being different

2007 Annual Reporthas its rewards

ANNUAL REPORTCONTENTS

Chairman’s Report3
Overview of Operations
4
Overview of Business Divisions
6
Ten Year Summary
8
Directors’ Report10
Principal Activities
10
Result10
State of Affairs
10
Dividends
10
Review of Operations
10
Events Since the End of the
Financial Year
10
Future Developments
10
Environmental Regulation
10
Directors’ Qualifications, Experienceand Special Responsibilities
11
Company Secretaries’ Qualifications
and Experience11
Non-Audit Services
11
Lead Auditor’s Independence
Declaration
12
Directors and Officers Who Were
Previously Partners of the Auditor
12
Chief Executive Officer /Chief Financial Officer Declaration
12
Directors’ and Officers’ Indemnity
12
Rounding of Amounts
12
Executive Officers’ andEmployee Share Options
12
Remuneration Report
14
Director Remuneration
14
Executive Remuneration
19
Chief Executive Officers’
Remuneration
22
Disclosed Executives’
Remuneration
25
Equity Instruments Relating
to Disclosed Directors andExecutives
26
Corporate Governance Report36

Shareholder Information

50

Financial Report
Income Statements
Balance Sheets
Statements of Recognised
Income and Expense
Cash Flow Statements

54
54
55
56
57

Notes to the Financial Statements
1
2

Significant Accounting Policies
58
Critical Estimates andJudgements Used in Applying
Accounting Policies
65
3 Income
68
4 Expenses
69
5 Compensation of Auditors
70
6 Income Tax Expense
71
7 Dividends
72
8 Earnings per Ordinary Share74
9 Liquid Assets
74
10 Due from Other
Financial Institutions74
11 Trading Securities
75
12 Derivative Financial Instruments
75
13 Available-for-sale Assets
83
14 Net Loans and Advances86
15 Impaired Financial Assets
87
16 Provision for Credit Impairment
88
17 Regulatory Deposits
89
18 Shares in Controlled Entities,
Associates and Joint
Venture Entities
89
19 Deferred Tax Assets
92
20 Goodwill and Other Intangible
Assets93
21 Other Assets
94
22 Premises and Equipment
94
23 Due to Other Financial Institutions 96
24 Deposits and Other Borrowings
96
25 Income Tax Liabilities
97
26 Payables and Other Liabilities
97
27 Provisions98
28 Bonds and Notes
98
29 Loan Capital
99
30 Share Capital102
31 Reserves and Retained Earnings
104
32 Minority Interests
105

33 Average Balance Sheet andRelated Interest
34 Interest Spreads and Net Interest
Average Margins
35 Financial Risk Management
36 Interest Rate Risk
37 Fair Value of Financial Assets
and Financial Liabilities
38 Segment Analysis
39 Notes to the Cash Flow Statements
40 Controlled Entities
41 Associates
42 Interests in Joint Venture Entities
43 Fiduciary Activities
44 Commitments
45 Contingent Liabilities,
Contingent Assets and Credit
Related Commitments
46 Superannuation and Other Post
Employment Benefit Schemes
47 Employee Share and Option Plans
48 Key Management Personnel
Disclosures
49 Transactions with Other
Related Parties
50 Exchange Rates
51 Events Since the Endof the Financial Year

106
109
110
122
123
129
132
134
135
135
136
137

138
143
148
154
155
155
155

Directors’ Declaration

156

Independent Auditor’s Report

157

Financial Information
1
2
3
4
5
6
7
8

Cross Border Outstandings
Certificates of Deposit and Term
Deposit Maturities
Volume and Rate Analysis
Concentrations of Credit Risk
Provision for Credit Impairment– Industry Analysis
Short Term Borrowings
Capital Management
Additional Financial Instrument
Risk Disclosures

158
158
159
160
161
162
162
166

Glossary of Financial Terms

170

Alphabetical Index

172

ANZ Annual Report 2007 1

2 ANZ Annual Report 2007

Chairman’s
Reporta message from charles goode2007 has been a year of achievement and change. ANZ has performed solidly during 2007, delivering value forshareholders, customers and the community. Our level of staff engagement grew and our approach to corporate
responsibility gained increasing recognition. Looking ahead, we are conscious of the demands of increasing
competition and the turbulence in world markets.

Our performance

Leadership

ANZ’s performance in 2007 wascharacterised by strong revenue growth
and a prudent approach to risk.

John McFarlane completed his term as
Chief Executive on 30 September having
occupied that position for ten years. John
made an enduring contribution to ANZ’sdevelopment, especially in the areas ofcustomer satisfaction, staff engagement,
lifting our position in the community andconsistently delivering on promises toshareholders. ANZ now has a strong
foundation and on behalf of shareholders
and the Board, I thank him for his
contribution and service.

Our profit after tax for the year ended
30 September 2007 of $4,180 million was
up by 13%. Cash profit1 was $3,924 million,
up by 9%.
The dividend is 136 cents per share fully
franked, a 9% increase on 2006.
These results reflect the efforts of ourmanagement and staff, and I thank themfor their contribution.

Expansion and growth
The Personal Division delivered another verystrong result driven by revenue growth of
12%. In New Zealand we increased market
share in a number of key segments anddelivered improved financial performance.
The Institutional Division had a mixed year
but should perform better in 2008.
We continued our expansion in Asia. We
acquired an initial 19% of Malaysia’s AMMB
Holdings Berhad; 20% of China’s Shanghai
Rural Commercial Bank; 60% of the Vientiane
Commercial Bank in Laos; 10% of Vietnam’s
Saigon Securities Incorporation; and 100%of the Citizens Security Bank in Guam.
In Australia, we completed the successfulacquisition of ETRADE Australia Limited.
We have committed approximately$1.5 billion to investments during 2007.
Given this, we are taking the opportunity toenhance our strategic flexibility by offeringa discount of 1.5% under our Dividend
Reinvestment Plan, which is underwritten
and expected to raise an additional$1 billion in capital.

Michael Smith commenced as Chief
Executive on 1 October. Michael is an
outstanding all round international banker.
He joins us from HSBC where he had
responsibility for HSBC’s business in Asia.
David Gonski retired from the Board in June
2007. David made a significant contribution
and we thank him. Ian Macfarlane, former
Governor of the Reserve Bank of Australia,
joined the Board in February 2007.

Outlook
Looking ahead, there are some global
uncertanties however the economies ofAustralia, New Zealand and Asia remain
supportive of growth. ANZ remains in good
shape, with a strong liquidity and funding
position. We are well positioned for 2008.

Charles Goode Chairman

1	ANZ excludes from cash profit significant items, ANZ National
Bank integration costs and volatility associated with fair value
movements relating to economic hedges.

Chairman’s Report 3

OVERVIEW OF OPERATIONSANZ recorded a profit after tax of $4,180 million for the year ended 30 September 2007, an increase of 13% over the
September 2006 year.

2007

2006

Movt
%

Net interest income
Other operating income

7,302
4,083

6,943
3,209

5%
27%

Operating income
Operating expenses

11,385(4,953)

10,152(4,531)12%
9%

Provision before credit impairment and income tax
Provision for credit impairment

6,432
(567)

5,621
(407)

14%
39%

Profit before income tax
Income tax expense
Minority interest

5,865(1,678)(7)

5,214(1,522)
(4)

12%
10%
75%

Profit attributable to shareholders of the Company

4,180

3,688

13%

Income Statement ($m)

ANZ recorded a $492 million (13%)
increase in profit attributable toshareholders of the Company, from
$3,688 million for the year ended
30 September 2006 to $4,180 million forthe year ending 30 September 2007. Key
factors influencing this increase were:2007. The increase was impacted by a $113
million cost recovery during 2006 following
the settlement of a claim against a numberof reinsurers in relation to the National
Housing Bank (NHB) matter, partly offset by
ANZ National Bank integration costs of $39
million incurred in 2006.

Net interest income increased $359
million (5%) from $6,943 million for theyear ended 30 September 2006 to $7,302
million for the year ended 30 September
2007. Net interest income was driven by
average lending growth of 11% and averagedeposit growth of 8%, partially offset by adecline in net interest margin of 12 basis
points.

Provision for credit impairment increased$160 million (39%) from $407 million forthe year ended 30 September 2006 to$567 million for the year ended
30 September 2007.

Other operating income increased $874
million (27%) from $3,209 million for theyear ended 30 September 2006 to $4,083
million for the year ended 30 September
2007. The increase included a $195 million
gain on sale from Fleet Partners Pty Limited
and Truck Leasing Limited, and an increaseover 2006 of $74 million arising on volatility
from the use of derivatives in economic
hedges and use of the fair value option.
Operating expenses increased $422
million (9%) from $4,531 million for theyear ended 30 September 2006 to $4,953
million for the year ended 30 September

4 ANZ Annual Report 2007

Income tax expense increased $156
million (10%) from $1,522 million for theyear ended 30 September 2006 to $1,678
million for the year ended 30 September
2007. The effective tax rate was 28.6%,
a reduction from 29.2% at 30 September
2006. The decrease includes the usageof capital losses which offset the capitalgains made on the sale of Fleet Partners Pty
Limited and other assets, and the nonassessable gain on the sale of Truck Leasing
Limited, partially offset by the restatementof deferred tax balances for the announced
New Zealand tax rate change which takes
effect on 1 October 2008.
Analysis in greater detail of businessperformance in major income and expense
categories follows.

NET INTEREST INCOME
Net interest income increased $359 million(5%) to $7,302 million for the year ended
30 September 2007. Net interest income
was driven by an increase in averageinterest earning assets of 11% and averagedeposit and other borrowings growth of 8%,
partially offset by a decline in net interest
margin of 12 basis points.
The growth in average interest earning
assets included an increase in Personalof 11% in lending assets, primarily in
Mortgages, and from growth in retailloans and one-off borrowings following
superannuation legislation changes.
Institutional grew 9% as a result ofcontinuing strong customer demand for debt
products, especially in Relationship Lending
in the latter part of the year and BusinessBanking. New Zealand Businesses grew 13%
with robust growth across all businesses.
Trading securities and available-for-saleassets grew by 16% reflecting Institutional’s
Debt Capital Markets’ strategy to expand
their on-balance sheet trading portfolio andliquid assets.
Average deposits and other borrowings
increased 8% with customer deposits
growing by 15%. Personal grew 13% as aresult of ongoing marketing campaigns, in-branch promotions and simplificationof account opening procedures. Institutionalgrew 25%, mainly in Trade & Transaction
Services resulting from customer acquisition
and the impact of new superannuation
laws. New Zealand grew 11% with growthin both Institutional and the Retail brands.
Other deposits and borrowings decreasedby 12%, primarily in the United States dueto the wind up of the Group’s Delaware
commercial paper program in February
2007.
Net interest margin was down 12 basis
points to 2.19% from September 2006 withthe key drivers being:
Competition (-9 basis points). Competitive
pressures reduced margins, particularly
in Australian and New Zealand Mortgages.
In addition, net interest margin declined
due to lower lending related fees andmigration to high yielding deposits andlow rate credit cards.
Wholesale rates (+3 basis points). Earnings
from the investment of capital and rateinsensitive deposits increased, partially
offset by an increase in basis risk onvariable rate mortgages and credit cards.
Other items (-6 basis points). NZD revenue
hedging was included in interest income
in prior periods, and in 2007 is included inforeign exchange earnings. Higher funding
costs associated with unrealised trading
gains (-3 basis points) were directly offset
by an equivalent increase in trading income.

OTHER OPERATING INCOME
Other operating income increased $874
million (27%) to $4,083 million for theyear ended 30 September 2007. Excluding
the gain on sale from Fleet Partners Pty
Limited and Truck Leasing Limited of $195
million, the increase of $74 million arisingfrom volatility from the use of derivatives
in economic hedges and the use of thefair value option and the $14 million
received on settlement of ANZ National
Bank claims during 2006, other operating
income increased $619 million (20%). Fee
income increased $235 million, largely in
non-lending fee income following volume
growth and revenue initiatives particularly
within Consumer Finance, Investment andInsurance Products and Banking Products
within Personal, and Corporate Finance andWorking Capital within Institutional.

Foreign exchange earnings and profit on
trading securities increased $160 million
reflecting growth in derivative positions inMarkets, the funding of which is included in
net interest income.
Other income increased $184 million,
including an increase in brokerage incomeof $39 million following the consolidationof ETRADE Australia Limited for the firsttime as full ownership was achieved. The
acquisition of Stadium Australia during
the first half of 2007 also contributed
additional other income of $38 million. In
addition, equity accounting income washigher in Partnerships and Private Bankdue to increased earnings from INGA, a fullyear result from Bank of Tianjin and newinvestment in AMMB Holdings Berhad.

OPERATING EXPENSES
Operating expenses increased $422
million (9%) to $4,953 million for the year
ended 30 September 2007. Excluding theimpact of the $113 million cost recovery
during 2006 in relation to NHB, and the
ANZ National Bank integration costs of$39 million incurred in 2006, operating
expenses increased $348 million (8%).
Personnel costs were up $236 million(9%) as a result of annual salary increases
and a 7% increase in staff numbers fromacquisitions and additional staff to support
new initiatives and business growth.
Premises costs increased $51 million(12%), driven mainly by higher rental
expense reflecting additional spacerequirements, opening of new branches,
additional ATMs and market rental growth.
Computer costs increased $43 million (8%)
from increased software purchases due
mainly to internet banking licence fees andincreased information system usage. Other
expenses increased $18 million (2%) largely
following an increase in Corporate Financefollowing the consolidation of Stadium
Australia (mainly event costs).

PROVISION FOR CREDIT IMPAIRMENT

pressure from higher interest rates, housing
costs and fuel prices. Esanda experienced
lower realisable values on defaulted large
motor vehicles due to the impact of higher
fuel prices. New Zealand Businesses
returned to more normal provisioning levels
following higher than usual writebacks last
financial year. Institutional provisions havebeen influenced by two customers, offset
by a substantial recovery in the first half($47 million).
The collective provision charge increased$14 million. The charge for the year was
driven by asset growth and changes in
portfolio risk. This was partially offset
by the continued release of the scenario
impact provision taken in 2005 to reflect
the risk change due to materially higher
and sustained oil prices. The increase in2007 was primarily due to growth in New
Zealand, which was partially offset by alower charge in Personal from continued
prudent management of unsecured lending,particularly in Consumer Finance (dueto tightened credit standards, reduced
business in certain segments and improved
collections) and lower risk movement,
particularly in Esanda.

INCOME TAX EXPENSE
Income tax expense increased $156 million(10%) to $1,678 million for the year ended
30 September 2007. Excluding the impactof the usage of capital losses which offset
the capital gains made on the sale of Fleet
Partners Pty Limited and other assets, thenon-assessable gain on the sale of Truck
Leasing Limited partially offset by therestatement of deferred tax balances forthe announced New Zealand tax rate change
which takes effect on 1 October 2008, theeffective tax rate was 29.1%, a reduction
from 29.3% at 30 September 2006. The
decrease was due primarily to increased
profits from associates (net of Australian
top-up tax) and Offshore Banking Unit
(OBU) benefits, partially offset by the run-offof structured finance transactions.

Provision for credit impairment increased$160 million (39%) to $567 million forthe year ended 30 September 2007. The
individual provision charge increased$146 million. Personal increased due toprior years’ growth in low rate cards, higher
bankruptcies and increased servicing

Chief Financial Officer’s Report 5

OVERVIEW OF BUSINESS DIVISIONSPERSONAL DIVISION
Income Statement ($m)

2007

2006

Movt %Net interest income
Other operating income

3,282
1,411

3,017
1,166

9%
21%

Operating income
Operating expenses

4,693(2,240)4,183(2,081)

12%
8%

Provision before credit impairment and income tax
Provision for credit impairment

2,453
(393)

2,102
(336)

17%
17%

Profit before income tax
Income tax expense and minority interest

2,060
(618)

1,766
(527)

17%
17%

Profit after tax

1,442

1,239

16%

Cost to income

47.7%

49.7%

Employee numbers

14,096

12,913

9%

Profit after tax increased $203 million (16%) to $1,442 million for the year ended 30 September 2007. This increase was driven by strong
lending and customer deposit growth and the benefits from ongoing investment in the business. Expansion of the footprint continued with
39 extra branches in 2007, a further 400 ATMs and 1,183 additional staff, mainly in customer-facing and transformation roles. Five monthsof ETRADE Australia results were consolidated as full ownership was achieved (an increase of $37 million operating income and $28 million
in operating expenses).
Operating income was up 12% driven by volume growth, partly offset by margin decline of 5 basis points. Consumer Finance grew 12% due
to increasing volumes and the impact of growth initiatives. Banking Products increased 15% mainly from new customer accounts. Mortgages
grew 6% with lending growth of 12% offset by higher funding costs and continued competitive pressure on margins. Operating expenses
increased 8% due to additional branches, ATMs and frontline staff as part of the investment in building “Australia’s Most Convenient Bank”.
Credit costs increased 17% mainly reflecting volume growth, a strategic risk mix shift to low rate business, and higher delinquencies andbankruptcies in Consumer Finance.

INSTITUTIONAL DIVISION
2007

2006

Movt %Net interest income
Other operating income

Income Statement ($m)

1,975
1,527

2,015
1,241

(2%)
23%

Operating income
Operating expenses

3,502(1,378)3,256(1,256)

8%
10%

Provision before credit impairment and income tax
Provision for credit impairment

2,124
(69)

2,000
(58)

6%
19%

Profit before income tax
Income tax expense and minority interest

2,055
(607)

1,942
(579)

6%
5%

Profit after tax

1,448

1,363

6%

Cost to income

39.3%

38.6%

Employee numbers

5,225

4,915

6%

Profit after tax increased $85 million (6%) to $1,448 million for the year ended 30 September 2007. The Markets business continued tobenefit from diversity of product and geographic cover, with sales revenue particularly strong. Corporate Finance continued to grow with
Alternative Assets increasing Funds Under Management and strong returns from earlier investments in the Private Equity business, althoughrevenue growth was slowed by the substantial decline in capital market activity in the last two months of the year. Trade & Transaction
Services maintained steady growth and solid volume growth in Business Banking was impacted in the first half by competitive pressures on
margins on the secured lending book. Stadium Australia became a wholly owned subsidiary during the year as part of the Alternative Assets
business (an increase of $35 million in operating income and $29 million in operating expenses).
Operating income was up 8% driven by an increase of 7% in average net lending assets and 17% in average deposit and other borrowings
volumes partially offset by a decline in net interest margin of 18 basis points. Strong revenue growth was achieved in Markets and Corporate
Finance from increased customer activities. Operating expenses increased 10%, reflecting an increase of 310 in employee numbers andcontinued investments in technology in Markets and Trade and Transaction Services. Provision for credit impairment increased 19% with
two large individual provisions offsetting a large recovery in the first half ($47 million).

6 ANZ Annual Report 2007

NEW ZEALAND BUSINESSES
Income Statement ($m)

2007

2006

Movt %Net interest income
Other operating income

1,666
507

1,507
481

11%
5%

Operating income
Operating expenses

2,173(1,034)

1,988
(987)

9%
5%

Provision before credit impairment and income tax
Provision for credit impairment

1,139
(69)

1,001
(4)

14%
large

Profit before income tax
Income tax expense and minority interest

1,070
(344)

997
(322)

7%
7%

Profit after tax

726

675

8%

Cost to income

47.6%

49.6%

Employee numbers

8,923

8,788

2%

Profit after tax increased $51 million (8%) to $726 million for the year ended 30 September 2007. Strong revenue growth, largely fromcontinued momentum in lending growth, supported continued reinvestment in the business and the strengthening of the customer
proposition. The result included an increase in credit impairment expense of $65 million from unusually low levels in 2006.
Operating income was up 9% driven by robust balance sheet growth, with lending growth increasing 12% and customer deposits 7%,
moderated by a 9 basis point contraction in margins. The disposal of the remaining MasterCard shares generated $9 million for the retailbusinesses ($4 million in 2006). Operating expenses increased 5% due to annual increases in salaries and investment in frontline staff andother business initiatives, partly offset by control of discretionary expenditure. The 2006 result included costs of $9 million in relation to
the New Zealand Commerce Commission’s action on disclosure of optional issuer fees. The cost to income ratio reduced 200 basis points to
47.6%. Provision for credit impairment increased $65 million from $4 million in 2006, reflecting high levels of recoveries and writebacks ofpast provisions in the Corporate and Business Banking portfolios last year.

PARTNERSHIPS & PRIVATE BANK
Income Statement ($m)

2007

2006

Movt %Net interest income
Other operating income

133
289

107
208

24%
39%

Operating income
Operating expenses

422
(123)

315
(95)

34%
29%

Provision before credit impairment and income tax
Provision for credit impairment

299
(34)

220
(24)

36%
42%

Profit before income tax
Income tax expense and minority interest

265
(18)

196
(12)

35%
50%

Profit after tax

247

184

34%

Cost to income

29.1%

30.2%

Employee numbers

1,574

1,102

43%

Profit after tax increased $63 million (34%) to $247 million for the year ended 30 September 2007. INGA earnings were up 27% driven byincreased funds management activities. ANZ Private Bank profit after tax increased 16% with volume growth and increased sales of advisory
and alternative investment products. 2007 also included significant Partnership activity with the completion of investments in AMMB
Holdings Berhad in Malaysia, ANZ Vientiane Commercial Bank in Laos and Shanghai Rural Commercial Bank in China.
Operating income was up 34% primarily from volume growth in Indonesia Cards and Personal and Private Bank business in Asia. In addition,
INGA equity accounted income was up 27% reflecting strong core operating profit benefiting from superannuation legislation changes,
buoyant investment markets and higher capital investment earnings. International Partnerships other operating income increased 73% as aresult of stronger Panin earnings, the full year impact of new partnerships and the first time booking of a full quarter of earnings from AMMB
Holdings Berhad. ANZ Private Bank other income increased 62% due to higher income from the distribution of alternative investment andadvisory products. Operating expenses increased 29% as a result of ongoing investment across all of the businesses. Provision for credit
impairment increased 42% due to the impact of regulatory changes and business volume growth in Indonesia Cards.

Overview of Business Divisions 7

TEN YEAR SUMMARY

2007
$m

2006
$m

2005
$m

2004
$m

Net interest income
Other operating income
Operating expenses
Profit before income tax, credit
impairment and non-core items1
Provision for credit impairment
Income tax expense
Minority interest
Cash profit1
Non-core items1

7,302
3,765
(4,953)

6,943
3,146
(4,605)

6,371
2,935
(4,340)

5,252
3,267
(4,005)

6,114
(567)
(1,616)
(7)
3,924
256

5,484
(407)
(1,486)
(4)
3,587
101

4,966
(565)
(1,247)
(3)
3,151
24

4,514
(632)
(1,147)
(4)
2,731
84

Profit attributable to shareholders of the company

4,180

3,688

3,175

2,815

392,61322,048
6.7%
19.6%
1.1%
44.8%

334,640
19,906
6.8%
20.1%
1.1%
45.6%

300,885
19,538
6.9%
19.0%
1.1%
46.6%

259,345
17,925
6.9%
17.8%
1.1%
45.3%

15.6%
55,382
136c
100%
100%
$31.50$25.75$29.7017.1%
49,331
125c
100%
100%
$28.66$22.70$26.8632.6%
43,834
110c
100%
100%
$24.45$19.02$24.0017.0%
34,586
101c
100%
100%
$19.44$15.94$19.02224.1c60.9%$9.37

200.0c62.6%$8.53

169.5c65.0%$7.77

153.1c67.5%$7.51

1,864.7

1,836.6

1,826.4

1,818.4$29.29–$26.50$28.25$21.85$23.85$17.84$19.95

1,327
34,353
327,703

1,265
32,256291,262

1,223
30,976
263,467

1,190
28,755
252,072

Financial Performance1

Financial Position
Assets2
Net Assets
Tier 1 capital ratio3
Return on average ordinary equity4,5Return on average assets4
Cost to income ratio6

Shareholder value – ordinary shares
Total return to shareholders(share price movement plus dividends)
Market capitalisation
Dividend
Franked portion–interim–finalShare price7
–high
–low
–30 Sep

Share information(per fully paid ordinary share)
Earnings per share7 –basic
Dividend payout ratio8
Net tangible assets per ordinary share9
No. of fully paid ordinary
shares issued (millions)
Dividend Reinvestment Plan (DRP) issue price–interim–finalOther information
Points of representation10
No. of employees (full time equivalents)
No. of shareholders11

1 ANZ excludes from cash profit significant items, ANZ National Bank integration costs andvolatility associated with ineffectiveness arising from designated accounting hedges,
volatility arising from the usage of the fair value option and volatility from approved classesof derivatives not designated in accounting hedge relationships but that are considered to beeconomic hedges. ANZ excludes these items to provide a better indication of the underlying
business performance. In addition, the 2005 result has been calculated on an AIFRS basisthat is comparable with 2006 with the net effect of these adjustments included in non-core items,
allowing readers to see the impact on 2005 results of accounting standards that have only
been applied from 1 October 2005.

8 ANZ Annual Report 2007

2 From 1998 to 2001, consolidated assets include the statutory funds of ANZ Life as requiredby an accounting standard. For the year 2004, consolidated assets include the statutory fundsof NBNZ Life Insurance Limited. ANZ Life was sold in May 2002 and NBNZ Life Insurance wassold on 30 September 2005.
3 Calculated in accordance with Australian Prudential Regulation Authority requirements
effective at the relevant date.
4 Excludes non-core items and minority interest. The 2005 ratio has been calculated on an
AIFRS basis that is comparable with that of 2006.

Previous AGAAP
2003
$m

2002
$m

2001
$m

2000
$m

1999
$m

1998
$m

4,311
2,808
(3,228)

4,018
2,796
(3,153)

3,833
2,573
(3,092)

3,801
2,583
(3,314)

3,655
2,377
(3,300)

3,547
2,142
(3,442)

3,891
(614)
(926)
(3)
2,348
–

3,661
(610)
(880)
(3)
2,168
154

3,314
(531)
(911)
(2)
1,870
–

3,070
(502)
(863)
(2)
1,703
44

2,732
(510)
(736)
(6)
1,480
–

2,247
(487)
(576)
(9)
1,175
(69)

2,348

2,322

1,870

1,747

1,480

1,106

195,591
13,787
7.7%
20.6%
1.2%
45.1%

183,105
11,465
7.9%
21.6%
1.3%
46.0%

185,493
10,551
7.5%
20.2%
1.1%
48.0%

172,467
9,807
7.4%
19.3%
1.1%
51.7%

152,801
9,429
7.9%
17.6%
1.0%
54.5%

153,215
8,391
7.2%
15.9%
0.7%
60.9%

6.7%
27,314
95c
100%
100%
$18.45$15.01$17.17

15.3%
26,544
85c
100%
100%
$19.70$15.23$16.8826.2%
23,783
73c
100%
100%
$16.71$12.63$15.2836.3%
20,002
64c
100%
100%
$12.87$9.18$12.7019.6%
16,04556c
75%
80%$12.11$8.12$9.80–15.6%
13,88552c
60%
60%$11.52$7.65$8.62

142.4c64.2%$7.49

141.4c57.8%$6.58

112.7c62.0%$5.96

102.5c
59.1%
$5.49

86.9c
62.1%
$5.21

69.7c
67.8%
$4.98

1,521.7

1,503.9

1,488.3

1,506.2

1,565.4

1,539.4$18.48$16.61$19.24$18.32$15.05$18.33$11.62$14.45$10.95$11.50$10.64$10.78

1,019
23,137
223,545

1,018
22,482
198,716

1,056
22,501
181,667

1,087
23,134
179,829

1,147
30,171
179,945

1,205
32,072
151,564

5 For the periods 1998 to 2002, the return on average ordinary equity calculation accrues thedividend over the year. From 2003, dividends may no longer be accrued and are not includedin the calculation of return on average ordinary equity.
6 Excludes non-core items. Periods prior to 2005 also exclude goodwill amortisation. The
2005 ratio has been calculated on an AIFRS basis that is comparable with that of 2006.
7 Periods prior to 2004 adjusted for the bonus elements of the November 2003 Rights Issue.
8 From 2003, the dividend payout ratio includes the final dividend proposed but not provided
for in terms of AASB 1044 Provisions, Contingent Liabilities and Contingent Assets which was
effective from the September 2003 financial year.

9 Equals shareholders’ equity less preference share capital, goodwill, software and otherintangible assets divided by the number of ordinary shares. For periods prior to 2005, thisequals shareholders’ equity less preference share capital and unamortised goodwill divided
by the number of ordinary shares.
10 Includes branches, offices, representative offices and agencies.
11 From 2000 onwards, the number of shareholders does not include the number of employees
whose only shares are held by ANZEST Pty Ltd as the trustee for shares issued under theterms of any ANZ employee incentive plan.

Ten Year Summary 9

DIRECTORS’ REPORTThe directors present their report together with the Financial Report of the consolidated entity (the Group), being Australia
and New Zealand Banking Group Limited (the Company) and its controlled entities, for the year ended 30 September 2007
and the Independent Auditor’s Report thereon. The information is provided in conformity with the Corporations Act 2001.

PRINCIPAL ACTIVITIESThe Group provides a broad range ofbanking and financial products and services
to retail, small business, corporate andinstitutional clients.
The Group conducts its operations primarilyin Australia and New Zealand (93% of total
assets at 30 September 2007 are related
to these operations). The remainder of theGroup’s operations are conducted acrossthe Asia Pacific region and in a numberof other countries including the United
Kingdom and the United States.
At 30 September 2007, the Group had
1,327 branches and other points ofrepresentation worldwide excluding
Automatic Teller Machines (‘ATMs’).

RESULT
Consolidated profit after income tax
attributable to shareholders of the Company
was $4,180 million, an increase of 13% overthe prior year.
The increase in profit is due to revenue
growth of 12% which includes a one-off
gain on the sale of Esanda Fleetpartners
of $195 million.
The provision for credit impairment charge
increased by 39% to $567 million. The
increase is principally due to higher individual
provision charges in Personal Division
resulting from planned growth and lower
recoveries in 2007 as compared to 2006.
One of the key drivers of the Group’s
performance has been strong overallbalance sheet growth over the past 12
months. The major components of theGroup’s balance sheet and the related
movements from prior year are as follows:
Net loans and advances increased by
13% from $255,922 million to $288,846
million, primarily due to growth inmortgage and institutional lending inAustralia.
Deposits and other borrowings increased
by 15% from $204,794 million to$234,873 million, principally to fundbusiness growth.
Bonds and notes increased by 8% from
$50,050 million to $54,075 million,
primarily to fund asset growth.

10 ANZ Annual Report 2007

Further details are contained on pages 4 to
7 of this Annual Report.

STATE OF AFFAIRSIn the directors’ opinion, there have been no
significant changes in the state of affairs of theGroup during the financial year, other than:In October 2006, ANZ sold the Esanda
Fleetpartners business.
In May 2007, ANZ acquired an initial
19% investment in AMMB Holdings Berhad(“AMMB”).
In June 2007 ANZ finalised its acquisitionof ETRADE Australia Limited.
In July 2007 ANZ acquired 100%of Citizens Security Bank in Guam.
In August 2007 ANZ acquired 10%
of Saigon Securities Incorporation.
In September 2007 ANZ acquired
a 20% investment in Shanghai Rural
Commercial Bank.
In September 2007 ANZ acquired 60% of
the ANZ Vientiane Commercial Bank in Laos.
During the year, ANZ applied forderegistration from the US Securities
and Exchange Commission (SEC) as a
Foreign Private Issuer of Securities in the
United States. This became effective in
October 2007.
Further review of matters affecting theGroup’s state of affairs is also contained in
the Overview of Operations on pages 4 and
5 of this Annual Report.

DIVIDENDS
The directors propose that a final fully
franked dividend of 74 cents per fully paid
ordinary share shall be paid on 21 December
2007. The proposed payment amounts toapproximately $1,381 million.
During the financial year, the following fully
franked dividends were paid on fully paid
ordinary shares:
Type

Amount before bonusCents
per option plan adjustment
$m
share

Final
2006
69
Interim
2007
62

Date ofpayment

15 December
2006
2 July
1,144
2007

1,267

The proposed final dividend of 74 cents
together with the interim dividend of 62 centsbrings total dividends in relation to the year
ended 30 September 2007 to 136 cents
fully franked.

REVIEW OF OPERATIONSOver the past decade ANZ has improved
financial performance, productivity andreturns to shareholders. We have continued
to focus on our customers, our people andour communities.
The Group has produced a solid result
based on solid business performancefor the year ended 30 September 2007.
Divisional performance showed good
growth primarily in Personal and New
Zealand Businesses, with more subdued
growth in Institutional.
Further review of the Group during thefinancial year and the results of those
operations, including an assessment of thefinancial position and business strategiesof the Group, is contained in the Chairman’s
Report, the Overview of Operations and theOverview of Business Divisions on pages
3 to 7 of this Annual Report.

EVENTS SINCE THE END OF THE
FINANCIAL YEAR
There were no significant events from 30
September 2007 to the date of this report.

FUTURE DEVELOPMENTS
Details of likely developments in theoperations of the Group and its prospects
in future financial years are contained inthis Annual Report under the Chairman’s
Report. In the opinion of the directors,
disclosure of any further information
would be likely to result in unreasonableprejudice to the Group.

ENVIRONMENTAL REGULATIONANZ recognises our obligation to ourstakeholders – customers, shareholders,
staff and the community – to operate ina way that advances sustainability andmitigates our environmental impact. Ourcommitment to improve our environmental
performance is integral to our “making
a sustainable contribution to society”.

We acknowledge that we have an impact
on the environment:
directly through the conduct of ourbusiness operations; andindirectly through the products andservices we provide to our customers.
As such, ANZ has established an
Environment charter, strategy and internal
responsibilities for reducing the impact of
our operations and business activities on
the environment.
The operations of the Group are notsubject to any particular and significant
environmental regulation under a law of
the Commonwealth or of a State or Territory.
However, the operations of the Group may
become subject to environmental regulation
when enforcing securities over land. ANZ
has developed policies to manage suchenvironmental risks. Having made due
enquiry, to the best of our knowledge nomember of the Group has incurred any
material environmental liability during
the year.

DIRECTORS’ QUALIFICATIONS,EXPERIENCE AND SPECIALRESPONSIBILITIESAt 1 October 2006, the Board comprised
7 independent non-executive directors and 1
executive director, the Chief Executive Officer.
Mr David Gonski retired on 30 June 2007 andMr John McFarlane’s term as Chief Executive
Officer and Managing Director ended on 30
September 2007. Mr Ian Macfarlane wasappointed to the Board as an independent
non-executive director on 16 February 2007
and Mr Michael Smith was appointed as Chief
Executive Officer and Managing Director on 1
October 2007.
At the date of this report, the Board
comprises 7 non-executive directors
who have a diversity of business andcommunity experience and 1 executive
director, the Chief Executive Officer, who
has extensive banking experience. The
names of directors and details of theirskills, qualifications, experience and when
they were appointed to the Board arecontained on pages 37 to 39 of thisAnnual Report.
Details of the number of Board andBoard Committee meetings held during
the year, directors’ attendance at thosemeetings, and details of directors’ special
responsibilities are shown on pages 43 to
45 of this Annual Report.

Details of directorships of other listedcompanies held by each current director
in the 3 years prior to the end of the 2007
financial year are listed on pages 37 to 39.

COMPANY SECRETARIES’QUALIFICATIONS AND EXPERIENCE
Currently there are three people appointed
as Company Secretaries of the Company.
Details of their roles are contained on page
42. Their qualifications are as follows:
Bob Santamaria, BCom, LLB (Hons),
Group General Counsel and Company
Secretary.
Mr Santamaria joined ANZ on 27 August
2007. He had previously been a Partner at
the law firm Allens Arthur Robinson since1987. He was Executive Partner Corporate,
responsible for client liaison with some ofAllens Arthur Robinson’s largest corporateclients. Mr Santamaria brings to ANZ astrong background in leadership of amajor law firm, together with significant
experience in securities, mergers andacquisitions. He holds a Bachelor ofCommerce and Bachelor of Laws (Honours)
from the University of Melbourne. He is
also an Affiliate of Chartered Secretaries
Australia.
Peter Marriott, BEc (Hons),
Chief Financial Officer and Company
Secretary.
Mr Marriott has been involved in the financeindustry for more than 25 years. Mr Marriottjoined ANZ in 1993. Prior to his careerat ANZ, Mr Marriott was a Partner in the
Melbourne office of the then KPMG Peat
Marwick. He is a Fellow of a numberof professional organisations including
the Institute of Chartered Accountantsin Australia and the Australian Instituteof Banking and Finance. He is also a
Member of the Australian Institute ofCompany Directors.
John Priestley, BEc, LLB, FCIS,
Company Secretary.
Mr Priestley, a qualified lawyer, joined ANZ
in 2004. Prior to ANZ, he had a long careerwith Mayne Group and held positions
which included responsibility for thelegal, company secretarial, complianceand insurance functions. He is a Fellow ofChartered Secretaries Australia and also amember of Chartered Secretaries Australia’s
National Legislation Review Committee.

NON-AUDIT SERVICES
The Company’s Relationship with External
Auditor Policy (which incorporates
requirements of the Corporations Act 2001)
states that the external auditor may notprovide services that are perceived to be
in conflict with the role of the auditor.
These include consulting advice andsub-contracting of operational activities
normally undertaken by management,
and engagements where the auditor may
ultimately be required to express an opinion
on its own work.
Specifically the policy:
limits the non-audit services that may
be provided
requires that audit and permitted
non-audit services must be pre-approvedby the Audit Committee, or pre-approved by
the Chairman of the Audit Committee andnotified to the Audit Committee
requires the external auditor to notcommence an audit engagement (orpermitted non-audit service) for the Group,
until the Group has confirmed that theengagement has been pre-approved.
The Audit Committee has reviewed asummary of non-audit services provided
by the external auditor for 2007, and has
confirmed that the provision of non-audit
services for 2007 is consistent with theCompany’s Relationship with External
Auditor Policy and compatible with thegeneral standard of independence for
auditors imposed by the Corporations Act
2001. This has been formally advised to
the Board of Directors.
The external auditor has confirmed to the
Audit Committee that they have compliedwith the Company’s Relationship with
External Auditor Policy on the provision of
non-audit services by the external auditor
for 2007.
The non-audit services supplied to the Groupby the Group’s external auditor, KPMG, andthe amount paid or payable by the Groupby type of non-audit service during the year
ended 30 September 2007 are as follows:
Amount paid/
payable $’000s
Non-audit service

2007

2006

Sustainability review
Compliance testing for
securitisation transaction
Training courses

–

203

66
44

—
44

Total

110

247

Directors’ Report 11

DIRECTORS’ REPORT CONTINUED

For the reasons set out above, the directors
are satisfied that the provision of non-audit
services by the external auditor during
the year ended 30 September 2007 iscompatible with the general standard of
independence for auditors imposed by
the Corporations Act 2001.

LEAD AUDITOR’S INDEPENDENCE
DECLARATION
The lead auditor’s independence declaration
given under section 307C of the
Corporations Act 2001 is set out on page 35
and forms part of this Directors’ Report for
the year ended 30 September 2007.

DIRECTORS AND OFFICERS WHO
WERE PREVIOUSLY PARTNERS OF
THE AUDITOR
The following persons were during thefinancial year and are currently directors
or officers of the Group and were partners
of KPMG at a time when KPMG was theauditor of Australia and New Zealand
Banking Group Limited:
Ms Margaret Jackson, Non-executive
director (left KPMG in June 1992)
Mr Peter Marriott, Chief Financial Officer(left KPMG in January 1993).

CHIEF EXECUTIVE OFFICER/CHIEF
FINANCIAL OFFICER DECLARATIONThe Chief Executive Officer and the Chief
Financial Officer have given the declarations
to the Board concerning the Group’s
financial statements required under section
295A(2) of the Corporations Act 2001 andrecommendations 4.1 and 7.2 of the ASX
Corporate Governance Council’s Principles
of Good Corporate Governance and Best
Practice Recommendations.

DIRECTORS’ AND OFFICERS’INDEMNITY
The Company’s Constitution (Rule 11.1)
permits the Company to indemnify each
officer or employee of the Company against
liabilities (so far as may be permitted underapplicable law) incurred in the execution
and discharge of the officer’s or employee’s
duties. It is the Company’s policy that its
employees should not incur any liability for
acting in the course of their employment
legally, within the policies of the Company
and provided they act in good faith.
Under the policy, the Company will indemnify
employees against any liability they incur

12 ANZ Annual Report 2007

in carrying out their role. The indemnity
protects employees and former employees
who incur a liability when acting as an
employee, trustee or officer of the Company,
or a subsidiary of the Company at therequest of the Company.
The indemnity is subject to applicable law
and will not apply in respect of any liability
arising from:a claim by the Company;a claim by a related body corporate;a lack of good faith;illegal or dishonest conduct; or
non-compliance with the Company’s
policies or discretions.
The Company has entered into Indemnity
Deeds with each of its directors, with certain
secretaries of the Company, and withcertain employees and other individuals
who act as directors or officers of related
body corporates or of another company.
To the extent permitted by law, theCompany indemnifies the individual for
all liabilities, including costs, damages
and expenses incurred in their capacity
as an officer of the company to which they
have been appointed.
The Company has indemnified thetrustees and former trustees of certainof the Company’s superannuation funds
and directors, former directors, officers
and former officers of trustees of various
Company sponsored superannuation
schemes in Australia. Under the relevant
Deeds of Indemnity, the Company must
indemnify each indemnified person if theassets 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 theindemnified person would have been
entitled to be indemnified out of the assetsof the fund in accordance with the trust
deed and the Superannuation Industry(Supervision) Act 1993. This indemnity
survives the termination of the fund.
Some of the indemnified persons areor were directors or executive officersof the Company.
The Company has also indemnified certain
employees of the Company, being trustees
and administrators of a trust, from andagainst any loss, damage, liability, tax,
penalty, expense or claim of any kind or
nature arising out of or in connection withthe creation, operation or dissolution of

the trust or any act or omission performed
or omitted by them in good faith and in amanner that they reasonably believed to bewithin the scope of the authority conferredby the trust.
Except for the above, neither the Company
nor any related body corporate of theCompany has indemnified or made anagreement to indemnify any person who
is or has been an officer or auditor of theCompany or of a related body corporate.
During the financial year, and again since
the end of the financial year, the Company
has paid a premium for an insurance policy
for the benefit of the directors, secretaries,and senior managers of the Company,and directors, secretaries and senior
managers of related bodies corporate of
the Company. In accordance with common
commercial practice, the insurance policy
prohibits disclosure of the nature of theliability insured against and the amountof the premium.

ROUNDING OF AMOUNTSThe Company is a company of the kindreferred to in Australian Securities andInvestments Commission class order 98/100(as amended) pursuant to section 341(1)of the Corporations Act 2001.
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.

EXECUTIVE OFFICERS’ AND
EMPLOYEE SHARE OPTIONS
Details of share options issued over shares
granted to the Chief Executive Officer anddisclosed executives, and on issue as at
the date of this report are detailed in the
Remuneration Report.
Details of share options issued over shares
granted to employees and on issue as at thedate of this report are detailed in note 47 of
the 2007 Financial Report.
No person entitled to exercise any option
has or had, by virtue of an option, a right toparticipate in any share issue of any otherbody corporate. The names of all persons
who currently hold options are entered in
the register kept by the Company pursuant
to section 170 of the Corporations Act 2001.
This register may be inspected free of charge.

This page has been left blank intentionally.

Directors’ Report 13

REMUNERATION REPORT

Introduction
This Remuneration Report details ANZ’s remuneration policies which
apply to key management personnel (KMP) and ANZ executives
classified as “secretaries or senior managers” as defined in the
Corporations Act. The report identifies the link between remuneration
and ANZ’s performance, and individual outcomes relating toremuneration and equity for ANZ’s directors and executives (asrequired by AASB 124 and the Corporations Act).

This report covers the KMP of the Company and the Group (which
includes the directors of the parent) and the five highest paid
executives in the Company and the Group. KMP were selectedaccording to the following criteria:
All directors of the ANZ Board: Based on responsibility forproviding direction in relation to the management of ANZ. The Board
Charter clearly sets out the Board’s purpose, powers, and specificresponsibilities.

SHORT-TERM
EMPLOYEE BENEFITS

Section A: Remuneration Tables
Financial
Year

Cash
salary/fees$

Value of sharesacquired inlieu of cash
salary/fees1
$

2007
2006
2007
2006

93,31478,724
144,000
137,250

689,566
621,118
47,96245,738

2007
2006
2007
2006
2007

157,368
144,426
192,000
183,000
89,556

34,62438,551––
29,852

2007
2006
2007
2006

192,000
183,000
156,797
149,526––
47,96245,738–77,40066,86669,00040,000D Gonski (Appointed February 2002; retired 30 June 2007)7
Independent Non Executive Director
R Deane (Appointed September 1994; retired 30 June 2006)7
Independent Non Executive Director

2007
2006

135,581
122,521

8,399
60,446––36,75046,775

2006

137,250–

122,14110

21,025

Total of all Non-Executive Directors

2007
2006

1,160,616
1,135,697

858,365
811,591–
122,141

357,612340,4742007
2006

528,58750

1,553,377
2,071,192

–
–

–
–

2007
2006

1,689,203
1,135,747

2,411,742
2,882,783–
122,141

357,612340,474

TABLE 1: DIRECTOR REMUNERATION
For the year ended 30 September 2007,
remuneration details of the KMP identified
as directors of the Company, are set out below:

Associatedentity Board
fees (cash)$

Committee
fees (cash)$

Current Non-Executive Directors
C Goode (Appointed director July 1991; appointed
Chairman August 1995)
Independent Non Executive Director, Chairman
G Clark (Appointed February 2004)
Independent Non Executive Director
J Ellis (Appointed October 1995)
Independent Non Executive Director
M Jackson (Appointed March 1994)
Independent Non Executive Director
I Macfarlane (Appointed February 2007)
Independent Non Executive Director
D Meiklejohn (Appointed October 2004)
Independent Non Executive Director
J Morschel (Appointed October 2004)
Independent Non Executive Director

–
–
–
–
–
–
–
–

–
–
36,40034,80842,00065,50069,00065,50027,062Former Non-Executive Directors

Executive Director
J McFarlane (Appointed October 1997;
retired 30 September 2007) 8,9
Chief Executive Officer

Total of all Directors

COMMENTARY ON CHANGES BETWEEN 2006 & 2007
Non-Executive Directors
There is a slight decrease in 2007 Total Remuneration for NonExecutive Directors (NEDs) compared with 2006. This can be primarily
attributed to the retirement of R Deane in June 2006, whose Total
Remuneration was greater than the typical NED due to the associatedentity Board Fees. Director fees were increased (effective 1 October2006) by 5% and the Chairman’s fee by 12%. Refer to section B1 formore details.

14 ANZ Annual Report 2007

Executive Director (Chief Executive Officer)
The variation in the CEO’s remuneration between 2006 and 2007
is primarily attributed to his contractual and statutory payments(relating to his benefits on retirement), and the payment for therelinquishment of his performance shares. Further details can befound in section D1.

Executives: Based on direct reports of the CEO with key responsibility
for the strategic direction and management of a major revenuegenerating division or who control material revenue and expenses.
The Board People Committee has responsibility for director andexecutive remuneration and executive succession, and for making
recommendations to the Board on remuneration and succession
matters related to the CEO (refer to page 44 of the Corporate
Governance Report for more details about the Committee’s role,

Short term
incentive1,2
$

n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a

and anz.com > about ANZ > Corporate Governance > ANZ People
Committee Charter, which details the terms of reference under which
the Committee operates). On a number of occasions throughout theyear, both the Board People Committee and management received
external advice on matters relating to remuneration. The following
advisors were used: Blake Dawson Waldron, Ernst & Young, HayGroup, Greenwoods & Freehills, and PricewaterhouseCoopers.

POSTEMPLOYMENTLONG TERMEMPLOYEEBENEFITS

Total
amortisation
value of
LTI options$

Total
Remuneration6$

TERMINATIONBENEFITS4SHARE-BASEDPAYMENTS5

Other
$

Total
$

Super
contributions3$Long service
leave accrued
during the year$––

782,880
699,842
228,362
217,796

12,797
12,276
12,797
12,276

n/a
n/a
n/a
n/a

n/a
n/a
n/a
n/a

795,677
712,118
241,159
230,072

233,992
248,477
261,000
248,500
146,470

12,797
12,276
12,797
12,276
8,854

n/a
n/a
n/a
n/a
n/a

n/a
n/a
n/a
n/a
n/a

246,789
260,753
273,797
260,776
155,324

12,797
12,276
–
–

n/a
n/a
n/a
n/a

n/a
n/a
n/a
n/a

282,197
262,142
273,759
235,264

9,515
12,276

n/a
n/a

n/a
n/a

191,385
242,018

–
–
–
–

n/a
n/a
n/a
n/a

–
–
–

269,400
249,866
273,759
235,264n/an/a

1,14011–

181,870
229,742n/a

1,60011

282,016

9,104

n/a

n/a

291,120

n/a
n/a

1,140
1,600

2,377,733
2,411,503

82,35482,760

n/a
n/a

n/a
n/a

2,460,087
2,494,263

2,090,000
2,420,005

1,124,50711,12,13,14
219,37012,13

5,296,471
4,710,617

417,975
428,700–
59,376915,261–

123,411756,311

6,753,118
5,955,00415

2,090,000
2,420,005

1,125,647
220,970

7,674,204
7,122,120

500,329
511,460–
59,376915,261–

123,411756,3119,213,205
8,449,267

1 Shares acquired through participation in Directors’ Share Plan. Value reflects the price atwhich the shares were purchased on-market (amortisation not applicable). For the CEO, thisalso included his 2006 cash incentive which he elected to receive 100% as restricted shares.
Share purchases for NEDs were made on 30 October 2006, 7 May 2007 and 31 August 2007
for the 2007 year and on 31 October 2005 and 1 May 2006 for the 2006 year.
2 100% of the CEO’s cash incentive vested during the financial year that performance relates to.
The possible range of short-term incentive (STI) payments is between 0% and 150% of Fixed
Remuneration. The 2007 STI awarded as a percentage of Fixed Remuneration was 95%.
3 Includes $300,000 additional employer contribution, agreed as part of the CEO’s contract
extension announced 26 October 2004 (refer to section D2). For J Morschel, superannuation
guarantee contributions paid in respect of each other NED, are paid to him as cash in lieu.
4 Comprises $550,000 for the 3 month unexpired portion of his employment contract and a$365,261 pro-rata long service leave entitlement.
5 In accordance with the requirements of AASB 2 Share-based Payment, the amortisation value
includes a proportion of the fair value (taking into account market-related vesting conditions)of all equity that had not yet fully vested as at the commencement of the financial year. It is
assumed that the options will vest at the commencement of their exercise period (i.e. theshortest possible vesting period is assumed). The fair value is determined at grant date andis allocated on a straight-line basis over the expected vesting period. The amount included asremuneration is not related to nor indicative of the benefit (if any) that may ultimately be realised
should the options become exercisable.
6 Amounts disclosed for remuneration of directors exclude insurance premiums paid by the
consolidated entity in respect of directors’ and officers’ liability insurance contracts which covercurrent and former directors and officers, including senior managers of the entity and directors,
senior managers and secretaries 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 policy as, based on all available information, the directors believe thatno reasonable basis for such allocation exists.
7 The following benefits were paid under the ANZ Directors’ Retirement Scheme to the following
former directors: R Deane (retired 30 June 2006) – $723,107; D Gonski (retired 30 June 2007)– $340,676 based on sale of shares relating to Retirement Scheme.
8 Amortisation value of options as a percentage of total remuneration (as shown in the Total
column above) was 2% in 2007 (13% in 2006).
9 J McFarlane, ANZ’s only executive director, elected to use almost all of his cash salary and 100%of his 2006 incentive to purchase on market restricted shares under the Directors’ Share Plan.
The purchase dates were 30 October 2006, 29 January 2007 and 7 May 2007 for the 2007 year
and 31 October 2005, 30 January 2006, 1 May 2006 and 7 August 2006 for the 2006 year.
10 Amounts paid in NZD are converted to AUD at an average rate for the 2006 year of 1.1433.
11 Other for R Deane and D Gonski relates to a non-monetary benefit received on retirement as a giftfrom the Board. The gift for J McFarlane was $7,000.
12 Includes reimbursement to J McFarlane of $93,461 in 2007 (2006: $202,837) for the additional
tax liability on his UK Pension Plan holdings, arising as a result of Australian Foreign Investment
Fund rules, and J McFarlane’s continuing Australian residency (in accordance with the contractual
arrangements detailed in section D1.1).
13 Includes $24,046 professional services rendered in respect of taxation matters in 2007 ($16,533
in 2006).
14 Includes a $1million payment for the relinquishment of the CEO’s Performance Shares. Refer tosection D.1.3 for further details.
15 Due to ANZ acquiring the CEO’s Performance Shares, the CEO’s 2006 Total Remuneration is$1,310,649 (i.e. amortised amount) less than what was disclosed in 2006. Refer to section D1.3
for further details.

Remuneration Report 15Section A: Remuneration Tables (continued)
TABLE 2: EXECUTIVE KEY MANAGEMENT PERSONNELREMUNERATION AND TOP 5 REMUNERATED
For the year ended 30 September 2007, remuneration
details of the KMP identified as executives of theGroup, (as required under AASB 124), and the five
most highly remunerated executives in the Company
and the Group (as required under the Corporations
Act), other than the Chief Executive Officer, are set
out below:

SHORT-TERM
EMPLOYEE BENEFITS

Financial
Year

Cash
salary/fees$Nonmonetary
benefits1$

R EdgarSenior Managing Director

2007
2006

795,275
787,068

9,620
14,788B Hartzer
Group Managing Director, Personal

2007
2006

931,232
883,626

G Hodges9
Chief Executive, ANZ National Bank
Limited (New Zealand)

2007
2006

P Hodgson10
Group Managing Director, Institutional

POSTEMPLOYMENT

Total cash
incentive2,3
$

Total
$

Super
contributions$

1,060,000
850,000

1,864,895
1,651,856

49,72549,72561,96359,6401,315,000
1,300,000

2,308,195
2,243,266

61,42558,500900,000
841,866

56,60071,920900,000
895,000

1,856,600
1,808,786

–
7,459

2007
2006

808,456
701,393

9,620
6,313

850,000
825,000

1,668,076
1,532,706

50,54443,875

P Marriott
Chief Financial Officer

2007
2006

889,425
842,618

9,620
6,313

1,090,000
1,080,000

1,989,045
1,928,931

55,57552,650A Thursby11
Group Managing Director, Asia Pacific2007

70,000770–

70,770–S Targett12
Former Group Managing
Director, Institutional

2007
2006

983,675
936,600–
6,313

550,000
1,000,000

1,533,675
1,942,913

61,42558,500E Funke Kupper(resigned effective 1 February 2006)13
Group Managing Director, Asia Pacific

Current Executives

Former Key Management Personnel

2006

234,483

2,110–

236,593

14,663

Total of all Executive KMPs

2007
2006

5,378,063
4,526,261

148,193
161,084

5,765,000
5,125,000

11,291,256
9,812,345

278,694
241,497

Total of all Disclosed Executives

2007
2006

5,378,063
5,227,654

148,193
167,397

5,765,000
5,950,000

11,291,256
11,345,051

278,694
285,372

COMMENTARY ON CHANGES BETWEEN 2006 & 2007
Consistent with previous years, a market review of 2006/2007
remuneration was undertaken. Overall, it was found that reward
levels were generally market competitive and therefore only Fixed
Remuneration was adjusted in line with market movements. Froman individual perspective, the 14% increase in Peter Hodgson’s Total
Remuneration reflects the increased responsibilities associated withthe change in his role from Chief Risk Officer to Group Managing
Director Institutional.
Other year-on-year variations include:i) E Funke Kupper only disclosed in 2006 based on the four month
period he was classified as a KMP; not included in 2007 totals.
ii) Inclusion of A Thursby in 2007 totals for the 1 month period he
was a KMP (i.e. commenced 3 September 2007).

16 ANZ Annual Report 2007

LONG-TERM
EMPLOYEE BENEFITSSHARE-BASEDPAYMENTS5

Retirement
benefit accrued
during year4$

Long service
leave accrued
during the year$

Total
amortisation valueof STI shares$

Total
amortisation valueof LTI shares$

Total
amortisation valueof LTI options$

Total
amortisation valueof performancerights$Total amortisationof otherequity allocations6
$

3,297
–

13,27837,60731,928
108,692

273,389
503,179

79,418
181,819

419,586
202,340––

2,735,516
2,735,218––

21,93840,57530,613
94,59793,063
175,183

91,008
174,542

513,944
216,792––

3,120,186
3,003,455

610–

29,94048,44723,56982,17979,066150,066

77,386
149,602466,213202,340––

2,533,384
2,448,879––

52,121
11,71638,553
130,541

100,838
113,241

17,80930,377386,289
173,434––

2,314,230
2,035,890––

25,533
34,83039,638127,015

97,621
206,816

95,807
206,831474,537
209,566––

2,777,756
2,766,639

–

–

–

–

–

–

24,763

95,533––

18,28320,020––44,85744,85743,215
43,215482,864
216,795

1,003,152
1,166,859

3,187,471
3,493,159––

104,930

146,895

147,119

152,622–

802,822

3,907–

161,093
181,479

164,301
517,413688,834
1,226,996

404,643
903,128

2,743,433
1,200,455

1,027,915
1,166,859

16,764,076
15,250,172

3,907
–

161,093
193,195

164,301
647,954

688,834
1,340,237

404,643
933,505

2,743,433
1,373,889

1,027,915
1,166,859

16,764,076
17,286,062

1 Non-monetary benefits consist of salary packaged items such as car parking, novatedlease motor vehicles and G Hodges’ non-monetary benefits include housing and airfares.
2 Total cash incentive relates to the full incentive amount for the financial year that theperformance relates to. 100% of the cash incentive awarded in both 2006 and 2007 vested
to the person in the applicable financial year.
3 The possible range of short-term incentive (STI) payments is between 0% and 150% of
Fixed Remuneration. The actual incentive received is dependant on ANZ Group, division andindividual performance (refer to C4.1 for more details). The 2007 STI awarded as a percentage
of Fixed Remuneration was: B Hartzer 125%; R Edgar 125%; G Hodges 100%; P Hodgson
100%; P Marriott 115%; S Targett 76%.
4 Accrual relates to Retirement Allowance. As a result of being employed with ANZ prior to
November 1992, R Edgar and G Hodges 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: 3 months of 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).
5 In accordance with the requirements of AASB 2, the amortisation value includes a proportionof the fair value (taking into account market-related vesting conditions) of all equity that
had not yet fully vested as at the commencement of the financial year. It is assumed that theoptions / performance rights will vest at the commencement of their exercise period (i.e. theshortest possible vesting period is assumed) and that deferred shares will vest after 3 years.
The fair value is determined at grant date and is allocated on a straight-line basis over the
3-year vesting period. The amount included as remuneration is not related to nor indicativeof the benefit (if any) that may ultimately be realised should the options / performance rights
become exercisable. For deferred shares, the fair value is the volume weighted average priceof the Company’s shares traded on the ASX on the day the shares were granted.
6 Amortisation of other equity allocations for S Targett relates to the grant of deferred shares
beginning on 11 May 2004 (four tranches to the value of $700,000 each issued at 6 monthintervals in May and November in 2004 and 2005) and hurdled A options (refer to section
F10.1 for performance hurdle details) to compensate S Targett for the loss of access to equity
as a result of his resignation from his previous employer.

Total
Remuneration7,8$

Amortisation of other equity allocations for A Thursby relates to the allocation of $1m of 3 year
deferred shares to compensate for equity foregone from his previous employer.
7 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
directors and officers, including senior managers of the entity and directors, senior managers
and secretaries of the controlled entities. The total premium, which cannot be disclosed
because of confidentiality requirements, has not been allocated to the individuals coveredby the insurance policy as, based on all available information, the directors believe that noreasonable basis for such allocation exists.
8 Amortisation value of options and rights as a percentage of total remuneration was: B Hartzer
19% (2006: 13%); R Edgar 18% (2006: 14%); G Hodges 21% (2006: 14%); P Hodgson 17%(2006: 10%); P Marriott 21% (2006: 15%); S Targett 21% (2006: 15%).
9 Prior to November 2005, G Hodges was the Group Managing Director, Corporate. Between
1 November 2005 and 31 December 2005, he was the Chief Executive Designate(New Zealand), with his position changing to Chief Executive, ANZ National Bank Limited,
New Zealand effective 1 January 2006.
10 P Hodgson commenced in the position of Group Managing Director, Institutional on 8 June
2007. Prior to this, P Hodgson was the Chief Risk Officer for the period 1 December 2004 to
7 June 2007.
11 A Thursby commenced employment with ANZ in the position of Group Managing Director,
Asia Pacific on 3 September 2007. As A Thursby is a holder of a long stay visa, his Fixed
Remuneration does not include the 9% Superannuation Guarantee contribution, however
he is able to elect voluntary superannuation contributions.
12 S Targett ceased as the Group Managing Director, Institutional 7 June 2007, and his
employment with ANZ will terminate on 7 June 2008.
13 E Funke Kupper received a final payment on resignation of $165,554 relating to his accrued
annual leave and long service leave. With the inclusion of the final payment his total
remuneration for 2006 would be $968,376.

Remuneration Report 17

Section B. Non-executive Directors’ Remuneration
B1. NON-EXECUTIVE DIRECTORS’ REMUNERATION POLICY
Non-executive Directors’ (NEDs) fees are reviewed annually by the Board People Committee and are determined by the Board of Directors basedon advice from external advisors and with reference to fees paid to other NEDs of comparable companies. The total of NEDs’ fees (including
superannuation contributions) are within the maximum annual aggregate limit agreed to by shareholders at the Annual General Meeting held on
16 December 2005 ($3 million, excluding superannuation benefit payouts and retirement benefits), and are set at levels that fairly represent the
responsibilities of, and the time spent by the NEDs on Group matters.
NEDs receive a fee for being a director of the Board, and additional fees for either chairing or being a member of a committee. Work on special
committees may attract additional fees of an amount considered appropriate in the circumstances. An additional fee is also paid if a NED serves
as a director on a subsidiary board. NEDs do not receive any performance / incentive payments and are not eligible to participate in any of theGroup’s incentive arrangements.
Effective 1 October 2006, NED fees and Committee membership fees were increased by 5% and the Chairman’s fee by 12%. These fee increases
were based on an independent assessment of the competitiveness of ANZ’s NED remuneration in comparison to other major companies andconsideration of the relativity between the NED and Chairman fees. The NED fees are also reflective of their increased accountability and timecommitment, largely driven by the increased corporate governance, regulatory requirements and complexities of operating a global business.
The fee structure is disclosed in Table 3 below:
TABLE 3

Role

Chairman
Non-Executive Director
Committee Chair (Risk, Audit & People)
Committee Chair (Governance, Technology)
Committee Member (Risk, Audit & People)
Committee Member (Governance, Technology)

2006/07 Fees$

2005/06 Fees$

783,000
192,000
48,00028,00021,0008,400

700,000
183,000
45,50026,77520,0008,033

For details of remuneration paid to directors for the year ended 30 September 2007, refer to Table 1 in section A of this Remuneration Report.
NED SHAREHOLDING GUIDELINES
NEDs have agreed to accumulate ANZ shares, over a five-year period, to the value of 100% (200% for Chairman) of the base annual NED Fee(i.e. $192,000 for 2006/2007) and to maintain this shareholding while a director of ANZ. NEDs have agreed to apply up to 25% of their basefee annually through the Directors’ Share Plan or other means, towards the purchase of ANZ shares in order to achieve / maintain the desired
holding level. This guideline was approved by the Board in September 2005.

B2. NON-EXECUTIVE DIRECTORS’ RETIREMENT POLICYThe NED retirement scheme was closed effective 30 September 2005. Accrued entitlements relating to the ANZ Directors’ Retirement Scheme
were fixed at 30 September 2005 and NEDs had the option to convert these entitlements into ANZ shares. Such entitlements, either in ANZshares or cash, will be carried forward and transferred to the NED when they retire (including interest accrued at the 30 day bank bill rate forcash entitlements).
The accrued entitlements fixed under the ANZ Directors’ Retirement Scheme as at 30 September 2005 are as follows: C Goode – $1,312,539;
G Clark – $83,197; J Ellis – $523,039; M Jackson – $487,022; D Meiklejohn – $64,781; J Morschel – $60,459.

B3. DIRECTORS’ SHARE PLAN
The Directors’ Share Plan (the plan) is available to both non-executive and executive directors. Directors may elect to forego remuneration
to which they may have otherwise become entitled and receive shares to the value of the remuneration foregone, and therefore the sharesacquired are not subject to performance conditions. Participation in the plan is voluntary. Shares acquired under the plan are purchasedon market and are subject to a minimum 1 year restriction, during which the shares cannot be traded. In the event of serious misconduct,
all shares held in trust will be forfeited. All costs associated with the plan are met by the Company.

18 ANZ Annual Report 2007

C1. REMUNERATION GUIDING PRINCIPLES

Governance Principles. The program
comprises the following components which
are benchmarked against the finance market
median:ANZ’s reward policy, approved by the Board,shapes the Group’s remuneration strategies
and initiatives.

Fixed Remuneration component: salary,non-monetary benefits and superannuation
contributions (Refer to C3).

Section C. Executive
Remuneration Structure

The following principles underpin ANZ’s
reward policy:
1. Focus on creating and enhancing value for
all ANZ stakeholders;
2. Differentiation of individual rewards
commensurate with contribution to
overall results and according to individual
accountability, performance and potential;
3. Significant emphasis on “at risk”
components of total rewards; and4. The provision of a competitive reward
proposition to successfully attract, motivate
and retain the highest quality individuals
required to deliver ANZ’s business andgrowth strategies.

Variable or “at risk” component (Refer to C4):
– Short-Term Incentive (STI); and– Long-Term Incentive (LTI).
Depending on the competitive market,
the proportion of remuneration “at risk”
generally increases for the most senior orcomplex roles, or for those roles where there
is strong market pressure to provide greaterlevels of remuneration. Figure 1 below
shows the relative mix of Fixed, STI and LTI
at target payment levels. The plan design
allows for the opportunity to earn upper
quartile total remuneration for significant
out performance, and significantly reduced
payment for underperformance. In thisway the remuneration structure is heavily
weighted towards “reward for performance”.

SHAREHOLDING GUIDELINES
Direct reports to the CEO are expectedto accumulate ANZ shares over a five
year period, to the value of 200% of their
Fixed Remuneration and to maintain thisshareholding while an executive of ANZ. The
next most senior executives are expected toaccumulate ANZ shares to the value of 100%of their Fixed Remuneration and to maintainthis shareholding while an executive of ANZ.
This guideline was introduced in June 2005.
New executives are expected to accumulate
the required holdings within five years ofcommencement.

C2. REMUNERATION STRUCTURE
OVERVIEWThe executive remuneration program andstructure detailed in Section C reflects
the remuneration of senior managers andthe company secretary (as defined in the
Corporations Act) and KMP (excluding the
CEO and NEDs) as defined by AASB 124. The
program aims to differentiate remunerationon the basis of achievement against group,business unit and individual performancetargets which are aligned to sustained
growth in shareholder value using abalanced scorecard approach. The executive
remuneration program also complies withthe existing and revised ASX Corporate

C3. FIXED REMUNERATION
Fixed Remuneration comprises cash salary,a superannuation contribution, and theremainder as nominated benefits. The
types of benefits that can be packaged
include novated car leases, additional
superannuation contributions, car parking,child care, laptops and contributions towards
the Employee Share Save Scheme. Fixed
Remuneration is reviewed annually based on
individual performance and market data.

