (Continuing)

112

106

119

6%

-6%

New Zealand Banking

510

509

488

0%

5%

Non-continuing businesses

-

4

5

-100%

-100%

NZ shareholder functions

(26)

(23)

(19)

13%

37%

New Zealand geography adjusted for non-core items

484

490

474

-1%

2%

Non-core items

86

-

(13)

n/a

large

Total New Zealand geography

570

490

461

16%

24%

1

1.

Refer footnote 1 on page 56

March 2007 half year compared to March 2006 half year

Profit after tax increased 24%. After adjusting for non-core items (refer pages 13 to 14), cash profit increased by 2%, withthe result impacted by a NZD11 million after tax increase in credit impairment expense and lower markets income. Profit
before provisions increased 7%, with strong contributions from NZ Businesses (13%) and the NZ Institutional Working
Capital and Structured Finance businesses, being partially offset by the strong Markets result in the March 2006 half notmatched in the current period.


Net interest income increased 8%, with lending volumes growing 11% and customer deposits (excluding Treasury)
growing 10%. Lending growth was strong in the NZ Businesses (13%), whilst reducing large lending exposures impacted
the NZ Institutional Businesses (-8%). Net interest margin declined 9 basis points, impacted by continued competitive
pressure and unfavourable product mix, partially offset by customer prepayment behaviour.



Other external operating income reduced 3%. This mainly reflects the exceptional Markets performance in the March
2006 half not matched in the current March 2007 half period. The Retail businesses benefited from the sale ofMasterCard shares in the March 2007 half (NZD10 million). Other income in National Bank Retail increased 8%, withgrowth across lending, cards and transactional fees. Fee income in other businesses was constrained by competitivemarket conditions.



Operating expenses increased 2% with the March 2006 half impacted by NZD10 million in relation to the CommerceCommission’s action on disclosure of optional issuer fees. In addition, operating costs were higher due to annual
increases in salaries, increased front line staff and investment in business initiatives, partly offset by control of
discretionary expenditure. The cost to income ratio reduced 130 basis points to 46.1%.

Provision for credit impairment increased NZD16 million from negligible levels in 2006. The individual provision charge isin line with the March 2006 half, with similar levels of new provisions and writebacks/recoveries. The collective provision
charge increased NZD17 million, largely due to a credit following the reassessment of the retail portfolio risk profile in the
December 2005 period. The collective provision charge for March 2007 half was largely driven by lending growth, withminimal impact from changes to the risk profile across the portfolio. Credit conditions remain benign, with net nonperforming loans reducing 39%.

March 2007 half year compared to September 2006 half year

Profit after tax decreased 1% (NZD6 million) relative to the September 2006 half after adjusting for non-core items (referpages 13 to 14), with the result impacted by a NZD17 million after tax increase in credit impairment expense. Growth inprofit before provisions was 2% (NZD16 million), with a good contribution from NZ Businesses (5%) offset by a reduced
contribution from NZ Institutional (-4%).
Net interest income reduced 1%, with the result adversely impacted by lower net interest income on Markets derivatives(offset by an increase in trading income). Adjusting for this item, net interest income growth was 2%. Lending volumes
increased 5%, with robust growth across the NZ Businesses (6%) being moderated by repayments in NZ Institutional.
Net interest margin reduced 10 basis points (3 basis points excluding the above derivatives switch) driven by intensecompetition and unfavourable product mix, partially offset by the favourable net impact on deposit spreads fromincreased wholesale rates and the impact of customer prepayment behaviour.



Other external operating income was flat after allowing for the derivatives variance offset in net interest income, and theMasterCard income received in the respective halves. This reflects constrained fee growth across the businesses, andlower Markets revenues.

Operating expense growth was held to 2%, with growth in personnel costs from increased front line staff and the annual
salary rate rise being partly offset by reduced discretionary spend.

Provision for credit impairment increased NZD25 million. The individual charge remains at low levels despite increasing
NZD15 million, reflecting the exceptionally low result in the September 2006 half, which benefited from a number ofCorporate & Commercial, Business Banking and Institutional recoveries. The collective charge increased NZD10 million
partially from a reduced benefit from scenario modelling and repayments in NZ Institutional in the March 2007 half. Net
non-performing loans reduced NZD21 million (23%) to NZD72 million.
57

GEOGRAPHIC SEGMENT PERFORMANCE (continued)

Asia
Half
year
Mar 06
$M

Movt
Movt
Mar 07
Mar 07v. Sep 06 v. Mar 06
%
%

Half
year
Mar 07
$M

Half
year
Sep 06$M

Net interest income

100

92

77

9%

Other external operating income

91

83

71

10%

28%

Operating income

191

175

148

9%

29%

Operating expenses

(82)

(77)

(74)

6%

11%

Profit before credit impairment and income tax

109

98

74

11%

47%

Provision for credit impairment

(17)

(13)

(8)

31%

large

92

85

66

8%

39%

(14)

(14)

(11)

0%

27%

Profit before income tax
Income tax expense
Minority interest
Cash profit11

Non-core items
ProfitOperating expenses to operating income
1

Operating expenses to operating income (cash )Individual provision (charge)/credit
Collective provision (charge)/credit
Net non-performing loans
Total employees
1.

30%

(1)

(1)

-

0%

n/a

77

70

55

10%

40%

(3)
74

70

55

n/a
6%

n/a
35%

43.9%

44.0%

50.0%

42.9%
(14)

44.0%
(14)

50.0%
(4)

(3)
1,098

1
913

(4)
843

0%

large

large

-25%

n/a
20%

n/a
30%

The Group enters into economic hedges to manage its interest rate and foreign exchange risk. In the March 2007 half ANZ has classified $3 million loss after tax(Sep 2006 half: $nil; Mar 2006 half: $nil) relating to economic hedging as a non-core item. Included in this non-core amount is ineffectiveness arising fromdesignated accounting hedges, any volatility arising from usage of the fair value option and approved classes of derivatives not designated in accounting hedge
relationships but that are considered to be economic hedges. ANZ excludes volatility associated with fair value movements on these transactions to provide a
better indication of the core business performance

March 2007 half year compared to March 2006 half year

Profit after tax increased 35% (37% excluding exchange rate impacts). After adjusting for non-core items (refer pages 13
to 14), profit after tax increased by 40%.
Net interest income increased 30% with net interest margin improving by 24 basis points. A program of exiting
low-yielding Corporate & Institutional assets to ensure benchmark returns from client portfolios was introduced this year.
Volume growth and lower funding costs in Indonesia Cards and asset and deposit growth in Cambodia were contributors
to the strong result.



Other external operating income increased 28% due largely to a full six month result from equity-accounted Bank of
Tianjin, annual dividend from Sacombank, increased fee income in Indonesia Cards due to volume growth and strong fee
revenue growth in Cambodia. The building of resources in the Markets business has led to the boosting of revenue in this
area.



Operating expenses increased 11% largely as a result of ongoing investment across the International Partnerships
business and increased investment in personnel as we grew the franchise. Personnel numbers grew by 255, largely infrontline positions. A number of staff initiatives have been launched, including product training and talent management inview of the strong economic growth and increased demand for talent across the region.

Provision for credit impairment increased by $9 million primarily due to the impact of regulatory changes and businessvolume growth in Indonesia Cards, partially offset by a net writeback in Institutional due to the reduction in Corporate &Institutional lending assets as we exited low-yielding exposures.

March 2007 half year compared to September 2006 half year

Profit after tax increased 6% (9% excluding exchange rate impacts), mainly driven by full half results from the Bank of
Tianjin, the annual dividend from Sacombank and a strong Panin result. This was partly offset by the impact of increased
provisioning in Indonesia Cards and continued investment in the partnerships business. In addition, merger and acquisition
deals in the Asia-Pacific region and increased tradeflows contributed to the improved performance in the Institutional
business.

58

GEOGRAPHIC SEGMENT PERFORMANCE (continued)

Pacific

Net interest income

Half
year
Mar 07
$M

Half
year
Sep 06
$M

Half
year
Mar 06$M

Movt
Mar 07v. Sep 06%

Movt
Mar 07v. Mar 06
%

73

72

66

1%

11%

Other external operating income

78

74

74

5%

5%

Operating income

151

146

140

3%

8%

Operating expenses

(67)

(65)

(63)

3%

6%

Profit before credit impairment and income tax

84

81

77

4%

9%

Provision for credit impairment

(2)

(1)

1

100%

large

Profit before income tax

82

80

78

3%

5%

Income tax expense

(23)

(22)

(22)

5%

5%

-

-

(1)

n/a

-100%

Minority interest
Cash profit

59

58

55

2%

7%

Profit

59

58

55

2%

7%

45.0%

Operating expenses to operating income

44.4%

44.5%

Individual provision (charge)/credit

(1)

4

3

large

large

Collective provision (charge)/credit

(1)

(5)

(2)

-80%

-50%

Net non-performing loans
Total employees

8

5

8

60%

0%

1,693

1,662

1,613

2%

5%

March 2007 half year compared to March 2006 half year

Profit after tax increased 7%. The appreciation of the AUD decreased profit growth by 2% ($1 million).


Net interest income increased 11% reflecting growth in lending volumes in Fiji, PNG, Cook and Solomon Islands.



Operating expenses increased 6% predominantly due to investment in our Operational Excellence agenda and expansionof footprint.

Provision for credit impairment increased by $3 million due to one significant writeback in Fiji in the March 2006 half.

March 2007 half year compared to September 2006 half year

Profit after tax increased 2%. Operating income increased 3% reflecting growth in lending volumes. Operating expenses
increased by 3%. Individual provision charge increased due to one significant recovery in Fiji in the September 2006 half.
Collective provision charge is reflective of balance sheet growth. The impact of exchange rate movements was immaterial.

59

GEOGRAPHIC SEGMENT PERFORMANCE (continued)

Other: United Kingdom, Europe, United States and South Asia (including Bangalore)

Net interest income

Half
year
Mar 07
$M

Half
year
Sep 06
$M

Half
year
Mar 06$M

Movt
Mar 07v. Sep 06%

Movt
Mar 07v. Mar 06
%

71

82

69

-13%

3%

Other external operating income

61

31

86

97%

-29%

Operating income

132

113

155

17%

-15%

Operating expenses

(57)

(66)

(54)

-14%

6%

Profit before credit impairment and income tax

75

47

101

60%

-26%

Provision for credit impairment

(1)

27

15

large

large

Profit before income tax

74

74

116

0%

-36%

Income tax expense

(23)

(23)

(37)

0%

-38%

51

51

79

0%

-35%

Non-core items

(1)

(2)

4

-50%

large

Profit

50

49

83

2%

-40%

44.6%

60.0%

34.0%

43.2%

58.0%

35.0%

(1)

5

4

large

large

Collective provision (charge)/credit

-

22

11

-100%

-100%

Net non-performing loans

3

3

6

0%

-50%

1,705

1,567

1,082

9%

58%

Cash profit

1

Operating expenses to operating income
1

Operating expenses to operating income (cash )Individual provision (charge)/credit

Total employees
1.

The Group enters into economic hedges to manage its interest rate and foreign exchange risk. In the March 2007 half ANZ has classified $1 million loss after tax(Sep 2006 half: $2 million loss; Mar 2006 half: $4 million profit) relating to economic hedging as a non-core item. Included in this non-core amount isineffectiveness arising from designated accounting hedges, any volatility arising from usage of the fair value option and approved classes of derivatives notdesignated in accounting hedge relationships but that are considered to be economic hedges. ANZ excludes volatility associated with fair value movements onthese transactions to provide a better indication of the core business performance

March 2007 half year compared to March 2006 half year

Profit after tax decreased 40%. After adjusting for non-core items (refer pages 13 to 14), cash profit decreased 35%. The
overall impact of exchange rates was immaterial. The decline was principally due to the run down in non-continuingbusinesses following the refocus of our operations.
Net interest income increased 3% as the lower cost of funding derivatives was offset largely by other influences including
the run-off of discontinued business, lower volumes in Institutional, reflecting a focus on core business, and a repatriationof capital in the September 2006 half.



Other operating income was adversely impacted by the profit on the sale of a power asset in the United States and thesettlement of sale warranties occurring in the March 2006 half year, mark to market losses on credit derivatives andtrading losses on derivatives offset in net interest income.



Operating expenses increased 6% due mainly to higher premises costs in London and adverse exchange movements. The
rise in staff numbers is attributable to increases in operations and technology staff in India, however these costs werecharged to other businesses.



The increase in the collective provision charge reflects the more stable portfolio following the reduction in volumes of risk
assets, which underpinned provision releases in the prior periods.

March 2007 half year compared to September 2006 half year

Profit after tax increased 2%. Cash profit was flat. Net interest income decreased 13% due mainly to the increased cost offunding derivative positions in Markets, which is offset by gains in other income. Other operating income increased 97% due
largely to increased trading income in Markets from the derivatives positions referred to above, as well as higher revenue
particularly relating to structured credit and rates trading in Markets. Operating expenses decreased 14%, from reduced
expenditure in respect of discontinued businesses and the closure of Paris branch and increased internal revenue in India.
The provision for credit impairment charge increased reflecting a more stable portfolio following the reduction in volumes ofrisk assets throughout 2006 which underpinned provision releases.

