Strength.
Momentum.
Connectivity.
2011 ANNUAL REPORTBUILDING A BANK OF GLOBAL QUALITYWITH A REGIONAL FOCUS
WHO WE ARE AND WHERE WE OPERATEOUR PROGRESSANZ‘s history of expansion and growth stretches over 175 years.
We have a strong franchise in Retail, Commercial and Institutionalbanking in our home markets of Australia and New Zealand and wehave been operating in Asia Pacific for more than 30 years.

ANZ is the only Australian bank with a clearly articulated strategy totake advantage of Australia and New Zealand’s geographic, businessand cultural linkages with Asia, the fastest growing region in the world.

Today, ANZ operates in 32 markets globally. We are the third largest
bank in Australia, the largest banking group in New Zealand and thePacific, and among the top 50 banks in the world.

OUR SUPER REGIONAL STRATEGY
We articulated our super regional strategy in late 2007. The rationale
behind our strategy is simple – to deliver shareholders long-term
growth and differentiated returns through connectivity with thegrowth markets of Asia – returns we do not believe to be available
through a domestic-only strategy.
Our aspiration is for Asia Pacific, Europe & America sourced revenues todrive between 25 and 30% of Group earnings by the end of 2017.
Connectivity is at the heart of ANZ’s strategy by being part of thegrowth within Asia and supporting the increasing trade, investment
and people links between Asia and our major domestic markets
in Australia, New Zealand and the Pacific. This is reflected in theaspiration within our Institutional banking business to build theworld’s best bank for customers driven by trade and capital flows
in the Asia Pacific region, particularly in resources, agribusinessand infrastructure.

We have made significant progress in delivering our strategy since2007 and today our Asia Pacific, Europe & America business represents
13% of Group profit up from 7% in 2007.
We have established a leadership team of international bankers
with a breadth of experience and a range of capabilities to grow inboth our developed home markets and in the emerging markets ofAsia. We created a new business structure in late 2008 focused on ourcustomers and core geographies supported by stronger governanceand risk controls suited to our aspirations.
We have completed a number of strategic acquisitions in Asia,
Australia and New Zealand which provide us with an enhanced
network, broader product capabilities and more customer
relationships across those three core geographies.
ANZ’s strategy and our financial strength provides us with theopportunity to continue expanding the support we provide tocustomers, driving superior long-term growth and differentiatedreturns, and creating value for our shareholders and the communities
we work in.

Having grown our Asia Pacific business significantly since 2007, ANZ is
now working to realise the full potential of the super regional strategy
by expanding our geographic footprint while maintaining our strong
domestic franchises, increasing our management bench strength,
and continuing to focus on strong risk processes in order to build abalanced exposure to Asia.
At the same time, we are continuing to invest in our international
technology and operations hubs to support productivity gains acrossall our businesses.
With the structural shift in the world economy as economic growthshifts from the West to the East, we believe we are in the right partof the world, with the right strategy, at the right time.

Directors’ Report12

ANZ Annual Report 2011

CONTENTS
SECTION 1
Financial Highlights

SECTION 3
5

Financial Statements

Chairman’s Report

6

Notes to the Financial Statements

92

Chief Executive Officer’s Report

8

Directors’ Declaration

209

Directors’ Report

10

Independent Auditor’s Report

210

Remuneration Report

15

Corporate Governance Statement

46

SECTION 4

SECTION 2

86

Financial Information

212

Shareholder Information

220

Review of Operations

65

Glossary of Financial Terms

225

Principal Risks and Uncertainties

76

Alphabetical Index

228

Five Year Summary

84

ANZ Annual Report 20113

Financial Highlights

5

Chairman’s Report

6

Chief Executive Officer’s Report

8

Directors’ Report10

Remuneration Report

15

Corporate Governance Statement

46

4

ANZ Annual Report 2011

Financial Highlights

2011

2010

5,355
5,652

4,501
5,025

15.3%
16.2%
0.95%
14.9%
2.46%
2.81%
120,204

13.9%
15.5%
0.86%
14.3%
2.47%
2.74%
116,999

47.4%
1.42%
45.9%
1.37%

46.5%
1.39%
44.2%
1.33%

Collective provision charge ($m)
Individual provision charge ($m)

7
1,230

(4)
1,791

Total provision charge ($m)
Individual provision charge as a % of average net advances
Total provision charge as a % of average net advances

1,237
0.32%
0.32%

1,787
0.51%
0.50%

Interim – 100% franked (Mar 2010: 100% franked)
Final – 100% franked (Sep 2010: 100% franked)

64
76

52
74

Total dividend
Ordinary share dividend payout ratio3
Underlying ordinary share dividend payout ratio3

140
68.5%
64.9%

126
71.6%
64.1%

12

11

Profitability
Profit attributable to shareholders of the Company ($m)
Underlying profit1 ($m)
Return on:
Average ordinary shareholders’ equity2
Average ordinary shareholders’ equity (underlying profit basis)1,2
Average assets
Total income
Net interest margin
Net interest margin (excluding Global Markets)
Underlying profit per average FTE ($)1

Efficiency ratios
Operating expenses to operating income
Operating expenses to average assets
Operating expenses to operating income (underlying)1
Operating expenses to average assets (underlying)1

Credit impairment provisioning

Ordinary share dividends (cents)

Preference share dividend ($m)
Dividend paid4

1 Profit has been adjusted to exclude non-core items to arrive at underlying profit, the result for the ongoing business activities of the Group. These adjustments have been determined on aconsistent basis with those made in prior periods. The adjustments made in arriving at underlying earnings are included in statutory profit, and are therefore subject to audit within the context
of the Group statutory audit opinion. The external auditor has informed the Audit Committee that the adjustments are based on the guidelines released by the Australian Institute of Company
Directors (AICD) and the Financial Services Institute of Australia (FINSIA), and consistent with prior period adjustments.
2 Average ordinary shareholders’ equity excludes non-controlling interests and preference shares.
3 The 2011 dividend payout ratio is calculated using the March 2011 interim and the proposed September 2011 final dividend. The 2010 dividend payout ratio is calculated using the March 2010
interim and September 2010 dividend.
4 Represents dividends paid on Euro Trust Securities issued on 13 December 2004.

Financial Highlights

5Chairman’s ReportA MESSAGE FROM JOHN MORSCHELANZ delivered increased profit in 2011 while continuing to invest in the development of its
super regional strategy to deliver value for shareholders, customers and the community.
I am pleased to report that ANZ’s statutory profit after tax for theyear ended 30 September 2011 was $5.4 billion, up 19% reflecting
a solid performance across the bank and continued improvementin the credit environment. The final dividend of 76 cents per sharebrings the total dividend for the year to 140 cents per share fully
franked, an increase of 11%.
ANZ’s underlying profit for 2011, which takes into account various
one-off items which occurred during the year, was $5.6 billion,
up 12%.
ANZ remains strongly capitalised with a Tier 1 ratio as at 30 September
2011 of 10.9% and a Common Equity Tier 1 ratio of 8.5%, 0.8% and0.5% respectively above 2010 levels. The Group is well placed to meet
new capital standards. ANZ is one of only a handful of banks globallywhich retain a AA rating from all 3 credit ratings agencies.

Expansion and Growth
In 2011, we continued to advance our super regional strategy
through growth in Asia by increasing connectivity between Asia andour key domestic franchises in Australia, New Zealand and the Pacific.
We were delighted to achieve a key milestone in our regional
expansion plans, most notably with the re-establishment ofour presence in India with the opening of our Mumbai branch
in June 2011.
This strategy is helping ANZ deliver more diversified earnings
by product, customer and geography together with growth inour customer base. This year we set a new long-term aspiration
for revenues sourced from Asia Pacific, Europe & America todrive 25-30% of Group profit by 2017.

6

ANZ Annual Report 2011

Customers and the Community
In 2011, ANZ maintained its momentum in delivering value for its
customers and for the community. In Australia, we continue to havethe highest level of retail customer satisfaction and further improved
customer satisfaction in New Zealand.
A number of the communities in which ANZ operates experienced
disasters during 2011. These included earthquakes in the Canterbury
region of New Zealand; the floods in Queensland and throughout
eastern Australia; and the tsunami and nuclear emergency in Japan.
ANZ contributed to the relief efforts through donations, direct grants
and the efforts of many ANZ staff.
Our Corporate Responsibility framework continues to help guideour decision making. New responsible lending policies will govern
our business lending to sensitive social and environmental sectors.
Australian Government support helped expand our work to assist
low income communities build their savings.
During 2011, ANZ was named as one of the most sustainable banks
globally in the Dow Jones Sustainability Index.
Our combined Annual Shareholder and Corporate Responsibility Review
provides an integrated view of how ANZ is managing financial andnon-financial issues and is designed to represent ANZ’s performanceacross all aspects of our business.

Outlook
We expect the global economic uncertainty will continue well into
2012, however growth in Asia (excluding Japan) is forecast to continue
at an annual rate exceeding 7%, while growth in Europe and theUnited States is expected to remain subdued. The Australian and New
Zealand economies are expected grow at over 3% and 2.5%
respectively.
As the uncertainties around sovereign debt in Europe continue to playout, we expect continued volatility in world markets. This is flowing
through to higher funding costs and at the same time regulators
around the world are pushing ahead with new capital and liquidity
requirements for banks. These changes will increase capital costs,
ultimately placing further pressure on the fragile global economy.
Our unique super regional strategy positions us to take advantageof the significant opportunities we expect to arise in Asia Pacific.
These will come from our exposure to growth markets, our strong
capital position and the experience of our international management
team. With the difficult global economic situation, however, it will
also be prudent to manage our business tightly.
ANZ has a clear direction and our results in 2011 demonstrate theprogress we are making in delivering value and performance for ourshareholders, our customers and the community.
These results also reflect the ongoing commitment and dedicationof our management team and the entire staff of ANZ and I would liketo take this opportunity to thank them for their efforts during theyear. My thanks also go to my fellow Directors for their commitment
and support during 2011.

JOHN MORSCHELCHAIRMAN

Chairman’s Report7Chief Executive Officer’s ReportA MESSAGE FROM MICHAEL SMITH

ANZ’s super regional strategy and our financial strength provide us with unique
opportunities – opportunities which are open to very few banks in the world right now.
ANZ’s key customer franchises in Australia, New Zealand and Asia Pacificproduced solid performances in 2011.
Provision charges were 33% lower than 2010 which helped to drive
ANZ’s performance together with somewhat subdued revenue growthof 7%. This was significantly impacted by the volatile global economic
situation in the second half of the year and like most banks in Australia
and around the world, conditions for our Institutional Markets tradingbusiness deteriorated and impacted Group earnings.
While we would have liked a stronger performance in the last few
months of the year, we didn’t see the environment as one in which
it was prudent to expose ANZ to excessive risk.
We continued to invest heavily in our super regional strategy withcosts up by 11% although, reflecting the more difficult economic
environment later in the year, cost growth in the second half wascontained to 2%.
During 2011, we continued to strengthen our capital position andimprove diversity in our sources of funding including further growthin deposits which now account for 61% of Group funding.
Importantly, we also saw a significant improvement in staff engagement.
Employee engagement increased from 64% to 70% and our goal is
to continue to improve this measure to meet the global best-in-classstandard in future years.

Regional Performance
In 2011 we produced solid results in each area of our businesshighlighting the strength of our key franchises in Australia,
New Zealand and Asia Pacific.
In Australia, profit increased 4% based on good cost management
and solid results in Retail and Commercial. In Wealth, profits fellreflecting difficult market conditions and increased insurance costs
following the extreme weather events early in the year. Pleasingly, we
have continued to increase customer satisfaction in all segments anddespite increasing competition, we’ve maintained our number one
ranking for customer satisfaction in Retail.

8

ANZ Annual Report 2011

In Asia Pacific, Europe & America, we maintained momentum with US
Dollar profit up 22%. We are continuing to invest in Asia to build scaleand capability however, having completed the integration of
the Asian business we acquired from the Royal Bank of Scotland,
we are now managing expenses more tightly while still investingfor growth. The benefit of this investment is showing in the franchise
we are building.
In New Zealand, profit rose by 50% driven by a large fall in provisions
and tight control of costs. The New Zealand economy is slowly
recovering but the environment is likely to remain soft for some time.
Nevertheless, we have a consistent focus on simplification andefficiency within our New Zealand business and I’m optimistic about
what can be achieved.
Institutional profit increased by 7%. The business is delivering morediversified earnings by product, customer and geography, andcontinued growth in our client base as a result of a clear strategy tobuild the world’s best bank for clients driven by trade and capital flows
in the Asia Pacific region, particularly in resources, agribusiness andinfrastructure. However, the key issue for Institutional in 2011 was
the fall in Global Markets earnings as a result of the extremely volatile
market conditions although this has been consistent with theperformances seen at other banks both domestically and globally.

Unique Growth Opportunities
ANZ’s super regional strategy is clear, consistent and aligned tothe economic opportunity in the Asia Pacific region. We are focusedon realising its full potential by successfully executing against thatstrategy in all our key markets.
We believe the global economic difficulties, the structural shift taking
place as world economic growth shifts from the West to the East
particularly China and India, and the subdued domestic environment
plays perfectly to ANZ’s strengths.
We have a portfolio, diversified by geography, businesses andindustry focus, which is increasingly connected so the sum isgreater than the parts.

That diversified portfolio gives us options and choices to deliver
differentiated revenue growth and shareholder value by building ourcustomer franchises in Australia and Asia while maintaining our strong
position in New Zealand. These growth options are simply not available
with a domestic-only strategy.
Our financial strength will provide us with opportunities for carefulstrategic growth as capital-constrained international banks retreat
from our region.
The investment we have made in technology and our operations
hubs continues to support the transformation of our productivity
performance. This is already underway and we will also respond byplacing a stronger emphasis on generating on-going efficiencies
given the more constrained domestic conditions.
So we are optimistic about the future for ANZ. We have choices andopportunities that are open to very few banks in the world right now– but they are open to ANZ.
They create another window for ANZ to make a step change in growth,
to expand the support we provide to customers, to drive superior
long-term growth and differentiated returns, and to create value forour shareholders and the communities we work in.

MICHAEL SMITH
CHIEF EXECUTIVE OFFICER

Chief Executive Officer’s Report9Directors’ Report

The Directors present their report together with the Financial Report of the consolidated entity (the Group), being Australia
and New Zealand Banking Group Limited (the Company) and its controlled entities, for the year ended 30 September 2011
and the Independent Auditor’s Report thereon. The information is provided in conformity with the Corporations Act 2001.

Principal Activities

State of Affairs

The Group provides a broad range of banking and financial
products and services to retail, small business, corporate andinstitutional clients.

In the Directors’ opinion there have been no significant changes
in the state of affairs of the Group during the financial year.

The Group conducts its operations primarily in Australia and
New Zealand and the Asia Pacific region. It also operates in a
number of other countries including the United Kingdom andthe United States.

Further review of matters affecting the Group’s state of affairs is
also contained in the Review of Operations on page 65 to 75 of thisAnnual Report.

Dividends

At 30 September 2011, the Group had 1,381 branches andother points of representation worldwide excluding Automatic
Teller Machines (ATMs).

The Directors propose that a fully franked final dividend of 76 cents
per fully paid ordinary share will be paid on 16 December 2011.
The proposed payment amounts to approximately $1,999 million.

Results

During the financial year, the following fully franked dividends were
paid on fully paid ordinary shares:

Consolidated profit after income tax attributable to shareholdersof the Company was $5,355 million, an increase of 19% over theprior year.
Strong growth in profit before credit impairment and income taxof $521 million or 6% and a reduction in the credit provision of$550 million with improvements across the New Zealand, Institutionaland Asia Pacific, Europe & America portfolios.
Balance sheet growth was strong with total assets increasing by$62.8 billion (12%) and total liabilities increasing by $59.0 billion(12%). Movements within the major components include:
Net loans and advances including acceptances increased by$33.9 billion (9%) primarily driven by above system Australian
housing lending growth of $10.9 billion (7%) and Asia Pacific,
Europe & America growth of $11.7 billion (43%) across all
business lines.
Growth in customer deposits of $39.9 billion (16%) wasconcentrated in the second half, and reflected growth in Retail,Commercial and Institutional in Australia of $18.9 billion (12%)
as consumers and corporates deleverage and growth in Asia
Pacific, Europe & America of $18.2 billion (39%) driven by strong
momentum across the region.
Further details are contained on pages 65 to 75 of this Annual Report.

10

ANZ Annual Report 2011

Type

Final 2010
Interim 2011

Cents
per share

Amount before bonus
option plan adjustment$m

Date ofpayment

74
64

1,895
1,662

17 December 2010
1 July 2011

The proposed final dividend of 76 cents together with the interim
dividend of 64 cents brings total dividends in relation to the year
ended 30 September 2011 to 140 cents fully franked.
Further details of dividends provided for or paid during the year
ended 30 September 2011 on ANZ’s ordinary and preference
shares are set out in notes 7, 27 and 28 to the financial statements.

Review of Operations
Review of the Group during the financial year and the results of
those operations, including an assessment of the financial position
and business strategies of the Group, is contained in the Chairman’s
Report, the Chief Executive Officer’s Report and the Review ofOperations of this Annual Report.

Events Since the End of the Financial Year
There were no significant events from 30 September 2011 to thedate of this report.

Future Developments
Details of likely developments in the operations of the Group andits prospects in future financial years are contained in this Annual
Report under the Chairman’s and Chief Executive Officer’s Report.
In the opinion of the Directors, disclosure of any further information
would be likely to result in unreasonable prejudice to the Group.

Environmental Regulation
The Company recognises the expectations of its stakeholders –customers, shareholders, staff and the community – to operate
in a way that mitigates the Company’s environmental impact.
The Company sets and reported against public targets regarding its
environmental performance.
The Company is subject to two relevant pieces of legislation. The
Company’s operations in Australia are categorised as a ‘high energy
user’ under the Energy Efficiency Opportunities Act 2006 (Cth)(EEO). The Company has a mandatory obligation to identify energy
efficiency opportunities and report to the Australian Federal
Government progress with the implementation of the opportunities
identified. As required under the legislation, the Company submitted
a five year energy efficiency assessment plan in 2006 and hasreported to the Government annually, every December, until theend of the five year reporting cycle in December 2011. The Company
complies with its obligations under the EEO.
The National Greenhouse Energy Reporting Act 2007 (Cth) has been
designed to create a national framework for energy and associatedgreenhouse gas emissions reporting. The Act makes registration
and reporting mandatory for corporations whose energy production,energy use, or greenhouse gas emissions trigger the specified
corporate or facility threshold. The Company is over the corporate
threshold defined within this legislation and as a result was required
to submit its first report on 31 October 2009. Subsequent reports
have been submitted in 2010 and 2011.

The Company’s operations are not subject to any site specific or
license requirements which could be considered particular or
significant environmental regulation under any law of the AustralianCommonwealth Government or of any state or territory thereof.
The Company may become subject to environmental regulation
as a result of its lending activities in the ordinary course of businessor when enforcing securities over land. The Company has developed
policies to manage such environmental risks.
Having made due enquiry, and to the best of the Company’s
knowledge, no entity of the Group has incurred any material
environmental liability during the year.
Further details on the Company’s environmental performance,
including progress against its targets and details of its emissions
profile are available on anz.com > About us > Corporate
Responsibility.

Directors’ Qualifications, Experienceand Special Responsibilities
At the date of this report, the Board comprises seven Non-Executive
Directors who have a diversity of business and community experienceand one Executive Director, the Chief Executive Officer, who has
extensive banking experience. The names of Directors and details of
their skills, qualifications, experience and when they were appointed
to the Board are contained on pages 47 to 49 of this Annual Report.
Details of the number of Board and Board Committee meetings
held during the year, Directors’ attendance at those meetings anddetails of Directors’ special responsibilities, are shown on pages 47
to 58 of this Annual Report. No Directors retired during the 2011financial year.
Details of directorships of other listed companies held by eachcurrent Director in the three years prior to the end of the 2011financial year are listed on pages 47 to 49.

Directors’ Report

11

DIRECTORS’ REPORT (continued)

Company Secretaries’ Qualifications
and Experience

Further details about the policy can be found in the Corporate
Governance Statement on page 59.

Currently there are three people appointed as Company Secretariesof the Company. Details of their roles are contained on page 54. Theirqualifications and experience are as follows:

The Audit Committee has reviewed a summary of non-audit services
provided by the external auditor for 2011, and has confirmed thatthe provision of non-audit services for 2011 is consistent with theCompany’s Relationship with External Auditor Policy and compatible
with the general standard of independence for auditors imposedby the Corporations Act 2001. This has been formally advised to theBoard of Directors.

Bob Santamaria, BCom, LLB (Hons)Group General Counsel and Company Secretary.
Mr Santamaria joined ANZ in 2007. He had previously beena Partner at the law firm Allens Arthur Robinson since 1987.
He was Executive Partner Corporate, responsible for client liaison
with some of Allens Arthur Robinson’s largest corporate clients.
Mr Santamaria brings to ANZ a strong background in leadershipof a major law firm, together with significant experience insecurities, mergers and acquisitions. He holds a Bachelor ofCommerce and Bachelor of Laws (Honours) from the University of
Melbourne. He is also an Affiliate of Chartered Secretaries Australia.
Peter Marriott, BEc (Hons), FCA
Chief Financial Officer and Company Secretary.
Mr Marriott has been involved in the finance industry for morethan 30 years. Mr Marriott joined ANZ in 1993. Prior to his career at
ANZ, Mr Marriott was a Partner in the Melbourne office of the then
KPMG Peat Marwick. He is a Fellow of the Institute of Chartered
Accountants in Australia and the Australian Institute of Banking
and Finance and a Member of the Australian Institute of Company
Directors. Mr Marriott is also a director of ASX Limited.
John Priestley, BEc, LLB, FCIS
Company Secretary.
Mr Priestley, a qualified lawyer, joined ANZ in 2004. Prior to
ANZ, he had a long career with Mayne Group and held positions
which included responsibility for the legal, company secretarial,
compliance and insurance functions. He is a Fellow of Chartered
Secretaries Australia and also a member of Chartered Secretaries
Australia’s National Legislation Review Committee.

Non-audit Services
The Company’s Relationship with External Auditor Policy (which
incorporates requirements of the Corporations Act 2001) states thatthe external auditor may not provide services that are perceived to
be in conflict with the role of the auditor. These include consulting
advice and sub-contracting of operational activities normally
undertaken by management, and engagements where the auditor
may ultimately be required to express an opinion on their own work.
Specifically the policy:
limits the non-audit services that may be provided;
requires that audit, audit-related and permitted non-audit services
must be pre-approved by the Audit Committee, or pre-approved by
the Chairman of the Audit Committee (or up to a specified amountby the Chief Financial Officer, the Deputy Chief Financial Officer,
the Head of External Reporting or the Head of Financial Policy
and Governance) and notified to the Audit Committee; andrequires the external auditor to not commence any engagement
for the Group, until the Group has confirmed that the engagement
has been pre-approved.

12

ANZ Annual Report 2011

The external auditor has confirmed to the Audit Committee thatthey have:
implemented procedures to ensure they comply withindependence rules both in Australia and the United States; andcomplied with domestic policies and regulations, together withthe regulatory requirements of the SEC, and ANZ’s policy regarding
the provision of non-audit services by the external auditor.
The non-audit services supplied to the Group by the Group’s external
auditor, KPMG, and the amount paid or payable by the Group by typeof non-audit service during the year ended 30 September 2011 are
as follows:
Amount paid/payable$’000’s
Non-audit services

2011

2010

Collective provision review (on behalf of APRA)Managed investment schemes distribution
model review
Review script for script audit validation modeland trust voting analysis models
R&D claim review
Review output from counterparty credit risk
review project
Presentations
Prudential standard impact assessment
Training courses
Accounting advice
Witness branch transfer of deposit boxes
Market Risk benchmarking review
Market Risk system capability review
Overseas branch registration regulatory assistance
Review of foreign exchange process inoverseas branch

101

–

81

–

46
40

–
–

20
18
11
9
5
4
–
–
–

–
–
–
–
82
–
50
30
2

–

8

Total

335

172

Further details on the compensation paid to KPMG is provided
in note 5 to the financial statements. Note 5 also provides detailsof audit-related services provided during the year of $4.444 million(2010: $2.819 million).
For the reasons set out above, the Directors are satisfied that theprovision of non-audit services by the external auditor during theyear ended 30 September 2011 is compatible with the generalstandard of independence for auditors imposed by the Corporations
Act 2001.

Directors and Officers who were previously Partnersof the Auditor
Mr Marriott, the Company’s Chief Financial Officer, was a Partner
of KPMG at a time when KPMG was the auditor of the Company.
In particular, Mr Marriott was a Partner in the Melbourne officeof the then KPMG Peat Marwick prior to joining the Company
in 1993.

Chief Executive Officer/Chief Financial Officer
Declaration
The Chief Executive Officer and the Chief Financial Officer havegiven the declarations to the Board concerning the Group’s financial
statements and other matters as required under section 295A(2) of
the Corporations Act 2001 and Recommendation 7.3 of the ASX
Corporate Governance Principles and Recommendations.

Directors’ and Officers’ Indemnity
The Company’s Constitution (Rule 11.1) permits the Company toindemnify each officer or employee of the Company against liabilities(so far as may be permitted under applicable law) incurred in theexecution and discharge of the officer’s or employee’s duties. It is theCompany’s policy that its employees should not incur any liability to
any third party as a result of acting in the course of their employment,
subject to appropriate conditions.
Under the policy, the Company will indemnify employees against any
liability they incur in carrying out their role. The indemnity protects
employees and former employees who incur a liability when acting as
an employee, trustee or officer of the Company, another corporationor other body at the request of the Company or a related body corporate.
The indemnity is subject to applicable law and in addition will not
apply to liability arising from:serious misconduct, gross negligence, or lack of good faith;illegal, dishonest or fraudulent conduct; ormaterial non-compliance with the Company’s policies, processes
or discretions.
The Company has entered into Indemnity Deeds with each of
its Directors, with certain secretaries and former Directors of theCompany, and with certain employees and other individuals who
act as directors or officers of related bodies corporate or of anothercompany. To the extent permitted by law, the Company indemnifies
the individual for all liabilities, including costs, damages and expenses
incurred in their capacity as an officer of the company to which they
have been appointed.

The Company has indemnified the trustees and former trustees ofcertain of the Company’s superannuation funds and directors, former
directors, officers and former officers of trustees of various Company
sponsored superannuation schemes in Australia. Under the relevant
Deeds of Indemnity, the Company must indemnify each indemnified
person if the assets of the relevant fund are insufficient to cover any
loss, damage, liability or cost incurred by the indemnified person inconnection with the fund, being loss, damage, liability or costs forwhich the indemnified person would have been entitled to beindemnified out of the assets of the fund in accordance with thetrust deed and the Superannuation Industry (Supervision) Act 1993.
This indemnity survives the termination of the fund. Some of theindemnified persons are or were Directors or executive officersof the Company.
The Company has also indemnified certain employees of theCompany, being trustees and administrators of a trust, from andagainst any loss, damage, liability, tax, penalty, expense or claimof any kind or nature arising out of or in connection with thecreation, operation or dissolution of the trust or any act or omission
performed or omitted by them in good faith and in a manner thatthey reasonably believed to be within the scope of the authority
conferred by the trust.
Except for the above, neither the Company nor any related body
corporate of the Company has indemnified or made an agreement
to indemnify any person who is or has been an officer or auditor of
the Company against liabilities incurred as an officer or auditor of
the Company.
During the financial year, and again since the end of the financial
year, the Company has paid a premium for an insurance policy
for the benefit of the directors and employees of the Company
and related bodies corporate of the Company. In accordance with
common commercial practice, the insurance policy prohibits
disclosure of the nature of the liability insured against and theamount of the premium.

Rounding of Amounts
The Company is a company of the kind referred to in Australian
Securities and Investments Commission class order 98/100 (asamended) pursuant to section 341(1) of the Corporations Act 2001.
As a result, amounts in this Directors’ Report and the accompanying
financial statements have been rounded to the nearest million dollars
except where otherwise indicated.

Directors’ Report

13

DIRECTORS’ REPORT (continued)

Executive Officers’ and Employee Share andOption Plans
Details of share options/rights issued over shares granted to theChief Executive Officer and Disclosed Executives, and on issue asat the date of this report are detailed in the Remuneration Report.
Details of options/rights issued over shares granted to employees
and on issue as at the date of this report are detailed in note 46 of
the 2011 financial report.

Other details about the share options/rights issued, including any
rights to participate in any share issues of the Company, are set out
in note 46 of the 2011 financial report. No person entitled to exercise
any option/right has or had, by virtue of an option/right, a right toparticipate in any share issue of any other body corporate. The namesof all persons who currently hold options/rights are entered in theregister kept by the Company pursuant to section 170 of the
Corporations Act 2001. This register may be inspected free of charge.

Details of shares issued as a result of the exercise of options/rights
granted to employees as at the date of this report are detailed innote 46 of the 2011 financial report.

Lead Auditor’s Independence Declaration
The lead auditor’s independence declaration given under section 307C of the Corporations Act 2001 is set out below and forms part of thisDirectors’ Report for the year ended 30 September 2011.
THE AUDITOR’S INDEPENDENCE DECLARATION
Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001
To: the Directors of Australia and New Zealand Banking Group Limited
I declare that, to the best of my knowledge and belief, in relation to the audit for the financial year ended 30 September 2011, there have been:(i) no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and(ii) no contraventions of any applicable code of professional conduct in relation to the audit.

KPMG

Peter Nash
Partner
Melbourne
2 November 201114

ANZ Annual Report 2011

REMUNERATION REPORTContents
Remuneration Report – Summary (Unaudited)
Remuneration Structure and 2011 Outcomes
Non-Executive Directors
Chief Executive Officer and Disclosed Executives

16
16
16
16

CEO Actual Remuneration

16

Disclosed Executives Actual Remuneration

17

Short Term Incentive (STI) – Targets and Outcomes

20

Remuneration Report – Full (Audited)
Board Oversight of Remuneration
Non-Executive Directors
CEO and Disclosed Executives

22
22
22
23

1.

Non-Executive Director Remuneration
1.1. Board Policy on Remuneration
1.2. Components of Non-Executive Director Remuneration
1.3. Shareholdings of Non-Executive Directors
1.4. Remuneration paid to Non-Executive Directors

23
23
24
25
26

2.

CEO and Disclosed Executive Remuneration
2.1. Remuneration Guiding Principles
2.2. Performance of ANZ
2.3. Remuneration Structure Overview
2.4. Remuneration Components
2.5. CEO Remuneration
2.6. Disclosed Executive Remuneration
2.6.1. Fixed Remuneration
2.6.2. Variable Remuneration
2.6.3. Short Term Incentives (STI)
2.6.4. Long Term Incentives (LTI)
2.7. Clawback
2.8. Hedging and Margin Lending Prohibition
2.9. Shareholding guidelines
2.10. Equity Granted as Remuneration
2.11. Equity Valuations
2.12. Equity Vested/Exercised/Lapsed During 2011
2.13. Shareholdings of the CEO and Disclosed Executives
2.14. Legacy LTI Programs
2.15. Remuneration paid to the CEO and Disclosed Executives

28
28
28
29
30
30
32
32
33
33
34
35
35
35
36
37
38
39
40
42

3.

Contract Terms
3.1. CEO’s Contract Terms
3.2. Disclosed Executives’ Contract Terms

44
44
44

Remuneration Report

15

REMUNERATION REPORT – SUMMARY (Unaudited)

Remuneration Report – Summary (Unaudited)

CEO ACTUAL REMUNERATIONThis overview has been written to provide a clear and simple
summary of ANZ’s remuneration structure and the actual value
received from the various remuneration components by the
Non-Executive Directors (NEDs), the Chief Executive Officer (CEO)and Disclosed Executives in 2010 and 2011. The term ‘Disclosed
Executives’ is used in this report to refer to these executives
other than the CEO. Detailed data is provided in the Directors’
Remuneration Report on pages 22 to 45.

Fixed pay: From 1 October 2010 the level of fixed annual pay for the
CEO was increased to $3.15 million from $3 million and was the firstadjustment since his commencement in 2007. The Board determinedthat based on fixed remuneration remaining unchanged sincecommencement, and the importance of rewarding the CEOcommensurate with his peers who have significant Asian experience,
it was appropriate to provide a fixed pay increase of 5%.

Remuneration Structure and 2011 Outcomes
NON-EXECUTIVE DIRECTORS
Full details of the fees paid to NEDs in 2010 and 2011 are provided
on page 24 of the Remuneration Report. In summary, the Chairman
receives a base fee which covers all responsibilities including all
Board committees. NEDs receive a base fee for being a Director of
the Board and additional fees for either chairing or being a memberof a committee, working on special committees and/or for serving
on a subsidiary Board. They do not receive any performance/incentive
payments and are not eligible to participate in any of the Group’s
incentive arrangements. All fees payable to NEDs fall within the fee
limit set by shareholders.

Short Term Incentive (STI): The CEO has an annual opportunity
to receive a bonus payment equivalent to the value of his fixed
remuneration, i.e. $3.15 million. The actual amount paid can increaseor decrease from this number dependent on his performance as
CEO and the performance of the organisation as a whole. Specifically,
if, in the Board’s view the CEO has out-performed and exceeded histargets, the Board may exercise its discretion to increase the STI
beyond his target payment.

There has been no increase to the NED fee pool since 2008.

The CEO’s STI payment for 2011 has been determined having regard
to his delivery against a balanced scorecard of objectives for theyear as well as the progress achieved in relation to ANZ’s long-term
strategic goals. The STI payment for 2011 will be $3.3 million with$1.75 million paid in cash and the balance ($1.55 million) awarded
as deferred shares. Half the deferred shares will be restricted for one
year and half for two years.

Based on an independent assessment of the competitiveness of
ANZ’s NED remuneration in comparison to other major companies
and forecast market movements, the Board elected to increase NED
fees for the 2011 year.

Special Equity Allocation: At the 2008 Annual General Meeting,shareholders approved an additional grant of 700,000 options to
the CEO at an exercise price of $14.18 and with a vesting date of
18 December 2011. No options have been granted subsequently.

ANZ’s remuneration framework is designed to create and enhancevalue for all ANZ stakeholders and to ensure there is strong alignment
between the short and long-term interests of shareholders and the
CEO and Disclosed Executives. A key feature of ANZ’s reward structureis the role it plays in helping drive ANZ’s strategy to build a culture ofout-performance with integrity, by ensuring differentiation of rewards
and recognition of key contributors. To achieve this, remuneration for
the CEO and Disclosed Executives is comprised of:Long Term Incentive (LTI): Three tranches of performance rights were
provided to the CEO in December 2007, covering his first three years
in the role. The first of these tranches was tested against a relative
Total Shareholder Return (TSR) hurdle after three years, i.e. December
2010. As a result of the testing, 258,620 performance rights vested at
a value of $6.117 million, based on the one day volume weighted
average price (VWAP) of $23.6535 per share on 17 December 2010(19 December 2010 was a non-trading day) and were exercised during
the year. The other two tranches will be tested in December 2011 andDecember 2012 respectively. There is no retesting of these grants.

Fixed pay: This is the only ‘guaranteed’ part of the remuneration
package. ANZ positions fixed pay for the CEO and Disclosed
Executives against the median of the relevant financial services
market and based on internal relativities reflecting responsibilities,
performance, qualifications, experience and location.

At the 2010 Annual General Meeting shareholders approved an
LTI grant to the CEO equivalent to 100% of his 2010 fixed pay, being$3 million. This equated to a total of 253,164 performance rights
being allocated, which will be subject to testing against the relative
TSR hurdle after 3 years, i.e. December 2013.

The financial services market is considered the appropriate market
as this is the key pool of sourcing talent for ANZ, consisting ofcompanies operating in a similar regulatory environment to ANZ.
This market consists of companies where key talent may be lost to
and therefore competitive remuneration against these companies
is appropriate.

Other: In addition to his standard remuneration arrangements,
the CEO was provided with additional equity as part of his originalsign-on arrangements to recognise remuneration forgone fromhis previous employer in order to join ANZ. The CEO was offered$9 million on his commencement which could have been taken in
cash but which he elected to take as shares, with one third vestingat his 1st, 2nd and 3rd anniversaries respectively. This equated to a
total of 330,033 ANZ shares at the time of grant when the share price
was $27.2751. The first and second tranches vested in October 2008
and October 2009 respectively. The third tranche vested on 2 October2010. At that time, the value was $2.589 million, based on the one day
VWAP of $23.5385 per share on 1 October 2010 (2 October 2010 was
a non-trading day).

CHIEF EXECUTIVE OFFICER AND DISCLOSED EXECUTIVES

Short Term Incentive (STI): The STI provides an annual opportunity
for an incentive award. It is assessed against Group and individual
objectives and is awarded provided that there have been no
inappropriate behaviour or risk/compliance/audit breaches.
Long Term Incentive (LTI): The LTI provides an annual opportunity
for an equity award that aligns a significant portion of overall
remuneration to shareholder value over the longer term.

16

ANZ Annual Report 2011

The following tables, relating to the CEO, show:
The actual amounts or grants made in respect of the years 2010 and 2011;
Any amounts which had to be deferred in respect of the years 2010 and 2011; andThe actual amounts received in respect of the years 2010 and 2011.
The information provided in this table is different from the information provided in the statutory remuneration table on page 42, which has
been prepared in accordance with Australian Accounting Standards.
Chief Executive Officer(M Smith)1,2

Fixed pay
($)

STI
($)

LTI
($)

Other grants/benefits($)

3,150,000

3,300,000

3,150,0003

105,5155

9,705,515–

1,550,000

3,150,0003–

4,700,000

3,150,000

1,750,000–3

105,5155

5,005,515

3,000,000

4,750,000

3,000,0004

5,5005

10,755,500–

2,250,000

3,000,0003–

5,250,000

3,000,000

2,500,000–35,50055,505,500

TOTAL
($)

2011
Amounts paid or granted in respect of 2011 year
less amounts which must be deferred in respect of 2011 year
Amounts received in respect of 2011 year
2010
Amounts paid or granted in respect of 2010 year
less amounts which must be deferred in respect of 2010 year
Amounts received in respect of 2010 year

1 On commencement with ANZ, M Smith was granted three tranches of equity valued at $3 million each. The second tranche became available on 2 October 2009 – price at vesting $23.5600(based on one day VWAP as at 2 October 2009). Therefore the value of this tranche at date of vesting was $2,591,859. The third tranche became available on 2 October 2010 – price at vesting$23.5385 (based on one day VWAP as at 1 October 2010, as 2 October 2010 was a non-trading day). Therefore the value of this tranche at date of vesting was $2,589,494. These amounts are notreflected in the table above as they relate to a specific equity arrangement associated with his commencement and are not a part of his standard remuneration arrangements.
2 Equity which has been previously disclosed in remuneration reports in prior years that first vested in 2011 included STI deferred shares granted 13 November 2009, valued at $1,074,274 at
vesting on 13 November 2010 (based on one day VWAP on 12 November 2010, as 13 November 2010 was a non-trading day) and LTI performance rights granted 19 December 2007, valued at$6,117,268 at vesting on 19 December 2010 (based on one day VWAP on 17 December 2010, as 19 December 2010 was a non-trading day).
3 The 2011 LTI relates to the LTI grant that is proposed for 2011, subject to approval by shareholders at the 2011 Annual General Meeting.
4 The 2010 LTI relates to the LTI grant approved by shareholders at the 2010 Annual General Meeting.
5 Other grants/benefits includes car parking, life insurance and taxation services. The insurance coverage for M Smith was updated in 2011 to a full Life and Personal Accident Insurance Policy
which provides more comprehensive cover.

2012 Remuneration: The CEO’s fixed pay will remain unchanged
at $3.15 million for the year commencing 1 October 2011.
The STI target is 100% of fixed pay, therefore, for the 2012 year the
STI target will remain at $3.15 million. The actual payment will be
determined having regard to performance against relevant objectives
and targets for the 2012 year.
For 2011, it is proposed to allocate $3.15 million LTI to be delivered as
performance rights with a relative TSR hurdle, subject to shareholder
approval at the 2011 Annual General Meeting.
DISCLOSED EXECUTIVES ACTUAL REMUNERATIONCHIEF RISK OFFICER (CRO)The CRO’s remuneration arrangements have been structured
differently to other Disclosed Executives to preserve theindependence of this role and to minimise any conflicts of interest.
The CRO’s role has a greater weighting on fixed pay with more limited
leverage for individual performance and none (either positive or
negative) for Group performance. In 2010, LTI awards were delivered
as unhurdled deferred shares and in 2011 (and beyond) will bedelivered as unhurdled deferred share rights, both with a three year
time based hurdle. The Company’s relative TSR performance hurdle
is not associated with the LTI award to ensure greater impartiality
and independence of this role.
ALL OTHER DISCLOSED EXECUTIVES
Fixed pay: A review identified that ANZ’s fixed remuneration levels
for Disclosed Executives were generally competitively positioned
within the market, and where they were not, appropriate adjustments
were made.

Short Term Incentive (STI): Disclosed Executives have an opportunity
to receive an on-target STI payment equivalent to 120% of their fixedpay, with top performers able to receive incentive payments well above
the target level whereas weaker performers receive a significantly
reduced or no incentive payment at all. All incentives paid in the 2011financial year related to performance from the 2010 financial year, andall deferred components are subject to the Board’s discretion to reduceor adjust to zero before vesting. The total of STI payments for Disclosed
Executives for the 2011 year has decreased from 2010, reflecting thelink between performance and variable reward outcomes.
STI payments for Disclosed Executives are subject to a mandatorydeferral threshold (currently $200,000), with 50% of all amounts
above this threshold subject to deferral – half of the deferred equity
is restricted for a one year period and the other half of the deferred
equity is restricted for a two year period. This is designed to strengthen
the link between the STI award and longer term alignment withshareholder interests.
Long Term Incentive (LTI): The target LTI is 50% of their fixed pay. Thisdollar value is converted into an actual number of performance rights
using an independent and audited external valuation. These rights
are subject to a relative TSR performance hurdle that compares ANZ’s
performance with a selection of other comparable financial institutions
over the three year period following the grant. ANZ’s performanceranking must be equal to the median for any rights to vest and at or
above the 75th percentile to fully vest. If the hurdle is achieved, the rights
are able to be exercised, and if not, they are forfeited. There is no retesting.
The LTI grants made in October 2007 were tested against the TSR
performance of the comparator group in October 2010. ANZ’s TSR
performance was ranked above the 75th percentile of the comparatorgroup. Accordingly, 100% of the performance rights vested in October 2010.
Remuneration Report

17

REMUNERATION REPORT – SUMMARY (Unaudited)

The following tables cover those Disclosed Executives who were employed at the executive level for 2010 and 2011. The tables detail:The actual amounts paid or granted in respect of the years 2010 and 2011;
Any amounts which had to be deferred in respect of the years 2010 and 2011; andThe actual amounts received in respect of the years 2010 and 2011.
The information provided in these tables is different from the information provided in the statutory remuneration table on page 42, which has
been prepared in accordance with Australian Accounting Standards.
Chief Executive Officer, Australia(P Chronican)1

Fixed pay
($)

STI
($)

LTI
($)

Other grants/benefits
($)

TOTAL
($)

1,300,000

1,600,000

650,000

5,744

3,555,744

2011
Amounts paid or granted in respect of 2011 year
less amounts which must be deferred in respect of 2011 year
Amounts received in respect of 2011 year–

700,000

650,000–

1,350,000

1,300,000

900,000–

5,744

2,205,744

1,079,000

1,400,000

650,000

296,974

3,425,974
1,250,000

2010
Amounts paid or granted in respect of 2010 year
less amounts which must be deferred in respect of 2010 year
Amounts received in respect of 2010 year
Chief Executive Officer, Institutional(S Elliott)2–

600,000

650,000–

1,079,000

800,000–

296,974

2,175,974

Fixed pay
($)

STI
($)

LTI
($)

Other grants/benefits
($)

TOTAL
($)

1,050,000

1,008,000

650,000

10,191

2,718,191–

404,000

650,000–

1,054,000

1,050,000

604,000–

10,191

1,664,191

2011
Amounts paid or granted in respect of 2011 year
less amounts which must be deferred in respect of 2011 year
Amounts received in respect of 2011 year
2010
Amounts paid or granted in respect of 2010 year
less amounts which must be deferred in respect of 2010 year
Amounts received in respect of 2010 year
Chief Executive Officer, New Zealand(D Hisco)3

1,000,000

2,500,000

550,000

12,3344,062,334–

1,150,000

550,000–

1,700,000

1,000,000

1,350,000–

12,3342,362,334

Fixed pay
($)

STI
($)

LTI
($)

Other grants/benefits
($)

TOTAL
($)

960,000

1,612,800

480,000

357,283

3,410,083–

710,400

480,000–

1,190,400

960,000

902,400–

357,283

2,219,683

2011
Amounts paid or granted in respect of 2011 year
less amounts which must be deferred in respect of 2011 year
Amounts received in respect of 2011 year2010
Not a Disclosed Executive in 201018

ANZ Annual Report 2011

Chief Executive Officer, Asia Pacific, Europe & America(A Thursby)4

Fixed pay
($)

STI
($)

LTI
($)

Other grants/benefits
($)

TOTAL
($)

1,050,000

1,600,000

700,000

7,375

3,357,375–

700,000

700,000–

1,400,000

1,050,000

900,000–

7,375

1,957,375

1,000,000

2,500,000

550,000

23,5704,073,570–

1,150,000

550,000–

1,700,000

1,000,000

1,350,000–

23,5702,373,570

Fixed pay
($)

STI
($)

LTI
($)

Other grants/benefits
($)

TOTAL
($)

1,000,000

1,200,000

500,000

24,3502,724,350

2011
Amounts paid or granted in respect of 2011 year
less amounts which must be deferred in respect of 2011 year
Amounts received in respect of 2011 year
2010
Amounts paid or granted in respect of 2010 year
less amounts which must be deferred in respect of 2010 year
Amounts received in respect of 2010 year
Deputy Chief Executive Officer(G Hodges)52011
Amounts paid or granted in respect of 2011 year
less amounts which must be deferred in respect of 2011 year
Amounts received in respect of 2011 year–

500,000

500,000–

1,000,000

1,000,000

700,000–

24,3501,724,350

1,000,000

1,140,000

500,000

17,3092,657,309

2010
Amounts paid or granted in respect of 2010 year
less amounts which must be deferred in respect of 2010 year
Amounts received in respect of 2010 year
Chief Financial Officer(P Marriott)6–

470,000

500,000–

970,000

1,000,000

670,000–

17,3091,687,309

Fixed pay
($)

STI
($)

LTI
($)

Other grants/benefits
($)

TOTAL
($)

1,000,000

1,440,000

500,000

5,774

2,945,774–

620,000

500,000–

1,120,000

1,000,000

820,000–

5,774

1,825,774

1,000,000

1,140,000

500,000

2,595

2,642,595–

470,000

500,000–

970,000

1,000,000

670,000–

2,595

1,672,595

Fixed pay
($)

STI
($)

LTI
($)

Other grants/benefits
($)

TOTAL
($)

1,100,000

1,500,000

–

7,375

2,607,375–

650,000––

650,000

1,100,000

850,000–

7,375

1,957,375

1,100,000

1,320,000

425,000

60,5652,905,565–

560,000

425,000–

985,000

1,100,000

760,000–

60,565

1,920,565

2011
Amounts paid or granted in respect of 2011 year
less amounts which must be deferred in respect of 2011 year
Amounts received in respect of 2011 year
2010
Amounts paid or granted in respect of 2010 year
less amounts which must be deferred in respect of 2010 year
Amounts received in respect of 2010 year
Chief Risk Officer(C Page)7

2011
Amounts paid or granted in respect of 2011 year
less amounts which must be deferred in respect of 2011 year
Amounts received in respect of 2011 year
2010
Amounts paid or granted in respect of 2010 year
less amounts which must be deferred in respect of 2010 year
Amounts received in respect of 2010 year

Remuneration Report

19

REMUNERATION REPORT – SUMMARY (Unaudited) (continued)

1 P Chronican – P Chronican commenced on 30 November 2009 so 2010 payments reflect amounts received for the partial service for the 2010 year. Other grants/benefits includes car parking
and relocation expenses.
2 S Elliott – Other grants/benefits includes car parking and relocation expenses. Equity which has been previously disclosed in remuneration reports in prior years that first vested in 2011
included STI deferred shares granted 13 November 2009, valued at $25,566 at vesting on 13 November 2010 and STI deferred options granted 13 November 2009, valued at $2,796 at vestingon 13 November 2010 (based on one day VWAP on 12 November 2010, as 13 November was a non-trading day). In addition to remuneration shown above, S Elliott received an equity grant in2009 in accordance with his employment arrangements on joining ANZ. ANZ agreed to provide S Elliott with shares to the value of $125,000 deferred for one year and shares to the value of$125,000 deferred for two years. The shares were granted on 11 June 2009. The one year deferred shares became available on 11 June 2010, valued at $172,589 at vesting. The two year deferredshares became available on 11 June 2011, valued at $162,464 at vesting.
3 D Hisco – D Hisco commenced in role on 13 October 2010 so 2011 payments reflect amounts received for the partial service for the 2011 year. Other grants/benefits includes relocation
expenses such as flight and housing assistance, and taxation services. Equity which first vested in 2011 included STI deferred shares granted 13 November 2009, valued at $136,836 at vestingon 13 November 2010 (based on one day VWAP on 12 November 2010, as 13 November was a non-trading day) and LTI performance rights granted 30 October 2007, valued at $634,134 at vestingon 31 October 2010.
4 A Thursby – Other grants/benefits includes car parking and relocation expenses. Equity which has been previously disclosed in remuneration reports in prior years that first vested in 2011
included STI deferred shares granted 31 October 2008, valued at $308,051 at vesting on 31 October 2010, STI deferred shares granted 13 November 2009, valued at $613,871 at vesting on
13 November 2010 (based on one day VWAP on 12 November 2010, as 13 November was a non-trading day), STI deferred options granted 31 October 2008, valued at $635,420 at vesting on
31 October 2010 and LTI performance rights granted 30 October 2007, valued at $1,153,007 at vesting on 31 October 2010. In addition to remuneration shown above, A Thursby received anequity grant in 2009 in accordance with his employment arrangements on joining ANZ. ANZ agreed to provide A Thursby with three separate tranches of deferred shares to the value of $1 million
per annum. The first tranche was made on 3 September 2007, the second on 28 August 2008 and the final tranche was granted on 22 September 2009. The shares are restricted and held in trust
for three years from the date of allocation. The first tranche became available on 3 September 2010, valued at $804,989 at vesting. The second tranche became available on 28 August 2011,
valued at $1,249,537 at vesting.
5 G Hodges – Other grants/benefits includes car parking and taxation services. Equity which has been previously disclosed in remuneration reports in prior years that first vested in 2011 included
STI deferred shares granted 13 November 2009, valued at $168,817 at vesting on 13 November 2010 (based on one day VWAP on 12 November 2010, as 13 November was a non-trading day),STI deferred options granted 31 October 2008, valued at $261,641 at vesting on 31 October 2010, STI deferred share rights granted 31 October 2008, valued at $141,038 at vesting on 31 October2010 and LTI performance rights granted 30 October 2007, valued at $1,441,258 at vesting on 31 October 2010.
6 P Marriott – Other grants/benefits includes car parking. Equity which has been previously disclosed in remuneration reports in prior years that first vested in 2011 included STI deferred shares
granted 31 October 2008, valued at $90,580 at vesting on 31 October 2010, STI deferred shares granted 13 November 2009, valued at $166,251 at vesting on 13 November 2010 (based on one
day VWAP on 12 November 2010, as 13 November was a non-trading day), STI deferred options granted 31 October 2008, valued at $186,886 at vesting on 31 October 2010 and LTI performancerights granted 30 October 2007, valued at $1,441,258 at vesting on 31 October 2010.
7 C Page – Other grants/benefits includes car parking, relocation expenses and taxation services. Equity which has been previously disclosed in remuneration reports in prior years that first vested
in 2011 included STI deferred shares granted 13 November 2009, valued at $358,091 at vesting on 13 November 2010 (based on one day VWAP on 12 November 2010, as 13 November was a
non-trading day).

Short Term Incentive (STI) – Targets and Outcomes
ANZ uses a balanced scorecard to measure performance in relation to the Group’s main STI program. The scorecard provides a framework
whereby a combination of measures can be applied to ensure a broader long term strategic focus on driving shareholder value as well asa focus on short term outcomes.
In 2011 there were four categories containing a total of 20 measures agreed at the beginning of the financial year and they have not beenchanged. Each of the four categories are broadly equal in weight.
The following table provides examples of some of the key measures used in 2011 for assessing performance for the purpose of determining
bonus pools and also individual performance outcomes. The list is not comprehensive but provides examples of the measures under each of
the balanced scorecard categories.
Category

MeasureOutcome

Customer

Customer satisfaction(based on externalsurvey outcomes)

ANZ aims to achieve top quartile customer satisfaction across each of its businesses based on externalsurvey outcomes. In 2011 ANZ maintained top quartile performance in Australia in the Retail, Commercial
and Institutional segments and in the Institutional segment in New Zealand. In New Zealand, satisfaction
in Retail improved and remained constant in Commercial, however, satisfaction levels were slightly
behind the other major banks.

FinanceTier 1 capital

Individual measures in the Finance category target both financial strength and financial performance
relative to peers and internal targets. In the current economic environment, financial strength measures
for Capital, Liquidity and Funding are regarded as particularly important. For each of those measures
the target was met or exceeded. ANZ is well capitalised with the Tier 1 ratio of 10.9% comfortably above
both internal targets and regulator requirements. Throughout the period ANZ has complied with internalliquidity stress testing policies and has maintained its Core Funding Ratio at comfortable levels.

Liquidity stresstesting policies
Core funding ratio
Underlying earnings
per share
Underlying
economic profit
Total shareholder
return20

ANZ Annual Report 2011

Underlying Earnings Per Share and Underlying Economic Profit are each measured against strong growthobjectives set by the Board. Total Shareholder Return is measured against the mean of our Australianpeers. While ANZ’s EPS grew strongly (up 10% for the year), a significant decline in Global Markets trading
income, in line with global sector trends, in the last half dampened the growth. Economic Profit ismeasured against the Board approved Operating Plan and performance fell short due to Global Markets
income. While Statutory Profit and Underlying Profit grew 19% and 12% respectively year on year anddividends increased 11%, the shareholder return lagged peers with share price growth reducing
somewhat after outperformance in 2010.

CategoryMeasureOutcomePeopleEmployee engagement An engaged workforce is regarded as an important driver of above average long term performance.
Percentage of women ANZ employee engagement increased from 64% in 2010 to 70% in 2011, above the 68% internal target.
ANZ is focused on increasing the diversity of its workforce and targeted an increase in women inin management
management; however results remained flat year on year. ANZ met its Corporate Responsibility Targets
Corporate social
for 2011.
responsibility
The management of risk is fundamental to the ongoing stability of the banking industry. In this scorecard
category ANZ has measures for both credit and operating risk. In 2011 ANZ achieved a 33% reduction incredit losses, compared to a target of 28%, with provisioning levels beginning to revert to pre-crisis levels.
Number of highThis reduction was achieved despite the impact of a number of natural disasters in New Zealand and Australia.
severity IT incidents
High severity IT incidents reduced by 47%. ANZ Global Internal Audit conduct a rigorous review process
Number of operational
to identify any weaknesses in procedures and/or compliance with policies and in 2011 there was aincidents
significant reduction in the number of outstanding internal audit items with the Group outperforming
Number of outstanding against target.
internal audit items

Process/ Risk Underlying individual
provision charge

Performance and Short Term Incentive Correlation
Short Term Incentive Payments for the CEO and Disclosed Executives on average were lower for 2011 than for the prior year. For 2011 theaverage STI for the CEO and Disclosed Executives was 110% of target compared to 137% of target for the prior year. Whilst ANZ has had anotherrecord year and profits have increased steadily, performance needs to be assessed across the full range of quantitative and qualitative measures.
The Board has given full consideration to the performance of the Group and the Disclosed Executives, and determined that whilst still
performing strongly, on balance the rewards should be reduced from prior year. The Board sets stretching growth targets for the Management
Team to drive strong, responsible and sustainable growth.

Remuneration Report

21

REMUNERATION REPORT – FULL (Audited)

Remuneration Report – Full (Audited)
The Directors’ Remuneration Report is designed to provide shareholders with an understanding of ANZ’s remuneration policies which relate
to Key Management Personnel (KMP) as defined under the Corporations Act and the link between remuneration and ANZ’s performance, alongwith individual outcomes for ANZ’s Non-Executive Directors (NEDs), Chief Executive Officer (CEO) and Disclosed Executives.
This Remuneration Report has been prepared in accordance with section 300A of the Corporations Act for the Company and the consolidated
entity for 2010 and 2011.
The information provided in this Remuneration Report has been audited as required by section 308(3C) of the Corporations Act. This Remuneration
Report forms part of the Directors’ Report.

Board Oversight of Remuneration
The Human Resources (HR) Committee has responsibility for reviewing and making recommendations to the Board in relation to director
and executive remuneration, and executive succession (excluding the role of Group General Manager Global Internal Audit which is addressed
separately by the Board Audit Committee). The HR Committee specifically makes recommendations to the Board on remuneration andsuccession matters related to the CEO, and individual remuneration arrangements for other key executives covered by the Group’s
Remuneration Policy, the design of significant incentive plans (such as the ANZ Employee Reward Scheme (ANZERS) and the Institutional
Incentive Plan) and remuneration structures for senior executives and others specifically covered by the Remuneration Policy (refer to page 57
of the Corporate Governance Report for more details about the Committee’s role, and anz.com > About Us > Our Company > Corporate
Governance > ANZ Human Resources Committee Charter, which details the terms of reference under which the HR Committee operates).
On a number of occasions throughout the year, the HR Committee and management received information from external providers (thefollowing advisors were used: Ernst & Young, Hay Group, Freehills, Mercer (Australia) Pty Ltd and PricewaterhouseCoopers). This information
related to remuneration market data and analysis, remuneration market practice regarding the structure and design of short term incentive
and long term incentive programs, analysis of legislative requirements in relation to executive remuneration, and interpretation of Australianand global remuneration governance and regulatory requirements.
The HR Committee did not receive any recommendations from remuneration consultants during the year in relation to the remuneration
arrangements of KMP. ANZ employs in house remuneration professionals who analyse and interpret the information received from external
providers and where recommendations were provided to the Board, these were direct from management.
The Board’s decisions were made independently using the information provided and having careful regard to ANZ’s position, strategic
objectives and current requirements.

Non-Executive Directors
Throughout this report specific disclosures are provided in relation to the remuneration of the Non-Executive Directors (NEDs) set out in Table 1,
who fall within the definition of KMP of the Company and of the Group.
TABLE 1: NON-EXECUTIVE DIRECTORS
Current Non-Executive Directors
J Morschel
G ClarkP Hay
H Lee
I Macfarlane
D Meiklejohn
A Watkins

Chairman, Independent Non-Executive Director – Appointed Director October 2004;
Appointed Chairman 1 March 2010
Independent Non-Executive Director – Appointed February 2004
Independent Non-Executive Director – Appointed November 2008
Independent Non-Executive Director – Appointed February 2009
Independent Non-Executive Director – Appointed February 2007
Independent Non-Executive Director – Appointed October 2004
Independent Non-Executive Director – Appointed November 2008

Former Non-Executive Directors
C GoodeJ Ellis22

Chairman, Independent Non-Executive Director – Appointed Director July 1991;
Appointed Chairman August 1995; Retired 28 February 2010
Independent Non-Executive Director – Appointed October 1995; Retired 18 December 2009

ANZ Annual Report 2011

CEO and Disclosed Executives
Throughout this report specific disclosures are provided in relation to the remuneration of both the Chief Executive Officer (CEO) and theother current and former executives set out in Table 2 below. The term ‘Disclosed Executives’ is used in this report to refer to these executives
other than the CEO.
The Disclosed Executives are those direct reports of the CEO with key responsibility for the strategic direction and management of a major
revenue generating Division or who control material revenue and expenses who fall within the definition of KMP of the Company and of theGroup, and include the five highest paid executives in the Company and the Group (being the five highest paid, relevant Group and Company
executives who participate in making decisions that affect the whole, or a substantial part, of the business of the Company or who have thecapacity to significantly affect the Company’s financial standing).
The Group operates on a divisional structure with Australia, Asia Pacific, Europe & America (APEA), Institutional and New Zealand being the
major operating divisions.
TABLE 2: CEO AND DISCLOSED EXECUTIVES
Executive Director
M SmithChief Executive Officer

Current Disclosed Executives
P Chronican
Chief Executive Officer, Australia – appointed 30 November 2009S Elliott
Chief Executive Officer, Institutional
D HiscoChief Executive Officer, New Zealand – appointed 13 October 2010
G Hodges
Deputy Chief Executive Officer
P Marriott
Chief Financial Officer
C PageChief Risk Officer
A Thursby
Chief Executive Officer, Asia Pacific, Europe & America
Former Disclosed Executives
J FaggFormer Chief Executive Officer, New Zealand – stepped down from role due to illness 1 September 2010

1. Non-Executive Director Remuneration
1.1. BOARD POLICY ON REMUNERATION
Table 3 sets out the key principles that underpin the Board’s policy on NED remuneration:
TABLE 3: PRINCIPLES UNDERPINNING THE REMUNERATION POLICY FOR NEDs
Principle

Comment

Aggregate Board andCommittee fees are within
the maximum annual
aggregate limit approvedby shareholders

The current aggregate fee pool for NEDs of $3.5 million was approved by shareholders at the 2008 Annual
General Meeting. The annual total of NEDs’ fees, including superannuation contributions, is within this agreed
limit. NEDs are also eligible for other payments outside the limit such as reimbursement for business related
expenses, including travel, and retirement benefits accrued as at September 2005.

Fees are set by reference
to key considerations

Board and Committee fees are set by reference to a number of relevant considerations including:
general industry practice and best principles of corporate governance;
the responsibilities and risks attaching to the role of NED;
the time commitment expected of the NEDs on Group and Company matters; andreference to fees paid to other NEDs of comparable companies.

The remuneration structure
preserves independence
whilst aligning interestsof NEDs and shareholders

So that independence and impartiality is maintained, fees are not linked to the performance of the Company
and NEDs are not eligible to participate in any of the Group’s incentive arrangements. NEDs also have adopted
Shareholding Guidelines (refer section 1.3).

No retirement benefits

NEDs do not accrue separate retirement benefits in addition to statutory superannuation entitlements.
(Refer to Table 4 for details of preserved benefits for NEDs who participated in the ANZ Directors’ Retirement
Scheme prior to its closure in 2005).

Remuneration Report

23

REMUNERATION REPORT – FULL (Audited) (continued)

1.2. COMPONENTS OF NON-EXECUTIVE DIRECTOR REMUNERATION
NEDs receive a fee for being a Director of the Board, and additional fees for either chairing or being a member of a committee. The Chairmanof the Board does not receive additional fees for service on Board Committees.
There has been no increase to the NED fee pool since 2008.
Based on an independent assessment of the competitiveness of ANZ’s NED remuneration in comparison to other major companies and forecast
market movements the Board elected to increase NED fees for the 2011 financial year, in order to remain market competitive and to reflect
the increased accountability and time commitment of NEDs. For details of remuneration paid to Directors for the years 2010 and 2011, refer toTable 6 in this Remuneration Report.
TABLE 4: COMPONENTS OF REMUNERATION FOR NEDS
Elements

Details

Board/Committee fees

2011
Fees per annum are:Board Chairman Fee$775,000Board NED Base Fee$210,000

Committee Fees

Committee
Chair

Committee
MemberAudit$65,000$32,500

Risk$57,000$30,000

Human Resources$55,000$25,000

Governance$35,000$15,000

Technology$35,000$15,000

Other fees/benefits

Work on Special Committees may attract additional fees of an amount considered appropriate
in the circumstances.

Post-employment benefits

Superannuation contributions are made at a rate of 9% (but only up to the Government’s prescribedmaximum contributions limit) which satisfies the Company’s statutory superannuation contributions
and are not included in the base fee.
The ANZ Directors’ Retirement Scheme was closed effective 30 September 2005. Accrued entitlements
relating to the ANZ Directors’ Retirement Scheme were fixed at 30 September 2005 and NEDs had the option
to convert these entitlements into ANZ shares. Such entitlements, either in ANZ shares or cash, will be
carried forward and transferred to the NED when they retire (including interest accrued at the 30 day bankbill rate for cash entitlements).
The accrued entitlements for current NEDs fixed under the ANZ Directors’ Retirement Scheme as at
30 September 2005 were as follows:
G Clark$83,197
D Meiklejohn$64,781
J Morschel$60,459

Directors’ Share Plan

With effect from 1 October 2009, ANZ ceased all new purchases under the Directors’ Share Plan (the Plan),although existing shares will continue to be held in trust. As shares were purchased from remuneration
forgone, they were not subject to performance conditions. Participation in the plan was voluntary. Sharesacquired under the Plan were purchased on market and were subject to a minimum one year restriction,
during which the shares could not be traded. In the event of serious misconduct, all shares held in trust will
be forfeited. All costs associated with the Plan are met by the Company.
The Plan was not a performance-based share plan and was not intended as an incentive component of
NED remuneration.

24

ANZ Annual Report 2011

1.3. SHAREHOLDINGS OF NON-EXECUTIVE DIRECTORSIn recognising that ownership of Company shares aligns Directors’ interests with those of shareholders, Directors adopted Shareholding
Guidelines in 2005. These guidelines require Directors to accumulate shares, over a five year period from appointment, to the value of 100%
(200% for the Chairman) of the base annual NED fee and to maintain this shareholding while a Director of ANZ. Directors have agreed that
where their holding is below this guideline they will direct a minimum of 25% of their fees each year toward achieving this shareholding.
The movement during the reporting period in shareholdings of NEDs (held directly, indirectly and by related parties) is provided below:
TABLE 5: NED SHAREHOLDINGS
Name

Balance as atreport sign-off
date

Balance as at
1 Oct 2010

Shares fromchanges during
the year1

Directors' Share Plan
Ordinary shares
Directors' Share Plan
Ordinary shares
Directors' Share Plan
Ordinary shares
Directors' Share Plan
Ordinary shares
Directors' Share Plan
Ordinary shares
CPS2
CPS3

7,860
8,042
5,479
10,000
2,812
6,231
1,654
8,000
2,574
11,042
500
–

–
3,000
–
–
178
2,422
105
–
(2,574)
6,574
–
1,000

7,860
11,042
5,479
10,000
2,990
8,653
1,759
8,000
–
17,616
500
1,000

7,860
11,042
5,479
10,000
2,990
8,653
1,759
8,000
–
17,616500
1,000

Ordinary shares
Directors' Share Plan
Ordinary shares

16,1983,419
16,042–––

16,1983,419
16,042

16,1983,419
16,042Type of shares

Balance as at
30 Sep 20112,3

Current Non-Executive Directors

J Morschel
G Clark
P Hay4
H Lee
I Macfarlane

D Meiklejohn
A Watkins

1 Shares from changes during the year include the net result of any shares purchased/sold or acquired under the Dividend Reinvestment Plan.
2 The following shares (included in the holdings above) were held on behalf of the NEDs (i.e. indirect beneficially held shares) as at 30 September 2011: J Morschel – 11,860; G Clark – 15,479;
P Hay – 11,369; H Lee – 1,759; I Macfarlane – 19,116; D Meiklejohn – 13,698; A Watkins – 18,419.
3 Total shareholding balance as at 30 September 2011 as a % of base fee: J Morschel – 176%; G Clark – 144%; P Hay – 108%; H Lee – 91%; I Macfarlane – 178%; D Meiklejohn – 151%; A Watkins – 181%.
The value of shares has been calculated using the closing price on 30 September 2011 of $19.52. The percentage of base fee has been determined by comparing the share value against the current
base annual NED fee of $210,000.
4 Shareholdings for P Hay excludes 19,855 shares as at 30 September 2011 (2010: 19,855) which are held indirectly where P Hay has no beneficial interest.

Remuneration Report

25

REMUNERATION REPORT – FULL (Audited) (continued)

1.4. REMUNERATION PAID TO NON-EXECUTIVE DIRECTORS
Remuneration details of NEDs for 2010 and 2011 are set out below in Table 6.
Overall, there is a decrease in total NED remuneration year on year, largely due to termination benefits provided to C Goode and J Ellis on theirretirement from the Board in the 2010 year.
TABLE 6: NED REMUNERATION FOR 2011 AND 2010
Short-Term
Employee Benefits
Financial
Year

Board fees$

Committee
fees$

Short term
incentive
$

Other
$

J Morschel (Appointed Director October 2004;
appointed Chairman March 2010)
Independent Non Executive Director, Chairman

2011
2010

775,000
517,917–
48,333

n/a
n/a

–
–

G Clark (Appointed February 2004)
Independent Non-Executive Director

2011
2010

210,000
200,000

90,00061,000

n/a
n/a

–
–

P Hay (Appointed November 2008)
Independent Non-Executive Director

2011
2010

210,000
200,000

92,50076,000

n/a
n/a

–
–

H Lee (Appointed February 2009)
Independent Non-Executive Director

2011
2010

210,000
200,000

70,00035,000

n/a
n/a

–
–

I Macfarlane (Appointed February 2007)
Independent Non-Executive Director

2011
2010

210,000
200,000

104,500
72,000

n/a
n/a

–
–

D Meiklejohn (Appointed October 2004)
Independent Non-Executive Director

2011
2010

210,000
200,000

110,000
106,000

n/a
n/a

1863
–

A Watkins (Appointed November 2008)
Independent Non-Executive Director

2011
2010

210,000
200,000

102,500
103,000

n/a
n/a

–
–

C Goode (Appointed Director July 1991;
appointed Chairman August 1995; retired
28 February 2010)
Independent Non-Executive Director, Chairman

2010

326,250–n/a

8,2333J Ellis (Appointed October 1995;
retired 18 December 2009)
Independent Non-Executive Director

2010

43,000–n/a

8,54632011
2010

2,035,000
2,087,167

569,500
501,333

n/a
n/a

186
16,779Current Non-Executive Directors4

Former Non-Executive Directors

Total of all Non-Executive Directors4

1 The termination benefits paid to C Goode and J Ellis (in 2010) on their respective retirements from the Board relate to the benefits accrued under the ANZ Director’s Retirement Scheme which
existed prior to September 2005 and interest on that benefit. For C Goode, shares acquired under the ANZ Director’s Retirement Scheme were transferred on retirement. The price on retirement
was $22.9507 (based on one day VWAP as at 26 February 2010). For J Ellis, shares acquired under the ANZ Director’s Retirement Scheme were transferred on retirement. The price on retirement
was $21.3694 (based on one day VWAP as at 18 December 2009).
2 Amounts disclosed for remuneration of Directors exclude insurance premiums paid by the Group in respect of Directors’ and officers’ liability insurance contracts. The total premium, which cannot
be disclosed because of confidentiality requirements, has not been allocated to the individuals covered by the insurance policy as, based on all available information, the Directors believe that noreasonable basis for such allocation exists.
3 For D Meiklejohn, other relates to office space. For C Goode, other relates to gifts on retirement. For J Ellis, other relates to car parking, office space and gifts on retirement.
4 Due to consistency of remuneration structure, the remuneration details of the CEO (who is the only Executive Director) are included in Table 17 with other Disclosed Executives.

26

ANZ Annual Report 2011

Total$Super
contributions$

Long-Term
Employee Benefits
Long service
leave accrued
during the year$

775,000
566,250

15,343
14,646300,000
261,000

Post- Employment

Termination
Benefits1

Share-Based
Payments$

Total amortisation
value of equity$

Total
Remuneration2
$

n/a
n/a

–
–

n/a
n/a

790,343
580,896

15,343
14,646

n/a
n/a

–
–

n/a
n/a

315,343
275,646

302,500
276,000

15,343
14,646

n/a
n/a

–
–

n/a
n/a

317,843
290,646

280,000
235,000

15,343
14,646

n/a
n/a

–
–

n/a
n/a

295,343
249,646

314,500
272,000

15,343
14,646

n/a
n/a

–
–

n/a
n/a

329,843286,646

320,186
306,000

15,343
14,646

n/a
n/a

–
–

n/a
n/a

335,529
320,646

312,500
303,000

15,343
14,646

n/a
n/a

–
–

n/a
n/a

327,843
317,646

334,483

7,231

n/a

1,398,845

n/a

1,740,559

51,5463,615

n/a

478,333n/a

533,4942,604,686
2,605,279

107,401
113,368n/an/a–
1,877,178n/an/a2,712,087
4,595,825

Remuneration Report

27

REMUNERATION REPORT – FULL (Audited) (continued)

2. CEO and Disclosed Executive Remuneration
2.1. REMUNERATION GUIDING PRINCIPLESANZ’s remuneration strategies and initiatives shape the Group’s Remuneration Policy, which is approved by the Board.
The following principles underpin ANZ’s Remuneration Policy for Executives:
Focus on creating and enhancing value for all ANZ stakeholders;
Emphasis on ‘at risk’ components of total rewards which are designed to encourage behaviour that supports both the long-term financial
soundness and the risk management framework of ANZ, and delivers superior long-term total shareholder returns;
Differentiation of individual rewards in line with ANZ’s culture of rewarding for out performance, adherence to standards of behaviour,and to risk and compliance policies and processes; andThe provision of a competitive reward proposition to successfully attract, motivate and retain the highest quality individuals required
to deliver ANZ’s business and growth strategies.
2.2. PERFORMANCE OF ANZ
Sustained Company performance over the long-term is a key focus for ANZ. The success of ANZ’s Remuneration Policy in aligning shareholder
and the CEO and Disclosed Executive rewards is achieved through the clear link between Company performance over time and the benefits
derived by the CEO and Disclosed Executives from the ‘at-risk’ components of their remuneration over the past five years.
TABLE 7: ANZ’S PERFORMANCE 2007 – 2011
Basic earnings per share (EPS)
NPAT ($m)
Total dividend (cps)
Share price at 30 September ($)
Total shareholder return (12 month %)Underlying profit1

2011

2010

2009

2008

2007

208.2
5,355
140
19.52
-12.6
5,652

178.9
4,501
126
23.68
1.9
5,025

131.0
2,943
102
24.39
40.3
3,772

170.4
3,319
136
18.75
-33.5
3,426

224.1
4,180
136
29.70
15.6
3,924

1 Profit has been adjusted to exclude non-core items to arrive at underlying profit, the result for the ongoing business activities of the Group. These adjustments have been determined on aconsistent basis with those made in prior periods. The adjustments made in arriving at underlying earnings are included in statutory profit, and are therefore subject to audit within the context of
the Group statutory audit opinion. Underlying profit is not audited, however, the external auditor has informed the Audit Committee that the adjustments are based on the guidelines released by
the Australian Institute of Company Directors (AICD) and the Financial Services Institute of Australasia (FINSIA), and consistent with prior period adjustments.

Figure 1 compares ANZ’s TSR performance against the median TSR and upper quartile TSR of the LTI comparator group and the S&P/ASX 200
Banks Accumulation Index (Fin Index) over the 2007 to 2011 measurement period.
FIGURE 1: ANZ 5-YEAR CUMULATIVE TOTAL SHAREHOLDER RETURN PERFORMANCE
140

Upper Quartile TSRMedian TSR
Fin Index TSR
ANZ TSR

130
120

Percentage

110
100
90
80
70
60

Sep 11

Mar 11

Sep 10Mar 10

Sep 09Mar 09

Sep 08Mar 08

Sep 07

Mar 07

Sep 0650

Performance period

Note that from 31 May 2010 onwards, ANZ’s TSR was ranked at the 75th percentile of its comparator group. This has resulted in the convergenceof ANZ’s TSR and the 75th percentile TSR lines since 31 May 2010.

28

ANZ Annual Report 2011

FIGURE 2: ANZ – UNDERLYING PROFIT1 & AVERAGE STI PAYMENTS ($ MILLION)
Underlying Profit ($milion)1

5,025

5,652

Average STI payments against targets
Target STI

X,XXX

3,772

3,426

3,924

150
125

% of target STI paid
to the CEO and
Disclosed Executives

100

Figure 2 illustrates the relationship between the average actual STI payments against
target and the Group’s performance measured using underlying profit over the last
5 years. The average STI payments for each year are based on those executives (including
the CEO) disclosed in each relevant reporting period. We use a balanced scorecard
approach to determine annual STI outcomes, meaning factors other than just underlying
profit outcomes can influence the STI awarded in a particular year. As illustrated in thechart, the average STI payments are generally in alignment with the underlying profit
trend, however, for 2011, while underlying profit has increased the Board determinedthat based on the overall Company performance against the balanced scorecard ofmeasures, the average percentage of STI payment paid against target would be lessthan in prior years. This demonstrates a strong correlation between overall performanceand reward.

75
110%

76%

106%

137%

110%

07

08

09

10

11

1 Profit has been adjusted to exclude non-core items to arrive at underlying profit, the result for the ongoing businessactivities of the Group. These adjustments have been determined on a consistent basis with those made in priorperiods. The adjustments made in arriving at underlying earnings are included in statutory profit, and are therefore
subject to audit within the context of the Group statutory audit opinion. Underlying profit is not audited, however,
the external auditor has informed the Audit Committee that the adjustments are based on the guidelines released by
the Australian Institute of Company Directors (AICD) and the Financial Services Institute of Australasia (FINSIA), andconsistent with prior period adjustments.

2.3. REMUNERATION STRUCTURE OVERVIEW
The key aspects of ANZ’s remuneration strategy for Disclosed Executives (including the CEO) are set out below:
REMUNERATION OBJECTIVES

Shareholder
value creation

Emphasis on ‘at risk’components

Reward differentiation todrive out-performance

Attract, motivate
and retain talent

Pay for performance
Total target remuneration set by reference
to geographic market

Fixed

At riskFixed remuneration

Short Term Incentive (STI)Long Term Incentive (LTI)

Fixed remuneration is set based on financial
services market/internal relativities
reflecting: responsibilities, performance,
qualifications, experience and location

STI targets are linked to theperformance targets of the Group,
Division and Individual using abalanced scorecard approach

LTI Targets are linked to relative
TSR over the longer term

The Group’s Remuneration Policy promotes a strong focus on key performance measures that align executive short and long term reward withshareholder returns.

Remuneration Report

29

REMUNERATION REPORT – FULL (Audited) (continued)

2.4. REMUNERATION COMPONENTS
The Board aims to achieve a balance between fixed and at-risk components of remuneration that reflects market conditions for each seniority level.
The relative proportion of fixed and at-risk remuneration is as set out below:
TABLE 8: ANNUAL TOTAL REWARD MIX PERCENTAGE (% BASED ON AT TARGET LEVELS OF PERFORMANCE)
Fixed

CEO
Disclosed Executives

At RiskFixed remuneration

STI

LTI

33%
37%

33%
44%

33%
19%

2.5. CEO REMUNERATIONThe CEO is the only Executive Director at ANZ.
The components of the CEO’s remuneration package are substantially the same as other Disclosed Executives. However, there are some differencesin the quantum, delivery and timing of the CEO’s arrangements. In the interests of clarity and in order to ensure a thorough understanding of thearrangements that are in place for the CEO, the following table provides a summary of these arrangements as well as cross references to othersections of the report where these arrangements are outlined in further detail.
Details

Summary

Fixed remuneration

This is the only ‘guaranteed’ component of the CEO’s remuneration package.
The level of fixed pay for the CEO was increased from $3 million to $3.15 million in October 2010 and this was thefirst increase since the CEO’s commencement in October 2007.
The Board determined that based on fixed remuneration remaining unchanged since commencement, and theimportance of rewarding the CEO commensurate with his peers, it was appropriate to provide a fixed pay increaseof 5%.
The CEO’s fixed pay will remain unchanged at $3.15 million for the year commencing 1 October 2011.

Short-Term Incentives(STI)

The CEO has an annual opportunity to receive an incentive payment equivalent to the value of his fixed remuneration,i.e. $3.15 million. The actual amount paid can increase or decrease from this number dependent on his performanceas CEO and the performance of the organisation as a whole. Specifically, if, in the Board’s view the CEO has outperformed and exceeded his targets, the Board may exercise its discretion to increase his STI beyond his target payment.
The actual short term incentive paid in November 2010 which related to the 2010 year, was $4.75 million of which$2.25 million was deferred (half deferred for one year and the other half deferred for two years). The Board assessed
the CEO’s performance against his 2010 scorecard as exceeding his objectives.
The Board approved the CEO’s 2011 balanced scorecard at the start of the year and then assessed his performanceagainst these objectives at the end of the 2011 year to determine the appropriate incentive (relative to target). As per
the HR Committee Charter, robust performance measures and targets for the CEO that encourage superior long-term
performance and ethical behaviour are recommended by the HR Committee to the full Board.
The key objectives for 2011 included a number of quantitative and qualitative measures, which included (but were
not limited to) financial goals, customer satisfaction, risk management, progress towards long-term strategic goals,
strengthening the management bench, and people/culture measures.
These measures were selected as the Board’s view was that they best represented alignment to the achievementof ANZ’s short and long term strategic goals through a balanced approach taking into consideration impacts on
the financials, customer, employees, processes and risk management. A balanced scorecard is used as it provides
a framework where a combination of metrics can be applied to ensure a broad strategic focus on performance rather
than just having a focus on short-term activities.
The method of assessment to determine the outcomes against each measure involved an independent review andendorsement by the Chief Risk Officer (CRO) and Chief Financial Officer (CFO), followed by review and endorsementby the HR Committee to the Board.
The method of assessment used to measure performance has been adopted to ensure validation from a risk management
and financial performance perspective, along with independent input and recommendation from the HR Committee
to the Board for approval.
Based on the Board’s assessment, the STI payment for the CEO for the 2011 year will be $3.3 million with $1.75 million
paid in cash and the balance ($1.55 million) awarded as deferred shares. Half the deferred shares will be restricted for
one year and half for two years.

30

ANZ Annual Report 2011

2.5. CEO REMUNERATION (CONTINUED)
Details

Summary

Special equity
allocation

In 2008 the Board reviewed the contract and retention arrangements of the CEO to ensure that they continued tobe market competitive. Following this review, the Board considered it reasonable and appropriate to grant the CEO
700,000 options. This resolution was approved by shareholders at the 2008 AGM and the options were granted on
18 December 2008.
These options will be available for exercise from the date of vesting, 18 December 2011, with the option exercise pricebeing equal to the market value of ANZ shares at the date they were granted i.e. $14.18 per share. Upon exercise, each
option entitles the CEO to one ordinary ANZ share. At grant the options were independently valued at $2.27 each i.e. a
total value of $1.589 million. The value at vesting date will be based on the amount by which the market price exceeds
the exercise price multiplied by the total number of options.

Long Term Incentives(LTI)
PurposeThe LTI arrangements are designed to link a significant portion of remuneration to shareholder interests by ensuring
rewards are commensurate with shareholder return from their investment.

Type of equity awarded LTI is delivered to the CEO as performance rights. A performance right is a right to acquire a share at nil cost, subject tomeeting time and performance hurdles. Upon exercise, each performance right entitles the CEO to one ordinary share.
Time restrictions

Performance rights awarded to the CEO will be tested once only against the performance hurdle at the end of three
years. A three year time based hurdle provides a reasonable period to align CEO reward with shareholder return andalso acts as a retention vehicle to motivate and retain the CEO. If the performance rights do not achieve the required
performance hurdle they are forfeited at that time. Subject to the performance hurdle being met, the CEO then has a
one year exercise period.

Performance hurdle

The performance rights granted to the CEO have a single long-term performance measure.
The performance rights are designed to reward the CEO if the Company’s TSR is at or above the median TSR of a groupof peer companies over a three year period. TSR represents the change in the value of a share plus the value of reinvested
dividends paid. TSR was chosen as the most appropriate comparative measure as it focuses on the delivery of shareholder
value and is a well understood and tested mechanism to measure performance.

Vesting schedule

The proportion of performance rights that become exercisable will depend upon the TSR achieved by ANZ relative tothe companies in the comparator group (shown below) at the end of the three year period.
An averaging calculation is used for TSR over a 90 day period for start and end values in order to reduce the impact ofshare price volatility. To ensure an independent TSR measurement, ANZ engages the services of an external organisation(Mercer (Australia) Pty Ltd) to calculate ANZ’s performance against the TSR hurdle. Performance equal to the medianof the comparator group will result in half of the performance rights vesting. Achieving TSR above the median will resultin further performance rights vesting, increasing on a straight line basis until ANZ’s TSR equals or exceeds the 75th
percentile of the comparator group at which time all the performance rights vest. Where ANZ’s performance falls
between two of the comparators, TSR is measured on a pro-rata basis.

Comparator group

Due to the merger of AMP Limited and AXA Asia Pacific Holdings Limited on 31 March 2011 and in accordance withthe specific terms of the grant, the Board approved the following changes to the LTI comparator group against which
ANZ’s TSR performance is measured.
For existing grants which are still subject to performance testing the comparator group has been reduced to eightcompanies, as below, i.e. AXA Asia Pacific Holdings Limited has been removed entirely:
AMP Limited
National Australia Bank Limited
Commonwealth Bank of Australia Limited
QBE Insurance Group Limited
Insurance Australia Group Limited
Suncorp-Metway Limited
Macquarie Bank Limited
Westpac Banking Corporation Limited
For 2011 LTI awards and any subsequent LTI awards, the Board approved that ASX Limited be added to thecomparator group.

Remuneration Report

31

REMUNERATION REPORT – FULL (Audited) (continued)

Long Term Incentives(LTI) – grants covering
first 3 years(2007 – 2009)

Three tranches of performance rights were provided to the CEO in December 2007, each to a maximum value of$3 million, covering his first three years in the role. Each tranche is to be tested based on ANZ’s relative TSR against thecomparator group. The first tranche was tested after three years and as a result of performance testing (a result of
90.27%) 258,620 performance rights vested on 19 December 2010. The value at vesting was $6.117 million (based on the
one day VWAP of $23.6535 per share), and they were subsequently exercised during the year. The other two tranches will
be tested in December 2011 and December 2012 respectively. No retesting is available. The CEO will only receive abenefit from the second and third tranches if the performance hurdles are met.

Long Term Incentives(LTI) – 2010

At the 2010 Annual General Meeting shareholders approved an LTI grant of performance rights to the CEO equivalent to100% of his 2010 Fixed Pay, being $3 million. This equated to a total of 253,164 performance rights, at an allocation valueof $11.85 per right, which will be subject to testing against the relative TSR hurdle after three years, i.e. December 2013.
The Board recommended the LTI grant, having regard to the need to motivate the CEO, and in the best interests of theCompany and its shareholders as the grant strengthens the alignment of the CEO’s interests with shareholders over the
next three years.

Long Term Incentives(LTI) – 2011

For 2011, it is proposed to allocate $3.15 million (100% of fixed pay) LTI to be delivered as performance rights which
will be subject to testing against the relative TSR hurdle after three years, i.e. December 2014, subject to shareholder
approval at the 2011 Annual General Meeting.

Sign-on award

In addition to his standard remuneration arrangements, the CEO was provided with additional equity as part of his
original sign-on arrangements to recognise remuneration forgone from his previous employer in order to join ANZ.
The CEO was offered $9 million on his commencement which he elected to take as deferred shares, with one third of
the award vesting in each of October 2008, 2009 and 2010 respectively. The sign-on award equated to a total of 330,033
ANZ shares at the time of grant when the share price was $27.2751.
Given the purpose of the sign-on award for the CEO was to compensate him for remuneration forgone, the ANZ deferredshares were not subject to any performance hurdles. The allocation of deferred shares does, however, strengthen thealignment of the CEO’s interests with shareholders.
On 2 October 2008, 110,011 of those shares became available to the CEO. However, the nominal value of the shares
had declined from the original grant value of $3 million to $2.097 million on 2 October 2008 (based on the one day
VWAP of $19.0610 per share). The second tranche vested on 2 October 2009 and, based on the one day VWAP of$23.5600 per share, the value at vesting was $2.592 million. The final tranche vested on 2 October 2010 and, based on
the one day VWAP of $23.5385 per share on 1 October 2010 (2 October 2010 was a non-trading day); the value at vesting
was $2.589 million.

Cessation of
The provisions that apply in the case of cessation of employment are detailed in Section 3.1 CEO’s Contract Terms.
employment provisions
2.6. DISCLOSED EXECUTIVE REMUNERATIONThe reward structure for Disclosed Executives is as detailed below. The only exception is the Chief Risk Officer (CRO) whose remuneration
arrangements have been structured differently to preserve the independence of this role and to minimise any conflicts of interest to carryout the risk control function across the organisation.
The CRO’s role has a greater weighting on fixed pay with more limited leverage for individual performance and none (either positive or negative)
for Group performance. In 2010, LTI awards were delivered as unhurdled deferred shares and in 2011 (and beyond) will be delivered as
unhurdled deferred share rights, both with a three year time based hurdle. The Company’s relative TSR performance hurdle is not associatedwith the LTI award to ensure greater impartiality and independence of this role.
2.6.1. FIXED REMUNERATION
The fixed remuneration amount is expressed as a total dollar amount which can be taken as cash salary, 9% superannuation contributions,and other nominated benefits (e.g. novated car lease).
Fixed remuneration at ANZ is reviewed annually. ANZ sets remuneration ranges with a midpoint targeted to the local market median being
paid in the financial services industry in the relevant global markets in which ANZ operates and based on internal relativities reflecting
responsibilities, performance, qualifications, experience and location.
The financial services market is considered the appropriate market as this is the key pool of sourcing talent for ANZ, consisting of companies
operating in a similar geographic environment to ANZ. This market consists of companies where key talent may be lost to and therefore
competitive remuneration against these companies is appropriate.

