$
$$

$

$

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201 8
AN N UALREPORT

CONTENTS
Our 2018 Reporting Suite

03

Our Approach to Risk Management382018 Performance Snapshot

04

Remuneration Report40

About Our Business05

Directors’ Report

68

Chairman’s Message

06

Lead Auditor’s Independence Declaration

70

CEO’s Message

08

Financial Report71

Our Strategy

10

Shareholder Information

172

Our Performance

14

Glossary

180

Governance28

Contacts

182

OUR 2018
REPORTINGSUITE

We produce a suite of reports to meet the evolving needs andrequirements of a wide range of stakeholders, including investors,
customers, employees, regulators, non-government organisations
and the community.

OUR CORE REPORTING SUITE
This report, our 2018 Annual Report, details our performance,
governance framework and how we have remunerated ourSenior Executives in light of that performance.
Our 2018 Annual Review draws on aspects of the International
Integrated Reporting Framework and describes how our businessmodel, strategy, governance and risk-management processes are
addressing our most material issues and delivering value for ourshareholders and other stakeholders.
Our 2018 Corporate Governance Statement discloses how wehave complied with the ASX Corporate Governance Council’s‘Corporate Governance Principles and Recommendations – 3rdedition’. We also provide our Principal Risks and Uncertainties. These
documents are available at anz.com/corporategovernance.

Our Sustainability Review provides stakeholders with more detailed
disclosures, including: performance against our sustainability
targets; our approach to our priority areas of financial wellbeing,environmental sustainability and housing; and how we aremanaging social and environmental risk. This report will beavailable at anz.com/cs in December 2018.
ANZ’s 2018 reporting suite also includes the following
documents available at shareholder.anz.com:•• News Release•• Consolidated Financial Report, Dividend Announcement &Appendix 4E•• Results Presentation and Investor Discussion Pack•• The Company Financial Report•• United Kingdom Disclosure and Transparency Rules Submission•• APS 330 Pillar III Disclosure
We will continue to evolve and improve our reporting suite overthe coming years and welcome feedback on this report. Pleaseaddress any questions, comments or suggestions toinvestor.relations@anz.com.

The reports available for stakeholders are as follows,
anti-clockwise from bottom left.
1. 2018 Annual Report anz.com/annualreport
2. 2018 Annual Review anz.com/annualreview
3. 2018 Corporate Governance Statement anz.com/corporategovernance
4. 2018 Sustainability Review anz.com/cs
Other financial disclosures are available on shareholder.anz.com
3

2018 PERFORMANCE
SNAPSHOT$6.5

11

BILLIONPERCENTCash profit1

11.4

$

3.
4.

5.

4

BILLION

funded and facilitatedin low carbon andsustainable solutions$137
MILLIONin community
investment6

3.71 MILLION$341 BILLION$184 BILLION$95 BILLION
#1		
2.

$11.5

CommonEquityTier 1 Capital3

PERCENT

1.

160
CENTS

Fully franked
dividend for FY18
per share

MORE THAN

889

THOUSAND
people reachedthrough our target tohelp enable social andeconomic participation4

RANKED

1ST

3RD

Australia and
New ZealandInstitutional NPS7Net Promoter Score
Retail Australia8

DIGITALLY ACTIVE CUSTOMERS9IN HOME LENDING – INCREASE OF $10 BILLION9IN RETAIL DEPOSITS – INCREASE OF $2 BILLION9IN BUSINESS LENDING – INCREASE OF $1 BILLION9

On a cash profit (continuing operations) basis. Excludes non-core items included instatutory profit and discontinued operations included in cash profit. It is provided to assist
readers in understanding the result of the ongoing business activities of the Group. For
further information on adjustments between statutory and cash profit refer to page 15.
Equals shareholders’ equity less preference share capital, goodwill, software and otherintangible assets divided by the number of ordinary shares.
APRA Basel 3 methodology.
Through our initiatives to support financial wellbeing including financial inclusion,
employment and community programs, and targeted banking products and services
for small businesses and retail customers. Refer to the 2018 Sustainability Review formethodology (to be released in December 2018).
Measures representation at the Senior Manager, Executive and Senior Executive levels.
Includes all employees regardless of leave status but not contractors (who are included
in FTE).

ANZ 2018 ANNUAL REPORT

Cash earnings
per share1

PERCENTNet tangible
assets per share2

of women in
leadership5

CENTS

Cash returnon equity1$ $18.47

32

223.4

LEAD BANK FOR TRADE SERVICES10
Figure includes foregone revenue of $107 million, being the cost of providing low or
fee free accounts to a range of customers such as government benefit recipients, notfor profit organisations and students.
7.
Peter Lee Associates 2018 Large Corporate and Institutional Relationship Banking
surveys, Australia and New Zealand 2018. In New Zealand ranked against the Top 4
competitors.
8.
Roy Morgan Research Single Source, Australian population aged 14+, Main Financial
Institution, six month rolling average to September 2018. Ranking based on the four
major Australian banks.
9.
Australia and New Zealand.
10.
Peter Lee Associates Large Corporate and Institutional Transactional Banking surveys,
Australia 2004–2018 and New Zealand 2005–2018.
6.

ABOUT OUR
BUSINESSFounded in 1835 and headquartered in Australia, we provide banking and financial
products and services to around eight million individual and business customers.
We operate in and across 34 markets.
OUR CULTURE AND VALUESOUR PURPOSE

Our values are the foundation of how we work and aresupported by our Code of Conduct. All employees andcontractors must comply with the Code, which contains
guiding principles and sets the standards for the way we
do business at ANZ.

Our purpose is to help shapea world in which people andcommunities thrive. That means
striving to create a balanced,
sustainable society in which
everyone can take part andbuild a better life.

We care about:

INTEGRITYC O L L A B O R AT I O N

A C C O U N TA B I L I T Y

One of the ways we are bringing our purpose to life isthrough helping to address complex issues that matter tosociety and are core to our business and strategy. We arefocusing our efforts on financial wellbeing, environmental
sustainability and housing, contributing to these challenges
by: developing innovative and responsible financial products
and services; participating in relevant policy development
and research; strengthening stakeholder partnerships; andharnessing the skills of our people.

RESPECTE XC E L L E N C E

OUR DIVISIONS

Our business is structured across the following divisions:
Australia: comprises the Retail and Business & Private Bank business units, providing a full range of banking services.
Institutional: services global institutional and corporate customers located in Australia, New Zealand, Asia, Europe, America, Papua New
Guinea and the Middle East across three product sets: Transaction Banking, Loans & Specialised Finance and Markets.
New Zealand: comprises the Retail (including wealth management services) and Commercial business units, providing a full range ofbanking services.
Wealth Australia: provides investment, superannuation, insurance and financial advice services. Part of the Wealth Australia division
is considered to be a discontinued operation.
Asia Retail & Pacific: comprises the Asia Retail and Pacific business units, connecting customers to specialists for their banking needs.
These divisions are supported by Group-wide functions including Technology, Services & Operations (TSO) and Group Centre.
Digital banking, which forms part of Group Centre, leads the strategic development and delivery of a superior digital experience for thebank’s customers and staff.
ABOUT OUR BUSINESS

5

CHAIRMAN’SMESSAGEDAVID GONSKI, AC

THIS SIMPLIFICATION OF OUR
BUSINESS IS CRITICAL. WE KNOWA SIMPLER BANK IS MORE FOCUSEDAND EASIER TO MANAGE IN AN
ENVIRONMENT WHERE REGULATIONAND COMPLIANCE IS INCREASING.

The final dividend of 160 cents per share fully franked was
unchanged from 2017. This reflects a dividend payout ratio of
79.5% of cash profit (total Group), with $4.6 billion in dividends paid
to shareholders. This is above our target fully franked payout ratioof 60-65% of cash profit (total Group), however our strong capital
position has allowed us to maintain a stable dividend.
While growth was subdued, particularly in Australian retail banking,the fundamentals of our business remain sound. We recognised
many of the headwinds facing the sector early and the actionscommenced several years ago to simplify our business are now
benefiting shareholders.
During the year, we announced the sale of both our Pensions andInvestments businesses to IOOF and our Life Insurance businesses
to Zurich, as well as the sale of our Life Insurance business in New
Zealand to Cigna. We also increased our focus on Institutionalbanking with the announced sale of our Retail and Commercial
business in Papua New Guinea to Kina Bank and the sale of our
ANZ Royal Bank (Cambodia) joint venture to J Trust.

6

This was a challenging year
for both ANZ and the entirebanking industry.

We completed the sale of our minority stake in Shanghai Rural
Commercial Bank and the sale of our share in the Philippines-based
Metrobank Card Corporation joint venture.

Our statutory profit was $6,400
million, flat since 2017. Cash profit
for ANZ’s continuing operations(which excludes non-core items andthe discontinued Wealth businesses
from the statutory profit) was$6,487 million, down 4.7%.

This simplification of our business is critical. We know a simpler
bank is more focused and easier to manage in an environment
where regulation and compliance is increasing. We haverebalanced our business, improved the returns of the Institutional
division, delivered consistent outcomes in New Zealand and we are
directing investment and capital to our areas of strategic focus suchas Australian home owners.

ANZ 2018 ANNUAL REPORT

A highlight of the year was completing the complex separation of our
six retail and wealth businesses in Asia on time and under budget.

EARNING TRUSTThe Royal Commission into Misconduct in the Banking,Superannuation and Financial Services Industry has been
confronting for all of us at ANZ, including the Board. We are
unanimous in our resolve to build a company of which weand all of our stakeholders can be proud.
We recognise this has not been the case in the last decade andthat we have failed in some circumstances to do the right thing
and to keep the needs of our customers as our priority.
The Board and senior management will improve transparency
with customers and ensure that the balance between earnings
and providing worthwhile, fair and desired services to ourcustomers is maintained at all times.
This is why we have engaged with the Royal Commission openly
and constructively and will not wait for its final recommendations
before taking action to ensure our failures do not occur again.
We also support strongly the approach that our Chief Executive
Officer, Shayne Elliott has stated publicly which is that where ANZ
has failed, we will compensate those affected quickly and fairly
and take steps to ensure that it does not happen again.
The Ethics, Environment, Social and Governance Committee of
the Board is active and well informed. The Board has also made it
known within ANZ that asking the question ‘is this the right thing
to do?’ is critical.
As you will see in the Remuneration Report, variable remuneration
at all levels of ANZ has been materially reduced.
We now have a new executive team running the bank. However,accountability for our failures is still reflected in this year’s
remuneration of our most senior team including our Chief
Executive Officer.
While the Board itself does not receive variable compensation,
it shares some accountability for what has occurred.

As an indication of the Board’s understanding of its accountability,
existing Non-Executive Directors will receive in FY19 a reduction ofan amount equivalent to 20% of the FY18 base Non-Executive Directorfee (and in my case, 20% of my Chairman’s fee). This is in addition to
the bank’s efforts to identify and fix the causes of our failures.

CAPITAL MANAGEMENT
Despite these difficult macro conditions, the progress of ourtransformation means we have been able to return surplus capitalto shareholders while retaining appropriate flexibility to invest in
our business. This year we have maintained our unquestionably
strong capital levels, reducing shares on issue by 67 million(equivalent to $1.9 billion) from an announced $3.0 billion sharebuyback program.

OUTLOOK
We expect the trading environment in Australia to remainchallenging, particularly in retail banking, as the industry responds
to increasing regulation and compliance costs, as well as
implementing the recommendations of the Royal Commission.
ANZ is well placed to navigate these difficult conditions given
the progress of our transformation and simplification agenda.
Our focus on cost and capital management and our exposure tointernational trade and commercial banking also positions ANZ
well for the future.
I know we have the right management team in place, led by
Shayne Elliott, to deliver on a strategy that will create sustained
value for our shareholders, customers and employees well into
the future. I know we are taking the action required to create acompany we can all be proud of.

David Gonski, AC
CHAIRMANCHAIRMAN’S MESSAGE

7

CEO’SMESSAGESHAYNE ELLIOTTWE ARE MAKING THE INVESTMENTSREQUIRED TO BUILD A BANK WORTHY
OF THE TRUST AND RESPECT OF OUR
CUSTOMERS, SHAREHOLDERS AND
THE COMMUNITY.

 e have delivered aWcredible result in 2018 forshareholders, customers
and employees given thesignificant challenges facing
ANZ and the industry.

Retail banking in Australia is facing strong headwinds. The
combined impacts of regulatory and macro prudential
requirements have seen annual housing market growth slow
with a substantial reduction in the average household’s potential
borrowing capacity.

The actions commenced in 2016
to simplify our business, reduce
cost and rebalance capital have us
well placed to meet the challenges
facing the industry.

Institutional banking continued to provide diversified earnings
for the Group with the transformation of our business making
earnings less volatile. ANZ was again named a top-four corporatebank in Asia and our position as a leading trade bank in the Asian
region will be an even more important differentiator as housing
credit slows in Australia.

OUR PROGRESS
We want to do fewer things and do them really well – while
ensuring they are aligned to our purpose. At the same time, weneed to focus on the areas where we can win and drive a decent
return for shareholders.
In Australia and New Zealand we want to be the best bank forpeople who want to buy and own their home and for those whowant to start, run or grow a small business. In Institutional banking
we want to be the best bank in the world for those companies andorganisations that move goods and money around the region.
I am confident our strategy of focus, simplification and digitaltransformation is right, indeed essential, for the times. A simpler
organisation is less complex to manage and hence better able todeliver sustainable earnings – and when things do go wrong, weare in a better position to fix them quickly.

8

ANZ 2018 ANNUAL REPORTThis year we maintained our disciplined approach to home loan
growth, focusing on customers who want to buy and own theirown home. We have deliberately foregone short-term revenue
growth and higher margins, particularly in the investor andinterest-only segments. This focus has driven better risk-adjusted
returns and is in the long-term interest of shareholders.

ROYAL COMMISSION
This is a critical moment for the industry, our bank and our people.
We continue the urgent work required to fix the significant failures
highlighted by the Royal Commission. We have accepted
responsibility and we are determined to improve.
We have taken action to fast-track fundamental changes
involving leadership, strategy, systems, people and culture.
We are also making the investments required to build a bankworthy of the trust and respect of our customers, shareholders
and the community.
We will also compensate customers we have failed quickly andfairly and take steps to ensure that it does not happen again.

DIGITAL CUSTOMERSThis year we made significant gains in using digital technology
to improve the services we provide to customers, while also
improving our operational capacity and reducing risk.
We rolled out the New Payments Platform to more than three
million retail and commercial customers, allowing them totransfer funds to other participating banks in real-time withimproved data capability. This was a complex project involving
more than 150 people over three years that will provide
significant benefit to our customers.
During the year, we extended our leadership in mobile paymentswith the addition of Fitbit Pay and Garmin Pay, while adding
eftpos on Apple Pay and Android Pay. In an Australian-first we now
allow cash withdrawals from ANZ ATMs using any mobile device.
We also introduced a new mobile banking app that remains the
top-rated banking app in the Australian Apple store with almost
150,000 reviews.
In New Zealand, we made it easier for customers to interact withthe bank through the introduction of a digital assistant, ‘Jamie’,using artificial intelligence technology to help customers with the
top-40 most asked banking questions.

LIVING OUR PURPOSE
A crucial evolution for our business this year has been identifying,
adopting and embedding a clear sense of purpose: to shape aworld where people and communities thrive.
Along with our values, this underpins everything we do and will
ensure all our people can undertake their work with pride and astronger sense of ethics and fairness.
We took action to rebalance sales incentives for front-line staff,
including the removal of all sales incentives for financial planners.
This included offering free advice reviews for customers concerned
about their current financial position.

We invested more than $137 million in the communities in which
we operate, though our employee volunteering and giving
programs, our grants programs, and emergency relief measuresfor customers and communities impacted by natural disasters.
This year sadly has been extremely tough for many of our rural andregional customers in eastern Australia and we implemented asignificant package to help our customers impacted by this oncein a generation drought in NSW and Queensland.
The package included reducing rates on business loans forfarmers by 1% pa in all drought declared areas and setting aside$130 million for discounted loans to help farmers re-stock andre-plant for next season. All home owners in drought declared
regions were also excluded from a recent interest rate increase. In
addition, we donated $1 million to rural financial counselling andcommunity grants assisting farmers in drought-affected areas.
Our purpose also guided our decision to increase our low carbon
finance commitment from $10 billion to $15 billion by 2020,and since 2015 we have funded $11.5 billion in low carbon andenvironmentally sustainable solutions, such as renewable energy andefficient irrigation. We are reducing our lending to the most carbonintensive sectors but doing so in a way that supports our customers
in making a manageable transition to a low carbon future.
Finally, I would like to acknowledge the over 39,000 people whoturn up to work every day to do a better job for our customers,
shareholders and our community. While we know we still havea significant job ahead of us, we have the right team to deliver abetter bank for all our stakeholders – a bank that can truly shapea world where people and communities thrive.

Shayne Elliott
CHIEF EXECUTIVE OFFICER

CEO’S MESSAGE

9OUR
STRATEGY
We have embarked on a strategy to become a simpler, better balanced andmore service oriented organisation, helping our customers and our people
respond to a challenging world.
Becoming a simpler bank enables us to invest our resources to build better systems and processes, to fix things that are broken and todevelop products, services and programs that improve the financial wellbeing of our customers and the community.
We are repositioning the bank for the longer term – focused on
fewer things and doing them really well:over the past two and a half years, but recognise that we still havemuch to do.

-- creating the best bank in Australia and New Zealand for homeowners and small businesses

Variable remuneration is designed to focus our CEO and Disclosed
Executives on key measures supporting our business strategy, andencourage the delivery of value for shareholders. Group, divisionand individual performance is considered to determine theirvariable remuneration recommendations. In respect of Group
performance, an assessment against a range of annual and longerterm strategic indicators is undertaken across the categories
of Risk, Financial and Discipline, Customer, and People and
Reputation. Together these inform the overall Group assessment.

-- building the best bank in the world for clients driven by trade andcapital flows between Australia, New Zealand and Asia-- establishing a common, digital-ready infrastructure and using
data to better assist our customers to succeed in a digital world.

While the environment in which we operate is changing at a
rapid pace, the four priorities that underpin our strategy continue
to drive our transformation. We have made significant progress

FOCUSING ON AREAS WHERE WE CAN WIN
ACTIONS WE ARE TAKINGOUR PROGRESS: FULL YEAR 2015 TO FULL YEAR 20181

Making buying and owninga home in Australia and New
Zealand easy-- established dedicated Home Owners and Home Lending teams, to make buying and owning a home easy-- introduced First Home Buyer coaches: mortgage and home lending experts who assist customers
through the first home buying journey from start to finish, without any cost or obligation-- improved communication with home loan customers transitioning from interest only to principal andinterest loans, helping them prepare for increased payment amounts-- acquired technology start-up REALas, assisting prospective home buyers find out accurate sale pricepredictions for properties on the market-- provided an additional $52 billion in home lending in Australia and New Zealand-- maintained market share of owner occupier customers in Australia at 16%2-- maintained number 1 housing market share position in New Zealand with 31%3 share

Making starting, running andgrowing a small business inAustralia and New Zealandeasy-- continued to invest in a dedicated Business Banking proposition-- introduced innovative solutions for customers including ANZ Be Business Ready (Honcho),
ANZ Be Trade Ready, Employment Hero and SmartPayroll-- launched BladePay™: smaller, smarter, faster payment technology-- provided $95 billion business lending in Australia and New Zealand (in 2018)-- grew business deposits in Australia and New Zealand by $16 billion

Being the best bank in theworld for customers driven
by the movement of goods
and capital in our region-- ranked number one Institutional Lead Bank in Australia and New Zealand4-- maintained equal 4th corporate bank in Asia and improved to #1 for Overall Quality5-- lead bank for trade services6-- increased Payments and Cash Management revenue in Institutional by 9%

Links to 2018 Group performance assessment:-- Continued to improve customer experience this year, with a highlight being Institutional performance in key customer satisfaction/
relationship strength surveys. A disappointing Net Promoter Score (NPS)7 in Australia was balanced by a record NPS in New Zealand Retail.

10

ANZ 2018 ANNUAL REPORTCREATING A SIMPLER, BETTER BALANCED BANKACTIONS WE ARE TAKINGOUR PROGRESS: FULL YEAR 2015 TO FULL YEAR 20181

Exit low return andnon-core businesses-- sold or exited 21 non-core businesses, including announced divestments:-- Esanda asset finance business-- Wealth Australia – Life Insurance, Wealth Australia – One Path Pensions and Investments/Aligned
Dealer Groups-- One Path Life New Zealand and New Zealand One Path Life medical insurance book-- six Asia Retail and Wealth businesses across Singapore, China, Hong Kong, Taiwan, Indonesia
and Vietnam-- Papua New Guinea Retail, Commercial and SME business-- Metrobank Card Corporation and Shanghai Rural Commercial Bank partnerships in Philippines
and China respectively and ANZ Royal joint venture in Cambodia-- agreement with CMC Markets to provide the ANZ Share Investing trading platform

Reduce reliance on
low-return aspects ofInstitutional banking-- focused on strategic Institutional customers across Australia, New Zealand and the Asia Pacific region-- reduced the Institutional customer base by ~6,000, exiting off-strategy, low-return customers-- reduced Institutional Total Risk Weighted Assets by $44 billion-- reduced capital allocated to Institutional, from ~48%8 of total Group capital to ~38%8

Reduce operating costs
and risks by removing
product and management
complexity-- total cost base reduced from $9.4 billion to $9.2 billion-- reshaped the workforce, including introduction of agile working practices (our New Ways of Working)to the Australia and Technology divisions to increase speed-to-market for key customer initiatives-- reduced full time equivalent (FTE) employees by 25%-- decommissioned redundant technology applications-- simplified products, including decommissioning ~140 products in Australia division

Further strengthen thebalance sheet by rebalancing
our portfolio-- increased Common Equity Tier 1 capital from 9.6% to 11.4%-- reallocated capital to Retail and Commercial in Australia and New Zealand, from ~45%8 to ~60%8 of total
Group capital-- freed up over ~$12 billion in capital through announced divestments and reduction in Institutional risk
weighted assets

Links to 2018 Group performance assessment:
While cost outcomes were below target (resulting from the large/notable items), we maintained a strong balance sheet, anddivestments during the year reduced the complexity of the Group. Total shareholder returns were positive relative to peers and returnon equity was on target. Organic capital generation remained strong. Capital, funding and liquidity continued to be well above
regulatory minimums.

1.
2.
3.
4.

5.

6.

Financial comparisons are on a cash profit basis. 2018 excludes discontinued operations.
Source: APRA monthly banking statistics 31 August 2018.
Source: RBNZ, share of all banks as of August 2018.
Peter Lee Associates 2018 Large Corporate and Institutional Relationship Banking surveys,
Australia and New Zealand. In New Zealand ranked against the Top 4 competitors.
Greenwich Associates 2017 Asian Large Corporate Banking Study (issued in March 2018):
ANZ ranked equal No. 4 in 2016 and 2017.
Peter Lee Associates Large Corporate and Institutional Transactional Banking surveys,
Australia 2014–2018 and New Zealand 2005–2018.

7.

8.

NPS is a customer loyalty metric used globally to evaluate a company’s brand, products
or services. Net Promoter® and NPS® are registered trademarks and Net Promoter Score
and Net Promoter System are trademarks of Bain & Company, Satmetrix Systems andFred Reichheld.
Based on Regulatory Capital. 2015: Institutional shown under 2015 IIB Structure, including
Global Institutional and Asia Retail & Pacific. 2018 adjusted for announced divestments of
OnePath, P&I, NZ OnePath, Cambodia subsidiary and ANZ PNG.

OUR STRATEGY

11

DRIVING A PURPOSE AND VALUES LED TRANSFORMATIONACTIONS WE ARE TAKINGOUR PROGRESS: FULL YEAR 2015 TO FULL YEAR 20181

Create a stronger sense ofcore purpose and ethics-- renaming both the Board Environmental, Social and Governance Committee and Responsible BusinessCommittee to include Ethics, providing management with a further vehicle to raise ethical andconduct issues-- developed an ethical decision-making framework which captures how we apply our purpose, values
and principles to inform complex decisions-- changed the way we pay our employees, placing a greater focus on customer outcomes-- built momentum across our key focus areas of financial wellbeing, environmental sustainability
and housing:-- surveyed 9,500 people in ANZ Adult Financial Wellbeing Survey in Australia and New Zealandand launched an insights report, the findings of which will inform future development of products
and services-- delivered Vulnerable Customer training to 6,100 frontline employees in Australia-- arranged 18 green bonds ($1.867 billion) on behalf of customers, including debuts in New Zealandand Asia-- introduced interest free loans to help New Zealanders insulate their homes, with nearly 560 loans
approved

Invest in leaders who canhelp sense and navigate
the rapidly changing
environment-- launched our New Ways of Leading, which describe the behaviours our leaders most need todemonstrate in order to transform ANZ-- increased women in leadership roles by 0.9% to 32%, driven by our focus on adaptive leaders who
uphold our ICARE values and our New Ways of Leading

Links to 2018 Group performance assessment:
While there were a number of highlights during the year, such as an increase in the number of women in leadership, this was offset by
employee engagement scores falling below target. Our standing in the community was impacted by significant community concern asa result of our failures highlighted by the Royal Commission.

BUILDING A SUPERIOR EVERYDAY EXPERIENCE FOR CUSTOMERSAND OUR PEOPLE TO COMPETE IN THE DIGITAL AGE
ACTIONS WE HAVE TAKENOUR PROGRESS: FULL YEAR 2015 TO FULL YEAR 20181

Build more convenient,
engaging banking solutions
to simplify the lives ofcustomers and our own
people-- invested in ANZ’s new Digital Banking division to support growth in priority areas-- upgraded key digital channels resulting in improved customer experience, including through:-- a new mobile app-- full mobile wallet (only major bank in Australia to offer this)-- introduction of secure biometric security for ANZ app, New Zealand Contact Centre andInstitutional channels-- continued to simplify technology architecture, decommissioning 264 applications during 2018,
a 35% increase on 2017-- rolled out New Payments Platform (NPP) to small and medium businesses and Institutional clients-- won 12 of 13 NPP mandates from local and foreign banks-- prepared for Open Banking through a strategic partnership with Australia’s leading data company,
Data Republic, allowing sharing and analysis of data with trusted third parties in a secure environment-- introduced a digital assistant, ‘Jamie’, using Artificial Intelligence (AI) on help.anz.co.nz, to assist
customers with the top-40 most asked banking questions

Links to 2018 Group performance assessment:
There was strong digital engagement with customers across the Group. The ANZ app remains the top-rated banking app in the Apple
store, with almost 150,000 reviews.
1.

12

Financial comparisons are on a cash profit basis. 2018 excludes discontinued operations.

ANZ 2018 ANNUAL REPORT

13

OUR
PERFORMANCEGROUP PERFORMANCE1
Total Operating Income –cash1 ($m)
19,816
19,214

Operating Expenses –cash1 ($m)
9,248

Credit Impairment Charge –cash1 ($m)
1,199

8,967

Return on Equity –cash1 (%)
11.7%
11.0%

688
2018

2017

Earnings per Share –cash1 (cents)

1.
2.

2018

2017

Common Equity Tier 1 (%)

223.4

232.7

11.4%

2018

2017

2018

2018

2018

2017

Liquidity Coverage Ratio (%)2

10.6%

138%

135%

2017

2018

2017

2017

Dividend per share (cents)
160

160

2018

2017

Information has been presented on a continuing operations basis. Discontinued operations are detailed on page 23.
Full year average, calculated as prescribed per APRA Prudential Regulatory Standard (APS 210 Liquidity) and consistent with APS 330 requirements.

Statutory profit after tax from continuing operations for the year ended 30 September 2018 increased 12% on the prior year to $7,095 million.
Statutory return on equity from continuing operations is 12.0% and statutory earnings per share from continuing operations is 245.6 cents, anincrease of 13% on prior year. The table below presents our performance on a statutory and cash basis.

GROUP PROFIT RESULTS - INCLUDING DISCONTINUED OPERATIONS
2018
Statutory
$m

Cash
$m

2017
Statutory
$m

Cash
$m

Net interest income
Other operating income

14,514
5,317

14,5144,700

14,875
4,523

14,875
4,941

Operating income
Operating expenses

19,831(9,248)19,214(9,248)19,398(8,967)

19,816(8,967)

Profit before credit impairment and income tax
Credit impairment charge

10,583
(688)

9,966
(688)

10,431(1,198)

10,849(1,199)

Income Statement

Profit before income tax

9,895

9,278

9,233

9,650

Income tax expense(2,784)(2,775)(2,874)(2,826)

Non-controlling interests

(16)

(16)

(15)

(15)

Profit from continuing operations
Profit/(Loss) from discontinued operations

7,095
(695)

6,487
(682)

6,344
62

6,809
129

Profit

6,400

5,805

6,406

6,938

As a result of the sale of our OnePath pensions and investment (OnePath P&I) and aligned dealer groups (ADG) businesses to IOOF Holdings
Limited and our life insurance business to Zurich Financial Services Australia, the financial results of these businesses being divested andassociated Group reclassification and consolidation impacts are treated as discontinued operations from a financial reporting perspective(refer to page 23).

14

ANZ 2018 ANNUAL REPORTWHY WE USE CASH PROFIT FROM CONTINUING OPERATIONS TO EXPLAIN THE GROUP’S FINANCIAL PERFORMANCEThe Group uses cash profit, a non-IFRS measure, to assess the performance of its business activities. It is an industry-wide measure which enables
comparison with our peer group. We calculate cash profit by adjusting statutory profit for non-core items. In general, it represents financial
performance that can be controlled by management and reflects our core business activities. We use cash profit internally to set targets andincentivise our Senior Executives and leaders through our remuneration plans. In addition, we believe cash profit from continuing operations isparticularly important as we continue to strategically reposition ourselves to create a simpler, better capitalised, better balanced and moreagile bank.
Cash profit and cash profit from continuing operations is not subject to audit by the external auditor. Our external auditor has informed the Audit
Committee that adjustments between statutory and cash profit have been determined on a consistent basis across each of the periods presented,
and the adjustments for the sale impact of Shanghai Rural Commercial Bank (SRCB) in 2018 and 2017 are appropriate.

ADJUSTMENTS BETWEEN STATUTORY AND CASH PROFIT1
$m

7,095

FY18
Statutory profit continuing operations

(14)

(257)

Revaluation ofpolicy liabilities

Economic andrevenue andexpense hedges

6,487
(4)

(333)

Structured credit
intermediation
tradesSale of SRCBFY18
Cash profit continuing
operations

Description of adjustments between continuing operations statutory profit and cash profit:

1.
2.

Adjustment

Reason for the adjustment

Revaluation of policy liabilities2
2018: ($14) million
2017: $25 million

When calculating policy liabilities, the projected future cash flows on insurance contracts are discounted
to reflect the present value of the obligation, with the impact of changes in the market discount rate eachperiod being reflected in the Income Statement. ANZ includes the impact on the re-measurement of theinsurance contract attributable to changes in market discount rates as an adjustment to statutory profit toremove the volatility attributable to changes in market interest rates which reverts to zero over the life of
the insurance contract.

Economic and revenue andexpense hedges
2018: ($257) million
2017: $110 million

The Group enters into economic hedges to manage its interest rate and foreign exchange risk which, in
accordance with accounting standards, result in fair value gains and losses being recognised within the
Income Statement. ANZ removes the fair value adjustments from cash profit since the profit or loss resulting
from the hedge transactions will reverse over time to match with the profit or loss from the economicallyhedged item as part of cash profit. This includes gains and losses arising from approved classes ofderivatives not designated in accounting hedge relationships but which are considered to be economic
hedges, including hedges of larger foreign exchange denominated revenue and expense streams, primarily
NZD and USD (and USD correlated), as well as ineffectiveness from designated accounting hedges.

Structured credit
intermediation trades
2018: ($4) million
2017: ($3) million

ANZ entered into a series of structured credit intermediation trades prior to the Global Financial Crisis witheight US financial guarantors. This involved selling credit default swaps (CDSs) as protection over specificdebt structures and purchasing CDS protection over the same structures. ANZ has subsequently exited its
positions with six US financial guarantors and is monitoring the remaining two portfolios with a view to
reducing the exposures when ANZ deems it cost effective relative to the perceived risk associated with a
specific trade or counterparty.

Sale of SRCB
2018: ($333) million
2017: $333 million

The impact of SRCB was treated as an adjustment between continuing operations statutory profit and cash
profit in 2017. The rationale being the loss on reclassification to held for sale was expected to be largely offset
by the release of gains deferred in equity reserves. The transaction was initially expected to complete in the2017 financial year, however completion was delayed and the Group has recognised a net loss of $86 million
in continuing cash profit in the 2018 financial year.

Information has been presented on a continuing operations basis. Discontinued operations are detailed on page 23.
Relates to policy liabilities of the Wealth business in the New Zealand division which form part of continuing operations.

OUR PERFORMANCE

15

OUR PERFORMANCE (continued)
CASH PROFIT PERFORMANCE1
$m
6,809

FY17
Cash profit continuing
operations

(361)

(241)

Net interest
incomeOther operating
income

511

50

6,487

Creditimpairment
chargeIncome tax
expense &non-controllinginterests

FY18
Cash profit continuing
operations(281)

Operatingexpenses

GROUP PERFORMANCE - CASH PROFIT
Full Year
2018

2017

$m

$m

Movt

Net interest income

14,514

14,875-2%

Other operating income

4,700

4,941

-5%

Operating income

19,214

19,816-3%

Operating expenses(9,248)(8,967)

3%

Profit before credit impairment and income tax

9,966

10,849-8%

Credit impairment charge(688)(1,199)-43%

Profit before income tax

9,278

9,650

-4%

Income tax expense(2,775)(2,826)-2%

Non-controlling interests

(16)

(15)

7%

Cash profit from continuing operations

6,487

6,809

-5%

Cash profit from continuing operations decreased $322 million (-5%) compared with the 2017 financial year.
•• Net interest income decreased $361 million (-2%) largely due to a 12 basis point decrease in the net interest margin, partially offset by 4%
growth in average interest earning assets. The lower net interest margin reflects growth in lower margin liquid assets, changes in productmix, the sale of the Asia Retail and Wealth businesses, the introduction of the major bank levy from July 2017, and the impact of higher
customer remediation charges ($69 million). This was partially offset by higher deposit margins and home loans re-pricing. The increase inaverage interest earning assets reflects growth in ANZ’s home loans and Institutional banking portfolios, partially offset by the sale of Asia
Retail and Wealth businesses.
•• Other operating income decreased $241 million (-5%) largely as a result of a $318 million decrease in Markets income, a $89 million
increase in customer remediation charges, a $30 million reduction in lending fee income, and the $114 million gain on the sale of Queen
street recognised in the September 2017 financial year. This was partially offset by a $335 million impact from divestments.
•• Operating expenses increased $281 million (3%) primarily due to an accelerated software amortisation charge ($251 million), higher
restructuring ($165 million) and customer remediation ($108 million), Royal Commission legal costs ($55 million), higher technology andconsulting fees associated with investment in digital and data capabilities, and inflation. This was partially offset by lower personnel costs
due to a reduction in incentives and a 9% reduction in average FTE.
•• Credit impairment charges decreased $511 million (-43%) largely due to lower individual credit impairment charges.
1.

16

Information has been presented on a continuing operations basis. Discontinued operations are detailed on page 23.

ANZ 2018 ANNUAL REPORTLARGE/NOTABLE ITEMS INCLUDED IN CASH PROFIT1
Within continuing cash profit, the Group recognised a number of large/notable items. The impact of these items on a post-tax basis is as follows:
Full Year
2018
$m

2017
$m

Asia Retail and Wealth businesses

85

(270)

Shanghai Rural Commercial Bank (SRCB)

(86)

-

UDC Finance (UDC)

11-

Metrobank Card Corporation (MCC)

247-

OnePath Life NZ Ltd (OPL NZ)(3)-

ANZ Royal Bank (Cambodia) Ltd (Cambodia JV)

(42)

-

PNG Retail, Commercial and SME

(21)

-

24

262

SRCB

-

58

MCC

10

39

Customer Remediation

(295)

(112)

Accelerated Software Amortisation

(206)

-

Royal Commission Legal Costs

(38)

-

Restructuring

(159)

(43)

-

112

Gain/(Loss) on sale of divestments

Divested business results
Asia Retail and Wealth businesses

Other large/notable items

Gain on Sale of 100 Queen Street, Melbourne

Description of large/notable items:

1.

Item
Gain/(Loss) on sale of divestments

Description

Divested business results

The 2018 financial year included the divested business results of the Asia Retail and Wealthbusinesses and a dividend received from MCC. The 2017 financial year comprised thedivested business results of the Asia Retail and Wealth businesses, and equity accounted
earnings for SRCB and MCC.

Customer Remediation

Customer remediation for refunds to customers and related remediation costs primarily
related to product reviews in the Australia division.

Accelerated Software Amortisation

Accelerated amortisation charge of certain software assets in the 2018 financial year,
predominantly relating to the Institutional division due to a reassessment of useful lives
following a review of the International business.

Royal Commission Legal Costs

External legal costs associated with responding to the Royal Commission in the 2018
financial year.

Restructuring

Restructuring to re-shape our workforce and simplify our business, largely relating to themove of the Australia and Technology divisions to agile ways of working.

Gain on Sale of 100 Queen Street, Melbourne

Gain on sale of our premises at 100 Queen Street, Melbourne in the 2017 financial year.

The 2018 financial year included the gain on sale upon completion of the Asia Retail and
Wealth businesses and MCC, and the loss on sale from SRCB. The Group recognised a loss
on reclassification of assets and liabilities to held for sale for Cambodia JV, OPL NZ, and PNG
Retail, Commercial and SME. In addition, a net cost recovery for UDC was recognised in
respect of the terminated transaction process. The 2017 financial year included the loss on
reclassification of Asia Retail and Wealth businesses to held for sale.

Information has been presented on a continuing operations basis. Discontinued operations are detailed on page 23.

OUR PERFORMANCE

17

OUR PERFORMANCE (continued)
ANALYSIS OF CASH PROFIT PERFORMANCE1
NET INTEREST INCOME - CONTINUING OPERATIONS1
Full Year
2018
$m

2017
$m

Movt

14,514

14,875-2%

Average interest earning assets

774,884

748,000

4%

Average deposits and other borrowings 4, 5

617,008

604,543

2%

1.87

1.99

-12 bps

Cash net interest income

2, 3
4Net interest margin (%) - cash

2, 3, 4

Net interest income decreased $361 million (-2%) largely due to a 12 basis point decrease in the net interest margin, partially offset by 4% growthin average interest earning assets.
Net interest margin decreased reflecting growth in lower margin liquid assets, changes in product mix, the sale of the Asia Retail and Wealthbusinesses, the introduction of the major bank levy from July 2017, and the impact of customer remediation. This was partially offset by higher
deposit margins and home loans re-pricing.
Average interest earning assets increased $26.9 billion (4%) reflecting ANZ’s strategic focus on home loans, in particular owner occupier, growthin liquid assets, partially offset by the completion of the Asia Retail and Wealth businesses sale.
Average deposits and other borrowings increased $12.5 billion (2%) driven by growth in customer deposits in Australia, Institutional and New
Zealand divisions, partially offset by the sale of the Asia Retail and Wealth businesses.

Net interest margin from continuing operations
bps

199
3
(4)

3

196
(2)

(1)

(3)

187
(6)

FY17 Cashnet interest
margin continuing
operations

1.
2.
3.
4.
5.

18

Asset andfundingmix

Funding
costs

Depositcompetition

Asset
competition

Treasury

FY18 Cashnet interest
marginsubtotal

Customer
remediation

Marketsbalancesheet
activities(2)

Asia Retail& Wealth

FY18 Cashnet interest
margin continuing
operations

Information has been presented on a continuing operations basis. Discontinued operations are detailed on page 23.
Includes large/notable items of -$52 million (2017: $406 million). Excluding large/notable items, net interest income from continuing operations increased $97 million (1%) from 2017 to 2018.
Includes the major bank levy of -$355 million (2017: -$86 million).
Average balance sheet amounts include assets and liabilities of continuing operations reclassified as held for sale.
In 2018, certain instruments were reclassified from average non-deposit interest bearing liabilities to average deposit and other borrowings to better reflect their nature. Comparatives havebeen restated accordingly (2017: $4,357 million).

ANZ 2018 ANNUAL REPORTOTHER OPERATING INCOME - CONTINUING OPERATIONS1

Net fee and commission income

2

Net funds management and insurance income

2Markets other operating income
Share of associates' profit

2

Other

2

Total cash other operating income from continuing operations

3

Total increase/(decrease)
$m
(187)

Net fee andcommission
income22018$mFull Year
2017
$m

Movt

2,175

2,362

-8%

556

668

-17%

1,127

1,436

-22%

183

300

-39%

659

175

large

4,700

4,941

-5%

Movt Explanation-8%

Net fee and commission income decreased mainly as the result of the sale of the Asia Retailand Wealth businesses, lower lending fee income and higher customer remediation charges.

(112)
Net funds
management
and insurance income2-17%

Net funds management and insurance income decreased mainly as the result of the sale of
the Asia Retail and Wealth businesses, lower financial planning income and higher customer
remediation charges.

Markets otheroperatingincome

(309)

-22%

Markets other operating income decreased across Franchise Trading, Balance Sheet Trading
and Franchise Sales. This was primarily driven by challenging trading conditions, increased
funding costs and large derivative valuation adjustments in the 2017 financial year.

Share ofassociates' profit2

(117)

-39%

Share of associates’ profit decreased mainly driven by the cessation of equity accounting of
SCRB and MCC as the result of sale announcements.

Other2484

large

Other increased primarily by the loss on reclassification of the Asia Retail and Wealthbusinesses to held for sale in the 2017 financial year along with the gain on sale of MCC
recognised in the 2018 financial year.

Total cash otheroperating income
from continuing
operations3

(241)

-5%

Other operating income from continuing operations
$m
659
14%

300
6%

● Net fee and commission income2

175
3%● Net funds management
and insurance income2

183
4%● Markets other operating income● Share of associates’ profit2

2018

2,175
46%

1,436
29%

2017

2,362
48%

● Other2

1,127
24%

556
12%

668
14%

Information has been presented on a continuing operations basis. Discontinued operations are detailed on page 23.
Excluding Markets.
3.
Includes large/notable items of $223 million (2017: $91 million). Excluding large/notable items, other operating income from continuing operations decreased $373 million (-8%) from 2017 to 2018.
1.

2.

OUR PERFORMANCE

19

OUR PERFORMANCE (continued)
OPERATING EXPENSES - CONTINUING OPERATIONS1
2018
$m
9,248
37,86040,016

Total cash operating expenses from continuing operations2
Full time equivalent staff (FTE) from continuing operations
Average full time equivalent staff (FTE) from continuing operations

Full Year
2017
$m
8,967
43,011
44,038

Movt
3%
-12%
-9%

Operating expenses increased by $281 million (3%). Key drivers:•• Personnel expenses decreased $166 million (-3%) largely due to a reduction in incentives and a 9% reduction in average FTE, partially
offset by higher customer remediation costs ($75 million) and wage inflation.
•• Premises expenses decreased $51 million (-6%) primarily driven by the consolidation of our property portfolio in Asia.
•• Technology expenses increased $297 million (19%) largely due to an accelerated amortisation charge for certain software assets($251 million) and higher investment in digital and data capabilities.
•• Restructuring expenses increased $165 million associated with the move to agile ways of working in the Australian and Technology
divisions and other transformation activities.
•• Other expenses increased $36 million (2%) largely related to Royal Commission legal costs ($55 million) and higher customer remediation
costs ($34 million), partially offset by a reduction from the sale completion of the Asia Retail and Wealth businesses.

Operating expenses from continuing operations
$m
1,553
17%

● Personnel expenses

1,517
16%

● Premises expenses● Technology expenses

62
1%

227
2%

2018

1,899
21%

4,758
51%

● Restructuring expenses● Other expenses

2017

1,602
18%

811
9%

4,924
55%

862
10%

CREDIT IMPAIRMENT CHARGE - CONTINUING OPERATIONS1

Individual credit impairment charge ($m)
Collective credit impairment charge/(release) ($m)
Credit impairment charge ($m)
Gross impaired assets ($m)
Credit risk weighted assets ($b)
Total provision for credit impairment ($m)
Individual provision as % of gross impaired assets
Collective provision as % of credit risk weighted assets

2018
$m
773
(85)
688
2,013
337.6
3,443
45.7%
0.75%

Full Year
2017
$m
1,341
(142)
1,199
2,384
336.8
3,798
47.7%
0.79%

Movt
-42%
-40%
-43%
-16%
0%
-9%

The individual credit impairment charge decreased by $568 million (-42%) due to a $626 million (-30%) decrease in new and increased individual
credit impairment charges primarily in the Institutional and New Zealand divisions. The Australia division experienced lower provisions on new
impairments in Business & Private Bank, combined with higher recoveries and write-backs in the unsecured Retail portfolios. Asia Retail & Pacificdivision decreased $129 million (-78%) due to the sale of the Asia Retail and Wealth businesses.
The reduction in the collective credit impairment release of $57 million (-40%) was primarily driven by reduced risk profile releases across all
divisions. The collective credit impairment releases for lending growth reduced reflecting growth in the Institutional and New Zealand divisions.
The economic cycle adjustment charge was $25 million for the year, with increased economic cycle adjustments in the Australia division, partially
offset by the part release of economic cycle adjustments in the New Zealand and Institutional divisions.
Gross impaired assets decreased $371 million (-16%) primarily driven by repayments and upgrades in the Institutional division (-$315 million),
repayments in the New Zealand division (-$71 million) and a reduction in the Asia Retail & Pacific division (-$90 million) following the sale of
the Asia Retail and Wealth businesses. This was offset by an increase in the Australia division ($105 million) primarily driven by a single namerestructured loan. The Group’s individual provision coverage ratio on impaired assets was 45.7% at 30 September 2018 (Sep 17: 47.7%).
1.
2.

20

Information has been presented on a continuing operations basis. Discontinued operations are detailed on page 23.
Includes large/notable items of $769 million (2017: $362 million). Excluding large/notable items, operating expenses from continuing operations decreased $126 million (-1%) from 2017 to 2018.

ANZ 2018 ANNUAL REPORTCREDIT IMPAIRMENT CHARGE - CONTINUING OPERATIONS1Provision for individual
credit impairment ($m)

Provision for collective
credit impairment ($m)

1,136
19

920

131

19
81

353

3
43
279

Gross impaired assets ($m)

2,662

2,523

2,384

3
128

633

2018
●  Australia

50
236

1,073

1,069

442

757

1,125

1,139

1,285

1,180

2017

●  Institutional●  New Zealand

307

323

251

569

140

2,013

2018

2018

2017

●  Asia Retail & Pacific2017●  TSO and Group Centre

DIVISIONAL PERFORMANCE - CONTINUING OPERATIONS1
2018

2.
3.

WealthAustralia2

Asia
Retail &Pacific

TSO andGroup
Centre2Group

Net interest margin

2.69%

0.90%

2.36%

n/a

4.30%

n/a

1.87%

Operating expenses to operating income

38.7%

57.4%

36.8%

77.6%

48.8%

n/a

48.1%

Cash profit from continuing
operations ($m)

3,580

1,535

1,475

52

151

(306)

6,487

Net loans and advances ($b)

340.3

149.8

111.3

0.9

2.1

0.5

604.9

Customer deposits3 ($b)

202.7

205.8

79.8

n/a

3.5

(4.5)

487.3

Number of FTE

12,885

6,188

6,165

845

1,131

10,64637,860Australia Institutional

New
Zealand

WealthAustralia

Asia
Retail &Pacific

TSO andGroup
Centre

Group

2017

1.

Australia Institutional

New
Zealand

Net interest margin

2.73%

1.03%

2.31%

n/a

3.20%

n/a

1.99%

Operating expenses to operating income

35.8%

50.0%

37.6%

66.7%

103.4%

n/a

45.3%

Cash profit from continuing
operations ($m)

3,616

1,924

1,369

95

(157)

(38)

6,809

Net loans and advances ($b)

333.6

131.6

107.9

1.7

5.5

n/a

580.3

Customer deposits3 ($b)

201.3

189.0

75.3

n/a

7.0

(5.0)

467.6

Number of FTE

13,885

6,783

6,372

997

3,664

11,31043,011

Information has been presented on a continuing operations basis. Discontinued operations are detailed on page 23.
Discontinued operations form part of Wealth Australia and TSO and Group Centre divisions. Amounts shown in the table above exclude discontinued operations.
TSO and Group Centre includes term deposits, other deposits and an adjustment in Group Centre to eliminate Wealth Australia investments in ANZ deposit products.

OUR PERFORMANCE

21

OUR PERFORMANCE (continued)
DIVISIONAL PERFORMANCE - CONTINUING OPERATIONS1Australia
Lending volumes grew primarily in owner occupier and principal and interest home loans. Customer deposits grew mainly in small
business banking and home loans (offset accounts). Net interest margin decreased as a result of home loan mix changes, customer
remediation, and the introduction of the major bank levy from July 2017. This was partially offset by higher deposit margins due tore-pricing. Other operating income decreased as the result of customer remediation and lower lending fee income. Operating expenses
increased due to higher customer remediation costs, an accelerated software amortisation charge, restructuring, and inflation. This waspartially offset by a reduction in FTE related costs. Credit impairment charges decreased as a result of lower delinquency and higher
write-backs and recoveries in cards and personal loans, lower new provisions in business banking, partially offset by a net increase ineconomic cycle adjustments.

Institutional
Lending volumes grew across all portfolios. Customer deposits grew in Markets and Transaction Banking. Net interest margin decreased
largely due to the introduction of the major bank levy from July 2017, and growth in Markets liquid assets. Other operating income decreased
due to lower Markets Franchise Trading income as a result of less favourable trading conditions in the 2018 financial year, and large positive
derivative valuation adjustments recognised in the 2017 financial year. Operating expenses increased due to an accelerated softwareamortisation charge, restructuring, and inflation. This was partially offset by a reduction in FTE as the result of ongoing transformation activities
and lower non-lending losses. Credit impairment charges decreased due to ongoing portfolio rebalancing and a benign credit environment.

New Zealand
Volumes grew in home loans and funds under management. Customer deposits grew across all portfolios. Net interest margin increased
due to higher lending margins, partly offset by portfolio mix changes and lower deposit margins. Other operating income increased
primarily due to a one-off insurance recovery in the 2018 financial year, partially offset by customer fee reductions. Net funds management
and insurance income increased due to higher funds under management. Operating expenses increased due to customer remediation,
increased business investment in digital capability, and inflation. This was partially offset by a reduction in FTE driven by customer
migration to lower cost channels. Credit impairment charges decreased due to credit quality improvements across Retail and Commercialand Agri portfolios, and the release of the Agri economic cycle adjustment.

Wealth Australia
Income decreased as the result of higher customer remediation, and lower new business volumes in ANZ Financial Planning. Operating
expenses decreased due to lower discretionary expenses, partially offset by higher customer remediation charges.

Asia Retail & PacificAsia Retail and Pacific divisional results were impacted by the sale completion of Retail and Wealth businesses in Singapore, Hong Kong,
China, Taiwan and Indonesia to Singapore’s DBS Bank, and its Retail business in Vietnam to Shinhan Bank Vietnam. The Pacific businessexperienced lower operating income as the result of lending reductions due to portfolio rebalancing, and lower costs as the result ofsimplifying the business. Credit impairment charges benefited from improved credit quality and higher collections and recoveries.

TSO and Group Centre
TSO and Group Centre divisional results for the 2017 and 2018 financial year were impacted by a number of large/notable items. In the2018 financial year, this included the gain on sale of MCC, loss on sale of SRCB, the loss on reclassification of assets and liabilities to held forsale for Cambodia JV, OPL NZ, and PNG Retail, Commercial and SME, Royal Commission legal costs, and higher restructuring. In the 2017financial year, the Group recognised the gain on sale of 100 Queen Street, Melbourne and the divested business results for SRCB and MCC.

1.

22

Information has been presented on a continuing operations basis. Discontinued operations are detailed on page 23.

ANZ 2018 ANNUAL REPORTDISCONTINUED OPERATIONS
As a result of the sales outlined below, the financial results of the Wealth Australia businesses being divested and associated Group reclassificationand consolidation impacts are treated as discontinued operations from a financial reporting perspective. These businesses qualify as discontinued
operations, a subset of assets and liabilities held for sale, as they represent a major line of business.
The comparative Group Income Statement and Statement of Comprehensive Income have been restated to show discontinued operations
separately from continuing operations in a separate line item ‘Profit/(Loss) from discontinued operations’. This impacts the current and comparative
financial information for Wealth Australia and TSO and Group Centre divisions.
•• Sale to IOOF Holdings Limited (IOOF)
On 17 October 2017, the Group announced it had agreed to sell its OnePath pensions and investments (OnePath P&I) and aligned dealer
groups (ADG) businesses to IOOF. The aligned dealer groups business consists of aligned advice businesses that operate under their own
Australian Financial Services licences. The sale of the aligned dealer groups business completed on 1 October 2018. The completion of theremaining OnePath pensions and investment business is planned to occur after the successful completion of the successor fund transfer,which is expected to occur in the first half of the 2019 financial year.
•• Sale to Zurich Financial Services Australia (Zurich)
On 12 December 2017, ANZ announced that it had agreed to the sale of its life insurance business to Zurich and regulatory approval was
obtained on 10 October 2018. The transaction is subject to closing conditions and ANZ expects it to complete in the first half of the 2019financial year.
Included in the 2018 ‘Loss from discontinued operations’ is:•• A $632 million loss (pre and post-tax) recognised on the reclassification of Wealth Australia businesses to held for sale; and•• Customer remediation of $181 million ($127 million post-tax) for refunds to customers and related remediation costs. These items primarily
relate to compensation to customers for receiving inappropriate advice or services not provided within the Group’s former aligned
dealer groups.
Continuing operations includes the retained Wealth Australia division, which is made up of lenders mortgage insurance, share investing, financial
planning and general insurance distribution.

EXPLANATION OF ADJUSTMENTS BETWEEN STATUTORY PROFIT AND CASH PROFIT - DISCONTINUED OPERATIONS•• Treasury shares adjustment
ANZ shares held by the Group in Wealth Australia (Sep 18: 15.5 million shares; Sep 17: 15.4 million shares) are deemed to be Treasury sharesfor accounting purposes. Dividends and realised and unrealised gains and losses from these shares are reversed as these are not permitted
to be recognised as income for statutory reporting purposes. In deriving cash profit, these earnings are included to ensure there is no
asymmetrical impact on the Group’s profits because the Treasury shares are held to support policy liabilities which are revalued throughthe Income Statement.
•• Revaluation of policy liabilities
When calculating policy liabilities, the projected future cash flows on insurance contracts are discounted to reflect the present value ofthe obligation, with the impact of changes in the market discount rate in each period being reflected in the Income Statement. ANZ
includes the impact on the re-measurement of the insurance contract attributable to changes in market discount rates as an adjustment
to statutory profit to remove the volatility attributable to changes in market interest rates which reverts to zero over the life of theinsurance contract.
Full Year
2018
$m

2017
$m

Statutory profit/(loss) from discontinued operations

(695)

62

Adjustments between statutory profit and cash profit

13

67

7

58

Treasury shares adjustment
Revaluation of policy liabilities
Cash profit/(loss) from discontinued operations

6

9

(682)

129

OUR PERFORMANCE

23

OUR PERFORMANCE (continued)
FINANCIAL POSITION OF THE GROUPCONDENSED BALANCE SHEET - INCLUDING DISCONTINUED OPERATIONS
As at
2018
$b

2017
$b

Movt

Cash / Settlement balances owed to ANZ / Collateral paid1

98.0

82.5

19%

Trading and available-for-sale assets1

112.0

113.0

-1%

Derivative financial instruments1

68.4

62.5

9%

Net loans and advances1

603.9

574.3

5%

-

38.0

-100%

Assets held for sale

45.2

8.0

large

Other1

15.1

19.0

-21%

Total assets

942.6

897.3

5%

Settlement balances owed by ANZ / Collateral received

18.3

15.8

16%

Deposits and other borrowings1

618.2

595.6

4%

AssetsInvestments backing policy liabilities1

Liabilities

Derivative financial instruments1

69.7

62.3

12%

Debt issuances

121.2

108.0

12%

-

41.9

-100%

47.2

4.7

large

Policy liabilities and external unit holder liabilities1
Liabilities held for sale

8.6

9.9

-13%

Total liabilities

883.2

838.2

5%

Total equity

59.4

59.1

1%

Other

1.

1

Balances exclude assets and liabilities held for sale.

•• Cash / Settlement balances owed to/by ANZ / Collateral paid/received increased $13.0 billion (19%) primarily driven by higher liquid asset
holdings in Markets, increases in collateral paid, and the impact of foreign currency exchange rate movements.
•• Derivative financial assets and liabilities increased $5.9 billion (9%) and $7.4 billion (12%) respectively as foreign exchange rate and interest
rate movements resulted in higher derivative fair values.
•• Net loans and advances increased $29.6 billion (5%) primarily driven by growth in home loans across the Australia and New Zealanddivisions (+$10.9 billion), lending growth in the Institutional division (+$12.9 billion), UDC net loans and advances no longer beingclassified as held for sale (+$3.0 billion) and the impact of foreign currency exchange rate movements.
•• Assets and liabilities held for sale increased $37.2 billion and $42.5 billion respectively, primarily driven by the reclassification of Wealth
Australia businesses and other smaller divestments to held for sale, partially offset by the sale completion of the Asia Retail and Wealthbusinesses, and UDC no longer being classified as held for sale.
•• Deposits and other borrowings increased $22.6 billion (4%) primarily driven by growth in customer deposits across Institutional, New
Zealand and Australia divisions (+$9.3 billion), and a $11.4 billion increase in deposits from banks and repurchase agreements, and theimpact of foreign currency exchange rate movements. This was partially offset by a reduction of $12.7 billion in certificates of deposit.
•• Debt issuances increased $13.2 billion (12%) primarily driven by senior debt issuances and the impact of foreign currency exchange
rate movements.

24

ANZ 2018 ANNUAL REPORTLIQUIDITY AND FUNDING
2018

1.

2017

Total liquid assets ($b)

191.3

180.5

Liquidity Coverage Ratio (LCR)1

138%

135%

1

Full year average, calculated as prescribed per APRA Prudential Regulatory Standard (APS 210 Liquidity) and consistent with APS 330 requirements.

The Group holds a portfolio of high quality unencumbered liquid assets in order to protect the Group’s liquidity position in a severely stressed
environment, as well as to meet regulatory requirements. High Quality Liquid Assets comprise three categories, with the definitions consistent
with Basel 3 LCR:•• Highest-quality liquid assets (HQLA1): Cash, highest credit quality government, central bank or public sector securities eligible for
repurchase with central banks to provide same-day liquidity.
•• High-quality liquid assets (HQLA2): High credit quality government, central bank or public sector securities, high quality corporate debt
securities and high quality covered bonds eligible for repurchase with central banks to provide same-day liquidity.
•• Alternative liquid assets (ALA): Assets qualifying as collateral for the Committed Liquidity Facility (CLF) and other eligible securities listed by
the Reserve Bank of New Zealand (RBNZ).
The Group monitors and manages the size and composition of its liquid asset portfolio on an ongoing basis in line with regulatory requirements
and the risk appetite set by the Board.

CAPITAL MANAGEMENT
2018

2017

Movt

Common Equity Tier 1- APRA Basel 3

11.4%

10.6%

Credit risk weighted assets ($b)

337.6

336.8

0%

Total risk weighted assets ($b)

390.8

391.1

0%

APRA, under the authority of the Banking Act 1959, sets minimum regulatory requirements for banks including what is acceptable as capital andprovides methods of measuring the risks incurred by the Bank.
The Group’s Common Equity Tier 1 ratio increased to 11.4% based on APRA Basel 3 standards, exceeding APRA’s minimum requirements.
This increase was driven by cash earnings and divestments, outweighing the impact of dividends and share buybacks during the year.

DIVIDENDS
This performance allowed us to propose that a final dividend of 80 cents be paid on each eligible fully paid ANZ ordinary share, bringing the total
dividend for the year ended 30 September 2018 to $1.60 per share. This represents a dividend payout ratio (total Group cash basis) of 79.5%.
The proposed 2018 final dividend will be fully franked for Australian taxation purposes, and New Zealand (NZ) imputation credits of NZ 10 cents per
ordinary share will also be attached. It will be paid on 18 December 2018 to owners of ordinary shares at close of business on 13 November 2018
(record date).
ANZ has a Dividend Reinvestment Plan (DRP) and a Bonus Option Plan (BOP) that will operate in respect of the proposed 2018 final dividend. For the2018 final dividend, ANZ intends to provide shares under the DRP through an on-market purchase and BOP through the issue of new shares.
Further details on dividends provided for or paid during the year ended 30 September 2018 are set out in Note 5 in the Financial Report.

