ANZ ANNUAL REPORT 2015

2015
A N N UA L R E P O R T

ANZ IS EXECUTING A
FOCUSED STR ATEGY TO
BUILD THE BEST CONNECTED,
MOST RESPECTEDBANK ACROSS THE ASIA
PACIFIC REGION

This Annual Report (Report) has been prepared for Australia and New Zealand Banking Group Limited (“the Company”) together with its subsidiaries which arevariously described as: ”ANZ”, “Group”, “ANZ Group”, “the Bank”, “us”, “we” or “our”. Thanks to the ANZ staff who volunteered for the cover photoshoot. They were:
Ying Ho, Kate Hu, Natasha Nash, Shehani Noakes, Didar Singh, Chris Slade, Toby Warren. Australia and New Zealand Banking Group Limited ABN 11 005 357 522.
ii

ANZ ANNUAL REPORT 2015

WHO WE ARE AND HOW WE OPERATE
ANZ’s history of expansion and growth stretches over 180 years. We have a strong franchisein Retail, Commercial and Institutional banking in our home markets of Australia and
New Zealand and we have been operating in Asia Pacific for more than 30 years.
Today, ANZ operates in 34 countries globally. We are the fourth largest bank in Australia, thelargest banking group in New Zealand and the Pacific, and among the top 20 banks in the world.
ANZ is building the best connected, most respected bankacross the Asia Pacific region, to help deliver prosperity
for our customers and the communities in which they live,
develop our people, and to provide shareholders sustainableearnings growth.

}} ANZ’s in-house regional delivery network is a sourceof ongoing competitive advantage for ANZ. The network
is enabling the transformation of key business activities anddelivery of productivity improvements while driving a moreconsistent, higher quality experience for our customers.

The strategy has three key elements – strengthening
our core franchises in Australia and New Zealand, growing
profitably in Asia focused on corporate and institutional
clients, and taking an enterprise approach to operations
and technology to deliver better control and lower unit
costs. ANZ is focused on the organic growth opportunities
which exist in Australia, New Zealand and Asia Pacific andour distinctive footprint sees us uniquely positioned tomeet the needs of customers who are dependent on regional
trade and capital flows. The strategy is underpinned
by rigorous liquidity, capital and portfolio management
and by the quality of our people.

}} We strengthened our risk profile during the year with higher
levels of liquidity and capital. Credit provision charges
increased during the year but remain well under the longterm average having risen from historically low levels.

Achievements and progress during 2015
ANZ’s strategy has driven growth in our core customer
franchises in Australia, in New Zealand and in key
Asian markets.
}} We have continued to strengthen our businesses in ourhome markets of Australia and New Zealand, with further
gains in productivity and market share, and further
penetration of Wealth products into our existing customer
base in these markets. We have increased our investment inour digital platforms and this has driven improved customer
experience and increased sales through digital channels.
}} Despite challenging macro economic conditions impacting
our International and Institutional (IIB) business during
the year, we continued to develop the customer franchise,increased our focus on higher returning products andinvested in the digital transformation of the business. We
have retained our position as the leading Institutional bankin Australia and New Zealand (Source: Peter Lee) and as thenumber four Corporate bank in Asia (Source: Greenwich
Associates). APEA now represents 20% of Group Revenue
and APEA network represents 25% of Group revenue.1

ANZ’s view is that the constrained market conditions areunlikely to change in the near term and so the banking sector
must remain focused on selective growth opportunities,
productivity and capital management. A number of initiatives
have been put in place to drive improvements in orderto deliver steady improvement in both our cost and capital
position over time.

CEO succession
On 1 October the Board of ANZ announced that Shayne Elliott
will succeed Mike Smith as Chief Executive Officer and join the
Board on 1 January 2016.
Over the past 8 years, ANZ has been transformed and is today
a stronger, more diverse, more profitable bank. Importantly,
we have created a better bank for our customers with a stronger
brand, growing market share and more retail, commercial
and institutional customers choosing to bank with ANZ.
The bank’s presence in Asia, which was often small in scale
and based on limited licences, has been grown into a large
and growing business that connects our Australian and
New Zealand customers with opportunities in the fastest
growing region in the world economy. And it connects
customers in Asia with opportunities in the region andin Australia and New Zealand.
While there is still much to do, ANZ is now Australia’s only
truly international bank and is a better bank for our
8 million customers in Australia, in New Zealand andin Asia Pacific. We are continuing to evolve our strategy
and to accelerate its execution to maximize value forour customers and for our shareholders.

1 Asia Pacific, Europe and America (APEA) network revenue includes income generated in Australia and New Zealand as a result of referral from ANZ’s APEA network.

ANNUAL REPORT 2015

1

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ANZ ANNUAL REPORT 2015

CONTENTSSECTION 1

SECTION 3

Financial Highlights

5

Five Year Summary174

Chairman’s Report

6

Principal Risks and Uncertainties

175

Chief Executive Officer’s Report

7

Supplementary Information

184

Directors’ Report

8

Shareholder Information

186– Operating and Financial Review

15

Glossary of Financial Terms

193– Remuneration Report

31

Alphabetical Index

196

SECTION 2
Financial Statements

60

Notes to the Financial Statements

66

Directors’ Declaration andResponsibility Statement

170

Independent Auditor’s Report

171

CONTENTS

3SECTION

01

Financial Highlights

5

Chairman’s Report

6

Chief Executive Officer’s Report

7

Directors’ Report

84– Operating and Financial Review15– Remuneration Report

31

ANZ ANNUAL REPORT 2015

FINANCIAL HIGHLIGHTS
2015

2014

Profit attributable to shareholders of the Company ($m)
Cash profit ($m)1

7,493
7,216

7,271
7,117

Return on:
Average ordinary shareholders’ equity2
Average ordinary shareholders’ equity (cash basis)1,2
Average assets
Net interest margin
Cash profit per average FTE ($)1

14.5%
14.0%
0.88%
2.04%
141,621

15.8%
15.4%
0.97%
2.13%
142,064

44.4%
1.10%
45.6%
1.10%

43.7%
1.17%
44.7%
1.17%

574.3
444.6
57.4
2.7

525.7
403.7
49.3
2.9

9.6%
13.2%
122%

8.8%
12.5%
111%

Individual credit impairment charge ($m)
Collective credit impairment charge/(release) ($m)

1,084
95

1,141
(155)

Total credit impairment charge ($m)
Individual credit impairment charge as a % of average gross loans and advances
Total credit impairment charge as a % of average gross loans and advances

1,179
0.19%
0.21%

986
0.22%
0.19%

86
95

83
95

181
68.6%
71.2%

178
67.4%
68.9%

1

6

Profitability

Efficiency
Operating expenses to operating income
Operating expenses to average assets
Operating expenses to operating income (cash basis)1
Operating expenses to average assets (cash basis)1
Balance Sheet
Gross loans and advances ($b)3
Customer deposits ($b)
Total equity ($b)
Gross impaired assets ($b)
Capital and Liquidity
Common Equity Tier 1 – APRA Basel 3
Common Equity Tier 1 – Internationally Comparable Basel 34
Liquidity Coverage Ratio
Credit impairment provisioning

Ordinary share dividends
Interim – 100% franked (cents)
Final – 100% franked (cents)
Total dividend (cents)
Ordinary share dividend payout ratio5
Cash ordinary share dividend payout ratio1,5
Preference share dividend ($m)
Dividend paid6

1 Statutory profit has been adjusted to exclude non-core items to arrive at cash profit, and has been provided to assist readers to understand the results for the ongoing business activities of theGroup. The adjustments made in arriving at cash profit are included in statutory profit which is subject to audit within the context of the Group statutory audit opinion. Cash profit is not auditedby the external auditor, however the external auditor has informed the Audit Committee that the adjustments have been determined on a consistent basis across each year.
Refer to page 18 and pages 184 to 185 for analysis of the adjustments between statutory profit and cash profit.
2 Average ordinary shareholders’ equity excludes non-controlling interests and preference shares.
3 Loans and advances as at 30 September 2015 include assets classified as held for sale.
4 ANZ’s interpretation of the regulations documented in the Basel Committee publications; “Basel 3: A global regulatory framework for more resilient banks and banking systems” (June 2011) and“International Convergence of Capital Measurement and Capital Standards” (June 2006). Also includes differences identified in APRA’s information paper entitled International Capital Comparison
Study (13 July 2015).
5 Dividend payout ratio is calculated using the proposed 2015 final, 2015 interim, 2014 final and 2014 interim dividends.
6 Represents dividends paid on Euro Trust Securities (preference shares) issued on 13 December 2004. The Euro Trust Securities were bought back by ANZ for cash at face value and cancelledon 15 December 2014.

FINANCIAL HIGHLIGHTS

5

CHAIRMAN’S REPORTA MESSAGE FROM DAVID GONSKI, AC

I am pleased to report that ANZ’s statutory profit after tax for the 2015 financial year was $7.5 billion, up 3%.
The cash profit (which excludes non-core items from the statutory profit) was $7.2 billion, up 1%.

The final dividend of 95 cents brought the total dividend to 181 cents
per share fully franked, an increase of 2%. This will see us pay out
a record $5.1billion to shareholders for 2015.
ANZ remains strongly capitalised and the quality of our balance
sheet continues to improve. Our common equity tier one capitalratio ended the year at 8.8%, well positioned ahead of the new capitallevels currently required of Domestic Systemically Important Banks.

Strengthening Capital
During the year, the Financial System Inquiry found that Australia
has a sound financial system which provides a strong platform for
the Australian economy. The Inquiry also recommended that
Australian banks should be “unquestionably strong”.
Capital is one measure of strength and subsequently the Australian
Prudential Regulation Authority increased the capital allocatedagainst Australian home lending which applies from July 2016.
In response to the changing regulatory environment, ANZ continued
to strengthen its capital position. In August 2015, we undertook
an institutional share placement and a successful retail share purchaseplan offer that raised a total of $3.2 billion in equity capital. We werepleased that so many of our retail shareholders chose to participate
in the share purchase plan in an amount greater than they would
have otherwise been able to do so under an equivalent rights issue.
ANZ ended the financial year with our Common Equity Tier 1 capitalratio at 9.6%, placing ANZ within the top quartile of international
peer banks.
A well-capitalised, well-managed banking system is in the interestof customers, shareholders and taxpayers. Additional capitalrequirements do however come at a cost and these have to beborne both by some bank customers (who pay higher interest
rates) and by shareholders (whose returns are affected).

New Chief Executive Officer
At the start of October, your board appointed Shayne Elliott
to become Chief Executive Officer on 1 January 2016, succeeding
Mike Smith.
Shayne is currently ANZ’s Chief Financial Officer responsible for
all aspects of Finance as well as Group Strategy, Legal, Treasury,
Investor Relations and Mergers and Acquisitions. He has over
30 years’ experience in international banking and joined ANZ
as CEO of Institutional Banking in June 2009.

Mike has successfully guided ANZ through the global financial
crisis and he has transformed ANZ into Australia’s only internationalbank with a focus on Asia Pacific. He has also been instrumental indeveloping ANZ’s values-led culture and has been a leader in diversity
and financial literacy. ANZ is uniquely well positioned because of thefoundations Mike has created. On behalf of all at ANZ I wish to thankhim most sincerely.

Corporate Sustainability
We are managing our business sustainably and for the long-term.
Identifying and managing our social and environmental risks andopportunities is fundamental to our business strategy.
We have achieved or made good progress towards many of
our targets in 2015. Although we still have much more to do,
we increased the number of women in management to over 40%.
We have invested almost $75 million in the communities in which
we operate, to support economic growth and development,
improve wellbeing and build reputation and trust.
During 2015, we continued to address the risks and opportunities
associated with climate change. As part of this we are playing ourpart in an orderly transition to a de-carbonised economy.
We have pledged to fund and facilitate $10 billion over five years
to support a range of measures including energy efficiency,
low-emissions transport, green buildings and renewable energy.
We have also strengthened our due diligence processes whichgovern our lending to coal mining, transportation and the power
generation sectors.
These are positive steps which support our customers in the
resources and power generation sectors and balancing the needto maintain access to a secure and affordable energy supply andsupporting the efforts of governments around the world to limit
global temperature increases.

Outlook
There remain significant opportunities for ANZ in 2016 based on thestrength of our customer franchises in Australia, in New Zealand andin 32 countries in Asia, the Pacific, Europe and America.
Lower economic growth, the growing cost of regulation and market
volatility present challenges for all banks however I believe ANZ
is well positioned to maintain its momentum and to deliver growthand value to shareholders over the medium term.

He was the outstanding candidate for the role of Chief Executive
given his deep knowledge of ANZ, his strategic vision, global financial
services experience and his track record of building and leadingstrong international management teams.
Mike Smith steps down after eight years as Chief Executive
on 31 December 2015.

6David M Gonski, AC
ChairmanANZ ANNUAL REPORT 2015

CHIEF EXECUTIVE OFFICER’S REPORTA MESSAGE FROM MICHAEL SMITH, OBE

ANZ produced another record result in 2015. In a constrained environment, we continued to see growthin our customer franchises in Australia, in New Zealand and in key Asian markets.

Stronger in Australia and New ZealandIn that time we have built a stronger, more profitable bank. ANZ
is better capitalised and our balance sheet is of a higher quality
with total assets having more than doubled to $890 billion. Our
management depth, the capability of our people and our culture
and values are also stronger.

The Australia Division performed strongly with cash profit
up 7% and based on market share gains in key segments.
During 2015, 150,000 more customers chose to bank with ANZ. Manyof these customers were in New South Wales where we have been
investing to take advantage of the state’s positive growth outlook.
More Australians are also choosing to finance their homes with us
because we offer a fast and convenient experience.

The result is that profits are also up by more than 80% since 2007
to over $7 billion this year.
Importantly, we have created a better bank for our customers witha stronger brand and more retail, commercial and institutionalcustomers choosing to bank with us.

Commercial Banking performed well, particularly small businessbanking where we have invested in more front-line people andimproved systems. We also simplified our business by entering into
an agreement to sell the Esanda Dealer Finance portfolio to
Macquarie Group.

Today Australia and New Zealand’s economic prosperity is directlytied to Asia. Our largest trading partners are in Asia and this is being
supported by a growing number of free trade agreements. It’s ourlargest source of foreign investment underpinning growth in the
resources sector, in agriculture, in tourism and in construction.

In New Zealand we continued to achieve good outcomes with cash
profit up 3% in New Zealand Dollar terms. In New Zealand we havea market leading position and we again grew market share in key
segments including home loans and credit cards. The Commercial
business also grew strongly across all regions.

At ANZ, we have turned our presence in Asia into a real businessthat connects our Australian and New Zealand customers with
opportunities in the fastest growing region in the world economy.
This has required a significant investment to build banking capability,
to introduce new technology and to obtain regulatory approval for
new licences to provide a full range of services to our customers.

The Global Wealth Division increased cash profit by 11% with theinsurance and private wealth businesses performing strongly. Global
Wealth continues to reshape our customers’ experience throughnew digital solutions and innovative products such as ANZ Smart
Choice Super.

We have done this through the global financial crisis which createdthe most difficult international banking environment the world has
seen for many decades, but also provided unique opportunities for
us to accelerate our growth in the region.

Institutional Banking - Growth in Asia,
Challenging Conditions

I know our customers, staff and shareholders are proud of what wehave achieved. And I know Australians and New Zealanders are proud
to have a home-grown international bank like ANZ when they use
an ANZ ATM in Hanoi, when their business uses ANZ to finance theirexports to Shanghai or when they see our signage on the Singapore
or Jakarta skyline.

In Asia we continued to increase market share in Institutionaland Corporate Banking. We completed our Asian footprint with the
opening of branches in Thailand and in Myanmar, and we openeda new branch in Qingdao in China. Greater China is now our largest
source of profit outside Australia and New Zealand.

Thousands of ANZ people have worked hard to produce these results
and to support our customers. On behalf of shareholders, I would liketo thank them all for their contribution.

Nevertheless, cash profit was down 2% in International andInstitutional Banking reflecting the challenging global environment.
This included pronounced market volatility in the final weeks of2015 which saw a disappointing trading outcome in our Global
Markets business.

I know I am leaving ANZ in good hands when Shayne succeeds me
as Chief Executive on 1 January 2016 and that the best for ANZ is yet
to come.

Super Regional Strategy
At the end of December 2015, I am stepping down as Chief Executive
Officer and our Chief Financial Officer Shayne Elliott will succeed me.
I joined ANZ in 2007 with a long-term vision to create a super regionalbank that built on ANZ’s extensive history as a commercial bank withan international focus.

Michael Smith, OBE
Chief Executive Officer

CHAIRMAN’S REPORT AND CHIEF EXECUTIVE OFFICER’S REPORT

7

DIRECTORS’ REPORTThe directors present their report together with the financial statements of the consolidated entity (the Group),
being Australia and New Zealand Banking Group Limited (the Company) and its controlled entities, for theyear ended 30 September 2015 and the independent auditor’s report thereon. The information is provided
in conformity with the Corporations Act 2001.

Principal Activities
The Group provides a broad range of banking and financial
products and services to retail, high net worth, small business,
corporate and commercial and institutional customers.
Geographically, operations span Australia, New Zealand, a numberof countries in the Asia Pacific region, the United Kingdom, France,
Germany and the United States.
The Group operates on a divisional structure with Australia,
International and Institutional Banking (IIB), New Zealand and Global
Wealth being the major operating divisions.

Results
Consolidated profit after income tax attributable to shareholdersof the Company was $7,493 million, an increase of 3% over the prioryear. Key factors affecting the result were:
Operating income growth of $1 billion (5%) was primarily driven
by higher net interest income of $806 million (6%) due to an 11%
increase in average interest earning assets, partially offset by a 9 basis
point decline in net interest margin.
Operating expenses increased $599 million (7%) due to higher
personnel and technology expenses.
Total credit impairment charges increased $193 million (20%)
due to portfolio growth and higher provisions in IIB and New Zealand
where there was a collective provision release in 2014 resulting fromcredit upgrades.
Balance sheet growth was strong with total assets increasing by$117.8 billion (15%), total liabilities increasing by $109.7 billion (15%)
and total equity increasing by $8.1 billion (16%). Movements within
the major components include:}} Net loans and advances increased by $48 billion (9%) primarily
driven by market share growth in our Retail businesses and strong
growth in our Corporate and Commercial businesses in Australia
and New Zealand.
}} Growth in deposits and other borrowings of $61 billion (12%)
primarily driven by growth in demand deposits across the Group,
and an increase in certificates of deposit and commercial paperin Australia.
}} Ordinary Share Capital increased by $4.3 billion (18%) primarily
driven by a $3.2 billion share placement and share purchaseplan completed during the year.
Further details are contained in the Operating and Financial Review
section of this Directors’ Report on pages 15 to 30 in this Annual Report.

State of Affairs
In the Directors’ opinion there have been no significant changes
in the state of affairs of the Group during the financial year, otherthan the Group raised a total of $4.4 billion of new equity during
the year, including $3.2 billion in response to APRA’s increased capitalrequirement for Australian residential mortgages which apply from
July 2016.
8

Further review of matters affecting the Group’s state of affairs
is also contained in the Operating and Financial Review sectionof this Directors’ Report on pages 15 to 30 in this Annual Report.

Dividends
The Directors propose that a fully franked final dividend of 95 cents
per fully paid ANZ ordinary share will be paid on 16 December 2015.
The proposed payment amounts to approximately $2,758 million.1
During the financial year, the following fully franked dividends were
paid on fully paid ANZ ordinary shares:
Type

Final 2014
Interim 2015

Cents
per share

Dividend amount
$m1

95
86

2,619
2,379

Date of payment

16 December 2014
1 July 2015

1 Amounts are before bonus option plan adjustments.

The 2015 interim dividend of 86 cents together with the proposed2015 final dividend of 95 cents brings the total dividends in relation
to the year ended 30 September 2015 to 181 cents per fully paid
ANZ ordinary share fully franked. New Zealand imputation credits
of NZ 12 cents per fully paid ANZ ordinary share were attached in
respect of the 2014 final dividend and NZ 10 cents per fully paid ANZ
ordinary share were attached in respect of the 2015 interim dividend.
It is proposed that New Zealand imputation credits of NZ 11 cents
per fully paid ANZ ordinary share will be attached in respect of the
proposed 2015 final dividend.
Further details on dividends provided for or paid during the year
ended 30 September 2015 on the Company’s ordinary and preference
shares are set out in notes 6, 30 and 31 to the financial statements.

Operating and Financial Review
A review of the Group during the financial year and the results of
those operations, including an assessment of the financial position
and business strategies of the Group, is contained in the Chairman’s
Report, the Chief Executive Officer’s Report and the Operating and
Financial Review section of this Directors’ Report in this Annual Report.

Events since the end of the Financial Year
CEO APPOINTMENT
On 1st October the Board of ANZ announced that Shayne Elliott
will succeed Mike Smith as Chief Executive Officer and join the Board
on 1 January 2016. Mr Smith will step down as Chief Executive Officer
and as Director on 31 December 2015. Mr Smith will be retained
as a non-executive advisor to the Board, initially for one year,
commencing after his period of leave on 11 July 2016. Further
details of Mr Elliott’s remuneration arrangements and Mr Smith’sleaving arrangements can be found in the Remuneration Report.

ANZ ANNUAL REPORT 2015

SALE OF ESANDA DEALER FINANCE PORTFOLIO
On 8th October the Group entered into an agreement to sellthe Esanda Dealer Finance business to Macquarie Group Limited.
The sale is expected to complete during the first half of 2016.
The estimated sale price is $8.2 billion.
Other than the matters outlined above, there were no significant
events from 30 September 2015 to the date of this report.

Future Developments
Details of likely developments in the operations of the Group andits prospects in future financial years are contained in the Chairman’s
Report, the Chief Executive Officer’s Report and the Operating and
Financial Review section of this Directors’ Report in this Annual Report.

Environmental Regulation
ANZ recognises the expectations of its stakeholders – customers,
shareholders, staff and the community – to operate in a way thatmitigates its environmental impact. It sets and reports against
public targets regarding its environmental performance.
In Australia, ANZ meets the requirements of the National Greenhouseand Energy Reporting Act 2007 (Cth), which imposes reporting
obligations where energy production, use or greenhouse gas
emissions trigger specified thresholds. In the UK, the Environment
Agency published guidelines in February 2015 for complying with
the Energy Savings Opportunity Scheme (ESOS).

The ESOS requires entities of a certain size to report on energy
assessments and opportunities for savings. Given ANZ’s UK
operation qualifies for the ESOS, ANZ will submit its first reportby December 2015.
ANZ holds a licence under the Water Act 1989 (Vic), allowing
it to extract water from the Yarra River for thermal regulationof 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 the high 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 toany particular and significant environmental regulation undera law of the Commonwealth of Australia or of an Australian Stateor Territory. It may become subject to environmental regulation
as a result of its lending activities in the ordinary course ofbusiness and has developed policies to identify and manage
such environmental matters.
Having made due enquiry, and to the best of ANZ’s knowledge,
no entity of the Group has incurred any material environmental
liability during the year.
Further details of ANZ’s environmental performance, including
progress against its targets and details of its emissions profile,
are available on anz.com > About us > Corporate Sustainability.

Directors’ Qualifications, Experience and Special Responsibilities
At the date of this report, the Board comprises seven Non-Executive Directors and one Executive Director, the Chief Executive Officer.
The names of the Directors, together with details of their qualifications, experience and special responsibilities are set out below.
MR D M GONSKI, AC, Chairman, Independent Non-Executive Director and Chair of the Governance Committee
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 Governance Committee.
Skills, experience and expertise
Mr Gonski is one of Australia’s most respected business leaders andcompany directors with business experience in Australia and Asia,and a broad range of involvement with the government, educationand community sectors. Mr Gonski served previously as a Director
on the ANZ Board from 2002 to 2007.
Current Directorships
Chairman: Coca-Cola Amatil Limited (from 2001, Director from 1997),
The University of New South Wales Foundation Limited (from 2005,
Director from 1999) and Sydney Theatre Company Ltd (from 2010).
Director/Member: Lowy Institute for International Policy (from 2012),
Australian Philanthropic Services Limited (from 2012), ASIC External
Advisory Panel (from 2013) and Advisory Committee for Optus
Limited (from 2013).
Chancellor: University of New South Wales Council (from 2005).

Former Directorships include
Former Chairman: Guardians of the Future Fund of Australia(2012–2014), Swiss Re Life & Health Australia Limited (2011–2014),
Investec Bank (Australia) Limited (2002–2014), Investec Holdings
Australia Limited (2002–2014), Ingeus Limited (2009–2014), National
E-Health Transition Authority Ltd (2008–2014), Federal Government
Review Panel of Funding for Schooling (The Gonski Review) (2011–2012),
Advisory Committee to the NSW Government Commission of Audit(2011–2012) and ASX Limited (2008–2012, Director from 2007).
Former Director: Singapore Telecommunications Limited (2013–2015),
Investec Property Limited (2005–2014), Infrastructure NSW(2011–2014) and Singapore Airlines Limited (2006–2012).
Former Consultant: Morgan Stanley Australia Limited (1997–2012).
Age: 62. Residence: Sydney, Australia.

DIRECTORS’ REPORT

9

DIRECTORS’ REPORT (continued)

MR M R P SMITH, OBE, Chief Executive Officer and Executive Director
BSc (Hons) City Lond., Hon DSc City Lond., Hon LLD Monash, SF Fin
Chief Executive Officer and Executive Director since 1 October 2007.
Skills, experience and expertise
Mr Smith is an international banker with over 30 years’ experiencein banking operations in Asia, Australia and internationally. Until June
2007, he was President and Chief Executive Officer, The Hongkong
and Shanghai Banking Corporation Limited, Chairman, Hang Seng
Bank Limited, Global Head of Commercial Banking for the HSBC
Group and Chairman, HSBC Bank Malaysia Berhad. Previously, Mr
Smith was Chief Executive Officer of HSBC Argentina Holdings SA.
Mr Smith joined the HSBC Group in 1978 and during his international
career he has held a wide variety of roles in Commercial, Institutionaland Investment Banking, Planning and Strategy, Operations andGeneral Management.
Current Directorships
Director: ANZ Bank New Zealand Limited (from 2007), the Financial
Markets Foundation for Children (from 2008), the Institute ofInternational Finance (from 2010) and Financial Literacy Australia
Limited (from 2012).

Member: Australian Bankers’ Association Incorporated (from 2007,
Chairman 2011–2013), Business Council of Australia (from 2007),
Asia Business Council (from 2008), Australian Government Financial
Literacy Advisory Board (from 2008), Chongqing Mayor’s International
Economic Advisory Council (Executive Chairman 2013–2015, Member
from 2006), Shanghai International Financial Advisory Council (from2009), International Monetary Conference (from 2012) and Monash
Industry Council of Advisers (from 2014).
Fellow: The Hong Kong Management Association (from 2005).
Former Directorships include
Former Chairman: HSBC Bank Malaysia Berhad (2004–2007)
and Hang Seng Bank Limited (2005–2007).
Former Chief Executive Officer and Director: The Hongkong
and Shanghai Banking Corporation Limited (2004–2007).
Former Director: International Monetary Conference (2012–2015),
HSBC Australia Limited (2004–2007), HSBC Finance Ltd (2006–2007),and HSBC Bank (China) Company Limited (2007).
Former Member: Visa APCEMEA Senior Client Council (2009–2011).
Age: 59. Residence: Melbourne, Australia.

MS I R ATLAS Independent Non-Executive Director
BJuris (Hons), LLB (Hons), LLM
Non-Executive Director since September 2014. Ms Atlas is a member of the Audit Committee, Human Resources Committee and Governance Committee.
Skills, experience and expertise
Ms Atlas brings a strong financial services background and legal
experience to the Board. Ms Atlas’ last executive role was Group
Executive, People at Westpac, where she was responsible for humanresources, corporate affairs and sustainability. Prior to that, she
was Westpac’s Group Secretary and General Counsel. Before her
10 years at Westpac, Ms Atlas was a partner in law firm Mallesons
Stephen Jaques (now King & Wood Mallesons). In addition to herpractice in corporate law, she held a number of management rolesin the firm including Executive Partner, People and Information,and Managing Partner.
Current Directorships
Chairman: The Bell Shakespeare Company Limited (from 2010,
Director from 2004).

Director: Coca-Cola Amatil Limited (from 2011), Westfield Corporation
Limited (from 2014), Treasury Corporation of New South Wales (from2013), Oakridge Wines Pty Limited (from 2007), Human Rights Law
Centre Ltd (from 2012) and Jawun (from 2014).
Member: Australian Institute of Company Directors’ Corporate
Governance Committee (from 2014).
Fellow: Senate of the University of Sydney (from 2015).
Former Directorships include
Former Director: Suncorp Group Limited (2011–2014),
Suncorp-Metway Limited (2011–2014), GIO General Limited(2011–2013), AAI Limited (2011–2014) and Scentre Group Limited(previously known as Westfield Holdings Limited) (2011–2014).
Age: 61. Residence: Sydney, Australia.

MS P J DWYER Independent Non-Executive Director and Chair of the Audit Committee
BCom, FCA, SF Fin, FAICD
Non-Executive Director since April 2012. Ms Dwyer is a member of the Risk Committee and Human Resources Committee.
Skills, experience and expertiseMs Dwyer is an established Non-Executive Director with extensive
financial services experience and a strong accounting background,and has previously held executive roles in the investment
management, corporate finance and accounting industries.

Former Directorships include
Former Deputy Chairman: Leighton Holdings Limited (2013–2014,
Director 2012) and Baker IDI Heart and Diabetes Institute (2003–2013).

Current 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).
Member: Kirin International Advisory Board (from 2012) and ASIC
External Advisory Panel (from 2012).

Former Member: John Holland Group Advisory Board (2012–2014)
and Australian Government Takeovers Panel (2008–2014).

10

Former Director: Suncorp Group Limited (2007–2012), Promina
Limited (2002–2007) and Foster’s Group Limited (2011).

Age: 55. Residence: Melbourne, Australia.

ANZ ANNUAL REPORT 2015

MR LEE HSIEN YANG Independent Non-Executive Director and Chair of the Technology Committee
MSc, BA
Non-Executive Director since February 2009. Mr Lee is a member of the Risk Committee and Human Resources Committee.
Skills, experience and expertise
Mr Lee has considerable knowledge of and operating experiencein Asia. He has a background in engineering and brings to the Board
his international business and management experience across a wide
range of sectors including telecommunications, food and beverages,
property, publishing and printing, financial services, education, civil
aviation and land transport.
Current Directorships
Chairman: The Islamic Bank of Asia Limited (from 2012, Director from2007), Civil Aviation Authority of Singapore (from 2009) and General
Atlantic Singapore Fund Pte Ltd (from 2013).
Director: Singapore Exchange Limited (from 2004), Rolls-Royce
Holdings plc (from 2014), General Atlantic Singapore Fund FII Pte
Ltd (from 2014), Cluny Lodge Pte Ltd (from 1979) and Caldecott Inc.
(from 2013).

Member: Governing Board of Lee Kuan Yew School of Public
Policy (from 2005).
Special Adviser: General Atlantic (from 2013).
Consultant: Capital International Inc Advisory Board (from 2007).
President: INSEAD South East Asia Council (from 2013).
Former Directorships include
Former Chairman: Fraser & Neave, Limited (2007–2013) and Asia
Pacific Investments Pte Ltd (2010–2012, Director 2009–2012).
Former Member: Rolls Royce International Advisory Council(2007–2013).
Former Chief Executive Officer: Singapore Telecommunications
Limited (1995–2007).
Age: 58. Residence: Singapore.

MR G R LIEBELT Independent Non-Executive Director and Chair of the Human Resources Committee
BEc (Hons), FAICD, FTSE, FAIM
Non-Executive Director since July 2013. Mr Liebelt is a member of the Risk Committee, Governance Committee and Technology Committee.
Skills, experience and expertise
Mr Liebelt has extensive international experience and a strong
record of achievement as a senior executive including in strategy
development and implementation. He 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 more than 50 countries.
Current Directorships
Chairman: Amcor Limited (from 2013, Director from 2012).
Director: Australian Foundation Investment Company Limited(from 2012) and Carey Baptist Grammar School (from 2012).

Former Directorships include
Former Deputy Chairman: Melbourne Business School (2012–2015,
Director from 2008).
Former Chairman: The Global Foundation (2014–2015, Director
from 2006).
Former Chief Executive Officer and Managing Director: Orica Limited(2005–2012).
Former Director: Business Council of Australia (2010–2012).
Age: 61. Residence: Melbourne, Australia.

MR I J MACFARLANE, AC, Independent Non-Executive Director and Chair of the Risk Committee
BEc (Hons), MEc, Hon DSc Syd., Hon DSc UNSW, Hon DCom Melb., Hon DLitt Macq., Hon LLD Monash
Non-Executive Director since February 2007. Mr Macfarlane is a member of the Governance Committee and Audit Committee.
Skills, experience and expertise
During his 28 year career at the Reserve Bank of Australia including
a 10 year term as Governor, Mr Macfarlane made a significant
contribution to economic policy in Australia and internationally.
He has a deep understanding of financial markets as well as a long
involvement with Asia.
Current Directorships
Director: Lowy Institute for International Policy (from 2004).
Member: International Advisory Board of Goldman Sachs(from 2007) and International Advisory Board of CHAMP
Private Equity (from 2007).

Former Directorships include
Former Chairman: Payments System Board (1998–2006)
and Australian Council of Financial Regulators (1998–2006).
Former Governor: Reserve Bank of Australia (Member 1992–2006,
Chairman 1996–2006).
Former Director: Woolworths Limited (2007–2015) and Leighton
Holdings Limited (2007–2013).
Former Member: Council of International Advisers to the China
Banking Regulatory Commission (2009–2015).
Age: 69. Residence: Sydney, Australia.

DIRECTORS’ REPORT

11

DIRECTORS’ REPORT (continued)

MR J T MACFARLANE Independent Non-Executive Director
BCom, MCom (Hons)
Non-Executive Director since May 2014. Mr Macfarlane is a member of the Audit Committee, Risk Committee and Technology Committee.
Skills, experience and expertise
Mr Macfarlane is one of Australia’s most experienced international
bankers and previously served as Executive Chairman of Deutsche
Bank Australia and New Zealand, and CEO of Deutsche Bank
Australia. Prior to joining Deutsche Bank he was CEO of Bankers
Trust New Zealand. Mr Macfarlane has also worked in the USA, Japanand PNG, and brings to the Board a depth of banking experiencein ANZ’s key markets in Australia, New Zealand and the Asia Pacific.
Current Directorships
Chairman: AGInvest Holdings Limited (MyFarm Limited) (from 2014).
Director: St. Vincent’s Institute of Medical Research (from 2008), Craigs
Investment Partners Limited (from 2013) and Colmac Group Pty Ltd(from 2014).

Former Directorships include
Former Executive Chairman: Deutsche Bank AG, Australia
and New Zealand (2007–2014) and Chief Country Officer,
Australia (2011–2014).
Former Director: Deutsche Australia Limited (2007–2014)and Deutsche Securities Australia Limited (2011–2014).
Former Chief Executive Officer: Deutsche Australia Limited(2011–2014).
Former Member: Business Council of Australia (2011–2014).
Age: 55. Residence: Melbourne, Australia.

Directors’ attendance at Board and Committee meetings
Details of the number of Board and Board Committee meetings held during the year and Directors’ attendance at those meetings are set
out below.
Board
A

B

I R Atlas3
P J Dwyer

11
11

11
11

D M Gonski

11

11

Lee Hsien Yang

11

G R Liebelt
I J Macfarlane

Risk
Committee
A

Audit
Committee

Human
Resources
Committee

GovernanceCommittee

B

A

B

A

B

A

B

4
6

4
6

3

8

4
6

3

8

4
6

8

8

6

5

6

6

4

4

11

8

8

6

6

11

11

8

8

6

6

11

11

8

8

6

6

J T Macfarlane

11

11

8

8

6

6

M R P Smith

11

11

4

4

4

4

Technology
Committee1
A

B

Executive
Committee
A

B

Committeeof the Board2
A

B

A

B

1
4

1
4

1

1

2

2

1

1

1

1

8

8

1

1

1

1

1

1

1

1

1

1

1

1

8

8

1

1

SharesCommittee2

Column A – Indicates the number of meetings the Director was eligible to attend.
Column B – Indicates the number of meetings attended. The Chairman is an ex-officio member of the Audit, Governance, Human Resources,
Risk and Technology Committees.
With respect to Committee meetings, the table above records attendance of Committee members. Any Director is entitled to attend thesemeetings and from time to time Directors attend meetings of Committees of which they are not a member.
1 During 2014/15, a root and branch review of the Technology Committee was undertaken with respect to its role, objectives and performance. The Committee did not meet while
the review was underway.
2 The meetings of the Shares Committee and Committee of the Board as referred to in the table above include those conducted by written resolution.
3 Ms I R Atlas was appointed to the Board on 24 September 2014 and was a member of the Audit Committee, Human Resources Committee and Governance Committee from 1 January 2015.

Corporate Governance Statement
ANZ is committed to maintaining high standards of Corporate Governance. ANZ confirms it has followed the ASX Corporate
Governance Council’s Corporate Governance Principles and Recommendations (3rd edition) during the 2015 financial year. ANZ’s Corporate
Governance Statement, together with the ASX Appendix 4G which relates to the Corporate Governance Statement, can be viewed at:
http://shareholder.anz.com/our-company/corporate-governance, and has been lodged with the ASX.

12

ANZ ANNUAL REPORT 2015

Company Secretaries’ Qualifications
and Experience
Currently there are two people appointed as Company Secretariesof the Company. Details of their roles are contained in the Corporate
Governance Statement. Their qualifications and experience areas follows:}} Bob Santamaria, BCom, LLB (Hons) Group General Counsel.
Mr Santamaria joined ANZ in 2007. He had previously beena Partner at the law firm Allens Arthur Robinson since 1987.
He was Executive Partner Corporate, responsible for client liaison
with some of Allens Arthur Robinson’s largest corporate clients.
Mr Santamaria brings to ANZ a strong background in leadershipof a major law firm, together with significant experience in securities,
mergers and acquisitions. He holds a Bachelor of Commerce andBachelor of Laws (Honours) from the University of Melbourne.
He is also an Affiliate of the Governance Institute of Australia.
}} John Priestley, BEc, LLB, FGIA Company Secretary.
Mr Priestley, 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,
compliance and insurance functions. He is a Fellow of the GovernanceInstitute of Australia and also a member of the Governance Instituteof Australia’s National Legislation Review Committee.

Non-audit Services
The Group’s Stakeholder Engagement Model for Relationship with theExternal Auditor (which incorporates requirements of the Corporations
Act 2001 and international best practice) states that the external
auditor may not provide services that are perceived to be in conflictwith the role of the external auditor. These include 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 Stakeholder Engagement Model:}} limits the non-audit services that may be provided;}} requires that audit, audit-related and permitted non-audit services
must be pre-approved by the Audit Committee, or pre-approvedby the Chairman of the Audit Committee (or up to a specified
amount by a limited number of authorised senior membersof management) and notified to the Audit Committee; and}} requires that the external auditor does not commence anengagement for the Group until the Group has confirmedthat the engagement has been pre-approved.

The external auditor has confirmed to the Audit Committee that it has:}} implemented procedures to ensure it complies with independence
rules both in Australia and the United States (US); and}} complied with domestic policies and regulations, together withthe regulatory requirements of the US Securities and Exchange
Commission, and ANZ’s policy regarding the provision of non-audit
services by the external auditor.
The non-audit services supplied to the Group by the Group’s external
auditor, KPMG, or by another person or firm on KPMG’s behalf,
and the amount paid or payable by the Group by type of non-audit
service during the year ended 30 September 2015 are as follows:

Non-audit services

Amount paid/
payable$’000’s
2015
2014

Assistance with regulatory registration process in Thailand
Independent benchmarking review of an ANZ vendor

224
49

-

Presentations

44-

Benchmarking review of indirect tax function in Australia

33-

Accounting advice in Cambodia

32-

Branch optimisation analysis-

383

Industry benchmarking for Group Technology-

109

Review data migration approach-86

Development of market risk training material-

22

Review of accounts for divestment purposes-

16

Industry benchmarking for Global Wealth-14

Perform data analytical procedures on commissions
Total

-

4

382

634

Further details on the compensation paid to KPMG is provided
in note 44 to the financial statements including details of audit
related services provided during the year of $5.487 million(2014: $4.361 million).
For the reasons set out above, the Directors are satisfied thatthe provision of non-audit services by the external auditor during
the year ended 30 September 2015 is compatible with the generalstandard of independence for external auditors imposed by the
Corporations Act 2001.

Further details about the Stakeholder Engagement Model canbe found in the Corporate Governance Statement on page 10.
The Audit Committee has reviewed the non-audit services provided
by the external auditor (KPMG) for 2015, and has confirmed thatthe provision of non-audit services for 2015 is consistent with the
Stakeholder Engagement Model and compatible with the generalstandard of independence for external auditors imposed by the
Corporations Act 2001. This has been formally advised by the Audit
Committee to the Board of Directors.

DIRECTORS’ REPORT

13

DIRECTORS’ REPORT (continued)

Directors’ and Officers’ Indemnity

Rounding of Amounts

The Company’s Constitution (Rule 11.1) permits the Company toindemnify any officer or employee of the Company against liabilities(so far as may be permitted under applicable law) incurred as suchan officer or employee. It is the Company’s policy that its employees
should be protected from any liability they incur as a result of acting
in the course of their employment, subject to appropriate conditions.

The Company is a company of the kind referred to in Australian
Securities and Investments Commission class order 98/100 (asamended) pursuant to section 341(1) of the Corporations Act 2001.

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 a subsidiary of the Company and this extends to liability incurred
as a result of their appointment/nomination by or at the requestof the Group as an officer or employee of another corporation
or body or as 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.
The Company has entered into Indemnity Deeds with each of
its Directors, with certain secretaries and former Directors of theCompany, and with certain employees and other individuals who
act as directors or officers of related bodies corporate or of anothercompany. To the extent permitted by law, the Company indemnifies
the individual for all liabilities, including costs, damages andexpenses incurred in their capacity as an officer of the company
to which they have been appointed.
The Company has indemnified the trustees and former trustees
of certain of the Company’s superannuation funds and directors,
former directors, officers and former officers of trustees of various
Company sponsored superannuation schemes in Australia. Underthe relevant Deeds of Indemnity, the Company must indemnify eachindemnified person if the assets of the relevant fund are insufficient
to cover any loss, damage, liability or cost incurred by the indemnified
person in connection with the fund, being loss, damage, liability
or costs for which the indemnified person would have been entitledto be indemnified out of the assets of the fund in accordance withthe trust deed and the Superannuation Industry (Supervision) Act
1993. This indemnity survives the termination of the fund. Someof the indemnified persons are or were Directors or executive
officers of the Company.
The Company has also indemnified certain employees of the Company,
being trustees and administrators of a trust, from and against any
loss, damage, liability, tax, penalty, expense or claim of any kindor nature arising out of or in connection with the creation, operation
or dissolution of the trust or any act or omission performed or omitted
by them in good faith and in a manner that they reasonably believed
to be within the scope of the authority conferred by the trust.
Except for the above, neither the Company nor any related body
corporate of the Company has indemnified or made an agreement
to indemnify any person who is or has been an officer or auditorof the Company against liabilities incurred as an officer or auditorof the Company.
During the financial year, the Company has paid premiums
for insurance for the benefit of the directors and employeesof the Company and related bodies corporate of the Company.
In accordance with common commercial practice, the insurance
prohibits disclosure of the nature of the liability insured against
and the amount of the premium.

14

As a result, amounts in this Directors’ Report and the accompanying
financial statements have been rounded to the nearest million dollars
except where otherwise indicated.

Key Management Personnel and Employee
Share and Option Plans
Details of equity holdings of Non-Executive Directors, the Chief Executive
Officer and Disclosed Executives during the 2015 financial year andas at the date of this report are detailed in the Remuneration Report.
Details of options/rights issued over shares granted to the Chief
Executive Officer and Disclosed Executives during the 2015 financial year
and as at the date of this report are detailed in the Remuneration Report.
Details of options/rights issued over shares granted to employees
during the 2015 financial year and on issue as at the date of thisreport are detailed in note 41 of the 2015 financial statements.
Details of shares issued as a result of the exercise during the 2015
financial year of options/rights granted to employees are detailed
in note 41 of the 2015 financial statements.
Other details about the share options/rights issued, including any
rights to participate in any share issues of the Company, are set out
in note 41 of the 2015 financial statements. No person entitled
to exercise any option/right has or had, by virtue of an option/right,
a right to participate in any share issue of any other body corporate.
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.

Lead Auditor’s Independence Declaration
The lead auditor’s independence declaration given under section
307C of the Corporations Act is set out below and forms partof this Directors’ Report for the year ended 30 September 2015.
THE AUDITOR’S INDEPENDENCE DECLARATION
Lead Auditor’s Independence Declaration under Section 307C of the
Corporations Act 2001
To: the Directors of Australia and New Zealand Banking Group Limited
I declare that, to the best of my knowledge and belief, in relation to theaudit for the financial year ended 30 September 2015, there have been:i) no contraventions of the auditor independence requirements as
set out in the Corporations Act 2001 in relation to the audit; andii) no contraventions of any applicable code of professional conduct
in relation to the audit.

KPMG	Andrew Yates
Partner
Melbourne
4 November 2015

ANZ ANNUAL REPORT 2015

DIRECTORS’ REPORT (continued)

OPERATING AND FINANCIAL REVIEWThis Operating and Financial Review has been prepared in accordance with section 299A of the Corporations
Act 2001 and Australian Securities and Investments Commission (ASIC) Regulatory Guide 247: Effective disclosurein an operating and financial review. It sets out information that allows shareholders to assess the Group’s
operations, financial position, business strategies and prospects for future financial years. This information
complements and provides context to the financial report.

Operations of the GroupOVERVIEWANZ provides a broad range of banking and financial products
and services to retail, high net worth, small business, corporate andcommercial and institutional customers. Geographically, operations
span Australia, New Zealand, a number of countries in the Asia Pacificregion, the United Kingdom, France, Germany and the United States.
BUSINESS MODEL
ANZ’s business model primarily consists of raising funds throughcustomer deposits and the wholesale debt markets and lending
those funds to customers. In addition, the Group earns revenue
from the Global Wealth business through the provision of insurance,
superannuation and funds management services, and our Global
Markets business from sales, trading and risk management activities.
Our primary lending activities are personal lending coveringresidential home loans, credit cards and overdrafts, and lending
to corporate and institutional customers.
Our income is derived from a number of sources, primarily:}} Net interest income – represents the difference between theinterest income the Group earns on its lending activities, lessinterest paid on customer deposits and our wholesale funding;}} Net fee and commission income – represents fee income
earned on lending and non-lending related financial products
and services, including income from sales, trading and risk
management activities in our Global Markets business; and}} Net funds management and insurance income – represents
income earned from the provision of investment, insurance
and superannuation solutions.

Australia
The Australia division comprises the Retail and Corporate andCommercial Banking (C&CB) business units. Retail includes Home
Loans, Cards and Personal Loans, and Payments and Deposits. C&CB
includes Corporate Banking, Regional Business Banking, BusinessBanking, Small Business Banking and Esanda.
International and Institutional Banking
The IIB division comprises Global Products servicing Global Banking
and International Banking customers across three major product sets
(Global Transaction Banking, Global Loans and Global Markets), Retail
Asia Pacific focusing on affluent and emerging affluent customers
across 22 countries and Asia Partnerships.
New Zealand
The New Zealand division comprises Retail and Commercial
business units. Retail includes Home Loans and Small BusinessBanking. Commercial comprises Commercial and Agri.
Global Wealth
The Global Wealth division comprises Funds Management, Insurance
and Private Wealth business units which provide wealth solutions
to customers across the Asia Pacific region.
Global Technology, Services & Operations and Group Centre
GTSO and Group Centre provide support to the operating divisions,
including technology, operations, shared services, property, risk
management, financial management, strategy, marketing, humanresources and corporate affairs. The Group Centre also includes
Group Treasury and Shareholder Functions.

PRINCIPAL ACTIVITIES OF SEGMENTS
The Group operates on a divisional structure with Australia,
International and Institutional Banking (IIB), New Zealand, and Global
Wealth being the operating divisions. The IIB and Global Wealthdivisions are co-ordinated globally. Global Technology, Services andOperations (GTSO) and Group Centre provide global enablement
capability to these operating divisions.

DIRECTORS’ REPORT

15

DIRECTORS’ REPORT (continued)

THE GROUP’S STRATEGIC PRIORITIES AND OUTLOOK 1

SUPER REGIONAL STRATEGY

To build the best connected and most respected bank across the Asia Pacific region

Strengthen our core franchises
in Australia and New ZealandGrow profitability in Asia, focusedon corporate and institutional
clients, supported by ourAsia retail branch network

Take an enterprise approachto operations and technology
to deliver better control and to
reduce costs, complexity and risk

Manage risk, balance sheet and capital to drive superior return for shareholders.
Develop the best connected and most respected people in banking.

ANZ is building the best connected, most respected bank acrossthe Asia Pacific region, to help deliver prosperity for our customers
and the communities in which they live, develop our people,
and to provide shareholders sustainable earnings growth.
The strategy has three key elements – strengthening our corefranchises in Australia and New Zealand, growing profitably
in Asia focused on corporate and institutional clients, and taking
an enterprise approach to operations and technology to deliver
better control and lower unit costs. ANZ is focused on the organic
growth opportunities which exist in Australia, New Zealand and Asia
Pacific and our distinctive footprint sees us uniquely positioned
to meet the needs of customers who are dependent on regional tradeand capital flows. The strategy is underpinned by rigorous liquidity,
capital and portfolio management and by the quality of our people.
ANZ’s approach to sustainability supports the achievement of ourbusiness strategy by guiding the way we make decisions and conductbusiness in all of the markets in which we operate. Our decision
making processes take into account the social and environmental
impacts of ANZ’s operations and prioritise building trust andrespect amongst all of our stakeholders. Details of ANZ’s approachto sustainability, including identification of material issues andmanagement of sustainability risks and opportunities is available
in the Corporate Sustainability Review. The 2015 report will
be published on anz.com in December 2015.

In 2015, cash profit1 increased 1% to $7.2 billion, with a Returnon Equity of 14%, earnings per share of 260.3 cents and a fully-franked
dividend of 181 cents per share. The result was driven by revenue
growth of 5%, expense uplift of 7% and a 22% increase in the credit
provision charge. Gross impaired assets decreased 6% over theyear. While the provision charge was up, loss rates remain wellunder the long term average having risen from their historically
low levels. Revenue sourced from the APEA region was 25%of total Group revenue.
The Common Equity Tier 1 ratio on an APRA basis was 9.6% at
30 September, up 80 basis points (bps), which equates to 13.2% on
an Internationally Comparable Basel 3 basis placing ANZ within the top
quartile of international peer banks. The completion of the sale of theEsanda Dealer Finance business will deliver a further 20 bps of CET1.
STRATEGIC PROGRESS IN 2015
ANZ’s strategy has driven growth in our core customer franchises
in Australia, in New Zealand and in key Asian markets, partly offset
by the effect of macro-headwinds in our IIB Division.
ANZ’s view is that the constrained market conditions are unlikely
to change in the near term and so the banking sector must remain
focused on selective growth opportunities, productivity and capitalmanagement. A number of initiatives have been put in place to drive
improvement in both our cost and capital position over time.

1 Statutory profit has been adjusted to exclude non-core items to arrive at cash profit, and has been provided to assist readers to understand the results for the ongoing business activities of theGroup. The adjustments made in arriving at cash profit are included in statutory profit which is subject to audit within the context of the Group statutory audit opinion. Cash profit is not auditedby the external auditor, however the external auditor has informed the Audit Committee that the adjustments have been determined on a consistent basis across each year. Refer to page 18 andpages 184 to 185 for analysis of the adjustments between statutory profit and cash profit. The Operating and Financial Review is reported on a cash basis unless otherwise noted.

16

ANZ ANNUAL REPORT 2015}} We have continued to strengthen our businesses in our homemarkets of Australia and New Zealand, with further gains in
productivity and market share, and further penetration of Wealthproducts into our existing customer base in these markets. In
Australia, we have successfully focused on investment in digitalplatform enhancement, increasing distribution sales capacity andcapability, growing our presence in particular in New South Wales
where ANZ has historically been underweight, and building out
specialist propositions in key sectors of Corporate and Commercial
Banking such as Health. The Australia Division has grown homelending market share consistently for six years driven by capability
and capacity improvements. In New Zealand, ANZ’s brandconsideration has strengthened further year on year to remain thebest of the big four banks. This has translated into lending demandwith ANZ now the largest mortgage lender across all major cities.
}} In IIB, we have retained our position as the leading Institutionalbank in Australia and New Zealand (Source: Peter Lee) andas the number four Corporate bank in Asia (Source: Greenwich
Associates). Despite a challenging year IIB has continued todevelop the customer franchise across the region with particularly
good outcomes in Asia. IIB has increased its focus on improving
returns. Investment in higher returning businesses has seencustomer sales increase in products like commodities (sales
up 44%), rates (sales up 32%) and cash deposits (up 11%).
Investment in digitisation is reducing manual processing oftransactions, improving efficiency and cost to serve. IIB has also
been refining key business areas. Reducing exposure to somelower returning areas of the Trade business improved returns whileslightly lowering income. Increased focus on Risk Weighted Asset(RWA) efficiency in the second half saw Global Loans profit decline
but margins and returns on RWA begin to stabilise.
}} ANZ’s in-house regional delivery network is a source of ongoingcompetitive advantage for ANZ. The network is enabling
the transformation of key business activities and delivery of
productivity improvements while driving a more consistent,
higher quality experience for our customers. The regional delivery
centres provide full service regional coverage across our operatingtime zones helping to drive lower unit costs, improve quality andlower risk. ANZ is leveraging time zone advantages to support“same day” propositions for our businesses. In our retail mortgages
business for example, we are now effecting same day decisions for
5,000 customers every month. We have built out a regional voice
capability and have advanced our location agnostic processing
capability with payments operations in five locations and mortgage
operations in four thereby mitigating disruption risk and ensuringbusiness resilience.

}} ANZ raised a total of $4.4 billion of new equity in FY15, including$3.2 billion in response to APRA’s increased capital requirement
for Australian residential mortgages which applies from July
2016. The Group CET1 was 9.6% at 30 September. ANZ expects
the APRA CET1 ratio to remain around 9% post implementing the
mortgage RWA change in July 2016 and retains significant capitalmanagement flexibility to progressively adjust to further changes
to regulatory capital requirements if required.
}} The total provision charge increased to $1.2 billion or 22 bps. The
individual provision charge declined slightly while the collective
provision charge increased but remained low in absolute terms
at $95 million compared to a net release in FY14. Loss rates remained
under the long term average.
CEO SUCCESSION
ANZ announced in October that Mike Smith would be stepping
down as CEO effective 31 December 2015 with CFO Shayne Elliott
succeeding him, becoming CEO effective 1 January 2016.
Over the past 8 years, ANZ has been transformed and is today
a stronger, more diverse, more profitable bank. Importantly,
we have created a better bank for our customers with a stronger
brand, growing market share and more retail, commercial andinstitutional customers choosing to bank with ANZ.
The bank’s presence in Asia, which was often small in scale andbased on limited licences, has been grown into a large and growing
business that connects our Australian and New Zealand customers
with opportunities in the fastest growing region in the world
economy. And it connects customers in Asia with opportunities
in the region and in Australia and New Zealand.
While there is still much to do, ANZ is now Australia’s only truly
international bank and is a better bank for our 8 million customers
in Australia, in New Zealand and in Asia Pacific. We are continuing
to evolve our strategy and to accelerate its execution to maximize
value for our customers and for our shareholders.
The ability of the Group to achieve its goals set out above is dependent
on the success of the Group’s ability to manage its material risks which
are outlined on pages 29 to 30.
Further information on business strategies which may affect theoperations of the Group in subsequent years is contained in the
Chairman’s Report and the CEO Report.

DIRECTORS’ REPORT

17

DIRECTORS’ REPORT (continued)

Results of the operations of the Group
2015
$m

2014
$m

Movt

Net interest income
Other operating income

14,616
6,455

13,810
6,244

6%
3%

Operating income
Operating expenses

21,071(9,359)20,054(8,760)5%
7%Profit before credit impairment and income tax
Credit impairment charge

11,712(1,179)11,294
(986)

4%
20%

Income Statement

Profit before income tax

10,533

10,3082%

Income tax expense and non-controlling interests(3,040)(3,037)0%Profit attributable to shareholders of the Company

7,493

7,271

3%

Non-IFRS information
The Group provides an additional measure of performance which is prepared on a basis other than in accordance with the accounting
standards – cash profit. The guidance provided in ASIC Regulatory Guide 230 has been followed when presenting this information.
Cash Profit
Statutory profit has been adjusted to exclude non-core items to arrive at cash profit, and has been provided to assist readers to understandthe results for the ongoing business activities of the Group. The adjustments made in arriving at cash profit are included in statutory profit
which is subject to audit within the context of the Group statutory audit opinion. Cash profit is not subject to audit by the external auditor,
however the external auditor has informed the Audit Committee that the adjustments have been determined on a consistent basis acrosseach year.
2015
$m

2014
$m

Movt

Statutory profit attributable to shareholders of the Company
Adjustments between statutory profit and cash profit

7,493
(277)

7,271
(154)

3%
80%

Cash profit

7,216

7,117

1%

Adjustments between statutory profit and cash profit ($m)

2015

2014

Movt

Treasury shares adjustment
Revaluation of policy liabilities

(16)
(73)

24
(26)

large
large

Economic hedging

(179)

(72)

large

(3)
(6)

(101)
21

-97%
large

(277)

(154)

80%

Non-financial key performance metrics1

2015

2014

Employee engagement

76%

73%

82.1%
89.0%

82.6%
85.0%

1

1

1
40.4%

1
39.2%

Revenue and net investment hedges
Structured credit intermediation trades
Total adjustments between statutory profit and cash profit
Refer pages 184 to 185 for analysis of the adjustments between statutory profit and cash profit.

Customer satisfaction– Australia (retail customer satisfaction)2– New Zealand (retail customer satisfaction)3
IIB (Institutional Relationship strength index ranking)4– APEA– New Zealand
Women in management5

1 The Group uses a number of non-financial measures to assess performance. These metrics form part of the balanced scorecard used to measure performance in relation to the Group’s
main incentive programs. Discussion of the non-financial performance metrics is included within the Remuneration report on pages 43 to 44 of this Directors’ report.
2 Source: Roy Morgan Research. Base: ANZ Main Financial Institution Customers, aged 14+, based on six months to September for each year.
3 Camorra Research Retail Market Monitor (2015). The Nielson Company Consumer Finance Monitor (2012) excludes National Bank brand. Base: ANZ main bank customers aged 15+,
rolling 6 months moving average to September. Based on responses of excellent, very good and good.
4 Source: Peter Lee Associates Large Corporate and Institutional Relationship Banking surveys, Australia and New Zealand 2015.
5 Includes all employees regardless of leave status but not contractors (which are included in FTE).

18

ANZ ANNUAL REPORT 2015

The following analysis of the business performance is on a cash basis.
2015
$m

2014
$m

Movt

Net interest income
Other operating income

14,616
5,902

13,797
5,781

6%
2%

Operating income
Operating expenses

20,518(9,359)19,578(8,760)5%
7%Profit before credit impairment and income tax
Credit impairment charge

11,159(1,205)

10,818
(989)

3%
22%

Profit before income tax
Income tax expense and non-controlling interests

9,954(2,738)9,829(2,712)

1%
1%

Cash profit

7,216

7,117

1%

2015

2014

Movt

Return on average ordinary shareholders’ equity

14.0%

15.4%

-140 bps

Return on average assets

0.85%

0.95%

-10 bps

2015

2014

Movt

Net interest income ($m)
Net interest margin (%)

14,616
2.04%

13,7972.13%

6%-9 bpsAverage interest earnings assets ($m)
Average deposits and other borrowings

718,147
559,779

646,997
507,856

11%
10%

Income Statement

Financial performance metrics
1

Net Interest Income

1 Average ordinary shareholders’ equity excludes non-controlling interests and preference shares.

Net interest income increased $819 million (6%) with 11% growth in average interest earning assets, partly offset by a 9 basis point decreasein net interest margin. $276 million (2%) of the increase in net interest income was due to foreign currency translation. The $71.2 billion
increase in average interest earning assets was due to foreign currency translation of $20.9 billion, loan growth of $26.7 billion in home loans
and commercial lending, and $24.7 billion growth in Global Markets driven by the Group liquidity portfolio and cash reserves. The decreasein net interest margin was due to asset competition, lower earnings on capital and higher liquid asset holdings, partly offset by favourable
deposit pricing.
Average interest earning assets (+$71.2 billion or +11%)}} International and Institutional Banking (+$44.5 billion or +17%): excluding foreign currency translation, growth was $25.1 billion or +9%.
$24.7 billion of this increase was in Global Markets driven by a $17.0 billion increase in the Group liquidity portfolio in response to regulatory
requirements, a $3.8 billion increase in reverse repos and a $2.2 billion increase in collateral paid against derivative liabilities. Lending
in Global Loans increased by $4.2 billion. Global Trade volumes contracted by $4.6 billion due to the impact of lower commodity prices.
}} Australia (+$19.9 billion or +7%): driven by growth in home loans where market share continued to increase.
}} New Zealand (+$6.3 billion or +7%): excluding foreign currency translation, growth was $5.1 billion or +6% driven by market share gains
in Retail, as well as Commercial loan growth.
}} Global Wealth and Group Centre (+$0.5 billion or 4%): broadly unchanged over the year.
Average deposits and other borrowings (+$51.9 billion or +10%)}} International and Institutional Banking (+$25.6 billion or +12%): excluding foreign currency translation, deposits and other borrowings
increased $5.7 billion or +2% driven by $6.7 billion growth in customer deposits in Transaction Banking, particularly in Asia, partially offset
by a reduction of $1.8 billion in certificates of deposits.
}} Australia (+$7.3 billion or +5%): driven by growth in customer deposits within Retail and Commercial.
}} New Zealand (+$7.3 billion or +13%): excluding foreign currency translation, growth was $6.5 billion or +12% due to increased customer
deposits across Retail and Commercial, particularly in Retail savings products.
}} Global Wealth and Group Centre (+$11.7 billion or 16%): growth mainly in Treasury repo borrowings.

DIRECTORS’ REPORT

19

DIRECTORS’ REPORT (continued)

2015
$m

20141
$m

Movt

Fee and commission income2
Foreign exchange earnings2

2,448
79

2,364
96

4%
-18%

Net income from funds management and insurance

1,425

1,283

11%

Other Operating Income

625

510

23%

Global Markets other operating income
Other2,3

1,185
140

1,285
243

-8%
-42%

Cash other operating income

5,902

5,781

2%

Share of associates’ profit

2

1 Comparative amounts have changed. Refer to note 45 for details.
2 Excluding Global Markets.
3 Other income includes a $125 million gain on sale of ANZ Trustees in July 2014 and a $21 million loss arising on sale of Saigon Securities Inc (SSI) in September 2014.

Other operating income increased $121 million (2%) with $212 million (4%) due to foreign currency translation. Adjusting for this, otheroperating income decreased by $91 million (- 2%). The decrease was due to a reduction in Global Markets’ other operating income of$218 million and the one-off $125m gain on sale of Trustees in second half 2014, partially offset by a $124 million increase in net funds
management and insurance income, a $64m increase in share of associates’ profit and $42m increased fee income in IIB from volume growth.
}} Fee income increased by $84 million (4%) with $65 million positive impact due to foreign currency translation, increased fee incomeof $42 million in IIB from Retail Asia Pacific and Transaction Banking volume growth, partially offset by the divestment of the ANZ Trustees
business in July 2014.
}} Net foreign exchange income decreased by $17 million. Adjusting for $12 million positive impact of foreign currency translation, the$29 million decrease was largely as a result of higher realised losses on foreign currency hedges ($61 million), these offset translation
gains elsewhere in the Group, and higher unrealised gains on foreign currency balances held in IIB ($19 million).
}} Net income from funds management and insurance increased $142 million with $18 million positive impact of foreign currency translation,
and $107 million increase in Global Wealth income due to increased funds under management and in-force premiums, as well as growth
in insurance income due to improved lapse experience and a large one-off loss in 2014 due to the exit of a Group life insurance plan.
}} Share of associates’ profit increased by $115 million with foreign currency translation driving an increase of $51 million and the remaining
increase due to:–– Shanghai Rural Commercial Bank increased $53 million due to lending growth and the impairment of an investment held by SRCB in 2014.
–– Bank of Tianjin increased $45 million due to asset growth.
–– AMMB Holdings Berhad decreased $22 million mainly due to net interest margin contraction from a change in lending mix, and thedivestment of its insurance business in September 2014.
–– P.T. Bank Pan Indonesia decreased $13 million mainly due to lower earnings and a $10 million loan recovery in 2014.
}} Global Markets other operating income decreased by $100 million. Adjusting for the positive impact of foreign currency translation($118 million), income decreased by $218 million mainly driven by widening credit spreads on balance sheet trading positions and Asianand European bond holdings.
}} Other income decreased by $103 million. Adjusting for a $39 million positive foreign currency translation, the decrease of $142 million
was mainly due to the $125 million gain on sale of ANZ Trustees recognised in 2014.

20

ANZ ANNUAL REPORT 2015

Operating Expenses

2015
$m

2014
$m

Movt

Personnel expenses
Premises expenses

5,479
922

5,088
888

8%
4%

Technology expenses

1,462

1,266

15%

Restructuring expenses
Other expenses

31
1,465

113
1,405

-73%
4%

Total cash operating expenses

9,359

8,760

7%

45.6%
50,15244.7%
50,32890 bps0%

Key performance metrics
Operating expenses to operating income
Full time equivalent staff (FTE)1

The Group’s operating expenses increased $599 million (7%) with $324 million (4%) due to foreign currency translation. Key factors included:}} Personnel expenses increased $391 million (8%), with $214 million (4%) due to foreign exchange translation and $177 million (3%) driven
by annual salary increases and related costs.
}} Premises expenses increased $34 million (4%), with $29 million (3%) driven by foreign exchange translation and $5 million (1%) due to theimpact of rent increases linked to CPI.
}} Technology expenses increased $196 million (15%), with $30 million (1%) due to foreign exchange translation and $166 million (13%) due
to increased depreciation and amortisation on key infrastructure projects, higher data storage and software license costs and the increased
use of outsourced and managed services.
}} Restructuring expenses decreased $82 million (-73%), with $2 million (2%) due to foreign exchange translation and $80 million (71%) fromdecreased restructuring costs across all Divisions.
}} Other expenses increased $60 million (4%), with $49 million (3%) due to foreign exchange translation and $11 million (1%) from higher spend
related to compliance and regulatory remediation activities, partly offset by GST recoveries and the write-down of intangible assets in Global
Wealth in 2014.
2015
$m

2014
$m

Movt

Individual credit impairment charge
Collective credit impairment charge/(release)

1,110
95

1,144
(155)

-3%
large

Total credit impairment charge to income statement

1,205

989

22%

Credit impairment charge

Total credit impairment charges increased $216 million (22%) due to a $250 million increase in collective credit impairment charges, offset
by a $34 million (3%) decrease in individual impairment charges. The $95 million collective charge for the year reflects lending growthin Australia, credit downgrades of a few IIB customers, partially offset by associated economic cycle releases. This compares to a $155 million
release in 2014 resulting from non-recurring provision releases and credit upgrades in IIB and New Zealand, and net decreases in theeconomic cycle overlay.

DIRECTORS’ REPORT

21

DIRECTORS’ REPORT (continued)

FINANCIAL POSITION OF THE GROUP
Summary Balance Sheet

2015
$b

2014
$b

Movt

AssetsCash/Settlement balances owed to ANZ/Collateral paid
Trading and available-for-sale assets

82.5
92.7

58.3
80.6

42%
15%

Derivative financial instruments

85.6

56.4

52%

Net loans and advances

570.2

521.8

9%

Investments backing policy liabilities
Other

34.8
24.1

33.6
21.4

4%
13%

Total Assets

889.9

772.1

15%

Liabilities
Settlement balances owed by ANZ/Collateral received

19.1

15.7

22%

Deposits and other borrowings

570.8

510.1

12%

Derivative financial instruments

81.3

52.9

54%

Debt issuances

93.7

80.1

17%

Policy liabilities/external unit holder liabilities
Other

38.7
28.9

37.7
26.3

3%
10%

Total Liabilities

832.5

722.8

15%

Total Equity

57.4

49.3

16%

The Group’s balance sheet continued to strengthen during 2015 with stronger capital ratios, an increased liquidity portfolio, and lower gross
impaired assets.
}} Cash, settlement balances and collateral paid increased by $24 billion, with $7 billion due to foreign exchange translation. The remaining
increase was primarily driven by increased short term deposits with the US Federal Reserve and Bank of England, following the
introduction of Basel 3 liquidity risk standards in Australia on 1 January 2015, and higher collateral paid on derivative liabilities withcollateralised counterparties.
}} Trading and available-for-sale assets increased $12 billion, with $5 billion due to foreign exchange translation. The increase was primarily
driven by growth in the size of the Liquidity portfolio influenced by new liquidity requirements.
}} Derivative financial instruments increased on higher customer demand for interest rate hedging products in light of low interest rates, alongwith increased customer demand for foreign exchange spot and forward products driven by volatility in the Asia market. Net derivative
financial instruments increased by $1 billion primarily driven by movements in foreign exchange and interest rates, along with the impactof foreign exchange translation.
}} Net loans and advances increased $48 billion, with $19 billion due to foreign exchange rate translation, $26 billion growth in Australia divisionon home loan and non-housing term loans, a $7 billion increase in New Zealand home loans and non-housing term loans and a $3 billion
decrease driven by Global Transaction Banking.
}} Deposits and other borrowings increased $60 billion, with $32 billion due to foreign exchange rate translation impacts, $31 billion increase
in interest bearing deposits, $17 billion growth in Group Treasury certificates of deposit and commercial paper, and a $17 billion decreasein term deposits composed of $10 billion decrease in IIB and $8 billion decrease in Australia division partially offset by $1 billion increase
in New Zealand.
}} Total equity increased $8 billion primarily due to $7.5 billion of profits generated over the year, $3 billion from an institutional placement
and retail share purchase plan, and other comprehensive income of $2 billion, offset by the payment (net of reinvestment) of the 2014
final and 2015 interim dividends of $4 billion.
Credit Provisioning

2015

2014

Movt

Gross impaired assets ($m)
Credit risk weighted assets ($b)

2,719
349.8

2,889
308.9

-6%
13%

Total provision for credit impairment ($m)

4,017

3,933

2%

Individual provision as % of gross impaired assets
Collective provision as % of credit risk weighted assets

39.0%
0.85%

40.7%
0.89%

170 bps
4 bps

Gross impaired assets decreased $170 million (6%) primarily driven by the continued workout of the impaired asset portfolio. The Group has
an individual provision coverage ratio on impaired assets of 39.0% at 30 September 2015, down from 40.7% at September 2014.

22

ANZ ANNUAL REPORT 2015

The collective provision as a percentage of credit risk-weighted assets was 0.85% as at 30 September 2015, down from 89 bps from30 September 2014, continuing to provide sound credit provision coverage.
Liquidity and Funding
Total liquid assets ($b)
Liquidity Coverage Ratio (LCR)

2015

2014

Movt

184.5
122%

149.6
111%

23%
10%

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 repurchasewith 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 eligible securities listed by the
Reserve Bank of New Zealand (RBNZ).
The Group monitors and manages the composition of liquid assets to ensure diversification by asset class, counterparty, currency and tenor.
Minimum levels of liquid assets held are set annually based on a range of ANZ specific and general market liquidity stress scenarios suchthat potential cash flow obligations can be met over the short to medium term, and holdings are appropriate to existing and future businessactivities, regulatory requirements and in line with the approved risk appetite.
During the year customer funding increased by $40.7 billion (10%) and wholesale funding increased $38.1 billion (19%). Customer funding
represents 60.6% of total funding. $18.8 billion of term wholesale debt (with a remaining term greater than one year as at 30 September 2015)
was issued during the year ended 30 September 2015 (Sep 2014: $23.9 billion). The weighted average tenor of new term debt was 4.9 years(2014: 4.9 years).
Capital Management

2015

2014

Movt

Common Equity Tier 1– APRA Basel 3– Internationally Comparable Basel 3

9.6%
13.2%

8.8%
12.5%

80 bps70 bpsRisk weighted assets ($b) (APRA Basel 3)

401.9

361.5

40.4

APRA, under the authority of the Banking Act 1959, sets minimum regulatory capital requirements for banks including what is acceptableas capital and provide methods of measuring the risks incurred by the Bank.
The Group’s Common Equity Tier 1 ratio increased 80 bps to 9.6% based upon the APRA Basel 3 standards, exceeding APRA’s minimum
requirements, with cash earnings, and capital initiatives, outweighing dividends, incremental risk weighted assets and deductions.
Capital initiatives included $3.2 billion of capital raised via an institutional share placement and retail share purchase plan in response
to higher capital requirements for Australian residential mortgages by APRA from 1 July 2016.
Pillar 3 information
ANZ provides information required by APS 330: Public Disclosure in the Regulatory Disclosures section of its website:shareholder.anz.com/pages/regulatory-disclosure.
This information includes disclosures detailed in the following sections of the Standard:
Attachment A: Capital disclosure template
Attachment B: Main features of capital instruments
Attachment E: Leverage ratio disclosure requirements
Attachment F: Liquidity Coverage Ratio disclosure template
RESULTS OF MAJOR SEGMENTS OF THE GROUP
The Group operates on a divisional structure with Australia, IIB, New Zealand, and Global Wealth being the major operating divisions. The IIB and
Global Wealth divisions are coordinated globally. Global Technology Services and Operations (GTSO) and Group Centre provide support to theoperating divisions, including technology, operations, shared services, property, risk management, financial management, strategy, marketing,human resources and corporate affairs. The Group Centre also includes Group Treasury and Shareholder Functions.
During 2015 the Merchant Services and Commercial Credit Cards businesses were transferred out of the Cards and Payments business unit
in Australia Retail and split between Australia C&CB and IIB based on customer ownership.
There have been no other significant structure changes, however certain prior period comparatives have been restated to align with current
period presentation as a result of changes to customer segmentation and the continued realignment of support functions.

DIRECTORS’ REPORT

23

DIRECTORS’ REPORT (continued)

Australia
Australia Division’s strategy is focused on growing customers, products per customer and cross-sell between Divisions through improving
the customer proposition in all parts of our business.
In 2015, Australia Division delivered a 7% increase in cash profit and accounted for 45% of the ANZ Group Cash profit. The cost to income
ratio has improved from 36.8% to 36.4% while investment has continued in key growth areas such as increasing distribution sales capacity
and capability, expanding our presence in NSW and building out key customer and industry segments in our Corporate and Commercial
business (C&CB).
We continue to deliver innovative and digital solutions to enhance the customer experience and allow customers to have more control
over their banking needs. Digital sales have increased 30% in the year. Customer acquisition has increased by 3%, 59% of Retail customers
hold multiple products with us and C&CB cross-sell has increased 5%. Margins have been well managed with lending margin pressure
from competition being largely offset from deposit repricing.
In Retail, Home loan sales are up 24% nationally and on track to deliver 6 consecutive years of above system growth1. Home loan sales in NSW
have grown 63% in the year. Cards momentum continues with acquisitions up 29% and market share is 20%1. Individual impairment loss rates
are at their lowest level in 8 years, with increases in collective impairment charges predominantly from lending growth.
C&CB continues to grow its business, targeting key sectors and supporting customers across the region. Customer numbers grew 5%, lending
growth increased by 6% with Small Business a highlight growing at 12%. Cost discipline and underlying asset quality remains sound.
2015
$m

2014
$m

Movt

Net interest income
Other operating income

7,509
1,169

7,077
1,116

6%
5%

Operating income
Operating expenses

8,678(3,157)

8,193(3,015)

6%
5%Profit before credit impairment and income tax
Credit impairment charge

5,521
(853)

5,178
(818)

7%
4%

Profit before income tax
Income tax expense and non-controlling interests

4,668(1,394)4,360(1,306)

7%
7%

Cash profit

3,274

3,054

7%

Number of employees (FTE)
Net interest margin

9,781
2.50%

9,904
2.52%

-1%
-2 bpsOperating expenses to operating income

36.4%

36.8%

-40 bps

Net loans and advances ($b)
Customer deposits ($b)

313.7
169.3

287.8
160.7

9%
5%

Income statement

Key performance metrics

Cash profit increased 7%, with 6% income growth, a 5% increase in expenses and a 4% increase in credit impairment charges.
Key factors affecting the result were:}} Net interest income increased by $432 million or 6% primarily due to Home Loans and Small Business Banking lending growth of 10%
and 12% respectively. Lending margin contraction from competition was partially offset by favourable deposit pricing.
}} Other operating income increased $53 million or 5% primarily due to increased net interchange fee revenue, and lending fee income driven
by Small Business Banking lending growth.
}} Operating expenses increased $142 million or 5%. This was primarily due to investments supporting our sales force growth strategy(particularly in NSW and Digital), as well as wage inflation.
}} Credit impairment charges increased $35 million or 4%, with a lower individual impairment charge partially offsetting a higher collective charge.
The lower individual charge reflected write-backs in Corporate Banking partially offset by higher charges in Personal Loans, Small Business Banking
and Esanda. The collective charge increase is mainly due to lending growth in Cards and Small Business with methodology adjustments in Esanda
and changes to hardship policy also contributing to the increase.
1 Source: APRA Monthly Banking Statistics 12 months to September 2015.

24

ANZ ANNUAL REPORT 2015

International and Institutional Banking
International and Institutional Banking (IIB) division provides markets, transaction banking and lending services to Institutional clients globally,leveraging its Australian market strength, and capability to reach across Asia. The Global Banking division serves customers with multi-productand multi-geographic requirements, while International Banking serves customers with less complex needs. IIB also provides banking
and wealth management services to affluent and emerging affluent retail clients across Asia Pacific. In addition, IIB manages the Group’s
investment in partnerships in Asia.
IIB’s four key strategic priorities are:}} Connecting with more customers by providing seamless value: supporting customers’ trade and investment activities across the key Asia
Pacific corridors through the provision of multi-product, integrated solutions.
}} Delivering leading products through insights: combining leading product excellence with industry and regional expertise to provide tailored,
innovative solutions to customers.
}} Intensifying balance sheet discipline: accelerating performance by managing capital efficiently and prudently.
}} Scaling and optimising infrastructure: simplifying and focusing the business to effectively control costs.
IIB continues to focus on growing its mix of higher returning products; Markets and Cash Management. Loans remain an important
product from which to build customer relationships.
2015
$m

2014
$m

Movt

Net interest income
Other operating income

4,173
3,246

4,009
3,096

4%
5%

Operating income
Operating expenses

7,419(3,616)

7,105(3,275)

4%
10%

Profit before credit impairment and income tax
Credit impairment charge

3,803
(295)

3,830
(216)

-1%
37%

Profit before income tax
Income tax expense and non-controlling interests

3,508
(844)

3,614
(906)

-3%
-7%

Cash profit

2,664

2,708

-2%

Number of employees (FTE)
Net interest margin

7,578
1.34%

7,749
1.50%

-2%
-16 bpsOperating expenses to operating income

48.7%

46.1%

260 bps

Net loans and advances ($b)
Customer deposits ($b)

154.7
202.5

142.0
183.1

9%
11%

Income statement

Key performance metrics

Cash profit decreased by 2% due to an increase in operating expenses and credit impairment charges, partially offset by an increasein operating income.
Key factors affecting the result were:}} Net interest income increased 4%. The increase in net interest income was driven by Retail Asia Pacific, Global Markets and Global Transaction
Banking, partially offset by decreases in Global Loans. Average deposits and other borrowings increased 12% and average gross loans
increased 11%. Net interest margin declined 16 bps, mainly due to excess liquidity in Australia.
}} Other operating income increased by 5%, due to increased Global Transaction Banking fees reflecting deposit volume growth in all
geographies along with income growth from Asia Partnerships, higher Investment and Insurance income in Retail Asia Pacific, higher
Global Markets Sales income and increased fee income from Global Loans. These increases were offset by a decrease in Global Markets
Balance Sheet Trading income which was negatively impacted by widening credit spreads towards the end of the year.
}} Operating expenses increased by 10%, with ongoing investment in key growth, infrastructure, and compliance-related projects.
}} Credit impairment charges increased 37%. Individual credit impairment charges were flat with higher provisions in Global Loans offset
by lower provisions in Global Transaction Banking. Collective credit impairment charges increased due to non-recurring provision releases
in Retail Asia Pacific and higher level of customer credit rating upgrades in Global Loans in the prior year.

DIRECTORS’ REPORT

25

DIRECTORS’ REPORT (continued)

New Zealand
New Zealand is a core market and ANZ is well positioned with its market leading network coverage and super regional connections.
We maintained our momentum and continued to grow our market share in key products1 during 2015, including mortgage lending,business lending, credit cards and deposits. Our gross impaired assets ratio has reduced due to improved credit quality across the portfolio
and our operating expenses to operating income ratio continued to trend downwards, due to revenue growth and continued benefits fromour simplification strategy. Our vision is to help New Zealanders achieve more by offering unrivalled connections across the region andthe best combination of convenience, service and price. We remain well placed to deliver this.
Retail2
We have grown customer numbers in 2015 and are now the biggest mortgage lender3 across all major cities and we are earning more revenue
per FTE. We delivered new digital functionality for our customers, and our mobile banking application (goMoney™) was consistently rated either
98% or 99% for customer satisfaction4. Our focus on having the best people in the right locations is paying off, with growth in the key Auckland
and Christchurch markets and the migrant and Small Business Banking customer segments.
Commercial
We have continued to see lending growth in our Commercial business. Portfolio quality and supporting existing customers has been the
key focus in the Agri market. Our network of frontline specialists has played a leading role in delivering business and industry specific insights.
Our focus on simplification continues and projects, including loan document simplification and process reengineering, have improved
efficiency for staff and made banking easier for our customers.
2015
$m

2014
$m

Movt

Net interest income
Other operating income

2,316
368

2,171
349

7%
5%

Operating income
Operating expenses

2,684(1,064)2,520(1,031)

7%
3%

Profit before credit impairment and income tax
Credit impairment (charge)/release

1,620
(55)

1,489
8

9%
large

Profit before income tax
Income tax expense and non-controlling interests

1,565
(438)

1,497
(419)

5%
5%

Cash profit

1,127

1,078

5%

Number of employees (FTE)
Net interest margin

5,068
2.48%

5,059
2.49%

0%
-1 bp

Operating expenses to operating income

39.7%

40.9%

-120 bps

95.2
59.7

86.1
51.4

11%
16%

Income statement

Key performance metrics

Net loans and advances ($b)
Customer deposits ($b)

Cash profit increased 5%, primarily driven by an improvement in net interest income due to lending growth and disciplined expense
management, partially offset by high credit impairment charges.
Key factors affecting the result were:}} Net interest income increased 7%, primarily due to above system growth in lending1. Average gross loans and advances grew 7%,
with growth across both the housing and non-housing portfolios. Margins were broadly flat, despite competitive market conditions.
}} Other operating income increased 5% driven by increased sales of KiwiSaver and insurance products via the branch network.
}} Operating expenses increased 3% driven by inflationary impacts and investment activity partly offset by productivity measures.
}} Credit impairment charges increased $63 million from a net release of $8 million in 2014 to a charge of $55 million in 2015.
The individual credit impairment charge decreased 14% reflecting lower levels of new and top-up provisions, partially offset by lower
write-backs in Commercial. The collective provision charge was $72 million higher due to portfolio growth, a lower release of economic
overlay provisions and reduced rate of improvement in credit quality compared to 2014.
1
2
3
4

Source: RBNZ August 2015.
Retail now includes Small Business Banking which was previously included in Commercial.
Source: Core Logic (mortgage registrations) September 2015.
Source: Camorra (rolling 6 month average) Retail Market Monitor.

