Australia and New Zealand Banking Group Limited– New Zealand Branch
Supplemental Disclosure Statement
FOR THE SIX MONTHS ENDED 31 MARCH 2010 | ISSUED MAY 2010

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

Half Year
31 March 2010

Consolidated Financial Report
Dividend Announcement andAppendix 4D

This document contains the information required by Appendix 4D of the Australian Securities Exchange Listing Rules. It
should be read in conjunction with ANZ’s 2009 Annual Report, and is lodged with the Australian Securities Exchange underlisting rule 4.2A.

RESULTS FOR ANNOUNCEMENT TO THE MARKET

Name of Company:

APPENDIX 4D

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

Report for the half year ended 31 March 2010
A$ million
Operating income

× 10% *

to7,217

Net statutory profit attributable to shareholders

× 36% *

to1,925

Underlying profit ^× 20% *

to2,298

Proposed interim dividend per ordinary share, fully franked at 30% tax rate

52 cents

Record date for determining entitlements to the proposed interim dividend

12 May 2010

Payment date for the proposed interim dividend

1 July 2010

Dividend Reinvestment Plan and Bonus Option Plan
Australia and New Zealand Banking Group Limited (ANZ) has a Dividend Reinvestment Plan (DRP) and a Bonus Option Plan
(BOP) that will operate in respect of the 2010 interim dividend. For the 2010 interim dividend, ANZ intends to provide shares
under the DRP and BOP through the issue of new shares. The 'Acquisition Price' to be used in determining the number ofshares to be provided under the DRP and BOP will be calculated by reference to the arithmetic average of the daily volume
weighted average sale price of fully paid ANZ ordinary shares sold on the ASX during the seven trading days commencing 14
May 2010 less a 1.5% discount, and then rounded to the nearest whole cent. Shares provided under the DRP and BOP will
rank equally in all respects with existing fully paid ANZ ordinary shares. Election notices from shareholders wanting tocommence, cease or vary their participation in the DRP or BOP for the 2010 interim dividend must be received by ANZ's
Share Registrar by 5.00 pm (Melbourne time) on 12 May 2010. Subject to receiving effective contrary instructions from theshareholder, dividends payable to shareholders with a registered address in Great Britain (including the Channel Islands andthe Isle of Man) or New Zealand will be converted to pounds sterling and New Zealand dollars respectively at ANZ's exchange
rate at 5.00 pm (Melbourne time) on 14 May 2010. There is no foreign conduit income attributed to the dividend.
*

Compared to 31 March 2009^

Adjusted to reflect result for the ongoing business activities of the Group. Refer pages 13 to 15 of the ANZ Condensed Consolidated Financial Report, Dividend
Announcement and Appendix 4D for the half year 31 March 2010.

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITEDABN 11 005 357 522

CONSOLIDATED FINANCIAL REPORT, DIVIDEND ANNOUNCEMENT and APPENDIX 4D
Half year ended 31 March 2010

CONTENTSPAGEMEDIA RELEASE

1FINANCIAL HIGHLIGHTS

7

ProfitUnderlying profit
Underlying profit excluding impact of acquisitions and exchange rate movements
Earnings per share
Condensed balance sheet
Financial ratios
Segment analysis

7
7
8
8
8
9
11

CHIEF FINANCIAL OFFICER’S REVIEW

13

Review of Group Results
Income and expenses
Credit risk (including credit risk on derivatives)
Income tax expense
Earnings per share (cents)
Dividends
Market risk
Balance sheet
Liquidity risk
Capital management
Deferred acquisition costs and deferred income
Software capitalisation

13
19
26
31
31
32
33
35
37
40
42
42

SEGMENT REVIEW43

FOUR YEAR SUMMARY BY HALF YEAR

71

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – TABLE OF CONTENTS

74

DIRECTORS’ REPORT75

DIRECTORS’ DECLARATION108

AUDITORS’ REVIEW REPORT AND INDEPENDENCE DECLARATION

109

SUPPLEMENTARY INFORMATION

110

Reconciliation of statutory profit to underlying profit
Capital management
Average balance sheet and related interest
Derivative financial instruments
Special purpose entities (non-consolidated)
Leveraged finance
Asset-backed securities
Principal risks and uncertainties

ALPHABETICAL INDEX

110
113
116
120
121
122
123
124

136

This Results Announcement has been prepared for Australia and New Zealand Banking Group Limited (the “Company”) together with its subsidiaries which arevariously described as “ANZ”, “Group”, “ANZ Group”, “us”, “we” or “our”.
All amounts are in Australian dollars unless otherwise stated. The Company has a formally constituted Audit Committee of the Board of Directors. The report wasapproved by resolution of a Committee of the Board of Directors on 28 April 2010.
When used in this Results Announcement the words “estimate”, “project”, “intend”, “anticipate”, “believe”, “expect”, “should” and similar expressions, as they relate to
ANZ and its management, are intended to identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. ANZ does not undertake any obligation to publicly release the result of any revisions to these forward-looking
statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

This page has been left blank intentionallyMEDIA RELEASEMedia Release
For Release: 29 April 2010

ANZ 2010 Interim Result
Profit up as ANZ benefits from renewed regional growth
ANZ today announced an underlying profit1 for the half year ended 31 March 2010 of $2.3 billion up
23% on the preceding half (HOH) and 20% higher than the prior corresponding period (PCP).
Statutory profit for the half year ended 31 March 2010 was $1.93 billion up 26% HOH and 36% PCP.
The interim dividend of 52 cents per share fully franked is 6 cents per share or 13% higher PCP.
Key Points 2•

Underlying profit growth was driven by an 8% growth in profit before provisions excluding
Global Markets (up 3% including Global Markets) and a 32% reduction in the credit impairment
charge.

•Underlying EPS increased 15%.

•

Group margins (ex Global Markets) were up 15 basis points (bps) from recovery of higher
funding costs and more sustainable pricing for risk, with Institutional the major contributor.

•

Customer deposits grew 2% while Group lending levels were broadly flat with growth inmortgages offset by lower demand in Corporate and Institutional and a repositioning of theInstitutional book.

•

The total provision coverage ratio remains high at 2.1% of Credit Risk Weighted Assets(CRWA) with the collective provision ratio at 1.38%3 of CRWA.

•

The reported Tier One capital level at the end of March was 10.7%4.

•

Australia region profit was up 15% with good contributions from the Institutional, Wealth andCommercial businesses and a sound performance in Retail.

•Asia Pacific Europe & Americas (APEA) region USD profit increased 19% or 8% AUD with
Institutional and Partnerships the main contributors.

•

New Zealand region profit of NZ$372 million was a NZ$238 million increase on the prior halfwith a 45% reduction in the provision charge.

•

Institutional division profit was up 19%, with provisions down 38% and income off 4% as
Global Markets revenues trend back from the above normal 2009 levels. Income grew 8%
excluding Global Markets.

ANZ Chief Executive Officer Mike Smith said: “Across the Group revenue and profit increased.
Australia performed well and we’re establishing greater clarity and discipline around growth. New
Zealand’s performance has improved as the economy recovers and we are seeing the benefits of atightly managed business. While Asia Pacific moved to a period of consolidation, it still recorded
double digit profit growth. Institutional’s result shows we are now making tangible progress inturning around the business based on a clear strategy aligned to our super regional objective.
1

Underlying profit reflects the net impact on statutory profit of $373 million from one-off items such as acquisition costs and subsequent fairvalue adjustments and hedging timing differences.
Numbers are provided on an underlying basis and all comparisons are half on half unless otherwise stated3
Total provision coverage ratio is individual plus collective provisions as a proportion of credit risk weighted assets (CRWA). Collective provision
ratio is collective provisions as a proportion of CRWA
4
Proforma 10.4% including balance of RBS transaction.
2

1

MEDIA RELEASE (continued)“The backdrop to our improving business performance is a considerably better outlook forprovisions which reflects the strength of the economic recovery particularly in Australia and Asia.
“With the multi-speed economic recovery that’s now occurring around the world, our super regional
strategy positions us perfectly to take advantage of the growth story in Asia and the flow on it has
to the Australian and to the New Zealand economies.
“What’s encouraging in this result is that we’re also beginning to see the benefits of the difficult
decisions we’ve taken over the last two and a half years. While there is still a lot to do, we clearly
have a much stronger foundation. It’s allowed us to weather the financial crisis and come out of it astronger bank than we went into it. That’s enabled us to continue to deliver to our shareholders andto our customers.
“However, the scale of the global financial crisis and the depth of the economic downturn in the US
and Europe means we have to be realistic about the outlook. Recovery from events of thismagnitude will not happen smoothly.
“We are now half way through our five year plan to create a super regional bank. In thisenvironment while there’ll be further bumps along the way - I believe ANZ is well positioned andthere’s the opportunity for us to aim higher.
“We have a strong base in Australia, New Zealand and the Pacific and increasingly in Asia. We havetighter discipline in the business and a strong management team of experienced international
bankers. It’s giving us real clarity around growth opportunities and greater discipline in sustaining
our business performance,” Mr Smith said.
PERFORMANCE BY GEOGRAPHIC REGION
Australia
Profit for the Australia region grew 15% HOH with positive contributions from Institutional,
Commercial and Wealth, with the Retail business flat impacted by headwinds from intensecompetition in deposit pricing, particularly for term deposits, and from lower fees. The reduction or
removal of 27 fees is delivering benefits to customers of around $170 million on an annualised
basis.
Household customer deposits rose 4% with the Retail business achieving around 1.7 times system
growth over the half. Lending grew 5% dominated by growth in the mortgage book. Mortgage
lending returned to slightly above system growth rates during the early months of calendar 2010.
ANZ’s customer satisfaction score remains the highest of the major banks, indicating that ourcustomer proposition of being easy to do business with has appealed to the market with strong
growth in trial intention and new account openings.
While Commercial lending demand remained at low levels, ANZ performed well relative to themarket in the face of high levels of degearing over the past year. The Commercial business grewprofit 16% largely the outcome of a decrease in provisions and repricing.
The Wealth result was up strongly against a weak second half 2009, largely through the contributionof the INGA business, which became 100% ANZ owned from December, and improvement in theequity market.
The acquisition of the Landmark financial services business from AWB in December 2009, broughtwith it around $300 million in deposits and a loan book of around $2.4 billion taking the ANZ
Regional Commercial business into the number two market share position.
A 14% increase in Institutional Australia profit was assisted by a 33% decrease in provisions.
Revenues declined 7% with the Global Markets business tracking down on the above trend
performance of second half 2009. Expenses declined 4%.

2

MEDIA RELEASE (continued)

There has been an uptick in mortgage and business banking arrears over the half however both
remain manageable. Consistent with this stage in the cycle some stress is evident in the small
business book.
Asia Pacific, Europe & America (APEA) (all figures reflect USD)
Following profit growth averaging 59% in the past two years, 2010 will be a lower growth year for
the APEA business as it completes the integration of the businesses acquired from the Royal Bank of
Scotland (RBS). Strong contributions from Partnerships and Institutional drove a 19% HOH increasein profit; however a higher AUD/USD exchange rate saw profit up 8% when expressed in Australian
dollars.
While the Institutional profit contribution was up 20% half on half, it declined 14% PCP following an
unusually strong performance in Global Markets in first half 2009 during which volatility andwidening credit spreads produced particularly high revenues. In line with our customer focusedstrategy an increasing level of business flow is now being generated from sales creating a moresustainable performance.
Strong momentum in customer deposit growth continued up 39% with lending more subdued, up
6%, as corporates focused on paying down debt. The provision charge reduced by 24%, an outcomeof the improved economic environment.
There has been significant progress in the region during the half with the integration of the RBS
acquisitions on track for full completion in June and recent regulatory approvals for a bank license in
India and preparatory approval for local incorporation in China.
New Zealand (all figures reflect NZD)The New Zealand economy is stabilising and business conditions are slowly beginning to improve,albeit growth remains subdued. The provision charge reduced substantially, down $268 million,
driving a significant profit increase off a low base in the preceding half. Excluding the contribution
from the now consolidated INGNZ, income and balance sheet growth were flat. Tight cost control
was a feature with costs down 5% (excluding INGNZ).
Margins have improved, up 6bps, as higher funding costs continue to be recovered through therollover of the fixed rate lending book. This was offset by the impact of the removal or reduction of
29 fees across our two retail banks, saving customers an estimated $55 million on an annualised
basis.
Deposit and asset growth trends were broadly steady, with the outlook for asset growth during theyear remaining weak, as continued de-leveraging by customers and businesses offsets new lending.
Credit quality has begun to show signs of improvement in Retail, however some uncertainty remains
around the Rural and Commercial sectors and more time is required for the full credit impacts of thedownturn to work through. Cycle and concentration risk adjustments have been carried forward toreflect this expectation.
INSTITUTIONAL (all figures FX adjusted)
Institutional profit after tax grew 22% with a 37% lower provision charge. Total income declined
2%, while income excluding Global Markets grew 10% reflecting good deposit growth, particularly in
Asia, revenue growth of 11% in Trade and Supply Chain driven by strong customer acquisition, andthe benefit of repricing the loan book for credit risk. Expenses were flat on the prior half.
Global Markets revenue declined 15% during the half, a function of reduced market volatility leading
to lower customer hedging activity and reduced trading opportunities. Revenues were evenly split
between sales and trading. Capital Markets’ revenue was up 12% and ANZ is now raising more debt
capital for Australian borrowers in the Asian region than any other bank. Looking through thevolatility driven spike in revenues in 2009, the compound annual growth rate for Global Markets’
revenue over the past two years has been circa 30%.

3

MEDIA RELEASE (continued)

Average net lending assets were down 8%; however, asset declines have moderated following thelarge decreases in 2009. While the market will retain a cautious tone in the short term, we expect tosee asset growth in the second half. The business is making good progress with its turn around,with an increasing focus on sustainable income streams such as cash management and trade.
CREDIT ENVIRONMENT
While the credit environment has improved over the past year the impact of the financial crisis andthe difficulties associated with the global economic downturn are still evident in the corporate, ruraland small business markets in Australia and New Zealand. ANZ believes it is prudent to take acautious approach to its credit provision outlook.
While total impaired assets grew during the half the amount of new impaired assets fell 13%. The
make up of the new impaired assets is more broadly spread, largely driven by the lower end of
Institutional and the middle market and better secured. ANZ expects the absolute level of impairedloans to continue to increase, albeit at a slower rate, into 2011, however the growth in new
impaireds should continue to fall.
The provision charge is declining consistent with the movement in new impaired loans with both theindividual and collective provision charges decreasing.
Loss rates have improved across all categories. While there has been a reduction in the number oflarge single name defaults as the economic environment improves, stress has continued to work its
way through the system and ANZ has therefore retained a substantial portion of collective provisionbalance for economic overlay and concentration risk.
The coverage ratios remain strong with the total provision ratio at over 2.1% of CRWA and thecollective provision ratio steady at 1.38% of CRWA.
CAPITAL AND FUNDING
Tier One capital at the end of March was 10.7%5 with a Core Tier One ratio of 8.5%. Prime liquidity
levels at $63 billion remain strong with the Group having raised around 70% of its 2010 wholesalefunding requirements.
Deposit growth has moderated after the significant growth in the past 18 months however deposit
costs have continued to increase particularly in Australia. The proportion of funding originating from
customer funds is 56%.
NON-CORE ITEMS
ANZ provides underlying profit figures which adjust statutory profit for non-core items. The Group
believes that separating out non-core items helps with the analysis of the underlying businesstrends.
There was a net $373 million in non-core items in the first half. The key adjustment of $322 million
related to acquisition costs and valuation adjustments. This includes an adjustment, required under
newly revised accounting rules, to the carrying value of ANZ’s existing 49% holding in the ING joint
venture of $181 million, based on the fair value of the 51% acquired.
There was $95 million after tax of acquisition transaction and integration costs related to the ING,
Landmark and RBS transactions and a small amount for the amortisation of acquisition related
intangibles.
The credit valuation adjustment (CVA) related to the Group’s Credit Intermediation Trades reduced
by a further $51 million during the half and has now cumulatively reduced by $646 million over thelast 12 months. A period of credit market recovery at the beginning of this calendar year was used
to exit some of the exposures such that the notional exposure has reduced by around 25%.

510.7% reported. Proforma 10.4% including balance of RBS transaction.

4

MEDIA RELEASE (continued)

OUTLOOK“Clearly with the magnitude of issues in the US and Europe, we are going to see lower economic
growth around the world compared to the decade prior to the financial crisis. In Australia, growth is
now expected to be over 3% in 2010 while in New Zealand we expect growth of almost 2% after the
economy contracted in 2009.
“Asia will remain the world’s best performing region with annual economic growth of almost 8%(excluding Japan) which highlights the significance of our super regional strategy”, Mr Smith said.
For media enquiries contact:
Paul Edwards
Group GM, Corporate Communications
Tel: +61 (3) 8654 9999 or +61 (0)434 070 101
Email: Paul.Edwards@anz.com

Stephen Ries
Senior Manager, Media Relations
Tel: +61 (3) 8654 3659 or +61 (0)401 561 480
Email: Stephen.Ries@anz.com

For investor and analyst enquiries contact:
Jill Craig
Group GM, Investor Relations
Tel: +61 (3) 8654 7749 or +61 (0)412 047 448
Email: Jill.Craig@anz.com

Cameron DavisManager, Investor Relations
Tel: +61 (3) 8654 7716 or +61 (0)421 613 819
Email: Cameron.Davis@anz.com

ANZ Profit and Loss Statement by Division
Half
year
Mar 10
$M

Half
year
Sep 09
$M

Half
year
Mar 09$M

Movt
Mar 10v. Sep 09%

Movt
Mar 10v. Mar 09%

1,269

Asia Pacific, Europe & America

305

1,090

954

16%

33%

297

419

3%

-27%

Institutional

818

687

732

19%

12%

New Zealand Businesses

171

50

265

large

-35%

Profit after tax by business unit
Australia

Group Centre

(78)

(92)

(168)

-15%

-54%

less: Institutional Asia Pacific, Europe & America

(187)

(168)

(294)

11%

-36%

Underlying profit

2,298

1,864

1,908

23%

20%

Adjustments between statutory profit and underlying profit

(373)

(338)

(491)

10%

-24%

Profit attributable to shareholders of the Company

1,925

1,526

1,417

26%

36%

Underlying profit excluding a cquisi tions
1,212

1,090

95 4

11%

27%

Asia Pacific, Eu rope & Am erica

306

297

41 9

3%

-27%

Institutional

818

687

73 2

19%

12%

New Zealand Businesses

163

50

26 5

large

-38%

Group Centre

(57)

(92)

(16 8)-38%-66%

less: Institutional Asia Pacific, Europe & America

(187)

(168)

(29 4)

11%-36%

Underlying profit

2,255

1,864

1,90 8

21%

18%

33%

Australia

Underlying profit excluding e xcha nge ra te moveme nts
1,269

1,090

95 4

16%

Asia Pacific, Eu rope & Am erica

305

258

31 1

18%

-2%

Institutional

818

671

66 0

22%

24%

New Zealand Businesses

171

53

25 3

large

-32%

Group Centre

(78)

(103)

(16 1)-24%-52%

less: Institutional Asia Pacific, Europe & America

(187)

(153)

(23 1)

22%-19%

Underlying profit

2,298

1,816

1,78 627%

29%

Australia

5This page has been left blank intentionally6

FINANCIAL HIGHLIGHTS

ProfitHalf
yea r
Mar 10$M
Net interest income
Other operatin g income

1

Half
yea r
Sep 09
$M

Mov t
Movt
Ha lf
Ma r 10
Ma r 10yea r
Ma r 09 v. Se p 09 v. Ma r 09
%
%
$M

5,188

4,986

4,822

4%

8%

2,029

2,057

1,745

-1%

16%
10%

Operating income

7,217

7,043

6,567

2%

Operating expenses(3,382 )(3,135)( 3,090)8%9%Profit before credit impairmen t and income tax

3,835

3,908

3,477

-2%

10%

Provision for credit impairment2(1,082 )(1,632)( 1,373)

-34%

-21%

Profit before income tax

2,753

2,276

2,104

21%

31%

Income tax expense(826 )

(752)

(683)

10%

21%

(2 )

2

(4)

large

-50%

1,925

1,526

1,417

26%

36%

Non -controlling interests
Profit att ributable to sha rehol de rs of the Company
1.

Includes share of joint venture and associates profit and funds management and insurance income.

2.

Includes impairment expense on available-for-sale assets of $20 million (Sep 2009 half: $nil; March 2009 half: $20 million)

Underlying profit
Profit has been adjusted to exclude non-core items to arrive at underlying profit, the result for the ongoing business activitiesof the Group. These adjustments have been determined on a consistent basis with those made in prior periods. Refer pages
13 to 15 for further details regarding the definition of Underlying profit and an explanation of adjustments. Throughout thisdocument figures and ratios that are calculated on an ‘underlying’ basis have been shaded to distinguish them from figures
calculated on a statutory basis.

Statutory profit attributable to shareholders of the Company

Half
yea r
Mar 10
$M

Half
yea r
Sep 09
$M

Ha lf
Movt
Mov t
yea r
Ma r 10
Ma r 10
Ma r 09 v. Se p 09 v. Ma r 09
$M
%
%

1,925

1,526

1,417

26%

36%

Adjust for t he fol low ing ga ins/(l osses) i ncluded in
st atutory profit (net of t ax)
Acquisition costs and valuation adj ustments(322 )

-

-

n/ a

n/a

Treasury shares adjustment

(52 )

-

-

n/ a

n/a

Tax on New Zealan d conduits

38

(196)

-

large

n/a

(138 )

(709)

461

-81%

large

23

2

19

large

21%

-

(4)

(96)

-100%

-100%

25

(24)

(97)

large

large

Credit intermediation trades

51

595

(664)

-91%

large

Oth er

2

(2)

(114)

large

large

2,298

1,864

1,908

23%

20%

Economic hedging - fair value gains/(losses)
Revenue and n et investment hedges
Organisational transformation costs (incl. One ANZ restructuring)
ANZ share of ING NZ investor settlement
Non continuing businesses

Underlyi ng profit

Underlying profit by key line item
Net interest income

5,191

4,988

4,822

4%

8%

Other operatin g income 1

2,376

2,339

2,218

2%

7%

Operating income

7,567

7,327

7,040

3%

7%

Operating expenses(3,249 )(3,124)( 2,944)

4%

10%

Profit before credit impairmen t and income tax

4,318

4,203

4,096

3%

5%

Provision for credit impairment1(1,098 )(1,621)( 1,435)

-32%

-23%

Profit before income tax

3,220

2,582

2,661

25%

21%

Income tax expense(920 )

(720)

(749)

28%

23%

Non -controlling interests
Profit att ributable to sha rehol de rs of the Company

(2 )

2

(4)

large

-50%

2,298

1,864

1,908

23%

20%

1.

Credit valuation adjustments on defaulted or impaired exposures of $17 million are reclassified as provision for credit impairment (Sep 2009 half: $10 million
reversal; Mar 2009 half: $92 million)

2.

Includes impairment expense on available-for-sale assets of $20 million (Sep 2009 half: $nil; March 2009 half: $20 million)

7

FINANCIAL HIGHLIGHTS (continued)

Underlying profit excluding impact of acquisitions and exchange rate movements
The following table represents underlying profit for the Group, excluding the impact of acquisitions and the impact of
exchange rate movements (refer page 16 for further detail):

Underlyi ng profit excluding a cquisi tions a nd e xchange
rate move ments

Half
yea r
Mar 10
$M

Half
yea r
Sep 09
$M

Ha lf
Movt
Mov t
yea r
Ma r 10
Ma r 10
Ma r 09 v. Se p 09 v. Ma r 09
$M%%

Net interest income

5,174

4,940

4,649

5%

Other operatin g income

2,188

2,266

2,079

-3%

5%

Operating income

7,362

7,206

6,728

2%

9%

Operating expenses(3,110 )(3,081)( 2,815)

1%

10%

Profit before credit impairmen t and income tax

4,252

4,125

3,913

3%

9%

Provision for credit impairment(1,098 )(1,594)( 1,396)

-31%

-21%

Profit before income tax

3,154

2,531

2,517

25%

25%

Income tax expense(897 )

(717)

(727)

25%

23%

Non -controlling interests

11%

(2 )

2

(4)

large

-54%

2,255

1,816

1,786

24%

26%

Half
yea r
Mar 10Half
yea r
Sep 09

Ha lf
Mo vt
Mov t
yea r
Ma r 10
Ma r 10
Ma r 09 v. Se p 09 v. Ma r 09
%
%

Basic

76.8

64.8

66.3

19%

16%

Dilu ted

75.4

63.8

63.4

18%

19%

Underlying 1

91.3

79.2

89.7

15%

2%

2,533.5

2,504.5

2 ,158.1

1%

17%

Underlyi ng profit

Earnings per shareEa rnings per ordinary sha re (cents)

Number of fully paid ordinary shares on issue (M)Weighted average number of ordin ary shares ( M)

2,499.8

2,341.8

2 ,100.7

7%

19%

2

Weighted average number of ordin ary shares - underlying (M)2,511.0

2,341.8

2 ,100.77%20%Adjusted weighted average number of shares - diluted ( M)2,640.5

2,467.2

2 ,315.4

7%

14%

1.

Underlying Basic reflects adjustments between statutory profit and underlying profit. Refer pages 13 to 15 for an explanation of the adjustments

2.

Includes Treasury shares held in INGA

Condensed balance sheet
As at
Mar 10

As at
Sep 09$M$M

22,62625,317

Mov t
Movt
Ma r 10
Ma r 10v. Se p 09 v. Ma r 09
%
%
$M

As at
Ma r 09

Asse ts
Liquid assets

26,743

-11%

-15%
29%

Due from other financial institutions

6,894

4,985

5,354

38%

Trading and available-for-sale assets

51,05147,56637,4947%36%

Derivative financial instru ments

27,63037,40457,445-26%-52%

Net loans and advances including acceptances

347,862

345,769

356,800

1%-3%

Investments relating to insurance bu siness

32,054

-

-

n/ a

n/a

Other

18,591

15,946

18,96217%-2%

Total asse ts

506,708

476,987502,798

6%

1%

16,06819,924

18,314-19%-12%

Customer deposits

238,212233,141

226,444

2%

5%

Other deposits and other borrowings

63,54561,22967,1544%-5%

Deposits and other borrowings

301,757

294,370

293,5983%

3%

Derivative financial instru ments

27,28936,51649,439-25%-45%

Liability for acceptances

12,51013,76215,017-9%-17%

Bonds and notes

58,39057,26073,1382%-20%

Insurance policy liabilities

28,332

-

-

n/ a

n/a

Other

29,77922,72624,92531%

19%

Total li abili tie s

474,125444,558

474,4317%0%

Total equity

32,58332,42928,3670%

15%

Lia bi lit ies
Due to other financial institutions

8

FINANCIAL HIGHLIGHTS (continued)

Financial ratios
Half
yea r
Mar 10
$M

Ha lf
year
Se p 09
$M

Hal f
ye ar
Ma r 09
$M

1,925

1,526

1,417

2,298

1,864

1,908

Profit att ributable to sha rehol de rs of the Company
1

Underlyi ng profi t
Profita bi lit y rati os
Return on :Average ordinary shareholders' equity2

12.2%

10.3%

10.4%

Average ordinary shareholders' equity ( underlying profit basis)

14.7%

12.5%

14.1%

Average assets

0.7 6%

0.63%

0.54%

Average assets (underlying 1 profit basis)

0.9 1%

0.76%

0.73%

Total income

13.4%

11.2%

8.5%

Net interest margin

2.4 3%

2.37%

2.22%

2

1

Net interest margin (excluding Global Markets)

2.6 8%

2.53%

2.36%

Underlying profit per average FTE ($ )57,408

4 8,710

51,584

Effi cie ncy rati os
Operating expenses to operating income

46.8%

44.5%

47.0%

Operating expenses to average assets

1.3 4%

1.29%

1.18%

Operating expenses to operating income (underlyin g1)

42.9%

42.6%

41.8%

Operating expenses to average assets (u nderlying1)

1.2 9%

1.28%

1.12%

Cre di t impa irme nt provisi oning
Collective provision charge

36

331

(96)

In dividual provision charge

1,046

1,301

1,469

Total provision charge

1,082

1,632

1,373

In dividual provision charge3 as a % of average net advances

0.6 1%

0.75%

0.81%

0.6 3%

0.94%

0.76%

3

Total provision charge as a % of average net advances
Underlying collective provision charge

36

338

(96)

Underlying individual provision charge4

1,062

1,283

1,531

Total underlying provision charge

1,098

1,621

1,435

In dividual provision charge3 as a % of average net advances

0.6 2%

0.74%

0.85%

0.6 4%

0.93%

0.79%

(64)

(759)

812

In terim - 100% franked (Mar 2009: 100% franked)

52

n/ a

46

Final - 100% franked (Sep 2009: 100% franked)

n/a

56

n/a

68.7%

92.5%

71.3%

57.5%

75.6%

52.7%

6

9

24

3

Total provision charge as a % of average net advances
Credit risk on derivatives - credit intermediation trade related ( gain) / loss
Ordinary share divi de nds (ce nt s)

Ordinary share dividend payout ratio 515Underlying ordinary share dividend payout ratio
Preference share dividend ($M)
Dividend paid 6
1.

