2003 ANZ
Annual Report

StrongDifferent
Successful
Sustainable

The ANZ
AgendaThe bank with a humanface, easy to do business
with, building enduring
customer relationships

For ourcustomers

A great company, withgreat people, great values,
great opportunities

For ourpeopleOne of the most efficient,best managed, and mostsuccessful banks in the world

For ourshareholders

Trusted. Making a sustainable
contribution to society

For ourcommunity

Breakout. Bold, different,
investing, partnering, growing

For our
future1Contents
02 Investor Snapshot
04 Chairman’s Report
06 Chief Executive Officer’s Report
08 Chief Financial Officer’s Review
12 Risk Management
14 A View from the CEO on Creating Sustainable Businesses
16 The National Bank of New Zealand
18 People
20 Personal and Rural Customers
22 Business Banking
24 Systems
26 Community and Environment
28 Leadership
30 Business Profiles
34 Board of Directors
38 Corporate Governance and the Board
43 Compensation
48 Guide to Concise Financial Report
49 Concise Financial Report
51 Directors’ Report
60 Directors’ Declaration
61 Auditors’ Report
62 Shareholder Information
Last Page Shareholder Feedback Form
Inside Back Cover Information for Shareholders

2

Investor Snapshot

2003.
The yearat a glance

Key terms

Our share price has remained
relatively steady over 2003

We continued to deliver real
growth to our shareholders

ANZ share price

Value of $100 investment in ANZ sharesinvested for five years(A)

$23

$300

A business efficiency measure. It is the ratio of
our expenses (excluding goodwill amortisation)
to our income.

$21

Credit rating$19

A measurement of the credit worthiness of abusiness. AAA is the top credit rating accordedby ratings agencies such as Moody’s Investor
Services and Standard & Poor’s. The better ourcredit rating, the cheaper we can borrow moneyfrom capital markets. ANZ’s long-term credit
rating is AA-.

$17

$250
$200

$15
$150

$13
$11

$100

$9
$50

$7
$5

Sep 03Mar 03

Sep 02Mar 02

Sep 01Mar 01

Sep 00Mar 00

Sep 99Mar 99The amount of the Company’s after tax earnings
declared and paid to ordinary shareholders.
It is usually expressed as a number of cents per
share, or as a dividend per share.

$0

Sep 98Dividend per share (DPS)

Sep 98
Jan 99
May 99
Sep 99
Jan 00
May 00
Sep 00
Jan 01
May 01
Sep 01
Jan 02
May 02
Sep 02
Jan 03
May 03
Sep 03

Cost to income ratio (CTI)

Movement in our share price has been in linewith most of our major competitors in 2003.

A record dividend per share together witha relatively stable share price has again
delivered returns to our shareholders.

Healthy dividend growthProfitability growth remained solid

Dividend per share

Earnings per share(B)

100c

150c

80c

120c

A measure of risk-adjusted accounting profit.
It is based on operating profit after tax, adjusted
for one-off items, the cost of capital, imputationcredits and economic credit costs.

60c

90c

40c

60c

Net profit after tax (NPAT)

20c

30c

Earnings per share (EPS)The amount, in dollars, of earnings divided
by the average number of ordinary shares.
For example, if the earnings are $2 million and
1 million shares are outstanding, the earnings
per share would be $2.00 ($2 million ÷ 1 million
shares = $2.00). The earnings figure is based on
profit after tax less preference share dividends.

Economic value added (EVA )TM

The Group’s net profit after all taxes, expenses
and provisions have been deducted from theoperating income.

Return on equity (ROE)
A calculation which shows the return the
Company has made on the money ordinary
shareholders have invested in ANZ. It is
expressed as a percentage.

0c

0c
2000

2001

2002

2003

In 2003, we continued to deliver improved returns
to our shareholders with a record interim dividendof 44 cents and a final dividend of 51 cents both
100% franked.

1999

2000

2001

2002

2003

Earnings per share growth was above 8%.

3Strong returns delivered

Improved productivity

Year on year net profit

Cost to income ratio(C)$2500m65%$2000m

60%$1500m55%$1000m
50%
$500m
45%

$0m
1993

1994

1995

1996

1998
1999
1997
Significant transactions***

Our record profit in 2003 of $2,348 million isa continuation of the strong returns ANZ has
delivered in recent years. This momentum
has been achieved by a combination of
repositioning our business in previous years
and a focus on productivity.
Over the past five years we have rebalanced ourportfolio, by exiting higher risk businesses such as
Grindlays and turning our focus to developing and

2000

2001

2002

2003
40%

strengthening our consumer businesses inAustralia and New Zealand. This process isongoing as evidenced by our recent purchase of
The National Bank of New Zealand. During thisperiod we also aimed to use our resources better,
which led to a significant reduction in our cost to
income ratio and contributed to our strong growth.

1998

1999

2000
ANZ

2001

2002

2003

ANZ target

Operating efficiency improved further with thecost to income ratio reduced to 45.1%. In the
September 2003 half, a cost to income ratio of
44.6% was below our 45% target.

Credit rating
Maintained AA- credit rating

Return on equity
maintained above 20%

We continued toincrease shareholder
value as measured by EVA

Return on equity

EVATM

25%

$1600m20%

TM

Key to graphs(A) Total Shareholder Return>>>$1200mexcludes the benefits of franking credits or any
taxation costs
excludes share trading costs
assumes all dividends are re-invested on the
ex-dividend date(B) Earnings per share
>

15%
$800m

excludes the effect of significant transactions in 2002

(C) Cost to income ratio

10%>

excludes the effect of significant transactions in 2002
and abnormal transactions in 2000

$400m
5%

*** Significant Transactions
$0m

0%
1999

2000
2001
2002
2003
Significant transactions***

ANZ again achieved a return on equity (ROE) in2003 above 20%, with a full year ROE of 20.6%.
This return is slightly down on last year (21.6%)
after a slow first half of the year, however
momentum picked up in the second half.

1999

2000

2001

2002

2003

EVATM growth was moderately dampened
by relatively higher cost of capital. EVATM
nonetheless continued to increase inabsolute terms.

In the year ended 30 September 2002, the significant
transactions included NHB recovery ($159m after tax),
Special Provision for Doubtful Debts ($175m after tax)
and Profit on sale of businesses to the ING Joint Venture($170m after tax).

Target reached

On track to reach target

For further information on financial terms, please referto the Guide to Concise Financial Report on page 48

Chairman’s Report

A solid
platform for
future growth4

ANZ performed well in 2003. Profit after tax,
excluding significant transactions in 2002,
was up 8.3% this year, demonstrating theeffectiveness of our specialist business modelin delivering returns to shareholders. The
directors were pleased to increase the dividend
per share by 11.8% to 95 cents fully franked.
Most of our businesses recorded solid growthwith some recording double-digit growthin earnings. These were partially offset by aone-off charge in our credit card business.
We delivered solid financial performance byfocusing on organic growth, effective cost
control and the management of risk.
The return on ordinary shareholders’ equity
was slightly down at 20.6%, although above
our target of 20%. Our cost to income ratio of
45.1% is the lowest of the major Australianbanks and places ANZ among the most efficientbanks in the world relative to business mix. Risks
continue to be well managed. Specific provisions
were down by 28% to $527 million. Our capital
position is strong, with the Group’s adjusted
common equity ratio at 5.7%, which was at theupper end of our target range for 2003.
Significantly, we settled a long-running tax
dispute with the Australian Taxation Office thisyear relating to equity product transactions
undertaken predominantly in the 1990s. The
settlement of $262 million was met from ANZ’sexisting tax provisions.

Growth through specialisation
ANZ is focused on creating sustainable value
for shareholders – now and in the longer term.
Much of this work involves building on thecompetitive advantages that exist in our specialist
businesses. This year’s results reinforce thequality of each of these businesses. In manycases such as credit cards, corporate banking
and automobile and equipment leasing, ourbusiness is the market leader.

Charles Goode
Chairman

We believe our specialist business strategy
is fundamental to sustaining and building
leadership positions that help us to deliver
superior returns to shareholders and make adifference to our customers, community and staff.

5Strategic expansion
We continually evaluate opportunities to expandin Australia, New Zealand and elsewhere in Asiaand the Pacific.
On 24 October 2003, we agreed to acquire
The National Bank of New Zealand from Lloyds
TSB for $4.915 billion at exchange rates on
23 October 2003. The acquisition will makeus the largest bank in New Zealand and isconsistent with our strategic goal to havesustainable top three positions in each of
our core businesses and markets.
We have also taken steps to develop a small
portfolio of growth options in East Asia overthe medium to long-term. This has involved
two relatively modest initiatives: signing amemorandum of understanding with the
Shanghai Rural Credit Cooperative Union –expected to become the Shanghai Cooperative
Bank – and a joint venture credit card businesswith Metrobank in the Philippines.

Our role in the community
We continue to give high priority to creatinga distinctive culture within ANZ as part of theGroup’s long-term competitive advantage.
This involves reinforcing a performance culture
among staff while unleashing their talents andenergy to expand the business for the benefitof shareholders, our customers and thecommunity we serve.
While we have a wide range of formal community
programs in place in countries in which we
operate, being part of a community means
being able to respond quickly to urgent needs.
All of us at ANZ feel proud of the way ourstaff responded to the terrible bushfires that
destroyed over 530 homes in Australia’s capital,
Canberra in January. ANZ provided immediate
cash assistance for its mortgage customers
whose primary residence had been affected by
the bushfires. The grants of $5,000 to $10,000
were gifts and did not have to be repaid. We
also offered a range of other measures and our
local staff worked hard to help customers andothers affected by the tragedy.

As part of the process to strengthen therelationships we have with our staff and thebroader community, we have been examining
our response to concerns about environmental
and social issues. This process has provided us
with the opportunity to re-examine our role asa bank and the contribution we make to society
as “the bank with a human face”.

Importance of our staff
The continuing strong performance of ANZ,
its growth in returns to shareholders andincreasing responsiveness to customers andthe community is the result of the hard workand commitment of our 23,137 staff. On behalfof the Board and shareholders, I thank them fortheir contribution.

Governance strengthened
This year we have taken further steps tostrengthen our corporate governance anddisclosure standards. It has been a year
when regulatory emphasis has increased
substantially, both in Australia and overseas.
While this interest on the part of regulators is
welcomed, so long as it focuses upon good
process and good governance, ANZ is itself
proactive in this area. Our belief is that good
corporate governance is not only an ethical andstewardship responsibility; it can also give ANZ
a strong advantage.
We believe a strong focus on corporate
governance and transparency, combined withdelivering on our promises, makes ANZ bothmore attractive to investors and a moresustainable business.
This starts with regulatory compliance but
significantly involves fostering an environment
in which open, well-informed and constructive
discussion is encouraged. This provides thebasis for actively monitoring the company’s
activities and creates an environment in which
integrity is able to prevail at every level.
It also means a commitment to transparent
reporting, timely and accurate disclosuresand management accountability. For someyears ANZ has been recognised for its levelof transparency and disclosure to investors,
not only in Australia, but globally.

The Board’s focus in 2003
ANZ’s Board met 11 times during 2003, withadditional specific activities carried out by the
Board’s committees. This year some of the key
issues to engage the Board included strategic
growth opportunities and their role in ANZ’s
future success; strengthening operating risk
management including improved governanceassociated with technology changes; theimpending changes to international financial
reporting standards and their impact on ANZ;
and our approach to sustainability and how theGroup balances its obligations to shareholders,customers, staff and the community.

OutlookIn the year ahead, we expect the Australianand New Zealand economies to continue toperform relatively well and for overseas markets
to strengthen from their low base. Somechallenges are, however, posed by various
factors including low interest rates andassociated margin pressure and the rising
Australian dollar.
Overall, ANZ is making good progress towardachieving its business priorities. We haveproduced a solid, consistent financial
performance and we are creating growth
opportunities for the future. I am confident
this will enable us to continue to deliver value
for you, our shareholders.

Charles Goode
ChairmanChief Executive
Officer’s Report

The ANZ
Agenda:achievingvalue throughspecialisation

ANZ’s agenda is based on a strategy of
specialisation that is well executed andconsistently delivers superior performancefor our shareholders, staff, customers andthe community we serve.

Many financial services offerings have becomecommodities where differentiation lies in theprovider’s service and reputation rather thanthe product itself. We believe that to competeand survive in the customer economy takes
more than simply improving customer
relationships. It is about the whole organisation
evolving to put the customer at the centre.

Overall, the 2003 financial result has beenreasonable in an environment that is beginningto be difficult for banks around the world. It’s
the power of our specialisation strategy andthe quality of the teams that run our specialist
businesses that has allowed us to reinvent ANZover the past five years as a low risk,well-managed
company that consistently produces sound results.

Five years of achievement
Last year I reported on the achievements we
had made since 1997 making ANZ a very different
bank. These included:> lowering risk
> balancing our business portfolio by growing
our consumer businesses while maintaining
our strong business banking franchise> radically transforming our cost structure andbecoming one of the most efficient banks
in the world> reinvigorating our culture by tapping into
the energy and passion of our staff.
In thinking about that transition – and what ANZ
is today – it is being the “bank with the humanface” which is the core of who we are and what
we do at ANZ. Our objectives, strategy, tactics
and organisational structure are aligned totranslate the “bank with a human face” froma set of words into everyday actions.

Customer driven businesses
All businesses now operate in a customer-driven
economy. This is particularly true in financial
services where there are more competitors
pursuing a stable number of more sophisticated,better informed buyers. The Internet, consumer
advocate organisations and a critical media
enable customers to find and analyse competingproducts and to make informed choices.

6

Winning through specialisation
Through specialisation, each of our businesses
is now:> more transparent> more flexible and more responsive to its
staff and customers> easier to do business with

Specialisation works forshareholders and customers
We set out on this path in 2000 recognisingthat over time specialist businesses, whichhave real capabilities, produce more sustainablevalue than generalists. Importantly, they
are better able to get close to customers,
understand their real needs and deliver
more valuable services and products. We
have seen that through our Local CEOs andbranch staff, we are now much closer to thecommunities we serve. It reflects a reality that
our customers and our staff find it easier to
identify with a more agile, less bureaucraticorganisation. Customers identify with “their”
branch or “their” relationship manager. Staff
identify with “their” team or “their” business.
At the same time, we began to show our staff
and the rest of the community that ANZ was adifferent bank. We announced a moratorium onrural bank closures, offered to buy the branches
being closed by one of our major competitors,
gave immediate “no strings attached” grants tocustomers whose houses had been destroyedby bushfires and started trialing a matchedsavings program for low income earners.
We also recognised that winning companies
are companies that can offer value to customers
at lower cost. We radically changed our costbase which is now flowing through topropositions such as our low-cost personaltransaction accounts and the associatedgrowth in customer numbers that is part ofour “best deal with a human face” strategy for
personal banking.

> offering more satisfying jobs with moreautonomy> developing a culture of innovation, teamwork
and shared responsibility> making implementation easier> able to grow faster.
All of this is a very different approach to any
other bank. Through it, we seek to deliver moreconsistent, sustainable returns to shareholders.

Focusing on sustained
performance and growth
While all we have achieved so far remains
central to ANZ’s agenda, another measure of
our progress will be the management actions
we take in other areas to deliver continued
superior performance and growth over the coming
years. The reality is that there is more to ANZthan producing consistent short-term results.
We have reached agreement on acquiring The
National Bank of New Zealand which gives
us a leading position in New Zealand. It is avery different acquisition, one based on
improving customer service, satisfaction
and growth by leveraging the strengths ofboth companies.
It demonstrates that we are in a transitional
phase, which means we will focus increasingly
on three strategic priorities in the years ahead:> delivering sustainable performance and value
through a rich portfolio of strongly positioned
businesses with best-practice cost andprocess leadership that allow us to achieve
above sector revenue and share growth.

7> earning the respect of our stakeholders byconsistently producing superior financial
results through knowing the business andcustomers best, and creating a strong sales
and service culture while developing realengagement with the community.
> creating a new future by leveraging specialisation
as a distinctive approach and by being
dynamic, innovative and willing to experiment.

Creating more value
Our future is about delivering the best value forcustomers, performing and growing to create
value for our shareholders, leading and inspiring
each other, earning the trust of the community,and being bold and having the courage to bedifferent. It’s why people come to work for ANZ– to be part of a company that is continuallyraising its energy levels to make a lasting
impact and create something that matters forshareholders, customers and the community
we serve.
By really being the “bank with a human face”
to our customers, staff and community, andfocusing on these priorities, ANZ is stronger,
more sustainable, more successful andvery different.

John McFarlane
Chief Executive Officer

John McFarlane
Chief Executive Officer

Chief Financial
Officer’s Review

Growth,returns
and profit

Full year result driven by growth in net interest income

ANZ recorded a profit after tax of $2,348 million
for the year ended 30 September 2003, an
increase of 1% over the September 2002 year.

Full year NPAT $m

(154)
2168

$1900m$1700m$1500mNet Interest Income

Significant transactions$2100m

Sep 02 excluding significant transactions(A)Sep 02(4)(46)
Tax & OEI(75)

Expenses2322

Non Income Interest$2300m12

Provisioning

293$2500m2348

Sep 03A specialised portfolio – efficient allocation of resources to deliver results
Full year NPAT $m by business unit
Institutional Financial Services

Change8%

Personal Banking & Wealth Mgmt

5%Mortgages

9%

Corporate

12%

Consumer Finance-4%

New Zealand Banking

8%

Asia Pacific

34%

Esanda/UDC

23%

Treasury-24%$0m> Net interest income $4,311 million +7.3% –Grew by $293 million in 2003 as a result of a
10% (+$13.6 billion) increase in Average Net
Lending Assets primarily in our Mortgages
business (+$10.8 billion). This was partially
offset by a 10 basis point reduction in Net
Interest margin as a result of changes in ourfunding and asset mix and the flat yield curve
prevalent during the year.

A specialised portfolio allows us to efficiently
allocate resources to those businesses
experiencing growth, or with the potential
for growth, and to reduce resources in thosebusinesses with lower growth prospects
and/or higher risk profiles.
The result was driven by solid profit growthin seven of the nine business segments
excluding Operations, Technology and Shared
Services (OTSS) and Corporate Centre.

$100m $200m $300m $400m $500m $600m $700m $800m
NPAT increase
NPAT decrease
Prior period NPAT

Higher interest income, driven by strong mortgage and deposit growth
Average lending and deposit volumes
$100b
$80b
$60b
$40b
$20b
$0b
Mortgages

Excluding the significant transactions in2002(A), profit increased 8.3%. This was driven
by strong lending growth coupled with tightcontrol of expenses:

Business*
Deposits*
Mar 02
Sep 02Mar 03
Sep 03*Business lending includes corporate, small business, and institutional segments. Deposits includes Esanda retail debentures.

Average net lending assets grew by $13.6
billion (10%) overall, $10.8 billion (18%) in
Mortgages, $1.6 billion in Corporate and $0.8
billion in Esanda/UDC. Average net lending
volumes fell 15% in overseas markets.
Average deposits and other borrowings grew
$13.5 billion – Treasury ($3.2 billion),
Personal Banking & Wealth Management ($4.2
billion), Institutional Financial Services ($2.7
billion), New Zealand Banking (NZD$0.8
billion), Esanda/UDC ($0.8 billion) andCorporate ($1.6 billion). Deposit growth was
encouraged by uncertainty in global equity
markets.

8

9> Non-Interest Income $2,808 million +0.4% –Reported growth was flat for the year. After
adjusting for the sale of ANZ Funds Managementbusinesses to the ING Joint Venture and underaccrual of loyalty points cost on credit cards inprior periods, underlying growth was 5.2% driven
by higher lending fees in our Corporate Banking,Asset Finance and Institutional Banking
businesses, higher equity accounted profit from
our investment in PT Panin Bank and development
property sales in Institutional Banking.
> Expenses $3,228 million +2.4% – Once again,tightly controlled across the Group. Higher staff
levels required to service increased lending
volumes and an increase in software amortisation
on system upgrades, were the main contributors

Strong results in Corporate (12%) andEsanda/UDC (23%) were driven by strong
domestic growth, while the 34% improvementin Asia Pacific resulted largely from higher equity
accounted earnings from PT Panin Bank, higher
foreign exchange earnings and lending growth.
Profit in Mortgages grew 9% reflecting continued
growth in the Australian housing market while
the 5% improvement in Personal Banking and
Wealth Management resulted largely fromincreased deposit volumes and increased
commissions on mortgage sales. This waspartially offset by lower earnings from our ING
Joint Venture.

Profits continued to be derived
from our core domestic markets
2003 NPAT by geography – %5% 3% 5%to the 2.4% increase in costs. Discretionary
costs were contained as the control of
expenses remains a key aspect of our financial
management.
> Provisioning $614 million +0.7% – Asset quality
improved with the Economic Loss Provision (ELP)rate down primarily due to a higher proportion ofmortgages. This lower rate offset the impact
of increased lending volumes.
> Tax & Outside Equity Interests (OEI)$929 million +5.2% – Increase in profits caused
the higher tax expense in 2003, however, ahigher amount of equity accounted earnings
has meant that the growth in tax expense was
below profit growth.

TheInstitutional Financial Services result increased
8% with strong contributions from Capital Markets
and the Australasian operations of Institutional
Banking. Contributions from Structured FinanceInternational and the offshore operations ofInstitutional Banking reduced following thedecision to reduce exposure to the US and
UK markets.
New Zealand Banking results were flat after
adjusting for the impact of the appreciation in
the exchange rate.
Consumer Finance was impacted by the underaccrual of loyalty expense, and mismatchearnings in Treasury reduced as high yielding
investments matured.

Sustained underlying profit growth in our core
domestic markets has been supported bystrong growth in Asia and Pacific. The Group’s
strategy to reduce exposure to higher risk
offshore sectors saw reduced profit in the UK
and US.
(A) Significant Transactions

15%

New Zealand
Asia
72%

In the year ended 30 September 2002, thesignificant transactions included NHB recovery($159m after tax), Special Provision for Doubtful Debts($175m after tax) and Profit on sale of businesses tothe ING Joint Venture ($170m after tax).

Pacific
UK/US & other
Australia

For further information on financial terms, please referto the Guide to Concise Financial Report on page 48
and the Investor Snapshot on page 2Peter Marriott
Chief Financial Officer

10

Chief Financial
Officer’s Review

Growth,returns
and profit

Net interest margin contracted by
10 basis points:

funding. This change in funding mix reduced
the net interest margin by 5 basis points.

> Net interest income in Treasury fell by $45 million
with maturing high yielding assets not able to be
replaced due to the sustained period of
low and stable interest rates (3 basis points).

> The funding cost associated with unrealised
trading gains increased as a result of theappreciation of the Australian dollar. While
resulting in a 3 basis point decline in net interest
margin, it is offset by an equivalent gain in
trading income.

$4.5b

2.9%

$3.5b

2.8%

$2.5b

2.7%

$1.5b

2.6%

$0b

2.5%

$2900m(37)* Sep 02 excludes significant transactions** excludes volume impact and benefits from repricing

Strong capital levels maintained
Adjusted common equity/risk weighted assets
6.5%
6.0%
5.5%
5.0%
4.5%
Mar 02

Sep 02Mar 03
Target Range 5.25% to 5.75%

Sep 03

45
(33)

20

Sep 03

Sep 02*$2600m2808(38)
Underlying growth$2500m(20)

Cashflow impact
on trading
securities income

Trading securities income growth included $45
million from cash flow mismatches on swaps, which
had an opposite impact on net interest income.

146

(71)

Panin bond sales$2700m2796

Lower SFI income$2800m

Structured Finance International income reduced asa result of the re-weighting of the Group’s portfolio
in both risk and geographic terms, foreign exchange
rate movements and subdued market conditions.

We maintained strong capital levels in 2003 as aprudent measure considering the world economic
climate. Our Adjusted Common Equity remained
at 5.7% of Risk Weighted Assets the same as
September 2002 (Target range 5.25% - 5.75%).
In September 2003, the Group issued 10 million
ANZ StEPS preference shares at $100 each,raising $1 billion ($987 million net of issue costs).

3.0%

Non interest income $m

Higher loyalty costs**

Non-lending feesreduced by $81millionprincipally
because of a $38 million under accrual of loyalty
points on co-branded credit cards in prior years,
higher cost of loyalty points, the sale of ANZ’sFunds Management business to the ING Joint
Venture and reduced fee revenue from US and UK
structured finance operations.