26

ANZ ANNUAL REPORT 2015

Global Wealth
Global Wealth provides a range of innovative solutions to customers across the Asia Pacific region to make it easier for them to connect
with, protect and grow their wealth. Global Wealth serves over 2.4 million customers and manages $65 billion in investment and retirementsavings. Customers can access ANZ’s wealth solutions through teams of qualified financial planners and advisers, innovative digital platforms,
ANZ Private Bankers, ANZ branches and direct channels.
Global Wealth continues to deliver innovative solutions that are aligned to ANZ’s strategy to improve customer experience. We developed
Grow™ - a series of innovations across the physical, digital and advice space to help our customers better connect with, protect and grow theirfinancial well-being. These include ANZ Smart Choice Super, a simple and direct retirement savings solution; the ANZ Grow Centre, a destinationthat blends digital tools with physical wealth specialists, where customers can get help with everything from their digital device to financial
advice; and Grow by ANZ™, our award winning digital app that brings banking, share investments, superannuation and insurance, together
in one place.
Funds Management
The Funds Management business helps customers grow their wealth through investment (including direct shares via E*TRADE), superannuationand pension solutions. Global Wealth has embraced the changing regulatory environment to reshape the business, simplifying operational
processes and delivering innovative solutions like ANZ Smart Choice Super and ANZ KiwiSaver.
Insurance
The Insurance business provides protection for all life stages through a comprehensive range of life and general insurance products distributed
through intermediated and direct channels. Global Wealth’s focus on retail risk resulted in a 9% growth in individual in-force premiums, while
continued investment in retention initiatives in Australia reduced retail lapse rates by 20 bps.
Private WealthOperating in six geographies across the region we continue to strengthen our Private Wealth offerings by building core investment advice
capabilities and developing a suite of global investment solutions.
2015
$m

2014
$m

Movt

Net funds management and insurance income
Other operating income including net interest income

1,361
369

1,249
496

9%
-26%

Operating expenses including credit provision(975)(1,002)-3%

Profit before income tax
Income tax expense and non-controlling interests

755
(154)

743
(201)

2%
-23%

Cash profit

601

542

11%

Income statement

Consisting of:– Funds Management

157

120

31%

– Insurance

296

224

32%

– Private Wealth1– Corporate and Other

93
55

181
17

-49%
large

601

542

11%

Number of employees (FTE)
Operating expenses to operating income

2,489
56.4%

2,290
57.5%

9%
-110 bps

Funds under management ($m)

65,392

61,411

6%

In-force premiums ($m)

2,217

2,038

9%

13.3%
15.8%

13.5%
16.1%

-20 bps-30 bps

Total Global WealthKey performance metrics

Retail insurance lapse rates– Australia– New Zealand
1 In 2014 Private Wealth included a $125 million gain on the sale of ANZ trustees.

DIRECTORS’ REPORT

27

DIRECTORS’ REPORT (continued)

Cash profit increased by 11%. Excluding a $56 million one-off tax consolidation benefit in September 2015 and the $64 million net impactof the ANZ Trustees sale and subsequent investment in productivity initiatives in September 2014, cash profit increased by 14%.
Key factors affecting the result were:}} Funds Management operating income increased by 6%. This was driven by 10% growth in average FUM (excluding Private Wealth FUM)
as a result of solid volume growth in the ANZ Smart Choice Super and ANZ KiwiSaver products.
}} Insurance operating income increased by 18%. September 2014 full year results included a one-off $47 million experience loss due to the exitof a Group Life Insurance plan. Excluding this, operating income grew by 9% reflecting solid in-force premium growth and lower lapse rates.
This performance contributed to an 18% uplift in the Embedded Value (gross of transfers).
}} Excluding the gain on sale from ANZ Trustees and related income in September 2014, Private Wealth operating income increased by 12%.
This was driven by improved volumes with strong growth in customer deposits and investment FUM, up by 33% and 22%, respectively.
}} Operating expenses decreased by 3%. Excluding the net impact of ANZ Trustees related expenses and the write-down of intangibles
in September 2014, expenses increased by 2%. This was driven by higher regulatory and compliance expenses.
Global Technology, Services and Operations (GTSO) and Group Centre
GTSO and Group Centre provide support to the operating divisions, including technology, operations, shared services, property, risk
management, financial management, strategy, marketing, human resources and corporate affairs. The Group centre also includes Group
Treasury and Shareholder Functions.
Income statement

2015
$m

2014
$m

Movt

Operating income
Operating expenses

7
(547)

15
(435)

-53%
26%

Profit/(Loss) before credit impairment and income tax
Credit impairment (charge)/release

(540)
(2)

(420)
35

29%
large

Profit/(Loss) before income tax
Income tax expense and non-controlling interests

(542)
92

(385)
120

41%
-23%

Cash profit/(loss)

(450)

(265)

70%

25,23625,3260%

Key performance metrics
Number of employees (FTE)

Key factors affecting the results were:}} Operating income decreased $8 million primarily due to increased realised revenue hedge losses partly offset by higher income generated
from increased capital held in Group Centre.
}} Operating expenses increased $112 million due to increased investment in enterprise projects, higher depreciation and amortisation andinvestment in the Global Compliance function.
}} Credit impairment charges decreased $37 million primarily due to the release of an economic cycle provision held in Group Centre in 2014.
}} The decrease in FTE is primarily due to productivity initiatives in GTSO partly offset by the build out of the Global Compliance function.

28

ANZ ANNUAL REPORT 2015

Risks
The success of the Group’s strategy is underpinned by soundmanagement of its risks. As the Group progresses on its strategic
path of becoming the best connected and most respected bankacross the region, the risks faced by the Group will evolve in linewith the strategic direction. The success of the Group’s strategy isdependent on its ability to manage the broad range of interrelatedrisks it is exposed to across our expanding geographic footprint.
Risk Appetite
ANZ’s risk appetite is set by the Board and integrated within
ANZ’s strategic objectives. The risk appetite framework underpins
fundamental principles of strong capitalisation, robust balance sheet
and sound earnings, which protects ANZ’s franchise and supports
the development of an enterprise-wide risk culture. The frameworkprovides an enforceable risk statement on the amount of risk ANZ
is willing to accept and it supports strategic and core businessactivities and customer relationships ensuring that:}} only permitted activities are engaged in;}} the scale of permitted activities, and subsequent risk profile, does
not lead to potential losses or earnings volatility that exceeds ANZ
approved risk appetite;}} risk is expressed quantitatively via limits and tolerances;}} management focus is brought to bear on key and emerging risk
issues and mitigating actions; and}} risk is linked to the business by informing, guiding andempowering the business in executing strategy.
ANZ’s risk management is viewed as a core competency and toensure that risks are identified, assessed and managed in an accurate
and timely manner, ANZ has:}} An independent risk management function, with both central
and enterprise-wide functions (which typically cover such activities
as risk measurement, reporting and portfolio management),
together with embedded risk managers within the businesses.
}} Developed frameworks to provide structured and disciplined
processes for managing key risks. These frameworks include
articulation of the appetite for these risks, portfolio direction,
policies, structures, limits and discretions.
Material Risks
All the Group’s activities involve, to varying degrees, the analysis,
evaluation, acceptance and management of risks or combinationsof risks. The material risks facing the Group and its approach to
management of those risks are described below:
Capital Adequacy Risk – is the risk of loss arising from ANZ failingto maintain the level of capital required by prudential regulatorsand other key stakeholders (shareholders, debt investors, depositors,
rating agencies etc.) to support ANZ’s consolidated operations andrisk appetite. Losses include those arising from diminished reputation,a reduction in investor/counter-party confidence, regulatory
non-compliance (e.g. fines and banking license restrictions) andan inability for ANZ to continue to do business. ANZ pursues an active
approach to capital management, which is designed to protect
the interests of depositors, creditors and shareholders.

Credit Risk – is the risk of financial loss resulting from a counterparty
failing to fulfil its obligations, or from a decrease in credit quality ofa counterparty resulting in a loss in value. ANZ has a comprehensive
framework to manage credit risk. The framework is top down, being
defined by credit principles and policies. The effectiveness of thecredit risk management framework is assessed through various
compliance and monitoring processes. These, together with portfolio
selection, define and guide the credit process, organisation and staff.
ANZ’s customers could also be impacted by climate change
and changes to laws or regulations, or other policies adopted bygovernments or regulatory authorities, including carbon pricing andclimate change adaptation or mitigation policies. We factor theserisks into our customer evaluations and due diligence processes.
ANZ is strengthening due diligence processes for the financing of
any new or existing coal mines, the transport of coal, and financing
of coal fired power generation. This includes examining customer
strategy at the corporate level to lower carbon emissions and support
the internationally agreed goal of limiting the increase in global
average temperatures to less than 2°C above pre-industrial levels.
Market Risk – Market Risk stems from ANZ’s trading and balance
sheet activities and is the risk to ANZ’s earnings arising from changes
in interest rates, foreign exchange rates, credit spreads, volatility,
correlations or from fluctuations in bond, commodity or equity prices.
The key market risk factors include}} Interest rate risk: the potential loss arising from the change in thevalue of a financial instrument due to changes in market interest
rates or their implied volatilities.
}} Currency rate risk: the potential loss arising from the decline in thevalue of a financial instrument due to changes in foreign exchange
rates or their implied volatilities.
}} Credit spread risk: the potential loss arising from a change invalue of an instrument due to a movement of its margin or spread
relative to a benchmark.
}} Commodity risk: the potential loss arising from the decline in
the value of a financial instrument due to changes in commodity
prices, or their implied volatilities.
}} Equity risk: the potential loss arising from a decline in value offinancial instruments due to changes in equity prices or indicesor their implied volatilities.
These risks are managed through a detailed market risk limit
framework and adherence to the Group’s market risk appetite whichis cascaded to portfolio and/or country levels limits. Compliancewith market risk appetite and limits is monitored on a daily basis.
Liquidity and Funding Risk – is the risk that the Group is unable
to meet its payment obligations as they fall due, including repaying
depositors or maturing wholesale debt, or that the Group has
insufficient capacity to fund increases in assets. The Global financial
crisis highlighted the importance of differentiating between stressedand normal market conditions in a name-specific crisis and thedifferent behaviour that offshore and domestic wholesale funding
markets can exhibit during market stress events. ANZ’s short term
liquidity risk appetite is defined by the ability to meet a range of
regulatory and internal liquidity metrics mandated by the Board.
The metrics cover a range of scenarios of varying duration and levelof severity which ANZ uses to manage this risk.

DIRECTORS’ REPORT

29

DIRECTORS’ REPORT (continued)

Operational Risk – is the risk of loss resulting from inadequate or
failed internal processes, people and 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 systems but excludes strategic risk. The objective of operationalrisk management is to ensure that risks are identified, assessed,
measured, evaluated, treated, monitored and reported in a structured
environment with appropriate governance oversight, ANZ does
not expect to eliminate all operational risks, but to ensure that theresidual risk exposure is managed as low as reasonably practical
based on a sound risk/reward analysis in the context of aninternational financial institution.
Compliance Risk – is the probability and impact of an event that
results in a failure to act in accordance with laws, regulations, industry
standards and codes, internal policies and procedures and principles
of good governance that apply to ANZ’s businesses. ANZ’s Compliance
Framework is aligned to key industry and global standards andbenchmarks. It utilises the concept of a ‘risk-based’ approach tocompliance management, enabling the Compliance function to
support divisions and businesses in taking a standardised approachto compliance management tasks. This allows ANZ to be globallyconsistent in proactively identifying, assessing, managing, reportingand escalating compliance-related risk exposures while respecting
the specific obligations of each jurisdiction in which we operate.
Reputation Risk – is the risk of loss caused by adverse perceptionsof ANZ held by the public, shareholders, investors, regulators, or
rating agencies that directly or indirectly impact earnings, capital
adequacy or value. Reputation Risk arises as a result of poor control
processes in respect of matters such as relationships / associations,client on-boarding, new product development / new strategies
or as a result of unexpected risks crystallising (e.g. credit, market
or operational risk). The social and/or environmental impacts of ourlending decisions may also lead to reputation risk. ANZ manages
reputation risk through a robust governance process and controls.
The Management Board is the most senior management committee
responsible for consideration of potential reputation damage andmeasures to protect ANZ’s reputation, with some matters delegatedto the Reputation Risk Committee.
Insurance Risk – is the risk of unexpected losses resulting fromworse than expected claims experience (variation in timing andamount of insurance claims due to incidence or non-incidence
of death, sickness, disability or general insurance claims) and includes
inadequate or inappropriate underwriting, claims management,
reserving, insurance concentrations, reinsurance management,
product design and pricing which will expose an insurer to financial
loss and the consequent inability to meet its liabilities. In the life
insurance business, insurance risk arises primarily through mortality(death) and morbidity (illness and injury) and longevity risks.
Insurance risk is managed primarily by: product design to price allapplicable risks into contracts; reinsurance to reduce liability for large
individual risks; underwriting to price/reserve for the level of risk
associated with an individual contract; claims management to admit
and pay only genuine claims; insurance experience reviews to update
assumptions and portfolio management to maintain a diversityof individual risks.

30

Reinsurance Risk – Reinsurance is an agreement in which one insurer(‘the reinsurer’) indemnifies another insurer for all or part of the riskof a policy originally issued and assumed by that other insurer.
Reinsurance is a risk transfer tool between the insurer and reinsurer.
The main risk that arises with reinsurance is counterparty credit risk.
This is the risk that a reinsurer fails to meet their contractual
obligations, i.e. to pay reinsurance claims when due. This risk ismeasured by assigning a counterparty credit rating or probabilityof default. Reinsurance counterparty credit risk is mitigatedby restricting counterparty exposures on the basis of financial
strength and concentration.
Strategic Risk - Strategic Risks are risks that affect or are createdby an organisation’s business strategy and strategic objectives. Where
the strategy leads to an increase in other Key Material Risks (e.g. Credit
Risk, Market Risk, Operational Risk) the risk management strategies
associated with these risks form the primary controls. Management
Board members will identify and assess potential strategic risks in thecourse of making decisions about the future of ANZ. This will include
analysis of potential merger & acquisition activity, exit strategies andthe nature of resourcing. In assessing strategic risks, Management
Board will consider impacts such as pricing and products, the systems
and processes needed to deliver on the proposed strategy, andcapital implications. In monitoring the potential for strategic risk
to materialise, ANZ must maintain a deep understanding of the key
markets and jurisdictions in which we operate. This includes analysisof the economy and outlook, globally and locally; the actionsof competitors; and being agile in our response to new andemerging technology.
A listing of the principal risks and uncertainties facing the Groupare set out in the Supplementary information on pages 175 to 183.
Further information on ANZ’s sustainability risks and how they are
managed is available in the 2015 Corporate Sustainability Review,
to be published on anz.com in December 2015.

ANZ ANNUAL REPORT 2015

DIRECTORS’ REPORT (continued)

REMUNERATION REPORTContents
1
2
3
4
5
6

Basis of Preparation
Key Management Personnel (KMP)
Role of the Board in Remuneration
HR Committee Activities
Remuneration Strategy and Objectives
The Composition of Remuneration at ANZ
6.1 Fixed Remuneration
6.2 Variable Remuneration
		
6.2.1 Annual Variable Remuneration (AVR)		
6.2.2 Long Term Variable Remuneration (LTVR)
6.3 Other Remuneration Elements
7 Linking Remuneration to Balanced Scorecard Performance
7.1 ANZ Performance
7.2 AVR – Performance and Outcomes
7.3 LTVR – Performance and Outcomes
8 2015 Remuneration
8.1 Non-Executive Directors (NEDs)
8.2 Chief Executive Officer (CEO)
8.3 Incoming Chief Executive Officer (CEO)
8.4 Disclosed Executives
8.5 Remuneration Tables –		CEO and Disclosed Executives
		
Non Statutory Remuneration Disclosure Table		
Statutory Remuneration Disclosure Table
9 Equity 		
9.1 CEO and Disclosed Executives Equity
9.2 NED, CEO and Disclosed Executives Equity Holdings
9.3 Equity Valuations
10 NEDs, CEO and Disclosed Executives Transactions
10.1 Loan Transactions
10.2 Other Transactions

33
33
34
34
35
36
37
37
38
39
40
42
42
43
44
45
45
47
47
47
48
48
50
52
52
54
56
56
56
57

DIRECTORS’ REPORT

31

DIRECTORS’ REPORT (continued)

Introduction from the Chair of the Human Resources Committee
Dear Shareholder,I am pleased to present our Remuneration Report for the year ending 30 September 2015.
Our remuneration framework is designed to create value for all stakeholders, to differentiate rewards based on performance andin line with our risk management framework, and to provide competitive rewards that attract, motivate and retain talented people.
In 2015 ANZ delivered solid results in a challenging environment and the ANZ Board has assessed the 2015 performance for eachcategory within the balanced scorecard of measures against annual objectives and progress towards broader long term strategic goals.
The results achieved have been reflected in the variable remuneration outcomes received by the Chief Executive Officer (CEO) andDisclosed Executives.
The Long Term Variable Remuneration (LTVR)1 awarded in 2011 was tested in late 2014. Although ANZ achieved Total Shareholder Return (TSR)of 89.65% and 87.83% over the three year performance periods for the Disclosed Executives and CEO awards respectively, ANZ’s TSR did notreach the median of the comparator group. Accordingly, the performance rights did not vest and the CEO and Disclosed Executives received
no value from these awards. These awards have now lapsed.
The Human Resources (HR) Committee continues to have a strong focus on the relationship between business performance, risk management
and remuneration, and regularly reviews the executive remuneration structure to ensure it remains appropriate.
During 2015 the HR Committee conducted a comprehensive review of ANZ’s variable remuneration framework, which resulted in the followingchanges to LTVR for the CEO and Disclosed Executives, effective for LTVR grants made from 1 October 2015:}} To enhance the relevance of the select financial services comparator group, it has been modified to comprise core local and global
competitors. Based on their strategic focus, two regional banks are being incorporated into the comparator group along with twointernational banks who have similar operations to ANZ. ASX Limited and insurance companies will be removed from the comparatorgroup as their operations are largely different to that of ANZ’s and they are not direct competitors.
}} To strengthen the focus of executives on growing positive returns to shareholders, Absolute Compound Annual Growth Rate (CAGR) TSR
is being introduced as a third performance hurdle (in addition to relative TSR). One third of the LTVR will now be contingent on ANZ achieving
or exceeding a threshold level of growth (as determined by the Board). The remaining two thirds will be split between the existing relative
TSR measures. This combination provides balance to the plan, rewarding executives for performance that exceeds that of peer companies,
while still ensuring there is a continued focus on providing positive growth (even when the market is declining). Absolute CAGR TSR
provides executives with a more direct line of sight to the performance required to achieve shareholder value creation and provides
a tighter correlation between the executives’ rewards and the shareholders’ financial outcomes.
}} To increase transparency and reduce volatility in the number of instruments allocated each year a face value allocation methodology is being
used to determine the number of LTVR performance rights allocated to the incoming CEO and Disclosed Executives. This replaces the fairvalue methodology. To ensure that a similar number of instruments are granted, a one-off conversion is being undertaken. The numberof instruments allocated to the incoming CEO and Disclosed Executives will be calculated based on the five trading day Volume Weighted
Average Price (VWAP) of the Company’s shares traded on the ASX in the week up to and including the start of the performance period(18 November 2015).
On 1 October 2015 the Board announced that Mr Shayne Elliott will become CEO and join the Board on 1 January 2016 succeeding Mr Michael
Smith. Mr Elliott’s at target remuneration will be $6.3 million (which is 39% less than Mr Smith’s at target remuneration of $10.2 million) andwill comprise of three components:}} Fixed remuneration of $2.1 million.
}} Annual Variable Remuneration (AVR)2 target of $2.1 million (100% of fixed remuneration). This will be prorated for the period from thecommencement date (1 January 2016) to 30 September 2016. Mr Elliott’s AVR target for his current role as Chief Financial Officer (CFO)
will apply from 1 October 2015 to 31 December 2015.
}} Long Term Variable Remuneration target of $2.1 million. The initial award has a current face value of $2.1 million at 50% vesting and $4.2 million
at 100% vesting. Subject to shareholder approval at the 2015 Annual General Meeting this award will be delivered as three equal tranchesof performance rights allocated on a face value basis, not at fair value as used previously. Each tranche will be measured over a three year
performance period against the performance hurdle relevant to each tranche, as specified by the Board.
Termination arrangements for Mr Smith are in line with his contract (as previously disclosed to shareholders).
Further detail is provided within the Remuneration Report which we hope you will find informative.

Graeme R Liebelt
Chair – Human Resources Committee
1 LTVR - Also referred to as Long Term Incentive (LTI).
2 AVR - Also referred to as Short Term Incentive (STI).

32

ANZ ANNUAL REPORT 2015

1. Basis of Preparation
The Remuneration Report is designed to provide shareholders with an understanding of ANZ’s remuneration policies and the link between our
remuneration approach and ANZ’s performance, in particular regarding Key Management Personnel (KMP) as defined under the Corporations
Act 2001. Individual outcomes are provided for ANZ’s Non-Executive Directors (NEDs), the CEO and Disclosed Executives (current and former).
The Disclosed Executives are defined as those direct reports to the CEO with responsibility for the strategic direction and managementof a major revenue generating Division or who control material revenue and expenses that fall within the definition of KMP.
The Remuneration Report for the Company and the Group for 2015 has been prepared in accordance with section 300A of the Corporations
Act 2001. Information in Table 5: Non Statutory Remuneration Disclosure has been prepared in accordance with the presentation basis set out
in Section 8.5. The information provided in this Remuneration Report has been audited as required by section 308(3C) of the Corporations Act
2001, unless indicated otherwise, and forms part of the Directors’ Report.

2. Key Management Personnel (KMP)The KMP disclosed in this year’s report are detailed in Table 1.
TABLE 1: KEY MANAGEMENT PERSONNEL

Name

Term as KMP
in 2015

Position

Non-Executive Directors (NEDs)
D Gonski
Chairman – Appointed Chairman 1 May 2014 (Appointed Director 27 February 2014)

Full YearI AtlasDirector – Appointed 24 September 2014

Full YearP Dwyer

Director – Appointed April 2012

Full Year

H Lee

Director – Appointed February 2009

Full Year

G Liebelt

Director – Appointed July 2013

Full YearI Macfarlane

Director – Appointed February 2007

Full Year

J T Macfarlane

Director – Appointed 22 May 2014

Full Year

Non-Executive Directors (NEDs) – Former
J MorschelChairman – Appointed Chairman March 2010 (Appointed Director October 2004), retired 30 April 2014--

G Clark

Director – Appointed February 2004, retired 18 December 2013

--

P Hay

Director – Appointed November 2008, retired 30 April 2014--

D Meiklejohn

Director – Appointed October 2004, retired 18 December 2013--

A Watkins

Director – Appointed November 2008, retired 30 April 2014--

Chief Executive Officer (CEO)M SmithChief Executive Officer and Executive Director – Concluding in role 31 December 2015

Full Year

Disclosed Executives – Current
A Currie
Chief Operating Officer

Full YearS Elliott

Chief Financial Officer (Chief Executive Officer and Executive Director from 1 January 2016)

Full YearA Géczy

Chief Executive Officer, International & Institutional Banking

Full Year

D HiscoChief Executive Officer, New Zealand

Full YearG Hodges

Deputy Chief Executive Officer

Full YearJ Phillips

Chief Executive Officer, Global Wealth and Group Managing Director, Marketing, Innovation and Digital

Full Year

M WhelanChief Executive Officer, Australia – Appointed 3 April 2015

Part Year

N Williams

Chief Risk Officer

Full Year

Disclosed Executives – Former
P Chronican
Former Chief Executive Officer, Australia – Concluded in role 2 April 2015, ceasing employment 31 December 2015

Full Year

DIRECTORS’ REPORT

33

DIRECTORS’ REPORT (continued)

3. Role of the Board in Remuneration
The HR Committee is a Committee of the Board. The HR Committee is responsible for:}} reviewing and making recommendations to the Board in relation to remuneration governance, director and senior executive remunerationand senior executive succession;}} specifically making recommendations to the Board on remuneration and succession matters related to the CEO, and individual remuneration
arrangements for other key executives covered by the Group’s Remuneration Policy;}} the design of significant variable remuneration (such as the ANZ Employee Reward Scheme (ANZERS) and the Institutional Total Incentives
Performance Plan (TIPP)); and}} remuneration structures for senior executives and others specifically covered by the Remuneration Policy.
More details about the role of the HR Committee can be found on the ANZ website.1
The link between remuneration and risk is considered a key requirement by the Board. Committee membership is structured to ensure overlapof representation across the HR Committee and Risk Committee, with three NEDs currently on both committees. The HR Committee has free
and unfettered access to risk and financial control personnel, and can also engage independent external advisors as needed.
Throughout the year the HR Committee and management received information from external providers including Aon Hewitt, Ashurst, Ernst
and Young, Hay Group, Herbert Smith Freehills, McLagan, Mercer Consulting (Australia) Pty Ltd and PricewaterhouseCoopers. This information
related to market data and market practice information, legislative requirements and interpretation of governance and regulatory requirements.
The HR Committee did not receive any recommendations from remuneration consultants during the year in relation to the remuneration
arrangements of KMP. ANZ employs in-house remuneration professionals who provide recommendations to the HR Committee/Board, taking
into consideration market information provided by external providers. The Board’s decisions were made independently using the information
provided and having careful regard to ANZ’s strategic objectives, risk appetite and Remuneration Policy and principles.

4. HR Committee Activities
During 2015, the HR Committee met on six occasions, with remuneration matters an agenda item on each occasion. The HR Committee has
a strong focus on the relationship between business performance, risk management and remuneration, with the following activities occurring
during the year:}} annual review of the effectiveness of the Remuneration Policy;}} review of key senior executive appointments and terminations;}} involvement of the Risk function in remuneration regulatory and compliance related activities;}} monitoring of regulatory and compliance matters relating to remuneration governance;}} review of variable remuneration arrangements including changes to LTVR;}} review of reward outcomes for key senior executives;}} review of ANZ’s risk culture and employee engagement;}} review of health and safety;}} review of diversity and inclusion; and}} review of succession plans for key senior executives.
1 Go to anz.com > about us > our company > corporate governance > HR Committee Charter.

34

ANZ ANNUAL REPORT 2015

5. Remuneration Strategy and Objectives
ANZ’s remuneration strategy, the Group’s Remuneration Policy and reward frameworks all reflect the importance of sound risk management.
The following principles underpin ANZ’s Remuneration Policy, which is approved by the Board and applied globally across ANZ:}} creating and enhancing value for all ANZ stakeholders;}} emphasising the ‘at risk’ components of total rewards to increase alignment with shareholders and encourage behaviour that supports thelong term financial soundness and the risk management framework of ANZ, and the delivery of superior long term total shareholder returns;}} differentiating rewards in line with ANZ’s culture of rewarding for outperformance and demonstration of behaviours aligned with ANZ’s values(Integrity, Collaboration, Accountability, Respect and Excellence); and}} providing a competitive reward proposition to attract, motivate and retain the highest quality individuals in order to deliver ANZ’s businessand growth strategies.
Appropriate risk management is fundamental to the way ANZ operates and is therefore a key element of the way performance is measured andassessed at a Group, Division and individual level. Variable remuneration outcomes reflect performance against a balanced scorecard of financial
and non-financial (including risk) measures.
The core elements of ANZ’s remuneration strategy for the CEO and Disclosed Executives are set out below:
FIGURE 1: REMUNERATION OBJECTIVES

Shareholder
value creation

Emphasis on ‘at risk’components

Reward differentiation todrive outperformance andvalues led behaviours

Attract, motivate
and retain talent

Target remuneration set byreference to geographic market

Fixed

At RiskFixed remuneration

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

Fixed remuneration is set based on
financial services market1 relativities reflecting
responsibilities, performance, qualifications,experience and location.

AVR targets are linked to the performancetargets of the Group, Division and individual
using a balanced scorecard approach,which considers short term performanceand contribution towards longer
term strategic objectives, and also thedemonstration of values led behaviours.

LTVR targets are linked to TSR
performance hurdles over the
longer term.

Delivered as:

Cash

Part cash and part equity,with the equity deferredfor 1 and 2 years.

Equity deferred for 3 years.

Deferred equity remains
at risk until vesting.

This is tested once at the endof the performance period.

Deferred equity remains
at risk until vesting.

1 Considered the most relevant comparator as this is the main pool for sourcing talent and where key talent may be lost.

DIRECTORS’ REPORT

35

DIRECTORS’ REPORT (continued)

6. The Composition of Remuneration at ANZ
The Board aims to find a balance between:}} fixed and at-risk remuneration;}} annual and long term variable remuneration; and}} cash and deferred equity.
Figure 2 provides an overview of the target remuneration mix for the CEO and Disclosed Executives.
FIGURE 2: TARGET REMUNERATION MIX

At risk
67%

LTVR
33%

Deferred
Equity50%

Deferred AVR
16.5%

At risk63%

Fixed
remuneration
33%

Fixed
33%
CEO

Deferred AVR
21%
Cash AVR
23%

Cash AVR
16.5%

Cash
50%

Deferred
Equity
40%

LTVR
19%

Cash
60%
Fixed
37%

Fixed
remuneration
37%

Disclosed Executives

The remuneration mix in Figure 2 is based on LTVR face value at 50% vesting assuming an ‘on target’ award (was based on fair value
in previous reports).
The CEO’s target remuneration mix is equally weighted between fixed remuneration, AVR and LTVR, with approximately half of total
target remuneration payable in cash in the current year and half allocated as equity and deferred over one, two or three years.
The target remuneration mix for Disclosed Executives is weighted between fixed remuneration (37%), AVR (44%) and LTVR (19%), withapproximately 60% of total target remuneration payable in cash in the current year and 40% allocated as equity and deferred over one,
two or three years.
The deferred remuneration for the CEO and Disclosed Executives remains at risk (Board has discretion to reduce downward to zero)
until vesting date.
The Board has adopted this mix as an effective reward mechanism to drive strong performance and value for the shareholder in both theshort and longer term.
The CEO and Disclosed Executives may be awarded amounts above or below the target for both AVR and LTVR.
ANZ’s AVR and LTVR deferral arrangements are designed to ensure that the CEO and Disclosed Executives are acting in the best long terminterests of ANZ and its shareholders. Deferring part of their AVR over one and two years, and all of their LTVR over three years every year results
in a substantial amount of their variable remuneration being directly linked to long term shareholder value. For example as at 30 September
2015 Mr Smith held 91,855 unvested AVR deferred shares and 759,168 unvested LTVR performance rights, the combined value1 of which wasaround six times his fixed remuneration. Similarly as at 30 September 2015 Disclosed Executives held unvested equity, the value1 of which
was around four times their average fixed remuneration.
1 Value is based on the number of unvested deferred shares and unvested rights held at 30 September 2015 multiplied by the ANZ closing share price as at 30 September 2015.

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ANZ ANNUAL REPORT 2015

The following diagram demonstrates the time horizon associated with AVR and LTVR awards.
FIGURE 3: AVR AND LTVR TIME HORIZON RELATING TO 2015
1 Oct 2014 30 Sep 2015

Nov 2015

Dec 2015

Nov 2016

Nov 2017

50% ofdeferred AVR
vests (subject
to Board
discretion)

50% ofdeferred AVR
vests (subject
to Board
discretion)

Nov/Dec 2018

AnnualPerformanceandRemuneration
Review

AVR
Performance andMeasurement Period*

LTVR

Oct 2015

2015 AVR
outcomes
approved
by the Board

Deferred AVR
allocated as
equityCash AVR paid

2015 LTVR
outcomes
approved
by the Board

Deferred LTVR
allocated
as equity(performancerights) toDisclosed
Executives#

CEO grant of
LTVR (subject
to shareholder
approval)

1 Year

3 Years

1 Year

LTVR vests(subject toBoard discretionand meeting
performance
hurdles)* 2014 deferred AVR and deferred LTVR granted in November/December 2014
# CRO allocated deferred shared rights

The reward structure for the CEO and Disclosed Executives is detailed below. The only exception is the Chief Risk Officer (CRO) whose
remuneration arrangements have been structured differently to preserve the independence of this role and to minimise any conflicts of interestin carrying out the risk control function across the organisation. The CRO’s role has more limited AVR leverage for individual performance andnone (either positive or negative) for Group performance. LTVR is delivered as unhurdled deferred share rights, with a three year time based
hurdle, and is therefore not subject to meeting TSR performance hurdles.
6.1 FIXED REMUNERATION
The fixed remuneration amount is expressed as a total dollar amount which can be taken as cash salary, superannuation contributions andother nominated benefits.
6.2 VARIABLE REMUNERATION
Variable remuneration forms a significant part of the CEO’s and Disclosed Executives’ potential remuneration, providing at risk componentsthat are designed to drive performance in the short, medium and long term. The term variable remuneration within ANZ covers both theannual variable remuneration and long term variable remuneration arrangements.
Downward adjustment
The Board has on-going and absolute discretion to:}} adjust deferred variable remuneration downwards, or to zero at any time, including after the grant of such remuneration, where theBoard considers such an adjustment is necessary to protect the financial soundness of ANZ or to meet unexpected or unknown regulatory
requirements, or if the Board subsequently considers that having regard to information which has come to light after the grant of deferred
equity/cash, the deferred equity/cash was not justified;}} withhold vesting until the Board has considered any information that may impact the vesting.
Prior to any scheduled release of deferred equity/deferred cash, the Board considers whether any downward adjustment should be made.
No downward adjustment was applied to the remuneration of the CEO and Disclosed Executives during 2015.

DIRECTORS’ REPORT

37

DIRECTORS’ REPORT (continued)

6.2.1 Annual Variable Remuneration (AVR)
AVR provides an annual opportunity for a variable remuneration award. It is assessed against Group, Divisional and individual objectives basedon a balanced scorecard of measures and positive demonstration of values led behaviours. Many of the measures relate to contribution
towards medium to longer term performance outcomes aligned to ANZ’s strategic objectives as well as annual goals.
AVR ARRANGEMENTS
ANZ’s Employee Reward Scheme (ANZERS) structure and pool is reviewed by the HR Committee and approved by the Board. The size of the overall poolis based on an assessment of the balanced scorecard of measures of the Group.
Performance targets In order to focus on achieving individual, Divisional and Group performance objectives a mix of quantitative andqualitative short, medium and long term measures are assessed.
Targets are set considering prior year performance, industry standards and ANZ’s strategic objectives. Many of themeasures also focus on targets which are set for the current year in the context of progress towards longer term
goals. The specific targets and features relating to all these measures have not been provided in detail due to theircommercial sensitivity.
For the CEO and Disclosed Executives, the weighting of measures in each individual’s balanced scorecard will vary
to reflect the responsibilities of their role. For example the CEOs of the Australia, New Zealand, Global Wealth andInternational and Institutional Banking divisions and also the CFO have a heavier weighting on financial measures(typically 40%) compared to other Disclosed Executives.
The validation of performance and achievements against these objectives at the end of the year, for:}} the CEO involves input from the CRO, CFO and Group General Manager Global Internal Audit on risk management,
financial performance and internal audit matters respectively, followed by review and endorsement by the HR
Committee, with final outcomes approved by the Board; and}} Disclosed Executives involves a review by the CEO, input on each individual’s risk management from the CRO, input
on each area’s internal controls from the Group General Manager Global Internal Audit and input on the financial
performance of all key Divisions from the CFO. Preliminary and final review is completed by the HR Committee andfinal outcomes are approved by the Board.
The Board reviews performance outcomes against target for each metric, combined with a judgmental assessment of theprioritisation and impact of each outcome relative to overall business performance for both the short and longer term.
Rewarding
performance

The 2015 target AVR award level for the CEO represents one third of target remuneration and for Disclosed Executives
44% of their target remuneration. The maximum AVR opportunity for the CEO and Disclosed Executives is up to 200%.
Where a weak performance is assessed for the CEO or Disclosed Executives AVR opportunity is adjusted down accordingly(and potentially to a nil payment).

Mandatory deferral

Mandatory deferral of a portion of the AVR places an increased emphasis on having a variable structure that is flexible,
continues to be performance linked, has significant retention elements and aligns the interests of the CEO and Disclosed
Executives to shareholders to deliver against strategic objectives.
The mandatory deferral threshold for AVR payments is currently $100,000 (subject to a minimum deferral amountof $25,000) with:}} the first $100,000 of amount paid in cash;}} 50% of amount above $100,000 paid in cash;}} 25% of amount above $100,000 deferred in ANZ equity for one year; and}} 25% of amount above $100,000 deferred in ANZ equity for two years.
The deferred component of AVR paid in relation to the 2015 year is delivered as ANZ deferred shares or deferredshare rights. At the end of the deferral period, each deferred share right entitles the holder to one ordinary share.
Deferred shares are ordinary shares.

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ANZ ANNUAL REPORT 2015

6.2.2 Long Term Variable Remuneration (LTVR)
LTVR provides an annual opportunity for an equity award deferred for three years that aligns a significant portion of overall remuneration
to shareholder value over the longer term.
The HR Committee determines appropriate LTVR awards for the financial year by referencing performance achieved in that year. A grant is thenmade after the end of the financial year.
LTVR ARRANGEMENTS (granted prior to 1 October 20151) – EXCLUDING THE CRO
Type of equity
awardedLTVR was delivered to the CEO and Disclosed Executives as performance rights. A performance right is a right to acquirea share at nil cost, subject to meeting time and performance hurdles. Upon exercise, each performance right entitles
the CEO and Disclosed Executives to one ordinary share.

Time restrictions

Performance rights awarded to the CEO and Disclosed Executives will be tested against the relevant performance hurdle
at the end of the three year performance period. A three year performance period provides a reasonable period to alignreward with shareholder return and also acts as a vehicle to retain the CEO and Disclosed Executives. If the performancerights do not achieve the required performance hurdle they are forfeited at that time.

Performance hurdle The performance rights have been designed to reward the CEO and Disclosed Executives if the Group’s TSR is at or above
the median TSR of the relevant comparator group over a three year period. TSR represents the change in the value of ashare plus the value of reinvested dividends paid. TSR was chosen as the most appropriate comparative measure as it
focuses on the delivery of shareholder value and is a well understood and tested mechanism to measure performance.
The performance rights granted to the Disclosed Executives and CEO in November/December 2014 were split into two
equal tranches with vesting dependent upon the Company’s relative TSR performance against two different comparatorgroups (as detailed below).
Note that grants prior to 1 October 2013 are subject to one performance hurdle only (TSR against the select financial
services comparator group).
Vesting schedule

The proportion of performance rights that become exercisable in each tranche will depend upon the TSR achievedby ANZ relative to the companies in the relevant comparator group at the end of the three year performance period.
An averaging calculation is used for TSR over a 90 day period for start and end values in order to reduce the impact ofshare price volatility. To ensure an independent TSR measurement, ANZ engages the services of an external organisation(Mercer Consulting (Australia) Pty Ltd) to calculate ANZ’s performance against the TSR hurdles. The level of performancerequired for each level of vesting, and the percentage of vesting associated with each level of performance, are set out
below. The performance rights lapse if the performance condition is not met. There is no re-testing.
If the TSR of the Company compared to the
TSR of the relevant comparator group:

The percentage of performance rights which will vest is:

Does not reach the 50th percentile0%

Reaches or exceeds the 50th percentile but does
not reach the 75th percentile

50%, plus 2% for every one percentile increase above the50th percentile

Reaches or exceeds the 75th percentile

100%

Comparator groups For the LTVR granted in November/December 2014:}} The first tranche will be measured against a select financial services comparator group, which consists of the following
nine companies:– AMP Limited– National Australia Bank Limited– QBE Insurance Group Limited– ASX Limited– Suncorp Group Limited– Commonwealth Bank of Australia Limited– Westpac Banking Corporation– Insurance Australia Group Limited– Macquarie Group Limited}} The second tranche will be measured against a comparator group comprising the companies within the S&P/ASX 50
Index as at the start of the performance period (21 November 2014).
Each tranche will be measured independently from the other so one tranche may vest fully or partially but anothertranche may not.
Size of LTVR grants

For the LTVR granted in November/December 2014, the size of individual LTVR grants was determined by reference tothe performance and assessed potential of the individual. Individuals were advised of their LTVR award value, which wasthen split into two equal tranches and each tranche was compared to a different comparator group as explained above.
The total number of performance rights in each tranche was based on an independent fair value calculation (as at thestart of the performance period2) of a performance right in that tranche as independently valued.
The future value of the grant may range from zero to an undefined amount depending on performance against the hurdle
and the share price at the time of exercise.

1 And granted after 1 October 2013.
2 As at the allocation date for grants prior to 1 October 2014.

DIRECTORS’ REPORT

39

DIRECTORS’ REPORT (continued)

LTVR ARRANGEMENTS FOR THE CRO
Deferred share rights The CRO is the only Disclosed Executive to receive LTVR deferred share rights, rather than performance rights.
Deferred share rights are subject to a time-based vesting hurdle of three years, during which time they are held in trust. The value
used to determine the number of LTVR deferred share rights to be allocated is based on an independent fair value calculation.
6.3 OTHER REMUNERATION ELEMENTS
Hedging and Margin Lending Prohibition
As specified in the Trading in ANZ Securities Policy and in accordance with the Corporations Act 2001, equity allocated under ANZ variable
remuneration plans must remain at risk until fully vested (in the case of deferred shares) or exercisable (in the case of deferred share rights
or performance rights). As such, it is a condition of grant that no schemes are entered into, by an individual or their associated persons, thatspecifically protects the unvested value of shares, deferred share rights or performance rights allocated. Doing so would constitute a breachof the grant conditions and would result in the forfeiture of the relevant shares, deferred share rights or performance rights.
ANZ also prohibits the CEO and Disclosed Executives from providing ANZ securities in connection with a margin loan or similar financing
arrangements which may be subject to a margin call or loan to value ratio breach.
To monitor adherence to this policy, ANZ’s CEO and Disclosed Executives are required to sign an annual declaration stating that they andtheir associated persons have not entered into (and are not currently involved in) any schemes to protect the value of their interests in any
ANZ securities. Based on the 2015 declarations, ANZ can advise that the CEO and Disclosed Executives are fully compliant with this policy.
CEO and Disclosed Executives Shareholding Guidelines
The CEO and Disclosed Executives are expected to accumulate ANZ shares over a five year period, to the value of 200% of their fixed
remuneration and to maintain this shareholding while an executive of ANZ. Shareholdings for this purpose include all vested and allocated(but unvested) equity which is not subject to performance hurdles. Based on equity holdings as at 30 September 2015 and the equity
to be granted on 18 November 2015 as a result of 2015 Performance and Remuneration Review outcomes, the CEO and all Disclosed
Executives meet or, if less than five years tenure, are on track to meet their minimum shareholding guidelines requirement.
Conditions of Grant
The conditions under which deferred shares, deferred share rights and performance rights are granted are approved by the Boardin accordance with the rules of the ANZ Employee Share Acquisition Plan and/or the ANZ Share Option Plan.
Where deferred share rights or performance rights are granted, any portion of the award which vests may be satisfied by a cash equivalent
payment rather than shares at the Board’s discretion.
CEO Contract Terms
The following sets out details of the contract terms relating to the CEO. The contract terms are in line with industry practice(based on external advice on Australian and international peer company benchmarks) and ASX Corporate Governance Principles.
Length of contract

Mr Smith commenced as CEO and Executive Director of ANZ on 1 October 2007 and is on a permanent contract.
On 1 October 2015 the Board announced that Mr Smith will be succeeded as CEO by Mr Elliott effective 1 January 2016.

Key terms of leaving Under his existing employment contract Mr Smith is entitled to 12 months’ notice and ANZ has the right to requirearrangement
him to work all or part of this notice period. Accordingly, ANZ has determined as follows:
1. Mr Smith will work in the role as CEO for the first 3 months (to 31 December 2015);
2. Mr Smith will be on leave for a period of approximately 6 months (gardening leave) (to 7 July 2016);
3. Mr Smith will then receive a payment for the remaining approximately 3 months in lieu of notice (to 30 September 2016).
As a result of the above, Mr Smith will continue to be paid his fixed remuneration on a monthly basis to 7 July 2016
(items 1 and 2 above). On Mr Smith’s departure from ANZ on 7 July 2016, in accordance with the terms of his existing
employment contract, he will therefore be entitled to:}} A payment in lieu of notice for the approximately 3 month period (item 3 above) based on his above mentioned
fixed remuneration; and}} A payment for pro rata long service leave and other statutory entitlements; and}} A payment to relocate Mr Smith and his family from Australia if he decides to relocate.
ANZ will also continue to provide life insurance coverage for Mr Smith for the period through to 7 July 2016. No ex gratia
payments will be made.
Equity granted in prior years under ANZ’s AVR and LTVR plans will, in accordance with the terms of their issue and Mr Smith’s
existing employment contract, remain on foot and will vest at the originally intended vesting dates to the extent to which
the performance conditions (where applicable) are satisfied in accordance with the Conditions of Grant (and the terms
approved by Shareholders for the performance rights). Where the rights have vested the Board may determine to settle
in equity or a cash equivalent payment. There will be no accelerated or automatic vesting upon ceasing employment.
Mr Smith will also be entitled to the value of the superannuation funds that he has accumulated over his 8 years with ANZ.

40

ANZ ANNUAL REPORT 2015

Incoming CEO and Disclosed Executives’ Contract Terms
The following sets out details of the contract terms relating to the incoming CEO and Disclosed Executives. The contract terms for the incoming
CEO and all Disclosed Executives are similar, but do, on occasion, vary to suit different needs.
Length of contract

The incoming CEO and Disclosed Executives are all on a permanent contract, which is an ongoing employment contract
until notice is given by either party.

Resignation

In order to terminate the employment arrangements:}} the incoming CEO is required to provide the Company with 12 months’ written notice;}} Disclosed Executives are required to provide the Company with 6 months’ written notice.
On resignation, unless the Board determines otherwise, all unvested deferred shares, all unvested or vested
but unexercised performance rights and all deferred share rights are forfeited.

Termination on
notice by ANZANZ may terminate employment by providing 12 months’ written notice or payment in lieu of the notice period
based on fixed remuneration. On termination on notice by ANZ, unless the Board determines otherwise:}} all unvested deferred shares, performance rights and deferred share rights are forfeited; and}} only performance rights and deferred share rights that are vested may be exercised.
Where the Disclosed Executive’s termination is classified as a ‘good leaver’, then, unless the Board decides otherwise,
any unvested AVR deferred equity will be retained and released at the original vesting date. Any unvested LTVR
performance rights (subject to performance hurdles being met) and LTVR deferred equity will be prorated forthe period from the date of grant to the full notice termination date and released at the original vesting date.

Redundancy(not applicablefor the CEO)If ANZ terminates Disclosed Executive’s employment for reasons of redundancy, a severance payment will be madethat is equal to 12 months’ fixed remuneration.
All unvested AVR deferred equity remains subject to downward adjustment and are released at the original vesting date.
All unvested LTVR performance rights (subject to performance hurdles being met), LTVR deferred equity will be prorated
for the period from the date of grant to the full notice termination date and released at the original vesting date.

Death or total
and permanent
disablement

On death or total and permanent disablement all unvested AVR deferred shares, all deferred share rights and all
performance rights will vest.

Termination forserious misconduct

ANZ may immediately terminate employment at any time in the case of serious misconduct, and the executive
will only be entitled to payment of fixed remuneration up to the date of termination.
On termination without notice by ANZ in the event of serious misconduct all deferred shares held in trust will
be forfeited and all performance rights and deferred share rights will be forfeited.

Change of control(applicable for the
CEO only)

Where a change of control occurs, which includes a person acquiring a relevant interest in at least 50% of the Company’s
ordinary shares as a result of a takeover bid, or other similar event, the applicable performance conditions applying to theperformance rights will be tested and the performance rights will vest based on the extent the performance conditions
are satisfied. No pro rata reduction in vesting will occur based on the period of time from the date of grant to the dateof the change of control event occurring, and vesting will only be determined by the extent to which the performance
conditions are satisfied.
Any performance rights which vest based on satisfaction of the performance conditions will vest at a time (being no later
than the final date on which the change of control event will occur) determined by the Board.
Any performance rights which do not vest will lapse with effect from the date of the change of control event occurring,unless the Board determines otherwise.
Any unvested AVR deferred shares will vest at a time (being no later than the final date on which the change of control
event will occur) determined by the Board.

Statutory
Entitlements

Payment of statutory entitlements of long service leave and annual leave applies in all events of separation.

DIRECTORS’ REPORT

41

DIRECTORS’ REPORT (continued)

7. Linking Remuneration to Balanced Scorecard Performance
7.1 ANZ PERFORMANCETABLE 2: ANZ’S FINANCIAL PERFORMANCE 2011 – 2015
2011

2012

2013

2014

2015

Statutory profit ($m)
Cash/Underlying profit1 (unaudited)

5,355
5,652

5,661
5,830

6,310
6,492

7,271
7,117

7,493
7,216

Cash/Underlying return on equity (ROE) (%) (unaudited)

16.2%

15.1%

15.3%

15.4%

14.0%

Cash/Underlying earnings per share (EPS) (unaudited)

218.4

218.5

238.3

260.3

260.3

Share price at 30 September ($)2

19.52

24.75

30.78

30.92

27.08

Total dividend (cents per share)
Total shareholder return (12 month %)Average AVR as a % of target3

140

145

164

178

181

(12.6)
110%

35.4
117%

31.5
133%

5.9
133%

(7.5)
128%

1 From 1 October 2012, the Group has used cash profit as a measure of performance for ongoing business activities of the Group, enabling shareholders to assess Group and divisional performanceagainst prior periods and against peer institutions. For 2012 to 2015 statutory profit has been adjusted for non-core items to arrive at cash profit. For 2011 statutory profit has been adjusted for
non-core items to arrive at underlying profit, which like cash profit is a measure of the ongoing business performance of the Group but used different criteria for adjusting items. Neither cash
profit nor underlying profit are audited; however, the external auditor has informed the Audit Committee that the cash/underlying profit adjustments have been determined on a consistentbasis across the respective periods presented.
2 The opening share price at 1 October 2010 was $23.79.
3 The average AVR payments for each year are based on those executives (including the CEO) disclosed in each relevant reporting period.

Figure 4 compares ANZ’s TSR performance against the median TSR and upper quartile TSR of the LTVR select financial services (SFS) comparatorgroup and also against the S&P/ASX 50 Index over the 2011 to 2015 measurement period. ANZ’s TSR performance is below the median TSR ofthe LTVR SFS comparator group and above the ASX 50 index over the five year period to 30 September 2015. Although this is across a different
performance period, it is consistent with the outcomes of the most recently tested LTVR grants.
FIGURE 4: ANZ 5-YEAR CUMULATIVE TOTAL SHAREHOLDER RETURN PERFORMANCE
250.0%

Upper Quartile TSR SFSMedian TSR SFSANZ TSR
S&P/ASX 50

230.0%

210.0%

190.0%

Percentage

170.0%

150.0%

130.0%

110.0%

90.0%

70.0%

Performance period42

Sep 15

Mar 15

Sep 14

Mar 14

Sep 13

Mar 13

Sep 12

Mar 12

Sep 11

Mar 11

Sep 1050.0%

ANZ ANNUAL REPORT 2015

7.2 AVR– PERFORMANCE AND OUTCOMES
ANZ uses a balanced scorecard to measure performance in relation to the Group’s main variable remuneration plans. The scorecard provides
a framework whereby a combination of measures can be applied to ensure a broader long term strategic focus on driving shareholder value
as well as a focus on annual priorities.
The balanced scorecard is aligned to the Group’s long term strategic intent under the themes of High Performing, Most Respected, Well Managed,
Best Connected and Customer Driven, with each of the five categories having broadly equal weighting. The HR Committee considers performanceagainst the balanced scorecard and also takes into account affordability (in light of Group performance) in approving the pool spend.
The Board has assessed ANZ’s overall 2015 performance as above, on or below target for each category within the balanced scorecard ofmeasures. The Board has given full consideration to the performance of the Group and the Disclosed Executives in determining their rewards.
Overall spend approved by the Board for the main annual variable remuneration pool was below target levels with a range of underlying
outcomes for individuals, in line with ANZ’s objectives of differentiating reward based on performance.
The following provides key measures within each category of the balanced scorecard used in 2015 for assessing performance for the purposeof determining annual variable remuneration pools.
Category

MeasureHigh Performing

Outcome1
Below Target:

Revenue

Revenue of $20,518 million, up 5% on 2014. Strong growth in Australia and New Zealanddivisions was moderated by lower growth in International and Institutional Banking – reflecting
both the challenging conditions along with decisions taken to restrict Risk Weighted Assets
growth and also to forego some lower margin Financial Institutions Trade business – and in
Global Wealth, where 2014 benefited from the Trustees’ sale.

Economic profit2

Economic profit of $2,381 million (determined using an 11% Cost of Capital), was down 13%
year on year due to higher capital holding in preparation for regulatory capital changes.

Return on equity (ROE)

Cash ROE of 14.0% was down from 15.4% in 2014 due to growth in cash profit being morethan offset by higher capital growth on the back of capital raisings and the dilutive impactof a weakening AUD.

Cash earnings per share Cash EPS of 260.3 cents, in line with 2014, and reflects the impact of share issuances from(EPS)
the capital raising and interim dividend discounted reinvestment plan.
Most Respected

Above Target:
Workforce diversity

Workforce diversity is core to delivering on our super regional strategy. The percentage
of management roles filled by women has increased from 39.2% to 40.4% year on year.3
ANZ is continually focused on increasing the diversity of its workforce.

Employee engagement An engaged workforce is regarded as an important driver of sustainable long term performance.
Despite continuing challenging business conditions and significant bank-wide changes over theyear, employee engagement has improved to 76% in 2015 compared to 73% in 2014.
Senior leaders asrole models
Well Managed

The overall assessment of Senior Leaders as role models of our values has remained steadyat 71% year on year.
On Target:

Maintain strong
credit rating

Maintained a strong credit rating at AA which is fundamental to the ongoing stabilityof the Group.

Core funding ratio (CFR) Maintained a strong CFR of 94.9%, through disciplined balance sheet management.
Cost to income ratio

Cost to income ratio of 45.6% increased 90bps due to slower revenue growth in Internationaland Institutional Banking and the cost of hedging our foreign currency denominated profits
being a reduction against revenue, and increased depreciation and amortisation.

Number of repeat
adverse internal
audit ratings

ANZ Global Internal Audit conducts an ongoing and rigorous review process to identify
weaknesses in procedures and compliance with policies. In 2015 there were no repeat adverse
audit ratings.

DIRECTORS’ REPORT

43

DIRECTORS’ REPORT (continued)

Category

MeasureOutcome1

Best Connected

On Target:
Growth in Asia Pacific,
Europe and America(APEA)

ANZ aspires to be the most respected bank in the Asia Pacific region by using super regional
connectivity to better meet the needs of customers which are increasingly linked to regional
capital, trade and wealth flows. One important measure of the success of the super regional
strategy is the growth in total Network revenues (revenue arising from having a meaningfulbusiness in APEA regardless of whether the revenue is subsequently booked within theregion or in Australia or New Zealand). APEA Network revenue accounted for 25% of Grouprevenue in 2015.

Growth in cross-borderrevenue

Growth in cross-border revenue improved from 2% to 3.9% highlighting the strength of ourregional networks.

Growth in products
per customer

In 2015, products per customer increased in Australia, New Zealand and Wealth divisions with
International and Institutional Banking remaining stable.

Customer Driven

On Target:
Customer satisfaction(based on externalsurvey outcomes)

ANZ tracks customer satisfaction across its businesses as part of a group of indicators of longer
term performance trends. ANZ aims to achieve top quartile customer satisfaction scores in eachbusiness based on external surveys.
In 2015, customer satisfaction in Australia Retail has decreased slightly, but market share
has increased, and Corporate and Commercial segment maintained a stable customer
satisfaction score.
Customer satisfaction in New Zealand has improved across Personal, Commercial and Rural
customer segments whilst also increasing market share.
International and Institutional Banking has achieved #1 ranking in terms of customer satisfaction(Peter Lee Surveys) in APEA and New Zealand.
Wealth customer satisfaction increased in both ANZ Financial Planning and Direct Channels.

1 The outcomes of these key measures are derived from unaudited financial and non-financial information.
2 Economic profit is an unaudited risk adjusted profit measure determined by adjusting cash profit for economic credit costs, the benefit of imputation credits and the cost of capital.
3 Includes all employees regardless of leave status but not contractors (which are included in FTE).

7.3 LTVR – PERFORMANCE AND OUTCOMESThe following provides the vesting outcomes for LTVR performance rights granted to the CEO and Disclosed Executives (excluding the CRO)in November/December 2011 which reached the end of the performance period in November/December 2014.
TABLE 3: LTVR PERFORMANCE RIGHTS HURDLE OUTCOMES
RecipientsCEO
Executives

44

Type

HurdleLTVR performancerightsLTVR performancerightsRelative TSR – Selectfinancial services
Relative TSR – Selectfinancial services

Grant date

First date
exercisable

ANZ
TSR %

MedianTSR%

Vested %Lapsed %16-Dec-11

16-Dec-14

87.83%

93.95%

0%100%

14-Nov-11

13-Nov-14

89.65%

96.59%

0%100%

ANZ ANNUAL REPORT 2015

8. 2015 Remuneration
8.1 NON-EXECUTIVE DIRECTORS (NEDS)
Principles underpinning the remuneration policy for NEDs.
Principle

Comment

Aggregate Board and Committee fees arewithin the maximum annual aggregate
limit approved by shareholders

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.

Fees are set by reference to key
considerations

Board and Committee fees are set by reference to a number of relevant considerations including:}} general industry practice and best principles of corporate governance;}} the responsibilities and risks attached to the role of NEDs;}} 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
size 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 timecommitment required by NEDs.

The remuneration structure preserves
independence whilst aligning interestsof NEDs and shareholders

So that independence and impartiality is maintained, fees are not linked to the performanceof the Company and NEDs are not eligible to participate in any of the Group’s variable
remuneration arrangements.

Components of NED Remuneration
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 service on a Board Committee.
NEDs also receive superannuation contributions in accordance with the current Superannuation Guarantee legislation (up to the Government’sprescribed maximum contributions limit) which satisfies the Company’s statutory superannuation contributions.
Based on an independent assessment of market practice the Board elected to increase the ANZ Chairman fee and NED base fee as shown below.
All Committee Chair and Committee Member fees remained unchanged for 2015.
Elements

DetailsYear

Fee

Board Chairman Fee

2015
2014

$810,000$802,000(including superannuation)(including superannuation)

Board NED Base Fee

2015
2014

$235,000$230,000(including superannuation)(including superannuation)

Committee Fees

Year

Committee Chair

Audit
Governance
Human Resources
Risk
Technology

2015
2015
2015
2015
2015

$65,000$35,000$55,000$60,000$35,000

Board/Committee fees per annum
1

Post-employment Benefits

Committee Member$32,500$15,000$25,000$30,000$15,000

The Chairman and NED base fee structure (included above) are inclusiveof superannuation contributions.

1 ANZ Board Chairman is an ex-officio member of all Board Committees and does not receive Committee member fees.

DIRECTORS’ REPORT

45

DIRECTORS’ REPORT (continued)

NED Shareholding Guidelines
The NED shareholding guidelines require NEDs to accumulate shares, over a five year period from appointment, to the value of 100%
(200% for the Chairman) of the NED base fee and to maintain this shareholding while a Director of ANZ. NEDs have agreed that where
their holding is below this guideline they will direct a minimum of 25% of their fees each year toward achieving this shareholding.
All NEDs have met or, if appointed within the last five years, are on track to meet their minimum shareholding guidelines requirement.
NED Statutory Remuneration Disclosure
TABLE 4: NED REMUNERATION FOR 2015 AND 2014
Short-Term NED Benefits

Post-Employment

Financial
Year

Fees1
$

Non
monetary
benefits$

Super
contributions$

D Gonski4

2015
2014

791,085
383,559––

18,915
11,837810,000
395,396

I Atlas5

2015
2014

270,460
3,995––

18,915
380289,375
4,375

P Dwyer

2015
2014

336,085
320,524––

18,91518,027355,000
338,551

H Lee

2015
2014

306,085
296,973––

18,91518,027325,000
315,000

G Liebelt

2015
2014

331,085
300,764––

18,91518,027350,000
318,791

I Macfarlane

2015
2014

323,585
319,473––

18,91518,027

342,500
337,500

J Macfarlane6

2015
2014

293,585
103,109––

18,915
7,557

312,500
110,666

J Morschel7

2015
2014

–
453,768–
23,187–
13,331–490,286

G Clark8

2015
2014

–
64,402

–
4,302

–
4,444

–
73,148

P Hay9

2015
2014

–
176,692–
3,065–
11,138–
190,895

D Meiklejohn10

2015
2014

–
68,696

–
9,029

–
4,444

–
82,169A Watkins11

2015
2014

–
182,446–
3,815–
11,208–
197,469

Total of all Non-Executive Directors

2015
2014

2,651,970
2,674,401–
43,398132,405
136,447

2,784,375
2,854,246

Total
remuneration2,3$

Current Non-Executive Directors

Former Non-Executive Directors

1 Fees are the sum of Board fees and Committee fees, as included in the Annual Report.
2 Long-term benefits and share-based payments are not applicable for the Non-Executive Directors. There were no termination benefits for the Non-Executive Directors in either 2014 or 2015.
3 Amounts disclosed for remuneration of Directors exclude insurance premiums paid by the Group in respect of Directors’ and officers’ liability insurance contracts. The total premium, which cannot
be disclosed because of confidentiality requirements, has not been allocated to the individuals covered by the insurance policy as, based on all available information, the Directors believe thatno reasonable basis for such allocation exists.
4 D Gonski commenced as a Non-Executive Director on 27 February 2014 and as Chairman on 1 May 2014 so 2014 remuneration reflects amounts received for the partial service for the 2014 year.
5 I Atlas commenced as a Non-Executive Director on 24 September 2014 so 2014 remuneration reflects amounts received for the partial service for the 2014 year.
6 J Macfarlane commenced as a Non-Executive Director on 22 May 2014 so 2014 remuneration reflects amounts received for the partial service for the 2014 year.
7 J Morschel retired as Chairman on 30 April 2014 so 2014 remuneration reflects amounts received for the partial service for the 2014 year. Non monetary benefits relate to car parking and gifts
on retirement. $90,959 was paid to J Morschel on retirement in relation to his accrued entitlements under the closed ANZ Directors’ Retirement Scheme (not included in table above).
8 G Clark retired as a Non-Executive Director on 18 December 2013 so 2014 remuneration reflects amounts received for the partial service for the 2014 year. Non monetary benefits relate to gifts
on retirement. $123,990 was paid to G Clark on retirement in relation to his accrued entitlements under the closed ANZ Directors’ Retirement Scheme (not included in table above).
9 P Hay retired as a Non-Executive Director on 30 April 2014 so 2014 remuneration reflects amounts received for the partial service for the 2014 year. Non monetary benefits relate to gifts
on retirement.
10 D Meiklejohn retired as a Non-Executive Director on 18 December 2013 so 2014 remuneration reflects amounts received for the partial service for the 2014 year. Non monetary benefits relate
to office space, car parking and gifts on retirement. $96,545 was paid to D Meiklejohn on retirement in relation to his accrued entitlements under the closed ANZ Directors’ Retirement Scheme(not included in table above).
11 A Watkins retired as a Non-Executive Director on 30 April 2014 so 2014 remuneration reflects amounts received for the partial service for the 2014 year. Non monetary benefits relate to gifts
on retirement.

46

ANZ ANNUAL REPORT 2015

8.2 CHIEF EXECUTIVE OFFICER (CEO)Actual remuneration provided to the CEO in 2015 is detailed below, with remuneration tables provided in Section 8.5.
Fixed remuneration: The CEO’s fixed remuneration was increased from $3.15 million to $3.4 million effective 1 October 2014. The Board
determined that an increase was appropriate to reflect the skills and experience of the CEO noting that no adjustment had been madesince October 2010.
AVR: The CEO has a target AVR opportunity of $3.4 million. The actual amount paid can increase or decrease from this number dependent
on his performance as CEO and the performance of the organisation as a whole. Specifically, if, in the Board’s view the CEO has performed
above/below his targets, the Board may exercise its discretion to increase/decrease the AVR beyond his target payment.
The Board approved the CEO’s 2015 balanced scorecard annual objectives and his longer term strategic goals at the start of the bank financial
year and then assessed his performance against these at the end of the bank financial year. The CEO’s AVR payment for 2015 was thendetermined having regard to his delivery against these objectives including ANZ’s productivity performance and focus on capital efficiency,
his demonstration of values led behaviours, as well as progress achieved in relation to ANZ’s long term strategic goals. The AVR payment for2015 is $4 million with $2.05 million paid in cash and the balance ($1.95 million) awarded as deferred share rights, half deferred for one year
and half for two years.
LTVR: At the 2014 Annual General Meeting shareholders approved an LTVR grant of performance rights to the CEO of $3.4 million (using a fairvalue approach), divided into two equal tranches. The performance condition for each tranche is relative TSR against a set comparator group.
Performance will be assessed at the end of the three year performance period commencing 21 November 2014 (with no retesting). The total
number of performance rights granted was determined by splitting the LTVR grant value into two equal tranches of $1.7 million each and thendividing these amounts by the fair value (at the start of the performance period) of each tranche. This equated to 119,382 performance rights
being allocated for the first tranche and 109,890 performance rights being allocated for the second tranche. The face value of the performancerights at the start of the performance period (based on the five trading day VWAP of the Company’s shares traded on the ASX in the week
up to, and including, 21 November 2014, of $31.8908) was $7.3 million.
The CEO has not been awarded an LTVR for 2015 as he will step down as CEO on 31 December 2015.
8.3 INCOMING CHIEF EXECUTIVE OFFICER (CEO)Fixed remuneration and AVR amounts shown in the remuneration tables in Section 8.5 relate to Mr Elliott’s role as CFO.
The non statutory remuneration table includes an amount relating to the proposed LTVR for Mr Elliott in his capacity as the incoming CEO.
The proposed grant has a face value at grant of $2.1 million at 50% vesting and $4.2 million at 100% vesting, subject to shareholder approvalat the 2015 Annual General Meeting. LTVR reflects the importance of focusing the incoming CEO on the achievement of longer term strategic
objectives and alignment with shareholders interests. The LTVR will be delivered as performance rights split into three equal tranches, two
tranches with a separate relative TSR performance hurdle and the third tranche with an Absolute CAGR TSR performance hurdle. Each tranche
will be measured independently. The number of performance rights granted to the incoming CEO in each tranche will be determined using
an allocation value based on the five trading day VWAP of the Company’s shares traded on the ASX in the week up to, and including, the startof the performance period (18 November 2015) and will not take into account the probability of performance measures being met. The TSR
hurdles will be subject to testing after three years, i.e. November 2018 (with no retesting). Further information is provided in the 2015 Annual
General Meeting Notice of Meeting.
8.4 DISCLOSED EXECUTIVES
Actual remuneration provided to the Disclosed Executives in 2015 is summarised below, with remuneration tables provided in Section 8.5.
Fixed remuneration: The annual review of ANZ’s fixed remuneration levels for Disclosed Executives identified that most executives werecompetitively positioned within the market and therefore adjustments were only made to three executives (Mr Currie, Ms Phillips and
Mr Williams).
AVR: All variable remuneration awarded in the 2015 financial year related to performance from the 2014 financial year.
In determining AVR outcomes each year the Board take into consideration overall Company performance against the balanced scorecardof measures, along with individual performance against set objectives.
Overall, the total amount of AVR payments to Disclosed Executives for the 2015 year (which are paid/granted in the 2016 financial year)
are flat or slightly lower as a percentage of target than for the 2014 year reflecting a solid performance.
LTVR: LTVR performance rights granted to Disclosed Executives during the 2015 financial year were allocated in November 2014 in two tranches(using a fair value approach). Each tranche is subject to meeting the relative TSR performance hurdle of that tranche, measured over a three year
performance period commencing 21 November 2014. The CRO received LTVR deferred share rights.
For awards to be allocated in November 2015, the Board elected to grant LTVR to Disclosed Executives below, at or above target. LTVR reflects
the importance of focusing Disclosed Executives on the achievement of longer term strategic objectives and the alignment with shareholders
interests. It also recognises the capabilities of these individuals and the need to retain their expertise over the longer term. The LTVR will bedelivered as performance rights using the same approach as for the incoming CEO as detailed in Section 8.3 Incoming Chief Executive Officer(CEO), except for the CRO who will receive LTVR deferred share rights.

DIRECTORS’ REPORT

47

DIRECTORS’ REPORT (continued)

8.5 REMUNERATION TABLES – CEO AND DISCLOSED EXECUTIVES
Table 5: Non Statutory Remuneration Disclosure has been prepared to provide shareholders with a view of remuneration structure and how
remuneration was paid or communicated to the CEO and Disclosed Executives for 2014 and 2015. The Board believes presenting informationin this way provides the shareholder with increased clarity and transparency of the CEO and Disclosed Executives’ remuneration, clearly showing
the amounts awarded for each remuneration component (fixed remuneration, AVR and LTVR) within the financial year as well as the amounts
actually received. Details of prior year awards which may have vested in 2014 and 2015 are provided in the footnotes.
Individuals included in table

Fixed remuneration

Non monetary benefits

Retirement benefits

NON
STATUTORYREMUNERATIONDISCLOSURE
TABLE

CEO andCurrent Disclosed Executives

Total of cash salary andsuperannuation contributions

Non monetary benefits
which typically consistof company-funded benefits
and fringe benefits tax
payable on these benefits

Not included

STATUTORYREMUNERATIONDISCLOSURE
TABLE

CEO, Current andFormer Disclosed Executives

Cash salary (including any
reductions made in relation
to the utilisation of ANZ’s
Lifestyle Leave Policy) andsuperannuation contributions

As above

Retirement benefit accrued
during the year. This relates
to a retirement allowanceavailable to individuals
employed prior to Nov 1992.

(pro-rated for periodof year as a KMP)

(pro-rated for periodof year as a KMP)

1 Subject to Shareholder approval for the incoming CEO.

TABLE 5: N
 ON STATUTORY REMUNERATION DISCLOSURE – CEO AND CURRENTDISCLOSED EXECUTIVE REMUNERATION FOR 2015 AND 2014
Fixed
FinancialYear

Remuneration$

Non monetary
benefits$

Cash$

Deferred as
equity$CEO and Current Disclosed Executives

M Smith3
Chief Executive Officer

2015
2014

3,400,000
3,150,000

204,530
170,0192,050,000
2,050,000

1,950,000
1,950,000

A Currie4
Chief Operating Officer

2015
2014

1,100,000
1,000,000

16,537
15,9381,000,000
950,000

900,000
850,000

S Elliott5
Chief Financial Officer

2015
2014

1,250,000
1,250,000

17,037
20,6631,300,000
1,300,000

1,200,000
1,200,000

A Géczy6
Chief Executive Officer, International & Institutional Banking

2015
2014

1,250,000
1,250,000

856,640
337,718

850,000
900,000

750,000
800,000

D Hisco7
Chief Executive Officer, New Zealand

2015
2014

1,181,243
1,165,493

439,790
430,342

1,162,631
1,150,083

1,062,631
1,050,082

G Hodges8
Deputy Chief Executive Officer

2015
2014

1,050,000
1,050,000

18,448
19,166800,000
800,000

700,000
700,000

J Phillips9
Chief Executive Officer, Global Wealth and Group Managing
Director, Marketing, Innovation and Digital

2015
2014

1,050,000
1,000,000

156,957
5,500

900,000
900,000

800,000
800,000

M Whelan10
Chief Executive Officer, Australia

2015

500,000

5,625

500,000

400,000

N Williams11
Chief Risk Officer

2015
2014

1,350,000
1,250,000

21,441
18,5511,000,000
950,000

900,000
850,000

1 The possible range of AVR is between 0 and 2 times target AVR. The actual AVR received is dependent on ANZ and individual performance. Anyone who received less than 100% of target forfeitedthe rest of their AVR entitlement. The minimum value is nil and the maximum value is what was actually paid.
2 Total Remuneration assumes LTVR face value at 50% vesting.
3 M Smith - Non monetary benefits include car parking, life insurance and taxation services. In 2015 equity to the value of $2,149,382 vested in respect of previously disclosed deferred AVR granted
in November 2012 and November 2013. Deferred LTVR which was granted in December 2011 and previously disclosed, lapsed in December 2014.
4 A Currie - Non monetary benefits include car parking and taxation services. In 2015 equity to the value of $732,721 vested in respect of deferred AVR granted in November 2012 and November
2013, and equity to the value of $763,011 vested in respect of deferred LTVR granted in November 2011.
5 S Elliott - Non monetary benefits include car parking and taxation services. In 2015 equity to the value of $1,243,525 vested in respect of previously disclosed deferred AVR granted in November
2012 and November 2013. Deferred LTVR which was granted in November 2011 and previously disclosed, lapsed in November 2014. The 2015 LTVR relates to the proposed LTVR grant as incoming
CEO, subject to approval by shareholders at the 2015 Annual General Meeting.
6 A Géczy - Non monetary benefits include relocation expenses, car parking and taxation services.

48

ANZ ANNUAL REPORT 2015

The information provided in Table 5 is non statutory information and differs from the information provided in Table 6: Statutory Remuneration
Disclosure, which has been prepared in accordance with Australian Accounting Standards. A description of the difference between the twotables in relation to the 2015 financial year information is provided below:

Long service leave accrual

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

Other equity allocations

Not included

AVR awarded in Nov 2015
for the 2015 financial year – expressed as a cash value
plus a deferred equity grant valueAward value of
LTVR granted in
Nov/Dec1 2015

Not included

The equity allocation value multiplied by the number of instruments
granted equals the AVR/LTVR deferred equity dollar valueLong service leaveaccrued during the year

Includes cash AVR (Nov 2015 element only) under
total cash incentive and amortised AVR for deferred
equity from current and prior year
Amortised AVR values relate to AVR awards made in
Nov 2012, 2013, 2014 and to be granted in Nov 2015

Amortised LTVR values relate
to LTVR awards made in
Nov/Dec 2011, 2012, 2013
and 2014

Amortised values for equity
awards made in prior years,
such as Employee Share Offer,excluding AVR and
LTVR awards

Equity is amortised over the vesting period of the award.

AVR

LTVR
Total
$

As % of As % of maximum
targetopportunity1%%

Total Remuneration2

Face value at
50% vesting$

Face value at
100% vesting
$

Total
$

Deferred as equity$

Received$

4,000,000
4,000,000

118%
127%

59%

–
3,400,000–
7,311,667

7,604,530
10,720,019

1,950,000
5,350,000

5,654,530
5,370,019

1,900,000
1,800,000

144%
150%

72%

750,000
750,000

1,500,000
1,612,845

3,766,537
3,565,938

1,650,000
1,600,000

2,116,537
1,965,938

2,500,000
2,500,000

167%
167%

83%

2,100,000
800,000

4,200,000
1,720,349

5,867,037
4,570,663

3,300,000
2,000,000

2,567,037
2,570,663

1,600,000
1,700,000

107%
113%

53%

800,000
800,000

1,600,000
1,720,349

4,506,640
4,087,718

1,550,000
1,600,000

2,956,640
2,487,718

2,225,262
2,200,165

157%
157%

78%

699,264
699,260

1,398,528
1,503,715

4,545,559
4,495,260

1,761,895
1,749,342

2,783,664
2,745,918

1,500,000
1,500,000

119%
119%

60%

500,000
500,000

1,000,000
1,075,230

3,068,448
3,069,166

1,200,000
1,200,000

1,868,448
1,869,166

1,700,000
1,700,000

135%
142%

67%

700,000
700,000

1,400,000
1,505,310

3,606,957
3,405,500

1,500,000
1,500,000

2,106,957
1,905,500

900,000

161%

81%

350,000

700,000

1,755,625

750,000

1,005,625

1,900,000
1,800,000

117%
120%

78%

4,021,441
3,818,551

1,650,000
1,600,000

2,371,441
2,218,551

750,000
750,000

7 D Hisco - 2014 and 2015 remuneration value in the table represents his NZD remuneration converted to AUD at the average exchange rate for the 2014 and 2015 financial years respectively. Nonmonetary benefits include expenses related to his assignment to New Zealand, car parking and taxation services. In 2015 equity to the value of $1,095,173 vested in respect of previously disclosed
deferred AVR granted in November 2012 and November 2013. Deferred LTVR which was granted in November 2011 and previously disclosed, lapsed in November 2014. D Hisco also received sharesto the value of $740 in relation to the Employee Share Offer in December 2014 and will receive shares to the value of $736 in relation to the Employee Share Offer in December 2015.
8 G Hodges - Non monetary benefits include car parking and taxation services. In 2015 equity to the value of $646,299 vested in respect of previously disclosed deferred AVR granted in November
2012 and November 2013. Deferred LTVR which was granted in November 2011 and previously disclosed, lapsed in November 2014.
9 J Phillips - Relocated to Sydney in 2015. Non monetary benefits include relocation expenses, car parking and taxation services. In 2015 equity to the value of $658,846 vested in respect of previously
disclosed deferred AVR granted in November 2012 and November 2013. Deferred LTVR which was granted in 2011 and previously disclosed, lapsed in November 2014.
10 M Whelan - Commenced in a Disclosed Executive role on 3 April 2015 so 2015 remuneration reflects amounts prorated for the partial service year. Non monetary benefits comprise car parking.
11 N Williams - Non monetary benefits include car parking and taxation services. In 2015 equity to the value of $750,313 vested in respect of deferred AVR granted in November 2012 and November
2013 and equity to the value of $763,011 vested in respect of deferred LTVR granted in November 2011. (LTVR is delivered as unhurdled deferred share rights and is not subject to meeting TSR
performance hurdles).

DIRECTORS’ REPORT

49

DIRECTORS’ REPORT (continued)

TABLE 6: STATUTORY REMUNERATION DISCLOSURE – CEO AND DISCLOSED EXECUTIVE REMUNERATION FOR 2015 AND 2014
Short-Term Employee Benefits

Financial
Year

Cash salary$1

Non monetary2
benefits$

Post-Employment

Total cash
3,4
incentive
$

Super
5
contributions$

Retirement
benefit accrued
6
during year$

CEO and Current Disclosed Executives
2015
2014
2015
2014
2015
2014
2015
2014

3,308,557
3,150,000
966,112879,723
1,141,553
1,143,512
1,141,553
1,143,512

204,530
170,019
16,537
15,93817,037
20,663856,640
337,718

2,050,000
2,050,000
1,000,000
950,000
1,300,000
1,300,000
850,000
900,000

91,443–
95,43485,191
108,447
106,488
108,447
106,488

–
–
–
–
–
–
–
–

2015
2014
2015
2014
2015
2014

1,181,243
1,165,493
958,904
960,550
958,904
914,809439,790
430,342
18,448
19,166
156,957
5,500

1,162,631
1,150,083
800,000
800,000
900,000
900,000––
91,09689,45091,09685,191

8,529
61,805
4,565
7,945
–
–

M Whelan11
Chief Executive Officer, Australia

2015456,6215,625

500,000

43,379–N Williams
Chief Risk Officer

2015
2014

1,232,877
1,143,512

21,441
18,5511,000,000
950,000

117,123
106,488

13,83025,251

2015
2014
2015
2014

1,484,018
1,189,252
12,830,342
11,690,363

17,163
15,9381,754,168
1,033,835

300,000
925,000
9,862,631
9,925,083

140,982
110,748
887,447
690,044––
26,92495,001

M SmithChief Executive Officer
A Currie
Chief Operating Officer
S Elliott
Chief Financial Officer
A Géczy
Chief Executive Officer, International& Institutional Banking
D Hisco10
Chief Executive Officer, New Zealand
G Hodges
Deputy Chief Executive Officer
J Phillips
Chief Executive Officer, Global Wealthand Group Managing Director, Marketing,Innovation and Digital

Former Disclosed Executives
P Chronican12
Chief Executive Officer, Australia
Total of all Executive KMPs13

1 Cash salary includes adjustments made in relation to the utilisation of ANZ’s Lifestyle Leave Policy, where applicable.
2 Non monetary benefits generally consist of company-funded benefits such as car parking and taxation services. This item also includes costs met by the company in relation to relocation, gifts
received on leaving ANZ for former Disclosed Executives, and life insurance for the CEO. The fringe benefits tax payable on any benefits is also included in this item.
3 The total cash incentive relates to the cash component only, with the relevant amortisation of the AVR deferred components included in share-based payments and amortised over the vesting
period. The total AVR was approved by the Board on 27 October 2015. 100% of the cash component of the AVR awarded for the 2014 and 2015 years vested to the Disclosed Executive in theapplicable financial year.
4 The possible range of AVR is between 0 and 2 times target AVR. The actual AVR received is dependent on ANZ and individual performance. The 2015 AVR awarded (cash and equity component)
as a percentage of target AVR was: M Smith 118% (2014: 127%); A Currie 144% (2014: 150%); S Elliott 167% (2014:167%); A Géczy 107% (2014: 113%); D Hisco 157% (2014: 157%); G Hodges
119% (2014: 119%); J Phillips 135% (2014: 142%); M Whelan 161%; N Williams 117% (2014: 120%) and P Chronican 64% (2014: 112%). Anyone who received less than 100% of target forfeitedthe rest of their AVR entitlement. The minimum value is nil and the maximum value is what was actually paid.
5 For all Australian based Disclosed Executives, the superannuation contribution reflects the Superannuation Guarantee Contribution – individuals may elect to take this contribution
as superannuation or a combination of superannuation and cash. The amount for M Smith reflects a part year superannuation contribution made during 2015.
6 Accrual relates to Retirement Allowance. As a result of being employed with ANZ prior to November 1992, D Hisco, G Hodges and N Williams are eligible to receive a Retirement Allowance onretirement, retrenchment, death, or resignation for illness, incapacity or domestic reasons. The Retirement Allowance is calculated as follows: 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).
7 In accordance with the requirements of AASB 2 Share-based payments, the amortisation value includes a proportion of the fair value (taking into account market-related vesting conditions) of allequity 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 amount included as remuneration is not related to nor indicative of the benefit (if any) that may ultimately be realised should the equity become exercisable.
8 Remuneration amounts disclosed exclude insurance premiums paid by the consolidated entity in respect of directors’ and officers’ liability insurance contracts which cover current and former
KMP of the controlled entities. The total premium, which cannot be disclosed because of confidentiality requirements, has not been allocated to the individuals covered by the insurance policyas, based on all available information, the directors believe that no reasonable basis for such allocation exists.