C4. VARIABLE REMUNERATION
Variable remuneration forms a significant
part of executives’ potential remuneration,
providing an at-risk component that isdesigned to drive performance in both theshort-term (annually) and in the medium andlong-term (3 years plus). The opportunities
available to executives under ANZ’s variable
remuneration programs are designed toreinforce the achievement of short andlong term performance targets and toensure remuneration competitiveness in
the relevant markets in which they operate.
Executives participate in the STI plandetailed in section C4.1 and the LTI plandetailed in section C4.2. As specified in
the ANZ Securities Trading Policy, equity
allocated under ANZ incentive schemes
must remain at risk until fully vested (in thecase of Deferred Shares) or exercisable (inthe case of Options or Performance Rights).
As such, it is a condition of grant that noschemes are entered into that specificallyprotect the unvested value of Shares,
Options and Performance Rights allocated.
Doing so would constitute a breach of the
grant conditions and would result in theforfeiture of the relevant Shares or Options.
To monitor adherence to this policy, ANZ’ssenior executives are required to sign anannual declaration stating that they have notentered into (and are not currently involvedin) any schemes to protect the value of theirinterests in any unvested ANZ securities.
Based on the 2007 declarations, we canadvise that all senior executives are fullycompliant with this policy.

Fixed Remuneration at ANZ operates witha midpoint targeted to the local market
median being paid in the finance industry
in the relevant global markets in which ANZ
operates, and a range around this midpoint.

Figure 1: Target reward mix
36%

36%

28%

Disclosed Executives1

41%

27%

32%

2

Large Senior Executive Roles

Fixed Remuneration %
STI %

61%
13%
1 2007 reward mix for disclosed executives (current
KMP only) pertains to R26%
Edgar,B Hartzer, G Hodges, P Hodgson, P Marriott and A Thursby.
2 Large senior executive roles are those we classify as being most reflective of “thecompany secretary and senior managers” (excluding disclosed executives) as definedin the Corporations Act.

LTI %Remuneration Report 19

C4.1 Short-Term Incentives
ANZ’s Short-term incentive (STI) approach
supports our strategic objectives by
providing rewards that are significantly
differentiated on the basis of achievement
against performance targets. All STI plans arereviewed and approved by the Board People
Committee.
Determination of STI Levels
The size of the overall pool available isbased on performance against a cash
earnings per share (EPS) growth target anda profit before provisions (PBP) growthtarget. This pool is then spread between
the Divisions based on their performanceagainst a balanced scorecard of financial andqualitative measures, and then distributed toindividuals based on relative performance.
The Board People Committee is required
to approve the STI Group and Divisionoutcomes and the distribution of the STI pool
amongst the Divisions. Each executive hasa target STI which is determined according
to job size and market relativities. The sizeof the actual STI payment made at the endof each financial year to individuals may be
at, above or below the target and this will be
determined according to ANZ Group, Division
and Individual Performance aligned with
ANZ’s overall balanced scorecard.
Performance objectives under ANZ’sbalanced scorecard include a number ofqualitative and quantitative measures which
include, but are not limited to:
Financial Measures including: Economic
Value Added (EVATM); Revenue, EPS and Net
Profit After Tax
Customer Measures including: Customer
Satisfaction and Market Share
Employee Engagement, Risk Management
and Compliance Measures
Environment, Health & Safety andCommunity Measures.
The performance of relevant executives
against these objectives is assessed at
the end of the year by the Board People
Committee. The STI is payable 100% incash (except where specific business plans
require otherwise). Executives are able toelect to sacrifice part or all of their incentive
towards the purchase of ANZ shares which are
restricted from sale for 12 months, or towards
additional superannuation contributions.
As the incentive amount has already been
earned, there are no performance measuresattached to the shares. The target STI award
20 ANZ Annual Report 2007

level for disclosed executives is 100% of
Fixed Remuneration in 2007 with a maximum
STI award of 150% of Fixed Remuneration.
For large senior executive roles in the ANZ
STI plan, the target STI is 67% of Fixed
Remuneration, with a maximum of 100% of
Fixed Remuneration. Note, the target andmaximum STI amounts for executive roles mayvary for customised incentive schemes.

C4.2 Long-Term Incentives
The long-term incentives (LTIs) are designed
to link a significant portion of executives’
remuneration to the attainment of sustained
growth in shareholder value. LTI is deliveredas 100% Performance Rights, with a single
long-term performance measure (referto section F10 for details of legacy LTI
programs). A Performance Right is a rightto acquire a share at nil cost, subject tomeeting time and performance hurdles.
Performance Rights are designed to reward
executives for share price growth dependent
upon the Company’s Total Shareholder
Return (TSR) outperforming peers. TSR
represents the change in the value of a shareplus the value of reinvested dividends paid.
TSR was chosen as the most appropriatecomparative measure as it focuses on
the delivery of shareholder value and is awell understood and tested mechanism tomeasure performance. The conditions underwhich Performance Rights are granted areapproved by the Board in accordance withthe rules of the ANZ Share Option Plan.
In the event of a takeover or a scheme ofarrangement, the ANZ Share Option Plan
specifies that the Board has absolute
discretion to permit the exercise of options
or rights. If a company obtains control of ANZ
and both the acquiring company and ANZ
agree, ANZ may on the exercise of options,provide shares of the acquiring company(or its parent) to the same value as the ANZ
shares that would have been issued.
Each Performance Right has the following
features:
Performance Rights held by eligible
executives will be tested once only
against the performance hurdle at the endof three years;
Subject to the performance hurdle being
met, the executive has a two-year exercise
period that commences three years after
the grant date;Upon exercise, each Performance Right
entitles the executive to one ordinary
share;

In case of dismissal for serious misconduct,
Performance Rights are forfeited;
In case of resignation or termination on
notice, unless the Board determines
otherwise, only Performance Rights that
become exercisable by the end of thenotice period may be exercised; andIn case of death or total & permanent
disablement, the performance hurdle iswaived and a grace period is provided inwhich to exercise all Performance Rights.
The proportion of Performance Rights that
become exercisable will depend upon asingle point testing of the TSR achievedby ANZ relative to the companies in thecomparator group (shown below) at theend of a three-year period. An averaging
calculation will be used for TSR over a 90 day
period for start and end values in order toreduce the impact of share price volatility.
TSR Vesting Scale
Relative TSR Performance< 50th percentile
50th to 74th percentile
75th percentile or above% Vesting0%50% – 98%
100%

Where median performance is achieved,
executives’ total remuneration will
typically be below market median for thefinancial services industry. 75th percentile
performance is required for full vesting whichenables executives to receive the full valueof their LTI. To ensure an independent TSR
measurement, ANZ engages the services ofan external organisation (Macquarie Financial
Services) to calculate ANZ’s performanceagainst the TSR hurdle.
Comparator GroupThe peer group of companies against which
ANZ’s TSR performance is measured,comprises the following companies:
AMP Limited
AXA Asia Pacific Holdings Limited
Commonwealth Bank of Australia
Insurance Australia Group Limited
Macquarie Bank Limited
National Australia Bank Limited
QBE Insurance Group Limited
St George Bank Limited
Suncorp-Metway Limited
Westpac Banking Corporation

The companies in this comparator group werechosen because they represent ANZ’s key
competitors in the financial services industry,
are an appropriate reference group forinvestors and are of sufficient size by market
capitalisation and weight in ASX Top 50.
Size of LTI Grants
The size of individual LTI grants is determinedby an individual’s level of responsibility,
performance and the assessed potential of
the executive. The target LTI for disclosed
executives is around 28% of the individual’s
target reward mix, and 32% for large senior

executive roles. Executives are advised of
their LTI dollar value, which is then converted
into a number of Performance Rights basedon a valuation. ANZ engages external experts(PricewaterhouseCoopers and Mercer Finance& Risk Consulting) to independently value the
Performance Right, taking into account factors
including the performance conditions, shareprice volatility, life of instrument, dividend
yield and share price at grant date. The
highest acceptable value is then approved by
the Board People Committee as the allocation
value. LTI allocations are made annuallyaround the end of October. The following
example uses the October 2006 allocation
value.
ExampleExecutive granted LTI value of $200,000
Approved Allocation Valuation
is $13.08 per Performance Right$200,000 / $13.08 = 15,290 Performance
Rights allocated to executive

C5. PERFORMANCE OF ANZ
Table 4 shows ANZ’s annual performance over the five-year period spanning 1 October 2002 to 30 September 2007. The table illustrates theimpact of ANZ’s performance on shareholder wealth, taking into account dividend payments, share price changes and other capital adjustments
during the financial year.
TABLE 4

FY 2007*

FY 2006*

FY 2005

FY 2004

FY 2003

Basic Earnings Per Share (EPS)
NPAT ($m)
Total Dividend (cps)
Share price at 30 September ($)
Total Shareholder Return (%)

224.1
4,180
136
29.70
15.6

200.0
3,688
125
26.86
17.1

160.9
3,018
110
24.00
32.6

153.1
2,815
101
19.02
17.0

142.4
2,348
95
17.17
6.7

* Figures are based on AIFRS results

In Table 4, ANZ’s TSR (which includes share price growth, dividends and other capital adjustments) has been shown for each individual financial
year between 2003 and 2007. Figure 2 compares ANZ’s TSR performance against the median TSR of the LTI comparator group and the S&P/ASX
200 Banks Accumulation Index over the 2003 to 2007 measurement period.

Figure 2: ANZ 5-Year
Cumulative Total
Shareholder Return
Performance

300
Total shareholder return %

280
260
240
220
200
180
160
140
120
100
Performance period end date

Oct 07

Apr 07

Oct 06

Apr 06

Oct 05

Apr 05

Oct 04

Apr 04

Oct 03

Apr 0380
Oct 02

ANZ TSRMedian of Peer Group
Upper Quartile of Peer Group
S&P/ASX 200 Banks
Accumulation Index

Remuneration Report 21

3,560

2,858

3,133

3,887
X,XXX

Figure 3: ANZ – Cash Earnings & Average STI payments ($ million)
Cash earnings (AGAAP)1
Cash earnings (AIFRS)2
Average STI payments against target
Target STI

2,308
125

% of target STI paid
to executive directors
and disclosed executives

100
75

Figure 3 illustrates the relationship between the average actual STI payments
against target and the Group’s performance measured using cash earnings
over the last 5 years. The average STI payments for each year are based on
those executives (including the CEO) disclosed in each relevant reporting
period. As illustrated in the chart, the average STI payments are generally
in alignment with the cash earnings trend.
1 Earnings excluding goodwill, significant items and NBNZ incremental integration costs.
2 Earnings adjusted for non-core items, AIFRS adjustments and preference share dividends.

03

04

05

06

07

Section D. Chief Executive Officers’ remuneration
This section details the remuneration arrangements for J McFarlane who ceased as CEO of ANZ on 30 September 2007 (after 10 years as
CEO), and his successor, M Smith, who commenced as CEO on 1 October 2007. The CEO is the only executive director at ANZ.

D1.REMUNERATION OVERVIEW FOR J MCFARLANE
The structure of J McFarlane’s remuneration for the purposes of the 2006 and 2007 financial year disclosures was in accordance with his
employment agreement and was as follows:
Fixed Remuneration: Consisted of salary, benefits and superannuation contributions. Since October 2003, J McFarlane elected to receive almost
all of his Fixed Remuneration in the form of shares purchased under the Directors’ Share Plan. These shares were not subject to a performance
condition as they were provided in place of cash remuneration at the CEO’s choice. However, they were subject to forfeiture in case oftermination for serious misconduct.
Short-Term Incentive: The Board set J McFarlane’s balanced scorecard at the beginning of the financial year. The Board then assessed
performance against these objectives at the end of the year to determine the appropriate incentive (relative to target). These objectives werealigned with the achievement of ANZ’s business plan, and were the most appropriate indicators of performance. These objectives included
a number of quantitative and qualitative measures, which included (but were not limited to) financial, customer, people, environment andcommunity measures. J McFarlane’s STI was able to be paid in cash or in shares purchased under the Directors’ Share Plan.
Long-Term Incentive: J McFarlane’s Long-Term Incentive was made up of Hurdled Options and Performance Shares as approved byshareholders at the 2001 and 2004 Annual General Meetings respectively. No long-term incentive equity was issued to J McFarlane in the2006 or 2007 financial years. The performance conditions pertaining to the Options and Performance Shares issued during the 2005 year are
indicated in F10.1 Hurdled A options and F10.3 respectively. They were linked to Company performance and increasing shareholder value.
The remuneration of J McFarlane for the year ended 30 September 2007 is set out in Table 1 in section A of this Remuneration Report.
The mix of remuneration for J McFarlane was made up as follows:
Fixed Remuneration of $2,200,000 per annum;
Target variable Short-Term Incentive of $2,200,000 per annum;Long-Term Incentive of $2,600,000 granted on 31 December 2004, as per his 26 October 2004 contract - based on valuation at grantof last LTI allocation of 175,000 Performance Shares in December 2004. Note, the fair value of LTI equity granted since December 2003,
and annualised over the period from grant date to 30 September 2007 is $1,530,000. This amount has been reflected in the reward
mix bar in Figure 4 below.

Figure 4: Chief Executive Officer

Fixed Remuneration %
STI %

37%

22 ANZ Annual Report 2007

37%

26%

LTI %

D1.1 Contract Terms

Performance Shares:

On 5 December 2006, the Company
announced an extension to the terms of
J McFarlane’s 26 October 2004 contract(which was also an extension of his contract
dated 23 October 2001). The contract was
extended by 3 months to 31 December
2007 (from 30 September 2007) to provide
flexibility for orderly succession at ANZ. The
following terms formed part of J McFarlane’s
26 October 2004 contract.

175,000 Performance Shares were issued to
J McFarlane on 31 December 2004 as part ofhis 26 October 2004 contract, as approvedby shareholders at the 2004 Annual General
Meeting. No dividends were payable on theshares until vesting. Vesting was subject
to time and performance hurdles being
satisfied as detailed in section F10.3.

In addition to mandatory superannuation
contributions, the Company madeadditional employer contributions of$300,000 per annum (effective from
1 October 2003), paid quarterly to
J McFarlane’s chosen superannuation
fund; andJ McFarlane was granted 175,000
Performance Shares on 31 December
2004.

Tax Liabilities on UK Pension Plan holdings
The terms of J McFarlane’s contract provided
for reimbursements for any additional tax
liabilities that occurred on J McFarlane’s
UK Pension Plan holdings as a result of his
continuing Australian residency. Under thisagreement, ANZ reimbursed J McFarlane for
additional tax liability incurred on his UK
Pension Plan during his employment with
ANZ, arising as a consequence of Australian
Foreign Investment Fund rules.

D1.2 Participation in Equity Programs
Hurdled Options:
At the 2001 Annual General Meeting, fourtranches of options were approved for
granting by the Board: 500,000 in 2001;
1,000,000 in 2002; 1,000,000 in 2003 and
500,000 in 2004. For options granted to
the CEO, the exercise price was equal to theweighted average share price during the five
trading days immediately after the Annual
General Meeting held in respect of thefinancial year that ended before the date of
the grant of the relevant tranche of options.
The exercise of these options was subject
to performance hurdles being satisfied.
J McFarlane’s specific performance hurdles
are indicated in section F10.1 (Hurdled A),
and for Performance Shares in section F10.3.
For options granted to the CEO, the life andexercise period may differ, as disclosed in F3.

Directors’ Share Plan:
J McFarlane participated in the Directors’
Share Plan, which is explained in section B3.
Please refer to section F for details of grants
and holdings.

D1.3 Termination Benefits
On J McFarlane’s departure on 30 September
2007, he received the following:

Contractual and Statutory Payments
J McFarlane received a payment of $550,000(equal to 3 months of his Total Employment
Cost) for the unexpired portion of his
employment contract (being the 3 months
from 1 October 2007 to 31 December 2007).
J McFarlane was also paid all statutory leave
entitlements, including a payment for pro
rata long service leave totalling $365,261.

Short-Term Incentive
As part of the usual remuneration process
at the end of the financial year, the Board
considered and determined the extent towhich J McFarlane satisfied the applicable
performance criteria under the short-term
incentive program for the 2007 financial
year. As a result of that determination,
Mr McFarlane received an STI payment
in relation to the 2007 financial year of$2,090,000.

Long-Term Incentive
Of the 3,000,000 Hurdled Options granted
to J McFarlane from December 2001 to
December 2004, 250,000 Hurdled Options
have not yet vested as at 31 October 2007.
In accordance with the rules of the ANZ
Employee Option Plan, under which the
Hurdled Options were granted, the unvested
options may be held by J McFarlane
until their expiry date (of 31 December2008) set out in the terms of grant andhis employment contract. The Hurdled
Options will be subject to the performance
condition and will be tested in accordancewith their terms of grant until their expiry
date, at which point they will lapse if theperformance hurdle is not met.

The 175,000 Performance Shares granted
to J McFarlane have not yet met theirperformance hurdle. In accordance with
their terms of grant the Performance Shares
may be held by J McFarlane (subject to theperformance conditions) until the expiry
date set out in their terms of grant andhis employment contract and tested inaccordance with the terms of grant until
their expiry date (31/12/09). J McFarlane
is taxed at the time of retirement on the
Performance Shares as if they had passed
the performance hurdles. For tax paid
on Performance Rights and Options, thetaxpayer will receive a refund of tax paid
if the performance hurdles are not met.
However this is not the case for Performance
Shares in contrast to the position for Rights
and Options. This is in ANZ’s opinion
inequitable and ANZ agreed to acquireJ McFarlane’s interest in the Performance
Shares on his departure for a paymentof $1,000,000. The Shares have been
reclassified and are now available forallocation to other employees under ANZ’s
employee share plan.

Shares held under the ANZ Directors’
Share Plan
J McFarlane elected to receive almost allof his remuneration (including annual
bonuses) in the form of ANZ sharespurchased under the ANZ Directors’ SharePlan. On his cessation from ANZ, J McFarlane
was entitled to all shares held on trust on
his behalf under the ANZ Directors’ SharePlan.

D1.4 Shareholding Guideline
The Chief Executive Officer of ANZ is
expected to accumulate ANZ shares, overa five year period, to the value of 200% of
his Fixed Remuneration and to maintainthis shareholding while CEO of ANZ. This
shareholding guideline was introduced in
September 2005. J McFarlane was always
well above the shareholding guideline.

D2. REMUNERATION OVERVIEW FOR
M SMITH
M Smith commenced as CEO and Executive
Director of ANZ on 1 October 2007 on arolling twelve month contract with a minimum
term of three years. The key terms of his
employment arrangement are summarised
below. They are in line with industry practice(based on external advice on Australian andinternational peer company benchmarks) andASX Corporate Governance Principles.
Remuneration Report 23

Fixed Remuneration: A fixed componentof $3 million per annum which consistsof salary, benefits and superannuation
contributions. M Smith’s Fixed Remuneration
will be constant for three years, and will be
reviewed annually thereafter.
Short-Term Incentive: The short-term
incentive target is 100% of Fixed
Remuneration per annum. The actual shortterm incentive awarded will be determinedat the discretion of the Board based on
ANZ and CEO performance against annual
performance targets.
Long-Term Incentive: The LTI covering thefirst three years of employment consists of
3 tranches of Performance Rights, each to
be granted after the 2007 Annual General
Meeting, and each to a maximum value of$3 million. The performance periods for eachtranche begin on date of grant and end on the
3rd, 4th and 5th anniversaries respectively.
The grant of these Performance Rights will be
subject to shareholder approval which will besought at the 2007 Annual General Meeting.
If shareholder approval is not obtained,
the LTI will be a cash award equivalent tothe value of the Performance Rights which
would have become exercisable for eachtranche and performance period, subject
to satisfaction of the performance and time
hurdles. The level of vesting for each tranche
will be based on ANZ Total Shareholder
Return (TSR) performance against acomparator group of companies consistent
with the senior executive LTI program (refer
to C4.2). Refer to section C4.2 for change ofcontrol provisions in relation to these Rights.

D2.1 Sign-On Award
The Board agreed to provide M Smith $9
million compensation in consideration for
remuneration foregone from his previous
employer on joining ANZ. As per the termsof M Smith’s contract, he elected at thecommencement of his employment to receive
100% of this compensation in the form of
ANZ Deferred Shares. Shareholder approval
will be sought at the 2007 Annual General
Meeting for M Smith’s sign-on award, to beheld in trust until the end of the relevant
vesting period.

24 ANZ Annual Report 2007

One third of the sign on award will vest at
each of the 1st, 2nd and 3rd anniversaries
from commencement of employment as CEO.
Given the purpose of the sign-on award for M
Smith is to compensate him for remuneration
foregone, the ANZ Deferred Shares will not
be subject to any performance hurdles.
The allocation of ANZ Deferred Shares andthe time vesting component, will howeverstrengthen the alignment of M Smith’sinterests with shareholders. If shareholder
approval is not granted, the Company will
pay the value of the sign-on award to
M Smith in cash. On vesting, the cash amount
paid will be the initial value of the relevant
amount escalated at the 30 day bank bill rate
throughout the period from commencementof employment as CEO until vesting,assuming interest is credited each 30 days.

D2.2 Termination Benefits
M Smith or ANZ may terminate theemployment agreement by providing 12months’ written notice. If ANZ terminates
M Smith’s employment within the first 3
years, ANZ will give M Smith the greater of
12 months’ written notice or notice equal
to the unexpired term of three years fromcommencement as CEO. ANZ may elect to pay
in lieu all or part of the notice period basedon M Smith’s Fixed Remuneration.
In circumstances of serious misconduct,
M Smith is only entitled to payment of Fixed
Remuneration up to the date of termination.
In relation to M Smith’s LTI (Performance
Rights) and sign-on award the following will
apply:
Resignation by M Smith: All unexercised
Performance Rights (or cash equivalent) andunvested sign-on award will be forfeited;
Termination on notice by ANZ: All
Performance Rights (or cash equivalent)
which have vested or vest during thenotice period will be retained and become
exercisable; all Performance Rights (orcash equivalent) which have not yet vested
will be retained and will vest and become
exercisable subject to the relevant time andperformance hurdles being satisfied. Signon award will vest in full;Termination without notice by ANZ
in the event of serious misconduct: All
Performance Rights (or cash equivalent) andsign-on award will be forfeited; andDeath or total and permanent
disablement: All Performance Rights (orcash equivalent) and sign-on award willvest.

D2.3 Relocation
Costs associated with M Smith’s relocation to
Melbourne will be paid consistent with ANZ’sinternational relocation policies. Certain
relocation expenses will also be paid in theevent of termination of his employment.

Section E. Disclosed executives’ contract terms
Contractual terms are similar, but do, on occasion, vary to suit different needs. Section E1 details the contractual terms fordisclosed executives.

E1. CONTRACTS: R EDGAR, B HARTZER, G HODGES, P HODGSON, P MARRIOTT, S TARGETT AND A THURSBY
Length of Contract

Open-ended.

Fixed Remuneration

Remuneration consists of salary, 9% Superannuation Guarantee (SG) contributions (except for G Hodges)
and nominated benefits.

Short-Term Incentive

Eligible to participate (refer to section C4.1 for details of short-term incentive arrangements).

Long-Term Incentive

Eligible to participate at the Board’s discretion (refer to section C4.2 for long-term incentive arrangements).

Resignation

Employment may be terminated by giving 6 months’ written notice.
On resignation any options and unvested deferred shares will be forfeited.

Termination on Notice by ANZANZ may terminate the executive’s 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 any Options or LTI Deferred Shares that have vested, or will vest during thenotice period will be released, in accordance with the ANZ Share Option Plan Rules. LTI shares that have not yet
vested will generally be forfeited, although for some executives (B Hartzer and P Marriott) these shares will be
released in full. Deferred shares granted under STI arrangements will vest in full for all executives.
There is discretion to pay short-term incentives on a pro-rata basis (depending on termination date and subject
to business performance).

Redundancy

If ANZ terminates employment for reasons of bona fide redundancy, a severance payment will be made thatis equal to 12 months’ Fixed Remuneration.
All STI Deferred Shares are released. All Options are released on a pro-rata basis. All LTI Deferred Shares are
released on a pro-rata basis.
There is discretion to pay short-term incentives on a pro-rata basis (depending on termination date andsubject to business performance).

Death or Total andPermanent Disablement

All Options and Shares are released; pro-rata short-term incentive.

Termination forserious misconduct

ANZ may immediately terminate the executive’s employment at any time in the case of serious misconduct, andthe employee will only be entitled to payment of Fixed Remuneration up to the date of termination. Payment of
statutory entitlements of long service leave and annual leave applies in all events of separation.
On termination for serious misconduct any Options and any Deferred Shares still held in trust will be forfeited.

Other Aspects

As part of A Thursby’s employment arrangement and to compensate for equity foregone from his previous
employer, A Thursby has been offered 3 separate tranches of Deferred Shares to the value of $1,000,000
per annum, subject to Board approval. The first tranche was approved by the Board on 3 September 2007,
with the second and third tranches to be approved around the first and second anniversary of A Thursby’s
employment with ANZ. The Shares will be restricted and held in trust for three years from the date ofallocation for the beneficial interest of A Thursby, during which period they will be forfeited if employment
ceases for any reason other than retrenchment, death or total and permanent disablement, and that for
the whole period that the Shares remain in trust (including any further period) they will be forfeited for any
serious misconduct.

E2. PARTICIPATION IN EQUITY PROGRAMS
A number of Shares and Options are granted to executives under the remuneration programs detailed in Section C. For disclosed executives,
details of all grants made during the year and legacy LTI programs are listed in Section F. Aggregate holdings of Shares and Options are also
shown.

Remuneration Report 25

Section F. Equity instruments relating to disclosed directors and executives
F1. SHAREHOLDINGS OF NON-EXECUTIVE DIRECTORS (INCLUDING MOVEMENTS DURING THE 2006 & 2007 YEARS)

NameBalance ofshares as at
1 Oct
20061

Sharesacquired during
the year in lieu
of salary2

Shares resulting
from any otherchange during
the year3

C GoodeG Clark
J EllisD Gonski
M Jackson
I Macfarlane
D Meiklejohn
J Morschel

627,028
6,920
114,81068,94893,297
–
7,156
7,422

23,799
1,654
1,194
365
–
973
–
1,654

18,669–17(16,308)
199
2,000
–
–

Name

Balance ofshares as at
1 Oct
20051

Sharesacquired during
the year in lieu
of salary2

Shares resulting
from any otherchange during
the year3

C GoodeG Clark
R DeaneJ EllisD Gonski
M Jackson
D Meiklejohn
J Morschel

535,637
5,000
75,364
91,19654,90493,2975,156
5,502

26,046
1,920
–
1,614
2,534
–
–
1,920

65,345––22,00011,510–2,000–

2007 Financial Year2006 Financial Year

Balance ofshares held as
at 30 Sept
20071,4Balance ofshares held as
at reportsign-off date1

669,496
8,574
116,02153,00593,496
2,973
7,156
9,076

669,496
10,479125,159
53,005
95,673
4,574
7,156
10,677

Balance ofshares held as
at 30 Sept
20061,5

Balance ofshares held as
at reportsign-off date1

627,028
6,920
75,364
114,81068,94893,2977,156
7,422

648,0038,501
75,364
115,951
68,94893,2977,156
9,003

1 Balance of shares held at 1 October 2005/2006, 30 September 2006/2007, 1 November 2006 and 7 November 2007, includes directly held shares, nominally held shares and shares
held by related parties.
2 All shares acquired in lieu of salary were done so under the Directors’ Share Plan (refer to section B3 of this Remuneration Report for an overview of the Directors’ Share Plan).
3 Other shares resulting from any other changes during the year include the net result of any shares purchased/sold or acquired under the Dividend Reinvestment Plan.
4 The following shares were nominally held as at 30 September 2007: C Goode – 354,910; G Clark – 8,574; J Ellis – 49,092; D Gonski – 66,076; M Jackson – 10,831; I Macfarlane – 2,973;
D Meiklejohn – 4,656; J Morschel – 5,076.
5 The following shares were nominally held as at 30 September 2006: C Goode – 408,553; G Clark – 1,920; R Deane – 73,000; J Ellis – 47,898; D Gonski – 66,076; M Jackson – 10,632;
D Meiklejohn – 4,656; J Morschel – 3,422.

F2. SHAREHOLDINGS OF CEO, J MCFARLANE (INCLUDING MOVEMENTS DURING THE 2006 & 2007 YEARS)
Balance ofshares as
at 1 Oct
2005/2006 1

Shares acquired
during the year
in lieu of salary2

Shares acquired
during the year
through the exercise
of options3

Shares resulting
from any otherchange during
the year4

Balance ofshares held as
at 30 Sept
2006/20071,5

Balance ofshares held
as at reportsign-off date1,6

2007

1,973,422

52,581750,000(2,091,569)

684,434

509,434

2006

1,819,715

81,1182,000,000(1,927,411)

1,973,422

2,074,993

1 Balance of shares held at 1 October 2005/2006, 30 September 2006/2007, 1 November 2006 and 7 November 2007 includes directly held shares, nominally held shares and shares
held by related parties.
2 All shares acquired in lieu of salary were done so under the Directors’ Share Plan (refer to section B3 of this Remuneration Report for an overview of the Directors’ Share Plan).
3 All options held/exercised by the CEO have been approved by shareholders (December 1999 and December 2001).
4 Other shares resulting from any other changes during the 2006 / 2007 years include the net result of any shares purchased, sold, or acquired under the Dividend Reinvestment Plan.
For 2006, it also includes those shares received on 31 October 2005 in regards to the 2005 incentive (for the period ending 30 September 2005)
5 1,486,294 shares were held nominally as at 30 September 2006 and 311,249 shares as at 30 September 2007.
6 The relinquishment of the CEO’s Performance Shares (175,000) has been factored into this balance. Refer to section D1.3 for further details.

26 ANZ Annual Report 2007

F3. OPTIONS GRANTED TO CEO, J McFARLANE1
Financial Year

Type ofoptions

Hurdled A
Hurdled A
Hurdled A
Hurdled A2
Total

2006

2007

Grant date

First date
exercisable

Date ofexpiryExercise
price3$31-Dec-01
31-Dec-02
31-Dec-03
31-Dec-04

31-Dec-03
31-Dec-04
31-Dec-05
31-Dec-06

31-Dec-07
31-Dec-07
31-Dec-08
31-Dec-08

16.80
16.69
17.48
20.49

Numbergranted4,5

Number vested
during the
2006/2007 FY

500,000
1,000,000
1,000,000
500,000
3,000,000––
1,000,000
500,000
1,500,000

Percentage thatvested during
the 2006/2007
FY %Vested andexercisable asat 30 Sept
2006/2007

Vested andunexercisable asat 30 Sept6
2006/2007

–
–
100
100

–
500,000––
500,000–
500,000–
250,000
750,000

1 All options granted to the CEO have been approved by shareholders (December 1999 and December 2001).
2 The fair value per option at the 31 December 2004 grant date is $1.98.
3 The exercise price is equal to the weighted average share price during the 5 trading days immediately after the Company’s Annual General Meeting for the financial year that ended before thegrant date. Note, the original exercise price of options issued prior to the Renouncable Rights issue in November 2003 have been reduced by 72 cents, because of the dilution of share capital
associated with the Renouncable Rights issue.
4 Nil options forfeited or expired during the period.
5 The amortisation balance is nil for subsequent financial years and the value will be nil if the performance hurdle on the 250,000 unexercisable options is not achieved by 31 December 2008.
6 The options have met the time vesting hurdle, however only 50% of the 1.5 million granted had passed the performance hurdle as at 30 September 2007.

F4. OPTION HOLDINGS OF CEO, J McFARLANE (INCLUDING MOVEMENTS DURING THE 2006 & 2007 YEARS)1
Value ofoptions
exercisedduring theyear2$

Share priceon date of
exercise of
options$

Amountpaid pershare$

Balance
as at
30 Sept
2006/2007

Total valueof options
granted andexercisedduring the year$

Type ofoptions

Balance as
at 1 Oct
2005/2006

Exercisedduringthe year

Date ofexercise of
options

Number ofordinaryshares issued
on exercise
of options

2007

1,000,000

300,000
200,000
250,000

20-Dec-06
31-Aug-07
31-Aug-07

300,000
200,000
250,000

3,513,000
2,398,000
2,047,500

28.40
28.68
28.68

16.69
16.69
20.49

250,000

3,513,000
2,398,000
2,047,500

3,000,000

500,000
500,000
1,000,000

03-Jul-06
04-Jul-06
31-Aug-06

500,000
500,000
1,000,000

4,955,000
5,030,000
9,730,000

26.71
26.75
27.21

16.80
16.69
17.48

1,000,000

4,955,000
5,030,000
9,730,000

Hurdled2006
Hurdled

1 All options granted to the CEO have been approved by shareholders (December 1999 and December 2001).
2 The value per option used in this calculation is based on the difference between the volume weighted average price of the Company’s shares traded on the ASX on the day the options were
exercised, and the exercise price. This is then multiplied by the number granted.

Remuneration Report 27

F5. DEFERRED SHARES GRANTED TO DISCLOSED EXECUTIVES
Financial Year

2006

2007

LTI Deferred Shares

1

Name

R EdgarTotal
E Funke Kupper4

Total
B Hartzer

Total
G HodgesTotal
P Hodgson

Total
P Marriott

Total
S Targett

Grant date

Vesting date23-Oct-02
20-May-03
05-Nov-03
05-Nov-03
11-May-04
05-Nov-04
05-Nov-04

23-Oct-05
20-May-06
05-Nov-06
05-Nov-06
11-May-07
05-Nov-07
05-Nov-07

23-Oct-02
20-May-03
05-Nov-03
11-May-04
05-Nov-04

23-Oct-05
20-May-06
05-Nov-06
11-May-07
05-Nov-07

23-Oct-02
20-May-03
05-Nov-03
11-May-04
05-Nov-04

23-Oct-05
20-May-06
05-Nov-06
11-May-07
05-Nov-07

23-Oct-02
20-May-03
05-Nov-03
11-May-04
05-Nov-04

23-Oct-05
20-May-06
05-Nov-06
11-May-07
05-Nov-07

23-Oct-02
20-May-03
05-Nov-03
11-May-04
05-Nov-04
08-Dec-04

23-Oct-05
20-May-06
05-Nov-06
11-May-07
05-Nov-07
08-Dec-07

23-Oct-02
20-May-03
05-Nov-03
11-May-04
05-Nov-04

23-Oct-05
20-May-06
05-Nov-06
11-May-07
05-Nov-07

05-Nov-04

05-Nov-07

Numbergranted2,3

7,600
8,500
8,889
25,0008,452
6,519
26,00090,960
8,000
6,800
6,838
6,256
6,018
33,912
6,600
6,500
7,408
7,135
9,127
36,770
3,800
6,500
5,699
6,586
7,522
30,107
900
1,000
1,097
1,111
1,974
12,481
18,563
9,300
9,100
9,573
9,275
8,475
45,723
6,519

Number thatvested during
the 2006 or2007 year

Percentage thatvested during
the 2006 or2007 year
%

7,600
8,500
8,889
25,0008,452––
58,441
8,000
6,800
–
–
–
14,800
6,600
6,500
7,408
7,135
–
27,643
3,800
6,500
5,699
6,586
–
22,585
900
1,000
1,097
1,111
–
–
4,108
9,300
9,100
9,573
9,275
–
37,248
–

100
100
100
100
100
–
–
64
100
100
–
–
–
44
100
100
100
100
–
75
100
100
100
100
–
75
100
100
100
100
–
–
22
100
100
100
100
–
81
–

1 LTI deferred shares were last granted under the ANZ Long-Term Incentive Program in the 2005 year, and therefore were not granted in the 2006 or 2007 years. LTI is now delivered in the formof Performance Rights (refer to section C4.2). The LTI deferred shares are restricted for 3 years and may be held in trust beyond this time. Refer to section F10.2 for more details.
2 Nil shares forfeited during the 2007 year; 19,112 shares forfeited during the 2006 year.
3 The maximum amortisation balance for each executive for subsequent financial years is as follows: R Edgar $22,130; B Hartzer $6,211; G Hodges $5,119; P Hodgson $16,996;
P Marriott $5,768; S Targett nil.
4 E Funke Kupper forfeited unvested deferred shares on resignation.

28 ANZ Annual Report 2007

F5. DEFERRED SHARES GRANTED TO DISCLOSED EXECUTIVES (CONTINUED)
Financial Year

2006

2007

Numbergranted2

Number thatvested during
the 2006 or2007 year

Percentage thatvested during
the 2006 or2007 year
%

6,423
5,622
6,781
7,683
26,509
8,554
4,148
7,636
7,052
27,390
4,457
1,992
7,322
7,244
21,015
4,761
4,503
5,129
5,653
20,046
8,305
4,776
7,835
9,330
4,262334,508
8,527
5,403
7,978
9,604
31,512

6,423
5,622
6,781
7,683
26,509
8,554
4,148
–
–
12,702
4,457
1,992
7,322
7,244
21,015
4,761
4,503
5,129
5,653
20,046
8,305
4,776
7,835
9,330
4,262
34,508
8,527
5,403
7,978
9,604
31,512

100
100
100
100
100
100
100
–
–
46
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100

STI Deferred Shares

1

Name

R EdgarTotal
E Funke Kupper4

Total
B Hartzer

Total
G HodgesTotal
P Hodgson

Total
P Marriott

Grant date

Vesting date23-Oct-02
20-May-03
05-Nov-03
11-May-04

23-Oct-05
20-May-06
05-Nov-06
11-May-07

23-Oct-02
20-May-03
05-Nov-03
11-May-04

23-Oct-05
20-May-06
05-Nov-06
11-May-07

23-Oct-02
20-May-03
05-Nov-03
11-May-04

23-Oct-05
20-May-06
05-Nov-06
11-May-07

23-Oct-02
20-May-03
05-Nov-03
11-May-04

23-Oct-05
20-May-06
05-Nov-06
11-May-07

23-Oct-02
20-May-03
05-Nov-03
11-May-04
05-Nov-04

23-Oct-05
20-May-06
05-Nov-06
11-May-07
05-Nov-05

23-Oct-02
20-May-03
05-Nov-03
11-May-04

23-Oct-05
20-May-06
05-Nov-06
11-May-07

Total

1 STI deferred shares issued were granted under a historical ANZ Short-Term Incentive Program. (STI is now delivered generally as 100% cash, therefore no STI deferred shares were granted
to the Executives during the year. Refer to section C4.1). STI deferred shares are restricted for 3 years and may be held in trust beyond this time.
2 Nil shares forfeited during the 2006 & 2007 years, and as at 30 September 2007, 100% of STI Deferred Shares have vested.
3 These STI deferred shares were granted as part of the Institutional Bonus Scheme in 2004. 20% of bonus amounts in excess of $125,000 were delivered as one year deferred shares.
4 Unvested shares were forfeited on resignation.

Other Deferred Shares
Name

S Targett1

Total
A Thursby2

Grant date

Vesting date

11-May-04
05-Nov-04
13-May-05
07-Nov-05

11-May-07
05-Nov-07
13-May-08
07-Nov-08

03-Sep-07

03-Sep-10

Numbergranted3,4

38,41935,10532,08029,838135,442
34,602

Value of deferredshares granted
during the 2006 or2007 year 5
Number that vested$
during the year–––
703,282
703,282
1,005,188

Percentage thatvested during
the year%

38,419

100

–
–
–

–
–
–

38,41928––

1 Other shares issued to S Targett relate to the issue of deferred shares (four tranches to the value of $700,000 each issued at 6 month intervals in May and November in 2004 and 2005) tocompensate S Targett for the loss of access to equity as a result of his resignation from his previous employer upon commencement with ANZ.
2 Other shares issued to A Thursby relate to the issue of deferred shares to compensate A Thursby for the loss of access to equity as a result of his resignation from his previous employer uponcommencement with ANZ.
3 Nil shares forfeited during the 2007 year; 14,688 shares forfeited during the 2006 year.
4 The maximum amortisation balance for subsequent financial years for S Targett is nil and A Thursby is $980,425.
5 The value of shares granted is based on the volume weighted average price of the Company’s shares traded on the ASX on the day the shares were granted, multiplied by the number granted.

Remuneration Report 29

F6. SHAREHOLDINGS OF DISCLOSED EXECUTIVES (INCLUDING MOVEMENTS DURING THE 2006 & 2007 YEARS)

NameBalance ofshares as at
1 Oct 2006 1

Shares granted
during the year
as remuneration

Number ofshares acquired
during the year
through exercise
of options

R Edgar
B Hartzer
G Hodges
P Hodgson
P Marriott
S TargettA Thursby

421,733
96,083
239,31953,759660,513
142,961
–

–
–
–
–
–
–
34,602

66,666269,194
42,735–
11,000153,688–(100,000)(33,185)––(98,884)(152,667)–

Name

Balance ofshares as at
1 Oct 2005 1

Shares granted
during the year
as remuneration

Number ofshares acquired
during the year
through exercise
of options

Shares resulting
from any otherchange during
the year2

R Edgar
E Funke Kupper5
B Hartzer
G Hodges
P Hodgson
P Marriott
S Targett421,733
189,892
88,638
171,91959,557
641,633
113,123

–
–
–
–
–
–
29,838–––67,400–168,000––(89,450)
7,445–(5,798)(149,120)–2007 Financial Year2006 Financial Year

Shares resulting
from any otherchange during
the year2

Balanceof shares
held as at
30 Sept 20071,3

388,399
332,092
282,054
53,759572,629
143,982
34,602
Balanceof shares
held as at
30 Sept 20061,4

421,733
100,442
96,083
239,31953,759660,513
142,961

1 Balance of shares held at 1 October 2005/2006 and 30 September 2006/2007, include directly held shares, nominally held shares and shares held by related parties.
2 Other shares resulting from any other changes during the year include the net result of any shares purchased, or sold or any acquired under the Dividend Reinvestment Plan.
3 The following shares were held nominally as at 30 September 2007: R Edgar – 213,510; B Hartzer – 78,607; G Hodges – 146,747; P Hodgson – 53,759; P Marriott – 177,930;
S Targett – 141,961; A Thursby – 34,602.
4 The following shares were held nominally as at 30 September 2006: R Edgar – 213,510; E Funke Kupper – 0; B Hartzer – 78,607; G Hodges – 104,012; P Hodgson – 53,759;
P Marriott – 177,930; S Targett – 141,961.
5 Amounts shown do not include ANZ Stapled Exchangeable Preferred Securities (ANZ StEPS). Elmer Funke Kupper held 500 ANZ StEPS up to and including 30 September 2006.
No other disclosed executives held ANZ StEPS.

F7. OPTIONS GRANTED TO DISCLOSED EXECUTIVES1
Financial Year

2006

First date
exercisable

Date ofexpiry3

Hurdled A
Hurdled A
Index Linked
Index Linked
Hurdled A
Hurdled A
Hurdled B
Performance Rights
Performance Rights

24-Oct-01
24-Apr-02
23-Oct-02
20-May-03
05-Nov-03
11-May-04
05-Nov-04
18-Nov-05
24-Oct-06

25-Oct-04
24-Apr-05
23-Oct-05
20-May-06
05-Nov-06
11-May-07
05-Nov-07
19-Nov-08
25-Oct-09

24-Oct-08
24-Apr-09
22-Oct-09
19-May-10
04-Nov-10
10-May-11
04-Nov-11
18-Nov-10
24-Oct-11

16.33
18.03
17.34
17.60
17.55
18.22
20.68
0.00
0.00

Index Linked
Index Linked
Hurdled A
Hurdled A
Hurdled B
Performance Rights

23-Oct-02
20-May-03
05-Nov-03
11-May-04
05-Nov-04
18-Nov-05

23-Oct-05 22-Oct-09
20-May-06 19-May-10
05-Nov-06 04-Nov-10
11-May-07 10-May-11
05-Nov-07 04-Nov-11
19-Nov-08 18-Nov-10

17.34
17.60
17.55
18.22
20.68
0.00

Hurdled A
Hurdled A
Hurdled A
Hurdled A
Index Linked
Index Linked
Hurdled A
Hurdled A
Hurdled B
Performance Rights
Performance Rights

24-Apr-01
24-Oct-01
24-Apr-02
24-Apr-02
23-Oct-02
20-May-03
05-Nov-03
11-May-04
05-Nov-04
18-Nov-05
24-Oct-06

24-Apr-04 24-Apr-08
24-Oct-04 24-Oct-08
24-Apr-05 24-Apr-09
24-Apr-05 24-Apr-09
23-Oct-05 22-Oct-09
20-May-06 19-May-10
05-Nov-06 04-Nov-10
11-May-07 10-May-11
05-Nov-07 04-Nov-11
19-Nov-08 18-Nov-10
25-Oct-09 24-Oct-11

12.98
16.33
18.03
18.03
17.34
17.60
17.55
18.22
20.68
0.00
0.00

Name

Total
B Hartzer

Exercise
price4,5
$

Grant
date

Type ofoptions2

R EdgarTotal
E Funke Kupper8

2007

Total

30 ANZ Annual Report 2007

Numbergranted6,7

34,00041,000125,000
147,000
66,666
63,11552,00060,34645,872634,999
131,000
119,000
51,282
46,72248,00045,518441,52242,00036,00059,00050,000109,000
113,000
55,55553,27972,80064,65664,985720,275

Numbervestedduring the2006 or2007 year

Percentage thatvested during
the 2006 or2007 year%––
125,000
147,000
66,666
63,115–––
401,781
131,000
119,000––––
250,000––––
109,000
113,000
55,55553,279–––330,834

–
–
100
100
100
100
–
–
–
63
100
100
–
–
–
–
57
–
–
–
–
100
100
100
100
–
–
–
46

Vested andexercisable
as at 30 Sept2006 or 2007–––
31,557–––31,557
–
–
–
–
–
–
–
42,00036,00059,00050,000
–
–
–
–
–
–
–
187,000

F7. OPTIONS GRANTED TO DISCLOSED EXECUTIVES1 (CONTINUED)
Financial YearName

G HodgesTotal
P Hodgson

Total
P Marriott

Total
9
S Targett

Total
1
2
3
4
5
6
7
8
9

2006

2007

Type ofoptions2

Grant
date

First date
exercisable

Date ofexpiry3

Exercise
price4,5$

Hurdled A
Hurdled A
Index Linked
Index Linked
Hurdled A
Hurdled A
Hurdled B
Performance Rights
Performance Rights

24-Apr-02
24-Apr-02
23-Oct-02
20-May-03
05-Nov-03
11-May-04
05-Nov-04
18-Nov-05
24-Oct-06

24-Apr-05 24-Apr-09
24-Apr-05 24-Apr-09
23-Oct-05 22-Oct-09
20-May-06 19-May-10
05-Nov-06 04-Nov-10
11-May-07 10-May-11
05-Nov-07 04-Nov-11
19-Nov-08 18-Nov-10
25-Oct-09 24-Oct-11

18.03
18.03
17.34
17.60
17.55
18.22
20.68
0.00
0.00

Hurdled A
Hurdled A
Index Linked
Index Linked
Hurdled A
Hurdled A
Hurdled B
Performance Rights
Performance Rights

24-Oct-01
24-Apr-02
23-Oct-02
20-May-03
05-Nov-03
11-May-04
05-Nov-04
18-Nov-05
24-Oct-06

24-Oct-04
24-Apr-05
23-Oct-05
20-May-06
05-Nov-06
11-May-07
05-Nov-07
19-Nov-08
25-Oct-09

24-Oct-08
24-Apr-09
22-Oct-09
19-May-10
04-Nov-10
10-May-11
04-Nov-11
18-Nov-10
24-Oct-11

16.33
18.03
17.34
17.60
17.55
18.22
20.68
0.00
0.00

Hurdled A
Hurdled A
Hurdled A
Hurdled A
Index Linked
Index Linked
Hurdled A
Hurdled A
Hurdled B
Performance Rights
Performance Rights

23-Feb-00
21-Nov-00
24-Oct-01
24-Apr-02
23-Oct-02
20-May-03
05-Nov-03
11-May-04
05-Nov-04
18-Nov-05
24-Oct-06

23-Feb-03
21-Nov-03
24-Oct-04
24-Apr-05
23-Oct-05
20-May-06
05-Nov-06
11-May-07
05-Nov-07
19-Nov-08
25-Oct-09

23-Feb-07
21-Nov-07
24-Oct-08
24-Apr-09
22-Oct-09
19-May-10
04-Nov-10
10-May-11
04-Nov-11
18-Nov-10
24-Oct-11

9.39
13.62
16.33
18.03
17.34
17.60
17.55
18.22
20.68
0.00
0.00

Hurdled A
Hurdled B
Performance Rights
Performance Rights

11-May-04
05-Nov-04
18-Nov-05
24-Oct-06

11-May-07 10-May-11
05-Nov-07 04-Nov-11
19-Nov-08 18-Nov-10
25-Oct-09 24-Oct-11

18.22
20.68
0.00
0.00

Numbergranted6,7

17,40050,00063,000113,000
42,73549,18160,00060,34657,340513,002
9,000
9,600
14,70017,2008,221
8,300
15,75051,72545,872
180,368
25,000170,000
73,00070,000153,000
158,000
71,794
69,26367,60062,501
57,340977,498
307,377
52,00064,65757,340481,374

Numbervestedduring the2006 or2007 year

Percentage thatvested during
the 2006 or2007 year%

Vested andexercisable
as at 30 Sept2006 or 2007––
63,000113,000
42,73549,181–––
267,916––
14,70017,200
8,221
8,300
–
–
–
48,421––––
153,000
158,000
71,794
69,263–––452,057
307,377–––
307,377

–
–
100
100
100
100
–
–
–
52
–
–
100
100
100
100
–
–
–
27
–
–
–
–
100
100
100
100
–
–
–
46
100
–
–
–
64

–
–
–
–
–
24,590–––24,590
9,000
9,600
–
–
8,221
4,150
–
–
–
30,971–
170,000––––
71,794
34,631–––
276,425–––––

Options granted pertains to those options granted, vested or exercised during the year, options yet to vest and any unexercised options.
Refer to section F10.1 for more details pertaining to hurdled A, hurdled B and index linked options.
Treatment of options on termination of employment is explained in section E of the Remuneration Report.
The exercise price for hurdled A & B options and index linked options is equal to the weighted average share price over the 5 trading days up to and including the grant date. The exercise pricefor performance rights is nil. Note, the original exercise price of options issued prior to the Renouncable Rights issue in November 2003 have been reduced by 72 cents, because of the dilutionof share capital associated with the Renouncable Rights issue. Given index-linked options have a dynamic exercise price, the original exercise price is shown in F7 (refer to F10.1 for more details).
Refer to section F9 for details of the valuation methodology and inputs for performance rights granted in 2006 and 2007.
For the 2007 report, Performance Rights were granted on 30 October 2007 (before the report sign-off date). The allocation price was $12.96 with an expiry date of 5 years from the date of
grant. The number of Performance Rights granted to each disclosed executive is as follows: R Edgar 19,290; B Hartzer 65,586; G Hodges 57,870; P Hodgson 57,870; P Marriott 57,870;
A Thursby 46,296. These amounts relate to the 2008 financial year.
The maximum amortisation balance for each executive for subsequent financial years is as follows: R Edgar $684,141; B Hartzer $877,162; G Hodges $788,172; P Hodgson $643,108;
P Marriott $798,309; S Targett $806,544. The value will be nil however, if the minimum performance hurdles are not achieved.
E Funke Kupper forfeited unvested options on resignation.
S Targett was granted Hurdled Options to compensate for the loss of equity from his previous employer.

Remuneration Report 31

F8. OPTION HOLDINGS OF DISCLOSED EXECUTIVES (INCLUDING MOVEMENTS DURING THE 2006 & 2007 YEARS)
2007 Financial Year
Name

Type ofoptions

Balance as at
1 Oct 2006

Granted during
the year as
remuneration

Resulting fromany other change
during year

Value of options
granted during
the year1$

Exercised during
the year

R EdgarHurdledIndex-Linked
Performance Rights

181,781
272,000
60,346––45,872–––––600,006

B Hartzer

Hurdled368,634–––

Index-Linked
Performance Rights–
64,985–––850,004––
57,340–––––750,007

66,666––42,00036,00059,00050,00055,555
26,639––42,735––––45,872–––––600,006–––––
57,340
–

–
–
–
–

–
–
750,007–

G Hodges

HurdledIndex-Linked
Performance Rights

P Hodgson

HurdledIndex-Linked
Performance Rights

P Marriott

HurdledIndex-Linked
Performance Rights
Other3222,000
64,656
151,916
176,000
60,34650,871
31,90051,725
378,657
311,000
62,501
11,442

S Targett

Hurdled
Performance Rights

359,377
64,657–57,340–––750,007

–
–
–
5,000
5,000
1,000
153,688–

Balance as at
1 Oct 2005

Granted during
the year as
remuneration

Resulting fromany other change
during year5

Value of options
granted during
the year1$

Exercised during
the year

HurdledIndex-Linked
Performance Rights
HurdledIndex-Linked
Performance Rights
HurdledIndex-Linked
Performance Rights
Hurdled181,781
272,000–
146,004
250,000–
368,634
222,000–
219,316––
60,346––45,518––64,656––––(146,004)(250,000)(45,518)
–
–
–
–

–
–
702,427––
529,830––
752,596–

Index-Linked
Performance Rights
HurdledIndex-Linked
Performance Rights
Hurdled

176,000–
50,871
31,900–546,657–
60,346––
51,725
–

–
–
–
–
–
–

–
702,427––
602,079–

Index-Linked
Performance Rights
Other3
Hurdled
Performance Rights

311,000–
11,442359,377––
62,501––64,657

–
–
–
–
–

–
727,512––752,607

2006 Financial YearName

R Edgar

E Funke Kupper

B Hartzer

G Hodges

P Hodgson

P Marriott

S TargettType ofoptions

–
–
–
–
–
–
–
–
–
17,40050,000–––––25,00073,00070,000–––––

1 The value of options granted during the year is based on the fair value of the option multiplied by the number granted. Refer to section F9 for details of the valuation methodology and inputs.
2 The value per option used in this calculation is based on the difference between the volume weighted average price of the Company’s shares traded on the ASX on the day the options were
exercised, and the exercise price. This is then multiplied by the number granted.
3 Other refers to share options granted to a related party. 11,000 of these options were vested and exercisable as at 30 September 2006 and 442 at 30 September 2007.

32 ANZ Annual Report 2007

Date of exercise
of options

Number of ordinary
shares issued on
exercise of options

Value of options
exercised during
the year2$

Share price ondate of exercise
of options$

15-Nov-06––
16-May-07
16-May-07
16-May-07
16-May-07
16-May-07
16-May-07––
14-Nov-06
–
–
–
–
–
–
–
–
17-May-07
17-May-07
17-May-07
11-May-07–

66,666––42,00036,00059,00050,00055,555
26,639––42,735
–
–
–
–
–
–
–
–
5,000
5,000
1,000
153,688–765,326––
693,000
473,400
675,550
572,500
662,771299,955––
488,461
–
–
–
–
–
–
–
–
93,00077,45016,7101,887,289
–

29.03
–
–
29.48
29.48
29.48
29.48
29.48
29.48
–
–
28.98
–
–
–
–
–
–
–
–
29.69
29.69
29.69
30.50
–

17.55
–
–
12.98
16.33
18.03
18.03
17.55
18.22
–
–
17.55
–
–
–
–
–
–
–
–
11.09
14.20
12.98
18.22
–

Date of exercise
of options

Number of ordinary
shares issued on
exercise of options

Value of options
exercised during
the year2$

Share price ondate of exercise
of options$

Amount paid
per share
$

–
–
–
–
–
–
–
–
–
17-May-06
17-May-06–––––
10-Nov-05
11-Nov-05
11-Nov-05
–
–
–
–
–

–
–
–
–
–
–
–
–
–
17,40050,000–––––25,00073,00070,000
–
–
–
–
–

–
–
–
–
–
–
–
–
–
158,166454,500–––––
342,000
511,730
371,700
–
–
–
–
–

–
–
–
–
–
–
–
–
–
27.12
27.12
–
–
–
–
–
23.07
23.34
23.34
–
–
–
–
–

–
–
–
–
–
–
–
–
–
18.03
18.03
–
–
–
–
–
9.39
16.33
18.03
–
–
–
–
–

Amount paid
per share$

Balance as at
30 Sept 20074

115,115
272,000
106,218
99,440222,000
129,641
109,181
176,000
117,686
50,871
31,90097,597
378,657
311,000
119,841442

205,689
121,997

Balance as at
30 Sept 20066

181,781
272,000
60,346–––368,634
222,000
64,656
151,916
176,000
60,34650,871
31,90051,725
378,657
311,000
62,501
11,442359,377
64,657

4 Aggregate value of options exercised, granted and forfeited during the 2007 year for each disclosed executive is as follows: R Edgar $1,365,332;
B Hartzer $4,227,180; G Hodges $1,238,468; P Hodgson $600,006; P Marriott $937,167; S Targett $2,637,296.
5 Refers to forfeiture of options upon resignation for E Funke Kupper. Value of options on forfeiture was $2,229,912.
6 Aggregate value of options exercised, granted and forfeited during the 2006 year for each disclosed executive is as follows: R Edgar – $702,427;
E Funke Kupper – $2,229,912; B Hartzer – $752,596; G Hodges – $1,315,093; P Hodgson – $602,079; P Marriott – $1,952,942; S Targett – $752,607.

Remuneration Report 33

F9. OPTION VALUATIONS

Option type

Performance Rights
Performance Rights

Grant date

Optionvalue1$

Exercise price(5 day VWAP)$

Share priceat grant$

ANZ
expected
volatility2%

Optionterm(years)Vesting
period(years)Expected
life(years)Expected
dividend
yield3%

Risk freeinterest
rate4%

18-Nov-05
24-Oct-06

11.64
13.08

–
–

24.05
28.15

15.00
15.00

5
5

3
3

4
4

5.00
4.80

5.31
6.00

1 PricewaterhouseCoopers and Mercer Finance & Risk Consulting independently valued these options. In accordance with AASB 2 the valuation model takes into account a range of factors todetermine the value of a Performance Right such as the life of the Rights, the probability of vesting, the price of the underlying shares at grant, expected volatility of the share price and thedividends expected on the shares.
2 Expected volatility represents a measure of the amount by which ANZ’s share price is expected to fluctuate over the life of the options. The measure of volatility used in the model is theannualised 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 averageannualised volatility is then used to estimate a reasonable expected volatility over the expected life of the options.
3 In estimating the fair value of the ANZ option grant, expected dividends were included in the application of the model. The expected dividend yield applied to the model was based on an
analysis of ANZ’s historical dividend payments and yields.
4 The risk-free interest rate is based on the implied yield currently available on zero-coupon bonds issued by the Australian government, with a remaining term equal to the expected life of
ANZ’s options.

F10. LEGACY LONG TERM
INCENTIVE (LTI) PROGRAMS
F10.1 Options (Granted prior to
October 2005)
Each option has the following features:
An exercise price (or for index-linked
options, the original exercise price) thatis set equal to the weighted average saleprice of all fully paid ordinary shares in the
Company sold on the Australian Securities
Exchange during the 1 week prior to andincluding the date of grant;
A maximum life of 7 years and an exercise
period that commences 3 years after thedate of grant, subject to performance hurdles
being met. Options are re-tested monthly(if required) after the commencement of theexercise period;
Upon exercise, each option entitles theoption-holder to one ordinary share;
In case of resignation or termination on
notice or dismissal for misconduct: options
are forfeited;

Hurdled Options (Hurdled B) (Granted
November 2004)
In November 2004 hurdled options were
granted with a relative TSR performance
hurdle attached.
The proportion of options that become
exercisable will depend upon the TSR
achieved by ANZ relative to the companies
in the comparator group shown below.
Performance equal to the median TSR of
the comparator group will result in half theoptions becoming exercisable. Performance
above median will result in further options
becoming exercisable, increasing on astraight-line basis until all of the options
become exercisable where ANZ’s TSR is
at or above the 75th percentile in thecomparator group.
Comparator GroupAMP Limited
AXA Asia Pacific Holdings Limited
Commonwealth Bank of Australia
Insurance Australia Group Limited
Macquarie Bank Limited

In case of redundancy: options are prorated and a grace period is provided in which
to exercise the remaining options (withhurdles waived, if applicable);

National Australia Bank Limited

In case of retirement, death or total &permanent disablement: a grace period isprovided in which to exercise all options(with hurdles waived, if applicable); andWestpac Banking Corporation

Performance hurdles, which are explained
below for each type of option.

34 ANZ Annual Report 2007

QBE Insurance Group Limited
St George Bank Limited
Suncorp-Metway Limited

Hurdled Options (Hurdled A) (Granted to
Executives from February 2000 until July
2002, and from November 2003 until May
2004. Granted to CEO from December 2001
until December 2004)
Until May 2004, hurdled options were granted
to executives with the following performance
hurdles attached. The following performance

hurdles also pertain to the options granted
to the CEO during the year:
1. Half the options may only be exercised
once ANZ’s TSR exceeds the percentagechange in the S&P/ASX 200 Banks (Industry
Group) Accumulation Index, measured overthe same period (since issue) and calculated
as at the last trading day of any month (oncethe exercise period has commenced); and2. The other half of hurdled options may
only be exercised once the ANZ TSR exceeds
the percentage change in the S&P/ASX 100
Accumulation Index, measured over the same
period (since issue) and calculated as at
the last trading day of any month (once theexercise period has commenced).
Index-linked options (Granted from October
2002 to May 2003)
Index-linked options have a dynamic
exercise price that acts as a built-in
performance hurdle, i.e. the exercise priceis adjusted in line with the movement in
the S&P/ASX 200 Banks (Industry Group)
Accumulation Index (excluding ANZ). As an
additional constraint, the adjusted exercise
price can only be set at or above the original
exercise price. They are exercisable between
the 3rd and 7th year after grant date, subject
to the adjusted exercise price being above
the prevailing share price.

F10.2 Deferred Shares (Granted fromFebruary 2000)
Deferred Shares granted under the LTI
arrangements were designed to reward
executives for superior growth whilst also
encouraging executive retention and anincrease in the Company’s share price.
Shares are subject to a time-based vesting
hurdle of 3 years, during which time they areheld in trust;During the deferral period, the employee isentitled to any dividends paid on the shares;
Shares issued under this plan may be heldin trust for up to 10 years;
The value used to determine the number of
LTI deferred shares to be allocated has been
based on the volume weighted average priceof the shares traded on the ASX in the weekleading up to and including the date of issue;

No dividends will be payable on the shares
until they vest, with the earliest possible
vesting date being 31 December 2006.
Comparator GroupAMP Limited
AXA Asia Pacific Holdings Limited
Commonwealth Bank of Australia
Insurance Australia Group Limited
Macquarie Bank Limited
National Australia Bank Limited
QBE Insurance Group Limited
St George Bank Limited
Suncorp-Metway Limited
Westpac Banking Corporation

In case of retirement, death or total &permanent disablement: LTI shares are
released to executives.

In December 2004 Performance Shares were
granted to the CEO of ANZ with a relative TSR
performance hurdle attached. The proportionof shares that vest will depend upon the TSR
achieved by ANZ relative to the companies
in the comparator group shown below.
Performance equal to the median TSR of
the comparator group will result in half the
Performance Shares becoming exercisable.
Performance above median will result infurther Performance Shares becoming
exercisable, increasing on a straight-line basis
until all of the Performance Shares become
exercisable where ANZ’s TSR is at or above
the 75th percentile in the comparator group.

I declare that, to the best of my knowledge
and belief, in relation to the audit for thefinancial year ended 30 September 2007
there have been:i) no contraventions of the auditor
independence requirements as set out in the
Corporations Act 2001 in relation to the audit;
and

KPMG
Melbourne

In case of redundancy: the number of
LTI shares that are released is pro-rated
according to the time held as a proportionof the vesting period; andF10.3 Performance Shares (Granted
December 2004 to CEO)

Lead Auditor’s Independence Declaration
under Section 307C of the Corporations
Act 2001
To: the directors of Australia and New Zealand
Banking Group Limitedii) no contraventions of any applicable code ofprofessional conduct in relation to the audit.

In case of resignation or termination on
notice or dismissal for misconduct: LTI sharesare forfeited;

Deferred Shares no longer form part ofthe executive remuneration program
detailed in section C, however there may
be circumstances (such as retention) where
this type of equity (including Deferred Share
Rights) will be issued.

COPY OF THE AUDITOR’S INDEPENDENCE
DECLARATION

Michelle Hinchliffe
Partner
7 November 2007

Signed in accordance with a resolutionof the directors

Charles Goode
ChairmanMichael R P Smith
Director
7 November 2007

Remuneration Report 35

CORPORATE GOVERNANCEA SOLID FOUNDATION AT ANZThis report sets out ANZ’s annual statement on its corporate governance framework. Further details and copies/summaries
of relevant documents are contained on anz.com > about ANZ > Corporate Governance, including how ANZ has applied the
ASX Governance Principles (see below).

ANZ’s Board is responsible to shareholders
for the strategic guidance and oversightof the Company as set out in its publicly
available Charter. The Board recognises its
overriding responsibility to act honestly,
fairly, and diligently, in accordance withthe law, in building sustainable value forshareholders while acknowledging ANZ’sshareholders, people, customers andthe communities in which it operates asimportant stakeholders in an integrated
and responsible approach to business.
Corporate governance is an important
issue for ANZ and so receives close
scrutiny from the Governance Committee
which reports regularly to the Board. The
Board considers that a comprehensive
corporate governance framework provides
ANZ with a strong commercial advantage– it enables the Board and ANZ to achieve
ethical and stewardship obligations andat the same time facilitates the making ofeffective and timely decisions.
In relation to governance, the Board seeks to:embrace principles and practices
it considers to be best practiceinternationally;be an ‘early adopter’, where possible,
by complying before a published law orrecommendation takes effect; andtake an active role in discussions
regarding the development of corporate
governance best practice and associatedregulation in Australia and overseas.

COMPLIANCE WITH CORPORATE
GOVERNANCE CODESANZ has equity securities listed on theAustralian (ASX) and New Zealand (NZX)
Securities Exchanges and has debt
securities listed on these and otheroverseas Securities Exchanges. As such,
ANZ must comply with a range of listing andcorporate governance requirements fromboth Australia and overseas.

36 ANZ Annual Report 2007

AUSTRALIA
As a company listed on the ASX, ANZ isrequired to disclose how it has applied
the Recommendations contained within
the ASX Corporate Governance Council’s
Principles of Good Corporate Governanceand Best Practice Recommendations (ASX
Governance Principles) during the financial
year, explaining any departures fromthem. In August 2007, the ASX Corporate
Governance Council issued a revised versionof the ASX Governance Principles which
will be effective in respect of ANZ’s 2009
reporting period.
ANZ actively contributed to thedevelopment of the revised ASX GovernancePrinciples and is supportive of the “ifnot, why not” disclosure approach to
governance enshrined within both thecurrent and revised ASX GovernancePrinciples. ANZ has complied with eachof the Recommendations contained
within the current ASX GovernancePrinciples throughout the financial year,
and also complies with each of the
Recommendations contained within therevised ASX Governance Principles.

NEW ZEALAND
As an overseas listed issuer on the NZX,ANZ is deemed to comply with the NZX
Listing Rules provided that it remains listedon the ASX, complies with the ASX listing
rules and provides the NZX with all theinformation and notices that it provides
to the ASX. ANZ has complied with theserequirements during the financial year.
The ASX Governance Principles differ fromthe NZX’s corporate governance rules
and the principles of the NZX’s Corporate
Governance Best Practice Code. Moreinformation about the corporate governancerules and principles of the ASX can be foundat www.asx.com and, in respect of the NZX,
at www.nzx.com.

Irrespective of any differences, ANZ
complies with all applicable governanceprinciples and requirements both inAustralia and New Zealand.