$5.5b

Non interest income impacted by the sale of ANZ Funds Management to
the ING Joint Venture, cards under-accrual and loyalty costs. Underlying
growth strong

Cards under-accrual

Lending fees increased $57 million due to strong
volume growth in Corporate, Asset Finance andInstitutional Banking in Australasia.

Group net interest income

1999 2000 2001 2002 2003
Net Interest Income $(b)Net Interest Average Margin (%)

Understatement ofloyalty expense in 2002

> The proportion of the balance sheet funded by
low interest savings accounts and non-interest
balances reduced during the year, offset by
an increase in term deposits and wholesale> Partially offsetting these declines was anincrease in foreign currency hedge earnings
revenue as a result of the strengthening
Australian dollar (3 basis points) and areduction in the funding cost on impaired assets(1 basis point).

JV impact> The interest benefit from low interest savings
accounts and non-interest bearing balances
reduced as the rate at which they were invested
reduced (3 basis points).

Margins down, primarily due
to the level of interest rates
and mix effect

11

The Group economic loss provision charge(ELP) was $614 million, compared with $610
million (excluding the $250 million special
provision) in the year to September 2002. The
standard ELP charge to operating segments at$514 million reduced from September 2002.
An additional charge of $100 million (7 basis
points) was taken to recognise continued
uncertainty and expected levels of default inthe offshore lending portfolios.

In recent years, ANZ has been repositioning
itself away from higher risk offshore
institutional lending, towards lower risk
domestic lending as reflected in our 2003
growth in Mortgages and reduction in US and
UK lending. This has resulted in a reduction in
our ELP rate over time, which fell from 43 basis
points in September 2002 to 39 basis points in
September 2003.

Doubtful Debts Provision reflects
improved underlying portfolio*$700m

80 bps$600m

70 bps

$500m
$400m

60 bps
50 bps
40 bps

$300m
$200m

30 bps
20 bps$100m

10 bps$0m

0 bps

1998 1999 2000 2001 2002 2003
Headline ELP (bps)
ELP charge
ELP adjustment*excludes the $250 million special provision in 2002

New non-accruals have reduced significantly
over the last year, particularly in the offshore
portfolios where in 2002 two large single nameexposures in the offshore Telecommunications
and Energy portfolios accounted for 35% of new
non-accruals.

New non-accruals reduced 23% on 2002
Geographic new non-accrual loans

New non-accrual loans by source$1500m

$350m
$300m

$1200m

$250m
$200m

$900m

$150m
$600m

$100m
$50m

$300m

$0m
$0m
1999
Aust/NZ

End of period gross lending asset volumes
reduced 24% in overseas markets as a resultof the strategy to reduce higher risk exposuresin the UK and US and the exchange rate impactof a strengthening Australian dollar.

2000
UK/US

2001
Asia

2002
2003
Other International

2002
2003
EnergyDomestic Corporate
Asset FinanceConsumer Finance
Other Offshore
Other

24% reduction in gross lending assets in offshore portfolio
Lending asset growth for the year to Sept 2003
ANZ Group

11%

Australia & NZ

15%

-24%
-25% -20% -15% -10%
Australian dollars

-9%
-5%

International
0%5%Local currency

10% 15%For further information on financial terms, please referto the Guide to Concise Financial Report on page 48
and the Investor Snapshot on page 2

12Risk Management

Key Terms
Arrears – a contractually due and payable
sum which remains overdue/unpaid.
Credit risk – the potential for loss arising fromthe failure of a customer or counter-party tomeet its contractual obligations.

Over the year, ANZ has remained vigilant inmonitoring and managing the Group’s global risks
including:> Credit risk – Overall credit quality remains sound;
reduced level of defaults in the corporate
portfolio; offshore credit exposures reduced to
6% of our loan portfolio.

Market risk – the potential loss the Group may
incur from changes in interest rates, foreignexchange rates or the prices of equity sharesand indices, commodities, debt securities andother financial contracts, including derivatives.
It also includes the risk that the Group will
incur increased interest expense arising fromfunding requirements during periods of poor
market liquidity.

> Market risk – Levels remain low.

Operational risk – the direct or indirect loss
resulting from inadequate or failed internal
processes, systems, or from external events.

> Other risk – Increased focus on strategic andemerging risks; substantial progress made on
Basel II (see page 38).

> Operational risk – Strengthened business
continuity and crisis management capabilities towithstand the emergence of new threats,
including increased threats of terrorism and the
SARS virus; enhanced technology risk
management processes with specific focus on
new software releases.

Offshore exposures
We have reduced our offshore credit exposures,
including to the power and telecommunicationsindustries.
> Telecommunications – Active portfolio
management of exposures to this sector resulted
in a reduction in credit limits for offshore
telecommunications operators of 46%.
> Power – As expected, some further deteriorationin the Group’s US power portfolio over the lastyear was experienced, however, our US power
exposures have been managed down by 28%
to $1.3 billion and any further losses whichmight result from this portfolio are expected
to be manageable.

Australia and New Zealand market
The Australian and New Zealand portfolio risk
profile has continued to improve over the yearwith strong mortgage growth and reduced highrisk exposures.
> Consumer portfolio – Arrears and loss rates are
now at or near historically low levels; low-risk
personal business exposures now comprise
two thirds of the Group’s loan portfolio.
> Residential property market – Adherence toconservative lending criteria, including allowing
for the likelihood of interest rate increases in

the assessment of borrowers’ capacity to makemortgage payments has ensured a robust
mortgages portfolio; we also have conservative
lending policies in place to ensure our risk
exposure to inner-city apartment markets
across Australia is minimised.
> Recent APRA stress-testing of our mortgages
portfolio confirms that we are well-placed towithstand a severe downturn in the Australian
housing market.

Large Individual Credit Exposures
Over the year to September 2003, ANZ has
managed down its large exposure risks andsignificantly reduced portfolio concentrations.
To further reduce risk in the Group’s credit
portfolio, our maximum limits applicable toexposures to individual customers have also
been reduced.

ANZ Group’s credit risk profile has
improved over the last 5 years*
AAA to
BBB

14.8%

BBB-

41.5%

BB+ to BB

19.2%

BB-

17.3%

12.8%

55.3%

15.3%
7.2%

>BBB+ to CCC
Non AccrualSep 98
5.7%
1.5%

13.7%

2.9%

Sep 032.3%
0.6%*Internal credit ratings have been mapped to external
credit grades

The Group’s credit risk profile, representing therisk of our customer lending portfolio, has
improved over the last 5 years. This is evident
with growth in our lower risk domestic portfolios(particularly mortgages in the BBB- category)and reductions in our high risk exposures.

13

ANZ haslowered risk
across its
global portfolio

Top 10 exposures further reduced

Lower risk portfolio due to increased
proportion of personal businesses

150%

100%

120%
54%

66%

90%
60%
30%

46%

0%

34%

0%
Sep 01
Sep 02
Sep 03
excludes non-recourse and uncommitted facilities

One measure of the concentration of large
exposures in the Group’s portfolio is theaggregate of the 10 largest committed corporate
exposures as a percentage of adjusted common
equity (ACE). This is used as a measure of risk,hence the lower the ratio the lower theconcentration risk. This ratio has declined
significantly over the past 24 months.

Sep 97
Personal businessSep 03
Corporate business

Based on the Group’s lending assets
In line with strategy, lower risk personal
businesses now comprise two thirds of thecredit loan portfolio. This has been underpinned
by strong growth in the mortgages portfolio.

ANZ portfolio moving toward
lower risk domestic exposures
100%
6%

15%

9%

13%
15%

32%
35%
81%

70%

24%
0%
Sep 96Australia

Mark Lawrence
Chief Risk Officer

NZ

Sep 03
International

In line with ANZ’s lower risk strategies, offshore
lending exposures have decreased as aproportion of total lending assets.

Americas

Asia

EuropePacific

For further information on financial terms, please referto the Guide to Concise Financial Report on page 48
and the Investor Snapshot on page 2

A View from theCEO on Creating
Sustainable
Businesses

Delivering
sustainable
performanceand value

This year I discovered a surprising andinteresting statistic, which I have reflected onfrom an ANZ perpective.

While the value of investment represented bytangible net assets per share has risen byaround 9% a year since 1998, the value
represented by future economic value added
has risen by about 21% a year. It’s a compelling
statistic that forces me, as Chief Executive
Officer, to think about business differently.

Of the Top 20 companies by market
capitalisation in Australia in 1980, only eightremained on the 1990 list, and five on the2000 list.
ANZ, I’m pleased to say, is one of those which
has survived and thrived, albeit with some ups
and downs, so that it is one of the five on boththe 1980 and 2000 Top 20 lists.

Our responsibility to deliver
The challenge for ANZ is to continue to create
value by delivering strong and sustainable
performance and value to shareholders – notonly this year and next year, but over the longterm. While this is the responsibility of any
management team, it is particularly true of abank. That’s precisely why there is so muchmention of “sustainability” in this report.
The key to delivering sustainable performanceand value starts with the fundamentals – having
a genuine competitive advantage, ensuring
flawless execution of strategy, no-surprises
management and delivering on promises toshareholders.
In financial terms, value represents the capital
invested in ANZ, plus a premium representing
future earnings and value that the market
ascribes to our expected future economic value
added. In fact, this explains around 60% of
our share price. It takes into account ourunique specialisation strategy and growth
opportunities, the talent of our staff, ourculture, the market positions and customer
franchises held by our specialist businesses,
the strength of our brand and our reputationin the community.

Focus on long-term value
It highlights that enduring success means morethan short-term performance. Sustainable value
takes us beyond the traditional notion ofshareholder value as it has been conceived
and implemented over the past decade.
It recognises that delivering sustainable value
in the long-term is, in essence, about restoringcustomer faith and building community trust byunderstanding that we do not serve
shareholders exclusively, but others as well.
It is why being the “bank with the human face”
has to be at the core of who we are and what
we do at ANZ. It means we integrate economic,
environmental and social factors, andbalance our obligations to different groupsof stakeholders and create value for allof them – shareholders, customers, staff andthe community.
It requires us to continually factor the long-term
into our decision-making.

Our societal purpose
This year we have developed a corporate
response to environmental and social concerns
expressed by our key stakeholders. Many of ourstaff have been involved in an assessment of
our impact on society, contributing to defining
ANZ’s “Societal Purpose” and in developing
a number of new initiatives to improve ourenvironmental and social performance. Ourparticular approach to sustainability is basedon seeing our people, customers andcommunity as an integrated business system.
It means embedding society’s environmental
and social concerns into our core businesspractices, products and services to ensure
we stay aligned with the society in which
we operate.

14

It formally acknowledges that we exist to
meet the needs of shareholders and to do so
successfully in the long-term we must recognisethat society’s values and aspirations are market
forces, where people act on their beliefs as
voters, investors, employees and customers.

Building broader relationships
Becoming a fully engaged, respectedparticipant in society is about building abroader, deeper set of relationships basedon respect, trust and integrity. It’s clearly
understanding our purpose in society so that
we have a framework for making decisions.
We believe a focus on sustainability will give
us a competitive advantage. While investors
and customers, governments and otherstakeholders are increasingly favouring thosecompanies whom they see as truly sustainable,
we also believe sustainability has the potential
to create new value for shareholders through:> increasing staff engagement and satisfaction
leading to higher productivity and commitment
to ANZ’s success> growing market share as a result of improved
brand strength and customer satisfaction> gains in productivity and lower costs throughimproved environmental, health andsafety performance> improving our lending risk profile throughsuperior understanding of social andenvironmental risks> enhancing corporate governance by ensuringsystematic transparency and accountability
in all aspects of our business.

15

It is not a radical concept. It is why we take timeeach year in our Annual Report to explain not only
our annual financial results but to report on what
we are doing for staff, customers and thecommunity we serve.

Integrating sustainability
This more formal approach to sustainability,
however, involves integrating the concept ofdelivering value to a broad range of stakeholders
into our business strategies and the way weoperate, and to begin creating greater alignment
between the interests of shareholders and thoseof society, and to report transparently on our
progress. It will mean seeking help from andcreating new relationships with groups from awide cross-section of society.
It is the focus on these themes that will allow us
to continue to create value and to ensure ANZ isa leading company today and in 20 years time.

Market expectations of future performance determine our current share price
$22
$20

$18

$17.95$16$10.46 Expected future
economic value added> Unique strategy> Strong brand> Sustainable leadership > Talented people> Growth opportunities> Vibrant culture

$14
$12

$10
$8

$9.02
$4.04 Expected future
economic value added$6$4Compound growth 21%$7.49

Tangible net assets
per share$4.98 Tangible net assets
per share$2

John McFarlane
Chief Executive Officer

Compound growth 9%
0
Sep 98

Sep 03Serving different stakeholders

Shareholders own ANZ
and appoint directors,
therefore the directors’
focus is on shareholders

Directors have a duty to
act in the best interestsof ANZ

Growing acknowledgementthat to protect the longterm value of ANZ, theneeds of our customers,
people, shareholders
and community must
be addressed

Sustainable performance…

16

The National Bankof New ZealandOn 24 October 2003, ANZ announced it hadreached agreement with Lloyds TSB to acquire
The National Bank ofNew Zealand for $4.915
billion at exchange rates on 23 October 2003.

New Zealand’s best bank
The National Bank of New Zealand is one of
New Zealand’s leading banks with net loans
and advances of NZ$35 billion representing
around 23% of industry lending. It has strong
market share in personal, rural, and small
business banking including a national networkof 160 retail branches and 260 ATMs.
The National Bank of New Zealand also
enjoys consistently high customer and staff
satisfaction levels. In the year to September
2003, The National Bank of New Zealandmaintained its top position in the ACNielsen
Consumer Finance Monitor with 71% of personalcustomers rating its service as excellent or very
good. This is coupled with leading levels of staff
satisfaction (85%).
The National Bank of New Zealand’s trackrecord of value creation is based on an
efficient operating model, strong revenue
growth with sound credit quality and high levelsof staff and customer satisfaction driven by astrong and experienced management team.

A strong existing business
ANZ of course already has a strong business in
New Zealand that dates back to 1840. Today,
ANZ has established its position among the top
five banks in New Zealand with over one million
personal customers and a leading position incorporate banking.

We have also taken a number of steps toinvigorate our existing business in New Zealand
including more autonomy for New Zealandmanagement and a series of initiatives to improvecustomer satisfaction including introducing new
products, opening branches and re-organising
our approach to personal banking.

Strategic milestone
The acquisition is a significant strategic
milestone for ANZ. It is part of ANZ’s strategy todevelop leading positions in growth businesses
in its home markets and clearly establishes ANZ
as New Zealand’s largest bank. It also reflects
our long-term confidence in New Zealand’s
economic prospects.

A different acquisition
Following completion of the acquisition of The
National Bank of New Zealand in December
2003, our combined business in New Zealand
will contribute as much as 30% of earnings infuture years. Naturally, the significance of ourbusiness and of our presence in New Zealand
will necessitate a very different approach tothinking about our business in New Zealand, ourcustomers, staff and our role in New Zealand as
the largest provider of banking services.
We have already stated the acquisition will
be very different – one based on improving
customer service, satisfaction and growth.
ANZ intends that both the ANZ and The
National Bank of New Zealand brands, names
and branch networks will be retained for theforseeable future. By working together with
The National Bank of New Zealand andfocusing on the interests of our customers,
staff and the community we can create a betterorganisation in the future for New Zealand andfor shareholders.

An acquisition
based oncustomersatisfaction
and growth

17

18

PeopleSally Morgan enjoys
the flexibility ofworking part of her
week from home.
This is another way
ANZ is committed
to life balance forits people.

19

A more vibrantculture createsvalue forshareholders

Better organisational leadership, talent and avibrant culture results in better performance forshareholders. It’s a big statement, but globallycompanies rated as being leaders in theirpeople practices produce, on average,
significantly higher returns to shareholders thanindustry peers. It is easy then to understand
why we have consistently placed so muchemphasis on creating a unique ANZ culture thatengages and involves everyone in the company.

Creating opportunities

Real progress

We have made significant progress instrengthening our talent identification andthis has profoundly improved the quality ofleadership succession, creating opportunities
for our talented people as well as bringing in
fresh talent from the market.

We survey all of our staff twice yearly to measure
our progress. In 2000, when we started theprocess of systematically developing our culture
as a unique and competitive asset as part of our
specialisation strategy, only 52% of staff weresatisfied working for ANZ. The top 10 values ofmanagement included bureaucracy, hierarchy,
control and short-term focus.
Through the programs we have put in place,staff satisfaction now stands at more than 80%,and the values of the past have been replacedby customer focus, achievement, accountability
and continuous improvement.
These programs involve our people at all levels.
They help foster diversity, create opportunities,
encourage ongoing learning through training
and education, promote a healthy life balanceand build a distinctive culture. They aredesigned not only to nurture individual talent
but also to develop ANZ as an organisation
best able to meet the needs of customers,
shareholders, staff and the community.

Cultural transformation
Since 2000, over 13,000 of our people
have participated in a cultural transformation
program called Breakout. Breakout emphasises
leadership, diversity, coaching and development.
This program reflects today’s reality thateveryone in the organisation has to be a leader,whether it is at the moment of contact with thecustomer or at the moment of a decision in their
day-to-day role.

To support this transformation, we havedeveloped opportunities for our people toenrich their careers at ANZ and provide thenecessary skills required to meet businessneeds. For example, the Opportunities@ANZ
initiative provides information and resources
for staff to develop their careers through shortand long-term job placements and professional
development programs.

We are fostering diversity within ANZ throughthe establishment of diversity forums within
our specialist businesses. Representationof females in ANZ management roles is above
average for the banking and finance industry and
we are incrementally increasing representation– over 31% of middle management roles
are currently held by women. In executive
management, almost 17% are women andby 2005 our expectation is that women will
fill 20% of executive roles.

Health and safety
ANZ has a strong commitment to the health,safety and well-being of our people. We arecontinuously improving our management
system aligned with regulatory standards andannual external audit review. All reported
injuries continue to trend downwards with a
28% reduction in the incidence rate per 1000
staff since 2000 in Australia and New Zealand.
Recognising the importance of personalwellness we are actively looking at innovative
ways to improve the overall well-being ofour people.
ANZ is a people and values orientedorganisation with a shared visionof becoming quite a different company
and realising the ability for each person tocontribute their very best. By doing this wecreate sustainable value for our shareholders,
staff and the community we serve.

Staff satisfaction continues to rise
ANZ overall satisfaction
100%

75%

50%

20%

0%
2000

2001

2002

2003

ANZ expects to have 20% of executive
positions held by women by 2005
35%
30%
25%
20%
15%
10%
5%
0%
executives
senior managers
managers
2000 2001 2002 2003

28% reduction in reported injuries since 2000
All reported injury incidence rate per 1000 staff
60
50
40
30
20
10
0
2000
2001
2002
2003
Australia and New Zealand staff

20

Personal and
Rural Customers

Getting onwith a new
approach

The first step towards change is knowing thatyou need to change.

Investing in branches

Acting to fix problems

To deliver a professional retailing environment
we need to invest in our branch network. During
the year, we have refurbished more than 100
branches and increased the focus on sales
training and merchandising. We have developed
a new telling platform, which will be rolled out
to all branches in the 2004 financial year.

Meanwhile, we know that things don’t always
go the way we plan. And when they do gowrong, we sometimes take too long to fix theissues for our customers. Addressing this has
become a top priority.

During the 1990s, ANZ followed most other banksin Australia. We introduced electronic transaction
channels and reduced the size of our branch
network. We improved our pricing disciplines andworked hard to reduce our processing costs. At thesame time, we invested in the development ofleading retail products. Our growth in credit
cards and mortgages is evidence of our successin building strong specialist product businesses.
In financial terms, this strategy was very
successful for shareholders. But it was notsustainable for customers or the community.
By closing branches we damaged our reputation
with the community and reduced our ability totalk to our customers about their needs and how
we could help meet them. Ultimately, a decline
in staff and customer satisfaction will translate
into lower returns for shareholders.
We knew we had to change.

Re-energising our business
The first decision we took, in 2000, was to stop
closing branches in rural Australia. This decision
remains in place and, in the past 12 months, wehave started to open new branches and add more
ATMs. Being present where our customers want
us to be is a core part of our strategy – it is partof putting “retailing” back into retail banking.
Last year, we went one step further andestablished a program to reconnect withlocal communities. We did this by devolving
our personal banking business into small,community-based businesses, each with a
Local CEO in charge. Our local teams treat theirbusiness and the customers as their own. They
have their own profit and loss statement andincreasingly share in the local results they create.
In our Rural Banking business, the local businessmodel is best established. Here, our local
teams look after all customers that live in thecommunity, including personal customers, small
businesses and agribusinesses. By giving ourpeople and customers the confidence that ANZ
will be there for them come rain or shine, we arebeing rewarded with higher productivity andmore business.

This strategy of investment and growth has
re-energised our network and our people.
Things have started to change.
The market is recognising our progress. In 2003,
Personal Investor magazine named us Banking
Institution of the Year, Savings Institution of theYear and Agri Lender of the Year in Australia.

Winning new customers
We are confident the investments weare making in our product businesses and in
distribution will translate into higher customer
satisfaction and market share. We continue
to grow our credit card and mortgage
businesses, and in the last 18 months, wehave made good progress in building ourposition in transaction banking and deposits.
In 2002, we introduced two new, lower costtransaction accounts and, since then, we
have added approximately 100,000 new
customers to ANZ.
We have also improved access to banking
services for those on low incomes andpensions. Our Access Basic Account provides
effectively fee-free banking for customers
with a health care card.

We have started by setting ourselves targets
around problem and complaint resolution, andmade these part of our Customer Charter.
We have appointed a Customer Advocate toensure that more protracted complaints areresolved fairly, and that we report each year on
our progress.
We are also trying to improve the understandingof financial services in Australia. We havetaken the lead by commissioning Australia’s
first comprehensive study on financial literacy,
supported by a range of initiatives to assist
customers with their financial literacy needs(see page 26).
Anyone who has stood in a queue, waited forsomeone to answer the phone or thought about
approaching a competitor after a poor experience
knows we still have much to do. We must
make the transition if we are going to createa sustainable business for our shareholders,customers and the community we serve.
The strategy for our Personal Banking businessis simple. Our aim is to provide our customers
with market leading products, reliable service
and someone local to turn to. It’s about being
the “bank with the human face” and being easy
to do business with; part of our journey towards
having the customer at the centre of everything
we do.

21

We’re improving access by adding ATMs
Points of ATM access
2000
ATMs

2001

2002

2003

1,045 1,074 1,127 1,192

We are aiming to serve customers
in our branches within five minutes– average queue wait times are low*
Sep 03
Aug 03Jul 03
Jun 03
May 03
Apr 03Mar 03
Feb 03
Jan 03
Dec 02
Nov 02
Oct 02
0.00

0.50

1.00
1.50
2.00
Minutes*Based on mystery shopping survey

2.50

We aim to answer all customer calls
quickly – percentage of calls
answered within 1 minute
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
Sep 03Jul 03

Aug 03

Jun 03

Apr 03

May 03Mar 03

Jan 0313 13 14 Enquiries

Feb 03

Dec 02

Oct 02

Nov 020%

13 22 73 Credit Card Enquiries

Dairy farmer,
Mark Disisto,
finds ANZ’s flexible
financial solutions
meet his personaland business needs

Business Banking

22

Ray’s Outdoors hasgrown from a small
Geelong-based retailstore to a 17-location
operation. Ray Frost,
Managing Director,
has made his dreama reality – ANZ has
been there to assist

23

ANZ is rated
number one
in clientsatisfaction

ANZ has a traditional strength in providingbanking services to businesses and large
institutions. We measure that by market share,by the depth of our relationships and thefinancial performance of our businesses.
In 2003, ANZ was the leading bank to 26%
of large corporations in Australia and in the
middle corporate market we are the primarybanker to 29% of businesses.
We regularly check what our clients think of us
through market research and this year, of the
major Australian banks, ANZ has again rated
number one in overall client satisfaction among
the corporate and institutional market.
This isn’t something we take for granted.
Businesses are demanding in the service they
expect. Maintaining our leadership position
requires continuous focus on understanding ourclients’ business, providing them with creativeideas and solutions, and delivering specialist
products and services to meet their needs.

Specialist clients focus
During the 1990s, we lost sight of the fact thatthe small to medium enterprise (SME) sector
also valued this focus rather than a one-sizefits-all approach. As a result, we lost valuable
clients and market share. Our specialisation
strategy helped us remember and since 2000
we have established a new strategy with newgoals for SME banking. We focused on creatinga new proposition for clients based on
developing our people, creating a sales andservice focus and giving greater autonomy to
our account managers to listen to and workwith clients to meet their needs.