60

FOUR YEAR SUMMARY BY HALF YEAR

Previous AGAAP
Mar 07$M

Sep 06$M

Mar 06$M

Sep 05$M

Mar 05$M

Net interest income

3,611

3,575

3,368

3,231

3,140

2,745

2,507

2,171

Other operating income

1,770

1,583

1,563

1,528

1,407

1,694

1,573

1,456

Operating expense(1,626)

Sep 04$M

Mar 04$M

Sep 03$M

Income Statement(2,386)(2,346)(2,259)(2,213)(2,127)(2,103)(1,902)

Provision for credit impairment

(240)

(183)

(224)

(325)

(240)

(319)

(313)

(311)

Profit before income tax

2,755

2,629

2,448

2,221

2,180

2,017

1,865

1,690

Income tax expense

(817)

(770)

(716)

(636)

(611)

(597)

(550)

(482)

(2)

(3)

(1)

(2)

(1)

(1)

(3)

(1)

1,936

1,856

1,731

1,583

1,568

1,419

1,312

1,207

166

21

80

37

(13)

-

84

-

2,102

1,877

1,811

1,620

1,555

1,419

1,396

1,207

Assets351,724

334,640

322,181

300,885

282,775

259,345

247,288

195,591

Net assets

20,91019,906

18,796

19,53818,927

17,925

16,74813,787Return on average ordinary equity

21.3%

20.4%

20.9%

18.3%

18.3%

17.3%

19.1%

20.9%

Return on average assets

1.2%

1.1%

1.2%

1.1%

1.1%

1.1%

1.2%

1.2%

Tier 1 capital ratio

6.7%

6.8%

6.8%

6.9%

7.0%

6.9%

7.0%

7.7%

Total capital ratio

10.3%

10.6%

10.4%

10.5%

10.3%

10.4%

10.2%

11.1%

Adjusted Common Equity

4.4%

4.7%

5.0%

5.1%

5.1%

5.1%

5.2%

5.7%

Operating expenses to operating income

42.5%

45.2%

44.0%

47.1%

47.0%

45.8%

43.9%

44.6%

Operating expenses to average assets (cash)

44.3%

45.5%

45.8%

46.5%

46.8%

45.5%

45.1%

44.6%

Minority interest
Cash profit11

Non-core items

Profit attributable
to shareholders of the Company
Balance Sheet

Ratios2

3

Shareholder value - ordinary shares
Total return to shareholders
13.2%

3.4%

13.2%

19.2%

11.3%

3.0%

13.6%

2.5%

Market capitalisation(share price movement plus dividends)

54,78849,331

48,461

43,83437,584

34,58634,28427,314

Dividend

62 cents

69 cents

56 cents

59 cents

51 cents

54 cents

47 cents

51 cents

100%

100%

100%

100%

100%

100%

100%

100%

Franked portion
4
Share price- high$30.24$28.66$26.70$24.45$22.02$19.44$19.40$18.45- low- closing$26.75$29.70$24.45$26.86$22.70$26.50$20.53$24.00$19.02$20.62$17.45$19.02$15.94$18.96$16.66$17.17

Share information (per fully paid)
4

Earnings per share - basic

113.2

101.6

98.4

86.3

83.2

76.4c

76.8c

73.3c

Dividend payout ratio

54.9%

68.0%

56.9%

68.4%

61.3%

71.0%

63.8%

67.0%

Net tangible assets

$9.01

$8.53

$7.99

$7.77

$7.38

$7.51

$6.94

$7.49

1,844.7

1,836.6

1,828.7

1,826.4

1,822.7

1,818.4

1,808.2

1,521.7

31,81830,64429,61729,471

28,38827,383

26,585

21,586

Number of fully paid ordinary shares
Other information
Permanent employees (FTE)
Temporary employees (FTE)

1,365

1,612

1,446

1,505

1,444

1,372

1,386

1,551

Total employees

33,18332,256

31,06330,976

29,83228,75527,971

23,137300,987

291,262

273,503

263,467

255,655

252,072

245,173

223,545

Number of shareholders
1.

5

In the March 2007 half ANZ has classified the profit on sale of Esanda Fleetpartners of $195 million ($141 million after tax) as a significant item. In the March
2006 half ANZ classified the $113 million ($79 million after tax) settlement of the NHB insurance matter and the $14 million settlement of a dispute with Lloyds
TSB over the accounting treatment of certain items in the completion accounts for the acquisition of National Bank of New Zealand Limited (tax on settlement:$nil) 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 13)
The Group enters into economic hedges to manage its interest rate and foreign exchange risk. In the March 2007 half ANZ has classified $28 million after tax(Sep 2006 half: $21 million; Mar 2006 half: $13 million) relating to economic hedging as a non-core item (tax impact $13 million (Sep 2006 half: $10 million; Mar2006 half: $5 million)). Included in this non-core amount is ineffectiveness arising from designated accounting hedges, any volatility arising from usage of the fairvalue option and approved classes of derivatives not designated in accounting hedge relationships but that are considered to be economic hedges. In addition,
ANZ has classified a $3 million loss after tax (Sep 2006 half: $nil; Mar 2006 half: $nil) relating to New Zealand 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 $1 million credit). ANZ excludes volatility
associated with fair value movements on these transactions to provide a better indication of the core business performance (refer page 14)
In the March 2006 half ANZ incurred $26 million after tax from ANZ National Bank incremental integration costs. Tax on ANZ National Bank incremental
integration costs was $13 million. The integration program was completed in March 2006. ANZ National Bank incremental integration costs are excluded to betterreflect the core cost base and assist analysis of the cost base following completion of the integration

2.

Average ordinary shareholders’ equity excludes minority interest

3.

Operating expenses excludes goodwill amortisation of $nil (Sep 2006: $nil; Mar 2006: $nil; Sep 2005: $nil; Mar 2005: $nil; Sep 2004: $83 million; Mar 2004:$63 million; Sep 2003: $9 million). Under AIFRS goodwill is not amortised and therefore was not recognised from 2005 onwards

4.

September 2003 adjusted for the bonus element of the rights issue

5.

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

61This page has been left blank intentionally62

Australia and New Zealand Banking Group Limited

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND OTHER DISCLOSURES

Half year ended
31 March 2007

63

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – TABLE OF CONTENTSCONTENTS

PAGE

Directors’ Report65

Condensed Consolidated Income Statement

66

Condensed Consolidated Balance Sheet

67

Condensed Consolidated Statement of Recognised Income and Expense

68

Condensed Consolidated Cash flow statement

69

Notes to Condensed Financial statements

70

1.

Significant Accounting Policies

70

2.

Income763.

Operating expenses

77

4.

Income tax expense

78

5.

Dividends

79

6.

Earnings per share

80

7.

Net loans and advances

81

8.

Impaired financial assets

82

9.

Provision for credit impairment

83

10. Deposits and other borrowings

84

11. Loan capital84

12. Share Capital84

13. Shareholders’ Equity

85

14. Average balance sheet and related interest

87

15. Contingent liabilities, contingent assets and commitments

91

16. Note to the Cash Flow Statement93

17. Segment analysis

94

18. Changes in composition of the Group94

19. Associates, joint venture entities and investments

95

20. Exchange rates

95

21. Significant events since balance date95

Directors’ Declaration

96

Auditors’ Review Report and Independence Declaration

97

64

DIRECTORS’ REPORTThe directors present their report on the consolidated financial report for the half year ended 31 March 2007.
Directors

The names of the directors of the Company who held office during and since the end of the half year are:
Mr CB Goode, AC - Chairman
Mr J McFarlane - Chief Executive Officer
Dr GJ Clark
Mr JK Ellis
Mr DM Gonski, AO
Ms MA Jackson, AC
Mr IJ Macfarlane, AC
Mr DE Meiklejohn
Mr JP Morschel

Director since 24 July 1991, Chairman since 24 August 1995
CEO and director since 1 October 1997
Director since 1 February 2004
Director since 1 October 1995
Director since 7 February 2002
Director since 22 March 1994
Director since 16 February 2007
Director since 1 October 2004
Director since 1 October 2004

Result

The consolidated profit attributable to shareholders of the Company was $2,102 million. Further details are contained in the
Chief Financial Officer’s Review and Business Performance Review on pages 11 to 51 and in the financial report.

Review of operations

A review of the operations of the consolidated entity during the half year and the results of those operations are contained in
the Chief Financial Officer’s Review and Business Performance Review on pages 11 to 51.

Lead auditor’s independence declaration

The lead auditor’s independence declaration given under section 307C of the Corporations Act 2001 (as amended) is set out
on page 97 and forms part of the Directors’ Report for the half year ended 31 March 2007.

Rounding of amounts

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

John McFarlane
Director

Charles Goode
Chairman

26 April 2007

65

CONDENSED CONSOLIDATED INCOME STATEMENT

Movt
Movt
Mar 07
Mar 07v. Sep 06 v. Mar 06
%
%

Half
year
Mar 07
$M

Half
year
Sep 06
$M

Half
year
Mar 06$M

14,52013,13812,372

Interest income

12,518

11,524

10,7779%

16%

Interest expense(8,907)(7,949)(7,409)

12%

20%

Note
Total income

2

11%

17%

Net interest income

2

3,611

3,575

3,368

1%

7%

Other operating income

2

2,002

1,614

1,595

24%

26%

5,613

5,189

4,963

8%

13%

3

(2,386)(2,346)(2,185)

2%

9%

3,227

2,843

2,778

14%

16%

(240)

(183)

(224)

31%

7%

2,987

2,660

2,554

12%

17%

(883)

(780)

(742)

13%

19%

2,104

1,880

1,812

12%

16%

Profit attributable to minority interest

2

3

1

-33%

100%

Profit attributable
to shareholders of the Company

2,102

1,877

1,811

12%

16%

Operating income
Operating expenses
Profit before credit impairment and income tax
Provision for credit impairment

9

Profit before income tax
Income tax expense

4

Profit for the period
Comprising:

Earnings per ordinary share (cents)
Basic

6

113.2

101.6

98.4

11%

15%

Diluted

6

110.0

98.5

95.5

12%

15%

Dividend per ordinary share (cents)

5

62

69

56

n/a

11%

The notes appearing on pages 70 to 95 form an integral part of these financial statements

66

CONDENSED CONSOLIDATED BALANCE SHEET

Note

Movt
Movt
Mar 07
Mar 07v. Sep 06 v. Mar 06
%
%

As at
Mar 07As at
Sep 06As at
Mar 06$M$M$M

15,43315,01913,870

3%

11%

6,439

9,665

8,336

-33%

-23%
64%

AssetsLiquid assets
Due from other financial institutions
Trading securities

1

14,265

9,179

8,721

55%

12,2689,164

11,45634%

7%

Available for sale assets

9,835

10,653

13,287-8%-26%

Net loans and advances

7 267,809

255,949

242,0535%

11%

14,013

13,435

13,692

4%

2%

Derivative financial instruments

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

219

205

214

7%

2%

2,281

2,200

1,912

4%

19%

205

253

307

-19%

-33%

3,394

3,337

3,272

2%

4%

3

4,154

4,472

4,000

-7%

4%

Premises and equipment

1,409

1,109

1,061

27%

33%

351,724

334,640

322,181

5%

9%
11%

2

Goodwill and other intangible assets
Other assets

Total assets
Liabilities
Due to other financial institutions

14,872

14,11813,3455%Deposits and other borrowings

10 210,585

204,794

196,8503%7%Derivative financial instruments

13,607

8,753

10,10555%

35%

Liability for acceptances2%

14,013

13,435

13,692

4%

Current tax liabilities

403

569

399

-29%

1%

Deferred tax liabilities

190

253

345

-25%

-45%

10,221

10,679

9,697

-4%

5%

919

957

908

-4%

1%

54,18850,05046,9238%

15%

Payables and other liabilities
Provisions
Bonds and notes
Loan capital

4

11

Total liabilities
Net assets

11,816

11,126

11,1216%

6%

330,814314,734

303,3855%9%20,91019,906

18,796

5%

11%

8,414

8,271

8,068

2%

4%

Shareholders' equity
Ordinary share capital

12,13

Preference share capital

12,13

871

871

871

0%

0%

Reserves

13

(524)

(354)

(156)

48%

large

Retained earnings
Share capital and reserves attributable toshareholders of the Company

13

12,117

11,084

9,979

9%

21%

20,87819,872

18,762

5%

11%

32

34

34

-6%

-6%

20,91019,906

18,796

5%

11%

Minority interest
Total equity
Contingent liabilities, contingent assets and commitments

15

1.

Includes bills held in portfolio $1,540 million (Sep 2006: $1,569 million; Mar 2006: $1,167 million)

2.

Excludes notional goodwill in equity accounted entities

3.

Includes interest revenue receivable $1,632 million (Sep 2006: $1,569 million; Mar 2006: $1,468 million)

4.