50

ANZ ANNUAL REPORT 2015

Long-Term
Employee
Benefits

Share-Based Payments7
Total amortisation value of
AVR

Other equity
allocations

LTVR

Long service
leave accrued
during the year$

Shares$Rights$Shares$Rights$Shares$Termination
benefits$

78,05447,07325,567
14,983
18,94018,752
18,94018,938

1,172,496
1,893,344
823,673
717,821
1,191,554
1,134,313
608,406
313,878

767,058
–
–
–
–
–
–
–

–
–
20,306
195,545––––

3,170,182
3,133,587
713,982
463,757
988,004
922,786
436,929
178,321

–
–
–
–
–
–
–
–

–
–
–
–
–
–
–
–

10,842,320
10,444,023
3,661,611
3,322,958
4,765,535
4,646,514
4,020,915
2,998,855

25,13062,03815,91032,355
19,77915,010––670,413611,759753,726
658,421

1,028,252
790,752
–
–
–
–

–
–
–
–
–
–

619,810548,048
496,497495,131553,742
493,171

466
217
–
–
–
–

–
–
–
–
–
–

4,465,851
4,208,778
3,055,833
3,016,356
3,434,204
3,072,102

22,550259,248–204,251

61,893––

1,553,567

65,795
127,499

841,966
745,149––

20,306
183,979

664,022413,799––––

3,977,360
3,714,228–
19,525
290,665
356,173

719,083
848,6077,040,565
6,923,292

200,000–
1,995,310
790,752––
244,863379,524

818,698
657,940
8,523,759
7,306,540

–
–
466
217

104,145–
104,145–3,784,089
3,767,010
43,561,285
39,190,824

Grand total
8, 9
remuneration$

9 While the CEO is an Executive Director, he has been included in this table with the Disclosed Executives.
10 D Hisco was eligible in 2014 and 2015 to receive shares in relation to the Employee Share Offer, which provides a grant of ANZ shares in each financial year to eligible employees subject to Board
approval. Refer to note 41 Employee Share and Option Plans for further details on the Employee Share Offer. Long service leave accrued during the year includes a one-off long service loyalty award.
11 M Whelan commenced in a Disclosed Executive role on 3 April 2015 so 2015 remuneration reflects amounts prorated for the partial service year.
12 P Chronican concluded in role on 2 April 2015 and will be ceasing employment 31 December 2015. Statutory remuneration table reflects his expense up to his date of termination, 31 December
2015 (i.e. shows 15 months of fixed remuneration (noting his annual fixed remuneration for 2015 remained unchanged at $1.3 million) and share-based payments expensed to 31 December 2015).
AVR reflects amounts received for the partial service year up to 2 April 2015, date concluded in role. Termination benefits reflect payment for accrued annual leave payable upon termination.
13 For those Disclosed Executives who were disclosed in both 2014 and 2015, the following are noted:– M Smith – uplift in year-on-year total remuneration, driven mainly by an increase in salary, non monetary benefits and long service leave accrual.
– A Currie – uplift in year-on-year total remuneration, driven mainly by an increase in salary, cash incentive and amortised value of equity.
– S Elliott – uplift in year-on-year total remuneration, driven by an increase in the amortised value of equity.
– A Géczy – uplift in year-on-year total remuneration, driven by an increase in non monetary benefits and the amortised value of equity.
– D Hisco – uplift in year-on-year total remuneration, driven by an increase in the amortised value of equity.
– G Hodges – minimal change in year-on-year total remuneration.
– J Phillips – uplift in year-on-year total remuneration, driven mainly by an increase in salary, non monetary benefits and amortised value of equity.
– N Williams – uplift in year-on-year total remuneration, driven mainly by an increase in salary, cash incentive and amortised value of equity.
– P Chronican – uplift in year-on-year total remuneration, driven by inclusion of expensing in relation to termination (fixed remuneration for 15 months, expensing of equity and annual leave
payable upon termination).

DIRECTORS’ REPORT

51

DIRECTORS’ REPORT (continued)

9. Equity
All shares underpinning equity awards may be purchased on market, or be newly issued shares or a combination of both. For the 2014 equity
granted to the CEO and Disclosed Executives in November/December 2014, all AVR deferred shares were purchased on market and for LTVR
performance rights, the approach to satisfying awards will be determined closer to the time of vesting.
9.1 CEO AND DISCLOSED EXECUTIVES EQUITY
Details of deferred shares and rights granted to the CEO and Disclosed Executives during the 2015 year, and granted to the CEO and Disclosed
Executives in prior years which vested, were exercised/sold or which lapsed/were forfeited during the 2015 year is set out below.
TABLE 7: CEO AND DISCLOSED EXECUTIVES EQUITY GRANTED, VESTED, EXERCISED/SOLD AND LAPSED/FORFEITED
VestedNameType of equity

Numbergranted1

Grant
date

First dateDateexercisable of expiry Number%

Lapsed/Forfeited

Value2$ Number%

Exercised/Sold

Value2$ Number%Unexer
Vested and -cisable
exercisable
as atValue2 as at 30 Sep 30 Sep
3
$
2015
2015

CEO and Current Disclosed Executives
M Smith4

AVR deferred shares
36,334
AVR deferred shares
30,70930,574
AVR deferred shares14
AVR deferred shares14
30,573
LTVR performance rights
326,424
LTVR performance rights15 119,382
LTVR performance rights15 109,890

12-Nov-12
22-Nov-13
21-Nov-14
21-Nov-14
16-Dec-11
18-Dec-14
18-Dec-14

12-Nov-14–
22-Nov-14–
21-Nov-15–
21-Nov-16–
17-Dec-14 16-Dec-16
18-Dec-17 18-Dec-19
18-Dec-17 18-Dec-19

36,334 100 1,171,466––– (36,334) 100 1,223,064
30,709 100 977,916––– (30,709) 100 1,033,717
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– (326,424) 100 (10,000,619)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–

–
–
–
–
– 30,574– 30,573––– 119,382– 109,890

A Currie5

AVR deferred shares
AVR deferred shares
AVR deferred shares14
AVR deferred shares14
LTVR deferred shares
LTVR performance rights15
LTVR performance rights15

12,616
10,236
13,327
13,327
23,69626,33424,24012-Nov-12
22-Nov-13
21-Nov-14
21-Nov-14
14-Nov-11
21-Nov-14
21-Nov-14

12-Nov-14–
22-Nov-14–
21-Nov-15–
21-Nov-16–
14-Nov-14–
21-Nov-17 21-Nov-19
21-Nov-17 21-Nov-19

12,616 100
10,236 100––––
23,696 100––––

406,760
325,961––
763,011
–
–

–
–
–
–
–
–
–

–
–
13,327
13,327–
26,33424,240S Elliott6

AVR deferred shares
AVR deferred shares
AVR deferred shares14
AVR deferred shares14
LTVR performance rights
LTVR performance rights15
LTVR performance rights15

20,18518,89818,815
18,814
71,982
28,08925,85612-Nov-12
22-Nov-13
21-Nov-14
21-Nov-14
14-Nov-11
21-Nov-14
21-Nov-14

19-Nov-14–
22-Nov-14–
21-Nov-15–
21-Nov-16–
14-Nov-14 14-Nov-16
21-Nov-17 21-Nov-19
21-Nov-17 21-Nov-19

20,185 100
18,898 100
–
–
–
–
–
–
–
–
–
–

641,726–––
601,799
–
–
–
–
–
–
–
–
–
–
–
– (71,982) 100 (2,317,820)
–
–
–
–
–
–
–
–

A Géczy7

AVR deferred shares14
AVR deferred shares14
LTVR performance rights15
LTVR performance rights15

12,543
12,54328,08925,85621-Nov-14
21-Nov-14
21-Nov-14
21-Nov-14

21-Nov-15–
21-Nov-16–
21-Nov-17 21-Nov-19
21-Nov-17 21-Nov-19

–
–
–
–

D Hisco8

LTVR deferred shares
Employee Share Offer
AVR deferred share rights
AVR deferred share rights
AVR deferred share rights14
AVR deferred share rights14
LTVR performance rights

23,24323
18,382
15,78017,40818,37055,37031-Oct-08
04-Dec-14
12-Nov-12
22-Nov-13
21-Nov-14
21-Nov-14
14-Nov-11

31-Oct-11–
04-Dec-17–
12-Nov-14 12-Nov-16
22-Nov-14 21-Nov-16
21-Nov-15 21-Nov-17
21-Nov-16 21-Nov-18
14-Nov-14 14-Nov-16––––
18,382 100
15,780 100
–
–
–
–
–
–

LTVR performance rights15

24,55221-Nov-14 21-Nov-17 21-Nov-19

–

–

–

–

–

–

–

–

LTVR performance rights15

22,60021-Nov-14 21-Nov-17 21-Nov-19

–

–

–

–

–

–

–

–

52

–
–
–
–

–
–
–
–
–
–
–

–
–
–
–
–
–
–

–
–
–
–
–
–
–

(12,616) 100 403,214(10,236) 100 325,459
–
–
–
–
–
–
(23,696) 100 757,336
–
–
–
–
–
–
–
–
–
–
–
–
–

–
–
–
–
–
–
–

–
–
–
–
–
–
–

20,18518,898
–
–
–
–
–

–
–
18,815
18,814–28,08925,856

–
–
–
–

–
–
–
–

–
–
–
–

–
–
–
–

12,543
12,54328,08925,856––––(7,243) 31 234,532
–
–
–
–
–
–
–
592,665––– (18,382) 100 654,622
502,508––– (15,780) 100 561,959
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– (55,370) 100 (1,782,914)–––

16,000
–
–
–
–
–
–

–
23
–
–
17,40818,370–––24,552––

22,600

–
–
–
–

–
–
–
–

–
–
–
–

–
–
–
–

ANZ ANNUAL REPORT 2015

VestedUnexer
Vested and -cisable
exercisable
as atValue2 as at 30 Sep 30 Sep
3
$
2015
2015

Grant
date

First dateDateexercisable of expiry Number

AVR deferred shares
AVR deferred shares
AVR deferred shares14
AVR deferred shares14
LTVR performance rights
LTVR performance rights15
LTVR performance rights15

11,102
9,055
10,975
10,97555,37017,556
16,16012-Nov-12
22-Nov-13
21-Nov-14
21-Nov-14
14-Nov-11
21-Nov-14
21-Nov-14

12-Nov-14–
22-Nov-14–
21-Nov-15–
21-Nov-16–
14-Nov-14 14-Nov-16
21-Nov-17 21-Nov-19
21-Nov-17 21-Nov-19

11,102 100
9,055 100
–
–
–
–
–
–
–
–
–
–

357,946–––
288,353
–
–
–
–
–
–
–
–
–
–
–
– (55,370) 100 (1,782,914)
–
–
–
–
–
–
–
–

–
–
–
–
–
–
–

–
–
–
–
–
–
–

11,102
9,055
–
–
–
–
–

–
–
10,975
10,975–
17,556
16,160

AVR deferred shares
AVR deferred shares
AVR deferred shares
AVR deferred shares14
AVR deferred shares14
LTVR performance rights
LTVR performance rights15
LTVR performance rights15

11,102
11,102
9,449
12,543
12,54355,37024,57822,62412-Nov-12
12-Nov-12
22-Nov-13
21-Nov-14
21-Nov-14
14-Nov-11
21-Nov-14
21-Nov-14

12-Nov-13–
12-Nov-14–
22-Nov-14–
21-Nov-15–
21-Nov-16–
14-Nov-14 14-Nov-16
21-Nov-17 21-Nov-19
21-Nov-17 21-Nov-19––
11,102 100
9,449 100
–
–
–
–
–
–
–
–
–
–

–
–
–
– (11,102) 100
357,946––– (11,102) 100
300,900
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– (55,370) 100 (1,782,914)
–
–
–
–
–
–
–
–
–
–
–
–
–
–

353,844353,844
–
–
–
–
–
–

–
–
9,449
–
–
–
–
–

–
–
–
12,543
12,543–
24,57822,624––––

11,606
11,811
13,327
13,327
23,696
27,68512-Nov-12
22-Nov-13
21-Nov-14
21-Nov-14
14-Nov-11
21-Nov-14

15,13914,961
12,935
12,93571,982
24,57822,62412-Nov-12
22-Nov-13
21-Nov-14
21-Nov-14
14-Nov-11
21-Nov-14
21-Nov-14

Type of equity

G Hodges9

J Phillips10

M Whelan11 –N Williams

Exercised/Sold

Numbergranted1

Name

12

Lapsed/Forfeited

AVR deferred shares
AVR deferred shares
AVR deferred shares14
AVR deferred shares14
LTVR deferred shares
LTVR deferred share rights15–%

Value2$ Number%Value2$ Number
–
–
–
–
–
–
–

–

%

–

–

–

–

–

–

–

–

–

12-Nov-14–
22-Nov-14–
21-Nov-15–
21-Nov-16–
14-Nov-14–
21-Nov-17 21-Nov-19

11,606 100
11,811 100––––
23,696 100––

374,196376,117––763,011
–

–
–
–
–
–
–

–
–
–
–
–
–

– (11,606) 100– (11,811) 100
–
–
–
–
–
–
– (23,696) 100–––

374,196376,441––
763,011
–

–
–
–
–
–
–

–
–
13,327
13,327–
27,68512-Nov-14–
22-Nov-14–
21-Nov-15–
21-Nov-16–
14-Nov-14 14-Nov-16
21-Nov-17 21-Nov-19
21-Nov-17 21-Nov-19

15,139 100
14,961 100
–
–
–
–
–
–
–
–
–
–

488,106––– (15,139) 100
476,427––– (14,961) 100
–
–
–
–
–
–
–
–
–
–
–
–
– (71,982) 100 (2,317,820)
–
–
–
–
–
–
–
–
–
–
–
–
–
–

475,427
469,837
–
–
–
–
–

–
–
–
–
–
–
–

–
–
12,935
12,935–24,57822,624Former Disclosed Executives
P Chronican13 AVR deferred shares
AVR deferred shares
AVR deferred shares14
AVR deferred shares14
LTVR performance rights
LTVR performance rights15
LTVR performance rights15

1 Executives, for the purpose of the five highest paid executive disclosures, are defined as Disclosed Executives or other members of Management Board. Rights granted to the five highest paid
executives as remuneration in 2015 are included above.
2 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.
3 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.
4 M Smith - The CEO had a proportion of his AVR amount deferred as equity. The Board determined the deferred amount for the CEO. The 2014 LTVR grant for the CEO was delivered as performancerights. LTVR performance rights granted 16 Dec 2011 lapsed on 16 Dec 2014 and the one day VWAP was $30.6369. Prior year grants of LTVR performance rights that remained unexerciseable
as at 30 September 2015 include: 328,810 (December 2012); 100,832 and 100,254 (December 2013); 119,382 and 109,890 (December 2014).
5 A Currie - Prior year grants of LTVR performance rights that remained unexerciseable as at 30 September 2015 include: 73,818 (November 2012); 27,036 and 24,687 (November 2013); 26,334 and24,240 (November 2014).
6 S Elliott - LTVR performance rights granted 14 Nov 2011 lapsed on 14 Nov 2014 and the one day VWAP was $32.20. Prior year grants of LTVR performance rights that remained unexerciseable
as at 30 September 2015 include: 118,110 (November 2012); 36,049 and 32,916 (November 2013); 28,089 and 25,856 (November 2014).
7 A Géczy - Prior year grants of LTVR performance rights that remained unexerciseable as at 30 September 2015 include: 22,530 and 20,572 (November 2013); 28,089 and 25,856 (November 2014).
8 D Hisco - AVR deferred share rights granted 12 Nov 2012 and 22 Nov 2013 were exercised on 24 Apr 2015, the one day VWAP on date of exercise was $35.6121 and the exercise price was$0.00. LTVR performance rights granted 14 Nov 2011 lapsed on 14 Nov 2014 and the one day VWAP was $32.20. Prior year grants of LTVR performance rights that remained unexerciseable
as at 30 September 2015 include: 49,212 (November 2012); 25,205 and 23,015 (November 2013); 24,552 and 22,600 (November 2014).
9 G Hodges - LTVR performance rights granted 14 Nov 2011 lapsed on 14 Nov 2014 and the one day VWAP was $32.20. Prior year grants of LTVR performance rights that remained unexerciseable
as at 30 September 2015 include: 49,212 (November 2012); 18,024 and 16,458 (November 2013); 17,556 and 16,160 (November 2014).
10 J Phillips - LTVR performance rights granted 14 Nov 2011 lapsed on 14 Nov 2014 and the one day VWAP was $32.20. Prior year grants of LTVR performance rights that remained unexerciseable
as at 30 September 2015 include: 49,212 (November 2012); 18,024 and 16,458 (November 2013); 24,578 and 22,624 (November 2014).
11 M Whelan - M Whelan commenced in a Disclosed Executive role on 3 April 2015 and there are no disclosable transactions from this date. Prior year grants of LTVR performance rights thatremained unexerciseable as at 30 September 2015 relate to grants from prior roles.
12 N Williams - Prior year grants of LTVR deferred share rights that remained unexerciseable as at 30 September 2015 include: 29,225 (November 2012); 27,603 (November 2013); 27,685(November 2014).
13 P Chronican - LTVR performance rights granted 14 Nov 2011 lapsed on 14 Nov 2014 and the one day VWAP was $32.20. Prior year grants of LTVR performance rights that remained unexerciseable
as at 30 September 2015 include: 63,976 (November 2012); 25,234 and 23,041 (November 2013); 24,578 and 22,624 (November 2014).
14 The Disclosed Executives had a proportion of their AVR amount deferred as equity. In 2015 D Hisco received share rights rather than shares as locally appropriate. A share right effectively
provides a right in the future to acquire a share in ANZ at nil cost to the employee. Refer to the AVR arrangements section for further details of the mandatory deferral arrangements for theDisclosed Executives.
15 The 2014 LTVR grants for Disclosed Executives were delivered as performance rights excluding for the CRO.

DIRECTORS’ REPORT

53

DIRECTORS’ REPORT (continued)

9.2 NED, CEO AND DISCLOSED EXECUTIVES EQUITY HOLDINGS
Details of shares held directly, indirectly or beneficially by each NED, including their related parties, are provided below.
TABLE 8: NED SHAREHOLDINGS (INCLUDING MOVEMENTS DURING THE 2015 YEAR)
Name

Type

Opening balance at
1 Oct 2014

Shares granted
during the year as
remuneration

Received during theyear on exercise of
options or rights

Resulting fromany other changes
during the year1

Closing balance at
30 Sep 20152,3

Current Non-Executive Directors
D GonskiOrdinary shares

30,921––567

31,488I AtlasOrdinary shares

7,360

–

–

–

7,360

P DwyerOrdinary shares

10,000––567

10,567

H Lee

Directors’ Share Plan
Ordinary shares

2,109
8,000

–
–

–
–

121
–

2,230
8,000

G Liebelt

Ordinary shares
Capital notes
Capital notes 2

9,748
1,500
2,500

–
–
–

–
–
–

567
–
–

10,3151,500
2,500

I Macfarlane

Ordinary shares
Capital notes
Convertible preference shares (CPS2)
Convertible preference shares (CPS3)

17,616
1,500
500
1,000

–
–
–
–

–
–
–
–

567
–
500
–

18,183
1,500
1,000
1,000

J Macfarlane

Ordinary shares
Capital notes 2
Capital notes 3

12,284
2,000
–

–
–
–

–
–
–

567
–
5,000

12,8512,000
5,000

1 Shares from any other changes during the year include the net result of any shares purchased (including under the ANZ share purchase plan), sold, or acquired under the dividend
reinvestment plan.
2 The following shares (included in the holdings above) were held on behalf of the NEDs (i.e. indirect beneficially held shares) as at 30 September 2015: D Gonski - 31,488, I Atlas - 7,360,
P Dwyer - 10,567, H Lee - 2,230, G Liebelt - 14,315, I Macfarlane - 21,683, J Macfarlane - 19,851.
3 There was no change in the balance as at the Director’s Report sign-off date.

54

ANZ ANNUAL REPORT 2015

Details of shares, deferred share rights and performance rights held directly, indirectly or beneficially by the CEO and each Disclosed Executive,
including their related parties, are provided below.
TABLE 9: CEO AND DISCLOSED EXECUTIVE SHAREHOLDINGS AND RIGHTS HOLDINGS (INCLUDING MOVEMENTS DURING
THE 2015 YEAR)
Name

Type

Opening balance at
1 Oct 2014

Shares granted
during the year as
remuneration1

Received during theResulting from any
year on exercise of other changes duringoptions or rights
the year2

Closing balance at
30 Sep 20153,4

CEO and Current Disclosed Executives
M SmithDeferred shares
Ordinary shares
LTVR performance rights

103,474
901,868
856,320

61,147–229,272–––(70,292)
76,970(326,424)

94,329978,838
759,168

A Currie

Deferred shares
Ordinary shares
LTVR performance rights

58,946
1,042
125,541

26,654–50,574–––(46,642)––

38,958
1,042
176,115

S Elliott

Deferred shares
Ordinary shares
LTVR performance rights

60,99942
259,057

37,629–53,945

–
–
–

4,514
2
(71,982)

103,14244
241,020

A Géczy

Deferred shares
LTVR performance rights–
43,10225,08653,945––675–

25,761
97,047

D HiscoDeferred shares
Employee Share Offer
Ordinary shares
AVR deferred share rights
LTVR performance rights

23,24325
57,00050,770152,802–23–
35,77847,152––
34,162(34,162)–(7,243)–––(55,370)

16,00048
91,162
52,386
144,584

G Hodges

Deferred shares
Ordinary shares
LTVR performance rights

145,038
95,639139,064

21,950–33,716

–
–
–

5,951
(25,000)(55,370)

172,939
70,639117,410J Phillips

Deferred shares
Ordinary shares
LTVR performance rights

55,3899,733
139,064

25,086–47,202–––(18,947)(3,898)(55,370)

61,528
5,835
130,896

M Whelan5

Deferred shares
LTVR performance rights

117,976
27,278

–
–

–
–

787
–

118,763
27,278N Williams

Deferred shares
Ordinary shares
LTVR deferred share rights

60,945–56,82826,654–
27,685–––(46,963)
567–

40,636567
84,513

47,112
150,792–
1,499
184,233

25,870–––47,202–––––(31,052)
33,5501,228–(71,982)

41,930184,342
1,228
1,499
159,453

Former Disclosed Executives
P Chronican

Deferred shares
Ordinary shares
Capital Notes
Convertible preference shares (CPS2)
LTVR performance rights

1 Details of options/rights granted as remuneration during 2015 are provided in Table 7.
2 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.
3 The following shares (included in the holdings above) were held on behalf of the CEO and Disclosed Executives (i.e. indirect beneficially held shares) as at 30 September 2015:
M Smith - 1,002,033; A Currie - 38,958; S Elliott - 103,142; A Géczy - 25,761; D Hisco - 34,048; G Hodges - 215,674; J Phillips - 61,528; M Whelan - 118,763; N Williams - 40,636
and P Chronican - 41,930.
4 No options/rights were vested and exercisable or vested and unexerciseable as at 30 September 2015. There was no change in the balance as at the Director’s Report sign-off date.
5 Commencing balance is based on holdings as at the date of commencement in a Disclosed Executive role (3 April 2015).

DIRECTORS’ REPORT

55

DIRECTORS’ REPORT (continued)

9.3 EQUITY VALUATIONSThis section outlines the valuations used throughout this report in relation to equity grants.
ANZ engages an external expert to independently value any required deferred share rights and performance rights, taking into account factors
including the performance conditions, share price volatility, life of the instrument, dividend yield and share price at grant date.
The following table provides details of the valuations of the various equity instruments issued during the year and in prior years for shares andrights where vesting, lapse/forfeiture or exercise/sale has occurred during the year:
TABLE 10: EQUITY VALUATION INPUTS – SHARES AND RIGHTS

RecipientsType

Equityfair
value1$

Share
closing
ANZ
price at expected
grant volatility
$
%

–
–
–
–
–
–
–
–
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00

24.57
24.57
31.66
31.84
31.84
17.18
20.89
32.13
21.76
30.10
30.16
28.58
27.09
9.03
9.65
14.24

24.45
24.45
31.68
31.82
31.82
17.36
20.66
32.22
24.45
31.68
31.82
31.82
31.82
20.66
20.93
31.82

–
–
–
–
–
–
–
–
22.5
20.0
17.5
17.5
17.5
25.0
25.0
17.5

–
–
–
–
–
–
–
–
4
3
3
4
5
5
5
5

1
2
1
1
2
3
3
3
2
1
1
2
3
3
3
3

–
–
–
–
–
–
–
–
2
1
1
2
3
3
3
3

–
–
–
–
–
–
–
–
6.00
5.25
5.50
5.50
5.50
6.50
7.00
5.50

–
–
–
–
–
–
–
–
2.66
2.54
2.53
2.53
2.53
3.53
3.06
2.53

0.00

15.47

31.82

17.5

5

3

3

5.50

2.53

0.00
0.00

13.67
14.69

30.98
30.98

17.5
17.5

5
5

3
3

3
3

5.50
5.50

2.20
2.20

Exercise
price
Grant date$

CEO and Executives
AVR deferred shares
12-Nov-12
CEO and Executives
AVR deferred shares
12-Nov-12
CEO and Executives
AVR deferred shares
22-Nov-13
CEO and Executives
AVR deferred shares
21-Nov-14
CEO and Executives
AVR deferred shares
21-Nov-14
Executives
LTVR deferred shares
31-Oct-08
Executives
LTVR deferred shares
14-Nov-11
Executives
Employee Share Offer shares 4-Dec-14
Executives
AVR deferred share rights 12-Nov-12
Executives
AVR deferred share rights 22-Nov-13
Executives
AVR deferred share rights 21-Nov-14
Executives
AVR deferred share rights 21-Nov-14
Executives
LTVR deferred share rights 21-Nov-14
Executives
LTVR performance rights
14-Nov-11
CEO
LTVR performance rights
16-Dec-11
CEO (for allocation purposes) LTVR performance rights
21-Nov-14
and Executives
CEO (for allocation purposes) LTVR performance rights
21-Nov-14
and Executives
CEO (for expensing purposes) LTVR performance rights
18-Dec-14
CEO (for expensing purposes) LTVR performance rights
18-Dec-14

Equityterm(years)Vesting Expected Expectedperiodlife dividend(years)(years)yield %

Risk freeinterest
rate %

1	For shares, the volume weighted average share price of all ANZ shares sold on the ASX on the date of grant is used to calculate the fair value. No dividends are incorporated into the measurementof the fair value of shares. For rights, an independent fair value calculation is conducted to determine the fair value.

56

ANZ ANNUAL REPORT 2015

10. NEDs, CEO and Disclosed Executives Loan and Other Transactions (non remuneration)
10.1 LOAN TRANSACTIONS
Loans made to the NEDs, the CEO and Disclosed Executives are made in the ordinary course of business on normal commercial terms
and conditions no more favourable than those given to other employees or customers, including the term of the loan, security required
and the interest rate.
Details of loans outstanding at the reporting date to NEDs, the CEO and Disclosed Executives including their related parties, where theindividual’s aggregate loan balance exceeded $100,000 at any time during the year, are provided below. Other than the loans disclosed below
no other loans were made, guaranteed or secured by any entity in the Group to the NEDs, the CEO and Disclosed Executives, including theirrelated parties.
TABLE 11: NED LOAN TRANSACTIONS
Opening balance at
1 Oct 2014$

Closing balance at
30 Sep 2015$

Interest paid andpayable in thereporting period1$

Highest balancein the reporting
period$J Macfarlane

6,489,628

7,882,159

407,206

8,231,862

Total

6,489,628

7,882,159

407,206

8,231,862

Name

Non-Executive Directors

1 Actual interest paid after taking into consideration offset accounts. The loan balance is shown gross, however the interest paid takes into account the impact of offset amounts.

TABLE 12: CEO AND DISCLOSED EXECUTIVE LOAN TRANSACTIONSInterest paid andpayable in thereporting period2$

Highest balancein the reporting
period$1,000,000

43,3303,199,970

3,833,108

163,381

4,027,951

Opening balance at
1 Oct 20141$

Closing balance at
30 Sep 2015$

M Smith1,000,000

A Currie

3,778,488

S Elliott

1,600,000

1,598,516

56,454

1,610,128

A Géczy

8,394,849

24,777,211

1,030,346

25,725,488

D Hisco3,438,788

2,116,292

169,738

3,704,926

G Hodges

3,189,527

3,961,872

160,663

6,190,409

J Phillips–

2,254,377

5,231

2,254,377

M Whelan

1,841,167

2,690,090

52,1922,710,950

N Williams

1,668,474

286,000

17,511

1,890,735

24,911,293

42,517,466

1,698,846

51,314,934

Name

CEO and Current Disclosed Executives

Total

1 For Disclosed Executives who commenced during the 2015 financial year, opening balances are as at date of commencement.
2 Actual interest paid after taking into consideration offset accounts. The loan balance is shown gross, however the interest paid takes into account the impact of offset amounts.

10.2 OTHER TRANSACTIONSAll other transactions of the NEDs, the CEO and Disclosed Executives and their related parties are conducted on normal commercial terms
and conditions no more favourable than those given to other employees or customers, and are deemed trivial or domestic in nature.

Signed in accordance with a resolution of the Directors.

David M Gonski, AC
Chairman

Graeme R Liebelt
Director

5 November 2015

DIRECTORS’ REPORT

57

SECTION

02
CONSOLIDATED FINANCIAL STATEMENTS
Income Statement

60

Statement of Comprehensive Income
Balance Sheet
Cash Flow Statement
Statement of Changes in Equity

61
62
63
64

NOTES TO THE FINANCIAL STATEMENTS
Basis of Preparation
01 Significant Accounting Policies
02	Critical Estimates and Judgements used in Applying Accounting Policies

66
75

Financial Performance
03
04
05
06
07
08
09

IncomeExpenses
Income Tax
Dividends
Earnings Per Ordinary Share
Segment Analysis
Note to the Cash Flow Statement

77
78
79
82
84
85
88

Financial Assets
10
11
12
13
14
15

Cash		
Trading Securities
Derivative Financial Instruments
Available-for-sale Assets
Net Loans and Advances
Provision for Credit Impairment

89
89
89
95
96
98

Financial Liabilities
16 Deposits and Other Borrowings
17 Debt Issuances
18 Subordinated Debt

100
100
101

Financial Instrument Disclosures
19 Financial Risk Management
20 Fair Value of Financial Assets and Liabilities
21 Maturity Analysis of Assets and Liabilities
22	Assets Charged as Security for Liabilities and Collateral Accepted as Security for Assets
23 Offsetting
24	Credit Related Commitments, Guarantees and Contingent Liabilities

58

103
124
132
133
134
136

ANZ ANNUAL REPORT 2015

NOTES TO THE FINANCIAL STATEMENTS (continued)
Non-financial Assets
25 Goodwill and Other Intangible Assets
26 Premises and Equipment
27 Other Assets

137
138
139

Non-financial Liabilities
28 Provisions
29 Payables and Other Liabilities

139
139

Equity30 Share Capital
31 Reserves and Retained Earnings
32 Capital Management

139
141
142

Consolidation and Presentation
33
34
35
36
37

Shares in Controlled Entities
Controlled Entities
Investments in associates
Structured Entities
Transfers of Financial Assets

145
146
147
148
150

Life Insurance and Funds Management Business
38 Life Insurance Business
39 Fiduciary Activities

151
154

Employee and Related Party Transactions
40	Superannuation and Other Post Employment Benefit Schemes
41 Employee Share and Option Plans
42 Related Party Disclosures

154
157
164

Other Disclosures
43
44
45
46

Other Contingent Liabilities and Contingent Assets
Compensation of Auditors
Changes to Comparatives
Events Since the End of the Financial Year

Directors’ Declaration and Responsibility Statement
Independent Auditor’s Report

165
168
168
169
170
171

SECTION 2

59

FINANCIAL STATEMENTS
Income Statement for the year ended 30 September
Consolidated

The Company1

Note

2015
$m

2014
$m

2015
$m

2014
$m

3
4

30,526(15,910)

29,524(15,714)

26,665(16,249)

25,560(15,550)

14,616

13,81010,416

10,010

4

4,094
1,736
625
21,071(9,359)

4,189
1,538
517
20,054(8,760)

6,575
203
376
17,570(7,350)

5,784
217
248
16,259(6,878)15

11,712(1,179)11,294(986)

10,220
(969)

9,381
(974)

10,533

10,308

9,251

8,407

(3,026)(3,025)(1,945)(1,971)

Profit for the year

7,507

7,283

7,306

6,436

Comprising:
Profit attributable to non-controlling interests
Profit attributable to shareholders of the Company

14
7,493

12
7,271

–
7,306

–
6,436

271.5
257.2
181

267.1
257.0
178

n/a
n/a
n/a

n/a
n/a
n/a

Interest income
Interest expense
Net interest income
Other operating income
Net funds management and insurance income
Share of associates’ profit
Operating income
Operating expenses
Profit before credit impairment and income tax
Credit impairment charge

3
33Profit before income tax
Income tax expense

Earnings per ordinary share (cents)
Basic
DilutedDividend per ordinary share (cents)
1 Comparative amounts have changed. Refer to note 45 for details.
The notes appearing on pages 66 to 169 form an integral part of these financial statements.

60

5

7
7
6

ANZ ANNUAL REPORT 2015

Statement of Comprehensive Income for the year ended 30 September
Consolidated
2014
$m

2015
$m

2014
$m

7,507

7,283

7,306

6,436

(6)

43

24

8

52

(35)

52

(35)

4

(11)

(4)

(2)

(15)

10

(15)

10

31

1,736
(4)

487
37

878
(4)

212
37

31

(40)
(71)

134
(47)

(74)
(49)

90
(40)

31

160
(15)

165
(31)

149
–

168
8

36
(45)
59

(23)
(41)
(24)

39
(46)
44

(14)
(53)
(23)

Note

Profit for the year
Other comprehensive income
Items that will not be reclassified subsequently to profit or loss
Remeasurement gain/(loss) on defined benefit plans
Fair value gain/(loss) attributable to changes in own credit riskof financial liabilities designated at fair value
Income tax on items that will not be reclassified subsequently to profit or loss
Remeasurement gain/(loss) on defined benefit plans
Fair value gain/(loss) attributable to changes in own credit riskof financial liabilities designated at fair value
Items that may be reclassified subsequently to profit or loss
Foreign currency translation reserve2
Exchange differences taken to equity
Exchange differences transferred to income statement
Available-for-sale revaluation reserve
Valuation gain/(loss) taken to equity
Transferred to income statement
Cash flow hedge reserve
Valuation gain/(loss) taken to equity
Transferred to income statement
Income tax on items that may be reclassified subsequently to profit or loss
Available-for-sale revaluation reserve
Cash flow hedge reserve
Share of associates’ other comprehensive income3

The Company1

2015
$m

31,40

Other comprehensive income net of tax

1,851

664

994

366

Total comprehensive income for the year

9,358

7,947

8,300

6,802

Comprising total comprehensive income attributable to:Non-controlling interests
Shareholders of the Company

30
9,328

16
7,931

–
8,300

–
6,802

1 Comparative amounts have changed. Refer to note 45 for details.
2 Includes a $16 million gain of foreign currency translation differences attributed to non-controlling interests (2014: $4 million gain).
3 Share of associates’ other comprehensive income includes items that may be reclassified subsequently to profit and loss comprised of Available-for-sale assets reserve gain of $53 million(2014: loss of $25 million) for the Group and gain of $44 million (2014: loss of $23 million) for the Company; Foreign currency translation reserve of $8 million gain (2014: nil) for the Group;
Cash flow hedge reserve of nil (2014: gain of $1 million) for the Group and items that will not be reclassified subsequently to profit or loss comprised of Defined benefit plans loss of $2 million(2014: nil) for the Group.
The notes appearing on pages 66 to 169 form an integral part of these financial statements.

FINANCIAL STATEMENTS

61

FINANCIAL STATEMENTS (continued)

Balance Sheet as at 30 September
Consolidated

The Company1

2015
$m

2014
$m

2015
$m

2014
$m

53,903
18,596
9,967
49,00085,62543,667562,173
1,773
–
–
5,440
90
402
8,312
34,820
2,221
5,846
8,065

32,55920,241
5,459
49,69256,36930,917521,752
1,565
–
–
4,582
38
417
7,950
33,579
2,181
4,791
–

51,217
16,601
8,234
37,37375,694
37,612
440,383557
109,920
17,823
3,018
84
712
2,830
–
990
2,949
8,065

30,655
18,1504,873
38,04952,882
26,151
415,066434
99,194
14,870
2,166
27
778
2,451
–
1,001
2,243
–

Total assets

889,900

772,092

814,062

708,990

Liabilities
Settlement balances owed by ANZ
Collateral received
Deposits and other borrowings
Derivative financial instruments
Due to controlled entities
Current tax liabilities
Deferred tax liabilities
Policy liabilities
External unit holder liabilities (life insurance funds)
Provisions
Payables and other liabilities
Debt issuances
Subordinated debt

11,2507,829
570,794
81,270–267
249
35,401
3,291
1,074
10,366
93,747
17,009

10,114
5,599
510,079
52,925–449
120
34,554
3,181
1,100
10,98480,096
13,6079,901
6,886
472,031
71,844
105,079
94
123
–
–
731
6,294
75,57915,812

8,189
4,886
423,172
50,474
93,796
301
62
–
–
695
7,682
64,161
12,870Total liabilities

832,547

722,808

764,374

666,288

Net assets

57,35349,284

49,68842,702

Note

AssetsCash
Settlement balances owed to ANZCollateral paid
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances
Regulatory deposits
Due from controlled entities
Shares in controlled entities
Investments in associates
Current tax assets
Deferred tax assets
Goodwill and other intangible assets
Investments backing policy liabilities
Premises and equipment
Other assets
Esanda dealer finance assets held for sale

10
11
12
13
14
33
35
5
5
25
38
26
27
14

16
12
5
5
38
28
29
17
18

Shareholders' equity
Ordinary share capitalPreference share capital
Reserves
Retained earnings

30
30
31
31

28,367–
1,571
27,30924,031871(239)
24,544

28,611–
939
20,13824,280871(6)17,557

Share capital and reserves attributable to shareholders of the Company
Non-controlling interests30

57,247
106

49,207
77

49,688–42,702–57,35349,284

49,68842,702

Total shareholders' equity
1 Comparative amounts have changed. Refer to note 45 for details.
The notes appearing on pages 66 to 169 form an integral part of these financial statements.

62

ANZ ANNUAL REPORT 2015

Cash Flow Statement for the year ended 30 September
Consolidated
Note

Cash flows from operating activities
Interest received
Interest paid
Dividends received
Other operating income received
Other operating expenses paid
Income taxes paid
Net cash flows from funds management and insurance businessPremiums, other income and life investment deposits received
Investment income and policy deposits received
Claims and policyholder liability payments
Commission expense (paid)/received
Cash flows from operating activities before changes in operating assets and liabilities
Changes in operating assets and liabilities arising from cash flow movements(Increase)/decrease in operating assets
Collateral paid
Trading securities
Loans and advances
Net intra-group loans and advances
Net cash flows from investments backing policyholder liabilities
Purchase of insurance assets
Proceeds from sale/maturity of insurance assets
Increase/(decrease) in operating liabilities
Deposits and other borrowings
Settlement balances owed by ANZ
Collateral received
Payables and other liabilities
Change in operating assets and liabilities arising from cash flow movements

The Company

2015
$m

2014
$m

2015
$m

2014
$m

30,667(15,458)
231
18,297(8,573)(3,082)

29,327(14,886)
127
2,704(8,123)(3,207)26,754(15,809)
2,630
15,818(6,806)(2,388)25,417(14,716)
1,890
3,780
(6,476)(2,615)

7,577
286(5,930)
(648)

7,549
620
(5,578)
(471)

154
–
–
49

168
–
–
49

23,367

8,062

20,402

7,497(3,585)2,870(32,280)–

1,271(8,600)(35,154)–(2,427)
2,161(21,759)(992)

957(7,131)(29,408)
1,856(7,065)
7,239(4,856)
4,625

–
–

–
–

30,050
781
1,073
(974)

36,592
1,358
1,435
910

22,2101,422
854(1,491)

31,798
668
1,103
1,417

(1,891)(2,419)

(22)

1,260

21,476

5,643

20,3808,757(24,236)
15,705(12,652)
11,136(18,876)
11,256(7,849)
6,489

–
4

–
251

(1,375)
–

(21)
249

(321)
(928)

(370)
(292)

(204)
(280)

(248)
86

(9,776)(1,927)(9,479)(1,294)

16,637(15,966)

17,156(10,710)

12,969(12,250)

13,102(8,642)

2,683–(3,763)
3,207
(755)
–

3,258
(2,586)(3,827)
4
–
(500)

2,517
–
(3,784)
3,207
(755)
–

3,258
(2,586)(3,843)4–(500)

Net cash provided by financing activities

2,043

2,795

1,904

793

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

13,74348,2297,306

6,511
41,111607

12,80545,0486,983

8,256
36,279513

69,27848,22964,83645,048Net cash provided by operating activities
Cash flows from investing activities
Available-for-sale assets
Purchases
Proceeds from sale or maturity
Controlled entities and associates
Purchases (net of cash acquired)Proceeds from sale (net of cash disposed)
Premises and equipment
Purchases
Other assets

9(a)

9(c)
9(c)

Net cash used in investing activities
Cash flows from financing activities
Debt issuances
Issue proceeds
Redemptions
Subordinated debt
Issue proceeds
Redemptions
Dividends paid
Share capital issues
Preference shares bought backShare buybacks

Cash and cash equivalents at end of year9(b)The notes appearing on pages 66 to 169 form an integral part of these financial statements.

FINANCIAL STATEMENTS

63

FINANCIAL STATEMENTS (continued)

Statement of Changes in Equity for the year ended 30 September

Consolidated

As at 1 October 2013

Ordinaryshare capital$m

Preference
shares$m

Reserves1$m

Retainedearnings$m

Shareholders’equityattributable
to equity
holders of
the Bank$m

Non-controllinginterests$m

Totalshareholders’equity$m

23,641871(907)

21,93645,54162

45,603

Profit or loss
Other comprehensive income for the year

–
–

–
–

–
653

7,271
7

7,271
660

12
4

7,283
664

Total comprehensive income for the year
Transactions with equity holders in theircapacity as equity holders:
Dividends paid
Dividend income on Treasury shares held within
the Group’s life insurance statutory funds
Dividend reinvestment plan
Transactions with non-controlling interests
Other equity movements:
Share-based payments/(exercises)
Treasury shares Global Wealth adjustment
Group share option scheme
Group employee share acquisition scheme
Group share buyback
Transfer of options/rights lapsed

–

–

653

7,278

7,931

16

7,947

–

–

–

(4,700)(4,700)(1)(4,701)

–
851
–

–
–
–

–
–
10

22
–
–

22
851
10

–
–
–

22
851
10

–
24
4
11
(500)
–

–
–
–
–
–
–

13
–
–
–
–
(8)

–
–
–
–
–
8

13
24
4
11
(500)
–

–
–
–
–
–
–

13
24
4
11
(500)
–

As at 30 September 2014

24,031871(239)

24,54449,20777

49,284

Profit or loss
Other comprehensive income for the year

–
–

–
–

–
1,802

7,493
33

7,493
1,835

14
16

7,507
1,851

Total comprehensive income for the year

–

–

1,802

7,526

9,328

30

9,358

–

–

–

(4,907)(4,907)(1)(4,908)

–
1,122
–

–
–
(871)

–
–
–

22
–
–

22
1,122
(871)

–
–
–

22
1,122
(871)

–
3,206
5
2
1
–

–
–
–
–
–
–

16
–
–
–
–
(8)

–
–
–
–
–
8

16
3,206
5
2
1
–

–
–
–
–
–
–

16
3,206
5
2
1
–

–

–

–

116

116

–

116

28,367–

1,571

27,30957,247

106

57,353

Transactions with equity holders in theircapacity as equity holders:
Dividends paid
Dividend income on Treasury shares held within
the Group’s life insurance statutory funds
Dividend reinvestment plan
Preference share bought back
Other equity movements:
Share-based payments/(exercises)
Share placement and share purchase plan
Treasury shares Global Wealth adjustment
Group share option scheme
Group employee share acquisition scheme
Transfer of options/rights lapsed
Foreign exchange gains on preference
shares bought backAs at 30 September 2015

1 Further information on reserves is disclosed in note 31 to the financial statements.
The notes appearing on pages 66 to 169 form an integral part of these financial statements.

64

ANZ ANNUAL REPORT 2015

The Company

As at 1 October 2013

Ordinaryshare capital$m

Preference
shares$m

1,2

Reserves$m

Retainedearnings1$m

Shareholders’equityattributable
to equity
holders of
the Bank1$m

Non-controllinginterests$m

Totalshareholders’equity1$m

23,914871(396)

15,826

40,215–40,215

Profit or loss
Other comprehensive income for the year

–
–

–
–

–
385

6,436
(19)

6,436
366

–
–

6,436
366

Total comprehensive income for the year
Transactions with equity holders in theircapacity as equity holders:
Dividends paid
Dividend reinvestment plan
Other equity movements:
Share-based payments/(exercises)
Group share option scheme
Group employee share acquisition scheme
Group share buyback
Transfer of options/rights lapsed

–

–

385

6,417

6,802

–

6,802

–
851

–
–

–
–

(4,694)–(4,694)
851

–
–

–
4
11
(500)
–

–
–
–
–
–

13
–
–
–
(8)

–
–
–
–
8

13
4
11
(500)
–

–
–
–
–
–

(4,694)
851
–
13
4
11
(500)
–

As at 30 September 2014

24,280871(6)17,55742,702–42,702

Profit or loss
Other comprehensive income for the year

–
–

–
–

–
937

7,306
57

7,306
994

–
–

7,306
994

Total comprehensive income for the year

–

–

937

7,363

8,300

–

8,300

–
1,122
–

–
–
(871)

–
–
–

(4,906)––(4,906)
1,122
(871)

–
–
–

(4,906)
1,122
(871)

–
3,206
2
1
–

–
–
–
–
–

16
–
–
–
(8)

–
–
–
–
8

16
3,206
2
1
–

–
–
–
–
–

16
3,206
2
1
–

–

–

–

116

116

–

116

28,611–

939

20,13849,688–49,688Transactions with equity holders in theircapacity as equity holders:
Dividends paid
Dividend reinvestment plan
Preference share bought back
Other equity movements:
Share-based payments/(exercises)
Share placement and share purchase plan
Group share option scheme
Group employee share acquisition scheme
Transfer of options/rights lapsed
Foreign exchange gains on preference
shares bought backAs at 30 September 2015

1 Comparative amounts have changed. Refer to note 45 for details.
2 Further information on reserves is disclosed in note 31 to the financial statements.
The notes appearing on pages 66 to 169 form an integral part of these financial statements.

FINANCIAL STATEMENTS

65

NOTES TO THE FINANCIAL STATEMENTS
1: Significant Accounting Policies
The financial statements of Australia and New Zealand Banking
Group Limited (the Company) and its controlled entities (the Group)for the year ended 30 September 2015 were authorised for issue inaccordance with a resolution of the Directors on 4 November 2015.
The Company is incorporated and domiciled in Australia. The addressof the Company’s registered office is ANZ Centre, Level 9, 833 Collins
Street, Docklands, Victoria, Australia 3008.
The Company and Group are for-profit entities.
ANZ provides a broad range of banking and financial products
and services to retail, high net worth, small business, corporate andcommercial and institutional customers.
Geographically, operations span Australia, New Zealand, a numberof countries in the Asia Pacific region, the United Kingdom, France,
Germany and the United States.
The principal accounting policies adopted in the preparationof these financial statements are set out below. These policies havebeen consistently applied by the Company and all Group entities
for all years presented in these financial statements.
A) BASIS OF PREPARATION
i) Statement of compliance
The financial statements of the Company and Group are general
purpose financial statements which have been prepared inaccordance with the relevant provisions of the Banking Act 1959,
Australian Accounting Standards (AASs) and other authoritative
pronouncements of the Australian Accounting Standards Boardand the Corporations Act 2001.
International Financial Reporting Standards (IFRS) are Standards
and Interpretations adopted by the International AccountingStandards Board (IASB). IFRS forms the basis of AASs. The Group’s
application of AASs ensures that the financial statements of theCompany and Group comply with IFRS.
ii) Use of estimates and assumptions
The preparation of these financial statements requires the useof management judgement, estimates and assumptions that affectreported amounts and the application of accounting policies.
Discussion of the critical accounting treatments, which include
complex or subjective decisions or assessments, are covered in note 2.
Such estimates, judgements and assumptions are reviewed on
an ongoing basis.
iii) Basis of measurement
The financial information has been prepared in accordance with thehistorical cost basis except that the following assets and liabilities
are stated at their fair value:}} derivative financial instruments;}} available-for-sale financial assets;}} financial instruments held for trading; and}} assets and liabilities designated as fair value through profit or loss.
In accordance with AASB 1038 Life Insurance Contracts (‘AASB 1038’), life
insurance liabilities are measured using the Margin on Services model.
In accordance with AASB 119 Employee Benefits (‘AASB 119’), defined
benefit obligations are measured using the Projected Unit Credit Method.
iv) Changes in Accounting Policy
The accounting policies are consistent with those of the previous
financial year except for:66

AASB 2014-9 Amendments to Australian Accounting Standards –Equity Method in Separate Financial Statements (‘AASB 2014-9’)
In December 2014, the Australia Accounting Standards Board issued
the amended standard AASB 2014-9 which, unless early adopted,
is effective for the Group’s financial year ending 30 September 2017.
AASB 2014-9 amends AASB 127 Separate Financial Statements toinclude an option allowing entities to elect to use the equity methodof accounting for investments in subsidiaries, joint ventures andassociates in the parent entity’s separate financial statements.
The Company has early adopted this standard and elected to apply
the equity method for accounting for investments in associates. These
investments were previously accounted for at cost. In accordance withtransitional provisions the change has been applied retrospectively,
with the net impact of initial application recognised in retained
earnings as at 1 October 2013. As a result the share of associates’
profit and share of associates’ other comprehensive income arerecognised in the Company’s financial statements and dividends
received from the associate recognised as a reduction to the equity
accounted carrying value. The current year impact of this change
is an increase in the Company’s profit before income tax of $317 million,
no change to the Company’s income tax expense and an increasein the Company’s other comprehensive income of $535 million.
In the Company’s balance sheet, investments in associates haveincreased by $2,298 million, retained earnings have increased
by $1,554 million and reserves have increased by $744 million.
Comparative information has been restated. Refer to note 45
for further details.
v) Rounding
The Company is an entity of the kind referred to in Australian
Securities and Investments Commission class order 98/100 dated
10 July 1998 (as amended). Consequently, amounts in the financial
statements have been rounded to the nearest million dollars,
except where otherwise indicated.
vi) Comparatives
Certain amounts in the comparative information have been reclassified
to conform with current period financial statement presentations.
Refer to note 45 for further details.
vii) Principles of consolidation
The consolidated financial statements of the Group comprise thefinancial statements of the Company and all its subsidiaries. An entity,
including a structured entity, is considered a subsidiary of the Group
when it is determined that control over the entity exists. Control
is deemed to exist when the Group is exposed, or has rights, tovariable returns from its involvement with the entity and has theability to affect those returns through its power over the entity.
Power is assessed by examining existing rights that give the Groupthe current ability to direct the relevant activities of the entity.
At times, the determination of control can be judgemental. Further
detail on the judgement involved in assessing control has been
provided in note 2(iii).
The effect of all transactions between entities in the Group has
been eliminated.
Where subsidiaries are sold or acquired during the year, theiroperating results are included to the date of disposal or from thedate of acquisition. When control ceases, the assets and liabilitiesof the subsidiary, any related non-controlling interest and othercomponents of equity are derecognised.

ANZ ANNUAL REPORT 2015

1: Significant Accounting Policies (continued)
Any interest retained in the former subsidiary is initially measured
at fair value and any resulting gain or loss is recognised in theincome statement.
In the Company’s financial statements, investments in subsidiaries
are carried at cost less accumulated impairment losses.
viii) Associates
The equity method is applied to accounting for associates in boththe consolidated financial statements of the Group and the financial
statements of the Company.
Under the equity method, the share of results of associates is includedin the income statement and statement of other comprehensive
income. Investments in associates are carried in the balance sheet
at cost plus the post-acquisition share of changes in associates’ net
assets less accumulated impairment.
Investments in associates are reviewed for any indication of impairment
at least at each reporting date. Where an indication of impairment
exists the recoverable amount of the associate is determined basedon the higher of the associates’ fair value less costs to sell andits value in use. A discounted cash flow methodology and othermethodologies such as the capitalisation of earnings methodology
are used to determine the recoverable amount.
ix) Foreign currency translation
Functional and presentation currency
Items included in the financial statements of each Group entity aremeasured using the currency of the primary economic environment
in which the entity operates (the functional currency).
The consolidated financial statements are presented in Australian
dollars, which is the Company’s functional and presentation currency.
Foreign currency transactions
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the datesof the transactions.
Monetary assets and liabilities resulting from foreign currencytransactions are subsequently translated at the spot rate atreporting date.
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, are recognised in the income statementin the period in which they arise.
Translation differences on non-monetary items measured at fairvalue through profit or loss, are reported as part of the fair value
gain or loss on these items.
Translation differences on non-monetary items classified as availablefor-sale financial assets are included in the available-for-salerevaluation reserve in equity.
Translation to presentation currency
The results and financial position of all Group entities (noneof which has the functional currency of a hyperinflationary economy)
that have a functional currency different from the Group’s presentation
currency are translated into the Group’s presentation currency
as follows:}} assets and liabilities are translated at the rates of exchange rulingat reporting date;}} revenue and expenses are translated at the average exchange
rate for the period, unless this average is not a reasonableapproximation of the rate prevailing on transaction date, in whichcase revenue and expenses are translated at the exchange rateruling at transaction date; and}} all resulting exchange differences are recognised in the foreign
currency translation reserve.
When a foreign operation is disposed, cumulative exchange
differences are recognised in the income statement as part of thegain or loss on sale.
Goodwill arising on the acquisition of a foreign operation is treatedas an asset of the foreign operation and translated at the spot rate
at reporting date.
B) INCOME RECOGNITION
i) Interest income
Interest income is recognised as it accrues using the effective interest
rate method.
The effective interest rate method calculates the amortised cost ofa financial asset or financial liability and allocates the interest income
or interest expense over the expected life of the financial asset or
financial liability so as to achieve a constant yield on the financial
asset or liability.
For assets subject to prepayment, expected life is determined on thebasis of the historical behaviour of the particular asset portfolio, taking
into account contractual obligations and prepayment experience.
This is assessed on a regular basis.
ii) Fee and commission income
Fees and commissions received that are integral to the effective
interest rate of a financial asset are recognised using the effective
interest rate method. For example, loan origination fees, together
with related direct costs, are deferred and recognised as an
adjustment to the effective interest rate on a loan once drawn.
Fees and commissions that relate to the execution of a significant
act (for example, advisory or arrangement services, placement fees
and underwriting fees) are recognised when the significant act has
been completed.
Fees charged for providing ongoing services (for example,
maintaining and administering existing facilities) are recognised
as income over the period the service is provided.
iii) Dividend income
Dividends are recognised as revenue when the right to receive
payment is established.
iv) Leasing income
Income on finance leases is recognised on a basis that reflects a
constant periodic return on the net investment in the finance lease.
v) Gain or loss on sale of assets
The gain or loss on the disposal of assets is determined as thedifference between the carrying amount of the asset at the timeof disposal and the proceeds of disposal, net of incremental disposal
costs. This is recognised as an item of other income in the year in which
the significant risks and rewards of ownership transfer to the buyer.

NOTES TO THE FINANCIAL STATEMENTS

67

NOTES TO THE FINANCIAL STATEMENTS (continued)

1: Significant Accounting Policies (continued)C) EXPENSE RECOGNITION
i) Interest expense
Interest expense on financial liabilities measured at amortised costis recognised as it accrues using the effective interest rate method.
ii) Loan origination expenses
Certain loan origination expenses are an integral part of the effective
interest rate of a financial asset measured at amortised cost. Theseloan origination expenses include:}} fees and commissions payable to brokers and certain customer
incentive payments in respect of originating lending business; and}} other expenses of originating lending business, such as external
legal costs and valuation fees, provided these are direct andincremental costs related to the origination of a financial asset.
Such loan origination expenses are initially recognised as partof the cost of acquiring the financial asset and amortised as partof the effective yield of the financial asset over its expected life
using the effective interest rate method.
iii) Share-based compensation expense
The Group has various equity settled share-based compensationplans. These are described in note 41 and comprise the ANZ
Employee Share Acquisition Plan and the ANZ Share Option Plan.
ANZ Employee Share Acquisition Plan
The fair value of ANZ ordinary shares granted under the Employee
Share Acquisition Plan is measured at grant date, using the one-day
volume weighted average market price of ANZ shares. The fair value
is expensed on a straight-line basis over the relevant vesting period.
This is recognised as share-based compensation expense witha corresponding increase in share capital.
ANZ Share Option Plan
The fair value of share options (deferred share rights, performancerights) is measured at grant date, using an option pricing model.
The fair value is expensed on a straight line basis over the relevant
vesting period. This is recognised as share based compensation
expense with a corresponding increase in the share options reserve.
The option pricing model takes into account the exercise price ofthe option, the risk-free interest rate, the expected volatility of ANZ’sordinary share price and other factors. Market vesting conditions
are taken into account in determining the fair value.
A deferred share right or a performance right is a right to acquirea share at nil cost to the employee subject to satisfactorily meetingtime and/or performance hurdles. For equity grants made after
1 November 2012, any portion of the award which vests may besatisfied by a cash equivalent payment rather than shares at theBoard’s discretion.
Other adjustments
Subsequent to the grant of an equity-based award, the amountrecognised as an expense is reversed when an employee fails tosatisfy the minimum service period specified in the award upon
resignation, termination or notice of dismissal for serious misconduct.
The expense is not reversed where the award does not vest due
to the failure to meet a market-based performance condition.

68iv) Lease payments
Leases entered into by the Group as lessee are predominantly
operating leases. Operating lease payments are recognised
as an expense on a straight-line basis over the lease term.
D) INCOME TAXi) Income tax expense
Income tax on earnings for the year comprises current and deferred
tax and is based on the applicable tax law in each jurisdiction.
It is recognised in the income statement as tax expense, except
when it relates to items credited directly to equity, in which case
it is recorded in equity, or where it arises from the initial accounting
for a business combination, in which case it is included in thedetermination of goodwill.
ii) Current tax
Current tax is the expected tax payable on taxable income forthe year, based on tax rates (and tax laws) which are enacted at thereporting date, including any adjustment for tax payable in previous
periods. Current tax for current and prior periods is recognised
as a liability (or asset) to the extent that it is unpaid (or refundable).
iii) Deferred tax
Deferred tax is accounted for using the comprehensive tax balance
sheet method. It is generated by temporary differences between
the carrying amounts of assets and liabilities for financial reporting
purposes and their tax base.
Deferred tax assets, including those related to the tax effects ofincome tax losses and credits available to be carried forward, arerecognised only to the extent that it is probable that future taxable
profits will be available against which the deductible temporary
differences or unused tax losses and credits can be utilised.
Deferred tax liabilities are recognised for all taxable temporary
differences, other than those relating to taxable temporary
differences arising from goodwill. They are also recognised for taxable
temporary differences arising on investments in controlled entities,
branches, and associates, except where the Group is able to control
the reversal of the temporary differences and it is probable that
temporary differences will not reverse in the foreseeable future.
Deferred tax assets associated with these investments are recognised
only to the extent that it is probable that the temporary difference
will reverse in the foreseeable future and there will be sufficienttaxable profits against which to utilise the benefits of thetemporary difference.
Deferred tax assets and liabilities are measured at the tax rates thatare expected to apply to the period(s) when the asset and liability
giving rise to them are realised or settled, based on tax rates (andtax laws) that have been enacted or substantively enacted by thereporting date. The measurement reflects the tax consequences thatwould follow from the manner in which the Group, at the reporting
date, expects to recover or settle the carrying amount of its assets
and liabilities.
Current and deferred tax assets and liabilities are offset only to theextent that they relate to income taxes imposed by the same taxation
authority, there is a legal right and intention to settle on a net basis
and it is allowed under the tax law of the relevant jurisdiction.

ANZ ANNUAL REPORT 2015

1: Significant Accounting Policies (continued)E) ASSETS
FINANCIAL ASSETSi) Financial assets and liabilities at fair value through profit or loss
Purchases and sales of trading securities are recognised on trade date.
Trading securities are financial instruments acquired principally for the
purpose of selling in the short-term or which are a part of a portfolio
which is managed for short-term profit-taking. Trading securities are
initially recognised and subsequently measured in the balance sheet
at their fair value.
Derivatives that are not effective accounting hedging instruments
are measured at fair value through profit or loss.
The Group may designate certain financial assets and liabilities
as measured at fair value through profit or loss in any of thefollowing circumstances:}} investments backing policy liabilities (refer note 1(I)(iii));}} life investment contract liabilities (refer note 1(I)(i));}} external unit holder liabilities (life insurance funds) (refer note 1(l)(ii);}} doing so eliminates or significantly reduces a measurement
or recognition inconsistency that would otherwise arise frommeasuring assets and liabilities, or recognising the gains or losses
thereon, on different bases;}} a group of financial assets or financial liabilities or both is managed
and its performance is evaluated on a fair value basis; or}} the financial instrument contains an embedded derivative, unlessthe embedded derivative does not significantly modify the cash
flows or it is clear, with little or no analysis, that it would not be
separately recorded.
Changes in the fair value of these financial instruments are recognisedin the income statement except in the case of financial liabilities
designated as fair value through profit or loss. For financial liabilities
designated as fair value through profit or loss, the amount of fair value
gain or loss attributable to changes in the Group’s own credit risk
is recognised in other comprehensive income (retained earnings).
The remaining amount of fair value gain or loss is recognised in profit
or loss. Amounts recognised in other comprehensive income are
not subsequently reclassified to profit or loss.
ii) Derivative financial instruments
Derivative financial instruments are contracts whose value is derived
from one or more underlying price, index or other variable. They
include swaps, forward rate agreements, futures and options.
Derivative financial instruments are entered into for trading purposes(including customer-related reasons), or for hedging purposes where
the derivative instruments are used to hedge the Group’s exposures
to interest rate risk, currency risk, credit risk and other exposuresrelating to non-trading positions.
Derivative financial instruments are recognised initially at fair value
with gains or losses from subsequent measurement at fair value
being recognised in the income statement. Valuation adjustments
are integral in determining the fair value of derivatives. This includes
a credit valuation adjustment (CVA) to reflect the credit worthinessof the counterparty and a funding valuation adjustment (FVA)
to account for the funding cost inherent in the portfolio.
Where the derivative is effective as a hedging instrument andis designated as such, the timing of the recognition of any
resultant gain or loss in the income statement is dependent
on the hedging designation.

Fair value hedge
Where the Group hedges the fair value of a recognised asset
or liability or firm commitment, changes in the fair value of thederivative designated as a fair value hedge are recognised in theincome statement. Changes in the fair value of the hedged item
attributable to the hedged risk are reflected in adjustments tothe carrying value of the hedged item, which are also recognisedin the income statement.
Hedge accounting is discontinued when the hedge instrument
expires or is sold, terminated, exercised or no longer qualifies forhedge accounting. The adjustment to the carrying amount of thehedged item arising from the hedged risk is amortised to the income
statement over the period to maturity of the hedged item.
If the hedged item is sold or repaid, the unamortised fair value
adjustment is recognised immediately in the income statement.
Cash flow hedge
The Group designates derivatives as cash flow hedges where theinstrument hedges the variability in cash flows of a recognised asset
or liability, a foreign exchange component of a firm commitment
or a highly probable forecast transaction. For qualifying cash flow
hedges, the fair value gain or loss associated with the effective portionof the cash flow hedge is recognised in other comprehensive income
and then recycled to the income statement in the periods when thehedged item is recognised in the income statement. Any ineffective
portion is recognised immediately in the income statement. When thehedging instrument expires, is sold, terminated, or no longer qualifies
for hedge accounting, the cumulative amount deferred in equity
remains in the cash flow hedge reserve, and is subsequently
transferred to the income statement when the hedged item
is recognised in the income statement.
When a forecast hedged transaction is no longer expected to occur,
the amount deferred in the cash flow hedge reserve is recognised
immediately in the income statement.
Net investment hedge
Hedges of net investments in foreign operations are accounted forsimilarly to cash flow hedges. The gain or loss from remeasuring
the fair value of the hedging instrument relating to the effective
portion of the hedge is deferred in the foreign currency translation
reserve in other comprehensive income and the ineffective portionis recognised immediately in the income statement.
The cumulative gain or loss recognised in other comprehensive
income is recognised in the income statement on the disposal
or partial disposal of a foreign operation.
Derivatives that do not qualify for hedge accounting
All gains and losses from changes in the fair value of derivatives that are
not designated in a hedging relationship but are entered into to manage
the interest rate and foreign exchange risk of the Group are recognisedin the income statement. Under certain circumstances, the componentof the fair value change in the derivative which relates to current period
realised and accrued interest is included in net interest income. The
remainder of the fair value movement is included in other income.
iii) Available-for-sale financial assets
Purchases and sales of available-for-sale financial assets are recognisedon trade date being the date on which the Group commits to purchaseor sell the asset.

NOTES TO THE FINANCIAL STATEMENTS

69

NOTES TO THE FINANCIAL STATEMENTS (continued)

1: Significant Accounting Policies (continued)
Available-for-sale financial assets comprise non-derivative financial
assets which the Group designates as available-for-sale but which are
not deemed to be held principally for trading purposes, and include
equity investments and debt securities.
Available-for-sale financial assets are initially recognised at fairvalue plus transaction costs. Subsequent gains or losses arisingfrom changes in fair value are included as a separate component ofequity in the available-for sale revaluation reserve except for interest,
dividends and foreign exchange gains and losses on monetary
assets, which are recognised directly in the income statement. Whenthe asset is sold, the cumulative gain or loss relating to the asset istransferred from the available-for-sale revaluation reserve to theincome statement.
Where there is objective evidence of impairment of an availablefor-sale financial asset, the cumulative loss related to that asset
is removed from equity and recognised in the income statement,
as an impairment expense for debt instruments or as other income
for equity instruments. If, in a subsequent period, the amountof an impairment loss relating to an available-for-sale debt instrument
decreases and the decrease can be linked objectively to an event
occurring after the impairment event, the loss is reversed throughthe income statement through the impairment expense line.
iv) Net loans and advances
Net loans and advances are non-derivative financial assets with fixed
or determinable payments that are not quoted in an active market.
They arise when the Group provides money to a debtor with nointention of trading the loans and advances. Loans and advances
are initially recognised at fair value plus transaction costs that are
directly attributable to the issue of the loan or advance. They aresubsequently measured at amortised cost using the effective interest
rate method (refer note 1(B)(i)) unless specifically designated on initialrecognition as fair value through profit or loss.
All loans are graded according to the level of credit risk.
Net loans and advances includes direct finance provided to customers
such as bank overdrafts, credit cards, term loans, finance lease receivables
and commercial bills.
Impairment of loans and advances
Loans and advances are reviewed at least at each reporting datefor impairment.
Credit impairment provisions are raised for exposures that are known to
be impaired. Exposures are impaired and impairment losses are recorded
if, and only if, there is objective evidence of impairment as a result of
one or more loss events that occurred after the initial recognition of
the loan and prior to the reporting date, and that loss event, or events,
has had an impact on the estimated future cash flows of the individualloan or the collective portfolio of loans that can be reliably estimated.
Impairment is assessed for assets that are individually significant(or on a portfolio basis for small value assets) and then on a collective
basis for those exposures not individually known to be impaired.
Exposures that are assessed collectively are placed in pools of similar
assets with similar risk characteristics. The required provision isestimated on the basis of historical loss experience for assets withcredit risk characteristics similar to those in the collective pool.
The historical loss experience is adjusted based on current observabledata such as changed economic conditions. The provision also takes
account of the impact of inherent risk of large concentrated losses
within the portfolio and an assessment of the economic cycle.

70

The estimated impairment losses are measured as the difference
between the asset’s carrying amount and the estimated future cash
flows discounted to their present value.
As the discount unwinds during the period between recognitionof impairment and recovery of the cash flow, it is recognised
in interest income.
Impairment of capitalised acquisition-related expenses is assessed
through comparing the actual behaviour of the portfolio against
initial expected life assumptions.
The provision for impairment loss (individual and collective)
is deducted from loans and advances in the balance sheet
and the movement for the reporting period is reflected in theincome statement.
When a loan is uncollectable, either partially or in full, it is written-off
against the related provision for loan impairment. Unsecured facilities
are normally written-off when they become 180 days past due
or earlier in the event of the customer’s bankruptcy or similar legal
release from the obligation. In the case of secured facilities, remainingbalances are written-off after proceeds from the realisation ofcollateral have been received if there is a shortfall.
Impairment losses recognised in previous periods are reversed in theincome statement if the estimate of the loss subsequently decreases.
A provision is also raised for off-balance sheet items such as loan
commitments that are considered to be onerous.
v) Lease receivables
Contracts to lease assets and hire purchase agreements are classified
as finance leases if they transfer substantially all the risks and rewardsof ownership of the asset to the customer or an unrelated third party.
All other lease contracts are classified as operating leases.
vi) Repurchase agreements
Securities sold under repurchase agreements are retained in thefinancial statements where substantially all the risks and rewardsof ownership remain with the Group. A counterparty liability
is recognised and classified as deposits and other borrowings.
The difference between the sale price and the repurchase priceis accrued over the life of the repurchase agreement and charged
to interest expense in the income statement.
Securities purchased under agreements to resell, where the Group
does not acquire the risks and rewards of ownership, are recorded asreceivables in cash or net loans and advances if the original maturity
is greater than 90 days. The security is not included in the balance
sheet. Interest income is accrued on the underlying loan amount.
Securities borrowed are not recognised in the balance sheet, unlessthese are sold to third parties, at which point the obligation to
repurchase is recorded as a financial liability at fair value with fairvalue movements included in the income statement.
vii) Derecognition
The Group enters into transactions where it transfers financial assets
recognised on its balance sheet yet retains either all or a portionof the risks and rewards of the transferred assets. If all, or substantiallyall, of the risks and rewards are retained, the transferred assets are
not derecognised from the balance sheet.
In transactions where substantially all the risks and rewards ofownership of a financial asset are neither retained nor transferred,
the Group derecognises the asset if control over the asset is lost.

ANZ ANNUAL REPORT 2015

1: Significant Accounting Policies (continued)
In transfers where control over the asset is retained, the Group
continues to recognise the asset to the extent of its continuing
involvement, determined by the extent to which it is exposed
to changes in the value of the transferred asset. The rights andobligations retained or created in the transfer are recognised
separately as assets and liabilities as appropriate.
NON-FINANCIAL ASSETSviii) Goodwill
Goodwill represents the excess of the purchase consideration over thefair value of the identifiable net assets of a controlled entity at the dateof gaining control. Goodwill is recognised as an asset and not amortised,
but assessed for impairment at least annually or more frequently
if there is an indication that the goodwill may be impaired. This
involves using a discounted cash flow methodology or capitalisationof earnings methodology to determine the expected recoverable
amount of the cash-generating units (CGU) to which the goodwill
relates. Where it exceeds the recoverable amount, the differenceis charged to the income statement. Any impairment of goodwill
is not subsequently reversed.
ix) Software
Software include costs incurred in acquiring and building softwareand computer systems.
Software is amortised using the straight-line method over its
expected useful life to the Group. The period of amortisation is
between 3 and 5 years, except for certain major core infrastructure
projects where the useful life has been determined to be 7 or 10 years
and has been approved by the Audit Committee. The amortisation
period for software assets is reviewed at least annually. Where theexpected useful life of the asset is different from previous estimates
the amortisation period is changed prospectively.
At each reporting date, software assets are reviewed for impairment
indicators. If any such indication exists, the recoverable amount of
the assets are estimated and compared against the existing carrying
value. Where the carrying value exceeds the recoverable amount,the difference is charged to the income statement.
Costs incurred in planning or evaluating software proposals, orin maintaining systems after implementation, are not capitalised.
x) Acquired portfolio of insurance and investment business
Identifiable intangible assets in respect of acquired portfolios of
insurance and investment business acquired in a business combination
are stated initially at fair value at acquisition date. These are amortisedover the period of expected benefits of between 15 and 23 years.
The amortisation period is reviewed annually and the asset isreviewed for indicators of impairment. Any impairment identified
is charged to the income statement.
xi) Deferred acquisition costs
Refer to note 1(I)(vii).
xii) Other intangible assets
Other intangible assets include management fee rights and aligned
advisor relationships.
Management fee rights and aligned advisor relationships areamortised over the expected useful lives to the Group using thestraight line method.
Where the intangible asset is assessed to have an indefinite life,
it is carried at cost less any impairment losses.

The period of amortisation is no longer than:Management fee rights
7 years
Aligned advisor relationships
8 years
The amortisation period is reviewed at least at the end of each annual
reporting period and changed if there has been a significant change
in the pattern of expected future benefits from the asset.
xiii) Premises and equipment
Assets other than freehold land are depreciated at rates based upon
their expected useful lives to the Group, using the straight-line
method. The depreciation rates used for each class of asset are:
Buildings
1.5%
Building integrals
10%
Furniture & equipment
10%–20%Computer & office equipment
12.5%–33%
Leasehold improvements are amortised on a straight-line basis overthe shorter of their useful life or the remaining term of the lease.
The depreciation rate is reviewed annually and changed if there has
been a significant change in the pattern of expected future benefits
from the asset.
At each reporting date, the carrying amounts of premises andequipment are reviewed for impairment. If any impairment indicator
exists, the recoverable amount of the assets are estimated andcompared against the carrying value. Where the carrying value
exceeds the recoverable amount, the difference is charged to theincome statement. If it is not possible to estimate the recoverable
amount of an individual asset, the Group estimates the recoverable
amount of the CGU to which the asset belongs.
A previously recognised impairment loss is reversed if there has
been an increase in the estimated recoverable amount.
xiv) Borrowing costs
Borrowing costs incurred for the construction of qualifying assets
are capitalised into the cost of the qualifying asset during the periodof time that is required to complete and prepare the asset for its
intended use. The calculation of borrowing costs is based on aninternal measure of the costs associated with the borrowing of funds.
F) LIABILITIESFINANCIAL LIABILITIESi) Deposits and other borrowings
Deposits and other borrowings include certificates of deposit, interest
bearing deposits, debentures and other similar interest bearing
financial instruments. Deposits and other borrowings not designatedat fair value through profit or loss on initial recognition are measured
at amortised cost. The interest expense is recognised using theeffective interest rate method.
ii) Financial liabilities at fair value through profit or loss
Refer to note 1(E)(i).
iii) Acceptances
The exposure arising from the acceptance of bills of exchange thatare sold into the market is recognised as a liability. An asset of equalvalue is recognised to reflect the offsetting claim against the drawerof the bill. Bill acceptances generate fee income that is recognisedin the income statement when earned.

NOTES TO THE FINANCIAL STATEMENTS

71

NOTES TO THE FINANCIAL STATEMENTS (continued)

1: Significant Accounting Policies (continued)iv) Debt issuances and subordinated debt
Debt issuances and subordinated debt are accounted for in thesame way as deposits and other borrowings, except for those debt
securities which are designated as at fair value through profit or loss
on initial recognition.
v) Financial guarantee contracts
Financial guarantee contracts that require the issuer to makespecified payments to reimburse the holder for a loss the holder
incurs because a specified debtor fails to make payments when due,
are initially recognised in the financial statements at fair value on thedate the guarantee is given (typically this is the premium received).
Subsequent to initial recognition, the Group’s liabilities under suchguarantees are measured at the higher of their amortised amountand the best estimate of the expenditure required to settle any
financial obligation arising at the reporting date. These estimates
are determined based on experience of similar transactions andthe history of past losses.
vi) Derecognition
Financial liabilities are derecognised when the obligation specified
in the contract is discharged, cancelled or expires.
NON-FINANCIAL LIABILITIESvii) Employee benefits
Leave benefits
The liability for long service leave (including on-costs) is calculated
and accrued for in respect of all applicable employees using
an actuarial valuation. Expected future payments for long service
leave are discounted using market yields at the reporting dateon a blended rate of high quality corporate bonds with terms
to maturity that match, as closely as possible, the estimated future
cash outflows. The amounts expected to be paid in respect of
employees’ entitlements to annual leave are accrued at expectedsalary rates including on-costs.

}} remeasurements of the net defined benefit liability, which comprise
actuarial gains and losses and return on scheme assets (excludinginterest income included in net interest), are recognised directly
in retained earnings through other comprehensive income; and}} contributions made by the Group are recognised directly against
the net defined benefit position.
viii) Provisions
The Group recognises provisions when there is a present obligation,
the future sacrifice of economic benefits is probable, and the amountof the provision can be measured reliably.
The amount recognised is the best estimate of the consideration
required to settle the present obligation at reporting date, taking
into account the risks and uncertainties surrounding the obligation
at reporting date. Where a provision is measured using the estimatedcash flows required to settle the present obligation, its carrying
amount is the present value of those cash flows.
G) EQUITYi) Ordinary shares
Ordinary shares in the Company are recognised at the amount
paid per ordinary share net of directly attributable issue costs.
ii) Treasury shares
Shares in the Company which are purchased on-market by the ANZ
Employee Share Acquisition Plan or issued by the Company to the
ANZ Employee Share Acquisition Plan are classified as treasury shares(to the extent that they relate to unvested employee share based
awards) and are deducted from share capital.

Defined contribution superannuation schemes
The Group operates a number of defined contribution schemes
and also contributes, according to local law, in the various countries
in which it operates, to government and other plans that havethe characteristics of defined contribution schemes.

In addition, the life insurance business may also purchase and holdshares in the Company to back policy liabilities in the life insurance
statutory funds. These shares are also classified as treasury shares anddeducted from share capital. These assets, plus any corresponding
income statement fair value movement on the assets and dividend
income, are eliminated when the life statutory funds are consolidated
into the Group. The cost of the investment in the shares is deductedfrom share capital. However, the corresponding life investment
contract and life insurance contract liabilities, and related changes
in the liabilities recognised in the income statement, remain
upon consolidation.

The Group’s contributions to these schemes are recognised
as an expense in the income statement when incurred.

Treasury shares are excluded from the weighted average numberof ordinary shares used in the earnings per share calculations.

Defined benefit superannuation schemes
The Group operates a small number of defined benefit schemes. The
liability and expense related to providing benefits to employees undereach defined benefit scheme are calculated by independent actuaries.

iii) Non-controlling interest
Non-controlling interests represent the share in the net assetsof subsidiaries attributable to equity interests not owned directly
or indirectly by the Company.

A defined benefit liability is recognised to the extent that the present
value of the defined benefit obligation of each scheme, calculatedusing the Projected Unit Credit Method, is greater than the fair valueof each scheme’s assets. Where this calculation results in an assetof the Group, a defined benefit asset is recognised, which is cappedat the recoverable amount. In each reporting period, themovements in the net defined benefit liability are treated as follows:iv) Reserves}} the net movement relating to the current period’s service cost, net
interest on the net defined benefit liability, past service costs andother costs (such as the effects of any curtailments and settlements)
is recognised as an operating expense in the Income Statement;

72

Foreign currency translation reserve
As indicated in note 1(A)(ix), exchange differences arising ontranslation of assets and liabilities into the Group’s presentation
currency are reflected in the foreign currency translation reserve.
Any offsetting gains or losses on hedging these balances, together
with any tax effect, are also reflected in this reserve. When a foreign
operation is sold, attributable exchange differences are recognisedin the income statement.

ANZ ANNUAL REPORT 2015

1: Significant Accounting Policies (continued)
Available-for-sale revaluation reserve
This reserve includes changes in the fair value and exchange
differences on the revaluation of available-for-sale financial assets,
net of tax. These changes are transferred to the income statement(in other operating income) when the asset is derecognised or impaired.
Cash flow hedge reserve
This reserve includes the fair value gains and losses associated withthe effective portion of designated cash flow hedging instruments
net of tax. The cumulative deferred gain or loss on the hedge isrecognised in the income statement when the hedged transaction
impacts the income statement.
Share option reserve
This reserve includes the amounts which arise on the recognitionof share-based compensation expense (see note 1(C)(iii)). Amounts
are transferred out of the reserve into share capital when the equity
instruments are exercised.
Transactions with non-controlling interests reserve
The transactions with non-controlling interests reserve represents
the impact of transactions with non-controlling shareholders in theircapacity as shareholders.
H) PRESENTATION
i) Offsetting of income and expenses
Income and expenses are not offset unless required or permitted
by an accounting standard. This generally arises in the following
circumstances:}} where transaction costs form an integral part of the effective
interest rate of a financial instrument which is measured
at amortised cost, these are offset against the interest income/expense as part of the effective yield; or}} where gains and losses arise from a group of similar transactions,such as foreign exchange gains and losses.

I) LIFE INSURANCE AND FUNDS MANAGEMENT BUSINESSThe Group conducts its life insurance and funds managementbusiness (the Life Business) in Australia primarily through OnePath
Life Limited, which is registered under the Life Insurance Act 1995
(Life Act) and in New Zealand through OnePath Life (NZ) Limited
which is licensed under the Insurance (Prudential Supervision)
Act 2010.
The operations of the Life Business are conducted within separate
statutory funds, as required by the Life Act and are reported inaggregate with the shareholder’s fund in the income statement,
statement of changes in equity, balance sheet and cash flow
statements of the Group. The assets of the Life Business in Australia
are allocated between policyholder and shareholder funds inaccordance with the requirements of the Life Act. Under AASs,
the financial statements must include all assets, liabilities, revenues,
expenses and equity, irrespective of whether they are designatedas relating to shareholders or policyholders. Accordingly, theconsolidated financial statements include both policyholder(statutory) and shareholders’ funds.
i) Policy liabilities
Policy liabilities include liabilities arising from life insurance contracts
and life investment contracts.
Life insurance contracts are insurance contracts regulated under
the Life Act and similar contracts issued by entities operating
outside Australia. An insurance contract is a contract under which
an insurer accepts significant insurance risk from another party(the policyholder) by agreeing to compensate the policyholder if a
specified uncertain future event adversely affects the policyholder.
All contracts written by registered life insurers that do not meet thedefinition of an insurance contract are referred to as life investment
contracts. Life investment contract business relates to funds
management products in which the Group issues a contract where
the resulting liability to policyholders is linked to the performanceand value of the assets that back those liabilities.

ii) Offsetting assets and liabilities
Assets and liabilities are offset and the net amount reported in thebalance sheet only where there is:}} a current enforceable legal right to offset the asset and liability; and}} an intention to settle on a net basis, or to realise the asset andsettle the liability simultaneously.

Whilst the underlying assets are registered in the name of the life insurer
and the policyholder has no direct access to the specific assets, thecontractual arrangements are such that the policyholder bears the risks
and rewards of the fund’s underlying assets investment performancewith the exception of capital guaranteed products where thepolicyholder is guaranteed a minimum return or asset value. The Group
derives fee income from the administration of the underlying assets.

iii) Segment reporting
An operating segment is a component of the Group that engages inbusiness activities from which it may earn revenues and incur expenses,
whose operating results are regularly reviewed by the Chief Executive
Officer to make decisions about resources to be allocated to thesegment and assess its performance and for which discrete information
is available. Changes in the internal organisational structure of theGroup can cause the composition of the Group’s reportable segments
to change. Where this occurs corresponding segment information forthe previous financial year is restated, unless the information is notavailable and the cost to prepare it would be excessive.

Life investment contracts that include a discretionary participation
feature (participating contracts) are accounted for as if they are life
insurance contracts under AASB 1038.
Life insurance liabilities
Life insurance liabilities are determined using the ‘Margin on Services’(MoS) model using a projection method. Under the projection
method, the liability is determined as the net present value of the
expected future cash flows, plus planned margins of revenues overexpenses relating to services yet to be provided, discounted using
a risk-free discount rate that reflects the nature, structure and termof the liabilities. Expected future cash flows include premiums,
expenses, redemptions and benefit payments, including bonuses.
Profits from life insurance contracts are brought to account using
the MoS model in accordance with Actuarial Standard LPS 340
Valuation of Policy Liabilities as issued by APRA under the Life Act
and Professional Standard 3 Determination of Life Insurance Policy
Liabilities as issued by the New Zealand Society of Actuaries.