OUR PERFORMANCE

25

OUR PERFORMANCE (continued)
FIVE YEAR SUMMARY
20181
$m

20171
$m

2016
$m

2015
$m

2014
$m

14,514

14,87515,095

14,616

13,797

Financial performance cash2
Net interest income
Other operating income

4,700

4,941

5,499

5,921

5,781

Operating expenses(9,248)(8,967)(10,439)(9,378)(8,760)

Profit before credit impairment and income tax

9,966

10,84910,155

11,15910,818Credit impairment charge
Income tax expense(688)(1,199)(1,956)(1,205)(989)(2,775)(2,826)(2,299)(2,724)(2,700)Non-controlling interests

(16)

(15)

(11)

(14)

(12)

Cash profit from continuing operations2

6,487

6,809

5,889

7,216

7,117

Cash profit/(loss) from discontinued operations

(682)

129

N/A

N/A

N/A

Cash profit

5,805

6,938

5,889

7,216

7,117

595

(532)

(180)

277

154

6,400

6,406

5,709

7,493

7,271

Assets942,624

897,326

914,869

889,900

772,092

Adjustments to arrive at statutory profit2
Profit attributable to shareholders of the Company
Financial position
Net assets

59,38359,07557,92757,35349,284

Common Equity Tier 1

11.4%

10.6%

9.6%

9.6%

8.8%

Common Equity Tier 1 – Internationally
Comparable Basel 33

16.8%

15.8%

14.5%

13.2%

12.5%

Return on average ordinary equity (statutory)4

10.9%

11.0%

10.0%

14.5%

15.8%

Return on average assets (statutory)

0.7%

0.7%

0.6%

0.9%

1.0%

Cost to income ratio (cash)

51.6%

46.1%

50.7%

45.7%

44.7%

0.6%

13.1%

9.2%

(7.5%)

5.9%

80,97986,94880,88678,606

85,235

160c

160c

160c

181c

178c

2

Shareholder value – ordinary shares
Total return to shareholders (share price movement
plus dividends)
Market capitalisation
Dividend (cents)
Franked portion – interim– finalShare price

100%

100%

100%

100%

100%

100%

100%

100%

100%

100%

– high (dollar)$30.80$32.95$29.17$37.25$35.07– low (dollar)$26.08$25.78$21.86$26.38$28.84– closing (dollar)$28.18$29.60$27.63$27.08$30.92

Share information(per fully paid ordinary share)
Earnings per share (cents) (statutory)

221.6

220.1

197.4

271.5

267.1

Dividend payout ratio (statutory)

72.1%

73.4%

81.9%

68.6%

67.4%

Net tangible assets per ordinary share5$18.47$17.66$17.13$16.86$14.65

No. of fully paid ordinary shares issued (millions)

2,874

2,937

2,927

2,903

2,757

Dividend reinvestment plan (DRP) issue price– interim– final$27.76$28.80$24.82$31.93$33.30-$29.02$28.16$27.08$32.02Other information

1.

2.

3.

4.
5.

26

No. of employees (full time equivalents)

39,92444,89646,55450,15250,328

No. of shareholders

509,238

522,425545,256

546,558

498,309

During 2018, part of Wealth Australia and TSO and Group Centre division was classified as a discontinued operation. 2017 comparatives have been restated accordingly. 2016 to 2014 has notbeen restated. All ratios are presented on a Group basis inclusive of discontinued operations across 2018 to 2014.
Cash profit excludes non-core items included in statutory profit and is provided to assist readers in understanding the result of the ongoing business activities of the Group. Cash profit
is not audited; however, the external auditor has informed the Audit Committee that the adjustments have been determined on a consistent basis across each period presented, and theadjustments for the sale impact of Shanghai Rural Commercial Bank (SRCB) in 2018 and 2017 are appropriate.
Internationally Comparable Methodology applied for 2015–2018 aligns with APRA’s information paper entitled ‘International Capital Comparison Study’ (13 July 2015). Basel Internationally
Comparable ratios do not include an estimate of the Basel l capital floor requirement.
Average ordinary equity excludes non-controlling interests and preference shares.
Equals shareholders’ equity less preference share capital, goodwill, software and other intangible assets divided by the number of ordinary shares.

ANZ 2018 ANNUAL REPORT27

GOVERNANCE
BOARD OF DIRECTORS

From left to right: RT Hon Sir John Key, GNZM AC – Independent Non-Executive Director, John Macfarlane – Independent Non-Executive Director,
Paula Dwyer – Independent Non-Executive Director, David Gonski, AC – Chairman, Independent Non-Executive Director, Graeme Liebelt –Independent Non-Executive Director, Ilana Atlas – Independent Non-Executive Director, Shayne Elliott – Chief Executive Officer, Executive Director,
Jane Halton, AO PSM – Independent Non-Executive Director, Lee Hsien Yang – Independent Non-Executive Director
Full biography details can be found on our website at anz.com/directors.

CORPORATE GOVERNANCE FRAMEWORKSHAREHOLDERS
BOARD OF DIRECTORS

Audit
Committee

Ethics, Environment,
Social and GovernanceCommittee

Risk
Committee

Human Resources
Committee

Digital Businessand Technology
Committee

BOARD RESERVED POWERS
AND DELEGATION OF
AUTHORITY POLICYCHIEF EXECUTIVE OFFICERGROUP EXECUTIVE COMMITTEE28

ANZ 2018 ANNUAL REPORTDIRECTORS’ MEETINGS
The number of Board meetings and meetings of Committees during the year the Director was eligible to attend, and the number of meetings
attended by each Director were:

Board
A

B

Ilana Atlas

12

12

Paula Dwyer

12

12

Shayne Elliott

1212David Gonski, AC

12

12Jane Halton, AO PSM

1212Sir John Key, GNZM AC

6

Lee Hsien Yang
Graeme Liebelt
John Macfarlane

Risk
Committee

Audit
Committee

Ethics,Environment,
DigitalHuman
Social and Business andSpecialResources
Governance Technology Committee of Committee
SharesCommittee Committee Committee
the Board1 of the Board1 Committee1

A

A

B

A

B

A

B

8

8

8

8

4

4

8

8

8

8

8

B

8

8

8

8

8

6

3

3

12

12

8

8

12

12

8

8

8

8

12

12

8

8

8

8

Column A – Indicates the number of meetings the Director was eligible to attend asa member.
Column B – Indicates the number of meetings attended. The Chairman is an ex-officio
member of the Risk, Audit, Human Resources, Ethics, Environment, Social and Governanceand Digital Business and Technology Committees.

A

B

A

B

A

B

A

B

1

1

2

2

1

1

2

2

1

1

4

4

3

3

3

3

1

1

8

8

4

4

4

4

1

1

4

4

8

8

4

4

3

3

1

1

1

1

2

2
4

4

1

1

1

1

1

1

1

1

2

2

4

4

1

1

1

1

8

8

8

8

With respect to Committee meetings, the table above records attendance of Committee
members. Any Director is entitled to attend these meetings and from time to time Directors
attend meetings of Committees of which they are not a member.
1.

The meetings of the Special Committee of the Board, Shares Committee and Committee of
the Board as referred to in the table above include those conducted by written resolution.

Below from left to right: David Hisco – CEO New Zealand and Group Executive, Mark Whelan – Group Executive Institutional, Kathryn van der Merwe – Group
Executive Talent and Culture, Michelle Jablko – Chief Financial Officer, Fred Ohlsson – Group Executive Australia, Shayne Elliott – Chief Executive Officer,
Maile Carnegie – Group Executive Digital Banking, Kevin Corbally – Group Chief Risk Officer, Mark Hand – Group Executive, Australian Business & Private
Banking, Alexis George – Deputy CEO and Group Executive Wealth Australia, Farhan Faruqui – Group Executive International, Gerard Florian – Group Executive
Technology.
Full biography details can be found on our website at anz.com/exco.

EXECUTIVE COMMITTEEGOVERNANCE

29

BOARD AREAS
OF FOCUS
This year the Board and its Committees have undertaken
key strategic, governance and oversight activities, including:

STRATEGY-- Participating in Strategy Day with CEO and Executive
Committee, reviewing global trends in banking

S
Y
AN
EG
R
T
T
RA
D
T
N
S

-- Discussing with the CEO regular updates on ANZ’s
strategic priority of creating a simpler, betterbalanced bank

GY

A-- Focusing on reviewing the management of Technology
Risk at ANZ

IMPROVING CUSTOMER OUTCOMES-- Providing oversight of ANZ’s approach to customer
satisfaction, including adoption of Net Promoter
System and customer complaint resolution with regular
discussion in relation to the key trends, themes andissues in particular divisions-- Providing oversight of customer remediation activities-- Discussing reports on key matters affecting customers,
including in relation to the new Banking Code ofPractice and ANZ’s proposed implementation of it
and ANZ’s approach to:-- adopting the Sedgwick recommendations;-- supporting vulnerable customers; and-- product suitability for customers.
-- Discussing ANZ’s research into financial wellbeing
and the way this is informing activities across ANZ
for customers, communities and employees
3230

ANZ 2018 ANNUAL REPORTSTR OUTCOMES
OME
T
S
CU
NG
I
OV
PR
IM

-- Assessing the impact of, and ANZ’s preparedness for,major technology developments such as the New
Payments Platform and Open Banking

RA
TE-- Discussing ongoing updates and progress on
business simplification, such as product, process andtechnology simplification-- Providing oversight of the implementation of
New Ways of Working (NWOW) within Australia and
TSO and Group Centre divisions, including reviewing
the lessons learnt at other organisations that haveadopted similar methodologies; reviewing reports,
including external reports, in relation to the risk
assessment of the NWOW operating model andthe impact of NWOW on ANZ’s Risk Management
Framework

F

M
OR

RE
GU
LA
TOR
Y

N
ATIO

PURPOSE AND VALUES-LED
TRANSFORMATION-- Renaming of the Environment, Sustainability andGovernance Committee to the Ethics, Environment, Socialand Governance Committee, providing management witha further vehicle to raise ethical and conduct issues forbroader discussion with Directors-- Discussing with the CEO regular updates in relation
to ANZ’s strategic priority of driving a purpose andvalues-led transformation of the Bank to build trust andimprove our employee and customer propositions-- Providing oversight of the development of ANZ’s ethicaldecision making framework

PURPO
SE A
ND
VA
CU
LU
LT
ES
UR
-L
A
ED
L

-- Providing a continued focus on the oversight of ANZ’s
corporate culture, including reviewing results andkey themes of ANZ’s culture audits and ANZ’s staff
engagement survey and following up key issues raised
within those reports

ION
AT
RM
FO
NS
A
TR

$

IAL

F
I
N
A
N
CIA
L

FI

NAN
C

$

FINANCIAL-- Reviewing and approving ANZ’s operating andfunding plans-- Providing oversight of capital management initiatives,
including the commencement, and subsequent increasein size of ANZ’s on-market share buyback-- Providing oversight of ANZ’s approach to theimplementation of key accounting initiatives, including
the implementation of Australian AccountingStandard AASB 9: Financial Instruments, and making
key accounting judgements, including in relation
to software assets amortisation, restructuring andremediation provisioning

REGULATORY-- Providing oversight of ANZ’s approach to preventing
financial crime, including participating in an internal
conference for financial crime professionals andmeeting with AUSTRAC to discuss ANZ’s approach-- Providing oversight of ANZ’s preparedness for the
implementation of the Banking Executive Accountability
Regime, including approving changes in relation to
ANZ’s remuneration policy-- Following the announcement of the Royal Commission
into Misconduct in the Banking, Superannuation and
Financial Services Industry, meeting regularly to discussmatters pertaining to it, including oversight of theapproach to the remediation of matters raised at
the Commission

In addition to regular meetings of the Board in Melbourne and Sydney, the Board also met in the Australian Capital Territory and
New Zealand and have participated in a number of customer and employee facing events. The Board will also have meetings inregional New South Wales and Western Australia during the remainder of the 2018 calendar year, with a focus on customer andemployee engagement.

GOVERNANCE

31

GOVERNANCE (continued)
DIRECTORS’ QUALIFICATIONS, EXPERIENCE AND SPECIAL RESPONSIBILITIESAs at the date of this report, the Board comprises eight Non-Executive Directors and one Executive Director, the Chief Executive Officer. The namesof the Directors, together with details of their qualifications, experience and special responsibilities are set out below. In addition, ANZ’s Board Skills
Matrix (available on anz.com/CorporateGovernance) sets out the skills that ANZ considers each Director brings to the Board – notably, all Directors
possess leadership and financial acumen skills, and as a group contribute many other key skills.

DAVID GONSKI, AC

SHAYNE ELLIOTT

Chairman, Independent Non-Executive Director and Chair of the
Ethics, Environment, Social and Governance Committee

Chief Executive Officer and Executive Director

BCom, LLB, FAICD(Life), FCPA
Chairman since 1 May 2014 and a Non-Executive Director since
February 2014. Mr Gonski is an ex officio member of all Board
Committees including Chair of the Ethics, Environment, Social andGovernance Committee.

Chair:

Member:

CareerDavid started his career as a lawyer at Herbert Smith Freehills, and is
now one of Australia’s most respected business leaders and company
directors. He has business experience in Australia and internationally,
and is involved in a broad range of organisations in the government
and education sectors. He is a leading philanthropist and provides
strong community leadership, particularly in relation to educationin Australia.
Relevant Other Directorships•• Chairman: The University of New South Wales Foundation Limited(from 2005, Director from 1999).
•• Director: Sydney Airport Corporation Limited (from 2018), Lowy
Institute for International Policy (from 2012) and AustralianPhilanthropic Services Limited (from 2012).
•• Member: ASIC External Advisory Panel (from 2013) and Advisory
Committee for Optus Limited (from 2013).
•• Chancellor: University of New South Wales Council (from 2005).
•• President: Art Gallery of NSW Trust (from 2016).

Relevant Former Directorships heldin last three years, include•• Former Chairman: Review to Achieve Education Excellence inAustralian Schools for the Commonwealth of Australia (2017-2018),
Coca-Cola Amatil Limited (2001-2017, Director from 1997) and
Sydney Theatre Company Ltd (2010-2016).
•• Former Director: Singapore Telecommunications Limited (2013-2015).
Age 65 years | Residence Sydney, Australia

32

BCom
Chief Executive Officer and Executive Director since 1 January 2016.

ANZ 2018 ANNUAL REPORT

Career
Shayne has over 30 years’ experience in banking in Australia andoverseas, in all aspects of the industry. Shayne joined ANZ as CEO
Institutional in June 2009, and was appointed Chief Financial Officer
in 2012.
Prior to joining ANZ, Shayne held senior executive roles at EFG Hermes,
the largest investment bank in the Middle East, which included Chief
Operating Officer. He started his career with Citibank New Zealand andworked with Citibank/Citigroup for 20 years, holding various senior
positions across the UK, USA, Egypt, Australia and Hong Kong.
As a Director of the Financial Markets Foundation for Children, Shayne
contributes to the promotion of health and welfare of Australianchildren. He actively engages in the promotion of Australian economic
growth, social progress and public policy development throughmembership of the Australian Bankers’ Association (which he also
Chairs) and the Business Council of Australia.

Relevant Other Directorships•• Chairman: Australian Bankers’ Association (from 2017, Member
from 2016).
•• Director: ANZ Bank New Zealand Limited (from 2009) and the
Financial Markets Foundation for Children (from 2016).
•• Member: Business Council of Australia (from 2016).
Age 54 years | Residence Melbourne, Australia

ILANA ATLASPAULA DWYER

Independent Non-Executive Director
and Chair of the Human Resources Committee

Independent Non-Executive Director andChair of the Audit Committee

BJuris (Hons), LLB (Hons), LLM
Non-Executive Director since September 2014. Ilana is a memberof the Audit Committee and Ethics, Environment, Social andGovernance Committee.

BCom, FCA, SF Fin, FAICD
Non-Executive Director since April 2012. Paula is a memberof the Risk Committee and Human Resources Committee.

Chair:

Chair:

Member:

CareerIlana brings a strong financial services background and legal
experience to the Board. Ilana was a partner at law firm Mallesons
Stephen Jaques (now King & Wood Mallesons), where in addition to
her practice in corporate law, she held a number of management rolesin the firm including Executive Partner, People and Information, andManaging Partner. She also worked at Westpac for 10 years, where
her roles included Group Secretary and General Counsel and Group
Executive, People, where she was responsible for human resources,
corporate affairs and sustainability. Ilana has a strong commitment tothe community, in particular the arts and education.
Relevant Other Directorships•• Chairman: Coca-Cola Amatil Limited (from 2017, Director from 2011)
and Jawun (from 2017, Director from 2014).
•• Director: OneMarket Limited (from 2018) and Paul Ramsay
Foundation (from 2017).
•• Member: Panel of Adara Partners (from 2015).

Member:

CareerPaula has extensive experience in financial markets, corporate finance,risk management and investments, having held senior executive rolesat Calibre Asset Management, Ord Minnett (now J P Morgan) andat Price Waterhouse (now PricewaterhouseCoopers). Her career as
a company director spans financial services, investment, insurance,
healthcare, gambling and entertainment, fast moving consumer
goods, property and construction and retailing sectors. Paula has astrong interest in education and medical research, having served asa member of the Geelong Grammar School Council and the Businessand Economics Faculty at the University of Melbourne and as Deputy
Chairman of Baker IDI.
Relevant Other Directorships•• Chairman: Tabcorp Holdings Limited (from 2011, Director from 2005),
Healthscope Limited (from 2014) and Kin Group Advisory Board(from 2014).
•• Director: Lion Pty Ltd (from 2012).

•• Fellow: Senate of the University of Sydney (from 2015).

•• Member: Kirin International Advisory Board (from 2012) andAustralian Government Takeovers Panel (from 2017).

Relevant Former Directorships heldin last three years, include•• Former Chairman: The Bell Shakespeare Company Limited (20102016, Director 2004-2016).

Relevant Former Directorships heldin last three years, include•• ASIC External Advisory Panel (2012-2015).

•• Former Director: Westfield Corporation Limited (2014-2018),
Human Rights Law Centre Ltd (2012-2017) and Treasury Corporationof New South Wales (2013-2017).

Age 58 years | Residence Melbourne, Australia

Age 64 years | Residence Sydney, Australia

GOVERNANCE

33

GOVERNANCE (continued)
DIRECTORS’ QUALIFICATIONS, EXPERIENCE AND SPECIAL RESPONSIBILITIES (continued)

JANE HALTON, AO PSM

RT HON SIR JOHN KEY, GNZM AC

Independent Non-Executive Director

Independent Non-Executive Director

BA (Hons) Psychology, FIML, FIPAA, NAM, Hon. FAAHMS,
Hon. FACHSE, Hon. DLitt (UNSW)
Non-Executive Director since October 2016. Jane is a memberof the Human Resources Committee, Ethics, Environment, Socialand Governance Committee and Digital Business and Technology
Committee.

BCOM, DCOM (HONORIS CAUSA)
Non-Executive Director since February 2018. Sir John is amember of the Ethics, Environment, Social and GovernanceCommittee and Risk Committee.

Member:Member:

CareerJane’s 33 year career in the public service includes the positions ofSecretary of the Australian Department of Finance, Secretary of theAustralian Department of Health, Secretary for the Department of
Health and Ageing, and Executive Co-ordinator (Deputy Secretary) of
the Department of the Prime Minister and Cabinet. She brings to theBoard extensive experience in finance, insurance, risk management,
information technology, human resources, health and ageing andpublic policy. She also has significant international experience.

Career
Sir John was Prime Minister of New Zealand from 2008 to 2016, having
commenced his political career in 2002. Sir John had a long career ininternational finance, primarily for Bankers Trust in New Zealand andMerrill Lynch in Singapore, London and Sydney. He was previously amember of the Foreign Exchange Committee of the Federal Reserve
Bank of New York (from 1999 – 2001).

Jane has contributed extensively to community health through local andinternational organisations including the World Health Organisation
and National Aboriginal and Torres Strait Islander Health Council.

Relevant Other Directorships•• Chairman: Vault Systems (from 2017), Coalition for Epidemic
Preparedness Innovations (Norway) (from 2018, Member from 2016)
and Council on the Ageing Australia (from 2017).
•• Director: Clayton Utz (from 2017) and Crown Resorts Limited(from 2018).
•• Member: Executive Board of the Institute of Health Metrics and
Evaluation at the University of Washington (from 2007).
•• Adjunct Professor: University of Sydney and University of Canberra.
•• Council Member: Australian Strategic Policy Institute (from 2016).

Relevant Former Directorships heldin last three years, include•• Former Chairman: OECD Asian Senior Budget Officials Network(2014–2016) and World Health Organisation Executive Board(2013–2014, Member 2012-2015).
•• Former Member: Melbourne Institute Advisory Board (2007–2015).
•• Former Public Policy Fellow: ANU Crawford School of Public Policy(2012-2016).
Age 58 years | Residence Canberra, Australia
34

ANZ 2018 ANNUAL REPORT

Sir John was made a Knight Grand Companion of the New ZealandOrder of Merit in the 2017 Queen’s Birthday Honours. In 2017 Sir John
became a Companion of the Order of Australia for advancing theAustralia-New Zealand bilateral relationship.

Relevant Other Directorships•• Chairman: ANZ Bank New Zealand Limited (from 2018, Director
from 2017).
•• Director: Air New Zealand Limited (from 2017).

Relevant Former Directorships heldin last three years, include•• Former Chairman: The International Democratic Union (2014-2018).
Age 57 years | Residence Auckland, New Zealand.

LEE HSIEN YANGGRAEME LIEBELT

Independent Non-Executive Director and Chairof the Digital Business and Technology Committee

Independent Non-Executive Director
and Chair of the Risk Committee

MSc, BA
Non-Executive Director since February 2009. Hsien Yang is amember of the Risk Committee and Human Resources Committee.

BEc (Hons), FAICD, FTSE, FIML
Non-Executive Director since July 2013. Graeme is a memberof the Audit Committee and Human Resources Committee.

Chair:

Chair:

Member:

CareerHsien Yang is an experienced business executive with considerable
knowledge of and operating experience in Asia. He has a backgroundin engineering and brings to the Board his international business andmanagement experience across a wide range of sectors including
telecommunications, food and beverages, property, publishing andprinting, financial services, education, civil aviation and land transport.
His contribution to community education activities includes former
membership of the Governing Board of Lee Kuan Yew School of
Public Policy.
Relevant Other Directorships•• Chairman: The Islamic Bank of Asia Limited (from 2012, Director
from 2007).
•• Director: Rolls-Royce Holdings plc (from 2014), Cluny Lodge Pte Ltd(from 1979) and Caldecott Inc. (from 2013).
•• Special Adviser: General Atlantic (from 2013).

Member:

CareerGraeme brings to the Board his experience of a 23 year executive
career with Orica Limited (including a period as Chief Executive
Officer), a global mining services company with operations in morethan 50 countries. He has extensive international experience anda strong record of achievement as a senior executive including instrategy development and implementation.
Graeme is committed to global trade and co-operation, as well as
community education.

Relevant Other Directorships•• Chairman: Amcor Limited (from 2013, Director from 2012) and
DuluxGroup Limited (from 2018, Director from 2016).
•• Director: Australian Foundation Investment Company Limited(from 2012) and Carey Baptist Grammar School (from 2012).
Age 64 years | Residence Melbourne, Australia•• President: INSEAD South East Asia Council (from 2013).

Relevant Former Directorships heldin last three years, include•• Former Chairman: Civil Aviation Authority of Singapore (2009-2018)
and General Atlantic Singapore Fund Pte Ltd (2013-2018).
•• Former Director: Singapore Exchange Limited (2004-2016) and
General Atlantic Singapore Fund FII Pte Ltd (2014-2018).
•• Former Consultant: Capital International Inc Advisory Board(2007-2016).
•• Former Member: Governing Board of Lee Kuan Yew School of Public
Policy (2005-2017).
Age 61 years | Residence Singapore

GOVERNANCE

35

GOVERNANCE (continued)
DIRECTORS’ QUALIFICATIONS,EXPERIENCE AND SPECIALRESPONSIBILITIES (continued)

COMPANY SECRETARIES’QUALIFICATIONS AND EXPERIENCE

Currently there are three people appointed as Company Secretariesof the Company. Details of their roles are contained in the Corporate
Governance Statement. Their qualifications and experience are as
follows:

BOB SANTAMARIA
Group General Counsel

JOHN MACFARLANE

BCom, LLB (Hons)

BCom, MCom (Hons)
Non-Executive Director since May 2014. John is a member of the
Audit Committee, Risk Committee and Digital Business andTechnology Committee.

Bob joined ANZ in 2007. He had previously been a Partner at thelaw firm Allens Arthur Robinson (now Allens) since 1987. He was
Executive Partner Corporate, responsible for client liaison with someof Allens Arthur Robinson’s largest corporate clients. Bob brings to
ANZ a strong background in leadership of a major law firm, together
with significant experience in securities, mergers and acquisitions.
He holds a Bachelor of Commerce and Bachelor of Laws (Honours)
from the University of Melbourne.

Member:SIMON PORDAGE

Independent Non-Executive Director

Company Secretary

CareerJohn is one of Australia’s most experienced international bankers
having previously served as Executive Chairman of Deutsche Bank
Australia and New Zealand, and CEO of Deutsche Bank Australia.
John has also worked in the USA, Japan and PNG, and brings to
the Board a depth of banking experience in ANZ’s key markets inAustralia, New Zealand and the Asia Pacific.
He is committed to community health, and is a Director of St
Vincent’s Institute of Medical Research (from 2008) and the
Aikenhead Centre of Medical Discovery Limited (from 2016).

Relevant Other Directorships•• Director: Craigs Investment Partners Limited (from 2013), Colmac
Group Pty Ltd (from 2014), AGInvest Holdings Limited (MyFarm
Limited) (from 2014, Chairman 2014-2016), Balmoral Pastoral
Investments (from 2017) and L1 Long Short Fund (from 2018).
Age 58 years | Residence Melbourne, Australia

LLB (Hons), FGIA, FCIS
Simon joined ANZ in May 2016. He is a Chartered Secretary andhas extensive company secretarial and corporate governanceexperience. From 2009 to 2016 he was Company Secretary forAustralian Foundation Investment Company Limited and a numberof other listed investment companies. Other former roles include
being Deputy Company Secretary for ANZ and Head of Board
Support for Barclays PLC in the United Kingdom.
Simon is committed to the promotion of good corporate
governance. He is a former National President and Chairman ofGovernance Institute of Australia, and is a member and former
Chairman of its National Legislation Review Committee, and regularlypresents on governance issues.

JOHN PRIESTLEY
Senior Legal Advisor

BEc, LLB, FGIA, FCIS
John, a qualified lawyer, joined ANZ in 2004. Prior to joining ANZ,
he had a long career with Mayne Group and held positions which
included responsibility for the legal, company secretarial, complianceand insurance functions. He is a Fellow of the Governance Institute ofAustralia. John was responsible for the day to day operation of ANZ’s
Company Secretariat function from 2004 to July 2016 when Simon
Pordage took over that responsibility. He is currently a member of
ANZ’s Group Legal team.

36

ANZ 2018 ANNUAL REPORT37

OUR APPROACH
TO RISK
MANAGEMENT
The success of the Group’s strategy is underpinned by our sound management of
the Group’s risks. All of the Group’s activities involve — to varying degrees — theanalysis, evaluation, acceptance and management of risks or combinations of risks.
The Board is responsible for establishing and overseeing the Group’s Risk Management Framework. The Board hasdelegated authority to the Board Risk Committee (BRC) to develop and monitor compliance with the Group’s risk
management policies. The Committee reports regularly to the Board on its activities.
The key pillars of the Group’s Risk Management Framework include:•• the Risk Appetite Statement (RAS), which clearly and concisely sets out the Board’s expectations regarding the degree ofrisk that the Group is prepared to accept in pursuing its strategic objectives and its business plan; and•• the Risk Management Statement (RMS), which describes the Group’s strategy for managing risks and a summary of the
key elements of the Risk Management Framework (RMF) that give effect to that strategy. The RMS includes: a descriptionof each material risk; and an overview of how the RMF addresses each risk, with reference to the relevant policies,
standards and procedures. It also includes information on how the Group identifies, measures, evaluates, monitors,
reports and then either controls or mitigates material risks.

The material risks facing the group per the Group’s RMS, and how these risks are managed are summarised below:

Key Material Risks
Risk Type

Description

Managing the Risk

CapitalAdequacy
Risk

The risk of loss arising from the Group failingto maintain the level of capital requiredby prudential regulators and other key
stakeholders (shareholders, debt investors,
depositors, rating agencies, etc.) to support
ANZ’s consolidated operations and risk appetite.

We pursue an active approach to Capital Management through ongoing review,
and Board approval, of the level and composition of our capital base against key
policy objectives.

Compliance The risk of failure to act in accordance with
Risk
laws, regulations, industry standards andcodes, internal policies and procedures andprinciples of good governance as applicable
to ANZ’s businesses.

Key features of how we manage Compliance Risk as part of our Operational Risk
framework include:•• centralised management of key obligations, and emphasis on identifying
changes in regulations and the business environment, so as to enable us toproactively assess emerging compliance risks and implement robust reportingand certification processes.
•• recognition of incident management as a separate element to enhance ANZ’sability to identify, manage and report on incidents/breaches in a timely manner.
•• the Whistleblower Protection Policy allowing employees and contractors to makeconfidential, anonymous submissions regarding concerns relating to accounting,internal control, compliance, audit and other matters.

CreditRisk

The risk of financial loss resulting from:•• a counterparty failing to fulfil its
obligations; or•• a decrease in credit quality of acounterparty resulting in a financial loss.
Credit Risk incorporates the risks associatedwith us lending to customers who could be
impacted by climate change or by changes
to laws, regulations, or other policies adopted
by governments or regulatory authorities,
including carbon pricing and climate change
adaptation or mitigation policies.

38

ANZ 2018 ANNUAL REPORTOur Credit Risk framework is top down, being defined by credit principles andpolicies. Credit policies, requirements and procedures cover all aspects of thecredit life cycle — for example: transaction structuring, risk grading, initial approval,
ongoing management and problem debt management, as well as specialist
policy topics.

Risk Type

Description

Managing the Risk

Insurance
Risk

T he risk of unexpected losses resulting fromworse than expected claims experience,
including any of the following that expose
an insurer to financial loss: inadequate
or inappropriate underwriting, claims
management, reserving, insurance
concentrations, reinsurance management,
product design and pricing.

We manage Insurance Risk primarily by:•• product design to price all applicable risks into contracts;•• reinsurance to reduce liability for large individual risks;•• underwriting to price, or reserve, for the level of risk associated with an individual contract;•• claims management to admit and pay genuine claims;•• insurance experience reviews to update assumptions; andThe risk that the Group is unable to meetits payment obligations as they fall due,
including:

Key principles in managing our Liquidity and Funding Risk include:•• repaying depositors or maturing wholesale
debt; or•• maintaining a strong structural funding profile; andLiquidity
andFundingRisk•• the Group having insufficient capacity tofund increases in assets.
MarketRisk

The risk to the Group’s earnings arising from:•• changes in any interest rates, foreignexchange rates, credit spreads, volatility,
and correlations; or•• from fluctuations in bond, commodity or
equity prices.

•• portfolio management to maintain a diversity of individual risks.
•• maintaining our ability to meet liquidity ‘survival horizons’ under a range of stressscenarios to meet cash flow obligations over a short to medium term horizon;•• maintaining a portfolio of high-quality liquid assets to act as a source of liquidity
in times of stress.
Our risk management and control framework for Market Risk involves us quantifying
the magnitude of market risk within the trading and balance sheet portfolios throughindependent risk measurement. First, we identify the range of possible outcomes, thelikely timeframe, and the likelihood of the outcome occurring. Then we allocate an
appropriate amount of capital to support these activities.

Operational The risk of loss and/or non-compliance with
Risklaws resulting from inadequate or failed
internal processes, people and/or systems,
or from external events. This definition
includes legal risk, and the risk of reputation
loss, or damage arising from inadequate
or failed internal processes, people and/or
systems, but excludes Strategic Risk.

We operate a three-lines-of-defence model to manage Operational Risk, witheach Line of Defence having defined roles, responsibilities and escalation paths tosupport effective communication and effective management of our Operational
Risk. Also, we have ongoing review mechanisms to ensure our Operational Risk
framework continues to meet organisational needs and regulatory requirements.

Reinsurance The risk that a reinsurer fails to meet its
Risk
contractual obligations, that is, to pay us
reinsurance claims when due, which in turncreates a counterparty credit risk.

We manage Reinsurance Risk by:

Reputation
Risk

We manage Reputation Risk by maintaining a positive and dynamic culture that:

The risk of loss that directly or indirectly
impacts earnings, capital adequacy or value,that is caused by:•• adverse perceptions of the Group heldby any of customers, the community,
shareholders, investors, regulators, or
rating agencies;•• conduct risk associated with the Group’s
employees or contractors (or both); or•• measuring our counterparties’ probability of default; and•• then restricting our counterparty exposures on the basis of financial strengthand concentration.
•• ensures we act with integrity; and•• enables us to build strong and trusted relationships with customers and clients,
with colleagues, and with the broader society.
We have well established decision-making frameworks and policies to ensure ourbusiness decisions are guided by sound social and environmental standards that take
into account Reputation Risk.

•• the social or environmental (or both) impactsof our lending decisions.
Strategic
Risk

The risk that the Group’s business strategy
and strategic objectives may lead to anincrease in other key Material Risks — forexample: Credit Risk, Market Risk andOperational Risk.

Technology The risk of loss and/or non-compliance with
Risklaws resulting from inadequate or failed
internal processes, people and/or systems orfrom external events impacting on IT assets,
including the compromise of an IT asset’s
confidentiality, integrity or availability.

We consider and manage Strategic Risks through our annual strategic planning
process, managed by the Executive Committee and approved by the Board.
Any increase to our key Material Risks is managed in accordance with the risk
management practices specified above.
Consistent with the management of Operational Risk, we operate athree-lines-of-defence model to manage Technology Risk, with each Line of Defence
having defined roles, responsibilities and escalation paths to support effective
communication and effective management of our Technology Risk. We also haveongoing review mechanisms to ensure our Operational Risk framework, which isalso used to manage Technology Risk, continues to meet organisational needs andregulatory requirements.
OUR APPROACH TO RISK MANAGEMENT

39

REMUNERATIONREPORT
Dear Shareholder,2018 Remuneration Report – auditedThis has been a difficult year for ANZ and our industry.
While we recorded a solid financial result, particularly in our
Institutional and New Zealand businesses, the Board acknowledges
the significant community concern as a result of our failures
highlighted in the Royal Commission.
Given this has impacted our corporate reputation and economic
profit, variable remuneration at all levels of ANZ has been materiallyreduced from the prior year.
It is important that accountability for these failures is reflected in the
remuneration of our most senior team even though most are new totheir roles and many are new to ANZ:

While the Non-Executive Directors do not receive variable
remuneration, the Board accepts that it is appropriate that they tooshare some accountability for these failures. As a consequence, theNon-Executive Directors, who have served on the Board in financial
year (FY) 18, have agreed to a 20% reduction of their fee for FY19
(20% reduction to the Chairman fee from $825,000 to $660,000, and
20% reduction to the NED member fee from $240,000 to $192,000).
Given that many of the issues, that led to the large/notable items
that have impacted performance this year, pre-date many ofthe members of the existing management team, the Board has
exercised its discretion to apply downwards adjustment to theunvested deferred remuneration held by previous members of the
management team.
Moving forward
Commissioner Hayne has rightly raised questions about how theindustry rewards its people and we await his final recommendations.

•• All Disclosed Executives (including our Chief Executive Officer(CEO)) achieved outcomes below their target.
•• Variable remuneration outcomes for our CEO and current
Disclosed Executives averaged 78% of target overall (53% of
maximum opportunity), with substantial differentiation at anindividual level ranging from 60% to 91%.
•• We have re-set the salaries with each new appointment to the
Executive team. The total statutory remuneration of the CEO and
Disclosed Executives in 2018 is down almost 40% when compared
to 2015.
The ANZ Incentive Plan (ANZIP), which is the variable remuneration
plan for the majority of our people, including the CEO and all
Disclosed Executives, has been reduced by $124 million fromlast year.
The performance rights awarded in November 2014 were tested
in November 2017, but as the relative Total Shareholder Return
performance hurdles were not met these performance rights
lapsed and executives received no value from this award.

Remuneration at ANZ has evolved significantly over recent years
in accordance with our reward principles as set out in this report.
However we also know we have more to do. We are currently
undertaking a company-wide review of how we reward ourworkforce with the objective to reward people in a way that supports
our strategy, purpose and culture, improves the services we provide
our customers, supports employee engagement and delivers value
to shareholders.
On behalf of the Board, I invite you to consider our Remuneration
Report which will be presented to shareholders for adoption at the2018 Annual General Meeting in Perth.

Ilana Atlas
Chair – Human Resources Committee

CONTENTS
1. Who is Covered by this Report41

5. 2018 Outcomes48

2. Remuneration at a Glance42

6. Non-Executive Director Remuneration

58

3. Our Reward Principles

43

7. Remuneration Governance59

4. Composition of Executive Remuneration

43

8. Other Information

61

40 ANZ 2018 ANNUAL REPORT

1. WHO IS COVERED BY THIS REPORTThe Key Management Personnel (KMP) whose remuneration is disclosed in this year’s report are:Non-Executive Directors (NEDs) ­– Current

D Gonski

Chairman

I AtlasDirector

P Dwyer

Director

J Halton

Director

J Key

Director – appointed 28 February 2018

H Lee

Director

G Liebelt

Director

J Macfarlane

Director

Chief Executive Officer (CEO) and Disclosed Executives – Current

S Elliott

Chief Executive Officer and Executive Director

M Carnegie

Group Executive, Digital Banking

K Corbally

Chief Risk Officer (CRO) – appointed 19 March 2018

A George	Deputy Chief Executive Officer and Group Executive, Wealth Australia – appointed Deputy Chief Executive Officer 14 May 2018
D HiscoGroup Executive and Chief Executive Officer, New Zealand

M Jablko

Chief Financial Officer (CFO)

F Ohlsson

Group Executive, Australia

M WhelanGroup Executive, Institutional

Disclosed Executives ­– Former

G Hodges

Former Deputy Chief Executive Officer – concluded in role 13 May 2018, ceased employment 30 September 2018

N Williams

Former Chief Risk Officer – concluded in role 30 March 2018, ceasing employment 2 November 2018

The Remuneration Report for the Group outlines our remuneration strategy and framework and the remuneration practices that apply to KMP.
This report has been prepared, and audited, as required by the Corporations Act 2001. It forms part of the Directors’ Report.

REMUNERATION REPORT41

REMUNERATION REPORT (continued)
2. REMUNERATION AT A GLANCEANZ’S PURPOSE AND STRATEGY 1
IS UNDERPINNED BY:

OUR REMUNERATIONPOLICY/REWARD
PRINCIPLES:

Attract, motivate andkeep great people

Reward our people for doing
the right thing having regard to
our customers and shareholders

Focus on how things
are achieved as much
as what is achieved

Are fair andsimple tounderstand

WITH REMUNERATION DELIVERED TO OUR CEO AND DISCLOSED EXECUTIVES THROUGH:OUR COREREMUNERATIONCOMPONENTS2:

Variable remuneration delivered as

Fixedremuneration

Cash

Deferred shares

Performance rights

AT RISK
REINFORCED BY:

Assessing
ALIGNING
behaviours based
REMUNERATION on ANZ’s Values and
AND RISK:
risk/compliancestandards

Risk is a key input in determining Applying Board
discretion onvariable remuneration including
as a multiplier in determining performance andremuneration
the ANZIP variable
outcomes
remuneration pool

Being able todownward
adjust deferredremuneration(including to zero)

Prohibiting thehedging ofunvested equity

WHILE SUPPORTING THE ALIGNMENT OF EXECUTIVES AND SHAREHOLDERS THROUGH:SHAREHOLDERALIGNMENT:

Substantial
shareholding
requirements

Use of relative and absolute
Total Shareholder Return(TSR) hurdles

Significant incentive
deferral (up to four
years) in ANZ equity

Use of Economic Profit as a
key input in determining thevariable remuneration pool

DRIVING PERFORMANCE THROUGH OBJECTIVES WITHIN THE
GROUP PERFORMANCE FRAMEWORK TO DETERMINE THE VARIABLE REMUNERATION POOL:GROUPPERFORMANCECATEGORIES:ANZ’S 2018
PERFORMANCEOVERALL:(see sections 5.1 and 5.2)

2018 FIXEDREMUNERATIONCHANGES:Risk(overall adjustment)

Financial and Discipline(50% weighting)Customer(25% weighting)People and Reputation(25% weighting)

Combined weighting 100% including both annual and longer term strategic measures

Despite solid performance against the majority of metrics in the 2018 Group Performance Framework,
the ANZIP variable remuneration pool for 2018 is significantly down on prior year, in recognition of the
failures highlighted in the Royal Commission and their reputational impact.

No change to the CEO’s fixed remuneration for 2018.
Fixed remuneration for new appointments has been set lower than prior incumbent.
No change to NED fees for 2018 (reduction of 20% to the Chairman fee and NED member fee(for current NEDs) in 2019).

INDIVIDUAL OUTCOMES REFLECT THE PERFORMANCE OF THE GROUP, DIVISION AND INDIVIDUAL:

2018 VARIABLE
REMUNERATIONOUTCOMES3:(see sections
5.4 and 5.5)
1.
2.

42

CEO Variable Remuneration
75% of target which comprises:
Annual Variable Remuneration:
83% of target (56% of max); andLong Term Variable Remuneration:
67% of target(subject to shareholder approval).

See the ‘About our Business’ and ‘Our Strategy’ sections of the Annual Report.
The structure of our remuneration framework is aligned with our reward principles
and has been designed to support ANZ’s purpose and strategy.

ANZ 2018 ANNUAL REPORT

3.

Current Disclosed Executives
Variable Remuneration outcomes:

Nov 2014 performancerights fully lapsed.

% of target % of max

Executives received novalue from this award.

Average:

78

53

Range:

60 – 91

40 – 60

Variable remuneration outcomes appropriately reflect the Group’s performanceagainst the indicators in the Group performance framework, and also the individual’s
performance against their own targets, which are appropriately stretching.

3. OUR REWARD PRINCIPLES
Our remuneration policy and reward principles are a key consideration when making decisions pertaining to our remuneration frameworks
and were updated in 2018 to better reflect ANZ’s strategic direction and culture.
ANZ Reward Principles

Attract, motivate andkeep great people

This means we focus on…

✓

Providing a market competitive reward offering, and supporting the movement/mobility of
talent internally✓

Using financial and non-financial rewards to support being a 'great place to work and grow', andto motivate discretionary effort

Reward our people for doing theright thing having regard to ourcustomers and shareholders✓

Ensuring our financial services are provided efficiently, ethically and fairly✓

Rewarding for performance against both short and longer term objectives in line with ANZ’s
strategy, and aligning executive and shareholder interests

Focus on how things are achieved(values, culture and risk) as much
as what is achieved (performance)✓

Assessing performance and differentiating rewards based on a balanced scorecard of measures✓

Providing flexibility to recognise team and individual performance to support collaboration andinnovation, and ensuring the reward framework provides employees with confidence to pursue
multi-year initiatives

Are fair and simple to understand✓Simplicity in design, process, communication and the employee experience, whilst being flexible
enough to meet business needs✓

Fairness in both the internal and external market context, and supporting gender pay equity✓

Providing greater transparency around remuneration to improve employee understanding

4. COMPOSITION OF EXECUTIVE REMUNERATION
4.1 REMUNERATION STRUCTURE
There are two core components of remuneration at ANZ – fixed remuneration and at risk variable remuneration.
In structuring remuneration, the Board aims to find the right balance between:•• fixed remuneration and at risk variable remuneration;•• cash and deferred equity; and•• short, medium, and long-term rewards.
The CEO’s variable remuneration framework is slightly different to that of the Disclosed Executives, as follows:•• CEO We reward the CEO Variable Remuneration (VR) comprising Annual Variable Remuneration (AVR) and Long Term Variable Remuneration(LTVR). This is in accordance with his employment contract (as disclosed to the market at the time of his appointment) and is consistent withexternal market practice. LTVR reinforces the CEO’s focus on achieving longer term strategic objectives and creating long-term value for all
stakeholders.
	The Human Resources (HR) Committee and the Board determine the CEO’s VR outcome (AVR and LTVR) and the LTVR outcome is also
subject to shareholder approval at the Annual General Meeting.
•• AVR outcome: half of this is delivered as ANZ shares (deferred evenly over one to four years); and•• LTVR outcome: all of this is delivered as performance rights and the 2018 award will be effectively deferred for four years(three year deferral plus a further one year restriction period).
•• Disclosed Executives We reward the Disclosed Executives under a single VR framework. This approach enables us to:•• provide the appropriate mix of short and long-term rewards (including performance hurdles) to drive performance, andattract and retain talent;•• tie the full VR award to the performance of ANZ; and•• defer VR over the short, medium and longer term (with shares deferred evenly over four years and the performance rights
tested against their hurdles after three years).
The HR Committee and the Board determines the VR outcome for each Disclosed Executive. The delivery of VR to Disclosed
Executives in relation to the deferral periods and performance hurdles is aligned to that of the CEO.
The Board can, on the basis of each executive’s performance, adjust the executive’s variable remuneration down, potentially to zero.
We structure the CEO and Disclosed Executives’ remuneration based on the following target remuneration mix. The CEO and Disclosed
Executives may be awarded amounts above or below the target for variable remuneration.

REMUNERATION REPORT43

REMUNERATION REPORT (continued)
4. COMPOSITION OF EXECUTIVE REMUNERATION (continued)
CEO

Variable Remuneration (VR)

2/3

Fixed Remuneration

1/3

Annual Variable Remuneration (AVR)Long Term Variable Remuneration (LTVR)

1/3

1/3

AT RISK
On target opportunity: 100% of fixed remuneration
Maximum opportunity: 150% of target

Cash
50% of AVR

On target opportunity: 100% of fixed remuneration

Performance Rights1
4 years (3 years deferred and1 year restricted2)
100% of LTVR

Deferred Shares
1 to 4 years
50% of AVR

Disclosed Executives3

Variable Remuneration (VR)Fixed Remuneration

2/3

1/3

AT RISK
On target opportunity: 200% of fixed remuneration
Maximum opportunity: 150% of target

Cash
33% of VR
1.
2.
3.

Deferred Shares
1 to 4 years
33% of VR

Performance Rights1
3 years
34% of VR

Face value at threshold vesting (50% vesting).
One year restriction introduced to enable equity to remain subject to downward adjustment for a further period.
The CRO’s remuneration arrangements are structured differently to preserve the independence of this role and to minimise any conflicts of interest in carrying out the risk control
function across ANZ. The CRO’s target remuneration has a slightly different mix: fixed remuneration (37%) and VR (63%). VR is delivered as 33% cash, 33% deferred shares and 34%
deferred share rights (instead of performance rights). The CRO has a VR target of 170% of fixed remuneration and a maximum opportunity of 150% of target.

By deferring a significant portion of an executive’s remuneration, we ensure that their variable remuneration:•• is linked to performance;•• has significant retention elements;•• aligns their interests with shareholders to deliver on ANZ’s strategic objectives; and•• can be adjusted downwards, including to zero (if appropriate), allowing the Board to hold executives accountable.
4.2 FIXED REMUNERATION
We express fixed remuneration as a total dollar amount which is delivered as cash salary and superannuation contributions. The Board sets(and reviews annually) the CEO’s and Disclosed Executives’ fixed remuneration based on financial services market relativities reflecting their
responsibilities, performance, qualifications, experience and location. In addition, for new appointments we continue to set fixed remuneration
lower than that of the prior incumbent (following the trend established with the CEO appointment).
4.3 VARIABLE REMUNERATIONThe ANZ Incentive Plan (ANZIP) is our main variable remuneration plan covering the majority of employees, including the CEO and Disclosed Executives.
ANZIP variable remuneration pool sizing and allocation process

ANZIP variable remuneration
pool determined based on
performance and affordability

Board approval of ANZIP variable
remuneration poolBusiness and individual
allocations from ANZIP variable
remuneration pool

4.3.1 HOW DO WE DETERMINE THE VARIABLE REMUNERATION POOL AT A GROUP LEVEL?
ANZIP variable remuneration pool based on performance

Managing risk appropriately is fundamental to the way ANZ operates and is therefore a key element of how we measure and assess
performance at a Group, Division and individual level.
When determining the size of the ANZIP variable remuneration pool the Board considers:
1. our economic profit performance – a risk adjusted financial measure;
2. our performance against the Group Performance Framework (Risk, Financial and Discipline, Customer, and People and Reputation
performance indicators) that were agreed by the Board at the start of the financial year; and3. other factors such as the overall operating environment, affordability and the quality of our results.
The Board exercise their judgement to determine the appropriate size of the variable remuneration pool each year – it is not a formulaic outcome.
44

ANZ 2018 ANNUAL REPORT4. COMPOSITION OF EXECUTIVE REMUNERATION (continued)
The ANZ Group Performance Framework is designed around three key inputs:• Creating a safe bank with sound risk practices;• Achieving our agreed annual and longer term goals; and• Realising our strategic vision.
Performance indicators are set by the Board at the start of each year under the categories of:• Risk – separate measure which can adjust the overall performance assessment;• Financial and Discipline, 50% weighting;• Customer, 25% weighting; and• People and Reputation, 25% weighting.
The indicators within each category encourage our people to focus on both annual priorities and on broader long-term
strategies to deliver great outcomes for our customers and shareholder value.
The performance indicators are designed to be stretching, yet achievable. They are approved by the Board at the start ofeach year and are set considering prior year performance, industry standards and ANZ’s strategic objectives. They may
reflect targets set for the current year and also longer term strategic goals. As the specific targets and features relating tomany of these indicators are commercially sensitive, we have not provided them in detail.

4.3.2 HOW DO WE DETERMINE VARIABLE REMUNERATION AT AN INDIVIDUAL LEVEL?

Variable remuneration is designed to focus our CEO and Disclosed Executives on key performance measures supporting our business strategy,
and encourage the delivery of long term value for shareholders.
Performance objectives set•• Individual objectives are agreed for the CEO and Disclosed Executives, using a balanced scorecard
approach under the four categories of (i) Risk, (ii) Financial and Discipline, (iii) Customer, and (iv)
People and Reputation.
Start•• The weighting of measures varies to reflect the responsibilities of each individual’s role.
•• Many of these measures relate to the contribution towards medium to longer term performanceoutcomes aligned to ANZ’s strategic objectives.
•• This methodology is replicated across ANZ for all employees reflecting the individual’s responsibilities.
Performance assessed against objectives•• The performance of the CEO and each Disclosed Executive is assessed against their objectives,
ANZ’s Values (behaviours) and ANZ’s risk and compliance standards.
ANZ
financialyear•• The HR Committee seeks input from the CEO, CRO (on risk management), CFO (on financial
performance), Group Executive, Talent and Culture (GE T&C) (on talent and culture matters) andGroup General Manager Internal Audit (on internal audit matters).
•• The HR Committee reviews (and the Board reviews and approves) the performance outcomes for
the CEO and each Disclosed Executive.
End

Determination of remuneration outcomes•• The HR Committee (with input from the Risk and Audit Committees) considers the performance of
the Group, Division and individual to determine remuneration recommendations for the CEO and
Disclosed Executives.
•• Where the CEO and Disclosed Executives deliver on target performance at a Group, business andindividual level (taking into consideration ANZ Values (behaviours) and risk/compliance standards),
then variable remuneration recommendations are likely to be around the target opportunity.
Recommendations will be adjusted up or down in line with performance.
•• The HR Committee’s recommendations are then reviewed and ultimately approved by the Board.

REMUNERATION REPORT 45

REMUNERATION REPORT (continued)
4. COMPOSITION OF EXECUTIVE REMUNERATION (continued)
4.3.3 HOW IS VARIABLE REMUNERATION DELIVERED?

As the table below shows, variable remuneration is delivered partly in cash, partly in shares deferred evenly over four years, and partly inperformance rights. The performance rights are subject to performance hurdles which determine whether they vest in three years’ time. The
CEO’s 2018 performance rights are also subject to a 12 month restriction period post vesting.
1 Oct 201730 Sep 2018

Nov 2018

Nov 2019

Nov 2020

Nov 2021

Nov 2022

Cash
DeferredsharesPerformancerightsANZfinancial
year

Variable remuneration paid/allocatedFixed remuneration

25%

vesting at theend of year 1

25%

vesting at theend of year 2

25%vesting at theend of year 3

Vesting is subject to meeting
TSR performance hurdles at the end of year 3

25%vesting at theend of year 4
1 year restriction to endof year 4 for the CEO

Cash

The cash component is paid to executives at the end of the annual Performance and Remuneration Review (usually in late November).
Deferred shares

Deferred shares are ordinary shares and are deferred evenly over one to four years. By deferring part of an executives’ remuneration over time(and it remaining subject to downward adjustment), we enable a substantial amount of their remuneration to be directly linked to delivering
long-term shareholder value. We grant deferred shares in respect of the 1 October to 30 September performance period in late November
each year.
We calculate the number of deferred shares to be granted based on the Volume Weighted Average Price (VWAP) of the shares traded on the ASX
in the week leading up to and including the date of grant. For disclosure and expensing purposes, we use the one day VWAP to determine thefair value.
In some cases (generally due to regulatory or tax reasons), we may grant deferred share rights to executives instead of deferred shares. Eachdeferred share right entitles the holder to one ordinary share.
Performance rights –­ CEO (LTVR) and Disclosed Executives (VR) excluding the CRO

What is a
performanceright?

A performance right is a right to acquire one ordinary ANZ share at nil cost – as long as time and performance
hurdles are met.

What is theperformance period?

Performance rights have a three year performance period. For the 2018 grant (to be granted in November/
December 2018), the performance period is from 22 November 2018 to 21 November 2021.

The future value of performance rights may range from zero to an indeterminate value. The value depends on our
performance against the hurdles and on the share price at the time of exercise.

We use a three year performance period as it: aligns to our business planning cycle, provides sufficient time forlonger term performance to be reflected, while balancing a reasonable timeframe for executives to find the award
meaningful and motivating.
What is the restriction
period that applies to
the CEO?

46

ANZ 2018 ANNUAL REPORTThe performance rights granted to the CEO in December 2018 will also be subject to a 12 month restriction period.
This means they are effectively deferred for four years (three year deferral period and one year restriction period).
The CEO’s performance rights which meet the performance hurdle will be converted to shares at the third
anniversary of grant. They are then restricted for 12 months (to the fourth anniversary of grant) and remain subject
to downward adjustment. The CEO is unable to trade the shares during this period. Dividends on any vested shares
will be payable to the CEO during the restriction period.

4. COMPOSITION OF EXECUTIVE REMUNERATION (continued)
Performance rights — CEO (LTVR) and Disclosed Executives (VR) excluding the CRO

What are theperformance
hurdles and why?

The Total Shareholder Return (TSR) performance hurdles reflect the importance of focusing on achieving longer
term strategic objectives and aligning executives’ and shareholders’ interests.
We will apply two TSR performance hurdles for the 2018 grants of performance rights (as we did in 2017):•• 75% will be measured against a relative TSR hurdle, tranche 1;•• 25% will be measured against an absolute TSR hurdle, tranche 2.
TSR represents the change in value of a share plus the value of reinvested dividends paid. We regard it as the mostappropriate long-term measure – it focuses on the delivery of shareholder value and is a well understood andtested mechanism to measure performance.
The combination of relative and absolute TSR hurdles provides balance to the plan by:•• Relative: rewarding executives for performance that exceeds that of peer companies; and•• Absolute: ensuring there is a continued focus on providing positive growth – even when the market isdeclining.
The two hurdles measure separate aspects of performance:•• the relative TSR hurdle measures our TSR compared to that of the Select Financial Services comparatorgroup, made up of core local and global competitors. This comparator group is chosen to broadly reflect thegeographies and business segments in which ANZ competes for revenue; and•• the absolute Compound Annual Growth Rate (CAGR) TSR hurdle provides executives with a more direct lineof sight to the level of shareholder return to be achieved. It also provides a tighter correlation between theexecutives’ rewards and the shareholders’ financial outcomes.
We will measure ANZ’s TSR against each hurdle at the end of the three year performance period to determine
whether each tranche of performance rights become exercisable. We measure each tranche independently fromthe other – that is: one tranche may vest fully or partially but the other tranche may not vest.

What is the relative TSR
performance hurdle forthe 2018 grant?

Relative TSR is an external hurdle that measures our TSR against that of the Select Financial Services comparatorgroup over three years.

The Select Financial Services comparator group is made up of: Bank of Queensland Limited; Bendigo and Adelaide(Also see ANZ TSRBank Limited; Commonwealth Bank of Australia Limited; DBS Bank Limited; Macquarie Group Limited; National
performance in section Australia Bank Limited; Standard Chartered PLC; Suncorp Group Limited; and Westpac Banking Corporation.
5.2 and hurdle outcomes
If our TSR when compared to thethen the percentage ofin section 5.5)
TSR of the comparator groupperformance rights that vest
is less than the 50th percentile

is nilreaches at least the 50th percentile, but is less than
the 75th percentile

is 50% plus 2% for every one percentile increase above
the 50th percentile

reaches or exceeds the 75th percentile

is 100%What is the absolute TSR Absolute CAGR TSR is an internal hurdle as to whether ANZ achieves or exceeds a threshold level of growth theperformance hurdle for Board sets at the start of the performance period.
the 2018 grant?
The HR Committee recommends the absolute TSR targets for that year’s award to the Board for approval. When
recommending the targets, the Committee considers factors including: the risk free bond rate; historical volatilityof ANZ’s share price relative to the market; and the market risk premium.
If the absolute
CAGR of our TSR

then the percentage ofperformance rights that vest

is less than 10%

is nilis 10%

is 50%

reaches at least 10%, but is less than 15%

is progressively increased on a pro-rata, straight-line,
basis from 50% to 100%

reaches or exceeds 15%

is 100%REMUNERATION REPORT47

REMUNERATION REPORT (continued)
4. COMPOSITION OF EXECUTIVE REMUNERATION (continued)
Performance rights — CEO (LTVR) and Disclosed Executives (VR) excluding the CRO

How do we calculate
TSR performance?

When calculating performance against TSR, we:•• reduce the impact of share price volatility – by using an averaging calculation over a 90 day period for startand end values;•• ensure an independent measurement – by engaging the services of an external organisation, Mercer
Consulting (Australia) Pty Ltd, to calculate ANZ’s performance against the TSR hurdles; and•• test the performance against the relevant hurdle once only at the end of the three year performance period –the rights lapse if the performance hurdle is not met.

How do we calculate
the number of
performance rights?

The number of performance rights we grant is calculated using a face value basis – i.e. the full share price. Facevalue at full (100%) vesting is split into two tranches. Each tranche value is then divided by the market price (fivetrading day VWAP of ANZ shares at the start of the performance period) to determine the number of performancerights we award in each tranche.
Performance rights are allocated in November for Disclosed Executives and December for the CEO (subject toshareholder approval).

How do we expense
performance rights?

ANZ engages an external expert to independently determine the fair value of performance rights, which is onlyused for expensing purposes.
They consider factors including: the performance conditions; share price volatility; life of the instrument; dividend
yield; and share price at grant date.

Deferred share rights for the CRO

The CRO receives deferred share rights instead of performance rights to preserve the independence of the role and to minimise any conflictsof interest in carrying out the risk control function across the organisation.
The CRO’s deferred share rights are subject to a time-based vesting hurdle of three years. The value the Board uses to determine the number ofdeferred share rights to be allocated to the CRO is the face value of the Company’s shares traded on the ASX at the time of grant adjusted forthe loss of dividends over the three year deferral period.
4.3.4 DOWNWARD ADJUSTMENT OF DEFERRED REMUNERATION – BOARD DISCRETION

Any deferred remuneration we award is subject to the Board’s on-going discretion to reduce (including to zero) deferred/retained
remuneration. This discretion may be exercised, for example, where the Board considers this is necessary to protect the financial soundness of
ANZ, to meet unexpected or unknown regulatory requirements or if the Board subsequently considers that the grant was not justified.
Further, if the CEO and/or Disclosed Executives have failed to comply with their accountability obligations under the Banking Executive
Accountability Regime (BEAR), their deferred remuneration will be reduced by an amount that is proportionate to the failure, as required by BEAR.
Accordingly, before any scheduled release of deferred remuneration, the Board considers whether any downward adjustment (or deferral ofvesting for a further period or periods) should be made.
No downward adjustment was applied to the deferred remuneration of the CEO and Disclosed Executives during 2018.
However, given that many of the issues, that led to the large/notable items that have impacted performance this year, pre-date many of themembers of the existing management team, the Board has exercised its discretion to apply downwards adjustment to the unvested deferredremuneration held by previous members of the management team.

5. 2018 OUTCOMES
5.1 ANZIP VARIABLE REMUNERATION POOL
At the end of each financial year the HR Committee (with input from the Risk and Audit Committees) determines the size of the ANZIP variable
remuneration pool for that year and makes a recommendation to the Board for their approval.
When determining the size of the 2018 variable remuneration pool the HR Committee:•• considered the pool size generated based on a percentage of the economic profit for the year (which was down on prior year reflecting
large/notable items including announced divestments, customer remediation, accelerated software amortisation, Royal Commission legal
costs and restructuring charges);•• reviewed outcomes achieved against the Group Performance Framework, which was set at the start of the year. This was assessed overall as
below target (as detailed in section 5.2); and•• considered all other relevant factors (such as operating environment, affordability, and quality of the result).