Includes $2,362 million (Sep 2006: $2,471 million Mar 2006: $2,536 million) hybrid loan capital that qualifies for Tier 1 capital as defined by the Australian
Prudential Regulation Authority

The notes appearing on pages 70 to 95 form an integral part of these financial statements

67

CONDENSED CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE

Movt
Movt
Half
Mar 07
Mar 07year
Mar 06 v. Sep 06 v. Mar 06
%
%
$M

Half
year
Mar 07
$M

Half
year
Sep 06
$M

(89)

102

(305)

large

-71%

16

2

18

large

-11%

(17)

(8)

-

large

n/a

1

Items recognised directly in equity
Currency translation adjustments

Exchange differences taken to equity
Available-for-sale assets
Valuation gain taken to equity
Cumulative (gain) transferred to the income
statement on sale
Cash flow hedges
Valuation gain taken to equity

60

93

28

-35%

large

Transferred to income statement for the period

(6)

(42)

(14)

-86%

-57%

Actuarial gain (loss) on defined benefit plans

55

(80)

25

large

large

Income/(expense) recognised directly in equity

19

67

(248)

-71%

large

Profit for the period

2,104

1,880

1,812

12%

16%

Total recognised income and expense for the period

2,123

1,947

1,564

9%

36%

2

3

1

-33%

100%

2,121

1,944

1,563

9%

36%

Available for sale reserve

-

-

(10)

n/a

-100%

Hedging reserve

-

-

162

n/a

-100%

Retained earnings

-

-

431

n/a

-100%

-

-

583

n/a

-100%

Comprising:Total recognised income and expense
attributable to minority interest
Total recognised income and expense attributable
to shareholders of the company
Effect of adoption of AASB 139

2

1.

These items are disclosed net of tax

2.

Adoption of AASB 2005-1 has no impact on total equity as it leads to a reclassification within equity

The notes appearing on pages 70 to 95 form an integral part of these financial statements

68CONDENSED CONSOLIDATED CASH FLOW STATEMENT

Note
Cash flows from operating activities
Interest received
Dividends received
Fee income received
Other income received
Interest paid
Personnel expenses paid
Premises expenses paid
Other operating expenses paid
Recovery from NHB litigation
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
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 (used in) operating activities
Cash flows from investing activities
Net decrease/(increase)
Available for sale assets
Purchases
Proceeds from sale or maturity
Controlled entities and associates
Purchased (net of cash acquired)Proceeds from sale (net of cash disposed)
Premises and equipment
Purchases
Proceeds from sale
Other
Net cash provided by/ (used in) investing activities
Cash flows from financing activities
Net (decrease)increase
Bonds and notes
Issue proceeds
Redemptions
Loan capital
Issue proceeds
Redemptions
Change in minority interests
Dividends paid
Share capital issues
Share capital buyback
Net cash provided by financing activities
Net cash (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

1616

The notes appearing on pages 70 to 95 form an integral part of these financial statements

69

Half
year
Mar 07
Inflows(Outflows)
$M

Half
year
Sep 06
Inflows(Outflows)
$M

Half
year
Mar 06
Inflows(Outflows)$M

12,86331
1,106
525(8,876)(1,466)(204)(1,312)-

11,835
4
1,066
476(7,377)(1,354)(191)(1,172)
27

11,17949
1,016
581(7,299)(1,383)(188)(1,244)
87

(902)
(190)
(4)

(249)
(355)
(13)

(539)
(82)
(5)

905
(357)
(4,624)(25)(13,067)498
512(1,666)
5(12,879)(1,798)
806
(15)
(47)
(13,969)

7,792
993
(665)
(7,477)

7,400
700
(474)
(3,207)

8,729
1,159
1,015
(1,948)(8,272)
8,976(5,290)
8,022(10,190)
8,217

(53)
400

(227)
14

(62)
-

(199)
16
172
1,040

(97)
17
1,611
4,050

(153)
2
86
(2,100)11,497(4,351)

7,582(4,810)9,924(4,139)

1,141
(500)
(2)
(1,163)
63
6,685(7,477)
1,040
6,685
248
20,344(2,338)18,254

639
(656)
(2)
(941)
72
1,884
(3,207)
4,050
1,884
2,727
16,845772
20,344

609
2
(989)
75
(146)
5,336
(1,948)(2,100)5,336
1,288
13,702
1,855
16,845NOTES TO CONDENSED FINANCIAL STATEMENTS

1.

Significant Accounting Policies(i)Basis of preparation
These consolidated financial statements comprise a general purpose financial report and:
should be read in conjunction with the ANZ Financial Report and the ANZ Concise Annual Report for the year
ended 30 September 2006 and any public announcements made by the Parent entity and its controlled
entities (the Group) for the half year ended 31 March 2007 in accordance with the continuous disclosure
obligations under the Corporations Act 2001 (as amended) and the ASX Listing Rules;are presented in Australian dollars unless otherwise stated;

comply with the accounts provisions of the Banking Act 1959;have been prepared in accordance with the Australian equivalents to International Financial ReportingStandards (AIFRS), other authoritative pronouncements of the Australian Accounting Standards Board, Urgent
Issues Group Interpretations and the Corporations Act 2001;



are condensed financial statements as defined in AASB 134: ‘Interim Financial Reporting’. This report does
not include all notes of the type normally included in the annual financial report; andhave been prepared in accordance with the historical cost convention except that the following assets andliabilities are stated at their fair value: derivative financial instruments including the fair value of any
applicable underlying exposure, assets treated as available-for-sale, financial instruments held for trading,term funding instruments including specific bonds and notes, and defined benefit plans assets and liabilities.

These condensed consolidated interim financial statements were approved by the Board of Directors on 26 April
2007.
The preparation of the financial report requires the use of management judgement, estimates and assumptions
that affect reported amounts and the application of policies. The estimates and associated assumptions are
based on historical experience and various other factors that are believed to be reasonable. Actual results may
differ from these estimates. Such estimates may require review in future periods.
All amounts in the financial report have been rounded to the nearest million dollars in accordance with classorder 98/100, dated 10 July 1998 (as amended).
The accounting policies and methods of computation adopted in the preparation of these condensed consolidated
interim financial statements are consistent with those adopted and disclosed in the Group’s 2006 annual financial
report for the year ended 30 September 2006 except for the following change in accounting policy:

In May 2005, AASB 2005-1 (an amendment to AASB 139: ‘Financial Instruments: Recognition andMeasurement’) was issued which stipulated circumstances in which a hedge of a forecast intragrouptransaction qualified for hedge accounting. As a result of this amendment, cash flow hedge relationships
covering New Zealand’s revenue flows no longer qualified for hedge accounting. The realised gains on thehedges of future years’ New Zealand dollar revenues of $141 million (net of tax) that were included in thehedging reserve at 30 September 2006 were, in line with the transitional provisions of AASB 2005-1,
transferred directly to retained earnings.

The Group’s key accounting policies that have been applied in preparing these condensed consolidated interim
financial statements follow.

(ii)

Consolidation
The financial statements comprise the financial statements of Australia and New Zealand Banking Group Limited(the Company) and all its controlled entities where it is determined that there is a capacity to control. Control
means the power to govern directly or indirectly the financial and operating policies of an entity so as to obtainbenefits from its activities.
In relation to special purpose entities, such control is deemed to exist where:

(iii)



in substance, the majority of the residual risks and rewards from their activities accrue to the Group; or

in substance, the Group controls their decision making powers so as to obtain the majority of the risks andrewards from their activities.

Interest income and interest expense
Interest income and interest expense are recognised in the income statement as they accrue using the effective
interest method.
The effective interest method calculates the amortised cost of a financial asset or financial liability and allocatesthe interest income or interest expense, including fees and directly related transaction costs that are an integral
part of the effective interest rate, over the expected life of the financial instrument. Income and expense on thefinancial instruments are recognised on an effective yield basis in proportion to the amount outstanding over theperiod to maturity or repayment.
70

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

1.

Significant Accounting Policies, cont’d(iii)

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

(iv)

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

(v)

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

(vi)



where transaction costs form an integral part of the effective interest rate of a financial instrument which ismeasured at amortised cost, these are offset against the interest income generated by the financial
instrument;where gains and losses relating to fair value hedges are assessed as being effective;

where gains and losses from a group of similar transactions are reported on a net basis, such as foreignexchange gains and losses;

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.

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

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

71

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

1.

Significant Accounting Policies, cont’d(vi)

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



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

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

(vii) Trading Securities and other financial assets at fair value through profit or loss
Trading securities and other financial instruments acquired principally for the purpose of selling in the short-termor which are part of a portfolio which is managed for short-term profit-taking are initially recognised at fair value
and subsequently measured in the balance sheet at their fair value.
In addition, certain financial assets and liabilities are measured at fair value through profit or loss where either ofthe following applies:

doing so eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise
arise from measuring assets or liabilities, or recognising the gains or losses on them, on different bases; ora group of financial assets, financial liabilities or both is managed and its performance evaluated on a fairvalue basis.

Changes in the fair value (gains or losses) of financial instruments are recognised in the income statement in the
period in which they occur.

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

72

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

1.

Significant Accounting Policies, cont’d(ix)

Impairment of loans and advances
Loans and advances are reviewed at least each reporting date for impairment.
Credit impairment provisions are raised for exposures that are known to be impaired. Exposures are impaired
and impairment losses are recorded if, and only if, there is objective evidence of impairment as a result of one ormore loss events that occurred after the initial recognition of the loan and prior to the reporting date, and thatloss event or events has had an impact on the estimated future cash flows of the individual loan or the collective
portfolio of loans that can be reliably estimated.
Impairment is assessed individually 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
Exposures that are assessed collectively are placed in pools of similar assets with similar risk characteristics.
The required provision is estimated on the basis of historical loss experience for assets with credit risk
characteristics similar to those in the collective pool. The historical loss experience is adjusted based on current
observable data.
The estimated impairment loss is measured as the difference between the asset’s carrying amount and theestimated future cash flows discounted to their present value. As this discount unwinds during the period
between recognition of impairment and recovery of the cash flow, it is recognised in interest income. The
process of estimating the amount and timing of cash flows involves considerable management judgement.
These judgements are reviewed regularly to reduce any differences between loss estimates and actual loss
experience.
The provision for impairment loss (individual and collective) is deducted from loans and advances in the balance
sheet and the movement for the reporting period is reflected in the income statement. When a loan is
uncollectible, it is written-off against the related provision for loan impairment. Subsequent recoveries ofamounts previously written-off are indirectly credited back to the income statement.
Where impairment losses recognised in previous periods have subsequently decreased or no longer exist, such
impairments are indirectly reversed in the income statement.
A provision is also raised for off balance sheet items such as commitments and guarantees that are considered to
be onerous.

(x)

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



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

73

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

1.

Significant Accounting Policies, cont’d(xi)

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

(xii) Employee benefitsDefined benefit superannuation schemes
The Group operates a number of defined benefit schemes. The liability and expense related to providing
benefits to employees under each defined benefit scheme are calculated by independent actuaries. A defined
benefit liability is recognised to the extent that the present value of the defined benefit obligation of eachscheme, calculated using the Projected Unit Credit Method, is greater than the fair value of each scheme’s
assets. Where this calculation results in a benefit to the Group, a defined benefit asset is recognised, which iscapped at the recoverable amount. In each subsequent reporting period, ongoing movements in the defined
benefit liability or asset carrying value is treated as follows:-the net movement relating to the current period’s service cost, interest cost, expected return on scheme
assets, past service costs and other costs (such as the effects of any curtailments and settlements) is
recognised as an employee expense in the income statement-

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

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

Share-based compensation
The Group has various equity settled share-based compensation plans. These are described in Note 47 of the2006 Annual Financial Report and comprise largely the Employee Share Acquisition Plan and the ANZ Share
Option Plan.
ANZ ordinary shares
The fair value of ANZ ordinary shares granted under the Employee Share Acquisition Plan are measured at
grant date, using the one-day volume weighted average market price of ANZ shares. The fair value isexpensed immediately when shares vest immediately or on a straight-line basis over the relevant vesting
period. This is recognised as an employee compensation expense with a corresponding increase in equity.
Share options
The fair value of share options is measured at grant date, using an option pricing model. The fair value isexpensed on a straight-line basis over the relevant vesting period. This is recognised as an employeecompensation expense with a corresponding increase in the share options reserve. The option pricing modeltakes into account the exercise price of the option, the risk free interest rate, the expected volatility of ANZ
ordinary share price and other factors. Market vesting conditions are taken into account in estimating the fairvalue.
Performance rights
A Performance Right is a right to acquire a share at nil cost to the employee, subject to satisfactorily meetingtime and performance hurdles. Upon exercise, each Performance Right entitles the holder to one ordinary
share in ANZ. The fair value of Performance Rights is determined at grant date using an option pricing
model, taking into account market conditions. The fair value is expensed over the relevant vesting period.
This is recognised as an employee expense with a corresponding increase in the share options reserve.
Other adjustments
Subsequent to the grant of an equity-based award, the amount recognised as an expense is adjusted forvesting conditions other than market conditions so that, ultimately, the amount recognised as an expense isbased on the number of equity instruments that eventually vest.
Treasury shares
Shares in the Company which are purchased on-market by the ANZ Employee Share Acquisition Plan areclassified as treasury shares (to the extent that they relate to unvested employee share-based awards) anddeducted from share capital.

74

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

1.

Significant Accounting Policies, cont’d(xiii) Offsetting of assets and liabilities
Assets and liabilities are offset and the net amount reported in the balance sheet only where:there is a current enforceable legal right to offset the asset and liability, and

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

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

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



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

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

75

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

2.