Adjusted to reflect result for the ongoing business activities of the Group. Refer pages 13 to 15 for explanation of adjustments

2.

Average ordinary shareholders’ equity excludes non-controlling interests and preference share dividend

3.

For the purposes of this ratio the individual provision charge excludes impairment expense on available-for-sale assets

4.

Includes credit valuation adjustments on defaulted or impaired exposures of $17 million (Sep 2009 half: $10 million reversal; Mar 2009 half: $92 million)
impairment expense on available-for-sale assets of $20 million (Sep 2009 half: $nil; Mar 2009 half: $20 million) and excludes non continuing businesses of$1 million (Sep 2009 half: $8 million; Mar 2009 half: $30 million)

5.

Dividend payout ratio is calculated using the 31 March 2009 interim, 30 September 2009 final and the proposed 31 March 2010 interim dividend

6.

Represents dividends paid on Euro Trust Securities issued on 13 December 2004

9

FINANCIAL HIGHLIGHTS (continued)

Financial ratios, cont’d
Movt
Movt
Ma r 10
Ma r 10v. Se p 09 v. Ma r 09
%
%

As at
Mar 10

As at
Sep 09A s atMar 09

9.99

11.02

10.94

-9%

Net Asset s
1

Net tangible assets per ordinary share ($)
1-9%

Net tangible assets attribu table to ordinary sh areholders ($M)

25,317

27,597

23,608-8%

7%

Total number of ordinary shares (M)2,533.5

2 ,504.5

2,158.1

1%

17%

Tier 1

10.7%

10.6%

8.2 %

Tier 2

2.3%

3.1%

2.8 %
-1%

-11%

Capita l a de quacy ratio ( %)Total capital ratio
Risk weighted assets ($ M)

13.0%

13.7%

11.0 %

248,961

252,069

280,882

Impai red a ssets
Collective provision ($M)

3,037

3,000

2,742

1%

11%

Collective provision as a % of credit risk weighted assets

1.38%

1.32%

1.06 %

5%n/ aGross im paired loans2 ($M)

5,330

4,392

3,691

21%

44%

Individual provisions on impaired loans 2 ( $M)(1,560)(1,512)( 1,332)

3%

17%

Net impaired loans ($M)

3,770

2,880

2,359

31%

60%

638

516

441

24%

45%

Net impaired commitments and contingencies ($M)3
Restructured items 4

560

673

17

-17%

large

Individual provision as a % of gross impaired loans 2

29.3%

34.4%

36.1 %-15%-19%

Gross im paired loans as % of net advances2

1.53%

1.27%

1.03 %

20%

49%

Net impaired loans as a % of net advances2

1.08%

0.83%

0.66 %

30%

64%

13.6%

10.5%

9.9 %

29%

37%

41,85537,68737,046

11%

13%

12.1

12.7

13.6

-5%

-11%

64,25061,08533,9905%89%

Net impaired loans, commitments and contingencies
as a % of shareholders' equity 5
Other informat ion
Full time equ ivalent staff (FTE)
Assets per FTE ($M)
Market capitalisation of ordinary shares ($M)61.

Equals shareholders’ equity less preference share capital, non-controlling interests, unamortised goodwill and other intangibles

2.

Excludes impaired commitments and contingencies

3.

Net of individual provisions of $33 million (Sep 2009: $14 million; Mar 2009: $9 million)

4.

Restructured items are facilities in which the original contractual terms have been modified to provide for concessions of interest, or principal, or other paymentsdue, or for an extension in maturity for a non-commercial period for reasons related to the financial difficulties of a customer, and are not considered impaired.
Includes both on and off balance sheet exposures

5.

Includes non-controlling interests

6.

As at period end

10FINANCIAL HIGHLIGHTS (continued)

Segment analysis
ANZ is managed principally along the geographic regions of Australia, New Zealand and Asia Pacific, Europe & America, andits global institutional client business. Within the divisional structure, Institutional Asia Pacific, Europe & America is included
in both Institutional and Asia Pacific, Europe & America divisions, consistent with how this business is internally managed.
Prior period results are consistently reported to ensure comparability.
Segment view (refer pages 43 to 70)

Profit afte r tax by re gion

Half
yea r
Mar 10
$M

Half
yea r
Sep 09
$M

Ha lf
Movt
Mov t
yea r
Ma r 10
Ma r 10
Ma r 09 v. Se p 09 v. Ma r 09
$M%%

Australia

1,694

1,476

1,084

15%

56%

308

285

414

8%

-26%
-28%

Asia Pacific, Eu rope & Am erica

296

103

410

large

Underlying profit

2,298

1,864

1,908

23%

20%

Adjustments between statutory profit and underlyin g profit 1(373 )

(338)

(491)

10%

-24%

Profit att ributable to sha rehol de rs of the Company

1,925

1,526

1,417

26%

36%

51%

New Zealand

Ex cl uding acquisiti ons and excha nge ra te moveme nt s
1,659

1,465

1,098

13%

Asia Pacific, Eu rope & Am erica

309

245

299

26%

3%

New Zealand

287

106

389

large

-26%

2,255

1,816

1,786

24%

26%

3,179

3,093

2,635

3%

21%

463

477

638

-3%

-27%
-18%

Australia

Underlying profit excl. acquisitions and exchange rate movements

Profit be fore cre di t i mpa irme nt and income tax by region
Australia
Asia Pacific, Eu rope & Am erica
New ZealandUnderlying profit before credit impairment an d income tax
Adjustments between statutory profit and underlyin g profit

1

Profit be fore cre di t i mpa irme nt and income tax

676

633

823

7%

4,318

4,203

4,096

3%

5%

(483 )

(295)

(619)

64%

-22%

3,835

3,908

3,477

-2%

10%

17%

Ex cl uding acquisiti ons and excha nge ra te moveme nt s
3,118

3,078

2,660

1%

Asia Pacific, Eu rope & Am erica

464

419

470

11%

-1%

New Zealand

670

628

783

7%

-14%

4,252

4,125

3,913

3%

9%

As at
Mar 10

As at
Sep 09As at
Mar 09Australia

Underlying profit before credit impairment an d income tax
excl. acquisitions and exchange rate movemen ts
1.

Refer pages 13 to 15 for explanation of adjustments

Net loans and advances including
acceptances by region
Australia
Asia Pacific, Europe & America
New Zealand
Net loans and advances including acceptances

Custome r de posits by re gion
Australia
Asia Pacific, Eu rope & Am erica
New ZealandCustome r de posits

11

Movt
Movt
Mar 10Mar 10v. Sep 09 v. Mar 09
$M
%
%

$M

$M

254,311247,210

252,600

3%

1%

19,362

18,952

22,5832%-14%

74,18979,607

81,617-7%-9%347,862

345,769

356,800

1%

-3%

As at
Mar 10

As at
Sep 09As at
Ma r 09Movt
Mov t
Ma r 10
Ma r 10v. Se p 09 v. Ma r 09
$M
%
%

$M

$M

151,438

153,481

147,464-1%

3%40,83530,487

29,62734%

38%

45,99749,17349,353-6%-7%

238,212233,141

226,444

2%

5%

FINANCIAL HIGHLIGHTS (continued)

Segment analysis, cont’d
Divisional view

Profit afte r tax by business unit

Half
yea r
Mar 10
$M

Half
yea r
Sep 09
$M

Ha lf
Movt
Mov t
yea r
Ma r 10
Ma r 10
Ma r 09 v. Se p 09 v. Ma r 09
$M%%

Australia

1,269

1,090

954

Asia Pacific, Eu rope & Am erica

305

297

Institutional

818

687

New Zealand Businesses

171

16%

33%

419

3%

-27%

732

19%

12%

50

265

large

-35%

Group Centre

(78 )

(92)

(168)

-15%

-54%

less: Institutional Asia Pacific, Europe & America(187 )

(168)

(294)

11%

-36%

Underlying profit

2,298

1,864

1,908

23%

20%

(373 )

(338)

(491)

10%

-24%

1,925

1,526

1,417

26%

36%

27%

Adjustments between statutory profit and underlyin g profit

1

Profit att ributable to sha rehol de rs of the Company
Ex cl uding acquisiti ons and excha nge ra te moveme nt s

1,212

1,090

954

11%

Asia Pacific, Eu rope & Am erica

306

258

311

19%

-2%

Institutional

818

671

660

22%

24%

New Zealand Businesses

163

53

253

large

-36%

Group Centre

(57 )

(103)

(161)

-44%

-65%

less: Institutional Asia Pacific, Europe & America(187 )

(153)

(231)

22%

-19%

Underlying profit excl. acquisitions and exchange rate movements

2,255

1,816

1,786

24%

26%

2,137

1,978

1,801

8%

19%

470

484

652

-3%

-28%

1,574

1,640

1,759

-4%

-11%

514

496

580

4%

-11%

Group Centre

(61 )

(108)

(206)

-44%

-70%

less: Institutional Asia Pacific, Europe & America(316 )

(287)

(490)

10%

-36%

Underlying profit before credit impairment an d income tax

4,318

4,203

4,096

3%

5%

Adjustments between statutory profit and underlyin g profit 1(483 )

(295)

(619)

64%

-22%

Profit be fore cre di t i mpa irme nt and income tax

3,835

3,908

3,477

-2%

10%

2,045

1,978

1,801

3%

14%

471

429

495

10%

-5%

1,574

1,615

1,642

-3%

-4%

508

492

553

3%

-8%

Group Centre

(30 )

(125)

(190)

-76%

-84%

less: Institutional Asia Pacific, Europe & America
Underlying profit before credit impairment an d income tax
excl. acquisitions and exchange rate movemen ts(316 )

(264)

(388)

20%

-18%

4,252

4,125

3,913

3%

9%

Australia

Profit be fore cre di t i mpa irme nt and income tax by business unit
Australia
Asia Pacific, Eu rope & Am erica
Institutional
New Zealand Businesses

Ex cl uding acquisiti ons and excha nge ra te moveme nt s
Australia
Asia Pacific, Eu rope & Am erica
Institutional
New Zealand Businesses

1.

Refer pages 13 to 15 for explanation of adjustments

12

CHIEF FINANCIAL OFFICER’S REVIEW

Review of Group Results
ANZ recorded a profit after tax of $1,925 million for the half year ended 31 March 2010, an increase of $399 million (26%)
compared to the half year ended 30 September 2009. Earnings per ordinary share increased 19% to 76.8 cents reflecting
the increased statutory profit partially offset by the dilutionary impact of an increase in the weighted average number ofordinary shares from equity raisings. Compared to the March 2009 half, March 2010 half year profit increased $508 million
or 36% and earnings per share increased 16%.
Underlying profit

This result includes a number of significant and non-recurring items which sit outside the ongoing business activities of theGroup. Statutory profit has been adjusted to assist readers to understand the Group’s underlying performance.
Half
yea r
Mar 10
$M

Half
yea r
Sep 09
$M

Ha lf
Movt
Mov t
yea r
Ma r 10
Ma r 10
Ma r 09 v. Se p 09 v. Ma r 09
$M
%
%

1,925

1,526

1,417

26%

36%

Acquisition costs and valuation adj ustments(322 )

-

-

n/ a

n/a

Treasury shares adjustment

(52 )

-

-

n/ a

n/a

Tax on New Z ealan d conduits

38

(196)

-

large

n/a

(138 )

(709)

461

-81%

large

23

2

19

large

21%

-

(4)

(96)

-100%

-100%

25

(24)

(97)

large

large

Credit intermediation trades

51

595

(664)

-91%

large

Oth er

2

(2)

(114)

large

large

2,298

1,864

1,908

23%

20%

Statutory profit attributable to shareholders of the Company
Adjust for t he fol low ing ga ins/(l osses) i ncluded in
st atutory profit (net of t ax)

Economic hedging - fair value gains/(losses)
Revenue and n et investment hedges
Organisational transformation costs (incl. One ANZ restructuring)
ANZ share of ING NZ investor settlement
Non continuing businesses

Underlyi ng profit

Refer pages 110 to 111 within Supplementary Information for a detailed reconciliation of statutory profit to underlying profit.
Explanation of adjustments between statutory profit and underlying profit•

Acquisition costs and valuation adjustments
Acquisition costs include: an ING step acquisition valuation adjustment of $181 million (nil tax impact) following therecalculation of the fair value of the Group’s pre-existing 49% interest on acquisition date under the provisions of
AASB 3R Business Combinations (Revised); an adjustment to write-off $32 million (nil tax impact) relating to previous
equity accounted debit available-for-sale reserves; integration and transaction costs of $106 million ($95 million after tax)
relating to the acquisition of ING Australia and ING New Zealand, businesses of The Royal Bank of Scotland and theLandmark Financial Services business; and amortisation of acquisition related intangibles of $20 million ($14 million after
tax).

•

Treasury shares adjustment
ANZ shares held by ANZ in the consolidated managed funds and life business are deemed to be Treasury shares andrealised and unrealised gains and losses from these shares are reversed as these are not permitted to be recognised inincome. In deriving underlying profit, these earnings are included to ensure there is no asymmetrical impact on theGroup’s profits because the Treasury shares support policyholder liabilities which are revalued in deriving income,accordingly, an adjustment to statutory profit of $57 million ($52 million after tax) has been recognised.

•

Tax on New Zealand Conduits
The New Zealand Inland Revenue Department (IRD) had disputed the treatment of a number of structured financetransactions as part of an audit of the 2000 to 2005 tax years. During the September 2009 half year, a provision of$196 million (NZD240 million) was recognised net of indemnities provided by Lloyds Banking Group plc. On 23 December
2009, the Group reached a settlement with the IRD in respect of six of the seven transactions in dispute and settlement
was reached on the residual transaction on 23 March 2010, therefore enabling the release of $38 million in tax provisions.

13

CHIEF FINANCIAL OFFICER’S REVIEW (CONTINUED)

Explanation of adjustments between statutory profit and underlying profit, cont’d•Economic hedging – fair value gains/(losses) and mark-to-market adjustments on revenue and net investment hedges
The Group enters into economic hedges to manage its interest rate and foreign exchange risk. The application of
AASB 139: Financial Instruments – Recognition and Measurement results in volatility within the Income Statement inrelation to economic hedges as follows:−

approved classes of derivatives not designated in accounting hedge relationships but that are considered to beeconomic hedges, including hedges of NZD and USD revenue−

income/(loss) arising from the use of the fair value option (principally arising from the valuation of the ‘own name’
credit spread on debt issues designated at fair value), and−ineffectiveness from designated accounting cash flow, fair value and net investment hedges.

ANZ separately reports the impact of volatility due to economic hedging as an adjustment to statutory profit, as the profit
or loss resulting from the transactions outlined above will reverse over time to be matched with the profit or loss from theeconomically hedged item as part of underlying profit.
Funding swaps hedged by derivatives are foreign exchange rate swaps which are being used to convert the proceeds offoreign currency debt issuances into floating rate Australian Dollar and New Zealand Dollar debt (‘funding swaps’). As
these swaps do not qualify for hedge accounting movements in the fair values are recorded in the Income Statement.
The main drivers of these fair values are currency basis spreads and the Australian Dollar and New Zealand Dollar
fluctuation against other major funding currencies. Over the past six months basis spreads have remained volatile,
although not to the levels experienced in the first and second half of 2009. The mark-to-market loss seen in the first half2010 of $159 million has largely arisen from a narrowing of basis spreads and a general appreciation of AUD against USD.
On a life to date basis, the cumulative unrealised loss on the hedges was $167 million (pre-tax) as at 31 March 2010.
Volatility arising from the use of the fair value option on own debt hedged by derivatives, has seen a mark-to-market lossof $14 million for the March 2010 half. This has been driven by a narrowing of credit spreads since September 2009,
although they remain significantly less volatile from those witnessed for much of 2009. On a life to date basis the
cumulative unrealised loss on these contracts was $31 million (pre-tax) as at 31 March 2010.
The loss arising from the ineffective portion of cash flow and fair value hedges in the first half March 2010 of $19 million(Sept 2009 half: $58 million loss; Mar 2009 half: $21 million loss) largely relates to the valuation of floating legs ofswaps.
Impact on income statement

Half year
Mar 10$M

Timing differences where IFRS results in asymmetry between thehedge and hedged items

Half year
Mar 09$M

Funding swaps hedged by derivatives(159 )(426 )

377

Use of the fair value option on own debt hedged by derivatives(14 )(529 )

299

Revenue and net investment hedges

33

3

27

(19 )

(58 )

( 21 )

Profit before tax(159 )(1,010 )682

Profit after tax(115 )(707 )480

As at
Mar 10$M

As at
Sep 09$M

As at
Mar 09$M

As at
Sep 08$M

Funding swaps hedged by derivatives(167 )

(8)

418

41

Use of the fair value option on own debt hedged by derivatives(31 )( 17 )

512

213

Revenue and net investment hedges

45

12

9

( 18 )

2

21

79

100

(151 )

8

1,018

336

Ineffective portion of cash flow and fair value hedges

Cumulative pre-tax timing differences
relating to economic hedging
Timing differences where IFRS results in asymmetry between thehedge and hedged items

Ineffective portion of cash flow and fair value hedges•

Half year
Sep 09$M

Organisational transformation initiatives (including One ANZ restructuring costs)
ANZ commenced an organisational transformation program in 2008, including process re-engineering and transitioning
roles to Bangalore. In 2008 costs of $218 million ($152 million after tax) were incurred and a further $24 million ($17
million after tax) were incurred in the March 2009 half year relating to the projects, including project team costs andassociated travel. In addition, on 9 September 2008, ANZ announced a new business model and organisation structure toaccelerate progress with its strategy to become a super regional bank, lift customer focus and drive performance
improvement. As a result, restructuring costs of $5 million ($4 million after tax) were incurred in the September 2009
half and $113 million ($79 million after tax) were incurred in the March 2009 half.

14

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Explanation of adjustments between statutory profit and underlying profit, cont’d•

ANZ share of ING NZ investor settlement (refer Note 15. Contingent liabilities and contingent assets)
Trading in the ING Diversified Yield Fund and the ING Regular Income Fund ("the Funds") was suspended on 13 March
2008 due to deterioration in the liquidity and credit markets. These funds are managed by ING (NZ) Limited of which
ANZ moved to full ownership in November 2009. Some of these funds were sold to ANZ National Bank customers. On
5 June 2009, ING (NZ) Limited made an offer to investors in the Funds. The offer closed on 13 July 2009. Investors
holding approximately 99% of the funds accepted the offer to receive a payment of 60 cents per unit in the ING
Diversified Yield Fund or 62 cents per unit in the ING Regular Income Fund, either (i) in cash, or (ii) by way of deposit in
an on-call account with ANZ National, paying 8.30% per annum fixed for up to five years.
Acceptance of this offer was conditional on investors waiving all claims. However, ANZ National Bank customers were
offered an additional opportunity, for a limited period of time, to ask the ANZ National Bank customer complaints team(and, where still unsatisfied, the New Zealand Banking Ombudsman) to consider requests for additional compensation.
This estimated cost for the Group included $138 million ($97 million after tax) in the March 2009 half and a further$35 million ($24 million after tax) in the September 2009 half following the take up of the offer. At the time of the moveto full ownership of ING NZ, the value of the DYF/RIF units held by ANZ (49% of the funds were held as an investment inassociates) had increased in value resulting in a gain of $25 million.
Refer page 101 for further detail.

•Credit risk on impaired derivatives (nil profit after tax impact)
Reclassification of a reduction in charge of $17 million from other operating income to provision for credit impairment(Sep 2009 half: $10 million reversal; Mar 2009 half: $92 million) in relation to credit valuation adjustments on defaulted
and impaired derivative exposures.

•

Non Continuing BusinessAs part of the new business model for ANZ established in 2009, Institutional reviewed its existing business portfolio inlight of its new strategic and business goals to determine the optimal structure for the division. As a result, new businessceased in several product areas, including the Alternative Assets and Private Equity businesses. The Group’s structured
credit intermediation trades are also included within non continuing businesses. A summary of the impact of noncontinuing businesses follows:
Half
yea r
Mar 10$M

Non continuing busi ne sses

Ha lf
year
Se p 09
$M

Ha lf
Movt
Movt
year
Ma r 10
Mar 10
Ma r 09 v. Sep 09 v . Mar 09$M%%

Net interest income

1

1

(1)

0%

large

Other operatin g income

72

753

(925)

-90%

large

Operating income

73

754

(926)

-90%

large

Operating expenses

(7)

(6)

(9)

17%

-22%

Profit before credit impairmen t and income tax

66

748

(935)

-91%

large

Provision for credit impairment

(1)

(1)

(30)

0%

-97%

Profit before income tax

65

747

(965)

-91%

large

Income tax expense

(12)

(154)

187

-92%

large

Profit/(Loss)

53

593

(778)

-91%

large

15

CHIEF FINANCIAL OFFICER’S REVIEW (CONTINUED)

Underlying profit
Half
yea r
Mar 10$M
Net interest income
Other operatin g income

1

Half
yea r
Sep 09
$M

Ha lf
Movt
Mov t
yea r
Ma r 10
Ma r 10
Ma r 09 v. Se p 09 v. Ma r 09
$M
%
%

5,191

4,988

4,822

4%

8%

2,376

2,339

2,218

2%

7%

Operating income

7,567

7,327

7,040

3%

7%

Operating expenses(3,249 )(3,124)( 2,944)

4%

10%

Profit before credit impairmen t and income tax

4,318

4,203

4,096

3%

5%

Provision for credit impairment1(1,098 )(1,621)( 1,435)

-32%

-23%

Profit before income tax

3,220

2,582

2,661

25%

21%

Income tax expense(920 )

(720)

(749)

28%

23%

(2 )

2

(4)

large

-50%

2,298

1,864

1,908

23%

20%

Non -controlling interests
Profit att ributable to sha rehol de rs of the Company
1.

Credit valuation adjustments on defaulted or impaired exposures of $17 million is reclassified as provision for credit impairment (Sep 2009 half: $10 million
reversal; Mar 2009 half: $92 million)

Impact of acquisitions
During the March 2010 half, the Group acquired the remaining 51% shareholding in the ANZ-ING joint ventures in Australia
and New Zealand from ING Group taking its ownership interest to 100%, Landmark Financial Services loan and deposit books
from AWB Group and selected Royal Bank of Scotland plc businesses in Philippines, Vietnam and Hong Kong. Further detailsof these acquisitions are included in Note 19 of the Condensed Financial Statements.
The financial impact by acquisition on the March 2010 half is as follows:
ING

La ndmark1

RBS 2

Aust ra lia 3

Ne w

Funding
adjustment

Ze ala nd 3

and other 4

Tota lTotal
ING a cqui sit ions

Net interest income

9

1

4

1

2

7

17

Other operatin g income

0

0

189

31

(32)

188

1 88

Operating income

9

1

193

32

(30)

195

2 05

Operating expenses

(1)

( 2)

(110)

( 26)

-

(136)

(1 39)

8

( 1)

83

6

(30)

59

66

Profit before credit
im pairment
Provision for credit impairment

-

-

-

-

-

-

-

Profit before income tax

8

( 1)

83

6

(30)

59

66

Income tax expense

(2)

-

(33)

3

9

(21)

( 23)

Non -controlling interests

-

-

-

-

-

-

-

Impact of acquisiti ons

6

( 1)

50

9

(21)

38

43

1.

The acquisition of the Landmark loan and deposit books was completed on 1 March 2010. The financial impact for one month is included in the March 2010 half.

2.

The acquisition of the RBS businesses in Philippines was completed on 23 November 2009, Vietnam on 7 December 2009 and Hong Kong on 20 March 2010. The
financial impacts of these acquisitions are effective from these respective dates.

3.

The acquisition impact of ING on the March 2010 half included consolidation of full ownership of ING in Australia and New Zealand since 1 December 2009. Up
until 30 November 2009, and in the March 2009 half and September 2009 half, the Group’s results included the financial impact of 49% ownership in the joint
ventures. When reviewing the Group’s underlying profit excluding the impact of acquisitions, it has been assumed 49% ownership continued for the full six monthsof the March 2010 half.

4.

The impact of ING acquisition includes interest expense from the cost of funding the purchase price of the additional 51% ownership of the ING joint ventures andelimination of interest on inter-company balances.

Impact of exchange rate movements

Presented on the following page is an analysis of the impact of foreign exchange movements on the income statement, net of
earnings from economic revenue hedges put in place to hedge NZD and USD revenue.
Movements in exchange rates have resulted in a $48 million reduction in the movement in underlying profit for the half year,
principally due to losses in translation from Asian Pacific currency earnings and USD earnings net of associated hedges, offset
by gains in translation of NZD earnings net of associated revenue hedges which are booked in Australia as foreign exchangeearnings. NZD earnings were translated at effective exchange rates of 1.2615 (March 2010) and 1.2463 (September 2009half). USD earnings were translated at effective exchange rates of 0.9060 (March 2010) and 0.7957 (September 2009 half).

16

CHIEF FINANCIAL OFFICER’S REVIEW (CONTINUED)

Impact of exchange rate movements1 (cont’d)Half Year Mar 2010v. Half Year Sep 2009
FX
unadjusted% growth

Half Year Mar 2010v. Half Year Mar 2009

FX
FX Impact
adjusted$M% growth

FX
unadjusted% growthFX
FX Impact
adjusted$M% growth

Net interest income
Other operating income

4%
2%

4%
7%

(47)
(74)

8%
7%

11%
16%

(173)
(139)

Operating income
Operating expenses
Profit before credit impairment and income tax

3%
4%
3%

5%
5%
5%

(121)
43
(78)

7%
10%
5%

13%
16%
10%

(312)
129
(183)

Provision for credit impairment
Profit before income tax

-32%
25%

-31%
28%

27
(51)

-23%
21%

-22%
28%

39
(144)

Income tax expense
Non-controlling interests
Underlying profit

28%
large
23%

28%
n/a
27%

3
(48)

23%
-50%
20%

27%
-37%
29%

22
(122)

1.

ANZ has removed the impact of exchange rate movements to provide a better indication of the Group’s performance in local currency terms. Retranslation is netof revenue hedges taken to income in underlying profit, refer page 34

Underlying profit excluding the impact of acquisitions and exchange rate movements

The following table represents the Group’s underlying profit excluding the impact of the acquisitions referred to on theprevious page and the impact of exchange rate movements.

Underlyi ng profit excluding a cquisi tions a nd e xchange
rate move ments

Half
yea r
Mar 10
$M

Half
yea r
Sep 09
$M

Mov t
Movt
Ha lf
Ma r 10
Ma r 10yea r
Ma r 09 v. Se p 09 v. Ma r 09%%
$M

Net interest income

5,174

4,940

4,649

5%

Other operatin g income

2,188

2,266

2,079

-3%

5%

Operating income

7,362

7,206

6,728

2%

9%

Operating expenses(3,110 )(3,081)( 2,815)

1%

10%

Profit before credit impairmen t and income tax

4,252

4,125

3,913

3%

9%

Provision for credit impairment(1,098 )(1,594)( 1,396)

-31%

-21%

Profit before income tax

3,154

2,531

2,517

25%

25%

Income tax expense(897 )

(717)

(727)

25%

23%

(2 )

2

(4)

large

-54%

2,255

1,816

1,786

24%

26%

Non -controlling interests
Underlyi ng profit

11%March 2010 half year compared to September 2009 half year

Underlying profit excluding the impact of acquisitions and exchange rates increased by $442 million (24%) to$2,255 million for the half year ended 31 March 2010.
Net interest income increased 5% with higher margins and growth in average interest earning assets of 2% and anincrease in customer deposits of 2%. Other operating income decreased 3% with lower earnings from Global Markets
following the exceptional results in 2009.
Operating expenses grew 1%. Increased expenses in Australia due to higher personnel, property and other costs offset
by lower costs associated with Group transformation programs and Institutional remuneration costs when compared with
the September 2009 half.
Provision for credit impairment decreased $496 million to $1,098 million as the global economy begins to recover fromhigher levels of bankruptcies, business liquidations and commercial losses and a reduction in the number of large single
name defaults.