48

ANZ 2018 ANNUAL REPORT5. 2018 OUTCOMES (continued)
The matters raised in ANZ’s submission to the Royal Commission, including their significant reputational impact, were specifically taken into
account in the overall assessment of Group performance and when determining the size of the 2018 variable remuneration pool.
Taking all of this into account the Board decided that the 2018 ANZIP variable remuneration pool would be materially reduced. The pool isdown by $124 million from the prior year and accordingly the variable remuneration outcomes for all executives (and employees) have beenmaterially reduced.
5.2 ASSESSMENT AGAINST THE GROUP PERFORMANCE FRAMEWORK FOR THE 2018 FINANCIAL YEAR

50% weight
Assessment:
On Target

Customer+

Financial & Discipline+

Overall Adjustment
Assessment:
On Target+

Risk

People & Reputation

25% weight
Assessment:
On Target

25% weight
Assessment:
Below Target=

Group Performance
Assessment
Overall Assessment
Outcome:Below Target

Performance framework: Overview of indicative measures informing our assessment of performanceThis performance framework reflects both annual (Run the Bank Well) and longer term (Strategic) performance indicators across Risk, Financial
and Discipline, Customer, and People and Reputation categories. Risk outcomes form an integral part of the assessment and the focus on
creating a safe bank with sound risk practices is reinforced by having the Risk assessment directly impact the overall assessment of the Group’s
performance (i.e. a multiplier effect).
The table below provides an overview of some of the indicative measures used to inform the overall assessment for each of the key
performance categories. For strategic measures ‘+’ refers to delivered, ‘=’ on track, and ‘–‘ more work to do.
Indicative Measure

Performance against Indicative Measures

Risk
Overall assessment: On Target
Key risk, control, governance and compliance metrics were met despite a challenging external and regulatory environment. This includes
strong risk foundations being put in place in line with our objectives to:a. Manage the bank well and ensure our risk appetite, balance sheet, systems, processes and culture are strong, coherent and aligned
appropriately;b. Operate safely within all regulatory limits at all times; andc. Ensure ANZ’s products, services and processes are responsible and fair for customers.
There is strong leadership on the importance of Risk and Compliance and setting the right culture, as well as a heavy emphasis on
maintaining high ethical standards, acting fairly and with integrity. ANZ is focused on making it easier, safer and important for our people
to raise issues and concerns. 2018 saw the lowest credit provisions in more than 20 years with a loss rate of 0.12%. While a benign credit
environment played a role, it must be recognised that management decisions, often at the expense of revenue, as well as a significant
reshaping of the portfolio, contributed to this outcome.
Run the bank well•• No material anti-money laundering, know
your customer or sanctions breaches•• = There were no material breaches in 2018•• Fixing repeat adverse audit trends in a timely
and sustainable manner•• = Management accountability for fixing issues in a timely and sustainable manner
saw the number of adverse audits fall by 16%. There was a very low number of
repeat adverse rated audits during FY18, representing less than 1% of all audits.
None of these indicated broader risk management awareness issues•• No unplanned material breaches of primary
metrics in Group Risk Appetite Statement•• = No material breaches recorded•• Leaders demonstrate accountability for
managing risk••  My Voice engagement survey result on ‘leaders demonstrate accountability for
managing risk’ although 81% positive, was slightly below target

Strategic•• Build out enabling technology per roadmap•• = Successful delivery of projects relating to Retail Credit Infrastructure, as well as
progress on rationalising multiple mortgage models into one

REMUNERATION REPORT 49

REMUNERATION REPORT (continued)
5. 2018 OUTCOMES (continued)
Performance framework: Overview of indicative measures informing our assessment of performance (continued)
Indicative Measure

Performance against Indicative Measures

Financial and Discipline
Overall assessment: On Target
The assessment of financial measures such as return on equity, considers the outcomes both with and without the impact of the large/notable
items1. While cost outcomes were below target (resulting from the large/notable items), we maintained a strong balance sheet, and divestments
during the year reduced the complexity of the Group. Total shareholder returns were positive relative to peers and return on equity was on target.
Organic capital generation remained strong. Capital, funding and liquidity continued to be well above regulatory minimums.
Run the bank well

Profitability•• Reduction in operating expenses••  3.1% higher than 2017 as a result of large/notable items1 or 1.5% lower excluding
large/notable items1

Returns•• Total shareholder returns (TSR) relative to peers•• = TSR for 2018 is 0.6% – above the median of the financial services comparator groupand domestic majors•• Return on equity (ROE)•• = ROE on target. ROE (continuing) was 11.0% or 11.8% excluding large/notable items1

Sound Balance Sheet Indicators•• Common Equity Tier 1 (CET1) and Net Stable
Funding Ratio•• + Funding and liquidity have been well managed, with CET1 of 11.4%, comfortably
ahead of regulatory requirements. ANZ generated 182 bps of capital which
compares favourably to the historical average of 154 bps. Net Stable Funding Ratioof 115%Strategic50•• Simplification and standardisation of ourtechnology landscape•• = ANZ has been simplifying its technology architecture and progress has been in-linewith expectations•• Transactions to simplify and create a betterbalanced bank•• + Significant asset divestments announced in 2018 include Wealth Australia – Life
Insurance (to Zurich), Wealth Australia – One Path Pensions & Investments/Aligned
Dealer Group (to IOOF), ANZ Royal joint venture, One Path Life New Zealand and
PNG Retail, Commercial and SME. Completed sales include Asia Retail in 6 countries
and Metrobank Card Corporation investment in Philippines and Shanghai Rural
Commercial Bank investment in China

ANZ 2018 ANNUAL REPORT5. 2018 OUTCOMES (continued)
Performance framework: Overview of indicative measures informing our assessment of performance (continued)
Indicative Measure

Performance against Indicative Measures

Customer
Overall assessment: On Target
ANZ continued to improve customer experience this year, with a highlight being Institutional performance in key customer satisfaction/
relationship strength surveys. A disappointing Net Promoter Score (NPS)2 in Australia was balanced by a record NPS in New Zealand Retailand strong digital engagement with customers across the Group. The ANZ app remains the top-rated banking app in the Apple store withalmost 150,000 reviews. The Royal Commission has had a significant impact on the Group this year and ANZ is fast-tracking changes tobuild a bank worthy of the trust of all stakeholders.
Run the bank well

Customers as Advocates•• Improve Net Promoter Score (NPS)2•• + A record NPS in New Zealand, and a slightly improved Australia Retail score••  A disappointing result in Business and Private Banking•• Maintain or improve position in respect of
relevant corporate and institutional customer
satisfaction/relationship strength indices•• + Strong performance as evidenced by results on Peter Lee Associates3: #1 lead bankpenetration in Australia (biggest gap on competition since 2003) and New Zealand;#1 for Relationship Strength Index in Australia (highest score ever recorded by anybank) and New Zealand. Greenwich Associates4: #4 top Corporate Bank in Asia forthe 6th successive year

Improving Digital Offering•• Increase the proportion of customers choosing
digital for services or purchases, by delivering
digital solutions that improve the customer
experience••  Customers use of digital solutions increased year-on-year, but were slightly below
set targets

Strategic

Building for the future•• Build and deliver new customer ecosystems toengage and increase customer retention•• Improve our data assets to strengthen
relationships and improve risk management•• Build a payments platform that delivers
continuous innovation and improves thecustomer experience•• = The business is on track with major initiatives/projects to create the best bank andexperiences for our customers. Rolled out New Payments Platform to three million
small, medium and Institutional customers; improved digital channels with thelaunch of 39 digital branches; introduced cash withdrawals from ANZ ATMs using
any mobile device – an Australian first; maintained mobile payment leadership

REMUNERATION REPORT51

REMUNERATION REPORT (continued)
5. 2018 OUTCOMES (continued)
Performance framework: Overview of indicative measures informing our assessment of performance (continued)
Indicative Measure

Performance against Indicative Measures

People and Reputation
Overall assessment: Below Target
Strong progress to build new digital capabilities as well as an increase in the number of women in leadership. This was offset by employee
engagement scores falling below target and our standing in the community was impacted by significant community concern as a resultof our failures highlighted by the Royal Commission.
Run the bank well

Diversifying our workforce•• Improving women in leadership•• = 0.9% increase year-on-year to 32% (0.1% below the desired target of 32.1%)•• Environment open and accepting ofindividual differences•• = Maintained high score of >90% in employee My Voice survey

Engaging our People•• Significantly improve staff engagement••  2 018 engagement score of 73% was 1% higher than the 2017 ‘pulse’ survey (for asmall sample of our population) and 1% lower than 74% in 2016 (full survey). Solid
result given the current operating environment and the significant transformation
underway

Sustainability•• Glassdoor5 employer of choice ratings•• = Improved score on 2017 and achieved the target of 3.7•• Maintain strong performance on Dow Jones
Sustainability Indices (DJSI)•• = DJSI assessment is down to a score of 83, however ANZ is the leading Australianbank•• Corporate Confidence Index (CCI)•• = Outcomes of the CCI are provided to ANZ on a confidential basis, however ANZ
has assessed its score as on-target

Strategic

People and Reputation•• Building and attracting talent in core digital
capability areas•• = We have attracted and retained talent in areas such as digital and technology, andwork has commenced to build new skills more broadly across the organisation•• Introducing and embedding new ways ofworking to more rapidly deliver valuable newfeatures and services to our customers•• = G ood progress in rolling out new ways of working to Australia and Technology
divisions•• Rebuild reputation•• - ANZ’s standing in the community was impacted by significant community
concern resulting from failures highlighted by the Royal Commission. ANZ has
taken action to fast-track changes to build a bank worthy of the trust and respectof all stakeholders

1. Large/notable items include announced divestments, customer remediation, accelerated amortisation of software assets, Royal Commission legal costs and restructuring charges.

2. N PS is a customer loyalty metric used globally to evaluate a company’s brand, products or services. Net Promoter® and NPS® are registered trademarks and Net Promoter Score and Net
Promoter System are trademarks of Bain & Company, Satmetrix Systems and Fred Reichheld.
3. Peter Lee Associates 2018 Large Corporate and Institutional Relationship Banking surveys, Australia and New Zealand.
4. Greenwich Associates 2017 Asian Large Corporate Banking study; ANZ ranked = No.4 in 2016 and 2017.
5. Glassdoor is a website where employees and former employees anonymously review companies and their management.

52

ANZ 2018 ANNUAL REPORT5. 2018 OUTCOMES (continued)
5.3 ANZ PERFORMANCE OUTCOMES
ANZ’s Financial Performance 2014 – 2018

2014

2015

2016

2017

2018

Statutory profit ($m)

7,271

7,493

5,709

6,406

6,400

Cash profit ($m, unaudited)

7,117

7,216

5,889

6,938

5,805

Cash profit – Continuing operations ($m, unaudited)1

7,117

7,216

5,889

6,809

6,487

Cash return on equity (ROE) (%) – Continuing
operations (unaudited)1

15.4

14.0

10.3

11.7

11.0

Cash earnings per share (EPS) – Continuing
operations (unaudited)1

260.3

260.3

202.6

232.7

223.4

30.92

27.08

27.63

29.60

28.18

Total dividend (cents per share)

178

181

160

160

160

Total shareholder return (12 month %)

5.9

(7.5)

9.2

13.1

0.6

Share price at 30 September ($)(On 1 October 2013, opening share price was $30.75)

1. Cash profit from continuing operations has been presented for FY17 and FY18, prior periods are not restated.

The Group uses cash profit as a measure of performance for the Group’s ongoing business activities, as this provides a basis to assess Groupand Divisional performance against earlier periods and against peer institutions.
We calculate cash profit by adjusting statutory profit for non-core items. Although cash profit is not audited, the external auditor has informed
the Audit Committee that recurring adjustments have been determined on a consistent basis across each period presented.
The sizing of the ANZIP variable remuneration pool takes account of both cash profit and economic profit. Importantly, economic profit takes
into consideration credit losses across an economic cycle.
Cash profit from continuing operations represents the Group’s cash profit excluding the impact of our discontinued businesses which consistsof OnePath pensions and investments and aligned dealer groups and the Group’s life insurance business in Australia. The businesses werereclassified to discontinuing in 2018, and only the 2017 result was restated in the table above.
ANZ TSR performance (1 to 10 years)

The table below compares ANZ’s TSR performance against the median TSR, and upper quartile TSR, of the performance rights Select Financial
Services (SFS) comparator group over one to ten years. ANZ’s TSR performance was above the median TSR of the SFS Comparator Group whencomparing over one, three and ten years, and below the median over five years to 30 September 2018.
Years to 30 September 2018
1

3

5

10

ANZ (%)

0.6

22.4

21.6

161.6

Median TSR SFS (%)

(1.5)

16.0

42.5

121.3

Upper Quartile TSR SFS (%)

17.2

38.6

51.4

177.0

5.4 CEO'S AND DISCLOSED EXECUTIVES’ REMUNERATION OUTCOMESAt the start of each year, the Board sets stretching – yet achievable – performance objectives for the CEO and for each Disclosed Executive.
When executives deliver on target performance at a Group and individual level (taking into consideration ANZ Values (behaviours) and risk/
compliance standards), then their variable remuneration awards are likely to be around the target.
At year end, each executive’s performance is assessed against their objectives for the year and in light of their risk/compliance standards andtheir demonstration of ANZ Values (behaviours). The CEO assesses the performance of the Disclosed Executives and makes recommendations
to the HR Committee. The HR Committee assesses the performance of the CEO. It then makes recommendations to the Board on both the
CEO and the Disclosed Executives’ performance and remuneration outcomes.
In 2018, the Board reviewed the CEO and Disclosed Executives’ fixed remuneration. The only change made in 2018 was an adjustment forAlexis George on commencement in the expanded role of Deputy CEO and Group Executive, Wealth Australia.
The Board approved the CEO’s and the Disclosed Executives’ 2018 VR outcomes. In doing so, it considered the performance of the individual,
the business and overall Group performance, and the shareholder experience.

REMUNERATION REPORT53

REMUNERATION REPORT (continued)
5. 2018 OUTCOMES (continued)
5.4 CEO'S AND DISCLOSED EXECUTIVES’ REMUNERATION OUTCOMES (continued)
CEO: The CEO’s VR for 2018 has been awarded at 75% of target, noting that this comprises both AVR and LTVR.
The 2018 AVR awarded to the CEO is 83% of target (56% of maximum), which reflects his performance against his objectives and theoverall performance of the Group. The proposed 2018 LTVR is 67% of target, and this reduction, in addition to the AVR reduction, further
acknowledges the conduct issues and reputational damage of the matters raised in the Royal Commission.
The proposed LTVR of $1.4 million/$2.8 million (performance rights face value at threshold/full vesting) is subject to shareholder approval at
the 2018 Annual General Meeting.
Disclosed Executives: The average 2018 VR for current Disclosed Executives is 78% of target (53% of maximum). This is significantly
below target and in line with the material reduction in the ANZIP variable remuneration pool. Every executive is below target and there
is significant differentiation at an individual level ranging between 60% to 91% of target. The different VR outcomes reflect the relative
performance of the different areas/individuals, demonstrate the 'at risk' nature of VR, and demonstrate a clear link between performanceand reward at both an ANZ and individual level for the 2018 financial year.
The VR awards will be paid/granted in November/December 2018. The majority of the VR award is deferred and remains subject to the Board’s
discretion to adjust this downwards at any time prior to vesting. In addition, whether the portion of 2018 VR delivered as performance rights
actually vests will be subject to ANZ’s TSR performance over a three year performance period, which is in line with our business planning cycle.
Year-on-year Remuneration awardedThis table shows a year-on-year comparison of remuneration awarded to the CEO and current Disclosed Executives for the 2017 and 2018
performance periods.
The year-on-year difference for Alexis George reflects her time as a KMP in 2017 and her adjustment in fixed remuneration in 2018.
For David Hisco, the year-on-year difference reflects differences in exchange rate when converting NZD to AUD.
Fixed
remuneration$

Variable remuneration
awarded1$

Total remuneration
awarded1$

2018

2,100,000

3,150,000

5,250,000

2017

2,100,000

4,100,000

6,200,000

2018

1,000,000

1,600,000

2,600,000

2017

1,000,000

1,700,000

2,700,000

K Corbally2018 (6.5 months in role)

486,000

499,500

985,500

A George

2018 (12 months/4.5 months as Deputy CEO)2017 (10 months in role)

876,000

1,075,000

1,951,000

664,000

913,000

1,577,000

2018

1,170,713

1,952,719

3,123,432

2017

1,195,013

2,200,550

3,395,563

M Jablko

2018

1,000,000

1,750,000

2,750,000

2017

1,000,000

2,240,000

3,240,000

F Ohlsson

2018

1,000,000

1,200,000

2,200,000

2017

1,000,000

1,620,000

2,620,000

M Whelan

2018

1,200,000

2,175,000

3,375,000

2017

1,200,000

3,275,000

4,475,000

FinancialYear
CEO and Current Disclosed Executives

S Elliott
M Carnegie

D Hisco1.

Performance rights face value at threshold vesting.

This table supplements, and is different to, the Statutory Remuneration table which presents the accounting expense for both vested andunvested awards in accordance with the Australian Accounting Standards.
A further breakdown of the variable remuneration awarded for 2018 is provided on the next page.

54

ANZ 2018 ANNUAL REPORT5. 2018 OUTCOMES (continued)
2018 Variable Remuneration awardedThis table shows the VR awarded to the CEO and current Disclosed Executives for the year ending 30 September 2018, and what thisrepresents as a % of their target opportunity and maximum opportunity.
The average variable remuneration awarded to the CEO and current Disclosed Executives is 78% of target (53% of maximum), whichappropriately reflects ANZ’s overall performance and the impact to the overall ANZIP variable remuneration pool.
Only the cash component will be received this year. The deferred shares will vest evenly over four years. The performance rights may or may
not vest when tested against the performance hurdles in three years’ time.
S Elliott

VR1 $3,150,000(75% of target, 60% of max2)

M Carnegie

VR $1,600,000(80% of target, 53% of max)

K Corbally3

VR $499,500(83% of target, 55% of max)

A George

VR $1,075,000(61% of target, 41% of max)

D Hisco

VR $1,952,719(83% of target, 56% of max)

M Jablko

VR $1,750,000(88% of target, 58% of max)

F Ohlsson

VR $1,200,000(60% of target, 40% of max)

M Whelan

VR $2,175,000(91% of target, 60% of max)

Cash
1.
2.
3.
4.

= $875,000 + $875,000 +=$528,000+$528,000=$164,835+$164,835$1,400,000+$544,000+$169,830= $354,750 + $354,750 + $365,500=$644,397+$644,397+=$577,500+$577,500+$663,925$595,000= $396,000 + $396,000 + $408,000=$717,750

Deferred shares or deferred share rights+$717,750+$739,500

Performance rights face value at threshold vesting4

VR for the CEO = AVR + LTVR (LTVR subject to shareholder approval at the 2018 Annual General Meeting).
% of max for the CEO = 150% of AVR target plus LTVR target (face value at threshold vesting). The maximum opportunity arrow for the CEO is not to scale, given there is no max for LTVR.
Remuneration disclosed from commencement in Disclosed Executive role, CRO receives deferred share rights instead of performance rights.
Multiply by two to convert to face value at full vesting for performance rights.

2018 Actual Remuneration received

This table shows the remuneration the CEO and current Disclosed Executives actually received in relation to the 2018 performance year as cash;
or in the case of prior equity awards, the value which vested in 2018. The final column also shows the value of prior equity awards which lapsed in2018 (these awards reflect the 2014 performance rights which failed to meet the performance hurdles when tested in November 2017).
Only the cash component of the 2018 VR award appears in this table, as the other components are deferred and may/may not vest in future years.

Fixed
remuneration$

Cashvariable
remuneration$

Deferred variable
Other deferred
Total remuneration which
remuneration whichcash vested during the year1 vested during the year1$$$

Actualremuneration
received$

Deferred variable
remuneration which
lapsed/forfeited during
the year1$

3,849,666
3,043,619
650,835
1,814,794
2,679,384
2,040,194
1,993,403
2,774,204(1,582,649)(153,292)(1,383,354)(404,809)(395,655)

CEO and Current Disclosed Executives

S Elliott
M Carnegie2
K Corbally3
A George4
D Hisco5
M Jablko6
F Ohlsson
M Whelan
1.

2.
3.
4.

5.
6.

2,100,000
1,000,000
486,000
876,000
1,170,713
1,000,000
1,000,000
1,200,000

875,000
528,000
164,835
354,750644,397
577,500
396,000
717,750

2,975,000
1,528,000
650,835
1,230,750
1,815,110
1,577,500
1,396,000
1,917,750

874,666
34,610334,044864,274
34,610597,403856,454

1,481,009
250,000
428,084-

The point in time value of previously deferred remuneration granted as shares/share rights and/or performance rights is based on the one day VWAP of the Company’s shares traded on the
ASX on the date of vesting or lapsing/forfeiture multiplied by the number of shares/share rights and/or performance rights. The amount paid as deferred cash is the value disclosed. The
lapsed/forfeited values relate to the performance rights we awarded in November 2014 which lapsed due to the performance hurdles not being met.
Other deferred remuneration for M Carnegie relates to previously disclosed compensation for bonus opportunity foregone and deferred remuneration forfeited.
Remuneration disclosed from commencement in Disclosed Executive role (19 March 2018).
A George's fixed remuneration was adjusted in May 2018 when she commenced in the expanded role of Deputy CEO and Group Executive, Wealth Australia. As disclosed in 2017, in relation to
A George's role before her appointment to the Group Executive Committee, in July 2016 the Board approved a cash retention award of $500,000 with partial vesting in June 2017 ($250,000)
and December 2017 ($250,000).
Paid in NZD and converted to AUD.
Other deferred remuneration for M Jablko relates to previously disclosed compensation for bonus opportunity foregone and deferred remuneration forfeited.

This table supplements, and is different to, the Statutory Remuneration table which presents the accounting expense for both vested andunvested awards in accordance with the Australian Accounting Standards.
REMUNERATION REPORT55

REMUNERATION REPORT (continued)
5. 2018 OUTCOMES (continued)
2018 Statutory Remuneration –­ CEO and Disclosed Executives

The following table outlines the statutory remuneration disclosed in accordance with the Australian Accounting Standards. While it shows the
fixed remuneration awarded (cash and superannuation contributions) and also the cash component of the 2018 VR award, it does not show
the actual VR awarded or received in 2018 (which are shown on the previous pages), but instead shows the amortised accounting value forthis financial year of deferred remuneration (including prior year awards).
Short-Term Employee Benefits

Financial
Year

Cash salary1$

Post-Employment

Non monetary
benefits2$

Total cash
incentive3$

Other cash4$

Retirement
Super benefit accrued
contributions5during year6$$

CEO and Current Disclosed Executives

S Elliott2018

2,079,831

17,321875,000-

20,169-2017

2,080,276

16,9951,000,000-

19,724-

2018

979,831

29,254

528,000-

20,669-2017

980,776

29,920561,000

100,000

19,724-

K Corbally10

2018472,582

6,383

164,835-

10,145-

A George11

2018843,584

40,254354,750

250,000

20,669-2017

657,308

22,468301,290

250,000

15,320-2018

1,168,324

464,599

644,397

-

2,389

2,305

2017

1,195,013

465,103

726,181

-

-

7,636

2018

979,831

15,341

577,500-

20,669-2017

980,276

15,515739,200

268,082

20,224-

2018

979,831

31,668396,000-

20,169-2017

980,276

46,848534,600-

19,724-2018

1,179,831

11,821

717,750-

20,169-2017

1,180,276

11,9951,080,750-

19,724-2018

1,029,831

20,861

264,000-

20,169-2017

1,030,276

17,753732,600-

19,724

4,565

2018

1,449,515

52,472--

21,985-2017

1,330,276

19,359627,000-

19,7245,870

M Carnegie

9

D Hisco12, 13

M Jablko

14

F Ohlsson13

M Whelan

Former Disclosed Executives

G Hodges15

N Williams

16

1.
2.

3.

4.

5.

6.

7.

8.

56

Cash salary includes any adjustments required to reflect the use of ANZ's Lifestyle Leave Policy.
Non monetary benefits generally consist of company-funded benefits (and the associated Fringe Benefits Tax) such as car parking, taxation services, costs met by the company in relation to
relocation, outplacement services and gifts received on leaving ANZ for former Disclosed Executives.
The total cash incentive relates to the cash component only. The relevant amortisation of the AVR/VR deferred components is included in share-based payments and has been amortisedover the vesting period. The total AVR/VR was approved by the Board on 24 October 2018. 100% of the cash component of the AVR/VR awarded for the 2017 and 2018 years vested to the
executive in the applicable financial year.
Other cash and other equity allocations relate to employment arrangements such as compensation for bonus opportunity foregone and deferred remuneration forfeited, retention awards,
and shares received in relation to the Employee Share Offer. For further details, see the individual footnotes for each relevant executive.
For all Australian based executives, the 2018 and 2017 superannuation contributions reflect the Superannuation Guarantee Contribution based on the Maximum Contribution Base. In the2017 Remuneration Report, superannuation contributions reflected the Superannuation Guarantee Contribution of 9.5% of cash salary – individuals may have elected to take this contribution
as superannuation or a combination of superannuation and cash salary. From 31 August 2018 D Hisco commenced superannuation contributions to KiwiSaver where ANZ provides an
employer contribution matching member contributions up to 4% of total gross pay (less employer superannuation contribution tax).					Accrual relates to Retirement Allowance. As a result of being employed with ANZ before November 1992, D Hisco, G Hodges and N Williams were eligible to receive a Retirement Allowance onretirement, retrenchment, death, or resignation for illness, incapacity or domestic reasons. The Retirement Allowance is calculated as three months of preserved notional salary (which is 65%
of fixed remuneration) plus an additional 3% of notional salary for each year of full-time service above 10 years less the total accrual value of long service leave (including taken and untaken).
As required by AASB 2 Share-based payments, the amortisation value includes a proportion of the fair value (taking into account market-related vesting conditions) of all equity that had not
yet fully vested as at the commencement of the financial year. The fair value is determined at grant date and is allocated on a straight-line basis over the relevant vesting period. The amountincluded as remuneration neither relates to, nor indicates, the benefit (if any) that the executive may ultimately realise if the equity become exercisable.
Termination benefits reflect payment for accrued annual leave, long service leave and the retirement allowance, payable on termination.

ANZ 2018 ANNUAL REPORTLong-Term
Employee
Benefits

Share-Based Payments7
Total amortisation value of
Other equity
allocations4

Variable remuneration
Long service leaveaccrued during
the year$

Shares$Share rights$

Performancerights$Shares$Termination
benefits8$

Grand total
remuneration$

31,819

1,023,295-

1,597,860--

5,645,295

31,8191,105,401-

1,380,645--

5,634,860

15,152

366,123-

282,708

353,951-

2,575,688

15,152

225,446-

177,089

2,794,880-

4,903,987

24,255

172,70940,94333,129118,316-

1,043,297

26,767308,376-

194,781--2,039,181

15,405

262,448-

120,594--

1,644,833

3,782

-

589,413651,112475-

3,526,796

21,319-669,039757,389533-

3,842,213

15,152436,228-

331,802323,545-

2,700,068

15,152

281,374-

221,998

952,292-

3,494,113

15,152

283,517

127,777

341,086284-

2,195,484

15,152

162,978

299,530

331,818533-

2,391,459

18,182

730,160-

723,576--

3,401,489

18,182827,073-

661,203--3,799,203-

245,423

773,203

228,378-

261,623

2,843,488

15,910554,318-

610,999--2,986,145-(236,591)(1,131,223)--

192,380

348,538

20,455600,960

867,287---3,490,931

Other cash and other equity allocations for M Carnegie relate to previously disclosed compensation for bonus opportunity foregone and deferred remuneration forfeited.		
K Corbally commenced in a Disclosed Executive role on 19 March 2018. So his 2018 remuneration reflects partial service year. In relation to K Corbally's role before his appointment to theGroup Executive Committee, in August 2016 the Board approved an equity retention award of $600,000 vesting in August 2019. 				
11.
A George commenced in a Disclosed Executive role on 1 December 2016. So her 2017 remuneration reflects partial service year. A George's fixed remuneration was adjusted in May 2018
when she commenced in the expanded role of Deputy CEO and Group Executive, Wealth Australia. As disclosed in 2017, in relation to A George's role before her appointment to the Group
Executive Committee, in July 2016 the Board approved a cash retention award of $500,000 with partial vesting in June 2017 ($250,000) and December 2017 ($250,000).
12.
D Hisco's fixed remuneration is paid in NZD and converted to AUD. The year-on-year differences in cash salary, retirement benefit accrual and long service leave accrual relate to fluctuationsin the exchange rate.
13.
In 2016 D Hisco and F Ohlsson, and in 2018 D Hisco, were eligible to receive shares in relation to the Employee Share Offer. That offer provides a grant of ANZ shares in each financial year toeligible employees subject to Board approval. See Note 31 Employee Share and Option Plans for further details on the Employee Share Offer.
14.
Other cash and other equity allocations for M Jablko relate to previously disclosed compensation for bonus opportunity foregone and deferred remuneration forfeited.		
15.
G Hodges concluded in his role 13 May 2018 and ceased employment 30 September 2018. Statutory remuneration table reflects his remuneration up to his date of termination (noting hisannual fixed remuneration for 2018 remained unchanged at $1.05 million). Share-based payments include expensing treatment on termination for unvested deferred remuneration (including
reversals for forfeiture on retirement). For 2018 G Hodges' VR is $800,000 of which $264,000 is delivered as cash and $264,000 is delivered as share rights deferred evenly over four years.
Performance rights will not be granted as they would have been forfeited on retirement.								
16.
N Williams concluded in his role 30 March 2018 and ceased employment 2 November 2018. Statutory remuneration table reflects 13 months of remuneration up to his date of termination(noting his annual fixed remuneration for 2018 remained unchanged at $1.35 million). Share-based payments include expensing treatment on termination for unvested deferredremuneration (including reversals for forfeiture on termination).
9.

10.

REMUNERATION REPORT57

REMUNERATION REPORT (continued)
5. 2018 OUTCOMES (continued)
5.5 PERFORMANCE RIGHTS VESTING OUTCOMES
Performance rights granted to the CEO and Disclosed Executives (excluding the CRO) in November 2014 reached the end of their performance
period in November 2017.
ANZ
TSR overthree years

MedianTSR overthree years%
vestedHurdleGrant date

First date
exercisable

Relative TSR ­– Select Financial Services

21-Nov-14

20-Nov-17

9.39%

16.67%

0%

Performancerights lapsed

21-Nov-14

20-Nov-17

9.39%

25.79%

0%

Performancerights lapsed

Comparator Group

Relative TSR ­– ASX 50 Comparator Group

Outcome

The performance rights we awarded in late 2015 will be tested against their hurdles in November 2018 to determine vesting.

6. NON-EXECUTIVE DIRECTOR (NED) REMUNERATIONThe Board reviewed NED fees for 2018 and determined once again not to increase their fees (which remain unchanged from 2016).
While the NEDs do not receive variable remuneration, the Board accepts that it is appropriate that they too share some accountability for the
failures highlighted by the Royal Commission. As a consequence, the NEDs, who have served on the Board in FY18, have agreed to a 20%
reduction of their fee for FY19 (20% reduction to the Chairman fee from $825,000 to $660,000, and 20% reduction to the NED member fee
from $240,000 to $192,000).
NEDs receive a base fee for being a Director of the Board, and additional fees for either chairing, or being a member of a Board Committee.
The Chairman of the Board does not receive additional fees for serving on a Board Committee.
In setting Board and Committee fees, the Board considers: general industry practice; best principles of corporate governance; theresponsibilities and risks attached to the NED role; the time commitment expected of NEDs on Group and Company matters; and fees paid to
NEDs of comparable companies.
ANZ compares NED fees to a comparator group of Australian listed companies with a similar market capitalisation, with particular focus on the
major financial services institutions. This is considered an appropriate group, given similarity in size, nature of work and time commitment
by NEDs.
To maintain NED independence and impartiality:•• NED fees are not linked to the performance of the Group; and•• NEDs are not eligible to participate in any of the Group’s variable remuneration arrangements.
The current aggregate fee pool for NEDs of $4 million was approved by shareholders at the 2012 Annual General Meeting. The annual total of
NEDs’ fees, including superannuation contributions, is within this agreed limit.
This table shows the NED fee policy structure for 2018:

Board1

Audit
Committee2

Risk
Committee2

Human
Resources
Committee2

Digital Business& Technology
Committee2

Ethics,Environment,
Social &GovernanceCommittee2

Chair fee

$825,000$65,000$62,000$57,000$35,000$35,000

Member fee$240,000$32,500$31,000$29,000$15,000$15,000

1.
2.

Including superannuation.
The Chairman of the Board does not receive additional fees for serving on a Board Committee.

We expect our NEDs to hold ANZ shares

NEDs are required:•• to accumulate shares – over a five year period from their appointment – to the value of 100% (200% for the Chairman) of the NED fee for a
Board member; and•• to maintain this shareholding while they are a Director of ANZ.
All NEDs have met – or, if appointed within the last five years, are on track to meet – their minimum shareholding requirement.

58

ANZ 2018 ANNUAL REPORT

6. NON-EXECUTIVE DIRECTOR (NED) REMUNERATION (continued)
2018 Statutory Remuneration – NEDs

Short-Term NED Benefits
Financial

Post-Employment

1

Year

Fees
$

Super contributions1$

Total remuneration2$

D Gonski

2018
2017

804,831805,276

20,16919,724

825,000
825,000

I Atlas2018
2017324,331317,776

20,16919,724

344,500
337,500

P Dwyer

20182017

344,831345,276

20,16919,724

365,000
365,000

J Halton3

2018
2017

277,567
241,063

20,16918,894

297,736
259,957

J Key⁴

2018

148,546

11,996

160,542

H Lee

2018
2017

314,831315,276

20,16919,724

335,000
335,000

G Liebelt

2018
2017

345,858
343,151

20,16919,724

366,027
362,875

J Macfarlane

2018
2017

298,331
298,776

20,16919,724

318,500
318,500

Current Non-Executive Directors

Former Non-Executive Director

I Macfarlane5
Total of all Non-Executive Directors
1.
2.

3.
4.

5.

2017

68,225

4,904

73,12920182017

2,859,126
2,734,819

153,179
142,1423,012,305
2,876,961

Year-on-year differences in fees relate to changes in Committee memberships and changes to the superannuation Maximum Contribution Base.
Long-term benefits and share-based payments do not apply for the Non-Executive Directors. There were no non monetary benefits or termination benefits for the Non-Executive Directors
in either 2017 or 2018.
J Halton commenced as a Non-Executive Director on 21 October 2016, so 2017 remuneration reflects a partial service year.
J Key commenced as a Non-Executive Director for Australia and New Zealand Banking Group Limited on 28 February 2018, so 2018 remuneration reflects a partial service year. In addition for
2018, in relation to his Non-Executive Directorship from 18 October 2017 for ANZ Bank New Zealand Limited, J Key also received a total of NZD 302,925 as a Non-Executive Director until 31
December 2017 and from 1 January 2018 as Chairman.
I Macfarlane retired as a NED on 16 December 2016, so 2017 remuneration reflects partial service year up to his date of retirement.

7. REMUNERATION GOVERNANCE
7.1 THE HUMAN RESOURCES (HR) COMMITTEE
Role The HR Committee supports the Board on remuneration and other HR matters. They review the remuneration policies and practices of
the Group, monitor market practice and also regulatory and compliance requirements in Australia and overseas.
The HR Committee has a strong focus on the relationship between business performance, risk management and remuneration, aligned withour business strategy, and seeks input from the Risk and Audit Committees where relevant. During the year the HR Committee met on eightoccasions and reviewed and approved or made recommendations to the Board on matters including:•• Remuneration for the CEO and other key executives (broader than those disclosed in the Remuneration Report) covered by the ANZRemuneration Policy, and fees for the NEDs;•• the design of significant variable remuneration plans – for example: the ANZIP;•• the Group Performance Framework (objectives setting and assessment) and annual variable remuneration spend;•• performance and reward outcomes for key senior executives, including the consideration of downward adjustment;•• key senior executive appointments and terminations;•• the effectiveness of the ANZ Remuneration Policy and changes to the policy to incorporate the Banking Executive Accountability Regime(BEAR) requirements;•• succession plans for key senior executives; and•• culture, diversity and inclusion, and employee engagement.
More details about the role of the HR Committee, including its Charter, can be found on our website. Go to anz.com > about us > ourcompany > corporate governance > ANZ Human Resources Committee Charter.
REMUNERATION REPORT59

REMUNERATION REPORT (continued)
7. REMUNERATION GOVERNANCE (continued)
Link between remuneration and risk To further reflect the importance of the link between remuneration and risk:•• the Board had three NEDs in 2018 who served on both the HR Committee and the Risk Committee;•• the HR Committee has free and unfettered access to risk and financial control personnel; and•• the HR Committee can engage independent external advisors as needed.
External advisors provided information but not recommendations Throughout the year, the HR Committee and management
received information from the following external providers: Aon, Ashurst, Ernst & Young, Mercer Consulting (Australia) Pty Ltd andPricewaterhouseCoopers. This information related to market data, market practices, legislative requirements and the interpretation of
governance and regulatory requirements.
During the year, ANZ did not receive any remuneration recommendations from external consultants about the remuneration of KMP.
ANZ employs in-house remuneration professionals who provide recommendations to the HR Committee and the Board. The Board madeits decisions independently, using the information provided and with careful regard to ANZ’s strategic objectives, risk appetite and the ANZRemuneration Policy and principles.
7.2 INTERNAL GOVERNANCE
Hedging prohibition

All deferred equity must remain at risk until it has fully vested. Accordingly, executives and their associated persons must not enter into any
schemes that specifically protect the unvested value of equity allocated. If they do so, then they forfeit the relevant equity.
Shareholding guidelines

We expect the CEO and each Disclosed Executive to, over a five year period:•• accumulate ANZ shares to the value of 200% of their fixed remuneration; and•• maintain this shareholding level while they are an executive of ANZ.
For this purpose, shareholdings include all vested, and unvested, equity that is not subject to performance hurdles.
Based on equity holdings as at 30 September 2018, the CEO and all Disclosed Executives:•• who have been with us for at least five years, meet this requirement; and•• who have been with us for less than five years, are on track to meet it.
CEO and Disclosed Executives’ contract terms and equity treatment

The details of the contract terms and also the equity treatment on termination (in accordance with the Conditions of Grant) relating to the
CEO and Disclosed Executives are below. Although they are similar, they vary in some cases to suit different circumstances.
Type of contract

Permanent ongoing employment contract.

Notice on resignation•• 12 months’ by CEO;•• 6 months’ by Disclosed Executives.

Notice on termination by ANZ•• 12 months’ by ANZ.
However, ANZ may immediately terminate an individual’s employment at any time in the case of serious
misconduct. In that case, the individual will be entitled only to payment of fixed remuneration up to thedate of their termination.

How unvested equity is treated Executives who resign or are terminated will forfeit all their unvested deferred equity – unless the Boardon leaving ANZ
determines otherwise.
If an executive is terminated due to redundancy or they are classified as a 'good leaver', then:•• their deferred shares/share rights are released at the original vesting date; and•• their performance rights1 are prorated for service to the full notice termination date and released at theoriginal vesting date (to the extent that the performance hurdles are met).
On an executive’s death or total and permanent disablement, their deferred equity vests.
In relation to the 2018 CEO grant of performance rights, in the event of termination during the restriction
period, the shares will be released at the end of restriction period – unless the Board determines
otherwise. In the event the CEO ceases employment because of death or total and permanent disability,
the restriction period will no longer apply.
Unvested equity remains subject to downward adjustment post termination.
Change of control (applies to
the CEO only)1.

If a change of control or other similar event occurs, then we will test the performance conditions applying
to the CEO’s performance rights. They will vest to the extent that the performance conditions are satisfied.
In relation to the 2018 CEO grant of performance rights, the Board may waive the restriction period in
relation to any shares to which the CEO becomes entitled as a result.

Or deferred share rights granted to the CRO instead of performance rights

60 ANZ 2018 ANNUAL REPORT8. OTHER INFORMATION
8.1 EQUITY HOLDINGSFor the equity granted to the CEO and Disclosed Executives in November/December 2017, all deferred shares were purchased on the market.
For deferred share rights and performance rights, we will determine our approach to satisfying awards closer to the time of vesting.
The table below sets out details of deferred shares and rights that we granted to the CEO and Disclosed Executives:•• during the 2018 year; or•• in prior years and that then vested, were exercised/sold or which lapsed/were forfeited during the 2018 year.
CEO and Disclosed Executives equity granted, vested, exercised/sold and lapsed/forfeited

Name

Type
of
equityEquityfair
value at
grant
(for 2018
Number grants
granted1 only) $Lapsed/Forfeited

Vested
First
Grant
date
date exercisable

Dateofexpiry Number%

Value2$ Number%

Exercised/Sold

Value2$ Number

Vested Unexerand exer- cisablecisable asas atValue2 at 30 Sep 30 Sep%$
20183 20184

CEO and Current Disclosed Executives
S Elliott

Deferred shares

22,79618-Nov-15 18-Nov-17-

22,796 100 671,427

-

-

-

-

-

-

22,796-

Deferred shares

6,941

22-Nov-16-

6,941 100 203,239

-

-

-

-

-

-

6,941

-

22-Nov-17

Deferred shares

8,531

29.28 22-Nov-17 22-Nov-18

-

-

-

-

-

-

-

-

-

-

-

8,531

Deferred shares

8,529

29.28 22-Nov-17 22-Nov-19

-

-

-

-

-

-

-

-

-

-

-

8,529

Deferred shares

8,529

29.28 22-Nov-17 22-Nov-20

-

-

-

-

-

-

-

-

-

-

-

8,529

Deferred shares

8,529

29.28 22-Nov-17 22-Nov-21

-

-

-

-

-

-

-

-

-

-

-

8,529

Performance rights

28,08921-Nov-14 21-Nov-17 21-Nov-19--- (28,089) 100 (824,081)

-

-

-

-

-

Performance rights

25,85621-Nov-14 21-Nov-17 21-Nov-19--- (25,856) 100 (758,568)

-

-

-

-

-

Performance rights

107,471

10.23 19-Dec-17 19-Dec-20 19-Dec-22

-

-

-

-

-

-

-

-

-

- 107,471

Performance rights

35,8237.01 19-Dec-17 19-Dec-20 19-Dec-22

-

-

-

-

-

-

-

-

-

-

35,823

M Carnegie Deferred shares

17,03420-Aug-16 21-Nov-17-

17,034 100 499,747--- (15,707)

92 439,282

1,327

-

Deferred shares

17,03420-Aug-16

27-Feb-18-

17,034 100 495,890--- (15,707)

92 439,282

1,327

-

Deferred shares

18,141

20-Aug-16

01-Jun-18-

18,141 100 485,372

-

-

-

(9,586)53 268,095

8,555

-

Deferred shares

1,182

22-Nov-16 22-Nov-17-

1,182 100 34,610

-

-

-

-

-

-

1,182

-

Deferred shares

4,785

29.28 22-Nov-17 22-Nov-18

-

-

-

-

-

-

-

-

4,785

-

-

-

Deferred shares

4,785

29.28 22-Nov-17 22-Nov-19

-

-

-

-

-

-

-

-

-

-

-

4,785

Deferred shares

4,785

29.28 22-Nov-17 22-Nov-20

-

-

-

-

-

-

-

-

-

-

-

4,785

Deferred shares

4,785

29.28 22-Nov-17 22-Nov-21

-

-

-

-

-

-

-

-

-

-

-

4,785

Performance rights

29,58013.40 22-Nov-17 22-Nov-20 22-Nov-22

-

-

-

-

-

-

-

-

-

-

29,580

Performance rights

9,860

7.68 22-Nov-17 22-Nov-20 22-Nov-22

-

-

-

-

-

-

-

-

-

-

9,860

K Corbally5
A George

Deferred shares

2,43021-Nov-14 21-Nov-17-

2,430 100 71,292

-

-

-

-

-

-

2,430

-

Deferred shares

4,14818-Nov-15 18-Nov-17-

4,148 100 122,174

-

-

-

-

-

-

4,148

-

4,801 100 140,578

Deferred shares

4,80122-Nov-16 22-Nov-17

-

-

-

-

-

-

-

4,801

-

Deferred shares

3,096

29.28 22-Nov-17 22-Nov-18

-

-

-

-

-

-

-

-

-

-

-

3,096

Deferred shares

3,096

29.28 22-Nov-17 22-Nov-19

-

-

-

-

-

-

-

-

-

-

-

3,096

Deferred shares

3,096

29.28 22-Nov-17 22-Nov-20

-

-

-

-

-

-

-

-

-

-

-

3,096

Deferred shares

3,096

29.28 22-Nov-17 22-Nov-21

-

-

-

-

-

-

-

-

-

-

-

3,096

Performance rights

2,721

21-Nov-14 21-Nov-17 21-Nov-19--- (2,721) 100(79,829)

-

-

-

-

-

- (2,504) 100(73,463)

-

-

-

-

-

Performance rights

2,504

21-Nov-14 21-Nov-17 21-Nov-19--

Performance rights

19,14013.40 22-Nov-17 22-Nov-20 22-Nov-22

-

-

-

-

-

-

-

-

-

-

19,140

Performance rights

6,380

7.68 22-Nov-17 22-Nov-20 22-Nov-22

-

-

-

-

-

-

-

-

-

-

6,380

REMUNERATION REPORT61

REMUNERATION REPORT (continued)
8. OTHER INFORMATION (continued)
CEO and Disclosed Executives equity granted, vested, exercised/sold and lapsed/forfeitedTypeofequityName

Equity fairvalue at
grant
(for 2018
grantsNumberonly)
granted1
$

Grant
date

First
date
exercisable

Lapsed/Forfeited

VestedDateofexpiry Number%

Value2$ Number%

Vested Unexerand exer- cisablecisable asas atValue2 at 30 Sep 30 Sep
%
$
20183
20184

Exercised/Sold
Value2$ NumberCEO and Current Disclosed Executives
D HiscoEmployee Share Offer

23

04-Dec-14 04-Dec-17-

23 100

653

-

-

-

-

-

-

23

-

Employee Share Offer

24

01-Dec-17 01-Dec-20

-

-

-

-

-

-

-

-

-

-

24

18-Nov-15 18-Nov-17 18-Nov-19

22,427 100 660,558--- (22,427) 100 646,028--

6,935 100 203,063-

Deferred share rights

22,427

Deferred share rights

6,935

22-Nov-16 22-Nov-17 22-Nov-19

-

-

-

-

-

Deferred share rights

6,565

27.65 22-Nov-17 22-Nov-18 22-Nov-20

-

-

-

-

-

-

-

-

-

-

6,565

Deferred share rights

6,942

26.15 22-Nov-17 22-Nov-19 22-Nov-21

-

-

-

-

-

-

-

-

-

-

6,942

Deferred share rights

7,344

24.72 22-Nov-17 22-Nov-20 22-Nov-22

-

-

-

-

-

-

-

-

-

-

7,344

Deferred share rights

7,764

23.38 22-Nov-17 22-Nov-21 22-Nov-23

-

-

-

-

-

-

-

-

-

-

7,764

Performance rights

24,55221-Nov-14 21-Nov-17 21-Nov-19--- (24,552) 100 (720,311)

-

-

-

-

-

Performance rights

22,60021-Nov-14 21-Nov-17 21-Nov-19--- (22,600) 100 (663,043)

-

-

-

-

-

Performance rights

38,29013.40 22-Nov-17 22-Nov-20 22-Nov-22

-

-

-

-

-

-

-

-

-

-

38,290

Performance rights

12,7637.68 22-Nov-17 22-Nov-20 22-Nov-22

-

-

-

-

-

-

-

-

-

-

12,763

Deferred shares

11,44420-Aug-16 27-Feb-18-

11,444 100 333,155--- (11,444) 100 319,644

Deferred shares

3,153

20-Aug-16 20-Aug-18-

3,153 100 94,929

-

-

-

Deferred shares

1,182

22-Nov-16 22-Nov-17-

1,182 100 34,610

-

-

-

-

Deferred shares

6,305

29.28 22-Nov-17 22-Nov-18

-

-

-

-

-

-

-

-

Deferred shares

6,305

29.28 22-Nov-17 22-Nov-19

-

-

-

-

-

-

-

-

Deferred shares

6,305

29.28 22-Nov-17 22-Nov-20

-

-

-

-

-

-

-

Deferred shares

6,305

29.28 22-Nov-17 22-Nov-21

-

-

-

-

-

-

-

Performance rights

38,97613.40 22-Nov-17 22-Nov-20 22-Nov-22

-

-

-

-

-

-

-

-

-

-

38,976

Performance rights

12,992

7.68 22-Nov-17 22-Nov-20 22-Nov-22

-

-

-

-

-

-

-

-

-

-

12,992

F Ohlsson Deferred shares

4,562

29.28 22-Nov-17 22-Nov-18

-

-

-

-

-

-

-

-

-

-

-

4,562

Deferred shares

4,559

29.28 22-Nov-17 22-Nov-19

-

-

-

-

-

-

-

-

-

-

-

4,559

Deferred shares

4,559

29.28 22-Nov-17 22-Nov-20

-

-

-

-

-

-

-

-

-

-

-

4,559

Deferred shares

4,559

29.28 22-Nov-17 22-Nov-21

-

-

-

-

-

-

-

-

-

-

-

4,559

04-Dec-14 04-Dec-17

-

-

-

M Jablko

62(6,935) 100 199,768

-

-

-

3,153

-

-

-

1,182

-

-

-

-

6,305

-

-

-

6,305

-

-

-

-

6,305

-

-

-

-

6,305

-

-

Employee Share Offer

23

23 100

653

-

-

-

-

23

-

Deferred share rights

7,361

22-Nov-13 22-Nov-16 21-Nov-18

-

-

-

-

-

-

(7,361) 100 204,660--

Deferred share rights

4,861

22-Nov-13 22-Nov-16 21-Nov-18

-

-

-

-

-

-

(4,861) 100 135,152--

Deferred share rights

4,406

21-Nov-14 21-Nov-16 21-Nov-18

-

-

-

-

-

-

(4,406) 100 122,501--

Deferred share rights

7,553

21-Nov-14 21-Nov-17 21-Nov-19

7,553 100 221,591

-

-

-

(7,553) 100 209,998--

Deferred share rights

8,199

18-Nov-15 18-Nov-16 18-Nov-18

-

-

-

-

(8,199) 100 227,959--

Deferred share rights

8,711

18-Nov-15 18-Nov-17 18-Nov-19

8,711 100 256,571

-

-

-

(8,711) 100 242,195--

4,050 100 118,588

-

-

-

(4,050) 100 118,588--

Deferred share rights

4,050

22-Nov-16 22-Nov-17 29-Nov-17

Performance rights

7,185

21-Nov-14 21-Nov-17 21-Nov-19

-

-

-

(7,185) 100 (210,795)(6,613) 100 (194,014)

-

-

-

-

-

-

-

Performance rights

6,613

21-Nov-14 21-Nov-17 21-Nov-19

-

-

-

-

-

-

-

-

Performance rights

28,18813.40 22-Nov-17 22-Nov-20 22-Nov-22

-

-

-

-

-

-

-

-

-

-

28,188Performance rights

9,396

7.68 22-Nov-17 22-Nov-20 22-Nov-22

-

-

-

-

-

-

-

-

-

-

9,396

ANZ 2018 ANNUAL REPORT8. OTHER INFORMATION (continued)
CEO and Disclosed Executives equity granted, vested, exercised/sold and lapsed/forfeited

Name

Type
of
equityEquity fairvalue at
grant
(for 2018
grantsNumberonly)
granted1
$

Grant
date

First
date
exercisable

Lapsed/Forfeited

VestedDateofexpiry Number%

Value2$ Number%

Vested Unexerand exer- cisable
as atcisable as
Value2 at 30 Sep 30 Sep%$
20183 20184

Exercised/Sold
Value2$ NumberCEO and Current Disclosed Executives
M Whelan Deferred shares

6,271

Deferred shares

16,147

Deferred shares

6,724

21-Nov-14 21-Nov-17-

6,271 100 183,980

-

-

-

(6,271) 100 176,110

18-Nov-15 18-Nov-17-

16,147 100 475,589--- (16,147) 100 453,461--

22-Nov-16 22-Nov-17-

6,724 100 196,885

-

-

-

-

-

(6,724) 100 188,832--

Deferred shares

9,219

29.28 22-Nov-17 22-Nov-18

-

-

-

-

-

-

-

-

-

-

-

9,219

Deferred shares

9,218

29.28 22-Nov-17 22-Nov-19

-

-

-

-

-

-

-

-

-

-

-

9,218

Deferred shares

9,218

29.28 22-Nov-17 22-Nov-20

-

-

-

-

-

-

-

-

-

-

-

9,218

Deferred shares

9,218

29.28 22-Nov-17 22-Nov-21--

Performance rights

7,022

-

-

-

-

-

-

-

-

-

9,218

21-Nov-14 21-Nov-17 21-Nov-19--- (7,022) 100 (206,013)

-

-

-

-

-

Performance rights

6,464

21-Nov-14 21-Nov-17 21-Nov-19--- (6,464) 100 (189,642)

-

-

-

-

-

Performance rights

56,98513.40 22-Nov-17 22-Nov-20 22-Nov-22

-

-

-

-

-

-

-

-

-

-

56,985

Performance rights

18,9957.68 22-Nov-17 22-Nov-20 22-Nov-22

-

-

-

-

-

-

-

-

-

-

18,995Former Disclosed Executives
G Hodges6 Deferred shares

13,29718-Nov-15 18-Nov-17-

13,297 100 391,646

-

-

-

-

-

-

13,297-

Deferred shares

5,276

22-Nov-16 22-Nov-17-

5,276 100 154,486

-

-

-

-

-

-

5,276

-

Deferred share rights

6,623

27.65 22-Nov-17 22-Nov-18 29-Nov-18

-

-

-

-

-

-

-

-

-

-

6,623

Deferred share rights

7,003

26.15 22-Nov-17 22-Nov-19 29-Nov-19

-

-

-

-

-

-

-

-

-

-

7,003

Deferred share rights

7,408

24.72 22-Nov-17 22-Nov-20 29-Nov-20

-

-

-

-

-

-

-

-

-

-

7,408

Deferred share rights

7,833

23.38 22-Nov-17 22-Nov-21 29-Nov-21

-

-

-

-

-

-

-

-

-

-

7,833

Performance rights

17,55621-Nov-14 21-Nov-17 21-Nov-19--- (17,556) 100 (515,061)

-

-

-

-

-

Performance rights

16,16021-Nov-14 21-Nov-17 21-Nov-19--- (16,160) 100 (474,105)

-

-

-

-

-

Performance rights

12,66418-Nov-15 18-Nov-18 18-Nov-20

-

-

-

(567)

4

(15,925)

-

-

-

-

12,097

Performance rights

12,66418-Nov-15 18-Nov-18 18-Nov-20

-

-

-

(567)

4

(15,925)

-

-

-

-

12,097(567)

4

Performance rights

12,66418-Nov-15 18-Nov-18 18-Nov-20

-

-

-

(15,925)

-

-

-

-

12,097

Performance rights

32,61722-Nov-16 22-Nov-19 22-Nov-21--- (12,452)

38 (349,726)

-

-

-

-

20,165

Performance rights

10,87222-Nov-16 22-Nov-19 22-Nov-21--- (4,151)

38 (116,585)

-

-

-

-

6,721

Performance rights

38,62813.40 22-Nov-17 22-Nov-20 22-Nov-22--- (27,632)

72 (776,070)

-

-

-

-

10,996

Performance rights

12,876

7.68 22-Nov-17 22-Nov-20 22-Nov-22--- (9,211)

72 (258,699)

-

-

-

-

3,665

N Williams Deferred shares

17,09718-Nov-15 18-Nov-17-

17,097 100 503,570--- (17,097) 100 500,616--

Deferred shares

6,355

22-Nov-16 22-Nov-17-

6,355 100 186,080

-

-

-

-

-

Deferred shares

6,355

22-Nov-16 22-Nov-18

-

-

-

-

-

- (6,355) 100 (180,708)(6,355) 100 186,080---

Deferred shares

6,355

22-Nov-16 22-Nov-19

-

-

-

- (6,355) 100 (180,708)

-

-

-

-

-

Deferred shares

6,355

22-Nov-16 22-Nov-20

-

-

-

- (6,355) 100 (180,708)

-

-

-

-

-

Deferred share rights

27,68521-Nov-14 21-Nov-17 21-Nov-19

Deferred share rights

33,63218-Nov-15 18-Nov-18 18-Nov-20

27,685 100 812,228--- (33,632) 100 (956,346)--- (27,685) 100 810,642

-

-

-

-

-

-

-

Deferred share rights

31,68622-Nov-16 22-Nov-19 29-Nov-19--- (31,686) 100 (901,010)

-

-

-

-

-

Deferred share rights

5,669

27.65 22-Nov-17 22-Nov-18 29-Nov-18--- (5,669) 100 (161,201)

-

-

-

-

-

Deferred share rights

5,994

26.15 22-Nov-17 22-Nov-19 29-Nov-19--- (5,994) 100 (170,443)

-

-

-

-

-

Deferred share rights

6,341

24.72 22-Nov-17 22-Nov-20 29-Nov-20--- (6,341) 100 (180,310)

-

-

-

-

-

Deferred share rights

6,704

23.38 22-Nov-17 22-Nov-21 29-Nov-21--- (6,704) 100 (190,632)

-

-

-

-

-

Deferred share rights

26,13224.72 22-Nov-17 22-Nov-20 29-Nov-20--- (26,132) 100 (743,079)

-

-

-

-

-

REMUNERATION REPORT63

REMUNERATION REPORT (continued)
8. OTHER INFORMATION (continued)
CEO and Disclosed Executives equity granted, vested, exercised/sold and lapsed/forfeited
1.

2.

3.

4.

For the purpose of the five highest paid executive disclosures, Executives are defined as Disclosed Executives or other members of the Group Executive Committee. For the 2018 financial
year the five highest paid executives include four Disclosed Executives and the Group Executive, International (F Faruqui). Rights granted to Disclosed Executives as remuneration in 2018
are included in the table. Rights granted to F Faruqui as remuneration in 2018 include four tranches of deferred share rights and two tranches of performance rights granted on 22 Nov 2017.
(8,572 (tranche 1) deferred share rights first exercisable 22 Nov 2018, expiring 29 Nov 2018; 9,064 (tranche 2) deferred share rights first exercisable 22 Nov 2019, expiring 29 Nov 2019; 9,588(tranche 3) deferred share rights first exercisable 22 Nov 2020, expiring 29 Nov 2020; 10,138 (tranche 4) deferred share rights first exercisable 22 Nov 2021, expiring 29 Nov 2021; 49,992 (tranche
1) and 16,664 (tranche 2) performance rights first exercisable 22 Nov 2020 subject to meeting performance hurdles, expiring 22 Nov 2022). No rights have been granted to the CEO, Disclosed
Executives or the five highest paid executives since the end of 2018 up to the Directors' Report sign-off date.
The point in time value of shares/share rights and/or performance rights is based on the one day VWAP of the Company’s shares traded on the ASX on the date of vesting, lapsing/forfeiture
or exercising/sale/transfer out of trust, multiplied by the number of shares/share rights and/or performance rights. The exercise price for all share rights/performance rights is $0.00. No termsof share-based payment transactions have been altered or modified during the reporting period.
The number vested and exercisable is the number of shares, options and rights that remain vested at the end of the reporting period. No shares, options and rights were vested
and unexercisable.
Performance rights granted in prior years (by grant date) that remained unexerciseable at 30 Sep 2018 include:
Nov-15
159,573
10,5205,772
53,133
10,91053,19036,291-S Elliott
M Carnegie
K Corbally
A George
D HiscoM Jablko
F Ohlsson
M Whelan
G Hodges
N Williams
5.
6.

Nov-16
150,482
9,745
5,445
4,738
53,597
9,745
31,30655,42826,886-

Nov-17143,294
39,4404,230
25,52051,05351,96837,58475,98014,661-Equity disclosed from commencement in Disclosed Executive role. There are no disclosable transactions since commencement.
Equity transactions disclosed up to termination date.

NED, CEO and Disclosed Executives equity holdings

The table below sets out details of equity held directly, indirectly or beneficially by each NED, the CEO and each Disclosed Executive, including
their related parties.