IncomeHalfyear
Mar 07
$M

Half
year
Sep 06
$M

Half
year
Mar 06$M

Interest income

12,518

11,524

10,7779%

16%

Interest expense
Net interest income(8,907)
3,611(7,949)3,575(7,409)
3,368

12%
1%

20%
7%

Movt
Movt
Mar 07
Mar 07v. Sep 06 v. Mar 06%%i) Fee and commission income
Lending fees

232

215

215

8%

8%

Non-lending fees and commissions

1,033

1,017

939

2%

10%

Total fee and commission income

1,265

1,232

1,154

3%

10%

(122)
1,143

(116)
1,116

(125)
1,029

5%
2%

-2%
11%

233

220

227

6%

3%

Net gains/(losses) from trading securities

(25)

(24)

17

4%

large

Net gains from trading derivatives

198

89

127

large

56%

41

31

18

32%

large

-

-

14

n/a

-100%

1

Fee and commission expense
Net fee and commission incomeii) Other income2

Foreign exchange earnings

Movement on financial instruments measured at fairvalue through profit & loss

3

Settlement of ANZ National Bank warranty claims
Gain from the sale of Fleet Business

195

-

-

n/a

n/a

Share of joint venture profit from ING Australia

74

62

57

19%

30%

Share of joint venture profit from ING (NZ)

9

8

11

13%

-18%

Share of associates profit - International Partnerships

25

19

15

32%

67%

Share of associates profit - other

5

4

3

25%

67%

Private equity and infrastructure earnings

16

12

10

33%

60%

Other
Total other income

88
859

77
498

67
566

14%
72%

31%
52%

Total other operating income

2,002

1,614

1,595

24%

26%

Total income

14,52013,13812,372

11%

17%

Profit before income tax as a % of total income

20.57%

20.25%

20.64%

4

1.

Comprises interchange fees paid

2.

March 2007 half comprises core foreign exchange earnings $237 million less $4 million non-core NZD revenue hedge volatility

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.

Includes earnings from private equity and infrastructure portfolios. Includes share of associates’ profit $8 million (Sep 2006 half: $11 million; Mar 2006
half: $4 million)

76

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

3.

Operating expenses
Half
year
Mar 07
$M

Half
year
Sep 06
$M

Half
year
Mar 06
$M

Movt
Movt
Mar 07
Mar 07v. Sep 06 v. Mar 06%%

Personnel
Employee entitlements and taxes

109

101

106

8%

3%

Salaries and wages

942

874

872

8%

8%

Superannuation costs - defined benefit plans

6

7

4

-14%

50%

Superannuation costs - defined contribution plans

87

80

80

9%

9%

Equity-settled share-based payments

36

38

38

-5%

-5%

Temporary staff

64

57

64

12%

0%

207
1,451

233
1,390

228
1,392

-11%
4%

-9%
4%

Other
Total personnel expenses
Premises
Depreciation and amortisation

19

17

16

12%

19%

Rent

124

115

113

8%

10%

Utilities and other outgoings

65

64

64

2%

2%

15
223

11
207

12
205

36%
8%

25%
9%

Other
Total premises expenses
ComputerComputer contractors

26

23

24

13%

8%

Data communications

31

29

28

7%

11%

Depreciation and amortisation

102

104

104

-2%

-2%

Rentals and repairs

37

33

35

12%

6%

Software purchased

60

64

53

-6%

13%

Other
Total computer expenses

22
278

31
284

20
264

-29%
-2%

10%
5%

Advertising and public relations

71

95

80

-25%

-11%

Audit fees

4

6

3

-33%

33%

Depreciation of furniture and equipment

26

25

23

4%

13%

Freight and cartage

27

24

23

13%

17%

Non-lending losses, frauds and forgeries

16

19

36

-16%

-56%

Other

Settlement of NHB insurance claim

-

-

(113)

n/a

-100%

Postage and stationery

57

59

57

-3%

0%

Professional fees

65

66

61

-2%

7%

Telephone

28

28

28

0%

0%

Travel

74

71

65

4%

14%

66
434

72
465

61
324

-8%
-7%

8%
34%

2,386

2,346

2,185

2%

9%

Other
Total other expenses
1

Operating expenses
1.

Includes ANZ National Bank incremental integration costs $nil (Sep 2006 half: $nil; Mar 2006 half: $39 million)

77

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

4.

Income tax expense
Half
year
Mar 07
$M

Half
year
Sep 06
$M

Half
year
Mar 06
$M

2,987

2,660

2,554

12%

17%

896

798

766

12%

17%

Movt
Mar 07v. Sep 06%

Movt
Mar 07v. Mar 06%

Reconciliation of the prima facie income tax expense on
pre-tax profit with the income tax expense charged in
the Income Statement
Profit before income tax
Prima facie income tax expense at 30%
Tax effect of permanent differences:
Overseas tax rate differential

13

9

16

44%

-19%

Rebateable and non-assessable dividends

(6)

(3)

(3)

100%

100%
-40%

Other non-assessable income

(3)

(4)

(5)

-25%

Profit from associates and joint venture entities

(36)

(31)

(26)

16%

38%

Other

19

15

(6)

27%

large

883

784

742

13%

19%

-

(4)

-

-100%

n/a

Total income tax expense charged in the income statement

883

780

742

13%

19%

Australia

600

510

474

18%

27%

Overseas

283

270

268

5%

6%

883
29.6%

780
29.3%

742
29.1%

13%

19%

Income tax (over) provided in previous years

Effective Tax Rate - GroupTax expense comprises:
Current tax expense

908

901

846

1%

7%

Deferred tax expense

(25)

(121)

(104)

-79%

-76%

883

780

742

13%

19%

78

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

5.

Dividends
Ordinary Shares
Half
year
Mar 06
$M

Movt
Movt
Mar 07
Mar 07v. Sep 06 v. Mar 06
%
%

Half
year
Mar 07
$M

Half
year
Sep 06$M

Interim (fully franked)

62

n/a

56

n/a

11%

Final (fully franked)

n/a

69

n/a

n/a

n/a

Dividend per ordinary share (cents)

Ordinary share dividendInterim dividend

-

1,024

-

n/a

n/a

Final dividend

1,267

-

1,078

n/a

18%

Bonus option plan adjustment

(19)
1,248

(16)
1,008

(18)
1,060

19%
24%

6%
18%

54.9%

68.0%

56.9%

Total

1

2

Ordinary share dividend payout ratio (%)
1.

Dividends recorded when paid

2.

Dividend payout ratio calculated using proposed interim dividend of $1,144 million not included in the above table. Dividend payout ratios for the
September 2006 half year and the March 2006 half year calculated using $1,267 million and $1,024 million respectively

Preference Shares
Movt
Movt
Mar 07
Mar 07v. Sep 06 v. Mar 06
%
%

Half
year
Mar 07
$M

Half
year
Sep 06
$M

Half
year
Mar 06
$M

17

15

12

13%

42%

€ 20.89€ 17.84€ 14.86

17%

41%

Preference share dividend
Euro Hybrid

Dividend per preference share
Euro Hybrid

79

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

6.

Earnings per share

Number of fully paid ordinary shares on issue (M)

Half
year
Mar 07
$M

Half
year
Sep 06
$M

Half
Movt
Movt
Mar 07
Mar 07year
Mar 06 v. Sep 06 v. Mar 06%%$M

1,844.7

1,836.6

1,828.7

0%

1%

2,102

1,877

1,811

12%

16%

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

(17)

(15)

(12)

13%

42%

Profit excluding preference share dividends ($M)

2,085

1,862

1,799

12%

16%

Weighted average number of ordinary shares (M)1,841.6

1,832.2

1,828.4

1%

1%

113.2

101.6

98.4

11%

15%

2,085

1,862

1,799

12%

16%

22

24

29

-8%

-24%

Basic earnings per share (cents)
DilutedProfit excluding preference share dividends ($M)
1Interest on US Trust securities ($M)
2Interest on ANZ StEPS ($M)

24

23

22

4%

9%

Profit attributable to shareholders of the Company excludinginterest on US Trust securities and ANZ StEPS ($M)

2,131

1,909

1,850

12%

15%

Adjusted weighted average number of shares on issue (M)1,841.6

1,832.2

1,828.4

1%

1%

14.4

13.0

11.9

11%

21%

45.9

54.8

58.0

-16%

-21%

Weighted average number of convertible options (M)Weighted average number of convertible US Trust securities
1
at current market price (M)2Weighted average number of convertible ANZ StEPS securities (M)Adjusted weighted average number of shares - diluted (M)Diluted earnings per share (cents)

34.5

38.2

38.7

-10%

-11%

1,936.4

1,938.2

1,937.0

0%

0%

110.0

98.5

95.5

12%

15%

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 45.9 million

2.

ANZ StEPS (issued on 23 September 2003) convert to either $100 for each ANZ StEPS share or a number of ordinary shares calculated at the market priceof ANZ ordinary shares less 2.5%. The inclusion of this issue in EPS increased the diluted number of shares by 34.5 million

80

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

7.

Net loans and advances
Half
year
Mar 07
$M

Half
year
Sep 06
$M

Half
year
Mar 06
$M

Movt
Movt
Mar 07
Mar 07v. Sep 06 v. Mar 06%%

Australia
Overdrafts

6,456

6,237

5,780

4%

12%

Credit card outstandings

6,506

6,190

5,904

5%

10%

Term loans - housing

106,953

101,945

96,846

5%

10%

Term loans - non-housing

57,21753,90550,873

6%

12%

Lease finance

2,074

2,580

2,774

-20%

-25%

9,799
189,005

9,650
180,507

9,795
171,972

2%
5%

0%
10%

1,822

1,666

1,677

9%

9%

Other

New Zealand
Overdrafts
Credit card outstandings

1,152

1,081

1,033

7%

12%

Term loans - housing

40,84137,84534,961

8%

17%

Term loans - non-housing

28,14526,97925,103

4%

12%

239

421

361

-43%

-34%

901
73,100937
68,929901
64,036

-4%
6%

0%
14%

18%

Lease finance
Other

Overseas markets
Overdrafts

513

518

434

-1%

Credit card outstandings

200

198

184

1%

9%

Term loans - housing

847

766

693

11%

22%

7,567

8,347

8,051

-9%

-6%

183

179

217

2%

-16%

239
9,549

194
10,202

156
9,735

23%
-6%

53%
-2%

271,654259,638

245,7435%

11%(2,283)(2,226)(2,219)3%

3%

1(2,110)(2,002)(1,978)5%7%Add capitalised brokerage\mortgage origination fees

548
(3,845)539(3,689)507(3,690)

2%
4%

8%
4%

267,809

255,949

242,053

5%

11%

Term loans - non-housing
Lease finance
Other
Total gross loans and advances
Less provisions for credit impairment (refer note 9)Less income yet to mature

Total net loans and advances
1.

Includes fees capitalised and amortised using the effective interest method of $314 million (Sep 2006 half: $343 million; Mar 2006 half: $364 million)

The following table shows gross loans and advances for New Zealand in NZD terms.
Half
year
Mar 07NZD M

New Zealand

Half
year
Sep 06
NZD M

Half
year
Mar 06
NZD M

Movt
Movt
Mar 07
Mar 07v. Sep 06 v. Mar 06%%

Overdrafts

2,061

1,908

1,962

8%

Credit card outstandings

1,303

1,238

1,209

5%

8%

Term loans - housing

46,19943,35140,904

7%

13%

Term loans - non-housing

31,83830,90429,371

3%

8%

270

482

422

-44%

-36%

Lease finance
Other

81

5%

1,020

1,075

1,054

-5%

-3%

82,691

78,95874,922

5%

10%

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

8.

Impaired financial assets
Movt
Movt
Mar 07
Mar 07v. Sep 06 v. Mar 06
%
%

As at
Mar 07As at
Sep 06As at
Mar 06

$M

$M

$M

640

661

726

-3%

-

-

-

n/a

n/a

Unproductive facilities

109

37

76

large

43%

Gross impaired financial assets

749

698

802

7%

-7%

Non-performing loans

(275)

(279)

(305)

-1%

-10%

Unproductive facilities

(27)

(7)

(11)

large

large

Net impaired financial assets

447

412

486

8%

-8%

Summary of impaired financial assets
Non-performing loans
Restructured loans-12%Less individual provisions:Non-performing loans
Australia

507

507

516

0%

-2%

New Zealand

105

132

177

-20%

-41%

Overseas markets

28

22

33

27%

-15%

Gross non-performing loans

640

661

726

-3%

-12%

Australia

216

212

212

2%

2%

New Zealand

42

52

75

-19%

-44%

Less individual provisions:

Overseas markets

17

15

18

13%

-6%

Individual provisions

275

279

305

-1%

-10%

Net non-performing loans

365

382

421

-4%

-13%

As at
Mar 07As at
Sep 06As at
Mar 06

$M

$M

$M

105

29

63

large

67%

4

7

6

-43%

-33%

Movt
Movt
Mar 07
Mar 07v. Sep 06 v. Mar 06%%

Unproductive facilities
Australia
New ZealandOverseas markets
Gross unproductive facilities

-

1

7

-100%

-100%

109

37

76

large

43%

27

6

9

large

large

Less individual provisions:
Australia
New Zealand

-

-

-

n/a

n/a

Overseas markets

-

1

2

-100%

-100%

Individual provisions

27

7

11

large

large

Net unproductive facilities

82

30

65

large

26%

Half
year
Mar 07
$M

Half
year
Sep 06
$M

Half
year
Mar 06$M

Australia

430

370

513

16%

-16%

New Zealand

74

65

102

14%

-27%

27
531

19
454

15
630

42%
17%

80%
-16%

Movt
Movt
Mar 07
Mar 07v. Sep 06 v. Mar 06%%

New and increased non-performing loans

Overseas markets
1

Total new non-performing loans
1.