17

CHIEF FINANCIAL OFFICER’S REVIEW (continued)
Underlying profit excluding the impact of acquisitions and exchange rate movements (cont’d)March 2010 half year compared to March 2009 half year

Underlying profit increased by $469 million (26%).
Operating income growth of 9% reflecting growth in net interest income following an increase in net interest margin(excluding Global Markets) of 32 basis points reflecting recovery of funding costs and the return to more sustainablepricing for risk, especially for Commercial and Institutional lending and a run-off of low margin assets in corporate andinstitutional partially offset a reduction in Global Markets following the exceptional results in the March 2009 half.
Operating expenses grew 10% with Institutional cost growth up 19% driven by investment in the “Rebuild and Refocus”
program and Australia cost growth up 7% due to increased volume growth, property costs and key projects.
Provision for credit impairment decreased $298 million (21%) primarily in Australia with a reduction in the number oflarge single name defaults.
Pro Forma Comparative review of underlying profit, exchange rate adjusted

To enhance the understanding and comparability of financial information between reporting periods, prior period ‘Pro Forma’comparatives are prepared which assumes the increase in ownership in ING Australia and ING New Zealand from 49% to100% took effect from 1 October 2008, effectively restating the Group’s underlying profit for the September 2009 half andMarch 2009 half. The Landmark and RBS acquisitions have not been included in the Pro Forma given that the impact on the
March 2010 half results is not material. The Pro Forma results below are adjusted to exclude the impact of exchange rate
movements and assumes the acquisition, effective 1 October 2008, was funded by an issue of ordinary share.
Half
year
Mar 10
$M
5,195
2,532

Net interest income
Other operating income

Half
year
Sep 09
$M
4,972
2,561

Movt
Half
Movt
Mar 10Mar 10year
Mar 09 v. Sep 09 v. Mar 09
%
%
$M
4,699
4%
11%
2,341
-1%
8%

Operating income

7,727

7,533

7,040

3%

Operating expenses(3,374)(3,330)(3,081)

1%

9%Profit before credit impairment and income tax
Provision for credit impairment

4,353(1,098)4,203(1,594)

3,959(1,396)

4%
-31%

10%
-21%

Profit before income tax

3,255

2,609

2,563

25%

27%

Income tax expense

(937)

(751)

(749)

25%

25%

Non-controlling interests
Pro Forma underlying profit

18

10%

(2)

2

(4)

large

-50%

2,316

1,860

1,810

25%

28%

CHIEF FINANCIAL OFFICER’S REVIEW (continued)
Income and expenses
Net Interest Income

Half
yea r
Mar 10$M

Group
Net interest income
Average interest earn ing assets
Net interest margin (%)

Half
yea r
Sep 09
$M

Ha lf
Movt
Mov t
yea r
Ma r 10
Ma r 10
Ma r 09 v. Se p 09 v. Ma r 09
$M
%
%

5,188

4,986

4,822

4%

8%

428,418

419,867

435,103

2%

-2%

2.43

2.37

2.22

3%

9%

Group (e xcluding Global Marke ts)
Net interest income
Average interest earn ing assets
Net interest margin (%)



4,758

4,518

4,348

5%

9%

356,041

355,992

369,830

0%

-4%

2.68

2.53

2.36

6%

14%

March 2010 half year compared to September 2009 half year

Net interest income at $5,188 million was 4% ($202 million) higher than the September 2009 half.
VolumeAverage interest earning assets increased $8.6 billion (2%):−

Net advances decreased by $2.1 billion (1%) as a result of movement in exchange rates. Excluding this impact, net
advances increased by $2.5 billion (1%). Australia increased by $0.7 billion, primarily due to increases in Mortgages
driven by strong customer demand for housing loans and market growth partially offset by reductions in Specialised
and Relationship Lending ($3.1 billion) and Markets ($3.2 billion), reflecting corporate capital raisings anddeleveraging as credit markets recovered. New Zealand decreased by $1.8 billion or 2%, however excluding theimpact of exchange rate movements, increased $0.8 billion or 1% primarily from increases in retail and ruralbusinesses. Asia Pacific, Europe & America region decreased by $1.0 billion (5%), however excluding the impact of
exchange rate movements, increased $1.0 billion or 6%, primarily through solid growth in Asia ($2.2 billion) driven
by continuous business expansion in the region, partially offset by reductions in the United Kingdom ($0.9 billion)
and America ($0.3 billion).

−

Other interest earning assets increased by $10.7 billion or 14%. Excluding the impact of exchange rate movements,
growth was $13.8 billion or 19%, due primarily to an increase in trading and available-for-sale assets ($10.5 billion)
and higher liquid assets ($2.3 billion).

Average deposits and other borrowings increased $12.5 billion (4%):−

Customer deposits grew by $4.3 billion (2%). Australia grew by $0.3 billion (0.2%) mainly driven by an increase interm deposits as a result of competitive pricing and customer acquisition. New Zealand decreased by $0.6 billion or
1%, however excluding the impact of exchange rate movements, increased by $1.0 billion or 2%, mainly in the retailbusinesses. Asia Pacific, Europe & America region increased by $4.6 billion (14%) or $8.5 billion (30%) excluding
exchange rate movements, driven by deposit raising strategies and customer acquisitions.

−

Wholesale funding increased by $8.2 billion (15%), or $9.7 billion (18%) excluding the impact of exchange rate
movements, driven by an increase in certificate of deposits ($4.1 billion) and commercial paper ($4.1 billion).

Loan capital and Bonds and notes increased by $1.2 billion (2%).
MarginNet interest margin increased by 6 basis points to 2.43%. Excluding the impact of the Markets business, the Group
margin increased by 15 basis points. The main drivers of improved margin performance excluding Markets were:−

Improved asset margin (+14 basis points) from the flow through of repricing activities particularly in Commercial andInstitutional; improved fee returns in Institutional due to higher establishment and commitment fees, as customers
improve their funding flexibility; and re-pricing in New Zealand.

−

Funding and Asset mix changes (+8 basis points) driven by increased capital mainly through the full half impact of
the share purchase and share placement plans in 2009 (+3 basis points), higher customer deposits (+1 basis point),
other net funding impacts (+2 basis points), asset mix impact of decline in low margin Institutional assets (+1 basis
point) and other asset mix benefits (+1 basis point).

−

This was partly offset by higher funding costs (-5 basis points) and higher cost of deposits (-5 basis points) due tocompetitive pressures and continued customer migration to lower margin deposit products.

−

Other Items (+3 basis points) includes favourable movement in brokerage costs (+1 basis point) following a write
down of Esanda brokerage in the prior half. Net other impact (+2 basis points).

Markets had a -9 basis points impact on the total Group margin. Net interest movements (-2 basis points) due to theimpact of funding costs associated with unrealised trading gains on derivatives (-5 basis points), Mismatch outcome(+1 basis point) and other net impacts (+2 basis points). The dilution impact of Markets balance sheet on the Group(-7 basis points) was driven by growth in Trading and Investment assets during the half.
19

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Income and expenses, cont’d
Net Interest Income, cont’dMarch 2010 half year compared to March 2009 half year

Net interest income at $5,188 million for the March 2010 half was 8% ($366 million) higher than the March 2009 half.
VolumeAverage interest earning assets decreased $6.7 billion (2%):−

Net advances decreased by $13.8 billion (4%). Excluding the impact of exchange rates, net advances decreased by$4.1 billion (1%). Australia decreased by $2.6 billion (1%), primarily in Specialised & Relationship Lending($11.2 billion), Markets ($4.0 billion) and Transaction Banking ($0.4 billion), reflecting corporate capital raisings anddeleveraging following the recovery of credit markets. This was partly offset by an increase in Mortgages($11.6 billion), driven by strong customer demand, Regional Commercial Banking ($0.9 billion) and unsecured
lending ($0.7 billion). New Zealand decreased by $5.7 billion (7%), or decreased by $1.9 billion (2%) excluding theimpact of exchange rate movements, primarily from a reduction in corporate loans in Relationship & Specialised
Lending. Asia Pacific, Europe & America region decreased by $5.5 billion (23%), however excluding exchange rate
movements, increased $0.4 billion (2%), primarily through an increases in Asia ($2.5 billion) partially offset by
reductions in the United Kingdom ($1.5 billion) and America ($0.6 billion).

−

Other interest earning assets increased by $7.1 billion (9%). Excluding the impact of exchange rate movements,
growth was $14.4 billion or 20%, driven by increases in trading and available-for-sale assets ($16.4 billion) as aresult of the higher liquidity holdings, partially offset by a reduction in interbank lending ($2.1 billion).

Average deposits and other borrowings increased $3.7 billion (1%):−

Customer deposits grew by $17.0 billion (8%). Australia region grew by $8.1 billion (6%) due primarily to an upliftin term deposits driven by competitive pricing and customer acquisition. New Zealand region decreased by$1.3 billion (3%), however excluding the impact of exchange rates, increased by $1.0 billion (2%), largely in theretail businesses. Asia Pacific, Europe & America region grew by $10.3 billion (39%) or $16.8 billion (85%) excluding
the impact of exchange rate movements, mainly in Asia driven by deposit raising strategies and business expansion
in the region.

−

Wholesale funding decreased by $13.3 billion (17%). Excluding the impact of exchange rate movements, wholesalefunding decreased by $8.8 billion (12%), driven mainly by a decrease in commercial paper as a result of the global
credit market conditions and growth in customer deposits.

Loan capital and Bonds and notes increased by $1.4 billion (2%).
MarginNet interest margin increased by 21 basis points to 2.43%. Excluding the impact of the Markets business, the Group
margin increased by 32 basis points. The main drivers of improved margin performance excluding Markets were:−

Improved asset margin (+48 basis points) from the flow through of repricing activities throughout 2009, particularly
in Commercial and Institutional; improved fee returns in Institutional due to higher establishment and commitment
fees.

−

Funding and Asset mix changes (+21 basis points) driven by increased capital mainly through the full impact of theshare purchase and share placement plans in 2009 (+9 basis points) and lower wholesale funding (+8 basis points).
Asset mix impact of declining low margin Institutional assets (+3 basis points) and other asset mix benefits (+1 basis
point).

−

Lower margin from deposits (-19 basis points) due to competitive pressures and continued customer migration tolower margin deposit products.

−

Higher funding costs (-18 basis points) reflecting lower returns on capital and lag impact of passing on rate
movements in a rising rate environment.

Markets had a -11 basis points impact on the total Group margin. Net interest movements (-1 basis point) due to theimpact of funding costs associated with unrealised trading gains on derivatives (-11 basis points), the Mismatch outcome(+9 basis points) and other net impacts (-1 basis point). The dilution impact of Markets balance sheet on the Group(-10 basis points) was driven by strong growth in Trading and Investment assets during the half.

20

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Income and expenses, cont’d
Other Operating Income

Half
year
Mar 10
$M

Half
year
Sep 09
$M

Half
Movt
Movt
year
Mar 10Mar 10Mar 09 v. Sep 09 v. Mar 09
$M
%
%

1,178

1,266

1,216

-7%

-3%

Foreign exchange earnings

360

393

539

-8%

-33%

Profit on trading instruments

159

222

90

-28%

77%

Net income from wealth management

350

112

108

large

large

Other

329

346

265

-5%

24%

2,376

2,339

2,218

2%

7%

(192)

(1,013)

655

-81%

large

Fee income

Underlying other operating income
Economic hedging - fair value gains/(losses)
Revenue and net investment hedges

33

3

27

large

22%

ANZ share of ING NZ investor settlement

27

(35)

(138)

large

large

Fair value impairment for INGA and INGNZ

(213)

-

-

n/a

n/a

Credit risk on impaired derivatives1

(17)

10

(92)

large

-82%

Treasury shares adjustment

(57)

-

-

n/a

n/a

Credit intermediation trades

64

759

(812)

-92%

large

Other

8

(6)

(113)

large

large

2,029

2,057

1,745

-1%

16%

Net interest income

430

468

474

-8%

-9%

Foreign exchange earnings

282

297

475

-5%

-41%

Profit on trading instruments

161

292

33

-45%

large

Fee and other income

79

91

65

-13%

22%

Total Markets income

952

1,148

1,047

-17%

-9%

Non continuing businesses

Other operating income

Composition of Global Markets Underlying income

1.

Reclassified to credit provisions on page 26

March 2010 half year compared to September 2009 half year

Other operating income decreased $28 million (1%) from the September half. Excluding the adjustments to statutory
profit (refer pages 13 to 15), underlying other operating income increased $37 million (2%) and excluding acquisitions
and exchange rates decreased $78 million.
The following explanations relate to underlying other operating income:−Fee income decreased $88 million (7%). Excluding the impact of acquisitions and exchange rates, fee income
decreased $71 million:•

Lending fee income decreased $42 million (11%):- Australia decreased $40 million due to a $20 million reduction in Deposits as a result of the impact from lower
fees and an $18 million decrease in Markets due to an increased proportion of yield related business.

•

Non-lending fee income decreased $29 million (4%):- Australia decreased $38 million (7%). Consumer Cards and Unsecured Lending reduced $14 million and
Deposits was $13 million lower both due mainly to the reduction in exception fees. Markets decreased $12
million as a result of reduced volumes.
- New Zealand decreased $14 million which includes the reductions to exception fees.
- Asia Pacific, Europe & America increased $23 million due mainly as a result of increased volumes in Singapore.

−

Foreign exchange earnings decreased $33 million however excluding the impact of acquisitions and exchange rates,
decreased $7 million. New Zealand decreased $16 million as a result of lower market volatility. Asia Pacific, Europe& America increased $14 million with South Asia up $28 million due to higher earnings in Singapore and North Asia
$16 million lower reflecting reduced earnings in Korea.

21

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Income and expenses, cont’d
Other Operating Income, cont’d−Profit on trading instruments decreased $63 million however excluding the impact of acquisitions and exchange rates,
decreased $60 million, which included a $111 million increase in unrealised trading gains directly offset by anequivalent decrease in net interest income. Excluding this impact, the Markets business has been impacted by
reduced volatility in the interest rate market and lower sales revenue. Relationship Banking increased $57 million
due to mark-to-market losses in the September 2009 half on credit derivatives used to hedge existing customer
exposures.

−

Other income decreased $17 million however excluding the impact of acquisitions and exchange rates, increased$60 million:−•

Asia Pacific, Europe & America increased $23 million. The current half included $25 million reversal of the write
down of the investment in Saigon Securities Incorporation (SSI). Equity accounted earnings decreased $5 million
due to lower earnings in AMMB Holdings Berhad (AMMB) and Bank of Tianjin (BOT) offset by higher earnings inPanin. Higher other income of $3 million included an increase in Europe of $9 million, $6 million dividend income
from Sacombank, a $6 million increase in Singapore due to the sale of available-for-sale securities offset by nonrecurrence of a $21 million mark-to-market gain on Panin warrants in the September 2009 half.

•

Australia increased $29 million. Mortgages grew $10 million due to increased insurance premiums. INGA
earnings increased $20 million, adjusting the first half of 2010 result to be on a 49% equity accounted basis,principally as a result of improved investment markets.

Movements in average exchange rates decreased total other operating income $74 million.

Total Global Markets income is affected by mix impacts between the categories within other operating income and net
interest income. Total Global Markets income decreased $196 million.
March 2010 half year compared to March 2009 half year

Other operating income increased $284 million (16%). Excluding the adjustments to statutory profit (refer pages 13 to15), underlying other operating income increased $158 million (7%) and excluding acquisitions and exchange rates,
increased $109 million.
The following explanations relate to underlying other operating income:−Fee income decreased $38 million (3%) however excluding the impact of acquisitions and exchange rates, fee income
increased $6 million.
•

Lending fee income increased $7 million. Asia Pacific, Europe & America increased $10 million with South Asia up$7 million due to growth in the Philippines and Vietnam and North Asia $6 million higher due to Hong Kong andChina. New Zealand increased $8 million due to pricing initiatives, particularly in Commercial and Institutional.
Australia decreased $11 million: Markets decreased $22 million due to an increased proportion of yield related
business; Deposits decreased $19 million as a result of the impact from lower exception fees; Relationship
Lending increased $12 million due to increased volumes; and Transaction Banking increased $12 million due
mainly to pricing initiatives.

•

Non-lending fee income decreased $1 million. Australia decreased $8 million with a $29 million decrease in
Deposits due to the impact from changes to exception fees and pricing initiatives offset by a $19 million increasein Specialised Lending due to increased volumes. New Zealand decreased $20 million which includes the impact
from changes to exception fees. Asia Pacific, Europe & America increased $27 million due to a $26 million
increase in South Asia as a result of volume growth in Singapore.

−

Foreign exchange earnings decreased $179 million (33%) however excluding the impact of acquisitions and exchange
rates, decreased $151 million. Australia decreased $83 million due to a decrease in Markets as a result of reduced
volatility in global currency markets and lower sales volumes. Asia Pacific, Europe & America decreased $35 million
with North Asia $23 million lower due mainly to reduced earnings in Korea, UK & Europe decreased $23 million as aresult of reduced volatility in global currency markets and lower sales volumes and South Asia increased $8 million
with an increase in Singapore offset by reductions in Indonesia and Vietnam. New Zealand decreased $33 million
due to lower Institutional earnings as a result of reduced global volatility.

−

Profit on trading instruments increased $69 million however excluding the impact of acquisitions and exchange rates,
increased $87 million which included a $234 million increase in unrealised trading gains directly offset by anequivalent decrease in net interest income. Excluding this offset, the Markets business has been impacted by
reduced volatility in the interest rate market and lower sales revenue. Relationship Banking decreased $53 million
due to mark-to-market profits in the March 2009 half on credit derivatives used to hedge existing customer
exposures.

22

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Income and expenses, cont’d
Other Operating Income, cont’d−−

Other income increased $64 million however excluding the impact of acquisitions and exchange rates, increased$158 million.
•

Asia Pacific, Europe & America increased $95 million. The current half included a $25 million gain due to thereversal of the write-down of the investment in SSI originally booked in the first half of 2009. The March 2009 half
included a $35 million mark-to-market loss on Panin warrants. The current half included a $6 million conversion
gain on SSI options compared to a $7 million mark-to-market loss on SSI options in the first half of 2009. Equity
accounted earnings decreased $18 million due to lower earnings in SCRB offset by higher equity accounted
earnings in Panin. Higher other income of $15 million included an increase in Europe of $9 million and a $6 million
increase in Singapore due to the sale of available-for-sale securities.

•

Australia increased $74 million. INGA earnings increased $47 million, adjusting the first half of 2010 result to be
on a 49% equity accounted basis, as a result of improved investment markets. Mortgages grew $18 million due toincreased Lenders Mortgage Insurance premiums associated with higher volumes, Specialised Lending grew
$10 million as a result of increased income from the Structured Asset & Export Finance business and Investment
and Insurance Products increased $8 million due to increased volumes in ETrade.

•

New Zealand decreased $11 million due mainly to the sale of 16 bank branches in the March 2009 half.

Movements in average exchange rates reduced total other operating income by $139 million.

Total Global Markets income is affected by mix impacts between the categories within other operating income and net
interest income. Total Global Markets income decreased $94 million.

23

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Income and expenses, cont’dExpenses

Halfyear
Mar 10$M
1,910

Personnel expenses

Half
year
Sep 09
$M
1,824

Movt
Movt
Half
Mar 10Mar 10year
Mar 09 v. Sep 09 v. Mar 09
%
%
$M
1,769
5%
8%

Premises expenses

298

275

281

8%

6%

Computer expenses

406

413

351

-2%

16%

Other expenses

635

612

543

4%

17%

3,249

3,124

2,944

4%

10%

-

5

137

-100%

-100%

Underlying operating expenses
Organisational transformation costs (incl. One ANZ restructuring)1
Non continuing businesses
Integration and acquisition costs and amortisation of intangibles2
Total operating expenses

7

6

9

17%

-22%

126

-

-

n/a

n/a

3,382

3,135

3,090

8%

9%

1.

Sep 2009 comprises One ANZ restructuring costs of $5 million. Mar 2009 comprises personnel expenses of $6 million, computer expenses of $3 million and otherexpenses of $15 million and One ANZ restructuring costs of $113 million (refer page 14)2.

Mar 2010 comprises personnel expenses of $35 million, premises expenses of $2 million, computer expenses of $5 million and other expenses of $84 million

March 2010 half year compared to September 2009 half year

Operating expenses increased $247 million (8%) from the September 2009 half. Excluding the adjustments between
statutory profit and underlying profit (refer pages 13 to 15), underlying operating expenses increased $125 million (4%)
and excluding acquisitions and exchange rates increased $29 million. Movements in exchange rates decreased costs by
1%. Excluding exchange rates and acquisitions, most cost growth in the first half was in the Australian division (up 5%)
due to increased personnel costs relating to volume growth in collections, credit assessment and small business frontline,
commercial property costs, telecommunication costs and spend on initiatives. Group Centre costs were lower reflecting
higher central project and transformation costs in the second half of 2009. Asia Pacific (excluding Institutional) growth of
17% reflected continued investment in expanding distribution across the region and increased resources to support thegrowth agenda. Costs were 1% lower in New Zealand and were flat in Institutional.
The following movements relate to underlying operating expenses:−

Personnel expenses increased $86 million (5%) however excluding acquisitions and exchange rates, increased$39 million as a result of annual salary increases and a 3% increase in staff numbers. Increases in staff numbers
were in Asia Pacific, Europe & America with North Asia increasing 187 employees and South Asia increasing 163
employees due to continued growth in the business.

−

Premises costs increased $23 million (8%) (same for excluding acquisitions and exchange rates), with a $12 million
increase in utilities and other outgoings due to a $6 million increase in security costs partly due to the ANZ centre
and depreciation was $6 million higher due to the ANZ Centre.

−

Computer costs decreased $7 million however excluding acquisitions and exchange rates, decreased $16 million due
to a $26 million reduction in software purchased due mainly to decreases in Markets and Technology reflecting lower
licence costs and a $9 million reduction in software written-off. Rental and repairs increased $10 million as a resultof higher regional network costs and depreciation increased $6 million.

−

Other expenses increased $23 million (4%) and excluding acquisitions and exchange rates, decreased $16 million.
New Zealand other expenses decreased $7 million due mainly to a reduction in offshoring costs. Stamp and otherduties decreased $5 million which included a $3 million reduction in Esanda.

−

Movements in exchange rates decreased costs $43 million.

24

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Income and expenses, cont’dExpenses, cont’dMarch 2010 half year compared to March 2009 half year

Operating expenses increased $292 million (9%). Excluding the adjustments between statutory profit and underlying
profit (refer pages 13 to 15), underlying operating expenses increased $305 million (10%) and excluding acquisitions andexchange rates increased $295 million. Movements on exchange rates decreased costs by 6%. Excluding exchange rates
and acquisitions, Institutional cost growth was up 19% driven by investment in the “Rebuild and Refocus” program andremuneration. Australia was up 7% due to key projects, volume growth, property costs and salary inflation. Asia Pacific(excluding Institutional) costs up were up 29% with substantial investment in expanding branch networks across theregion and increased resources to drive the growth agenda. Costs were lower in New Zealand by 1%.
The following explanations are based on underlying operating expenses:−

Personnel costs were up $141 million (8%) however excluding acquisitions and exchange rates increased$151 million, as a result of annual salary increases and a 4% increase in staff numbers. Increases in staff numbers
were in Asia Pacific, Europe & America with North Asia up 357 employees and South Asia increasing 336 employees
due to continued growth in the business.

−

Premises costs increased $17 million (6%) however excluding the impact of acquisitions and exchange rates,
increased $28 million. Utilities and other outgoings increased $11 million and depreciation of premises increased$9 million both mainly due to the ANZ Centre.

−

Computer costs grew $55 million (16%) however excluding the impact of acquisitions and exchange rates increased$53 million. Computer contractors increased $30 million due mainly to increased project related work in Technology,
rentals and repairs increased $14 million due mainly to an $11 million increase in Technology due to commencementof ANZ Centre computer costs and regional network costs and depreciation increased $13 million.

−

Other expenses increased $92 million (17%) however excluding the impact of acquisitions and exchange rates,
increased $64 million. Professional fees grew $28 million including an increase in Group Centre due to project work.
Advertising costs increased $13 million due mainly to increased marketing costs in Australia. Depreciation offurniture and equipment increased $11 million due to the ANZ Centre.

−

Movements in exchange rates decreased costs $129 million.

25

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Credit risk (including credit risk on derivatives)
Provision for credit impairment charge

Total credit impairment charge relating to lending assets, commitments and debt securities classified as available-for-saleassets decreased $550 million from the September 2009 half to $1,082 million. The underlying credit impairment charge
decreased $523 million to $1,098 million. The credit impairment charge has reduced as the economy showed signs ofrecovery even though trading conditions have remained difficult for a number of commercial businesses. There has also beena reduction in the number of large single name defaults. The individual provision charge and collective provision charge bothdecreased across major segments.

Australia
Asia Pacific, Eu rope & Am erica
New ZealandUnderlyi ng provision for credit i mpa irment cha rge

Half
yea r
Mar 10
$M

Half
yea r
Sep 09
$M

735
102

981
154

1

Provision for credit impairment charge
1.

1,072
122

-25%
-34%

-31%
-16%

261

486

241

-46%

8%

1,098

1,621

1,435

-32%

-23%

1

1

30

0%

-97%

(17 )

10

(92)

large

-82%

1,082

1,632

1,373

-34%

-21%

Non continuing businesses
Credit risk on impaired derivatives

Ha lf
Movt
Mov t
yea r
Ma r 10
Ma r 10
Ma r 09 v. Se p 09 v. Ma r 09
$M%%

Credit valuation adjustments on defaulted or impaired exposures of $17 million are reclassified as provision for credit impairment (Sep 2009 half: $10 million
reversal; Mar 2009 half: $92 million). Refer page 15

Individual provision charge

Total individual provision charge decreased $255 million to $1,046 million from the September 2009 half.
The underlying individual provision charge decreased $221 million to $1,062 million, due to reductions in Australia and New
Zealand. The decrease in Australia of $144 million was driven by a lower level of new provisions in retail, commercial andwealth segments as the portfolios began to see some improvement from the impacts of the financial crisis. This is coupledwith the reductions in the number of large single name provisions raised within the Australian Institutional portfolio. The
decrease in New Zealand of $116 million was due to a lower number of large new provisions raised, particularly within
Institutional, compared to the high level of new provisions in retail and commercial in the second half of 2009. These
reductions were partially offset by an increase of $19 million in Asia Pacific, Europe & America.
Hal f
ye ar
Mar 10
$M

Half
yea r
Sep 09
$M

Ha lf
yea r
Mar 09$M

Movt
Ma r 10v. Se p 09%

Mov t
Ma r 10v. Ma r 09%

Australia

75 3

897

1,290

-16%

-42%

Asia Pacific, Eu rope & Am erica

77

58

43

33%

79%

New ZealandUnderlyi ng i ndivi dual provisi on cha rge forloans and advance s

21 2

328

178

-35%

19%

1,04 2

1,283

1,511

-19%

-31%

Individual provision charge as a % of average net advances

0.62%

0.74%

0.85 %

20

-

20

n/ a

0%

1,06 2

1,283

1,531

-17%

-31%

1

8

30

-88%

-97%

Impai rment on AFS a ssets 1
Total underlying indivi dual provisi on cha rge
Non continuing businesses
Credit risk on impaired derivatives

(1 7)

10

(92)

large

-82%

Total individual provi si on charge

1,04 6

1,301

1,469

-20%

-29%

1.

Impairment on AFS assets impacts on Asia Pacific, Europe & America.