Three years later, the results are plain to see.
Client satisfaction has improved and we arenow equal with the best of the major banks.
We plan to do better. Staff satisfaction has
risen from just 30% in 2000 to 80% in 2003.
Importantly, we have grown our market sharesignificantly above system growth while
carefully managing risk. We have turneda business in decline into one of ANZ’s
fastest growing businesses. It’s the powerof specialisation and creating a specialist
focus on customers.

ANZ leads Corporate Banking
customer satisfaction*
8
7.5
7
6.5
1996 1997 1998 1999 2000 2001 2002 2003
*Source – Roberts Research 1996-2003

New specialist products
Specialisation in our investment banking
product businesses of Trade and Transaction
Services, Capital Markets, Foreign Exchange,
Structured Finance and Corporate Financing
and Advisory has also enabled us to extend
our range of investment banking solutions. For
example, ANZ’s Corporate Portal provides clientswith a range of online services including foreignexchange, capital markets and trade financetogether with financial decision-making tools.
We have continued to extend the product range
available to medium-sized corporates throughour “Wall Street to Main Street” proposition.
We are also using this experience to develop
new and innovative products for our small to
medium enterprise clients.
Building on the strength of our businessbanking franchise through specialisation
creates a powerful force that continues toallow us to explore opportunities to reshapethe business around client needs and create
new growth opportunities.

We are growing from an underweight
position in Small to Medium Enterprises –Funds under Management growth
$8b
27%

12%

$6b

$4b

$2b

$0b
Net loans & advances
Sep 02

Deposits
Sep 03

Institutional customer relationships –we have the largest market share in Australia*
80%
70%
60%
50%

70%
59%

71%

69%

64%

61%

37%

42%

40%
30%
20%
10%

30%

0%
2001
2002
Total customers
Significant r’ships*Source – Greenwich and Associates 2003

2003
Lead r’ships

Systems

How technology
transformation
makes it easy
to do businesswith us

While we want to put a human face to banking,it is technology that allows us to provide a
personalised, consistent service to ourcustomers. It is technology that empowers ourcustomers and staff with real-time information
and access. It allows us to reduce costs,
improve productivity, and simplify andautomate administrative functions. It is
technology that makes our business work forcustomers, staff and shareholders.

Managing technology for value

Transforming our business> our new telling system to replace the ageing
hardware and software platform we use toserve customers in our branch network

Simplifying our infrastructure
In 1998, ANZ’s approach to technology was
relatively inwardly focused and based on higher
cost complex infrastructure involving six coresystems, 15 data networks and many different
platforms. Today, technology at ANZ is morecustomer focused with improved processes anda vastly simpler infrastructure involving
two core systems, a single data network andstandardised hardware and software platforms.

> common web-based Peoplesoft software to
replace legacy administration systems> our new VisionPlus credit card platform

ATM
Phone banking
Internet banking
EFTPOS
95% 96%
2002

97%
2003

98% 99% 100%
Our Promise

Our turnaround time for new
card applications is now acompetitive advantage
100%> our state of the art image-based chequeand
itemprocessing system, and> efficiency gains from process re-design inEsanda/UDC.

90%

80%

Skilled and committed people

The challenge ahead is to ensure shareholders
get value from those investments through thefocused operations management of ourtechnical resources.

70%< 24 Hrs< 48 Hrs

Delivering the benefits of re-design
with 25% reduction in Esanda/UDC
contract processing costs
100%
80%
60%
40%
20%
0%
1H02

2H02

1H03

2H03

6 Sep 03

7 Jul 03< 96 Hrs

7 Aug 03

7 Jun 03

7 Apr 03< 72 Hrs

7 May 03

7 Mar 03

7 Jan 03

7 Feb 03

6 Dec 02

6 Oct 0260%
6 Nov 02

It also leverages the work we have done intransforming our technology and operations
culture, and developing a team of skilled andcommitted people dedicated to continuous
process improvement. Since 1998, we have
improved staff satisfaction within our technology
and shared services business from 51% to 80%.
The result of these programs is that staff
turnover has fallen from 18% to just 4% andquality and productivity outcomes have
improved significantly.

6 Sep 02

That is why we have made a substantial
investment in technology in recent years
to move beyond thinking about specificcomputing needs in terms of data centres,
storage systems or even PCs, to thinking
about the entire infrastructure on which
our business runs – the infrastructure thatconnects and supports relationships andtransactions within our specialist businesses
and with our customers.

It involves maximising value from the major
projects we have undertaken in the past five
years. Including:

We have improved the availabilityof our 24-hours-a-day, 7-days-a-weekservices to customers

6 Aug 02

There are fundamentally two waysof thinking about the technology. The first is allabout computing – chips, databases, operating
systems, software and other technology
elements. It’s focusing on the second way of
thinking about technology – extracting value
through the application of computing to
improve or transform our businesses – whichsets ANZ apart.

Transforming ANZ’s infrastructure has given us
the ability to move into a new phase, where
we will seek to extract greater value from ourtechnology investments through back-to-basics
performance management.

24> 96 Hrs

25

Anastasia Bakolias –a Customer Service
Consultant at ANZ’s
Call Centre – delivers
distinctive customer
service every day

Communityand Environment

Why broadening
our thinking
about thecommunity
is important toall our futures

Rebuilding community trust begins withrecognising that our standing in the community
is as important to our future as ourrelationships with customers and staff.

Partnering on financial issues

We know that many in our society believe banks
have become increasingly detached from thecommunity. Many of the actions which fosteredthat view arose out of a focus on short-term
shareholder value. This undermined customer
faith and public trust and diminished the pride
staff felt in working for us.

Strengthening local communities
Rebuilding community trust is about actingwith fairness and integrity. Contributing to
the health of local communities can also
play a role.
Recognising this, the ANZ Community Fundpilot was developed to offer our frontline staff
the means to work with their communities to
identify local issues and provide local solutions.
With over 120 projects supported around
Australia in the past financial year, the ANZ
Community Fund will be extended to all brancheswith an annual commitment of $1.6 million.

ANZ Community Fund – supportinga variety of local projects
4%7%

During the year, ANZ commissioned and publishedthe results of the first national survey of adultfinancial literacy. For the first time, the research
provides benchmarks for the measurement offinancial literacy across the Australian population.
It also identifies aspects of financial products
and services that are causing the greatest problems
for consumers and those segments of the
population that are struggling with financial skills.
ANZ has committed to improve financial
literacy in Australia, particularly among its
own customers. We are integrating the learnings
from the survey into our business operations,training our people so they can identify andassist customers facing financial difficulty andestablishing a community partnership to develop
an adult education program.
This year, we have trained over 3,500 service
consultants in branches throughout Australia
and introduced a booklet titled “Kick-start yourfinancial fitness” to help people who want to use
and manage their money more effectively. Our
Consumer Finance business has also developed
a website and series of brochures to assist
customers and the community to better
understand how credit works.
In partnership with the Brotherhood of St
Laurence, we have also introduced Saver Plus –Australia’s first matched savings program.
It encourages families on lower incomes toregularly and consistently save for costs associatedwith their child’s secondary schooling.
Participants will also receive financial education
training. The Saver Plus pilot aims to help 300
Australian families on lower incomes reach asavings target and encourage or establish asavings habit.

30%

11%

We have also developed responses to some of
the major social issues that involve the financial
services industry. These issues include financial
literacy and the low level of national savings.

20%
10%
18%
Youth

Education

Community development

MedicalDrought

Indigenous

Other

The first Saver Pluspilot commenced in Frankston,
Victoria. ANZ and the Brotherhood are now
working with Berry Street Victoria and The
Benevolent Society to conduct further programsin Shepparton, Victoria, and Campbelltown,
New South Wales.

26

Tamara Lovering fromANZ Kingscote, South
Australia, and Jim
Gorman from Kangaroo
Island Food Group,
support an ANZCommunity Fund activity– packing food parcels
for people in need

27

Changing environmental impacts
ANZ also believes that it has an obligation
to shareholders and society to operate
as efficiently as possible to reduce its
environmental impacts. It is part of being
a well-managed business. This includes our
direct impacts – the resources we use incarrying out our operations such as energy,
paper and travel, and our indirect impacts –such as the impacts of our customers towhom we lend and invest in.
In 2003, ANZ undertook a thoroughassessment of its environmental impacts andexamined its performance in managing those
impacts against some of its international
peers. We also consulted and engaged
our staff and community groups on how
improvements can be made to reduce bothour direct and indirect impacts.

Improving our performance
Building on ANZ’s existing programs we haveundertaken a number of new initiatives toassist in managing our direct impacts.
These include:> appointing a full-time environmental manager
to coordinate activities and develop our
systems> examining our supply chain and assessing
ways to integrate environmental criteria into
our purchasing decisions> developing a set of corporate improvementtargets and specific initiatives to meet these> continuing to work on achieving ourcommitments to the Federal Government’s
Greenhouse Challenge program> becoming a signatory to the United Nations
Environment Programme Finance Initiatives andengaging a range of external stakeholders> reviewing our existing environmental lending
policy and procedures> engaging ANZ’s external auditor to review ourdata measurement systems and verify theenvironmental baseline we established.

Further details on ANZ’s environmental
program and performance can be foundat www.anz.com/sustainability.

New lending opportunities
Sustainability also creates new lending andinvestment opportunities. During the past year,
a number of business units have been exploring
the demand for new “green” lending products.
ANZ’s Infrastructure Services business has been
active in the renewable energy area and has
recently partnered with Spain’s EHN to pursue
new wind power opportunities in Australia.
Our International Structured Finance businessis also pursuing new lending opportunities in
the growing renewable energy market in Europe.

Leadership

Bob Edgar
Chief Operating Officer

28

Transforming
our financial
performanceand culture

John McFarlane
Chief Executive Officer

When we created ANZ’s specialisation strategy
in 2000, we knew that it would only work if wecreated a very different approach to leadershipand culture.
We recognised that the one-dimensional conceptof leadership – the person at the top whom
others follow – disappeared 20 years ago. At
ANZ, everyone in the organisation has to be aleader. We have brought this about by creating
an environment where leadership can be fosteredacross all levels in the Group.

Peter Marriott
Chief Financial Officer

Business leaders within ANZ shape the destiny
and nature of their business. They build its
capability to grow, they improve its effectivenessand they ensure the delivery of results. Our newleaders are at all levels of the organisation: thepeople at the moment of contact with ourcustomers or those at the moment of decision
who are accountable for that decision.

Peter Hawkins
Group Managing Director,
Group Strategic Development

Our approach to leadership is to foster anenvironment where people have the freedom
and responsibility to achieve more than they
thought they could. This is turning our culture
into a unique competitive asset.

29

The ANZ organisation
Consumer
Finance

Corporate

New
Zealand
Banking

Esanda/UDC

Personal
Bankingand WealthManagement

Mortgages

Institutional
Financial
Services

Asia
Pacific

Operations,Technology& SharedServices andCorporate Centre

Elmer Funke KupperManaging Director,
Personal Banking and WealthManagement Australia

Chris Cooper
Managing Director,
Mortgages

Mark Lawrence
Chief Risk Officer

Greg Camm
Managing Director,
New Zealand

Elizabeth ProustManaging Director,
EsandaShane Freeman
Group General Manager,
People Capital

Graham Hodges
Managing Director,
Corporate & Small to Medium
Enterprise Banking

Grahame Miller
Managing Director,
Major Investment Programs

David Boyles
Chief Operations Officer

Brian Hartzer
Managing Director,
Consumer Finance30

Business Profiles

Consumer Finance

$m

2003

2002

%

Performance

Brian Hartzer, Managing Director
Consumer FinanceOperating income

713

694

3

Operating expenses

-347

-310

12

Provisions

-152

-161

-6

Profit before tax

214

223

-4

Income tax expense(A)

-70

-73

-4

Net profit

Profit – Decreased by 4% due to impact of$38 million one-off pre-tax charge as a result ofan under accrual of loyalty points going back to
1999, $20 million of which related to 2002.
After adjusting for this, profit reflected strong
growth in lending volumes, merchant turnoverand cardholder spend. Operating expenses wereup 12% due to volume growth and increased
amortisation costs of new technology andMultiPOS network.

Consumer Finance includes: Cards Issuing(Australia, New Zealand and Indonesia) providing
credit and charge card services including loyalty
programs; Cards Acquiring (Australia and New
Zealand) providing debit and credit card processing;and Personal Loans (Australia and New Zealand)
providing unsecured personal instalment loans.

144

150

-4

Cost to income ratio (CTI) 48.0%

43.7%

10

Staff (FTE)

1156

4

1203

CTI – Increased due to the impact of loyalty
under accrual.

Staff satisfaction 81% (up from 75% in 2002)

Corporate

$m

2003

2002

%

Performance

Graham Hodges, Managing Director
Corporate and Small to Medium
Enterprise Banking

Operating income

653

604

8

Operating expenses

-219

-212

3

Provisions

-48

-46

4

Corporate comprises two businesses: Small to
Medium Enterprises Australia (SME), which
provides banking services for businesses withturnover up to $10 million; and Corporate Banking
Australia, which manages customer relationships
and develops financial solutions for businesses
with turnover $10 million to $100 million.

Profit before tax

386

346

12

Income tax expense(A)

-116

-104

12

Profit – Increased by 12% with net interest income
growth of 9% due to strong volumes in both
deposits and lending. Business growth resulted
from an increased geographical presence, a focus
on industry specialisation and stronger sales
disciplines.

Net profit

242

12

35.1%

-5

Staff (FTE)

1597

1487

7

Risk Management – Overall portfolio risk profile
remains strong. Provision for doubtful debts
increased 4% against a 19% growth in lending
volumes. However, net specific provisions rose
16% in 2003 largely reflecting problems with two

$m

2003

2002

%

Performance
Profit – Increased 8% driven by an appreciation in
the New Zealand dollar. Excluding the exchange rate
impact, profit was flat. This was due to flat fee
growth as we improved the competitiveness of our
product ranges; and increased frontline branch staff
numbers to improve customer service.

Staff satisfaction 85% (7% improvement on 2002)

New Zealand Banking
Greg Camm, Managing Director
New Zealand Banking
NZ Banking provides banking services, including
wealth management, for personal, small businessand corporate customers in New Zealand throughbranches, call centres, relationship managers andonline banking.
Staff satisfaction 88% (up from 83% in 2002)

CTI – Decreased as efficiency of the business
continues to improve.

270

Cost to income ratio (CTI) 33.5%

Operating income

538

490

10

Operating expenses

-314

-281

12

Provisions

-13

-13

0

Profit before tax

211

196

8

Income tax expense(A)

-70

-65

8

Net profit

141

131

8

Cost to income ratio (CTI) 58.4%

57.3%

2

Staff (FTE)

2371

7

2535

CTI – Increased by 2%, reflecting the investment infrontline staffing as part of the Restoring Customer
Faith program in Personal, and increasing capacity
in Business and Rural.
Risk Management – Credit quality remains soundwith provision for doubtful debts charge falling 5%(in local currency terms) despite solid lending

Esanda/UDC

$m

2003

2002

%

Performance

Elizabeth Proust, Managing Director
EsandaOperating income

429

399

8

Operating expenses

-182

-180

1

Esanda/UDC delivers motor vehicle andequipment finance; equipment operating leases
and management services; fleet management
services; and investment products through Esanda(Australia), Esanda FleetPartners (Australia & New
Zealand) and UDC (New Zealand) and Specialised
Asset Finance (Australia).

Provisions

-63

-69

-9

Profit before tax

184

150

23

Income tax expense(A)

-57

-47

21

Net profit

Profit – Increase underpinned by 4% growth in net
interest income resulting from strong asset growthand solid margins in all segments. Other income
increased by 25% driven by fees on higher
business volumes, profits on end-of-lease vehicles
sales and commissions on increased insurance
writings.

Staff satisfaction 79% (up from 77% 2002)(A) Includes outside equity interest

127

103

23

Cost to income ratio (CTI) 42.0%

44.6%

-6

Staff (FTE)

1303

1

1311

CTI – Improved due to strong income uplift, whilst
expenses were held relatively flat with further backoffice operating efficiencies being achieved.
Risk Management – The focus was on the deliveryof robust pricing models and assessment tools.
We continued to streamline processes and more
efficiently access customer risks.

31

Risk Management – Strengthened financial control
and compliance framework through clear
management focus and building people capability.
Staff – Increased due to a new customer services
team of 124 established to handle calls associatedwith the Reserve Bank interchange reforms.
Excluding this team, FTEs were down 7% as aresult of back office initiatives. During the year,
significant investments were made in workplacequality, with the move to a new state-of-the-art
facility, and in ongoing learning as a key
capability.

large corporate loans. Credit quality in the SME
sector remains sound.
Staff – Increased total staff due to additional
investment in frontline and business-related support.
Investment in people and business culture
reflected in improved customer satisfaction.
Achievements
Maintained strong growth in the business –Expanded the business in geographic areas where
ANZ was previously underrepresented and inspecialist business such as franchising; expanded
ability to deliver more sophisticated solutions to
our Corporate Banking customers.

growth of 13%. This reduced cost has been driven
by the continued reduction in the risk profile of
the Corporate and business lending portfolio.
Economic loss provisions remain well in excess
of net specific provisions.
Staff – Increased total staff reflecting investment
in frontline staffing in New Zealand Personaland Business and Rural to improve service and sales
including extending branch operating hours
to weekends.
Achievements
Increased the number of customer-facing staff –Increased staffing in branches by 5%; increased
number of Mobile Mortgage Managers; increased
Staff – Training was a key priority with significant
investment made in skills training andleadership development.
Achievements
Positioned the business to capture growth
opportunities – Achieved strong growth rates innew business writings: motor vehicle finance 18%;
equipment finance 26%; fleet management
services 26%; equipment operating leases 24%.
Continued to improve profitability – Profit after tax
increased by 23%.

Achievements
Product innovation – Reshaped product set acrossthe Australian Cards Issuing portfolio to address
the impact of the Reserve Bank interchange
reforms and ensure leading products for eachcustomer segment. Launched ANZ Low Rate
MasterCard and ANZ Frequent Flyer Diners Card.
Increased merchants with ANZ MultiPOS facilities –Delivered 20% growth in the number of merchantsin the small business segment.
Maximised technology investments – Delivered
efficiency and service quality gains with average
operational cost per account down 16% and 90%of new applications processed within 24 hours.
Developed in-house capability to administer our
Continued to recruit skilled people – Over 100
additional staff employed for new frontline andspecialised business roles.
Improved customer service efficiency – Established a
Corporate “middle office” to free up front line time toserve customers; developed straight throughprocessing for loans and customer documentation.

loyalty program, producing 21% annualisedsavings in loyalty management.
Controlled geographic expansion – Purchased
a 40% joint venture interest in the credit cardbusiness of Metrobank in the Philippines.
Goals> Minimise the impact of the Reserve Bank
reforms, while leveraging our strong credit
card product set and execution capabilities
to grow share in attractive segments.
> Continue to build new revenue streams throughproduct innovation, cross-selling, and controlled
geographic expansion.

Goals> Maintain strong business growth.
> Continue investing in process and platform
efficiencies to ensure it is easier for customers
to do business with ANZ.
> Build on specialised business success in
SME and solutions-based proposition in
Corporate Banking.

Continued to create value for corporate customers– Maintained strong focus on offering corporate
customers the full range of banking services andleading the market in delivery of sophisticatedfinancial solutions.

> Build staff and management capabilities.

number of relationship management staff
in Business and Rural.

advanced planning. Planning for full re-signage
and upgrade completed.

Top ranking in Corporate Banking sector – Attained
number 1 ranking for market share and customer
satisfaction in Corporate Banking (page 23).
Improved retail customer satisfaction – Most
improved of any bank in NZ according to Consumer
magazine annual survey and AC Neilson Consumer
Finance Monitor (September quarter 2003).
Ranked third for service, up from fifth last year.
Upgraded the branch network and increased
branches in key geographical growth cities –Opened one new branch, several others in

Goals> Launch campaign to re-invigorate the brand,
supported by product-specific campaigns.
> Maintain Corporate Banking’s number one
ranking for customer satisfaction.
> Continue growth in the business segment
and strengthen the rural business.
> Roll-out needs-based sales training programs
to frontline staff in branch network.
> Complete re-vitalisation of the branch network.

Provided an operationally excellent platform –Launched a comprehensive end-to-end re-design
project; analysis and design phases completed.
Attracted and retained talented people – Focusedon improving leadership capabilities with 80
staff in the “Inspiring Leaders” program. Piloted
leadership development program for female
managers. Introduced new Talent Program todevelop management skills of junior staff.

Goals> Grow usage segment and lift returns on
traditional asset finance business.
> Redevelop and revitalise our brand.
> Improve sales capability through improved
training and new incentive scheme.
> Progress implementation of operationally
excellent platform and expand to New Zealandand Esanda FleetPartners.

32

Business Profiles

Personal Banking
and Wealth Management

$m

2003

2002

%

Performance

Operating income

1648

1670

-1

Elmer Funke Kupper, Managing Director
Personal Banking and Wealth Management

Operating expenses

-1048

-1062

-1

-27

-24

13

Personal Banking and Wealth Management
includes Banking Products and Transaction
Services; ANZ’s joint venture with ING; Personal
Banking and Rural Banking; Private Banking and
ANZ Financial Planning.

Profit before tax

573

584

-2

Profit – Increased by 5%. Stronger second halfof the year with good momentum on the backof a strong mortgage market, higher sales
productivity across the branch network andimproved equity markets.

Income tax expense(A)

-151

-181

-17

CTI – CTI was flat.

Net profit

422

403

5

Cost to income ratio (CTI) 63.6%

63.6%

0

Staff satisfaction 83% (8% improvement on 2002)

Staff (FTE)

6822

6679

2

Mortgages

$m

2003

2002

%

Chris Cooper, Managing Director
Mortgages

Operating income

598

541

11

Operating expenses

-179

-160

12

Mortgages provides housing finance to consumers
in Australia and New Zealand for both owneroccupied and investment purposes.

Provisions

-31

-28

11

Profit before tax

388

353

10

Income tax expense(A)

-118

-106

11

Staff satisfaction 73% (down from 79% in 2002)

Net profit

270

247

9

Cost to income ratio (CTI) 28.8%

28.3%

2

Staff (FTE)

1264

1047

21

Staff – Added staff to meet increased customer
volume. People initiatives focused on leadership

Institutional Financial Services

$m

2003

2002

%

Performance

Bob Edgar, Managing Director
Institutional Financial Services

Operating income

1872

1804

4

Operating expenses

-668

-682

-2

Institutional Financial Services includes
Institutional Banking; Trade and Transaction
Services; Foreign Exchange; Capital Markets;
Structured Finance International; Corporate
Financing & Advisory.

Provisions

-165

-173

-5

Profit before tax

1039

949

9

Income tax expense(A)

-267

-234

14

Net profit

772

715

8

Profit – Increased by 8% with the major
contributors being strong revenue growth in
Institutional Banking and Capital Markets,and a very disciplined cost outcome across all
businesses. Operating expenses down 2% for
the year. Profit was negatively impacted by theAustralian dollar appreciation.

Staff satisfaction 77% (up from 76% in 2002)

Cost to income ratio (CTI) 35.6%

37.7%

-6

Staff (FTE)

2612

5

Provisions

2733

Risk Management – Significant training programfor frontline staff in service and sales skills and toensure compliance with the Financial Services
Reform Act. Net specific provisions for credit
Profit – 9% increase driven by a 22% growth in theAustralian mortgage portfolio, with record sales
volume being written through all key channels.
New Zealand mortgage business experienced
strong growth in the September 2003 quarter
following a period of flat or reducing volumes
in 2002.
CTI – Increased due to higher numbers of staff
required to process record mortgage volumes andmaintain our service levels.

CTI – Improved for the year as a result ofcontinuing cost discipline; continues to beworld class.
Risk Management– Re-balanced the portfolio to

Asia Pacific
Bob Lyon, Managing Director
Asia Pacific

$m

2003

2002

%

Performance
Profit – Increased by 34%. Approximately 77% ofprofit is derived from PT Panin Bank, Papua New
Guinea and Fiji. Sale of bonds in PT Panin andvolatility in Pacific currencies combined with
ANZ’s strong market position in the region has
resulted in a significant increase in foreignexchange earnings.