NOTES TO THE FINANCIAL STATEMENTS73

NOTES TO THE FINANCIAL STATEMENTS (continued)

1: Significant Accounting Policies (continued)
Under the MoS model, profit is recognised as premiums are received
and services are provided to policyholders. When premiums arereceived but the service has not been provided, the profit is deferred.
Losses are expensed when identified.
Costs associated with the acquisition of policies are recognised overthe period that the policy generates profits. Costs are only deferredto the extent that a contract is expected to be profitable.
Participating contracts, defined as those contracts that entitle thepolicyholder to participate in the performance and value of certain assets
in addition to the guaranteed benefit, are entitled to share in the profitsthat arise from the participating business. This profit sharing is governedby the Life Act and the life insurance company’s constitution. The
profit sharing entitlement is treated as an expense in the consolidated
financial statements. Any benefits which remain payable at the endof the reporting period are recognised as part of life insurance liabilities.
Life investment contract liabilities
Life investment contracts consist of two components: a financial
instrument and an investment management service.
The financial instrument component of the life investment contract
liabilities is designated at fair value through profit or loss. The
investment management service component, including associatedacquisition costs, is recognised as revenue in the profit or loss as services
are performed. See note 1(I)(vii) for the deferral and amortisation of life
investment contract acquisition costs and entry fees.
The life investment contract liability is directly linked to theperformance and value of the assets that back them and is determinedas the fair value of those assets after tax. For fixed income policies theliability is determined as the net present value of expected cash flows
subject to a minimum of current surrender value.
ii) External unit holder liabilities (life insurance funds)
The life insurance business includes controlling interests in investment
funds. The total amounts of the underlying assets, liabilities, revenues
and expenses of the controlled entities are recognised in the Group’s
consolidated financial statements. When a controlled investment fundis consolidated, the share of the unit holder liability attributable to theGroup is eliminated but amounts due to external unit holders remain
as liabilities in the Group’s consolidated balance sheet.
iii) Investments backing policy liabilities
All investments backing policy liabilities are designated as at fairvalue through profit or loss. All policyholder assets, being thoseassets held within the statutory funds of the life company that are notsegregated and managed under a distinct shareholder investment
mandate are held to back life insurance and life investment contract
liabilities (collectively referred to as policy liabilities).
iv) Claims
Claims are recognised when the liability to the policyholder under
the policy contract has been established or upon notification of theinsured event depending on the type of claim.
Claims incurred in respect of life investment contracts represent
withdrawals and are recognised as a reduction in life investment
contract liabilities.
Claims incurred that relate to the provision of services and bearing
of insurance risks are treated as expenses and these are recognisedon an accruals basis once the liability to the policyholder has been
established under the terms of the contract.

74v) Revenue
Life insurance premiums
Life insurance premiums earned by providing services and bearing
risks are treated as revenue. For annuity, risk and traditional business,
all premiums are recognised as revenue. Premiums with no due date
are recognised as revenue on a cash received basis. Premiums witha regular due date are recognised as revenue on an accruals basis.
Unpaid premiums are only recognised as revenue during the daysof grace or where secured by the surrender value of the policy andare included as other assets in the balance sheet.
Life investment contract premiums
There is no premium revenue in respect of life investment contracts.
Life investment deposit premiums are recognised as an increase inpolicy liabilities. Amounts received from policyholders in respect oflife investment contracts are recognised as an investment contract
liability where the receipt is in the nature of a deposit, or recognised
as an origination fee with an ongoing investment management fee.
Fees
Fees are charged to policyholders in connection with life insurance
and life investment contracts and are recognised when the service
has been provided. Entry fees from life investment contracts aredeferred and recognised over the average expected life of thecontracts. Deferred entry fees are presented within other liabilities
in the balance sheet.
vi) Reinsurance contracts
Reinsurance premiums, commissions and claim settlements,
as well as the reinsurance element of insurance contract liabilities,
are accounted for on the same basis as the underlying direct
insurance contracts for which the reinsurance was purchased.
vii) Policy acquisition costs
Life insurance contract acquisition costs
Policy acquisition costs are the fixed and variable costs of acquiring
new business. The appointed actuary assesses the value and future
recoverability of these costs in determining policy liabilities. The net
profit impact is presented in the income statement as a change inpolicy liabilities. The deferral is determined as the lesser of actual
costs incurred and the allowance for recovery of these costs fromthe premiums or policy charge as appropriate for each business class.
This is subject to an overall limit that future profits are anticipated
to cover these costs. Losses arising on acquisition are recognisedin the income statement in the year in which they occur. Amounts
which are deemed recoverable from future premiums or policy
charges are deferred and amortised over the life of the policy.
Life investment contract acquisition costs
Incremental acquisition costs, such as commissions, that are directly
attributable to securing a life investment contract are recognised
as an asset where they can be identified separately and measured
reliably and if it is probable that they will be recovered. Thesedeferred acquisition costs are presented in the balance sheet as anintangible asset and are amortised over the period that they will berecovered from future policy charges.
Any impairment losses arising on deferred acquisition costs arerecognised in the income statement in the period in which they occur.

ANZ ANNUAL REPORT 2015

1: Significant Accounting Policies (continued)viii) Basis of expense apportionment
All life investment contracts and insurance contracts are categorised
based on individual policy or product. Expenses for these products
are then allocated between acquisition, maintenance, investment
management and other expenses.

AASB 15 Revenue from Contracts with Customers (‘AASB 15’)The Australia Accounting Standards Board issued AASB 15 inDecember 2014. The standard is not mandatorily effective for theGroup until 1 October 2018. AASB 15 contains new requirements forthe recognition of revenue and additional disclosures about revenue.

Expenses which are directly attributable to an individual policy or
product are allocated directly to a particular expense category, fund,class of business and product line as appropriate. Where expenses
are not directly attributable to an individual policy or product, they
are appropriately apportioned based on detailed expense analysis
having regard to the objective in incurring that expense and theoutcome achieved. The apportionment has been made in accordancewith Actuarial Standard LPS 340, issued by the Australian Prudential
Regulation Authority, and on an equitable basis to the different classesof business in accordance with Division 2 of Part 6 of the Life Act.

While it is expected that a significant proportion of the Group’s
revenue will be outside the scope of AASB 15, the Group is in theprocess of assessing the impact of AASB 15 and is not yet able
to reasonably estimate the impact on its financial statements.

J) OTHERi) Contingent liabilities
Contingent liabilities acquired in a business combination are measured
at fair value at the acquisition date. At subsequent reporting dates thevalue of such contingent liabilities is reassessed based on the estimateof the expenditure required to settle the contingent liability.
Other contingent liabilities are not recognised in the balance sheet
but disclosed in note 43 unless it is considered remote that the Groupwill be liable to settle the possible obligation.
ii) Earnings per share
The Group presents basic and diluted earnings per share (EPS) datafor its ordinary shares. Basic EPS is calculated by dividing the profit
or loss attributable to ordinary shareholders of the Company by theweighted average number of ordinary shares outstanding during
the period after eliminating treasury shares.
Diluted EPS is determined by adjusting the profit or loss attributable
to ordinary shareholders and the weighted average number ofordinary shares outstanding for the effect of dilutive ordinary shares.
iii) Accounting Standards not early adopted
The following accounting standards relevant to the Company and/or
the Group have been issued but are not yet effective and have not been
applied in these financial statements.
AASB 9 Financial Instruments (‘AASB 9’)
The Australia Accounting Standards Board issued the final version
of AASB 9 in December 2014. When operative, this standard will
replace AASB 139 Financial Instruments: Recognition and Measurement.
AASB 9 addresses recognition and measurement requirements forfinancial assets and financial liabilities, impairment requirementsthat introduce an expected credit loss impairment model and generalhedge accounting requirements which more closely align with risk
management activities undertaken when hedging financial andnon-financial risks.
AASB 9 is not mandatorily effective for the Group until 1 October
2018. The Group is in the process of assessing the impact of
AASB 9 and is not yet able to reasonably estimate the impact
on its financial statements.
The Group early adopted, in isolation, the part of AASB 9 relating
to gains and losses attributable to changes in own credit risk offinancial liabilities designated as fair value through profit or loss
in the prior financial year (effective from 1 October 2013). Referto note 1(E)(i) for a description of the accounting policy.

2: Critical Estimates and Judgements Usedin Applying Accounting Policies
The preparation of the financial statements of the Company andGroup involves making estimates and judgements that affect thereported amounts within the financial statements. The estimates andjudgements are continually evaluated based on historical factors andexpectations of future events, which are believed to be reasonable
under the circumstances. All material changes to accounting policies
and estimates and the application of these policies and judgements
are approved by the Audit Committee of the Board.
A brief explanation of the critical estimates and judgements follows.
i) Provisions for credit impairment
The measurement of impairment of loans and advances requires
management’s best estimate of the losses incurred in the portfolio
at reporting date.
Individual and collective provisioning involves the use of assumptions
for estimating the amount and timing of expected future cash flows.
The process of estimating the amount and timing of cash flows
involves considerable management judgement. These judgements
are regularly revised to reduce any differences between loss estimatesand actual loss experience.
The collective provision involves estimates regarding the historicalloss experience for assets with credit characteristics similar to thosein the collective pool. The historical loss experience is adjusted
based on current observable data and events and an assessmentof the impact of model risk. The provision also takes into accountmanagement’s assessment of the impact of large concentrated
losses inherent within the portfolio and the economic cycle.
The use of such judgements and reasonable estimates is consideredby management to be an essential part of the financial reporting
process and does not impact on the reliability of the provision.
ii) Impairment of non-lending assets
The carrying values of non-lending assets are subject to impairment
assessments at each reporting date. Judgement is required in
identifying the cash-generating units to which goodwill and otherassets are allocated for the purpose of impairment testing.
Impairment testing involves identifying appropriate internal andexternal indicators of impairment and whether these exist at eachreporting date. Where an indication of impairment exists, therecoverable amount of the asset is determined based on the higherof the assets fair value less costs to sell and its value in use. Judgement
is applied when determining the assumptions supporting therecoverable amount calculations.

NOTES TO THE FINANCIAL STATEMENTS

75

NOTES TO THE FINANCIAL STATEMENTS (continued)

2: Critical Estimates and Judgements Used in Applying Accounting Policies (continued)
During the year the impairment assessment of non-lending assets
identified that two of the Group’s associate investments (AMMB
Holdings Berhad (Ambank) and PT Bank Pan Indonesia (PT Panin))demonstrated indicators of impairment. Although their market value(based on share price) was below their carrying value no impairment
was recognised as the carrying values were supported by theirvalue in use. The value in use calculation is sensitive to a number of
key assumptions, including future profitability levels, capital levels,
long term growth rates and discount rates. Refer note 35 for the key
assumptions included in the value in use calculation.
iii) Consolidation
The Company assesses, at inception and at each reporting date,whether an entity should be consolidated based on the accounting
policy outlined in note 1(A)(vii). Such assessments are predominantly
required for structured finance transactions, securitisation activities,
and involvement with investment funds. When assessing whether theCompany controls (and therefore consolidates) a structured entity,
judgement is required about whether the Company has power over
the relevant activities as well as exposure to variable returns of thestructured entity. All involvement, rights and exposure to returns
are considered when assessing if control exists.
The Company is deemed to have power over an investment fundwhen it preforms the function of Manager/Responsible Entity of thatinvestment fund. Whether the Company controls the investment funddepends on whether it holds that power as principal, or as an agent
for other investors. The Company is considered the principal, andthus controls an investment fund, when it cannot be easily removed
from the position of Manager/Responsible Entity by other investors
and has variable returns through significant aggregate economic
interest in that investment fund. In all other cases the Company
is considered to be acting in an agency capacity and does notcontrol the investment fund.
iv) Financial instruments at fair value
The Group’s financial instruments measured at fair value arestated in note 1(A)(iii). In estimating the fair value of financial
instruments the Group uses quoted market prices in an active
market, wherever possible.
In the event that there is no active market for the instrument, fairvalue is based on present value estimates or other market acceptedvaluation techniques. The valuation models incorporate the impactof bid/ask spreads, counterparty credit spreads and other factors thatmarket participants would consider in determining the fair value.
The selection of appropriate valuation techniques, methodologies
and inputs requires judgement. These are reviewed and updated
as market practice evolves.
The majority of valuation techniques employ only observable
market data. However, for certain financial instruments, the fair value
cannot be determined with reference to current market transactions
or valuation techniques whose variables only include data fromobservable markets. For these financial instruments, the fair value
is determined using data derived and extrapolated from market data
and tested against historic transactions and observed market trends.
Application of professional judgement is required to analyse the data
available to support each assumption upon which these valuations
are based. Changing the assumptions changes the resulting estimateof fair value.

76

The majority of outstanding derivative positions are transacted
over-the-counter where no active market exists for such instruments
and therefore need to be valued using valuation techniques. Includedin the determination of the fair value of derivatives is a credit valuation
adjustment (CVA) to reflect the credit worthiness of the counterparty.
Amongst other factors, this is influenced by the mark-to-marketof the derivative trades and by the movement in the market costof credit. Further, in order to account for the funding costs inherent
in the derivative, a funding valuation adjustment (FVA) is applied.
Judgment is required to determine the appropriate cost of funding
and the future expected cash flows used to determine FVA.
v) Provisions (other than loan impairment)
The Group holds provisions for various obligations including employee
entitlements, restructurings and litigation related claims. The provision
for long-service leave is supported by an independent actuarial reportand involves assumptions regarding employee turnover, future salary
growth rates and discount rates. Other 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.
vi) Life insurance contract liabilities
Policy liabilities for life insurance contracts are computed using
statistical or mathematical methods, which are expected to give
approximately the same results as if an individual liability wascalculated for each contract. The computations are made by suitably
qualified personnel on the basis of recognised actuarial methods,
with due regard to relevant actuarial principles and standards. The
methodology takes into account the risks and uncertainties of theparticular class of life insurance business written. Deferred policy
acquisition costs are connected with the measurement basis of life
insurance liabilities and are equally sensitive to the factors that areconsidered in the liability measurement.
The key factors that affect the estimation of these liabilities andrelated assets are:}} the cost of providing the benefits and administering theinsurance contracts;}} mortality and morbidity experience on life insurance products,
including enhancements to policyholder benefits;}} discontinuance experience, which affects the Company’s ability
to recover the cost of acquiring new business over the lives of thecontracts; and}} the amounts credited to policyholders’ accounts compared to thereturns on invested assets through asset-liability management
and strategic and tactical asset allocation.
In addition, factors such as regulation, competition, interest rates, taxes
and general economic conditions affect the level of these liabilities.
The total value of policy liabilities for life insurance contracts havebeen appropriately calculated in accordance with these principles.
vii) Taxation
Judgement is required in determining provisions held in respect of
uncertain tax positions. The Group estimates its tax liabilities basedon its understanding of the relevant law in each of the countries inwhich it operates and seeks independent advice where appropriate.

ANZ ANNUAL REPORT 2015

3: IncomeConsolidated

The Company1

2015
$m

2014
$m

2015
$m

2014
$m

Interest income
Loans and advances and acceptances
Trading securities
Available-for-sale assets
Other

27,515
1,594
759
658

26,752
1,546
627
599

20,657
1,109
609
468

20,620
1,091
500
432

Total external interest income
Controlled entities

30,526–29,524–

22,843
3,822

22,643
2,917

Total interest income

30,52629,524

26,66525,560Interest income is analysed by type of financial asset as follows:
Financial assets not classified at fair value through profit or loss
Trading securities
Financial assets designated at fair value through profit or loss

28,9161,594
16

27,9491,546
2925,5491,109
724,446
1,091
23

Total interest income

30,52629,524

26,66525,560Controlled entities

833
2,807
3,640
–

779
2,648
3,427
–

727
2,023
2,750
1,144

676
1,867
2,543
1,257

Total fee and commission income3
Fee and commission expense3,4

3,640(1,006)

3,427
(922)

3,894
(806)

3,800
(704)

Net fee and commission income3

2,634

2,505

3,088

3,096

ii) Other income
Net foreign exchange earnings
Net (losses)/gains from trading securities and derivatives5
Credit risk on credit intermediation trades
Movement on financial instruments measured at fair value through profit or loss6
Dividends received from controlled entities7
Brokerage income
Loss on divestment of investment in SSI
Dilution gain on investment in Bank of Tianjin (BoT)
Insurance settlement
Gain on sale of ANZ Trustees
Other3

1,007
(131)
8
241
–
58
–
–
–
–
277

1,073
138
(22)
97
–
50
(21)
12
26
125
206

719
(173)
8
129
2,571
–
–
–
–
–
233

672
54
(22)
71
1,702
–
(21)
12
–
115
105

i) Fee and commission income
Lending fees2
Non-lending fees and commissions3

Total other income

1,460

1,684

3,487

2,688

Other operating income

4,094

4,189

6,575

5,784

Net funds management and insurance income
Funds management income
Investment income
Insurance premium income
Commission income/(expense)
ClaimsChanges in policy liabilities
Elimination of treasury share gain/(loss)

930
1,848
1,541
(452)
(718)
(1,434)
21

917
2,656
1,314
(471)
(707)
(2,147)
(24)

111
–
43
49
–
–
–

122
–
46
49
–
–
–

Total net funds management and insurance income

1,736

1,538

203

217

Total other operating income

5,830

5,727

6,778

6,001

Total share of associates’ profit

625

517

376

248

36,98135,76833,81931,809Total income

1 Comparative amounts have changed. Refer to note 45 for details.
2 Lending fees exclude fees treated as part of the effective yield calculation and included in interest income (refer note 1 B(ii)).
3 Certain card related fees that are integral to the generation of income were reclassified within total income to better reflect the nature of the items. Comparatives have been restated and feesof $488 million for the Group and $380 million for the Company were moved from ‘non-lending fees and commissions’, and fees of $10 million for the Group and $10 million for the Company
were moved from ‘Other income’, and included in ‘fee and commission expenses’.
4 Includes interchange fees paid.
5 Does not include interest income relating to trading securities and derivatives used for balance sheet risk management.
6 Includes fair value movements (excluding realised and accrued interest) on derivatives not designated as accounting hedges entered into to manage interest rate and foreign exchange
risk on funding instruments, ineffective portions of cash flow hedges, and fair value movements in financial assets and financial liabilities designated at fair value.
7 Dividends received from controlled entities are subject to meeting applicable regulatory and company law requirements, including solvency requirements.

NOTES TO THE FINANCIAL STATEMENTS

77

NOTES TO THE FINANCIAL STATEMENTS (continued)

4: Expenses

Consolidated

The Company

2015
$m

2014
$m

2015
$m

2014
$m

Interest expense
Deposits
Borrowing corporations’ debt
Commercial paper
Debt issuances and subordinated debt
Other

11,159
70
515
3,747
419

11,229
62
436
3,543
444

8,514
–
255
2,874
358

8,935
–
241
2,780
359

Total external interest expense
Controlled entities

15,910–15,714–12,001
4,248

12,315
3,235

Total interest expense

15,91015,714

16,24915,550Interest expense is analysed by types of financial liabilities as follows:
Financial liabilities not classified at fair value through profit or loss
Financial liabilities designated at fair value through profit or loss

15,572338

15,381
333

16,171
78

15,412
138

15,91015,714

16,24915,550Operating expensesi) Personnel
Employee entitlements and taxes
Salaries and wages
Superannuation costs – defined benefit plan (note 40)– defined contribution plans
Equity-settled share-based payments
Other

325
3,719
7
324
216
888

278
3,495
10
300
215
790

233
2,678
2
269
185
648

209
2,591
4
246
183
590

Total personnel expenses (excl. restructuring)

5,479

5,088

4,015

3,823

ii) Premises
Depreciation of buildings and integrals
Rent
Utilities and other outgoings
Other

192
479
180
71

198
450
178
62

128
379
119
57

136
364
118
51

Total premises expenses (excl. restructuring)

922

888

683

669

iii) Technology
Data communication
Depreciation
Licences and outsourced services
Rentals and repairs
Software impairment
Other

115
675
447
158
17
50

104
550
400
153
15
44

70
599
290
129
12
31

64
453
291
126
11
17

1,462

1,266

1,131

962

292
21
263
66
324
205
88
206

278
19
273
52
239
193
118
233

203
11
192
56
273
146
9
607

208
10
189
39
220
141
8
509

1,465

1,405

1,497

1,324

Total technology expenses (excl. restructuring)iv) OtherAdvertising and public relations
Audit fees and other fees (note 44)
Freight, stationery, postage and telephone
Non-lending losses, frauds and forgeries
Professional fees
Travel and entertainment expenses
Amortisation and impairment of other intangible assets
Other
Total other expenses (excl. restructuring)v) Restructuring
Total operating expenses

78

31

113

24

100

9,359

8,760

7,350

6,878

ANZ ANNUAL REPORT 2015

5: Income Tax
INCOME TAX EXPENSE

Consolidated

The Company1

2015
$m

2014
$m

2015
$m

2014
$m

Income tax recognised in the income statement
Tax expense comprises:
Current tax expense
Adjustments recognised in the current year in relation to the current tax of prior years
Deferred tax expense/(income) relating to the origination and reversal of temporary differences

2,932
–
94

2,658
1
366

1,866
1
78

1,769
–
202

Total income tax expense charged in the income statement

3,026

3,025

1,945

1,971

10,533
3,160

10,308
3,092

9,251
2,775

8,407
2,522

(95)
(2)
(187)
–
(1)
–
130
(56)
(17)
72
22

(102)
(2)
(155)
(11)
5
–
170
–
(50)
71
6

(22)
(771)
(113)
–
(1)
–
–
–
(17)
72
21

(25)
(570)
(74)
(11)
5
72
–
–
(40)
71
21

3,026

3,024

1,944

1,971

–

1

1

–

Total income tax expense charged in the income statement

3,026

3,025

1,945

1,971

Reconciliation of the prima facie income tax expense on pre-tax profit
with the income tax expense charged in the income statement
Profit before income tax
Prima facie income tax expense at 30%
Tax effect of permanent differences:
Overseas tax rate differential
Rebateable and non-assessable dividends
Profit from associates
Sale of ANZ Trustees and SSI
Offshore Banking Units
Foreign exchange translation of US hybrid loan capital
ANZ Wealth Australia – policyholder income and contributions tax
ANZ Wealth Australia – tax consolidation benefit
Tax provisions no longer required
Interest on convertible instruments
Other
Income tax (over) provided in previous years
Effective tax rate

28.7%

29.3%

21.0%

23.4%

Australia

2,144

2,136

1,806

1,811

Overseas

882

889

139

160

1 Comparative amounts have changed as a result of changes to the income statement disclosed in note 45.

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. Tax expense/income and deferred tax liabilities/assets arising from temporary
differences of the members of the tax-consolidated group are recognised in the separate financial statements of the members of the tax
consolidated group on a ‘group allocation’ basis. Current tax liabilities and assets of the tax consolidated group are recognised by the Company(as head entity in the tax-consolidated group).
Due to the existence of a tax funding arrangement between the entities in the tax-consolidated group, amounts are recognised as payable
to or receivable by the Company and each member of the tax-consolidated group in relation to the tax contribution amounts paid or payable
between the Company and the other members of the tax consolidated group in accordance with the arrangement.
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 should the head entity default on its income tax payment obligations.

NOTES TO THE FINANCIAL STATEMENTS

79

NOTES TO THE FINANCIAL STATEMENTS (continued)

5: Income Tax (continued)

Consolidated

TAX ASSETS
Australia
Current tax asset
Deferred tax asset
New ZealandDeferred tax asset
Asia Pacific, Europe & America
Current tax asset
Deferred tax asset
Total current and deferred tax assets

The Company

2015
$m

2014
$m

2015
$m

2014
$m

59
208

9
280

59
585

9
676

267

289

644

685

–

–

5

6

–

–

5

6

31
194

29
137

25
122

18
96

225

166

147

114

492

455

796

805

Total current tax assets

90

38

84

27

Total deferred tax assets

402

417

712

778

Deferred tax assets recognised in profit or loss
Collective provision for loans and advances
Individual provision for impaired loans and advances
Other provisions
Provision for employee entitlements
Other

767
259
285
158
170

724
292
272
152
203

626
215
205
120
66

594
236
184
119
102

1,639

1,643

1,232

1,235

–
–

–
10

9
–

–
10

Deferred tax assets recognised directly in equity
Available-for-sale revaluation reserve
Own credit risk of financial liabilities

–

10

9

10

(1,237)(1,236)

(529)

(467)

402

417

712

778

Unused realised tax losses (on revenue account)

5

5

–

–

Total unrecognised deferred tax assets

5

5

–

–

Set-off of deferred tax assets pursuant to set-off provisions1
Net deferred tax assets

Unrecognised deferred tax assets
The following deferred tax assets will only be recognised if:}} assessable income derived is of a nature and an amount sufficient to enable the benefit to be realised;}} the conditions for deductibility imposed by tax legislation are complied with; and}} no changes in tax legislation adversely affect the Group in realising the benefit.

1 Deferred tax assets and liabilities are set-off where they relate to income tax levied by the same taxation authority on either the same taxable entity or different taxable entities within the same
taxable group.

80

ANZ ANNUAL REPORT 2015

5: Income Tax (continued)
TAX LIABILITIESAustralia
Current tax payable
New ZealandCurrent tax payable
Deferred tax liabilities
Asia Pacific, Europe & America
Current tax payable
Deferred tax liabilities

Consolidated

The Company

2015
$m

2014
$m

2015
$m

2014
$m

–

208

–

208

–

208

–

208

74
113

60
53

18
–

21
–

187

113

18

21

193
136

181
67

76
123

72
62

329

248

199

134

Total current and deferred tax liabilities

516

569

217

363

Total current tax liabilities

267

449

94

301

Total deferred tax liabilities

249

120

123

62

Deferred tax liabilities recognised in profit or loss
Acquired portfolio of insurance and investment businessInsurance related deferred acquisition costs
Lease finance
Other

214
135
289
660

235
124
249
562

–
–
64
434

–
–
41
375

1,298

1,170

498

416

117
36
14
16
5

73
36
75
2
–

122
–
–
27
5

76
–
29
8
–

Deferred tax liabilities recognised directly in equity
Cash flow hedges
Foreign currency translation reserve
Available-for-sale revaluation reserve
Defined benefits obligation
Own credit risk of financial liabilities

188

186

154

113

(1,237)(1,236)

(529)

(467)

Net deferred tax liability

249

120

123

62

Unrecognised deferred tax liabilities
The following deferred tax liabilities have not been brought to account as liabilities:
Other unrealised taxable temporary differences2

386

323

70

45

Total unrecognised deferred tax liabilities

386

323

70

45

Set-off of deferred tax liabilities pursuant to set-off provision1

1 Deferred tax assets and liabilities are set-off where they relate to income tax levied by the same taxation authority on either the same taxable entity or different taxable entities within the same
taxable group.
2 Represents additional potential foreign tax costs should all retained earnings in offshore branches and subsidiaries be repatriated.

NOTES TO THE FINANCIAL STATEMENTS

81

NOTES TO THE FINANCIAL STATEMENTS (continued)

6: Dividends

Consolidated1

The Company

2015
$m

2014
$m

2015
$m

2014
$m

Ordinary share dividends2
Interim dividend
Final dividend
Bonus option plan adjustment

2,379
2,619
(92)

2,278
2,497
(81)

2,379
2,619
(92)

2,278
2,497
(81)

Dividend on ordinary shares

4,906

4,694

4,906

4,694

1 Excludes dividends paid by subsidiaries of the Group to non-controlling equity holders (2015: $1 million, 2014: $1 million).
2 Dividends are not accrued and are recorded when paid.

A final dividend of 95 cents, fully franked for Australian tax purposes, is proposed to be paid on each eligible fully paid ANZ ordinary shareon 16 December 2015 (2014: final dividend of 95 cents, paid 16 December 2014, fully franked for Australian tax purposes). It is proposed that
New Zealand imputation credits of NZ 11 cents per fully paid ANZ ordinary share will also be attached to the 2015 final dividend (2014: NZ 12 cents).
The 2015 interim dividend of 86 cents, paid 1 July 2015, was fully franked for Australian tax purposes (2014: interim dividend of 83 cents, paid
1 July 2014, fully franked for Australian tax purposes). New Zealand imputation credits of NZ 10 cents per fully paid ANZ ordinary share wereattached to the 2015 interim dividend (2014: NZ 10 cents).
The tax rate applicable to the Australian franking credits attached to the 2015 interim dividend and to be attached to the proposed 2015 final
dividend is 30% (2014: 30%).
Dividends paid in cash or satisfied by the issue of shares under the dividend reinvestment plan during the years ended 30 September 2015
and 2014 were as follows:
Consolidated

Paid in cash1
Satisfied by share issue2

The Company

2015
$m

2014
$m

2015
$m

2014
$m

3,784
1,122

3,843
851

3,784
1,122

3,843
851

4,906

4,694

4,906

4,694

Consolidated

The Company

2015
$m

2014
$m

2015
$m

2014
$m

Preference share dividend3
Euro Trust Securities4

1

6

–

–

Dividend on preference shares

1

6

–

–

2015
$m

2014
$m

593

982

1
2
3
4

Refers to cash paid to shareholders who did not elect to participate in the dividend reinvestment plan or the bonus option plan.
Includes shares issued to participating shareholders under the dividend reinvestment plan.
Dividends are not accrued and are recorded when paid.
Refer to note 30 for details.

DIVIDEND FRANKING ACCOUNT
Australian franking credits available for subsequent financial years at a corporate tax rate of 30% (2014: 30%)

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 that will arise from the receipt/payment of dividends that have been recognised as tax receivables/payables
as at the end of the financial year.

82

ANZ ANNUAL REPORT 2015

6: Dividends (continued)
The final proposed 2015 dividend will utilise the entire balance of $593 million franking credits available at 30 September 2015. Instalment tax
payments on account of the 2016 financial year which will be made after 30 September 2015 will generate sufficient franking credits to enable
the final 2015 dividend to be fully franked. The extent to which future dividends will be franked will depend on a number of factors, including
the level of profits that will be subject to tax in Australia.
New Zealand imputation credits can be attached to our Australian dividends, but may only be used by our New Zealand resident shareholders.
The amount of available New Zealand imputation credits at the end of the financial year, adjusted for credits that will arise from the paymentof New Zealand income tax payable as at the end of the financial year and New Zealand imputation credits that will arise from dividends
receivable as at the end of the financial year, is NZ$3,508 million (2014: NZ$3,492 million).
RESTRICTIONS WHICH LIMIT THE PAYMENT OF DIVIDENDS
There are presently no significant restrictions on the payment of dividends from material controlled entities to the Company. Various capital
adequacy, liquidity, foreign currency controls, statutory reserve and other prudential and legal requirements must be observed by certain
controlled entities and the impact of these requirements on the payment of cash dividends is monitored.
There are presently no significant restrictions on the payment of dividends by the Company, although reductions in shareholders’ equity
through the payment of cash dividends are monitored having regard to the following:}} There are regulatory and other legal requirements to maintain a specified level of capital. Further, APRA has advised that a bank under
its supervision, including the Company, must obtain its written approval before paying dividends (i) on ordinary shares which exceed
its after tax earnings after taking into account any payments on more senior capital instruments in the financial year to which they relateor (ii) where the Company’s Common Equity Tier 1 capital ratio falls within capital range buffers specified by APRA from time to time;}} The Corporations Act 2001 (Cth) provides that the Company must not pay a dividend on any instrument unless (i) it has sufficient net assets
for the payment, (ii) the payment is fair and reasonable to the Company’s shareholders as a whole, and (iii) the payment does not materially
prejudice the Company’s ability to pay its creditors;}} The terms of the Company’s ANZ Convertible Preference Shares also limit the payment of dividends on these securities in certain circumstances.
Generally the Company may not pay a dividend on these securities if to do so would result in the Company becoming, or likely to become,insolvent or breaching specified capital adequacy ratios, if the dividend would exceed its after tax prudential profits (as defined by APRA fromtime to time) or if APRA so directs; and}} If any dividend, interest or redemption payments or other distributions are not paid on the scheduled payment date, or shares or otherqualifying Tier 1 securities are not issued on the applicable conversion or redemption dates, on the Company’s ANZ Convertible Preference
Shares or ANZ Capital Notes in accordance with their terms, the Company may be restricted from declaring or paying any dividends or other
distributions on Tier 1 securities including ANZ ordinary shares and preference shares. This restriction is subject to a number of exceptions.
DIVIDEND REINVESTMENT PLAN
During the year ended 30 September 2015, 8,031,825 fully paid ANZ ordinary shares were issued at $32.02 per share and 27,073,309 fully paid
ANZ ordinary shares at $31.93 per share to participating shareholders under the dividend reinvestment plan (2014: 14,941,125 fully paid ANZ
ordinary shares at $31.83 per share, and 11,268,833 fully paid ANZ ordinary shares at $33.30 per share). All eligible shareholders can electto participate in the dividend reinvestment plan .
For the 2015 final dividend, no discount will be applied when calculating the ‘Acquisition Price’ used in determining the number of fully paid
ANZ ordinary shares to be provided under the dividend reinvestment plan and bonus option plan terms and conditions, and the ‘Pricing Period’
under the dividend reinvestment plan and bonus option plan terms and conditions will be the ten trading days commencing on 13 November
2015 (unless otherwise determined by the Directors and announced on the ASX).
BONUS OPTION PLAN
The amount paid in dividends during the year has been reduced as a result of certain eligible shareholders participating in the bonus option planand foregoing all or part of their right to dividends. These shareholders were issued fully paid ANZ ordinary shares under the bonus option plan.
During the year ended 30 September 2015, 2,899,350 fully paid ANZ ordinary shares were issued under the bonus option plan (2014: 2,479,917
fully paid ANZ ordinary shares).

NOTES TO THE FINANCIAL STATEMENTS

83

NOTES TO THE FINANCIAL STATEMENTS (continued)

7: Earnings Per Ordinary Share

Consolidated
2015
$m

2014
$m

Basic earnings per share (cents)

271.5

267.1

Earnings reconciliation ($millions)
Profit for the year
Less: profit attributable to minority interests
Less: preference share dividend paid

7,507
14
1

7,283
12
6

7,492
2,759.0

7,265
2,719.7

Diluted earnings per share (cents)

257.2

257.0

Earnings reconciliation ($millions)
Earnings used in calculating basic earnings per share
Add: US Trust Securities interest expense
Add: ANZ Convertible Preference Shares interest expense
Add: ANZ Capital Notes interest expense
Add: ANZ NZ Capital Notes interest expense

7,492
–
128
134
12

7,265
7
155
81
–

Earnings used in calculating diluted earnings per share

7,766

7,508

Weighted average number of ordinary shares (millions)1
Used in calculating basic earnings per share
Add: weighted average number of options/rights potentially convertible to ordinary sharesweighted average number of convertible US Trust Securities at current market prices
weighted average number of ANZ Convertible Preference Sharesweighted average number of ANZ Capital Notes
weighted average number of ANZ NZ Capital Notes

2,759.0
6.2
–
123.4
122.7
8.5

2,719.7
5.5
6.1
127.5
63.1
–

Used in calculating diluted earnings per share

3,019.8

2,921.9

Earnings used in calculating basic earnings per share
Weighted average number of ordinary shares (millions)1

1 Weighted average number of ordinary shares excludes 11.8 million weighted average number of ordinary treasury shares held in ANZEST Pty Ltd (2014: 14.5 million) for the Group employee shareacquisition scheme and 12.4 million weighted average number of ordinary treasury shares held in ANZ Wealth Australia (2014: 12.5 million).

84

ANZ ANNUAL REPORT 2015

8: Segment Analysis(i) DESCRIPTION OF SEGMENTS
The Group operates on a divisional structure with Australia, International and Institutional Banking (IIB), New Zealand and Global Wealthbeing the major operating divisions. The IIB and Global Wealth divisions are coordinated globally. Global Technology, Services and Operations(GTSO) and Group Centre provide support to the operating divisions, including technology, operations, shared services, property, risk
management, financial management, strategy, marketing, human resources and corporate affairs. The Group Centre includes Group Treasury
and Shareholder Functions.
The segments and product and services categories as reported below are consistent with internal reporting provided to the chief operating
decision maker, being the Chief Executive Officer.
The primary sources of external revenue across all divisions are interest income, fee income and trading income. The Australia and New Zealanddivisions derive revenue from products and services from retail and commercial banking. IIB derives its revenue from retail and institutional
products and services as well as partnerships. Global Wealth derives revenue from funds management, insurance and private wealth.
During 2015 the Merchant Services and Commercial Credit Cards businesses were transferred out of the Cards and Payments business unit
in Australia Retail and split between Australia C&CB and IIB based on customer ownership. There have been no other major structure changes,
however certain period comparatives have been restated to align with current period presentation resulting from minor changes
to customer segmentation and the realignment of support functions.
(ii) OPERATING SEGMENTS
Transactions between business units across segments within ANZ are conducted on an arms length basis.

Year ended 30 September 2015 ($m)

Australia

InternationalandInstitutional
Banking

External interest income
External interest expense
Adjustment for intersegment interest

15,997(4,540)
3,948

8,312
(3,262)877

5,853(3,118)
419

297
(524)
(405)

67
(4,466)(4,839)–––30,526(15,910)–Net interest income
Other external operating income
Share of associates’ profit

7,509
1,166
2

4,173
2,629
618

2,316
365
4

178
1,552
1

440
(435)
–

–
553
–

14,616
5,830
625

New
Zealand

Global Wealth

GTSO andGroup
CentreOther
items1

Group
Total

Segment revenue

8,678

7,419

2,684

1,730

7

553

21,071Other external expenses
Adjustments for intersegment expenses(1,808)(1,349)(1,999)(1,617)

(663)
(401)

(571)
(404)

(4,318)3,771––(9,359)–Operating expenses(3,157)(3,616)(1,064)

(975)

(547)

–

(9,359)Profit before credit impairment and income tax
Credit impairment (charge)/release

5,521
(853)

3,803
(295)

1,620
(55)

755
–

(540)
(2)

553
26

11,712(1,179)Segment result before tax

4,668

3,508

1,565

755

(542)

579

10,533

Income tax expense
Non-controlling interests(1,394)
–

(830)
(14)

(438)
–

(154)
–

92
–

(302)
–

(3,026)(14)

Profit after income tax attributed to shareholdersof the company

3,274

2,664

1,127

601

(450)

277

7,493

Non-cash expenses
Depreciation and amortisation
Equity-settled share based payment expenses
Credit impairment (charge)/release

(158)
(14)
(853)

(187)
(137)
(295)

(15)
(12)
(55)

(109)
(8)
–

(486)
(45)
(2)

–
–
26

(955)
(216)
(1,179)

–
14

1,180
5,419

1,801
4

1,616
3

–
–

–
–

4,597
5,440

Financial position
Goodwill
Investments in associates

1 In evaluating the performance of the operating segments, certain items are removed from the operating segment result where they are not considered integral to the ongoing performanceof the segment and are evaluated separately. These items are set out in part (iii) of this note (refer pages 184 to 185 for further analysis).

NOTES TO THE FINANCIAL STATEMENTS

85

NOTES TO THE FINANCIAL STATEMENTS (continued)

8: Segment Analysis (continued)
Year ended 30 September 2014 ($m)

Australia

InternationalandInstitutional
Banking

External interest income
External interest expense
Adjustment for intersegment interest

16,069(5,159)(3,833)

7,783(2,965)
(809)

5,251
(2,624)
(456)

307
(442)
303

114
(4,538)
4,796

–
14
(1)

29,524(15,714)–

Net interest income
Other external operating income
Share of associates’ profit

7,077
1,113
3

4,009
2,585
511

2,171
348
1

168
1,577
–

372
(359)
2

13
463
–

13,810
5,727
517

New
Zealand

Global
WealthGTSO andGroup
CentreOther
items1

Group
Total

Segment revenue

8,193

7,105

2,520

1,745

15

476

20,054

Other external expenses
Adjustments for intersegment expenses(1,658)(1,357)(1,790)(1,485)

(644)
(387)

(602)
(402)

(4,066)
3,631––(8,760)–Operating expenses(3,015)(3,275)(1,031)(1,004)(435)–(8,760)

Profit before credit impairment and income tax
Credit impairment (charge)/release

5,178
(818)

3,830
(216)

1,489
8

741
2

(420)
35

476
3

11,294(986)

Segment result before tax

4,360

3,614

1,497

743

(385)

479

10,308

Income tax expense
Non-controlling interests(1,306)
–

(894)
(12)

(419)
–

(201)
–

120
–

(325)
–

(3,025)(12)

Profit after income tax attributed to shareholdersof the company

3,054

2,708

1,078

542

(265)

154

7,271

Non-cash expenses
Depreciation and amortisation
Equity-settled share based payment expenses
Credit impairment (charge)/release

(119)
(16)
(818)

(155)
(130)
(216)

(16)
(13)
8

(120)
(7)
2

(429)
(49)
35

–
–
3

(839)
(215)
(986)

–
11

1,131
4,485

1,766
3

1,614
6

–
77

–
–

4,511
4,582

Financial position
Goodwill
Investments in associates

1 In evaluating the performance of the operating segments, certain items are removed from the operating segment result, where they are not considered integral to the ongoing performanceof the segment and are evaluated separately. These items are set out in part (iii) of this note (refer pages 184 to 185 for further analysis).

(iii) OTHER ITEMSThe table below sets out the profit after tax impact of other items.
Profit after tax
Item

Related segment

2015
$m

Treasury shares adjustment
Revaluation of policy liabilities
Economic hedging
Revenue and net investment hedges
Structured credit intermediation trades

Global Wealth
Global WealthInternational and Institutional Banking
GTSO and Group Centre
International and Institutional Banking

16
73
179
3
6

(24)
26
72
101
(21)

277

154

Total

86

2014
$m

ANZ ANNUAL REPORT 2015

8: Segment Analysis (continued)(iv) EXTERNAL SEGMENT REVENUE BY PRODUCTS AND SERVICES
The table below sets out revenue from external customers for groups of similar products and services. No single customer amounts to greaterthan 10% of the Group’s revenue.
Revenue1

RetailCommercial
WealthInstitutional
Partnerships
Other

2015
$m

2014
$m

8,104
4,199
1,730
5,818
608
612

7,464
4,057
1,745
5,794
487
507

21,071

20,054(v) GEOGRAPHICAL INFORMATION
The following table sets out revenue and non-current assets based on the geographical locations in which the Group operates.
Australia

APEA

New Zealand

Total

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

Total external revenue1

13,346

12,926

4,013

3,650

3,712

3,478

21,071

20,054Non-current assets

347,040

308,768

55,25742,326

79,337

72,989481,635

424,083

Consolidated

2

1 Includes net interest income.
2 Non-current assets refers to assets that are expected to be recovered more than 12 months after balance date. They do not include financial instruments, deferred tax assets, post‑employment
benefits assets or rights under insurance contracts.

NOTES TO THE FINANCIAL STATEMENTS87

NOTES TO THE FINANCIAL STATEMENTS (continued)

9: Notes to the Cash Flow Statementa) Reconciliation of net profit after income tax to net cash provided byoperating activities

Consolidated

The Company

2015
$m

2014
$m

2015
$m

2014
$m

Operating profit after income tax attributable to shareholders of the Company

7,493

7,271

7,306

6,436

Adjustment to reconcile operating profit after income tax to net cash
provided by operating activities
Provision for credit impairment
Depreciation and amortisation
Profit on sale of businesses
Net loss on disposal of premises and equipment
Net derivatives/foreign exchange adjustment
Equity settled share-based payments expense1
Other non-cash movements

1,179
955
–
6
14,395
18
(499)

986
839
(146)
40
(1,257)
27
(501)

969
735
–
12
11,976
(13)
(429)

974
597
(136)
14
80
(5)
(312)

Net (increase)/decrease in operating assets
Collateral paid
Trading securities
Loans and advances
Investments backing policy liabilities
Net intra-group loans and advancesInterest receivable
Accrued income
Net tax assets(3,585)2,870(32,280)(1,787)
–
106
(44)
(56)

1,271
(8,600)(35,154)(1,802)
–
(162)
9
(182)

(2,427)
2,161(21,759)
–
(992)
54
(46)
(443)

957
(7,131)(29,408)
–
1,856
(108)
28
(644)

Net (decrease)/increase in operating liabilities
Deposits and other borrowings
Settlement balances owed by ANZ
Collateral received
Life insurance contract policy liabilities
Payables and other liabilities
Interest payable
Accrued expenses
Provisions including employee entitlements

30,050
781
1,073
1,507
(974)
452
(148)
(36)

36,592
1,358
1,435
2,147
910
828
(136)
(130)

22,2101,422
854–(1,491)
435
(186)
32

31,798
668
1,103
–
1,417
828
(124)
(131)

Total adjustments

13,983(1,628)13,0742,321

Net cash provided by operating activities

21,476

5,643

20,3808,757

1 The equity settled share-based payments expense is net of on-market share purchases of $198 million (2014: $188 million) in the Group and the Company used to satisfy the obligation.

b) Reconciliation of cash and cash equivalents
Cash and cash equivalents at the end of the period as shown in the Cash Flow Statement is reflected in the related items in the Balance Sheet as follows:
Consolidated

Cash
Settlement balances owed to ANZ

The Company

2015
$m

2014
$m

2015
$m

2014
$m

53,903
15,37532,55915,67051,217
13,61930,655
14,393

69,27848,22964,83645,048––––(1,375)(1,375)

(21)
(21)

–
4

148
103

–
–

156
93

4

251

–

249

1,122
92

851
81

1,122
92

851
81

1,214

932

1,214

932

c) Acquisitions and disposals
Cash (outflows) from acquisitions and investments (net of cash acquired)
Investments in controlled entities
Cash inflows from disposals (net of cash disposed)
Disposals of controlled entities
Disposals of associatesd) Non-cash financing activities
Dividends satisfied by share issue
Dividends satisfied by bonus share issue88

ANZ ANNUAL REPORT 2015

10: Cash
Consolidated

The Company

2015
$m

2014
$m

2015
$m

2014
$m

Coins, notes and cash at bankMoney at call, bills receivable and remittances in transit
Securities purchased under agreements to resell in less than three months
Balances with Central Banks

1,716
112,05340,133

1,487
6
9,851
21,2151,045
111,75738,414

1,005
1
9,631
20,018

Total cash

53,90332,55951,21730,655

11: Trading Securities

Consolidated

The Company

2015
$m

2014
$m

2015
$m

2014
$m

Government securities
Corporate and financial institution securities
Equity and other securities

24,702
18,3895,909

24,867
20,6184,207

18,515
12,947
5,911

18,337
15,5594,153

Total trading securities

49,00049,69237,37338,049

12: Derivative Financial Instruments
Derivative financial instruments are contracts whose value is derived
from one or more underlying variables or indices defined in thecontract, require little or no initial net investment and are settled
at a future date. Derivatives include contracts traded on registeredexchanges and contracts agreed between counterparties. The useof derivatives and their sale to customers as risk management
products is an integral part of the Group’s trading and sales activities.
Derivatives are also used to manage the Group’s own exposure tofluctuations in foreign exchange and interest rates as part of its asset
and liability management activities (balance sheet risk management).
Derivative financial instruments are subject to market and credit risk,
and these risks are managed in a manner consistent with the risks
arising on other financial instruments.
The Group’s objectives and policies on managing risks that arise inconnection with derivatives, including the policies for hedging, areoutlined in note 19.
TYPES OF DERIVATIVE FINANCIAL INSTRUMENTS
The Group transacts principally in foreign exchange, interest rate,commodity and credit derivative contracts. The principal types ofderivative contracts include swaps, forwards, futures and options
contracts and agreements.
Derivatives, except for those that are specifically designated as
effective hedging instruments, are classified as held for trading.
The held for trading classification includes two categories ofderivative financial instruments: those held as trading positions andthose used in the Group’s balance sheet risk management activities.
TRADING POSITIONS
Trading positions arise from both sales to customers and market
making activities. Sales to customers include the structuring andmarketing of derivative products which enable customers to manage
their own risks. Market making activities consist of derivatives enteredinto principally for the purpose of generating profits from short-term
fluctuations in prices or margins. Positions may be traded actively
or held over a period of time to benefit from expected changes inmarket rates.

Trading derivatives are managed within the Group’s market risk
management policies, which are outlined in note 19.
Gains or losses, including any current period interest, from thechange in fair value of trading positions are recognised in the income
statement as ‘other income’ in the period in which they occur.
BALANCE SHEET RISK MANAGEMENTThe Group designates balance sheet risk management derivatives
into hedging relationships in order to minimise income statement
volatility. This volatility is created by differences in the timing ofrecognition of gains and losses between the derivative and thehedged item. Hedge accounting is not applied to all balance sheet
risk management positions.
Gains or losses from the change in fair value of balance sheet risk
management derivatives that form part of an effective hedging
relationship are recognised in the income statement based on thehedging relationship. Any ineffectiveness is recognised in the income
statement as ‘other income’ in the period in which it occurs.
Gains or losses, excluding any current period interest, from thechange in fair value of balance sheet risk management positions thatare not designated into hedging relationships are recognised in theincome statement as ‘other income’ in the period in which they occur.
Current period interest is included in interest income and expense.
The tables on the following pages provide an overview of theforeign exchange, interest rate, commodity and credit derivatives
and include all trading and balance sheet risk management
contracts. The derivative instruments become favourable (assets)or unfavourable (liabilities) as a result of fluctuations in market rates
relative to the terms of the derivative. Further information on nettingof derivative financial instruments is included in note 23. Notional
principal amounts measure the amount of the underlying physicalor financial commodity and represent the volume of outstandingtransactions. They are not a measure of the risk associated witha derivative and are not recorded on the balance sheet.

NOTES TO THE FINANCIAL STATEMENTS

89

NOTES TO THE FINANCIAL STATEMENTS (continued)

12: Derivative Financial Instruments (continued)
Fair Value
Trading
Consolidated at
30 September 2015

Foreign exchange contracts
Spot and forward contracts
Swap agreements
Options purchased
Options soldCommodity contracts
Derivative contracts
Interest rate contracts
Forward rate agreements
Swap agreements
Futures contracts
Options purchased
Options soldHedging

Total

Notional
Principal
Amount$m

Assets Liabilities$m$m

1,267,164652,681
92,330110,956

15,200 (13,964)
20,965 (20,257)
2,441–– (2,081)

–
2
–
–

–
(4)
–
–

–
–
–
–

–
–
–
–

8
–
–
–

–
(9)
–
–

15,208 (13,964)
20,967 (20,270)
2,441–– (2,081)

2,123,131

38,606 (36,302)

2

(4)

–

–

8

(9)

38,616 (36,315)

2,750(2,207)

–

–

–

–

–

–

2,750

343,457
3,665,593
158,579
93,05572,46237(51)
39,278 (38,004)
27
(79)
944
–
– (1,573)

–
2,329
1
–
–

–
(1,770)
(17)
–
–

–
1,360
–
–
–

–
(973)
–
–
–

–
–
–
–
–

–
–
–
–
–

37
(51)
42,967 (40,747)
28
(96)
944
–
– (1,573)

4,333,146

40,286 (39,707)

2,330(1,787)

1,360

(973)

–

–

43,976 (42,467)

43,869Fair value

Cash flow

Net investment

Assets Liabilities$m$m

Assets Liabilities$m$m

Assets Liabilities$m$m

Assets Liabilities$m$m(2,207)

Credit default swaps
Structured credit
derivatives purchased
Other credit derivatives purchased

728
22,284

52
205

–
(194)

–
–

–
–

–
–

–
–

–
–

–
–

52
205

–
(194)

Total credit derivatives purchased

23,012

257

(194)

–

–

–

–

–

–

257

(194)

Structured credit derivatives sold
Other credit derivatives sold728
21,474

–
26

(67)
(20)

–
–

–
–

–
–

–
–

–

–
–

–
26

(67)
(20)

Total credit derivatives sold
Total

90

22,202

26

(87)

–

–

–

–

–

–

26

(87)

45,214

283

(281)

–

–

–

–

–

–

283

(281)

81,925 (78,497)

2,332(1,791)

1,360

(973)

8

(9)

6,545,360

85,625 (81,270)

ANZ ANNUAL REPORT 2015

12: Derivative Financial Instruments (continued)
Fair Value
Trading

Hedging

Total

Consolidated at
30 September 2014

Notional
Principal
Amount$m

Assets Liabilities$m$m

Foreign exchange contracts
Spot and forward contracts
Swap agreements
Options purchased
Options sold

746,023
640,600
105,985
139,062

10,264 (9,324)
19,191 (19,003)
2,079–– (1,923)

–
66
–
–

–
(40)
–
–

–
–
–
–

–
–
–
–

–
–
–
–

(4)
–
–
–

10,264 (9,328)
19,257 (19,043)
2,079–– (1,923)

1,631,670

31,534 (30,250)

66

(40)

–

–

–

(4)

31,600 (30,294)

1,612

(946)

–

–

–

–

–

–

1,612

65,754
2,837,264
128,208
56,57347,8274(10)
19,768 (19,049)
33
(75)
505
–
–
(823)

–
1,808
–
–
–

–
(888)
(14)
–
–

–
765
–
–
–

(1)
(499)
(4)
–
–

–
–
–
–
–

–
–
–
–
–

4
(11)
22,341 (20,436)
33
(93)
505
–
–
(823)

3,135,626

20,310 (19,957)

1,808

(902)

765

(504)

–

–

22,883 (21,363)

Commodity contracts
Derivative contracts
Interest rate contracts
Forward rate agreements
Swap agreements
Futures contracts
Options purchased
Options sold33,886

Fair value

Cash flow

Net investment

Assets Liabilities$m$m

Assets Liabilities$m$m

Assets Liabilities$m$m

Assets Liabilities
$m
$m

(946)

Credit default swaps
Structured credit
derivatives purchased
Other credit derivatives purchased

1,171
17,060

58
162

–
(224)

–
–

–
–

–
–

–
–

–
–

–
–

58
162

–
(224)

Total credit derivatives purchased

18,231

220

(224)

–

–

–

–

–

–

220

(224)

Structured credit derivatives sold
Other credit derivatives sold

1,171
17,359

–
54

(80)
(18)

–
–

–
–

–
–

–
–

–
–

–
–

–
54

(80)
(18)

Total credit derivatives soldTotal

18,530

54

(98)

–

–

–

–

–

–

54

(98)

36,761

274

(322)

–

–

–

–

–

–

274

(322)

53,730 (51,475)

1,874

(942)

765

(504)

–

(4)

4,837,943

56,369 (52,925)

NOTES TO THE FINANCIAL STATEMENTS

91

NOTES TO THE FINANCIAL STATEMENTS (continued)

12: Derivative Financial Instruments (continued)
Fair Value
Trading
The Company at
30 September 2015

Foreign exchange contracts
Spot and forward contracts
Swap agreements
Options purchased
Options soldCommodity contracts
Derivative contracts
Interest rate contracts
Forward rate agreements
Swap agreements
Futures contracts
Options purchased
Options soldHedging

Total

Notional
Principal
Amount$m

Assets Liabilities$m$m

1,267,837
630,805
90,683
109,805

14,206 (13,352)
20,554 (19,225)
2,392–– (2,066)

–
2
–
–

–
(4)
–
–

–
–
–
–

–
–
–
–

1
–
–
–

–
(9)
–
–

14,207 (13,352)
20,556 (19,238)
2,392–– (2,066)

2,099,130

37,152 (34,643)

2

(4)

–

–

1

(9)

37,155 (34,656)

2,743(2,205)

–

–

–

–

–

–

2,743

334,992
3,263,084
117,310
93,51573,18745(50)
31,361 (30,833)
16
(63)
942
–
– (1,574)

–
2,120
1
–
–

–
(1,526)
(17)
–
–

–
1,028
–
–
–

–
(640)
–
–
–

–
–
–
–
–

–
–
–
–
–

45
(50)
34,509 (32,999)
17
(80)
942
–
– (1,574)

3,882,088

32,364 (32,520)

2,121(1,543)

1,028

(640)

–

–

35,513 (34,703)

43,697

Fair value

Cash flow

Net investment

Assets Liabilities$m$m

Assets Liabilities$m$m

Assets Liabilities$m$m

Assets Liabilities$m$m(2,205)Credit default swaps
Structured credit
derivatives purchased
Other credit derivatives purchased

728
22,284

52
205

–
(194)

–
–

–
–

–
–

–
–

–
–

–

52
205

–
(194)

Total credit derivatives purchased

23,012

257

(194)

–

–

–

–

–

–

257

(194)

Structured credit derivatives sold
Other credit derivatives sold728
21,474

–
26

(67)
(19)

–
–

–
–

–
–

–
–

–
–

–
–

–
26

(67)
(19)

Total credit derivatives sold
Total

92

22,202

26

(86)

–

–

–

–

–

–

26

(86)

45,214

283

(280)

–

–

–

–

–

–

283

(280)

72,542 (69,648)

2,123(1,547)

1,028

(640)

1

(9)

6,070,129

75,694 (71,844)

ANZ ANNUAL REPORT 2015

12: Derivative Financial Instruments (continued)
Fair Value
Trading

Hedging

Total

The Company at
30 September 2014

Notional
Principal
Amount$m

Assets Liabilities$m$m

Foreign exchange contracts
Spot and forward contracts
Swap agreements
Options purchased
Options sold723,896
636,477
104,919
138,285

9,664 (8,880)
18,552 (18,694)
2,061–– (1,915)

–
66
–
–

–
(40)
–
–

–
–
–
–

–
–
–
–

–
–
–
–

(4)
–
–
–

9,664 (8,884)
18,618 (18,734)
2,061–– (1,915)

1,603,577

30,277 (29,489)

66

(40)

–

–

–

(4)

30,343 (29,533)

1,606

(925)

–

–

–

–

–

–

1,606

61,6992,590,629
112,227
55,96947,382

4(10)
17,851 (17,561)
31
(72)
506
–
–
(822)

–
1,587
–
–
–

–
(807)
(14)
–
–

–
680
–
–
–

(1)
(403)
(4)
–
–

–
–
–
–
–

–
–
–
–
–

4
(11)
20,118 (18,771)
31
(90)
506
–
–
(822)

2,867,906

18,392 (18,465)

1,587

(821)

680

(408)

–

–

20,659 (19,694)

Commodity contracts
Derivative contracts
Interest rate contracts
Forward rate agreements
Swap agreements
Futures contracts
Options purchased
Options sold33,486

Fair value

Cash flow

Net investment

Assets Liabilities$m$m

Assets Liabilities$m$m

Assets Liabilities$m$m

Assets Liabilities
$m
$m

(925)

Credit default swaps
Structured credit
derivatives purchased
Other credit derivatives purchased

1,171
17,060

58
162

–
(224)

–
–

–
–

–
–

–
–

–
–

–
–

58
162

–
(224)

Total credit derivatives purchased

18,231

220

(224)

–

–

–

–

–

–

220

(224)

Structured credit derivatives sold
Other credit derivatives sold

1,171
17,359

–
54

(80)
(18)

–
–

–
–

–
–

–
–

–
–

–
–

–
54

(80)
(18)

Total credit derivatives soldTotal

18,530

54

(98)

–

–

–

–

–

–

54

(98)

36,761

274

(322)

–

–

–

–

–

–

274

(322)

50,549 (49,201)

1,653

(861)

680

(408)

–

(4)

4,541,730

52,882 (50,474)

HEDGING ACCOUNTING
There are three types of hedging accounting relationships: fair value hedges, cash flow hedges and hedges of a net investment in a foreign
operation. Each type of hedging has specific requirements when accounting for the fair value changes in the hedging relationship. For details
on the accounting treatment of each type of hedging relationship refer to note 1(E)(ii).
FAIR VALUE HEDGE ACCOUNTING
The risk being hedged in a fair value hedge is a change in the fair value of an asset or liability or unrecognised firm commitment that may affectthe income statement. Changes in fair value might arise through changes in interest rates or foreign exchange rates. The Group’s fair value
hedges consist principally of interest rate swaps and cross currency swaps that are used to protect against changes in the fair value of fixed-ratelong-term financial instruments due to movements in market interest rates and exchange rates.
The application of fair value hedge accounting results in the fair value adjustment on the hedged item attributable to the hedged risk being
recognised in the income statement at the same time the hedging instrument impacts the income statement. If hedge relationships no longer
meet the criteria for hedge accounting, hedge accounting is discontinued. The fair value adjustment to the hedged item continues to berecognised as part of the carrying amount of the item or group of items and is amortised to the income statement as a part of the effective yieldover the period to maturity. Where the hedged item is derecognised from the Group’s balance sheet, the fair value adjustment is included in theincome statement as ‘other income’ as a part of the gain or loss on disposal.
Consolidated

Gain/(loss) arising from fair value hedges
Hedged item
Hedging Instrument

The Company

2015
$m

2014
$m

2015
$m

2014
$m

158
(146)

(434)
429

14
(2)

(370)
369

NOTES TO THE FINANCIAL STATEMENTS

93

NOTES TO THE FINANCIAL STATEMENTS (continued)

12: Derivative Financial Instruments (continued)
CASH FLOW HEDGE ACCOUNTING
The risk being hedged in a cash flow hedge is the potential variability in future cash flows that may affect the income statement. Variability
in the future cash flows may result from changes in interest rates or exchange rates affecting recognised financial assets and liabilities andhighly probable forecast transactions. The Group’s cash flow hedges consist principally of interest rate swaps, forward rate agreements andcross currency swaps that are used to protect against exposures to variability in future cash flows on non-trading assets and liabilities whichbear interest at variable rates or which are expected to be refunded or reinvested in the future. The Group primarily applies cash flow hedge
accounting to its variable rate loan assets, variable rate liabilities and short-term re-issuances of fixed rate customer and wholesale deposit
liabilities. The amounts and timing of future cash flows, representing both principal and interest flows, are projected for each portfolio offinancial assets and liabilities on the basis of their forecast repricing profile. This forms the basis for identifying gains and losses on the effective
portions of derivatives designated as cash flow hedges.
The effective portion of changes in the fair value of derivatives qualifying and designated as cash flow hedges is recognised initially in othercomprehensive income. These are recognised in the income statement in the period during which the hedged forecast transactions take place.
The ineffective portion of a designated cash flow hedge relationship is recognised immediately as other income in the income statement.
The schedule below shows the movements in the hedging reserve:
Consolidated

The Company

2015
$m

2014
$m

2015
$m

2014
$m

Opening
Item recorded in net interest income
Tax effect on items recorded in net interest income
Valuation gain taken to other comprehensive income
Tax effect on net gain on cash flow hedges

169
(15)
4
160
(49)

75
(30)
8
165
(49)

174
–
–
149
(46)

51
8
(2)
168
(51)

Closing Balance

269

169

277

174

The table below shows the breakdown of the hedging reserve attributable to each type of cash flow hedging relationship:
Consolidated

The Company

2015
$m

2014
$m

2015
$m

2014
$m

Variable rate assets
Variable rate liabilities
Re-issuances of short term fixed rate liabilities

799
(255)
(275)

407
(114)
(124)

628
(191)
(160)

433
(119)
(140)

Total hedging reserve

269

169

277

174

All underlying hedged cash flows are expected to be recognised in the income statement in the period in which they occur which is anticipatedto take place over the next 0–10 years (2014: 0–10 years).
All gains and losses associated with the ineffective portion of the hedging derivatives are recognised immediately as ‘other income’ in theincome statement. Ineffectiveness recognised in the income statement in respect of cash flow hedges amounted to nil for the Group(2014: $10 million gain) and a $1 million gain for the Company (2014: $9 million gain).
HEDGES OF NET INVESTMENTS IN FOREIGN OPERATIONS
In a hedge of a net investment in a foreign operation, the risk being hedged is the exposure to exchange rate differences arising on consolidationof foreign operations with a functional currency other than the Australian Dollar. Hedging is undertaken using foreign exchange derivative
contracts or by financing with borrowings in the same currency as the applicable foreign functional currency.
Ineffectiveness arising from hedges of net investments in foreign operations and recognised as ‘other income’ in the income statement
amounted to nil (2014: nil).

94

ANZ ANNUAL REPORT 2015

13: Available-for-sale Assets

Consolidated

The Company

2015
$m

2014
$m

2015
$m

2014
$m

Government securities
Corporate and Financial institution securities
Equity and other securities

25,012
14,506
4,149

15,063
11,341
4,513

20,41913,381
3,812

12,31010,267
3,574

Total available-for-sale assets

43,66730,917

37,612

26,151

During the year net gains (before tax) recognised in the income statement in respect of available-for-sale assets amounted to $71 million for theGroup (2014: $47 million net gain before tax) and $49 million for the Company (2014: $40 million net gain before tax).
AVAILABLE-FOR-SALE ASSETS BY MATURITY AT 30 SEPTEMBER 2015
Less than
3 months$m

Between3 and 12months$m

Between
1 and
5 years$m

Between5 and 10
years
$m

After
10 years$mNomaturity
specified
$m

Total
fair
value
$m

Government securities
Corporate and Financial institution securities
Equity and other securities

4,878
932
–

2,712
1,793
38

6,238
10,281
1,200

10,248
1,429
2,739

936
71
121

–
–
51

25,012
14,506
4,149

Total available-for-sale assets

5,810

4,543

17,71914,416

1,128

51

43,667Less than
3 months$m

Between3 and 12months$m

Between
1 and
5 years$m

Between5 and 10
years
$m

After
10 years$mNomaturity
specified
$m

Total
fair
value
$m

Government securities
Corporate and Financial institution securities
Other securities and equity securities

3,106
523
–

2,541
2,563
86

4,299
7,923
205

3,686
327
1,165

1,431
5
3,014

–
–
43

15,063
11,341
4,513

Total available-for-sale assets

3,629

5,190

12,427

5,178

4,450

43

30,917AVAILABLE-FOR-SALE BY MATURITIES AT 30 SEPTEMBER 2014

NOTES TO THE FINANCIAL STATEMENTS

95

NOTES TO THE FINANCIAL STATEMENTS (continued)

14: Net Loans and Advances
Consolidated

The Company

2015
$m

2014
$m

2015
$m

2014
$m

Overdrafts
Credit card outstandings
Term loans – housing
Term loans – non-housing
Hire purchase
Lease receivables
Commercial bills
Other

8,955
11,930300,468
232,693
1,971
1,901
14,201
251

8,629
11,440271,388
213,324
2,238
1,905
15,027
432

7,472
9,446
242,949
174,277
1,048
1,166
13,982
34

7,078
9,244
221,576
161,913
1,409
1,190
14,766
4

Total gross loans and advances572,370

524,383

450,374

417,180(4,017)
(739)
1,253
1,371

(3,933)
(892)
1,043
1,151

(3,081)
(438)
944
649

(3,011)
(657)
837
717

Less: Provision for credit impairment (refer to note 15)
Less: Unearned income
Add: Capitalised brokerage/mortgage origination fees1
Add: Customer liability for acceptances
Adjustments to gross loans and advances
Net loans and advances (including assets classified as held for sale)
Esanda dealer finance assets held for sale
Net loans and advances(2,132)(2,631)(1,926)(2,114)570,238

521,752

448,448

415,066(8,065)–(8,065)–562,173

521,752

440,383

415,066

1 Capitalised brokerage/mortgage origination fees are amortised over the term of the loan.

ASSETS CLASSIFIED AS HELD FOR SALE
On 4 May 2015, the Group announced its intention to sell the Esanda Dealer Finance business within the Australia Division. The assets classified
as held for sale includes lending assets comprising retail point-of-sale finance and wholesale bailment facilities and other Esanda brandedfinance offered to motor vehicle dealers along with associated provisions and deferred acquisition costs. No impairment losses were recognisedon reclassification as held for sale.
On 8 October the Group entered into an agreement to sell the Esanda Dealer Finance business to Macquarie Group Limited. The saleis expected to complete during the first half of 2016. The estimated sale price is $8.2 billion.

96

ANZ ANNUAL REPORT 2015

14: Net Loans and Advances (continued)
LEASE RECEIVABLES

Consolidated

The Company

2015
$m

2014
$m

2015
$m

2014
$m

Lease receivablesa) Finance lease receivables
Gross finance lease receivables
Less than 1 year
1 to 5 years
Later than 5 years

276
912
196

370
527
387

117
590
17

225
350
63

Total finance lease receivables

1,384

1,284

724

638

b) Operating lease receivables
Gross operating lease receivables
Less than 1 year
1 to 5 years
Later than 5 years

22
495
–

55
566
–

19
423
–

51
501
–

Total operating lease receivables

517

621

442

552

Total lease receivables
Less: unearned future finance income on finance leases

1,901
(142)

1,905
(154)

1,166
(36)

1,190
(98)

Net lease receivables

1,759

1,751

1,130

1,092

Present value of net investment in finance lease receivables
Less than 1 year
1 to 5 years
Later than 5 years

248
830
164

332
480
318

112
560
16

206
285
49

Total net investment in finance lease receivables
Add back: unearned future finance income on finance leases

1,242
142

1,130
154

688
36

540
98

Total finance lease receivables

1,384

1,284

724

638

Hire purchaseLess than 1 year
1 to 5 years
Later than 5 years

678
1,282
11

758
1,466
14

310
727
11

456
939
14

Total hire purchase

1,971

2,238

1,048

1,409

HIRE PURCHASENOTES TO THE FINANCIAL STATEMENTS

97

NOTES TO THE FINANCIAL STATEMENTS (continued)

15: Provision for Credit Impairment

Consolidated

The Company

Credit impairment charge analysis

2015
$m

2014
$m

2015
$m

2014
$m

New and increased provisions
Australia
New Zealand
Asia Pacific, Europe & America

1,203
211
343

1,292
274
246

1,190
13
117

1,275
16
156

Write-backs

1,757
(434)

1,812
(447)

1,320
(245)

1,447
(253)

Recoveries of amounts previously written off

1,323
(239)

1,365
(224)

1,075
(193)

1,194
(174)

Individual credit impairment charge
Collective credit impairment charge/(release)

1,084
95

1,141
(155)

882
87

1,020
(46)

Credit impairment charge

1,179

986

969

974

MOVEMENT IN PROVISION FOR CREDIT IMPAIRMENT BY FINANCIAL ASSET CLASSNet loans andadvances

Credit related
commitments

Total provision

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

Individual provision
Balance at start of year
New and increased provisions
Adjustment for exchange rate fluctuations and transfers
Write-backs
Discount unwind
Bad debts written off

1,130 1,440
1,757 1,794
63
7
(434)
(447)
(54)
(65)
(1,424) (1,599)

46
–
(23)
–
–
–

27
18
1
–
–
–

1,176 1,467
1,757 1,812
40
8
(434)
(447)
(54)
(65)
(1,424) (1,599)

Total individual provision

1,038

1,130

23

46

1,061

1,176

Collective provision
Balance at start of year
Adjustment for exchange rate fluctuations
Charge/(release) to income statement

2,144
67
68

2,292
8
(156)

613
37
27

595
17
1

2,757
104
95

2,887
25
(155)

Consolidated

2014
$m

Total collective provision

2,279

2,144

677

613

2,956

2,757

Total provision for credit impairment

3,317

3,274

700

659

4,017

3,933

Consolidated

Ratios (as a percentage of total gross loans and advances)
Individual provisionCollective provision
Bad debts written off

2015
%

2014
%

0.18
0.51
0.25

0.22
0.53
0.30

The table below contains a detailed analysis of the movements in individual provisions for net loans and advances by division.
Australia

Internationaland Institutional
Banking

New Zealand

Consolidated

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

Individual provision
Balance at start of year
New and increased provisions
Adjustment for exchange rate fluctuations and transfers
Write-backs
Discount unwind
Bad debts written off

630
1,103
–
(194)
(32)
(918)

747
1,114
(2)
(202)
(33)
(994)

310
463
53
(128)
(17)
(371)

417
418
7
(79)
(35)
(418)

187
190
6
(110)
(4)
(131)

242
260
2
(163)
3
(157)

3
1
4
(2)
(1)
(4)

Total individual provision

589

630

310

310

138

187

1

1 Other contains Global Wealth and GTSO and Group Centre.

98

Total

Other1

2015
$m

2014
$m

2015
$m

2014
$m

34 1,130 1,440
2 1,757 1,794
–
63
7
(3)
(434)
(447)
–
(54)
(65)
(30) (1,424) (1,599)
3

1,038

1,130

ANZ ANNUAL REPORT 2015

15: Provision for Credit Impairment (continued)
The Company

Individual provision
Balance at start of year
New and increased provisions
Adjustment for exchange rate fluctuations
Write-backs
Discount unwind
Bad debts written off
Total individual provision

Credit related
commitments

Net loans and advances

Total provision

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

814
1,319
45
(245)
(45)
(1,148)

1,046
1,417
4
(253)
(60)
(1,340)

40
–
(21)
–
–
–

10
30
–
–
–
–

854
1,319
24
(245)
(45)
(1,148)

1,056
1,447
4
(253)
(60)
(1,340)

740

814

19

40

759

854

Collective provision
Balance at start of year
Adjustment for exchange rate fluctuations
Charge/(credit) to income statement

1,669
43
53

1,729
5
(65)

488
35
34

457
12
19

2,157
78
87

2,186
17
(46)

Total collective provision

1,765

1,669

557

488

2,322

2,157

Total provision for credit impairment

2,505

2,483

576

528

3,081

3,011

The Company

Ratios (as a percentage of total gross loans and advances)
Individual provisionCollective provision
Bad debts written off

2015
%

2014
%

0.17
0.52
0.25

0.20
0.52
0.32

IMPAIRED ASSETS
Presented below is a summary of impaired financial assets that are measured on the balance sheet at amortised cost. For these items,
impairment losses are recorded through the provision for credit impairment. This contrasts to financial assets measured at fair value,
for which any impairment loss is recognised as a component of the instrument’s overall fair value.
Detailed information on impaired financial assets is provided in note 19.
Consolidated

Summary of impaired financial assets
Impaired loans
Restructured items1
Non-performing commitments and contingencies2

The Company

2015
$m

2014
$m

2015
$m

2014
$m

2,441
184
94

2,682
67
140

1,574
94
80

1,923
26
105

Gross impaired financial assets
Individual provisions
Impaired loans
Non-performing commitments and contingencies

2,719

2,889

1,748

2,054

(1,038)(23)(1,130)
(46)

(740)
(19)

(814)
(40)

Net impaired financial assets

1,658

1,713

989

1,200

Accruing loans past due 90 days or more3
These amounts are not classified as impaired assets as they are either 90 daysor more past due and well secured, or are portfolio managed facilities that canbe held on a productive basis for up to 180 days past due

2,378

1,982

2,127

1,778

1 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 a reductionof interest, principal or other payments legally due, or an extension in maturity materially beyond those typically offered to new facilities with similar risk.
2 Includes impaired derivative financial instruments.
3 Includes unsecured credit card and personal loans 90 days past due accounts which are retained on a performing basis for up to 180 days past due amounting to $180 million (2014: $154 million)
for the Group and $126 million (2014: $111 million) for the Company.

NOTES TO THE FINANCIAL STATEMENTS

99

NOTES TO THE FINANCIAL STATEMENTS (continued)

16: Deposits and Other Borrowings

Consolidated

The Company

2015
$m

2014
$m

2015
$m

2014
$m

Certificates of deposit
Term Deposits
On demand and short term deposits
Deposits not bearing interest
Deposits from banks
Commercial Paper
Securities sold under repurchase agreements
Borrowing corporations1

63,446
194,676
229,330
19,01338,98522,988778
1,578

52,755
192,716
193,203
16,40438,19315,152256
1,400

62,980154,485
187,327
9,970
38,44818,477344–

51,634
154,763
160,867
8,688
37,3399,753
128–

Deposits and other borrowings

570,794

510,079

472,031423,172

1 Included in this balance is debenture stock of nil (September 2014: $1 million) of Esanda Finance Corporation Limited (Esanda), together with accrued interest thereon, which is secured
by a trust deed and collateral debentures, giving floating charges upon the undertaking and all the assets of the entity amounting to $42 million (September 2014: $43 million) other than landand buildings. All controlled entities of Esanda have guaranteed the payment of principal, interest and other monies in relation to all debenture stock and unsecured notes issued by Esanda.
The only loans pledged as collateral are those in Esanda and its subsidiaries. Effective from 18 March 2009, Esanda ceased to write new debentures and since September 2009 stopped writing
new loans. In addition, this balance also includes NZD1.7 billion (September 2014: NZD1.6 billion) of secured debenture stock of the consolidated subsidiary UDC Finance Limited (UDC) and theaccrued interest thereon which are secured by a floating charge over all assets of UDC NZD2.6 billion (September 2014: NZD2.5 billion).

17: Debt Issuances
ANZ utilises a variety of established and flexible funding programmes to issue medium term notes featuring either senior or subordinateddebt status (details of subordinated debt are presented in note 18). All risks associated with originating term funding are closely managed.
Refer to description of ANZ risk management practices in note 19 in relation to market risks such as interest rate and foreign currency risks,
as well as liquidity risk.
The table below presents debt issuances by currency of issue which broadly is representative of the investor base location.
Consolidated

The Company

2015
$m

2014
$m

2015
$m

2014
$m

Debt issuances by currency
USD
United States dollars
GBP
Great British pounds
AUD
Australian dollars
NZD
New Zealand dollars
JPY
Japanese yen
EUR
Euro
HKD
Hong Kong dollars
CHF
Swiss francs
CAD
Canadian dollar
NOK
Norwegian krone
SGD
Singapore dollars
TRY
Turkish lira
ZAR
South African rand
MXN
Mexico peso
CNH
Chinese yuan

42,367
6,317
7,694
4,947
4,499
22,048
858
3,063
430
465
202
265
151
255
186

36,549
3,068
7,796
4,683
4,786
15,723
817
3,882
984
609
254
358
147
255
185

36,009
5,744
7,289
1,639
4,412
16,356
858
1,450
430
465
70
265
151
255
186

31,682
2,576
7,051
1,647
4,469
11,662
802
1,659
984
609
75
358
147
255
185

Total Debt issuances

93,74780,09675,57964,161

100

ANZ ANNUAL REPORT 2015

18: Subordinated Debt
Subordinated debt comprises perpetual and dated securities as follows (net of issue costs):

Consolidated

The Company

2015
$m

2014
$m

2015
$m

2014
$m

1,969
1,336

1,967
1,333

1,969
1,336

1,967
1,333

1,112
1,598
959

1,109
1595
–

1,112
1,598
959

1,109
1595
–

449

–

–

–

7,423

6,004

6,974

6,004

429
759

343
744

429
–

343
–

1,188

1,087

429

343

1,355
499
1,504
1,068
748
750
1,222
562
491
199

1,246
499
1,501
842
748
750
930
–
–
–

1,355
500
1,506
1,071
750
750
1,226
562
491
198

1,247
500
1,502
843
749
750
932
–
–
–

8,398

6,516

8,409

6,523

Total subordinated debt

17,00913,607

15,812

12,870Subordinated debt by currency
AUD
Australian dollars
NZD
New Zealand dollars
USD
United States dollars
CNY
Chinese renminbi
SGD
Singapore dollars
EUR
Euro

10,674
1,208
2,719
562
491
1,355

9,502
744
2,115
–
–
1,246

10,678
–
2,726
562
491
1,355

9,505
–
2,118
–
–
1,247

17,00913,607

15,812

12,870Additional Tier 1 capital (perpetual subordinated securities)
ANZ Convertible Preference Shares (ANZ CPS)1
AUD
1969m
ANZ CPS2
AUD
1340m
ANZ CPS3
ANZ Capital Notes (ANZ CN)
AUD
1120m
ANZ CN1
AUD
1610m
ANZ CN2
AUD
970m
ANZ CN3
ANZ NZ Capital Notes (ANZ NZ CN)
NZD500m
ANZ NZ Capital Notes
Tier 2 capital
Perpetual subordinated notes
USD
300m
floating rate notes
NZD
835m
fixed rate notes2
Dated subordinated notes
EUR
750m
fixed rate notes due 2019
AUD
500m
floating rate notes due 20223
AUD
1509m
floating rate notes due 20223
USD
750m
fixed rate notes due 20223
AUD
750m
floating rate notes due 20233
AUD
750m
floating rate notes due 20243,4
USD
800m
fixed rate notes due 20244
CNY
2500m
fixed rate notes due 20253,4
SGD
500m
fixed rate notes due 20273,4
AUD
200m
fixed rate notes due 20273,4

1 Fully franked preference share dividend cash payments on ANZ CPS2 and ANZ CPS3 made during the years ended 30 September 2015 and 30 September 2014 (which are treated as interest expense):
Consolidated
2015
2014
$m
$m
ANZ CPS2
ANZ CPS3

77
52

79
53

The Company
2015
2014
$m
$m
77
52

79
53

2 Rate reset on 18 April 2013 to the five year swap rate +2.00% until the call date on 18 April 2018, whereupon if not called, reverts to a floating rate at the three month forward rate agreement+3.00% and is callable on any interest payment date thereafter.
3 Callable five years prior to maturity.
4 The convertible subordinated notes convert into ANZ ordinary shares at the average market price of ANZ ordinary shares less a 1% discount subject to a maximum conversion number
if the Company receives a notice of non-viability from APRA.

Subordinated debt is subordinated in right of payment to the claimsof depositors and other creditors of the Company and its controlled
entities which have issued the notes or preference shares.
As defined by APRA for capital adequacy purposes, ANZ CPS,ANZ CN, and ANZ NZ CN constitute Additional Tier 1 capital andall other subordinated notes constitute Tier 2 capital.
The ANZ CN and ANZ NZ CN are Basel 3 compliant instruments.
APRA has granted ANZ transitional Basel 3 capital treatment foreach of the ANZ CPS until their first conversion date.

The convertible subordinated notes are Basel 3 compliant instruments.
APRA has granted transitional Basel 3 capital treatment for:}} all other term subordinated notes until their first call date;}} the USD300 million perpetual subordinated notes until the endof the transitional period (December 2021); and}} the NZD835 million perpetual subordinated notes until the April
2018 call date.