Name

Type

Opening balanceat 1 Oct 2017

Granted during
the year as
remuneration1

Received during
the year on
exercise of
options or rights

Resulting fromany otherchanges during
the year2

Closingbalance at
30 Sep 20183, 4Current Non-Executive Directors

D GonskiOrdinary shares

31,488---31,488I AtlasOrdinary shares

7,360

-

-

7,000

14,360P DwyerOrdinary shares

15,000

-

-

2,500

17,500J HaltonOrdinary shares

2,830

-

-

6,219

9,049

J Key

3,000

-

-

-

3,000

590,000--(590,000)

-

H Lee

Ordinary shares
Perpetualsubordinated bonds7
Directors' Share Plan

2,518

-

-

144

2,662

Ordinary shares

8,000

-

-

-

8,000

G Liebelt

Ordinary shares

20,315---

20,315

Capital notes 1

1,500

-

-

-

1,500

Capital notes 2

2,500

-

-

-

2,500

Ordinary shares

17,851---

17,851

Capital notes 2

2,000

-

-

-

2,000

Capital notes 3

5,000

-

-

-

5,000

Deferred shares

53,906

34,118-

4,065

92,089Ordinary shares

131,679---

131,679

Performance rights

364,000

143,294-(53,945)453,349

Deferred shares

80,085

19,140-(36,304)

62,921

Ordinary shares

14

-

-

-

14

9,745

39,440--49,1855J Macfarlane

CEO and Current Disclosed Executives

S Elliott

M Carnegie

Performance rights

64

ANZ 2018 ANNUAL REPORT8. OTHER INFORMATION (continued)
NED, CEO and Disclosed Executive equity holdings

Name

Type

Opening balanceat 1 Oct 2017

Granted during
the year as
remuneration1

Received during
the year on
exercise of
options or rights

Resulting fromany otherchanges during
the year2

Closingbalance at
30 Sep 20183, 4

CEO and Current Disclosed Executives (continued)

K Corbally5
A George

Deferred shares

44,963--676

45,639Performance rights

20,195---20,195

Deferred shares

30,626

12,384-

1,969

44,979Ordinary shares

2,678

-

-

-

2,678

Capital notes 1
Performance rights
D HiscoM Jablko
F Ohlsson

M Whelan

Employee Share Offer

802

-

-

-

802

15,73525,520-(5,225)36,030

74

24

-

-

98

Ordinary shares

195,657-

29,362(87,019)

138,000

Deferred share rights

52,994

28,615(29,362)-

52,247

Performance rights

153,882

51,053-(47,152)

157,783

Deferred shares

46,56925,220-(10,058)

61,731

Performance rights

9,745

51,968--61,713

Deferred shares-

18,239-526

18,765

Employee Share Offer

74

-

-

-

74

Ordinary shares--

45,141(41,091)

4,050

Deferred share rights

63,571-(45,141)-

18,430

Performance rights

56,01437,584-(13,798)

79,800

Deferred shares

51,79836,873-(28,691)

59,980

Performance rights

122,104

75,980-(13,486)

184,598

Deferred shares

205,626

-

-

8,804

214,430

Ordinary shares

70,639---70,639

Capital notes 4

1,350

-

-

-

1,350

-

28,867--28,867

Performance rights

115,197

51,504-(88,863)

77,838Deferred shares

45,173--(43,928)

1,245

Former Disclosed Executives

G Hodges6

Deferred share rights
N Williams

Ordinary shares
Deferred share rights
1.
2.

3.

4.
5.
6.
7.

-

-

27,685(27,685)-

93,00350,840(27,685)(116,158)-

Details of options/rights granted as remuneration during 2018 are provided in the previous table.
Shares resulting from any other changes during the year include the net result of any shares purchased (including under the ANZ Share Purchase Plan), forfeited, sold or acquired under the
Dividend Reinvestment Plan.
The following shares (included in the holdings above) were held on behalf of the NEDs, CEO and Disclosed Executives (i.e. indirect beneficially held shares) as at 30 September 2018:
D Gonski – 31,488, I Atlas – 14,360, P Dwyer – 17,500, J Halton – 0, J Key – 3,000, H Lee – 2,662, G Liebelt – 8,158, J Macfarlane – 24,851, S Elliott – 223,768, M Carnegie – 62,921,
K Corbally – 45,639, A George – 48,459, D Hisco – 138,098, M Jablko – 61,731, F Ohlsson – 18,839, M Whelan – 59,980, G Hodges – 258,515 and N Williams – 1,245.
No options/rights were vested and exercisable or vested and unexerciseable as at 30 September 2018. There was no change in the balance as at the Directors' Report sign-off date.
Commencing balance is based on holdings as at the date of commencement in a KMP role.
Concluding balance is based on holdings as at the date of retirement.
Issued by ANZ Bank New Zealand Limited listed on NZDX (code: ANBHA) – redeemed at par at NZD1.00 per bond.

REMUNERATION REPORT65

REMUNERATION REPORT (continued)
8. OTHER INFORMATION (continued)
8.2 LOANSWhen we lend to NEDs, the CEO or Disclosed Executives, we do so: in the ordinary course of business; and on normal commercial terms andconditions that are no more favourable than those given to other employees or customers – this includes the term of the loan, the security
required and the interest rate. There has been no write down of loans during the period.
The table below sets out details of loans outstanding, to NEDs, the CEO and Disclosed Executives including their related parties, if – at any time
during the year – the individual’s aggregate loan balance exceeded $100,000.
Other than the loans disclosed below, no other loans were made, guaranteed or secured by any entity in the Group to the NEDs, the CEO and
Disclosed Executives, including their related parties.
NED, CEO and Disclosed Executives loan transactions

Opening balance at Closing balance at
1 October 20171 30 September 2018
Name

Interest paid andpayable in thereporting period1

Highest balancein the reporting
period

$$$$9,413,444

11,133,324

454,730

12,490,913

S Elliott

3,095,492

3,008,098

109,950

3,095,492

A George

1,988,132

1,931,665

69,584

1,988,132

D Hisco78,704-595

78,867

Current Non-Executive Directors

J Macfarlane
CEO and Current Disclosed Executives

F Ohlsson

2,945,973

2,875,528

71,7252,946,274

M Whelan

1,729,311

1,719,062

76,2901,739,112

G Hodges2

3,258,912

2,276,139

142,039

3,732,600

N Williams

45,337900,000

7,003

900,000

22,555,305

23,843,816

931,916

26,971,390

Former Disclosed Executives

Total
1.
2.

Actual interest paid after considering offset accounts. The loan balance is shown gross, however the interest paid takes into account the impact of offset amounts.
Concluding balance is based on balance as at the date of retirement.

8.3 OTHER TRANSACTIONSAll other transactions involving the NEDs, the CEO and Disclosed Executives and their related parties are conducted on normal commercial
terms and conditions that are no more favourable than those given to other employees or customers. Any that are on foot, are trivial ordomestic in nature.

66

ANZ 2018 ANNUAL REPORTTHIS PAGE HAS BEEN INTENTIONALLY LEFT BLANKREMUNERATION REPORT

67

DIRECTORS’REPORTThe Directors’ Report for the financial year ended 30 September
2018 has been prepared in accordance with the requirements of
the Corporations Act 2001. The information below forms part of thisDirectors’ Report:•• Principal activities on page 5•• Operating and financial review on pages 14 to 26•• Dividends on page 25•• Information on the Directors, Company Secretaries andDirectors’ meetings on pages 28 to 36•• Remuneration report on pages 40 to 67

Significant changes in state of affairs
There have been no significant changes in the Group’s state of affairs.
Events since the end of the financial year
There have been no significant events from 30 September 2018 to thedate of signing this report.
Political donations
Our policy is that we make an annual donation to the two major
Federal parties to support the democratic process in Australia. In 2018,
ANZ donated $100,000 to the Liberal Party of Australia and $100,000 to
the Australia Labor Party.
Environmental Regulation
ANZ recognises the expectations of its stakeholders – customers,
shareholders, staff and the community – to operate in a way thatmitigates its environmental impact.
In Australia, ANZ meets the requirements of the National Greenhouseand Energy Reporting Act 2007 (Cth), which imposes reporting
obligations where energy production, usage or greenhouse gas
emissions trigger specified thresholds.
ANZ holds a licence under the Water Act 1989 (Vic), allowing it
to extract water from the Yarra River for thermal regulation of its
Melbourne head office building. The licence specifies daily and annual
limits for the extraction of water from the Yarra River with which ANZ
fully complies. The extraction of river water reduces reliance on thehigh quality potable water supply and is one of several environmental
initiatives that ANZ has introduced at its Melbourne head office building.
The Group does not believe that its operations are subject to any
particular and significant environmental regulation under a law of theCommonwealth of Australia or of an Australian State or Territory. It may
become subject to environmental regulation as a result of its lending
activities in the ordinary course of business and has developed policies
to identify and manage such environmental matters.
Having made due enquiry, and to the best of ANZ’s knowledge, noentity of the Group has incurred any material environmental liability
during the year.
Further details of ANZ’s environmental performance, including progressagainst its targets and details of its emissions profile, are available onanz.com>About us>Corporate Sustainability.

68

ANZ 2018 ANNUAL REPORT

Corporate Governance Statement
ANZ is committed to maintaining a high standard in its governanceframework. ANZ confirms it has followed the ASX Corporate
Governance Council’s Corporate Governance Principles andRecommendations (3rd edition) (ASX Governance Principles)during the 2018 financial year. ANZ’s Corporate GovernanceStatement, together with the ASX Appendix 4G which relates to
the Corporate Governance Statement, can be viewed at anz.com/
CorporateGovernance and has been lodged with the ASX.
As an overseas listed issuer on the NZX, ANZ is deemed to comply
with the NZX Listing Rules provided that it remains listed on the ASX,
complies with the ASX Listing Rules and provides the NZX with all theinformation and notices that it provides to the ASX. ANZ met thoserequirements during the year.
The ASX Governance Principles may materially differ from the NZX’scorporate governance rules and the principles of the NZX’s Corporate
Governance Code. More information about the corporate governancerules and principles of the ASX can be found at asx.com and, in respectof the NZX, at nzx.com.

Pillar 3 information
ANZ provides information required by APS 330: Public Disclosurein the Regulatory Disclosures section at shareholder.anz.com/pages/
regulatory-disclosure.
Non-audit services
The Group’s Stakeholder Engagement Model for Relationship with theExternal Auditor (the Policy), which incorporates requirements of the
Corporations Act 2001 and industry best practice, prevents the external
auditor from providing services that are perceived to be in conflict withthe role of the external auditor or breach independence requirements.
This includes consulting advice and sub-contracting of operational
activities normally undertaken by management, and engagements
where the external auditor may ultimately be required to express an
opinion on its own work.
Specifically the Policy:•• limits the scope of non-audit services that may be provided;•• requires that audit, audit-related and permitted non-audit
services be considered in light of independence requirements
and for any potential conflicts of interest before they areapproved by the Audit Committee, or approved by the Chairof the Audit Committee (or delegate) and notified to the Audit
Committee; and•• requires pre-approval before the external auditor cancommence any engagement for the Group.
Further details about the Policy can be found in the Corporate
Governance Statement.

The external auditor has confirmed to the Audit Committee that it has:•• implemented procedures to ensure it complies withindependence rules in applicable jurisdictions, including
Australia and the United States; and•• indemnify any officer or employee of the Company, or its
auditor, against liabilities (so far as may be permitted underapplicable law) incurred as such by an officer, employee orauditor, including liabilities incurred as a result of appointment
or nomination by the Company as a trustee or as an officer or
employee of another corporation; and•• complied with applicable policies and regulations regarding
the provision of non-audit services including those applicablein Australia, those prescribed by the US Securities andExchange Commission, and the Policy.
The Audit Committee has reviewed the non-audit services provided by
the external auditor during the 2018 financial year, and has confirmedthat the provision of these services is consistent with the Policy,
compatible with the general standard of independence for auditors
imposed by the Corporations Act 2001 and did not compromise theauditor independence requirements of the Corporations Act 2001. Thishas been formally advised by the Audit Committee to the Boardof Directors.
The categories of non-audit services supplied to the Group during
the year ended 30 September 2018 by the external auditor, KPMG, orby another person or firm on KPMG’s behalf, and the amounts paid or
payable (including GST) by the Group are as follows:

Non-audit services

Directors’ and Officers’ indemnity
The Company’s Constitution (Rule 11.1) permits the Company to:

Amount paid/payable
$’000
2018
2017

General market or regulatory insights

187

91

Training related services

17

8

Controls related assessments

94

165

Methodology and procedural reviews

10

478

Total

308

742

Further details on the compensation paid to KPMG is provided in Note
34 Compensation of Auditors to the financial statements including
details of audit-related services provided during the year of$6.28 million (2017: $6.17 million).
For the reasons set out above, the Directors are satisfied that theprovision of non-audit services by the external auditor during the year
ended 30 September 2018 is compatible with the general standard of
independence for external auditors imposed by the Corporations Act
2001 and did not compromise the auditor independence requirementsof the Corporations Act 2001.

•• make payments in respect of legal costs incurred by an officer,
employee or auditor in defending an action for a liability
incurred as such by an officer, employee or auditor, or inresisting or responding to actions taken by a government
agency, a duly constituted Royal Commission or other official
inquiry, a liquidator, administrator, trustee in bankruptcy orother authorised official.
It is the Company’s policy that its employees should be protectedfrom any liability they incur as a result of acting in the course of theiremployment, subject to appropriate conditions.
Under the policy, the Company will indemnify employees and former
employees against any liability they incur to any third party as a resultof acting in the course of their employment with the Company or asubsidiary of the Company and this extends to liability incurred as aresult of their appointment/nomination by or at the request of theGroup as an officer or employee of another corporation or body oras trustee.
The indemnity is subject to applicable law and in addition will not
apply to liability arising from:•• serious misconduct, gross negligence or lack of good faith;•• illegal, dishonest or fraudulent conduct; or•• material non-compliance with the Company’s policies,
processes or discretions.
In accordance with the employee indemnity policy, the Company has
during or since the year ended 30 September 2018 paid legal expenses
totalling $30,455.31 incurred by Mr Richard Moscati in relation to legal
proceedings brought against him and the Company by a third party.
The Company has entered into Indemnity Deeds with each of its
Directors, with certain secretaries and former Directors of the Company,
and with certain employees and other individuals who act as directors
or officers of related bodies corporate or of another company, toindemnify them against liabilities and legal costs of the kind mentioned
in the Company’s constitution.
During the financial year, the Company has paid premiums for
insurance for the benefit of the directors and employees of theCompany and related bodies corporate of the Company. In accordancewith common commercial practice, the insurance prohibits disclosureof the nature of the liability insured against and the amountof the premium.

DIRECTORS’ REPORT

69

DIRECTORS’ REPORT (continued)
Key management personnel and employee shareand option plans
The Remuneration Report contains details of Non-Executive Directors,
Chief Executive Officer and Disclosed Executives’ equity holdings
and options/rights issued during the 2018 financial year and as
at the date of this report.
Note 31 Employee Share and Option Plans to the 2018 Financial Reportcontains details of the 2018 financial year and as at the date ofthis report:•• Options/rights issued over shares granted to employees;•• Shares issued as a result of the exercise of options/rights
granted to employees; and•• Other details about share options/rights issued, including
any rights to participate in any share issues of the Company.
The names of all persons who currently hold options/rights are enteredin the register kept by the Company pursuant to section 170 of the
Corporations Act 2001. This register may be inspected free of charge.

Rounding of amounts
The Company is a company of the kind referred to in Australian
Securities and Investments Commission Corporations (Rounding in
Financial/Directors’ Reports) Instrument 2016/191 dated 24 March 2016
and, in accordance with that Instrument, amounts in the consolidated
financial statements and this Directors’ Report have been rounded to
the nearest million dollars unless specifically stated otherwise.
This report is made in accordance with a resolution of the Boardof Directors and is signed for and on behalf of the Directors.

David M Gonski, AC		
Shayne Elliott
Chairman			Director
30 October 2018

Lead Auditor’s Independence Declaration
The Lead Auditors Independence Declaration given under Section
307C of the Corporations Act 2001 is set out below and forms part of
the Directors Report for the year ended 30 September 2018.
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 audit of Australia and New Zealand Banking Group Limited for thefinancial year ended 30 September 2018, there have been:•• no contraventions of the auditor independence requirements as
set out in the Corporations Act 2001 in relation to the audit; and•• no contraventions of any applicable code of professional
conduct in relation to the audit.

KPMG			Alison Kitchen
			Partner
30 October 201870

ANZ 2018 ANNUAL REPORTFINANCIALREPORT
CONTENTS
Consolidated Financial Statements
Income Statement
Statement of Comprehensive Income
Balance Sheet
Cash Flow Statement
Statement of Changes in Equity

72
73
74
75
76

Notes to The Consolidated Financial Statements
Basis of preparation
1. About our Financial Statements

77

Financial Performance
2. Operating Income
3. Operating Expenses
4. Income Tax
5. Dividends
6. Earnings per Ordinary Share
7. Segment Reporting

83
86
87
89
91
92

Financial Assets
8. Cash and Cash Equivalents
9. Trading Securities
10. Derivative Financial Instruments
11. Available-for-sale Assets
12. Net Loans and Advances
13. Provision for Credit Impairment

94
95
96
100
102
103

Financial Liabilities
14. Deposits and Other Borrowings
15. Debt Issuances

105
106

Employee and Related Party Transactions
30. Superannuation and Post Employment Benefits Obligations
31. Employee Share and Option Plans
32. Related Party Disclosures

153
154
158

111
124
129

Other Disclosures
33. Commitments, Contingent Liabilities and Contingent Assets
34. Compensation of Auditors
35. Events Since the End of the Financial Year

160
163
163

Directors’ Declaration
Independent Auditor’s Report

164
165

Financial Instrument Disclosures
16. Financial Risk Management
17. Fair Value of Financial Assets and Financial Liabilities
18.	Assets Charged as Security for Liabilities and CollateralAccepted as Security for Assets
19. Offsetting

130

Non-Financial Assets
20. Goodwill and Other Intangible Assets

131

Non-Financial Liabilities
21. Other Provisions

133

Equity22. Shareholders’ Equity
23. Capital Management

135
137

Consolidation and Presentation
24. Parent Entity Financial Information
25. Controlled Entities
26. Investments in Associates
27. Structured Entities
28. Transfers of Financial Assets
29.	Discontinued Operations and Assets and Liabilities
Held For Sale

139
140
141
144
147
148

FINANCIAL REPORT71

ANZ 2018 ANNUAL REPORTFINANCIAL REPORTINCOME STATEMENT
2018
$m

2017
$m

Interest income

30,327

29,120Interest expense(15,813)(14,245)

For the year ended 30 September1

Note

Net interest income

2

14,514

14,875

Other operating income

2

4,558

3,589

Net funds management and insurance income

2

576

634

Share of associates’ profit

2

Operating income
Operating expenses

3

Profit before credit impairment and income tax
Credit impairment charge

13

Profit before income tax
Income tax expense

4

Profit after tax from continuing operations
Profit/(Loss) after tax from discontinued operations

29

Profit for the year

183

300

19,831

19,398(9,248)(8,967)

10,583

10,431(688)(1,198)

9,895

9,233

(2,784)(2,874)

7,111

6,359

(695)

62

6,416

6,421

6,400

6,406

16

15

Comprising:
Profit attributable to shareholders of the Company
Profit attributable to non-controlling interests
Earnings per ordinary share (cents) including discontinued operations
Basic

6

221.6

220.1

Diluted

6

212.1

210.8

Earnings per ordinary share (cents) from continuing operations
Basic

6

245.6

218.0

Diluted

6

234.2

208.8

Dividend per ordinary share (cents)

5

160

160

1.

Information has been restated and presented on a continuing operations basis. Discontinued operations consists of OnePath pensions and investments and aligned dealer groups being sold to IOOF
Holdings Limited and the life insurance business being sold to Zurich Financial Services Australia.
The notes appearing on pages 77 to 163 form an integral part of these financial statements.

72

ANZ 2018 ANNUAL REPORT

72

FINANCIAL REPORTSTATEMENT OF COMPREHENSIVE INCOME
For the year ended 30 September1

2018
$m

2017
$m

Profit for the year from continuing operations

7,111

6,359

32

26

Foreign currency translation reserve2

222

(748)

Other reserve movements

137

(297)

Income tax attributable to the above items

Other comprehensive income
Items that will not be reclassified subsequently to profit or loss
Items that may be reclassified subsequently to profit or loss

(118)

8

Share of associates’ other comprehensive income3

25

1

Other comprehensive income after tax from continuing operations

298(1,010)

Profit/(Loss) after tax from discontinued operations

(695)

62

18

(30)

6,732

5,381

6,706

5,372

26

9

Other comprehensive income after tax from discontinued operations
Total comprehensive income for the year
Comprising total comprehensive income attributable to:Shareholders of the Company
Non-controlling interests
1.

2.
3.

Information has been restated and presented on a continuing operations basis. Discontinued operations consists of OnePath pensions and investments and aligned dealer groups being sold to IOOF
Holdings Limited and the life insurance business being sold to Zurich Financial Services Australia.
Includes foreign currency translation differences attributable to non-controlling interests of $10 million gain (2017: $6 million loss).
Share of associates’ other comprehensive income includes an available-for-sale revaluation reserve gain of $28 million (2017: $1 million loss) and a foreign currency translation reserve loss of $3 million(2017: $2 million gain) that may be reclassified subsequently to profit or loss.

The notes appearing on pages 77 to 163 form an integral part of these financial statements.

FINANCIAL REPORT73

73

ANZ 2018 ANNUAL REPORTFINANCIAL REPORT (continued)
BALANCE SHEETAs at 30 September

Note

2018
$m

2017
$m

8

84,636

68,048

2,319

5,504

AssetsCash and cash equivalents1
Settlement balances owed to ANZ

11,043

8,987

Trading securities

937,72243,605Derivative financial instruments

10

68,42362,518Available-for-sale assets

11

74,284

69,384

Net loans and advances

12603,938

574,331

882

2,015

Assets held for sale29

45,2487,970

Investments in associates

26

2,553

2,248

Collateral paid

Regulatory deposits

Current tax assets

268

30

Deferred tax assets

900

675

4,930

6,970

-

37,964

1,833

1,965

Goodwill and other intangible assets

20

Investments backing policy liabilities
Premises and equipment
Other assets

3,645

5,112

Total assets

942,624

897,326

11,8109,914

Liabilities
Settlement balances owed by ANZ

6,542

5,919

Deposits and other borrowings

14618,150

595,611

Derivative financial instruments

10

Collateral received

69,67662,252Current tax liabilities

300

241

Deferred tax liabilities

59

257

Liabilities held for sale29

Policy liabilities

47,1594,693-

37,448External unit holder liabilities

-

4,435

Payables and other liabilities

6,788

8,350

540

530

Employee entitlements
Other provisions

21

1,038

628

Debt issuances

15

121,179

107,973

Total liabilities

883,241

838,251

Net assets

59,38359,07527,20529,088

Shareholders' equity
Ordinary share capital

22

Reserves

22

323

37

Retained earnings

22

31,71529,834

Share capital and reserves attributable to shareholders of the Company

22

59,243

58,959Non-controlling interests

22

140

116

Total shareholders' equity

22

59,38359,075

1.

Includes settlement balances owed to ANZ that meet the definition of cash and cash equivalents.

The notes appearing on pages 77 to 163 form an integral part of these financial statements.

74

ANZ 2018 ANNUAL REPORT

74

FINANCIAL REPORTCASH FLOW STATEMENTThe Consolidated Cash Flow Statement includes discontinued operations. Please refer to Note 29 for cash flows associated with discontinued
operations and cash and cash equivalents reclassified as held for sale.
2018
For the year ended 30 September

2017

$m

$m

6,416

6,421

688
1,199
(4)
6,721
(594)
693
(55)

1,198
972
(114)
(3,409)541(167)

Net (increase)/decrease in operating assets:
Collateral paid
Trading securities
Net loans and advances
Investments backing policy liabilities1
Other assets(1,648)
8,565(24,739)(3,914)
(973)

3,533
2,081
(17,838)(2,122)509

Net increase/(decrease) in operating liabilities:
Deposits and other borrowings
Settlement balances owed by ANZ
Collateral received
Life insurance contract policy liabilities1
Other liabilities

12,207
1,853
186
4,263
(298)

30,904
(627)
(310)
2,260
215

Total adjustments

4,150

17,626

10,56624,047(23,806)
20,592
2,148
1,000
232

(27,220)
19,751(5,213)(148)

166(12,830)

25,075(15,898)(4,563)(114)(1,880)25,128(27,409)(4,386)(75)-

Net cash provided by/(used in) financing activities

2,620(6,742)

Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Effects of exchange rate changes on cash and cash equivalents

13,352
68,0483,564

4,475
66,220(2,647)

Cash and cash equivalents at end of year4

84,96468,048

Profit after income tax
Adjustments to reconcile to net cash provided by/(used in) operating activities:
Provision for credit impairment
Depreciation and amortisation(Profit)/loss on sale of premises and equipment
Net derivatives/foreign exchange adjustment(Gain)/loss on sale from divestments
Reclassification of businesses to held for sale
Other non-cash movements

Net cash provided by operating activities

2

Cash flows from investing activities
Available-for-sale assets:
Purchases
Proceeds from sale or maturity
Proceeds from divestments
Proceeds from Zurich reinsurance arrangement
Other assets
Net cash provided by/(used in) investing activities
Cash flows from financing activities
Debt issuances:3
Issue proceeds
Redemptions
Dividends paid
On market purchase of treasury shares
Share buyback

1.

Investments backing policy liabilities and life insurance policy liabilities have been reclassified as held for sale.
Net cash provided by/(used in) operating activities includes income taxes paid of $3,373 million (2017: $2,864 million).
Non-cash changes in debt issuances includes fair value hedging gains of $1,443 million (2017: $1,498 million) and foreign exchange losses of $5,712 million (2017: foreign exchange gains $1,324 million).
4.
Includes cash and cash equivalents recognised on the face of balance sheet of $84,636 million (2017: $68,048 million) and amounts recorded as part of assets held for sale of $328 million (2017: nil).
2.
3.

The notes appearing on pages 77 to 163 form an integral part of these financial statements.

FINANCIAL REPORT75

75

ANZ 2018 ANNUAL REPORTFINANCIAL REPORT (continued)
STATEMENT OF CHANGES IN EQUITY

Reserves$m

Retainedearnings$m

Share capitaland reserves
attributable toshareholdersof the Company$m28,765

1,078

27,97557,818109

57,927

Profit or loss from continuing operations

-

-

6,344

6,344

15

6,359

Profit or loss from discontinued operations

-

-

62

62

-

62

Other comprehensive income for the year fromcontinuing operations-(1,019)15(1,004)(6)(1,010)

Other comprehensive income for the year fromdiscontinued operations

-

(30)

-

(30)

-

(30)

Total comprehensive income for the year-

(1,049)

6,421

5,372

9

5,381

Dividends paid--

(4,609)(4,609)(1)(4,610)

Dividend income on treasury shares held within
the Group’s life insurance statutory funds

-

-

26

26

-

26

198

-

-

198

-

198

Treasury shares Wealth Australia adjustment

69

-

-

69

-

69

Group employee share acquisition scheme

56

-

-

56

-

56

Other items

-

8

21

29

(1)

28

29,08837

29,83458,959116

59,075

Profit or loss from continuing operations

-

-

7,095

7,095

16

7,111

Profit or loss from discontinued operations

-

-

(695)

(695)

-

(695)

Other comprehensive income for the year fromcontinuing operations

-

264

24

288

10

298

Other comprehensive income for the year fromdiscontinued operations

-

18

-

18

-

18

Total comprehensive income for the year

-

282

6,424

6,706

26

6,732

Dividends paid--

(4,585)(4,585)(2)(4,587)

Dividend income on treasury shares held within theGroup’s life insurance statutory funds

-

-

24

24

-

24

Dividend reinvestment plan2

-

-

-

-

-

-

(1,880)--(1,880)-(1,880)Treasury shares Wealth Australia adjustment

(2)

-

-

(2)

-

(2)

Group employee share acquisition scheme

(1)

-

-

(1)

-

(1)

Other items

-

4

18

22

-

22

27,205323

31,71559,243140

59,383As at 1 October 2016

Ordinaryshare capital$m

NonTotal
controlling shareholders’interests
equity$m$mTransactions with equity holders in their capacity
as equity holders1:

Dividend reinvestment plan2
Other equity movements1:

As at 30 September 2017

Transactions with equity holders in their capacity
as equity holders1:

Group share buy-back3

Other equity movements1:

As at 30 September 2018
1
2

3

Current period and prior periods include discontinued operations.
No new shares were issued under the Dividend Reinvestment Plan (DRP) for the 2018 interim dividend (nil shares for the 2017 final dividend; nil shares for the 2017 interim dividend; 7.1 million shares for the2016 final dividend) as the shares were purchased on-market and provided directly to the shareholders participating in the DRP. On-market share purchases for the DRP in the September 2018 financial year
were $392 million (2017: $176 million).
As announced on 18 December 2017, 22 June 2018 and 19 October 2018, there is currently an on-market buy-back in relation to ANZ’s ordinary shares of $3.0 billion. The Company bought back $1,880
million worth of shares during the 2018 financial year resulting in 66.7 million shares being cancelled during the year.

The notes appearing on pages 77 to 163 form an integral part of these financial statements.

76

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. ABOUT OUR FINANCIAL STATEMENTS
These are the financial statements for Australia and New Zealand Banking Group Limited (the Company) and its controlled entities (together, ‘theGroup’ or ‘ANZ’) for the year ended 30 September 2018. The Company is incorporated and domiciled in Australia. The address of the Company’s
registered office and its principal place of business is ANZ Centre, 833 Collins Street, Docklands, Victoria, Australia 3008.
On 30 October 2018, the Directors resolved to authorise the issue of these financial statements.
Information in the financial statements is included only to the extent we consider it material and relevant to the understanding of the financial
statements. A disclosure is considered material and relevant if, for example:
 the dollar amount is significant in size (quantitative factor); the dollar amount is significant by nature (qualitative factor); the user cannot understand the Group’s results without the specific disclosure (qualitative factor); the information is critical to a user’s understanding of the impact of significant changes in the Group’s business during the period - for example,
business acquisitions or disposals (qualitative factor); the information relates to an aspect of the Group’s operations that is important to its future performance (qualitative factor); and the information is required under legislative requirements of the Corporations Act 2001, the Banking Act 1959 (Cth) or by the Group’s principal
regulators, including the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA).
This section of the financial statements:
 outlines the basis upon which the Group’s financial statements have been prepared; and discusses any new accounting standards or regulations that directly impact the financial statements.

BASIS OF PREPARATIONThis financial report is a general purpose (Tier 1) financial report prepared by a ‘for profit’ entity, in accordance with Australian Accounting Standards(AASs) and other authoritative pronouncements of the Australian Accounting Standards Board (AASB), the Corporations Act 2001, and International
Financial Reporting Standards (IFRS) and interpretations published by the International Accounting Standards Board (IASB).
We present the financial statements of the Group in Australian dollars, which is the Company’s functional and presentation currency. We haverounded values to the nearest million dollars ($m), unless otherwise stated, as allowed under the ASIC Corporations (Rounding in Financial/Directors
Report) Instrument 2016/191. We measure the financial statements of each entity in the Group using the currency of the primary economic
environment in which that entity operates (the functional currency).

BASIS OF MEASUREMENT
We have prepared the financial information in accordance with the historical cost basis - except the following assets and liabilities which we havestated at their fair value: derivative financial instruments and in the case of fair value hedging, a fair value adjustment is made on the underlying hedged exposure; available-for-sale financial assets;
 financial instruments held for trading; other financial assets and financial liabilities designated at fair value through profit or loss; and certain other assets and liabilities held for sale where the fair value less costs of disposal is less than their carrying value (except for certain assets
and liabilities held for sale which are exempt from this requirement).
In accordance with AASB 1038 Life Insurance Contracts (AASB 1038) we have measured life insurance liabilities using the Margin on Services (MoS)
model. In accordance with AASB 119 Employee Benefits (AASB 119) we have measured defined benefit obligations using the Projected Unit
Credit Method.

DISCONTINUED OPERATIONS
The financial results of the Wealth Australia businesses being divested (OnePath pensions and investments and the aligned dealer groups businessbeing sold to IOOF Holdings Limited, and the life insurance business being sold to Zurich Financial Services Australia) and associated Group
reclassification and consolidation impacts are treated as discontinued operations from a financial reporting perspective. These businesses qualify as
discontinued operations, which are a subset of assets held for sale, as they represent a major line of business. The comparative Group Income
Statement and Statement of Comprehensive Income have been restated to show discontinued operations separately from continuing operations ina separate line item ‘Profit/(Loss) from discontinued operations’. This impacts the current and comparative financial information for Wealth Australia
and Technology, Services & Operations (TSO) and Group Centre divisions. The Balance Sheet is not restated when a business is reclassified as a
discontinued operation.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

77

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ANZ 2018 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. ABOUT OUR FINANCIAL STATEMENTS (continued)
BASIS OF CONSOLIDATIONThe consolidated financial statements of the Group comprise the financial statements of the Company and all its subsidiaries. An entity, including a
structured entity, is considered a subsidiary of the Group when we determine that the Company has control over the entity. Control exists when theGroup is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its
power over the entity. We assess power by examining existing rights that give the Group the current ability to direct the relevant activities of theentity. We have eliminated, on consolidation, the effect of all transactions between entities in the Group.

FOREIGN CURRENCY TRANSLATION
TRANSACTIONS AND BALANCES
Foreign currency transactions are translated into the relevant functional currency at the exchange rate prevailing at the date of the transaction. At thereporting date, monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the relevant spot rate.
Any foreign currency translation gains or losses that arise are included in profit or loss in the period they arise.
We measure translation differences on non-monetary items at fair value through profit or loss and report them as part of the fair value gain or loss onthese items. We include any translation differences on non-monetary items classified as available-for-sale financial assets in the available-for-salerevaluation reserve in equity.
FINANCIAL STATEMENTS OF FOREIGN OPERATIONS THAT HAVE A FUNCTIONAL CURRENCY THAT IS NOT AUSTRALIAN DOLLARS
The financial statements of our foreign operations are translated into Australian dollars for consolidation into the Group Financial Statements using thefollowing method:
Foreign currency item

Exchange rate used

Assets and liabilities

The reporting date rate

EquityThe initial investment date rate

Income and expenses

The average rate for the period – but if for a significant transaction we believe
the average rate is not reasonable, then we use the transaction date rate

Exchange differences arising from the translation of financial statements of foreign operations are recognised in the foreign currency translation
reserve in equity. When we dispose of a foreign operation, the cumulative exchange differences are transferred to profit or loss as part of the gain orloss on sale.

FIDUCIARY ACTIVITIESThe Group provides fiduciary services to third parties including custody, nominee, trustee, administration and investment management services
predominantly through the wealth businesses. This involves the Group holding assets on behalf of third parties and making decisions regarding thepurchase and sale of financial instruments. If ANZ is not the beneficial owner or does not control the assets, then we do not recognise thesetransactions in these financial statements, except when required by accounting standards or another legislative requirement.

KEY JUDGEMENTS AND ESTIMATES
In the process of applying the Group’s accounting policies, management has made a number of judgements and applied estimatesand assumptions about past and future events. Further information on the key judgements and estimates that we consider material to
the financial statements are contained within the relevant notes to the financial statements.

78

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. ABOUT OUR FINANCIAL STATEMENTS (continued)
ACCOUNTING STANDARDS NOT EARLY ADOPTED
A number of new standards, amendments to standards and interpretations have been published but are not mandatory for the financial statements
for the year ended 30 September 2018, and have not been applied by the Group in preparing these financial statements.
We have identified four standards relevant to the Group and further details are set out below.
Mandatory Application of New Accounting Standards to the Group
1 October 2017

1 October 2018

1 October 2019

1 October 2020

1 October 2021

BeyondAASB 9 & AASB 15
AASB 16
AASB 17
Financial Year 2018

Financial Year 2019

Financial Year 2020

Financial Year 2021

Financial Year 2022

AASB 9 FINANCIAL INSTRUMENTS (AASB 9)
In December 2014, the AASB issued the Australian Accounting Standard AASB 9 Financial Instruments which has replaced AASB 139 Financial
Instruments: Recognition and Measurement (AASB 139). AASB 9 is effective for the Group from 1 October 2018.
AASB 9 stipulates new requirements for the impairment of financial assets, classification and measurement of financial assets and financial liabilities
and general hedge accounting. Details of the key requirements and estimated impacts on the Group are outlined below.
Impairment
AASB 9 replaces the incurred loss impairment model under AASB 139 with an expected credit loss (ECL) model incorporating forward looking
information and which does not require an actual loss event to have occurred for an impairment provision to be recognised.
The ECL model will be applied to all financial assets measured at amortised cost, debt instruments measured at fair value through othercomprehensive income, lease receivables, certain loan commitments and financial guarantees not measured at fair value through profit or loss.
Under the ECL model, the following three-stage approach is applied to measuring ECL based on credit migration between the stages
since origination:
 Stage 1: At the origination of a financial asset, and where there has not been a significant increase in credit risk since origination, a provisionequivalent to 12 months ECL is recognised.
 Stage 2: Where there has been a significant increase in credit risk since origination, a provision equivalent to lifetime ECL is recognised. If credit risk
were to improve in a subsequent period such that the increase in credit risk since origination is no longer considered significant, the exposure
returns to a Stage 1 classification and a 12 month ECL.
 Stage 3: Similar to the current AASB 139 requirements for individual impairment provisions, lifetime ECL is recognised for loans where there is
objective evidence of impairment.
Expected credit losses are estimated at the facility level by using a probability of default reflecting a probability weighted range of possible future
economic scenarios, and applying this to the estimated exposure of the Group at the point of default (exposure at default) after taking into accountthe value of any collateral held or other mitigants of loss (loss given default), while allowing for the impact of discounting for the time value of money.
Key judgements and estimates made by the Group include the following: Significant increase in credit risk
Stage 2 assets are those that have experienced a significant increase in credit risk (SICR) since initial recognition. In determining what constitutes a
SICR, the Group considers both qualitative and quantitative information. For the majority of portfolios, the primary indicator of a SICR is asignificant deterioration in the internal credit rating grade of a facility since origination. The Group will also use secondary indicators, such as 30days past due arrears, as backstops to these primary indicators.
The determination of trigger points in relation to the deterioration of rating grades, combined with secondary risk indicators where used, requires
judgement. In determining the Group’s policy, alternative indicators have been considered and assessed, and these will be subject to regularreview to ensure they remain appropriate.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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ANZ 2018 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. ABOUT OUR FINANCIAL STATEMENTS (continued)
 Forward looking information
The measurement of expected credit losses reflects an unbiased probability-weighted range of possible future outcomes.
In applying forward looking information in the Group’s AASB 9 credit models, the Group uses four alternative economic scenarios in estimating
ECL. A base case scenario reflects management’s base case assumptions used for medium term planning purposes. Additional upside anddownside scenarios are determined together with a severe downside scenario. The Group’s Credit and Market Risk Committee (CMRC) will be
responsible for reviewing and approving forecast economic scenarios and the associated probability weights applied to each scenario.
Where applicable, adjustments may be made to account for situations where known or expected risks have not been adequately addressed in themodelling process. CMRC will be responsible for recommending such adjustments.
The overall level of expected credit losses and areas of significant management judgement will be reported to, and oversighted by, the Group’s
Board Risk Committee.
Classification and measurement

Financial assets - general
There are three measurement classifications for financial assets under AASB 9: Amortised Cost, Fair Value through Profit or Loss (FVTPL) and Fair Value
through Other Comprehensive Income (FVOCI). Financial assets are classified into these measurement classifications on the basis of two criteria:
 the business model within which the financial asset is managed; and the contractual cash flow characteristics of the financial asset (specifically whether the contractual cash flows represent solely payments ofprincipal and interest).
The resultant financial asset classifications are as follows: Amortised cost: Financial assets with contractual cash flows that comprise the payment of principal and interest only and which are held in abusiness model whose objective is to collect their cash flows; Fair value through other comprehensive income: Financial assets with contractual cash flows that comprise the payment of principal and interest
only and which are held in a business model whose objective is to collect their cash flows or to sell; and Fair value through profit or loss: Any other financial assets not falling into the categories above are measured at FVTPL.
In December 2017, the AASB issued AASB 2017-6 Amendments to Australian Accounting Standards - Prepayment Features with Negative
Compensation which amends the requirements of AASB 9 so that certain prepayment features meet the solely payments of principal and interest test.
The Group intends to early adopt this amendment so that it applies from the date of initial application of AASB 9.
AASB 9 allows the Group to irrevocably elect to designate a financial asset as measured at FVTPL on initial recognition if doing so eliminates orsignificantly reduces an accounting mismatch.

Financial assets - equity instruments
AASB 9 also permits non-traded equity investments to be designated at FVOCI on an instrument by instrument basis. If this election is made under
AASB 9, gains or losses are not reclassified from other comprehensive income to profit or loss on disposal of the investment. However, gains or losses
may be reclassified within equity.

Financial liabilities
The classification and measurement requirements for financial liabilities under AASB 9 are largely consistent with AASB 139 with the exception that for
financial liabilities designated as measured at fair value, gains or losses relating to changes in the entity’s own credit risk are included in othercomprehensive income, except where doing so would create or enlarge an accounting mismatch in profit or loss. This part of the standard was early
adopted by the Group on 1 October 2013.
General hedge accounting
AASB 9 introduces new hedge accounting requirements which more closely align accounting with risk management activities undertaken when
hedging financial and non-financial risks.
AASB 9 provides the Group with an accounting policy choice to continue to apply the AASB 139 hedge accounting requirements until theInternational Accounting Standards Board’s ongoing project on macro hedge accounting is completed. The Group’s current expectation is that it willcontinue to apply the hedge accounting requirements of AASB 139.
Transition to AASB 9
Other than as noted above under classification and measurement of financial liabilities, AASB 9 has a date of initial application for the Group of 1
October 2018.
The classification and measurement, and impairment requirements will be applied retrospectively by adjusting opening retained earnings at 1
October 2018. ANZ does not intend to restate comparatives.

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1. ABOUT OUR FINANCIAL STATEMENTS (continued)
Impact
The estimated impact of AASB 9 relates to the Impairment and the Classification and Measurement provisions. These estimates are based on
accounting policies, assumptions and judgements and estimation techniques that remain subject to change until the Group finalises its financial
statements for the year ending 30 September 2019.
 Impairment
For the consolidated financial statements of the Group, the adoption of AASB 9 is expected to reduce net assets at 1 October 2018 byapproximately $813 million offset by deferred tax of approximately $232 million. This will result in a reduction in the CET1 capital ratio of
approximately 6 bps at Level 2, and approximately 12 bps at Level 1.
 Classification and measurement of financial assets
While some classification changes will occur as a result of the application of the business model and contractual cash flow characteristics tests,
these are not expected to be significant from a Group perspective.
The adoption of the Classification and Measurement requirements of the standard will result in measurement differences compared to thoseunder AASB 139. Financial assets with a current carrying value of approximately $4.5 billion, predominantly bonds and debt instruments, will bereclassified between amortised cost, FVTPL and FVOCI. The net re-measurement from these reclassifications is not material. There are no othermaterial changes in the measurement categories.
 Classification and measurement of financial liabilities
The Group has issued certain financial liabilities (bonds included within the Debt issuances caption) with an amortised cost carrying amount at 30
September 2018 of $879 million. The Group will elect to designate these liabilities as measured at fair value through profit or loss effective frominitial application of AASB 9 to reduce an accounting mismatch that currently exists. The impact on net assets and retained earnings is
not material.
AASB 15 REVENUE FROM CONTRACTS WITH CUSTOMERS (AASB 15)
AASB 15 is effective for the Group from 1 October 2018 and replaces existing guidance on the recognition of revenue from contracts withcustomers. The standard requires identification of distinct performance obligations within a contract, and allocation of the transaction price of thecontract to those performance obligations. Revenue is then recognised as each performance obligation is satisfied. The standard also provides
guidance on whether an entity is acting as a principal or an agent which impacts the presentation of revenue on a gross or net basis.
The Group has assessed all revenue streams existing at the date of transition to the new standard and determined that the impact of AASB 15 isimmaterial given a majority of Group revenues are outside the scope of the standard. The Group will adopt AASB 15 retrospectively including
restatement of prior period comparatives.
Certain revenues for the Retail credit cards and Wealth businesses will be impacted as follows: Trail commissions: Certain trail commission income previously recognised over time by the Group will be recognised at inception of a contract
when the Group distributes the underlying products to customers. This will result in the Group recognising the expected future trail commission
income upfront where it is highly probable the revenue will not need to be reversed in future periods.
 Credit card revenue: Certain loyalty costs will be presented as operating expenses rather than presented as a net reduction of other operating
income where the Group is assessed to be acting as a principal (rather than an agent) under the new standard. In addition, certain incentives
received from card scheme providers related to card marketing and migration activities will be presented as operating income and no longer
netted against operating expenses.
AASB 16 LEASES (AASB 16)
The final version of AASB 16 was issued in February 2016 and is not effective for the Group until 1 October 2019. AASB 16 requires a lessee to recognise
its right to use the underlying leased asset, as a right-of-use asset, and its obligation to make lease payments as a lease liability.
AASB 16 substantially carries forward the lessor accounting requirements in AASB 117 Leases.
The Group is in the process of assessing the impact of the application of AASB 16 and is not yet able to reasonably estimate the impact on its
financial statements.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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ANZ 2018 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. ABOUT OUR FINANCIAL STATEMENTS (continued)
AASB 17 INSURANCE CONTRACTS (AASB 17)
The final version of AASB 17 was issued in July 2017 and is not effective for the Group until 1 October 2021. It will replace AASB 4 Insurance Contracts,
AASB 1023 General Insurance Contracts and AASB 1038 Life Insurance Contracts. AASB 17 establishes principles for the recognition, measurement,
presentation and disclosure of insurance contracts.
The measurement, presentation and disclosure requirements under AASB 17 are significantly different from current accounting standards. Although theoverall profit recognised in respect of insurance contracts will not change, it is expected that the timing of profit recognition will change.
The Group is not yet able to reasonably estimate the impact of AASB 17 on its financial statements.

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2. OPERATING INCOME
2018
$m

2017
$m

Available-for-sale assets

1,524

1,223

Financial assets at amortised cost

27,657

26,790

Trading securities

1,140

1,099

Net interest income
Interest income by type of financial asset

Financial assets designated at FV through profit or loss
Interest income

6830,327

29,120Interest expense by type of financial liability(15,082)(13,836)

Securities sold short

(253)

(131)

Financial liabilities designated at FV through profit or loss

(123)

(192)

Interest expense(15,458)(14,159)

Major bank levy

(355)

(86)

14,514

14,875

Financial liabilities at amortised cost

Net interest income
Other operating incomei) Fee and commission income

655

732

Non-lending fees and commissions

2,823

2,993

Fee and commission income

3,478

3,725

Fee and commission expense(1,224)(1,272)

Net fee and commission income

2,254

2,453

1,666

1,445

-

114

Lending fees1ii) Other income
Net foreign exchange earnings and other financial instruments income
Gain on sale of 100 Queen Street, Melbourne
Sale of Asia Retail and Wealth businesses

99

(310)

Sale of Shanghai Rural Commercial Bank (SRCB)

233

(231)

Sale of Metrobank Card Corporation (MCC)

240-

Sale of ANZ Royal Bank (Cambodia) Ltd (Cambodia JV)

(42)

-

Sale of PNG Retail, Commercial & SME

(19)

-

127

118

Other income2

2,304

1,136

Other operating income

4,558

3,589

261

321

Other

Net funds management and insurance income
Funds management income-

17

Insurance premium income

375

424

Investment income
Commission expense

(29)

(47)

Claims(67)(49)

Changes in policy liabilities

36

(32)

Net funds management and insurance income

576

634

Share of associates' profit

183

300

19,831

19,398Operating income
1.
2.
3.

3

Lending fees exclude fees treated as part of the effective yield calculation of interest income.
Other income includes external dividend income of $39 million (2017: $27 million).
Includes customer remediation of $228 million (2017: $70 million).

Information has been restated and presented on a continuing operations basis.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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ANZ 2018 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
2. OPERATING INCOME (continued)

RECOGNITION AND MEASUREMENTNET INTEREST INCOME
Interest Income and Expense
We recognise interest income and expense for all financial instruments, including those classified as held for trading, available-for-sale (AFS)
assets or designated at fair value through profit or loss in net interest income. For assets held at amortised cost we use the effective interest
rate method to calculate amortised cost. The effective interest rate is the rate that discounts the stream of estimated future cash receipts or
payments over the expected life of the financial instrument or, when appropriate, a shorter period, to the net carrying amount of thefinancial asset or liability. For assets subject to prepayment, we determine their expected life on the basis of historical behaviour of theparticular asset portfolio - taking into account contractual obligations and prepayment experience.
We recognise fees and costs, which form an integral part of the financial instrument (for example loan origination fees and costs), using theeffective interest rate method. This is presented as part of interest income or expense depending on whether the underlying financial
instrument is a financial asset or financial liability.
Major Bank Levy

The Major Bank Levy Act 2017 (‘Levy’ or ‘Major bank levy’) became effective from 1 July 2017 and applies a rate of 0.06% to certain liabilitiesof the Company. The Group has determined that the levy represents a finance cost for the Group and is presented in interest expense in
the Income Statement.
OTHER OPERATING INCOME
Fee and Commission Income
We recognise fees or commissions: that relate to the execution of a significant act (for example, advisory or arrangement services, placement fees and underwriting fees)
when the significant act has been completed; and charged for providing ongoing services (for example, maintaining and administering existing facilities) as income over the period theservice is provided.
Net Foreign Exchange Earnings and Other Financial Instruments Income
We recognise the following as net foreign exchange earnings and other financial instruments income: exchange rate differences arising on the settlement of monetary items and translation differences on monetary items translated at
rates different to those at which they were initially recognised or included in a previous financial report;
 fair value movements (excluding realised and accrued interest) on derivatives that we use to manage interest rate and foreignexchange risk on funding instruments not designated as accounting hedges;
 the ineffective portions of fair value hedges, cash flow hedges and net investment hedges;
 fair value movements on financial assets and financial liabilities designated at fair value through profit or loss or held for trading; amounts released from the AFS revaluation reserve in equity when an AFS asset is sold; and immediately upon sale or repayment of a hedged item, the unamortised fair value adjustments in items designated as fair value
hedges and amounts accumulated in equity related to designated cash flow hedges.
Gain or Loss on Disposal of Non-Financial Assets
The gain or loss on the disposal of assets is the difference between the carrying value of the asset and the proceeds of disposal net of costs.
This is recognised in other income in the year in which the significant risks and rewards transfer to the buyer.

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2. OPERATING INCOME (continued)

RECOGNITION AND MEASUREMENT
NET FUNDS MANAGEMENT AND INSURANCE INCOME
Funds Management Income
We recognise the fees we charge to customers in connection with financial advice and the management of investment products when we
have provided the service.
Insurance Income
We recognise: premiums with a regular due date as income on an accruals basis;
 claims on an accruals basis once our liability to the policyholder has been confirmed under the terms of contract; and change in life insurance contract asset net of liability for reinsurance, under the Margin of Service (MoS) model.
We show insurance premiums net of any reinsurance premium, which we account for on the same basis as the underlying direct
insurance premium.
SHARE OF ASSOCIATES’ PROFITThe equity method is applied to accounting for associates. Under the equity method, the Group’s share of the after tax results ofassociates is included in the Income Statement and the Statement of Comprehensive Income.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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ANZ 2018 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. OPERATING EXPENSES
2018
$m

2017
$m

Personnel
Salaries and related costs

4,225

4,332

Superannuation costs

290

303

Other

243

289

4,758

4,924

Rent

468

500

Other

343

362

Premises expenses

811

862

Depreciation and amortisation

739

721

Licences and outsourced services

675

633

Accelerated amortisation1

251

-

Other

234

248

1,899

1,602

227

62

Advertising and public relations

200

239

Professional fees

528

429

Freight, stationery, postage and communication

223

258

Royal Commission legal costs

55

-

Other

547

591

Other expenses

1,553

1,517

Operating expenses2

9,248

8,967

Personnel expenses
Premises

Technology

Technology expenses
Restructuring
Other

1.
2.

Accelerated software amortisation charge relates to certain software assets in the Institutional and Australia divisions following the reassessment of useful lives.
Includes customer remediation expenses of $191 million (2017: $83 million).

Information has been restated and presented on a continuing operations basis.

RECOGNITION AND MEASUREMENTOPERATING EXPENSES
Operating expenses are recognised as services are provided to the Group over the period in which an asset is consumed or once a
liability is created.
SALARIES AND RELATED COSTS - ANNUAL LEAVE, LONG SERVICE LEAVE AND OTHER EMPLOYEE BENEFITS
Wages and salaries, annual leave and other employee entitlements expected to be paid or settled within twelve months of
employees rendering service are measured at their nominal amounts using remuneration rates that the Group expects to pay when
the liabilities are settled.
We accrue employee entitlements relating to long service leave using an actuarial calculation. It includes assumptions regarding staff
departures, leave utilisation and future salary increases. The result is then discounted using market yields at the reporting date. The market
yields are determined from a blended rate of high quality corporate bonds with terms to maturity that closely match the estimated future
cash outflows.
If we expect to pay short term cash bonuses, then a liability is recognised when the Group has a present legal or constructive obligation to pay
this amount (as a result of past service provided by the employee) and the obligation can be reliably measured.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

3. OPERATING EXPENSES (continued)

RECOGNITION AND MEASUREMENT
Personnel expenses also include share-based payments which may be cash or equity settled. We calculate the fair value of equity
settled remuneration at grant date, which is then amortised over the vesting period, with a corresponding increase in share capital or
the share option reserve as applicable. When we estimate the fair value, we take into account market vesting conditions, such as
share price performance conditions. We take non-market vesting conditions, such as service conditions, into account by adjusting
the number of equity instruments included in the expense.
After the grant of an equity-based award, the amount we recognise as an expense is reversed when non-market vesting conditions
are not met, for example an employee fails to satisfy the minimum service period specified in the award on resignation, termination
or notice of dismissal for serious misconduct. However, we do not reverse the expense if the award does not vest due to the failure tomeet a market-based performance condition.
Further information on share-based payment schemes operated by the Group during the current and prior year is included in Note
31 Employee Share and Option Plans.

4. INCOME TAX
INCOME TAX EXPENSE
Reconciliation of the prima facie income tax expense on pre-tax profit with the income tax expense recognised in profit or loss:
2018
$m

2017
$m

Profit before income tax from continuing operations

9,895

9,233

Prima facie income tax expense at 30%

2,969

2,770

Tax effect of permanent differences:
Sale of MCC

(78)

-

Share of associates’ profit

(55)

(90)

Sale of SRCB

(84)

172

Sale of Cambodia JV

13-Sale of PNG Retail, Commercial & SME

8-Interest on convertible instruments

67

69

Overseas tax rate differential

(58)

(37)

Provision for foreign tax on dividend repatriation

32

15

Tax provisions no longer required

(41)

-

Other

8

(6)

Subtotal

2,781

2,893

3

(19)

Income tax expense

2,784

2,874

Current tax expense

3,004

3,150

3

(19)

Income tax (over)/under provided in previous years

Adjustments recognised in the current year in relation to the current tax of prior years

(223)

(257)

2,784

2,874

Australia

1,799

2,017

Overseas

985

857

28.1%

31.1%

Deferred tax expense/(income) relating to the origination and reversal of temporary differences
Income tax expense

Effective tax rate

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

87

87

ANZ 2018 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. INCOME TAX (continued)
TAX CONSOLIDATIONThe Company and all its wholly owned Australian resident entities are part of a tax-consolidated group under Australian taxation law. The Company is
the head entity in the tax-consolidated group. We recognise each of the following in the separate financial statements of members of the tax
consolidated group on a ‘group allocation’ basis: tax expense/income, and deferred tax liabilities/assets, that arise from temporary differences of themembers of the tax-consolidated group. The Company (as head entity in the tax-consolidated group) recognises current tax liabilities and assets ofthe tax-consolidated group.
Under a tax funding arrangement between the entities in the tax-consolidated group, amounts are recognised as payable to or receivable by theCompany and each member of the tax-consolidated group in relation to the tax contribution amounts paid or payable between the Company andthe other members of the tax-consolidated group.
Members of the tax-consolidated group have also entered into a tax sharing agreement that provides for the allocation of income tax liabilities
between the entities were the head entity to default on its income tax payment obligations.

UNRECOGNISED DEFERRED TAX ASSETS AND LIABILITIES
Unrecognised deferred tax assets related to unused realised tax losses (on revenue account) total $4 million (2017: $4 million). Unrecognised deferred
tax liabilities related to additional potential foreign tax costs (assuming all retained earnings in offshore branches and subsidiaries are repatriated) total$422 million (2017: $413 million).

RECOGNITION AND MEASUREMENT
INCOME TAX EXPENSE

CURRENT TAX EXPENSE

DEFERRED TAX ASSETS AND LIABILITIESKEY JUDGEMENTS AND ESTIMATES
Judgement is required in determining provisions held in respect of uncertain tax positions. The Group estimates its tax liabilities
based on its understanding of the relevant law in each of the countries in which it operates and seeks independent advice whereappropriate.

88

ANZ 2018 ANNUAL REPORT88

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

5. DIVIDENDS
ORDINARY SHARE DIVIDENDS - INCLUDING DISCONTINUED OPERATIONSDividends are provided for in the financial statements once determined, accordingly, the final dividend announced for the current financial year is provided forand paid in the following financial year.
Amountper share

Total dividend$m2016 final dividend paid

80 cents

2,3422017 interim dividend paid

80 cents

2,349

Dividends% of total

Financial Year 2017

Bonus option plan adjustment(82)

Dividends paid during the year ended 30 September 2017

4,609

Cash

91.9%

Dividend reinvestment plan

8.1%

4,235
374

Dividends paid during the year ended 30 September 2017

4,609

Financial Year 20182017 final dividend paid

80 cents

2,350

2018 interim dividend paid

80 cents

2,317

Bonus option plan adjustment(82)

Dividends paid during the year ended 30 September 2018

4,585

Cash

91.5%

Dividend reinvestment plan

8.5%

4,193
392

Dividends paid during the year ended 30 September 2018

Dividends announced and to be paid after year-end
2018 final dividend (fully franked at 30%, New Zealand imputation credit
NZD 10 cents per share)

4,585

Payment dateAmountper share

Total
dividend$m

18 December 201880 cents

2,296

DIVIDEND REINVESTMENT PLAN AND BONUS OPTION PLAN
Eligible shareholders can elect to reinvest their dividend entitlement into ANZ ordinary shares under the Company’s Dividend Reinvestment Plan
(DRP). Eligible shareholders can elect to forgo their dividend entitlement and instead receive ANZ ordinary shares under the Company’s Bonus Option
Plan (BOP). For the 2018 final dividend, DRP participation will be satisfied by an on-market purchase of shares and BOP participation will be satisfied by
an issue of ANZ ordinary shares. There will be no discount applied to the DRP and BOP price.
See Note 22 Shareholders’ Equity for details of shares the Company issued or purchased in respect of the DRP and BOP.

DIVIDEND FRANKING ACCOUNT
Currency

2018
$m

2017
$m

Australian franking credits available at 30% (2017: 30%) tax rate

AUD

97

171

New Zealand imputation credits available (which can be attached to our Australian
dividends but may only be used by New Zealand resident shareholders)

NZD

3,868

3,680

The above amounts represent the balances of the franking accounts as at the end of the financial year, adjusted for:
 franking credits that will arise from the payment of income tax payable as at the end of the financial year; and franking credits/debits from the receipt/payment of dividends that have been recognised as tax receivables/payables as at the end of thefinancial year.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

89

89

ANZ 2018 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. DIVIDENDS (continued)
The proposed final 2018 dividend will utilise the entire balance of $97 million franking credits available at 30 September 2018. Instalment tax
payments on account of the 2019 financial year which will be made after 30 September 2018 will generate sufficient franking credits to enable thefinal 2018 dividend to be fully franked. The extent to which future dividends will be franked will depend on a number of factors, including the level ofprofits generated by the Group that will be subject to tax in Australia.

RESTRICTIONS ON THE PAYMENT OF DIVIDENDS
APRA’s written approval is required before paying dividends on ANZ ordinary shares: if the aggregate dividends exceed the Company’s after tax earnings (in calculating those after tax earnings, we take into account any payments wemade on senior capital instruments) in the financial year to which they relate; or if the Group’s Common Equity Tier 1 capital ratio falls within capital range buffers specified by APRA.
If the Company fails to pay a dividend or distribution on its ANZ Capital Notes or ANZ Capital Securities on the scheduled payment date, it may(subject to a number of exceptions) be restricted from resolving to pay or paying any dividend on the ANZ ordinary shares.

90 ANZ 2018 ANNUAL REPORT90

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

6. EARNINGS PER ORDINARY SHARE
Earnings per ordinary share (EPS) - Basic

2018
cents

2017
cents

Earnings Per Share1

221.6

220.1

Earnings Per Share from continuing operations

245.6

218.0

Earnings Per Share from discontinued operations(24.0)

2.1

Earnings per ordinary share (EPS) - Diluted

2018
cents

2017
cents

Earnings Per Share1

212.1

210.8

Earnings Per Share from continuing operations

234.2

208.8

Earnings Per Share from discontinued operations(22.1)

2.0

Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders by the weighted average number of ordinary shares
outstanding during the period (after eliminating ANZ shares held within the Group known as treasury shares). Diluted EPS is calculated by adjusting
the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares used in the basic EPS calculation for theeffect of dilutive potential ordinary shares.
Reconciliation of earnings used in EPS calculations

2018
$m

2017
$m

6,416

6,421

16

15

Basic:
Profit for the year
Less: profit attributable to non-controlling interests
Earnings used in calculating basic earnings per share

6,400

6,406

Less: profit/(loss) after tax from discontinued operations

(695)

62

Earnings used in calculating basic earnings per share from continuing operations

7,095

6,344

6,400

6,406

279

288

6,679

6,694

Diluted:Earnings used in calculating basic earnings per share
Add: interest on convertible subordinated debt
Earnings used in calculating diluted earnings per share
Less: profit/(loss) after tax from discontinued operations

(695)

62

Earnings used in calculating diluted earnings per share from continuing operations

7,374

6,632

Reconciliation of weighted average number of ordinary shares (WANOS) used in EPS calculations22018
millions

2017
millions

WANOS used in calculating basic earnings per share

2,888.3

2,910.3

249.0

253.3

Add: Weighted average dilutive potential ordinary shares
Convertible subordinated debt
Share based payments (options, rights and deferred shares)
Adjusted weighted average number of shares - diluted

11.4

11.9

3,148.7

3,175.5

1.