26

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Credit risk (including credit risk on derivatives), cont’d
Individual provision charge, cont’d

Underlyi ng new and increased provisions
Australia
Asia Pacific, Eu rope & Am erica

Hal f
ye ar
Mar 10
$M

Half
yea r
Sep 09
$M

Ha lf
yea r
Mar 09$M

Movt
Ma r 10v. Se p 09%

Mov t
Ma r 10v. Ma r 09
%

90 9
90

1,033
66

1,389
51

-12%
36%

-35%
76%

30 3

356

190

-15%

59%

1,30 2

1,455

1,630

-11%

-20%

Australia(15 6)

(136)

(99)

15%

58%

Asia Pacific, Eu rope & Am erica

(1 3)

(8)

(8)

63%

63%

New Zealand
New and increased provisions for loans and advances

Underlyi ng recoverie s a nd w rit eback s

New Zealand

(9 1)

(28)

(12)

large

large

Re cov eri es and write ba cks(26 0)

(172)

(119)

51%

large

Collective provision charge

The collective provision charge decreased $295 million from the September 2009 half to $36 million, with decreases
experienced across all regions. The decrease in Australia was largely due to slowing in credit deterioration in the Commercial
and Institutional portfolios as well as releases associated with transfers of customers to impaired. The New Zealand charge
decreased $108 million as a result of relatively flat lending volumes and a lower number of institutional downgrades, partially
offset by weakening risk profile in the Rural and Commercial portfolios. The decrease in Asia Pacific, Europe & America was
attributable to releases associated with increased individual provision charges during the current half and a reduction in theconcentration risk component of the collective provision. The charge in the March 2010 half was mainly driven by increased
exposure in Institutional Asia, primarily Singapore and Indonesia.
The analysis of the collective provision charge by business unit and by source is set out below:
Half
yea r
Mar 10$M

Coll ective prov isi on charge by source

Half
yea r
Sep 09
$M

Ha lf
Movt
Mov t
yea r
Ma r 10
Ma r 10
Ma r 09 v. Se p 09 v. Ma r 09
$M%%

Lending growth

19

(69)

67

large

-72%

Risk profile

(20 )

110

141

large

large
large

Portfolio m ix

6

(15)

2

large

Economic cycle and concentration risk adj ustment

31

305

(306)

-90%

large

Coll ective prov isi on charge

36

331

(96)

-89%

large

Underlyi ng coll ective provi si on charge by region
(18 )

84

(218)

large

-92%

Asia Pacific, Eu rope & Am erica

4

96

59

-96%

-93%

New Zealand

50

158

63

-68%

-21%

Coll ective prov isi on charge

36

338

(96)

-89%

large

Non continuing businesses

-

(7)

-

-100%

n/a

Coll ective prov isi on charge

36

331

(96)

-89%

large

Australia

27

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Credit risk (including credit risk on derivatives), cont’d
Expected loss

Management believe that disclosure of modelled expected loss data will assist in assessing the longer term expected loss
rates on the lending portfolio as it removes the volatility in reported earnings created by the use of IFRS credit loss
provisioning. The expected loss methodology is used internally for return on equity analysis and reporting. Expected loss on
the current portfolio was $1,669 million, an increase of $42 million over the September 2009 half.
% of
Group
ex po surea t defa ult

Hal f
ye ar
Mar 10Hal f
ye ar
Sep 09Half
ye ar
Mar 09Australia

68%

0.32%

0.32%

0.30%

Asia Pacific, Eu rope & Am erica

13%

0.35%

0.36%

0.39%

New Zealand

19%

0.28%

0.28%

0.28%

100%

0.32%

0.31%

0.31%

1,669

1,627

1,71 3

Total
Expected loss ($million)

Credit risk loss/(gain) on derivatives

ANZ recognised a gain of $47 million on credit risk on derivatives (comprising structured credit intermediation trades andimpaired derivatives transacted with corporate customers) during the half year ended 31 March 2010.
Half
yea r
Mar 10
$M

Half
yea r
Sep 09$M

Credit intermediation trade related 1

(64 )

(759)

812

-92%

large

Credit risk on im paired derivatives

17

(10)

92

large

-82%

Cre di t risk o n de riv ativ es

(47 )

(769)

904

-94%

large

Cre di t risk o n de riv ativ es

Ha lf
Mo vt
Mov t
yea r
Ma r 10
Ma r 10
Ma r 09 v. Se p 09 v. Ma r 09
$M
%
%

1

. In 2009 and 2010 ANZ partially hedged the foreign currency exposure relating to structured credit intermediation trades. Included in the current half year result is a
$14 million loss on foreign currency hedges (Sep 2009 half: $150 million; Mar 2009 half: $5 million). All hedges were closed out before March 2010.

Structured credit intermediation trades

ANZ entered into a series of structured credit intermediation trades from 2004 to 2007. ANZ sold protection using credit
default swaps over these structures and then to mitigate risk purchased protection via credit default swaps over the samestructures from eight US financial guarantors. The underlying structures involve credit default swaps (CDS) over synthetic
collateralised debt obligations (CDOs), portfolios of external collateralised loan obligations (CLOs) or specific bonds/floating
rate notes (FRNs).
Being derivatives, both the sold protection and purchased protection are marked-to-market. Prior to the commencement of
the global credit crisis, movements in valuations of these positions were not significant and largely offset each other inincome. Following the onset of the credit crisis, the purchased protection has provided only a partial offset against
movements in valuation of the sold protection as:•

one of the purchased protection counterparties defaulted and many of the remaining were downgraded, and•

ANZ makes a credit valuation adjustment on the remaining purchased protection counterparties reflective of changes tocredit worthiness.

ANZ is actively managing this portfolio with a view to reduce the exposure via termination and restructuring of both thebought and sold protection. To date, all but one of the sold protection trades on which the purchased protection counterparty
defaulted has been terminated. Other sold protection trades were also terminated or have matured in the current period with
the notional amount on the outstanding sold trades at 31 March 2010 being US$8.6 billion (Sep 2009: US$11.0 billion,
Mar 2009: US$11.0 billion).
Half
yea r
Mar 10
$M

Half
yea r
Sep 09
$M

Ha lf
Movt
Mov t
yea r
Ma r 10
Ma r 10
Ma r 09 v. Se p 09 v. Ma r 09
$M
%
%

588

1,010

3,268

-42%

-82%

Credit valuation adjustmen t for outstanding transactions

196

352

1,265

-44%

-85%

Other costs (cumulative life to date)

324

232

78

40%

large

Cumula tive cost s

520

584

1,343

-11%

-61%

Financial impacts on cre dit inte rme di ati on
Mark-to- market credit exposure to financial guarantors
Cumula tive cost s rel ati ng to financial gua ra ntors

The cumulative costs include realised losses relating to restructuring trades to reduce risks which were unhedged due todefault by the purchased protection counterparty and realised losses on termination of sold protection trades. It also
includes foreign exchange hedging losses.

28

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Credit risk (including credit risk on derivatives), cont’d
The credit risk expense on structured credit derivatives still remains volatile reflecting the impact of market movements incredit spreads and USD/AUD rates. It is likely there will continue to be volatility in this market value. The overall credit
exposure however is significantly reduced reflecting reduction in credit spreads, relative stabilisation in the credit markets
and progress in unwinding these trades. The remaining trades continue to be actively managed with a view to termination
where an appropriate opportunity presents itself.
Gross impaired loans

Gross impaired loans at $5,330 million represent a $938 million increase over 30 September 2009, driven by increases in thebalance across all regions. The rate of emergence of new impaired loans is stable, however, a relatively higher level of
security has translated into lower individual provisions. The increase in Australia was driven by higher customer defaults
particularly within the middle market and commercial segments. The New Zealand increase of $367 million was largely
attributable to higher levels of defaults within the Rural, Commercial and Retail portfolios as a result of earlier deterioration in
the local economy. Asia Pacific, Europe & America’s increase was associated with a small number of Institutional customer
downgrades across Asia and America.
Net impaired loans

Net impaired loans at $3,770 million represent a $890 million increase over 30 September 2009. The Group has anindividual provision coverage ratio of 29%. The individual provision coverage ratio was skewed by large impaired loans withhigh security which attracts lower individual provisions.

As at
Mar 10Gross impaired l oans
Australia
Asia Pacific, Eu rope & Am erica

As at
Sep 09As at
Ma r 09Movt
Mov t
Ma r 10
Ma r 10v. Se p 09 v. Ma r 09
$M
%
%

$M

$M

3,673

3,232

2,969

14%

24%

317

187

218

70%

45%

New Zealand

1,340

973

504

38%

large

Total gross impai red l oa ns

5,330

4,392

3,691

21%

44%

As at
Mar 10

As at
Sep 09As at
Ma r 09

$M

$M

2,698

2,184

1,906

24%

42%

204

112

173

82%

18%

Movt
Mov t
Ma r 10
Ma r 10v. Se p 09 v. Ma r 09
$M%%

Net impai red l oa ns
Australia
Asia Pacific, Eu rope & Am erica
New Zealand
Total net impaired l oans
Individual provision coverage

29

868

584

280

49%

large

3,770

2,880

2,359

31%

60%

29%

3 4%

36%

CHIEF FINANCIAL OFFICER’S REVIEW (CONTINUED)

Credit risk (including credit risk on derivatives), cont’d
Net impaired loans, cont’d

New and increased impaired loans

Half
year
Mar 10
$M

Half
year
Sep 09
$M

Half
Movt
Movt
year
Mar 10Mar 10Mar 09 v. Sep 09 v. Mar 09$M%%

Australia

1,941

1,723

2,762

13%

Asia Pacific, Europe & America

224

127

129

76%

74%

New Zealand

876

970

422

-10%

large

3,041

2,820

3,313

8%

-8%

As at
Mar 10

As at
Sep 09As at
Ma r 09

Total new and increased impaired loans

Re structure d ite ms1
Australia
Asia Pacific, Eu rope & Am erica$M
298

New Zealand

Movt
Mov t
Ma r 10
Ma r 10v. Se p 09 v. Ma r 09
$M
%
%
-

-18%

n/a

374

-

-17%

n/a

6

1

17

large

-65%

560

673

17

-17%

large

311

Total restructured items
1.

$M
243

-30%

Restructured items are facilities in which the original contractual terms have been modified to provide for concessions of interest, or principal, or other paymentsdue, or for an extension in maturity for a non-commercial period for reasons related to the financial difficulties of a customer, and are not considered impaired.
Includes both on and off balance sheet exposures

As at
Mar 10Net impaired commitments and contingencies
Australia
Asia Pacific, Europe & America
New Zealand
Net impaired commitments and contingencies

30

As at
Sep 09As at
Mar 09Movt
Movt
Mar 10Mar 10v. Sep 09 v. Mar 09
$M
%
%

$M

$M

559

491

431

14%

30%

1

-

-

n/a

n/a

78

25

10

large

large

638

516

441

24%

45%

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Income tax expense
Half
yea r
Sep 09
$M

826

752

683

30.0%

33.0%

32.5%

920

720

749

28.6%

27.9%

28.1%

Income tax expense charged in the income statement
Effective tax rate
Income tax expense on underlying profit 1
Effective tax rate (underlying profit1)

Mov t
Movt
Ha lf
Ma r 10
Ma r 10yea r
Ma r 09 v. Se p 09 v. Ma r 09
%
%
$M

Half
yea r
Mar 10$M

1.

Refer pages 13 to 15 for explanation of adjustments between statutory profit and underlying profitMarch 2010 half year compared to September 2009 half year

10%

21%

28%

23%

The Group's effective tax rate was 30.0%, down 3.0%. The decrease was due primarily to the New Zealand conduit tax
provision included in the September 2009 half offset by non-deductible fair value adjustment of our interest in ING
Australia and ING New Zealand in the March 2010 half and a reduction in unrealised losses associated with the Offshore
Banking unit (OBU) included in the September 2009 half. The March 2010 half also included a release of residual New
Zealand conduit tax provision. The underlying effective tax rate increased 0.7%.
March 2010 half year compared to March 2009 half year

The Group's effective tax rate decreased by 2.5% due primarily to a reduction in unrealised losses associated with the
OBU and a release of excess New Zealand conduit tax provision offset by the non-deductible fair value adjustment of ourinterest in ING Australia and ING New Zealand. The underlying effective tax rate increased 0.5%.

Earnings per share1 (cents)
Mov t
Movt
Ha lf
Ma r 10
Ma r 10yea r
Ma r 09 v. Se p 09 v. Ma r 09
%
%

Half
yea r
Mar 10Half
yea r
Sep 09

Basic

76.8

64.8

66.3

19%

16%

Dilu ted

75.4

63.8

63.4

18%

19%

Profit attributable to shareholders of the Company ($M)

1,925

1,526

1,417

26%

36%

Less: Adjustments between statutory profit
an d underlying profit ( $M)(373 )

(338)

(491)

10%

-24%

Underlying profit ( $M)

2,298

1,864

1,908

23%

20%

(6 )

(9)

(24)

-33%

-75%

2,292

1,855

1,884

24%

22%

2,511.0

2,341.8

2,100.7

7%

20%

91.3

79.2

89.7

15%

2%

Underlyi ng e arnings pe r share

2

Preference share dividend ($M)
Underlying profit excludin g preference sh are dividend ($M)
Weighted average number of ordin ary shares ( M)
Underlying earnings per share (cents)
1.

Refer page 90 for full calculation

2.

The earnings per share calculation excludes the Euro Hybrid preference shares

March 2010 half year earnings per share increased 19% (12 cents) on the September 2009 half. Underlying EPS for theGroup increased by 15% (12.1 cents) on the September 2009 half. The main drivers of the increase in Underlying EPS on the
September 2009 half were:

an increase in profit before credit impairment (after tax) which contributed 4.2%



an after tax decrease in credit impairment charge which contributed 19.4%

dilution from an increase in the weighted average number of shares (8.3%).

Earnings per share were up 16% (10.5 cents) to 76.8 cents on the March 2009 half. Underlying EPS for the Group increased
2% or 1.6 cents on the March 2009 half. The main drivers of the increase in Underlying EPS on the March 2009 half were:

an increase in profit before credit impairment (after tax) which contributed 9.1%



an after tax decrease in credit impairment charge which contributed 12.5%

dilution from an increase in the weighted average number of shares (19.9%).

31

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Dividends
Half
yea r
Mar 10Half
yea r
Sep 09Interim (fu lly franked)

52

n/a

46

n/ a

13%

Final (fully franked)

n/a

56

n/ a

n/ a

n/a

Ordinary share divi de nd payout ra tio 1 (%)

68.7%

92.5%

71.3%

Ordinary share dividends used in payout ratio1 ( $M)

1,318

1,403

993

-6%

33%

Profit after tax ($M)
Less: Adjustments between statutory profit
an d underlying profit ( $M)

1,925

1,526

1,417

26%

36%

(373 )

(338)

(491)

10%

-24%

Underlying profit ( $M)
Ordinary share divi de nd payout ra tio 1 (underlying basis)

2,298

1,864

1,908

23%

20%

57.5%

75.6%

52.7%

Divi de nd per ordinary sha re (ce nt s)

1.

Ha lf
Movt
Mov t
Ma r 10yea r
Ma r 10
Ma r 09 v. Se p 09 v. Ma r 09%%

Dividend payout ratio calculated using proposed 2010 interim dividend of $1,318 million. The proposed 2010 interim dividend of $1,318 million is based on theforecast number of ordinary shares on issue at the dividend record rate. Dividend Payout ratios for the September 2009 half year and March 2009 half year
calculated using actual dividend paid of $1,403 million and $993 million respectively.

The Directors propose that an interim dividend of 52 cents be paid on 1 July 2010 on each eligible fully paid ANZ ordinary
share. The proposed 2010 interim dividend will be fully franked for Australian tax purposes.
Australia and New Zealand Banking Group Limited (ANZ) has a Dividend Reinvestment Plan (DRP) and a Bonus Option Plan
(BOP) that will operate in respect of the 2010 interim dividend. For the 2010 interim dividend, ANZ intends to provide shares
under the DRP and BOP through the issue of new shares. The “Acquisition Price” to be used in determining the number ofshares to be provided under the DRP and BOP will be calculated by reference to the arithmetic average of the daily volume
weighted average sale price of fully paid ANZ ordinary shares sold on the ASX during the seven trading days commencing 14
May 2010 less a 1.5% discount, and then rounded to the nearest whole cent. Shares provided under the DRP and BOP will
rank equally in all respects with existing fully paid ANZ ordinary shares. Election notices from shareholders wanting tocommence, cease or vary their participation in the DRP or BOP for the 2010 interim dividend must be received by ANZ's
Share Registrar by 5.00 pm (Melbourne time) on 12 May 2010. Subject to receiving effective contrary instructions from theshareholder, dividends payable to shareholders with a registered address in Great Britain (including the Channel Islands andthe Isle of Man) or New Zealand will be converted to pounds sterling and New Zealand dollars respectively at ANZ's exchange
rate at 5.00 pm (Melbourne time) on 14 May 2010. There is no foreign conduit income attributed to the dividend.

32

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Market risk
Traded Market Risk

Below are aggregate Value at Risk (VaR) exposures at 97.5% and 99% confidence levels covering both physical andderivatives trading positions for the Bank’s principal trading centres. Figures are converted from USD at closing exchange
rates. The VaR exposures do not include foreign exchange translation exposure on the mark-to-market for credit risk on
structured credit derivatives as this is not a traded position.


97.5% confidence level (1 day holding period)
As at
Mar 10$M

Hi gh for
periodMar 10$M

Low forperiod
Ma r 10$M

Avg forperiod
Ma r 10$M

As at
Sep 09$M

High forpe ri od
Sep 09$M

Low forpe riod
Sep 09$M

Avg forperiod
Sep 09$M
2.0

Value at Risk at 97.5% confidence
Foreign exchange

1.9

7.8

0.8

2.5

3.5

4.6

0.9

In terest rate

23.8

23.8

9.2

1 5.7

9.6

10.8

2.4

6.6

Credit Spread

4.4

4.9

1.7

3.0

2.4

3.2

1.2

1.8

Commodities

2.1

3.2

1.1

2.2

1.2

4.3

0.6

1.4

Diversification benefit

(7.6)

n/ a

n/ a

( 7.8)

(7.1)

n/a

n/a

(4.4)

24.6

24.9

10.0

1 5.6

9.6

13.2

3.6

7.4

Low forperiod
Ma r 10$M

Avg forperiod
Ma r 10$M

As at
Sep 09$M

Hi gh for
periodMar 10$M

High forpe ri od
Sep 09$M

Low forpe riod
Sep 09$M

Avg forperiod
Sep 09$M

Foreign exchange

2.7

10.4

1.3

3.9

4.8

7.0

1.3

3.2

In terest rate

52.7

57.4

15.2

2 7.6

19.0

19.5

3.7

10.6

Credit Spread

6.3

7.0

2.1

4.1

3.1

5.3

1.6

2.4

Commodities

3.0

5.0

2.4

3.6

1.7

8.0

0.8

2.3

Diversification benefit

(8.6)

n/ a

n/ a

(1 0.7)(10.8)

n/a

n/a

(6.7)

56.1

56.1

15.0

2 8.5

17.8

25.9

4.5

11.8

Total VaR

99% confidence level (1 day holding period)
As at
Mar 10$M

Value at Risk at 99% confidence

Total VaR

Non-Traded Interest Rate Risk

Non-traded interest rate risk relates to the potential adverse impact of changes in market interest rates on future net interest
income. Interest rate risk is reported using various techniques including VaR and scenario analysis to a 1% rate shock.


97.5% confidence level (1 day holding period)
As at
Mar 10

Low forperiod
Ma r 10$M

Avg forperiod
Ma r 10$M

As at
Sep 09$M

Hi gh for
periodMar 10$M$M

High forpe ri od
Sep 09$M

Low forpe riod
Sep 09$M

Avg forperiod
Sep 09$M

Australia

27.3

27.3

20.3

New Zealand

7.8

12.8

7.8

2 2.9

18.3

20.7

12.5

17.6

9.8

9.3

9.3

2.8

Overseas Markets

8.4

8.4

6.0

4.3

5.8

6.4

7.9

3.3

Diversification benefit

(4.5)

6.0

n/ a

n/ a

( 5.8)

(8.0)

n/a

n/a

(5.7)

39.0

39.0

28.7

3 2.7

26.0

27.1

13.8

23.9

Value at Risk at 97.5% confidence

Total VaR

Impact of 1% rate shock on the next 12 months’ net interest income1
As at

As at

Mar 10

Sep 09As at period end

0.91 %

0.67%

Maximum exposure

1.37 %

1.05%

Minimum exposure

0.81 %

0.49%

Average exposure ( in absolute terms)

1.03 %

0.74%

1.

The impact is expressed as a percentage of net interest income. A positive result indicates that a rate increase is positive for net interest income.
Conversely, a negative indicates a rate increase is negative for net interest income

33

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Market risk, cont’d
Revenue related hedges

The Group uses derivative instruments to economically hedge against the adverse impact on future offshore revenue streams
from exchange rate movements. Movements in average exchange rates, net of associated revenue hedges, resulted in adecrease of $48 million in the Group’s underlying profit after tax for the March 2010 half when compared to the September
2009 half (Mar 2009 half: decrease $122 million). This included the impact on earnings (underlying basis) from associatedrevenue hedges, which decreased by $16 million (before tax) from the September 2009 half (Mar 2009 half: an increase of$29 million). Hedge revenue is booked in the Group Centre.
The Group has taken out economic hedges against New Zealand Dollar revenue streams. New Zealand Dollar exposure is themost significant, covering the New Zealand geography (refer page 60) and the debt component of New Zealand Dollar intragroup funding of this business, which amounted to NZD1.77 billion at 31 March 2010. Details of revenue hedges are set out
below.
Ha lf
yea r
Ma r 10
$M

Ha lf
year
Se p 09
$M

Hal f
ye ar
Ma r 09$M

Net open NZD position (notional prin cipal)

632

953

1,265

Amount taken to income (pre tax)

48

15

21

Amount taken to income (pre tax underlying basis)

15

9

10

NZD Economic he dge s

USD Economic he dge s
Net open USD position (notional prin cipal)

-

-

175

Amount taken to income (pre tax)

-

20

(14)

Amount taken to income (pre tax underlying basis)

-

22

(24)

In the March 2010 half:•

NZD 300 million of economic hedges matured and a realised gain of $15 million (pre-tax) was booked to the income
statement.

•

NZD 800 million of economic hedges are in place at a forward rate of approximately NZD1.19/AUD partially hedging
remaining 2010 and 2011 earnings.

•

An unrealised gain of $45 million (pre-tax) on the outstanding NZD 815 million of economic hedges was booked to theincome statement and has been treated as an adjustment to statutory profit as these are hedges of future years’ NZDrevenues.

34

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Balance sheet
Total assets increased by $29.7 billion (6%) from 30 September 2009 and $3.9 billion from 31 March 2009 to $506.7 billion
at 31 March 2010. Included in this increase are additional assets of $37.1 billion from the ING acquisition, $2.2 billion fromthe Landmark acquisition and $0.6 billion from the RBS acquisition. Movements in exchange rates have resulted in adecrease of $7.6 billion from 30 September 2009 and a decrease of $17.9 billion since 31 March 2009.
Excluding the impact of acquisitions and exchange rates, total assets decreased $2.6 billion (1%) from 30 September 2009
and $18.1 billion (4%) since 31 March 2009. Australia decreased $2.8 billion, New Zealand decreased $1.8 billion (2%) andAsia Pacific, Europe & America increased $2.0 billion (4%) from 30 September 2009. The explanations below describe themajor movements from 30 September 2009 and where material, movements from 31 March 2009.
Liquid assets Ø11% (Excl Exchange Rates Ø8%)
Liquid assets decreased $2.7 billion to $22.6 billion at 31 March 2010. Excluding the impact of exchange rates, thereduction was $1.9 billion due primarily to a reduction of $1.7 billion in the United States following reduction in investmentof surplus funds and a reduction in Singapore of $0.9 billion due to a switch in placement of surplus liquidity to interbank
lending.
Due from other financial institutions ×38% (Excl Exchange Rates ×44%)
Due from other financial institutions increased $1.9 billion to $6.9 billion at 31 March 2010, primarily in Asia, with anincrease in interbank lending volumes in Singapore of $2.0 billion and Korea of $0.8 billion partially offset by a reduction of$0.9 billion in New Zealand in short dated repurchase agreements.
Trading and available-for-sale assets ×7% (Excl Exchange Rates ×9%)
Trading and available-for-sale assets increased $3.5 billion to $51.1 billion at 31 March 2010, with an increase of $2.3 billion
in trading securities (high quality paper) within the Markets business due to an increase in liquidity requirements and anincrease of $1.2 billion in available-for-sale assets due primarily to an increase in debt securities in Singapore largely for
liquidity requirements.
Derivative Financial Instruments Ø26% (Excl Exchange Rates Ø25%)
Derivative assets decreased $9.8 billion to $27.6 billion at 31 March 2010 driven by volatility in the foreign exchange,interest rate and credit derivative markets. Derivative balances have decreased significantly since 30 September 2009
following the appreciation of the AUD against other currencies during the first half of 2010.
Net loans and advances including acceptances ×1% (Excl Exchange Rates ×2)
Net loans and advances including acceptances increased $2.1 billion to $347.9 billion at 31 March 2010, including an
increase of $2.2 billion following the acquisition of the Landmark loan book and $0.3 billion following the acquisition of RBS
assets in Asia. Exchange rate movements resulted in a reduction of $5.1 billion. Excluding exchange rate movements, netloans and advances including acceptances increased $7.2 million.
•

Australia grew by $4.9 billion (2%) excluding Landmark, with housing loans in Mortgages increasing by $7.6 billion(5%), partially offset by reduced lending in Institutional, primarily in Specialised Lending and Markets, of $3.4 billion
(7%).

•

New Zealand declined by $5.4 billion or 7%. Excluding the impact of exchange rates the contraction was smaller at$1.0 billion (1%) principally in Institutional and Rural Banking.

•Asia Pacific, Europe & America increased $0.4 billion (2%). Excluding the impact of exchange rates, lending increased
by $1.1 billion (6%) principally in Asia, with solid growth particularly in China and Korea.

Exchange rate movements have significantly impacted movements since 31 March 2009. Excluding the acquisition of theLandmark loan book, RBS businesses and exchange rate movements, net loans and advances including acceptances
decreased by $0.7 billion compared with 31 March 2009, with growth of $12.4 billion (9%) in Mortgages Australia andcontinued solid momentum in Asia (up $3.6 billion or 45%) offset by loan pay downs in the Institutional business across all
geographies.
Other assets ×17% (Excl Exchange Rates ×19)
Other assets increased $2.6 billion to $18.6 billion at 31 March 2010, including an increase of $2.4 billion in Goodwill andother intangible assets following the acquisition of ING Australia and New Zealand, and increase of $2.0 billion in otherassets due primarily to an increase in security settlements, partially offset by a reduction in Shares in associates and joint
venture entities of $1.7 billion with ING Australia and New Zealand becoming fully owned subsidiaries.

35

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Balance sheet, cont’d
Total liabilities increased by $29.6 billion (7%) from 30 September 2009 and decreased $0.3 billion (flat) from 31 March2009 to $474.1 billion at 31 March 2010. Included in this increase are additional liabilities of $35.3 billion from the ING
acquisition, $0.3 billion from the Landmark acquisition and $1.5 billion from the RBS acquisition. Movements in exchange
rates have resulted in a decrease of $6.5 billion from 30 September 2009 and a decrease of $16.9 billion since 31 March2009.
Excluding the impact of acquisitions and exchange rates, total liabilities decreased $1.0 billion (flat) from 30 September 2009and decreased $20.5 billion (5%) since 31 March 2009. Australia decreased $2.6 billion (1%), New Zealand decreased$2.7 billion (4%) and Asia Pacific, Europe & America increased $4.2 billion (9%) from 30 September 2009. The explanations
below describe the major movements from 30 September 2009 and where material, movements from 31 March 2009.
Due to other financial institutions Ø19% (Excl Exchange Rates Ø18%)
Due to other financial institutions decreased $3.9 billion to $16.1 billion at 31 March 2010 with reduced wholesale funding
required in Asia and New Zealand.
Deposits and other borrowings ×3% (Excl Exchange Rates ×4%)
Deposits and other borrowings increased $7.4 billion to $301.8 billion at 31 March 2010 driven by an increase in customer
deposits of $5.1 billion (2%) and an increase in commercial paper funding of $2.2 billion (9%). Excluding the impact of
exchange rate movements, deposits and other borrowing increased $12.2 billion (4%).
Australia increased $4.8 billion (3%) predominantly driven by an increase in wholesale funding within Group Treasury of$7.3 billion. Customer deposit growth in Deposits ($2.4 billion) was offset by decreases in Esanda of $1.2 billion following
the winding back of debentures and reduced volumes in Transaction Banking of $3.3 billion.
New Zealand decreased $4.1 billion (7%). Excluding the impact of exchange rates, the decrease was $0.9 billion (2%)
principally driven by a reduction in Institutional.
Asia Pacific, Europe & America increased $6.5 billion (16%). Excluding the impact of exchange rates and the RBS
acquisitions in Asia, the increase was $6.6 billion (17%) primarily from Singapore and Japan through successful initiatives toraise deposit levels and additional certificates of deposit issued in the United Kingdom and the United States for funding
requirements. The RBS acquisition increased deposits and other borrowings by $1.5 billion.
Exchange rate movements have heavily impacted growth since 31 March 2009. Excluding exchange rate movements andacquisitions, deposits and other borrowings increased $20.2 billion (7%) with growth in Australia of $6.8 billion (4%) andAsia Pacific, Europe & America of $14.9 billion (48%) partly offset by a reduction in New Zealand of $1.5 billion.
Derivative Financial Instruments Ø25% (Excl Exchange Rates Ø24%)
Derivative liabilities decreased $9.2 billion to $27.3 billion at 31 March 2010. The increase was driven principally byvolatility in foreign exchange, interest rate and credit derivative markets. Derivative balances have decreased since
30 September 2009 following the appreciation of the AUD against other currencies during the first half of 2010.
Bonds and notes ×2% (Excl Exchange Rates ×3%)
Bonds and notes increased $1.1 billion to $58.4 billion at 31 March 2010. The movement is mainly driven by a $2.1 billion
increase in term funding requirement with a decrease of $1 billion as a result of the appreciation of AUD when translated
from the original currency at end of period rate.