32

ANZ Annual Report 2011

2.6.2. VARIABLE REMUNERATION
Variable remuneration forms a significant part of Disclosed Executives’ potential remuneration, providing at risk components that are designed
to drive performance in the short, medium and long-term. The term ‘variable remuneration’ within ANZ covers both the STI and LTI arrangements.
2.6.3. SHORT TERM INCENTIVES (STI)
Details of the STI arrangements for Disclosed Executives are provided in Table 9 below:
TABLE 9: SUMMARY OF STI ARRANGEMENTS
PurposeThe STI arrangements support ANZ’s strategic objectives by providing rewards that are significantly differentiatedon the basis of achievement against annual performance targets.
ANZ’s Employee Reward Scheme (ANZERS) structure is reviewed by the HR Committee and approved by the Board.
The size of the overall pool is determined by the Board and is based on an assessment of the balanced scorecardof measures of the Group, with this pool then distributed between the different Divisions based on their relative
performance against a balanced scorecard of quantitative and qualitative measures.

Performance targets

The STI targets are set to ensure appropriate focus on achievement of ANZ, Division and individual performancealigned with ANZ’s overall strategy.
Individual performance objectives for Disclosed Executives are based on a number of qualitative and quantitative
measures which may include:
Financial measures including economic profit, revenue growth, EPS growth, capital, liquidity and operating costs,
as these are the measures that reflect shareholder returns;
Customer measures including customer satisfaction and market share;
Process measures including process improvements and cost benefits; and risk management, audit and compliancemeasures/standards, in light of operational excellence objectives; andPeople measures including employee engagement, diversity targets and corporate responsibility.
Targets are set considering prior year performance, industry standards and ANZ’s growth agenda.
The specific targets and features relating to all these qualitative and quantitative measures have not been provided
in detail due to their commercial sensitivity.
The performance and achievements of relevant Disclosed Executives against these objectives is reviewed at theend of the year by the CEO, taking into consideration input on each individual’s risk management from the CRO
and input on the financial performance of all key divisions from the CFO. Preliminary and final review is completed
by the HR Committee and final outcomes are approved by the Board.
The method of assessment used to measure performance has been adopted to ensure validation from a risk
management and financial performance perspective, along with independent input and recommendation fromthe HR Committee to the Board for approval.

Determining STI pools

The 2011 target STI award level for Disclosed Executives (excluding the CEO) is 120% of fixed remuneration.

Rewarding performance The STI program and the targets that are set have been designed to motivate and reward superior performance.
The size of the actual STI payment made at the end of each financial year to individuals will be determined basedon performance as detailed above as determined by the Board, and provided that there have been no inappropriate
behaviour or risk/compliance/audit breaches.
Within the overall incentive pool approved by the Board, Disclosed Executives who out-perform relative to their peers
and significantly exceed targets may be rewarded with an STI award which is significantly higher than their target STI.
Conversely, the weaker performers relative to their peers may not be eligible to receive any STI award.

Remuneration Report

33

REMUNERATION REPORT – FULL (Audited) (continued)

Mandatory deferral

Mandatory deferral of a portion of the STI places an increased emphasis on having a variable structure that is
flexible, continues to be performance linked, has significant retention elements and motivates Disclosed Executives
to drive continued performance over the longer term.
Since 2008, the following tiered STI deferral approach has applied to Disclosed Executives:
STI up to the threshold (currently $200,000) paid in cash
25% of STI amounts above the threshold deferred in ANZ equity for one year
25% of STI amounts above the threshold deferred in ANZ equity for two years
The balance (i.e. 50%) of STI amounts above the threshold is paid as cash1.
The deferred component of bonuses paid in relation to the 2011 year is delivered as ANZ deferred sharesor deferred share rights2. In previous years most Disclosed Executives had the choice to receive the deferredcomponent as either shares or a mix of shares and options – this choice was removed in 2010.
As the incentive amount has already been earned, there are no further performance measures attached to theshares or share rights (and options from previous years).

Cessation of
The provisions that apply in the case of cessation of employment are detailed in Section 3.2 Disclosed Executive’s
employment provisions Contract Terms.
Conditions of grant

The conditions under which STI deferred shares and STI deferred share rights are granted are approved by the
Board in accordance with the rules of the ANZ Employee Share Acquisition Plan and the ANZ Share Option Plan.

1 Disclosed Executives are able to elect to take any cash bonus amounts they may be awarded as cash and/or superannuation.
2 In 2010, J Fagg and in 2011, D Hisco received share rights rather than shares due to taxation regulations in New Zealand. A share right effectively provides a right in the future to acquire a sharein ANZ at nil cost to the employee.

2.6.4. LONG TERM INCENTIVES (LTI)
Details of the LTI arrangements for Disclosed Executives are provided in Table 10 below:
TABLE 10: SUMMARY OF LTI ARRANGEMENTS
PurposeThe LTI arrangements are designed to link a significant portion of remuneration to shareholder interests by ensuring
rewards are commensurate with shareholder return from their investment.

LTI arrangements for Disclosed Executives (excluding the CRO)
Type of equity awarded LTI is delivered to Disclosed Executives as 100% performance rights (apart from the CRO who receives unhurdled deferredshare rights as detailed below). A performance right is a right to acquire a share at nil cost, subject to meeting time andperformance hurdles. Upon exercise, each performance right entitles the Disclosed Executive to one ordinary share.
The future grant value may range from zero to an undefined amount depending on the share price at the time of exercise.
Time restrictions

The time restrictions are the same as detailed for the CEO under Section 2.5 CEO LTI Arrangements, page 31, excluding
the exercise period which is two years.

Performance hurdle,
vesting schedule andcomparator group

The performance hurdle, vesting schedule and comparator group for Disclosed Executives are the same as detailed
for the CEO under Section 2.5 CEO LTI Arrangements, page 31.

Size of LTI grants

The size of individual LTI grants for Disclosed Executives is determined by reference to market practice, an individual’slevel of responsibility, their performance and the assessed potential of the Disclosed Executive. The target LTI for
Disclosed Executives is around 50% of fixed remuneration. Disclosed Executives are advised of the dollar value of
their LTI grant, which is then converted into a number of performance rights based on an independent valuation.
Refer to section 2.11 for further details on the valuation approach and inputs.
LTI allocations are made annually after the annual performance and remuneration review which occurs in October.
The following example uses the November 2010 allocation value.
Example:Disclosed Executive granted LTI value of $500,000
Approved allocation valuation is $11.96 per performance right(independently valued by external advisors)$500,000 / $11.96 = 41,806 performance rights

34

ANZ Annual Report 2011

Cessation of
The provisions that apply in the case of cessation of employment are detailed in Section 3.2 Disclosed Executives’
employment provisions Contract Terms.
Conditions of grant

The conditions under which performance rights are granted are approved by the Board in accordance with therules of the ANZ Share Option Plan.

LTI arrangements for the CRO
Deferred Shares (2010)

The CRO is the only Disclosed Executive to receive deferred shares as LTI.
The deferred shares are subject to a time-based vesting hurdle of three years, during which time they are heldin trust. The value used to determine the number of LTI deferred shares to be allocated is based on the volume
weighted average price of the shares traded on the ASX in the week leading up to and including the date of grant.

Deferred share rights(2011)The CRO is the only Disclosed Executive to receive deferred share rights as LTI.
Deferred share rights are subject to a time-based vesting hurdle of three years, during which time they are held in
trust. Upon vesting, there is a two year exercise period after which time they will lapse if they have not been exercised.
The value used to determine the number of LTI deferred share rights to be allocated is based on an independentvaluation, as detailed in Section 2.11.

Cessation of
The provisions that apply in the case of cessation of employment are detailed in Section 3.2 Disclosed Executives’
employment provisions Contract Terms.
Conditions of grant

The conditions under which LTI deferred shares and LTI deferred share rights are granted are approved by the Boardin accordance with the rules of the ANZ Employee Share Acquisition Plan and the ANZ Share Option Plan.

2.7. CLAWBACKThe Board has on-going and absolute discretion to adjust
performance-based components of remuneration (including
previously deferred equity) downwards, or to zero at any time,
including after the grant of such remuneration, where the Board
considers such an adjustment is necessary to protect the financial
soundness of ANZ or to meet unexpected or unknown regulatory
requirements, or if the Board subsequently considers that having
regard to information which has come to light after the grant ofdeferred equity, the deferred equity was not justified.
Prior to releasing deferred equity, the Board considers whether
any downward adjustment should be made.
2.8. HEDGING AND MARGIN LENDING PROHIBITION
As specified in the ANZ Securities Trading Policy, equity allocatedunder ANZ incentive schemes must remain at risk until fully vested(in the case of deferred shares) or exercisable (in the case of options,deferred share rights or performance rights). As such, it is a conditionof grant that no schemes are entered into that specifically protects
the unvested value of shares, options, deferred share rights or
performance rights allocated. Doing so would constitute a breachof the grant conditions and would result in the forfeiture of therelevant shares, options, deferred share rights or performance rights.

To monitor adherence to this policy, ANZ’s CEO and Disclosed
Executives are required to sign an annual declaration stating thatthey and their closely related parties have not entered into (andare not currently involved in) any schemes to protect the value of
their interests in any unvested ANZ securities. Based on the 2011
declarations, ANZ can advise that the CEO and Disclosed Executives
are fully compliant with this policy.
2.9. SHAREHOLDING GUIDELINESThe CEO and Disclosed Executives are expected to accumulate
ANZ shares over a five year period, to the value of 200% of their
fixed remuneration and to maintain this shareholding while an
executive of ANZ. New Disclosed Executives are expected toaccumulate the required holdings within five years of appointment.
Shareholdings for this purpose include all vested and allocatedbut unvested equity which is not subject to performance hurdles.
The CEO and all Disclosed Executives have met or, if less than
five years tenure, are on track to meet their minimum shareholding
guidelines requirement.

ANZ also prohibits the CEO and Disclosed Executives providing
ANZ securities in connection with a margin loan or similar financing
arrangements under which they may be subject to a call.

Remuneration Report

35

REMUNERATION REPORT – FULL (Audited) (continued)

2.10. EQUITY GRANTED AS REMUNERATION
Details of deferred shares, options, deferred share rights and performance rights granted to the CEO and Disclosed Executives during the 2011
year are set out in Table 11 below.
All shares underpinning equity awards may be purchased on market, or be newly issued shares or a combination of both. For the 2010 grants,
STI deferred shares were purchased on market and LTI deferred shares were newly issued shares. For STI deferred share rights, STI deferred
options and LTI performance rights, the approach to satisfy awards will be determined closer to the time of vesting.
TABLE 11: DEFERRED SHARES, DEFERRED SHARE RIGHTS, OPTIONS AND PERFORMANCE RIGHTS GRANTED AS REMUNERATION DURING 2011

Name

Type of Equity

CEO and Current Disclosed Executives
M SmithSTI deferred shares1
STI deferred shares1
LTI performance rights2
P Chronican
STI deferred shares1
STI deferred shares1
LTI performance rights2
S Elliott
STI deferred shares1
STI deferred shares1
STI deferred options1
STI deferred options1
LTI performance rights2
D HiscoSTI deferred share rights1
STI deferred share rights1
LTI performance rights2
G Hodges
STI deferred shares1
STI deferred shares1
LTI performance rights2
P Marriott
STI deferred shares1
STI deferred shares1
LTI performance rights2
C PageSTI deferred shares1
STI deferred shares1
LTI deferred shares2
A Thursby
STI deferred shares1
STI deferred shares1
LTI performance rights2

NumbergrantedGrant date

Vesting date

Date ofoption/right
expiryOptionexercise price$

Equityfair value3$

47,44847,448253,164
12,653
12,652
54,347
12,126
12,125
69,23869,23845,986
8,480
8,903
33,4449,911
9,911
41,8069,911
9,911
41,806
11,80911,80917,92424,251
24,251
45,98612-Nov-10
12-Nov-10
17-Dec-10
12-Nov-10
12-Nov-10
12-Nov-10
12-Nov-10
12-Nov-10
12-Nov-10
12-Nov-10
12-Nov-10
12-Nov-10
12-Nov-10
12-Nov-10
12-Nov-10
12-Nov-10
12-Nov-10
12-Nov-10
12-Nov-10
12-Nov-10
12-Nov-10
12-Nov-10
12-Nov-10
12-Nov-10
12-Nov-10
12-Nov-10

12-Nov-11
12-Nov-12
17-Dec-13
12-Nov-11
12-Nov-12
12-Nov-13
12-Nov-11
12-Nov-12
12-Nov-11
12-Nov-12
12-Nov-13
12-Nov-11
12-Nov-12
12-Nov-13
12-Nov-11
12-Nov-12
12-Nov-13
12-Nov-11
12-Nov-12
12-Nov-13
12-Nov-11
12-Nov-12
12-Nov-13
12-Nov-11
12-Nov-12
12-Nov-13––
16-Dec-14––
11-Nov-15––
11-Nov-15
11-Nov-15
11-Nov-15
11-Nov-15
11-Nov-15
11-Nov-15––
11-Nov-15––
11-Nov-15–––––
11-Nov-15

–
–
0.00
–
–
0.00
–
–
23.71
23.71
0.00
0.00
0.00
0.00
–
–
0.00
–
–
0.00
–
–
–
–
–
0.00

23.32
23.32
11.85
23.32
23.32
11.96
23.32
23.32
3.96
4.20
11.96
22.11
21.06
11.96
23.32
23.32
11.96
23.32
23.32
11.96
23.32
23.32
23.32
23.32
23.32
11.96

1 The CEO and Disclosed Executives had a proportion of their STI amounts deferred as equity. The Board determined the deferred amount for the CEO. Refer to Table 9 for further details of themandatory deferral arrangements for the Disclosed Executives and Table 12 for details of the valuation methodology, inputs and fair value.
2 The 2010 LTI grants for the CEO and Disclosed Executives were delivered as performance rights excluding for the CRO which was delivered as deferred shares. Refer to section 2.5 and Table 10
for further details of the LTI grant and Table 12 for details of the valuation, inputs and fair value.
3 The maximum value at the time of the grant is determined by multiplying the number granted by the fair value of the equity instruments. The minimum value of the grants, if the applicableconditions are not met at vesting date, is nil.

36

ANZ Annual Report 2011

2.11. EQUITY VALUATIONSANZ engages two external experts (Mercer (Australia) Pty Ltd and PricewaterhouseCoopers) to independently value any required options,deferred share rights and performance rights, taking into account factors including the performance conditions, share price volatility, life of
instrument, dividend yield and share price at grant date. These are then audited by KPMG and ANZ Global Internal Audit, and the higher of
the two values passing audit is then approved by the HR Committee as the allocation and/or expensing/disclosure value. The following tableprovides details of the valuations of the various equity instruments issued during the year:
TABLE 12: EQUITY VALUATION INPUTS
Recipients

Type of Equity

Executives
Executives
Executives
Executives
Executives
CEO

STI deferred options
STI deferred options
STI deferred share rights
STI deferred share rights
LTI performance rights
LTI performance rights

Grant date

Equity
fair
value
($)

Share
closing priceat grant($)

ANZ
expected
volatility(%)

Equityterm(years)Vesting
period(years)Expected
life(years)12-Nov-10
12-Nov-10
12-Nov-10
12-Nov-10
12-Nov-10
17-Dec-10

3.96
4.20
22.11
21.06
11.96
11.85

23.22
23.22
23.22
23.22
23.22
23.59

30
30
30
30
30
30

5
5
5
5
5
4

1
2
1
2
3
3

3
3.5
1
2
3
3

Expected
dividend
Risk freeyield interest rate
(%)
(%)

5.00
5.00
5.00
5.00
5.00
5.00

Remuneration Report

5.04
5.11
4.70
4.97
5.04
5.15

37

REMUNERATION REPORT – FULL (Audited) (continued)

2.12. EQUITY VESTED/EXERCISED/LAPSED DURING 2011
Details of the number and value of deferred shares, options, deferred share rights and performance rights granted to the CEO and Disclosed
Executives in prior years which vested, were exercised or which lapsed during the 2011 year are set out in the table below:
TABLE 13: EQUITY VESTED/EXERCISED/LAPSED DURING 2011
VestedNameType of Equity

NumbergrantedGrant First date
date exercisable

Dateof expiry Number

Lapsed%Value1$ Number

Exercised%

Value1$

Number%Unexer
Vested and -cisable
exercisable
as atValue1 as at 30 Sep 30 Sep
$
2011
2011

CEO and Current Disclosed Executives
M Smith2

Sign-on shares
STI deferred shares
LTI performance rights

110,011 19-Dec-07
2-Oct-10– 110,011 100 2,589,494
46,053 13-Nov-09 13-Nov-10– 46,053 100 1,074,274
258,620 19-Dec-07 19-Dec-10 19-Dec-11 258,620 100 6,117,268

P Chronican
S Elliott

Other deferred shares
STI deferred shares
STI deferred options
D Hisco3
STI deferred shares
Hurdled options
Hurdled options
Hurdled options
LTI performance rights
LTI performance rights
G Hodges4 STI deferred shares
Hurdled options
Hurdled options
STI deferred options
STI deferred share rights
LTI performance rights
P Marriott5 STI deferred shares
STI deferred shares
Hurdled options
Hurdled options
STI deferred options
LTI performance rights
C PageSTI deferred shares
A Thursby6 Other deferred shares
STI deferred shares
STI deferred shares
STI deferred options
LTI performance rights

–

–

–

–

–

7,530
1,096
5,307
5,866
11,217
10,75910,53016,302
25,462
7,237
24,59160,00033,8695,663
57,8703,637
7,127
69,26367,60024,192
57,87015,35162,735
12,36926,31682,254
46,296

11-Jun-09
13-Nov-09
13-Nov-09
13-Nov-09
5-Nov-03
11-May-04
5-Nov-04
24-Oct-06
30-Oct-07
13-Nov-09
11-May-04
5-Nov-04
31-Oct-08
31-Oct-08
30-Oct-07
31-Oct-08
13-Nov-09
11-May-04
5-Nov-04
31-Oct-08
30-Oct-07
13-Nov-09
28-Aug-08
31-Oct-08
13-Nov-09
31-Oct-08
30-Oct-07

11-Jun-11
13-Nov-10
13-Nov-10
13-Nov-10
5-Nov-06
11-May-07
5-Nov-07
25-Oct-09
31-Oct-10
13-Nov-10
11-May-07
5-Nov-07
31-Oct-10
31-Oct-10
31-Oct-10
31-Oct-10
13-Nov-10
11-May-07
5-Nov-07
31-Oct-10
31-Oct-10
13-Nov-10
28-Aug-11
31-Oct-10
13-Nov-10
31-Oct-10
31-Oct-10––
12-Nov-14–
4-Nov-10
10-May-11
4-Nov-11
24-Oct-11
30-Oct-12–
10-May-11
4-Nov-1130-Oct-13
30-Oct-13
30-Oct-12––
10-May-11
4-Nov-1130-Oct-13
30-Oct-12––––
30-Oct-13
30-Oct-12

7,530
1,096
5,307
5,866
–
–
948
–
25,462
7,237
–
5,400
33,8695,663
57,870
3,637
7,127
–
6,084
24,192
57,87015,35162,735
12,36926,31682,254
46,296

–

–
–
–

–
–
–

– (110,011) 100 2,646,898– (46,053) 100 1,115,206– (258,620) 100 6,386,285

–

–

–

–

–

100 162,464
100
25,566100
2,796
100 136,836
–
–
–
–
9
4,064
–
–
100 634,134
100 168,817––
9
23,149100 261,641
100 141,038
100 1,441,258
100
90,580100 166,251––
9
26,081
100 186,886
100 1,441,258
100 358,091
100 1,249,537
100 308,051
100 613,871
100 635,420
100 1,153,007

–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–

–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–

–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–

–
–
–
–
(11,217)(10,759)–(16,302)(25,462)–(24,591)(19,200)(33,869)–(57,870)––(69,263)––(57,870)(15,351)––––(46,296)

–

–
–
–

–
–
–

–

–

–

–
–
–
–
–
–
–
–
100
84,197100
65,957––100 395,865
100 618,299––
100 168,109
32
84,023100 266,759––
100 1,405,269––––
100 424,610––––
100 1,405,269
100 327,455
–
–
–
–
–
–
–
–
100 1,124,215

7,530
1,096
5,307
5,866
–
–
10,003
–
–
7,237
–
5,400
–
5,663
–
3,637
7,127
–
64,22024,192––62,735
12,36926,31682,254
–

–
–
–
–
–
–
527
–
–
–
–
3,000
–
–
–
–
–
–
3,380
–
–
–
–
–
–
–
–

1 The value of shares and/or share rights and/or performance rights is based on the one day VWAP of the Company’s shares traded on the ASX on the date of vesting, lapsing or exercising,multiplied by the number of shares and/or share rights and/or performance rights. The value of options is based on the difference between the one day VWAP and the exercise price, multipliedby the number of options.
2 M Smith – The third tranche of 110,011 deferred shares granted to the CEO on his commencement vested on 2 October 2010 – refer to section 2.5 for further details. The value has been
determined based on the one day VWAP on 1 October 2010 of $23.5385 per share (as 2 October 2010 was a non-trading day). LTI performance rights granted 19 December 2007 were exercisedon 21 February 2011. One day VWAP on date of exercise was $24.6937.
3 D Hisco – Hurdled options granted 5 November 2003 were exercised on 3 November 2010. One day VWAP on date of exercise was $25.0562. The exercise price was $17.55. Hurdled options
granted 11 May 2004 were exercised on 22 February 2011. One day VWAP on date of exercise was $24.3504. The exercise price was $18.22. LTI performance rights granted 24 October 2006 and30 October 2007 were exercised on 5 November 2010. One day VWAP on date of exercise was $24.2832.
4 G Hodges – Hurdled options granted 11 May 2004 were exercised on 3 November 2010. One day VWAP on date of exercise was $25.0562. The exercise price was $18.22. Balance as at 1 October2010 was 27,600 for hurdled options granted 5 November 2004 and these were exercised on 3 November 2010. One day VWAP on date of exercise was $25.0562. The exercise price was $20.68.
STI deferred options granted 31 October 2008 were exercised on 3 November 2010. One day VWAP on date of exercise was $25.0562. The exercise price was $17.18. LTI performance rights granted
30 October 2007 were exercised on 5 November 2010. One day VWAP on date of exercise was $24.2832.
5 P Marriott – Hurdled options granted 11 May 2004 were exercised on 22 February 2011. One day VWAP on date of exercise was $24.3504. The exercise price was $18.22. LTI performance rights
granted 30 October 2007 were exercised on 5 November 2010. One day VWAP on date of exercise was $24.2832.
6 A Thursby – LTI performance rights granted 30 October 2007 were exercised on 5 November 2010. One day VWAP on date of exercise was $24.2832.

38

ANZ Annual Report 2011

2.13. SHAREHOLDINGS OF THE CEO AND DISCLOSED EXECUTIVES
The movement during the reporting period in shareholdings of the CEO and Disclosed Executives (held directly, indirectly and by related parties)
is provided below:
TABLE 14: CEO AND CURRENT DISCLOSED EXECUTIVES’ SHAREHOLDINGS (INCLUDING MOVEMENTS DURING THE 2011 YEAR)
NameType of shares

M SmithDeferred shares
Ordinary shares
Deferred shares
Ordinary shares
CPS2
Deferred shares
Deferred shares
Ordinary shares
Deferred shares
Ordinary shares
Deferred shares
Ordinary shares
CPS3
Deferred shares
Ordinary shares
CPS3
Deferred shares

P Chronican

S Elliott
D Hisco5
G Hodges
P Marriott

C PageA Thursby

Balance of sharesas at 1 Oct 20101

Shares granted
during the year
as remuneration2

Shares fromother changes
during the year3

Balance as at
30 Sep 20114

Balance as at dateof report sign-off

204,362
265,014
–
3,000
1,499
18,06946,605
6,042
98,838148,042
134,218
419,596–
31,449––223,103

94,896–25,305––24,251––
19,822–
19,822––
41,542––
48,502(148,658)
414,684
746
3,000
–
1,857
759
2,981
1,521
(38,307)
2,032
60,4565,000(13,916)
12,1292,500
6,625

150,600
679,698
26,0516,000
1,499
44,17747,364
9,023
120,181
109,735
156,072
480,052
5,000
59,075
12,1292,500
278,230

150,600
679,698
26,0516,000
1,499
44,17747,364
9,023
120,181
109,735
156,072
480,052
5,000
59,075
12,1292,500
278,230

1
2
3
4

Balance of shares held at 1 October 2010 includes beneficially held shares (both direct and indirect) and shares held by related parties.
Details of shares granted as remuneration during 2011 are provided in Table 11.
Shares resulting from any other changes during the year include the net result of any shares purchased, or sold or any acquired under the Dividend Reinvestment Plan.
The following shares (included in the holdings above) were held on behalf of the CEO and Disclosed Executives (i.e. indirect beneficially held shares) as at 30 September 2011: M Smith – 150,600;
P Chronican – 26,051; S Elliott – 44,177; D Hisco – 52,364; G Hodges – 162,916; P Marriott – 156,072; C Page – 59,075; A Thursby – 278,230.
5 Commencing balance is based on holdings as at the date of commencement as a Key Management Personnel.

Remuneration Report

39

REMUNERATION REPORT – FULL (Audited) (continued)

The movement during the reporting period in options, deferred share rights and performance rights of the CEO and Disclosed Executives (helddirectly, indirectly and by related parties) is provided below:
TABLE 15: CEO AND DISCLOSED EXECUTIVES’ OPTIONS, RIGHTS AND PERFORMANCE RIGHTS HOLDINGS (INCLUDING MOVEMENTS DURING
THE 2011 YEAR)
NameType of options/rights

CEO and Current Disclosed Executives
M SmithSpecial options
LTI performance rights
P Chronican
LTI performance rights
S Elliott
STI deferred options
LTI performance rights
Hurdled options
D Hisco3
LTI performance rights
STI deferred share rights
G Hodges
Hurdled options
STI deferred options
LTI performance rights
STI deferred share rights
P Marriott
Hurdled options
STI deferred options
LTI performance rights
C PagePerformance rights
A Thursby
STI deferred options
LTI performance rights

Balance as at
1 Oct 20101

Granted during
the year as
remuneration2

Exercisedduringthe year

Number changed,
forfeited or lapsed
during the year

Balance as at
30 Sep 2011

Vested andexercisable as at
30 Sep 2011

Balance as at
date of reportsign-off

700,000
779,00257,726
10,61441,08432,506
74,631–
52,19133,869149,004
5,663
136,863
48,385
149,004
72,959164,509
146,544–
253,164
54,347
138,476
45,986–33,444
17,383––41,806–––41,806––45,986–(258,620)–––(21,976)(41,764)–(43,791)(33,869)(57,870)–(69,263)–(57,870)––(46,296)

–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–

700,000
773,546
112,073
149,09087,07010,53066,311
17,3838,400–
132,940
5,663
67,60048,385
132,940
72,959164,509146,234

–
–
–
5,307
–
10,003
–
–
5,400
–
–
5,663
64,22048,385––
164,509–700,000
773,546
112,073
149,09087,07010,53066,311
17,3838,400–
132,940
5,663
67,60048,385
132,940
72,959164,509146,234

1 Balance of options/rights held at 1 October 2010 include beneficially held options/rights (both direct and indirect) and options/rights held by related parties.
2 Details of options/rights granted as remuneration during 2011 are provided in Table 11.
3 Commencing balance is based on holdings as at the date of commencement.

2.14. LEGACY LTI PROGRAMS
There are a number of legacy LTI programs which are no longer offered but which have existing participants. Details of these are shown in Table
16 below.
Option plans described below have the following features:
An exercise price that is set equal to the weighted average sale price of all fully paid ordinary shares in the Company sold on the ASX during
the one week prior to and including the date of grant;
A maximum life of seven years and an exercise period that commences three years after the date of grant, subject to performance hurdles
being met;
Options are re-tested monthly (if required) after the commencement of the exercise period;
Upon exercise, each option entitles the option-holder to one ordinary share;
In case of resignation or termination on notice or dismissal for misconduct: options are forfeited;
In case of redundancy: options are pro-rated and a grace period is provided in which to exercise the remaining options (with hurdles waived,
if applicable);
In case of retirement, death or total and permanent disablement: a grace period is provided in which to exercise all options (with hurdles
waived, if applicable); andPerformance hurdles, which are explained below for each type of option.

40

ANZ Annual Report 2011

TABLE 16: LEGACY LTI PLANS
Type of Equity

Details

Hurdled options(Hurdled A) (granted
to Disclosed Executives
from November 2003
until May 2004)

Until May 2004, hurdled options were granted to Disclosed Executives with the following performance hurdles
attached.
Half the options could only be exercised once ANZ’s TSR exceeds the percentage change in the S&P/ASX 200
Banks (Industry Group) Accumulation Index, measured over the same period (since issue) and calculated at thelast trading day of any month (once the exercise period has commenced); andThe other half of hurdled options could only be exercised once the ANZ TSR exceeds the percentage change in
the S&P/ASX 100 Accumulation Index, measured over the same period (since issue) and calculated as at the last
trading day of any month (once the exercise period has commenced).
The exercise periods concluded on 4 November 2010 and 10 May 2011.

Hurdled options(Hurdled B) (granted
November 2004)

In November 2004 hurdled options were granted with a relative TSR performance hurdle attached. The proportionof options that become exercisable will depend upon the TSR achieved by ANZ relative to the companies in thecomparator group. Performance equal to the median TSR of the comparator group will result in half the options
becoming exercisable. Performance above median will result in further options becoming exercisable, increasing
on a straight-line basis until all of the options become exercisable where ANZ’s TSR is at or above the 75th percentile
in the comparator group. Where ANZ’s performance falls between two of the comparators, TSR is measured on a
pro rata basis.
The exercise period concludes on 4 November 2011.

Remuneration Report

41

REMUNERATION REPORT – FULL (Audited) (continued)

2.15. REMUNERATION PAID TO THE CEO AND DISCLOSED EXECUTIVES
Remuneration details of the CEO and Disclosed Executives for 2010 and 2011 are set out below in Table 17:

TABLE 17: CEO AND DISCLOSED EXECUTIVES REMUNERATION FOR 2011
Short-Term
Employee Benefits

Total
$

Super
contributions4$

1,750,000
2,500,000

5,005,515
5,505,500

–
–

5,744
301,124900,000
800,000

2,096,774
2,086,882

107,339
89,092

963,303
917,431

10,191
12,334604,000
1,350,000

1,577,494
2,279,765

86,697
82,5692011

960,000

357,283

902,400

2,219,683–

G Hodges12
Deputy Chief Executive Officer

2011
2010

917,431
917,431

24,35017,309700,000
670,000

1,641,781
1,604,740

82,56982,569P Marriott
Chief Financial Officer

2011
2010

915,830
912,431

5,774
7,595

820,000
670,000

1,741,604
1,590,026

82,56982,569C PageChief Risk Officer

2011
2010

1,009,174
1,009,174

7,375
60,565850,000
760,000

1,866,549
1,829,739

90,82690,826

A Thursby
Chief Executive Officer, Asia Pacific,
Europe & America

2011
2010

1,050,000
1,000,000

7,375
23,570900,000
1,350,000

1,957,375
2,373,570––

Financial
Year

Cash
salary$Non monetary
benefits1$

M Smith10
Chief Executive Officer

2011
2010

3,150,000
3,000,000

105,5155,500

P Chronican11
Chief Executive Officer, Australia

2011
2010

1,191,030
985,758

S Elliott
Chief Executive Officer, Institutional

2011
2010

D Hisco11
Chief Executive Officer, New Zealand

Total cash
incentive2,3$

PostEmployment

Current CEO and Disclosed Executives

Former Disclosed Executives
J Fagg11,12
Chief Executive Officer, New Zealand2010

782,000

105,359538,200

1,425,559–

Total of all Executive KMPs

2011
2010

10,156,768
9,524,225

523,607533,356

7,426,400
8,638,200

18,106,775
18,695,781

450,000
427,625

Total of all Disclosed Executives13

2011
2010

10,156,768
9,524,225

523,607533,356

7,426,400
8,638,200

18,106,775
18,695,781

450,000
427,625

1 Non-monetary benefits generally consists of company-funded benefits such as car parking
and taxation services. This item also includes costs met by the company in relation to
relocation, such as airfares and housing assistance and for the CEO, life insurance. The fringe
benefits tax payable on any benefits is also included in this item.
2 The total cash incentive relates to the cash component only, with the deferred equity
component to be amortised from the grant date. The relevant amortisation of the 2010 STI
deferred components are included in share-based payments above. The 2011 STI deferredcomponents will be amortised from the grant date in the 2012 Remuneration Report. The
cash incentive component was approved by the Board on 25 October 2011. 100% of the
cash incentive awarded for the 2010 and 2011 years vested to the Disclosed Executive in
the applicable financial year.
3 The possible range of STI payments is between 0 and 2.5 times target STI. The actual STI
received is dependent on ANZ, Division and individual performance (refer to Section 2.6.3
for more details). The 2011 STI awarded (cash and equity component) as a percentage oftarget STI was: M Smith 105% (2010: 158%); P Chronican 103% (2010: 108%); S Elliott 80%(2010: 208%); D Hisco 140%; G Hodges 100% (2010: 95%); P Marriott 120% (2010: 95%); C
Page 114% (2010: 100%); A Thursby 127% (2010: 208%); J Fagg (2010: 95%). Anyone who
received less than 100% of target forfeited the rest of their STI entitlement. The minimum
value is nil and the maximum value is what was actually paid.

42

ANZ Annual Report 2011

4 As M Smith and A Thursby are holders of long stay visas, their fixed remuneration does notinclude the 9% Superannuation Guarantee contribution, however they are able to electvoluntary superannuation contributions. For all other Australian based Disclosed Executives,
the superannuation contribution reflects the 9% Superannuation Guarantee contribution– individuals may elect to take this contribution as superannuation or a combination ofsuperannuation and cash.
5 Accrual relates to Retirement Allowance. As a result of being employed with ANZ prior to
November 1992, D Hisco and G Hodges are eligible to receive a Retirement Allowance onretirement, retrenchment, death, or resignation for illness, incapacity or domestic reasons.
The Retirement Allowance is calculated as follows: three months of preserved notional salary(which is 65% of Fixed Remuneration) plus an additional 3% of notional salary for each yearof fulltime service above 10 years, less the total accrual value of long service leave (including
taken and untaken).
6 In accordance with the requirements of AASB 2, the amortisation value includes a proportionof the fair value (taking into account market-related vesting conditions) of all equity that had
not yet fully vested as at the commencement of the financial year. It is assumed that deferredshares will vest after three years. Assumptions for options/rights are detailed in Table 12.
The fair value is determined at grant date and is allocated on a straight-line basis over the
relevant vesting period. The amount included as remuneration is not related to nor indicativeof the benefit (if any) that may ultimately be realised should the options/rights become
exercisable. For deferred shares, the fair value is the volume weighted average price of theCompany’s shares traded on the ASX on the day the shares were granted.

Long-Term
Employee Benefits

Share-Based Payments6
Total amortisation value ofRetirement
benefitaccruedduring year5$

Long service
leaveaccruedduringthe year$

STI shares and
STI share rights$

LTI shares$

STI options$––

54,80445,6682,103,407
1,369,343

–
–

–
–

19,788
16,535

390,271–––

16,99818,6304,107

LTI options$

LTI
Performancerights$Other
equity Termination
benefits
allocations7
$
$

–
–

–
–

2,346,954
2,341,479

528,216
1,594,087

–
–

–
–

–
–

406,838
166,057

389,245
32,589––386,466
34,421––

14,613

316,321

127,644

–

4,278
4,278

15,222
15,222409,844
265,995––––

15,222
15,222

407,040
244,833––

16,74423,197––18,326
15,222

Total
excludingtermination
benefits8$

Grand Total

Remuneration 8,9$– 10,038,896– 10,856,077

10,038,896
10,856,077

–
–

–
–

3,021,010
2,358,566

3,021,010
2,358,566

327,641
146,439

43,921
151,034––

2,828,462
2,745,447

2,828,462
2,745,447–

248,567––

2,930,935

2,930,935

4,092
57,446––498,629565,243––––2,656,415
2,595,493

2,656,415
2,595,493

–
–

2,923
41,033––498,629565,243––––

2,747,987
2,538,926

2,747,987
2,538,926

577,532
456,441

122,803
–

–
–

–
–

267,465
250,792––––

2,941,919
2,650,995

2,941,919
2,650,995

1,121,512
894,418––

9,938
139,512––542,653
532,865642,574
982,185––

4,292,378
4,937,772

4,292,378
4,937,772––

12,975274,377–––

331,899

85,3002,130,110

2,130,110

8,385
4,278

171,717
162,6715,715,172
3,537,996

250,447–

403,419
272,412––

5,137,376
4,900,017

1,214,711
2,812,606– 31,458,002– 30,813,386

31,458,002
30,813,386

8,385
4,278

171,717
162,6715,715,172
3,537,996

250,447–

403,419
272,412––

5,137,376
4,900,017

1,214,711
2,812,606– 31,458,002– 30,813,386

31,458,002
30,813,386

7 Amortisation of other equity allocations for M Smith relates to the sign-on award and thespecial equity allocations which were approved by shareholders at the 2007 and 2008
Annual General Meetings respectively. Amortisation for S Elliott and A Thursby relates toequity granted on commencement – refer to Table 19 for more details.
8 Remuneration amounts disclosed exclude insurance premiums paid by the consolidated
entity in respect of directors’ and officers’ liability insurance contracts which cover current
and former KMP of the controlled entities. The total premium, which cannot be disclosed
because of confidentiality requirements, has not been allocated to the individuals coveredby the insurance policy as, based on all available information, the directors believe that noreasonable basis for such allocation exists.
9 The value of rights/options for each KMP as a percentage of Grand Total Remuneration is:
M Smith 29%; P Chronican 13%; S Elliott 25%; D Hisco 17%; G Hodges 19%; P Marriott 18%;
C Page 9%; A Thursby 13%.
10 While the CEO is an Executive Director, he has been included in this table with the Disclosed
Executives.
11 D Hisco was appointed to the CEO, New Zealand role on 13 October 2010 so payments
reflect amounts received for the partial service for the 2011 year. P Chronican commenced
on 30 November 2009 so payments reflect amounts received for the partial service forthe 2010 year. J Fagg stepped down on 1 September 2010 so actual payments have beenprorated based on time as KMP in the 2010 year.
12 2010 amortisation of STI deferred share rights for G Hodges and J Fagg, included in the2010 Annual Report under performance rights, has been included with the amortisationof STI shares in the table above.

13 For those Disclosed Executives who were disclosed in both 2010 and 2011, the following
are noted:
P Chronican – 2010 remuneration only reflected a partial year as P Chronican joined ANZ
in that year. Accordingly, year-on-year comparisons are not appropriate.
S Elliott – year-on-year total remuneration has remained fairly constant, however, the mix
has changed, largely driven by a decrease in cash STI in 2011 being offset by an increase in
the amortisation value of equity allocations for the same period.
G Hodges – fixed remuneration remains unchanged and year on year remuneration is similar.
P Marriott – slight uplift on year-on-year remuneration, driven by a combination of factors
including an increase in cash STI and the amortisation values of equity.
C Page – moderate uplift on year-on year remuneration, driven by a combination of factors
including an increase in cash STI and the amortisation values of equity.
A Thursby – a decrease year-on-year largely driven by a decrease in cash STI and a decreasein the amortisation value of equity allocations.
D Hisco is disclosed only for the 2011 year during which time he moved from Australia
to take up the assignment of CEO – New Zealand hence the high value for non-monetary
benefits compared to peers.

Remuneration Report

43

REMUNERATION REPORT – FULL (Audited) (continued)

3. Contract Terms
3.1. CEO’S CONTRACT TERMS
The following table sets out details of the contract terms relating to the CEO. The contract terms are in line with industry practice (based on
external advice on Australian and international peer company benchmarks) and ASX Corporate Governance Principles.
TABLE 18: CONTRACT TERMS – CEO (M SMITH)
Length of contract

Mr Smith commenced as CEO and Executive Director of ANZ on 1 October 2007 and is on a rolling contract.

Notice periods

Mr Smith or ANZ may terminate the employment agreement by providing 12 months written notice.

Resignation

On resignation, all unvested STI deferred shares, all unexercised performance rights (or cash equivalent) andall unvested and all vested unexercised options will be forfeited.

Termination on noticeby ANZ

If ANZ terminates Mr Smith’s employment, ANZ will give Mr Smith 12 months written notice. ANZ may electto pay in lieu all or part of the notice period based on Mr Smith’s fixed remuneration.
On termination on notice by ANZ all unvested STI deferred shares will be released at the original vesting dateunless the Board determines otherwise; all performance rights (or cash equivalent) which have vested or vest
during the notice period will be retained and become exercisable; all performance rights (or cash equivalent)
which have not yet vested will be retained and will vest and become exercisable subject to the relevant timeand performance hurdles being satisfied. All unvested options will be forfeited.

Death or total andAll unvested STI deferred shares will be released and all performance rights (or cash equivalent) and options
permanent disablement will vest.
Change of control

In the event of takeover, scheme of arrangement or other change of control event occurring, the performance
condition applying to the performance rights will be tested and the performance rights will vest based on theextent the performance condition is satisfied. No pro rata reduction in vesting will occur based on the periodof time from the date of grant to the date of the change of control event occurring, and vesting will only be
determined by the extent to which the performance condition is satisfied.
Any performance rights which vest based on satisfaction of the performance condition will vest at a time (being
no later than the final date on which the change of control event will occur) determined by the Board.
Any performance rights which do not vest will lapse with effect from the date of the change of control event
occurring, unless the Board determines otherwise.
Any unvested STI deferred shares will vest at a time (being no later than the final date on which the change ofcontrol event will occur) determined by the Board.

Termination for serious
misconduct

ANZ may immediately terminate Mr Smith’s employment at any time in the case of serious misconduct, andMr Smith will only be entitled to payment of fixed remuneration up to the date of termination. Payment of
statutory entitlements of long service leave and annual leave applies in all events of separation.
On termination without notice by ANZ in the event of serious misconduct: All STI deferred shares remaining
in trust, performance rights (or cash equivalent) and options will be forfeited.

3.2 DISCLOSED EXECUTIVES’ CONTRACT TERMS
The following table sets out details of the contract terms relating to the Disclosed Executives. The contract terms for all Disclosed Executives
are similar, but do on occasion, vary to suit different needs.
TABLE 19: CONTRACT TERMS – DISCLOSED EXECUTIVES
Length of contract

Rolling.

Notice periods

In order to terminate the employment arrangements, Disclosed Executives are required to provide the Company withsix months written notice. ANZ must provide Disclosed Executives with 12 months written notice.

Resignation

On resignation, unless the Board determines otherwise:
All unvested deferred shares are forfeited;All unvested or vested but unexercised performance rights, options or deferred share rights are forfeited.

44

ANZ Annual Report 2011

Termination on noticeby ANZANZ may terminate the Disclosed Executive’s employment by providing 12 months written notice or payment inlieu of the notice period based on fixed remuneration.
On termination on notice by ANZ, unless the Board determines otherwise:
All unvested deferred shares are forfeited at the time notice is given to the Disclosed Executive;
Only performance rights, options and deferred share rights that are vested may be exercised and all unvested
performance rights, options and deferred share rights are forfeited at the time notice is given to the Disclosed Executive.
There is discretion to pay STI on a pro-rata basis (depending on termination date, reason for termination andsubject to business performance).

Redundancy

If ANZ terminates employment for reasons of bona fide redundancy, a severance payment will be made that isequal to 12 months fixed remuneration.
All STI deferred shares and STI deferred share rights are released. Options, performance rights, LTI deferred shares
and LTI deferred share rights are either released in full or on a pro-rata basis, at the discretion of the Board withregard to the circumstances.
There is discretion to pay short-term incentives on a pro-rata basis (depending on termination date and subject
to business performance).

Death or total andOn death or total and permanent disablement, options, shares, share rights and performance rights (performancepermanent disablement hurdle is waived) are released.
Termination for serious
misconduct

ANZ may immediately terminate the Disclosed Executive’s employment at any time in the case of serious
misconduct, and the employee will only be entitled to payment of fixed remuneration up to the date of termination.
Payment of statutory entitlements of long service leave and annual leave applies in all events of separation.
On termination without notice by ANZ in the event of serious misconduct any options, performance rights, deferredshares and deferred share rights still held in trust will be forfeited.

Other arrangements

P Chronican
As Mr Chronican joined ANZ in November 2009 he was not included in the LTI grants made to other Management
Board members in early November. Accordingly, a separate LTI grant was made in December providing
performance rights on the same terms and conditions as those provided to Management Board for 2009, apartfrom the allocation value which varied to reflect the different values at the respective grant dates.
S Elliott
As part of Mr Elliott’s employment arrangement, he was granted deferred shares to a total value of $250,000.
The grant was made in June 2009 with one-half vesting after one year and the other half vesting after two years.
For the whole period that the shares remain in trust (including any period beyond vesting) they will be forfeited
for any serious misconduct.
A Thursby
As part of Mr Thursby’s employment arrangement, he was granted three separate tranches of deferred sharesto the value of $1 million per annum, subject to Board approval. The first tranche was made in September 2007
and vested in September 2010, the second tranche was in August 2008 and vested in August 2011, and the third
tranche was in September 2009 and will vest in September 2012.
The shares are restricted and held in trust for three years from the date of allocation for the beneficial interestof Mr Thursby, during which period they will be forfeited if employment ceases for any reason other thanretrenchment, death or total and permanent disablement, and that for the whole period that the shares remain
in trust (including any further period) they will be forfeited for any serious misconduct.

Signed in accordance with a resolution of the Directors

John MorschelChairmanMichael R P Smith
Director

2 November 2011
Remuneration Report

45Corporate Governance

The following statement sets out the governance framework the Board has adopted at ANZ as well as highlights of thesubstantive work undertaken by the Board and its Committees during the financial year.

2011 Key Areas of Focus and Achievements
Review of the management of ANZ’s businesses in theaftermath of the global financial crisis and continued volatility
in markets due to European sovereign debt issues, and aweakened US economy. This included a significant focus on theperformance of the Asia/Pacific economies and the impact ofchanges in global currencies, particularly the high Australian
dollar.

Recognition of ANZ this year as a leading bank globally on the
Dow Jones Sustainability Index for the tenth year in succession– the Board is pleased to note that ANZ has been able tomaintain this position. ANZ received a rating of 92/100 for
Corporate Governance as part of this assessment which
compares strongly to a global sector leading rating of 93/100
and a global sector average of 69/100.

Oversight of strategic initiatives, including the super regional
and long term technology strategies.

Engagement of an independent external adviser to facilitate
the 2011 performance review of the Board, in accordance with
the Board’s stated policy.

Analysis of proposed new regulations, both local and global,
including Basel III and the implications for ANZ’s capital andfunding requirements.
Review of ANZ’s governance framework to ensure compliancewith the amendments to the ASX Corporate GovernanceCouncil’s Corporate Governance Principles and Recommendations.

Approach to GovernanceIn relation to corporate governance, the Board seeks to:embrace principles and practices it considers to be bestpractice internationally;be an ‘early adopter’, where appropriate, by complying before
a published law or recommendation takes effect; andtake an active role in discussions of corporate governance bestpractice and associated regulation in Australia and overseas.

Compliance with Corporate Governance Codes
ANZ has equity securities listed on the Australian Securities Exchange(ASX) and the New Zealand Stock Exchange (NZX), and debt securities
listed on these and other overseas Securities Exchanges. ANZ must
therefore comply (and has complied) with a range of listing andcorporate governance requirements from Australia and overseas.
AUSTRALIA
As a company listed on the ASX, ANZ is required to disclose how it hasapplied the Recommendations contained within the ASX Corporate
Governance Council’s Corporate Governance Principles andRecommendations (ASX Governance Principles) during the financial
year, explaining any departures from them. ANZ complies with the
Recommendations set by the ASX Corporate Governance Council.
Full details of the location of the references in this statement(and elsewhere in this Annual Report) which specifically set out
how ANZ applies each Recommendation of the ASX GovernancePrinciples are contained on anz.com >About us > Our company >Corporate governance.

46

ANZ Annual Report 2011

Changes to the ASX Governance Principles were announced inJune 2010 and came into effect for ANZ’s financial year beginning on
1 October 2011. ANZ has taken steps to early adopt these changes.
NEW ZEALAND
As an overseas listed issuer on the NZX, ANZ is deemed to comply
with the NZX Listing Rules provided that it remains listed on the
ASX, complies with the ASX Listing Rules and provides the NZX
with all the information and notices that it provides to the ASX.
The ASX Governance Principles may materially differ from the NZX’scorporate governance rules and the principles of the NZX’s Corporate
Governance Best Practice Code. More information about thecorporate governance rules and principles of the ASX can be foundat asx.com.au and, in respect of the NZX, at nzx.com.
ANZ has complied with all applicable governance principles in
New Zealand throughout the financial year.

OTHER JURISDICTIONS

WebsiteANZ also monitors best practice developments in corporate
governance across other relevant jurisdictions.

Further details of ANZ’s governance framework are set out at
anz.com > About us > Our company > Corporate governance.

ANZ deregistered from the US Securities and Exchange Commission(SEC) with effect from October 2007. Despite no longer being
required to comply with US corporate governance rules, ANZ’s
corporate governance practices continue to have regard to US
corporate governance regulations in relation to the independence of
Directors, the independence of the external auditor and the financial
expertise of the Audit Committee, as described in this statement.

This section of ANZ’s website also contains copies of all the charters
and summaries of many of the documents and policies mentioned inthis statement, as well as summaries of other ANZ policies of interestto shareholders and stakeholders. The website is regularly updated toensure it reflects ANZ’s most recent corporate governance information.

Directors
The information below relates to the Directors in office, and sets out their Board Committee memberships and other details, as at
30 September 2011.
Mr J P Morschel Chairman, Independent Non-Executive Director
DIPQS, FAICD

Former Directorships include

Non-executive Director since October 2004. Ex officio memberof all Board committees.

Former Chairman: Rinker Group Limited (Chairman and Director
2003–2007), Leighton Holdings Limited (Chairman and Director
2001–2004) and CSR Limited (Director 1996–2003, Chairman 2001–2003).

Skills, experience and expertise

Mr Morschel has a strong background in banking, financial services
and property and brings the experience of being a Chairman and
Director of major Australian and international companies.
Current Directorships

Director: CapitaLand Limited (from 2010), Tenix Group Pty Limited(from 1998) and Gifford Communications Pty Limited (from 2000).

Former Director: Singapore Telecommunications Limited (2001–2010),
Rio Tinto Plc (1998–2005), Rio Tinto Limited (1998–2005), Westpac
Banking Corporation (1993–2001), Lend Lease Corporation Limited(1983–1995) and Tenix Pty Ltd (1998–2008).
Age: 68. Residence: Sydney, Australia.

Mr M R P Smith, OBE Chief Executive Officer, Executive Director
BSC (HONS)

Chief Executive Officer since 1 October 2007.
Skills, experience and expertise

Mr Smith is an international banker with over 30 years experiencein banking operations in Asia, Australia and internationally.
Until June 2007, he was President and Chief Executive Officer, The
Hong Kong and Shanghai Banking Corporation Limited, Chairman,
Hang Seng Bank Limited, Global Head of Commercial Banking for the
HSBC Group and Chairman, HSBC Bank Malaysia Berhad. Previously,
Mr Smith was Chief Executive Officer of HSBC Argentina Holdings SA.
Mr Smith joined the HSBC Group in 1978 and during his international
career he has held a wide variety of roles in Commercial, Institutionaland Investment Banking, Planning and Strategy, Operations andGeneral Management.
Current Directorships

Director: ANZ National Bank Limited (from 2007), the Financial
Markets Foundation for Children (from 2008) and the Institute ofInternational Finance (from 2010).

Member: Chongqing Mayor’s International Economic Advisory
Council (from 2006), Australian Bankers’ Association Incorporated(from 2007), Business Council of Australia (from 2007), Asia BusinessCouncil (from 2008), Australian Government Financial Literacy
Advisory Board (from 2008) and Shanghai International Financial
Advisory Council (from 2009).
Fellow: The Hong Kong Management Association (from 2005).
Former Directorships include

Former Chairman: HSBC Bank Malaysia Berhad (2004–2007)
and Hang Seng Bank Limited (2005–2007).
Former CEO and Director: The Hong Kong and Shanghai Banking
Corporation Limited (2004–2007).
Former Director: HSBC Australia Limited (2004–2007), HSBC FinanceCorporation (2006–2007) and HSBC Bank (China) Company Limited(2007).
Former Board Member: Visa International (Asia Pacific) Limited(2005–2007).
Age 55. Residence: Melbourne, Australia.

Corporate Governance47

CORPORATE GOVERNANCE (continued)

Dr G J Clark Independent Non-Executive Director, Chair of the Technology Committee
BSC (HONS), PHD, FAPS, FTSE

Current Directorships

Non-executive Director since February 2004. Member of the
Risk Committee and Human Resources Committee.

Chairman: KaComm Communications Pty Ltd (Director from 2006).
Member: The Royal Institution of Australia (from 2010).

Skills, experience and expertise

Former Directorships include

Dr Clark brings to the Board international business experience anda distinguished career in micro-electronics, computing andcommunications. He was previously Principal of Clark Capital Partners,
a US based firm that has advised internationally on technology andthe technology market place, and he has held senior executive positionsin IBM, News Corporation and Loral Space and Communications.

Former Chairman: GPM Classified Directories (2007–2008).
Former Director: Eircom Holdings Ltd (formerly Babcock & Brown
Capital Limited) (2006–2009).
Former Principal: Clark Capital Partners (2003–2010).
Age: 68. Residence: Based in New York, United States of America
and also resides in Sydney, Australia.

Mr P A F Hay Independent Non-Executive Director, Chair of the Governance Committee
LLB (MELB), FAICD

Non-executive Director since November 2008. Member of the Audit
Committee and Human Resources Committee.
Skills, experience and expertise

Mr Hay has a strong background in company law and investmentbanking advisory work, with a particular expertise in relation tomergers and acquisitions. He has also had significant involvementin advising governments and government-owned enterprises.
Current Directorships

Director: Alumina Limited (from 2002), Landcare Australia Limited(from 2008), GUD Holdings Limited (from 2009), NBN Co Limited(from 2009) and Myer Holdings Limited (from 2010).
Member: Takeovers Panel (from 2009).
Former Directorships include

Former Chief Executive Officer: Freehills (2000–2005).
Former Director: Pacifica Group Limited (1989–2008) and Lazard
Pty Ltd (2007–2009).
Age: 61. Residence: Melbourne, Australia.

Chairman: Lazard Pty Ltd Advisory Board (from 2009).

Mr Lee Hsien Yang Independent Non-Executive Director
MSC, BA

Non-executive Director since February 2009.
Member of the Technology Committee, Risk Committee and Human
Resources Committee.
Skills, experience and expertise

Mr Lee has considerable knowledge and operating experience in Asia.
He has degrees in engineering and management science, and brings
to the Board his international business and management experience
across a wide range of sectors including telecommunications, foodand beverages, properties, publishing and printing, financial services,education and civil aviation.
Current Directorships

Chairman: Fraser & Neave, Limited (from 2007) and Civil Aviation
Authority of Singapore (from 2009).
Director: Singapore Exchange Limited (from 2004), The Islamic Bankof Asia Limited (from 2007) and Kwa Geok Choo Pte Ltd (from 1979).

48

ANZ Annual Report 2011

Member: Governing Board of Lee Kuan Yew School of Public Policy(from 2005) and Rolls Royce International Advisory Council (from 2007).
Consultant: Capital International Inc Advisory Board (from 2007).
Former Directorships include

Former Chairman: Republic Polytechnic (2002–2009).
Former Member: Merrill Lynch PacRim Advisory Council (2007–2010).
Former Chief Executive Officer: Singapore Telecommunications
Limited (1995–2007).
Age: 54. Residence: Singapore.

Mr I J Macfarlane, AC Independent Non-Executive Director, Chair of the Risk Committee
BEC (HONS), MEC, HON DSC (SYD), HON DSC (UNSW), HON DCOM (MELB), HON DLITT(MACQ), HON LLD (MONASH)

Non-executive Director since February 2007. Member of theGovernance Committee and Audit Committee.
Skills, experience and expertise

During his 28 year career at the Reserve Bank of Australia including
a 10 year term as Governor, Mr Macfarlane made a significant
contribution to economic policy in Australia and internationally.
He has a deep understanding of financial markets as well as a long
involvement with Asia.

Member: Council of International Advisors to the China Banking
Regulatory Commission (from 2009), International Advisory Board ofGoldman Sachs JB Were (from 2007) and International Advisory Boardof CHAMP Private Equity (from 2007).
Former Directorships include

Former Chairman: Payments System Board (1998–2006) andAustralian Council of Financial Regulators (1998–2006).
Former Governor: Reserve Bank of Australia (Member 1992–2006,
Chairman 1996–2006).
Age: 65. Residence: Sydney, Australia.

Current Directorships

Director: Woolworths Limited (from 2007), Leighton Holdings Limited(from 2007) and the Lowy Institute for International Policy (from 2004).

Mr D E Meiklejohn, AM Independent Non-Executive Director, Chair of the Audit Committee
BCOM, DIPED, FCPA, FAICD, FAIM

Current Directorships

Non-executive Director since October 2004. Member of theTechnology Committee and Risk Committee.

Chairman: Manningham Centre Association (from 2011).
Director: Coca Cola Amatil Limited (from 2005) and Mirrabooka
Investments Limited (from 2006).

Skills, experience and expertise

Mr Meiklejohn has a strong background in finance and accounting.
He also brings to the Board his experience across a number of
directorships of major Australian companies spanning a range
of industries.

Former Directorships include

Former Chairman: PaperlinX Limited (2000–2011).
Former Director and Chief Financial Officer: Amcor Limited (1985–2000).
Former President: Melbourne Cricket Club (Committee Member
1987–2011).
Age: 69. Residence: Melbourne, Australia.

Ms A M Watkins Independent Non-Executive Director, Chair of the Human Resources Committee
BCOM, FCA, F FIN, FAICD

Former Directorships include

Non-executive Director since November 2008. Member of the
Audit Committee and Governance Committee.

Former CEO: Bennelong Group (2008–2010).
Former Director: Just Group Limited (2004–2008), Woolworths Limited(2007–2010), and AICD National Board and Victorian Council (2009–2011).
Former Partner: McKinsey & Company (1996–1999).

Skills, experience and expertise

Ms Watkins is an experienced CEO and established director witha grounding in finance and accounting. Her experience includes
retailing, agriculture, food manufacturing and financial services, andcovers small to medium companies as well as large organisations.
Ms Watkins held senior executive roles with ANZ from 1999 to 2002.

Age: 48. Residence: Melbourne, Australia.

Current Directorships

Chief Executive Officer: GrainCorp Limited (from 2010).
Member: The Nature Conservancy Australian Advisory Board(from 2007) and the Takeovers Panel (from 2010).

Corporate Governance49

CORPORATE GOVERNANCE (continued)

Corporate Governance Framework
Audit and Financial
GovernanceInternal audit
External audit
Financial controls

BOARD OF DIRECTORSCEOPRINCIPAL BOARD COMMITTEES

AUDITCOMMITTEE

GOVERNANCE
COMMITTEEHUMAN RESOURCESCOMMITTEERISKCOMMITTEETECHNOLOGYCOMMITTEEMANAGEMENT BOARD

KEY MANAGEMENT COMMITTEESCORPORATERESPONSIBILITYCOMMITTEECREDIT &MARKET RISKCOMMITTEETECHNOLOGY RISKMANAGEMENTCOMMITTEE50

ANZ Annual Report 2011

GROUP ASSET& LIABILITYCOMMITTEECAPITAL
MANAGEMENT POLICYCOMMITTEEPROJECT INVESTMENTREVIEW COMMITTEEOPERATINGRISK EXECUTIVECOMMITTEEREPUTATIONRISKCOMMITTEECREDIT RATINGSSYSTEM OVERSIGHT
COMMITTEEBoard Responsibility and Delegation of Authority

Board Meetings

The Board is chaired by an independent Non-Executive Director.
The roles of the Chairman and Chief Executive Officer are separate,
and the Chief Executive Officer is the only executive Director on
the Board.

The Board normally meets at least eight times each year, including
an offsite meeting to review in detail the Group’s strategy.

Role of the Chairman
The Chairman plays an important leadership role and is involved in:chairing meetings of the Board and providing effective leadershipto it;
monitoring the performance of the Board and the mix of skills
and effectiveness of individual contributions;being an ex officio member of all principal Board Committees;
maintaining ongoing dialogue with the Chief Executive Officer
and providing appropriate mentoring and guidance; andbeing a respected ambassador for ANZ, including chairing
meetings of shareholders and dealing with key customer,
political and regulatory bodies.

Board Charter
The Board Charter sets out the Board’s purpose, powers,
and specific responsibilities.
The Board is responsible for:charting the direction, strategies and financial objectives for
ANZ, and monitoring the implementation of these strategies
and financial objectives;
monitoring compliance with regulatory requirements, ethicalstandards and external commitments, and the implementationof related policies; andappointing and reviewing the performance of the Chief Executive
Officer.
In addition to the above and any matters expressly required bylaw to be approved by the Board, powers specifically reserved for
the Board include:
approval of ANZ’s Remuneration Policy, including various
remuneration matters as detailed in the Charter;

Typically at Board meetings the agenda will include:
minutes of the previous meeting, and outstanding issues raised
by Directors at previous meetings;
the Chief Executive Officer’s report;
the Chief Financial Officer’s report;
reports on major projects and current business issues;
specific business proposals;
reports from Chairs of Committees which have met shortly prior to
the Board meeting on matters considered at those meetings; andfor review, the minutes of previous Committee meetings.
There are two private sessions held at the end of each Board meeting
which are each chaired by the Chairman of the Board.
The first involves all Directors including the CEO, and the second
involves only the non-executive Directors.
The Chief Financial Officer, Group General Counsel and Company
Secretary are also present at all Board meetings. Members of senior
Management attend Board meetings when an issue under their areaof responsibility is being considered or as otherwise requested by
the Board.

CEO and Delegation to Management
The Board has delegated to the Chief Executive Officer, andthrough the Chief Executive Officer to other senior Management,
the authority and responsibility for managing the everyday affairsof ANZ. The Board monitors Management and their performanceon behalf of shareholders.
The Group Discretions Policy details the comprehensive discretions
framework that applies within ANZ and to employees appointed tooperational roles or directorships of controlled entities and minority
interest entities.
The Group Discretions Policy is maintained by the Chief Financial
Officer and reviewed annually by the Audit Committee with theoutcome of this review reported to the Board.

any matters in excess of any discretions delegated to Board
Committees or the Chief Executive Officer;
annual approval of the budget and strategic plan;significant changes to organisational structure; andthe acquisition, establishment, disposal or cessationof any significant business.
Under ANZ’s Constitution, the Board may delegate any of its
powers and responsibilities to Committees of the Board. The rolesof the principal Board Committees are set out on pages 56 to 58.

Corporate Governance

51

CORPORATE GOVERNANCE (continued)

At a senior management level, ANZ has a Management Board which
comprises the Chief Executive Officer and ANZ’s most senior executives.
As at 30 September 2011, the following senior executives, in addition
to the Chief Executive Officer, were members of the Management
Board: Graham Hodges – Deputy Chief Executive Officer; Peter
Marriott – Chief Financial Officer; Phil Chronican – Chief Executive
Officer, Australia; David Hisco – Chief Executive Officer, New Zealand;
Shayne Elliott – Chief Executive Officer, Institutional; Alex Thursby –Chief Executive Officer, Asia Pacific, Europe and America; David
Cartwright – Chief Operating Officer; Susie Babani – Group Managing
Director, Human Resources; Chris Page – Chief Risk Officer; Joyce
Phillips – Group Managing Director, Strategy, M&A, Marketing andInnovation; and Anne Weatherston – Chief Information Officer.
Following David Cartwright’s departure in October 2011, Alistair
Currie was appointed as Group Chief Operating Officer and joined
the Management Board.
Typically, a sub-group of Management Board meets every weekwith all Management Board members meeting each month todiscuss business performance, review shared initiatives and build
collaboration and synergy across the Group.

Board Composition, Selection and Appointment
The Board strives to achieve a balance of skills, tenure, experience,
diversity, and perspective among its Directors. Details regarding each
Director in office at the date of this Annual Report can be found on
pages 47 to 49.
The Governance Committee (see page 57) has been delegatedresponsibility to review and make recommendations to the Board
regarding Board composition, and to assist in relation to the Director
nomination process.
The Governance Committee conducts an annual review of the sizeand composition of the Board, to assess whether there is a need forany new Non-Executive Director appointments. This review takes thefollowing factors into account:relevant guidelines/legislative requirements in relation
to Board composition;
Board membership requirements as articulated in the
Board Charter; andother considerations including ANZ’s strategic goals and theimportance of having appropriate Board balance and diversity.
The overarching guiding principle is that the Board’s composition
should reflect balance in such matters as:
specialist skill representation relating to both functions (such asaccounting/finance, law and technology) and industry background(such as banking/ financial services, retail and professional services);
tenure;Board experience (amongst the members of the Board, there
should be a significant level of familiarity with formal board andgovernance processes and a considerable period of time previously
spent working at senior level within one or more organisations ofsignificant size);
age spread;diversity in general (including gender diversity); andgeographic experience.

52

ANZ Annual Report 2011

Other matters for explicit consideration by the Committee are personalqualities, communication capabilities, ability and commitment todevote appropriate time to the task, the complementary nature of
the distinctive contribution each Director might make, professional
reputation and community standing.
Potential candidates for new Directors may be provided at any timeby a Board member to the Chair of the Governance Committee. The
Chair of the Governance Committee maintains a list of nominees toassist the Board in the succession planning process.
Where there is a need for any new appointments, a formal assessmentof nominees will be conducted by the Governance Committee. In
assessing nominees, the Governance Committee has regard to theprinciples set out above.
Professional intermediaries may be used from time to time where
deemed necessary and appropriate to assist in the process ofidentifying and considering potential candidates for Board membership.
If found suitable, potential candidates are recommended to theBoard. The Chairman of the Board is responsible for approachingpotential candidates.
The Committee also reviews and recommends the process forthe election of the Chairman of the Board and reviews succession
planning for the Chairman of the Board, making recommendations
to the Board as appropriate.
APPOINTMENT DOCUMENTATION
Each new Non-Executive Director receives an appointment letteraccompanied by a:
Directors’ handbook – The handbook includes information on abroad range of matters relating to the role of a Director, including
details of all applicable policies; andDirectors’ Deed – Each Director signs a Deed in a form approvedby shareholders at the 2005 Annual General Meeting which covers
a number of issues including indemnity, directors’ and officers’
liability insurance, the right to obtain independent advice andrequirements concerning confidential information.
UNDERTAKING INDUCTION TRAINING
Every new Director takes part in a formal induction program which
involves the provision of information regarding ANZ’s values andculture, the Group’s governance framework, the Non-Executive
Directors Code of Conduct and Ethics, Director related policies,
Board and Committee policies, processes and key issues, financial
management and business operations. A briefing is also provided
by senior Management about matters concerning their areasof responsibility.
MEETING SHARE QUALIFICATION
Non-Executive Directors are required to accumulate within five years
of appointment, and thereafter maintain, a holding in ANZ sharesthat is equivalent to at least 100% of a Non-Executive Director’s basefee (and 200% of this fee in the case of the Chairman).

ELECTION AT NEXT ANNUAL GENERAL MEETING
Subject to the provisions of ANZ’s Constitution and the Corporations
Act 2001, the Board may appoint a person as a Non-Executive
Director of ANZ at any time but that person must retire and, if theywish to continue in that role, must seek election by shareholders at
the next Annual General Meeting.
FIT AND PROPER
ANZ has an effective and robust framework in place to ensure that
individuals appointed to relevant senior positions within the Group
have the appropriate fitness and propriety to properly discharge theirprudential responsibilities on appointment and during the courseof their appointment.
The framework, set out in ANZ’s Fit and Proper Policy, addresses
the requirements of APRA’s Fit and Proper Prudential Standard. It
involves assessments being carried out for each Director, relevant
senior executives and the lead partner of ANZ’s external auditor prior
to a new appointment being made. These assessments are carried out
against a benchmark of documented competencies which have been
prepared for each role, and also involve attestations being completed
by each individual, as well as the obtaining of evidence of material
qualifications and the carrying out of checks such as criminal record,
bankruptcy and regulatory disqualification checks.
These assessments are reviewed thereafter on an annual basis.
The Governance Committee and the Board have responsibility forassessing the fitness and propriety of Non-Executive Directors. The
Human Resources Committee is responsible for assessing the fitness
and propriety of the Chief Executive Officer and key senior executives.
The Audit Committee is responsible for assessing the fitness andpropriety of the external auditor.
Fit and Proper assessments were successfully carried out in respectof each Non-Executive Director, the Chief Executive Officer, key senior
executives and the external auditor during the 2011 financial year.
INDEPENDENCE AND MATERIALITY
Under ANZ’s Board Charter, the Board must contain a majority of NonExecutive Directors who satisfy ANZ’s criteria for independence.
The Board Charter sets out independence criteria in order to establish
whether a Non-Executive Director has a relationship with ANZ which
could (or could be perceived to) impede their decision-making.
All Non-Executive Directors are required to notify the Chairman
before accepting any new outside appointment. The Chairman will
review the proposed new appointment and will consider the issue on
an individual basis and, where applicable, also the issue of more than
one Director serving on the same outside board or other body. When
carrying out the review, the Chairman will consider whether the
proposed new appointment is likely to impair the Director’s ability
to devote the necessary time and focus to their role as an ANZ
Director and, where it will involve more than one ANZ Director
serving on an outside board or other entity, whether that would
create an unacceptable risk to the effective operation of the ANZ
Board. Non-Executive Directors are not to accept a new outside
appointment until confirmed with the ANZ Chairman who willconsult the other Directors as the Chairman deems appropriate.
In the 2011 financial year, the Governance Committee conducted
its annual review of the criteria for independence against the ASX
Governance Principles and APRA Prudential Standards, as well as
US director independence requirements.

ANZ’s criteria are more comprehensive than those set in many
jurisdictions including in particular criteria stipulated specifically for
Audit Committee members. The criteria and review process are both
set out in the Corporate Governance section of ANZ’s website.
In summary, a relationship with ANZ is regarded as material if areasonable person in the position of a Non-Executive Director of
ANZ would expect there to be a real and sensible possibility that
it would influence a Director’s mind in:making decisions on matters likely to come regularly before
the Board or its Committees;
objectively assessing information and advice given
by Management;setting policy for general application across ANZ; andgenerally carrying out the performance of his or her role
as a Director.
During 2011, the Board reviewed each Non-Executive Director’s
independence and concluded that the independence criteria weremet by each Non-Executive Director.
Directors’ biographies on pages 47 to 49 and on anz.com highlighttheir major associations outside ANZ.
CONFLICTS OF INTEREST
Over and above the issue of independence, each Director has acontinuing responsibility to determine whether he or she has
a potential or actual conflict of interest in relation to any material
matter which comes before the Board. Such a situation may arise
from external associations, interests or personal relationships.
Under the Directors Disclosure of Interest Policy and Policy for
Handling Conflicts of Interest, a Director may not exercise any
influence over the Board if a potential conflict of interest exists.
In such circumstances, unless a majority of other Directors who do
not have an interest in the matter resolve to the contrary, the Director
may not be present for Board deliberations on the subject, and may
not vote on any related Board resolutions. In addition, the Director
may not receive relevant Board papers. These matters, should theyoccur, are recorded in the Board minutes.
INDEPENDENT ADVICE
In order to assist Directors in fulfilling their responsibilities, each
Director has the right (with the prior approval of the Chairman)
to seek independent professional advice regarding his/her
responsibilities, at the expense of ANZ. In addition, the Board andeach Committee, at the expense of ANZ, may obtain whatever
professional advice it requires to assist in its work.
TENURE AND RETIREMENTANZ’s Constitution, consistent with the ASX Listing Rules, provides thata Non-Executive Director must seek re-election by shareholders every
three years if they wish to continue in their role as a Non-Executive
Director.
In addition, ANZ’s Board Renewal and Performance Evaluation Policy
confirms that Non-Executive Directors will retire once they have
served a maximum of three 3-year terms after first being elected byshareholders, unless invited by the Board to extend their tenure due
to special circumstances.

Corporate Governance53

CORPORATE GOVERNANCE (continued)

CONTINUING EDUCATIONANZ Directors take part in a range of training and continuing
education programs. In addition to a formal induction program(see page 52), Directors also receive regular bulletins designed
to keep them abreast of matters relating to their duties andresponsibilities as Directors.
Each Committee also conducts its own continuing education sessions
from time to time as appropriate. Internal and/or external experts
are engaged to conduct all education sessions. Directors also receive
regular business briefings at Board meetings. These briefings areintended to provide Directors with information on each area of
ANZ’s business, in particular regarding performance, key issues, risks
and strategies for growth. In addition, Directors have the opportunity
to participate in site visits from time to time.

The performance criteria also take into account the Director’s
contribution to:charting the direction, strategy and financial objectives of ANZ;
monitoring compliance with regulatory requirements andethical standards;
monitoring and assessing Management’s performance in achieving
strategies and budgets approved by the Board;
setting criteria for and evaluating the Chief Executive Officer’s
performance; andthe regular and continuing review of executive succession planningand executive development activities.
The performance evaluation process is set out in ANZ’s Board
Renewal and Performance Evaluation Policy.

ACCESS TO DIRECTORSNON-EXECUTIVE DIRECTORSManagement is able to consult Directors as required. Employees
have access to the Directors directly or through the Company
Secretary. Shareholders who wish to communicate with the
Directors may direct correspondence to a particular Director,
or to the Non-Executive Directors as a whole.

Performance evaluations of the Non-Executive Directors are
conducted in two ways:

Role of Company Secretary
The Board is responsible for the appointment of ANZ’s Company
Secretaries. The Board has appointed three Company Secretaries.
The Group General Counsel provides legal advice to the Board
as and when required. He works closely with the Chair of theGovernance Committee to develop and maintain ANZ’s corporate
governance principles, and is responsible to the Board for theCompany Secretary’s Office function.
The Company Secretary is responsible for the day-to-day operationsof the Company Secretary’s Office including lodgements with relevant
Securities Exchanges and other regulators, the administration of Board
and Board Committee meetings (including preparation of meeting
minutes), the management of dividend payments and associatedshare plans, the administration of the Group’s Australian subsidiaries
and oversight of the relationship with ANZ’s Share Registrar.
The Chief Financial Officer is also appointed as a Company Secretary.
Profiles of ANZ’s Company Secretaries can be found in the Directors’
Report on page 12.

Performance Evaluations
OVERVIEW
The framework used to assess the performance of Directors isbased on the expectation that they are performing their duties:
in the interests of shareholders;in a manner that recognises the great importance that ANZplaces on the values of honesty, integrity, quality and trust;in accordance with the duties and obligations imposed upon themby ANZ’s Constitution, Non-Executive Directors Code of Conduct
and Ethics, and the law; andhaving due regard to ANZ’s corporate responsibility objectives,
and the importance of ANZ’s relationships with all its stakeholders
and the communities and environments in which ANZ operates.

54

ANZ Annual Report 2011

Annual review – On an annual basis, or more frequently if appropriate,
the Chairman has a one-on-one meeting with each Non-Executive
Director specifically addressing the performance criteria including
compliance with the Non-Executive Directors Code of Conduct andEthics. To assist the effectiveness of these meetings, the Chairman
is provided with objective information about each Director (e.g.
number of meetings attended, Committee memberships, othercurrent directorships/roles etc) and a guide for discussion to ensure
consistency. When considering the Director’s meeting attendance
record during the previous year and also their other roles outside
ANZ, the Chairman reviews generally whether the Director has
sufficient time to properly carry out their duties as an ANZ Director
and more specifically whether they are making a sufficient timecommitment to the role both at and outside meetings. A reporton the outcome of these meetings is provided to the GovernanceCommittee and to the Board.
Re-election statement – when nominating for re-election,
Non-Executive Directors are given the opportunity to submit
a written or oral statement to the Board setting out their reasonsfor seeking re-election. In the Non-Executive Director’s absence,
the Board evaluates the statement, has regard to the performance
criteria used in evaluating the performance of Non-Executive
Directors as referred to above, and also considers their capacity
to commit the necessary time to their role as a Director before
deciding whether to endorse the relevant Director’s re-election.
In connection with the latter aspect, consideration is given to thetime required to attend and prepare for regular scheduled Board
and Committee meetings (including the annual off-site meeting
to review the Group’s strategy) as well as the time required toattend and prepare for ad hoc meetings should the need arise.
With respect to Ms Watkins (who is seeking re-election at the2011 Annual General Meeting) and her executive role as the CEOof GrainCorp Limited, the Board gave careful consideration at thetime of her GrainCorp appointment to her ability to commit thenecessary time to her role as an ANZ Director. This aspect isreviewed again as part of the annual performance review processeach year (as referred to above) and the Board remains of the viewthat Ms Watkins has, and is and will be able to continue committing,the necessary time to properly carry out her role as an ANZ Director.

CHAIRMAN OF THE BOARD

REVIEW PROCESSES UNDERTAKEN

An annual review of the performance of the Chairman of the Board
is facilitated by the Chair of the Governance Committee who seeks
input from each Director individually on the performance of the
Chairman of the Board against the competencies for the Chairman’srole approved by the Board.

Board, Director, Board Committee and relevant senior Management
evaluations in accordance with the above processes have been
undertaken in respect of the 2011 financial year.

The Chair of the Governance Committee collates the input in orderto provide an overview report to the Governance Committee and to
the Board, as well as feedback to the Chairman of the Board.

As set out on page 51 of this statement, the Board has the ability
under its Constitution to delegate its powers and responsibilities
to Committees of the Board. This allows the Board to spend additionaland more focused time on specific issues. The Board has five principal
Board Committees: Audit Committee, Governance Committee, Human
Resources Committee, Risk Committee and Technology Committee.

THE BOARD
For the year ended 30 September 2011 the performance of the Board
was assessed using an independent external facilitator, who sought
input from each Director and certain members of senior Management
when carrying out the assessment.
The assessment was conducted in accordance with broad termsof reference agreed by the Governance Committee, and included
a review of Board papers and decision processes for a range of key
decisions made over the previous year.
Based on the information and materials reviewed, the external
facilitator rated the Board’s practices as delivering superior
capabilities across all of the critical elements of board effectiveness.
The results of the assessment were discussed with the Chair of theGovernance Committee and were presented at a meeting of theGovernance Committee which was attended by all Directors.
It is expected that externally facilitated reviews of the Board will occur
approximately every three years. The review process in the intervening
years is conducted internally, and considers progress against any
recommendations implemented arising from the most recent externallyfacilitated review, together with any new issues that may have arisen.
BOARD COMMITTEESEach of the principal Board Committees conducts an annual
Committee performance self-assessment to review performanceusing Guidelines approved by the Governance Committee. The
Guidelines set out that at a minimum, the self-assessments should
review and consider the following:
the scope of the Committee’s responsibilities and duties as
enshrined in its Charter;
the Committee’s performance against its Charter and annual
calendar of business;
the Committee’s performance against any goals or objectives
it set itself for the year under review;
major issues considered by the Committee during the year; andthe identification of future topics for training/education of
the Committee.
The outcomes of the performance self-assessments, along withplans and objectives for the new financial year, are submitted to
the Governance Committee (and, in the case of the GovernanceCommittee, to the Board) for discussion and noting.
SENIOR MANAGEMENT

Board Committees

MEMBERSHIP AND ATTENDANCE
Each of the principal Board Committees is comprised solely of
independent Non-Executive Directors, has its own Charter and has
the power to initiate any special investigations it deems necessary.
Membership criteria are based on each Director’s skills andexperience, as well as his/her ability to add value and commit timeto the Committee. Composition is reviewed annually by the Board.
The Chairman is an ex-officio member of each principal Board
Committee. The Chief Executive Officer is invited to attend Board
Committee meetings as appropriate. His presence is not automatic,
however, and he does not attend where his remuneration isconsidered or discussed, nor does he attend the Non-Executive
Director private sessions of Committees. Non-Executive Directors
may attend any meeting of any Committee.
Each Board Committee may, within the scope of its responsibilities,
have unrestricted access to Management, employees and information
it considers relevant to the carrying out of its responsibilities under
its Charter.
Each Board Committee may require the attendance of any ANZ
officer or employee, or request the attendance of any external party,
at meetings as appropriate.
MEETINGS
The principal Board Committees plan their annual agendas following
a process approved by the Board. The offices of the executives
appointed to assist the Chair of each Board Committee liaise in orderto review the calendars of business prepared by each Committee andidentify any potential gaps and unnecessary overlaps between theCommittees. In advance of each Board Committee meeting,
the Committee Chair shall ensure that there is at least one planningsession with relevant internal and external stakeholders to ensurethat all emerging issues are captured in the agenda for theforthcoming meeting as appropriate.
Minutes from Committee meetings are included in the papers to
the following Board meeting. In addition, Committee Chairs update
the Board regularly about matters relevant to the Committee’s role,
responsibilities, activities and matters considered, discussed andresolved at Committee meetings. When there is a cross-Committee
item, the Committees will communicate with each other throughtheir Chairs.

Details of how the performance evaluation process is undertakenby the Board in respect of the Chief Executive Officer and otherkey senior executives, including how financial, customer,
operational and qualitative measures are assessed, are set out
in the Remuneration Report on pages 16 to 33.
Corporate Governance

55

CORPORATE GOVERNANCE (continued)

ANZ BOARD COMMITTEE MEMBERSHIPS – as at 30 September 2011
Audit

Governance

Human Resources

Risk

Technology

Mr D E Meiklejohn FE, C

Mr P A F Hay C

Ms A M Watkins C

Mr I J Macfarlane C

Dr G J Clark C

Mr P A F Hay

Mr I J Macfarlane

Dr G J Clark

Dr G J Clark

Mr Lee Hsien Yang

Mr I J Macfarlane

Ms A M Watkins

Mr P A F Hay

Mr Lee Hsien Yang

Mr D E Meiklejohn

Ms A M Watkins FE

Mr J P Morschel (ex officio)

Mr Lee Hsien Yang

Mr D E Meiklejohn

Mr J P Morschel (ex officio)

Mr J P Morschel (ex officio)

Mr J P Morschel (ex officio)

Mr J P Morschel (ex officio)
C – Chair FE – Financial Expert

AUDIT COMMITTEE
The Audit Committee is responsible for reviewing:
ANZ’s financial reporting principles and policies, controls
and procedures;the effectiveness of ANZ’s internal control and risk management
framework;
the work of Global Internal Audit which reports directly andsolely to the Chair of the Audit Committee (refer to Global
Internal Audit on page 59 for more information);
the Audit Committees of significant subsidiary companies;
prudential supervision procedures required by regulatory bodies
to the extent relating to financial reporting;the integrity of ANZ’s financial statements, compliance withrelated legal and regulatory requirements, and the independent
audit thereof; andany due diligence procedures.
The Audit Committee is also responsible for:the appointment, annual evaluation and oversight of the external
auditor, including reviewing their independence, fitness andpropriety and qualifications;compensation of the external auditor;
where appropriate, replacement of the external auditor; andreviewing the performance and remuneration of the Group General
Manager, Global Internal Audit.
Under the Committee Charter, all members of the Audit Committee
must be appropriately financially literate. Both Mr Meiklejohn(Chair) and Ms Watkins were determined to be a ‘financial expert’
during the 2011 financial year under the definition set out in the
Audit Committee Charter. While the Board has determined that
Mr Meiklejohn and Ms Watkins each have the necessary attributes tobe a ‘financial expert’ in accordance with the relevant requirements,
it is important to note that this does not give rise to Mr Meiklejohnor Ms Watkins having responsibilities additional to those of othermembers of the Audit Committee.

56

ANZ Annual Report 2011

A review of the Audit Committee Charter was undertaken during
the year and a small number of changes were made, including toconfirm that the Committee’s duties include reviewing any major
proposed outsourcing of the Global Internal Audit function andalso that there is some overlap in membership between the Risk
Committee and Audit Committee.
The Audit Committee meets with the external auditor and internal
auditor without Management being present. The Chair of the Audit
Committee meets separately and regularly with Global Internal Audit,
the external auditor and Management.
The Deputy Chief Financial Officer is the executive responsible
for assisting the Chair of the Committee in connection with theadministration and efficient operation of the Committee.
Substantive areas of focus in the 2011 financial year included:
Global Internal and External Audit – the Committee approved
the annual plans for Global Internal and External Audit and kept
progress against those plans under regular review. Adjustments
to the Global Internal Audit Plan were made during the year
to accommodate changes arising from high focus areas andchanging risk profiles, integration and project work or specificManagement requests;
Accounting and regulatory developments – reports on accounting
developments were provided to the Committee outlining relevantchanges and implications for ANZ;
Financial Reporting Governance Program – the Committeemonitored the financial reporting process and the controls
in place to ensure the integrity of the financial statements,
including refreshing the Financial Reporting Governance Program;andWhistleblowing – the Committee received reports on disclosures
made under ANZ’s Global Whistleblower Protection Policy.

GOVERNANCE COMMITTEEHUMAN RESOURCES COMMITTEEThe Governance Committee is responsible for:

The Human Resources Committee assists and makes recommendations
to the Board in relation to remuneration matters and senior executive
succession, including for the Chief Executive Officer. The Committee
also assists the Board by reviewing and approving certain policies,
as well as monitoring performance, with respect to health and safetyissues and diversity.

identifying and recommending prospective Board members
and ensuring appropriate succession planning for the positionof Chairman (see page 52);
ensuring there is a robust and effective process for evaluating theperformance of the Board, Board Committees and non-executive
Directors (see pages 54 to 55);
monitoring the effectiveness of the Diversity Policy to the extent it
relates to Board diversity and reviewing and approving measurable
objectives for achieving gender diversity on the Board (see page 62);
ensuring an appropriate Board and Board Committee structure
is in place;reviewing and approving the Charters for each Board Committee
except its own, which is reviewed and approved by the Board; andreviewing the development of and approving corporate
governance policies and principles applicable to ANZ.

The Committee is responsible for reviewing and making
recommendations to the Board on:
remuneration matters relating to the Chief Executive Officer(details in the Remuneration Report on pages 16 to 45);
remuneration matters, including incentive arrangements, forother Board Appointees (other than the Group General Manager
Global Internal Audit);the design of remuneration structures and significant incentive
plans; andthe Group’s Remuneration Policy and remuneration strategy.

The Group General Counsel is the executive responsible for assisting
the Chair of the Committee in connection with the administrationand efficient operation of the Committee.

In addition, the Committee considers and approves the appointmentof Board Appointees (other than the Group General Manager Global
Internal Audit) and senior executive succession plans.

Substantive areas of focus in the 2011 financial year included:

The Group Managing Director, Human Resources is the executive
responsible for assisting the Chair of the Committee in connection
with the administration and efficient operation of the Committee.

New diversity requirements – the Committee reviewed ANZ’s
governance framework to ensure compliance with the amendments
to the ASX Governance Principles relating to diversity;
Board governance framework – the Committee conducted its
annual review of the Board’s governance framework and principles
including in relation to Board composition and size, Director
tenure, outside commitments, Board and Committee education,
nomination procedures and Director independence criteria;
Performance evaluation processes – the Committee reviewed
existing processes relating to the annual performance reviewsof the Board, Chairman of the Board, non-executive Directors
and Board Committees. An independent external facilitator was
engaged to facilitate the 2011 performance review of the Board;

Substantive areas of focus in the 2011 financial year included:
Management roles and performance – the Committee reviewed
the performance of the Chief Executive Officer, the Chief Executive
Officer’s direct reports and other key roles, and the succession
plans in place for Management Board and business critical roles;
Regulatory changes – the Committee continued to closely
monitor regulatory developments and implications for ANZ
both in Australia and globally, and refined remuneration policy
and practice as required;Fitness and propriety – the Committee completed fit and proper
assessments for all existing and new Board Appointees; andBoard and Committee performance evaluations – the Committee
reviewed the major themes arising from the annual Board
performance review process. The Committee also received annual
performance self-assessment reports from each of the otherprincipal Board Committees; andRemuneration – the Committee approved the grant of up to$1,000 of shares to each eligible employee under the ANZ
Employee Share Acquisition Plan, conducted an annual review of
remuneration for Non-Executive Directors and also reviewed
the compensation structure for senior executives.

Review and approval of Group policies – the Committee reviewed
and, where appropriate, approved amendments to existingGroup policies including the Continuous Disclosure Policy, Board
Renewal and Performance Evaluation Policy, Fit and Proper Policy
and the procedure relating to the approval of Non-Executive
Director outside appointments.

For more details on the activities of the Human Resources Committee,
please refer to the Remuneration Report on pages 16 to 45.

Corporate Governance57

CORPORATE GOVERNANCE (continued)

For further information on how ANZ manages its material financial
risks, please see the disclosures in relation to AASB 7 ‘Financial
instruments: Disclosure’ in the notes to the financial statements.

RISK COMMITTEEThe Board is principally responsible for approving the Group’s risk
appetite and risk tolerance, related strategies and major policies,
for the oversight of policy compliance, and for the effectivenessof the risk and compliance management framework that is in place.

For further information on risk management governance and related
ANZ policies, please see the Corporate Governance section of anz.com

The Risk Committee is delegated responsibility for overseeing,
monitoring and reviewing the Group’s risk management principles
and policies, strategies, processes and controls including credit,
market, liquidity, balance sheet, operational, compliance and otherreputational risk control frameworks, as well as the culture of theorganisation in connection with such matters.

TECHNOLOGY COMMITTEEThe Technology Committee assists the Board in the effective
discharge of its responsibilities in relation to technology andrelated operations. The Committee is responsible for making
recommendations to the Board on new projects in technology
above $100 million in value, investigating and reviewing security
issues relevant to ANZ’s technology, reviewing and approving
Management recommendations for long-term technology andrelated operations planning, and the approval of policies, strategies
and control frameworks for the management of technology risk.