Includes $141 million relating to Consumer Finance (Sep 2006 half: $138 million; Mar 2006 half: $100 million)

82

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

8.

Impaired financial assets, cont’d
The following amounts are not classified as individually impaired financial assets and therefore are not included within
the summary on page 82.
Movt
Movt
Mar 07
Mar 07v. Sep 06 v. Mar 06
%
%

As at
Mar 07As at
Sep 06As at
Mar 06$M$M$M

Australia

459

406

339

13%

35%

New Zealand

106

75

74

41%

43%

Overseas markets

20
585

18
499

15
428

11%
17%

33%
37%

Accruing loans past due 90 days or more

1.

1Includes unsecured credit card and personal loans 90 day past due accounts which are allowed by APRA to be retained on an accrual basis for up to
180 days past due amounting to $101 million (Sep 2006 half: $84 million; Mar 2006 half: $80 million). The remainder of 90 day past due accounts are
predominantly held on an accrual basis having been assessed as ‘well secured’, for example no loss of principal or interest is expected

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
Half
year
Mar 07
$M

Half
year
Sep 06
$M

Half
year
Mar 06$M

Balance at start of period
Adjustment due to adoption of accounting standard
AASB 139

1,940

1,903

2,167

-

-

Restated balance at start of period

1,940

1,903

52

33

36

Collective provision

Charge to income statement
Provisions raised (disposed)

Movt
Movt
Mar 07
Mar 07v. Sep 06 v. Mar 06
%
%
2%

-10%

(288)

n/a

-100%

1,879

2%

3%

58%

44%

(4)

-

-

n/a

n/a

(7)
1,981

4
1,940

(12)
1,903

large
2%

-42%
4%

Balance at start of period
Adjustment due to adoption of accounting standard
AASB 139

286

316

273

-9%

5%

-

-

(1)

n/a

-100%

Restated balance at start of period

286

316

272

-9%

5%

Charge to income statement

188

150

188

25%

0%

(6)

(1)

(3)

large

100%

Adjustment for exchange rate fluctuations
Total collective provision1

Individual provision

Adjustment for exchange rate fluctuations
Discount unwind

(10)

(13)

(13)

-23%

-23%

Bad debts written off

(253)

(239)

(182)

6%

39%

Recoveries of amounts previously written off
Total individual provision

97
302

73
286

54
316

33%
6%

80%
-4%

2,283

2,226

2,219

3%

3%

Total provision for credit impairment
1.

The Collective Provision includes amounts for off balance sheet credit exposures, $256 million at 31 March 2007 (Sep 2006: $260 million; Mar 2006:$254 million). The impact on the income statement for the period ended 31 March 2007 was a $3 million release (Sep 2006 half: $5 million charge; Mar2006 half: $nil).

Provision movement analysis
New and increased provisions
Australia
New ZealandOverseas markets
Provision releases
Recoveries of amounts previously written off
Individual provision charge
Increase to collective provision
Charge to Income Statement

83

Half
year
Mar 07
$M

Half
year
Sep 06
$M

Half
year
Mar 06$M

Movt
Mar 07v. Sep 06%

Movt
Mar 07v. Mar 06
%

285
38
22
345
(60)
285
(97)
188
52
240

253
41
17
311
(88)
223
(73)
150
33
183

255
40
12
307
(65)
242
(54)
188
36
224

13%
-7%
29%
11%
-32%
28%
33%
25%
58%
31%

12%
-5%
83%
12%
-8%
18%
80%
0%
44%
7%

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

9.

Provision for credit impairment, cont’d

Individual provision balance
Australia
New ZealandDomestic markets
Overseas markets
Total individual provision

As at
Mar 07$M

As at
Sep 06$M

As at
Mar 06
$M

243
42
285
17
302

218
52
270
16
286

221
75
296
20
316

Half
year
Mar 07
$M

Half
year
Sep 06
$M

Half
year
Mar 06
$M

Movt
Movt
Mar 07
Mar 07v. Sep 06 v. Mar 06
%
%
11%
-19%
6%
6%
6%

10%
-44%
-4%
-15%
-4%

10. Deposits and other borrowings
Movt
Movt
Mar 07
Mar 07v. Sep 06 v. Mar 06%%

Certificates of deposits

23,00423,24823,238-1%-1%

Term Deposits

63,672

59,67655,002

7%

16%

Other deposits bearing interest

87,657

80,11871,6439%22%

Deposits not bearing interest

9,234

9,352

9,334

-1%

-1%

Commercial paper

15,497

20,75025,669-25%-40%

Borrowing corporations' debt

10,66010,656

10,9190%-2%

Other borrowings
Total deposits and other borrowings

861
210,585994
204,794

1,045
196,850

-13%
3%

-18%
7%

Half
year
Mar 07
$M

Half
year
Sep 06
$M

Half
year
Mar 06
$M

1,362

1,471

1,536

1,000

1,000

1,000

0%

0%

721

401

419

80%

72%

8,733
11,816

8,254
11,126

8,166
11,121

6%
6%

7%
6%

11. Loan capitalHybrid loan capital
1
US stapled trust security issue

Movt
Movt
Mar 07
Mar 07v. Sep 06 v. Mar 06
%
%
-7%

-11%

ANZ Stapled Exchangeable Preferred Securities(ANZ StEPS)

2

Perpetual subordinated notes
Subordinated notes
Total Loan Capital
1.

2.

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 the Australian Prudential Regulation Authority for capital
adequacy purposes
ANZ StEPS securities are classified as loan capital instead of share capital under AIFRS financial reporting

12. Share Capital
Issued and quoted securities

Number quoted

Issue priceper share

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

Ordinary shares
As at 31 March 2007

1,844,698,259

Issued during the half year

8,126,144

Bought back during half year-

Preference shares
As at 31 March 2007
1
Euro Hybrid
1.

500,000

On 13 December 2004 the Group issued €500 million hybrid capital into the European market. The instruments consist of a coupon paying note 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

Profit as a % of shareholders' equity
including preference shares at end of period

84

Half
year
Mar 07

Halfyear
Sep 06Halfyear
Mar 06

20.2%

18.9%

19.3%

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

13. Shareholders’ Equity

Movt
Mar 07v. Mar 06
%

Half
year
Mar 07
$M

Half
year
Sep 06
$M

Half
year
Mar 06$M

Movt
Mar 07v. Sep 06
%

9,142

8,939

9,911

2%

-8%

-

-

(987)

n/a

-100%

9,142

8,939

8,924

2%

2%

Share capital
Balance at start of period
Adjustment due to adoption of AIFRS
Restated balance at beginning of period
Ordinary share capital
Dividend reinvestment plan

102

80

85

28%

20%

(22)

53

37

large

large

63

70

39

-10%

62%

-

-

(146)

n/a

-100%

9,285

9,142

8,939

2%

4%

Balance at start of period

(646)

(748)

(443)

-14%

46%

Currency translation adjustments
net of hedges after tax

(89)

102

(305)

large

-71%

Total foreign currency translation reserve

(735)

(646)

(748)

14%

-2%

1

Group employee share acquisition scheme
Group share option scheme
Group Share Buyback
Total share capital
Foreign currency translation reserve

Share option reserve

2

Balance at start of period

63

78

67

-19%

-6%

Share-based payments

7

(14)

11

large

-36%

3

Transfer (to) retained earnings
Total share option reserve

Available-for-sale revaluation reserve

-

(1)

-

-100%

n/a

70

63

78

11%

-10%

2

8

n/a

-75%

n/a
-100%

4

Balance at start of period
Adjustments on adoption of accounting policies
specified by AASB 132 & AASB 139

-

-

(10)

n/a

Restated balance at beginning of period

2

8

(10)

-75%

large

Valuation gain recognised after tax

16

2

18

large

-11%

statement on sale of financial assets

(17)

(8)

-

large

n/a

Total available-for-sale revaluation reserve

1

2

8

-50%

-88%

Cumulative (gain) transferred to the income

1.

Includes $46 million of treasury shares purchased relating to share-based payments during the half year ended 31 March 2007

2.

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 exercised

3.

The transfer of balances from share option, general and capital reserves to retained earnings represent items of a distributable nature

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

85

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

13. Shareholders’ Equity, cont’d

Hedging reserve

Half
year
Mar 07
$M

Half
year
Sep 06
$M

Half
year
Mar 06
$M

227

176

Movt
Mar 07v. Sep 06%

Movt
Mar 07v. Mar 06
%

n/a

29%

n/a
-100%

5

Balance at start of period
Adjustments on adoption of accounting policies
specified by AASB 132 & AASB 139

-

-

162

n/a

Adjustment on adoption of AASB 2005-1

(141)

-

-

n/a

n/a

Restated balance at beginning of period

86

176

162

-51%

-47%

Gain recognised after tax

60

93

28

-35%

large

Transferred to income statement

(6)

(42)

(14)

-86%

-57%

140

227

176

-38%

-20%

-

181

181

-100%

-100%

Transfer (to) retained earnings

-

(181)

-

-100%

n/a

Total general reserve

-

-

181

n/a

-100%

-100%

6

Total hedging reserve
General reserve
Balance at the start of the period
3

Capital reserve
Balance at the start of the period

-

149

149

-100%

Transfer (to) retained earnings

-

(149)

-

-100%

n/a

Total capital reserve

-

-

149

n/a

-100%

(524)

(354)

(156)

48%

large

11,084

9,979

9,646

11%

15%

-

-

(431)

n/a

-100%

3

Total reserves
Retained earnings
Balance at start of period
7

Adjustment on adoption of AIFRS

6

Adjustment on adoption of AASB 2005-1

141

-

-

n/a

n/a

Restated balance at beginning of period

11,225

9,979

9,215

12%

22%

Profit attributable to shareholders of the Company

2,102

1,877

1,811

12%

16%

Total available for appropriation

13,327

11,856

11,02612%

21%

Transfers from reserves

-

331

-

-100%

n/a

55

(80)

25

large

large

(1,248)(1,008)(1,060)

24%

18%

(17)

(15)

(12)

13%

42%

Retained earnings at end of period

12,117

11,084

9,979

9%

21%

Share capital and reserves attributable toshareholders' of the Company
Minority interest

20,87832

19,872
34

18,762
34

5%
-6%

11%
-6%

Total equity

20,91019,906

18,7965%

11%

8

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

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 NZ revenue hedges effective 1 October 2006 (refer Note 1(i))

7.

Comprises- Remeasurement of the carrying value of the Group’s investment in INGA as at 1 October 2005
- Adjustment in respect of hedging derivative financial instruments as at 1 October 2005
- Recognition of the fair value of derivatives relating to securitisation and structured finance transactions as at 1 October 2005
- Deferral of previously recognised fees now treated as an adjustment to yield on 1 October 2005
- Restatement of credit loss provisions to an AIFRS basis

8.

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

86NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

14. 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, ‘net loans and advances’.
Intra-group interest earning assets and interest bearing liabilities are treated as external assets and liabilities for thegeographic segments.
Half year Mar 07

Half year Sep 06

Half year Mar 06

Ave balInt

Rate

Ave balInt

Rate

Ave bal

Int

Rate

$M

$M

%

$M

$M

%

$M

$M

%

Australia

2,199

63

5.7%

1,563

39

5.0%

1,320

32

4.9%

New Zealand

1,770

59

6.7%

2,340

77

6.6%

2,131

69

6.5%

Overseas markets

4,735

125

5.3%

3,539

91

5.1%

4,586

99

4.3%

Australia

16,367512

6.3%

16,655513

6.1%

15,255433

5.7%

New Zealand

2,639

101

7.7%

2,625

99

7.5%

2,292

83

7.3%

Overseas markets

3,406

94

5.5%

3,078

77

5.0%

2,687

57

4.3%

Australia

183,506

7,104

7.8%

175,106

6,491

7.4%

165,103

5,987

7.3%

New Zealand

70,881

3,073

8.7%

64,406

2,804

8.7%

65,866

2,849

8.7%

Overseas markets

10,138

377

7.5%

9,902

363

7.3%

9,172

308

6.7%

13,777512

7.5%

13,847494

7.1%

13,725

464

6.8%

251

7

5.6%

262

7

5.3%

170

4

4.7%

Australia

5,192

174

6.7%

4,326

189

8.7%

3,337

128

7.7%

New Zealand

4,948

189

7.7%

4,305

150

6.9%

4,417

133

6.0%

Overseas markets

3,701

128

6.9%

4,008

130

6.5%

4,303

131

6.1%

Interest earning assets
Due from other financial institutions

Trading and available for sale and other assets

Loans and advances

Acceptances
Australia
Overseas markets
Other assets

Intragroup assets
Australia

1,766

75

8.5%

-

-

-

-

-

-

Overseas markets

4,883

141

5.8%

10,959287

5.2%

12,046272

4.5%

Intragroup elimination

330,159 12,734

316,921 11,811

306,410 11,049(6,649)(10,959)(12,046)(216)