36

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Liquidity risk
Liquidity risk is the risk that the Group has insufficient capacity to fund increases in assets or is unable to meet its payment
obligations as they fall due, including repaying depositors or maturing wholesale debt. The timing mismatch of cash flows
and the related liquidity risk is inherent in all banking operations and is closely monitored by the Group.
Market liquidity continued to improve during the first half of the year, however funding costs remain high by historicalstandards. ANZ has continued to manage liquidity risks by maintaining a strong funding profile that is supported by aportfolio of liquid assets that provides coverage of offshore wholesale debt maturities for at least one year.
Both APRA and the Basel Committee have released discussion papers relating to potential changes to liquidity prudential
requirements. These proposals include enhancements to governance and other qualitative requirements, including therequirement 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. More significant however, are the proposed changes to thequantitative requirements, including changes to scenario stress tests and structural liquidity metrics. Whilst ANZ has anexisting stress scenario framework and effective structural liquidity risk metrics and limits in place, the requirements
proposed are in general more challenging. These changes may impact the future composition and size of ANZ’s liquid asset
portfolio, as well as the size and composition of the Bank’s funding base. These proposals are currently subject to local andinternational developments and industry consultation. Final requirements are unlikely to be known with certainty until 2012.
The management of the Group’s liquidity and funding risk incorporates the following key components.
•

Scenario Modelling
The Global financial crisis highlighted the importance of differentiating between: stressed and normal market conditions ina name-specific crisis; and the different behaviour that offshore and domestic wholesale funding markets can exhibit
during market stress events. Scenario modelling stresses site and total bank cash flow projections against multiple‘survival horizons’. (A ‘Survival Horizon’ is the period that the Group is required to remain cash flow positive under aspecific scenario or stress.) Scenarios modelled are either prudential requirements, i.e. a ‘going-concern’ scenario, or‘name crisis’ scenario; or Board approved events including ‘Name-specific’ stresses and ‘Funding market’ events. Under
these scenarios, customer and wholesale balance sheet asset/liability flows are stressed.

•

Funding metrics
ANZ manages its funding profile using a range of funding metrics and balance sheet disciplines. This approach isdesigned to ensure that an appropriate proportion of the Group’s assets are funded by stable funding sources includingcore customer deposits, longer-dated wholesale funding (with a remaining term exceeding one year) and equity. ANZ’s
funding profile strengthened further during the financial half year as a result of solid growth in customer deposits and theissuance of $17.7 billion of senior and subordinated term wholesale funding (issued largely to replace maturing term debt)
Customer deposits and other funding liabilities increased by 1% to $247.4 billion at 31 March 2010 (56% of total funding)from $242.4 billion (55% of total funding) at 30 September 2009. As a result, the Group’s proportional reliance on shortterm wholesale funding for the first half decreased to 14% from 17% as at 30 September 2009.

•

Wholesale funding
ANZ maintained access to all major wholesale funding markets. Benchmark term debt issues were executed in AUD,
USD, EUR, GBP, JPY, CAD, CHF and NZD. Short-term wholesale funding markets continue to function effectively, both
locally and offshore.
In aggregate the Group raised $17.7 billion of new senior and subordinated term funding (remaining term greater than
one year at the end of the financial year) during the March 2010 half, representing 71% of the current forecast FY10
requirement:−

The weighted average tenor of new term debt issuance lengthened to 5.2 years, as the tenor of new benchmark
transactions has been increased.

−

The weighted average cost of new term debt issuance decreased by 35 basis points during the first half as a result of
improved market conditions although the average portfolio cost continues to increase and remains substantiallyabove pre-crisis levels and is subject to market volatility.

−

In Feb 2010 the Australian Government announced that the Guarantee Scheme for Large Deposits and Wholesale
Funding will close to new liabilities on 31 March 2010. We do not expect the withdrawal of the AustralianGovernment Guarantee to have any adverse impact on ANZ’s funding activities.

−

ANZ has not used the Australian Government Guarantee for a benchmark debt issue since June 2009.

−

Guaranteed wholesale funding comprise only 5% of ANZ’s total funding.

ANZ continues to build and maintain strong, long-term relationships with wholesale debt investors. The Group’s
wholesale debt issuance program was supported by debt investor meetings held in Australia, Asia, the United States,
Canada, Europe and the United Kingdom.

37

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Liquidity risk, cont’d•Liquidity portfolio
The Group holds a diversified portfolio of cash and high-quality, highly-liquid securities that may be sold or pledged toprovide same-day liquidity. This portfolio helps protect the Group’s liquidity position by providing cash in a severely
stressed environment. All assets held in this portfolio are securities eligible for repurchase, under agreements with theapplicable central bank (i.e. repo eligible).
At 31 March 2010 the volume of eligible securities available, post any repurchase (i.e. “repo”) discounts applied by theapplicable central bank, was $63.2 billion. In addition, the liquidity portfolio provided cover against over one year ofoffshore wholesale debt maturities.
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 ratingsand continue to be repo eligible. Currently securities issued by 89 separate counterparties - comprising bank,government and agency issuers - are held in the portfolio.
Supplementing the prime liquid asset portfolio the Group holds additional cash and liquid asset balances. Our Markets
business also holds secondary sources of liquidity in the form of highly liquid instruments in its trading portfolios. Theseother assets are not included in the prime liquidity portfolio outlined below:
As at
Mar 10As at
Se p 09

As at
Mar 09

Prime liquidity portfolio (Marke t Va lues 1)

AUD $M

A UD $M

AUD $M

Australia

20,563

18,69421,750

New Zealand

8,506

8,771

7,376

United States

1,390

1,301

1,186

United Kingdom

2,521

2,939

3,469

Asia

3,564

1,984

-

Internal RMBS (Australia)

22,696

24,50822,876

Internal RMBS (New Zealand)
Total
Count erpa rty credit ra tings
Long t erm
count erpa rty

Market Va lue( post ha ircut)

2

AAA
A A+

7,567

6

AA

7,351

10

AA-

1,034

10

A+

104

3

A

208

4

63,177

89

Total
1.
2.

No. of

AUD $M
46,913Cre di t R ati ng

count erpa rties
56

Market value is post the repo discount applied by the applicable central bankWhere available, based on Standard & Poor’s long-term credit ratings

38

3,937

1,954

3,444

63,17760,151

60,101CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Liquidity risk, cont’d

The following table shows the Group’s funding composition.

Customer deposits and other liabilities1
Australia
Asia Pacific, Europe & America
New Zealand

As at
Mar 10

As at
Sep 09As at
Mar 09Movt
Movt
Mar 10Mar 10v. Sep 09 v. Mar 09
$M
%
%

$M

$M

151,438

153,481

147,464-1%

3%40,83530,487

29,62734%

38%

45,93949,17349,353-7%-7%

Other2

238,2129,196

233,141
9,297

226,444
10,359

2%
-1%

5%
-11%

Total customer deposits and other liabilities (funding)

Total customer deposits

247,408

242,438

236,8032%

4%Wholesale funding
Bonds and notes
Loan Capital

58,39013,51357,26013,42973,138
14,660

2%
1%

-20%
-8%

Certificates of deposit (wholesale)

44,69544,711

46,4050%-4%Commercial paper
Liability for acceptances

16,525
12,51014,227
13,762

16,15615,017

16%
-9%

2%
-17%

Due to other financial institutions

16,06819,924

18,314

-19%

-12%

2,325

1,572

(7,544)

48%

large

164,026

164,885

176,146-1%-7%

31,712

31,55827,496

0%

15%

11%

14%

15%

3%

3%

3%

Other wholesale borrowings3
Total wholesale funding
Shareholders' equity5
Total funding maturity
Short term wholesale funding
Liability for acceptancesLong term wholesale funding4- Less than 1 year residual maturity- Greater than 1 year residual maturity
Total customer deposits and other liabilities (funding)

5%

5%

6%

17%

15%

15%
54%

56%

55%

Shareholders' equity and hybrid debt

8%

8%

7%

Total funding and shareholders' equity

100%

100%

100%

1.

Includes term deposits, other deposits excluding Collateralised Loan Obligation and securitisation deposits and an adjustment to eliminate ING Australia
investments in ANZ deposit products

2.

Includes interest accruals, payables and other liabilities, provisions and net tax provisions, excluding other liabilities in ING

3.

Includes net derivative balances, special purpose vehicles, other borrowings and preference share capital Euro hybrids

4.

Long term wholesale funding amounts are stated at original hedged exchange rates. Movements due to currency fluctuations in actual amounts borrowed areclassified as short term wholesale funding

5.

Shareholders’ equity excludes preference share capital

39

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Capital management
As at
Ma r 10As at
Sep 09As at
Ma r 09

Core Tier 1 1

8.5%

9.0%

6.4%

Tier 1

10.7%

10.6%

8.2%

Tier 2

2.3%

3.1%

2.8%

Total Capital

13.0%

13.7%
252,069

11.0%
280,882

Risk Weighted Assets $M
1.

24 8,961

Core Tier 1 is Tier 1 excluding hybrid Tier 1 capital instruments

Further details of the components of capital and the capital adequacy calculation are set out on pages 113 to 115

The Basel II Accord principles took effect in Australia and New Zealand from 1 January 2008. For calculation of minimum
capital requirements under Pillar 1 (Capital Requirements) of the Basel II Accord, ANZ has been accredited by Australian
Prudential Regulation Authority (APRA) to use Advanced Internal Ratings Based (AIRB) methodology for credit risk weighted
assets and Advanced Measurement Approach (AMA) for the operational risk weighted asset equivalent.
Tier 1 Ratio
The Tier 1 ratio at March 2010 of 10.70% represents an increase from September 2009 of 14 basis points. The key
contributors to the increase were:•

underlying profit after preference share dividends of $2.3 billion (+91 basis points) and non-core and one-off items(-6 basis points) excluding write down of investment in ING joint venture.

•ordinary share dividend commitments net of expected reinvestment through the DRP and BOP of $0.8 billion (-32 basis
points)•increase in Risk Weighted Assets (RWA), excluding the impact of exchange rate movements was $1.0 billion due to:- acquisition of selected Asian assets from Royal Bank of Scotland (-3 basis points) and the loan book of Landmark
Financial Services (-10 basis points)- portfolio mix (+19 basis points)- risk migration incorporating decline in RWA (+9 basis points)- portfolio data review (+8 basis points)- higher non-credit risk RWA (-28 basis points), predominantly due to interest rate risk in the banking book•increase in investment/profit retention in funds management businesses, associates and commercial operations
excluding the impact of exchange rate movements (-6 basis points)•

additional net hybrid capital issuances of $1.6 billion (+63 basis points) used to strengthen the balance sheet•

acquisition from the ING Group of its 51% share in the ANZ – ING wealth management and life insurance joint venture inAustralia and New Zealand (-75 basis points)•

other items (net -16 basis points) including impact of exchange rate movements (-8 basis points) principally on hybrid
Tier 1 instruments, movement in capitalised software expense (-4 basis points) and other deductions (-4 basis points).

40

CHIEF FINANCIAL OFFICER’S REVIEW (CONTINUED)

Capital management, cont’dHybrid Capital and Tier 1 Capital

ANZ raises hybrid Tier 1 capital to further strengthen the Group’s capital base and supplement its Core Tier 1 capital position,
ensuring compliance with APRA’s prudential capital requirements and meeting Group operating targets for Tier 1. The total
amount of qualifying hybrid capital is known as Residual Tier 1 capital which is limited to 25% of Tier 1 capital. Innovative
Tier 1 capital, a sub category of Residual Tier 1 capital, is limited to 15% of Tier 1 capital. As at 31 March 2010, ANZ’s
hybrid usage and instrument details were as follows:
Instrument$M

UK Hybrid
ANZ Convertible
Preference Shares
ANZ Convertible
Preference Shares II
Non-innovative instruments

3,791Euro Trust Securities
US Stapled Trust Security% of Net
Tier 1 capital

Limit

Amount inissue currency

Accountingclassification

741£450 million

Debt

1,081

$1,081 million

Debt

Coupon 6.54%
90 day BBSW + 2.50%(gross pay equivalent)

1,969$1,969 million

Debt

90 day BBSW + 3.10%(gross pay equivalent)€500 million
USD750 million

EquityDebt

Euribor (3 month) + 0.66%
Coupon: 5.36%

871
819

Innovative instruments

1,690

6.3%

15%

Residual Tier 1 capital

5,481

20.6%

25%

Interest
rate

Regulatory change

In December 2009 the Basel Committee on Banking Supervision released a consultation paper containing a number of
proposals to strengthen the global capital and liquidity framework to improve the banking sector’s ability to absorb shocks
arising from financial and economic stress.
The consultation paper aims to increase the quality, consistency and transparency of the capital base, whilst strengthening
the risk coverage of the capital framework by:•

Increasing the focus on Fundamental Tier 1 capital and tightening the regulations for Hybrid Tier 1 capital
instruments;•

Increasing Tier 1 deductions, although a number of the proposals are consistent with the current APRA prudential
standards;•

Introducing measures to reduce the impact of pro-cyclical factors on the capital base and to promote the building ofcounter cyclical capital buffers; address the impact of systematic risk and inter connectedness risk; andsupplementing the risk adjusted capital ratio targets with a leverage ratio;•

Improving transparency of reporting capital ratio calculations in the financial statements;•

Increasing the capital requirements for traded market risk and securitisation transactions.

Although some aspects of the consultation paper are of concern and are the subject of ongoing dialogue with regulators, we
expect that new capital standards and regulations will be issued by the Basel Committee by the end of 2010, for
implementation in 2012, including associated transitional and grandfathering rules. It is not possible to accurately determine
the economic impact associated revisions required to ANZ’s capital management strategy including operating capital targets
until these standards and APRA’s subsequent application of these standards are finalised.

41

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Deferred acquisition costs and deferred income
The Group recognises deferred acquisition costs relating to the acquisition of interest earning assets as assets. The Groupalso recognised deferred income that is integral to the yield of an originated financial instrument, net of any direct
incremental costs. This income is deferred and recognised as net interest income over the expected life of the financial
instrument under AASB 139: ‘Financial Instruments: Recognition and Measurement’. Deferred acquisition costs relating to
ING Australia are excluded from this analysis.
The balances of deferred acquisition costs and deferred income were:De ferred I ncome

Defe rred Acquisit ion Costs1
Ma r 10

Sep 09Mar 09Mar 10

Sep 09

$M

$M

$M

$M

$M

$M

Australia

561

530

562

345

310

30 8

New Zealand

50

64

78

40

43

45

Asia Pacific, Eu rope & Am erica

1

3

3

40

38

50

612

597

643

425

391

40 3

Total
1.

Mar 09Deferred acquisition costs largely include the amounts of brokerage capitalised and amortised in the Business segments: Australia and New Zealand Businesses.
Deferred acquisition costs also include capitalised debt raising expenses

Deferred acquisition costs analysis:
Ha lf Ye ar Mar 2010

Half Year Sep 2009

Amortisati on
Charge$M

Ca pi tal ise dAustralia
New Zealand Businesses
Asia Pacific, Eu rope & Am erica
Total
1.

Ca pi talised

Costs1$M

Amortisat ion
Charge
$M

146

177

178

146

22

8

23

9

2

-

1

1

170

185

202

156

Costs 1
$M

Costs capitalised during the year exclude brokerage trailer commissions paid

Software capitalisation
At 31 March 2010, the Group’s intangibles included $1,034 million in relation to costs incurred in acquiring and developing
software. Details are set out in the table below:
Half
yea r
Mar 10
$M

Half
yea r
Sep 09
$M

Ha lf
Movt
Mov t
yea r
Ma r 10
Ma r 10
Ma r 09 v. Se p 09 v. Ma r 09
$M%%

Balance at start of period

849

723

625

17%

36%

Software capitalised during th e period

212

223

188

-5%

13%

Amortisation during the period

(86 )

(77)

(83)

12%

4%

Software written-off

(15 )

(20)

(7)

-25%

large

ING Australia and New Zealand acquisitions
Total software ca pi talisa tion

42

74

-

-

n/ a

n/a

1,034

849

723

22%

43%

SEGMENT REVIEW

Segment performance

Profit afte r tax

Half
yea r
Mar 10
$M

Half
yea r
Sep 09$M

Australia

1,385

1,416

Ha lf
Movt
Mov t
yea r
Ma r 10
Ma r 10
Ma r 09 v. Se p 09 v. Ma r 09
$M
%
%
668

-2%

large

Asia Pacific, Eu rope & Am erica

234

301

399

-22%

-41%

New Zealand

306

(191)

350

large

-13%

1,925

1,526

1,417

26%

36%

Half
year
Mar 10
$M
1,694

Half
year
Sep 09
$M
1,476

Half
Movt
Movt
year
Mar 10Mar 10Mar 09 v. Sep 09 v. Mar 09
$M
%
%
1,084
15%
56%

Asia Pacific, Europe & America

308

285

414

8%

-26%

New Zealand

296

103

410

large

-28%

2,298

1,864

1,908

23%

20%

Underlying profit excluding the impact of acquisitions andexchange rate movements

Half
year
Mar 10
$M

Half
year
Sep 09
$M

Half
Movt
Movt
year
Mar 10Mar 10Mar 09 v. Sep 09 v. Mar 09$M%%

Australia

1,659

1,465

1,098

13%

51%

309

245

299

26%

3%

Underlying Profit
Australia

Asia Pacific, Europe & America
New Zealand

287

106

389

large

-26%

2,255

1,816

1,786

24%

26%

Comparison to Half Year Sep 2009
Half Year Mar 2010
Growth Rate
Australia
Asia Pacific, Europe& America

1

IncomeExpenses

PBP

Credit

4

NPAT

735

1,694

4%

6%

3%

-25%

15%

102

308

-1%

1%

-3%

-34%

8%

Expenses

PBP

Credit

5,427

2,248

3,179

886

423

463

2

3

NPAT

IncomeNew Zealand

1,254

578

676

261

296

3%

-2%

7%

-46%

large

Total

7,567

3,249

4,318

1,098

2,298

3%

4%

3%

-32%

23%

New Zealand (NZD)

1,582

730

852

330

372

4%

-1%

7%

-45%

large

Comparison to Half Year Mar 2009
Half Year Mar 2010
Growth Rate
Australia
Asia Pacific, Europe& America

1

2

3

IncomeExpenses

PBP

CreditNPAT

IncomeExpenses

PBP

Credit

4

NPAT

5,427

2,248

3,179

735

1,694

19%

17%

21%

-31%

56%

886

423

463

102

308

-17%

-2%

-27%

-16%

-26%
-28%

New Zealand

1,254

578

676

261

296

-11%

-3%

-18%

8%

Total

7,567

3,249

4,318

1,098

2,298

7%

10%

5%

-23%

20%

New Zealand (NZD)

1,582

730

852

330

372

-7%

2%

-14%

13%

-25%

1.

PBP (profit before provisions) is profit before credit impairment and income tax

2.

Credit impairment expense

43

SEGMENT REVIEW (continued)

Australia region
Philip Chronican
Half
yea r
Mar 10
$M

Ha lf
year
Se p 09
$M

Hal f
Movt
Movt
ye ar
Mar 10Mar 10
Ma r 09 v. Sep 09 v. Mar 09$M%%

Net interest income

3,893

3,697

3,388

5%

15%

Other external operating income

1,534

1,512

1,165

1%

32%

Operating income

5,427

5,209

4,553

4%

19%

Operating expenses( 2,248)( 2,116)(1,918)

6%

17%

Profit before credit impairmen t and income tax

3,179

3,093

2,635

3%

21%

Provision for credit impairment

(735)

(981)

(1,072)

-25%

- 31%

Profit before tax

2,444

2,112

1,563

16%

56%

Income tax expense

(750)

(637)

( 476)

18%

58%

Non -controlling interests
Underlyi ng profit
Adjustments between statutory profit and underlyin g profit

1

-

1

(3)

-100%

- 100%

1,694

1,476

1,084

15%

56%

(309)

(60)

( 416)

large

- 26%

1,385

1,416

668

-2%

large

Retail

744

755

630

-1%

18%

Commercial

385

333

313

16%

23%

Wealth

140

3

10

large

large
- 100%

ProfitConsi sti ng of:

Other
Australia Division
Institu tional
Group Centre

-

(1)

1

-100%

1,269

1,090

954

16%

33%

477

419

238

14%

100%
- 52%

(52)

(33)

( 108)

58%

Underlyi ng profit

1,694

1,476

1,084

15%

56%

Adjustments between statutory profit and underlyin g profit 1

(309)

(60)

( 416)

large

- 26%

Profit

1,385

1,416

668

-2%

large

Net loans & advances including acceptances

254,249

24 7,148

252,479

3%

1%

Other external assets

106,913

7 7,594

90,55138%

18%

External assets

361,162

32 4,742

343,030

11%

5%

Customer deposits

151,438

15 3,481

147,464-1%

3%

Other deposits and borrowings

47,815

4 0,769

45,00517%

6%

Deposits and other borrowings

199,253

19 4,250

192,469

3%

4%

Other external liabilities

146,150

11 8,338

142,18124%

3%

Ba lance Sheet

External liabilities

345,403

31 2,588

334,650

10%

3%

Risk weighted assets

163,337

16 3,902

185,5710%- 12%

Average net loans and advances including acceptan ces

249,327

24 8,628

251,946

0%-1%

Average deposits and other borrowings

195,964

18 8,680

191,473

4%

2%

2.28%

-16%

- 42%

large

- 92%

23%

42%

11%

13%

Ra tios
Net interest average margin2.60 %

2.48%

Net interest average margin (exclu ding Global Markets)

2.87 %

2.70%

2.47%

Operating expenses to operating income

41.4 %

40.6%

42.1%

Operating expenses to average assets

1.26 %

1.23%

1.06%

753

897

1,290

0.60 %

0.72%

1.03%

Individual provision charge2
Individual provision charge2 as a % of average net advances
Collective provision charge

(18)

84

( 218)

Collective provision charge as a % of average net advances-0.01 %

0.07%

- 0.17%

Net impaired loans

2,675

2,171

1,889

Net impaired loans as a % of net advances

1.05 %

0.88%

0.75%

Total employees

22,433

2 0,231

19,877

1.

Refer pages 13 to 15 for explanation of adjustments. A reconciliation of statutory profit to underlying profit by geographical region is included within
Supplementary Information at page 112

2.

Includes credit valuation adjustments on defaulted or impaired exposures of $13 million (Sep 2009 half: $14 million reversal; Mar 2009 half: $91 million)

44

SEGMENT REVIEW (continued)

Australia region
Philip Chronican
Half
yea r
Mar 10
$M

Ha lf
year
Se p 09
$M

Movt
Movt
Hal f
Mar 10Mar 10ye ar
Ma r 09 v. Sep 09 v. Mar 09%%$M

Net interest income

3,878

3,698

3,383

5%

Other external operating income

1,377

1,496

1,194

-8%

15%

Operating income

5,255

5,194

4,577

1%

15%

Operating expenses( 2,137)( 2,116)(1,917)

1%

11%

Profit before credit impairmen t and income tax

3,118

3,078

2,660

1%

17%

Provision for credit impairment

(735)

(981)

(1,072)

-25%

- 31%

Profit before tax

2,383

2,097

1,588

14%

50%

Income tax expense

(724)

(633)

( 487)

14%

49%

-

1

(3)

-100%

- 100%

1,659

1,465

1,098

13%

51%

Underlyi ng profit excluding t he impact of acqui sit ions andex change rate mov ements

Non -controlling interests

Comparison to Half Yea r Se p 2009
Half Ye ar Mar 2010
Credit198

IncomeExpenses1

11%

Credit
- 6%

NPAT

3%

PBP
- 2%

2

744

69 8

151

385

6%

5%

7%

-1 3%

16%

17 7

(3)

140

large

51%

large

large

large
-100%

Expenses

Retail

2,187

925

PBP
1,26 2

Commercial

1,107

409

420

243

WealthOther2Growth R ate

NPAT

Income

1

15%

-1%

(2)

(2)

-

-

-

large

large

n/a

n/a

Australia Division

3,712

1,575

2,13 7

346

1,269

10%

13%

8%

-2 1%

16%

Institutional

1,581

523

1,05 8

379

477

-7%

-4%

- 8%

-3 3%

14%

Group Centre
Underlyi ng Profit
Adjustments b/t statprofit & underlying profit
Aust ra lia

134

150

(1 6)

10

(52)

-6%

-18%

- 60%

large

58%

5,427

2,248

3,179

735

1,694

4%

6%

3%

-25%

15%

(337)

40

(37 7)

(12)

(309)

large

large

large

large

large

5,090

2,288

2,802

723

1,385

1%

8%

-4%

-27%

-2%

2

NPAT

Comparison to Half Yea r Ma r 2009
Half Ye ar Mar 2010

Growth R ate

IncomeExpenses

744

10%

8%

69 8

151

385

7%

17 7

(3)

140

large

Retail

2,187

925

PBP
1,26 2

Commercial

1,107

409

420

243

Other

2

NPAT

Expenses

Wealth1Credit198

Income

1

PBP
12%

Credit
-1 3%

8%

7%

-2 7%

23%

79%

large

large

large
-100%

18%

(2)

(2)

-

-

-

large

large

- 100%

n/aAustralia Division

3,712

1,575

2,13 7

346

1,269

17%

15%

19%

-2 2%

33%

Institutional

1,581

523

1,05 8

379

477

12%

17%

9%

-3 9%

100%

Group Centre
Underlyi ng Profit
Adjustments b/t statprofit & underlying profit
Aust ra lia

134

150

(1 6)

10

(52)

large

50%

- 88%

n/a

-52%

5,427

2,248

3,179

735

1,694

19%

17%

21%

-31%

56%

(337)

40

(37 7)

(12)

(309)

-12%

-68%

- 26%

-8 0%

-26%

5,090

2,288

2,802

723

1,385

22%

12%

32%

-29%

la rge1.

PBP (profit before provisions) is profit before credit impairment and income tax

2.

Credit impairment expense

45

SEGMENT REVIEW (continued)

Australia region
Philip Chronican

Individual provision charge
Re tai l

Half
yea r
Mar 10
$M

Half
yea r
Sep 09
$M

Ha lf
yea r
Mar 09$M

Movt
Ma r 10v. Sep 09%

Movt
Mar 10v. Mar 09
%

174

204

181

-15%

-4%

Deposits

9

8

10

13%

- 10%

Mortgages

13

17

19

-24%

- 32%

146

164

146

-11%

0%

Consumer Cards andUnsecured L ending

6

15

6

-60%

0%

Commerci al

Other

119

171

146

-30%

-18%

Esanda

55

79

80

-30%

- 31%

Regional Commercial Banking

18

14

11

29%

64%

Business B anking

24

46

32

-48%

- 25%

Small Business B anking

22

32

23

-31%

- 4%

(2)

26

11

large

la rge

452

496

952

-9%

-53%

(1 )

7

5

large

large

Specialised & Relationship Lending

437

440

771

-1%

- 43%

Global Markets

13

(14)

91

large

- 86%

Other

3

63

85

-95%

- 96%

Weal thInst itutiona lTransaction Bankin gGroup Centre

Coll ective prov isi on charge
Re tai l

10

-

-

n/a

n/a

753

897

1,290

-16%

-42%

Half
yea r
Mar 10
$M

Half
yea r
Sep 09
$M

Ha lf
yea r
Mar 09$M

Movt
Ma r 10v. Sep 09%

Movt
Mar 10v. Mar 09
%

24

5

47

large

-49%

Deposits

3

2

2

50%

50%

Mortgages

8

15

2

-47%

large

12

(4)

39

large

- 69%

Consumer Cards andUnsecured L ending
Other

1

(8)

4

large

- 75%

32

3

60

large

-47%

Esanda

(7 )

10

33

large

large

Regional Commercial Banking

22

6

8

large

large

Business B anking

3

(8)

11

large

- 73%

Small Business Banking

14

(5)

8

large

75%

(1)

29

1

large

large

(73)

69

(326)

large

-78%

Commerci al

WealthInst itutiona lTransaction Bankin g

(5 )

6

(26)

large

- 81%

Specialised & Relationship Lending

(67 )

23

(223)

large

- 70%

Global Markets

(1 )

6

(3)

large

- 67%

Other

-

34

(74)

-100%

- 100%

-

(22)

-

-100%

n/a

(18)

84

(218)

large

-92%

Group Centre

46

SEGMENT REVIEW (continued)

Australia region
Philip ChronicanMovt
Ma r 10v. Sep 09%

Movt
Mar 10v. Mar 09%

145,9015%

9%136,534

5%

9%

9,255

8,927

6%

10%

549

506

440

8%

25%

Commercial

46,20843,81743,7515%

6%

Esanda15,002

14,716

14,8192%

1%

Regional Commercial Banking

13,752

11,32010,84621%

27%

Business Banking

14,12914,49415,025-3%- 6%

Small Business Banking

3,325

3,287

3,061

1%

9%

Weal th

2,949

2,810

2,603

5%

13%

Inst itutiona l

Net loans & advance s including accepta nces
Re tai l
Mortgages
Consumer Cards &Unsecured L ending
Other

Half
yea r
Mar 10
$M

Half
yea r
Sep 09$M

159,266

151,128

148,939

141,367

9,778

Ha lf
yea r
Mar 09$M

46,00149,39260,228-7%-24%

Transaction Bankin g

1,612

1,644

2,116

-2%

- 24%

Specialised & Relationship Lending

44,04245,90754,030-4%- 18%

Global Markets
Group Centre

347

1,841

4,082

-81%

- 92%

(175)

1

(4)

large

large

254,249

247,148

252,479

3%

1%

Movt
Ma r 10v. Sep 09%

Movt
Mar 10v. Mar 09%

Custome r de posits

Half
yea r
Mar 10
$M

Half
yea r
Sep 09$M

Re tai l

74,073

71,13765,417

4%

13%

9,531

9,049

8,520

5%

12%

201

200

104

1%

93%

64,25661,80856,739

4%

13%

85

80

54

6%

57%

31,53032,11532,384

-2%

-3%

879

2,041

6,051

-57%

- 85%
29%

Mortgages
Consumer Cards andUnsecured L ending
Deposits
Other
Commerci al
EsandaHa lf
yea r
Mar 09$M

Regional Commercial Banking

7,383

6,778

5,723

9%

Business Banking

11,798

12,114

11,082-3%

6%

Small Business Banking

11,47011,182

9,528

3%

20%

Wealth

1,329

1,348

1,175

-1%

13%

Inst itutiona l

46,571

48,855

48,408-5%-4%Transaction Bankin g

32,38435,72232,527-9%0%

Global Markets

13,291

11,97814,097

11%

- 6%

Other
Group Centre1

1.