NOTES TO THE FINANCIAL STATEMENTS101

NOTES TO THE FINANCIAL STATEMENTS (continued)

18: Subordinated Debt (continued)
ANZ CONVERTIBLE PREFERENCE SHARES (ANZ CPS)}} On 17 December 2009, the Company issued 19.7 million convertible
preference shares (‘ANZ CPS2’) at $100 each, raising $1,969 million
before issue costs.
}} On 28 September 2011, the Company issued 13.4 million convertible
preference shares (‘ANZ CPS3’) at $100 each raising $1,340 million
before issue costs.
ANZ CPS are fully paid, mandatorily convertible preference shares.
ANZ CPS are listed on the Australian Stock Exchange.
Dividends on ANZ CPS are non-cumulative and are payable quarterly
in arrears in December, March, June and September (ANZ CPS2) andsemi-annually in arrears in March and September (ANZ CPS3) in eachyear and will be franked in line with the franking applied to ANZ
ordinary shares. The dividends will be based on a floating rate equal
to the aggregate of the 90 day bank bill rate plus a 310 basis point
margin (ANZ CPS2) and the 180 day bank bill rate plus 310 basis point
margin (ANZ CPS3), multiplied by one minus the Australian Company
tax rate. Should the dividend not be fully franked, the terms of the
securities provide for a cash gross-up for the amount of the franking
benefit not provided. Dividends are subject to the absolute discretionof the Board of Directors of the Company and certain payment
tests (including APRA requirements and distributable profits being
available). If dividends are not paid on ANZ CPS, the Company may
not pay dividends or distributions, or return capital, on ANZ ordinary
shares or (ANZ CPS2 only) any other share capital or security ranking
equal or junior to the ANZ CPS for a specified period (subject
to certain exceptions).
On 15 December 2016 (ANZ CPS2) or 1 September 2019 (ANZ
CPS3) (each a ‘conversion date’), or an earlier date under certain
circumstances, the relevant ANZ CPS will mandatorily convert intoa variable number of ANZ ordinary shares based on the average
market price of ANZ ordinary shares less a 1.0% discount, subject
to a maximum conversion number.
The mandatory conversion to ANZ ordinary shares is howeverdeferred for a specified period if the conversion tests are not met.
In respect of ANZ CPS3 only, if a common equity capital trigger event
occurs the ANZ CPS3 will immediately convert into ANZ ordinary
shares, subject to a maximum conversion number. A common equity
capital trigger event occurs if ANZ’s Common Equity Tier 1 capitalratio is equal to or less than 5.125%.
In respect of ANZ CPS3 only, on 1 September 2017 and each subsequentsemi annual Dividend Payment Date, subject to receiving APRA’sprior approval and satisfying certain conditions, the Company has
the right to redeem or convert into ANZ ordinary shares all or some
ANZ CPS3 at its discretion on similar terms as mandatory conversion
on a conversion date.
The ANZ CPS rank equally with each other and the ANZ Capital Notes.
Except in limited circumstances, holders of ANZ CPS do not have any
right to vote in general meetings of the Company.
ANZ CAPITAL NOTES}} On 7 August 2013, the Company issued 11.2 million convertible notes(‘ANZ CN1’) at $100 each, raising $1,120 million before issue costs.
}} On 31 March 2014, the Company issued 16.1 million convertible notes(‘ANZ CN2’) at $100 each, raising $1,610 million before issue costs.
}} On 5 March 2015, the Company acting through it’s New Zealand
Branch, issued 9.7 million convertible notes (“ANZ CN3”) at $100
each raising $970 million before issue costs.
102

The ANZ Capital Notes are fully paid mandatorily convertible
subordinated perpetual notes. The notes are listed on the Australian
Stock Exchange.
Distributions on the notes are non-cumulative and payable semi
annual in arrears in March and September in each year and will
be franked in line with the franking applied to ANZ ordinary shares.
The distributions will be based on a floating rate equal to theaggregate of the 180 day bank bill rate plus a 340 basis point margin(ANZ CN1), a 325 basis point margin (ANZ CN2) and a 360 basis point
margin (ANZCN3) multiplied by one minus the Australian company
tax rate. Should the distribution not be fully-franked, the terms ofthe notes provide for a cash gross-up for the amount of the franking
benefit not provided. Distributions are subject to the Company’s
absolute discretion and certain payment conditions being satisfied(including APRA requirements). If distributions are not paid on thenotes, the Company may not pay dividends or distributions,or return capital, on ANZ ordinary shares for a specified period(subject to certain exceptions).
On 1 September 2023 (ANZ CN1), 24 March 2024 (ANZ CN2)
or 24 March 2025 (ANZ CN3) (each conversion date), or an earlier
date under certain circumstances, the relevant notes will mandatorily
convert into a variable number of ANZ ordinary shares based on the
average market price of ordinary shares less a 1% discount, subject
to a maximum conversion number. The mandatory conversion
to ANZ ordinary shares is however deferred for a specified period
if the conversion tests are not met.
If a common equity capital trigger event or a non-viability trigger
event occurs the notes will immediately convert into ANZ ordinary
shares, subject to a maximum conversion number. A common equity
capital trigger event occurs if ANZ’s Common Equity Tier 1 capital ratio
is equal to or less than 5.125%. A non-viability trigger event occurs if
APRA notifies the Company that, without the conversion or write-offof certain securities or a public sector injection of capital (or equivalent
support), it considers that the Company would become non-viable.
On 1 September 2021 (ANZ CN1), 24 March 2022 (ANZ CN2) or 24 March2023 (ANZ CN3) subject to receiving APRA’s prior approval and satisfying
certain conditions, the Company has the right to redeem or convert
into ANZ ordinary shares all or some of the notes at its discretionon similar terms as mandatory conversion on a conversion date.
The notes rank equally with each of the ANZ CPS. Holders of the notes
do not have any right to vote in general meetings of the Company.
ANZ NZ CAPITAL NOTESOn 31 March 2015, ANZ Bank New Zealand Limited (‘ANZ NZ’) issued
500 million convertible notes (‘ANZ NZ CN’) at NZ$1 each, raising
NZ$500 million before issue costs.
ANZ NZ CNs are fully paid, mandatorily convertible subordinatedperpetual notes. In certain circumstances the notes convert into
ANZ ordinary shares. The notes are listed on the New Zealand
Stock Exchange.
Interest on the notes is non-cumulative and payable quarterly in arrears
in February, May, August and November in each year. The interest rate
is fixed at 7.2% per annum until 25 May 2020, and thereafter will bebased on a floating rate equal to the aggregate of the New Zealand
3 month bank bill rate plus a 350 basis point margin. Interest payments
are subject to ANZ NZ’s absolute discretion and certain payment
conditions being satisfied (including APRA and Reserve Bankof New Zealand (‘RBNZ’) requirements). If interest is not paid on thenotes, ANZ NZ may not pay dividends or return capital on ANZ NZ
ordinary shares for a specified period (subject to certain exceptions).

ANZ ANNUAL REPORT 2015

18: Subordinated Debt (continued)
On 25 May 2022 (conversion date), or an earlier date under certain
circumstances, the notes will mandatorily convert into a variable
number of ANZ ordinary shares based on the average market priceof ANZ ordinary shares less a 1% discount, subject to a maximum
conversion number. The mandatory conversion to ANZ ordinary
shares is however deferred for a specified period if the conversion
tests are not met.

If 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, the notes will immediately convert into ANZ ordinary
shares based on the average market price of ANZ ordinary sharesless a 1% discount, subject to a maximum conversion number.

If a common equity capital trigger event or an APRA or RBNZ
non-viability trigger event occurs the notes will immediately convert
into ANZ ordinary shares, subject to a maximum conversion number.

19: Financial Risk Management

A common equity capital trigger event occurs if ANZ’s or ANZ NZ’s
Common Equity Tier 1 capital ratio is equal to or less than 5.125%.

Financial instruments are fundamental to the Group’s business,
constituting the core element of its operations. Accordingly, the risks
associated with financial instruments are a significant componentof the risks faced by the Group. Financial instruments create, modify
or reduce the credit, market (including traded and non-traded interest
rate and foreign currency related risks) and liquidity risks of the Group’sbalance sheet. These risks, and the Group’s objectives, policies andprocesses for managing and measuring such risks are outlined below.

An APRA non-viability trigger event occurs if APRA notifies theCompany 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. An RBNZ non-viability
trigger event occurs if the RBNZ directs ANZ NZ to convert or write-off
the notes or a statutory manager is appointed to ANZ NZ and decides
that ANZ NZ must convert or write-off the notes.
On 25 May 2020, ANZ NZ has the right to, subject to satisfying certain
conditions, redeem (subject to receiving APRA’s and RBNZ’s priorapproval), or convert into ANZ ordinary shares, all or some of thenotes at its discretion on similar terms as mandatory conversion
on a conversion date.
Holders of the notes do not have any right to vote in general
meetings of the Company.
CONVERTIBLE SUBORDINATED NOTES}} On 19 March 2014, the Company issued subordinated notes witha minimum denomination of USD200,000 and any integral multipleof USD1,000 above that raising USD800 million before issue costs.
Interest is cumulative and payable semi-annually in arrears
in March and September in each year and is based on a fixed rateof 4.5% per annum.
}} On 25 June 2014, the Company issued 750,000 subordinatednotes at $1,000 each raising $750 million before issue costs.
Interest is cumulative and payable quarterly in arrears in March,June, September and December in each year and is basedon a floating rate equal to the aggregate of the 90 day bankbill rate plus a 193 basis point margin.
}} On 30 January 2015, the Company issued subordinated notes
with a minimum denomination of CNY1,000,000 and any integral
multiple of CNY10,000 above that raising CNY2,500 million before
issue costs. Interest is cumulative and payable semi-annually inarrears in January and July in each year and is based on a fixed
rate of 4.75% per annum.
}} On 23 March 2015, the Company issued subordinated notes witha minimum denomination of SGD 250,000 and any integral multipleof SGD 250,000 above that raising SGD 500 million before issue
costs. Interest is cumulative and payable semi-annually in arrears
in March and September in each year and is based on a fixed rateof 3.75% per annum.
}} On 13 May 2015, the Company issued subordinated notes witha minimum denomination of $200,000 and any integral multipleof $2,000 above that raising $200 million before issue costs. Interest
is cumulative and payable annually in arrears in May each year andis based on a fixed rate of 4.75% per annum.

STRATEGY IN USING FINANCIAL INSTRUMENTS

Credit Risk
Credit risk is the risk of financial loss resulting from the failure of
ANZ’s customers and counterparties to honour or perform fully theterms of a loan or contract. The Group assumes credit risk in a wide
range of lending and other activities in diverse markets and in many
jurisdictions. Credit risks arise not only from traditional lending
to customers, but also from inter-bank, treasury, international
trade and capital market activities around the world.
The Group has an overall objective of sound growth for appropriate
returns. The credit risk principles of the Group have been set by the
Board and are implemented and monitored within a tiered structureof delegated authority designed to oversee multiple facets of credit
risk, including business writing strategies, credit policies/controls,
portfolio monitoring and risk concentrations.
Credit Risk Management Overview
The credit risk management framework ensures a consistent
approach is applied across the Group in measuring, monitoringand managing the credit risk appetite set by the Board.
The Board is assisted and advised by the Board Risk Committee indischarging its duty to oversee credit risk. The Board Risk Committee
sets the credit risk appetite and credit strategies, as well as approving
credit transactions beyond the discretion of executive management.
Responsibility for the oversight and control of the credit risk
framework (including the risk appetite) resides with the Credit andMarket Risk Committee (CMRC), which is an executive management
committee comprising senior risk, business and Group executives,chaired by the Chief Risk Officer (CRO).
Central to the Group’s management of credit risk is the existenceof an independent credit risk management function that is staffedby risk specialists. Independence is achieved by having all credit
risk staff ultimately report to the CRO, including where they areembedded in business units. The primary responsibility for prudent
and profitable management of credit risk and customer relationships
rests with the business units.

NOTES TO THE FINANCIAL STATEMENTS103

NOTES TO THE FINANCIAL STATEMENTS (continued)

19: Financial Risk Management (continued)
The authority to make credit decisions is delegated by the Board
to the CEO who in turn delegates authority to the CRO. The CRO
in turn delegates some of his credit discretion to individuals as
part of a ‘cascade’ of authority from senior to the most junior credit
officers. Individuals must be suitably skilled and accredited in order
to be granted and retain a credit discretion. Credit discretions arereviewed on an annual basis, and may be varied based on theholder’s performance.
The Group has two main approaches to assessing credit risk arisingfrom transactions:}} the larger and more complex credit transactions are assessed ona judgemental credit basis. Rating models provide a consistent andstructured assessment, with judgement required around the useof out-of-model factors. Credit approval for judgemental lending
is typically on a dual approval basis, jointly by the business writerin the business unit and an independent credit officer; and}} programmed credit assessment typically covers retail and somesmall business lending, and refers to the automated assessmentof credit applications using a combination of scoring (application
and behavioural), policy rules and external credit reporting
information. Where an application does not meet the automatedassessment criteria it will be referred out for manual assessment,with assessors considering the decision tool recommendation.
Central and divisional credit risk teams perform key roles in portfolio
management such as the development and validation of credit risk
measurement systems, loan asset quality reporting, stress testing,and the development of credit policies and requirements. Credit
policies and requirements cover all aspects of the credit life cycle
such as transaction structuring, risk grading, initial approval, ongoing
management and problem debt management, as well as specialist
policy topics.
The Group’s credit grading system is fundamental to the
management of credit risk, seeking to measure the probabilityof default (PD), the exposure at default (EAD) and the loss in theevent of default (LGD) for all transactions.
From an operational perspective, the Group’s credit grading system
has two separate and distinct dimensions that:}} measure the PD, which is expressed by a 27-grade Customer Credit
Rating (CCR), reflecting the ability to service and repay debt. Within
the programmed credit assessment sphere, the CCR is typically
expressed as a score which maps back to the PD; and}} measure the LGD, which is expressed by a Security Indicator(SI) ranging from A to G. The SI is calculated by reference to thepercentage of the loan covered by security which can be realisedin the event of default. The security-related SIs are supplemented
with a range of other SIs to cover situations where ANZ’s LGD
research indicates certain transaction characteristics have different
recovery outcomes. Within the programmed credit assessment
sphere, exposures are grouped into large homogenous pools– and the LGD is assigned at the pool level.
The development and regular validation of rating models isundertaken by specialist central risk teams. The outputs from thesemodels drive many day-to-day credit decisions, such as origination,
pricing, approval levels, regulatory capital adequacy, economic
capital allocation and provisioning. The risk grading process includes
monitoring of model-generated results to ensure appropriate
judgement is exercised (such as overrides to take into accountany out-of-model factors).

104

Collateral management
Collateral is used to mitigate credit risk, as the secondary sourceof repayment in case the counterparty cannot meet its contractual
repayment obligations.
ANZ credit principles specify to only lend when the counterparty
has the capacity and ability to repay, and the Group sets limits on
the acceptable level of credit risk. Acceptance of credit risk is firstly
based on the counterparty’s assessed capacity to meet contractual
obligations (such as the scheduled repayment of principal and interest).
In certain cases, such as where the customer risk profile is consideredvery sound or by the nature of the product (for instance, small limit
products such as credit cards), a transaction may not be supported bycollateral. For some products, the collateral provided is fundamental
to its structuring so is not strictly the secondary source of repayment.
For example, lending secured by trade receivables is typically repaidby the collection of those receivables.
The most common types of collateral typically taken by ANZ include:}} collateral received in respect of derivative trading}} charges over cash deposits;}} security over real estate including residential, commercial,industrial or rural property; and}} other security includes charges over business assets, security over
specific plant and equipment, charges over listed shares, bonds
or securities and guarantees and pledges.
Credit policy requirements set out the acceptable types of collateral,
as well as a process by which additional instruments and/or asset
types can be considered for approval. ANZ’s credit risk modelling
approach uses historical internal loss data and other relevant external
data to assist in determining the discount that each type of collateral
would be expected to incur in a forced sale. This discounted value
is used in the determination of the SI for LGD purposes.
In the event of customer default, any loan security is usually held as
mortgagee in possession while the Group is actively seeking to realise
it. Therefore the Group does not usually hold any real estate or otherassets acquired through the enforcement of security.
The Group generally uses Master Agreements with its counterparties
for derivatives activities. Generally, International Swaps and Derivatives
Association (ISDA) Master Agreements will be used. Under the ISDA
Master Agreement, if a default of a counterparty occurs, all contracts
with the counterparty are terminated. They are then settled on a net
basis at market levels current at the time of default.
In addition to the terms noted above, ANZ’s preferred practice isto use a Credit Support Annex (CSA) to the ISDA Master Agreement.
Under a CSA, 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
that is out of the money. Upon termination of the trade, payment
is required only for the final daily mark-to-market movement rather
than the mark-to-market movement since inception.

ANZ ANNUAL REPORT 2015

19: Financial Risk Management (continued)
Concentrations of credit risk
Concentrations of credit risk arise when a number of customers are engaged in similar business activities or activities within the same geographic
region, or when they have similar risk characteristics that would cause their ability to meet contractual obligations to be similarly affectedby changes in economic or other conditions.
The Group monitors its portfolios, to identify and assess risk concentrations. The Group’s strategy is to maintain well-diversified credit portfolios
focused on achieving an acceptable risk-return balance. Credit risk portfolios are actively monitored and frequently reviewed to identify, assessand guard against unacceptable risk concentrations. Concentration analysis will typically include geography, industry, credit product and risk
grade. The Group also applies single customer counterparty limits to protect against unacceptably large exposures to single name risk. Theselimits are established based on a combination of factors including the nature of counterparty, probability of default and collateral provided.
Concentrations of credit risk analysis
Composition of financial instruments that give rise to credit risk by industry:Cash, settlementbalances owed
to ANZ andcollateral paid
Consolidated

Australia
Agriculture, forestry,   fishing and mining
Business services
Construction
Electricity, gas and   water supply
Entertainment, leisure   and tourism
Financial, investment   and insurance
Government and   official institutions
Manufacturing
Personal lending
Property services
Retail trade
Transport and storage
Wholesale trade
Other
New Zealand
Agriculture, forestry,   fishing and mining
Business services
Construction
Electricity, gas and   water supply
Entertainment, leisure   and tourism
Financial, investment   and insurance
Government and   official institutions
Manufacturing
Personal lending
Property services
Retail trade
Transport and storage
Wholesale trade
Other

1
2
3
4

Trading securities
and AFS1

Derivatives

Loans
and advances2

Otherfinancialassets3

Credit related
commitments4

Total

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

–
4
–

21
12
–

60
–
23

21
3
3

691
108
20

225
46
94

15,192
6,254
5,516

13,970
5,658
5,688

119
49
43

95
38
38

9,713
3,365
4,568

10,753
3,679
4,353

25,775
9,780
10,17025,085
9,436
10,176

–

–

99

237

837

692

3,462

4,000

27

27

2,388

2,895

6,813

7,851

–

–

37

1

323

89

8,908

8,087

70

55

2,494

2,751

11,832

10,983

21,88518,927

18,722

19,11549,73338,38722,061

14,351

174

98

6,757

7,521 119,332

98,399

130
4
–
–
2
2
354
30

135
4
–
–
2
–
183
21

32,305
1,382
–
79
50
181
12
251

25,595
1,528
–
48
6
70
7
208

685
2,535
–
677
221
951
1,520
453

241
707
541
1,057
6,844
7,129
– 252,242 231,807
433 27,034 26,234
153 11,273 10,225
368
7,052
7,386
702
6,287
6,320
258 10,397
9,426

6
54
1,983
212
89
55
49
82

4
48
1,569
178
69
50
42
64

2,081
7,815
48,282
10,199
3,639
4,145
8,212
5,878

298 35,914 26,814
7,537 18,634 17,303
44,950 302,507 278,326
11,774 38,201 38,667
4,645 15,274 15,100
3,943 12,386 11,817
4,867 16,434 12,121
5,501 17,091 15,478

22,411

19,30553,201

46,84258,75442,745 383,229 350,822

3,012

2,375 119,536 115,467 640,143 577,556

–
–
–

–
–
–

–
–
–

–
–
–

61
5
11

15
4
–

17,554996
1,222

16,475
1,010
1,085

108
6
7

88
5
6

1,749
380
713

1,831
383
659

19,472
1,387
1,953

18,409
1,402
1,750

–

–

37

30

430

317

1,122

945

7

5

1,079

1,179

2,675

2,476

–

–

–

–

43

22

972

916

6

5

243

219

1,264

1,162

2,217

1,444

6,322

4,925

10,118

5,627

1,132

865

9

4

874

688

20,672

13,553

1,679
–
–
–
–
–
–
–

1,167
–
–
–
–
–
–
–

5,884
28
–
1
–
5
–
52

6,111
22
–
–
–
11
–
61

1,216
379
–
16
16
55
15
40

562
158
–
11
18
28
13
49

1,052
3,155
63,067
8,836
1,827
1,489
1,334
670

1,120
2,702
56,993
7,464
1,810
1,323
1,233
692

6
19
387
54
11
9
8
4

6
14
304
40
10
7
7
4

664
1,597
12,534
1,399
827
688
1,132
1,042

665
1,635
10,499
1,354
808
670
1,160
911

10,501
5,178
75,98810,306
2,681
2,246
2,489
1,808

9,631
4,531
67,796
8,869
2,646
2,039
2,413
1,717

3,896

2,611

12,329

11,16012,405

6,824 104,428

94,633641

505

24,921

22,661 158,620 138,394

Available–for–sale assets.
Excludes individual and collective provisions for credit impairment held in respect of credit related commitments, and includes Esanda dealer finance assets classified as held for sale.
Mainly comprises regulatory deposits, investments backing policy liabilities and accrued interest.
Credit related commitments comprise undrawn facilities and customer contingent liabilities.

NOTES TO THE FINANCIAL STATEMENTS

105

NOTES TO THE FINANCIAL STATEMENTS (continued)

19: Financial Risk Management (continued)
Concentrations of credit risk analysis (continued):Composition of financial instruments that give rise to credit risk by industry (continued):Cash, settlementbalances owed
to ANZ andcollateral paid
Consolidated

Overseas Markets
Agriculture, forestry,
fishing and mining
Business services
Construction
Electricity, gas andwater supply
Entertainment, leisureand tourism
Financial, investment
and insurance
Government andofficial institutions
Manufacturing
Personal lending
Property services
Retail trade
Transport and storage
Wholesale trade
Other

Individual provision for
credit impairment
Collective provision for
credit impairment
Unearned income
Capitalised brokerage/
mortgage origination
fees

Loans
and advances2

Derivatives

Otherfinancialassets3

Credit related
commitments4

Total

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

3

1

43

10

94

137

5,659

4,385

166

118

9,326

6,883

15,291

11,534

5
2
35

5
3
–

–
1
60

–
–
128

15
27
56

5
17
57

1,331
716
3,520

955
623
2,732

39
21
103

26
17
74

4,988
3,637
2,600

3,251
3,355
2,595

6,378
4,404
6,374

4,242
4,015
5,586

–

3

–

–

16

7

1,382

1,107

40

30

853

337

2,291

1,484

54,079 34,741

17,666

14,717

12,661

5,926

13,534

19,658397

530

13,703

10,986

112,040

86,558

1

4

8,083

6,445

281

59

475

524

14

14

928

869

9,782

7,915

230
2
1
1
–
64
20

60
5
1
–
1
28
4

107
–
8
26
87
60
945

204
–
90
42
107
30
797

611
–
112
21
81
437
54

220
–
97
18
31
186
40

18,831
12,867
5,303
2,344
4,679
12,0843,359

16,004
10,070
4,550
1,475
3,796
11,332
2,868

553
377
155
69
137
354
98

432
269
123
40
102
306
77

43,000
8,782
2,495
3,597
2,575
27,006
3,182

34,211
7,448
2,117
1,330
1,506
18,786
2,257

63,332
22,028
8,074
6,058
7,559
40,005
7,658

51,131
17,792
6,978
2,905
5,543
30,6686,043

54,443 34,856

27,086

22,57014,466

6,800

86,08480,0792,523

2,158 126,672

95,931

311,274 242,394

103

31

846

377

38,40534,830393

301

20,78819,46760,53855,028

–
24
196

3
3
395

128
58
1,323

55
111
1,066

8,581
7,454
8,104

7,623
7,396
7,677

94
71
137

69
61
106

8,733
8,918
6,067

7,313
8,367
6,669

17,545
16,527
15,862

15,08015,941
15,913

37

1

382

118

11,262

10,110

116

90

3,590

3,307

15,387

13,62942,71038,75772,512

49,94036,72734,874580

632

21,33419,195

252,044 198,510

46,27238,151

2,182

862

2,234

2,185

26

24

3,673

1,832

56,197

1,517
–
88
76
273
72
1,248

1,754
–
138
48
188
37
1,066

3,525
–
805
258
1,087
1,972
547

1,435 28,830 25,835– 328,176 298,870
541 41,173 38,248
189 15,444 13,510
427 13,220 12,505
901 19,705 18,885
347 14,426 12,986

626
2,747
421
169
201
411
184

494
2,142
341
119
159
355
145

52,412
69,59814,0938,063
7,408
36,35010,10243,38362,897
15,245
6,783
6,119
24,813
8,669

87,144 72,965
400,523 363,914
56,581 54,514
24,013 20,651
22,191 19,399
58,928 45,202
26,557 23,238

92,61680,572

85,62556,369 573,741 525,534

6,176

5,038 271,129 234,059 1,110,037 958,344

Consolidated – aggregate
Agriculture, forestry,
3
22
fishing and mining
Business services
917
Construction
2
3Electricity, gas and35–
water supply
Entertainment, leisure–3
and tourism
Financial, investment
78,181 55,112
and insurance
Government and
1,810 1,306
official institutions
Manufacturing
234
64
Personal lending2
5
Property services
11
Retail trade3
2
Transport and storage
2
1
Wholesale trade
418
211
Other
50
25
Gross Total

Trading securities
and AFS1

80,750 56,772
–

–

–

–

–

–

(1,038)(1,130)

–

–

(23)

(46)

(1,061)(1,176)

–

–

–

–

–

–

(2,279)(2,144)

–

–

(677)

(613)

(2,956)(2,757)80,750 56,772

56,369 570,424 522,260

6,176

92,61680,572

85,625

–
–

–
–

–
–

–
–

80,750 56,772––

92,61680,572

85,625

Excluded from analysis
above5

1,716

1,487

51

37

–

Net Total

82,466 58,259

92,66780,60985,625

–
–

(739)
1,253

(892)
1,043

56,369 570,938 522,411––

5,038 270,429 233,400 1,106,020 954,411
–
–

–
–

–
–

(739)
1,253

(892)
1,043

6,176

5,038 270,429 233,400 1,106,534 954,562–

34,82033,57956,369 570,938 522,411

40,996

38,617 270,429 233,400 1,143,121 989,665

–

–

–

–

36,587

1 Available–for–sale assets.
2 Excludes individual and collective provisions for credit impairment held in respect of credit related commitments, and includes Esanda dealer finance assets classified as held for sale.
3 Mainly comprises regulatory deposits, investments backing policy liabilities and accrued interest.
4 Credit related commitments comprise undrawn facilities and customer contingent liabilities.
5 	Comprises bank notes and cash at bank within cash, equity instruments within available-for-sale financial assets and investments relating to the insurance business where the credit risk
is passed on to the policy holder.

106

44,36035,103

ANZ ANNUAL REPORT 2015

19: Financial Risk Management (continued)
Concentrations of credit risk analysis (continued):Composition of financial instruments that give rise to credit risk by industry (continued):Cash, settlementbalances owed
to ANZ andcollateral paid
The Company

Australia
Agriculture, forestry,
fishing and mining
Business services
Construction
Electricity, gas andwater supply
Entertainment, leisureand tourism
Financial, investment
and insurance5
Government andofficial institutions
Manufacturing
Personal lending
Property services
Retail trade
Transport and storage
Wholesale trade
Other
New Zealand
Agriculture, forestry,
fishing and mining
Business services
Construction
Electricity, gas andwater supply
Entertainment, leisureand tourism
Financial, investment
and insurance5
Government andofficial institutions
Manufacturing
Personal lending
Property services
Retail trade
Transport and storage
Wholesale trade
Other

1
2
3
4
5

Trading securities
and AFS1

Loans
and advances2

Derivatives

Otherfinancialassets3

Credit related
commitments4

Total

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

–
4
–

21
12
–

59
–
23

21
3
3

691
108
20

225
46
94

15,1856,254
5,516

13,854
5,654
5,688

79
32
29

56
23
23

9,573
3,340
4,537

10,525
3,625
4,266

25,587
9,738
10,12524,702
9,363
10,074

–

–

99

132

837

692

3,455

3,988

18

16

2,266

2,836

6,675

7,664

–

–

37

1

323

89

8,888

8,061

46

33

2,494

2,695

11,788

10,87922,601

20,481

18,547

20,57759,66344,62722,086

14,464

115

58

6,499

9,671 129,511 109,878

130
4
–
–
2
2
354
30

135
4
–
–
2
–
183
21

32,008
1,369
–
78
50
180
12
248

25,599
1,528
–
48
6
70
7
208

685
2,535
–
677
221
951
1,520
453

241
706
539
1,057
6,844
7,129
– 251,707 231,114
433 26,991 26,171
153 11,269 10,211
368
7,052
7,386
702
6,287
6,320
258 10,374
9,396

4
36
1,306
140
59
37
33
54

2
29
931
106
41
30
25
38

2,081
7,333
48,282
10,194
3,567
4,114
7,544
5,693

292 35,614 26,808
7,387 18,121 17,134
44,038 301,295 276,083
11,535 38,080 38,293
4,559 15,168 14,972
3,871 12,336 11,725
4,770 15,750 12,007
5,389 16,852 15,310

23,127

20,85952,71048,203

68,684

48,985 382,614 349,975

1,988

–
–
–

–
–
–

–
–
–

–
–
–

–
–
–

–
–
–

–
–
–

–
–
–

–
–
–

–
–
–

–
–
–

–
–
–

–
–
–

–
–
–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

64

9

–

–

–

–

–

–

64

9

–
–
–
–
–
–
–
–

–
–
–
–
–
–
–
–

–
–
–
–
–
–
–
–

–
–
–
–
–
–
–
–

–
–
–
–
–
–
–
–

–
–
–
–
–
–
–
–

–
–
7,289
–
–
–
–
–

–
–
8,193
–
–
–
–
–

–
–
–
–
–
–
–
–

–
–
–
–
–
–
–
–

–
–
19
–
–
–
–
1

–
–
29
–
–
–
–
–

–
–
7,308
–
–
–
–
1

–
–
8,222
–
–
–
–
–

–

–

–

–

64

9

7,289

8,193

–

–

20

29

7,373

8,231

1,411 117,517 115,459 646,640 584,892

Available–for–sale assets.
Excludes individual and collective provisions for credit impairment held in respect of credit related commitments, and includes Esanda dealer finance assets classified as held for sale.
Mainly comprises regulatory deposits, investments backing policy liabilities and accrued interest.
Credit related commitments comprise undrawn facilities and customer contingent liabilities.
Includes amounts due from other Group entities.

NOTES TO THE FINANCIAL STATEMENTS

107

NOTES TO THE FINANCIAL STATEMENTS (continued)

19: Financial Risk Management (continued)
Concentrations of credit risk analysis (continued):Composition of financial instruments that give rise to credit risk by industry (continued):Cash, settlementbalances owed
to ANZ andcollateral paid
The Company

Overseas Markets
Agriculture, forestry,
fishing and mining
Business services
Construction
Electricity, gas andwater supply
Entertainment, leisureand tourism
Financial, investment
and insurance5
Government andofficial institutions
Manufacturing
Personal lending
Property services
Retail trade
Transport and storage
Wholesale trade
Other

Gross Total

Unearned income
Capitalised brokerage/
mortgage origination
fees

Other
financialassets3

Credit related
commitments4

Total

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

–

1

42

8

47

83

4,839

3,829

84

50

8,174

6,025

13,186

9,996

5
2
34

2
3
–

–
1
28

–
–
83

7
14
20

3
10
28

1,073
519
2,948

770
432
2,309

19
9
51

10
6
30

4,436
3,047
2,170

2,697
3,147
2,250

5,540
3,592
5,251

3,482
3,598
4,700

–

–

–

–

8

4

1,165

874

20

11

677

243

1,870

1,132

51,586

31,77015,566

11,427

6,216

3,455

9,687

16,616

168

219

11,785

9,050

95,00872,537

1

1

5,586

3,474

145

36

446

417

8

5

919

820

7,105

4,753

193
1
–
1
–
37
20

21
–
1
–
1
11
3

17
–
7
7
84
24
883

95
–
79
18
93
3
695

216
–
58
10
27
155
23

91
–
54
11
18
73
22

11,050
7,581
4,519
1,570
3,832
9,505
2,386

9,597
5,876
3,636
855
3,008
9,366
2,144

191
131
78
27
66
165
41

125
77
48
11
39
122
28

31,817
4,351
2,142
1,216
1,947
22,6722,650

24,736
3,764
1,726
769
1,036
15,402
1,748

43,484
12,064
6,804
2,831
5,956
32,558
6,003

34,665
9,717
5,544
1,664
4,195
24,9774,640

51,88031,814

22,245

15,975

6,946

3,888

61,12059,7291,058

781

98,00373,413 241,252 185,560

22

101

29

738

308

20,024

17,683163

106

17,747

16,55038,773

34,698

14
3
–

–
24
127

3
3
215

115
34
857

49
104
720

7,327
6,035
6,403

6,424
6,120
6,297

51
38
69

33
29
46

7,776
7,584
4,436

6,322
7,413
5,086

15,27813,717
11,926

12,845
13,672
12,364

–

37

1

331

93

10,053

8,935

66

44

3,171

2,938

13,65812,011

52,251

34,11332,00465,94348,091

31,77331,080283

277

18,284

18,721 224,583 182,424

136

37,59429,073

830

277

1,152

956

12

7

3,000

1,112

25
–
1
2
1
194
24

1,386
–
85
57
264
36
1,131

1,623
–
127
24
163
10
903

2,751
–
735
231
978
1,675
476

1,148 17,894 16,726– 266,577 245,183
487 31,510 29,807
164 12,839 11,066
386 10,884 10,394
775 15,792 15,686
280 12,760 11,540

227
1,437
218
86
103
198
95

154
1,008
154
52
69
147
66

39,15052,652
12,3364,783
6,061
30,216
8,344

32,123 61,605 51,799
47,831 320,667 294,022
13,261 44,884 43,837
5,328 17,999 16,636
4,907 18,292 15,920
20,172 48,308 36,984
7,137 22,856 19,950

75,00752,67374,95564,17875,69452,882 451,023 417,897

3,046

2,192 215,540 188,901 895,265 778,723

–

–

–

–

–

–

(740)

(814)

–

–

(19)

(40)

(759)

(854)

–

–

–

–

–

–

(1,765)(1,669)

–

–

(557)

(488)

(2,322)(2,157)75,00752,67374,95564,17875,69452,882 448,518 415,414

3,046

–
–

–
–

–
–

–
–

–
–

75,00752,67374,95564,17875,694

Excluded from analysis
above6

1,045

1,005

30

22

–

Net total

76,05253,67874,98564,20075,694

1
2
3
4
5
6

Loans
and advances2

Derivatives

2015
$m

The Company – aggregate
Agriculture, forestry,–
fishing and mining
Business services
9
Construction
2
Electricity, gas and34
water supply
Entertainment, leisure–and tourism
Financial, investment
74,187and insurance5
Government and131
official institutions
Manufacturing
197
Personal lending
1
Property services–
Retail trade
3
Transport and storage
2
Wholesale trade
391
Other
50
Individual provision for
credit impairment
Collective provision for
credit impairment

Trading securities
and AFS1

–
–

(657)
837

–
–

52,882 449,024 415,594

3,046

–

(438)
944

–

–

–

52,882 449,024

415,594

3,046

42,7192,192 214,964 188,373 892,184 775,712
–
–

–
–

–
–

(438)
944

(657)
837

2,192 214,964 188,373 892,690 775,892
–

–

–

1,075

1,027

2,192 214,964 188,373 893,765 776,919

Available–for–sale assets.
Excludes individual and collective provisions for credit impairment held in respect of credit related commitments, and includes Esanda dealer finance assets classified as held for sale.
Mainly comprises regulatory deposits, investments backing policy liabilities and accrued interest.
Credit related commitments comprise undrawn facilities and customer contingent liabilities.
Includes amounts due from other Group entities.
Comprises bank notes and cash at bank within cash and equity instruments within available-for-sale financial assets.

108

31,561

ANZ ANNUAL REPORT 2015

19: Financial Risk Management (continued)
Credit quality
Maximum exposure to credit risk
For 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, these differences arise in respect of financial assets that are subject to risks other than credit risk, such as equity investments which
are primarily subject to market risk, or bank notes and coins. 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 undrawn facilities, the maximum exposure to credit risk is the fullamount of the committed facilities.
The following tables present the maximum exposure to credit risk of on-balance sheet and off-balance sheet financial assets before taking
account of any collateral held or other credit enhancements.
Reported on
Balance Sheet

Maximum exposure
to credit risk

Excluded1

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

On-balance sheet positions
Cash
Settlement balances owed to ANZCollateral paid
Trading securities
Derivative financial instruments2
Available-for-sale assets

53,903
18,596
9,967
49,00085,62543,66732,55920,241
5,459
49,69256,36930,917

1,716
–
–
–
–
51

1,487
–
–
–
–
37

52,187
18,596
9,967
49,00085,62543,616

31,072
20,241
5,459
49,69256,36930,880Net loans and advances3– Australia– International and Institutional Banking– New Zealand– Global WealthRegulatory deposits
Investments backing policy liabilities
Other financial assets4

313,164
154,741
95,211
7,122
1,773
34,820
4,403

287,350
141,986
86,063
6,353
1,565
33,579
3,473

–
–
–
–
–
34,820––––––33,579–313,164
154,741
95,211
7,122
1,773
–
4,403

287,350
141,986
86,063
6,353
1,565
–
3,473

871,992

755,606

36,58735,103

835,405

720,103

Off-balance sheet positions
Undrawn facilities
Contingent facilities

230,794
40,335

193,984
40,075––––

230,794
40,335

193,984
40,075271,129

234,059––

271,129

234,059

Total

1,143,121

989,665

36,58735,103 1,106,534

954,162

Consolidated

Reported onbalance Sheet
The Company

On-balance sheet positions
Cash
Settlement balances owed to ANZCollateral paid
Trading securities
Derivative financial instruments2
Available-for-sale assets
Net loans and advances3
Regulatory deposits
Other financial assets4
Off-balance sheet positions
Undrawn facilities
Contingent facilities
Total

Maximum exposure
to credit risk

Excluded1

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

51,217
16,601
8,234
37,37375,694
37,612448,448557
2,489

30,655
18,1504,873
38,04952,882
26,151
415,066
434
1,758

1,045
–
–
–
–
30
–
–
–

1,005
–
–
–
–
22
–
–
–

50,172
16,601
8,234
37,37375,69437,582448,448557
2,489

29,65018,1504,873
38,04952,882
26,129415,066434
1,758

678,225

588,018

1,075

1,027

677,150

586,991

180,847
34,693

153,985
34,916––––

180,847
34,693

153,985
34,916

215,540

188,901––

215,540

188,901

893,765

776,919

1,075

1,027

892,690775,892

1 Includes bank notes and coins and cash at bank within cash, equity instruments within available-for-sale financial assets and investments relating to the insurance business where the credit risk
is passed onto the policy holder.
2 Derivative financial instruments are net of credit valuation adjustments.
3 Includes individual and collective provisions for credit impairment held in respect of credit related commitments, and includes Esanda dealer finance assets classified as held for sale.
4 Mainly comprises accrued interest.

NOTES TO THE FINANCIAL STATEMENTS

109

NOTES TO THE FINANCIAL STATEMENTS (continued)

19: Financial Risk Management (continued)
Distribution of financial assets by credit quality
The Group has a comprehensive rating system that is used to quantify credit risk. The use of masterscales ensures consistency across exposure
types at the Group, providing a consistent framework for reporting and analysis.
All customers with whom ANZ has a credit relationship, including guarantors, are assigned a Customer Credit Rating (CCR) or score at origination
either by programmed credit assessment or by judgemental assessment. In addition, the CCR or score is reviewed on an ongoing basis to ensure
it accurately reflects the credit risk of the customer and the prevailing economic conditions.
The Group’s risk grade profile therefore changes dynamically through new lending, repayment and/or existing counterparty movementsin either risk or volume.
Restructured items
Restructured items are 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.
Neither past
due nor
impaired
Consolidated

Past due but not
impaired

Restructured

Impaired

Total

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

Cash
Settlement balances owed to ANZCollateral paid
Trading securities
Derivative financial instruments1
Available-for-sale assets
Net loans and advances2– Australia– International and Institutional Banking– New Zealand– Global WealthRegulatory deposits
Other financial assets3
Credit related commitments4

52,187
18,596
9,967
49,00085,58843,616

31,072
20,241
5,459
49,69256,33230,880

–
–
–
–
–
–

–
–
–
–
–
–

–
–
–
–
–
–

–
–
–
–
–
–

–
–
–
–
37
–

–
–
–
–
37
–

52,187
18,596
9,967
49,00085,62543,616

31,072
20,241
5,459
49,69256,36930,880302,307
153,735
93,342
7,009
1,773
4,403
270,395

277,325
141,071
83,885
6,259
1,565
3,473
233,343

10,485
623
1,739
111
–
–
–

9,626
623
1,912
91
–
–
–

5
166
13
–
–
–
–

–
53
14
–
–
–
–

586
631
182
4
–
–
34

607
624
315
6
–
–
57

313,383
155,155
95,276
7,124
1,773
4,403
270,429

287,558
142,371
86,126
6,356
1,565
3,473
233,400

Total

1,091,918

940,597

12,95812,252

184

67

1,474

Neither past
due nor
impaired

Past due but not
impaired

Restructured

1,646 1,106,534 954,562

Impaired

Total

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

Cash
Settlement balances owed to ANZCollateral paid
Trading securities
Derivative financial instruments1
Available-for-sale assets
Net loans and advances2
Regulatory deposits
Other financial assets3
Credit related commitments4

50,172
16,601
8,234
37,37375,65737,582
437,153557
2,489
214,940

29,65018,1504,873
38,04952,845
26,129404,611434
1,758
188,344

–
–
–
–
–
–
10,943
–
–
–

–
–
–
–
–
–
9,849
–
–
–

–
–
–
–
–
–
94
–
–
–

–
–
–
–
–
–
26
–
–
–

–
–
–
–
37
–
834
–
–
24

–
–
–
–
37
–
1,108
–
–
29

50,172
16,601
8,234
37,37375,69437,582449,024
557
2,489
214,964

29,65018,1504,873
38,04952,882
26,129415,594
434
1,758
188,373

Total

880,758

764,843

10,943

9,849

94

26

895

1,174

892,690775,892

The Company

1 Derivative financial instruments are net of credit valuation adjustments.
2 Includes Esanda dealer finance assets classified as held for sale. Individual and collective provisions for credit impairment held in respect of credit related commitments have been reallocatedto credit related commitments in this table.
3 Mainly comprises accrued interest.
4 Credit related commitments comprise undrawn facilities and customer contingent liabilities net of collective and individual provisions.

110

ANZ ANNUAL REPORT 2015

19: Financial Risk Management (continued)
Credit quality of financial assets neither past due nor impaired
The credit quality of financial assets is managed by the Group using internal CCRs based on their current probability of default. The Group’s
masterscales are mapped to external rating agency scales, to enable wider comparisons.
Internal rating
Strong credit profile

Customers that have demonstrated superior stability in their operating and financial performance over the long-term,
and whose debt servicing capacity is not significantly vulnerable to foreseeable events. This rating broadly corresponds
to ratings ‘Aaa’ to ‘Baa3’ and ‘AAA’ to ‘BBB-’ of Moody’s and Standard & Poor’s respectively.

Satisfactory risk

Customers that have consistently demonstrated sound operational and financial stability over the medium to long-term,even though some may be susceptible to cyclical trends or variability in earnings. This rating broadly corresponds
to ratings ‘Ba2’ to ‘Ba3’ and ‘BB’ to ‘BB-’ of Moody’s and Standard & Poor’s respectively.

Sub-standard but notpast due or impaired

Customers that have demonstrated some operational and financial instability, with variability and uncertainty
in profitability and liquidity projected to continue over the short and possibly medium term. This rating broadly
corresponds to ratings ‘B1’ to ‘Caa’ and ‘B+’ to ‘CCC’ of Moody’s and Standard & Poor’s respectively.

Strong credit profile
Consolidated

Satisfactory risk

Sub-standard
but not pastdue or impaired

Total

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

Cash
Settlement balances owed to ANZCollateral paid
Trading securities
Derivative financial instruments1
Available-for-sale assets
Net loans and advances2– Australia– International and Institutional Banking– New Zealand– Global WealthRegulatory deposits
Other financial assets3
Credit related commitments4

52,13917,845
9,957
48,89884,07442,09730,907
19,671
5,417
49,37255,39029,319

48
665
6
79
1,351
1,519

148
422
42
296
831
1,530

–
86
4
23
163
–

17
148
–
24
111
31

52,187
18,596
9,967
49,00085,58843,616

31,072
20,241
5,459
49,69256,33230,880227,465
125,60365,563
4,941
1,083
3,948
220,815

208,070
115,138
58,167
4,112
1,010
3,104
196,558

60,15425,16325,602
1,903
657
404
46,681

55,771
23,87523,857
2,122
509
319
34,425

14,688
2,969
2,177
165
33
51
2,899

13,484
2,058
1,861
25
46
50
2,360

302,307
153,735
93,342
7,009
1,773
4,403
270,395

277,325
141,071
83,885
6,259
1,565
3,473
233,343

Total

904,428

776,235

164,232

144,147

23,25820,215 1,091,918

940,597

Strong credit profile

Satisfactory risk

Sub-standard
but not pastdue or impaired

Total

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

Cash
Settlement balances owed to ANZCollateral paid
Trading securities
Derivative financial instruments1
Available-for-sale assets
Net loans and advances2
Regulatory deposits
Other financial assets3
Credit related commitments4

50,126
16,2538,224
37,322
74,39437,567
339,549
393
2,159
177,997

29,612
17,937
4,831
37,92852,741
25,331
313,681300
1,520
162,260

46
277
6
28
1,114
15
80,488145
293
35,132

38
90
42
98
73
692
75,964118
201
24,159

–
71
4
23
149
–
17,116
19
37
2,485

–
123
–
23
31
106
14,96616
37
1,925

50,172
16,601
8,234
37,37375,65737,582
437,153557
2,489
215,614

29,65018,1504,873
38,04952,845
26,129404,611434
1,758
188,344

Total

743,984

646,141

117,544

101,475

19,904

17,227

881,432

764,843

The Company

1 Derivative financial instruments are net of credit valuation adjustments.
2 Includes Esanda dealer finance assets classified as held for sale. Individual and collective provisions for credit impairment held in respect of credit related commitments have been reallocatedto credit related commitments in this table.
3 Mainly comprises accrued interest.
4 Credit related commitments comprise undrawn facilities and customer contingent liabilities net of collective and individual provisions.

NOTES TO THE FINANCIAL STATEMENTS

111

NOTES TO THE FINANCIAL STATEMENTS (continued)

19: Financial Risk Management (continued)
Ageing analysis of financial assets that are past due but not impaired
Ageing analysis of past due loans is used by the Group to measure and manage emerging credit risks. Financial assets that are past due but
not impaired include those which are assessed, approved and managed on a portfolio basis within a centralised environment (for example
credit cards and personal loans) that can be held on a productive basis until they are 180 days past due, as well as those which are managed
on an individual basis.
A large portion of retail credit exposures, such as residential mortgages, are generally well secured. That is, the value of associated security
is sufficient to cover amounts outstanding.
Consolidated
As at 30 Sep 15

Net loans and advances1– Australia– International andInstitutional Banking– New Zealand– Global Wealth
Total

The Company

1–5
days
$m

6–29
days
$m

30–59
days
$m

60–89
days
$m

>90
days
$m

1,813

4,359

1,426

813

14
781
13

387
407
82

8
235
5

2,621

5,235

1,674

1–5
days
$m

6–29
days
$m

30–59
days
$m

60–89
days
$m

2,119

3,701

1,335

52
893
18

383
442
33

3,082

4,559

Total
$m

1–5
days
$m

6–29
days
$m

30–59
days
$m

60–89
days
$m

>90
days
$m

Total
$m

2,074

10,485

1,831

4,646

1,461

878

2,127

10,943

117
115
5

97
201
6

623
1,739
111

–
–
–

–
–
–

–
–
–

–
–
–

–
–
–

–
–
–

1,050

2,378

12,958

1,831

4,646

1,461

878

2,127

10,943

>90
days
$m

Total
$m

1–5
days
$m

6–29
days
$m

30–59
days
$m

60–89
days
$m

>90
days
$m

Total
$m

743

1,728

9,626

2,141

3,805

1,366

759

1,778

9,849

1
287
1

91
136
35

96
154
4

623
1,912
91

–
–
–

–
–
–

–
–
–

–
–
–

–
–
–

–
–
–

1,624

1,005

1,982

12,252

2,141

3,805

1,366

759

1,778

9,849

Consolidated
As at 30 Sep 14

Net loans and advances1– Australia– International andInstitutional Banking– New Zealand– Global Wealth
Total

The Company

1 Includes Esanda dealer finance assets classified as held for sale. Individual and collective provisions for credit impairment held in respect of credit related commitments have been reallocatedto credit related commitments in this table.

Estimated value of collateral for all financial assets

Consolidated

Total value ofcollateral

Credit exposure

Unsecured portion of
credit exposure

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

Cash
Settlement balances owed to ANZCollateral paid
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances1,2– Australia– International and Institutional Banking– New Zealand– Global WealthRegulatory deposits
Other financial assets3
Credit related commitments4

11,770
300
–
1,081
7,829
1,603

13,711
184
–
991
5,599
887

52,187
18,596
9,967
49,00085,62543,616

31,072
20,241
5,459
49,69256,36930,88040,417
18,296
9,967
47,91977,79642,01317,361
20,057
5,459
48,701
50,77029,993283,392
53,88789,033
6,421
–
1,351
50,401

258,854
46,16280,323
5,415
–
1,308
49,014313,383
155,155
95,276
7,124
1,773
4,403
270,429

287,558
142,371
86,126
6,356
1,565
3,473
233,400

29,991
101,268
6,243
703
1,773
3,052
220,028

28,70496,209
5,803
941
1,565
2,165
184,386

Total

507,068

462,448 1,106,534

954,562

599,466

492,114

1 Individual and collective provisions for credit impairment held in respect of credit related commitments have been reallocated to credit related commitments in this table.
2 Includes Esanda dealer finance assets classified as held for sale. Individual and collective provisions for credit impairment held in respect of credit related commitments have been reallocatedto credit related commitments in this table.
3 Mainly comprises accrued interest.
4 Credit related commitments comprise undrawn facilities and customer contingent liabilities net of collective and individual provisions.

112

ANZ ANNUAL REPORT 2015

19: Financial Risk Management (continued)
Estimated value of collateral for all financial assets
Total value ofcollateral

Credit exposure

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

Cash
Settlement balances owed to ANZCollateral paid
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances1
Regulatory deposits
Other financial assets2
Credit related commitments3

11,479
271
–
838
6,886
1,603
340,139–
1,000
35,414

13,349
163
–
660
4,886
778
309,407–930
32,96550,172
16,601
8,234
37,37375,69437,582449,024
557
2,489
214,964

29,65018,1504,873
38,04952,882
26,129415,594
434
1,758
188,373

38,693
16,3308,234
36,53568,80835,979108,885557
1,489
179,550

16,301
17,987
4,873
37,38947,99625,351
106,187434
828
155,408

Total

397,630

363,138

892,690775,892

495,060

412,754

The Company

Unsecured portion of
credit exposure

1 Includes Esanda dealer finance assets classified as held for sale. Individual and collective provisions for credit impairment held in respect of credit related commitments have been reallocatedto credit related commitments in this table.
2 Mainly comprises accrued interest.
3 Credit related commitments comprise undrawn facilities and customer contingent liabilities net of collective and individual provisions.

Financial assets that are individually impaired
Consolidated
Impaired assets1
2015
2014
$m
$m

The Company

Individual provisionbalance
2015
2014
$m
$m

Impaired assets1
2015
2014
$m
$m

Individual provisionbalance
2015
2014
$m
$m

Australia
Derivative financial instruments
Loans and advances
Credit related commitments2

33
1,446
44

29
1,632
70

–
679
19

–
700
40

33
1,356
43

29
1,572
70

–
667
19

–
671
40

Subtotal

1,523

1,731

698

740

1,432

1,671

686

711

New ZealandDerivative financial instruments
Loans and advances
Credit related commitments2

–
354
13

2
582
33

–
143
4

–
194
6

–
20
–

–
30
–

–
7
–

–
9
–

Subtotal

367

617

147

200

20

30

7

9

Asia Pacific, Europe & America
Derivative financial instruments
Loans and advances
Credit related commitments2

4
641
–

6
468
–

–
216
–

–
236
–

4
198
–

6
321
–

–
66
–

–
134
–

Subtotal

645

474

216

236

202

327

66

134

Aggregate
Derivative financial instruments
Loans and advances
Credit related commitments2

37
2,441
57

37
2,682
103

–
1,038
23

–
1,130
46

37
1,574
43

35
1,923
70

–
740
19

–
814
40

Total

2,535

2,822

1,061

1,176

1,654

2,028

759

854

1 Excludes restructured items.
2 Credit related commitments comprise undrawn facilities and customer contingent liabilities.

NOTES TO THE FINANCIAL STATEMENTS

113

NOTES TO THE FINANCIAL STATEMENTS (continued)

19: Financial Risk Management (continued)
Market risk (excludes insurance and funds management)
Market risk is the risk to the Group’s earnings arising from changes
in interest rates, currency exchange rates, credit spreads, or fromfluctuations in bond, commodity or equity prices.
Market risk arises when changes in market rates, prices and volatilities
lead to a decline in the value of assets and liabilities, including
financial derivatives. Market risk is generated through both trading
and banking book activities.
ANZ conducts trading operations in interest rates, foreign exchange,commodities and securities.
ANZ has a detailed risk management and control framework to support
its trading and balance sheet activities. The framework incorporates
a risk measurement approach to quantify the magnitude of market
risk within trading and balance sheet portfolios. This approach andrelated analysis identifies the range of possible outcomes that canbe expected over a given period of time, establishes the relative
likelihood of those outcomes and allocates an appropriate amountof capital to support these activities.
Group-wide responsibility for the strategies and policies relating
to the management of market risk lies with the Board Risk Committee.
Responsibility for day to day management of both market risks andcompliance with market risk policy is delegated by the Risk Committee
to the Credit and Market Risk Committee (CMRC) and the Group Asset& Liability Committee (GALCO). The CMRC, chaired by the Chief Risk
Officer, is responsible for the oversight of market risk. All committees
receive regular reporting on the range of trading and balance sheet
market risks that ANZ incurs.
Within overall strategies and policies, the control of market risk
at the Group level is the joint responsibility of Business Units andRisk Management, with the delegation of market risk limits fromthe Board and CMRC allocated to both Risk Management and theBusiness Units.
The management of Risk Management is supported by acomprehensive limit and policy framework to control the amountof risk that the Group will accept. Market risk limits are allocatedat various levels and are reported and monitored by Market Risk
on a daily basis. The detailed limit framework allocates individual
limits to manage and control asset classes (e.g. interest rates, equities),
risk factors (e.g. interest rates, volatilities) and profit and loss limits(to monitor and manage the performance of the trading portfolios).
Market risk management and control responsibilities
To facilitate the management, measurement and reporting of market
risk, ANZ has grouped market risk into two broad categories:a) Traded market riskThis is the risk of loss from changes in the value of financial
instruments due to movements in price factors for both physical andderivative trading positions. Trading positions arise from transactions
where ANZ acts as principal with customers, financial exchanges
or interbank counterparties.

114

The principal risk categories monitored are:}} Currency risk is the potential loss arising from the decline in thevalue of a financial instrument due to changes in foreign exchange
rates or their implied volatilities.
}} Interest rate risk is the potential loss arising from the change in thevalue of a financial instrument due to changes in market interest
rates or their implied volatilities.
}} Credit spread risk is the potential loss arising from a change invalue of an instrument due to a movement of its margin or spread
relative to a benchmark.
}} Commodity risk is the potential loss arising from the decline in thevalue of a financial instrument due to changes in commodity prices
or their implied volatilities.
}} Equity risk is the potential loss arising from the decline in the valueof a financial instrument due to changes in equity prices or theirimplied volatilities.
b) Non-traded market risk (or balance sheet risk)This comprises the management of non-traded interest rate risk,
liquidity, and the risk to the Australian dollar denominated valueof the Group’s capital and earnings as a result of foreign exchange
rate movements.
Some instruments do not fall into either category that also expose
ANZ to market risk. These include equity securities classified
as available-for-sale financial assets.
Value at Risk (VaR) measure
A key measure of market risk is Value at Risk (VaR). VaR is a statisticalestimate of the possible daily loss and is based on historicalmarket movements.
ANZ measures VaR at a 99% confidence interval. This means that
there is a 99% chance that the loss will not exceed the VaR estimate
on any given day.
The Group’s standard VaR approach for both traded and non-tradedrisk is historical simulation. The Group calculates VaR using historicalchanges in market rates, prices and volatilities over the previous
500 business days. Traded and non-traded VaR is calculated using
a one‑day holding period.
It should be noted that because VaR is driven by actual historicalobservations, it is not an estimate of the maximum loss that theGroup could experience from an extreme market event. As a resultof this limitation, the Group utilises a number of other risk measures(e.g. stress testing) and risk sensitivity limits to measure and manage
market risk.

ANZ ANNUAL REPORT 2015

19: Financial Risk Management (continued)
Traded Market Risk
Below are the aggregate Value at Risk (VaR) exposures at a 99% confidence level covering both physical and derivatives trading positions for the
Bank’s principal trading centres.
30 September 2015

30 September 2014

Consolidated

As at
$m

High foryear$mValue at risk at 99% confidence
Foreign exchangeInterest rate
CreditCommodity
EquityDiversification benefit

5.0
10.1
3.5
1.6
2.5
(6)

18.2
20.2
5.4
3.6
6.3
n/a

2.8
4.8
2.9
1.3
0.1
n/a

7.9
9.3
3.8
2.4
1.1
(13.2)

11.9
10.4
5.8
2.0
1.3
(18.6)

18.5
16.6
5.8
2.8
2.5
n/a

1.7
3.8
2.7
0.9
0.4
n/a

8.9
8.1
3.8
1.4
1.0
(10.5)

16.7

19.7

6.9

11.3

12.8

22.9

5.5

12.7

The Company

As at
$m

High foryear$m

Low foryear$mAverage for
year
$m

As at
$m

High foryear$m

Low foryear$mAverage foryear$mValue at risk at 99% confidence
Foreign exchangeInterest rate
CreditCommodity
EquityDiversification benefit

5.2
8.5
3.1
1.6
2.5
(5.8)

18.3
19.7
4.7
3.6
6.3
n/a

2.8
4.7
2.6
1.3
0.1
n/a

8.0
8.8
3.6
2.4
1.1
(12.8)

12.0
10.0
6.0
2.0
1.3
(18.9)

18.3
15.4
6.0
2.8
2.5
n/a

1.7
3.8
2.5
0.9
0.4
n/a

8.8
7.7
3.6
1.4
1.0
(10.3)

15.1

19.3

6.7

11.1

12.4

21.0

5.3

12.2

Low foryear$mAverage for
year
$m

As at
$m

High foryear$m

Low foryear$mAverage foryear$m

30 September 2015

30 September 2014

VaR is calculated separately for foreign exchange, interest rate, credit, commodity and equities and for the Group. The diversification
benefit reflects the historical correlation between these products. Electricity commodities risk is measured under the standard approachfor regulatory purposes.
To supplement the VaR methodology, ANZ applies a wide range of stress tests, both on individual portfolios and at a Group level. ANZ‘sstress‑testing regime provides senior management with an assessment of the financial impact of identified extreme events on market risk
exposures of ANZ. Standard stress tests are applied on a daily basis and measure the potential loss arising from applying extreme market
movements to individual and groups of individual price factors. Extraordinary stress tests are applied monthly and measure the potential
loss arising as a result of scenarios generated from major financial market events.
Non-traded Market Risk (Balance Sheet Risk)
The principal objectives of balance sheet management are to maintain acceptable levels of interest rate and liquidity risk to mitigate thenegative impact of movements in interest rates on the earnings and market value of the Group’s banking book, while ensuring the Group
maintains sufficient liquidity to meet its obligations as they fall due.

NOTES TO THE FINANCIAL STATEMENTS

115

NOTES TO THE FINANCIAL STATEMENTS (continued)

19: Financial Risk Management (continued)
Interest rate risk
The objective of balance sheet interest rate risk management is to secure stable and optimal net interest income over both the short(next 12 months) and long-term. Non-traded interest rate risk relates to the potential adverse impact of changes in market interest rates on theGroup’s future net interest income. This risk arises from two principal sources: 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
various techniques including: VaR and scenario analysis (to a 1% shock).
a) VaR non-traded interest rate risk
The repricing assumptions used to determine the VaR and 1% rate shock have been independently validated. Below are aggregate VaR figures
covering non-traded interest rate risk.
30 September 2015

30 September 2014

Consolidated

As at
$m

High foryear$m

Low foryear$m

Avg foryear$mValue at risk at 99% confidence
Australia
New Zealand
Asia Pacific, Europe & America
Diversification benefit

25.4
9.7
14.4
(16.8)

38.5
11.4
14.4
n/a

21.2
8.9
7.9
n/a

32.7

37.4

28.6

The Company

As at
$m

High foryear$m

Low foryear$mValue at risk at 99% confidence
Australia
New Zealand
Asia Pacific, Europe & America
Diversification benefit

25.4
0.0
13.9
(11.2)

38.5
0.2
13.9
n/a

28.1

39.2

As at
$m

High foryear$m

Low foryear$m

Avg for
year
$m

27.2
10.2
10.4
(14.8)

41.8
8.9
9.1
(13.4)

64.5
11.4
10.6
n/a

39.1
8.9
8.9
n/a

50.1
10.4
9.8
(13.7)

33.0

46.4

76.3

43.3

56.6

Avg for
year
$m

As at
$m

High foryear$m

Low foryear$m

Avg for
year
$m

21.2
0.0
6.8
n/a

27.2
0.1
9.9
(7.9)

41.8
0.1
8.3
(4.2)

64.5
0.3
10.0
n/a

39.1
0.0
8.3
n/a

50.1
0.1
9.2
(0.9)

21.3

29.3

46.0

71.6

42.0

58.5

30 September 2015

30 September 2014

VaR is calculated separately for the Australia, New Zealand and APEA geographies, as well as for the Group.
To supplement the VaR methodology, ANZ applies a wide range of stress tests, both on individual portfolios and at Group level. ANZ’s stress testing
regime provides senior management with an assessment of the financial impact of identified extreme events on market risk exposures of ANZ.
b) Scenario Analysis – a 1% shock on the next 12 months’ net interest income
A 1% overnight parallel positive shift in the yield curve is modelled to determine the potential impact on net interest income over the
succeeding 12 months. This is a standard risk measure which assumes the parallel shift is reflected in all wholesale and customer rates.
The figures in the table below indicate the outcome of this risk measure for the current and previous financial years – expressed as a percentageof reported net interest income. The sign indicates the nature of the rate sensitivity with a positive number signifying that a rate increaseis positive for net interest income over the next 12 months.
Consolidated

The Company

2015

2014

2015

2014

Impact of 1% rate shock
As at period end
Maximum exposure
Minimum exposure

0.61%
1.36%
0.45%

0.97%
1.48%
0.74%

0.86%
1.74%
0.86%

1.06%
1.68%
0.68%

Average exposure (in absolute terms)

0.93%

1.12%

1.19%

1.22%

The extent of mismatching between the repricing characteristics and timing of interest bearing assets and liabilities at any point has implications
for future net interest income. On a global basis, the Group quantifies the potential variation in future net interest income as a result of these
repricing mismatches.
The repricing gaps themselves are constructed based on contractual repricing information. However, for those assets and liabilities where thecontractual term to repricing is not considered to be reflective of the actual interest rate sensitivity (for example, products priced at the Group’s
discretion), a profile based on historically observed and/or anticipated rate sensitivity is used. This treatment excludes the effect of basis risk
between customer pricing and wholesale market pricing.

116

ANZ ANNUAL REPORT 2015

19: Financial Risk Management (continued)
Equity securities classified as available-for-sale
The portfolio of financial assets, classified as available-for-sale formeasurement and financial reporting purposes, also contains equity
investment holdings which predominantly comprise investments
held for longer term strategic intentions. These equity investments
are also subject to market risk which is not captured by the VaR
measures for traded and non-traded market risks. Regular reviews
are performed to substantiate valuation of the investments within
the portfolio and the equity investments are regularly reviewed
by management for impairment. The fair value of the equity
securities can fluctuate.
The balance of available-for-sale equity securities for the Groupamounts to $51 million (2014: $37 million) and $30 million(2014: $22 million) for the Company. Consequently any variationin value is unlikely to have a material impact on the Group.
Foreign currency risk – structural exposures
The investment of capital in foreign operations, such as branches,
subsidiaries or associates with functional currencies other than theAustralian dollar, exposes the Group to the risk of changes in foreignexchange rates.
The main operating (or functional) currencies of Group entities
are the Australian dollar, the New Zealand dollar and the US dollar,
with a number of overseas undertakings operating in various othercurrencies. The Group presents its consolidated financial statements
in Australian dollars, as the Australian dollar is the dominant currency.
The Group’s consolidated balance sheet is therefore affected byexchange differences between the Australian dollar and functional
currencies of foreign operations. Variations in the value of theseoverseas operations arising as a result of exchange differences arereflected in the foreign currency translation reserve in equity.
The Group routinely monitors this risk and conducts hedging, where
it is expected to add shareholder value, in accordance with approved
policies. The Group’s exposures to structural foreign currency risks
are managed with the primary objective of ensuring, where practical,
that the consolidated capital ratios are neutral to the effect ofchanges in exchange rates.
Selective hedges were in place during the 2015 and 2014 financial
years. For details on the hedging instruments used and effectivenessof hedges of net investments in foreign operations, refer to note 12
to these financial statements. The Group’s economic hedges against
New Zealand Dollar and US Dollar revenue streams are included
within ‘Trading derivatives’ at note 12.

Liquidity Risk (Excludes Insurance and Funds Management)
Liquidity risk is the risk that the Group is unable to meet its payment
obligations as they fall due, including repaying depositors or
maturing wholesale debt, or that the Group has insufficient capacity
to fund increases in assets. The timing mismatch of cash flows andthe related liquidity risk is inherent in all banking operations andis closely monitored by the Group.
The Group’s liquidity and funding risks are governed by a set ofprinciples which are approved by the ANZ Board Risk Committee.
In response to the impact of the global financial crisis, the frameworkhas been reviewed and updated. The following key components
underpin the overall framework:}} Maintaining the ability to meet all payment obligations in theimmediate term;}} Ensuring that the Group has the ability to meet ‘survival horizons’
under a range of ANZ specific and general market liquidity stressscenarios, at the 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 toensure long term resilience in the liquidity and funding risk profile;}} Limiting the potential earnings at risk implications associated with
unexpected increases in funding costs or the liquidation of assets
under stress;}} Ensuring the liquidity management framework is compatible
with local regulatory requirements;}} Preparation of daily liquidity reports and scenario analysis,
quantifying the Group’s positions;}} Targeting a diversified funding base, avoiding 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.
Management of liquidity and funding risks are overseen by theGroup Asset and Liability Committee (GALCO).

NOTES TO THE FINANCIAL STATEMENTS

117

NOTES TO THE FINANCIAL STATEMENTS (continued)

19: Financial Risk Management (continued)
The Group’s approach to liquidity risk management incorporates
two key components:
Scenario Modelling
ANZ’s liquidity risk appetite is defined by the ability to meet a rangeof regulatory and internal liquidity metrics mandated by the Board.
The metrics cover a range of scenarios of varying duration and levelof severity. This framework:}} Provides protection against shorter-term but more extreme market
dislocations and stresses.
}} Maintains structural strength in the balance sheet by ensuring
an appropriate amount of longer-term assets are funded withlonger-term funding.
}} Ensures no undue timing concentrations exist in the Group’s
funding profile.
A key component of this framework is the Liquidity Coverage Ratio(LCR) which was implemented in Australia on 1 January 2015. The
LCR is a severe short term liquidity stress scenario, introduced as partof the Basel 3 international framework for liquidity risk measurement,
standards and monitoring. As part of meeting the LCR requirements,
ANZ has a Committed Liquidity Facility (CLF) with the Reserve Bank
of Australia (RBA). The CLF has been established as a solution to a High
Quality Liquid Asset (HQLA) shortfall in the Australian marketplace
and provides an alternative form of RBA-qualifying liquid assets.
The total amount of the CLF available to a qualifying ADI is set
annually by APRA.

Liquid Assets
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 thedefinitions 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 repurchasewith central banks to provide same-day liquidity.
}} Alternative liquid assets (ALA): Assets qualifying as collateral
for the CLF and eligible securities listed by the Reserve Bankof New Zealand (RBNZ).
The Group monitors and manages the composition of liquid assets
to ensure diversification by asset class, counterparty, currency andtenor. Minimum levels of liquid assets held are set annually based ona range of ANZ specific and general market liquidity stress scenarios
such that potential cash flow obligations can be met over the short
to medium term, and holdings are appropriate to existing and futurebusiness activities, regulatory requirements and in line with theapproved risk appetite.

2015
$b

2014
$b

Market Values Post Discount1
HQLA12HQLA2Internal Residential Mortgage Backed Securities (Australia)
Internal Residential Mortgage Backed Securities (New Zealand)
Other ALA3

115.4
3.2
43.5
5.5
16.9

81.0
2.7
43.5
5.1
17.3

Total Liquid Assets

184.5

149.6

Cash flows modelled under stress scenario
Cash outflows2,4
Cash inflows4

175.2
24.4

157.1
22.4

Net cash outflows

150.8

134.7

Liquidity Coverage Ratio (%)5

122%

111%

1 Market value post discount as defined in APRA Prudential Standard APS 210 Liquidity.
2 RBA open-repo arrangement netted down by exchange settlement account cash balance.
3 Comprises assets qualifying as collateral for the Committed Liquidity Facility (CLF), excluding internal RMBS, up to approved facility limit; and any liquid assets contained in the RBNZ’s Liquidity
Policy – Annex: Liquidity Assets – Prudential Supervision Department Document BS13A12.
4 Derivative cash flows are included on a net basis.
5 All currency Group LCR.

118

ANZ ANNUAL REPORT 2015

19: Financial Risk Management (continued)
Liquidity Crisis Contingency Planning
The Group maintains APRA-endorsed liquidity crisis contingency
plans defining an approach for analysing and responding toa liquidity threatening event at a country and Group-wide level.
To align with the enhanced liquidity scenario analysis framework,crisis management strategies are assessed against the Group’s
crisis stress scenarios.
The framework is compliant with APRA’s key liquidity contingency
crisis planning requirements and guidelines and includes:}} The establishment of crisis severity/stress levels;}} Clearly assigned crisis roles and responsibilities;}} Early warning signals indicative of an approaching crisis, andmechanisms to monitor and report these signals;}} Crisis Declaration Assessment processes, and related escalation
triggers set against early warning signals;}} Outlined action plans, and courses of action for altering asset
and liability behaviour;}} Procedures for crisis management reporting, and making up
cash-flow shortfalls;}} Guidelines determining the priority of customer relationships
in the event of liquidity problems; and}} Assigned responsibilities for internal and external communications.
Regulatory Change
The Basel 3 Liquidity changes include the introduction of two
liquidity ratios to measure liquidity risk; (i) the Liquidity Coverage
Ratio (LCR) which went live on 1st January 2015 and (ii) the Net Stable
Funding Ratio (NSFR).
The final Basel 3 revised NSFR standard was released in October 2014,
and is broadly consistent with the previous version. It will become
the minimum Basel standard on 1st January 2018, and it is expected
APRA will adopt the same timeline. As part of managing futureliquidity requirements, ANZ monitors the NSFR ratio in its internalreporting and is well placed to meet this requirement.

The Group’s global wholesale funding strategy is designed todeliver a sustainable portfolio of wholesale funds that balances
cost efficiency against prudent diversification and duration.
Funding plans and performance relative to those plans are reported
regularly to senior management via the Group Asset and Liability
Committee (GALCO). These plans address customer balance sheet
growth and changes in wholesale funding including, targetedfunding volumes, markets, investors, tenors and currencies forsenior, secured, subordinated and hybrid transactions. Plans aresupplemented with a monthly forecasting process which reviews
the funding position to-date in light of market conditions andbalance sheet requirements.
Funding plans are generated through the three-year strategic planning
process and further refined by the annual funding plan and approvedby the Board. Asset and deposit plans are submitted at the businesssegment level with the wholesale funding requirements then derived
at the geographic level. To the extent that asset growth exceeds
funding generated from customer deposits, additional wholesale
funds are sourced.
Short-term wholesale funding requirements, with a contractual
maturity of less than one year, are managed through Group
Treasury and local Markets operations. Long-term wholesale fundingis managed and executed through Group Treasury operations
in Australia and New Zealand.
Funding Position 2015
ANZ targets a diversified funding base, avoiding undue concentrations
by investor type, maturity, market source and currency.
$18.8 billion of term wholesale debt (with a remaining term greaterthan one year as at 30 September 2015) was issued during thefinancial year ending 30 September 2015 (2014: $23.9 billion).
The weighted average tenor of new term debt was 4.9 years (2014:
4.9 years). Furthermore, a $3.2 billion institutional share placement
and retail share purchase plan and $1.4 billion of Additional Tier 1
Capital issuance took place during the financial year.

Group Funding
ANZ manages its funding profile using a range of funding metrics
and balance sheet disciplines. This approach is designed to ensurethat an appropriate proportion of the Group’s assets are fundedby stable funding sources including core customer deposits,
longer‑dated wholesale funding (with a remaining term exceeding
one year) and equity.

NOTES TO THE FINANCIAL STATEMENTS

119

NOTES TO THE FINANCIAL STATEMENTS (continued)

19: Financial Risk Management (continued)
The following tables show the Group’s funding composition:
2015$m

Funding composition

2014
$m

Customer deposits and other liabilities1
Australia
International & Institutional Banking
New ZealandGlobal Wealth
GTSO and Group Centre
Customer deposits
Other Funding liabilities2

169,280
202,495
59,703
18,467(5,361)
444,584
14,346160,683
183,126
51,36013,844(5,294)
403,719
14,502

Total customer liabilities (funding)

458,930

418,221

Wholesale funding3
Debt issuances4
Subordinated debt
Certificates of deposit
Commercial paper
Other wholesale borrowings5, 6

93,347
17,00963,44622,98944,556

79,291
13,60752,75415,152
42,460Total wholesale funding

241,347

203,264

Shareholders' equity (excl preference shares)

57,353

48,413

Total Funding

757,630

669,898

2015
$m

2014
$m

Funded Assets
Other short term assets & trade finance assets7
Liquids6

78,879135,496

74,925100,951

Short term funded assets
Lending & fixed assets8

214,375
543,255

175,876
494,022

Total Funded Assets

757,630

669,898

Funding Liabilities3,4,6
Other short term liabilities
Short term funding
Term funding < 12 months
Other customer deposits1,927,86359,85041,54988,28822,676
46,46623,88889,825

Total short term funding liabilities

217,550

182,855

Stable customer deposits
Term funding > 12 months
Shareholders' equity and hybrid debt

387,988
87,31664,776347,237
84,51955,287

Total Stable Funding

540,080

487,043

Total Funding

757,630

669,898

1,10

1
2
3
4
5

Includes term deposits, other deposits and an adjustment recognised in Group Centre to eliminate Global Wealth investments in ANZ deposit products.
Includes interest accruals, payables and other liabilities, provisions and net tax provisions, excluding other liabilities in Global Wealth.
Excludes liability for acceptances as they do not provide net funding.
Excludes term debt issued externally by Global Wealth.
Includes borrowings from banks, net derivative balances, special purpose vehicles, other borrowings and Euro Trust securities (preference shares). The Euro Trust Securities werebought back by ANZ for cash at face value and cancelled on 15 December 2014.
6 RBA open-repo arrangement netted down by the exchange settlement account cash balance.
7 Includes short-dated assets such as trading securities, available-for-sale securities, trade dated assets and trade finance loans.
8 Excludes trade finance loans.
9 Total customer liabilities (funding) plus Central Bank deposits less Stable customer deposits.
10 Stable customer deposits represent operational type deposits or those sourced from retail / business / corporate customers and the stable component of Other funding liabilities.

120

ANZ ANNUAL REPORT 2015

19: Financial Risk Management (continued)
Contractual maturity analysis of the Group’s liabilities
The table below analyses the Group and Company’s contractual liabilities, within relevant maturity groupings based on the earliest date on
which the Group or Company may be required to pay. The amounts represent principal and interest cash flows and hence may differ comparedto the amounts reported on the balance sheet.
It should be noted that this is not how the Group manages its liquidity risk. The management of this risk is detailed above.
Contractual maturity analysis of financial liabilities at 30 September:
Consolidated at 30 September 2015

Collateral received
Settlement balances owed by ANZ
Deposits and other borrowings
Deposits from banks
Certificates of deposit
Term deposits
Other deposits interest bearing
Deposits not bearing interest
Commercial paper
Borrowing corporations' debt
Other borrowing
Liability for acceptances
Debt issuances3
Subordinated debt3,4
Policyholder liabilities
External unit holder liabilities (life insurance funds)
Derivative liabilities (trading)5
Derivative assets and liabilities (balance sheet management)– fundingReceive leg
Pay leg– other balance sheet management
Receive leg
Pay leg

Consolidated at 30 September 2014

Collateral received
Settlement balances owed by ANZ
Deposits and other borrowings
Deposits from banks
Certificates of deposit
Term deposits
Other deposits interest bearing
Deposits not bearing interest
Commercial paper
Borrowing corporations' debt
Other borrowing
Liability for acceptances
Debt issuances3
Subordinated debt3,4
Policyholder liabilities
External unit holder liabilities (life insurance funds)
Derivative liabilities (trading)5
Derivative assets and liabilities (balance sheet management)– fundingReceive leg
Pay leg– other balance sheet management
Receive leg
Pay leg
12345Less than
3 months1$m

3 to 12months$m

1 to
5 years$m

After
5 years$mNomaturity
specified2
$m

Total
$m

7,829
11,250

–
–

–
–

–
–

–
–

7,829
11,25035,422
31,333
142,342
227,685
19,014
13,130
571
790
1,371
8,119
70
34,965
3,291
68,3093,591
16,51547,843
404
–
9,868
782
–
–
22,796
296
3
–
–

36
16,551
7,105
1,246
–
–
300
–
–
57,936
8,456
40
–
–

–
95
48
–
–
–
–
–
–
10,653
9,064
21
–
–

–
–
–
–
–
–
–
–
–
–
1,188
372
–
–

39,04964,494
197,338
229,335
19,01422,998
1,653
790
1,371
99,504
19,07435,401
3,291
68,309(24,585)
22,439(35,207)
31,710(95,440)
85,900(19,556)
18,179––(174,788)
158,228(8,445)8,512(8,456)
8,882(11,667)
12,944(4,654)
5,956––(33,222)
36,294

Less than
3 months1$m

3 to 12months$m

1 to
5 years$m

After
5 years$mNomaturity
specified2
$m

Total
$m

5,599
10,114

–
–

–
–

–
–

–
–

5,599
10,11435,48329,775
139,549
193,220
16,404
5,803
521
260
1,151
4,585
45
34,0383,181
46,831

2,715
9,478
47,877
–
–
9,351
572
–
–
12,268
228
–
–
–

32
14,972
6,919
–
–
–
306
–
–
55,049
6,868
–
–
–

–
100
130
–
–
–
–
–
–
12,989
7,129
–
–
–

–
–
–
–
–
–
–
–
–
–
1,087
516
–
–

38,23054,325
194,475
193,220
16,40415,154
1,399
260
1,151
84,891
15,35734,554
3,181
46,831(21,655)
21,433(23,313)
23,696(81,464)
80,951(26,370)
24,976––(152,802)
151,056(10,663)
10,691(10,793)
10,994(16,258)
16,337(7,041)
7,270––(44,755)
45,292

Includes at call instruments.
Includes perpetual investments brought in at face value only.
Any callable wholesale debt instruments have been included at their next call date.
Includes instruments that may be settled in cash or in equity, at the option of the Company.
The full mark-to-market of derivative liabilities held for trading purposes has been included in the ‘less than 3 months’ category.

NOTES TO THE FINANCIAL STATEMENTS

121

NOTES TO THE FINANCIAL STATEMENTS (continued)

19: Financial Risk Management (continued)
The Company at 30 September 2015

Collateral received
Settlement balances owed by ANZ
Deposits and other borrowings
Deposits from banks
Certificates of deposit
Term deposits
Other deposits interest bearing
Deposits not bearing interest
Commercial paper
Other borrowing
Liability for acceptances
Debt issuances3
Subordinated debt3,4
Derivative liabilities (trading)5
Derivative assets and liabilities (balance sheet management)– fundingReceive leg
Pay leg– other balance sheet management
Receive leg
Pay leg

The Company at 30 September 2014

Collateral received
Settlement balances owed by ANZ
Deposits and other borrowings
Deposits from banks
Certificates of deposit
Term deposits
Other deposits interest bearing
Deposits not bearing interest
Commercial paper
Other borrowing
Liability for acceptances
Debt issuances3
Subordinated debt3,4
Derivative liabilities (trading)5
Derivative assets and liabilities (balance sheet management)– fundingReceive leg
Pay leg– other balance sheet management
Receive leg
Pay leg
12345Less than
3 months1$m

3 to 12months$m

1 to
5 years$m

After
5 years$mNomaturity
specified2
$m

Total
$m

6,886
9,901

–
–

–
–

–
–

–
–

6,886
9,901

34,98130,967122,123
186,387
9,971
10,419
344
649
5,457
42
61,853

3,506
16,39529,927
311
–
8,063
–
–
19,871210–

23
16,576
3,640
644
–
–
–
–
45,619
7,604
–

–
95
49
–
–
–
–
–
9,385
8,946
–

–
–
–
–
–
–
–
–
–
429
–

38,51064,033
155,739
187,342
9,971
18,482344
649
80,332
17,231
61,853(16,618)
14,935(25,127)
22,118(66,311)58,353(15,707)
14,527––(123,763)
109,933(6,820)
6,885(4,962)
5,204(6,673)7,611(3,876)
5,163––(22,331)
24,863

Less than
3 months1$m

3 to 12months$m

1 to
5 years$m

After
5 years$mNomaturity
specified2
$m

Total
$m

4,886
8,189

–
–

–
–

–
–

–
–

4,886
8,189

34,63728,801
120,289
160,889
8,688
3,669
128
717
2,903
45
45,5982,715
9,331
32,237
–
–
6,086
–
–
9,671
228
–

21
14,972
3,781
–
–
–
–
–
43,935
6,868
–

–
100
71
–
–
–
–
–
12,447
7,139
–

–
–
–
–
–
–
–
–
–
343
–

37,37353,204
156,378
160,889
8,688
9,755
128
717
68,956
14,62345,598(14,664)
14,883(15,732)
15,585(65,771)
64,875(25,616)
24,219––(121,783)
119,562(9,182)
9,227(8,001)
8,174(10,517)
10,573(6,274)
6,503––(33,974)
34,477

Includes at call instruments.
Includes perpetual investments brought in at face value only.
Any callable wholesale debt instruments have been included at their next call date.
Includes instruments that may be settled in cash or in equity, at the option of the Company.
The full mark-to-market of derivative liabilities held for trading purposes has been included in the ‘less than 3 months’ category.

Credit related contingencies
Undrawn facilities and issued guarantees comprise the nominal principal amounts of commitments, contingencies and other undrawn facilities
and represents the maximum liquidity at risk position should all facilities extended be drawn.
The majority of undrawn facilities are subject to customers maintaining specific credit and other requirements or conditions. Many of thesefacilities are expected to be partially used, whereas others may never be required to be drawn upon. As such, the total of the nominal principal
amounts is not necessarily representative of future liquidity risks or future cash requirements.

122

ANZ ANNUAL REPORT 2015

19: Financial Risk Management (continued)
The tables below analyse the Group’s and Company’s undrawn facilities and issued guarantees into relevant maturity groupings based on theearliest date on which ANZ may be required to pay.
Consolidated

The Company

30 September 2015

Less than
1 year$mMore than
1 year
$m

Total
$m

Less than
1 year$mMore than
1 year
$m

Total
$m

Undrawn facilities
Issued guarantees

230,794
40,335––

230,794
40,335

180,847
34,693––

180,847
34,69330 September 2014

Less than
1 year$mMore than
1 year
$m

Total
$m

Less than
1 year$mMore than
1 year
$m

Total
$m

Undrawn facilities
Issued guarantees

193,984
40,075––

193,984
40,075

153,985
34,916––

153,985
34,916

Consolidated

Life insurance risk
Although not a significant contributor to the Group’s balance sheet, theGroup’s insurance businesses give rise to unique risks which are managed
separately from the Group’s banking businesses. The nature of these risks
and the manner in which they are managed is set out in note 38.
Operational risk management
Within ANZ, operational risk is defined as the risk of loss resulting
from inadequate or failed internal processes, people and systems
or from external events. This definition includes legal risk, and therisk of reputational loss or damage arising from inadequate or failed
internal processes, people and systems, but excludes strategic risk.
The ANZ Board has delegated its powers to the Risk Committee toapprove the ANZ Operational Risk Framework which is in accordancewith Australian Prudential Standard APS 115 Capital Adequacy:
Advanced Measurement Approaches to Operational Risk. OREC
is the primary senior executive management forum responsible
for the oversight of operational risk and the compliance risk control
environment. OREC supports the Risk Committee in relation
to the carrying out of its role in connection with operationalrisk and compliance.
OREC monitors the state of operational risk and compliancemanagement and will instigate any necessary corrective actions.
Key responsibilities of OREC include:}} Ensuring the execution of ANZ’s Operational Risk Measurement
and Management Framework and Compliance Framework}} Ensuring the execution of Board approved Operational Risk andCompliance Policies}} Monitor and approve the treatment plans for Extreme rated risks}} Review material (actual, potential and near miss) operational risk
and compliance events
Membership of OREC comprises senior executives and the committee
is chaired by the Chief Risk Officer.
ANZ’s Operational Risk Measurement and Management Framework(ORMMF) outlines the approach to managing operational risk.
It specifically covers the minimum requirements that divisions/business
units must undertake to identify, assess, measure, monitor, control
and manage operational risk in accordance to the Board approved risk
appetite. ANZ does not expect to eliminate all risks, but to ensure thatthe residual risk exposure is managed as low as reasonably practical
based on a sound risk/reward analysis in the context of an international
financial institution. ANZ’s ORMMF is supported by specific policies andprocedures with the effectiveness of the framework assessed througha series of governance and assurance reviews. This is supplemented
by an independent review programme by Internal Audit.