The Committee is also authorised to approve credit transactions
and other related matters beyond the approval discretion of the
Chief Risk Officer.
The Chief Risk Officer is the executive responsible for assisting the
Chair of the Committee in connection with the administration andefficient operation of the Committee.

The Chief Information Officer is the executive responsible forassisting the Chair of the Committee in connection with theadministration and efficient operation of the Committee.

Substantive areas of focus in the 2011 financial year included:
Economic environment – the Committee received updates
on the global economic environment, including the impactof European sovereign debt issues, a weakened US economy
and a high Australian dollar;

Substantive areas of focus in the 2011 financial year included:
Review of new and existing major projects – the Committee
reviewed proposed new major projects and monitored theprogress of existing major projects;

Regulatory change – the Committee monitored proposed new
regulations, both local and global, including Basel III and proposed
Australian taxation changes;

Strategy – the Committee received reports on major strategic
initiatives, including the technology strategy, a revisedorganisational structure and changes to further strengthen
the technology leadership team;

External environment – the Committee received updates on theimpact of natural disasters in Australia, New Zealand and Japan; andSecurity – updates were received on key information security
issues, and various tactical and strategic activities planned to
remediate or control them; andBusiness updates – the Committee received updates frombusinesses across the Group.

Service and systems stability and performance – the Committee
received regular reports on operational performance, and actions
undertaken to improve service stability.

A risk management and internal control system to manage material
business risks is in place, and Management reported to the Risk
Committee during the year as to the effectiveness of the managementof ANZ’s material business risks.
DIRECTORS’ MEETINGS

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

Board

Audit
Committee
A

A

B

10

9

P A F Hay

10

10

Lee Hsien Yang

1010

I J Macfarlane

10

10

6

6

D E Meiklejohn

10

9

6

6

J P Morschel

10

10

6

6

M R P Smith

1010

A M Watkins

1010

G J Clark

6

6

B
6

6

GovernanceCommittee
A
4
4
4
4

B
4

Human
Resources
Committee

Risk
Committee

A

B

A

B

A

B

5

5

6

6

4

4

5

5

5

5

6

6

4

4

6

6

6

6

4

6

6

4

3
4
4

5
5

5
5

Technology
Committee

SharesCommittee*
A

B

1

1

4

1

4

5

Committeeof the Board*
A

B

1

3

3

5

8

8

5

5

8

8

2

2

Column A – Indicates the number of meetings the Director was eligible to attend.
Column B – Indicates the number of meetings attended. The Chairman is an ex-officio member of the Risk, Audit, Human Resources, Governance and Technology Committees.
With respect to Committee meetings, the table above records attendance of Committee members. Any Director is entitled to attend these meetings and from time to time Directors attend meetingsof Committees of which they are not a member.
*The meetings of the Shares Committee and Committee of the Board as referred to in the table above include those conducted by written resolution. The Executive Committee did not meetduring the 2011 financial year.

58

ANZ Annual Report 2011

ADDITIONAL COMMITTEESIn addition to the five principal Board Committees, the Board hasconstituted an Executive Committee and a Shares Committee, eachconsisting solely of Directors, to assist in carrying out specific tasks.
The Executive Committee has the full power of the Board and isconvened as necessary between regularly scheduled Board meetings
to deal with urgent matters. The Shares Committee has the power
to manage on behalf of the Board the issue of shares and options(including under ANZ’s Employee Share Plan and Share Option Plan).
The Board also forms and delegates authority to ad-hoc Committeesof the Board as and when needed to carry out specific tasks.

Audit and Financial Governance
GLOBAL INTERNAL AUDIT
Global Internal Audit is a function independent of Management whoserole is to provide the Board of Directors and Management with aneffective and independent appraisal of the internal controls establishedby Management. Operating under a Board approved Charter, theGroup General Manager, Global Internal Audit reports directly andsolely to the Chair of the Audit Committee, with a direct communicationline to the Chief Executive Officer and the external auditor.
The Global Internal Audit Plan is developed utilising a risk based
approach and is refreshed on a quarterly basis. The Audit Committee
approves the plan, the associated budget and any changes thereto.
All audit activities are conducted in accordance with ANZ policies
and values, as well as local and international auditing standards,
and the results thereof are reported to the Audit Committee,
Risk Committee and Management. These results influence theperformance assessment of business heads.
Furthermore, Global Internal Audit monitors the remediation of audit
issues and highlights the current status of any outstanding audits.
EXTERNAL AUDITThe external auditor’s role is to provide an independent opinion that
ANZ’s financial reports are true and fair and comply with applicableregulations. The external auditor performs an independent audit inaccordance with Australian Auditing Standards. The Audit Committee
oversees ANZ’s Policy on Relationship with the External Auditor.
Under the Policy, the Audit Committee is responsible for theappointment (subject to ratification by shareholders) and also thecompensation, retention and oversight of the external auditor.
The Policy also stipulates that the Audit Committee:
pre-approves all audit and non-audit services on an engagement
by engagement basis or pursuant to specific pre-approval policies
adopted by the Committee;
regularly reviews the independence of the external auditor; andthe external auditor should not function as part of Management
or as an employee; andthe external auditor should not act as an advocate of ANZ.
The Policy, which sets out in detail the types of services the external
auditor may and may not provide, can be found on the Corporate
Governance section of anz.com
Details of the non-audit services provided by the external auditor,
KPMG, during the 2011 financial year, including their dollar value,
together with the statement from the Board as to their satisfaction
with KPMG’s compliance with the related independence requirementsof the Corporations Act 2001, are set out in the Directors’ Report on
page 12. In addition, the auditor has provided an independence
declaration under Section 307C of the Corporations Act 2001.
ANZ requires a two year period before any former partner or employeeof the external auditor is appointed as a Director or senior executive ofANZ. The lead partner of the external auditor is required to rotate off
the audit after five years and cannot return for a further five years.
Certain other senior audit staff are required to rotate off after amaximum of seven years. Any appointments of ex-partners or
ex-employees of the external auditor as ANZ finance staff, at senior
manager level or higher, must be pre-approved by the Chair of the
Audit Committee.
As disclosed in previous Annual Reports, in 2004 the US SEC
commenced an inquiry into non-audit services provided by ANZ’sauditor, KPMG. This matter has been resolved and there was noadverse effect on ANZ.
FINANCIAL CONTROLSThe Audit Committee of the Board oversees ANZ’s financial reporting
policies and controls, the integrity of ANZ’s financial statements, therelationship with the external auditor, the work of Global Internal Audit,
and the Audit Committees of various significant subsidiary companies.
ANZ maintains a Financial Reporting Governance (FRG) Program
which evaluates the design and tests the operation of key financial
reporting controls. In addition, half-yearly certifications arecompleted by senior Management, including senior financeexecutives. These certifications comprise representations andquestions about financial results, disclosures, processes and controls
and are aligned with ANZ’s external obligations. This process is
independently evaluated by Global Internal Audit and tested by the
FRG Program.
Any issues arising from the evaluation and testing are reported to the
Audit Committee. This process assists the Chief Executive Officer andChief Financial Officer in making the certifications to the Board under
the Corporations Act and ASX Governance Principles as referred to in
the Directors’ Report on page 13.

evaluates the effectiveness of the external auditor.
The Policy also requires that all services provided by the external
auditor, including the non-audit services that may be provided by theexternal auditor, must be in accordance with the following principles:the external auditor should not have a mutual or conflicting
interest with ANZ;
the external auditor should not audit its own work;

Corporate Governance59

CORPORATE GOVERNANCE (continued)

Ethical and Responsible Decision-making
CODES OF CONDUCT AND ETHICS
ANZ has two main Codes of Conduct and Ethics, the Employee
Code and the Non-Executive Directors Code. These Codes provide
employees and Directors with a practical set of guiding principles
to help them make decisions in their day to day work. Having two
Codes recognises the different responsibilities that Directors haveunder law but enshrines the same values and principles.
The Codes embody honesty, integrity, quality and trust, andemployees and Directors are required to demonstrate thesebehaviours and comply with the Codes whenever they are
identified as representatives of ANZ.
The principles underlying ANZ’s Codes of Conduct and Ethics are:
We act in ANZ’s best interests and value ANZ’s reputation;
We act with honesty and integrity;
We treat others with respect, value difference and maintaina safe working environment;
We identify conflicts of interest and manage them responsibly;
We respect and maintain privacy and confidentiality;
We do not make or receive improper payments, benefits or gains;
We comply with the Codes, the law and ANZ’s policies andprocedures; andWe immediately report any breaches of the Codes, the law
or ANZ policies and procedures.
The Codes are supported by the following detailed policies thattogether form ANZ’s Conduct and Ethics Policy Framework:
ANZ Anti-Money Laundering and Counter-Terrorism
Financing Program;
ANZ Use of Systems, Equipment and Information Policy;
ANZ Global Fraud and Corruption Policy;
ANZ Group Expense Policy;
ANZ Equal Opportunity, Bullying and Harassment Policy;
ANZ Health and Safety Policy;
ANZ Global Employee Securities Trading and Conflictof Interest Policy;
ANZ Global Anti-Bribery Policy; and
ANZ Global Whistleblower Protection Policy.
In 2010 ANZ implemented values and ethics training sessions thatwere run by ANZ leaders with their direct reports at manager level orabove. Following this rollout, leaders are now strongly encouraged to
run sessions for new direct reports and ensure they, in turn, brief theirteams where required on ANZ’s values and ethical decision making
within the team. The sessions are designed to build line manager
capability, equipping ANZ leaders and their teams with tools andknowledge to make values-based, conscious and ethical businessdecisions and create team behaviour standards that are in line with
the ANZ Values.

60

ANZ Annual Report 2011

Within two months of starting work with ANZ, and thereafter onan annual basis, all employees are required to complete a training
course that takes each employee through the eight Code principles
and a summary of their obligations under each of the policies in the
Conduct and Ethics Policy Framework. Employees are required todeclare that they have read, understand and have complied with theprinciples of the Employee Code, including key relevant extracts ofthe policies set out above.
To support the Employee Code of Conduct and Ethics, ANZ’s Global
Performance Improvement and Unacceptable Behaviour Policy sets
out the process to be followed to determine whether the Code has
been breached and the consequences that should be applied to
employees who are found to have breached the Code. Under the
ANZ Global Performance Management Framework, any breach of
the Code that leads to a consequence (such as a warning) will resultin an unacceptable risk/compliance/behaviour flag being given
at the time of the performance assessment. A flag must be taken
into account when determining an employee’s performance andremuneration outcome and will almost always negatively impact
those outcomes for the financial year in question.
Directors’ compliance with the Non-Executive Directors Codecontinues to form part of their annual performance review.
SECURITIES TRADING
ANZ’s Global Employee Securities Trading and Conflict of Interest
Policy prohibits trading in ANZ securities or the securities of othercompanies by all employees and Directors who are aware of
unpublished price-sensitive information.
The Policy specifically prohibits restricted employees, their associates
and Directors trading in ANZ securities during ‘blackout periods’ as
defined in the Policy. The Policy also provides that certain types of
trading are excluded from the operation of the trading restrictions
under the Policy, and for exceptional circumstances in which
restricted employees and Directors may be permitted to trade during
a prohibited period, with prior written clearance.
Directors are required to obtain written approval from the Chairman
in advance of any trading in ANZ securities. The Chairman of theBoard is required to seek written approval from the Chair of the Audit
Committee. Senior Executives and other restricted employees are also
required to obtain written approval before they, or their associates,
trade in ANZ securities.
It is a condition of the grant of employee deferred shares and shareoptions and rights that no schemes are entered into by any employeethat specifically protect the value of such shares, options and rights
before the shares have vested or the options or rights have entered
their exercisable period. Any breach of this prohibition would
constitute a breach of the grant conditions and would result in theforfeiture of the relevant shares, options or rights.
Directors and Management Board members are also prohibited fromproviding ANZ securities as security in connection with any marginloan or similar financing arrangement under which they may besubject to a margin call or loan to value ratio breach.

WHISTLEBLOWER PROTECTION

Continuous Disclosure

The ANZ Global Whistleblower Protection Policy provides amechanism by which ANZ employees, contractors and consultants
may report serious issues on a confidential basis, without fear of
victimisation or disadvantage.

ANZ’s practice is to release all price-sensitive information to the
ASX in a timely manner as required under the ASX Listing Rules andthen to all relevant overseas securities exchanges on which ANZ’ssecurities are listed, and to the market and community generally
through ANZ’s media releases, website and other appropriate channels.

Complaints may be made under the Policy to Managers, designated
Whistleblower Protection Officers, or via an independently managed
Whistleblower Protection hotline.

Commitment to Shareholders
Shareholders are the owners of ANZ and the approaches described
below are enshrined in ANZ’s Shareholder Charter, a copy of which
can be found on the Corporate Governance section of anz.com
COMMUNICATION
In order to make informed decisions about ANZ, and to communicate
views to ANZ, it is important for shareholders to have an
understanding of ANZ’s business operations and performance.
ANZ encourages shareholders to take an active interest in ANZ, and seeks
to provide shareholders with quality information in a timely fashion
through ANZ’s reporting of results, the Annual Report, the Shareholder
and Corporate Responsibility Review, announcements and briefings to
the market, half yearly newsletters and via its dedicated shareholder
site on anz.com. ANZ strives for transparency in all its business practices,and recognises the impact of quality disclosure on the trust andconfidence of shareholders, the wider market and the community. To
this end, ANZ, outside of its scheduled result announcements, issued
additional Trading Updates to the market during the 2011 financial year.
Should shareholders require any information, contact details for
ANZ and its Share Registrar are set out in ANZ’s Annual Report, theShareholder and Corporate Responsibility Review, the half yearlyshareholder newsletter, and the Shareholder Centre section of anz.com
MEETINGS
To allow as many shareholders as possible to have an opportunity
to attend shareholder meetings, ANZ rotates meetings aroundcapital cities and makes them available to be viewed online using
webcast technology.
Further details on meetings and presentations held throughout thisfinancial year are available on anz.com > About us >Shareholder centre> Presentations and Webcasts. Prior to the Annual General Meeting,shareholders are provided the opportunity to submit any questions
they have for the Chairman or Chief Executive Officer to enable key
common themes to be considered.
The external auditor is present at ANZ Annual General Meetings
and available to answer shareholder questions on any matter thatconcerns them in their capacity as auditor.
Directors are also required to attend the Annual General Meeting
each year, barring unusual circumstances, and be available afterwards
to meet with and answer questions of shareholders.
Shareholders have the right to vote on various resolutions related
to company matters. If shareholders are unable to attend a meeting
they can submit their proxies via post or electronically. Where votes
are taken on a poll, which is usual ANZ practice, shareholders areable to cast their votes on a confidential basis. ANZ appoints an
independent party to verify the results, normally KPMG, which arereported as soon as possible to the ASX and posted on anz.com

Through ANZ’s Continuous Disclosure Policy, ANZ demonstrates
its commitment to achieving best practice in terms of disclosure byacting in accordance with the spirit, intention and purposes of theapplicable regulatory requirements and by looking beyond form to
substance. The Policy reflects relevant obligations under applicablesecurities exchange listing rules and legislation.
For disclosure purposes, price-sensitive information is informationthat a reasonable person would expect to have a material effect on
the price or value of ANZ’s securities. Designated Disclosure Officers
have responsibility for reviewing proposed disclosures and making
decisions in relation to what information can be or should be
disclosed to the market. Each ANZ employee is required to informa Disclosure Officer regarding any potentially price-sensitive
information concerning ANZ as soon as they become aware of it.
A committee of senior executives (the Continuous Disclosure
Review Sub-Committee) also meets on a regular basis each quarterto overview the effectiveness of ANZ’s systems and procedures
for achieving compliance with applicable regulatory requirements
in relation to the disclosure of price-sensitive information. This
Sub-Committee reports to the Governance Committee of theBoard on an annual basis.

Corporate Responsibility
ANZ aims to be a role model for responsible business growthand business behaviour as it pursues its goal to become a superregional bank.
ANZ’s corporate responsibility framework responds to the prioritiesof customers, shareholders, employees, community groups,
regulators and governments across ANZ’s business. It emphasises
the role ANZ plays in society – helping to create prosperity and build
thriving communities while growing ANZ’s business responsibly.
The following five priority areas guide ANZ’s corporate responsibility
investments, initiatives and decisions globally:education and employment opportunities;
bridging urban and rural social and economic divides;
financial capability;
responsible practices; andurban sustainability.
The Corporate Responsibility Committee is chaired by the Chief
Executive Officer. The Committee provides strategic leadership on thecorporate responsibility agenda and monitors progress and results.
Each year, ANZ sets public targets and a business-wide program ofwork to respond to the most material issues and opportunities for
its industry. This year ANZ achieved or made strong progress on over
90% of its public targets.
ANZ keeps interested stakeholders abreast of developments througha monthly e-bulletin, and annual and interim corporate responsibility
reporting. Detailed information on ANZ’s approach and results isavailable on anz.com> About us> Corporate Responsibility
Corporate Governance61

CORPORATE GOVERNANCE (continued)

Diversity at ANZ

PROGRESSION AND DEVELOPMENT PRACTICESGENDER BALANCE AT ANZANZ aims to achieve gender balance in its key talent development
and learning programs.

ANZ considers a gender-balanced, diverse and inclusive workforce,
where employee differences in areas like gender, age, culture, disability
and lifestyle choice are valued, a strategic asset for its business andcritical to achieving its super regional strategy. The ANZ Diversity
Council, established in 2004, is responsible for setting the strategic
direction and identifying focus areas in relation to diversity. It consistsof senior executives and is chaired by the Chief Executive Officer.
Gender balance is a key priority in this strategy and ANZ’s commitment
includes Management Board level accountability for year-on-year
improvements in gender balance, particularly across senior
Management ranks.
GENDER BALANCE AT BOARD, SENIOR EXECUTIVE AND
MANAGEMENT LEVELS
ANZ’s Board currently comprises eight Directors, and it is not theBoard’s current intention to make any new Board appointments toincrease the size of the Board, other than as a part of the succession
planning process referred to below.
The Board has one female Director, namely Ms Watkins, who joined
the Board in November 2008 as a Non-Executive Director. Ms Watkins
is Chair of the Human Resources Committee and a member of the
Audit Committee and Governance Committee.
The Board has a tenure policy which limits the period of service of a
Non-Executive Director to three 3-year terms after first being elected byshareholders. In accordance with this policy, the next scheduled Board
retirements will occur at the 2013 AGM when three Directors are due
to retire.
The Board’s objective is that the new Director appointments who will
replace the three retiring Directors will include at least one woman,and it is expected that these new appointments will be made in the
period leading up to the 2013 AGM in order to provide an appropriate
transition. This objective is being effectively progressed.
ANZ has the highest proportion of women on its Management Boardof any Australian bank (25%). Three female CEOs lead key countries
in ANZ’s Asia Pacific growth markets of Vietnam, the Philippines andHong Kong. Women also lead major global businesses including CapitalMarkets, Global Loans and Shared Services operations.
Annual gender targets have been set since 2004. ANZ’s goals for theyear ended 30 September 2011 and the results achieved are set out
in the table below. While we did not achieve our targets over all the
sub-categories, we improved our performance at senior Managementlevel, the key pipeline for future executives. With respect to thetotal number of women across the organisation, the percentage fellslightly from 56.9% to 55%. See ‘Future Goals’ below for ANZ’s 2012
measurable objectives for achieving gender diversity.
Baseline(30 Sept 2010)

30 September
2011 Target

30 September
2011 results

Senior executives

23.9%

25.8%

22.8%

Senior manager

27.6%

29.3%

28.5%

Manager

40.6%

42.2%

40.3%

Total women in management

38.4%

40.0%

38.2%

Group

62

ANZ Annual Report 2011

This year ANZ invested significantly in its core Leadership Pathway
programs which target entry level managers through to enterpriseleaders, and provide comprehensive training in the skills andcompetencies required to lead at ANZ. 45% of participants in all
Leadership Pathway programs were female.
Across ANZ’s broader Leadership Talent Radar program, 38% ofparticipants were female. This percentage is similar to the current
representation in Management ranks, however achieving genderbalance in this program is a future priority.
Awareness and education programs to eliminate any unconscious bias
in ANZ’s policies, practice and workplace culture are underway. This year
approximately 800 of ANZ’s managers, including Management Boardand top 200 executives, globally participated in a learning program
to better understand the economic and business case for genderbalancing ANZ and how to best understand, inspire and capitaliseon the talents of both female and male employees in ANZ’s workforce.
Actions arising from these sessions include a commitment to early
career and succession planning to get more women into line roles
where they have access to the critical experiences required to beeffective senior leaders. ANZ is also encouraging and supporting its
senior male leaders to act as sponsors and advocates for talented
women to widen the available pool of female talent who will consider
working for ANZ.
PAY EQUITY
ANZ is committed to achieving pay equity for like roles across its
business. ANZ tracks its progress annually and publicly reports its
performance (see the 2011 Shareholder and Corporate Responsibility
Review, which is available at anz.com).
The gender pay differential between males and females (withcomparisons based on like-for-like job size) continues to be minimal,
and reductions in the gender differentials in fixed pay were achieved.
A review of performance based compensation awarded in 2010
revealed no systemic gender bias in ANZ’s reward allocation,with the proportion of women achieving ANZ’s two highest levelsof relative performance outcome (RPO), which determines bonus
levels, slightly higher than men. Six percent of females achieved
RPO 1 compared to 5% of males and 21% of females achieved
RPO 2 compared to 20% of males.
In addition, 57% of award recipients in ANZ’s annual CEO Recognition
Program were women.
FLEXIBLE ARRANGEMENTS AND PARENTAL LEAVEANZ offers flexible work arrangements, breaks from work andsupport in special circumstances to help balance life priorities withwork and to manage careers. These include: compressed work weeks(where employees work the usual number of hours in fewer days);
flexible start and finish times; job sharing; telecommuting; part time
work arrangements; and lifestyle leave which offers up to four weeks
unpaid leave for any purpose. See the 2011 Shareholder andCorporate Responsibility Review for information on the numberof employees in flexible work arrangements.

A new childcare allowance introduced in 2011 provides Australianparents returning to work with a $4,000 grant to help them transition
back to work after parental leave and superannuation is paid on all
forms of paid parental leave. Over 478 employees received this grant in
its first year, and 94% of grant recipients remain ANZ employees today.
WORKPLACE CULTURE
ANZ is building a vibrant, diverse and inclusive culture as a criticalfoundation for its super regional strategy. This year, in the annual‘My Voice’ survey, 79% of all respondents supported the statementsthat ‘ANZ is creating a work environment that is open and acceptingof individual differences’ and ‘My manager supports my efforts tobalance my work and personal life’ – key indicators of the successof ANZ’s diversity priorities.
SUPPORT FOR GENDER EQUALITY IN OUR COMMUNITIESThe Chairman and Chief Executive Officer support an externalbusiness led program to mentor and advance more women into
Board positions.
The Chief Executive Officer, Mr Smith, is a member of the MaleChampions for Change program (MCC), through which CEOs andDirectors use their influence to ensure the issues of gender equality
and women’s representation in leadership are elevated onto thenational business agenda. Mr Smith is establishing a Melbourne
Chapter of MCC, which will advocate for more accessible, flexible
and affordable childcare for parents while also championing ANZ’sfinancial capability programs, which are described below.
In 2011 ANZ was recognised as an Employer of Choice for Womenby the Australian Equal Opportunity in the Workplace Agency.
This followed similar achievements in the last year, including the
Workplace Work and Life award in New Zealand for flexible work
practices and an IT Export award, recognising the high percentageof women employed in ANZ’s Technology business in India.
Saver Plus, MoneyMinded, MoneyBusiness and Progress Loans, ANZ’sfinancial capability initiatives, include mostly female participants andaim to encourage and support their economic empowerment, education
and broader inclusion in society. To date, ANZ’s long-term, multi-million
dollar investment in these programs has benefited tens of thousandsof women on low incomes and from disadvantaged communities.
FUTURE GOALSANZ has set the following global goals for gender balance anddiversity for 2012. The 2011 Shareholder and Corporate Responsibility
Review contains further information on these targets.
Public Gender Balance and Diversity Targets
Reach at least 40% representation of women in management, including
maintaining or increasing the proportion of women at all levels.

Advance the role of women in society through engagement on
key public policy issues, including advocacy for more accessible,
affordable and flexible childcare in Australia.
Develop and commence implementation of a global approach to
improving age diversity across our business.
Publicly report outcomes of ANZ's current Reconciliation Action Plan
and Diversity Action Plan.

Donations and Community Investment
ANZ has made a long term public commitment to invest in thecommunities in which it operates and contributed around$16.9 million in cash, time and in-kind services during the year
ended 30 September 2011. This does not include ‘foregone revenue’such as the cost of providing low or fee free accounts to government
benefit recipients.
Building financial capability is a key element of ANZ’s Corporate
Responsibility framework, targeting especially those in disadvantaged
communities who are most at risk of financial exclusion. For thisreason more than $3.5 million of this contribution was invested infinancial literacy and inclusion programs such as MoneyMinded (andits cultural adaptations in Australia, New Zealand and the Pacific),
Saver Plus and Progress loans (Australia). Saver Plus was successful
in gaining ongoing funding from the Australian Government tocontinue operating in 60 sites around Australia, with the support ofpartners Brotherhood of St Laurence, Berry Street, the Benevolent
Society, the Smith Family and other community agencies. Over 7,500
participants were involved in Saver Plus over the past two years, andresearch shows that 87% of people continue to save the sameamount or more up to three years after completing the program.
ANZ offers all staff at least one day of paid volunteer leave per
year to make a difference in their local communities. This year we
expanded our volunteering program in Asia and the Pacific througha partnership with Australian Volunteers International where our
employees are volunteering their time and expertise to help build
the capacity of community organisations. In the past year, staff
volunteered more than 91,000 hours across our region.
ANZ also committed more than $3.7 million, including matchingof staff donations, to support the recovery and rebuilding ofcommunities in regions affected by natural disasters including
Australia, New Zealand and Japan.
Further details can be accessed at anz.com/cr
In addition, for the year to 30 September 2011, ANZ donated$80,000 to the Liberal Party of Australia and $80,000 to the Australian
Labour Party.

Achieve gender balance and greater cultural diversity in our key
recruitment, talent development and learning programs.
Provide 230 positions through our traineeships, graduate programand permanent employment to people from disadvantaged
backgrounds, including Indigenous Australians, Maori, people withdisability and refugees; and support their advancement throughmentoring and cultural awareness programs amongst all employees.

Corporate Governance

63

Review of Operations

65

Principal Risks and Uncertainties

76

Five Year Summary

84

64

ANZ Annual Report 2011

Review
Chief Executiveof Operations
Officer’s ReportA MESSAGE FROM PETERMICHAELMARRIOTTSMITH

ANZ reported a profit after tax of $5,355 million for the year ended 30 September 2011.
Income Statement ($m)

2011

2010

Movt

Net interest income
Other operating income

11,483
5,449

10,869
4,823

6%
13%

Operating income
Operating expenses

16,932(8,023)

15,692(7,304)

8%
10%

Profit before credit impairment and income tax
Provision for credit impairment

8,909(1,237)

8,388(1,787)

6%-31%

Profit before income tax
Income tax expense
Non-controlling interests

7,672(2,309)(8)

6,601(2,096)
(4)

16%
10%
100%

Profit attributable to shareholders of the Company

5,355

4,501

19%

Underlying profit
Profit has been adjusted to exclude non-core items to arrive at underlying profit, the result for the ongoing business activities of the Group. These
adjustments have been determined on a consistent basis with those made in prior periods. The adjustments made in arriving at underlying earnings
are included in statutory profit, and are therefore subject to audit within the context of the Group statutory audit opinion. The principles set out in
the Australian Institute of Company Director’s (AICD) and the Financial Services Institute of Australasia’s (FINSIA) joint recommendations ‘Principles
for reporting of non-statutory profit information’ have been adopted in determining underlying profit. The external auditor has advised the Audit
Committee that the adjustments are based on the guidelines released by the AICD and FINSIA, and consistent with prior period adjustments.
Income Statement ($m)

2011

2010

Movt

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

5,355
297

4,501
524

19%
-43%

Underlying profit

5,652

5,025

12%

Adjustments between statutory profit and underlying profit ($m)

2011

2010

Movt

New Zealand technology integration
Acquisition costs and valuation adjustments
Treasury shares adjustment
Tax on New Zealand conduits
Changes in New Zealand tax legislation
Economic hedging – fair value (gains)/losses
Revenue and net investment hedges losses/(gains)
NZ managed funds impacts
Non-continuing businesses
Credit intermediation trades
Other

86
126
(41)
–
(2)
117
51
(39)

–
480
32
(38)
36
146
(24)
(34)

n/a
-74%
large
-100%
large
-20%
large
15%

(4)
3

(54)
(20)

-93%
large

297

524

-43%

Adjustments between statutory profit and underlying profit

Review of Operations

65

REVIEW OF OPERATIONS (continued)

Pro forma
To enhance the understanding and comparability of financial information between reporting periods, ‘pro forma’ information is presented
below. The pro forma adjustments are based on underlying profit and assume the increase in ownership in OnePath Australia and
New Zealand acquisitions from 49% to 100% and the Landmark and RBS acquisitions took effect from 1 October 2009, effectively restating
the Group’s underlying profit for the 2010 full year. This analysis provides the estimated growth rates of the ongoing business performanceof the Group including recent acquisitions. The pro forma results below are also adjusted to exclude the impact of exchange rate movements.
Pro forma

Pro forma/underlying profit by key line item

Underlying

2011

2010

Movt

2011

2010

Movt

Net interest income
Other operating income1,2

11,481
5,331

10,869
5,105

6%
4%

11,481
5,331

10,862
4,920

6%
8%

Operating income
Operating expenses

16,812(7,718)15,974(7,132)5%
8%16,812(7,718)15,782(6,971)

7%
11%

Profit before credit impairment and income tax
Provision for credit impairment1

9,094(1,211)

8,842(1,845)

3%
-34%

9,094
(1,211)8,811(1,820)3%-33%

Profit before income tax
Income tax expense2
Non-controlling interests

7,883(2,222)(9)

6,997(1,977)
(6)

13%
12%
50%

7,883
(2,222)(9)

6,991(1,960)
(6)

13%
13%
50%

Profit attributable to shareholders of the Company

5,652

5,014

13%

5,652

5,025

12%

1 Credit valuation adjustments on defaulted or impaired exposures of $17 million are reclassified as provision for credit impairment (2010: $34 million).
2 Policyholder tax of $208 million (2010: $215 million) is netted off against the change in policyholder liabilities for underlying profit.

66

ANZ Annual Report 2011

ANZ reported a profit attributable to shareholders of the Company of$5,355 million for the year ended 30 September 2011, up $854 million
or 19% from $4,501 million for the year ended 30 September 2010.
Underlying profit was up 12% to $5,652 million.
On a pro forma basis, profit increased by $638 million or 13%.
Analysis of the business performance on a pro forma basis excluding
exchange rates by major income and expense categories follows:

Net Interest Income
Net interest income increased 6% with higher margins (excluding
the impact of the Global Markets business), growth in averageinterest earning assets and an increase in average deposits andother borrowings.
Growth in average interest earning assets1 was $28.2 billion (6%).
Major movements include:
Australia geography increased $21.3 billion (7%): Mortgages
increased $15.5 billion (10%) driven by growth in net advancesreflecting continuing customer demand for variable rate lending.
There was also growth in Global Markets due to an increase inreverse repo balances and short term available-for-sale assets
in the Liquidity Portfolio and in Commercial Banking following
growth in customer lending.
Asia Pacific, Europe & America (APEA) geography increased $15.8
billion (33%): Hong Kong/Taiwan increased $5.8 billion (90%) due
to growth in net advances from the RBS business acquisition andorganic growth. Singapore increased $3.8 billion (38%) due toan increase in trade loans, as well as the launch of the mortgage
lending business in Retail. China increased $2.2 billion (86%)
driven by higher domestic lending and investment of surplus
cash. Onshore lending business in India grew with the launchof the India branch.

Asia Pacific, Europe & America geography increased $14.1 billion(30%): Driven mainly by deposit raising strategies in UK combinedwith business expansion and RBS acquisition in Asia.
This was partly offset by a decrease in New Zealand geography of$2.0 billion (4%) due to a decline in Commercial Paper issuance due
to reduced funding requirements. A further decrease of $7.3 billion(2%) was due to foreign exchange rate movements.
Net interest margin2 decreased by 1 basis point to 2.46%. Excluding
the impact of the Global Markets business, the Group margin2
increased by 7 basis points. The main drivers of improved margin
performance excluding Global Markets were:
Improved asset margin (16 basis points) flowing from pricing
decisions in retail and commercial businesses in Australia and
New Zealand, increase in fee income in Institutional and benefit
from a change in the lending mix.
Funding & Asset mix changes (3 basis points) driven by lower
reliance on wholesale funding as growth in customer deposits
meets ongoing funding requirements.
This was partly offset by a higher cost of deposits (-8 basis points)
and higher funding costs (-3 basis points). Deposit costs werehigher due to the competitive pressures (-5 basis points), continued
customer migration to lower margin deposits (-2 basis points) andlower returns from the replicating portfolio (-1 basis point). Higher
funding costs (-3 basis points) were mainly due to an increase inwholesale funding costs.
Global Markets had a -8 basis points impact on the total Group
margin. This was driven by lower earnings from managing balance
sheet risk (-4 basis points), lower earnings from other lending andinvestment activities (-2 basis points), higher funding costs associatedwith unrealised gains on derivatives (-1 basis point) and the balance
sheet dilution impact (-1 basis point).

This was partly offset by a decrease of $8.4 billion (2%) due toforeign exchange rate movements.
Growth in average deposits and other borrowings was $32.6 billion(11%). Major movements include:
Australia geography increased $27.8 billion (14%): Banking
Products increased $8.6 billion (14%) due to uplift from corecustomer deposits. Treasury increased $8.2 billion (20%) driven
by higher Certificates of Deposit due to change in funding mix
following the decision to stop re-discounting customer acceptances.
Markets & Transaction Banking increased $7.8 billion (16%) withhigher customer deposits in part reflecting system growth.

1 Balance sheet growth and associated commentary is on a statutory (not pro forma) basis
and is not adjusted for the changes in exchange rates.
2 Net interest margin and associated commentaries are on a statutory (not pro forma) basis.
The acquisitions did not have a significant impact on net interest margin.

Review of Operations

67

REVIEW OF OPERATIONS (continued)

Other Operating Income

Operating Expenses

Other operating income increased 4% for the year ended
30 September 2011. Major movements include:

Operating expenses grew 8% with cost growth primarily in Asia
Pacific, Europe & America, Institutional and Group Centre as a resultof ongoing investment in key strategic markets and infrastructureand system enhancements to support future growth.

Fee income increased $29 million (1%): Transaction Banking
increased $66 million (17%) driven mainly by volume growth.
Deposits Australia decreased $26 million (10%) due to lower
exception fees and reduction in volumes.
Foreign exchange earnings increased $45 million (18%):
Transaction Banking increased $25 million (24%) driven by higher
volumes and pricing initiatives. Retail and Wealth Asia increased$13 million driven by higher volumes.
Net income from wealth management increased $44 million (4%):
Wealth Australia increased $23 million (2%) driven by increased
capital investment earnings largely due to the recovery from theimpacts of the Global Financial Crisis. This was partially offset by areduction in funds management net income due to a combinationof margin squeeze and lower average funds under management.
New Zealand Wealth increased $18 million (14%) mainly driven by
an increase in insurance income from OnePath New Zealand.
Other income increased $25 million (5%) largely in Asia Pacific,
Europe & America (up $41 million) due to Retail & Wealth Asia
growing $25 million and our Partnerships business increasing$16 million (4%). Retail & Wealth Asia increased $25 million mainly
due to a $19 million gain on sale of the Taiwan credit card portfolio.
The Partnerships business increased $16 million (4%) driven mainly
by equity accounted earnings increasing $88 million due to higher
earnings in Shanghai Rural Commercial Bank (SRCB) offset in partby lower earnings in Bank of Tianjin (BoT) and Saigon Securities
Inc (SSI). This was further offset by the $35 million write-down of
the investment in Sacombank in 2011 principally due to a decline
in the Vietnamese currency compared to a separate $25 million
gain in 2010 reversing an earlier writedown of the investment in
SSI. Other impacts include a $19 million gain on sale of 20 Martin
Place in Sydney. This was partly offset by: a reduction of $14 million(17%) in E*Trade driven mainly by lower brokerage income andimpairment of an investment in associate, a decrease of $9 million(48%) in New Zealand mainly due to the de-consolidation of apreviously owned controlled entity, and a decline of $8 million in
Global Loans.
Global Markets income is affected by mix impacts between the
categories within other operating income and net interest income.
Global Markets income decreased $189 million or 11%. Trading andbalance sheet income within Global Markets businesses fell 36%
reflecting the impact of a number of significant global events thathave affected the stability of financial markets. Despite the difficult
trading conditions Global Markets continues to diversify the productand geographic mix of its revenue streams and client base. Markets
sales were up 22% and foreign exchange revenues increased 3% withforeign exchange sales revenues now representing 52% of Global
Markets sales revenues (2010: 48%).

68

ANZ Annual Report 2011

Asia Pacific, Europe & America cost growth was up 22% from thebuild out of the franchise, largely in Institutional, and compared with
18% revenue growth. Institutional cost growth was up 17% mainly
due to the runrate impact of higher personnel costs from investment
to build out capabilities in Asia Pacific, Europe & America andinvestment in cash management and foreign exchange capability
in the prior year. The Australia cost growth of 4% was largely due
to annual salary increases and a 2% increase in staff numbers.
New Zealand costs were down 2%, reflecting productivity gains
from simplifying the business. Group Centre cost growth was up
28% largely from increased investment in our Chengdu and Manila
Hubs and increased technology investment.
Personnel expenses increased $445 million (10%) as a resultof annual salary increases and the continued build out of theInstitutional franchise in Asia Pacific, Europe & America. Inflationary
increases in New Zealand were partly offset by a 2% reduction
in staff numbers from simplifying the business. Staff numbers
increased in Group Centre as a result of the build out of theoffshore Hubs and investment in technology.
Premises expenses increased $23 million (3%) reflecting higher
staff numbers, inflationary increases and an increased costassociated with reducing our carbon footprint.
Computer expenses increased $157 million (18%) due to a
$51 million increase in depreciation and amortisation and anincrease in Computer contractors’ costs from our significant
investment in technology.
Other expenses reduced $39 million (3%) due to a strong focus on
constraining discretionary costs, lower non-lending losses in 2011and lower project related expenses which are offset by increases
in Personnel and Computer expenses.

Provision for Credit Impairment
Total credit impairment charge relating to lending assets,commitments and debt securities classified as available-for-saleassets decreased by $550 million from September 2010 to$1,237 million. The pro forma credit impairment charge decreased
by $634 million, driven by lower individual provision charges (down$652 million) and partly offset by higher collective provision charges(up $2 million). This reflected a slowing in large single nameprovisions, a stabilising loan portfolio and growth in low risk assets.
The pro forma individual provision charge decreased $652 million
over the year, due mainly to reductions in Institutional. The decreasein Institutional of $589 million reflects improved portfolio quality,
recoveries and a reduction in new impaired assets. The decreases
in New Zealand and Asia Pacific, Europe & America of $93 million
and $54 million respectively reflect slowly improving economies in
New Zealand and Asia. Australia saw a $75 million increase reflecting
the impact of the natural disasters, and weakness in the rural sector.
The pro forma collective provision charge increased by $2 million
during the year with increases in Australia, Institutional and Group
Centre offset by decreases in New Zealand and Asia Pacific, Europe& America. The $38 million increase in Australia is primarily driven by
growth and an upward trend in delinquencies in the retail portfolio,
floods and writebacks in the prior year. The Asia Pacific, Europe &America decrease reflects underlying credit improvement offset
partially by growth driven by Asia. The Institutional division increaseof $89 million is mainly driven by growth in Global Loans. The
New Zealand reduction was driven by releases to the economic
cycle adjustment as a result of the earthquake impacted exposuresmigrating to impaired, coupled with some improvement in credit
quality. Part of the flood provision release was used to fund an
additional central economic cycle adjustment of $40 million due
to ongoing global uncertainty.

Review of Operations

69

REVIEW OF OPERATIONS (continued)

Balance Sheet Summary
2011
$m

2010
$m

Movt

AssetsLiquid assets
Due from other financial institutions
Trading and available-for-sale assets
Derivative financial instruments
Net loans and advances including acceptances
Investments relating to insurance business
Other

24,8998,824
58,33854,118397,30729,85921,143

18,945
5,481
54,25737,821
363,392
32,171
19,636

31%
61%
8%
43%
9%
-7%
8%

Total Assets

594,488531,703

12%

Liabilities
Due to other financial institutions
Customer deposits
Other deposits and other borrowings

23,012296,754
71,975

21,610256,875
53,5086%
16%35%

Deposits and other borrowings
Derivative financial instruments
Liability for acceptances
Bonds and notes
Insurance policy liabilities/external unitholder liabilities
Other

368,72950,088970
56,551
32,536
24,648

310,383
37,217
11,49559,71434,42922,700

19%
35%
-92%
-5%
-5%
9%

Total liabilities

556,534

497,548

12%

Total equity

37,954

34,155

11%

The Group’s balance sheet continued to strengthen during 2011
with increased capital ratios, a higher level of liquidity, an increased
proportion of funding from customer deposits and a reduction in
the proportion of impaired assets to gross loans and advances.
The Group’s Common Equity Tier-1 ratio increased 47 basis points
to 8.5% and the Tier 1 ratio increased 84 basis points to 10.9% well
above regulatory minima and sufficient to comply with APRA’s
proposed implementation of Basel III capital reforms in Australia
at January 2013.
The level of prime and supplementary liquid asset holdings increased
from September 2010 by $16.5 billion to $91.3 billion at September
2011, sufficient to cover the maturities of all short and long term
offshore wholesale debt securities.
During the year to September 2011 the total increase in customer
funding was $42.2 billion. The proportion of customer funding is now
61%, an increase of 3% from September 2010.
Gross impaired assets decreased 15% to $5.6 billion largely reflecting
a 23% decreased in impaired loans. Net impaired assets as a % of net
advances decreased from 1.27% in 2010 to 0.98% in 2011.
Asset growth of $62.8 billion (12%) is principally driven by:
Net loans and advances including acceptances increased$33.9 billion (9%) primarily driven by above system Australian
housing lending growth of $10.9 billion (7%) and Asia Pacific,
Europe & America growth of $11.7 billion (43%) across all
business lines.
Derivative financial instruments increased $16.3 billion (43%)
mainly attributable to a depreciation in the Australian Dollar
against other currencies late in the second half of 2011 andvolatility in the foreign exchange and interest rate markets.

70

ANZ Annual Report 2011

Trading & available-for-sale assets increased $4.1 billion (8%)
including a $6.0 billion reduction due to ANZ bill acceptances
no longer being rediscounted and classified as trading securities.
Excluding this, the increase was $10.1 billion mainly driven by anincrease of $5.9 billion in investment in government securities
by Singapore and New Zealand and an increase of $4.1 billion in
Institutional Australia mainly due to increased commodity holdings
and government securities.
Liabilities growth of $59.0 billion (12%) is principally driven by:
Deposits and other borrowings increased $58.3 billion (19%)
due to growth in customer deposits of $39.9 billion (16%) in
Retail, Commercial and Institutional in Australia of $18.9 billion(12%) as consumers and corporates deleverage and growth in
Asia Pacific, Europe & America of $18.2 billion (39%) driven by strong
momentum across the region. Other deposits and borrowings
increased $18.5 billion (35%) mainly due to an increase in certificate
of deposits issued in Australia following a switch in products used
for funding purposes from liability for acceptances to certificatesof deposits.

Australia
Pro forma1

Underlying2

Income statement ($m)

2011

2010

Movt

2011

2010

Movt

Net interest income
Other external operating income

5,821
2,358

5,426
2,366

7%
0%

5,821
2,358

5,384
2,222

8%
6%

Operating income
Operating expenses

8,179(3,506)

7,792(3,361)

5%
4%

8,179
(3,506)

7,606(3,256)

8%
8%

Profit before credit impairment and income tax
Provision for credit impairment

4,673
(711)

4,431
(598)

5%
19%

4,673
(711)

4,350
(583)

7%
22%

Profit before income tax
Income tax expense
Non-controlling interests

3,962(1,185)–

3,833(1,116)
–

3%
6%
n/a

3,962
(1,185)–

3,767(1,093)
–

5%
8%
n/a

Profit

2,777

2,717

2%

2,777

2,674

4%

17,76817,3482%

Number of employees

1 These results have been presented on a pro forma, foreign exchange adjusted basis. For more information on the presentation of this information on this basis, refer to page 65.
2 Adjusted for non-core items that are not part of the normal ongoing operations of the Group including one-off gains and losses, gains and losses on the sale of businesses, non-continuingbusinesses, timing differences on economic hedges, and acquisition related costs. Refer to page 66.

On a pro forma basis profit increased 2%, with profit before credit
impairment and income tax up 5%.

Operating expenses were up 4% largely due to inflationary impacts,
annual salary increases, higher FTE levels and project related spend.

Net interest income increased 7% driven by strong growth inboth average deposits of 12% and average net loans and advances
including acceptances of 9%. Net interest margin decreased
2 basis points.

Provision for credit impairment increased 19% in the year. South East
Queensland in particular struggled due to higher than national
average unemployment combined with adverse tourism impacts
from the strong Australian Dollar and the floods earlier in the year.
The individual provision increased 16% reflecting the stress oncustomers as a consequence of the deteriorating economic
conditions. The year on year increase of $38 million in the collective
provision charge was driven mainly by raising a flood provision in the
March 2011 half combined with volume growth, marginally offset bysome improvements in credit quality. Net impaired assets increased
from 0.26% to 0.29% of net advances.

Growth in average net loans and advances was driven by above
system growth in Mortgages combined with double digit growthin both the Business Banking and Small Business Banking portfolios.
Deposit growth was very strong, with solid contributions from both
the Retail and Commercial deposit portfolios.
Net interest margin declined 2 bps in the year as continued
competitive pricing on deposits and the impact of a shift in deposit
product mix towards higher priced term deposits and on-line
accounts more than offset any benefit from asset repricing.
Other external operating income was flat as the adverse impact ofremoving exception fees and deferred establishment fees in Retail
was largely offset by volume driven increases.

Review of Operations

71

REVIEW OF OPERATIONS (continued)

Asia Pacific, Europe and America
Pro forma1

Underlying2

Income statement ($m)

2011

2010

Movt

2011

2010

Movt

Net interest income
Other external operating income

1,130
1,364

1,010
1,103

12%
24%

1,130
1,364

971
1,097

16%
24%

Operating income
Operating expenses

2,494(1,488)2,113(1,224)

18%
22%

2,494
(1,488)2,068(1,142)

21%
30%

Profit before credit impairment and income tax
Provision for credit impairment

1,006
(110)

889
(177)

13%
-38%

1,006
(110)

926
(154)

9%
-29%

Profit before income tax
Income tax expense
Non-controlling interests

896
(166)
(9)

712
(83)
(6)

26%
100%
50%

896
(166)
(9)

772
(90)
(6)

16%
84%
50%

Profit

721

623

16%

721

676

7%

10,65010,332

3%

Number of employees

1 These results have been presented on a pro forma basis. For more information on the presentation of this information on this basis, refer to page 65.
2 Adjusted for non-core items that are not part of the normal ongoing operations of the Group including one-off gains and losses, gains and losses on the sale of businesses, non-continuingbusinesses, timing differences on economic hedges, and acquisition related costs. Refer to page 66.

On a pro forma basis, profit grew 16% with solid profit growth byboth the Retail and Institutional businesses despite lower Global
Markets trading income in the September 2011 half. We completed
the acquisitions of the RBS businesses in the Philippines, Vietnamand Hong Kong during the first half of 2010. Asia Partnerships’ profit
contribution held steady despite the impairment charge relating to
the carrying value of our investment in Saigon Thuong Tin Commercial
Joint-Stock Bank (Sacombank) in the first half of 2011 and thepositive impact of the reversal of the Saigon Securities Incorporation
impairment charge in 2010.
Key factors affecting the result were:Solid balance sheet growth contributed to net interest income
increasing 12% compared with 2010.
Other external operating income grew 24% primarily from higher
fees and other income by Global Markets, the gain from the sale ofcredit cards loan portfolios in Taiwan, and increased earnings from
Asia Partnerships.
The 22% increase in operating expenses resulted from thebuild-up of regional revenue generating staff and support
capabilities. Employees increased by 318 during 2011.

72

ANZ Annual Report 2011

Provision charges for credit impairment decreased 38%. Individual
provision charges were 37% lower in 2011 due to higher recoveries
achieved mainly in the Retail businesses in Asia (in particular,
Taiwan). Collective provision charges were lower due to the upgradeof a few large Institutional customers and the release arising from
active de-risking of the previously RBS-owned portfolios.
Net loans and advances increased 43% and customer deposits 39%
due to increases in Transaction Banking and Global Loans.

Institutional
Pro forma1

Underlying2

Income statement ($m)

2011

2010

Movt

2011

2010

Movt

Net interest income
Other external operating income

3,092
1,814

3,178
1,684

-3%
8%

3,092
1,814

3,226
1,721

-4%
5%

Operating income
Operating expenses

4,906(2,001)

4,862(1,717)

1%
17%

4,906
(2,001)

4,947(1,748)-1%
14%

Profit before credit impairment and income tax
Provision for credit impairment

2,905
(258)

3,145
(742)

-8%
-65%

2,905
(258)

3,199
(741)

-9%
-65%

Profit before income tax
Income tax expense
Non-controlling interests

2,647
(750)
(2)

2,403
(670)
–

10%
12%
n/a

2,647
(750)
(2)

2,458
(680)
–

8%
10%
n/a

Profit

1,895

1,733

9%

1,895

1,778

7%

6,448

6,180

4%

Number of employees

1 These results have been presented on a pro forma, foreign exchange adjusted basis. For more information on the presentation of this information on this basis, refer to page 65.
2 Adjusted for non-core items that are not part of the normal ongoing operations of the Group including one-off gains and losses, gains and losses on the sale of businesses, non-continuingbusinesses, timing differences on economic hedges, and acquisition related costs. Refer to page 66.

Institutional’s goal is to build the best bank in the world for clients who
are dependent on trade and capital flows across the region, particularly
those in the natural resources, agribusiness and infrastructure sectors.
Aligned to this strategic ambition, our priority products are trade, cash
management, foreign exchange and commodities and capital markets.
Pro forma profit increased 9%, a solid performance in difficult market
conditions, with the changing geographic distribution of profit
reflecting our super regional strategy. While overall pro forma global
revenue increased 1%, customer revenues were up 10% to $4.3
billion, but this was offset by lower trading and balance sheet
revenues which were down 36% reflecting the difficult market
conditions. Customer revenues in our priority sectors of resources,
agribusiness and infrastructure grew around 18%. Over 1,300 new
relationships were acquired during the year.

Net interest margin (excluding Global Markets) was down 8 basis
points, partially due to a one-off interest write back in 2010 which
increased prior year net interest margin by 3 basis points as well as thegeographic mix effect with significant increase in volumes in the lower
spread Asia region. Net loans and advances were up $12.4 billion, 16%,
with APEA growth of $10.5 billion (49%). Australian lending increased$2.6 billion (5%) and the margins on our lending portfolios in Australia
and New Zealand were held relatively steady following repricing
completed in 2010.
Expenses increased 17% mainly due to the run rate impact ofinvestments made in building out APEA capabilities in the prior year
and in cash platforms to support the super regional strategy.
Credit impairment expense was down 65% reflecting the improvementin the quality of the book as well as the credit cycle.

APEA revenues grew 30% and represent 26% of global revenues(2010: 20%). Partially offsetting APEA revenue growth was a 7%
contraction in Australia, where trading conditions were particularly
difficult in the second half. Despite challenging economic conditions,
New Zealand performed well with revenue up 2% on 2010.
Within our priority product segments, Payments and Cash Management(“PCM”) revenues grew 13% on the back of investment in our“Transactive” cash management platforms. Customer deposits in PCM
were up 27% with particularly strong growth in Asia, up 68%. Traderevenues were up 29% with 58% growth in Asia. Markets sales wereup 13% and foreign exchange (FX) revenues increased 22% with FX
sales revenues now representing 52% of total Global Markets sales
revenues (2010: 48%).

Review of Operations73

REVIEW OF OPERATIONS (continued)

New Zealand
Pro forma1

Underlying2

Income statement ($m)

2011

2010

Movt

2011

2010

Movt

Net interest income
Other external operating income

1,693
466

1,579
472

7%
-1%

1,693
466

1,635
474

4%
-2%

Operating income
Operating expenses

2,159(1,015)2,051(1,035)

5%
-2%

2,159
(1,015)2,109(1,057)

2%-4%

Profit before credit impairment and income tax
Provision for credit impairment

1,144
(166)

1,016
(395)

13%
-58%

1,144
(166)

1,052
(409)

9%
-59%

Profit before income tax
Income tax expense
Non-controlling interests

978
(286)
–

621
(172)
–

57%
66%
n/a

978
(286)
–

643
(180)
–

52%
59%
n/a

Profit

692

449

54%

692

463

49%

8,884

9,073

-2%

Number of employees

1 These results have been presented on a pro forma, foreign exchange adjusted basis. For more information on the presentation of this information on this basis, refer to page 65.
2 Adjusted for non-core items that are not part of the normal ongoing operations of the Group including one-off gains and losses, gains and losses on the sale of businesses, non-continuingbusinesses, timing differences on economic hedges, and acquisition related costs. Refer to page 66.

Financial performance in the 2011 year was strongly ahead of thatin 2010, driven by a clear focus on simplifying the business, margin
management and lower credit provisioning, although the lack ofcredit growth had a moderating impact.
On a pro forma basis, profit for the 2011 year increased 54%, with theresult including a $229 million decrease in credit impairment charge.
Profit before credit impairment and income tax increased 13%, driven
by revenue growth and supported by strong management of costs.
Our customer value proposition in New Zealand continues to be strong
across the businesses, with the Simplification Program contributing
to a significant uplift in Retail customer satisfaction during the year,
culminating in ANZ being awarded the Sunday Star-Times Canstar
Cannex Bank of the Year Award, with The National Bank second.
Key components of the pro forma result were:
Net interest income increased 7%. This growth reflected the margin
benefit from repricing of the fixed rate lending book, and mix
benefit from an increased proportion of variable rate lending
in the mortgage portfolio. Deposit margins, however, were reducedin the competitive environment. Lending volumes increased 1%
and customer deposits increased 7%, both largely market-driven.

74

ANZ Annual Report 2011

Other external operating income declined 1%, reflecting lower
Retail fees driven by a full year’s impact from the fee restructure
implemented during 2010. This was partly offset by increased
income in Wealth from growth in the OnePath insurance and
KiwiSaver businesses, and increased investment funds undermanagement in Private Banking.
Operating expenses decreased 2%, reflecting productivity
gains from simplifying the business, which more than offset
inflationary impacts.
Provision for credit impairment charge decreased $229 million.
The individual provision charge was cyclically lower, down $93 million
on last year. The collective provision charge decreased $136 million,
largely reflecting credit cycle adjustments booked in the 2010 year,with part releases in 2011. The total loss rate (total provision charge
as a percentage of average net advances) for the 2011 year was
0.25%, down from 0.59% for the 2010 year.

Group Centre
Pro forma1

Underlying2

Income statement ($m)

2011

2010

Movt

2011

2010

Movt

Net interest income
Other external operating income

381
(35)

219
(48)

74%
-27%

381
(35)

223
(87)

71%
-60%

Operating income
Operating expenses

346
(388)

171
(302)

large
28%

346
(388)

136
(302)

large
28%

Profit before credit impairment and income tax
Provision for credit impairment

(42)
(40)

(131)
(10)

-68%
large

(42)
(40)

(166)
(10)

-75%
large

Profit before income tax
Income tax expense
Non-controlling interests

(82)
46
–

(141)
(23)
–

-42%
large
n/a

(82)
46
–

(176)
(11)
–

-53%
large
n/a

Profit

(36)

(164)

-78%

(36)

(187)

-81%

6,689

5,557

20%

Number of employees

1 These results have been presented on a pro forma, foreign exchange adjusted basis. For more information on the presentation of this information on this basis, refer to page 65.
2 Adjusted for non-core items that are not part of the normal ongoing operations of the Group including one-off gains and losses, gains and losses on the sale of businesses, non-continuingbusinesses, timing differences on economic hedges, and acquisition related costs. Refer to page 66.

The pro forma loss of $36 million improved $128 million compared
to a loss of $164 million for the September 2010 full year largely
as a result of earnings on higher surplus capital. Significant factors
influencing the result were:
Operating income improved $175 million largely due to higher
earnings on central capital combined with a lower funding costassociated with lower debit tax balances, and profit recognised on
the sale of the Martin Place headquarters in Sydney of $19 million.
There were offsetting variances between net interest and otherincome as a result of elimination entries associated with theconsolidation of OnePath Australia.
Operating expenses increased $86 million largely as a result of
increased project related technology expenditure and increased
investment in our Chengdu and Manila hubs.
Provision for credit impairment increased $30 million with $40 millionof flood provisions transferred to the Group Centre to provide for
emerging issues resulting from the global uncertainty.

Review of Operations75

Principal Risks and Uncertainties
Associated with ANZ
1. Introduction
The Group’s activities are subject to risks that can adversely impact
its business, operations and financial condition. The risks anduncertainties described below are not the only ones that the Groupmay face. Additional risks and uncertainties that the Group is unawareof, or that the Group currently deems to be immaterial, may also
become important factors that affect it. If any of the listed or unlisted
risks actually occur, the Group’s business, operations, financial
condition, or reputation could be materially adversely affected, withthe result that the trading price of the Group’s equity or debt securities
could decline, and investors could lose all or part of their investment.

2. Changes in general business and economic
conditions, including disruption in regional or global
credit and capital markets, may adversely affect theGroup’s business, operations and financial condition.
The Group’s financial performance is primarily influenced by the
economic conditions and the level of business activity in the majorcountries and regions in which it operates or trades, i.e. Australia,
New Zealand, the Asia Pacific region, Europe and the United Statesof America. The Group’s business, operations, and financial condition
can be negatively affected by changes to these economic andbusiness conditions.
The economic and business conditions that prevail in the Group’s
major operating and trading markets are affected by domestic andinternational economic events, political events, natural disasters andby movements and events that occur in global financial markets.
The global financial crisis (GFC) in 2008 and 2009 saw a sudden
and prolonged dislocation in credit and equity capital markets, acontraction in global economic activity and the creation of many
challenges for financial services institutions worldwide that still
persist in many regions. More recently, sovereign risk (particularly
in Europe) and its potential impact on financial institutions in
Europe and globally has emerged as a significant risk to the recovery
prospects of the global economy. The impact of the GFC and its
results (such as heightened sovereign risk) continues to affect global
economic activity and capital markets.
The economic effects of the GFC have been widespread and farreaching with unfavourable impacts on retail sales, personal andbusiness credit growth, housing credit, and business and consumer
confidence. While some of these economic factors have since
improved, ongoing and lasting impacts from the GFC and subsequent
volatility in financial markets and the more recent sovereign debt
crisis in Europe (and potential contagion from it) suggest ongoing
vulnerability and adjustment in these and other areas of consumer
and business behaviour.
The New Zealand economy is also vulnerable to more volatile
markets and deteriorating funding conditions. Economic conditions
in Australia, New Zealand, and some Asia Pacific countries remaindifficult, albeit less so than in many European countries and in the
United States of America (US).

76

ANZ Annual Report 2011

Should the difficult economic conditions of these countries persist
or worsen, asset values in the housing, commercial or rural property
markets could decline, unemployment could rise and corporate andpersonal incomes could suffer. Also, deterioration in global markets,
including equity, property and other asset markets, could impact
the Group’s customers and the security the Group holds against loans
and other credit exposures, which may impact its ability to recoversome loans and other credit exposures.
All or any of these negative economic and business impacts could
cause a reduction in demand for the Group’s products and services
and/or an increase in loan and other credit defaults and bad debts,
which could adversely affect the Group’s business, operations andfinancial condition.
The Group’s financial performance could also be adversely affected
if it were unable to adapt cost structures, products, pricing or
activities in response to a drop in demand or lower than expected
revenues. Similarly, higher than expected costs (including credit
costs) could be incurred because of adverse changes in the economy,
general business conditions or the operating environment in the
countries in which it operates.
Other economic and financial factors or events which may adversely
affect the Group’s performance and results, include, but are notlimited to, the level of and volatility in foreign exchange rates andinterest rates, changes in inflation and money supply, fluctuations
in both debt and equity capital markets, declining commodity prices
due to, for example, reduced demand in Asia, and decreasing
consumer and business confidence.
Geopolitical instability, such as threats of, potential for, or actual
conflict, occurring around the world, such as the ongoing conflicts
in the Middle East, may also adversely affect global financial markets,general economic and business conditions and the Group’s ability tocontinue operating or trading in a country, which in turn may adversely
affect the Group’s business, operations and financial condition.
Natural disasters such as (but not restricted to) cyclones, floods andearthquakes, and the economic and financial market implicationsof such disasters on domestic and global conditions can adversely
impact the Group’s ability to continue operating or trading in the
country or countries directly or indirectly affected, which in turn
may adversely affect the Group’s business, operations and financial
condition. For more specific risks in relation to earthquakes andthe recent Christchurch earthquake, see the risk factor entitled‘The Group may be exposed to the impact of future climate change,
geological events, plant and animal diseases, and other extrinsic
events which may adversely affect its business, operations andfinancial condition’.

3. Changes in exchange rates may adversely affect theGroup’s business, operations and financial condition

5. Changes in monetary policies may adversely affect
the Group’s business, operations and financial condition

The recent appreciation in the Australian and New Zealand dollars
relative to other currencies has adversely affected, and could continue
to have an adverse effect on, certain portions of the Australian and
New Zealand economies, including agricultural exports, international
tourism, manufacturers, and import-competing producers. Similarly,
a depreciation in the Australian or New Zealand dollars relative toother currencies would increase debt service obligations in Australia
or New Zealand dollar terms of unhedged exposures. Appreciationof the Australian dollar against the New Zealand dollar, United States
dollar and other currencies has had a negative translation effect,
and future appreciation could have a greater negative impact, on theGroup’s results from its other non-Australian businesses, particularly
its New Zealand and Asian businesses which are largely based on
non-Australian dollar currencies. The Group has put in place hedges
to partially mitigate the impact of currency appreciation, but
notwithstanding this, any appreciation could have an adverse impact
upon the Group’s earnings.

Central monetary authorities (including the Reserve Bank of Australia(RBA), the Reserve Bank of New Zealand (RBNZ), the US Federal
Reserve and the monetary authorities in Asian jurisdictions in which
we carry on business) set official interest rates so as to affect thedemand for money and credit in their relevant jurisdictions. Theirpolicies can significantly affect the Group’s cost of funds for lending
and investing and the return that the Group will earn on those loans
and investments. Both these factors impact the Group’s net interest
margin and can affect the value of financial instruments it holds, suchas debt securities and hedging instruments. The policies of central
monetary authorities can also affect the Group’s borrowers,
potentially increasing the risk that they may fail to repay loans.
Changes in such policies are difficult to predict accurately.

4. Competition may adversely affect the Group’sbusiness, operations and financial condition, especiallyin Australia, New Zealand and the Asian markets in which
it operates
The markets in which the Group operates are highly competitive andcould become even more so, particularly in those segments that areconsidered to provide higher growth prospects or are in greatest
demand, (for example, customer deposits). Factors that contribute tocompetition risk include industry regulation, mergers and acquisitions,changes in customers’ needs and preferences, entry of new participants,
development of new distribution and service methods, increased
diversification of products by competitors, and regulatory changes in
the rules governing the operations of banks and non-bank competitors.
For example, changes in the financial services sector in Australia and
New Zealand have made it possible for non-banks to offer products andservices traditionally provided by banks, such as automatic payment
systems, mortgages, and credit cards. In addition, banks organised injurisdictions outside Australia and New Zealand are subject to different
levels of regulation and consequently some may have lower cost
structures. Increasing competition for customers could also potentiallylead to a compression in the Group’s net interest margins, or increased
advertising and related expenses to attract and retain customers.
Additionally, the Australian Government announced in late 2010 a
set of measures with the stated purpose of promoting a competitiveand sustainable banking system in Australia. Any regulatory or
behavioural change that occurs in response to this policy shift could
have the effect of limiting or reducing the Group’s revenue earned
from its banking products or operations. These regulatory changes
could also result in higher operating costs. A reduction or limitationin revenue or an increase in operating costs could adversely affect
the Group’s profitability.

6. Sovereign risk may destabilise global financial markets
adversely affecting all participants, including the Group
Sovereign risk or the risk that foreign governments will default on
their debt obligations, increase borrowings as and when requiredor be unable to refinance their debts as they fall due, has emerged
as a risk to the recovery prospects of global economies. This risk isparticularly relevant to a number of European countries though it is
not limited to these places (and includes the United States). Should
one sovereign default, there could be a cascading effect to othermarkets and countries, the consequences of which, while difficult
to predict, may be similar to or worse than that currently being
experienced or which was experienced during the GFC. Such an
event could destabilise global financial markets adversely affecting
all participants, including the Group.

7. The withdrawal of the Australian Government
Guarantee Scheme for large deposits and wholesalefunding and the New Zealand Government Wholesale
Funding Guarantee Scheme may adversely impact theGroup’s access to funding and liquidity
In response to the GFC, a number of government-sponsored financial
stabilisation packages (including guarantees of certain bank obligations)were introduced around the world, including in Australia and New
Zealand. International capital markets and liquidity conditions improved
following the GFC and banks were able to raise non-government
guaranteed funds. Many such government-sponsored financial
stabilisation packages were withdrawn or phased out, including inAustralia and New Zealand in relation to wholesale funding. Morerecently, heightened sovereign risk and subsequent volatility in financial
markets has re-emerged. There is no certainty that financial conditions
will improve or that government-sponsored financial stabilisation
packages would be re-introduced if conditions deteriorated.

The effect of competitive market conditions, especially in the Group’s
main markets, may lead to erosion in the Group’s market share or
margins, and adversely affect the Group’s business, operations, andfinancial condition.
Principal Risks and Uncertainties

77

PRINCIPAL RISKS AND UNCERTAINTIES (continued)

The absence of government-sponsored financial stabilisation schemes
may result in stress on the global financial system or regional financial
systems, which could adversely impact the Group and its customers
and counterparties. Specifically, it could adversely affect the Group’s
ability to access sources of funding and lead to a decrease in theGroup’s liquidity position and increase in its funding costs, negatively
affecting Group’s business, operations and financial condition.

8. The Group is exposed to liquidity and funding risk,
which may adversely affect its business, operations andfinancial condition
Liquidity risk is the risk that the Group is unable to meet its payment
obligations as they fall due, including repaying depositors or
maturing wholesale debt, or that the Group has insufficient capacity
to fund increases in assets. Liquidity risk is inherent in all banking
operations due to the timing mismatch between cash inflows andcash outflows.
Reduced liquidity could lead to an increase in the cost of the Group’s
borrowings and possibly constrain the volume of new lending, which
could adversely affect the Group’s profitability. A significant
deterioration in investor confidence in the Group could materially
impact the Group’s cost of borrowing, and the Group’s ongoing
operations and funding.
The Group raises funding from a variety of sources including
customer deposits and wholesale funding in Australia and offshore
markets to ensure that it continues to meet its funding obligations
and to maintain or grow its business generally. The compositionof the Group’s funding is described in the section headed ‘Funding
composition’ on page 163 of this report. In times of systemic liquidity
stress, in the event of damage to market confidence in the Group orin the event that funding inside or outside Australia is not available orconstrained, the Group’s ability to access sources of funding andliquidity may be constrained and it will be exposed to liquidity risk.
In any such cases, ANZ may be forced to seek alternative funding.
The availability of such alternative funding, and the terms on which
it may be available, will depend upon a variety of factors, including
prevailing market conditions and ANZ’s credit ratings. Even if
available, the cost of these alternatives may be more expensive oron unfavourable terms.
Since the GFC, developments in the US mortgage industry and in the
US and European markets more generally, including recent European
sovereign debt concerns and the downgrade by Standard & Poor’s of
the US government’s long-term debt rating on 5 August 2011 haveadversely affected the liquidity in global capital markets including
an increase in funding costs. Future deterioration in these market
conditions may limit the Group’s ability to replace maturing liabilities
and access funding in a timely and cost-effective manner necessary
to fund and grow its business.

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ANZ Annual Report 2011

9. The Group is exposed to the risk that its credit ratings
could change, which could adversely affect its ability toraise capital and wholesale funding
ANZ’s credit ratings have a significant impact on both its access to,and cost of, capital and wholesale funding. Credit ratings are not arecommendation by the relevant rating agency to invest in securities
offered by ANZ. Credit ratings may be withdrawn, subject toqualifiers, revised, or suspended by the relevant credit rating agency
at any time and the methodologies by which they are determined
may be revised. A downgrade or potential downgrade of ANZ’s credit
rating may reduce access to capital and wholesale debt markets,
potentially leading to an increase in funding costs, as well as affecting
the willingness of counterparties to transact with it. In addition, theratings of individual securities (including, but not limited to, Tier 1
Capital and Tier 2 Capital securities) issued by ANZ (and banks
globally) could be impacted from time to time by changes in theratings methodologies used by rating agencies. Ratings agencies
may revise their methodologies in response to legal or regulatorychanges or other market developments.

10. The Group may experience challenges in managing
its capital base, which could give rise to greater volatility
in capital ratios
The Group’s capital base is critical to the management of its
businesses and access to funding. The Group is required by regulators
including, but not limited to, APRA, RBNZ, the UK Financial Services
Authority, US regulators and various Asia Pacific jurisdictions where
the Group has operations, to maintain adequate regulatory capital.
Under current regulatory requirements, risk-weighted assets andexpected loan losses increase as a counterparty’s risk grade worsens.
These additional regulatory capital requirements compound any
reduction in capital resulting from increased provisions for loan losses
and lower profits in times of stress. As a result, greater volatility incapital ratios may arise and may require the Group to raise additional
capital. There can be no certainty that any additional capital required
would be available or could be raised on reasonable terms.
Global and domestic regulators have released proposals, including
the Basel III proposals, to strengthen, among other things, theliquidity and capital requirements of banks, funds management
entities, and insurance entities. These proposals, together with any
risks arising from any regulatory changes, are described below inthe risk factor entitled ‘Regulatory changes or a failure to comply
with regulatory standards, law or policies may adversely affect theGroup’s business, operations or financial condition’.
Further details about the capital management regime affecting
the Group are contained in note 31 to the 2011 financial statements.

11. The Group is exposed to credit risk, which may
adversely affect its business, operations and financial
condition
As a financial institution, the Group is exposed to the risks associatedwith extending credit to other parties. Less favourable business or
economic conditions, whether generally or in a specific industry sector
or geographic region, or natural disasters, could cause customers or
counterparties to fail to meet their obligations in accordance withagreed terms. For example, our customers and counterparties in thenatural resources sector could be adversely impacted in the event of a
prolonged slowdown in the Chinese economy. Also, our customers andcounterparties in the tourism and manufacturing industries may havebeen adversely impacted by the recent appreciation of the Australian
dollar relative to other currencies. The Group holds provisions for credit
impairment. The amount of these provisions is determined by assessing
the extent of impairment inherent within the current lending portfolio,
based on current information. This process, which is critical to theGroup’s financial condition and results, requires difficult, subjective andcomplex judgments, including forecasts of how current and future
economic conditions might impair the ability of borrowers to repay
their loans. However, if the information upon which the assessment
is made proves to be inaccurate or if the Group fails to analyse theinformation correctly, the provisions made for credit impairment
may be insufficient, which could have a material adverse effecton the Group’s business, operations and financial condition.
In addition, in assessing whether to extend credit or enter into othertransactions with customers, the Group relies on information provided
by or on behalf of customers, including financial statements and otherfinancial information. The Group may also rely on representations ofcustomers as to the accuracy and completeness of that information
and, with respect to financial statements, on reports of independent
auditors. The Group’s financial performance could be negatively
impacted to the extent that it relies on information that is inaccurate
or materially misleading.

12. An increase in the failure of third parties tohonour their commitments in connection with theGroup’s trading, lending, derivatives and other activities
may adversely affect its business, operations andfinancial condition
The Group is exposed to the potential risk of credit-related losses
that can occur as a result of a counterparty being unable or unwillingto honour its contractual obligations. As with any financial services
organisation, the Group assumes counterparty risk in connection
with its lending, trading, derivatives and other businesses where
it relies on the ability of a third party to satisfy its financial obligations
to the Group on a timely basis. The Group is also subject to therisk that its rights against third parties may not be enforceable incertain circumstances.

Credit exposure may also be increased by a number of factors
including deterioration in the financial condition of the counterparty,
the value of assets the Group holds as collateral, and the market valueof the counterparty instruments and obligations it holds. Credit losses
can and have resulted in financial services organisations realising
significant losses and in some cases failing, altogether. Shouldmaterial unexpected credit losses occur to the Group’s credit
exposures, it could have an adverse effect on the Group’s business,
operations and financial condition.

13. Weakening of the real estate markets in Australia,
New Zealand or other markets where it does businessmay adversely affect the Group’s business, operations
and financial condition
Residential, commercial and rural property lending, together withproperty finance, including real estate development and investment
property finance, constitute important businesses to the Group.
Overall, the property market has been variable. Whilst there has
been some moderation in Australian house prices, with the RP
Data-Rismark house price index declining by 3.9% over the 12 month
period ending August 2011, this has not had a material impact on
the Group’s business, operations and financial condition.
A decrease in property valuations in Australia, New Zealand or othermarkets where it does business could decrease the amount of newlending the Group is able to write and/or increase the losses that
the Group may experience from existing loans, which, in either case,could materially and adversely impact the Group’s financial condition
and results of operations. A significant slowdown in the Australianand New Zealand housing markets or in other markets where theGroup does business could adversely affect the Group’s business,
operations and financial conditions.

14. The Group is exposed to market risk which
may adversely affect its business, operations andfinancial condition
The Group is subject to market risk, which is the risk to the Group’s
earnings arising from changes in interest rates, foreign exchange
rates, credit spreads, equity prices and indices, prices of commodities,
debt securities and other financial contracts, including derivatives.
Losses arising from these risks may have a material adverse effecton the Group. As the Group conducts business in several different
currencies, its businesses may be affected by a change in currency
exchange rates. Additionally, as the Group’s annual and interim
reports are prepared and stated in Australian dollars, any appreciationin the Australian dollar against other currencies in which the Groupearns revenues (particularly to the New Zealand dollar and US dollar)
may adversely affect the reported earnings.
The profitability of the Group’s funds management and insurance
businesses is also affected by changes in investment markets andweaknesses in global securities markets due to credit, liquidity orother problems.

Principal Risks and Uncertainties

79PRINCIPAL RISKS AND UNCERTAINTIES (continued)

15. The Group is exposed to the risks associated withcredit intermediation and financial guarantors which
may adversely affect its business, operations andfinancial condition
The Group entered into a series of structured credit intermediation
trades from 2004 to 2007. The Group sold protection using credit
default swaps over these structures and then, to mitigate risk,
purchased protection via credit default swaps over the same structuresfrom eight US financial guarantors. The underlying structures involve
credit default swaps (CDSs) over synthetic collateralised debt
obligations (CDOs), portfolios of external collateralised loan
obligations (CLOs) or specific bonds/floating rate notes (FRNs).

17. Disruption of information technology systems
or failure to successfully implement new technology
systems could significantly interrupt the Group’sbusiness which may adversely affect its business,
operations and financial condition
The Group is highly dependent on information systems andtechnology and there is a risk that these, or the services theGroup uses or is dependent upon, might fail.

Being derivatives, both the sold protection and purchased protection
are marked-to-market. Prior to the commencement of the GFC,
movements in valuations of these positions were not significant andthe credit valuation adjustment (CVA) charge on the protection
bought from the non-collateralised financial guarantors was minimal.

Most of the Group’s daily operations are computer-based andinformation technology systems are essential to maintaining effective
communications with customers. The exposure to systems risks
includes the complete or partial failure of information technology
systems or data centre infrastructure, the inadequacy of internal
and third-party information technology systems due to, among
other things, failure to keep pace with industry developments andthe capacity of the existing systems to effectively accommodate
growth and integrate existing and future acquisitions and alliances.

During and after the GFC, the market value of the structured
credit transactions increased and the financial guarantors weredowngraded. The combined impact of this was to increase the
CVA charge on the purchased protection from financial guarantors.
Volatility in the market value and hence CVA will continue to persist
given the volatility in credit spreads and US dollar and Australian
dollar rates.

To manage these risks, the Group has disaster recovery andinformation technology governance in place. However, any failure ofthese systems could result in business interruption, loss of customers,
financial compensation, damage to reputation and/or a weakeningof the Group’s competitive position, which could adversely impact
the Group’s business and have a material adverse effect on theGroup’s financial condition and operations.

16. The Group is exposed to operational risk, which
may adversely affect its business, operations andfinancial condition
Operational risk is the risk of loss resulting from inadequate or failed
internal processes, people and systems, or from external events.
Operational risk includes legal risk and the risk of reputational loss,
environmental damage, and health and safety risks, but excludes
strategic risk.

In addition, the Group must update and implement new information
technology systems, in part to assist it to satisfy regulatory demands,
ensure information security, enhance computer-based banking
services for the Group’s customers and integrate the various
segments of its business. The Group may not implement theseprojects effectively or execute them efficiently, which could lead toincreased project costs, delays in the ability to comply with regulatory
requirements, failure of the Group’s information security controls
or a decrease in the Group’s ability to service its customers.

Loss from operational risk can include fines, penalties, loss or theftof funds or assets, legal costs, customer compensation, loss ofshareholder value, reputational loss, loss of life or injury to people,
and loss of property and / or information.

18. The Group is exposed to risks associated withinformation security, which may adversely affect its
financial results and reputation

All operational risks carry at least a financial consequence. Examplesof operational risk that the Group is exposed to include the losses
arising from internal fraud, external fraud, acts that are inconsistent
with employment, health or safety laws or agreements, failure tomeet professional customer and legal obligations, disruption ofbusiness or system failures, failure to execute a transaction correctly
including but not limited to internal restructures, inadequate process
management and from failure caused by third parties.

Information security means protecting information and information
systems from unauthorised access, use, disclosure, disruption,
modification, perusal, inspection, recording or destruction. As a bank,the Group handles a considerable amount of personal and confidential
information about its customers and its own internal operations.

Direct or indirect losses that occur as a result of operational failures,
breakdowns, omissions or unplanned events could adversely affect
the Group’s financial results.

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ANZ Annual Report 2011

The Group employs a team of information security subject matter
experts who are responsible for the development and implementationof the Group’s Information Security Policy. The Group is conscious thatthreats to information security are continuously evolving and as such
the Group conducts regular internal and external reviews to ensure
new threats are identified, evolving risks are mitigated, policies andprocedures are updated, and good practice is maintained. However,there is a risk that information may be inadvertently or inappropriately
accessed or distributed or illegally accessed or stolen. Any unauthoriseduse of confidential information could potentially result in breaches
of privacy laws, regulatory sanctions, legal action, and claims forcompensation or erosion to the Group’s competitive market
position, which could adversely affect the Group’s financial position
and reputation.

19. The Group is exposed to reputation risk, which
may adversely impact its business, operations andfinancial condition
Reputation risk may arise as a result of an external event or theGroup’s own actions, and adversely affect perceptions about theGroup held by the public (including the Group’s customers),
shareholders, investors, regulators or rating agencies. The impactof a risk event on the Group’s reputation may exceed any direct
cost of the risk event itself and may adversely impact the Group’sbusiness, operations and financial condition. Accordingly, damage
to the Group’s reputation may have wide-ranging impacts, including
adverse effects on the Group’s profitability, capacity and cost ofsourcing funding, and availability of new business opportunities.

20. The unexpected loss of key staff or inadequate
management of human resources may adversely affect
the Group’s business, operations and financial condition
The Group’s ability to attract and retain suitably qualified and skilledemployees is an important factor in achieving its strategic objectives.
The Chief Executive Officer and the management team of the Chief
Executive Officer have skills and reputations that are critical to setting
the strategic direction, successful management and growth of theGroup, and whose unexpected loss due to resignation, retirement,
death or illness may adversely affect its operations and financial
condition. In addition, the Group may in the future have difficulty
attracting highly qualified people to fill important roles, which could
adversely affect its business, operations and financial condition.

21. The Group may be exposed to the impact of futureclimate change, geological events, plant and animal
diseases, and other extrinsic events which may adversely
affect its business, operations and financial condition
Scientific observations and climate modelling point to changes
in the global climate system that may see extreme weather events
increase in both frequency and severity. Among the possible effects
of climate change are the risks of severe storms, drought, fires,
cyclones, hurricanes, floods and rising sea levels. Such events, andothers like them, pose the risk of inundation and damage to Group
property, and the houses and commercial assets of the Group’s
customers. In some cases, this impact may temporarily interrupt
or restrict the provision of some Group services, and also adversely
affect the Group’s collateral position in relation to credit facilities
extended to those customers.
While the future impact of climate change is difficult to predict
accurately, it should nevertheless be considered among the risks that
may adversely impact the Group’s business, operations and financial
condition in the future.
In addition to climatic events, geological events and events related tothem, such as volcanic or seismic activity, tsunamis, or other extrinsic
events, such as plant and animal diseases or a flu pandemic, can also
severely disrupt normal business activity and have a negative effecton the Group’s business, operations and financial condition.

In New Zealand, a number of major earthquakes have impacted
the Christchurch area since September 2010, causing widespread
property and infrastructure damage, and deaths. Whilst much of thedamage was covered by public (Earthquake Commission) and private
insurance, there will potentially be negative impacts on property
values and on future levels of insurance and reinsurance coverage
across New Zealand. Subsequent earthquakes in Christchurch or inother populated areas may further adversely impact property values
and the ability to obtain insurance on properties used by ANZ tosecure loans. A reduction in value of New Zealand property as aresult of geological events such as earthquakes could increase
lending losses which may adversely affect ANZ’s business, operations
and financial condition.

22. Regulatory changes or a failure to comply withregulatory standards, law or policies may adversely affect
the Group’s business, operations or financial condition
The Group is subject to laws, regulations, policies and codes of practicein Australia, New Zealand and in the other countries (including but
not limited to the United Kingdom, the United States of America,Hong Kong, Singapore, Japan, China and other countries within the
Asia Pacific region) in which it has operations, trades or raises funds
or in respect of which it has some other connection. In particular, theGroup’s banking, funds management and insurance activities are subject
to extensive regulation, mainly relating to its liquidity levels, capital,
solvency, provisioning, and insurance policy terms and conditions.
Regulations vary from country to country but generally are designed
to protect depositors, insured parties, customers with other banking
products, and the banking and insurance system as a whole.
The Australian Government and its agencies, including APRA,
the RBA and other financial industry regulatory bodies including
the Australian Securities and Investments Commission (ASIC), havesupervisory oversight of the Group. The New Zealand Government
and its agencies, including the RBNZ, the Financial Markets Authority
and the Commerce Commission, have supervisory oversight of theGroup’s operations in New Zealand. To the extent that the Group has
operations, trades or raises funds in, or has some other connection
with, countries other than Australia or New Zealand, then suchactivities may be subject to the laws of, and regulation by agencies
in, those countries. Such regulatory agencies include, by way of
example, the US Federal Reserve Board, the US Department ofTreasury, the US Office of the Comptroller of the Currency, the US
Office of Foreign Assets Control, the UK’s Financial Services Authority,
the Monetary Authority of Singapore, the Hong Kong Monetary
Authority, the China Banking Regulatory Commission, the Kanto
Local Finance Bureau of Japan, and other financial regulatory bodies
in those countries and in other relevant countries. In addition, theGroup’s expansion and growth in the Asia Pacific region gives rise
to a requirement to comply with a number of different legal andregulatory regimes across that region.

Principal Risks and Uncertainties

81PRINCIPAL RISKS AND UNCERTAINTIES (continued)

A failure to comply with any standards, laws, regulations or policies
in any of those jurisdictions could result in sanctions by these or otherregulatory agencies, the exercise of any discretionary powers that theregulators hold or compensatory action by affected persons, which
may in turn cause substantial damage to the Group’s reputation.
To the extent that these regulatory requirements limit the Group’s
operations or flexibility, they could adversely impact the Group’s
profitability and prospects.
These regulatory and other governmental agencies (including revenue
and tax authorities) frequently review banking and tax laws, regulations,codes of practice and policies. Changes to laws, regulations, codes ofpractice or policies, including changes in interpretation or implementationof laws, regulations, codes of practice or policies, could affect the Group
in substantial and unpredictable ways. These may include increasing
required levels of bank liquidity and capital adequacy, limiting the typesof financial services and products the Group can offer, and/or increasing
the ability of non-banks to offer competing financial services or
products, as well as changes to accounting standards, taxation laws
and prudential regulatory requirements.
As a result of the GFC, regulators have proposed various amendments
to financial regulation that will affect the Group. APRA, the BaselCommittee on Banking Supervision (the ‘Basel Committee’) andregulators in other jurisdictions where the Group has a presence havereleased discussion papers and proposals in regard to strengthening
the resilience of the banking and insurance sectors, including
proposals to strengthen capital and liquidity requirements for thebanking sector. In addition, the US passed into law the Dodd-Frank
Wall Street Reform and Consumer Protection Act which significantly
affects financial institutions and financial activities in the US.
Uncertainty remains as to the final form that the proposed regulatorychanges will take in Australia, the US and other countries in which
the Group operate and any such changes could adversely affect theGroup’s business, operations and financial condition. The changes
may lead the Group to, among other things, change its business mix,
incur additional costs as a result of increased management attention,raise additional amounts of higher-quality capital (such as ordinary
shares) and hold significant levels of additional liquid assets andundertake additional long-term wholesale funding to replaceshort-term wholesale funding to more closely match the Group’s
asset maturity profile.

23. Unexpected changes to the Group’s license tooperate in any jurisdiction may adversely affect its
business, operations and financial condition
The Group is licensed to operate in the various countries, states andterritories in which it operates. Unexpected changes in the conditionsof the licenses to operate by governments, administrations or
regulatory agencies which prohibit or restrict the Group from trading
in a manner that was previously permitted may adversely impact theGroup’s financial results.

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ANZ Annual Report 2011

24. The Group is exposed to insurance risk, which
may adversely affect its business, operations andfinancial condition
Insurance risk is the risk of loss due to unexpected changes in current
and future insurance claim rates. In life insurance business, insurance
risk arises primarily through mortality (death) and morbidity (illness
and injury) risks being greater than expected and, in the case ofannuity business, should annuitants live longer than expected.
For general insurance business, insurance risk arises mainly throughweather-related incidents (including floods and bushfires) and othercalamities, such as earthquakes, tsunamis and volcanic activities,
as well as adverse variability in home, contents, motor, travel andother insurance claim amounts. For further details on climate andgeological events see also the risk factor entitled ‘The Group may be
exposed to the impact of future climate change, geological and otherextrinsic events which may adversely affect its business, operations
and financial condition’. The Group has exposure to insurance risk
in both life insurance and general insurance business, which may
adversely affect its business, operations and financial condition.

25. The Group may experience reductions in thevaluation of some of its assets, resulting in fair value
adjustments that may have a material adverse effecton its earnings
Under Australian Accounting Standards, the Group recognises
at fair value:financial instruments classified as ‘held-for-trading’ or ‘designatedas at fair value through profit or loss’;
financial assets classified as ‘available-for-sale’;derivatives; andfinancial assets backing insurance and investment liabilities.
Generally, in order to establish the fair value of these instruments,
the Group relies on quoted market prices or, where the market fora financial instrument is not sufficiently active, fair values are basedon present value estimates or other accepted valuation techniques.
In certain circumstances, the data for individual financial instruments
or classes of financial instruments used by such estimates ortechniques may not be available or may become unavailable due tochanges in market conditions. In these circumstances, the fair value
is determined using data derived and extrapolated from market data,
and tested against historic transactions and observed market trends.
The valuation models incorporate the impact of factors that would
influence the fair value determined by a market participant. Principal
inputs used in the determination of the fair value of financial
instruments based on valuation techniques include data inputs suchas statistical data on delinquency rates, foreclosure rates, actual
losses, counterparty credit spreads, recovery rates, implied default
probabilities, credit index tranche prices and correlation curves. Theseassumptions, judgments and estimates need to be updated to reflectchanging trends and market conditions. The resulting change in thefair values of the financial instruments could have a material adverse
effect on the Group’s earnings.

26. Changes to accounting policies may adversely affect
the Group’s business, operations and financial condition
The accounting policies and methods that the Group applies arefundamental to how it records and reports its financial position
and results of operations. Management must exercise judgment
in selecting and applying many of these accounting policies andmethods so that they not only comply with generally accepted
accounting principles but they also reflect the most appropriatemanner in which to record and report on the financial position
and results of operations. However, these accounting policies may
be applied inaccurately, resulting in a misstatement of financial
position and results of operations.
In some cases, management must select an accounting policy
or method from two or more alternatives, any of which mightcomply with generally accepted accounting principles and bereasonable under the circumstances, yet might result in reporting
materially different outcomes than would have been reported underanother alternative.