Operating income

309

267

16

Operating expenses

-131

-124

6

Provisions

-10

-10

0

Profit before tax

168

133

26

Income tax expense(A)

-37

-35

6

Net profit

131

98

34

Cost to income ratio (CTI) 41.4%

45.3%

-9

Staff (FTE)

1580

1558

1

CTI – Reduced due to increased revenue from
Panin (equity accounted revenue) and foreignexchange earnings offset by increased expenditurethrough increased technology support.

Operations, Technology and Shared
Services and Corporate Centre(B)

$m

2003

2002

%

Performance

Operating income

359

344

4

Provides a diverse range of services to the Group.
Corporate Centre comprises Group Strategic
Development, Group Risk Management, People
Capital and Chief Financial Officer’s Units
including Treasury.

Operating expenses

-140

-141

-1

Provisions

-105

-86

22

Profit – Reduced by 10%. Treasury profit reduced$30 million with the low and flat interest rateenvironment and the maturity of assets, whichwere written above current market rates.

Profit before tax

114

117

-3

Income tax expense(A)

-43

-38

13

Staff satisfaction 81% (down from 82% in 2002)

Net profit

71

79

-10

(A) Includes outside equity interest(B) Significant transactions are excluded frombusiness profiles

Cost to income ratio (CTI) 38.8%

41.0%

-5

Staff (FTE)

4269

4

Asia Pacific includes Retail banking for consumer
and business customers and foreign exchange
services in the Pacific region; Consumer banking in
Asia; ANZ’s share of PT Panin Bank in Indonesia.
Staff satisfaction 82% (9% improvement on 2002)

4092

The Corporate Centre (excluding Treasury) recordeda loss of $24 million compared to a loss of $46
million in 2002. Interest income increased withhigher levels of surplus capital and gains oncontracts put in place to hedge offshore earnings.
A $100 million provision for doubtful debts bookedin the Corporate Centre was to recognise greater

33

losses remained low at $19 million despite strong
growth in rural lending.
Staff – Added staff to improve customer service
and support higher sales. Staff absenteeism
decreased. Increased training investment.
Achievements
Invested in frontline training and technology –More than 4,200 staff trained on service and sales
skills, with new merchandising to support the sales
process. Piloted new telling platform for rollout
in 2004.
development, improved training/induction
programs and enhanced work force
capacity planning.
Risk Management – Overall delinquencies athistorically low levels. Changed approval policies
for inner city lending has seen ANZ’s market sharedecrease in this segment. Delinquencies for innercity lending are not materially different from thetotal portfolio. Comprehensive portfolio modelling
techniques further refined, providing a strong
foundation for risk and portfolio management.

lower risk sectors; good progress in reducing
higher risk offshore exposures, including the UK
and US power sectors.
Staff – Increased largely due to ANZ acquiring theAustralian trade processing hub of the Proponix
Joint Venture (TradeCentrix) in the first half of 2003.
Continued developing programs that built thecapability of our people across all geographies. Key
appointments made in each business and region
reflecting the realignment of the structure and to
maximise the synergies between the relationshipand product businesses.
Risk Management – Quality of lending book has
progressively increased over the 12 months.
Staff – Over 80% of our management positions areheld by national staff. Nationals working outside
their home country now account for 23% of our
expatriate work force.
Achievements
Expanded our service – Launched Internet
business banking service, Ebiz, in Papua New
Guinea, Fiji, Tonga and Cook Islands.

than expected default rates in the offshore
Structured Finance and Institutional Banking
portfolios.
Achievements
Replaced Group payroll systems – Implemented new
payroll and HR information systems in Australia.
Completed upgrade of corporate banking andcustomer transaction processing capabilities –Completed Corporate Banking initiatives;
implemented improvements leading to better
customer response and processing efficiency
for Consumer Finance and Mortgages.

Improved share in core deposits – Received
industry award for Access transaction accounts.
Added approximately 100,000 new customers to
ANZ since new products launched in 2002.
Launched full set of deposit products – Relaunchedsavings products and achieved deposit growthtargets. Our cash management trust, V2+,
reached $6 billion for first time. Improved deposit
market share.

Improved cross-sell of wealth management andinsurance products – Despite a weak equity
market, the ING Joint Venture improved its relative
market position. Insurance cross-sell performance
improved significantly from a low base.
Goals> Maintain product leadership.
> Improve sales productivity and cross-sell.
> Continue to build our Human Face.
> Improve service delivery.

Achievements
Achieved above market growth across all channels –Loans outstanding up 22% in Australia and 6% in
New Zealand over the year.
Continued to lead the market with award winning
products and strong customer service – Leading
Cannex product ratings (5 star awards for ANZ Money
Saver Home and Residential Loans; 5 Year Fixed
Rate Loans), high service rankings in independent
customer and broker surveys.

Further built staff and customer advocacy –Improved processing efficiency and customer
experience through increased electronic delivery
of applications, “straight through” processing
and roll-out of eMOS system for brokers andmortgage specialists.
Goals> Deliver above market growth in retail andwholesale businesses.
> Significantly grow the volume of applications
received electronically from third-party channels.

Achievements
Capitalised on core competencies in each of ourbusiness units – The strengths of our leading
domestic market positions continued to beleveraged to build viable niche positions offshore.
Increased the range and complexity of our productsuite – Product offerings have been dynamicallymanaged, adding new products and segments
while discontinuing others.
Addressed credit issues and improved risk
mitigation – Improved credit portfolio; reduced size
Centralised support functions – Successful insourcing of call centre, help desk and financefunctions primarily for Pacific operations throughQuest, a 100% owned subsidiary, resulting in
efficiency gains.
Re-engineered sales and service functions –Following Samoa pilot, commenced installation ofqueue management systems in major branches in
Pacific countries resulting in positive customer
feedback.

of domestic and offshore customer exposuresthrough lowering of single customer limits;
non-core lending exited.
Goals> Deepen our domestic leadership position.
> Develop new revenue streams for sustainable growth.
> Build a viable offshore franchise that adds value
to our global customers by leveraging thestrengths of our domestic business.
> Maintain excellence in risk management.
Goals> Standardise our Business Operating Model to be
Pacific best practice.
> Improve decision making around our asset andliability management and pricing practices.
> Continue centralisation into Quest, our Fiji sharedservices centre.
> Further expansion of our sales model focusing
on our customer relationships.

Strengthened staff skills – 80% of management
positions in Pacific now held by nationals.
Commenced customer access via web for “selfservice” enquiries on payments, statements andtransactions – Installed advanced web-based
systems across all Australian and New Zealandoperations.
Implemented on-line procurement – Goods& services purchasing increasingly on-line
including information technology services
and office hardware, stationery and travel.
The vast majority of vendors now paid via
electronic funds transfer.

Goals> Extend customer access via web for “selfservice” enquiries.
> Replace New Zealand payroll system.
> Roll-out new telling platform in branch network.
> Implement managed vendor project forlearning delivery.
> Expand wholesale funding base.

34

Board of Directors

Dr B W Scott AO
Independent Non-Executive Director
Company Director

Ms M A Jackson AC
Independent Non-Executive Director
Company Director

35Continued
focus oncorporate
governanceand disclosure

Mr C B Goode AC B Com (Hons) (Melb), MBA (Columbia
University, New York), Hon LLD (Melb); Hon LLD (Monash)(photograph on page 4)
Chairman
Independent Non-Executive Director
Company Director
After 28 years in the finance industry, Mr Goodebecame a professional non-executive director
in 1989. He became a director of Australia and
New Zealand Banking Group Ltd in July 1991
and was appointed Chairman in August 1995.
Mr Goode is Ex-officio member of all Board
Committees. Mr Goode is Chairman ofWoodside Petroleum Ltd, Australian United
Investment Company Ltd, Diversified United
Investment Ltd and a Director of Singapore
Airlines Ltd.
Lives in Melbourne. Age 65.
Mr Goode brings relevant skills and significant
experience in the finance industry and as aprofessional non-executive director to his roleas Chairman of the Board.
Ms M A Jackson AC B Econ, MBA, FCA
Independent Non-Executive Director
Company Director
Director since March 1994. Ms Jackson is amember of the Audit Committee, Risk
Management Committee, Compensation
Committee and Nominations & Corporate
Governance Committee. She is Chairman of
Qantas Airways Ltd and Chairperson of
Methodist Ladies College. Director of The Brain
Research Institute, Billabong International Ltd
and John Fairfax Holdings. Board Member ofHoward Florey Institute of Experimental
Physiology and Medicine and member of theForeign Affairs Council.
Lives in Melbourne. Age 50
A Chartered Accountant, Ms Jackson has broad
industrial experience including her involvementin transportation, mining, the media,
manufacturing and insurance. This expertise
coupled with her work in health and education
contribute to her role on the Board.
Mr J K Ellis
Independent Non-Executive Director
Company Director

Dr B W Scott AO B Ec, MBA, DBA
Independent Non-Executive Director
Company Director
Director since August 1985. Dr Scott is Chairmanof the Nominations & Corporate GovernanceCommittee and Compensation Committee, andMember of the Audit Committee and Risk
Management Committee. Chairman ofManagement Frontiers Pty Ltd, and The
Foundation for Development Co-operation Ltd.
Director of Air Liquide Australia Ltd and theJames N. Kirby Foundation Ltd. Australian
member of the Board of Governors of the Asian
Institute of Management. Former Chairman of
the Australian Government’s Trade Development
Council (1984 – 1990). Former Federal
President, Institute of Directors in Australia(1982 – 1986).
Lives in Sydney. Age 68.
A management consultant and company
director, Dr Scott’s extensive skills andexperience in a range of business sectors andcommunity organisations contribute to his role
as a non-executive director.
Mr J K Ellis MA (Oxon) FAICD, Hon FIE Aust, FAusIMM, FTSE
Independent Non-Executive Director
Company Director
Director since October 1995. Mr Ellis is Chairmanof the Risk Management Committee and amember of the Compensation Committee. He is
Chairman of Pacifica Group Ltd, Black Range
Minerals Ltd and Director of GroPep Ltd. He is
Chairman of Australia-Japan Foundation and the
National Occupational Health and Safety
Commission. He is also Chancellor of Monash
University and a former Chairman of BHP.
Lives in Melbourne. Age 66.
A trained engineer, Mr Ellis brings to the Board
his analytical skills together with his practicalunderstanding of operational issues,
investments and acquisitions across a
range of sectors including natural resources,
manufacturing, biotechnology and education.

Board of Directors

Mr J C Dahlsen
Independent Non-Executive Director
Company Director

36

Commitment
toshareholder
contact

Dr R S Deane
Independent Non-Executive Director
Company Director

37

Mr J McFarlane OBE MA, MBA(photograph on page 7)
Chief Executive Officer

Dr R S Deane PhD, B Com (Hons), FCA, FCIS, FNZIM
Independent Non-Executive Director
Company Director

Appointed October 1997. Directorships include
The Business Council of Australia and theAustralian Graduate School of Management.
Mr McFarlane is a former Group Executive
Director, Standard Chartered Plc (1993 – 1997),
Head of Citibank, United Kingdom (1990 –
1993), Managing Director, Citicorp Investment
Bank Ltd (1987 – 1990), Director of the London
Stock Exchange (1989 – 1991).

Director since September 1994. Dr Deane
is a member of the Risk Management andCompensation Committees, and Chairmanof ANZ Banking Group (New Zealand) Ltd.
He is Chairman of Telecom New Zealand Ltd,
Fletcher Building Ltd and Te Papa Tongarewa(Museum of New Zealand). He is a Directorof Woolworths Ltd.

Lives in Melbourne. Age 56.
Mr McFarlane brings skills and experiences inbanking and finance which are relevant for hisrole as Chief Executive Officer.
Mr J C Dahlsen LLB, MBA (Melb)
Independent Non-Executive Director
Company Director
Director since May 1985. Mr Dahlsen is
Chairman of the Audit Committee and amember of the Risk Management Committee
and Compensation Committee. Mr Dahlsen
is a former Consultant to and Partner of thelegal firm Corrs Chambers Westgarth. He is
Chairman of Southern Cross Broadcasting(Australia) Ltd, Director of The Smith Family,
J C Dahlsen Pty Ltd Group and the Warehouse
Group Ltd of New Zealand. He is a former
Chairman of Woolworths Ltd, Melbourne
Business School Ltd, The Herald and Weekly
Times Ltd and a former Deputy Chairman ofMyer Emporium Ltd.
Lives in Melbourne. Age 68.
The skills and expertise that Mr Dahlsen has
developed in his legal career together with his
experience in the media, not-for-profit, banking,retail and small business sectors ensure thathe brings an understanding of the law andbusiness to his role as a non-executive director.

Mr D M Gonski
Independent Non-Executive Director
Company Director

Lives in Wellington, New Zealand. Age 62.
Dr Deane has skills and experience in avariety of activities including the government
sector, banking and finance, economics,
telecommunications, and with charitable andcultural organisations.
Mr D M Gonski AO B.Com, LL.B (University of NSW)
Independent Non-Executive Director
Company Director
Director since February 2002. Mr Gonski is amember of the Risk Management Committee,
Compensation Committee and Nominations& Corporate Governance Committee, andrepresents the Group as Director of ING
Australia Ltd. He is Chairman of Coca Cola
Amatil Ltd and Investec Wentworth Pty Ltd, andDirector of Westfield Holdings Ltd and John
Fairfax Holdings Ltd. Mr Gonski is Chairmanof the National Institute of Dramatic Art (NIDA),
the Art Gallery of NSW, the Australia Council
and the Sydney Grammar School Trust.
Lives in Sydney. Age 50.
Mr Gonski, a lawyer, has a wide experiencein business, the law and investment banking.
He also brings to his role on the Board an
appreciation for the community through hiswork in the arts and the not-for-profit sector.

38

Corporate Governanceand the Board
Continued focus on corporate
governance and disclosure
Good governance and quality disclosure areimportant to ANZ. ANZ’s Board is acutely aware of
the responsibilities it has for stewardship andaccountability to shareholders. The Board works
closely with management to ensure that issues of
disclosure, transparency, due process andpropriety are continually under review andmaintained at consistently high levels.
While corporate governance has long been an
active consideration for the ANZ Board, it decided
to establish a new committee, the Nominations& Corporate Governance Committee, at the startof the 2002/2003 financial year. The Committee
undertakes in-depth analysis and review ofmajor corporate governance issues and brings
recommendations and advice to the full board.
In June 2003, ANZ was included in a review
by Governance Metrics International (GMI) of
corporate governance and disclosure practicesof the top 50 ASX companies. GMI ranked
ANZ above average for Board accountability,
shareholders’ rights and corporate behaviour,
remuneration and financial disclosure.
During the year, there has been considerable
focus on many aspects of corporate governance.
These have included a review of Board
performance, fine-tuning policy, and proceduraland governance requirements. In addition,
attention has been directed to the external
environment and to various reports andstandards being set in a much more active
regulatory regime. Please refer to the box below
for further detail on some areas of focus.

Commitment to quality
shareholder communication
ANZ is committed to providing shareholders withquality information in a timely manner. This
continuous disclosure is underpinned by ANZ’s
Market Disclosure Policy (see page 42).
Communication with shareholders acrossAustralia and overseas is generally throughresults announcements, the Annual Report,
briefings, newsletters and the shareholder site
on www.anz.com. In addition, ANZ complies withMajor corporate governance issues
addressed by the Board include:
International> International Financial Reporting Standards (IFRS)– From 1 January 2005, all Australian entities will
be required to prepare their financial statements
under the IFRS as adopted by the Australian
Accounting Standards Board (AASB). ANZ hasestablished a formal project, monitored by asteering committee, to ensure that ANZ is
prepared to report for the first time under IFRS
when the results for the half-year ended
31 March 2006 are announced.
> New Basel Capital Accord – A new framework
known as “Basel II” has been designed tothe continuous disclosure obligations under the
Listing Rules of the ASX which are supplemented
by Australian Corporations Legislation.
Information provided to the ASX is posted on the
ASX website.
This year several shareholder meetings were
held including:> Annual General Meeting – 13 December 2002 –Perth, Western Australia> Shareholder Meeting – 21 February 2003 –Auckland, New Zealand> Shareholder Meeting – 24 February 2003 –Wellington, New Zealand> Shareholder Meeting – 14 August 2003 –Adelaide, South Australia
In addition, a General Meeting was held on 13
August 2003 in Melbourne to consider mattersassociated with ANZ’s ongoing capitalmanagement strategy. The specific resolutions
confirmed approval of a buy-back agreement
relating to redeemable preference shares, issued
by ANZ in 1998, amended ANZ’s constitution tofacilitate the issue of preference shares, andapproved the issue of ANZ Stapled Exchangeable
Preferred Securities (ANZ StEPS). These
resolutions represented a “self-contained”
package designed to enhance ANZ’s capitalmanagement flexibility.

Continued recognition forour quality disclosure
ANZ’s commitment to quality financial disclosureand transparent reporting continues to berecognised. During the financial year, ANZ
received a number of awards specifically for the2002 Annual Report including:> International – ARC International Awards – Gold
Award in the Banking and Finance category> Australasia – Australasian Reporting Awards –Silver Award

ANZ has again been recognised for the quality ofits dealings with the investment community, withthe release of the Reuters/Institutional Investor
Asia Equities Report in July, specifically for:> Best CEO in Australia> Best CFO in Australia> Best Investor Relations in Australia> Best Corporate Governance.

The Board works in a culture ofdiligence and commitment
Board responsibility
The Board is responsible to shareholders for thegovernance of the Group, its operations andfinancial performance. To this end, it sets thestrategic direction and financial objectives for
the Group. It delegates responsibility for the
management of ANZ to the Chief Executive
Officer and senior management. The Board isalso responsible for ensuring that ANZ has
appropriate governance arrangements in place
for the benefit of all stakeholders.
The Board aims to carry out its responsibilities
so as to create and to build sustainable value forthe benefit of shareholders, employees,
customers, and the community. The Board has
adopted a Charter (available on www.anz.com)
which sets out, among other things, the roles
and responsibilities of the Board. The Board’s
responsibilities include:> Appointing the Chief Executive Officer, andreviewing his/her performance and remuneration> Approving objectives, strategies and budgets,and monitoring and assessing management’s
performance in achieving these> Monitoring compliance with regulatory
requirements, and ensuring that the Group andits employees are meeting the highest standardsof ethics and integrity> New Zealand – Instituted of Chartered
Accountants of New Zealand – Commended forcorporate governance reporting in the 2002
Annual Report.

> Approving policies and overseeing governanceand compliance practices relating tomanagement of risk, conduct of audit, healthand safety, people management, corporate
sustainability, and customer service.

improve the stability of the global financial
system through encouraging improved risk
management practices and requiring banks tohold capital commensurate with their risk profile.
The new Accord is scheduled to commence in
ANZ in 2006 for a year of parallel running withthe current Accord with full implementation from2007. A central project team, reporting to asteering committee, is working with all areas of
ANZ to ensure that systems and processes areready for the change.

2001 that were introduced by the Financial
Services Reform Act 2001 . These provisions aim
to provide a uniform and transparent system oflicensing, product information disclosure andrequisite levels of training for the financial
services industry. The Group will remain focusedon related staff training.

Australia> Financial Services Reform Act – ANZ was granted
its new Australian Financial Services Licenceeffective from 1 October 2003. The licence isgranted under provisions of the Corporations Act> Code of Banking Practice – Released by theAustralian Bankers Association (ABA) in August
2003 and adopted by ANZ in the same month,this voluntary code of conduct sets standards ofgood banking practice covering personal andsmall business customers. ANZ sees this codeas an opportunity to further improve the services
provided to our customers.

39

Directors’ meetings and shareholdings

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:

Directors

J C Dahlsen
Dr R S Deane3
J K Ellis
D M Gonski
C B GoodeM A Jackson
J McFarlane
Dr B W Scott

Board

Risk
Management

Audit
Committee

Compensation
Committee

Nominations& Corporate
GovernanceCommittee

A:B
11:11
11:11
11:11
11:11
11:11
11:11
11:11
11:11

A:B
10:8
10:7
10:9
10:7
10:8
10:8
–
10:9

A:B
7:7
–
–
–
7:7
7:7
–
7:7

A:B
3:3
3:3
3:3
3:2
3:3
3:2
–
3:3

A:B
–
–
–
3:3
3:3
3:3
–
3:3

Executive
Committee

SharesCommittee

Committeeof the Board

A:B
1:1
–
–
–
2:2
1:1
2:2
–

A:B
1:1
–
1:1
–
5:5
–
–
5:5

A:B
2:2
–
–
–
4:4
–
3:3
2:2

Non-Beneficially
Beneficially Held
Held
1
2
Shares
Options
Shares

83,40075,00069,1982,099
268,963
77,436
1,292,458
71,117––––––2,750,000
–

8,500
–
–
–
146,186–––

A Indicates the number of meetings the director was eligible to attend. B The number of meetings attended. The Chairman is an ex-officio member of all Board Committees.
1 Shares include deferred shares
2 750,000 options are exercisable at $14.78 from 31 December 2003 to 31 December 2004 inclusive; may be exercised only if the ANZ Accumulation Index over the period from the date on which the options
are granted to the last trading day of any month occurring during the relevant exercise period equals or exceeds the ASX 100 Accumulation Index calculated over the same period.
500,000 options are exercisable at $17.20 from 31 December 2004 to 31 December 2005 inclusive; may be exercised only if the ANZ Accumulation Index over the period from the date on which the options
are granted to the last trading day of any month occurring during the relevant exercise period equals or exceeds the ASX 100 Accumulation Index calculated over the same period.
500,000 options are exercisable at $17.52 from 31 December 2003 to 31 December 2007 inclusive; one half of the options may be exercised only if the ANZ Total Shareholder Return (“ANZ TSR”) calculated overthe period commencing on 31 December 2001 and ending on the last day of any month after the second anniversary of their date of grant (“the relevant period”) exceeds the percentage change in the S&P/ASX 200
Banks (Industry Group) Accumulation Index over the same period; the other half of the options may be exercised only if the ANZ TSR calculated over the relevant period exceeds the percentage change in the
S&P/ASX 100 Accumulation Index over that same period.
1,000,000 options are exercisable at $17.41 from 31 December 2004 to 31 December 2007 inclusive; one half of the options may be exercised only if the ANZ Total Shareholder Return (“ANZ TSR”)
calculated over the period commencing on 31 December 2002 and ending on the last day of any month after the second anniversary of their date of grant (“the relevant period”) exceeds the percentage change in the
S&P/ASX 200 Banks (Industry Group) Accumulation Index over the same period; 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.
3 New Zealand Resident

It is also the responsibility of the Board to review
the operations of all business units together withthe major functional areas of ANZ at least once
each year to satisfy itself that the unit’s strategy,
policy and direction are consistent with the Group.
The Board recognises its overriding responsibility
to act honestly, fairly, diligently and in accordancewith the law in serving the interests of ANZ’sshareholders, as well as its employees,
customers, and the community. The Board works
to promote and maintain an environment within
ANZ that establishes these principles as basic
guidelines for all of its employees andrepresentatives at all times.

With the increasing focus on corporate governancein recent times, there has been a large increasein the workload of non-executive directors.
Access to Directors
Management consults with directors as required.
Employees and shareholders have access tothe directors either directly or through theCompany Secretary.

> Australian Stock Exchange (ASX) Corporate
Governance Council – Principles of Good
Corporate Governance and Best Practice
Recommendations – These principles set out by
the ASX serve as a guide for organisations. ANZ
considers these principles important. We havefurther expanded our reporting based on therecommendations. The Board considers that ANZ
complies with the requirements in the ASX
Recommendations.

Board composition
The Board is chaired by an independent director
so there is a division of responsibilities between
the Chairman and the CEO. This is supported by
the Board’s Charter that states that the Chairman
must be an independent non-executive director
and that the majority of the Board must becomprised of independent non-executive directors.
Directors, as a Board and through the Nominations& Corporate Governance Committee of the Board,
regularly review the size and composition of theBoard. The ANZ’s constitution provides that,

The Board met 11 times this year with separate
committees meetings. Details of directors’
attendance can be found in the table above.

> Stage nine of the Corporate Law and Economic
Reform Program (CLERP 9) – was released asdraft legislation in October 2003. ANZ ismonitoring the proposed changes, focusing on
the proposals to further improve ways to ensure
the independence of auditors and shareholder
communication and participation.