OTHER JURISDICTIONS
United States of America – ANZ delisted its
American Depositary Receipts from the New
York Stock Exchange (NYSE) in July 2007,
and subsequently deregistered from the
US Securities and Exchange Commission.
As a result, ANZ is no longer required tocomply with certain corporate governancerequirements contained in US securities
laws, including applicable sections of the
Sarbanes-Oxley Act of 2002 and applicable
NYSE Listing Standards. While these steps
were taken to reduce administrative burdensand costs, ANZ continues to be committed
to best practice in preparing its financial
statements. ANZ will maintain the strong
control and financial goverance frameworks
established under Sarbanes-Oxley
compliance, tailoring them to the Group’s
specific processes and procedures.
ANZ also monitors best practicedevelopments in corporate governanceacross other relevant jurisdictions including
the US.

WEBSITE
Full details of the location of the referencesin this statement (and elsewhere in the
Annual Report) which specifically set out
how ANZ applies each Recommendationof both the current and revised ASX
Governance Principles are contained on
www.anz.com > about ANZ > Corporate
Governance.
This section of ANZ’s website also contains
copies of all the charters and summaries
of many of the documents and policies
mentioned in this report, as well assummaries of other ANZ policies of interestto shareholders and stakeholders. The
website is regularly updated to ensure
it reflects ANZ’s most recent corporate
governance information.

DIRECTORSMr C B Goode, AC

Chairman, Independent Non-Executive Director

B COM (HONS), MBA, HON LLD (MELB), HON LLD (MONASH)

Current Directorships
Chairman: Australian United Investment
Company Limited (Director from 1990),
Diversified United Investment Limited(Director from 1991), and The Ian Potter
Foundation Ltd (Director from 1987).
Member: International Council of the
Asia Society (from 2000), Asia Society
Australasia Centre (from 2003), AsiaLink
Council (from 2002) and The Global
Foundation (from 1999).

Non-executive director since July 1991.
Mr Goode was appointed Chairman inAugust 1995 and is an ex-officio memberof all Board Committees.
Skills, experience and expertise
Mr Goode has a background in the financeand resources industries and has been aprofessional non-executive director since1989. Mr Goode brings a wide range of skills
and significant experience of the financeindustry to his role as Chairman of the Board.

Mr M R P Smith, OBE

Chief Executive Officer, Executive Director

BSC (HONS)

Mr Smith joined the HSBC Group in 1978and during his international career he has
held a wide variety of roles in Commercial,
Institutional and Investment Banking,
Planning and Strategy, Operations andGeneral Management.

Chief Executive Officer since 1 October 2007.
Skills, experience and expertise
Mr Smith is an international banker with 29
years experience in 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 ofCommercial Banking for the HSBC Group andChairman, HSBC Bank Malaysia Berhad.
Previously, Mr Smith was Chief Executive
Officer of HSBC Argentina Holdings SA.

Current Directorships
Director: ANZ National Bank Limited(from 2007).
Member: Chongqing Mayor’s International
Economic Advisory Council (from 2006).
Fellow: The Hong Kong Management
Association (from 2005).

Former Directorships include
Former Chairman: Woodside Petroleum
Limited (Director 1988-2007, Chairman
1999-2007).
Former President: Howard Florey Instituteof Experimental Physiology and Medicine(Director 1987-2006, President 1997-2004).
Former Director: Singapore Airlines Limited(1999-2006).
Age 69. Residence Melbourne.

Former Directorships include
Former Chairman: HSBC Bank Malaysia
Berhad (2004-2007) and Hang Seng Bank
Limited (2005-2007).
Former CEO and Director: The Hong Kongand Shanghai Banking Corporation Limited(2004-2007).
Former Director: HSBC Australia Limited(2004-2007), HSBC Finance Corporation(2006-2007) and HSBC Bank (China)
Company Limited (2007).
Former Board Member: Visa International
Asia Pacific (2005-2007).
Age 51. Residence Melbourne.

Dr G J Clark

Independent Non-Executive Director, Chairman of the Technology Committee

BSC (HONS), PHD, FAPS, FTSE

Non-executive director since February 2004.
Dr Clark is a member of the GovernanceCommittee.

Space and Communications. He brings to theBoard international business experience anda distinguished career in micro-electronics,
computing and communications.

Former Directorships include
Former Director: James Hardie Industries NV(2002-2006) and Acton Semiconductor
Pty Limited (2001-2005).

Skills, experience and expertise
Dr Clark is Principal of Clark Capital Partners,a US-based firm that advises internationallyon technology and the technology market
place. Previously he held senior executive
positions in IBM, News Corporation, and Loral

Current Directorships
Chairman: GPM Classified Directories(from 2007).
Director: Babcock & Brown Capital Limited(from 2006) and KaComm Communications
Pty Ltd (from 2006).

Age 64. Residence based in New York,
United States of America but also resides
in Sydney.

Corporate Governance 37

Mr J K Ellis

Independent Non-Executive Director

MA, FAICD, HON FIE AUST, FAUS IMM,
FTSE, HON DR ENG (CQU)

Current Directorships
Chairman: Future Directions International
Pty Ltd (Director from 2003), Landcare
Australia Limited (from 2004), Golf Australia(from 2005), and the Earth Resources
Development Council (from 2006).
Chancellor: Monash University (from 1999).
Member: Pacific Road Corporate Finance
Pty Limited Advisory Board (from 2002),
The Sentient Group Advisory Council(from 2001) and Anglo American plc’s
Australian Advisory Board (from 2006).

Non-executive director since October 1995.
Mr Ellis is a member of the Audit Committee
and the Technology Committee.
Skills, experience and expertise
Mr Ellis brings to the Board his analyticalskills together with his practicalunderstanding of operational issues,
investments and acquisitions arising fromhis involvement across a range of sectors
including natural resources, manufacturing,biotechnology and education.

Former Directorships include
Former Chairman: The Broken Hill
Proprietary Company Limited (Director
1991-1999, Chairman 1997-1999), Pacifica
Group Limited (Chairman and Director
1999-2007), Black Range Minerals Limited(Chairman and Director 2000-2004),
Australia–Japan Foundation (1999-2005)
and National Occupational Health & Safety
Commission (2003-2005).
Former Director: GroPep Limited (2000-2005).
Age 70. Residence Melbourne.

Ms M A Jackson, AC

Independent Non-Executive Director, Chairman of the People Committee

BEC, MBA, HON LLD (MONASH), FAICD, FCA

Current Directorships
Chairman: Qantas Airways Limited (Director
from 1992), FlexiGroup Limited (from 2006)
and Asia Pacific Business Coalition on HIV/AIDS (from 2006).
President: Australian Volunteers International(from 2006).
Director: Billabong International Limited(from 2000), Florey Neuroscience Institutes(from 2007) and Australian Tissue
Engineering Centre (from 2006).

Non-executive director since March 1994.
Ms Jackson is a member of the Audit
Committee.
Skills, experience and expertise
A Chartered Accountant, with significant
financial expertise, Ms Jackson has broad
industrial and commercial experience
including her involvement in transportation,mining, the media, manufacturing andinsurance. This expertise coupled with her
work in health and education contribute to
her role on the Board.

Former Directorships include
Former Deputy Chairman: Southcorp Limited(Deputy Chairman and Director 2004-2005).
Former Co-Chairman: Australia NZ
Leadership Forum (2003-2006).
Former Director: John Fairfax Holdings
Limited (2003-2004) and Howard Florey
Institute of Experimental Physiology andMedicine (1998-2006).
Former Partner: Consulting Division of KPMG
Peat Marwick (1991-1992).
Age 54. Residence Melbourne.

Mr I J Macfarlane, AC

Independent Non-Executive Director, Chairman of the Governance Committee

BEC (HONS), MEC, HON DSC (SYD), HON DCOM (MELB),HON DLITT (MACQ), HON LLD (MONASH)

in Australia and internationally. He has a
deep understanding of financial markets aswell as a long involvement with Asia.

Non-executive director since February 2007.
Mr Macfarlane is a member of the Risk
Committee and the Technology 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 asignificant contribution to economic policy

38 ANZ Annual Report 2007

Current Directorships
Director: Woolworths Limited (from 2007),
Leighton Holdings Limited (from 2007), andthe Lowy Institute for International Policy(from 2004).
Member: International Advisory Board ofGoldman Sachs International (from 2007).

Former Directorships include
Former Chairman: Payments System Board(1998-2006), Australian Council of Financial
Regulators (1998-2006), and Financial
Markets Foundation for Children (1996-2006).
Former Governor: Reserve Bank of Australia(Member 1992-2006, Chairman 1996-2006).
Age 61. Residence Sydney.

Mr D E Meiklejohn

Independent Non-Executive Director, Chairman of the Audit Committee

B COM, DIP ED, FCPA, FAICD, FAIM

Current Directorships
Chairman: PaperlinX Limited (Director from1999).
Director: Coca Cola Amatil Limited (from2005) and Mirrabooka Investments Limited(from 2006).
President: Melbourne Cricket Club(Committee member from 1987).

Non-executive director since October 2004.
Mr Meiklejohn is a member of the GovernanceCommittee and the Risk Committee.
Skills, experience and expertise
Mr Meiklejohn has a strong background in
finance and accounting. He also brings to
the Board his experience across a number of
directorships of major Australian companies
spanning a range of industries.

Former Deputy Chairman: GasNet Australia
Limited (Deputy Chairman and Director
2001-2004).
Former Director: WMC Resources Limited(2002-2005) and OneSteel Limited(2000-2005). Director and Chief Financial
Officer Amcor Limited (1985-2000).
Age 65. Residence Melbourne.

Former Directorships include
Former Chairman: SPC Ardmona Limited(Chairman and Director 2002-2005).

Mr J P Morschel

Independent Non-Executive Director, Chairman of the Risk Committee

DIPQS, FAIM

Current Directorships
Director: Singapore Telecommunications
Limited (from 2001), Tenix Pty Limited (from1998) and Gifford Communications Pty
Limited (from 2000).

Non-executive director since October 2004.
Mr Morschel is a member of the People
Committee.
Skills, experience and expertise
Mr Morschel has a strong background inbanking, financial services and property andbrings the experience of being a Chairman
and Director of major Australian andinternational companies.

BOARD RESPONSIBILITY AND
DELEGATION OF AUTHORITY
The Board is chaired by an independent
non-executive Director. The roles of the
Chairman and Chief Executive Officer are
separate, and the Chief Executive Officer isthe only executive Director on the Board.

ROLE OF THE CHAIRMAN
The Chairman plays an important leadershiprole and is involved in:chairing meetings of the Board andproviding effective leadership to it;monitoring the performance of the Board(including overseeing the process) andthe mix of skills and effectiveness of
individual contributions;being a member of all principal Board
Committees;
maintaining ongoing dialogue with theChief Executive Officer and providing
appropriate mentoring and guidance; andFormer Director: Rio Tinto Plc (1998-2005),
Rio Tinto Limited (1998-2005), Westpac
Banking Corporation (1993-2001) and Lend
Lease Corporation Limited (1983-1995).
Age 64. Residence Sydney.

Former Directorships include
Former Chairman: Rinker Group Limited(Chairman and Director 2003-2007) andLeighton Holdings Limited (Chairman and
Director 2001-2004).

being a respected ambassador for
ANZ, including chairing meetings ofshareholders and dealing with key
customer, political and regulatory parties.

BOARD CHARTER
The Board Charter clearly sets out theBoard’s purpose, powers, and specificresponsibilities.
The Board is responsible for:charting the direction, strategies
and financial objectives for ANZ andmonitoring the implementation of
those policies, strategies and financial
objectives;

In addition to the above and any mattersexpressly required by law to be approved by
the Board, powers specifically reserved for
the Board include:
approval of appointment of Senior
Executives to roles leading ANZ
businesses or functions and reportingto the Chief Executive Officer;
any matters in excess of any discretions
delegated to the Chief Executive Officer
and senior management;
annual approval of the budget andstrategic plan;

monitoring compliance with regulatory
requirements, ethical standards andexternal commitments; andannual approval of the remunerationand conditions of service for any
executive Directors, direct reports to
the Chief Executive Officer and otherkey executives;appointing and reviewing the performanceof the Chief Executive Officer.

significant changes to organisational
structure;
the acquisition, establishment, disposal
or cessation of any significant business;

Corporate Governance 39

the issue of ANZ shares or other ANZequity securities;
any public statements which reflectsignificant issues of ANZ policy or
strategy; andany changes to the discretions delegatedfrom the Board.
The Board may delegate any of its powers
and responsibilities to Committees of theBoard (see pages 43 to 45).
Key 2007 financial year highlights included:
Appointment of the new Chief Executive
Officer following a global search.
Appointment of Mr I J Macfarlane as anindependent non-executive Director.
ANZ ranked the most sustainable bankglobally in the Dow Jones Sustainability
Index.
ANZ named 2007 Money magazine Bankof the Year.
Establishing a new Asia Pacific Divisionand finalising a number of international
partnerships.
Overseeing the ETrade Australiaacquisition.

BOARD MEETINGSThe Board normally meets at least 8 times
each year, including an offsite strategy meeting.
Typically at Board meetings the agenda will
include:minutes of the previous meeting, andoutstanding issues raised by Directors at
previous meetings;
the Chief Executive Officer’s report;
the Chief Financial Officer’s report;
Divisional Executive reports;
specific business proposals;
reports from Chairs of Committees whichhave met since the last Board meeting on
matters considered at those meetings; andfor review, the minutes of Committee
meetings which have occurred since thelast Board meeting.
There are two private sessions held at
the end of each Board meeting which are
chaired by the Chairman of the Board.
The first involves all Directors including
the CEO, and the second involves only the
non-executive Directors.
On a revolving basis, a Director is appointed
at each Board meeting to formally critiquethe meeting and this critique is presented at
the end of the meeting and is minuted.
40 ANZ Annual Report 2007

The Chief Financial Officer usually also
attends all Board meetings. The Senior
Managing Director, Divisional Heads andother members of Senior Management
attend Board meetings when an issue
under their areas of responsibility is being
considered or as otherwise requestedby the Board.

CEO AND DELEGATION TO
MANAGEMENT
The Board delegates to the Chief Executive
Officer, and through the Chief Executive
Officer to other senior management, theauthority and responsibility for managing
the everyday affairs of ANZ. The Board
monitors management and performanceon behalf of shareholders.
The Group Discretions Policy details thecomprehensive discretions frameworkthat applies within ANZ and to employees
appointed to operational roles ordirectorships of related entities.
The Group Discretions Policy is maintainedby the Chief Financial Officer and reviewed
annually by the Audit Committee with theoutcome of this review reported to the Board.

and community standing. If foundsuitable, and where there is a need forany new appointments, candidates arerecommended to the Board. Otherwise,
the Chairman of the Committee maintains
names of suitable candidates for succession
purposes. The Chairman of the Board is
responsible for approaching potential
candidates. During the course of the year,
this process was formalised in a new Board
Renewal and Performance Evaluation Policy.
Each new non-executive Director receives anappointment letter accompanied by:
Directors’ Handbook – The Handbook
includes information on a broad rangeof matters relating to the role of a Director,
including details of all applicable policies.
Directors’ Deed – Each Director signs
a Deed in the form approved byshareholders at the 2005 Annual
General Meeting which covers anumber of issues including indemnity,
directors’ and officers’ liability
insurance, the right to obtain independent
advice and requirements concerning
confidential information.
UNDERTAKING INDUCTION TRAINING

BOARD COMPOSITION, SELECTION
AND APPOINTMENT
The Board strives to achieve a balance ofskills, knowledge, experience, tenure andperspective among its Directors. Details
regarding the skills, experience andexpertise of each Director in office at thedate of this Annual Report can be foundon pages 37 to 39.
The Governance Committee (see page 44)
has been delegated responsibility for the
director nomination process. The Committee
regularly reviews the size and compositionof the Board and Board Committees andassesses whether there is a need for any
new non-executive Director appointments.
Nominations may be provided from time
to time to the Chairman of the GovernanceCommittee. The Committee also reviews andrecommends the process for the electionof the Chairman of the Board and reviews
succession planning for the Chairman of
the Board, making recommendations to theBoard as appropriate.
The Committee assesses potential
candidates against Board approved
selection criteria including integrity,
fitness and propriety, skills, qualifications,experience, communication capabilities

Every new Director takes part in a formal
induction program which involves theprovision of information regarding ANZ’svalues and culture, the Group’s governanceframework, the Directors’ Code of Conduct
and Director related policies, Board andCommittee policies, processes and key
issues, financial management and business
operations, and is briefed individuallyby senior management about mattersconcerning their area of responsibility.
MEETING SHARE QUALIFICATION
Non-executive Directors are required toaccumulate within 5 years of appointment,
and thereafter maintain, a holding in ANZshares that is equivalent to at least 100%of a non-executive Director’s base fee(and 200% of this fee in the case of the
Chairman).
ELECTION AT NEXT ANNUAL GENERALMEETING
Subject to the provisions of ANZ’s
Constitution and the Corporations Act
2001, the Board may appoint a person asa non-executive Director of ANZ at any time
but that person must retire, and may seek
election by shareholders, at the next Annual
General Meeting.

FIT AND PROPER
ANZ has an effective and robust frameworkin place to ensure that individuals
appointed to relevant senior positions
within the Group have the appropriate
fitness and propriety to properly discharge
their prudential responsibilities both on
appointment and throughout the course of
their appointment.
The framework, set out in ANZ’s Fit andProper Policy, addresses the requirementsof APRA’s Fit and Proper Prudential
Standard. It involves assessments being
carried out for each Director, relevant senior
executive and the external auditor prior
to a new appointment being made. These
assessments are carried out against abenchmark of documented competencies
which have been prepared for eachrole, and also involve attestations being
completed by each individual, as wellas the obtaining of evidence of material
qualifications and the carrying out of checks
such as criminal record, bankruptcy andregulatory disqualification checks.
These assessments are reviewed thereafter
on an annual basis.
The Governance Committee and the Board
have responsibility for assessing the fitness
and propriety of non-executive Directors.
The People Committee is responsible
for assessing the fitness and proprietyof the Chief Executive Officer and key
senior executives. The Audit Committee is
responsible for assessing the fitness andpropriety of the external auditor.

INDEPENDENCE AND MATERIALITY
Under ANZ’s Board Charter, the Board
must contain a majority of non-executive
Directors who satisfy ANZ’s criteria for
independence. The Board Charter sets out
independence criteria in order to establish
whether a non-executive Director may
have a relationship with ANZ which could(or could be perceived to) impede theirdecision-making.
All non-executive Directors are required to
notify the Chairman of a potential change
in their outside Board appointments.
The Chairman reviews the proposed
appointments and will consult with other
Directors as the Chairman deems appropriate.
In the 2007 financial year, the Board
conducted its annual review of criteria for
independence against international bestpractices including the ASX GovernancePrinciples, NZX and NYSE Corporate
Governance Standards, and the US
Sarbanes-Oxley Act of 2002.
ANZ’s criteria are more comprehensive thanthose set in most jurisdictions including
criteria stipulated specifically for audit
committee members. The criteria and review
process are both set out in the Corporate
Governance section of ANZ’s website.
In summary, a relationship with ANZ isregarded as material if a reasonable person
would expect there to be a real and sensible
possibility that it would influencea Director’s mind in:Interest, a Director may not exercise any
influence over the Board if a potential
conflict of interest exists. In suchcircumstances, the Director may not receive
relevant Board papers and, unless the other
Directors have resolved to the contrary, may
not be present for Board deliberations on
the subject, and may not vote on any
related Board resolutions. These matters,
should they occur, are recorded in the
Board minutes.

INDEPENDENT ADVICE

setting policy for general application
across ANZ; andIn order to assist Directors in fulfilling their
responsibilities, each Director has the right(with the prior approval of the Chairman)
to seek independent professional advice
regarding his/her responsibilities at theexpense of ANZ. In addition, the Board andeach Committee, at the expense of ANZ,
may obtain whatever professional advice
it requires to assist in its work.

generally, carrying out the performanceof his or her role as a Director.

TENURE AND RETIREMENT

making decisions on matters likely tocome regularly before the Board or its
Committees;
objectively assessing information andadvice given by management;

During 2007, the Board considered each
non-executive Director’s independence andconcluded that the independence criteria
were met by each non-executive Director.
The Board noted a corporate customer/
supplier relationship associated with one
non-executive Director as follows:
Ms Jackson is Chairman of Qantas Airways
Limited. ANZ has commercial relationships
with Qantas as a partner in the co-branded
ANZ Frequent Flyer Visa Cards, and ANZ alsoacquires travel services from Qantas.
The Board concluded that having regard
to the nature and value of the commercial
relationship and the materiality criteria
described above, Ms Jackson remains
independent.
Directors’ biographies on pages 37 to
39 and on anz.com highlight their major
associations outside of ANZ.

CONFLICTS OF INTEREST
Over and above the issue of independence,each Director has a continuing responsibility
to determine whether he or she has apotential or actual conflict of interest in
relation to any material matter which comes
before the Board. Such a situation may arise
from external associations, interests or
personal relationships.
Under the Directors Disclosure of Interest
Policy and Policy for Handling Conflicts of

ANZ’s Constitution provides that an electionof Directors must be held at each Annual
General Meeting. Each non-executive
Director must retire from office at the third
Annual General Meeting after being electedor last re-elected, and may seek re-election.
A new Director appointee must stand forelection at the first Annual General Meeting
after their appointment. These requirements
do not apply to the Chief Executive Officer,
whose appointment is a matter for the
Board.
In the opinion of the Board, the length ofservice of a non-executive Director is not an
automatic disabling criterion affecting that
Director’s independence.
It is Board policy that the majority of the
non-executive Directors will have served
less than 9 years, except in circumstancesof an even number of non-executive
Directors in which case it will be fifty percent
or more. The Board maintains that havingsome Board members with a length ofservice greater than 9 years is beneficial incomplex organisations that are subject tosignificant economic cycles.
It is also Board policy that Directors
appointed since July 1993 will, except inunusual circumstances, retire after 15 yearsof service as a Director of ANZ.
During the 2007 financial year, Mr David
Gonski (June 2007) and Mr John McFarlane(September 2007) retired from the Board as
an independent non-executive Director andCorporate Governance 41

executive Director respectively. In addition,
Mr Ian Macfarlane (February 2007) and Mr
Michael Smith (October 2007) joined theBoard as an independent non-executive
Director and executive Director respectively.

CONTINUING EDUCATIONANZ Directors take part in a range of training
and continuing education programs. In
addition to a formal induction program (seepage 40), Directors also receive a quarterly
newsletter designed to keep them abreastof matters relating to their duties andresponsibilities as Directors.
Each Committee also conducts its own
continuing education sessions from time
to time as appropriate. Internal and/or
external experts are engaged to conduct
all education sessions.
Directors also receive regular Divisional
briefings at Board meetings. These briefings
provide Directors with an insight into
each area of ANZ’s business, in particular,
performance, key issues, risks andstrategies for growth. In addition, Directors
participate in site visits from time to time
which provide them with the opportunity tomeet with staff and customers.

ACCESS TO DIRECTORSManagement is able to consult Directors as
required on a regular basis. Employees haveaccess to the Directors directly or throughthe Company Secretary. Shareholders whowish to communicate with the Directors
may direct correspondence to a particular
Director, or to the non-executive Directors
as a whole.

ROLE OF COMPANY SECRETARY
The Board is responsible for theappointment of ANZ’s Company Secretaries.
The Board has appointed three Company
Secretaries.
The Group General Counsel and Company
Secretary is normally in attendance atall Board and Committee meetings, andprepares minutes and provides legal advice
to the Board as and when required. Heworks closely with the Chairman of theGovernance Committee to develop andmaintain ANZ’s corporate governanceprinciples, and is responsible to the Boardfor the Company Secretary’s Office function.

42 ANZ Annual Report 2007

The Company Secretary is responsible forthe day-to-day operations of the Company
Secretary’s Office including lodgementswith relevant securities exchanges andother regulators, the administration ofBoard and Board Committee meetings, themanagement of dividend payments andassociated share plans, the administrationof the Group’s Australian subsidiaries andoversight of the relationship with ANZ’s
Share Registrar.
The Chief Financial Officer is also appointed
as a Company Secretary. Profiles of ANZ’s
Company Secretaries can be found in the
Directors’ Report on page 11.

PERFORMANCE EVALUATIONS
Performance evaluations covering theBoard, each non-executive Director andeach principal Board Committee areconducted annually, with the process set
out in the Board Renewal and Performance
Evaluation Policy approved by theGovernance Committee and described
below. The process and all associateddocumentation are reviewed by anindependent third party.
Details of how the performance evaluation
process is undertaken in respect of the
Chief Executive Officer (by the Board)and other key senior executives (bythe People Committee), including how
financial, operational and qualitative
measures are assessed, are set out in the
Remuneration Report commencing on page
14. Performance evaluations were carriedout on this basis in respect of the 2006/07
reporting period.

BOARD, BOARD COMMITTEESAND INDIVIDUAL DIRECTORSThe framework used to assess theperformance of Directors is based on the
expectation they are performing theirduties in a manner which should create
and continue to build sustainable value forshareholders, and in accordance with theduties and obligations imposed upon themby ANZ’s Constitution and the law.
The performance criteria take into accounteach Director’s contribution to:
the charting of direction, strategy andfinancial objectives for ANZ;
the monitoring of compliance withregulatory requirements and ethicalstandards;

the monitoring and assessing ofmanagement performance in achieving
strategies and budgets approved by
the Board;
the setting of criteria for, and evaluationof, the Chief Executive Officer’s
performance; andthe regular and continuing review of
executive succession planning andexecutive development activities.
Board, Board Committee and non-executive
Director performance evaluations are
conducted in the following ways:
Annual review – On an annual basis,
the Chairman has a one-on-one meetingwith each Director specifically addressing
the performance criteria. In addition,
they discuss the effectiveness of theBoard and related issues including theBoard’s oversight and contribution to theCompany, Board discussion (including theperformance of the non-executive Directors
and the Chairman), Board memberships,
Committees, and other relevant issues
including compliance with the Directors’
Code of Conduct. They also discuss theperformance of the Board against its
Charter and goals set for the year. A reportis provided to the Governance Committee
and the Board on the outcome of thesemeetings.
Board Committees – Board Committee
performance self-evaluations are conductedannually to review performance against theCommittee Charter and goals set for theyear. The suitability of the Charter and any
areas for improvement are also assessed.
The review and stated objectives for the
new financial year are submitted to theGovernance Committee (and to the Board in
the case of the Governance Committee).
Questionnaires – On an annual basis,each Director is also asked to complete aquestionnaire setting out their views on theroles and responsibilities of the Board, theChairman and the Directors as well as theeffectiveness and performance of the Board,
the Chairman, the Board’s Committees
and each Committee Chairman. The
questionnaires are returned to the Chairmanof the Governance Committee who presents
the findings to the Governance Committee
and the Board.

The Board also seeks input from senior
management in relation to the clarity of
the respective roles of the Board andsenior management, the effectiveness of
their relationship, the level of information
provided to the Board, and potential areasfor process improvement. This input iscollated by the Chairman of the GovernanceCommittee and reported to the GovernanceCommittee and the Board.
Re-election statement – Directors whennominating for re-election may submit
a written or oral statement to the Board
setting out the reasons why they seek
re-election. In the Director’s absence, theBoard evaluates this statement and the
Director’s performance (having regard to
the performance criteria) and resolves
whether to endorse the relevant Director’s
re-election.
Evaluations in accordance with the above
processes have been undertaken in respectof the 2006/07 reporting period.

BOARD COMMITTEES
ANZ’s Board has five principal Board
Committees: Audit Committee, GovernanceCommittee, People Committee, Risk
Committee and Technology Committee.

MEMBERSHIP AND ATTENDANCE
Each of the principal Board Committees
is comprised solely of independent
non-executive Directors, has its own
Charter and has the power to initiate
any special investigations it deems
necessary. Committee membershipis reviewed annually.

Membership criteria are based on each
Director’s skills and experience, as well as
his/her ability to add value and commit
time to the Committee.
The Chairman is an ex-officio member of
each principal Board Committee. The Chief
Executive Officer is invited to attend Board
Committee meetings as appropriate. Hispresence is not automatic, however, andhe does not attend any meeting where his
remuneration is considered or discussed,
nor does he attend private sessions ofCommittees where they meet in the absenceof management. Non-executive Directors
may attend any meeting of any Committee.
Each Board Committee may, within
the scope of its responsibilities, haveunrestricted access to management,
employees and information it considers
relevant and necessary to carrying out
its responsibilities under its Charter.
Each Board Committee may require theattendance of any ANZ officer or employee,or request the attendance of any external
party, at meetings as appropriate.

MEETINGS
The principal Board Committees plan
their annual agenda following a process
approved by the Board. The executives who
are appointed to assist the Chairman ofeach Board Committee as a group, review
the calendars of business prepared byeach Committee to identify any potential
gaps and unnecessary overlaps between
the Committees. Any issues arising fromthis are reported to, and resolved by, therelevant Committee Chairmen. The resultsof this process are then reported to theGovernance Committee to assist the Boardin fulfilling its oversight responsibilities inrespect of the delegations it has made to
the various Board Committees.
Committees report at the next Board
meeting through the Committee Chairmen.
When there is a cross-Committee item, theCommittees will communicate with eachother through their Chairmen. Throughout
the year, Committee Chairmen also conduct
agenda planning meetings involving
relevant stakeholders to take accountof emerging issues.

AUDIT COMMITTEE
The Audit Committee is responsible foroversight and monitoring of:
ANZ’s financial reporting principles andpolicies, controls and procedures;the work of Internal Audit which reports
directly and solely to the Chairman of the
Audit Committee (refer to Internal Auditon page 46 for more information);
the Audit Committees of subsidiarycompanies such as ANZ National Bank
Limited; andthe integrity of ANZ’s financial
statements, compliance with regulatory
requirements and the independent audit
thereof.
The Audit Committee is also responsible for:the appointment, evaluation andoversight of the external auditor,
including reviewing their independence
and fitness and propriety;compensation of the external auditor; andwhere appropriate, replacement of theexternal auditor.
Under the Committee Charter, all membersof the Audit Committee must be financiallyliterate.

ANZ BOARD COMMITTEE MEMBERSHIPS – from 1 October 2006 – 30 September 2007*
Audit

PeopleGovernance

Risk

Technology

Mr D E Meiklejohn C, FE

Ms M A Jackson C

Mr J P Morschel C

Dr G J Clark C

Ms M A Jackson FE

Mr I J Macfarlane(member from 1/3/2007)

Mr I J Macfarlane C(member from 1/3/2007,
Chairman from 1/7/2007)

Mr J K Ellis

Mr I J Macfarlane(member from 1/3/2007))Mr J K Ellis
Mr C B Goode (ex-officio)

Mr J P Morschel
Mr C B Goode (ex-officio)

Dr G J Clark
Mr D E Meiklejohn

Mr D E Meiklejohn
Mr C B Goode (ex-officio)

Mr C B Goode (ex-officio)

Mr C B Goode (ex-officio)
C – Chairman, FE – Financial Expert*Mr I J Macfarlane
Appointed Director on 16 February 2007.
Member of People, Governance and Technology Committees from 1 March 2007 and Chairman of Governance Committee from 1 July 2007.
*Mr D M Gonski
Chairman of Governance Committee and member of Risk Committee prior to retirement from Board on 30 June 2007.
*For Board Committee memberships as at the date of this report, please see the Directors’ biographies on pages 37 to 39.

Corporate Governance 43

Mr Meiklejohn (Chair) and Ms Jackson(member) were determined to be ‘financial
experts’ for the 2007 financial year forthe purposes of the US Sarbanes-Oxley
Act of 2002. Refer to pages 38 and 39 fortheir qualifications. While the Board has
determined that Mr Meiklejohn and Ms
Jackson have the necessary attributes tobe ‘financial experts’ within the meaningof US laws, it is important to note that they
have no responsibilities additional to thoseof other members of the Audit Committee
because of this.
The Audit Committee meets with theexternal auditor without management
being present. The Chairman of the
Audit Committee meets separately andregularly with the Group General Manager,
Internal Audit, the external auditor andmanagement.
The Group General Manager, Financehas been appointed as the executive
responsible for assisting the Chairman of
the Committee.
Key 2007 financial year highlights included:
Reviewing of reporting processes –Following transitioning to Australian
Equivalents of International Financial
Reporting Standards (AIFRS) in 2006,
the Committee has overseen further
streamlining of reporting processes toenhance the effectiveness and efficiencyof ANZ’s Finance function.
Overseeing the controls over financial
reporting – The Committee oversaw thebuilding of compliance with Section
404 of the US Sarbanes-Oxley Act(SOX) into a fully integrated financial
governance framework. This frameworkis leveraging the SOX investment andproviding ongoing assurance about theeffectiveness of internal controls overfinancial reporting.
Addressing ANZ Internal Audit staff –The Chairman of the Audit Committee
addressed ANZ Internal Audit staff aspart of the Committee’s ongoing interestin reminding internal audit staff of theimportance of internal controls overfinancial reporting and what the Audit
Committee expects from Internal Audit.

GOVERNANCE COMMITTEEThe Governance Committee is responsiblefor:
identifying and recommending
prospective Board members andsuccession planning for the positionof Chairman (see page 40);
reviewing and approving proceduresfor the oversight and evaluation of
the performance of the Board, Board
Committees and non-executive Directors(see page 42);
ensuring an appropriate Board and Board
Committee structure is in place;reviewing and approving the Charters
for each Board Committee except its
own, which is reviewed and approvedby the Board;
reviewing the development of andapproving corporate governance policies
and principles applicable to ANZ; andreviewing and approving management’s
proposed corporate responsibility
objectives and strategies for ANZ.
The Group General Counsel and Company
Secretary has been appointed as theexecutive responsible for assisting the
Chairman of the Committee.
Key 2007 financial year highlights included:
Board Composition – The Committee
proposed changes to Board composition.
Monitoring changes to domestic andoverseas legislation and regulations –The Committee received regular updates
on changes to relevant legislation andregulations and considered potential
impacts on ANZ’s customers, staff,
operations and the community. The
Committee oversaw related changes torelevant Codes, Charters, policies andprocedures.
Review and approval of the Bank’s
submission on proposed revisions to the
ASX Governance Principles.
Performance Evaluation – The Committee
approved the Board Renewal and
Performance Evaluation Policy andconducted reviews under the Policy.

PEOPLE COMMITTEE
The People Committee is responsible
for reviewing and approving the Group’s
compensation programs including any
equity-based programs, compensationlevels and policy guidelines (details in the
Remuneration Report on pages 14 to 35).

44 ANZ Annual Report 2007

The Committee also evaluates theperformance of and approves thecompensation for Board Appointees andmakes recommendations to the Boardon matters relating to the Chief Executive
Officer (details in the Remuneration Reporton pages 14 to 35).
The Group General Manager, People Capitaland Breakout has been appointed as theexecutive responsible for assisting the
Chairman of the Committee.
Key 2007 financial year highlights included:
Annual review of remuneration for
non-executive Directors, the Chief
Executive Officer and direct reports toChief Executive Officer, and review of the
reward structure for the senior executive
population.
Review of succession plans – The
Committee conducted reviews of thecurrent succession plans for the Chief
Executive Officer, Chief Executive Officer’s
direct reports and other business-criticalroles.
Preparation of the 2006 Remuneration
Report.
Fit and Proper – The Committee completed
Fit and Proper assessments for Board
Appointees.
Review of remuneration mattersassociated with the CEO succession.
Review of long-term incentive
arrangements for senior executives.
Review of Global Superannuation
arrangements, Health and Safety, andDiversity at ANZ.
For more details on the activities of thePeople Committee, please refer to theRemuneration Report on pages 14 to 35.

RISK COMMITTEEThe Risk Committee is responsible foroverseeing, monitoring and reviewing theGroup’s risk management principles andpolicies, strategies, processes and controls
including credit, market, liquidity, balance
sheet, operational risk and compliance.
It is also authorised to approve credit
transactions and other related mattersbeyond the approval discretion of executive
management. The Chief Risk Officer is theexecutive responsible for assisting the
Chairman of the Committee.

Key 2007 financial year highlights included:
Embedding the Risk Appetite Frameworkacross the Divisions – The Committee put
particular focus on strategic and portfolio
issues in the past year. Considerable
effort was channelled into risk appetite,asset writing strategies, reputational risk,
and model risk. Frameworks are being
implemented across the businesses.
Increased stress testing scenarios – The
Committee reviewed a number of stresstests designed to assess how the Groupwould perform under certain economic
downturn scenarios. Scenarios included
both Australia and New Zealand and amild recession and a liquidity crisis. A
number of specific portfolios were stresstested, including rural and regional
Australia for drought impact.

Key 2007 financial year highlights included:

effective compliance risk management
as fundamental to achieving its strategic
aspirations.

Review of technology systems – The
Committee received reports on futuretechnology and associated operations
strategy for the Bank.
Progress on the Bank’s major projects –The Committee received detailed reportson the implementation of the Bank’s
major IT projects.
Monitoring evolving technologies –The Committee received reports
and demonstrations on a number oftechnologies that have the potential
for changing the nature of the Bank’s
operations.

Basel II accreditation requirements(including new Pillar III market disclosure
requirement) – ANZ made significant
progress towards Basel II accreditation
over the past year, with particular focus
on systems development. The Risk
Committee requested that close attention
continue on the remaining Basel II
initiatives.

TECHNOLOGY COMMITTEE

Compliance – ANZ has a number of
initiatives underway to strengthen its
compliance with laws, codes of conduct
and related ANZ policies in each of
the countries where it operates. The
initiatives will enable ANZ to strive tomeet the Board defined appetite of “zerotolerance” for compliance breaches. A key
initiative has been to explicitly recognise
compliance as its own unique risk within
the organisation through significant
investment in capability development
across our people, processes and culture.
This initiative has for example seen thedevelopment and recent implementationof a renewed “Compliance Framework”
which provides structure and support forembedding compliance as “everybody’s
business” in our organisation. ANZ views

The Technology Committee assists theBoard in the effective discharge of its
responsibilities in relation to technology andoperations related matters. The Committee
is responsible for the oversight andevaluation of new projects in technology
above $50 million and security issues
relevant to ANZ’s technology processes
and systems. It is also responsible for thereview and approval of management’s
recommendations for long-term technology
and operations planning and the overall
framework for the management oftechnology risk.
The Group Managing Director, Operations,Technology and Shared Services has been
appointed as the executive responsible forassisting the Chairman of the Committee.

Technology performance – The Committee
received reports from major Divisions on
their technology needs and performance.

ADDITIONAL COMMITTEESIn addition to the five principal Board
Committees, the Board has constituteda Shares Committee and an Executive
Committee, each consisting solely of
Directors, to assist in carrying out
specific tasks.
The Executive Committee has the fullpower of the Board and is convened asnecessary between regularly scheduled
Board meetings to deal with urgent matters.
The Shares Committee has the power toadminister ANZ’s Employee Share Plan and
Employee Share Option Plan. The Board
also forms and delegates authority toad-hoc Committees of the Board as andwhen needed to carry out specific tasks.

The number of Board meetings and meetings of Committees during the year the Director was eligible to attend, and the number of meetings
attended by each Director were:
Board

Risk
Committee

Audit
Committee

PeopleCommittee
A

B

GovernanceCommittee
A

B

Technology
Committee
A

B

Executive
Committee

A

B

A

B

A

B

A

B

G J Clark

9

9

–

–

–

–

–

–

5

5

4

4

1

1

J K Ellis

9

8

6

6

7

7

–

–

–

–

–

–

1

1

D M Gonski

7

7

4

4

–

–

–

–

4

4

–

–

–

–

C B Goode

9

9

6

6

7

7

5

5

5

5

4

4

4

M A Jackson

9

7

–

–

7

6

5

4

–

–

–

–

2

I J Macfarlane

5

5

–

–

–

–

4

4

2

2

2

2

J McFarlane

9

9

–

–

–

–

–

–

–

–

–

D E Meiklejohn

9

9

6

6

7

7

–

–

5

5

–

J P Morschel

9

8

6

6

–

–

5

5

–

–

–

SharesCommittee
A

Committeeof the Board

B

A

B

–

–

–

–

–

–

1

1

–

–

–

–

4

1

1

4

4

2

2

2

2

2

1

1

–

–

–

–

–

4

4

1

1

4

4

–

2

2

–

–

3

3

–

1

1

–

–

–

–

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 Risk, Audit, People,
Governance and Technology Committees.

Corporate Governance 45

RISK MANAGEMENT ANDCOMPLIANCE
ANZ has established a comprehensive risk
and compliance management framework.
The Board is principally responsible forestablishing risk tolerance, approving
related strategies and policies, monitoring
and assessing business management,
and overseeing policy compliance andthe effectiveness of the risk systems
and policies to meet the requirements ofapplicable regulations and the interests ofshareholders, customers and staff.
The Risk Committee oversees the Group’s risk
management policies and controls, and may
approve credit transactions and other related
matters beyond the approval discretion of
executive management. On a day-to-day
basis, the various risks inherent in ANZ’soperations are managed by both Group Risk
Management and each business unit.
For further information on ANZ’s risk
management framework, including adescription of the key risk developments,
please see pages 44 and 45 and the
Corporate Governance section of anz.com.
During the year, management hasreported to the Risk Committee as to theeffectiveness of ANZ’s Risk Management
framework and the management of material
business risks.

The Audit Committee receives formal reports
on significant issues to ensure that any
remedial action is undertaken promptly.
A robust process exists to ensure that audit
issues are resolved on a timely basis, which
includes regular reviews of progress by the
Chief Executive Officer and the Chairman of
the Audit Committee.
Internal Audit plays an active role inensuring compliance with the requirementsof supervisory regulatory authorities.
Internal Audit also works collaboratively
with the external auditor to ensure acomprehensive audit scope.
The Risk Committee receives a quarterly
report from Internal Audit.

EXTERNAL AUDITThe external auditor’s role is to provide an
independent opinion that ANZ’s financial
reports are true and fair and comply
with applicable regulations. The external
auditor performs an independent audit
in accordance with Australian AuditingStandards. The Audit Committee oversees
ANZ’s Policy on Relationship with theExternal Auditor. Under the Policy, theAudit Committee is responsible for theappointment (subject to ratification byshareholders), compensation, retention andoversight of the external auditor. The Policy
also stipulates that the Audit Committee:

AUDIT AND FINANCIAL GOVERNANCE

pre-approves all audit and non-audit
services;

INTERNAL AUDIT

regularly reviews the independence of theexternal auditor; andInternal Audit provides independent
assurance that the design and operationof the risk and control framework acrossthe Group is effective. It operates under aCharter from the Audit Committee that gives
it unrestricted access to review all activitiesof the Group. The Group General Manager,
Internal Audit reports to the Chairman of
the Audit Committee. The Audit Committee
reviews the performance of the Group
General Manager, Internal Audit.
A risk-based audit approach is used toensure that the higher risk activities in eachbusiness are audited each year. All audits
are conducted in a manner that conforms
to international auditing standards.
Audit results also influence incentive
compensation of business heads.

46 ANZ Annual Report 2007

evaluates the effectiveness of theexternal auditor.
Details of non-audit services, together withthe statement from the Board as to theirsatisfaction with KPMG’s compliance withthe related independence requirementsof the Corporations Act 2001, are in the
Directors’ Report on pages 11 and 12.
In addition, ANZ requires a 2 year period
before any former partner or employeeof the external auditor is appointed as a
Director or Senior Executive of ANZ.
The lead partner of the external auditor isrequired to rotate off the ANZ audit after
5 years and cannot return for a further 5 years.

Certain other senior audit staff are required
to rotate off after a maximum of seven years.
Any potential appointments of ex-partners or
ex-employees of the external auditor as ANZ
finance staff, at senior management level orhigher, must be pre-approved by the
Chairman of the Audit Committee.
As disclosed in previous Annual Reports,
the US Securities and Exchange Commission(SEC) commenced an inquiry into nonaudit services provided by ANZ’s auditor,
KPMG. ANZ has provided the information
requested by the SEC. This inquiry has notconcluded. Should the SEC determine that
services provided by KPMG did not comply
with the US auditor independence rules,
the SEC may seek sanctions, the nature andamount of which are not known. Whilst ANZ
cannot predict the outcome of the inquiry,
based on information currently available,
ANZ does not believe it will have a material
adverse effect on the Company.

FINANCIAL CONTROLSAs previously noted, the Audit Committee of
the Board oversees ANZ’s financial reporting
policies and controls, the integrity of ANZ’sfinancial statements, the relationship withthe external auditor, the work of Internal
Audit, and the Audit Committees of various
subsidiary companies.
During the year, ANZ deregistered from the
US Securities and Exchange Commission(SEC) as a Foreign Private Issuer of
securities in the United States. As such,
ANZ is no longer required to comply with
Section 404 of the Sarbanes-Oxley Act.
However, ANZ is committed to ensuring thatit maintains its robust financial reporting
control system.
ANZ has in place a Financial Reporting
Governance (FRG) Program which evaluates
the design and tests the operation of key
financial reporting controls, including
Company-level controls, period-end
controls, process-level controls, and IT
general controls.
In addition, Preparers’ Statements inthe form of half-yearly certifications arecompleted by Divisional Managing Directors
and Divisional Chief Financial Officers.
These Statements comprise representations
and questions about financial results,
disclosures, processes and controls andare aligned with ANZ’s external obligations.

The process is independently evaluatedby Internal Audit and tested under the
FRG Program. Any issues arising from theevaluation and testing are reported to the
Audit Committee.
This process assists the Chief Executive
Officer and Chief Financial Officer in making
the certifications to the Board under the
Corporations Act and ASX GovernancePrinciples as set out in the Directors’ Reporton page 12.

ETHICAL AND RESPONSIBLE
DECISION-MAKINGVALUES
The Board encourages management topromote and maintain a culture within ANZ
which draws upon a set of unifying values
to guide the actions and decisions of theBoard and all employees (see the Corporate
Responsibility section of our website atanz.com/cr).
More than 30,000 ANZ employees have
now participated in the Breakout culture
development program. The program
includes workshops to help staff toapply values-based decision-making,and to balance the competing needs ofstaff, shareholders, customers and thecommunity in their roles and activities.
Details on ANZ’s comprehensive
approach can be found in ANZ’s Corporate
Responsibility Report and on our website
at anz.com/cr.

CODES OF CONDUCTTo assist Directors and employees in theirunderstanding of the culture and values ofthe organisation, ANZ has three main codesof conduct which guide everyday businesspractice and decision-making throughout
the Group. These are detailed below.
Codes of Conduct for Directors and for
Employees – These two Codes set out
the ethical standards to which Directors
and employees are expected to adhere.
They require that Directors and employees
adhere to the law, disclose any relevantinterests, and act honestly and ethicallyin all their dealings. The Codes also cover
the confidentiality of information, limits on
acceptance of gifts or entertainment and on
use of ANZ goods, services and facilities.

The Codes of Conduct provide an ethicalframework within which ANZ employees
can work to build sustainable value forshareholders by taking a responsible
approach to business. They acknowledge
the importance of ANZ’s shareholders,
our own people, our customers, and thecommunities and environments in which
ANZ operates.
Adherence to the Directors’ Code of
Conduct forms part of a Director’s annual
performance evaluation. To ensure that
the Employee Code of Conduct is wellunderstood by new and existing staff,
ANZ has developed a Code of Conduct
training course which covers the practicalapplication of the Code of Conduct and a
Code of Conduct Declaration in which
staff indicate that they understand theprinciples of the Code and agree to comply
with them.
Code of Conduct for Financial Officers –(adopted from the Group of 100 Code of
Conduct for CFOs and Senior Financial
Officers). The Code requires that chief
financial officers and other finance staff
influencing financial reporting adhere toprinciples of honesty and integrity, respectconfidentiality of information, declareconflicts of interest, maintain transparency
in reporting, exercise diligence and goodfaith, ensure sound internal controls and set
a standard for other financial professionals.

SECURITIES TRADING POLICYANZ has a Securities Trading Policy thatprohibits trading in ANZ securities or
the securities of other companies for all
employees, Directors, contractors andconsultants engaged by ANZ who are awareof unpublished price-sensitive information.
The Policy specifically prohibits restrictedemployees trading in ANZ securities during‘blackout periods’ leading up to the day
following the half-yearly and annual results
announcements. Blackout periods also
apply for certain nominated employees inrespect of the periods leading up to the
trading updates which are announced tothe market on a six monthly basis.

Governance Committee. Senior Executives
and other restricted employees are also
required to seek approval before trading
in ANZ securities.
The Policy requires certain prescribed
employees to submit a quarterly declaration
to Group Compliance to declare that they havenot traded in securities (ANZ’s and othercompanies’ securities) while in possessionof unpublished, price-sensitive information.
It is a condition of the Policy and of the
grant of employee share options (including
Performance Rights) and deferred sharesthat no schemes are entered into by any
employee that specifically protect the valueof such shares, options and Performance
Rights before the shares have vested or the
options or Performance Rights have entered
their exercisable period. Any breach of thisprohibition would constitute a breach of
the grant conditions and would result in theforfeiture of the relevant shares, options or
Performance Rights.

WHISTLEBLOWER POLICY
The ANZ Whistleblower Policy is amechanism by which ANZ employees may
voice serious concerns or escalate serious
matters on a confidential basis, without
fear of reprisal, dismissal or discriminatory
treatment.
The Policy is aligned to both ANZ’s values
and ANZ’s Employee Code of Conduct
and is one of a number of policies andprocedures within ANZ to support andpromote honest and ethical behaviour. The
Policy is intended as a last option, when allother internal reporting avenues have been
exhausted or are not available.
ANZ employees can make complaints under
the Policy to designated Whistleblower
Protection Officers. If a complaint relates
to finance or audit-related matters, theProtection Officer will consider whether
the matter should be referred to the Audit
Committee, or may refer the matter to ANZ’s
external auditors. If the report relates tobreaches of the law, regulations or ANZ
policies, the Protection Officer may refer thematter to the Risk Committee.

Non-executive Directors are required toseek approval from the Chairman inadvance of any trading in ANZ securities.
The Chairman of the Board is required toseek approval from the Chairman of the

Corporate Governance 47

COMMITMENT TO SHAREHOLDERS
Shareholders are the owners of ANZ, andANZ’s stated aim is to ‘perform and growto create value for our shareholders’.
The approaches described below areenshrined in ANZ’s Shareholder Charter.
A copy of the Shareholder Charter can befound on the Corporate Governance sectionof anz.com.

COMMUNICATION
In order to make informed decisions about
ANZ, and to communicate views to ANZ,
shareholders need an understandingof ANZ’s business operations andperformance.
ANZ encourages shareholders to take anactive interest in ANZ, and seeks to provide
shareholders with quality information ina timely fashion generally through ANZ’sreporting of results, ANZ’s Annual Report,
briefings, half yearly newsletters and via
its dedicated shareholder site on anz.com.
ANZ strives for transparency in all its
business practices, and recognises theimpact of quality disclosure on the trust andconfidence of the shareholder, the wider
market and the community. In the recently
announced Dow Jones Sustainability
Index, ANZ received the highest sector
score (100%) in relation to stakeholder
engagement.
Should shareholders require any
information, contact details for ANZ and
its Share Registrar are set out in the halfyearly shareholder newsletters and theshareholders section of anz.com.

MEETINGS
ANZ upholds shareholder rights andprovides shareholders with the opportunity
to be involved in shareholder meetings.
To allow as many shareholders as possible
to have an opportunity to attend a meeting,
ANZ rotates shareholder meetings aroundcapital cities and makes them available
to be viewed online using webcast
technology. Further details on meetingsand presentations held throughout thisfinancial year are available on anz.com >shareholders > Presentations.

48 ANZ Annual Report 2007

Prior to the Annual General Meeting,shareholders are given the opportunity
to submit any questions they have for
the Chairman or Chief Executive Officer
to enable key common themes to beconsidered.
The external auditor is present at ANZ Annual
General Meetings and available to answer
shareholder questions. The auditor can
respond on any matter that concerns them intheir capacity as auditor, including in relation
to the conduct of the audit and the preparationand content of the auditor’s report.
The letter of appointment, which has been
agreed to and signed by all non-executive
Directors, states that Directors are also
expected to attend and be available to meetshareholders at the Annual General Meeting
each year.
Shareholders have the right to vote on
various resolutions put to a meeting.
If shareholders are unable to attend ameeting they can submit their proxies via
post or electronically through anz.com.
Where votes are taken on a poll, which
is usual ANZ practice, ANZ appoints an
independent party to verify the results,
which are reported to the ASX and posted
on anz.com.

CONTINUOUS DISCLOSURE
ANZ’s practice is to release all
price-sensitive information in a timely
manner and as required under the ASX
listing rules to all relevant securities
exchanges on which ANZ’s securities arelisted, and to the market and community
generally through ANZ’s media releases,
website and other appropriate channels.
Through ANZ’s Continuous Disclosure
Policy, ANZ demonstrates its commitment
to continuous disclosure.
The Policy reflects relevant obligations
under applicable securities exchange
listing rules and legislation. For disclosure
purposes, price-sensitive information is
information that a reasonable person would
expect to have a material effect on the priceor value of ANZ’s securities.

Designated Disclosure Officers have
responsibility for reviewing proposed
disclosures and making decisions inrelation to what information can be or
should be disclosed to the market. Each
ANZ employee is required to inform a
Disclosure Officer regarding any potentiallyprice-sensitive information concerning ANZ
as soon as they become aware of it.
During the course of the year, the Policy wasreviewed and revised by the GovernanceCommittee to require Disclosure Officers
to regularly meet together as a Continuous
Disclosure Committee.
Apart from reviewing information todetermine whether disclosures are requiredin order to comply with the requirementsof the Listing Rules of the ASX and otheroverseas exchanges where ANZ securities
are listed, as well as the requirements ofapplicable corporations and securities
legislation relating to the disclosure ofprice-sensitive information, the Committee
also overviews the effectiveness of ANZ’ssystems and procedures for achieving
compliance with applicable regulatory
requirements in relation to the disclosureof price-sensitive information.
In carrying out its role, the Committee
recognises ANZ’s commitment to achieving
best practice in terms of disclosure byacting in accordance with the spirit,
intention and purposes of the applicableregulatory requirements and by looking
beyond form to substance.

POLITICAL DONATIONSIn the year to 30 September 2007, ANZ
donated $150,000 to the Liberal Party and$75,000 to the Australian Labor Party.

This page has been left blank intentionally.

Corporate Governance 49

SHAREHOLDER INFORMATION

Ordinary shares
At 6 October 2007, the twenty largest holders of ordinary shares held 1,050,323,057 ordinary shares, equal to 56.32% of the total issued
ordinary capital.
Name

Number of shares%

1. HKBA NOMINEES LIMITED
2. CHASE MANHATTAN NOMINEES LTD
3. NATIONAL NOMINEES LIMITED
4. CITICORP NOMINEES PTY LIMITED
5. ANZ NOMINEES LIMITED
6. RBC GLOBAL SERVICES AUSTRALIA
7. COGENT NOMINEES PTY LIMITED
8. QUEENSLAND INVESTMENT CORPORATION
9. AMP LIFE LIMITED
10. POTTER WARBURG NOMINEES PTY LIMITED
11. PSS BOARD

266,035,505
205,868,107
197,899,627
95,360,328
90,215,496
47,005,443
40,960,617
20,080,126
18,491,477
11,943,562
10,701,851

14.27
11.04
10.61
5.11
4.84
2.52
2.19
1.08
0.99
0.64
0.57

Name

Number of shares%

6,652,221
6,075,092
5,227,759
4,884,004
4,877,049

0.36
0.33
0.28
0.26
0.26

4,875,551
4,764,328
4,353,230
4,051,684

0.26
0.26
0.23
0.22

1,050,323,057

56.32

12. UBS NOMINEES PTY LTD
13. SUNCORP CUSTODIAN SERVICES PTY LIMITED
14. ANZEST PTY LTD (DEFERRED SHARE PLAN A/C)
15. TASMAN ASSET MANAGEMENT LTD
16. AUSTRALIAN FOUNDATION INVESTMENTCOMPANY LIMITED
17. ANZEST PTY LTD (ESAP SHARE PLAN A/C)
18. PERPETUAL TRUSTEE COMPANY LTD
19. ARGO INVESTMENTS LIMITED
20. RBC DEXIA INVESTOR SERVICES AUSTRALIANOMINEES PTY LIMITED

Total

Distribution of shareholdings
At 6 October 2007
Range of shares

Number of holders% of holders

Number of shares% of shares

1 to 1,000
1,001 to 5,000
5,001 to 10,000
10,001 to 100,000
Over 100,000

187,778
111,885
16,482
10,193
468

57.46
34.24
5.04
3.12
0.14

81,684,399
246,188,964
115,130,610
215,013,871
1,206,759,879

4.38
13.20
6.18
11.53
64.71

Total

326,806

100.001,864,777,723

100.00At 6 October 2007:
there were no entries in the register of Substantial Shareholdings;
the average size of holdings of ordinary shares was 5,706 (2006: 6,302) shares; andthere were 5,322 holdings (2006: 5,023 holdings) of less than a marketable parcel (less than $500 in value or 17 shares based on the market price of $ 30.57),
which is less than 1.63% of the total holdings of ordinary shares.

Voting rights of ordinary shares
The Constitution provides for votes to be cast:i) on show of hands, 1 vote for each shareholder; andii) on a poll, 1 vote for each fully paid ordinary share.

50 ANZ Annual Report 2007

ANZ Stapled Exchangeable Preferred Securities (ANZ StEPS)
At 6 October 2007, the twenty largest holders of ANZ StEPS held 4,353,579 securities, equal to 43.54% of the total issued securities.
Numberof securities%

1,067,385
616,752
581,247
492,583
287,503279,566
248,991
152,500
93,49773,269
11. QUESTOR FINANCIAL SERVICES LIMITED (TPS RF A/C)
70,90012. SHARE DIRECT NOMINEES PTY LTD
56,922

10.67
6.17
5.81
4.93
2.88
2.80
2.49
1.52
0.93
0.73
0.71
0.57

Name

1. ANZ NOMINEES LIMITED
2. NATIONAL NOMINEES LIMITED
3. CHASE MANHATTAN NOMINEES LTD
4. POTTER WARBURG NOMINEES PTY LIMITED
5. CITICORP NOMINEES PTY LIMITED
6. UBS NOMINEES PTY LTD
7. HKBA NOMINEES LIMITED
8. UCA CASH MANAGEMENT FUND LTD
9. RBC GLOBAL SERVICES AUSTRALIA
10. COGENT NOMINEES PTY LIMITED(GLOBAL MARKETS ACCOUNT)

Name

13. AUSTRALIAN EXECUTOR TRUSTEES LIMITED(NO 1 ACCOUNT)
14. THE AUSTRALIAN NATIONAL UNIVERSITY
15. RBC DEXIA INVESTOR SERVICES AUSTRALIANOMINEES PTY LIMITED (GSJBW A/C)
16. ECAPITAL NOMNINEES PTY LIMITED(SETTLEMENT A/C)
17. RBC DEXIA INVESTOR SERVICES AUSTRALIANOMINEES PTY LIMITED (NMSMT A/C)
18. UBS NOMINEES PTY LTD (TP00014 15 A/C)
19. GORDON MERCHANT NO 2 PTY LTD(MERCHANT FAMILY A/C)
20. ARMADA INVESTMENTS PTY LTD

Total

Numberof securities%

53,6180.54

50,00040,8070.50
0.41

40,0000.40

39,6170.40

39,42239,0000.39
0.39

30,0000.30

4,353,579

43.54

Distribution of ANZ StEPS holdings
At 6 October 2007
Range of securities

Number of holders% of holders

Number of securities% of securities

1 to 1,000
1,001 to 5,000
5,001 to 10,000
10,001 to 100,000
Over 100,000

11,611
652
55
45
8

93.86
5.27
0.44
0.36
0.07

3,175,541
1,454,239
428,9031,214,790
3,726,527

31.76
14.54
4.29
12.15
37.26

Total

12,371100.0010,000,000

100.00At 6 October 2007: There were 2 holdings (2006: 3 holdings) of less than a marketable parcel (less than $500 in value or 5 securities based on the market price of $101.03), which is less than
0.02% of the total holdings of StEPS.

Voting rights of ANZ StEPSA preference share does not entitle its holder to vote at any general meeting of ANZ except in the following circumstances:a) on a proposal:i) to reduce the share capital of ANZ;ii) that affects rights attached to the preference shares;iii) to wind up ANZ; oriv) for the disposal of the whole of the property, business and undertaking of ANZ;b) on a resolution to approve the terms of a buy-back agreement;c) during the period in which a dividend which has been declared as payable on a dividend payment date has not been paid in full; ord) during the winding-up of ANZ.
If a poll is conducted on a resolution on which a holder is entitled to vote, the holder has one vote for each preference share held.

Shareholder Information 51

Employee shareholder information
At the Annual General Meeting in January
1994, shareholders approved an aggregate
limit of 7% of all classes of shares andoptions, which remain subject to the rulesof a relevant incentive plan, being held byemployees and directors. At 30 September
2007 participants held 1.81% (2006: 2.25%)of the issued shares and options of ANZ
under the following incentive plans:
ANZ Employee Share Acquisition Plan;
ANZ Employee Share Save Scheme;
ANZ Share Option Plan;ANZ Directors’ Share Plan; andANZ Directors’ Retirement Benefit Plan.

Stock exchange
The Australia and New Zealand Banking
Group Limited’s ordinary shares are listedon the Australian Securities Exchange andthe New Zealand Stock Exchange.
The Group’s other stock exchange listings
include:Australian Securities Exchange – ANZ
Stapled Exchangeable Preferred Securities(ANZ StEPS) [ANZ Holdings (New Zealand)
Limited and Australia and New Zealand
Banking Group Limited]; senior andsubordinated debt [Australia and New
Zealand Banking Group Limited];
Channel Islands Stock Exchange –Senior debt [ANZ Jackson Funding 2 Limited,
ANZ Jackson Funding 3 Limited] andsubordinated debt [ANZ Jackson Funding PLC]
London Stock Exchange – Non-cumulative
mandatory convertible stapled securities(UK stapled Securities) [Australia and New
Zealand Banking Group Limited]; and seniorand subordinated debt [Australia and New
Zealand Banking Group Limited and ANZ
National (Int’l) Limited];
Luxembourg Stock Exchange –Subordinated debt [Australia and New
Zealand Banking Group Limited]; andnon-cumulative Trust Securities (Euro Trust
Securities) [ANZ Capital Trust III];New Zealand Stock Exchange – Seniorand subordinated debt [ANZ National Bank
Limited]; andSwiss Stock Exchange – Senior debt
[Australia and New Zealand Banking
Group Limited].

52 ANZ Annual Report 2007

New York Stock Exchange Delistingand US Securities and Exchange
Commission Deregistration
In June 2007, Australia and New Zealand
Banking Group Limited announced its
intention to withdraw the listing of its
American Depositary Receipts (“ADRs”) andthe underlying ordinary shares from the New
York Stock Exchange (“NYSE”) and deregisterfrom the United States Securities andExchange Commission (“SEC”).
The ADRs were delisted from the NYSE on
12 July 2007 and, upon filing a Form 15F
with the SEC seeking deregistration, theCompany’s reporting obligation to the
SEC were immediately suspended on 13
July 2007. With the SEC having raised no
objection to the Company’s Form 15F during
the prescribed 90 day period from filing,
the Company’s deregistration from the SEC
became effective on 13 October 2007.

American Depositary Receipts
Following the delisting of its American
Depository Receipts (ADRs) from the NYSE,
the Company’s ADRs now trade in the overthe-counter (“OTC”) securities market on the
Pink Sheets electronic platform operated by
Pink Sheets LLC in the United States under
the new ticker symbol: ANZBY and the CUSIP
number: 05258304.
The Bank of New York Mellon Corporation(“BNY Mellon”) is the Depositary for theCompany’s ADR program in the UnitedStates. Holders of the Company’s ADRs
should deal directly with BNY Mellon on
all matters relating to their ADR holdings,
by telephone on 1-888-269-2377 (forcallers within the US), 1-212-815-3700(for callers outside the US) or by email toshareowners@bankofny.com.

ANZ StEPS
In September 2003, 10 million ANZ Stapled
Exchangeable Preferred Securities (ANZStEPS) were issued at an issue price of$100.00 each. Each ANZ StEPS is a stapled
security comprising a preference share inAustralia and New Zealand Banking Group
Limited and an unsecured senior note issued
by ANZ Holdings (New Zealand) Limited.
ANZ StEPS are quoted on the Australian
Securities Exchange. Until the occurrence ofan assignment date, the preference sharesand senior note components of an ANZ StEPS
cannot be separately transferred.

Euro Trust Securities
In December 2004, ANZ issued 500,000
Floating Rate Non-cumulative Trust Securities(“Euro Trust Securities”) at an issue priceof €1,000 each through ANZ Capital Trust
III (formed in the State of Delaware). EachEuro Trust Security is a stapled security
comprising a preference share in Australia
and New Zealand Banking Group Limited andan unsecured subordinated note issued by
ANZ Jackson Funding PLC. The Euro Trust
Securities are quoted on the Luxembourg
Stock Exchange. The unsecured subordinate
notes are listed on the Channel Islands
Stock Exchange. Prior to a conversion event,the preference share and subordinated note
components of a Euro Trust Security cannot be
separately traded.

This page has been left blank intentionally.

Shareholder Information 53

STATEMENTS OF RECOGNISED INCOME AND EXPENSE FOR THE YEAR ENDED 30 SEPTEMBERFINANCIAL REPORTINCOME STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER

Consolidated

The Company

Note

2007
$m

2006
$m

2007
$m

2006
$m

Total income

330,29325,51021,58817,914

Interest income
Interest expense

3
426,210(18,908)

22,301(15,358)

17,809(13,148)

14,618(10,341)

7,302

6,943

4,661

4,277

Net interest income
Other operating income
Share of joint venture profit from ING Australia and ING New ZealandShare of associates’ profit

3
3
3

3,824
172
87

3,015
138
56

3,779
–
–

3,296
–
–

Operating income
Operating expenses

4

11,385(4,953)

10,152(4,531)

8,440(3,623)

7,573(3,250)

Profit before credit impairment and income tax
Provision for credit impairment

16

6,432
(567)

5,621
(407)

4,817
(388)

4,323
(278)

5,865

5,214

4,429

4,045

(1,678)(1,522)

(878)

(871)

Profit for the year

4,187

3,692

3,551

3,174

Comprising:
Profit attributable to minority interests
Profit attributable to shareholders of the Company1

7
4,180

4
3,688

–
3,551

–
3,174

224.1
218.3
136

200.0
194.0
125

n/a
n/a
136

n/a
n/a
125

Profit before income tax
Income tax expense

Earnings per ordinary share (cents)
Basic
DilutedDividend per ordinary share (cents)

6

8
8
7

The notes appearing on pages 58 to 155 form an integral part of these financial statements.
1 The results of 2007 include the following items:■ Gain on sale of Fleet Partners Pty Limited and Truck Leasing Limited, including previously unrecognised capital losses on the buyback of TrUEPrs
being applied against the gain following Australian Tax Office clearance ($195 million profit after tax, tax expense nil), Company (nil)■ Restatement of deferred tax assets following the announced change in New Zealand company tax rate which takes effectfrom 1 October 2008 ($24 million loss after tax), Company (nil)The results of 2006 include the following items:
Settlement of ANZ National Bank warranty claims ($14 million profit after tax), Company (nil)■ Settlement of NHB insurance claim ($79 million profit after tax), Group and Company■

54 ANZ Annual Report 2007

CASH FLOW STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBERBALANCE SHEETS AS AT 30 SEPTEMBER

Consolidated

The Company

2007
$m

2006
$m

2007
$m

2006
$m

16,9878,040
15,167
22,237
14,006
288,846
14,536
–
235
–
3,430
113
3,677
3,846
1,493

15,019
9,665
9,179
9,164
10,653
255,922
13,435
–
205
–
2,200
253
3,337
4,499
1,109

10,6186,134
13,35921,403
11,383
198,610
14,523
15,481
148
8,405
582
87
511
2,136
739

10,427
6,253
7,508
8,787
8,657
172,287
13,4259,418
132
11,424
307
135
419
2,558
527

392,613334,640

304,119

252,264

17,986
234,873
24,18014,536–468
135
10,507
1,021
54,075
12,784

14,118204,794
8,753
13,435–569
253
10,679957
50,05011,126

14,110161,195
25,001
14,523
5,371
587
103
8,387
710
43,157
11,886

11,652
128,321
8,442
13,425
12,556
701
267
8,823
688
39,83910,251

Total liabilities

370,565

314,734

285,030

234,965

Net assets

22,04819,906

19,08917,299Note

AssetsLiquid assets
Due from other financial institutions
Trading securities1
Derivative financial instruments
Available-for-sale assets
Net loans and advances
Customers’ liability for acceptances
Due from controlled entities
Regulatory deposits
Shares in controlled entities
Shares in associates and joint venture entities
Deferred tax assets
Goodwill and other intangible assets2
Other assets
Premises and equipment

9
10
11
12
13
14

17
18
18
19
20
21
22

Total assets
Liabilities
Due to other financial institutions
Deposits and other borrowings
Derivative financial instruments
Liability for acceptances
Due to controlled entities
Current tax liabilities
Deferred tax liabilities
Payables and other liabilities
Provisions
Bonds and notes
Loan capital

23
24
12

25
25
26
27
28
29

Shareholders’ equity
Ordinary share capitalPreference share capital
Reserves
Retained earnings

30
30
31
31

8,946
871
(889)
13,082

8,271
871
(354)
11,084

8,946
871
(164)
9,436

8,271
871
(16)
8,173

Share capital and reserves attributable to shareholders of the Company
Minority interests

32

22,01038

19,872
34

19,089–17,299–22,04819,906

19,08917,299Total equity
Commitments (note 44)
Contingent liabilities, contingent assets and credit related commitments (note 45)
The notes appearing on pages 58 to 155 form an integral part of these financial statements.
1 Includes bills held in portfolio $2,305 million (September 2006: $1,569 million).
2 Excludes notional goodwill in equity accounted entities.