27. The Group may be exposed to the risk of impairment
to capitalised software, goodwill and other intangible
assets that may adversely affect its business, operations
and financial condition
In certain circumstances the Group may be exposed to a reductionin the value of intangible assets. At reporting date, the Group carried
goodwill principally related to its investments in New Zealand andAustralia, intangible assets principally relating to assets recognisedon acquisition of subsidiaries, and capitalised software balances.
The Group is required to assess the recoverability of the goodwill
balances on at least an annual basis. For this purpose the Group uses
either a discounted cash flow or a multiple of earnings calculation.
Changes in the assumptions upon which the calculation is based,
together with expected changes in future cash flows, could materially
impact this assessment, resulting in the potential write-off of a partor all of the goodwill balances.
Capitalised software and other intangible assets are assessed forindicators of impairment at least annually. In the event that an asset
is no longer in use, or that the cash flows generated by the asset
do not support the carrying value, an impairment may be recorded,
adversely impacting the Group’s financial condition.

28. Litigation and contingent liabilities may
adversely affect the Group’s business, operations
and financial condition
From time to time, the Group may be subject to material litigation,
regulatory actions, legal or arbitration proceedings and othercontingent liabilities which, if they crystallise, may adversely affect
the Group’s results. Details regarding the Group’s material contingent
liabilities as at 30 September 2011 are contained in note 44 to the2011 financial statements. There is a risk that these contingent
liabilities may be larger than anticipated or that additional litigationor other contingent liabilities may arise.

29. The Group regularly considers acquisition anddivestment opportunities, and there is a risk that theGroup may undertake an acquisition or divestment that
could result in a material adverse effect on its business,
operations and financial condition
The Group regularly examines a range of corporate opportunities,
including material acquisitions and disposals, with a view todetermining whether those opportunities will enhance the Group’s
financial performance and position. Any corporate opportunity thatis pursued could, for a variety of reasons, turn out to have a material
adverse effect on the Group.
The successful implementation of the Group’s corporate strategy,
including its strategy to expand in the Asia Pacific region, will depend
on a range of factors including potential funding strategies, andchallenges associated with integrating and adding value to acquired
businesses, as well as new regulatory, market and other risks associatedwith increasing operations outside Australia and New Zealand.
There can be no assurance that any acquisition would have theanticipated positive results, including results relating to the total
cost of integration, the time required to complete the integration,
the amount of longer-term cost savings, the overall performance ofthe combined entity, or an improved price for the Group’s securities.
Integration of an acquired business can be complex and costly,
sometimes including combining relevant accounting and dataprocessing systems, and management controls, as well as managing
relevant relationships with employees, clients, suppliers and otherbusiness partners. Integration efforts could divert management
attention and resources, which could adversely affect the Group’s
operations or results. Additionally, there can be no assurance that
customers, counterparties and vendors of newly acquired businesses
will remain as such post-acquisition, and the loss of customers,
counterparties and vendors could adversely affect the Group’s
operations or results.
Acquisitions and disposals may also result in business disruptions
that cause the Group to lose customers or cause customers to remove
their business from the Group to competing financial institutions.
It is possible that the integration process related to acquisitions
could result in the disruption of the Group’s ongoing businesses orinconsistencies in standards, controls, procedures and policies that
could adversely affect the Group’s ability to maintain relationships
with clients, customers, depositors and employees. The loss of key
employees in connection with an acquisition or disposal could
adversely affect the Group’s ability to conduct its business successfully.
The Group’s operating performance, risk profile or capital structure
may also be affected by these corporate opportunities and there isa risk that any of the Group’s credit ratings may be placed on credit
watch or downgraded if these opportunities are pursued.

Principal Risks and Uncertainties

83

Five Year Summary

2011
$m

2010
$m

2009
$m

2008
$m

2007
$m

Financial performance1
Net interest income
Other operating income
Operating expenses
Profit before income tax, credit impairment and non-core items1
Provision for credit impairment
Income tax expense
Non-controlling interest
Underlying profit1
Adjustments between statutory profit and underlying profit1

11,481
5,331(7,718)9,094(1,211)(2,222)
(9)
5,652
(297)

10,862
4,920(6,971)8,811(1,820)(1,960)
(6)
5,025
(524)

9,890
4,477
(6,068)8,299(3,056)(1,469)
(2)
3,772
(829)

7,855
4,440
(5,406)
6,889(2,090)(1,365)
(8)
3,426
(107)

7,302
3,720
(4,953)
6,069(522)(1,616)
(7)
3,924
256

Profit attributable to shareholders of the Company

5,355

4,501

2,943

3,319

4,180

Financial position
Assets2
Net assets
Tier 1 capital ratio3
Return on average ordinary equity4
Return on average assets4
Cost to income ratio1

594,488
37,954
10.9%
15.3%
1.0%
45.9%

531,703
34,155
10.1%
13.9%
0.9%
44.2%

476,987
32,429
10.6%
10.3%
0.6%
42.2%

470,293
26,552
7.7%
14.5%
0.8%
44.0%

392,773
22,048
6.7%
20.9%
1.2%
44.9%

Shareholder value – ordinary shares
Total return to shareholders (share price movement plus dividends)
Market capitalisation
Dividend
Franked portion– interim– final-12.6%
51,319140 cents
100%
100%

1.9%
60,614126 cents
100%
100%

40.3%
61,085102 cents
100%
100%

-33.5%
38,263136 cents
100%
100%

15.6%
55,382136 cents
100%
100%

$25.96$17.63$19.52$26.23$19.95$23.68$24.99$11.83$24.39$31.74$15.07$18.75$31.50$25.75$29.70208.2c68.5%$11.44
2,629.0

178.9c71.6%$10.382,559.7

131.0c82.3%$11.022,504.5

170.4c82.6%$10.722,040.7

224.1c60.9%$9.36
1,864.7$21.69–$21.32$22.60$15.16$21.75$20.82$13.58$29.29$27.33

1,381
48,938442,943

1,394
47,099411,692

1,352
37,687396,181

1,346
36,925
376,813

1,327
34,353
327,703

Share price– high– low– 30 September

Share information(per fully paid ordinary share)
Earnings per share
Dividend payout ratio
Net tangible assets per ordinary share5
No. of fully paid ordinary shares issued (millions)
Dividend Reinvestment Plan (DRP) issue price– interim– finalOther information
Points of representation6
No. of employees (full time equivalents)
No. of shareholders7

1 Adjusted for material items that are not part of the normal ongoing operations of the Group including one-off gains and losses, gains and losses on the sale of businesses, non-continuing business,
timing differences on economic hedges, and acquisition related costs. Prior to 2010 these were adjustments to arrive at cash profit in accordance with market convention.
In 2010, consolidated assets included assets from OnePath (formerly INGA), OnePath NZ (formerly ING NZ), Landmark and RBS acquired during the financial year.
Calculated in accordance with Australian Prudential Regulation Authority requirements effective at the relevant date. Basel II has been applied from 1 January 2008.
Excludes minority interest.
Equals shareholders’ equity less preference share capital, goodwill, software and other intangible assets divided by the number of ordinary shares.
Includes branches, offices, representative offices and agencies.
Excludes employees whose only ANZ shares are held in trust under ANZ employee share schemes.

2
3
4
5
6
7

84

ANZ Annual Report 2011

Financial Statements
Income Statements
Statement of Comprehensive Income
Balance Sheet
Cash Flow Statement
Statement of changes in equity

86

Notes to the Financial Statements (continued)

86
87
88
89
90

26
27
28
29
30
31
32

Notes to the Financial Statements

92

1

Significant Accounting Policies

92

2

Critical Estimates and Judgements Usedin Applying Accounting Policies
IncomeExpensesCompensation of Auditors
Current Income Tax Expense
Dividends
Earnings per Ordinary Share
Liquid Assets
Due from Other Financial Institutions
Trading Securities
Derivative Financial Instruments
Available-for-sale Assets
Net Loans and Advances
Impaired Financial Assets
Provision for Credit Impairment
Shares in Controlled Entities, Associates
and Joint Venture Entities
Tax Assets
Goodwill and Other Intangible Assets
Other Assets
Premises and Equipment
Deposits and Other Borrowings
Income Tax Liabilities
Payables and Other Liabilities
Provisions

3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25

103
106
107
108
109
110
111
112
112
112
113
119
120
121
121
124
125
126
127
127
128
129
129
130

33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51

Bonds and Notes
Loan Capital
Share Capital
Reserves and Retained Earnings
Non-Controlling Interests
Capital Management
Assets Charged as Security for Liabilities andCollateral Accepted as Security for Assets
Financial Risk Management
Fair Value of Financial Assets and Financial Liabilities
Maturity Analysis of Assets and Liabilities
Segment Analysis
Notes to the Cash Flow Statements
Controlled Entities
Associates
Interests in Joint Venture Entities
Securitisations
Fiduciary Activities
Commitments
Credit Related Commitments, Guarantees,
Contingent Liabilities and Contingent Assets
Superannuation and Other Post Employment
Benefit Schemes
Employee Share and Option Plans
Key Management Personnel Disclosures
Transactions with Other Related Parties
Life Insurance Business
Exchange Rates
Events since the End of the Financial Year

Directors’ Declaration
Independent Auditor’s Report

130
131
134
136
137
138
141
142
167
177
178
181
183
184
184
185
185
186
187
191
196
200
203
203
208
208
209
210

ANZ Financial
Annual Report
Highlights
2011

85

Financial Statements
INCOME STATEMENT FOR THE YEAR ENDED 30 SEPTEMBER

Consolidated

The Company

Note

2011
$m

2010
$m

2011
$m

2010
$m

3
4

30,368(18,885)

26,608(15,739)

26,997(18,486)

22,922(14,677)

11,483

10,869

8,511

8,245

4

1,405
3,608
–
436
16,932(8,023)

1,099
3,291
33
400
15,692(7,304)

183
4,128
–
–
12,822(6,256)

164
4,436
–
–
12,845(5,636)16

8,909(1,237)

8,388(1,787)

6,566
(994)

7,209
(1,369)

7,672

6,601

5,572

5,840

6

(2,309)(2,096)(1,421)(1,412)

Profit for the period
Profit attributable to non-controlling interests

5,363
(8)

4,505
(4)

4,151
–

4,428
–

Profit attributable to shareholders of the Company

5,355

4,501

4,151

4,428

208.2
198.8
140

178.9
174.6
126

n/a
n/a
140

n/a
n/a
126

Interest income
Interest expense
Net interest income
Net funds management and insurance income
Other operating income
Share of joint venture profit from OnePath
Share of associates’ profit
Operating income
Operating expense
Profit before credit impairment and income tax
Provision for credit impairment

3
3
3
3

Profit before income tax
Income tax expense

Earnings per ordinary share (cents)
Basic
DilutedDividend per ordinary share (cents)
The notes appearing on pages 92 to 208 form an integral part of these financial statements.

86

ANZ Annual Report 20118
8
7

STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 SEPTEMBER

Consolidated

The Company

2011
$m

2010
$m

2011
$m

2010
$m

5,363

4,505

4,151

4,428

29

330

(1,006)

97(337)

Available-for-sale assets
Valuation gain/(loss) taken to equity(Gain)/loss transferred to the income statement

29

77
19

136
8

(10)
57

69
(23)

Cash flow hedges reserve
Valuation gain/(loss) taken to equity
Transferred to income statement for the period

29

229
(9)

187
(54)

183
(12)

121
(69)

(15)

18

–

–

(15)

(6)

34

(26)

(5)
(35)
(63)
5

(10)
(38)
(36)
2

–
(17)
(51)
(10)

–
(23)
(16)
8

Note

Profit for the period
Other comprehensive income
Foreign currency translation reserve
Exchange differences taken to equity

Share of associates’ other comprehensive income1
Actuarial gain/(loss) on defined benefit plans
Income tax on items transferred directly to/from equity
Foreign currency translation reserve
Available-for-sale reserve
Cash flow hedge reserve
Actuarial gain/(loss) on defined benefits plan
Other comprehensive income
Total comprehensive income for the period
Comprising:Total comprehensive income
attributable to non-controlling interests
Total comprehensive income attributable
to shareholders of the company

45

518

(799)

271

(296)

5,881

3,706

4,422

4,132

8

4

–

–

5,873

3,702

4,422

4,132

1 Share of associates other comprehensive income for 2011 comprises available-for-sale assets -$15 million (2010: $15 million), foreign currency translation reserve -$1 million (2010: -$1 million)
and cash flow hedge reserve $1 million (2010: $4 million).

The notes appearing on pages 92 to 208 form an integral part of these financial statements.

Financial Statements

87

NOTESBALANCENOTESTOTOTHESHEETTHEFINANCIAL
FINANCIALAS AT 30STATEMENTSSEPTEMBER
STATEMENTS

Consolidated

The Company

2011
$m

2010
$m

2011
$m

2010
$m

24,8998,824
36,074
54,11822,264396,337
970
–
–
3,513
41
599
6,964
29,8597,901
2,125

18,945
5,481
33,51537,821
20,742351,897
11,495
–
–
2,965
76
792
6,630
32,171
7,015
2,158

20,555
6,338
28,36748,356
19,017323,286
688
46,446
9,098
971
40
552
1,544
–
4,353
1,502

16,0474,136
28,30534,191
16,973
280,439
11,517
46,216
9,189
1,035
61
575
1,198
–
4,302
1,508

594,488531,703511,113455,692

23,012368,72950,088
970
–
1,128
28
27,503
5,033
10,251
1,248
56,551
11,993

21,610310,383
37,217
11,495–973
35
28,981
5,448
8,115
1,297
59,714
12,28021,345
307,254
44,287688
38,561
1,079
27
–
–
7,008
798
44,87010,817

19,939252,518
34,647
11,51738,261
987
39
–
–
5,842
831
48,178
10,927

Total liabilities

556,534

497,548476,734

423,686

Net Assets

37,954

34,15534,37932,006

Note

AssetsLiquid assets
Due from other financial institutions
Trading securities1
Derivative financial instruments
Available-for-sale assets
Net loans and advances1
Customer's liability for acceptances1
Due from controlled entities
Shares in controlled entities
Shares in associates
Current tax assets
Deferred tax assets
Goodwill and other intangible assets2
Investments backing policyholder liabilities
Other assets
Premises and equipment

9
10
11
12
13
14

17
17
18
18
19
49
20
21

Total assets
Liabilities
Due to other financial institutions
Deposits and other borrowings
Derivative financial instruments
Liability for acceptances1
Due to controlled entities
Current tax liabilities
Deferred tax liabilities
Policyholder liabilities
External unit holder liabilities (life insurance funds)
Payables and other liabilities
Provisions
Bonds and notes
Loan capital

22
12

23
23
49
24
25
26
27

Shareholders’ equity
Ordinary share capitalPreference share capital
Reserves
Retained earnings

28
28
29
29

21,343871(2,095)
17,787

19,886871(2,587)
15,921

21,701871(544)
12,351

20,246871(777)
11,666

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

37,90648

34,091
64

34,379–32,006–37,954

34,15534,37932,006

Total equity
Commitments
Contingent liabilities

43
44

1 In 2011 the Group ceased re-discounting Commercial bill acceptances in its Australian operations. This has impacted balance sheet classifications as there is no intention to trade the commercial
bills as negotiable instruments, therefore they are classified as commercial bill loans initially recognised at fair value and subsequently measured at amortised cost:
September 2011 – Trading securities: $nil; Net loans and advances: $17,326 million; Customer’s liability for acceptances: $nil; Liability for acceptances $nil.
September 2010 – Trading securities: $6,035 million; Net loans and advances: $nil; Customer’s liability for acceptances: $11,150 million; Liability for acceptances: $11,150 million.
2 Excludes notional goodwill in equity accounted entities.

The notes appearing on pages 92 to 208 form an integral part of these financial statements.

88

ANZ Annual Report 2011

CASH FLOW STATEMENT FOR THE YEAR ENDED 30 SEPTEMBER

Consolidated
Note

Cash flows from operating activities
Interest received
Dividends received
Fee income received
Other income received
Interest paid
Personnel expenses paid
Premises expenses paid
Other operating expenses paid
Cash settled on derivatives
Income taxes paid
Australia
Overseas
Net cash flows from funds management and insurance business
Funds management income received
Insurance premium income received
Claims and policyholder liability payments
Investment income (paid)/received
Commission expense (paid)/received
Net cash flows from investments backing policy liabilities
Purchase of insurance assets
Proceeds from sale/maturity of insurance assets
Goods and services tax (paid)/received(Increase)/decrease in operating assets:
Liquid assets – greater than three months
Due from other financial institutions – greater than three months
Trading securities
Loans and advances
Net intra-group loans and advances
Increase/(decrease) in operating liabilities
Deposits and other borrowings
Due to other financial institutions
Payables and other liabilities
Net cash provided by/(used in) operating activities
Cash flows from investing activities
Available-for-sale assets
Purchases
Proceeds from sale or maturity
Controlled entities and associates
Purchased (net of cash acquired)Proceeds from sale (net of cash disposed)
Premises and equipment
Purchases
Proceeds from sale
Other assets
Net cash provided by/(used in) investing activities
Cash flows from financing activities
Bonds and notes
Issue proceeds
Redemptions
Loan capital
Issue proceeds
Redemptions
Dividends paid
Share capital issues
On market share purchases
Net cash provided by/(used in) by financing activities
Net cash provided by/(used in) operating activities
Net cash provided by/(used in) investing activities
Net cash provided by/(used in) financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Effects of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at end of period

37(a)

37(c)
37(c)

37(b)

The Company

2011
$m

2010
$m

2011
$m

2010
$m

30,260
84
2,471
1,408
(18,797)(4,547)(596)(2,034)(2,038)26,362
54
2,177
1,230
(15,726)(4,102)(557)(1,625)(1,823)26,934
974
2,850
897
(17,874)(3,560)(405)(2,130)(3,751)

22,708
1,184
2,117
996
(14,651)(3,044)(389)(1,292)(1,110)(1,727)
(306)

(353)
(629)

(1,727)
(65)

(353)
(123)

870
4,988
(4,531)
(21)
(491)

665
6,144
(5,587)
536
(353)

101
33
–
–
49

85
28
–
–
51

(9,127)
10,18250(9,982)
10,021
33

–
–
14

–
–
9

1,593
(1,476)(7,614)(25,568)
–

2,184
(65)
(2,004)(17,044)–

1,106(1,586)(5,558)(25,753)
336

815
(145)
(1,835)(20,345)(5,110)43,8341,350
584
18,801

14,72655(1,288)3,049

42,542
1,415
835
15,677

20,862
1,329
(709)
1,078

(40,657)
39,518(29,312)25,244(37,402)35,409(24,236)
20,955

(304)
74

50
15

(260)
36

2,310
113

(319)
6
(849)
(2,531)(317)
24(1,428)(5,724)

(194)
–
(127)
(2,538)

(240)
–
(687)
(1,785)

12,213(17,193)

21,756(17,105)

10,600(15,415)

17,401(14,070)

1,341(1,579)(2,113)43(137)(7,425)18,801(2,531)(7,425)
8,845
20,610566
30,021

1,976(2,565)(1,671)
37
(78)
2,350
3,049
(5,724)2,350(325)
21,511(576)
20,6101,341(1,322)(2,124)43(137)(7,014)
15,677(2,538)(7,014)
6,125
16,934592
23,651

1,976(2,451)(1,660)
37
(78)
1,155
1,078
(1,785)
1,155
448
16,850(364)
16,934

The notes appearing on pages 92 to 208 form an integral part of these financial statements.

Financial Statements

89

STATEMENTNOTESNOTESTO
TOTHE
THE
OFFINANCIAL
FINANCIALCHANGESSTATEMENTS
IN
STATEMENTS
EQUITY FOR THE YEAR ENDED 30 SEPTEMBER

Consolidated

As at 1 October 2009

Ordinaryshare capital$m

Preference
shares$m

Reserves1$m

Retainedearnings$m

Shareholders’equityattributable
to equity
holders of
the Bank$m

Non-controllinginterests$m

Totalshareholders’equity$m

19,151871(1,787)

14,12932,36465

32,429Profit for the period
Other comprehensive income

–
–

–
–

–
(795)

4,501
(4)

4,501
(799)

4
–

4,505
(799)

Total comprehensive income for the period
Transactions with equity holders intheir capacity as equity holders:
Dividends paid
Dividend reinvestment plan
Other equity movements:
Group employee share acquisition scheme
Share based payments
Group share option scheme
Treasury shares OnePath Australia adjustment
Adjustments to opening retained earnings
on adoption of revised accounting
standard AASB 3R
Other changes

–

–

(795)

4,497

3,702

4

3,706

–
1,007

–
–

–
–

(2,678)–(2,678)
1,007––(2,678)
1,007

51
–
37
(360)

–
–
–
–

–
7
–
–

–
–
–
–

51
7
37
(360)

–
–
–
–

51
7
37
(360)

–
–

–
–

–
(12)

(39)
12

(39)
–

–
(5)

(39)
(5)

19,886871(2,587)

15,921

34,091

64

34,155

–
528

5,355
(10)

5,355
518

8
–

5,363
518

As at 30 September 2010
Profit for the period
Other comprehensive income
Total comprehensive income for the period
Transactions with equity holders intheir capacity as equity holders:
Dividends paid
Dividend income on Treasury shares
held within the Group’s life insurance
statutory funds
Dividend reinvestment plan
Transactions with non-controlling interest
Other equity movements:
Group employee share acquisition scheme
Share based payments
Treasury shares OnePath Australia adjustment
Group share option scheme
Other changes
As at 30 September 2011

–

–

528

5,345

5,873

8

5,881

–

–

–

(3,503)(3,503)–(3,503)

–
1,367
–

–
–
–

–
–
(22)

23
–
–

23
1,367
(22)

–
–
(22)

23
1,367
(44)

45
–
2
43
–

–
–
–
–
–

–
(14)
–
–
–

–
–
–
–
1

45
(14)
2
43
1

–
–
–
–
(2)

45
(14)
2
43
(1)

21,343871(2,095)

17,78737,90648

37,954

The notes appearing on pages 92 to 208 form an integral part of these financial statements.
1 Further information on other comprehensive income is disclosed in note 29 to the financial statements.

90

ANZ Annual Report 2011

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

The Company

As at 1 October 2009

Ordinaryshare capital$m

Preference
shares$m

Reserves1$m

Retainedearnings$m

Shareholders’equityattributable
to equity
holders of
the Bank$m

Non-controllinginterests$m

Totalshareholders’equity$m

19,151

871

(494)

9,950

29,478–29,478

Profit for the period
Other comprehensive income

–
–

–
–

–
(278)

4,428
(18)

4,428
(296)

–
–

4,428
(296)

Total comprehensive income for the period
Transactions with equity holders intheir capacity as equity holders:
Dividends paid
Dividend reinvestment plan
Other equity movements:
Share based payments
Group share option scheme
Group employee share acquisition scheme
Adjustments to opening retained earnings
on adoption of revised accounting
standard AASB 3R
Other changes

–

–

(278)

4,410

4,132

–

4,132

–
1,007

–
–

–
–

(2,667)–(2,667)
1,007––(2,667)
1,007

–
37
51

–
–
–

7
–
–

–
–
–

7
37
51

–
–
–

7
37
51

–
–

–
–

–
(12)

(39)
12

(39)
–

–
–

(39)
–

20,246871(777)

11,66632,006–32,006

247

4,151
24

4,151
271

As at 30 September 2010
Profit for the period
Other comprehensive income
Total comprehensive income for the period
Transactions with equity holders intheir capacity as equity holders:
Dividends paid
Dividend reinvestment plan
Other equity movements:
Share based payments
Group share option scheme
Group employee share acquisition scheme
Other changes
As at 30 September 2011

4,151
271

–

–

247

4,175

4,422

–

4,422

–
1,367

–
–

–
–

(3,491)–(3,491)
1,367––(3,491)
1,367

–
43
45
–

–
–
–
–

(14)
–
–
–

–
–
–
1

(14)
43
45
1

–
–
–
–

(14)
43
45
1

21,701871(544)

12,351

34,379–34,379The notes appearing on pages 92 to 208 form an integral part of these financial statements.
1 Further information on other comprehensive income is disclosed in note 29 to the financial statements.

Financial Statements

91

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

1: Significant Accounting Policies
The financial report of Australia and New Zealand Banking Group
Limited (the Company) and its controlled entities (the Group) for
the year ended 30 September 2011 was authorised for issue inaccordance with the resolution of the Directors on 2 November, 2011.
The principal accounting policies adopted in the preparation of
the financial report are set out below. These policies have been
consistently applied by all consolidated entities and to all periods
presented in the consolidated financial report.
The Company is incorporated and domiciled in Australia. The addressof the Company’s registered office is ANZ Centre, Level 9, 833 Collins
Street, Docklands, Victoria, Australia 3008.
A) BASIS OF PREPARATION

i) Statement of compliance
The financial report of the Company and Group is a general
purpose financial report which has been prepared in accordancewith the accounts provisions of the Banking Act 1959 (as amended),
Australian Accounting Standards (AASs), Australian AccountingStandards Board (AASB) Interpretations, other authoritative
pronouncements of the AASB and the Corporations Act 2001.
International Financial Reporting Standards (IFRS) are Standards andInterpretations adopted by the International Accounting Standards
Board (IASB). IFRS forms the basis of AASs and Interpretations issued
by the AASB. The Group’s application of AASs and Interpretations
ensures that the consolidated financial report of the Group and thefinancial report of the Company comply with IFRS.

ii) Use of estimates and assumptions
The preparation of the financial report requires the use ofmanagement judgement, estimates and assumptions that affectreported amounts and the application of policies. The estimatesand associated assumptions are based on historical experience andvarious other factors that are believed to be reasonable. Actual results
may differ from these estimates. Discussion of the critical accounting
treatments, which include complex or subjective decisions orassessments, are covered in note 2. Such estimates may require
review in future periods.

iii) Basis of measurement
The financial information has been prepared in accordance with thehistorical cost basis except that the following assets and liabilities
are stated at their fair value:
derivative financial instruments, including in the case of fairvalue hedging (refer note 1 (E)(ii)) the fair value of any applicable
underlying exposure;financial assets treated as available-for-sale;financial instruments held for trading; andassets and liabilities designated at fair value through profit
and loss.
In accordance with AASB 1038 Life Insurance Contracts, life insurance
liabilities are measured using the Margin on Services model.
In accordance with AASB 119 Employee Benefits, defined benefit
obligations are measured using the Projected Unit Credit Method.

iv) Changes in Accounting Policy and early adoptions
All new Accounting Standards and Interpretations applicable toannual reporting periods beginning on or after 1 October 2010
have been applied to the Group effective from the required dateof application. The initial application of these Standards andInterpretations has not had a material impact on the financial
position or the financial results of the Group.
There has been no other change in accounting policy during the year.

v) Rounding
The Parent entity is an entity of the kind referred to in Australian
Securities and Investments Commission class order 98/100 dated
10 July 1998 (as amended). Consequently, amounts in the financial
report have been rounded to the nearest million dollars, except
where otherwise indicated.

vi) Comparatives
Certain amounts in the comparative information have been
reclassified to conform with current period financial statement
presentations. During the current year, this includes thereclassification of certain assets from Liquid Assets to Net Loans
and Advances following a review of the definition of the Liquid
Assets category and the reclassification of certain customer deposit
liabilities from Deposits and other borrowings to Due from otherfinancial institutions.

vii) Principles of consolidation
Subsidiaries
The financial statements consolidate the financial statements of theCompany and all its subsidiaries where it is determined that there isa capacity to control.
Where subsidiaries have been sold or acquired during the year, theiroperating results have been included to the date of disposal or fromthe date of acquisition.
Control means the power to govern, directly or indirectly, thefinancial and operating policies of an entity so as to obtain benefits
from its activities. All the facts of a particular situation are consideredwhen determining whether control exists. Control is usually present
when an entity has:power over more than one-half of the voting rights of theother entity; or
power to govern the financial and operating policies of theother entity; or
power to appoint or remove the majority of the membersof the board of directors or equivalent governing body; or
power to cast the majority of votes at meetings of the boardof directors or equivalent governing body of the entity.
In addition, potential voting rights that are presently exercisable
or convertible are taken into account in determining whether
control exists.
In relation to special purpose entities, control is deemed to exist
where:
in substance, the majority of the residual risks and rewards fromtheir activities accrue to the Group; orin substance, the Group controls decision making powers so as toobtain the majority of the risks and rewards from their activities.
Further detail on special purpose entities is provided in note 2(i).

92

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NOTESNOTESTOTOTHE
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FINANCIALSTATEMENTS
STATEMENTS

1: Significant Accounting Policies (continued)
Associates and joint ventures
The Group adopts the equity method of accounting for associates
and the Group’s interest in joint venture entities.

When a foreign operation is disposed, exchange differences
are recognised in the income statement as part of the gain orloss on sale.

The Group’s share of results of associates and joint venture entities
is included in the consolidated income statement. Shares inassociates and joint venture entities are carried in the consolidatedbalance sheet at cost plus the Group’s share of post-acquisition
net assets. Interests in associates and joint ventures are reviewed
for any indication of impairment at least at each reporting
date. This impairment review uses a discounted cash flow (DCF)
methodology and other methodologies to determine thereasonableness of the valuation, including the capitalisationof earnings methodology (CEM).

Goodwill arising on the acquisition of a foreign entity is treatedas an asset of the foreign entity and translated at the rate rulingat balance date.

In the Company’s financial statements, investments in associates
and joint venture entities are carried at cost less accumulated
impairment losses.

viii) Foreign currency translation

B) INCOME RECOGNITION

i) Interest income
Interest income is recognised as it accrues using the effective interest
rate method.
The effective interest rate method calculates the amortised cost ofa financial asset or financial liability and allocates the interest income
or interest expense over the expected life of the financial asset or
financial liability so as to achieve a constant yield on the financial
asset or liability.

Functional and presentation currency
Items included in the financial statements of each of the Group’s
entities are measured using the currency of the primary economic
environment in which the entity operates (the functional currency).

For assets subject to prepayment, expected life is determined on
the basis of the historical behaviour of the particular asset portfolio,
taking into account contractual obligations and prepayment
experience assessed on a regular basis.

The consolidated financial statements are presented in Australian
dollars, which is the Company’s functional and presentation currency.

ii) Fee and commission income

Foreign currency transactions
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of thetransactions.
Monetary assets and liabilities resulting from foreign currencytransactions are subsequently translated at the spot rate atreporting date.
Exchange differences arising on the settlement of monetary items
or on translating monetary items at rates different to those at which
they were initially recognised or included in a previous financial
report, are recognised in the income statement in the period inwhich they arise.
Translation differences on non-monetary items, such as derivatives
measured at fair value through profit or loss, are reported as part of
the fair value gain or loss on these items.
Translation differences on non-monetary items measured at fairvalue through equity, such as equities classified as available-for-salefinancial assets, are included in the available-for-sale reserve in equity.
Foreign operations
The results and financial position of all Group entities (none ofwhich has the currency of a hyperinflationary economy), that have afunctional currency different from the Group’s presentation currency,
are translated into the Group’s presentation currency as follows:
assets and liabilities of each foreign operation are translated
at the rates of exchange ruling at balance date;revenue and expenses of each foreign operation are translated
at the average exchange rate for the period, unless this average
is not a reasonable approximation of the rate prevailing ontransaction date, in which case revenue and expenses aretranslated at the exchange rate ruling at transaction date; andall resulting exchange differences are recognised in the foreign
currency translation reserve.

Fees and commissions received that are integral to the effective
interest rate of a financial asset are recognised using the effective
interest method. For example, loan commitment fees, together
with related direct costs, are deferred and recognised as an
adjustment to the effective interest rate on a loan once drawn.
Commitment fees to originate a loan which is unlikely to be
drawn down are recognised as income as the service is provided.
Fees and commissions that relate to the execution of a significant
act (for example, advisory or arrangement services, placement fees
and underwriting fees) are recognised when the significant act has
been completed.
Fees charged for providing ongoing services (for example,
maintaining and administering existing facilities) are recognised
as income over the period the service is provided.

iii) Dividend income
Dividends are recognised as revenue when the right to receive
payment is established.

iv) Leasing income
Finance income on finance leases is recognised on a basis that reflectsa constant periodic return on the net investment in the finance lease.

v) Gain or loss on sale of premises and equipment
The gain or loss on the disposal of premises and equipment
is determined as the difference between the carrying amountof the assets at the time of disposal and the proceeds of disposal,
and is recognised as an item of other income in the year in which
the significant risks and rewards of ownership are transferred tothe buyer.

Notes to the Financial Statements

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FINANCIALSTATEMENTS
STATEMENTS

1: Significant Accounting Policies (continued)C) EXPENSE RECOGNITION

i) Interest expense
Interest expense on financial liabilities measured at amortised
cost is recognised in the income statement as it accrues using
the effective interest rate method.

iv) Lease payments
Leases entered into by the Group as lessee are predominantly
operating leases, and the operating lease payments are recognised
as an expense on a straight-line basis over the lease term.
D) INCOME TAXii) Loan origination expenses
Certain loan origination expenses are an integral part of the effective
interest rate of a financial asset measured at amortised cost. Theseloan origination expenses include:
fees and commissions payable to brokers in respect of originating
lending business; andother expenses of originating lending business, such as external
legal costs and valuation fees, provided these are direct andincremental costs related to the issue of a financial asset.
Such loan origination expenses are initially recognised as partof the cost of acquiring the financial asset and amortised as partof the effective yield of the financial asset over its expected life
using the effective interest rate method.

iii) Share-based compensation expense
The Group has various equity settled share-based compensationplans. These are described in note 46 and comprise the ANZ
Employee Share Acquisition Plan and the ANZ Share Option Plan.
ANZ Employee Share Acquisition Plan
The fair value of ANZ ordinary shares granted under the Employee
Share Acquisition Plan is measured at grant date, using the one-day
volume weighted average market price of ANZ shares. The fair value
is expensed immediately when shares vest or on a straight-line basis
over the relevant vesting period.
ANZ Share Option Plan
The fair value of share options is measured at grant date, using an
option pricing model. The fair value is expensed on a straight-line
basis over the relevant vesting period. This is recognised as sharebased compensation expense with a corresponding increasein the share options reserve.
The option pricing model takes into account the exercise priceof the option, the risk-free interest rate, the expected volatilityof ANZ’s ordinary share price and other factors. Market vesting
conditions are taken into account in estimating the fair value.
A performance right is a right to acquire a share at nil cost to theemployee subject to satisfactorily meeting time and/or performance
hurdles. Upon exercise, each performance right entitles the holder
to one ordinary share in ANZ. The fair value of performance rights
is determined at grant date using an option pricing model, taking
into account market conditions. The fair value is expensed over
the relevant vesting period. This is recognised as share-based
compensation expense with a corresponding increase in the shareoptions reserve.
Other adjustments
Subsequent to the grant of an equity-based award, the amountrecognised as an expense is reversed when an employee fails
to satisfy the minimum service period specified in the award.

94

ANZ Annual Report 2011i) Income tax expense
Income tax on earnings for the year comprises current and deferred
tax and is based on the applicable tax law in each jurisdiction. It is
recognised in the income statement as tax expense, except when it
relates to items credited directly to equity, in which case it is recordedin equity, or where it arises from the initial accounting for a businesscombination, in which case it is included in the determinationof goodwill.

ii) Current tax
Current tax is the expected tax payable on taxable income for theyear, based on tax rates (and tax laws) which are enacted at thereporting date, including any adjustment for tax payable in previous
periods. Current tax for current and prior periods is recognised as
a liability (or asset) to the extent that it is unpaid (or refundable).

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

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

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

1: Significant Accounting Policies (continued)E) ASSETS

Financial assetsi) Financial assets and liabilities at fair value through profit or loss
Trading securities are financial instruments acquired principallyfor the purpose of selling in the short-term or which are a part ofa portfolio which is managed for short-term profit-taking. Trading
securities are initially recognised and subsequently measured in
the balance sheet at their fair value.
Derivatives that are neither financial guarantee contracts nor effective
hedging instruments are carried at fair value through profit or loss.
Certain financial assets and liabilities may be designated and measured
at fair value through profit or loss where any of the following applies:
investments backing policy liabilities (refer note 1 (I)(viii));
life investment contract liabilities (refer note 1 (I)(i));
doing so eliminates or significantly reduces a measurement
or recognition inconsistency that would otherwise arise frommeasuring assets and liabilities, or recognising the gains orlosses thereon, on different bases;a group of financial assets or financial liabilities or both is managed
and its performance evaluated on a fair value basis; orthe financial instrument contains an embedded derivative, unlessthe embedded derivative does not significantly modify the cash
flows or it is clear, with little or no analysis, that it would not be
separately recorded.
Changes in the fair value (gains or losses) of these financial
instruments are recognised in the income statement in the period
in which they occur.
Purchases and sales of trading securities are recognised on trade date.

ii) Derivative financial instruments
Derivative financial instruments are contracts whose value isderived from one or more underlying price, index or other variable.
They include swaps, forward rate agreements, futures, options andcombinations of these instruments.
Derivative financial instruments are entered into for trading purposes(including customer-related reasons), or for hedging purposes (where
the derivative instruments are used to hedge the Group’s exposures
to interest rate risk, currency risk, price risk, credit risk and otherexposures relating to non-trading positions).
Derivative financial instruments are recognised initially at fairvalue with gains or losses from subsequent measurement at fairvalue being recognised in the income statement. Included in thedetermination of the fair value of derivatives is a credit valuation
adjustment to reflect the credit worthiness of the counterparty.
The valuation adjustment is influenced by the mark-to-marketof the derivative trades and by movement in credit spreads.
Where the derivative is effective as a hedging instrument and isdesignated as such, the timing of the recognition of any resultant
gain or loss in the income statement is dependent on the hedging
designation. These hedging designations and associated accounting
are as follows:

Fair value hedge
Where the Group hedges the fair value of a recognised asset
or liability or firm commitment, changes in the fair value of thederivative designated as a fair value hedge are recognised in theincome statement. Changes in the fair value of the hedged item
attributable to the hedged risk are reflected in adjustments to thecarrying value of the hedged item, which are also recognised in
the income statement.
Hedge accounting is discontinued when the hedge instrument
expires or is sold, terminated, exercised or no longer qualifies forhedge accounting. The resulting adjustment to the carrying amountof the hedged item arising from the hedged risk is amortised to theincome statement over the period to maturity of the hedged item.
If the hedged item is sold or repaid, the unamortised fair value
adjustment is recognised immediately in the income statement.
Cash flow hedge
The Group designates derivatives as cash flow hedges where
the instrument hedges the variability in cash flows of a recognised
asset or liability, a foreign exchange component of a firm
commitment or a highly probable forecast transaction. The effective
portion of changes in the fair value of derivatives qualifying anddesignated as cash flow hedges is deferred to the hedging reserve,
which forms part of shareholders’ equity. Any ineffective portion isrecognised immediately in the income statement. Amounts deferredin equity are recognised in the income statement in the period
during which the hedged forecast transactions take place. When thehedging instrument expires, is sold, terminated, or no longer qualifies
for hedge accounting, the cumulative amount deferred in equity
remains in the hedging reserve, and is subsequently transferred tothe income statement when the hedged item is recognised in theincome statement.
When a forecast hedged transaction is no longer expected tooccur, the amount deferred in equity is recognised immediately
in the income statement.
Net investment hedge
Hedges of net investments in foreign operations are accounted forsimilarly to cash flow hedges. The gain or loss from remeasuring thefair value of the hedging instrument relating to the effective portionof the hedge is deferred in the foreign currency translation reservein equity and the ineffective portion is recognised immediately in
the income statement.
Derivatives that do not qualify for hedge accounting
All gains and losses from changes in the fair value of derivatives
that are not designated in a hedging relationship but are enteredinto to manage the interest rate and foreign exchange risk offunding instruments are recognised in the income statement. Undercertain circumstances, the component of the fair value change inthe derivative which relates to current period realised and accrued
interest is included in net interest income. The remainder of the fairvalue movement is included in other income.
Set-off arrangements
Fair value gains/losses arising from trading derivatives are notoffset against fair value gains/losses on the balance sheet unlessa legal right of set-off exists and there is an intention to settle net.
For contracts subject to master netting agreements that createa legal right of set-off for which only the net revaluation amountis recognised in the income statement, net unrealised gains
on derivatives are recognised as part of other assets and net
unrealised losses are recognised as part of other liabilities.
Notes to the Financial Statements

95

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FINANCIALSTATEMENTS
STATEMENTS

1: Significant Accounting Policies (continued)iii) Available-for-sale financial assets
Available-for-sale financial assets comprise non-derivative financial
assets which the Group designates as available-for-sale but which
are not deemed to be held principally for trading purposes, andinclude equity investments, certain loans and advances, and quoted
debt securities.
They are initially recognised at fair value plus transaction costs.
Subsequent gains or losses arising from changes in fair value areincluded as a separate component of equity in the available-forsale revaluation reserve except for interest, dividends and foreignexchange gains and losses on monetary assets, which are recognised
directly in the income statement. When the asset is sold, thecumulative gain or loss relating to the asset is transferred to theincome statement.
Where there is objective evidence of impairment on an availablefor-sale financial asset, the cumulative loss related to that asset isremoved from equity and recognised in the income statement, as an
impairment expense for debt instruments or as non-interest income
for equity instruments. If, in a subsequent period, the amount of
an impairment loss relating to an available-for-sale debt instrument
decreases and the decrease can be linked objectively to an event
occurring after the impairment event, the loss is reversed throughthe income statement through the impairment expense line.
Purchases and sales of available-for-sale financial assets arerecognised on trade date being the date on which the Group
commits to purchase or sell the asset.

iv) Net loans and advances
Net loans and advances are non-derivative financial assets with fixed
or determinable payments that are not quoted in an active market.
They arise when the Group provides money to a debtor with nointention of trading the loans and advances. The loans and advances
are initially recognised at fair value plus transaction costs that are
directly attributable to the issue of the loan or advance. They aresubsequently measured at amortised cost using the effective interest
rate method (refer note 1 (B)(i)) unless specifically designated on
initial recognition at fair value through profit or loss.
All loans are graded according to the level of credit risk.
Net loans and advances includes direct finance provided tocustomers such as bank overdrafts, credit cards, term loans,finance lease receivables and commercial bills.
Impairment of loans and advances
Loans and advances are reviewed at least at each reporting datefor impairment.
Credit impairment provisions are raised for exposures that are known
to be impaired. Exposures are impaired and impairment losses arerecorded if, and only if, there is objective evidence of impairment
as a result of one or more loss events that occurred after the initialrecognition of the loan and prior to the reporting date, and that loss
event, or events, has had an impact on the estimated future cash
flows of the individual loan or the collective portfolio of loans thatcan be reliably estimated.
Impairment is assessed for assets that are individually significant(or on a portfolio basis for small value loans) and then on a collective
basis for those exposures not individually known to be impaired.

96

ANZ Annual Report 2011

Exposures that are assessed collectively are placed in pools ofsimilar assets with similar risk characteristics. The required provision
is estimated on the basis of historical loss experience for assets withcredit risk characteristics similar to those in the collective pool. The
historical loss experience is adjusted based on current observabledata such as changed economic conditions. The provision also takes
account of the impact of inherent risk of large concentrated losses
within the portfolio and an assessment of the economic cycle.
The estimated impairment losses are measured as the difference
between the asset’s carrying amount and the estimated future
cash flows discounted to their present value. As the discountunwinds during the period between recognition of impairment
and recovery of the cash flow, it is recognised in interest income.
The process of estimating the amount and timing of cash flows
involves considerable management judgement. These judgements
are reviewed regularly to reduce any differences between loss
estimates and actual loss experience.
Impairment of capitalised acquisition expenses is assessed
through comparing the actual behaviour of the portfolio against
initial expected life assumptions.
The provision for impairment loss (individual and collective)
is deducted from loans and advances in the balance sheet
and the movement for the reporting period is reflected in theincome statement.
When a loan is uncollectable, either partially or in full, it is written-off
against the related provision for loan impairment. Unsecured facilities
are normally written-off when they become 180 days past due or
earlier in the event of the customer’s bankruptcy or similar legal
release from the obligation.
However a certain level of recoveries is expected after the write-off,which is reflected in the amount of the provision for credit losses. In
the case of secured facilities, remaining balances are written-off after
proceeds from the realisation of collateral have been received if there
is a shortfall.
Where impairment losses recognised in previous periods havesubsequently decreased or no longer exist, such impairment
losses are reversed in the income statement.
A provision is also raised for off-balance sheet items such as loan
commitments that are considered to be onerous.

v) Lease receivables
Contracts to lease assets and hire purchase agreements are classified
as finance leases if they transfer substantially all the risks and rewardsof ownership of the asset to the customer or an unrelated third party.
All other lease contracts are classified as operating leases.

vi) Repurchase agreements
Securities sold under repurchase agreements are retained in thefinancial statements where substantially all the risks and rewardsof ownership remain with the Group, and a counterparty liability
is disclosed under the classifications of due to other financial
institutions or payables and other liabilities. The difference between
the sale price and the repurchase price is accrued over the life of the
repurchase agreement and charged to interest expense in the income
statement.

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

1: Significant Accounting Policies (continued)
Securities purchased under agreements to resell, where the Group
does not acquire the risks and rewards of ownership, are recorded asreceivables in liquid assets, net loans and advances, or due from otherfinancial institutions, depending on the term of the agreement andthe counterparty. The security is not included in the balance sheet.
Interest income is accrued on the underlying loan amount.
Securities borrowed are not recognised in the balance sheet,
unless these are sold to third parties, at which point the obligation
to repurchase is recorded as a financial liability at fair value withfair value movements included in the income statement.

x) Acquired portfolio of insurance and life investment business
Identifiable intangible assets in respect of acquired portfolios
of insurance and life investment business acquired in a businesscombination are stated initially at fair value at acquisition date.
These are amortised over the period of expected benefit of between
15 to 23 years.

xi) Deferred acquisition costs
Refer to note 1(I)(vi).

xii) Other intangible assetsvii) Derecognition
The Group enters into transactions where it transfers financial
assets recognised on its balance sheet yet retains either all the risks
and rewards of the transferred assets or a portion of them. If all, or
substantially all, of the risks and rewards are retained, the transferredassets are not derecognised from the balance sheet.
In transactions where substantially all the risks and rewards ofownership of a financial asset are neither retained nor transferred,
the Group derecognises the asset if control over the asset is lost.
In transfers where control over the asset is retained, the Group
continues to recognise the asset to the extent of its continuing
involvement, determined by the extent to which it is exposed
to changes in the value of the transferred asset. The rights andobligations retained or created in the transfer are recognised
separately as assets and liabilities as appropriate.

Non-financial assetsviii) Goodwill

Other intangible assets include management fee rights, distribution
relationships and distribution agreements where they are clearly
identifiable, can be reliably measured and where it is probable they
will lead to future economic benefits that the Group can control.
Where, based on historical observation, there is an expectation that,for the foreseeable future, the level of investment in the funds will
not decline significantly and the Group will continue to manage thefund, the management fee right is assessed to have an indefinite life
and is carried at cost less any impairment losses.
Other management fee rights, distribution relationships, distributionagreements and licenses are amortised over the expected useful
lives to the Group using the straight line method. The period ofamortisation is as follows:
Management fee rights
7 years
Aligned advisor relationships
15 years
Distribution agreements
3 years

Goodwill represents the excess of the purchase consideration
over the fair value of the identifiable net assets of a controlled
entity at the date of gaining control. Goodwill is recognised as
an asset and not amortised, but assessed for impairment atleast annually or more frequently if there is an indication thatthe goodwill may be impaired. This involves using the DCF or
CEM methodology to determine the expected future benefits ofthe cash-generating units to which the goodwill relates. Where theassessment results in the goodwill balance exceeding the value of
expected future benefits, the difference is charged to the income
statement. Any impairment of goodwill is not subsequently reversed.

xiii) Premises and equipmentix) Software and computer system costs

At each reporting date, the carrying amounts of premises andequipment are reviewed for impairment. If any such indication exists,
the recoverable amount of the assets are estimated and comparedagainst the existing carrying value. Where the existing carrying value
exceeds the recoverable amount, the difference is charged to theincome statement. If it is not possible to estimate the recoverable
amount of an individual asset, the Group estimates the recoverable
amount of the cash generating unit to which the asset belongs.

Includes costs incurred in acquiring and building software andcomputer systems (‘software’).
Software is amortised using the straight-line method over its
expected useful life to the Group. The period of amortisation
is between 3 and 5 years, except for certain core infrastructure
projects where the useful life has been determined to be 7 years.
At each reporting date, software assets are reviewed for impairment.
If any such indication exists, the recoverable amount of the assets
are estimated and compared against the existing carrying value.
Where the existing carrying value exceeds the recoverable amount,the difference is charged to the income statement.
Costs incurred in planning or evaluating software proposals, or inmaintaining systems after implementation, are not capitalised.

Assets other than freehold land are depreciated at rates based
upon their expected useful lives to the Group, using the straight-line
method. The depreciation rates used for each class of asset are:
Buildings
1–1.5%
Building integrals
10%
Furniture & equipment
10%
Computer & office equipment
12.5%–33%
Leasehold improvements are amortised on a straight-line basis overthe shorter of their useful lives or remaining terms of the lease.

A previously recognised impairment loss is reversed if there has beena change in the estimates used to determine the recoverable amount.

xiv) Borrowing costs
Borrowing costs incurred for the construction of qualifying assets(principally the office building in the Docklands, Melbourne,
Australia) are capitalised into the cost of the qualifying asset during
the period of time that is required to complete and prepare the asset
for its intended use. The calculation of borrowing costs is based on aninternal measure of the costs associated with the borrowing of funds.

Notes to the Financial Statements

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1: Significant Accounting Policies (continued)F) LIABILITIESFinancial liabilitiesi) Deposits and other borrowings
Deposits and other borrowings include certificates of deposit, interest
bearing deposits, debentures and other related interest bearing
financial instruments. They are measured at amortised cost. Theinterest expense is recognised using the effective interest rate method.

ii) Financial liabilities at fair value through profit or loss
Refer to note 1(E)(i).

iii) Acceptances
The exposure arising from the acceptance of bills of exchange thatare sold into the market is recognised as a liability. An asset of equalvalue is recognised to reflect the offsetting claim against the drawerof the bill. Bill acceptances generate fee income that is recognised in
the income statement when earned.

iv) Bonds, notes and loan capital
Bonds, notes and loan capital are accounted for in the same way
as deposits and other borrowings, except for those bonds andnotes which are designated as at fair value through profit orloss on initial recognition, with fair value movements recordedin the income statement.

v) Financial guarantee contracts
Financial guarantee contracts that require the issuer to make specified
payments to reimburse the holder for a loss the holder incurs because
a specified debtor fails to make payments when due, are initiallyrecognised in the financial statements at fair value on the date theguarantee was given; typically this is the premium received. Subsequent
to initial recognition, the Group’s liabilities under such guarantees
are measured at the higher of their amortised amount and the best
estimate of the expenditure required to settle any financial obligation
arising at the balance sheet date. These estimates are determined basedon experience of similar transactions and the history of past losses.

Defined benefit superannuation schemes
The Group operates a small number of defined benefit schemes.
The liability and expense related to providing benefits to employees
under each defined benefit scheme are calculated by independentactuaries.
A defined benefit liability is recognised to the extent that the present
value of the defined benefit obligation of each scheme, calculatedusing the Projected Unit Credit Method, is greater than the fair valueof each scheme’s assets. Where this calculation results in an asset of
the Group, a defined benefit asset is recognised, which is cappedat the recoverable amount. In each subsequent reporting period,
ongoing movements in the defined benefit liability or asset carrying
value is treated as follows:
the net movement relating to the current period’s service cost,interest cost, expected return on scheme assets, past service
costs and other costs (such as the effects of any curtailments
and settlements) is recognised as an employee expense in theincome statement;
movements relating to actuarial gains and losses are recognised
directly in retained earnings; andcontributions made by the Group are recognised directly against
the net defined benefit position.

viii) Provisions
The Group recognises provisions when there is a present obligation,
the future sacrifice of economic benefits is probable, and the amountof the provision can be measured reliably.
The amount recognised is the best estimate of the consideration
required to settle the present obligation at reporting date, taking
into account the risks and uncertainties surrounding the obligation
at reporting date. Where a provision is measured using the cash flows
estimated to settle the present obligation, its carrying amount is thepresent value of those cash flows.
G) EQUITYi) Ordinary sharesvi) Derecognition
Financial liabilities are derecognised when the obligation specified
in the contract is discharged, cancelled or expires.

Non-financial liabilitiesvii) Employee benefits
Leave benefits
The liability for long service leave is calculated and accrued for in
respect of all applicable employees (including on-costs) using an
actuarial valuation. The amounts expected to be paid in respect of
employees’ entitlements to annual leave are accrued at expectedsalary rates including on-costs. Expected future payments for longservice leave are discounted using market yields at the reporting
date on national government bonds with terms to maturity thatmatch, as closely as possible, the estimated future cash outflows.
Defined contribution superannuation schemes
The Group operates a number of defined contribution schemes
and also contributes, according to local law, in the various countries
in which it operates, to government and other plans that have thecharacteristics of defined contribution schemes.
The Group’s contributions to these schemes are recognised as an
expense in the income statement when incurred.

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Ordinary shares in the Company are recognised at the amount paid
per ordinary share net of directly attributable issue costs.

ii) Treasury shares
Shares in the Company which are purchased on-market by the ANZ
Employee Share Acquisition Plan or issued by the Company to the
ANZ Employee Share Acquisition Plan are classified as treasury shares(to the extent that they relate to unvested employee share-based
awards) and are deducted from Capital.
In addition, the life insurance business may also purchase and holdshares in the Company to back policy liabilities in the life insurance
statutory funds. These shares are also classified as treasury shares anddeducted from Capital. These assets, plus any corresponding income
statement fair value movement on the assets and dividend income,are eliminated when the life statutory funds are consolidated into
the Group. The cost of the investment in the shares is deducted from
Capital. However, the corresponding life investment contract andinsurance contract liabilities, and related income statement changes
in the liabilities, remain upon consolidation.
Treasury shares are excluded from the weighted average numberof ordinary shares used in the earnings per share calculations.

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1: Significant Accounting Policies (continued)iii) Non-controlling interestiv) Segment reporting

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

An operating segment is a component of the Group that engages
in business activities from which it may earn revenues and incur
expenses, whose operating results are regularly reviewed by the
Chief Executive Officer to make decisions about resources to beallocated to the segment and assess its performance and for which
discrete information is available.

iv) Reserves
Foreign currency translation reserve
As indicated in note 1 (A)(viii), exchange differences arising ontranslation of the assets and liabilities of all Group entities arereflected in the foreign currency translation reserve. Any offsetting
gains or losses on hedging these balances, together with any tax
effect, are also reflected in this reserve.
Available-for-sale revaluation reserve
This reserve includes changes in the fair value of available-forsale financial assets, net of tax. These changes are transferred tothe income statement (in non-interest income) when the asset
is derecognised. Where the asset is impaired, the changes aretransferred to impairment expense in the income statementfor debt instruments and in the case of equity instruments toother income.
Cash flow hedging reserve
This reserve includes the fair value gains and losses associated withthe effective portion of designated cash flow hedging instruments.
Share-based payment reserves
Share-based payment reserves include the share options reserve andother equity reserves which arise on the recognition of share-based
compensation expense (see note 1 (C)(iii)).
H) PRESENTATION

i) Offsetting of income and expenses
Income and expenses are not offset unless required or permitted
by an accounting standard. At the Group level, this generally arisesin the following circumstances:where transaction costs form an integral part of the effective
interest rate of a financial instrument which is measured atamortised cost, these are offset against the interest income
generated by the financial instrument; orwhere gains and losses relating to fair value hedges are assessed
as being effective; orwhere gains and losses arise from a group of similar transactions,such as foreign exchange gains and losses.

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

iii) Cash and cash equivalents
For cash flow statement presentation purposes, cash and cash
equivalents includes cash on hand, deposits held at call with otherfinancial institutions, other short-term, highly liquid investmentswith original terms to maturity of three months or less that are readily
convertible to cash and which are subject to an insignificant risk ofchanges in value.

v) Goods and services tax
Income, expenses and assets are recognised net of the amountof goods and services tax (GST), except where the amount of GST
incurred is not recoverable from the Australian Tax Office (ATO).
In these circumstances the GST is recognised as part of the costof acquisition of the asset or as part of the expense.
Receivables and payables are stated with the amount of GST
included. The net amount of GST recoverable from or payable to the
ATO is included as an other asset or liability in the balance sheet.
Cash flows are included in the cash flow statement on a grossbasis. The GST components of cash flows arising from investing
and financing activities which are recoverable from or payable
to the ATO are classified as operating cash flows.
I) LIFE INSURANCE AND FUNDS MANAGEMENT BUSINESSThe Group conducts its life insurance and funds managementbusiness (the Life Business) in Australia primarily through OnePath
Life Limited, which is registered under the Life Insurance Act 1995
(Life Act), amended by the Financial Sector Legislation Amendment(Simplifying Regulation and Review) Act 2007 (SRR Act) and in New
Zealand through OnePath Life (NZ) Limited and OnePath Insurance
Services (NZ) Limited which are registered under the New Zealand Life
Insurance Act 1908.
The operations of the Life Business in Australia are conducted within
separate statutory funds as required by the Life Act. The assets of theLife Business are allocated between policyholder and shareholder
funds in accordance with the requirements of the Life Act. Under
AASs, the financial statements must include all assets, liabilities,
revenues, expenses and equity, irrespective of whether they aredesignated as relating to shareholders or policyholders. Accordingly,
the consolidated financial statements include both policyholder(statutory) and shareholder’s funds.

(i) Policy liabilities
Policy liabilities include liabilities arising from life insurance contracts
and life investment contracts.
Life insurance contracts are insurance contracts regulated under
the Life Act and similar contracts issued by entities operating
outside Australia. An insurance contract is a contract under which
an insurer accepts significant insurance risk from another party(the policyholder) by agreeing to compensate the policyholder if a
specified uncertain future event adversely affects the policyholder.
All contracts written by registered life insurers that do not meet thedefinition of an insurance contract are referred to as life investment
contracts. Life investment contract business relates to funds
management products in which the Group issues a contract where
the resulting liability to policyholders is linked to the performanceand value of the assets that back those liabilities.

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1: Significant Accounting Policies (continued)
Whilst the underlying assets are registered in the name of the life
insurer and the policyholder has no direct access to the specificassets, the contractual arrangements are such that the policyholder
bears the risks and rewards of the fund’s investment performancewith the exception of guaranteed products where the policyholder
is guaranteed a minimum return or asset value. The Group derives
fee income from the administration of the underlying assets.
Life investment contracts that include a discretionary participation
feature (participating contracts) are accounted for as if they are life
insurance contracts under AASB 1038 Life Insurance Contracts.
Life insurance liabilities
Life insurance liabilities are determined using the ‘Margin on Services’(MoS) model using a projection method or using an accumulation
method. Under the projection method, the liability is determined as
the net present value of the expected future cash flows, plus planned
margins of revenues over expenses relating to services yet to beprovided, discounted using a risk-free discount rate that reflects
the nature, structure and term of the liabilities. Expected future
cash flows include premiums, expenses, redemptions and benefit
payments, including bonuses.

For investment-linked products, the life investment contract liability
is directly linked to the performance and value of the assets thatback them and is determined as the fair value of those assets aftertax. For fixed income policies the liability is determined as the netpresent value of expected cash flows subject to a minimum of
current surrender value.

(ii) External unit holder liabilities (life insurance funds)
The life insurance business includes controlling interests in trusts andcompanies, and the total amounts of each underlying asset, liability,
revenue and expense of the controlled entities are recognised in theGroup’s consolidated financial statements. When a controlled unit
trust is consolidated, the share of the unit holder liability attributable
to the Group is eliminated but amounts due to external unit holders
remain as liabilities in the Group’s consolidated balance sheet.

(iii) Claims
Claims are recognised when the liability to the policyholder under
the policy contract has been established or upon notification of theinsured event depending on the type of claim. Claims are separated
into their expense and liability components.

An accumulation method is used where the policy liabilities
determined are not materially different from those determined
under the projection method.

Claims incurred in respect of life investment contracts represent
withdrawals and are recognised as a reduction in life investment
contract liabilities.

Profits from life insurance contracts are brought to account using
the MoS model in accordance with Actuarial Standard LPS 1.04
Valuation of Policy Liabilities (formerly AS 1.04) as issued by theAustralian Prudential Regulation Authority under the Life Act andProfessional Standard 3 Determination of Life Insurance Policy
Liabilities as issued by the New Zealand Society of Actuaries. Under
MoS, profit is recognised as premiums are received and services
are provided to policyholders. When premiums are received but
the service has not been provided, the profit is deferred. Losses are
expensed when identified.

Claims incurred that relate to the provision of services and bearing
of insurance risks are treated as expenses and these are recognisedon an accruals basis once the liability to the policyholder has been
established under the terms of the contract.

Costs associated with the acquisition of policies are recognisedover the life of the policy. Costs may only be deferred, however,to the extent that a contract is expected to be profitable.
Participating contracts, defined as those contracts that entitle
the policyholder to participate in the performance and value ofcertain assets in addition to the guaranteed benefit, are entitled toshare in the profits that arise from participating business. This profit
sharing is governed by the Life Act and the life insurance company’s
constitution. The profit sharing entitlement is treated as an expensein the consolidated financial statements. Any benefits which remainpayable at the end of the reporting period are recognised as partof life insurance liabilities.
Life investment contract liabilities
Life investment contracts involve both the origination of a financial
instrument and the provision of investment management services.
The financial instrument component of the life investment
contract liabilities is designated as at fair value through profit orloss. The management services component, including associatedacquisition costs, is recognised as revenue as services are performed.
See note 1 (I)(vi) for the deferral and amortisation of life investment
contract acquisition costs and entry fees.

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ANZ Annual Report 2011(iv) Revenue
Life insurance premiums
Life insurance premiums earned by providing services and bearing
risks are treated as revenue. Life insurance deposit premiums
are recognised as an increase in policy liabilities. For annuity, risk
and traditional business, all premiums are recognised as revenue.
Premiums with no due date are recognised as revenue on a cash
received basis. Premiums with a regular due date are recognised asrevenue on an accruals basis. Unpaid premiums are only recognised
as revenue during the days of grace or where secured by thesurrender value of the policy and are included as ‘Other assets’ inthe balance sheet.
Life investment contract premiums
There is no premium revenue in respect of investment contracts.
Investment contract amounts received from policyholders in
respect of investment contracts comprise a deposit component
or origination fee and/or ongoing investment management fee oramounts directly credited to investment contract liabilities.
Fees
Fees are charged to policyholders in connection with life insurance
and life investment contracts and are recognised when the service
has been provided. Entry fees from life investment contracts aredeferred and recognised over the average expected life of thecontracts. Deferred entry fees are presented within ‘Other liabilities’ inthe balance sheet.

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1: Significant Accounting Policies (continued)(v) Reinsurance contracts
Reinsurance premiums, commissions and claim settlements,
as well as the reinsurance element of insurance contract liabilities,
are accounted for on the same basis as the underlying direct
insurance contracts for which the reinsurance was purchased.

(vi) Policy acquisition costs
Life insurance contract acquisition costs
Policy acquisition costs are the fixed and variable costs of acquiring
new business. The appointed actuary assesses the value and future
recoverability of these costs in determining policy liabilities. The net
profit impact is presented in the income statement as a change inpolicy liabilities. The deferral is determined as the actual costs are
incurred subject to an overall limit that future profits are anticipated
to cover these costs. Losses arising on acquisition are recognisedin the income statement in the year in which they occur. Amounts
which are deemed recoverable from future premiums or policy
charges are deferred and amortised over the life of the policy.
Life investment contract acquisition costs
Incremental acquisition costs, such as commissions, that are directly
attributable to securing a life investment contract are recognised
as an asset where they can be identified separately and measured
reliably and if it is probable that they will be recovered. These deferredacquisition costs are presented in the balance sheet as an intangible
asset and are amortised over the period that they will be recoveredfrom future policy charges.

J) OTHERi) Contingent liabilities
Contingent liabilities acquired in a business combination are individually
measured at fair value at the acquisition date. At subsequent reporting
dates the value of such contingent liabilities is reassessed based on theestimate of the expenditure required to settle the contingent liability.
Other contingent liabilities are not recognised in the balance sheet
but disclosed in note 44 unless it is considered remote that the Groupwill be liable to settle the possible obligation.

ii) Earnings per share
The Group presents basic and diluted earnings per share (EPS) datafor its ordinary shares. Basic EPS is calculated by dividing the profit
or loss attributable to ordinary shareholders of the Company by theweighted average number of ordinary shares outstanding during
the period after eliminating treasury shares.
Diluted EPS is determined by adjusting the profit or loss attributable
to ordinary shareholders and the weighted average number ofordinary shares outstanding for the effect of dilutive ordinary shares.

Any impairment losses arising on deferred acquisition costs arerecognised in the income statement in the period in which they occur.

(vii) Basis of expense apportionment
All life investment contracts and insurance contracts are categorised
based on individual policy or products. Expenses for these products
are then allocated between acquisition, maintenance, investment
management and other expenses.
Expenses which are directly attributable to an individual policy or
product are allocated directly to a particular expense category, fund,class of business and product line as appropriate. Where expenses are
not directly attributable to an individual policy or product, they areappropriately apportioned based on detailed expense analysis having
regard to the objective in incurring that expense and the outcome
achieved. The apportionment has been made in accordance with
Actuarial Standard LPS 1.04 Valuation of Policy Liabilities (formerly
AS 1.04), issued by the Australian Prudential Regulation Authority,and on an equitable basis to the different classes of business inaccordance with Division 2 of Part 6 of the Life Act.

(viii) Investments backing policy liabilities
All investments backing policy liabilities are designated as at fairvalue through profit or loss. For OnePath Australia, all policy holder
assets, being those assets held within the statutory funds of the life
company that are not segregated and managed under a distinct
shareholder investment mandate are held to back life insurance andlife investment contract liabilities (collectively referred to as policy
liabilities). These investments are designated as at fair value throughprofit or loss.

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1: Significant Accounting Policies (continued)iii) Accounting Standards not early adopted
The following standards were available for early adoption, but have not been applied by the Company or Group in these financial statements.

AASB standard

Possible impact on the Company and the Group’s financial report in period of initial adoption

AASB 9 Financial
Instruments

This standard and its associated amending standard (AASB 2009-11) specifies new recognition
and measurement requirements for financial assets and financial liabilities within the scope of
AASB 139 Financial Instruments: Recognition and Measurement. This standard represents thefirst phase of the project to replace AASB 139 and will result in fundamental changes in theway that the Company and the Group accounts for financial instruments.
The main changes from AASB 139 include:
all financial assets, except for certain equity instruments, will be classified into two categories:– amortised cost, where they generate solely payments of interest and principal and thebusiness model is to collect contractual cash flows that represent principal and interest; or– fair value through the income statement.
certain equity instruments not held for trading purposes will be classified at fair value through theincome statement or fair value through other comprehensive income (OCI) with dividends
recognised in net income.
financial assets which meet the requirements for classification at amortised cost are permitted
to be measured at fair value if that eliminates or significantly reduces an accounting mismatch.
financial liabilities – gains and losses on own credit arising from financial liabilities designatedat fair value through profit or loss will be excluded from the income statement and instead
taken to OCI.
Future phases of the project to replace AASB 139 will cover impairment of financial assets
measured at amortised cost and hedge accounting.

Application date for theCompany and Group

1 October 20131

The Group is currently assessing the impact of this standard, as well as developments arisingfrom future phases of the project to replace AASB 139.
AASB 10 Consolidated
Financial Statements

This standard provides a definition of ‘control’ based on whether the investor is exposed to, or has
rights to, the variable returns from its involvement with an investee and has the ability to affectthose returns through its power over the investee. The standard also provides guidance on
how the control principle is applied in certain situations, such as where potential voting rights
exist or where voting rights are not the dominant factor in determining whether control exists(e.g. where relevant activities are directed through contractual means). An assessment of the
impact of this standard is being performed, however no material impact on the Group is expected.

1 October 2013

AASB 12 Disclosure ofInterests in Other Entities

This standard applies where an entity has an ‘interest in another entity’ (essentially, any
contractual or non-contractual interest that exposes an entity to the returns from theperformance of the other entity). Such interests include a subsidiary, joint arrangement,
associate or an unconsolidated structured entity. A range of disclosures is required whichassist users to evaluate the nature, extent and financial effects and risks associated with anentity’s interest in other entities. These disclosures replace and significantly enhance thosein other standards applicable to subsidiaries, joint arrangements or associates and impose new
disclosures. As the amendments are only related to disclosure, no material impact on
the Group is expected.

1 October 2013

AASB 13 Fair Value
Measurement

This standard provides a single source of guidance on fair value measurement and requires
certain disclosures regarding fair value. This standard aims to improve the consistency andreduce the complexity of fair value measurement. An assessment of the impact of thisstandard is being made, however no material impact on the Group is expected.

1 October 2013

A number of other AASB standards are also available for early adoption, but have not been applied by the Company or Group in these financial
statements. These standards involve amendments of a technical nature which are not expected to have a material impact on the Company or Group.
1 Mandatory effective date is currently being reviewed by the International Accounting Standards Board with the possible deferral to 1 October 2015.

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2: Critical Estimates and Judgements Used in Applying Accounting Policies
The Group prepares its financial report in accordance with policies which
are based on AASs, other authoritative accounting pronouncements
and Interpretations of the AASB and the Corporations Act 2001.
This involves the Group making estimates and assumptions that
affect the reported amounts within the financial statements.
Estimates and judgements are continually evaluated and are basedon historical factors, including expectations of future events thatare believed to be reasonable under the circumstances. All materialchanges to accounting policies and estimates and the applicationof these policies and judgements are approved by the Audit
Committee of the Board.
A brief explanation of critical estimates and judgements and theirimpact on the Group follows:

Critical accounting estimates and assumptions
Provisions for credit impairment
The accounting policy, as explained in note 1 (E)(iv), relating
to measuring the impairment of loans and advances, requires theGroup to assess impairment at least at each reporting date. The credit
provisions raised (individual and collective) represent management’s
best estimate of the losses incurred in the loan portfolio at balancedate based on experienced judgement.
The collective provision is estimated on the basis of historical loss
experience for assets with credit characteristics similar to those in
the collective pool. The historical loss experience is adjusted based on
current observable data and events and an assessment of the impact
of model risk. The provision also takes into account the impact oflarge concentrated losses within the portfolio and the economic cycle.

The use of such judgements and reasonable estimates is consideredby management to be an essential part of the process and does not
impact on reliability.
Individual provisioning is applied when the full collectability of a loan
is identified as being doubtful.
Individual and collective provisioning is calculated using discounted
expected future cash flows. The methodology and assumptions used
for estimating both the amount and timing of future cash flows arerevised regularly to reduce any differences between loss estimatesand actual loss experience.

Critical judgements in applying the entity’s accounting policiesi) Special purpose and off-balance sheet entities
The Group may invest in or establish special purpose entities (SPEs)to enable it to undertake specific types of transactions. The maintypes of these SPEs are securitisation vehicles, structured financeentities, and entities used to sell credit protection.
Where the Group has established SPEs which are controlled by
the Group, they are consolidated in the Group’s financial statements.
The Group does not consolidate SPEs that it does not control inaccordance with the Group’s policy outlined in note 1 (A)(vii). As it
can be complex to determine whether the Group has control of aSPE, the Group makes judgements about its exposure to the risks
and rewards, as well as about its ability to make operational decisions
for the SPE in question.

The table below summarises the main types of SPEs with which the Group is involved, the reason for their establishment, and the control factors
associated with ANZ’s interest in them. Although there may be some indicators of control, ANZ does not bear the majority of residual risks andrewards of the SPEs. Therefore they are not consolidated.
Type of SPE

Reason for establishment

Control factors

Securitisation vehicles

Securitisation is a financing technique whereby assets
are transferred to an SPE which funds the purchase byissuing securities. This enables ANZ (in the case wheretransferred assets originate within ANZ) or customers
to increase diversity of funding sources.

ANZ may manage these securitisation vehicles,
service assets in the vehicle or provide liquidity orother support. ANZ retains the risks associated withthe provision of these services. For any SPE which is
not consolidated, credit and market risks associatedwith the underlying assets are not retained or assumed
by ANZ except to the limited extent that ANZ provides
arm’s length services and facilities.

Structured finance entities

These entities are set up to assist with the structuringof client financing. The resulting lending arrangements
are at arms length and ANZ typically has limited ongoing
involvement with the entity.

ANZ may manage these vehicles, hold minor amountsof capital, provide financing or derivatives.

Credit protection

The SPE in this category is created to allow ANZ topurchase credit protection.

ANZ may manage this vehicle.

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2: Critical Estimates and Judgements Used in Applying Accounting Policies (continued)ii) Significant associates
The carrying values of all significant investments in associates (asdisclosed in note 39) are subject to an annual recoverable amounttest. This assessment involves ensuring that the investment’s fairvalue less costs to sell or its value in use is greater than its carrying
amount. Judgement is applied when determining the assumptions
supporting these calculations.

In respect of the valuation component where market observabledata is not available, the fair value is determined using data derived
and extrapolated from market data and tested against historictransactions and observed market trends. These valuations are
based upon assumptions established by application of professional
judgement to analyse the data available to support each assumption.
Changing the assumptions changes the resulting estimate of fair value.

The Group reviews its investments in associates against the following
impairment indicators:
actual financial performance against budgeted financial performance;
any material unfavourable operational factors and regulatory factors;
any material unfavourable economic outlook and market
competitive factors;
carrying value against available quoted market values (supportedby third-party broker valuations where available); andcarrying value against market capitalisation (for listed investments).

The majority of outstanding derivative positions are transacted
over-the-counter and therefore need to be valued using valuation
techniques. Included in the determination of the fair value of derivatives
is a credit valuation adjustment to reflect the credit worthiness of thecounterparty, representing the credit risk component of the overall
fair value movement on a particular derivative asset. The total valuation
adjustment is influenced by the mark-to-market of the derivative trades
and by the movement in the market cost of credit.

Where appropriate, additional potential impairment indicators arereviewed which are more specific to the respective investment.
As at 30 September 2011, no impairment of associates was identified
as a result of either the review of impairment indicators listed above or
the recoverable amount test.
iii) Available-for-sale financial assets
The accounting policy for impairment of available-for-sale financial
assets, as explained in note 1 (E)(iii), requires the Group to assess
whether there is objective evidence of impairment. This requires
judgement when considering whether such evidence exists and, if so,in reliably determining the impact of such events on the estimatedcash flows of the asset. During the year ended 30 September 2011,
an impairment of $35 million (2010: $nil) was recognised in theincome statement in respect of Sacombank after assessing thatthe decline in the market value of the investment was significant
and prolonged.
iv) Financial instruments at fair value
A significant portion of financial instruments are carried on thebalance sheet at fair value.
The best evidence of fair value is a quoted price in an active market.
Accordingly, wherever possible, fair value is based on quoted market
prices for the financial instrument.
In the event that there is no active market for the instrument, fairvalue is based on present value estimates or other market acceptedvaluation techniques. The valuation models incorporate the impactof bid/ask spread, counterparty credit spreads and other factors thatwould influence the fair value determined by a market participant.
The majority of valuation techniques employ only observable
market data. However, for certain financial instruments, the fair value
cannot be determined with reference to current market transactions
or valuation techniques whose variables only include data fromobservable markets.

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ANZ Annual Report 2011v) Goodwill and indefinite life intangible assets
The carrying values of goodwill and intangible assets with indefinite
lives are reviewed at each balance date and written-down to theextent that they are no longer supported by probable future benefits.
Goodwill and intangible assets with indefinite useful lives areallocated to cash-generating units (CGUs) for the purpose of
impairment testing. In respect of goodwill, the CGUs are basedon the operating segments of the Group. During the year theoperating segments were changed from the major geographiesin which the Group operates to the major divisions through which
the Group operates. Goodwill has been reallocated accordingly.
Impairment testing of goodwill and indefinite life intangibles isperformed annually or more frequently when there is an indicationthat the asset may be impaired. Impairment testing is conductedby comparing the recoverable amount of the CGU with the current
carrying amount of its net assets, including goodwill and intangibles asapplicable. Where the current carrying value is greater than recoverable
amount, a charge for impairment is recognised in the income statement.
The most significant components of the Group’s goodwill balance
at 30 September 2011 relate to the New Zealand division which was$1,720 million (Sep 2010: $1,653 million) and Australia division which
was $1,433 million (Sep 2010: $1,414 million).
The recoverable amount of the CGU to which each goodwill
component is allocated is estimated using a market multiple
approach as representative of the fair value less costs to sell of each
CGU. The price earnings multiples are based on observable multiples
in the respective markets in which the Group operates. The earnings
are based on the current forecast earnings of the divisions. Key
assumptions on which management has based its determinationof fair value less costs to sell include assumptions regarding market
multiples, costs to sell and forecast earnings. Changes in assumptions
upon which the valuation is based could materially impact theassessment of the recoverable amount of each CGU.
As at 30 September 2011, results of the impairment testing performed
did not result in any material impairment being identified.

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2: Critical Estimates and Judgements Used in Applying Accounting Policies (continued)vi) Intangible assets with finite useful lives
The carrying value of intangible assets with finite useful lives
are reviewed each balance date for any indication of impairment.
This assessment involves applying judgement and consideration
is given to both internal and external indicators of potential
impairment. The majority of the Group’s intangible assets witha finite life is represented by capitalised software and intangible
assets purchased as part of the acquisition of OnePath Australia
Limited and OnePath (NZ) Limited.
As at 30 September 2011, the results of the impairment testing
performed did not result in any material impairment being identified.
vii) Life insurance contract liabilities
Policy liabilities for life insurance contracts are computed using
statistical or mathematical methods, which are expected to give
approximately the same results as if an individual liability wascalculated for each contract. The computations are made by suitably
qualified personnel on the basis of recognised actuarial methods,
with due regard to relevant actuarial principles and standards. The
methodology takes into account the risks and uncertainties of theparticular classes of life insurance business written. Deferred policy
acquisition costs are connected with the measurement basis of life
insurance liabilities and are equally sensitive to the factors that areconsidered in the liability measurement.
The key factors that affect the estimation of these liabilities
and related assets are:the cost of providing the benefits and administering theseinsurance contracts;
mortality and morbidity experience on life insurance products,
including enhancements to policyholder benefits;
discontinuance experience, which affects the Company’s ability
to recover the cost of acquiring new business over the lives of thecontracts; andthe amounts credited to policyholders’ accounts compared to thereturns on invested assets through asset-liability management andstrategic and tactical asset allocation.
In addition, factors such as regulation, competition, interest rates, taxes
and general economic conditions affect the level of these liabilities.
The total value of policy liabilities for life insurance contracts havebeen appropriately calculated in accordance with these principles.
viii) Taxation
Significant judgement is required in determining provisions held inrespect of uncertain tax positions. The Group estimates its tax liabilities
based on its understanding of the relevant law in each of the countries
in which it operates.

Notes to the Financial Statements

105

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

3: IncomeConsolidated

The Company

2011
$m

2010
$m

2011
$m

2010
$m

221
1,481
570
27,614482
30,368–30,368

185
1,525
535
23,950413
26,608–26,608

168
1,166
481
22,716298
24,8292,168
26,997

159
1,249
404
19,228211
21,251
1,671
22,922

28,872
1,481
15
30,36825,0661,525
1726,60825,822
1,166
926,997

21,662
1,249
1122,922Controlled entities
Total fee and commission income
Fee and commission expense 2
Net fee and commission income

652
2,053
2,705
–
2,705
(314)
2,391

634
1,967
2,601
–
2,601
(277)
2,324

583
1,511
2,094
651
2,745
(236)
2,509

574
1,435
2,009
424
2,433
(200)
2,233

ii) Other income
Net foreign exchange earnings
Net gains from trading securities and derivatives3
Credit risk on derivatives
Fair value impairment for investment in OnePath Australia and OnePath NZ
Movements on financial instruments measured at fair value through profit or loss4
Dividends received from controlled entities5
Brokerage income
NZ managed funds impacts
Write-down of assets in non-continuing business
Write-back of investment in Saigon Securities Inc
Write-down of investment in Sacombank
Private equity and infrastructure earnings
Profit on sale of property
Other
Total other income
Other operating income

817
295
21
–
(167)
–
61
61
(13)
–
(35)
26
24
127
1,217
3,608

747
319
35
(217)
(202)
–
70
4
(12)
25
–
43
2
153
967
3,291

528
280
19
–
(87)
941
–
–
(13)
–
(35)
26
–
(40)
1,619
4,128

458
366
39
–
(203)
1,490
–
–
(12)
25
–
43
–
(3)
2,203
4,436

iii) Net funds management and insurance income
Funds management income
Investment income
Insurance premium income
Commission income (expense)
ClaimsChanges in policy liabilities
Elimination of treasury share gain
Total net funds management and insurance income
Total other operating income
Share of joint venture profit from OnePath Australia and OnePath NZ
Share of associates’ profit
Total share of joint venture and associates profit
Total income6

868
(511)
1,184
(490)
(548)
854
48
1,405
5,013
–
436
436
35,817

730
1,165
847
(358)
(414)
(836)
(35)
1,099
4,390
33
400
433
31,431

101
–
33
49
–
–
–
183
4,311
–
–
–
31,308

85
–
28
51
–
–
–
164
4,600
–
–
–
27,522

Interest income
Other financial institutions
Trading securities
Available-for-sale assets
Loans and advances and acceptances
Other
Controlled entities
Total interest income
Interest income is analysed by types of financial assets as follows
Financial assets not at fair value through profit or loss
Trading securities
Financial assets designated at fair value through profit or lossi) Fee and commission income
Lending fees1
Non-lending fees and commissions

1
2
3
4

Lending fees exclude fees treated as part of the effective yield calculation and included in interest income (refer note 1 B(ii)).
Includes interchange fees paid.
Does not include interest income.
Includes fair value movements (excluding realised and accrued interest) on derivatives entered into for management of interest rate and foreign exchange risk on funding instruments,
and not designated as accounting hedges, ineffective portions of cashflow hedges, and fair value movements in financial assets and liabilities designated at fair value.
The net gain on financial assets and liabilities designated at fair value was $107 million (2010: $251 million) for the Group and $104 million (2010: $253 million) for the Company.
5 Dividends received from controlled entities are subject to meeting applicable regulatory and corporate law requirements, including solvency requirements.
6 Total income includes external dividend income of $11 million (2010: $18 million) for the Group and $9 million (2010: $16 million) for the Company.

106

ANZ Annual Report 2011

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

4: Expenses
Consolidated

The Company

2011
$m

2010
$m

2011
$m

2010
$m

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

526
12,661
101
489
4,828
280

326
9,784
135
499
4,171
824

485
10,900
–
378
4,018
217

279
8,081
–
287
3,419
781

Controlled entities

18,885–

15,739–15,9982,488

12,847
1,830

Total interest expense

18,885

15,73918,486

14,677

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

18,521364

15,355384

18,233253

14,504173

18,885

15,73918,486

14,677

Operating expensesi) Personnel
Employee entitlements and taxes
Salaries and wages
Superannuation costs – defined benefit plans– defined contribution plans
Equity-settled share-based payments
Temporary staff
Other

306
2,971
13
287
166
250
743

259
2,639
14
253
140
215
730

238
2,332
7
249
145
192
581

184
1,885
9
201
119
165
575

Total personnel expenses

4,736

4,250

3,744

3,138

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

49
40
387
165
44

42
37
365
160
35

30
20
251
114
38

28
17
240
117
33

Total premises expenses

685

639

453

435

iii) Computer
Computer contractors
Data communication
Depreciation and amortisation1
Rentals and repairs
Software purchased
Software impairment2
Other

143
125
348
120
250
20
35

120
94
297
100
214
17
24

117
83
266
91
181
7
7

81
59
248
74
150
12
3

1,041

866

752

627

235
122
18
97
65
4
53
130
274
75
208
132

252
95
15
91
62
11
67
130
349
68
196
179

139
8
10
81
51
2
27
88
235
38
150
455

151
3
8
75
48
3
40
92
307
38
142
495

1,413

1,515

1,284

1,402

Total computer expensesiv) OtherAdvertising and public relations
Amortisation and impairment of other intangible assets (refer note 19)
Audit and other fees (refer note 5)
Depreciation of furniture and equipment (refer note 21)
Freight and cartage
Loss on sale and write-off of equipment
Non-lending losses, fraud and forgeries
Postage and stationery
Professional fees
Telephone
TravelOther
Total other expensesv) Restructuring3

148

34

23

34

Total operating expenses

8,023

7,304

6,256

5,636

Total expenses

26,90823,04324,742

20,313

1 Comprises software amortisation $249 million (2010: $207 million) (refer note 19) and computer depreciation $99 million (2010: $90 million) (refer note 21). The Company comprises softwareamortisation $199 million (2010: $183 million) (refer note 19), and computer depreciation $67 million (2010: $65 million) (refer note 21).
2 $24 million of software impairment expense has been booked as restructuring expenses by the Group in 2011 (2010: $nil).
3 Includes $125 million relating to costs associated with adopting a single core banking system in New Zealand.

Notes to the Financial Statements

107

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

5: Compensation of Auditors
Consolidated

KPMG Australia1
Audit or review of financial reports of the Company or Group entities
Audit-related services2
Non-audit services3

Overseas related practices of KPMG Australia
Audit or review of financial reports of the Company or Group entities
Audit-related services2
Non-audit services3
Total compensation of auditors

The Company

2011
$’000

2010
$’000

2011
$’000

2010
$’000

8,620
3,636
266

7,916
2,280
80

5,479
2,806
138

5,053
1,595
80

12,522

10,276

8,423

6,728

4,522
808
69

4,119
539
92

1,187
454
15

1,040
400
20

5,399

4,750

1,656

1,460

17,921

15,026

10,0798,188Group policy allows KPMG Australia or any of its related practices to provide assurance and other audit-related services that, while outside the scope of the statutory audit, are consistent with therole of external auditor. These include regulatory and prudential reviews requested by the Company’s regulators such as APRA. Any other services that are not audit or audit-related services are nonaudit services. Group Policy allows certain non-audit services to be provided such as accounting advice and the provision of training, where the service would not contravene auditor independence
requirements. KPMG Australia or any of its related practices may not provide services that are perceived to be in conflict with the role of auditor. These include consulting advice and subcontractingof operational activities normally undertaken by management, and engagements where the auditor may ultimately be required to express an opinion on its own work.
1 Goods and services tax inclusive.
2 Comprises prudential and regulatory services of $3.578 million (2010: $2.123 million), comfort letters $0.446 million (2010: $0.521 million) and other $0.420 million (2010: $0.175 million).
3 Non-audit services comprises:

Consolidated

Non-audit services
2011
2010
$’000
$’000

Collective provision review (on behalf of APRA)Managed investment schemes distribution model review
Review script for script audit validation model and trust
voting analysis models
R&D claim review
Review output from counterparty credit risk review project
Presentations
Prudential standard impact assessment
Training courses
Accounting advice
Witness branch transfer of deposit boxes
Market Risk benchmarking review
Market Risk system capability review
Overseas branch registration regulatory assistance
Review of foreign exchange process in overseas branch

101
81

–
–

46
40
20
18
11
9
5
4
–
–
–
–

–
–
–
–
–
–
82
–
50
30
2
8

Total

335

172

108

ANZ Annual Report 2011

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

6: Current Income Tax Expense
Consolidated

The Company

2011
$m

2010
$m

2011
$m

2010
$m

2,364
3

2,153
(1)

1,624
3

1,542
(1)

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

(58)

(56)

(206)

(129)

2,309

2,096

1,421

1,412

Profit before income tax

7,672

6,601

5,572

5,840

Prima facie income tax expense at 30%

2,302

1,980

1,672

1,752

Tax effect of permanent differences:
Overseas tax rate differential
Rebateable and non-assessable dividends
Profit from associates and joint venture entities
Fair value adjustment for OnePath Australia and OnePath NZ
New Zealand conduits
Mark-to-market (gains)/losses on fair valued investments related to associated entities
Write-down of investment in Sacombank
Write-back of investment in Saigon Securities Inc.
Impact of changes in New Zealand tax legislation
Offshore Banking Units
Foreign exchange translation of US hybrid loan capital
OnePath Australia – policyholder income and contributions tax
Non deductible RBS integration costs
Resolution of US tax matter
Withholding tax provision no longer required
Other

(29)
(5)
(131)
–
–
–
11
–
(2)
–
–
146
4
–
(35)
45

5
(5)
(130)
65
(38)
(2)
–
(7)
36
(7)
–
150
27
(31)
–
54

(18)
(282)
–
–
–
–
11
–
–
–
(2)
–
4
–
(35)
68

15
(447)
–
–
–
(2)
–
(7)
–
(7)
4
–
27
(31)
–
109

2,306

2,097

1,418

1,413

3

(1)

3

(1)

Total income tax expense charged in the income statement
Reconciliation of the prima facie income tax expense on pre-tax profit
with the income tax expense charged in the Income statement

Income tax (over) provided in previous years
Total income tax expense charged in the income statement

2,309

2,096

1,421

1,412

Effective tax rate

30.1%

31.8%

25.5%

24.2%

Australia

1,847

1,753

1,322

1,328

Overseas

462

343

99

84

Tax consolidation
The Company and all its wholly owned Australian resident entities are part of a tax-consolidated group under Australian taxation law.
The Company is the head entity in the tax-consolidated group. Tax expense/income and deferred tax liabilities/assets arising from temporary
differences of the members of the tax-consolidated group are recognised in the separate financial statements of the members of thetax-consolidated group on a ‘group allocation’ basis. Current tax liabilities and assets of the tax consolidated group are recognised by theCompany (as head entity in the tax-consolidated group).
Due to the existence of a tax funding arrangement between the entities in the tax-consolidated group, amounts are recognised as payable
to or receivable by the Company and each member of the group in relation to the tax contribution amounts paid or payable between the
Company and the other members of the tax-consolidated group in accordance with the arrangement.
Members of the tax-consolidated group have also entered into a tax sharing agreement that provides for the allocation of income tax liabilities
between the entities should the head entity default on its income tax payment obligations.