The Board is comprised ofindividuals with an excellent
understanding of how
corporations work

Other regions> United States of America – As a foreign registrant
with the United States Securities and Exchange
Commission and as a listed company on the New
York Stock Exchange, ANZ must ensure compliancewith the Sarbanes-Oxley Legislation and the New
York Stock Exchange Corporate Governance ListingStandards.
Consistent with this legislation, management
strengthened its internal regulatory complianceoversight function across all aspects of compliancethroughout the Group. In particular, Group Risk
Management and Group Finance increased theircompliance capabilities to ensure that requirements
are met. Together these two areas significantly
raised the profile of compliance throughout ANZ.

> United Kingdom – As at the date of this Report,
the changes proposed by the Smith and Higgs
Reports to the UK Combined Code regarding
UK listed companies were still to be
determined. However, ANZ will continue
to monitor the proposed changes to ensurethat the Group continues to maintain world’s
best practice.

40

Corporate Governanceand the Board
Board composition cont.

Independence and directors’ dealings

Independent advice

at a minimum, the Board must be comprised offive directors. Throughout this year, the Board
has comprised eight directors – a non-executive
Chairman, six other non-executive directors andthe Chief Executive Officer.

In 2002–2003, the Board instituted a process bywhich the independence of each non-executive
director is reviewed in detail at least annually,
and more frequently where a change in position
or relationship warrants it.

In order to assist directors to fulfill their
responsibilities, each director has the right,
with the prior approval of the Chairman, to seek
independent professional advice regarding their
responsibilities at the expense of the Group.
In addition, the Board and each Committee may
obtain whatever professional advice it requires toassist it in its work at the expense of the Group.

Director qualifications and appointments
The Board aims to bring a balance of skills,
experience and views to its deliberations.
Directors, as a Board and through theNominations & Corporate Governance Committee,
engage external consultants to assist them in
identifying appropriate candidates for consideration
as Board members. Candidates are assessed interms of the depth and breadth of experience andskills considered relevant for ANZ, as well as theirpersonal qualities and communication
capabilities. The complementary nature of their
distinctive contributions with the other directors
is also assessed. Assurances are sought to ensurethat a candidate has the capacity to devote
appropriate time to this important role.
ANZ’s constitution provides that each director isrequired to hold, within 3 months of appointment,
at least 2,000 fully paid shares in the director’s
own right and must continue to hold at least
2,000 shares until the director ceases to holdoffice. Details of directors’ shareholdings with ANZ
can be found on page 39 and are set out in Note
51 of the Financial Statements.
On appointment, directors are provided withinformation setting out their duties andresponsibilities including various Board policies
and their entitlements. During 2002–2003, theDirectors’ Handbook has been reviewed andupdated to meet directors’ requirements in acomprehensive manner.
Performance of Chairman and directors
The full Board is responsible for reviewing theperformance of the Chairman.
It is the responsibility of the Chairman, with
input from the Nominations & Corporate
Governance Committee, to assess theperformance of each director.

Following the most recent review, the Board
concluded that each of its non-executive
directors should be considered independent at
this time.
The Board applies the definition of“independence” which is in the Board Charteron www.anz.com >about anz >corporate
information >anz policies.
Conflicts of interest and materiality

An appointee who is filling a casual vacancy has
to stand for election at the first Annual General
Meeting thereafter. This requirement does not
apply to the Chief Executive Officer, or any director
retiring at that meeting in any event.
In addition, ANZ’s Constitution and the ASX
Listing Rules require that directors must put
themselves up for election every three years.
Directors are required to retire at the age of 70
years. Directors appointed since 1993 haveagreed to retire after 15 years service. Directors’
independence is reviewed at least annually.

Main committees
There are four main Board Committees:

Over and above the issue of independence,each Director has a continuing responsibility
to determine whether he or she has a potential
or actual conflict of interest in relation to any
material matter, which comes before theBoard. Such a situation may arise from outside
financial, organisational, representational,
professional, or other interest or relationshipwhich might affect, or be seen potentially toaffect, the Director’s position to act in the bestinterests of the Company.
It is also expected that other Board Directors willraise any concerns about possible conflicts ofinterest on the part of any Director in a material
matter at any time.
Materiality may relate to financial significance,
strategic significance, competitive significance,or any other matters of commercial or timing
significance.
If a conflict or potential conflict arises, the Director
may not receive relevant Board papers, may
absent himself /herself from Board deliberations
on the subject, and may not vote on any related
Board resolutions. These matters are duly
recorded in Board minutes when they occur.
Other than in their capacity as directors of ANZ,
all non-executive directors are deemed not tohave a material relationship with ANZ or its
associated companies.

Retirement
ANZ’s constitution provides that at least one third(or the nearest whole number) of directors must
retire at each Annual General Meeting, but are
eligible for re-election at that meeting.

Board Committees provide
oversight and makerecommendations to the Board> Audit Committee> Risk Management Committee> Nominations & Corporate Governance Committee> Compensation Committee
Each of the four main Committees is comprised
solely of independent directors, has its own
Charter and has the power to direct any special
investigations it deems necessary.
Committee membership is reviewed annually.
Membership criteria are based on the relevanceof a director’s skills and experience, and theirability to add value to the Committee andcomplement the membership.
Committee performance evaluations are
conducted annually to review each Committee’s
performance against its Charter, gather
comments on the suitability of its Charter andany areas for improvement, and to set goals
and objectives for the upcoming year. A copyof each Committee Charter can be found on
www.anz.com >about anz >corporate information>anz policies.
The Chairman is an ex-officio member of all
Committees. The Chief Executive Officer, John
McFarlane, is invited to attend all Committee
meetings. He is not present, however, if this
could compromise proceedings. He also does
not attend any meeting where his remunerationis considered or discussed. Directors may attend
any meeting of a Committee on a subject where
they have a special interest.

Board Committee Membership (as at 30 September 2003)
Audit
Committee

Risk Management
Committee

Nominations &Corporate GovernanceCommittee

Mr John Dahlsen(C)–

Dr Roderick Deane––

Mr Jerry Ellis–

Mr David Gonski–(C)Compensation
Committee–

Mr Charles Goode
Ms Margaret Jackson
Dr Brian Scott

(FE)
(C)

(C)= Chairman (FE)= Financial Expert as defined in Sarbanes-Oxley US legislation

(C)

41

The Audit Committee is responsible for theoversight and monitoring of the Company’s
financial reporting policies and controls, thework of Group (Internal) Audit, the Audit
Committees of subsidiary companies, theintegrity of the Company’s financial statements,
prudential returns and compliance withregulatory requirements.
The Audit Committee is also responsible for theappointment, evaluation and oversight of theexternal auditor.
It is Board policy that all members of the Audit
Committee be financially literate and that atleast one member of the Committee be a“financial expert” as defined in the US
Sarbanes-Oxley legislation.
The Audit Committee meets with the external
auditor in the absence of management at eachof its regularly scheduled meetings. The
Chairman of the Audit Committee meetsseparately and regularly with the head ofinternal audit and the external auditor.
During the year, the Audit Committee focusedon a range of relevant issues including:> Integrity of financial reporting controls andprocedures – The Committee received
independent advice on the effectiveness ofinternal controls and procedures, and closely
monitored progress on opportunities identified
for improvement. To further strengthen controls
and procedures, the Committee agreed to
implement the Sarbanes-Oxley internal control
requirements across the Group in advance of theapplicable date. The Committee monitored theprogress made on the transition to International
Financial Reporting Standards.
> Monitoring the work of Group (Internal) Audit –An evaluation of the Group (Internal) Audit
function was undertaken. The Committee
ensured that management responded in an
appropriate and timely manner to issues raisedin Group Audit reports. The Head of Group(Internal) Audit now reports directly to the
Chairman of the Audit Committee and attends
every meeting of the Audit Committee by
invitation.
> Relationship with revenue authorities – The
Committee supported initiatives to promotea collaborative approach to working with the
Revenue Authorities to achieve appropriate
taxation outcomes. Some long-standing issues
with the Australian Taxation Office wereresolved.
> Maintaining the independence of the external
audit function – All non-audit services
undertaken by the external auditor must be
pre-approved in accordance with the policy on
the provision of audit and non-audit services
put in place by the Committee last year.
The Committee further strengthened the
independence of the external audit function
through a formal annual evaluation of
the external audit and a policy requiring
partner rotation.

The Risk Management Committee’s function isto review risk in the business. It is responsible
for overseeing, monitoring and reviewing theGroup’s risk management principles andpolicies, strategies, processes and controls
including credit, market, balance sheet andoperating risk. It may approve credit
transactions and other matters beyond theapproval discretion of executive management.

The Compensation Committee makes
recommendations to the Board in respect of
the Group’s compensation program including
any equity-based programs. It also evaluates
the performance of and approves thecompensation for the senior executive officers
and Board appointees (including the Chief
Executive Officer) and approves compensationlevels and policy guidelines.

This year, the Risk Management Committee
reviewed a number of issues including:Some areas of focus for the Compensation
Committee this year were:> Credit risk and customer concentration limits –Stronger policies related to single customer
credit limits saw a decrease in risk exposures.

> Compensation Policy – The Committee reviewed
and recommended changes to the policy during
the year (pages 43 to 45).

> Operational risk and systems – The Committee
recommended a more disciplined approach to
new software releases. 2003 upgrades/releases
have been implemented without interruption
to ANZ’s operations.

> Executive Performance Reviews – The
Committee conducts executive performance
evaluations on a six-monthly basis with areview of performance as well as potential.
Recommendations are made to the Board
regarding incentives.

> Compliance awareness – The Committee has
supported a Group-wide awareness program
to foster a better understanding of new aswell as existing compliance requirements
and responsibilities.

> Succession – On an annual basis, the CEO
and Committee review the performance andpotential of the top 100 executives. Other
issues discussed include capabilities and skill
development, diversity and succession,
opportunities and training initiatives.

The Nominations & Corporate GovernanceCommittee’s responsibility is to identify
individuals qualified to become Board members
and recommend them to the Board fornomination as members of the Board and its
committees, to recommend processes for Board
performance review and recommend corporate
governance principles, practices andprocedures for ANZ.

> $1,000 Employee Share Acquisition Plan –The Committee recommended to the Board the
granting of shares to the value of $1,000 toeach eligible ANZ employee through the
Employee Share Acquisition Plan.

During the year, the Committee focused on a
range of issues including:In addition to the four main Board Committees,
the Board has constituted a Shares Committee
and an Executive Committee to assist in carryingout its functions.

> Independence – A thorough review was
conducted of legislation and best practices
regarding director independence. The
Committee concluded the ANZ policy andrelated definitions of independence met bestpractice standards.
> Corporate governance – The Committee
advised the Board on relevant governancedevelopments including those itemised on
pages 38 to 42.
> Board performance – The Committee initiated abroad-ranging survey of Board performance andDirector effectiveness issues. The results werereviewed and discussed by the Board, and anumber of procedures and streamlining
initiatives were adopted. The Committee also
advised the Chairman regarding appropriate
processes for direct individual performance
evaluation.
> Director’s Manual – The Committee authorised
development of a new and comprehensive
manual for Directors.

Additional Committees

The Shares Committee has the power toadminister ANZ’s Employee Share Plan and
Employee Share Option Plan.
The Executive Committee has the full powerof the Board and is convened as necessary
between regularly scheduled Board meetings.
The Board also forms and delegates authority to
ad hoc Committees of the Board as and whenneeded to carry out its functions.

42

Corporate Governanceand the Board
Group (Internal) Audit
Group Audit provides independent assurance thatthe design and operation of the risk and control
framework across the Group is effective. Theinternal audit function operates under a Charter
from the Audit Committee that gives it unrestricted
access to review all activities of the Group. The
Group General Manager of Group Audit reports to
the Chairman of the Audit Committee.
A risk-based audit approach is used to ensure thatthe higher risk activities in each business areaudited each year. All audits are conducted in amanner that conforms to international auditing
standards. Audit results also influence incentive
compensation of business heads.
Group Audit plays an active role in ensuring
compliance with the requirements of supervisory
regulatory authorities, including APRA. Group
Audit also works collaboratively with the external
auditor to ensure a comprehensive audit scope.
The Audit Committee plays an active role inreviewing significant issues arising from internal
audits conducted by Group Audit. There is arobust process for ensuring prompt resolution ofaudit issues, which includes monthly reviews ofprogress by the CEO and the Chairman of the
Audit Committee. The Audit Committee receives
formal reports on significant issues until
satisfactory action has been taken.

ANZ’s Policies
During the year, the Board reviewed key polices
which apply to employees within the Group.
Summaries of these policies can be viewed on
www.anz.com >about anz >corporate information>anz policies.
Code of Conduct for Directors and Code of
Conduct for Employees – These policies set out
the ethical standards to which directors andemployees are expected to adhere. The Codes
require that directors and employees adhere to
the law, that they disclose relevant interests thatthey have, that they act in the best interests of theGroup and that they act honestly and ethically inall their dealings.
The policies also cover the confidentiality of
information, acceptance of gifts or entertainment
and use of ANZ goods, services and facilities.

Code of Conduct for Financial Officers – In
addition to ANZ’s Code of Conduct for Employees,
ANZ adopted the Group of 100 Code of Conduct
for CFOs and Senior Financial Officers. The Coderequires that CFOs and Senior Financial Officers
influencing financial performance adhere to theprinciples of honesty and integrity, respectconfidentiality of information, declare conflicts ofinterest, maintain transparency in reporting,exercise diligence and good faith, ensure soundinternal controls and set a standard for otherfinancial professionals.

Serious Complaints Process – ANZ has a historyof implementing policies and procedures thatare consistent with responsible and wellmanaged business practices. The Serious
Complaints Process is an additional mechanism
by which ANZ staff, contractors and consultants
may voice any concerns they may haveregarding any malpractice or impropriety thatthey find within ANZ. It is intended to operate
as a last resort and requires that protection be
given to employees against dismissal or penalty
as a result of disclosing concerns in good faith.

Directors’ Disclosure of Interests Policy and Policy
for Handling Conflicts of Interests – The Board has
adopted a policy on disclosure of interests which
provides processes whereby directors disclose
certain interests, and actual or potential conflictsof interest are to be addressed. Details of
directors’ dealings with ANZ are set out in Note 51of the Financial Report.

Share Trading Policy – This policy covers trading
in ANZ securities by all employees as well as
contractors and consultants engaged by ANZ.

Employee Indemnity Policy – This policy provides
that the Group will indemnify employees against
any liability that they incur in carrying out theirrole subject to meeting certain requirements.
Further details on this policy and on indemnities
given to certain employees can be found on page
52 of this Annual Report.
Policy on the Prevention of Money Laundering,
Criminal and Terrorist Financing – This policy
covers Anti-Money Laundering and Anti-Terrorism
laws and regulations. It sets out principles related
to identification and record keeping procedures,
the need for staff awareness and related training,
and annual requirements for independent testing
and compliance reporting. The policy ensures that
ANZ is able to protect its reputation, integrity,
assets, liabilities and shareholder funds.
Market (Information) Disclosure Policy – ANZ iscommitted to achieving best practice in the areaof market disclosure. The policy is designed toensure that there is full and timely disclosure of
ANZ’s activities to shareholders and the market.
It is important that all shareholders have an equal
opportunity to receive or obtain information
issued by ANZ. The policy requires that once
information is disclosed to the relevant stock
exchanges, it be placed on www.anz.com.
Relationship with the External Auditor – As
highlighted on page 41, the Board and the Audit
Committee’s policy on audit and non-audit
services regulates the audit-related and non-audit
services that may be conducted by ANZ’s external
auditor. It sets in place a formal approval process
regarding the provision of non-audit services,which are only considered where they are notperceived to be in conflict with the role of auditor.
This approval process is the responsibility of the
Audit Committee.

The Share Trading Policy prohibits trading for
all persons aware of unpublished ANZ pricesensitive information. In addition, it specificallyprohibits trading by certain employees,
contractors and consultants working inspecific areas of ANZ during blackout periods.
A blackout period is the six-week period leading
up to the day after the announcement of thehalf yearly and full year result. The Board has
also resolved to apply the principles of thispolicy to directors’ own trading in ANZ shares.
Significant Accounting Policies
Details of the significant accounting policies
and any changes in accounting policies madesince the date of the last Annual Report are
set out on page 56 of this Annual Report andNote 1 of the Financial Report and in thepress release available on www.anz.com>shareholders >half year and full year results.
Political Donations
In the year to 30 September 2003, ANZ donated$75,000 to the Liberal Party and $50,000 to the
Labor Party.

43

Compensation> CEO compensation – to review and recommend
to the Board for approval, corporate goals andobjectives relevant to the compensation of the
Chief Executive Officer (CEO), to evaluate theperformance of the CEO in light of those goals
and objectives, and to recommend to the Board
the CEO’s compensation level based on thisevaluation and other relevant factors (the CEO
does not participate in discussion or decisions
relating to his own compensation);

ANZ’s compensation philosophy focuses on
creating value for shareholders.
The following underpins ANZ’s compensation
philosophy:> Creation of an environment where people canexcel with energy and passion;> Focus on creating and enhancing value for ANZ’sshareholders;> Differentiation of individual compensationcommensurate with contribution to overall
results and according to individual
accountability, performance and potential;> Compensation governance – to review andapprove any statement on ANZ’s compensation
policy and any executive compensation
disclosures that may be required by any listing
rule, legislation, regulatory body, or otherregulatory or legislative requirement, or any
statement proposed for inclusion in ANZ’sannual report; and> Significant emphasis on “at risk” components of
total compensation linked to the enhancementof shareholder value through improvements in
Economic Value Added™ (EVA™); and> The provision of a competitive compensation
proposition to successfully attract, motivate andretain the high quality work force required todeliver on ANZ’s business and growth strategies.

> Non-executive directors’ fees – to review thecompensation of non-executive directors
annually.

External Advisors (Compensation)

The Role of the Compensation
Committee

Group People Capital and Independent nonexecutive directors have, from time to time,received advice from a range of external advisors,
including executive search firms.

The Compensation Committee (see page 41) is
responsible for (amongst other things):> ANZ’s general compensation program – in
consultation with senior management, to review
and recommend to the Board for approval, ANZ’sgeneral approach to compensation, and tooversee the development and implementationof compensation programs;

Non-executive directors

Non-executive directors’ fees are within the limit
agreed to by shareholders at the Annual General
Meeting held on 13 December 2002, and are set
at levels that fairly represent the responsibilitiesof, and the time spent by, the non-executive
directors on Group matters.
Directors may elect to take all or part of their feesin shares under the Directors’ Share Plan. Under
this plan, shares are bought on market for an
amount equivalent to the fee that would havebeen paid to the Director and are held in trust for
the Director for at least one year.
Retirement and Termination Benefits
All non-executive directors participate in the ANZ
Directors’ Retirement Scheme. Under the ANZ
Directors’ Retirement Scheme, a lump-sum
retirement benefit is payable to non-executive
directors upon their ceasing to be a director. The
lump-sum retirement benefit payable where thenon-executive director has held office for 8 years
or more is equal to the total emoluments paid or
payable to the non-executive director in respectof the 3 years immediately preceding the nonexecutive director ceasing to be a non-executive
director. For periods of less than 8 years, a
proportionate part of such emoluments ispayable. The non-executive directors are notentitled to the statutory entitlements of longservice leave and annual leave.

Compensation
Non-executive directors’ fees are determinedby the Board of Directors based on advice fromexternal advisors and with reference to fees paid
to other non-executive directors of comparable
companies.

> Executive compensation program – to review
and recommend to the Board for approval,
compensation programs applicable to ANZ’s
executives;

Emoluments
For the year ended 30 September 2003 details of the emoluments for the non-executive directors are set out below:
Fees Paid
Cash$

Value ofdeferred shares1$

Associatedentity board$

Chairman’s
fee$

Retirement
benefit’s paid3$

Benefits accrued
for the year
but not paid3$

Superannuation
contribution
$

Total
$

C B Goode (Chairman)J C Dahlsen
Dr R S Deane
J K Ellis
D M Gonski
M A Jackson
Dr B W Scott

76,000110,000
110,000
110,000
110,000
88,000110,000

274,000––––
22,000–––100,9962–
42,500–––25,000–25,000––25,000

–
–
–
–
–
–
–

35,00035,00032,042
76,56391,8547,500
32,50010,52010,5209,900
10,52010,5209,900
10,520395,520
180,520
252,938
222,083
254,874
127,400
178,020

Total

714,000

296,000

143,496

75,000–310,459

72,4001,611,355

Name

1 Participation in Director’s Share Plan. Value of shares at the date they were purchased on market
2 Fees paid in NZ$ converted at average exchange rate of 1.1139
3 If each non-executive director had ceased to be director as at 30 September 2003, the following amounts would have been payable: Mr C B Goode $1,015,000, Mr J C Dahlsen $367,500, Dr R S Deane$599,936, Mr J K Ellis $367,500, Mr D M Gonski $91,854, Ms M A Jackson $332,500, Dr B W Scott $363,750

44Compensation

Compensation Structure

Variable compensation

Variable compensation – Long-Term Incentive

ANZ’s compensation structures are designed tomeet the needs of the specialised business units
and the markets in which they operate. As aresult, the mix of compensation components canvary across the organisation although, wherepracticable, ANZ applies structures andopportunities on a consistent basis for similarroles and levels. There is a strong emphasis onvariable pay opportunities with total employeecompensation differentiated significantly on thebasis of individual and/or business unit
performance.

The following summarises how the variable
components of compensation are determined:

Long-Term Incentives are used as a mechanism
to link a significant portion of executives’compensation to the attainment of sustained
growth in shareholder value. The size of LTI
grants is influenced significantly by individual
performance and the assessed potential for
executives to deliver on ANZ’s long-term growthand business strategies.

> Key Result Areas (performance targets) are set atthe beginning of each half-year;> At the end of each half, performance is assessedagainst targets;> Executives are ranked against peers according toperformance;

Executive Compensation> An executive’s total bonus (STI) is based
principally on Business Unit and/or ANZ Group
performance, individual ranking and total
target reward;

ANZ’s executive compensation policy limits
increases in fixed compensation and emphasises“at risk” compensation> Half of the bonus is paid in cash and half
the bonus is allocated as shares deferred for
3 years;

The executive compensation program is designed
to support the delivery of specific performancetargets and the execution of agreed businessand growth strategies. This program aims todifferentiate compensation on the basis ofachievement against both individual andbusiness unit performance targets which arealigned to sustained growth in shareholder value.

> Executives are also assessed and ranked on
their future potential:

The executive compensation program comprises
the following components:> Fixed compensation component: salary, benefits
and superannuation contributions. The fixedcomponent is generally targeted to the market
median levels being paid in the finance industry
in the relevant global markets in which ANZ
operates.
> Variable or “at risk” component:> Short-Term Incentive (STI) consisting of cash
and deferred shares, and> Long-Term Incentive (LTI) consisting of
performance-hurdled options and deferredshares.
Fixed compensation
The fixed component of executive compensationis reviewed annually based on performance andmarket data. Increases in fixed compensation arelimited, in favour of a strong emphasis on variable
compensation.

> An executive’s potential, together with theirranking, influences the size of their LTI grant;> LTIs are allocated half as shares deferred for
3 years and half as performance-hurdled
options. Shares are allocated at market priceand options are allocated on the basis ofindependent valuations at the time ofallocation.
Variable compensation – Short-Term Incentive
Short-Term Incentives encourage executives tosupport ANZ’s strategic objectives by providing
rewards that are significantly differentiated on thebasis of achievement against performance targets.
The size of STI payments is based, firstly, on
overall group and business unit performance
results and, secondly, on individual performanceagainst financial and non-financial measures.
Executives are ranked against their peers with
better relative performance attracting a greater
proportion of the incentive “pool”.
Short-Term Incentives are paid half in cash andhalf in shares deferred for 3 years. The STI
deferred shares are administered under the ANZ
Employee Share Acquisition Plan.

The deferred shares component of the LTI isadministered under the ANZ Employee Share
Acquisition Plan. The shares are deferred forthree years.
The options component of the LTI is administeredunder the ANZ Share Option Plan. The options canonly be exercised between 3 years from grant andwhen they lapse after 7 years. The following typesof LTI options may be granted to executives:> Index-linked options – These options have adynamic exercise price, i.e. the exercise price will
be adjusted in line with the movement in the
S&P/ASX 200 Banks (Industry Group)
Accumulation Index (excluding ANZ). As an
additional constraint, the option can only be
exercised if the adjusted exercise price is equal
to or above the original issue price. Index linked
options ensure that executives are only
rewarded for the true out-performance of ANZ’sshare price over and above the movement in theabove Index.
> Hurdled options – These options have an
exercise price set to the market value at the timeof allocation. There are two hurdles:
1. Half the options may only be exercised once
the ANZ total shareholder return (ANZ TSR)
exceeds the percentage change in the
S&P/ASX 200 Banks (Industry Group)
Accumulation Index, measured over the same
period (since issue) and calculated as at thelast trading day of any month (once theexercise period has commenced).
2. The other half of hurdled options may only be
exercised once ANZ TSR exceeds thepercentage change in the S&P/ASX 100
Accumulation Index, measured over the same
period (since issue) and calculated as at thelast trading day of any month (once theexercise period has commenced).