Financial Report 55

STATEMENTS OF RECOGNISED INCOME AND EXPENSE FOR THE YEAR ENDED 30 SEPTEMBER
Consolidated

The Company

2007
$m

2006
$m

2007
$m

2006
$m

Currency translation adjustments
Exchange differences on translation of foreign operations taken to equity

(563)

(203)

(291)

97

Available-for-sale assets
Valuation gain taken to equity
Cumulative (gain) transferred to the income statement on sale

109
(14)

20
(8)

100
(4)

15
(7)

Cash flow hedges
Valuation gain taken to equity
Transferred to income statement for the year

74
(7)

121
(56)

40
–

36
(7)

Actuarial (loss)/gain on defined benefit plans

77

(55)

75

(54)

Net (loss)/income recognised directly in equity

(324)

(181)

(80)

80

Profit for the year

4,187

3,692

3,551

3,174

Total recognised income and expense for the year

3,863

3,511

3,471

3,254

7

4

–

–

3,856

3,507

3,471

3,254

Items recognised directly in equity1

Total recognised income and expense for the year attributable tominority interests
Total recognised income and expense for the year attributable toshareholders of the Company
The notes appearing on pages 58 to 155 form an integral part of these financial statements.
1 These items are disclosed net of tax (refer note 6).

56 ANZ Annual Report 2007

CASH FLOW STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER
Consolidated
Note

Cash flows from operating activities
Interest received
Dividends received
Fee income received
Other income received
Interest paid
Personnel expenses paid
Premises expenses paid
Other operating expenses paid
Recovery from NHB litigation
Income taxes paid
Australia
Overseas
Goods and services tax paid
(Increase)/decrease in operating assets
Liquid assets – greater than three months
Due from other financial institutions – more than 90 days
Trading securities
Regulatory deposits
Loans and advances
Net intra-group loans and advances
Increase/(decrease) in operating liabilities
Deposits and other borrowings
Due to other financial institutions
Payables and other liabilities
Net cash (used in)/provided by operating activities
Cash flows from investing activities
Net (increase)/decrease
Available-for-sale assets
Purchases
Proceeds from sale or maturity
Controlled entities and associates
Purchased (net of cash acquired)Proceeds from sale (net of cash disposed)
Premises and equipment
Purchases
Proceeds from sale
Other
Net cash (used in)/provided by investing activities
Cash flows from financing activities
Net increase/(decrease)
Bonds and notes
Issue proceeds
Redemptions
Loan capital
Issue proceeds
Redemptions
Dividends paid
Share capital issues
Share capital buyback
Net cash provided by/(used in) financing activities
Net cash (used in)/provided by operating activities
Net cash (used in)/provided by investing activities
Net cash provided by/(used in) financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Foreign currency translation on opening balances
Cash and cash equivalents at end of year

39(a)

39(b)

The Company

2007
$m

2006
$m

2007
$m

2006
$m

27,024
99
2,327
943(18,540)(2,980)(417)(2,423)–23,014
53
2,082
1,057
(14,676)(2,737)(379)(2,416)114

17,788
1,134
1,616
833
(12,923)(2,105)(284)(1,098)–

14,623
1,151
1,434
1,273
(9,311)(1,887)(262)(1,154)114(1,381)
(500)
(11)

(788)
(437)
(18)

(1,384)
(58)
(1)

(793)
(46)
–

(1,641)(410)(7,325)(54)(36,947)–(1,300)1,318(1,681)(42)(26,848)–(1,865)(195)(6,894)(31)(27,586)(10,305)

(441)
177
(182)
(17)
(18,732)
66

33,9644,326(91)(4,037)

16,1291,859
541(5,155)34,5853,050(11)(5,734)

14,736
2,462
1,221
4,432

(13,215)
9,701(15,480)
16,239(10,652)
7,770(16,880)
13,695(1,450)
444

(289)
14

(549)
67

(230)
10

(411)
79
1,588
(3,264)

(250)
19
1,697
1,950

(356)
7
1,034
(2,679)

(161)
12
(239)
(3,793)

16,443(8,140)17,506(8,949)15,149(7,499)14,316(8,873)

3,013
(980)
(1,958)132–
8,510(4,037)(3,264)8,510
1,209
20,344(2,479)19,074

1,248(656)(1,930)
147
(146)
7,220
(5,155)
1,950
7,220
4,015
13,702
2,627
20,3442,691(500)(1,921)
132–
8,052(5,734)(2,679)8,052(361)
13,570(1,169)12,0401,188(626)(1,903)
147
(146)
4,103
4,432
(3,793)
4,103
4,742
7,899
929
13,570The notes appearing on pages 58 to 155 form an integral part of these financial statements.

Financial Report 57

NOTES TO THE FINA NCIAL STATEMENTS
1: Significant Accounting Policies
i) Basis of preparation
These consolidated financial statements
comprise a general purpose financial report
and:comply with the accounts provisionsof the Banking Act 1959
have been prepared in accordance with
the Australian Accounting Standards(AAS), other authoritive pronouncementsof the Australian Accounting Standards
Board (AASB), AASB and Urgent
Issues Group Interpretations and the
Corporations Act 2001
are presented in Australian dollars
have been prepared in accordance withthe historical cost convention exceptthat the following assets and liabilities
are stated at their fair value: derivative
financial instruments, including thefair value of any applicable underlying
exposure; assets treated as availablefor-sale; financial instruments held
for trading; term funding instruments
including specific loan capital andbonds and notes; assets and liabilities
designated at fair value through the profit
and loss; and defined benefit plan assets
and liabilities.
The preparation of the financial reportrequires the use of management judgement,
estimates and assumptions that affectreported amounts and the application ofpolicies. The estimates and associatedassumptions are based on historicalexperience and various other factors thatare believed to be reasonable. Actual results
may differ from these estimates. Discussionof these critical accounting treatments,
which include complex or subjective
decisions or assessments, are covered innote 2. Such estimates may require review
in future periods.
The Parent entity is an entity of the kindreferred to in Australian Securities andInvestments Commission class order
98/100. Consequently, amounts in thefinancial report have been rounded to
the nearest million dollars except whereotherwise indicated.
The financial report was authorised for issue
by the directors on 7 November 2007.
International Financial Reporting Standards(IFRS) form the basis of Australian AccountingStandards issued by the AASB, being AAS.
The Group’s application of AAS ensures that
the Group’s consolidated financial
statements comply with IFRS. However theCompany’s financial statements do notcomply with IFRS.

58 ANZ Annual Report 2007

The accounting policies have been
consistently applied by all consolidated
entities and to all periods presented in the
consolidated financial report, except as
described in xxvi) below.
The following standards and amendments
were available for early adoption but havenot been applied by the Group in thesefinancial statements:
AASB 7: ‘Financial Instruments:
Disclosure’. AASB 7 is applicable forannual reporting periods beginningon or after 1 January 2007.
AASB 2005-10: ‘Amendments toAustralian Accounting Standards’(September 2005) makes consequential
amendments to AASB 132: ‘Financial
Instruments: Presentation andDisclosure’, AASB 101: ‘Presentationof Financial Statements’, AASB 114:
‘Segment Reporting’, AASB 117: ‘Leases’,
AASB 133: ‘Earnings per Share’, AASB
139: ‘Financial Instruments: Recognition
and Measurement’, AASB 1, AASB 4,AASB 1023: ‘General Insurance Contracts’and AASB 1038: ‘Life Insurance Contracts’arising from the release of AASB 7. AASB
2005-10 is applicable for annual reporting
periods beginning on or after 1 January
2007.
AASB 7 requires the disclosure of thesignificance of financial instruments on an
entity’s financial position and performanceand of qualitative and quantitative
information about exposure to risks arisingfrom financial instruments. AASB 2005-10
amendments arise from the release of
AASB 7 and are only applicable when an
entity adopts AASB 7.
The Group has not early adopted AASB 7;
however, certain disclosures have beenenhanced in preparation for the transition
to AASB 7.
The initial application of AASB 7 and AASB
2005-10 is not expected to have an impact
on the financial results of the Company
or the Group as these standards are only
concerned with disclosures.
AASB 8: ‘Operating Segments’ replaces
the presentation requirements ofsegment reporting in AASB 114: ‘Segment
Reporting’. AASB 8 is applicable forannual reporting periods beginning on
or after 1 January 2009.
AASB 2007-3: ‘Amendments toAustralian Accounting Standards’ makes
consequential amendments to AASB 5:‘Non-current Assets Held for Saleand Discontinued Operations’, AASB
107: ‘Cash Flow Statements’, AASB

119: ‘Employee Benefits’, AASB 127:
‘Consolidated and Separate Financial
Statements’, AASB 134: ‘Interim Financial
Reporting’, AASB 136: ‘Impairment
Assets’, AASB 1023: ‘General Insurance
Contracts’ and AASB 1038: ‘Life Insurance
Contracts’ arising from the release of
AASB 8: ‘Operating Segments’. AASB
2007-3 is applicable for annual reporting
periods beginning on or after 1 January
2009.
The application of AASB 8 and AASB
2007-3 is not expected to have an impact
on the financial results of the Company
or the Group as these standards are only
concerned with disclosures.
AASB Interpretation 10: ‘Interim Financial
Reporting and Impairment’ does not allow
an entity to reverse impairment losses
recognised in a previous interim period in
respect of goodwill, an equity instrument
or a financial asset carried at cost. AASBInterpretation 10 is applicable for annual
reporting periods beginning on or after
1 November 2006.
The application of this interpretation is
not expected to have a material impact on
the financial results of the Company or theGroup as the Company or Group has notrecognised an impairment loss that would
be revised under the amended guidance.
AASB Interpretation 11: ‘AASB 2 Sharebased Payment – Group and Treasury
Share Transactions’ addresses theclassification of share-based paymenttransactions (as equity or cash settled)when a parent or another group entity
transfers the shares. AASB Interpretation
11 is applicable for annual reporting
periods beginning on or after 1 March2007.
AASB 2007-1: ‘Amendments to Australian
Accounting Standards’ amends AASB
2: ‘Share-based Payments’ to insert
the transitional provisions of IFRS
2, previously contained in AASB 1:‘First-time Adoption of Australian
Equivalents to International Financial
Reporting Standards’, arising from AASBInterpretation 11: ‘AASB 2 Share-based
Payments – Group and Treasury Share
Transactions’. AASB 2007-1 is applicablefor financial reporting periods beginningon or after 1 March 2007.
The application of AASB Interpretation 11
and AASB 2007-1 is not expected to havea material impact on the financial resultsof the Company or the Group as the current
Group policy reflects the amended guidance.

NOTES TO THE FINA NCIAL STATEMENTS
1: Significant Accounting Policies (continued)
AASB 2007-4: ‘Amendments to Australian
Accounting Standards arising fromED 151: ‘Australian Additions to, andDeletions from, IFRS’ was approved by the
AASB in May 2007. AASB 2007-4 brings
Australian equivalents to International
Financial Reporting Standards (AIFRS)
closer to their IFRS equivalents, making
consequential amendments to 34
different standards in all. New accounting
policy options are introduced and a large
number (but not all) of the Australianspecific disclosures and requirements
have been eliminated. AASB 2007-4 isapplicable for annual reporting periods
beginning on or after 1 July 2007.
AASB 2007-7: ‘Amendments to Australian
Accounting Standards’ makes minor
consequential editorial amendments tovarious accounting standards as a resultof the release of the AASB 2007-4. AASB
2007-7 is also applicable for annual
reporting periods beginning on or after
1 July 2007.
The application of AASB 2007-4 and AASB
2007-7 is not expected to have a material
impact on the financial results of theCompany or the Group as the amendments
only deal with disclosure or introduce
accounting options that are unlikely to be
used by ANZ.
In June 2007 the AASB issued a revised
version of AASB 123: ‘Borrowing Costs’
which requires the capitalisation of all
borrowing costs directly attributable to theacquisition, construction or productionof a qualifying asset. All other borrowing
costs are immediately recognised as
expense. The standard is applicable toannual reporting periods beginning on orafter 1 January 2009.
AASB 2007-6: ‘Amendments to Australian
Accounting Standards arising from AASB
123’ makes consequential amendments
to AASB 1: ‘First-time adoption ofAustralian Equivalents to International
Financial Reporting Standards’, AASB 101:
‘Presentation of Financial Statements’,
AASB 107: ‘Cash Flow Statements’, AASB
111: ‘Construction Contracts’, AASB 116:
‘Property, Plant and Equipment’, AASB
138: ‘Intangible Assets’ as a result of therevision to AASB 123 ‘Borrowing Costs’.
These amendments are applicable toannual reporting periods beginning on orafter 1 January 2009.
The impact of applying the revised AASB 123
and AASB 2007-6 is not expected to have amaterial impact on the financial results of
the Company or the Group as the qualifying
assets to which borrowing costs would beapplied already capitalise borrowing costs.

In October 2006, the AASB revised
AASB 101: ‘Presentation of Financial
Statements’ which removed some of
the additional Australian disclosure
requirements previously existing inthe standard. The revised AASB 101 is
applicable to annual reporting periods
beginning on or after 1 January 2007.
The application of this revised standard is
not expected to have a material impact on
the financial results of the Company or theGroup as the amendments only relate todisclosure.
AASB Interpretation 13: ‘Customer Loyalty
Programmes’ requires customer loyalty
award credits to be accounted for as aseparately identifiable component of asales transaction. Interpretation 13 isapplicable to financial reporting periods
beginning on or after 1 July 2008.
The application of AASB Interpretation 13
is not expected to have a material impact
on the financial results of the Company or
the Group as only a small element of therevenue generated by the Group’s customer
loyalty programmes is impacted by theinterpretation.
AASB Interpretation 14: ‘The Limit on a
Defined Benefit Asset, Minimum Funding
Requirements and their Interaction’clarifies the amount of surplus that canbe recognised by an entity sponsoringa defined benefit plan where minimum
funding requirements exist. AASBInterpretation 14 is applicable for annual
reporting periods beginning on or after
1 January 2008.
The application of AASB Interpretation 14
is not expected to have a material impact
on the financial results of the Company
or the Group as the defined benefit asset
currently recognised by the Group isrelatively immaterial.
The Group does not intend to apply anyof the above pronouncements until theiroperative date.

ii) Consolidation
The financial statements consolidate
the financial statements of Australia and
New Zealand Banking Group Limited (theCompany) and all of its controlled entities
where it is determined that there is a
capacity to control.
Where controlled entities have been soldor acquired during the year, their operating
results have been included to the date ofdisposal or from the date of acquisition.
Control means the power to govern directly
or indirectly the financial and operating

policies of an entity so as to obtain benefits
from its activities. Control is usually present
when an entity has: power over more than
one-half of the voting rights of the otherentity; power to govern the financial andoperating policies of the other entity;
power to appoint or remove the majorityof the members of the board of directors
or equivalent governing body; or power tocast the majority of votes at meetings of theboard of directors or equivalent governing
body of the entity. In addition, potential
voting rights that are presently exercisable orconvertible are taken into account. However,
all the facts of a particular situation are
considered when determining whether
control exists. In relation to special purpose
entities, such control is also deemed toexist even where an entity owns less than amajority of the shareholder or Board voting
power of such companies, provided that thefollowing factors exist:
the majority of the benefits from theiractivities accrue to the entity; andthe entity has the majority of the residual
risks and rewards of the special purpose
entity.
Further detail on special purpose entities
is provided in note 2(i).
The Group adopts the equity method of
accounting for associates and the Group’s
interest in joint venture entities.
The Group’s share of results of associates
and joint venture entities is included in the
consolidated income statement. Sharesin associates and joint venture entities
are stated in the consolidated balance
sheet at cost plus the Group’s share ofpost acquisition net assets. Interests inassociates and joint ventures are reviewed
annually for impairment primarily using
a discounted cash flow methodology. In
the course of completing this impairment
review other methodologies are considered
to determine the reasonableness of thevaluation, including the multiples
of earnings methodology.
In the Company’s financial statements,
investments in associates and joint venture
entities are carried at cost.
All significant activities of the Group, withthe exception of the ING Australia Joint
Venture and the investment in AMMB
Holdings Berhad are operated throughwholly owned controlled entities.
Derecognition
The Group enters into transactions where it
transfers financial assets recognised on its
balance sheet but retains either all risks andrewards of the transferred assets or a portion

Financial Report 59

NOTES TO THE FINA NCIAL STATEMENTS
1: Significant Accounting Policies (continued)of them. If all or substantially all risks andrewards are retained, the transferred assets
are not derecognised from the balance
sheet. The main types of financial assetsthat do not qualify for derecognition aredebt securities held by counterparties as
collateral under repurchase agreements,
equity securities lent under securities
lending agreements and securitised assets.
In transactions where substantially all
the risks and rewards of ownership of afinancial asset are neither retained nor
transferred, the Group derecognises theasset if control over the asset is lost. The
rights and obligations retained in thetransfer are recognised separately as assets
and liabilities as appropriate. 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 thetransferred asset.

iii) Foreign currency
Functional and presentation currency
Items included in the financial statementsof each of the Group’s entities are measured
using the currency of the primary economic
environment in which the entity operates(the functional currency).
The consolidated financial statements arepresented in Australian dollars, which is
the Company’s functional and presentation
currency.
Translation differences on non-monetary
items, such as derivatives measured at fairvalue through profit or loss, are reported
as part of the fair value gain or loss onthese items. Translation differences on
non-monetary items measured at fair value
through equity, such as equities classified
as available-for-sale financial assets, areincluded in the available-for-sale reservein equity. Translation differences onmonetary items are recognised in profit orloss in the period in which they arise.
Transactions and balances
Foreign currency transactions are translated
into the functional currency using theexchange rates prevailing at the dates of thetransactions. Foreign exchange gains andlosses resulting from (i) the settlement ofsuch transactions, and (ii) the translation
at year-end exchange rates of monetary
assets and liabilities denominated inforeign currencies, are recognised in theincome statement, except when deferredin equity as qualifying cash flow hedges
and qualifying net investment hedges.

60 ANZ Annual Report 2007

Foreign operations
The results and financial position of all
Group entities (none of which has thecurrency 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:(i) assets and liabilities of each foreign
operation are translated at the rates of
exchange ruling at balance date;(ii) revenue and expenses of each foreign
operation are translated at the averageexchange rate for the period, unless thisaverage is not a reasonable approximationof the rate prevailing on transaction date,
in which case revenue and expenses aretranslated at the exchange rate ruling attransaction date; and(iii) all resulting exchange differences
are recognised in the foreign currencytranslation reserve.
On consolidation, exchange differences
arising from borrowings and other currency
instruments designated as hedges of net
investment in foreign operations, are taken
to the foreign currency translation reserve.
When a foreign operation is disposed, suchexchange differences are recognised in theincome statement as part of the gain or loss
on sale.
Goodwill and fair value adjustments arisingon the acquisition of a foreign entity aretreated as assets and liabilities of theforeign entity and translated at the rateruling at balance date.

iv) Interest income and interest expense
Interest income and interest expense arerecognised in the income statement as theyaccrue, using the effective interest method.
The effective interest method calculates
the amortised cost of a financial asset or
financial liability and allocates the interest
income or interest expense, including feesand directly related transaction costs thatare an integral part of the effective interest
rate, over the expected life of the financial
instrument. Income and expense on thefinancial instruments are recognised onan effective yield basis in proportion to
the amount outstanding over the period
to maturity or repayment.
Loan commitment fees, together with related
direct costs, are deferred and recognised
as an adjustment to the effective interest
rate on the loan once drawn or immediately
to the income statement for expiredcommitments.

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

vi) Offsetting of income and expenses
Income and expenses are not offset unlessrequired or permitted by an accounting
standard. At the Group level, this generally
arises in the following circumstances:where transaction costs form an integral
part of the effective interest rate of afinancial instrument which is measured
at amortised cost, these are offset against
the interest income generated by thefinancial instrument;
where gains and losses relating to fairvalue hedges are assessed as being
effective;
where gains and losses arise from a groupof similar transactions such as foreignexchange gains and losses;
where amounts are collected on behalf ofthird parties, where the Group is acting asan agent only; orwhere costs are incurred on behalf ofcustomers from whom the Group isreimbursed.

vii) Trading securities and financial assets
at fair value through profit or loss
Trading securities are financial instruments
acquired principally for the purpose of
selling in the short-term or which are a partof a portfolio which is managed for shortterm profit-taking are initially recognised
and subsequently measured in the balance
sheet at their fair value. Additionally, thisvaluation basis is used as an alternative
to hedge accounting for certain financial
instruments where specific conditions
are met.
Derivatives that are neither financial
guarantee contracts nor effective hedging
instruments are carried at fair value throughprofit and loss. In addition, certain financial
assets and liabilities are designated andmeasured at fair value through profit or loss
where any of the following applies:

NOTES TO THE FINA NCIAL STATEMENTS
1: Significant Accounting Policies (continued)
doing so eliminates or significantly
reduces a measurement or recognition
inconsistency that would otherwise arise
from measuring assets and liabilities, orrecognising the gains or losses thereon,on different bases;a group of financial assets or financial
liabilities or both is managed and its
performance evaluated on a fair value
basis; orthe 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 (gains or losses)of these financial instruments arerecognised in the income statementin the period in which they occur.
Purchases and sales of trading securities arerecognised on trade date.

viii) Derivative financial instruments
Derivative financial instruments arecontracts whose value is derived from one
or more underlying price, index or othervariable. They include swaps, forward
rate agreements, futures, options andcombinations of these instruments.
Derivative financial instruments areentered into for trading purposes (including
customer-related reasons), or for hedging
purposes (where the derivative instruments
are used to hedge the Group’s exposures
to interest rate risk, currency risk, price risk,
credit risk and other exposures relating to
non-trading positions).
Derivative financial instruments arerecognised initially on trade date at fairvalue with gains or losses from subsequent
measurement at fair value being recognisedin the income statement. Where thederivative is designated effective as ahedging instrument, the timing of therecognition of any resultant gain or loss
in the income statement is dependent on
the hedging designation. These hedging
designations and associated accounting are
as follows:
Fair value hedge
Where the Group hedges the fair valueof a recognised asset or liability or firm
commitment, changes in the fair valueof the derivative designated as a fairvalue hedge are recognised in theincome statement. Changes in the fairvalue of the hedged item attributable
to the hedged risk are reflected inadjustments to the carrying value of thehedged item, which are also recognisedin the income statement.
Hedge accounting is discontinued
when the hedge instrument expires
or is sold, terminated, exercised or nolonger qualifies for hedge accounting.
The resulting adjustment to the carrying
amount of the hedged item arising fromthe hedged risk is amortised to theincome statement over the period tomaturity.
If the hedged item is derecognisedfrom the Group’s balance sheet, theunamortised fair value adjustment isrecognised immediately in the income
statement.
Cash flow hedge
The Group designates derivatives as cash
flow hedges where the instrument hedges
the variability in cash flows of a recognised
asset or liability, a foreign exchange
component of a firm commitment or ahighly probable forecast transaction.
The effective portion of changes in thefair value of derivatives qualifying anddesignated as cash flow hedges isdeferred to the hedging reserve, whichforms part of shareholders’ equity. Any
ineffective portion is recognised
immediately in the income statement.
Amounts deferred in equity are recognisedin the income statement in the period
during which the hedged forecast
transactions take place.
When the hedge expires, is sold,terminated, exercised, or no longer
qualifies for hedge accounting, thecumulative amount deferred in equity
remains in the hedging reserve, and is
subsequently transferred to the income
statement when the hedged item isrecognised in the income statement.
When a forecast hedged transaction
is no longer expected to occur, theamount deferred in equity is recognised
immediately in the income statement.

Derivatives that do not qualify forhedge accounting
All gains and losses from changes in the fairvalue of derivatives that are not designatedin a hedging relationship but are enteredinto to manage the interest rate and foreignexchange risk of funding instruments arerecognised in the income statement. Undercertain circumstances, the componentof the fair value change in the derivative
which relates to current period realised andunrealised interest is included in net interest
income. The remainder of the fair value
movement is included in other income.
Embedded derivatives
Derivatives embedded in financial
instruments or other host contracts aretreated as separate derivatives when theireconomic characteristics and risks are notclosely related to those of the host contracts,
and the host contracts are not measured
at fair value through profit and loss. The
embedded derivative is measured at fairvalue with changes in fair value immediately
recognised in the income statement.
Cash flow treatment
Movements in the derivative financial
position are recorded in the cash flow
statement when they are settled.
Set-off arrangements
Fair value gains/losses arising from trading
derivatives are not offset against fair value
gains/losses on the balance sheet unlessa legal right of set-off exists and there is anintention to settle net.
For contracts subject to master netting
agreements that create a legal right of set-off
for which only the net revaluation amountis recognised in the income statement,
net unrealised gains on derivatives arerecognised as part of other assets and net
unrealised losses are recognised as part ofother liabilities.

Net investment hedge
Hedges of net investments in foreign
operations are accounted for similarly tocash flow hedges. The gain or loss fromremeasuring the fair value of the hedging
instrument relating to the effective portionof the hedge is deferred in equity andthe ineffective portion is recognised
immediately in the income statement.

Financial Report 61

NOTES TO THE FINA NCIAL STATEMENTS
1: Significant Accounting Policies (continued)ix) Available-for-sale assets
Available-for-sale assets comprise nonderivative financial assets which the Group
designates as available-for-sale but which
are not deemed to be held principallyfor trading purposes, and include equity
investments, certain loans and advances,and fixed term securities. They are initiallyrecognised at fair value plus transaction
costs. Subsequent gains or losses arisingfrom changes in fair value are included
as a separate component of equity in the‘Available-for-sale revaluation reserve’.
When the asset is sold the cumulative gainor loss relating to the asset is transferredto the income statement.
Where there is objective evidence ofimpairment on an available-for-sale asset,
the cumulative loss related to that asset
is removed from equity and recognised in
the income statement. If, in a subsequent
period, the amount of an impairment
loss relating to an available-for-sale debt
instrument decreases and the decrease canbe linked objectively to an event occurring
after the impairment event, the loss isreversed through the income statement.
Premiums and discounts are included
within the calculation of the fair value of the
security. Interest income is accrued on an
effective yield basis and dividend income
is recognised when the right to receive
payment is established.
Purchases and sales of available-for-salefinancial assets are recognised on tradedate as with all regular way assets, being
the date on which the Group commits topurchase or sell the asset.

x) 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 no intention of
trading the loans and advances. The loans
and advances are initially recognised at fairvalue plus transaction costs that are directly
attributable to the issue of the loan oradvance. They are subsequently measured
at amortised cost using the effective
interest method (refer note 1(iv)). They are
derecognised when the rights to receive
cash flows have expired or the Group has
transferred substantially all the risks andrewards of ownership.
All loans are subject to scrutiny and gradedaccording to the level of credit risk.

62 ANZ Annual Report 2007

Net loans and advances includes direct
finance provided to customers such asbank overdrafts, credit cards, term loans,finance lease receivables and commercial
bills. Overdrafts, credit cards, finance leasereceivables, term loans and commercial bills
are carried at amortised cost.
Customer financing through redeemablepreference shares is included within net
loans and advances. Dividends received
on redeemable preference shares are taken
to the income statement as part of interest
income.

xi) Impairment of loans and advances
Loans and advances are reviewed at leastat each reporting date for impairment.
Credit impairment provisions are raisedfor exposures, including off-balance
sheet items such as commitments andguarantees, 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 resultof one or more loss events that occurred
after the initial recognition of the loan andprior to the reporting date, and that loss
event, or events, has had an impact on theestimated future cash flows of the individualloan or the collective portfolio of loans thatcan be reliably estimated.
Impairment is assessed for assets that are
individually significant (or on a portfolio
basis for small value loans), and then on
a collective basis for those exposures notindividually known to be impaired.
Exposures that are assessed collectively
are placed in pools of similar assets withsimilar risk characteristics. The required
provision is estimated on the basis ofhistorical loss experience for assets withcredit risk characteristics similar to thosein the collective pool. The historical loss
experience is adjusted based on current
observable data.
The estimated impairment losses aremeasured as the difference between theassets’ carrying amount and the estimatedfuture cash flows discounted to their present
value. As this discount unwinds during theperiod between recognition of impairment
and recovery of the cash flow, it isrecognised in interest income. The processof estimating the amount and timing of cash
flows involves considerable management
judgment. These judgments are reviewed
regularly to reduce any differences between
loss estimates and actual loss experience.

The provision for impairment loss
(individual and collective) is deducted fromloans and advances in the balance sheet
and the movement for the reporting period
is reflected in the income statement.
When a loan is uncollectible, it is writtenoff against the related provision for loan
impairment. Subsequent recoveriesof amounts previously written-off areindirectly credited back to the income
statement.
Where impairment losses recognised
in previous periods have subsequently
decreased or no longer exist, such
impairment losses are indirectly reversedin the income statement.
A provision is also raised for off-balance
sheet items such as commitments andguarantees that are considered to be
onerous.

xii) Leasing
Leases as lessee
Leases entered into by the Group as lessee
are predominantly operating leases,
and the operating lease payments arerecognised as an expense on a straight-line
basis over the lease term.
Leases as lessor
Contracts to lease assets, and hire purchaseagreements are classified as finance leases
if they transfer substantially all the risks
and rewards of ownership of the asset tothe customer or an unrelated third party.
All other lease contracts are classified as
operating leases.

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

NOTES TO THE FINA NCIAL STATEMENTS
1: Significant Accounting Policies (continued)xiv) Goodwill and other intangible assets
Goodwill
Goodwill, representing the excess of thepurchase consideration over the fair valueof the identifiable net assets of a controlled
entity at the date of gaining control, isrecognised as an asset and not amortised,
but assessed for impairment annually andwhenever there is an indication that the
goodwill may be impaired. This involves,
where required, using the discounted
cash flow (DCF) or the capitalisation of
earnings methodology (CEM) to determine
the expected future benefits of the cashgenerating units. Where the assessment
results in the goodwill balance exceeding
the value of expected future benefits,
the difference is charged to the income
statement.
Any impairment of goodwill is not
subsequently reversed.
Other intangible assets
Other intangible assets include costs
incurred in acquiring and building softwareand computer systems (“software”).

The depreciation rates used for each classof asset are:
Buildings
1%
Building integrals
10%
Furniture & equipment
10%
Computer & office equipment 12.5%–33%
Leasehold improvements are amortised ona straight-line basis over the shorter of theiruseful lives or remaining terms of the lease.
Premises and equipment impairment
assessment
At each reporting date, the carrying amounts
of premises and equipment are reviewed
for impairment. If any such indication
exists, the recoverable amount of the assets
are estimated and compared against theexisting carrying value. Where the existing
carrying value exceeds the recoverable
amount, the difference is charged to theincome statement. If it is not possible toestimate the recoverable amount of anindividual asset, the Group estimates therecoverable amount of the cash generating
unit to which the asset belongs.

xvii) Capitalised expenses
Direct external expenses, comprising
direct and incremental costs related
to the acquisition of interest earning
assets, including structured institutional
lending, mortgages and finance leases,
are initially recognised as part of the costof acquiring the asset and amortised aspart of expected yield over its expected
life using the effective interest method.
The write-off is to interest income as partof the effective interest rate. For assets
subject to prepayment, expected life isdetermined on the basis of the historicalbehaviour of the particular asset portfolio,
taking into account contractual obligations
and prepayment experience assessed ona regular basis. Impairment of capitalised
expenses is assessed through comparing
the actual behaviour of the portfolio against
initial expected life assumptions.

xviii) Deposits and other borrowings

Software is amortised using the straightline method over its expected useful life
to the Group. The period of amortisation is
between 3 and 5 years, except for certain
core infrastructure projects where the usefullife has been determined to be 7 years.

A previously recognised impairment loss
is reversed if there has been a change
in the estimates used to determine therecoverable amount.

Deposits and other borrowings include
certificates of deposit, interest bearing
deposits, debentures and other related
interest bearing financial instruments.
They are measured at amortised cost. Theinterest expense is recognised using theeffective interest method as explained innote 1(iv).

xvi) Repurchase agreementsxix) Bonds, notes and loan capitalAt each reporting date, software assets
are reviewed for impairment. If any such
indication exists, the recoverable amountof the assets are estimated and comparedagainst the existing carrying value. Wherethe existing carrying value exceeds therecoverable amount, the difference ischarged to the income statement.

Securities sold under repurchaseagreements are retained in the financial
statements where substantially all the risks
and rewards of ownership remain with
the Group, and a counterparty liability isdisclosed under the classifications of due
to other financial institutions or payables
and other liabilities. The difference between
the sale price and the repurchase priceis accrued over the life of the repurchaseagreement and charged to interest expensein the income statement.

Bonds, notes and loan capital areaccounted for in the same way as deposits
and other borrowings, except for thosebonds and notes which are stated at fairvalue, with fair value movements recordedin the income statement.

Costs incurred in planning or evaluating
software proposals, or in maintaining
systems after implementation, are notcapitalised.

xv) Premises and equipment
Premises and equipment are carried atcost less accumulated depreciation andimpairment.
The gain or loss on the disposal of premises
and equipment is determined as thedifference between the carrying amount of
the assets at the time of disposal and theproceeds of disposal, and is included in the
results in the year of disposal.
Assets other than freehold land are
depreciated at rates based upon their
expected useful lives to the Group, using
the straight-line method.

Securities purchased under agreements toresell, where the Group does not acquire
the risks and rewards of ownership, arerecorded as liquid assets, net loans andadvances, or due from other financial
institutions, depending on the term of
the agreement and the counterparty. The
security is not included in the balance
sheet. Interest income is accrued on theunderlying loan amount.
Securities borrowed are not recognisedin the balance sheet, unless these aresold to third parties, at which point the
obligation to repurchase is recorded asa financial liability at fair value with fairvalue movements included in the income
statement.

xx) Employee benefits
Leave benefits
The amounts expected to be paid in respectof employees’ entitlements to annual
leave are accrued at expected salaryrates including on-costs. Liability for longservice leave is calculated and accrued
for in respect of all applicable employees(including on-costs) using an actuarial
valuation.
Defined contribution superannuation
schemes
The Group operates a number ofdefined contribution schemes and also
contributes, according to local law, in thevarious countries in which it operates, togovernment and other plans that havethe characteristics of defined contribution
schemes. The Group’s contributions tothese schemes are recognised as an
expense in the income statement whenincurred.

Financial Report 63

NOTES TO THE FINA NCIAL STATEMENTS
1: Significant Accounting Policies (continued)
Defined benefit superannuation schemes
The Group operates a number of defined
benefit schemes. The liability and expense
related to providing benefits to employees
under each defined benefit scheme arecalculated by independent actuaries.
A defined benefit liability is recognised,to the extent that the present value ofthe defined benefit obligation of eachscheme, calculated using the Projected
Unit Credit Method, is greater than the fairvalue of each scheme’s assets. Where thiscalculation results in a benefit to the Group,a defined benefit asset is recognised, whichis capped at the recoverable amount. In
each subsequent reporting period, ongoing
movements in the defined benefit liability orasset carrying value is treated as follows:
the net movement relating to the current
period’s service cost, interest cost,
expected return on scheme assets, past
service costs and other costs (such as theeffects of any curtailments and settlements)
is recognised as an employee expense in
the income statement
movements relating to actuarial gains andlosses are recognised directly in retained
earnings
contributions incurred are recognised
directly against the net defined benefit
position.
Share-based compensation
The Group has various equity settled
share-based compensation plans. These aredescribed in note 47 and largely comprise
the Employee Share Acquisition Plan and
the ANZ Share Option Plan.
ANZ ordinary shares: The fair value of ANZ
ordinary shares granted under the Employee
Share Acquisition Plan is measured at grantdate, using the one-day volume weighted
average market price of ANZ shares. The fairvalue is expensed immediately when shares
vest immediately or on a straight-line basis
over the relevant vesting period. This is
recognised as an employee compensation
expense with a corresponding increasein equity.
Share options: The fair value of shareoptions is measured at grant date, using
an option pricing model. The fair value isexpensed on a straight-line basis over the
relevant vesting period. This is recognised
as an employee compensation expensewith a corresponding increase in the shareoptions reserve.

64 ANZ Annual Report 2007

The option pricing model takes into accountthe exercise price of the option, the risk-freeinterest rate, the expected volatility of ANZ
ordinary share price and other factors.
Market vesting conditions are taken into
account in estimating the fair value.
Performance rights: A Performance Rightis a right to acquire a share at nil cost to
the employee subject to satisfactorily
meeting time and performance hurdles.
Upon exercise, each Performance Right
entitles the holder to one ordinary share in
ANZ. The fair value of Performance Rights
is determined at grant date using an option
pricing model, taking into account market
conditions. The fair value is expensed
over the relevant vesting period. This is
recognised as an employee expense with acorresponding increase in equity.
Other adjustments: Subsequent to the
grant of an equity-based award, the amountrecognised as an expense is adjusted
for vesting conditions other than market
conditions so that, ultimately, the amountrecognised as an expense is based on
the number of equity instruments thateventually vests.
Treasury shares: Shares in the Company
which are purchased on-market by the
ANZ Employee Share Acquisition Plan areclassified as treasury shares (to the extent
that they relate to unvested employee
share-based awards) and deducted fromshare capital.

xxi) Provisions
The Group recognises provisions when there
is a present obligation, the future sacrificeof economic benefits is probable, and theamount of the provision can be measured
reliably. The amount recognised is the best
estimate of the consideration required tosettle the present obligation at reporting
date, taking into account the risks anduncertainties surrounding the obligation
at reporting date. Where a provision ismeasured using the cash flows estimatedto settle the present obligation, its carrying
amount is the present value of those cash
flows. Any expected third party recoveries
are recognised as an asset if it is virtuallycertain that recovery will be received
and the amount of the receivable can bemeasured reliably.

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

xxiii) Contingent Liabilities
These items are recorded as liabilities
on the balance sheet when the following
requirements are met:
the transaction is probable in that thecontingency is likely to occur; andthe contingency can be reasonably
estimated.
Further disclosure is made in note 45,
where the above requirements are not
met but there is a possible obligation thatis more than remote. Specific details areprovided together with an estimate of therange or a statement that such an estimate
is not possible.

xxiv) Income tax
Income tax expense
Income tax on earnings for the year
comprises current and deferred tax and isbased on the applicable tax law in eachjurisdiction. 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 the determinationof goodwill.
Current tax
Current tax is the expected tax payableon taxable income for the year, based on
tax rates (and tax laws) which are enacted
or substantively enacted by the reporting
date, including any adjustment for tax
payable in previous years. Current tax for
current and prior years is recognised as
a liability (or asset) to the extent that it isunpaid (or refundable).
Deferred tax
Deferred tax is accounted for using thecomprehensive 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.

NOTES TO THE FINA NCIAL STATEMENTS
1: Significant Accounting Policies

2: Critical Estimates and Judgements
Used in Applying Accounting Policies(continued)

Deferred tax assets and liabilities aremeasured at the tax rates that are expected
to apply to the year(s) when the asset andliability giving rise to them are realised or
settled, based on tax rates (and tax laws)that have been enacted or substantively
enacted by the reporting date. The
measurement reflects the tax consequencesthat would follow from the manner in which
the Group, at the reporting date, recovers or
settles the carrying amount of its assets andliabilities.
Deferred tax liabilities are recognised for
all taxable temporary differences, otherthan those in relation to taxable temporary
differences arising from goodwill.
Deferred tax liabilities are recognised fortaxable temporary differences arising on
investments in controlled entities, branches,
associates and joint ventures, except where
the Group is able to control the reversal of
the temporary differences and it is probablethat temporary differences will not reversein the foreseeable future. Deferred tax
assets associated with these interests
are recognised only to the extent that it isprobable that the temporary difference willreverse in the foreseeable future and there
will be sufficient taxable profits against
which to utilise the benefits of the temporary
difference.
Deferred tax assets, including those related
to the tax effects of income tax losses andcredits available to be carried forward,
are recognised only to the extent that itis probable that future taxable profits will
be available against which the deductible
temporary differences or unused tax losses
and credits can be utilised.
Offsetting
Current and deferred tax assets andliabilities are offset only to the extent thatthey relate to income taxes imposed by thesame taxation authority, there is legal rightand intention to settle on a net basis and it
is allowed under the tax law of the relevant
jurisdiction.

Financial guarantees are initially recognisedin the financial statements at fair value on
the date the guarantee was given. This is
typically the premium received. Subsequent
to initial recognition, the Group’s liabilities
under such guarantees are measured at thehigher of their amortised amount and thebest estimate of the expenditure required
to settle any financial obligation arising at
the balance sheet date. These estimates are
determined based on experience of similartransactions and history of past losses.

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

The Group prepares its consolidated
financial statements in accordance with
policies which are based on AAS, otherauthoritative accounting pronouncements of
the Australian Accounting Standards Board(AASB), AASB and Urgent Issues GroupInterpretations and the Corporations Act
of 2001. This involves the Group making
estimates and assumptions that affectthe reported amounts within the financial
statements. Estimates and judgements arecontinually evaluated and are based on
historical factors, including expectationsof future events that are believed to bereasonable under the circumstances. All
material changes to accounting policies
and estimates and the application of thesepolicies and judgements are approved by
the Audit Committee of the Board.
A brief explanation of critical estimates andjudgements, and their impact on the Group,
follows:

Critical Accounting Estimates andAssumptions
Provisions for credit impairment
The accounting policy, as explained in note
1(xi), relating to measuring the impairmentof loans and advances, requires the Groupto assess impairment regularly. The credit
provisions raised (individual and collective)
represent management’s best estimate of
the losses incurred in the loan portfolio atbalance date based on their experienced
judgement.
The collective provision is estimated on
the basis of historical loss experience forassets with credit characteristics similar to
those in the collective pool. The historicalloss experience is adjusted based on
current observable data and events and anassessment of the impact of model risk.
The use of such judgements and reasonableestimates is considered by management tobe an essential part of the process and does
not impact on reliability.

xxv) Financial guarantee contracts

Individual provisioning is applied when thefull collectibility of one of the Group’s loans
is identified as being doubtful.

Financial guarantee contracts are contracts
that require the issuer to make specified
payments to reimburse the holder for a loss
it incurs because a specified debtor fails
to make payments when due. Financial
guarantees are issued in the ordinary courseof business, consisting of letters of credit,
guarantees and acceptances.

Individual and collective provisioning is
calculated using discounted expected
future cash flows. The methodology andassumptions used for estimating both theamount and timing of future cash flows arerevised regularly to reduce any differences
between loss estimates and actual loss
experience.

Financial Report 65

NOTES TO THE FINA NCIAL STATEMENTS
2: Critical Estimates and Judgements Used in Applying Accounting Policies (continued)
Critical judgements in applying the entity’s
accounting policiesi) Special purpose and off balance sheet
entities
The Group may invest in or establish special
purpose entities (SPEs) to enable it toundertake specific types of transactions. The
main types of these SPEs are securitisation
vehicles, structured finance entities, andentities used to sell credit protection.

Where the Group has established SPEs which
are controlled by the Group to facilitatetransactions undertaken for Group purposes,
these are consolidated in the Group’s
financial statements.
The Group does not consolidate SPEs thatit does not control in accordance with theGroup’s policy outlined in note 1(ii). As it cansometimes be difficult to determine whether
the Group has control of an SPE, it makes
judgements about its exposure to the risks

and rewards, as well as about its ability tomake operational decisions for the SPE inquestion.
The table below summarises the main typesof SPEs that are not consolidated into theGroup, the reason for their establishment,
and the key risks associated with them. ANZ
does not bear the majority of residual risks
and rewards of these SPEs.

SPE Assets
2007
$m

2006
$m

Type of SPE

Reason for establishment

Key Risks

Securitisation vehicles

Assets are transferred to an SPE which funds
the purchase by issuing securities. This enables
ANZ or customers to increase diversity offunding sources.

ANZ may manage securitisation
vehicles, service assets in a vehicle
or provide liquidity or other supportand retains the risks associated withthe provision of these services.1 Credit
and market risks associated with theunderlying assets are not retained orassumed by ANZ except to the limited
extent that ANZ provides arm’s length
services and facilities.

7,786

9,381

n/a

n/a

2,145

2,145

The amount disclosed here is the total assets ofSPEs managed or arranged by ANZ. It includes
SPEs that purchase assets from sellers otherthan ANZ.

Structured finance entities2

These entities are set up to assist with thestructuring of client financing.

ANZ may manage these vehicles andalso provide derivatives.

Credit protection

These entities are set up to allow the Groupto sell the credit risk on portfolios.

ANZ may manage these vehicles.

1 Liquidity support facilities provided in relation to ANZ sponsored securitisation vehicles totalled $5.9 billion as at 30 September 2007,of which $2.9 billion had been drawn as at that date.
2 ANZ’s net investment in the structured finance entities is $229 million as at 30 September 2007 (30 September 2006: $233 million).

ii) Valuation of investment in ING Australia
Limited (INGA)
The Group adopts the equity method of
accounting for its 49% interest in INGA. As
at 30 September 2007, the Group’s carrying
value was $1,519 million (September 2006:$1,462 million).
The carrying value is subject to a recoverable
amount test to ensure that this does notexceed its recoverable amount at thereporting date.
Any excess of carrying value above
recoverable amount is written off to theincome statement as an impairment
write-down.
During the year the Group engaged Ernst &Young [ABC] Limited (EY [ABC]) to provide an
independent valuation of INGA for 31 March
2007 assessment purposes. The valuation
was a stand alone market based assessmentof economic value, and excluded the Group’s
specific synergies. The independent valuation
was based on a discounted cashflow
approach, with allowance for the cost ofcapital. EY [ABC] presented an independentvaluation range of $4,750 million to $5,083

66 ANZ Annual Report 2007

million, reflecting a range of sales and costbase assumptions. Based on this review,
ANZ believed that no change was required
to the carrying value of the investment as
at 31 March 2007.
At 30 September 2007, impairment testing
via a management review was conducted
to determine whether there were any
indicators of impairment. The assessment
involved review of the following indicators of
impairment:
Performance
Operational and regulatory factors
Economic and industry factors
The assessment did not indicate theexistence of impairment indicators andaccordingly no write-down was required.
(iii) Valuation of investment in ING (NZ)
Holdings Limited (ING NZ)
The Group adopts the equity method of
accounting for its 49% interest in ING NZ.
As at 30 September 2007, the Group’s
carrying value was $162 million (September
2006: $146 million).

The carrying value is subject to a recoverable
amount test to ensure that this does notexceed its recoverable amount at thereporting date.
Any excess of carrying value above
recoverable amount is written off to
the income statement as an impairment
write-down.
During the year the Group engaged
PricewaterhouseCoopers (PwC) to provide an
impairment analysis of ING NZ for 31 March
2007 assessment purposes. The valuation
was based on a discounted cashflow
approach.
PwC presented a valuation range as at
31 December 2006 of $344 million to$386 million (at 30 September 2007
exchange rates), reflecting a range of sales
and cost base assumptions.
PwC also considered the additional cash
generated by ING NZ in the period between
31 December 2006 and 31 March 2007
in order to provide an assessment as at
31 March 2007 of the appropriateness ofthe carrying value. Based on this review ANZ
believed that no change was required to theNOTES TO THE FINA NCIAL STATEMENTS
2: Critical Estimates and Judgements Used in Applying Accounting Policies (continued)
carrying value of the investment as at
31 March 2007.
At 30 September 2007, impairment testing
via a management review was conducted todetermine whether there were any indicatorsof impairment based on the 31 March 2007
valuation. The assessment involved reviewof the following indicators of impairment:
Performancetransactions, particularly with respect to themix of business, geographic location, growthprospects, riskiness of future earnings andsize of the overall business.
The results of the independent valuation
carried out as at 31 March 2007 showeda fair value in excess of the then current
carrying value for the CGU and hence thecarrying value of the goodwill was notconsidered impaired.

Operational and regulatory factors
Economic and industry factors
The assessment did not indicate theexistence of impairment indicators andaccordingly no write-down was required.
iv) Goodwill
The carrying value of goodwill is reviewed
at each balance date and is written down,
to the extent that it is no longer supported
by probable future benefits.
Any excess of carrying value over recoverable
amount is taken to the income statement as
an impairment write-down.
Goodwill is allocated to cash-generating
units (CGU) for the purpose of impairment
testing, which is undertaken at the lowest
level at which goodwill is monitored forinternal management reporting purposes.
Impairment testing of purchased goodwill
is performed annually in March throughan independent valuation, by comparing
the fair value of the CGU with the current
carrying amount of its net assets, including
goodwill. Where the current carrying value
is greater than fair value, a charge for
impairment of goodwill will be recordedin the income statement.
As at 30 September 2007, the balanceof goodwill recorded as an asset in ANZ
National Bank Limited was $2,781 million(30 September 2006: $2,828 million). This
represents the most significant componentof the Group’s goodwill balance.
In determining the fair value of the CGU
for testing of the goodwill in ANZ National
Bank Limited, an independent valuation
is obtained based on a capitalisation of
earnings approach. Under this methodology,
valuation multiples (such as the price toearnings (PE) ratio) observed from previoustransactions in the banking sector andcurrent price/cash earnings multiples fromsimilar businesses are used to determine
an appropriate price/earnings multiple for
the CGU.

In June 2007 the Group obtained 100%
ownership of ETRADE Australia Limited. Thisacquisition resulted in the recognition of$264 million of goodwill.
At 30 September 2007, impairment testing
via a management review was conducted
to determine whether there were any
indicators of impairment in the carrying
value of ANZ National Bank Limited’s
goodwill and the goodwill recognised on
the acquisition of ETRADE Australia Limited.
The assessment involved review of thefollowing indicators of impairment:
Performance
Operational and regulatory factors
Economic and industry factors

As at 30 September 2007, the Group has
reviewed all investments in associates
against the following impairment indicators:
actual financial performance against
budgeted financial performance;
any material unfavourable operational
factors and regulatory factors;
any material unfavourable economic
outlook and market competitive factors;
carrying value against market value(supported by third-party broker
valuation); andcarrying value against market
capitalisation (for listed investments).
Where appropriate, additional potential
impairment indicators are reviewed
which are more specific to the respective
investment.
As at 30 September 2007, no impairmentof associates was identified as a result ofeither the review of impairment indicators
listed above, or the recoverable amount test
performed on longer term investments.

The assessment did not indicate theexistence of impairment and accordingly nowrite-down was required.
v) Significant Associates
The carrying value of all investments
in associates is subject to an annual
recoverable amount test. This assessment
involves ensuring that either theinvestment’s fair value (less costs to sell) is
greater than its carrying amount or its value
in use can be estimated to be close to its fairvalue (less costs to sell).
The Group has made several recent
significant investments in associates andeach will be subject to an annual recoverable
amount test. Furthermore, at each reporting
period, all investments are assessed against
potential impairment indicators.

In determining an appropriate price multiple
for the valuation, judgement is applied
when assessing comparable companies andFinancial Report 67

NOTES TO THE FINA NCIAL STATEMENTS
3: IncomeConsolidated

The Company

2007
$m

2006
$m

2007
$m

2006
$m

Interest income
Other financial institutions
Trading securities
Available-for-sale assets
Loans and advances
Acceptances
Other

488
955
629
22,049
1,072
1,017

407
526
736
18,802
969
861

373
749
498
14,192
1,072
586

254
384
448
11,791
969
507

Controlled entities

26,210–22,301–

17,470339

14,353265

Total interest income

26,21022,301

17,80914,618

491

430

374

336

Other operating income
Lending fees1
Non-lending fees and commissions arising from financial assets andliabilities not at fair value through profit or loss
Fee income on trust and other fiduciary activities where ANZ holds or invests
assets on behalf of its customers
Other fees and commissions

150

131

139

121

20
1,956

17
1,808

–
1,340

–
1,222

Controlled entities

2,617
–

2,386
–

1,853
178

1,679
173

Total fee and commission income
Fee and commission expense2

2,617
(237)

2,386
(241)

2,031
(168)

1,852
(175)

Net fee and commission income

2,380

2,145

1,863

1,677

510
(47)
416
100
–
195
37
38
–
55
140

447
(7)
216
49
14
–
2
–
–
3
146

523
(21)
133
80
–
–
–
–
1,134
–
67

203
(17)
167
36
–
–
–
–
1,145
2
83

Total other income

1,444

870

1,916

1,619

Total other operating income

3,824

3,015

3,779

3,296

Share of joint venture profit from ING Australia and ING (NZ) (refer note 42)
Share of associates’ profit (refer note 41)

172
87

138
56

–
–

–
–

Total share of joint venture and associates’ profit

259

194

–

–

30,29325,51021,58817,914

Other income
Net foreign exchange earnings
Net (losses)/gains from trading securities3
Net gains/(losses) from trading derivatives
Movements on financial instruments measured at fair value through profit or loss4
Settlement of ANZ National Bank Limited warranty claims
Gain on sale of Esanda Fleetpartners
Profit/(loss) on sale of premises5
Stadium Australia income
Dividends received from controlled entities
Brokerage income
Other

Total income6
12
3
4

Lending fees exclude fees treated as part of the effective yield calculation and included in interest income (refer note 1(iv)).
Comprises interchange fees paid.
Does not include interest income.
Includes any fair value movements (excluding realised and accrued interest) on derivatives entered into to manage interest rate and foreign exchange risk on funding instruments,
and not designated as accounting hedges, ineffective portions of cashflow hedges, and fair value movements in financial assets and liabilities designated at fair value.
The net gain on financial assets and liabilities designated at fair value was $127 million (2006: $128 million) for the Group and $125 million (2006: $125 million) for the Company.
5 Gross proceeds on sale of premises is $63 million (2006: $4 million).
6 Total income includes external dividend income of $99 million (2006: $53 million) for the Group and $1 million (2006: $6 million) for the Company.

68 ANZ Annual Report 2007

NOTES TO THE FINA NCIAL STATEMENTS
4: Expenses
Consolidated

The Company

2007
$m

2006
$m

2007
$m

2006
$m

Interest expense
Financial institutions
Deposits
Borrowing corporations’ debt
Commercial paper
Acceptances
Loan capital, bonds and notes
Other

872
10,123
671
1,210
915
4,628
489

636
8,000
652
1,440
809
3,387
434

764
6,876
–
394
915
3,509
386

527
5,296
–
245
809
2,537
299

Controlled entities

18,908–15,358–

12,844
304

9,713
628

Total interest expense

18,90815,35813,148

10,341i) Personnel
Employee entitlements and taxes
Salaries and wages
Superannuation costs – defined benefit plans (refer note 46)
Superannuation costs – defined contribution plans
Equity-settled share-based payments (refer note 47)
Temporary staff
Other

236
1,892
11
180
62
131
479

207
1,746
11
160
76
121
461

163
1,314
6
139
50
94
353

137
1,201
6
121
65
75
338

Total personnel expenses

2,991

2,782

2,119

1,943

ii) Premises
Amortisation of leasehold improvements (refer note 22)
Depreciation of buildings and integrals (refer note 22)
Rent
Utilities and other outgoings
Other

22
22
254
138
26

18
15
228
128
23

16
4
169
96
19

12
2
146
92
24

Total premises expenses

462

412

304

276

iii) Computer
Computer contractors
Data communication
Depreciation and amortisation1
Rentals and repairs
Software purchased
Software written-off
Other

50
71
208
73
134
16
40

47
64
208
68
117
10
41

38
44
174
54
100
14
13

39
40
170
49
84
10
19

Total computer expenses

592

555

437

411

iv) OtherAdvertising and public relations
Amortisation of other intangible assets (refer note 20)
Audit and other fees (refer note 5)
Depreciation of furniture and equipment (refer note 22)
Freight and cartage
Loss on sale of equipment
Non-lending losses, frauds and forgeries
Postage and stationery
Professional fees
Settlement of NHB insurance claim
Telephone
Travel
Other

157
6
12
57
53
3
43
115
130
–
55
152
125

175
3
12
48
47
4
55
116
120
(113)
56
136
123

97
4
8
44
46
2
48
74
89
–
27
102
222

123
3
8
36
40
2
18
73
91
(113)
30
89
220

Total other expenses

908

782

763

620

Operating expenses

Total operating expenses

4,953

4,531

3,623

3,250

Total expenses

23,861

19,88916,771

13,591

1 Comprises software amortisation of $122 million (2006: $114 million), refer note 20, and computer depreciation of $86 million (2006: $94 million), refer note 22. The Company comprises
software amortisation of $109 million (2006: $100 million), refer note 20, and computer depreciation of $65 million (2006: $70 million), refer note 22.

Financial Report 69

NOTES TO THE FINA NCIAL STATEMENTS
5: Compensation of Auditors
Consolidated

The Company

2007
$’000

2006
$’000

2007
$’000

2006
$’000

KPMG Australia
Audit or review of financial reports of the Company or Group
Other audit-related services1
Other assurance services2

6,696
2,210
110

6,462
1,152
209

5,624
1,575
110

5,572
878
209

Total

9,016

7,823

7,309

6,659

Overseas related practices of KPMG Australia
Audit or review of financial reports of Group entities
Other audit-related services1
Other assurance services2

2,678
760
–

2,654
1,031
38

584
374
–

527
497
–

3,438

3,723

958

1,024

12,454

11,546

8,267

7,683

Total compensation of auditors

It is Group policy that KPMG Australia or any of its related practices may provide assurance and other audit-related services that, while outside the scope of the statutory audit, are consistent withthe role of auditor. These include regulatory and prudential reviews requested by the Company’s regulators such as the Australian Prudential Regulation Authority (APRA). KPMG Australia or anyof its related practices may not provide services that are perceived to be materially in conflict with the role of 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. However, non-audit services that are not perceived
to be materially in conflict with the role of auditor may be provided by KPMG Australia or any of its related practices subject to the approval of the Audit Committee.
1 Includes prudential supervision reviews for central banks and work required for local statutory purposes.
2 Other assurance services includes:

Consolidated

2007
$’000

2006
$’000

Sustainability review
Compliance testing for securitisationtransaction
Training course

–

203

66
44

–
44

Total

110

247

70 ANZ Annual Report 2007

NOTES TO THE FINA NCIAL STATEMENTS
6: Income Tax Expense
Consolidated

The Company

2007
$m

2006
$m

2007
$m

2006
$m

1,847
(2)

1,754
(4)

1,185
(4)

1,206
–

(101)

(225)

(238)

(333)

(66)

(3)

(65)

(2)

1,678

1,522

878

871

Operating profit before income tax

5,865

5,214

4,429

4,045

Prima facie income tax expense at 30%

1,760

1,564

1,329

1,214

30
(10)
(3)
(75)
(54)
24
–
8

25
(6)
(9)
(57)
–
–
–
9

(2)
(340)
–
–
(54)
–
(67)
16

(5)
(345)
–
–
–
–
9
(2)

1,680

1,526

882

871

(2)

(4)

(4)

–

Total income tax expense charged in the Income Statement

1,678

1,522

878

871

Effective Tax Rate

28.6%

29.2%

19.8%

21.5%

Australia

1,073

984

797

784

Overseas

605

538

81

87

135

2

99

(3)

(a) Income tax recognised in the Income Statement
Tax expense/(income) comprises:
Income tax expense/(income)
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
Benefits arising from previously unrecognised tax losses, tax credits,or temporary differences of a prior period that is used to reduce:- current tax expense
Total income tax expense charged in the Income Statement
Reconciliation of the prima facie income tax expense on pre-tax profit
with the income tax expense charged in the Income Statement.

Change in income tax expense due to:Overseas tax rate differential
Rebateable and non-assessable dividends
Other non-assessable income
Profit from associated and joint venture entities
Recognition of previously unrecognised capital losses
Restatement of deferred tax balances for New Zealand tax rate change
Foreign exchange translation of US Hybrid loan capital
Other

Income tax (over) provided in previous years(b) Income tax recognised directly in equity
The following income tax amounts were charged directly to equity during the period

Tax consolidation
The 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 taxconsolidated 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 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.

Financial Report 71

NOTES TO THE FINA NCIAL STATEMENTS
7: Dividends
Consolidated

The Company

2007
$m

2006
$m

2007
$m

2006
$m

Ordinary dividends1
Interim dividend
Final dividend2
Bonus option plan adjustment

1,144
1,267
(48)

1,024
1,078
(34)

1,144
1,267
(48)

1,024
1,078
(34)

Dividends on ordinary shares

2,363

2,068

2,363

2,068

1 Dividends are not accrued and are recorded when paid.
2 Proposed final dividend of $1,381 million for 2007, based on the forecast number of ordinary shares on issue at the dividend record date, is not included in the table above.

A final dividend of 74 cents, fully franked, is proposed to be paid on each fully paid ordinary share on 21 December 2007 (2006: final dividendof 69 cents, paid 15 December 2006, fully franked). The 2007 interim dividend of 62 cents, paid 2 July 2007, was fully franked (2006: interim
dividend of 56 cents, paid 3 July 2006, fully franked).
The tax rate applicable to the franking credits attached to the interim dividend and to be attached to the proposed final dividend is 30%(2006: 30%).
Dividends paid in cash or satisfied by the issue of shares under the dividend reinvestment plan during the years ended 30 September 2007
and 2006 were as follows:
Consolidated

Paid in cash
Satisfied by issue of shares

The Company

2007
$m

2006
$m

2007
$m

2006
$m

1,921
442

1,903
165

1,921
442

1,903
165

2,363

2,068

2,363

2,068

Consolidated

The Company

2007
$m

2006
$m

2007
$m

2006
$m

Preference dividends
Euro Trust Securities

37

27

–

–

Dividends on preference shares

37

27

–

–

72 ANZ Annual Report 2007

NOTES TO THE FINA NCIAL STATEMENTS
7: Dividends (continued)
Euro Trust Securities
On 13 December 2004, the Group issued 500,000 Euro Floating Rate Non-cumulative Trust Securities (“Euro Trust Securities”) at €1,000 each
into the European market, raising €500 million ($871 million at the spot rate at the date of issue, net of issue costs). The Euro Trust Securities
comprise 2 fully paid securities – an interest paying unsecured note issued by a United Kingdom subsidiary (ANZ Jackson Funding PLC) anda fully paid €1,000 preference share issued by the Company, which are stapled together and issued as a Euro Trust Security by ANZ Capital
Trust III.
Distributions on Euro Trust Securities are non-cumulative and are payable quarterly in arrears (on 15 March, 15 June, 15 September,
15 December of each year) based upon a floating distribution rate equal to 3 month EURIBOR rate plus a 66 basis point margin. At eachpayment date the 3 month EURIBOR rate is reset for the next quarter. Dividends are not payable on the preference share while it is stapled to
the note. If distributions are not paid on Euro Trust Securities, the Company may not pay dividends or return capital on its ordinary shares or
any other share capital or security ranking equal or below the preference share component. (Refer to note 30 for further details.)

Dividend Franking Account
The amount of franking credits available to the Company for the subsequent financial year is $580 million (2006: $341 million) after adjustingfor franking credits that will arise from the payment of tax on Australian profits for the 2007 financial year, $592 million of franking credits which
will be utilised in franking the proposed final dividend and franking credits that may not be accessible by the Company at present.

Restrictions which Limit the Payment of Dividends
There are presently no significant restrictions on the payment of dividends from controlled entities to the Company. Various capital adequacy,liquidity, statutory reserve and other prudential requirements must be observed by certain controlled entities and the impact on theserequirements caused by the payment of cash dividends is monitored.
There are presently no restrictions on payment of dividends by the Company. Reductions of shareholders’ equity through payment of cash
dividends is monitored having regard to the regulatory requirements to maintain a specified capital adequacy ratio. In particular, the Australian
Prudential Regulation Authority (APRA) has advised that a bank under its supervision must consult with it before declaring a coupon payment
on a Tier 1 instrument, including a dividend if the bank has incurred a loss, or proposes to pay coupon payments on Tier 1 instruments(including dividends), which exceed the level of current year profits.

Dividend Reinvestment Plan
During the year, 3,613,226 ordinary shares were issued at $28.25 per share, and 11,621,468 ordinary shares at $29.29 per share, under thedividend reinvestment plan (2006: 3,545,901 ordinary shares at $23.85 per share, and 3,039,401 ordinary shares at $26.50 per share).
All eligible shareholders can elect to participate in the dividend reinvestment plan.
A number of changes have been made to the terms and conditions of the dividend reinvestment plan and bonus option plan, effective forthe 2007 final dividend only, including the application of a 1.5% discount. For the 2007 final dividend only, the balance of the dividend
not reinvested by shareholders in the dividend reinvestment plan or foregone by shareholders under the bonus option plan, will be fully
underwritten by UBS AG, Australia branch.

Bonus Option Plan
The amount of dividends paid during the year has been reduced as a result of certain eligible shareholders participating in the bonus option
plan and foregoing all or part of their right to dividends. These shareholders were issued bonus shares.
During the year, 1,729,427 ordinary shares were issued under the bonus option plan (2006: 1,384,144 ordinary shares).

Final dividend 2006
Interim dividend 2007

Determined
dividend$m

Bonus
option planadjustment$m

Amount
paid
$m

1,267
1,144

(19)
(29)

1,248
1,115

2,411

(48)

2,363

Financial Report 73

NOTES TO THE FINA NCIAL STATEMENTS
8: Earnings per Ordinary Share
Consolidated

Basic earnings per share (cents)
Earnings reconciliation ($millions)
Profit for the year
Less: profit attributable to minority interests
Less: preference share dividend paid
Earnings used in calculating basic earnings per share
Weighted average number of ordinary shares (millions)
Diluted earnings per share (cents)
Earnings reconciliation ($millions)
Earnings used in calculating basic earnings per share
Add: US Trust Securities interest expense
Add: ANZ StEPS interest expense
Add: UK Hybrid interest expense
Earnings used in calculating diluted earnings per share
Weighted average number of ordinary shares (millions)
Used in calculating basic earnings per share
Add: potential conversion of options to ordinary sharespotential conversion of US Trust Securities to ordinary shares at current market pricepotential conversion of ANZ StEPS to ordinary sharespotential conversion of UK Hybrid Securities to ordinary shares
Used in calculating diluted earnings per share

2007

2006

224.1

200.0

4,187
7
37
4,143
1,848.5
218.3

3,692
4
27
3,661
1,830.3
194.0

4,143
44
50
21

3,661
53
45
–

4,258

3,759

1,848.5
15.2
42.0
34.5
10.7

1,830.3
13.9
54.8
38.2
–

1,950.9

1,937.2

The weighted average number of converted and lapsed options, weighted with reference to the date of conversion or lapse, and included in thecalculation of diluted earnings per share is approximately 2 million.