Post disposal of the discontinued operations, treasury shares held in Wealth Australia will cease to be eliminated in the Group’s consolidated financial statements and will be included in the denominator
used in calculating earnings per share. If the weighted average number of treasury shares held in Wealth Australia was included in the denominator used in calculating earnings per share from continuing
operations for the September 2018 financial year, basic earnings per share would have been 244.4 cents (2017: 216.8) and diluted earnings per share would have been 233.1 cents (2017: 207.8 cents).
2.
Excludes the weighted average number of treasury shares held in ANZEST of 5.9 million (2017: 8.1 million) and Wealth Australia of 15.0 million (2017: 16.2 million)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

91

91

ANZ 2018 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. SEGMENT REPORTINGDESCRIPTION OF SEGMENTS
The Group’s six operating segments are presented on a basis that is consistent with the information provided internally to the Chief Executive Officer,
who is the chief operating decision maker. This reflects the way the Group’s businesses are managed, rather than the legal structure of the Group.
We measure the performance of these segments on a cash profit basis. To calculate cash profit, we remove certain non-core items from statutory
profit. Details of these items are included in the “Other Items” section of this note. Transactions between business units across segments within ANZ
are conducted on an arm’s-length basis and disclosed as part of the income and expenses of these segments.
The reportable segments are divisions engaged in providing either different products or services or similar products and services in different
geographical areas. They are as follows:
Australia
The Australia division comprises the Retail and Business & Private Banking (B&PB) business units.
 Retail provides products and services to consumer customers in Australia via the branch network, mortgage specialists, contact centres, a variety
of self-service channels (internet banking, phone banking, ATMs, website and digital banking) and third party brokers.
 B&PB provides a full range of banking products and financial services including asset financing across the following customer segments: medium
to large commercial customers and agribusiness customers across regional Australia, small business owners and high net worth individuals andfamily groups.
Institutional
The Institutional division services global institutional and corporate customers across three product sets: Transaction Banking, Loans & Specialised
Finance and Markets.
 Transaction Banking provides working capital and liquidity solutions including documentary trade, supply chain financing, commodity financing
as well as cash management solutions, deposits, payments and clearing.
 Loans & Specialised Finance provides loan products, loan syndication, specialised loan structuring and execution, project and export finance,
debt structuring and acquisition finance and corporate advisory.
 Markets provide risk management services on foreign exchange, interest rates, credit, commodities, debt capital markets in addition to managing
the Group's interest rate exposure and liquidity position.
New Zealand
The New Zealand division comprises the Retail and Commercial business units.
 Retail provides a full range of banking and wealth management services to consumer, private banking and small business banking customers. We
deliver our services via our internet and app-based digital solutions and network of branches, mortgage specialists, relationship managers andcontact centres.
 Commercial provides a full range of banking services including traditional relationship banking and sophisticated financial solutions throughdedicated managers focusing on privately owned medium to large enterprises and the agricultural business segment.
Wealth Australia
The Wealth Australia division comprises the Insurance and Funds Management business units, which provide insurance, investment andsuperannuation solutions intended to make it easier for customers to connect with, protect and grow their wealth.
 Discontinued operations of the Wealth Australia division comprise of the businesses subject to the sales agreement with IOOF and Zurich as
described in Note 29 Discontinued Operations and Assets and Liabilities Held for Sale.
 Continuing operations includes lenders mortgage insurance, share investing, financial planning and general insurance distribution.
Asia Retail & Pacific
The Asia Retail & Pacific division comprises the Asia Retail and Wealth, and the Pacific business units, connecting customers to specialists for theirbanking needs.
 Asia Retail and Wealth provides general banking and wealth management services to affluent and emerging affluent retail customers via
relationship managers, branches, contact centres and a variety of self-service digital channels (internet and mobile banking, phone and ATMs).
Core products offered include deposits, credit cards, loans, investments and insurance. Refer to Note 29 Discontinued Operations and Assets andLiabilities Held for Sale for details on the sale of Asia Retail and Wealth businesses.
 Pacific provides products and services to retail customers, small to medium-sized enterprises, institutional customers and Governments located in
the Pacific Islands. Products and services include retail products provided to customers, traditional relationship banking and sophisticated financial
solutions provided to business customers through dedicated managers.
Technology, Services & Operations (TSO) and Group Centre
TSO and Group Centre provide support to the operating divisions, including technology, group operations, shared services, property, risk
management, financial management, strategy, marketing, human resources and corporate affairs. The Group Centre includes Group Treasury,
Shareholder Functions and minority investments in Asia. Refer to Note 29 Discontinued Operations and Assets and Liabilities Held for Sale for details
on TSO and Group Centre discontinued operations.

92

ANZ 2018 ANNUAL REPORT92

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

7. SEGMENT REPORTING (continued)
OPERATING SEGMENTS
During 2018, the following structural changes were made as part of the broader ANZ simplification strategy:
 the corporate business, formerly part of the Corporate and Commercial Banking business within the Australia division, was transferred to theInstitutional division; the residual Asia Retail and Wealth businesses in Philippines, Japan and Cambodia not sold as part of the Asia Retail and Wealth divestment havebeen transferred to the Institutional division; and the Group made a further realignment by transferring Group Hub’s (Service Centres) divisional specific operations in TSO and Group Centre to
their respective divisions.
Asia TSO and
New
Wealth Retail &
Group
Other
Group
Australia Institutional Zealand Australia
Pacific
Centreitems1
Total
Year ended 30 September 2018
$m
$m
$m
$m
$m
$m
$m
$m
Net interest income
Other operating income
Operating income
Operating expenses
Profit before credit impairment and income tax
Credit impairment (charge)/release
Profit before income tax
Income tax expense and non-controlling interests
Profit after tax from continuing operations
Profit/(Loss) after tax from discontinued operations
Profit after tax attributable to shareholders
Non-cash items
Share of associates’ profit
Depreciation and amortisation2
Equity-settled share based payment expenses
Credit impairment (charge)/release
Financial position3
Goodwill
Investments in associates

8,409
1,086
9,495
(3,677)
5,818
(698)
5,120
(1,540)
3,580
3,580

3,068
2,062
5,130
(2,944)
2,186
44
2,230
(695)
1,535
1,535

2,587
663
3,250
(1,196)
2,054
(6)
2,048
(573)
1,475
1,475

49
282
331
(257)
74
74
(22)
52
(649)
(597)

186
246
432
(211)
221
(28)
193
(42)
151
151

215
361
576
(963)
(387)
(387)
81
(306)
(33)
(339)

617
617
617
617
(9)
608
(13)
595

14,514
5,317
19,831(9,248)
10,583(688)
9,895(2,800)
7,095
(695)
6,400

(1)
(217)
(14)
(698)

(410)
(83)
44

5
(48)
(7)
(6)

(43)
(3)
-

(7)
(4)
(28)

179
(474)
(26)
-

(1)
-

183
(1,199)
(138)
(688)

6
18

1,067
1

1,979
5

1,031
1

48
-

2,530

-

4,131
2,555

8,218
1,217
9,435
(3,382)
6,053
(885)
5,168
(1,552)
3,616
3,616

3,264
2,366
5,630
(2,814)
2,816
(92)
2,724
(800)
1,924
1,924

2,519
653
3,172
(1,193)
1,979
(78)
1,901
(532)
1,369
1,369

49
344
393
(262)
131
131
(36)
95
143
238

576
18
594
(614)
(20)
(144)
(164)
7
(157)
(157)

249
343
592
(702)
(110)
(110)
72
(38)
(14)
(52)

(418)
(418)
(418)
1
(417)
(48)
(465)
(67)
(532)

14,875
4,523
19,398(8,967)
10,431(1,198)9,233(2,889)
6,344
62
6,406

2
(184)
(17)
(885)

(1)
(210)
(92)
(92)

5
(49)
(8)
(78)

(77)
(5)
-

(14)
(4)
(144)

294
(438)
(32)
-

1

300
(972)
(158)
(1,198)

5
19

1,077
2

1,990
7

1,452
2

45
-

4,086

-

4,569
4,116

Year ended 30 September 2017
Net interest income
Other operating income
Operating income
Operating expenses
Profit before credit impairment and income tax
Credit impairment (charge)/release
Profit before income tax
Income tax expense and non-controlling interests
Profit after tax from continuing operations
Profit/(Loss) after tax from discontinued operations
Profit after tax attributable to shareholders
Non-cash items
Share of associates’ profit
Depreciation and amortisation2
Equity-settled share based payment expenses
Credit impairment (charge)/release
Financial position4
Goodwill
Investments in associates
1.

Cash profit represents ANZ's preferred measure of the result of the segments. We remove certain items from the segments as discussed on page 94 if we consider them not integral to the ongoing
performance of the segment.
2.
Includes technology depreciation and amortisation of $990 million (2017: $721 million) from continuing operations.
3.
Includes goodwill ($691 million) and investments in associates ($2 million) presented as assets held for sale.
4.
Restated to include goodwill ($122 million) and investment in associates ($1,868 million) presented as assets held for sale.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

93

93

ANZ 2018 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. SEGMENT REPORTING (continued)
OTHER ITEMSThe table below sets out the profit after tax impact of other items which are removed from statutory profit to reflect the cash profit of each segment.
Profit after tax
2018
$m

2017
$m

New Zealand

14

(25)

Institutional, TSO and Group Centre

248

(209)

Item

Related segment

Revaluation of policy liabilities
Economic hedges
Revenue and expense hedges

TSO and Group Centre

999

Structured credit intermediation trades

Institutional

4

3

Reclassification of SRCB to held for sale

TSO and Group Centre

Total from continuing operations
Treasury shares adjustment
Revaluation of policy liabilities
Total from discontinued operations

Wealth Australia
Wealth Australia

Total

333

(333)

608

(465)

(7)
(6)
(13)

(58)
(9)
(67)

595

(532)

SEGMENT INCOME BY PRODUCTS AND SERVICES
The primary sources of our external income across all divisions are interest income and other operating income. The Australia, New Zealand, and Asia
Retail & Pacific divisions derive income from products and services from retail and commercial banking. The Institutional division derives its income
from institutional products and services. The Wealth Australia division derives income from funds management and insurance businesses. No single
customer amounts to greater than 10% of the Group’s income.

GEOGRAPHICAL INFORMATION
The following table sets out total operating income earned including discontinued operations and assets to be recovered in more than one year
based on the geographical regions in which the Group operates. The assets consist of available-for-sale assets, net loans and advances andinvestments backing policy liabilities, including those presented as asset held for sale.
Asia Pacific,
Europe & Americas

Australia

New Zealand

Total

2018
$m

2017
$m

2018
$m

2017
$m

2018
$m

2017
$m

2018
$m

2017
$m

Total operating income

13,141

13,603

2,823

2,945

3,948

3,725

19,912

20,273

Assets to be recovered in more than one year

389,119

387,954

46,801

42,26698,31296,453534,232

526,673

8. CASH AND CASH EQUIVALENTS

Coins, notes and cash at bank

2018
$m

2017
$m

1,382

1,544

74

108

Securities purchased under agreements to resell in less than 3 months

28,302

21,479Balances with central banks

33,72424,039Settlement balances owed to ANZ within 3 months

21,15420,878Cash and cash equivalents

84,636

68,048

Money at call, bills receivable and remittances in transit

1

1.

Excludes cash and cash equivalents held for sale of $328 million (2017: nil).

94

ANZ 2018 ANNUAL REPORT94

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

9. TRADING SECURITIES
Trading securities ($m)
3,782

● Government securities

5,002● Corporate and financial
institution securities● Equity and other securities

7,825

2018

9,668
26,1152017

28,935

2018
$m

2017
$m

Government securities

26,11528,935

Corporate and financial institution securities

7,825

9,668

Equity and other securities

3,782

5,002

Trading securities

37,72243,605

RECOGNITION AND MEASUREMENT
Trading securities are financial instruments we either: acquire principally for the purpose of selling in the short-term; or hold as part of a portfolio we manage for short-term profit making.
We recognise purchases and sales of trading securities on trade date: initially, we measure them at fair value; and subsequently, we measure them in the balance sheet at their fair value with any revaluation recognised in the profit or loss.

KEY JUDGEMENTS AND ESTIMATES
Judgement is required when applying the valuation techniques used to measure the fair value of trading securities not valued using
quoted market prices. Refer to Note 17 Fair Value of Financial Assets and Financial Liabilities for further details.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

95

95

ANZ 2018 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
10. DERIVATIVE FINANCIAL INSTRUMENTS

Fair Value

Assets2018$m

Liabilities
2018$m

Assets2017$mLiabilities
2017$m

Derivative financial instruments - held for trading

66,457(66,198)

60,387(59,602)

Derivative financial instruments - designated in hedging relationships

1,966(3,478)2,131(2,650)Derivative financial instruments

68,423(69,676)

62,518(62,252)

FEATURES
Derivative financial instruments are contracts:
 whose value is derived from an underlying price index (or other variable) defined in the contract - sometimes the value is derived from more than
one variable; that require little or no initial net investment; and that are settled at a future date.
Movements in the price of the underlying variables, which cause the value of the contract to fluctuate, are reflected in the fair value of the derivative.

PURPOSEThe Group’s derivative financial instruments have been categorised as following:
Trading

Derivatives held in order to: Meet customer needs for managing their own risks.
 Manage risks in the Group that are not in a designated hedge accounting relationship.
 Undertake market making and positioning activities to generate profits from short-term fluctuations in prices
or margins.

Designated in Hedging
Relationships

Derivatives designated into hedge accounting relationships in order to minimise profit or loss volatility by matching
movements to underlying positions relating to: Hedges of the Group’s exposures to interest rate risk and currency risk.
 Hedges of other exposures relating to non-trading positions.

TYPES
The Group offers and uses four different types of derivative financial instruments:
Forwards

A contract documenting the rate of interest, or the currency exchange rate, to be paid or received on a notional
principal obligation at a future date.

Futures

An exchange traded contract in which the parties agree to buy and sell an asset in the future for a price agreed on
the transaction date, with a net settlement in cash paid on the future date without physical delivery of the asset.

Swaps

A contract in which two parties exchange a series of cash flows for another.

Options

A contract in which the buyer of the contract has the right - but not the obligation - to buy (known as a “call option”)
or to sell (known as a “put option”) an asset or instrument at a set price on a future date. The seller has thecorresponding obligation to fulfil the transaction to sell or buy the asset or instrument if the buyer exercises
the option.

RISKS MANAGED
The Group offers and uses the instruments described above to manage fluctuations in the following market factors:
Foreign Exchange

Currencies at current or determined rates of exchange.

Interest Rate

Fixed or variable interest rates applying to money lent, deposited or borrowed.

Commodity

Soft commodities (that is, agricultural products such as wheat, coffee, cocoa and sugar) and hard commodities (thatis, mined products such as gold, oil and gas).

CreditCounterparty risk in the event of default.

96

ANZ 2018 ANNUAL REPORT96

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

10. DERIVATIVE FINANCIAL INSTRUMENTS (continued)
DERIVATIVE FINANCIAL INSTRUMENTS – HELD FOR TRADINGThe majority of the Group’s derivative financial instruments are held for trading. The fair value of derivative financial instruments held for trading are:

Fair Value

Assets2018$m

Liabilities
2018$m

Assets2017$mLiabilities
2017
$m

2

(2)

2

(1)

Interest rate contracts
Forward rate agreements
Futures contracts

54

(41)

102

(56)

Swap agreements

35,079(35,428)

31,331(30,814)

Options purchased

782

-

746

-

-

(1,408)-(1,365)35,917(36,879)

32,181(32,236)

Spot and forward contracts

15,200(14,088)

15,232(14,943)

Swap agreements

12,532(11,821)

10,298(10,374)

Options purchased

494

-

517

-

-

(669)

-

(475)

Total

28,226(26,578)

26,047(25,792)

Commodity contracts

2,260(2,683)

1,991(1,398)

Options sold
Total
Foreign exchange contracts

Options sold

Credit default swaps
Structured credit derivative purchased

22

-

52

-

Other credit derivatives purchased

8

(29)

13

(110)

Credit derivatives purchased

30

(29)

65

(110)

-

(26)

-

(58)

Other credit derivatives sold

24

(3)

103

(8)

Credit derivatives sold

24

(29)

103

(66)

Structured credit derivatives sold

Total
Derivative financial instruments - held for trading

54

(58)

168

(176)

66,457(66,198)

60,387(59,602)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

97

97

ANZ 2018 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
10. DERIVATIVE FINANCIAL INSTRUMENTS (continued)
DERIVATIVE FINANCIAL INSTRUMENTS – DESIGNATED IN HEDGING RELATIONSHIPS
There are three types of hedge accounting relationships the Group utilises:
Fair value hedge

Cash flow hedge

Net investment hedge

Objective of thishedgingarrangement

To hedge our exposure to changes tothe fair value of a recognised asset or
liability or unrecognised firm
commitment caused by interest rateor foreign currency movements.

To hedge our exposure to variability incash flows of a recognised asset or
liability, a foreign exchange
component of a firm commitment or
a highly probable forecast transaction
caused by interest rate, foreign
currency and other price movements.

To hedge our exposure to exchange
rate differences arising from thetranslation of our foreign operations
from their functional currency toAustralian dollars.

Recognition ofeffective hedge
portionThe following are recognised in profit
or loss at the same time:

We recognise the effective portion ofchanges in the fair value of derivatives
designated as a cash flow hedge inthe cash flow hedge reserve.

We recognise the effective portion ofchanges in the fair value of thehedging instrument in the foreign
currency translation reserve.

 all changes in the fair value of theunderlying item relating to thehedged risk; and the change in the fair valueof derivatives.

Recognition of
ineffective hedge
portionRecognised immediately in other operating income.

If a hedging
instrument expires,or is sold, terminated,or exercised; or nolonger qualifies forhedge accounting

When we recognise the hedged itemin profit or loss, we recognise therelated unamortised fair value
adjustment in profit or loss. This may
occur over time if the hedged item isamortised to profit or loss as part ofthe effective yield over the period
to maturity.

Only when we recognise the hedged
item in profit or loss is the amountpreviously deferred in the cash flow
hedge reserve transferred to profit
or loss.

The amount we defer in the foreign
currency translation reserve remains inequity and is transferred to profit orloss only when we dispose of, orpartially dispose of, the foreign
operation.

Hedged item sold or
repaidWe recognise the unamortised fairvalue adjustment immediately in
profit or loss.

Amounts accumulated in equity aretransferred immediately to profit
or loss.

The gain or loss, or applicableproportion, we recognise in equity istransferred to profit or loss on disposal
or partial disposal of a foreign
operation.

The fair value of derivative financial instruments designated in hedging relationships are:

Fair Value

Hedge
accounting
type

Foreign exchange swap agreements

Fair value

Foreign exchange spot and forward contracts

Fair value

1

-

-

-

Interest rate swap agreements

Fair value

1,261(3,001)

1,366(2,114)

Interest rate futures contracts

Fair value

47

(1)

80

-

Interest rate swap agreements

Cash flow

592

(379)

638

(476)

Foreign exchange swap agreements

Cash flow

44

(52)

35

(49)

Foreign exchange spot and forward contracts

Cash flow

2

-

-

(5)

Foreign exchange spot and forward contracts

Net investment

18

(45)

11

(6)

Derivative financial instruments - designated in hedging relationships

1,966(3,478)2,131(2,650)98

Assets2018$m

Liabilities
2018$m

Assets2017$mLiabilities
2017
$m

1

-

1

-

ANZ 2018 ANNUAL REPORT98

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

10. DERIVATIVE FINANCIAL INSTRUMENTS (continued)
The impact recognised in profit or loss arising from derivative financial instruments designated in hedge accounting relationships, is as follows:
Hedge
accounting type

2018
$m

2017
$m

Hedged item

Fair value

1,190

122

Hedging instrument

Fair value(1,210)(128)

Ineffective portion of hedging instrument

Cash flow

13

(18)

Gain/(loss) recognised in other operating income

RECOGNITION AND MEASUREMENT
Recognition

Initially and at each reporting date, we recognise all derivatives at fair value. If the fair value of a
derivative is positive, then we carry it as an asset, but if its value is negative, then we carry it as
a liability.
Valuation adjustments are integral in determining the fair value of derivatives. This includes:a credit valuation adjustment (CVA) to reflect the counterparty risk and/or event of default; and

a funding valuation adjustment (FVA) to account for funding costs and benefits in thederivatives portfolio.

Derecognition ofassets and liabilities

We remove derivative assets from our balance sheet when the contracts expire or we have transferred
substantially all the risks and rewards of ownership. We remove derivative liabilities from our balance
sheet when the Group’s contractual obligations are discharged, cancelled or expired.

Impact on the
Income Statement

How we recognise gains or losses on derivative financial instruments depends on whether thederivative is held for trading or is designated into a hedging relationship. For derivative financial
instruments held for trading, gains or losses from changes in the fair value are recognised in profit
or loss.
For an instrument designated into a hedging relationship the recognition of gains or losses depends
on the nature of the item being hedged. Refer to the previous table on page 98 for profit or loss
treatment depending on the hedge type.

Hedge effectivenessTo qualify for hedge accounting a hedge is expected to be highly effective. A hedge is highly effective
only if the following conditions are met: the hedge is expected to be highly effective in achieving offsetting changes in fair value or cash
flows attributable to the hedged risk during the period for which the hedge is designated(prospective effectiveness); and the actual results of the hedge are within the range of 80-125% (retrospective effectiveness).
The Group monitors hedge effectiveness on a regular basis but at a minimum at least at eachreporting date.

KEY JUDGEMENTS AND ESTIMATES
Judgement is required when we select the valuation techniques used to measure the fair value of derivatives, particularly the selection ofvaluation inputs that are not readily observable, and the application of valuation adjustments to certain derivatives. Refer to Note 17 Fair
Value of Financial Assets and Financial Liabilities for further details.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 99

99

ANZ 2018 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
11. AVAILABLE-FOR-SALE ASSETS
Available-for-sale assets ($m)
2,818

● Government securities

3,284● Corporate and financial
institution securities

17,392

16,8722018● Equity and other securities

54,5942017

48,7082018

PeriodLess than 3 months

Corporateandfinancial
Security Government institution
securities securities
type
$m
$m
6,715

948

2017
Equityandothersecurities$m

Corporateandfinancial
Government institution
Total
securities securities
$m
$m
$m

-

7,663

6,745

1,201

Equityandothersecurities
$m

Total
$m

-

7,946

Between 3 and 12 months

8,159

2,549

-

10,708

5,576

2,738

-

8,314

Between 1 and 5 years

28,144

13,283

159

41,586

19,302

12,960403

32,665

Greater than 5 years

12,455287

1,569

14,311

17,085493

2,134

19,712

No maturity
Available-for-sale assets
Less: Available-for-sale assets
reclassified as held for sale (refer
to Note 29)
Available-for-sale assets

-

-

1,095

1,095

-

-

747

747

55,473

17,0672,823

75,36348,70817,392

3,284

69,384

(879)

(195)

(5)

(1,079)

-

-

-

-

54,594

16,872

2,818

74,284

48,70817,392

3,284

69,384

During the year, the Group recognised a net gain (before tax) in other operating income of $48 million (2017: $15 million) in respect of available-forsale (AFS) assets.
The carrying value of AFS equity securities is $1,095 million (2017: $747 million). This includes the Group’s $1,025 million (2017: $676 million)
investment in the Bank of Tianjin (BoT) that ceased being classified as an associate in March 2016.

100 ANZ 2018 ANNUAL REPORT100

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

11. AVAILABLE-FOR-SALE ASSETS (continued)

RECOGNITION AND MEASUREMENT
AFS assets comprise non-derivative financial assets which we designate as AFS since we do not hold them principally for trading purposes.
They include both equity and debt securities. AFS assets are initially recognised at fair value plus transaction costs and are revalued at leastbi-annually. On revaluation, we include movements in fair value within the available-for-sale revaluation reserve in equity, except for certain
items which are recognised directly in profit or loss, being interest on debt securities, dividends received, foreign exchange on debt
securities and impairment charges.
When we sell the asset, any cumulative gain or loss from the available-for-sale revaluation reserve is recognised in profit or loss.
At each reporting date, we assess whether any AFS assets are impaired. We assess the impairment of any debt securities if an event has
occurred which will have a negative impact on the asset’s estimated cash flows. For equity securities, we assess if there is a significant or
prolonged decline in their fair value below cost.
If an AFS asset is impaired, then we remove the cumulative loss related to that asset from the available-for-sale revaluation reserve. We thenrecognise it in profit or loss for:
 debt instruments, as a credit impairment expense; and equity instruments, as a negative impact in other operating income.
We recognise any later reversals of impairment on debt securities in the profit or loss through the credit impairment charge line. However,
we do not make any reversals of impairment for equity securities. To the extent previously impaired equity securities recover in value, gains
are recognised directly in equity.

KEY JUDGEMENTS AND ESTIMATES
Judgement is required when we select valuation techniques used to measure the fair value of AFS assets not valued using quoted market
prices, particularly the selection of valuation inputs that are not readily observable. Refer to Note 17 Fair Value of Financial Assets andFinancial Liabilities for further details.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 101

101

ANZ 2018 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
12. NET LOANS AND ADVANCES
The following table provides details of net loans and advances for the Group:
2018
$m

2017
$m

Overdrafts

7,061

7,345

Credit cards

9,890

11,009Commercial bills1

6,861

8,471

Term loans – housing

346,154337,309

Term loans – non-housing1

234,405

215,905

Other

3,442

3,405

Subtotal

607,813583,444

(430)

(411)

Unearned income

997

1,058

Gross loans and advances (including assets reclassified as held for sale)608,380

584,091

Provision for credit impairment (refer to Note 13)(3,443)(3,798)Net loans and advances (including assets reclassified as held for sale)

604,937

580,293

Less: Net loans and advances reclassified as held for sale (refer to Note 29)(999)(5,962)603,938

574,331

Within one year

126,811

108,555

After more than one year

477,127

465,776

Net loans and advances

603,938

574,331603,805

574,175

133

156

603,938

574,331

Capitalised brokerage/mortgage origination fees

Net loans and advances

Residual contractual maturity:

Carried on Balance Sheet at:
Amortised cost
Fair value through profit or loss (designated on initial recognition)
Net loans and advances
1.

Some of the loans previously shown in Commercial bills outstanding have been reclassified to Term Loans – non-housing. Restatement impact of $2,597 million for September 2017.

RECOGNITION AND MEASUREMENT
Loans and advances are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market andare facilities the Group provides directly to customers or through third party channels.
Loans and advances are initially recognised at fair value plus transaction costs directly attributable to the issue of the loan or advance,
which are primarily brokerage/mortgage origination fees which we amortise over the estimated life of the loan. Subsequently, we thenmeasure loans and advances at amortised cost using the effective interest rate method, net of any provision for credit impairment, or at fairvalue when they are specifically designated on initial recognition as fair value through profit or loss or when held for trading.
We classify contracts to lease assets and hire purchase agreements as finance leases if they transfer substantially all the risks and rewards ofownership of the asset to the customer or an unrelated third party. We include these facilities in ‘Other’ in the table above.
The Group enters into transactions in which it transfers financial assets that are recognised on its balance sheet. When the Group retains
substantially all of the risks and rewards of the transferred assets, the transferred assets remain on the Group’s balance sheet, however ifsubstantially all the risks and rewards are transferred, the Group derecognises the asset.
If the risks and rewards are partially retained and control over the asset is lost, the Group derecognises the asset. If control over the asset is
not lost, the Group continues to recognise the asset to the extent of its continuing involvement.
We separately recognise the rights and obligations retained, or created, in the transfer of assets and liabilities as appropriate.

102 ANZ 2018 ANNUAL REPORT102

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

13. PROVISION FOR CREDIT IMPAIRMENTPROVISION FOR CREDIT IMPAIRMENT - BALANCE SHEETNet loans andadvances

Off-balance sheet credit related
commitments

Total

2018
$m

2017
$m

2018
$m

2017
$m

2018
$m

2017
$m

Balance at start of year

1,118

1,278

18

29

1,136

1,307

New and increased provisions

1,426

2,068

18

1

1,444

2,069

Provision for credit impairment
Individual provision

(425)

(501)

-

-

(425)

(501)

(1,224)(1,693)--(1,224)(1,693)

(1)

(34)

(10)

(12)

(11)

(46)

894

1,118

26

18

920

1,136

2,118

2,245

544

631

2,662

2,876

Charge/(release) to profit or loss

(34)

(76)

(51)

(66)

(85)

(142)

Other2

(61)

(51)

7

(21)

(54)

(72)

Total collective provision

2,023

2,118

500

544

2,523

2,662

Total provision for credit impairment

2,917

3,236

526

562

3,443

3,798

Write-backs
Bad debts written off (excluding recoveries)
Other1
Total individual provisionCollective provision
Balance at start of year

1.

Other individual provision includes the impact of the sale completion of the Asia Retail and Wealth business divestment in 2018. It includes an adjustment for exchange rate fluctuations and the impact of
discount unwind on individual provisions.
2.
Other collective provision includes the impact of the sale completion of the Asia Retail and Wealth business divestment, including an adjustment for exchange rate fluctuations.

CREDIT IMPAIRMENT CHARGE - INCOME STATEMENT
Credit impairment charge

2018
$m

2017
$m

New and increased provisions

1,444

2,069

Write-backs

(425)

(501)

Recoveries of amounts previously written-off

(246)

(228)

Individual credit impairment charge

773

1,340

Collective credit impairment release

(85)

(142)

Total credit impairment charge

688

1,198

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 103

103

ANZ 2018 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
13. PROVISION FOR CREDIT IMPAIRMENT (continued)

RECOGNITION AND MEASUREMENTThe Group recognises two types of impairment provisions for its loans and advances: Individual provisions for significant assets that are assessed to be impaired; and Collective provisions for portfolios of similar assets that are assessed collectively for impairment.
The accounting treatment for each of them is detailed below:
IndividuallyCollectively

Assessment

If any impaired loans and advances exceed
specified thresholds and an impairment event has
been identified, then we assess the need for aprovision individually.

To allow for any small value loans and advanceswhere losses may have been incurred but not yet
identified, and individually significant loans andadvances that we do not assess as impaired, we
assess them collectively in pools of assets withsimilar risk characteristics.

Impairment

Loans and advances are assessed as impaired if wehave objective evidence that we may not recoverprincipal or interest payments (that is, a loss event
has been incurred).

We estimate the provision on the basis of historicalloss experience for assets with similar credit risk
characteristics to others in the respective collective
pool. We adjust the historical loss experience basedon current observable data – such as: changing
economic conditions, the impact of the inherent riskof large concentrated losses within the portfolio andan assessment of the economic cycle.

Measurement

We measure impairment loss as the difference between the asset’s carrying amount and estimated future cash
flows discounted to their present value at the asset’s original effective interest rate. We record the result as an
expense in profit or loss in the period we identify the impairment and recognise a corresponding reduction in
the carrying amount of loans and advances through an offsetting provision.

Uncollectableamounts

If a loan or advance is uncollectable (whether partially or in full), then we write off the balance (and also any
related provision for credit impairment).
We write off unsecured retail facilities at the earlier of the facility becoming 180 days past due, or thecustomer’s bankruptcy or similar legal release from the obligation to repay the loan or advance. For secured
facilities, write offs occur net of the proceeds determined to be recoverable from the realisation of collateral.

Recoveries

If we recover any cash flows from loans and advances we have previously written off, then we recognise therecovery in profit or loss in the period the cash flows are received.

Off-balance sheet
amounts

Any off-balance sheet items, such as loan commitments, are considered for impairment both on an individualand collective basis.

KEY JUDGEMENTS AND ESTIMATES
When we measure impairment of loans and advances, we use management’s judgement of the extent of losses at reporting date.
Key Judgements

IndividuallyCollectively

 Estimated future cash flows

 Estimated future cash flows

 Business prospects for the customer

 Historical loss experience of assets withsimilar risk characteristics

 Realisable value of any collateral Group’s position relative to other claimants
 Reliability of customer information

 Impact of large concentrated losses
inherent in the portfolio

 Assessment of the economic cycle
 Likely cost and duration of recovering loans
We regularly review our key judgements and update them to reflect actual loss experience.

104 ANZ 2018 ANNUAL REPORT104

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

14. DEPOSITS AND OTHER BORROWINGS
Deposits and other borrowings ($m)
17,872

18,97942,74659,292

72,691● Certificates of deposit

55,222● Term deposits● On demand andshort term deposits

22,91325,521● Deposits not bearing interest

2018

214,682

246,2172017

250,392

193,371● Deposits from banks
and securities sold under
repurchase agreements● Commercial paperand other borrowings1

2018
$m

2017
$m

Certificates of deposit

42,74655,222

Term deposits

214,682

193,371

On demand and short term deposits

246,217250,392

Deposits not bearing interest

25,521

22,913

Deposits from banks & securities sold under repurchase agreements

72,69159,292

Commercial paper and other borrowings1

17,872

18,979Deposits and other borrowings (including liabilities reclassified as held for sale)619,729

600,169

Less: Deposits and other borrowings reclassified as held for sale (refer to Note 29)(1,579)(4,558)618,150

595,611- to be settled within 1 year

606,175

577,495- to be settled after 1 year

11,975

18,116

Deposits and other borrowings

618,150

595,611615,818

592,114

2,332

3,497

618,150

595,611

Deposits and other borrowings

Residual contractual maturity:

Carried on Balance Sheet at:
Amortised cost
Fair value through profit or loss (designated on initial recognition)
Deposits and other borrowings
1.

Other borrowings related to secured investments of the consolidated subsidiary UDC Finance Limited (UDC) of NZD 0.9 billion (2017: NZD 1.0 billion) and the accrued interest thereon which are secured bya security interest over all the assets of UDC NZD 3.3 billion (2017: NZD 3.0 billion).

RECOGNITION AND MEASUREMENT
For deposits and other borrowings that: are not designated at fair value through profit or loss on initial recognition, we measure them at amortised cost and recognise theirinterest expense using the effective interest rate method; and are managed on a fair value basis, reduce or eliminate an accounting mismatch or contain an embedded derivative, we designatedthem as fair value through profit or loss.
Refer to Note 17 Fair Value of Financial Assets and Financial Liabilities for details of the split between amortised cost and fair value.
For deposits and other borrowings designated at fair value we recognise the amount of fair value gain or loss attributable to changes in theGroup’s own credit risk in other comprehensive income in retained earnings. Any remaining amount of fair value gain or loss we recognise
directly in profit or loss. Once we have recognised an amount in other comprehensive income, we do not later reclassify it to profit or loss.
Securities sold under repurchase agreements represent a liability to repurchase the financial assets that remain on our balance sheet since
the risks and rewards of ownership remain with the Group. Over the life of the repurchase agreement, we recognise the difference
between the sale price and the repurchase price and charge it to interest expense in the Income Statement.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 105

105

ANZ 2018 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
15. DEBT ISSUANCESThe Group uses a variety of funding programmes to issue senior debt (including covered bonds and securitisations) and subordinated debt. The
difference between senior debt and subordinated debt is that holders of senior debt take priority over holders of subordinated debt owed by therelevant issuer and subordinated debt will be repaid by the relevant issuer only after the repayment of claims of depositors, other creditors and thesenior debt holders.
2018
$m

2017
$m

Senior debt

86,193

68,852

Covered bonds

17,846

19,859Securitisation

1,232

1,552

105,271

90,263

Total unsubordinated debt
Subordinated debt
- Additional Tier 1 capital

7,917

8,452

- Tier 2 capital

7,991

9,258

Total subordinated debt

15,90817,710Total debt issued

121,179

107,973

TOTAL DEBT ISSUED BY CURRENCY
The table below shows the Group’s issued debt by currency of issue, which broadly represents the debt holders’ base location.
2018
$m

2017
$m

USD

United States dollars

49,61045,799EUR

Euro

23,23922,507

AUD

Australian dollars

29,47723,194NZD

New Zealand dollars

5,673

6,361

JPY

Japanese yen

3,471

3,233

CHF

Swiss francs

2,067

2,248

GBP

Pounds sterling

3,776

854

HKD

Hong Kong dollars

1,157

1,136

Other

Chinese yuan, Norwegian krone, Turkish lira, Singapore dollars, Canadian dollars, Mexican peso andSouth African rand

2,709

2,641

121,179

107,973- to be settled within 1 year

21,585

13,458- to be settled after 1 year

97,93892,159- no maturity date (instruments in perpetuity)

1,656

2,356

121,179

107,973

Total debt issued

Residual contractual maturity:

Total debt issued

SUBORDINATED DEBT
Subordinated debt qualifies as regulatory capital for the Group and is classified as either Additional Tier 1 (AT1) capital or Tier 2 capital for APRA’s
capital adequacy purposes depending on their terms and conditions: AT1 capital: perpetual capital instruments such as: ANZ Capital Notes (ANZ CN); ANZ Capital Securities (ANZ CS); and ANZ NZ Capital Notes (ANZ NZ CN).
 Tier 2 capital: all other perpetual or term subordinated notes.
Tier 2 capital instruments rank ahead of AT1 capital instruments and AT1 capital instruments only rank ahead of ordinary shares, in a liquidation of theissuer.

106 ANZ 2018 ANNUAL REPORT106

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

15. DEBT ISSUANCES (continued)
AT1 CAPITAL
All outstanding AT1 capital instruments are Basel III fully compliant instruments (refer to Note 23 Capital Management for further information about
Basel III). Each of the ANZ CN and ANZ CS rank equally with each other.
Distributions on the AT1 capital instruments are non-cumulative and subject to the issuer’s absolute discretion and certain payment conditions(including regulatory requirements). Distributions on ANZ CNs are franked in line with the franking applied to ANZ ordinary shares.
Where specified, the AT1 capital instruments provide the issuer with an early redemption or conversion option on a specified date and in certain othercircumstances (such as a tax or regulatory event). This option is subject to APRA’s and, in respect of the ANZ NZ CN, the Reserve Bank of New Zealand’s(RBNZ) prior written approval.
Each of the AT1 capital instruments will immediately convert into a variable number of ANZ ordinary shares (based on the average market price of theshares immediately prior to conversion less a 1% discount, subject to a maximum conversion number of ANZ ordinary shares) if: ANZ’s or, in the case of the ANZ NZ CN, ANZ Bank New Zealand Limited’s (ANZ NZ) Common Equity Tier 1 capital ratio is equal to or less than
5.125% - known as a Common Equity Capital Trigger Event; or APRA notifies the Company that, without the conversion or write-off of certain securities or a public sector injection of capital (or equivalent
support), it considers that the Company would become non-viable or, in the case of the ANZ NZ CN, the RBNZ directs ANZ NZ to convert or writeoff the notes or a statutory manager is appointed to ANZ NZ and decides that ANZ NZ must convert or write-off the notes – known as a NonViability Trigger Event.
Where specified, AT1 capital instruments mandatorily convert into a variable number of ANZ ordinary shares (based on the average market price ofthe shares immediately prior to conversion less a 1% discount): on a specified mandatory conversion date; or on an earlier date under certain circumstances as set out in the terms.
However the mandatory conversion is deferred for a specified period if certain conversion tests are not met.
The tables below show the key details of the Group’s AT1 capital instruments on issue at 30 September in both the current and prior year:
2018
$m

2017
$m

-

573

ANZ CN1

1,117

1,116

Additional Tier 1 capital (perpetual subordinated securities)1
ANZ Convertible Preference Shares (ANZ CPS)
AUD

1,340mANZ CPS3

ANZ Capital Notes (ANZ CN)
AUD

1,120mAUD

1,610mANZ CN2

1,605

1,604

AUD

970m

ANZ CN3

965

963

AUD

1,622mANZ CN4

1,610

1,608

AUD

931m

ANZ CN5

924

925

1,240

1,206

ANZ Capital Securities (ANZ CS)
USD

1,000mANZ Capital Securities

ANZ NZ Capital Notes (ANZ NZ CN)
NZD

500m

ANZ NZ Capital Notes

Total Additional Tier 1 capital
1.

456

457

7,917

8,452

Carrying values net of issue costs.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 107

107

ANZ 2018 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
15. DEBT ISSUANCES (continued)
ANZ Convertible Preference Shares (ANZ CPS)

CPS3IssuerANZ

Issue date

28 September 2011
$1,340 million
On 28 September 2017, ANZ bought back and cancelled $767
million of CPS3, and either reinvested the proceeds into CN5 or
returned the cash proceeds to investors. On 1 March 2018, ANZ
repaid the remaining $573 million of CPS3 on issue.

Issue amount

Face value$100

Dividend frequency
Dividend rate

Semi-annually in arrears
Floating rate: (180 day Bank Bill rate +3.1%)x(1-Australian
corporate tax rate)

Issuer’s early redemption or conversion option

1 March 2018 and each subsequent semi-annual dividend
payment date

Mandatory conversion date

1 September 2019

Common equity capital trigger event

Yes

Non-viability trigger event

No

Cash dividend payments treated as interest expense$8 million (2017: $47 million)

Carrying value 2018 (net of issue costs)$nil million (2017: $573 million)

ANZ Capital Notes (ANZ CN)
Issuer

CN1
ANZ

CN2
ANZ

Issue date

7 August 2013

31 March 2014

CN3
ANZ, acting through its New
Zealand branch
5 March 2015

Issue amount$1,120 million$1,610 million$970 million

Face value

$100

$100

$100

Distribution frequency

Semi-annually in arrears

Semi-annually in arrears

Semi-annually in arrears

Distribution rate

Floating rate: (180 day BankBill rate +3.4%)x(1-Australian
corporate tax rate)

Floating rate: (180 day BankBill rate +3.25%)x(1Australian corporate tax rate)

Floating rate: (180 day BankBill rate +3.6%)x(1-Australian
corporate tax rate)

Issuer’s early redemption or conversion option

1 September 2021

24 March 2022

24 March 2023

Mandatory conversion date

1 September 2023

24 March 2024

24 March 2025

Common equity capital trigger event

Yes

Yes

Yes

Non-viability trigger event
Carrying value 2018 (net of issue costs)

Yes$1,117 million(2017: $1,116 million)

Yes$1,605 million(2017: $1,604 million)

Yes$965 million(2017: $963 million)

108 ANZ 2018 ANNUAL REPORT108

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

15. DEBT ISSUANCES (continued)
ANZ Capital Notes (ANZ CN) (continued)

CN4

CN5

IssuerANZ

ANZ

Issue date

27 September 2016

28 September 2017

Issue amount$1,622 million$931 million

Face value

$100

$100

Distribution frequency

Quarterly in arrears

Quarterly in arrears

Distribution rate

Floating rate: (90 day Bank Billrate +4.7%)x(1-Australian
corporate tax rate)

Floating rate: (90 day BankBill rate +3.8%)x(1-Australian
corporate tax rate)

Issuer’s early redemption or conversion option

20 March 2024

20 March 2025

Mandatory conversion date

20 March 2026

20 March 2027

Common equity capital trigger event

Yes

Yes

Non-viability trigger event
Carrying value 2018 (net of issue costs)

Yes$1,610 million(2017: $1,608 million)

Yes$924 million(2017: $925 million)

ANZ Capital Securities (ANZ CS)
Issuer

ANZ, acting through its London branch

Issue date

15 June 2016

Issue amountUSD 1,000 million

Face value

Minimum denomination of USD 200,000 and an integral multiple of USD 1,000 above that

Interest frequency
Interest rate
Issuer’s early redemption option

Semi-annually in arrears
Fixed at 6.75% p.a. until 15 June 2026. Reset on 15 June 2026 and each 5 year anniversary
to a floating rate: 5 year USD mid-market swap rate + 5.168%
15 June 2026 and each 5 year anniversary

Common equity capital trigger event

Yes

Non-viability trigger event

Yes

Carrying value 2018 (net of issue costs)$1,240 million (2017: $1,206 million)

ANZ NZ Capital Notes (ANZ NZ CN)
IssuerANZ Bank New Zealand Limited (ANZ NZ)

Issue date

31 March 2015

Issue amountNZD 500 million

Face value

NZD 1

Interest frequency

Quarterly in arrears

Interest rate

Fixed at 7.2% p.a. until 25 May 2020. Resets in May 2020 to a floating rate: New Zealand 3 monthbank bill rate + 3.5%
Interest payments are subject to ANZ NZ’s absolute discretion and certain payment conditions(including APRA and RBNZ requirements)

Issuer’s early redemption option

25 May 2020

Mandatory conversion date

25 May 2022

Common equity capital trigger event

Yes

Non-viability trigger event

Yes

Carrying value 2018 (net of issue costs)$456 million (2017: $457 million)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 109

109

ANZ 2018 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
15. DEBT ISSUANCES (continued)
TIER 2 CAPITAL
The convertible term subordinated notes are Basel III fully compliant instruments. If a Non-Viability Trigger Event occurs, theconvertible term subordinated notes will immediately convert into ANZ ordinary shares (based on the average market price of theshares immediately prior to conversion less a 1% discount, subject to a maximum conversion number).
APRA has granted transitional Basel III capital treatment for:
 the EUR 750 million term subordinated notes until its maturity in 2019; and the USD 300 million perpetual subordinated notes until the end of the transitional period (December 2021).
The table below shows the Tier 2 capital subordinated notes the Group holds at 30 September in both the current and prior year:

Currency

Face value

Maturity

Next optional call date – subject
to APRA’s prior approvalInterest
rate

NonViability
Trigger
Event

2018
$m

2017
$m

Basel III transitional subordinated notes (perpetual)
USD

300m

Perpetual

Each semi-annual interest payment date

Floating

No

416

382

NZD

835m

Perpetual

2018

Fixed

No

-

768

Basel III transitional subordinated notes (term)
EUR

750m

2019

N/A

Fixed

No

1,249

1,205

AUD

750m

2023

2018

Floating

No

-

747

1,665

3,102

Total Basel III transitional subordinated notes
Basel III fully compliant convertible subordinated notes (term)
AUD

750m

2024

2019

Floating

Yes

750

750

USD

800m

2024

N/A

Fixed

Yes

1,091

1,061

CNY

2,500m

2025

2020

Fixed

Yes

503

478

SGD

500m

2027

2022

Fixed

Yes

507

478

AUD

200m

2027

2022

Fixed

Yes

199

199

JPY

20,000m

2026

N/A

Fixed

Yes

243

226

AUD

700m

2026

2021

Floating

Yes

698

699

USD

1,500m

2026

N/A

Fixed

Yes

1,869

1,817

JPY

10,000m

2026

2021

Fixed

Yes

121

112

JPY

10,000m

2028

2023

Fixed

Yes

120

111

AUD

225m

2032

2027

Fixed

Yes

225

225

Total Basel III fully compliant subordinated notes

6,326

6,156

Total Tier 2 capital

7,991

9,258

RECOGNITION AND MEASUREMENT
Debt issuances are measured at amortised cost, except where designated at fair value through profit or loss. Where the Group enters into afair value hedge accounting relationship, the fair value attributable to the hedge risk is reflected in adjustments to the carrying value of thedebt. Interest expense is recognised using the effective interest rate method.
Subordinated debt with capital-based conversion features (i.e. Common Equity Capital Trigger Events or Non-Viability Trigger Events) areconsidered to contain embedded derivatives that we account for separately at fair value through profit and loss. The embedded derivatives
arise because the amount of shares issued on conversion following any of those trigger events is subject to the maximum conversion
number, however they have no value as of the reporting date given the remote nature of those trigger events.

110 ANZ 2018 ANNUAL REPORT110

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

16. FINANCIAL RISK MANAGEMENTRISK MANAGEMENT FRAMEWORK AND MODELINTRODUCTION
The use of financial instruments is fundamental to the Group’s businesses of providing banking and other financial services to our customers. The
associated financial risks (primarily credit, market, and liquidity risks) are a significant portion of the Group’s principal risks.
We disclose details of all principal risks impacting the Group, and further information on the Group’s risk management activities, in the Governanceand Risk Management section.
This note details the Group’s financial risk management policies, processes and quantitative disclosures in relation to the key financial risks:
Principal financial risks

Key sections applicable to this risk

Overview

 An overview of our Risk Management Framework

Credit risk

 Credit risk overview, management and control responsibilities

Credit risk is the risk of financial loss from a customer, or
counterparty, failing to meet their financial obligations – including
the whole and timely payment of principal, interest, andother receivables.

 Maximum exposure to credit risk
 Credit quality
 Concentrations of credit risk
 Collateral management

Market risk

 Market risk overview, management and control responsibilities

Market risk is the risk of loss arising from potential adverse changes
in the value of the Group’s assets and liabilities and other trading
positions from fluctuations in market variables. These variables
include, but are not limited to interest rates, foreign exchange,
equity prices, commodity prices, credit spreads, implied volatilities,
and asset correlations.

 Measurement of market risk

Liquidity and funding risk

 Liquidity risk overview, management and control responsibilities

Liquidity risk is the risk that the Group is unable to meet its
payment obligations when they fall due; or does not have theappropriate amount, tenor and composition of funding andliquidity to fund increases in its assets.

 Key areas of measurement for liquidity risk

Life insurance risk

Not applicable.

Insurance risk is the risk of loss due to unexpected changes incurrent and future insurance claims rates. The changes primarily
arise due to claims payments, mortality (death) or morbidity (illness
or injury) rates being greater than expected.

We control and minimise life insurance risk in the following ways:

 Traded and non-traded market risk
 Equity securities classified as available-for-sale Foreign currency risk – structural exposure Funding position
 Residual contractual maturity analysis of the Group’s liabilities

We use underwriting procedures including strategic decisions,limits to delegated authorities and signing powers.



We analyse reinsurance arrangements using analytical modelling
tools to achieve the desired type of reinsurance and retention
levels.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

111

111

ANZ 2018 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
16. FINANCIAL RISK MANAGEMENT (continued)
OVERVIEWAN OVERVIEW OF OUR RISK MANAGEMENT FRAMEWORKThis overview is provided to aid the users of the financial statements to understand the context of the financial disclosures required under AASB 7
Financial Instruments: Disclosures. It should be read in conjunction with the Governance and Risk Management section.
The Board is responsible for establishing and overseeing the Group’s Risk Management Framework (RMF). The Board has delegated authority to theBoard Risk Committee (BRC) to develop and monitor compliance with the Group’s risk management policies. The BRC reports regularly to the Boardon its activities.
The Board approves the strategic objectives of the Group including: the Risk Appetite Statement (RAS), which sets out the Board’s expectations regarding the degree of risk that ANZ is prepared to accept in pursuitof its strategic objectives and business plan; and the Risk Management Strategy (RMS), which describes ANZ’s strategy for managing risks and the key elements of the RMF that gives effect to thisstrategy. This includes a description of each material risk, and an overview of how the RMF addresses each risk, with reference to the relevant
policies, standards and procedures. It also includes information on how ANZ identifies measures, evaluates, monitors, reports and controls or
mitigates material risks.
The Group, through its training and management standards and procedures, aims to maintain a disciplined and robust control environment in which
all employees understand their roles and obligations. At ANZ, risk is everyone’s responsibility.
The Group has an independent risk management function, headed by the Chief Risk Officer who:
 is responsible for overseeing the risk profile and the risk management framework; can effectively challenge activities and decisions that materially affect ANZ’s risk profile; and has an independent reporting line to the BRC to enable the appropriate escalation of issues of concern.
The Internal Audit Function reports directly to the Board Audit Committee (BAC). Internal Audit provides:
 an independent evaluation of the Group’s RMF annually and undertakes a comprehensive review every three years;
 assurance on the appropriateness, effectiveness and adequacy of the risk management framework, which includes assurance the framework is
operating effectively; and recommendations to improve the framework and/or work practices to strengthen the effectiveness of day to day operations.

112 ANZ 2018 ANNUAL REPORT112

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

16. FINANCIAL RISK MANAGEMENT (continued)
CREDIT RISKCREDIT RISK OVERVIEW, MANAGEMENT AND CONTROL RESPONSIBILITIES
Granting credit facilities to customers is one of the Group’s major sources of income. As this activity is also a principal risk, the Group dedicatesconsiderable resources to its management. The Group assumes credit risk in a wide range of lending and other activities in diverse markets and inmany jurisdictions. Credit risks arise from traditional lending to customers as well as from interbank, treasury, trade finance and capital markets
activities around the world.
Our credit risk management framework ensures we apply a consistent approach across the Group when we measure, monitor and manage the credit
risk appetite set by the Board. The Board is assisted and advised by the BRC in discharging its duty to oversee credit risk. The BRC: sets the credit risk appetite and credit strategies; and approves credit transactions beyond the discretion of executive management.
We quantify credit risk through an internal credit rating system (masterscales) to ensure consistency across exposure types and to provide a consistentframework for reporting and analysis. The system uses models and other tools to measure the following for customer exposures:
Probability of Default (PD)Expressed by a Customer Credit Rating (CCR), reflecting the Group’s assessment of a customer’s ability
to service and repay debt.

Exposure at Default (EAD)

The expected amount of loan outstanding at the time of default.

Loss Given Default (LGD)

Expressed by a Security Indicator (SI) ranging from A to G. The SI is calculated by reference to thepercentage of loan covered by security which the Group can realise if a customer defaults. The A-G
scale is supplemented by a range of other SIs which cover factors such as cash cover and sovereign
backing. For retail and some small business lending, we group exposures into large homogenous pools– and the LGD is assigned at the pool level.

Our specialist credit risk teams develop and validate the Group’s PD and LGD rating models. The outputs from these models drive our day-to-day
credit risk management decisions including origination, pricing, approval levels, regulatory capital adequacy, economic capital allocation, andcredit provisioning.
All customers with whom ANZ has a credit relationship are assigned a CCR at origination via either of the following assessment approaches:
Large and more complex lending

Retail and some small business lending

Rating models provide a consistent and structured assessment, withjudgement required around the use of out-of-model factors. We
handle credit approval on a dual approval basis, jointly with thebusiness writer and an independent credit officer.

Automated assessment of credit applications using a combination ofscoring (application and behavioural), policy rules and external credit
reporting information. If the application does not meet the automatedassessment criteria, then it is referred out for manual assessment.

We use the Group’s internal CCRs to manage the credit quality of financial assets neither past due nor impaired. To enable wider comparisons, theGroup’s CCRs are mapped to external rating agency scales as follows:
Internal Rating

ANZ Customer Requirements

Moody’s RatingStandard & Poor’s Rating

Strong credit profile

Demonstrated superior stability in their operating and financial
performance over the long-term, and whose earnings capacity is not
significantly vulnerable to foreseeable events.

Aaa – Baa3

AAA – BBB-

Satisfactory risk

Demonstrated sound operational and financial stability over the
medium to long-term - even though some may be susceptible tocyclical trends or variability in earnings.

Ba1 – B1

BB+ – B+

Sub-standard but notpast due nor impaired

Demonstrated some operational and financial instability, with variability
and uncertainty in profitability and liquidity projected to continue overthe short and possibly medium term.

B2 - Caa

B - CCCNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 113

113

ANZ 2018 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
16. FINANCIAL RISK MANAGEMENT (continued)
CREDIT RISK (continued)
MAXIMUM EXPOSURE TO CREDIT RISKFor financial assets recognised on the balance sheet, the maximum exposure to credit risk is the carrying amount. In certain circumstances there may
be differences between the carrying amounts reported on the balance sheet and the amounts reported in the tables below. Principally, thesedifferences arise in respect of financial assets that are subject to risks other than credit risk, such as equity instruments which are primarily subject tomarket risk, or bank notes and coins.
For undrawn facilities, this maximum exposure to credit risk is the full amount of the committed facilities. For contingent exposures, the maximum
exposure to credit risk is the maximum amount the Group would have to pay if the instrument is called upon.
For the purpose of this note, assets presented as assets held for sale in the Balance Sheet have been reallocated to their respective Balance Sheet
categories.
The table below shows our maximum exposure to credit risk of on-balance sheet and off-balance sheet positions before taking account of any
collateral held or other credit enhancements.
Reported

Maximum exposure
to credit risk

Excluded1/Other2

2018
$m

2017
$m

2018
$m

2017
$m

2018
$m

2017
$m

604,937

580,293

(526)

(562)

605,463

580,855

84,96468,048

1,466

1,544

83,49866,504On-balance sheet positions
Net loans and advances2
Other financial assets:
Cash and cash equivalents

2,319

5,504

2,319

5,504

-

-

Collateral paid

11,043

8,987

-

-

11,043

8,987

Trading securities

37,72243,605

3,595

4,713

34,12738,892Derivative financial instruments

68,42662,518--68,42662,518Available-for-sale assets

75,36369,384

1,095

747

74,26868,637

Settlement balances owed to ANZ

3Regulatory deposits

1,028

2,015

-

-

1,028

2,015

Investments backing policy liabilities

40,05437,96440,05437,964--

Other financial assets

3,850

3,764

-

-

3,850

3,764

Total other financial assets

324,769

301,789

48,52950,472276,240

251,317

Subtotal

929,706

882,082

48,00349,910881,703

832,172

245,108

232,162526

562

244,582

231,600

1,174,814

1,114,244

48,52950,472

1,126,285

1,063,772

4Off-balance sheet positions
Undrawn and contingent facilities2,5
Total
1.

Excluded comprises bank notes and coins and cash at bank within cash and cash equivalents, equity securities within available-for-sale financial assets and investments relating to the insurance businesswhere the credit risk is passed onto the policy holder. Equity securities and precious metal exposures recognised as trading securities have been excluded as they do not have credit exposure.
2.
Other relates to the transfer of individual and collective provisions related to off-balance sheet facilities held in net loans and advances. The provisions are transferred for the purposes of showing the
maximum exposure to credit risk by relevant facility type in this and the following tables.
3.
Settlement balances owed to ANZ relate to trade dated assets which do not carry credit risk and thus are excluded.
4.
Other financial assets mainly comprise accrued interest, insurance receivables and acceptances.
5.
Undrawn facilities and contingent facilities include guarantees, letters of credit and performance related contingencies.

114 ANZ 2018 ANNUAL REPORT4NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

16. FINANCIAL RISK MANAGEMENT (continued)
CREDIT RISK (continued)
CREDIT QUALITY
The table below provides an analysis of the credit quality of the maximum exposure to credit risk split by: neither past due nor impaired financial assets by credit quality; past due but not impaired assets by ageing; and restructured and impaired assets presented as gross amounts and net of individual provisions.
Loans
and advances

Off-balance sheet
credit related
commitments

Other financial
assets

Total

2018
$m

2017
$m

2018
$m

2017
$m

2018
$m

2017
$m

2018
$m

2017
$m

Strong credit profile1

445,997

410,343

272,110

246,774

206,859

190,083

924,966

847,200

Satisfactory risk

127,384

137,432

4,014

4,429

36,037

39,578167,435

181,439Sub-standard but not past due or impaired3

15,567

16,879

116

114

1,644

1,858

17,327

18,851

588,948564,654276,240

251,317244,540

Neither past due nor impaired
2

Sub-total

231,519 1,109,728 1,047,490

Past due but not impaired≥ 1 < 30 days

8,958

8,790

-

-

-

-

8,958

8,790

≥ 30 < 60 days

2,240

2,143

-

-

-

-

2,240

2,143

≥ 60 < 90 days

1,268

1,148

-

-

-

-

1,268

1,148

≥ 90 days
Sub-total

2,998

2,953

-

-

-

-

2,998

2,953

15,46415,034----

15,46415,034

1,676

2,118

-

-

-

-

1,676

2,118

269

167

-

-

-

-

269

167

Restructured and impaired
Impaired loans
Restructured items

4

-

-

-

-

68

99

68

99

1,945

2,285

-

-

68

99

2,013

2,384

Individual provisions(894)(1,118)

-

-

(26)

(18)

(920)

(1,136)Sub-total restructured and net impaired

1,051

1,167

-

-

42

81

1,093

1,248

605,463

580,855

276,240

251,317244,582

Non-performing commitments and contingencies
Gross impaired financial assets

Total

231,600 1,126,285 1,063,772

1.