45

Chief Executive Officer

purchased under the Directors’ Share Plan. Mr
McFarlane has always elected to receive shares.

Compensation> Long-Term Incentive: Mr McFarlane’s Long-Term
Incentive was approved by shareholders at theAnnual General Meeting in December 2001. Four
tranches of options were approved for issue:
500,000 in 2001; 1,000,000 in 2002;
1,000,000 in 2003 and 500,000 in 2004.
The exercise of these options is subject toperformance hurdles being satisfied.
Mr McFarlane’s specific performance hurdles
are indicated in Note 50 of the Financial Report.

Mr McFarlane has an employment agreement with
ANZ which terminates on 1 October 2006 and may
be extended or renewed by mutual agreement.
The termination arrangements associated withthis agreement are described in the section on
Retirement and Termination Benefits below.
The structure of Mr McFarlane’s compensation,
which is in accordance with his agreement, is asfollows:> Fixed Compensation: Consists of salary, benefits
and superannuation contributions. Mr McFarlane
may elect to receive a proportion of his Fixed
Compensation in the form of shares purchased
under the Directors’ Share Plan.
> Short-Term Incentive: Mr McFarlane’s Short-Term
Incentive is determined under the ANZ Executive
Remuneration Scheme. It is based on theGroup’s EPS Growth and EVA performanceagainst target and an annual assessment of Mr
McFarlane’s achievement of specific objectives
agreed with the Board. Mr McFarlane’s ShortTerm Incentive may be paid in cash or in shares

The compensation of Mr McFarlane for the year
ended 30 September 2003 is set out in thesection on Emoluments below.
Retirement and Termination Benefits
Mr McFarlane can terminate his employment
agreement by providing 12 months’ notice. ANZ
may terminate the employment agreement by
providing notice or payment in lieu of notice equal
to the unexpired term of the employment
agreement (which ends on 1 October 2006).
Payment in lieu of notice is based on TEC (Total

Employment Cost package comprising salary or
fees, benefits and superannuation contributions).
In circumstances of serious misconduct, Mr
McFarlane is only entitled to payment of TEC up todate of termination. Payment of accumulated
superannuation benefits plus statutory
entitlements of long service leave and annual
leave (calculated on the basis of salary or fees)
applies in all events of separation.
In the event of resignation not approved by the
Board or dismissal for serious misconduct, allunexercised options will be forfeited. In the eventof termination on notice, all option grants may be
exercised. Upon separation, option entitlements
must be exercised within 6 months of termination.
In the event of serious misconduct, shares held in
the Directors’ Share Plan will be forfeited, but will
be released on resignation or termination on
notice.

Emoluments
For the year ended 30 September 2003 details of the emoulments for the CEO are set out below:
Annual Compensation
Year Ended

Salary or fees1$

Superannuation
contributions$

Performance Related Bonus
Deferred shares1
$

Total
$

September 2003
September 2002

1,412,250
1,419,462

87,75080,538982,121
1,398,236

2,482,121
2,898,236Name

J McFarlane (CEO)1 J McFarlane’s performance-related bonus and part of his salary have been used to purchase on market deferred shares under the Directors’ Share Plan. Shares obtained have not been amortised

Long-Term Incentive (LTI) amortisationName

J McFarlane (CEO)Year Ended

Amortised cost of LTI
options granted $2

September 2003
September 2002

2,538,759
1,747,071

2 Details of options and deferred shares granted under long-term incentive arrangements appear in the Annual Report of the year in which they are granted
In accordance with Australian Securities and Investments Commission guidelines, remuneration includes a proportion of the fair value of options and deferred shares granted pursuant to the Company’s equitybased incentive plans (both short-term and long-term) and which had not yet fully “vested” as at the commencement of the financial year. These values represent the amortised cost of options and deferredshares as determined at grant date and are progressively allocated on a straight-line basis over the “vesting period” for options and deferred shares. It is assumed that 100% of all options and deferred shares
granted will vest and no adjustments will be made to reverse amounts in relation to options that never vest (eg through forfeiture)
The amount included as remuneration is not related to nor indicative of the benefit (if any) that individual executives may ultimately realise should the options become exercisable or the deferred shares vest.
The fair value of options as at their effective date of grant has been determined in accordance with the fair value measurement provisions of Accounting Exposure Draft ED108 (input assumptions are detailed in
Note 50 of the Financial Report). The fair value of deferred shares is the weighted average price of the Company’s shares during the one week up to and including the allocation dateLong-Term Incentive
Options granted during year3
Name

Number Issued

Date

Hurdled Options
Exercise Price $4

J McFarlane (CEO)1,000,000

31.12.2002

17.41

3 J McFarlane’s options expire five years from the date of grant. These options are exercisable between two and five years of the date of grant if certain performance conditions are met. Each option entitles
J McFarlane to purchase one ordinary fully paid share in the Company. Estimated value per option has been calculated as at the date of issue in accordance with the fair value measurement provisions of
Accounting Exposure Draft ED108 and was $2.09 (31 December 2002)
4 The exercise price is set at the weighted average price of the Company’s shares during the five trading days immediately after the Annual General Meeting of the Company held in respect of the financial year of
the Company that ended before the date of grant46

Compensation

Executives
Emoluments
For the year ended 30 September 2003 details of the Emoluments of the six executives of the Group and Company receiving the highest emoluments are
set out below:

Annual Compensation including Short-Term Incentive (STI) amortisationName

D L Boyles
G Branston
R Edgar
E Funke Kupper
P J O Hawkins
P R Marriott

1
2
3
4

Year Ended

September 2003
September 2002
September 20033
September 20024
September 2003
September 2002
September 2003
September 2002
September 2003
September 2002
September 2003
September 2002

Salary or fees$

Benefits1$

654,850
654,189
445,055
469,760
583,500
467,951654,850
658,446
593,432
705,761
654,850
658,446

4,200
8,227
24,10525,97328,47528,245
4,200
3,970
4,200
3,970
4,200
3,970

Performance Related Bonus
Amortised cost of
STI deferred shares
Cash component
granted2$$

192,508
220,355
484,053458,891
222,004
196,676
210,008
261,865
200,016
213,198
239,017
256,671

Superannuation
contributions
$

Total
$

40,95037,584––38,02528,18840,95037,58443,87540,26940,95037,584

1,173,428
1,350,502
1,414,389
1,584,640
1,107,636
1,054,300
1,223,838
1,398,088
1,120,459
1,423,649
1,233,509
1,378,532

280,920
430,147
461,176
630,016
235,632
333,240
313,830
436,223
278,936
460,451
294,492
421,861

Benefits include the provision of housing, cars and parking, private health insurance, subsidised loans and certain other expenses
Refer to footnote 2 under Chief Executive Officer Emoluments
Conversion rate of GBP @ 0.3822
Conversion rate of GBP @ 0.3621

Long-Term Incentive (LTI) amortisation
Year Ended

Amortised cost of LTI
options and deferredshares granted $5

September 2003
September 2002
September 20036
September 20027
September 2003
September 2002
September 2003
September 2002
September 2003
September 2002
September 2003
September 2002

626,437
556,638
257,813
173,597
341,535
193,620682,536
576,174
562,848564,715645,841
561,122

Name

Number9

Value $10

D L Boyles
G Branston
R Edgar
E Funke Kupper
P J O Hawkins
P R Marriott

10,24827,472
12,045
12,702
11,31813,930186,301
500,406
219,500
230,850
205,836
253,467Name

D L Boyles
G Branston
R Edgar
E Funke Kupper
P J O Hawkins
P R Marriott

5 Refer to footnote 2 under Chief Executive Officer Emoluments
6 Conversion rate of GBP @ 0.3822
7 Conversion rate of GBP @ 0.3621

Short-Term Incentive
Deferred Shares granted during year8

8 Deferred shares issued as Short-Term Incentives may be held in trust for up to ten years and are restricted for up to three years
9 Represents number granted in relation to the year ended 30 September 2003 (ie. granted in October 2002 and May 2003)
10 Based on the Company share price at grant date determined as the weighted average price of the Company’s shares during the one week up to and including the allocation date.
Deferred shares are granted in or around April and October of each year47

Long-Term Incentive
Deferred Shares granted during year11
Name

Number12

Value $13

D L Boyles
G Branston
R Edgar
E Funke Kupper
P J O Hawkins
P R Marriott

16,1003,100
16,10014,80010,80018,400293,426
56,476
293,741
269,668
196,973
335,489

11 Deferred shares issued as Long-Term Incentives may be held in trust for up to 10 years and are restricted for three years
12 Refer to footnote 9 under Short-Term Incentive
13 Refer to footnote 10 under Short-Term Incentive

Options granted during year14
Name
Value $D L Boyles
G Branston
R Edgar
E Funke Kupper
P J O Hawkins
P R Marriott

Number issued

Date

Index linked options
base exercise price $15

Number Issued

Date

Index linked options
base exercise price $15

132,000
24,800147,000
119,000
96,000
158,000

20.05.2003
20.05.2003
20.05.2003
20.05.2003
20.05.2003
20.05.2003

18.32
18.32
18.32
18.32
18.32
18.32

140,000
28,600125,000
131,000
87,000153,000

23.10.2002
23.10.2002
23.10.2002
23.10.2002
23.10.2002
23.10.2002

18.06
18.06
18.06
18.06
18.06
18.06

14 All options expire seven years from the date of grant. These options are exercisable between three and seven years of the date of grant. Each option entitles the holder to purchase one ordinary fully paid
share in the Company. Estimated values per option have been calculated as at the dates of issue in accordance with the fair value measurement provisions of Accounting Exposure Draft ED108 and were:$1.10 (23 October 2002), $1.04 (20 May 2003)
15 The prevailing exercise price will be the base exercise price indexed by the change in the S&P/ASX 200 Banks (Industry Group) Accumulation Index excluding ANZ. The prevailing exercise price can be nolower than the base exercise price, which is set at the weighted average price of the Company’s shares during the week up to and including the allocation date

Retirement and Termination Benefits for
executives (excluding the Chief Executive Officer)
The following separation arrangements vary inaccordance with the level of an executive:> ANZ may terminate the executive’s employment
agreement by providing 6 or 12 months’ notice.
> The executive may terminate their employment
agreement by providing 3 or 12 months’ notice.
> In the event that no suitable position exists, theexecutive is entitled to a severance payment of
6 or 12 months’ Total Employment Cost (TEC).
In circumstances of serious misconduct, theexecutive is only entitled to payment of TEC up todate of termination. Entitlement to accumulated
superannuation benefits and the statutory
entitlements of long service leave and annual
leave (calculated on the basis of Salary or Fees)
applies in all events of separation.

In the event of resignation or dismissal for serious
misconduct, all unexercised options and unvested
deferred shares will be forfeited. In the event oftermination on notice, all STI deferred shares will
vest, and all unexercised options and unvested LTI
shares will be are forfeited.
In the event of retrenchment, all STI deferredshares will vest. A pro-rated entitlement to options
granted since 24 April 2002 applies. All prior
grants may be exercised. LTI deferred shares will
be pro-rated on grants made since 23 October
2002. All prior LTI shares will vest.

48

Guide to Concise
Financial Report
Introduction
The Annual Report of ANZ is a key communication
to our stakeholders. ANZ presents two reports, the
ANZ Annual Report (this document) and the ANZ
Financial Report. Both reports show how ANZ
performed during the year ended 30 September
2003 and the overall financial position of theGroup at the end of the year. ANZ also publishes
an announcement to the market each half year.
All these documents can be accessed on
www.anz.com
ANZ prepares its financial reports in accordancewith Australian Accounting Standards. Particular
terms required by the Standards may not befamiliar to some readers and this guide is designed
to assist readers to understand the report.

Annual Report Contents
The ANZ Annual Report has two main sections –the front section (pages 1 to 48) and the Concise
Financial Report (pages 49 to 63). The front
section contains information about significant
matters that impacted the management andperformance of ANZ during the year, including
discussion and analysis of the financial results,
updates on the specialist business units andGroup-wide programs and information on the
directors and senior management. The Concise
Financial Report contains financial information
required by Australian Accounting Standards
including the Consolidated Statements ofFinancial Performance, Financial Position andCash Flows. These statements have been
prepared by ANZ’s staff, reviewed by ANZ’s Board
and Audit Committee, and audited by our
external auditor, KPMG. The assets, liabilities andresults of controlled companies are included
within the consolidated results of the Group.

Consolidated Statement of
Financial Performance(see page 53)
Financial performance refers to ANZ’s profit for
the year including:> the sources of ANZ’s income split between
net interest income and other income> the expenses incurred by ANZ during the year
> provision for doubtful debts> ANZ’s tax expense for the year.
The key figure to look at is “Net profit
attributable to shareholders of the Company”,
which is the profit for the year.

Consolidated Statement of
Financial Position (see page 54)
This Statement is a summary of the assets,
liabilities and shareholders’ equity as at 30
September 2003. It shows what ANZ as a Groupowns as assets, what it owes as liabilities andthe ANZ Group’s net assets. Net assets are equal
to total shareholders’ equity. The assets andliabilities are listed in order of liquidity, withthose assets representing cash shown first
and those hardest to convert to cash i.e. fixed
assets, last.

Consolidated Statementof Cash Flows (see page 55)
The Consolidated Statement of Cash Flowssummarises the Group’s cash payments andcash receipts for the financial year. The values
may differ from those shown in the Consolidated
Statement of Financial Performance because theConsolidated Statement of Financial
Performance is prepared on an accrual
accounting basis.

Interest margin – a measure which tells us how
much interest we have generated by lending
money after accounting for our costs of borrowingthat money, either from customers or financial
markets. The interest margin is calculated by
dividing net interest income by average interestearning assets. This is expressed as a percentage.
Market capitalisation of ordinary shares – thestock market’s assessment of a company’svalue, calculated by multiplying the numberof shares on issue by the current share price.

Cash in the Statement refers to cash on hand,bank deposits and other forms of highly liquid
investments that can readily be converted to cash.

Market risk – see page 12

Directors’ Declaration(see page 60)

Non-interest income – includes fees, profits on
capital markets trading, foreign exchange earningand any other revenue that is not interest income.

This declaration contains the director’s sign-off
that the Annual Report complies with AccountingStandards and provides a true and fair viewof the performance and financial position of
the Company.

Operating revenue – the income ANZ generates
from its activities. This includes net interest, fee
income and earnings from capital markets andforeign exchange dealings.

Net profit after tax(NPAT) – see page 2

Operational risk – see page 12

Auditors’ Report (see page 61)
The independent audit report is the external andindependent opinion on the Financial Report. It
provides the reader with an independent
opinion on the Financial Report.

Organic growth – where we have increased
our business through growth in our existing
operations rather than through acquisitionof another company.
Return on equity (ROE) – see page 2

Arrears – see page 12

Service Transfer Pricing – is used to allocate
the cost of services that are provided by central
areas of the company to each business unit.

Cost-to-income ratio (CTI) – see page 2

Significant transactions – see page 3

Key Terms

Credit rating – see page 2
Credit risk – see page 12
Dividend per share (DPS) – see page 2
Earnings per share (EPS) – see page 2
Economic value added (EVA™) – see page 2
Equity – the residual interest in the assets
of a company after deducting all liabilities.
As a publicly listed company, our shareholders
own these net assets. This is calledshareholders’ equity.
Equity standardisation – EVA™ principles arein use throughout the Group, whereby risk
adjusted capital is allocated and charged against
business units. Equity standardised profit isdetermined by eliminating the impact ofearnings on each business unit’s book capitaland attributing earnings on the business unit’s
risk adjusted capital. This enhances
comparability of business unit performance.
Geographic results are not equity standardised.
Franked dividends – dividends paid by thecompany out of profits on which the company
has already paid Australian tax.
Full time equivalent (FTE) – our total staff numbers
based on the working week. For example, twopart-time staff in Australia each working 20
hours a week would be defined as one FTE as
their hours add up to 40 hours a week.

Provisions and doubtful debts
Economic loss provisioning (ELP) (or provision
for doubtful debts) – each month the Group
recognises an expense for credit losses basedon the expected average annual loss of principal
over the economic cycle for each part of the loan
portfolio. The method used by the Group for
determining this monthly expense charge isreferred to as ‘economic loss provisioning’ (ELP).
The Group uses ELP models to calculate theexpected loss by considering:> the history of credit loss for each type and risk
grade of lending; and> the size, composition and risk profile of thecurrent loan portfolio.

Net specific provision – the transfer from thegeneral provision to the specific provision(representing new and increased specificprovisions less specific provision releases)
less recoveries.
Non accruals – loans or other credit facilities
where there is reasonable doubt about thecollectability of interest, fees (past and future) or
principal outstanding, or where concessionalterms have been provided because of thefinancial difficulties of the customer.
Specific provision – the Group maintains
a specific provision for doubtful debts arisingfrom its exposure to organizations and credit
counterparties. When it is identified that full
repayment of a loan on our book is unlikely,
we will create a specific provision for that loan.

ConciseFinancial Report
Our Capital Framework
Adjusted common equity (ACE) – Tier one capitalless preference shares at current rates anddeductions from regulatory capital.
Capital adequacy ratio – a measure that compares
our regulatory capital with our risk-weighted assets.
Risk-weighted assets – the Group’s assets
adjusted for the risk of the counterparty. The
relative risk weight for each counterparty isdetermined by the Bank for International
Settlements. For example, a mortgage with a LVR(loan to valuation ratio) below 80% carries a risk
weighting of 50%.
Tier One capital – the highest quality capitalfrom a risk perspective. It consists of paid-up
ordinary shares, general reserves, retained
earnings, and certain preference shares lessspecified deductions.
Tier Two capital (or supplementary capital) –includes general provisions for doubtful debts(subject to a limit), asset revaluation reserves,mandatory convertible notes and similar capital
instruments.

Due from other financial institutions – themonies owed to ANZ by other banks andfinancial institutions.
Goodwill – the remaining amount, after
amortisation, of the historic excess over net
asset value paid by ANZ for the acquisitionof other companies.
Investment securities – the investments insecurities that ANZ intends to hold to maturity.
Liquid assets – the cash or cash equivalents
held by ANZ.
Net loans and advances – ANZ’s largest asset
by value, this consists of the loans ANZ has
advanced to individuals and organisations,less an allowance for doubtful loan recoveries.
Other assets – includes assets that do not fit
into the categories listed here including theincrease in market value of amounts receivablefrom derivatives (refer also to ‘Payables andother liabilities’) and interest accrued and not
yet received.
Premises and equipment – the value of all
the land, buildings, furniture, equipment, etc.
which is owned by the Group.

Understanding the Consolidated
Statement of Financial Position

Regulatory deposits – the cash ANZ has
deposited at central banks to meet regulatory
requirements.

This financial statement reports a company’s
assets or resources and the claims against them –including liabilities or obligations of a businessand shareholders’ equity.

Shares in associates and joint venture entities– ANZ’s investment in companies where theinterest is large enough to provide significant
influence rather than control over the company,or where ANZ has joint control.

Asset – resources controlled by the company.
Assets can be in the form of money, such as cash
or amounts owed; they can be fixed assets such as
property or equipment; or they can be intangibles
such as a company’s goodwill, trademarks andpatents. For accounting purposes, assets are
future economic benefits which are controlled by
the entity and result from past transactions or
events. For banks, loans are assets.
Liability – a company’s obligations to a lender,
supplier of goods and services, a tax authority
and others. For accounting purposes, liabilities
are future sacrifices of economic benefits that anentity is obliged to make as a result of pasttransactions or events. For ANZ, liabilities arelargely money we have borrowed to fund ourlending activities.
Numbers shown in brackets ( ) – the brackets
are there to indicate a negative figure, insteadof using a minus symbol.
When reading ANZ’s Statement of Financial
Position, you will see it divided into “Assets” and“Liabilities”. Here is an explanation of the main
entries under each heading.

AssetsTrading securities – the securities held by ANZ
that are regularly bought and sold as part ofits normal trading activities.

Liabilities
Bonds and notes – the Group’s liability forlong-term financing bond and note facilities
issued in wholesale markets to provide
long-term financing.
Due to other financial institutions – the monies
owed to other Banks and financial institutions
by ANZ.
Deposits and other borrowings – ANZ’s largest
liability, this represents ANZ’s obligations toour depositors.
Income tax liabilities – the amounts payable
in respect of income tax.
Liability for acceptances – the amount owed
to customers who have purchased customer
acceptances from the Group.
Loan capital – the long-term funding that would
rank behind other creditors, and ahead of only
shareholders’ in the event of a winding up.

Customer’s liabilities for acceptances – theamounts owed to the Group from customers
for acceptances, a form of lending.

Payables and other liabilities – includes various
operating creditors, accrued interest payable
and market value of amounts payable onderivatives held by the Group.

Deferred tax assets – the future tax savings to
the Group as a result of timing differences thatarise due to different treatment of transactions
under accounting and tax rules.

Provisions – the Group’s accrued obligations
for long service, annual leave and otherobligations, which although known, are
not yet payable.

49

This Concise Financial Report cannot be
expected to provide as full an understandingof the Group’s financial performance, financial
position and financing and investing activities as
the Group’s 2003 Financial Report.
Analysis and discussion of the concise financial
report is on pages 2 to 3 and 8 to 11.

2003 Financial Report
A copy of the Group’s 2003 Financial Report,
including the independent Auditors’ Report, isavailable to all shareholders, and will be sent toshareholders without charge upon request. The
Financial Report can be requested
by telephone (Australia: 1800 11 33 99,
Overseas: (+ 61 3) 9615 5989) or by email
to investor.relations@anz.com

Contents
Ten Year Summary
50
Directors’ Report
51
Statement of Financial Performance
53
Statement of Financial Position
54
Statement of Cash Flows
55
Notes to the Concise Financial Statements 56
Directors’ Declaration
60
Auditors’ Report
61
Financial Highlights in Key Currencies
61
Exchange Rates
61
Shareholder Information
62
Shareholder Feedback Form
Last page

Shareholders’ Equity
The components that make up shareholders’equity are:> Ordinary and preference share capital – theamounts received when shares were originallysubscribed for;> Reserves – retained profits plus surpluses ordeficits arising from (for example) revaluationsof properties, foreign exchange gains or losses
on offshore operations; and> Retained Profits – the amount of profits
retained by the Group.