9: Liquid Assets
Consolidated

Australia
Coins, notes and cash at bankers
Money at call, bills receivable and remittances in transit
Securities purchased under agreement to resell in less than 90 days
New ZealandCoins, notes and cash at bankers
Money at call, bills receivable and remittances in transit
Other banks’ certificates of deposit
Securities purchased under agreement to resell in less than 90 days
Overseas Markets
Coins, notes and cash at bankers
Money at call, bills receivable and remittances in transit
Other banks’ certificates of deposit
Securities purchased under agreement to resell in less than 90 days
Total liquid assets
Maturity analysis based on original term to maturity
Less than 90 days
More than 90 days
Total liquid assets

The Company

2007
$m

2006
$m

2007
$m

2006
$m

844
656
3,824
5,324

1,286
938
4,776
7,000

709
489
3,824
5,022

1,242
892
4,776
6,910

2,585
1,302
1,403
277
5,567

913
1,398
1,351
260
3,922

–
–
–
–
–

–
–
–
–
–

238
2,582
3,276
–
6,096
16,987

251
2,279
1,566
1
4,097
15,019

113
2,324
3,159
–
5,596
10,618

111
1,946
1,460
–
3,517
10,427

12,307
4,680
16,987

11,633
3,386
15,0196,701
3,917
10,6188,050
2,377
10,427

10: Due from Other Financial Institutions
Consolidated

Australia
New ZealandOverseas Markets
Total due from other financial institutions
Maturity analysis based on original term to maturity
Less than 90 days
More than 90 days
Total due from other financial institutions

74 ANZ Annual Report 2007

The Company

2007
$m

2006
$m

2007
$m

2006
$m

2,857
1,546
3,637
8,040

3,090
3,236
3,339
9,665

2,853
–
3,281
6,134

3,068
–
3,185
6,253

6,767
1,273
8,040

8,711
954
9,665

5,339
795
6,134

5,520
733
6,253

NOTES TO THE FINA NCIAL STATEMENTS
11: Trading Securities
Trading securities are allocated between Australia, New Zealand and Overseas Markets based on the domicile of the issuer
Consolidated

The Company

2007
$m

2006
$m

2007
$m

2006
$m

31

5

31

5

31

5

31

5

27

44

27

44

27

44

27

44

58

49

58

49

556
3,611
2,305
6,204

328
2,635
1,569
2,639

556
3,611
2,305
6,020

328
2,635
1,569
2,363

12,676

7,171

12,492

6,895

124
1,489

210
1,220

–
–

37
–

1,613

1,430

–

37

299
521

–
529

288
521

–
527

820

529

809

527

Total unlisted

15,1099,130

13,301

7,459

Total trading securities

15,167

9,179

13,3597,508

Listed – Australia
Other securities and equity securities

Listed – Overseas Markets
Other government securities

Total listed
Unlisted – Australia
Commonwealth securities
Local, semi-government and other government securities
ANZ accepted bills
Other securities and equity securities

Unlisted – New Zealand
Other government securities
Other securities and equity securities

Unlisted – Overseas Markets
Other government securities
Other securities and equity securities

12: Derivative Financial Instruments
Derivative instruments are contracts whose value is derived from one or more underlying variables or indices, require little or no initial net
investment and are settled at a future date. Derivatives include contracts traded on registered exchanges and contracts agreed between
counterparties, called “Over the Counter” or “OTCs”. The use of derivatives and their sale to customers as risk management products is an
integral part of the Group’s trading activities. Derivatives are also used to manage the Group’s own exposure to fluctuations in exchange andinterest rates as part of its asset and liability management activities (i.e. balance sheet risk management).
Derivatives are subject to the same types of credit and market risk as other financial instruments, and the Group manages these risks in aconsistent manner.
Types of derivative instruments
The principal foreign exchange rate contracts used by the Group are forward foreign exchange contracts, currency swaps and currency options.
Forward foreign exchange contracts are agreements to buy or sell a specified quantity of foreign currency on a specified future date at an agreed
rate. A currency swap generally involves the exchange, or notional exchange, of equivalent amounts of two currencies and a commitment toexchange interest periodically until the principal amounts are re-exchanged on a future date. Currency options provide the buyer with the right,
but not the obligation, either to purchase or sell a fixed amount of a currency at a specified rate on or before a future date. As compensation forassuming the option risk, the option writer generally receives a premium at the start of the option period.
The principal commodity contracts used by the Group are forward commodity contracts, commodity swaps and commodity options. Forward
commodity contracts are agreements for the payment of the difference between a specified commodity price and a fixed rate on a notional
volume of the commodity at a future date. A commodity swap generally involves the exchange of the return on the commodity for a fixed or
floating interest payment without the exchange of the underlying commodity or principal amount. Commodity options provide the buyer withthe right, but not the obligation, to exchange the difference between a specified commodity price and a fixed rate on a notional volume of thecommodity at a future date. As compensation for assuming the option risk, the option writer generally receives a premium at the start of theoption period. In certain circumstances the option premium is paid at the end of the option period.
The principal interest rate contracts used by the Group are forward rate agreements, interest rate futures, interest rate swaps and options.
Forward rate agreements are contracts for the payment of the difference between a specified interest rate and a reference rate on a notional
deposit at a future settlement date. There is no exchange of principal. An interest rate future is an exchange traded contract for the delivery of astandardised amount of a fixed income security or time deposit at a future date. Interest rate swap transactions generally involve the exchangeof fixed and floating interest payment obligations without the exchange of the underlying principal amounts. Interest rate options provide thebuyer with the right but not the obligation either to receive or pay interest at a specified rate on or before a future date. As compensation forassuming the option risk, the option writer generally receives a premium at the start of the option period.
Financial Report 75

NOTES TO THE FINA NCIAL STATEMENTS
12: Derivative Financial Instruments (continued)
The principal credit contracts used by the Group are default swaps. Default swaps are contracts that provide for a specified payment to be madeto the purchaser of the swap following a defined credit event.
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 of derivative instruments: those held as trading positions and those used for the Group’s balance
sheet risk management.
Trading positions
Trading positions consist of both sales to customers and market making activities. Sales to customers include the structuring and marketingof derivative products to customers which enable them to take or mitigate risks. Market making activities consist of derivatives entered into
principally for the purpose of generating profits from short-term fluctuations in price or margins. Positions may be traded actively or held over a
period of time to benefit from expected changes in market rates.
Gains or losses, including any current period interest, from the change in fair value of trading positions are recognised in the income statementas ‘other income’ in the period in which they occur.
Balance sheet risk management
The 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 of recognition of gains and losses between the derivative and the hedged 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 relationshipare recognised in the income statement based on the hedging relationship. Any ineffectiveness is recognised in the income statement as ‘otherincome’ in the period in which it occurs.
Gains or losses, excluding any current period interest, from the change in fair value of balance sheet risk management positions that are notdesignated into hedging relationships are recognised in the income statement as ‘other income’ in the period in which they occur. Current
period interest is included in interest income and expense.

The following tables provide an overview of the Group’s and the Company’s foreign exchange rate, commodity, credit and interest rate
derivatives. They include all trading and balance sheet risk management contracts. Notional principal amounts measure the amount of theunderlying physical or financial commodity and represent the volume of outstanding transactions. They are not a measure of the risk associatedwith a derivative. The derivative instruments become favourable (assets) or unfavourable (liabilities) as a result of fluctuations in market
rates relative to their terms. The aggregate contractual or notional amount of derivative financial instruments on hand, the extent to which
instruments are favourable or unfavourable, and as a consequence the aggregate fair values of derivative financial assets and liabilities, canfluctuate significantly from time to time. The fair values of derivative instruments held and notional principal amounts are set out as follows.

76 ANZ Annual Report 2007

NOTES TO THE FINA NCIAL STATEMENTS
12: Derivative Financial Instruments (continued)
Fair value
Trading

Total fair valueof derivatives

Hedging
Net investment
in foreign operations
Assets Liabilities$m$m

Consolidated at
30 September 2007

Notional
principal
amount$m

Assets$m

Liabilities$m

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

278,479
141,881
144
6,476
9,718
–

4,605
6,270
7
1,047
–
(1,875)(6,570)(6,320)(6)–(1,001)
1,612

–
440
–
–
–
–

–
(587)
–
–
–
–

1
–
–
–
–
–

–
–
–
–
–
–

31
–
–
–
–
–

436,698

10,054(12,285)

440

(587)

1

–

Commodity contracts
Derivative contracts

15,4291,664(1,600)–––Interest rate contracts
Forward rate agreements
Swap agreements
Futures contracts
Options purchased
Options sold

137,039
944,079
96,815
26,621
22,711

13
7,755
961
142
–

(15)
(7,902)
(987)
–
(115)

–
538
–
–
–

–
(284)
–
–
–

1,227,265

8,871(9,019)538

47,702307(282)

1,727,094

20,896(23,186)

Credit contracts
Credit default swaps

Fair value
Assets Liabilities$m$mCash flow
Assets Liabilities$m$m

Assets$m

Liabilities
$m

–
–
–
–
–
–

4,637
6,710
7
1,047
–
(1,875)(6,570)(6,907)(6)–(1,001)
1,612

31

–

10,526(12,872)

–

–

–

1,664

(1,600)

2
311
18
–
–

–
(114)
(9)
–
–

–
–
–
–
–

–
–
–
–
–

15
8,604
979
142
–

(15)
(8,300)
(996)
–
(115)

(284)

331

(123)

–

–

9,740

(9,426)

–

–

–

–

–

–

307

(282)

978

(871)

332

(123)

31

–

22,237(24,180)

Financial Report 77

NOTES TO THE FINA NCIAL STATEMENTS
12: Derivative Financial Instruments (continued)
Fair value
Trading

Total fair valueof derivatives

Hedging
Net investment
in foreign operations
Assets Liabilities$m$m

Consolidated at
30 September 2006

Notional
principal
amount$m

Assets$m

Liabilities$m

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

217,522
110,638187
9,150
13,906
–

2,054
2,714
45
259
–
(1,279)(2,195)(2,247)
(29)
–
(202)
1,256

–
114
–
–
–
–

–
(64)
–
–
–
–

–
–
–
–
–
–

–
–
–
–
–
–

1
–
–
–
–
–

351,403

3,793(3,417)

114

(64)

–

–

7,793

1,055

(916)

–

–

–

96,147589,135
99,184
17,733
33,638

14
3,296
249
141
–

(10)
(3,566)
(242)
–
(100)

–
212
–
–
–

–
(263)
–
–
–

835,837

3,700(3,918)212

23,96576(78)

1,218,998

8,624(8,329)Commodity contracts
Derivative contracts
Interest rate contracts
Forward rate agreements
Swap agreements
Futures contracts
Options purchased
Options sold

Credit contracts
Credit default swaps

78 ANZ Annual Report 2007

Fair value
Assets Liabilities$m$mCash flow
Assets Liabilities$m$m

Assets$m

Liabilities
$m

(34)
–
–
–
–
–

2,055
2,828
45
259
–
(1,279)(2,229)(2,311)
(29)
–
(202)
1,256

1

(34)

3,908

(3,515)

–

–

–

1,055

(916)

–
211
2
–
–

–
(61)
(2)
–
–

–
–
–
–
–

–
–
–
–
–

14
3,719
251
141
–

(10)
(3,890)
(244)
–
(100)

(263)

213

(63)

–

–

4,125

(4,244)

–

–

–

–

–

–

76

(78)

326

(327)

213

(63)

1

(34)

9,164

(8,753)NOTES TO THE FINA NCIAL STATEMENTS
12: Derivative Financial Instruments (continued)
Fair value
Trading

Total fair valueof derivatives

HedgingCompany at
30 September 2007

Notional
principal
amount$m

Assets$m

Liabilities$m

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

263,920
164,933
144
6,047
9,481
–

4,333
7,089
7
1,033
–
(1,419)(6,115)(9,051)
(6)
–
(995)
1,513

–
356
–
–
–
–

–
(581)
–
–
–
–

–
–
–
–
–
–

444,525

11,043(14,654)

356

(581)

Commodity contracts
Derivative contracts

15,4291,664(1,600)–Interest rate contracts
Forward rate agreements
Swap agreements
Futures contracts
Options purchased
Options sold85,748730,968
81,56026,56822,700

11
6,481
957
124
–

(13)
(6,542)
(957)
–
(115)

947,544

7,573

47,6801,455,178

Credit contracts
Credit default swaps

Fair value
AssetsLiabilities$m$mCash flow
AssetsLiabilities$m$m

Assets$m

Liabilities
$m

–
–
–
–
–
–

4,333
7,445
7
1,033
–
(1,419)(6,115)(9,632)
(6)
–
(995)
1,513

–

–

11,399(15,235)

–

–

–

1,664

(1,600)

–
222
–
–
–

–
(176)
–
–
–

2
218
18
–
–

–
(72)
(9)
–
–

13
6,921
975
124
–

(13)
(6,790)
(966)
–
(115)

(7,627)

222

(176)

238

(81)

8,033

(7,884)

307

(282)

–

–

–

–

307

(282)

20,587(24,163)

578

(757)

238

(81)

21,403(25,001)

Financial Report 79

NOTES TO THE FINA NCIAL STATEMENTS
12: Derivative Financial Instruments (continued)
Fair value
Trading

Total fair valueof derivatives

HedgingCompany at
30 September 2006

Notional
principal
amount$m

Assets$m

Liabilities$m

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

201,577
149,823
187
8,782
13,644
–

1,902
3,086
45
250
–
(1,279)(1,948)(2,292)
(29)
–
(193)
571

–
112
–
–
–
–

–
(64)
–
–
–
–

–
–
–
–
–
–

374,013

4,004(3,891)

112

(64)

8,074

1,056

(917)

–

85,514
460,101
84,25917,86334,092

7
2,843
248
124
–

(6)
(2,992)
(241)
–
(100)

681,829

3,222

23,9401,087,856

Commodity contracts
Derivative contracts
Interest rate contracts
Forward rate agreements
Swap agreements
Futures contracts
Options purchased
Options sold

Credit contracts
Credit default swaps

80 ANZ Annual Report 2007

Fair value
AssetsLiabilities$m$mCash flow
AssetsLiabilities$m$m

Assets$m

Liabilities
$m

–
–
–
–
–
–

1,902
3,198
45
250
–
(1,279)(1,948)(2,356)
(29)
–
(193)
571

–

–

4,116

(3,955)

–

–

–

1,056

(917)

–
121
–
–
–

–
(106)
–
–
–

–
194
2
–
–

–
(45)
(2)
–
–

7
3,158
250
124
–

(6)
(3,143)
(243)
–
(100)

(3,339)

121

(106)

196

(47)

3,539

(3,492)

76

(78)

–

–

–

–

76

(78)

8,358

(8,225)

233

(170)

196

(47)

8,787

(8,442)NOTES TO THE FINA NCIAL STATEMENTS
12: Derivative Financial Instruments (continued)
Credit risk on derivative instruments
The credit risk of derivative financial instruments arises from the potential for a counterparty to default on its contractual obligation. Credit riskarises when market movements are such that the derivative has a positive value to the Group. It is the cost of replacing the contract in the eventof counterparty default. The Group limits its credit risk within a conservative framework by dealing with creditworthy counterparties, setting
credit limits on exposures to counterparties, and obtaining collateral where appropriate.
The Group further restricts its exposure to credit losses by entering into master agreements with counterparties with which it undertakes asignificant volume of transactions. The use of a master agreement does not generally result in an offset of balance sheet assets and liabilities.
However, the credit risk is reduced by a master agreement to the extent that if an event of default occurs, all contracts with the counterparty
are terminated and settled on a net basis. Despite this, as a result of the number of transactions that are usually subject to such masteragreements, the Group’s overall exposure to credit risk on derivative instruments can change substantially within a short period.
Hedging Relationships
There are three types of allowable hedging relationships: fair value hedges, cash flow hedges and hedges of a net investment in a foreign
operation. Each 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 (viii).
Fair value hedges
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 principally consist of interest rate swaps that are used to protect against changes in the fair value of fixed-rate long-term financial
instruments due to movements in market interest 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 a hedging relationship isterminated, the fair value adjustment to the hedged item continues to be recognised 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 yield over the period to maturity. Where the hedged item is derecognisedfrom the Group’s balance sheet, the fair value adjustment is included in the income statement as ‘other income’ as a part of the gain or loss
on disposal.
Cash flow hedges
The risk being hedged in a cash flow hedge is the potential volatility in future cash flows that may affect the income statement. Volatility in the
future cash flows may result from changes in interest rates or changes in exchange rates arising from recognised financial assets and liabilities
and highly probable forecast transactions. The Group’s cash flow hedges consist principally of interest rate swaps, forward rate agreements
and foreign currency swaps that are used to protect against exposures to variability in future interest cash flows on non-trading assets andliabilities which bear 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
of financial assets and liabilities on the basis of their forecast repricing profile. This forms the basis for identifying gains and losses on theeffective 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 deferred to the hedging reserve
which forms part of shareholders’ equity. Amounts deferred in equity are recognised in the income statement in the period during which
the hedged forecast transactions take place and is fully amortised when the hedging relationship matures. The schedule below shows the
movements in the hedging reserve:

Consolidated

The Company

2007
$m

2006
$m

2007
$m

2006
$m

Balance at start of year
Adjustments on adoption of accounting policies specified by AASB 132 and AASB 139
Adjustment on adoption of AASB 2005–11

227
–
(141)

n/a
162
–

40
–
–

n/a
11
–

Restated balance at start of year
Items recorded in the income statement
Tax effect of items recorded in the income statement
Valuation gain taken to equity
Tax effect of net gain on cash flow hedges

86
(10)
3
106
(32)

162
(81)
25
179
(58)

40
–
–
57
(17)

11
(10)
3
53
(17)

Closing Balance

153

227

80

40

1 All NZD revenue related cash flow hedging was de-designated at 30 September 2006. The amount deferred in the hedging reserve was transferred to retained earnings at 1 October 2006 on adoptionof AASB 2005-1.

Financial Report 81

NOTES TO THE FINA NCIAL STATEMENTS
12: Derivative Financial Instruments (continued)
The table below shows the breakdown of the hedging reserve attributable to each type cash flow hedging relationship:
Consolidated

The Company

2007
$m

2006
$m

2007
$m

2006
$m

Variable rate loan assets
Variable rate liabilities
Short term re-issuances of fixed rate customer and wholesale deposit
liabilities
NZD revenue related cash flow hedges1

(64)
135
82

(8)
59
35

(53)
79
54

(15)
33
22

–

141

–

–

Total hedging reserve

153

227

80

40

1 All NZD revenue related cash flow hedging was de-designated at 30 September 2006. The amount deferred in the hedging reserve was transferred to retained earnings at 1 October 2006 on adoptionof AASB 2005-1.

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 (2006: 0–10 years).
The mechanics of hedge accounting results in the gain (or loss) in the hedging reserve above being released into the income statement at
the same time that the corresponding loss (or gain) attributable to the hedged item impacts the income statement. It will not necessarily bereleased to the income statement uniformly over the period of the hedging relationship as the fair value of the derivative is driven by changes
in market rates over the term of the instrument. As market rates do not always move uniformly across all time periods, a change in market rates
may drive more value in one forecast period than another, which impacts when the hedging reserve is released to the income statement.

Net investment hedges (consolidated)
In a hedge of a net investment in a foreign operation, the risk being hedged is the exposure to exchange differences arising on consolidation offoreign operations with a functional currency other than the Australian Dollar. Hedging is undertaken using forward foreign exchange contracts
or by financing with borrowings in the same currency as the foreign functional currency involved.

Concentrations of Credit Risk
Concentrations of credit risk exist for groups of counterparties when they have similar economic characteristics. Major concentrations of credit
risk arise by location and type of customer.
The following table shows the concentrations of credit risk, by class of counterparty and by geographic location, measured by credit equivalentamount.
Approximately 67% (2006: 72%) of the Group’s exposures are with counterparties which are either Australian banks or banks based in otherOECD countries.

Consolidated at
30 September 2007

Australia
New ZealandOverseas Markets

Consolidated at
30 September 2006

Australia
New ZealandOverseas Markets

82 ANZ Annual Report 2007

OECD
governments$mAustralianand OECD
banks$m

Corporations,
non-OECD
banks andothers$m

Totalcreditequivalentamount
$m

567
80
41

14,227
4,465
968

7,535
994
357

22,329
5,539
1,366

688

19,6608,886

29,234OECD
governments$mAustralianand OECD
banks$m

Corporations,
non-OECD
banks andothers$m

Totalcreditequivalentamount
$m

133
57
19

10,099
2,134
912

3,900
736
359

14,132
2,927
1,290

209

13,145

4,995

18,349NOTES TO THE FINA NCIAL STATEMENTS
13: Available-for-sale Assets
Consolidated

The Company

2007
$m

2006
$m

2007
$m

2006
$m

6

6

6

6

6

6

6

6

208
2,986

102
2,198

208
2,595

102
2,198

3,194

2,300

2,803

2,300

Total listed

3,200

2,306

2,809

2,306

Unlisted – Australia
Local and semi-government securities
Other securities and equity investments
Loans and advances

1,791
7,126
704

1,908
2,971
1,946

1,791
5,932
704

1,908
2,421
1,946

9,621

6,825

8,427

6,275

4
37

285
29

–
–

–
–

41

314

–

–

648
496

532
676

73
74

71
5

1,144

1,208

147

76

Total unlisted

10,806

8,347

8,574

6,351

Total available-for-sale assets

14,006

10,653

11,383

8,657

Available-for-sale assets are allocated between Australia,
New Zealand and Overseas Markets based on the domicile of the issuer
Listed – Australia
Other securities and equity investments

Listed – Overseas Markets
Other government securities
Other securities and equity investments

Unlisted – New Zealand
New Zealand government securities
Other securities and equity investments

Unlisted – Overseas Markets
Other government securities
Other securities and equity investments

No impairment loss was recognised or reversed in the Income Statement.

Financial Report 83

NOTES TO THE FINA NCIAL STATEMENTS
13: Available-for-sale Assets (continued)
Available-for-sale assets by maturities and yields
Based on remaining term to maturity at 30 September 2007
Less than
3 months$m

Between 3
months and
12 months$m

Between
1 year and5 years$m

Between
5 years and
10 years$m

After
10 years$mNomaturity
specified
$m

Total
fair
value
$m

1,791
5,702
263

–
–
22

–
1,022
419

–
–
–

–
289
–

–
119
–

1,791
7,132
704

7,756

22

1,441

–

289

119

9,627

1
616
180

–
186
577

3
17
2,074

–
–
356

–
–
1

–
37
331

4
856
3,519

797

763

2,094

356

1

368

4,379

8,553

785

3,535

356

290

487

14,006

Less than
1 year%

Between
1 year and5 years%

Between
5 years and
10 years%

After
10 years%

Australia
Local and semi-government securities
Other securities and equity investments
Loans and advances

6.38
6.80
7.84

–
6.77
7.23

–
–
–

–
7.11
–

Overseas
New Zealand government securities
Other government securities
Other securities and equity investments

8.17
5.08
5.37

7.20
4.69
5.59

–
–
5.76

–
–
2.76

Australia
Local and semi-government securities
Other securities and equity investments
Loans and advances

Overseas
New Zealand government securities
Other government securities
Other securities and equity investments

Total

Weighted average yields1

1 Based on effective yields for loans and advances, fixed interest and discounted securities and dividend yield for equity investments at 30 September 2007.

84 ANZ Annual Report 2007

NOTES TO THE FINA NCIAL STATEMENTS
13: Available-for-sale Assets (continued)
Available-for-sale assets by maturities and yields
Based on remaining term to maturity at 30 September 2006
Less than
3 months$m

Between 3
months and
12 months$m

Between
1 year and5 years$m

Between
5 years and
10 years$m

After
10 years$mNomaturity
specified
$m

Total
fair
value
$m

1,224
2,544
1,080

684
–
359

–
308
507

–
–
–

–
107
–

–
18
–

1,908
2,977
1,946

4,848

1,043

815

–

107

18

6,831

273
474
342

–
108
622

12
51
1,460

–
–
96

–
1
336

–
–
47

285
634
2,903

1,089

730

1,523

96

337

47

3,822

5,937

1,773

2,338

96

444

65

10,653

Less than
1 year%

Between
1 year and5 years%

Between
5 years and
10 years%

After
10 years%

Australia
Local and semi-government securities
Other securities and equity investments
Loans and advances

6.08
6.14
6.77

–
6.41
6.99

–
–
–

–
8.37
–

Overseas
New Zealand government securities
Other government securities
Other securities and equity investments

7.19
5.20
3.94

6.90
4.20
5.18

–
–
4.86

–
7.50
4.54

Australia
Local and semi-government securities
Other securities and equity investments
Loans and advances

Overseas
New Zealand government securities
Other government securities
Other securities and equity investments

Total

Weighted average yields1

1 Based on effective yields for fixed interest and discounted securities and dividend yield for equity investments at 30 September 2006.

Financial Report 85

NOTES TO THE FINA NCIAL STATEMENTS
14: Net Loans and Advances
Loans and advances are classified between Australia, New Zealand and Overseas markets based on the domicile of the lending point
Consolidated

The Company

2007
$m

2006
$m

2007
$m

2006
$m

7,464
6,641
113,994
64,260
9,824
1,813
852

6,237
6,190
101,945
53,905
9,081
2,378
864

7,464
6,641
113,201
60,149
1,196
857
827

6,237
6,190
100,874
49,774
1,046
804
731

204,848

180,600

190,335

165,656

1,728
1,149
42,35029,672
431
215
447

1,666
1,081
37,84526,979
426
421
511

–
–
–
–
–
–
–

–
–
–
–
–
–
–

75,992

68,929

–

–

532
201
1,040
9,699
186
349
1

518
198
766
8,347
179
192
2

371
8
749
8,493
116
349
1

333
8
599
7,160
112
192
2

12,008

10,202

10,087

8,406

292,848259,731200,422174,062

Less: Provision for credit impairment (refer note 16)(2,294)(2,226)(1,631)(1,566)

Less: Unearned income(2,278)(2,122)

(348)

(367)

570

539

167

158

(4,002)(3,809)(1,812)(1,775)

Total net loans and advances

288,846

255,922

198,610

172,287

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

571
1,131
208

512
1,381
255

176
617
179

115
615
186

Less: unearned future finance income on finance leases

(238)

(382)

(121)

(189)

Net investment in finance lease receivables

1,672

1,766

851

727

179
124
1

411
398
21

–
1
–

–
–
–

304

830

1

–

Total lease receivables

1,976

2,596

852

727

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

567
1,075
185

516
1,172
188

167
553
157

55
512
158

1,827

1,876

877

725

Australia
Overdrafts
Credit card outstandings
Term loans – housing
Term loans – non-housing
Hire purchase
Lease receivables (refer below)
Other

New Zealand
Overdrafts
Credit card outstandings
Term loans – housing
Term loans – non-housing
Hire purchase
Lease receivables (refer below)
Other

Overseas Markets
Overdrafts
Credit card outstandings
Term loans – housing
Term loans – non-housing
Lease receivables (refer below)
Commercial bills
Other

Total gross loans and advances

Add: Capitalised brokerage/mortgage origination feesb) Operating lease receivables
Gross operating lease receivables
Less than 1 year
1 to 5 years
Later than 5 years

86 ANZ Annual Report 2007

NOTES TO THE FINA NCIAL STATEMENTS
15: Impaired Financial Assets
Consolidated

Summary of impaired financial assets
Non-performing loans
Restructured loans
Unproductive facilities

The Company

2007
$m

2006
$m

2007
$m

2006
$m

666
–
126

661
–
37

491
–
121

452
–
30

Gross impaired financial assets
Individual provisions
Non-performing loans
Unproductive facilities

792

698

612

482

(260)
(42)

(279)
(7)

(172)
(42)

(179)
(6)

Net impaired financial assets

490

412

398

297

–

–

–

–

561

499

429

381

Real estate or other assets acquired through the enforcement of security
In the event of customer default, any loan security is usually held as mortgagee in possession andtherefore the Group does not usually hold any real estate or other assets acquired through theenforcement of security
Accruing loans past due 90 days or more1
These amounts are not classified as impaired assets as they are either 90 days or more past
due and well secured, or are portfolio managed facilities that can be held on an accrual basis
for up to 180 days past due

Interest and other income forgone on impaired financial assets
The following table shows the estimated amount of interest and other income not recognised, net of interest recoveries and unwind of discount,on average impaired financial assets during the period.
Consolidated

The Company

2007
$m

2006
$m

2007
$m

2006
$m

Gross interest and other income receivable on non-performing loans,
restructured loans and unproductive facilities
Australia
New ZealandOverseas Markets

40
10
8

34
13
7

35
–
2

29
–
2

Total gross interest and other income receivable on non-performing loans,
restructured loans and unproductive facilities

58

54

37

31

Australia
New ZealandOverseas Markets

(23)
(4)
–

(20)
(6)
–

(23)
–
–

(20)
–
–

Total interest recognised

(27)

(26)

(23)

(20)

Net interest and other income foregone
Australia
New ZealandOverseas Markets

17
6
8

14
7
7

12
–
2

9
–
2

Total net interest and other income not recognised

31

28

14

11

Interest recognised2

1 Includes unsecured credit card and personal loans 90 day past due accounts which are allowed by APRA to be retained on a performing basis for up to 180 days past due amounting to$87 million (2006: $84 million). The remainder of 90 day past due accounts are predominately held on an accrual basis having been assessed as well secured.
2 The impairment loss on a non-performing loan is calculated as the difference between the loan’s carrying amount and the estimated future cashflows discounted to their present value.
As this discount unwinds during the period it is recognised as interest income. Refer note 1(xi) for explanation on how it arises.

Financial Report 87

NOTES TO THE FINA NCIAL STATEMENTS
16: Provision for Credit Impairment
Movement in provision for credit impairment
Consolidated

The Company

2007
$m

2006
$m

2007
$m

2006
$m

Collective provision
Balance at start of year
Adjustment due to adoption of accounting standard AASB139
Provisions disposed
Adjustment for exchange rate fluctuations
Charge to income statement

1,940
–
(4)
(27)
83

2,167
(288)
–
(8)
69

1,381
–
–
(16)
52

1,564
(238)
–
3
52

Total collective provision1

1,992

1,940

1,417

1,381

Individual provision
Balance at start of year
Adjustment due to adoption of accounting standard AASB139
Charge to income statement
Adjustment for exchange rate fluctuations
Discount unwind
Bad debts written off
Recoveries of amounts previously written off

286
–
484
(15)
(20)
(584)
151

273
(1)
338
(4)
(26)
(421)
127

185
–
336
(4)
(17)
(401)
115

145
4
226
(1)
(20)
(259)
90

Total individual provision

302

286

214

185

2,294

2,226

1,631

1,566

New and increased provisions
Australia
New Zealand
Asia
Other overseas markets

632
81
31
12

508
81
24
5

530
–
1
8

417
–
–
2

Provision releases

756
(121)

618
(153)

539
(88)

419
(103)

Recoveries of amounts previously written off

635
(151)

465
(127)

451
(115)

316
(90)

Individual provision charge
Collective provision charge

484
83

338
69

336
52

226
52

Charge to income statement

567

407

388

278

%

%

%

%

0.1
0.7

0.1
0.7

0.1
0.7

0.1
0.7

0.1
0.7
0.2

0.1
0.8
0.2

0.1
0.7
0.2

0.1
0.8
0.1

Total provision for credit impairment

Provision movement analysis

RatiosProvisions2 as a % of total advances
IndividualCollective
Provisions2 as a % of risk weighted assets
IndividualCollective
Bad debts written off as a % of total advances

1 The collective provision includes amounts for off balance sheet credit exposures, $261 million at September 2007 (2006: $260 million). The impact to the income statement for the year ended
30 September 2007 relating to off balance sheet credit exposures was $8 million charge (2006: $5 million charge).
2 Excludes provisions for unproductive facilities.

88 ANZ Annual Report 2007

NOTES TO THE FINA NCIAL STATEMENTS
17: Regulatory Deposits
Consolidated

The Company

2007
$m

2006
$m

2007
$m

2006
$m

Overseas central banks

235

205

148

132

Maturity:Less than 90 days
After 5 years

96
139

70
135

85
63

61
71

235

205

148

132

18: Shares in Controlled Entities, Associates and Joint Venture Entities
Consolidated

The Company

2007
$m

2006
$m

2007
$m

2006
$m

Total shares in controlled entities
Total shares in associates1 (refer note 41)
Total shares in joint venture entities2 (refer note 42)

–
1,749
1,681

–
592
1,608

8,405
582
–

11,424307–

Total shares in controlled entities, associates and joint venture entities

3,430

2,200

8,987

11,731

1 Investments in associates are accounted for in the consolidated financial statements using the equity method of accounting and are carried at cost by the parent entity
2 Investments in joint venture entities are accounted for in the consolidated financial statements using the equity method of accounting and are carried at cost by the parent entity

ACQUISITIONS OF CONTROLLED ENTITIESOn 23 February 2007, the Group obtained control of Stadium Australia Group, which owns the long-term leasehold of the Telstra Stadiumin Sydney. Prior to this, the Group was a sole senior lender to, and a holder of convertible notes and stapled securities issued by Stadium
Australia Group.
Stadium Australia Group contributed revenues of $35 million and net profit of $6 million to the Group for the period from 1 March 2007 to
30 September 2007. If the acquisition had occurred on 1 October 2006, consolidated revenue and consolidated profit for the year ended
30 September 2007 would have been $53 million and $9 million respectively.
On 24 April 2007, the Group obtained a controlling interest in ETRADE Australia Limited (ETrade Australia), an online stockbroker. The Group has
since obtained 100% ownership of the shares in ETrade Australia. Prior to this, the Group held a stake in the entity and accounted for it as an
associate, applying the equity method of accounting.
ETrade Australia contributed revenues of $37 million and net profit of $9 million to the Group for the period from 1 May 2007 to 30 September
2007. If the acquisition had occurred on 1 October 2006, consolidated revenue and consolidated profit for the year ended 30 September 2007
would have been $95 million and $19 million respectively. These amounts have been calculated using the Group’s accounting policies and by
adjusting the results of the subsidiary to reflect the impact as if the fair value adjustments had applied from 1 October 2006 less the amount of
the share of the associate’s earnings actually recognised by the Group, together with the consequential tax effects.
In addition, the Group and the Company obtained controlling stakes in the following entities:
Citizens Security Bank (CSB) – CSB is a community bank operating in Guam. In July 2007, the Group acquired 100% of CSB for $28 million.
ANZ Vientiane Commercial Bank (VCB) – VCB is a commercial bank operating in Laos. In September 2007, the Group acquired 60% of
VCB for $12 million.
Rabinov Property Management Limited (Rabinov) – Rabinov is the manager and responsible entity of a listed diversified property trust.

Financial Report 89

NOTES TO THE FINA NCIAL STATEMENTS
18: Shares in Controlled Entities, Associates and Joint Venture Entities (continued)
The Company’s investments in ETrade Australia, CSB, VCB and Rabinov are carried at cost. The Company, therefore, does not recognise goodwill
separately.
Details of aggregate assets and liabilities of controlled entities acquired by the Group (Stadium Australia Group, ETrade Australia, CSB, VCB and
Rabinov) and cost of acquisitions, for the purposes of measuring goodwill on acquisitions of controlled entities are as follows:
Consolidated

Liquid assets and due from other financial institutions
Financial assets – trading and available-for-sale
Net loans and advances
Premises and equipment
Deferred tax assets
Intangible assets1
Other assets
Due to other financial institutions
Deposits and other borrowings2
Payables and other liabilities
Provisions and contingent liabilities
Deferred tax liabilities
Net assets
Interest previously held
Minority interests

Acquiree’s
carrying
amount$m

Fair value
$m

131
335
106
162
56
41
(2)
(456)
(331)
(2)
(7)

131
335
106
217
6
57
41
(4)
(240)
(348)
(2)
(17)

33

282
(23)
(5)

Net identifiable assets acquired

254

Cost of acquisition
Cash paid
Equity instruments issued as purchase consideration
Loan receivable or other instruments existing on date of acquisition
Direct costs relating to acquisitions

252
99
179
6

Total cost of acquisitions

536

Goodwill

282

1 Fair value excludes $31 million of previously recognised goodwill of the acquiree, now included in total goodwill.
2 Included in deposits and other borrowings of acquiree were loans payable and other debt instruments held by the Group prior to acquisition. On acquisition these instruments are no longer
financial assets of the Group. They are treated as a cost of acquisition.

The fair value of assets and liabilities acquired are based on discounted cash flow models. No restructuring provisions were created. The
acquired entities did not have significant contingent liabilities.
Of the total amount of goodwill on acquisition of $282 million recognised by the Group, $264 million relates to ETrade Australia.
Net cash consideration paid in acquisitions was as follows:
Consolidated

The Company

2007
$m

2006
$m

2007
$m

2006
$m

Cash consideration paid and direct costs relating to acquisitions
Less: Balances acquired of cash and equivalents

258
(55)

–
–

229
(52)

–
–

Outflow of cash to acquire subsidiaries, net of cash acquired

203

–

177

–

There were no material controlled entities acquired during the year ended 30 September 2006.

90 ANZ Annual Report 2007

NOTES TO THE FINA NCIAL STATEMENTS
18: Shares in Controlled Entities, Associates and Joint Venture Entities (continued)
DISPOSAL OF CONTROLLED ENTITIESOn 31 October 2006, Fleet Partners Pty Limited and Truck Leasing Limited were sold. The gain before tax on disposal was $195 million(tax expense: nil). Net tangible assets on disposal were $144 million.
Details of aggregate assets and liabilities of controlled entities disposed by the Group are as follows (the Company: nil):
Carrying amount$m

Net loans and advances
Premises and equipment
Other assets, including allocated goodwill
Deposits and other borrowings
Payables and other liabilities
Provision for long-term employee benefits

1,420
2
25
(1,239)(63)(1)

Net assets disposed

144

Cash consideration received
Provisions for warranties and indemnities

377
(38)

Gain on disposal

195

Net proceeds received resulting in cash inflow for the Group was as follows:
Consolidated

The Company

2007
$m

2006
$m

2007
$m

2006
$m

Cash consideration received and direct costs relating to acquisitions
Less: Balances of disposed cash and equivalents

377
–

–
–

–
–

–
–

Inflow of cash from disposals, net of cash disposed

377

–

–

–

There were no material controlled entities disposed of during the year ended 30 September 2006.

Financial Report 91

NOTES TO THE FINA NCIAL STATEMENTS
19: Deferred Tax Assets
Consolidated

The Company

2007
$m

2006
$m

2007
$m

2006
$m

600
73
119
277
126

596
92
107
270
247

429
55
86
198
9

417
70
75
182
56

1,195

1,312

777

800

19
–
–

67
2
3

21
–
–

66
1
–

19

72

21

67

(1,101)(1,131)

(711)

(732)

113

253

87

135

Movements
Restated balance 1 October
Change on adoption of AIFRS
Movements in temporary differences during the year

1,384
–
(170)

1,389
64
(69)

867
–
(69)

806
41
20

Balance prior to set-off of deferred tax assets pursuant to set-off provisions1
Set-off of deferred tax assets pursuant to set-off provisions1

1,214(1,101)

1,384(1,131)

798
(711)

867
(732)

Closing balance at 30 September

113

253

87

135

Deferred tax assets by geography
Australia
New ZealandOverseas Markets

2
6
105

4
85
164

9
–
78

–
–
135

Net deferred tax assets

113

253

87

135

Unused realised tax losses (on revenue account)
Unused realised capital losses

17
–

20
63

7
–

9
63

Total unrecognised deferred tax assets

17

83

7

72

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

Deferred tax assets recognised directly in equity
Defined benefit obligations
Available-for-sale revaluation reserve
Foreign currency translation reserve

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

Unrecognised deferred tax assets
The following deferred tax assets will only be recognised if:
assessable income is derived of a nature and an amountsufficient to enable the benefit to be realised
the conditions for deductibility imposed by tax legislation are complied with; andno 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.

92 ANZ Annual Report 2007

NOTES TO THE FINA NCIAL STATEMENTS
20: Goodwill and Other Intangible Assets
Consolidated

The Company

2007
$m

2006
$m

2007
$m

2006
$m

Gross carrying amount
Balance at start of year
Additions through business combinations
Derecognised on disposal
Foreign currency exchange differences

2,900
282
(6)
(50)

3,015
2
–
(117)

–
–
–
–

–
–
–
–

Balance at end of year1

3,126

2,900

–

–

987
–
2
202
55
(1)
(23)

898
(38)
2
135
–
(3)
(7)

888
–
2
188
33
(1)
(23)

808
(38)
2
128
–
–
(12)

1,222

987

1,087

888

Accumulated amortisation and impairment
Balance at start of year
Impact of adoption of AIFRS: AASB139
Amortisation expense2 (refer note 4)
Foreign currency exchange differences
Impairment

550
–
128
(1)
(6)

455
(23)
117
(1)
2

469
–
113
–
(6)

386
(23)
103
–
3

Balance at end of year

671

550

576

469

Net book value
Balance at start of year

437

443

419

422

Balance at end of year

551

437

511

419

Net book value
Balance at start of the year

3,337

3,458

419

422

Balance at end of the year1

3,677

3,337

511

419

Goodwill

Software and other intangible assets
Gross carrying amount
Balance at start of year
Impact of adoption of AIFRS: AASB139
Additions
Additions from internal developments
Additions through business combinations
Foreign currency exchange differences
Impairment
Balance at end of year

Goodwill, software and other intangible assets

1 Excludes notional goodwill in equity accounted entities.
2 Comprises software amortisation expense of $122 million (September 2006: $114 million) and amortisation of other intangible assets $6 million (September 2006: $3 million). The Company
comprises software amortisation expense of $109 million (September 2006: $100 million) and amortisation of other intangible assets $4 million (September 2006: $3 million).

Goodwill allocated to cash-generating units
The goodwill balance above largely comprises the goodwill purchased on acquisition of NBNZ Holdings Limited in December 2003.
Discussion of the goodwill and impairment testing for the cash generating unit containing this goodwill is discussed in note 2(iv).

Financial Report 93

NOTES TO THE FINA NCIAL STATEMENTS
21: Other Assets
Consolidated

The Company

2007
$m

2006
$m

2007
$m

2006
$m

Accrued interest/prepaid discounts
Accrued commission
Defined benefit superannuation plan surplus (see note 46)
Prepaid expenses
Issued securities settlements
Operating leases residual value
Capitalised expenses
Other

1,626
124
7
97
671
201
31
1,089

1,569
102
5
69
1,377
799
31
547

1,052
111
–
41
550
–
31
351

1,088
74
–
30
1,074
3
31
258

Total other assets

3,846

4,499

2,136

2,558

22: Premises and Equipment
Consolidated

Freehold and leasehold land and buildings
At costDepreciation

Leasehold improvements
At costAmortisation

Furniture and equipment
At costDepreciation

Computer equipment
At costDepreciation

Capital works in progress
At costTotal premises and equipment

94 ANZ Annual Report 2007

The Company

2007
$m

2006
$m

2007
$m

2006
$m

838
(204)

632
(195)

95
(37)

80
(36)

634

437

58

44

318
(193)

253
(158)

195
(106)

159
(93)

125

95

89

66

843
(503)

734
(467)

641
(361)

538
(332)

340

267

280

206

949
(720)

906
(688)

711
(540)

674
(505)

229

218

171

169

165

92

141

42

1,493

1,109

739

527

NOTES TO THE FINA NCIAL STATEMENTS
22: Premises and Equipment (continued)
Reconciliations of the carrying amounts for each class of premises and equipment are set out below:
Consolidated

The Company

2007
$m

2006
$m

2007
$m

2006
$m

Freehold and leasehold land and buildings1
Carrying amount at beginning of year
Additions
Acquisitions
Disposals
Depreciation
Foreign currency exchange difference

437
45
208
(29)
(22)
(5)

438
21
–
(5)
(15)
(2)

44
21
–
(1)
(4)
(2)

43
4
–
–
(2)
(1)

Carrying amount at end of year

634

437

58

44

Leasehold improvements
Carrying amount at beginning of year
Additions
Acquisitions
Disposals
Amortisation
Foreign currency exchange difference

95
57
1
(4)
(22)
(2)

90
26
–
(5)
(18)
2

66
40
–
(1)
(16)
–

63
16
–
(5)
(12)
4

Carrying amount at end of year

125

95

89

66

Furniture and equipment
Carrying amount at beginning of year
Additions
Acquisitions
Disposals
Depreciation
Foreign currency exchange difference

267
138
4
(10)
(57)
(2)

246
72
–
(3)
(48)
–

206
121
4
(7)
(44)
–

191
53
–
(2)
(36)
–

Carrying amount at end of year

340

267

280

206

Computer equipment
Carrying amount at beginning of year
Additions
Acquisitions
Disposals
Depreciation
Foreign currency exchange difference

218
100
4
(4)
(86)
(3)

224
95
–
(6)
(94)
(1)

169
66
4
(3)
(65)
–

171
73
–
(5)
(70)
–

Carrying amount at end of year

229

218

171

169

Capital works in progress
Carrying amount at beginning of year
Net additions

92
73

56
36

42
99

27
15

Carrying amount at end of year

165

92

141

42

Total premises and equipment

1,493

1,109

739

527

1 Includes integrals.

Financial Report 95

NOTES TO THE FINA NCIAL STATEMENTS
23: Due to Other Financial Institutions
Consolidated

The Company

2007
$m

2006
$m

2007
$m

2006
$m

Australia
New ZealandOverseas Markets

6,970
1,744
9,272

6,656
2,448
5,014

4,980
–
9,130

6,654
–
4,998

Total due to other financial institutions

17,986

14,118

14,11011,652

24: Deposits and Other Borrowings
Deposits and other borrowings are classified between Australia, New Zealand and Overseas Markets based on the location of the deposit
taking point.
Consolidated

Australia
Certificates of deposit
Term deposits
Other deposits bearing interest
Deposits not bearing interest
Commercial paper
Borrowing corporations’ debt1
Other borrowings

New ZealandCertificates of deposit
Term deposits
Other deposits bearing interest
Deposits not bearing interest
Commercial paper
Borrowing corporations’ debt2

Overseas Markets
Certificates of deposit
Term deposits
Other deposits bearing interest
Deposits not bearing interest
Commercial paper
Other borrowings

Total deposits and other borrowings

The Company

2007
$m

2006
$m

2007
$m

2006
$m

23,80732,417
76,141
4,825
8,912
8,575
537

16,65026,21961,245
4,749
8,092
8,843
458

23,80733,53076,141
4,825
5,647
–
511

16,65027,206
61,245
4,749
3,842
–
458

155,214126,256

144,461

114,150

3,819
24,906
17,793
4,092
8,002
1,534

3,428
22,812
17,467
3,605
6,028
1,813

–
–
–
–
–
–

–
–
–
–
–
–

60,14655,153––

4,277
12,277
1,604
1,226
–
129

3,170
10,329
1,538
1,182
6,630
536

4,142
10,906
915
737
–
34

3,117
9,165
1,062
788
–
39

19,51323,385

16,734

14,171

234,873

204,794

161,195

128,321

1 Included in this balance is debenture stock of controlled entities. $8 billion of debenture stock of the consolidated subsidiary company Esanda Finance Corporation Limited (Esanda), together
with accrued interest thereon, is secured by a trust deed and collateral debentures, giving floating charges upon the undertaking and all the assets of the entity other than land and buildings($13.6 billion). All controlled entities of Esanda (except for some controlled entities which have been placed or are expected to be placed in voluntary de-registration and have minimal bookvalue) 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 arethose in Esanda and its subsidiaries.
2 This balance represents NZD1.8 billion of secured debenture stock of the consolidated subsidiary UDC Finance Limited (UDC) and the accrued interest thereon which are secured by a floating
charge over all tangible assets of UDC and its subsidiaries (NZD2.1 billion).

96 ANZ Annual Report 2007

NOTES TO THE FINA NCIAL STATEMENTS
25: Income Tax Liabilities
Consolidated

The Company

2007
$m

2006
$m

2007
$m

2006
$m

615
20

700
155

610
–

698
180

635

855

610

878

(160)
–

(163)
–

–
–

–
–

(160)

(163)

–

–

13
115

32
98

(23)
103

3
87

128

130

80

90

Total current and deferred income tax liability

603

822

690

968

Total current tax payable

468

569

587

701

Deferred tax liabilities recognised in profit and loss
Lease Finance
Treasury instruments
Capitalised expenses
Other

217
148
130
609

252
385
131
576

80
157
46
452

82
388
44
465

1,104

1,344

735

979

66
21
45

40
–
–

34
–
45

20
–
–

132

40

79

20

(1,101)(1,131)

(711)

(732)

135

253

103

267

Movements
Restated balance at 1 October
Change on adoption of AIFRS
Movements in temporary differences during the year

1,384
–
(148)

1,602
25
(243)

999
–
(185)

1,211
(49)
(163)

Balance prior to set-off of deferred tax liabilities pursuant to set-off provisions1
Set-off of deferred tax liabilities pursuant to set-off provisions1

1,236(1,101)

1,384(1,131)

814
(711)

999
(732)

Closing Balance at 30 September

135

253

103

267

Unrecognised deferred tax liabilities2
The following deferred tax liabilities have not been brought to account as liabilities:
Other unrealised taxable temporary differences

46

33

–

–

Total unrecognised deferred tax liabilities

46

33

–

–

Australia
Current tax payable
Deferred tax liabilities

New ZealandCurrent tax payable
Deferred tax liabilities

Overseas Markets
Current tax payable
Deferred tax liabilities

Deferred tax liabilities recognised directly in equity
Cash flow hedges
Foreign currency translation reserve
Available-for-sale revaluation reserve1

Set-off of deferred tax liabilities pursuant to set-off provisions
Net deferred tax liability

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 subsidiaries be repatriated.

26: Payables and Other Liabilities
Consolidated

The Company

2007
$m

2006
$m

2007
$m

2006
$m

Creditors
Accrued interest and unearned discounts
Defined benefit plan obligations (see note 46)
Accrued charges
Security settlements
Other liabilities

5,021
2,809
75
619
590
1,393

4,282
2,488
229
604
1,236
1,840

4,431
2,001
75
413
588
879

4,030
1,832
229
392
1,104
1,236

Total payables and other liabilities

10,507

10,679

8,387

8,823

Financial Report 97

NOTES TO THE FINA NCIAL STATEMENTS
27: Provisions
Consolidated

Employee entitlements1
Restructuring costs and surplus leased space2
Non-lending losses, frauds and forgeries3
Other4
Total provisions

The Company

2007
$m

2006
$m

2007
$m

2006
$m

400
37
186
398

366
74
187
330

299
32
138
241

267
61
125
235

1,021

957

710

688

Reconciliations of the carrying amounts of each class of provision, except for employee entitlements, are set out below:
Consolidated

The Company

2007
$m

2006
$m

2007
$m

2006
$m

Restructuring costs and surplus leased space2
Carrying amount at beginning of the year
Provision made during the year
Payments made during the year
Transfer/release of provision
Adjustment for exchange rate fluctuations

74
43
(44)
(36)
–

77
51
(43)
(10)
(1)

61
40
(34)
(35)
–

57
41
(33)
(4)
–

Carrying amount at the end of the year

37

74

32

61

Carrying amount at beginning of the year
Provision made during the year
Transfer of provision
Release of provision

187
79
(14)
(66)

184
52
(19)
(30)

125
69
(16)
(40)

136
17
(3)
(25)

Carrying amount at the end of the year

186

187

138

125

Carrying amount at beginning of the year
Provision made during the year
Payments made during the year
Transfer/release of provision
Adjustment for exchange rate fluctuations

330
335
(204)
(63)
–

293
235
(161)
(37)
–

235
253
(197)
(50)
–

197
197
(137)
(23)
1

Carrying amount at the end of the year

398

330

241

235

Non-lending losses, frauds and forgeries3

Other provisions4

1 The aggregate liability for employee benefits largely comprises employee entitlements provisions for annual leave and long service leave.
2 Restructuring costs and surplus leased space provisions arise from exit activities related to material changes in the scope of business undertaken by the Group or the manner in which thatbusiness is undertaken and includes termination benefits. Costs related to on-going activities are not provided for. Provision is made when the Group is demonstrably committed, it is probablethat the costs will be incurred, though their timing is uncertain, and the costs can be reliably estimated.
3 Non-lending losses, frauds and forgeries provisions arise from inadequate or failed internal processes and systems, or from external events.
4 Other provisions comprise various other provisions including loyalty programs, workers’ compensation and make-good provisions on leased premises.

28: Bonds and Notes
Consolidated

The Company

2007
$m

2006
$m

2007
$m

2006
$m

Bonds and notes 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 dollars
NOK
Norwegian krone
SGD
Singapore dollars
CZK
Czech koruna20,306
7,963
1,300
1,546
1,395
13,664
3,301
2,562
1,911
51
76

16,957
6,528
1,371
1,350
787
14,821
3,153
2,216
2,631
85
73
78

14,570
6,264
1,300
379
1,307
11,816
2,921
2,562
1,911
51
76

11,004
5,423
1,371
303
685
13,337
2,633
2,216
2,631
85
73
78

Total bonds and notes

54,07550,05043,157

39,83998 ANZ Annual Report 2007

NOTES TO THE FINA NCIAL STATEMENTS
29: Loan Capital
Consolidated

The Company

Interest rate
%

2007
$m

2006
$m

2007
$m

2006
$m

BBSW + 1.00

1,000

1,000

1,000

1,000

4.484
5.36
6.54

397
851
1,033

468
1,003
–

397
851
1,033

468
1,003
–

3,281

2,471

3,281

2,471

340
350

401
–

340
350

401
–

690

401

690

401

2
2
5
2
90
400
–
–
–
–
–
624
86
482
380
350
454
289
452
798
283
298
300
552
299
349
350
100
100
400
214
299
853

6
3
8
5
106
400
400
100
263
109
109
735
88
510
380
350
535
295
506
861
–
298
300
613
306
–
–
–
–
–
–
–
968

2
2
5
2
90
400
–
–
–
–
–
624
–
482
380
350
454
289
452
798
283
298
300
552
–
349
350
100
100
400
–
–
853

6
3
8
5
106
400
400
100
–
–
–
735
–
510
380
350
535
295
506
861
–
298
300
613
–
–
–
–
–
–
–
–
968

8,813

8,254

7,915

7,379

Total loan capital

12,784

11,126

11,886

10,251

Loan capital by currency
AUD
Australian dollars
NZD
New Zealand dollars
USD
United States dollars
GBP
Great British pounds
EUR
Euro
JPY
Japanese yen

4,266
898
3,046
3,290
1,280
4

3,523
875
3,262
2,087
1,371
8

4,266
–
3,046
3,290
1,280
4

3,523
–
3,262
2,087
1,371
8

12,784

11,126

11,886

10,251Hybrid loan capital (subordinated)
ANZ Stapled Exchangeable Preferred Securities (ANZ StEPS)1
US Trust Securities
USD 350m non-cumulative trust securities due 2053
USD 750m non-cumulative trust securities due 2053
UK Stapled Securities

Perpetual subordinated notes
USD
300m
floating rate notes
AUD
350m
floating rate notes

LIBOR + 0.15
BBSW + floating margin

Subordinated notes4
USD
JPY
USD
JPY
USD
AUD
AUD
AUD
NZD
NZD
NZD
USD
NZD
EUR
AUD
AUD
USD
AUD
GBP
EUR
USD
AUD
AUD
GBP
NZD
AUD
AUD
AUD
AUD
GBP
NZD
NZD
GBP

1
2
3
4

1.8m
192.8m4.1m
236.2m
79m
400m
400m
100m
300m
125m
125m
550m
100m
300m
380m
350m
400m
300m
200m
500m
250m
300m
300m
250m
350m
350m
350m
100m
100m
175m
250m
350m
400m

floating rate notes due 2007
floating rate notes due 2007
floating rate notes due 2008
floating rate notes due 2008
floating rate notes due 2008
floating rate notes due 2010
fixed notes due 20123
floating rate notes due 20122
fixed notes due 20122
fixed notes due 20122
fixed notes due 20122
floating rate notes due 20132
fixed notes due 20132
floating rate notes due 20132
floating rate notes due 20142
fixed notes due 20143
floating rate notes due 20152
fixed notes due 20153
fixed notes due 20152
fixed notes due 20153
floating rate notes due 2016
fixed notes due 20163
floating rate notes due 20162
fixed notes due 20163
fixed notes due 20163
fixed notes due 2017
floating rate notes due 2017
fixed notes due 2017
floating rate notes due 2017
fixed notes due 2017
fixed notes due 2017
fixed notes due 2017
fixed notes due 20183

LIBOR + 0.50
LIBOR + 0.50
LIBOR + 0.50
LIBOR + 0.55
LIBOR + 0.53
BBSW + 0.29
6.75
BBSW + 0.57
7.04
7.61
7.40
LIBOR + 0.55
6.46
EURIBOR + 0.375
BBSW + 0.41
6.50
LIBOR + 0.20
6.00
5.625
4.45
LIBOR + 0.21
6.25
BBSW + 0.22
4.75
7.16
6.50
BBSW + 0.24
7.30
BBSW + 0.4
6.38
7.60
8.23
4.75

On 23 September 2008 the margin of 1.00% can be reduced if the security is not redeemed or converted.
Callable five years prior to maturity.
Callable five years prior to maturity and reverts to floating rate if not called.
Included within the carrying amount are, where appropriate, revaluations of the loan capital associated with fair value hedge accounting or an election to fair value the note through theincome statement.

Loan capital is subordinated in right of payment to the claims of depositors and all other creditors of the Company and its controlled entities which have issued the notes. The loan capital,
except for the ANZ StEPS, US Trust Securities and UK Stapled Securities constitutes Tier 2 capital as defined by APRA for capital adequacy purposes. ANZ StEPS and US Trust Securities constituteTier 1 capital, as defined by APRA, for capital adequacy purposes. UK Stapled Securities constitutes non-innovative Tier 1 capital, as defined by APRA, for capital adequacy purposes.

Financial Report 99

NOTES TO THE FINA NCIAL STATEMENTS
29: Loan Capital (continued)
ANZ STAPLED EXCHANGEABLE PREFERREDSECURITIES (ANZ STEPS)On 23 September 2003, the Company
issued 10 million ANZ StEPS at $100 eachpursuant to a prospectus dated 14 August
2003 raising $1 billion (excluding issue
costs of $13 million: net raising $987
million). ANZ StEPS comprise two fully paid
securities – an interest paying unsecured
note (issued by ANZ Holdings (New Zealand)
Limited, a New Zealand subsidiary of theCompany) stapled to a fully paid $100
preference share (issued by the Company).
Distributions on ANZ StEPS are noncumulative and are payable quarterly inarrears based upon a floating distribution
rate equal to the 90 day bank bill rateplus a 100 basis point margin. At eachpayment date the 90 day bank bill rate isreset for the next quarter. Distributions are
subject to certain payment tests (i.e. APRA
requirements and distributable profits being
available) and the basis for their calculation
may change on any reset date. Distributions
are expected to be payable on 15 March,
15 June, 15 September and 15 December of
each year. Dividends are not payable on thepreference share while it is stapled to thenote. If distributions are not paid on
ANZ StEPS, the Group may not pay dividends
or distributions, or return capital on ANZ
ordinary shares or any other share capitalor security ranking equal or junior to thepreference share component.
On any reset date, ANZ may change certain
terms (subject to certain restrictions)
including the next reset date, market reset(from floating rate to a fixed rate, or viceversa), margin and the frequency and timingof the distribution payment dates. The firstreset date is 15 September 2008. Holders
of ANZ StEPS can require exchange on any
reset date or earlier if certain specified
events occur. On exchange, a holder will
receive (at the Company’s discretion)either $100 cash for each ANZ StEPS
exchanged or a variable number of ordinary
shares calculated in accordance with aconversion ratio based on $100 divided by
the market price of ordinary shares at thedate of conversion less 2.5%. In certain
circumstances, the Company may also
require exchange other than on a reset date.
Upon the occurrence of an assignment
event, ANZ StEPS becomes unstapled.
In this case, the note will be assigned to a
subsidiary of the company, however, theholder will retain the preference share andthe rights to exchange the preference share.

100 ANZ Annual Report 2007

The preference shares forming part of ANZ
StEPS rank equally with the preference
shares issued in connection with US Trust
Securities, UK Stapled Securities and Euro
Trust Securities in all respects. Except incertain limited circumstances, holders of
ANZ StEPS do not have any right to vote ingeneral meetings of the Company.
On a winding up of the Company, the rights
of ANZ StEPS holders will be determinedby the preference share component of ANZ
StEPS. Those preference shares rank behindall depositors and creditors, but ahead ofordinary shareholders.
ANZ StEPS qualify as Innovative Tier 1
capital as defined by APRA.
US TRUST SECURITIESOn 27 November 2003, the Company
issued 1.1 million USD non-cumulative
Trust Securities (“US Trust Securities”)
at USD1000 each pursuant to offering
memorandum dated 19 November 2003
raising USD1.1 billion. US Trust Securities
comprise two fully paid securities – aninterest paying unsecured note (issued by
Samson Funding Limited, a wholly owned
NZ subsidiary of the Company) and a fully
paid USD1,000 preference share (issued by
the Company), which are stapled together
and issued as a US Trust Security by ANZ
Capital Trust I or ANZ Capital Trust II (the“Trusts”). Investors have the option toredeem the US Trust Security from the Trusts
and hold the underlying stapled security.
The issue was made in two tranches:
USD350 million tranche with a couponof 4.48% and was issued through ANZ
Capital Trust I. After 15 January 2010 andat any coupon date thereafter, ANZ has
the discretion to redeem the US Trust
Security for cash. If it does not exercise
this discretion, the investor is entitled
to require ANZ to exchange the US Trust
Security into a number of ordinary sharesbased on the formula in the offering
memorandum.
USD750 million tranche with a couponof 5.36% and was issued through ANZ
Capital Trust II. It has the same conversion
features as the USD350 million tranche
but from 15 December 2013.
Distributions on US Trust Securities are
non-cumulative and are payable half yearlyin arrears and are funded by payments
received by the respective Trusts on
the underlying note. Distributions are

subject to certain payment tests (i.e. APRA
requirements and distributable profits being
available). Distributions are expected tobe payable on 15 June and 15 Decemberof each year. Dividends are not payable on
the preference share while it is stapled to
the note. If distributions are not paid on the
US Trust Securities, the Group may not pay
dividends or distributions, or return capitalon ANZ ordinary shares or any other sharecapital or security ranking equal or junior to
the preference share component.
At any time in the Company’s discretionor upon the occurrence of certain other“conversion events”, such as the failureof the respective Trust to pay in full a
distribution within seven business days of
the relevant distribution payment date, thenotes that are represented by the relevant
US Trust Securities will be automaticallyassigned to a subsidiary of the Company andthe preference shares that are represented
by the relevant US Trust Securities will be
distributed to investors in redemption ofsuch US Trust Securities. The distributed
preference shares will immediately become
dividend paying and holders will receive
non-cumulative dividends equivalent tothe scheduled payments in respect of the
US Trust Securities for which the preference
shares were distributed. If the US Trust
Securities are not redeemed or boughtback prior to the 15 December 2053, they
will be converted into preference shares,
which in turn will be mandatorily converted
into a variable number of ordinary sharesbased upon the formula in the offering
memorandum.
The preference shares forming part of the US
Trust Securities rank equal to the preference
shares issued in connection with the ANZ
StEPS, UK Stapled Securities and Euro Trust
Securities in all respects. Except in limited
circumstances, holders of US Trust Securities
do not have any right to vote in general
meetings of the Company.
On winding up of the Company, the rights of
US Trust Security holders will be determinedby the preference share component of US
Trust Security. These preference shares rankbehind all depositors and creditors, butahead of ordinary shareholders.
The US Trust Securities qualify as Innovative
Tier 1 capital as defined by APRA.

NOTES TO THE FINA NCIAL STATEMENTS
29: Loan Capital (continued)
UK STAPLED SECURITIESOn 15 June 2007, the Company issued
9,000 non-cumulative, mandatory
convertible stapled securities (“UK Stapled
Securities”) at £50,000 each pursuant toa prospectus dated 12 June 2007 raising£450 million. UK Stapled Securities
comprise two fully paid securities – aninterest paying unsecured subordinated£50,000 note issued by the Company
through its New York Branch and a £50,000
preference share issued by the Company,
which are stapled together.

As noted above, in a winding up of theCompany, the note component of the
UK Stapled Security will be assigned to
the Company and the holder will retain only
the preference share component of the
UK Stapled Security. Accordingly, therights of investors in UK Stapled Securities
in a winding up of the Company are therights conferred by the preference sharecomponent of UK Stapled Securities. These
preference shares rank behind all depositorsand creditors, but ahead of ordinary
shareholders.

Distributions on UK Stapled Securities are
non-cumulative and are payable half yearlyin arrears at a fixed rate of 6.54% (untilconverted into ordinary shares or the rate
is reset as provided in the prospectus).
Distributions are subject to certain payment
tests (including APRA requirements anddistributable profits being available).
Distributions are expected to be payable
on 15 June and 15 December of each year.
Dividends are not payable on a preference
share while it is stapled to a note. If
distributions are not paid on UK Stapled
Securities, the Group may not pay dividends
or distributions, or return capital, on ANZ
ordinary shares or any other share capitalor security ranking equal or junior to thepreference share component.

The UK Stapled Securities qualify as NonInnovative Tier 1 capital as defined by APRA.

At any time in the Company’s discretion or
upon the occurrence of certain other events,
such as the commencement of proceedings
for the winding up of the Company, the note
component of the UK Stapled Security will beassigned to the Company and the holder willretain only the preference share componentof the UK Stapled Security.
On 15 June 2012 (“conversion date”), or an
earlier date under certain circumstances,
UK Stapled Securities will mandatorily
convert into a variable number of ordinary
shares in the Company determinedin accordance with the formula in theprospectus. The mandatory conversion to
ordinary shares is however deferred for five
years if the conversion tests set out in theprospectus are not met.
The preference shares forming part of the
UK Stapled Securities rank equally with thepreference shares issued in connection
with ANZ StEPS, US Trust Securities andEuro Trust Securities. Except in limited
circumstances, holders of UK Stapled
Securities do not have any right to vote ingeneral meetings of the Company.

Financial Report 101

NOTES TO THE FINA NCIAL STATEMENTS
30: Share Capital
The Company
Number of issued shares

2007

2006

Ordinary shares each fully paid
Preference shares each fully paid

1,864,678,820
500,000

1,836,572,115
500,000

Total number of issued shares

1,865,178,820

1,837,072,115

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 the 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 upona poll one vote for each share held.
The Company
Number of issued shares

2007

2006

Balance at start of year
Bonus option plan1
Dividend reinvestment plan1
ANZ employee share acquisition plan2
ANZ share option plan2
Consideration for purchase of ETrade Australia
Share capital buyback

1,836,572,115
1,729,427
15,234,694–
7,840,564
3,302,020–

1,826,449,480
1,384,144
6,585,302
1,590,457
6,654,818–(6,092,086)

Balance at end of year

1,864,678,820

1,836,572,115

Consolidated

The Company

2007
$m

2006
$m

2007
$m

2006
$m

Ordinary share capital
Balance at start of year
Dividend reinvestment plan1
ANZ employee share acquisition plan2
Consideration for purchase of ETrade Australia
ANZ share option plan2
Treasury shares3
Share Capital buyback

8,271
442
57
99
132
(55)
–

8,053
165
90
–
109
–
(146)

8,271
442
57
99
132
(55)
–

8,053
165
90
–
109
–
(146)

Balance at end of year

8,946

8,271

8,946

8,271

1 Refer to note 7 for details of plan.
2 Refer to note 47 for details of plan.
3 As at 30 September 2007, there were 1,313,392 treasury shares outstanding.