The Company

Divisional Risk Committees and Business Unit Risk Forums manage
and maintain oversight of operational and compliance risks supportedby thresholds for escalation and monitoring which is used to informand support senior management strategic business decision making.
Day to day management of operational and compliance risk is theaccountability of every employee. Business Units undertake
operational risk activities as part of this accountability. Divisionalrisk personnel provide oversight of operational risk undertakenin the Business Units.
Enterprise Operational Risk is responsible for exercising governanceover operational risk through the management of the operational risk
frameworks, policy development, framework assurance, operationalrisk measurement and capital allocations and reporting of operationalrisk issues to executive committees.
Group Compliance has global oversight responsibility for the ANZCompliance Framework, and each division has responsibility forembedding the framework into its business operations, identifying
applicable regulatory compliance obligations, and escalating whenbreaches occur. The Compliance Framework fosters an integrated
approach where staff are responsible and accountable for compliance,
either within their job role, or within their area of influence.
The integration of the Operational Risk Measurement andManagement and Compliance Frameworks, supported by common
policies, procedures and tools allows for a simple and consistent
way to identify, assess, measure and monitor risks across ANZ.
In line with industry practice, ANZ obtains insurance cover fromthird party and captive providers to cover those operational risks
where cost-effective premiums can be obtained. In conducting theirbusiness, Business Units are advised to act as if uninsured and not
to use insurance as a guaranteed mitigation for operational risk.
Business disruption is a critical risk to a bank’s ability to operate,
so ANZ has comprehensive business continuity, recovery andcrisis management plans. The intention of the business continuity
and recovery plans is to ensure critical business functions can be
maintained, or restored in a timely fashion, in the event of material
disruptions arising from internal or external events.
Enterprise Operational Risk is responsible for maintaining ANZ’s
Advanced Measurement Approach (AMA) for operational risk.
Operational risk capital is held to protect depositors and shareholdersof the bank from rare and severe unexpected losses. ANZ maintains
and calculates operational risk capital (including regulatory andeconomic capital), on at least a six monthly basis. The capital iscalculated using scaled external loss data, internal loss data andscenarios as a direct input and risk registers as an indirect input.

NOTES TO THE FINANCIAL STATEMENTS

123

NOTES TO THE FINANCIAL STATEMENTS (continued)

20: Fair value of financial assets and financial liabilities
A significant number of financial instruments are carried on the balance sheet at fair value. The following disclosures set out the classificationof financial assets and financial liabilities and in respect of the fair value either recognised or disclosed, the various levels within which fairvalue measurements are categorised, and the valuation methodologies and techniques used. The fair value disclosure does not cover those
instruments that are not considered financial instruments from an accounting perspective, such as intangible assets.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participantsat the measurement date. The determination of the fair value of financial instruments is fundamental to the financial reporting framework
as all financial instruments are recognised initially at fair value and, with the exception of those financial instruments carried at amortisedcost, are remeasured at fair value in subsequent periods.
On initial recognition, the best evidence of a financial instrument’s fair value is the transaction price. However, in certain circumstances theinitial fair value may be based on other observable current market transactions in the same instrument, without modification or repackaging,or on a valuation technique whose variables include only data from observable markets. For those financial instruments where the fair value
at initial recognition would be based on unobservable inputs, the difference between the transaction price and the amount which would
have been determined using a valuation technique (being the day one gain or loss) is not immediately recognised in the income statement.
Subsequent to initial recognition, the fair value of financial instruments measured at fair value is based on quoted market prices, whereavailable. In cases where quoted market prices are not available, fair value is determined using market accepted valuation techniques that
employ observable data. In limited cases where observable market data is not available, the input is estimated based on other observable
market data, historical trends and other factors that may be relevant.
In the tables below, financial instruments have been allocated based on their accounting classification. The significant accounting policies
in note 1 describe how the categories of financial assets and financial liabilities are measured and how income and expenses, including fairvalue gains and losses, are recognised.
(i) 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 theircarrying amounts as reported on the balance sheet.
At amortised
cost

Consolidated 30 September 2015

Financial assets
Cash
Settlement balances owed to ANZCollateral paid
Trading securities
Derivative financial instruments1
Available-for-sale assets
Net loans and advances2,3
Regulatory deposits
Investments backing policy liabilities
Other financial assets

Financial liabilities
Settlement balances owed by ANZ
Collateral received
Deposits and other borrowings
Derivative financial instruments1
Policy liabilities4
External unit holder liabilities (life insurance funds)
Payables and other liabilities
Debt issuances
Subordinated debt

1
2
3
4

At fair value through profit or loss

Hedging

Available-forsale assets

Total

$m

Designatedon initialrecognition$mHeld fortrading$m

Sub-total
$m

$m

$m

$m

53,903
18,596
9,967–––
569,539
1,773
–
5,137

–
–
–
–
–
–
683
–
34,820––––49,00081,925
–
16
–
–
–

–
–
–
49,00081,925–699–
34,820
–

–
–
–
–
3,700
–
–
–
–
–

–
–
–
–
–
43,667––––53,903
18,596
9,967
49,00085,62543,667570,238
1,773
34,8205,137

658,915

35,503130,941

166,4443,700

43,667872,726

11,2507,829
566,218
–
372
–
7,798
90,582
17,009––4,576–
35,029
3,291
–
3,165
–

–
–
–
78,497
–
–
2,568
–
–

–
–
4,576
78,49735,029
3,291
2,568
3,165
–

46,061

81,065

127,126

n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a

11,2507,829
570,794
81,27035,401
3,291
10,366
93,747
17,009701,058

–
–
–
2,773
–
–
–
–
–
2,773

830,957

Derivative financial instruments classified as ‘held for trading’ include derivatives entered into as economic hedges which are not designated as accounting hedges.
Fair value hedging is applied to financial assets within net loans and advances. The resulting fair value adjustments mean that the carrying value differs from the amortised cost.
Net loans and advances includes Easanda dealer finance assets classified as held for sale (refer note 14).
Includes life insurance contract liabilities of $372 million (2014: $516 million) measured in accordance with AASB 1038 and life investment contract liabilities of $35,029 million (2014: $34,038
million) which have been designated at fair value through profit or loss under AASB 139. None of the fair value is attributable to changes in the credit risk of the life investment contract liabilities.

124

ANZ ANNUAL REPORT 2015

20: Fair value of financial assets and financial liabilities (continued)
At amortised
cost

Consolidated 30 September 2014

Financial assets
Cash
Settlement balances owed to ANZCollateral paid
Trading securities
Derivative financial instruments1
Available-for-sale assets
Net loans and advances2
Regulatory deposits
Investments backing policy liabilities
Other assets

Financial liabilities
Settlement balances owed by ANZ
Collateral received
Deposits and other borrowings
Derivative financial instruments1
Policy liabilities3
External unit holder liabilities (life insurance funds)
Payables and other liabilities
Debt issuances
Subordinated debt

At fair value through profit or loss

Hedging

Available-forsale assets

Total

$m

Designatedon initialrecognition$mHeld fortrading$m

Sub-total
$m

$m

$m

$m

32,55920,241
5,459–––
521,384
1,565
–
3,473

–
–
–
–
–
–
368
–
33,579––––49,69253,730
–
–
–
–
–

–
–
–
49,69253,730–368–
33,579
–

–
–
–
–
2,639
–
–
–
–
–

–
–
–
–
–
30,917––––32,55920,241
5,459
49,69256,36930,917521,752
1,565
33,5793,473

584,681

33,947

103,422

137,369

2,639

30,917755,606

10,114
5,599
504,585
–
516
–
7,075
76,655
13,607––
5,494–
34,038
3,181
–
3,441
–

–
–
–
51,475
–
–
3,870
–
–

–
–
5,494
51,47534,038
3,181
3,870
3,441
–

–
–
–
1,450
–
–
–
–
–

n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a

10,114
5,599
510,079
52,92534,554
3,181
10,94580,096
13,607618,151

46,15455,345

101,499

1,450

n/a

721,100

1 Derivative financial instruments classified as ‘held for trading’ include derivatives entered into as economic hedges which are not designated as accounting hedges.
2 Fair value hedging is applied to financial assets within net loans and advances. The resulting fair value adjustments mean that the carrying value differs from the amortised cost.
3 Includes life insurance contract liabilities of $372 million (2014: $516 million) measured in accordance with AASB 1038 and life investment contract liabilities of $35,029 million (2014: $34,038
million) which have been designated at fair value through profit or loss under AASB 139. None of the fair value is attributable to changes in the credit risk of the life investment contract liabilities.

At amortised
cost

The Company 30 September 2015

Financial assets
Cash
Settlement balances owed to ANZCollateral paid
Trading securities
Derivative financial instruments1
Available-for-sale assets
Net loans and advances2,3
Regulatory deposits
Due from controlled entities
Other financial assets

Financial liabilities
Settlement balances owed by ANZ
Collateral received
Deposits and other borrowings
Derivative financial instruments1
Due to controlled entities
Payables and other liabilities
Debt issuances
Subordinated debt

At fair value through profit or loss

Hedging

Available-forsale assets

Total

$m

Designatedon initialrecognition$mHeld fortrading$m

Sub-total
$m

$m

$m

$m

51,217
16,601
8,234–––
448,288557
109,920
2,489

–
–
–
–
–
–
144
–
–
–

–
–
–
37,37372,542
–
16
–
–
–

–
–
–
37,37372,542
–
160
–
–
–

–
–
–
–
3,152
–
–
–
–
–

–
–
–
–
–
37,612––––

51,217
16,601
8,234
37,37375,694
37,612448,448557
109,9202,489

637,306

144

109,931

110,075

3,152

37,612

788,145

9,901
6,886
471,966–
105,079
4,316
72,414
15,812

–
–
65
–
–
–
3,165
–

–
–
–
69,648
–
1,978
–
–

–
–
65
69,648
–
1,978
3,165
–

–
–
–
2,196
–
–
–
–

n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a

9,901
6,886
472,031
71,844
105,079
6,294
75,57915,812686,374

3,230

71,62674,8562,196

n/a

763,426

1 Derivative financial instruments classified as ‘held for trading’ include derivatives entered into as economic hedges which are not designated as accounting hedges.
2 Fair value hedging is applied to financial assets within net loans and advances. The resulting fair value adjustments mean that the carrying value differs from the amortised cost.
3 Net loans and advances includes Esanda dealer finance assets classified as held for sale (refer note 14).

NOTES TO THE FINANCIAL STATEMENTS

125

NOTES TO THE FINANCIAL STATEMENTS (continued)

20: Fair value of financial assets and financial liabilities (continued)
At amortised
cost

The Company 30 September 2014

Financial assets
Cash
Settlement balances owed to ANZCollateral paid
Trading securities
Derivative financial instruments1
Available-for-sale assets
Net loans and advances2
Regulatory deposits
Due from controlled entities
Other financial assets

Financial liabilities
Settlement balances owed by ANZ
Collateral received
Deposits and other borrowings
Derivative financial instruments1
Due to controlled entities
Payables and other liabilities
Debt issuances
Subordinated debt

At fair value through profit or loss

Hedging

Available-forsale assets

Total

$m

Designatedon initialrecognition$mHeld fortrading$m

Sub-total
$m

$m

$m

$m

30,655
18,1504,873–––
414,989434
99,194
1,758

–
–
–
–
–
–
77
–
–
–

–
–
–
38,04950,549
–
–
–
–
–

–
–
–
38,04950,549
–
77
–
–
–

–
–
–
–
2,333
–
–
–
–
–

–
–
–
–
–
26,151––––30,655
18,1504,873
38,04952,882
26,151
415,066434
99,194
1,758

570,053

77

88,59888,6752,333

26,151

687,212

8,189
4,886
423,076–
93,796
4,111
61,531
12,870

–
–
96
–
–
–
2,630
–

–
–
–
49,201
–
3,556
–
–

–
–
96
49,201
–
3,556
2,630
–

–
–
–
1,273
–
–
–
–

n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a

8,189
4,886
423,172
50,474
93,796
7,667
64,161
12,870608,459

2,726

52,75755,483

1,273

n/a

665,215

1 Derivative financial instruments classified as ‘held for trading’ include derivatives entered into as economic hedges which are not designated as accounting hedges.
2 Fair value hedging is applied to financial assets within net loans and advances. The resulting fair value adjustments mean that the carrying value differs from the amortised cost.

(ii) MEASUREMENT OF FAIR VALUE(a) Valuation methodologies
ANZ has an established control framework that ensures fair value is either determined or validated by a function independent of the party
that undertakes the transaction. The control framework ensures that all models are calibrated periodically to test that outputs reflect prices
from observable current market transactions in the same instrument or other available observable market data.
Where quoted market prices are used, prices are independently verified from other sources. For fair values determined using a valuation model,
the control framework may include, as applicable, independent development or validation of valuation models, any inputs to those models,
any adjustments required outside of the valuation model and, where possible, independent validation of model outputs. In this way, continued
appropriateness of the valuations is ensured.
In instances where the Group holds offsetting risk positions, the Group uses the portfolio exemption in AASB 13 to measure the fair valueof such groups of financial assets and financial liabilities on the basis of the price that would be received to sell a net long position (thatis, an asset) for a particular risk exposure or to transfer a net short position (that is, a liability) for a particular risk exposure.
The Group categorises its fair value measurements on the basis of inputs used in measuring fair value using the fair value hierarchy below:}} Level 1 – Financial instruments that have been valued by reference to unadjusted quoted prices in active markets for identical financial
instruments. This category includes financial instruments valued using quoted yields where available for specific debt securities.
}} Level 2 – Financial instruments that have been valued through valuation techniques incorporating inputs other than quoted prices within
Level 1 that are observable for a similar financial asset or liability, either directly or indirectly.
}} Level 3 – Financial instruments that have been valued using valuation techniques which incorporate significant inputs that are not basedon observable market data (unobservable inputs).

126

ANZ ANNUAL REPORT 2015

20: Fair value of financial assets and financial liabilities (continued)(b) Valuation techniques and inputs used
In the event that there is no quoted market price for the instrument, fair value is based on valuation techniques. The valuation models
incorporate the impact of bid/ask spreads, counterparty credit spreads, funding costs and other factors that would influence the fair value
determined by market participants.
The majority of valuation techniques employ only observable market data. However, for certain financial instruments the valuation technique
may employ some data (valuation inputs or components) which is not readily observable in the current market. In these cases valuation inputs(or components of the overall value) are derived and extrapolated from other relevant market data and tested against historic transactions andobserved market trends. To the extent that valuation is based on models or inputs that are not observable in the market, the determinationof fair value can be more subjective, dependent on the significance of the unobservable input to the overall valuation.
The following valuation techniques have been applied to determine the fair values of financial instruments where there is no quoted pricefor the instrument:}} For instruments classified as Trading security assets and Securities short sold, Derivative financial assets and liabilities, Available-for-salefinancial assets, and Investments backing policy liabilities, fair value measurements are derived by using modelled valuations techniques(including discounted cash flow models) that incorporate market prices/yields for securities with similar credit risk, maturity and yieldcharacteristics; and/or current market yields for similar instruments.
}} For Net loans and advances, Deposits and other borrowings and Debt issuances, discounted cash flow techniques are used where contractual
future cash flows of the instrument are discounted using discount rates incorporating wholesale market rates or market borrowing rates
of debt with similar maturities or a yield curve appropriate for the remaining term to maturity.
}} The fair value of external unit holder liabilities (life insurance funds) represents the external unit holder’s share of the net assets of theconsolidated investment funds, which are carried at fair value. The fair value of policy liabilities being liabilities of the insurance businessis directly linked to the performance and value of the assets backing the liabilities. These liabilities are carried at fair value using
observable inputs.
Further details of valuation techniques and significant unobservable inputs used in measuring fair values are described in (iii)(a) below.
There have been no substantial changes in the valuation techniques applied to different classes of financial instruments during the year.
(iii) FINANCIAL ASSETS AND FINANCIAL LIABILITIES THAT ARE MEASURED AT FAIR VALUE IN THE BALANCE SHEETThe table below provides an analysis of financial instruments carried at fair value at reporting date categorised according to the lowest level
input into a valuation model or a valuation component that is significant to the reported fair value. The significance of the input is assessedagainst the reported fair value of the financial instrument and considers various factors specific to the financial instrument. The fair value has
been allocated in full to the category in the fair value hierarchy which most appropriately reflects the determination of the fair value.
Fair value measurements
Quoted market price(Level 1)
Consolidated

Financial assets
Trading securities1
Derivative financial instruments
Available-for-sale assets1
Net loans and advances (designated at fair value)
Investments backing policy liabilities1

Using observable
inputs (Level 2)With significant
non–observable inputs(Level 3)

Total

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

45,227388
37,086–
17,98345,857472
25,147–
18,8503,769
85,155
6,347
683
16,2983,835
55,791
5,730
368
14,184

4
82
234
16
539

–
106
40
–
545

49,00085,62543,667699
34,82049,69256,36930,917368
33,579100,684

90,326112,252

79,908875

691

213,811

170,925

Financial liabilities
Deposits and other borrowings (designated at fair value)
Derivative financial instruments
Policy liabilities2
External unit holder liabilities(life insurance funds)
Payables and other liabilities3
Debt issuances (designated at fair value)

–
782
–

–
376
–

4,576
80,38735,0295,494
52,44434,038

–
101
–

–
105
–

4,576
81,27035,0295,494
52,92534,038

–
2,443
–

–
3,851

3,291
125
3,165

3,181
19
3,441

–
–
–

–
–
–

3,291
2,568
3,165

3,181
3,870
3,441

Total

3,225

4,227

126,573

98,617101105

129,899

102,949

1 During the period there were transfers from Level 1 to Level 2 of $190 million (2014: $357 million) for the Group following a reassessment of available pricing information causing the classification
to be assessed as level 2. During the period there were also transfers from Level 2 to Level 1 of $114 million (2014:$33 million) for the Group following increased trading activity to support thequoted prices. Transfers into and out of Level 1 and Level 2 are deemed to have occurred as of the beginning of the reporting period in which the transfer occurred.
2 Policy liabilities relate to life investment contract liabilities only as these are designated at fair value through profit or loss.
3 Represents securities short sold.

NOTES TO THE FINANCIAL STATEMENTS

127

NOTES TO THE FINANCIAL STATEMENTS (continued)

20: Fair value of financial assets and financial liabilities (continued)
Fair value measurements

The Company

Financial assets
Trading securities
Derivative financial instruments
Available-for-sale assets1
Net loans and advances (measured at fair value)

Financial liabilities
Deposits and other borrowings (designated at fair value)
Derivative financial instruments
Payables and other liabilities2
Debt issuances (designated at fair value)
Total

Quoted market
price (Level 1)

Using observable
inputs (Level 2)With significant
non–observable
inputs (Level 3)

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

33,912378
33,452–

34,356
470
22,265–

3,456
75,242
4,110
144

3,693
52,316
3,864
77

4
73
50
16

–
96
22
–

37,37275,69337,612160

38,04952,882
26,151
77

67,74257,091

82,952

59,950143

118

150,837 117,159

–
766
1,854
–
2,620

–
373
3,537
–
3,910

65
70,991125
3,165
74,34696
49,99819
2,630
52,743

–
91
–
–
91

–
103
–
–
103

65
71,8481,979
3,165
77,057

Total

96
50,474
3,556
2,630
56,7561 During the period there were transfers from Level 1 to Level 2 of $136 million (2014: $357 million) for the Company following a reassessment of available pricing information causing theclassification to be assessed as level 2. During the period there were also transfers from Level 2 to Level 1 of $104 million (2014:$33 million) for the Group following increased trading
activity to support the quoted prices. Transfers into and out of Level 1 and Level 2 are deemed to have occurred as of the beginning of the reporting period in which the transfer occurred.
2 Represents securities short sold.

(iv) DETAILS OF FAIR VALUE MEASUREMENTS THAT INCORPORATE UNOBSERVABLE MARKET DATA(a) Composition of Level 3 fair value measurements
The following table presents the composition of financial instruments measured at fair value with significant unobservable inputs (Level 3 fairvalue measurements).
Financial assets
Trading securities

Derivatives

Financial liabilities

Available-for-sale

Net loans
and advances

Investments backing
policy liabilities

Derivatives

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

Asset backed securities
Illiquid corporate bonds
Structured credit productsManaged funds (suspended)
Alternative assets
Other derivatives

–
4
–
–
–
–

–
–
–
–
–
–

–
–
52
–
–
30

–
–
58
–
–
48

2
198
–
–
34
–

1
12
–
–
27
–

–
16
–
–
–
–

–
–
–
–
–
–

188
–
–
–
351
–

–
–
–
12
533
–

–
–
(67)
–
–
(34)

–
–
(80)
–
–
(25)

Total

4

–

82

106

234

40

16

–

539

545

(101)

(105)

Consolidated

Financial assets
Trading securities

Derivatives

Financial liabilities

Available-for-sale

Net loans
and advances

Investments backing
policy liabilities

Derivatives

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

Asset backed securities
Illiquid corporate bonds
Structured credit productsManaged funds (suspended)
Alternative assets
Other derivatives

–
4
–
–
–
–

–
–
–
–
–
–

–
–
52
–
–
21

–
–
58
–
–
38

–
20
–
–
30
–

–
–
–
–
22
–

–
16
–
–
–
–

–
–
–
–
–
–

n/a
n/a
n/a
n/a
n/a
n/a

n/a
n/a
n/a
n/a
n/a
n/a

–
–
(67)
–
–
(24)

–
–
(80)
–
–
(23)

Total

4

–

73

96

50

22

16

–

n/a

n/a

(91)

(103)

The Company

Structured credit products comprise the structured credit intermediation trades that the Group entered into from 2004 to 2007 whereby
it sold protection using credit default swaps over certain structures, and mitigated risk by purchasing protection via credit default swaps
from US financial guarantors over the same structures. These trades are valued using complex models with certain inputs relating to thereference assets and derivative counterparties not being observable in the market. Such unobservable inputs include credit spreads anddefault probabilities contributing from 13% to 57% of the valuation. The assets underlying the structured credit products are diverse
instruments with a wide range of credit spreads and default probabilities relevant to the valuation.

128

ANZ ANNUAL REPORT 2015

20: Fair value of financial assets and financial liabilities (continued)
The remaining Level 3 balances include Asset backed securities and Illiquid corporate bonds where the effect on fair value of issuer credit cannot
be directly or indirectly observed in the market; managed funds (suspended) comprising of fixed income and mortgage investments in managed
funds that are illiquid and are not currently redeemable; Alternative assets that largely comprise investments in funds which are illiquid and are notcurrently redeemable, as well as various investments in unlisted equity securities for which no active market exists; and Other derivatives which
predominantly include reverse mortgage swaps where the mortality rate cannot be observed and options over emissions certificates where thevolatility input cannot be observed.
(b) Movements in Level 3 fair value measurements
The following table sets out movements in Level 3 fair value measurements. Derivatives are categorised on a portfolio basis and classified
as either financial assets or financial liabilities based on whether the closing balance is an unrealised gain or loss. This could be different
to the opening balance.
Financial assets
Trading securities

Derivatives

Financial liabilities
Net loans
and advances

Available-for-sale

Investments backing
policy liabilities

Derivatives

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

Opening balance
New purchases
Disposals (sales)
Cash settlements	– Transfers into Level 3 category1	– Transfers out of Level 3 category1
Fair value gain/(loss) recordedin other operating incomein the income statement2
Fair value gain/(loss) recognised
in reserves in equity

–
–
–
–
10
–
(6)

–
–
–
–
–
–
–

106
–
(8)
–
2
(17)
(1)

200
–
(9)
–
14
(32)
(67)

40
8
(20)
–
198
–
5

36
4
(12)
–
8
–
–

–
21
–
–
–
–
(5)

–
–
–
–
–
–
–

545
161
(266)
–
161
(148)
86

105
447
(34)
–
–
(2)
29

(105)
–
–
7
(2)
9
(10)

(437)
–
–
19
(13)
254
72

–

–

–

–

3

4

–

–

–

–

–

–

Closing balance

4

–

82

106

234

40

16

–

539

545

(101)

(105)

Consolidated

Financial assets
Trading securities

Derivatives

Financial liabilities

Available–for–sale

Net loans
and advances

Investments backing
policy liabilities

Derivatives

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

Opening balance
New purchases
Disposals (sales)
Cash settlements– Transfers into Level 3 category– Transfers out of Level 3 category
Fair value gain/(loss) recordedin other operating incomein the income statement2
Fair value gain/(loss) recognised
in reserves in equity

–
–
–
–
10
–
(6)

–
–
–
–
–
–
–

96
–
(8)
–
–
(14)
1

200
–
(9)
–
6
(31)
(70)

22
8
(14)
–
30
–
4

29
4
(11)
–
–
–
1

–
21
–
–
–
–
(5)

–
–
–
–
–
–
–

n/a
n/a
n/a
n/a
n/a
n/a
n/a

n/a
n/a
n/a
n/a
n/a
n/a
n/a

(103)
–
–
7
–
8
(3)

(437)
–
–
19
(9)
254
70

–

–

–

–

–

(1)

–

–

n/a

n/a

–

–

Closing balance

4

–

75

96

50

22

16

–

n/a

n/a

(91)

(103)

The Company

1 Transfers into Level 3 for the Group relate principally to illiquid corporate bonds and asset backed securities where market activity has reduced resulting in pricing to no longer be observable.
Transfers out of Level 3 for the Group relate principally to managed funds (suspended) where the commencement of previously unavailable regular redemption windows has provided
observable pricing. Transfers into and out of Level 3 are deemed to have occurred as of the beginning of the reporting period in which the transfer occurred.
2 Relating to assets and liabilities held at the end of the period.

(c) Sensitivity to Level 3 data inputs
Where valuation techniques are employed and assumptions are required due to significant data inputs not being directly observable in themarket place (Level 3 inputs), changing these assumptions changes the resultant estimate of fair value. The majority of transactions in thiscategory are ‘back-to-back’ in nature where ANZ either acts as a financial intermediary or hedges the market risks. Similarly, the valuation of
Investments backing policy liabilities directly impacts the associated life investment contracts they relate to. In these circumstances, changes
in the assumptions generally have minimal impact on the income statement and net assets of ANZ. An exception to this is the ‘back-to-back’
structured credit intermediation trades which create significant exposure to credit risk.
Principal inputs used in the determination of fair value of financial instruments included in the structured credit portfolio include counterparty
credit spreads, market-quoted CDS prices, recovery rates, default probabilities, correlation curves and other inputs, some of which may
not be directly observable in the market. The potential effect of changing prevailing unobservable inputs to reasonably possible alternative
assumptions for valuing those financial instruments could result in less than a (+/-) $5 million (2014: (+/-) $10 million) impact on profit.
The ranges of reasonably possible alternative assumptions are established by application of professional judgement and analysis of thedata available to support each assumption.
NOTES TO THE FINANCIAL STATEMENTS

129

NOTES TO THE FINANCIAL STATEMENTS (continued)

20: Fair value of financial assets and financial liabilities (continued)(d) Deferred fair value gains and losses
Where the fair value of a financial instrument at initial recognition is determined using unobservable data that is significant to the valuationof the instrument, the difference between the transaction price and the amount determined based on the valuation technique (day one gainor loss) is not immediately recognised in the income statement. Subsequently, the day one gain or loss is recognised in the income statement
over the life of the transaction on a straight line basis or over the period until all inputs become observable.
The table below summarises the aggregate amount of day one gains not yet recognised in the income statement and amounts which havebeen subsequently recognised.
Consolidated

The Company

2015
$m

2014
$m

2015
$m

2014
$m

Opening balance
Deferral on new transactions
Amounts recognised in income statement during the period

3
–
(1)

4
1
(2)

2
–
(1)

2
1
(1)

Closing balance

2

3

1

2

The closing balance of unrecognised gains is predominantly related to derivative financial instruments.
(v) ADDITIONAL INFORMATION FOR FINANCIAL INSTRUMENTS DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS(a) Financial assets designated at fair value through profit or loss
The category loans and advances includes certain loans designated at fair value through profit or loss in order to eliminate an accounting
mismatch which would arise if the asset were otherwise carried at amortised cost. This mismatch arises as the derivative financial instruments
which were acquired to mitigate interest rate risk of the loans and advances, are measured at fair value through profit or loss. By designating
the economically hedged loans, the movements in the fair value attributable to changes in interest rate risk will be recognised in the income
statement in the same periods.
At balance date, the credit exposure of the Group on these assets was $683 million (2014: $368 million) and for the Company was $144 million(2014: $77 million). For the Group $509 million (2014: $195 million) and the Company $144 million (2014: $77 million) was mitigatedby collateral held.
For the Group, the cumulative change in fair value attributable to change in credit risk was a reduction to the assets of $1 million (2014:
reduction to the assets of $2 million). For the Company the cumulative change to the assets was $nil (2014: $nil). The amount recognisedin the income statement attributable to changes in credit risk for the Group was $1 million (2014: $nil) and for the Company $nil (2014: $nil).
The change in fair value of the designated financial assets attributable to changes in credit risk has been calculated by determining the change
in credit rating and credit spread implicit in the loans and advances issued by entities with similar credit characteristics.
(b) Financial liabilities designated at fair value through profit or loss
Parts of Subordinated debt, Debt issuances and Deposits and other borrowings have been designated as financial liabilities at fair value throughprofit or loss in order to eliminate an accounting mismatch which would arise if the liabilities were otherwise carried at amortised cost. Thismismatch arises as the derivatives acquired to mitigate interest rate risk within the financial liabilities are measured at fair value through profit
or loss. Policy liabilities are designated at fair value through profit or loss in accordance with AASB 1038. External unitholder liabilities which are
not included in the table below, represent the external unitholder share of the ‘Investments backing policy liabilities’ which are designated at fairvalue through profit or loss.
The table below compares the carrying amount of financial liabilities carried at full fair value, to the contractual amount payable at maturity
and fair value gains and losses recognised during the period on liabilities carried at full fair value that are attributable to changes in ANZ’s own
credit rating.

Consolidated

Carrying amountAmount by which the consideration payable at maturity
is greater/(less) than the carrying value
Cumulative change in liability value attributableto own credit risk:– opening cumulative increase/(decrease)– increase/(decrease) recognised during the year
– closing cumulative increase/(decrease)130

Policy liabilities

Deposits and otherborrowings

Debt issuances

Subordinated debt

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

35,02934,038

4,576

5,494

3,165

3,441

–

–

–

–

6

4

(15)

(62)

–

–

–
–
–

–
–
–

–
–
–

–
–
–

34
(52)
(18)

(13)
47
34

–
–
–

12
(12)
–

ANZ ANNUAL REPORT 2015

20: Fair value of financial assets and financial liabilities (continued)
Deposits and otherborrowings
The Company

Carrying amountAmount by which the consideration payable at maturity
is greater/(less) than the carrying value
Cumulative change in liability value attributable to own credit risk:– opening cumulative increase/(decrease)– increase/(decrease) recognised during the year
– closing cumulative increase/(decrease)

Debt issuances

Subordinated debt

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

65

96

3,165

2,630

–

–

6

4

(15)

(66)

–

–

–
–
–

–
–
–

34
(52)
(18)

(13)
47
34

–
–
–

12
(12)
–

For each of Subordinated debt, Debt issuances and Deposits and other borrowings, the change in fair value attributable to changes in credit riskhas been determined as the amount of change in fair value that is not attributable to changes in market conditions that give rise to market risks(benchmark interest rate and foreign exchange rates). This approach is deemed appropriate as the changes in fair value arising from factors otherthan changes in own credit risk or changes in observed (benchmark) interest rates and foreign exchange rates are considered to be insignificant.
(vi) FINANCIAL ASSETS AND FINANCIAL LIABILITIES NOT MEASURED AT FAIR VALUE
The table below reflects the carrying amounts of financial instruments not measured at fair value on the Group’s balance sheet and where thecarrying amount is not considered a close approximation of fair value. The table also provides a comparison of the carrying amount of thesefinancial instruments to the Group’s estimate of their fair value. The categorisation of the fair value into the levels within the fair value hierarchy
is determined in accordance with the methodology set out on page 126 (section ii).
Carrying amount

Categorised into fair value hierarchy
Quoted market price(Level 1)

Using observable
inputs (Level 2)

Fair value (total)

With significant
non-observable inputs(Level 3)

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

569,539

521,384––545,538

498,545

25,402

23,339570,940

521,884

569,539

521,384––545,538

498,545

25,402

23,339570,940

521,884

Financial liabilities
Deposits and other borrowings
Debt issuances
Subordinated debt

566,218
90,582
17,009504,585
76,655
13,607–37,88013,842–29,893
10,805566,636
52,826
3,241

504,760
47,821
2,959

–
–
–

–
–
–

566,636
90,706
17,083504,760
77,714
13,764

Total

673,809594,847

51,722

40,698622,703555,540––

674,425596,238

Consolidated

Financial assets
Net loans and advances1

1 Included within Net loans and advances (Level 2) is $8,065m of lending assets of the Esanda dealer finance business classified as held for sale (refer note 14).

Carrying amount

Categorised into fair value hierarchy
Quoted market price(Level 1)

Using observable
inputs (Level 2)

Fair value (total)

With significant
non-observable inputs(Level 3)

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

448,288414,989––

428,949

396,264

20,276

19,127449,225

415,391448,288414,989––

428,949

396,264

20,276

19,127449,225

415,391

Financial liabilities
Deposits and other borrowings
Debt issuances
Subordinated debt

471,966
72,414
15,812423,076
61,531
12,870–24,428
11,357–
18,861
10,072472,235
48,0083,249

423,222
43,558
2,964

–
–
–

–
–
–

472,235
72,436
14,606423,22262,41913,036

Total

560,192

497,477

35,78528,933

523,492

469,744––559,277

498,677

The Company

Financial assets
Net loans and advances1

1 Included within Net loans and advances (Level 2) is $8,065m of lending assets of the Esanda dealer finance business classified as held for sale (refer note 14).

The following sets out the Group’s basis of establishing fair value of financial instruments not measured at fair value on the balance sheet.
The valuation techniques employed are consistent with those used to calculate fair values of financial instruments carried at fair value.
Certain Net loans and advances, Deposits and other borrowings and Debt issuances have been designated at fair value and are therefore
excluded from the tables above.

NOTES TO THE FINANCIAL STATEMENTS

131

NOTES TO THE FINANCIAL STATEMENTS (continued)

20: Fair value of financial assets and financial liabilities (continued)
Net loans and advances
The fair value has been determined through discounting future cash flows.
For Net loans and advances to banks, the fair value is derived by discounting cash flows using prevailing market rates for lending with similar
credit quality.
For Net loans and advances to customers, the fair value is the present value of future cash flows, discounted using a curve which incorporates
changes in wholesale market rates, the Group’s cost of wholesale funding and the customer margin, as appropriate.
Deposits and other borrowings
For interest bearing fixed maturity deposits and other borrowings and acceptances with quoted market prices, market borrowing rates ofinterest for debt with a similar maturity are used to discount contractual cash flows to derive the fair value. The fair value of a deposit liability
without a specified maturity or at call is deemed to be the amount payable on demand at the reporting date. The fair value is not adjusted
for any value expected to be derived from retaining the deposit for a future period of time.
Debt issuances and Subordinated debt
The aggregate fair value of Debt issuances and Subordinated debt is calculated based on quoted market prices or observable inputs whereapplicable. For those debt issuances where quoted market prices were not available, a discounted cash flow model using a yield curve
appropriate for the remaining term to maturity of the debt instrument used. The fair value includes the effects of the appropriate credit
spreads applicable to ANZ for that instrument.

21: Maturity Analysis of Assets and Liabilities
The following is an analysis of asset and liability line items in the balance sheet that combine amounts expected to be realised or due to besettled within one year and after more than one year.1
2015

2014

Consolidated

WithinAfter more
one year than one year$m$m

Available-for-sale assets
Net loans and advances2
Investments backing policy liabilities

10,353
128,771
27,96633,314441,467
6,854

43,667570,238
34,8208,819
124,985
28,36122,098396,767
5,218

30,917521,752
33,579Deposits and other borrowings
Policy liabilities3
Debt issuances
Subordinated debt4

546,626
35,34029,327–

24,16861
62,42017,009570,794
35,401
93,747
17,009488,862
34,554
15,720–21,217–64,376
13,607510,079
34,55480,096
13,607

1
2
3
4

Total
$m

Within After more
one year than one year$m$m

Excludes asset and liability line items where the entire amount is considered as “within one year”, “after more than one year” or having no specific maturities.
Includes Esanda dealer finance assets classified as held for sale (refer note 14).
Includes $372 million (2014: $516 million) that relates to life insurance contract liabilities classified as “within one year”.
Includes $1,188 million (2014: $1,087 million) that relates to perpetual notes.

132

Total
$m

ANZ ANNUAL REPORT 2015

22: Assets Charged as Security for Liabilities and Collateral Accepted as Security for Assets
ASSETS CHARGED AS SECURITY FOR LIABILITIES 1
The following assets are pledged as collateral:}} Mandatory reserve deposits with local central banks in accordance with statutory requirements. These deposits are not available to financethe Group’s day to day operations.
}} Securities provided as collateral for repurchase transactions. These transactions are governed by standard industry agreements.
}} Debenture undertakings covering the assets of Esanda Finance Corporation Limited (Esanda), and its subsidiaries, and UDC Finance Limited(UDC). The debenture stock of Esanda, and its subsidiaries, and UDC is secured by a trust deed and collateral debentures, giving floating
charges over the undertakings and all the tangible assets of the entity, other than land and buildings (of Esanda only). All controlled entities
of Esanda and UDC have guaranteed the payment of principal, interest and other monies in relation to all debenture stock and unsecured
notes issued by Esanda and UDC respectively. The only loans pledged as collateral are those in Esanda, and its subsidiaries, and UDC.
}} 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 amounts of assets pledged as security are as follows:
Consolidated

Regulatory deposits
Securities sold under arrangements to repurchase
Assets pledged as collateral under debenture undertakings
Covered bonds1
Other

The Company

Carrying Amount

Related Liability

Carrying Amount

Related Liability

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

1,773
13,9752,218
30,368
225

1,565
8,736
2,141
27,241219

n/a
13,731
1,578
27,013
222

n/a
8,641
1,400
20,561208

557
13,476–23,508
179

434
8,568
–
20,738170n/a
13,255–23,508
178

n/a
8,473
–
20,738170

1 The consolidated related liability represents covered bonds issued to external investors and the related liability for the Company represents the liability to the covered bond structured entities.

COLLATERAL ACCEPTED AS SECURITY FOR ASSETS 1
ANZ has received collateral in relation to reverse repurchase agreements. These transactions are governed by standard industry agreements.
The fair value of collateral received and sold or repledged is as follows:
Consolidated

Collateral received on standard reverse repurchase agreements
Fair value of assets which can be soldFair value of assets sold or repledged

The Company

2015
$m

2014
$m

2015
$m

2014
$m

17,5062,475

14,354
4,201

16,738
1,933

13,8784,090

1 Excludes the amounts disclosed as collateral paid and received in the balance sheet that relate to derivative liabilities and derivative assets respectively. The terms and conditions of the collateralagreements are included in the standard Credit Support Annex that forms part of the International Swaps and Derivatives Association Master Agreement.

NOTES TO THE FINANCIAL STATEMENTS

133

NOTES TO THE FINANCIAL STATEMENTS (continued)

23: Offsetting
The following tables identify financial assets and liabilities which have been offset in the balance sheet (in accordance with AASB 132 – Financial
Instruments: Presentation (AASB 132)) and those which have not been offset in the balance sheet but are subject to enforceable master netting
agreements (or similar arrangements) with our trading counterparties. The effect of over collaterisation has not been taken into account.
A description of the rights of set-off associated with financial assets and financial liabilities subject to master netting agreements or similar,
including the nature of those rights, are described in note 19.
Amount subject to master netting agreement or similar
Related amounts not offset in thestatement of financial position

Total amounts
recognised in thebalance sheet1$m

Amounts not
subject to masternetting agreement
or similar
$m

Total
$m

Financial
instruments$mFinancial collateral(received)/pledged$m

Net amount$m

Derivative assets
Reverse repurchase, securities borrowing
and similar agreements2

85,62517,308(6,846)(7,470)78,7799,838(62,782)(265)(7,165)(9,573)

8,832–

Total financial assets

102,933(14,316)

88,617(63,047)(16,738)

8,832

Derivative liabilities
Repurchase, securities lending
and similar agreements3(81,270)(13,731)5,566
12,674(75,704)(1,057)62,782
265

8,517
792

(4,405)–

Total financial liabilities(95,001)

18,240(76,761)

63,047

9,309(4,405)

Consolidated 30 September 2015

Amount subject to master netting agreement or similar
Related amounts not offset in thestatement of financial position

Total amounts
recognised in thebalance sheet1$m

Amounts not
subject to masternetting agreement
or similar
$m

Total
$m

Financial
instruments$mFinancial collateral(received)/pledged$m

Net amount$m

Derivative assets
Reverse repurchase, securities borrowing
and similar agreements2

56,36913,384(5,236)(5,928)51,133
7,456(41,871)(20)(5,048)(7,436)

4,214–

Total financial assets

69,753(11,164)

58,589(41,891)(12,484)

4,214

Derivative liabilities
Repurchase, securities lending
and similar agreements3(52,925)(8,641)

4,148
8,588

(48,777)(53)

41,871
20

4,586
33

(2,320)–Total financial liabilities(61,566)

12,736(48,830)

41,891

4,619(2,320)Consolidated 30 September 2014

1 The Group/Company does not have any arrangements that satisfy the conditions of AASB 132 to offset within the balance sheet.
2 Reverse repurchase agreements are presented in the balance sheet within cash if duration is less than 90 days. If maturity is greater than 90 days they are presented in net loans and advances.
3 Repurchase agreements are presented in the balance sheet within deposits and other borrowings.

134

ANZ ANNUAL REPORT 2015

23: Offsetting (continued)

Amount subject to master netting agreement or similar
Related amounts not offset in thestatement of financial position

Total amounts
recognised in thebalance sheet1$m

Amounts not
subject to masternetting agreement
or similar
$m

Total
$m

Financial
instruments$mFinancial collateral(received)/pledged$m

Net amount$m

Derivative assets
Reverse repurchase, securities borrowing
and similar agreements2

75,694
16,604(5,140)(6,766)70,554
9,838(55,881)(265)(6,435)(9,573)

8,238–

Total financial assets

92,298(11,906)

80,392(56,146)(16,008)

8,238

Derivative liabilities
Repurchase, securities lending
and similar agreements3(71,844)(13,255)

4,247
12,198(67,597)(1,057)55,881
265

7,681
792

(4,035)–

Total financial liabilities(85,099)

16,445(68,654)

56,146

8,473(4,035)The Company 30 September 2015

Amount subject to master netting agreement or similar
Related amounts not offset in thestatement of financial position

Total amounts
recognised in thebalance sheet1$m

Amounts not
subject to masternetting agreement
or similar
$m

Total
$m

Financial
instruments$mFinancial collateral(received)/pledged$m

Net amount$m

Derivative assets
Reverse repurchase, securities borrowing
and similar agreements2

52,882
12,907(4,230)(5,451)

48,652
7,456(40,541)(20)(4,458)(7,436)

3,653–

Total financial assets

65,789(9,681)

56,108(40,561)(11,894)

3,653

Derivative liabilities
Repurchase, securities lending
and similar agreements3(50,474)(8,473)

3,615
8,420

(46,859)(53)

40,541
20

4,247
33

(2,071)–

Total financial liabilities(58,947)

12,035(46,912)40,561

4,280(2,071)The Company 30 September 2014

1 The Group/Company does not have any arrangements that satisfy the conditions of AASB 132 to offset within the balance sheet.
2 Reverse repurchase agreements are presented in the balance sheet within cash if duration is less than 90 days. If maturity is greater than 90 days they are presented in net loans and advances.
3 Repurchase agreements are presented in the balance sheet within deposits and other borrowings.

NOTES TO THE FINANCIAL STATEMENTS

135

NOTES TO THE FINANCIAL STATEMENTS (continued)

24: Credit Related Commitments, Guarantees and Contingent Liabilities
Credit related commitments – facilities provided

Consolidated

The Company

2015
$m

2014
$m

2015
$m

2014
$m

  Undrawn facilities

230,794

193,984

180,847

153,985

Australia
New ZealandOverseas markets

101,898
22,960105,936

97,781
20,87075,333

99,88020
80,947

97,77329
56,183

Total

230,794

193,984

180,847

153,985

Contract amount of:

Guarantees and contingent liabilities
These guarantees and contingent liabilities 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 issue of letters of credit guaranteeing payment in favour of an exporter secured against an underlying
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 should the customer fail to fulfil the
non-monetary terms of the contract.
To reflect the risk associated with these transactions, they are subjected to the same credit origination, portfolio management and collateralrequirements as customers that apply for loans. The contract amount represents the maximum potential amount that could be lost if thecounterparty fails to meet its financial obligations. As the facilities may expire without being drawn upon, the notional amounts do notnecessarily reflect future cash requirements.
Consolidated

The Company

2015
$m

2014
$m

2015
$m

2014
$m

18,80921,526

17,23522,840

16,101
18,592

14,142
20,774

Total

40,33540,07534,69334,916Australia
New Zealand
Asia Pacific, Europe & America

17,638
1,961
20,736

17,686
1,790
20,59917,637–
17,056

17,686–
17,230Total

40,33540,07534,69334,916

Contract amount of:

Guarantees and letters of credit
Performance related contingencies

136

ANZ ANNUAL REPORT 2015

25: Goodwill and Other Intangible Assets
Consolidated

The Company

2015
$m

2014
$m

2015
$m

2014
$m

Gross carrying amount
Balances at start of the year
Reclassifications
Impairment/write off expense
Foreign currency exchange differences

4,511
–
(1)
87

4,499
–
–
12

90
–
–
19

77
9
–
4

Balance at end of year

4,597

4,511

109

90

Balances at start of the year
Software capitalisation during the period
Amortisation expense
Impairment expense/write-offs
Foreign currency exchange differences

2,533
807
(542)
(17)
112

2,170
777
(426)
(15)
27

2,336
782
(500)
(12)
105

2,007
683
(368)
(11)
25

Balance at end of year

2,893

2,533

2,711

2,336

Cost
Accumulated amortisation
Accumulated impairment

5,860(2,763)
(204)

5,005
(2,263)
(209)

5,620
(2,710)
(199)

4,568
(2,031)(201)

Carrying amount

2,893

2,533

2,711

2,336

Balances at start of the year
Amortisation expense
Foreign currency exchange differences

784
(70)
1

856
(71)
(1)

–
–
–

–
–
–

Balance at end of year

715

784

–

–

1,188
(473)

1,187
(403)

–
–

–
–

715

784

–

–

Balances at start of the year
Other additions
Reclassification
Amortisation expense
Impairment expense
Foreign currency exchange differences

122
(1)
–
(18)
–
4

165
3
–
(18)
(28)
–

25
–
(7)
(9)
–
1

40
–
(9)
(8)
–
2

Balance at end of year

107

122

10

25

Cost
Accumulated amortisation/impairment

207
(100)

227
(105)

68
(58)

68
(43)

Carrying amount

107

122

10

25

Goodwill1

SoftwareAcquired Portfolio of Insurance and Investment Business

Cost
Accumulated amortisation
Carrying amount

Other intangible assets2

Goodwill and other intangible assets
Net book value
Balances at start of the year

7,950

7,690

2,451

2,124

Balance at end of year

8,312

7,950

2,830

2,451

1 Excludes notional goodwill in equity accounted investments.
2 The consolidated other intangible assets comprises aligned advisor relationships, distribution agreements and management fee rights, credit card relationships and other intangibles.
The Company other intangible assets comprises distribution agreements and management fee rights, credit card relationships and other intangibles.

NOTES TO THE FINANCIAL STATEMENTS

137

NOTES TO THE FINANCIAL STATEMENTS (continued)

25: Goodwill and Other Intangible Assets (continued)
GOODWILL ALLOCATED TO CASH–GENERATING UNITS
The goodwill balance above largely comprises the goodwill purchased on acquisition of NBNZ Holdings Limited in December 2003 and ANZ
Wealth Australia Limited (formerly OnePath Australia Limited) on 30 November 2009. Refer to note 8 for Divisional allocation.
The recoverable amount of the CGU to which each goodwill component is allocated is estimated using a market multiple approach as
representative of the fair value less costs of disposal of each CGU. The price earnings multiples are based on observable multiples reflecting thebusinesses and markets in which each CGU operates. The earnings are based on the current forecast earnings of the divisions. The aggregate
fair value less costs of disposal across the Group is compared to the Group’s market capitalisation to validate the conclusion that goodwill
is not impaired.
Key assumptions on which management has based its determination of fair value less costs of disposal include assumptions as to the market
multiples being reflective of the segment’s businesses, costs of disposal estimates and the ability to achieve forecast earnings. Changes inassumptions upon which the valuation is based could materially impact the assessment of the recoverable amount of each CGU. As at 30
September 2015, the impairment testing performed did not result in any material impairment being identified.

26: Premises and Equipment
Consolidated

The Company

2015
$m

2014
$m

2015
$m

2014
$m

4,769
(2,548)4,280(2,099)2,694(1,704)

2,325(1,324)

2,221

2,181

990

1,001

Carrying amount at beginning of year
Additions2
Disposals
Amortisation and depreciation3
Foreign currency exchange difference

2,181
361
(43)
(325)
47

2,164
375
(44)
(324)
10

1,001
232
(38)
(227)
22

983
247
(17)
(221)
9

Carrying amount at end of year

2,221

2,181

990

1,001

Net book value
Freehold and leasehold land and buildings
Integrals and equipment
Capital works in progress

901
1,183
137

878
1,162
141

59
856
75

50
904
47

2,221

2,181

990

1,001

At cost1
Accumulated depreciation1

1 The current year cost and accumulated depreciation was reduced to remove assets with a nil net book value that are no longer in use. Comparative information was not adjusted.
2 Includes Transfers.
3 Includes Freehold and leasehold land and buildings, Leasehold improvements, Furniture and equipment and Technology equipment.

COMMITMENTS
Consolidated

The Company

2015
$m

2014
$m

2015
$m

2014
$m

Property capital expenditure
Contracts for outstanding capital expenditure

109

88

92

68

Total capital expenditure commitments for property

109

88

92

68

Lease rentals
Land and buildings
Furniture and equipment

2,251
276

2,163
216

2,283
190

2,345
168

Total lease rental commitments1

2,527

2,379

2,473

2,513

Due within one year
Due later than one year but not later than five years
Due later than five years

485
1,273
769

475
1,130
774

438
1,083
952

413
1,103
997

Total lease rental commitments1

2,527

2,379

2,473

2,513

1 Total future minimum sublease payments expected to be received under non-cancellable subleases at 30 September is $90 million (2014: $90 million) for the Group and $80 million(2014: $78 million) for the Company. During the year, sublease payments received amounted to $22 million (2014: $19 million) for the Group and $19 million (2014: $16 million) for
the Company and were netted against rent expense.

138

ANZ ANNUAL REPORT 2015

27: Other Assets

Consolidated

The Company

2015
$m

2014
$m

2015
$m

2014
$m

Accrued interest/prepaid discounts
Accrued commissions
Prepaid expenses
Insurance contract liabilities ceded
Outstanding premiums
Defined benefit superannuation plan surplus
Operating leases residual value
Other

1,405
137
427
699
228
144
282
2,524

1,472
129
356
591
200
47
334
1,662

944
76
178
–
–
144
282
1,325

998
75
152
–
–
47
334
637

Total other assets

5,846

4,791

2,949

2,243

28: Provisions
Consolidated

The Company

2015
$m

2014
$m

2015
$m

2014
$m

554
23
169
328

526
56
134
384

411
15
141
164

404
48
104
139

Total provisions

1,074

1,100

731

695

Provisions, excluding employee entitlements
Carrying amount at beginning of the year
Provisions made during the year
Payments made during the year
Transfer/release of provision

574
307
(206)
(155)

695
572
(514)
(179)

291
164
(72)
(63)

422
185
(172)
(144)

Carrying amount at the end of the year

520

574

320

291

Employee entitlements1
Restructuring costs and surplus leased space2
Non-lending losses, frauds and forgeries
Other

1 The aggregate liability for employee entitlements largely comprises provisions for annual leave and long service leave.
2	Restructuring costs and surplus leased space provisions arise from activities related to material changes in the scope of business undertaken by the Group or the manner in which that businessis undertaken and includes termination benefits. Costs relating to on-going activities are not provided for. Provision is made when the Group is demonstrably committed, it is probable that thecosts will be incurred, though their timing is uncertain, and the costs can be reliably estimated.
3	Other provisions comprise various other provisions including loyalty programs, workers’ compensation, make-good provisions on leased premises and contingent liabilities recognised as partof a business combination.

29: Payables and Other Liabilities

Consolidated

The Company

2015
$m

2014
$m

2015
$m

2014
$m

Creditors
Accrued interest and unearned discounts
Defined benefits plan obligations
Accrued expenses
Securities sold short (classified as held for trading)
Liability for acceptances
Other liabilities

1,661
1,938
59
1,368
2,568
1,371
1,401

1,335
2,096
39
1,394
3,870
1,151
1,099

871
1,448
14
889
1,978
649
445

477
1,592
15
1,022
3,556
717
303

Total payables and other liabilities

10,366

10,984

6,294

7,682

30: Share Capital   The Company
Numbers of issued shares

2015

2014

Ordinary shares each fully paid
Preference shares each fully paid

2,902,714,361–

2,756,627,771
500,000

Total number of issued shares

2,902,714,361

2,757,127,771

NOTES TO THE FINANCIAL STATEMENTS

139

NOTES TO THE FINANCIAL STATEMENTS (continued)

30: Share Capital (continued)
ORDINARY SHARES
Ordinary shares have no par value and entitle holders to receive dividends payable to ordinary shareholders and to participate in the proceeds
available to ordinary shareholders on winding up of the Company in proportion to the number of fully paid ordinary shares held.
On a show of hands every holder of fully paid ordinary shares present at a meeting in person or by proxy is entitled to one vote, and upon a poll
one vote for each share held.
   The Company
Numbers of issued shares

2015

2014

Balance at start of the year
Bonus option plan1,2
Dividend reinvestment plan1,2
Group share option scheme3Group employee share acquisition scheme3,4
Share placement and share purchase plan5
Group share buyback6

2,756,627,771
2,899,350
35,105,134
32,192–
108,049,914–

2,743,655,310
2,479,917
26,209,958
171,742––(15,889,156)

Balance at end of year

2,902,714,361

2,756,627,771

Consolidated

The Company

2015
$m

2014
$m

2015
$m

2014
$m

Ordinary share capital
Balance at start of the year
Dividend reinvestment plan1,2
Group share option scheme3Group employee share acquisition scheme3,4
Share placement and share purchase plan5
Group share buyback6
Treasury shares in Global Wealth7

24,031
1,122
2
1
3,206
–
5

23,641
851
4
11
–
(500)
24

24,280
1,122
2
1
3,206
–
–

23,914
851
4
11
–
(500)
–

Balance at end of year

28,36724,031

28,611

24,280

1 Refer to note 6 for details of plan.
2 The Company issued 28.7 million shares under the dividend reinvestment plan and bonus option plan for the 2015 interim dividend and 9.3 million shares for the 2014 final dividend(Sep14: 28.7 million shares for the respective interim and final dividends).
3 Refer to note 41 for details of plan.
4 Includes on-market purchase of shares for settlement of amounts due under share-based compensation plans. In addition, nil shares were issued during the year ended 30 September 2015
to the Group’s Employee Share Trust for settlement of amounts due under share-based compensation plans (2014: nil). As at 30 September 2015, there were 11,378,648 Treasury Shares
outstanding (2014: 13,754,867).
5 The Company issued 80.8 million ordinary shares under the institutional share placement and 27.3 million ordinary shares under the share purchase plan.
6 Following the announcement of the 2013 final dividend the Company repurchased $500 million of ordinary shares via an on-market share buy-back resulting in 15.9 million ordinary shares
being cancelled.
7 Treasury Shares in Global Wealth are shares held in statutory funds as assets backing policyholder liabilities. AWA Treasury Shares outstanding as at 30 September 2015 were 11,623,304(2014: 11,761,993).

PREFERENCE SHARESEuro Trust Securities
On 13 December 2004, ANZ issued 500,000 Euro Floating Rate Non-cumulative Trust Securities (‘Euro Trust Securities’) at €1,000 each, raising$871 million net of issue costs. All 500,000 Euro Trust Securities on issue were bought back by ANZ for cash at face value (€1,000 per security)and cancelled on 15 December 2014.
Consolidated

Preference share balance at start of year
– Euro Trust Securities bought backPreference share balance at end of the year

The Company

2015
$m

2014
$m

2015
$m

2014
$m

871
(871)
–

871
–
871

871
(871)
–

871
–
871

NON-CONTROLLING INTERESTS
Consolidated
2015
$m

2014
$m

Share capital
Retained earnings

55
51

46
31

Total non-controlling interests

106

77

140

ANZ ANNUAL REPORT 2015

31: Reserves and Retained Earnings
Consolidated

The Company1

2015
$m

2014
$m

2015
$m

2014
$m

a) Foreign currency translation reserve
Balance at beginning of the year
Transferred to income statement
Currency translation adjustments net of hedges

(605)
(4)
1,728

(1,125)
37
483

(290)
(4)
878

(539)
37
212

Total foreign currency translation reserve

1,119

(605)

584

(290)

b) Share option reserve
Balance at beginning of the year
Share-based payments/(exercises)
Transfer of options/rights lapsed to retained earnings3

60
16
(8)

55
13
(8)

60
16
(8)

55
13
(8)

Total share option reserve

68

60

68

60

c) Available-for-sale revaluation reserve
Balance at beginning of the year
Gain/(loss) recognised
Transferred to income statement

160
27
(49)

121
69
(30)

50
(6)
(34)

37
39
(26)

Total available-for-sale revaluation reserve

138

160

10

50

d) Cash flow hedge reserve
Balance at beginning of the year
Gains/(loss) recognised
Transferred to income statement

169
111
(11)

75
117
(23)

174
103
–

51
117
6

Total cash flow hedging reserve

269

169

277

174

e) Transactions with non-controlling interests reserve
Balance at beginning of the year
Transactions with non-controlling interests4

(23)
–

(33)
10

–
–

–
–

2

Total transactions with non-controlling interests reserve
Total reserves
1
2
3
4

(23)

(23)

–

–

1,571

(239)

939

(6)

Comparatives have changed (refer note 45).
Further information about share-based payments to employees is disclosed in note 41.
The transfer of balances from the share option reserve to retained earnings represents items of a distributable nature.
The premium in excess of the book value paid by an associate to acquire an additional interest in its controlled entity from the non-controlling shareholder recognised in 2013 was released
in 2014 as the associate no longer controls that entity.

Consolidated

Retained earnings
Balance at beginning of the year
Profit attributable to shareholders of the Company
Transfer of options/rights lapsed from share option reserve2,3
Remeasurement gain/(loss) on defined benefit plans after tax
Fair value gain/loss attributable to changes in own credit risk of financial liabilities
designated at fair value
Dividend income on Treasury shares held within the Group’s life insurance statutory funds
Ordinary share dividends paid
Preference share dividends paid
Foreign exchange gains on preference shares bought back4

The Company1

2015
$m

2014
$m

2015
$m

2014
$m

24,5447,493
8(4)21,9367,271
8
32

17,5577,306
8
20

15,826
6,436
8
6

37
22
(4,906)
(1)
116

(25)
22
(4,694)(6)–

37–(4,906)
–
116

(25)
–
(4,694)––Retained earnings at end of year

27,30924,544

20,13817,557

Total reserves and retained earnings

28,88024,30521,077

17,551

1
2
3
4Comparatives have changed (refer note 45).
Further information about share-based payments to employees is disclosed in note 41.
The transfer of balances from the share option reserve to retained earnings represents items of a distributable nature.
The Euro Trust Securities were bought back by ANZ for cash at face value and cancelled on 15 December 2014. The foreign exchange gain between the issue date and 15 December 2014 wasrecognised directly in retained earnings.

NOTES TO THE FINANCIAL STATEMENTS

141

NOTES TO THE FINANCIAL STATEMENTS (continued)

32: Capital Management
ANZ pursues an active approach to capital management, which
is designed to protect the interests of depositors, creditors andshareholders. This involves the on-going review and Board approvalof the level and composition of ANZ’s capital base, assessed against
the following key policy objectives:}} regulatory compliance such that capital levels exceed APRA’s, ANZ’s
primary prudential supervisor, minimum Prudential Capital Ratios(PCRs) both at Level 1 (the Company and specified subsidiaries) andLevel 2 (ANZ consolidated under Australian prudential standards),
along with US Federal Reserve’s minimum Level 2 requirements
under ANZ’s Foreign Holding Company Licence in the United Statesof America;}} capital levels are aligned with the risks in the business and to meetstrategic and business development plans through ensuring thatavailable capital exceeds the level of Economic Capital required tosupport the Ratings Agency ‘default frequency’ confidence level fora ‘AA’ credit rating category bank. Economic Capital is an internal
estimate of capital levels required to support risk and unexpected
losses above a desired target solvency level;}} capital levels are commensurate with ANZ maintaining its preferred‘AA’ credit rating category for senior long-term unsecured debt
given its risk appetite outlined in its strategic plan; and}} an appropriate balance between maximising shareholder returns
and prudent capital management principles.
ANZ achieves these objectives through an Internal Capital Adequacy
Assessment Process (ICAAP) whereby ANZ conducts detailed strategic
and capital planning over a medium term time horizon.
Annually, ANZ conducts a detailed strategic planning process overa three year time horizon, the outcomes of which are embodied in
the Strategic Plan. This process involves forecasting key economic
variables which Divisions use to determine key financial data for their
existing business. New strategic initiatives to be undertaken overthe planning period and their financial impact are then determined.
These processes are used for the following:}} review capital ratios, targets, and levels of different classes of capitalagainst ANZ’s risk profile and risk appetite outlined in the Strategic
Plan. ANZ’s capital targets reflect the key policy objectives above,and the desire to ensure that under specific stressed economic
scenarios that capital levels are sufficient to remain above both
Economic Capital and Prudential Capital Ratio (PCR) requirements;}} stress tests are performed under different economic conditions
to ensure a comprehensive review of ANZ’s capital position both
before and after mitigating actions. The stress tests determine thelevel of additional capital (i.e. the ‘stress capital buffer’) needed
to absorb losses that may be experienced during an economic
downturn; and}} stress testing is integral to strengthening the predictive approach
to risk management and is a key component in managing risks,
asset writing strategies and business strategies. It creates greater
understanding of the impacts on financial performance throughmodelling relationships and sensitivities between geographic,
industry and Divisional exposures under a range of macroeconomic
scenarios. ANZ has a dedicated stress testing team within Risk
Management that models and reports to management and theBoard’s Risk Committee on a range of scenarios and stress tests.
Results are subsequently used to:}} recalibrate ANZ’s management targets for minimum and operating
ranges for its respective classes of capital such that ANZ will havesufficient capital to remain above both Economic Capital andregulatory requirements; and142}} identify the level of organic capital generation and hence
determine current and future capital issuance requirementsfor Level 1 and Level 2.
From these processes, a Capital Plan is developed and approvedby the Board which identifies the capital issuance requirements,
capital securities maturity profile, and options around capital
products, timing and markets to execute the Capital Plan under
differing market and economic conditions.
The Capital Plan is maintained and updated through a monthly
review of forecast financial performance, economic conditions anddevelopment of business initiatives and strategies. The Board andsenior management are provided with monthly updates of ANZ’scapital position. Any actions required to ensure ongoing prudent
capital management are submitted to the Board for approval.
REGULATORY ENVIRONMENT
ANZ’s regulatory capital calculation is governed by APRA’s Prudential
Standards which adopt a risk-based capital assessment framework
based on the Basel 3 capital measurement standards. This risk based
approach requires eligible capital to be divided by total risk weighted
assets (RWAs), with the resultant ratio being used as a measure of an
ADI’s capital adequacy. APRA determines PCRs for Common Equity
Tier 1 (CET1), Tier 1 and Total Capital, with capital as the numerator
and RWAs as the denominator.
To ensure that ADIs are adequately capitalised on both a stand-alone
and group basis, APRA adopts a tiered approach to the measurementof an ADI’s capital adequacy by assessing the ADIs financial strength
at three levels:}} Level 1 – the ADI on a stand-alone basis (i.e. the Company andapproved subsidiaries which are consolidated to form the ADI’s
Extended Licensed Entity);}} Level 2 – the consolidated banking group (i.e. the consolidated
financial group less certain subsidiaries and associates excluded
under the prudential standards); and}} Level 3 – the conglomerate group at the widest level.
ANZ is a Level 1 and Level 2 reporter, and measures capital adequacy
monthly on a Level 1 and Level 2 basis, and is not yet required toreport on a Level 3 basis.
Regulatory capital is divided into Tier 1, carrying the highest capitalelements, and Tier 2, which has lower capital elements, but still adds
to the overall strength of the ADI.
Tier 1 capital is comprised of Common Equity Tier 1 capital lessdeductions and Additional Tier 1 capital instruments. Common Equity
Tier 1 capital comprises shareholders’ equity adjusted for items which
APRA does not allow as regulatory capital or classifies as lower formsof regulatory capital. Common Equity Tier 1 capital includes thefollowing significant adjustments:}} Additional Tier 1 capital instruments included within shareholders’equity are excluded;}} Reserves, excluding the hedging reserve and reserves of insurance
and funds management subsidiaries excluded for Level 2 purposes;}} Retained earnings excludes retained earnings of insurance andfunds management subsidiaries excluded for Level 2 purposes,
but includes capitalised deferred fees forming part of loan yields
that meet the criteria set out in the prudential standard;}} Inclusion of qualifying treasury shares; and}} Current year net of tax earnings less profits of insurance andfunds management subsidiaries excluded for Level 2 purposes.

ANZ ANNUAL REPORT 2015

32: Capital Management (continued)
Additional Tier 1 capital instruments are high quality components
of capital that provide a permanent and unrestricted commitmentof funds, are available to absorb losses, are subordinated to the claimsof depositors and senior creditors in the event of the winding upof the issuer and provide for fully discretionary capital distributions.
Deductions from the capital base comprise mainly deductions to
the Common Equity Tier 1 component. These deductions are largely
intangible assets, investments in insurance and funds management
entities and associates, capitalised expenses (including loan andorigination fees) and the amount of regulatory expected losses(EL) in excess of eligible provisions.
Tier 2 capital mainly comprises perpetual subordinated debt
instruments and dated subordinated debt instruments whichhave a minimum term of five years at issue date.
Total Capital is the sum of Tier 1 capital and Tier 2 capital.
In addition to the prudential capital oversight that APRA conducts
over the Company and the Group, the Company’s branch operations
and major banking subsidiary operations are overseen by local
regulators such as the Reserve 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 Regulatory Commission who may impose minimum
capitalisation rates on those operations.
Throughout the financial year, the Company and the Group
maintained compliance with the minimum Common Equity Tier 1, Tier
1 and Total Capital ratios set by APRA and the US Federal Reserve (asapplicable) as well as applicable capitalisation rates set by regulators
in countries where the Company operates branches and subsidiaries.
REGULATORY DEVELOPMENTS
Financial System Inquiry (FSI)The Australian Government recently completed a comprehensive
inquiry into Australia’s financial system. The final FSI report was
released on 7 December 2014. The contents of the final FSI report
are wide-ranging and key recommendations that may have an
impact on regulatory capital levels include:}} setting capital standards such that Australian ADIs capital ratios areunquestionably strong;}} raising the average internal ratings-based (IRB) mortgage risk-weightto narrow the difference between average mortgage risk-weight for
ADIs using IRB models and those using standardised risk weights;}} implementing a framework for minimum loss absorbing andrecapitalisation capacity in line with emerging international practice;}} developing a common reporting template that improves thetransparency and comparability of capital ratios of Australian
ADIs; and}} introducing a leverage ratio that acts as a backstop to ADIs’
risk-based capital requirements, in line with Basel framework.
APRA responded to parts of the FSI inquiry in July 2015 withthe following announcements made in connection to the
key recommendations:}} APRA released an information paper entitled “International
capital comparison study” (APRA Study) which supports the FSI’s
recommendation that the capital ratios of Australian ADIs should
be unquestionably strong. The APRA Study confirmed that the
major Australian ADIs are well-capitalised and acknowledged thechallenges and complexity in comparing capital ratios between
Australian ADIs and international peers given the varied national

discretions exercised by different jurisdictions in implementing the
global capital adequacy framework (Basel framework). The APRA
Study did not confirm the definition of ‘unquestionably strong’ andstated that APRA does not intend to directly link Australian capitalrequirements to a continually moving benchmark. The resultsof the APRA Study will only inform but will not determine APRA’s
approach for setting capital adequacy requirements.
}} Effective from 1 July 2016, APRA requires increased capitalrequirements for Australian residential mortgage exposures by
ADIs accredited to use the internal ratings-based (IRB) approachto credit risk. These new requirements would increase the averagerisk weighting for mortgage portfolios to approximately 25%.
For ANZ, the impact is an approximate 60 bps reduction in CET1
on implementation of this change. In response to this, ANZ has
raised $3.2 billion of ordinary share capital via a fully underwritten
institutional placement in August 2015 ($2.5 billion raised) anda share purchase plan to eligible Australian and New Zealandshareholders in September 2015 ($0.7 billion raised). APRA
has indicated that further changes may be required once greater
clarity on the deliberations of the Basel Committee is available,
particularly in relation to revisions to the standardised approachfor credit risk and capital floors.
The Australian Government released its response to the FSI
in October 2015 which agrees with all of the above capital related
recommendations. The Australian Government support and endorses
APRA to implement the recommendations, including the initialactions to raise the capital requirements for Australian residential
mortgage exposures and to take additional steps to ensure thatthe major banks have unquestionably strong capital ratios by theend of 2016.
Apart from the July 2015 announcements, APRA has not made any
determination on the other key recommendations. Therefore, thefinal outcomes from the FSI, including any impacts and the timingof these impacts on ANZ remain uncertain.
Leverage Ratio
In May 2015, APRA released final standards for implementing
leverage ratio disclosures with effect from 1 July 2015. Leverage
ratio requirements are included in the Basel Committee on Banking
Supervision (BCBS) Basel 3 capital framework as a supplement
to the current risk based capital requirements.
In the requirements, APRA has maintained the BCBS calculation of theleverage ratio of Tier 1 Capital expressed as a percentage of Exposure
Measure. The proposed BCBS’ minimum leverage ratio requirement is
3%. APRA has not yet announced details of the minimum requirement
which will apply to impacted Australian ADIs.
Public disclosure of the leverage ratio commenced for the year ended
September 2015, with subsequent disclosures published on a quarterly
basis in the Pillar 3 Report.
Domestic Systemically Important Bank (D-SIB) Framework
APRA has released details of its D-SIB framework for implementationin Australia and has classified ANZ and three other major Australianbanks as domestic systemically important banks. As a result, an addition
to the Capital Conservation Buffer (CCB) will be applied to the four
major Australian banks, increasing capital requirements by 100 bps
from 1 January 2016 and further strengthening the capital positionof Australia D-SIBs. ANZ’s current capital position is already in excessof APRA’s requirements including the D-SIB overlay. The Group is wellplaced for D-SIB implementation in January 2016.

NOTES TO THE FINANCIAL STATEMENTS

143

NOTES TO THE FINANCIAL STATEMENTS (continued)

32: Capital Management (continued)
Composition of Level 2 ADI GroupIn May 2014, APRA provided further clarification to the definition of the Level 2 Authorised Deposit-Taking Institution (ADI) group, wheresubsidiary intermediate holding companies are now considered part of the Level 2 Group.
The above clarification results in the phasing out, over time, of capital benefits arising from the debt issued by ANZ Wealth Australia Limited(ANZWA). The first tranche of this debt, amounting to $405 million or approximately 10 bps of CET1 was phased out in June 2015. As at
30 September 2015, ANZWA has $400 million of debt outstanding which will mature by March 2016. This will result in a reduction in CET1
by approximately 10bps on maturity of the debt with the Group well placed to manage this through organic capital generation.
Level 3 Conglomerates (Level 3)
In August 2014, APRA announced its planned framework for the supervision of Conglomerates Group (Level 3) which includes updated Level 3
capital adequacy standards. These standards will regulate a bancassurance group such as ANZ as a single economic entity with minimum capitalrequirements and additional monitoring of risk exposure levels.
APRA has deferred a decision on the implementation date as well as the final form of the Level 3 framework until the recommendations of the
FSI and the Government’s response to them have been announced and considered by APRA. APRA has committed to a minimum transition periodof 12 months for affected institutions to comply with the new requirements once an implementation date is established.
Based upon current draft of the Level 3 standards covering capital adequacy, and risk exposures, ANZ is not expecting any material impact
on its operations.
CAPITAL ADEQUACY
The table below provides the composition of capital used for regulatory purposes and capital adequacy ratios.
2015
$m

2014
$m

Tier 1
Shareholders' equity and non-controlling interests
Prudential adjustments to shareholders equity

57,353(387)

49,284(1,211)Gross Common Equity Tier 1 Capital
Deductions

56,966(18,440)

48,073(16,297)

Common Equity Tier 1 Capital
Additional Tier 1 capital

38,526
6,958

31,776
6,825

Tier 1 capital

45,48438,601

Qualifying capital

Tier 2 capital

7,951

7,138

Total qualifying capital

53,43545,739

Capital adequacy ratios
Common Equity Tier 1
Tier 1
Tier 2

9.6%
11.3%
2.0%

8.8%
10.7%
2.0%

Total
Risk Weighted Assets

13.3%

12.7%

401,937

361,529

REGULATORY ENVIRONMENT – INSURANCE AND FUNDS MANAGEMENT BUSINESS
Under APRA’s Prudential Standards, life insurance and funds management activities are de-consolidated for the purposes of calculating capital
adequacy and excluded from the risk based capital adequacy framework for the ANZ Level 2 Group.
ANZ’s insurance companies in Australia are regulated by APRA on a stand-alone basis. Prudential Standards issued under the Life Insurance
Act 1995 and Insurance Act 1973 determine the minimum capital requirements these companies are required to meet. Life insurance companies
in New Zealand are required to meet minimum capital requirements as determined by the Insurance (Prudential Supervision) Act 2010.
Fund managers in Australia are subject to ‘Responsible Entity’ regulation by the Australian Securities and Investment Commission (ASIC). The
regulatory capital requirements vary depending on the type of Australian Financial Services Licence or Authorised Representatives’ Licence held.
APRA supervises approved trustees of superannuation funds and it introduced new financial requirements which became effective from
1 July 2013.
ANZ’s insurance and funds management companies held assets in excess of regulatory capital requirements at 30 September 2015.

144

ANZ ANNUAL REPORT 2015

33: Shares in Controlled Entities
Consolidated

Total shares in controlled entities

The Company

2015
$m

2014
$m

2015
$m

2014
$m

–

–

17,823

14,870DISPOSAL OF CONTROLLED ENTITIESThere were no material entities disposed of during the year ended 30 September, 2015.
On 4 July 2014 the Group disposed of its ownership interest in ANZ Trustees Limited. The contribution to Group profit after tax for the period(1 October 2013 to 4 July 2014) from ordinary activities was $3.7 million. Details of aggregate assets and liabilities of material controlled entities
disposed of by the Group are as follows:
Consolidated

The Company

2015
$m

2014
$m

2015
$m

2014
$m

Cash consideration received
Less: Balances of disposed cash and cash equivalents

–
–

156
11

–
–

156
–

Net cash consideration received

–

145

–

156

Less: Net assets disposed
Shares in controlled entities
Other assets, including allocated goodwill
Payables and other liabilities

–
–
–

–
(2)
1

–
–
–

(22)
–
–

Less: Provisions for warranties, indemnities and direct costs relating to disposal

–
–

(1)
(19)

–
–

(22)
(19)

Gain on disposal

–

125

–

115

ACQUISITION OF CONTROLLED ENTITIESANZ Bank (Thai) Public Company Limited was incorporated in Thailand on 27 November 2014 for the purpose of conducting banking activities.
There were no material controlled entities acquired during the year ended 30 September 2015 or the year ended 30 September 2014.

NOTES TO THE FINANCIAL STATEMENTS

145

NOTES TO THE FINANCIAL STATEMENTS (continued)

34: Controlled Entities
Ultimate parent of the Group
Australia and New Zealand Banking Group Limited

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 Capital Hedging Pty Ltd
ANZ Commodity Trading Pty Ltd
ANZ Funds Pty Ltd
ANZ Bank (Europe) Limited1
ANZ Bank (Kiribati) Limited1,2
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
			 ANZ Wealth New Zealand Limited1				 ANZ New Zealand Investments Ltd
				OnePath Life (NZ) Limited1
			Arawata Assets Limited1
			UDC Finance Limited1
ANZ International (Hong Kong) Limited1
		 ANZ Asia Limited1
		 ANZ Bank (Vanuatu) Limited3
ANZ International Private Limited1
		 ANZ Singapore Limited1
ANZ Royal Bank (Cambodia) Limited1,2
Votraint No. 1103 Pty Ltd
ANZ Lenders Mortgage Insurance Pty Ltd
ANZ Residential Covered Bond Trust
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 Bancorp4
ANZ Guam Inc.4
ANZ Finance Guam, Inc.4
Esanda Finance Corporation Limited
E*TRADE Australia Limited
E*TRADE Australia Securities Limited
PT Bank ANZ Indonesia1,2

Incorporated in

Nature of business

Australia

Banking

Laos
TaiwanVietnam
Australia
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 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
Australia
Indonesia

Banking
Banking
Banking
Securitisation Manager
Hedging
Finance
Holding Company
Banking
Banking
Banking
Banking
Captive-Insurance
Holding Company
Banking
Funds Management
FinanceFinance
Holding Company
Funds Management
Insurance
Property Holding Company
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
General FinanceHolding Company
Online Stockbroking
Banking

1 Audited by overseas KPMG firms.
2 Non-controlling interests hold ordinary shares or units in the controlled entities listed above as follows: ANZ Bank (Kiribati) Limited – 150,000 $1 ordinary shares (25%) (2014: 150,000 $1 ordinary
shares (25%)); PT Bank ANZ Indonesia – 16,500 IDR 1 million shares (1%) (2014: 16,500 IDR 1 million shares (1%)); ANZ Royal Bank (Cambodia) Limited – 319,500 USD100 ordinary shares (45%)(2014: 319,500 USD100 ordinary shares (45%)).
3 Audited by Hawkes Law.
4 Audited by Deloitte Guam.

146

ANZ ANNUAL REPORT 2015

35: Investments in associates
Significant associates of the Group are as follows:
Consolidated

The Company1

2015
$m

2014
$m

2015
$m

2014
$m

AMMB Holdings Berhad2
PT Bank Pan Indonesia3
Shanghai Rural Commercial Bank4
Bank of Tianjin5
Other individually immaterial associates (in aggregate)

1,424
904
1,981
1,021
110

1,465
795
1,443
710
169

–
–
1,981
1,021
16

–
–
1,443
710
13

Total carrying value of associates

5,440

4,582

3,018

2,166

1 Comparatives have changed. Refer to note 45.
2 AMMB Holdings Berhad (AmBank Group) provides a full suite of banking and insurance products and services in Malaysia and is listed on the Bursa Malaysia. This investment relates directly
to the Group’s Asia Pacific growth strategy.
3 PT Bank Pan Indonesia is a consumer and business bank in Indonesia and is listed on the Jakarta stock exchange. This investment relates directly to the Group’s Asia Pacific growth strategy.
4 Shanghai Rural Commercial Bank is a rural commercial bank in China. This investment relates directly to the Group’s Asia Pacific growth strategy.
5 Bank of Tianjin operates as a commercial bank in China offering products such as deposit accounts and loans. This investment relates directly to the Group’s Asia Pacific growth strategy.
Significant influence is established via representation on the Board of Directors.

a) Financial information on material associates
Set out below is the summarised financial information of each associate that is material to the Group. The summarised financial information
is based on the associates’ IFRS financial information.
AMMB Holdings
BerhadPT Bank Pan
Indonesia

Shanghai Rural
Commercial Bank

Bank of Tianjin

Malaysia

Indonesia

Peoples’ Republicof China

Peoples’ Republicof China

Principal place of business and country of incorporation
Method of measurement in the Group’s balance sheet

Equity method

Equity method

Equity method

Equity method

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

Summarised results
Revenue

2,840

3,356

822

688

3,058

2,331

2,168

1,637

Profit/(loss)
Other comprehensive income/(loss)

583
54

670
(14)

225
2

238
6

1,117
175

731
(78)

1,094
85

619
(62)

Total comprehensive income
Less: Total comprehensive income attributable
to non–controlling interests

637

656

227

244

1,292

653

1,179

557

30

20

16

20

33

18

2

3

607

636

211

224

1,259

635

1,177

554

Summarised financial position
Total assets1
Total liabilities1

43,66837,37445,09038,591

17,244
14,68416,011
13,776

128,511
118,32485,056
77,634

117,073
109,80385,68380,627

Total Net assets1
Less: Non–controlling interests of associate

6,294
307

6,499
338

2,560
233

2,235
186

10,187
283

7,422
208

7,270
50

5,056
40

Net assets attributable to owners of associate

5,987

6,161

2,327

2,049

9,904

7,214

7,220

5,016

Reconciliation to carrying amount of Group's interest in associate
Proportion of ownership interest heldby the Group
24%
24%
Carrying amount at the beginning of the year
1,465
1,282
Group's share of total comprehensive income
152
151
(59)
Dividends received from associate(66)Group's share of other reserve movements ofassociate and FCTR adjustments
(127)
91

39%
795
82
–

39%
692
87
–

20%
1,443
251
(38)

20%
1,261
127
(24)

14%
710
167
(21)

14%
601
86
(19)

27

16

325

79

165

42

Carrying amount at the end of the year

1,424

1,465

904

795

1,981

1,443

1,021

710

Market Value of Group's investment in associate2

1,048

1,720

805

855

n/a

n/a

n/a

n/a

Total comprehensive income attributableto owners of associate

1 Includes market value adjustments (including goodwill) made by the Group at the time of acquisition and adjustments for any differences in accounting policies.
2 Applicable to those investments in associates where there are published price quotations. Market Value is based on a price per share and does not include any adjustments for holding size.

At 30 September 2015, although AMMB Holdings Berhad and PT Bank Pan Indonesia market value (based on share price) was below its carrying
value, no impairment was recognised as the carrying amount was supported by its value in use.