50

Ten Year Summary1,2
2003
$m

2002
$m

2001
$m

2000
$m

1999
$m

1998
$m

1997
$m

1996
$m

1995
$m

1994
$m

Financial Performance
Net interest income
Other operating income
Operating expenses

4,311
2,808
(3,228)

4,018
2,970
(2,905)

3,833
2,573
(3,092)

3,801
2,583
(3,314)

3,655
2,377
(3,300)

3,547
2,142
(3,442)

3,437
2,110
(3,502)

3,327
1,839
(3,397)

3,084
1,754
(3,116)

2,794
1,793
(3,001)

Profit before tax, debt provisionand prior period abnormals
Provision for doubtful debts1
Income tax expense
Outside equity interests

3,891
(614)
(926)
(3)

4,083
(860)
(898)
(3)

3,314
(531)
(911)
(2)

3,070
(502)
(863)
(2)

2,732
(510)
(736)
(6)

2,247
(487)
(576)
(9)

2,045
(400)
(466)
(8)

1,769
(175)
(469)
(9)

1,722
(237)
(442)
(10)

1,586
(388)
(388)
(7)

Net Profit after tax
before prior period abnormals
Net prior period abnormal profit (loss)

2,348
–

2,322
–

1,870
–

1,703
44

1,480
–

1,175
(69)

1,171
(147)

1,116
–

1,033
19

803
19

Net profit after tax

2,348

2,322

1,870

1,747

1,480

1,106

1,024

1,116

1,052

822

Financial Position
Assets2
195,591
Net Assets
13,787
Tier 1 capital ratio
7.7%
20.6%
Return on average ordinary equity3,4
1.2%
Return on average assets3
Cost income ratio5
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%

138,241
6,993
6.6%
17.2%
0.7%
63.1%

127,604
6,336
6.7%
18.3%
0.9%
65.8%

112,587
5,747
6.6%
17.9%
0.9%
64.4%

103,874
5,504
6.8%
15.6%
0.8%
65.4%

Shareholder value – ordinary shares
Total return to shareholders(share price movement plus dividends) 6.7%
Market capitalisation
27,314
Dividend
95cFranked portion–interim 100%
–final100%
Closing share price–high$19.23–low$15.95–30 Sep $17.95

15.3%
26,544
85c
100%
100%
$20.38$16.33$17.6525.5%
23,783
73c
100%
100%
$17.39$13.44$15.9835.3%
20,002
64c
100%
100%
$13.46$9.60$13.2819.6%
16,04556c
75%
80%$12.45$8.58$10.25–15.6%
13,88552c
60%
60%$11.88
$8.45
$9.02

62.4%
17,017
48c
100%
100%
$11.58$7.10$11.2833.9%
10,687
42c
50%
100%
$7.28
$5.41
$7.23

52.4%
8,199
33c
0%
33%
$5.75
$3.55
$5.67

2.0%
5,293
25c
0%
0%
$5.68
$3.78
$3.91

147.3c57.8%$6.58

117.4c62.0%$5.96

106.8c
59.1%
$5.49

90.6c
62.1%
$5.21

72.6c
67.8%
$4.98

68.6c
61.6%
$4.59

76.3c
55.5%
$4.24

69.9c
49.1%
$3.94

55.9c
46.4%
$3.58

1,503.9$19.24$18.32

1,488.3$15.05$18.33

1,506.2$11.62$14.45

1,565.4$10.95$11.501,539.4$10.64$10.78

1,508.6
$9.77
$9.92

1,478.1
$5.59
$7.60

1,446.0
$4.40
$6.27

1,353.6
$3.78
$3.73

1,019

1,018

1,056

1,087

1,147

1,205

1,473

1,744

1,881

2,026

23,137
223,546

22,482
199,556

22,501
181,035

23,134
179,244

30,171
214,151

32,072
151,564

36,830132,450

39,721
121,847

39,240114,829

39,642
121,070

Share information(per fully paid ordinary share)
Earnings per share–basic148.3c64.2%
Dividend payout ratio6
Net tangible assets$7.49
No. of fully paid ordinary
shares issued (millions)
1,521.7–interim $18.48
DRP issue price7–final–Other information
Points of representation
No. of employees (full timeequivalents)8
No. of shareholders9

1 From 1997, the annual debt provision charge has been calculated based on economic loss provisioning; prior year data has not been restated for this change in measurement approach
2 Data for 1998, 1999, 2000 and 2001 includes the consolidation of assets in the statutory funds of ANZ Life as required by an accounting standard applicable from 1 October 1999. Not applicable for 2002
onwards, due to the sale of ANZ Life to ING Australia Ltd (INGA) on 1 May 2002
3 Excludes significant transactions and outside equity interests
4 For the periods 1997 to 2002 the return on average ordinary equity calculation accrues the dividend over the year, for 2003 dividends may no longer be accrued and as such are not included in the calculation of
return on average ordinary equity
5 Excludes goodwill amortisation, abnormals and significant transactions
6 For 2003 the dividend payout ratio includes the final dividend of $777 million which is proposed but not provided for in terms of AASB 1044 Provisions, Contingent Liabilities and Contingent Assets
7 DRP represents Dividend Reinvestment Plan
8 Prior to 1997, excludes temporary staff
9 For 2000, 2001, 2002 and 2003 the number of shareholders does not include the number of employees whose shares are held by ANZEST Pty Ltd as the trustee for shares issued under the termsof any ANZ employee incentive plan

51

Directors’ Report

Review of Operations

The directors present their report together withthe concise 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 2003 and the auditors’ report
thereon. The information is provided inconformity with the Corporations Act 2001.

A review of the operations of the Group during
the financial year and the results of those
operations are contained in the Chairman’s
Report, the Chief Executive Officer’s Report
and the Chief Financial Officer’s Review on
pages 4 to 5, 6 to 7 and 8 to 11 respectively ofthis Annual Report.

State of Affairs

Principal Activities
The principal activities of the Group during theyear were general banking, mortgage lending,leasing, hire purchase and general finance,international and investment banking, nominee
and custodian services, executor and trustee
services and through its joint venture ING
Australia Limited (INGA), life insurance andwealth management.
There has been no significant change in thenature of the principal activities of the Groupduring the financial year.
At 30 September 2003, the Group had 1,019
points of representation.

ResultConsolidated net profit after income tax
attributable to shareholders of the Company was$2,348 million. Further details are contained in
the Chief Executive Officer’s Report and theChief Financial Officer’s Review on pages 6 to 7
and 8 to 11 respectively of this Annual Report.

Dividends
The directors propose that a final fully franked
dividend of 51 cents per fully paid ordinary
share be declared on 13 November 2003 and be
paid on 19 December 2003. The proposed
payment amounts to $777 million.
During the financial year, the following fully
franked dividends were paid on fully paid
ordinary shares:
Type

Cents pershare

Amount before
bonus options
$m

Final

46

692

Interim 44

666

Date ofpayment

13 December
2002
1 July 2003

The final dividend for the year ended
30 September 2002 was paid on 13 December
2002 and is detailed in the Directors’ Report
dated 4 November 2002.

In the directors’ opinion, there have beenno significant changes in the state of affairs of
the Group during the financial year, other than:> Net loans and advances increased by 13%
from $132,060 million to $149,465 million,
primarily from growth in mortgage lending
and commercial lending in Australia and
New Zealand.
> Deposits and other borrowings increasedby 10% from $113,259 million to $124,494
million.
> The charge for doubtful debts has been
determined using economic loss provisioning
and is based on the Group’s risk management
models.
The economic loss provision charge decreased
from $860 million (including a $250 million
special provision) to $614 million. Our economic
loss provisioning models recognise that thegeneral provision balance must be regularly
reviewed, and in rare situations, increased tocover unusual events. An additional charge of$100 million was taken to recognise continued
uncertainty and expected levels of default in theoffshore lending portfolios. The balance is at an
appropriate level.
> Net specific provisions were $527 million, downfrom $728 million.
> Gross non-accrual loans decreased to $1,007
million, or 0.6% of net loans and advances
and acceptances.
> On 23 September 2003, the Company issued
10 million stapled securities, raising $1 billion(before issue costs). Further details are included
on page 56 of this Annual Report.
> During the years 1996–2002 ANZ was involved
in securities lending, equity swaps, and othersimilar kinds of transactions in the normal
course of its business of banking. The ATO had
been reviewing these transactions for sometime. On 21 February 2003, a settlement wasreached between the ATO and ANZ which
involved the payment of $262 million to the
ATO. The amount was met from ANZ’s existingtax provisions.
While the above matters are those considered
to be significant changes, reviews of mattersaffecting the Group’s state of affairs are also
contained in the Chairman’s Report, the Chief
Executive Officer’s Report and the Chief
Financial Officer’s Review.

Events since the End of the
Financial Year
Other than the acquisition of the National Bankof New Zealand and the call for the buy-backof the Trust Securities Issues (TrUEPrS) (referpage 59 of this Annual Report), no matter or
circumstance has arisen between 30 September
2003 and the date of this report that has
significantly affected or may significantly affectthe operations of the Group in future financial
years, the results of those operations or thestate of affairs of the Group in future years.

Future Developments
Details of likely developments in the operationsof the Group in future financial years arecontained in the Chairman’s Report and theChief Executive Officer’s Report. In the opinionof the directors, disclosure of any further
information would be likely to result in
unreasonable prejudice to the Group.

Environmental Regulation
The operations of the Group are not subject toany particular or significant environmental
regulation under a law of the Commonwealth orof a State or Territory. However, the operations of
the Group may become subject to environmental
regulation when enforcing securities over landand ANZ is developing policies to appropriately
manage such environmental risks.
ANZ has not incurred any environmental
liabilities during the year.

Rounding of Amounts
The Company is a company of the kindreferred to in Australian Securities andInvestments Commission class order 98/100
dated 10 July 1998 pursuant to section 341(1)of the Corporations Act 2001. As a result,amounts in this report and the accompanying
financial statements have been rounded to thenearest million dollars except where otherwise
indicated.

Shareholdings
The directors’ shareholdings, both beneficial
and non-beneficial, as at the date of this reportin the shares of the Company are detailed in
the Compensation Report on pages 43 to 47 ofthis Annual Report.

52

Share Options
Details of share options issued over un-issued
shares granted to the Chief Executive Officer,
senior executives and officers, and on issue asat the date of this report are detailed in theCompensation Report on pages 43 to 47 of thisAnnual Report, and Note 50 of the Financial
Report.
No person entitled to exercise any option has orhad, by virtue of an option, a right to participate
in any share issue of any other body corporate.
The names of all persons who currently holdoptions are entered in the register kept by
the Company pursuant to section 170 of the
Corporations Act 2001. This register may beinspected free of charge.

It is the Company’s policy that its employees
should not incur any liability for acting in thecourse of their employment legally, within thepolicies of the Company and provided they act
in good faith.
Under the policy, the Company will indemnify
employees against any liability they incur incarrying out their role. The indemnity protects
employees and former employees who incur aliability when acting as an employee, trustee orofficer of the Company, or a subsidiary of theCompany at the request of the Company.
The indemnity is subject to the Corporations Act
2001 and will not apply in respect of any liability
arising from:> a claim by the Company;> a claim by a related body corporate;

Directors’ Qualifications
and Experience
The Board comprises seven non-executive
directors who have a diversity of business andcommunity experience and one executive
director, the chief executive officer, who has
extensive banking experience. The names,
qualifications and experience of the directors
who are in office at the date of this report arecontained on pages 34 to 37 of the 2003 Annual
Report and those pages are incorporated in andform part of this report.
Special responsibilities and attendanceat meetings by directors, are shown in the
Corporate Governance Statement on pages
38 to 42 of this Annual Report.

Directors’ and Executive Officers’
Emoluments and Compensation
PolicyDetails of ANZ’s compensation policy in respectof the directors and executive officers is detailed
in the Compensation Report on pages 43 to 47of this Annual Report. Details of the emoluments
paid to each non-executive director are detailed
in the Compensation Report on page 43 of
this Annual Report. Details of the emoluments
paid to the chief executive officer and director
are detailed on page 45 of this Annual Report.
Details of the emoluments paid to the six
executives of the Company and the Groupare detailed in the Compensation Report on
pages 46 to 47 of this Annual Report and thesepages are incorporated in and form part of thisAnnual Report.

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 (sofar as may be permitted under the Corporations
Act 2001) incurred in the execution anddischarge of the officer’s or employee’s duties.

> a lack of good faith;> illegal or dishonest conduct; or> non compliance with the Company’s policies
or discretions.
The Company has entered into Deeds of Access,Insurance and Indemnity with each of its
directors and secretaries and with certain
employees and certain other individuals who act
as directors of related body corporates or ofanother company. To the extent permitted bylaw, the Company indemnifies the individual for
all liabilities, including costs, damages andexpenses incurred in their capacity as an officerof the company to which they havebeen appointed.
The Company has indemnified the trustees andformer trustees of certain of the Company’s
superannuation funds and directors, former
directors, officers and former officers of trusteesof various Company sponsored superannuation
schemes in Australia. Under the relevant Deeds
of Indemnity, the Company must indemnify eachindemnified person if the assets of the relevantfund 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 assets of the fund inaccordance with the trust deed and theSuperannuation Industry (Supervision) Act
1993. This indemnity survives the terminationof the fund. Some of the indemnified persons
are or were directors or executive officers of
the Company.

The Company has also indemnified certain
employees of the Company, being trustees andadministrators of a trust which is a subsidiary
entity, from and against any loss, damage,liability, tax, penalty, expense or claim of any
kind or nature arising out of or in connection
with the creation, operation or dissolution of thetrust, where they are acting in good faith and ina manner that they reasonably believed to bewithin the scope of the authority conferred by
the trust.
Except for the above, neither the Company nor
any related body corporate of the Company has
indemnified or made an agreement to indemnify
any person who is or has been an officer or
auditor of the Company 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 forthe benefit of the directors, secretaries, andexecutive officers of the Company, and directors,
secretaries and executive officers of relatedbodies corporate of the Company. In accordancewith common commercial practice, theinsurance policy prohibits disclosure of thenature of the liability insured against and theamount of the premium.
Signed in accordance with a resolution of thedirectors.

Charles Goode
Director

John McFarlane
Chief Executive Officer
7 November 2003

53

Australia and New Zealand Banking Group Limited and Controlled Entities
Consolidated Statement of Financial Performancefor the year ended 30 September 2003
2003
$mConsolidated
2002
$m

2001
$m

Total income

13,023

12,007

12,824

Interest income
Interest expense

10,215(5,904)

9,037(5,019)10,251(6,418)Net interest income
Proceeds, net of costs, on disposal of investments
Carrying amount of assets given up

4,311
–
–

4,018
566
(392)

3,833
–
–

Net profit on disposal of investments
Other operating income
Share of joint venture: profit from INGA joint venture
Share of associates profit (net of writeoffs)

–
2,702
55
51

174
2,765
2
29

–
2,598
–
(25)

Operating income
Operating expenses

7,119(3,228)6,988(2,905)

6,406(3,092)

Profit before debt provision
Provision for doubtful debts

3,891
(614)

4,083
(860)

3,314
(531)

Profit before income tax

3,277

3,223

2,783

Income tax expense

(926)

(898)

(911)

Profit after income tax
Net profit attributable to outside equity interests

2,351
(3)

2,325
(3)

1,872
(2)

Net profit attributable to shareholders of the Company

2,348

2,322

1,870

Currency translation adjustments, net of hedges after tax

(356)

(98)

197

Total adjustments attributable to shareholders of the Company recognised directly in equity

(356)

(98)

197

Total changes in equity other than those resulting from transactions with shareholders as owners

1,992

2,224

2,067

Earnings per ordinary share (cents)
Basic
Diluted

148.3
147.9

147.3
146.6

117.4
117.0

Dividend per ordinary share (cents)

95

85

73

7.49

6.58

5.96

Net tangible assets per ordinary share ($)
The Notes appearing on pages 56 to 59 and the discussion and analysis appearing on pages 2 to 3 and 8 to 11 form an integral part of these financial statements

54

Australia and New Zealand Banking Group Limited and Controlled Entities
Consolidated Statement of Financial Position
as at 30 September 2003
Note

Consolidated
2003
2002
$m
$m

AssetsLiquid assets
Due from other financial institutions
Trading securities
Investment securities
Net loans and advances
Customers’ liabilities for acceptances
Regulatory deposits
Shares in associates and joint venture entities
Deferred tax assets
Goodwill1
Other assets
Premises and equipment

6,592
2,427
4,213
4,767
149,465
13,178
101
1,814
1,165
160
10,224
1,485

7,410
3,815
5,873
3,609
132,060
13,796
178
1,692
1,218
180
11,8101,464

Total assets

195,591

183,105

Liabilities
Due to other financial institutions
Deposits and other borrowings
Liability for acceptances
Income tax liabilities
Payables and other liabilities
Provisions
Bonds and notes
Loan capital

6,467
124,494
13,1781,083
13,611
769
16,572
5,630

10,860113,259
13,796
1,340
12,6301,602
14,7083,445

Total liabilities

181,804

171,640

Net assets

13,787

11,465

4,175
2,212
180
7,203

3,939
1,375
534
5,600

Share capital and reserves attributable to shareholders of the Company
Outside equity interests

13,77017

11,44817

Total shareholders’ equity

13,787

11,465

Shareholders’ equity
Ordinary share capitalPreference share capital
Reserves
Retained profits

Contingent liabilities and contingent asset
The Notes appearing on pages 56 to 59 and the discussion and analysis appearing on pages 2 to 3 and 8 to 11 form an integral part of these financial statements
1 Excludes notional goodwill of $821 million (September 2002: $865 million) included in the net carrying value of ING Australia Limited

3

5

55

Australia and New Zealand Banking Group Limited and Controlled Entities
Consolidated Statement of Cash Flowsfor the year ended 30 September 2003
2003
$mConsolidated
2002
$m

2001
$m

Inflows (Outflows)

Cash flows from operating activities
Interest received
Dividends received
Fees and other income received
Interest paid
Personnel expenses paid
Premises expenses paid
Other operating expenses paid
Income taxes paid
Goods and services tax (paid) received
Net (increase) decrease in trading securities

10,887
7
2,908(5,724)(1,848)(279)(1,952)(1,312)
1
1,669

10,1483
2,919(5,367)(1,900)(268)(1,893)(853)(28)(1,030)11,05475
2,783(6,703)(1,827)(253)(1,775)
(823)
(53)
(629)

Net cash provided by operating activities

4,357

1,731

1,849

1,113
(44)
52
(19,944)
(2)

(442)
554
37
(9,441)
(1)

983
909
(27)
(4,829)(36)(3,871)
2,445(2,851)
2,436(4,005)
3,630–(1,050)

(36)

(368)
51
–
1,663

(385)
101
248
201

(452)
127
–
(454)

(18,905)(10,593)(4,190)(2,946)13,9951,000(1,211)
9,152
362

(826)
890
581

8,255
(4,095)

4,537(3,519)7,542(2,878)

3,380
(437)
(1)
(1,322)
120
1,000
(13)
–

759
(589)
1
(1,178)
112
–
–
–

–
(244)
(1)
(1,028)
114
–
–
(495)

Net cash provided by financing activities

18,936

8,426

3,655

Net cash provided by operating activities
Net cash (used in) investing activities
Net cash provided by financing activities

4,357(18,905)
18,936

1,731(10,593)
8,426

1,849
(4,190)3,655

Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Foreign currency translation on opening balances

4,388
7,925
(4,998)

(436)
9,071
(710)

1,314
6,462
1,295

Cash and cash equivalents at end of year

7,315

7,925

9,071

Cash flows from investing activities
Net decrease (increase)
Liquid assets – greater than three months
Due from other financial institutions
Regulatory deposits
Loans and advances
Shares in controlled entities and associates
Investment securities
Purchases
Proceeds from sale or maturity
Controlled entities, associates and joint venture entities
Purchased (net of cash acquired)
Premises and equipment
Purchases
Proceeds from sale
Recovery from NHB litigation
Other
Net cash (used in) investing activities
Cash flows from financing activities
Net (decrease) increase
Due to other financial institutions
Deposits and other borrowings
Payables and other liabilities
Bonds and notes
Issue proceeds
Redemptions
Loan capital
Issue proceeds
Redemptions
Decrease (increase) in outside equity interests
Dividends paid
Share capital issues (ordinary capital)
StEPS preference share issue
StEPS issue costs
Share buyback

The Notes appearing on pages 56 to 59 and the discussion and analysis appearing on pages 2 to 3 and 8 to 11 form an integral part of these financial statements

56

Notes to the Concise Financial
Statements
1: Basis of preparation of concise financial report
This concise financial report has been derived
from the Group’s 2003 Financial Report which
complies with the Corporations Act 2001,
Accounting Standards, Urgent Issues Group
Consensus Views and other authoritative
pronouncements of the Australian AccountingStandards Board. A full description of theaccounting policies adopted by the Group isprovided in the 2003 Financial Report. The
accounting policies are consistent with thoseof the previous financial year except for thefollowing changes in accounting policies:> AASB 1044, Provisions, Contingent Liabilities
and Contingent Assets became effective for theGroup from 1 October 2002. Under the newStandard, provisions for dividend cannot
be booked unless dividends are declared,
determined or publicly recommended on or
before balance date. Accordingly the final
dividend applicable to the current reporting
period has not been booked in this report.
However, dividends declared after balancedate still need to be disclosed in the Notes. The
adoption of AASB 1044 results in an increasein Shareholder’s Equity of $777 million. The
Group will continue its current practice ofmaking a public announcement of the dividend
after balance date. Dividend information for thecurrent period is provided in Note 4, Dividends.
> AASB 1012, Foreign Currency Standard
Translation became effective for the Group from
1 October 2002. Under this revised Standard,
foreign denominated equity must be reported
using the spot rate applicable at the date ofissue and must not be retranslated using the
spot rate at the end of each reporting period.
The Group has retranslated its US preference
share capital at historical spot rates. As thetranslation adjustment is reported in the foreign
currency translation reserve the impact of thesechanges are neutral on equity.

2: Critical accounting policies
The Group has identified the following criticalaccounting policies:> Economic loss provisioning;> Specific provisioning;> Deferred acquisition costs, software assets anddeferred income;> Derivatives and hedging;> Special purpose and off-balance sheet vehicles;and> Valuation of investment in ING Australia Limited.
Details of the critical accounting policies arecontained within the ANZ results announcement
released on 24 October 2003 and in the 2003
Financial Report. The results announcement canbe obtained from www.anz.com
3: Significant events this financial year
ANZ Stapled Exchangeable Preferred Securities(ANZ StEPS)
On 23 September 2003, the Company issued
10 million stapled securities, raising $1 billion
dollars less issue costs of $13 million. ANZ
StEPS comprise two fully paid securities – aninterest paying unsecured note (issued by ANZ
Holding (New Zealand) Limited, a wholly owned
subsidiary of ANZ) stapled to a preference shareissued by ANZ. Distributions on ANZ StEPS are
non-cumulative and are payable quarterly inarrears based upon a floating distribution rateequal to the 90 day bank bill rate plus a margin.
At each payment date the 90 day bank bill rate
is reset for the next quarter. Distributions are
subject to certain payment tests and are payable
on 15 March, June, September and December of
each year. Dividends are not payable on thepreference share while it is stapled to the note.
The first reset date is 15 September 2008. At
each reset date ANZ may change certain terms(subject to certain restrictions). Holders of StEPS
can require exchange of the stapled securities
on any reset date, or earlier if certain specified
events occur. On exchange, a holder will receive(at ANZ’s discretion) either $100 cash for each
ANZ StEPS or a number of ordinary shares in
ANZ. In certain circumstances, ANZ may also
require exchange outside the reset date. On awinding up, ANZ StEPS preference sharecomponent ranks ahead of ordinary
shareholders. Holders of ANZ StEPS cannot voteat general meetings, except in limited
circumstances.

Australian Tax Office (ATO) Resolution
During the years 1996–2002 ANZ was involved
in securities lending, equity swaps, and othersimilar kinds of transactions in the normal
course of its business of banking. The ATO had
been reviewing these transactions for sometime. On 21 February 2003, a settlement wasreached between the ATO and ANZ which
involved the payment of $262 million to the
ATO. The amount was met from ANZ’s existingtax provisions.

57

4: Dividends
Ordinary Dividends
2003
$m

2002
$m

2001
$m

Interim dividend
Final dividend
Bonus option plan adjustment

666
7771
(25)

583
692
(23)

491
595
(24)

Dividends on ordinary shares

1,418

1,252

1,062

1 Not provided for. Refer Note 1

A fully franked final dividend of 51 cents, is proposed to be paid on each fully paid ordinary share on 19 December 2003 (2002: final dividend of 46 cents, paid
13 December 2002, fully franked; 2001: final dividend of 40 cents, paid 14 December 2001, fully franked). The 2002 interim dividend of 44 cents, paid 1 July
2003, was fully franked (2002: interim dividend of 39 cents, paid 1 July 2002, fully franked; 2001: interim dividend of 33 cents, paid 2 July 2001, 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% (2002: 30%,
2001: 30%).
Preference Dividends

Dividends on preference shares

2003
$m

2002
$m

2001
$m

102

117

119

In 1998 the Company issued 124,032,000 preference shares, raising USD 775 million via Trust Securities issues. The Trust Securities carry an entitlement to a
distribution of 8% (on USD 400 million) and 8.08% (on USD 375 million). The amounts are payable quarterly in arrears. Payment dates are the fifteenth days ofJanuary, April, July and October in each year.
Dividend Franking Account
The amount of franking credits available to the Company for the subsequent financial year is nil (2002 and 2001: nil), after adjusting for franking credits that willarise from the payment of tax on Australian profits for the 2003 financial year, less 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.
5: Contingent Liabilities and Contingent AssetContingent Liabilities
There are outstanding court proceedings, claims and possible claims against the Group, the aggregate amount of which cannot readily be quantified.
ANZ in Australia is being audited by the Australian Taxation Office (ATO) as part of normal ATO procedures. The Group has received various assessments that are
being disputed and is likely to receive further assessments. Based on external advice, ANZ has assessed the likely progress of these issues, and believes it
holds appropriate provisions.
ANZ in New Zealand is being audited by local revenue authorities as part of normal revenue authority procedures. No tax assessments have been issued.
Further details regarding Group contingent liabilities are contained in the 2003 Financial Report.
Contingent Asset
On 14 October 2003 ANZ issued proceedings in the Victorian Supreme Court against its captive insurance company ANZcover Insurance Pty Ltd regarding a$130 million insurance claim. This claim is in relation to the loss on settlement of its former subsidiary ANZ Grindlays Bank Limited’s 1992 dispute with India’s
National Housing Bank (NHB). ANZcover is an authorised general insurer restricted to insuring the interests of ANZ and its subsidiaries. ANZcover in turnpurchases reinsurance from global reinsurers, primarily in the London reinsurance market. The claim against ANZcover is fully reinsured, and therefore ANZcoverhas no retained exposure to the claim.
The January 2002 settlement of the NHB litigation saw Grindlays recover Rupees 6.20 billion (AUD 248 million at 19 January 2002 rates) of the disputed monies
that Grindlays Bank had lodged with the Court, which by that time totalled Rupees 16.45 billion (AUD 661 million at 19 January 2002 rates), including interest,with NHB receiving the balance. ANZ in turn received a payment of USD 124 million from Standard Chartered Bank under the terms of the Indian Indemnity(refer Note 48 in the 2003 Financial Report). The claim of $130 million is for the balance of the limit of indemnity under ANZcover’s reinsurance arrangements
for the 1991-92 policy year.