Includes elimination of ING Australia investments in ANZ deposit products.

47

896

1,155

1,784

-22%

- 50%

(2,065)

26

80

large

la rge151,438

153,481

147,464-1%

3%

SEGMENT REVIEW (continued)

Australia division
Philip Chronican

Net interest income

Half
year
Mar 10
$M
2,681

Half
year
Sep 09
$M
2,521

Half
Movt
Movt
Mar 10year
Mar 10Mar 09 v. Sep 09 v. Mar 09
%
$M
%
2,358
6%
14%

Other external operating income

1,031

847

812

22%

27%

Operating income

3,712

3,368

3,170

10%

17%

Operating expenses(1,575)(1,390)(1,369)13%

15%

Profit before credit impairment and income tax

2,137

1,978

1,801

8%

19%

Provision for credit impairment

(346)

(439)

(446)

-21%

-22%

Profit before income tax

1,791

1,539

1,355

16%

32%

Income tax expense and non-controlling interests

(522)

(449)

(401)

16%

30%

Underlying profit

1,269

1,090

954

16%

33%
3%

Risk weighted assets

79,30374,22977,296

7%

Average net loans & advances including acceptances

202,105

194,979

189,090

4%

7%

Average deposits and other borrowings

105,756

101,291

98,0184%

8%Net interest margin

2.64%

2.56%

2.48%

Return on average assets

1.10%

1.09%

0.99%

Operating expenses to operating income

42.4%

41.3%

43.2%

Operating expenses to average assets

1.36%

1.39%

1.41%

291

401

339

-27%

-14%

0.29%

0.41%

0.36%
45%

-49%

18%

71%
18%

RatiosIndividual provision charge
Individual provision charge as a % of average net advances
Collective provision charge
Collective provision charge as a % of average net advances
Net impaired loans
Net impaired loans as a % of net advances

55

38

107

0.05%

0.04%

0.11%

499

424

292

0.24%

0.21%

0.15%

Total employees

16,761

14,117

14,21419%

Net loans and advances including acceptances

208,423

197,755

192,255

5%8%

Deposits and other borrowings

107,257

104,965

100,927

2%

6%

Underlyi ng profit excluding a cquisitions

Half
yea r
Mar 10
$M

Ha lf
year
Se p 09
$M

Movt
Movt
Hal f
Mar 10Mar 10ye ar
Ma r 09 v. Sep 09 v. Mar 09%%$M

Net interest income

2,667

2,521

2,358

6%

842

847

812

-1%

4%

Operating income

3,509

3,368

3,170

4%

11%

Operating expenses( 1,464)( 1,390)(1,369)

5%

7%

Profit before credit impairmen t and income tax

2,045

1,978

1,801

3%

14%

Other operatin g income

13%

Provision for credit impairment

(346)

(439)

( 446)

-21%

- 22%

Profit before income tax

1,699

1,539

1,355

10%

25%

Income tax expense and non-controlling interests

(487)

(449)

( 401)

8%

21%

Underlyi ng profit

1,212

1,090

954

11%

27%

48

SEGMENT REVIEW (continued)

Australia
Philip Chronican
Australia region comprises of Australia Division (including Retail, Commercial and Wealth segments), Australia Institutionaland some Group Centre items.
March 2010 half year compared to September 2009 half year

Profit for Australia region decreased 2%. After adjustments, underlying profit increased 15% and excluding the impact ofacquisitions, underlying profit increased 13%.
Net interest income increased 5% due to an increase in net interest margin of 12 basis points driven by Commercial andInstitutional, while average deposits grew by 4% and average net loans and advances were flat. Australia division increased
by 6% with improved margins of 8 basis points reflecting impact of asset repricing to recoup higher funding costs acrosssegments, partly offset by continued competition in deposit products. Growth in balance sheet volume for Australia division
was 4% in both average net loans and advances and deposits, mainly due to growth in Mortgages and Retail Deposits andacquisition of the Landmark lending book. Institutional (excluding Markets) increased 3% with lower lending and deposit
volumes offset by higher margins in the lending book. Net interest income in Markets (excluding the offset in other income)increased due to higher volumes and change in mix of trading and investment securities. Relationship Lending maintained
strong margin growth from repricing of the corporate lending book for risk while lending volumes declined earlier in the
March 2010 half year.
Other external operating income increased 1%. Excluding acquisitions, Australia division decreased by 1% mainly due to the
reduction in exception and other fees in Retail. Institutional, excluding the offset in net interest income, decreased with
Markets income lower after the increased earnings in 2009.
Operating expenses increased 6% or $132 million. Excluding acquisitions, Australia division increased by 5% due toincreased volume related personnel in collections, credit assessment and Small Business frontline, commercial property costs,
telecommunication costs and spend on initiatives. Expenses in Institutional decreased 4% with the September 2009 halfyear having higher remuneration.
Provision for credit impairment decreased $246 million (25%). The individual provision charge decreased by $144 million
driven by improved loss rates across most portfolios. Within Retail, improvements to both delinquency trends andbankruptcies have been steady, while fewer large single name provisions within Commercial and Institutional havecontributed to the improved result. The collective provision charge decreased by $102 million mainly due to Institutional as
actual losses crystallised and flowed through the March 2010 half year individual provision charge coupled with reduced
lending, partly offset by increases within Retail in line with seasonal trends.
March 2010 half year compared to March 2009 half year

Profit increased by $717 million. Underlying profit increased by $610 million or 56% and excluding the impact ofacquisitions, underlying profit increased 51%.
Net interest income increased 15% driven by a 32 basis point increase in net interest margin. Australia division net interest
margin increased 16 basis points reflecting higher margins in Retail and Commercial due to repricing for risk and the cost ofincreased funding, partly offset by lower margins on deposits resulting from competitive pressure and mix. Institutional net
interest margin increased on the back of repricing of the loan book and management of interest rate risk in Markets (Markets
total income increased by 46%). Average net loans and advances reduced by 1% overall, with growth in Australia division of
7% primarily in Mortgages and the acquisition of Landmark’s loan book, offset by a reduction in Institutional of 23%, driven
primarily in Relationship Lending associated with equity raisings and widespread de-leveraging prompting pay down of loanbalances. Specialised Lending was also impacted due to long lead times of lending demand from clients as the economy
slowly recovers. Average deposit growth was 2%, with growth in Australia division of 8% due to targeted frontline staff focus
on growing deposits primarily in Small Business, Retail Deposits and Regional Commercial businesses. Institutional averagedeposit growth was flat overall, taking into consideration maturity of $2.2bn CLO/Resonance transaction in the September
2009 half year.
Other external operating income increased 32%. Excluding acquisitions, Australia division grew 4% due to Retail benefitingfrom growth in volumes partly offset by the impact of lower exception and other fees and lower fee income from the industry
move to introduce ATM direct charging in March 2009. Excluding the offset in net interest income, Markets other income wasflat due to lower trading and sales revenues in March 2010 half year attributed to subdued volatility in rates and currency
markets, offset by increased revenue opportunities attributed to the reopening of the credit markets.
Operating expenses increased 17%. Excluding acquisitions, Australia division increased 7% mainly due to key projects,
volume growth, property costs and salary inflation. Operating expenses in Institutional increased by 17% due to the ramp
up of investment in key initiatives, additional staff and remuneration costs.
Provision for credit impairment decreased 31%. The individual provision charge decreased $537 million with high level ofprovisions incurred in the March 2009 half year in Institutional reducing significantly in the March 2010 half year and modest
improvements in the individual provision charge observed across all segments within Australia division. The collective
provision charge increased $200 million. The March 2009 half year was heavily influenced by collective provision releases toindividual provisions in Institutional following defaults by a number of large customers crystallising losses which were
provided for in 2008. Within Australia division, collective provision charge reduction was predominantly due to continued
delinquency and bankruptcy trend improvement.

49

SEGMENT REVIEW (continued)

INGA
Philip Chronican
For comparative purposes, the financial results of ING Australia presented below are based on 100% ownership for allreporting periods on a stand alone basis. These results do not represent the contribution to ANZ for the March 2010 half
given ANZ did not acquire full ownership of INGA until 30 November 2009.
Half
yea r
Mar 10
$M

Half
yea r
Sep 09
$M

210

211

191

- planned margin

165

168

161

-2%

2%

- experience profit 1

15

(18)

14

large

7%

Wealth management income

Ha lf
Movt
Mov t
yea r
Ma r 10
Ma r 10
Ma r 09 v. Se p 09 v. Ma r 09
$M
%
%
0%

10%

Insurance incom e- assumption changes 1

(3 )

3

19

large

large

177

153

194

16%

-9%

Operating income

387

364

385

6%

1%

Wealth management expenses(135 )

(144)

(144)

-6%

-6%

Insurance expenses

(75 )

(75)

(75)

0%

0%

Remediation expenses2

(11 )

(4)

(2)

large

large

Capitalised software write-offs

-

-

(25)

n/ a

-100%

Gross tax on operating profit

(47 )

(41)

(43)

15%

9%

119

100

96

19%

24%
large

Profit afte r tax , before
ca pital investment earni ngs
3

Capital investment earnings after tax

25

2

(50)

large

Profit afte r tax before non-control ling inte rests

144

102

46

41%

large

-

-

1

n/ a

-100%

144

102

47

41%

large

3%

19%

Non -controlling interests
ProfitPerformance mea sure s a t 100%
Value of new business4

62

60

52

54.3%

60.2%

56.9%

Retail & Mezzanine

24,217

24,125

21,1260%

15%

Employer Su per

11,994

11,211

9,325

7%

29%

Oasis

5,529

5,383

3,574

3%

55%

(21 )

1,820

248

large

large

G roup risk

422

410

427

3%

-1%

Individual risk

612

581

542

5%

13%

G eneral insurance

196

164

136

20%

44%

G roup & individual risk

121

121

123

0%

-2%

G eneral insurance

46

39

33

18%

39%

Aligned adviser numbers

1,874

1,561

1,596

20%

17%

Cost to income 5
Wealth Management: (FUM)

Wealth Management netflows
Insurance: ( In -Force)

New premiums

1.

Experience profit variations are gains or losses arising from actual experience differing from plan, primarily death and sickness. Assumption changes are gains orlosses arising from a change in valuation methods and best estimate assumptions

2.

Remediation expenses represent costs incurred to correct operational deficiencies

3.

Capital investment earnings after tax includes mark-to-market gains/(losses) on shareholder investment assets, annuity and capital-guaranteed products, andinterest on shareholder loans

4.

Value of new business represents the present value of future profits arising from the new business written over the periods less the present value of the cost ofcapital applying to that new business. It does not include the value of any associated imputation credits. Note prior period comparatives are reported using aconsistent discount rate to that applicable in the 2009 financial year5.

Cost to income ratio is management expenses (excluding remediation expenses & capitalised software write-offs) / total income

Ma r 10

In-

Out -

Other

$M

flo wsflo wsfl ows1$M

16,925

1,057( 1,149)

330

16,687

W eal th Manageme nt ca shflows
OneAnswer

Sep 09Other Personal Investm ent

5,825

146

(385)

114

5,950

Mezzanine

1,467

136

(281)

124

1,488

Employer Super

11,994

961

(531)

353

11,211

Oasis

5,529

388

(363)

121

5,383

Total

41,7402,688( 2,709)

1 ,042

40,719

1.

Other flows includes investment income net of taxes, fees and charges, distributions and timing

50

SEGMENT REVIEW (continued)

INGA
Philip Chronican
Ma r 10New

Insurance ca shflows$Mbusiness

Lapse s

$M

Group risk

422

36

(24)

410

Individual risk

612

85

(54)

581

Gen eral in surance

196

46

(14)

164

1,230

167

(92)

1,155

As at
Ma r 10

As a tSep 09Total

Total ca pital resources by equi ty cla ss
Share capital
Reserves
Retained earnings
Total ING Aust ra lia sharehol de r equity
Corporate debt
Total ING Aust ra lia ca pi tal re source

Se p 09$M$M

1 ,771

1,772

(57)

(58)

646

500

2 ,360

2,214

430

406

2 ,7902,620

Total ca pital resources by asset class
Australian equities

40

42

International fixed interest

109

102

Australian fixed interest

501

504

Cash

971

798

Total sha rehol de r funds

1 ,621

1,446

Other including intangibles 1

1 ,1691,174

Total ING Aust ra lia ca pi tal re source

2 ,7902,620

1.

Intangibles include goodwill, deferred acquisition cost and capitalised software

March 2010 half year compared to September 2009 half year

INGA delivered a $42 million or 41% uplift in profit, reflecting a combination of higher operating profit and higher capital
investment earnings. Relative stability in underlying investment markets is reflected in the Wealth Management operating
result, while the insurance operations continued to perform strongly in a competitive market, producing a 16% uplift inincome. In the aftermath of the global financial crisis, earnings on shareholder capital were restored to a more normalised
level, based on a relatively conservative asset allocation (2% equities, 7% international fixed income, 91% cash andAustralian fixed income)Operating expenses were well contained, in particular those related to the Wealth Management operations.
Wealth Management income flat, as average client balances were adversely affected by further market volatility in the firstquarter of 2010. Income from Insurance operations assisted by better than expected experience on the retail term anddisability books, and the non-recurrence of strengthening of reserves on the group life and group income protection books.
In-force premium grew 4% half-on-half, with growth achieved in all categories.
Capital investment earnings returned to more normalised levels as the impact of interest rate and inflation impacts on
reserve revaluations and capital-guaranteed book mark-to-market adjustments was reduced.
March 2010 half year compared to March 2009 half year

There was a $97 million or 220% uplift in profit over the prior comparative period. Operating profit rose $23 million or 24%
due to a combination of improved fee income from the Wealth Management businesses and reduced operating expenses.
Capital investment earnings returned to more normalised levels due to the non-recurrence of issues which adversely
impacted the first half 2009 : mark-to-market losses incurred in meeting legacy closed book capital-guaranteed obligations,
impact of interest rate changes on policy liability revaluations and realised losses incurred in the course of de-risking theshareholder investment portfolio during the global financial crisis.
Wealth Management income up 10%, with average client funds under management (FUM) growing 9% over the course of theyear. FUM market share now 8.4%, number 1 ranking retained amongst employer super providers (as rated by Heron
Partnership) for Corporate Super product.
The Insurance operations performed well in a highly competitive market. New business levels were maintained (despite theinclusion of significant group life one-offs in the prior comparative period), in-force premiums up 6% (13% in retail).
Insurance operating income lower due to the non-recurrence of a $19 million release of reserves from the annual review ofrisk assumptions.
Retail and disability claims experience remains favourable to valuation assumptions driven by improvements in the INGA
underwriting and claims management practices.
51

SEGMENT REVIEW (continued)
Asia Pacific, Europe & America region
Alex Thursby
Table reflects USD for the Asia Pacific, Europe & America region
AUD results shown on page 57

Half
year
Mar 10
USD M

Half
year
Sep 09
USD M

Half
Movt
Movt
year
Mar 10Mar 10Mar 09 v. Sep 09 v. Mar 09
USD M
%
%

Net interest income

350

320

298

9%

Other external operating income

453

404

417

12%

9%

Operating income

803

724

715

11%

12%

Operating expenses

(384)

(335)

(289)

15%

33%

Profit before credit impairment and income tax
Provision for credit impairment

419
(92)

389
(121)

426
(81)

8%
-24%

-2%
14%

Profit before income tax

327

268

345

22%

-5%

Income tax expense

(47)

(35)

(67)

34%

-30%
0%

Non-controlling interests

17%

(1)

1

(1)

large

Underlying profit

279

234

277

19%

1%

Adjustments between statutory profit and underlying profit1

(67)

10

(11)

large

large

Profit

212

244

266

-13%

-20%
38%

Consisting of:Retail

11

7

8

57%

Asia Partnerships

149

146

97

2%

54%

Institutional

170

142

197

20%

-14%

Wealth

2

(1)

(4)

large

large

Operations and Support

(55)

(50)

(19)

10%

large

Asia Pacific, Europe & America Division

277

244

279

14%

-1%

2

(10)

(2)

large

large

Underlying profit

279

234

277

19%

1%

Adjustments between statutory profit and underlying profit1
Profit

(67)
212

10
244

(11)
266

large
-13%

large
-20%

Geographic segments:
Asia

10%

Other

145

143

132

1%

Pacific

63

53

60

19%

5%

Europe & America

71

38

85

87%

-16%

Underlying profit

279

234

277

19%

1%

Adjustments between statutory profit and underlying profit1
Profit

(67)

10

(11)

large

large

212

244

266

-13%

-20%

Balance Sheet
Net loans & advances including acceptances

17,727

16,662

15,507

6%

14%

Other external assets

29,142

27,65020,6005%41%

External assets

46,86944,312

36,107

6%

30%

Customer deposits

37,38826,805

20,310

39%

84%

Other deposits and borrowings

6,337

9,455

7,760

-33%

-18%

Deposits and other borrowings

43,72536,26028,070

21%

56%

Other external liabilities

5,264

7,358

6,127

-28%

-14%

External liabilities

48,98943,61834,197

12%

43%

Risk weighted assets
Average net loans and advances including acceptances

31,346
17,03429,241
15,781

27,463
16,231

7%

14%

8%

5%

Average deposits and other borrowings

42,66832,806

27,643

30%

54%

87%

large

-95%

-90%

90%

56%

16%

30%

Ratios
Net interest average margin

1.45%

1.72%

1.69%

Net interest average margin (excluding Global Markets)

2.59%

2.60%

2.22%

Operating expenses to operating income
Operating expenses to average assets

47.8%
1.37%

46.2%
1.54%

40.4%
1.44%

Individual provision2 charge

88

47

42

Individual provision3 charge as a % of average net advances
Collective provision charge

1.05%

0.64%

0.36%

4

74

39

Collective provision charge as a % of average net advances

0.05%

1.07%

0.50%

Net impaired loans

186

98

119

Net impaired loans as a % of net advances

1.05%

0.59%

0.77%

Total employees

9,902

8,554

7,609

1.

Refer pages 13 to 15 for explanation of adjustments. A reconciliation of statutory profit to underlying profit by geographical region is included at page 112

2.

Includes impairment expense on available-for-sale assets of $18 million (Sep 2009 half: $nil; Mar 2009 half: $13 million)3.

For the purposes of this ratio the individual provision charge excludes impairment expense on available-for-sale assets

52

SEGMENT REVIEW (CONTINUED)
Asia Pacific, Europe & America region
Alex Thursby
Compa ri son t o Ha lf Ye ar Se p 2009 USD M
Growth Ra te
Ha lf Ye ar Mar 2010 USD M
RetailIncomeExpenses

188

144

1

PBP
44

2

Credit25

NPAT

IncomeExpenses

11

17%

24%

1

PBP
0%

2

Credit
-2 4%

NPAT
57%

Asia Partnerships

154

3

151

-

149

1%

-40%

2%

n/a

2%

Institutional

481

195

286

59

170

16%

13%

19%

9%

20%

Wealth

27

21

5

2

2

23%

0%

large

0%

large

Operations & Support

(13)

49

( 61)

6

(55)

63%

69%

65%

-5 7%

10%

Asia Pacific, Eu ropean d America division

837

412

425

92

277

13%

20%

7%

-1 1%

14%

Other

(34)

( 28)

( 6)

-

2

large

large

- 25%

-10 0%

large

Underlyi ng Profit

803

384

419

92

279

11%

15%

8%

-24%

19%

-

72

( 72)

-

(67)

-100%

large

large

n/a

large

803

456

347

92

212

9%

37%

-14%

-24%

-13%

2

Adjustments b/t statprofit & underlying profit
ProfitCompa ri son t o Ha lf Ye ar Se p 2009 USD M
Ha lf Ye ar Mar 2010 USD M
Growth Ra te
IncomeExpenses

PBP1

Asia

481

274

207

Pacific

16771

Europe & America

155

39

Underlyi ng Profit

803

384

803

Adjustments b/t statprofit & underlying profit
ProfitCredit62

2

NPAT

IncomeExpenses

PBP 1

12%

20%

2%

Credit
9%

NPAT

145

96

6

63

11%

15%

9%

-5 7%

19%

116

24

71

8%

-11%

17%

-5 2%

87%

419

92

279

11%

15%

8%

-24%

19%

72

( 72)

-

(67)

-100%

large

large

n/a

large

456

347

92

212

9%

37%

-14%

-24%

-13%

2

NPAT

1.

PBP (profit before provisions) is profit before credit impairment and income tax

2.

Credit impairment expense

1%Compa ri son t o Ha lf Ye ar Mar 2009 USD M
Growth Ra te
Ha lf Ye ar Mar 2010 USD M
IncomeExpenses

Retail

188

Asia Partnerships
Institutional

1

2

1

29%

PBP
16%

Credit
0%

50%

0%

51%

n/a

54%

170

3%

36%

- 12%

1 1%

-14%

Credit25

NPAT

IncomeExpenses

144

PBP
44

11

25%

154

3

151

-

149

481

195

286

59

38%

Wealth

27

21

5

2

2

42%

5%

large

-3 3%

large

Operations & Support

(13)

49

( 61)

6

(55)

44%

large

large

n/a

large

Asia Pacific, Eu ropean d America division

837

412

425

92

277

14%

39%

- 2%

1 4%

-1%

Other

(34)

( 28)

( 6)

-

2

100%

large

- 33%

n/a

large

Underlyi ng Profit

803

384

419

92

279

12%

33%

-2%

14%

1%

-

72

( 72)

-

(67)

-100%

large

large

-10 0%

large

803

456

347

92

212

15%

58%

-15%

15%

-20%

Credit

2

NPAT
10%

Adjustments b/t statprofit & underlying profit
ProfitCompa ri son t o Ha lf Ye ar Mar 2009 USD M
Ha lf Ye ar Mar 2010 USD M
1

Growth Ra te
2

1

IncomeExpenses

PBP

CreditNPAT

IncomeExpenses

PBP

Asia

481

274

207

62

145

34%

54%

14%

8 2%

Pacific

167

71

96

6

63

6%

15%

2%

-4 0%

5%

Europe & America

155

39

116

24

71

-22%

-20%

- 23%

-3 5%

-16%

Underlyi ng Profit

803

384

419

92

279

12%

33%

-2%

14%

1%

-

72

( 72)

-

(67)

-100%

large

large

-10 0%

large

803

456

347

92

212

15%

58%

-15%

15%

-20%

Adjustments b/t statprofit & underlying profit
Profit1.

PBP (contribution before provisions) is profit before credit impairment and income tax

2.

Credit impairment expense

53

SEGMENT REVIEW (continued)

Asia Pacific, Europe & America region
Alex Thursby
Half
year
Mar 10
USD M
23

Half
year
Sep 09
USD M
23

Half
year
Mar 09
USD M
18

Asia

18

17

11

6%

64%

Pacific

5

6

7

-17%

-29%
large

Individual provision charge
RetailInstitutional

Movt
Mar 10v. Sep 09
%
0%

Movt
Mar 10v. Mar 09
%
28%

63

22

24

large

Transaction Banking

23

10

-

large

n/a

Specialised & Relationship Lending

22

12

9

83%

large

Global Markets

18

-

15

n/a

20%

2

2

-

0%

n/a

88

47

42

87%

large

50

37

17

35%

large

Pacific

5

7

6

-29%

-17%

Europe & America

33

3

19

large

74%

88

47

42

87%

large

Half
year
Mar 10
USD M

Half
year
Sep 09
USD M

Half
year
Mar 09USD M

Movt
Mar 10v. Sep 09%

Movt
Mar 10v. Mar 09%

Retail

2

8

8

-75%

-75%

Asia

1

2

4

-50%

-75%

Pacific

1

6

4

-83%

-75%
large

WealthIndividual provision charge
Asia

Collective provision charge

Institutional

(4)

33

28

large

Transaction Banking

(1)

2

1

large

large

Specialised & Relationship Lending

1

23

25

-96%

-96%

Global Markets

(4)

8

2

large

large

Wealth

-

1

3

-100%

-100%

Operations & Support

6

14

-

-57%

n/a

Other

-

18

-

-100%

n/a

4

74

39

-95%

-90%

Collective provision charge
Asia

13

21

17

-38%

-24%

Pacific

1

6

4

-83%

-75%

large

large

Europe & America

54

(10)

47

18

4

74

39

SEGMENT REVIEW (continued)

Asia Pacific, Europe & America region
Alex Thursby
Half
year
Mar 10USD M
2,669

Net loans & advances including acceptances
RetailHalfyear
Sep 09
USD M
2,421

Half
year
Mar 09
USD M
2,266

Movt
Mar 10v. Sep 09
%
10%

Movt
Mar 10v. Mar 09
%
18%

Asia

676

414

365

63%

85%

Pacific

1,993

2,007

1,901

-1%

5%

Institutional

13,93813,121

12,2356%

14%

Transaction Banking

4,156

2,955

1,732

41%

large

Specialised & Relationship Lending

9,333

9,707

9,995

-4%

-7%

Other

449

459

508

-2%

-12%

Wealth

1,153

1,115

1,002

3%

15%

(33)

5

4

large

large

17,727

16,662

15,507

6%

14%

52%

Other

Net loans & advances including acceptancesAsia

10,608

8,879

6,962

19%

Pacific

1,995

2,007

1,901

-1%

5%

5,124
17,727

5,776
16,662

6,644
15,507

-11%
6%

-23%
14%

Half
year
Mar 10
USD M

Half
year
Sep 09
USD M

Half
year
Mar 09USD M

Movt
Mar 10v. Sep 09%

Movt
Mar 10v. Mar 09
%

5,469

4,641

3,919

18%

40%

2,364

1,669

1,174

42%

large

3,105

2,972

2,745

4%

13%

28,831

19,147

13,751

51%

large
large

Europe & America

Customer deposits
RetailAsia
Pacific
Institutional
Transaction Banking

12,028

6,874

3,124

75%

16,622

11,818

10,175

41%

63%

Other

181

455

452

-60%

-60%

Wealth

3,045

3,014

2,638

1%

15%

Global Markets

Other

Customer deposits
Asia

43

3

2

large

large

37,38826,805

20,31039%

84%

22,605

15,90010,89842%

large

Pacific

3,106

2,971

2,745

5%

13%

Europe & America

11,677

7,934

6,667

47%

75%

37,38826,805

20,310

39%

84%

55

This page has been left blank intentionally

56

SEGMENT REVIEW (continued)
Asia Pacific, Europe & America region
Alex Thursby

Table reflects AUD for the Asia Pacific, Europe & America region
USD results shown on page 52

Half
year
Mar 10
$M

Half
year
Sep 09$M

Net interest income

387

399

447

-3%

Other external operating income

499

497

624

0%

-20%

Operating income

886

896

1,071

-1%

-17%

Operating expenses

(423)

(419)

(433)

1%

-2%

Profit before credit impairment and income tax

463

477

638

-3%

-27%

Provision for credit impairment

(102)

(154)

(122)

-34%

-16%

Profit before income tax

361

323

516

12%

-30%

Income tax expense

(52)

(39)

(101)

33%

-49%

Non-controlling interests

(1)

1

(2)

large

-50%

308
(74)

285
16

414
(15)

8%
large

-26%
large

234

301

399

-22%

-41%

Underlying profit
Adjustments between statutory profit and underlying profit1
ProfitConsisting of:Retail

Half
Movt
Movt
year
Mar 10Mar 10Mar 09 v. Sep 09 v. Mar 09
$M
%
%
-13%

13

9

12

44%

8%

Asia Partnerships

164

187

146

-12%

12%

Institutional

187

168

294

11%

-36%

2

(1)

(5)

large

large

Operations and Support

(61)

(66)

(28)

-8%

large

Asia Pacific, Europe & America Division

305

297

419

3%

-27%

WealthOther
Underlying profit

3

(12)

(5)

large

large

308

285

414

8%

-26%

Adjustments between statutory profit and underlying profit1

(74)

16

(15)

large

large

Profit

234

301

399

-22%

-41%

Geographic segments:
Asia

160

180

198

-11%

-19%

70

64

90

9%

-22%

Pacific
Europe & America

78

41

126

90%

-38%

Underlying profit

308

285

414

8%

-26%

Adjustments between statutory profit and underlying profit1

(74)

16

(15)

large

large

Profit

234

301

399

-22%

-41%

Balance Sheet
Net loans & advances including acceptances

19,362

18,952

22,622

2%-14%

Other external assets

31,82831,44830,0501%

6%

External assets

51,19050,40052,672

2%-3%

Customer deposits

40,83530,487

29,627

34%

38%

Other deposits and borrowings

6,921

10,754

11,322-36%-39%

Deposits and other borrowings

47,756

41,24140,94916%

17%

Other external liabilities

5,748

8,370

8,937

-31%

-36%

External liabilities

53,504

49,61149,886

8%

7%

Risk weighted assets
Average net loans and advances including acceptances

34,23518,801

33,25919,83240,06324,310

3%

-15%

-5%

-23%

Average deposits and other borrowings

47,09541,22741,401

14%

14%

66%

58%

-96%

-93%

82%

18%

16%

30%

Ratios
Net interest average margin

1.45%

1.72%

1.69%

Net interest average margin (excluding Global Markets)

2.59%

2.60%

2.23%

Operating expenses to operating income

47.8%

46.2%

40.4%

Operating expenses to average assets

1.37%

1.54%

1.44%

98

59

62

Individual provision3 charge as a % of average net advances
Collective provision charge

1.05%

0.65%

0.36%

4

95

60

Collective provision charge as a % of average net advances

0.05%

1.07%

0.50%

Individual provision2 charge

Net impaired loans

204

112

173

Net impaired loans as a % of net advances

1.05%

0.60%

0.77%

Total employees

9,902

8,555

7,610

1.