NOTES TO THE FINANCIAL STATEMENTS

147

NOTES TO THE FINANCIAL STATEMENTS (continued)

35: Associates (continued)
The value in use calculation is sensitive to a number of key
assumptions, including future profitability levels, capital levels,
long term growth rates and discount rates. The key assumptions
used in the value in use calculation are outlined below:
As at 30 Sep 2015

Pre-tax discount rate
Terminal growth rate
Expected NPAT growth (5 years average)
Core Equity tier 1 rate

AMMB

PT Panin

11.0%
5.5%
2.1%
10.0%

12.7%
5.7%
5.1%
10.0%

b) Other associates1
The following table summarises, in aggregate, the Group’s interestin associates that are considered individually immaterial for
separate disclosure.
2015
$m

2014
$m

Group's share of profit/(loss)
Group's share of other comprehensive income

36
(4)

39
2

Group's share of total comprehensive income

32
110

41
169

Carrying amount

1 Includes an interest in joint ventures of $2 million at 30 September 2015.

36: Structured Entities
A structured entity (‘SE’) is an entity that has been designed sothat voting or similar rights are not the dominant factor in deciding
who controls the entity, such as when any voting rights relate
to administrative tasks only and the relevant activities are directedby means of contractual arrangements. A structured entity 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/or}} financing in the form of multiple contractually linked instruments toinvestors that create concentrations of credit or other risks (tranches).
SEs are consolidated when control exists in accordance with theaccounting policy disclosed in note 1(A)(vii). In other cases theGroup may have an interest in or sponsor a SE but not consolidate
it. This note provides further details on both consolidated andunconsolidated SEs.
The Group’s involvement with SEs is mainly through securitisation,
covered bond issuances, structured finance arrangements and funds
management activities. SEs may be established either by the Groupor by a third party.
Securitisation
The Group uses SEs to securitise customer loans and advances thatit has originated in order to diversify its sources of funding for liquidity
management. Such securitisation transactions involve transfers
to an internal securitisation (bankruptcy remote) vehicle created
for the purpose of structuring assets that are eligible for repurchaseunder agreements with the applicable central bank (i.e. Repo eligible).
The internal securitisation SEs are consolidated (refer note 37 forfurther details).

The Group also establishes SEs on behalf of its customers to securitise
their loans or receivables. The Group may manage these securitisation
vehicles and/or provide liquidity or other support. Additionally, theGroup may acquire interests in securitisation vehicles set up by third
parties through holding securities issued by such entities. While themajority are unconsolidated, in limited circumstances the Group
consolidates SEs used in securitisation when control exists.
Covered bond issuances
Certain loans and advances have been assigned to bankruptcy
remote SEs to provide security for issuances of debt securities
by the Group. The Group retains control of the SEs and accordingly
they are consolidated (refer note 37 for further details).
Structured finance arrangements
The Group is involved with SEs established in connection with structured
lending transactions to facilitate debt syndication and/or to ring-fencecollateral assets. The Group is also involved with SEs established to own
assets that are leased to customers in structured leasing transactions.
Sometimes, the Group may also manage the SE, hold minor amountsof capital or provide risk management products (derivatives). The abilityof the Group to participate in decisions about the relevant activitiesof these SEs varies. In most instances the Group does not control theseSEs. Further, the Group’s involvement typically does not establish morethan a passive interest in decisions about the relevant activities andaccordingly is not considered disclosable as discussed in (b) below.
Funds management activities
The Group’s Global Wealth division conducts investment
management and other fiduciary activities as 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 are financed
through the issue of puttable units to investors and are consideredby the Group to be SEs. The Group’s exposure to Investment Funds
includes holding units and receiving fees for services. Where theGroup invests in Investment Funds on behalf of policyholders they
are consolidated when control is deemed to exist.
(a) Financial or other support provided to consolidated
structured entities
Pursuant to contractual arrangements, the Group provides financial
support to consolidated SEs as outlined below (these represent
intra‑group transactions which are eliminated on consolidation):}} Securitisation and covered bond issuances:
The Group provides lending facilities, derivatives and commitments
to these SEs and/or holds debt instruments that they have issued.
Refer to note 37 for further details in relation to the Group’s internal
securitisation programmes and covered bond issuances.
}} Structured finance arrangements:
The assets held by these SEs are normally pledged as collateral for
finance provided. Certain consolidated SEs are financed entirely by
the Group while others are financed by syndicated loan facilities inwhich the Group is a participant. The financing provided by the Group
includes lending facilities where the Group’s exposure is limited to theamount of the loan and any undrawn amount. Additionally the Grouphas provided Letters of Support to these consolidated SEs confirmingthat the Group will not demand repayment of the financing provided
for the ensuing 12 month period.
The Group did not provide any non-contractual support to consolidated
SEs during the year (2014: nil).
Other than as disclosed above the Group does not have any current
intention of providing financial or other support to consolidated SEs.

148

ANZ ANNUAL REPORT 2015

36: Structured Entities (continued)(b) Group’s interest in unconsolidated structured entities
An ‘interest’ in an unconsolidated SE is any form of contractual or non-contractual involvement which exposes the Group to variability of returns
from the performance of that entity. Such interests include, but are not limited to, holdings of debt or equity securities, derivatives that pass-on risks
specific to the performance of the structured entity, lending, loan commitments, financial guarantees and fees from funds management activities.
For the purpose of disclosing interests in unconsolidated SEs:}} no disclosure has been made where the Group’s involvement does not establish more than a passive interest, for example, when the Group’s
involvement constitutes a typical 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 (i.e. the activities that significantly affect returns).
}} ‘interests’ do not include derivatives intended to expose the Group to market-risk (rather than performance risk specific to the SE) or derivatives
where the Group creates rather than absorbs variability of the unconsolidated SE (e.g. purchase of credit protection under a credit default swap).
The following table sets out the Group’s interests in unconsolidated SEs together with the maximum exposure to loss that could arise fromsuch interests.
Interest in unconsolidated structured entities
Consolidated at 30 September 2015

Securitisation
2015
2014
$m
$m

Available-for-sale assets
Investment backing policy liabilities
Loans and advances

3,849
–
6,825

3,603
–
4,958

–
–
37

–
–
39

–
165
–

–
227
–

3,849
165
6,862

3,603
227
4,997

Total on-balance sheet

10,674

8,561

37

39

165

227

10,876

8,827

Off-balance sheet interests
Commitments (facilities undrawn)

2,610

3,520

–

–

–

–

2,610

3,520

Total off-balance sheet

2,610

3,520

–

–

–

–

2,610

3,520

Maximum exposure to loss

13,28412,081

37

39

165

227

13,486

12,347

In addition to the interests above, the Group earned funds
management fees from unconsolidated SEs of $542 million(2014: $544 million) during the year.
The Group’s maximum exposure to loss represents the maximum
amount of loss that the Group could incur as a result of its
involvement with unconsolidated SEs, regardless of the probabilityof occurrence, if loss events were to take place. This does not in any
way represent the actual losses expected to be incurred. Instead,the maximum exposure to loss is contingent in nature and may arise
for instance upon the bankruptcy of an issuer of securities or debtor
or if liquidity facilities or guarantees were to be called upon.
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, maximum exposure to credit loss has
been determined as follows:}} available-for-sale assets and investments backing policy
liabilities – carrying amount; and}} loans and advances – carrying amount plus undrawn amountof any commitments.
Information about the size of the unconsolidated SEs that theGroup 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$1.7 billion (2014: $1.7 billion); and}} Investment funds: Size is indicated by Funds Under Management
which vary by SE with a maximum value of approximately$33.8 billion (2014: $32.6 billion).

Structured finance
2015
2014
$m
$m

Investment funds
2015
2014
$m
$m

2015
$m

Total
2014
$m

The Group did not provide any non-contractual support
to unconsolidated SEs during the year.
The Group does not have any current intention of providing
financial or other support to unconsolidated SEs.
(c) Sponsored unconsolidated structured entities
The 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 where it is the primary
party involved in the design and establishment of that SE and:}} where 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 whichinvests only in deposits with ANZ Bank New Zealand Limited. The
Group does not provide any implicit or explicit guarantees of thecapital value or performance of investments in the ANZ PIE Fund.
There was no income received from nor assets transferred to thisentity during the year.

NOTES TO THE FINANCIAL STATEMENTS

149

NOTES TO THE FINANCIAL STATEMENTS (continued)

37: Transfers of Financial Assets
The Group enters into transactions in the normal course of businessby which it transfers financial assets directly to third parties or toSEs. These transfers may give rise to the full or partial derecognitionof those financial assets depending on the Group’s continuing
involvement and exposure to risks and rewards.
SECURITISATIONSNet loans and advances include residential mortgages securitised
under the Group’s securitisation programs which are assigned tobankruptcy remote SEs to provide security for obligations payable
on the notes issued by the SEs. This includes mortgages that areheld for potential repurchase agreements (REPOs) with central banks.
The holders of the issued notes have full recourse to the pool ofresidential mortgages which have been securitised and the Company
cannot otherwise pledge or dispose of the transferred assets.

The Company is required to maintain the cover pool at a levelsufficient to cover the bond obligations. In addition the Company
is entitled to any residual income of the covered bond SEs and enters
into derivatives with the SEs, The Company is therefore deemed tohave retained the majority of the risks and rewards of the residential
mortgages and as such 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 Company.
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 power over the SE’s activities. The SEs are therefore
consolidated by the Group. The covered bonds issued externally
are included within debt issuances.
REPURCHASE AGREEMENTS

In some instances the Company is also the holder of the securitisednotes. In addition, the Company is entitled to any residual incomeof the SEs and enters into derivatives with the SEs. The Company
is therefore deemed to have retained the majority of the risks andrewards of the residential mortgages and as such continues torecognise the mortgages as financial assets. The obligation to pay thisamount to the SE is recognised as a financial liability of the Company.

Securities sold subject to repurchase agreements are considered
to be transferred assets that do not qualify for derecognition whensubstantially all the risks and rewards of ownership remain with theGroup. An associated liability is recognised for the consideration
received from the counterparty.

The Group is exposed to variable returns from its involvement withthese securitisation SEs and has the ability to affect those returns
through its power over the SE’s activities. The SEs are therefore
consolidated by the Group.

The Company arranges funding for certain customer transactions
through structured leasing and commodity prepayment arrangements.
At times, other financial institutions participate in the funding ofthese arrangements. This participation involves a proportionate
transfer of the rights to the lease receivable or financing arrangement.
The participating banks have limited recourse to the leased assets
or financed commodity and related proceeds. Circumstances may arise
whereby the Company continues to be exposed to some of the risksof the transferred lease receivable or financing arrangement througha derivative or other continuing involvement. When this occurs, the leasereceivable or loan does not get derecognised and the Company will
instead recognise an associated liability representing its obligations
to the participating financial institutions.

COVERED BONDS
The Group operates various global covered bond programs to raisefunding in the primary markets. Net loans and advances include
residential mortgages assigned to bankruptcy remote SEs associatedwith 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 thecover pool of assets. The issuer cannot otherwise pledge or disposeof the transferred assets, however, subject to legal arrangements
it may repurchase and substitute assets as long as the required
cover is maintained.

STRUCTURED FINANCE ARRANGEMENTS

The table below sets out the balance of assets transferred that do
not qualify for derecognition, along with the associated liabilities.

Consolidated

The Company

2015
$m

2014
$m

2015
$m

2014
$m

Securitisations1,2
Current carrying amount of assets transferred
Carrying amount of associated liabilities

–
–

–
–

73,55973,55967,974
67,974

Covered bonds1,3
Current carrying amount of assets transferred
Carrying amount of associated liabilities3

–
–

–
–

23,50823,50820,73820,738

Repurchase agreements
Current carrying amount of assets transferred
Carrying amount of associated liabilities

13,975
13,731

8,736
8,641

13,476
13,255

8,568
8,473

Structured Finance Arrangements
Current carrying amount of assets transferred
Carrying amount of associated liabilities

766
759

169
158

627
627

31
31

1 The consolidated balances are nil as the Company balances relate to transfers to internal structured entities.
2 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 their fair value.
3 The total covered bonds issued by the Group to external investors at 30 September 2015 was $27,013 million (2014: $20,561 million), secured by $30,368 million (2014 $27,241 million) of specified
residential mortgages. The associated liability represents the Company’s liability to the covered bond SE. Covered bonds issued by the Company to external investors at 30 September 2015 were$22,164 million (2014: $16,969 million).

150

ANZ ANNUAL REPORT 2015

38: Life Insurance Business
The Group conducts its life insurance business through OnePath Life Limited and OnePath Life (NZ) Limited. This note is intended
to provide disclosures in relation to the life insurance businesses conducted through these controlled entities.
CAPITAL ADEQUACY OF LIFE INSURER
Australian life insurers are required to hold reserves in excess of policy liabilities to support capital requirements under theLife Insurance Act (Life Act).
The life insurance business in New Zealand is not governed by the Life Act as this is a foreign domiciled life insurance company.
The company is however required to meet similar capital requirements.
The summarised capital information below, in respect of capital requirements under the Life Act, has been extracted from the financial
statements prepared by OnePath Life Limited. For detailed capital adequacy information on a statutory fund basis, users of this annual
financial report should refer to the separate financial statements prepared by OnePath Life Limited.
OnePath Life Limited

Capital Base
Prescribed Capital Amount (PCA)
Capital Adequacy Multiple (times)

2015
$m

2014
$m

538
316
1.69

524
295
1.78

LIFE INSURANCE BUSINESS PROFIT ANALYSIS
Life insurance
contracts

Life investment
contracts

Consolidated

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

Net shareholder profit after income tax

386

235

143

114

529

349

Net shareholder profit after income tax is represented by:
Emergence of planned profit margins
Difference between actual and assumed experience(Loss recognition)/reversal of previous losses on groups of related products
Investment earnings on retained profits and capital
Changes in assumptions

198
7
–
181
–

181
(21)
–
75
–

93
29
–
21
–

87
12
–
15
–

291
36
–
202

268
(9)
–
90
–

Net policyholder profit in statutory funds after income tax

18

16

–

–

18

16

Net policyholder profit in statutory funds after income tax is represented by:
Emergence of planned profits
Investment earnings on retained profits and experience profits

14
4

12
4

–
–

–
–

14
4

12
4

INVESTMENTS RELATING TO LIFE INSURANCE BUSINESS
Consolidated
2015
$m

2014
$m

Equity securities
Debt securities
Investments in managed investment schemes
Derivative financial assets/(liability)
Cash and cash equivalents

10,8986,460
16,781(81)762

10,528
6,503
15,954(203)
797

Total investments backing policy liabilities designated at fair value through profit or loss1

34,82033,5791 This includes $3,291 million (2014: $3,181 million) in respect of investments relating to external unit holders. In addition, the investment balance has been reduced by $4,636 million(2014: $4,779 million) in respect of the elimination of intercompany balances and Treasury Shares.

Investments held in statutory funds can only be used to meet the liabilities and expenses of that fund, or to make profit distributions whensolvency and capital adequacy requirements of the Life Act and Insurance (Prudential Supervision) Act 2010 are met. Accordingly, with the
exception of permitted profit distributions, the investments held in the statutory funds are not available for use by other parties of the Group.

NOTES TO THE FINANCIAL STATEMENTS

151

NOTES TO THE FINANCIAL STATEMENTS (continued)

38: Life Insurance Business (continued)
INSURANCE POLICY LIABILITIESa) Policy liabilities

Consolidated

Life insurance contract liabilities
Best estimate liabilities
Value of future policy benefits
Value of future expenses
Value of future premium
Value of declared bonuses
Value of future profits
Policyholder bonus
Shareholder profit margin
Business valued by non-projection method
Total insurance contract liabilities
Unvested policyholder benefits
Liabilities ceded under reinsurance contracts

2015
$m

2014
$m

9,290
2,204
(14,086)
15

6,854
2,024
(10,697)
15

23
2,232
4

27
1,655
5

(318)
41
649

(117)
42
591

Total life insurance contract liabilities

372

516

Life investment contract liabilities1,2

35,02934,038

Total policy liabilities

35,401

34,554

1 Designated at fair value through profit or loss.
2 Life investment contract liabilities that relate to a capital guaranteed element is $1,354 million (2014: $1,526 million). Life investment contract liabilities subject to investment performance
guarantees is $842 million (2014: $960 million).

b) Reconciliation of movements in policy liabilities

Life investment
contracts

Life insurance
contracts

Consolidated

2015
$m

2014
$m

2015
$m

2014
$m

2015
$m

2014
$m

Policy liabilities
Gross liability brought forward
Movements in policy liabilities reflected in the income statement
Deposit premium recognised as a change in life investment contract liabilities
Fees recognised as a change in life investment contract liabilities
Withdrawal recognised as a change in other life investment contract liabilities

34,038
1,520
5,165
(463)
(5,231)

31,703
2,388
5,311
(462)
(4,902)

516
(144)
–
–
–

685
(169)
–
–
–

34,554
1,376
5,165
(463)
(5,231)

32,388
2,219
5,311
(462)
(4,902)Gross policy liabilities closing balance

35,02934,038372

516

35,401

34,554

–
–

–
–

591
58

519
72

591
58

519
72

Liabilities ceded under reinsurance1
Balance brought forward
Movements in reinsurance assets reflected in the income statement
Closing balance
Total policy liabilities net of reinsurance asset

–

–

649

591

649

591

35,02934,038

(277)

(75)

34,75233,963

1 Liabilities ceded under reinsurance contracts are shown as ‘other assets’.

c) Sensitivity analysis – Life investment contract liabilities
Market risk arises on the Group’s life insurance business in respectof life investment contracts where an element of the liability to thepolicyholder is guaranteed by the Group. The value of the guarantee
is impacted by changes in underlying asset values and interest rates.
As at 30 September 2015, a 10% decline in equity markets would
have decreased profit by $12 million (2014: $15 million) and a 10%
increase would have increased profit by $5 million (2014: $nil). A 1%
increase in interest rates at 30 September 2015 would have decreased
profit by $4 million (2014: $9 million) and 1% decrease would haveincreased profit by $6 million (2014: $nil).
METHODS AND ASSUMPTIONS – LIFE INSURANCE CONTRACTS
Significant actuarial methods
The effective date of the actuarial report on policy liabilities (which
includes insurance contract liabilities and life investment contract
liabilities) and solvency requirements is 30 September 2015.
152

In Australia, the actuarial report was prepared by Mr Jaimie Sach FIAA
Appointed Actuary, a fellow of the Institute of Actuaries of Australia.
The actuarial reports indicate Mr Sach is satisfied as to the accuracyof the data upon which policy liabilities have been determined.
The amount of policy liabilities has been determined in accordancewith methods and assumptions disclosed in this financial report andthe requirements of the Life Act, which includes applicable standardsof the APRA.
In New Zealand, the actuarial report was prepared by Mr Michael
Bartram FIAA FNZSA, a fellow of the Institute of Actuaries of Australia
and a fellow of the New Zealand Society of Actuaries. The actuarial
reports indicate that Mr Bartram is satisfied as to the accuracyof the data upon which policy liabilities have been determined.

ANZ ANNUAL REPORT 2015

38: Life Insurance Business (continued)
Policy liabilities have been calculated in accordance with Prudential Standard LPS 340 Valuation of Policy Liabilities issued by the APRA
in accordance with the requirements of the Life Act. For life insurance contracts the Standard requires the policy liabilities to be calculated
in a way which allows for the systematic release of planned margins as services are provided to policyholders.
The profit carriers used to achieve the systematic release of planned margins are based on the product groups.
Critical assumptions
The valuation of the policy liabilities is dependant on a number of variables including interest rate, equity prices, future expenses, mortality,
morbidity and inflation. The critical estimates and judgements used in determining the policy liabilities is set out in note 2 (vi) on page 76.
Sensitivity analysis – life insurance contracts
The Group conducts sensitivity analysis to quantify the exposure of the life insurance contracts to risk of changes in the key underlying variables
such as interest rate, equity prices, mortality, morbidity and inflation. The valuations included in the reported results and the Group’s best
estimate of future performance is calculated using certain assumptions about these variables. The movement in any key variable will impact
the performance and net assets of the Group and as such represents a risk. The table below illustrates how changes in key assumptions would
impact the reported profit, insurance contract policy liabilities and equity at 30 September 2015.
Change invariable

Profit/(loss)
net ofreinsurance

Insurance
contract
liabilities
net ofreinsurance

Equity% change

$m

$m

$m

Market interest rates A change in market interest rates affects the value placed on
future cash flows. This changes profit and shareholder equity.

-1%
+1%

69
(55)

(97)
77

69
(55)

Expense risk

An increase in the level or inflationary growth of expenses overassumed levels will decrease profit and shareholder equity.

-10%
+10%

–
–

–
–

–
–

Mortality risk

Greater mortality rates would lead to higher levels of claims occurring,increasing associated claims cost and therefore reducing profit andshareholder equity.

-10%
+10%

(4)
–

5
–

(4)
–

Morbidity risk

The cost of health-related claims depends on both the incidenceof policyholders becoming ill and the duration which they remain
ill. Higher than expected incidence and duration would increaseclaim costs, reducing profit and shareholder equity.

-10%
+10%

–
(30)

–
43

–
(30)

Discontinuance risk

An increase in discontinuance rates at earlier durations has a negative effectas it affects the ability to recover acquisition expenses and commissions.

-10%
+10%

–
–

–
–

–
–

Variable

Impact of movement in underlying variable

LIFE INSURANCE RISK
Insurance risk is the risk of loss due to unexpected changes in current and future insurance claims rates. Insurance risk exposure arises in thelife insurance business as the risk that claims payments are greater than expected. In the life insurance business this arises primarily throughmortality (death) or morbidity (illness or injury) risks being greater than expected.
Insurance risks are controlled through the use of underwriting procedures and reinsurance arrangements. Controls are also maintained overclaims management practices to assist in the correct and timely payment of insurance claims. Regular monitoring of experience is conducted
at a sufficiently detailed level in order to identify any deviation from expected claim levels.
Financial risks relating to the Group’s life insurance business are generally monitored and controlled by selecting appropriate assets to backinsurance and life investment contract liabilities. Wherever possible within regulatory constraints, the Group segregates policyholders funds
from shareholders funds and sets investment mandates that are appropriate for each. The assets are regularly monitored by the Wealth Asset
Liability Committee and Wealth Product Committee to ensure that there are no material asset and liability mismatch issues and other risks,such as liquidity risk and credit risk, are maintained within acceptable limits.
All financial assets within the life insurance statutory funds directly support either the Group’s life insurance contracts, life investment contracts
or capital requirements. Market risk arises for the Group on contracts where the liabilities to policyholders are guaranteed. The Group manages thisrisk by the monthly monitoring and rebalancing of assets to policy liabilities. However, for some contracts the ability to match asset characteristics
with policy obligations is constrained by a number of factors including regulatory constraints, the lack of suitable investments as well as by thenature of the policy liabilities themselves.
Market risk also arises from those life investment contracts where the asset management fees earned are directly impacted by the valueof the underlying assets. The Group is exposed to the risk of future decreased asset management fees as a result of a decline in assets undermanagement and operational risk associated with the possible failure to administer life investment contracts in accordance with the productterms and conditions.

NOTES TO THE FINANCIAL STATEMENTS

153

NOTES TO THE FINANCIAL STATEMENTS (continued)

38: Life Insurance Business (continued)
Risk strategy
In compliance with contractual and regulatory requirements, a strategy is in place to monitor that the risks underwritten satisfy policyholders’risk and reward objectives whilst not adversely affecting the Group’s ability to pay benefits and claims when due. The strategy involves theidentification of risks by type, impact and likelihood, the implementation of processes and controls to mitigate the risks, and continuous
monitoring and improvement of the procedures in place to minimise the chance of an adverse compliance or operational risk event occurring.
Included in this strategy are the processes and controls over underwriting, claims management and product pricing. Capital management
is also a key aspect of the Group’s risk management strategy.
Allocation of capital
The Group’s life insurance businesses are subject to regulatory capital requirements which prescribe the amount of capital to be held dependingon the contract liability.
Solvency margin requirements established by APRA are in place to reinforce safeguards for policyholders’ interest, which are primarily the ability
to meet future claims payments in respect of existing policies.
Methods to limit or transfer insurance risk exposures
Reinsurance – Reinsurance treaties are analysed using a number of analytical modelling tools to assess the impact on the Group’s exposure
to risk with the objective of achieving the desired choice of the type of reinsurance and retention levels.
Underwriting procedures – Strategic underwriting decisions are put into effect using the underwriting procedures detailed in the Group’s
underwriting manual. Such procedures include limits to delegated authorities and signing powers.
Claims management – Strict claims management procedures are in place to assist in the timely and correct payment of claims in accordancewith policy conditions.

39: Fiduciary Activities
The Group provides fiduciary services to third parties including custody, nominee, trustee, administration and investment management services
predominantly through the Global Wealth segment. This involves the Group holding assets on behalf of third parties and making decisions
regarding the purchase and sale of financial instruments. In circumstances where ANZ is not the beneficial owner or does not control the assets,
they are not recognised in these financial statements.

40: Superannuation and Post Employment Benefit Obligations
The Group participates in a number of pension, superannuation and post-retirement medical benefit schemes throughout the world. The Groupmay be obliged to contribute to the schemes as a consequence of legislation and/or provisions of the trust deeds. Set out below is a summaryof amounts recognised in these financial statements in respect of the defined benefit sections of these schemes:
Consolidated

The Company

2015
$m

2014
$m

2015
$m

2014
$m

Amount recognised in the income statement
Current service cost
Administration costs
Net interest cost
Adjustment for contributions tax

7
1
(2)
1

6
1
1
2

3
1
(2)
-

3
1
–
–

Total included in personnel expenses

7

10

2

4

Amounts recognised in other comprehensive income (pre-tax)
Remeasurement (gains)/losses incurred during the year and recognised directly in retained earnings

6

(43)

(24)

(8)

218

212

193

217

(1,538)
1,623(1,327)
1,335(1,322)
1,452(1,151)
1,183

Total

85

8

130

32

As represented in the balance sheet
Net liabilities arising from defined benefit obligations included in payables and other liabilities
Net assets arising from defined benefit obligations included in other assets

(59)
144

(39)
47

(14)
144

(15)
47

Total

85

8

130

32

Cumulative remeasurement (gains)/losses recognised directly in retained earnings
Defined benefit obligation and scheme assets
Present value of funded defined benefit obligation1
Fair value of scheme assets

1 The Group’s defined benefit obligation relates solely to funded arrangements. The liability relates predominantly to pension payments to retired members or their dependants.
The basis of calculation is set out in note 1 F(vii).

154

ANZ ANNUAL REPORT 2015

40: Superannuation and Post Employment Benefit Obligations (continued)
Consolidated

The Company

2015
$m

2014
$m

2015
$m

2014
$m

1,327
7
54
–

1,265
6
54
–

1,151
3
48
–

1,047
3
45
–

(22)
9
36
10
–
–
187
(70)

(4)
(7)
33
(10)
–
–
74
(84)

(20)
–
18
–
–
–
182
(60)

1
–
35
–
–
–
71
(51)

1,538

1,327

1,322

1,151

Opening fair value of scheme assets
Interest income
Return on scheme assets excluding amounts included in interest income
Contributions from the employer
Contributions from scheme participants
Benefits paid
Administrative costs paid
Settlements
Exchange difference on foreign schemes

1,335
56
27
79
–
(70)
(1)
–
197

1,174
53
55
66
–
(84)
(1)
–
72

1,183
50
22
68
–
(60)
(1)
–
190

1,018
45
44
57
–
(51)
(1)
–
71

Closing fair value of scheme assets1

1,623

1,335

1,452

1,183

Movements in the present value of the defined benefit obligation
Opening defined benefit obligation
Current service cost
Interest cost
Contributions from scheme participantsRemeasurements:
Actuarial (gains)/losses – experience
Actuarial (gains)/losses – change in demographic assumptions
Actuarial (gains)/losses – change in financial assumptions
Actuarial (gains)/losses – change in ESCT
Curtailments
Settlements
Exchange difference on foreign schemes
Benefits paid
Closing defined benefit obligation
Movements in the fair value of the scheme assets

1 Scheme assets include the following financial instruments issued by the Group: cash and short-term instruments $1.7 million (September 2014: $1.7 million), fixed interest securities $0.5 million(September 2014: $0.4 million) and equities nil (September 2014: $0.1 million).

Consolidated

The Company

Quoted$m

Unquoted
$m

Value
$m

Quoted$m

Unquoted
$m

Value
$m

Composition of scheme assets
2015
Equities
Debt securities
Pooled investment funds
Property
Cash and equivalents
Other

198
–
249
–
6
1

–
35
1,133
1
–
–

198
35
1,382
1
6
1

193
–
157
–
6
1

–
34
1,060
1
–
–

193
34
1,217
1
6
1

Total at the end of the year

454

1,169

1,623

357

1,095

1,452

2014
Equities
Debt securities
Pooled investment funds
Property
Cash and equivalents
Other

184
–
240
–
13
9

–
276
612
1
–
–

184
276
852
1
13
9

180
–
153
–
13
8

–
270
558
1
–
–

180
270
711
1
13
8

Total at the end of the year

446

889

1,335

354

829

1,183

NOTES TO THE FINANCIAL STATEMENTS

155

NOTES TO THE FINANCIAL STATEMENTS (continued)

40: Superannuation and Post Employment Benefit Obligations (continued)    Consolidated

Actuarial assumptions used to determine the present value of the defined
benefit obligation for the main defined benefit sections
Discount rate (% p.a.)
Future salary increases (% p.a.)
Future pension indexation– In payment (% p.a.)– In deferment (% p.a.)Life expectancy at age 60 for current pensioners– Males (years)– Females (years)     
The Company

2015

2014

2015

2014

3.2 – 3.7
2.5 – 3.5

3.6 – 4.3
2.5 – 3.7

3.7
3.5

3.6 – 4.0
3.7

2.2 – 3.0
2.0

2.2 – 3.2
2.3

2.5 – 3.0
2.0

2.5 – 3.2
2.3

22.6 – 28.4
26.3 – 30.7

22.6 – 28.4
26.3 – 30.5

22.6 – 28.4
26.3 – 30.5

22.6 – 28.4
26.3 – 30.5

The weighted average duration of the benefit payments reflected in the defined benefit obligation is 16.5 years (2014: 16.2 years) for
Consolidated and 16.3 years (2014: 16.3 years) for the Company.
Consolidated

Sensitivity analysis
Changes in actuarial assumptions
0.5% increase in discount rate
0.5% increase in pension indexation
1 year increase to life expectancy

Impact on defined benefit
obligation for 2014

Impact on defined benefit
obligation for 2015

Impact on defined benefit
obligation for 2014

Increase/(decrease)

Increase/(decrease)

Increase/(decrease)

Increase/(decrease)

%

$m

%

$m

%

$m

%

$m

(7.7)
7.7
2.7

(119)
118
41

(7.6)
7.5
2.7

(101)
100
35

(8.3)
8.3
2.7

(109)
109
35

(8.2)
8.2
2.7

(94)
94
31

The sensitivity analysis shows the effect of reasonably possible
changes in significant assumptions on the value of scheme liabilities.
The sensitivities provided assume that all other assumptions remainunchanged and are not intended to represent changes that are theextremes of possibility. The figure shown is the difference between
the recalculated liability figure and that stated in the balance sheet
as detailed above.
GOVERNANCE OF THE SCHEMES AND FUNDING OF THE
DEFINED BENEFIT SECTIONS
The main schemes in which the Group participates operate
under trust law and are managed and administered on behalf ofthe 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 theGroup. The trustees are the legal owners of the assets which areheld separately from the assets of the Group. The trustees are solely
responsible for setting investment policy and for agreeing funding
requirements with the employer through the triennial actuarial
valuation process.
Employer contributions to the defined benefit sections are basedon recommendations by the schemes’ actuaries. Funding
recommendations are made by the actuaries based on assumptionsof various matters such as future investment performance, interest
rates, salary increases, mortality rates and turnover levels. The funding
methods adopted by the actuaries are intended to ensure that thebenefit entitlements of employees are fully funded by the time they
become payable.
As at the most recent reporting dates of the schemes, the aggregate
deficit of net market value of assets over the value of accrued benefits
on the funding bases was $129 million (2014: $92 million).
In 2015 the Group made contributions totalling $79 million (2014:$66 million) to the defined benefit sections of the schemes, andexpects to make a $68 million contribution in the next financial year.
The employer contributions to the defined contribution sections of theschemes are included as superannuation costs in personnel expenses.
156

The Company

Impact on defined benefit
obligation for 2015

The Group has a legal liability to fund deficits in the schemes, but
no legal right to use any surplus in the schemes to further its own
interests. The Group has no present liability to settle deficits with
an immediate contribution.
Further details about the funding and contributions for the main
defined benefit sections of the schemes are described below.
}} ANZ Australian Staff Superannuation Scheme
The Pension Section of the ANZ Australian Staff Superannuation
Scheme provides pension benefits to retired members and theirdependants. This section of the Scheme was closed to newmembers in 1987.
An interim actuarial valuation, conducted by consulting actuaries
Russell Employee Benefits as at 31 December 2014, showeda surplus of $0.3 million and the actuary recommended that theGroup make no contribution to the Pension Section for the year
to 31 December 2015 and the funding position be reviewed
as part of an interim actuarial valuation as at 31 December 2015.
The next full actuarial valuation is due to be conducted
as at 31 December 2016.
The Group has no present liability under the Scheme’s Trust
Deed to commence contributions or fund any deficit.
}} ANZ UK Staff Pension Scheme
This Scheme provides pension benefits. From 1 October 2003,
members contribute 5% of salary. The Scheme was closed to
new members on 1 October 2004.
Following a full actuarial valuation as at 31 December 2012, theGroup agreed to make regular contributions at the rate of 26%
of pensionable salaries. These contributions are sufficient to cover
the cost of accruing benefits. To address the deficit, the Groupagreed to continue to pay additional quarterly contributionsof GBP 7.5 million until 2016. These contributions will be reviewed
following the next actuarial valuation which is scheduled to beundertaken as at 31 December 2015.

ANZ ANNUAL REPORT 2015

40: Superannuation and Post Employment
Benefit Obligations (continued)
An interim actuarial valuation, conducted by consulting actuaries
Towers Watson as at 31 December 2014, showed a deficit of GBP
44 million ($95 million at 30 September 2015 exchange rates)
measured on a funding basis.
The Group has no present liability under the Scheme’s Trust Deedto fund the deficit measured on a funding basis. A contingent
liability may arise in the event that the Scheme was wound up.
If this were to happen, the Trustee would be able to pursue theGroup for additional contributions under the UK Employer Debt
Regulations. The Group intends to continue the Scheme on an
on‑going basis.
}} National Bank Staff Superannuation FundThe defined benefit section of the Fund provides pension benefits
and was closed to new members on 1 October 1991. Members
contribute 5% of salary.
An actuarial valuation of the National Bank Staff Superannuation
Fund, conducted by consulting actuaries AON Consulting NZ,
as at 31 March 2014 showed a deficit of NZD21 million ($19 million
at 30 September 2015 exchange rates). Following the full actuarial
valuation as at 31 March 2013, the actuary recommended that theGroup make contributions of 24.8% of salaries plus a lump sum
contribution of NZD5 million p.a. (net of employer superannuation
contribution tax) in respect of members of the defined
benefit section.
The Group has no present liability under the Fund’s Trust Deed tofund the deficit measured on a funding basis. A contingent liability
may arise in the event that the Fund was wound up. Under the
Fund’s Trust Deed, if the Fund were wound up, the Group is required
to pay the Trustees of the Fund an amount sufficient to ensure
members do not suffer a reduction in benefits to which they would
otherwise be entitled. The Group intends to continue the defined
benefit section of the Fund on an on-going basis.
Amounts were also recognised in the financial statements in respectof other defined benefit arrangements in New Zealand, Taiwan,
Japan, Philippines and the UK.

41: Employee Share and Option Plans
ANZ 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 2014 and 2015 years were the Employee Share Offer and theDeferred Share Plan.
Employee Share Offer
Most permanent employees who have had continuous service
for three years are eligible to participate in the Employee Share
Offer enabling the grant of up to AUD1,000 of ANZ shares in eachfinancial year, subject to approval of the Board. At a date approvedby the Board, the shares will be granted to all eligible employees
using the one week Volume Weighted Average Price (VWAP) of ANZshares traded on the ASX in the week leading up to and including
the date of grant.

In Australia and three overseas locations (Cook Islands, Kiribati
and Solomon Islands), ANZ ordinary shares are granted to eligible
employees for nil consideration and vest immediately when granted,
as there is no forfeiture provision. It is a requirement, however, thatshares are held in trust for three years from the date of grant, after
which time they may remain in trust, be transferred to the employee’s
name or sold. Dividends received on the shares are automatically
reinvested into the dividend reinvestment plan.
In New Zealand shares are granted to eligible employees upon
payment of NZD one cent per share.
Shares granted in New Zealand and the remaining overseas locations
under this plan vest subject to the satisfaction of a three year service
period, after which time they may remain in trust, be transferred
into the employee’s name or sold. Unvested shares are forfeitedin the event of resignation or dismissal for serious misconduct.
Dividends are either paid as cash or reinvested into the Dividend
Reinvestment Plan.
During the 2015 year, 643,568 shares with an issue price of $31.84
were granted under the Employee Share Offer to employees on
4 December 2014 (2014 year: 794,855 shares with an issue priceof $31.85 were granted on 4 December 2013).
Deferred Share Plan
Under ANZ’s standard Short Term Incentive (STI)1 arrangements
equity deferral into shares applies to half of all incentive amounts
above a specified threshold. Half the deferred portion is deferredfor one year and half deferred for two years.
Under the Institutional Total Incentives Performance Plan (TIPP)
mandatory deferral into shares also applies to 60% of incentive
amounts above a specified threshold, deferred evenly overthree years.
Selected employees may be granted Long Term Incentive (LTI)2
deferred shares which vest to the employee three years fromthe date of grant.
In exceptional circumstances, deferred shares may be granted tocertain employees upon commencement with ANZ to compensate
for remuneration forgone from their previous employer. The
vesting period generally aligns with the remaining vesting periodof remuneration forgone, and therefore varies between grants.
Retention deferred shares may also be granted occasionally to highperforming employees who are regarded as a significant retention
risk to ANZ.
Unless the Board decides otherwise, unvested deferred shares areforfeited on resignation, termination on notice or dismissal for serious
misconduct. Deferred shares remain at risk and can be adjusted
downwards at any time prior to the vesting date. The deferred shares
may be held in trust beyond the deferral period.
The employee receives dividends on deferred shares while thoseshares are held in trust (cash or dividend reinvestment plan).
Deferred share rights may be granted instead of deferred sharesin some countries as locally appropriate (refer to Deferred Share
Rights section).
The issue price for deferred shares is based on the VWAP of theshares traded on the ASX in the week leading up to and including
the date of grant.
1 Also referred to as Annual Variable Remuneration (AVR).
2 Also referred to as Long Term Variable Remuneration (LTVR).

NOTES TO THE FINANCIAL STATEMENTS

157

NOTES TO THE FINANCIAL STATEMENTS (continued)

41: Employee Share and Option Plans (continued)
During the 2015 year, 5,129,479 deferred shares with a weighted
average grant price of $31.96 were granted under the deferredshare plan (2014 year: 4,940,721 shares with a weighted average
grant price of $31.79 were granted).
In accordance with the downward adjustment provisions detailedin Section 6.2, Variable Remuneration of the 2015 Remuneration
Report, Board discretion was exercised to adjust downward
135,592 deferred shares in 2015 and none in 2014.
Share Valuations
The fair value of shares granted in the 2015 year under the Employee
Share Offer and the Deferred Share Plan, measured as at the dateof grant of the shares, is $184.4 million based on 5,773,047 sharesat a volume weighted average price of $31.93 (2014 year: fair valueof shares granted was $181.8 million based on 5,735,576 shares at aweighted average price of $31.70). The VWAP of all ANZ shares soldon the ASX on the date of grant is used to calculate the fair valueof shares. No dividends are incorporated into the measurementof the fair value of shares.
ANZ SHARE OPTION PLAN
Selected employees may be granted options/rights, which entitle
them to acquire ordinary fully paid shares in ANZ at a price fixedat the time the options/rights are granted. Voting and dividend
rights will be attached to the ordinary shares allocated on exerciseof the options/rights.
Each option/right entitles the holder to one ordinary share subject
to the terms and conditions imposed on grant. The exercise priceof the options, determined in accordance with the rules of the plan,is generally based on the VWAP of the shares traded on the ASX
in the week leading up to and including the date of grant. For rights,
the exercise price is nil.
The option plan rules set out the entitlements a holder of options/rights has prior to exercise in the event of a bonus issue, pro-rata
new issue or reorganisation of ANZ’s share capital. In summary:}} if ANZ has issued bonus shares during the life of an option andprior to the exercise of the option, then when the option is
exercised the option holder is also entitled to be issued such
number of bonus shares as the holder would have been entitledto if the option holder had held the underlying shares at the timeof the bonus issue;}} if ANZ makes a pro-rata offer of securities during the life ofan option and prior to the exercise of the option, the exercise
price of the option will be adjusted in the manner set out in
the ASX Listing Rules; and}} in respect of rights, if there is a bonus issue or reorganisationof ANZ’s share capital, the number of rights or the number ofunderlying shares may be adjusted so that there is no advantage
or disadvantage to the holder.
Holders otherwise have no other entitlements to participate in any
new issue of ANZ securities prior to exercise of their options/rights.
Holders also have no right to participate in a share issue of a body
corporate other than ANZ (e.g. a subsidiary).

158

ANZ Share Option Plan schemes expensed in the 2014 and 2015
years are as follows:
Option Plans that operated during 2014 and 2015
Performance Rights Plan (excluding CEO Performance Rights)
Performance rights are granted to selected employees as part of
ANZ’s incentive plans. Performance rights provide the right to acquire
ANZ shares at nil cost, subject to a three year vesting period and from
1 October 2013 two Total Shareholder Return (TSR) performance
hurdles (previously one TSR performance hurdle).
For equity grants made after 1 November 2012, any portion of theaward which vests may be satisfied by a cash equivalent payment
rather than shares at the Board’s discretion.
The provisions that apply in the case of cessation of employment
are detailed in Section 6.3, Other Remuneration Elements in the2015 Remuneration Report.
During the 2015 year, 1,389,890 performance rights (excluding
CEO performance rights) were granted (2014: 1,452,456).
In accordance with the downward adjustment provisions detailedin 6.2, Variable Remuneration of the 2015 Remuneration Report,
Board discretion was exercised to adjust downward 1,552
performance rights in 2015 and none in 2014.
CEO Performance Rights
At the 2014 Annual General Meeting shareholders approved
a LTI grant of performance rights to the CEO with an award valueof $3.4 million, divided into two equal tranches. This equated
to 119,382 performance rights being allocated for the first trancheand 109,890 performance rights being allocated for the second
tranche. Each tranche will be subject to testing against a separate
TSR hurdle after three years from the start of the performance
period, i.e. November 2017.
At the 2011, 2012 and 2013 Annual General Meetings shareholders
approved LTI grants to the CEO equivalent to 100% of his fixed pay
at the time ($3.15 million in 2011, 2012 and 2013). This equatedto a total of 326,424 (2011), 328,810 (2012) and 201,086 (2013)
performance rights being allocated, which are subject to testing
against a TSR hurdle after three years, i.e. December 2014, 2015 and2016 respectively. The 2011 grant of performance rights was tested
in December 2014. Although ANZ achieved TSR growth of 87.83%
over the three year period, ANZ’s TSR did not reach the medianof the comparator group. Accordingly, the performance rights did
not vest. The performance rights lapsed in full at this time, andthe CEO received no value. There is no retesting of this grant.
For equity grants made after 1 November 2012, any portion of theaward which vests may be satisfied by a cash equivalent payment
rather than shares at the Board’s discretion.
The provisions that apply in the case of cessation of employment
are detailed in Section 6.3, Other Remuneration Elements in the2015 Remuneration Report.

ANZ ANNUAL REPORT 2015

41: Employee Share and Option Plans (continued)
Deferred Share Rights (no performance hurdles)
Deferred share rights provide the right to acquire ANZ shares at nil cost after a specified vesting period. The fair value of rights is adjusted
for the absence of dividends during the restriction period. Treatment of rights in respect of cessation relates to the purpose of the grant(refer to Deferred Share Plan section above).
For deferred share rights grants made after 1 November 2012, any portion of the award which vests 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 21,737 deferredshare rights (2014 year: 9,480 deferred share rights) where Board discretion was exercised.
In accordance with the downward adjustment provisions detailed in Section 6.2, Variable Remuneration of the 2015 Remuneration Report,
Board discretion was exercised to adjust downward no deferred share rights in 2015 and none in 2014.
During the 2015 year 1,104,107 deferred share rights (no performance hurdles) were granted (2014: 837,011).
Legacy Option Plans
There were no legacy option plans expensed in the 2014 and 2015 years.
Options, deferred share rights and performance rights on issue
As at 4 November 2015, there were 2 holders of 18,062 options on issue, 1,341 holders of 2,233,829 deferred share rights on issue
and 167 holders of 3,949,105 performance rights on issue.
Option/Rights Movements
Details of options/rights over unissued ANZ shares and their related weighted average exercise prices as at the beginning and endof 2015 and movements during 2015 follow:

Number of options/rights
Weighted average exercise priceOpening balance
1 Oct 2014

Options/rights
grantedOptions/rights
forfeited

Options/rights
expiredOptions/rights
exercised

Closing balance
30 Sep 2015

5,431,903$0.24

2,723,269$0.00(961,871)$0.00(4,871)$18.63(947,273)$0.81

6,241,157$0.07

The weighted average closing share price during the year ended 30 September 2015 was $31.94 (2014: $32.41).
The weighted average remaining contractual life of options/rights outstanding at 30 September 2015 was 3.1 years (2014: 3.1 years).
The weighted average exercise price of all exercisable options/rights outstanding at 30 September 2015 was $1.51 (2014: $9.73).
A total of 283,283 exercisable options/rights were outstanding at 30 September 2015 (2014: 131,793).
Details of options/rights over unissued ANZ shares and their related weighted average exercise prices as at the beginning and endof 2014 and movements during 2014 are set out below:

Number of options/rights
Weighted average exercise priceOpening balance
1 Oct 2013

Options/rights
grantedOptions/rights
forfeited

Options/rights
expiredOptions/rights
exercised

Closing balance
30 Sep 2014

4,870,518$1.07

2,490,553$0.00(785,136)
$0.00

–
–

(1,144,032)$3.43

5,431,903$0.24

No options/rights over ordinary shares have been granted since the end of 2015 up to the signing of the Directors’ Report on 4 November 2015.

NOTES TO THE FINANCIAL STATEMENTS

159

NOTES TO THE FINANCIAL STATEMENTS (continued)

41: Employee Share and Option Plans (continued)
Details of shares issued as a result of the exercise of options/rights during 2015 are as follows:
Exercise price$No. of shares issued

Proceeds received$

Exercise price$No. of shares issued

Proceeds received
$

0.00
0.00
0.00
23.71
23.71
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00

2,892
19,694
4,859
16,096
16,096
1,712
1,030
39
1,098
4,597
340,479
55,604
15,05521,968
6,371
2,650
2,882
10,587
5,928
4,885
123,317
38,297
1,404
2,167
21,774
26,414
2,295
804
600
1,713
2,139
9,658
2,223

–
–
–
381,636
381,636
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–

0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00

556
4,388
585
1,652
1,739
184
1,868
30,025
4,624
3,545
12,562
2,459
67,51427,655
4,816
918
1,061
606
3,262
2,978
558
194
1,108
610
994
724
432
1,000
421
387
396
125

–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–

Details of shares issued as a result of the exercise of options/rights since the end of 2015 up to the signing of the Directors’ Reporton 4 November 2015 are as follows:

160

Exercise price$No. of shares issued

Proceeds received$

Exercise price$No. of shares issued

Proceeds received
$

0.00
0.00
0.00
0.00
0.00
0.00

7,748
5,421
5,747
2,117
1,459
942

–
–
–
–
–
–

0.00
0.00
0.00
0.00
0.00

1,121
730
48
18
16

–
–
–
–
–

ANZ ANNUAL REPORT 2015

41: Employee Share and Option Plans (continued)
Details of shares issued as a result of the exercise of options/rights during 2014 are as follows:
Exercise price$No. of shares issued

Proceeds received$

Exercise price$No. of shares issued

Proceeds received
$

0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00

2,329
121,459
40,997
1,324
19,5508,450
24,915
2,164
1,628
9,174
7,572
262
11,585
11,682
2,200
654
3,163
232,431
19,081
3,988
1,972
3,115
2,445
6,908
35,47088,186
3,120
3,454
817

–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–

0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
17.18
22.80
22.80
22.80
22.80
23.71
23.71
23.71
23.71
23.71
23.71
0.00
0.00
0.00
0.00
0.00
0.00

20,62812,269
839
2,123
9,332
9,940
7,491
1,056
768
12,081798
15,804
17,515
3,915
17,512
11,344
16,407
19,85816,562
16,407
19,857
16,561
173,130
35,724726
14,804
396
90

–
–
–
–
–
–
–
–
–
–
–
271,513399,342
89,262399,274
258,643
389,010
470,833
392,685
389,010
470,809392,661
–
–
–
–
–
–

NOTES TO THE FINANCIAL STATEMENTS

161

NOTES TO THE FINANCIAL STATEMENTS (continued)

41: Employee Share and Option Plans (continued)
In determining the fair value below, the standard market techniques for valuation, including Monte Carlo and/or Black Scholes pricing
models, were applied in accordance with the requirements of AASB 2 Share-based payments. The models take into account early exercise
of vested equity, non-transferability and market based performance hurdles (if any). The significant assumptions used to measure the fairvalue of instruments granted during 2015 are contained in the table below:

Type

Number of
Grant date options/rights

Exercise Equity fair
price
value
$
$

Share
closing
price at
grant
$

ANZ
expected
volatility1%

Equityterm(years)Vesting
period(years)Expected
life(years)Expected
dividendyield%

Risk freeinterest
rate%

STI/TIPP deferred share rights

21-Nov-14
21-Nov-14
21-Nov-14
21-Nov-14
21-Nov-14
21-Nov-14
21-Nov-14

234,600
90,883
247,42134,76836,681
37,662
184,029

0.00
0.00
0.00
0.00
0.00
0.00
0.00

30.16
30.39
28.58
29.37
27.84
26.38
27.09

31.82
31.82
31.82
31.82
31.82
31.82
31.82

17.5
17.5
17.5
17.5
17.5
17.5
17.5

3
2.9
4
3.5
4.5
5.5
5

1
0.9
2
1.5
2.5
3.5
3

1
0.9
2
1.5
2.5
3.5
3

5.50
5.50
5.50
5.50
5.50
5.50
5.50

2.53
2.53
2.53
2.53
2.53
2.66
2.53

LTI deferred share rights

21-Nov-14

154,179

0.00

27.09

31.82

17.5

5

3

3

5.50

2.53

LTI performance rights

21-Nov-14
21-Nov-14
21-Nov-14
21-Nov-14
18-Dec-14
18-Dec-14
25-Feb-15
25-Feb-15

695,358
640,076
21,382
19,588
119,382
109,890
7,022
6,464

0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00

14.24
15.47
13.97
15.25
13.67
14.69
15.24
16.46

31.82
31.82
31.82
31.82
30.98
30.98
35.31
35.31

17.5
17.5
17.5
17.5
17.5
17.5
17.5
17.5

5
5
5.5
5.5
5
5
5
5

3
3
3.5
3.5
3
3
3
3

3
3
3.5
3.5
3
3
3
3

5.50
5.50
5.50
5.50
5.50
5.50
5.25
5.25

2.53
2.53
2.66
2.66
2.20
2.20
1.86
1.86

Other deferred share rights

21-Nov-14
21-Nov-14
21-Nov-14
21-Nov-14
21-Nov-14
21-Nov-14
21-Nov-14
21-Nov-14
21-Nov-14
4-Dec-14
27-Feb-15
27-Feb-15
1-Jun-15
1-Jun-15
1-Jun-15
1-Jun-15
1-Jun-15
20-Aug-15
20-Aug-15

9,777
3,459
3,486
7,073
3,650
3,690
3,276
1,680
3,894
20,302
1,185
1,247
4,021
1,271
7,664
1,067
2,334
2,342
2,477

0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00

30.58
30.16
29.60
28.98
28.58
27.96
27.47
27.09
26.50
27.43
33.58
31.90
31.50
31.08
29.92
29.53
28.43
27.54
26.04

31.82
31.82
31.82
31.82
31.82
31.82
31.82
31.82
31.82
32.22
35.34
35.34
32.72
32.72
32.72
32.72
32.72
29.13
29.13

17.5
17.5
17.5
17.5
17.5
17.5
17.5
17.5
17.5
17.5
17.5
17.5
17.5
17.5
17.5
17.5
17.5
17.5
17.5

2.7
3
3.4
3.8
4
4.4
4.8
5
5.4
3
3
4
2.7
3
3.7
4
4.7
3
4

0.7
1
1.4
1.8
2
2.4
2.8
3
3.4
3
1
2
0.7
1
1.7
2
2.7
1
2

0.7
1
1.4
1.8
2
2.4
2.8
3
3.4
3
1
2
0.7
1
1.7
2
2.7
1
2

5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.25
5.25
5.25
5.25
5.25
5.25
5.25
5.75
5.75

2.53
2.53
2.53
2.53
2.53
2.53
2.53
2.53
2.66
2.36
1.91
1.79
1.89
1.89
1.94
1.94
1.94
1.97
1.89

1 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 defined period of time preceding the date of grant. This historical average annualised
volatility is then used to estimate a reasonable expected volatility over the expected life of the rights.

162

ANZ ANNUAL REPORT 2015

41: Employee Share and Option Plans (continued)
The significant assumptions used to measure the fair value of instruments granted during 2014 are contained in the table below:

Type

Number of
Grant date options/rights

Exercise Equity fair
price
value
$
$

Share
closing
price at
grant
$

ANZ
expected
volatility1%

Equityterm(years)Vesting
period(years)Expected
life(years)Expected
dividendyield%

Risk freeinterest
rate%

STI/TIPP deferred share rights 22–Nov–13
22–Nov–13
22–Nov–13
22–Nov–13

39,269192,539
202,523
148,315

0.00
0.00
0.00
0.00

31.68
30.10
28.60
27.17

31.68
31.68
31.68
31.68

n/a
20.0
20.0
20.0

2.4
3
4
5

0.4
1
2
3

0.4
1
2
3

5.80
5.25
5.25
5.25

n/a
2.54
2.75
3.13

LTI deferred share rights

22–Nov–13

149,626

0.00

27.17

31.68

20.0

5

3

3

5.25

3.13

LTI performance rights

22–Nov–13
22–Nov–13
18–Dec–13
18–Dec–13

759,220
693,236
100,832
100,254

0.00
0.00
0.00
0.00

13.87
15.19
15.62
15.71

31.68
31.68
30.70
30.70

20.0
20.0
20.0
20.0

5
5
5
5

3
3
3
3

3
3
3
3

5.25
5.25
5.50
5.50

3.13
3.13
2.90
2.90

Other deferred share rights

22–Nov–13
22–Nov–13
22–Nov–13
22–Nov–13
22–Nov–13
22–Nov–13
22–Nov–13
22–Nov–13
22–Nov–13
4–Dec–13
27–Feb–14
27–Feb–14
27–Feb–14
1–Jun–14
1–Jun–14
1–Jun–14
1–Jun–14
1–Jun–14
1–Jun–14
1–Jun–14
1–Jun–14
1–Jun–14
1–Jun–14
20–Aug–14
20–Aug–14
20–Aug–14
20–Aug–14
20–Aug–14

15,530
918
1,438
3,671
983
5,009
1,595
217
1,591
25,710
7,988
6,036
4,809
5,116
994
1,298
3,944
1,049
1,369
1,807
5,190
771
1,934
524
2,328
292
2,457
171

0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00

31.68
30.50
30.10
29.69
28.98
28.60
28.21
27.53
27.17
27.24
30.47
28.89
27.38
32.64
32.18
31.73
30.93
30.50
30.08
29.32
28.90
28.51
27.40
32.35
31.54
30.66
29.89
29.06

31.68
31.68
31.68
31.68
31.68
31.68
31.68
31.68
31.68
31.76
32.15
32.15
32.15
33.49
33.49
33.49
33.49
33.49
33.49
33.49
33.49
33.49
33.49
33.27
33.27
33.27
33.27
33.27

n/a
20.0
20.0
20.0
20.0
20.0
20.0
20.0
20.0
20.0
20.0
20.0
20.0
17.5
17.5
17.5
17.5
17.5
17.5
17.5
17.5
17.5
17.5
17.5
17.5
17.5
17.5
17.5

2.3
2.7
3
3.3
3.7
4
4.3
4.7
5
3
3
4
5
3
3
3
4
4
4
5
5
5
6
3
3
4
4
5

0.3
0.7
1
1.3
1.7
2
2.3
2.7
3
3
1
2
3
0.5
0.7
1
1.5
1.7
2
2.5
2.7
3
3.7
0.5
1
1.5
2
2.5

0.3
0.7
1
1.3
1.7
2
2.3
2.7
3
3
1
2
3
0.5
0.7
1
1.5
1.7
2
2.5
2.7
3
3.7
0.5
1
1.5
2
2.5

5.80
5.25
5.25
5.25
5.25
5.25
5.25
5.25
5.25
5.25
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50
5.50

n/a
2.54
2.54
2.54
2.75
2.75
2.75
3.13
3.13
3.08
2.44
2.69
2.85
2.54
2.54
2.54
2.63
2.63
2.63
2.74
2.74
2.74
2.92
2.47
2.47
2.54
2.54
2.64

1 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 defined period of time preceding the date of grant. This historical average annualised
volatility is then used to estimate a reasonable expected volatility over the expected life of the rights.

SATISFYING EQUITY AWARDS
All shares underpinning equity awards may be purchased on market, or be newly issued shares or a combination of both.
In relation to equity purchased on market during the 2015 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 6,164,925 shares were purchased at an average price of $32.11 per share(2014 year: 5,909,763 shares at an average price of $31.93).

NOTES TO THE FINANCIAL STATEMENTS

163

NOTES TO THE FINANCIAL STATEMENTS (continued)

42: Related Party Disclosures
A: KEY MANAGEMENT PERSONNEL COMPENSATIONKey Management Personnel (KMP) are defined as directors and those executives that report directly to the CEO with responsibility
for the strategic direction and management of a major revenue generating division or who control material revenue and expenses.
KMP compensation included in the personnel disclosure expenses is as follows:
Consolidated

Short-term benefits
Post-employment benefits
Other long-term benefits
Termination benefits
Share-based payments

20151
$000

2014
$000

24,447914
291
104
17,80543,561

25,367921
356–
15,40042,044

1 Current period includes former CEO Australia notice period from 3 April 2014 until cessation of employment.

B: KEY MANAGEMENT PERSONNEL LOAN TRANSACTIONS
Loans made to directors of the Company and other KMP of the Group are made in the ordinary course of business on normal commercial
terms and conditions no more favourable than those 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 by any entity in the Group to KMP, including theirrelated parties, were as follows:
Consolidated

Loans advanced1
Interest charged2

The Company

2015
$000

2014
$000

2015
$000

2014
$000

50,4002,106

29,5601,314

41,401
1,601

20,622849

1 Balances are for KMP who were in office as of the balance sheet date.
2 Interest is for all KMP during the period.

C: KEY MANAGEMENT PERSONNEL HOLDINGS OF ANZ SECURITIESKMP, including their related parties, held subordinated debt, shares, share rights and options over shares in the Group directly,
indirectly or beneficially as shown below:
Consolidated

Ordinary shares
Subordinated debt

2015
Number1

2014
Number1

4,137,367
17,227

3,876,106
10,4991 Balances are for KMP who were in office as of the balance sheet date.

D: 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.
These transactions generally involve the provision of financial and investment services including services to eligible international assignees
ensuring they are neither financially advantaged nor disadvantaged by their relocation. All such transactions that have occurred with KMP
and their related parties have been trivial or domestic in nature. In this context, transactions are only disclosed when they are consideredof interest to the users of the financial report in making and evaluating decisions about the allocation of scarce resources.
E: ASSOCIATES
Significant associates are disclosed in note 35. During the course of the financial year the Company and its subsidiaries conducted transactions
with all associates as shown below on terms equivalent to those on an arm’s length basis.
Consolidated

Amounts receivable from associates
Amounts payable to associates
Interest revenue
Interest expense
Dividend revenue
Costs recovered from associates

The Company

2015
$000

2014
$000

2015
$000

2014
$000

7,436
6,614
322
2,443
232,289
2,394

81,193
77,977694
2,378
125,400
1,865

5,283
5,703
244
40
59,2201,279

80,6282,210
657–
45,935
476

There have been no guarantees given or received. No outstanding amounts have been written down or recorded as allowances, as they are
considered fully collectible.

164

ANZ ANNUAL REPORT 2015

42: Related Party Disclosures (continued)
F: SUBSIDIARIES
Significant controlled entities are disclosed in note 34. During the course of the financial year subsidiaries conducted transactions witheach other and associates on terms equivalent to those on an arm’s length basis. As of 30 September 2015, all outstanding amounts
are considered fully collectible.
Transactions between the Company and its subsidiaries include the provision of a wide range of banking and other financial facilities.
Details of amounts paid to or received from related parties, in the form of dividends or interest, are set out in note 3 and note 4.
Other intragroup transactions include the provision of management and administrative services, staff training, data processing facilities,
transfer of tax losses, and the leasing of property plant and equipment.

43: Other Contingent Liabilities and Contingent Assets
In addition to the credit related contingent liabilities included at note 24, the Group also had contingent liabilities as at 30 September 2015
in respect of the matters outlined below. Where relevant, expert legal advice has been obtained and, in the light of such advice, provisions
and/or disclosures as deemed appropriate have been made. In some instances we have not disclosed the estimated financial impact of theindividual items either because it is not practicable to do so or because such disclosure may prejudice the interests of the Group.
i) Bank fees litigation
Litigation funder IMF Bentham Limited commenced a class action against ANZ in 2010, followed by a second similar class action in March
2013. Together the class actions are claimed to be on behalf of more than 40,000 ANZ customers. The customers currently involved in theseclass actions are only part of ANZ’s customer base for credit cards and transaction accounts.
The applicants contended that the relevant exception fees (honour, dishonour and non-payment fees on transaction accounts and latepayment and overlimit fees on credit cards) were unenforceable penalties (at law and in equity) and that various of the fees were also
unenforceable under statutory provisions governing unconscionable conduct, unfair contract terms and unjust transactions.
In April 2015, the Full Federal Court delivered judgment in respect of appeals by both parties in the second class action. The Full Federal Court
found in ANZ’s favour in respect of all fees subject to appeal (in relation to both the penalty and statutory claims). All but one of those fees
are no longer being pursued by IMF Bentham Limited. The one which is being pursued further is the credit card late payment fee – for which
IMF Bentham Limited has obtained special leave to appeal to the High Court of Australia. The High Court appeal has been listed for hearing
on 4 and 5 February 2016.
The first class action is on hold.
In August 2014, IMF Bentham Limited commenced a separate class action against ANZ for late payment fees charged to ANZ customers in respectof commercial credit cards and other ANZ products (at this stage not specified). The action is expressed to apply to all relevant customers, rather
than being limited to those who have signed up with IMF Bentham Limited. The action is at an early stage and has been put on hold.
In June 2013, litigation funder Litigation Lending Services (NZ) commenced a representative action against ANZ for certain fees charged
to New Zealand customers since 2007. This action is currently on hold.
There is a risk that further claims could emerge in Australia, New Zealand or elsewhere.
ii) Regulator investigations into BBSW and foreign exchange trading
Since mid-2012 the Australian Securities and Investments Commission (ASIC) has been undertaking inquiries into historic trading practices
in the Australian interbank market known as the Bank Bill Swap Rate (BBSW) market. Since 2014, each of ASIC and the Australian Competition
and Consumer Commission (ACCC) have been investigating foreign exchange trading conduct of various banks including ANZ. ASIC’s andthe ACCC’s investigations are ongoing and the range of potential outcomes include civil and criminal penalties and other actions under the
relevant legislation.
iii) Security recovery actions
Various claims have been made or are anticipated, arising from security recovery actions taken to resolve impaired assets over recent years.
ANZ will defend these claims and any future claims.
iv) Clearing and settlement obligations
In accordance with the clearing and settlement arrangements set out:}} in the Australian Payments Clearing Association Limited’s Regulations for the Australian Paper Clearing System, the Bulk Electronic Clearing
System, the Issuers and Aquirers Community and the High Value Clearing System (HVCS), the Company has a commitment to comply withrules which could result in a bilateral exposure and loss in the event of a failure to settle by a member institution. The exposure arising fromthese arrangements is unquantifiable in advance; and}} in the Austraclear System Regulations (Austraclear) and the CLS Bank International Rules, the Company has a commitment to participate
in loss-sharing arrangements in the event of a failure to settle by a member institution. The exposure arising from these arrangements
is unquantifiable in advance.
For HVCS and Austraclear, the obligation arises only in limited circumstances.
NOTES TO THE FINANCIAL STATEMENTS

165

NOTES TO THE FINANCIAL STATEMENTS (continued)

43: Other Contingent Liabilities and Contingent Assets (continued)v) Parent entity guarantees
The Company has issued letters of comfort and guarantees in respect of certain subsidiaries in the normal course of business. Under theseletters and 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.
vi) Sale of Grindlays businesses
On 31 July 2000, ANZ 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.
ANZ 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 liability. The issue below has not impacted adversely
the reported results. All settlements, penalties and costs to date have been covered within existing provisions.
Foreign Exchange Regulation Act (India)
In 1991 certain amounts were transferred from non-convertible Indian Rupee accounts maintained with Grindlays in India. These transactions
may not have complied with the provisions of the Foreign Exchange Regulation Act, 1973. Grindlays, on its own initiative, brought thesetransactions to the attention of the Reserve Bank of India. The Indian authorities served notices on Grindlays and certain of its officers in India
and civil penalties have been imposed which are the subject of appeals. Criminal prosecutions are pending and will be defended. The amounts
in issue are not material.
vii) Deed of Cross Guarantee in respect of certain controlled entities
Pursuant to ASIC class order 98/1418 (as amended) dated 13 August 1998, relief was granted to a number of wholly owned controlled entities
from the Corporations Act 2001 requirements for preparation, audit, and lodgement of individual financial statements in Australia. The resultsof these companies are included in the consolidated Group results.
The entities to which relief was granted are:}} ANZ Properties (Australia) Pty Ltd1}} ANZ Capital Hedging Pty Ltd1}} ANZ Funds Pty Ltd1}} Votraint No. 1103 Pty Ltd2}} ANZ Securities (Holdings) Limited3}} ANZ Commodity Trading Pty Ltd4}} ANZ Nominees Limited5
It is a condition of the class order that the Company and each of the above controlled entities enter into a Deed of Cross Guarantee. A Deedof Cross Guarantee or subsequent Assumption Deeds under the class order were executed by them and lodged with the Australian Securities
and Investments Commission. The Deed of Cross Guarantee is dated 1 March 2006. The effect of the Deed is that the Company guarantees
to each creditor payment in full of any debt in the event of winding up any of the controlled entities under certain provisions of the Corporations
Act 2001. If a winding up occurs in any other case, the Company will only be liable in the event that after six months any creditor has not been
paid in full. The controlled entities have also given similar guarantees in the event that the Company is wound up.
1
2
3
4
5

Relief originally granted on 21 August 2001.
Relief originally granted on 13 August 2002.
Relief originally granted on 9 September 2003.
Relief originally granted on 2 September 2008.
Relief originally granted on 11 February 2009.

166

ANZ ANNUAL REPORT 2015

43: Other Contingent Liabilities and Contingent Assets (continued)
The consolidated statement of comprehensive income and consolidated balance sheet of the Company and its wholly owned controlled entities
which have entered into the Deed of Cross Guarantee in the relevant financial years are:Consolidated
2015
$m

2014
$m

Profit before tax
Income tax expense

9,263(1,925)

9,116(1,945)

Profit after income tax

7,338

7,171

807
(31)
103
19

175
34
125
6

Foreign exchange differences taken to equity, net of tax
Change in fair value of available-for-sale financial assets, net of tax
Change in fair value of cash flow hedges, net of tax
Actuarial gains/(loss) on defined benefit plans, net of tax
Other comprehensive income, net of tax

898

340

Total comprehensive income

8,236

7,511

Retained profits at start of year
Profit after income tax
Ordinary share dividends provided for or paid
Transfer from reserves
Actuarial gains/(loss) on defined benefit plans after tax

18,990
7,338(4,905)7
19

16,4997,171(4,694)
8
6

Retained profits at end of year

21,44918,990AssetsCash
Settlement balances owed to ANZCollateral paid
Available-for-sale assets/investment securities
Net loans and advances
Other assets
Premises and equipment

51,217
16,601
8,234
37,612447,799
267,579
1,047

30,655
18,1504,873
26,151
414,349
209,318
1,065

Total assets

830,089

704,561

Liabilities
Settlement balances owed by ANZ
Collateral received
Deposits and other borrowings
Income tax liability
Payables and other liabilities
Provisions

9,901
6,886
472,031249
307,390
731

8,189
4,886
423,172366
234,807695

Total liabilities

797,188672,115

Net assets

32,90132,446

Shareholders’ equity1

32,90132,446

1 Shareholders’ equity excludes retained profits and reserves of controlled entities within the class order.

CONTINGENT ASSETS
National Housing BankANZ is pursuing recovery of the proceeds of certain disputed cheques which were credited to the account of a former Grindlays customer
in the early 1990s.
The disputed cheques were drawn on the National Housing Bank (NHB) in India. Proceedings between Grindlays and NHB concerning theproceeds of the 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 be shared between ANZ and NHB.

NOTES TO THE FINANCIAL STATEMENTS

167

NOTES TO THE FINANCIAL STATEMENTS (continued)

44: Compensation of Auditors
KPMG Australia1
Audit or review of financial reports of the Company or Group entities
Audit-related services2
Non-audit services3

Overseas related practices of KPMG Australia
Audit or review of financial reports of the Company or Group entities
Audit-related services2
Non-audit services3
Total compensation of auditors

Consolidated

The Company

2015
$’000

2014
$’000

2015
$’000

2014
$’000

8,824
4,093
126

9,031
3,166
630

5,377
3,026
126

5,346
2,444
530

13,043

12,827

8,529

8,320

6,022
1,394
256

5,396
1,195
4

1,537
682
–

1,227
516
–

7,672

6,595

2,219

1,743

20,715

19,422

10,74810,063

1 Inclusive of goods and services tax.
2 For the Group, comprises prudential and regulatory services of $4.000 million (2014: $3.217 million), comfort letters $0.745 million (2014: $0.814 million) and other $0.742 million(2014: $0.330 million). For the Company, comprises prudential and regulatory services of $2.556 million (2014: $1.927 million), comfort letters of $0.565 million (2014: $0.585 million)
and other $0.587 million (2014: $0.448 million).
3 The nature of the non-audit services include reviews of compliance with legal and regulatory requirements, benchmarking reviews and a branch optimisation analysis performed during the year.
Further details are provided in the Directors’ Report.

Group 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 external auditor. These include regulatory and prudential reviews requested by theCompany’s regulators such as APRA. Any other services that are not audit or audit-related services are non-audit services. Group Policy allows
certain non-audit services to be provided where the service would not contravene auditor independence requirements. KPMG Australia or anyof its related practices may not provide services that are perceived to be in conflict with the role of the external auditor. These include consulting
advice and subcontracting of operational activities normally undertaken by management, and engagements where the auditor may ultimately
be required to express an opinion on its own work.

45: Changes to comparatives
Certain amounts reported as comparative information have changed as a result of the adoption of new accounting standards or being
reclassified to conform with current period financial statement presentations.
Merchant Services and Commercial Cards (impacting segment analysis)
During 2015 the Merchant Services and Commercial Credit Cards business were transferred out of the Cards and Payments business unit in Australia
Retail and split between Australia C&CB and IIB based on customer ownership. Comparatives in note 8 have changed.
Fee commissions and expenses (impacting income)
Certain card related fees that are integral to the generation of income were reclassified within total income to better reflect the nature of theitems and comparatives were restated. Comparatives in note 3 have changed.

168

ANZ ANNUAL REPORT 2015

45: Changes to comparatives (continued)
Equity accounting of associates
During the year the Company elected to early adopt AASB 2014-9 Amendments to Australian Accounting Standards – Equity Method
in Separate Financial Statements in order to account for investments in associates using the equity method, rather than at cost. This change
has been retrospectively applied and the impact on comprehensive income and the balance sheet as at 30 September 2014 and 1 October 2013is presented below.
2014
The Company

Share of associates’ profit
Other operating income1
Operating income
Profit before credit impairment and income tax
Profit before income tax
Profit attributable to shareholders of the Company
Other comprehensive income net of tax attributable to shareholders of the Company
Total comprehensive income attributable to shareholders of the Company

Previously
reported$m

Adjustments$mCurrently
reported
$m

–
5,868
16,095
9,217
8,243
6,272

248
(84)
164
164
164
164

248
5,784
16,259
9,381
8,407
6,436

234

132

366

6,506

296

6,802

1 The adjustment to other operating incomes comprises the removal of dividends from associates, and the recognition of a dilution gain on investment in BoT and the loss on divestment of SSI.

2014
Company

Previously
reported$m

AssetsInvestments in associates
All other assets

2013

Adjustments$mCurrently
reported$mPreviously
reported$m

Adjustments$mCurrently
reported$m

720
706,824

1,446
–

2,166
706,824841
618,156

1,150
–

1,991
618,156

Total assets

707,5441,446

708,990

618,997

1,150

620,147

Total liabilities

666,288–666,288579,932–

579,932

Net Assets
Ordinary and prefered share capital
Foreign currency translation reserve
Other reserves
Retained earnings

41,25625,151(522)
307
16,320

1,446
–
232
(23)
1,237

42,70225,151(290)
284
17,55739,06524,785(616)
143
14,753

1,150
–
77
–
1,073

40,21524,785(539)
143
15,826

Total Equity

41,256

1,446

42,70239,065

1,150

40,215

46: Events Since the End of the Financial Year
CEO Appointment
On 1st October the Board of ANZ announced that Shayne Elliott will succeed Mike Smith as Chief Executive Officer and join the Board
on 1 January 2016. Mr Smith will step down as Chief Executive Officer and as Director on 31 December 2015. Mr Smith will be retained
as a non-executive advisor to the Board, initially for one year, commencing after his period of leave on 11 July 2016. Further detailsof Mr Elliott’s remuneration arrangements and Mr Smith’s leaving arrangements can be found in the Remuneration Report.
Sale of Esanda Dealer Finance Portfolio
On 8th October the Group entered into an agreement to sell the Esanda Dealer Finance business to Macquarie Group Limited. The saleis expected to complete during the first half of 2016. The estimated sale price is $8.2 billion.
Other than the matters noted above there have been no other material events from 30 September to the date of this report.

NOTES TO THE FINANCIAL STATEMENTS

169

DIRECTORS’ DECLARATION AND RESPONSIBILITY STATEMENT
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 Company and 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 Company and of the consolidated entity
as at 30 September 2015 and of their performance for the year ended on that date;b) the notes to the financial statements of the Company and the consolidated entity include a statement that the financial statements
and notes of the Company and 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;d) 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 due and payable; ande) the Company and certain of its wholly owned controlled entities (listed in note 43) have executed a Deed of Cross Guarantee enablingthem to take advantage of the accounting and audit relief offered by class order 98/1418 (as amended), issued by the Australian Securities
and Investments Commission. The nature of the Deed of Cross Guarantee is to guarantee to each creditor payment in full of any debt
in accordance with the terms of the Deed of Cross Guarantee. At the date of this declaration, there are reasonable grounds to believethat the Company and its controlled entities which executed the Deed of Cross Guarantee are able, as an economic entity, to meet
any obligations or liabilities to which they are, or may become, subject by virtue of the Deed of Cross Guarantee.

Signed in accordance with a resolution of the Directors.

David M Gonski, AC

ChairmanMichael R P Smith, OBE
Director

4 November 2015

Responsibility statement of the Directors in accordance with Rule 4.1.12 (3)(b) of the Disclosure Rules and Transparency Rulesof the United Kingdom Financial Conduct Authority.
The Directors of Australia and New Zealand Banking Group Limited confirm to the best of their knowledge that:
The Group’s Annual Report includes:i) a fair review of the development and performance of the business and the position of the Group and the undertakings includedin the consolidation taken as a whole; together withii) a description of the principal risks and uncertainties faced by the Group.
Signed in accordance with a resolution of the Directors.

David M Gonski, AC
Chairman

4 November 2015

170

Michael R P Smith, OBE
Director

ANZ ANNUAL REPORT 2015

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS
OF AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITEDREPORT ON THE FINANCIAL REPORTINDEPENDENCE

We have audited the accompanying financial report of Australia
and New Zealand Banking Group Limited (the Company), which
comprises the balance sheets as at 30 September 2015, and income
statements, statements of comprehensive income, statementsof changes in equity and statements of cash flow for the year ended
on that date, notes 1 to 46 comprising a summary of significant
accounting policies and other explanatory information and the
directors’ declaration of the Company and the Group comprising
the Company and the entities it controlled at the year’s end or fromtime to time during the financial year.

In conducting our audit, we have complied with the independence
requirements of the Corporations Act 2001.

DIRECTORS’ RESPONSIBILITY FOR THE FINANCIAL REPORTThe directors of the Company are responsible for the preparationof the financial report that gives a true and fair view in accordancewith Australian Accounting Standards and the Corporations
Act 2001 and for such internal control as the directors determine
is necessary to enable the preparation of the financial report thatis free from material misstatement whether due to fraud or error.
In note 1(A)(i), the directors also state, in accordance with Australian
Accounting Standard AASB 101 Presentation of Financial Statements,that the financial statements comply with International Financial
Reporting Standards.
AUDITOR’S RESPONSIBILITY
Our responsibility is to express an opinion on the financial reportbased on our audit. We conducted our audit in accordance with
Australian Auditing Standards. These Auditing Standards requirethat we comply with relevant ethical requirements relating toaudit engagements and plan and perform the audit to obtainreasonable assurance whether the financial report is free frommaterial misstatement.

We believe that the audit evidence we have obtained is sufficientand appropriate to provide a basis for our audit opinion.

In our opinion:(a) the financial report of Australia and New Zealand Banking
Group Limited is in accordance with the Corporations Act
2001, including:(i) giving a true and fair view of the Company’s and the Group’s
financial position as at 30 September 2015 and of theirperformance for the year ended on that date; and(ii) complying with Australian Accounting Standards and the
Corporations Regulations 2001.
(b) the financial report also complies with International Financial
Reporting Standards as disclosed in note 1(A)(i).
REPORT ON THE REMUNERATION REPORT
We have audited the remuneration report included in pages 31
to 57 of the directors’ report for the year ended 30 September 2015.
The directors of the Company are responsible for the preparation andpresentation of the remuneration report in accordance with Section
300A of the Corporations Act 2001. Our responsibility is to express
an opinion on the remuneration report, based on our audit conductedin accordance with Australian Auditing Standards.
AUDITOR’S OPINION
In our opinion, the remuneration report of Australia and New Zealand
Banking Group Limited for the year ended 30 September 2015,
complies with Section 300A of the Corporations Act 2001.

An audit involves performing procedures to obtain audit
evidence about the amounts and disclosures in the financial report.
The procedures selected depend on the auditor’s judgement,
including the assessment of the risks of material misstatement of thefinancial report, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to theentity’s preparation of the financial report that gives a true and fairview in order to design audit procedures that are appropriate in thecircumstances, but not for the purpose of expressing an opinion on
the effectiveness of the entity’s internal control. An audit also includes
evaluating the appropriateness of accounting policies used andthe reasonableness of accounting estimates made by the directors,
as well as evaluating the overall presentation of the financial report.
We performed the procedures to assess whether in all material
respects the financial report presents fairly, in accordance with
the Corporations Act 2001 and Australian Accounting Standards,
a true and fair view which is consistent with our understandingof the Company’s and the Group’s financial position andof their performance.

AUDITOR’S OPINION

KPMG
MelbourneAndrew Yates
Partner

4 November 2015

KPMG, an Australian partnership and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”),
a Swiss entity.
Liability limited by a scheme approved under Professional Standards Legislation.

DIRECTORS’ DECLARATION AND INDEPENDENT AUDITOR’S REPORT

171

172

ANZ ANNUAL REPORT 2015

SECTION

03
Five Year Summary174

Principal Risks and Uncertainties

175

Supplementary Information

184

Shareholder Information

186

Glossary of Financial Terms

193

Alphabetical Index

196

SECTION 3

173

FIVE YEAR SUMMARY

2015
$m

2014
$m

2013
$m

2012
$m

2011
$m

Financial performance1
Net interest income
Other operating income
Operating expenses

14,616
5,902(9,359)13,797
5,781(8,760)12,772
5,619(8,257)

12,1105,738(8,519)11,5005,385(8,023)

Profit before credit impairment and income tax
Credit impairment charge
Income tax expense
Non-controlling interests

11,159(1,205)(2,724)(14)

10,818(989)(2,700)(12)

10,134(1,197)(2,435)(10)

9,329(1,258)(2,235)(6)

8,862(1,220)(2,167)(8)

Cash/underlying profit1
Adjustments to arrive at statutory profit1

7,216
277

7,117
154

6,492
(182)

5,830
(169)

5,467
(112)

Profit attributable to shareholders of the Company

7,493

7,271

6,310

5,661

5,355

Financial position
Total assets
Total equity
Common Equity Tier 12
Common Equity Tier 1 – Internationally Comparable Basel 33
Return on average ordinary equity4,5Return on average assets5
Cost to income ratio (cash/underlying)1

889,900
57,353
9.6%
13.2%
14.5%
0.9%
45.6%

772,092
49,284
8.8%
12.5%
15.8%
1.0%
44.7%

702,995
45,603
8.5%
12.7%
15.0%
0.9%
44.9%

642,127
41,220
8.0%
11.6%
14.6%
0.9%
47.7%

604,21337,954
8.5%
n/a
15.3%
0.9%
47.5%

Shareholder value – ordinary shares
Total return to shareholders (share price movement plus dividends)
Market capitalisation
Dividend
Franked portion– interim– final(7.5%)
78,606
181c
100%
100%

5.9%
85,235
178c
100%
100%

31.5%
84,450
164c
100%
100%

35.4%
67,255
145c
100%
100%

(12.6%)
51,319
140c
100%
100%

$37.25$26.38$27.08$35.07$28.84$30.92$32.09$23.42$30.78$25.12$18.60$24.75$25.96$17.63$19.52271.5c68.6%$16.862,902.7

267.1c67.4%$14.652,756.6

232.7c71.4%$13.482,743.7

213.4c69.4%$12.22
2,717.4

208.2c68.6%$11.44
2,629.0$31.93–$33.30$32.02$28.96$31.83$20.44$23.64$21.69$19.091,229
50,152546,558

1,220
50,328498,309

1,274
49,866468,343

1,337
48,239438,958

1,381
50,297442,943

Share price– high– low– closing

Share information(per fully paid ordinary share)
Earnings per share
Dividend payout ratio
Net tangible assets per ordinary share6
No. of fully paid ordinary shares issued (millions)
Dividend reinvestment plan (DRP) issue price– interim– finalOther information
Points of representation7
No. of employees (full time equivalents)
No. of shareholders8

1 Since 1 October 2012, the Group has used cash profit as a measure of the result of the ongoing business activities of the Group enabling shareholders to assess Group and divisional performanceagainst prior periods and against peer institutions. For 2012 - 2014 statutory profit has been adjusted for non-core items to arrive at cash profit. For 2011 statutory profit has been adjusted for
non-core items to arrive at underlying profit, which like cash profit, is a measure of the ongoing business performance of the Group but used different criteria for the adjusting items. Neither
cash profit nor underlying profit are audited; however, the external auditor has informed the Audit Committee that the adjustments have been determined on a consistent basis across eachperiod presented.
2 Calculated in accordance with APRA Basel 3 requirements for 2012-2015. Comparatives for 2011 are calculated on a Basel 2 basis.
3 ANZ’s interpretation of the regulations documented in the Basel Committee publications; “Basel 3: A global regulatory framework for more resilient banks and banking systems” (June 2011) and“International Convergence of Capital Measurement and Capital Standards” (June 2006). Also includes differences identifies in APRA’s information paper entitled International Capital Comparison
Study (13 July 2015).
4 Average ordinary equity excludes non-controlling interests and preference shares.
5 Return on average ordinary equity and average assets have been calculated on statutory basis, in consistent with the last five years.
6 Equals shareholders’ equity less preference share capital, goodwill, software and other intangible assets divided by the number of ordinary shares.
7 Includes branches, offices, representative offices and agencies.
8 Excludes employees whose only ANZ shares are held in trust under ANZ employee share schemes.