323,510 12,518

7.8%

(287)

305,962 11,524

7.5%

294,364 10,777

Non-interest earning assets
Derivatives
Australia

10,526

12,476

6,708

New Zealand

2,010

3,004

2,180

Overseas markets

(216)

(594)

(564)

Premises and equipment

1,176

1,070

1,078

Other assets

14,382

12,656

13,794(1,650)(1,635)(1,499)

(414)

(406)

(432)

Provisions for credit impairment
Australia
New ZealandOverseas markets
Total average assets

(169)

(197)

(185)

25,64526,37421,080349,155

332,336

315,444

87

(272)
7.3%

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

14. Average balance sheet and related interest, cont’d
Half year Mar 07

Half year Sep 06

Half year Mar 06

Ave balInt

Rate

Ave balInt

Rate

Ave bal

Int

Rate

$M

$M

%

$M

$M

%

$M

$M

%

Australia

46,548

1,430

6.2%

44,482

1,294

5.8%

41,323

1,151

5.6%

New Zealand

27,579994

7.2%

25,861912

7.0%

26,868927

6.9%

Overseas markets

14,477379

5.3%

14,591363

5.0%

12,802283

4.4%

Australia

16,171285

3.5%

15,407252

3.3%

14,765228

3.1%

New Zealand

7,512

179

4.8%

6,662

154

4.6%

7,021

151

4.3%

492

2

0.8%

630

7

2.2%

502

3

1.2%

Australia

44,898

1,132

5.1%

40,478939

4.6%

37,384812

4.4%

New Zealand

10,411

317

6.1%

8,612

260

6.0%

8,375

242

5.8%

Overseas markets

1,217

16

2.6%

1,038

13

2.5%

968

9

1.9%

Australia

6,735

202

6.0%

5,284

145

5.5%

3,012

78

5.2%

New Zealand

1,638

43

5.3%

1,795

49

5.4%

2,128

58

5.5%

Overseas markets

5,521

150

5.4%

5,331

142

5.3%

6,602

164

5.0%

Australia

10,492330

6.3%

12,104

362

6.0%

9,605

275

5.7%

New Zealand

5,933

228

7.7%

5,754

217

7.5%

6,879

253

7.4%

Overseas markets

1,858

49

5.3%

6,127

153

5.0%

8,626

180

4.2%

Australia

8,910

271

6.1%

9,110

265

5.8%

9,124

257

5.6%

New Zealand

1,777

64

7.2%

1,765

63

7.1%

1,962

67

6.8%

13,777436

6.3%

13,847415

6.0%

13,725

384

5.6%

251

6

4.8%

262

6

4.6%

170

4

4.7%

Australia

52,932

1,717

6.5%

46,886

1,425

6.1%

43,593

1,252

5.8%

New Zealand

11,715

452

7.7%

9,693

372

7.7%

8,891

331

7.5%

131

4

6.1%

133

4

6.0%

137

3

4.4%

Interest bearing liabilities
Time deposits

Savings deposits

Overseas markets
Other demand deposits

Due to other financial institutions

Commercial paper

Borrowing corporations' debt

Acceptances
Australia
Overseas markets
Loan capital, bonds and notes

Overseas markets
Other liabilities

1

Australia

5,022

162

n/a

5,395

71

n/a

4,847

233

n/a

New Zealand

155

37

n/a

64

44

n/a

234

50

n/a

Overseas markets

505

22

n/a

551

22

n/a

469

14

n/a

-

-

-

4,571

87

3.8%

5,724

82

2.9%

6,649

216

6.5%

6,388

200

6.2%

6,322

190

6.0%

303,306

9,123

292,8218,236

282,058

7,681

Intragroup liabilities
Australia
New Zealand
Intragroup elimination(6,649)(216)(10,959)(287)(12,046)(272)

296,657

8,907

6.0% 281,862

7,949

5.6% 270,012

7,409

Non-interest bearing liabilities
Deposits
Australia

4,657

4,437

4,387

New Zealand

3,681

3,507

3,858

Overseas markets

1,149

1,142

1,104

Australia

10,32810,453

6,821

New Zealand

2,066

3,184

2,139

Derivatives

(287)

(297)

(975)

Other liabilities

Overseas markets

10,396

8,952

9,964

Total average liabilities

31,990328,647

31,378313,240

27,298297,3101.

Includes foreign exchange swap costs

88

5.5%

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

14. Average balance sheet and related interest, cont’d
Half
year
Mar 07
$M

Half
year
Sep 06
$M

Half
year
Mar 06$M

Australia

240,448

229,872

211,498

New Zealand

86,38380,412

81,736

Overseas markets

28,97333,011

34,256(6,649)(10,959)(12,046)

349,155

332,336

315,444

31.6%

30.8%

33.0%

Australia

222,807

211,497

198,740

New Zealand

80,23873,67674,706

Overseas markets

27,114

31,74832,964(6,649)(10,959)(12,046)

323,510305,962

294,364

Australia

228,407

218,938

201,742New Zealand

80,58274,82775,838Overseas markets

26,30730,434

31,776(6,649)(10,959)(12,046)

328,647

313,240

297,310

30.5%

31.6%

34.1%

19,637

18,225

17,263

871

871

871

20,50819,09618,134

349,155

332,336

315,444

Total average assets

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

less intragroup elimination

Total average liabilities

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

89

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

14. Average balance sheet and related interest, cont’d
Half
year
Mar 07%

Halfyear
Sep 06%Halfyear
Mar 06%Australia

7.60

7.29

7.11

New Zealand

8.55

8.47

8.41

Overseas markets

6.45

6.00

5.30

Total Group

7.76

7.51

7.34

Gross interest spread

1.79

1.99

1.91

Interest not recognised on impaired assets(0.01)(0.01)

0.00

Net interest spread

1.78

1.98

1.91

Interest attributable to net non-interest bearing items

0.46

0.35

0.40

Net interest margin - Australia

2.24

2.33

2.31

Gross interest spread

1.65

1.68

1.80

Interest not recognised on impaired assets(0.01)

0.00(0.02)Net interest spread

1.64

1.68

1.78

Interest attributable to net non-interest bearing items

0.59

0.65

0.54

Net interest margin - New Zealand

2.23

2.33

2.32

Gross interest spread

1.33

1.08

0.95

Interest not recognised on impaired assets(0.03)(0.02)(0.02)Net interest spread

1.30

1.06

0.93

Interest attributable to net non-interest bearing items

0.50

0.48

0.36

Net interest margin - Overseas markets

1.80

1.54

1.29

Gross interest spread

1.75

1.90

1.85

Interest not recognised on impaired assets(0.01)(0.01)(0.01)Net interest spread

1.74

1.89

1.84

Interest attributable to net non-interest bearing items

0.50

0.44

0.45

Net interest margin

2.24

2.33

2.29

Gross earnings rate

1

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

Australia

New ZealandOverseas markets

Group

1.

Average interest rate received on interest earning assets

90

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

15. Contingent liabilities, contingent assets and commitments
Contingent liabilities


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

On 31 July 2000, ANZ completed the sale to Standard Chartered Bank (SCB) of ANZ Grindlays Bank Limited and theprivate banking business of ANZ in the United Kingdom and Jersey, together with ANZ Grindlays (Jersey) Holdings
Limited and its subsidiaries, for USD1.3 billion in cash. ANZ provided warranties and certain indemnities relating tothose businesses and, where it was anticipated that payments would be likely under the warranties or indemnities,
made provisions to cover the anticipated liability. The issues below have not impacted the reported results. All
settlements and costs have been covered within the provisions established at the time. ANZ may be held liable inrelation to the following:- FERAIn 1991 certain amounts were transferred from non-convertible Indian Rupee accounts maintained with Grindlays
in India. These transactions may not have complied with the provisions of the Foreign Exchange Regulation Act,
1973. Grindlays, on its own initiative, brought these transactions to the attention of the Reserve Bank of India.
The Indian authorities have served notices on Grindlays and certain of its officers in India that could lead topossible penalties. Criminal prosecutions have also been foreshadowed and, in the case of two former officers andthe bank, commenced. Grindlays is contesting the validity of these prosecutions.
- Differential Cheques

In June 2003, Grindlays was successful in its appeal against orders to repay, with interest, two payments it
received from a stockbroker in 1991 in connection with securities transactions. These orders had directed
repayment of Indian Rupees 24 million (plus interest accruing at 24% since 1991). Since the appeal decision was
handed down, no further action has been taken against Grindlays in relation to notices in respect of a further
eleven payments received by it in 1991 in similar circumstances totalling Indian Rupees 225 million.
In addition, ANZ provided an indemnity relating to tax liabilities of Grindlays (and its subsidiaries) and the Jersey
Sub-Group to the extent to which such liabilities were not provided for in the Grindlays accounts as at 31 July 2000.
Claims have been made under this indemnity with no material impact on the Group expected.
Contingent tax liability

The Group in Australia was subjected to client risk reviews during 2005 by the Australian Taxation Office (ATO)
across a broad spectrum of matters, as part of normal ATO procedures. The reviews mainly covered years up to
2003. Some matters listed by the ATO for further investigation remain outstanding.
The ATO is also reviewing the taxation treatment of certain other transactions, including legacy structured financetransactions, undertaken by the Group in the course of normal business activities.
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 NZD484 million (including interest tax effected) for the period to
31 March 2007. Of that maximum potential liability, approximately NZD137 million is subject to tax indemnities
provided by Lloyds TSB Bank PLC under the agreement by which ANZ acquired the National Bank of New Zealand andwhich relate to transactions undertaken by the National Bank of New Zealand before December 2003. All of these
conduit-relieved transactions have now either matured or terminated.
Additional issue-specific audits and other investigations are being undertaken by the New Zealand IRD, and byrevenue authorities in the United States, the United Kingdom and in other jurisdictions 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.
91

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

15. Contingent liabilities, contingent assets and commitments, cont’d

Clearing and Settlement Obligations

In accordance with the clearing and settlement arrangements set out:-in the Australian Payments Clearing Association Limited (APCA) Regulations for the Australian Paper Clearing
System, the Bulk Electronic Clearing System, the Consumer Electronic Clearing System and the High Value
Clearing System (HVCS), the Company has a commitment to comply with rules which could result in a bilateralexposure and loss in the 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 APCA, 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.

Contingent asset

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 the Special Court of Mumbai, after which Grindlays filed an appeal
with the Supreme Court of India. Grindlays paid the disputed money including interest into court. Ultimately, theparties settled the matter and agreed to share the monies 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 apayment 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. Proceedings are currently
on foot in the Special Court, Mumbai to determine these issues.

Commitments
Property

On 27 September 2006, ANZ announced it would develop a new office building in the Docklands area, Melbourne,
Australia. This will provide 87,000 square metres of office accommodation sufficient for 5,500 staff. The building is
anticipated to cost approximately $500 million and is due to be completed in the second half of 2009. This will be
one of ANZ’s core Melbourne properties.


Acquisitions

On 19 February 2007, the Group announced a recommended $268 million cash takeover offer for ETRADE Australia
Limited of $4.05 per share for the 65.8% of ETRADE Australia’s issued capital that ANZ did not already own. On
23 April 2007, the Group announced an unconditional revised cash offer price of $4.30 a share together with a scrip
alternative of ANZ shares to an equivalent value. On 24 April 2007, the Group announced it had obtained acontrolling interest in ETRADE Australia Limited.
As at 31 March 2007, the Group has entered into conditional contracts, subject to regulatory and shareholder
approval1, to acquire equity interests in the following entities:- AMMB Holdings Berhad in Malaysia for $847 million- Shanghai Rural Commercial Bank in China for $311 million- Citizens Security Bank in Guam for $31 million- Vientiane Commercial Bank Limited in Laos for $12 million
1

Shareholder approval has already been obtained for the proposed acquisition of Shanghai Rural Commercial Bank.

92

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

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

Half
year
Sep 06
Inflows(Outflows)
$M

Half
year
Mar 06
Inflows(Outflows)
$M

2,102

1,877

1,811

Reconciliation of profit after income tax to net cash provided byoperating activities
Profit after income tax
Adjustments to reconcile to net cash provided by operating activities
Provision for credit impairment

240

183

224

Depreciation and amortisation

147

144

145

Profit on sale of businesses

(155)

-

-

Provision for employee entitlements,
restructuring and other provisions

122

172

78

Payments from provisions

(198)

(121)

(102)

(Profit) loss on sale of of premises and equipment

(3)

1

3

Profit on sale of available for sale securities

(21)

(2)

-

(Increase)/decrease in operating assets:

Share based payments reserve

(27)

31

-

(4,624)(1,666)(15)

Liquid assets - greater than three months

905

498

(1,798)Due from other banks-more than 90 days

(357)

512

806

Loans and advances(13,067)(12,879)(13,969)

Trading securities

Regulatory deposits

(25)

5

(47)

Interest receivable

(81)

(97)

(22)

Net tax assets

(209)

176

121

Increase/(decrease) in operating liabilities:

7,792

7,400

8,729

Due to other financial insititutions

993

700

1,159

Payables and other liabilities

(665)

(474)

1,015

Interest payable

(15)

372

110

Deposits and other borrowings

(331)

(39)

(196)

(7,477)(3,207)(1,948)Liquid assets - less than 3 months

13,089

11,6339,943

Due from other financial institutions - less than 3 months

5,165
18,254

8,711
20,344

6,902
16,845

102

80

85

Other
Net cash (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 and investment activities
Share capital issues
Dividend reinvestment plan93

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

17. Segment analysis
The following analysis shows revenue, result and assets for each business segment.
Industry
Halfyear
Mar 07$M
Segment revenue

Half
year
Sep 06
$M

Half
year
Mar 06$M

Movt
Mar 07v. Sep 06%

Movt
Mar 07v. Mar 06%

1

Personal

2,273

2,190

1,987

4%

14%

Institutional

1,741

1,660

1,655

5%

5%

New Zealand Businesses

1,057

975

1,013

8%

4%

2

Other

Segment result

542

364

308

49%

76%

5,613

5,189

4,963

8%

13%

3

Personal

1,013

933

830

9%

22%

Institutional

1,070

993

971

8%

10%

515

499

499

3%

3%

New Zealand Businesses
Other

2

389

235

254

66%

53%

2,987

2,660

2,554

12%

17%

4

Segment assets
Personal

143,729

136,760

129,692

5%

11%

Institutional

132,230

119,554

124,087

11%

7%

New Zealand Businesses

68,211

63,86958,298

7%

17%

7,349

14,204

9,797

-48%

-25%

351,519334,387

321,874

5%

9%

Other

2

1.