In 2018, collective provisions against Satisfactory and Sub-standard risk, which previously had been allocated against Strong credit profile, are now reallocated to Satisfactory and Sub-standard risk.
Comparatives have been restated accordingly.
In 2018, collective provisions against Satisfactory risk, which previously had been allocated against Strong credit profile, are now reallocated to Satisfactory risk. Comparatives have been restated accordingly(2017: Net loans and advances $586 million, Credit related commitments $187 million).
3.
In 2018, collective provisions against Sub-standard risk, which previously had been allocated against Strong credit profile, are now reallocated to Sub-standard risk. Comparatives have been restatedaccordingly (2017: Net loans and advances $638 million, Credit related commitments $85 million).
4.
Restructured items are facilities in which the original contractual terms have been modified for reasons related to the financial difficulties of the customer. Restructuring may consist of reduction of interest,principal or other payments legally due, or an extension in maturity materially beyond those typically offered for new facilities with similar risk.
2.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 115

115

ANZ 2018 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
16. FINANCIAL RISK MANAGEMENT (continued)
CREDIT RISK (continued)
CONCENTRATIONS OF CREDIT RISK
Credit risk becomes concentrated when a number of customers are engaged in similar activities, have similar economic characteristics, or have similar
activities within the same geographic region – therefore, they may be similarly affected by changes in economic or other conditions. The Group
monitors its credit portfolio to manage risk concentration and rebalance the portfolio. The Group also applies single customer counterparty limits toprotect against unacceptably large exposures to one single customer.
Composition of financial instruments that give rise to credit risk by industry group are presented below:
Loans
and advances

Off-balance sheet
credit related
commitments

Other financial
assets

Total

2018
$m

2017
$m

2018
$m

2017
$m

2018
$m

2017
$m

2018
$m

2017
$m

Agriculture, forestry, fishing and mining

38,12435,592705

773

17,58316,09356,41252,458Business services

8,439

8,413

122

182

7,016

7,251

15,577

15,846

Construction

6,849

6,965

61

84

6,950

6,419

13,86013,468

Electricity, gas and water supply

6,390

6,472

920

1,186

6,152

6,103

13,462

13,761Entertainment, leisure and tourism

12,36012,462

355

447

3,666

3,650

16,381

16,559Financial, investment and insurance

48,05939,741

187,194

162,198

37,82129,640273,074

231,579

922

2,307

75,76373,904

2,854

2,733

79,53978,944

Manufacturing

23,538

21,107

2,612

2,691

41,92738,872

68,07762,670

Personal lending

352,155

352,841

1,379

1,902

55,15962,090408,693

416,833

Property services

45,47342,514708

838

15,837

13,05762,01856,409Retail trade

13,53013,375

209

321

6,947

6,506

20,686

20,202

Transport and storage

12,075

11,884

650

1,163

7,980

6,998

20,70520,045Wholesale trade

15,22014,178

3,148

2,817

21,83420,50140,20237,496

Government and official institutions

Other

24,67915,593

2,414

2,811

13,382

12,24940,47530,653Gross total

607,813583,444276,240

251,317245,108

232,162

1,129,161

1,066,923

Provision for credit impairment(2,917)(3,236)

-

-

(526)

(562)

(3,443)(3,798)Subtotal

604,896580,208276,240

251,317244,582

231,600

1,125,718

1,063,125

Unearned income

(430)

(411)

-

-

-

-

(430)

(411)

Capitalised brokerage/mortgage
origination fees

997

1,058

-

-

-

-

997

1,058

Maximum exposure to credit risk

605,463

580,855

276,240

251,317244,582

231,600

1,126,285

1,063,772

116 ANZ 2018 ANNUAL REPORT116

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

16. FINANCIAL RISK MANAGEMENT (continued)
CREDIT RISK (continued)
COLLATERAL MANAGEMENT
We use collateral for on and off-balance sheet exposures to mitigate credit risk if a counterparty cannot meet its repayment obligations from its
expected cash flows. For some products, the collateral provided by customers is fundamental to the product’s structuring, so it is not strictly thesecondary source of repayment - for example, lending secured by trade receivables is typically repaid by the collection of those receivables.
The nature of collateral or security held for the relevant classes of financial assets is as follows:
Net loans and advances
Loans – housing andpersonal

Housing loans are secured by mortgage(s) over property and additional security may take the form ofguarantees and deposits.
Personal lending (including credit cards and overdrafts) is predominantly unsecured. If we take security, thenit is restricted to eligible vehicles, motor homes and other assets.

Loans – businessBusiness loans may be secured, partially secured or unsecured. Typically, we take security by way of amortgage over property and/or a charge over the business or other assets.
If appropriate, we may take other security to mitigate the credit risk, for example: guarantees, standby lettersof credit or derivative protection.

Other financial assets
Trading securities, Availablefor-sale assets, Derivatives
and Other financial assets

For trading securities, we do not seek collateral directly from the issuer or counterparty. However, thecollateral may be implicit in the terms of the instrument (for example, with an asset-backed security). The
terms of debt securities may include collateralisation.
For derivatives, we typically terminate all contracts with the counterparty and settle on a net basis at market
levels current at the time of a counterparty default under International Swaps and Derivatives Association(ISDA) Master Agreements.
Our preferred practice is to use a Credit Support Annex (CSA) to the ISDA so that open derivative positions
with the counterparty are aggregated and cash collateral (or other forms of eligible collateral) is exchanged
daily. The collateral is provided by the counterparty when their position is out of the money (or provided tothe counterparty by ANZ when our position is out of the money).

Off-balance sheet positions
Undrawn and contingent
facilities

Collateral for off balance sheet positions is mainly held against undrawn facilities, and they are typically
performance bonds or guarantees. Undrawn facilities that are secured include housing loans secured by
mortgages over residential property and business lending secured by commercial real estate and/or charges
over business assets.

The table below shows the estimated value of collateral we hold and the net unsecured portion of credit exposures:
Credit exposure

Unsecured portion of credit
exposure

Total value of collateral

2018
$m

2017
$m

2018
$m

2017
$m

2018
$m

2017
$m

Net loans and advances

605,463

580,855

482,097474,746

123,366

106,109

Other financial assets

276,240

251,317

33,21525,429243,025

225,888

Off-balance sheet positions
Total

244,582

231,600

49,141

46,083

195,441

185,517

1,126,285

1,063,772

564,453546,258

561,832

517,514

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 117

117

ANZ 2018 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
16. FINANCIAL RISK MANAGEMENT (continued)
MARKET RISKMARKET RISK OVERVIEW, MANAGEMENT AND CONTROL RESPONSIBILITIESMarket risk stems from ANZ’s trading and balance sheet management activities, the impact of changes and correlation between interest rates, foreignexchange rates, credit spreads and volatility in bond, commodity or equity prices.
The BRC delegates responsibility for day-to-day management of both market risks and compliance with market risk policies to the Credit & Market Risk
Committee (CMRC) and the Group Asset & Liability Committee (GALCO).
Within overall strategies and policies established by the BRC, business units and risk management have joint responsibility for the control of market
risk at the Group level. The Market Risk team (a specialist risk management unit independent of the business) allocates market risk limits at various
levels and monitors and reports on them daily. This detailed framework allocates individual limits to manage and control exposures using risk factors
and profit and loss limits.
Management, measurement and reporting of market risk is undertaken in two broad categories:
Traded Market Risk

Non-Traded Market Risk

Risk of loss from changes in the value of financial instruments due
to movements in price factors for both physical and derivative
trading positions. Principal risk categories monitored are:Risk of loss associated with the management of non-traded interest rate risk,
liquidity risk and foreign exchange exposures. This includes interest rate riskin the banking book. This risk of loss arises from adverse changes in theoverall and relative level of interest rates for different tenors, differences in
the actual versus expected net interest margin, and the potential valuation
risk associated with embedded options in financial instruments and bankproducts.

1. Currency risk – potential loss arising from changes in foreignexchange rates or their implied volatilities.
2. Interest rate risk – potential loss from changes in market
interest rates or their implied volatilities.
3. Credit spread risk – potential loss arising from a movement inmargin or spread relative to a benchmark.
4. Commodity risk – potential loss arising from changes incommodity prices or their implied volatilities.
5. Equity risk – potential loss arising from changes in equity prices.

MEASUREMENT OF MARKET RISKWe primarily manage and control market risk using Value at Risk (VaR), sensitivity analysis and stress testing.
VaR gauges the Group’s possible daily loss based on historical market movements.
The Group’s VaR approach for both traded and non-traded risk is historical simulation. We use historical changes in market rates, prices andvolatilities over: the previous 500 business days, to calculate standard VaR, and a 1-year stressed period, to calculate stressed VaR.
We calculate traded and non-traded VaR using one-day and ten-day holding periods. For stressed VaR, we use a ten-day period. Back testing is used toensure our VaR models remain accurate.
ANZ measures VaR at a 99% confidence interval which means there is a 99% chance that a loss will not exceed the VaR for the relevant holding period.

118 ANZ 2018 ANNUAL REPORT118

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

16. FINANCIAL RISK MANAGEMENT (continued)
MARKET RISK (continued)
TRADED AND NON-TRADED MARKET RISK
Traded market risk
The table below shows the traded market risk VaR on a diversified basis by risk categories:
30 September 2018

30 September 2017

As at
$m

High foryear$m

Low foryear$mAveragefor year
$m

As at
$m

High foryear$m

Low foryear$mAveragefor year$m

Foreign exchange

3.7

10.3

1.7

4.2

4.2

10.5

2.5

5.1

Interest rate

8.4

16.0

4.9

7.9

6.3

21.3

5.1

7.9

Credit

2.5

6.5

2.3

4.0

4.4

5.4

2.0

3.4

Commodity

3.7

4.5

1.4

3.1

2.2

3.8

1.4

2.1

-

-

-

-

-

0.5

-

0.2

Traded value at risk 99% confidence

EquityDiversification benefit1
Total VaR
1.

(10.5)

n/a

n/a

(8.1)

(7.6)

n/a

n/a

(7.7)

7.8

19.9

6.9

11.1

9.5

24.9

6.9

11.0

The diversification benefit reflects risks that offset across categories. The high and low VaR figures reported for each factor did not necessarily occur on the same day as the high and low VaR reported for theGroup as a whole. Consequently, a diversification benefit for high and low would not be meaningful and is therefore omitted from the table.

Non-traded market risk
Balance sheet risk management
The principal objectives of balance sheet risk management are to maintain acceptable levels of interest rate and liquidity risk to mitigate the negative
impact of movements in interest rates on the earnings and market value of the Group’s banking book, while ensuring the Group maintains sufficientliquidity to meet its obligations as they fall due.
Interest rate risk management
Non-traded interest rate risk relates to the potential adverse impact of changes in market interest rates on the Group’s future net interest income. Thisrisk arises from two principal sources, namely mismatches between the repricing dates of interest bearing assets and liabilities; and the investment of
capital and other non-interest bearing liabilities in interest bearing assets. Interest rate risk is reported using VaR and scenario analysis (based on theimpact of a 1% rate shock). The table below shows VaR figures for non-traded interest rate risk for the combined Group as well as Australia, New
Zealand and Asia Pacific, Europe and Americas (APEA) geographies which are calculated separately.
30 September 2018

30 September 2017

As at
$m

High foryear$m

Low foryear$mAveragefor year
$m

As at
$m

High foryear$m

Low foryear$mAveragefor year
$m

21.9

32.7

20.3

23.6

31.6

37.5

25.9

31.3

Non-traded value at risk 99% confidence
Australia
New Zealand

6.8

7.1

5.6

6.6

11.8

15.1

11.1

12.4

Asia Pacific, Europe & America

15.1

15.1

12.5

13.7

14.6

19.0

14.3

15.9

Diversification benefit(16.1)

n/an/a(14.4)(20.6)

n/a

n/a(19.7)

Total VaR

27.7

36.4

26.0

29.5

37.4

44.0

33.5

39.9

1

1.

The diversification benefit reflects the historical correlation between the regions. The high and low VaR figures reported for the region did not necessarily occur on the same day as the high and low VaRreported for the Group as a whole. Consequently, a diversification benefit for high and low would not be meaningful and is therefore omitted from the table.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 119

119

ANZ 2018 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
16. FINANCIAL RISK MANAGEMENT (continued)
MARKET RISK (continued)
We undertake scenario analysis to stress test the impact of extreme events on the Group’s market risk exposures. We model a 1% overnight parallel
positive shift in the yield curve to determine the potential impact on our net interest income over the next 12 months. This is a standard risk measure
which assumes the parallel shift is reflected in all wholesale and customer rates.
The table below shows the outcome of this risk measure for the current and previous financial years, expressed as a percentage of reported net
interest income. A positive number signifies that a rate increase is positive for net interest income over the next 12 months.
2018

2017

As at period end

0.20%

0.52%

Maximum exposure

0.60%

0.65%

Minimum exposure

0.03%

0.01%

Average exposure (in absolute terms)

0.25%

0.28%

Impact of 1% rate shock

EQUITY SECURITIES CLASSIFIED AS AVAILABLE-FOR-SALE
Our available-for-sale financial assets contain equity investment holdings which predominantly comprise investments we hold for longer-term
strategic reasons. The market risk impact on these equity investments is not captured by the Group’s VaR processes for traded and non-traded market
risks. Therefore, the Group regularly reviews the valuations of the investments within the portfolio and assesses whether the investments are impaired
based on the recognition and measurement policies set out in Note 11 Available-for-sale Assets.
FOREIGN CURRENCY RISK – STRUCTURAL EXPOSURES
Our investment of capital in foreign operations - for example, branches, subsidiaries or associates with functional currencies other than the Australian
Dollar - exposes the Group to the risk of changes in foreign exchange rates. Variations in the value of these foreign operations arising as a result of
exchange differences are reflected in the foreign currency translation reserve in equity.
Where it is considered appropriate, the Group takes out economic hedges against larger foreign exchange denominated revenue streams (primarily
New Zealand Dollar, US Dollar and US Dollar correlated). The primary objective of hedging is to ensure that, if practical, the consolidated capital ratios
are neutral to the effect of changes in exchange rates.

120 ANZ 2018 ANNUAL REPORT120

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

16. FINANCIAL RISK MANAGEMENT (continued)
LIQUIDITY AND FUNDING RISKLIQUIDITY RISK OVERVIEW, MANAGEMENT AND CONTROL RESPONSIBILITIES
Liquidity risk is the risk that the Group is either: unable to meet its payment obligations (including repaying depositors or maturing wholesale debt) when they fall due; or does not have the appropriate amount, tenor and composition of funding and liquidity to fund increases in its assets.
Management of liquidity and funding risks are overseen by GALCO. The Group’s liquidity and funding risks are governed by a set of principles
approved by the BRC and include: maintaining the ability to meet all payment obligations in the immediate term;
 ensuring that the Group has the ability to meet ‘survival horizons’ under a range of ANZ specific, and general market, liquidity stress scenarios, atthe site and Group-wide level, to meet cash flow obligations over the short to medium term; maintaining strength in the Group’s balance sheet structure to ensure long term resilience in the liquidity and funding risk profile; ensuring the liquidity management framework is compatible with local regulatory requirements;
 preparing daily liquidity reports and scenario analysis to quantify the Group’s positions;
 targeting a diversified funding base to avoid undue concentrations by investor type, maturity, market source and currency; holding a portfolio of high quality liquid assets to protect against adverse funding conditions and to support day-to-day operations; and establishing detailed contingency plans to cover different liquidity crisis events.
KEY AREAS OF MEASUREMENT FOR LIQUIDITY RISKScenario modelling of funding sources
ANZ’s liquidity risk appetite is defined by a range of regulatory and internal liquidity metrics mandated by the Board. The metrics cover a range of
scenarios of varying duration and level of severity.
A key component of this framework is the Liquidity Coverage Ratio (LCR), which is a severe short term liquidity stress scenario mandated by banking
regulators including APRA. As part of meeting LCR requirements, the Group has a Committed Liquidity Facility (CLF) with the Reserve Bank of Australia.
The CLF has been established to offset the shortage of available High Quality Liquid Assets (HQLA) in Australia and provides an alternative form ofcontingent liquidity. The total amount of the CLF available to a qualifying Australian Deposit-taking Institution is set annually by APRA. From 1 January
2018, ANZ’s CLF is $46.9 billion (2017 calendar year end: $43.8 billion).
Liquid assets
The Group holds a portfolio of high quality (unencumbered) liquid assets to protect the Group’s liquidity position in a severely stressed environment,
to meet regulatory requirements. HQLA comprise three categories consistent with Basel III LCR requirements:
 HQLA1 – Cash and highest credit quality government, central bank or public sector securities eligible for repurchase with central banks to provide
same-day liquidity.
 HQLA2 – High credit quality government, central bank or public sector securities, high quality corporate debt securities and high quality coveredbonds eligible for repurchase with central banks to provide same-day liquidity.
 Alternative liquid assets (ALA) – Assets qualifying as collateral for the CLF and eligible securities that the Reserve Bank of New Zealand (RBNZ) will
accept in its domestic market operations.
LIQUIDITY RISK OUTCOMES1
Liquidity Coverage Ratio
ANZ’s Liquidity Coverage Ratio (LCR) averaged 138% for 2018, an increase from the 2017 average of 135%, and above the regulatory minimumof 100%.
Net Stable Funding Ratio
ANZ’s Net Stable Funding Ratio (NSFR) as at 30 September 2018 was 115%, above the regulatory minimum of 100%.

1.

This information is not within the scope of the external audit of the Group Financial Report by the Group’s external auditor, KPMG. The Liquidity Coverage Ratio and Net Stable Funding Ratio are non-IFRS
disclosures and are disclosed as part of the Group's APS 330 Public Disclosure which is subject to specific review procedures in accordance with the Australian Standard on Related Services (ASRS) 4400

Agreed upon Procedures Engagements to Report Factual Findings.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 121

121

ANZ 2018 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
16. FINANCIAL RISK MANAGEMENT (continued)
LIQUIDITY AND FUNDING RISK (continued)
Liquidity crisis contingency planning
The Group maintains APRA-endorsed liquidity crisis contingency plans for analysing and responding to a liquidity threatening event at a country andGroup-wide level. Key liquidity contingency crisis planning requirements and guidelines include:
Ongoing business management

Early signs/ mild stress

Severe Stress Establish crisis/severity levels

 Monitoring and review

 Activate contingency funding plans

 Liquidity limits Management actions not requiring
business rationalisation

 Management actions for altering asset and liability
behaviour Early warning indicators

Assigned responsibility for internal and external communications and the appropriate timing to communicate
Since the precise nature of any stress event cannot be known in advance, we design the plans to be flexible to the nature and severity of the stressevent with multiple variables able to be accommodated in any plan.
Group funding
The Group monitors the composition and stability of its funding so that it remains within the Group’s funding risk appetite. This approach ensures thatan appropriate proportion of the Group’s assets are funded by stable funding sources, including customer deposits; longer-dated wholesale funding(with a remaining term exceeding one year); and equity.
Funding plans prepared

Considerations in preparing funding plans

 3 year strategic plan prepared annually Customer balance sheet growth Annual funding plan as part of budgeting process Changes in wholesale funding including: targeted funding volumes; markets;
investors; tenors; and currencies for senior, secured, subordinated, hybridtransactions and market conditions

 Forecasting in light of actual results as a calibration to theannual plan

122 ANZ 2018 ANNUAL REPORT122

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

16. FINANCIAL RISK MANAGEMENT (continued)
LIQUIDITY AND FUNDING RISK (continued)
RESIDUAL CONTRACTUAL MATURITY ANALYSIS OF GROUP’S LIABILITIESThe tables below provides residual contractual maturity analysis of financial liabilities, including financial liabilities reclassified to held for sale, at 30
September within relevant maturity groupings. All outstanding debt issuance and subordinated debt is profiled on the earliest date on which theGroup may be required to pay. All at-call liabilities are reported in the “Less than 3 months” category. Any other items without a specified maturity
date are included in the “After 5 years” category. The amounts represent principal and interest cash flows - so they may differ from equivalent amounts
reported on balance sheet. For the purpose of this note, assets presented as asset held for sale in the Balance Sheet have been reallocated to theirrespective Balance Sheet categories.
It should be noted that this is not how the Group manages its liquidity risk. The management of this risk is detailed on page 121.
Less than
3 months$m

3 to 12months$m

1 to 5
years
$m

After
5 years
$m

Total
$m

Settlement balances owed by ANZ

11,810---11,810Collateral received

6,542

-

-

-

6,542

2018

Deposits and other borrowings

518,650

92,213

12,444

117

623,424

Policy liabilities

38,325

2

9

1,271

39,607External unit holder liabilities

4,712

-

-

-

4,712

803

-

-

-

803

1

Debt issuances

5,575

21,53883,68523,399134,197

Derivative liabilities (trading)2

60,499---60,499Receive leg(17,972)(30,894)(85,054)(35,580)(169,500)

Pay leg

17,93629,757

82,34435,431

165,468

Receive leg(52,708)(16,646)(14,401)(2,089)(85,844)

Pay leg

53,022

16,87915,2832,256

87,440Less than
3 months$m

3 to 12months$m

1 to 5
years
$m

After
5 years
$m

Total
$m

Settlement balances owed by ANZ

9,914

-

-

-

9,914

Collateral received

5,919

-

-

-

5,919

Deposits and other borrowings

490,282

94,44919,003

145

603,879

Policy liabilities

37,0752

19352

37,448External unit holder liabilities

4,435

-

-

-

4,435

Liability for acceptances

614

-

-

-

614

1

4,673

15,29075,732

24,131

119,826

Derivative liabilities (trading)2

51,556---51,556

Receive leg(18,598)(20,058)(82,876)(29,295)(150,827)

Pay leg

18,374

19,83083,82729,659151,690

Receive leg(28,031)(8,685)(14,900)(5,021)(56,637)

Pay leg

28,246

9,152

17,024

5,552

59,974

Liability for acceptances

Derivative assets and liabilities (balance sheet management)- Funding- Other balance sheet management

2017

Debt issuances

Derivative assets and liabilities (balance sheet management)- Funding- Other balance sheet management1.

2.

Any callable wholesale debt instruments have been included at their next call date. Balance includes subordinated debt instruments that may be settled in cash or in equity, at the option of the Company,
and perpetual investments at next call date.
The full mark-to-market of derivative liabilities held for trading purposes is included in the ‘less than 3 months’ category.

At 30 September 2018, $202,531 million (2017: $191,323 million) of the Group’s undrawn facilities and $42,577 million (2017: $40,839 million) of its
issued guarantees mature in less than 1 year, based on the earliest date on which the Group may be required to pay.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 123

123

ANZ 2018 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
17. FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIESThe Group carries a significant number of financial instruments on the balance sheet at fair value. In addition the Group also holds assets
classified as held for sale which are measured at fair value less costs to sell. The fair value is the best estimate of the price that would bereceived to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date.
VALUATION
The Group has an established control framework, including appropriate segregation of duties, to ensure that fair values are accurately determined,
reported and controlled. The framework includes the following features: products are approved for transacting with external customers and counterparties only where fair values can be appropriately determined; quoted market prices used to value financial instruments are independently verified with information from external pricing providers; fair value methodologies and inputs are evaluated and approved by a function independent of the party that undertakes the transaction;
 movements in fair values are independently monitored and explained by reference to underlying factors relevant to the fair value; and valuation adjustments (such as funding valuation adjustments, credit valuation adjustments and bid-offer adjustments) are independently
validated and monitored.
If the Group holds offsetting risk positions, then the Group uses the portfolio exception in AASB 13 Fair Value Measurement (AASB 13) to measure thefair value of such groups of financial assets and financial liabilities. We measure the portfolio based on the price that would be received to sell a net
long position (an asset) for a particular risk exposure, or to transfer a net short position (a liability) for a particular risk exposure.
Fair value designation
We designate certain loans and advances and certain deposits and other borrowings and debt issuances as fair value through profit or loss:
 where they contain a separable embedded derivative which significantly modifies the instruments’ cash flow; or in order to eliminate an accounting mismatch which would arise if the asset or liabilities were otherwise carried at amortised cost. This mismatcharises as we measure the derivative financial instruments (which we acquired to mitigate interest rate risk of the assets or liabilities) at fair value
through profit or loss.
Our approach ensures that we recognise the fair value movements on the assets or liabilities in profit or loss in the same period as the movement on
the associated derivatives.
We may also designate certain loans and advances, certain deposits and other borrowings and debt issuances as fair value through profit or loss
where they are managed on a fair value basis to align the measurement with how the instruments are managed.
FAIR VALUE APPROACH AND VALUATION TECHNIQUESWe use valuation techniques to estimate the fair value of assets and liabilities for recognition, measurement and disclosure purposes where no quoted
price in an active market exists for that asset or liability. This includes the following:
Asset or Liability

Fair Value Approach

Financial instruments classified as:

Valuation techniques are used that incorporate observable market inputs for financial
instruments with similar credit risk, maturity and yield characteristics. Equity
instruments that are not traded in active markets may be measured using comparable
company valuation multiples.

- Trading securities- Securities sold short- Derivative financial assets and financial liabilities- Available-for-sale assets
Financial instruments classified as:- Net loans and advances- Deposits and other borrowings- Debt issuances
Assets and liabilities held for sale

Discounted cash flow techniques are used whereby contractual future cash flows of
the instrument are discounted using wholesale market interest rates, or market
borrowing rates for debt with similar maturities or yield curve appropriate for theremaining term to maturity.
Valuation based on the expected sale price before transaction costs.

124 ANZ 2018 ANNUAL REPORT124

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

17. FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES (continued)
CLASSIFICATION OF FINANCIAL ASSETS AND FINANCIAL LIABILITIESThe following tables set out the classification of financial asset and liability categories according to measurement bases together with their carrying
amounts as reported on the balance sheet.
2018

2017

Total
$m

At
amortised
cost
$m

At
fair
value
$m

Total
$m

84,636

68,048-68,048

-

2,319

5,504

-

5,504

-

11,043

8,987

-

8,987

Note

At
amortised
cost
$m

At
fair
value
$m

8

84,636-

Settlement balances owed to ANZ

2,319

Collateral paid

11,043Financial assets
Cash and cash equivalents

Trading securities

9-37,722

37,722-43,60543,605Derivative financial instruments

10-

68,42368,423-62,51862,518Available-for-sale assets

11-

74,28474,284-

69,384

69,384

Net loans and advances

12603,805133

603,938

574,175

156

574,331

Regulatory deposits

882

-

882

2,015

-

2,015

Assets held for sale

727

43,15143,878

5,966

-

5,966

-

-

-

-

37,96437,9641

Investments backing policy liabilities

2,899

-

2,899

4,364

-

4,364

706,311

223,713930,024

669,059

213,627882,686

Settlement balances owed by ANZ

11,810-11,810

9,914

-

9,914

Collateral received

6,542

-

6,542

5,919

-

5,919

615,818

2,332

618,150

592,1143,497

595,611

Other financial assets
Total
Financial liabilities

Deposits and other borrowings

14

Derivative financial instruments

10-

69,676

69,676-62,25262,252130

46,641

46,771

4,635

-

4,635

Policy liabilities

-

-

-

342

37,10637,448External unit holder liabilities

-

-

-

-

4,435

4,435

Liabilities held for sale1

Payables and other liabilities
Debt issuances
Total
1.

15

5,617

1,171

6,788

6,458

1,892

8,350

119,737

1,442

121,179

106,221

1,752

107,973759,654

121,262

880,916

725,603110,934

836,537

Assets held for sale and liabilities held for sale include only the components of assets or liabilities held for sale which are financial instruments.

FAIR VALUE HIERARCHYThe Group categorises assets and liabilities carried at fair value into a fair value hierarchy as required by AASB 13 based on the observability of inputs
used to measure the fair value:
 Level 1 – valuations based on quoted prices (unadjusted) in active markets for identical assets or liabilities;
 Level 2 – valuations using inputs other than quoted prices included within Level 1 that are observable for a similar asset or liability, either directly
or indirectly; and Level 3 – valuations where significant unobservable inputs are used to measure the fair value of the asset or liability.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 125

125

ANZ 2018 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
17. FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES (continued)
The following table presents assets and liabilities carried at fair value in accordance with the fair value hierarchy:
Fair value measurements
Quoted market price(Level 1)

Using observable
inputs (Level 2)

Using unobservable
inputs (Level 3)

Total

2018
$m

2017
$m

2018
$m

2017
$m

2018
$m

2017
$m

2018
$m

2017
$m

30,85540,435

6,867

3,170

-

-

37,72243,605647

433

67,717

61,99659

89

68,42362,51869,50861,694

3,695

7,479

1,081

211

74,284

69,384

AssetsTrading securities1
Derivative financial instruments
Available-for-sale assets1
Net loans and advances (measured at fair value)

-

-

133

156

-

-

133

156

Investments backing policy liabilities1-

27,308-10,306-350-

37,964

Assets held for sale2--

44,623

1,748

-

-

44,623

1,748

129,870 123,035

84,8551,140

650 225,185

215,375

Total

101,010

Liabilities
-

-

2,332

3,497

-

-

2,332

3,497

1,680

275

67,952

61,90044

77

69,67662,252---

37,106---

37,106

Deposits and other borrowings (designated at fair value)
Derivative financial instruments
Policy liabilities3
External unit holder liabilities

-

-

-

4,435

-

-

-

4,435

Payables and other liabilities4

1,159

1,726

12

166

-

-

1,171

1,892

Debt issuances (designated at fair value)

-

-

1,442

1,752

-

-

1,442

1,752

Liabilities held for sale2--

46,829---46,829-2,001 118,567

108,85644

77 121,450

110,934

Total

2,839

1.

Of the assets and liabilities held at the end of 2018, during the year, we transferred: $676 million (2017: nil) from Level 1 to Level 3 following a change in the valuation approach used to measure the investment in Bank of Tianjin;
 $953 million (2017: $44 million) from Level 2 to Level 1 following increased trading activity to support the quoted prices; There was no material transfer from Level 1 to Level 2 (2017: $713 million).
Transfers into and out of levels are measured at the beginning of the reporting period in which the transfer occurred.
2.
The amount classified as Assets and Liabilities held for sale relates to assets and liabilities measured at fair value less cost to sell in accordance with AASB 5 Non-current Assets Held for Sale and Discontinued
Operations. The amount presented reflects fair value excluding cost to sell but including intercompany eliminations.
3.
Policy liabilities relate only to life investment contract liabilities, as we designated these at fair value through profit or loss.
4.
Payables and other liabilities relates to securities sold short, which we classify as held for trading and measured at fair value through profit or loss.

FAIR VALUE MEASUREMENT INCORPORATING UNOBSERVABLE MARKET DATA
Level 3 fair value measurements
The net balance of Level 3 is an asset of $1,096 million (2017: $573 million). The assets and liabilities which incorporate significant unobservable inputs
primarily include: equities for which there is no active market or traded prices cannot be observed;
 structured credit products for which credit spreads and default probabilities relating to the reference assets and derivative counterparties cannot
be observed;
 other derivatives referencing market rates that cannot be observed primarily due to lack of market activity.
Movement in the Level 3 balance are due to the following transfers:
 investment backing policy liabilities being classified as Level 2 on transfer to assets held for sale following the agreed sale of the Wealthbusinesses, and;
 our available-for-sale investment in Bank of Tianjin has been transferred to Level 3 following a change in the valuation approach used to measure
the asset.
There were no other material transfers in or out of Level 3 during the period.

126 ANZ 2018 ANNUAL REPORT126

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

17. FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES (continued)
Bank of Tianjin (BoT)
A revised valuation technique was applied to the investment in BoT as the Group considers that, in light of persistent illiquidity, the share price of BoT
is not representative of fair value. The investment is valued based on comparative price-to-book (P/B) multiples (a P/B multiple is the ratio of themarket value of equity to the book value of equity). The extent of judgment applied in determining the appropriate multiple and comparator groupfrom which the multiple is derived are non-observable inputs which have resulted in the Level 3 classification. The application of this valuation
approach resulted in a $349 million increase in the carrying value of the investment during the period to $1,025 million. The increase has beenrecognised as an unrealised gain in the available-for-sale revaluation reserve within shareholders’ equity and accordingly, there is no impact from thisrevaluation on the Income Statement for the September 2018 financial year.
The movement in Investments backing policy liabilities classified as Level 3 is predominantly due to reclassification of the balance as asset held forsale. Aside from this movement, there have been no significant movements or changes in the composition of the balance of Level 3 instruments that
the Group carries at fair value during the current or prior periods.
Sensitivity to Level 3 data inputs
When we make assumptions due to significant inputs not being directly observable in the market place (Level 3 inputs), then changing theseassumptions changes the Group’s estimate of the instrument’s fair value. Favourable and unfavourable changes are determined by changing the
primary unobservable parameter used to derive the valuation.

Bank of Tianjin (BoT)The valuation of the BoT investment is sensitive to the selected unobservable input, being the P/B multiple. If the P/B multiple was increased or
decreased by 10% it would result in a $102 million increase or decrease to the fair value of the investment, which would be recognised inshareholders’ equity.

Other
The remaining Level 3 balance is immaterial and changes in the Level 3 inputs have a minimal impact on net profit and net assets of the Group.
Deferred fair value gains and losses
Where fair values are determined using unobservable inputs significant to the fair value of a financial instrument, the Group does not immediately
recognise the difference between the transaction price and the amount we determine based on the valuation technique (day one gain or loss) in
profit or loss. After initial recognition, we recognise the deferred amount in profit or loss on a straight line basis over the life of the transaction or until
all inputs become observable.
The day one gains and losses deferred are not material.
FINANCIAL ASSETS AND FINANCIAL LIABILITIES NOT MEASURED AT FAIR VALUE
The following table sets out the Group’s basis of estimating fair values of financial instruments carried at amortised cost:
Financial Asset and Liability

Fair Value Approach

Net loans and advances to banks

Discounted cash flows using prevailing market rates for loans with similar
credit quality.

Net loans and advances to customers

Present value of future cash flows, discounted using a curve that incorporates
changes in wholesale market rates, the Group’s cost of wholesale funding and thecustomer margin, as appropriate.

Deposit liability without a specified maturity or at call

The amount payable on demand at the reporting date. We do not adjust the fairvalue for any value we expect the Group to derive from retaining the deposit for a
future period.

Interest bearing fixed maturity deposits and otherborrowings and acceptances with quoted market rates

Market borrowing rates of interest for debt with a similar maturity are used to
discount contractual cash flows to derive the fair value.

Debt issuances

Calculated based on quoted market prices or observable inputs as applicable. If
quoted market prices are not available, we use a discounted cash flow model using ayield curve appropriate for the remaining term to maturity of the debt instrument.
The fair value reflects adjustments to credit spreads applicable to ANZ forthat instrument.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 127

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ANZ 2018 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
17. FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES (continued)
The financial assets and financial liabilities listed in the table below are carried at amortised cost on the Group’s Balance Sheet. While this is the value atwhich we expect the assets will be realised and the liabilities settled, the Group provides an estimate of the fair value of the financial assets andfinancial liabilities at balance date in the table below.
At amortised cost

Categorised into fair value hierarchy
Quoted market price(Level 1)

Using observable
inputs (Level 2)

Fair value (total)

With significant nonobservable inputs(Level 3)

2018
$m

2017
$m

2018
$m

2017
$m

2018
$m

2017
$m

2018
$m

2017
$m

2018
$m

2017
$m

Net loans and advances1,2

604,804

580,137--

29,58626,928575,691

553,395

605,277

580,323

Total

604,804

580,137--

29,58626,928575,691

553,395

605,277

580,323

Deposits and other borrowings1

617,397596,672--

617,563596,862--

617,563596,862

Debt issuances

119,737

106,221

43,41345,836

77,20561,663--

120,618

107,499

Total

737,134

702,893

43,41345,836

694,768

658,525--

738,181704,361

Financial assets

Financial liabilities

1.
2.

Net loans and advances and deposits and other borrowings include amounts reclassified to assets and liabilities held for sale (refer Note 29 Discontinued Operations and Assets and Liabilities Held for Sale).
We have reviewed the fair value of Net loans and advances previously presented as Level 2. In line with broader industry practice Net loans and advances other than Loans to Banks are now presented as
Level 3.

KEY JUDGEMENTS AND ESTIMATESThe Group evaluates the material accuracy of the valuations incorporated in the financial statements as they can involve a high degreeof judgement and estimation in determining the carrying values of financial assets and financial liabilities at the balance sheet date.
The majority of valuation models the Group uses employ only observable market data as inputs. However, for certain financial
instruments, we may use data that is not readily observable in current markets. If we use unobservable market data, then we need toexercise more judgement to determine fair value depending on the significance of the unobservable input to the overall valuation.
Generally, we derive unobservable inputs from other relevant market data and compare them to observed transaction prices
where available.
When establishing the fair value of a financial instrument using a valuation technique, the Group considers valuation adjustments indetermining the fair value. We may apply adjustments (such as bid/offer spreads, credit valuation adjustments and funding valuation
adjustments – refer Note 10 Derivative Financial Instruments) to the techniques used to reflect the Group’s assessment of factors thatmarket participants would consider in setting fair value.

128 ANZ 2018 ANNUAL REPORT128

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

18. ASSETS CHARGED AS SECURITY FOR LIABILITIES AND COLLATERAL ACCEPTED AS
SECURITY FOR ASSETS
The following disclosure excludes the amounts presented as collateral paid and received in the Balance Sheet that relate to derivative liabilities andderivative assets respectively. The terms and conditions of those collateral agreements are included in the standard Credit Support Annex that forms
part of the International Swaps and Derivatives Association Master Agreement.
ASSETS CHARGED AS SECURITY FOR LIABILITIESAssets charged as security for liabilities include the following types of instruments:
 Securities provided as collateral for repurchase transactions. These transactions are governed by standard industry agreements.
 UDC Secured Investments are secured by a security interest granted under a trust deed over all of UDC’s present and future assets andundertakings, to Trustees Executors Limited, as supervisor. The assets subject to the security interest comprise mainly loans to UDC's customers
and certain plant and equipment. The security interest secures all amounts payable by UDC on the UDC Secured Investments and all other monies
payable by UDC under the trust deed.
 Specified residential mortgages provided as security for notes and bonds issued to investors as part of ANZ’s covered bond programs.
 Collateral provided to central banks.
 Collateral provided to clearing houses.
The carrying amount of assets pledged as security are as follows:

Securities sold under arrangements to repurchase1

2018
$m

2017
$m

40,16436,242

Assets pledged as collateral for UDC Secured Investments

3,019

2,746

Residential mortgages provided as security for covered bonds

29,45529,353

Other

2,794

3,140

1.

The amounts disclosed as securities sold under arrangements to repurchase include both: assets pledged as security which continue to be recognised on the Group's balance sheet; and assets repledged, which are included in the disclosure below.

COLLATERAL ACCEPTED AS SECURITY FOR ASSETSANZ has received collateral associated with various financial instruments. Under certain transactions ANZ has the right to sell, or to repledge, thecollateral received. These transactions are governed by standard industry agreements.
The fair value of collateral we have received and that which we have sold or repledged is as follows:
2018
$m

2017
$m

Fair value of assets which can be sold or repledged

36,12230,085

Fair value of assets sold or repledged

23,30019,965NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 129

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ANZ 2018 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
19. OFFSETTING
We offset financial assets and financial liabilities in the balance sheet (in accordance with AASB 132 Financial Instruments: Presentation) when there is: a current legally enforceable right to set off the recognised amounts in all circumstances; and an intention to settle the asset and liability on a net basis, or to realise the asset and settle the liability simultaneously.
If the above conditions are not met, the financial assets and financial liabilities are presented on a gross basis.
The Group does not have any arrangements that satisfy the conditions necessary to offset financial assets and financial liabilities within the balance
sheet. The following table identifies financial assets and financial liabilities which have not been offset but are subject to enforceable master netting
agreements (or similar arrangements) and the related amounts not offset in the balance sheet. We have not taken into account the effect ofover-collateralisation.
Amount subject to master netting agreement or similar

2018

Amounts not
Total amounts
subject torecognised in master netting
the agreement orBalance Sheetsimilar
$m
$m

Total
$m

Financial
instruments$mFinancialcollateral(received)/pledged$mNetamount$m

Derivative financial assets1

68,426(3,292)

65,134(54,251)(5,507)

5,376

Reverse repurchase, securities borrowing andsimilar agreements2

35,310(4,738)30,572(398)(30,174)-

Total financial assets

103,736(8,030)95,706(54,649)(35,681)

5,376

Derivative financial liabilities(69,677)

3,644(66,033)

54,252

8,287(3,494)

Repurchase, securities lending and similar
agreements3(38,378)

12,794(25,584)

398

25,186-

Total financial liabilities(108,055)

16,438(91,617)54,65033,473(3,494)

Amount subject to master netting agreement or similar

2017

Amounts not
Total amounts
subject torecognised in master netting
the agreement orBalance Sheetsimilar
$m
$m

Total
$m

Financial
instruments$mFinancialcollateral(received)/pledged$mNetamount$m

Derivative financial assets

62,518(3,226)59,292(49,243)(5,185)

4,864

Reverse repurchase, securities borrowing andsimilar agreements2

28,966(5,289)23,677(819)(22,858)-

Total financial assets

91,484(8,515)82,969(50,062)(28,043)

4,864

Derivative financial liabilities(62,252)

3,662(58,590)

49,2436,517(2,830)

Repurchase, securities lending and similar
agreements3(34,536)

9,590(24,946)819

24,127-

Total financial liabilities(96,788)

13,252(83,536)

50,06230,644(2,830)1.

Includes derivative assets and liabilities reclassified as held for sale.
Reverse repurchase agreements:
 with less than 90 days to maturity are presented in the Balance Sheet within cash and cash equivalents; or with 90 days or more to maturity are presented in the Balance Sheet within net loans and advances.
3.
Repurchase agreements are presented in the Balance Sheet within deposits and other borrowings.
2.

130 ANZ 2018 ANNUAL REPORT130

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

20. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill1
2018
Balance at start of year
Additions

Software
2017

2018

Other Intangibles
2017

2018

2017

Total
2018

2017

$m

$m

$m

$m

$m

$m

$m

$m

4,447

4,729

1,860

2,202

663

741

6,970

7,672

1

5

390

404

-

-

391

409

Amortisation expense

-

-

(821)

(567)

(38)

(73)

(859)

(640)

Impairment expense

(12)

(3)

(17)

(17)

-

-

(29)

(20)

2

Impairment on reclassification to held for sale

(421)

(50)

-

(154)

-

-

(421)

(204)

Transferred to held for sale

(571)

(122)

-

-

(555)

-

(1,126)

(122)

(4)

(112)

9

(8)

(1)

(5)

4

(125)

Balance at end of year

3,440

4,447

1,421

1,860

69

663

4,930

6,970

Cost

3,440

4,447

6,490

6,092

149

1,358

10,07911,897n/an/a(5,069)(4,232)

(80)

(695)

(5,149)(4,927)

3,440

4,447

1,421

1,860

69

663

4,930

6,970

3

Foreign currency exchange difference

Accumulated amortisation/impairment
Carrying amount1.

Goodwill excludes notional goodwill in equity accounted investments.
2.
ANZ has accelerated the amortisation of certain software assets, predominantly relating to the Institutional division. This follows a recent review of the international business along with a number ofdivestments announced or completed this year. Accelerated amortisation expense of $251m ($206 million post-tax) attributable to these assets has been recorded in the 2018 financial year.
3.
In 2018, this relates to discontinued operations (refer to Note 29) and in 2017 this relates to the sale of the Retail Asia and Wealth businesses.

GOODWILL ALLOCATED TO CASH-GENERATING UNITS (CGUs)
An annual assessment is made as to whether the current carrying value of goodwill is impaired. For the purposes of impairment testing, goodwill isallocated at the date of acquisition to a CGU. Goodwill is considered to be impaired if the carrying amount of the relevant CGU exceeds its
recoverable amount.
To estimate the recoverable amount of the CGU to which each goodwill component is allocated, we use a fair value less cost of disposal assessment
approach for each segment.
FAIR VALUE LESS COST OF DISPOSALThe Group has determined, using a market multiple approach, the fair value less costs of disposal of each CGU. This is primarily based on observable
price earnings multiples reflecting the businesses and markets in which each CGU operates plus a control premium. The earnings are based on thecurrent forecast earnings of the divisions. As at 30 September 2018, our impairment testing did not result in any material impairment being identified.
For each of ANZ’s CGUs with goodwill, the price earnings multiples applied were as follows:
Division

2018

2017

Australia

16.9

17.3

Institutional

14.6

15.4

New Zealand

16.8

17.0

Wealth Australia

19.4

n/a

Asia Retail & Pacific2

18.5

17.3

1

1.

2.

In 2017, Wealth Australia goodwill was tested for impairment using a value-in-use calculation as various strategic options were being considered for components of the Wealth CGU. In 2018, testing is basedon the retained businesses of Wealth Australia and the associated goodwill.
Due to the sale of Asia Retail and Wealth businesses, testing of goodwill is based on Pacific earnings only.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 131

131

ANZ 2018 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
20. GOODWILL AND OTHER INTANGIBLE ASSETS (continued)

RECOGNITION AND MEASUREMENT
The table below details how we recognise and measure different intangible assets:
Intangible

Goodwill

Software

Other Intangible Assets

Definition

Excess amount the Group has
paid in acquiring a business overthe fair value less costs of disposalof the identifiable assets andliabilities acquired.

Purchases of “off the shelf’ software
assets are capitalised as assets.

Management fee rights

Cost less any accumulated
impairment losses.

Initially, measured at cost.

Carrying value

Allocated to the cash generating
unit to which theacquisition relates.

Useful life

Indefinite.
Goodwill is reviewed for
impairment at least annually or
when there is an indication of
impairment.

Depreciation
methodNot applicable.

Internal and external costs incurred inbuilding software and computer
systems costing greater than $20 million
are capitalised as assets. Those less than
$20 million are expensed in the year inwhich the costs are incurred.
Subsequently, carried at cost lessaccumulated amortisation andimpairment losses.

Initially, measured at fair value atacquisition.
Subsequently, carried at cost less
impairment losses.

Costs incurred in planning or evaluating
software proposals or in maintaining
systems after implementation are
not capitalised.
Except for major core infrastructure,amortised over periods between
3-5 years.
Major core infrastructure amortised overperiods between 7 or 10 years.
Straight-line method.

Management fee rights with anindefinite life are reviewed for
impairment at least annually or where
there is an indication of impairment.
Not applicable.

KEY JUDGEMENTS AND ESTIMATESManagement judgement is used to assess the recoverable value of goodwill, and other intangible assets, and the useful economic life of anasset (or if an asset has an indefinite life). We reassess the recoverability of the carrying value at each reporting date.
The carrying amount of goodwill is based on judgements including the basis of assumptions and forecasts used for determining earnings
for CGUs, headroom availability, and sensitivities of the forecasts to reasonably possible changes in assumptions. The level at which
goodwill is allocated, the estimation of future earnings and the selection of earnings multiples applied requires significant judgement.
At each balance date, software and other intangible assets, including those not yet ready for use, are assessed for indicators of impairment.
In the event that an asset’s carrying amount is determined to be greater than its recoverable amount, the carrying value of the asset iswritten down immediately.
In addition, the expected useful life of intangible assets, including software assets, are assessed on an annual basis. The assessment requires
management judgement, and in relation to our software assets, a number of factors can influence the expected economic useful lives.
These factors include changes to business strategy, significant divestments and the underlying pace of technological change. In thecurrent year, the assessment of useful economic life of software assets resulted in accelerated amortisation of certain software assets in theInstitutional and Australia divisions of $251 million.

132 ANZ 2018 ANNUAL REPORT132

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

21. OTHER PROVISIONS
2018
$m

2017
$m

Customer remediation1

602

142

Restructuring costs

106

119

Non-lending losses, frauds and forgeries

100

97

Other

296

314

1,104

672

Total other provisions (including liabilities reclassified as held for sale)Less: Other provisions reclassified as held for sale
Total other provisions
1.

(66)

(44)

1,038

628

Customer remediation provisions relating to discontinued operations amounting to $174 million (2017: $5 million) have not been reclassified to liabilities held for sale as the Group remains accountable forcustomer remediation post sale completion.

Customer
remediation$m

Restructuring
costs
$m

Non-lending
losses, frauds
and forgeries
$m

Other
$m

Total
$m

Balance at start of year

142

119

97

314

672

New and increased provisions made during the year

558

153

16

239

966

Provisions used during the year

(72)

(139)

(11)

(184)

(406)

Unused amounts reversed during the year
Balance at end of year (including liabilities reclassified
as held for sale)Less: Other provisions reclassified as held for sale

(26)

(27)

(2)

(73)

(128)

602

106

100

296

1,104

(10)

(2)

-

(54)

(66)

Balance at end of year

592

104

100

242

1,038

Customer remediation
Customer remediation refers to the Group’s activities in relation to compensating customers for past matters associated with products andservices provided.
Restructuring costs
Provisions for restructuring costs arise from activities related to material changes in the scope of business undertaken by the Group or themanner in which that business is undertaken and include employee termination benefits. Costs relating to on-going activities are not provided
for and are expensed as incurred.
Non-lending losses, frauds and forgeries
Non-lending losses include losses arising from specific legal actions not directly related to amounts of principal outstanding for loans andadvances and losses arising from forgeries, frauds and the correction of operational issues. The amounts recognised are the best estimate of theconsideration required to settle the present obligation at the reporting date, taking into account the risks and uncertainties that surround theevents and circumstances that affect the provision.
Other
Other provisions comprise various other provisions including loyalty programs, workers compensation, make-good provisions associated withleased premises and contingent liabilities recognised as part of a business combination.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 133

1

ANZ 2018 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
21. OTHER PROVISIONS (continued)

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

KEY JUDGEMENTS AND ESTIMATESThe Group holds provisions for various obligations including customer remediation, restructuring costs and surplus lease space, nonlending losses, fraud and forgeries and litigation related claims. These provisions involve judgements regarding the outcome of future
events, including estimates of expenditure required to satisfy such obligations. Where relevant, expert legal advice has been obtained and,in light of such advice, provisions and/or disclosures as deemed appropriate have been made.
In relation to customer remediation, determining the amount of the provisions, which represent management’s best estimate of the costof settling the identified matters, requires the exercise of significant judgement. It will often be necessary to form a view on a number ofdifferent assumptions, including, the number of impacted customers, the average refund per customer and the associated remediation
costs. Consequently, the appropriateness of the underlying assumptions is reviewed on a regular basis against actual experience and otherrelevant evidence and adjustments are made to the provisions where appropriate.

134 ANZ 2018 ANNUAL REPORT134

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

22. SHAREHOLDERS’ EQUITYSHAREHOLDERS' EQUITY
2018
$m

2017
$m

27,20529,088Foreign currency translation reserve

12

(196)

Share option reserve

92

87

Available-for-sale revaluation reserve

113

38

Ordinary share capital
Reserves

Cash flow hedge reserve

127

131

Transactions with non-controlling interests reserve

(21)

(23)

323

37

Retained earnings

31,71529,834

Share capital and reserves attributable to shareholders of the Company

59,243

58,959Total reserves

Non-controlling interests

140

116

Total shareholders’ equity

59,38359,075

ORDINARY SHARE CAPITAL
The table below details the movement in ordinary shares for the period.
2018

Balance at start of the year
1

Bonus option plan

Dividend reinvestment plan2
Group employee share acquisition scheme
3

Share buy-backTreasury shares in Wealth Australia

4

Balance at end of year

2017

Number ofshares$m

Number ofshares$m

2,937,415,327

29,0882,927,476,660

28,7652,891,060-

2,880,009---

7,058,658

198

-

(1)

-

56

(66,688,269)(1,880)

-

-

-

(2)

-

69

2,873,618,118

27,2052,937,415,327

29,088

1.

The Company issued 1.4 million shares under the Bonus Option Plan (BOP) for the 2018 interim dividend (1.5 million shares for the 2017 final dividend; 1.4 million shares for the 2017 interim dividend; 1.5
million shares for the 2016 final dividend).
2.
No new shares were issued under the Dividend Reinvestment Plan (DRP) for the 2018 interim dividend (nil shares for the 2017 final dividend; nil shares for the 2017 interim dividend; 7.1 million shares for the2016 final dividend) as the shares were purchased on-market and provided directly to the shareholders participating in the DRP. On-market purchases for the DRP in the September 2018 financial year were$392 million (2017: $176 million).
3.
As announced on 18 December 2017, 22 June 2018 and 19 October 2018, there is currently an on-market buy-back in relation to ANZ’s ordinary shares of $3.0 billion. The Company bought back $1,880
million worth of shares during the 2018 financial year resulting in 66.7 million shares being cancelled during the year.
4.
Treasury shares in ANZ Wealth Australia (AWA) are shares held in statutory funds as assets backing policy holder liabilities. AWA Treasury shares outstanding as at 30 September 2018 were 15,542,800(2017: 15,386,741).

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 135

135

ANZ 2018 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
22. SHAREHOLDERS’ EQUITYRECOGNITION AND MEASUREMENT
Ordinary shares

Ordinary shares have no par value. They entitle holders to receive dividends, orproceeds available on winding up of the Company, in proportion to the number of fully
paid ordinary shares held. They are recognised at the amount paid per ordinary share
net of directly attributable costs. Every holder of fully paid ordinary shares present at a
meeting in person, or by proxy, is entitled to: on a show of hands, one vote; and on a poll, one vote, for each share held.

Treasury shares

Treasury shares are shares in the Company which: the ANZ Employee Share Acquisition Plan purchases on market and have not yet
distributed, or the Company issues to the ANZ Employee Share Acquisition Plan and have not yet been
distributed, or the life insurance business purchases and holds to back policy liabilities in thestatutory funds.
Treasury shares are deducted from share capital and excluded from the weighted average
number of ordinary shares used in the earnings per share calculations.

Reserves:
Foreign currency translation reserve

Includes differences arising on translation of assets and liabilities into Australian dollars when
the functional currency of a foreign operation (including subsidiaries and branches) is not
Australian dollars. In this reserve, we reflect any offsetting gains or losses on hedging these
exposures, together with any tax effect.

Cash flow hedge reserve

Includes fair value gains and losses associated with the effective portion of designated cash
flow hedging instruments, net of deferred taxes to be realised when the position is settled.

Available-for-sale reserve

Includes the changes in fair value and exchange differences on our revaluation of availablefor-sale financial assets, net of deferred taxes to be realised upon disposal of the asset.

Share option reserve

Includes amounts which arise on the recognition of share-based compensation expense.

Transactions with non-controllinginterests reserve

Includes the impact of transactions with non-controlling shareholders in their capacity
as shareholders.

Non-controlling interests

Share in the net assets of controlled entities attributable to equity interests which theCompany does not own directly or indirectly.

136 ANZ 2018 ANNUAL REPORT136

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

23. CAPITAL MANAGEMENTCAPITAL MANAGEMENT STRATEGY
ANZ’s capital management strategy aims to protect the interests of depositors, creditors and shareholders. We achieve this through an Internal
Capital Adequacy Assessment Process (ICAAP) whereby ANZ conducts detailed strategic and capital planning over a 3 year time horizon.
The process involves:
 forecasting economic variables, financial performance of ANZ’s divisions and the financial impact of new strategic initiatives to be implemented
during the planning period;
 performing stress tests under different economic scenarios to determine the level of additional capital (‘stress capital buffer’) needed to absorb
losses that may be experienced under an economic downturn; reviewing capital ratios and targets across various classes of capital against ANZ’s risk profile; and developing a capital plan, taking into account capital ratio targets, current and future capital issuances requirements and options around capital
products, timing and markets to execute the capital plan under differing market and economic conditions.
The capital plan is approved by the Board and updated as required. The Board and senior management are provided with regular updates of ANZ’scapital position. Any material actions required to ensure ongoing prudent capital management are submitted to the Board for approval. Throughout
the year, the Group maintained compliance with all the regulatory requirements related to Capital Adequacy in the jurisdictions in which it operates.

REGULATORY ENVIRONMENT
Australia
As ANZ is an Authorised Deposit-taking Institution (ADI) in Australia, it is primarily regulated by APRA under the Banking Act 1959 (Cth). ANZ mustcomply with the minimum regulatory capital requirements, prudential capital ratios and specific reporting levels that APRA sets and which areconsistent with the global Basel III capital framework. This is the common framework for determining the appropriate level of bank regulatory capitalas set by the Basel Committee on Banking Supervision (“BCBS”). APRA requirements are summarised below:
Regulatory Capital Definition
Common Equity Tier 1 (CET1) Capital

Tier 1 Capital

Tier 2 Capital

Total Capital

Shareholders’ equity adjusted forspecific items.

CET1 Capital plus certain securities
with complying loss absorbing
characteristics known as
Additional Tier 1 Capital.

Subordinated debt instruments
which have a minimum term of 5
years at issue date.

Tier 1 plus Tier 2 Capital.

CET1 Ratio

Tier 1 Ratio

Total Capital Ratio

CET1 Capital divided by total risk
weighted assets must be at least 4.5%.

Tier 1 Capital divided by total risk
weighted assets must be at least
6.0%.

Total Capital divided by total risk weighted
assets must be at least 8.0%.

Level 1

Level 2

Level 3The ADI on a stand-alone basis (that is
the Company and specified subsidiaries
which are consolidated to form the
ADI’s Extended Licensed Entity).

The consolidated Group lesscertain subsidiaries and associatesthat are excluded underprudential standards.

A conglomerate Group at the widest level.

Minimum Prudential Capital Ratios (PCRs)

Reporting Levels

APRA also requires the ADI to hold additional CET1 buffers as follows: A capital conservation buffer (CCB) of 3.5% which is inclusive of the additional 1% surcharge for domestically systemically important banks (D-SIBs).
APRA has determined that ANZ is a D-SIB.
 A countercyclical capital buffer which is set on a jurisdictional basis. The requirement is currently set to zero for Australia.
ANZ reports to APRA on a Level 1 and Level 2 basis, and measures capital adequacy monthly on a Level 1 and Level 2 basis, and is not yet required tomaintain capital on a Level 3 basis until at least 2019 (APRA have yet to conclude required timing for Level 3 reporting).
Life Insurance and Funds Management
As required by APRA’s Prudential Standards, insurance and funds management activities are:
 de-consolidated for the purposes of calculating capital adequacy; and excluded from the risk based capital adequacy framework.
We deduct the investment in these controlled entities 100% from CET1 capital, and if we include any profits from these activities in the Group’s results,then we exclude them from the determination of CET1 capital to the extent they have not been remitted to the Company.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 137

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ANZ 2018 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
23. CAPITAL MANAGEMENT (continued)
Outside Australia
In addition to APRA, the Company’s branch operations and major banking subsidiary operations are also overseen by local regulators such as theReserve Bank of New Zealand, the US Federal Reserve, the UK Prudential Regulation Authority, the Monetary Authority of Singapore, the Hong Kong
Monetary Authority and the China Banking and Insurance Regulatory Commission. They may impose minimum capitalisation levels on operations intheir individual jurisdictions.

CAPITAL ADEQUACY1
The following table provides details of the Group’s capital adequacy ratios at 30 September:
2018
$m

2017
$m

59,38359,075

Qualifying capital
Tier 1
Shareholders' equity and non-controlling interests
Prudential adjustments to shareholders' equity

(322)

(481)

Gross Common Equity Tier 1 capital

59,061

58,594

Deductions(14,370)(17,258)

Common Equity Tier 1 capital

44,691

41,336

Additional Tier 1 capital

7,527

7,988

Tier 1 capital

52,21849,324Tier 2 capital

7,291

8,669

Total qualifying capital

59,50957,993

Common Equity Tier 1

11.4%

10.6%

Tier 1

13.4%

12.6%

Tier 2

1.9%

2.2%

Total capital ratio

15.2%

14.8%

390,820

391,113

Capital adequacy ratios

Risk weighted assets
1.

This information is not within the scope of the external audit of the Group Financial Report by the Group’s external auditor, KPMG. The information presented in this table is a regulatory requirement
disclosed in Part A of the APRA Reporting Form (ARF) 110 Capital Adequacy which will be subject to audit in accordance with Prudential Standard APS 310 Audit and Related Matters.

138 ANZ 2018 ANNUAL REPORT138

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

24. PARENT ENTITY FINANCIAL INFORMATION
Australia and New Zealand Banking Group Limited (the Company) has prepared a separate set of financial statements to satisfy the requirements of its
Australian Financial Services License it holds with ASIC. These separate Company financial statements are available on the ANZ website at anz.com
and have been lodged with ASIC.
Selected financial information of the Company is provided as follows:

SUMMARY FINANCIAL INFORMATION
2018
$m

2017
$m

Profit after tax for the year

8,524

6,234

Total comprehensive income for the year

8,450

5,915

Cash and cash equivalents

80,22763,399Net loans and advances

475,419452,424

Total assets

840,747

797,379

Deposits and other borrowings

511,992494,235

Total liabilities

786,893745,531

27,53329,416

Income statement information for the financial year

Balance sheet information as at the end of the financial year

Shareholders' equity
Ordinary share capital

(56)

36

Retained earnings

26,37722,396

Total shareholders' equity

53,854

51,848

2018
$m

2017
$m

Land and buildings
Furniture and equipment

1,533
112

1,818
145

Total lease rental commitments1

1,645

1,963

321
769
555

394
908
661

1,645

1,963

Reserves

PARENT ENTITY’S CONTRACTUAL COMMITMENTS
PROPERTY RELATED COMMITMENTS

Lease rentals

Due within 1 year
Due later than 1 year but not later than 5 years
Due later than 5 years
Total lease rental commitments1
1.

Total future minimum sublease payments we expect to receive under non-cancellable subleases at 30 September 2018 is $81 million (2017: $91 million). During the year, we received sublease payments of$29 million (2017: $28 million) and netted them against rent expense.

CREDIT RELATED COMMITMENTS AND CONTINGENCIES
2018
$m

2017
$m

Guarantees and letters of credit
Performance related contingencies

164,944
16,363
22,176150,339
18,062
18,890Total

203,483

187,291

Contract amount of:
Undrawn facilities

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 139

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ANZ 2018 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
24. PARENT ENTITY FINANCIAL INFORMATION (continued)
PARENT ENTITY GUARANTEESThe Company has issued letters of comfort and guarantees in respect of certain of its subsidiaries in the normal course of business. Under these lettersand guarantees, the Company undertakes to ensure that those subsidiaries continue to meet their financial obligations - subject to certain conditions
including that the entity remains a controlled entity of the Company. Further information is outlined in Note 32 Related Party Disclosures.