Refer pages 13 to 15 for explanation of adjustments. A reconciliation of statutory profit to underlying profit by geographical region is included at page 112

2.

Includes impairment expense on available-for-sale assets of $20 million (Sep 2009 half: $nil; Mar 2009 half: $20 million)3.

For the purposes of this ratio the individual provision charge excludes impairment expense on available-for-sale assets

57

SEGMENT REVIEW (continued)

Asia Pacific, Europe & America division
Alex Thursby
Half
yea r
Mar 10
USD M

Ha lf
yea r
Se p 09
USD M

Ha lf
Mov t
Movt
year
Ma r 10
Mar 10
Ma r 09 v. Sep 09 v. Mar 09
USD M
%
%

Net interest income

383

340

314

13%

22%

Other external operating income

454

401

418

13%

9%

Operating income

837

741

732

13%

14%

Operating expenses

(412)

(345)

(297)

19%

39%

Profit before credit impairmen t and income tax

425

396

435

7%

-2%

Provision for credit impairment

(92)

(103)

(81)

-11%

14%

Profit before income tax

333

293

354

14%

-6%

Income tax expense and non-controlling interests

(56)

(49)

(75)

14%

-25%

Underlying profit

277

244

279

14%

-1%

Risk weighted assets

31,082

28,994

26 ,976

7%

15%

Average net loans & advances in cluding acceptances

17,034

15,781

16 ,231

8%

5%

Average deposits and other borrowings

42,66432,80627 ,64230%

54%

Net interest margin

1.66%

1.92%

1.85%

Net interest average margin (exclu ding Global Markets)

2.74%

2.52%

2.16%

Retu rn on average assets

1.04%

1.18%

1.45%

Operating expenses to operating income

49.3%

47.1%

40.6%

Operating expenses to average assets

1.56%

1.71%

1.54%
87%

large

-93%

-90%

90%

58%
26%

Ra tios

1

Individual provision charge
2

Individual provision charge as a % of average net advances
Collective provision charge
Collective provision charge as a % of average net advances
Net impaired loans
Net impaired loans as a % of net advances

88

47

41

1.03%

0.59%

0.35%

4

56

40

0.04%

0.71%

0.49%

187

98

118

1.05%

0.59%

0.76%

Total employees

6,570

5,677

5 ,231

16%

Net loans and advances including acceptances

17,727

16,661

15 ,5076%

14%

Deposits and other borrowings

43,721

36,255

28 ,066

21%

56%

1.

Includes impairment expense on available-for-sale assets of $20 million.

2.

For the purpose of this ratio the individual provision charge excludes impairment expense on available-for-sale assets

58

SEGMENT REVIEW (continued)

Asia Pacific, Europe & America
Alex Thursby
March 2010 half year compared to September 2009 half year

Underlying profit grew a solid 19% compared with the September 2009 half with good growth in all the businesses, except
for the Asia Partnerships. The positive impact of the reversal of the Saigon Securities Incorporation (SSI) impairment charge
in the March 2010 half was partially offset by the timing of the adjustments recorded in the September 2009 half in relation
to our share of earnings from prior periods of Bank of Tianjin (BoT) in China and AMMB Holdings Berhad (AMMB) in Malaysia.
Profit for the March 2010 half of USD212 million was 13% lower than the September 2009 half, mainly due to costs
associated with the RBS integration.
Key factors affecting the result were:•

Strong balance sheet growth contributed to net interest income increasing 9%. Both net loans and advances andother external assets registered steady growth half on half. The growth momentum in customer deposits continued,
resulting in an increase of 39% half on half. Margins were 27 basis points lower due to narrowing credit spreads anda higher proportion of lower yielding assets arising from increased liquidity from strong growth in customer deposits.

•

Other external operating income increased by 12%, driven primarily by higher fees and other income in the Global
Markets business.

•

The 15% increase in operating expenses reflected continued investments in expanding distribution across the region
and increased resources to support the growth agenda. Employees increased by 1,348, including 384 from the RBS
businesses acquired in Hong Kong.

•

Provisions for credit impairment was 24% lower half on half. The significant increase in the individual provision
charges was associated with a few large Institutional customers and legacy issues from certain US bonds. This wasmore than offset by the lower collective provision charges as a result of releases associated with the above
individual provision charges, no concentration risk provision charge (in comparison to what was set aside in the
September 2009 half) and the additional charges taken in the September 2009 half relating to the refinement to thecollective provision calculation.

During the March 2010 half, we completed the acquisitions of the RBS businesses in the Philippines, Vietnam and Hong Kong.
The contribution of those businesses to the results for the March 2010 half was not significant.

March 2010 half year compared to March 2009 half year

Underlying profit was flat compared with the March 2009 half which included significant additional earnings from theInstitutional business arising from increased market volatility due to the global financial crisis. Ongoing investments in the
Retail and Wealth businesses in Asia have started to yield returns with solid earnings growth recorded in the March 2010 half.
The contribution by the Asia Partnerships benefited from the reversal in the March 2010 half of the impairment charge takenin the March 2009 half relating to the carrying value of our investment in SSI in Vietnam following a sustained recovery inthe share price. Profit for the March 2010 half was 20% lower than the March 2009 half, mainly due to costs associated with
the RBS integration.
Key factors affecting the result were:•

Net interest income was 17% higher compared with the corresponding half in 2009, following strong balance sheet
growth. Overall external assets increased by 30% due to significant increases in net loans and advances by Transaction
Banking and increased Global Markets activities. Customer deposits were 84% higher, further improving our deposits toloans ratio to 211%. Overall, margins were 24 basis points lower as credit spreads narrowed compared with the March2009 half when the markets experienced extremely tight liquidity and high volatility.

•

Other external operating income grew 9% primarily from the increased earnings from the Asia Partnerships in the March2010 half. This was offset by the decrease in Institutional income from the exceptional results achieved in the March2009 half.

•

Operating expenses increased 33% as a result of our continued investment in the key strategic markets of Indonesia,
Vietnam and China as well as building regional operating and support capabilities. Employees increased by 2,293,
including 384 from the RBS businesses we acquired in Hong Kong. We continued to build core front line capability in theregion and increase our operations and technology support staff in Bangalore.

•

The provision charges for credit impairment increased by 14%. The significant increase in the individual provision
charges was associated with a few large Institutional customers and legacy issues from certain US bonds. This waspartially offset by lower collective provision charges due to releases associated with those individual provision charges
and a lower concentration risk provision charge.

59

SEGMENT REVIEW (continued)

New Zealand region
Jenny Fagg
Table reflects NZD results for New Zealand region
AUD results shown on page 63

Half
yea r
Mar 10
NZD M

Ha lf
year
Se p 09
NZD M

Movt
Movt
Ha lf
Mar 10Mar 10y ear
Ma r 09 v. Sep 09 v. Mar 09
%
%
NZD M

Net interest income

1,149

1,114

1,188

3%

-3%

433

413

516

5%

-16%

Operating income

1,582

1,527

1,704

4%

-7%

Operating expenses

(730)

(734)

(714)

-1%

2%

Profit before credit impairmen t and income tax

852

793

990

7%

-14%

Provision for credit impairment

(330)

(598)

(291)

-45%

13%

Profit before income tax

522

195

699

large

-25%

Income tax expense

(150)

(61)

(205)

large

-27%

372

134

494

large

-25%

14

(361)

(73)

large

large

386

(227)

421

large

-8%

Other external operating income

Underlying profit
Adjustments between statutory profit and underlyin g profit

1

Profit/(Loss)
Consi sti ng of:Retail

137

75

168

83%

-18%

Commercial

59

(13)

133

large

-56%

Wealth

21

6

7

large

large

-

(2)

11

-100%

- 100%

Operations & Support
New Zealand Businesses

217

66

319

large

-32%

Institu tional

194

127

240

53%

-19%

Other
Underlying profit
Adjustments between statutory profit and underlyin g profit

1

Profit/(Loss)

(39)

(59)

(65)

-34%

-40%

372

134

494

large

-25%

14

(361)

(73)

large

large

386

(227)

421

large

-8%

Ba lance Sheet
Net loans & advances including acceptances

95,717

9 7,023

98,484-1%-3%

Other external assets

25,162

2 6,464

30,248-5%-17%

External assets

120,879

12 3,487

128,732-2%-6%

Customer deposits

59,345

5 9,93159,553-1%

0%

Other deposits and borrowings

11,366

1 1,829

13,066-4%-13%

Deposits and other borrowings

70,7117 1,760

72,619-1%-3%

Other external liabilities

26,172

2 8,824

35,789-9%-27%

External liabilities

96,883

10 0,584

108,408-4%-11%

Risk weighted assets

66,302

6 6,92266,668-1%-1%

Average net loans and advances including acceptan ces

95,595

9 6,754

97,991-1%-2%

Average deposits and other borrowings

72,167

7 2,222

76,561

0%

-6%

2.14%

-34%

25%

-68%

-18%

58%

large

4%

3%

Ra tios
Net interest average margin

2.0 9%

2.03%

Net interest average margin (exclu ding Global Markets)

2.0 7%

1.96%

2.04%

Operating expenses to operating income

46.1%

48.1%

41.9%

Operating expenses to average assets

1.1 8%

1.15%

1.09%

267

404

214

0.5 6%

0.83%

0.44%

63

194

77

Collective provision charge as a % of average net advances

0.1 3%

0.40%

0.16%

Net impaired loans

1,120

711

337

Net impaired loans as a % of net advances

1.1 7%

0.73%

0.34%

Total employees

9,276

8,879

9,028

Individual provision 2 charge
Individual provision charge as a % of average net advances
Collective provision charge

1.

Refer pages 13 to 15 for explanation of adjustments. A reconciliation of statutory profit to underlying profit by geographical region is included within
Supplementary Information at page 112

2.

Includes credit valuation adjustments on defaulted or impaired exposures of NZD5 million (Sep 2009 half: NZD6 million; Mar 2009 half: NZD1 million)

60

SEGMENT REVIEW (continued)

New Zealand region
Jenny Fagg
Compa ri son t o Ha lf Ye ar Se p 2009
Growth R ate
Ha lf Ye ar Mar 2010 (NZD M)
1

2

IncomeExpenses

Retail

781

445

PBP
336

Credit142

Commercial

434

140

294

208

59

4%

Wealth

72

53

19

2

21

large

Operations & Support

4

5

(1)

-

-

large

large

New Zealand Businesses

NPAT

IncomeExpenses

1 37

-2%

-4%

1

2

PBP
0%

Credit
- 38%

NPAT

2%

5%

- 30%

large

large

large

- 33%

large

-67%

n/a

-1 00%
large

83%

1,291

643

648

352

2 17

4%

4%

5%

- 34%

Institutional

329

76

253

( 21)

1 94

-1%

-12%

3%

large

53%

Other

(38)

11

(49)

-

( 39)

-12%

-61%

-32%

- 100%

- 35%

1,582

730

852

330

372

4%

-1%

7%

-45%

la rge

(17)

16

(34)

( 5)

14

-90%

n/a

-81%

- 17%

large

New Zea land

1,565

746

818

325

386

16%

2%

34%

-45%

la rgeUnderlyi ng profit
ex cl uding acquisiti ons

1,542

698

844

330

361

1%

-5%

6%

-45%

l arge2

Underlyi ng Profit
Adjustments b/t statprofit & underlying profit

Compa ri son t o Ha lf Ye ar Mar 2009
Growth R ate
Ha lf Ye ar Mar 2010 (NZD M)
IncomeExpenses

Retail781

Commercial

1

2

1

Credit
14%

NPAT

0%

PBP
-8%

-3%

3%

-5%

73%

- 56%

21

large

large

90%

- 33%

large

-

-85%

-64%

large

n/a

-1 00%

Credit142

NPAT

IncomeExpenses

445

PBP
336

1 37

-4%

434

140

294

208

59

Wealth

72

53

19

2

Operations & Support

4

5

(1)

-

1,291

643

648

352

2 17

-2%

4%

-7%

42%

- 32%

329

76

253

( 21)

1 94

-26%

-5%

-30%

large

- 19%

New Zealand Businesses
Institutional
Other

- 18%

(38)

11

(49)

-

( 39)

-30%

-35%

-31%

- 100%

- 39%

1,582

730

852

330

372

-7%

2%

-14%

13%

-25%

(17)

16

(34)

( 5)

14

-79%

-36%

-68%

large

large

New Zea land

1,565

746

818

325

386

-4%

1%

-7%

12%

-8%

Underlyi ng profit
ex cl uding acquisiti ons

1,542

698

844

330

361

-5%

-6%

-5%

14%

-14%

Underlyi ng Profit
Adjustments b/t statprofit & underlying profit

1.

PBP (profit before provisions) is profit before credit impairment and income tax

2.

Credit impairment expense

61

SEGMENT REVIEW (continued)

New Zealand region
Jenny Fagg
Half
yea r
Mar 10
NZD M

Ha lf
yea r
Se p 09
NZD M

Ha lf
year
Ma r 09
NZD M

144
123

186
165

Corporate & Comm ercial Banking

71

Rural Bankin g

37

Individual provi sion charge
Re tai l
Commerci al

OtherInst itutiona lSpecialised & Relationship Lending
Transaction Bankin g
Global Markets
Weal thColl ective prov ision charge
Re tai l
Commerci al

Movt
Mar 10v. Sep 09%

Movt
Mar 10v. Mar 09
%

106
104

-23%
-25%

36%
18%

107

74

-34%

-4%

40

12

-8%

large

15

18

18

-17%

-17%

( 1)

50

2

l argela rge
n/ a

17

-

-

n/a

(24)

45

-

large

n/ a

6

5

2

20%

large

1

3

2

-67%

-50%

267

404

214

-34%

25%

Half
yea r
Mar 10
NZD M

Ha lf
yea r
Se p 09
NZD M

Ha lf
year
Ma r 09
NZD M

Movt
Mar 10v. Sep 09%

Movt
Mar 10v. Mar 09
%

40
134

19
16

l arge-37%

la rgela rge( 3)
85Corporate & Comm ercial Banking

30

67

12

-55%

large

Rural Bankin g

57

69

1

-17%

large

Other
Inst itutiona lSpecialised & Relationship Lending

(2)

(2)

3

0%

large

(19)

20

23

l argela rge
large

(13)

8

22

large

Transaction Bankin g

(6)

10

-

large

n/ a

Global Markets

-

2

1

- 100%

-100%

Other

Net loans & advance s including accepta nces
Re tail

-

-

19

n/a

-100%

63

194

77

-68%

-18%

Half
yea r
Mar 10
NZD M

Ha lf
yea r
Se p 09
NZD M

Ha lf
year
Ma r 09
NZD M

Movt
Mar 10v. Sep 09%

Movt
Mar 10v. Mar 09
%

0%
-2%

-1%
-2%
-6%

52,31035,385

Commerci al
Corporate & Comm ercial Banking

52,44335,95852,68836,034

14,505

14,732

15 ,415-2%

Rural Bankin g

19,041

19,397

18 ,695

-2%

2%

Other

1,839

1,829

1 ,924

1%

-4%

6,962

7,655

8,820

-9%

-21%

5,969

6,390

6 ,850-7%-13%Transaction Bankin g

341

301

516

13%

-34%

Global Markets-55%

Inst itutiona lSpecialised & Relationship Lending

659

967

1 ,454

-32%

Other

(7)

(3)

-

large

n/ a

Weal th

1,060

967

941

10%

13%

95,717

97,023

98,484

-1%

-3%

Movt
Mar 10v. Sep 09%

Movt
Mar 10v. Mar 09%

33,836
11,152

1%
-3%

1%
-10%

Half
yea r
Mar 10NZD M

Custome r de posi ts
Re tai l

34,042
10,029Commerci al
Corporate & Comm ercial Banking
Rural Bankin g
OtherInst itutiona lTransaction Bankin g
Global Markets
Weal th
Other

62

Ha lf
yea r
Se p 09
NZD M
33,661
10,365Ha lf
year
Ma r 09
NZD M

6,445

6,600

6 ,999

-2%

-8%

2,226

2,228

2 ,450

0%

-9%

1,358

1,537

1 ,703-12%-20%

10,619

11,142

10,235

-5%

4%

5,750

5,477

5 ,729

5%

0%

4,869

5,665

4 ,506

-14%

8%

4,576

4,688

4,247

-2%

8%

79

75

83

5%

-5%

59,34559,931

59,553-1%

0%

SEGMENT REVIEW (continued)

New Zealand region
Jenny Fagg
Table reflects AUD results for New Zealand region
NZD results shown on page 60

Half
year
Mar 10
$M

Half
year
Sep 09
$M

Half
Movt
Movt
year
Mar 10Mar 10Mar 09 v. Sep 09 v. Mar 09$M%%

Net interest income

911

892

987

2%

-8%

Other external operating income

343

330

429

4%

-20%

Operating income

1,254

1,222

1,416

3%

-11%

Operating expenses

(578)

(589)

(593)

-2%

-3%

Profit before credit impairment and income tax

676

633

823

7%

-18%

Provision for credit impairment

(261)

(486)

(241)

-46%

8%

Profit before income tax

415

147

582

large

-29%

Income tax expense

(119)

(44)

(172)

large

-31%

Underlying profit

296

103

410

large

-28%

Adjustments between statutory profit and underlying profit1

10

(294)

(60)

large

large

Profit/(Loss)

306

(191)

350

large

-13%

Consisting of:Retail

107

59

139

81%

-23%

Commercial

47

(12)

111

large

-58%

Wealth

17

4

6

large

large

-

(1)

9

-100%

-100%

Operations & Support
New Zealand Businesses

171

50

265

large

-35%

Institutional

154

100

200

54%

-23%

Other

(29)

(47)

(55)

-38%

-47%
-28%

Underlying profit

296

103

410

large

Adjustments between statutory profit and underlying profit1

10

(294)

(60)

large

large

Profit/(Loss)

306

(191)

350

large

-13%

Net loans & advances including acceptances

74,18879,605

81,614-7%-9%

Other external assets

19,502

21,71425,068-10%-22%

External assets

93,690101,319

106,682-8%-12%

Customer deposits

45,93949,17349,353-7%-7%

Other deposits and borrowings

8,867

9,705

10,827-9%-18%

Balance Sheet

Deposits and other borrowings

54,80658,87860,180-7%-9%

Other external liabilities

20,28623,65029,659-14%-32%

External liabilities

75,09282,52889,839-9%-16%

Risk weighted assets

51,38954,90855,248-6%-7%

Average net loans and advances including acceptances

75,77977,56681,442-2%-7%

Average deposits and other borrowings

57,20757,85063,631

-1%

-10%

-35%

19%

-68%

-21%

49%

large

4%

3%

Ratios
Net interest average margin

2.09%

2.03%

2.14%

Net interest average margin (excluding Global Markets)

2.07%

1.96%

2.04%

Operating expenses1 to operating income

46.1%

48.1%

41.9%

Operating expenses1 to average assets

1.18%

1.15%

1.09%

2

212

328

178

0.56%

0.83%

0.44%

50

158

63

0.13%

0.40%

0.16%

Individual provision charge
Individual provision charge as a % of average net advances
Collective provision charge
Collective provision charge as a % of average net advances
Net impaired loans

868

584

280

Net impaired loans as a % of net advances

1.17%

0.73%

0.34%

Total employees

9,276

8,879

9,028

1.

Refer pages 13 to 15 for explanation of adjustments. A reconciliation of statutory profit to underlying profit by geographical region is included within
Supplementary Information at page 112

2.

Includes credit valuation adjustments on defaulted or impaired exposures of $4 million (Sep 2009 half: $5 million; Mar 2009 half: $1 million)

63

SEGMENT REVIEW (continued)

New Zealand Businesses
Jenny Fagg
Half
yea r
Mar 10
NZD M

Ha lf
year
Se p 09
NZD M

Hal f
Movt
Movt
ye ar
Mar 10Mar 10
Ma r 09 v. Sep 09 v. Mar 09
NZD M
%
%

Net interest income

963

943

991

2%

Other external operating income

328

296

323

11%

2%

Operating income

1,291

1,239

1,314

4%

-2%

Operating expenses

(643)

(620)

( 617)

4%

4%

-3%

Profit before credit impairmen t and income tax

648

619

697

5%

-7%

Provision for credit impairment

(352)

(531)

( 247)-34%

43%

Profit before income tax

296

88

450

large

- 34%

Income tax expense and non-controlling interests

(79)

(22)

( 131)

large

- 40%

Underlyi ng profit

217

66

319

large

- 32%

Risk weighted assets

52,7405 3,198

51,330-1%

3%

Average net loans & advances in cluding acceptances

89,007

8 9,518

89,457-1%-1%

Average deposits and other borrowings

56,9905 5,833

59,6952%-5%Net interest margin2.14 %

2.08%

2.20%

Retu rn on average assets

0.47 %

0.14%

0.70%

Operating expenses to operating income

49.8 %

50.0%

47.0%

Operating expenses to average assets

1.40 %

1.32%

1.34%

269

356

212

-24%

27%

0.61 %

0.79%

0.48%
-53%

large

59%

large

Ra tios

Individual provision charge
Individual provision charge as a % of average net advances
Collective provision charge

82

175

35

Collective provision charge as a % of average net advances

0.18 %

0.39%

0.08%

Net impaired loans

1,068

672

334

Net impaired loans as a % of net advances

1.20 %

0.75%

0.37%

Total employees

8,999

8,641

8,603

4%

5%

Net loans and advances including acceptances

88,755

8 9,369

89,673-1%-1%

Deposits and other borrowings

56,068

5 6,107

55,3790%

1%

Underlying profit excluding ING acquisition
Net interest income

Half
year
Mar 10
NZD M
961

Half
year
Sep 09
NZD M
943

Half
Movt
Movt
year
Mar 10Mar 10Mar 09 v. Sep 09 v. Mar 09
NZD M
%
%
991
2%
-3%

Other operating income

289

296

323

-2%

-11%

Operating income

1,250

1,239

1,314

1%

-5%

Operating expenses

(609)

(620)

(617)

-2%

-1%

Profit before credit impairment and income tax

641

619

697

4%

-8%

Provision for credit impairment

(351)

(531)

(247)

-34%

42%

Profit before income tax

290

88

450

large

-36%

Income tax expense and non-controlling interests

(83)

(23)

(131)

large

-37%

Underlying profit

207

65

319

large

-35%

64

SEGMENT REVIEW (continued)

New Zealand
Jenny Fagg
March 2010 half year compared to September 2009 half year

Whilst not showing the same resilience and economic pick up that has been evident in Australia, the New Zealand economy isstabilising. Although growth remains at sub trend levels as the economy undergoes a protracted period of structural rebalancing, an easing in business conditions is evident. Financial performance for the March 2010 half year reflected theimpact of these economic trends. Underlying profit increased 178% from the low base of the September 2009 half year, withthe result including a NZD188 million after tax decrease in credit impairment charge. Excluding the higher contribution fromconsolidating 100% ownership of ING, operating income and balance sheet growth were substantially flat half on half.
•

Net interest income increased 1% after adjusting for a NZD20 million increase in net interest income from derivative andliquidity positions that was offset by a decrease in trading income. The result reflected net interest margin improvementin the New Zealand Businesses of 6 basis points, driven by increasing recovery of elevated funding costs (increased
wholesale spreads, deposits competition) through ongoing re-pricing of fixed rate lending. Lending volumes declined 1%.
The overall result was moderated by higher break costs on mortgages; and a lower contribution from management ofinterest rate risks in Markets.

•

Excluding the impact of the change in composition of the derivatives result, and the higher contribution from ING as aresult of 100% ownership (NZD39 million), other external operating income was flat half on half. Fee growth remained
weak, with Retail fees reducing NZD20 million largely due to the restructure and reduction in exception fees during the
March 2010 half year. This was offset by a stronger underlying contribution from ING, and revaluations of trading assets.

•

Operating expenses decreased 5% after excluding the impact of consolidating 100% ownership in ING (NZD32 million).
This largely reflected the cost of business transformation programs included in the September 2009 half year result; andcontinued strong control of discretionary expenditure.

•

Provision for credit impairment charge reduced NZD268 million as credit quality shows some signs of stabilising. The
individual provision charge decreased NZD137 million, with loss rates across the NZ Businesses coming off the high levels
reached during the September 2009 half year. The charge in Institutional reduced NZD51 million, largely reflecting
recoveries on a single name exposure that was provisioned in the preceding half. The collective provision charge
decreased NZD131 million, with risk levels moderating across the businesses, albeit with some uncertainty remaining in
the rural and commercial sectors. The total loss rate (total provision charge as a percentage of average net advances)
for the March 2010 half year was 0.69%, down from 1.23% for the September 2009 half.

March 2010 half year compared to March 2009 half year

Business conditions, although showing early signs of easing from those experienced during the September 2009 half year,
remained difficult relative to the March 2009 half year, reflecting the economic cycle which manifested more significantly
during the second half of 2009. The economic environment impacted financial performance across the NZ Businesses incredit provisioning and lending volumes during the March 2010 half year. Reduced market volatility has also meant that theInstitutional Markets business has not been able to match the very strong performance of the first half of 2009.
Underlying profit for the March 2010 half year decreased 25% on the March 2009 half year. Excluding the impact from 100%
ownership of ING, operating income in the New Zealand Businesses declined 5%, with lending growth constrained in thecurrent environment by consumer and business de-leveraging, and net interest margin contracting as a result of increased
funding costs. Institutional revenue declined 26%, driven by the lower result in Markets.
•

Net interest income decreased 1% after adjusting for a NZD31 million decrease in net interest income from derivative andliquidity positions that was offset by an increase in trading income. This reflected margin contraction of 5 basis points in
the NZ Businesses, with increased funding costs in the current environment as a result of widening wholesale spreads andintense competition for customer deposits. Re-pricing on the lending side has lagged the funding cost increases due tothe predominance of fixed rate mortgages in the lending book. Break costs on mortgages have also increased. The lower
result in the NZ Businesses was moderated by a higher contribution from management of interest rate risks in Markets.

•

Excluding the change in composition of the derivative and liquidity result referred to above, and the higher contribution
from 100% ownership of ING (NZD39 million), other external operating income decreased 25%. This mainly reflected alower Markets result with the exceptional performance in the March 2009 half year not being matched. Other income for
NZ Businesses decreased 11%, reflecting the result in Retail (NZD23 million lower) which was impacted by the restructureof exception fees; and the March 2009 half year result benefited from the sale of bank branches (NZD17 million).

•

Excluding the increase from consolidation of ING (NZD32 million) operating expenses decreased 2%. This mainlyreflected the ongoing benefits from business transformation strategies implemented part way through the March 2009 half
year.