102 ANZ Annual Report 2007

NOTES TO THE FINA NCIAL STATEMENTS
30: Share Capital (continued)
PREFERENCE SHARESEuro Trust Securities
On 13 December 2004, the Company issued 500,000 Euro Floating Rate Non-cumulative Trust Securities (“Euro Trust Securities”) at €1000
each pursuant to the offering circular dated 9 December 2004, raising $871 million (at the spot rate at the date of issue, net of issue costs).
Euro Trust Securities comprise two fully paid securities – an interest paying unsecured note (issued by ANZ Jackson Funding PLC, a United
Kingdom subsidiary of the Company) and a fully paid, €1000 preference share (issued by the Company), which are stapled together and issued
as a Euro Trust Security by ANZ Capital Trust III (the Trust). Investors have the option to redeem the Euro Trust Security from the Trust and holdthe underlying stapled security.
Distributions on Euro Trust Securities are non-cumulative and are payable quarterly in arrears and are funded by payments received by theTrust on the underlying note and/or preference share. The distribution is based upon a floating distribution rate equal to the 3 month
EURIBOR rate plus a 66 basis point margin up until 15 December 2014, after which date the distribution rate is the 3 month EURIBOR rateplus a 166 basis point margin. At each payment date the 3 month EURIBOR rate is reset for the next quarter. Distributions are subject tocertain payment tests (i.e. APRA requirements and distributable profits being available). Distributions are expected to be payable on 15 March,
15 June, 15 September and 15 December of each year. Dividends are not payable on the preference shares while they are stapled to thenote, except for the period after 15 December 2014 when the preference share will pay 100 basis points to fund the increase in the margin.
If distributions are not paid on Euro Trust Securities, the Group may not pay dividends or distributions, or return capital on ANZ ordinary sharesor any other share capital or security ranking equal or junior to the preference share component.
At any time at ANZ’s discretion or upon the occurrence of certain other “conversion events”, such as the failure of the Trust to pay in full a
distribution within seven business days of the relevant distribution payment date or the business day prior to 15 December 2053, the notesthat are represented by the relevant Euro Trust Securities will be automatically assigned to a Branch of the Company and the fixed number ofpreference shares that are represented by the relevant Euro Trust Securities will be distributed to investors in redemption of such Euro Trust
Securities. The distributed preference shares will immediately become dividend paying and holders will receive non-cumulative dividends
equivalent to the scheduled payments in respect of the Euro Trust Securities for which the preference shares were distributed.
The preference shares forming part of the Euro Trust Security rank equal to the preference shares issued in connection with the ANZ StEPS,
US Trust Securities and UK Stapled Securities in all respects. Except in limited circumstances, holders of Euro Trust Securities do not have any
right to vote in general meetings of the Company.
On winding up of the Company, the rights of Euro Trust Security holders will be determined by the preference share component of the Euro Trust
Security. These preference shares rank behind all depositors and creditors, but ahead of ordinary shareholders.
The transaction costs arising on the issue of these instruments were recognised directly in equity as a reduction to the proceeds of the equity
instruments to which the costs relate.
Euro Trust Securities qualify as Innovative Tier 1 Capital as defined by APRA.
Consolidated

The Company

2007
$m

2006
$m

2007
$m

2006
$m

871
–

871
987

871
–

871
987

871

1,858

871

1,858

Less ANZ StEPS securities reclassified under AIFRS1

–

(987)

–

(987)

Adjusted preference share balance at start of year

871

871

871

871

Preference share balance at end of year
- Euro Trust Securities

871

871

871

871

Preference share balance at start of year
- Euro Trust Securities- ANZ StEPS1

1 Under AIFRS, ANZ StEPS securities are now classified as loan capital (refer note 29).

Financial Report 103

NOTES TO THE FINA NCIAL STATEMENTS
31: Reserves and Retained Earnings
Consolidated

The Company

2007
$m

2006
$m

2007
$m

2006
$m

(646)
(563)

(443)
(203)

(116)
(291)

(213)
97

(1,209)

(646)

(407)

(116)

Balance at beginning of year
Share-based payments
Transfer (to) retained earnings3

63
7
–

67
(3)
(1)

63
7
–

67
(3)
(1)

Total share option reserve

70

63

70

63

c) Available-for-sale revaluation reserve
Balance at start of year
Adjustments on adoption of accounting policies specified by AASB 132 and AASB 139

2
–

n/a
(10)

(3)
–

n/a
(11)

Restated balance at beginning of year
Valuation gain recognised after tax
Cumulative (gain) transferred to the income statement on sale of financial assets

2
109
(14)

(10)
20
(8)

(3)
100
(4)

(11)
15
(7)

Total available-for-sale revaluation reserve

97

2

93

(3)

227
–
(141)

n/a
162
–

40
–
–

n/a
11
–

Restated balance at beginning of year
Gain/(loss) recognised after tax
Transfer (to) income statement

86
74
(7)

162
121
(56)

40
40
–

11
36
(7)

Total hedging reserve

153

227

80

40

e) General reserve
Balance at start of year
Transfer (to) retained earnings3

–
–

181
(181)

–
–

11
(11)

Total general reserve

–

–

–

–

f) Capital reserve
Balance at start of year
Transfer (to) retained earnings3

–
–

149
(149)

–
–

–
–

Total capital reserve

–

–

–

–

(889)

(354)

(164)

(16)

a) Foreign currency translation reserve
Balance at beginning of year
Currency translation adjustments, net of hedges after tax
Total foreign currency translation reserveb) Share option reserve1d) Hedging reserve
Balance at start of year
Adjustments on adoption of accounting policies specified by AASB 132 and AASB 139
Adjustment on adoption of AASB 2005-12

Total reserves

1 Further information about share based payments to employees is disclosed in note 47 to the financial statements.
2 Under the provisions of AASB 2005-1, hedge accounting is not available for the NZ revenue hedges, effective 1 October 2006 (refer note 1(viii)).
3 The transfer of balances from the share option, general and capital reserves to retained earnings represent items of a distributable nature.

104 ANZ Annual Report 2007

NOTES TO THE FINA NCIAL STATEMENTS
31: Reserves and Retained Earnings (continued)
Consolidated

The Company

2007
$m

2006
$m

2007
$m

2006
$m

11,084

9,646

8,173

7,310

–
141

(431)
–

–
–

(201)
–

Restated balance at beginning of year
Profit attributable to shareholders of the Company
Transfers from reserves
Actuarial gain/(loss) on defined benefit plans after tax5
Ordinary share dividends paid
Preference share dividends paid

11,2254,180–
77(2,363)
(37)

9,215
3,688
331
(55)
(2,068)
(27)

8,173
3,551
–
75
(2,363)
–

7,109
3,174
12
(54)
(2,068)–Retained earnings at end of year

13,082

11,084

9,436

8,173

Total reserves and retained earnings

12,193

10,730

9,272

8,157

Retained earnings
Restated balance at start of year
Adjustment on adoption of accounting policies specified by AASB 4, AASB 132
and AASB 1394
Adjustment on adoption of AASB 2005-12

1
2
3
4

Further information about share based payments to employees is disclosed in note 47 to the financial statements.
Under the provisions of AASB 2005-1, hedge accounting is not available for the NZ revenue hedges, effective 1 October 2006 (refer note 1(viii)).
The transfer of balances from the share option, general and capital reserves to retained earnings represent items of a distributable nature.
Comprises:- Remeasurement of the carrying value of the Group’s investment in INGA as at 1 October 2005
- Adjustment in respect of hedging derivative financial instruments as at 1 October 2005
- Recognition of the fair value of derivatives relating to securitisation and structured finance transactions as at 1 October 2005
- Deferral of previously recognised fees now treated as an adjustment to yield on 1 October 2005
- Restatement of credit loss provisions to an AIFRS basis.
5 ANZ has taken the option available under AASB 119 to recognise actuarial gains/losses on defined benefit superannuation plans directly in retained profits (refer note 1(xx) and note 46).

a) Foreign currency translation reserve
The translation reserve comprises exchange differences, net of hedges, arising on translation of the financial statements of foreign operations,as described in note 1(iii). When a foreign operation is sold, attributable exchange differences are recognised in the Income Statement.
b) Share option reserve
The share option reserve arises on the grant of share options to selected employees under the ANZ share option plan. Amounts are transferredout of the reserve and into share capital when the options are exercised. Refer to note 1(xx).
c) Available-for-sale revaluation reserve
Changes in the fair value and exchange differences on the revaluation of available-for-sale financial assets are taken to the available-for-salerevaluation reserve. Where a revalued available-for-sale financial asset is sold, that portion of the reserve which relates to that financial asset,
is realised and recognised in the Income Statement. Where the available-for-sale financial asset is impaired, that portion of the reserve which
relates to that asset is recognised in the Income Statement. Refer to note 1(ix).
d) Hedging reserve
The hedging reserve represents hedging gains and losses recognised on the effective portion of cashflow hedges. The cumulative deferred gainor loss on the hedge is recognised in the Income Statement when the hedged transaction impacts the Income Statement. Refer to note 1(viii).
e) General reserve and f) Capital reserve
The transfer of balances from the general and capital reserves to retained earnings represent items of a distributable nature.

32: Minority Interests
Consolidated
2007
$m

2006
$m

Share capital
Retained profits

16
22

14
20

Total minority interests

38

34

Financial Report 105

NOTES TO THE FINA NCIAL STATEMENTS
33: Average Balance Sheet and Related Interest
Averages used in the following table are predominantly daily averages. Interest income figures are presented on a tax-equivalent basis.
Impaired loans are included under the interest earning asset category ‘loans and advances’. Intragroup interest earning assets and interest
bearing liabilities are treated as external assets and liabilities for the geographic segments.
2007
Averagebalance$m

Due from other financial institutions
Australia
New ZealandOverseas Markets

2006

Interest$m

Averagerate%

Averagebalance$mInterest$m

Average
rate
%

2,011
1,598
4,987

113
111
264

5.6
6.9
5.3

1,442
2,236
4,061

71
146
190

4.9
6.5
4.7

Trading and available-for-sale assets
Australia
New ZealandOverseas Markets

18,164
2,701
3,904

1,157
212
215

6.4
7.8
5.5

15,957
2,459
2,883

946
182
134

5.9
7.4
4.6

Loans and advances
Australia
New ZealandOverseas Markets

188,582
73,426
10,387

14,752
6,536
761

7.8
8.9
7.3

170,576
65,203
9,538

12,478
5,653
671

7.3
8.7
7.0

Customers’ liability for acceptances
Australia
Overseas Markets

13,852
293

1,054
18

7.6
6.1

13,786
216

958
11

6.9
5.1

Other assets
Australia
New ZealandOverseas Markets

4,794
5,054
3,608

355
404
258

7.4
8.0
7.2

3,833
4,361
4,155

317
283
261

8.3
6.5
6.3

Intragroup assets
Australia
Overseas Markets

2,910
4,043

232
228

8.0
5.6

–
11,501

–
559

–
4.9

340,314

26,670312,207

22,860(6,953)(460)(11,501)(559)

333,361

26,210300,706

22,301

Interest earning assets

Intragroup elimination

7.9

Non-interest earning assets
Derivative financial instruments
Australia
New ZealandOverseas Markets

12,708
3,227
667

9,600
2,593
(579)

Premises and equipment

1,318

1,074

Other assets

14,31912,696

Provision for credit impairment
Australia
New ZealandOverseas Markets(1,688)
(412)
(167)

(1,567)
(419)
(191)

29,972

23,207

Total average assets

363,333

323,913

Total average assets
Australia
New ZealandOverseas Markets

249,686
89,96930,631

220,71081,072
33,632

370,286

335,414(6,953)(11,501)

363,333

323,913

32.1%

31.9%

Intragroup elimination% of total average assets attributable to overseas activities

106 ANZ Annual Report 2007

7.4

NOTES TO THE FINA NCIAL STATEMENTS
33: Average Balance Sheet and Related Interest (continued)
2007

2006

Interest$m

Averagerate%

Averagebalance$mInterest$m

Averagerate%

49,00028,27915,122

3,071
2,096
781

6.3
7.4
5.2

42,907
26,064
13,699

2,445
1,822
646

5.7
7.0
4.7

Savings deposits
Australia
New ZealandOverseas Markets

16,536
2,520
504

597
82
4

3.6
3.3
0.8

15,087
2,981
566

480
124
10

3.2
4.2
1.8

Other demand deposits
Australia
New ZealandOverseas Markets

47,837
15,938
1,166

2,466
997
29

5.2
6.3
2.5

38,935
12,452
1,003

1,751
700
22

4.5
5.6
2.2

Due to other financial institutions
Australia
New ZealandOverseas Markets

6,787
1,838
6,724

410
105
357

6.0
5.7
5.3

4,151
1,961
5,965

223
107
306

5.4
5.5
5.1

Commercial paper
Australia
New ZealandOverseas Markets

9,981
6,566
926

636
525
49

6.4
8.0
5.3

10,858
6,315
7,373

637
470
333

5.9
7.4
4.5

Borrowing corporations’ debt
Australia
New Zealand

8,752
1,722

544
127

6.2
7.4

9,117
1,863

522
130

5.7
7.0

Liability for acceptances
Australia
Overseas Markets

13,852
293

898
17

6.5
5.8

13,786
216

799
10

5.8
4.6

Loan capital, bonds and notes
Australia
New ZealandOverseas Markets

55,577
11,841
311

3,651
958
19

6.6
8.1
6.1

45,244
9,293
135

2,677
703
7

5.9
7.6
5.2

Other liabilities1
Australia
New ZealandOverseas Markets

5,234
132
421

355
96
38

n/a
n/a
n/a

5,122
149
510

304
94
36

n/a
n/a
n/a

Intragroup liabilities
Australia
New Zealand

–
6,953

–
460

–
6.6

5,146
6,355

169
390

3.3
6.1

314,812

19,368287,253

15,917(6,953)(460)(11,501)(559)

307,859

18,908

275,752

15,358Averagebalance$mTime deposits
Australia
New ZealandOverseas Markets

Interest bearing liabilities

Intragroup elimination

6.1

5.6

1 Includes foreign exchange swap costs.

Financial Report 107

NOTES TO THE FINA NCIAL STATEMENTS
33: Average Balance Sheet and Related Interest (continued)
2007
Averagebalance$m

2006
Averagebalance$m

Deposits
Australia
New ZealandOverseas Markets

4,734
3,829
1,220

4,412
3,883
1,123

Derivative financial instruments
Australia
New ZealandOverseas Markets

11,719
2,882
(494)

8,642
2,663
(635)

Other liabilities

10,855

9,457

34,74529,545

Total average liabilities

342,604

305,297

Total average liabilities
Australia
New ZealandOverseas Markets

237,762
84,176
27,619210,364
75,331
31,103

349,557

316,798(6,953)(11,501)

342,604

305,297% of total average liabilities attributable to overseas activities

30.6%

32.8%

Total average shareholders’ equity
Ordinary share capital1
Preference share capital

19,858871

17,745871

20,72918,616363,333

323,913

Non-interest bearing liabilities

Intragroup elimination

Total average liabilities and shareholders’ equity
1 Includes reserves and retained earnings.

108 ANZ Annual Report 2007

NOTES TO THE FINA NCIAL STATEMENTS
34: Interest Spreads and Net Interest Average Margins
2007
$m

2006
$m

5,036
1,817
449

4,763
1,724
456

7,302

6,943

230,31382,77927,222(6,953)

205,594
74,25932,354(11,501)

333,361

300,706%%

Australia
New ZealandOverseas Markets
Group

7.67
8.77
6.41
7.86

7.18
8.44
5.64
7.43

Interest spreads and net interest average margins may be analysed as follows
Australia
Gross interest spread
Interest foregone on impaired assets3

1.77(0.01)

1.94(0.01)Net interest spread
Interest attributable to net non-interest bearing items

1.76
0.43

1.93
0.39

Net interest average margin – Australia

2.19

2.32

New ZealandGross interest spread
Interest foregone on impaired assets3

1.60(0.01)

1.72(0.01)Net interest spread
Interest attributable to net non-interest bearing items

1.59
0.61

1.71
0.61

Net interest average margin – New Zealand

2.20

2.32

Overseas Markets
Gross interest spread
Interest foregone on impaired assets3

1.35(0.03)

1.02(0.02)Net interest spread
Interest attributable to net non-interest bearing items

1.32
0.33

1.00
0.41

Net interest average margin – Overseas Markets

1.65

1.41

Group
Gross interest spread
Interest foregone on impaired assets3

1.73(0.01)

1.87(0.01)Net interest spread
Interest attributable to net non-interest bearing items

1.72
0.47

1.86
0.45

Net interest average margin – Group

2.19

2.31

Net interest income1
Australia
New ZealandOverseas Markets

Average interest earning assets
Australia
New ZealandOverseas Markets
Intragroup elimination

Gross earnings rate2

1 On a tax equivalent basis.
2 Average interest rate received on interest earning assets. Overseas Markets includes intragroup assets.
3 Refer note 15.

Financial Report 109

NOTES TO THE FINA NCIAL STATEMENTS
35: Financial Risk Management
STRATEGY IN USING FINANCIAL
INSTRUMENTS
Financial instruments are fundamental to
the Group’s business, constituting the coreelement of its operations. Accordingly, therisks associated with financial instruments
are a significant component of the risks
faced by the Group. Financial instruments
create, modify or reduce the credit, market(including traded or fair value risks andnon-traded or interest and foreign currency
related risks) and liquidity risks of theGroup’s balance sheet. These risks andthe Group’s policies and objectives for
managing such risks are outlined below.
The Group’s overall risk management
programme focuses on the unpredictabilityof financial markets and seeks to minimise
potential adverse effects on the financial
performance of the Group.
The Group uses derivative financial
instruments such as foreign exchange
contracts, credit contracts and interest rate
contracts to hedge certain risk exposures(refer note 12).
CREDIT RISK
Credit risk is the risk of financial loss
from counterparties being unable to fulfil
their contractual loan or credit equivalentobligations.
The Group has an overall lending objectiveof sound growth for appropriate returns.
The credit risk management framework
exists to provide a structured anddisciplined process to support this objective.
The Group assumes credit risk in a wide
range of lending and other activities indiverse markets and many jurisdictions.
The credit risks arise not only fromtraditional lending to Retail, Corporate
and Institutional customers, but also
from lending for Government, inter-bank,treasury, international trade and capital
market activities around the world.
CREDIT RISK MANAGEMENT
The credit risk management framework
is in place across the Group with the aimof ensuring a structured and disciplined
approach is maintained in achieving theobjective set by the Board. The framework
focuses on policies, people, skills, vision,values, controls, risk concentrations
and portfolio balance. It is supported
by portfolio analysis and asset-writing
strategies which guide lending decisions
and identify segments of the portfolio
requiring attention. The effectiveness of theframework is monitored through a series ofcompliance and reporting processes.
110 ANZ Annual Report 2007

The Group sets limits on the acceptable levelof credit risk. Acceptance of credit risk is
firstly based on the counterparty’s assessedcapacity to meet contractual obligations,(i.e. interest and capital repayments).
Obtaining collateral supports this.
An independent Risk Management function,
at Group, Divisional and Business Unitlevels, is staffed by risk specialists. In
regards to credit risk management, theobjective is for Risk Management to provide
robust credit policies, to make independent
credit decisions and to provide strong
support to front line staff in the applicationof sound credit practices.
In addition to providing independent
credit assessment on lending decisions,
Risk Management also perform key roles
in portfolio management, credit risk
measurement system development andvalidation, loan asset quality reporting,and development of credit standards
and policies.
All credit decisions greater thanpredetermined thresholds requireapproval from both business writers andindependent risk personnel. These credit
approval discretions (CADs) are delegatedto individuals, at progressively diminishinglevels, thus forming a credit approval
hierarchy that ensures larger and more
complex credits are given greater scrutiny.
CREDIT RISK GOVERNANCE
The authority to make credit decisions
is delegated by the Board through theBoard Risk Committee to the Credit andTrading Risk Committee (CTC) and Executive
Management.
The CTC ensures that the necessary Group
Executive judgment and experience isapplied to critical credit decisions relating
to the Group’s larger and higher risk
customers.
The CTC is able to make decisions on creditrelated submissions (including proposals
for new and increased credit limits forcustomers, annual reviews of existing
limits, and new and increased provisions
for impaired assets) within the discretions
delegated by the Board Risk Committee.
Submissions requiring decisions
above these discretion thresholds arerecommended for approval by the CTC to theBoard Risk Committee.

The CTC comprises senior Risk Executives,senior Executives and Business UnitManaging Directors, and is chaired by the
Chief Risk Officer.
The CTC’s scope also includes delegatedauthority for the approval of credit, tradingrisk and non-traded market risk controls,
including portfolio management, risk
concentration limits, changes to credit
policy, Value-at-Risk (VaR) limits, newproducts and regulatory compliance.
CREDIT RISK MEASUREMENT
A core component of the Group’s credit risk
management capability is the risk grading
framework used across all major Business
Units and geographic areas.
A set of risk grading principles and policies
are supported by a complementary risk
grading methodology. Pronouncements
by the Basel Committee on Banking
Supervision have been encapsulated inthese principles and policies including
governance, validation and modelling
requirements.
The Group’s risk grade profiles change
dynamically through new counterparty
acquisitions and/or existing counterparty
movements in either risk or volume. All
counterparty risk grades are subject tofrequent review, including statistical andbehavioural reviews in consumer andsmall business segments, and individual
counterparty reviews in segments with larger
single name borrowers.
ANZ uses a two-dimensional risk grading
system, which measures both thecustomer’s ability to repay (probabilityof default) and the loss in the event ofdefault (a factor of the security taken to
support the facilities). ANZ uses financial
and statistical tools to assist in the risk
grading of customers. Customer risk grades
are reviewed periodically (typically at least
annually for large customers) to ensure
the risk grade reflects the credit risk of thecustomer and the prevailing economic
conditions. Similarly, the performance ofrisk grading tools used in the risk grading
process is reviewed regularly to ensure thetools maintain statistical validity.
To measure the probability of default,
ANZ applies a risk grading scale of 0 to 10
to its lending - with ratings 0 through 8
representing productive ratings and ratingsof 9 and 10 representing impaired assets.
The Institutional Division and the corporate
portfolios in New Zealand risk grades of
1 to 8 are further refined by the applicationof + and - modifiers, making a total of 27
separate risk grades.

NOTES TO THE FINA NCIAL STATEMENTS
35: Financial Risk Management (continued)
To measure the loss in event of default,a scale ranging from A to G is applied.
Security Indicator A represents more than
130% security coverage, while Security
Indicator G is applied to unsecured customer
borrowings. The Institutional Division has
four additional security indicators: K - CashCover, M - Mezzanine, S – Sovereign and
I – Intragroup.

Risk Management and Business Unit
Executives monitor large exposure
concentrations. Senior Management isprovided each month with a list of ANZ’s top
Corporate exposures. The CTC (six monthly)and Board Risk Committee (annually) review
a comprehensive list of single customer
concentration limits and customers’
adherence to these limits.

COUNTRY RISK MEASUREMENT
Some customer credit risks involve Country
Risk whereby actions or events at a national
or international level could disrupt servicing
of commitments. Country Risk arises when
payment or discharge of an obligation will,or could, involve the flow of funds from one
country to another or involve transactions ina currency other than the domestic currencyof the relevant country.

PORTFOLIO STRESS TESTING
Stress testing is integral to strengthening
the predictive approach to risk management
and is a key component to managing
risk appetite, asset writing strategies
and business strategies. It creates
greater understanding of impacts onfinancial performance through modelling
relationships and sensitivities between
geographic, industry and business unit
exposures under a range of macro economic
scenarios.

Country ratings are assigned to each country
where ANZ incurs country risk and have a
direct bearing on ANZ’s risk appetite for eachcountry. The country rating is determinedthrough a defined methodology basedaround external ratings agencies’ ratingsand internal specialist opinion. It is also
a key risk consideration in ANZ’s capitalpricing model for cross border flows.
The recording of country limits provides theGroup with a means to identify and control
Country Risk.
Country limits ensure that there is a countryby-country ceiling on exposures that involve
Country Risk. They are recorded by time tomaturity and purpose of exposure e.g. trade,markets, project finance.
Country limits are managed centrally for the
ANZ Group, through a global country risk
exposure management system managed bya specialist unit within Institutional Risk.
CONCENTRATIONS OF CREDIT RISK
Concentrations of credit risk arise when anumber of customers are engaged in similarbusiness activities or activities within thesame geographic region, or when they have
similar risk characteristics that would cause
their ability to meet contractual obligations
to be similarly affected by changes in
economic or other conditions.
The Group monitors its portfolio, largely
comprising net loans and advances,
customers’ liability for acceptances,derivatives and available-for-sale loan
assets, to assess risk concentrations.
Concentration limits are used to guard
against large single customer or correlated
credit risks.

ANZ has a dedicated stress testing teamwithin Risk Management that models andreports periodically to management andthe Board Risk Committee on a range of
scenarios and stress tests.
IMPAIRED ASSETS
ANZ’s policy relating to the recognition andmeasurement of impaired assets conforms
with APRA’s guidelines.
Loans are classified as either performing
or impaired. Impaired assets are credit
exposures where there is doubt as towhether the full contractual amount(including interest) will be received, and/or where a material credit obligation is 90
days past due but not well secured, or whereconcessional terms have been provided dueto the financial difficulties of the customer.
The provision for credit impairment
represents management’s best estimateof the losses incurred in the loan portfolio
at balance date based on its experienced
judgement.
In line with accounting standards, credit
exposures, including loans and advancesand off-balance sheet items, such ascommitments and guarantees, arereviewed at least at each reporting date for
impairment. Exposures are impaired andimpairment 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 theloan and prior to the reporting date, and thata loss event or events has (or have) had an
impact on the estimated future cash flows of

the individual loan or the collective portfolioof loans that can be reliably estimated.
When ANZ recognises an impairment
loss in an individual asset or portfolioof assets, ANZ is recognising that future
economic benefits (previously assessed as
being available to the entity) are no longer
probable.
ANZ’s methodology for determining the total
provision for loan losses establishes bothan individual component for assets that are
individually significant (or on a portfolio
basis for small value loans) and then acollective component for those exposures
not individually known to be impaired. The
individual provision represents the resultsof analysis of individual loans within ANZ’s
portfolio. ANZ reviews its loan portfolios andmonitors adherence to terms, conditions
and lending covenants. The reviews
undertaken employ a variety of statisticalmeasures and experienced judgement todetermine the continuing collectability ofcredit facilities. When objective evidence
arises as to the collectability of a credit
facility, the exposure is classified andreported as individually impaired and an
individual provision for credit impairment isallocated against it.
Exposures that are assessed collectively
are placed into pools of similar assets
with similar risk characteristics to becollectively assessed for losses that havebeen incurred, but not yet identified. The
collective provision is estimated on thebasis of historical loss experience for assets
with credit risk characteristics similar to
those in the collective pool. Historicalloss experience is determined using loan
and portfolio risk gradings, associateddefault and loss expectancy rates and anassessment of the emergence period. The
historical loss experience may be refined
based on current observed default data.
The collective provision is also reviewed
to ensure it is adequate for the term of theportfolio.
PORTFOLIO ANALYSIS AND REPORTING
Global credit portfolios are analysed by
the Risk Committees, and Senior Businessand Board Risk Management. A central risk
reporting area produces credit portfolio
analysis which is distributed to senior
Risk and Business Executives throughmonthly, half yearly and ad hoc reporting,or as set agenda reports to the various
Risk Committees. This area provides an
independent mechanism to ensure thatsignificant and emerging credit risks areproactively identified and communicatedFinancial Report 111

NOTES TO THE FINA NCIAL STATEMENTS
35: Financial Risk Management (continued)
to Group, Risk and Business Executives,
including the Executive Management andBoard Risk Committee.
CREDIT RISK ASSURANCE
The credit risk objectives of the Group are
set by the Board and are implemented
and monitored within a tiered structure ofdelegated authority, designed to oversee
multiple facets of credit risk, including asset
writing strategies, credit policies/controls,
single exposures, portfolio monitoring andrisk concentrations. The integrity of thecredit risk function is maintained by the
independence of the credit chain and is
supported by comprehensive risk analysis,risk tools, monitoring processes andpolicies.
ANZ manages its credit risk within aframework by dealing with creditworthy
counterparties, setting credit limits on
exposures to counterparties, and obtaining
collateral where appropriate.
To provide specialist management ofproblem loans, Portfolio Management
departments perform a role as workout
specialists for identified sub-standard
assets.
The credit risk review function within Group
Audit also provides further independent
checks and balances as to the quality ofcredit decisions. This includes providing an
independent periodic check on asset quality
and compliance with agreed standards andpolicies across the Group.

112 ANZ Annual Report 2007

COLLATERAL MANAGEMENTANZ credit principles specify to only lend
what the counterparty has the capacity
and ability to repay. Obtaining collateral isused to mitigate credit risk. Procedures aredesigned to ensure collateral is managed,
legally enforceable, conservatively valued
and adequately insured. ANZ policy sets out
the types of acceptable collateral, including:cash;
mortgages over property;
charges over business assets, e.g.
premises, stock and debtors;
charges over financial instruments, e.g.
debt securities and equities in support of
trading facilities; andfinancial guarantees.
In the event of customer default, any loan
security is usually held as mortgagee inpossession and therefore the Group does
not usually hold any real estate or otherassets acquired through the enforcementof security.
ANZ uses ISDA Master Agreements to
document derivatives activities to limit
exposure to credit losses. The credit risk
is reduced by a master agreement to theextent that if an event of default occurs,
all contracts with the counterparty are
terminated and settled on a net basis.
Further, it is ANZ’s preferred practice toinclude all products covered by the ISDA in
the Credit Support Annex (“CSA”), in orderto achieve the objective of further credit
exposure reduction. Under a CSA, collateralis passed between the parties, dependingon the aggregate mark-to-market (positiveor negative) of derivatives trades between
the two entities, to mitigate the marketcontingent counterparty risk inherent in
the outstanding positions.

NOTES TO THE FINA NCIAL STATEMENTS
35: Financial Risk Management (continued)
Concentrations of credit risk by industry and geographic analysis:
Based on carrying amount at 30 September 2007 and 30 September 2006
Net loans and advances
Consolidated

Customers’ liabilities

Available-for-saleloans and advances1

Total

2007
$m

2006
$m

2007
$m

2006
$m

2007
$m

2006
$m

2007
$m

2006
$m

7,618
5,488
4,215
4,357
8,148
67
1,813
7,259
18,377
13,718112,279
11,293
10,216

7,079
4,882
3,757
4,408
4,795
52
2,378
7,050
15,57910,229100,362
10,106
9,923

1,294
876
245
1,041
1,079
5
–
1,547
332
4,519
–
2,053
1,216

1,116
687
202
1,186
970
7
–
1,508
239
4,108
–
2,155
1,060

163
–
110
98
184
–
–
22
–
–
–
–
127

1,030
12
146
243
132
–
–
113
–
–
–
–
270

9,075
6,364
4,570
5,496
9,411
72
1,813
8,828
18,70918,237112,279
13,346
11,559

9,225
5,581
4,105
5,837
5,897
59
2,378
8,671
15,81814,337
100,362
12,261
11,253204,848

180,600

14,207

13,238704

1,946

219,759

195,784

12,401
1,008
656
780
2,094
468
215
2,539
2,538
6,383
40,3892,317
4,204

11,180
627
554
756
2,573
656
421
1,991
3,041
6,368
35,766
1,540
3,456

–
–
–
–
–
–
–
–
–
–
–
–
–

–
–
–
–
–
–
–
–
–
–
–
–
–

–
–
–
–
–
–
–
–
–
–
–
–
–

–

–
–
–
–
–
–
–
–
–
–
–
–

12,401
1,008
656
780
2,094
468
215
2,539
2,538
6,383
40,3892,317
4,204

11,180
627
554
756
2,573
656
421
1,991
3,041
6,368
35,766
1,540
3,456

75,992

68,929––––75,992

68,929

879
442
67
550
588
398
186
3,566
629
422
1,042
1,479
1,760

718
209
73
681
536
237
179
2,562
651
205
881
1,137
2,133

2
–
–
–
139
–
–
78
–
–
–
92
18

9
–
–
4
68
–
–
86
–
–
–
30
–

–
–
–
–
–
–
–
–
–
–
–
–
–

–
–
–
–
–
–
–
–
–
–
–
–
–

881
442
67
550
727
398
186
3,644
629
422
1,042
1,571
1,778

727
209
73
685
604
237
179
2,648
651
205
881
1,167
2,133

12,008

10,202

329

197

–

–

12,337

10,399292,848259,731

14,536

13,435704

1,946

308,088

275,112(302)(1,992)(286)(1,940)

–
–

–
–

–
–

–
–

(302)
(1,992)(286)(1,940)(2,294)(2,226)

–

–

–

–

(2,294)(2,226)(2,278)570(2,122)
539

–
–

–
–

–
–

–
–

(2,278)570(2,122)539

288,846

255,922

14,536

13,435704

1,946

304,086

271,303

Australia
Agriculture, forestry, fishing and mining
Business service
Construction
Entertainment, leisure and tourism
Financial, investment and insurance
Government and official institutions
Lease finance
Manufacturing
Personal2
Real estate – commercial3
Real estate – mortgage4
Retail and wholesale trade
Other

New Zealand
Agriculture, forestry, fishing and mining
Business service
Construction
Entertainment, leisure and tourism
Financial, investment and insurance
Government and official institutions
Lease finance
Manufacturing
Personal2
Real estate – commercial3
Real estate – mortgage4
Retail and wholesale trade
Other

Overseas Markets
Agriculture, forestry, fishing and mining
Business service
Construction
Entertainment, leisure and tourism
Financial, investment and insurance
Government and official institutions
Lease finance
Manufacturing
Personal2
Real estate – commercial3
Real estate – mortgage4
Retail and wholesale trade
Other

Gross total
Individual provision for credit impairment
Collective provision for credit impairment

Income yet to mature
Capitalised brokerage/mortgage origination fees
Net total
12
3
4

Available-for-sale loans and advances only includes loan products originated by the Group. Capital Markets products and equity investments are excluded.
Personal includes consumer lending except for lease finance facilities and those facilities secured by a mortgage.
Real estate - commercial includes all business lending relating to commercial property.
Real estate - mortgage includes all consumer lending secured by a mortgage.

Financial Report 113

NOTES TO THE FINA NCIAL STATEMENTS
35: Financial Risk Management (continued)
Aggregate concentrations of credit risk by industry analysis1
Consolidated

Agriculture, forestry, fishing and mining
Business service
Construction
Entertainment, leisure and tourism
Financial, investment and insurance
Government and official institutions
Lease finance
Manufacturing
Personal2
Real estate – commercial3
Real estate – mortgage4
Retail and wholesale trade
Other

1
2
3
4

2007
$m

2006
$m

22,357
7,814
5,293
6,826
12,232938
2,214
15,011
21,87625,042
153,710
17,234
17,541

21,132
6,417
4,732
7,278
9,074
952
2,978
13,31019,51020,910137,009
14,968
16,842

308,088

275,112Calculated prior to deduction for provisions and unearned income.
Personal includes consumer lending except for lease finance facilities and those facilities secured by a mortgage.
Real Estate commercial includes all business lending relating to commercial property.
Real Estate mortgage includes all consumer lending secured by a mortgage.

MARKET RISK
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 management and control responsibilities
To facilitate the management, control, 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 and derivative
trading positions. They arise in trading transactions where ANZ acts as principal with clients or with the market.
The principal risk categories monitored are:
Currency risk is the potential loss arising from the decline in the value 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 the value 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 in value of an instrument due to a movement of its margin or spread relative toa bench mark.
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 value of the Group’s
capital and earnings as a result of foreign exchange rate movements.
The Board of Directors through the Risk Committee has responsibility for oversight of market risk within the Group. Routine management ofmarket risk is delegated to two senior management committees. The CTC, chaired by the Chief Risk Officer, is responsible for traded market
risk, while the Group Asset and Liability Committee (GALCO), chaired by the Chief Financial Officer, is responsible for non-traded market risk (orbalance sheet risk).
CTC monitors traded market risk exposures (including Value at Risk and Stress Testing) and is responsible for authorising the trading risk limit
framework. In addition, GALCO delegates to CTC responsibility for the monthly monitoring of non-traded market risk exposures. GALCO reviewsbalance sheet based risk measures and strategies quarterly, or more frequently if required.

114 ANZ Annual Report 2007

NOTES TO THE FINA NCIAL STATEMENTS
35: Financial Risk Management (continued)
Value at Risk (VaR) measure
A key measure of market risk is Value at Risk (VaR). VaR is a statistical estimate of the likely daily loss and is based on historical market
movements.
The confidence level is such that there is 97.5% or 99% probability that the loss will not exceed the VaR estimate on any given day. The 99%
confidence level encompasses a wider range of potential outcomes.
The Group’s standard VaR approach for both traded and non-traded risk is historical simulation. The Group calculates VaR using historical changes
in market rates and prices 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 historical observations, it is not an estimate of the maximum loss that the Group could
experience from an extreme market event. As a result of this limitation, the Group utilises a number of other risk measures (eg. stress testing)and associated detailed control limits to measure and manage market risk.
Traded and non-traded market risks are considered separately below.

Traded Market Risks
Trading activities are focused on customer trading, distribution and underwriting of a range of securities and derivative instruments.
The principal activities include foreign exchange, interest rate and debt markets. These activities are managed on a global product basis.
Below are aggregate VaR exposures covering both derivative and non-derivative trading positions for the Group’s principal trading centres.
As at
Sep 2007$m

High foryear
Sep 2007$m

Low foryear
Sep 2007$m

Averagefor year
Sep 2007$m

As at
Sep 2006$m

High foryear
Sep 2006$m

Low foryear
Sep 2006$m

Averagefor year
Sep 2006$m

Value at risk at 97.5% confidence
Foreign exchangeInterest rate
Credit spread
Diversification benefit

1.2
1.6
1.0
(2.1)

1.5
7.6
1.9
n/a

0.2
1.2
0.7
n/a

0.6
2.6
1.2
(1.6)

0.5
1.7
1.1
(1.4)

1.6
3.2
1.7
n/a

0.3
0.8
0.7
n/a

0.7
1.8
1.1
(1.5)

Total VaR

1.7

8.1

1.4

2.8

1.9

3.6

0.9

2.1

Value at risk at 99% confidence
Foreign exchangeInterest rate
Credit spread
Diversification benefit

1.8
2.3
1.6
(3.0)

2.2
9.8
3.2
n/a

0.3
1.7
1.1
n/a

0.8
3.4
2.1
(2.4)

0.6
2.0
2.8
(2.9)

2.0
4.4
3.6
n/a

0.3
1.3
1.1
n/a

0.8
2.4
2.3
(2.6)

Total VaR

2.7

9.9

1.7

3.9

2.5

4.9

1.2

2.9

VaR is calculated separately for Foreign Exchange/Commodities and for Interest Rate/Debt Markets businesses as well as for the Group.
The diversification benefit reflects the historical correlation between Foreign Exchange, Commodity, Interest Rate and Debt Markets.
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.

Non-Traded Market Risks (Balance Sheet Risk)
The principal objectives of balance sheet management are to manage interest income sensitivity while maintaining acceptable levels of interest
rate and liquidity risk and to manage the market value of the Group’s capital. Liquidity risk is dealt with in the next section.

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 12months) and long term. Non-traded interest rate risk relates to the potential adverse impact of changes in market interest rates on the Group’s
future net interest income. This risk arises from two principal sources: mismatches between the repricing dates of interest bearing assets andliabilities; and the investment of capital and other non-interest bearing liabilities in interest bearing assets. Interest rate risk is reported using
three measures: VaR; scenario analysis (to a 1% shock); and interest rate sensitivity gap (refer note 36).

Financial Report 115

NOTES TO THE FINA NCIAL STATEMENTS
35: Financial Risk Management (continued)a) VaR Non-Traded Interest Rate Risk
Below are aggregate VaR figures covering non-traded interest rate risk.
As at
Sep 2007$m

High foryear
Sep 2007$m

Low foryear
Sep 2007$m

Averageyear
Sep 2007$m

As at
Sep 2006$m

High foryear
Sep 2006$m

Low foryear
Sep 2006$m

Averageyear
Sep 2006$m

Value at risk at 97.5% confidence
Australia
New ZealandOverseas Markets
Diversification Benefit

18.1
9.3
2.8
(4.5)

19.6
9.6
3.4
n/a

14.0
5.7
0.9
n/a

16.1
7.5
1.6
(3.4)

12.3
6.3
1.5
(2.4)

14.8
7.6
1.7
n/a

8.7
5.7
1.1
n/a

11.5
6.5
1.5
(3.3)

Total

25.7

26.7

19.0

21.8

17.7

19.3

13.7

16.2

VaR is calculated separately for Australia, New Zealand and Overseas Markets, 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 stresstesting regime provides senior management with an assessment of the financial impact of identified extreme events on market risk exposuresof 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 quantification tool.
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 increase ispositive for net interest income over the next 12 months. Conversely, a negative number signifies that a rate increase is negative for the next
12 months’ net interest income.
Consolidated

Impact of 1% Rate ShockAs at 30 September
Maximum exposure
Minimum exposure
Average exposure (in absolute terms)

2007

2006

0.19%
1.78%
0.19%
1.22%

1.50%
1.85%
0.81%
1.51%

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 each month using a static gap model.
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. For example, when wholesale market rates are anticipating an official rate increase theGroup does not reprice certain customer business until the first repricing date after the official rate rise.
The majority of the Group’s non-traded interest exposure exists in Australia and New Zealand. In these centres, a separate balance sheet
simulation process supplements this static gap information. This allows the net interest income outcomes of a number of different scenarios –with different market interest rate environments and future balance sheet structures – to be identified. This better enables the Group to quantify
the interest rate risks associated with the balance sheet and to formulate strategies to manage current and future risk profiles.

Foreign currency related risksThis risk relates to the potential loss arising from the decline in the value of foreign currency positions due to changes in foreign exchange rates.
The Group’s investment of capital in non-Australian operations generates an exposure to changes in the relative value of individual currencies
against the Australian Dollar. Variations in the value of these foreign currency investments are reflected in the foreign currency translation
reserve.
The Group incurs some non-traded foreign currency risk related to the potential repatriation of profits from non-Australian business units.
This risk is routinely monitored and economic hedging is conducted in accordance with policy and where it is likely to add shareholder value.

116 ANZ Annual Report 2007

NOTES TO THE FINA NCIAL STATEMENTS
35: Financial Risk Management (continued)
LIQUIDITY RISK
Liquidity risk is the risk that the Group has insufficient capacity to fund increases in assets, or is unable to meet its payment obligations as theyfall due, including repaying depositors or maturing wholesale debt.
The timing mismatch of cashflows and the related liquidity risk is inherent in all banking operations, and may result from internal and/or
external events, including: credit or operational risks; bank-specific rumours; market disruptions; or systemic shocks. The following outlines theGroup’s approach to liquidity and funding risk management. Principles include:
Ensuring the liquidity management framework is compatible with local regulatory requirements.
Daily liquidity reporting and scenario analysis to quantify the Group’s positions.
Monitoring wholesale and customer liability composition (via funding metrics).
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 short-term adverse conditions and to support day-to-day operations.
Establishing detailed contingency plans to cover different liquidity crisis events.

Supervision and Regulation
APRA supervises prudential standards for managing liquidity risk and has adopted guidelines based on the ‘Basel Committee’ “Sound Practices
for Managing Liquidity in Banking Organisations”: APS 210 - Liquidity.
APRA supervises liquidity through individual agreements with Authorised Deposit-taking Institutions (ADIs), taking into consideration thespecific risk characteristics of each organisations operation. APRA requires ADIs to have a comprehensive Board approved liquidity strategy
defining: policy, systems and procedures for measuring, assessing, reporting and managing domestic and foreign currency liquidity. This must
include a formal contingency plan for dealing with a liquidity crisis.
The Group has implemented an APRA Compliance Plan for APS 210 - Liquidity. The Plan documents methods, processes, controls andmonitoring activities required to support compliance with the Standard and assigns responsibilities for these activities.

Scenario Modelling
A key component of the Group’s liquidity management framework is scenario modelling. APRA requires ADIs to assess liquidity under at least
two specific scenarios‘Going-concern’: the normal behaviour of cash flows in the ordinary course of business. APRA requires that the Group must be able to meetall commitments and obligations under a going concern scenario, within the ADIs normal funding capacity, over at least the next 30 calendar
days. In estimating the funding requirement, the Group models expected cashflows by reference to historical behaviour and contractual
maturity data.
‘Name crisis’: refers to a potential name-specific liquidity crisis in which the ADI may have significant difficulty rolling over or replacing
liabilities. APRA requires the Group to be cashflow positive over a 5 business day period under a name crisis scenario. The Group models
expected cashflow behaviour under such a scenario based on the type of customer and their level of sophistication, and the type of asset/
liability.
In addition, the Group models a number of other stress tests and liquidity scenarios over a variety of time horizons, including the impact ofcredit rating downgrades, and reduced access to wholesale debt in domestic and offshore markets.
Generally, it would take an extreme event to challenge the Group’s continued solvency. A more likely outcome is a period of tight liquidity,
resulting in increased funding costs. To assess these risks, the Group models and continually monitors the probability and earnings impact
of changes in the Group’s credit margin. These changes may be caused by general market factors and/or credit rating downgrades.

Customer and Wholesale Funding Composition
The Group employs actual cashflow based funding metrics to determine appropriate balance sheet liquidity and funding risk strategies.
These metrics are used to measure and manage the proportion of the Group’s external assets which are funded by customer liabilities,
wholesale debt, equity and loan capital.
Managing these metrics assist in ensuring that an appropriate proportion of the Group’s assets are funded by either ‘sticky’ customer liabilities;
or long-term wholesale debt funding (with a remaining term exceeding 1 year). This approach recognises that long-term wholesale debt andother sticky liabilities have favourable liquidity characteristics thereby assisting in reducing any adverse impact or volatility caused by shortterm funding, and in monitoring the impact of deposit-gathering strategies.

Financial Report 117

NOTES TO THE FINA NCIAL STATEMENTS
35: Financial Risk Management (continued)
Consolidated
2007
$m

2006
$m

Customer deposits1
Personal
Institutional
New ZealandOther

68,11970,09938,334
6,127

60,13555,31435,9405,371

Total customer deposits

182,679

156,760

Wholesale funding
Bonds and notes
Loan capital
Certificates of deposit (wholesale)Commercial paper
Liability for acceptances
Due to other financial institutions
Other wholesale borrowings2

54,075
12,78431,903
16,914
14,536
17,986
1,570

50,05011,12623,24820,75013,435
14,118213

Total wholesale funding

149,768

132,940

Total customer deposits
Total wholesale funding

182,679
149,768

156,760
132,940

332,447

289,700

Funding Composition

1 Represents: term deposits; other deposits bearing interest; deposits not bearing interest and borrowing corporations’ debt. Excludes collateralised loan obligation and securitisation
vehicle funding.
2 Includes net derivative balances, special purpose vehicles (SPV) balances and Euro Hybrid.

Wholesale Funding
The Group’s global wholesale funding strategy is designed to deliver a sustainable portfolio of wholesale funds that balances cost
efficiency while targeting diversification by markets, investors, currencies, maturities and funding structures. 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 funding is managed and executed through Group Treasury operations in Australia and New Zealand.
Maturity concentration limits and geographic diversification limits have been established within the wholesale funding and liquidity
management framework. Funding instruments used to meet the wholesale borrowing requirement must be on a pre-established listof approved products.

118 ANZ Annual Report 2007

NOTES TO THE FINA NCIAL STATEMENTS
35: Financial Risk Management (continued)
Funding Capacity and Debt Issuance Planning
Under APRA’s going concern scenario, borrowing capacity is an estimate of the amount of funding that can be raised in the wholesale markets
in normal market conditions. The Group adopts a conservative approach to determine its funding capacity. Funding capacity limits are
determined at the Group level and allocated to individual sites based on their requirements.
The Funding Plan is ratified by the Group’s Senior Management annually. The plan is supplemented by monthly updates, and is linked to
the Group’s three-year strategic planning cycle. This ensures that planned volumes are sustainable, without adversely impacting market
conditions.
During the 2007 financial year, the Group issued approximately $24 billion of new long-term wholesale debt from 293 transactions with aweighted average term to maturity of approximately 3.2 years. (During the 2006 financial year, the Group issued approximately $23 billionof new long-term wholesale debt from 149 transactions with weighted average term to maturity of approximately 3.6 years).

Liquidity Portfolio Management
The Group holds a diversified portfolio of cash and high-quality highly-liquid securities to support payment obligations and contingent
funding in the event of a market disruption. The Portfolio is managed globally through the Group’s funding centres in Melbourne, Wellington,
New York and London, and is well diversified by product, geography and currency.
The size of the Group’s Liquidity Portfolio is based on the amount of liquidity required to meet: day-to-day operational requirements; potential
name crisis; or potential wholesale ‘funding stress’ requirements.
Supplementing its liquidity position, the Group holds additional cash and liquid asset balances. Also, the Markets business holds secondary
sources of liquidity in the form of highly liquid instruments in its trading portfolios.

Liquidity Crisis Contingency Planning
The Group maintains APRA-endorsed liquidity crisis contingency plans defining an approach for analysing and responding to a liquiditythreatening event at a country and Group-wide basis. The framework is compliant with APRA’s key liquidity contingency crisis planningrequirements 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, and mechanisms to monitor and report these 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.
Assigned responsibilities for internal and external communications.

Financial Report 119

NOTES TO THE FINA NCIAL STATEMENTS
35: Financial Risk Management (continued)
Maturity analysis of the Group’s assets and liabilities
The tables below analyse the Group’s assets and liabilities, as required by AASB 130 ‘Disclosures in the Financial Statements of Banksand Similar Financial Institutions’, into relevant maturity groupings based on the remaining period at balance sheet date to the contractual
maturity date.
It should be noted that this is not how the Group manages its liquidity risk. The management of this risk is detailed above.
Maturity analysis for selected assets and liabilities at 30 September 2007:

Consolidated

Less than1
3 months$m

3 to 122months$m

1 to
5 years$m

After
5 years$mNomaturity
specified
$m

Total
$m

AssetsDue from other financial institutions
Available-for-sale assets
Net loans and advances
Customers’ liabilities for acceptances

6,834
8,553
32,385
11,258600
883
40,042
3,278

271
3,437
53,475–335
646
162,944
–

–
487
–
–

8,040
14,006
288,846
14,536

Liabilities
Due to other financial institutions
Deposits and other borrowings
Bonds and notes
Loan capital

15,928
184,535
2,093
4

1,390
33,425
15,6037344
16,90033,146
1,404

324
13
3,233
10,679–––690

17,986
234,873
54,075
12,784

Consolidated

Less than1
3 months$m

3 to 122months$m

1 to
5 years$m

After
5 years$mNomaturity
specified
$m

Total
$m

AssetsDue from other financial institutions
Available-for-sale assets
Net loans and advances
Customers’ liabilities for acceptances

8,420
5,937
24,437
13,435820
1,773
36,192–372
2,338
48,788–53
540
146,505
–

–
65
–
–

9,665
10,653
255,922
13,435

Liabilities
Due to other financial institutions
Deposits and other borrowings
Bonds and notes
Loan capital

13,407
165,302
662–

659
27,094
5,633–

10
12,383
41,984
528

42
15
1,771
10,197–––401

14,118204,794
50,05011,126

Maturity analysis for selected assets and liabilities at 30 September 2006:

1 Includes credit cards.
2 Includes revolving facilities.

OPERATIONAL RISK MANAGEMENT
Operational risks are the risks arising from day-to-day operational activities which may result in direct or indirect loss. These losses can result
from both internal and external events and include:
failure to comply with policies, procedures, laws and regulations;failure in execution, dealing and process management;
fraud or forgery;a breakdown in the availability or integrity of services, systems and information; ordamage to ANZ’s reputation.
The authority for operational risk oversight is delegated by the Board to the Board Risk Committee. The Operational Risk Executive Committee(OREC) supports the Board Risk Committee in respect of operational risk oversight including compliance.
The key responsibilities of OREC include:
endorsing the ANZ Operational Risk Framework and approving ANZ’s Compliance Framework and operational risk policies;
monitoring the state of operational risk management and instigating any necessary corrective actions;being notified of all material actual, potential or near miss risk events for review; andapproving the strategy and approach for new and emerging risks and monitoring associated action plans.

120 ANZ Annual Report 2007

NOTES TO THE FINA NCIAL STATEMENTS
35: Financial Risk Management (continued)
Membership of OREC comprises senior executives and OREC is chaired by the Chief Risk Officer.
OREC is designed to ensure that the necessary senior executive judgement and experience is applied to critical operational risk decisions
relating to the Group’s larger operational risk exposures. Extensive reporting is provided to OREC to assist in this decision making process.
Senior executive management, risk management and technical experts may be asked to attend to advise on specific submissions or policies.
Primary responsibility for day to day management of current, new and emerging operational risks lies with ANZ divisions/Business Units.
This is supported by an independent Operational Risk function which provides oversight, direction, the operational framework, policies andprocesses.
ANZ’s Operational Risk Framework outlines the approach to managing operational risk and specifically covers the core minimum requirementsthat divisions/business units must undertake in the management of operational risk.
The operational risk management process adopted by ANZ consists of a staged approach involving establishing the context, identification,
analysis, treatment and monitoring of current, new and emerging operational risks. This is based on the Risk Management Standard issued byStandards Australia/New Zealand (AS/NZS 4360).
ANZ’s Operational Risk Framework is supported by a number of operational risk policies and procedures with the effectiveness of theframework assessed through a series of assurance reviews and processes. This is supported by an independent review program by Internal
Audit.
ANZ employs the “Risk Drivers and Controls Approach” (RDCA), underpinned by a statistical quantification model to measure the level ofoperational risk and to determine and allocate operational risk capital.
The RDCA is effectively a system, which:assesses the level of ANZ’s exposure to specified drivers of risk;
assesses the scope and quality of ANZ’s internal control environment, key operational processes and risk mitigants; anddirectly links these assessments to Operational Risk Capital
The approach requires completion of a set of scorecards by business units on a half yearly basis. The scorecards provide an assessment of the‘riskiness’ of the business unit’s activities for specific operational risk categories.
ANZ’s business continuity and crisis management capabilities continue to be reviewed, tested and, where necessary, strengthened in
response to new and emerging threats.
Business Continuity is viewed as a critical management responsibility within the overall operational risk framework, which seeks to minimise
the likelihood of a disruption to normal operations, constrain the impact were an event to occur and achieve efficient and effective recovery.
Crisis Management planning at Group and Country levels supplements Business Continuity Plans in the event of a broader Group or Country
crisis. Crisis Management plans include crisis team structures, roles, responsibilities and contact lists, and are subject to testing.

Financial Report 121

NOTES TO THE FINA NCIAL STATEMENTS
36: Interest Rate Risk
The Group has an exposure to the effects of fluctuations in market interest rates on both cashflow and fair value risks associated with its
financial assets and liabilities. Interest margins are impacted as a result of such changes and there are Group strategies in place to manage
these risks.
The tables following summarises the Group’s exposure to interest rate risks as at 30 September 2007 and 30 September 2006.
The tables show the interest rate sensitivity (or repricing profile) of the Group’s financial assets and liabilities based on the earlier of contractual
maturity or repricing.
Repricing gaps are based upon the earliest of contractual repricing or maturity dates except where the contractual terms are not considered tobe reflective of actual interest rate sensitivity (eg. those assets and liabilities priced at the Group’s discretion). In such cases, the rate sensitivity
is based upon historically observed and/or anticipated rate sensitivity.
Repricing gaps arise from mismatches in the period to repricing of assets and that of the corresponding liability funding. These mismatches
are managed within policy guidelines for mismatch positions which have been approved by the Board.
The majority of the Group’s loan/deposit business is conducted in the domestic balance sheets of Australia and New Zealand and is priced
on a floating rate basis. The mix of repricing maturities in these books is influenced by the underlying financial needs of customers.
Offshore operations, which are generally wholesale in nature, are able to minimise interest rate sensitivity through closely matching thematurity of loans and deposits. Given both the size and nature of their business, the interest rate sensitivities of these balance sheets
contribute little to the aggregate risk exposure, which is primarily a reflection of the positions in Australia and New Zealand.
In Australia and New Zealand, a combination of pricing initiatives and derivatives is used in the management of interest rate risk. For example,
where a strong long term rate view is held, hedging and pricing strategies are used to modify the profile’s rate sensitivity so that it is positioned
to take advantage of the expected movement in interest rates. However, such positions are taken within the overall risk limits specified
by policy.
The objectives and policies in managing the interest risks are also covered under note 35 ‘Financial Risk Management’, under the heading‘Market Risk’.
Less than
3 months$m

Between 3
months and6 months$m

Between 6
months and
12 months$m

Between
1 year and5 years$m

After
5 years$m

Notbearing
interest
$m

Total
$m

Liquid assets and due from other financial institutions
Trading and available-for-sale assets
Derivative financial instruments
Net loans and advances
Other assets1

21,60920,110–197,220
14,387

1,905
2,823
–
10,3232259
330–
16,894
86

157
3,918
–
63,417
167

72
1,703
–
992
96

1,225
289
22,237–
12,57225,027
29,173
22,237
288,846
27,330Total assets

253,326

15,07317,36967,6592,863

36,323392,613

Certificates of deposit and term deposits
Other deposits
Other borrowings and due to other financial institutions
Derivative financial instruments
Other liabilities1
Bonds, notes and loan capital

71,96886,89931,128–17,86939,12814,291
1,022
3,991
–
67
534

9,925
1,633
3,823
–
6
2,075

5,287
5,335
4,518
–
254
21,532

24
–
884
–
97
3,590

8
10,792
1,331
24,1808,374–

101,503
105,681
45,67524,18026,667
66,859Total liabilities

246,992

19,905

17,46236,926

4,595

44,685

370,565

Total equity
Derivative items affecting interest rate sensitivity–(40,805)–
52,111–276–(13,800)–
2,218

22,048–22,048–Interest sensitivity gap– net– cumulative(34,471)(34,471)

47,27912,808183
12,991

16,93329,924486
30,410(30,410)–––

At 30 September 2007

1 Customers’ liability for acceptances are classified as interest earning assets in line with AAS.

122 ANZ Annual Report 2007

NOTES TO THE FINA NCIAL STATEMENTS
36: Interest Rate Risk (continued)
Less than
3 months$m

Between 3
months and6 months$m

Between 6
months and
12 months$m

Between
1 years and5 years$m

After
5 years$m

Notbearing
interest
$m

Total
$m

Liquid assets and due from other financial institutions
Trading securities and available-for-sale assets
Derivative financial instruments
Net loans and advances
Other assets1

21,572
11,493–177,049
13,891

1,121
1,874
–
9,248
34

175
697
–
14,325
57

200
4,051
–
54,223
357

–
1,697
–
1,077
50

1,616
20
9,164
–
10,64924,684
19,8329,164
255,922
25,038

Total assets

224,005

12,277

15,254

58,831

2,824

21,449334,640

Certificates of deposit and term deposits
Other deposits
Other borrowings and due to other financial institutions
Derivative financial instruments
Other liabilities
Bonds, notes and loan capital

58,22771,71031,808–17,23035,858

11,209
776
4,994
–
3
1,961

6,985
1,556
3,874
–
3
1,014

6,142
5,025
3,996
–
658
19,850

25
1
875
–
291
2,493

20
10,718
971
8,753
7,708
–

82,60889,786
46,518
8,753
25,893
61,176

Total liabilities

214,833

18,943

13,43235,671

3,685

28,170314,734

Total equity
Derivative items affecting interest rate sensistivity

–
(563)

–
8,896

–
596

–
(10,789)–
1,860

19,906–

19,906–

Interest sensitivity gap– net– cumulative

8,609
8,609

2,230
10,8392,418
13,257

12,371
25,628

999
26,627(26,627)–––

At 30 September 2006

1 Customers’ liability for acceptances are classified as interest earning assets in line with AAS.

37: Fair Value of Financial Assets and Financial Liabilities
All financial instruments are recognised initially at fair value, which is the amount for which an asset could be exchanged, or a liability settled,
between knowledgeable, willing parties in an arm’s length transaction.
The fair value of a financial instrument on initial recognition is normally the transaction price, however, in certain circumstances the initial fairvalue may be based on other observable current market transactions in the same instrument, without modification or repackaging, or on avaluation technique whose variables include only data from observable markets. For the majority of short-term financial instruments, definedas those which reprice or mature in 90 days or less, with no significant change in credit risk, the fair value was assumed to equate to thecarrying amount in the Group’s balance sheet.
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 values are based on present value estimates or other market acceptedvaluation techniques which include data from observable markets wherever possible.
For certain instruments the fair value cannot be determined in whole with reference to current market transactions or valuation techniques
whose variables only include data from observable markets. In respect of the valuation component where market observable data is notavailable, the fair value is determined using valuation techniques based on data derived and extrapolated from market data. Where fair value
is determined based on a valuation technique whose valuation is dependant on unobservable data that may have a significant impact on
the valuation of the instrument any difference between the transaction price and the amount determined based on the valuation technique(day one gain or loss) arising on initial recognition of the financial instrument is deferred on the balance sheet. The day one gain or loss isrecognised in the income statement only to the extent that it arises from a change in factors (including time) that a market participant would
consider in setting the price for the instrument.
The fair value recorded in the financial statements for these instruments is the sum of:the value given by application of a valuation model, based on the best estimate of the most appropriate model inputs which market
participants would use in setting prices for the instrument;
any fair value adjustments to account for any market features not included within the valuation model (for example, bid-mid spreads,
counterparty credit spreads and/or market data uncertainty); andunamortised day one gain or loss not recognised immediately in the income statement.
The fair values are based on relevant information available as at the respective balance sheet dates. While judgement is used in obtaining thefair value of financial instruments, there are inherent weaknesses in any estimation technique. Many of the estimates involve uncertainties andmatters of significant judgement and changes in underlying assumptions could significantly affect these estimates.
The fair value amounts have not been updated for the purposes of these financial statements since 30 September 2007, and therefore the fairvalue of the financial instruments subsequent to 30 September 2007 may be different from the amounts reported.

Financial Report 123

NOTES TO THE FINA NCIAL STATEMENTS
37: Fair Value of Financial Assets and Financial Liabilities (continued)
In the tables below, classes of financial assets have been allocated into the following groups: amortised cost, financial assets at fair value
through profit or loss, derivatives in effective hedging relationships and available-for-sale financial assets. Similarly, each class of financial
liability has been allocated into three groups: amortised cost, financial liabilities at fair value through profit and loss and derivatives in effective
hedging relationships.
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 fair value gains and losses, are recognised. The carrying amount and fair value of the Group’s financial assets
and financial liabilities are set out below.
A significant number of financial instruments are carried at fair value in the balance sheet. Additional disclosure of the fair value of thosefinancial instruments not carried at fair value has been provided below. The fair value disclosure does not cover those instruments that are notconsidered financial instruments from an accounting perspective such as income tax and intangible assets. The aggregate fair value amounts
do not represent the underlying value of the Group.

Carrying amountAt amortised cost

At fair value through profit or loss

Hedging

Available- forsale assets

Sub-total$m

Designatedon initialrecognition$mHeld for Trading$m

Sub-total
$m

$m

$m

Total
$m

16,987
–
–
–
–
–
–
–

16,987
8,040–––
288,721
14,536
3,510

–
–
–
–
–
125
–
–

–
–
15,167
20,896––––––15,167
20,896
–
125
–
–

–
–
–
1,341
–
–
–
–

–
–
–
–
14,006–––

16,9878,040
15,167
22,237
14,006
288,846
14,536
3,510

16,987331,794125

36,06336,1881,341

14,006383,329

Hedging

Availablefor-saleassetsConsolidated at
30 September 2007

Loans andreceivables$m

Other financial
assets at
amortised cost$mFinancial assets
Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments1
Available-for-sale assets
Loans and advances2
Customers’ liability for acceptances
Other financial assets

–
8,040
–
–
–
288,721
14,536
3,510

Total financial assets

314,807

Fair value

At amortised cost

At fair value through profit or loss

Sub-total$m

Designatedon initialrecognition$mHeld forTrading$m

Sub-total
$m

$m

$m

Total
$m

16,987
–
–
–
–
–
–
–

16,9878,040–––
288,066
14,536
3,510

–
–
–
–
–
125
–
–

–
–
15,167
20,896––––––15,167
20,896
–
125
–
–

–
–
–
1,341
–
–
–
–

–
–
–
–
14,006–––

16,9878,040
15,167
22,237
14,006288,191
14,536
3,510

16,987331,139125

36,06336,1881,341

14,006382,674

Consolidated at
30 September 2007

Loans andreceivables$m

Other financial
assets at
amortised cost$mFinancial assets
Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments1
Available-for-sale assets
Loans and advances2
Customers’ liability for acceptances
Other financial assets

–
8,040
–
–
–
288,066
14,536
3,510

Total financial assets

314,152

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 loans and advances. The resulting fair value adjustments mean that the carrying value differs from the amortised cost.

124 ANZ Annual Report 2007

NOTES TO THE FINA NCIAL STATEMENTS
37: Fair Value of Financial Assets and Financial Liabilities (continued)
Carrying amountAt amortised cost

At fair value
through profit
or loss

Hedging

Availablefor-saleassetsConsolidated at
30 September 2006

Loans andreceivables
$m

Other
financialassets at
amortisedcost$mFinancial assets
Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments1
Available-for-sale assets
Loans and advances2
Customers’ liability for acceptances
Other financial assets

–
9,665
–
–
–
255,922
13,435
3,596

15,019
–
–
–
–
–
–
–

15,0199,665–––
255,922
13,435
3,596

–
–
9,179
8,624
–
–
–
–

–
–
–
540
–
–
–
–

–
–
–
–
10,653–––15,019
9,665
9,179
9,164
10,653
255,922
13,435
3,596

Total financial assets

282,618

15,019297,637

17,803540

10,653

326,633

At fair value
through profit
or loss

Hedging

Availablefor-saleassetsSub-total$mHeld forTrading
$m

$m

$m

Total
$m

Fair value

At amortised cost

Consolidated at
30 September 2006

Loans andreceivables
$m

Other
financialassets at
amortisedcost$mFinancial assets
Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments1
Available-for-sale assets
Loans and advances2
Customers’ liability for acceptances
Other financial assets

–
9,665
–
–
–
255,688
13,435
3,596

15,019
–
–
–
–
–
–
–

15,019
9,665–––
255,688
13,435
3,596

–
–
9,179
8,624
–
–
–
–

–
–
–
540
–
–
–
–

–
–
–
–
10,653–––15,019
9,665
9,179
9,164
10,653
255,688
13,435

Total financial assets

282,384

15,019297,403

17,803540

10,653326,399

Sub-total$mHeld forTrading
$m

$m

$m

Total
$m

3,596

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 loans and advances. The resulting fair value adjustments mean that the carrying value differs from the amortised cost.

LIQUID ASSETS AND DUE FROM/TO OTHER
FINANCIAL INSTITUTIONS
The carrying values of these financial
instruments are considered to approximate
their net fair values as they are short-term innature or are receivable on demand.
TRADING SECURITIES
Trading securities are carried at fairvalue. Fair value is generally based onquoted market prices, broker or dealer
price quotations, or prices for securities
with similar credit risk, maturity and yieldcharacteristics.