58

6: Segment Analysis
During the year ended 30 September 2003, the Group managed its activities along the following lines of business:
Personal Banking Australia, ING Australia, Institutional Financial Services, Corporate, New Zealand Banking, Mortgages, Consumer Finance, Esanda and UDC,
Asia Pacific and other. A description of each of the operating business segments, including the types of products and services the segments provide tocustomers, is detailed in the 2003 Financial Report.
As the composition of segments has changed over time, September 2002 comparatives have been adjusted to be consistent with the 2003 segment definitions
as detailed in the 2003 Financial Report. Comparatives for the year ended 30 September 2001 have not been provided as data could not reasonably bedisaggregated into the changed segments.
Business Segment Analysis1, 2
Consolidated
30 September 2003

Personal
Banking
Australia$m

ING
Australia$mInstitutional
Financial
Services$m

Corporate$m

New
Zealand
Banking$m

Mortgages$mConsumer
Finance$m

Esandaand UDC$m

Asia
Pacific$m

Other3$m

Consolidated
Total
$m

External interest income
External interest expense
Net intersegment interest

359
(861)
1,353

–
(16)
–

2,146
(2,074)
629

723
(396)
160

299
(475)
487

4,397
(197)
(3,425)

695
–
(246)

1,005
(512)
(143)

137
(129)
112

454
(1,244)
1,073

10,215(5,904)
–

851
378
389

(16)
46
–

701
1,196
(25)

487
209
(43)

311
181
46

775
90
(267)

449
357
(93)

350
86
(7)

120
189
–

283
76
–

4,311
2,808
–

Operating income

1,618

30

1,872

653

538

598

713

429

309

359

7,119

Other external expenses
Net intersegment expenses

(835)
(213)

2
(2)

(547)
(121)

(178)
(41)

(222)
(92)

(140)
(39)

(260)
(87)

(157)
(25)

(97)
(34)

(794)
654

(3,228)–(1,048)

–

(668)

(219)

(314)

(179)

(347)

(182)

(131)

(140)

(3,228)Net interest income
Other external operating income
Net intersegment income

Operating expenses
Profit before debt provision
Doubtful debt provision
Income tax and outside
equity interests

570
(27)

30
–

1,204
(165)

434
(48)

224
(13)

419
(31)

366
(152)

247
(63)

178
(10)

219
(105)

3,891
(614)

(159)

8

(267)

(116)

(70)

(118)

(70)

(57)

(37)

(43)

(929)

Net profit after income tax

384

38

772

270

141

270

144

127

131

71

2,348

Total external assets

6,696

1,736

56,52916,085

4,225

77,586

6,135

13,4601,949

11,190195,591

Total external liabilities

33,078403

47,43917,95011,833

4,219

343

10,7954,850

50,894

181,804

1 Results are equity standardised
2 Intersegment transfers are accounted for and determined on an arm’s length or cost recovery basis
3 Includes Treasury, Operations, Technology and Shared Services, Corporate Centre, Risk and FinanceBusiness Segment Analysis1, 2Personal
Banking
Australia$m

ING
Australia3$mInstitutional
Financial
Services$m

Corporate$m

New
Zealand
Banking$m

Mortgages$mConsumer
Finance$m

Esandaand UDC$m

Asia
Pacific$m

Other4,5$m

External interest income
External interest expense
Net intersegment interest

360
(559)
989

(16)
(14)
25

2,029
(1,968)
653

630
(318)
136

250
(397)
424

3,671
(159)
(2,827)

598
–
(206)

967
(472)
(157)

136
(124)
110

412
9,037
(1,008) (5,019)
853–

Net interest income
Other external operating income
Net intersegment income

790
368
399

(5)
158
(40)

714
1,118
(28)

448
197
(41)

277
167
46

685
89
(233)

392
394
(92)

338
69
(8)

122
145
–

257
265
(3)

4,018
2,970
–

Operating income

1,557

113

1,804

604

490

541

694

399

267

519

6,988

Other external expenses
Net intersegment expenses

(812)
(207)

(62)
19

(568)
(114)

(170)
(42)

(191)
(90)

(120)
(40)

(234)
(76)

(151)
(29)

(95)
(29)

(502) (2,905)
608–(1,019)

(43)

(682)

(212)

(281)

(160)

(310)

(180)

(124)

106

(2,905)

Consolidated
30 September 2002

Operating expenses

1
2
3
4
5

Consolidated
Total
$m

Profit before debt provision
Doubtful debt provision
Income tax and outside
equity interests

538
(24)

70
–

1,122
(173)

392
(46)

209
(13)

381
(28)

384
(161)

219
(69)

143
(10)

625
(336)

4,083
(860)

(154)

(27)

(234)

(104)

(65)

(106)

(73)

(47)

(35)

(56)

(901)

Net profit after income tax

360

43

715

242

131

247

150

103

98

233

2,322

Total external assets

5,832

1,638

59,155

13,5383,797

64,826

5,551

12,4101,932

14,426 183,105

Total external liabilities

30,076398

50,464

15,699

11,108

3,551

249

9,704

5,148

45,243 171,640

Results are equity standardisedIntersegment transfers are accounted for and determined on an arm’s length or cost recovery basis
Includes 7 months results for the businesses sold to ING Australia on 1 May 2002
Includes significant transactions during the year ended 30 September 2002, being the sale of business to ING Australia, the NHB recovery, and the special general provision for doubtful debts
Includes Treasury, Operations, Technology and Shared Services, Corporate Centre, Risk and Finance59

7: Capital Management
The Group’s total capital adequacy ratio has increased to 11.1% (2002: 9.5%). The Tier 2 ratio has increased to 4.0% (2002: 2.8%).
There was a small reduction in the Tier 1 ratio to 7.7% (2002: 7.9%).
Our principal focus going forward is Adjusted Common Equity, defined as Tier 1 capital, less preference shares at current exchange rates and deductions fromtotal capital, (including investment in funds management subsidiaries and the ING joint venture). Adjusted Common Equity remained unchanged at 5.7% of risk
weighted assets, (2002: 5.7%).
8: Equity Instruments Issued to Employees
Under existing Australian Accounting Standards, equity instruments issued to employees are not required to be expensed. The impact of expensing options1,
and shares issued under the $1,000 employee share plan, has been calculated and is disclosed below.
Consolidated
2003
2002
$m
$m

Net profit attributable to shareholders of the Company
Expenses attributable to:– Options issued to Management Board1– Options issued to general management1– Shares issued under $1,000 employee share plan

2,348

2,322

(8)
(24)
(18)

(7)
(19)
(18)

Total

2,298

2,278

1 Based on fair values estimated at grant date determined in accordance with the fair value measurement provisions of Accounting Exposure Draft ED108. Value of options amortised on a straight line basis overthe vesting period

9: Events Since the End of the Financial Year
The National Bank of New Zealand (NBNZ)
On 24 October 2003, the Company announced the acquisition of NBNZ from Lloyds TSB.
The purchase price was approximately GBP 2,043.8 million ($4,915 million at exchange rates on 23 October 2003) excluding a dividend to Lloyds TSB of NZD
575 million ($498 million) from NBNZ's retained earnings and transaction costs of $25 million.
The acquisition will be funded as follows:> A 2 for 11 renounceable rights issue at $13 per share in the Company raising $3,570 million; and> $1,370 million in hybrid Tier 1 capital, subordinated debt, and wholesale funding.
The completion date of the acquisition is 1 December 2003.
Further matters can be obtained by reference to the ANZ Renounceable Rights Issue prospectus dated 24 October 2003.
The financial effect of this acquisition has not been recognised in these financial statements.
Trust Securities Issues (TrUEPrS)
On 6 November 2003, ANZ called for the buy-back of the ANZ Preference Shares issued as part of the trust units exchangeable for preference shares (TrUEPrS)
Series 1 (September 1998 – CUSIP No.001823202) and Series 2 (November 1998 – CUSIP No.0018241010). The buy-back is for the entire issue of both series.
The buy-back date will be effective on 12 December 2003. This buy-back will also result in ANZ redeeming the TrUEPrS on the same date.
The redemption price will be US$25.00 plus an amount equal to the accrued but unpaid interest on each US$25.00 principal amount of the debt securities fromand including the Interest Payment Date immediately preceding the Exchange Date to, but excluding, the Exchange Date.
The financial effect of this transaction has not been recognised in these financial statements.

60

Directors’ Declaration
The directors of Australia and New Zealand
Banking Group Limited declare that in theiropinion the accompanying concise financial
report of the Consolidated Group for the year
ended 30 September 2003 complies withAccounting Standard AASB 1039 ‘Concise
Financial Reports’.
In our report on the Group’s 2003 Financial
Report we declared that:a) the financial statements and notes comply with
the Corporations Act 2001, including:i) complying with applicable Australian
Accounting Standards and other mandatory
professional reporting requirements; andii) giving a true and fair view of thefinancial position of the Company and of theconsolidated Group and of their performanceas represented by the results of theiroperations and their cash flows; andb) in the directors’ opinion at the date of thisdeclaration there are reasonable grounds tobelieve that the Company and consolidated
Group will be able to pay its debts as and when
they become due and payable.
Signed in accordance with a resolution of
the directors.

Charles Goode
Director
7 November 2003

John McFarlane
Chief Executive Officer

61

Independent audit report on
concise financial report to themembers of Australia and New
Zealand Banking Group Limited
Scope
We have audited the concise financial reportof Australia and New Zealand Banking Group
Limited and its controlled entities for thefinancial year ended 30 September 2003,
consisting of the statement of financial
performance, statement of financial position,statement of cash flows, accompanying
Notes as set out on pages 53 to 59, and theaccompanying discussion and analysis set out
on pages 2 to 3 and 8 to 11 in order to express
an opinion on it to the members of theCompany. The Company’s directors are
responsible for the concise financial report.
Our audit has been conducted in accordancewith Australian Auditing Standards to provide
reasonable assurance whether the concise
financial report is free of material misstatement.

We have also performed an independent auditof the full financial report of Australia and
New Zealand Banking Group Limited and its
controlled entities for the year ended 30
September 2003. Our audit report on the full
financial report was signed on 7 November
2003, and was not subject to any qualification.
Our procedures in respect of the audit of
the concise financial report included testingthat the information in the concise financial
report is consistent with the full financial reportand examination, on a test basis, of evidence
supporting the amounts, discussion andanalysis, and other disclosures which were notdirectly derived from the full financial report.
These procedures have been undertaken toform an opinion whether, in all material
respects, the concise financial report ispresented fairly in accordance with AccountingStandard AASB 1039 ‘Concise Financial
Reports’ issued in Australia.

Audit Opinion
In our opinion the concise financial report ofAustralia and New Zealand Banking Group
Limited and its controlled entities for the year
ended 30 September 2003 complies with AASB
1039 ‘Concise Financial Reports’ issued inAustralia.

KPMG
MelbournePeter Nash
Partner

7 November 2003

The audit opinion expressed in this report has
been formed on the above basis.

Financial Highlights in Key Currencies
2003
AUD

2003
USD1

2003
GBP1

2003
NZD1

Financial Performance
Net income
Operating expenses

7,119(3,228)4,360(1,977)

2,721(1,234)

7,930(3,596)

Profit before tax and debt provision
Provision for doubtful debts

3,891
(614)

2,383
(376)

1,487
(235)

4,334
(684)

Profit before tax
Income tax expense
Outside equity interests

3,277
(926)
(3)

2,007
(567)
(2)

1,252
(354)
(1)

3,650
(1,031)(3)

Profit after tax

2,348

1,438

897

2,616

195,591
181,804
13,787

132,904
123,5369,368

79,60673,994
5,612

223,580
207,820
15,760148.3c
95c
$7.49

90.8c
58c
$5.09

56.7c
36c
$3.05

165.2c$1.06$8.56

Millions

Financial Position
AssetsLiabilities
Shareholders’ equity2
Ratios – per ordinary share
Earnings per share – basic
Dividends per share – declared rate
Net tangible assets per share

1 USD, GBP and NZD amounts – items relating to financial performance converted at average rates for financial year 30 September 2003 and items relating to financial position at closing rates
at 30 September 2003
2 Includes outside equity interests

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:
2003

Great British pound
United States dollar
New Zealand dollar

2002

2001

Closing

Average

Closing

Average

Closing

Average

0.40700.6795
1.1431

0.38220.6124
1.11390.34770.5441
1.15850.3621
0.53231.20010.33310.49031.21270.36270.52301.2473

62

Shareholder information
Ordinary shares
At 4 November 2003 the twenty largest holders of ordinary shares held 867,859,733 ordinary shares, equal to 57.01% of the total issued ordinary capital.
Name

Number of shares%

Chase Manhattan Nominees Ltd
National Nominees Ltd
Westpac Custodian Nominees Ltd
Citicorp Nominees Pty Ltd
ANZ Nominees Ltd
RBC Global Services Australia
Queensland Investment Corporation
AMP Life Ltd
Cogent Nominees Pty Ltd
HKBA Nominees Ltd
PSS Board

196,106,579
180,531,941
173,709,096
71,139,055
56,070,804
44,878,324
27,336,967
23,067,346
22,128,894
14,241,786
8,795,585

12.88
11.86
11.41
4.67
3.68
2.95
1.80
1.52
1.45
0.94
0.58

Name

ANZEST Pty Ltd (Deferred Share Plan A/C)
Government Superannuation OfficeWestpac Financial Services Ltd
Dervat Nominees Pty Ltd
Zurich Investment Management Ltd
Australia Foundation Investment
Company Ltd
Victorian Workcover Authority
Commonwealth Custodial Services Ltd
ANZEST Pty Ltd (ESAP Share Plan A/C)

Number of Shares%

7,823,861
7,096,283
6,060,181
5,196,963
5,142,989
4,877,049

0.51
0.47
0.40
0.34
0.34
0.32

4,758,334
4,486,242
4,411,454

0.31
0.29
0.29

867,859,733

Distribution of shareholdings
At 4 November 2003
Range

Number ofholders% ofholders

Number ofshares% ofshares1 to 1,000 shares
1,001 to 5,000 shares
5,001 to 10,000 shares
10,001 to 100,000 sharesOver 100,001 shares

126,578
79,563
12,461
7,747
382

55.82
35.09
5.50
3.42
0.17

58,777,084
178,270,867
88,536,453
166,130,933
1,030,359,062

3.86
11.71
5.82
10.91
67.70

Total

226,731100.001,522,074,399

100.00

At 4 November 2003:> there were no entries in the Register of Substantial Shareholdings; and> the average size of holdings of ordinary shares was 6,713 (2002: 7,536) shares; and> there were 3,857 holdings (2002: 2,863 holdings), of less than a marketable parcel (less than $500) in value or 42,926 shares based on a market price of $17.49, which is less than 1% of the total holdingsof 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.
Preference shares
Trust Securities Issues

At 4 November 2003 Hare and Co held the preference shares issued with the Trust Securities units and held 124,032,000 preference shares, being
92.5 per cent of the total issued preference capital.
Voting rights of Trust Securities Issues
A preference shareholder may not vote in normal circumstances, but may vote:i) when a preference share dividend (or equivalent) is not paid by the prescribed quarterly payment date. This entitlement to vote ceases after full payment of four
consecutive quarterly preference share dividends; andii) on proposals or resolutions that affect the rights attached to the preference shares including proposals to restructure or wind up ANZ.

63

ANZ Stapled Exchangeable Preferred Securities (ANZ StEPS)

At 4 November 2003, the twenty largest holders of ANZ StEPS held 4,892,789 preference shares, equal to 48.94% of ANZ StEPS and 3.65% of the total issued
preference capital.
Name

Number of shares

National Nominees Ltd
ANZ Nominees Ltd
Chase Manhattan Nominees Ltd
IOOF Investment Management Ltd
Potter Warburg Nominees Pty Ltd
AMP Life Ltd
Westpac Custodian Nominees Ltd
Citicorp Nominees Pty Ltd
RBC Global Services Australia Nominees Pty Ltd
Calex Nominees Pty Ltd

867,070738,641
661,610510,000
398,715331,000
309,960
161,424
112,970
111,593

%

8.67
7.39
6.62
5.10
3.99
3.31
3.10
1.61
1.13
1.12

Name

Number of Shares%

100,000
95,08475,13967,50064,01264,00063,00059,00054,23047,841

1.00
0.95
0.75
0.68
0.64
0.64
0.63
0.59
0.54
0.48

UCA Cash Management Fund Ltd
Austrust Ltd
Baincor Nominees Pty LtdUOB Kay Hian Pte Ltd
Permanent Trustee Australia Ltd
Zurich Investment Management Ltd
UBS Nominees Pty Ltd
Gordon Merchant No2 Pty Ltd
Invia Custodian Pty Ltd
JTW Trading Pty Ltd

4,892,789

Distribution of ANZ StEPS holdings
At 4 November 2003
Range

Number ofholders% ofholders

Number ofshares% ofshares1 to 1,000 preference shares
1,001 to 5,000 preference shares
5,001 to 10,000 preference shares
10,001 to 100,000 preference sharesOver 100,001 preference shares

9,278
522
63
58
10

93.43
5.26
0.63
0.58
0.10

2,224,079
1,324,646
533,879
1,714,413
4,202,983

22.24
13.25
5.34
17.14
42.03

Total

9,931

100.0010,000,000

100.00

At 4 November 2003: There are no holders of less than a marketable parcel (less than $500 in value or 5 units).

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; or(iv) 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 a period in which a dividend which has been declared as payable on a dividend payment date has not been paid in full; or(d) during the winding-up of ANZ.
If a poll is conducted on a resolution on which a holder is entitled to a vote under this clause, the holder has one vote for each preference share held.
Employee shareholder information
At the Annual General Meeting in January 1994, shareholders approved an aggregate limit of 7% of all classes of shares and options, which remain subject tothe rules of a relevant incentive plan, being held by employees and directors.
At 30 September 2003 participants held 2.76% (2002: 2.62%) 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 Share Purchase Scheme; and> ANZ Directors’ Share Plan.

Shareholder Feedback Form
Dear Shareholder
As a shareholder and reader of ANZ’s 2003 Annual Report, your opinion is very important to us. Please take a minuteto fill in this survey form and have your say on the Report. Your feedback will help shape the way we report to you next year.
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Investor Snapshot

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Chairman’s Report

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Risk Management

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A View from the CEO on Creating Sustainable Businesses

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The National Bank of New Zealand

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People

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Compensation

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Guide to the Concise Financial Report

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Concise Financial Report

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4 Do you have any specific comments about this Annual Report or suggestions for next year?

5 Annual Report election request (Please tick)Please continue to send me a printed Annual Report
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Name

SRN/HIN

Email Address

Yours faithfully
Simon Fraser
Head of Investor Relations

Please complete the above form, remove from document,
and return with your Proxy Form in the envelope provided.

Informationfor Shareholders
Dividends

American Depositary Receipts

Handy Contacts

The final dividend of 51 cents per share, fully
franked, will be paid on 19 December 2003.
A Dividend Reinvestment Plan (DRP) and Bonus
Option Plan (BOP) are available to shareholders.
The plans are detailed in a plan booklet called‘Shareholder Alternatives’, copies of which areavailable from the ANZ Share Registry at theaddresses shown below.

The Bank of New York sponsors an American
Depositary Receipt (ADR) program in the UnitedStates of America and ADRs are listed on the New
York Stock Exchange. ADR holders should deal
directly with the Bank of New York, New York,
telephone (+212) 815 2276, fax (+212) 571 3050
on all matters relating to their ADR holdings.

2003 Financial Report

ANZ
Registered Office
Level 6
100 Queen Street
Melbourne VIC 3000
Australia
Telephone +613 9273 6141
Facsimile +613 9273 6142
Company Secretary: Tim L’Estrange

A copy of the Group’s 2003 Financial Report,
including the independent Auditors’ Report, isavailable to all shareholders, and will be sent toshareholders without charge upon request. The
Financial Report can be requested by telephone(Australia 1800 11 33 99, Overseas +613 9615
5989), by email at investor.relations@anz.com orviewed directly on the Internet at www.anz.com

Investor Relations
Level 22
100 Queen Street
Melbourne VIC 3000
Australia
Telephone +613 9273 6466Facsimile +613 9273 4899
investor.relations@anz.com

Removal from Mailing List

Share Registry

Shareholders who do not wish to receive a copyof the Annual Report must advise the Share Registryin writing.

Australia
GPO Box 2975
Melbourne VIC 3000
Australia
Telephone 1800 11 33 99 / +613 9615 5989
Facsimile +613 9611 5710
anzshareregistry@computershare.com.au

ANZ has reviewed the way that it pays its dividends
to reduce costs, minimise the potential for fraud
and enhance convenience for shareholders.
Effective from the next interim dividend payment
due in July 2004, payments to all shareholders inAustralia, New Zealand and the UK (other than tothose who have elected to participate in either the
DRP or the BOP), will only be made by direct credit
to a nominated bank account. A significant majorityof shareholders already receive their dividends bythis method. Shareholders who are currently paid
their dividend by cheque will receive a form with
their dividend advice from the ANZ Share Registry
for nomination of a bank account for future
dividend payments.

Stock Exchange Listings

Change of Address

The Group’s ordinary shares are listed on theAustralian Stock Exchange and the New Zealand
Stock Exchange. The Capital Securities offered in
1993 and the Preference Shares issued in 1998
are listed on the New York Stock Exchange. The
subordinated bonds issued by Australia and New
Zealand Banking Group (New Zealand) Limited in
2002 are listed on the New Zealand Stock Exchange.

Shareholders who have changed their address willneed to advise the Share Registry in writing, quoting
their shareholder number, name and company
as applicable.

ANZ StEPS
On 24 September 2003, 10 million ANZ Stapled
Exchangeable Preferred Securities (ANZ StEPS)
were issued at an issue price of $100.00 each.
Each ANZ StEPS is a stapled security comprisinga Preference Share in Australia and New Zealand
Banking Group Limited and an unsecured
Note issued by ANZ Holdings (New Zealand)
Limited. ANZ StEPS are quoted on the Australian
Stock Exchange.

Credit Ratings
Short Term
Moody’s Investors Service

P-1

Standard & Poor’s Rating Group

A1+

Long Term
Moody’s Investors Service(outlook stable)

Aa3

Standard & Poor’s Rating Group(outlook stable)AA-

New Zealand
Private Bag 92119
Auckland 1020
New Zealand
Telephone 0800 174 007 or +649 488 8777
Facsimile +649 488 8787
United Kingdom
PO Box 82
The Pavilions
Bridgewater Road
Bristol BS99 7NH
Telephone +44 870 702 0000
Facsimile +44 870 703 6101

Important Dates for Shareholders
Date
19 December 2003
19 December 2003
27 April 2004*
1 July 2004*
26 October 2004*17 December 2004*17 December 2004*

Event
Annual General Meeting(Brisbane)
Final Dividend Payment
Interim Result Announced
Interim Dividend Payment
Annual Result Announced
Annual General Meeting
Final Dividend Payment* tentative dates

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

www.anz.com