Taxation of Financial Arrangements ‘TOFA’The Group adopted the new tax regime for financial arrangements (TOFA) in Australia effective from 1 October 2009. The regime aims to moreclosely align the tax and accounting recognition and measurement of the financial arrangements within scope and their related flows. Deferred
tax balances for financial arrangements that existed on adoption at 1 October 2009 will reverse over a four year period.

Notes to the Financial Statements

109

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

7: Dividends
Consolidated

The Company

2011
$m

2010
$m

2011
$m

2010
$m

Ordinary dividends1
Interim dividend
Final dividend
Bonus option plan adjustment

1,662
1,895
(66)

1,318
1,403
(54)

1,662
1,895
(66)

1,318
1,403
(54)

Dividend on ordinary shares

3,491

2,667

3,491

2,667

1 Dividends are not accrued and are recorded when paid.

A final dividend of 76 cents, fully franked, is proposed to be paid on 16 December 2011 on each eligible fully paid ordinary share(2010: final dividend of 74 cents, paid 17 December 2010, fully franked). The 2011 interim dividend of 64 cents, paid 1 July 2011, was fully
franked (2010: interim dividend of 52 cents, paid 1 July 2010, fully franked).
The tax rate applicable to the franking credits attached to the 2011 interim dividend and to be attached to the proposed 2011 final dividend
is 30% (2010: 30%).
Dividends paid in cash or satisfied by the issue of shares under the Dividend Reinvestment Plan during the years ended 30 September 2011
and 2010 were as follows:
Consolidated

Paid in cash1
Satisfied by share issue2

The Company

2011
$m

2010
$m

2011
$m

2010
$m

2,124
1,367

1,660
1,007

2,124
1,367

1,660
1,007

3,491

2,667

3,491

2,667

Consolidated

The Company

2011
$m

2010
$m

2011
$m

2010
$m

Preference share dividend3
Euro trust securities4

12

11

–

–

Dividend on preference shares

12

11

–

–

1
2
3
4

Refers to cash paid to shareholders who did not elect to participate in the dividend reinvestment plan or the bonus option plan.
Includes shares issued to participating shareholders under the dividend reinvestment plan.
Dividends are not accrued and are recorded when paid.
Refer to note 28 for details.

Dividend franking account
The amount of franking credits available to the Company for thesubsequent financial year is $363 million (2010: $397 million) after
adjusting for franking credits that will arise from the payment of
tax on Australian profits for the 2011 financial year, $857 million of
franking credits which will be utilised in franking the proposed 2011
final dividend and franking credits that may not be accessible by theCompany at present.

Restrictions which limit the payment of dividends
There are presently no significant restrictions on the payment ofdividends from material controlled entities to the Company. Various
capital adequacy, liquidity, foreign currency controls, statutory reserveand other prudential and legal requirements must be observed bycertain controlled entities and the impact of these requirements on
the payment of cash dividends is monitored.
There are presently no significant restrictions on the payment ofdividends by the Company, although reductions in shareholders’equity through the payment of cash dividends is monitored having
regard to the following:
There are regulatory and other legal requirements to maintain aspecified capital adequacy ratio. Further, APRA has advised thata bank under its supervision must consult with it before declaring

110

ANZ Annual Report 2011a coupon payment or dividend on a Tier 1 or Upper Tier 2
instrument, if the bank proposes to pay coupons or dividends
on Tier 1 or Upper Tier 2 instruments which exceed its after tax
earnings or the level of current year profits (as defined by APRA
from time to time).
The Corporations Act 2001 (Cth) provides that the Company must
not pay a dividend on any instrument unless (i) it has sufficient net
assets for the payment, (ii) the payment is fair and reasonable to theCompany’s shareholders as a whole, and (iii) the payment does notmaterially prejudice the Company’s ability to pay its creditors.
The Company may not pay a dividend if to do so would result in the
Company becoming, or likely to become, insolvent or if APRA directs
not to do so.
If any dividend, interest or redemption payments or other distributions
are not paid on the scheduled payment date, or shares or otherqualifying Tier 1 securities are not issued on the applicable conversion
or redemption dates, on the Group’s Euro Trust Securities, US Trust
Securities, UK Stapled Securities or ANZ Convertible Preference
Shares in accordance with their terms, the Group may be restrictedfrom declaring or paying any dividends or other distributions on
Tier 1 securities including ANZ ordinary shares and preference
shares. This restriction is subject to a number of exceptions.

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

7: Dividends (continued)
Dividend Reinvestment Plan

Bonus Option Plan

During the year ended 30 September 2011, 31,506,936 ordinary
shares were issued at $22.60 per share and 30,178,811 ordinary sharesat $21.69 per share to participating shareholders under the dividend
reinvestment plan (2010: 22,970,973 ordinary shares at $21.75 pershare, and 23,779,667 ordinary shares at $21.32 per share). All eligible
shareholders can elect to participate in the dividend reinvestment plan.

The amount paid in dividends during the year has been reduced
as a result of certain eligible shareholders participating in thebonus option plan and foregoing all or part of their right todividends. These shareholders were issued ordinary shares underthe Bonus Option Plan.

For the 2011 final dividend, a discount of 1.5% will be applied whencalculating the ‘Acquisition Price’ used in determining the numberof ordinary shares to be provided under the Dividend Reinvestment
Plan and Bonus Option Plan terms and conditions, and the ‘Pricing
Period’ under the Dividend Reinvestment Plan and Bonus Option Planterms and conditions will be the seven trading days commencing on
18 November 2011 (unless otherwise determined by the Directors
and announced on the ASX).

During the year ended 30 September 2011, 3,013,239 ordinary shareswere issued under the Bonus Option Plan (2010: 2,481,103 ordinary
shares). For the 2011 final dividend, details of the discount thatwill be applied when calculating the ‘Acquisition Price’ and of the‘Pricing Period’, in respect of the Bonus Option Plan are set out abovein the section relating to the Dividend Reinvestment Plan.

8: Earnings per Ordinary Share
Consolidated
2011
$m

2010
$m

208.2

178.9

5,363
8
12

4,505
4
11

5,343
2,565.9

4,490
2,509.3

Diluted earnings per share (cents)
Earnings reconciliation ($millions)
Earnings used in calculating basic earnings per share
Add: US Trust Securities interest expense
Add: UK Stapled Securities interest expense
Add: ANZ Convertible Preference Shares interest expense

198.8

174.6

5,343
28
46
168

4,490
35
51
134

Earnings used in calculating diluted earnings per share

Basic earnings per share (cents)
Earnings reconciliation ($millions)
Profit for the period
Less: profit attributable to non-controlling interests
Less: preference share dividend paid
Earnings used in calculating basic earnings per share
Weighted average number of ordinary shares (net of Treasury shares) (millions)

5,585

4,710

Weighted average number of ordinary shares (net of Treasury shares) (millions)
Used in calculating basic earnings per share
Add: weighted average number of options/rights potentially convertible to ordinary sharesweighted average number of convertible US Trust Securities
weighted average number of convertible UK Stapled Securities
weighted average number of ANZ Convertible Preference Shares

2,565.9
4.5
41.6
38.9
158.7

2,509.3
4.8
37.2
32.8
112.9

Used in calculating diluted earnings per share

2,809.6

2,697.0

The weighted average number of converted and lapsed options, weighted with reference to the date of conversion or lapse, and included in thecalculation of diluted earnings per share is approximately 1 million (2010: approximately 1 million).

Notes to the Financial Statements

111

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

9: Liquid Assets
Consolidated

The Company

2011
$m

2010
$m

2011
$m

2010
$m

Coins, notes and cash at bankMoney at call, bills receivable and remittances in transit
Other banks’ certificates of deposit
Securities purchased under agreements to resell in less than three months

2,805
12,769
3,377
5,948

2,793
4,473
4,152
7,527

958
11,539
2,149
5,909

1,082
3,825
3,613
7,527

Total liquid assets

24,89918,94520,555

16,047

Maturity analysis based on original term to maturity
Less than three months
More than three months

23,4001,499

15,748
3,197

19,072
1,483

13,342
2,705

Total liquid assets

24,89918,94520,555

16,047

10: Due from Other Financial Institutions
Consolidated

The Company

2011
$m

2010
$m

2011
$m

2010
$m

Maturity analysis based on original term to maturity
Less than three months
More than three months

6,621
2,203

4,862
619

4,579
1,759

3,592
544

Total due from other financial institutions

8,824

5,481

6,338

4,136

11: Trading Securities
Consolidated

ListedLocal, semi-government and other government securities
Other securities and equity securities

Unlisted
Commonwealth securities
Local, semi-government and other government securities
ANZ accepted bills1
Other securities and equity securities
Total trading securities
1 In 2011 the Group ceased re-discounting Commercial Bill acceptances.

112

ANZ Annual Report 2011

The Company

2011
$m

2010
$m

2011
$m

2010
$m

115
31

–
48

115
31

–
26

146

48

146

26

4,505
13,448–17,975

3,649
8,182
6,035
15,601

4,505
8,764
–
14,952

3,647
5,195
6,035
13,40235,92833,46728,221

28,27936,07433,51528,36728,305NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

12: Derivative Financial Instruments
Derivative financial instruments are contracts whose value is derived
from one or more underlying variables or indices, require little orno initial net investment and are settled at a future date. Derivatives
include contracts traded on registered exchanges and contracts
agreed between counterparties. The use of derivatives and theirsale to customers as risk management products is an integral partof the Group’s trading and sales activities. Derivatives are also used
to manage the Group’s own exposure to fluctuations in exchange andinterest rates as part of its asset and liability management activities.
Derivative financial instruments are subject to market and credit risk
and these risks are managed in a consistent manner to risks arising onother financial instruments.
Types of derivative financial instruments
The Group transacts principally in foreign exchange, interest rate,commodity and credit derivative contracts. The principal types ofderivative contracts include swaps, forwards, futures and options
contracts and agreements, as detailed in the table below.
Derivatives, except for those that are specifically designated as
effective hedging instruments, are classified as held for trading. The
held for trading classification includes two categories of derivative
financial instruments: those held as trading positions and those usedin the Group’s balance sheet risk management activities.
Trading positions
Trading positions consist of both sales to customers and market
making activities. Sales to customers include the structuringand marketing of derivative products to customers which enable
them to manage their own risks. Market making activities consistof derivatives entered into principally for the purpose of generating
profits from short-term fluctuations in price or margins. Positions
may be traded actively or held over a period of time to benefit
from expected changes in market rates.

Balance sheet risk management
The Group designates balance sheet risk management derivatives
into hedging relationships in order to minimise income statement
volatility. This volatility is created by differences in the timing ofrecognition of gains and losses between the derivative and thehedged item. Hedge accounting is not applied to all balance sheet
risk management positions.
Gains or losses from the change in fair value of balance sheet
risk management derivatives that form part of an effective hedging
relationship are recognised in the income statement based on
the hedging relationship. Any ineffectiveness is recognised in theincome statement as ‘other income’ in the period in which it occurs.
Gains or losses, excluding any current period interest, from thechange in fair value of balance sheet risk management positions thatare not designated into hedging relationships are recognised in theincome statement as ‘other income’ in the period in which they occur.
Current period interest is included in interest income and expense.
The tables on the following pages provide an overview of theGroup’s and the Company’s foreign exchange, interest rate,commodity and credit derivatives. They include all trading andbalance sheet risk management contracts. Notional principal
amounts measure the amount of the underlying physical or financial
commodity and represent the volume of outstanding transactions.
They are not a measure of the risk associated with a derivative. The
derivative instruments become favourable (assets) or unfavourable(liabilities) as a result of fluctuations in market rates relative totheir terms. The aggregate notional amount of derivative financial
instruments on hand, the extent to which instruments are favourable
or unfavourable, and as a consequence the aggregate fair values ofderivative financial assets and liabilities, can fluctuate significantly
from time to time. The fair values of derivative instruments held
and their notional principal amounts are set out below.

Gains or losses, including any current period interest, from the change
in fair value of trading positions are recognised in the income statementas ‘other income’ in the period in which they occur.

Notes to the Financial Statements

113

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

12: Derivative Financial Instruments (continued)
Fair Value
Trading

Total fair valueof derivatives

Hedging

Consolidated at
30 September 2011

Notional
Principal
Amount$m

Assets Liabilities$m$m

Foreign exchange contracts
Spot and forward contracts
Swap agreements
Futures contracts
Options purchased
Options sold328,740
223,074886
57,05360,182

10,657
15,536812
1,318–(8,940)(16,034)(949)–(1,290)

–
289
–
–
–

–
(114)
–
–
–

–
–
–
–
–

–
–
–
–
–

1
12
–
–
–

–
–
–
–
–

10,65815,837812
1,318–(8,940)(16,148)(949)–(1,290)Fair value

Cash flow

Net investment

Assets Liabilities$m$m

Assets Liabilities$m$m

Assets Liabilities$m$m

Assets Liabilities$m$m

669,935

28,323(27,213)

289

(114)

–

–

13

–

28,625(27,327)

Commodity contracts
Derivative contracts

25,916

1,885(1,386)

–

–

–

–

–

–

1,885

(1,386)

Interest rate contracts
Forward rate agreements
Swap agreements
Futures contracts
Options purchased
Options sold155,215
1,478,261
86,25343,92640,221

34
22,621
1,029
611
–

(29)
(22,356)(1,011)
–
(765)

–
1,525
–
–
–

–
(417)
–
–
–

1
893
3
–
–

(1)
(612)
(13)
–
–

–
–
–
–
–

–
–
–
–
–

35
25,039
1,032
611
–

(30)
(23,385)(1,024)–(765)

1,803,876

24,295(24,161)

1,525

(417)

897

(626)

–

–

26,717(25,204)

Credit default swaps
Structured credit derivatives
purchased1
Other credit derivatives purchased

8,976
15,641

609
781

–
(29)

–
–

–
–

–
–

–
–

–
–

–
–

609
781

–
(29)

Total credit derivatives purchased

24,617

1,390

(29)

–

–

–

–

–

–

1,390

(29)

Structured credit derivatives sold
Other credit derivatives sold

8,475
14,867

–
24

(788)
(556)

–
–

–
–

–
–

–
–

–
–

–
–

–
24

(788)
(556)

23,34224(1,344)

–

–

–

–

–

–

24

(1,344)47,9591,414(1,373)

–

–

–

–

–

–

1,414

(1,373)–(4,523)

5,202

–

–

–

–

–

–

(4,523)5,202

2,547,686

51,394(48,931)

1,814

(531)

897

(626)

13

–

54,118(50,088)

Total credit derivatives sold
CollateralTotal
1 Inclusive of credit valuation adjustment.

114

ANZ Annual Report 2011

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

12: Derivative Financial Instruments (continued)
Fair Value
Trading

Total fair valueof derivatives

Hedging

Consolidated at
30 September 2010

Notional
Principal
Amount$m

Assets Liabilities$m$m

Foreign exchange contracts
Spot and forward contracts
Swap agreements
Futures contracts
Options purchased
Options sold244,322210,038739
7,594
12,701

5,616
10,84393323–(7,304)(15,455)
(148)
–
(343)

–
375
–
–
–

–
(140)
–
–
–

–
–
–
–
–

–
–
–
–
–

2
164
–
–
–

–
–
–
–
–

5,618
11,38293323–(7,304)(15,595)
(148)
–
(343)

Fair value

Cash flow

Net investment

Assets Liabilities$m$m

Assets Liabilities$m$m

Assets Liabilities$m$m

Assets Liabilities$m$m

475,394

16,875(23,250)

375

(140)

–

–

166

–

17,416(23,390)

Commodity contracts
Derivative contracts

20,995

1,381(1,409)

–

–

–

–

–

–

1,381

(1,409)Interest rate contracts
Forward rate agreements
Swap agreements
Futures contracts
Options purchased
Options sold

108,534
1,159,637
148,600
37,49732,292

17
16,984
1,576
268
–

(15)
(16,654)(1,595)
–
(329)

–
1,535
–
–
–

–
(486)
–
–
–

1
507
8
–
–

–
(491)
(17)
–
–

–
–
–
–
–

–
–
–
–
–

18
19,026
1,584
268
–

(15)
(17,631)(1,612)–(329)

1,486,560

18,845(18,593)

1,535

(486)

516

(508)

–

–

20,896(19,587)

Credit default swaps
Structured credit derivatives
purchased1
Other credit derivatives purchased

10,213
14,326

449
111

–
(126)

–
–

–
–

–
–

–
–

–
–

–
–

449
111

–
(126)

Total credit derivatives purchased

24,539

560

(126)

–

–

–

–

–

–

560

(126)

Structured credit derivatives sold
Other credit derivatives sold

8,697
11,500

–
112

(624)
(99)

–
–

–
–

–
–

–
–

–
–

–
–

–
112

(624)
(99)

20,197

112

(723)

–

–

–

–

–

–

112

(723)

Total credit derivatives sold
Collateral
Total

44,736

672

(849)

–

–

–

–

–

–

672

(849)

–

(2,544)

8,018

–

–

–

–

–

–

(2,544)

8,018

2,027,685

35,229(36,083)

1,910

(626)

516

(508)

166

–

37,821(37,217)

1 Inclusive of credit valuation adjustment.

Notes to the Financial Statements

115

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

12: Derivative Financial Instruments (continued)
Fair Value
Trading

Total fair valueof derivatives

Hedging

The Company at
30 September 2011

Notional
Principal
Amount$m

Assets Liabilities$m$m

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

326,868
196,031886
57,706
60,7909,748
14,758812
1,299–(8,718)(14,375)(949)–(1,267)

–
286
–
–
–

–
(114)
–
–
–

–
–
–
–
–

–
–
–
–
–

–
12
–
–
–

–
–
–
–
–

9,748
15,056812
1,299–(8,718)(14,489)(949)–(1,267)

Fair value

Cash flow

Net investment

Assets Liabilities$m$m

Assets Liabilities$m$m

Assets Liabilities$m$m

Assets Liabilities$m$m

642,281

26,617(25,309)

286

(114)

–

–

12

–

26,915(25,423)

Commodity contracts
Derivative contracts

25,874

1,881(1,382)

–

–

–

–

–

–

1,881

(1,382)

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

98,7001,125,305
65,61041,321
37,23824
17,889
1,015
598
–

(20)
(18,119)(1,004)
–
(745)

–
1,304
–
–
–

–
(117)
–
–
–

1
677
3
–
–

(1)
(557)
(6)
–
–

–
–
–
–
–

–
–
–
–
–

25
19,870
1,018
598
–

(21)
(18,793)(1,010)–(745)

1,368,174

19,526(19,888)

1,304

(117)

681

(564)

–

–

21,511(20,569)

Credit default swaps
Structured credit derivatives
purchased1
Other credit derivatives purchased

8,976
15,641

609
781

–
(29)

–
–

–
–

–
–

–
–

–
–

–
–

609
781

–
(29)

Total credit derivatives purchased

24,617

1,390

(29)

–

–

–

–

–

–

1,390

(29)

Structured credit derivatives sold
Other credit derivatives sold

8,475
14,867

–
24

(788)
(556)

–
–

–
–

–
–

–
–

–
–

–
–

–
24

(788)
(556)

23,34224(1,344)

–

–

–

–

–

–

24

(1,344)47,9591,414(1,373)

–

–

–

–

–

–

1,414

(1,373)(3,365)
4,460
46,073 (43,492)

–

–

–

–

–

–

1,590

(231)

681

(564)

12

–

(3,365)
4,460
48,356 (44,287)

Total credit derivatives sold
CollateralTotal
1 Inclusive of credit valuation adjustment.

116

ANZ Annual Report 2011–
2,084,288

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

12: Derivative Financial Instruments (continued)
Fair Value
Trading

Total fair valueof derivatives

Hedging

The Company at
30 September 2010

Notional
Principal
Amount$m

Assets Liabilities$m$m

Foreign exchange contracts
Spot and forward contracts
Swap agreements
Futures contracts
Options purchased
Options sold276,490
202,757
739
7,435
12,9095,747
11,78093
319–(7,032)(16,904)
(148)
–
(332)

–
373
–
–
–

–
(140)
–
–
–

–
–
–
–
–

–
–
–
–
–

–
164
–
–
–

–
–
–
–
–

5,747
12,31793319–(7,032)(17,044)
(148)
–
(332)

Fair value

Cash flow

Net investment

Assets Liabilities$m$m

Assets Liabilities$m$m

Assets Liabilities$m$m

Assets Liabilities$m$m

500,330

17,939(24,416)

373

(140)

–

–

164

–

18,476(24,556)

Commodity contracts
Derivative contracts

20,9691,381(1,409)

–

–

–

–

–

–

1,381

(1,409)Interest rate contracts
Forward rate agreements
Swap agreements
Futures contracts
Options purchased
Options sold80,014
943,720
124,457
37,24730,42813
12,509
1,574
258
–

(11)
(12,434)(1,579)
–
(323)

–
1,233
–
–
–

–
(119)
–
–
–

1
334
8
–
–

–
(432)
(7)
–
–

–
–
–
–
–

–
–
–
–
–

14
14,076
1,582
258
–

(11)
(12,985)(1,586)–(323)

1,215,866

14,354(14,347)

1,233

(119)

343

(439)

–

–

15,930(14,905)

Credit default swaps
Structured credit derivatives
purchased1
Other credit derivatives purchased

10,213
14,321

449
111

–
(126)

–
–

–
–

–
–

–
–

–
–

–
–

449
111

–
(126)

Total credit derivatives purchased

24,534

560

(126)

–

–

–

–

–

–

560

(126)

Structured credit derivatives sold
Other credit derivatives sold

8,697
11,500

–
112

(624)
(99)

–
–

–
–

–
–

–
–

–
–

–
–

–
112

(624)
(99)

20,197

112

(723)

–

–

–

–

–

–

112

(723)

44,731

672

(849)

–

–

–

–

–

–

672

(849)

(2,268)
7,072
32,078 (33,949)

–
1,606

–
(259)

–
343

–
(439)

–
164

–
–

Total credit derivatives sold
Collateral
Total–
1,781,896(2,268)
7,072
34,191 (34,647)

1 Inclusive of credit valuation adjustment.

Notes to the Financial Statements

117

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

12: Derivative Financial Instruments (continued)
Hedging relationships
There are three types of hedging relationships: fair value hedges, cash flow hedges and hedges of a net investment in a foreign operation. Each
type of hedging has specific requirements when accounting for the fair value changes in the hedging relationship. For details on the accounting
treatment of each type of hedging relationship refer to note 1.
Fair value hedges
The risk being hedged in a fair value hedge is a change in the fair value of an asset or liability or unrecognised firm commitment that may
affect the income statement. Changes in fair value might arise through changes in interest rates or foreign exchange rates. The Group’s fairvalue hedges principally consist of interest rate swaps and foreign currency swaps that are used to protect against changes in the fair valueof fixed-rate long-term financial instruments due to movements in market interest rates and exchange rates.
The application of fair value hedge accounting results in the fair value adjustment on the hedged item attributable to the hedged risk being
recognised in the income statement at the same time the hedging instrument impacts the income statement. If a hedging relationship isterminated, the fair value adjustment to the hedged item continues to be recognised as part of the carrying amount of the item or groupof items and is amortised to the income statement as a part of the effective yield over the period to maturity. Where the hedged item isderecognised from the Group’s balance sheet, the fair value adjustment is included in the income statement as ‘other income’ as a part of
the gain or loss on disposal.
Consolidated

Gain/(loss) arising from fair value hedges
Hedged item (attributable to the hedged risk only)
Hedging instrument

The Company

2011
$m

2010
$m

2011
$m

2010
$m

(15)
19

(662)
668

(43)
43

(291)
299

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

The Company

2011
$m

2010
$m

2011
$m

2010
$m

Balance at start of year
Items recorded in net interest income
Tax effect of items recorded in the income statement
Valuation gain taken to other comprehensive income
Tax effect of net gain on cash flow hedges

11
(9)
3
230
(66)

(90)
(54)
21
187
(53)

(73)
(12)
4
183
(55)

(109)
(69)
21
121
(37)

Closing balance

169

11

47

(73)

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

The Company

2011
$m

2010
$m

2011
$m

2010
$m

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

614
(188)
(257)

265
(106)
(148)

445
(163)
(235)

65
(70)
(68)

Total hedging reserve

169

11

47

(73)

118

ANZ Annual Report 2011

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

12: Derivative Financial Instruments (continued)
The mechanics of a cashflow hedge results in the gain (or loss) in the hedging reserve being released into the income statement at the sametime that the corresponding loss (or gain) attributable to the hedged item impacts the income statement. It will not necessarily be released tothe income statement uniformly over the period of the hedging relationship as the fair value of the derivative is driven by changes in market
rates over the term of the instrument. As market rates do not always move uniformly across all time periods, a change in market rates may drive
more value in one forecast period than another, which impacts when the hedging reserve balance is released to the income statement.
All underlying hedged cash flows are expected to be recognised in the income statement in the period in which they occur which is anticipatedto take place over the next 0 –10 years (2010: 0–10 years).
All gains and losses associated with the ineffective portion of the hedging derivatives are recognised immediately as ‘other income’ in theincome statement. Ineffectiveness recognised in the income statement in respect of cash flow hedges amounted to a $9 million loss for theGroup (2010: nil) and a $9 million loss for the Company (2010: $1 million loss).

Hedges of net investments in foreign operations
In a hedge of a net investment in a foreign operation, the risk being hedged is the exposure to exchange rate differences arising on consolidationof foreign operations with a functional currency other than the Australian Dollar. Hedging is undertaken using foreign exchange derivative contracts
or by financing with borrowings in the same currency as the foreign functional currency involved.
Ineffectiveness arising from hedges of net investments in foreign operations and recognised as ‘other income’ in the income statement
amounted to $3 million gain (2010: $1 million gain).

13: Available-for-sale Assets
Consolidated

The Company

2011
$m

2010
$m

2011
$m

2010
$m

ListedOther government securities
Other securities and equity investments

2,223
3,065

3,501
2,040

1,755
2,791

3,127
1,715

Total Listed

5,288

5,541

4,546

4,842

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

4,219
7,517
4,885
355

3,621
5,217
5,908
455

2,946
6,657
4,513
355

3,552
3,705
4,419
455

Total unlisted

16,976

15,201

14,471

12,131

Total available-for-sale assets

22,264

20,742

19,017

16,973

An impairment loss of $78 million was recognised in the Income Statement (2010: $21 million). This includes impairment of $37 million (2010:$21 million) on assets previously reclassified from available-for-sale into loans and advances at amortised cost (refer note 16) and impairment
on Sacombank of $35 million.
In May 2011, the Group reclassified syndicated loans of $236 million from available-for-sale into loans and advances measured at amortised cost
as it is now the Group’s intention to hold these assets for the foreseeable future. The available-for-sale reserve at that date was insignificant.

Available-for-sale by maturities at 30 September 2011
Less than
3 months$m

Between3 and 12months$m

Between
1 and
5 years$m

Between5 and 10
years
$m

After
10 years$mNomaturity
specified
$m

Total
fair
value
$m

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

3,397
7,471
2,491
–

764
1,551
2,256
–

24
628
1,634
100

2
31
298
255

32
59
736
–

–
–
535
–

4,219
9,740
7,950
355

Total available-for-sale assets

13,359

4,571

2,386

586

827

535

22,264

Less than
3 months$m

Between3 and 12months$m

Between
1 and
5 years$m

Between5 and 10
years
$m

After
10 years$mNomaturity
specified
$m

Total
fair
value
$m

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

3,113
5,075
3,202
–

448
2,605
1,994
99

42
1,027
1,897
98

4
8
203
–

14
3
163
258

–
–
489
–

3,621
8,718
7,948
455

Total available-for-sale assets

11,390

5,146

3,064

215

438

489

20,742Available-for-sale by maturities at 30 September 2010

Notes to the Financial Statements

119

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

14: Net Loans and Advances
Consolidated

The Company

2011
$m

2010
$m

2011
$m

2010
$m

Overdrafts
Credit card outstandings
Term loans – housing
Term loans – non-housing
Hire purchase
Lease receivables
Commercial bills1
Other

8,133
11,189215,382
136,388
9,968
2,084
18,334
1,319

8,671
10,618
202,658
122,584
10,351
1,891
432
1,382

6,626
9,662
179,992
101,767
9,481
1,452
18,228
1,083

6,323
9,107
167,931
89,436
9,973
1,228
432
1,108

Total gross loans and advances

402,797358,587

328,291

285,538(4,873)(2,216)629(5,028)(2,262)600(3,646)(1,961)602(3,659)(2,006)566

Less: Provision for credit impairment (refer note 16)
Less: Unearned income
Add: Capitalised brokerage/mortgage origination fees
Net loans and advances(6,460)(6,690)(5,005)(5,099)396,337

351,897

323,286

280,439

507
838
260

478
822
314

395
576
39

381
527
95

Lease receivablesa) Finance lease receivables
Gross finance lease receivables
Less than 1 year
1 to 5 years
Later than 5 years
Less: unearned future finance income on finance leases

(84)

(107)

(59)

(83)

1,521

1,507

951

920

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

71
408
–

60
207
10

58
384
–

50
165
10

Total operating lease receivables

479

277

442

225

2,000

1,784

1,393

1,145

491
791
239

458
770
279

389
527
35

371
467
82

1,521

1,507

951

920

3,310
6,577
81

3,618
6,665
68

3,132
6,268
81

3,456
6,449
68

9,968

10,351

9,481

9,973

Net investment in finance lease receivables

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

1 In 2011 the Group ceased re-discounting Commercial bill acceptances. This has impacted balance sheet classifications as there is no intention to trade the Commercial bills as negotiable instruments.

120

ANZ Annual Report 2011

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

15: Impaired Financial Assets
Presented below is a summary of impaired financial assets that are measured on the balance sheet at amortised cost. For these items,
impairment losses are recorded through the provision for credit impairment. This contrasts to financial assets carried on the balance sheet
at fair value, for which any impairment loss is recognised as a component of the overall fair value.
Detailed information on impaired financial assets is provided in note 33 Financial Risk Management.
Consolidated

The Company

2011
$m

2010
$m

2011
$m

2010
$m

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

4,650
700
231

6,075
141
345

3,037
684
211

4,287
134
321

Gross impaired financial assets

5,581

6,561

3,932

4,742

Individual provisions
Impaired loans
Non-performing commitments and contingencies(1,687)(10)(1,849)(26)(1,143)(6)(1,253)(20)

Net impaired financial assets

3,884

4,686

2,783

3,469

Accruing loans past due 90 days or more2
These amounts are not classified as impaired assets as they are either 90 daysor more past due and well secured, or are portfolio managed facilities that canbe held on an accrual basis for up to 180 days past due

1,834

1,555

1,510

1,229

1 Restructured items are facilities in which the original contractual terms have been modified for reasons related to the financial difficulties of the customer. Restructuring may consist of reductionof interest, principal or other payments legally due, or an extension in maturity materially beyond those typically offered to new facilities with similar risk.
2 Includes unsecured credit card and personal loans 90 day past due accounts which are allowed by APRA to be retained on a performing basis for up to 180 days past due amounting to $137 million(2010: $139 million) for the Group and $106 million (2010: $110 million) for the Company.

16: Provision for Credit Impairment
Consolidated

The Company

2011
$m

2010
$m

2011
$m

2010
$m

Recoveries of amounts previously written off

1,362
459
212
2,033
(613)
1,420
(227)

1,620
559
171
2,350
(437)
1,913
(143)

1,347
15
80
1,442
(402)
1,040
(203)

1,612
16
80
1,708
(254)
1,454
(111)

Individual provision charge
Impairment on available-for-sale assets
Collective provision charge/(credit)

1,193
37
7

1,770
21
(4)

837
37
120

1,343
21
5

Charge to income statement

1,237

1,787

994

1,369

Provision movement analysis
New and increased provisions
Australia
New Zealand
Asia Pacific, Europe & America
Provision releases

Notes to the Financial Statements

121

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

16: Provision for Credit Impairment (continued)
Movement in provision for credit impairment by financial asset class
Liquid assets and duefrom other financial
institutions
Consolidated

Net loans andadvancesand acceptances

Other financial assets

Credit related
commitments1

Total provisions

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

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

–

–

2,577

2,552

–

–

576

448

3,153

3,000

–
–
–

–
–
–

13
–
14

(68)
97
(4)

–
–
–

–
–
–

3
–
(7)

(15)
143
–

16
–
7

(83)
240
(4)

Total collective provision

–

–

2,604

2,577

–

–

572

576

3,176

3,153

Individual provision
Balance at start of year
Charge/(credit) to income statement
Adjustment for exchange rate fluctuations
and transfers
Provision acquired
Discount unwind
Bad debts written off
Recoveries of amounts previously written off

–
–

–
–

1,849
1,209

1,512
1,758

–
–

–
–

26
(16)

14
12

1,875
1,193

1,526
1,770

–
–
–
–
–

–
–
–
–
–

8
–
(185)
(1,421)
227

(100)
394
(165)
(1,693)
143

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

8
–
(185)
(1,421)
227

(100)
394
(165)
(1,693)143

Total individual provision

–

–

1,687

1,849

–

–

10

26

1,697

1,875

Total provision for credit impairment

–

–

4,291

4,426

–

–

582

602

4,873

5,028

1 Comprises undrawn facilities and customer contingent liabilities.

The table below contains a detailed analysis of the movements in individual provision for net loans and advances and acceptances.

Australia

APEA

Institutional

New Zealand

Other

Less:
Institutional
APEA

Net loansandadvancesandacceptances

Consolidated

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

Individual provision
Balance at start of year
Charge/(credit) to income statement
Provisions acquired/disposed
Adjustment for exchange rate fluctuations
Discount unwind
Bad debts written off
Recoveries of amounts previously written off

459
668
–
–
(26)
(615)
79

403
579
55
–
(22)
(640)
84

429
91
–
(4)
(3)
(159)
34

75
132
339
(59)
(5)
(73)
20

631
198
–
14
(98)
(383)
94

701
772
59
(54)
(97)
(780)
30

435
258
–
12
(61)
(263)
17

350
356
–
(30)
(46)
(211)
16

25
30
–
(8)
–
(24)
4

22
(24)
–
35
–
(3)
(5)

(130)
(36)
–
(6)
3
23
(1)

(39) 1,849 1,512(57) 1,209 1,758
(59)
–
394
8
8 (100)5 (185) (165)
14 (1,421) (1,693)(2) 227
143

Total individual provision

565

459

388

429

456

631

398

435

27

25

(147)

(130) 1,687 1,849

Consolidated

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

122

ANZ Annual Report 2011

2011
%

2010
%

0.4
0.8
0.4

0.5
0.9
0.5

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

16: Provision for Credit Impairment (continued)
Movement in provision for credit impairment by financial asset class (continued)
Liquid assets and duefrom other financial
institutions
The Company

Net loans andadvancesand acceptances

Other financial
assetsCredit related
commitments1

Total provisions

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

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

–

–

1,950

1,886

–

–

436

352

2,386

2,238

–
–
–

–
–
–

(8)
–
100

(24)
84
4

–
–
–

–
–
–

(2)
–
20

(5)
88
1

(10)
–
120

(29)
172
5

Total collective provision

–

–

2,042

1,950

–

–

454

436

2,496

2,386

Individual provision
Balance at start of year
Charge/(credit) to income statement
Adjustment for exchange rate fluctuations
and transfers
Provision acquired
Discount unwind
Bad debts written off
Recoveries of amounts previously written off

–
–

–
–

1,253
851

1,050
1,336

–
–

–
–

20
(14)

12
7

1,273
837

1,062
1,343

–
–
–
–
–

–
–
–
–
–

(3)
–
(123)
(1,037)
203

(52)
333
(115)
(1,410)
111

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

1
–
–
–
–

(3)
–
(123)
(1,037)
203

(51)
333
(115)
(1,410)111

Total individual provision

–

–

1,144

1,253

–

–

6

20

1,150

1,273

Total provision for credit impairment

–

–

3,186

3,203

–

–

460

456

3,646

3,659

1 Comprises undrawn facilities and customer contingent liabilities.

The Company

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

2011
%

2010
%

0.4
0.8
0.3

0.4
0.8
0.5

Notes to the Financial Statements

123

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

17: Shares in Controlled Entities and Associates
Consolidated

The Company

2011
$m

2010
$m

2011
$m

2010
$m

Total shares in controlled entities
Total shares in associates1 (refer note 39)

–
3,513

–
2,965

9,098
971

9,189
1,035

Total shares in controlled entities, associates and joint venture entities

3,513

2,965

10,06910,224

1 Investments in associates are accounted for using the equity method of accounting by the Group and are carried at cost by the Company.

Disposal of controlled entities
There were no material controlled entities disposed of during the year ended 30 September 2011 or the year ended 30 September 2010.

Acquisition of controlled entities/businesses
There were no material entities acquired during the year ended 30 September 2011.
During the year ended 30 September 2010, the Group acquired the following entities/businesses:
OnePath Australia and OnePath New Zealand (formerly ING Australia and ING New Zealand (ING))
On 30 November 2009, the Group acquired the remaining 51% shareholding in the ANZ-ING joint ventures in Australia and New Zealand,
taking its ownership interest to 100%. The results for the year ended 30 September 2010 includes the financial impact of full ownership since
30 November 2009. For the period 1 October 2009 to 30 November 2009 the investments were accounted for as joint ventures.
Landmark Financial Services (Landmark)On 1 March 2010, the Group completed its acquisition of the Landmark financial services business from the AWB Group. The financial results
since acquisition are included in earnings from this date.
Selected Royal Bank of Scotland Group plc (RBS) businesses in Asia
During 2009, ANZ announced the acquisition of selected RBS businesses in Asia. The acquisitions were completed in the Philippines on
21 November 2009, Vietnam on 5 December 2009, Hong Kong on 20 March 2010, Taiwan on 17 April 2010, Singapore on 15 May 2010
and Indonesia on 12 June 2010. The financial impacts of these acquisitions are included from these respective dates.

124

ANZ Annual Report 2011

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

18: Tax Assets
Consolidated

Australia
Current tax asset
Deferred tax asset
New ZealandCurrent tax asset
Deferred tax asset
Asia Pacific, Europe & America
Current tax asset
Deferred tax asset

The Company

2011
$m

2010
$m

2011
$m

2010
$m

25
276

61
295

25
372

61
346

301

356

397

407

–
98

14
231

–
6

–
6

98

245

6

6

16
225

1
266

15
174

–
223

241

267

189

Total current and deferred tax assets

640

868

592

223
636

Total current tax assets

41

76

40

61

Deferred tax assets recognised in profit and loss
Collective provision for loans and advances
Individual provision for impaired loans and advances
Other provisions
Deferred fee income
Provision for employee entitlements
Policyholder tax assets1
Other

862
411
334
58
156
261
289

861
458
362
102
144
–
171

707
282
192
42
123
–
106

666
318
223
91
105
–
85

2,371

2,098

1,452

1,488

39
–
–

49
12
–

20
–
–

44
21
29

39

61

20

94

–

351

–

–

(1,811)(1,718)(920)(1,007)

599

792

552

575

Deferred tax assets recognised directly in equity
Defined benefits obligation
Available-for-sale revaluation reserve
Cash flow hedges
Deferred tax assets recognised on acquisitions
Set-off of deferred tax assets pursuant to set-off provisions2
Net deferred tax assets
Unrecognised deferred tax assets
The following deferred tax assets will only be recognised if:
assessable income is derived of a nature and an amount sufficient to enable the benefit
to be realised
the conditions for deductibility imposed by tax legislation are complied with; andno changes in tax legislation adversely affect the Group in realising the benefit.
Unused realised tax losses (on revenue account)

5

9

–

–

Unrealised losses on investments3

386

163

–

–

Total unrecognised deferred tax assets

391

172

–

–

1 Comparatives for 2010 are included in the deferred tax assets recognised on acquisitions.
2 Deferred tax assets and liabilities are set-off where they relate to income tax levied by the same taxation authority on either the same taxable entity or different taxable entities within the same
taxable group.
3 The Group has unrecognised deferred tax assets arising from superannuation funds in OnePath Life Limited.

Notes to the Financial Statements

125

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

19: Goodwill and Other Intangible Assets
Consolidated

Goodwill
Gross carrying amount
Balances at start of the year
Additions through business combinations
Foreign currency exchange differences
Balance at end of year1
SoftwareGross carrying amount
Balances at start of the year
Additions through business combinations
Additions from internal developments
Other additions
Foreign currency exchange differences
Impairment
Balance at end of year
Accumulated amortisation and impairment
Balances at start of the year
Amortisation expense
Foreign currency exchange differences
Impairment
Balance at end of year
Net book value
Balances at start of the year
Balance at end of year
Acquired portfolio of insurance and investment business
Gross carrying amount
Balances at start of the year
Additions through business combination
Foreign currency exchange differences
Balance at end of year
Accumulated amortisation and impairment
Balances at start of the year
Amortisation expense (refer note 4)
Foreign currency exchange differences
Balance at end of year
Net book value
Balances at start of the year
Balance at end of year
Other intangible assets
Gross carrying amount
Balance at start of the year
Additions through business combinations
Other additions
Foreign currency exchange differences
Impairment (refer note 4)
Derecognised on disposal
Balance at end of year
Accumulated amortisation and impairment
Balances at start of the year
Amortisation expense2 (refer note 4)
Balance at end of year
Net book value
Balances at start of the year
Balance at end of year
Goodwill, software and other intangible assets
Net book value
Balances at start of the year
Balance at end of year

The Company

2011
$m

2010
$m

2011
$m

2010
$m

4,086
(5)
82
4,163

2,999
1,292
(205)
4,086

102
(16)
1
87

–
108
(6)
102

2,258
–
591
54
6
(59)
2,850

1,760
60
498
34
(8)
(86)
2,258

2,019
–
517
32
–
(15)
2,553

1,573
–
435
31
(1)
(19)
2,019

1,041
249
3
(15)
1,278

911
207
(8)
(69)
1,041

960
199
–
(8)
1,151

784
183
–
(7)
960

1,217
1,572

849
1,217

1,059
1,402

789
1,059

1,177
–
2
1,179

–
1,179
(2)
1,177

–
–
–
–

–
–
–
–

77
89
–
166

–
78
(1)
77

–
–
–
–

–
–
–
–

1,100
1,013

–
1,100

–
–

–
–

261
30
5
2
(13)
(15)
270

65
181
19
(4)
–
–
261

48
26
–
–
–
–
74

48
–
–
–
–
–
48

34
20
54

17
17
34

11
8
19

8
3
11

227
216

48
227

37
55

40
37

6,630
6,964

3,896
6,630

1,198
1,544

829
1,198

1 Excludes notional goodwill in equity accounted entities.
2 Comprises brand names $1 million (2010: $3 million), aligned advisor relationships $4 million (2010: $2 million), distribution agreements and management fee rights $4 million (2010: $2 million),credit card relationships $2 million (2010: $ nil) and other intangibles $9 million (2010: $10 million). The Company comprises distribution agreements and management fee rights $2 million(2010: $nil), card relationships $2 million (2010: $nil) and other intangibles $4 million (2010: $3 million).

126

ANZ Annual Report 2011

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

19: Goodwill and Other Intangible Assets (continued)
Goodwill allocated to cash–generating units
The goodwill balance above largely comprises the goodwill purchased on acquisition of NBNZ Holdings Limited in December 2003 (included in
the New Zealand division) and OnePath Australia Limited on 30 November 2009 (included in the Australia division). Discussion of the goodwill
and impairment testing for the cash generating unit containing this goodwill is included in note 2(v).

20: Other Assets
Consolidated

The Company

2011
$m

2010
$m

2011
$m

2010
$m

Accrued interest/prepaid discounts
Accrued commissions
Prepaid expenses
Insurance contract liabilities ceded (refer to note 49)
Outstanding premiums
Issued securities settlements
Operating leases residual value
Capitalised expenses
Regulatory deposits
Other

1,323
163
124
427
267
2,235
290
12
1,505
1,555

1,279
283
128
360
231
1,649
229
14
1,056
1,786

999
112
74
–
–
1,560
274
12
497
825

944
191
48
–
–
1,496
205
14
616
788

Total other assets

7,901

7,015

4,353

4,302

21: Premises and Equipment
Consolidated

Freehold and leasehold land and buildings
At costDepreciation
Leasehold improvements
At costDepreciation
Furniture and equipment
At costDepreciation
Computer equipment
At costDepreciation
Capital works in progress
At costTotal premises and equipment

The Company

2011
$m

2010
$m

2011
$m

2010
$m

1,187
(251)

1,244
(235)

696
(71)

699
(53)

936

1,009

625

646

518
(325)

485
(288)

314
(212)

295
(185)

193

197

102

110

1,283
(742)

1,241
(674)

1,041
(570)

1,011
(513)

541

567

471

498

1,177
(853)

1,080
(763)

851
(628)

789
(565)

324

317

223

224

131

68

81

30

2,125

2,158

1,502

1,508

Notes to the Financial Statements

127

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

21: Premises and Equipment (continued)
Reconciliations of the carrying amounts for each class of premises and equipment are set out below:
Consolidated

The Company

2011
$m

2010
$m

2011
$m

2010
$m

1,009
–
30
(68)
(40)
5
936

410
15
631
–
(37)
(10)
1,009

646
–
–
(1)
(20)
–
625

50
12
604
–
(17)
(3)
646

Carrying amount at end of year

197
–
46
(2)
(49)
1
193

156
39
48
–
(42)
(4)
197

110
–
22
–
(30)
–
102

104
2
33
–
(28)
(1)
110

Furniture and equipment
Carrying amount at beginning of year
Additions through business combinations
Additions1
Disposals
Depreciation
Foreign currency exchange difference

567
–
72
(3)
(97)
2

356
18
303
(12)
(91)
(7)

498
–
57
(2)
(81)
(1)

294
3
288
(11)
(75)
(1)

Carrying amount at end of year

541

567

471

498

Carrying amount at end of year

317
–
104
(1)
(99)
3
324

231
13
168
(1)
(90)
(4)
317

224
–
64
–
(67)
2
223

169
4
118
(1)
(65)
(1)
224

Capital works in progress
Carrying amount at beginning of year
Net transfers/additions
Borrowing costs capitalised2

68
63
–

909
(844)
3

30
51
–

832
(805)
3

Freehold and leasehold land and buildings
Carrying amount at beginning of year
Additions through business combinations
Additions1
Disposals
Depreciation
Foreign currency exchange difference
Carrying amount at end of year
Leasehold improvements
Carrying amount at beginning of year
Additions through business combinations
Additions1
Disposals
Amortisation
Foreign currency exchange difference

Computer equipment
Carrying amount at beginning of year
Additions through business combinations
Additions1
Disposals
Depreciation
Foreign currency exchange difference

Carrying amount at end of year

131

68

81

30

Total premises and equipment

2,125

2,158

1,502

1,508

1 Includes transfers.
2 The capitalisation rate used to determine the amount of borrowing costs capitalised is 5.3% (2010: 5.1%).

22: Deposits and Other Borrowings
Consolidated

The Company

2011
$m

2010
$m

2011
$m

2010
$m

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

55,554
153,200
132,812
11,334
14,333
1,496

39,530135,467
111,391
10,598
11,641
1,756

53,904
123,625
113,182
5,974
10,569–37,059108,703
94,999
5,677
6,080
–

Total deposits and other borrowings

368,729

310,383

307,254

252,518

1 Included in this balance is debenture stock of $0.2 billion (2010: $0.5 billion) of Esanda Finance Corporation Limited (Esanda), together with accrued interest thereon, which are secured by a trust
deed and collateral debentures, giving floating charges upon the undertaking and all the assets of the entity of $0.6 billion (2010: $1.3 billion) other than land and buildings. All controlled entities
of Esanda have guaranteed the payment of principal, interest and other monies in relation to all debenture stock and unsecured notes issued by Esanda. The only loans pledged as collateral arethose in Esanda and its subsidiaries. Effective from 18 March 2009, Esanda ceased to write new debentures and since September 2009 stopped writing new loans.
In addition, this balance also includes NZD 1.5 billion (2010: NZD 1.4 billion) of secured debenture stock of the consolidated subsidiary UDC Finance Limited (UDC) and the accrued interest
thereon which are secured by a floating charge over all assets of UDC of NZD 2.0 billion (2010: NZD 2.1 billion).

128

ANZ Annual Report 2011

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

23: Income Tax Liabilities
Consolidated

The Company

2011
$m

2010
$m

2011
$m

2010
$m

1,007
–

905
–

1,007
–

923
–

1,007

905

1,007

923

3
–

–
–

16
–

–
–

3

–

16

–

118
28

68
35

56
27

64
39

146

103

83

103

Total current and deferred income tax liability

1,156

1,008

1,106

1,026

Total current tax payable

1,128

973

1,079

987

303
79
229
317
76
699

–
–
204
452
117
621

–
–
90
319
79
435

–
–
90
454
118
384

1,703

1,394

923

1,046

65
39
32

2
37
–

22
–
2

–
–
–

136

39

24

–

–

320

–

–

Australia
Current tax payable
Deferred tax liabilities
New ZealandCurrent tax payable
Deferred tax liabilities
Asia Pacific, Europe & America
Current tax payable
Deferred tax liabilities

Deferred tax liabilities recognised in profit and loss
Acquired portfolio of insurance and investment business1
Insurance related deferred acquisition costs1
Lease finance
Treasury instruments
Capitalised expenses
Other

Deferred tax liabilities recognised directly in equity
Cash flow hedges
Foreign currency translation reserve
Available-for-sale revaluation reserve
Deferred tax liabilities recognised on acquisitions
Set-off of deferred tax liabilities pursuant to set-off provision2(1,811)(1,718)(920)(1,007)

Net deferred tax liability

28

35

27

39

Unrecognised deferred tax liabilities
The following deferred tax liabilities have not been bought to account as liabilities:
Other unrealised taxable temporary differences3

126

90

17

29

Total unrecognised deferred tax liabilities

126

90

17

29

1 Comparatives for 2010 are included in the deferred tax liabilities recognised on acquisitions.
2 Deferred tax assets and liabilities are set-off where they relate to income tax levied by the same taxation authority on either the same taxable entity or different taxable entities within the same
taxable group.
3 Represents additional potential foreign tax costs should all retained earnings in offshore branches and subsidiaries be repatriated.

24: Payables and Other Liabilities
Consolidated

The Company

2011
$m

2010
$m

2011
$m

2010
$m

Creditors
Accrued interest and unearned discounts
Defined benefits plan obligations
Accrued charges
Security settlements
Other liabilities

896
2,735
148
1,413
2,026
3,033

1,114
2,611
186
1,511
710
1,983

308
2,212
82
1,127
1,219
2,060

394
2,090
167
1,160
635
1,396

Total payables and other liabilities

10,251

8,115

7,008

5,842

Notes to the Financial Statements

129

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

25: Provisions
Consolidated

Employee entitlements1
Restructuring costs and surplus leased space2
Non-lending losses, frauds and forgeries
Other
Total provisions

The Company

2011
$m

2010
$m

2011
$m

2010
$m

540
135
205
368

497
119
188
493

418
78
149
153

358
100
153
220

1,248

1,297

798

831

Reconciliations of the carrying amounts of each class of provision, except for employee entitlements, are set out below:
Consolidated

The Company

2011
$m

2010
$m

2011
$m

2010
$m

Restructuring costs and surplus leased space2
Carrying amount at beginning of the year
Provisions made during the year
Payments made during the year
Transfer/(release) of provision

119
148
(125)
(7)

144
34
(38)
(21)

100
23
(53)
8

124
24
(28)
(20)

Carrying amount at the end of the year

135

119

78

100

Non-lending losses, frauds and forgeries
Carrying amount at beginning of the year
Additions through business combinations
Provisions made during the year
Payments made during the year
Transfer/(release) of provision

188
–
53
(17)
(19)

169
20
31
(41)
9

153
–
27
(3)
(28)

146
–
14
(2)
(5)

Carrying amount at the end of the year

205

188

149

153

Carrying amount at beginning of the year
Additions through business combinations
Provisions made during the year
Payments made during the year
Transfer/(release) of provision

493
–
176
(159)
(142)

412
115
184
(169)
(49)

220
–
81
(34)
(114)

154
–
125
(79)
20

Carrying amount at the end of the year

368

493

153

220

Other provisions3

1 The aggregate liability for employee entitlements largely comprises provisions for annual leave and long service leave.
2 Restructuring costs and surplus leased space provisions arise from exit activities related to material changes in the scope of business undertaken by the Group or the manner in which thatbusiness is undertaken and includes termination benefits. Costs relating to on-going activities are not provided for. Provision is made when the Group is demonstrably committed, it is probablethat the costs will be incurred, though their timing is uncertain, and the costs can be reliably estimated.
3 Other provisions comprise various other provisions including loyalty programs, workers’ compensation, make-good provisions on leased premises and contingent liabilities recognised as partof a business combination.

26: Bonds and Notes
Consolidated

The Company

2011
$m

2010
$m

2011
$m

2010
$m

Bonds and notes by currency
USD
United States dollars
GBP
Great British pounds
AUD
Australian dollars
NZD
New Zealand dollars
JPY
Japanese Yen
EUR
Euro
HKD
Hong Kong dollars
CHF
Swiss francs
CAD
Canadian dollars
NOK
Norwegian krone
SGD
Singapore dollars
CNY
Chinese Yuan

29,089
1,782
1,701
2,148
8,555
7,679
2,265
2,218
800
47
235
32

27,126
2,408
2,039
1,710
8,140
12,807
2,739
2,151
309
48
237
–

21,321
917
1,897
325
8,230
7,679
2,125
1,420
800
47
77
32

19,240
1,524
2,039
68
7,856
12,807
2,638
1,569
309
48
80
–

Total bonds and notes

56,551

59,71444,87048,178130

ANZ Annual Report 2011

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

27: Loan Capital
Consolidated

Hybrid loan capital (subordinated)1
US Trust Securities
UK Stapled Securities
ANZ Convertible Preference Shares (ANZ CPS)2
ANZ CPS1
ANZ CPS2
ANZ CPS3
Perpetual subordinated notes
USD
300m
floating rate notes
NZD
835m
fixed rate notes4

The Company

Interest Rate
%

2011
$m

2010
$m

2011
$m

2010
$m

5.36
6.54

835
720

862
734

768
720

772
734

BBSW + 2.503
BBSW + 3.103
BBSW + 3.103

1,075
1,954
1,322

1,072
1,949
–

1,075
1,954
1,322

1,072
1,949
–

5,906

4,617

5,839

4,527

308
656

310
636

308
–

310
–

964

946

308

310

–
257
–
–
–
–
342
347
100
100
292
195
275
638
289
310
359
500
1,119

329
258
297
290
420
262
314
347
100
100
312
190
266
680
259
310
357
500
1,126

–
257
–
–
–
–
350
350
100
100
292
–
–
638
289
310
365
500
1,119

329
258
300
300
420
–
350
350
100
100
312
–
–
680
290
310
365
500
1,126

LIBOR + 0.15
9.66

Subordinated notes1,5
GBP
USD
AUD
AUD
GBP
NZD
AUD
AUD
AUD
AUD
GBP
NZD
NZD
GBP
AUD
AUD
AUD
AUD
EUR

200m
250m
300m
300m
250m
350m
350m
350m
100m
100m
175m
250m
350m
400m
290m
310m
365m
500m
750m

fixed notes due 20156
floating rate notes due 20166
fixed notes due 20167
floating rate notes due 20166
fixed notes due 20167
fixed notes due 20168
fixed notes due 20176
floating rate notes due 20176
fixed notes due 20176
floating rate notes due 20176
fixed notes due 20176
fixed notes due 20178
fixed notes due 20178
fixed notes due 20187
fixed notes due 20177
floating rate notes due 20176
floating rate notes due 20186
floating rate notes due 20186
fixed notes due 2019

5.625
LIBOR + 0.21
6.25
BBSW + 0.22
4.75
7.16
6.50
BBSW + 0.24
7.30
BBSW + 0.40
6.375
7.60
8.23
4.75
7.75
BBSW + 0.75
BBSW + 1.20
BBSW + 2.05
5.125

5,123

6,717

4,670

6,090

Total loan capital

11,993

12,28010,817

10,927

Loan capital by currency
AUD
Australian dollars
NZD
New Zealand dollars
USD
United States dollars
GBP
Great British pounds
EUR
Euro

6,698
1,126
1,400
1,650
1,119

5,895
1,354
1,430
2,475
1,126

6,715
–
1,333
1,650
1,119

5,986
–
1,340
2,475
1,126

11,993

12,28010,817

10,927

1 Included within the carrying amount are, where appropriate, revaluations associated with fair value hedge accounting or an election to fair value the note through the income statement,
and capitalised borrowing costs.
2 Fully franked preference share dividends recognised as interest expense paid during the year ended 30 September 2011:
Consolidated

ANZ CPS1
ANZ CPS2aANZ CPS3b

The Company

2011
$m

2010
$m

2011
$m

2010
$m

57
111
–

51
78
–

57
111
–

51
78
–

a ANZ CPS2 were issued on 17 December 2009. The first dividend payment was made on 15 March 2010.
b ANZ CPS3 were issued on 28 September 2011. The first dividend payment is due on 1 March 2012.
3 Represents the interest rate grossed up for the franking credits paid or payable.
4 Fixed until the first call date, 18 April 2013, whereupon the rate resets to the five year swap rate +2.00% if not called and remains fixed until the next call date, 18 April 2018 whereupon,
if not called, reverts to floating rate at the three month FRA rate +3.00% and is callable on any interest payment date thereafter.
5 Loan capital balances held in subsidiary entities eliminated in consolidated accounts.
6 Callable five years prior to maturity.
7 Callable five years prior to maturity and reverts to floating rate if not called.
8 Callable five years prior to maturity. Should the bonds not be called, the coupon rate will be reset to the five year swap rate plus issue margin plus 0.50%.

Notes to the Financial Statements

131

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

27: Loan Capital (continued)
Loan capital is subordinated in right of payment to the claims ofdepositors and all other creditors of the Company and its controlled
entities which have issued the notes. The loan capital, except for the
US Trust Securities, UK Stapled Securities and each of the ANZ CPS,
constitutes Tier 2 capital as defined by APRA for capital adequacy
purposes. The US Trust Securities constitute Innovative Residual
Tier 1 capital, as defined by APRA, for capital adequacy purposes.
The UK Stapled Securities and each of the ANZ CPS constituteNon-innovative Residual Tier 1 capital, as defined by APRA, for
capital adequacy purposes.
US TRUST SECURITIESOn 27 November 2003, the Company issued 750,000 USD
non-cumulative Trust Securities (‘US Trust Securities’) at USD1,000
each pursuant to an offering memorandum dated 19 November 2003
raising USD750 million. US Trust Securities comprise two fully paid
securities – an interest paying unsecured note (issued by Samson
Funding Limited, a wholly owned New Zealand subsidiary of theCompany) and a fully paid USD1,000 preference share (issued by
the Company), which are stapled together and issued as a US Trust
Security by ANZ Capital Trust II (the ‘Trust’). Investors have theoption to redeem the US Trust Security from the Trust and holdthe underlying stapled security.
The US Trust Securities were issued in global form and are registeredin the name of Cede & Co as the sole holder. The fully paid preference
shares and the unsecured notes that form part of the US Trust
Securities are registered in the name of The Bank of New York
(Delaware) (as trustee of ANZ Capital Trust II) as the sole holder.
Distributions on US Trust Securities are non-cumulative and arepayable half yearly in arrears at a fixed rate of 5.36% (until redeemedor converted into ANZ ordinary shares) and are funded by payments
received by the Trust on the underlying note. Distributions are subject
to certain payment tests (i.e. APRA requirements and distributableprofits being available). Distributions are expected to be payable on
15 June and 15 December of each year. Dividends are not payable on
the preference share while it is stapled to the note. If distributions are
not paid on the US Trust Securities, the Group may not pay dividends
or distributions, or return capital, on ANZ ordinary shares or any othershare capital or security ranking equal or junior to the preference
share component (subject to certain exceptions).
After 15 December 2013 and at any coupon date thereafter, ANZ has
the discretion to redeem the US Trust Securities for cash. If it does
not exercise this discretion, the investor is entitled to require ANZ toexchange the US Trust Security into a number of ANZ ordinary sharesbased on the formula in the offering memorandum at a 5% discount.
At any time at the Company’s discretion or upon the occurrence of
certain other ‘conversion events’, such as the failure of the Trust to
pay in full a distribution within seven business days of the relevant
distribution payment date, the notes that are represented by the
US Trust Securities will be automatically assigned to a subsidiaryof the Company and the preference shares that are represented
by the US Trust Securities will be distributed to investors in
redemption of such US Trust Securities. The distributed preference
shares will immediately become dividend paying and holders will
receive non-cumulative dividends equivalent to the scheduled
payments in respect of the US Trust Securities. If the US Trust
Securities are not redeemed or bought back prior to the 15 December
2053, they will be converted into preference shares, which in turn will
be mandatorily converted into a variable number of ANZ ordinary
shares based upon the formula in the offering memorandum.

132

ANZ Annual Report 2011

The preference shares forming part of the US Trust Securities rank
equally with each of the ANZ CPS and the preference shares issued
in connection with the UK Stapled Securities and Euro Trust Securities
in all respects.
The preference shares forming part of the US Trust Securities confer
voting rights in the Company in the following limited circumstances:
any proposal to reduce the Company’s share capital;
on a proposal that affects rights attached to the preference shares;
any resolution to approve the terms of a share buy-back agreement:
any proposal for the disposal of the whole of the Company’s
property, business and undertaking;on any proposal to wind up the Company and any matter during
the Company’s winding up, andon all matters on which the holders of ANZ ordinary shares areentitled to vote during a special voting period. A “special voting
period” is a period from any dividend payment date where
preference shares dividends are not paid in full in respect of theimmediately preceding semi-annual dividend period or the 24th
business day after the failure of Samson Funding Limited to makean interest payment in full on the notes that form part of the US
Trust Securities and the Company does not make the payment
pursuant to the relevant guarantee or pay an optional dividendon the preference shares within a prescribed time period.
On a resolution or proposal on which a preference share holder isentitled to vote, the holder has on a poll one vote per preference
share held.
If the US Trust Securities are converted into ANZ ordinary shares inaccordance with their terms of issue, the voting rights of the ANZ
ordinary shares will be as set out on page 220.
On winding up of the Company, the rights of US Trust Security
holders will be determined by the preference share component of
US Trust Security. These preference shares rank behind all depositorsand creditors, but ahead of ordinary shareholders.
UK STAPLED SECURITIESOn 15 June 2007, the Company issued 9,000 non-cumulative,
mandatory convertible stapled securities (‘UK Stapled Securities’)at £50,000 each pursuant to a prospectus dated 12 June 2007 raising£450 million. UK Stapled Securities comprise two fully paid securities– an interest paying unsecured subordinated £50,000 note issued by
the Company through its New York Branch and a £50,000 preference
share issued by the Company, which are stapled together.
The fully paid preference shares and the subordinated notes issued
by the Company that constitute the UK Stapled Securities were
issued in global form and are registered in the name of BT Globenet
Nominees Limited as the sole holder.
Distributions on UK Stapled Securities are non-cumulative andare payable half yearly in arrears at a fixed rate of 6.54% (untilconverted into ANZ ordinary shares or the rate is reset as provided
in the prospectus). Distributions are subject to certain payment
tests (including APRA requirements and distributable profits being
available). Distributions are expected to be payable on 15 June and
15 December of each year. Dividends are not payable on a preference
share while it is stapled to a note. If distributions are not paid on UK
Stapled Securities, the Group may not pay dividends or distributions,or return capital, on ANZ ordinary shares or any other share capital or
security ranking equal or junior to the preference share component(subject to certain exceptions).

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

27: Loan Capital (continued)
At any time at the Company’s discretion or upon the occurrenceof certain other events, such as the commencement of proceedings
for the winding up of the Company, the note component of the
UK Stapled Security will be assigned to the Company and the holder willretain only the preference share component of the UK Stapled Security.
On 15 June 2012 (‘conversion date’), or an earlier date undercertain circumstances, UK Stapled Securities will mandatorily convert
into a variable number of ANZ ordinary shares determined inaccordance with the formula in the prospectus at a 5% discount.
The mandatory conversion to ANZ ordinary shares is however deferred
for five years if the conversion tests set out in the prospectus are not met.
The preference shares forming part of the UK Stapled Securities
rank equally with each of the ANZ CPS and the preference sharesissued in connection with US Trust Securities and Euro Trust Securities.
The preference shares forming part of the UK Stapled Securities confer
voting rights in the Company in the following limited circumstances:
any proposal to reduce the Company’s share capital, other than aresolution to approve a redemption;
on a proposal that affects rights attached to the preference shares;
any resolution to approve the terms of a share buy-back agreement,
other than a resolution to approve the redemption of preference
shares;any proposal for the disposal of the whole of the Company’s
property, business and undertaking;on any proposal to wind up the Company and any matter during
the Company’s winding-up; andon all matters on which the holders of ANZ ordinary shares areentitled to vote during a special voting period. A “special voting
period” is the period from the date preference share dividends are
not paid in full in respect of the immediately preceding semi-annual
dividend period or the date on which the Company’s New Yorkbranch fails to make an interest payment in full on the subordinatednotes to the dates prescribed in the terms of issue.
On a resolution or proposal on which a preference share holder isentitled to vote, the holder has on a show of hands one vote, andon a poll one vote per preference share held.
If the UK Stapled Securities are converted into ANZ ordinary sharesin accordance with their terms of issue, the voting rights of the ANZ
ordinary shares will be as set out on page 220.
As noted above, in a winding up of the Company, the note componentof the UK Stapled Security will be assigned to the Company and theholder will retain only the preference share component of the UK
Stapled Security. Accordingly, the rights of investors in UK Stapled
Securities in a winding up of the Company are the rights conferredby the preference share component of UK Stapled Securities.
These preference shares rank behind all depositors and creditors,
but ahead of ordinary shareholders.

ANZ CONVERTIBLE PREFERENCE SHARES (ANZ CPS)
On 30 September 2008, the Company issued 10.8 million
convertible preference shares (‘ANZ CPS1’) at $100 each pursuant
to a prospectus dated 4 September 2008, raising $1,081 million(excluding issue costs of $13 million: net raising of $1,068 million).
On 17 December 2009, the Company issued 19.7 million
convertible preference shares (‘ANZ CPS2’) at $100 each pursuant
to a prospectus dated 18 November 2009, raising $1,969 million(excluding issue costs of $24 million: net raising of $1,945 million).
On 28 September 2011, the Company issued 13.4 million
convertible preference shares (‘ANZ CPS3’, together with ANZ CPS1
and ANZ CPS2 the ‘ANZ CPS’) at $100 each pursuant to a prospectus
dated 31 August 2011 raising $1,340 million (excluding issue costsof $18 million; net raising of $1,322 million).
ANZ CPS are fully paid, preferred, non-cumulative, mandatorily
convertible preference shares. ANZ CPS are listed on the Australian
Stock Exchange.
Dividends on ANZ CPS are non-cumulative and are payable quarterly
in arrears in December, March, June and September (in the case of
ANZ CPS1 and ANZ CPS2) and semi-annually in arrears in March and
September (in the case of ANZ CPS3) in each year and will be franked
in line with the franking applied to ANZ ordinary shares. The dividends
will be based on a floating dividend rate equal to the aggregate of
the 90 day bank bill rate plus a 250 basis point margin (in the case of
ANZ CPS1) and a 310 basis point margin (in the case of ANZ CPS2)
and the 180 day bank bill rate plus 310 basis point margin (in the caseof ANZ CPS3), multiplied by one minus the Australian Company tax
rate. Quarterly or semi-annually (as applicable), the relevant 90 or 180
day bank bill rate is reset for the next dividend period. Should thedividend not be fully franked, the terms of the security provide for acash gross up for the amount of the franking benefit not provided.
Dividends are subject to the absolute discretion of the Board of
Directors of the Company and certain payment tests (including APRA
requirements and distributable profits being available). If dividends
are not paid on ANZ CPS, the Group may not pay dividends or
distributions, or return capital, on ANZ ordinary shares or (in the caseof ANZ CPS1 and ANZ CPS2 only) any other share capital or security
ranking equal or junior to the ANZ CPS for a specified period (subject
to certain exceptions).
On 16 June 2014 (in the case of ANZ CPS1), 15 December 2016
(in the case of ANZ CPS2) or 1 September 2019 (in the case of ANZ
CPS3) (each a ‘conversion date’), or an earlier date under certain
circumstances, the relevant ANZ CPS will mandatorily convert intoa variable number of ANZ ordinary shares determined in accordancewith the formula in the relevant prospectus based on $100 divided
by the average market price of ordinary shares over a 20 day trading
period ending at the conversion date less a 2.5% discount (in the caseof ANZ CPS1) or 1.0% discount (in the case of ANZ CPS2 and ANZ CPS3).
The mandatory conversion to ANZ ordinary shares is howeverdeferred for a quarter (in the case of ANZ CPS1 and ANZ CPS2) andsemi-annually (in the case of ANZ CPS3) if the conversion tests set
out in the relevant prospectus are not met.
In respect of ANZ CPS3 only, if a common equity trigger event occurs
the ANZ CPS3 will immediately convert into ANZ ordinary shares on
the basis of the calculation set out above, but subject to a maximum
conversion number of 10.2407 ANZ ordinary shares per ANZ CPS3
and using a five day trading period ending on the conversion date.
A common equity trigger event occurs if ANZ’s Common Equity Tier 1
capital ratio) is equal to or less than 5.125%.

Notes to the Financial Statements

133

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

27: Loan Capital (continued)
In respect of ANZ CPS3 only, on 1 September 2017 and eachsubsequent semi annual Dividend Payment Date, subject to receiving
APRA’s prior approval and satisfying certain conditions, the Company
has the right to redeem or convert into ANZ ordinary shares all orsome ANZ CPS3 in its discretion. Conversion is on the same terms
as mandatory conversion on a conversion date.

If any of the ANZ CPS are converted into ANZ ordinary shares inaccordance with their terms of issue, the voting rights of the ANZ
ordinary shares will be as set out on page 220.
In a winding up of the Company, the ANZ CPS rank behind all
depositors and creditors, but ahead of ordinary shareholders.

The ANZ CPS rank equally with each other and the preference sharesissued in connection with US Trust Securities, UK Stapled Securities
and Euro Trust Securities. Except in limited circumstances, holders
of ANZ CPS do not have any right to vote in general meetings of
the Company. Refer to pages 221 to 223 for details of the voting
rights of ANZ CPS1, ANZ CPS2 and ANZ CPS3 respectively.

28: Share Capital
The Company
Numbers of issued shares

2011

2010

Ordinary shares each fully paid
Preference shares each fully paid

2,629,034,037
500,000

2,559,662,425
500,000

Total number of issued shares

2,629,534,037

2,560,162,425

ORDINARY SHARES
Ordinary shares have no par value and entitle holders to receive dividends payable to ordinary shareholders and to participate in the proceeds
available to ordinary shareholders on winding up of the Company in proportion to the number of fully paid ordinary shares held.
On a show of hands every holder of fully paid ordinary shares present at a meeting in person or by proxy is entitled to one vote, and upona poll one vote for each share held.
The Company
Numbers of issued shares

Balance at start of the year
Bonus option plan1
Dividend reinvestment plan1
ANZ employee share acquisition plan
ANZ share option plan2
Balance at end of year

2011

2010

2,559,662,425
3,013,239
61,685,747
2,340,296
2,332,330
2,629,034,037

2,504,540,925
2,481,103
46,750,640
3,810,413
2,079,344
2,559,662,425

Consolidated

Ordinary share capital
Balance at start of the year
Dividend reinvestment plan1
ANZ employee share acquisition plan2,3
OnePath Australia Treasury shares4
ANZ share option plan2
Balance at end of year

The Company

2011
$m

2010
$m

2011
$m

2010
$m

19,886
1,367
45
2
43
21,343

19,151
1,007
51
(360)
37
19,886

20,246
1,367
45
–
43
21,701

19,151
1,007
51
–
37
20,246

1 Refer to note 7 for details of plan.
2 Refer to note 46 for details of plan.
3 Includes on-market purchase of shares for settlement of amounts due under share-based compensation plans. In addition, 2,340,296 shares were issued during the year ended 30 September
2011 to the Group’s Employee Share Trust for settlement of amounts due under share-based compensation plans (2010: 3,810,413). As at 30 September 2011, there were 13,795,601 Treasury
shares outstanding (2010: 11,472,666).
4 ANZ acquired OnePath Australia Limited (OPA) on 30 November 2009. OPA treasury shares include shares held in statutory funds as assets backing policyholder liabilities. OPA Treasury shares
outstanding as at 30 September 2011 were 16,469,102 (2010: 16,710,967).

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NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

28: Share Capital (continued)
PREFERENCE SHARESEuro Trust Securities
On 13 December 2004, the Company issued 500,000 Euro Floating
Rate Non-cumulative Trust Securities (‘Euro Trust Securities’) at€1,000 each pursuant to the offering circular dated 9 December 2004,
raising $871 million (at the spot rate at the date of issue, net of issue
costs). Euro Trust Securities comprise two fully paid securities – aninterest paying unsecured note (issued by ANZ Jackson Funding plc, aUnited Kingdom subsidiary of the Company) and a fully paid, €1,000
preference share (issued by the Company), which are stapled together
and issued as a Euro Trust Security by ANZ Capital Trust III (the Trust).
Investors have the option to redeem the Euro Trust Security from theTrust and hold the underlying stapled security.
The Euro Trust Securities were issued in global form and are registeredin the name of The Bank of New York Depositary (Nominees) Limited
as the sole holder. The fully paid preference shares and unsecured
notes that form part of the Euro Trust Securities are registered in thename of The Bank of New York (as trustee for ANZ Capital Trust III) as
the sole holder.
Distributions on Euro Trust Securities are non-cumulative and arepayable quarterly in arrears and are funded by payments received
by the Trust on the underlying note and/or preference share. The
distribution is based upon a floating distribution rate equal to
the three month EURIBOR rate plus a 66 basis point margin up
until 15 December 2014, after which date the distribution rate is
the three month EURIBOR rate plus a 166 basis point margin. At
each payment date the three month EURIBOR rate is reset for the
next quarter. Distributions are subject to certain payment tests(i.e. APRA requirements and distributable profits being available).
Distributions are expected to be payable on 15 March, 15 June,
15 September and 15 December of each year. Dividends are notpayable on the preference shares while they are stapled to the note,
except for the period after 15 December 2014 when the preference
share will pay 100 basis points to fund the increase in the margin.
If distributions are not paid on Euro Trust Securities, the Group may
not pay dividends or distributions, or return capital on ANZ ordinary
shares or any other share capital or security ranking equal or junior
to the preference share component (subject to certain exceptions).
At any time at ANZ’s discretion or upon the occurrence of certain
other ‘conversion events’, such as the failure of the Trust to pay
in full a distribution within seven business days of the relevant
distribution payment date or the business day prior to 15 December
2053, the notes that are represented by the relevant Euro Trust
Securities will be automatically assigned to a branch of the Company
and the fixed number of preference shares that are represented by
the relevant Euro Trust Securities will be distributed to investors in
redemption of such Euro Trust Securities. The distributed preference

shares will immediately become dividend paying and holders
will receive non-cumulative dividends equivalent to the scheduled
payments in respect of the Euro Trust Securities for which thepreference shares were distributed.
The preference shares forming part of each Euro Trust Security rank
equally with each of the ANZ CPS and the preference shares issued
in connection with the US Trust Securities and UK Stapled Securities
in all respects.
The preference shares forming part of the Euro Trust Securities confer
voting rights in the Company in the following limited circumstances:
any proposal to reduce the Company’s share capital, other thana resolution to approve a redemption or reduction of capital inconnection with the preference shares;
on a proposal that affects rights attached to the preference shares;
any resolution to approve the terms of a share buy-back agreement,
other than a resolution to approve a buy-back (other than an onmarket buy-back) of preference shares;
any proposal for the disposal of the whole of the Company’s
property, business and undertaking;on any proposal to wind up the Company and any matter during
the Company’s winding-up; andon all matters on which the holders of ANZ ordinary shares areentitled to vote during a special voting period. A “special voting
period” is a period from any dividend payment date where
preference share dividends are not paid in full in respect of theimmediately preceding quarterly dividend period or the 24th
business day after the failure of ANZ Jackson Funding plc to makean interest payment in full on the notes that form part of the Euro
Trust Securities and the Company does not make the payment
pursuant to the relevant guarantee or pay an optional dividendon the preference shares within a prescribed time period.
On a resolution or proposal on which a preference share holder isentitled to vote, the holder has on a show of hands one vote, andon a poll, one vote per preference share held.
On winding up of the Company, the rights of Euro Trust Security
holders will be determined by the preference share componentof the Euro Trust Security. These preference shares rank behindall depositors and creditors, but ahead of ordinary shareholders.
The transaction costs arising on the issue of these instruments
were recognised directly in equity as a reduction to the proceedsof the equity instruments to which the costs relate.
Euro Trust Securities qualify as Innovative Residual Tier 1 Capitalas defined by APRA.

Consolidated

The Company

2011
$m

2010
$m

2011
$m

2010
$m

Preference share balance at start of year
– Euro Trust Securities

871

871

871

871

Preference share balance at end of year
– Euro Trust Securities

871

871

871

871

Notes to the Financial Statements

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29: Reserves and Retained Earnings
Consolidated

The Company

2011
$m

2010
$m

2011
$m

2010
$m

a) Foreign currency translation reserve
Balance at beginning of the year
Currency translation adjustments, net of hedges after tax(2,742)324(1,725)(1,017)

(773)
97

(436)
(337)

Total foreign currency translation reserve(2,418)(2,742)

(676)

(773)

b) Share option reserve1
Balance at beginning of the year
Share-based payments
Transfer of options/rights lapsed to retained earnings2

64
(13)
(1)

69
7
(12)

64
(13)
(1)

69
7
(12)

Total share option translation reserve

50

64

50

64

c) Available-for-sale revaluation reserve
Balance at beginning of the year
Valuation gain/(loss) recognised after tax
Cumulative (gain)/loss transferred to the income statement

80
30
16

(41)
112
9

5
(13)
43

(18)
45
(22)

Total available-for-sale revaluation reserve

126

80

35

5

d) Hedging reserve
Balance at beginning of the year
Gains/(loss) recognised after tax
Transfer (to)/from income statement

11
164
(6)

(90)
138
(37)

(73)
128
(8)

(109)
84
(48)

Total hedging reserve

169

11

47

(73)

e) Transactions with non-controlling interests reserve
Balance at beginning of the year
Transactions with non-controlling interests3

–
(22)

–
–

–
–

–
–

Total transactions with non-controlling interests reserve
Total reserves

(22)

–

–

–

(2,095)(2,587)

(544)

(777)

1 Further information about share based payments to employees is disclosed in note 46.
2 The transfer of balances from the share option and capital reserves to retained earnings represent items of a distributable nature.
3 The premium in excess of the book value paid to acquire an additional interest in a controlled entity from the non controlling shareholder.

Consolidated

The Company

2011
$m

2010
$m

2011
$m

2010
$m

15,921
5,355
1
(10)

14,129
4,501
12
(4)

11,666
4,151
1
24

9,950
4,428
12
(18)

–
23
(3,491)
(12)

(39)
–
(2,667)(11)––(3,491)–(39)–(2,667)–Retained earnings at end of year

17,787

15,921

12,351

11,666

Total reserves and retained earnings

15,692

13,334

11,807

10,889Retained earnings
Balance at beginning of the year
Profit attributable to shareholders of the Company
Transfer of options/rights lapsed from share option reserve1,2Actuarial gain/(loss) on defined benefit plans after tax3
Adjustments to opening retained earnings on adoptionof revised accounting standard AASB 3R
Dividend income in Treasury shares
Ordinary share dividend paid
Preference share dividend paid

1 Further information about share based payments to employees is disclosed in note 46 to the financial statements.
2 The transfer of balances from the share option, general and capital reserves to retained earnings represent items of a distributable nature.
3 ANZ has taken the option available under AASB 119 to recognise actuarial gains/losses on defined benefit superannuation plans directly in retained profits (refer note 1 F(vi) and note 45).

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NOTESNOTESTOTOTHE
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FINANCIALSTATEMENTS
STATEMENTS

29: Reserves and Retained Earnings (continued)a) Foreign currency translation reserve
The translation reserve comprises exchange differences, net of hedges, arising on translation of the financial statements of foreign operations,as described in note 1 A(viii). When a foreign operation is sold, attributable exchange differences are recognised in the income statement.
b) Share option reserve
The share option reserve arises on the grant of options, performance rights and deferred share rights to selected employees under the
ANZ share option plan. Amounts are transferred out of the reserve and into share capital when the equity investments are exercised. Referto note 1 C(iii).
c) Available-for-sale revaluation reserve
Changes in the fair value and exchange differences on the revaluation of available-for-sale financial assets are taken to the available-for-salerevaluation reserve. Where a revalued available-for-sale financial asset is sold, that portion of the reserve which relates to that financial asset,
is realised and recognised in the income statement. Where the available-for-sale financial asset is impaired, that portion of the reserve which
relates to that asset is recognised in the income statement. Refer to note 1 E(iii).
d) Hedging reserve
The hedging reserve represents hedging gains and losses recognised on the effective portion of cashflow hedges. The cumulative deferred gainor loss on the hedge is recognised in the income statement when the hedged transaction impacts the income statement. Refer to note 1 E(ii).

30: Non-controlling interests
Consolidated
2011
$m

2010
$m

Share capital
Retained profit

43
5

36
28

Total non-controlling interests

4864

Notes to the Financial Statements

137

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31: Capital Management
ANZ pursues an active approach to capital management, which
is designed to protect the interests of depositors, creditors andshareholders. This involves the on-going review and Board approvalof the level and composition of ANZ’s capital base, assessed against
the following key policy objectives:
Regulatory compliance such that capital levels exceed APRA’s,
ANZ’s primary prudential supervisor, minimum Prudential
Capital Ratios (PCRs) both at Level 1 (the Company and specified
subsidiaries) and Level 2 (ANZ consolidated under Australianprudential standards), along with US Federal Reserve’s minimum
Level 2 requirements under ANZ’s Foreign Holding Company
Licence in the United States of America.
Capital levels are aligned with the risks in the business and tomeet strategic and business development plans through ensuringthat available capital exceeds the level of Economic Capitalrequired to support the Ratings Agency ‘default frequency’
confidence level for a ‘AA’ credit rating category bank. Economic
Capital is an internal estimate of capital levels required to support
risk and unexpected losses above a desired target solvency level;
Capital levels are commensurate with ANZ maintaining its preferred‘AA’ credit rating category for senior long-term unsecured debt
given its risk appetite outlined in its strategic plan; andAn appropriate balance between maximising shareholder returns
and prudent capital management principles.
ANZ achieves these objectives through an Internal Capital Adequacy
Assessment Process (ICAAP) whereby ANZ conducts detailed strategic
and capital planning over a medium term time horizon.
Annually, ANZ conducts a detailed strategic planning process overa three year time horizon, the outcomes of which are embodied in
the Strategic Plan. This process involves forecasting key economic
variables which Divisions use to determine key financial data for
their existing business. New strategic initiatives to be undertakenover the planning period and their financial impact are thendetermined. These processes are used for the following:
Review capital ratios, targets, and levels of different classes ofcapital against ANZ’s risk profile and risk appetite outlined in theStrategic Plan. ANZ’s capital targets reflect the key policy objectives
above, and the desire to ensure that under specific stressed
economic scenarios that capital levels are sufficient to remain
above both Economic Capital and PCR requirements.
Stress tests are performed under different economic conditions
to ensure a comprehensive review of ANZ’s capital position both
before and after mitigating actions. The stress tests determine
the level of additional capital (i.e. the ‘capital buffer’ above Pillar 1
minimum capital) needed to absorb losses that may be experienced
during an economic downturn.
Stress testing is integral to strengthening the predictive approach
to risk management and is a key component in managing risks,
asset writing strategies and business strategies. It creates greater
understanding of the impacts on financial performance throughmodelling relationships and sensitivities between geographic,
industry and Division exposures under a range of macro economic
scenarios. ANZ has a dedicated stress testing team within Risk
Management that models and reports to management andthe Board’s Risk Committee on a range of scenarios and stress tests.

138

ANZ Annual Report 2011

Results are subsequently used to:recalibrate ANZ’s management targets for minimum and operating
ranges for its respective classes of capital such that ANZ will remaincompliant with APRA’s PCRs and US Federal Reserve’s minimum
Tier 1 and Total Capital requirements; andidentify the level of organic capital generation and hence
determine current and future capital requirements for theCompany (Level 1) and the Group (Level 2).
From these processes, a Capital Plan is developed and approvedby the Board which identifies the capital issuance requirements,
capital securities maturity profile, and options around capital
products, timing and markets to execute the Capital Plan under
differing market and economic conditions.
The Capital Plan is maintained and updated through a monthly
review of forecast financial performance, economic conditions
and development of business initiatives and strategies. The Boardand senior management are provided with monthly updates of ANZ’scapital position. Any actions required to ensure ongoing prudent
capital management are submitted to the Board for approval.
Regulatory environment
ANZ’s regulatory capital calculation is governed by APRA’s Prudential
Standards which adopt a risk-based capital assessment framework
based on the Basel II capital measurement standards. This risk-based
approach requires eligible capital to be divided by total risk weighted
assets (RWAs), with the resultant ratio being used as a measure of abank’s capital adequacy. APRA determines PCRs for Tier 1 and Total
Capital, with capital as the numerator and RWAs as the denominator.
To ensure that Authorised Deposit-taking Institutions (ADIs) are
adequately capitalised on both a stand-alone and group basis, APRA
adopts a tiered approach to the measurement of an ADI’s capital
adequacy by assessing the ADIs financial strength at three levels:
Level 1 – the ADI on a stand-alone basis (i.e. the Company andapproved subsidiaries which are consolidated to form the ADIs’
Extended Licensed Entity);
Level 2 – the consolidated banking group (i.e. the consolidated
financial group less certain subsidiaries and associates excluded
under the prudential standards); andLevel 3 – the conglomerate group at the widest level.
ANZ is a Level 1 and Level 2 reporter, and measures capital adequacy
monthly on a Level 1 and Level 2 basis, and is not required to reporton a Level 3 basis.
Regulatory capital is divided into Tier 1, carrying the highest capitalelements, and Tier 2, which has lower capital elements, but still adds
to the overall strength of the ADI.
Tier 1 capital is comprised of ‘Fundamental’ capital, ‘Residual’ capital,
and Tier 1 deductions. Fundamental capital comprises shareholders’equity adjusted for items which APRA does not allow as regulatory
capital or classifies as lower forms of regulatory capital. Fundamental
capital includes the following significant adjustments:
Residual Tier 1 capital instruments included within shareholders
equity are excluded;
Reserves exclude the Hedging reserve and Available-for-salerevaluation reserve, and reserves of insurance and funds management
subsidiaries and associates excluded for Level 2 purposes;

NOTESNOTESTOTOTHE
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FINANCIALSTATEMENTS
STATEMENTS

31: Capital Management (continued)
Retained earnings excludes retained earnings of insurance andfunds management subsidiaries and associates excluded for Level 2
purposes, but includes capitalised deferred fees forming part of loan
yields that meet the criteria set out in the prudential standard; andCurrent year net of tax earnings is net of any interim and special
dividends paid during the current year, and the expected final
dividend payment, net of the expected dividend reinvestment
under the Dividend Reinvestment Plan and Bonus Option Plan, andexcludes profits of insurance and funds management subsidiaries
and associates excluded for Level 2 purposes.
Residual capital covers Non-innovative and Innovative Hybrid Tier 1
instruments with limits restricting the volume that can be counted
as Tier 1 capital.
Tier 1 capital deductions include amounts deducted solely fromTier 1 capital. These deductions are mainly intangible assets being:
goodwill;value in force as to acquired insurance/investment
business portfolios;
capitalised software;
capitalised brokerage and borrowing expenses;
net deferred tax assets.

Following on from the December 2010 Basel Committee paper on
prudential capital reforms, on 6 September 2011 APRA released a
discussion paper detailing the implementation of their proposed
Basel III capital reforms in Australia.
The discussion paper adopts the Basel III reforms with increased
capital deductions from Common Equity Tier 1 capital, higher
capital targets with prescribed minimum capital buffers; and tighter
requirements around Hybrid Tier 1 and Tier 2 securities. Based on
ANZ’s interpretation of the APRA discussion paper, coupled with thehigher risk weighting for counterparty credit risk proposed by theDecember 2010 Basel Committee paper, ANZ’s ratios are well above
minima proposed by APRA at the January 2013 implementation date.
Basel Committee is still to release final proposals for contingent
capital and measures to address systematic and inter-connectedrisks – these are expected in 2012.

Tier 1 deductions also include deductions taken 50% from Tier 1
and 50% from Tier 2, which mainly include the tangible componentof investment in other subsidiaries and investments in associates
regulated by APRA, or their overseas equivalent, and the amount of
Expected Losses (EL) in excess of Eligible Provisions for Loan Losses(net of tax).
Tier 2 capital is comprised of Upper and Lower Tier 2 capital lesscapital deductions taken 50% from Tier 2 capital. Upper Tier 2 capital
mainly comprises perpetual subordinated debt instruments, whilst
Lower Tier 2 capital includes dated subordinated debt instruments
which have a minimum term of five years at issue date.
Total Capital is the sum of Tier 1 capital and Tier 2 capital.
In addition to the prudential capital oversight that APRA conducts
over the Company and the Group, the Company’s branch operations
and major banking subsidiary operations are overseen by local
regulators such as the Reserve Bank of New Zealand, the US Federal
Reserve, the UK Financial Services Authority, the Monetary Authorityof Singapore, the Hong Kong Monetary Authority, the China Banking
Regulatory Commission who may impose minimum capitalisation
rates on those operations.
Throughout the financial year, the Company and the Group
maintained compliance with the minimum Tier 1 and Total Capitalratios set by APRA and the US Federal Reserve as well as applicable
capitalisation rates set by regulators in countries where the Company
operates branches and subsidiaries.
Regulatory change
The Basel Committee on Banking Supervision has released a seriesof consultation papers (Basel III) containing a number of proposals
to strengthen the global capital and liquidity framework to improvethe banking sector’s ability to absorb shocks arising from financial
and economic stress.