DERIVATIVE FINANCIAL INSTRUMENTS
The fair values of derivative financial
instruments are determined using market
prices and market accepted valuation
models as appropriate (including discounted
cash flow models) based on current market
yields for similar types of instruments andthe maturity of each instrument

AVAILABLE-FOR-SALE ASSETS
Fair value is based on quoted market prices
or broker or dealer price quotations. If thisinformation is not available, fair value isestimated using quoted market prices forsecurities with similar credit, maturity andyield characteristics, or market acceptedvaluation models as appropriate (including
discounted cash flow models) based on
current market yields for similar typesof instruments and the maturity of each
instrument.

Financial Report 125

NOTES TO THE FINA NCIAL STATEMENTS
37: Fair Value of Financial Assets and Financial Liabilities (continued)
NET LOANS AND ADVANCES AND
ACCEPTANCESThe carrying value of loans and advances
and acceptances includes deferred fees andexpenses, and is net of provision for credit
impairment and income yet to mature. The
estimated fair value of loans, advances andacceptances is based on the discounted
amount of estimated future cash flows
and accordingly has not been adjusted forprovision for credit impairment. Estimatedcontractual cash flows for performing loans
are discounted at estimated current bankcredit spreads to determine fair value. For
loans with doubt as to collection, expectedcash flows (inclusive of the value of security)
are discounted using a rate, which includes
a premium for the uncertainty of the flows.
The difference between estimated fair values
for loans and advances and acceptances
and their carrying value reflects changes ininterest rates and the credit worthiness ofborrowers since loan origination.

OTHER FINANCIAL ASSETS
Included in this category are accrued interestand fees receivable. The carrying values ofaccrued interest and fees receivable areconsidered to approximate their net fairvalues as they are short term in nature or are
receivable on demand.

The change in fair value of the designatedfinancial assets attributable to changes
in credit risk has been calculated bydetermining the change in credit rating
and credit spread implicit in the loans andadvances issued by entities with similar
credit characteristics.

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. At balance date, thecredit exposure on these assets was $125
million (2006: nil). Of this, $68 million(2006: nil) was mitigated by collateral held.
The cumulative change in fair value
attributable to change in credit risk was a
reduction to the assets of $1 million (2006:nil). The amount recognised in the income
statement attributable to changes in credit
risk was a loss of $1 million (2006: nil).

Carrying AmountAt amortised cost

Consolidated at
30 September 2007$m

At fair value through profit or loss
Designatedon initialrecognition$mHeld forTrading$m

Hedging

Total

Sub-total
$m

$m

$m

Financial liabilities
Due to other financial institutions
Derivative financial instruments1
Deposits and other borrowings
Liability for acceptances
Bonds and notes2
Loan capital2
Payables and other liabilities

17,986–
226,738
14,53649,07910,524
10,079

–
–
8,135
–
4,996
2,260
–

–
23,186––––––23,186
8,135
–
4,996
2,260
–

–
994
–
–
–
–
–

17,98624,180234,873
14,53654,075
12,784
10,079Total financial liabilities

328,942

15,391

23,186

38,577994

368,513

Hedging

Total

Fair value
At amortised cost

Consolidated at
30 September 2007$m

At fair value through profit or loss
Designatedon initialrecognition$mHeld forTrading$m

Sub-total
$m

$m

$m

Financial liabilities
Due to other financial institutions
Derivative financial instruments1
Deposits and other borrowings
Liability for acceptances
Bonds and notes2
Loan capital2
Payables and other liabilities

17,986–
226,692
14,53649,061
10,506
10,079

–
–
8,135
–
4,996
2,260
–

–
23,186––––––23,186
8,135
–
4,996
2,260
–

–
994
–
–
–
–
–

17,98624,180234,827
14,53654,057
12,766
10,079Total financial liabilities

328,860

15,391

23,186

38,577994

368,431

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 liabilities within bonds and notes and loan capital. The resulting fair value adjustments mean that the carrying value differs from the amortised cost.

126 ANZ Annual Report 2007

NOTES TO THE FINA NCIAL STATEMENTS
37: Fair Value of Financial Assets and Financial Liabilities (continued)
Carrying AmountAt amortised cost

At fair value through profit or loss

Hedging

Total

Sub-total
$m

$m

$m

–
8,329
–
–
–
–
–

–
8,329
6,015
–
3,611
2,778
–

–
424
–
–
–
–
–

14,118
8,753
204,794
13,43550,05011,126
10,108

8,329

20,733424

312,384

Hedging

Total$mDesignatedon initialrecognition$mHeld forTrading$m

Financial liabilities
Due to other financial institutions
Derivative financial instruments1
Deposits and other borrowings
Liability for acceptances
Bonds and notes2
Loan capital2
Payables and other liabilities

14,118–
198,779
13,43546,4398,348
10,108

–
–
6,015
–
3,611
2,778
–

Total financial liabilities

291,227

12,404

Consolidated at
30 September 2006

Fair value
At amortised cost

At fair value through profit or loss$m

Designatedon initialrecognition$mHeld forTrading$m

Sub-total
$m

$m

$m

Financial liabilities
Due to other financial institutions
Derivative financial instruments1
Deposits and other borrowings
Liability for acceptances
Bonds and notes2
Loan capital2
Payables and other liabilities

14,118–
198,776
13,43546,4408,344
10,108

–
–
6,015
–
3,611
2,778
–

–
8,329
–
–
–
–
–

–
8,329
6,015
–
3,611
2,778
–

–
424
–
–
–
–
–

14,118
8,753
204,791
13,43550,051
11,122
10,108

Total financial liabilities

291,221

12,404

8,329

20,733424

312,378

Consolidated at
30 September 2006

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 liabilities within bonds and notes and loan capital. The resulting fair value adjustments mean that the carrying value differs from the amortised cost.

Financial Report 127

NOTES TO THE FINA NCIAL STATEMENTS
37: Fair Value of Financial Assets and Financial Liabilities (continued)
DEPOSITS AND OTHER BORROWINGSThe fair value of a deposit liability without
a specified maturity or at call is deemed tobe the amount payable on demand at thereporting date. The fair value is not adjusted
for any value expected to be derived fromretaining the deposit for a future period oftime.
For interest bearing fixed maturity deposits
and other borrowings and acceptances
without quoted market prices, market
borrowing rates of interest for debt witha similar maturity are used to discountcontractual cash flows.
BONDS AND NOTES AND LOAN CAPITAL
The aggregate fair value of bonds andnotes and loan capital is calculated basedon quoted market prices. For those debt
issues where quoted market prices were
not available, a discounted cash flow
model using a yield curve appropriate forthe remaining term to maturity of the debt
instrument is used.
PAYABLES AND OTHER FINANCIAL LIABILITIESThis category includes accrued interest andfees payable for which the carrying amountis considered to approximate the fair value.
COMMITMENTS AND CONTINGENCIESAs outlined in note 45, the Group hasvarious credit related commitments. Basedupon the level of fees currently charged for
granting such commitments, taking into
account maturity and interest rates, together
with any changes in the creditworthinessof counterparties since origination of thecommitments, their estimated replacement
or net fair value is not material.
FINANCIAL LIABILITIES DESIGNATED
AT FAIR VALUE THROUGH PROFIT OR LOSS
Parts of loan capital, bonds and notes
and deposits and other borrowings havebeen designated as financial liabilities atfair value through profit or loss in order toeliminate an accounting mismatch which
would arise if the liabilities were otherwise
carried at amortised cost.

128 ANZ Annual Report 2007

Deposits and other borrowings
At balance date, the carrying amount ofdeposits and other borrowings designated atfair value through profit or loss was $8,135
million (2006: $6,015 million). This is $74
million (2006: $92 million) lower than thecontractual amount payable to the holder
at maturity. The accumulated amount of thechange in fair value attributable to changes
in credit risk on these liabilities was lessthan $1 million (2006: less than $1 million).

Bonds and notes
At balance date, the carrying amount ofbonds and notes designated at fair value
through profit or loss was $4,996 million(2006: $3,611 million). This is $2 million(2006: $43 million) higher than thecontractual amount payable to the holder
at maturity. The accumulated amount of
the change in fair value attributable tochanges in credit risk on these liabilities
was a decrease in the liability of $31
million (2006: a decrease in the liabilityof $2 million). During the year a gain of$29 million (2006: loss of $1 million) was
recognised from the change in credit risk
associated with bonds and notes.

Loan capitalAt balance date, the carrying amount ofloan capital designated at fair value throughprofit or loss was $2,260 million (2006:$2,778 million). This is $5 million (2006:$67 million) higher than the contractual
amount payable to the holder at maturity.
The accumulated amount of the change infair value attributable to changes in credit
risk on these liabilities was an increasein the liability of $12 million (2006: anincrease in the liability of $29 million).
During the year a gain of $17 million (2006:
gain of $4 million) was recognised from thechange in credit risk associated with loan
capital.
For each of loan capital, bonds and notes
and deposits and other borrowings, thechange in fair value attributable to changes
in credit risk has been determined as theamount 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).

NOTES TO THE FINA NCIAL STATEMENTS
38: Segment Analysis
For management purposes the Group is organised into three major business segments being Personal, Institutional and New Zealand Business.
An expanded description of the principal activities for each of the business segments is contained in the Glossary on pages 170 to 171.
A summarised description of each business segment is shown below:
Personal

Provides:Rural Commercial & Agribusiness Products, Small Business Banking Products, Banking
Products, Consumer Finance, Investment and Insurance Products, Mortgages and other(including the branch network) in Australia;
Retail banking services in the Pacific region; andVehicle and equipment finance, rental services and fixed and at call investments.

Institutional

Provides:A full range of financial services to the Group’s business banking, corporate and institutionalcustomers including Corporate Finance, Business Banking, Markets and Working Capital.

New Zealand Businesses

Provides:A full range of banking services for personal, small business and corporate customers
in New Zealand.
Including ANZ Retail, NBNZ Retail, Corporate and Commercial Banking, Investment Insurance
Products, Private Banking, Rural Banking and Central Support.

As the composition of segments was amended during the year, September 2006 comparatives have been adjusted to be consistent with the2007 segment definitions.
BUSINESS SEGMENT ANALYSIS1, 2
Consolidated
Year ended 30 September 2007

Personal$m

Institutional$m

New
ZealandBusinesses$mOther3$m

Consolidated
total
$m

External interest income
External interest expense
Adjust for intersegment interest

11,047(3,275)(4,490)

8,982(6,396)
(611)

5,879
(3,539)(674)

302(5,698)
5,775

26,210(18,908)–

Net interest income
Other external operating income
Share of net profit of equity accounted investments

3,282
1,407
4

1,975
1,511
16

1,666
487
20

379
419
219

7,302
3,824
259

Segment revenue

4,693

3,502

2,173

1,017

11,385

Other external expenses
Net intersegment (income)/expenses(1,894)(346)(1,070)(308)(1,023)
(11)

(966)
665

(4,953)–Operating expenses
Provision for credit impairment(2,240)(393)(1,378)(69)(1,034)
(69)

(301)
(36)

(4,953)(567)

Segment result

2,060

2,055

1,070

680

5,865

Income tax expense
Minority interests

(616)
(2)

(604)
(3)

(344)
–

(114)
(2)

(1,678)(7)

Profit after income tax attributable to shareholders of the company

1,442

1,448

726

564

4,180

60

32

36

285

413

Non-Cash Expenses
Depreciation & amortisation
Equity-settled share-based payment expenses
Provision for credit impairment
Provisions for employee entitlements
Provision for restructuring

(132)
(21)
(393)
(25)
(10)

(37)
(25)
(69)
(17)
(9)

(39)
(11)
(69)
(55)
(2)

(107)
(5)
(36)
(24)
(22)

(315)
(62)
(567)
(121)
(43)

Financial Position 4
Total external assets
Share of associate and 5joint venture companies
Total external liabilities
Goodwill
Intangibles

153,488
16
74,942
307319

156,516
177
143,623
4
136

71,284
181
58,50620
22

11,212
3,056
92,891
2,795
74

392,500
3,430
369,962
3,126
551

Capital expenditure

1 Results are equity standardised.
2 Intersegment transfers are accounted for and determined on an arm’s length or cost recovery basis.
3 Includes INGA & Private Bank, Treasury, Operations, Technology & Shared Services, Corporate Centre, Group Risk Management, Group Financial Management and significant items.
Also includes the London headquartered project finance and certain structured finance transactions that ANZ has exited as part of its de-risking strategy.
4 Excludes deferred tax assets.
5 Excludes income tax liabilities.

Financial Report 129

NOTES TO THE FINA NCIAL STATEMENTS
38: Segment Analysis (continued)
The following analysis details financial information by business segment.
BUSINESS SEGMENT ANALYSIS1, 2
Consolidated
Year ended 30 September 2006

Personal$m

Institutional$m

New
ZealandBusiness$m

Other3$m

Consolidated
total
$m

External interest income
External interest expense
Adjust for intersegment interest

9,344(2,669)(3,658)

7,595(4,894)
(686)

5,070
(3,122)(441)

292(4,673)
4,785

22,301(15,358)–

Net interest income
Other external operating income
Share of net profit of equity accounted investments

3,017
1,159
7

2,015
1,226
15

1,507
461
20

404
169
152

6,943
3,015
194

Segment revenue

4,183

3,256

1,988

725

10,152Other external expenses
Net intersegment expenses(1,766)
(315)

(955)
(301)

(982)
(5)

(828)
621

(4,531)–

Operating expenses
Provision for credit impairment(2,081)(336)(1,256)
(58)

(987)
(4)

(207)
(9)

(4,531)(407)

Segment result

1,766

1,942

997

509

5,214

Income tax expense
Minority interests

(526)
(1)

(576)
(3)

(322)
–

(98)
–

(1,522)(4)

Profit after income tax attributable to the shareholdersof the Company

1,239

1,363

675

411

3,688

57

10

47

136

250

(126)
(25)
(336)
(22)
(15)

(23)
(28)
(58)
(13)
(23)

(43)
(9)
(4)
(51)
(1)

(100)
(14)
(9)
(9)
(12)

(292)
(76)
(407)
(95)
(51)

136,91522
67,151
33
269

118,996
152
107,913–92

63,717
164
52,33020
1914,7591,862
86,5182,847
57334,387
2,200
313,9122,900
437

Capital expenditure
Non-Cash Expenses
Depreciation & amortisation
Equity-settled share-based payment expenses
Provision for credit impairment
Provisions for employee entitlements
Provision for restructuring
Financial Position
Total external assets4
Share of associate and joint venture entities
Total external liabilities5
Goodwill
Intangibles

1 Results are equity standardised.
2 Intersegment transfers are accounted for and determined on an arm’s length or cost recovery basis.
3 Includes Partnerships & Private Bank, Treasury, Operations, Technology & Shared Services, Corporate Centre, Group Risk Management and Group Financial Management and significant items.
Also includes the London headquartered project finance and certain structured finance transactions that ANZ has exited as part of its de-risking strategy.
4 Excludes deferred tax assets.
5 Excludes income tax liabilities.

130 ANZ Annual Report 2007

NOTES TO THE FINA NCIAL STATEMENTS
38: Segment Analysis (continued)
The following analysis details financial information by geographic location.
GEOGRAPHIC SEGMENT ANALYSIS1, 2
2007
Consolidated

IncomeAustralia
New ZealandOverseas Markets

2006

$m

%

$m

%

20,180
8,092
2,021

66%
27%
7%

16,861
6,962
1,687

66%
27%
7%

30,293100%

25,510100%

272,968
91,03328,49970%
23%
7%229,973
82,772
21,64269%25%
6%392,500

100%

334,387

100%

326
36
51

79%
9%
12%

171
47
32

68%
19%
13%

413

100%

250

100%

Total assets3
Australia
New ZealandOverseas Markets
Capital Expenditure
Australia
New ZealandOverseas Markets

1 Intersegment transfers are accounted for and determined on an arm’s length or cost recovery basis.
2 The geographic segments represent the locations in which the transaction was booked.
3 Excludes deferred tax assets.

Financial Report 131

NOTES TO THE FINA NCIAL STATEMENTS
39: Notes to the Cash Flow Statements
Consolidated

The Company

2007
$m

2006
$m

2007
$m

2006
$m

Inflows(Outflows)

Inflows(Outflows)

Inflows(Outflows)

Inflows(Outflows)

Operating profit after income tax attributable to shareholders of the Company

4,180

3,688

3,551

3,174

Adjustments to reconcile operating profit after income tax
to net cash provided by/(used in) operating activities
Provision for credit impairment
Depreciation and amortisation
Profit on sale of Businesses
Provision for employee entitlements, restructuring and other provisions
Payments from provisions(Profit)/loss on sale of premises and equipment(Profit)/loss on sale of available-for-sale assets
Share based payments

567
309
(234)
336
(307)
(33)
(14)
7

407
292
–
250
(223)
4
(8)
31

388
242
(39)
286
(245)
4
(4)
7

278
223
–
106
(83)
5
(7)
31

Net (increase)/decrease in operating assets
Trading securities
Liquid assets greater than three months
Due from other banks-more than 90 days
Loans and advances
Net intra-group loans and advances
Regulatory deposits
Interest receivable
Accrued income
Net tax assets
Amortisation of discounts/premiums included in investing activities(7,325)(1,641)(410)(37,403)
–
(54)
(56)
(23)
(203)
(80)

(1,681)(1,300)1,318(26,848)
–
(42)
(119)
(24)
297
(151)

(6,894)(1,865)(195)(27,739)(10,305)
(31)
(3)
(38)
(565)
–

(182)
(441)
177
(18,732)
66
(17)
4
(27)
32
–

Net (decrease)/increase in operating liabilities
Deposits and other borrowings
Due to other financial institutions
Payables and other liabilities
Interest payable
Accrued expenses
Other

33,964
4,326
(91)
367
23
(242)

16,129
1,859
541
482
10
(67)

34,585
3,050
(11)
206
25
(144)

14,736
2,462
1,221
830
13
563

Total adjustments(8,217)(8,843)(9,285)

1,258

Net cash (used in)/provided by operating activities(4,037)(5,155)(5,734)4,432a) Reconciliation of net profit after income tax to net cash provided by operating activitiesb) Reconciliation of cash and cash equivalents
Cash and cash equivalents include liquid assets and amounts due from other financial institutions with an original term to maturity of less than 90days. Cash and cash equivalents at the end of the financial year as shown in the statements of cash flows are reconciled to the related items in thestatements of financial position as follows:
Consolidated

The Company

2007
$m

2006
$m

2007
$m

2006
$m

Liquid assets – less than 90 days (refer note 9)
Due from other financial institutions – less than 90 days (refer note 10)12,307
6,767

11,633
8,711

6,701
5,339

8,050
5,520

Cash and cash equivalents in the statement of cashflows

19,074

20,344

12,04013,570132 ANZ Annual Report 2007

NOTES TO THE FINA NCIAL STATEMENTS
39: Notes to the Cash Flow Statements (continued)c) Acquisitions and disposals
Consolidated

Cash outflows from acquisitions
Purchases of controlled entities (note 18)
Purchases of interest in associates and joint ventures

Cash inflows from disposals
Disposals of controlled entities (note 18)
Disposals of associates and joint ventures

The Company

2007
$m

2006
$m

2007
$m

2006
$m

203
1,247

–
289

177
372

–
230

1,450

289

549

230

377
67

–
14

–
67

–
10

444

14

67

10

442

165

442

165

Available$m

Unused$m

Available$m

Unused$m

No material acquisitions and disposals have occured in 2006.
d) Non-cash financing and investing activities
Share capital issues
Dividend reinvestment planse) Financing arrangements
2007

2006

Credit standby arrangements
Standby Lines
Other financing arrangements
Overdraft and other financing arrangements

192

184

827

821

3,429

727

3,466

985

Total finance available

3,621

911

4,293

1,806

Financial Report 133

NOTES TO THE FINA NCIAL STATEMENTS
40: Controlled Entities
Incorporated in

Nature of Business

Australia

Banking

American Samoa
Australia
Australia
Australia
Australia
Australia
Australia
Australia
EnglandSamoa
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
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
Australia
Australia
Cambodia
Kiribati
Australia
EnglandEngland
Australia
Australia
Australia
Australia
Australia
Papua New Guinea
Guam
Guam
England
Australia
Australia
Australia
Indonesia
Laos

Banking
Investment Banking
Funding
Hedging
Finance
Captive-Insurance
Trustee/Nominee
Investment
Banking
Banking
Holding Company
Banking
Fund Manager
FinanceFinance
Holding Company
Investment
Investment
FinanceFinanceFinanceFinanceFinance
Custodians
Finance
Holding Company
NomineeFinance
Holding Company
Banking
Banking
Holding Company
Merchant Banking
Holding Company
Online Stockbroking
Banking
Banking
Holding Company
Holding Company
Finance
Holding Company
Investment
Mortgage Insurance
Nominee
Holding Company
Banking
Holding Company
Banking
Securitisation
General Finance
Securitisation
Securitisation
Banking
Banking

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:Amerika Samoa BankANZ Capel Court Limited
ANZ Capital Funding Pty Ltd
ANZ Capital Hedging Pty Ltd
ANZ Commodity Trading Pty Ltd
ANZcover Insurance Pty Ltd
ANZ Trustees Limited
ANZ Funds Pty Ltd
ANZ Bank (Europe) Limited*
ANZ Bank (Samoa) Limited*
ANZ Holdings (New Zealand) Limited*
ANZ National Bank Limited*
ANZ Investment Services (New Zealand) Limited*
ANZ National (Int’l) Limited*
Arawata Finance Limited*
Arawata Holdings Limited*
Harcourt Corporation Limited*
Airlie Investments Limited*
Nerine Finance No. 21
Arawata Trust Company*
Arawata Trust*
Endeavour Finance Limited*
Tui Endeavour Limited*
National Bank of New Zealand Custodians Limited*
Alos Holdings Limited*
NBNZ Holdings Ltd*Private Nominees Limited*
UDC Finance Limited*
ANZ International (Hong Kong) Limited*
ANZ Asia Limited*
ANZ Bank (Vanuatu) Limited*
ANZ International Private Limited*
ANZ Singapore Limited*
ANZ Online Holdings Pty Ltd
ETRADE Australia Limited
ANZ Royal Bank (Cambodia) Limited*1
Bank of Kiribati Ltd*1
LFD Limited
Minerva Holdings Limited*
Upspring Limited*
ANZ Investment Holdings Pty Ltd
530 Collins Street Property Trust
ANZ Lenders Mortgage Insurance Pty Limited
ANZ Nominees Limited
ANZ Orchard Investments Pty Ltd
Australia and New Zealand Banking Group (PNG) Limited*
Citizens Bancorp Inc
Citizens Security Bank (Guam) Inc
Coral Finance Limited1
Esanda Finance Corporation Limited
Kingfisher Trust 2004-1G1
Omeros II Trust1
PT ANZ Panin Bank*1
ANZ Vientiane Commercial Bank Limited*1* Audited by overseas KPMG firms.
1 Minority interests hold ordinary shares or units in the controlled entities listed above as follows: Bank of Kiribati Ltd - 150,000 $1 ordinary shares (25%) (2006 : 150,000 $1 ordinary shares(25%); PT ANZ Panin Bank – 7,500 IDR 1 million shares (15%) (2006: 7,500 IDR 1 million shares (15%); Nerine Finance No. 2 – 3,650 NZD100,000 redeemable preference shares and 35 NZD1Class ‘A’ shares (42%) (2006: 3,650 NZD100,000 redeemable preference shares and 35 NZD1 Class ‘A’ shares (42%)); ANZ Royal Bank (Cambodia) Limited – 180,000 USD100 ordinary shares(45%) (2006: 99,000 USD100 ordinary shares (45%)); Coral Finance Limited – GBP 1 ordinary share (67%) (2006: GBP 1 ordinary share (67%)); Kingfisher Trust 2004 – 1G residual capital
unitholder (2006: residual capital unitholder); ANZ Vientiane Commercial Bank – 4,000,000 $1 ordinary shares (40%) (2006: n/a); Omeros II Trust – residual capital unitholder (2006: residual
capital unitholder).

134 ANZ Annual Report 2007

NOTES TO THE FINA NCIAL STATEMENTS
41: Associates
Significant associates of the Group are as follows:
Ownership
interest
held

Votinginterest

Incorporatedin

Carrying
value6$m

Fairvalue7$m

Reportingdate

Principal
activity

P.T. Bank Pan Indonesia1
Bank of Tianjin (formerly Tianjin City
Commercial Bank)2

30%
20%

30%
20%

Indonesia
Peoples Republicof China

252
164

527
n/a

31 December
31 December

Banking
Banking

Metrobank Card Corporation Inc3
AMMB Holdings Berhad4
Shanghai Rural Commercial Bank5

40%
19%
20%

40%
14%8
20%

Philippines
Malaysia
Peoples Republicof China

28
804
307

n/a
873
n/a

31 December
31 March
31 December

Cards Issuing
Banking
Banking

194

n/a

Other associates
Total carrying value of associates
1
2
3
4
5
6
7
8

1,749

An associate from 1 April 2001.
An associate from 13 June 2006.
An associate from 9 October 2003.
An associate from 18 May 2007.
An associate from 20 September 2007.
2006 carrying values as follows: P.T. Bank Pan Indonesia $222 million, Bank of Tianjin $164 million, Metrobank Card Corporation Inc $28 million, and Other associates $178 million. Total $592 million.
Applicable to those investments in associates where there are published price quotations.
The investment in AMMB Holdings Berhad comprises ordinary shares, preference shares mandatorily converting into ordinary shares, and bonds exchangeable into ordinary shares. The terms of thepreference shares allow ANZ to convert the preference shares into ordinary shares any time, and they will mandatorily convert after 5 years on issue. The terms of the exchangeable bonds allow ANZ toconvert the exchangeable bonds into ordinary shares at any time within the 10 year period to maturity. Currently held ordinary shares provide ANZ a voting interest of 14%. The other instruments could
increase ANZ’s voting interest and ownership interest up to 25%, when converted or exchanged in full. An increase above 20% would require regulatory approval.

Aggregate assets of significant associates
Aggregate liabilities of significant associates
Aggregate revenue of significant associates

2007
$m

2006
$m

64,64960,081
4,737

16,784
15,356586

Consolidated
2007
$m

2006
$m

Share of associates profit before income tax
Share of income tax expense

131
(37)

70
(17)

Share of associates net profit – as disclosed by associates
Adjustments- withholding tax- provisioning- other

94

53

(4)
(2)
(1)

(2)
4
1

Share of associates net profit accounted for using the equity method

87

56

Results of Associates

42: Interests in Joint Venture Entities
The Group has interests in joint venture entities as follows:
Ownership
interest
held

Votinginterest
held

Incorporatedin

Carrying
value6$m

Reportingdates

Principal
activity

ING Australia Limited1, 5

49%2

49%2

Australia

1,519

31 December

Funds Management
and Insurance

ING (NZ) Holdings Limited3,5

49% 4

50%4

New Zealand162

31 December

Funds Management
and Insurance

Total interests in Joint Venture entities

1,681

1 A joint venture entity from 1 May 2002.
2 This represents the Group’s 49% share of the assets and liabilities of ING Australia Limited. The Group has joint control of the joint venture, and accordingly the entity is not consolidated.
Key details of the joint venture are:
■ ING Australia Limited is owned 51% by ING Group and 49% by ANZ.
■ Both shareholders have an equal say in strategic decisions with a number of matters requiring the approval of both shareholders (i.e. require unanimous approval).
These include major items of capital expenditure, acquisitions or disposals in excess of $20 million and changes to the Board structure.
■ Equal board representation with four Group nominees and four ING Group nominees. All key issues (including business plans, major capital expenditure, acquisitions etc) require unanimous
Board approval.
■ Refer to Critical Accounting Estimate item (ii) for details regarding valuation of investment in ING Australia Limited.
The Joint Venture includes the majority of the Group’s and ING’s funds management and insurance activities in Australia.
3 A joint venture entity from 30 September 2005.
4 This represents the Group’s 49% share of assets and liabilities of ING (NZ) Holdings Limited. The Group has joint control of the joint venture, and accordingly the entity is not consolidated.
Key details of the joint venture are:
■ ING (NZ) Holdings Limited is owned 51% by ING Group and 49% by ANZ.
■ Both shareholders have an equal say in strategic decisions with a number of matters requiring the approval of both shareholders (i.e. require unanimous approval). These include major
items of capital expenditure, acquisitions or disposals in excess of $20 million and changes to the Board structure.
■ Equal board representation with four Group nominees and four ING Group nominees. All key decisions (including business plans, major capital expenditure, acquisitions etc) require
unanimous Board approval.
■ Refer to Critical Estimates and Judgements used in Applying Accounting Policies item (iii) for details regarding valuation of investment in ING (NZ) Holdings Limited
The joint venture includes the majority of the Group’s and ING’s funds management and insurance activities in New Zealand.
5 ING Australia Limited and ING (NZ) Holdings Limited have different reporting dates than the Consolidated Group to align with the ING Group parent entity.
6 2006 carrying values as follows: ING Australia Limited $1,462 million; and ING (NZ) Holdings Limited $146 million.
Financial Report 135

NOTES TO THE FINA NCIAL STATEMENTS
42: Interests in Joint Venture Entities (continued)
ING Australia Limited

ING (NZ) Holdings
Limited

2007
$m

2006
$m

2007
$m

2006
$m

2007
$m

2006
$m

256
313

183
256

19
39

–
19

275
352

183
275

Movement in the carrying amount of the joint venture entity
Carrying amount at the commencement of the year
IFRS opening balance sheet adjustments
Share of net profit
Dividend received
Movement in reserves
Adjustment for exchange rate fluctuations

1,462
–
152
(95)
–
–

1,530
(138)
119
(46)
(3)
–

146
–
20
–
–
(4)

131
–
19
–
–
(4)

1,608
–
172
(95)
–
(4)

1,661
(138)
138
(46)
(3)
(4)

Carrying amount at the end of the year

1,519

1,462

162

146

1,681

1,608

Investments
Other assets

14,712
1,817

12,493
1,570

70
137

70
154

14,782
1,954

12,563
1,724

Share of total assets

16,52914,063207

224

16,736

14,287

Policy holder liabilities
Other liabilities

14,881
698

12,430
735

19
9

45
16

14,900707

12,475751

Share of total liabilities

15,57913,16528

61

15,607

13,226

Share of net assets

950

898

179

163

1,129

1,061

Share of revenues, expenses and results
Revenues
Expenses

433
(233)

372
(216)

69
(49)

59
(39)

502
(282)

431
(255)

Profit before income tax

200

156

20

20

220

176

Income tax expense

(48)

(37)

–

(1)

(48)

(38)

Profit after income tax

152

119

20

19

172

138

Net equity accounted profit

152

119

20

19

172

138

Share of commitments
Lease commitments
Other commitments

150
19

154
18

3
–

3
–

153
19

157
18

Share of total expenditure commitments

169

172

3

3

172

175

Share of contingent liabilities
In relation to ANZ’s interest in the joint venture entity2

27

65

–

–

27

65

27

65

–

–

27

65

Retained profits attributable to the joint venture entity
At the beginning of the year
At the end of the year

Consolidated
Total

Share of assets and liabilities1

1 This represents the Group’s share of the assets and liabilities of ING Australia Limited and ING (NZ) Holdings Limited, less minority interests and including goodwill on acquisition of ANZ Funds
Management entities.
2 This represents Deeds of Subordination with ASIC and buyer of last resort.

43: Fiduciary Activities
The Group conducts various fiduciary activities as follows:

Investment fiduciary activities for trusts
The Group conducts investment fiduciary activities for trusts, including deceased estates. These trusts have not been consolidated as the Group
does not have direct or indirect control.
Where the Company or its controlled entities incur liabilities in respect of these operations as trustee, where the primary obligation isincurred in an agency capacity as trustee of the trust rather than on the Group’s own account, a right of indemnity exists against the assetsof the applicable funds or trusts. As these assets are sufficient to cover the liabilities and it is therefore not probable that the Company or its
controlled entities will be required to settle the liabilities, the liabilities are not included in the financial statements.

136 ANZ Annual Report 2007

NOTES TO THE FINA NCIAL STATEMENTS
43: Fiduciary Activities (continued)
The aggregate amounts of funds concerned are as follows:
Consolidated

Trusteeships

2007
$m

2006
$m

2,651

2,080

Funds management activities
Funds management activities are conducted through the ING Australia Limited and ING (NZ) Holdings Limited joint ventures and certain
subsidiaries of the Group. As stated in note 1 (ii), shares in joint venture entities are stated in the consolidated balance sheet at cost plus theGroup’s share of post acquisition earnings. Funds under management on behalf of customers are not consolidated because these funds invest
in specified investments on behalf of clients.
The Group controlled or jointly controlled fund management companies with funds under management as follows:

ING Australia Limited Joint Venture
ING (NZ) Holdings Limited Joint Venture
Controlled entities – New ZealandControlled entities – Australia

2007
$m

2006
$m

49,461
7,220
3,895
798

42,783
7,256
3,721
150

61,37453,910

Custodian services activities
Custodian services are conducted through ANZ Custodian Services. ANZ Custodian Services holds investment assets under custody on behalfof external customers and as a consequence the assets are not consolidated in the Group’s accounts. As at 30 September 2007, ANZ CustodianServices had funds under custody of $148.2 billion (30 September 2006: $120.2 billion).

44: Commitments
Consolidated

The Company

2007
$m

2006
$m

2007
$m

2006
$m

171
212

–
–

171
212

–
–

9

–

9

–

101

55

83

16

Total capital expenditure commitments1

493

55

475

16

Lease rentals
Land and buildings
Not later than 1 year
Later than 1 year but not later than 5 years
Later than 5 years

232
512
384

227
567
433

159
373
356

151
399
399

1,128

1,227

888

949

29
29
–

24
19
1

16
16
–

17
10
–

58

44

32

27

Total lease rental commitments

1,186

1,271

920

976

Total commitments

1,679

1,326

1,395

992

Property
Contracts for construction of new office building in Docklands area, Melbourne Australia
Not later than 1 year
Later than one year but not later than 5 years
Aquisitions2
Not later than 1 year
Capital expenditure
Contracts for outstanding capital expenditure
Not later than 1 year

Furniture and equipment
Not later than 1 year
Later than 1 year but not later than 5 years
Later than 5 years

1 Relates to premises and equipment.
2 At 30 September 2007, the Group had entered into conditional contracts, subject to regulatory and shareholder approval, to acquire a 40% equity interest in Sacom Cards for $9 million.

Financial Report 137

NOTES TO THE FINA NCIAL STATEMENTS
45: Contingent Liabilities, Contingent Assets and Credit Related Commitments
CUSTOMER RELATED CREDIT RELATED COMMITMENTS AND CONTINGENT LIABILITIESCredit related commitments
Facilities provided
Consolidated

The Company

2007
Contract
amount$m

2006
Contract
amount$m

2007
Contract
amount$m

2006
Contract
amount$m

Undrawn facilities1

107,269

98,554

86,124

77,720Australia
New ZealandOverseas Markets

70,692
18,765
17,81262,746
18,84016,96869,999–16,12561,741–
15,979Total

107,269

98,554

86,124

77,720

1 The credit risk of the undrawn facilities may be less than the contract amount, however the credit risk has been taken to be the contract amount. The majority of undrawn facilities are subject
to customers maintaining specific credit standards. The amount does not necessarily represent future cash requirements as many of these facilities are expected to be partially used or to
expire unused.

Contingent liabilities
Details of the estimated maximum amount of contingent liabilities that may become payable are disclosed on the following pages. These
contingent liabilities relate to transactions that the Group has entered into as principal. By contrast, the quantitative tabular presentation below
relates to customer contingent liabilities, i.e. direct credit substitutes and trade and performance related items.
Guarantees, Standby letters of credit, Bill endorsements and Other are classified by APRA as direct credit substitutes and exhibit the same
credit risk characteristics as a direct extension of credit. The maximum potential amount of future payments represents the contract amountthat could be lost if the counterparty fails to meet its financial obligations.
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.
The Group guarantees the performance of customers by issuing standby letters of credit and guarantees to third parties. The risk involved isessentially the same as the credit risk involved in extending loan facilities to customers, therefore these transactions are subjected to the same
credit origination, portfolio management and collateral requirements for customers applying for loans. As the facilities may expire without being
drawn upon, the notional amounts do not necessarily reflect future cash requirements.
The credit risk of these facilities may be less than the contract amount, however the credit risk has been taken to be the contract amount.

138 ANZ Annual Report 2007

NOTES TO THE FINA NCIAL STATEMENTS
45: Contingent Liabilities, Contingent Assets and Credit Related Commitments (continued)
Consolidated

The Company

2007
Contract
amount$m

2006
Contract
amount$m

2007
Contract
amount$m

2006
Contract
amount$m

Guarantees
Standby letters of credit
Bill endorsements
Documentary letters of credit
Performance related contingencies
Other

5,410
1,476
28
3,238
12,671
993

4,690
1,468
100
3,078
11,710
1,009

5,194
1,474
28
3,080
12,091
307

4,611
1,296
100
2,939
11,265628

Total customer contingent liabilities

23,81622,05522,174

20,839Australia
New ZealandOverseas Markets

10,535
1,253
12,028

9,473
1,011
11,571

10,525–
11,649

9,462–
11,377

Total customer contingent liabilities

23,81622,05522,174

20,839ASSETS PLEDGED AS SECURITY AND SECURED LIABILITIESThe following assets are pledged as collateral:mandatory reserve deposits held with local central banks in accordance with statutory requirements. These deposits are not available tofinance the Group’s day to day operations; anddebenture undertakings covering the assets of Esanda Finance Corporation Limited (Esanda) and its subsidiaries and UDC Finance Limited.
The debenture stock of Esanda and its subsidiaries and UDC Finance Limited is secured by a trust deed and collateral debentures, giving
floating charges upon the undertaking of all the tangible assets of the entity, other than land and buildings. All controlled entities of Esanda
and UDC Finance Limited have guaranteed the payment of principal, interest and other monies in relation to all debenture stock andunsecured notes issued by Esanda and UDC Finance Limited respectively. Note that the only loans pledged are those in Esanda and UDC
Finance Limited.
The value of assets pledged as security is as follows:
Consolidated

Regulatory deposits
Assets pledged as collateral under debenture undertakings1

The Company

2007
$m

2006
$m

2007
$m

2006
$m

235
15,347205
16,028

148
–

132
–

15,582

16,233148

132

1 Related liabilities is $9,539 million (2006: $9,757 million).

The Group has accepted collateral that it is permitted to sell or repledge in connection with its stock-lending activities. The fair value of thecollateral accepted is $3.5 billion (2006: $3.3 billion) and this equates to our obligation to our counterparties.
OTHER BANK RELATED CONTINGENT
LIABILITIESThe details and estimated maximum amountof contingent liabilities that may become
payable are set out below.

i) Clearing and settlement obligations
In accordance with the clearing andsettlement arrangements set out:in the Australian Payments Clearing
Association Limited Regulations for theAustralian Paper Clearing System, theBulk Electronic Clearing System, theConsumer Electronic Clearing System andthe High Value Clearing System (HVCS),
the Company has a commitment to comply
with rules which could result in a bilateralexposure and loss in the event of a failure
to settle by a member institution; andin the Austraclear System Regulations
and the CLS Bank International Rules, theCompany has a commitment to participate
in loss-sharing arrangements in theevent of a failure to settle by a member
institution.
For HVCS and Austraclear, the obligationarises only in limited circumstances.

ii) Nominee activities
The Group will indemnify each customerof controlled entities engaged in nominee
activities against loss suffered by reasonof such entities failing to perform any

obligation undertaken by them to acustomer.

iii) Interbank deposit agreement
ANZ has entered into an Interbank Deposit
Agreement with the major banks in thepayments system. This agreement is apayment system support facility certified
by the Australian Prudential Regulation
Authority, where the terms are such that if
any bank is experiencing liquidity problems,
the other participants are required todeposit equal amounts of up to $2 billion fora period of 30 days. At the end of 30 days
the deposit holder has the option to repay
the deposit in cash or by way of assignmentof mortgages to the value of the deposit.

Financial Report 139

NOTES TO THE FINA NCIAL STATEMENTS
45: Contingent Liabilities, Contingent Assets and Credit Related Commitments (continued)iv) Contingent tax liability
The Australian Taxation Office is reviewing
the taxation treatment of certaintransactions, including legacy structured
finance transactions, undertaken by theGroup in the course of normal businessactivities.
The Inland Revenue Department (IRD) in
New Zealand is reviewing a numberof conduit-relieved structured financetransactions as part of normal revenue
authority audit procedures. This is partof an industry-wide review by the IRD ofthese transactions undertaken in New
Zealand. The IRD has issued Notices of
Proposed Adjustment (the ‘Notices’) in
respect of some of those structured financetransactions. The Notices are not tax
assessments and do not establish a tax
liability, but are the first step in a formal
dispute process. In addition, the IRD has
issued some tax assessments as a follow
up to the Notices in some cases. Should
the same position be adopted by the IRD
on the remaining transactions of thatkind as reflected in the Notices and in the
tax assessments received, the maximum
potential tax liability would be approximately
NZD506 million (including interest tax
effected) for the period to 30 September
2007. Of that maximum potential liability,
approximately NZD142 million is subject
to tax indemnities provided by Lloyds TSB
Bank PLC under the agreement by which
ANZ acquired the National Bank of New
Zealand and which relate to transactions
undertaken by the National Bank of New
Zealand before December 2003. All of these
conduit-relieved transactions have now
either matured or been terminated.
Additional issue-specific audits and otherinvestigations are being undertaken by the
New Zealand IRD, and by revenue authorities
in other jurisdictions as part of normal
revenue authority activity in those countries.
The Company has assessed these and othertaxation claims arising in Australia, New
Zealand and elsewhere, including seeking
independent advice where appropriate,and considers that it holds appropriate
provisions.

v) Sale of Grindlays businesses
On 31 July 2000, ANZ completed the saleto Standard Chartered Bank (SCB) of ANZ
Grindlays Bank Limited and the privatebanking business of ANZ in the United
Kingdom and Jersey, together with ANZ
Grindlays (Jersey) Holdings Limited and its
subsidiaries, for USD1.3 billion in cash. ANZ
provided warranties and certain indemnities

140 ANZ Annual Report 2007

relating to those businesses and, where it
was anticipated that payments would be
likely under the warranties or indemnities,
made provisions to cover the anticipatedliability. The issues below have notimpacted adversely the reported results. All
settlements, penalties and costs have been
covered within the provisions established at
the time.
FERA
In 1991 certain amounts were transferredfrom non-convertible Indian Rupee accounts
maintained with Grindlays in India. Thesetransactions may not have complied withthe provisions of the Foreign Exchange
Regulation Act, 1973. Grindlays, on its own
initiative, brought these transactions to
the attention of the Reserve Bank of India.
The Indian authorities have served notices
on Grindlays and certain of its officers inIndia and civil penalties have been imposed
which are the subject of appeals. Criminal
prosecutions are pending and will bedefended. The amounts in issue are notmaterial.
Tax Indemnity
ANZ provided an indemnity relating to tax
liabilities of Grindlays (and its subsidiaries)
and the Jersey Sub-Group to the extent towhich such liabilities were not provided
for in the Grindlays accounts as at 31 July
2000. Claims have been made under thisindemnity also, with no material impact on
the Group expected.

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

NOTES TO THE FINA NCIAL STATEMENTS
45: Contingent Liabilities, Contingent Assets and Credit Related Commitments (continued)vii) Deed of Cross Guarantee in respect of certain controlled entities
Pursuant to 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 publication of individual financial statements. The results of thesecompanies are included in the consolidated Group results. The entities to which relief was granted are:
ANZ Properties (Australia) Pty Ltd1ANZ Capital Hedging Pty Ltd1
Alliance Holdings Pty Ltd1ANZ Orchard Investments Pty Ltd2ANZ Securities (Holdings) Limited3

ANZ Funds Pty Ltd1
Votraint No. 1103 Pty Ltd2

1 Relief originally granted on 21 August 2001.
2 Relief originally granted on 13 August 2002.
3 Relief originally granted on 9 September 2003.

It is the condition of the class order that the Company and each of the above controlled entities enter into a Deed of Cross Guarantee. A Deed of
Cross Guarantee under the class order was executed by them and lodged with the Australian Securities and Investments Commission. The Deedof 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, 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. The consolidated income statement and consolidated balance sheet of the Company
and its wholly owned controlled entities which have entered into the Deed of Cross Guarantee are:Consolidated
2007
$m

2006
$m

Profit before tax
Income tax expense

4,835
(916)

4,161
(922)

Profit after income tax
Retained profits at start of year
Adjustment on adoption of accounting policies specified by AASB 4, AASB 132 and AASB 139
Adjustment on adoption of AASB 2005–1

3,919
8,240
–
141

3,239
7,103
(29)
–

Total available for appropriation
Ordinary share dividends provided for or paid
Transfer from reserves
Actuarial gains/(losses) on defined benefit plans after tax

12,300(2,363)–75

10,313(2,068)49(54)

Retained profits at end of year

10,012

8,240

AssetsLiquid assets
Available-for-sale assets
Net loans and advances
Other assets
Premises and equipment

10,618
11,383
198,610
78,242802

10,428
8,657
172,155
50,532603

Total assets

299,655

242,375

Liabilities
Deposits and other borrowings
Income tax liability
Payables and other liabilities
Provisions

161,195
669
117,992710

128,3211,067
95,000688

Total liabilities

280,566

225,076

Net assets

19,08917,299

Shareholders’ equity1

19,08917,2991 Shareholders’ equity excludes retained profits and reserves of controlled entities within the class order.

Financial Report 141

NOTES TO THE FINA NCIAL STATEMENTS
45: Contingent Liabilities, Contingent Assets and Credit Related Commitments (continued)viii) Underpinning agreement – ANZ
National Bank Limited

CONTINGENT ASSETSThe Company is party to an underpinningagreement with ANZ National Bank Limited
whereby the Company undertakes to assume
risk in relation to credit facilities extended
by ANZ National Bank Limited to individual
customers which exceed 35% of ANZ
National Bank Limited’s capital base.

In 1992, Grindlays received a claim
aggregating to approximately Indian Rupees
5.06 billion from the National Housing
Bank (NHB) in India. The claim arose outof cheques drawn by NHB in favour of
Grindlays, the proceeds of which werecredited to the account of a Grindlays
customer.

ix) Underpinning agreement – Australia
and New Zealand Banking Group (PNG)
LimitedThe Company is party to an underpinningagreement with Australia and New Zealand
Banking Group (PNG) Limited whereby
the Company undertakes to assume riskin relation to credit facilities extended byAustralia and New Zealand Banking Group(PNG) Limited to individual customers which
exceed 25% of Australia and New Zealand
Banking Group (PNG) Limited’s capital base.

x) New Zealand Commerce Commission
In November 2006, the New ZealandCommerce Commission brought proceedings
under the Commerce Act 1986 against Visa,
MasterCard and all New Zealand issuers of
Visa and MasterCard credit cards, including
ANZ National Bank Limited. The Commission
alleges price fixing and substantiallylessening competition in relation to thesetting of credit card interchange fees andis seeking penalties and orders under theCommerce Act.
Subsequently, several major New Zealandretailers have issued proceedings against
ANZ National Bank and the other above
mentioned defendants seeking unquantified
damages, based on allegations similar
to those contained in the CommerceCommission proceedings. ANZ National
Bank is defending the proceedings. At thisstage, the risks and any potential liabilities
cannot be assesed.
GENERAL
There are outstanding court proceedings,
claims and possible claims against theGroup, the aggregate amount of whichcannot readily be quantified. Appropriate
legal advice has been obtained and, in thelight of such advice, provisions as deemednecessary have been made. The grossamounts of provisions made for material
litigation contingencies as at 30 September
2007 is $440 million (2006: $405 million).

142 ANZ Annual Report 2007

National Housing Bank

Grindlays won an arbitration award in March
1997, under which NHB paid Grindlays anaward of Indian Rupees 9.12 billion. NHB
subsequently won an appeal to the Special
Court of Mumbai, after which Grindlays filed
an appeal with the Supreme Court of India.
Grindlays paid the disputed money includinginterest into court. Ultimately, the parties
settled the matter and agreed to sharethe moneys paid into court which by thentotalled Indian Rupees 16.45 billion ($661
million at 19 January 2002 exchange rates),with Grindlays receiving Indian Rupees
6.20 billion ($248 million at 19 January
2002 exchange rates) of the disputedmonies. ANZ in turn received a payment
of USD124 million (USD equivalent of the
Indian Rupees received by Grindlays) fromStandard Chartered Bank under the termsof an indemnity given in connection withthe sale of Grindlays to Standard
Chartered Bank.
ANZ recovered $114 million in 2006 from its
insurers in respect of the above.
In addition, ANZ is entitled to share with
NHB in the proceeds of any recovery fromthe estate of the customer whose account
was credited with the cheques drawn
by NHB. However, the Indian Taxation
Department is claiming a statutory priority
to all of the funds available for distribution
to creditors of that customer. Proceedings
are currently afoot in the Special Court of
Mumbai to determine these issues. The
hearing in the Special Court of Mumbai has
concluded and the parties are awaiting anorder from the Court.

Visa prospectus
Visa has released their prospectus as
at September 2007 and as part of thisprospectus ANZ will be entitled to an initial
allocation of shares determined under amethodology that was agreed on among the
Visa participating regions. This will result in
the inflow of economic benefits, the amountand timing of which are uncertain.

NOTES TO THE FINA NCIAL STATEMENTS
46: Superannuation and Other Post Employment Benefit Schemes
Description of the Group’s post employment benefit schemes
The Group has established a number of pension, superannuation and post retirement medical benefit schemes throughout the world. The
Group may be obliged to contribute to the schemes as a consequence of legislation and provisions of trust deeds. Legal enforceability isdependent on the terms of the legislation and trust deeds.
The major schemes with assets in excess of $25m are:Contribution levels
Country

SchemeScheme type

Employee/participant

Employer

Australia

ANZ Australian Staff
Superannuation Scheme1,2

Defined contribution scheme
Section C3 or

Optional8

Balance of cost10

Defined contribution scheme
Section A or

Optional

9% of salary11

Defined benefit scheme
Pension Section4

Nil

Balance of cost12

Defined benefit scheme5 or

Nil

Balance of cost13

Defined contribution scheme

Minimum of
2.5% of salary

7.5% of salary14

Defined benefit scheme6 or

5.0% of salary

Balance of cost15

Defined contribution scheme7

Minimum of
2.0% salary

11.5% of salary16

Defined benefit scheme7

5.0% of salary9

Balance of cost17

New Zealand

ANZ Group (New Zealand)
Staff Superannuation
Scheme1,2National Bank Staff
Superannuation Fund1,2

UK

ANZ UK Staff
Pension Scheme1

Balance of cost: the Group’s contribution is assessed by the actuary after taking account of members’ contributions and the value of theschemes’ assets.
1 These schemes provide for pension benefits.
2 These schemes provide for lump sum benefits.
3 Closed to new members in 1997.
4 Closed to new members. Operates to make pension payments to retired members or their dependants.
5 Closed to new members on 31 March 1990. Operates to make pension payments to retired members of that section of the scheme or their dependants.
6 Closed to new members on 1 October 1991.
7 Closed to new members on 1 October 2004.
8 Optional but with minimum of 1% of salary.
9 From 1 October 2003, all members’ contributions are at a rate of 5% of salary.
10 As determined by the Trustee on the recommendation of the actuary - currently 9% (2006: 9%) of members’ salaries.
11 2006: 9% of salary.
12 As determined by the Trustee on the recommendation of the actuary - currently nil (2006: nil).
13 As recommended by the actuary - currently nil (2006: nil).
14 2006: 7.5% of salary.
15 As recommended by the actuary - currently 24.8% (2006: 24.7%) of members’ salaries.
16 2006: 11.5% of salary.
17 As agreed by the Trustee and Group after taking the advice of the actuary - currently 26% (2006: 26%) of pensionable salaries and additional quarterly contributions of GBP 3.5 million until
December 2015.

Financial Report 143

NOTES TO THE FINA NCIAL STATEMENTS
46: Superannuation and Other Post Employment Benefit Schemes (continued)
Funding and contribution information for the defined benefit sections of the schemes
The funding and contribution information for the defined benefit sections of the schemes as extracted from the schemes’ most recent financial
reports are set out below.
In this financial report, the net (liability)/asset arising from the defined benefit obligation recognised in the balance sheet has been determinedin accordance with AASB 119 “Employee Benefits”. However, the excess or deficit of the net market value of assets over accrued benefits
shown below has been determined in accordance with AAS 25 ‘Financial Reporting by Superannuation Plans’. The excess or deficit for funding
purposes below differs from the net (liability)/asset in the balance sheet because AAS 25 prescribes a different measurement date and basis
to those used for AASB 119 purposes.
Excess/(deficit)
of netmarket valueof assets overaccrued benefits$m2007 Schemes

Accruedbenefits*$m

Net market
value ofassets heldby scheme$m

ANZ Australian Staff Superannuation Scheme Pension Section2
ANZ UK Staff Pension Scheme2
ANZ UK Health Benefits Scheme4
ANZ Group (New Zealand) Staff Superannuation Scheme1
National Bank Staff Superannuation Fund3
Other4, 5

36
1,134
15
6
168
7

35
967
–
6
163
5

(1)
(167)
(15)
–
(5)
(2)

Total

1,366

1,176

(190)

* Determined in accordance with AAS 25 ‘Financial Reporting by Superannuation Plans’, which prescribes a different measurement date and basis to those applied in this financial report under
AASB 119 ‘Employee Benefits’. Under AASB 119 the discount rates used are based on prevailing government and corporate bond rates at the reporting date (30 September 2007), rather than the
expected return on scheme assets as at the most recent actuarial valuation date, set out below, as prescribed by AAS 25.
1
2
3
4
5

Amounts were measured at 31 December 2004.
Amounts were measured at 31 December 2006.
Amounts were measured at 31 March 2007.
Amounts were measured at 30 September 2007.
Other includes the defined benefit arrangements in Japan, Philippines and Taiwan.

Excess/(deficit)
of netmarket valueof assets overaccrued benefits$m2006 Schemes

Accruedbenefits*$m

Net market
value ofassets heldby scheme$m

ANZ Australian Staff Superannuation Scheme Pension Section2
ANZ UK Staff Pension Scheme2
ANZ UK Health Benefits Scheme4
ANZ Group (New Zealand) Staff Superannuation Scheme1
National Bank Staff Superannuation Fund3
Other 4, 5

39
1,249
13
6
170
7

35
997
–
6
166
5

(4)
(252)
(13)
–
(4)
(2)

Total

1,484

1,209

(275)

* Determined in accordance with AAS 25 ‘Financial Reporting by Superannuation Plans’, which prescribes a different measurement date and basis to those applied in this financial report under
AASB 119 ‘Employee Benefits’. Under AASB 119 the discount rates used are based on prevailing government and corporate bond rates at the reporting date (30 September 2006), rather than the
expected return on scheme assets as at the most recent actuarial valuation date, set out below, as prescribed by AAS 25.
1
2
3
4
5

Amounts were measured at 31 December 2004.
Amounts were measured at 31 December 2005.
Amounts were measured at 31 March 2006.
Amounts were measured at 30 September 2006.
Other includes the defined benefit arrangements in Japan, Philippines and Taiwan.

Employer contributions to the defined benefit schemes are based on recommendations by the schemes’ actuaries. Funding recommendations
are made by the actuaries based on assumptions of 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 the benefit entitlements of
employees are fully funded by the time they become payable.
The Group expects to make contributions of $41 million to the defined benefit sections of the schemes during the next financial year.

144 ANZ Annual Report 2007

NOTES TO THE FINA NCIAL STATEMENTS
46: Superannuation and Other Post Employment Benefit Schemes (continued)
The current contribution recommendations for the major defined sections of the schemes are described below.

ANZ Australian Staff Superannuation Scheme Pension Section
The Pension Section of the ANZ Australian Staff Superannuation Scheme is closed to new members. A full actuarial valuation, conducted byconsulting actuaries Russell Employee Benefits as at 31 December 2004 showed a deficit of $5 million and the actuary recommended thatGroup contributions to the Pension Section remain suspended. An interim actuarial valuation conducted as at 31 December 2006 showed a
deficit of $1 million and the expectation is that this deficit has remained materially unchanged since that date. The next full actuarial valuationis due to be conducted as at 31 December 2007, at which time the funding position will be reassessed.
The following economic assumptions were used in formulating the actuary’s funding recommendations:
Rate of investment return
Pension indexation rate

8% p.a.
3% p.a.

The Group has no present liability under the Scheme’s Trust Deed to commence contributions or fund the deficit.

ANZ UK Staff Pension Scheme
A full actuarial valuation, conducted by consulting actuaries Watson Wyatt LLP, as at 31 December 2005 showed a deficit of GBP 100 million($230 million at 30 September 2007 exchange rates).
Following the actuarial valuation as at 31 December 2005, the Group agreed to make regular contributions at the rate of 26% of pensionablesalaries. These contributions are sufficient to cover the cost of accruing benefits. To address the deficit, the Group also agreed to pay additional
quarterly contributions of GBP 3.5 million until 31 December 2015. These contributions will be reviewed at the next actuarial valuation which isscheduled to be undertaken as at 31 December 2007.
The following economic assumptions were used in formulating the actuary’s funding recommendations:
Rate of investment return on existing assets
Rate of investment return for determining ongoing contributions
Salary increases
Pension increases

5.1% p.a.
6.8% p.a.
4.8% p.a.
3.0% p.a.

The Group has no present liability under the Scheme’s Trust Deed to fund the deficit measured under AAS 25. A contingent liability may arise
if the Scheme was wound up. If this were to happen, the Trustee would be able to pursue the Group for additional contributions under the UK
Employer Debt Regulations. The Group intends to continue the Scheme on an on-going basis.
On adoption of AIFRS, a net liability representing the defined benefit obligation calculated under AASB 119 was recognised on the balance
sheet. The basis of calculation under AASB 119 is detailed in note 1(xx), and on page 144.

National Bank Staff Superannuation FundA full actuarial valuation of the National Bank Staff Superannuation Fund, conducted by consulting actuaries AON Consulting NZ, as at 31 March
2006 showed a deficit of NZD6 million ($5 million at 30 September 2007 exchange rates). The actuary recommended that the Group makecontributions of 24.8% of salaries in respect of members of the defined benefit section.
The following economic assumptions were used in formulating the actuary’s funding recommendations:
Rate of investment return (net of income tax)
Salary increases
Pension increases

5.5% p.a.
3.0% p.a.
2.5% p.a.

The Group has no present liability under the Scheme’s Trust Deed to fund the deficit measured under AAS 25. A contingent liability may arise if
the Scheme 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 Scheme
an amount sufficient to ensure members do not suffer a reduction in benefits to which they would otherwise be entitled. The Group intends tocontinue the Scheme on an on-going basis.
On adoption of AIFRS, a net asset representing the defined benefit surplus calculated under AASB 119 was recognised on the balance sheet.
The basis of calculation under AASB 119 is detailed in note 1(xx), and on page 144.

Financial Report 145

NOTES TO THE FINA NCIAL STATEMENTS
46: Superannuation and Other Post Employment Benefit Schemes (continued)
The following tables summarise the components of the expense recognised in the income statement and the amounts recognised in thebalance sheet under AASB 119 for the defined benefit sections of the schemes:
Consolidated

The Company

2007
$m

2006
$m

2007
$m

2006
$m

Amount recognised in income in respect of defined benefit schemes
Current service cost
Interest cost
Expected return on assets
Past service cost
Adjustment for contributions tax

14
71
(77)
1
2

12
64
(70)
3
2

11
61
(67)
1
–

9
55
(61)
3
–

Total included in personnel expenses (refer note 4)

11

11

6

6

(1,267)
1,199(1,462)
1,238(1,112)
1,037(1,296)
1,067

Present value of net obligation

(68)

(224)

(75)

(229)

Amounts recognised in the balance sheet
Other assets (refer note 21)
Payables and other liabilities (refer note 26)

7
(75)

5
(229)

–
(75)

–
(229)

Present value of net obligation

(68)

(224)

(75)

(229)

Amounts recognised in equity in respect of defined benefit schemes
Actuarial (gains)/losses incurred during the year and recognised directly in retained earnings
Cumulative actuarial (gains)/losses recognised directly in retained earnings

(107)
(64)

78
43

(104)
(56)

77
48

Amounts included in the balance sheet in respect of its defined benefit schemes
Present value of funded defined benefit obligation
Fair value of scheme assets

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. For more information about the Group’s legal liability to funddeficits, refer to the earlier description of the current contribution recommendations for the schemes.
Movements in the present value of the defined benefit obligation in the relevant period
Opening defined benefit obligation
Current service cost
Interest cost
Contributions from scheme participants
Actuarial (gains)/losses
Past service cost
Exchange differences on foreign schemes
Benefits paid

1,462
14
72
1
(101)
1
(111)
(71)

1,246
12
64
1
126
3
84
(74)

1,296
11
62
–
(92)
1
(108)
(58)

1,076
9
55
–
121
3
89
(57)

Closing defined benefit obligation

1,267

1,462

1,112

1,296

Movements in the fair value of scheme assets in the relevant period
Opening fair value of scheme assets
Expected return on scheme assets
Actuarial gains/(losses)
Exchange differences on foreign schemes
Contributions from the employer
Contributions from scheme participants
Benefits paid

1,238
77
6
(92)
40
1
(71)

1,099
70
48
70
24
1
(74)

1,067
67
12
(89)
38
–
(58)

922
61
44
77
20
–
(57)

Closing fair value of scheme assets1

1,199

1,238

1,037

1,067

82

118

79

105

Actual return on scheme assets

1 Scheme assets include the following financial instruments issued by the Group: Cash and short term debt instruments $4.8 million (September 2006: $2.5 million), fixed interest securities$1.0 million ( September 2006: $5.7 million) and equities $0.2 million (September 2006: $0.6 million).

146 ANZ Annual Report 2007

NOTES TO THE FINA NCIAL STATEMENTS
46: Superannuation and Other Post Employment Benefit Schemes (continued)
Consolidated

The Company

Fair value of scheme
assetsFair value of scheme
assets

2007
%

2006
%

2007
%

2006
%

Analysis of the scheme assets
Equities
Debt securities
Property
Other

48
33
13
6

50
33
14
3

48
30
15
7

51
30
16
3

Total assets

100

100

100

100

2007
%

2006
%

6.25
5.90
6.00
6.50
6.50

5.50
5.00
5.10
6.00
6.00

8.50
7.00
n/a
4.50
5.50

7.50
6.50
n/a
4.50
5.50

5.15
3.00

4.75
3.00

3.00
3.35
2.50
2.50

3.00
2.95
2.50
2.50

10.00

7.30

5.50

4.50

Key actuarial assumptions used (expressed as weighted averages)
Discount rate
ANZ Australian Staff Superannuation Scheme – Pension Section
ANZ UK Staff Pension Scheme
ANZ UK Health Benefits Scheme
ANZ Group (New Zealand) Staff Superannuation Scheme
National Bank Staff Superannuation Fund
Expected rate of return on scheme assets
ANZ Australian Staff Superannuation Scheme – Pension Section
ANZ UK Staff Pension Scheme
ANZ UK Health Benefits Scheme
ANZ Group (New Zealand) Staff Superannuation Scheme
National Bank Staff Superannuation Fund
Future salary increases
ANZ UK Staff Pension Scheme
National Bank Staff Superannuation Fund
Future pension increases
ANZ Australian Staff Superannuation Scheme – Pension Section
ANZ UK Staff Pension Scheme
ANZ Group (New Zealand) Staff Superannuation Scheme
National Bank Staff Superannuation Fund
Future medical cost trend – short term
ANZ UK Health Benefits Scheme
Future medical cost trend – long term
ANZ UK Health Benefits Scheme

To determine the expected returns of each of the asset classes held by the relevant scheme, the directors assessed historical return trends andmarket expectations for the asset classes. The overall expected rate of return on assets for each scheme is determined as the weighted averageof the expected returns for the asset classes.
Assumed medical cost trend rates do not have a material effect on the amounts recognised as income or included in the balance sheet.
Consolidated

History of experience adjustments
Defined benefit obligation
Fair value of scheme assets
Surplus/(deficit)
Experience adjustments on scheme liabilities
Experience adjustments on scheme assets

The Company

2007
$m

2006
$m

2007
$m

2006
$m

(1,267)
1,199(1,462)
1,238(1,112)
1,037(1,296)
1,067

(68)
9
6

(224)
7
48

(75)
10
12

(229)
5
44

Financial Report 147

NOTES TO THE FINA NCIAL STATEMENTS
47: Employee Share and Option Plans
ANZ operates a number of employee shareand option schemes which operate underthe ANZ Employee Share Acquisition Plan
and the ANZ Share Option Plan.
ANZ EMPLOYEE SHARE ACQUISITION PLAN
ANZ Employee Share Acquisition Plan (ESAP)
schemes that existed during the 2006
and 2007 financial years were the $1,000
Share Plan, the Restricted Share Plan, theDeferred Share Plan, the Performance SharePlan and the Employee Share Save Scheme(ESSS). Note the ESSS is an employee
salary sacrifice plan and is not captured as
an expense in the share based payment
expense model.

$1,000 share plan
Each permanent employee (excluding senior
executives) who has had continuous service
for one year is eligible to participate in the$1,000 scheme enabling the grant of up
to $1,000 of ANZ shares in each financial
year, subject to ANZ’s performance and theapproval of the Board. At a date approvedby the Board, the shares will be granted
to all eligible employees using the 1 week
weighted average price of ANZ shares tradedon the ASX in the week leading up to andincluding the date of grant.
In Australia and most overseas locations,shares are granted to eligible employees
for nil consideration and vest immediately
when granted, as there is no forfeitureprovision. It is a requirement, however,that shares are held in trust for three years
from the date of grant, after which timethey may remain in trust, be transferred tothe employee’s name or sold. In general,dividends received on the shares areautomatically reinvested into the Dividend
Reinvestment Plan.
Shares granted to eligible New Zealandemployees 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. At the time of transfer,
employees are required to pay NZD
1 cent per share. Shares may be forfeitedin the event of dismissal for serious
misconduct or resignation. Dividends arereceived as cash.
During the 2007 year, 901,374 shareswith an issue price of $27.97 were granted
under the plan to employees on 4 December
2006. (2006 year: 1,012,008 shares with
an issue price of $23.81 were granted on
5 December 2005). A further 2,958 ANZshares with an issue price of $29.37 where
granted under the plan to ETRADE Australia

148 ANZ Annual Report 2007

Limited employees on 22 June 2007
(following the ANZ acquisition).

Deferred share plan
Selected employees may also be granted
long-term incentive (LTI) deferred shares
which vest to the employee up to three
years from the date of grant. Ordinary
shares granted under this LTI plan may beheld in trust beyond the deferral period.
Unvested LTI deferred shares are forfeitedon resignation, dismissal for serious
misconduct or termination on notice. In
the event of death or total and permanent
disablement, all shares will be released tothe employee in full.
Short-term incentive (STI) three year deferredshares were granted under a historical
ANZ STI program, and may be held in trust
beyond the deferral period. The last grant of
three year STI deferred shares was made on
11 May 2004 (with the vesting date being
11 May 2007). There were no 3 year STI
deferred share grants in the 2006 or 2007
financial years. STI deferred shares with a
two year deferral period are still granted
under a business unit specific incentive
plan (primarily as a retention tool), and may
be held in trust beyond the deferral period.
Unvested STI deferred shares are only
forfeited on resignation or dismissal
for serious misconduct.

Restricted share plan
Management level employees and eligible
non-management employees may elect a
pre-tax sacrifice of part or all of their annual
cash bonus for ANZ shares. The shares are
subject to a 12 month restriction period,
however, they may be left in trust beyond
the restriction period. The shares are
subject to forfeiture on dismissal for serious
misconduct. The shares are released tothe employee on termination for any otherreason. The employee receives all dividends
on these restricted shares (cash or dividend
reinvestment plan). The issue price is basedon the volume weighted average price ofthe shares traded on the ASX on the weekleading up to and including the dateof grant.
During the 2007 year, 339,269 shareswith an issue price of $29.04 were granted
under the Restricted Share Plan (2006year: 401,575 shares with an issue priceof $23.49 were granted).