25. CONTROLLED ENTITIESThe ultimate parent of the Group is Australia and New Zealand Banking Group Limited

Incorporated inAustralia

Nature of BusinessBanking

Laos
TaiwanVietnam
Australia
Australia
Australia
United Kingdom
Kiribati
Samoa
ThailandSingapore
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New ZealandHong Kong
Hong Kong
VanuatuSingapore
Singapore
Cambodia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Papua New Guinea
China
China
Guam
Guam
Guam
Australia
Australia
Indonesia

Banking
Banking
Banking
Securitisation Manager
Finance
Holding Company
Banking
Banking
Banking
Banking
Captive-Insurance
Holding Company
Banking
Funds Management
FinanceFinance
Holding Company
Funds Management
Insurance
Finance
Holding Company
Banking
Banking
Holding Company
Merchant Banking
Banking
Investment
Mortgage Insurance
Finance
Holding Company
TrusteeFunds Management
Insurance
Holding Company
Insurance
Banking
Banking
Banking
Holding Company
Banking
Finance
Holding Company
Online Stockbroking
Banking

All controlled entities are 100% owned, unless otherwise noted.
The material controlled entities of the Group are:
ANZ Bank (Lao) Limited1
ANZ Bank (Taiwan) Limited1
ANZ Bank (Vietnam) Limited1
ANZ Capel Court Limited
ANZ Commodity Trading Pty Ltd
ANZ Funds Pty. Ltd.
ANZ Bank (Europe) Limited1
ANZ Bank (Kiribati) Limited1 (75% ownership)
ANZ Bank (Samoa) Limited1
ANZ Bank (Thai) Public Company Limited1
ANZcover Insurance Private Ltd1ANZ Holdings (New Zealand) Limited1
ANZ Bank New Zealand Limited1
ANZ Investment Services (New Zealand) Limited1
ANZ New Zealand (Int’l) Limited1
ANZNZ Covered Bond Trust1,4
ANZ Wealth New Zealand Limited1
ANZ New Zealand Investments Limited1
OnePath Life (NZ) Limited1
UDC Finance Limited1
ANZ International (Hong Kong) Limited1
ANZ Asia Limited1
ANZ Bank (Vanuatu) Limited2
ANZ International Private Limited1
ANZ Singapore Limited1
ANZ Royal Bank (Cambodia) Limited1 (55% ownership)
Votraint No. 1103 Pty Limited
ANZ Lenders Mortgage Insurance Pty. Limited
ANZ Residential Covered Bond Trust4
ANZ Wealth Australia Limited
OnePath Custodians Pty Limited
OnePath Funds Management Limited
OnePath General Insurance Pty Limited
OnePath Life Australia Holdings Pty Limited
OnePath Life Limited
Australia and New Zealand Banking Group (PNG) Limited1
Australia and New Zealand Bank (China) Company Limited1
Chongqing Liangping ANZ Rural Bank Company Limited1
Citizens Bancorp3
ANZ Guam Inc3
ANZ Finance Guam, Inc.3
ACN 003 042 082 Limited
Share Investing Limited
PT Bank ANZ Indonesia1 (99% ownership)
1.

Audited by overseas KPMG firms — either as part of the Group audit, or for standalone financial statements as required.
Audited by Law Partners.
3.
Audited by Deloitte Guam.
4.
Not owned by the Group. Control exists as the Group retains substantially all the risks and rewards of the operations.
2.

140 ANZ 2018 ANNUAL REPORT140

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

25. CONTROLLED ENTITIES (continued)
ACQUISITION AND DISPOSAL OF CONTROLLED ENTITIESWe did not acquire, or dispose of, any material entities during the year ended 30 September 2018 or the year ended 30 September 2017.

RECOGNITION AND MEASUREMENTThe Group’s subsidiaries are those entities it controls through: being exposed to, or having rights to, variable returns from the entity; and being able to affect those returns through its power over the entity.
The Group assesses whether it has power over those entities by examining the Group’s existing rights to direct the relevant activities ofthe entity.
If the Group sells or acquires subsidiaries during the year, it includes their operating results in the Group results to the date of disposal orfrom the date of acquisition. When the Group’s control ceases, it derecognises the assets and liabilities of the subsidiary, any related noncontrolling interest and other components of equity.
When the Group ceases to control a subsidiary, it: measures any retained interest in the entity at fair value; and recognises any resulting gain or loss in profit or loss.
If the Group’s ownership interest in a subsidiary changes in a way that does not result in a loss of control, then the Group accounts forthat as a transaction with equity holders in their capacity as equity holders.
All transactions between Group entities are eliminated on consolidation.

26. INVESTMENTS IN ASSOCIATES
Significant associates of the Group are:Ordinary shareinterest

Carrying amount$m

Name of entity

Principal activity

2018

2017

2018

2017

AMMB Holdings Berhad

Banking and insurance

24%

24%

1,427

1,185

PT Bank Pan Indonesia

Consumer and business bank

39%

39%

1,103

1,033

-

20%

-

-

n/a

n/a

23

30

2,553

2,248

Shanghai Rural Commercial Bank

1

Aggregate other individually immaterial associates1
Total carrying value of associates
1.

Rural commercial bankDuring 2017, Shanghai Rural Commercial Bank (SRCB) and Metrobank Card Corporation (MCC) were reclassified as held for sale. Post completion of the sale of SRCB in December 2017 and MCC in
September 2018, SRCB and MCC were no longer classified as held for sale. Refer to Note 29 Assets and Liabilities Held For Sale for further details.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 141

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ANZ 2018 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
26. INVESTMENTS IN ASSOCIATES (continued)
FINANCIAL INFORMATION ON SIGNIFICANT ASSOCIATES
Set out below is the summarised financial information of each associate that is significant to the Group. The summarised financial information is basedon the associates’ IFRS financial information.

Principal place of business and country of incorporation

AMMB Holdings
BerhadPT Bank Pan
Indonesia

Shanghai Rural
Commercial Bank

Malaysia

Indonesia

Peoples' Republic of
China

2018
$m

2017
$m

2018
$m

2017
$m

2018
$m

2017
$m

Operating income

3,016

2,469

1,000

930

-

-

Profit for the year

430

415

192

253

-

-

Summarised results

Other comprehensive income/(loss)

(37)

(1)

(10)

22

-

-

Total comprehensive income

393

414

182

275

-

-

Less: Total comprehensive (income)/loss attributable to non–controlling interests

(33)

(19)

39

(10)

-

-

Total comprehensive income attributable to owners of associate

360

395

221

265

-

-

49,092

41,304

19,552

20,216--42,70036,004

16,446

17,298--

Total Net assets
Less: Non–controlling interests of associate

6,392

5,300

3,106

2,918

-

-

(395)

(320)

(272)

(259)

-

-

Net assets attributable to owners of associate

5,997

4,980

2,834

2,659

-

-

Reconciliation to carrying amount of Group's interest in associate2
Carrying amount at the beginning of the year

Summarised financial position
Total assets1
Total liabilities

1
1

1,185

1,198

1,033

997

-

1,955

Group's share of total comprehensive income

86

95

88

103

-

58

Dividends received from associate

(35)

(38)

-

-

-

-

Group's share of other reserve movements of associate and foreign currencytranslation reserve adjustments

191

(70)

(18)

(67)

-

(46)

-

-

-

-

-

(219)

Impairment charge
Less: carrying value transferred to assets held for sale (Note 29)
Carrying amount at the end of the year
Market value of Group's investment in associate

3

1.
2.
3.

-

-

-

-

-

(1,748)

1,427

1,185

1,103

1,033

-

-

992

943

853

1,009

n/a

n/a

Includes market value adjustments (including goodwill) the Group made at the time of acquisition (and adjustments for any differences in accounting policies).
For SRCB this includes movements up to the cessation of equity accounting in 2017.
Applies to those investments in associates with published price quotations. Market Value is based on a price per share and does not include any adjustments for the size of our holding.

142 ANZ 2018 ANNUAL REPORT142

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

26. INVESTMENTS IN ASSOCIATES (continued)
IMPAIRMENT ASSESSMENT
On 3 January 2017, the Group announced that it had agreed to sell its 20% stake in Shanghai Rural Commercial Bank (SRCB). During 2017, based on
the agreed purchase price less costs of disposal, an impairment of $219 million was recorded against the carrying value to reflect the recoverable
amount of the investment which was transferred to held for sale assets (refer to Note 29 Discontinued Operations and Assets and Liabilities Held forSale). This impairment and subsequent foreign exchange translation adjustments have been recognised in other operating income (refer to Note 2
Operating Income). The sale was completed in December 2017 and SRCB is no longer classified as held for sale.
As at 30 September 2018, for AMMB Holdings Berhad (AmBank) and PT Bank Pan Indonesia (PT Panin), the market value (based on share price) was
below the respective carrying values of these investments. The Group performed value-in-use (VIU) calculations to assess whether the carrying valueof the investments was impaired. The VIU calculations supported the carrying value for both AmBank (2017: nil impairment) and PT Panin(2017: nil impairment).

RECOGNITION AND MEASUREMENT
An associate is an entity over which the Group has significant influence over its operating and financial policies but does not control. The
Group accounts for associates using the equity method. Its investments in associates are carried at cost plus the post-acquisition share ofchanges in the associate’s net assets less accumulated impairments. Dividends the Group receives from associates are recognised as a
reduction in the carrying amount of the investment. The Group includes goodwill relating to the associate in the carrying amount of theinvestment. It does not individually test the goodwill incorporated in the associates carrying amount for impairment.
At least at each reporting date, the Group reviews investments in associates for any indication of impairment. If an indication of impairment
exists, then the Group determines the recoverable amount of the associate using the higher of: the associate’s fair value less cost of disposal; and its value-in use.
We use a discounted cash flow methodology, and other methodologies (such as capitalisation of earnings methodology), to determine therecoverable amount.

KEY JUDGEMENTS AND ESTIMATES
The value-in-use calculation is sensitive to a number of key assumptions requiring management judgement, including: future profitability
levels, capital levels, long term growth rates and discount rates. A change in any of the key assumptions below could have an adverse
effect on the recoverable amount of the investments. The key assumptions used in the value-in-use calculation are outlined below:
As at 30 September 2018

AmBankPT Panin

Post-tax discount rate

11.0%

12.3%

Terminal growth rate

4.9%

5.6%

Expected NPAT growth (compound annual growth rate – 5 years)

4.6%

7.6%

12% to 12.5%

10.6%

Core Equity Tier 1 rate

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 143

3

ANZ 2018 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
27. STRUCTURED ENTITIESA Structured Entity (SE) is an entity that has been designed such that voting or similar rights are not the dominant factor in deciding who controls theentity, such as when any voting rights relate to administrative tasks only and the relevant activities (being those that significantly affect the entity’s
returns) are directed by means of contractual arrangement. A SE often has some or all of the following features or attributes:
 restricted activities;
 a narrow and well defined objective; insufficient equity to permit the SE to finance its activities without subordinated financial support; and financing in the form of multiple contractually linked instruments to investors that create concentrations of credit or other risks (tranches).
The Group is involved with both consolidated and unconsolidated SEs which may be established by the Group or by a third party. SEs are classified as
subsidiaries and consolidated when control exists. If the Group does not control a SE, then it will not be consolidated (an unconsolidated SE). This note
provides information on both consolidated and unconsolidated SEs.
The Group’s involvement with SEs is as follows:Type

Details

Securitisation

The Group uses SEs to securitise customer loans and advances that it has originated, in order to diversify sourcesof funding for liquidity management. Such transactions involve transfers to an internal securitisation (bankruptcy
remote) vehicle which we create for the purpose of structuring assets that are eligible for repurchase underagreements with the applicable central bank (these are known as ‘Repo eligible’). The Group’s internal
securitisation SEs are consolidated. Refer to Note 28 Transfers of Financial Assets for further details.
The Group also establishes SEs on behalf of customers to securitise their loans or receivables. The Group may
manage these securitisation vehicles or provide liquidity or other support. Additionally, the Group may acquireinterests in securitisation vehicles set up by third parties through holding securities issued by such entities. In
limited circumstances, where control exists, these SEs are consolidated.

Covered bond issuances

Certain loans and advances have been assigned to bankruptcy remote SEs to provide security for issuances ofdebt securities by the Group. The Group retains control over these SEs and therefore they are consolidated. Refer
to Note 28 Transfers of Financial Assets for further details.

Structured financearrangements

The Group is involved with SEs established: in connection with structured lending transactions to facilitate debt syndication and/or to ring-fencecollateral; and to own assets that are leased to customers in structured leasing transactions.
The Group may manage the SE, hold minor amounts of the SE’s capital, or provide risk management products(derivatives) to the SE.
In most instances, the Group does not control these SEs. Further, the Group’s involvement typically does notestablish more than a passive interest in decisions about the relevant activities of the SE, and accordingly we do
not consider that interest disclosable.

Funds management activities

The Group’s Wealth Australia and New Zealand businesses conduct investment management and other fiduciary
activities as a responsible entity, trustee, custodian or manager for investment funds and trusts – including
superannuation funds and wholesale and retail trusts (collectively ‘Investment Funds’). The Investment Funds arefinanced through the issue of puttable units to investors and the Group considers them to be SEs. The Group’s
exposure to Investment Funds includes holding units and receiving fees for services. When the Group invests in
Investment Funds on behalf of policyholders, then those funds are consolidated if control is deemed to exist.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

27. STRUCTURED ENTITIES (continued)
CONSOLIDATED STRUCTURED ENTITIESFinancial or Other Support Provided to Consolidated Structured Entities
The Group provides financial support to consolidated SEs as outlined below. As these are intra-group transactions, they are eliminatedon consolidation:
Securitisation and coveredbond issuances

The Group provides lending facilities, derivatives and commitments to these SEs and/or holds debt instrumentsthat they have issued.

Structured financearrangements

The assets held by these SEs are normally pledged as collateral for financing provided. Certain consolidated SEs
are financed entirely by the Group while others are financed by syndicated loan facilities in which the Group is aparticipant. The financing provided by the Group includes lending facilities where the Group’s exposure is limited
to the amount of the loan and any undrawn amount. Additionally, the Group has provided Letters of Support tothese consolidated SEs confirming that the Group will not demand repayment of the financing provided for theensuing 12 month period.

The Group did not provide any non-contractual support to consolidated SEs during the year (2017: nil). Other than as disclosed above, the Group does
not have any current intention to provide financial or other support to consolidated SEs.

UNCONSOLIDATED STRUCTURED ENTITIESGroup’s Interest in Unconsolidated Structured Entities
An ‘interest’ in an unconsolidated SE is any form of contractual or non-contractual involvement with a SE that exposes the Group to variability of
returns from the performance of that SE. These interests include, but are not limited to: holdings of debt or equity securities; derivatives that pass-on
risks specific to the performance of the SE; lending; loan commitments; financial guarantees; and fees from funds management activities.
For the purpose of disclosing interests in unconsolidated SEs:
 no disclosure is made if the Group’s involvement is not more than a passive interest - for example: when the Group’s involvement constitutes atypical customer-supplier relationship. On this basis, exposures to unconsolidated SEs that arise from lending, trading and investing activities are
not considered disclosable interests - unless the design of the structured entity allows the Group to participate in decisions about the relevant
activities (being those that significantly affect the entity’s returns).
 ‘interests’ do not include derivatives intended to expose the Group to market-risk (rather than performance risk specific to the SE) or derivatives
through which the Group creates, rather than absorbs, variability of the unconsolidated SE (such as purchase of credit protection under a credit
default swap).
The table below sets out the Group’s interests in unconsolidated SEs together with the maximum exposure to loss that could arise fromthose interests:
Securitisation andstructured finance

Investment funds

2018
$m

2017
$m

1,715

2,532

-

-

Loans and advances

7,018

7,130

Total on-balance sheet

8,733

9,662

1,381

4,371

10

-

Total off-balance sheet

1,391

Maximum exposure to loss

10,124

2018
$m

Total
2017
$m

2018
$m

2017
$m

-

-

1,715

2,532

18

21

18

21

-

-

7,018

7,130

18

21

8,751

9,683

-

-

1,381

4,371

-

-

10

-

4,371

-

-

1,391

4,371

14,03318

21

10,142

14,054On-balance sheet interests
Available-for-sale assets
Investments backing policy liabilities

Off-balance sheet interests
Commitments (facilities undrawn)
Guarantees

In addition to the interests above, the Group earned funds management fees from unconsolidated SEs of $505 million (2017: $493 million) during
the year.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 145

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ANZ 2018 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
27. STRUCTURED ENTITIES (continued)
Group’s Interest in Unconsolidated Structured Entities (continued)
The Group’s maximum exposure to loss represents the maximum amount of loss that the Group could incur as a result of its involvement withunconsolidated SEs if loss events were to take place — regardless of the probability of occurrence. This does not in any way represent the actual losses
expected to be incurred. Instead, the maximum exposure to loss is contingent in nature — for example, it may arise: on the bankruptcy of an issuer of
securities, or a debtor; or if liquidity facilities or guarantees were to be called on. Furthermore, the maximum exposure to loss is stated gross of theeffects of hedging and collateral arrangements entered into to mitigate ANZ’s exposure to loss.
For each type of interest, the maximum exposure to loss has been determined as follows: available-for-sale assets and investments backing policy liabilities – carrying amount; and loans and advances – carrying amount plus the undrawn amount of any commitments.
Information about the size of the unconsolidated SEs that the Group is involved with is as follows: Securitisation and structured finance: size is indicated by total assets which vary by SE with a maximum value of approximately $1.0 billion (2017:$2.1 billion); and Investment funds: size is indicated by Funds Under Management which vary by SE with a maximum value of approximately $36.9 billion (2017:$35.9 billion).
The Group did not provide any non-contractual support to unconsolidated SEs during the year (2017: nil): nor does it have any current intention toprovide financial or other support to unconsolidated SEs.

SPONSORED UNCONSOLIDATED STRUCTURED ENTITIESThe Group may also sponsor unconsolidated SEs in which it has no disclosable interest.
For the purposes of this disclosure, the Group considers itself the ‘sponsor’ of an unconsolidated SE if it is the primary party involved in the design andestablishment of that SE and:
 the Group is the major user of that SE; or the Group’s name appears in the name of that SE, or on its products; or the Group provides implicit or explicit guarantees of that SE’s performance.
The Group has sponsored the ANZ PIE Fund in New Zealand, which invests only in deposits with ANZ Bank New Zealand Limited. The Group does notprovide any implicit or explicit guarantees of the capital value or performance of investments in the ANZ PIE Fund. There was no income received
from, nor assets transferred to, this entity during the year.

KEY JUDGEMENTS AND ESTIMATES
Significant judgement is required in assessing whether control exists over Structured Entities involved in securitisation activities andstructured finance transactions, and investment funds. Judgement is required in relation to the existence of: power over the relevant activities (being those that significantly affect the entity’s returns); and exposure to variable returns of that entity.

146 ANZ 2018 ANNUAL REPORT146

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

28. TRANSFERS OF FINANCIAL ASSETSIn the normal course of business the Group enters into transactions where it transfers financial assets directly to third parties or to SEs. These transfers
may give rise to the Group fully, or partially, derecognising those financial assets - depending on the Group’s exposure to the risks and rewards orcontrol over the transferred assets. If the Group retains substantially all of the risk and rewards of a transferred asset, the transfer does not qualify for
derecognition and the asset remains on the Group’s balance sheet in its entirety.

SECURITISATIONSNet loans and advances include residential mortgages securitised under the Group’s securitisation programs which are assigned to bankruptcy
remote SEs to provide security for obligations payable on the notes issued by the SEs. This includes mortgages that are held for potential repurchaseagreements with central banks. The holders of the issued notes have full recourse to the pool of residential mortgages which have been securitised
and the Group cannot otherwise pledge or dispose of the transferred assets.
In some instances the Group is also the holder of the securitised notes. In addition, the Group is entitled to any residual income of the SEs andsometimes enters into derivatives with the SEs. The Group retains the majority of the risks and rewards of the residential mortgages and continues torecognise the mortgages as financial assets. The obligation to pay this amount to the SE is recognised as a financial liability of the Group.
The Group is exposed to variable returns from its involvement with these securitisation SEs and has the ability to affect those returns through its
power over the SEs activities. The SEs are therefore consolidated by the Group.

COVERED BONDS
The Group operates various global covered bond programs to raise funding in its primary markets. Net loans and advances include residential
mortgages assigned to bankruptcy remote SEs associated with these covered bond programs. The mortgages provide security for the obligations
payable on the issued covered bonds.
The covered bond holders have dual recourse to the issuer and the cover pool of assets. The issuer cannot otherwise pledge or dispose of thetransferred assets, however, subject to legal arrangements it may repurchase and substitute assets as long as the required cover is maintained.
The Group is required to maintain the cover pool at a level sufficient to cover the bond obligations. In addition, the Group is entitled to any residual
income of the covered bond SEs and enters into derivatives with the SEs. The Group retains the majority of the risks and rewards of the residential
mortgages and continues to recognise the mortgages as financial assets. The obligation to pay this amount to the SEs is recognised as a financial
liability of the Group.
The Group is exposed to variable returns from its involvement with the covered bond SEs and has the ability to affect those returns through its powerover the SEs activities. The SEs are therefore consolidated by the Group. The covered bonds issued externally are included within debt issuances.

REPURCHASE AGREEMENTS
If the Group sells securities subject to repurchase agreements under which substantially all the risks and rewards of ownership remain with the Group,
then those assets are considered to be transferred assets that do not qualify for derecognition. An associated liability is recognised for theconsideration received from the counterparty.

STRUCTURED FINANCE ARRANGEMENTS
The Group arranges funding for certain customer transactions through structured leasing and commodity prepayment arrangements. At times, otherfinancial institutions participate in the funding of these arrangements. This participation involves a proportionate transfer of the rights to the leasereceivable or financing arrangement. The participating banks have limited recourse to the leased assets or financed commodity and related proceeds.
In some circumstances the Group continues to be exposed to some of the risks of the transferred lease receivable or financing arrangement through aderivative or other continuing involvement. When this occurs, the Group does not derecognise the lease receivable or loan. Instead, the Group
recognises an associated liability representing its obligations to the participating financial institutions.
The table below sets out the balance of assets transferred that do not qualify for derecognition, along with the associated liabilities:
Securitisations1,2

Repurchaseagreements

Covered bonds

Structured financearrangements

2018
$m

2017
$m

2018
$m

2017
$m

2018
$m

2017
$m

2018
$m

2017
$m

Current carrying amount of assets transferred

1,239

1,520

29,45529,35340,16436,242

96

98

Carrying amount of associated liabilities

1,232

1,552

17,846

19,85938,37834,536

88

91

1.
2.

Does not include transfers to internal structured entities where there are no external investors.
The securitisation noteholders have recourse only to the pool of residential mortgages which have been securitised. The carrying value of securitised assets and the associated liabilities approximates theirfair value.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 147

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ANZ 2018 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
29. DISCONTINUED OPERATIONS AND ASSETS AND LIABILITIES HELD FOR SALEDISCONTINUED OPERATIONS
On 17 October 2017, the Group announced it had agreed to sell its OnePath pensions and investments (OnePath P&I) and aligned dealer groups(ADG) businesses to IOOF Holdings Limited. The aligned dealer groups business consists of aligned advice businesses that operate under their own
Australian Financial Services licences. The sale of the aligned dealer groups business completed on 1 October 2018. The completion of the remaining
OnePath pensions and investment business will occur after the successful completion of the successor fund transfer, which is expected to occur in the2019 financial year.
On 12 December 2017, ANZ announced that it had agreed to the sale of its life insurance business to Zurich Financial Services Australia (Zurich) andregulatory approval was obtained on 10 October 2018. The transaction is subject to closing conditions and ANZ expects it to complete in the 2019financial year.
As a result of the sale transactions outlined above, the financial results of the businesses to be divested and associated Group reclassification andconsolidation impacts are treated as discontinued operations from a financial reporting perspective. This impacts the current and comparative
financial information for Wealth Australia and TSO and Group Centre divisions.
Details of the financial performance and cash flows of discontinued operations are shown below.
Income Statement

Net interest income

2018
$m

2017
$m

-

(3)

1

Other operating income

(646)

11

Net funds management and insurance income2

727

867

Operating income

81

875

(544)

(481)

Profit/(Loss) before income tax

(463)

394

Income tax expense

(232)

(332)

(695)

62

Operating expenses

22Profit/(Loss) for the period attributable to shareholders of the Company
1.
2.

Includes a $632 million loss recognised on the reclassification of Wealth Australia businesses to held for sale.
Includes customer remediation of $127 million post-tax recognised in the September 2018 financial year (2017: nil) comprising $106 million of customer remediation recognised in Net funds management
and insurance income, $75 million of remediation costs recognised in Operating expenses, and a $54 million benefit in Income tax expense.

Cash Flow Statement
2018
$m

2017
$m

Net cash provided by/(used in) operating activities

2,989

1,582

Net cash provided by/(used in) investing activities(2,444)(2,167)

Net cash provided by/(used in) financing activities

(575)

575

Net increase/(decrease) in cash and cash equivalents

(30)

(10)

ASSETS AND LIABILITIES HELD FOR SALE
At 30 September 2018, assets and liabilities held for sale are re-measured at the lower of their existing carrying amount and fair value less costs to sell,
except for assets such as deferred tax assets, financial assets and contractual rights under insurance contracts, which are specifically exempt from thisrequirement and continue to be recognised at their existing carrying value.
In addition to the assets and liabilities associated with the Group’s discontinued operations, assets and liabilities held for sale contain the assets andliabilities of other assets or disposal groups, subject to sale, which do not meet the criteria to classify as a discontinued operation under theaccounting standards.

148 ANZ 2018 ANNUAL REPORT148

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

29. DISCONTINUED OPERATIONS AND ASSETS AND LIABILITIES HELD FOR SALE
(continued)
PNG Retail,Commercial &OPL NZ
SME$m$m

Discontinued
Operations$mCambodia JV$mCash and cash equivalents
Derivative financial instruments
Available-for-sale assets
Net loans and advances
Regulatory deposits
Investments in associates
Deferred tax assets
Goodwill and other intangible assets
Investments backing policy liabilities
Premises and equipment
Other assets

5
1,079
46
1
102
1,155
40,054
4
450

323
3
806
146
1
2
6
92

93
727

147
6
-

328
3
1,079
999
146
2
104
1,248
40,05416
1,269

Total assets held for sale
Deposits and other borrowings
Derivative financial instruments
Current tax liabilities
Deferred tax liabilities
Policy liabilities
External unit holder liabilities
Payables and other liabilities
Provisions

42,896

1,379

820

153

45,248(33)
160
39,607
4,712
644
28

1,067
1
8
1
98
43

15
160
130
-

512
6

1,579
1
(10)
321
39,607
4,712
872
77

Total liabilities held for sale

45,118

1,218

305

518

47,159As at 30 September 20171

Asia Retail and
Wealthbusinesses
$m

UDC
$m

SRCB
$m

MCC
$m

Total
$m

Cash and cash equivalents
Derivative financial instruments
Available-for-sale assets
Net loans and advances
Regulatory deposits
Investments in associates
Deferred tax assets
Goodwill and other intangible assets
Investments backing policy liabilities
Premises and equipment
Other assets

3,283
-

2,679
122
18

1,748
-

120
-

5,962
1,868
122
18

Total assets held for sale
Deposits and other borrowings
Derivative financial instruments
Current tax liabilities
Deferred tax liabilities
Policy liabilities
External unit holder liabilities
Payables and other liabilities
Provisions

3,283

2,819

1,748

120

7,970

3,602
47
43

956
22
(8)
30
1

-

-

4,558
22
(8)
77
44

Total liabilities held for sale

3,692

1,001

-

-

4,693

As at 30 September 20181

1.

Total
$m

Amounts in the table above are shown net of intercompany balances.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 149

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ANZ 2018 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
29. DISCONTINUED OPERATIONS AND ASSETS AND LIABILITIES HELD FOR SALE
(continued)
Other strategic divestments not classified as discontinued operations but have been presented as assets and liabilities held for sale: Asia Retail & Wealth Businesses
The Group announced that it had agreed to sell its Retail and Wealth businesses in Singapore, Hong Kong, China, Taiwan and Indonesia to
Singapore’s DBS Bank on 31 October 2016, and its Retail business in Vietnam to Shinhan Bank Vietnam on 21 April 2017. The Group successfullycompleted the transition of businesses in China, Singapore and Hong Kong in the 2017 financial year, and Vietnam, Taiwan, and Indonesia in the2018 financial year. These businesses were part of the Asia Retail & Pacific division.
 Shanghai Rural Commercial Bank (SRCB)
On 3 January 2017, the Group announced it had agreed to sell its 20% stake in Shanghai Rural Commercial Bank (SRCB). The sale was completed in
the 2018 financial year. This asset was part of the TSO and Group Centre division.
 UDC Finance (UDC)
On 11 January 2017, the Group announced that it had entered into a conditional agreement to sell UDC to HNA Group (HNA). On 21 December
2017, the Group announced that it had been informed that New Zealand’s Overseas Investment Office had declined HNA’s application to acquire
UDC and the agreement with HNA was terminated in January 2018. The assets and liabilities of UDC are no longer classified as held for sale as at 30
September 2018.
This business is part of the New Zealand division.
 Metrobank Card Corporation (MCC)
On 18 October 2017, the Group announced it had entered into a sale agreement with its joint venture partner Metropolitan Bank & Trust Company(Metrobank) in relation to its 40% stake in the Philippines based Metrobank Card Corporation (MCC). The Group sold its 40% stake in two equal
tranches in January and September 2018. This asset was part of the TSO and Group Centre division.
 ANZ Royal Bank (Cambodia) Ltd (Cambodia JV)
On 17 May 2018, the Group announced it had reached an agreement to sell its 55% stake in Cambodia JV ANZ Royal Bank to J Trust, a Japanesediversified financial holding company listed on the Tokyo Stock Exchange. The transaction is subject to closing conditions and regulatory approvaland ANZ expects it to close in the 2019 financial year. This asset is part of the Institutional division.
 OnePath Life NZ Ltd (OPL NZ)
On 30 May 2018, the Group announced that it had agreed to sell OnePath Life NZ Limited to Cigna Corporation and the final regulatory approval
was obtained on 29 October 2018. The transaction is subject to closing conditions and ANZ expects it to close in the 2019 financial year. Thisbusiness is part of the New Zealand division.
 Papua New Guinea Retail, Commercial and Small-Medium Sized Enterprise businesses (PNG Retail, Commercial and SME)
On 25 June 2018, the Group announced it had entered into an agreement to sell its Retail, Commercial and Small-Medium Sized Enterprise (SME)banking businesses in Papua New Guinea to Kina Bank. The transaction is subject to closing conditions and regulatory approval and ANZ expects it
to close by late 2019 calendar year. This business is part of the Institutional division.

150 ANZ 2018 ANNUAL REPORT150

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

29. DISCONTINUED OPERATIONS AND ASSETS AND LIABILITIES HELD FOR SALE
(continued)
INCOME STATEMENT IMPACT RELATING TO ASSETS AND LIABILITIES HELD FOR SALE
During the September 2018 financial year, the Group recognised the following impacts in relation to assets and liabilities held for sale: $632 million loss after tax recognised on the reclassification of the Wealth Australia business to held for sale. This loss is recognised in discontinued
operations.
 $85 million gain after tax comprising $99 million relating to the sale of the remaining Asia Retail and Wealth businesses, net of costs associatedwith the sale and a $14 million tax expense. This gain is recognised in continuing operations.
 $247 million gain after tax relating to SRCB comprising a $289 million gain on release of reserves, $56 million of foreign exchange losses and othercosts, and a $14 million tax benefit. This gain is recognised in continuing operations.
 $18 million gain after tax relating to UDC comprising a cost recovery in respect of the terminated transaction process. This gain is recognised incontinuing operations.
 $247 million gain after tax relating to MCC comprising a $259 million gain on sale of the 40% stake, $13 million of foreign exchange losses, $6
million loss on release of reserves, and a $7 million tax benefit. This gain is recognised in continuing operations
 $42 million loss after tax relating to the reclassification of the Cambodia JV to held for sale, comprising a $27 million impairment and $15 million of
costs associated with the sale. The loss is recognised in continuing operations.
 $3 million loss after tax relating to OnePath Life NZ transaction costs. The loss is recognised in continuing operations.
 $21 million loss after tax relating to the reclassification of the PNG Retail, Commercial and SME businesses to held for sale, comprising a $12 million
impairment of goodwill, $7 million costs associated with the sale and a $2 million tax expense. The loss is recognised in continuing operations.
During the September 2017 financial year, the Group recognised the following impacts in continuing operations in relation to assets and liabilities
held for sale: $333 million loss after tax relating to the Group’s investment in SRCB comprising of a $219 million impairment to the investment, $12 million offoreign exchange losses, and a $102 million tax expense.
 $270 million loss after tax relating to the reclassification of the Group’s Asia Retail and Wealth businesses to held for sale comprising $225 millionof software, goodwill and other assets impairment charges, $99 million of costs associated with the sale, a $40 million tax benefit as a result of theloss on reclassification to held for sale, and a $14 million gain recognised on the partial completion of the Asia Retail and Wealth sale.
The impacts on continuing operations are shown in the relevant Income Statement categories and items relating to discontinued operations areincluded in Profit/(Loss) after tax from discontinued operations.

RECOGNITION AND MEASUREMENT
LIFE INSURANCE CONTRACT LIABILITIES AND LIABILITIES CEDED UNDER REINSURANCE CONTRACTS
We calculate Life insurance contract Liabilities under the Margin on Service (MoS) model using a projection method based on actuarial
principles and standards.
We discount the expected future cash flows of these contracts at the risk-free discount rate.
LIFE INVESTMENT CONTRACT LIABILITIESA life investment contract liability is measured at fair value and is directly linked to the fair value of the assets that back it. For guaranteed
policies, we determine the liability as the net present value of expected cash flows, subject to a minimum of current surrender value.
EXTERNAL UNIT HOLDER LIABILITIESThe life insurance business includes controlling interests in investment funds which we aggregate. When we aggregate a controlled
investment fund, we recognise the external unit holder liabilities as a liability and include them on the balance sheet in external unit
holder liabilities.
INVESTMENTS BACKING POLICY LIABILITIESOur determination of fair value of investments backing policy liabilities involves the same judgement as other financial assets as describedin Note 17 Fair Value of Financial Assets and Financial Liabilities.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 151

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ANZ 2018 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
29. DISCONTINUED OPERATIONS AND ASSETS AND LIABILITIES HELD FOR SALE
(continued)

KEY JUDGEMENTS AND ESTIMATES
A significant level of judgement is used by the Group to determine: whether an asset or group of assets is classified and presented as held for sale or as a discontinued operation; and the fair value of the assets and liabilities classified as being held for sale.
Management is required to exercise significant judgement when assessing the fair value less costs to sell for assets and liabilities held forsale. The judgemental factors include determining: costs to sell, allocation of goodwill, indemnities provided under the sale contract andconsideration received - particularly where elements of consideration are contingent in nature. Any impairment we record is based on thebest available evidence of fair value compared to the carrying value before the impairment. The final sale price may be different to the fairvalue we estimate when recording the impairment. Management regularly assess the appropriateness of the underlying assumptions
against actual outcomes and other relevant evidence and adjustments are made to fair value where appropriate. We expect that the sales
will complete within 12 months after balance date, subject to the relevant regulatory approvals and customary terms of sale forsuch assets.
Life Insurance Liabilities continue to be measured in accordance with AASB 1038. The Group is largely insulated from significant changes tothe carrying value of the liability due to the share sale agreements.
Our estimates of life insurance liabilities are affected by: regulation, competition, interest rates, inflation, taxes and general
economic conditions.
We have performed sensitivity analysis on key variables influencing the insurance liabilities and assets - namely: interest, inflation, mortality,
morbidity and discontinuance risk. We have determined that there would be no material impact to the Group for a reasonable change inany of these variables after taking into account of the share sale agreements.

152 ANZ 2018 ANNUAL REPORT152

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

30. SUPERANNUATION AND POST EMPLOYMENT BENEFIT OBLIGATIONS
Set out below is a summary of amounts recognised in the Balance Sheet in respect of the defined benefit superannuation schemes:
2018
$m

2017
$m

Defined benefit obligation and scheme assets
Present value of funded defined benefit obligation(1,418)(1,406)

Fair value of scheme assets

1,551

1,496

Net defined benefit asset

133

90

Net liabilities arising from defined benefit obligations included in payables and other liabilities

(21)

(32)

Net assets arising from defined benefit obligations included in other assets

154

122

As represented in the Balance Sheet

Net defined benefit asset

133

90

Weighted average duration of the benefit payments reflected in the defined benefit obligation (years)

16.8

16.8

As at the most recent reporting dates of the schemes, the aggregate surplus of net market value of assets over the value of accrued benefits on afunding basis was $21 million (2017: deficit of $18 million). In 2018, the Group made defined benefit contributions totalling $5 million (2017: $5
million). It expects to make around $4 million next financial year.

GOVERNANCE OF THE SCHEMES AND FUNDING OF THE DEFINED BENEFIT SECTIONS
The main defined benefit superannuation schemes in which the Group participates operate under trust law and are managed and administered onbehalf of the members in accordance with the terms of the relevant trust deed and rules and all relevant legislation. These schemes have corporate
trustees, which are wholly owned subsidiaries of the Group. The trustees are the legal owners of the assets, which are held separately from the assetsof the Group, and are responsible for setting investment policy and agreeing funding requirements with the employer through the triennial actuarial
valuation process.
The Group has defined benefit arrangements in Australia, Japan, New Zealand, Philippines, Taiwan and United Kingdom. The defined benefit sectionof the ANZ Australian Staff Superannuation Scheme, the ANZ UK Staff Pension Scheme and the ANZ National Retirement Scheme in New Zealand are
the three largest plans. They have been closed to new members since 1987, 2004 and 1991 respectively. None of the schemes had a material deficit,
or surplus, at the last funding valuation. The Group has no present liability under any of the schemes’ trust deeds to fund a deficit (measured on afunding basis). A contingent liability of the Group may arise if any of the schemes were wound up.

RECOGNITION AND MEASUREMENT
Defined benefit superannuation schemes
The Group operates a small number of defined benefit schemes. Independent actuaries calculate the liability and expenses related toproviding benefits to employees under each defined benefit scheme. They use the Projected Unit Credit Method to value the liabilities. Thebalance sheet includes:
 a defined benefit liability if the obligation is greater than the fair value of the schemes assets; and an asset (capped to its recoverable amount) if the fair value of the assets is greater than the obligation.
In each reporting period, the movements in the net defined benefit liability are recognised as follows: the net movement relating to the current period’s service cost, net interest on the defined benefit liability, past service costs and othercosts (such as the effects of any curtailments and settlements) as operating expenses;
 remeasurements of the net defined benefit liability (which comprise actuarial gains and losses and return on scheme assets, excludinginterest income included in net interest) directly in retained earnings through other comprehensive income; and contributions of the Group directly against the net defined benefit position.
Defined contribution superannuation schemes
The Group operates a number of defined contribution schemes. It also contributes (according to local law, in the various countries in which
it operates) to Government and other plans that have the characteristics of defined contribution plans. The Group’s contributions to theseschemes are recognised as personnel expenses when they are incurred.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 153

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ANZ 2018 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
30. SUPERANNUATION AND POST EMPLOYMENT BENEFIT OBLIGATIONS (continued)

KEY JUDGEMENTS AND ESTIMATES
The main assumptions we use in valuing defined benefit obligations are listed in the table below. A change to any assumptions, orapplying different assumptions, could have a significant effect on the Statement of Other Comprehensive Income and Balance Sheet.
Sensitivity analysis
change in significant
assumptions
2018

2017

Discount rate (% p.a.)

2.5 - 3.7

2.5 - 3.8

Future salary increases (% p.a.)

1.7 - 3.8

1.6 - 3.7

Assumptions

Increase/(decrease) in
defined benefit obligation
2018
$m

2017
$m

0.5% increase

(139)

(112)

0.5% increase

118

95

1 year increase

61

50

Future pension indexation
In payment (% p.a.)/In deferment (% p.a)

1.7 - 3.0/2.3 1.7 - 3.0/ 2.2

Life expectancy at age 60 for current pensioners– Males (years)

25.5 - 29.0

25.4 - 28.9

– Females (years)

28.7 - 31.1

28.6 - 31.0

31. EMPLOYEE SHARE AND OPTION PLANSANZ operates a number of employee share and option schemes under the ANZ Employee Share Acquisition Plan and the ANZ Share Option Plan.

ANZ EMPLOYEE SHARE ACQUISITION PLAN
ANZ Employee Share Acquisition Plan schemes that operated during the 2017 and 2018 years were the Employee Share Offer and the Deferred
Share Plan.
Employee Share Offer

Eligibility

Most permanent employees employed in either Australia or New Zealand with three years continuous service for themost recent financial year.

Grant

Up to AUD 1,000 in Australia (and AUD 800 in New Zealand) ANZ shares each financial year, subject to Board approval.

Allocation value

One week Volume Weighted Average Price (VWAP) of ANZ shares traded on the ASX in the week leading up to andincluding the date of grant.

Australia

ANZ ordinary shares are granted to eligible employees for nil consideration. The shares vest on grant and are held in
trust for three years from grant date, after which time they may remain in trust, be transferred to the employee’s nameor sold. Dividends are automatically reinvested in the Dividend Reinvestment Plan.

New ZealandShares are granted to eligible employees on payment of NZD one cent per share. Shares vest subject to satisfaction ofa three year service period, after which they may remain in trust, be transferred to the employee’s name or sold.
Unvested shares are forfeited if the employee resigns or is dismissed for serious misconduct. Dividends are either paidin cash or reinvested into the Dividend Reinvestment Plan.

Expensing value(fair value)

In Australia, the fair value of the shares is expensed in the year shares are granted, as they are not subject to forfeiture.
In New Zealand, the fair value is expensed on a straight-line basis over the three year vesting period.
The expense is recognised as a share-based compensation expense with a corresponding increase in share capital.

FY 2018

541,982 shares were granted on 1 December 2017 at an issue price of $28.67.

FY 2017

Zero shares were granted in the 2017 financial year.

154 ANZ 2018 ANNUAL REPORT154

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

31. EMPLOYEE SHARE AND OPTION PLANS (continued)
Deferred Share Plani) Chief Executive Officer (CEO) and Group Executive Committee (ExCo)
EligibilityGroup CEO and ExCo.

Grant

50% of the CEO’s Annual Variable Remuneration (AVR) and 33% of ExCo’s Variable Remuneration (VR) received asdeferred shares.

Conditions
Deferred evenly over four years from grant date.
ii) ANZ Incentive Plan (ANZIP) and Business Unit Incentive Plans (BUIPs) – for grants from 1 October 2017
Eligibility

Employees participating in ANZ’s standard VR arrangements.

Grant

If VR is at or exceeds AUD 150,000, then 60% of incentive amounts exceeding AUD 80,000 (subject to a minimum
deferral amount of AUD 42,000) is deferred as deferred shares.
Deferred evenly over three years from grant date.

Conditionsiii) ANZ Employee Reward Scheme (ANZERS) and BUIPs – for grants up to 30 September 2017
Eligibility

Employees participating in ANZ’s standard Short Term Incentive (STI) arrangements.

Grant

Half of all incentive amounts exceeding AUD 100,000 (subject to a minimum deferral amount of AUD 25,000)
received as deferred shares.

Conditions

Deferred evenly over two years from grant date.

iv) Total Incentives Performance Plan (TIPP) – for grants up to 30 September 2017
Eligibility

Employees participating in the Institutional TIPP.

Grant

60% of incentive amounts exceeding AUD 80,000 (subject to a minimum deferral amount of AUD 18,000) received
as deferred shares.
Deferred evenly over three years from grant date.

Conditionsv) Long Term Incentives (LTIs)
Eligibility

Selected employees.

Grant

100% deferred shares.

Conditions

Vest three years from grant date.

vi) Exceptional circumstances
Remuneration foregone

In exceptional circumstances, we grant deferred shares to certain employees when they start with ANZ tocompensate them for remuneration they have foregone from their previous employer. The vesting period generallyaligns with the remaining vesting period of the remuneration they have foregone, and therefore varies
between grants.

Retention

We may grant deferred shares to high performing employees who are regarded as a significant retention risk
to ANZ.

vii) Further information
Downward adjustment

Cessation

Deferred shares remain at risk and the Board has the discretion to adjust the number of deferred shares downwards
to zero at any time before the vesting date. ANZ’s downward adjustment provisions are detailed in section 4.3.4 of
the 2018 Remuneration Report.
Unless the Board decides otherwise, employees forfeit their unvested deferred shares if they resign, are terminatedon notice, or are dismissed for serious misconduct. The deferred shares may be held in trust beyond thedeferral period.

Dividends

Dividends are paid in cash or reinvested in the Dividend Reinvestment Plan.

Instrument

Deferred share rights may be granted instead of deferred shares in some countries as locally appropriate (seedeferred share rights section).

Allocation value

All deferred shares are issued based on the VWAP of ANZ shares traded on the ASX in the week leading up to andincluding the date of grant.

Expensing value (fair value)

We expense the fair value of deferred shares on a straight-line basis over the relevant vesting period and we
recognise the expense as a share-based compensation expense with a corresponding increase in share capital.
2,232,563 deferred shares were granted with a weighted average grant price of $29.31. 2,632 deferred shares were
adjusted downward to zero, based on Board discretion.
2,016,835 deferred shares were granted with a weighted average grant price of $28.03. No deferred shares were
adjusted downward to zero, based on Board discretion.

FY 2018 grants
FY 2017 grants

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 155

155

ANZ 2018 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
31. EMPLOYEE SHARE AND OPTION PLANS (continued)
Expensing of the ANZ Employee Share Acquisition Plan
Expensing value(fair value)

The fair value of shares we granted during 2018 under the Employee Share Offer and the Deferred Share Plan,
measured as at the date of grant of the shares, is $80.9 million (2017: $56.7 million) based on 2,774,545 shares (2017:
2,016,835) at VWAP of $29.17 (2017: $28.09).

ANZ SHARE OPTION PLAN
Allocation

We may grant selected employees options/rights which entitle them to acquire fully paid ordinary ANZ shares at a
fixed price at the time the options/rights vest. Voting and dividend rights will be attached to the ordinary shares
allocated on exercise of the options/rights.
Each option/right entitles the holder to one ordinary share subject to the terms and conditions imposed on grant.
Exercise price of options, determined in accordance with the rules of the plan, is generally based on the VWAP of theshares traded on the ASX in the week leading up to and including the date of grant. For rights, the exercise price is nil.

Rules

Prior to the exercise of the option/right if ANZ changes its share capital due to a bonus share issue, pro-rata new shareissue or reorganisation the following adjustments are required: Issue of bonus shares - When the holder exercises their option, they are also entitled to be issued the number ofbonus shares they would have been entitled to had they held the underlying shares at the time of thebonus issue;
 Pro-rata share offer - We will adjust the exercise price of the option in the manner set out in the ASX Listing
Rules; and Reorganisation - In respect of rights, if there is a bonus issue or reorganisation of ANZ’s share capital, then the
Board may adjust the number of rights or the number of underlying shares so that there is no advantage ordisadvantage to the holder.
Holders otherwise have no other entitlements to participate: in any new issue of ANZ securities before they exercise their options/rights; or in a share issue of a body corporate other than ANZ (such as a subsidiary).
For equity grants made after 1 November 2012, any portion of the award which vests may, at the Board’s discretion,
be satisfied by a cash equivalent payment rather than shares.

Expensing

We expense the fair value of options/rights on a straight-line basis over the relevant vesting period and we recognise
the expense as a share-based compensation expense with a corresponding increase in share options reserve.

Cessation

The provisions that apply if the employee’s employment ends are in section 7.2 of the 2018 Remuneration Report.

Downward adjustment

ANZ’s downward adjustment provisions are detailed in section 4.3.4 of the 2018 Remuneration Report.

Option Plans that operated during 2018 and 2017i) Performance Rights
Allocation

We grant performance rights to selected employees as part of ANZ’s incentive plans. Performance rights provide theholder with the right to acquire ANZ shares at nil cost, subject to a three year vesting period and Total Shareholder
Return (TSR) performance hurdles. Further details on the performance hurdles are in section 4.3.3 of the 2018
Remuneration Report.

FY 2018 and FY 2017
grantsDuring the 2018 year, we granted 1,023,239 performance rights (2017: 944,419). No performance rights were adjusted
downward to zero in 2018 and 2017, based on Board discretion.

156 ANZ 2018 ANNUAL REPORT156

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

31. EMPLOYEE SHARE AND OPTION PLANS (continued)ii) Deferred Share Rights (no performance hurdles)
Allocation

Deferred share rights provide the holder with the right to acquire ANZ shares at nil cost after a specified
vesting period. We adjust the fair value of rights for the absence of dividends during the restriction period.

Satisfying vestings

Any portion of the award of share rights may be satisfied by a cash equivalent payment rather than shares at
the Board’s discretion. All share rights were satisfied through a share allocation, other than 108,783 deferredshare rights (2017: 67,573) for which Board discretion was exercised.

Downward adjustment

Board discretion was also exercised to adjust downward 1,638 deferred share rights to zero in 2018 and 3,835
in 2017.

FY 2018 and FY 2017 grants

During the 2018 year 2,546,333 deferred share rights (no performance hurdles) were granted(2017: 2,547,377).

Options, Deferred Share Rights and Performance Rights on Issue
As at 30 October 2018, there were 657 holders of 4,204,281deferred share rights on issue and 159 holders of 2,865,941 performance rights
on issue.
Options/Rights Movements
This table shows the options/rights over unissued ANZ shares and their related weighted average (WA) exercise prices as at the beginning and end of
2018 and the movements during 2018:

Number of options/rights
WA exercise priceOpeningbalance
1 Oct 2017

Options/rightsgrantedOptions/rightsforfeited1

Options/rightsexpiredOptions/rightsexercised

Closingbalance
30 Sep 2018

7,113,784

3,569,572(2,043,209)(1,558)(1,490,016)

7,148,573

$0.00

$0.00

$0.00

$0.00

$0.00

$0.00

WA closing share price$28.43WA remaining contractual life

2.1 years

WA exercise price of all exercisable
options/rights outstanding$0.00

Outstanding exercisable options/rights

67,666This table shows the options/rights over unissued ANZ shares and their related weighted average exercise prices as at the beginning and end of 2017
and the movements during 2017:
Options/
Options/
Closing
Opening
Options/
Options/rightsrightsbalancebalancerightsrightsexpiredexercised
30 Sep 2017
1 Oct 2016
grantedforfeited1
Number of options/rights
WA exercise price

6,424,117

3,491,796(1,815,732)(629)(985,768)

$0.00

$0.00

$0.00

$0.00

$0.00

$0.00
$29.50WA closing share price
WA remaining contractual life

2.4 years

WA exercise price of all exercisable
options/rights outstanding$0.00

Outstanding exercisable options/rights
1.

7,113,784

143,839

Refers to any circumstance where equity can be forfeited (for example on cessation, downward adjustment and performance conditions not met).

All of the shares issued as a result of the exercise of options/rights during 2017 and 2018, were issued at a nil exercise price.
As at the date of the signing of the Directors’ Report on 30 October 2018: no options/rights over ordinary shares have been granted since the end of 2018; and no shares have been issued as a result of the exercise of options/rights since the end of 2018.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 157

157

ANZ 2018 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
31. EMPLOYEE SHARE AND OPTION PLANS (continued)
Fair Value Assumptions
When determining the fair value, we apply the standard market techniques for valuation, including Monte Carlo and/or Black Scholes pricing models.
We do so in accordance with the requirements of AASB 2 Share-based Payments. The models take into account early exercise of vested equity, nontransferability and internal/external performance hurdles (if any).
The table below shows the significant assumptions we used as inputs into our fair value calculation of instruments granted during the period. We
present the values as weighted averages, but the specific values we use for each allocation are the ones we use for the fair value calculation.
2018

Exercise price ($)
Share closing price at grant date ($)

Performance
RightsPerformance
Rights

0.00

0.00

0.00

0.00

29.24

29.21

27.95

28.18

20.0

20.0

24.9

25.0

Equity term (years)

2.4

5.0

2.3

5.0

Vesting period (years)

2.1

3.0

2.1

3.0

Expected life (years)

2.1

3.0

2.1

3.0

Expected dividend yield (%)

5.75

5.75

6.49

6.46

Risk free interest rate (%)

1.65

1.95

1.76

1.86

Fair value ($)

26.03

12.24

24.59

13.73

Expected volatility of ANZ share price (%)

1.

2017
Deferred
Share
RightsDeferred
Share
Rights1

Expected volatility represents a measure of the amount by which ANZ’s share price is expected to fluctuate over the life of the rights. The measure of volatility used in the model is the annualised standard
deviation of the continuously compounded rates of return on the historical share price over a deferred period of time preceding the date of grant. This historical average annualised volatility is then used toestimate a reasonable expected volatility over the expected life of the rights.

SATISFYING EQUITY AWARDS
All shares underpinning equity awards may be purchased on market, reallocated or be newly issued shares, or a combination.
The equity we purchased on market during the 2018 financial year (either under the ANZ Employee Share Acquisition Plan and the ANZ Share Option
Plan, or to satisfy options or rights) for all employees amounted to 3,936,773 shares at an average price of $29.00 per share (2017: 2,704,206 shares at
an average price of $27.83 per share).

32. RELATED PARTY DISCLOSURESKEY MANAGEMENT PERSONNEL COMPENSATIONKey Management Personnel (KMP) are defined as all directors and those executives who report directly to the CEO: with responsibility for the strategic direction and management of a major income generating division; or who control material income and expenses.
KMP compensation included within total personnel expenses in Note 3 Operating Expenses is as follows:

Short-term benefits

2018
$0001

2017
$0001

19,48421,002

Post-employment benefits

333

1,046

Other long-term benefits

150

169

Termination benefits

454

563

Share-based payments

8,910

14,926

Total

29,33137,7061.

Includes former disclosed KMPs until the end of their employment.

158 ANZ 2018 ANNUAL REPORT158

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

32. RELATED PARTY DISCLOSURES (continued)
KEY MANAGEMENT PERSONNEL LOAN TRANSACTIONS
Loans made to KMP are made in the ordinary course of business and on normal commercial terms and conditions that are no more favourable thanthose given to other employees or customers, including: the term of the loan, security required and the interest rate. The aggregate of loans made,guaranteed or secured to KMP, including their related parties, were as follows:
2018
$000

2017
$000

Loans advanced1

23,84423,950Interest charged

932

940

2

1.
2.

Balances are at the balance sheet date (for KMP in office at balance sheet date) and at termination date (for KMP who ceased employment during the year).
Interest is for all KMP’s during the period.

KEY MANAGEMENT PERSONNEL HOLDINGS OF ANZ SECURITIESKMP, including their related parties, held subordinated debt, shares, share rights and options over shares in the Company directly, indirectly or
beneficially as shown below:

Shares, options and rights
Subordinated debt
1.

2018
Number1

2017
Number1

2,293,271

2,233,182

13,152

17,152

For KMP who ceased employment during the year, the balances are calculated as at their termination date.

OTHER TRANSACTIONS OF KEY MANAGEMENT PERSONNEL AND THEIR RELATED PARTIESAll other transactions with KMP and their related parties are made on terms equivalent to those that prevail in arm’s length transactions. Thesetransactions generally involve providing of financial and investment services, including services to eligible international assignees ensuring they areneither financially advantaged nor disadvantaged by their relocation. All such transactions that have occurred with KMP and their related parties havebeen trivial or domestic in nature. In this context, we disclose only those transactions considered of interest to the users of the financial report inmaking and evaluating decisions about the allocation of scarce resources.

ASSOCIATES
We disclose significant associates in Note 26 Investments in Associates. During the course of the financial year, transactions conducted with all
associates were on terms equivalent to those made on an arm’s length basis:
2018
$000

2017
$000

Amounts receivable from associates

35,08377,350

Amounts payable to associates

1,504

2,481

Interest income from associates

1,772

2,817

-

35

Other expenses paid to associates

15,296

23,078Dividend income from associates

51,64342,317

Costs recovered from associates-

748

Interest expense to associates

There have been no material guarantees given or received. No outstanding amounts have been written down or recorded as allowances, as they are
considered fully collectible.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 159

159

ANZ 2018 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
33. COMMITMENTS, CONTINGENT LIABILITIES AND CONTINGENT ASSETSPROPERTY RELATED COMMITMENTS
2018
$m

2017
$m

1,431

1,760

205

251

Lease rentals
Land and buildings
Furniture and equipment

1,636

2,011

Due within 1 year

371

461

Due later than 1 year but not later than 5 years

832

1,042

Due later than 5 years

433

508

1,636

2,011

Total lease rental commitments

Total lease rental commitments
1.

1

1

Total future minimum sublease payments we expect to receive under non-cancellable subleases at 30 September 2018 is $81 million (2017: $91 million). During the year, sublease payments we received
amounted to $32 million (2017: $31 million) and were netted against rent expense.

CREDIT RELATED COMMITMENTS AND CONTINGENCIES
2018
$m

2017
$m

Undrawn facilities

202,531

191,323

Guarantees and letters of credit

18,441

20,009Performance related contingencies

24,136

20,830

Total

245,108

232,162

Contract amount of:

UNDRAWN FACILITIESThe majority of undrawn facilities are subject to customers maintaining specific credit and other requirements or conditions. Many of these facilities
are expected to be only partially used, and others may never be used at all. As such, the total of the nominal principal amounts is not necessarily
representative of future liquidity risks or future cash requirements. Based on the earliest date on which the Group may be required to pay, the total
undrawn facilities of $202,531 million (2017: $191,323 million) mature within 12 months.
GUARANTEES, LETTERS OF CREDIT AND PERFORMANCE RELATED CONTINGENCIES
Guarantees, letters of credit and performance related contingencies relate to transactions that the Group has entered into as principal – including:guarantees, standby letters of credit and documentary letters of credit.
Documentary letters of credit involve the Group issuing letters of credit guaranteeing payment in favour of an exporter. They are secured against anunderlying shipment of goods or backed by a confirmatory letter of credit from another bank.
Performance related contingencies are liabilities that oblige the Group to make payments to a third party if the customer fails to fulfil its non-monetary
obligations under the contract.
To reflect the risk associated with these transactions, we apply the same credit origination, portfolio management and collateral requirements that weapply to loans. The contract amount represents the maximum potential amount that we could lose if the counterparty fails to meet its financial
obligations. As the facilities may expire without being drawn upon, the notional amounts do not necessarily reflect future cash requirements. Basedon the earliest date on which the Group may be required to pay, the total guarantees and letters of credit of $18,441 million (2017: $20,009 million)
and total performance related contingencies of $24,136 million (2017: $20,830 million) mature within 12 months.