Segment revenue includes equity standardised net interest income and other operating income

2.

Other includes Partnerships & Private Bank, Treasury, Operations, technology & shared Services, Corporate Centre, Risk Management and Group Financial
Management. Other also includes significant items and non-continuing businesses

3.

Segment result represents equity standardised profit before income tax expense

4.

Segment assets represents total external assets excluding deferred tax

18. Changes in composition of the GroupAcquisition of controlled entities

There were no material controlled entities acquired during the half year to 31 March 2007 or the year to 30 September
2006.
Disposal of controlled entities

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 ($141 million after tax). The after tax contribution prior to disposal was$15 million in the September 2006 half (Mar 2006 half: $4 million).
There were no other material controlled entities disposed of during the half year to 31 March 2007 or the year to
30 September 2006.

94

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

19. Associates, joint venture entities and investments
Half
year
Mar 07
$M

Half
year
Sep 06
$M

Half
year
Mar 06$M

Operating profit

121

104

90

Profit after income tax

121

104

90

Aggregate associates and joint venture entities

Key contributions to profit1
Ownership interest
held by Group

Contribution toGroup pre-tax profit

As at
Mar 07As at
Sep 06As at
Mar 06

%

%

%

Half
year
Mar 07
$M

Half
year
Sep 06
$M

Half
year
Mar 06$M

P.T. Bank Pan Indonesia

12

10

12

30

29

29

ETRADE Australia Limited

5

4

3

34

34

34

Metrobank Card Corporation Inc
2
Bank of Tianjin (formerly Tianjin City Commercial Bank)

3

4

3

40

40

40

10

5

n/a

20

20

n/a

ING Australia Limited

74

62

57

49

49

49

ING (NZ) Holdings Limited

9

8

11

49

49

49

Associates

Joint ventures

1.

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

2.

An associate from 13 June 2006

20. Exchange rates
Major exchange rates used in translation of results of offshore controlled entities and branches into the Group accounts
for each reporting period were as follows:
Balance Sheet
As at
As at
As at
Mar 07
Sep 06
Mar 06

Profit and Loss Average
Half
Half
Half
year
year
year
Mar 06
Sep 06
Mar 07Euro

0.6054

0.58820.58900.59830.59410.6202

Great British pound

0.41130.39820.41040.40200.40630.4237

New Zealand dollar

1.1312

1.1455

1.17001.13591.1942

1.0921

United States dollar

0.80770.7476

0.71620.77800.75180.7418

21. Significant events since balance date
On 23 April 2007, the Group announced an unconditional revised cash offer price of $4.30 a share for the 65.8% ofshares in ETRADE Australia Limited not owned by the Group together with a scrip alternative of ANZ shares to an
equivalent value. On 24 April 2007, the Group announced it had obtained a controlling interest in ETRADE Australia
Limited.
There have been no other significant events from 31 March 2007 to the date of this report.

95

DIRECTORS’ DECLARATION

The directors of Australia and New Zealand Banking Group Limited declare that:
1. in the directors’ opinion the financial statements and notes of the consolidated entity set out on pages 63 to 95 are inaccordance with the Corporations Act 2001 (as amended), including:(a) that they comply with the Australian Accounting Standard AASB 134: ‘Interim Financial Reporting’, and the
Corporations Regulations 2001; and(b) that they give a true and fair view of the financial position of the consolidated entity as at 31 March 2007 and of its
performance as represented by the results of its operations and cash flows for the half year ended on that date; and2. in the directors’ opinion at the date of this declaration there are reasonable grounds to believe that the Company will beable to pay its debts as and when they become due and payable.
Signed in accordance with a resolution of the directors.

Charles Goode
ChairmanJohn McFarlane
Director

26 April 200796

AUDITORS’ REVIEW REPORT AND INDEPENDENCE DECLARATION

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

We have reviewed the accompanying financial report of Australia and New Zealand Banking Group Limited (“the Company”)
for the half year ended 31 March 2007, which comprises the condensed consolidated balance sheet, income statement,
statement of recognised income and expense and cash flow statement, a description of accounting policies, other explanatory
notes 1 to 21 and the directors’ declaration set out on pages 66 to 96 of the consolidated entity comprising the Company
and the entities it controlled at the half year’s end or from time to time during the half year.
Directors’ responsibility for the Financial Report
The directors of the Company are responsible for the preparation and fair presentation of the half-year financial report inaccordance with Australian Accounting Standard AASB 134: Interim Financial Reporting and the Corporations Act 2001. This
responsibility includes designing, implementing and maintaining internal controls relevant to the preparation and fairpresentation of the half-year financial report that is free from material misstatement, whether due to fraud or error; selecting
and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Auditor’s responsibility
Our responsibility is to express a conclusion on the half-year financial report based on our review. We conducted our review
in accordance with Auditing Standard on Review Engagements ASRE 2410 Review of an Interim Financial Report Performedby the Independent Auditor of the Entity, in order to state whether, on the basis of the procedures described, we havebecome aware of any matter that makes us believe that the half-year financial report is not in accordance with the
Corporations Act 2001 including: giving a true and fair view of the consolidated entity’s financial position as at 31 March 2007
and its performance for the half-year ended on that date; and compliance with Australian Accounting Standard
AASB 134: Interim Financial Reporting and the Corporations Regulations 2001. As auditors of Australia and New Zealand
Banking Group Limited, ASRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual
financial report.
A review of a half year financial report consists of making enquiries, primarily of persons responsible for financial andaccounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an
audit conducted in accordance with Australian Auditing Standards and consequently does not enable us to obtain assurance
that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express anaudit opinion.
Conclusion
Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the halfyear financial report of Australia and New Zealand Banking Group Limited is not in accordance with the Corporations Act
2001, including:(a)giving a true and fair view of the consolidated entity’s financial position as at 31 March 2007 and of its performance forthe half year ended on that date; and(b)complying with Australian Accounting Standard AASB 134: Interim Financial Reporting and the Corporations Regulations
2001.

KPMG
MelbourneMichelle Hinchliffe
Partner

26 April 2007

Lead Auditor’s Independence Declaration under section 307C of the Corporations Act 2001
To the directors of Australia and New Zealand Banking Group Limited
I declare that, to the best of my knowledge and belief, in relation to the review for the half year ended 31 March 2007 there
have been:(a)no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to thereview; and(b)no contraventions of any applicable code of professional conduct in relation to the review.

KPMG
MelbourneMichelle Hinchliffe
Partner

26 April 2007
97

SUPPLEMENTARY INFORMATION

Capital Management
As at
Mar 07$M

As at
Sep 06$M

As at
Mar 06$M

20,91019,906

18,7965%

11%(2,120)(2,333)(1,888)-9%

12%

18,79017,573

16,908

7%

11%
-5%

Qualifying Capital
Tier 1
Shareholders' equity and outside equity interests
Prudential adjustments to shareholders equity

Table 1

Fundamental Tier 1 capital

Movt
Movt
Mar 07
Mar 07v. Sep 06 v. Mar 06%%

Innovative Tier 1 capital instruments

3,233

3,342

3,407

-3%

Gross Tier 1 capital

22,023

20,915

20,3155%

8%(5,943)(5,274)(4,504)13%32%

Deductions

Table 2

Transitional Tier 1 capital relief
Tier 1 capital

716

716

-

0%

n/a

16,796

16,357

15,811

3%

6%

2,320

1,946

1,737

19%

34%

Tier 2Upper Tier 2 capital

Table 3

Subordinated notes

Table 4Tier 2 capital
Deductions

Table 5

Total qualifying capital

8,398

8,177

7,416

3%

13%

10,718

10,123

9,153

6%

17%

(1,810)(1,073)

(945)

69%

92%

25,70425,40724,0191%

7%16,796

16,357

15,8113%

6%(3,188)(3,321)(3,385)-4%-6%Adjusted Common Equity
Tier 1 capital
Less: Innovative Tier 1 capital instruments

1

Table 6

Transitional Tier 1 capital relief

(716)

(716)

-

0%

n/a

(1,810)(1,073)

(945)

69%

92%

11,082

11,247

11,481-1%-3%

Tier 1

6.7%

6.8%

6.8%

-1%

-1%

Tier 2

4.3%

4.2%

4.0%

2%

7%

11.0%

11.0%

10.8%

0%

2%
75%

Deductions
Adjusted Common Equity (ACE)Capital adequacy ratios

Deductions

-0.7%

-0.4%

-0.4%

75%

Total

10.3%

10.6%

10.4%

-3%

-1%

Adjusted Common Equity

4.4%

4.7%

5.0%

-6%

-12%

250,485

240,219

230,653

4%

9%

Risk Weighted Assets
1.

Converted at balance date spot rates

98

SUPPLEMENTARY INFORMATION (continued)

Capital Management, cont’d
Movt
Movt
Mar 07
Mar 07v. Sep 06 v. Mar 06
%
%

As at
Mar 07$M

As at
Sep 06$M

As at
Mar 06$M

Reclassification of preference share capital

(871)

(871)

(871)

0%

0%

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

(386)

(289)

(161)

34%

large

Table 1: Prudential adjustments to shareholders equity

Deferred fee revenue and expenses including fees deferred under AIFRS
forming part of loan yields

314

343

258

-8%

22%

Hedging reserve

(140)

(227)

(176)

-38%

-20%

(1,144)(1,267)(1,024)

-10%

12%

109

-

-

n/a

n/a

(2)

(22)

86

-91%

large

(2,120)(2,333)(1,888)-9%

12%(4,039)(3,996)(3,943)

1%

2%

Capitalised software

(425)

(397)

-

7%

n/a

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

(575)

(569)

(534)

1%

8%

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

(85)

(290)

-

-71%

n/a

Investment in ANZ Lenders Mortgage Insurance

(31)

(31)

(27)

0%

15%

Current estimate of goodwill component of purchase commitments

(792)

-

-

n/a

n/a

4

9

-

-56%

n/a

(5,943)(5,274)(4,504)13%

32%

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

210

184

-

14%

n/a

Perpetual subordinated notes

721

401

419

80%

72%

1,372

1,344

1,318

2%

4%

Dividend not provided for
Accrual for Dividend Reinvestment Plans
Other adjustments
Total
Table 2: Deductions from Tier 1 capital
Unamortised goodwill & other intangibles

Other adjustments
Total
Table 3: Upper Tier 2 capital

General reserve for impairment of financial assets net of attributable
deferred tax asset
Transitional Upper Tier 2 capital relief
Total

17

17

-

0%

n/a

2,320

1,946

1,737

19%

34%

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

(88)

(86)

(86)

2%

2%

Investment in joint ventures with ING in Australia and New Zealand

(526)

(526)

(525)

0%

0%

Investment in other Authorised Deposit Taking Institutions andoverseas equivalents

(386)

(370)

(321)

4%

20%

Investment in other commercial operations

(88)

-

-

n/a

n/a

Current estimate of purchase commitments

(627)

-

-

n/a

n/a

Other

(95)

(91)

(13)

4%

large

Total

(1,810)(1,073)

(945)

69%

92%

Table 6
Euro hybrid (converted at current rates)

(821)

(845)

(844)

-3%

-3%

US Stapled Trust Security(1,362)(1,471)(1,536)-7%-11%

ANZ StEPS(1,000)(1,000)(1,000)0%0%Issue costs

(5)

(5)

(5)

0%

0%

(3,188)(3,321)(3,385)

-4%

-6%

Total

99

SUPPLEMENTARY INFORMATION (continued)

Capital Management, cont’dAssets

Mar
2007
$M

Risk Weighted
Assets
Sep
2006
$M

Sep
2006
$M

Mar
2007
$M

Balance Sheet
Zero risk weighted assets

1

Claims on approved banks and local governments

39,111

34,115--16,093

19,584

3,219

3,917

Advances secured by mortgages eligible for 50% risk weighting

137,413131,134

68,70665,567

Other assets - credit risk

143,496

138,119

143,496

138,119

Total statement of financial position assets - credit risk

336,113322,952

215,421

207,603

Trading assets - market risk
Total balance sheet

15,611
351,724

11,688334,640n/an/a

215,421

207,603

Risk Weighted
Assets

Notional AmountCredit Equivalent

Mar
2007
$M

Sep
2006
$M

Mar
2007
$M

Sep
2006
$M

Mar
2007
$M

Sep
2006
$M

7,302

7,588

7,302

7,588

5,533

5,432

Trade and performance related items

16,09914,788

7,022

6,470

6,096

5,657

Commitments

104,906

98,554

17,45017,03015,054

14,611

Foreign exchange, interest rate and other market
related transactions

1,490,157

1,169,553

20,66218,010

6,191

5,240

Total off balance sheet exposures - credit risk

1,618,464

1,290,483

52,43649,0982

Off-balance sheet exposures
Direct credit substitutes

32,87430,940Total risk weighted assets - credit risk

248,295

238,543

Risk weighted assets - market risk
Total risk weighted assets

2,190
250,485

1,676
240,219

1.