Performance share plan
Performance shares are essentially LTI
deferred shares with a performance hurdle.
They were granted to i) a small number of US
based employees on 7 November 2005 toaccommodate local taxation laws, and ii) to
J McFarlane on 31 December 2004 (as per
his employment contract).

In exceptional circumstances, sign-on twoor three year deferred shares are granted
to certain employees upon commencementwith ANZ to compensate for equity foregone
from their previous employer. Retention
three year deferred shares may also be
granted occasionally to high performing
employees who are regarded as a significant
retention risk to ANZ. Sign-on andretention deferred shares will be forfeitedon resignation, dismissal for serious
misconduct or termination on notice. In
the event of death or total and permanent
disablement, all shares will be released tothe employee in full.

Based on the conditions of grant, theproportion of performance shares that vest
will depend upon the total shareholder
return (TSR) achieved by ANZ relative to
a comparator group of major financial
services companies. Performance equal tothe median TSR of the comparator groupwill result in half the performance shares
vesting. Vesting will increase on a straightline basis until all of the performance shares
vest where ANZ TSR is at or above the 75th
percentile of TSRs in the comparator group.
Where ANZ’s performance falls between twoof the comparators, TSR is measured on a
pro-rata basis.

The employee receives all dividends ondeferred shares while held in trust (cash or
dividend reinvestment plan). The issue pricefor deferred shares is based on the volume
weighted average price of the shares tradedon the ASX in the week leading up to andincluding the date of grant.

J McFarlane (who ceased as CEO of ANZ on
30 September 2007), was granted 175,000
Performance Shares on 31 December
2004, with no dividends payable on theshares until vesting. In accordance withthe terms of the grant, the Performance
Shares were restricted for two years fromthe date of grant, with vesting subject
to the achievement of the performance
hurdle. Performance against the hurdle
was tested monthly (from 31 December2006) in accordance with the terms of the
grant. The issue price was $15.02. ANZ
agreed to acquire J MCFarlane’s interest

During the 2007 year, 1,275,132 deferredshares with a weighted average grant priceof $29.13 were granted under the deferredshare plan (2006 year: 269,032 shares witha weighted average grant price of $23.68
were granted).

NOTES TO THE FINA NCIAL STATEMENTS
47: Employee Share and Option Plans (continued)
in the 175,000 Performance Shares on
his departure. Refer to page 23 of theRemuneration Report for further details.

Share valuations
The fair value of shares granted in the2007 year under the $1,000 share plan,
the Deferred Share Plan and the Restricted
Share Plan, measured as at the date of grantof the shares, is $72.7 million based on
2,518,733 shares at a weighted average
price of $28.88 (2006 year: fair value ofshares granted is $40 million based on
1,682,615 shares at a weighted average
price of $23.66). The volume weighted
average share price of all ANZ shares soldon the Australian Securities Exchangeon the date of grant is used to calculate
the fair value of shares. No dividends areincorporated into the measurement of thefair value of shares.
ANZ SHARE OPTION PLAN
Selected employees may be granted
options/rights, which entitle them topurchase ordinary fully paid shares in ANZ
at a price fixed at the time the options/rights are granted (with the exception ofindex-linked options). Voting and dividend
rights will be attached to the unissued
ordinary shares when the options/rights
have been exercised. Each option/rightentitles the holder to one ordinary sharesubject to the terms and conditions imposedon grant. The exercise price of the options,determined in accordance with the rulesof the plan, is generally based on theweighted average price of the shares tradedin the week leading up to and including thedate of grant. For zero priced options andperformance rights, the exercise price isnil. Index-linked options have a dynamic
exercise price that is adjusted in line withthe movement in the S&P/ASX 200 Banks(Industry Group) Accumulation Index(excluding ANZ).

performance hurdle. The proportion of LTI
performance rights that become exercisable
will depend upon the TSR achieved by ANZ
relative to a comparator group of major
financial services companies, measured
over the same period (since grant) andcalculated at the third anniversary of grant.
Performance equal to the median TSR of
the comparator group will result in half theperformance rights becoming exercisable.
Vesting will increase on a straight-line basis
until all of the performance rights become
exercisable where ANZ TSR is at or above the75th percentile of TSRs in the comparatorgroup. Where ANZ’s performance falls
between two of the comparators, TSR
is measured on a pro-rata basis. The
performance hurdle will only be tested onceat the end of the three year vesting period.
If the performance rights do not pass thehurdle on the testing date, or they are notexercised by the end of the exercise period(5 years from the date of grant), they will
lapse. In the case of dismissal for serious
misconduct, all unexercised performancerights will be forfeited. In the case of
resignation or termination on notice, only
performance rights that become exercisable(and pass the performance hurdle) by theend of the notice period may be exercised.
In the case of death or total and permanent
disablement, all performance rights areavailable for exercise (with the performance
hurdle waived).

ANZ Share Option Plan schemes expensed
in the 2006 and 2007 years are as follows:

Deferred share rights(No performance hurdles)
Deferred share rights are granted insteadof deferred shares to accommodate offshore taxation implications. They provide
the right to acquire ANZ shares at nil cost
after a specified vesting period. In the caseof resignation, only rights that become
exercisable by the end of the notice period
may be exercised. All other rights will lapse.
In the case of termination on notice, deathor total and permanent disablement, allrights will be available for exercise. The fairvalue of rights is adjusted for the absence ofdividends during the restriction period.

Current Option Plans

Legacy Option Plans

Performance rights plan
Performance rights are granted to certain
employees as part of ANZ’s long-term
incentive (LTI) program. The first grant of
performance rights was in November 2005,
and provides the right to acquire ANZ sharesat nil cost, subject to a three-year vesting
period and a Total Shareholder Return (TSR)

The following legacy plans are no longer
being offered to Group employees, but were
expensed during the 2006 and 2007 years.

Performance option plan
(No performance hurdle applies)
Performance options were granted to certain
employees (below executive levels) as partof a historical LTI program. Performance
options are no longer part of ANZ’s current
equity strategy, with 7 November 2005
being the last grant of performance options.
The options can only be exercised after athree-year vesting period and before theseventh anniversary of the grant date. There
are no performance conditions attachedto these options as they were primarily
granted as a retention tool. All unexercised
options are forfeited on dismissal for serious
misconduct, resignation and termination
on notice. On death or total and permanent
disablement, all unvested options will
become available for exercise.
Zero-priced options (ZPOs)A ZPO is a right to acquire an ANZ shareat nil cost. ZPOs were granted to Sir John
Anderson (former CEO of ANZ National
Bank Limited NZ) as part of his employment
contract, with the last grant occuring on
7th November 2005. The ZPOs had no time
based vesting criteria, so were able to
be exercised at any time during his
employment and within six months oftermination of his employment.
Deferred share rights(No performance hurdle)
Special deferred share rights were granted toa small number of New Zealand employees
in December 2004. They provide the rightto acquire ANZ shares at nil cost after athree year vesting period. Rights must be
exercised by the seventh anniversary of
the grant date. They may be forfeited at
the Company’s discretion if the employee
ceases employment for any reason. The fairvalue of rights is adjusted for the absenceof dividends during the restriction period.
Hurdled options
Hurdled options were granted to certain
employees as part of a historical LTI
program. The options can only be exercised
subject to the satisfaction of time andperformance based hurdles. Options may
be exercised during the four year period
commencing three years, and ending sevenyears after the grant date, subject to meeting
the relevant performance hurdle. The
performance hurdle will be measured during
the exercise period by comparing ANZ’s Total
Shareholder Return (ANZ’s TSR) against thecomparator group relevant to the hurdled
option grant.

Financial Report 149

NOTES TO THE FINA NCIAL STATEMENTS
47: Employee Share and Option Plans (continued)
Hurdled options granted in November
2004 will be tested against a comparatorgroup consisting of major financial services
companies, excluding ANZ. The options
become exercisable depending on ANZ’sranking within the comparator group. ANZ
must rank at the 50th percentile for 50%of the options to become exercisable. For
each 1% increase above the 50th percentile
an additional 2% of options will become
exercisable, with 100% being exercisable
where ANZ ranks at or above the 75th
percentile. This will be calculated as at thelast trading day of any month (once theexercise period has commenced).
Other hurdled option grants will bemeasured against the S&P/ASX 200 Banks
Accumulation Index, and the S&P/ASX 100
Accumulation Index. Half the options may
only be exercised once ANZ’s TSR exceeds
the percentage change in the S&P/ASX 200
Banks (Industry Group) Accumulation Index,
measured over the same period (since grant)
and calculated as at the last trading day ofany month (once the exercise period hascommenced); and the other half of hurdled
options may only be exercised once the
ANZ TSR exceeds the percentage change
in the S&P/ASX 100 Accumulation Index,
measured over the same period (since grant)
and calculated as at the last trading day ofany month (once the exercise period hascommenced). The forfeiture provisions are
the same as the performance option plan.
Index linked options
Index linked options have a dynamic
exercise price that acts as a built-in
performance hurdle, i.e. the exercise priceis adjusted in line with the movement in
the S&P/ASX 200 Banks (Industry Group)
Accumulation Index (excluding ANZ) since
the grant date. As an additional constraint,
the adjusted exercise price can only be set
at or above the original exercise price. Index
linked options are exercisable between the
3rd and 7th year after grant date, subject
to the adjusted exercise price being above
the prevailing share price. Unexercised
options are forfeited on dismissal for serious
misconduct, resignation and termination
on notice. On death or total and permanent
disablement, entitlements to options will be
pro-rated over the three-year vesting period.

150 ANZ Annual Report 2007

CEO options
Options were granted to J McFarlane (whoceased as CEO of ANZ on 30 September2007) as per his employment contract
and were approved by shareholders at theDecember 1999 and December 2001 Annual
General Meetings.
Of the options granted to J McFarlane, only
the 31 December 2002, 2003 and 2004
grants were expensed during the 2006 and2007 financial years. These option grants
may be exercised subject to the following:
one half of the options may be exercised
only if the ANZ TSR calculated over theperiod commencing on the date of grantand ending on the last day of any monthafter the second anniversary of the date of
grant, exceeds the percentage change in
the S&P/ASX 200 Banks (Industry Group)
Accumulation Index over that same period;
and the other half of the options may be
exercised only if the ANZ TSR calculated over
the relevant period exceeds the percentagechange in the S&P/ASX 100 Accumulation
Index over that same period. J McFarlane
has exercised all his vested options. Referto the Remuneration Report on page 23 forfurther details.

NOTES TO THE FINA NCIAL STATEMENTS
47: Employee Share and Option Plans (continued)
Option Movements
Details of options over unissued ANZ shares and their related weighted average exercise prices as at the beginning and end of the 2007
financial year and movements during the 2007 financial year are set out below:

Weighted Average Exercise Price

Opening Balance
1 October 2006

Options Granted

Options Forfeited1

Options
ExpiredOptions Exercised

Closing Balance
30 September 2007

29,400,706

1,431,170

1,122,241

155,670

7,860,610

21,693,355$17.18-$16.55$17.32$16.77$16.23

The weighted average share price during the year ended 30 September 2007 was $28.99 (2006: $25.25).
The weighted average remaining contractual life of share options outstanding at 30 September 2007 was 3.0 years (2006: 3.7 years).
The weighted average exercise price of all exercisable share options outstanding at 30 September 2007 was $16.79 (2006: $15.49).
A total of 8,876,289 exercisable share options were outstanding at 30 September 2007 (2006: 7,357,614).
Details of options over unissued ANZ shares and their related weighted average exercise prices as at the beginning and end of the 2006
financial year and movements during the 2006 financial year are set out below:
Opening Balance
1 October 2005

TOTALS
Weighted Average Exercise Price

Options Granted

Options Forfeited1

Options
Expired1

Options Exercised

Closing Balance
30 September 2006

33,447,778

4,551,276

1,943,530-

6,654,818

29,400,706$17.35$15.00$17.39-$16.45$17.18

1 Numbers in the “Options Forfeited” column includes any options which may have expired due to a termination of employment whereby the employee was offered a grace period in which toexercise. The number of options to expire under these circumstances is immaterial.

Financial Report 151

NOTES TO THE FINA NCIAL STATEMENTS
47: Employee Share and Option Plans (continued)
The following options over ordinary shares have been granted since the end of the 2007 financial year up to the signing of the Directors’ Reporton 7 November 2007.
Grant date

Performance rights

30/10/2007

Exercise price$0.00

Earliest exercise date30/10/2010

Expiry date30/10/2012

Options granted

940,886

Total

Details of shares issued as a result of the exercise of options during the year ended 30 September 2007 are as follows:
Exercise price
$

$0.00
$9.39
$11.09$12.03$13.62$13.91$13.91$14.20$12.98$12.98$12.98$14.61$15.77$16.09$16.33$16.33

No. of shares issued

22,54920,00057,00010,000126,804
213,175
148,000
648,432
85,200344,573
6,200
49,55076,00016,00091,700480,655

Proceeds received$

Exercise price$–
187,800
632,130
120,300
1,727,070
2,965,264
2,058,680
9,207,734
1,105,896
4,472,558
80,476
723,926
1,198,520
257,440
1,497,461
7,849,096

16.33
18.03
18.03
18.03
18.55
17.34
16.69
17.60
17.55
17.55
18.22
18.22
20.68
20.68
20.49
23.49

No. of shares issued

50,000522,283
172,600
175,000
34,575422,365
500,000
552,245
968,518
620,868
646,321387,732
102,828
49,319250,000
10,118Proceeds received$

816,500
9,416,762
3,111,9783,155,250
641,366
7,323,809
8,345,000
9,719,512
16,997,491
10,896,233
11,775,969
7,064,477
2,126,483
1,019,917
5,122,500
237,672

Details of shares issued as a result of the exercise of options during the year ended 30 September 2006 are as follows:
Exercise price
$

0.00
9.39
11.09
12.03
12.98
12.98
12.98
13.62
13.91
13.91
14.20
14.61
16.09
16.33
16.33
16.69

No. of shares issued

9,961
102,000
28,50012,50049,500286,725
5,150
101,000
185,825
108,500
568,869
59,9505,000
140,000
485,949
500,000

Proceeds received$

Exercise price$–957,780
316,065
150,375
642,510
3,721,691
66,847
1,375,620
2,584,826
1,509,235
8,077,940
875,870
80,4502,286,200
7,935,547
8,345,000

16.80
17.34
17.48
17.55
17.55
17.60
18.03
18.03
18.03
18.12
18.22
18.22
18.55
18.55
20.68
20.68

No. of shares issued

500,000
741,736
1,000,000
54,97235,385395,687
650,837
193,200
140,000
8,611
40,87520,884110,000
63,185
22,131
27,886

Proceeds received$

8,400,000
12,861,702
17,480,000
964,759
621,0076,964,091
11,734,591
3,483,396
2,524,200
156,031744,743
380,506
2,040,500
1,172,082
457,669
576,682

Details of shares issued as a result of the exercise of options since the end of the 2007 financial year up to the signing of the Directors’ Reporton 7 November 2007 are as follows:
Exercise price
$

13.62
13.91
13.91
14.20
12.98
12.98
14.61
16.33
18.03

152 ANZ Annual Report 2007

No. of shares issued

18,00024,00020,25070,96037,8131,150
6,500
35,85037,100

Proceeds received$

Exercise price$245,160
333,840
281,678
1,007,632
490,813
14,927
94,965585,431668,913

18.55
17.34
17.60
17.55
18.22
18.22
20.68
20.68
23.49

No. of shares issued

3,000
31,27032,46847,91016,86670,012
4,934
43,748
8,926

Proceeds received$

55,650542,222571,437
840,821307,299
1,275,619
102,035
904,709
209,672

NOTES TO THE FINA NCIAL STATEMENTS
47: Employee Share and Option Plans (continued)
A range of outcomes is possible given the uncertainty and assumptions in relation to option valuation. In determining the fair value below,
we used standard market techniques for valuation including Monte Carlo and/or Black Scholes pricing models. The models take into accountearly exercise, non-transferability and market based performance hurdles.
The significant assumptions used to measure the fair value of instruments granted during the 2007 financial year are contained in the tablebelow.

Option Type

Grant Date
Number of Options
Option Fair Value (A$)
Exercise Price (5 day VWAP)
Share price at date of grant
ANZ expected Volatility1
Option Term
Vesting period
Expected life
Expected Dividend Yield
Risk Free Interest Rate

Deferred Share Rights

Deferred Share Rights

Deferred Share Rights

Deferred Share Rights

Performance Rights

11-July-07
44,431$25.94$0.00$29.6015%
5 years
3 years
3 years
4.50%
6.37%

1-Nov-06
4,060$27.54$0.00$29.5415%
5 years
1.5 year
1.5 year
4.80%
6.11%

1-Nov-06
29,905$25.66$0.00$29.5415%
5 years
3 years
3 years
4.80%
6.02%

1-Nov-06
129,856$26.89$0.00$29.5415%
5 years
2 years
2 years
4.80%
6.11%

24-Oct-06
1,223,018$13.08$0.00$28.1515%
5 years
3 years
4 years
4.80%
6.00%

1 Expected volatility represents a measure of the amount by which ANZ’s share price is expected to fluctuate over the life of the options. The measure of volatility used in the model is theannualised 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 averageannualised volatility is then used to estimate a reasonable expected volatility over the expected life of the options.

The significant assumptions used to measure the fair value of instruments granted during the 2006 financial year are contained in the tablebelow.

Option Type

Grant Date
Number of Options
Option Fair Value (A$)
Exercise Price (5 day VWAP)
Share price at date of grant
ANZ expected Volatility3
Option Term
Vesting period
Expected life
Expected Dividend Yield
Risk Free Interest Rate

Performance Options

Deferred Share Rights

Performance Rights

Zero-priced options

7-Nov-05
2,905,812$3.05$23.49$23.6017%
7 years
3 years
n/a1
5.41%
5.30%

7-Nov-05
10,845$22.48$0.00$23.6015%
7 years
1 year
1 year5.00%
5.54%

18-Nov-05
1,624,6582$11.64$0.00$24.0515%
5 years
3 years
4 years
5.00%
5.31%

7-Nov-05
9,961$23.57$0.00$23.60n/a
1 yearImmediate
n/a
n/a
n/a

1 To allow maturity/marketability a 10% pa turnover rate (post vesting has been assumed, as well as that option holders will exercise their options if the share price is greater than twice theexercise price.
2 This number includes an additional 59,400 rights allocated in May 2006, with the same terms and conditions as the 18 November 2005 grant.
3 Expected volatility represents a measure of the amount by which ANZ’s share price is expected to fluctuate over the life of the options. The measure of volatility used in the model is theannualised 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 averageannualised volatility is then used to estimate a reasonable expected volatility over the expected life of the options.

Financial Report 153

NOTES TO THE FINA NCIAL STATEMENTS
48: Key Management Personnel Disclosures
KEY MANAGEMENT PERSONNEL LOAN TRANSACTIONS
Details regarding loans outstanding at the reporting date to directors of the Company and other key management personnel of the Group
including their personally related parties, where the individuals aggregate loan balance exceeded $100,000 at any time in the reporting period,
are as follows:
Opening balance
1 October

Closing balance
30 September

Interest paid andpayable in thereporting period

Highest balancein the reporting
period$$$$Non-executive Directors
2007
J P Morschel
D M Gonski1

705,489
18,342,000

452,374–

60,641
105,497

707,342
18,342,000

2006
J P Morschel
D M Gonski1

716,880
18,342,000

705,489
18,342,000

51,567
1,088,498

716,880
18,342,000

201,686–

243,616

6,017,051

6,264,681

201,686

335,603

25,624,811

2007
R J Edgar
B C Hartzer4
G K Hodges
P R Marriott
S Targett

1,453,114
3,486,967
2,986,598
2,614,674
600,000

560,291
7,093,816
3,672,905
2,824,293
575,000

122,109564,663
251,450
209,619
41,431

2,954,530
11,047,613
3,893,704
2,824,293
619,9022006
R J Edgar
E Funke Kupper4,5
B C Hartzer4
G K Hodges
P R Marriott
S Targett

918,284
680,000
2,703,626
1,019,242––

1,453,114
n/a
3,486,967
2,986,598
2,614,674
600,000

85,329624
209,367
133,617160,485
52,2781,458,129
680,000
3,868,314
3,616,438
2,614,674
600,000

Directors

Executive Director
2007
J McFarlane2,3
2006
J McFarlane2,3

Other key management personnel

1
2
3
4
5

D Gonski resigned effective 30 June 2007.
J McFarlane resigned effective 30 September 2007.
The loan balances largely relate to loans for the purchase of ANZ shares, including the exercise of options.
Interest payments on the loan balances outstanding during the year were reduced as a result of a linked offset account.
E Funke Kupper resigned effective 1 February 2006.

Details regarding the aggregate of loans made, guaranteed or secured by any entity in the Group to each group of directors and other key
management personnel including related parties are as follows:
Opening balance
1 October

Closing balance
30 September

Interest paid andpayable in thereporting period

$

$

$

Directors
2007
2006

19,249,175
25,323,561

452,374
19,249,175

409,754
1,475,668

1
3

Other key management personnel
2007
2006

11,141,353
5,321,152

14,726,305
11,141,353

1,189,272
641,700

5
5

1 Number in the Group includes directors and specified executive with loan balances greater than zero.

154 ANZ Annual Report 2007

Number in group at
30 September1

NOTES TO THE FINA NCIAL STATEMENTS
49: Transactions with Other Related Parties
Joint Venture Entities
During the course of the financial year the Company and the Group conducted transactions with joint venture entities on normal commercial
terms and conditions as shown below:
Consolidated

Amounts receivable from joint venture entities
Interest revenue
Dividend revenue
Commissions received from joint venture entities
Costs recovered from joint venture entities

The Company

2007
$000

2006
$000

2007
$000

2006
$000

230,943
18,922
95,500196,454
9,158

398,714
18,09345,570162,172
11,033

218,688
15,253–
176,848
8,553

301,999
13,607–142,072
9,022

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.

Associates
During the course of the financial year the Company and Group conducted transactions with associates on normal terms and conditions asshown below:
Consolidated

Amounts receivable from associates
Interest revenue
Dividend revenue

The Company

2007
$000

2006
$000

2007
$000

2006
$000

98,072
9,969
8,609

78,4179,070
5,487

50,304
5,634
3,356

37,761
5,973
5,487

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.

Subsidiaries
During the course of the financial year subsidiaries conducted transactions with each other and joint ventures and associates on normal terms
and conditions. They are fully eliminated on consolidation. No outstanding amounts have been written down or recorded as allowances, as they
are considered fully collectible.

50: Exchange Rates
The exchange rates used in the translation of the results and the assets and liabilities of major overseas branches and controlled entities are:
2007

Euro
Great British pound
New Zealand dollar
United States dollar

2006

Closing

Average

Closing

Average

0.62230.4355
1.16430.88160.60720.41031.13300.8084

0.5882
0.3982
1.14550.74760.60710.41501.14330.7468

51: Events Since the End of the Financial Year
There were no significant events from 30 September 2007 to the date of this report.

Financial Report 155

DIRECTORS’ DECLAR ATION

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 have been prepared in accordancewith the Corporations Act 2001, including that they:i) comply with applicable Australian Accounting Standards, (including the Australian Accounting Interpretations) and the Corporations
Regulations 2001; andii) give a true and fair view of the financial position of the Company and of the consolidated entity as at 30 September 2007 and of theirperformance as represented by the results of their operations and their cash flows, for the year ended on that date; andiii) the Annual Report of the consolidated entity complies with International Financial Reporting Standards as disclosed in note 1.
b) in the directors’ opinion, the remuneration disclosures that are contained on pages 14 to 35 of the Remuneration Report comply with
Australian Accounting Standard AASB 124 “Related Party Disclosures” when read in conjunction with the Corporations Act 2001; andc) the directors have received the declarations required by section 295A of the Corporations Act 2001; andd) in the directors’ opinion, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they becomedue and payable; ande) the Company and certain of its wholly owned controlled entities (listed in note 45) have executed a Deed of Cross Guarantee enabling themto 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 inaccordance with the terms of the Deed of Cross Guarantee. At the date of this declaration, there are reasonable grounds to believe that theCompany 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.

Charles Goode
Chairman
7 November 2007

156 ANZ Annual Report 2007

Michael R P Smith
Director

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF
AUSTR ALIA AND NEW ZEALAND BA NKING GROUP LIMITED
We have audited the accompanying financial report of Australia and New Zealand Banking Group Limited (the Company), which comprises thebalance sheets as at 30 September 2007, and the income statements, statements of recognised income and expense and cash flow statements
for the year ended on that date, a summary of significant accounting policies and other explanatory notes 1 to 51 and the directors’ declarationof the Group comprising the Company and the entities it controlled at the year’s end or from time to time during the financial year.
We have also audited the remuneration report contained in pages 14 to 35 of the directors’ report. As permitted by the Corporations
Regulations 2001, the company has disclosed information about the remuneration of directors and, including those required by Australian
Accounting Standard AASB 124 Related Party Disclosures, under the heading “remuneration report” in pages 14 to 35 of the directors’ reportand not in the financial report.
DIRECTORS’ RESPONSIBILITY FOR THE FINANCIAL REPORT AND THE AASB 124 DISCLOSURES CONTAINED IN THE DIRECTORS’ REPORTThe directors of the Company are responsible for the preparation and fair presentation of the financial report in accordance with Australian
Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001. This responsibility includes
establishing and maintaining internal controls relevant to the preparation and fair presentation of the financial report that is free from material
misstatement, whether due to fraud or error, selecting and applying appropriate accounting policies, and making accounting estimates that arereasonable in the circumstances. In note 1, the directors also state, in accordance with Australian Accounting Standard AASB 101 Presentationof Financial Statements, that the financial report of the Group, comprising the financial statements and notes, complies with International
Financial Reporting Standards but that the financial report of the Company does not comply.
The directors of the company are also responsible for the remuneration report contained in the directors’ report.
AUDITOR’S RESPONSIBILITY
Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian
Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements andplan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. Our responsibility
is also to express an opinion on the remuneration report contained in the directors’ report based on our audit.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report and the
remuneration disclosures contained in the directors’ report. The procedures selected depend on the auditor’s judgement, including theassessment of the risks of material misstatement of the financial report and the remuneration report contained in the directors’ report, whether
due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the entity’s preparation and fairpresentation of the financial report and the remuneration report contained in the directors’ report in order to design audit procedures that areappropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal controls. An
audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the
directors, as well as evaluating the overall presentation of the financial report and the remuneration report contained in the directors’ 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 (including the Australian Accounting Interpretations), a view which is consistent with ourunderstanding of the Company’s and the Group’s financial position and of their performance and whether the remuneration report is inaccordance with Australian Accounting Standard AASB 124.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
AUDITOR’S OPINION ON THE FINANCIAL REPORT
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 2007 and of their performancefor the year ended on that date; and(ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations
Regulations 2001.
(b) the financial report of the Group also complies with International Financial Reporting Standards as disclosed in note 1 but the financial
report of the Company does not comply.
AUDITOR’S OPINION ON THE REMUNERATION REPORT CONTAINED IN THE DIRECTORS’ REPORT
In our opinion the remuneration report on pages 14 to 35 of the directors’ report complies with Australian Accounting Standard AASB 124
Related Party Disclosures.

KPMG
Melbourne, Australia
7 November 2007

Michelle Hinchliffe
Partner

Financial Report 157

FINANCIAL INFORMATION
1: Cross Border Outstandings
Cross border outstandings of the Group to countries which individually represented in excess of 0.75% of the Group’s total assets are shown
below.
There were no cross border outstandings to any other country exceeding 0.75% of total assets.
Cross border foreign outstandings are based on the country of domicile of the borrower or guarantor of the ultimate risk and comprise loans(including accrued interest), placements with banks, acceptances and other monetary assets denominated in currencies other than the
borrower’s local currency.
For certain countries, local currency obligations are also included. Cross border foreign outstandings are before individual and collective
provisions.
Governments
and other
official
institutions
$m

Banks
and otherfinancial
institutions
$m

Other
commercial
and industrial
$m

Total
$m

% of
Group’sassetsAt 30 September 2007
USA
United Kingdom
China

1
–
49

3,498
1,942
3,119

1,679
2,392
456

5,178
4,334
3,624

1.3
1.1
0.9

At 30 September 2006
United Kingdom
China
USA

19
4
14

2,231
3,166
2,753

2,685
372
459

4,935
3,542
3,226

1.5
1.1
1.0

2: Certificates of Deposit and Term Deposit Maturities
The following table shows the maturity profile of the Group’s certificates of deposit and term deposits in excess of $100,000 issued at
30 September 2007.

Australia
Certificates of deposit
Term deposits

New ZealandCertificates of deposit
Term deposits

Overseas Markets
Certificates of deposit
Term deposits

Total

158 ANZ Annual Report 2007

Less than
3 months$m

Between
3 months and6 months$m

Between
6 months and
12 months$m

After
1 year
$m

Total
$m

11,45022,740

4,252
2,551

1,886
1,768

6,219
113

23,807
27,172

34,190

6,803

3,654

6,332

50,9793,213
10,615

481
3,539

104
3,374

21
1,446

3,819
18,974

13,828

4,020

3,478

1,467

22,793

3,266
10,018

14
944

937
494

17
65

4,234
11,521

13,284

958

1,431

82

15,75561,302

11,781

8,563

7,881

89,527

FINANCIAL INFORMATION
3: Volume and Rate Analysis
The following table allocates changes in interest income and interest expense between changes in volume and changes in rate for the past two
years. Volume and rate variances have been calculated on the movement in average balances and the change in the interest rates on averageinterest earning assets and average interest bearing liabilities. The variance caused by the change of both volume and rate has been allocatedin proportion to the relationship of the absolute dollar amounts of each change to the total.
2007 over 2006
Change due to
Rate
Other
$m
$m

Total
$m

Volume
$m

31
(44)
47

11
9
27

–
–
–

42
(35)
74

31
–
58

137
19
53

74
11
28

–
–
–

211
30
81

5
–
4

91
–
3

–
–
–

1,372
729
61

902
154
29

74
49
(37)

2006 over 2005
Change due to
Rate
$m

Other
$m

Total
$m

(2)
20
42

–
–
–

29
20
100

302
15
(4)

55
34
38

–
–
–

357
49
34

96
–
7

–
–
–

–
–
–

958
–
11

958
–
11

–
–
–

2,274
883
90

1,243
350
25

564
232
185

–
–
–

1,807
582
210

(36)
72
34

–
–
–

38
121
(3)

108
91
51

99
30
21

–
–
–

207
121
72

–
(409)

–
78

232
–

232
(331)

–
80

–
149

–
–

–
229

2,091

1,487

232

3,810

2,350

1,467

969

4,786

409

(78)

(232)

99

(80)

(149)

–

(229)

2,500

1,409

–

3,909

2,270

1,318

969

4,557

368
160
70

258
114
65

–
–
–

626
274
135

196
52
104

123
128
159

–
–
–

319
180
263

49
(17)
(1)

68
(25)
(5)

–
–
–

117
(42)
(6)

37
(15)
1

30
29
6

–
–
–

67
14
7

436
212
4

279
85
3

–
–
–

715
297
7

220
27
4

99
63
5

–
–
–

319
90
9

156
(7)
40

31
5
11

–
–
–

187
(2)
51

145
15
55

(8)
(1)
85

–
–
–

137
14
140

(54)
19
(333)

53
36
49

–
–
–

(1)
55
(284)

174
(101)
35

20
50
127

–
–
–

194
(51)
162

(21)
(10)

43
7

–
–

22
(3)

(12)
(6)

16
11

–
–

4
5

4
–
4

95
–
3

–
–
–

99
–
7

–
–
–

–
–
–

799
–
10

799
–
10

657
203
11

317
52
1

–
–
–

974
255
12

405
341
–

134
27
3

–
–
–

539
368
3

7
(11)
(7)

44
13
9

–
–
–

51
2
2

48
33
35

(195)
(40)
(16)

–
–
–

(147)
(7)
19

–
38

–
32

(169)
–

(169)
70

(3)
32

186
14

–
–

183
46

1,977

1,643

(169)

3,451

1,822

1,055

809

3,686

(38)

(32)

169

99

(29)

(200)

–

(229)

1,939

1,611

–

3,550

1,793

855

809

3,457

561

(202)

–

359

528

412

160

1,100

Volume$mInterest earning assets
Due from other financial institutions
Australia
New ZealandOverseas Markets
Investments in trading securities and AFS assets
Australia
New ZealandOverseas Markets
Customers’ liability for acceptances
Australia
New ZealandOverseas Markets
Loans and advances
Australia
New ZealandOverseas Markets
Other interest earning assets
Australia
New ZealandOverseas Markets
Intragroup assets
Australia
Overseas Markets
Change in interest income
Intragroup elimination

Interest bearing liabilities
Time deposits
Australia
New ZealandOverseas Markets
Savings deposits
Australia
New ZealandOverseas Markets
Other demand deposits
Australia
New ZealandOverseas Markets
Due to other financial institutions
Australia
New ZealandOverseas Markets
Commercial paper
Australia
New ZealandOverseas Markets
Borrowing Corporation debt
Australia
New Zealand
Liability for acceptances
Australia
New ZealandOverseas Markets
Loan capital, bonds and notes
Australia
New ZealandOverseas Markets
Other interest bearing liabilities
Australia
New ZealandOverseas Markets
Intragroup liabilities
Australia
New Zealand
Change in interest expense
Intragroup elimination
Change in net interest income

Financial Report 159

FINANCIAL INFORMATION
4: Concentrations of Credit Risk
Concentrations of credit risk exist if a number of counterparties are engaged in similar activities and have similar economic characteristics thatwould cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions. Off balance sheettransactions of the Group are substantially with other banks.

Australia
Agriculture, forestry, fishing and mining
Business service
Construction
Entertainment, leisure and tourism
Financial, investment and insurance
Government and official institutions
Lease finance
Manufacturing
Personal2
Real estate – commercial3
Real estate – mortgage4
Retail and wholesale trade
Other

Overseas
Agriculture, forestry, fishing and mining
Business service
Construction
Entertainment, leisure and tourism
Financial, investment and insurance
Government and official institutions
Lease finance
Manufacturing
Personal2
Real estate – commercial3
Real estate – mortgage4
Retail and wholesale trade
Other

Total portfolio
1
2
3
4
5

2007
Individual5
provision1
for credit
Loans and
impairment
advances
$m
$m

2006
Individual5
provision
1
Loans andfor credit
impairment
advances
$m
$m

7,618
5,488
4,215
4,357
8,148
67
1,813
7,259
18,377
13,718112,279
11,293
10,216

12
7
3
6
3
–
9
54
41
3
27
21
18

7,079
4,882
3,757
4,408
4,795
52
2,378
7,050
15,57910,229100,362
10,106
9,923

15
13
4
5
2
–
12
59
28
2
19
31
23

204,848204

180,600

213

13,280
1,450
723
1,330
2,682
866
401
6,105
3,167
6,805
41,431
3,796
5,964

6
1
1
2
10
–
1
9
14
1
–
2
9

11,898
836
627
1,437
3,109
893
600
4,553
3,692
6,573
36,647
2,677
5,589

3
–
–
–
8
–
–
26
21
–
2
–
6

88,00056

79,131

66

292,848260

259,731279

Loans and advances exclude acceptances.
Personal includes consumer lending except for lease finance facilities and those facilities secured by a mortgage.
Real estate commercial includes all business lending relating to commercial property.
Real estate mortgage includes all consumer lending secured by a mortgage.
Individual provision for credit impairment above relates to on balance sheet exposures. Individual provisions in respect of off balance sheet facilities were $42 million in 2007 and$7 million in 2006.

160 ANZ Annual Report 2007

FINANCIAL INFORMATION
5: Provisions for Credit Impairment – Industry Analysis
2007
$m

2006
$m

Australia
Agriculture, forestry, fishing and mining
Business service
Construction
Entertainment, leisure and tourism
Financial, investment and insurance
Lease finance
Manufacturing
Personal1
Real estate – commercial2
Real estate – mortgage3
Retail and wholesale trade
Other
New ZealandOverseas

(51)
(17)
(6)
(3)
(2)
(4)
(11)
(337)
(1)
(11)
(22)
(13)
(75)
(31)

(1)
(10)
(5)
(3)
–
(1)
(11)
(264)
(1)
(5)
(10)
(20)
(68)
(22)

Total write-offs

(584)

(421)

Australia
Agriculture, forestry, fishing and mining
Business service
Construction
Entertainment, leisure and tourism
Lease finance
Manufacturing
Personal1
Real estate – commercial2
Retail and wholesale trade
Other
New ZealandOverseas

1
1
1
3
1
1
65
–
53
3
17
5

3
–
–
–
–
6
53
1
12
16
19
17

Total recoveries

151

127

Net write-offs

(433)

(294)

Ratio of net write-offs to average loans and acceptances

0.1%

0.1%

i) Total write-offs by industryii) Total recoveries by industry

1 Personal includes all consumer lending except for lease finance facilities and those facilities secured by a mortgage.
2 Real estate – commercial includes all business lending relating to commercial property.
3 Real estate – mortgage includes all consumer lending secured by a mortgage.

Financial Report 161

FINANCIAL INFORMATION
6: Short Term Borrowings
The Group’s short-term borrowings comprise commercial paper, as well as unsecured notes issued by subsidiary borrowing corporations withan original term to maturity of less than one year. The Group has commercial paper programs in the United States, Europe and Asia where it
issues paper directly to investors. Prior to 27 November 2006, the Group issued commercial paper in the United States through ANZ(Delaware) Inc.

Balance at end of year
Commercial paper – ANZ (Delaware) Inc.
Commercial paper – other
Weighted average interest rate at end of year
Commercial paper – ANZ (Delaware) Inc.
Commercial paper – otherMaximum amount outstanding at any month end during year
Commercial paper – ANZ (Delaware) Inc.
Commercial paper – otherAverage amount outstanding during year
Commercial paper – ANZ (Delaware) Inc.
Commercial paper – other
Weighted average interest rate during year
Commercial paper – ANZ (Delaware) Inc.
Commercial paper – other

2007
$m

2006
$m

–
16,914

6,630
14,120

–
6.93%

5.35%
6.16%

4,711
19,431

7,528
19,018926
16,547

7,373
17,173

5.30%
7.01%

4.51%
6.43%

7: Capital Management
APRA adopts a risk-based capital assessment framework for Australian banks based on internationally accepted capital measurement
standards. This risk-based approach requires eligible capital to be divided by total risk weighted assets, with the resultant ratio being used as ameasure of a bank’s capital adequacy.
Capital is divided into Tier 1, carrying the highest capital elements, and Tier 2, which has lower capital elements but still adds to the overall
strength of the entity. Tier 1 is divided into ‘Fundamental’ and ‘Residual’ capital, and Tier 1 deductions. ‘Residual’ capital covers hybrid Tier 1
instruments with limits restricting the volume that can be counted as Tier 1 capital. Tier 2 capital is divided into Upper and Lower Tier 2 capital;
with Lower Tier 2 capital being dated subordinated debt. Limits apply to the volume of Tier 2 and Lower Tier 2 that can be counted as capital for
prudential purposes. Further, in calculating the total capital, deductions are taken for any strategic holdings of other banks’ capital instruments
and investments in entities engaged in life insurance, funds management and securitisation activities. APRA introduced new prudential capital
standards as at 1st July 2006 which contain various transitional rules which run through to different dates in 2008 and 2010 to coincide with
Basel II implementation.
The measurement of risk weighted assets is based on: a) a credit risk-based approach wherein risk weightings are applied to balance sheet
assets and to credit converted off-balance sheet exposures. Categories of risk weights are assigned based upon the nature of the counterparty
and the relative liquidity of the assets concerned; and b) the recognition of risk weighted assets attributable to market risk arising from trading
and commodity positions. Trading and commodity balance sheet positions do not attract a risk weighting under the credit risk-based approach.
APRA has recently released a number of draft proposed changes to the prudential standards which will become effective from 1 January 2008.
These drafts include the following changes which will impact the capitol ratios:Basel II methodologies for calculating Risk Weighted Assets and Expected Losses.
Loss of Collective Provision for credit impairment from Upper Tier 2. This amount will be replaced with either an amount in Upper Tier
2 of Eligible Provisions in excess of Expected Losses or 50% Tier 1 and 50% Tier 2 deductions of Expected Losses in excess of Eligible
Provisions, net of tax.
Total Capital deductions split between Tier 1 50% and Tier 2 50%.
Loss of AIFRS transitional relief of $716 million from Tier 1 Capital and $17 million from Tier 2 Capital.
Hybrid Limits become 25% of net Tier 1 capital, split between Innovative (15%) and Non-innovative (10%). ANZ has applied for transitionalrelief to January 2010 as to the Innovative limit.
Additional capital requirements for the Holding Company’s investments in non-banking subsidiaries.
ANZ has modelled the impact of these changes and does not expect a significant change in the level of regulatory capital requirements.
The ultimate impact of these changes is subject to the final form of the prudential standards, ANZ receiving Basel II accreditation and any
associated transitional arrangements.

162 ANZ Annual Report 2007

FINANCIAL INFORMATION
7: Capital Management (continued)
As at
Sep 07$m

As at
Sep 06$m

Qualifying Capital
Tier 1
Shareholders’ equity and outside equity interests
Prudential adjustments to shareholders’ equity (refer Table 1)

22,048(2,318)19,906(2,333)Fundamental Tier 1 capital
Non-innovative Tier 1 capital instruments
Innovative Tier 1 capital instruments

19,7301,033
3,119

17,573–
3,342

Gross Tier 1 capital

23,882

20,915

Deductions (refer Table 2)
Transitional Tier 1 capital relief(6,170)716(5,274)716

Tier 1 capital

18,42816,357

Tier 2Upper Tier 2 capital (refer Table 3)
Subordinated notes (refer Table 4)

2,296
8,826

1,946
8,177

Tier 2 capital

11,122

10,123

Deductions (refer Table 5)(1,837)(1,073)

Total qualifying capital

27,71325,407

Adjusted Common Equity
Tier 1 capital
Less: Non-innovative Tier 1 capital instrument1
Innovative Tier 1 capital instruments (refer Table 6)1
Transitional Tier 1 capital relief
Deductions

18,428(1,033)(3,052)(716)(1,837)

16,357–(3,321)(716)(1,073)Adjusted Common Equity (ACE)

11,790

11,247

Capital adequacy ratios
Tier 1
Tier 2

6.7%
4.1%

6.8%
4.2%

Deductions

10.8%
-0.7%

11.0%
-0.4%

Total

10.1%

10.6%

Adjusted Common Equity

4.3%

4.7%

275,018

240,219

Risk Weighted Assets
1 Converted at balance date spot rates.

Financial Report 163

FINANCIAL INFORMATION
7: Capital Management (continued)
As at
Sep 07$m

As at
Sep 06$m

Table 1: Prudential adjustments to shareholders’ equity
Reclassification of preference share capital
Accumulated retained profits and reserves of insurance, funds management and securitisation entities and associates
Deferred fee revenue and expenses including fees deferred under AIFRS forming part of loan yields
Hedging reserve
Available-for-sale revaluation reserve
Dividend not provided for
Accrual for Dividend Reinvestment Plans
Other adjustments

(871)
(398)
306
(153)
(97)
(1,381)
276
–

(871)
(289)
343
(227)
(2)
(1,267)
–
(20)

Total

(2,318)(2,333)(4,911)
(462)
(602)

(3,996)
(397)
(569)

(57)

(290)

(101)
(37)

(31)
9

Total

(6,170)(5,274)

Table 3: Upper Tier 2 capital
Eligible component of post acquisition earnings and reserves in associates and joint ventures
Perpetual subordinated notes
General reserve for impairment of financial assets net of attributable deferred tax asset
Transitional Upper Tier 2 capital relief

197
690
1,392
17

184
401
1,344
17

Total

2,296

1,946

Table 5: Deductions from Total capital
Investment in Funds Management and Securitisation entities
Investment in joint ventures with ING in Australia and New ZealandInvestment in other Authorised Deposit Taking Institutions and overseas equivalents
Investment in other commercial operations
Other

(85)
(525)
(1,025)
(124)
(78)

(86)
(526)
(370)
–
(91)

Total

(1,837)(1,073)

Table 6: Innovative Tier 1 capital instruments
Euro hybrid (converted at current rates)
US Stapled Trust Security
ANZ StEPS(804)(1,248)(1,000)(850)(1,471)(1,000)Total(3,052)(3,321)

Table 2: Deductions from Tier 1 capital
Unamortised goodwill & other intangibles
Capitalised software
Capitalised expenses including loan and lease origination fees, capitalised securitisation establishment costs
and costs associated with debt raisings
Applicable deferred tax assets (excluding the component relating to the general reserve for impairment offinancial assets)
Investment in ANZ Lenders Mortgage Insurance
Other adjustments

Table 4: Subordinated notes
For capital adequacy calculation purposes, subordinated note issues are reduced by 20% of the original amountover the last four years to maturity and are limited to 50% of Tier 1 capital.

164 ANZ Annual Report 2007

FINANCIAL INFORMATION
7: Capital Management (continued)
AssetsRisk Weighted Assets

Sep 2007$m

Sep 2006$m

Sep 2007$m

Sep 2006$m

Balance Sheet
Zero risk weighted assets1
Claims on approved banks and local governments
Advances secured by mortgages and other assets eligible for 50% risk weighting
Other assets - credit risk2

52,70324,190145,054
158,731

34,115
19,584
131,134
138,119–
4,838
72,527
159,518

3,917
65,567138,119

Total statement of financial position assets - credit risk
Trading assets - market risk

380,678
11,935322,952
11,688236,883n/a

207,603n/a

Total balance sheet

392,613334,640

236,883

207,603

Notional AmountCredit Equivalent

Risk Weighted Assets

Sep 2007$m

Sep 2006$m

Sep 2007$m

Sep 2006$m

Sep 2007$m

Sep 2006$m

8,114
15,909107,269

Off-balance sheet exposures3
Direct credit substitutes
Trade and performance related items
Commitments
Foreign exchange, interest rate and other market
related transactions

7,588
14,78898,554

8,114
6,983
18,4457,588
6,470
17,0305,796
6,222
15,791

5,432
5,657
14,611

1,692,885 1,169,553

29,01918,010

8,379

5,240

Total off-balance sheet exposures – credit risk

1,824,177 1,290,483

62,56149,09836,18830,940Total risk weighted assets – credit risk
Risk weighted assets – market risk

273,071
1,947

238,543
1,676

Total risk weighted assets

275,018

240,219

1 Includes $2,069 million (September 2006: $1,938 million) in assets of subsidiaries consolidated on adoption of AIFRS excluded for risk weighting calculations for
APRA reporting purposes.
2 In 2007, risk weighted assets includes intragroup assets with entities deconsolidated for prudential purposes.
3 Excludes off-balance sheet exposures in subsidiaries consolidated under accounting standards as required by APRA.

Financial Report 165

FINANCIAL INFORMATION
8: Additional Financial Instrument Risk Disclosures
The Group has not early adopted AASB 7: ‘Financial Instruments: Disclosure’ which is applicable for the year ending 30 September 2008. As
part of ANZ’s transition to AASB 7 compliance, the Group has enhanced its disclosures on market and liquidity risks in Note 35 and the fairvalue of financial instruments in Note 37. The following additional disclosures on credit risk associated with financial instruments are made toassist readers with the transition to AASB 7 disclosures.

Credit Risk
Equity investments classified as available-for-sale financial assets are excluded from the disclosures below.
Distribution of financial assets by credit quality
The credit quality of the portfolio is assessed by reference to the Group’s risk grading principles and policies supported by a complementary risk
grading methodology. As detailed in Note 35, ANZ uses a two dimensional risk grading system, which measures both the customer’s ability to
repay and the loss in the event of default.
Past due but not impaired

Refers to APRA 90 Days Past Due definition. This applies where contractual payments are past due greater than
90 days, or where the facility remains outside of contractual arrangements for greater than 90 consecutive days,
but the Group believes that impairment has not occured on the basis of the level of security/collateral available.
A facility, subject to a regular repayment schedule, is classified as 90 Days Past Due when at least 90 calendar
days have elapsed since the due date of a contractual payment has not been met in full. The total amount outsideof contractual arrangements has to be equivalent to at least 90 days worth of contractual payments and thefacility is well secured.
Facilities that do not have a regular repayment schedule are considered 90 days past due when the facility hasremained continuously outside of contracted arrangements for 90 or more consecutive days and the facility iswell secured.

Well secured

Well secured is when the fair value of the associated security is sufficient to ensure that ANZ will recover theentire amount owing over the life of the facility and there is reasonable assurance that collective efforts will
result in payment of the amounts due in a timely manner.

Portfolio managed

Financial assets which are homogenous with similar characteristics and are assessed, approved, andcontrolled on a portfolio basis within a centralised environment (for example Credit Cards, Personal Loans,
Home Loans). When the financial assets are managed on a portfolio basis, the assets can be held on anon impaired basis for up to 180 days.

Impaired

Impaired assets are credit exposures where there is doubt as to whether the full contractual amount will
be received, and/or where a material credit obligation is more than 90 days past due where it is not wellsecured. In the event where the value of collateral is sufficient to repay both the principal debt and all
potential interest and there is no concern of the creditworthiness of the counterparty in question, theexposure is then classified as past due but not impaired.
Consolidated

Gross carrying amounts of financial assets
Neither past due nor impaired
Past due but not impaired
Well Secured
Portfolio Managed
Impaired

Unproductive facilities

166 ANZ Annual Report 2007

2007
$m

2007
$m

2007
$m

2007
$m

Due
from otherfinancial
institutions

Grossloans andadvances

Customers’
liabilities for
acceptances

Available-forsale assets

8,040

291,621

14,536

13,626

–
–
–

474
87
666

–
–
–

–
–
–

8,040

292,848

14,536

13,626

–

126

–

–

8,040

292,974

14,536

13,626

FINANCIAL INFORMATION
8: Additional Financial Instrument Risk Disclosures (continued)
Credit quality of financial assets neither past due nor impaired
The credit quality of financial assets is managed by ANZ using internal ratings which aim to reflect the relative ability of counterparties to fulfil,
on time, their credit-related obligations, and is based on their current probability of default.
Internal rating
Satisfactory risk

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

Sub-standard but not impaired

Customers that have demonstrated some operational and financial instability, with variability anduncertainty 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
respectively.
Consolidated

Internal rating
Satisfactory risk
Sub-standard but not impaired

2007
$m

2007
$m

2007
$m

2007
$m

Due
from otherfinancial
institutions

Grossloans andadvances

Customers’
liability for
acceptances

Available-forsale debt
assets

8,040–

287,259
4,923

14,357
179

13,626–

8,040

292,182

14,536

13,626

Renegotiated facilities
The Group distinguishes between facilities renegotiated on a commercial basis, on terms similar to those offered to new clients with similarrisk, and those renegotiated on non commercial terms as a result of a client’s inability to meet original contractual obligations.
In the course of renegotiating facilities due to financial difficulty, the Group may consider modifying its terms to include concessions such as a
reduction in the principal amount, a deferral of repayments, and/or an extension of the maturity date materially beyond those typically offeredto new facilities with similar risk.
Renegotiated facilities are classified as productive and must demonstrate sound prospects of being able to adhere to the modified contractual
terms. Where doubt exists as to the capacity to sustain the modified terms, the facilities remain impaired and an appropriate level of individual
provision is held.
Renegotiated loans that would otherwise be due or impaired are nil (2006: nil).
Individually impaired financial assets
ANZ regularly reviews its portfolio and monitor adherence to contractual terms. When doubt arises as to the collectability of a credit facility, thefinancial asset is classified and reported as individually impaired and an individual provision is allocated against it.
Consolidated

Gross carrying amount of impaired financial assets
Individual provision balance on impaired financial assets

Unproductive facilities
Individual provision balance on unproductive facilities

2007
$m

2007
$m

2007
$m

Due
from otherfinancial
institutions

Grossloans andadvances

Available-forsale debt
assets

–
–

666
(260)

–
–

–

406

–

–
–

126
(42)

–
–

–

84

–

Financial Report 167

FINANCIAL INFORMATION
8: Additional Financial Instrument Risk Disclosures (continued)
The following table presents an analysis of gross amounts of individually impaired financial assets by type and geographic region:
Consolidated
2007
$m

2007
$m

2007
$m

2007
$m

Australia

New
ZealandOverseas
Markets

Total

–

–

–

–

66
15
6
9
4
–
13
138
50
27
63
39
84

12
2
3
2
32
–
1
28
8
1
2
4
4

1
–
1
1
1
–
–
3
35
1
–
2
8

79
17
10
12
37
–
14
169
93
29
65
45
96

514

99

53

666

Available-for-sale assets

–

–

–

–

Unproductive facilities

121

5

–

126

635

104

53

792

Due from other financial institutions
Loans and advances:
Agricultural, Forestry, Fishing and Mining
Business Service
Construction
Entertainment, Leisure and Tourism
Finincial, Investment and Insurance
Government and Official Institutions
Lease Finance
Manufacturing
Personal
Real Estate – Commercial
Real Estate – Mortgage
Retail and Wholesale Trade
Other

Security held in respect of individually impaired gross loans and advances in the analysis above has an estimated fair value of $214 million(security held in respect of impaired off-balance sheet facilities amounts to $6 million).
The analysis above does not have a separate category for Customers’ liability for acceptances. When customers’ liabilities for acceptances
become impaired, the resulting balances are recorded under loans and advances.

168 ANZ Annual Report 2007

FINANCIAL INFORMATION
8: Additional Financial Instrument Risk Disclosures (continued)
Maximum exposure to credit risk
For financial assets recognised on the balance sheet, the exposure to credit risk equals their carrying amount. In certain circumstances, there
may be differences between the carrying amounts reported on the balance sheet and the amounts reported in the table below. Principally,
these differences arise in respect of financial assets that are subject to risks other than credit risk, such as equity investments or banknotes andcoins. Other differences are determined to be insignificant.
For contingent exposures, the maximum exposure to credit risk is the maximum amount that ANZ would have to pay if the contingents are called
upon. For undrawn facilities, the maximum exposure to credit risk is the full amount of the committed facilities.
The following table presents the maximum exposure to credit risk of on-balance sheet and off-balance sheet financial instruments before taking
account of any collateral held or other credit enhancements.
Consolidated

On-balance sheet positions
Liquid assets (other than cash and coins at bankers)
Due from other financial institutions
Trading securities (other than equity instruments)
Derivative financial instruments
Available-for-sale assets (other than equity instruments)
Net loans and advances
Customers’ liability for acceptances
Other financial assets

Off-balance sheet positions
Undrawn facilities
Contingent facilities

Total

2007
$m

2006
$m

13,3208,040
15,12022,237
13,626
288,846
14,536
3,510

12,569
9,665
9,179
9,164
10,588
255,922
13,4353,596

379,235

324,118

107,269
23,816

98,55422,055131,085

120,609510,320444,727

Financial Report 169

GLOSSARYAAS – Australian Accounting Standards(also known as AIFRS).
AASB – Australian Accounting Standards
Board.
Adjusted Common Equity (ACE) is Tier 1
capital less preference shares and otherHybrid Capital at current exchange rates,
regulatory deductions from total capital andtransitional capital relief as approved by
APRA.
AFS – Available-for-sale assets.
AIFRS – Australian Equivalents toInternational Financial Reporting Standards.
APRA – Australian Prudential Regulation
Authority.
Collective provision is the provision for
Credit Losses that are inherent in theportfolio but not able to be individually
identified. A collective provision may only berecognised when a loss event has alreadyoccurred. Losses expected as a result of
future events, no matter how likely, are notrecognised.
Credit equivalent represents the calculationof on-balance sheet equivalents for market
related items.
Equity standardisation. Economic Value
Added (EVATM) principles are in use
throughout the Group, whereby risk adjusted
capital is allocated and charged against
business units. Equity standardised profit
is determined by eliminating the impactof earnings on each business unit’s bookcapital and attributing earnings on thebusiness unit’s risk adjusted capital. Thisenhances comparability of business unit
performance. Geographic results are notequity standardised.
Group Centre division includes Operations,Technology and Shared Services, Treasury(funding component), Group People
Capital, Group Strategic Development,Group Financial Management, Group Risk
Management, Capital Funding and Group
Items.
Impaired assets are those whose carrying
value is greater than the amount expected
to be recovered over their lives. Morespecifically, in relation to loans or othercredit facilities, impairment may arise
where there is reasonable doubt about thecollectability of interest, fees (past andfuture) or principal outstanding, or whereconcessional terms have been provided
because of the financial difficulties of thecustomer.
Income includes external interest income
and other external operating income.

170 ANZ Annual Report 2007

Individual provision charge is the amount of
expected credit losses on those loans andadvances assessed for impairment on an
individual basis. It takes into account the
NPV of expected cash flow over the lives of
those loans and advances.
Institutional division provides a full range offinancial services principally to ANZ Australia
and New Zealand corporate and institutionalcustomers in all geographies. Institutional
has a major presence in Australia and New
Zealand and also operations in Europe, USA
and Asia.
Working Capital consists of Trade andTransaction Services and Relationshiplending. Trade and Transaction services
provides working capital solutions
including lending and deposit products,
cash transaction banking management,
trade finance, international payments,
clearing and custodian services
principally to Institutional and Corporate
customers. Relationship Lending
manages the Institutional and Corporate
balance sheets with a particular focus
on credit quality, diversification andmaximising risk adjusted returns.
Markets provides risk management
services to Corporate and Institutional
clients globally in relation to foreignexchange, interest rates, credit andcommodities. This includes the businessproviding origination, underwriting,structuring and risk management
services, advice and sale of credit andderivative products globally. Markets also
manages the Group’s interest rate risk
position.
Business Banking provides a full rangeof banking services, including risk
management, to metropolitan based
small to medium sized business clientswith up to $50 million turnover.
Corporate Finance provides complex
financing and advisory services,
structured financial products, leasing,private equity finance, project finance,
leveraged finance and infrastructure
investment products to our global client
set.
Relationships & Infrastructure includes
Institutional Banking, Financial
Institutions and Corporate Banking. These
units use our client relationship teams
for our global Institutional and Financial
Institutions customers and our Corporate
customers in Australia.
Liquid assets are cash and cash equivalent
assets. Cash equivalent assets are highly
liquid investments with short periods tomaturity, are readily convertible to cash
at ANZ’s option and are subject to an
insignificant risk of changes in value.
Net advances include gross loans andadvances and acceptances less income
yet to mature and allowance for credit
impairment.
Net interest average margin is net interest
income as a percentage of average interest
earning assets. Non-assessable interest
income is grossed up to the equivalent
before tax amount for the purpose of thesecalculations.
Net interest spread is the average interest
rate received on interest earning assets lessthe average interest rate paid on interest
bearing liabilities. Non-assessable interest
income is grossed up to the equivalent
before tax amount for the purpose of thesecalculations.
Net non-interest bearing items, which arereferred to in the analysis of interest spreadand net interest average margin, includes
shareholders’ equity, impairment of loans
and advances, deposits not bearing interest
and other liabilities not bearing interest,
offset by premises and equipment and othernon-interest earning assets. Non-performing
loans are included within interest bearing
loans, advances and bills discounted.
Net tangible assets equals share capitaland reserves attributable to shareholders of
the Group less preference share capital andunamortised intangible assets (including
software).
New Zealand Businesses includes thefollowing businesses:
ANZ Retail - operating under the ANZ
brand in New Zealand provides a fullrange of banking services to personal andbusiness banking customers.
NBNZ Retail - operating under the National
Bank brand in New Zealand, provides afull range of banking services to personaland business banking customers.
Corporate Banking in New Zealand incorporates the ANZ and National Bank
brands and provides financial solutions
through a relationship management
model for medium-sized businesses witha turnover up to NZD100 million.
Rural Banking in New Zealand - provides afull range of banking services to rural andagribusiness customers.
Private Banking and Retail Specialist
Units - includes ANZ’s 49% stake in ING
New Zealand, Private Banking operating
under the ANZ and National brands andBonus Bonds.

GLOSSARY

UDC - provides motor vehicle andequipment finance, operating leases andinvestment products.
Non-core items are disclosed separately in
the income statement to remove volatility
from the underlying business result, andinclude significant items, ANZ National Bank
incremental integration costs and non-core
income arising from the use of derivatives in
economic hedges on fair value through profit
and loss.
Non-performing loans comprises loans
where there is reasonable doubt about thecollectability of interest, fees (past andfuture) or principal outstanding, or whereconcessional terms have been provided
because of financial difficulties of thecustomer.

ANZ Australia’s capabilities into fastergrowing personal and small businessbanking markets via the established client
bases of the local partners.
Other includes Private Bank, Personal andPrivate Banking Asia and support units
within the division.
Personal is a division comprising Rural
Commercial & Agribusiness Products,
Small Business Banking Products, Banking
Products, Mortgages, Consumer Finance,
Investment and Insurance Products, Esanda,
Pacific Banking and a number of other areas,
including the branch network and marketingin Australia.
Mortgages – provides housing financeto consumers in Australia for both owneroccupied and investment purposes.

Operating expenses exclude the provision
for impairment of loans and advancescharge.

Banking Products – provides transaction
banking and savings products, suchas term deposits, V2+, and cash
management accounts.

Operating income in business segments
includes equity standardised net interest
and other operating income.

Consumer Finance – provides consumer
and commercial credit cards, ePayment
products, personal loans, merchantpayment facilities in Australia and ATM
facilities.

Operations, Technology & Shared Services
comprises the Group’s core support units
responsible for operating the Group’s global
technology platforms, development andmaintenance of business applications,information security, the Group’s payments
back-office processing, and the provisionof other essential shared services to theGroup, including property, people capital
operations, procurement and outsourcing.
Overseas includes the results of all
operations outside Australia, except if New
Zealand is separately shown.
Overseas Markets includes all operations
outside of Australia and New Zealand. The
Group’s geographic segments are Australia,
New Zealand and Overseas Markets.
Partnerships & Private Bank is responsible
for ANZ’s partnerships with other institutions
in Australia and Asia, along with ANZ’s
Private Bank business, and includes thefollowing:
INGA includes the equity accounted
earnings from ANZ’s 49% stake in ING
Australia Ltd, a joint venture between
ANZ and ING.
International Partnerships – ANZ
continues to develop a portfolio ofstrategic retail partnerships in Asia. ANZ
currently has partnerships in Indonesia
with PT Panin Bank, in the Philippines
with Metrobank, in Cambodia with theRoyal Group, in China with Bank of Tianjin(formerly Tianjin City Commercial Bank)and Shanghai Rural Commercial Bank,in Vietnam with Sacombank and AMMB
Holdings Berhad in Malaysia. These
partnerships are focused on leveraging

Rural Commercial & Agribusiness Products– provides a full range of banking services
to personal customers across regionaland rural Australia, and to small businessand agribusiness customers in rural andregional Australia.
Small Business Banking Products –provides a full range of banking services
for metropolitan-based small businesses
in Australia with unsecured loans up to$100,000.
Esanda – provides motor vehicle andequipment finance, operating leases andinvestment products.
Pacific – provides retail and corporatebanking services to customers in the
Pacific Region.
Investments and Insurance Products– comprises ANZ Australia’s Financial
Planning, Margin Lending, insurance
distribution, Trustees business and ETrade
Australia, an online broking business.
Restructured facilities refers to customers
who have been provided concessions dueto their financial difficulties. In the courseof restructuring facilities, the following
concessions might be considered: areduction in the principal amount; a deferralof repayments; and/or an extension of
the maturity date materially beyond thosetypically offered to new facilities withsimilar risk.
Return on asset ratios include net intragroup assets which are risk weighted at
0% for return on risk weighted assets
calculations.

Revenue includes net interest income andother operating income.
Segment assets represents total external
assets excluding deferred tax assets.
Segment result represents equity
standardised profit before income tax
expense.
Segment revenue includes equity
standardised net interest income and otheroperating income.
Service transfer pricing is used to allocate
services that are provided by central areas
to each of their business units. The objectiveof service transfer pricing is to remove crosssubsidies between business units, andensure each business accounts for the costof the services it uses.
Service transfer pricing charges are reported
in the profit and loss statement of eachbusiness unit as:
Net inter business unit fees – includes
intra-group receipts or payments for salescommissions and branch service fees. A
product business will pay a distribution
channel for product sales. Both thepayment and receipt are shown as net
inter business unit fees.
Net inter business unit expenses –consists of the charges made to business
units for the provision of support services.
Both payments by business units andreceipts by service providers are shownas net inter business unit expenses.
Significant items are items that have asubstantial impact on profit after tax, orthe earnings used in the earnings per sharecalculation. Significant items also do notarise in the normal course of business andare infrequent in nature. Divestments are
typically defined as significant items.
Sub-standard assets are customers thathave demonstrated some operational andfinancial instability, with variablility anduncertainty in profitability and liquidity
projected to continue over the short andpossibly medium term.
Total advances include gross loans andadvances and acceptances less income
yet to mature (for both as at and averagevolumes). Loans and advances classified
as available-for-sale are excluded from total
advances.
Unproductive facilities comprises offbalance sheet facilities (such as standby
letters of credit, bill endorsements,
documentary letters of credit, guarantees tothird parties, foreign currency and interest
rate products) and undrawn on balance
sheet facilities where the customer isdefined as impaired.

Financial Report 171

ALPHABETICAL INDEX

Additional Financial Instrument
Risk Disclosures
Associates
Available-for-sale Assets
Average Balance Sheetand Related Interest
Balance Sheets
Bonds and Notes
Capital Management
Cash Flow Statements
Certificates of Deposit andTerm Deposit Maturities
Chairman’s Report
Commitments
Compensation of Auditors
Concentrations of Credit Risk
Contingent Liabilities, Contingent
Assets and Credit Related
Commitments
Controlled Entities
Corporate Governance Report
Critical Estimates and Judgements
Used in Applying Accounting
Policies
Cross Border Outstandings
Deferred Tax Assets
Deposits and Other Borrowings
Derivative Financial Instruments
Directors’ Declaration
Directors’ Report
Dividends
Due from Other Financial Institutions

172 ANZ Annual Report 2007

166
135
83
106
55
98
162
57
158
3
137
70
160

138
134
36

65
158
92
96
75
156
10
72
74

Due to Other Financial Institutions
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 Activities
Financial Risk Management
Glossary
Goodwill and Other Intangibles
AssetsImpaired Financial Assets
IncomeIncome Statements
Income Tax Expense
Income Tax Liabilities
Independent Auditor’s Report
Interest Rate Risk
Interest Spreads andNet Interest Average Margins
Interests in Joint Venture Entities
Key Management Personnel
Disclosures
Liquid Assets
Loan Capital
Minority interests
Net Loans and Advances
Notes to the Cash Flow Statements

96
74
148
155
155
69
123
136
110
170
93
87
68
54
71
97
157
122
109
135
154
74
99
105
86
132

Other Assets
Overview of Business Divisions
Overview of Operations
Payables and Other Liabilities
Premises and Equipment
Provisions
Provisions for Credit Impairment
Provision for Credit Impairment –Industry Analysis
Regulatory Deposits
Reserves and Retained Earnings
Segment Analysis
Share Capital
Shareholder Information
Shares in Controlled Entities,
Associates and Joint
Venture Entities
Short Term Borrowings
Significant Accounting Policies
Statements of Recognised
Income and Expense
Superannuation and Other
Post Employment Benefit Schemes
Ten Year Summary
Trading Securities
Transactions with Other
Related Parties
Volume and Rate Analysis

94
6
4
97
94
98
88
161
89
104
129
102
50

89
162
58
56
143
8
75
155
159

Australia and New Zealand Banking Group Limited
www.anz.com ABN 11 005 357 522