160 ANZ 2018 ANNUAL REPORT160

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

33. COMMITMENTS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS (continued)
OTHER CONTINGENT LIABILITIESAs at 30 September 2018, the Group had contingent liabilities in respect of the matters outlined below. Where relevant, expert legal advice has beenobtained and, in the light of such advice, provisions and/or disclosures as deemed appropriate have been made. In some instances we have notdisclosed the estimated financial impact of the individual items either because it is not practicable to do so or because such disclosure may prejudice
the interests of the Group.
BANK FEES LITIGATION
A litigation funder commenced a class action against the Company in 2010, followed by a second similar class action in March 2013. The applicants
contended that certain exception fees (honour, dishonour and non-payment fees on transaction accounts and late payment and over-limit fees on
credit cards) were unenforceable penalties and that various of the fees were also unenforceable under statutory provisions governing unconscionableconduct, unfair contract terms and unjust transactions. A further action, limited to late payment fees only, commenced in August 2014.
The penalty and statutory claims in the March 2013 class action failed and the claims have been dismissed. The August 2014 action was discontinued
in October 2016.
The original claims in the 2010 class action have been dismissed. In 2017, a new claim was added to the 2010 class action, in relation to the Company’s
entitlement to charge certain periodical payment non-payment fees.
BENCHMARK/RATE ACTIONSIn July and August 2016, class action complaints were brought in the United States District Court against local and international banks, including theCompany – one action relating to the bank bill swap rate (BBSW), and one action relating to the Singapore Interbank Offered Rate (SIBOR) and theSingapore Swap Offer Rate (SOR). The class actions are expressed to apply to persons and entities that engaged in US-based transactions in financial
instruments that were priced, benchmarked, and/or settled based on BBSW, SIBOR, or SOR. The claimants seek damages or compensation in amounts
not specified, and allege that the defendant banks, including the Company, violated US anti-trust laws, anti-racketeering laws, the Commodity
Exchange Act, and (in the BBSW case only) unjust enrichment principles. The Company is defending the proceedings. The matters are at an
early stage.
In February 2017, the South African Competition Commission commenced proceedings against local and international banks including the Company
alleging breaches of the cartel provisions of the South African Competition Act in respect of trading in the South African rand. The potential civil
penalty or other financial impact is uncertain. The matter is at an early stage.
CAPITAL RAISING ACTIONSIn June 2018, the Commonwealth Director of Public Prosecutions commenced criminal proceedings against the Company and a senior employee
alleging that they were knowingly concerned in cartel conduct by the joint lead managers of the Company’s August 2015 underwritten institutional
equity placement of approximately 80.8 million ordinary shares. The matter is at an early stage. The Company and its senior employee are defending
the allegations.
In September 2018, the Australian Securities and Investments Commission (ASIC) commenced civil penalty proceedings against the Company alleging
failure to comply with continuous disclosure obligations in connection with the Company’s August 2015 underwritten institutional equity placement.
ASIC alleges the Company should have advised the market that the joint lead managers took up approximately 25.5 million ordinary shares of theplacement. The matter is at an early stage. The Company is defending the allegations.
FRANCHISEE LITIGATIONIn February 2018, two related class actions were brought against the Company. The primary action alleges that the Company breached contractual
obligations and acted unconscionably when it lent to the applicant, and other 7-Eleven franchisees. The action seeks to set aside the loans to those
franchisees and claims unspecified damages. The second action seeks to set aside related mortgages and guarantees given to the Company. The
matters are at an early stage.
REGULATORY AND CUSTOMER EXPOSURESIn recent years there has been an increase in the number of matters on which the Group engages with its regulators. There have been significant
increases in the nature and scale of regulatory investigations and reviews, enforcement actions (whether by court action or otherwise) and thequantum of fines issued by regulators, particularly against financial institutions both in Australia and globally. The Group also instigates engagementwith its regulators. The nature of these interactions can be wide ranging and, for example, currently include a range of matters including responsible
lending practices, product suitability, wealth advice, pricing and competition, conduct in financial markets and capital market transactions andproduct disclosure documentation. The Group has received various notices and requests for information from its regulators as part of both industrywide and Group-specific reviews and has also made disclosures to its regulators at its own instigation. There may be exposures to customers which
are additional to any regulatory exposures. These could include class actions, individual claims or customer remediation or compensation activities.
The outcomes and total costs associated with such reviews and possible exposures remain uncertain.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 161

161

ANZ 2018 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
33. COMMITMENTS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS (continued)
ROYAL COMMISSION
The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry was established on 14 December 2017. The
Commission has been asked to submit its final report by 1 February 2019 (an interim report was released on 28 September 2018). The Commission is
likely to result in additional costs and may lead to further exposures, including exposures associated with further regulator activity or potential
customer exposures such as class actions, individual claims or customer remediation or compensation activities. The outcomes and total costs
associated with these possible exposures remain uncertain.
SECURITY RECOVERY ACTIONS
Various claims have been made or are anticipated, arising from security recovery actions taken to resolve impaired assets. These claims will
be defended.
WARRANTIES AND INDEMNITIESThe Group has provided warranties, indemnities and other commitments in favour of the purchaser and other persons in connection with various
disposals of businesses and assets and other transactions, covering a range of matters and risks. It is exposed to potential claims under thosewarranties, indemnities and commitments.
CLEARING AND SETTLEMENT OBLIGATIONS
Under the following arrangements, the Company has a commitment to comply with rules which could result in a bilateral exposure and loss if amember institution fails to settle: the Australian Payments Network Limited’s Regulations for the Australian Paper Clearing System, the Bulk Electronic
Clearing System, the Issuers and Acquirers Community and the High Value Clearing System (HVCS). The Company’s potential exposure arising fromthese arrangements is unquantifiable in advance.
Under the Austraclear System Regulations (Austraclear), and the CLS Bank International Rules, the Company has a commitment to participate in losssharing arrangements if a member institution fails to settle. The Company’s potential exposure arising from these arrangements is unquantifiable inadvance. For HVCS and Austraclear, the above obligation arises in only limited circumstances.
The Company is a member of various central clearing houses globally, including ASX Clear (Futures), London Clearing House (LCH) SwapClear, Korea
Exchange (KRX), Hong Kong Exchange (HKEX) and the Shanghai Clearing House. These memberships allow the Company to centrally clear derivative
instruments in line with cross-border regulatory requirements. Common to all of these memberships is the requirement for the Company to makedefault fund contributions. In the event of a default by another member, the Company could potentially be required to commit additional default
fund contributions which are unquantifiable in advance.
PARENT ENTITY GUARANTEESThe Company has issued letters of comfort and guarantees in respect of certain subsidiaries in the normal course of business. Under these letters andguarantees, the Company undertakes to ensure that those subsidiaries continue to meet their financial obligations, subject to certain conditions
including that the entity remains a controlled entity of the Company.
SALE OF GRINDLAYS BUSINESSESOn 31 July 2000, the Company completed the sale to Standard Chartered Bank (SCB) of ANZ Grindlays Bank Limited and the private banking businessof ANZ in the United Kingdom and Jersey, together with ANZ Grindlays (Jersey) Holdings Limited and its subsidiaries, for USD1.3 billion in cash. The
Company provided warranties and certain indemnities relating to those businesses and, where it was anticipated that payments would be likely under
the warranties or indemnities, made provisions to cover the anticipated liabilities. The issue below has not adversely impacted the reported results. All
settlements and penalties to date have been covered within existing provisions.
In 1991 certain amounts were transferred from non-convertible Indian Rupee accounts maintained with Grindlays in India. These transactions may nothave complied with the provisions of the Foreign Exchange Regulation Act, 1973. Grindlays, on its own initiative, brought these transactions to theattention of the Reserve Bank of India. The Indian authorities served notices on Grindlays and certain of its officers in India and civil penalties havebeen imposed which are the subject of appeals. Criminal prosecutions are pending and will be defended. The amounts in issue are not material.

CONTINGENT ASSETSNATIONAL HOUSING BANKThe Company is pursuing recovery of the proceeds of certain disputed cheques which were credited to the account of a former Grindlays customer inthe early 1990s.
The disputed cheques were drawn on the National Housing Bank (NHB) in India. Proceedings between Grindlays and NHB concerning the proceeds ofthe cheques were resolved in early 2002.
Recovery is now being pursued from the estate of the Grindlays customer who received the cheque proceeds. Any amounts recovered are to beshared between the Company and NHB.

162 ANZ 2018 ANNUAL REPORT162

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

34. COMPENSATION OF AUDITORS
2018
$’000

2017
$’000

Audit or review of financial reports

10,058

9,418

Audit-related services

4,999

4,760

306

732

15,363

14,910

Audit or review of financial reports

5,797

6,263

Audit-related services

1,276

1,410

2

10

KPMG Australia
1

Non-audit services2
Total

3

Overseas related practices of KPMG Australia
1

Non-audit services2
Total

7,075

7,683

Total compensation of auditors

22,43822,5931.

Comprises prudential and regulatory services of $3.70 million (2017: $4.71 million), comfort letters $0.51 million (2017: $0.72 million) and other services $2.07 million (2017: $0.74 million).
The nature of the non-audit services includes general market and regulatory insights, training, controls related assessments, methodology and procedural reviews. Further details are provided in the
Directors’ Report.
3.
Inclusive of goods and services tax.
2.

The Group’s Policy allows KPMG Australia or any of its related practices to provide assurance and other audit-related services that, while outside thescope of the statutory audit, are consistent with the role of an external auditor. These include regulatory and prudential reviews requested byregulators such as APRA. Any other services that are not audit or audit-related services are non-audit services. The Policy allows certain non-audit
services to be provided where the service would not contravene auditor independence requirements. KPMG Australia or any of its related practices
may not provide services that are perceived to be in conflict with the role of the external auditor or breach auditor independence. These include
consulting advice and subcontracting of operational activities normally undertaken by management, and engagements where the external auditor
may ultimately be required to express an opinion on its own work.

35. EVENTS SINCE THE END OF THE FINANCIAL YEAR
There have been no significant events from 30 September 2018 to the date of signing this report.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 163

163

CONSOLIDATED GROUP DIRECTORS’ DECLARATION
Directors’ Declaration
The Directors of Australia and New Zealand Banking Group Limited declare that:a) in the Directors’ opinion, the financial statements and notes of the Consolidated Entity are in accordance with the Corporations Act
2001, including:i)

section 296, that they comply with the Australian Accounting Standards and any further requirements of the Corporations Regulations
2001; andii) section 297, that they give a true and fair view of the financial position of the Consolidated Entity as at 30 September 2018 and of its
performance for the year ended on that date;b) the notes to the financial statements of the Consolidated Entity include a statement that the financial statements and notes of the Consolidated
Entity comply with International Financial Reporting Standards;c) the Directors have been given the declarations required by section 295A of the Corporations Act 2001; andd) in the Directors’ opinion, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become dueand payable.
Signed in accordance with a resolution of the Directors.

David M Gonski, AC
ChairmanShayne C Elliott
Director

30 October 2018

164 ANZ 2018 ANNUAL REPORT164

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

INDEPENDENT AUDITOR’S REPORTTO THE SHAREHOLDERS OF AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITEDREPORT ON THE AUDIT OF THE FINANCIAL REPORTOPINION
We have audited the Financial Report of Australia and New Zealand Banking Group Limited (the Company) and the entities it controlled at the year
end and from time to time during the financial year (together, the Group).
In our opinion, the accompanying Financial Report of the Group is in accordance with the Corporations Act 2001, including: giving a true and fair view of the Group’s financial position as at 30 September 2018 and of its financial performance for the year ended on that
date; and
 complying with Australian Accounting Standards and the Corporations Regulations 2001.
The Financial Report comprises the: consolidated statement of financial position as at 30 September 2018; consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity, andconsolidated statement of cash flows for the year then ended; notes 1 to 35 including a summary of significant accounting policies; and Directors’ Declaration.

BASIS FOR OPINION
We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit evidence we have obtained is sufficient andappropriate to provide a basis for our opinion.
Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the Financial Report section of
our report.
We are independent of the Group in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional andEthical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the Financial Report inAustralia. We have fulfilled our other ethical responsibilities in accordance with the Code.

KEY AUDIT MATTERS
These matters were addressed in the context of our audit of the Financial Report as a whole, and in forming our opinion thereon, and we do notprovide a separate opinion on these matters.
The Key Audit Matters we identified are:
 Provision for credit impairment and disclosures for the expected impact of AASB 9 Financial Instruments applicable on 1 October 2018;
 Valuation of Financial Instruments held at Fair Value; Provision for Customer Remediation;
 Accounting for Divestments; and IT Systems and Controls.
Key Audit Matters are those matters that, in our professional judgement, were of most significance in our audit of the Financial Report of thecurrent period.
These matters were addressed in the context of our audit of the Financial Report as a whole, and in forming our opinion thereon, and we do notprovide a separate opinion on these matters.

INDEPENDENT AUDITOR’S REPORT 165

165

ANZ 2018 ANNUAL REPORTINDEPENDENT AUDITOR’S REPORT (continued)
KEY AUDIT MATTERS (continued)
PROVISION FOR CREDIT IMPAIRMENT ($3,443M) AND DISCLOSURES FOR THE EXPECTED IMPACT OF AASB 9 FINANCIAL INSTRUMENTS
APPLICABLE ON 1 OCTOBER 2018

Refer to the critical accounting estimates and judgements and disclosures in relation to credit impairment provisioning in Note 13 to the Financial
Report, and to the disclosures in relation to accounting standards not yet adopted for the expected impact of AASB 9 Financial Instruments in Note 1
to the Financial Report.
The Key Audit Matter
The provision for credit impairment is a Key Audit Matter as the Group has significant credit risk exposure to a large number of counterparties across awide range of lending and other products, industries and geographies. The value of loans and advances on the balance sheet is significant and there isa high degree of complexity and judgement involved for the Group in estimating individual and collective credit impairment provisions against theseloans. These features resulted in significant audit effort to address the risks around loan recoverability and the determination of related provisions.
In preparation for adoption of AASB 9 Financial Instruments on 1 October 2018, the Group disclosed the expected impact of adoption. This added
effort to our FY18 audit given the complexity of the accounting standard and its expected pervasive impact on the industry. We focused on theGroup’s disclosure of the expected impact of measuring expected credit losses (ECLs) on loans and advances and the significant judgement exercisedby the Group. The Group’s models to calculate ECLs are inherently complex and judgement is applied in determining the correct construct of themodels. There are also a number of key assumptions made by the Group in applying the accounting standard requirements to the models, including
the selection and input of forward-looking information.
How the matter was addressed in our audit
Our audit procedures for the provision for credit impairment and disclosures for the expected impact of AASB 9 Financial Instruments applicable on 1
October 2018 included:

Provisions against specific individual loans (individual provision)
 Testing the key controls over counterparty risk grading for wholesale loans (larger customer exposures that are monitored individually). We tested
the approval of new lending facilities against the Group’s lending policies, the performance of annual loan assessments, and controls over themonitoring of counterparty credit quality. This included testing controls over the identification of exposures showing signs of stress, either due tointernal factors specific to the counterparty or external macroeconomic factors, and testing the timeliness of and the accuracy of counterparty risk
assessments and risk grading against the requirements of the Group’s lending policies and regulatory requirements;
 Performing credit assessments of a sample of wholesale loans managed by the Group’s specialist workout and recovery team assessed as higher
risk or impaired, and a sample of other loans, focusing on larger exposures assessed by the Group as showing signs of deterioration, or in areas of
emerging risk (assessed against external market conditions). We challenged the Group’s risk grading of the loan, their assessment of loan
recoverability and the impact on the credit provision. To do this, we used the information on the Group’s loan file, discussed the case with the loan
officer and management, and performed our own assessment of recoverability. This involved using our understanding of relevant industries andthe macroeconomic environment, engaging KPMG specialists where required, and comparing assumptions of inputs used by the Group in
recoverability assessments to externally sourced evidence, such as commodity prices, publicly available audited financial statements, andcomparable external valuations of collateral held; and For retail loans (smaller customer exposures not monitored individually), testing controls over the systems which record lending arrears, group
exposures into delinquency buckets based on the number of days loans are overdue, and calculate individual provisions. We tested automatedcalculation and change management controls and evaluated the Group’s oversight of the portfolios, with a focus on controls over delinquency
statistics monitoring. We tested a sample of the level of provisions held against different loan products based on the delinquency profile andchallenged assumptions made in respect of expected recoveries, primarily from collateral held.

Provisions estimated across loan portfolios (collective provision)
 Testing the Group’s processes to validate the models used to calculate collective provisions, and evaluating the Group’s model methodologies
against established market practices and criteria in the accounting standards;
 Testing the key controls within IT systems used to calculate the collective provision, specifically those relating to data management and thecompleteness and accuracy of data transfer from underlying source systems to the collective provision models; Testing the accuracy of key inputs into models by checking a sample of year-end balances to the general ledger, and repayment history and risk
ratings to source systems;
 Challenging the key assumptions in the models such as emergence periods, probability of default and loss given default, for a sample of retail andwholesale portfolios. We compared modelled estimates against actual losses incurred by the Group; and Re-performing, for a sample of retail and wholesale portfolios and using a KPMG-constructed calculation tool, the calculation of collective
provisions, to determine the accuracy of model output.

166 ANZ 2018 ANNUAL REPORT166

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

KEY AUDIT MATTERS (continued)
We also challenged key assumptions in the components of the Group’s collective provision balance held above modelled provision estimates.
This included:
 Evaluating inputs to the concentration risk and economic cycle provisions by comparing underlying portfolio characteristics to recent loss
experience, current market conditions and specific risks inherent in the Group’s loan portfolios; Assessing the requirement for other additional provisions by considering model or data deficiencies identified by the Group’s model validation
processes; and Assessing the completeness of additional provisions by checking the consistency of risks identified in the portfolios to their inclusion in theGroup’s assessment.

AASB 9 Financial Instruments
We assessed the Group’s disclosures for the expected impact of AASB 9 Financial Instruments which is applicable on 1 October 2018. Together with
KPMG credit risk and economics specialists, our procedures included:
 Assessing the Group’s significant accounting policies against the requirements of the accounting standard; Assessing the Group’s ECL modelling methodology and for a sample of models testing key credit modelling assumptions incorporated in the ECL
models against the requirements of the standard and underlying accounting records;
 Assessing forward-looking economic assumptions and the development of economic scenarios against external economic information, and theapplication into the ECL models; Testing data reconciliation controls between the ECL models and source systems;
 Testing the accuracy of the modelled calculations by re-performing the ECL calculations on a sample basis; and Assessing the disclosures in the financial report against the requirements of Australian accounting standards.
VALUATION OF FINANCIAL INSTRUMENTS HELD AT FAIR VALUE:- ASSETS HELD AT FAIR VALUE $223,713M- LIABILITIES HELD AT FAIR VALUE $121,262M

Refer to the critical accounting estimates, judgements and disclosures of fair values in Note 17 to the Financial Report.
The Key Audit Matter
Financial instruments held at fair value on the Group’s balance sheet include available for sale assets, trading securities, derivative assets and liabilities,
investments backing policy liabilities, certain policy liabilities, certain debt securities, and other assets and liabilities designated as measured at fairvalue through profit or loss. The instruments are mainly risk management products sold to customers and used by the Group to manage its own
interest rate and foreign exchange risk.
The valuation of financial instruments held at fair value is considered a Key Audit Matter as: Financial instruments held at fair value are significant (24% of assets and 14% of liabilities);
 The significant volume and range of products transacted, in a number of international locations, increases the risk of inconsistencies in transaction
management processes that could lead to inaccurate valuation;
 Determining the fair value of trading securities and derivatives involves a significant level of judgement by the Group, increasing the risk of error,
and adding complexity to our audit. The level of judgement increases where internal models, as opposed to quoted market prices, are used todetermine fair value of an instrument, or where inputs to the internal models, such as discount rates and measures of volatility, are not observable;
and The valuation of certain derivatives held by the Group is sensitive to inputs including funding rates, probabilities of default and loss given default,
and industry practice is evolving as to how the impact of both funding and credit risk is incorporated within the valuation of certain derivative
instruments. This increased our audit effort in this area and necessitated the involvement of valuation specialists.
How the matter was addressed in our audit
Our audit procedures for the valuation of financial instruments held at fair value included: Testing access rights and change management controls for key valuation systems;
 Testing interface controls, notably the completeness and accuracy of data transfers between transaction processing systems, key systems used togenerate valuations and any related valuation adjustments, and the Group’s market risk management and finance systems to identify
inconsistencies in transaction management and valuation processes across products and locations; Testing the governance and approval controls, such as management review and approval of the valuation models, and approval of new products
against policies and procedures;
 Testing the front office management review and approval of the daily financial instrument trading profit and loss reconciliations prepared by theGroup’s independent product control function;
INDEPENDENT AUDITOR’S REPORT 167

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ANZ 2018 ANNUAL REPORTINDEPENDENT AUDITOR’S REPORT (continued)
KEY AUDIT MATTERS (continued)
 Testing the management review and approval of model construction and validation, aimed at assessing the validity and robustness of underlying
valuation models; and Testing the Group’s data validation controls, such as those over key inputs in generating the fair value to market data where fair values were
determined by front office teams.
We carried out testing over the valuation of financial instruments with both observable and unobservable inputs. Our specific testing involved
valuation specialists and included:
 Re-performing the valuation of ‘level 1’ and ‘level 2’ available for sale assets and trading securities, which are primarily government, semigovernment and corporate debt securities, by comparing the observable inputs, including quoted prices, to independently sourced market data; Using independent models, re-calculating the valuation of a sample, across locations, of derivative assets and liabilities where the fair value wasdetermined using observable inputs. This included comparing a sample of observable inputs used in the Group’s derivative valuations to
independently-sourced market data, such as interest rates, foreign exchange rates and volatilities;
 Where the fair value of derivatives and other financial assets and liabilities were determined using unobservable inputs (‘level 3’ instruments),
challenging the Group’s valuation model by testing the key inputs used to comparable data in the market, including the use of proxy instruments
and available alternatives. We compared the Group’s valuation methodology to industry practice and the criteria in the accounting standards; and Evaluating the appropriateness of the Group’s valuation methodology for derivative financial instruments, having regard to current and emerging
derivative valuation practices across a range of peer institutions, and against the required criteria in the accounting standards. We tested
adjustments made to valuations, particularly funding and credit valuation adjustments on un-collateralised derivatives. In particular, for a sample
of individual counterparties, across locations, we tested key inputs to the credit valuation adjustment calculation, including the probability ofdefault, against observable market data. Where proxies were used, we assessed the proxy against available alternatives, across a numberof locations.
PROVISION FOR CUSTOMER REMEDIATION ($602M)

Refer to the critical accounting estimates, judgements and disclosures in Notes 21 and 33 to the Financial Report.
The Key Audit Matter
The Group has assessed the need to recognise provisions in relation to certain customer remediation activities arising from both internal and external
investigations, and reviews.
The provision for customer remediation activities is a Key Audit Matter due to the judgements required by us in assessing the Group’s
determination of: The existence of a present legal or constructive obligation arising from a past event using the conditions of the event against the criteria in theaccounting standards;
 The number of investigations and the quantum of amounts being paid arising from the present obligation;
 Reliable estimates of the amounts which may be paid arising from investigations, including estimates of related costs; and The potential for legal proceedings, further investigations, and reviews from its regulators leading to a wider range of estimation outcomes for us
to consider.
How the matter was addressed in our audit
Our audit procedures for customer remediation provisions included:
 Obtaining an understanding of the Group’s processes for identifying and assessing the potential impact of the investigations into customer
remediation activities;
 Enquiring with the Group regarding ongoing legal, regulatory and investigation into other remediation activities;
 Reading the minutes and other relevant documentation of the Group’s Board of Directors, Board Committees, various management committees,
and attending the Group’s Audit and Risk Committee meetings;
 Inspecting correspondence with relevant regulatory bodies and the Group’s key submissions to the Royal Commission into Misconduct in the
Banking, Superannuation and Financial Services Industry; For a sample of individual customer remediation matters, assessing the basis for recognition of a provision and associated costs against therequirements of the accounting standards. We did this by understanding and challenging the provisioning methodologies andunderlying assumptions; Testing completeness by evaluating where exposures may have arisen based upon our knowledge and experience of broader industry matters,
the Group's documentation and the current regulatory environment. We also checked these features of these exposures against the criteria
defining a provision or a contingency in the accounting standards;

168 ANZ 2018 ANNUAL REPORT168

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

KEY AUDIT MATTERS (continued)
 Assessing the appropriateness of the Group’s conclusions against the requirements of Australian Accounting Standards where estimates wereunable to be reliably made for a provision to be recognised; and Evaluating the related disclosures against the requirements of Australian Accounting Standards.
ACCOUNTING FOR DIVESTMENTS

Refer to the critical accounting estimates, judgments and the discontinued operations and assets and liabilities held for sale disclosures in Notes 1 and
29 to the Financial Report.
The Key Audit Matter
During the year the Group announced the sale of its Life Insurance business to Zurich Financial Services Australia, and the sales of its One Pathpensions and investment business and Aligned Dealer Group business to IOOF Holdings Limited (the ‘Divestment Businesses’). These businesses werepart of the Wealth Australia operating segment. The financial results of the Divestment Businesses are presented as discontinued operations, and theassociated assets and liabilities are classified as held for sale at balance date.
The divestments are considered a Key Audit Matter due to the: significance of the Divestment Businesses to the Group; judgement applied by the Group in the measurement of the Divestment Businesses using the requirements accounting standards and the terms
and conditions of the divestments; and judgement applied by the Group in assessing the probability of the divestments against the requirements of Australian Accounting Standards at
30 September 2018.
We focused on the areas where judgement exists in the measurement of the discontinued operations, including the: allocation of goodwill between the Divestment Businesses;
 estimation of costs required to complete the divestments including costs associated with separating these businesses from the Group; and taxation implications of the divestments, potentially having a significant impact on the loss on sale and requiring specialist knowledge.
The presentation of the restatement of prior year financial information into continuing and discontinued operations in the financial report was also a
focus for us.
How the matter was addressed in our audit
Our audit procedures in relation to the Divestment Businesses included: Reading the relevant transaction documents to understand the terms and conditions of the divestments;
 Assessing the criteria for the Divestment Businesses to be recognised and measured as held for sale against the criteria in the accounting
standards at balance sheet date; Evaluating the substance of the divestments using the terms and conditions of the transaction documents against the criteria for discontinued
operations in the accounting standards;
 Testing the Group’s controls for measurement of the divestments held for sale. This included the Steering Committee review and approval of costs
associated with separating the divestments from the Group; Assessing, on a sample basis, the identification of assets and liabilities disposed by comparing to transaction documents and underlying financial
records at balance date; Checking the consideration for the divestments to the transaction documents and underlying financial records;
 Assessing the identification, basis for recognition, and treatment of a sample of costs associated with separating the divestments from the Groupfor compliance with the accounting standards;
 Comparing the quantum of the costs associated with separating the divestments from the Group to similar transactions within the market;
 Using our tax specialists, we evaluated the associated tax implications against the requirements of the tax legislation;
 Evaluating the methodology applied by the Group to allocate goodwill between the Divestment Businesses based on our knowledge of thebusinesses and the requirements of the accounting standards;
 Checking the Group’s calculations of loss on sale of each of the divestments; and Assessing the disclosure in the financial report relating to the divestments including the presentation of the restatement of prior period
information to reflect the impact of the divestments against the requirements of the accounting standards.

INDEPENDENT AUDITOR’S REPORT 169

169

ANZ 2018 ANNUAL REPORTINDEPENDENT AUDITOR’S REPORT (continued)
KEY AUDIT MATTERS (continued)
IT SYSTEMS AND CONTROLSThe Key Audit Matter
As a major Australian bank, the group’s businesses utilise a large number of complex, interdependent Information Technology (IT) systems to process
and record a high volume of transactions. Controls over access and changes to IT systems are critical to the recording of financial information and the
preparation of a financial report which provides a true and fair view of the Group’s financial position and performance. The IT systems and controls, as
they impact the financial recording and reporting of transactions, is a key audit matter and our audit approach could significantly differ depending on
the effective operation of the Group’s IT controls. KPMG IT specialists were used throughout the engagement as a core part of our audit team.
How the matter was addressed in our audit
We tested the control environment for key IT applications (systems) used in processing significant transactions and recording balances in the generalledger. We also tested automated controls embedded within these systems. Our audit procedures included: Testing the governance controls used by the Group’s technology teams to monitor system integrity, by checking matters impacting theoperational integrity of core systems for escalation and action in accordance with the Group’s policies; Testing the access rights given to staff by checking them to approved records, and inspecting the reports over the granting and removal of accessrights. We also looked for evidence of escalation of breaches; Testing preventative controls designed to enforce segregation of duties between users within particular systems;
 Testing the operating effectiveness of automated controls, principally relating to the automated calculation of financial transactions. We tested
the inputs used within automated calculations to source data and also tested the accuracy of the calculation logic for a sample of transactions
within each identified control; and Testing the operating effectiveness of automated reconciliation controls, both between systems and intra-system. We checked a sample ofidentified breaks in reconciliations were recorded on exception reports, and subsequently investigated and cleared by the Group.

OTHER INFORMATIONOther Information is both financial and non-financial information in Australia and New Zealand Banking Group Limited’s annual reporting which
is provided in addition to the Financial Report and the Auditor's Report. The Directors are responsible for the Other Information.
Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not express an audit opinion or any form ofassurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion.
In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In doing so, we consider whether the
Other Information is materially inconsistent with the Financial Report or our knowledge obtained in the audit, or otherwise appears to bematerially misstated.
We are required to report if we conclude that there is a material misstatement of this Other Information, and based on the work we have
performed on the Other Information that we obtained prior to the date of this Auditor’s Report, we have nothing to report.

RESPONSIBILITIES OF DIRECTORS FOR THE FINANCIAL REPORTThe Directors are responsible for:
 preparing a Financial Report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001;
 implementing necessary internal control to enable the preparation of a Financial Report that gives a true and fair view and is free from material
misstatement, whether due to fraud or error; and assessing the Group’s ability to continue as a going concern and whether the use of the going concern basis of accounting is appropriate. This
includes disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless they either intend toliquidate the Group or to cease operations, or have no realistic alternative but to do so.

AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL REPORTOur objective is: to obtain reasonable assurance about whether the Financial Report as a whole is free from material misstatement, whether due to fraud or
error; and to issue an Auditor’s Report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Australian Auditing Standards
will always detect a material misstatement when it exists. Misstatements can arise from fraud or error. They are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the Financial Report.
A further description of our responsibilities for the audit of the Financial Report is located at the Auditing and Assurance Standards Board website at:
http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description forms part of our Auditor’s Report.

170 ANZ 2018 ANNUAL REPORT170

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSREPORT ON THE REMUNERATION REPORT
In our opinion, the Remuneration Report of Australia and New Zealand Banking Group Limited for the year ended 30 September 2018, complies with
Section 300A of the Corporations Act 2001.

DIRECTORS’ RESPONSIBILITIESThe Directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with Section 300A of
the Corporations Act 2001.

OUR RESPONSIBILITIESWe have audited the Remuneration Report included in pages 40 to 67 of the Directors’ report for the year ended 30 September 2018.
Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian
Auditing Standards.

KPMG

Alison Kitchen

Partner
Melbourne
30 October 2018

INDEPENDENT AUDITOR’S REPORT 171

171

SHAREHOLDER INFORMATION - unaudited
ORDINARY SHARESAt 4 October 2018, the twenty largest holders of ANZ ordinary shares held 1,670,330,856 ordinary shares, equal to 58.13% of the total issued
ordinary capital. At 4 October 2018 the issued ordinary capital was 2,873,618,118 ordinary shares.
Name

Number of shares% of shares

1

HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED

698,377,982

24.30

2

J P MORGAN NOMINEES AUSTRALIA LIMITED

446,105,493

15.53

3

CITICORP NOMINEES PTY LIMITED

196,443,739

6.84

4

NATIONAL NOMINEES LIMITED106,725,320

3.71

5

BNP PARIBAS NOMINEES PTY LTD <AGENCY LENDING DRP A/C>

60,581,989

2.11

6

BNP PARIBAS NOMS PTY LTD <DRP>

38,925,688

1.36

7

CITICORP NOMINEES PTY LIMITED <COLONIAL FIRST STATE INV A/C>

22,402,149

0.78

8

HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED <NT-COMNWLTH SUPER CORP A/C>

19,832,657

0.69

9

CITICORP NOMINEES PTY LIMITED <CITIBANK NY ADR DEP A/C>

14,185,211

0.49

10 ARGO INVESTMENTS LIMITED

9,765,275

0.34

11 AMP LIFE LIMITED

9,261,338

0.32

12 AUSTRALIAN FOUNDATION INVESTMENT COMPANY LIMITED

8,487,710

0.30

13 ANZEST PTY LTD <DEA CONTROL A/C>

5,865,750

0.20

14 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED

5,687,312

0.20

15 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED-GSCO ECA

5,562,685

0.19

16 NATIONAL NOMINEES LIMITED <N A/C>

5,231,205

0.18

17 IOOF INVESTMENT MANAGEMENT LIMITED <IPS SUPER A/C>

4,612,174

0.16

18 NAVIGATOR AUSTRALIA LTD <MLC INVESTMENT SETT A/C>

4,207,945

0.15

19 NETWEALTH INVESTMENTS LIMITED <WRAP SERVICES A/C>

4,086,341

0.14

20 NULIS NOMINEES (AUSTRALIA) LIMITED <NAVIGATOR MAST PLAN SETT A/C>

3,982,893

0.14

1,670,330,856

58.13

Total

Distribution of shareholdings
At 4 October 2018
Range of shares

Number ofholders% ofholders

Number ofshares% ofshares1 to 1,000

281,52355.30

113,401,424

3.95

1,001 to 5,000

181,132

35.58

414,503,501

14.43

5,001 to 10,000

29,933

5.88

208,452,890

7.25

10,001 to 100,000

16,078

3.16

321,906,623

11.20

Over 100,000
Total

436

0.08

1,815,353,680

63.17

509,102100.002,873,618,118

100.00

At 4 October 2018:•• the average size of holdings of ordinary shares was 5,644 (2017: 5,623) shares; and•• there were 12,555 holdings (2017: 11,627 holdings) of less than a marketable parcel (less than $500 in value or 19 shares based on the market price of $27.61 per share), which is less than 2.47% of
the total holdings of ordinary shares.
On 12 May 2017 ANZ was notified by Blackrock Group that it held a substantial shareholding of 148,984,864 ordinary shares in ANZ (5.07%). As at 4 October 2018 ANZ has received no further updatein relation to this substantial shareholding.
On 3 July 2018 ANZ was notified by The Vanguard Group, Inc that it held a substantial shareholding of 144,730,016 ordinary shares in ANZ (5.001%). As at 4 October 2018 ANZ has received no further
update in relation to this substantial shareholding.
As announced on 18 December 2017, 22 June 2018 and 19 October 2018, there is currently an on-market buy-back in relation to ANZ’s ordinary shares.

VOTING RIGHTS OF ORDINARY SHARESThe Constitution provides for votes to be cast as follows:i) on show of hands, one vote for each shareholder; andii) on a poll, one vote for every fully paid ordinary share.
A register of holders of ordinary shares is held at:
452 Johnston Street
Abbotsford
Victoria, Australia(Telephone: +61 3 9415 4010)
172 ANZ 2018 ANNUAL REPORTANZ CAPITAL NOTESANZ CN1
On 7 August 2013 the Company issued convertible subordinated perpetual notes (ANZ CN1) which were offered pursuant to a prospectus
dated 10 July 2013.
At 4 October 2018 the twenty largest holders of ANZ CN1 held 2,272,022 securities, equal to 20.29% of the total issued securities. At 4 October
2018 the total number of CN1 on issue was 11,200,000.
Name

Number of securities% of securities

1

HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED

532,897

4.76

2

J P MORGAN NOMINEES AUSTRALIA LIMITED

179,659

1.60

3

NAVIGATOR AUSTRALIA LTD <MLC INVESTMENT SETT A/C>

157,503

1.41

4

BNP PARIBAS NOMS PTY LTD <DRP>

152,197

1.36

5

CITICORP NOMINEES PTY LIMITED

144,374

1.29

6

IOOF INVESTMENT MANAGEMENT LIMITED <IPS SUPER A/C>

139,997

1.25

7

HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2

131,165

1.17

8

NULIS NOMINEES (AUSTRALIA) LIMITED <NAVIGATOR MAST PLAN SETT A/C>

128,3521.15

9NETWEALTH INVESTMENTS LIMITED <WRAP SERVICES A/C>

117,1641.05

10 NATIONAL NOMINEES LIMITED

107,8120.96

11 BNP PARIBAS NOMINEES PTY LTD HUB24 CUSTODIAL SERV LTD DRP

59,8500.53

12 SERVCORP HOLDINGS PTY LTD

58,325

0.52

13 DIMBULU PTY LTD

50,0000.45

14 RANDAZZO C & G DEVELOPMENTS PTY LTD

50,0000.45

15 AUSTRALIAN EXECUTOR TRUSTEES LIMITED <NO 1 ACCOUNT>

48,571

0.43

16 IOOF INVESTMENT MANAGEMENT LIMITED <IPS IDPS A/C>

47,764

0.43

17 MUTUAL TRUST PTY LTD

46,4060.41

18 MCCUSKER FOUNDATION LTD <THE MCCUSKER CHARITABLE FNDN>

46,0000.41

19 THORSEN INVESTMENTS PTY LTD

40,0000.36

20 CITICORP NOMINEES PTY LIMITED <DPSL>

33,9860.30

2,272,022

20.29

Total

Distribution of ANZ CN1 holdings
At 4 October 2018
Range of securities

Number ofholders% ofholders

Number of
securities% ofsecurities

1 to 1,000

15,34591.01

4,930,437

44.02

1,001 to 5,000

1,374

8.15

2,811,350

25.10

5,001 to 10,000

94

0.56

733,166

6.55

10,001 to 100,000

37

0.22

933,927

8.34

Over 100,000

10

0.06

1,791,120

15.99

16,860100.00

11,200,000

100.00Total

At 4 October 2018 there were 4 holdings (2017: 2 holdings) of less than a marketable parcel (less than $500 in value or 5 securities based on the market price of $102.399 per security), which is lessthan 0.03% of the total holdings of ANZ CN1.

VOTING RIGHTS OF ANZ CN1
ANZ CN1 do not confer on holders a right to vote at any meeting of members of the Company.
A register of holders of ANZ CN1 is held at:
452 Johnston Street
Abbotsford
Victoria, Australia(Telephone: +61 3 9415 4010)

SHAREHOLDER INFORMATION - UNAUDITED 173

SHAREHOLDER INFORMATION - unaudited (continued)
ANZ CN2
On 31 March 2014 the Company issued convertible subordinated perpetual notes (ANZ CN2) which were offered pursuant to a prospectus dated
19 February 2014.
At 4 October 2018 the twenty largest holders of ANZ CN2 held 3,685,489 securities, equal to 22.89% of the total issued securities. At 4 October
2018 the total number of CN2 on issue was 16,100,000.
Name

Number of securities% of securities

1

HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED

1,135,987

7.06

2

BNP PARIBAS NOMINEES PTY LTD <AGENCY LENDING DRP A/C>

288,113

1.79

3

BNP PARIBAS NOMS PTY LTD <DRP>

253,561

1.57

4

IOOF INVESTMENT MANAGEMENT LIMITED <IPS SUPER A/C>

188,460

1.17

5NETWEALTH INVESTMENTS LIMITED <WRAP SERVICES A/C>

184,609

1.15

6

NAVIGATOR AUSTRALIA LTD <MLC INVESTMENT SETT A/C>

173,672

1.08

7

JOHN E GILL TRADING PTY LTD

165,0261.03

8NETWEALTH INVESTMENTS LIMITED <SUPER SERVICES A/C>

146,1200.91

9HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2

136,755

0.85

10 BNP PARIBAS NOMINEES PTY LTD HUB24 CUSTODIAL SERV LTD DRP

132,793

0.82

11 CITICORP NOMINEES PTY LIMITED

117,2120.73

12 NULIS NOMINEES (AUSTRALIA) LIMITED <NAVIGATOR MAST PLAN SETT A/C>

116,676

0.72

13 LIGHTNINGEDGE PTY LTD

100,000

0.62

14 J P MORGAN NOMINEES AUSTRALIA LIMITED

99,1410.62

15 NAVIGATOR AUSTRALIA LTD <JB WERE LIST FIX INT SMA A/C>

96,7740.60

16 NATIONAL NOMINEES LIMITED

89,248

0.55

17 CITICORP NOMINEES PTY LIMITED <DPSL>

83,993

0.52

18 MUTUAL TRUST PTY LTD

62,526

0.39

19 RAKIO PTY LTD <PIEKARSKI GYMPIE A/C>

60,0000.37

20 AUSTRALIAN EXECUTOR TRUSTEES LIMITED <NO 1 ACCOUNT>

54,8230.34

3,685,489

22.89

% of
securities

Total

Distribution of ANZ CN2 holdings
At 4 October 2018
Range of securities

Number ofholders% ofholders

Number of
securities

1 to 1,000

19,00090.05

6,394,708

39.72

1,001 to 5,000

1,890

8.96

3,746,637

23.27

5,001 to 10,000

120

0.57

898,937

5.58

10,001 to 100,000

77

0.36

2,020,734

12.55

Over 100,000

12

0.06

3,038,984

18.88

21,099100.00

16,100,000

100.00Total

At 4 October 2018 there were 6 holdings (2017: 4 holdings) of less than a marketable parcel (less than $500 in value or 5 securities based on the market price of $100.65 per security), which is lessthan 0.03% of the total holdings of ANZ CN2.

VOTING RIGHTS OF ANZ CN2
ANZ CN2 do not confer on holders a right to vote at any meeting of members of the Company.
A register of holders of ANZ CN2 is held at:
452 Johnston Street
Abbotsford
Victoria, Australia(Telephone: +61 3 9415 4010)

174 ANZ 2018 ANNUAL REPORTANZ CN3
On 5 March 2015 the Company acting through its New Zealand branch, issued convertible subordinated perpetual notes (ANZ CN3) which were
offered pursuant to a prospectus dated 5 February 2015.
At 4 October 2018 the twenty largest holders of ANZ CN3 held 1,918,495 securities, equal to 19.77% of the total issued securities. At 4 October
2018 the total number of ANZ CN3 on issue was 9,701,791.
Name

Number of securities% of securities

1

HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED

470,854

4.85

2

LONGHURST MANAGEMENT SERVICES PTY LTD

167,000

1.72

3

BNP PARIBAS NOMS PTY LTD <DRP>

155,4121.60

4NATIONAL NOMINEES LIMITED

144,718

1.49

5

HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2

117,643

1.21

6

J P MORGAN NOMINEES AUSTRALIA LIMITED

100,954

1.04

7

RAKIO PTY LTD <PIEKARSKI GYMPIE A/C>

100,000

1.03

8

NETWEALTH INVESTMENTS LIMITED <WRAP SERVICES A/C>

94,2520.97

9

JDB SERVICES PTY LTD <RAC & JD BRICE INVEST A/C>

90,7550.94

10 BNP PARIBAS NOMINEES PTY LTD <AGENCY LENDING DRP A/C>

58,643

0.60

11 NULIS NOMINEES (AUSTRALIA) LIMITED <NAVIGATOR MAST PLAN SETT A/C>

54,4600.56

12 INVIA CUSTODIAN PTY LIMITED <INCOME POOL A/C>

50,8500.52

13 NAVIGATOR AUSTRALIA LTD <JB WERE LIST FIX INT SMA A/C>

48,1020.50

14 HAWAII INVESTMENTS PTY LTD

44,2500.46

15 NAVIGATOR AUSTRALIA LTD <MLC INVESTMENT SETT A/C>

43,631

0.45

16 MR PAUL WILLIAM BROTCHIE + MR KENNETH FRANCIS WALLACE <STAFFORD FOX FOUNDATION A/C>

40,0000.41

17 CITICORP NOMINEES PTY LIMITED

37,4350.39

18 MR RONI G SIKH

36,4720.38

19 MCCUSKER FOUNDATION LTD <THE MCCUSKER CHARITABLE FNDN>

31,7000.33

20 BNP PARIBAS NOMINEES PTY LTD HUB24 CUSTODIAL SERV LTD DRP
Total

31,3640.32

1,918,495

19.77

Distribution of ANZ CN3 holdings
At 4 October 2018
Range of securities

Number ofholders% ofholders

Number of
securities% ofsecurities

1 to 1,000

11,41789.80

3,861,643

39.80

1,001 to 5,000

1,143

8.99

2,434,458

25.09

5,001 to 10,000

92

0.72

725,122

7.48

10,001 to 100,000

56

0.44

1,523,987

15.71

Over 100,000
Total

6

0.05

1,156,581

11.92

12,714100.009,701,791

100.00

At 4 October 2018 there was 1 holding (2017: 1 holding) of less than a marketable parcel (less than $500 in value or 5 securities based on the market price of $101.00 per security), which is lessthan 0.01% of the total holdings of ANZ CN3.

VOTING RIGHTS OF ANZ CN3
ANZ CN3 do not confer on holders a right to vote at any meeting of members of the Company.
A register of holders of ANZ CN3 is held at:
452 Johnston Street
Abbotsford
Victoria, Australia(Telephone: +61 3 9415 4010)

SHAREHOLDER INFORMATION - UNAUDITED 175

SHAREHOLDER INFORMATION - unaudited (continued)
ANZ CN4
On 27 September 2016 the Company issued convertible subordinated perpetual notes (ANZ CN4) which were offered pursuant to a prospectus
dated 24 August 2016.
At 4 October 2018 the twenty largest holders of ANZ CN4 held 4,128,739 securities, equal to 25.45% of the total issued securities. At 4 October
2018 the total number of ANZ CN4 on issue was 16,220,000.
Name

Number of securities% of securities

1

HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED

1,134,950

7.00

2

CITICORP NOMINEES PTY LIMITED

440,768

2.72

3

NATIONAL NOMINEES LIMITED

425,138

2.62

4

J P MORGAN NOMINEES AUSTRALIA LIMITED

256,830

1.58

5

BNP PARIBAS NOMS PTY LTD <DRP>

245,224

1.51

6

IOOF INVESTMENT MANAGEMENT LIMITED <IPS SUPER A/C>

244,408

1.51

7

NAVIGATOR AUSTRALIA LTD <MLC INVESTMENT SETT A/C>

181,623

1.12

8

HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2

176,092

1.09

9NETWEALTH INVESTMENTS LIMITED <WRAP SERVICES A/C>

162,115

1.00

10 NULIS NOMINEES (AUSTRALIA) LIMITED <NAVIGATOR MAST PLAN SETT A/C>

137,954

0.85

11 JMB PTY LIMITED

100,600

0.62

12 BNP PARIBAS NOMINEES PTY LTD HUB24 CUSTODIAL SERV LTD DRP

93,3200.58

13 AUSTRALIAN EXECUTOR TRUSTEES LIMITED <NO 1 ACCOUNT>92,347

0.57

14 RANDAZZO C & G DEVELOPMENTS PTY LTD

78,5000.48

15 MUTUAL TRUST PTY LTD

68,616

0.42

16 RANAMOK PTY LTD <PLUMMER FAMILY A/C>

62,0550.38

17 MR PHILIP WILLIAM DOYLE

60,0000.37

18 BNP PARIBAS NOMINEES PTY LTD <AGENCY LENDING DRP A/C>

59,676

0.37

19 ZW 2 PTY LTD

59,146

0.36

20 V S ACCESS PTY LTD <V S ACCESS A/C>
Total

49,3770.30

4,128,739

25.45

Distribution of ANZ CN4 holdings
At 4 October 2018
Range of securities

Number ofholders% ofholders

Number of
securities% ofsecurities

1 to 1,000

17,45689.42

5,939,452

36.62

1,001 to 5,000

1,833

9.39

3,860,838

23.80

5,001 to 10,000

146

0.75

1,074,698

6.63

10,001 to 100,000

76

0.39

1,839,310

11.34

Over 100,000
Total

11

0.05

3,505,702

21.61

19,522100.0016,220,000

100.00

At 4 October 2018 there were 5 holdings (2017: 5 holdings) of less than a marketable parcel (less than $500 in value or 5 securities based on the market price of $105.66 per security), which is lessthan 0.03% of the total holdings of ANZ CN4.

VOTING RIGHTS OF ANZ CN4
ANZ CN4 do not confer on holders a right to vote at any meeting of members of the Company.
A register of holders of ANZ CN4 is held at:
452 Johnston Street
Abbotsford
Victoria, Australia(Telephone: +61 3 9415 4010)

176 ANZ 2018 ANNUAL REPORTANZ CN5
On 28 September 2017 the Company issued convertible subordinated perpetual notes (ANZ CN5) which were offered pursuant to a prospectus
dated 24 August 2017.
At 4 October 2018 the twenty largest holders of ANZ CN5 held 1,776,322 securities, equal to 19.08% of the total issued securities. At 4 October
2018 the total number of ANZ CN5 on issue was 9,310,782.
Name

Number of securities% of securities

1

HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED

559,864

6.01

2

HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2

118,669

1.28

3

NULIS NOMINEES (AUSTRALIA) LIMITED <NAVIGATOR MAST PLAN SETT A/C>

90,143

0.97

4

DIMBULU PTY LTD

85,0000.91

5NAVIGATOR AUSTRALIA LTD <MLC INVESTMENT SETT A/C>

84,5090.91

6

LONGHURST MANAGEMENT SERVICES PTY LTD

83,246

0.89

7

CITICORP NOMINEES PTY LIMITED

76,9790.83

8

BNP PARIBAS NOMS PTY LTD <DRP>

75,7500.81

9JMB PTY LIMITED

70,0000.75

10 NETWEALTH INVESTMENTS LIMITED <WRAP SERVICES A/C>

64,316

0.69

11 J P MORGAN NOMINEES AUSTRALIA LIMITED

56,092

0.60

12 EASTCOTE PTY LTD <VAN LIESHOUT FAMILY A/C>

50,0000.54

13 FEDERATION UNIVERSITY AUSTRALIA

50,0000.54

14 RANDAZZO C & G DEVELOPMENTS PTY LTD

50,0000.54

15 KAPTOCK PTY LTD

48,745

0.52

16 IOOF INVESTMENT MANAGEMENT LIMITED <IPS SUPER A/C>

48,5650.52

17 NETWEALTH INVESTMENTS LIMITED <SUPER SERVICES A/C>

46,2570.50

18 G C F INVESTMENTS PTY LTD

44,811

0.48

19 MR RONALD MAURICE BUNKER

40,0000.43

20 AUSTRALIAN EXECUTOR TRUSTEES LIMITED <NO 1 ACCOUNT>
Total

33,3760.36

1,776,322

19.08

Distribution of ANZ CN5 holdings
At 4 October 2018
Range of securities

Number ofholders% ofholders

Number of
securities% ofsecurities

1 to 1,000

11,38690.45

3,989,120

42.84

1,001 to 5,000

1,073

8.52

2,338,843

25.12

5,001 to 10,000

73

0.58

550,072

5.91

10,001 to 100,000

54

0.43

1,754,214

18.84

Over 100,000
Total

2

0.02

678,533

7.29

12,588100.009,310,782

100.00

At 4 October 2018 there were 4 holdings (2017: 0 holdings) of less than a marketable parcel (less than $500 in value or 5 securities based on the market price of $101.551 per security), which is lessthan 0.04% of the total holdings of ANZ CN5.

VOTING RIGHTS OF ANZ CN5
ANZ CN5 do not confer on holders a right to vote at any meeting of members of the Company.
A register of holders of ANZ CN5 is held at:
452 Johnston Street
Abbotsford
Victoria, Australia(Telephone: +61 3 9415 4010)

SHAREHOLDER INFORMATION - UNAUDITED 177

SHAREHOLDER INFORMATION - unaudited (continued)
EMPLOYEE SHAREHOLDER INFORMATIONAMERICAN DEPOSITARY RECEIPTS

In order to comply with the requirements of the ANZ Employee Share
Acquisition Plan Rules and the ANZ Share Option Plan Rules, shares or
options must not be issued under these Plans if the aggregate numberof shares and options that remain subject to the Rules of either Plan
exceed 7% of the total number of ANZ shares of all classes on issue(including preference shares). At 30 September 2018 participants under
the following plans/schemes held 0.78% (2017: 0.87%) of the total
number of ANZ shares of all classes on issue:

The Group has American Depositary Receipts (ADRs) representing
American Depositary Shares (ADSs) that are traded on theover-the-counter securities market “OTC Pink” electronic platform
operated by OTC Markets Group Inc. in the United States under the
ticker symbol: ANZBY and the CUSIP number: 052528304.

•• ANZ Employee Share Acquisition Plan;•• ANZ Employee Share Save Scheme;•• ANZ Share Option Plan; and•• ANZ Directors’ Share Plan.

STOCK EXCHANGE LISTINGS
Australia and New Zealand Banking Group Limited’s ordinary
shares are listed on the Australian Securities Exchange and the
New Zealand Exchange.
The Group’s other stock exchange listings include:•• Australian Securities Exchange – ANZ Capital Notes (CN1,
CN2, CN3, CN4 and CN5), ANZ Capital Securities, senior debt(including covered bonds) and subordinated debt [Australia
and New Zealand Banking Group Limited], and residential
mortgage backed securities;•• London Stock Exchange – Senior (including covered bonds)
and subordinated debt [Australia and New Zealand Banking
Group Limited], and senior (including covered bonds) debt
[ANZ New Zealand (Int’l) Limited];•• Luxembourg Stock Exchange – Perpetual subordinated debt
[Australia and New Zealand Banking Group Limited];•• New Zealand Exchange – ANZ NZ Capital Notes and seniordebt [ANZ Bank New Zealand Limited];•• SIX Swiss Exchange – Covered bonds [Australia and New
Zealand Banking Group Limited]; and•• Taipei Exchange – Senior debt [Australia and New Zealand
Banking Group Limited].
For more information on the ANZ Capital Notes, ANZ Capital
Securities and ANZ NZ Capital Notes please refer to Note 15
to the Financial Report.

178 ANZ 2018 ANNUAL REPORTWith effect from 23 July 2008, the ADR ratio changed from one ADS
representing five ANZ ordinary shares to one ADS representing one
ANZ ordinary share.
Citibank Shareholder Services is the Depositary for the Company’s ADR
program in the United States. Holders of the Company’s ADRs should
deal directly with Citibank Shareholder Services on all matters relating
to their ADR holdings. Registered Depositary Receipt shareholders
can sell shares, access account balances and transaction history, findanswers to frequently asked questions and download commonly
needed forms. To speak directly to a Citibank Shareholder Services
representative, please call 1-877-CITI-ADR (1-877-248-4237) if you arecalling from within the United States. If you are calling from outside theUnited States, please call 1-781-575-4555. You may also send an e-mailinquiry to citibank@shareholders-online.com or visit the website atwww.citi.com/adr.

THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANKSHAREHOLDER INFORMATION - UNAUDITED 179

GLOSSARY
AASs – Australian Accounting Standards.
AASB – Australian Accounting Standards Board. The term “AASB” iscommonly used when identifying AASs issued by the AASB. In doing
so, the term is used together with the AAS number.
ADI – Authorised Deposit-taking Institution.
APRA – Australian Prudential Regulation Authority.
APS – ADI Prudential Standard.
BCBS – Basel Committee on Banking Supervision.
Cash profit is an additional measure of profit which is prepared ona basis other than in accordance with accounting standards. Cashprofit represents ANZ’s preferred measure of the result of the ongoing
business activities of the Group, enabling readers to assess Groupand Divisional performance against prior periods and against peer
institutions. To calculate cash profit, the Group excludes non-core
items from statutory profit as noted below. These items are calculated
consistently period on period so as not to discriminate between
positive and negative adjustments.
Gains and losses are adjusted where they are significant, or havethe potential to be significant in any one period, and fall into oneof three categories:
1. gains or losses included in earnings arising from changes intax, legal or accounting legislation or other non-core items not
associated with the ongoing operations of the Group;
2. treasury shares, revaluation of policy liabilities, economic hedging
impacts and similar accounting items that represent timing
differences that will reverse through earnings in the future; and3. accounting reclassifications between individual line items that do
not impact reported results, such as policyholder tax gross up.
Cash profit is not a measure of cash flow or profit determinedon a cash accounting basis.
Collective provision is the provision for credit losses that are inherent
in the portfolio but not able to be individually identified. A collective
provision is only recognised when a loss event has occurred. Losses
expected as a result of future events, no matter how likely, are
not recognised.
Covered Bonds are bonds issued by an ADI to external investors
secured against a pool of the ADI’s assets (the cover pool) assigned to abankruptcy remote special purpose entity. The primary assets forming
the cover pool are mortgage loans. The mortgages remain on theissuer’s balance sheet. The covered bond holders have dual recourse
to the issuer and the cover pool assets. The mortgages included in the
cover pool cannot be otherwise pledged or disposed of but may be
repurchased and substituted in order to maintain the credit quality ofthe pool. The Group issues covered bonds as part of its funding activities.

Customer deposits represent term deposits, other deposits bearing
interest, deposits not bearing interest and borrowing corporations debt
excluding securitisation deposits.
Dividend payout ratio is the total ordinary dividend payment divided
by profit attributable to shareholders of the Company.
Fair value is an amount at which an asset or liability could beexchanged between knowledgeable and willing parties in an arm’s
length transaction.
Gross loans and advances (GLA) is made up of loans and advances,
acceptances and capitalised brokerage/mortgage origination fees lessunearned income.
IFRS – International Financial Reporting Standards.
Impaired assets are those financial assets where doubt exists as
to whether the full contractual amount will be received in a timely
manner, or where concessional terms have been provided because of
the financial difficulties of the customer. Financial assets are impaired if
there is objective evidence of impairment as a result of a loss event that
occurred prior to the reporting date, and that loss event has had an
impact, which can be reliably estimated, on the expected future cash
flows of the individual asset or portfolio of assets.
Impaired loans comprise drawn facilities where the customer’s status
is defined as impaired.
Individual provision is the amount of expected credit losses on
financial instruments assessed for impairment on an individual basis (asopposed to on a collective basis). It takes into account expected cash
flows over the lives of those financial instruments.
Interest rate risk in the banking book (IRRBB) relates to the potential
adverse impact of changes in market interest rates on ANZ’s future netinterest income. The risk generally arises from:
1. repricing and yield curve risk - the risk to earnings or market value
as a result of changes in the overall level of interest rates and/or the
relativity of these rates across the yield curve;
2. basis risk - the risk to earnings or market value arising from volatility
in the interest margin applicable to banking book items; and3. optionality risk - the risk to earnings or market value arising from theexistence of stand-alone or embedded options in banking
book items.
Internationally comparable ratios are ANZ’s interpretation of theregulations documented in the Basel Committee publications; “Basellll: A global regulatory framework for more resilient banks and banking
systems” (June 2011) and “International Convergence of Capital
Measurement and Capital Standards” (June 2006). They also include
differences identified in APRA’s information paper entitled “International
Capital Comparison Study” (13 July 2015).

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

Level 1 in the context of APRA supervision, Australia and New
Zealand Banking Group Limited consolidated with certain
approved subsidiaries.

Credit risk weighted assets represent assets which are weighted for
credit risk according to a set formula contained within APS 112/113.

Level 2 in the context of APRA supervision, the consolidated ANZGroup excluding associates, insurance and funds management entities,
commercial non-financial entities and certain securitisation vehicles.

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

180 ANZ 2018 ANNUAL REPORTNet interest margin is net interest income as a percentage of averageinterest earning assets.
Net loans and advances represent gross loans and advances lessprovisions for credit impairment.

Net tangible assets equal share capital and reserves attributable
to shareholders of the Company less preference share capital andunamortised intangible assets (including goodwill and software).
Regulatory deposits are mandatory reserve deposits lodged with local
central banks in accordance with statutory requirements.
Restructured items comprise facilities in which the original contractual
terms have been modified for reasons related to the financial difficultiesof the customer. Restructuring may consist of reduction of interest,principal or other payments legally due, or an extension in maturity
materially beyond those typically offered to new facilities with similar risk.
Return on average assets calculated as the profit attributable toshareholders of the Company divided by average total assets.
Return on average ordinary equity calculated as the profit attributable
to shareholders of the Company divided by average ordinary
shareholders’ equity.
Risk weighted assets (RWA) – Assets (both on and off-balance sheet)
are risk weighted according to each asset’s inherent potential for
default and what the likely losses would be in the case of default. In thecase of non asset backed risks (i.e. market and operational risk), RWA isdetermined by multiplying the capital requirements for thoserisks by 12.5.
Settlement balances owed to / by ANZ represent financial assets and/or liabilities which are in the course of being settled. These may include
trade dated assets and liabilities, nostro/vostro accounts and securities
settlement accounts.

GLOSSARY 181

CONTACTS

REGISTERED OFFICE:SHARE AND SECURITIES REGISTRAR:ANZ Centre Melbourne
Level 9, 833 Collins Street
Docklands VIC 3008 Australia

AUSTRALIA
Computershare Investor Services Pty Ltd
GPO Box 2975
Melbourne VIC 3001

Telephone: +61 3 9273 5555
Facsimile: +61 3 8542 5252
Company Secretary: Simon Pordage
INVESTOR RELATIONS:

Level 10, 833 Collins Street
Docklands VIC 3008 Australia
Telephone: +61 3 8654 7682
Facsimile: +61 3 8654 8886
Email: investor.relations@anz.com
www.shareholder.anz.com
Group General Manager
Investor Relations: Jill Campbell
COMMUNICATIONSAND PUBLIC AFFAIRS:

Level 10, 833 Collins Street
Docklands VIC 3008 Australia
Telephone: +61 2 6198 5001
Email: Tony.Warren@anz.com
Group General Manager
Communications andPublic Affairs: Tony Warren

Telephone within Australia: 1800 11 33 99
International Callers: +61 3 9415 4010
Facsimile: +61 3 9473 2500
Email: anzshareregistry@computershare.com.au
Austraclear Services Limited
20 Bridge Street
Sydney NSW 2000
Telephone: +61 2 8298 8476
JAPANJapan Securities Depository Center,
Incorporated
1-1, Nihombashi Kayabacho 2-chome,
Chuo-ku, Tokyo 103-0025 Japan
Phone: +81-3-3661-0161 (Main) /+81-3-3661-7193 (Book-Entry Transfer
Department)
LUXEMBOURG
Deutsche Bank Luxembourg S.A.
2, Boulevard Konrad Adenauer
L-1115 Luxembourg
Luxembourg
Telephone: +352 4 21 22 1
NEW ZEALAND
Computershare Investor Services Limited
Private Bag 92119
Auckland 1142
Telephone: 0800 174 007
Facsimile: +64 9 488 8787

182 ANZ 2018 ANNUAL REPORT

UNITED KINGDOM
Computershare Investor Services PLC
The Pavilions Bridgwater Road
Bristol BS99 6ZZ
Telephone: +44 870 702 0000
Facsimile: +44 870 703 6101
UNITED STATESCitibank Shareholder Services
P.O. Box 43077 Providence
Rhode Island 02940-3077
Callers outside USA: +1-781-575-4555
Callers within USA (toll free):+1-877-248-4237 (+1-877-CITI-ADR)
Email: citibank@shareholders-online.com
citi.com/adr
The Bank of New York Mellon
240 Greenwich St, Floor 7E
New York, NY 10286
Telephone: +1 1800 254 2826
Deutsche Bank Trust Company Americas
60 Wall Street, Mailstop NYC 60-1630
New York, NY 10005
Telephone: +1 212 250 2500

MORE INFORMATION
General Information on ANZ can be obtained from our website: anz.com.
Shareholders can visit our Shareholder Centre at shareholder.anz.com. ANZCorporate Governance: For information about ANZ’s approach to Corporate
Governance and to obtain copies of ANZ’s Constitution, Board/Board
Committee Charters, Codes of Conduct and Ethics and summaries of other ANZ
policies of interest to shareholders and stakeholders, visit anz.com/governance.
Australia and New Zealand Banking Group Limited ABN 11 005 357 522. This
Annual Report 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”, “the Bank”, “us”, “we” or “our”.

FTSE4Goodshareholder.anz.com
Australia and New Zealand Banking Group Limited (ANZ) ABN 11 005 357 522.
ANZ’s colour blue is a trade mark of ANZ.