Includes $2,114 million (Sep 2006: $1,938 million) in assets of controlled entities consolidated on adoption of AIFRS excluded for risk weighting calculations forAustralian Prudential Regulation Authority reporting purposes2.

Excludes off balance sheet exposures in subsidiaries consolidated on adoption of AIFRS from 1 October 2004 as required by Australian Prudential Regulation
Authority

100

SUPPLEMENTARY INFORMATION (continued)

Derivative financial instruments
Derivatives

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

As at 31 March 2007
Fair Value
Notional
Principal
amount$M

Trading
Assets Liabilities$M$M

Hedging
Assets Liabilities$M$M

Total fair value
AssetsLiabilities$M$M

Foreign exchange andcommodities contracts
Spot and forward contracts

249,005

2,319(3,495)

13

-

2,332

(3,495)

Swap agreements

117,296

3,177(3,764)

148

(148)

3,325

(3,912)Futures contracts

882

84

(45)

-

-

84

(45)

Options purchased

8,946

274

-

-

-

274

-

Options sold13,017

-

(195)

-

-

-

(195)

Other contracts

8,505

930

(846)

-

-

930

(846)

-

(930)

1,312

-

-

(930)

1,312

397,651

5,854(7,033)

161

(148)

6,015

(7,181)

126,532

6

(7)

(2)

-

4

(7)

Collateral

1

Interest rate contracts
Forward rate agreements
Swap agreements

748,041

5,021(5,359)

555

(403)

5,576

(5,762)Futures contracts

163,410

403

(410)

3

(3)

406

(413)

Options purchased

32,077

159

-

-

-

159

-

Options sold69,416

-

(151)

-

-

-

(151)

1,139,476

5,589(5,927)

556

(406)

6,145

(6,333)Credit Contracts
Credit default swaps
Total
1.

37,076

108

(93)

-

-

108

(93)

1,574,203

11,551(13,053)

717

(554)

12,268(13,607)

Collateral relates predominantly to Foreign Exchange contracts

101

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

Derivative financial instruments, cont’d
As at 30 September 2006
Fair Value
Notional
Principal
amount$M

Trading
Assets Liabilities$M$M

Hedging
Assets Liabilities$M$M

Total fair value
AssetsLiabilities$M$M

Foreign exchange andcommodities contracts
Spot and forward contracts

217,522

2,054(2,195)

1

(34)

2,055

(2,229)

Swap agreements

110,638

2,714(2,247)

114

(64)

2,828

(2,311)

Futures contracts

557

45

(29)

-

-

45

(29)

Options purchased

9,166

259

-

-

-

259

-

Options sold

13,916

-

(202)

-

-

-

(202)

Other contracts

7,397

1,055

(916)

-

-

1,055

(916)

Collateral

1

359,196(1,279)

1,256

-

-

(1,279)

1,256

4,848

(4,333)

115

(98)

4,963

(4,431)

Interest rate contracts
Forward rate agreements

96,147

14

(10)

-

-

14

(10)

Swap agreements

589,135

3,296(3,566)

423

(324)

3,719

(3,890)Futures contracts

99,184

249

(242)

2

(2)

251

(244)

Options purchased

17,733

141

-

-

-

141

-

Options sold

33,638

-

(100)

-

-

-

(100)

835,837

3,700(3,918)

425

(326)

4,125

(4,244)Credit Contracts
Credit default swaps
Total
1.

23,965

76

(78)

-

-

76

(78)

1,218,998

8,624(8,329)

540

(424)

9,164

(8,753)Collateral relates predominantly to Foreign Exchange contracts

102

DEFINITIONS

Adjusted Common Equity (ACE) is Tier 1 capital less preference shares and other Hybrid Capital at current exchange rates,
regulatory deductions from total capital and transitional capital relief as approved by the Australian Prudential Regulation Authority.
AIFRS - Australian Equivalents to International Financial Reporting Standards.
Business Unit description:
Personal
Personal is a division comprising of Regional, Rural and Small Business Banking, Banking Products, Mortgages, Consumer Finance,
Investments & Insurance, Esanda, Pacific and a number of other areas, including the branch network and marketing and support
costs in Australia.
- Regional & Rural Banking provides a full range of banking services to personal customers across regional and rural Australia,
and to small business and agribusiness customers in rural and regional Australia.
- Small Business Banking provides a full range of banking services for metropolitan-based small businesses in Australia withfunds under management up to A$50,000.
- Banking Products provides transaction banking and savings products, such as term deposits, V2+ and cash management
accounts.
- Mortgages provides housing finance to consumers in Australia for both owner occupied and investment purposes.
- Consumer Finance provides consumer and commercial credit cards, ePayment products, personal loans, merchant payment
facilities in Australia and ATM facilities.
- Investments & Insurance comprises ANZ Australia’s Financial Planning, Margin Lending, insurance distribution, and Trustees
businesses in addition to the equity accounted earnings from E*Trade Australia, an online broking business.
- Esanda provides motor vehicle and equipment finance, operating leases and investment products.
- Pacific provides retail and corporate banking services to customers in the Pacific Region.
Institutional
Institutional is a division encompassing businesses that provide a full range of financial services principally to ANZ Australia and New
Zealand corporate and institutional customers in all geographies. Institutional has a major presence in Australia and New Zealandand also operations in Europe, USA and Asia.
- Business Banking provides a full range of banking services to metropolitan based small to medium sized business clients withup to $50 million turnover.
- Working Capital provides working capital solutions including lending and deposit products, cash transaction banking
management, trade finance, international payments, clearing and custodian services principally to Institutional and corporate
customers. It also manages the Institutional balance sheet with a particular focus on credit quality, diversification andmaximising risk adjusted returns.
- Markets provides foreign exchange and commodity trading sales-related services to corporate and institutional clients globally.
In addition, the business provides origination, underwriting, structuring and risk management services, advice and sale of credit
and derivative products globally. Markets also provides interest rate risk management services to New Zealand.
- Relationships & Infrastructure includes Institutional Banking, Financial Institutions, Corporate Banking and Personal & Private
Banking Asia.
New Zealand Businesses
New Zealand Businesses includes the following:- ANZ Retail, operating under the ANZ brand in New Zealand provides a full range of banking services to personal and small
business banking customers.
- National Bank Retail, operating under the National Bank brand in New Zealand, provides a full range of banking services topersonal and small business banking customers.
- Corporate & Commercial Banking in New Zealand 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 in New Zealand provides a full range of banking services to rural and agribusiness customers.
- Central support includes Operations, Technology, Treasury, ANZ’s 49% stake in ING New Zealand, Risk Management, People
Capital, Financial Management and Property New Zealand.
- UDC provides motor vehicle and equipment finance, operating leases and investment products.
Partnerships & Private Bank
Partnerships & Private Bank is responsible for ANZ’s partnerships with other institutions in Australia and Asia, along with our Private
Bank business, and includes the following:- INGA includes the equity accounted earnings from our 49% stake in ING Australia Ltd, a joint venture between ANZ and ING.
- International Partnership - ANZ continues to develop a portfolio of strategic retail partnerships in Asia. ANZ currently has
partnerships in Indonesia with PT Panin Bank, in the Philippines with Metrobank, in Cambodia with the Royal Group, in China withBank of Tianjin and in Vietnam with Sacombank. These partnerships are focused on leveraging ANZ Australia's capabilities into
faster growing personal and small business banking markets via the established client bases of the local partners.
- Other includes Private Bank and support units within the division.
Group Centre
Group Centre division includes Operations, Technology and Shared Services, Treasury (funding component), Group People Capital, Group
Strategic Development, Group Financial Management, Group Risk Management, Capital Funding and Group Items.
Collective provision is 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.
‘103

DEFINITIONS (continued)‘

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 isallocated and charged against business units. Equity standardised profit is determined by eliminating the impact of earnings on eachbusiness unit’s book capital and attributing earnings on the business unit’s risk adjusted capital. This enhances comparability ofbusiness unit performance. Geographic results are not equity standardised.
Impaired assets are those whose carrying value is greater than the amount expected to be recovered over their lives. Morespecifically, in relation to loans or other credit facilities, impairment may arise where there is reasonable doubt about thecollectability of interest, fees (past and future) or principal outstanding, or where concessional terms have been provided because of
the financial difficulties of the customer.
Individual provision charge is the amount of impairment on those loans and advances 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 loans and advances.
Liquid assets are cash and cash equivalent assets. Cash equivalent assets are highly liquid investments with short periods tomaturity, 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, less income yet to mature and provisions.
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 inter business unit
expenses.
Net interest average margin is net interest income as a percentage of average interest earning assets. Non-assessable interest
income is grossed up to the equivalent before tax amount for the purpose of these calculations.
Net interest spread is the average interest rate received on interest earning assets less the average interest rate paid on interest
bearing liabilities. Non-assessable interest income is grossed up to the equivalent before tax amount for the purpose of thesecalculations.
Net non-interest bearing items which are referred to in the analysis of interest spread and net interest average margin, includes
shareholders’ equity, impairment of loans and advances, deposits not bearing interest and other liabilities 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 share capital andunamortised intangible assets (including software).
Non-performing loans comprise loans where there is reasonable doubt about the collectability of interest, fees (past and future) or
principal outstanding, or where the concessional terms have been provided because of the financial difficulties of the customer.
Operating expenses exclude 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 shown.
Overseas Markets includes all operations outside of Australia and New Zealand. The Group’s geographic segments are Australia,
New Zealand and Overseas Markets.
Return on asset ratios include net intra group assets which are risk weighted at 0% for return on risk weighted assets calculations.
Revenue includes net interest income and other operating income.
Segment assets represents total external assets excluding deferred tax assets.
Segment result represents equity standardised profit before income tax expense.
Segment revenue includes equity standardised net interest income and other operating income.
Significant items are items that typically have a substantial impact on profit after tax, or the earnings used in the earnings per
share calculation. Significant items also do not arise in the normal course of business and are infrequent in nature. Divestments are
typically defined as significant items.
Total advances include gross loans and advances and acceptances, less income yet to mature (for both as at and averagevolumes). Loans and advances classified as available-for-sale are excluded from total advances.
Unproductive facilities comprise off balance sheet facilities (such as standby letters of credit, bill endorsements, documentary
letters of credit, guarantees to third parties) and undrawn on balance sheet facilities where the customer is defined as impaired.

104

ALPHABETICAL INDEX

PAGE
Associates, joint venture entities and investments.......................................................................................................95
Auditors’ Review Report and Independence Declaration ...............................................................................................97
Average Balance Sheet and related interest – statutory basis .......................................................................................87
Business Performance Review ...................................................................................................................................33
Chief Financial Officer’s Review .................................................................................................................................11
Changes in the composition of the Group ...................................................................................................................94
Condensed Consolidated Cash flow statement.............................................................................................................69
Condensed Consolidated Income Statement ...............................................................................................................66
Condensed Consolidated Balance Sheet .....................................................................................................................67
Condensed Consolidated Statement of Recognised Income and Expense ........................................................................68
Contingent liabilities, contingent assets and commitments............................................................................................91
Definitions............................................................................................................................................................103
Directors’ Declaration ..............................................................................................................................................96
Directors’ Report .....................................................................................................................................................65
Dividends ...............................................................................................................................................................79
Earnings per share ..................................................................................................................................................80
Exchange rates .......................................................................................................................................................95
Financial Highlights .................................................................................................................................................. 5
Four Year summary by half year ...............................................................................................................................61
Geographic Segment Performance.............................................................................................................................53
Highlights................................................................................................................................................................ 1
Impaired financial assets..........................................................................................................................................82
Income ..................................................................................................................................................................76
Income tax expense ................................................................................................................................................78
Loan capital............................................................................................................................................................84
Net loans and advances ...........................................................................................................................................81
Note to the Cash Flow Statement ..............................................................................................................................93
Operating expenses .................................................................................................................................................77
Provision for credit impairment .................................................................................................................................83
Segment analysis ....................................................................................................................................................94
Share Capital..........................................................................................................................................................84
Shareholders’ Equity................................................................................................................................................85
Significant accounting policies...................................................................................................................................70
Significant events since balance date .........................................................................................................................95
Supplementary information - Capital Management ......................................................................................................98
Supplementary information – Derivative Financial Instruments ...................................................................................101105