Notes to the Financial Statements

139

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STATEMENTS

31: Capital Management (continued)
The table below provides the composition of capital used for regulatory purposes and capital adequacy ratios.
2011
$m

2010
$m

Regulatory capital – qualifying capital
Tier 1
Shareholders' equity and non-controlling interests
Prudential adjustments to shareholders' equity

37,954(3,479)34,155(2,840)Fundamental Tier 1 capital
Deductions1
Common Equity Tier 1 capital
Non-innovative Tier 1 capital instruments
Innovative Tier 1 capital instruments

34,475(10,611)23,864
5,111
1,641

31,315(10,057)
21,2583,787
1,646

Tier 1 capital

30,616

26,691

Tier 2Upper Tier 2 capital
Subordinated notes2
Deductions

1,228
5,017
(3,071)

1,223
6,619
(3,026)Tier 2 capital

3,174

4,816

Total qualifying capital

33,79031,507

Capital adequacy ratios
Common Equity Tier 1
Tier 1
Tier 2

8.5%
10.9%
1.2%

8.0%
10.1%
1.8%

Total

12.1%

11.9%

1 Includes goodwill (excluding OnePath Australia Limited and OnePath New Zealand Limited) of $2,968 million (2010: $2,910 million) and $2,071 million (2010: $2,043 million) intangible
component of investment in OnePath Australia Limited and OnePath New Zealand Limited.
2 For capital adequacy calculation, subordinated note issues are reduced by 20% of the original amount over the last four years to maturity and are limited to 50% of Tier 1 capital.

Regulatory environment – insurance and funds management business
Under APRA’s Prudential Standards, life insurance and funds management activities are de-consolidated for the purposes of calculating
capital adequacy and excluded from the risk based capital adequacy framework for the ANZ Level 2 Group. The intangible component of
the investment in these controlled entities is deducted from Tier 1 capital with the balance of the investment deducted 50% from Tier 1
and 50% from Tier 2 capital. Additionally any profits from these activities included in ANZ’s results are excluded from the determination ofTier 1 capital to the extent they have not been remitted to the Level 2 Group.
ANZ’s life insurance business in Australia is regulated by APRA as a separate business. The Life Act (1995) includes a two tiered framework
for the calculation of regulatory capital requirements for life insurance companies – ‘solvency’ and ‘capital adequacy’. There are no regulatory
capital requirements for life insurance companies in New Zealand. ANZ determines the minimum capital requirements for its New Zealand life
insurance business according to the professional standard, ‘Solvency Reserving for Life Insurers’, issued by the New Zealand Society of Actuaries.
Fund managers in Australia are subject to ‘Responsible Entity’ regulation by the Australian Securities and Investment Commission (‘ASIC’).
The regulatory capital requirements vary depending on the type of Australian Financial Services Licence or Authorised Representatives’ Licenceheld, but a requirement of up to $5 million of net tangible assets applies.
APRA supervises approved trustees of superannuation funds and requires them to also maintain net tangible assets of at least $5 million.
These requirements are not cumulative where an entity is both an approved trustee for superannuation purposes and a responsible entity.
ANZ’s insurance and funds management companies held assets in excess of regulatory capital requirements at 30 September 2011.

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32: Assets Charged as Security for Liabilities and Collateral Accepted as Security for Assets
Assets charged as security for liabilities
The following assets are pledged as collateral:
Mandatory reserve deposits with local central banks in accordance with statutory requirements. These deposits are not available to financethe Group’s day to day operations.
Securities provided as collateral for repurchase transactions. These transactions are governed by standard industry agreements.
Debenture undertakings covering the assets of Esanda Finance Corporation Limited (Esanda) and its subsidiaries and UDC Finance Limited(UDC). The debenture stock of Esanda and its subsidiaries and UDC is secured by a trust deed and collateral debentures, giving floating
charges upon the undertaking of all the tangible assets of the entity, other than land and buildings. All controlled entities of Esanda and UDC
have guaranteed the payment of principal, interest and other monies in relation to all debenture stock and unsecured notes issued by Esanda
and UDC respectively. The only loans pledged are those in UDC and its subsidiaries.
Cash placed on deposit with a third party that is provided as collateral for a liability in a structured funding transaction. The funding
was raised through a subsidiary, and to achieve more favourable pricing terms, ANZ provided cash collateral, given by the Company.
Collateral provided to central banks.
Specified housing loans provided as security for notes issued to investors by a securitisation special purpose vehicle.
The carrying amounts of assets pledged as security are as follows:
Consolidated

Regulatory deposits
Securities sold under arrangements to repurchase
Assets pledged as collateral under debenture undertakings
Cash deposited in structured funding transaction
Securitisation
Other

The Company

Carrying Amount

Related Liability

Carrying Amount

Related Liability

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

1,505
1,872
2,146
840
166
52

1,056
1,858
2,899
840
211
153

n/a
1,869
1,372
2,000
166
–

n/a
1,733
1,545
2,000
211
–

497
1,511
–
840
–
52

616
1,703
–
840
–
153

n/a
1,510
–
–
–
–

n/a
1,564
–
–
–
–

Collateral accepted as security for assets1
ANZ has received collateral as part of entering reverse repurchase agreements. These transactions are governed by standard industry agreements.
The fair value of collateral received and provided is as follows:
Consolidated

Collateral received on standard repurchase agreement2
Fair value of assets which can be soldAmount of collateral that has been resold

The Company

2011
$m

2010
$m

2011
$m

2010
$m

7,238
4,125

7,867
1,307

6,451
3,341

7,665
1,122

1 Details of collateral agreements for derivatives are included in note 12.
2 Balance in 2011 includes $36 million where the underlying securities are equities.

Notes to the Financial Statements

141

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STATEMENTS

33: Financial Risk Management
STRATEGY IN USING FINANCIAL INSTRUMENTS
Financial instruments are fundamental to the Group’s business,
constituting the core element of its operations. Accordingly, the risks
associated with financial instruments are a significant componentof the risks faced by the Group. Financial instruments create, modify
or reduce the credit, market (including traded or fair value risks andnon-traded or interest and foreign currency related risks) and liquidity
risks of the Group’s balance sheet. These risks, and the Group’s
objectives, policies and processes for managing and methods used
to measure such risks are outlined below.
CREDIT RISK
Credit risk is the risk of financial loss resulting from the failure of
ANZ’s customers and counterparties to honour or perform fully theterms of a loan or contract. The Group assumes credit risk in a wide
range of lending and other activities in diverse markets and in many
jurisdictions. Credit risks arise not only from traditional lending
to customers, but also from inter-bank, treasury, international tradeand capital market activities around the world.
The Group has an overall objective of sound growth for appropriate
returns. The credit risk principles of the Group are set by the Boardand are implemented and monitored within a tiered structure ofdelegated authority designed to oversee multiple facets of credit
risk, including business writing strategies, credit policies/controls,
portfolio monitoring and risk concentrations.
CREDIT RISK MANAGEMENT OVERVIEW
The credit risk management framework ensures a consistent
approach is applied across the Group in measuring, monitoringand managing the credit risk appetite set by the Board.
The Board is assisted and advised by the Board Risk Committee indischarging its duty to oversee credit risk. The Board Risk Committee
sets the credit risk appetite, credit principles and credit strategies,
as well as approving credit transactions beyond the discretion of
executive management.
Responsibility for the management and oversight of the credit risk
framework (including the risk appetite) resides with the Credit andMarket Risk Committee (CMRC), which is an executive management
committee comprising senior risk, business and Group executives,chaired by the Chief Risk Officer (CRO).
Central to the Group’s management of credit risk is the existence ofan independent credit risk management function that is staffed byrisk specialists. Independence is achieved by having all credit risk staff
ultimately report to the CRO, including where they are embedded inbusiness units. The primary responsibility for prudent and profitable
management of credit risk assets and customer relationships rests
with the business units.
The authority to make credit decisions is delegated by the Board
to the CEO who in turn delegates authority to the CRO. The CRO
in turn delegates some of his credit discretion to individuals as
part of a ‘cascade’ of authority from senior to the most junior credit
officers. Individuals are required to complete appropriate ongoingaccreditation training in order to be granted and retain a credit
discretion. Credit discretions are reviewed on an annual basis,and may be varied based on the holder’s performance.

142

ANZ Annual Report 2011

The Group has two main approaches to assessing credit risk arisingfrom transactions:
The larger and more complex credit transactions are assessed ona judgemental credit basis. Rating models provide a consistent andstructured assessment, with judgement required around the useof out-of-model factors. Credit approval for judgemental lending
is typically on a dual approval basis, jointly by the business writerin the business unit and an independent credit officer.
Programmed credit assessment typically covers retail and somesmall business lending, and refers to the automated assessment ofcredit applications using a combination of scoring (application andbehavioural), policy rules and external credit reporting information.
Where an application does not meet the automated assessment
criteria it will be referred out for manual assessment, with assessors
considering the decision tool recommendation.
Central and divisional credit risk teams perform key roles in portfolio
management such as the development and validation of credit
risk measurement systems, loan asset quality reporting, stresstesting, and the development of credit policies. Credit policies andprocedures cover all aspects of the credit life cycle such as transaction
structuring, risk grading, initial approval, ongoing management andproblem debt management, as well as specialist policy topics.
The Group’s grading system is fundamental to the management ofcredit risk, seeking to measure the probability of default (PD), theexposure at default (EAD) and the loss in the event of default (LGD)
for all transactions.
From an operational perspective, the Group’s credit grading system
has two separate and distinct dimensions that:
Measure the PD, which is expressed by a 27-grade Customer Credit
Rating (CCR), reflecting the ability to service and repay debt. Within
the programmed credit assessment sphere, the PD is typically
expressed as a score which maps back to the PD.
Measure the LGD, which is expressed by a Security Indicator(SI) ranging from A to G. The SI is calculated by reference to thepercentage of loan covered by security which can be realised in
the event of default. The security-related SIs are supplemented witha range of other SIs to cover situations where ANZ’s LGD research
indicates certain transaction characteristics have different recovery
outcomes. Within the programmed credit assessment sphere,
exposures are grouped into large homogenous pools – and the
LGD is assigned at the pool level.
The development and regular validation of rating models isundertaken by specialist central risk teams. The outputs from thesemodels drive many day-to-day credit decisions, such as origination,
pricing, approval levels, regulatory capital adequacy, economic
capital allocation and provisioning. The risk grading process includes
monitoring of model-generated results to ensure appropriate
judgement is exercised (such as overrides to take into account any
out-of-model factors).

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

33: Financial Risk Management (continued)
COLLATERAL MANAGEMENTCONCENTRATIONS OF CREDIT RISKCollateral is used to mitigate credit risk, as the secondary sourceof repayment in case the counterparty cannot meet its contractual
repayment obligations.

Concentrations of credit risk arise when a number of customers areengaged in similar business activities or activities within the samegeographic region, or when they have similar risk characteristics
that would cause their ability to meet contractual obligations tobe similarly affected by changes in economic or other conditions.

ANZ credit principles specify to only lend when the counterparty
has the capacity and ability to repay, and the Group sets limits on
the acceptable level of credit risk. Acceptance of credit risk is firstly
based on the counterparty’s assessed capacity to meet contractual
obligations (such as the scheduled repayment of principal and interest).
In certain cases, such as where the customer risk profile is consideredvery sound or by the nature of the product (for instance, small limit
products such as credit cards), a transaction may not be supported bycollateral. For some products, the collateral provided is fundamental
to its structuring so is not strictly the secondary source of repayment.
For example, lending secured by trade receivables is typically repaidby the collection of those receivables.

The Group monitors its portfolios, to identify and assess risk
concentrations. The Group’s strategy is to maintain well-diversified
credit portfolios focused on achieving an acceptable risk-return
balance. Credit risk portfolios are actively monitored and frequently
reviewed to identify, assess and guard against unacceptablerisk concentrations. Concentration analysis will typically include
geography, industry, credit product and risk grade. The Groupalso applies single customer counterparty limits to protect against
unacceptably large exposures to single name risk. These limits are
established based on a combination of factors including nature ofcounterparty, probability of default and collateral provided.

The most common types of collateral typically taken by ANZ include:
Security over residential, commercial, industrial or rural property;
Fixed and floating charges over business assets;
Security over specific plant and equipment;
Charges over listed shares, bonds or securities;
Charges over cash deposits; andGuarantees and pledges.
Credit policy and procedures set out the acceptable types ofcollateral, as well as a process by which additional instruments
and/or asset types can be considered for approval. ANZ’s credit risk
modelling areas use historical internal loss data and other relevant
external data to assist in determining the discount that each type
would be expected to incur in a forced sale. The discounted value
is used in the determination of the SI for LGD purposes.
In the event of customer default, any loan security is usually held as
mortgagee in possession while the Group is actively seeking to realise
it. Therefore the Group does not usually hold any real estate or otherassets acquired through the enforcement of security.
The Group generally uses Master Agreements with its counterparties
for derivatives activities. Generally, International Swaps andDerivatives Association (ISDA) Master Agreements will be used. Under
the ISDA Master Agreement, if a default of a counterparty occurs, allcontracts with the counterparty are terminated. They are then settled
on a net basis at market levels current at the time of default.
In addition to the terms noted above, ANZ’s preferred practice isto use a Credit Support Annex (CSA) to the ISDA Master Agreement.
Under a CSA, open derivative positions with the counterparty are
aggregated and cash collateral (or other forms of eligible collateral)is exchanged daily. The collateral is provided by the counterparty
that is out of the money. Upon termination of the trade, payment
is required only for the final daily mark-to-market movement rather
than the mark-to-market movement since inception.

Notes to the Financial Statements

143

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

33: Financial Risk Management (continued)
Concentrations of credit risk analysis
Composition of financial instruments that give rise to credit risk by industry:
Liquid assets and duefrom other financial
institutions
Consolidated

Australia
Agriculture, forestry
fishing and mining
Business services
Construction
Entertainment, leisureand tourism
Financial, investment
and insurance4
Government andofficial institutions
Manufacturing
Personal lending
Property services
Retail trade
Transport and storage
Wholesale trade
Other
New Zealand
Agriculture, forestry
fishing and mining
Business services
Construction
Entertainment, leisureand tourism
Financial, investment
and insurance4
Government andofficial institutions
Manufacturing
Personal lending
Property services
Retail trade
Transport and storage
Wholesale trade
Other

1
2
3
4
5

Trading and
AFS1 assets

Derivatives

Loans andadvances andacceptances5

Credit related
commitments3

Total

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

–
23
8

8
47
2

–
2
2

37
5
21

259
89
147

139
67
95

12,143
5,384
5,156

11,571
5,207
4,592

176
78
75

164
74
65

7,309
2,556
3,448

6,216
2,669
3,978

19,887
8,132
8,836

18,135
8,069
8,753

–

–

–

46

278

289

6,151

5,463

89

77

2,942

2,402

9,460

8,277

1,262

2,622

16,427

16,90636,04725,759

7,921

7,537

115

108

7,082

6,724

68,85459,656

4,217
240
–
1
8
10
242
43

6,826
68
–
3
5
3
158
2

15,311
358
–
40
85
59
2
1,411

14,159
346
–
89
132
80
8
3,776

184
664
–
795
173
461
383
1,066

184
218
133
566
8,252
7,196
– 191,052 175,888
586 24,108 22,643
160
9,295
8,422
289
5,533
4,853
392
5,826
5,526
413
8,285
8,517

3
120
2,771
350
135
80
84
120

2
102
2,495
321
119
69
78
121

235
8,214
35,929
8,267
3,630
2,972
4,938
7,673

198 20,168 21,502
9,070 17,848 17,348
36,155 229,752 214,538
7,637 33,561 31,279
3,462 13,326 12,300
2,737
9,115
8,031
5,250 11,475 11,412
6,220 18,598 19,049

6,054

9,744

33,69735,60540,54628,939 289,324 267,548

4,196

3,795

95,19592,718 469,012 438,349

30
4
–

36
–
–

–
–
–

1
1
–

84
15
3

96
15
2

14,023898
732

14,538
590
764

79
5
4

108
4
6

1,404
320
536

1,097
86
503

15,6201,242
1,275

15,876
696
1,275

–

–

–

–

33

30

880

841

5

6

252

378

1,170

1,255

2,394

1,337

2,751

2,383

7,864

5,361

728

1,370

682

181

1,153

898

15,572

11,530

184
–
–
–
–
–
12
28

5
41
–
23
78
4
41
–

4,913
8
–
–
2
45
–
43

4,248
15
–
–
2
16
–
159

451
155
–
25
33
83
17
305

241
93
–
46
53
114
15
256

1,136
2,015
43,574
5,855
1,222
1,247
925
1,456

1,089
2,365
42,463
5,798
1,100
1,370
931
1,188

6
11
247
33
7
7
5
10

8
18
316
43
8
10
7
10

803
1,513
6,482
652
583
463
873
1,659

610
1,460
5,828
869
705
383
976
1,382

7,493
3,702
50,303
6,565
1,847
1,845
1,832
3,501

6,201
3,992
48,607
6,779
1,946
1,897
1,970
2,995

2,652

1,565

7,762

6,825

9,068

6,322

74,691

74,407

1,101

725

16,693

15,175 111,967 105,019

Available-for-sale assets.
Mainly comprises trade dated assets and accrued interest.
Credit related commitments comprise undrawn facilities and customer contingent liabilities.
Includes amounts due from other Group entities.
Excludes individual and collective provisions for credit impairment held in respect of credit related commitments.

144

Other
financialassets2

ANZ Annual Report 2011

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

33: Financial Risk Management (continued)
Concentrations of credit risk analysis (continued):Composition of financial instruments that give rise to credit risk by industry (continued):
Liquid assets and duefrom other financial
institutions
Consolidated

Asia Pacific, Europe& America
Agriculture, forestry
fishing and mining
Business services
Construction
Entertainment, leisureand tourism
Financial, investment
and insurance4
Government andofficial institutions
Manufacturing
Personal lending
Property services
Retail trade
Transport and storage
Wholesale trade
Other

Trading and
AFS1 assets

Loans andadvances andacceptances6

Derivatives

Otherfinancialassets2

Credit related
commitments3

Total

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

38
8
–

11
–
5

–
–
–

–
–
–

40
3
32

22
2
16

1,389
914
336

688
682
251

24
16
6

26
26
10

3,721
1,255
1,978

4,947
896
1,506

5,212
2,196
2,352

5,694
1,606
1,788

–

–

–

–

–

3

730

819

12

31

282

323

1,024

1,176

20,692

10,022

6,512

5,445

3,576

2,023

2,382

1,936

40

74

9,103

5,570

42,30525,070

1,005
140
–
–
–
–
123
206

66
138
2
–
–
11
52
17

8,839
2
–
–
–
–
–
1,047

5,558
70
–
30
5
1
1
272

33
306
–
63
2
52
115
282

1
162
–
15
2
50
88
176

437
11,121
5,817
3,309
921
2,343
5,289
4,764

359
7,123
4,606
2,393
708
1,764
3,257
3,541

7
189
99
56
16
40
90
81

14
272
176
91
27
67
124
135

1,340
16,591
6,580
581
692
1,102
10,1393,847

1,231
12,546
5,700
688
316
806
6,079
3,013

11,661
28,34912,496
4,009
1,631
3,537
15,756
10,227

7,229
20,311
10,484
3,217
1,058
2,699
9,601
7,154

22,212

10,324

16,40011,382

4,504

2,560

39,752

28,127676

1,073

57,211

43,621 140,755

97,087

68
35
8

55
47
7

–
2
2

38
6
21

383
107
182

257
84
113

27,555
7,196
6,224

26,797
6,479
5,607

279
99
85

298
104
81

12,434
4,131
5,962

12,2603,651
5,987

40,719
11,57012,46339,705
10,371
11,816

Consolidated –aggregate
Agriculture, forestry
fishing and mining
Business services
Construction
Entertainment, leisureand tourism
Financial, investment
and insurance4
Government andofficial institutions
Manufacturing
Personal lending
Property services
Retail trade
Transport and storage
Wholesale trade
Other

–

–

–

46

311

322

7,761

7,123

106

114

3,476

3,103

11,654

10,70824,34813,981

25,69024,73447,48733,143

11,031

10,843837

363

17,33813,192 126,731

96,256

5,406
380
–
1
8
10
377
277

6,897
247
2
26
83
18
251
19

29,063
368
–
40
87
104
2
2,501

23,965
431
–
119
139
97
9
4,207

668
1,125
–
883
208
596
515
1,653

426
1,791
1,581
821 21,388 16,684– 240,443 222,957
647 33,272 30,834
215 11,438 10,230
453
9,123
7,987
495 12,040
9,714
845 14,505 13,246

16
320
3,117
439
158
127
179
211

24
392
2,987
455
154
146
209
266

2,378
26,31848,991
9,500
4,905
4,537
15,95013,1792,039 39,322 34,932
23,076 49,899 41,651
47,683 292,551 273,629
9,194 44,135 41,275
4,483 16,804 15,304
3,926 14,497 12,627
12,305 29,063 22,983
10,615 32,326 29,198

Gross Total

30,91821,63357,85953,812

54,11837,821 403,767 370,082

5,973

5,593 169,099 151,514 721,734 640,455

–

–

–

–

–

Individual provision for
credit impairment
Collective provision for
credit impairment
Unearned income
Capitalised brokerage/
mortgage origination
fees
Excluded from analysis
above5

1
2
3
4
5
6

–

–

–

–

–

30,91821,63357,85953,812

54,118

–

–

–

–

–

–

–

–

–

–

30,91821,63357,85953,812

54,118

2,805

2,793

479

445

–

33,72324,42658,33854,257

54,118–(1,687)(1,849)––(2,604)(2,577)–37,821 399,476 365,656

5,973

–

(2,216)(2,262)

–

629

600

–

37,821 397,889 363,994

5,973

–

–

–

–

–

37,821 397,889 363,994

5,973

–

(10)

(26)

(1,697)(1,875)

–

(572)

(576)

(3,176)(3,153)

5,593 168,517 150,912 716,861 635,427–––(2,216)(2,262)

–

–

–

629

600

5,593 168,517 150,912 715,274 633,765
–

–

–

3,284

3,238

5,593 168,517 150,912 718,558 637,003

Available-for-sale assets.
Mainly comprises trade dated assets and accrued interest.
Credit related commitments comprise undrawn facilities and customer contingent liabilities.
Includes amounts due from other Group entities.
Equity instruments and cash are excluded from maximum exposure amount.
Excludes individual and collective provisions for credit impairment held in respect of credit related commitments.

Notes to the Financial Statements

145

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

33: Financial Risk Management (continued)
Concentrations of credit risk analysis (continued):Composition of financial instruments that give rise to credit risk by industry (continued):
Liquid assets and duefrom other financial
institutions
The Company

Australia
Agriculture, forestry
fishing and mining
Business services
Construction
Entertainment, leisureand tourism
Financial, investment
and insurance4
Government andofficial institutions
Manufacturing
Personal lending
Property services
Retail trade
Transport and storage
Wholesale trade
Other

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

1
2
3
4
5

Trading and
AFS1 assets

Loans andadvances andacceptances5

Derivatives

Credit related
commitments3

Total

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

–
25
9

8
46
2

–
2
2

37
4
21

259
89
148

139
67
94

11,425
5,373
5,145

9,689
5,198
4,584

118
55
53

92
49
44

7,302
2,553
3,445

6,022
2,669
3,978

19,104
8,097
8,802

15,987
8,033
8,723

–

–

–

46

278

288

6,130

5,454

63

52

2,940

2,402

9,411

8,242

1,298

2,502

16,786

16,767

42,11929,500

8,651

8,302

89

79

7,075

6,724

76,01863,874

4,598
261
–
1
9
11
263
47

6,726
67
–
3
5
3
156
2

15,653
366
–
41
87
60
2
1,333

14,060
344
–
88
131
79
8
3,621

184
665
–
794
173
461
384
1,066

184
218
133
567
8,227
7,183
– 190,661 175,585
586 24,056 22,605
160
9,275
8,408
288
5,491
4,780
392
5,811
5,516
413
8,259
8,491

3
85
1,956
248
95
57
60
86

2
68
1,671
215
80
45
52
82

235
8,206
35,890
8,259
3,626
2,970
4,933
7,666

198 20,891 21,303
9,070 17,810 17,299
36,155 228,507 213,411
7,637 33,399 31,134
3,462 13,265 12,246
2,734
9,050
7,929
5,249 11,453 11,373
6,217 18,457 18,826

6,522

9,520

34,33235,206

46,62032,678 288,722 265,928

2,968

2,531

95,10092,517 474,264 438,380

–
–
–

–
–
–

–
–
–

–
–
–

–
–
–

–
–
–

–
–
–

–
–
–

–
–
–

–
–
–

–
–
–

–
–
–

–
–
–

–
–
–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

21

381

–

–

–

–

–

–

21

381

–
–
–
–
–
–
–
–

–
–
–
–
–
–
–
–

–
–
–
–
–
–
–
–

–
–
–
–
–
–
–
–

–
–
–
–
–
–
–
–

–
–
–
–
–
–
–
–

–
–
7,820
–
–
–
–
–

–
–
7,663
–
–
–
–
–

–
–
267
–
–
–
–
–

–
–
226
–
–
–
–
–

–
–
69
–
–
–
–
–

–
–
48
–
–
–
–
–

–
–
8,156
–
–
–
–
–

–
–
7,937
–
–
–
–
–

–

–

–

–

21

381

7,820

7,663

267

226

69

48

8,177

8,318

Available-for-sale assets.
Mainly comprises trade dated assets and accrued interest.
Credit related commitments comprise undrawn facilities and customer contingent liabilities.
Includes amounts due from other Group entities.
Excludes individual and collective provisions for credit impairment held in respect of credit related commitments.

146

Other
financialassets2

ANZ Annual Report 2011

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

33: Financial Risk Management (continued)
Concentrations of credit risk analysis (continued):Composition of financial instruments that give rise to credit risk by industry (continued):
Liquid assets and duefrom other financial
institutions
The Company

Asia Pacific, Europe& America
Agriculture, forestry
fishing and mining
Business services
Construction
Entertainment, leisureand tourism
Financial, investment
and insurance4
Government andofficial institutions
Manufacturing
Personal lending
Property services
Retail trade
Transport and storage
Wholesale trade
Other

Trading and
AFS1 assets

Loans andadvances andacceptances6

Derivatives

Otherfinancialassets2

Credit related
commitments3

Total

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

34
7
–

11
–
1

–
–
–

–
–
–

15
1
12

10
1
7

817
604
176

429
486
114

13
10
3

16
18
4

3,032
1,071
1,829

4,466
837
1,448

3,911
1,693
2,020

4,932
1,342
1,574

–

–

–

–

–

1

558

644

9

24

258

284

825

953

18,056

9,306

5,601

5,031

1,362

897

2,035

1,711

36

68

8,291

5,242

35,381

22,255

899
122
–
–
–
–
110
185

56
134
2
–
–
11
44
17

6,305
2
–
–
–
–
–
766

4,388
67
–
29
5
1
1
170

12
116
–
24
1
20
44
108

–
71
–
6
1
22
38
78

362
9,544
4,465
3,111
596
1,760
4,471
3,938

305
6,388
3,258
2,413
480
1,462
2,860
2,914

6
154
72
50
10
28
72
63

12
242
123
91
18
55
108
110

1,259
14,682
5,587
534
527
982
9,166
2,989

1,186
11,668
4,856
663
247
715
5,666
2,304

8,843
24,62010,124
3,719
1,134
2,790
13,863
8,049

5,947
18,570
8,239
3,202
751
2,266
8,717
5,593

19,413

9,582

12,674

9,692

1,715

1,132

32,43723,464526

889

50,20739,582 116,972

84,341

34
32
9

19
46
3

–
2
2

37
4
21

274
90
160

149
68
101

12,242
5,977
5,321

10,118
5,684
4,698

131
65
56

108
67
48

10,334
3,624
5,274

10,4883,506
5,426

23,0159,790
10,822

20,919
9,375
10,297The Company –aggregate
Agriculture, forestry
fishing and mining
Business services
Construction
Entertainment, leisureand tourism
Financial, investment
and insurance4
Government andofficial institutions
Manufacturing
Personal lending
Property services
Retail trade
Transport and storage
Wholesale trade
Other

–

–

–

46

278

289

6,688

6,098

72

76

3,198

2,686

10,236

9,195

19,354

11,80822,386

21,79843,502

30,778

10,686

10,013125

147

15,366

11,966 111,420

86,510

5,497
383
–
1
9
11
373
232

6,782
201
2
3
5
14
200
19

21,959
368
–
41
87
60
2
2,099

18,448
411
–
117
136
80
9
3,791

196
781
–
818
174
481
428
1,174

184
580
438
638 17,771 13,571– 202,946 186,506
592 27,167 25,018
161
9,871
8,888
310
7,251
6,242
430 10,282
8,376
491 12,197 11,405

9
239
2,295
298
105
85
132
149

14
310
2,020
306
98
100
160
192

1,494
22,88841,546
8,793
4,153
3,952
14,09910,655

1,384 29,734 27,250
20,738 42,430 35,869
41,059 246,787 229,587
8,300 37,118 34,336
3,709 14,399 12,997
3,449 11,840 10,195
10,915 25,316 20,090
8,521 26,506 24,419

Gross Total

25,935

19,10247,00644,89848,35634,191 328,979 297,055

3,761

3,646 145,376 132,147 599,413 531,039

–

–

–

–

–

Individual provision for
credit impairment
Collective provision for
credit impairment
Unearned income
Capitalised brokerage/
mortgage origination
fees
Excluded from analysis
above5

1
2
3
4
5
6

–

–

–

–

–

25,935

19,10247,00644,89848,356

–

–

–

–

–

–

(1,144)(1,253)––(2,042)(1,950)–34,191 325,793 293,852

3,761

–

(1,961)(2,007)

–

602

566

–

34,191 324,434 292,411

3,761

–

–

–

–

–

25,935

19,10247,00644,89848,356

958

1,082

378

380

–

–

26,893

20,18447,38445,27848,35634,191––––

324,434 292,411

3,761

–

(6)

(20)

(1,150)(1,273)

–

(454)

(436)

(2,496)(2,386)

3,646 144,916 131,691 595,767 527,380–––(1,961)(2,007)

–

–

–

602

566

3,646 144,916 131,691 594,408 525,939
–

–

–

1,336

1,462

3,646 144,916 131,691 595,744 527,401

Available-for-sale assets.
Mainly comprises trade dated assets and accrued interest.
Credit related commitments comprise undrawn facilities and customer contingent liabilities.
Includes amounts due from other Group entities.
Equity instruments and cash are excluded from maximum exposure amount.
Excludes individual and collective provisions for credit impairment held in respect of credit related commitments.

Notes to the Financial Statements

147

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

33: Financial Risk Management (continued)
CREDIT QUALITY

Maximum exposure to credit risk
For financial assets recognised on the balance sheet, the maximum exposure to credit risk is the carrying amount. In certain circumstances,
there may be differences between the carrying amounts reported on the balance sheet and the amounts reported in the tables below.
Principally, these differences arise in respect of financial assets that are subject to risks other than credit risk, such as equity investments
which are primarily subject to market risk, or bank notes and coins. For contingent exposures, the maximum exposure to credit risk is the
maximum amount the Group would have to pay if the instrument is called upon. For undrawn facilities, the maximum exposure to credit
risk is the full amount of the committed facilities.
The following tables present the maximum exposure to credit risk of on-balance sheet and off-balance sheet financial assets before taking
account of any collateral held or other credit enhancements.

Reported
Consolidated

Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances and acceptances– Australia– APEA– New Zealand– Institutional– Less: Institutional APEA
Other financial assets2
Undrawn facilities
Contingent facilities
Total

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

24,8998,824
36,074
54,11822,264

18,945
5,481
33,51537,821
20,742

2,805
–
–
–
479

2,793
–
–
–
445

22,094
8,824
36,074
54,11821,785

16,152
5,481
33,51537,821
20,297

231,139
38,77968,174
91,151(31,936)
5,973

217,903
27,11867,23972,670(21,538)
5,593

–
–
–
–
–
–

–
–
–
–
–
–

231,139
38,77968,174
91,151(31,936)
5,973

217,903
27,11867,23972,670(21,538)
5,593

549,459

485,489

3,284

3,238

546,175

482,251

137,889
31,210124,029
27,485––––

137,889
31,210124,029
27,485

169,099

151,514––

169,099

151,514718,558

637,003

3,284

3,238

715,274

633,765

1 Includes bank notes and coins and cash at bank within liquid assets and equity instruments within available-for-sale financial assets.
2 Mainly comprises trade dated assets and accrued interest.

148

ANZ Annual Report 2011

Maximum exposure
to credit risk

Excluded1

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

33: Financial Risk Management (continued)
Maximum exposure to credit risk (continued)
Reported
The Company

Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances and acceptances
Other financial assets2
Undrawn facilities
Contingent facilities
Total

Maximum exposure
to credit risk

Excluded1

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

20,555
6,338
28,36748,356
19,017
323,974
3,761

16,0474,136
28,30534,191
16,973291,956
3,646

958
–
–
–
378
–
–

1,082
–
–
–
380
–
–

19,597

14,964

6,338
28,36748,356
18,639323,974
3,761

4,136
28,30534,191
16,593291,957
3,646

450,368

395,254

1,336

1,462

449,033

393,792

117,10728,269106,403
25,744––––

117,10728,269106,403
25,744145,376

132,147––

145,376

132,147595,744

527,401

1,336

1,462

594,408

525,939

1 Includes bank notes and coins and cash at bank within liquid assets and equity instruments within available-for-sale financial assets.
2 Mainly comprises trade dated assets and accrued interest.

Notes to the Financial Statements

149

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

33: Financial Risk Management (continued)
DISTRIBUTION OF FINANCIAL ASSETS BY CREDIT QUALITYThe Group has a comprehensive rating system that is used to quantify credit risk. The use of masterscales ensures consistency across exposure
types at the Group, providing a consistent framework for reporting and analysis.
All customers with whom ANZ has a credit relationship including guarantors, are assigned a Customer Credit Rating (CCR) or score at origination
either by programmed credit assessment or by judgemental assessment. In addition, the CCR or score is reviewed on an ongoing basis to ensure
it accurately reflects the credit risk of the customer and the prevailing economic conditions.
The Group’s risk grade profile therefore changes dynamically through new lending, repayment and/or existing counterparty movements ineither risk or volume.

Restructured items
Restructured items are facilities in which the original contractual terms have been modified for reasons related to the financial difficulties of
the customer. Restructuring may consist of reduction of interest, principal or other payments legally due, or an extension in maturity materiallybeyond those typically offered to new facilities with similar risk.

Neither past
due nor
impaired

Past due but not
impaired

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

22,094
8,824
36,07454,07921,785

16,152
5,481
33,51537,752
20,297

–
–
–
–
–

–
–
–
–
–

–
–
–
1
–

–
–
–
18
–

–
–
–
38
–

–
–
–
51
–

22,094
8,824
36,074
54,11821,785

16,152
5,481
33,51537,821
20,297

220,897 207,897
37,41325,74264,732
63,49788,622
69,132(31,557) (21,217)
5,973
5,593
168,906 151,220

9,022
700
2,034
119
(24)
–
–

8,977
689
2,229
263
(15)
–
–

–
–
16
683
–
–
–

–
–
7
116
–
–
–

1,220
666
1,392
1,727
(355)
–
193

1,029 231,139 217,903
687
38,77927,118
1,506
68,174
67,2393,159
91,151
72,670(306) (31,936) (21,538)
–
5,973
5,593
294 169,099 151,514

697,842

11,851

12,143

700

141

4,881

6,420

Consolidated

Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances and acceptances– Australia– APEA– New Zealand– Institutional– Less: Institutional APEA

Other financial assets1
Credit related commitments2

ANZ Annual Report 2011

Total

715,274

633,765

Past due but not
impaired

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

19,597
6,338
28,36748,317
18,639310,758
3,761
145,204

14,9644,136
28,30534,122
16,593
277,687
3,646
131,877

–
–
–
–
–
9,495
–
–

–
–
–
–
–
9,867
–
–

–
–
–
1
–
683
–
–

–
–
–
18
–
116
–
–

–
–
–
38
–
3,038
–
172

–
–
–
51
–
4,287
–
270

19,597
6,338
28,36748,356
18,639323,974
3,761
145,376

14,9644,136
28,30534,191
16,593291,957
3,646
132,147

580,981

511,330

9,495

9,867

684

134

3,248

4,608

594,408

525,939

1 Mainly comprises trade dated assets and accrued interest.
2 Comprises undrawn facilities and customer contingent liabilities.

150

Impaired

Neither past
due nor
impaired
The Company

Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances and acceptances
Other financial assets1
Credit related commitments2

615,061

Restructured

Restructured

Impaired

Total

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

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

Internal rating
Strong credit profile

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

Satisfactory risk

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

Sub-standard but notpast due or impaired

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

Strong credit profile
Consolidated

Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances and acceptances– Australia– APEA– New Zealand– Institutional– Less: Institutional APEA

Other financial assets1
Credit related commitments2

Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances and acceptances
Other financial assets1
Credit related commitments2

Sub-standard
but not pastdue or impaired

Total

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

21,484
7,617
35,52851,92820,081

15,6064,880
32,466
36,46419,026

552
980
546
1,461
1,664

468
424
1,017
775
1,271

58
227
–
690
40

78
177
32
513
–

22,094
8,824
36,07454,07921,785

16,152
5,481
33,51537,752
20,297

164,417 153,391
26,136
14,731
39,59036,09465,43345,050(21,894) (11,625)
5,412
5,125
136,248 123,083

46,3679,201
20,802
19,038(9,192)431
29,75945,1489,227
22,06919,988(8,894)385
24,544

10,113
2,076
4,340
4,151
(471)
130
2,899

9,358 220,897 207,897
1,784
37,41325,742
5,334
64,732
63,497
4,094
88,622
69,132(698) (31,557) (21,217)
83
5,973
5,593
3,593 168,906 151,220

551,980

121,609

116,422

24,25324,348474,291

Strong credit profile
The Company

Satisfactory risk

Satisfactory risk

Sub-standard
but not pastdue or impaired

697,842615,061

Total

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

19,085
5,596
28,017
46,41818,336228,068
3,307
119,913

14,566
3,914
27,274
33,127
16,264
198,050
3,315
109,788

473
738
350
1,226
263
67,548346
23,598

340
214
999
532
329
65,885275
19,724

39
4
–
673
40
15,142
108
1,693

58
8
32
463
–
13,75256
2,365

19,597
6,338
28,36748,317
18,639310,758
3,761
145,204

14,9644,136
28,30534,122
16,593
277,687
3,646
131,877

468,740

406,298

94,542

88,298

17,69916,734580,981

511,330

1 Mainly comprises trade dated assets and accrued interest.
2 Comprises undrawn facilities and customer contingent liabilities.

Notes to the Financial Statements

151

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

33: Financial Risk Management (continued)
Ageing analysis of financial assets that are past due but not impaired
Ageing analysis of past due loans is used by the Group to measure and manage emerging credit risks. Financial assets that are past due but not impaired
include those which are assessed, approved and managed on a portfolio basis within a centralised environment (for example credit cards and personalloans) that can be held on a productive basis until they are 180 days past due, as well as those which are managed on an individual basis.
A large portion of retail credit exposures, such as residential mortgages, are generally well secured. That is, the value of associated security is sufficient
to cover amounts outstanding.
As at 30 September 2011

As at 30 September 2010

Consolidated

Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances andacceptances:– Australia– APEA– New Zealand– Institutional– Less: Institutional APEA

Other financial assets
Credit related commitments1

Consolidated

1-5
days
$m

6-29
days
$m

30-59
days
$m

60-89
days
$m

>90
days
$m

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

2,132
–
867
29
–
–
–

3,451
516
557
36
(20)
–
–

1,280
–
275
30
(1)
–
–

3,028

4,540

1,584

1-5
days
$m

6-29
days
$m

30-59
days
$m

60-89
days
$m

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

2,222
–
–

3,760
–
–

2,222

3,760

Total
$m

1-5
days
$m

6-29
days
$m

30-59
days
$m

60-89
days
$m

>90
days
$m

Total
$m

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

639
115
93
20
(2)
–
–

1,520
69
242
4
(1)
–
–

9,022
700
2,034
119
(24)
–
–

1,799
–
739
8
–
–
–

4,115
483
788
110
(1)
–
–

1,274
–
340
55
–
–
–

587
123
124
44
–
–
–

1,202
83
238
46
(14)
–
–

8,977
689
2,229
263
(15)
–
–

865

1,834

11,851

2,546

5,495

1,669

878

1,555

12,143

>90
days
$m

Total
$m

1-5
days
$m

6-29
days
$m

30-59
days
$m

60-89
days
$m

>90
days
$m

Total
$m

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

1,308
–
–

695
–
–

1,510
–
–

9,495
–
–

1,871
–
–

4,704
–
–

1,341
–
–

722
–
–

1,229
–
–

9,867
–
–

1,308

695

1,510

9,495

1,871

4,704

1,341

722

1,229

9,867

The Company

Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances andacceptances
Other financial assets
Credit related commitments1

1 Comprises undrawn facilities and customer contingent liabilities.

152

ANZ Annual Report 2011

The Company

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

33: Financial Risk Management (continued)
Estimated value of collateral for financial assets that are past due but not impaired
Collateral provided as security is valued conservatively on a recoverable basis assuming an event of default, and such valuations are updated ona regular basis with the frequency varying depending on the nature of the security. The adequacy of security valuations must also be considered
at each customer review. In order to calculate the Security Indicator (SI) for a transaction, the value of a collateral item is reduced by an extension
ratio which reduces its market value to a realisable value assuming a downturn scenario. Extension ratios have been determined based on analysis
of historical loss information.
For the purposes of this disclosure, where security is valued at more than the corresponding credit exposure, coverage is capped at the valueof the credit exposure.

CashConsolidated

Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances and acceptances– Australia– APEA– New Zealand– Institutional– Less: Institutional APEA

Other financial assets1
Credit related commitments2

Real estate

Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances and acceptances
Other financial assets1
Credit related commitments2

Credit exposure

Unsecuredportionof credit
exposure

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–
–
–

–
–
–
–
–
–
–

6,310
174
1,223
46
–
–
–

6,346
193
1,586
94
–
–
–

1,717
173
448
25
(1)
–
–

1,771
234
241
119
(3)
–
–

8,027
347
1,671
71
(1)
–
–

8,117
427
1,827
213
(3)
–
–

9,022
700
2,034
119
(24)
–
–

8,977
689
2,229
263
(15)
–
–

995
353
363
48
(23)
–
–

860
262
402
50
(12)
–
–

–

–

7,753

8,219

2,362

2,362

10,115

10,581

11,851

12,143

1,736

1,562

Cash
The Company

Other

Total value ofcollateral

Real estate

Other

Total value ofcollateral

Credit exposure

Unsecuredportionof credit
exposure

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

–
–
–
–
–
–
–
–

–
–
–
–
–
–
–
–

–
–
–
–
–
6,709
–
–

–
–
–
–
–
6,875
–
–

–
–
–
–
–
1,672
–
–

–
–
–
–
–
1,894
–
–

–
–
–
–
–
8,381
–
–

–
–
–
–
–
8,769
–
–

–
–
–
–
–
9,495
–
–

–
–
–
–
–
9,867
–
–

–
–
–
–
–
1,114
–
–

–
–
–
–
–
1,098
–
–

–

–

6,709

6,875

1,672

1,894

8,381

8,769

9,495

9,867

1,114

1,098

1 Mainly comprises trade dated assets and accrued interest.
2 Comprises undrawn facilities and customer contingent liabilities.

Notes to the Financial Statements

153

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

33: Financial Risk Management (continued)
Financial assets that are individually impaired
Consolidated
Impaired assets
2011
2010
$m
$m

Australia
Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances and acceptances
Other financial assets1
Credit related commitments2
New ZealandLiquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances and acceptances
Other financial assets1
Credit related commitments2
Asia Pacific, Europe & America
Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances and acceptances
Other financial assets1
Credit related commitments2
Aggregate
Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances and acceptances
Other financial assets1
Credit related commitments2

1 Mainly comprises trade dated trading assets and accrued interest.
2 Comprises undrawn facilities and customer contingent liabilities.

154

ANZ Annual Report 2011

The Company

Individual provisionbalances
2011
2010
$m
$m

Impaired assets
2011
2010
$m
$m

Individual provisionbalances
2011
2010
$m
$m

–
–
–
35
–
2,592
–
180

–
–
–
51
–
3,837
–
260

–
–
–
–
–
902
–
7

–
–
–
–
–
957
–
20

–
–
–
35
–
2,430
–
172

–
–
–
51
–
3,696
–
260

–
–
–
–
–
864
–
6

–
–
–
–
–
904
–
20

2,807

4,148

909

977

2,637

4,007

870

924

–
–
–
–
–
1,392
–
13

–
–
–
–
–
1,551
–
24

–
–
–
–
–
398
–
3

–
–
–
–
–
463
–
6

–
–
–
–
–
52
–
–

–
–
–
–
–
33
–
–

–
–
–
–
–
14
–
–

–
–
–
–
–
9
–
–

1,405

1,575

401

469

52

33

14

9

–
–
–
3
–
666
–
–

–
–
–
–
–
687
–
10

–
–
–
–
–
387
–
–

–
–
–
–
–
429
–
–

–
–
–
3
–
556
–
–

–
–
–
–
–
558
–
10

–
–
–
–
–
266
–
–

–
–
–
–
–
340
–
–

669

697

387

429

559

568

266

340

–
–
–
38
–
4,650
–
193

–
–
–
51
–
6,075
–
294

–
–
–
–
–
1,687
–
10

–
–
–
–
–
1,849
–
26

–
–
–
38
–
3,038
–
172

–
–
–
51
–
4,287
–
270

–
–
–
–
–
1,144
–
6

–
–
–
–
–
1,253
–
20

4,881

6,420

1,697

1,875

3,248

4,608

1,150

1,273

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

33: Financial Risk Management (continued)
Estimated value of collateral for financial assets that are individually impaired

Cash
Consolidated

Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances andacceptances– Australia– APEA– New Zealand– Institutional– Less: Institutional APEA

Other financial assets1
Credit related commitments2

Real estate

Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances andacceptances
Other financial assets1
Credit related commitments2

Total value ofcollateral

Credit exposure

Unsecuredportion of
credit exposure

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

–
–
–
–
–

–
–
–
–
–

–
–
–
17
–

–
–
–
32
–

–
–
–
21
–

–
–
–
19
–

–
–
–
38
–

–
–
–
51
–

–
–
–
38
–

–
–
–
51
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–
–
–

–
–
–
–
–
–
1

248
16
840
784
–
–
7

172
15
743
1,330
–
–
9

380
262
154
488
(209)
–
176

376
243
329
1,195
(177)
–
258

628
278
994
1,272
(209)
–
183

548
258
1,072
2,525
(177)
–
268

1,220
666
1,392
1,727
(355)
–
193

1,029
687
1,506
3,159
(306)
–
294

592
388
398
455
(146)
–
10

481
429
434
634
(129)
–
26

–

1

1,912

2,301

1,272

2,243

3,184

4,545

4,881

6,420

1,697

1,875

Cash
The Company

Other

Real estate

Other

Total value ofcollateral

Credit exposure

Unsecuredportion of
credit exposure

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

–
–
–
–
–

–
–
–
–
–

–
–
–
17
–

–
–
–
32
–

–
–
–
21
–

–
–
–
19
–

–
–
–
38
–

–
–
–
51
–

–
–
–
38
–

–
–
–
51
–

–
–
–
–
–

–
–
–
–
–

–
–
–

–
–
1

1,086
–
3

1,541
–
6

808
–
163

1,493
–
243

1,894
–
166

3,034
–
250

3,038
–
172

4,287
–
270

1,144
–
6

1,253
–
20

–

1

1,106

1,579

992

1,755

2,098

3,335

3,248

4,608

1,150

1,273

1 Mainly comprises trade dated assets and accrued interest.
2 Comprises undrawn facilities and customer contingent liabilities.

Notes to the Financial Statements

155

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

33: Financial Risk Management (continued)
MARKET RISK
Market risk is the risk to the Group’s earnings arising from changes
in interest rates, currency exchange rates, credit spreads, or fromfluctuations in bond, commodity or equity prices.
Market risk arises when changes in market rates, prices andvolatilities lead to a decline in the value of assets and liabilities,
including financial derivatives. Market risk is generated throughboth trading and banking book activities.
ANZ conducts trading operations in interest rates, foreign exchange,commodities, securities and equities.
ANZ has a detailed risk management and control framework to support
its trading and balance sheet activities. The framework incorporates
a risk measurement approach to quantify the magnitude of market
risk within trading and balance sheet portfolios. This approach andrelated analysis identifies the range of possible outcomes that canbe expected over a given period of time, establishes the relative
likelihood of those outcomes and allocates an appropriate amountof capital to support these activities.
Group-wide responsibility for the strategies and policies relating
to the management of market risk lies with the Board Risk
Committee. Responsibility for day to day management of bothmarket risks and compliance with market risk policy is delegatedby the Risk Committee to the Credit and Market Risk Committee(‘CMRC’) and the Group Asset & Liability Committee (‘GALCO’).
The CMRC, chaired by the Chief Risk Officer, is responsible for theoversight of market risk. All committees receive regular reporting on
the range of trading and balance sheet market risks that ANZ incurs.
Within overall strategies and policies, the control of market risk
at the Group level is the joint responsibility of Business Units andRisk Management, with the delegation of market risk limits fromthe Board and CMRC allocated to both Risk Management and theBusiness Units.
The management of Risk Management is supported by acomprehensive limit and policy framework to control the amountof risk that the Group will accept. Market risk limits are allocated atvarious levels and are reported and monitored by Market Risk on adaily basis. The detailed limit framework allocates individual limits
to manage and control asset classes (e.g. interest rates, equities),
risk factors (e.g. interest rates, volatilities) and profit and loss limits(to monitor and manage the performance of the trading portfolios).

Market risk management and control responsibilities
To facilitate the management, measurement and reporting of market
risk, ANZ has grouped market risk into two broad categories:a) Traded market riskThis is the risk of loss from changes in the value of financial instruments
due to movements in price factors for both physical and derivative
trading positions. Trading positions arise from transactions where
ANZ acts as principal with customers, financial exchanges orinterbank counterparties.

156

ANZ Annual Report 2011

The principal risk categories monitored are:
Currency risk is the potential loss arising from the decline in
the value of a financial instrument due to changes in foreignexchange rates or their implied volatilities.
Interest rate risk is the potential loss arising from the change
in the value of a financial instrument due to changes in market
interest rates or their implied volatilities.
Credit spread risk is the potential loss arising from a change
in value of an instrument due to a movement of its marginor spread relative to a benchmark.
Commodity risk is the potential loss arising from the decline in
the value of a financial instrument due to changes in commodity
prices or their implied volatilities.
Equity risk is the potential loss arising from the decline in thevalue of a financial instrument due to changes in stock prices
or their implied volatilities.
b) Non-traded market risk (or balance sheet risk)This comprises the management of non-traded interest rate risk,
liquidity, and the risk to the Australian dollar denominated valueof the Group’s capital and earnings as a result of foreign exchange
rate movements.
Some instruments do not fall into either category that also expose
ANZ to market risk. These include equity securities classified asavailable-for-sale financial assets that predominantly compriselong-term strategic investments.

Value at Risk (VaR) measure
A key measure of market risk is Value at Risk (VaR). VaR is a statisticalestimate of the possible daily loss and is based on historical market
movements.
ANZ measures VaR at a 97.5% and 99% confidence interval. Thismeans that there is a 97.5% or 99% chance that the loss will not
exceed the VaR estimate on any given day.
The Group’s standard VaR approach for both traded and non-tradedrisk is historical simulation. The Group calculates VaR using historicalchanges in market rates, prices and volatilities over the previous
500 business days. Traded and non-traded VaR is calculated using
a one-day holding period.
It should be noted that because VaR is driven by actual historicalobservations, it is not an estimate of the maximum loss that theGroup could experience from an extreme market event. As a resultof this limitation, the Group utilises a number of other risk measures(e.g. stress testing) and risk sensitivity limits to measure and manage
market risk.

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

33: Financial Risk Management (continued)
Traded Market Risk
Below are the aggregate Value at Risk (VaR) exposures at 97.5% and 99% confidence levels covering both physical and derivatives trading
positions for the Bank’s principal trading centres.
30 September 2011

30 September 2010

Consolidated

As at
$m

High foryear$mValue at risk at 97.5% confidence
Foreign exchangeInterest rate
CreditCommodity
Equities
Diversification benefit

6.0
4.7
3.4
2.0
2.5
(10.4)

7.9
16.1
8.5
4.3
2.5
n/a

0.8
4.2
2.4
1.6
0.4
n/a

3.1
9.4
5.4
2.6
0.9
(10.3)

2.6
11.2
3.0
2.1
0.5
(7.1)

7.8
24.9
4.9
3.7
0.8
n/a

0.8
9.2
1.7
1.1
0.2
n/a

2.0
17.2
3.1
2.3
0.4
(8.2)

Total VaR

Low foryear$mAverage for
year
$m

As at
$m

High foryear$m

Low foryear$mAverage for
year
$m

8.2

18.8

5.7

11.1

12.3

24.9

10.0

16.8

Value at risk at 99% confidence
Foreign exchangeInterest rate
CreditCommodity
Equities
Diversification benefit

7.8
7.0
4.9
3.2
3.4
(14.6)

10.9
26.4
10.5
6.5
3.5
n/a

1.0
5.4
3.2
2.4
0.6
n/a

4.2
13.5
6.9
4.1
1.3
(14.2)

3.6
19.3
3.9
3.6
0.8
(9.4)

10.4
57.4
7.0
5.4
1.2
n/a

1.3
15.2
2.1
2.4
0.5
n/a

3.1
30.5
4.4
3.6
0.8
(9.8)

Total VaR

11.7

29.5

8.3

15.8

21.8

71.4

15.0

32.6

30 September 2011

30 September 2010

The Company

As at
$m

High foryear$m

Low foryear$mAverage for
year
$m

As at
$m

High foryear$m

Low foryear$mAverage foryear$mValue at risk at 97.5% confidence
Foreign exchangeInterest rate
CreditCommodity
Equities
Diversification benefit

6.0
4.5
3.3
2.0
2.5
(10.2)

7.9
15.8
8.5
4.3
2.5
n/a

0.8
4.0
2.4
1.6
0.4
n/a

3.1
9.1
5.4
2.6
0.9
(10.3)

2.6
11.0
2.9
2.1
0.5
(6.9)

7.7
24.8
4.8
3.7
0.8
n/a

0.7
9.0
1.6
1.1
0.2
n/a

2.0
17.0
3.1
2.3
0.4
(8.1)

8.1

18.6

5.5

10.8

12.2

24.8

9.9

16.7

Value at risk at 99% confidence
Foreign exchangeInterest rate
CreditCommodity
Equities
Diversification benefit

7.8
6.7
4.8
3.2
3.4
(14.4)

10.9
26.3
10.5
6.5
3.5
n/a

1.0
5.0
3.2
2.4
0.6
n/a

4.2
13.2
6.9
4.1
1.3
(14.2)

3.5
19.0
3.8
3.6
0.8
(9.3)

10.3
57.3
7.0
5.4
1.2
n/a

1.3
15.0
2.1
2.4
0.5
n/a

3.1
30.3
4.3
3.6
0.8
(9.7)

Total VaR

11.5

29.3

8.1

15.5

21.4

71.3

14.6

32.4

Total VaR

VaR is calculated separately for foreign exchange, interest rate, credit, commodity and equities and for the Group. The diversification benefit
reflects the historical correlation between these products. Electricity commodities risk measurement remains under the standard approach forregulatory purposes. Equities trading risk measurement moved to the internal model approach in May 2011.
To supplement the VaR methodology, ANZ applies a wide range of stress tests, both on individual portfolios and at a Group level. ANZ ‘sstress-testing regime provides senior management with an assessment of the financial impact of identified extreme events on market risk
exposures of ANZ. Standard stress tests are applied on a daily basis and measure the potential loss arising from applying extreme market
movements to individual and groups of individual price factors. Extraordinary stress tests are applied monthly and measure the potential
loss arising as a result of scenarios generated from major financial market events.

Notes to the Financial Statements

157

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

33: Financial Risk Management (continued)
Non-Traded Market Risk (Balance Sheet Risk)
The principal objectives of balance sheet management are to manage interest income sensitivity while maintaining acceptable levels of interest
rate and liquidity risk and to manage the market value of the Group’s capital. Liquidity risk is dealt with in the next section.

Interest rate risk
The objective of balance sheet interest rate risk management is to secure stable and optimal net interest income over both the short (next 12months) and long-term. Non-traded interest rate risk relates to the potential adverse impact of changes in market interest rates on the Group’s
future net interest income. This risk arises from two principal sources: mismatches between the repricing dates of interest bearing assets andliabilities; and the investment of capital and other non-interest bearing liabilities in interest bearing assets. Interest rate risk is reported using
various techniques including: VaR and scenario analysis (to a 1% shock).
a) VaR non-traded interest rate risk
The repricing assumptions used to determine the VaR and 1% rate shock have been independently validated. Below are aggregate VaR figures
covering non-traded interest rate risk.
30 September 2011

30 September 2010

Consolidated

As at
$m

High foryear$mValue at risk at 97.5% confidence
Australia
New Zealand
Asia Pacific, Europe & America
Diversification benefit

12.2
8.1
3.9
(9.7)

20.1
13.5
5.5
n/a

10.5
7.9
2.3
n/a

14.4
9.3
3.5
(8.0)

18.2
13.8
4.3
(11.6)

27.3
13.8
8.9
n/a

18.0
7.8
4.3
n/a

22.0
11.1
5.9
(8.2)

14.5

26.5

13.2

19.2

24.7

39.6

24.7

30.8

The Company

As at
$m

High foryear$m

Low foryear$mAverage for
year
$m

As at
$m

High foryear$m

Low foryear$mAverage foryear$mValue at risk at 97.5% confidence
Australia
New Zealand
Asia Pacific, Europe & America
Diversification benefit

12.2
0.1
3.2
(3.7)

20.1
0.3
5.4
n/a

10.5
0.0
1.7
n/a

14.4
0.1
3.0
(2.2)

18.2
0.1
4.2
(1.8)

27.3
0.2
10.5
n/a

18.0
0.0
4.2
n/a

22.0
0.1
6.8
(2.6)

11.8

20.9

10.1

15.3

20.7

34.7

20.7

26.3

Low foryear$mAverage for
year
$m

As at
$m

High foryear$m

Low foryear$mAverage foryear$m

30 September 2011

30 September 2010

VaR is calculated separately for Australia, New Zealand and Asia Pacific, Europe and America Markets, as well as for the Group.
To supplement the VaR methodology, ANZ applies a wide range of stress tests, both on individual portfolios and at Group level. ANZ’s stresstesting regime provides senior management with an assessment of the financial impact of identified extreme events on market risk exposuresof ANZ.
b) Scenario Analysis – a 1% shock on the next 12 months’ net interest income
A 1% overnight parallel positive shift in the yield curve is modelled to determine the potential impact on net interest income over the
succeeding 12 months. This is a standard risk measure which assumes the parallel shift is reflected in all wholesale and customer rates.
The figures in the table below indicate the outcome of this risk measure for the current and previous financial years – expressed as a percentageof reported net interest income. The sign indicates the nature of the rate sensitivity with a positive number signifying that a rate increase ispositive for net interest income over the next 12 months.
Consolidated

The Company

2011

2010

2011

2010

Impact of 1% rate shock
As at 30 September
Maximum exposure
Minimum exposure

1.36%
1.51%
0.50%

1.09%
1.61%
0.60%

1.53%
1.85%
0.54%

1.12%
1.79%
0.63%

Average exposure (in absolute terms)

1.08%

0.98%

1.26%

1.14%

158

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33: Financial Risk Management (continued)
Interest rate risk (continued)
The extent of mismatching between the repricing characteristics and timing of interest bearing assets and liabilities at any point has
implications for future net interest income. On a global basis, the Group quantifies the potential variation in future net interest income
as a result of these repricing mismatches.
The repricing gaps themselves are constructed based on contractual repricing information. However, for those assets and liabilities where thecontractual term to repricing is not considered to be reflective of the actual interest rate sensitivity (for example, products priced at the Group’s
discretion), a profile based on historically observed and/or anticipated rate sensitivity is used. This treatment excludes the effect of basis risk
between customer pricing and wholesale market pricing.
Equity securities classified as available-for-sale
The portfolio of financial assets, classified as available-for-sale for measurement and financial reporting purposes, also contains equity
investment holdings which predominantly comprise investments held for longer term strategic intentions. These equity investments arealso subject to market risk which is not captured by the VaR measures for traded and non-traded market risks. Regular reviews are performed
to substantiate valuation of the investments within the portfolio and the equity investments are regularly reviewed by management for
impairment. The fair value of the constituents of equity securities classified as available-for-sale can fluctuate considerably.
The table below outlines the composition of the equity holdings.
Consolidated

Visa Inc.
Sacombank
Energy Infrastructure Trust
Other equity holdings
Impact on equity of 10% variation in value

The Company

2011
$m

2010
$m

2011
$m

2010
$m

315
73
–
91

275
80
40
50

247
73
–
58

215
80
40
45

479

445

378

380

48

44

38

38

Foreign currency risk – structural exposures
The investment of capital in foreign operations, such as branches, subsidiaries or associates with functional currencies other than theAustralian dollar, exposes the Group to the risk of changes in foreign exchange rates.
The main operating (or functional) currencies of Group entities are the Australian dollar and the New Zealand dollar, with a number ofoverseas undertakings operating in various other currencies. The Group presents its consolidated financial statements in Australian dollars,as the Australian dollar is the dominant currency. The Group’s consolidated balance sheet is therefore affected by exchange differences
between the Australian dollar and functional currencies of foreign operations. Variations in the value of these overseas operations arising
as a result of exchange differences are reflected in the foreign currency translation reserve in equity.
The Group routinely monitors this risk and conducts hedging, where it is expected to add shareholder value, in accordance with approved
policies. The Group’s exposures to structural foreign currency risks are managed with the primary objective of ensuring, where practical,
that the consolidated Tier 1 capital ratio is neutral to the effect of changes in exchange rates.
Selective hedges were in place during the 2011 and 2010 financial years. For details on the hedging instruments used and effectivenessof hedges of net investments in foreign operations, refer to note 12 to these financial statements. The Group’s economic hedges against
New Zealand Dollar and US Dollar revenue streams are included within ‘Trading’ at note 12.

LIQUIDITY RISK (Excludes Insurance and Funds Management)
Liquidity risk is the risk that the Group has insufficient capacity to fund increases in assets or is unable to meet its payment obligations as theyfall due, including repaying depositors or maturing wholesale debt. The timing mismatch of cashflows and the related liquidity risk is inherent
in all banking operations and is closely monitored by the Group.
The Group maintains a portfolio of liquid assets to manage potential stresses in funding sources. The minimum level of liquidity portfolio assets
to hold is based on a range of ANZ specific and general market liquidity stress scenarios such that potential cash flow obligations can be met
over the short to medium term.
The Group’s liquidity and funding risks are governed by a detailed policy framework which is approved by the Board of Directors. The core
objective of the framework is to ensure that the Group has sufficient liquidity to meet obligations as they fall due, without incurring unacceptable
losses. In response to the impact of the global financial crisis, the framework has been reviewed and updated.

Notes to the Financial Statements

159

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33: Financial Risk Management (continued)
LIQUIDITY RISK (Excludes Insurance and Funds Management)
ANZ has a low appetite for liquidity risk, as determined by the Board. Key principles of ANZ’s approach to liquidity risk management include:
Maintaining the ability to meet all payment obligations in the immediate term.
Ensuring that the Group has the ability to meet ‘survival horizons’ under a range of ANZ specific and general market liquidity stressscenarios, at the site and Group-wide level, to meet cash flow obligations over the short to medium term.
Maintaining strength in the Group’s balance sheet structure to ensure long term resilience in the liquidity and funding risk profile.
Limiting the potential earnings at risk implications associated with unexpected increases in funding costs or the liquidation of assets under stress.
Ensuring the liquidity management framework is compatible with local regulatory requirements.
Preparation of daily liquidity reports and scenario analysis, quantifying the Group’s positions.
Targeting a diversified funding base, avoiding undue concentrations by investor type, maturity, market source and currency.
Holding a portfolio of high quality liquid assets to protect against adverse funding conditions and to support day-to-day operations.
Establishing detailed contingency plans to cover different liquidity crisis events.
Management of liquidity and funding risks are overseen by the Group Asset and Liability Committee (GALCO).

Scenario modelling
A key component of the Group’s liquidity management framework is scenario modelling. APRA requires ADIs to assess liquidity under different
scenarios, including the ‘going-concern’ and ‘name-crisis’.
‘Going-concern’: reflects the normal behaviour of cash flows in the ordinary course of business. APRA requires that the Group must be able tomeet all commitments and obligations under a going concern scenario, within the ADI’s normal funding capacity (‘available to fund’ limit), overat least the following 30 calendar days. In estimating the funding requirement, the Group models expected cashflows by reference to historicalbehaviour and contractual maturity data.
‘Name-crisis’: refers to a potential name-specific liquidity crisis which models the behaviour of cash flows where there is a problem (real or
perceived) which may include, but is not limited to, operational issues, doubts about the solvency of the Group or adverse rating changes.
Under this scenario the Group may have significant difficulty rolling over or replacing funding. Under a name crisis, APRA requires the Groupto be cashflow positive over a five business day period.
‘Survival horizons’: The Global financial crisis has highlighted the importance of differentiating between stressed and normal market conditions
in a name-specific crisis, and the different behaviour that offshore and domestic wholesale funding markets can exhibit during market stressevents. As a result, the Group has enhanced its liquidity risk scenario modelling to supplement APRA’s statutory requirements.
The Group has linked its liquidity risk appetite to defined liquidity ‘survival horizons’ (i.e. the time period under which ANZ must maintain apositive cashflow position under a specific scenario or stress). Under these scenarios, customer and/or wholesale balance sheet asset/liability
flows are stressed. The following stressed scenarios are modelled:
Extreme Short Term Crisis Scenario (ESTC): A name-specific stress during a period of market stress.
Short Term Crisis Scenario (NSTC): A name-specific stress during a period of normal markets conditions.
Global Funding Market Disruption (GFMD): Stressed global wholesale funding markets leading to a closure of domestic and offshore markets.
Offshore Funding Market Disruption (OFMD): Stressed global wholesale funding markets leading to a closure of offshore markets only.
Each of ANZ’s operations is responsible for ensuring its compliance with all scenarios that are required to be modelled. Additionally, the Groupmeasures, monitors and manages all modelled liquidity scenarios on an aggregated Group-wide level.

Liquidity portfolio management
The Group holds a diversified portfolio of cash and high-quality, highly-liquid securities that may be sold or pledged to provide same-day
liquidity. This portfolio helps protect the Group’s liquidity position by providing a source of cash in stressed conditions. All assets held in thisportfolio are securities eligible for repurchase under agreements with the applicable central bank (i.e. ‘repo’ eligible).
The sizing of the Group’s liquidity portfolio is based on the amount of liquidity required to meet day-to-day operational requirements andpotential name crisis or potential wholesale ‘funding stress’ requirements under each of the Group’s various stress scenarios.
At 30 September 2011, the volume of eligible securities available, post any repurchase (i.e. ‘repo’) discounts applied by the applicable central
bank, was $71.4 billion.
To further strengthen the Bank’s balance sheet, the Group continues to maintain strong coverage ratios of liquidity portfolio to maturing wholesaleoffshore debt maturities. The current liquidity portfolio and other supplementary assets is sufficient to cover all offshore debt maturities for both
long and short term debt.
The liquidity portfolio is well diversified by counterparty, currency, and tenor. Under the liquidity policy framework securities purchased must
be of a similar or better credit quality to ANZ’s external long-term or short-term credit ratings and continue to be repo eligible.

160

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STATEMENTS

33: Financial Risk Management (continued)
Supplementing its liquidity position, the Group holds:
additional central bank deposits with the US Federal Reserve and Bank of Japan of $10.3 billion;
secondary sources of liquidity including Australian Government securities, Australian State Government securities and gold of such as highly
liquid instruments in trading portfolios of $9.6 billion; andadditional cash and other securities to satisfy local country regulatory liquidity requirements.
These other assets are not included in the prime liquidity portfolio outlined below:

Eligible securities
2011
$m

2010
$m

Australia
New ZealandUnited States
United Kingdom
Asia
Internal Residential Mortgage Backed Securities (Australia)
Internal Residential Mortgage Backed Securities (New Zealand)

20,815
9,141
1,353
2,654
6,682
26,831
3,899

20,974
7,547
1,275
2,183
4,204
26,657
3,812

Total

71,37566,652

Prime liquidity portfolio (market values1)

Counterparty credit ratings
Long term counterparty/security credit rating2

Market
Value
$m

AAA
AA+
AA
AAA+
A

52,651
10,046
7,311
887
312
168

Total

71,375

1 Market value is post the repo discount applied by the applicable central bank.
2 Where available, based on Standard & Poor’s long-term credit ratings.

Liquidity crisis contingency planning
The Group maintains APRA-endorsed liquidity crisis contingency plans defining an approach for analysing and responding to a liquidity
threatening event at a country and Group-wide level. To align with the enhanced liquidity scenario analysis framework, crisis management
strategies are assessed against the Group’s crisis stress scenarios.
The framework is compliant with APRA’s key liquidity contingency crisis planning requirements and guidelines and includes:
the establishment of crisis severity/stress levels;
clearly assigned crisis roles and responsibilities;
early warning signals indicative of an approaching crisis, and mechanisms to monitor and report these signals;
crisis declaration assessment processes, and related escalation triggers set against early warning signals;
outlined action plans, and courses of action for altering asset and liability behaviour;
procedures for crisis management reporting, and making up cash-flow shortfalls;
guidelines determining the priority of customer relationships in the event of liquidity problems; andassigned responsibilities for internal and external communications.

Notes to the Financial Statements

161

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STATEMENTS

33: Financial Risk Management (continued)
Regulatory Change
Following the publication of earlier discussion papers relating to liquidity prudential requirements, APRA and the Basel Committee on banking
Supervision have both made further announcements on this topic. These proposals include enhancements to governance and other qualitativerequirements, including the requirement for a clear risk appetite statement on liquidity risk from the Board. Many of these aspects have been
integrated into ANZ’s liquidity management framework for some time. The proposed changes to the quantitative requirements, includingchanges to scenario stress tests and structural liquidity metrics, are more significant. While ANZ has an existing stress scenario framework andstructural liquidity risk metrics and limits in place, the requirements proposed are in general more onerous. These changes will impact the futurecomposition and size of ANZ’s liquidity portfolio as well as the size and composition of the Bank’s funding base. APRA is expected to releasedetails on the prudential changes shortly, with compliance against the new liquidity coverage ratio expected to commence in 2015.

Group funding
ANZ manages its funding profile using a range of funding metrics and balance sheet disciplines. This approach is designed to ensure that an
appropriate proportion of the Group’s assets are funded by stable funding sources including core customer deposits, longer-dated wholesalefunding (with a remaining term exceeding one year) and equity. This includes targeting a diversified funding base, avoiding undue concentrations
by investor type, maturity, market source and currency.
The Group’s global wholesale funding strategy is designed to deliver a sustainable portfolio of wholesale funds that balances cost efficiency
against prudent duration while targeting diversification by markets, investors, currencies, maturities and funding structures.
Funding plans and performance relative to those plans are reported regularly to senior management via the Group Asset and Liability Committee(GALCO). These plans address customer balance sheet growth and changes in wholesale funding including, targeted funding volumes, markets,
investors, tenors and currencies for senior, subordinated and hybrid transactions. Plans are supplemented with a monthly forecasting process
which reviews the funding position in light of market conditions and balance sheet requirements. Funding plans are generated through thethree-year strategic planning process. Asset and deposit plans are submitted at the business segment level with the wholesale funding requirements
then derived at the geographic level. To the extent that asset growth exceeds funding generated from customer deposits, additional wholesale
funds are sourced.
Short-term wholesale funding requirements, with a contractual maturity of less than one year, are managed through Group Treasury and local
Markets operations. Long-term wholesale funding is managed and executed through Group Treasury operations in Australia and New Zealand.

Funding position 2011
Customer deposits and other funding liabilities increased by 16% to $308.2 billion and now represents 61% of all funding, an increase of
3% from September 2010. $18.0 billion of term wholesale debt (with a remaining term greater than one year), including $2.4 billion of prefunding executed during full year 2010, was issued during the 2011 financial year. In addition, ANZ raised $1.34 billion in hybrid capital, taking
the total term debt and hybrid issuance for the 2011 financial year to $19.4 billion. As at September 2011, term wholesale funding represented
12% of total funding, a decrease from 16% as at September 2010 (partly due to 2011 financial year pre-funding completed during 2010
financial year).
ANZ maintained access to all major global wholesale funding markets during 2011.
Over 70% of term funding requirements were completed during the first half, before market conditions began to deteriorate. Benchmark
term debt issues were completed in AUD, USD, JPY, CHF, CAD and NZD.
All short-term wholesale funding needs were comfortably met, despite an increase in volatility in offshore markets and a general shorteningof tenor preference from US money market investors.
The weighted average tenor of new term debt issuance was 4.7 years (unchanged year-on-year).
The weighted average cost of new term debt issuance during 2011 declined marginally (4bps) relative to 2010. Average portfolio costs remain
substantially above pre-crisis levels and continue to increase as maturing term wholesale funding is replaced at higher spreads.
Over the past year strong customer deposit growth and stable term debt issuance has allowed ANZ to maintain a low reliance on short-term
wholesale funding markets. The proportion of total funding sourced from short-term wholesale funding markets was unchanged at 12%
between September 2010 and September 2011.

162

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FINANCIALSTATEMENTS
STATEMENTS

33: Financial Risk Management (continued)
The following tables show the Group’s funding composition:
Consolidated
2011
$m

2010
$m

Customer deposits and other liabilities1
Australia
Asia Pacific, Europe & America
New Zealand
Total customer deposits

183,216
64,82848,710296,754

164,795
46,61045,470256,875

Other2

11,4509,113

Total customer deposits and other liabilities (funding)

308,204

265,988

Wholesale funding
Bonds and notes
Loan capital
Certificates of deposit (wholesale)Commercial paper
Liability for acceptances3
Due to other financial institutions
Other wholesale borrowing4

56,551
11,99355,554
14,333970
23,012(1,128)59,714
12,28039,53011,641
11,495
21,6102,140

Total wholesale funds

161,285

158,410

Shareholders’ equity (excluding preference shares)

37,08333,284

Total funding

506,572

457,682

12%

12%

6%
12%
61%
9%

6%
16%
58%
8%

100%

100%

Funding composition

Total funding maturity
Short term wholesale funding
Long term wholesale funding– Less than 1 year residual maturity– Greater than 1 year residual maturity5
Total customer deposits and other liabilities (funding)Shareholders’ equity and hybrid debt
Total funding and shareholders’ equity
1
2
3
4
5

Includes term deposits, other deposits excluding securitisation deposits and an adjustment to eliminate OnePath Australia investments in ANZ deposit products.
Includes interest accruals, payables and other liabilities, provisions and net tax provisions, excluding other liabilities in OnePath.
The decrease in liability for acceptances is due to a switch in products used for funding purpose.
Includes net derivative balances, special purpose vehicles, other borrowings and preference share capital Euro hybrids.
Long term wholesale funding amounts are stated at original hedged exchange rates. Movements due to currency fluctuations in actual amounts borrowed are classified as short termwholesale funding.

Liquidity risk – Insurance and Funds Management
The Group’s insurance and fund management businesses, such as OnePath Australia Limited (formerly ING Australia Limited), also apply theirown liquidity and funding methods to address their specific needs.
As at 30 September 2011 a number of investment options in the life insurance statutory funds were suspended due to the prescribed limits on
their liquidity facilities being reached. These suspensions are not a consequence of any performance issue of the Life Company and do not affect
the Group’s future performance or distributions. The Net Market Value of suspended funds is $524 million (2010: $907 million).

Notes to the Financial Statements

163

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FINANCIALSTATEMENTS
STATEMENTS

33: Financial Risk Management (continued)
Contractual maturity analysis of the Group’s liabilities
The tables below analyse the Group’s and Company’s contractual liabilities, within relevant maturity groupings based on the earliest date on
which the Group or Company may be required to pay. The amounts represent principal and interest cash flows and hence may differ comparedto the amounts reported on the balance sheet.
It should be noted that this is not how the Group manages its liquidity risk. The management of this risk is detailed above.
Contractual maturity analysis of financial liabilities at 30 September 2011:

Consolidated at 30 September 2011

Due to other financial institutions
Deposits and other borrowings
Certificates of deposit
Term deposits
Other deposits bearing interest
Deposits not bearing interest
Commercial paper
Borrowing corporations’ debt
Other borrowings
Liability for acceptances
Bonds and notes3
Loan capital3,4
Policy liabilities
External unit holder liabilities (life insurance funds)
Derivative liabilities (trading)5
Derivative assets and liabilities (balance sheet management)– FundingReceive leg (-ve is an inflow)
Pay leg– Other balance sheet management
Receive leg (-ve is an inflow)
Pay leg

Consolidated at 30 September 2010

Due to other financial institutions
Deposits and other borrowings
Certificates of deposit
Term deposits
Other deposits bearing interest
Deposits not bearing interest
Commercial paper
Borrowing corporations’ debt
Other borrowings
Liability for acceptances
Bonds and notes3
Loan capital3,4
Policy liabilities
External unit holder liabilities (life insurance funds)
Derivative liabilities (trading)5
Derivative assets and liabilities (balance sheet management)– FundingReceive leg (-ve is an inflow)
Pay leg– Other balance sheet management
Receive leg (-ve is an inflow)
Pay leg
12345Less than
3 months1$m

3 to 12months$m

1 to
5 years$m

After
5 years$mNomaturity
specified2
$m

Total
$m

21,525

1,427

37

49

–

23,03833,740110,265
130,741
11,334
9,907
773
2,053
921
4,854
352
26,6195,033
39,061

5,949
42,039
–
–
4,433
487
–
49
11,7772,211–––

18,440
4,230
–
–
–
328
–
–
36,773
5,166
–
–
–

–
38
–
–
–
–
–
–
6,997
5,273
–
–
–

–
–
–
–
–
–
–
–
–
964
884
–
–

58,129156,572
130,741
11,334
14,340
1,588
2,053
970
60,401
13,96627,503
5,033
39,061(24,477)
25,202(24,133)
26,749(78,670)
81,837(13,827)
14,970––(141,107)
148,758(2,763)
2,785(4,677)
4,835(10,865)
10,910(1,812)
1,746––(20,117)
20,276

Less than
3 months1$m

3 to 12months$m

1 to
5 years$m

After
5 years$mNomaturity
specified2
$m

Total
$m

20,119

367

56

–

–

20,542

15,91995,714109,279
10,598
6,266
797
2,141
11,2655,506
341
28,002
5,448
17,8308,163
41,325
–
–
5,378
619
–
230
11,3491,230–––

17,821
3,084
–
–
–
544
–
–
40,080
7,955
–
–
–

–
102
–
–
–
–
–
–
5,830
3,240
–
–
–

–
–
–
–
–
–
–
–
–
945
979
–
–

41,903140,225
109,279
10,598
11,644
1,960
2,141
11,49562,765
13,711
28,981
5,448
17,830(30,149)
32,748(27,419)
30,457(87,059)
95,752(13,911)
15,317––(158,538)
174,274(2,511)
2,638(5,161)
5,371(11,091)
11,075(1,276)
1,225––(20,039)
20,309Includes at call instruments.
Includes perpetual investments brought in at face value only.
Any callable wholesale debt instruments have been included at their next call date.
Includes instruments that may be settled in cash or in equity, at the option of the Company.
The full mark-to-market of derivative liabilities held for trading purposes has been included in the ’less than 3 months’ category.

164

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FINANCIALSTATEMENTS
STATEMENTS

33: Financial Risk Management (continued)
The Company at 30 September 2011

Due to other financial institutions
Deposits and other borrowings
Certificates of deposit
Term deposits
Other deposits bearing interest
Deposits not bearing interest
Commercial paper
Borrowing corporations’ debt
Other borrowings
Liability for acceptances
Bonds and notes3
Loan capital3,4Derivative liabilities (trading)5
Derivative assets and liabilities (balance sheet management)– FundingReceive leg (-ve is an inflow)
Pay leg– Other balance sheet management
Receive leg (-ve is an inflow)
Pay leg

The Company at 30 September 2010

Due to other financial institutions
Deposits and other borrowings
Certificates of deposit
Term deposits
Other deposits bearing interest
Deposits not bearing interest
Commercial paper
Borrowing corporations’ debt
Other borrowings
Liability for acceptances
Bonds and notes3
Loan capital3,4Derivative liabilities (trading)5
Derivative assets and liabilities (balance sheet management)– FundingReceive leg (-ve is an inflow)
Pay leg– Other balance sheet management
Receive leg (-ve is an inflow)
Pay leg
12345Less than
3 months1$m

3 to 12months$m

1 to
5 years$m

After
5 years$mNomaturity
specified2
$m

Total
$m

19,989

1,344

37

–

–

21,37032,16593,805
113,140
5,974
7,259
–
–
645
3,626
271
35,4185,867
30,048
–
–
3,317
–
–
42
9,596
2,175
–

18,440
2,142
–
–
–
–
–
–
27,775
5,184
–

–
39
–
–
–
–
–
–
6,736
4,803
–

–
–
–
–
–
–
–
–
–
308
–

56,472126,034
113,140
5,974
10,576––687
47,733
12,74135,418(8,773)
10,122(14,565)
16,550(53,934)
57,263(13,827)
14,970––(91,099)
98,905(2,167)2,109(3,485)3,539(8,808)8,759(1,619)1,547––(16,079)
15,954

Less than
3 months1$m

3 to 12months$m

1 to
5 years$m

After
5 years$mNomaturity
specified2
$m

Total
$m

18,469

367

34

–

–

18,87013,55883,541
95,001
5,677
2,941
–
121
11,287
5,128
328
17,998

8,044
26,787
–
–
3,139
–
–
230
9,517
1,189
–

17,818
1,878
–
–
–
–
–
–
29,686
7,347
–

–
101
–
–
–
–
–
–
5,747
3,240
–

–
–
–
–
–
–
–
–
–
310
–

39,420112,307
95,001
5,677
6,080
–
121
11,51750,07812,414
17,998(18,851)
20,980(18,240)
21,009(56,764)
64,847(13,911)
15,317––(107,766)
122,153(1,901)
1,886(3,926)
3,978(9,161)
8,954(1,205)
1,117––(16,193)
15,935

Includes at call instruments.
Includes perpetual investments brought in at face value only.
Any callable wholesale debt instruments have been included at their next call date.
Includes instruments that may be settled in cash or in equity, at the option of the Company.
The full mark-to-market of derivative liabilities held for trading purposes has been included in the ’less than 3 months’ category.

Notes to the Financial Statements

165

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THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

33: Financial Risk Management (continued)
CREDIT RELATED CONTINGENCIES
Undrawn facilities and issued guarantees comprises the nominal principal amounts of commitments, contingencies and other undrawn
facilities and represents the maximum liquidity at risk position should all facilities extended be drawn.
The majority of undrawn facilities are subject to customers maintaining specific credit and other requirements or conditions. Many ofthese facilities are expected to be partially used, whereas others may never be required to be drawn upon. As such, the total of the nominal
principal amounts is not necessarily representative of future liquidity risks or future cash requirements.
The tables below analyse the Group’s and Company’s undrawn facilities and issued guarantees into relevant maturity groupings based on theearliest date on which ANZ may be required to pay.
Consolidated

30 September 2011

Less than
1 year$mMore than
1 year$m

Undrawn facilities
Issued guarantees

137,889
31,210––30 September 2010

Less than
1 year$m

Undrawn facilities
Issued guarantees

124,029
27,485The Company
Total
$m

Less than
1 year$mMore than
1 year
$m

Total
$m

137,889
31,210117,10728,269––117,10728,269More than
1 year
$m

Total
$m

Less than
1 year$mMore than
1 year
$m

Total
$m

–
–

124,029
27,485

106,403
25,745––

106,403
25,745

Consolidated

The Company

LIFE INSURANCE RISK
Although not a significant contributor to the Group’s balance sheet, the Group’s insurance businesses give rise to unique risks which are managed
separately from the Group’s banking businesses. The nature of these risks and the manner in which they are managed is set out in note 49.
OPERATIONAL RISK MANAGEMENT
Within ANZ, operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems or fromexternal events. This definition includes legal risk, and the risk of reputational loss or damage arising from inadequate or failed internal
processes, people and systems, but excludes strategic risk.
The authority for operational risk oversight is delegated by the Board to the Board Risk Committee. The Operational Risk Executive Committee(OREC) supports the Board Risk Committee in respect of operational risk oversight which includes compliance with regulatory obligations.
The key responsibilities of OREC include:
endorse ANZ’s Operational Risk Management and Measurement Framework for approval by the Risk Committee of the Board;
approve Operational Risk and Compliance policies;
approve ANZ’s Group Compliance Framework;
monitoring the state of operational risk management and instigating any necessary corrective actions;review all material actual, potential or near miss risk events;
approve extreme rated risk treatment plans; andmonitor associated treatment plans.

166

ANZ Annual Report 2011

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

33: Financial Risk Management (continued)
Membership of OREC comprises senior executives and the committee is chaired by the Chief Risk Officer.
Business unit staff and line management have first line accountability for the day-to-day management of operational risk. This includes
implementation of the operational risk framework and involvement in decision making processes concerning all material operational risk
matters. Divisional risk governance functions provide oversight of operational risk undertaken in the business units.
Divisional Risk Committees and Business Unit Risk Forums manage and maintain oversight of operational risks supported by thresholds for
escalation and monitoring. Group Operational Risk are responsible for exercising governance over operational risk through the managementof the operational risk framework, policy development, framework assurance, operational risk measurement and capital allocation, fraud
strategy and reporting of operational risk matters to executive committees.
ANZ’s Operational Risk Management and Measurement Framework outlines the approach to managing operational risk and specifically covers
the minimum requirements that divisions/business units must undertake in the management of operational risk. ANZ’s Operational Risk
Management and Measurement Framework is supported by specific policies and procedures with the effectiveness of the framework assessed
through a series of assurance reviews. This is supported by an independent review programme by Internal Audit.
The operational risk management process adopted by ANZ consists of a staged approach involving establishing the context, identification,
analysis, assessment, treatment and monitoring of current, new and emerging operational risks.
In line with industry practice, ANZ obtains insurance cover from third party and captive providers to cover those operational risks where costeffective premiums can be obtained. In conducting their business, business units are advised to act as if uninsured and not to use insurance as aguaranteed mitigation for operational risk. Business disruption is a critical risk to a bank’s ability to operate, so ANZ has comprehensive business
continuity, recovery and crisis management plans. The intention of the business continuity and recovery plans is to ensure critical business
functions can be maintained, or restored in a timely fashion, in the event of material disruptions arising from internal or external events.
Group Operational Risk is responsible for maintaining ANZ’s Advanced Measurement Approach (AMA) for operational risk regulatory capital
calculations. ANZ uses a scenario analysis based methodology to assess exposure to unexpected operational risk events and uses probability
distributions and monte carlo simulations to model, calculate and allocate its operational risk regulatory capital (ORRC). This methodology
incorporates the use of business risk profiles which consider the current business environment and internal control factors over a 12 month time
horizon along with external loss event data.

34: Fair value of financial assets and financial liabilities
Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s lengthtransaction. The determination of the fair value of financial instruments is fundamental to the financial reporting framework as all financial
instruments are recognised initially at fair value and, with the exception of those financial instruments carried at amortised cost, are remeasured
at fair value in subsequent periods.
The fair value of a financial instrument on initial recognition is normally the transaction price, however, in certain circumstances the initial fairvalue may be based on other observable current market transactions in the same instrument, without modification or repackaging, or on avaluation technique whose variables include only data from observable markets.
Subsequent to initial recognition, the fair value of financial instruments measured at fair value is based on quoted market prices, where available.
In cases where quoted market prices are not available, fair value is determined using market accepted valuation techniques that employ
observable market data. In limited cases where observable market data is not available, the input is estimated based on other observable market
data, historical trends and other factors that may be relevant.

(i) Fair values of financial assets and financial liabilities
A significant number of financial instruments are carried at fair value in the balance sheet. Below is a comparison of the carrying amounts,
as reported on the balance sheet, and fair values of all financial assets and liabilities. The fair value disclosure does not cover those instrumentsthat are not considered financial instruments from an accounting perspective such as income tax and intangible assets. In management’s view,
the aggregate fair value amounts do not represent the underlying value of the Group.
In the tables below, financial instruments have been allocated based on their accounting treatment. The significant accounting policies in note 1
describe how the categories of financial assets and financial liabilities are measured and how income and expenses, including fair value gains
and losses, are recognised.
Financial asset classes have been allocated into the following groups: amortised cost; financial assets at fair value through profit or loss; derivatives
in effective hedging relationships; and available-for-sale financial assets. Similarly, each class of financial liability has been allocated into three groups:
amortised cost; derivatives in effective hedging relationships; and financial liabilities at fair value through profit and loss.
The fair values are based on relevant information available as at the respective balance sheet dates and have not been updated to reflectchanges in market condition after the balance sheet date.