174

ANZ ANNUAL REPORT 2015

PRINCIPAL RISKS AND UNCERTAINTIES

1. Introduction
The Group’s activities are subject to risks that can adversely impact
its business, operations and financial condition. The risks anduncertainties described below are not the only ones that the Groupmay face. Additional risks and uncertainties that the Group is unawareof, or that the Group currently deems to be immaterial, may also
become important factors that affect it. If any of the listed or unlisted
risks actually occur, the Group’s business, operations, financial
condition, or reputation could be materially and adversely affected,
with the result that the trading price of the Group’s equity or debt
securities could decline, and investors could lose all or part of theirinvestment. These factors below should be considered in conjunction
with the “Forward-looking statements” in “Section 1: Key Information”.

2. Changes in general business and economic
conditions, including disruption in regional
or global credit and capital markets, may
adversely affect the Group’s business,
operations and financial condition
The Group’s financial performance is primarily influenced by the
economic conditions and the level of business activity in the majorcountries and regions in which it operates or trades, i.e. Australia,
New Zealand, Asia Pacific, Europe and the United States. The Group’sbusiness, operations, and financial condition can be negatively affectedby changes in economic and business conditions in these markets.
The economic and business conditions that prevail in the Group’s
major operating and trading markets are affected by domestic andinternational economic events, political events and natural disasters,
and by movements and events that occur in global financial markets.
For example, the global financial crisis saw a sudden and prolonged
dislocation in credit and equity capital markets, a contraction in
global economic activity and the emergence of many challenges
for financial services institutions worldwide that still persist to someextent in many regions. Sovereign risk and its potential impact onfinancial institutions in Europe and globally subsequently emerged
as a significant risk (see risk factor 5 “Sovereign risk may destabilise
global financial markets adversely affecting all participants, including
the Group”). The impact of the global financial crisis and its aftermath
continue to affect regional and global economic activity, confidence
and capital markets. Prudential authorities have implemented andcontinue to implement increased regulations to mitigate the riskof such events recurring, although there can be no assurance thatsuch regulations will be effective.
Economic effects of the global financial crisis and European sovereign
debt crisis have been widespread and far-reaching with unfavourable
ongoing impacts on retail spending, personal and business credit
growth, housing credit, and business and consumer confidence.
While some of these economic factors have since improved, lasting
impacts from the global financial crisis and the subsequent volatility infinancial markets, the European sovereign debt crisis and the potential
for escalation in geopolitical risks suggest ongoing vulnerability andpotential adjustment of consumer and business behaviour.
Should difficult economic conditions in the Group’s markets
eventuate, asset values in the housing, commercial or rural property
markets could decline, unemployment could rise and corporate andpersonal incomes could suffer.

Also, deterioration in global markets, including equity, property,
currency and other asset markets, could impact the Group’s
customers and the security the Group holds against loans and othercredit exposures, which may impact its ability to recover some loans
and other credit exposures.
All or any of the negative economic and business impacts describedabove could cause a reduction in demand for the Group’s products
and services and/or an increase in loan and other credit defaults
and bad debts, which could adversely affect the Group’s business,
operations, and financial condition.
The Group’s financial performance could also be adversely affected
if it were unable to adapt cost structures, products, pricing or activities
in response to a drop in demand or lower than expected revenues.
Similarly, higher than expected costs (including credit and funding
costs) could be incurred because of adverse changes in the economy,
general business conditions or the operating environment in the
countries in which it operates.
Geopolitical instability, such as threats of, potential for, or actual
conflict, occurring around the world, such as the ongoing unrest andconflicts in the Ukraine, North Korea, Syria, Egypt, Afghanistan, Iraq
and elsewhere, as well as the current high threat of terrorist activities,
may also adversely affect global financial markets, general economic
and business conditions and the Group’s ability to continue operatingor trading in a country, which in turn may adversely affect the Group’sbusiness, operations, and financial condition.
Natural and biological disasters such as, but not restricted to,cyclones, floods, droughts, earthquakes and pandemics, and theeconomic and financial market implications of such disasters on
domestic and global conditions can adversely impact the Group’s
ability to continue operating or trading in the country or countries
directly or indirectly affected, which in turn may adversely affect
the Group’s business, operations and financial condition. For morerisks in relation to natural and biological disasters, refer to the risk
factor 22 “The Group may be exposed to the impact of future climatechange, geological events, plant and animal diseases, and otherextrinsic events which may adversely affect its business, operations
and financial condition”.
Other economic and financial factors or events that may adversely
affect the Group’s performance, and give rise to operational andmarkets risk are covered in risk factors 13 (“The Group is exposed
to market risk, which may adversely affect its business, operations andfinancial condition”) and 14 (“Changes in exchange rates may adversely
affect the Group’s business, operations and financial condition”).

3. Competition may adversely affect the Group’sbusiness, operations and financial conditionin the markets in which it operates
The risk is that the markets in which the Group operates are highly
competitive and could become even more so. Factors that contributeto competition risk include industry regulation, mergers andacquisitions, changes in customers’ needs and preferences, entryof new participants, development of new distribution and service
methods, increased diversification of products by competitors, andregulatory changes in the rules governing the operations of banks
and non-bank competitors. For example, changes in the financial
services sector in Australia and New Zealand have made it possible
for non-banks to offer products and services traditionally provided
by banks, such as payments, home loans, and credit cards.

PRINCIPAL RISKS AND UNCERTAINTIES175

PRINCIPAL RISKS AND UNCERTAINTIES (continued)

In addition, it is possible that existing companies from outside of
the traditional financial services sector may seek to obtain banking
licences to directly compete with the Group by offering products
and services traditionally provided by banks. In addition, banksorganised in jurisdictions outside Australia and New Zealand are
subject to different levels of regulation and consequently some may
have lower cost structures. Increasing competition for customers
could also potentially lead to a compression in the Group’s net
interest margins or increased advertising and related expenses
to attract and retain customers.

6. Weakening of the real estate markets inAustralia, New Zealand or other markets
where the Group does business may
adversely affect its business, operations
and financial condition

Additionally, a major inquiry into competition issues in Australia,
led by Professor Ian Harper, was released to the Federal Government
on 31 March 2015. The review could lead to changes that address
the misuse of market power and price signalling provisions, with
impacts on banks.

A decrease in property valuations or significant slowdown inAustralia, New Zealand or other markets where it does business could
result in a decrease in the amount of new lending the Group is able
to write and/or increase the losses that the Group may experience fromexisting loans, which, in either case, could materially and adversely
impact the Group’s financial condition and results of operations.

The impact on ANZ of an increase in competitive market conditions,especially in the Group’s main markets and products, would
potentially lead to a material reduction in the market share and/or
margins of the relevant Group business(es), which would adversely
affect the Group’s financial performance and position.

4. Changes in monetary policies may adversely
affect the Group’s business, operations andfinancial condition
Central monetary authorities (including the RBA, the RBNZ, theUnited States Federal Reserve and the monetary authorities in the
Asian jurisdictions in which the Group operates) set official interest
rates or take other measures to affect the demand for money andcredit in their relevant jurisdictions. In some Asian jurisdictions,currency policy is also used to influence general business conditions
and the demand for money and credit. These policies can significantly
affect the Group’s cost of funds for lending and investing and thereturn that the Group will earn on those loans and investments.
These factors impact the Group’s net interest margin and can affectthe value of financial instruments it holds, such as debt securities andhedging instruments. The policies of the central monetary authorities
can also affect the Group’s borrowers, potentially increasing therisk that they may fail to repay loans. Changes in such policies are
difficult to predict.

5. Sovereign risk may destabilise global financial
markets adversely affecting all participants,
including the Group
Sovereign risk is the possibility that foreign governments will default
on their debt obligations, increase borrowings, be unable to refinancetheir debts as and when they fall due or nationalise participants intheir economy. Sovereign risk remains in many economies, including
the United States and in Europe. Should one sovereign default, there
could be a cascading effect to other markets and countries, theconsequences of which are difficult to predict and may be similar
to or worse than those experienced during the global financial crisisand subsequent sovereign debt crises. Such events could destabilise
global financial markets, adversely affecting all participants,
including the Group.

176

Residential, commercial and rural property lending, together withproperty finance, including real estate development and investment
property finance, constitute important businesses to the Group.

7. The Group is exposed to liquidity and funding
risk, which may adversely affect its business,
operations and financial condition
Liquidity risk is the risk that the Group is unable to meet its payment
obligations as they fall due (including repaying depositors or maturingwholesale debt) or that the Group has insufficient capacity to fundincreases in assets. Liquidity risk is inherent in all banking operations
due to the timing mismatch between cash inflows and cash outflows.
Reduced liquidity could lead to an increase in the cost of the Group’s
borrowings and constrain the volume of new lending, which could
adversely affect the Group’s profitability. A deterioration in investor
confidence in the Group could materially impact the Group’s costof borrowing, and the Group’s ongoing operations and funding.
The Group raises funding from a variety of sources, including
customer deposits and wholesale funding in Australia and offshore
markets to meet its funding obligations and to maintain or growits business generally. In times of liquidity stress, if there is damage
to market confidence in the Group or if funding inside or outsideof Australia is not available or constrained, the Group’s ability
to access sources of funding and liquidity may be constrained
and it will be exposed to liquidity risk. In any such cases, the Groupmay be forced to seek alternative funding. The availability of suchalternative funding, and the terms on which it may be available,
will depend on a variety of factors, including prevailing market
conditions and the Group’s credit ratings (which is strongly influenced
by Australia’s sovereign credit rating). Even if available, the cost ofthese alternatives may be more expensive or on unfavourable terms.
Since the advent of the global financial crisis in 2008, developmentsin the United States and European markets have adversely affected
the liquidity in global capital markets and increased funding costs
compared with the period immediately preceding the global financial
crisis. More recently, the provision of significant amounts of liquidity
by major central banks globally has helped mitigate near term
liquidity concerns, although no assurance can be given that suchliquidity concerns will not return, particularly when the extraordinary
liquidity is withdrawn by central banks. Future deterioration in market
conditions may limit the Group’s ability to replace maturing liabilities
and access funding in a timely and cost-effective manner necessary
to fund and grow its business.

ANZ ANNUAL REPORT 2015

8. R egulatory changes or a failure to comply
with regulatory standards, law or policies
may adversely affect the Group’s business,
operations or financial condition
As a financial institution, the Group is subject to detailed laws
and regulations in each of the jurisdictions in which it operates
or obtains funding, including Australia, New Zealand, the UnitedStates, Europe and Asia Pacific. The Group is also supervised
by a number of different regulatory and supervisory authorities.
The Group is responsible for ensuring that it complies with allapplicable legal and regulatory requirements (including accounting
standards) and industry codes of practice in the jurisdictions in which
it operates or obtains funding.
Compliance risk arises from these legal and regulatory requirements.
If the Group fails to comply, the Group may be subject to fines,
penalties or restrictions on its ability to do business. In Australia,
an example of the broad administrative power available to regulatory
authorities is the power available to APRA under the Banking Act 1959
in certain circumstances to investigate the Group’s affairs and/or issue
a direction to the Group (such as direction to comply with a prudential
requirement, to conduct an audit, to remove a director, executive
officer or employee or not to undertake a transaction). Other regulators
also have the power to investigate the Group. In recent years, there
have been significant increases in the nature and scale of regulatory
investigations, enforcement actions and the quantum of fines issued
by regulators. Regulatory investigations, fines, penalties or regulator
imposed conditions could adversely affect the Group’s business,
reputation, prospects, financial performance or financial condition.
As with other financial services providers, the Group faces increasing
supervision and regulation in most of the jurisdictions in which
the Group operates or obtains funding, particularly in the areasof funding, liquidity, product design and pricing, capital adequacy,
conduct and prudential regulation, anti-bribery and corruption,
anti-money laundering and counter-terrorism financing andtrade sanctions.
In December 2010, the Basel Committee released capital reform
packages to strengthen the resilience of the banking and insurance
sectors, including proposals to strengthen capital and liquidity
requirements for the banking sector. APRA released prudential
standards implementing Basel 3 with effect from 1 January 2013.
Certain regulators in jurisdictions where the Group has a presence
have also either implemented or are in the process of implementing
Basel 3 and equivalent reforms. In addition, there have also beena series of other regulatory releases from authorities in the various
jurisdictions in which we operate or obtain funding proposing
significant regulatory change for financial institutions. This includes
new accounting and reporting standards, or implementing
global OTC derivatives reform and the United States Dodd-Franklegislation, including the Volcker Rule promulgated thereunder.
In 2015, the Australian Government announced its responseto the Financial System Inquiry (FSI). The response tasks APRA
with implementation of a number of resilience-related FSI
recommendations in line with emerging international regulatory
practice. These FSI recommendations are intended to increase thestrength of the financial system and may result in requirements
to hold additional capital (such as Additional Tier 1 Capital, Tier 2
Capital or other forms of subordinated capital or senior debt that
may be available to absorb loss) or additional liquid assets.

The Government response also endorses FSI recommendations
relating to Australia’s superannuation system and retirement incomes,
innovation-related issues, reforms to improve consumer outcomeswhen purchasing financial products, and the overall regulationof the financial sector. These are likely to result in changes to laws,
regulations, codes of practice and policies that will impact the Group.
The implementation of any recommendations could also result inchanges to laws, regulations, codes of practice or policies which could
adversely affect the Group in substantial and unpredictable ways.
Regulation is becoming increasingly extensive and complex. Someareas of potential regulatory change involve multiple jurisdictions
seeking to adopt a coordinated approach. Changes may also occur
in the oversight approach of regulators. It is possible for example
that Governments in jurisdictions in which we operate or obtainfunding might revise their application of existing regulatory
policies that apply to, or impact, the Group’s business, including
for reasons relating to national interest and systemic stability.
Regulatory changes and the timing of their introduction continue
to evolve. The nature and impact of future changes are not predictable
and are beyond the Group’s control. Regulatory change may impact
the Group in a range of ways, such as by requiring the Group tochange its business mix, incur additional costs as a result of increased
management attention, raise additional amounts of higher-quality
capital (such as ordinary shares, Additional Tier 1 capital or Tier 2
capital instruments) or retain capital (through lower dividends),
and hold significant levels of additional liquid assets and undertake
further lengthening of the funding base. Further examples of ways
in which regulatory change may impact the Group include: limiting
the types, amount and composition of financial services and products
the Group can offer, limiting the fees and interest that the Group may
charge, increasing the ability of other banks or of non-banks to offer
competing financial services or products and changes to accounting
standards, taxation laws and prudential regulatory requirements.
Regulatory change could adversely affect one or more of the Group’sbusinesses, restrict its flexibility, require it to incur substantial costs
and impact the profitability of one or more business lines. Any suchcosts or restrictions could adversely affect the Group’s business,
prospects, financial performance or financial condition.

9. The Group is exposed to the risk of receiving
significant regulatory fines and sanctionsin the event of breaches of regulation andlaw relating to anti-money laundering,counter-terrorism financing, sanctions
and market manipulation
Anti-money laundering, counter-terrorist financing, sanctions
compliance and market manipulation have been the subject ofincreasing regulatory change and enforcement in recent years. The
increasingly complicated environment in which the Group operates
across the Asia Pacific region has heightened these operationaland compliance risks. Furthermore, the upward trend in compliancebreaches by global banks and the related fines and settlement sumsmeans that these risks continue to be an area of focus for the Group.
The Group maintains appropriate policies, and has invested
in procedures and internal controls aimed to detect, prevent andreport money laundering, terrorist financing, market manipulationand sanctions breaches. The risk of non-compliance remains highgiven the scale and complexity of the Group.

PRINCIPAL RISKS AND UNCERTAINTIES177PRINCIPAL RISKS AND UNCERTAINTIES (continued)

A failure to operate a robust program to combat money
laundering, bribery and terrorist financing or to ensure compliancewith economic sanctions and market conduct norms could haveserious legal and reputational consequences for the Group andits employees. Consequences can include fines, criminal and civil
penalties, civil claims, reputational harm and limitations on doing
business in certain jurisdictions. The Group’s foreign operations mayplace the Group under increased scrutiny by regulatory authorities,
and may increase the risk of a member of the Group breaching
applicable rules, regulations or laws.
In this regard, on 19 November 2014, ANZBGL announced thatin light of an investigation by ASIC into historic trading practices
in the Australian interbank market known as the Bank Bill Swap
Rate (“BBSW”) market, it was taking the precaution of having sevenemployees involved in markets trading step down pending ANZBGL’s
own internal review. Since mid-2012, ASIC has been undertaking
inquiries of 14 BBSW panel bank members in relation to the integrityof their past involvement in the BBSW rate process. ASIC’s inquiries
are ongoing and the range of potential outcomes from these
inquiries include civil and criminal penalties and other actions
under the relevant legislation.

10. The Group may experience challenges
in managing its capital base, which could
give rise to greater volatility in capital ratios
The Group’s capital base is critical to the management of its
businesses and access to funding. Prudential regulators of the Group
include, but are not limited to, APRA, RBNZ and various regulatorsin the Asia Pacific, U.S. and U.K. The Group is required to maintainadequate regulatory capital.
Under current regulatory requirements, risk-weighted assets andexpected loan losses increase as a counterparty’s risk grade worsens.
These additional regulatory capital requirements compound any
reduction in capital resulting from lower profits in times of stress.
As a result, greater volatility in capital ratios may arise and may
require the Group to raise additional capital. There can be no
certainty that any additional capital required would be available
or could be raised on reasonable terms.
The Group’s capital ratios may be affected by a number of factors,
such as (i) lower earnings (including lower dividends from its
deconsolidated subsidiaries including its insurance and funds
management businesses and associates), (ii) increased asset growth,(iii) changes in the value of the Australian dollar and/or New Zealanddollar against other currencies in which the Group operates(particularly the United States dollar) that impact risk weighted
assets or the foreign currency translation reserve and (iv) changes
in business strategy (including acquisitions and investments
or an increase in capital intensive businesses).
APRA’s Prudential Standards implementing Basel 3 are now in effect.
Certain other regulators have either implemented or are in theprocess of implementing regulations, including Basel 3, whichseek to strengthen, among other things, the liquidity and capitalrequirements of banks, funds management entities and insurance
entities, though there can be no assurance that these regulations will
have their intended effect. Some of these regulations, together withany risks arising from any regulatory changes, are described in risk
factor 8 “Regulatory changes or a failure to comply with regulatory
standards, law or policies may adversely affect the Group’s business,
operations or financial condition”.

178

11. The Group is exposed to credit risk, which
may adversely affect its business, operations
and financial condition
As a financial institution, the Group is exposed to the risks associatedwith extending credit to other parties. Less favourable businessor economic conditions, whether generally or in a specific industry
sector or geographic region, or natural disasters, could cause
customers or counterparties to fail to meet their obligations inaccordance with agreed terms. For example, the Group’s customers
and counterparties in the natural resources sector could be adversely
impacted by a prolonged slowdown in the Chinese economy andcurrent decline in commodity prices. Also, the Group’s customers
and counterparties may be adversely impacted by more expensive
imports due to the reduced strength of the Australian and
New Zealand dollars relative to other currencies.
In addition, in assessing whether to extend credit or enter into othertransactions with customers and/or counterparties, the Group relies
on information provided by or on behalf of customers and/or
counterparties, including financial statements and other financial
information. The Group may also rely on representations of customers
and independent consultants as to the accuracy and completenessof that information.
The Group’s financial performance could be negatively impacted
to the extent that it relies on information that is inaccurate ormaterially misleading.
The Group holds provisions for credit impairment. The amount ofthese provisions is determined by assessing the extent of impairment
inherent within the current lending portfolio, based on current
information. This process, which is critical to the Group’s financial
condition and results, requires subjective and complex judgements,
including forecasts of how current and future economic conditions
might impair the ability of borrowers to repay their loans. However,if the information upon which the assessment is made proves tobe inaccurate or if the Group fails to analyse the information correctly,
the provisions made for credit impairment may be insufficient,which could have a material adverse effect on the Group’s business,
operations and financial condition.

12. The Group is exposed to the risk that its
credit ratings could change, which could
adversely affect its ability to raise capitaland wholesale funding
The Group’s credit ratings have a significant impact on both its access
to, and cost of, capital and wholesale funding. Credit ratings may be
withdrawn, qualified, revised or suspended by credit rating agencies
at any time. The methodologies by which they are determined may
also be revised in response to legal or regulatory changes, market
developments or for any other reason. A downgrade or potential
downgrade to the Group’s credit rating may reduce access to capitaland wholesale debt markets, leading to an increase in funding costs,
as well as affecting the willingness of counterparties to transact with it.
In addition, the ratings of individual securities (including, but notlimited to, certain Tier 1 capital and Tier 2 capital securities andcovered bonds) issued by the Group (and other banks globally)
could be impacted from time to time by changes in the regulatory
requirements for those instruments as well as the ratings
methodologies used by rating agencies.

ANZ ANNUAL REPORT 2015

Credit ratings are not a recommendation by the relevant rating
agency to invest in securities offered by the Group.

15. The Group is exposed to operational risk
and reputational risk, which may adversely
affect its business, operations
and financial condition

13. The Group is exposed to market risk, which
may adversely affect its business, operations
and financial condition

Operational risk is the risk of loss resulting from inadequate or failed
internal processes, people and systems or from external events.
This definition includes legal risk, and the risk of loss of reputation
or damage arising from inadequate or failed internal processes,
people and systems, but excludes strategic risk.

Further, the Group’s credit ratings could be revised at any timein response to a change in the credit rating of the Commonwealthof Australia.

The Group is subject to market risk, which is the risk to the Group’s
earnings arising from changes in interest rates, foreign exchange
rates, credit spreads, equity prices and indices, prices of commodities,
debt securities and other financial contracts, such as derivatives.
Losses arising from these risks may have a material adverse effecton the Group.
As the Group conducts business in several different currencies,
its businesses may be affected by a change in currency exchange
rates. Additionally, as the Group’s annual and interim reports areprepared and stated in Australian dollars, any appreciation in theAustralian dollar against other currencies in which the Group earns
revenues (particularly to the New Zealand dollar and United States
dollar) may adversely affect the reported earnings.
The profitability of the Group’s funds management and insurance
businesses is also affected by changes in investment markets andweaknesses in global securities markets.

14. C hanges in exchange rates may adversely
affect the Group’s business, operations andfinancial condition
Movements in the Australian and New Zealand dollars in recent
times illustrate the potential volatility in, and significance of global
economic events to, the value of these currencies relative to othercurrencies. Further depreciation of the Australian or New Zealanddollars relative to other currencies would increase the debt service
obligations in Australian or New Zealand dollar terms of unhedged
exposures. In contrast, any upward pressure on the Australian or
New Zealand dollar would cause business conditions to deteriorate
for certain portions of the Australian and New Zealand economies,
including some agricultural exports, tourism, manufacturing, retailingsubject to internet competition, and import-competing producers.
In addition, appreciation of the Australian dollar against the
New Zealand dollar, United States dollar and other currencies has
a potential negative earnings translation effect on non-hedged
exposures, and future appreciation could have a greater negative
impact on the Group’s results from its other non-Australianbusinesses, particularly its New Zealand and Asian businesses, which
are largely based on non-Australian dollar revenues. The relationshipbetween exchange rates and commodity prices is volatile. The Grouphas put in place hedges to partially mitigate the impact of currencychanges, but there can be no assurance that the Group’s hedges
will be sufficient or effective, and any further appreciation could
have an adverse impact upon the Group’s earnings.

Loss from operational risk events could adversely affect the Group’s
financial results. Such losses can include fines, penalties, loss or theftof funds or assets, legal costs, customer compensation, loss ofshareholder value, reputation loss, loss of life or injury to people,
and loss of property and/or information.
Operational risk is typically classified into the risk event type
categories to measure and compare risks on a consistent basis.
Examples of operational risk events according to category
are as follows:}} Internal Fraud: is associated with ANZ employees acting outside
their normal employment conditions/procedures to createa financial advantage for themselves or others;}} External Fraud: fraudulent acts or attempts which originate
from outside the Group, more commonly associated with digitalbanking, lending, and cards products. Specific threats include
ATM skimming, malware and phishing attacks and fraudulent
applications, where financial advantage is obtained;}} Employment Practices and Workplace Safety: employee relations,diversity and discrimination, and health and safety risks to theGroup employees;}} Clients, Products and Business Practices: risk of market manipulation,
product defects, incorrect advice, money laundering and misuse
or unauthorised disclosure of customer information;}} Technology: the risk of loss resulting from inadequate or failed
information technology;}} Business Disruption (including systems failures): risk that theGroup’s banking operating systems are disrupted or fail;}} Damage to physical assets: risk that a natural disaster or terrorist or
vandalism attack damages the Group’s buildings or property; and}} Execution, Delivery and Process Management: is associated withlosses resulting from, among other things, process errors madeby ANZ employees caused by inadequate or poorly designed
internal processes; or the poor execution of standard processes,
vendor, supplier or outsource provider errors or failed mandatory
reporting errors.
Direct or indirect losses that occur as a result of operational failures,
breakdowns, omissions or unplanned events could adversely affect
the Group’s financial results.
Damage to the Group’s reputation may also have wide-ranging
impacts, including adverse effects on the Group’s profitability,
capacity and cost of sourcing funding, and availability of new
business opportunities.
Reputation risk may arise as a result of an external event or theGroup’s own actions, and adversely affect perceptions about
the Group held by the public (including the Group’s customers),
shareholders, investors, regulators or rating agencies. The impactof a risk event on the Group’s reputation may exceed any direct
cost of the risk event itself and may adversely impact the Group’sbusiness, operations and financial condition.

PRINCIPAL RISKS AND UNCERTAINTIES179PRINCIPAL RISKS AND UNCERTAINTIES (continued)

16. The Group may be exposed to risks relating
to the provision of advice, recommendations
or guidance about financial products
and services, or behaviours which do not
appropriately consider the interests ofconsumers, the integrity of financial markets
and the expectations of the community,in the course of its business activities
Such risks can include:}} the provision of unsuitable or inappropriate advice (e.g.,commensurate with a customer’s objectives and appetite for risk);}} the representation of, or disclosure about, a product or service
which is inaccurate, or does not provide adequate information
about risks and benefits to customers;}} a failure to deliver product features and benefits in accordancewith terms, disclosures, recommendations and/or advice;}} a failure to appropriately avoid or manage conflicts of interest within;}} sales and/or promotion processes (including incentives andremuneration for staff engaged in promotion, sales and/or
the provision of advice);}} the provision of credit, outside of ANZ policies and standards; and}} trading activities in financial markets, outside of ANZ policies
and standards e.g. BBSW, LIBOR, rate fixing.
Exposure to such risks may increase during periods of declining
investment asset values (such as during a period of economic
downturn or investment market volatility), leading to sub-optimal
performance of investment products and/or portfolios that were
not aligned with the customer’s objectives and risk appetite.
The Group is regulated under various legislative mechanisms in the
countries in which it operates that provide for consumer protection
around advisory, marketing and sales practices. These may include,
but are not limited to, appropriate management of conflicts ofinterest, appropriate accreditation standards for staff authorised
to provide advice about financial products and services, disclosure
standards, standards for ensuring adequate assessment of client/product suitability, quality assurance activities, adequate record
keeping, and procedures for the management of complaints
and disputes.
Inappropriate advice about financial products and services may resultin material litigation (and associated financial costs) and together
with failure to avoid or manage conflicts of interest, may expose theGroup to regulatory actions, and/or reputational consequences.

17. Disruption of information technology
systems or failure to successfully implement
new technology systems could significantlyinterrupt the Group’s business, which may
adversely affect its business, operations
and financial condition
The Group is highly dependent on information systems andtechnology. Therefore, there is a risk that these, or the services theGroup uses or is dependent upon, might fail, including becauseof unauthorised access or use.

180

Most of the Group’s daily operations are computer-based andinformation technology systems are essential to maintaining effective
communications with customers. The Group is also conscious thatthreats to information systems and technology are continuously
evolving and that cyber threats and risk of attacks are increasing. The
Group may not be able to anticipate or implement effective measures
to prevent or minimise disruptions that may be caused by all cyberthreats, because the techniques used can be highly sophisticated andthose perpetuating the attacks may be well resourced. The exposure
to systems risks includes the complete or partial failure of information
technology systems or data centre infrastructure, the inadequacyof internal and third-party information technology systems due to,among other things, failure to keep pace with industry developments
and the capacity of the existing systems to effectively accommodate
growth, prevent unauthorised access and integrate existing andfuture acquisitions and alliances.
To manage these risks, the Group has disaster recovery andinformation technology governance in place. However, there canbe no guarantee that the steps the Group is taking in this regard
will be effective and any failure of these systems could result inbusiness interruption, customer dissatisfaction and ultimately
loss of customers, financial compensation, damage to reputation
and/or a weakening of the Group’s competitive position, which
could adversely impact the Group’s business and have a material
adverse effect on the Group’s financial condition and operations.
In addition, the Group has an ongoing need to update andimplement new information technology systems, in part to assist
it to satisfy regulatory demands, ensure information security, enhancecomputer-based banking services for the Group’s customers andintegrate the various segments of its business. The Group may not
implement these projects effectively or execute them efficiently,
which could lead to increased project costs, delays in the ability
to comply with regulatory requirements, failure of the Group’s
information security controls or a decrease in the Group’s ability
to service its customers. ANZ New Zealand relies on ANZBGL toprovide a number of information technology systems, and any
failure of ANZBGL systems could directly affect ANZ New Zealand.

18. The Group is exposed to risks associatedwith information security, which may
adversely affect its financial results
and reputation
Information security means protecting information and information
systems from unauthorised access, use, disclosure, disruption,
modification, perusal, inspection, recording or destruction. As
a bank, the Group handles a considerable amount of personal andconfidential information about its customers and its own internal
operations, including in Australia, New Zealand and India. The Group
employs a team of information security experts who are responsible
for the development and implementation of the Group’s Information
Security Policy. The Group also uses third parties to process andmanage information on its behalf, and any failure on their part could
adversely affect its business. The Group is conscious that threats to
information systems are continuously evolving and that cyber threats
and risk of attacks are increasing, and as such the Group may beunable to develop policies and procedures to adequately address or
mitigate such risks. Accordingly, information about the Group and/or
our clients may be inadvertently accessed, inappropriately distributedor illegally accessed or stolen.

ANZ ANNUAL REPORT 2015

The Group may not be able to anticipate or to implement effective
measures to prevent or minimize damage that may be caused by all
information security threats, because the techniques used can behighly sophisticated and those perpetuating the attacks may bewell resourced. Any unauthorised access of the Group’s information
systems or unauthorised use of its confidential information could
potentially result in disruption of the Group’s operations, breaches
of privacy laws, regulatory sanctions, legal action, and claims forcompensation or erosion to the Group’s competitive market
position, which could adversely affect the Group’s financial
position and reputation.

19. U
 nexpected changes to the Group’s license
to operate in any jurisdiction may adversely
affect its business, operations
and financial condition

21. The unexpected loss of key staff orinadequate management of humanresources may adversely affect the Group’sbusiness, operations and financial condition
The Group’s ability to attract and retain suitably qualified and skilledemployees is an important factor in achieving its strategic objectives.
The Chief Executive Officer and the management team of the Chief
Executive Officer have skills and reputation that are critical to setting
the strategic direction, successful management and growth of theGroup, and whose unexpected loss due to resignation, retirement,
death or illness may adversely affect its operations and financial
condition. If the Group had difficulty retaining or attracting highly
qualified people for important roles, this also could adversely affectits business, operations and financial condition.

The Group is licensed to operate in the various countries, states andterritories. Unexpected changes in the conditions of the licenses
to operate by governments, administrations or regulatory agencies
which prohibit or restrict the Group from trading in a manner thatwas previously permitted may adversely impact the Group’s
operations and subsequent financial results.

22. The Group may be exposed to the impactof future climate change, geologicalevents, plant and animal diseases, andother extrinsic events which may adversely
affect its business, operations andfinancial condition

20. A
 n increase in the failure of third parties tohonour their commitments in connection
with the Group’s trading, lending, derivatives
and other activities may adversely affect its
business, operations and financial condition

The Group and its customers are exposed to climate related events,
including climate change. These events include severe storms,
drought, fires, cyclones, hurricanes, floods and rising sea levels.
The Group and its customers may also be exposed to other events
such as geological events (including volcanic seismic activity
or tsunamis), plant and animal diseases or a pandemic.

The Group is exposed to the potential risk of credit-related losses
that can occur as a result of a counterparty being unable or unwillingto honour its contractual obligations. As with any financial services
organization, the Group assumes counterparty risk in connection
with its lending, trading, derivatives, insurance and other businesses
where it relies on the ability of a third party (including reinsurers)
to satisfy its financial obligations to the Group on a timely basis.
The Group is also subject to the risk that its rights against third
parties may not be enforceable in certain circumstances.
The risk of credit-related losses may also be increased by a numberof factors, including deterioration in the financial condition of theeconomy, a sustained high level of unemployment, a deteriorationof the financial condition of the Group’s counterparties, a reductionin the value of assets the Group holds as collateral, and a reductionin the market value of the counterparty instruments andobligations it holds.
The Group is directly and indirectly exposed to the Australianmining sector and mining-related contractors and industries.
Lower commodity prices, mining activity, demand for resources,
or corporate investment in the mining sector may adversely affectthe amount of new lending the Group is able to write, or lead toan increase in lending losses from this sector. This industry-specificrevenue decline may lead to a broader regional economic
downturn with a long recovery period.

Depending on their severity, events such as these may temporarily
interrupt or restrict the provision of some local or Group services, andmay also adversely affect the Group’s financial condition or collateralposition in relation to credit facilities extended to customers.

23. The Group is exposed to insurance risk,
which may adversely affect its business,
operations and financial condition
Insurance risk is the risk of loss due to unexpected changes incurrent and future insurance claim rates. In the Group’s life insurance
business, insurance risk arises primarily through mortality (death)and morbidity (illness and injury) risks being greater than expected
and, in the case of annuity business, should annuitants live longer
than expected. In August 2015, ANZ ceased to issue home, car andtravel insurance and became a distributer only of these products.
The general insurance business now solely comprises a small amountof unemployment benefit. The Group has exposure to insurance risk
in both its life insurance and general insurance business, which may
adversely affect its businesses, operations and financial condition.

Credit losses can and have resulted in financial services organizations
realizing significant losses and in some cases failing altogether.
Should material unexpected credit losses occur to the Group’s credit
exposures, it could have an adverse effect on the Group’s business,
operations and financial condition.

PRINCIPAL RISKS AND UNCERTAINTIES181

PRINCIPAL RISKS AND UNCERTAINTIES (continued)

24. The Group may face increased tax reporting
compliance costs
In March 2010, the U.S. enacted the Foreign Account Tax ComplianceAct (“FATCA”) that requires non-U.S. banks and other financial
institutions to provide information on U.S. account holders to theUnited States Federal tax authority, the Internal Revenue Service(“IRS”). The U.S. has entered into intergovernmental agreements(“IGAs”) with a number of jurisdictions (including Australia and
New Zealand) which generally require such jurisdictions to enact
legislation or other binding rules pursuant to which local financial
institutions and branches provide such information to their non-U.S.
local revenue authority to forward to the IRS. If this information or
information provided to upstream payers of U.S. source income, is notprovided in a manner and form meeting the applicable requirements,
a non-U.S. institution may be subjected to penalties and potentiallya 30% withholding tax applied to certain amounts paid to it. While
such withholding tax may currently apply to certain payments
derived from sources within the U.S., no such withholding tax will
be imposed on any payments derived from sources outside the U.S.
that are made prior to 1 January 2019, at the earliest. Australia and
New Zealand have each signed an IGA with the U.S. and have enacted
legislation to implement the respective IGAs. Local guidance inrelation to the enacted legislation is still evolving. The ANZ Grouphas invested significant time and resources in order to comply
with FATCA. For more information, see “Taxation – United States
Federal Income Taxation – Foreign Account Tax Compliance
Withholding” below.
The OECD has finalised a global Common Reporting Standard(“CRS”) for the automatic exchange of financial account informationin tax matters. Over 90 jurisdictions have committed to implement
the CRS in 2016 or 2017, with the first exchange of information
to take place in 2017 or 2018. ANZ Group’s countries of operationthat are early adopters of CRS (i.e. those countries targeting a startdate of January 1,2016) include Cayman Islands, France, Germany,
India, the United Kingdom and South Korea. On 3 June 2015, Australia
signed the Multilateral Competent Authority Agreement (“MCAA”)
that enables Common Reporting Standard information to beexchanged between countries’ tax authorities. Several countries,
including Canada, New Zealand and India also signed the MCAA
on 3 June. Australia has targeted optional adoption from 1 January
2017 (with the first exchange of information to take place bySeptember 2018) and mandatory adoption from January 1, 2018(with exchange of information to take place by September 2019).
How the CRS will be practically implemented in Australia is subject
to further industry consultation.
Australian Treasury released Exposure Draft implementing
legislation in September 2015 for industry review/consultation.
Australian financial institutions that do not comply with the CRS(as modified by the implementing legislation) will be subject
to administrative penalties.
The ANZ Group has made and is expected to make significant
investments in order to comply with the requirements of the CRS.

182

25. The Group may experience changes in thevaluation of some of its assets and liabilities
that may have a material adverse effecton its earnings and/or equity
Under Australian Accounting Standards, the Group recognises
the following instruments at fair value with changes in fair value
recognised in earnings or equity:}} derivative instruments, including in the case of fair value hedging,
the fair value adjustment on the underlying hedged exposure withchanges in fair value recognised in earnings with the exceptionof derivatives designated in qualifying cash flow or net investment
hedges where the change is recognised in equity and released
to earnings together with the underlying hedged exposure;}} assets and liabilities held for trading;}} available-for-sale assets with changes in fair value recognizedin equity unless the asset is impaired, in which case, the decline
in fair value is recognized in earnings; and}} assets and liabilities designated at fair value through profit and loss
with changes recognised in earnings with the exception of changes
in fair value attributable to the own credit component of liabilities
that is recognised in equity.
Generally, in order to establish the fair value of these instruments,
the Group relies on quoted market prices or, where the market fora financial instrument is not sufficiently active, fair values are basedon present value estimates or other accepted valuation techniques
which incorporate the impact of factors that would influence thefair value as determined by a market participant. The fair valueof these instruments is impacted by changes in market prices
or valuation inputs which could have a material adverse effecton the Group’s earnings.
In addition, the Group may be exposed to a reduction in the valueof non-lending related assets as a result of impairments loss whichis recognised in earnings. The Group is required to assess therecoverability of the goodwill balances at least annually and othernon-financial assets including Premises and Equipment; investment
in associates; capitalised software and other intangible assets(including acquired portfolio of insurance and investment businessand deferred acquisition costs) where there are indictorsof impairment.
For the purpose of assessing the recoverability of the goodwill
balances, the Group uses either a discounted cash flow or a multipleof earnings calculation. Changes in the assumptions upon which
the calculation is based, together with expected changes in future
cash flows, could materially impact this assessment, resulting in
the potential write-off of a part or all of the goodwill balances.
In respect of other non-financial assets, in the event that an asset
is no longer in use, or that the cash flows generated by the asset
do not support the carrying value, impairment may be recorded.

ANZ ANNUAL REPORT 2015

26. C
 hanges to accounting policies may
adversely affect the Group’s financial
position or performance
The accounting policies and methods that the Group applies arefundamental to how it records and reports its financial position
and results of operations. Management must exercise judgment
in selecting and applying many of these accounting policies andmethods so that they not only comply with generally accepted
accounting principles but they also reflect the most appropriatemanner in which to record and report on the Group’s financial
position and results of operations. However, these accounting
policies may be applied inaccurately, resulting in a misstatementof the Group’s financial position and results of operations. In addition,
the application of new or revised generally accepted accounting
principles could have a material adverse effect on the Group’s
financial position and results of operations.
In some cases, management must select an accounting policy or
method from two or more alternatives, any of which might comply
with the generally accepted accounting principles applicable to theGroup and be reasonable under the circumstances, yet might result
in reporting materially different outcomes than would have beenreported under another alternative.

27. L itigation and contingent liabilities may
adversely affect the Group’s business,
operations and financial condition
From time to time, the Group may be subject to material litigation,
regulatory actions, legal or arbitration proceedings and othercontingent liabilities which, if they crystallise, may adversely affect
the Group’s results.
The Group had contingent liabilities as at 30 September 2015
in respect of the matters outlined in note 43 to the 2015
Financial Statements.
There is a risk that contingent liabilities may be larger than
anticipated or that additional litigation or other contingent
liabilities may arise.

28. The Group regularly considers acquisitionand divestment opportunities, and there
is a risk that the Group may undertake anacquisition or divestment that could resultin a material adverse effect on its business,
operations and financial condition
The Group regularly examines a range of corporate opportunities,
including material acquisitions and disposals, with a view todetermining whether those opportunities will enhance the Group’s
strategic position and financial performance.
There can be no assurance that any acquisition (or divestment)
would have the anticipated positive results, including results relating
to the total cost of integration (or separation), the time required tocomplete the integration (or separation), the amount of longer-term
cost savings, the overall performance of the combined (or remaining)
entity, or an improved price for the Group’s securities. The Group’s
operating performance, risk profile and capital structure may beaffected by these corporate opportunities and there is a risk that theGroup’s credit ratings may be placed on credit watch or downgraded
if these opportunities are pursued.
Integration (or separation) of an acquired (or divested) businesscan be complex and costly, sometimes including combining (orseparating) relevant accounting and data processing systems, andmanagement controls, as well as managing relevant relationships
with employees, customers, regulators, counterparties, suppliers
and other business partners. Integration (or separation) efforts could
create inconsistencies in standards, controls, procedures and policies,
as well as diverting management attention and resources. This could
adversely affect the Group’s ability to conduct its business successfully
and impact the Group’s operations or results. Additionally, there canbe no assurance that employees, customers, counterparties, suppliers
and other business partners of newly acquired (or retained) businesses
will remain post-acquisition (or post-divestment), and the loss of
employees, customers, counterparties, suppliers and other business
partners could adversely affect the Group’s operations or results.

PRINCIPAL RISKS AND UNCERTAINTIES183

SUPPLEMENTARY INFORMATION
1: Exchange Rates

REVALUATION OF POLICY LIABILITIESThe exchange rates used in the translation of the results and theassets and liabilities of major overseas branches and controlled
entities are:
Chinese Renminbi
Euro
Pound Sterling
Indian Rupee
Indonesian Rupiah
Japanese Yen
Malaysian Ringgit
New Taiwan Dollar
New Zealand Dollar
Papua New Guinea Kina
United States Dollar

2015
Closing
Average

2014
Closing
Average

4.45730.62290.462546.142
10,28184.072
3.117623.0661.10032.01230.70135.37870.68950.538353.941
10,66095.6772.8632
26.6391.12192.17170.87524.88030.68380.507449.522
10,19993.5152.876124.543
1.07852.09400.78395.65470.67790.555256.166
10,78794.1332.974927.587
1.09312.23530.9201

2. Explanation of adjustments between
statutory profit and cash profit
NON-IFRS INFORMATIONThe Group provides additional measures of performance which
are prepared on a basis other than in accordance with accounting
standards. The guidance provided in Australian Securities andInvestments Commission Regulatory Guide 230 has been followed
when presenting this information.
ADJUSTMENTS BETWEEN STATUTORY PROFITAND CASH PROFIT
Statutory profit has been adjusted to exclude non-core items
to arrive at cash profit, and has been provided to assist readers
to understand the results for the ongoing business activities of theGroup. The adjustments made in arriving at cash profit are included
in statutory profit which is subject to audit within the context of
the Group statutory audit opinion. Cash profit is not audited by
the external auditor, however, the external auditor has informed
the Audit Committee that the adjustments have been determinedon a consistent basis across each period presented.
TREASURY SHARES ADJUSTMENT
ANZ shares held by the Group in the funds management andinsurance business are deemed to be Treasury shares for accounting
purposes. Dividends and realised and unrealised gains and losses
from these shares are reversed as these are not permitted to berecognised in 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 support policy liabilities which are revalued throughthe income statement.

184

When calculating policy liabilities, the projected future cash flows
on insurance contracts are discounted to reflect the present valueof the obligation, with the impact of changes in the market discountrate each period being reflected in the income statement. ANZ
includes the impact on the remeasurement of the insurance contract
attributable to changes in the market discount rates as an adjustment
to remove the volatility attributable to changes in market interest
rates which reverts to zero over the life of the insurance contract.
ECONOMIC HEDGING AND REVENUEAND NET INVESTMENT HEDGESThe Group enters into economic hedges to manage its interest rate
and foreign exchange risk. The application of AASB 139: Financial
Instruments – Recognition and Measurement results in fair value
gains and losses being recognised within the income statement.
ANZ removes the mark-to-market adjustments from cash profit
as 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 of derivatives not designated inaccounting hedge relationships but which are considered tobe economic hedges, including hedges of larger foreign currency
denominated revenue and expense streams, as well as ineffectivenessfrom designated accounting hedges.
Economic hedging:}} Funding related swaps - primarily cross currency interest rate swaps
which are being used to convert the proceeds of foreign currency
debt issuances into floating rate Australian dollar and New Zealanddollar debt. As these swaps do not qualify for hedge accounting,movements in the fair values are recorded in the income statement.
The main drivers of these fair values are currency basis spreads andthe Australian dollar and New Zealand dollar fluctuation against
other major funding currencies.
}} Economic hedges of select structured finance and specialised
leasing transactions that do not qualify for hedge accounting.
The main drivers of these fair value adjustments are Australianand New Zealand yield curve movements.
}} Ineffectiveness from designated accounting hedge relationships.
The majority of the gain related to funding related swaps thatwere impacted by the significant weakening in AUD acrossa number of major currencies, most notably the USD and EUR.
Revenue and net investment hedges:}} The Group hedges larger foreign currency denominated revenue
and expense streams (primaily New Zealand Dollar, US Dollar and
USD Dollar correlated).

ANZ ANNUAL REPORT 2015

2015
$m

2014
$m

Adjustments to the income statement
Timing differences where IFRS results in asymmetry
between the hedge and hedged items
Economic hedging
Revenue and net investment hedges

(255)
(4)

(103)
(143)

Increase/(decrease) to cash profit before tax

(259)

(246)

Increase/(decrease) to cash profit after tax

(182)

(173)

As at

2015
$m

Cumulative increase/(decrease) to cash profit
pre-tax relating to economic hedging
Timing differences where IFRS results in asymmetry
between the hedge and hedged items (before tax)
Economic hedging
Revenue and net investment hedges

2014
$m

295
32

550
36

327

586

CREDIT RISK ON IMPAIRED DERIVATIVES(NIL PROFIT AFTER TAX IMPACT)

Reclassification of a charge to income for credit valuation
adjustments on defaulted and impaired derivative exposures toprovision for credit impairment of $26 million (2014: $3 million). The
reclassification has been made to reflect the manner in which thedefaulted and impaired derivatives are managed.
POLICYHOLDERS TAX GROSS UP(NIL PROFIT AFTER TAX IMPACT)

For statutory reporting purposes policyholder income tax and otherrelated taxes paid on behalf of policyholders are included in net funds
management and insurance income and income tax expense. The
gross up of $186 million (2014: $242 million) has been excluded fromthe cash results as it does not reflect the underlying performance ofthe business which is assessed on a net of policyholder tax basis.
STRUCTURED CREDIT INTERMEDIATION TRADES

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

Being derivatives, both the sold protection and purchased protection
are measured at fair value and are marked-to-market. Prior tothe commencement of the global financial crisis, movements invaluations of these positions were not significant and largely offset
each other in income. Following the onset of the global financial
crisis, the purchased protection has provided only a partial offset
against movements in valuation of the sold protection because:}} one of the counterparties to the purchased protection defaulted
and many of the remaining were downgraded; and}} a credit valuation adjustment is applied to the remaining
counterparties to the purchased protection reflective of changes
to their credit worthiness
ANZ actively monitors this portfolio with a view to reducing theexposures via termination and restructuring of both the bought andsold protection if and when ANZ deems it cost effective relative tothe perceived risk associated with a specific trade or counterparty.
As at 30 September 2015, ANZ’s remaining exposure is against two
financial guarantors.
The bought and sold protection trades are by nature largely offsetting,with the notional amount on the outstanding bought CDSs andoutstanding sold CDSs at 30 September 2015 each amounting
to $0.7 billion (2014: $1.2 billion). The decrease in notional balancesof $0.5 billion during September 2015 is primarily due to thetermination of one bought protection along with the corresponding
sold protection during the year.
The profit and loss impact of credit risk on structured credit
derivatives remains volatile reflecting the impact of market
movements in credit spreads and AUD/USD rates.
The (gain)/loss on structured credit intermediation trades is included
as an adjustment as it relates to a legacy non-core business where,
unless terminated early, the fair value movements are expected
to reverse to zero in future periods.
2015
$m

2014
$m

Increase/(decrease) to cash profit
Profit before income tax
Income tax expense

(8)
2

22
(1)

Profit after income tax

(6)

21

As at

2015
$m

2014
$m

Financial impacts on credit intermediation trades
Mark-to-market exposure to financial guarantors

69

82

Cumulative costs relating to financial guarantors1
CVA for outstanding transactions
Realised close out and hedge costs

17
372

24
373

Cumulative life to date charges

389

397

1 The cumulative costs in managing the positions include realised losses relating
to restructuring of trades in order to reduce risks and realised losses on terminationof sold protection trades. It also includes foreign exchange hedging losses.

SUPPLEMENTARY INFORMATION

185

SHAREHOLDER INFORMATION

Ordinary Shares
At 9 October 2015, the twenty largest holders of ANZ ordinary shares held 1,611,541,422 ordinary shares, equal to 55.52% of the total issued
ordinary capital.

Name

1 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED2 J P MORGAN NOMINEES AUSTRALIA LIMITED
3 NATIONAL NOMINEES LIMITED
4 CITICORP NOMINEES PTY LIMITED
5 BNP PARIBAS NOMS PTY LTD <DRP>
6 CITICORP NOMINEES PTY LIMITED <COLONIAL FIRST STATE INV A/C>
7 CITICORP NOMINEES PTY LIMITED <CITIBANK NY ADR DEP A/C>
8 AMP LIFE LIMITED
9 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED <NT-COMNWLTH SUPER CORP A/C>
10 ARGO INVESTMENTS LIMITED
11 UBS WEALTH MANAGEMENT AUSTRALIA NOMINEES PTY LTD
12 RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED <PI POOLED A/C>
13 AUSTRALIAN FOUNDATION INVESTMENT COMPANY LIMITED
14 ANZEST PTY LTD <DEFERRED SHARE PLAN A/C>
15 ANZEST PTY LTD <DEA CONTROL A/C>
16 BNP PARIBAS NOMINEES PTY LTD <AGENCY LENDING DRP A/C>
17 NAVIGATOR AUSTRALIA LTD <MLC INVESTMENT SETT A/C>
18 RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED <BKCUST A/C>
19 QUESTOR FINANCIAL SERVICES LIMITED <TPS RF A/C>
20 NULIS NOMINEES (AUSTRALIA) LIMITED <NAVIGATOR MAST PLAN SETT A/C>
Total

Number ofshares% ofshares

550,524,181
366,481,654
291,223,298
167,694,445
70,907,594
29,370,434
19,277,183
18,220,633
18,183,444
9,762,275
9,079,789
8,965,343
8,487,710
7,774,518
7,576,947
7,478,557
5,595,482
5,301,529
4,904,823
4,731,583

18.97
12.63
10.03
5.78
2.44
1.01
0.66
0.63
0.63
0.34
0.31
0.31
0.29
0.27
0.26
0.26
0.19
0.18
0.17
0.16

1,611,541,422

55.52

DISTRIBUTION OF SHAREHOLDINGSAt 9 October 2015
Range of shares

Number ofholders% ofholders

Number ofshares% ofshares1 to 1,000
1,001 to 5,000
5,001 to 10,000
10,001 to 100,000
Over 100,000

302,055
197,864
31,536
16,745
485

55.05
36.06
5.75
3.05
0.09

124,806,734
449,914,855
218,942,284
336,776,063
1,772,274,425

4.30
15.50
7.54
11.60
61.06

Total

548,685

100.002,902,714,361

100.00

At 9 October 2015:– there were no persons with a substantial shareholding in the Company;– the average size of holdings of ordinary shares was 5,290 (2014: 5,509) shares; and– there were 10,556 holdings (2014: 9,711 holdings) of less than a marketable parcel (less than $500 in value or 18 shares based on the closing market price of $28.46 per share), which is less than
1.93% of the total holdings of 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)

186

ANZ ANNUAL REPORT 2015

ANZ Convertible Preference Shares
ANZ CPS2
On 17 December 2009 the Company issued convertible preference shares (ANZ CPS2) which were offered pursuant to a prospectus dated
18 November 2009.
At 9 October 2015, the twenty largest holders of ANZ CPS2 held 3,883,712 securities, equal to 19.73% of the total issued securities.
Name

1 NATIONAL NOMINEES LIMITED
2 QUESTOR FINANCIAL SERVICES LIMITED <TPS RF A/C>
3 J P MORGAN NOMINEES AUSTRALIA LIMITED
4 UBS WEALTH MANAGEMENT AUSTRALIA NOMINEES PTY LTD
5 NAVIGATOR AUSTRALIA LTD <MLC INVESTMENT SETT A/C>
6 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
7 NULIS NOMINEES (AUSTRALIA) LIMITED <NAVIGATOR MAST PLAN SETT A/C>
8 AUSTRALIAN EXECUTOR TRUSTEES LIMITED <NO 1 ACCOUNT>
9 AVANTEOS INVESTMENTS LIMITED <ENCIRCLE IMA A/C>
10 THE AUSTRALIAN NATIONAL UNIVERSITY
11 CITICORP NOMINEES PTY LIMITED <COLONIAL FIRST STATE INV A/C>
12 NETWEALTH INVESTMENTS LIMITED <WRAP SERVICES A/C>
13 JMB PTY LIMITED
14 UBS NOMINEES PTY LTD
15 RANDAZZO C & G DEVELOPMENTS PTY LTD
16 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2
17 AVANTEOS INVESTMENTS LIMITED <ENCIRCLE SUPER A/C>
18 MR PHILIP WILLIAM DOYLE
19 W MITCHELL INVESTMENTS PTY LTD <W MITCHELL SUPER FUND>
20 QUESTOR FINANCIAL SERVICES LIMITED <TPS PIP A/C>
Total

Number of
securities% ofsecurities

440,628
436,081
421,014375,127
281,069
240,371
234,054
207,731
192,532
170,000
145,335
136,241
100,600
100,153
78,50073,02072,45260,00060,00058,804

2.24
2.21
2.14
1.91
1.43
1.22
1.19
1.06
0.98
0.86
0.74
0.69
0.51
0.51
0.4
0.37
0.37
0.3
0.3
0.3

3,883,712

19.73

DISTRIBUTION OF ANZ CPS2 HOLDINGSAt 9 October 2015
Range of securities

Number ofholders% ofholders

Number of
securities% ofsecurities

1 to 1,000
1,001 to 5,000
5,001 to 10,000
10,001 to 100,000
Over 100,000

28,415
2,137
146
65
14

92.33
6.94
0.47
0.21
0.05

8,869,487
4,379,273
1,119,705
1,837,823
3,480,936

45.05
22.24
5.69
9.34
17.68

Total

30,777100.0019,687,224

100.00

At 9 October 2015 there were 13 holdings (2014: 11 holdings) of less than a marketable parcel (less than $500 in value or 5 securities based on the closing market price of $100.300 per security),
which is less than 0.05% of the total holdings of ANZ CPS2.

VOTING RIGHTS OF ANZ CPS2
An ANZ CPS2 holder has the right to vote at a meeting of membersof the Company in the following circumstances and in no others:i) on any proposal to reduce the Company’s share capital, otherthan a resolution to approve a redemption of the ANZ CPS2;ii) on a proposal that affects the rights attached to the ANZ CPS2;
iii) on any resolution to approve the terms of a buy-back agreement,
other than a resolution to approve a redemption of ANZ CPS2;
iv) on a proposal to wind up the Company;v) on a proposal for the disposal of the whole of the Company’s
property, business and undertaking;vi) on any matter during a winding up of the Company; andvii) on any matter during a period in which a dividend remains unpaid.

On a resolution or proposal on which an ANZ CPS2 holder
is entitled to vote, the ANZ CPS2 holder has:i) on a show of hands, one vote; andii) on a poll, one vote for each ANZ CPS2 held.
A register of holders of ANZ CPS2 is held at:
452 Johnston Street
Abbotsford
Victoria, Australia(Telephone: +61 3 9415 4010)

SHAREHOLDER INFORMATION

187

SHAREHOLDER INFORMATION (continued)

ANZ CPS3
On 28 September 2011 the Company issued convertible preference shares (ANZ CPS3) which were offered pursuant to a prospectus dated
31 August 2011.
At 9 October 2015, the twenty largest holders of ANZ CPS3 held 2,360,561 securities, equal to 17.61% of the total issued securities.
Name

1 UBS WEALTH MANAGEMENT AUSTRALIA NOMINEES PTY LTD
2 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
3 NAVIGATOR AUSTRALIA LTD <MLC INVESTMENT SETT A/C>
4 RAKIO PTY LTD <PIEKARSKI GYMPIE A/C>
5 NULIS NOMINEES (AUSTRALIA) LIMITED <NAVIGATOR MAST PLAN SETT A/C>
6 QUESTOR FINANCIAL SERVICES LIMITED <TPS RF A/C>
7 CITICORP NOMINEES PTY LIMITED <COLONIAL FIRST STATE INV A/C>
8 AUSTRALIAN EXECUTOR TRUSTEES LIMITED <NO 1 ACCOUNT>
9 NATIONAL NOMINEES LIMITED
10 DIMBULU PTY LTD
11 LONGHURST MANAGEMENT SERVICES PTY LTD
12 MICHAEL COPPEL VENTURES P/L <MICHAEL COPPEL VENTURES A/C>
13 JMB PTY LIMITED
14 NETWEALTH INVESTMENTS LIMITED <WRAP SERVICES A/C>
15 BNP PARIBAS NOMS PTY LTD <DRP>
16 NETWEALTH INVESTMENTS LIMITED <SUPER SERVICES A/C>
17 EASTCOTE PTY LTD <VAN LIESHOUT FAMILY A/C>
18 RANDAZZO C & G DEVELOPMENTS PTY LTD
19 RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED <MULTIPORT A/C>
20 SIR MOSES MONTEFIORE JEWISH HOME <INCOME A/C>
Total

Number of
securities% ofsecurities

420,067
238,178
200,284
200,000
146,124
141,352
139,630
117,198
86,93585,00083,24680,00070,00057,15453,48550,21550,00050,00049,69342,000

3.14
1.78
1.5
1.49
1.09
1.05
1.04
0.88
0.65
0.63
0.62
0.6
0.52
0.43
0.4
0.37
0.37
0.37
0.37
0.31

2,360,561

17.61

DISTRIBUTION OF ANZ CPS3 HOLDINGSAt 9 October 2015
Range of securities

Number ofholders% ofholders

Number of
securities% ofsecurities

1 to 1,000
1,001 to 5,000
5,001 to 10,000
10,001 to 100,000
Over 100,000

19,734
1,512
89
55
8

92.22
7.07
0.41
0.26
0.04

6,272,592
3,189,377
690,503
1,644,695
1,602,833

46.81
23.80
5.15
12.28
11.96

Total

21,398100.0013,400,000

100.00

At 9 October 2015 there were 10 holdings (2014: 4 holdings) of less than a marketable parcel (less than $500 in value or 6 securities based on the closing market price of $99.801 per security),
which is less than 0.05% of the total holdings of ANZ CPS3.

VOTING RIGHTS OF ANZ CPS3
An ANZ CPS3 holder has the right to vote at a meeting of membersof the Company in the following circumstances and in no others:i) on any proposal to reduce the Company’s share capital, otherthan a resolution to approve a redemption of the ANZ CPS3;ii) on a proposal that affects the rights attached to the ANZ CPS3;iii) on any resolution to approve the terms of a buy-back agreement,
other than a resolution to approve a redemption of ANZ CPS3;
iv) on a proposal to wind up the Company;v) on a proposal for the disposal of the whole of the Company’s
property, business and undertaking;vi) on any matter during a winding-up of the Company; andvii) on any matter during a period in which a dividend
remains unpaid.
188

On a resolution or proposal on which an ANZ CPS3 holder
is entitled to vote, the ANZ CPS3 holder has:i) on a show of hands, one vote; andii) on a poll, one vote for each ANZ CPS3 held.
A register of holders of ANZ CPS3 is held at:
452 Johnston Street
Abbotsford
Victoria, Australia(Telephone: +61 3 9415 4010)

ANZ ANNUAL REPORT 2015

ANZ Capital Notes
ANZ 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 9 October 2015 the twenty largest holders of ANZ CN1 held 2,077,008 securities, equal to 18.54% of the total issued securities.
Name

1 UBS WEALTH MANAGEMENT AUSTRALIA NOMINEES PTY LTD
2 NATIONAL NOMINEES LIMITED
3 J P MORGAN NOMINEES AUSTRALIA LIMITED
4 NAVIGATOR AUSTRALIA LTD <MLC INVESTMENT SETT A/C>
5 CITICORP NOMINEES PTY LIMITED
6 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
7 NULIS NOMINEES (AUSTRALIA) LIMITED <NAVIGATOR MAST PLAN SETT A/C>
8 NETWEALTH INVESTMENTS LIMITED <WRAP SERVICES A/C>
9 BNP PARIBAS NOMS PTY LTD <DRP>
10 SERVCORP HOLDINGS PTY LTD
11 DIMBULU PTY LTD
12 RANDAZZO C & G DEVELOPMENTS PTY LTD
13 AUSTRALIAN MASTERS YIELD FUND NO 5 LIMITED
14 ADCO CONSTRUCTIONS PTY LTD
15 THORSEN INVESTMENTS PTY LTD
16 NETWEALTH INVESTMENTS LIMITED <SUPER SERVICES A/C>
17 AUSTRALIAN EXECUTOR TRUSTEES LIMITED <NO 1 ACCOUNT>
18 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2
19 QUESTOR FINANCIAL SERVICES LIMITED <TPS RF A/C>
20 BARRETT SUPERFUND PTY LTD <BARRETT SUPERFUND A/C>
Total

Number of
securities% ofsecurities

343,134
308,966
218,314
157,245
135,470
133,228
115,309114,206
87,15072,81750,00050,00045,41040,00040,00038,83537,54232,52831,85425,000

3.06
2.76
1.95
1.4
1.21
1.19
1.03
1.02
0.78
0.65
0.45
0.45
0.4
0.36
0.36
0.35
0.33
0.29
0.28
0.22

2,077,008

18.54

DISTRIBUTION OF ANZ CN1 HOLDINGSAt 9 October 2015
Range of securities

Number ofholders% ofholders

Number of
securities% ofsecurities

1 to 1,000
1,001 to 5,000
5,001 to 10,000
10,001 to 100,000
Over 100,000

15,088
1,315
95
43
8

91.17
7.95
0.57
0.26
0.05

5,037,427
2,850,461
739,250
1,046,990
1,525,872

44.98
25.45
6.60
9.35
13.62

Total

16,549100.00

11,200,000

100.00

At 9 October 2015 there were 6 holdings (2014: 4 holdings) of less than a marketable parcel (less than $500 in value or 6 securities based on the closing market price of $93.989 per security),
which is less than 0.04% 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

189

SHAREHOLDER INFORMATION (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 9 October 2015 the twenty largest holders of ANZ CN2 held 2,954,397 securities, equal to 18.35% of the total issued securities.
Name

1 UBS WEALTH MANAGEMENT AUSTRALIA NOMINEES PTY LTD
2 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
3 NATIONAL NOMINEES LIMITED
4 J P MORGAN NOMINEES AUSTRALIA LIMITED
5 QUESTOR FINANCIAL SERVICES LIMITED <TPS RF A/C>
6 JOHN E GILL TRADING PTY LTD
7 BNP PARIBAS NOMS PTY LTD <DRP>
8 NAVIGATOR AUSTRALIA LTD <MLC INVESTMENT SETT A/C>
9 NETWEALTH INVESTMENTS LIMITED <WRAP SERVICES A/C>
10 LIGHTNINGEDGE PTY LTD
11 NULIS NOMINEES (AUSTRALIA) LIMITED <NAVIGATOR MAST PLAN SETT A/C>
12 PERSHING AUSTRALIA NOMINEES PTY LTD <IMPLEMENTED PORTFOLIOS A/C>
13 RAKIO PTY LTD <PIEKARSKI GYMPIE A/C>
14 AUSTRALIAN EXECUTOR TRUSTEES LIMITED <NO 1 ACCOUNT>
15 AUSTRALIAN MASTERS YIELD FUND NO 5 LIMITED
16 BALLARD BAY PTY LTD <BALLARD BAY DISCRETIONARY AC>
17 ELMORE SUPER PTY LTD <PEABODY SUPERFUND A/C>
18 JMB PTY LIMITED
19 KOLL PTY LTD <NO 1 ACCOUNT>
20 CITICORP NOMINEES PTY LIMITED
Total

Number of
securities% ofsecurities

571,044497,649
240,884
217,978
185,342
164,193
142,915
141,223
107,286
100,000
87,364
81,93260,00059,40550,00050,00050,00050,00050,00047,182

3.55
3.09
1.5
1.35
1.15
1.02
0.89
0.88
0.67
0.62
0.54
0.51
0.37
0.37
0.31
0.31
0.31
0.31
0.31
0.29

2,954,397

18.35

DISTRIBUTION OF ANZ CN2 HOLDINGSAt 9 October 2015
Range of securities

Number ofholders% ofholders

Number of
securities% ofsecurities

1 to 1,000
1,001 to 5,000
5,001 to 10,000
10,001 to 100,000
Over 100,000

20,414
1,971
141
75
9

90.29
8.72
0.62
0.33
0.04

6,720,914
4,061,343
1,097,378
1,951,851
2,268,514

41.74
25.23
6.82
12.12
14.09

Total

22,610100.00

16,100,000

100.00

At 9 October 2015 there were 3 holdings of less than a marketable parcel (less than $500 in value or 6 securities based on the closing market price of $91.600 per security), which is less than 0.02%
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)

190

ANZ ANNUAL REPORT 2015

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 9 October 2015 the twenty largest holders of ANZ CN3 held 1,752,440 securities, equal to 18.06% of the total issued securities.
Name

1 UBS WEALTH MANAGEMENT AUSTRALIA NOMINEES PTY LTD
2 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
3 LONGHURST MANAGEMENT SERVICES PTY LTD
4 CITICORP NOMINEES PTY LIMITED
5 TRANSFIELD FINANCE PTY LTD
6 RAKIO PTY LTD <PIEKARSKI GYMPIE A/C>
7 J P MORGAN NOMINEES AUSTRALIA LIMITED
8 PERSHING AUSTRALIA NOMINEES PTY LTD <IMPLEMENTED PORTFOLIOS A/C>
9 NATIONAL NOMINEES LIMITED
10 MR YUXIANG DU
11 NETWEALTH INVESTMENTS LIMITED <WRAP SERVICES A/C>
12 BNP PARIBAS NOMS PTY LTD <DRP>
13 JDB SERVICES PTY LTD <RAC & JD BRICE INVEST A/C>
14 GARRY JOHNSON + MARGARET JOHNSON <JOHNSON FAMILY A/C>
15 ROOKWOOD GENERAL CEMETERIES RESERVE
16 THE WALTER AND ELIZA HALL INSTITUTE OF MEDICAL RESEARCH
17 HAWAII INVESTMENTS PTY LTD
18 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2
19 MR PAUL WILLIAM BROTCHIE + MR KENNETH FRANCIS WALLACE <STAFFORD FOX FOUNDATION A/C>
20 WONGA BEACH VILLAGE PTY LTD
Total

Number of
securities% of securities

336,235
192,152
167,000
100,812
100,600
100,000
83,37674,296
68,23360,00057,46454,58750,66550,00050,00050,00044,25040,77040,00032,000

3.46
1.98
1.72
1.04
1.04
1.03
0.86
0.76
0.7
0.62
0.59
0.56
0.52
0.52
0.52
0.52
0.46
0.42
0.41
0.33

1,752,440

18.06

DISTRIBUTION OF ANZ CN3 HOLDINGSAt 9 October 2015
Range of securities

Number ofholders% ofholders

Number of
securities% ofsecurities

1 to 1,000
1,001 to 5,000
5,001 to 10,000
10,001 to 100,000
Over 100,000

11,708
1,068
95
52
5

90.56
8.26
0.74
0.40
0.04

3,979,933
2,433,191
790,232
1,601,636
896,799

41.02
25.08
8.15
16.51
9.24

Total

12,928100.009,701,791

100.00

At 9 October 2015 there were 2 holdings of less than a marketable parcel (less than $500 in value or 6 securities based on the closing market price of $92.383 per security), which is less than 0.02%
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

191

SHAREHOLDER INFORMATION (continued)

Employee Shareholder Information

American 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 theaggregate number of 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 2015 participants under the following
plans/schemes held 1.02% (2014: 1.10%) of the total numberof ANZ shares of all classes on issue:}} ANZ Employee Share Acquisition Plan;}} ANZ Employee Share Save Scheme;}} ANZ Share Option Plan; and}} ANZ Directors’ Share Plan.

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.

Stock Exchange Listings
Australia and New Zealand Banking Group Limited’s ordinary
shares are listed on the Australian Securities Exchange and the
New Zealand Stock Exchange.
The Group’s other stock exchange listings include:}} Australian Securities Exchange – ANZ Convertible Preference
Shares (ANZ CPS2 and CPS3), ANZ Capital Notes (CN1, CN2 andCN3), senior debt (including covered bonds) and subordinateddebt (including ANZ Subordinated Notes) [Australia and
New Zealand Banking Group Limited];}} London Stock Exchange – Senior (including covered bonds)
and subordinated debt [Australia and New Zealand Banking
Group Limited]; 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 Stock Exchange – ANZ NZ Capital Notes, seniordebt and perpetual callable subordinated notes [ANZ BankNew Zealand Limited]; and}} SIX Swiss Exchange – Senior debt (including covered bonds)[Australia and New Zealand Banking Group Limited and
ANZ New Zealand (Int’l) Limited].
For more information on the ANZ Convertible Preference Shares,
ANZ Capital Notes and ANZ NZ Capital Notes please refer to note
18 to the Financial Statements.

192

With 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, find answers 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 are calling from within the United States. If you are calling fromoutside the United States, please call 1-781-575-4555. You may also
send an e-mail inquiry to citibank@shareholders-online.com or visit
the website at www.citi.com/adr.

ANZ ANNUAL REPORT 2015

GLOSSARY
AASs – Australian Accounting Standards.
AASB – Australian Accounting Standards Board. The term “AASB” iscommonly used when identifying AASs issued by the AASB.
ADIs – Authorised Deposit-taking Institutions.
APRA – Australian Prudential Regulation Authority.
Australia division
The Australia division comprises the Retail and Corporate andCommercial Banking business units.
}} Retail
Retail is responsible for delivering a full range of banking services
to consumer customers, using capabilities in product management,
analytics, customer research, segmentation, strategy and marketing.
–– Home Loans provides housing finance to consumers in Australia
for both owner occupied and investment purposes, as wellas providing housing finance for overseas investors.
–– Cards and Personal Loans provides unsecured lending products
to retail customers.
–– Deposits and Payments provides transaction banking, savings
and investment products, such as term deposits and cash
management accounts.
Retail delivers banking solutions to customers across multiple
distribution channels including the Australian branch network,
ANZ Direct, specialist sales channels and digital channels (including
goMoney™, Internet Banking, anz.com). The retail distribution
network provides retail and wealth solutions to consumers, as wellas providing small business solutions and meeting the various
cash and cheque handling needs of corporate, commercial andinstitutional customers.
}} Corporate and Commercial Banking (C&CB)– Corporate Banking provides a full range of banking services
including traditional relationship banking and sophisticatedfinancial solutions, primarily to large private companies, smaller
listed companies and multi-national corporation subsidiaries.
– Regional Business Banking provides a full range of banking
services to non-metropolitan commercial and agri (including
corporate) customers.
– Business Banking provides a full range of banking services,
to metropolitan based small to medium sized business clientswith a turnover of $5 million up to $125 million.
– Small Business Banking provides a full range of banking services
to metropolitan and regional based small businesses in Australia
with a turnover of up to $5 million and lending up to $1 million.
– Esanda provides motor vehicle and equipment finance.

Cash and cash equivalents comprise coins, notes, money atcall, balances held with central banks, liquid settlement balances(readily convertible to known amounts of cash which are subject toinsignificant risk of changes in value) and securities purchased underagreements to resell (“reverse repos”) in less than three months.
Cash profit is a measure of profit which is prepared on a basis
other than in accordance with accounting standards. Cash profit
represents a measure of the result of the ongoing business activitiesof the Group, enabling shareholders to assess Group and Divisional
performance against prior periods and against peer institutions.
To calculate cash profit, the Group excludes items from statutory
net profit as noted below. These items are calculated consistently
period on period so as not to discriminate between positive andnegative 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. non-core gains or losses included in earnings arising from changes
in tax, 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.
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 a bankruptcy remote special purpose entity. The primary assets
forming the cover pool are mortgage loans. The mortgages remainon the issuer’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 disposedof but may be repurchased and substituted in order to maintain thecredit quality of the pool. The Group issues covered bonds as partof its funding activities.
Customer deposits represent term deposits, other deposits bearing
interest, deposits not bearing interest and borrowing corporations’debt excluding securitisation deposits.
Divisional revenue includes net interest income, share of associates’
profit and other operating income before the elimination of intragroup items.
GLA – G ross Loans and Advances. This is made up of loans andadvances, acceptances and capitalised brokerage/mortgage
origination fees less unearned income.

GLOSSARY193

GLOSSARY (continued)

Global Wealth
The Global Wealth division comprises Funds Management,
Insurance and Private Wealth business units which provide investment,
superannuation, insurance and private banking solutions to customers
across the Asia-Pacific region to make it easier for them to connect
with, protect and grow their wealth.
}} Private Wealth includes global private banking business which
specialises in assisting individuals and families to manage, growand preserve their wealth.
}} Funds Management includes the Pensions and Investment
business and E*TRADE.
}} Insurance includes Life Insurance, General Insurance and ANZ
Lenders Mortgage Insurance.
}} Corporate and Other includes income from invested capital andprofits from the Advice and Distribution business.
Global Technology, Services & Operations (GTSO)
and Group Centre
GTSO and Group Centre provide support to the operating divisions,
including technology, operations, shared services, property, risk
management, financial management, strategy, marketing, humanresources and corporate affairs. The Group Centre includes Group
Treasury and Shareholder Functions.
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 eventthat 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 (as opposed to on a collective basis). It takes into accountexpected cash flows over the lives of those financial instruments.

International and Institutional Banking
International and Institutional Banking (IIB) division comprises Global
Products, Retail Asia Pacific and Asia Partnerships. IIB services threemain customer segments: Global Banking, International Banking andRetail Asia Pacific. Global Banking serves institutional customers withmulti-product, multi-geographic requirements, International Banking
serves institutional customers with less complex needs and Retail Asia
Pacific focuses on affluent and emerging affluent customers across
21 countries.
}} Global Products
Global Products service Global Banking and International Banking
customers across three product sets:–– Global Transaction Banking which provides working capital andliquidity solutions including documentary trade, supply chain
financing, structured trade finance as well as cash management
solutions, deposits, payments and clearing.
–– Global Markets provides risk management services to clients
globally on foreign exchange, interest rates, credit, commodities,
debt capital markets and wealth solutions. Markets provide
origination, underwriting, structuring and risk management
services, advice and sale of credit and derivative products. The
business unit also manages the Bank’s interest rate exposure
as well as its liquidity position.
–– Global Loans and Advisory which provides specialised loan
structuring and execution, loan syndication, project and export
finance, debt structuring and acquisition finance, structured
asset finance and corporate advisory.
}} Retail Asia Pacific provides end-to-end financial solutions to
individuals and small businesses including deposits, credit cards,
loans, investments and insurance. Leveraging our distinctive
footprint we enable client’s access to opportunities across theregion and connect them to specialists for their banking needs
in each location.
}} Asia Partnerships comprises of strategic partnerships andinvestments across Asia which provide the Bank with local businessand relationship access as well as country and regulatory insights.
Net interest margin is net interest income as a percentage of averageinterest earning assets.
Net loans and advances represents gross loans and advances lessprovisions for credit impairment.
Net tangible assets equal share capital and reserves attributable
to shareholders of the Group less preference share capital andunamortised intangible assets (including goodwill and software).

194

ANZ ANNUAL REPORT 2015

New Zealand
The New Zealand division comprises Retail and Commercial
business units.

Operating expenses include personnel expenses, premises expense,technology expenses, restructuring expenses, and other operating
expenses (excluding credit impairment charges).

}} Retail
Retail provides products and services to Retail and Small BusinessBanking customers via the branch network, mortgage specialists,business managers, the contact centre and a variety of self-service
channels (internet banking, phone banking, ATMs, website andmobile phone banking). Retail customers have personal banking
requirements and Small Business Banking customers consist
primarily of small enterprises with annual revenues of less thanNZD 5 million. Core products include current and savings accounts,
unsecured lending (credit cards, personal and business loans andoverdrafts) and home and business loans secured by mortgages
over property. The Retail business unit distributes insurance andinvestment products on behalf of the Global Wealth division.

Operating income includes net interest income, net fee andcommission income, net funds management and insurance income,share of associates’ profit and other income.

}} Commercial
Commercial provides services to Commercial & Agri (CommAgri)and UDC customers. CommAgri customers consist of primarily
privately owned medium to large enterprises. Commercial’s
relationship with these businesses ranges from simple banking
requirements with revenue from deposit and transactional facilities,
and cash flow lending, to more complex funding arrangementswith revenue sourced from a wider range of products. UDC isprincipally involved in the financing and leasing of plant, vehicles
and equipment, mainly for small and medium sized businesses,
as well as investment products.

Regulatory deposits are mandatory reserve deposits lodged withlocal central banks in accordance with statutory requirements.
Restructured items comprise facilities in which the originalcontractual terms have been modified for reasons related to thefinancial difficulties of the customer. Restructuring may consistof reduction of interest, principal or other payments legally due,or an extension in maturity materially beyond those typicallyoffered to new facilities with similar risk.
Settlement balances owed to / from 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 settlement accounts.

GLOSSARY

195

ALPHABETICAL INDEX
Assets Charged as security for Liabilities andCollateral Accepted as Security for Assets
Associates
Available-for-sale Assets
Balance Sheet
Capital Management
Cash
Cash Flow Statement
Chairman’s Report
Chief Executive Officer’s Report
Commitments
Compensation of Auditors
Controlled Entities
Credit Related Commitments, Guarantees,
Contingent Liabilities and Contingent Assets
Critical Estimates and Judgments Usedin Applying Accounting Policies
Debt Issuances
Deposits and Other Borrowings
Derivative Financial Instruments
Directors’ Declaration and Responsibilities Statements
Directors’ Report
Dividends
Earnings per Ordinary Share
Employee Share and Option Plans
Events since the End of the Financial Year
Exchange Rates
Expenses
Fair Value of Financial Assets and Financial Liabilities
Fiduciary Duties
Financial Highlights
Financial Statements
Financial Risk Management
Five Year Summary
Glossary

196

133
147
95
62
142
89
63
6
7
138
168
146
136
75
100
100
89
170
8
82
84
157
169
184
78
124
154
5
60
103
174
193

Goodwill and Other Intangible Assets
Impaired Assets
Income Statement
Income Tax
IncomeIndependent Auditor’s Report
Key Management Personnel Disclosures
Life Insurance Business
Maturity Analysis of Assets and Liabilities
Net Loans and Advances
Notes to the Cash Flow Statements
Notes to the Financial Statements
Operating and Financial Review
Other Assets
Payables and Other Liabilities
Premises and Equipment
Principal Risk and Uncertainties
Provision for Credit Impairment
Provisions
Related Party Disclosures
Remuneration ReportReserves and Retained Earnings
Transfer of Financial Assets
Segment Analysis
Share Capital
Shareholder Information
Share s in Controlled Entities and Associates
Significant Accounting Policies
Statement of Changes in Equity
Statement of Comprehensive Income
Subordinate Debt
Superannuation and Other Post Employment Benefit Schemes
Supplementary Information
Trading Securities

137
99
60
79
77
171
164
151
132
96
88
66
15
139
139
138
175
98
139
164
31
141
150
85
139
186
145
66
64
61
101
154
184
89

ANZ ANNUAL REPORT 2015

HANDY CONTACTSSHARE REGISTRARREGISTERED OFFICEANZ Centre Melbourne
Level 9, 833 Collins Street
Docklands VIC 3008 Australia
Telephone +61 3 9273 5555
Facsimile +61 3 8542 5252
Company Secretary: John Priestley

AUSTRALIA
Computershare Investor Services Pty Ltd
GPO Box 2975 Melbourne
VIC 3001 Australia
Telephone 1800 11 33 99 (Within Australia)+61 3 9415 4010 (International Callers)
Facsimile +61 3 9473 2500
anzshareregistry@computershare.com.au

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
Website: shareholder.anz.com
Group General Manager Investor Relations: Jill Craig

NEW ZEALAND
Computershare Investor Services Limited
Private Bag 92119 Auckland 1142
New Zealand
Telephone 0800 174 007
Facsimile +64 9 488 8787
UNITED KINGDOM
Computershare Investor Services plc
The Pavilions
Bridgwater Road Bristol BS99 6ZZ
United Kingdom
Telephone +44 870 702 0000
Facsimile +44 870 703 6101

CORPORATE AFFAIRSLevel 10, 833 Collins Street
Docklands VIC 3008 Australia
Telephone +61 3 8654 3276
Facsimile +61 3 8654 8886
Group General Manager Corporate Affairs: Gerard Brown

IMPORTANT DATESFOR SHAREHOLDERS*
Event

Date

Interim Results Announcement

3 May 2016

Interim Dividend Ex-Date

9 May 2016

Interim Dividend Record Date

10 May 2016

DRP/BOP/Foreign Currency Election Date

11 May 2016

Interim Dividend Payment Date

1 July 2016

Annual Results Announcement

3 November 2016

Final Dividend Ex-Date

14 November 2016

Final Dividend Record Date

15 November 2016

DRP/BOP/Foreign Currency Election Date

16 November 2016

Final Dividend Payment Date

16 December 2016

Annual General Meeting

16 December 2016

* If there are any changes to these dates, the Australian Securities Exchange will
be notified accordingly.

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
www.citi.com/adr

OUR INTERNATIONALPRESENCE} Australia} New Zealand} Asia – Cambodia, China, Hong Kong, India, Indonesia, Japan,
Korea, Laos, Malaysia, Myanmar, the Philippines, Singapore,
Taiwan, Thailand, Vietnam} Europe – France, Germany and United Kingdom} Pacific – American Samoa, Cook Islands, Fiji, Guam, Kiribati,
New Caledonia, Papua New Guinea, Samoa, Solomon Islands,
Timor-Leste, Tonga, Vanuatu} Middle East – United Arab Emirates (Dubai)} United States of America

198
Australia and New Zealand Banking Group Limited ABN 11 005 357 522.