Notes to the Financial Statements

167

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

34: Fair Value of Financial Assets and Financial Liabilities (continued)
FINANCIAL ASSETS
Carrying amountAt amortised
cost

Consolidated 30 September 2011

Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments1
Available-for-sale assets
Loans and advances2
Customers’ liability for acceptances
Investments backing policy liabilities
Other financial assets

At fair value through profit or loss

Fair value
Hedging

Available-forsale assets

Total

$m

Held fortrading$m

Sub-total
$m

$m

$m

$m

$m

24,8998,824–––
396,199
970
–
6,485

–
–
–
–
–
138
–
29,859–––36,074
51,394
–
–
–
–
–

–
–
36,074
51,394–138–
29,859
–

–
–
–
2,724
–
–
–
–
–

–
–
–
–
22,264––––24,8998,824
36,074
54,11822,264396,337970
29,8596,485

24,8998,824
36,074
54,11822,264
396,626970
29,8596,485

437,377

29,99787,468117,465

2,724

22,264

579,830

580,119

Hedging

Available-forsale assets

Total

Total

Carrying amountAt amortised
cost

Consolidated 30 September 2010

Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments1
Available-for-sale assets
Loans and advances2
Customers’ liability for acceptances
Investments backing policy liabilities
Other financial assets

At fair value through profit or loss

Fair value$m

Designatedon initialrecognition$mHeld fortrading$m

Sub-total
$m

$m

$m

$m

$m

18,945
5,481–––
351,705
11,495
–
5,668

–
–
–
–
–
192
–
32,171–––
33,51535,229
–
–
–
–
–

–
–
33,51535,229–192–
32,171
–

–
–
–
2,592
–
–
–
–
–

–
–
–
–
20,742––––

18,945
5,481
33,51537,821
20,742351,897
11,49532,171
5,668

18,945
5,481
33,51537,821
20,742351,963
11,49532,171
5,668

393,294

32,36368,744

101,107

2,592

20,742517,735

517,801

Carrying amountAt amortised
cost

The Company 30 September 2011

Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments1
Available-for-sale assets
Loans and advances2
Customers’ liability for acceptances
Other financial assets

At fair value through profit or loss

Fair value
Hedging

Available-forsale assets

Total

ANZ Annual Report 2011

Total

Designatedon initialrecognition$mHeld fortrading$m

Sub-total
$m

$m

$m

$m

$m

–
323,189
688
3,463

–
–
–
–
–
97
–
–

–
–
28,36746,085––––––28,36746,085
–
97
–
–

–
–
–
2,271
–
–
–
–

–
–
–
–
19,017–––

20,555
6,338
28,36748,356
19,017323,286
688
3,463

20,555
6,338
28,36748,356
19,017323,399
688
3,463

354,233

97

74,45274,5492,271

19,017450,070

450,183$m

20,555
6,338–

1 Derivative financial instruments classified as ‘held for trading’ include derivatives entered into as economic hedges which are not designated as accounting hedges.
2 Fair value hedging is applied to financial assets within loans and advances. The resulting fair value adjustments mean that the carrying value differs from the amortised cost.

168

Total

Designatedon initialrecognition$mNOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

34: Fair Value of Financial Assets and Financial Liabilities (continued)
FINANCIAL ASSETS (continued)
Carrying amountAt amortised
cost

The Company 30 September 2010

Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments1
Available-for-sale assets
Loans and advances2
Customers’ liability for acceptances
Other financial assets

At fair value through profit or loss

Fair value
Hedging

Available-forsale assets

Total

Total

$m

Designatedon initialrecognition$mHeld fortrading$m

Sub-total
$m

$m

$m

$m

$m

16,047
4,136–––
280,300
11,517
3,707

–
–
–
–
–
139
–
–

–
–
28,30532,242––––––28,30532,242
–
139
–
–

–
–
–
1,949
–
–
–
–

–
–
–
–
16,973–––

16,0474,136
28,30534,191
16,973
280,439
11,517
3,707

16,0474,136
28,30534,191
16,973
280,520
11,517
3,707

315,707139

60,54760,686

1,949

16,973395,315395,396

1 Derivative financial instruments classified as ‘held for trading’ include derivatives entered into as economic hedges which are not designated as accounting hedges.
2 Fair value hedging is applied to financial assets within loans and advances. The resulting fair value adjustments mean that the carrying value differs from the amortised cost.

LIQUID ASSETS AND DUE FROM/TO OTHER
FINANCIAL INSTITUTIONS
The carrying values of these financial instruments where there has
been no significant change in credit risk is considered to approximate
their net fair values as they are short-term in nature, defined as thosewhich reprice or mature in 90 days or less, or are receivable on demand.
TRADING SECURITIES
Trading securities are carried at fair value. Fair value is based onquoted market prices, broker or dealer price quotations, or modelledvaluations using prices for securities with similar credit risk, maturity
and yield characteristics.
DERIVATIVE FINANCIAL INSTRUMENTS
Derivative financial instruments are carried at fair value. Exchange
traded derivative financial instruments are valued using quoted
prices. Over-the-counter derivative financial instruments are valued
using accepted valuation models (including discounted cash flow
models) based on current market yields for similar types of instruments
and the maturity of each instrument and an adjustment reflecting thecredit worthiness of the counterparty.
AVAILABLE-FOR-SALE ASSETS
Available-for-sale assets are carried at fair value. Fair value is basedon quoted market prices or broker or dealer price quotations. If thisinformation is not available, fair value is estimated using quoted market
prices for securities with similar credit, maturity and yield characteristics,
or market accepted valuation models as appropriate (including
discounted cash flow models) based on current market yields for
similar types of instruments and the maturity of each instrument.

NET LOANS AND ADVANCES AND ACCEPTANCESThe carrying value of loans and advances and acceptances
includes deferred fees and expenses, and is net of provision for
credit impairment and unearned income.
Fair value has been determined through discounting future cash
flows. For fixed rate loans and advances and acceptances, thediscount rate applied incorporates changes in wholesale market
rates, the Group’s cost of wholesale funding and movements incustomer margin. For floating rate loans, only changes in wholesalemarket rates and the Group’s cost of wholesale funding areincorporated in the discount rate. For variable rate loans where theGroup sets the applicable rate at its discretion, the fair value is set
equal to the carrying value.
INVESTMENTS BACKING POLICY LIABILITIESInvestments backing policy liabilities are carried at fair value. Fairvalue is based on quoted market prices, broker or dealer pricequotations where available. Where substantial trading markets do
not exist for a specific financial instrument modelled valuations areused to estimate their approximate fair values.
OTHER FINANCIAL ASSETS
Included in this category are accrued interest and fees receivable.
The carrying values of accrued interest and fees receivable areconsidered to approximate their net fair values as they are short-term
in nature or are receivable on demand.

Notes to the Financial Statements

169

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

34: Fair Value of Financial Assets and Financial Liabilities (continued)
FINANCIAL LIABILITIES
Carrying amountAt amortised
cost

Consolidated 30 September 2011

Due to other financial institutions
Derivative financial instruments1
Deposits and other borrowings
Liability for acceptances
Bonds and notes2
Loan capital2
Policy liabilities3
External unit holder liabilities (life insurance funds)
Payables and other liabilities

At fair value through profit or loss

Fair value
Hedging

Total

Total

Sub-total
$m

$m

$m

$m

–
48,931
–
–
–
–
–
–
–

–
48,931
3,764
–
7,992
638
26,619
5,033
–

–
1,157
–
–
–
–
–
–
–

23,01250,088368,729970
56,551
11,99327,503
5,033
8,421

23,01250,088369,035
970
56,403
11,84927,503
5,033
8,421

48,931

92,977

1,157

552,300

552,314$m

Designatedon initialrecognition$mHeld fortrading$m

23,012–364,965
970
48,55911,355
884
–
8,421

–
–
3,764
–
7,992
638
26,6195,033–

458,166

44,046

Carrying amountAt amortised
cost

Consolidated 30 September 2010

Due to other financial institutions
Derivative financial instruments1
Deposits and other borrowings
Liability for acceptances
Bonds and notes2
Loan capital2
Policy liabilities3
External unit holder liabilities (life insurance funds)
Payables and other liabilities

At fair value through profit or loss

Fair value
Hedging

Total$m

Held fortrading$m

Sub-total
$m

$m

$m

$m

21,610–304,822
11,49551,607
11,271
979
–
7,462

–
–
5,561
–
8,107
1,009
28,002
5,448––
36,083
–
–
–
–
–
–
–

–
36,083
5,561
–
8,107
1,009
28,002
5,448
–

–
1,134
–
–
–
–
–
–
–

21,61037,217
310,383
11,49559,714
12,28028,981
5,448
7,462

21,61037,217
310,464
11,49559,97012,11928,981
5,448
7,462

409,246

48,12736,083

84,2101,134

494,590494,766

Carrying amountAt amortised
cost

The Company 30 September 2011

Due to other financial institutions
Derivative financial instruments1
Deposits and other borrowings
Liability for acceptances
Bonds and notes2
Loan capital2
Payables and other liabilities

Total

Designatedon initialrecognition$m

At fair value through profit or loss

Fair value
Hedging

Total

Total

Sub-total
$m

$m

$m

$m

–
43,492––––––43,492
–
–
7,992
638
–

–
795
–
–
–
–
–

21,34544,287307,254688
44,87010,817
5,644

21,34544,287
307,477
688
44,677
10,7055,644

43,492

52,122795

434,905

434,823$m

Designatedon initialrecognition$mHeld fortrading$m

21,345–
307,254688
36,878
10,179
5,644

–
–
–
–
7,992
638
–

381,9888,630

1 Derivative financial instruments classified as ‘held for trading’ include derivatives entered into as economic hedges which are not designated as accounting hedges.
2 Fair value hedging is applied to financial liabilities within bonds and notes and loan capital. The resulting fair value adjustments mean that the carrying value differs from the amortised cost.
3 Includes life insurance contract liabilities of $884 million (2010: $979) measured in accordance with AASB 1038 Life insurance contract liabilities and life investment contract liabilities of$26,619 million (2010: $28,002) which have been designated at fair value through profit or loss in terms under AASB 139. None of the fair value is attributable to changes in the credit risk of thelife investment contract liabilities.

170

ANZ Annual Report 2011

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

34: Fair Value of Financial Assets and Financial Liabilities (continued)
FINANCIAL LIABILITIES (continued)
Carrying amountAt amortised
cost

Hedging

Total

Total

$m

Designatedon initialrecognition$mHeld fortrading$m

Sub-total
$m

$m

$m

$m

19,939–252,518
11,51740,071
9,918
5,502

–
–
–
–
8,107
1,009
–

–
33,949––––––33,949
–
–
8,107
1,009
–

–
698
–
–
–
–
–

19,93934,647
252,518
11,517
48,178
10,927
5,502

19,93934,647
252,545
11,517
48,407
10,804
5,502

339,465

9,116

33,94943,065698

383,228

383,361

The Company 30 September 2010

Due to other financial institutions
Derivative financial instruments1
Deposits and other borrowings
Liability for acceptances
Bonds and notes2
Loan capital2
Payables and other liabilities

At fair value through profit or loss

Fair value

1 Derivative financial instruments classified as ‘held for trading’ include derivatives entered into as economic hedges which are not designated as accounting hedges.
2 Fair value hedging is applied to financial liabilities within bonds and notes and loan capital. The resulting fair value adjustments mean that the carrying value differs from the amortised cost.

DEPOSITS AND OTHER BORROWINGSFor interest bearing fixed maturity deposits and other borrowings
and acceptances with quoted market prices, market borrowing
rates of interest for debt with a similar maturity are used to discountcontractual cash flows. The fair value of a deposit liability without aspecified maturity or at call is deemed to be the amount payable on
demand at the reporting date. The fair value is not adjusted for any
value expected to be derived from retaining the deposit for a future
period of time.
Certain deposits and other borrowings have been designated atfair value through profit or loss and are carried at fair value.
BONDS AND NOTES AND LOAN CAPITAL
The aggregate fair value of bonds and notes and loan capital iscalculated based on quoted market prices or observable inputs
where applicable. For those debt issues where quoted market prices
were not available, a discounted cash flow model using a yield
curve appropriate for the remaining term to maturity of the debt
instrument is used.
Certain bonds and notes and loan capital have been designatedat fair value through profit or loss and are carried at fair value.
The fair value is based on a discounted cash flow model basedon current market yields for similar types of instruments and thematurity of each instrument. The fair value includes the effects of theappropriate credit spreads applicable to ANZ for that instrument.
EXTERNAL UNIT HOLDER LIABILITIES (LIFE INSURANCE FUNDS)
The carrying amount represents the external unit holder’s shareof net assets which are carried at fair value in the fund.
LIFE INVESTMENT CONTRACT LIABILITIESLife investment contract liabilities are carried at fair value.
PAYABLES AND OTHER FINANCIAL LIABILITIESThis category includes accrued interest and fees payable for which
the carrying amount is considered to approximate the fair value.

COMMITMENTS AND CONTINGENCIES
Adjustments to fair value for commitments and contingencies
that are not financial instruments recognised in the balance sheet,
are not included in this note.

(ii) Valuation methodology
A significant number of financial instruments are carried on balance
sheet at fair value.
The best evidence of fair value is a quoted price in an active market.
Accordingly, wherever possible fair value is based on the quoted
market price of the financial instrument.
In the event that there is no quoted market price for the instrument,
fair value is based on present value estimates or other market acceptedvaluation techniques. The valuation models incorporate the impactof bid/ask spread, counterparty credit spreads and other factors thatwould influence the fair value determined by a market participant.
The majority of valuation techniques employ only observable
market data. However, for certain financial instruments the valuation
technique may employ some data (valuation inputs or components)
which is not readily observable in the current market. In these cases
valuation inputs (or components of the overall value) are derived
and extrapolated from other relevant market data and tested against
historic transactions and observed market trends. Valuations using one
or more non-observable data inputs require professional judgement.
ANZ has a control framework that ensures that the fair value is either
determined or validated by a function independent of the party that
undertakes the transaction.
Where quoted market prices are used, independent pricedetermination or validation is obtained. For fair values determinedusing a valuation model, the control framework may include, asapplicable, independent development or validation of: (i) valuation
models; (ii) any inputs to those models; and (iii) any adjustments
required outside of the valuation model, and, where possible,
independent validation of model outputs.

Notes to the Financial Statements

171

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

34: Fair Value of Financial Assets and Financial Liabilities (continued)
The tables below provide an analysis of the methodology used for valuing financial assets and financial liabilities carried at fair value. The
fair value of the financial instrument has been allocated in full to the category which most appropriately reflects the determination of the fairvalue. This allocation is based on the categorisation of the lowest level input into a valuation model or a valuation component that is significant
to the reported fair value of the financial instrument. The significance of an input is assessed against the reported fair value of the financial
instrument and considers various factors specific to the financial instrument. The ‘quoted market price’ category includes financial instruments
valued using quoted yields where available for specific debt securities.
The methods used in valuing different classes of financial assets or liabilities are described in section (i) on pages 167 to 171. There havebeen no substantial changes in the valuation techniques applied to different classes of financial instruments since the previous year. The Group
continuously monitors the relevance of inputs used and calibrates its valuation models where there is evidence that changes are required
to ensure that the resulting valuations remain appropriate.

Valuation technique
Quoted market priceConsolidated

Financial assets
Trading securities
Derivative financial instruments
Available-for-sale financial assets
Investments backing policy liabilities
Loans and advances (designated at fair value)

Financial liabilities
Derivative financial instruments
Deposits and other borrowings (designatedat fair value)
Bonds and notes (designated at fair value)
Policy liabilities
External unit holder liabilities (life insurance funds)
Loan capital (designated at fair value)

Using observable inputs

With significant
non-observable inputs

Total

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

24,2982,711
19,21914,766–

22,6902,050
17,816
16,585–

11,71450,7982,526
14,734138

10,77535,321
2,280
15,115
192

62
609
519
359
–

50
450
646
471
–

36,074
54,11822,26429,859138

33,51537,821
20,742
32,171
192

60,994

59,141

79,91063,683

1,549

1,617

142,453

124,441

2,847

2,143

46,452

34,428789

646

50,08837,217

–
–
–
–
–

–
–
–
–
–

3,764
7,992
26,619
5,033
638

5,561
8,107
28,002
5,448
1,009

–
–
–
–
–

–
–
–
–
–

3,764
7,992
26,619
5,033
638

5,561
8,107
28,002
5,448
1,009

2,847

2,143

90,49882,555789

646

94,13485,344

Valuation technique
Quoted market price
The Company

Financial assets
Trading securities
Derivative financial instruments
Available-for-sale financial assets
Loans and advances (designated at fair value)

Financial liabilities
Derivative financial instruments
Bonds and notes (designated at fair value)
Loan capital (designated at fair value)172

ANZ Annual Report 2011

Using observable inputs

With significant
non-observable inputs

Total

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

19,733
2,689
17,724–

19,8882,047
15,738–

8,572
45,058
921
97

8,367
31,694
826
139

62
609
372
–

50
450
409
–

28,36748,356
19,01797

28,30534,191
16,973
139

40,14637,67354,64841,026

1,043

909

95,83779,608

2,833
–
–

2,109
–
–

40,665
7,992
638

31,892
8,107
1,009

789
–
–

646
–
–

44,287
7,992
638

34,647
8,107
1,009

2,833

2,109

49,29541,008789

646

52,91743,763NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

34: Fair Value of Financial Assets and Financial Liabilities (continued)(iii) Additional information for financial instruments carried at fair value where the valuation incorporates non-observable market data
CHANGES IN FAIR VALUE
The following table presents the composition of financial instruments measured at fair value with significant non-observable inputs.
Financialliabilities

Financial assets
Trading securities

Derivatives

Available-for-sale

Investments backing
policy liabilities

Derivatives

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

Asset backed securities
Illiquid corporate bonds and loans
Structured credit productsManaged funds (suspended)
Alternative assets
Other derivatives

62
–
–
–
–
–

50
–
–
–
–
–

–
–
605
–
–
4

–
–
445
–
–
5

5
514
–
–
–
–

–
555
91
–
–
–

–
–
110
159
90
–

–
–
110
266
95
–

–
–
(788)
–
–
(1)

–
–
(624)
–
–
(22)

Total

62

50

609

450

519

646

359

471

(789)

(646)

Asset backed securities
Illiquid corporate bonds and loans
Structured credit products
Other derivatives

62
–
–
–

50
–
–
–

–
–
605
4

–
–
445
5

–
372
–
–

–
409
–
–

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

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

–
–
(788)
(1)

–
–
(624)
(22)

Total

62

50

609

450

372

409

n/a

n/a

(789)

(646)

Consolidated

The Company

Asset backed securities and illiquid corporate bonds comprise illiquid bonds where the effect on fair value of issuer credit cannot be directly
or indirectly observed in the market.
Structured credit products categorised in derivatives comprise the structured credit intermediation trades that the Group entered into from2004 to 2007 whereby it sold protection using credit default swaps over certain structures, and mitigated risk by purchasing protection via credit
default swaps from US financial guarantors over the same structures. These trades are valued using complex models with certain inputs relating
to the reference assets and derivative counterparties not being observable in the market.
Investments in structured credit products comprise collateralised debt and loan obligations where there is a lack of active trading and limited
observable market data.
Managed funds (suspended) are comprised of fixed income and mortgage investments in managed funds that are illiquid and are not currently
redeemable.

Notes to the Financial Statements

173

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

34: Fair Value of Financial Assets and Financial Liabilities (continued)
The following table details movements in the balance of these financial assets and liabilities. Derivatives are categorised on a portfolio basis
and classified as either financial assets or financial liabilities based on whether the closing balance is an unrealised gain or loss. This could be
different to the opening balance.
Financial assets
Trading securities

Derivatives

Financial liabilities
Available-for-sale

Investments backing
policy liabilities

Derivatives

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

Opening balance
New purchases and issues1
Disposals/sales and cash settlements
Transfers:
Transfers into the category
Transfers out of the category
Fair value gain/(loss) recorded in the income statement
Fair value gain/(loss) recognised in other comprehensive income

50
–
–

148
–
–

450
–
(18)

745
–
(16)

646
9
(139)

881
150
(383)

471
–
(92)

–
526
(24)

(646) (1,054)
–
–
21
2

–
–
12
–

–
–
(98)
–

–
(3)
180
–

–
(35)
(244)
–

–
–
20
(17)

–
(26)
(5)
29

–
–
(20)
–

–
–
(31)
–

–
17
(181)
–

–
20
386
–

Closing balance

62

50

609

450

519

646

359

471

(789)

(646)

50
–
–

148
–
–

450
–
(18)

745
–
(16)

409
–
(7)

616
50
(231)

n/a
n/a
n/a

n/a
n/a
n/a

(646) (1,054)
–
–
21
2

–
–
12
–
62

–
–
(98)
–
50

–
(3)
180
–
609

–
(35)
(244)
–
450

–
–
–
(30)
372

–
(26)
(7)
7
409

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

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

–
17
(181)
–
(789)

Consolidated

2010
$m

The Company

Opening balance
New purchases and issues
Disposals/sales and cash settlements
Transfers:
Transfers into the category
Transfers out of the category
Fair value gain/(loss) recorded in the income statement
Fair value gain/(loss) recognised in other comprehensive income
Closing balance

–
20
386
–
(646)

1 Included in new purchases and issues in 2010 are $482 million of investments backing policyholder liabilities and $100 million of available-for-sale financial assets acquired as part of the purchaseof the OnePath businesses in Australia and New Zealand.

174

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NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

34: Fair Value of Financial Assets and Financial Liabilities (continued)
SENSITIVITY TO DATA INPUTS
Where valuation techniques use assumptions due to significant data inputs not being directly observed in the market place, changing theseassumptions changes the resultant estimate of fair value. The majority of transactions in this category are ‘back-to-back’ in nature where ANZ
either acts as a financial intermediary or hedges market risks. Similarly, the performance of investments backing policyholder liabilities directly
impacts the associated life investment contracts they relate to. In these circumstances, changes in the assumptions generally have minimal
impact on the income statement and net assets of ANZ. An exception to this is the ‘back-to-back’ structured credit intermediation trades which
create significant exposure to market risk and/or credit risk.
Principal inputs used in the determination of fair value of financial instruments included in this group include counterparty credit spreads,
market-quoted CDS prices, recovery rates, default probabilities, correlation curves and other inputs, some of which may not be directly
observable in the market. For both the Group and the Company, the potential effect of changing prevailing assumptions to reasonably possible
alternative assumptions for valuing those financial instruments could result in an increase of $46 million (2010: $45 million) or a decrease of$30 million (2010: $30 million) in net derivative financial instruments as at 30 September 2011. The ranges of reasonably possible alternative
assumptions are established by application of professional judgement and analysis of the data available to support each assumption.

DEFERRED FAIR VALUE GAINS AND LOSSES
Where the fair value of a financial instrument is determined using non-observable data that has a significant impact on the valuationof the instrument, any difference between the transaction price and the amount determined based on the valuation technique arisingon initial recognition of the financial instrument (day one gain or loss) is deferred on the balance sheet. Subsequently, the day one gainor loss is recognised in the income statement only to the extent that it arises from a change in factors (including time) that a market
participant would consider in setting the price for the instrument.
The aggregate amount of day one gain/(loss) not recognised in the income statement on the initial recognition of the financial instrument,
because the difference between the transaction price and the modelled valuation price was not fully supported by inputs that were observable,amounted to $2 million (2010: $3 million) with $1 million (2010: $Nil) being recognised in the income statement during the year.

(iv) Additional information for financial instruments designated at fair value through profit or loss
FINANCIAL ASSETS DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS
The category loans and advances includes certain loans designated at fair value through profit or loss in order to eliminate an accounting
mismatch which would arise if the asset were otherwise carried at amortised cost. This mismatch arises as the derivative financial instruments,
which were acquired to mitigate interest rate risk of the loan and advances, are measured at fair value through profit or loss. By designating the
economically hedged loans, the movements in the fair value attributable to changes in interest rate risk, will also be recognised in the income
statement in the same periods.
At balance date, the credit exposure of the Group on these assets was $138 million (2010: $192 million) and for the Company was $97 million(2010: $139 million). For the Group and Company $84 million (2010: $85 million) was mitigated by collateral held.
The cumulative change in fair value attributable to change in credit risk was, for the Group, a reduction to the assets of $3 million (2010: $4 million).
For the Company the cumulative change to the assets was $nil (2010: $1 million reduction). The amount recognised in the income statement
attributable to changes in credit risk for the Group was a gain of $1 million (2010: $1 million gain) and for the Company a gain of $1 million(2010: $nil).
The change in fair value of the designated financial assets attributable to changes in credit risk has been calculated by determining the change
in credit rating and credit spread implicit in the loans and advances issued by entities with similar credit characteristics.

Notes to the Financial Statements

175

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

34: Fair Value of Financial Assets and Financial Liabilities (continued)
FINANCIAL LIABILITIES DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS
Parts of loan capital, bonds and notes and deposits and other borrowings have been designated as financial liabilities at fair value through profit
or loss in order to eliminate an accounting mismatch which would arise if the liabilities were otherwise carried at amortised cost. This mismatcharises as the derivatives acquired to mitigate interest rate risk within the financial liabilities are measured at fair value through profit or loss.
Life investment contracts are designated at fair value through profit or loss in accordance with AASB 1038.
The table below compares the carrying amount of financial liabilities carried at full fair value, to the contractual amount payable at maturity
and fair value gains and losses recognised during the period on liabilities carried at full fair value that are attributable to changes in ANZ’s own
credit rating.

Consolidated

Carrying amountAmount at which carrying value is greater/(less) thanamount payable at maturity
Cumulative change in liability value attributable to own
credit risk:– opening cumulative (gain)/loss– (gain)/loss recognised during the year
– closing cumulative (gain)/loss

The Company

Carrying amountAmount at which carrying value is greater/(less) thanamount payable at maturity
Cumulative change in liability value attributable to own
credit risk:– opening cumulative (gain)/loss– (gain)/loss recognised during the year
– closing cumulative (gain)/loss

Life investment
contract liabilities

Deposits and otherborrowings

Bonds and notes

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

26,61928,002

3,764

5,561

7,992

8,107

638

1,009

–

(25)

–

(1)

8

(187)

3

27

–
–
–

–
–
–

–
–
–

–
–
–

(10)
141
131

76
(86)
(10)

(18)
14
(4)

(59)
41
(18)

Loan capital

Deposits and otherborrowings

Bonds and notes

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

–

–

7,992

8,107

638

1,009

–

–

8

(187)

3

27

–
–
–

–
–
–

(10)
141
131

76
(86)
(10)

(18)
14
(4)

(59)
41
(18)

Loan capital

For each of loan capital, bonds and notes and deposits and other borrowings, the change in fair value attributable to changes in credit riskhas been determined as the amount of change in fair value that is not attributable to changes in market conditions that give rise to market
risks (benchmark interest rate and foreign exchange rates).

176

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NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

35: Maturity Analysis of Assets and Liabilities
The following is an analysis, by remaining contractual maturities at balance date, of selected asset and liability accounts and represents theactual obligation date expected for the asset or liability to be recovered or settled within one year, and greater than one year.
2011
Due within
one year$m

Greater than
one year1$m

Due from other financial institutions
Available-for-sale assets
Net loans and advances
Investments backing policyholder liabilities
Customers’ liability for acceptances

8,694
17,93096,4892,242
970

Due to other financial institutions
Deposits and other borrowings
Liability for acceptances
Bonds and notes
Policyholder liabilities
External unit holder liabilities (life insurance funds)
Loan capital

22,926
347,885970
13,874
26,443
5,033
720

Consolidated

2010
Total
$m

Due within
one year$m

Greater than
one year1
$m

Total
$m

130
4,334
299,848
27,617–

8,824
22,264396,337
29,859970

5,291
16,536
85,686
4,575
11,495

190
4,206
266,211
27,596–

5,481
20,742351,897
32,171
11,49586
20,844–42,677
1,060–
11,27323,012368,729970
56,551
27,503
5,033
11,993

21,554
290,965
11,49516,03528,002
5,448–

56
19,418–43,679979–
12,28021,610310,383
11,49559,71428,981
5,448
12,280

1 Includes items where no maturity is specified.

Notes to the Financial Statements

177

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

36: Segment Analysis(i) Description of segments
The Group operates on a divisional structure with Australia, Asia Pacific, Europe & America (APEA), Institutional and New Zealand being the
major operating divisions. The Group manages its APEA Institutional business on a matrix structure i.e. the results for APEA Institutional are
included in both APEA and Institutional, consistent with how this business is internally managed. Accordingly, the divisional analysis on thefollowing pages reflects this matrix reporting structure.
The segments and product and services categories as reported below are consistent with internal reporting provided to the chief operating
decision maker, being the Chief Executive Officer.
In order to more closely align with how operating results are regularly reviewed and assessed, the operating segments were changed fromgeographical based segments used in the prior year to a divisional view. Comparative segment information has been restated accordingly.
The primary sources of external revenue across all divisions are interest, fee income and trading income. The Australian and New Zealanddivisions derive revenue from products and services from retail banking, commercial banking and wealth management in their respective
geographies. APEA derives revenue from retail banking, wealth products, institutional and commercial products and services. The Institutional
division derives revenue from transaction banking, market trading, treasury products and institutional lending. Corporate Centre provides
support to all divisions, including risk, financial management, strategy and marketing, human resources and corporate affairs.

(ii) Operating segments
Transactions between business units across segments within ANZ are conducted on an arms length basis.
Year ended 30 September 2011 ($m)

Australia

APEA

Institutional

New
Zealand

Corporate
CentreLess: APEA
Institutional

Other
items1

Group
Total

External interest income
External interest expense
Adjustment for intersegment interest
Net interest income
Other external operating income
Share of net profit/(loss) of equity
accounted investments
Segment revenue
Other external expenses
Net intersegment expenses
Operating expenses
Profit before income tax and provision
for credit impairment
Provision for credit impairment
Segment result before tax
Income tax expense
Non-controlling interests
Profit after income tax attributed toshareholders of the company
Non-cash expenses
Depreciation and amortisation
Equity-settled share based payment
expenses
Provision for credit impairment
Financial position
Goodwill
Shares in associates
Total external assets
Total external liabilities

17,429(6,301)(5,307)
5,821
2,360

1,791
(758)
97
1,130
943

7,537
(3,397)(1,048)
3,092
1,803

4,577
(2,119)
(765)
1,693
466

189
(6,826)
7,018
381
(36)

(1,159)
516
7
(636)
(636)

4
–
(2)
2
113

30,368(18,885)–
11,483
5,013

(2)
8,179
(2,562)(944)(3,506)421
2,494(1,402)(86)(1,488)11
4,906(1,446)(555)(2,001)–
2,159(1,025)10(1,015)1346(1,764)
1,376
(388)

–
(1,272)
460
220
680

5
120
(284)
(21)
(305)

436
16,932(8,023)–(8,023)

4,673
(711)
3,962
(1,185)
–

1,006
(110)
896
(166)
(9)

2,905
(258)
2,647
(750)
(2)

1,144
(166)
978
(286)
–

(42)
(40)
(82)
46
–

(592)
74
(518)
119
2

(185)
(26)
(211)
(87)
1

8,909
(1,237)
7,672(2,309)
(8)

2,777

721

1,895

692

(36)

(397)

(297)

5,355

(170)

(63)

(96)

(50)

(171)

8

(101)

(643)

(25)

(33)

(79)

(18)

(30)

20

(1)

(166)

(711)

(110)

(258)

(166)

(40)

74

(26)

(1,237)1,433
30
272,331
175,115

167
3,293
88,10893,028843
121
237,676
200,8161,720
270,27356,446–
67
1,317
108,932––(75,217)(77,803)

–
–
–
–

4,163
3,513
594,488556,534

1 In evaluating the performance of the operating segments, certain items are removed from the operating segment results, where they are not considered integral to the ongoing performance ofthe segment and are evaluated separately. These items are set out in part (iii) of this note.

178

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NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

36: Segment Analysis (continued)
Year ended 30 September 2010 ($m)

Australia

APEA

Institutional

New
Zealand

Corporate
CentreLess: APEA
Institutional

Other
items1

Group
Total

External interest income
External interest expense
Adjustment for intersegment interest
Net interest income
Other external operating income
Share of net profit/(loss) of equity
accounted investments
Segment revenue
Other external expenses
Net intersegment expenses
Operating expenses
Profit before income tax and provision
for credit impairment
Provision for credit impairment
Segment result before tax
Income tax expense
Non-controlling interests
Profit after income tax attributed toshareholders of the company
Non-cash expenses
Depreciation and amortisation
Equity-settled share based payment
expenses
Provision for credit impairment
Financial position
Goodwill
Shares in associates
Total external assets
Total external liabilities

14,819(4,781)(4,654)
5,384
2,194

1,464
(603)
110
971
737

6,192
(3,013)
47
3,226
1,718

4,848
(2,159)(1,054)
1,635
469

188
(5,562)
5,597
223
(88)

(927)
379
(29)
(577)
(507)

24
–
(17)
7
(133)

26,608(15,739)–
10,869
4,390

28
7,606
(2,361)(895)(3,256)360
2,068(1,101)(41)(1,142)

3
4,947(1,260)(488)(1,748)5
2,109(1,067)10(1,057)1
136(1,571)
1,269
(302)

–
(1,084)
386
148
534

36
(90)
(330)
(3)
(333)

433
15,692(7,304)–(7,304)

4,350
(583)
3,767
(1,093)
–

926
(154)
772
(90)
(6)

3,199
(741)
2,458
(680)
–

1,052
(409)
643
(180)
–

(166)
(10)
(176)
(11)
–

(550)
77
(473)
94
–

(423)
33
(390)
(136)
2

8,388
(1,787)
6,601(2,096)
(4)

2,674

676

1,778

463

(187)

(379)

(524)

4,501

(148)

(51)

(76)

(50)

(161)

8

(86)

(564)

(25)
(583)

(30)
(154)

(60)
(741)

(16)
(409)

(27)
(10)

18
77

–
33

(140)
(1,787)1,414
21
260,994
161,325

190
2,691
58,721
66,883829
187
185,021
177,308

1,653
169,711
55,230–65
4,780
90,517––(47,524)(53,715)

–
–
–
–

4,086
2,965
531,703497,548

1 In evaluating the performance of the operating segments, certain items are removed from the operating segment results, where they are not considered integral to the ongoing performance ofthe segment and are evaluated separately. These items are set out in part (iii) of this note.

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

Related segment

New Zealand technology integration
Changes in New Zealand tax legislation
Acquisition costs and valuation adjustments
Treasury shares adjustment
Economic hedging – fair value losses
Revenue and net investment hedges
New Zealand managed fund impacts
Tax on New Zealand conduits
Non-continuing businesses
Total

New Zealand
New Zealand and Institutional
Australia, APEA, Institutional and New ZealandAustralia
Australia, APEA, Institutional and New ZealandCorporate Centre
New ZealandInstitutional
Institutional

2011
$m

2010
$m

(86)
2
(126)
41
(117)
(51)
39
–
1
(297)

–
(36)
(480)
(32)
(146)
24
34
38
74
(524)

Notes to the Financial Statements

179

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

36: Segment Analysis (continued)(iv) External segment revenue by products and services
The table below sets out revenue from external customers for groups of similar products and services.
Revenue

RetailCommercial
WealthInstitutional
Partnerships
Other

2011
$m

2010
$m

6,252
3,668
1,310
4,906
314
482
16,932

5,755
3,463
1,139
4,947
332
56
15,692(v) Geographical information
The following table sets out revenue and non-current assets1 based on the geographical locations in which the Group operates.
Australia
Consolidated

Total external revenue
Non-current assets1

APEA

New Zealand

Total

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

11,904260,004

11,124
231,357

2,426
22,401

2,004
14,234

2,602
49,5242,564
52,612

16,932331,929

15,692
298,203

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

180

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NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

37: Notes to the Cash Flow Statements (continued)
Consolidated

The Company

2011
$m

2010
$m

2011
$m

2010
$m

Inflows(Outflows)

Inflows(Outflows)

Inflows(Outflows)

Inflows(Outflows)

5,355

4,501

4,151

4,428

1,237

1,787

994

1,369

72
(21)
645
(6)
648
(678)
(20)
(68)
(13)
167
(854)
(817)
346
675

21
(35)
560
–
461
(520)
8
(57)
(32)
143
836
(747)
95
658

72
(19)
403
–
345
(518)
7
(31)
6
167
–
(528)
19
1,237

21
39
372
–
326
(259)
–
(22)
2
143
–
(458)
(82)
518

Net (increase)/decrease in operating assets
Trading securities
Liquid assets greater than three months
Due from other banks greater than three months
Loans and advances
Net (decrease)/increase in investments backing policyholder liabilities
Net derivative financial instruments
Net intra-group loans and advancesInterest receivable
Accrued income
Net tax assets(7,614)
1,593(1,476)(25,568)
1,319(2,038)
–
(45)
80
277

(2,004)2,184(65)(17,044)(491)(1,823)
–
(181)
(147)
1,114

(5,558)1,106(1,586)(25,753)–(3,751)
336
(55)
82
(371)

(1,835)815(145)(20,345)–(1,110)(5,110)
(208)
(116)
936

Net (decrease)/increase in operating liabilities
Deposits and other borrowings
Due to other financial institutions
Payables and other liabilities
Interest payable
Accrued expenses
Other

43,834
1,350
584
124
21
(308)

14,72655(1,288)
163
363
(192)

42,542
1,415
835
119
23
(12)

20,862
1,329
(709)
308
324
(315)

Total adjustments

13,446(1,452)

11,526(3,350)Net cash (used in)/provided by operating activities

18,801

3,049

15,6771,078a) Reconciliation of net profit after income tax to net cash provided by operating activities

Operating profit after income tax attributable to shareholders of the Company
Adjustment to reconcile operating profit after income tax
to net cash provided by/(used in) operating activities
Provision for credit impairment
Impairment on available for sale assets transferred to
profit and loss
Credit risk on derivatives
Depreciation and amortisation
Profit on sale of businesses
Provision for employee entitlements, restructuring and other provisions
Payments from provisions(Profit)/loss on sale of premises and equipment(Profit)/loss on sale of available-for-sale assets
Amortisation of discounts/premiums included in interest income
Share based payment expense
Change in policyholder liabilities
Net foreign exchange earnings
Net gains/losses on trading derivatives
Net derivatives/foreign exchange adjustment

Notes to the Financial Statements

181

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FINANCIALSTATEMENTS
STATEMENTS

37: Notes to the Cash Flow Statements (continued)b) Reconciliation of cash and cash equivalents
Cash and cash equivalents include liquid assets and amounts due from other financial institutions with an original term to maturity of less than
three months. Cash and cash equivalents at the end of the financial year as shown in the statements of cash flows are reconciled to the related
items in the statements of financial position as follows:
Consolidated

The Company

2011
$m

2010
$m

2011
$m

2010
$m

Liquid assets – less than three months
Due from other financial institutions – less than three months

23,4006,621

15,748
4,862

19,072
4,579

13,342
3,592

Cash and cash equivalents in the statement of cashflows

30,021

20,61023,651

16,934c) Acquisitions and disposals
Consolidated

Cash (inflows)/outflows from acquisitions and investments (net of cash acquired)
Purchases of controlled entities
Investments in controlled entities
Purchases of interest in associates and joint ventures
Cash inflows from disposals (net of cash disposed)
Disposals of controlled entities
Disposals of associates and joint ventures

The Company

2011
$m

2010
$m

2011
$m

2010
$m

44
–
260

(55)
–
5

–
–
260

(3,009)
694
5

304

(50)

260

(2,310)

6
68

–
15

–
36

–
113

74

15

36

113

1,367
66

1,007
54

1,367
66

1,007
54

1,433

1,061

1,433

1,061

d) Non-cash financing and investing activities
Share capital issues
Dividends satisfied by share issue
Dividends satisfied by bonus share issuee) Financing arrangements
Consolidated
2011

Credit stand by arrangements
Standby lines
Other financing arrangements
Over and other financing arrangements
Total finance available

182

ANZ Annual Report 20112010

Available$m

Unused$m

Available$m

Unused
$m

978

978

987

987

–

–

–

–

978

978

987

987

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

38: Controlled Entities

Ultimate parent of the Group
Australia and New Zealand Banking Group Limited
All controlled entities are 100% owned unless otherwise noted.
The material controlled entities of the Group are:
ANZ Bank (Lao) Limited1 (formerly ANZ Vientiane Commercial Bank Limited)
ANZ Bank (Vietnam) Limited1
ANZ Capel Court Limited
ANZ Capital Hedging Pty Ltd
ANZ Commodity Trading Pty Ltd
ANZ Cover Insurance Pty Ltd
ANZ Trustees Limited
ANZ Funds Pty Ltd
ANZ Bank (Europe) Limited1
ANZ Bank (Kiribati) Limited1, 4
ANZ Bank (Samoa) Limited1
ANZ Holdings (New Zealand) Limited1
ANZ National Bank Limited1
ANZ Investment Services (New Zealand) Limited1
ANZ National (Int’l) Limited1
OnePath Holdings (NZ) Limited1 (formerly ING (NZ) Holdings Limited)
OnePath Insurance Holdings (NZ) Limited1 (formerly ING Insurance Holdings Limited)
OnePath Life (NZ) Limited1 (formerly ING Life (NZ) Limited)
Private Nominees Limited1
UDC Finance Limited1
ANZ International (Hong Kong) Limited1
ANZ Asia Limited1
ANZ Bank (Vanuatu) Limited2
ANZ International Private Limited1
ANZ Singapore Limited1
ANZ Royal Bank (Cambodia) Limited1, 4
Votraint No. 1103 Pty Ltd
ANZ Lenders Mortgage Insurance Pty Ltd
ANZ Orchard Investments Pty Ltd
OnePath Australia Limited (formerly ING Australia Limited)
OnePath Life Limited (formerly ING Life Limited)
OnePath General Insurance Pty Limited (formerly ING General Insurance Pty Limited)
OnePath Funds Management Limited (formerly ING Funds Management Limited)
OnePath Custodians Limited (formerly ING Custodians Pty Limited)
Australia and New Zealand Banking Group (PNG) Limited1
Australia and New Zealand Bank (China) Company Limited1
Chongqing Liangping ANZ Rural Bank Company Limited1
Citizens Bancorp Inc
ANZ Guam Inc.3
Esanda Finance Corporation Limited
ETRADE Australia Limited
ETRADE Australia Securities Limited
LFD Limited
PT ANZ Panin Bank1, 4
1
2
3
4

Incorporated in

Nature of business

Australia

Banking

Laos
Vietnam
Australia
Australia
Australia
Australia
Australia
Australia
United Kingdom
Kiribati
Samoa
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New ZealandHong Kong
Hong Kong
VanuatuSingapore
Singapore
Cambodia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Papua New Guinea
China
China
Guam
Guam
Australia
Australia
Australia
Australia
Indonesia

Banking
Banking
Investment Banking
Hedging
Finance
Captive-Insurance
Trustee/Nominee
Holding Company
Banking
Banking
Banking
Holding Company
Banking
Funds Management
Finance
Holding Company
Holding Company
Insurance
NomineeFinance
Holding Company
Banking
Banking
Holding Company
Merchant Banking
Banking
Investment
Mortgage Insurance
Holding Company
Holding Company
Insurance
Insurance
Funds Management
Trustee
Banking
Banking
Banking
Holding Company
Banking
General FinanceHolding Company
Online Stockbroking
Holding Company
Banking

Audited by overseas KPMG firms.
Audited by Hawkes Law.
Audited by Deloitte Guam. American Samoa Bank merged with ANZ Guam Inc during the year ended 30 September 2011.
Non-controlling interests hold ordinary shares or units in the controlled entities listed above as follows: ANZ Bank (Kiribati) Limited – 150,000 $1 ordinary shares (25%) (2010: 150,000 $1 ordinary
shares (25%)); PT ANZ Panin Bank – 16,500 IDR 1 million shares (1%) (2010: 7,500 IDR 1 million shares (15%)); ANZ Royal Bank (Cambodia) Limited – 319,500 USD100 ordinary shares (45%)(2010: 319,500 USD100 ordinary shares (45%)). The increase in the Group’s interest in PT ANZ Panin Bank of 14% was the result of the Group electing to take up a proportionately larger issue ofshares in PT ANZ Panin Bank than the non-controlling interest holder.

Notes to the Financial Statements

183

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FINANCIALSTATEMENTS
STATEMENTS

39: Associates
Significant associates of the Group are as follows:
Date Ownership
becameinterest
an associate
held

AMMB Holdings Berhad
PT Bank Pan Indonesia
Shanghai Rural Commercial Bank1

Votinginterest

Incorporatedin

Malaysia
Indonesia
Peoples Republicof China
Peoples Republicof China
Vietnam
Australia
Philippines

May 2007
April 2001

24%
39%

24%
39%

September 2007

20%

20%

June 2006
July 2008
March 2008
October 2003

20%
18%
37%
40%

20%
18%
37%
40%

Bank of Tianjin2
Saigon Securities Inc.3
Diversified Infrastructure TrustMetrobank Card Corporation
Other associates

Carrying
value
2011
$m

1,111
685

Total carrying value of associates
1
2
3
4
5

Carrying
value
2010
$m

Fair
value4$m

Reportingdate

Principal
activity

1,082 1,337
611
709

31 March
31 December

Banking
Banking

952

499

n/a

31 December

Banking

384
115
82
44
140

327
128
105
43
170

n/a 31 December
605 31 December
114 30 September
n/a 31 December

Banking
Stockbroking
Investment
Cards Issuing

3,513

2,965

During the year ended 30 September 2011 the Group invested an additional RMB 1.65 billion ($255 million) in Shanghai Rural Commercial Bank (SRCB) as part of a major capital raising by SRCB.
The Group is participating in a rights issue which will maintain its existing 20% interest. The issuance is subject to local regulatory approval.
Significant influence was established via representation on the Board of Directors.
Applicable to those investments in associates where there are published price quotations.
A value-in-use estimation supports the carrying value of this investment.

Aggregated assets of significant associates (100%)
Aggregated liabilities of significant associates (100%)
Aggregated revenues of significant associates (100%)

2011
$m

2010
$m

131,297
119,664
6,898

116,107
106,589
5,812

Consolidated
2011
$m

2010
$m

Results of associates
Share of associates profit before income tax
Share of income tax expense

476
(121)

435
(114)

Share of associates net profit – as disclosed by associates
Adjustments1
Share of associates net profit accounted for using the equity method

355
81
436

321
79
400

1 The results differ from the published results of these entities due to the application of IFRS, Group Policies and acquisition adjustments.

40: Interests in Joint Venture Entities
On 30 November 2009, the Group acquired the remaining 51% shareholding in the ANZ-ING joint ventures in Australia and New Zealand, taking
its ownership interest to 100%. The year ended 30 September 2010 includes the financial impact of full ownership since 30 November 2009.
For the period 1 October 2009 to 30 November 2009, the investments were accounted for as joint ventures.
OnePath Australia

Consolidated
Total

OnePath NZ

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

n/a
n/a

483
n/a

n/a
n/a

68
n/a

n/a
n/a

551
n/a

Movement in the carrying amount of the joint venture entity
Carrying amount at the commencement of the year
Share of net profit
Transfer to shares in controlled entity
Adjustment for exchange fluctuations

–
–
–
–

1,649
28
(1,677)
–

–
–
–
–

204
5
(201)
(8)

–
–
–
–

1,853
33
(1,878)(8)

Carrying amount at the end of the year

–

–

–

–

–

–

Share of revenues, expenses and results
Revenues
Expenses

–
–

87
(51)

–
–

16
(12)

–
–

103
(63)

Profit before income tax

–

36

–

4

–

40

Income tax (expense)/benefit

–

(8)

–

1

–

(7)

Profit after income tax

–

28

–

5

–

33

Net equity accounted profit

–

28

–

5

–

33

Retained profits attributable to the joint venture entity
At the beginning of the year
At the end of the year

184

ANZ Annual Report 2011

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

41: Securitisations
The Group enters into transactions in the normal course of business by which it transfers financial assets directly to third parties or to special
purpose entities. These transfers may give rise to the full or partial derecognition of those financial assets.
Full derecognition occurs when the Group transfers its contractual right to receive cash flows from the financial assets, or retains the right but
assumes an obligation to pass on the cash flows from the asset, and transfers substantially all the risks and rewards of ownership. These risks
include credit, interest rate, currency, prepayment and other price risks.
Partial derecognition occurs when the Group sells or otherwise transfers financial assets in such a way that some but not substantially all of
the risks and rewards of ownership are transferred but control is retained. These financial assets continue to be recognised on the balance
sheet to the extent of the Group’s continuing involvement.
The following table summarises the Group’s securitisation activities for Group-originated assets for the period. The securitisation activity relates
to an internal residential mortgage securitisation creating instruments eligible for repurchase arrangements with the Reserve Bank of Australia.
Consolidated1

The Company

2011
$m

2010
$m

2011
$m

2010
$m

Carrying amount of assets securitised (sold) during the year
Net cash proceeds received
Retained interests

–
–
–

–
–
–

6,275
–
(6,275)

7,001–(7,001)

Gain/(loss) on securitisation/sale (pre-tax)

–

–

–

–

1 The balances are nil as the Company balances relate to transfers to an internal securitisation vehicle.

Group-originated financial assets that do not qualify for derecognition typically relate to loans that have been securitised under arrangements
by which the Group retains a continuing involvement in the transferred assets. Continuing involvement may entail: retaining the rights to future
cash flows arising from the assets after investors have received their contractual terms; providing subordinated interests; liquidity support;
continuing to service the underlying asset; and entering into derivative transactions with the securitisation vehicles. In such instances, the Group
continues to be exposed to risks associated with these transactions.
The table below sets out the balance of assets transferred by the Company to special purpose entities, that are consolidated by the Group,that continue to be recognised by the Company because they do not qualify for derecognition.
Consolidated1
Securitisation

Current carrying amount of assets recognised
Carrying amount of associated liabilities

The Company

2011
$m

2010
$m

2011
$m

2010
$m

–
–

–
–

31,28031,28030,58230,582

1 The balances are nil as the Company balances relate to transfers to an internal securitisation vehicle.

42: Fiduciary Activities
The Group conducts various fiduciary activities as follows:

Investment fiduciary activities for trusts
The Group conducts investment fiduciary activities for trusts, including deceased estates. These trusts have not been consolidated as the Group
does not have direct or indirect control.
Where the Company or its controlled entities incur liabilities in respect of these operations as trustee, where the primary obligation is incurred inan agency capacity as trustee of the trust rather than on the Group’s own account, a right of indemnity exists against the assets of the applicablefunds or trusts. As these assets are sufficient to cover the liabilities and it is therefore not probable that the Company or its controlled entities will
be required to settle the liabilities, the liabilities are not included in the financial statements.
The aggregate amounts of funds concerned are as follows:

Trusteeships

2011
$m

2010
$m

3,418

3,434

Notes to the Financial Statements

185

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

42: Fiduciary Activities (continued)
Funds management activities
Funds management activities are conducted through Group controlled entities OnePath Australia Limited and OnePath Holdings (NZ) Limited andcertain other subsidiaries of the Group. Funds under management in these entities are included in these consolidated financial statements where
they are controlled by the Group.
The aggregate funds under management which are not included in these consolidated financial statements are as follows:

OnePath Australia Limited
OnePath Holdings (NZ) Limited
Other controlled entities – New Zealand
Other controlled entities – Australia

2011
$m

2010
$m

6,420
5,271
6,295
50

7,988
5,655
5,885
62

18,036

19,590

Custodian services activities
On 18 November 2010, the Transitional Service Agreement with JPMorgan Chase Bank, National Association concluded. At 30 September 2011,
ANZ Custodian Services has been formally decommissioned with a small number of residual assets (immaterial in value) in the name of
ANZ Nominees Limited remaining.

43: Commitments
Consolidated

The Company

2011
$m

2010
$m

2011
$m

2010
$m

Property
Capital expenditure
Contracts for outstanding capital expenditure
Not later than 1 year
Later than one year but not later than 5 years
Later than 5 years

58
3
–

58
3
1

31
2
–

23
3
1

Total capital expenditure commitments1

61

62

33

27

Lease rentals
Land and buildings
Not later than 1 year
Later than one year but not later than 5 years
Later than 5 years

325
785
392

327
729
389

263
674
369

263
605
366

1,502

1,445

1,306

1,234

52
78
–

45
76
–

44
72
–

38
70
–

Furniture and equipment
Not later than 1 year
Later than one year but not later than 5 years
Later than 5 years

130

121

116

108

Total lease rental commitments

1,632

1,566

1,422

1,342

Total commitments

1,693

1,628

1,455

1,369

1 Relates to premises and equipment.

186

ANZ Annual Report 2011

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

44: Credit Related Commitments, Guarantees, Contingent Liabilities and Contingent Assets
CREDIT RELATED COMMITMENTS GUARANTEES AND CONTINGENT LIABILITIESCredit related commitments
Facilities provided

Consolidated

The Company

Contract
amount2011$mContract
amount2010$mContract
amount2011$mContract
amount2010$m

Undrawn facilities

137,889

124,029

117,107

106,403

Australia
New Zealand
Asia Pacific, Europe & America

80,013
15,56942,30778,41014,20031,41979,919–37,18878,207–28,196

Total

137,889

124,029

117,107

106,403

Guarantees and contingent liabilities
Details of the estimated maximum amount of guarantees and contingent liabilities that may become payable are disclosed on the following
pages. These guarantees and contingent liabilities relate to transactions that the Group has entered into as principal.
Documentary letters of credit involve the issue of letters of credit guaranteeing payment in favour of an exporter secured against an underlying
shipment of goods or backed by a confirmatory letter of credit from another bank.
Performance related contingencies are liabilities that oblige the Group to make payments to a third party should the customer fail to fulfil the
non-monetary terms of the contract.
To reflect the risk associated with these transactions, they are subjected to the same credit origination, portfolio management and collateralrequirements for customers that apply for loans. The contract amount represents the maximum potential amount that could be lost if thecounterparty fails to meet its financial obligations. As the facilities may expire without being drawn upon, the notional amounts do notnecessarily reflect future cash requirements.
Consolidated

The Company

Contract
amount2011$mContract
amount2010$mContract
amount2011$mContract
amount2010$mFinancial guarantees
Standby letters of credit
Documentary letter of credit
Performance related contingencies
Other

6,923
2,672
2,964
17,770
881

6,313
1,991
2,498
16,103
580

5,942
2,307
2,561
16,793
666

5,981
1,867
2,276
15,176445

Total

31,21027,48528,26925,745Australia
New Zealand
Asia Pacific, Europe & America

15,182
1,122
14,906

14,309975
12,201

15,182–
13,087

14,309–11,436

Total

31,21027,48528,26925,745

Notes to the Financial Statements

187

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

44: Credit Related Commitments, Guarantees, Contingent Liabilities and Contingent Assets (continued)
OTHER BANK RELATED CONTINGENT LIABILITIESGENERAL
There are outstanding court proceedings, claims and possible claims
against the Group, the aggregate amount of which cannot readily
be quantified. Appropriate legal advice has been obtained and,in the light of such advice, provisions as deemed necessary havebeen made. In some instances we have not disclosed the estimatedfinancial impact as this may prejudice the interests of the Group.

i) Exception fees class action
In September 2010, litigation funder IMF (Australia) Ltd commenced
a class action against ANZ, which it said was on behalf of 27,000
ANZ customers (which may now be in excess of 30,000) and relating
to more than $50 million in exception fees charged to thosecustomers over the previous six years. The case is at an early stage.
ANZ is defending it. There is a risk that further claims could emerge.

ii) Securities Lending
There are ongoing developments concerning the events surrounding
ANZ’s securities lending business which may continue for some time.
There is a risk that further actions (court proceedings or regulatory
actions) may be commenced against various parties, including ANZ.
The potential impact or outcome of future claims (if any) cannot
presently be ascertained. ANZ would review and defend any claim,
as appropriate.
On 4 July 2008, ANZ appointed a receiver and manager toPrimebroker Securities Limited (Primebroker). On 31 August 2009,an Associate Justice set aside some statutory demands served by thereceiver and said that, among other things, ANZ’s appointment of
the receiver to Primebroker was invalid. The receiver is appealing thedecision. ANZ has joined in the appeal.
Separately:
On 14 April 2010, the liquidator of Primebroker filed an action
against ANZ, alleging (among other things) that a charge createdon 12 February 2008 is void against the liquidators. The action
initially claimed $98 million and was subsequently increased to$177 million (plus interest and costs) from ANZ.
On 15 July 2010, Primebroker and some associated companies
brought an action against parties including ANZ, seeking
approximately $150 million and certain unquantified amounts.
The allegations include misleading or deceptive conduct, wrongful
appointment of receivers, and failure to perform an alleged equity
investment agreement.
ANZ is defending these actions.

188

ANZ Annual Report 2011iii) Contingent tax liability
The Australian Taxation Office (ATO) is reviewing the taxation
treatment of certain transactions, undertaken by the Group in
the course of normal business activities.
Risk reviews are also being undertaken by revenue authorities
in other jurisdictions, as part of normal revenue authority activity
in those countries.
The Group has assessed these and other taxation claims arisingin Australia and elsewhere, including seeking independent advice
where appropriate, and considers that it holds appropriate provisions.

iv) Interbank Deposit Agreement
ANZ has entered into an Interbank Deposit Agreement with the
major banks in the payment system. This agreement is a payment
system support facility certified by the Australian Prudential
Regulation authority, where the terms are such that if any bank isexperiencing liquidity problems, the other participants are required
to deposit equal amounts of up to $2 billion for a period of 30 days.
At the end of 30 days the deposit holder has the option to repay thedeposit in cash all by way of assignment of mortgages to the valueof the deposit.

v) Clearing and settlement obligations
In accordance with the clearing and settlement arrangements set out:in the Australian Payments Clearing Association Limited’s
Regulations for the Australian Paper Clearing System, the Bulk
Electronic Clearing System, the Consumer Electronic Clearing
System and the High Value Clearing System (HVCS), the Company
has a commitment to comply with rules which could result in abilateral exposure and loss in the event of a failure to settle by amember institution; andin the Austraclear System Regulations (Austraclear) and the CLSBank International Rules, the Company has a commitment toparticipate in loss-sharing arrangements in the event of a failure
to settle by a member institution.
For HVCS and Austraclear, the obligation arises only in limited
circumstances.

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

44: Credit Related Commitments, Guarantees, Contingent Liabilities and Contingent Assets (continued)vi) Deed of Cross Guarantee in respect of certain controlled entities
Pursuant to class order 98/1418 (as amended) dated 13 August 1998, relief was granted to a number of wholly owned controlled entities
from the Corporations Act 2001 requirements for preparation, audit, and publication of individual financial statements. The results of thesecompanies are included in the consolidated Group results. The entities to which relief was granted are:
ANZ Properties (Australia) Pty Ltd1ANZ Orchard Investments Pty Ltd2ANZ Funds Pty Ltd1ANZ Capital Hedging Pty Ltd1ANZ Securities (Holdings) Limited3

Votraint No. 1103 Pty Ltd2ANZ Commodity Trading Pty Ltd4ANZ Nominees Ltd5

Alliance Holdings Pty Ltd
1
2
3
4
5

1

Relief originally granted on 21 August 2001.
Relief originally granted on 13 August 2002.
Relief originally granted on 9 September 2003.
Relief originally granted on 2 September 2008.
Relief originally granted on 11 February 2009.

It is a condition of the class order that the Company and each of the above controlled entities enter into a Deed of Cross Guarantee. A Deedof Cross Guarantee under the class order was executed by them and lodged with the Australian Securities and Investments Commission. The
Deed of Cross Guarantee is dated 1 March 2006. The effect of the Deed is that the Company guarantees to each creditor payment in full of any
debt in the event of winding up any of the controlled entities under certain provisions of the Corporations Act 2001. If a winding up occurs,
the Company will only be liable in the event that after six months any creditor has not been paid in full. The controlled entities have also given
similar guarantees in the event that the Company is wound up. The consolidated statement of comprehensive income and consolidated balance
sheet of the Company and its wholly owned controlled entities which have entered into the Deed of Cross Guarantee are:Consolidated

Profit before tax
Income tax expense
Profit after income tax
Foreign exchange differences taken to equity, net of tax
Change in fair value of available-for-salefinancial assets, net of tax
Change in fair value of cash flow hedges, net of tax
Actuarial gains/(loss) on defined benefit plans, net of tax
Other comprehensive income, net of tax
Total comprehensive income
Retained profits at start of year
Profit after income tax
Adjustments to opening retained earnings on adoption ofrevised accounting standard AASB 3(R)Ordinary share dividends provided for or paid
Transfer from reserves
Actuarial gains/(loss) on defined benefit plans after tax

2011
$m

2010
$m

5,809
(1,476)
4,333

5,612
(1,449)
4,163

103

(391)

26
121
24
274
4,607
13,047
4,333

70
40
(18)
(299)
3,864
11,596
4,163–(3,491)1
24(39)(2,667)
12(18)

Retained profits at end of year
AssetsLiquid assets
Available-for-sale assets/investment securities
Net loans and advances
Other assets
Premises and equipment
Total assets

13,914

13,047

20,556
19,017323,286
140,299
1,539
504,697

16,075
16,973
280,439
133,948
1,545
448,980

Liabilities
Deposits and other borrowings
Income tax liability
Payables and other liabilities
Provisions

307,254
1,169
161,097798

252,519
1,069
162,555
831

Total liabilities

470,318

416,974

Net assets

34,37932,006

Shareholders’ equity1

34,37932,006

1 Shareholders’ equity excludes retained profits and reserves of controlled entities within the class order.

Notes to the Financial Statements

189

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

44: Credit Related Commitments, Guarantees, Contingent Liabilities and Contingent Assets (continued)vii) Sale of Grindlays businesses

CONTINGENT ASSETS

On 31 July 2000, ANZ completed the sale to Standard Chartered
Bank (SCB) of ANZ Grindlays Bank Limited and the private banking
business of ANZ in the United Kingdom and Jersey, together withANZ Grindlays (Jersey) Holdings Limited and its subsidiaries,
for USD1.3 billion in cash. ANZ provided warranties and certain
indemnities relating to those businesses and, where it was
anticipated that payments would be likely under the warranties
or indemnities, made provisions to cover the anticipated liability.
The issues below have not impacted adversely the reported results.
All settlements, penalties and costs have been covered within theprovisions established at the time.

National Housing BankFERA
In 1991 certain amounts were transferred from non-convertible
Indian Rupee accounts maintained with Grindlays in India. Thesetransactions may not have complied with the provisions of theForeign Exchange Regulation Act, 1973. Grindlays, on its own
initiative, brought these transactions to the attention of the Reserve
Bank of India. The Indian authorities served notices on Grindlays
and certain of its officers in India and civil penalties have been
imposed which are the subject of appeals. Criminal prosecutions are
pending and will be defended. The amounts in issue are not material.
Tax Indemnity
ANZ provided an indemnity relating to tax liabilities of Grindlays(and its subsidiaries) and the Jersey Sub-Group to the extent towhich such liabilities were not provided for in the Grindlays accounts
as at 31 July 2000. Claims have been made under this indemnity,with no material impact on the Group expected.

190

ANZ Annual Report 2011

In 1992, Grindlays received a claim aggregating to approximately
Indian Rupees 5.06 billion from the National Housing Bank (NHB)
in India. The claim arose out of cheques drawn by NHB in favour of
Grindlays, the proceeds of which were credited to the account ofa Grindlays customer.
Grindlays won an arbitration award in March 1997, under which
NHB paid Grindlays an award of Indian Rupees 9.12 billion. NHB
subsequently won an appeal to the Special Court of Mumbai, after
which Grindlays filed an appeal with the Supreme Court of India.
Grindlays paid the disputed money including interest into court.
Ultimately, the parties settled the matter and agreed to share themonies paid into court which by then totalled Indian Rupees
16.45 billion (AUD 661 million at 19 January 2002 exchange rates),with Grindlays receiving Indian Rupees 6.20 billion (AUD 248 million
at 19 January 2002 exchange rates) of the disputed monies.
ANZ in turn received a payment of USD124 million (USD equivalentof the Indian Rupees received by Grindlays) from Standard Chartered
Bank under the terms of an indemnity given in connection with thesale of Grindlays to Standard Chartered Bank.
ANZ recovered $114 million in 2006 from its insurers in respectof the above.
In addition, ANZ is entitled to share with NHB in the proceeds ofany recovery from the estate of the customer whose account wascredited with the cheques drawn from NHB. However, the Indian
Taxation Department is claiming a statutory priority to all of the funds
available for distribution to creditors of that customer. The Special
Court passed an order in late 2007 scaling down the Income Taxation
Department’s priority, however, that order has been partially set
aside on appeal by the Supreme Court of India. The matter has beenremanded to the Special Court for deliberation on certain issues.

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45: Superannuation and Other Post Employment Benefit Schemes
Description of the Group’s post employment benefit schemes
The Group has established a number of pension, superannuation and post retirement medical benefit schemes throughout the world.
The Group may be obliged to contribute to the schemes as a consequence of legislation and provisions of trust deeds. Legal enforceability
is dependent on the terms of the legislation and trust deeds.
The major schemes are:Contribution levels
Country

Australia

New Zealand

SchemeANZ Australian Staff
Superannuation Scheme1,2

ANZ National Bank Staff Superannuation
Scheme (formerly ANZ Group (New Zealand)
Staff Superannuation Scheme)1,2

National Bank Staff
Superannuation Fund1,2

United Kingdom

ANZ UK Staff
Pension Scheme1

Scheme type

Employee/participant
8

Employer

Defined contribution scheme
Section C3 or

Optional

Balance of cost10

Defined contribution scheme
Section A or

Optional

9% of salary11

Defined benefit scheme
Pension Section4

Nil

Balance of cost12

Defined benefit scheme5 or

Nil

Balance of cost13

Defined contribution scheme

Minimum of
2.5% of salary

7.5% of salary14

Defined benefit scheme6 or

5.0% of salary

Balance of cost15

Defined contribution scheme7

Minimum of
2.0% of salary

11.5% of salary16

Defined benefit scheme7

5.0% of salary9

Balance of cost17

Balance of cost: the Group’s contribution is assessed by the actuary after taking account of members’ contributions and the value of theschemes’ assets.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17

These schemes provide for pension benefits.
These schemes provide for lump sum benefits.
Closed to new members in 1997.
Closed to new members. Operates to make pension payments to retired members or their dependants.
Closed to new members on 31 March 1990. Operates to make pension payments to retired members of that section of the scheme or their dependants.
Closed to new members on 1 October 1991.
Closed to new members on 1 October 2004.
Optional but with minimum of 1% of salary.
From 1 October 2003, all member contributions are at a rate of 5% of salary.
As determined by the Trustee on the recommendation of the actuary – currently 9% (2010: 9%) of members’ salaries.
2010: 9% of salary.
As determined by the Trustee on the recommendation of the actuary – currently nil (2010: nil).
As recommended by the actuary – currently nil (2010: nil).
2010: 7.5% of salary.
As recommended by the actuary – currently 24.8% (2010: 24.8%) of members’ salaries and additional contributions of NZD 5 million p.a.
2010: 11.5% of salary.
As agreed by the Trustee and Group after taking the advice of the actuary – currently 26% (2010: 26%) of pensionable salaries and additional quarterly contributions of GBP 7.5 million
until December 2015.

Notes to the Financial Statements

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45: Superannuation and Other Post Employment Benefit Schemes (continued)
Funding and contribution information for the defined benefit sections of the schemes
The funding and contribution information for the defined benefit sections of the schemes as extracted from the schemes’ most recent financial
reports is set out below.
In this financial report, the net (liability)/asset arising from the defined benefit obligation recognised in the balance sheet has been determinedin accordance with AASB 119 Employee Benefits. However, the excess or deficit of the net market value of assets over accrued benefits
shown below has been determined in accordance with AAS 25 Financial Reporting by Superannuation Plans. The excess or deficit for funding
purposes shown below differs from the net (liability)/asset in the balance sheet because AAS 25 prescribes a different measurement date andbasis to those used for AASB 119 purposes.

2011 Schemes

ANZ Australian Staff Superannuation Scheme Pension Section1
ANZ UK Staff Pension Scheme1
ANZ UK Health Benefits Scheme4
ANZ National Bank Staff Superannuation Scheme2
National Bank Staff Superannuation Fund3
Other5,6
Total

Accruedbenefits*$m

Net market
value ofassets heldby scheme$m

Excess/(deficit)
of netmarket valueof assets overaccrued benefits
$m

27
912
6
4
296
39

17
727
–
4
282
29

(10)
(185)
(6)
–
(14)
(10)

1,284

1,059

(225)

* Determined in accordance with AAS 25 Financial Reporting by Superannuation Plans, which prescribes a different measurement date and basis to those applied in this financial report under
AASB 119 Employee Benefits. Under AASB 119, the discount rates used are based on prevailing government and corporate bond rates at the reporting date (30 September 2011), rather thanthe expected return on scheme assets as at the most recent actuarial valuation date (set out below) as prescribed by AAS 25.
1 Amounts were measured at 31 December 2010.
2 Amounts were measured at 31 December 2010.
3 Amounts were measured at 31 March 2011.
4 Amounts were measured at 30 September 2011.
5 Amounts were measured at 30 September 2011.
6 Other includes the defined benefit arrangements in Japan, Philippines and Taiwan.

2010 Schemes

ANZ Australian Staff Superannuation Scheme Pension Section1
ANZ UK Staff Pension Scheme1
ANZ UK Health Benefits Scheme4
ANZ National Bank Staff Superannuation Scheme2
National Bank Staff Superannuation Fund3
Other5,6
Total

Accruedbenefits*$m

Net market
value ofassets heldby scheme$m

Excess/(deficit)
of netmarket valueof assets overaccrued benefits
$m

29
903
6
5
276
32

20
662
–
5
261
25

(9)
(241)
(6)
–
(15)
(7)

1,251

973

(278)

* Determined in accordance with AAS 25 Financial Reporting by Superannuation Plans, which prescribes a different measurement date and basis to those applied in this financial report under
AASB 119 Employee Benefits. Under AASB 119, the discount rates used are based on prevailing government and corporate bond rates at the reporting date (30 September 2010), rather thanthe expected return on scheme assets as at the most recent actuarial valuation date (set out below) as prescribed by AAS 25.
1 Amounts were measured at 31 December 2009.
2 Amounts were measured at 31 December 2007.
3 Amounts were measured at 31 March 2010.
4 Amounts were measured at 30 September 2010.
5 Amounts were measured at 30 September 2007 and 30 September 2010 (as applicable).
6 Other includes the defined benefit arrangements in Japan, Philippines and Taiwan.

Employer contributions to the defined benefit sections are based on recommendations by the schemes’ actuaries. Funding recommendations
are made by the actuaries based on assumptions of various matters such as future investment performance, interest rates, salary increases,
mortality rates and turnover levels. The funding methods adopted by the actuaries are intended to ensure that the benefit entitlements of
employees are fully funded by the time they become payable.
The Group expects to make contributions of $58 million (2010: $60 million) to the defined benefit sections of the schemes during the next
financial year.

192

ANZ Annual Report 2011

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45: Superannuation and Other Post Employment Benefit Schemes (continued)
The current contribution recommendations for the major defined sections of the schemes are described below.

ANZ Australian Staff Superannuation Scheme Pension Section
The Pension Section of the ANZ Australian Staff Superannuation Scheme is closed to new members. A full actuarial valuation, conducted byconsulting actuaries Russell Employee Benefits as at 31 December 2010, showed a deficit of $10 million and the actuary recommended that theGroup make contributions to the Pension Section of $1.2 million p.a. for the three years to 31 December 2013. The next full actuarial valuation isdue to be conducted as at 31 December 2013.
The following economic assumptions were used in formulating the actuary’s funding recommendations:
Rate of investment return
Pension indexation rate

8% p.a.
3% p.a.

The Group has no present liability under the Scheme’s Trust Deed to commence contributions or fund the deficit.

ANZ UK Staff Pension Scheme
An interim actuarial valuation, conducted by consulting actuaries Towers Watson, as at 31 December 2010 showed a deficit of GBP 115 million($185 million at 30 September 2011 exchange rates).
Following the actuarial valuation as at 31 December 2010, the Group agreed to make regular contributions at the rate of 26% of pensionablesalaries. These contributions are sufficient to cover the cost of accruing benefits. To address the deficit, the Group agreed to continue to pay
additional quarterly contributions of GBP 7.5 million. These contributions will be reviewed following the next actuarial valuation which isscheduled to be undertaken as at 31 December 2012.
The following economic assumptions were used in formulating the actuary’s funding recommendations:
Rate of investment return on existing assets– to 31 December 2018
– to 31 December 2033
Rate of investment return for determining ongoing contributions
Salary increases
Pension increases
In deferment increases

5.3% p.a.
4.0% p.a.
7.2% p.a.
5.3% p.a.
3.5% p.a.
2.8% p.a.

The Group has no present liability under the Scheme’s Trust Deed to fund the deficit measured under AAS 25. A contingent liability may arisein the event that the Scheme was wound up. If this were to happen, the Trustee would be able to pursue the Group for additional contributions
under the UK Employer Debt Regulations. The Group intends to continue the Scheme on an on-going basis.

National Bank Staff Superannuation FundA full actuarial valuation of the National Bank Staff Superannuation Fund, conducted by consulting actuaries AON Consulting NZ, as at
31 March 2011 showed a deficit of NZD 18 million ($14 million at 30 September 2011 exchange rates). The actuary recommended that
the Group make contributions of 24.8% of salaries plus a lump sum contribution of NZD 5 million p.a. (net of employer superannuation
contribution tax) in respect of members of the defined benefit section.
The following economic assumptions were used in formulating the actuary’s funding recommendations:
Rate of investment return (net of income tax)
Salary increases
Pension increases

5.5% p.a.
3.0% p.a.
2.5% p.a.

The Group has no present liability under the Fund’s Trust Deed to fund the deficit measured under AAS 25. A contingent liability may arise in
the event that the Fund was wound up. Under the Fund’s Trust Deed, if the Fund were wound up, the Group is required to pay the Trustees of
the Fund an amount sufficient to ensure members do not suffer a reduction in benefits to which they would otherwise be entitled. The Groupintends to continue the Fund on an on-going basis.
The basis of calculation under AASB119 is detailed in note 1 F(vii) and on page 98.

Notes to the Financial Statements

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45: Superannuation and Other Post Employment Benefit Schemes (continued)
The following tables summarise the components of the expense recognised in the income statement and the amounts recognised in thebalance sheet under AASB 119 for the defined benefit sections of the schemes:
Consolidated

The Company

2011
$m

2010
$m

2011
$m

2010
$m

Amount recognised in income in respect of defined benefit schemes
Current service cost
Interest cost
Expected return on assets
Adjustment for contributions tax

8
50
(47)
2

6
56
(50)
2

6
42
(41)
–

5
48
(44)
–

Total included in personnel expenses

13

14

7

9

(1,033)885(1,059)
873

(857)
775

(928)
761

Amounts recognised in the balance sheet in respect of defined benefit schemes
Present value of funded defined benefit obligation
Fair value of scheme assets
Net liability arising from defined benefit obligation

(148)

(186)

(82)

(167)

Amounts recognised in the balance sheet
Payables and other liabilities

(148)

(186)

(82)

(167)

Net liability arising from defined benefit obligation

(148)

(186)

(82)

(167)

Amounts recognised in equity in respect of defined benefit schemes
Actuarial (gains)/losses incurred during the year and recognised directly in retained earnings
Cumulative actuarial (gains)/losses recognised directly in retained earnings

15
244

6
229

(34)
173

26
207

The Group has a legal liability to fund deficits in the schemes, but no legal right to use any surplus in the schemes to further its own interests.
The Group has no present liability to settle deficits with an immediate contribution. For more information about the Group’s legal liability tofund deficits, refer to the earlier description of the current contribution recommendations for the schemes.
Movements in the present value of the defined benefit obligation in the relevant period
Opening defined benefit obligation
Current service cost
Interest cost
Contributions from scheme participants
Actuarial (gains)/losses
Liabilities assumed in business combination
Exchange difference on foreign schemes
Benefits paid

1,059
8
50
1
(10)
–
(18)
(57)

1,095
6
56
–
42
21
(103)
(58)

928
6
42
–
(55)
–
(22)
(42)

938
5
48
–
52
21
(92)
(44)

Closing defined benefit obligation

1,033

1,059

857

928

Movements in the fair value of the scheme assets in the relevant period
Opening fair value of scheme assets
Expected return on scheme assets
Actuarial gains/(losses)
Exchange difference on foreign schemes
Contributions from the employer
Contributions from scheme participants
Benefits paid
Assets acquired in business combination

873
47
(25)
(13)
59
1
(57)
–

849
50
36
(83)
59
1
(58)
19

761
41
(21)
(17)
53
–
(42)
–

738
44
26
(75)
53
–
(44)
19

Closing fair value of scheme assets1

885

873

775

761

Actual return on scheme assets

22

86

20

70

1 Scheme assets include the following financial instruments issued by the Group: cash and short-term debt instruments $1 million (September 2010: $1.6 million), fixed interest securities$0.6 million (September 2010: $0.5 million) and equities nil (September 2010: nil).

Consolidated

The Company

Fair value of scheme
assets
2011
2010
%
%

Fair value of scheme
assets
2011
2010
%
%

Analysis of the scheme assets
Equities
Debt securities
Property
Other assets

36
47
8
9

39
39
8
14

34
48
9
9

37
39
9
15

Total assets

100

100

100

100

194

ANZ Annual Report 2011

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45: Superannuation and Other Post Employment Benefit Schemes (continued)

Key actuarial assumptions used (expressed as weighted averages)
Discount rate
ANZ Australian Staff Superannuation Scheme – Pension Section
ANZ UK Staff Pension Scheme
ANZ UK Health Benefits Scheme
ANZ National Bank Staff Superannuation Scheme
National Bank Staff Superannuation Fund
Expected rate of return on scheme assets
ANZ Australian Staff Superannuation Scheme – Pension Section
ANZ UK Staff Pension Scheme
ANZ UK Health Benefits Scheme
ANZ National Bank Staff Superannuation Scheme
National Bank Staff Superannuation Fund
Future salary increases
ANZ UK Staff Pension Scheme
National Bank Staff Superannuation Fund
Future pension increases
ANZ Australian Staff Superannuation Scheme – Pension Section
ANZ UK Staff Pension Scheme– In payment– In deferment
ANZ National Bank Staff Superannuation Scheme
National Bank Staff Superannuation Fund
Future medical cost trend – short-term
ANZ UK Health Benefits Scheme
Future medical cost trend – long-term
ANZ UK Health Benefits Scheme

2011
%

2010
%

4.25
5.40
5.40
4.40
4.40

5.00
5.00
5.00
6.00
6.00

8.00
5.30
n/a
4.50
5.50

8.00
5.60
n/a
4.50
5.50

4.90
3.00

5.00
3.00

2.75

2.50

3.10
2.10
2.50
2.50

3.20
2.70
2.50
2.50

4.50

4.50

6.50

4.00

To determine the expected returns of each of the asset classes held by the relevant scheme, the actuaries assessed historical return trends and market
expectations for the asset class returns applicable for the period over which the obligation is to be settled. The overall expected rate of return on
assets for each scheme was then determined as the weighted average of the expected returns for the classes of assets held by the relevant scheme.
Assumed medical cost trend rates do not have a material effect on the amounts recognised as income or included in the balance sheet.
Consolidated

History of experience adjustments
Defined benefits obligation
Fair value of scheme assets
Surplus/(deficit)
Experience adjustments on scheme liabilities
Experience adjustments on scheme assets

The Company

2011
$m

2010
$m

2009
$m

2008
$m

2007
$m

2011
$m

2010
$m

2009
$m

2008
$m

2007
$m

(1,033)885(148)(1,059)873(186)(1,095)849(246)(1,160)
1,006
(154)

(1,267)
1,199
(68)

(857)
775
(82)

(928)
761
(167)

(938)
738
(200)

(1,003)871(132)(1,112)
1,037
(75)

(11)
(25)

(2)
36

7
(49)

12
(195)

9
6

(10)
(21)

1
26

7
(32)

8
(177)

10
12

Notes to the Financial Statements

195

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46: Employee Share and Option Plans
ANZ operates a number of employee share and option schemes
under the ANZ Employee Share Acquisition Plan and the ANZ Share
Option Plan.
ANZ EMPLOYEE SHARE ACQUISITION PLAN
ANZ Employee Share Acquisition Plan (ESAP) schemes that existed
during the 2010 and 2011 years were the $1,000 Share Plan, theDeferred Share Plan, the Restricted Share Plan and the Employee
Share Save Scheme (ESSS). Note the ESSS is an employee salarysacrifice plan and is not captured as a share based payment expense.

$1,000 Share Plan
Each permanent employee (excluding senior executives) who has
had continuous service for one year is eligible to participate in the$1,000 scheme enabling the grant of up to $1,000 of ANZ sharesin each financial year, subject to approval of the Board. At a dateapproved by the Board, the shares will be granted to all eligible
employees using the one week weighted average price of ANZshares traded on the ASX in the week leading up to and including
the date of grant.
In Australia and three overseas locations, ANZ ordinary sharesare granted to eligible employees for nil consideration and vest
immediately when granted, as there is no forfeiture provision. It isa requirement, however, that shares are held in trust for three years
from the date of grant, after which time they may remain in trust,be transferred to the employee’s name or sold. In general, dividends
received on the shares are automatically reinvested into the Dividend
Reinvestment Plan.
In New Zealand shares are granted to eligible employees upon
payment of NZD one cent per share.
From 2011, shares granted in New Zealand and the remaining
overseas locations under this plan vest subject to the satisfaction ofa three year service period, after which time they may remain in trust,be transferred into the employee’s name or sold. Unvested shares areforfeited in the event of resignation or dismissal for serious misconduct.
Dividends are received as cash.
During the 2011 year, 1,472,882 shares with an issue price of$23.05 were granted under the plan to employees on 6 December
2010 (2010 year: 1,344,436 shares with an issue price of $22.06 were
granted on 7 December 2009).

Deferred Share Plan
A Short Term Incentive (STI) mandatory deferral program was
implemented from 2009, with equity deferral relating to half of all STI
amounts above a specified threshold. Prior to 2011, deferred equity
could be taken as 100% shares or 50% shares and 50% options. From
2011, all deferred equity is taken as 100% shares. For Management
Board members, mandatory STI equity deferral commenced in 2008
(rather than 2009). Unvested STI deferred shares are forfeited on
resignation, termination on notice or dismissal for serious misconduct.
Selected employees may also be granted Long Term Incentive (LTI)
deferred shares which vest to the employee three years from thedate of grant. Ordinary shares granted under this LTI plan may beheld in trust beyond the deferral period. Unvested LTI deferred sharesare forfeited on resignation, termination on notice or dismissal forserious misconduct.
STI deferred shares with a two year deferral period were historicallygranted under a business unit specific incentive plan (primarily as aretention tool), and may be held in trust beyond the deferral period.
The final grant of these shares vested 2 November 2009.

196

ANZ Annual Report 2011

In exceptional circumstances, deferred shares are granted tocertain employees upon commencement with ANZ to compensate
for remuneration forgone from their previous employer. The vesting
period generally aligns with the remaining vesting period of
remuneration forgone, and therefore varies between grants. Retention
deferred shares may also be granted occasionally to high performing
employees who are regarded as a significant retention risk to ANZ.
Unvested deferred shares are forfeited on resignation, termination
on notice or dismissal for serious misconduct.
The employee receives dividends on deferred shares while thoseshares are held in trust (cash or dividend reinvestment plan).
The issue price for deferred shares is based on the volume weighted
average price of the shares traded on the ASX in the week leading up
to and including the date of grant.
During the 2011 year, 6,393,787 deferred shares with a weighted
average grant price of $23.55 were granted under the deferred shareplan (2010 year: 5,511,965 shares with a weighted average grant priceof $22.83 were granted).

Restricted Share Plan
Up until 2009 eligible employees were able to elect a pre-tax sacrificeof part or their entire annual cash bonus for ANZ shares. The shareswere subject to a one year restriction period, however, they could beheld in trust beyond the restriction period. The shares are subject toforfeiture on dismissal for serious misconduct. The shares are released
to the employee on termination for any other reason. The employee
receives all dividends on these restricted shares (cash or dividend
reinvestment plan). The issue price was based on the volume weighted
average price of the shares traded on the ASX in the week leading up
to and including the date of grant.
During the 2010 and 2011 financial years, no shares were granted
under the restricted share plan. The vesting date of the final grant ofshares granted under the restricted share plan was 31 October 2009.

Share Valuations
The fair value of shares granted in the 2011 year under the $1,000
share plan, the Deferred Share Plan and the Restricted Share Plan,
measured as at the date of grant of the shares, is $182.7 million based
on 7,866,669 shares at a volume weighted average price of $23.22(2010 year: fair value of shares granted was $154.4 million based on
6,856,401 shares at a weighted average price of $22.52). The volume
weighted average share price of all ANZ shares sold on the ASX on
the date of grant is used to calculate the fair value of shares. No
dividends are incorporated into the measurement of the fair valueof shares.
ANZ SHARE OPTION PLAN
Selected employees may be granted options/rights, which entitle
them to acquire ordinary fully paid shares in ANZ at a price fixed at
the time the options/rights are granted. Voting and dividend rights
will be attached to the ordinary shares allocated on exercise of theoptions/rights.
Each option/right entitles the holder to one ordinary share subject
to the terms and conditions imposed on grant. The exercise price ofthe options, determined in accordance with the rules of the plan, is
generally based on the weighted average price of the shares tradedon the ASX in the week leading up to and including the date of grant.
For rights, the exercise price is nil.

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FINANCIALSTATEMENTS
STATEMENTS

46: Employee Share and Option Plans (continued)
The option plan rules set out the entitlements a holder of options/rights has prior to exercise in the event of a bonus issue, pro-rata
new issue or reorganisation of ANZ’s share capital. In summary:if ANZ has issued bonus shares during the life of an option andprior to the exercise of the option, then when the option is
exercised the option holder is also entitled to be issued such
number of bonus shares as the holder would have been entitledto if the option holder had held the underlying shares at the timeof the bonus issue;
if ANZ makes a pro-rata offer of securities during the life of an
option and prior to the exercise of the option, the exercise priceof the option will be adjusted in the manner set out in the Listing
Rules; andin respect of rights, if there is a bonus issue or reorganisation of
the Bank’s share capital, the number of rights or the number ofunderlying shares may be adjusted so that there is no advantage
or disadvantage to the holder.
Holders otherwise have no other entitlements to participate in any
new issue of ANZ securities prior to exercise of their options/rights.
Holders also have no right to participate in a share issue of a body
corporate other than ANZ (e.g. a subsidiary).
ANZ Share Option Plan schemes expensed in the 2010 and 2011
years are as follows:

Current Option Plans
Performance Rights Plan (excluding CEO Performance Rights)
Performance rights are granted to selected employees as part of ANZ’s
LTI program. The first grant of performance rights was in November
2005, and provides the right to acquire ANZ shares at nil cost, subject
to a three year vesting period and a Total Shareholder Return (TSR)
performance hurdle. The proportion of LTI performance rights that
become exercisable will depend upon the TSR achieved by ANZ
relative to a comparator group of major financial services companies,
measured over the same period (since grant) and calculated at thethird anniversary of grant. An averaging calculation is used for TSR
over a 90 day period for start and end values in order to reduce theimpact of share price volatility. Performance equal to the median
TSR of the comparator group will result in half the performance rights
becoming exercisable. Vesting will increase on a straight-line basis
until all of the performance rights become exercisable where ANZ TSR
is at or above the 75th percentile of TSRs in the comparator group.
Where ANZ’s performance falls between two of the comparators, TSR
is measured on a pro-rata basis. The performance hurdle will only betested once at the end of the three year vesting period. If theperformance rights do not pass the hurdle on the testing date, or they
are not exercised by the end of the exercise period (five years from thedate of grant), they will lapse.
The provisions that apply in the case of cessation of employment
are detailed in Section 3.2 Disclosed Executives’ Contract Terms in
the Remuneration Report (Audited), pages 44 to 45.
During the 2011 year, 466,133 performance rights (excluding CEO
performance rights) were granted (2010: 771,585).

At the 2007 Annual General Meeting shareholders approved an
LTI grant consisting of three tranches of performance rights, eachto a maximum value of $3 million. The performance periods for eachtranche begin on the date of grant of 19 December 2007 and end
on the third, fourth and fifth anniversaries respectively (i.e. only one
performance measurement for each tranche). Each tranche will only
be performance tested once at the end of the respective vesting dates.
The level of vesting for each tranche will be based on ANZ TSR
performance against a comparator group of companies consistent
with the performance rights plan. Each tranche has a one year exercise
period. The first of these tranches was tested against a relative TSR
hurdle after three years, i.e. December 2010. As a result of the testing,258,620 performance rights vested and were exercised during the year.
The provisions that apply in the case of cessation of employment
are detailed in Section 3.1 CEO’s Contract Terms in the Remuneration
Report (Audited), page 44.
CEO Options
At the 2008 Annual General Meeting, shareholders approved a
special grant to the CEO of 700,000 options, which were granted
on18 December 2008. These will be available for exercise on
18 December 2011, with the option exercise price $14.18 per share
determined at grant in line with the methodology described underthe ANZ Share Option Plan section of this note. Upon exercise, each
option entitles the CEO to one ordinary ANZ share. At grant theoptions were independently valued with a fair value of $2.27 each,i.e. a total value of $1.589 million.
The provisions that apply in the case of cessation of employment
are detailed in Section 3.1 CEO’s Contract Terms in the Remuneration
Report (Audited), page 44.
Deferred Options (no performance hurdles)
Under the STI deferral program half of all amounts above a specified
threshold are provided as deferred equity. Previously deferred equity
could be taken as 100% shares or 50% shares and 50% options. From
2011, all deferred equity is taken as 100% shares (refer to Deferred
Share Plan section above).
During the 2011 year 395,564 deferred options (no performance
hurdles) were granted (2010: 210,495).
Deferred Share Rights (no performance hurdles)
Deferred share rights are granted instead of deferred shares toaccommodate off-shore taxation regulations. They provide the rightto acquire ANZ shares at nil cost after a specified vesting period. The
fair value of rights is adjusted for the absence of dividends during the
restriction period. Treatment of rights in respect of cessation relates
to the purpose of the grant (refer to Deferred Share Plan andRestricted Share Plan sections).
During the 2011 year 541,213 deferred share rights (no performance
hurdles) were granted (2010: 546,952).
Options, deferred share rights and performance rights on issue
As at 2 November 2011, there were 1,446 holders of 4,996,035 options
on issue, 625 holders of 1,167,512 deferred share rights on issue and
14 holders of 2,279,532 performance rights on issue.

CEO Performance Rights
At the 2010 Annual General Meeting shareholders approved an LTI
grant to the CEO equivalent to 100% of his 2010 TEC, being $3 million.
This equated to a total of 253,164 performance rights being allocated,which will be subject to testing against a TSR hurdle after three years,
i.e. December 2013.

Notes to the Financial Statements

197

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

46: Employee Share and Option Plans (continued)
Option Movements
Details of options/rights over unissued ANZ shares and their related weighted average exercise prices as at the beginning and end of 2011 andmovements during 2011 are set out below:

Weighted average exercise priceOpening balance
1 October 2010

Options/rights
grantedOptions/rights
forfeited

Options/rights
expiredOptions/rights
exercised

Closing balance
30 September 2011

11,539,878$13.01

1,656,074$5.66(131,689)$12.72(160,071)$20.34(3,942,613)$10.93

8,961,579$12.44

The weighted average share price during the year ended 30 September 2011 was $22.35 (2010: $22.92).
The weighted average remaining contractual life of options/rights outstanding at 30 September 2011 was 2.1 years (2010: 2.2 years).
The weighted average exercise price of all exercisable options/rights outstanding at 30 September 2011 was $20.87 (2010: $19.43).
A total of 4,286,317 exercisable options/rights were outstanding at 30 September 2011 (2010: 6,551,277).
Details of options/rights over unissued ANZ shares and their related weighted average exercise prices as at the beginning and end of 2010 andmovements during 2010 are set out below:

Weighted average exercise priceOpening balance
1 October 2009

Options/rights
grantedOptions/rights
forfeited

Options/rights
expiredOptions/rights
exercised

Closing balance
30 September 2010

15,129,013$14.801,529,032$3.14(657,491)$12.30(1,862,160)$17.54(2,598,516)$14.57

11,539,878$13.01

No options/rights over ordinary shares have been granted since the end of 2011 up to the signing of the Directors’ Report on 2 November 2011.
Details of shares issued as a result of the exercise of options/rights during 2011 are as follows:
Exercise price$No. of shares issued

Proceeds received$

Exercise price$No. of shares issued

Proceeds received
$

0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00

12,481
185,723
10,4219,623
1,662
15,420648,296
6,089
119,251
17,351
22,633
258,62082
33,45983,19765,687
12,69678,422
5,095
13,152

–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–

0.00
0.00
0.00
0.00
17.55
17.55
18.22
18.22
20.68
20.68
20.68
23.49
17.18
17.18
17.18
17.18
17.18
17.18
22.80

3,118
5,347
2,439
19
440,251
69,106
829,957
270,465
2,908
127,788
202,80274,259101,861
36,096129,283
3,081
1,587
35,456
7,430

–
–
–
–
7,726,405
1,212,810
15,121,817
4,927,872
60,1372,642,656
4,193,945
1,744,344
1,749,972
620,129
2,221,082
52,932
27,265609,134
169,404

0 are as follows:
Details of shares issued as a result of the exercise of options/rights during 2010

198

Exercise price$No. of shares issued

Proceeds received$

Exercise price$No. of shares issued

Proceeds received
$

0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
17.34
17.60

370,945
9,648
9,637
9,637
23,765
9,669
17,956223
500
50,354
9,144
7,081
192,344525,843

–
–
–
–
–
–
–
–
–
–
–
–
3,335,245
9,254,837

17.55
17.55
18.22
18.22
18.22
20.68
20.68
20.68
23.49
17.18
17.18
17.18
17.18
17.18

361,901
68,724
167,611
6,842
121,873
8,513
146,883
188,105
33,05974,580117,384
24,192
7,853
34,2506,351,363
1,206,106
3,053,872
124,661
2,220,526
176,049
3,037,540
3,890,011
776,556
1,281,284
2,016,657
415,619
134,915
588,415ANZ Annual Report 2011

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

46: Employee Share and Option Plans (continued)
Details of shares as a result of the exercise of options/rights since the end of 2011 up to the signing of the Directors’ Report on 2 November 2011
are as follows:
Exercise price$No. of shares issued

Proceeds received$

Exercise price$No. of shares issued

Proceeds received
$

0.00
0.00
0.00
0.00
0.00

2,888
1,472
525
63
59

–
–
–
–
–

0.00
20.68
20.68
17.18

25,840408,552
31,106
12,598–8,448,855
643,272
216,434

In determining the fair value below, the standard market techniques for valuation including Monte Carlo and/or Black Scholes pricing models
were applied in accordance with the requirements of AASB2. The models take into account early exercise of vested equity, non-transferability
and market based performance hurdles (if any). The significant assumptions used to measure the fair value of instruments granted during 2011
are contained in the table below:

Type of equity

STI deferred options
STI deferred share rights
LTI deferred share rights
LTI performance rights
Deferred share rights

Number of
Grant date options/rights

12-Nov-10
12-Nov-10
12-Nov-10
12-Nov-10
12-Nov-10
12-Nov-10
17-Dec-10
12-Nov-10
6-Dec-10
10-May-11
10-May-11
25-Jul-11
25-Jul-11
25-Jul-11
25-Jul-11
29-Aug-11
29-Aug-11
29-Aug-11

197,786
197,778
83,12587,273323,757
466,133
253,164
3,988
3,130
8,329
1,625
2,799
3,115
1,055
1,119
3,149
17,0371,712

Equity
fair
value
($)

Exercise
price(5 day
VWAP)
($)

Share
closing
price at
grant
($)

ANZ
expected
volatility1(%)

Equityterm(years)Vesting
period(years)Expected
life(years)Expected
dividendyield(%)

Risk freeinterest
rate
(%)

3.96
4.20
22.11
21.06
20.06
11.96
11.85
20.06
20.10
21.97
20.92
20.10
18.96
19.90
18.78
19.05
17.96
16.93

23.71
23.71
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00

23.22
23.22
23.22
23.22
23.22
23.22
23.59
23.22
23.27
23.07
23.07
21.31
21.31
21.31
21.31
20.21
20.21
20.21

30
30
30
30
30
30
30
30
30
25
25
25
25
25
25
n/a
n/a
n/a

5
5
5
5
5
5
4
5
3
2
3
2
3
2.2
3.2
2
3
4

1
2
1
2
3
3
3
3
3
1
2
1
2
1.2
2.2
1
2
3

3
3.5
1
2
3
3
3
3
3
1
2
1
2
1.2
2.2
1
2
3

5.00
5.00
5.00
5.00
5.00
5.00
5.00
5.00
5.00
5.00
5.00
6.00
6.00
6.00
6.00
5.90
5.90
5.90

5.04
5.11
4.70
4.97
5.04
5.04
5.15
5.04
4.94
4.96
5.02
4.41
4.34
4.41
4.34
n/a
n/a
n/a

The significant assumptions used to measure the fair value of instruments granted during 2010 are contained in the table below:

Type of Equity

STI deferred options
STI deferred share rights
LTI deferred share rights
LTI performance rights

Deferred share rights

Number of
Grant date options/rights

13-Nov-09
13-Nov-09
13-Nov-09
13-Nov-09
13-Nov-09
24-Aug-10
13-Nov-09
24-Dec-09
17-Mar-10
17-Mar-10
21-Jan-10
20-Apr-10
20-Apr-10
20-Apr-10
25-Jun-1025-Jun-1025-Jun-10

105,252
105,243
96,431
101,260
310,789
2,439
371,81157,726
168,918
173,130
3,701
8,576
3,118
3,259
8,369
2,916
6,094

Equity
fair
value
($)

Exercise
price(5 day
VWAP)
($)

Share
closing
price at
grant
($)

ANZ
expected
volatility1(%)

Equityterm(years)Vesting
period(years)Expected
life(years)Expected
dividendyield(%)

Risk freeinterest
rate
(%)

4.83
5.09
21.41
20.39
19.42
22.13
12.17
11.26
14.80
14.44
20.26
23.32
24.05
23.01
21.50
20.57
19.69

22.80
22.80
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00

22.48
22.48
22.48
22.48
22.48
22.64
22.48
22.39
24.61
24.61
23.26
25.13
25.13
25.13
22.47
22.47
22.47

39
39
35
35
35
30
35
40
40
40
n/a
35
35
35
35
35
35

5
5
5
5
5
2.5
5
5
5
6
5
3.6
3
4
3
4
5

1
2
1
2
3
0.5
3
3
3
4
3
1.6
1
2
1
2
3

3
3.5
1
2
3
1.5
3
3
3
4
3
1.6
1
2
1
2
3

5.50
5.50
5.00
5.00
5.00
4.50
5.00
4.60
4.60
4.60
4.60
4.50
4.50
4.50
4.50
4.50
4.50

5.04
5.13
4.26
4.67
5.01
4.38
5.01
4.71
5.10
5.24
n/a
4.96
4.48
4.96
4.48
4.54
4.61

1 Expected volatility represents a measure of the amount by which ANZ’s share price is expected to fluctuate over the life of the options/rights. The measure of volatility used in the model is theannualised standard deviation of the continuously compounded rates of return on the historical share price over a defined period of time preceding the date of grant. This historical averageannualised volatility is then used to estimate a reasonable expected volatility over the expected life of the options/rights.

Notes to the Financial Statements

199

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

47: Key Management Personnel Disclosures
SECTION A: KEY MANAGEMENT PERSONNEL COMPENSATION
Key management personnel (KMP) are employees of the ultimate parent entity, Australia and New Zealand Banking Group Limited or its
subsidiaries. The KMP compensation included in the personnel expenses is as follows:

Short term employee benefits
Post employment benefits
Long term employee benefits
Termination benefits
Share based payments

2011
$

2010
$

18,106,775
450,000
180,102–12,721,125

18,695,781
427,625
166,949–
11,523,031

31,458,002

30,813,386

SECTION B: KEY MANAGEMENT PERSONNEL LOAN TRANSACTIONS
Loans made to directors of the Company and other key management personnel of the Group are made in the ordinary course of businesson an arms length commercial basis, including the term of the loan, security required and the interest rate.
Details of loans outstanding at the reporting date to directors of the Company and other key management personnel of the Group including
their related parties, where the individuals aggregate loan balance exceeded $100,000 at any time in the year, are as follows:
Opening balance
1 October$

Closing balance
30 September$

Interest paid andpayable in thereporting period$

Highest balancein the reporting
period$6,840,953

18,380,409

1,510,088

18,403,779–

6,840,953

592,896

6,840,953

Non-executive Directors 2011
P Hay
A Watkins

1,125,000
3,490,211

661,793
3,320,081

63,607
237,748

1,131,263
3,490,388

Non-executive Directors 2010
P Hay
A Watkins

1,125,000
3,289,964

1,125,000
3,490,211

65,023
250,694

1,131,263
3,490,211

Other key management personnel 2011
G Hodges
A Thursby
C PageD Hisco1

8,018,058
1,596,910
559,4712,000,000

5,202,380
2,984,500
511,6052,000,000

441,857
248,615
6,624
140,564

8,753,988
4,581,410
559,4712,000,000

Other key management personnel 2010
J Fagg2
G Hodges
A Thursby
C Page4,117,937
10,415,975
1,890,097
1,750,932–
8,018,058
1,596,910
559,471240,024
552,875
110,871
22,7984,625,136
10,530,669
1,890,097
1,760,616

Directors
Executive Director 2011
M Smith
Executive Director 2010
M SmithDetails regarding the aggregate of loans made, guaranteed or secured by any entity in the Group to each group of Directors and other
KMP, including their related parties, are as follows:
Opening balance
1 October$

Closing balance
30 September$

Interest paid andpayable in thereporting period$

Number inGroup at
30 September3

Directors
2011
2010

11,456,164
4,414,964

22,362,283
11,456,164

1,811,443
908,613

3
3

Other key management personnel
2011
2010

12,174,439
18,174,941

10,698,485
10,174,439

837,660
926,568

4
3

1 The opening balance represents the balance on appointment as a KMP on 13 October 2010.
2 The closing balance represents the balance on cessation as a KMP on 1 September 2010.
3 Number in the Group includes directors and other KMP with loan balances greater than $100,000 at any time during the year.

200

ANZ Annual Report 2011

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

47: Key Management Personnel Disclosures (continued)
SECTION C: KEY MANAGEMENT PERSONNEL EQUITY INSTRUMENT HOLDINGSi) Options, deferred share rights and performance rights
Details of options, deferred share rights and performance rights held directly, indirectly or beneficially by each KMP, including their relatedparties, are provided below:
Openingbalance at
1 October

Grantedduring theyear asremuneration

Exercisedduringthe year

700,000
779,002–
253,164–(258,620)

700,000
779,002––

Other Key Management Personnel 2011
P Chronican
LTI performance rights
S Elliott
STI deferred options
LTI performance rights
Hurdled options
D Hisco1
LTI performance rights
STI deferred share rights
G Hodges
Hurdled options
STI deferred options
LTI performance rights
STI deferred share rights
P Marriott
Hurdled options
STI deferred options
LTI performance rights
C PagePerformance rights
A Thursby
STI deferred options
LTI performance rights

57,726
10,61441,08432,506
74,631–
52,19133,869149,004
5,663
136,863
48,385
149,004
72,959164,509
146,544

Other Key Management Personnel 2010
P Chronican
LTI performance rights
S Elliott
STI deferred options
LTI performance rights
J Fagg2
Hurdled options
Index-linked options
LTI performance rights
STI deferred share rights
G Hodges
Hurdled options
Index-linked options
STI deferred options
LTI performance rights
STI deferred share rights
P Marriott
Hurdled options
Index-linked options
STI deferred options
LTI performance rights
C PagePerformance rights
A Thursby
STI deferred options
LTI performance rights–––
33,31634,15583,79437,722
109,181
176,000
67,739165,260
11,004
136,863
311,000
48,385
165,260
38,038
164,509
101,351

Name

Type of options/rights

Executive Director 2011
M SmithSpecial options
LTI performance rights
Executive Director 2010
M SmithSpecial options
LTI performance rights

Resulting fromany other change
during the year

Closingbalance at
30 September

Vested andexercisable at
30 September3––

700,000
773,546

–
–

–
–

–
–

700,000
779,002––54,347
138,476
45,986–33,444
17,383––41,806–––41,806––45,986–––(21,976)(41,764)–(43,791)(33,869)(57,870)–(69,263)–(57,870)––(46,296)

–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–

112,073
149,09087,07010,53066,311
17,3838,400–
132,940
5,663
67,60048,385
132,940
72,959164,509146,234–
5,307–
10,003
–
–
5,400
–
–
5,663
64,22048,385––
164,509–57,726
10,61441,084––41,084
8,377–––
41,084––––41,08434,921–45,193–––(22,946)–(26,084)–(56,990)–(33,870)(44,461)(5,341)–––(44,461)
–
–
–

–
–
–
–
(34,155)(7,556)––(176,000)–(12,879)––(311,000)–(12,879)–––

57,726
10,61441,084
10,370–91,23846,09952,191–33,869149,004
5,663
136,863–
48,385
149,004
72,959164,509
146,544

–
–
–
8,782
–
–
–
43,791––––
127,399–
24,193––82,255–

1 Opening balance is based on holdings at the date of appointment as a KMP on 13 October 2010.
2 Closing balance is based on holdings at the date of cessation as a KMP on 1 September 2010.
3 No options, deferred share rights or performance rights were vested and unexercisable at 30 September 2011 (2010: nil).

Notes to the Financial Statements

201

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

47: Key Management Personnel Disclosures (continued)ii) Shares
Details of shares held directly, indirectly or beneficially by each KMP, including their related parties, are provided below:

Type

Openingbalance at
1 October

Shares granted
during the year
as remuneration

Received during
the year on
exercise of
options or rights

Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
CPS2
CPS3
Ordinary
Ordinary

15,902
15,4799,043
9,654
13,616500–
16,19819,461

–
–
–
–
–
–
–
–
–

–
–
–
–
–
–
–
–
–

3,000
–
2,600
105
4,000
–
1,000
–
–

18,902
15,47911,643
9,759
17,616500
1,000
16,19819,461

D Meiklejohn
A Watkins
C Goode2
J Ellis3

Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
CPS2
Ordinary
Ordinary
Ordinary
Ordinary

12,902
13,5217,006
1,575
12,616–
16,19819,461
773,251
154,343

–
–
–
–
–
–
–
–
–
–

–
–
–
–
–
–
–
–
–
–

3,000
1,958
2,037
8,079
1,000
500
–
–
18,47375

15,902
15,4799,043
9,654
13,616500
16,19819,461
791,724
154,418

Executive director 2011
M SmithOrdinary

469,376

94,896258,620

7,406

830,298

Executive director 2010
M SmithOrdinary

375,025

92,105–2,246

469,376

3,000
1,499
18,069
246,880
553,814–
52,64731,449–223,103

25,305–24,251
19,822
19,822––
41,542–
48,502–––
135,530
127,133–
63,740––46,296

3,746
–
1,857
(172,316)(64,645)
5,000(60,000)(1,787)2,500(39,671)

32,051
1,499
44,177229,916
636,124
5,000
56,387
71,2042,500
278,230–
1,499
15,060282,054534,350
47,144–
167,824––
2,192
14,473
14,254–30,701
52,631–––
140,662
44,46149,030
–
–

3,000
–
817
(190,309)(39,251)(11,209)
748
2,648

3,000
1,499
18,069
246,880
553,81484,96531,449223,103

Name

Non-executive directors 2011
J Morschel
G Clark
P Hay1H Lee
I Macfarlane

D Meiklejohn
A Watkins
Non-executive directors 2010
J Morschel
G Clark
P Hay1H Lee
I Macfarlane

Other Key Management Personnel 2011
Ordinary
P Chronican
S Elliott
G Hodges
P Marriott
D Hisco4
C PageA Thursby

CPS2
Ordinary
Ordinary
Ordinary
CPS3
Ordinary
Ordinary
CPS3
Ordinary

Other Key Management Personnel 2010
Ordinary
P Chronican5
S Elliott
G Hodges
P Marriott
J Fagg6
C PageA Thursby
1
2
3
4
5
6
7

CPS2
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary

Resulting fromany other change Closing balance
during the year at 30 September7

Excludes shares of 19,855 (2010: 19,855) which are held indirectly where P Hay has no beneficial interest.
The closing balance represents the balance on cessation as a KMP on 28 February 2010.
The closing balance represents the balance on cessation as a KMP on 18 December 2009.
The opening balance is based on holdings at the date of appointment as a KMP on 13 October 2010.
The opening balance is based on holdings at the date of appointment as a KMP on 30 November 2009.
The closing balance represents the balance on cessation as a KMP on 1 September 2010.
The following shares (included in the holdings above) were held on behalf of KMP (i.e. indirect beneficially held shares) as at 30 September 2011:
J Morschel – 11,860 (2010: 8,860); G Clark – 15,479 (2010: 15,479); P Hay – 11,369 (2010: 8,785); H Lee – 1,759 (2010: 1,654); J Macfarlane – 19,116 (2010: 14,116);
D Meiklejohn – 13,698 (2010: 13,698); A Watkins – 18,419 (2010: 18,419); M Smith – 150,600 (2010: 204,362); P Chronican – 26,051 (2010: nil); S Elliott – 44,177 (2010: 18,069);
D Hisco – 52,364 (2010: n/a); G Hodges – 162,916 (2010: 141,573); P Marriott – 156,072 (2010: 134,218); C Page – 59,075 (2010: 31,449); A Thursby – 278,230 (2010: 223,103).

202

ANZ Annual Report 2011

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

48: Transactions with Other Related Parties
Joint Venture entities
During 2010, the Group conducted transactions with joint venture entities on terms equivalent to those on an arm’s length basis. The Group nolonger has joint venture entities.
Consolidated

Amounts receivable from joint venture entities
Interest revenue
Interest expense
Commissions received from joint venture entities
Cost recovered from joint venture entities

2011
$000

2010
$000

–
–
–
–
–

–
1,542
16,171
24,136
1,494

Associates
During the course of the financial year the Company and Group conducted transactions with associates on terms equivalent to those on anarm’s length basis as shown below:
Consolidated

Amounts receivable from associates
Amounts payable to associates
Interest revenue
Interest payable
Other revenue
Dividend revenue
Cost recovered from associates

The Company

2011
$000

2010
$000

2011
$000

2010
$000

56,122
70,199
4,428
1,864
2,516
80,435
1,921

179,265
63,935
12,1182,893
1,105
39,474
1,413

26,341
3,433
–
–
2,516
78,688255

35,949
3,688
5,228
–
1,105
38,169
1,413

There have been no guarantees given or received. No outstanding amounts have been written down or recorded as allowances, as they are
considered fully collectible.

Subsidiaries
During the course of the financial year subsidiaries conducted transactions with each other and joint ventures and associates on terms
equivalent to those on an arm’s length basis. They are fully eliminated on consolidation. As of 30 September 2011, all outstanding amounts
are considered fully collectible.

49: Life Insurance Business
The Group conducts its life insurance business through OnePath Life Limited, OnePath Life (NZ) Limited and OnePath Insurance Services (NZ)
Limited. This note is intended to provide disclosures in relation to the life businesses conducted through these controlled entities.
SOLVENCY POSITION OF LIFE INSURER
Australian life insurers are required to hold reserves in excess of policy liabilities to meet certain solvency requirements under the Life Act.
The life insurance business in New Zealand is not governed by the Life Act as these are foreign domiciled life insurance companies. These
companies are however required to meet similar solvency tests.
The summarised solvency information below in respect of solvency requirements under the Life Act has been extracted from the financial
statements prepared by OnePath Life Limited. For detailed solvency information on a statutory fund basis, users of this annual financial report
should refer to the separate financial statements prepared by OnePath Life Limited.
OnePath Life Limited

Solvency requirements as at 30 September
represented by:– minimum termination value– other liabilities– solvency reserve
Assets available for solvency reserves
Coverage of solvency reserves (times)

2011
$m

2010
$m

29,94631,14328,735
855
356
619
1.74

29,966
831
346
564
1.6

Notes to the Financial Statements

203

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

49: Life Insurance Business (continued)
LIFE INSURANCE BUSINESS PROFIT ANALYSIS
Life insurance
contracts

Life investment
contracts

Consolidated

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

Net shareholder profit after income tax1

251

148

126

119

377

267

Net shareholder profit after income tax is represented by:
Emergence of planned profit margins
Difference between actual and assumed experience(Loss recognition)/reversal of previous losses on groups of related products
Investment earnings on retained profits and capital

173
–
(10)
88

126
(1)
(3)
26

136
(15)
–
5

91
5
–
23

309
(15)
(10)
93

217
4
(3)
49

Net policyholder profit in statutory funds after income tax

12

4

–

–

12

4

Net policyholder profit in statutory funds after income tax is represented by:
Emergence of planned profits
Investment earnings on retained profits

11
1

2
2

–
–

–
–

11
1

2
2

1 The 2010 comparatives represent the 10 months following of the acquisition of OnePath Life Limited and OnePath Insurance Holdings (NZ) Limited.

INVESTMENTS RELATING TO INSURANCE BUSINESS
Consolidated
2011
$m

2010
$m

Equity securities
Debt securities
Investments in managed investment schemes
Derivative financial assets
Other investments

9,980
9,040
8,913
27
1,899

11,520
8,738
10,03712
1,864

Total investments backing policy liabilities designated at fair value through profit or loss1

29,85932,171

1 This includes $5,033 million (2010: $5,448 million) in respect of investments relating to external unitholders. In addition, the investment balance has been reduced by $3,106 million(2010: $2,633 million) in respect of the elimination of intercompany balances, treasury shares and the re-allocation of policyholder tax balances.

Investments held in statutory funds can only be used to meet the liabilities and expenses of that fund, or to make profit distributions whensolvency and capital adequacy requirements of the Life Act are met. Accordingly, with the exception of permitted profit distributions, theinvestments held in the statutory funds are not available for use by other parties of the Group.

204

ANZ Annual Report 2011

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

49: Life Insurance Business (continued)
INSURANCE POLICY LIABILITIESa) Policy liabilities

Consolidated
2011
$m

2010
$m

6,059
1,736
(8,882)
11

4,037
1,333
(6,515)
3

34
1,454
3
415
42
427

51
1,035
631
575
44
360

Total life insurance contract liabilities

884

979

Life investment contract liabilities3,4

26,61927,50328,002
28,981

Life insurance contract liabilities
Best estimate liability
Value of future policy benefits
Value of future expenses
Value of future premium
Value of declared bonuses
Value of future profits
Policyholder bonus
Shareholder profit margin
Business valued by non-projection method1
Total net life insurance contract liabilities
Unvested policyholder benefits
Liabilities ceded under reinsurance contracts2 (refer note 20)

Total policy liabilities
12
3
4

Liabilities arising under group insurance products were measured using a non-projection method in 2010. In the current year these liabilities were measured using a Margin on Services model.
Liabilities ceded under insurance contracts are shown as ‘other assets’.
Designated at fair value through profit or loss.
Life investment contract liabilities that relate to the capital guaranteed element is $1,946 million (2010: $2,156 million). Life investment contract liabilities subject to investment performance
guarantees is $1,107 million (2010: $1,141 million).

b) Reconciliation of movements in policy liabilities

Life investment
contracts

Life insurance
contracts

Consolidated

2011
$m

2010
$m

2011
$m

2010
$m

2011
$m

2010
$m

Policy liabilities
Gross liability at acquisition/brought forward
Movements in policy liabilities reflected in the income statement
Deposit premium recognised as a change in life investment contract liability
Fees recognised as a change in life investment contract liabilities
Withdrawal recognised as a change in other life investment contract liability

28,002
(759)
3,834
(471)
(3,987)27,353
948
5,264
(345)
(5,218)

979
(95)
–
–
–

1,091
(112)
–
–
–

28,981
(854)
3,834
(471)
(3,987)28,444
836
5,264
(345)
(5,218)Gross policy liability closing balance

26,61928,002884

979

27,50328,981

–
–

–
–

360
67

306
54

360
67

306
54

Liabilities ceded under reinsurance1
Balance at acquisition/brought forward
Increase in reinsurance asset
Closing balance
Total policy liability net of reinsurance asset

–

–

427

360

427

360

26,61928,002457

619

27,076

28,621

1 Liabilities ceded under insurance contracts are shown as ‘other assets’.

c) Sensitivity analysis – Life investment contract liability
Market risk arises on the Group’s life insurance business in respect of contracts where an element of the liability to the policyholder is guaranteedby the Group. The value of the guarantee is impacted by changes in underlying asset values and interest rates. As at September 2011, a 10%
decline in equity markets would have decreased profit by $26 million (2010: $23 million) and a 10% increase would have increased profit by$10 million (2010: $7 million). A 1% increase in interest rates at 30 September would have decreased profit by $16 million (2010: $15 million) and
1% decrease would have increased profit by $10 million (2010: $7 million).

Notes to the Financial Statements

205

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

49: Life Insurance Business (continued)
METHODS AND ASSUMPTIONS LIFE INSURANCE CONTRACTS

Significant actuarial methods
The effective date of the actuarial report on policy liabilities (which includes insurance contract liabilities and life investment contract liabilities)
and solvency requirements is 30 September 2011.
In Australia, the actuarial report was prepared by Mr Nick Kulikov, FIAA, Appointed Actuary. The actuarial reports indicate Mr Kulikov is satisfied
as to the accuracy of the data upon which policy liabilities have been determined.
The amount of policy liabilities has been determined in accordance with methods and assumptions disclosed in this financial report and therequirements of the Life Act, which includes applicable standards of the Australian Prudential Regulation Authority (APRA).
Policy liabilities have been calculated in accordance with Prudential Standard LPS 1.04 Valuation of Policy Liabilities issued by the Australian
Prudential Regulation Authority (APRA) in accordance with the requirements of the Life Insurance Act (LIA). For life insurance contracts theStandard requires the policy liabilities to be calculated in a way which allows for the systematic release of planned margins as services areprovided to policyholders.
The profit carriers used to achieve the systematic release of planned margins are based on the product groups.
In New Zealand, the actuarial report was prepared by Mr Michael Bartram FIAA FNZSA, who is a fellow of the Institute of Actuaries of Australia
and a fellow of the New Zealand Society of Actuaries. The amount of policy liabilities has been determined in accordance with Professional Standard
3: Determination of Life Insurance Policy Liabilities of the New Zealand Society of Actuaries. The actuarial reports indicate that Mr Bartram issatisfied as to the accuracy of the data upon which policy liabilities have been determined.

Critical assumptions
The valuation of the policy liabilities is dependant on a number of variables including interest rate, equity prices, future expenses, mortality,
morbidity and inflation. The critical estimates and judgments used in determining the policy liability is set out note 2 (vii), page 105.

Sensitivity analysis – life insurance contracts
The Group conducts sensitivity analyses to quantify the exposure of the life insurance contracts to risk of changes in the key underlying variables
such as interest rate, equity prices, mortality, morbidity and inflation. The valuations included in the reported results and the Group’s best
estimate of future performance is calculated using certain assumptions about these variables. The movement in any key variable will impact
the performance and net assets of the Group and as such represents a risk. The table below illustrates how changes in key assumptions would
impact the reported profit, policy liabilities and equity at 30 September 2011.

Variable

Impact of movement in underlying variable

Change invariable

Profit/(loss)
net ofreinsurance

Insurance
contract
liabilities
net ofreinsurance

Equity% change

$m

$m

$m

Market interest rates

A change in market interest rates affects the value placed on
future cash flows. This changes profit and shareholder equity.

-1%
+1%

42
(33)

(49)
38

42
(33)

Expense rate

An increase in the level or inflationary growth of expenses overassumed levels will decrease profit and shareholder equity.

-10%
+10%

2
(3)

(2)
3

2
(3)

Mortality rate

Greater mortality rates would lead to higher levels of claims
occurring, increasing associated claims cost and therefore
reducing profit and shareholder equity.

-10%
+10%

(5)
(3)

8
3

(5)
(3)

Morbidity rate

The cost of health-related claims depends on both theincidence of policyholders becoming ill and the duration
which they remain ill. Higher than expected incidence andduration would increase claim costs, reducing profit andshareholder equity.

-10%
+10%

2
(14)

(2)
18

2
(14)

206

ANZ Annual Report 2011

NOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALSTATEMENTS
STATEMENTS

49: Life Insurance Business (continued)
LIFE INSURANCE RISK
Insurance risk is the risk of loss due to increases in policy benefits arising from variations in the incidence or severity of insured events.
Insurance risk exposure arises in insurance business as the risk that claims payments are greater than expected. In the life insurance businessthis arises primarily through mortality (death) or morbidity (illness or injury) risks being greater than expected.
Insurance risks are controlled through the use of underwriting procedures and reinsurance arrangements. Controls are also maintained overclaims management practices to assist in the correct and timely payment of insurance claims. Regular monitoring of experience is conducted ata sufficiently detailed level in order to identify any deviation from expected claim levels.
Financial risks relating to the Group’s insurance business are generally monitored and controlled by selecting appropriate assets to backinsurance and life investment contract liabilities. Wherever possible within regulatory constraints, the Group segregates policyholders funds
from shareholders funds and sets investment mandates that are appropriate for each. The assets are regularly monitored by the OnePath
Investment Risk Management Committee to ensure that there are no material asset and liability mismatching issues and other risks such as
liquidity risk and credit risk are maintained within acceptable limits.
All financial assets within the life insurance statutory funds directly support either the Group’s life insurance or life investment contracts. Market
risk arises for the Group on contracts where the liabilities to policyholders are guaranteed by the life company. The Group manages this riskby the monthly monitoring and rebalancing of assets to policy liabilities. However, for some contracts the ability to match asset characteristics
with policy obligations is constrained by a number of factors including regulatory constraints, the lack of suitable investments as well as by thenature of the policy liabilities themselves.
A market risk also arises from those life investment contracts where the benefits paid are directly impacted by the value of the underlying
assets. The Group is exposed to the risk of future decreased asset management fees as a result of a decline in assets under management andoperational risk associated with the possible failure to administer life investment contracts in accordance with the product terms and conditions.

Risk strategy
In compliance with contractual and regulatory requirements, a strategy is in place to monitor that the risks underwritten satisfy policyholders’risk and reward objectives whilst not adversely affecting the Group’s ability to pay benefits and claims when due. The strategy involves theidentification of risks by type, impact and likelihood, the implementation of processes and controls to mitigate the risks, and continuous
monitoring and improvement of the procedures in place to minimise the chance of an adverse compliance or operational risk event occurring.
Included in this strategy are the processes and controls over underwriting and product pricing. Capital management is also a key aspect of theGroup’s risk management strategy.

Allocation of capital
The Group’s insurance businesses are subject to regulatory capital requirements which prescribe the amount of capital to be held dependingon the contract liability.
Solvency margin requirements established by the Australian Prudential Regulation Authority (APRA) are in place to reinforce safeguards forpolicyholders’ interest, which are primarily the ability to meet future claims payments in respect of existing policies.

Methods to limit or transfer insurance risk exposures
Reinsurance – All reinsurance treaties are analysed using a number of analytical modeling tools to assess the impact on the Group’s exposure
to risk with the objective of achieving the desired choice of type of reinsurance and retention levels.
Underwriting procedures – Strategic underwriting decisions are put into effect using the underwriting procedures detailed in the Group’s
underwriting manual. Such procedures include limits to delegated authorities and signing powers.
Claims management – Strict claims management procedures are in place to assist in the timely and correct payment of claims in accordancewith policy conditions.
Asset and liability management techniques – Assets are held by the Group in order to minimise the duration mismatch on policies with longterm fixed payout patterns. Other assets are allocated to different classes of business using a risk based approach.

Notes to the Financial Statements

207

NOTES TO THE FINANCIAL STATEMENTS

50: Exchange Rates
The exchange rates used in the translation of the results and the assets and liabilities of major overseas branches and controlled entities are:2011

Chinese Yuan
Euro
Great British Pound
Indian Rupee
Indonesian Rupiah
Malaysian Ringgit
New Zealand Dollar
Papua New Guinea Kina
United States Dollar

51: Events Since the End of the Financial Year
There have been no material events since the end of the financial year.

208

ANZ Annual Report 20112010

Closing

Average

Closing

Average

6.21490.71940.624347.5992
8,573.0
3.1052
1.27272.1794
0.97316.70360.73530.638646.2575
8,985.7
3.12701.30512.54131.0251

6.46870.71110.610543.41428,625.3
2.98501.31392.59200.96686.1242
0.66320.576941.50858,279.6
2.95821.26032.45700.8990DIRECTORS’ DECLARATIONThe Directors of Australia and New Zealand Banking Group Limited declare that:a) in the Directors’ opinion, the financial statements and notes of the Company and the consolidated entity have been prepared in accordancewith the Corporations Act 2001, including that they:i) comply with applicable Australian Accounting Standards, (including the Australian Accounting Interpretations) and the Corporations
Regulations 2001; andii) give a true and fair view of the financial position of the Company and of the consolidated entity as at 30 September 2011 and of theirperformance as represented by the results of their operations and their cash flows, for the year ended on that date; andiii) the financial statements and notes of the Company and the consolidated entity comply with International Financial Reporting Standards
as described in note 1 (A)(i).
b) in the Directors’ opinion, the remuneration disclosures that are contained on pages 16 to 45 of the Remuneration Report comply with
the Corporations Act 2001; andc) the Directors have received the declarations required by section 295A of the Corporations Act 2001; andd) in the Directors’ opinion, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they becomedue and payable; ande) the Company and certain of its wholly owned controlled entities (listed in note 44) have executed a Deed of Cross Guarantee enablingthem to take advantage of the accounting and audit relief offered by class order 98/1418 (as amended), issued by the Australian Securities
and Investments Commission. The nature of the Deed of Cross Guarantee is to guarantee to each creditor payment in full of any debt inaccordance with the terms of the Deed of Cross Guarantee. At the date of this declaration, there are reasonable grounds to believe that theCompany and its controlled entities which executed the Deed of Cross Guarantee are able, as an economic entity, to meet any obligations
or liabilities to which they are, or may become subject to, by virtue of the Deed of Cross Guarantee.
Signed in accordance with a resolution of the Directors.

John MorschelMichael R P Smith

Chairman

Director

2 November 2011

Directors’ Declaration

209

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AUSTRALIAAND NEW ZEALAND BANKING GROUP LIMITEDREPORT ON THE FINANCIAL REPORT
We have audited the accompanying financial report of Australia and
New Zealand Banking Group Limited (the Company), which comprises
the balance sheets as at 30 September 2011, and income statements,
statements of comprehensive income, statements of changes in equity
and cash flow statements for the year ended on that date, notes 1 to51 comprising a summary of significant accounting policies and otherexplanatory information and the directors’ declaration of the Company
and the Group comprising the Company and the entities it controlled
at the year’s end or from time to time during the financial year.
DIRECTORS’ RESPONSIBILITY FOR THE FINANCIAL REPORTThe directors of the Company are responsible for the preparationof the financial report that gives a true and fair view in accordancewith Australian Accounting Standards and the Corporations Act 2001
and for such internal control as the directors determine is necessary
to enable the preparation of the financial report that is free frommaterial misstatement whether due to fraud or error. In note 1(A)(i), thedirectors also state, in accordance with Australian Accounting Standard
AASB 101 Presentation of Financial Statements, that the financial
statements comply with International Financial Reporting Standards.
AUDITOR’S RESPONSIBILITY
Our responsibility is to express an opinion on the financial report basedon our audit. We conducted our audit in accordance with Australian
Auditing Standards. These Auditing Standards require that we comply
with relevant ethical requirements relating to audit engagements andplan and perform the audit to obtain reasonable assurance whether
the financial report is free from material misstatement.
An audit involves performing procedures to obtain audit evidence
about the amounts and disclosures in the financial report. The
procedures selected depend on the auditor’s judgement, including
the assessment of the risks of material misstatement of the financial
report, whether due to fraud or error. In making those risk assessments,
the auditor considers internal control relevant to the entity’s preparationof the financial report that gives a true and fair view in order to design
audit procedures that are appropriate in the circumstances, but notfor the purpose of expressing an opinion on the effectiveness ofthe entity’s internal control. An audit also includes evaluating theappropriateness of accounting policies used and the reasonablenessof accounting estimates made by the directors, as well as evaluating
the overall presentation of the financial report.
We performed the procedures to assess whether in all material respects
the financial report presents fairly, in accordance with the Corporations
Act 2001 and Australian Accounting Standards, a true and fair viewwhich is consistent with our understanding of the Company’s and theGroup’s financial position and of their performance.
We believe that the audit evidence we have obtained is sufficient andappropriate to provide a basis for our audit opinion.

210

ANZ Annual Report 2011

INDEPENDENCE
In conducting our audit, we have complied with the independence
requirements of the Corporations Act 2001.
AUDITOR’S OPINION
In our opinion:(a) the financial report of Australia and New Zealand Banking Group
Limited is in accordance with the Corporations Act 2001, including:(i) giving a true and fair view of the Company’s and theGroup’s financial position as at 30 September 2011 andof their performance for the year ended on that date; and(ii) complying with Australian Accounting Standards and the
Corporations Regulations 2001.
(b) the financial report also complies with International Financial
Reporting Standards as disclosed in note 1(A)(i).
REPORT ON THE REMUNERATION REPORT
We have audited the remuneration report included in pages 22 to 45of the directors’ report for the year ended 30 September 2011. The
directors of the Company are responsible for the preparation andpresentation of the remuneration report in accordance with Section
300A of the Corporations Act 2001. Our responsibility is to express
an opinion on the remuneration report, based on our audit conductedin accordance with Australian Auditing Standards.
AUDITOR’S OPINION
In our opinion, the remuneration report of Australia and New Zealand
Banking Group Limited for the year ended 30 September 2011,
complies with Section 300A of the Corporations Act 2001.

KPMG
Melbourne
2 November 2011

Peter Nash
PartnerFinancial Information

212

Shareholder Information

220

Glossary of Financial Terms

225

Alphabetical Index

228

ANZ Financial
Annual Report
Highlights
2011

211

FINANCIAL INFORMATION

1: Capital Adequacy
2011
$m

2010
$m

37,954(3,479)34,155(2,840)34,475(10,611)23,864
5,111
1,641

31,315(10,057)
21,2583,787
1,646

30,616

26,691

1,228
5,017(3,071)

1,223
6,619
(3,026)Tier 2 capital

3,174

4,816

Total qualifying capital

33,79031,507

Capital adequacy ratios
Common Equity Tier 1
Tier 1
Tier 2

8.5%
10.9%
1.2%

8.0%
10.1%
1.8%

Total

12.1%

11.9%

279,964

264,242

Qualifying capital

Regulatory capital – qualifying capital
Tier 1
Shareholders' equity and non-controlling interests
Prudential adjustments to shareholders' equity
Fundamental Tier 1 capital
Deductions
Common Equity Tier 1 capital
Non-innovative Tier 1 capital instruments
Innovative Tier 1 capital instruments

Table 1
Table 2Tier 1 capital
Tier 2Upper Tier 2 capital
Subordinated notes
Deductions

Risk weighted assets

212

ANZ Annual Report 2011

Table 3
Table 4
Table 2

Table 5

1: Capital Adequacy (continued)
2011
$m

2010
$m

358
(871)

358
(871)

(1,686)(1,312)

414
(169)
(126)
(1,999)
600

402
(11)
(80)
(1,895)569(3,479)(2,840)(3,027)(2,071)(1,490)(2,952)(2,043)(1,127)

(688)

(655)

(136)
(128)

(235)
(19)

Gross

(7,540)50%(7,031)50%

Table 1: Prudential adjustments to shareholders’ equity
Treasury shares attributable to OnePath policyholders
Reclassification of preference share capital
Accumulated retained profits and reserves of insurance, funds management
and securitisation entities and associates
Deferred fee revenue including fees deferred aspart of loan yields
Hedging reserve
Available-for-sale reserve
Dividend not provided for
Accrual for Dividend Reinvestment Plans
Total

Table 2: Deductions from Tier 1 capital
Unamortised goodwill & other intangibles (excluding OnePath Australia and OnePath
New Zealand)
Intangible component of investment in OnePath Australia and OnePath New Zealand1
Capitalised software
Capitalised expenses including loan and lease origination fees,
capitalised securitisation establishment costs and costs associatedwith debt raisings
Applicable deferred tax assets (excluding the component relating
to the general reserve for impairment of financial assets)
Mark-to market impact of own credit spread
Sub-total
Deductions taken 50% from Tier 1 and 50% from Tier 2
Investment in ANZ insurance subsidiaries (excluding OnePath Australia and OnePath
New Zealand)
Investment in ANZ funds management subsidiaries
Investment in OnePath Australia and OnePath New ZealandInvestment in other Authorised Deposit Taking Institutions
and overseas equivalents
Expected losses in excess of eligible provisions (net of tax)
Investment in other commercial operations
Other deductions

(399)
(57)
(1,813)

(200)
(29)
(906)

(198)
(36)
(845)

(2,302)
(951)
(4)
(617)

(1,151)
(475)
(2)
(308)

(988)
(560)
(21)
(378)

Sub-total(6,143)(3,071)(3,026)(10,611)(10,057)

962

943

Total

Table 3: Upper Tier 2 capital
Perpetual subordinated notes
General reserve for impairment of financial assets net of
attributable deferred tax asset2
Total

266

280

1,228

1,223

Table 4: Subordinated notes3

For capital adequacy calculation purposes, subordinated note issues are reduced by 20% of the original amount overthe last four years to maturity and are limited to 50% of Tier 1 capital.
1 Calculation based on prudential requirements.
2 Under Basel II, this consists of the surplus general reserve for impairment of financial assets net of tax and/or the provisions attributable to the standardised portfolio.
3 The fair value adjustment is excluded for prudential purposes as the prudential standard only permits inclusion of cash received and makes no allowance for hedging.

Financial Information

213

FINANCIAL INFORMATION

1: Capital Adequacy (continued)
2011
$m

2010
$m

Table 5: Risk weighted assets
On balance sheet
Commitments
Contingents
Derivatives

183,039
43,041
9,536
13,212

173,035
39,835
10,084
10,563

Total credit risk
Market risk – Traded
Market risk – IRRBB
Operational risk

248,828
3,046
8,439
19,651

233,517
5,652
7,690
17,383

Total risk weighted assets

279,964

264,242

Table 6: Credit risk weighted assets by Basel asset class
Subject to Advanced IRB approach
Corporate
SovereignBank
Residential mortgage
Qualifying revolving retail (credit cards)
Other retail106,1204,365
9,456
41,041
7,468
19,240101,940
2,720
6,135
38,708
7,205
17,899Credit risk weighted assets subject to Advanced IRB approach

187,690

174,607

Credit risk specialised lending exposures subject to slotting criteria

27,757

26,605

Subject to Standardised approach
Corporate
Residential mortgage
Qualifying revolving retail (credit cards)
Other retail

22,484
845
2,344
1,650

20,560
567
2,279
1,396

Credit risk weighted assets subject to Standardised approach

27,32324,802Credit risk weighted assets relating to securitisation exposures
Credit risk weighted assets relating to equity exposures
Other assets

1,136
1,399
3,523

2,091
1,577
3,835

248,828

233,517

Total credit risk weighted assets

214

ANZ Annual Report 2011

1: Capital Adequacy (continued)
Collective provision

Regulatory Expected Loss

Sept 2011$m

Sept 2010$m

Sept 2011$m

Sept 2010
$m

1,062
501
1,383
456
40
(269)
3,173
3
3,176

1,021
519
1,342
537
–
(270)
3,149
4
3,153

1,891
148
1,429
904
–
(127)
4,245
16
4,261

1,749
134
1,773
1,002
–
(121)
4,537
18
4,555

2011
$m

2010
$m

Movt
%

1,975
2,286

2,225
2,330

-11%
-2%

4,261

4,555

-6%

(3,176)
375
340
730

(3,153)
234
399
725

1%
60%
-15%
1%

(1,731)(1,795)-4%

Less: Qualifying individual provision after tax
Individual provision
Standardised individual provision(1,697)477(1,875)
458

-9%
4%

Collective provision on advanced defaulted

(359)

(224)

60%

(1,579)(1,641)-4%

Gross deduction

951

1,119

-15%

50/50 deduction (refer table 2)

475

559

-15%

Table 7: Collective provision and regulatory expected loss by region
Australia
Asia Pacific, Europe & America
Institutional
New ZealandGroup Centre
Less: Institutional Asia Pacific, Europe & America
Underlying collective provision and regulatory expected loss
Adjustments between statutory and underlying
Collective provision and regulatory expected loss

Table 8: Expected loss in excess of eligible provisions
Basel expected loss
Defaulted
Non-defaulted

Less: Qualifying collective provision after tax
Collective provisionNon-qualifying collective provision
Standardised collective provision
Deferred tax asset

The measurement of risk weighted assets is based on: a) a credit risk-based approach whereby risk weightings are applied to balance sheet
assets and to credit converted off-balance sheet exposures. Categories of risk weights are assigned based upon the nature of the counterparty
and the relative liquidity of the assets concerned; and b) the recognition of risk weighted assets attributable to market risk arising from trading
positions.
The Basel II Accord principles took effect from 1 January 2008. For calculation of minimum capital requirements under Pillar 1 (Capital
Requirements) of the Basel II Accord, ANZ has gained accreditation from APRA for use of Advanced Internal Ratings Based (AIRB) methodology
for credit risk weighted assets and Advanced Measurement Approach (AMA) for operational risk weighted asset equivalent.

Financial Information

215

FINANCIAL INFORMATION

2: Average Balance Sheet and Related Interest
Averages used in the following tables are predominantly daily averages. Interest income figures are presented on a tax-equivalent basis.
Impaired loans are included under the interest earning asset category, ‘loans and advances’. Intra-group interest earning assets and interest
bearing liabilities are treated as external assets and liabilities for the geographic segments.
2011

2010

Averagebalance$mInterest$m

Averagerate%

Averagebalance$mInterest$m

Averagerate%

Due from other financial institutions
Australia
New Zealand
Asia Pacific, Europe & America

2,168
655
7,252

101
14
106

4.7
2.1
1.5

2,951
717
7,509

117
19
49

4.0
2.6
0.7

Trading and available-for-sale assets
Australia
New Zealand
Asia Pacific, Europe & America

32,685
7,212
11,460

1,520
336
192

4.7
4.7
1.7

34,994
6,716
10,897

1,522
329
209

4.3
4.9
1.9

Loans and advances and acceptances
Australia
New Zealand
Asia Pacific, Europe & America

280,82173,736
32,831

21,534
4,654
1,426

7.7
6.3
4.3

257,682
76,86924,056

18,233
4,596
1,123

7.1
6.0
4.7

Other assets
Australia
New Zealand
Asia Pacific, Europe & America

4,529
2,235
11,863

220
152
113

4.9
6.8
1.0

3,284
2,980
10,622

144
174
93

4.4
5.8
0.9

Intragroup assets
Australia
Asia Pacific, Europe & America

2,978
9,072

574
9

19.3
0.1

6,069
6,638

480
51

7.9
0.8

479,497(12,050)

30,951(583)

451,984(12,707)

27,139(531)

467,447

30,368439,277

26,608Interest earning assets

Intragroup elimination

6.5

Non-interest earning assets
Derivatives
Australia
New Zealand
Asia Pacific, Europe & America

28,506
7,979
3,481

28,5807,871
3,050

Premises and equipment

2,163

2,163

Insurance assets

32,44827,081Other assets

26,691

22,151

Provisions for credit impairment
Australia
New Zealand
Asia Pacific, Europe & America(3,046)
(973)
(877)

(3,049)(1,114)(676)

Total average assets
Total average assets
Australia
New Zealand
Asia Pacific, Europe & America
Intragroup elimination% of total average assets attributable to overseas activities

216

ANZ Annual Report 2011

96,372

86,057563,819525,334

397,215
95,486
83,168575,869(12,050)

371,370
98,427
68,244
538,041(12,707)563,819525,334

30.1%

30.5%

6.1

2: Average Balance Sheet and Related Interest (continued)
2011
Averagebalance$mTime deposits
Australia
New Zealand
Asia Pacific, Europe & America

2010

Interest$m

Averagerate%

Averagebalance$mInterest$m

Averagerate%

124,080
29,31046,364

6,863
1,305
549

5.5
4.5
1.2

99,96929,62443,716

4,873
1,267
455

4.9
4.3
1.0

Savings deposits
Australia
New Zealand
Asia Pacific, Europe & America

20,109
2,023
5,097

821
47
23

4.1
2.3
0.5

19,458
2,094
2,947

660
41
15

3.4
2.0
0.5

Other demand deposits
Australia
New Zealand
Asia Pacific, Europe & America

66,053
13,696
6,985

2,646
379
28

4.0
2.8
0.4

62,864
13,839
3,312

2,114
343
15

3.4
2.5
0.5

Due to other financial institutions
Australia
New Zealand
Asia Pacific, Europe & America

8,312
955
14,726

367
22
136

4.4
2.3
0.9

5,399
1,100
10,722

197
27
103

3.6
2.5
1.0

Commercial paper
Australia
New Zealand

7,570
3,384

378
111

5.0
3.3

6,925
7,020

288
211

4.2
3.0

Borrowing corporations’ debt
Australia
New Zealand

519
1,190

34
68

6.6
5.7

1,280
1,101

80
55

6.3
5.0

Loan capital, bonds and notes
Australia
New Zealand
Asia Pacific, Europe & America

67,517
15,042
39

4,102
725
–

6.1
4.8
0.0

68,445
14,074
–

3,514
657
–

5.1
4.7
0.0

Other liabilities1
Australia
New Zealand
Asia Pacific, Europe & America

4,260
141
745

329
(77)
29

n/a
n/a
n/a

15,033
51
427

799
5
20

n/a
n/a
n/a

4.8

4.2

Interest bearing liabilities

Intragroup liabilities
New Zealand

12,050583

Intragroup elimination

450,167(12,050)

19,468(583)

438,117

18,885

4.3

12,707531

422,107(12,707)

16,270(531)

409,400

15,739

3.8

Financial Information

217

1 Includes foreign exchange swap costs.

FINANCIAL INFORMATION

2: Average Balance Sheet and Related Interest (continued)
2011
Averagebalance$m

2010
Averagebalance$m

Deposits
Australia
New Zealand
Asia Pacific, Europe & America

4,947
3,718
2,034

5,000
3,586
1,780

Derivative financial instruments
Australia
New Zealand
Asia Pacific, Europe & America
Insurance liabilities
External unitholder liabilities

23,2906,000(775)
29,285
5,476

25,585
5,907(1,830)23,855
4,662

Other liabilities

15,861

14,13389,83682,678

Total average liabilities

527,953

492,078

Total average liabilities
Australia
New Zealand
Asia Pacific, Europe & America

373,02189,283
77,699348,793
92,44263,550Intragroup elimination

540,003(12,050)

504,785(12,707)527,953

492,078

29.3%

29.1%

34,995871
35,86632,385871
33,256563,819525,334

Non-interest bearing liabilities% of total average assets attributable to overseas activities
Total average shareholders’ equity
Ordinary share capital1
Preference share capital
Total average liabilities and shareholders’ equity
1 Includes reserves and retained earnings.

218

ANZ Annual Report 2011

3: Interest Spreads and Net Interest Average Margins
2011
$m

2010
$m

8,409
1,993
1,081

7,971
1,981
917

11,483

10,869323,181
83,83872,478(12,050)

304,980
87,282
59,722(12,707)467,447

439,277%%

Australia
New Zealand
Asia Pacific, Europe & America
Group

7.41
6.15
2.55
6.50

6.72
5.86
2.55
6.06

Interest spread and net interest average margin may be analysed as follows:
Australia
Net interest spread
Interest attributable to net non-interest bearing items

2.20
0.40

2.23
0.38

Net interest margin – Australia

2.60

2.61

New Zealand
Net interest spread
Interest attributable to net non-interest bearing items

2.08
0.30

2.02
0.25

Net interest margin – New Zealand

2.38

2.27

Asia Pacific, Europe & America
Net interest spread
Interest attributable to net non-interest bearing items

1.51(0.02)

1.56(0.02)Net interest margin – Asia Pacific, Europe & America

1.49

1.54

Group
Net interest spread
Interest attributable to net non-interest bearing items

2.19
0.27

2.21
0.26

Net interest margin

2.46

2.47

Net interest income
Australia
New Zealand
Asia Pacific, Europe & America
Average interest earning assets
Australia
New Zealand
Asia Pacific, Europe & America
less intragroup elimination

Gross earnings rate1

1 Average interest rate received on average interest earning assets. APEA markets includes intragroup assets.

Financial Information

219

Shareholder Information

Ordinary Shares
At 10 October 2011, the twenty largest holders of ordinary shares held 1,522,899,090 ordinary shares, equal to 57.93% of the total issued
ordinary capital.
Number ofshares% ofshares467,156,528
355,961,863
347,499,738
97,828,934
49,104,214

17.77
13.54
13.22
3.72
1.87

38,099,783
28,463,355

1.45
1.08

24,512,112

0.93

24,206,102
13,069,092
12,238,042

0.92
0.50
0.46

Name

1.
2.
3.
4.
5.

HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITEDNATIONAL NOMINEES LIMITEDJ P MORGAN NOMINEES AUSTRALIA LIMITEDCITICORP NOMINEES PTY LIMITEDCITICORP NOMINEES PTY LIMITED <COLONIAL
FIRST STATE INV A/C>
6. COGENT NOMINEES PTY LIMITED
7. JP MORGAN NOMINEES AUSTRALIA LIMITED<CASH INCOME A/C>
8. RBC DEXIA INVESTOR SERVICES AUSTRALIANOMINEES PTY LIMITED <PIPOOLED A/C>
9. AMP LIFE LIMITED
10. QUEENSLAND INVESTMENT CORPORATION
11. UBS WEALTH MANAGEMENT AUSTRALIANOMINEES PTY LTD

Name

12. ANZEST PTY LTD <DEFERRED SHARE PLAN A/C>
13. COGENT NOMINEES PTY LIMITED<SMP ACCOUNTS>
14. AUSTRALIAN FOUNDATION INVESTMENTCOMPANY LIMITED
15. AUSTRALIAN REWARD INVESTMENT ALLIANCE
16. ARGO INVESTMENTS LIMITED
17. PERPETUAL TRUSTEE COMPANY LIMITED
18. ANZEST PTY LTD <ESAP SHARE PLAN A/C>
19. TASMAN ASSET MANAGEMENT LTD <TYNDALL
AUSTRALIAN SHARE WHOLE>
20. NAVIGATOR AUSTRALIA LTD <NAVIGATORPERS PLAN SETT A/C>

Total

Number ofshares% ofshares11,472,251
8,540,532

0.44
0.32

7,774,021

0.30

7,401,221
7,362,600
7,318,117
5,623,667
4,898,884

0.28
0.28
0.28
0.21
0.19

4,368,034

0.17

1,522,899,090

57.93

Distribution of shareholdings
At 10 October 2011
Range of shares

Number ofholders% ofholders

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

232,262
170,748
25,705
13,786
458

52.44
38.55
5.80
3.11
0.10

97,323,288
384,522,709
177,891,072
279,674,274
1,689,627,699

3.70
14.62
6.77
10.64
64.27

Total

442,959

100.002,629,039,042

100.00

At 10 October 2011:
there were no persons with a substantial shareholding in the Company;
the average size of holdings of ordinary shares was 5,935 (2010: 6,212) shares; andthere were 10,698 holdings (2010: 8,537 holdings) of less than a marketable parcel (less than $500 in value or 24 shares based on the market price of $21.00 per share),which is less than 2.42% of the total holdings of ordinary shares.

Voting rights of ordinary shares
The Constitution provides for votes to be cast as follows:i)on show of hands, 1 vote for each shareholder; andii) on a poll, 1 vote for each fully paid ordinary share.
A register of holders of ordinary shares is held at:
452 Johnston Street
Abbotsford
Victoria, Australia(Telephone: +61 3 9415 4010)

220

ANZ Annual Report 2011

ANZ Convertible Preference Shares (ANZ CPS)ANZ CPS1
On 30 September 2008 ANZ issued convertible preference shares (ANZ CPS1) which were offered pursuant to a prospectus dated
4 September 2008.
At 10 October 2011, the twenty largest holders of ANZ CPS1 held 2,419,214 securities, equal to 22.38% of the total issued securities.
Name

1. UBS WEALTH MANAGEMENT AUSTRALIA NOMINEESPTY LTD
2. UCA CASH MANAGEMENT FUND LTD
3. NAVIGATOR AUSTRALIA LTD <NAVIGATOR PERS PLAN
SETT A/C>
4. HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
5. J P MORGAN NOMINEES AUSTRALIA LIMITED
6. QUESTOR FINANCIAL SERVICES LIMITED <TPS RF A/C>
7. NULIS NOMINEES (AUSTRALIA) LIMITED <NAVIGATORMAST PLAN SETT A/C>
8. HARMAN NOMINEES PTY LTD <HARMAN FAMILY A/C>
9. NETWEALTH INVESTMENTS LIMITED <WRAPSERVICES A/C>
10. NATIONAL NOMINEES LIMITED

Number of% ofsecurities securities

443,528

4.10

239,791
239,419

2.22
2.21

234,245
209,691
179,251
118,276

2.17
1.94
1.66
1.09

101,696
95,1690.94
0.88

82,7400.77

Number of% ofsecurities securities

Name

11. COGENT NOMINEES PTY LIMITED
12. RBC DEXIA INVESTOR SERVICES AUSTRALIA NOMINEESPTY LIMITED <NMSMT A/C>
13. BALLARD BAY PTY LTD <BALLARD BAYDISCRETIONARY AC>
14. JMB PTY LIMITED
15. SPINETTA PTY LTD
16. MUTUAL TRUST PTY LTD
17. CITICORP NOMINEES PTY LIMITED <DPSL>
18. KOLL PTY LTD
19. ABN AMRO CLEARING SYDNEY NOMINEES PTY LTD<NEXT CUSTODIAN A/C>
20. AUSTRALIAN EXECUTOR TRUSTEES LIMITED <NO 1
ACCOUNT>

Total

68,38159,0250.63
0.55

50,0000.46

50,00045,00044,05642,19240,00039,504

0.46
0.42
0.41
0.39
0.37
0.37

37,2500.34

2,419,214

22.38

Distribution of ANZ CPS1 holdings
At 10 October 2011
Range of securities

Numberof holders% ofholders

Number of
securities% ofsecurities

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

15,863
1,123
76
49
8

92.66
6.56
0.44
0.29
0.05

4,710,731
2,331,611
632,759
1,371,126
1,765,897

43.57
21.57
5.85
12.68
16.33

Total

17,119100.0010,812,124

100.00

At 10 October 2011: There were 6 holdings (2010: nil) of less than a marketable parcel (less than $500 in value or 6 securities based on the market price of $99.6940 per security), which is less than
0.04% of the total holdings of ANZ CPS1.

Voting rights of ANZ CPS1
An ANZ CPS1 does not entitle its holder to vote at any general meeting of ANZ except in the following circumstances:i) on any proposal to reduce ANZ’s share capital, other than a resolution to approve a Redemption of the ANZ CPS1;ii) on a proposal that affects the rights attached to the ANZ CPS1;
iii) on any resolution to approve the terms of a buy-back agreement, other than a resolution to approve a Redemption of ANZ CPS1;
iv) on a proposal to wind up ANZ;v) on a proposal for the disposal of the whole of ANZ’s property, business and undertaking;vi) on any matter during a winding up of ANZ; andvii) on any matter during a period in which a dividend remains unpaid.
On a resolution or proposal on which an ANZ CPS1 holder is entitled to vote, the ANZ CPS1 holder has:i) on a show of hands, one vote; andii) on a poll, one vote for each ANZ CPS1 held.
A register of holders of ANZ CPS1 is held at:
452 Johnston Street
Abbotsford
Victoria, Australia(Telephone: +61 3 9415 4010)
Shareholder Information

221

SHAREHOLDER INFORMATION (continued)

ANZ CPS2
On 17 December 2009 ANZ issued convertible preference shares (ANZ CPS2) which were offered pursuant to a prospectus dated
18 November 2009.
At 10 October 2011, the twenty largest holders of ANZ CPS2 held 3,342,569 securities, equal to 16.98% of the total issued securities.
Name

1. UBS WEALTH MANAGEMENT AUSTRALIA NOMINEESPTY LTD
2. J P MORGAN NOMINEES AUSTRALIA LIMITED
3. NAVIGATOR AUSTRALIA LTD <NAVIGATOR PERS PLAN
SETT A/C>
4. QUESTOR FINANCIAL SERVICES LIMITED <TPS RF A/C>
5. HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
6. RBC DEXIA INVESTOR SERVICES AUSTRALIANOMINEES PTY LIMITED <NMSMT A/C>
7. NULIS NOMINEES (AUSTRALIA) LIMITED <NAVIGATORMAST PLAN SETT A/C>
8. WINCHELADA PTY LIMITED
9. AUSTRALIAN EXECUTOR TRUSTEES LIMITED <NO 1
ACCOUNT>
10. ABN AMRO CLEARING SYDNEY NOMINEES PTY LTD<NEXT CUSTODIAN A/C>

Number of% ofsecurities securities

688,666

3.50

537,886
260,344

2.73
1.32

227,810
162,631
157,901

1.16
0.83
0.80

151,001

0.77

134,055
111,5250.68
0.57

108,564

0.55

Number of% ofsecurities securities

Name

11. NETWEALTH INVESTMENTS LIMITED <WRAP SERVICES
A/C>
12. NATIONAL NOMINEES LIMITED
13. JMB PTY LIMITED
14. RONI HUBAY INVESTMENTS PTY LTD <RONI HUBAYINVESTMENT A/C>
15. RANDAZZO C & G DEVELOPMENTS PTY LTD
16. CITICORP NOMINEES PTY LIMITED <COLONIAL FIRSTSTATE INV A/C>
17. AVANTEOS INVESTMENTS LIMITED <AVANTEOSSUPER FUND NO 2 A/C>
18. AVANTEOS INVESTMENTS LIMITED <ENCIRCLE IMA
A/C>
19. W MITCHELL INVESTMENTS PTY LTD <W MITCHELL
SUPER FUND>
20. JP MORGAN NOMINEES AUSTRALIA LIMITED<CASH INCOME A/C>

Total

103,853

0.53

103,734
100,600
100,000

0.53
0.51
0.51

78,50068,0000.40
0.34

64,3740.33

63,6440.32

60,0000.30

59,4810.30

3,342,569

16.98

Distribution of ANZ CPS2 holdings
At 10 October 2011
Range of securities

Numberof holders% ofholders

Number of
securities% ofsecurities

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

26,921
2,146
179
96
13

91.71
7.31
0.61
0.33
0.04

8,248,469
4,682,441
1,411,694
2,496,050
2,848,570

41.90
23.78
7.17
12.68
14.47

Total

29,355100.0019,687,224

100.00

At 10 October 2011: There were 7 holdings (2010: 4 holdings) of less than a marketable parcel (less than $500 in value or 5 securities based on the market price of $101.11 per security), which is lessthan 0.03% of the total holdings of ANZ CPS2.

Voting rights of ANZ CPS2
An ANZ CPS2 does not entitle its holder to vote at any general meeting of ANZ except in the following circumstances:i) on any proposal to reduce ANZ’s share capital, other than a resolution to approve a Redemption of the ANZ CPS2;ii) on a proposal that affects the rights attached to the ANZ CPS2;
iii) on any resolution to approve the terms of a buy-back agreement, other than a resolution to approve a Redemption of ANZ CPS2;
iv) on a proposal to wind up ANZ;v) on a proposal for the disposal of the whole of ANZ’s property, business and undertaking;vi) on any matter during a winding up of ANZ; andvii) on any matter during a period in which a dividend remains unpaid.
On a resolution or proposal on which an ANZ CPS2 holder is entitled to vote, the ANZ CPS2 holder has:i) on a show of hands, one vote; andii) on a poll, one vote for each ANZ CPS2 held.
A register of holders of ANZ CPS2 is held at:
452 Johnston Street
Abbotsford
Victoria, Australia(Telephone: +61 3 9415 4010)

222

ANZ Annual Report 2011

ANZ CPS3
On 28 September 2011 ANZ issued convertible preference shares (ANZ CPS3) which were offered pursuant to a prospectus dated 31 August 2011.
At 10 October 2011, the twenty largest holders of ANZ CPS3 held 2,186,028 securities, equal to 16.31% of the total issued securities.
Name

1. UBS WEALTH MANAGEMENT AUSTRALIA NOMINEESPTY LTD2. CITICORP NOMINEES PTY LIMITED
3. RBC DEXIA INVESTOR SERVICES AUSTRALIANOMINEES PTY LIMITED <MLCI A/C>
4. RAKIO PTY LTD <PIEKARSKI GYMPIE A/C>
5. RBC DEXIA INVESTOR SERVICES AUSTRALIANOMINEES PTY LIMITED <NMSMT A/C>
6. QUESTOR FINANCIAL SERVICES LIMITED<TPS RF A/C>
7. DIMBULU PTY LTD
8. MICHAEL COPPEL VENTURES P/L <MICHAELCOPPEL VENTURES A/C>
9. HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED

Number of% ofsecurities securities

487,4543.64

281,120
206,0202.10
1.54

200,000
121,180

1.49
0.90

115,055

0.86

85,00080,0000.64
0.60

73,7000.55

Number of% ofsecurities securities

Name

10. JMB PTY LIMITED
11. EASTCOTE PTY LTD <VAN LIESHOUT FAMILY A/C>
12. MR TERRENCE E PEABODY + MRS MARY G PEABODY<SUPER FUND A/C>
13. RANDAZZO C&G DEVELOPMENTS PTY LTD
14. RBC DEXIA INVESTOR SERVICES AUSTRALIANOMINEES PTY LIMITED <GSENIP A/C>
15. TANDOM PTY LTD
16. BTPS – WRAP SETTLEMENTS A/C
17. WENTHOR PTY LTD <THE JOHN THORSEN FAMILY
A/C>
18. NATIONAL NOMINEES LIMITED
19. MR RONALD MAURICE BUNKER
20. COGENT NOMINEES PTY LIMITED

Total

70,00050,00050,000

0.52
0.37
0.37

50,00050,0000.37
0.37

50,00046,79045,000

0.37
0.35
0.34

44,70940,00040,000

0.33
0.30
0.30

2,186,028

16.31

Distribution of ANZ CPS3 holdings
At 10 October 2011
Range of securities

Numberof holders% ofholders

Number of
securities% ofsecurities

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

16,585
1,453
95
90
6

90.98
7.97
0.52
0.50
0.03

5,339,963
3,453,638
808,426
2,387,144
1,410,829

39.85
25.77
6.03
17.82
10.53

Total

18,229100.0013,400,000

100.00

At 10 October 2011: There were no holdings of less than a marketable parcel (less than $500 in value or 5 securities based on the market price of $100.05 per security).

Voting rights of ANZ CPS3
An ANZ CPS3 does not entitle its holder to vote at any general meeting of ANZ except in the following circumstances:i) on any proposal to reduce ANZ’s share capital, other than a resolution to approve a Redemption of the ANZ CPS3;ii) on a proposal that affects the rights attached to the ANZ CPS3;iii) on any resolution to approve the terms of a buy-back agreement, other than a resolution to approve a Redemption of ANZ CPS3;
iv) on a proposal to wind up ANZ;v) on a proposal for the disposal of the whole of ANZ’s property, business and undertaking;vi) on any matter during a winding up of ANZ; andvii) on any matter during a period in which a dividend remains unpaid.
On a resolution or proposal on which an ANZ CPS3 holder is entitled to vote, the ANZ CPS3 holder has:i) on a show of hands, one vote; andii) on a poll, one vote for each ANZ CPS3 held.
A register of holders of ANZ CPS3 is held at:
452 Johnston Street
Abbotsford
Victoria, Australia(Telephone: +61 3 9415 4010)

Shareholder Information

223

SHAREHOLDER INFORMATION (continued)

Employee Shareholder Information

American Depositary Receipts

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 to the rules of a relevant incentive plan, being heldby employees and directors. At 30 September 2011 participants held
1.27% (2010: 1.27%) of the issued shares and options of ANZ under
the following incentive plans:

The Group has American Depositary Receipts (ADRs) representing
American Depositary Shares (ADSs) that are traded on the over-thecounter (OTC) securities market on the Pink Sheets electronic
platform operated by Pink Sheets LLC in the United States under the
ticker symbol: ANZBY and the CUSIP number: 05258304.

ANZ Employee Share Acquisition Plan;
ANZ Employee Share Save Scheme;
ANZ Share Option Plan;ANZ Directors’ Share Plan; andANZ Directors’ Retirement Benefit Plan.

Stock Exchange Listings
Australia and New Zealand Banking Group Limited’s ordinary sharesare listed on the Australian Securities Exchange and the New Zealand
Stock Exchange.
The Group’s other stock exchange listings include:
Australian Securities Exchange – ANZ Convertible Preference
Shares (ANZ CPS1, CPS2 and CPS3) [Australia and New Zealand
Banking Group Limited]; senior and subordinated debt [Australia
and New Zealand Banking Group Limited];
Channel Islands Stock Exchange – Senior debt [ANZ Jackson
Funding 2 Limited, ANZ Jackson Funding 3 Limited and ANZ
Jackson Funding 4 Limited]; subordinated debt [ANZ Jackson
Funding plc];
London Stock Exchange – Non-cumulative mandatory
convertible stapled securities (UK Stapled Securities) [Australia
and New Zealand Banking Group Limited]; senior and subordinateddebt [Australia and New Zealand Banking Group Limited]; seniordebt [ANZ National (Int’l) Limited];
Luxembourg Stock Exchange – Senior and subordinated debt
[Australia and New Zealand Banking Group Limited]; non-cumulative
Trust Securities (Euro Trust Securities) [ANZ Capital Trust III];New Zealand Stock Exchange – Senior and subordinated debt andperpetual callable subordinated notes [ANZ National Bank Limited];andSwiss Stock Exchange – Senior debt [Australia and New Zealand
Banking Group Limited and ANZ National (Int’l) Limited].
For more information on the US Trust Securities, Euro Trust Securities,
UK Stapled Securities and ANZ CPS please refer to notes 27 and 28 to
the Financial Statements.

224

ANZ Annual Report 2011

With effect from 23 July 2008, the ADR ratio changed from one ADS
representing five ANZ ordinary shares to one ADS representing one
ANZ ordinary share.
The Bank of New York Mellon Corporation (BNY Mellon) is the
Depositary for the Company’s ADR program in the United States.
Holders of the Company’s ADRs should deal directly with BNY Mellon
on all matters relating to their ADR holdings, by telephone on
1-888-269-2377 (for callers within the US), 1-201-680-6825 (for callers
outside the US) or by email to shrrelations@bnymellon.com.

GLOSSARYAAS – Australian Accounting Standards.

Australia

AASB – Australian Accounting Standards Board.

Australia division comprises Retail, Commercial and Wealth segments,
and Operations and Support which includes the central support
functions for the division.

ADIs – Authorised Deposit-taking Institutions.
AFS – Available-for-sale assets.
AIFRS – Australian Equivalents to International Financial
Reporting Standards.
Alt-A – Alternative A-paper, US mortgages underwritten with lower
or alternative documentation than a full documentation mortgage
loan or with higher loan to valuation ratios than mortgages
guaranteed by US Government sponsored enterprises. Alt-A
mortgages have a stronger risk profile than sub-prime mortgages.
APRA – Australian Prudential Regulation Authority.
Asia Pacific, Europe & America (APEA)
Asia Pacific, Europe & America division comprises Retail, Asia
Partnerships, Institutional, and Operations & Support which
includes the Central Support functions for the division.
Retail which provides retail and small business banking services tocustomers in the Asia Pacific region and also includes investment
and insurance products and services for Asia Pacific customers.
Asia Partnerships which is a portfolio of strategic partnerships
in Asia. This includes investments in Indonesia with PT Bank Pan
Indonesia, in the Philippines with Metrobank Cards Corporation,
in China with Bank of Tianjin and Shanghai Rural Commercial
Bank, in Malaysia with AMMB Holdings Berhad and in Vietnam
with Saigon Thuong Tin Commercial Joint-Stock (Sacombank)and Saigon Securities Incorporation.
Operations & Support which includes the central support
functions for the division.
Institutional Asia Pacific, Europe & America matrix reports to
the APEA and Institutional divisions and is also referred to in theparagraph below entitled ‘Institutional’.
During the September 2010 full year, ANZ acquired selected RoyalBank of Scotland Group plc businesses in Asia. The acquisitionof the businesses in Philippines, Vietnam and Hong Kong werecompleted during the March 2010 half, and the acquisition of
the businesses in Taiwan, Singapore and Indonesia during the
September 2010 half. The acquisition impacts the Retail andInstitutional segments.

Retail– Retail Distribution operates the Australian branch network,
Australian call centre, specialist businesses (including specialist
mortgage sales staff, mortgage broking and franchisees, directchannels (Mortgage Direct and One Direct)) and distribution
services including the ANZ Affluent proposition.
– Retail Products is responsible for delivering a range of products
including mortgages, cards, unsecured lending, transaction
banking, savings and deposits:– Mortgages provide housing finance to consumers inAustralia for both owner occupied and investment purposes.
– Cards and Unsecured Lending provides consumer credit
cards, ePayment products, personal loans and ATM facilities
in Australia.
– Deposits provide transaction banking and savings products,
such as term deposits and cash management accounts.
Commercial– Esanda provides motor vehicle and equipment finance, andinvestment products.
– Regional Commercial Banking provides a full range ofbanking services to personal customers and to small businessand agribusiness customers in rural and regional Australia,
and includes the recent acquisition of loans and deposits fromLandmark Financial Services.
– Business Banking provides a full range of banking services,
including risk management, to metropolitan based small
to medium sized business clients with a turnover of up to
A$50 million.
– Small Business Banking provides a full range of banking
services for metropolitan-based small businesses in Australia
with lending up to A$550,000.
Wealth– ANZ Private & Other Wealth specialises in assisting high net
worth individuals and families to manage, grow and preserve
their family assets. The businesses within ANZ Private & Other
Wealth include Private Bank, ANZ Trustees, E*Trade, Investment
Lending and Other Wealth.
– OnePath Consolidated was formerly the INGA JV entity between
ANZ and the ING Groep and is now a wholly owned subsidiaryof ANZ. OnePath Consolidated operates as part of ANZ’s
wealth business. It provides a comprehensive range of wealth andinsurance products available through financial advisers or direct
to customers. OnePath Consolidated includes ANZ Financial
Planning and ANZ General Insurance.

Glossary

225

GLOSSARY (continued)

Collective provision is the provision for credit losses that are inherent
in the portfolio but not able to be individually identified; presently
unidentified impaired assets. A collective provision may only berecognised when a loss event has already occurred. Losses expected
as a result of future events, no matter how likely, are not recognised.
Credit equivalent represents the calculation of on-balance sheet
equivalents for market related items.
Customer deposits represent term deposits, other deposits bearing
interest, deposits not bearing interest and borrowing corporations
debt excluding securitisation deposits.
GSO and Corporate Centre is ANZ’s core division responsible for thedelivery of ANZ’s information technology solutions and infrastructure,and for ANZ’s back office operations in India, and for the provisionof shared services including property, sourcing, accounts payable,
environmental sustainability and human resources.
IFRS – International Financial Reporting Standards.
Impaired assets are those financial assets where doubt exists as
to whether the full contractual amount will be received in a timely
manner, or where concessional terms have been provided because of
the financial difficulties of the customer. Financial assets are impaired
if there is objective evidence of impairment as a result of a loss eventthat occurred prior to the reporting date, and that loss event has had
impact, which can be reliably estimated, on the expected future cash
flows of the individual asset or portfolio of assets.
Impaired commitments and contingencies comprises undrawn
facilities and contingent facilities where the customer’s status isdefined as impaired.

Transaction Banking provides working capital solutions including
deposit products, cash transaction banking management, tradefinance, international payments, and clearing services principally
to institutional and corporate customers.
Global Markets provides risk management services to corporate
and institutional clients globally in relation to foreign exchange,interest rates, credit, commodities, debt capital markets, wealthsolutions and equity derivatives. Markets provides origination,
underwriting, structuring and risk management services, advice
and sale of credit and derivative products globally. Markets also
manages the Group’s interest rate risk position and liquidity
portfolio.
Global Loans provides term loans, working capital facilities andspecialist loan structuring. It provides specialist credit analysis,
structuring, execution and ongoing monitoring of strategicallysignificant customer transactions, including project andstructured finance, debt structuring and acquisition finance,
loan product structuring and management, structured asset
and export finance.
Relationship and infrastructure includes client relationshipmanagement teams for global institutional and financial
institution and corporate customers in Australia andAsia, corporate advisory and central support functions.
The relationship management costs are allocated to the
product lines.
Liquid assets are cash and cash equivalent assets. Cash equivalent
assets are highly liquid investments with short periods to maturity,
are readily convertible to cash at ANZ’s option and are subject to an
insignificant risk of changes in value.

Impaired loans comprises drawn facilities where the customer’s
status is defined as impaired.

Net advances include gross loans and advances and acceptancesand capitalised brokerage/mortgage origination fees, less unearned
income and allowance for credit impairment.

Income includes external interest income and other external
operating income.

Net interest average margin is net interest income as a percentageof average interest earning assets.

Individual provision charge is the amount of expected credit
losses on those financial instruments assessed for impairment
on an individual basis (as opposed to on a collective basis).
It takes into account expected cash flow over the lives of thosefinancial instruments.

Net interest spread is the average interest rate received on interest
earning assets less the average interest rate paid on interest bearing
liabilities. Non-assessable interest income is grossed up to theequivalent before tax amount for the purpose of these calculations.

Institutional
Institutional provides global financial services to government,
corporate and institutional clients with a focus on solutions
for clients with complex financial needs, based on a deep
understanding of their businesses and industries, with particularexpertise in natural resources, agriculture and infrastructure.
Institutional delivers transaction banking, specialised andrelationship lending and markets solutions in Australia, New
Zealand, Asia Pacific, Europe and America.

226

ANZ Annual Report 2011

Net non-interest bearing items, which are referred to in theanalysis of interest spread and net interest average margin, includes
shareholders’ equity, impairment of loans and advances, deposits
not bearing interest and other liabilities not bearing interest, offset
by premises and equipment and other non-interest earning assets.
Non-performing loans are included within interest bearing loans,advances and bills discounted.
Net tangible assets equals share capital and reserves attributable
to shareholders of the Group less preference share capital andunamortised intangible assets (including goodwill and software).

Retail

Restructured items comprise of facilities in which the originalcontractual terms have been modified for reasons related to thefinancial difficulties of the customer. Restructuring may consists ofreduction of interest, principal or other payments legally due or an
extension in maturity materially beyond those typically offered to
new facilities with similar risk.

– Provides a full range of banking services to personal customers
under the ANZ and National Bank brands in New Zealand.

Revenue includes net interest income and other operating income.

Commercial

Segment result represents profit before income tax expense.

New Zealand
New Zealand comprises Retail, Commercial and Wealth segments,
and Operations and Support which includes the central support
functions (including Treasury funding).

– Commercial & Agri incorporates the ANZ and National Bank
brands and provides financial solutions through a relationshipmanagement model for medium-sized businesses, including
agri-business, with a turnover of up to NZ$150 million. Asset
Finance (including motor vehicle and equipment finance),
operating leases and investment products are provided under
the UDC brand.
– Business Banking provides a full range of banking services
to small enterprises, typically with turnover of less than NZ$5
million.
Wealth– Private Banking includes private banking operations underthe ANZ and National Bank brands.
– OnePath New Zealand (formerly ING NZ) manufactures anddistributes investment and insurance products and provides
related advice. It was formerly a joint venture between
ANZ and ING whereby ANZ owned 49% of OnePath NZ
and received proportional equity accounted earnings. ANZ
acquired the remaining 51% interest to take full ownershipduring the 2010 financial year.
Non-core items are disclosed separately in the income statement
to remove volatility from the underlying business result, and include
significant items, and non-core income arising from the use ofderivatives in economic hedges on fair value through profit and loss.
Operating expenses exclude the provision for impairment of loans
and advances charge.
Operating income includes net interest and other operating income.
Overseas includes the results of all operations outside Australia,
except if New Zealand is separately shown.
Overseas Markets (also known as Asia Pacific, Europe & America)
includes all operations outside of Australia and New Zealand.

Segment revenue includes net interest income and otheroperating income.
Significant items are items that have a substantial impact on profit
after tax, or the earnings used in the earnings per share calculation.
Significant items also do not arise in the normal course of businessand are infrequent in nature. Divestments are typically defined as
significant items.
Sub-prime represents mortgages granted to borrowers with a pooror limited credit history. Sub-prime loans carry higher interest rates
to compensate for potential losses from default.
Sub-standard assets are customers that have demonstrated some
operational and financial instability, with variablility and uncertainty
in profitability and liquidity projected to continue over the short andpossibly medium term.
Total advances include gross loans and advances and acceptancesless unearned income (for both as at and average volumes). Loans
and advances classified as available-for-sale are excluded fromtotal advances.
Underlying profit represents the directors’ assessment of the
profit for the ongoing business activities of the Group, and is basedon guidelines published by the Australian Institute of Company
Directors (AICD) and the Financial Services Institute of Australasia(FINSIA). ANZ applies this guidance by adjusting statutory profit for
non-core items that are not part of the normal ongoing operationsof the Group including one-off gains and losses, gains and losseson the sale of businesses, non-continuing businesses, timing
differences on economic hedges, and acquisition related costs. The
adjustments made in arriving at underlying earnings are included
in statutory profit, and are therefore subject to audit within thecontext of the Group statutory audit opinion. The external auditor
has informed the Audit Committee that the adjustments are
based on the guidelines released by the AICD and FINSIA, andconsistent with prior periods.

Return on asset ratio include net intra group assets.
Repo discount is a discount applicable on the repurchase by a central
bank of an eligible security pursuant to a repurchase agreement.

Glossary

227

ALPHABETICALNOTESNOTESTOTOTHE
THEFINANCIAL
FINANCIALINDEX STATEMENTS
STATEMENTS

Assets Charged as Security for Liabilities andCollateral Accepted as Security for Assets

Impaired Financial Assets

121

141

Income Statements

86

Associates

184

Income Tax Liabilities

129

Available-for-sale Assets

119

Income106

Average Balance Sheet and Related Interest

216

Independent Auditor’s Report

210

Balance Sheet

88

Interest Spreads and Net Interest Average Margins

217

Bonds and Notes

130

Interests in Joint Venture Entities

184

Capital Adequacy212

Key Management Personnel Disclosures

200

Capital Management

138

Life Insurance Business

203

Cash Flow Statement

89

Liquid Assets

112

Chairman’s Report

6

Loan Capital

131

Chief Executive Officer’s Report

8

Maturity Analysis of Assets and Liabilities

177
120

Commitments

186

Net Loans and Advances

Compensation of Auditors

108

Non-controlling Interests

137

Controlled Entities

183

Notes to the Cash Flow Statements

181

Corporate Governance Statement

46

Notes to the Financial Statements

92

Other Assets

127

Payables and Other Liabilities

129

Premises and Equipment

127

Provision for Credit Impairment

121

Provisions

130

Credit Related Commitments, Guarantees,
Contingent Liabilities and Contingent Assets

187

Critical Estimates and Judgements Usedin Applying Accounting Policies

103

Current Income Tax Expense

109

Deposits and Other Borrowings

128

Derivative Financial Instruments

113

Directors’ Declaration

209

Directors’ Report10

Dividends

110

Due from Other Financial Institutions

112

Earnings per Ordinary Share111

Employee Share and Option Plans

196

Events Since the End of the Financial Year

208

Exchange Rates

208

Expenses

107

Fair Value of Financial Assets and Financial Liabilities

167

Fiduciary Activities

185

Financial Information

212

Financial Statements

86

Financial Risk Management

142

Five Year Summary

84

Glossary

225

Goodwill and Other Intangible Assets

126

228

ANZ Annual Report 2011

Remuneration Report15

Reserves and Retained Earnings

136

Review of Operations

65

Securitisations

185

Segment Analysis

178

Share Capital

134

Shareholder Information

220

Shares in Controlled Entities and Associates

124

Significant Accounting Policies

92

Statement of Changes in Equity

90

Statement of Comprehensive Income

87

Superannuation and Other Post Employment
Benefit Schemes

191

Tax Assets

125

Trading Securities

112

Transactions with Other Related Parties203

HANDY CONTACTSSHARE REGISTRARINVESTOR RELATIONSAUSTRALIA

Level 9, 833 Collins Street
Docklands VIC 3008 Australia
Telephone +61 3 8654 7682
Facsimile +61 3 8654 9977
Email: investor.relations@anz.com
Website: shareholder.anz.com

Computershare Investor Services Pty Ltd
GPO Box 2975 Melbourne
VIC 3001 Australia
Telephone 1800 11 33 99 (Within Australia)+61 3 9415 4010 (International Callers)
Facsimile +61 3 9473 2500
anzshareregistry@computershare.com.au

Group General Manager Investor
Relations: Jill Craig
REGISTERED OFFICEANZ Centre Melbourne
Level 9, 833 Collins Street
Docklands VIC 3008 Australia
Telephone +61 3 9273 5555
Facsimile +61 3 8542 5252
Company Secretary:
John Priestley
CORPORATE AFFAIRS /CORPORATE RESPONSIBILITY

Level 9, 833 Collins Street
Docklands VIC 3008 Australia
Telephone +61 3 8654 3276
Facsimile +61 3 8654 9911
Group General Manager
Corporate Affairs: Gerard Brown

NEW ZEALAND

Private Bag 92119 Auckland 1142
New Zealand
Telephone 0800 174 007
Facsimile +64 9 488 8787
UNITED KINGDOMThe Pavilions
Bridgwater Road Bristol BS99 6ZZ
United Kingdom
Telephone +44 870 702 0000
Facsimile +44 870 703 6101
UNITED STATESThe Bank of New York Mellon Corporation
Shareowner Services
BNY Mellon Shareowner Services
P.O. Box 358516
Pittsburgh, PA 15252-8516
Callers outside USA: +1-201-680-6825
Callers within USA: 1-888-269-2377

IMPORTANT DATES FOR SHAREHOLDERS*
DATE

EVENT

2 MAY 2012

Interim Results Announcement

10 MAY 2012

Interim Dividend Ex-Date

16 MAY 2012

Interim Dividend Record Date

2 JULY 2012

Interim Dividend Payment Date

25 OCTOBER 2012

Annual Results Announcement

8 NOVEMBER 2012

Final Dividend Ex-Date

14 NOVEMBER 2012

Final Dividend Record Date

19 DECEMBER 2012

Final Dividend Payment Date

19 DECEMBER 2012

Annual General Meeting* If there are any changes to these dates, the Australian Securities Exchange
will be notified accordingly.

OUR INTERNATIONAL PRESENCE
Australia
New Zealand
Asia – Cambodia, China, Hong Kong,
India, Indonesia, Japan, Korea, Laos,
Malaysia, the Philippines, Singapore,
Taiwan, Thailand, Vietnam
Pacific – American Samoa,
Cook Islands, East Timor, Fiji,
Guam, Kiribati, New Caledonia,
Papua New Guinea, Samoa,
Solomon Islands, Tonga, Vanuatu
EuropeMiddle East
United Kingdom
United States of America

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