•

Provision for credit impairment charge increased NZD39 million. The individual provision charge increased NZD53 million,
reflecting an increase in loss rate to 56 basis points, up from 44 basis points for the March 2009 half year. This waslargely from deterioration across the Retail and Rural books. The collective provision charge decreased NZD14 million,
reflecting reductions in Retail and Institutional with risk levels stabilising, partly offset by higher charges in Rural,Corporate and Commercial that were driven by credit cycle adjustments required to reflect the uncertain outlook in those
sectors.

65

SEGMENT REVIEW (continued)

Institutional division
Shayne Elliott
Institutional division is included as a separate segment as it operates as a global line of business across all three regions
offering specialist products and services within Transaction Banking, Specialised & Relationship Lending and Markets. The
results for Institutional are also reported in the applicable region, consistent with how this segment is internally managed.

Net interest income
Other external operating income
Operating income

Half
yea r
Mar 10
$M

Ha lf
year
Se p 09
$M

Hal f
Movt
Movt
ye ar
Mar 10Mar 10
Ma r 09 v. Sep 09 v. Mar 09
$M
%
%

1,500

1,514

1,559

-1%

872

953

928

-8%

-6%

2,372

2,467

2,487

-4%

-5%

-4%

Operating expenses

(798)

(827)

( 728)-4%

10%

Profit before credit impairmen t and income tax

1,574

1,640

1,759

-4%

- 11%

Provision for credit impairment

(427)

(689)

( 726)

-38%

- 41%

Profit before income tax

1,147

951

1,033

21%

11%

Income tax expense and non-controlling interests

(329)

(264)

( 301)

25%

9%

Underlyi ng profit

818

687

732

19%

12%

Operating income

2,372

2,416

2,310

-2%

3%

Operating expenses

(798)

(801)

(668)

0%

19%

Underlying profit

818

671

660

22%

24%

Ke y profit a nd loss a ccount s e xcluding e xchange rat e impa cts:

Consi sti ng of:Transaction Bankin g

141

93

223

52%

- 37%

Specialised & Relationship Lending

270

119

84

large

large

Global Markets

424

570

445

-26%

-5%

Relationship & Infrastructure

(17)

(95)

(20)

-82%

- 15%

818

687

732

19%

12%

Australia

477

419

238

14%

100%

New Zealand

154

100

200

54%

- 23%

Asia Pacific, Europe an d America

187

168

294

11%

- 36%

818

687

732

19%

12%

- 22%

Underlyi ng Profit
Geographi c segments:

Underlyi ng profit
Ba lance Sheet
Net loans & advances including acceptances

66,6207 0,596

85,385-6%

Other external assets

104,776

11 3,684

123,945

-8%

- 15%

External assets

171,396

18 4,280

209,330

-7%

- 18%

Customer deposits

86,2907 9,777

79,094

8%

9%

Other deposits and borrowings

11,805

1 6,315

18,941

-28%

- 38%

Deposits and other borrowings

98,095

9 6,092

98,0352%

0%

Other external liabilities

53,442

6 6,562

79,797

-20%

- 33%

External liabilities

151,537

16 2,654

177,832

-7%

- 15%

Risk weighted assets

118,805

12 4,954

149,667

-5%

- 21%

Net interest margin

2.09 %

2.17%

1.98%

Net interest margin (excluding G lobal Markets)

2.99 %

2.76%

2.36%

Operating expenses to operating income

33.6 %

33.5%

29.3%

Operating expenses to average assets

0.88 %

0.88%

0.64%

520

560

992

-7%

- 48%

1.55 %

1.49%

2.18%
large

- 65%

28%

36%

4%

10%

Ra tios

1

Individual provision charge

Individual provision charge2 as a % of average net advances
Collective provision charge (credit)

(93)

128

( 266)(0.28%)

0.34%(0.60%)Net impaired loans

2,379

1,864

1,746

Net impaired loans as a % of net advances

3.57 %

2.64%

2.04%

Total employees

5,162

4,963

4,681

Collective provision charge (credit) as a % of average net advances

1.

Includes credit valuation adjustments on defaulted or impaired exposures of $17 million (Sep 2009 half: $10 million reversal; Mar 2009 half: $92 million) and
impairment expense on available-for-sale assets of $20 million (Sep 2009 half: $nil; Mar 2009 half: $20 million)2.

For the purpose of this ratio the individual provision charge excludes impairment expense on available-for-sale assets

66

SEGMENT REVIEW (continued)

Institutional
Shayne Elliott
March 2010 half year compared to September 2009 half year

Institutional’s underlying profit grew 19% (or 22% at constant exchange rates), with a lower credit impairment charge and asolid revenue result, down 2% (at constant exchange rates), in a half-year in which market volatility stabilised and customer
hedging activity returned to more normalised levels. The solid income performance demonstrates the strength of theregionally focussed model, linked through flows of trade, capital and population.
In the analysis that follows, comparisons are on a constant exchange rate basis.
Specialised & Relationship Lending increased revenue by 6%, benefiting from repricing for risk. Average loan balances were
down 8%, with the rate of decline slowing markedly after the previous halves’ significant systemic reductions. Transaction
Banking revenue increased 1%, with competition for deposits leading to margin contraction in Australia and with growth involume (5%) skewed to lower margin balances in Asia as we build up the customer franchise in that region. Trade & Supply
Chain revenues were up 11% driven by strong customer acquisition. Global Markets revenue fell 15%, a function of reduced
market volatility leading to lower customer hedging activity and reduced trading opportunities, and tightening margins asmarket conditions stabilised. Looking through the exceptional Markets’ performance in 2009 and comparing the result to themore normalised level of 2008, Markets’ revenue recorded circa 30% compound annualised growth on the 2008 half-year,
demonstrating the strength of the regionally focussed model. Net interest margin (excluding Global Markets) increased by
23 basis points reflecting repricing for credit risk. Operating Expenses were flat with personnel increases associated with Asia
growth (including RBS acquisition) offsetting higher remuneration costs in the prior half.
Provision for credit impairment decreased 37% reflecting an improvement in the economic environment. Individual
provisions of $520 million were predominantly in Australia, largely related to property exposures, agribusiness and a limited
number of corporate names. Individual provisions as a percentage of net advances increased 6 basis points due to the
reduction in average lending assets while security over lending strengthened. The collective provision release of $93 million
was due to a reduction in lending volumes and the migration of certain names to impaired loans. Net impaired loans grew to$2.4 billion, although the rate of growth stabilised compared to 2009.
Significant factors affecting the result included:•

Net interest margin decreased by 8 basis points to 2.09%. Excluding the impact of Global Markets, net interest marginincreased 23 basis points due to repricing for risk.

•

Australian revenue decreased 7%, driven by a reduction in Markets’ revenue as the exceptional conditions of 2009
reverted to more normalised levels.

•

Asia Pacific, Europe & America revenue increased 17% reflecting the strategic investment in the region.

•

New Zealand revenue decreased 1%, while underlying profit increased 54% with significantly lower credit impairment
charges.

March 2010 half year compared to March 2009 half year

Underlying profit for the half increased 24%, benefiting from substantially lower credit impairment charges. Revenue
increased 3% in large part due to a strong Markets’ performance in Australia in the half and the impact of repricing for risk
across the lending portfolios. Transaction Banking revenues were adversely impacted by competition on deposit margins andlower volumes within Australia not fully offset by volume growth in the relatively lower margin Asian region.
The provision for credit impairment charge was 39% lower with a large decrease in the individual provisions offset by anincrease in the collective provision where the prior comparative period included a $228 million concentration provision release
following defaults by a number of large customers crystallising losses which were provided for in 2008. The individual
provision charge as a percentage of net advances has fallen 63 basis points to 1.55%, reflecting the improvement ineconomic conditions. Risk weighted assets fell $31 billion or 21%, mainly due to the sharp fall in loan balances and theimpact of portfolio data reviews.
Net interest margin increased 11 basis points as a result of loan repricing. Excluding Global Markets, margins improved to
2.99% from 2.36%. Net lending assets decreased 22% driven by corporate de-leveraging following equity raisings and theglobal financial crisis prompting the pay down of lending. Customer deposits increased by 9% mainly due to the build up of
our Asian franchise.
Operating expenses increased 19% as the division continued with investment in technology, the “Rebuild and Refocus”
program and people, particularly in Asia where personnel numbers increased 40% to over 1,000 permanent staff.
Significant factors affecting the result were as follows:•

Australia revenue increased 12% with a strong half from Markets in Australia and the benefit of re-pricing risk on
Specialised & Relationship Lending margins.

•

Asia Pacific Europe & America revenue decreased 2%, with lower Markets’ revenue in that region as market volatility andspreads returned to more normalised conditions.

•

New Zealand revenue decreased 26%, again driven by a reduction in New Zealand Markets’ opportunities.

67

SEGMENT REVIEW (CONTINUED)

Institutional Asia Pacific, Europe & America
Alex Thursby
The contribution from Institutional Asia Pacific, Europe & America is included in both the Institutional results (pages 66 to 67)
and the Asia Pacific, Europe & America results (pages 52 to 55). This is consistent with how this business is internallymanaged. The following information is presented purely for reconciliation purposes.

Half
yea r
Mar 10
USD M

Half
yea r
Sep 09
USD M

Ha lf
Movt
Mov t
yea r
Ma r 10
Ma r 10
Ma r 09 v. Se p 09 v. Ma r 09
USD M
%
%

Net interest income

240

216

202

11%

19%

Other external operating income

241

197

268

22%

-10%

Operating income

481

413

470

16%

2%

Operating expenses(195 )

(173)

(144)

13%

35%

Profit before credit impairmen t and income tax

286

240

326

19%

-12%

Provision for credit impairment

(59 )

(54)

(53)

9%

11%

Profit before income tax

227

186

273

22%

-17%

Income tax expense and non-controlling interests

(57 )

(44)

(76)

30%

-25%

Underlyi ng profit

170

142

197

20%

-14%

-11%

Consisti ng of:Institu tional Asia

92

86

103

7%

Institu tional Pacific

38

32

33

19%

15%

Institu tional Europe & A merica

40

24

61

67%

-34%

170

142

197

20%

-14%

Ba lance Sheet
Net loans & advances including acceptances

13,93813,121

12,234

6%

14%

Other external assets

25,35924,92017,3762%

46%

External assets

39,29738,041

29,610

3%

33%

Customer deposits

28,83019,14813,75151%

large

Other deposits and borrowings

6,307

9,404

7,688

-33%

-18%

Deposits and other borrowings

35,13728,552

21,43923%

64%

Other external liabilities

6,523

8,382

5,365

-22%

22%

External liabilities

41,66036,93426,80413%

55%

Risk weighted assets

25,55924,32822,434

5%

14%

Total employees

1,303

936

857

39%

52%

68

SEGMENT REVIEW (continued)

Group Centre1

Half
yea r
Mar 10
$M

Half
yea r
Sep 09
$M

Ha lf
Movt
Mov t
yea r
Ma r 10
Ma r 10
Ma r 09 v. Se p 09 v. Ma r 09
$M%%

Net interest income

90

43

(89)

large

Other external operating income

(23 )

44

(12)

large

92%

Operating income

67

87

(101)

-23%

large

Operating expenses(128 )

(195)

(105)

-34%

22%

Profit before credit impairmen t and income tax

(61 )

(108)

(206)

-44%

-70%

Provision for credit impairment

(10 )

(1)

(15)

large

-33%

Profit before income tax

(71 )

(109)

(221)

-35%

-68%

Income tax expense and non-controlling interests

(7 )

17

53

large

large

Underlyi ng profit/(loss)

(78 )

(92)

(168)

-15%

-54%

large

large

Ke y profit a nd loss a ccount s e xcludi ng a cqui sitions and ex change rate move ments:
Operating income

98

70

(85)

39%

Operating expenses( 128)(195 )

(105)

-34%

22%

Underlying profit( 57)(103 )

(161)

-44%

-65%

Total employees

5,422

5,400

4,812

0%

13%

1.

Group Centre comprises Operations, Technology & Shared Services, Group Human Resources, Group Risk Management, Group Treasury (includes the funding
component of Treasury results, with the mismatch component being included in Institutional Division’s Global Markets business), Group Strategy and Marketing,Corporate Affairs, Corporate Communications, Group Financial Management and Shareholder Functions

March 2010 half year compared to September 2009 half year

The underlying loss of $79 million compared to an underlying loss of $97 million for the September 2009 half with a number
of offsetting factors impacting the result.
•Operating income reduced $17 million. Higher net interest income ($47 million) resulted from higher capital earnings
following the $2.5 billion Institutional share placement, the $2.2 billion retail share purchase plan and dividend
reinvestment plans and the elimination of $32 million interest paid to INGA on the investment of funds in ANZ deposit
products (offset in other income). These increases were partly offset by a higher cost of funding tax balances and the
new 833 Collins Street Headquarters. Other income reduced by $64 million with a $16 million reduction in earnings oncontracts put in place to hedge NZD and USD revenues, and the elimination of funds management and insurance income
received by INGA from ANZ deposit products.

•

Operating expenses reduced $67 million largely as a result on the September 2009 half including project costs
associated with ANZ’s transformation programs.

•

Provisions for credit impairment increased $9 million with an individual provision charge in Australia Division being partly
covered by internal insurance arrangements.

March 2010 half year compared to March 2009 half year

The underlying loss of $79 million reduced from a loss of $166 million in the March 2009 half.
•

Operating income improved $169 million due primarily to higher capital earnings following the $2.5 billion Institutional
share placement, the $2.2 billion retail share purchase plan, dividend reinvestment plans and a full half’s impact fromunderwriting of the 2008 final dividend, combined with reduced capital allocated to the businesses. These factors werepartially offset by the impacts of reduced interest rates earned on the capital. In addition there was a $32 million
increase as a result of the elimination of interest paid to INGA on the investment of funds in ANZ deposit products (offset
in other income). Earnings on matured revenue hedges improved by $29 million from the March 2009 half.

•

Operating expenses increased $23 million in the March 2010 half year as a result of an increase in staff numbers andhigher remuneration costs in the corporate centre.

69

SEGMENT REVIEW (continued)

Global Customer review

Underlyi ng ope ra ting income

Half
yea r
Mar 10
$M

Ha lf
year
Se p 09
$M

Hal f
Movt
Movt
ye ar
Mar 10Mar 10
Ma r 09 v . Sep 09 v. Mar 09$M%%

Re tai l

3,181

3,157

3,034

1%

5%

2,187

2,124

1,981

3%

10%

Australia
Asia Pacific, Europe & America

377

394

379

-4%

-1%

New Zealand

617

639

674

-3%

-8%

Commerci al

1,451

1,376

1,404

5%

3%

Australia

1,107

1,042

1,033

6%

7%

New Zealand

344

334

371

3%

-7%

Inst itutiona l

2,372

2,466

2,487

-4%

-5%

Australia

1,581

1,698

1,415

-7%

12%

530

504

703

5%

- 25%

Asia Pacific, Europe & America

261

264

369

-1%

- 29%

563

328

115

72%

l arge

7,567

7,327

7,040

3%

7%

Underlyi ng profit

Half
yea r
Mar 10
$M

Ha lf
year
Se p 09
$M

Hal f
Movt
Movt
ye ar
Mar 10Mar 10
Ma r 09 v . Sep 09 v. Mar 09$M%%

Re tai l

1,028

1,010

927

2%

11%

Australia

744

755

630

-1%

18%

Asia Pacific, Europe & America

177

196

158

-10%

12%

New Zealand

107

59

139

81%

- 23%

Commerci al

432

321

424

35%

2%

Australia

385

333

313

16%

23%
- 58%

New ZealandGroup Centre, We alt h, Support and Operations

New Zealand

47

(12)

111

large

Inst itutiona l

818

687

732

19%

12%

Australia

477

419

238

14%

100%

11%

- 36%

Asia Pacific, Europe & America

187

168

294

New Zealand

154

100

200

54%

- 23%

20

(154)

(175)

large

l arge

2,298

1,864

1,908

23%

20%

Half
yea r
Mar 10
$M

Ha lf
year
Se p 09
$M

Hal f
Movt
Movt
ye ar
Mar 10Mar 10
Ma r 09 v . Sep 09 v. Mar 09$M%%

Group Centre, We alt h, Support and Operations

Net loans a nd a dva nces and acce pt ance s
Re tai l
Australia

202,726

196,910

192,8783%

5%

159,266

15 1,128

145,901

5%

9%Asia Pacific

2,915

2,754

3,306

6%

- 12%

New Zealand

40,545

4 3,028

43,671-6%-7%

Commerci al73,63373,32073,6130%0%Australia

46,208

4 3,81743,751

5%

6%

New Zealand

27,425

2 9,503

29,862-7%-8%

Inst itutiona l66,62070,59685,385-6%-22%

Australia

46,001

4 9,392

60,228-7%- 24%

Asia Pacific, Europe & America

15,223

1 4,924

17,8482%- 15%

New Zealand

5,396

6,280

7,309

-14%

- 26%

Group Centre, We alt h, Support and Operations

70

4,883

4,943

4,924

-1%

-1%

347,862

345,769

356,800

1%-3%

FOUR YEAR SUMMARY BY HALF YEAR

Ma r 10$M

Se p 09$M

Ma r 09$M

Sep 08$M

Mar 08$M

Sep 07$M

Mar 07$M

Se p 06
$M

5,191

4,988

4,822

4,074

3,781

3,69 1

3,611

3,575

Income Sta teme nt
Net interest income
Other operatin g income

2,376

2,339

2,218

2,241

2,199

1,99 5

1,770

1,583

Operating expense( 3,249)(3,124)(2,944)(2,751)(2,655)(2,56 7)

(2,386 )(2,346)

Provision for credit impairment( 1,098)(1,621)(1,435)(1,364)( 726)(32 7)(240 )(183)

Profit before income tax

3,220

2,582

2,661

2,200

2,599

2,79 2

2,755

2,629

Income tax expense

(920)

(720)

( 749)( 606)( 759)(79 9)(817 )

(770)

(2)

2

(4)

( 5)

( 3)

( 5)

(2 )

(3)

2,298

1,864

1,908

1,589

1,837

1,98 8

1,936

1,856

(373)

(338)

( 491)( 233)

126

90

166

21

1,925

1,526

1,417

1,356

1,963

2,07 8

2,102

1,877

Assets506,708

476,987

5 02,798

470 ,293

437,759

392,773

351,849

334,64 0

Net assets

32,58332,42928,367

26 ,552

23,96422,04820,91019,90 6

12.2%

10.3%

10.4%

11.4%

17 .7%

20.5%

21.3%

20.4%
1.1 3%

Non -controlling interests
Underlying profit 1
1

Adjustments to arrive at statutory profit
Profit att ributable to sha rehol de rs of theCompany
Ba lance Sheet

Ra tios
Retu rn on average ordinary equity 2
Retu rn on average assets

0.76%

0.63%

0.54%

0.61%

0.92%

1.10%

1.21%

Tier 1 capital ratio 3

10.7%

10.6%

8.2%

7.7%

6 .9%

6.7%

6.7%

6.8%

3

13.0%

13.7%

11.0%

11.1%

10 .1%

10.1%

10.3%

10.6%

Total capital ratio

Operating expenses to operating income

46.8%

44.5%

47.0%

49.7%

44 .0%

44.5%

42.5%

45.2%

Operating expenses to operating income 1

42.9%

42.6%

41.8%

43.6%

44 .4%

45.1%

44.3%

45.5%

Sha re holder val ue - ordi na ry shares
Total return to shareholders(share price movement plus dividends)
Market capitalisation
Dividend
Franked portion

7.9%

5 8.0%(12 .0%)(14.6%)(22.1%)

2.1%

13.2%

3.4%

64,25061,08533,99038 ,263

43,32855,38254,78849,33 152 cents

56 cents

46 cents

74 cen ts

62 cents

74 cents

6 2 cents

69 cents

100%

100%

100%

100%

100%

100%

100%

10 0%

Share price- high$25.72$24.99$19.63$2 4.28$31.74$31.50$30.24$28.6 6- low

$20.13$14.90$11.83$1 5.07$19.38$25.75$26.75$24.4 5- closing$25.36$24.39$15.75$1 8.75$22.55$29.70$29.70$26.8 6

Sha re informati on (per fully pa id)
Earn ings per share - basic

76.8c

64.8c

66.3c

68.3c

102.4c

11 0.9c

113 .2c101.6cDividend payout ratio

68.7%

92.5%

71.3%

1 13.6%

61 .4%

67.1%

54.9%

68.0%

Net tangible assets$9.99$11.02$10.94$1 0.72$10.06

$9.37

$9.01

$8.5 3

2,533.5

2,504.5

2,158.1

2,0 40.7

1,921 .4

1,864.7

1,844.7

1,836.6

Permanent employees (FTE)

39,47236,09435,415

35 ,423

34,19033,00431,81830,64 4

Temporary em ployees ( FTE)

2,383

1,593

1,631

1 ,502

1,292

1,349

1,365

1,61 2

Total employees (FTE )41,85537,68737,046

36 ,925

35,482

34,35333,18332,25 6405,698

396,181

3 91,052

376 ,813

355,809327,703

300,987

291,26 2

Numbe r of fully pa id ordinary shares (M)Other information

4

Number of shareholders
1.

For 2008 and 2009, adjusted to reflect result for the ongoing business activities of the Group. Refer pages 13 to 15 for explanation of adjustments. For 2005 to
2007, the income statement has been adjusted for one-off significant items and non-core income arising from the use of derivatives in economic hedges and fairvalue through profit and loss. This measure, known as Cash Profit, has been superseded by Underlying Profit.

2.

Average ordinary shareholders’ equity excludes non-controlling interests and preference share dividend

3.

Prior to March 2008, values were calculated using Basel I methodology

4.

Excludes employees whose only ANZ shares are held in trust under ANZ employee share schemes

71This page has been left blank intentionally72

Australia and New Zealand Banking Group Limited

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND OTHER DISCLOSURES

Half year ended
31 March 201073

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – TABLE OF CONTENTSCONTENTS

PAGE

Directors’ Report75

Condensed Consolidated Income Statement76

Condensed Consolidated Statement of Comprehensive Income

77

Condensed Consolidated Balance Sheet78

Condensed Consolidated Cash Flow Statement

79

Condensed Consolidated Statement of Changes in Equity

80

Notes to Condensed Financial Statements

81

1.

Basis of preparation

81

2.

Critical estimates and judgements used in applying Accounting Policies

82

3.

Income86

4.

Operating expenses

87

5.

Income tax expense

88

6.

Dividends

89

7.

Earnings per share

90

8.

Net loans and advances

91

9.

Credit quality

92

10. Provision for credit impairment96

11. Deposits and other borrowings

97

12. Loan capital97

13. Share capital98

14. Shareholders’ equity

98

15. Contingent liabilities and contingent assets

100

16. Note to the Cash Flow Statement103

17. Segment analysis

104

18. Changes in composition of the Group104

19. Business Combinations

105

19. Business Combinations (cont’d)

106

20. Associates, joint venture entities and investments

107

21. Related party disclosure

107

22. Exchange rates

107

23. Significant events since balance date107

Directors’ Declaration

108

Auditors’ Review Report and Independence Declaration

109

74

DIRECTORS’ REPORTThe directors present their report on the condensed consolidated financial statements for the half year ended 31 March 2010.
Directors

The names of the directors of the Company who held office during and since the end of the half year are:
Mr JP Morschel

Director since 1 October 2004, Chairman since 1 March 2010

Mr CB Goode, AC

Director since 24 July 1991, Chairman since 24 August 1995
Retired 28 February 2010

Mr MRP Smith, OBE – Chief Executive Officer

CEO and director since 1 October 2007

Dr GJ Clark

Director since 1 February 2004

Mr JK Ellis

Director since 1 October 1995, Retired 18 December 2009

Mr PAF Hay

Director since 12 November 2008

Mr Lee Hsien Yang

Director since 1 February 2009

Mr IJ Macfarlane, AC

Director since 16 February 2007

Mr DE Meiklejohn, AM

Director since 1 October 2004

Ms AM Watkins

Director since 12 November 2008

Result

The consolidated profit attributable to shareholders of the Company was $1,925 million. Further details are contained in the
Chief Financial Officer’s Review on pages 13 to 42 and in the financial report.

Review of operations

A review of the operations of the Group during the half year and the results of those operations are contained in the Chief
Financial Officer’s Review on pages 13 to 42.

Lead auditor’s independence declaration

The lead auditor’s independence declaration given under section 307C of the Corporations Act 2001 (as amended) is set out
on page 109 and forms part of the Directors’ Report for the half year ended 31 March 2010.

Rounding of amounts

The Company is a company of the kind referred to in the Australian Securities and Investments Commission class order
98/100 (as amended) dated 10 July 1998 pursuant to section 341(1) of the Corporations Act 2001 (as amended).
Consequently, amounts in this report and the accompanying financial report have been rounded to the nearest million dollars
except where otherwise indicated.

Significant event since balance date

The Group completed its acquisition of The Royal Bank of Scotland Taiwan businesses on 17 April 2010. Based on
preliminary unaudited information, this resulted in the acquisition of approximately USD 2.3 billion of assets and
USD 2.3 billion of deposits.
Signed in accordance with a resolution of the directors.

John MorschelChairmanMichael R P Smith
Director

28 April 201075

CONDENSED CONSOLIDATED INCOME STATEMENT

Australia and New Zealand Banking Group Limited

Not e

Half
yea r
Mar 10
$M

Half
yea r
Sep 09
$M

Ha lf
Movt
Mov t
yea r
Ma r 10
Ma r 10
Ma r 09 v. Se p 09 v. Ma r 09
$M
%
%

3

14,336

13,563

16,445Interest incom e

12,307

11,506

14,700

7%-16%Interest expense(7,119 )(6,520)( 9,878)

9%-28%

Total income

6%

-13%

Net interest income

3

5,188

4,986

4,822

4%

8%

Net fu nds management and insu rance income

3

293

112

108

large

large

Other operatin g income

3

1,535

1,718

1,399

-11%

10%

Share of joint venture profit from ING Australia and
ING New Zealand

20

33

54

29

-39%

14%

Share of associates' profit

20

Operating income
Operating expenses

4

Profit before credit impairmen t and income tax
Provision for credit impairment

10

Profit before income tax
Income tax expense

5

Profit for the pe riod

168

173

209

-3%

-20%

7,217

7,043

6,567

2%

10%

(3,382 )(3,135)( 3,090)

8%

9%

3,835

3,908

3,477

-2%

10%

(1,082 )(1,632)( 1,373)

-34%

-21%

2,753

2,276

2,104

21%

31%

(826 )

(752)

(683)

10%

21%

1,927

1,524

1,421

26%

36%

2

(2)

4

large

-50%

1,925

1,526

1,417

26%

36%

Comprising:
Profit attributable to non-controlling interests
Profit att ributablet o sha re holders of the Compa ny
Ea rnings per ordinary sha re (cents)
Basic

7

76.8

64.8

66.3

19%

16%

D iluted

7

75.4

63.8

63.4

18%

19%

Divi de nd per ordinary sha re (ce nt s)

6

52

56

46

-7%

13%

The notes appearing on pages 81 to 107 form an integral part of the Condensed Consolidated Financial Information and Other Disclosures

76

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Australia and New Zealand Banking Group Limited
Half
yea r
Mar 10
$M

Half
yea r
Sep 09
$M

Ha lf
Movt
Mov t
yea r
Ma r 10
Ma r 10
Ma r 09 v. Se p 09 v. Ma r 09
$M
%
%

1,927

1,524

1,421

26%

36%

(660 )(1,378)

459

-52%

large

188

129

(98)

46%

large

14

9

24

56%

-42%

Valuation gain/ (loss) taken to equity

27

(227)

71

large

-62%

Transferred to income statement for the period

(14 )

(68)

(21)

-79%

-33%

(19 )

(51)

(122)

-63%

-84%

Profit for the pe riod
Other comprehensive income
Currency translation adj ustments
Exchange differences taken to equity
Available- for-sale assets
Valuation gain/ (loss) taken to equity
Cumulative (gain) /loss transferred to the income
statement
Cash flow hedges

Actuarial gain/( loss) on defined benefit plans
Income tax on items transferred directly to / from equity
Foreign currency translation reserve

4

26

(16)

-85%

large

Available-for-sale reserve

(42 )

(49)

32

-14%

large

Cash flow hedge reserve

1

106

(30)

-99%

large

Actuarial gain / ( loss) on defined benefits plan

5

14

35

-64%

-86%

Other comprehensive income(496 )(1,489)

334

-67%

large

Total comprehensive income for t he period

1,431

35

1,755

large

-18%

Total comprehensive income
attributable to non -controlling interests

2

(2)

4

large

-50%

Total comprehensive income attributable
to shareholders of th e compan y

1,429

37

1,751

large

-18%

Comprising:

The notes appearing on pages 81 to 107 form an integral part of the Condensed Consolidated Financial Information and Other Disclosures

77

CONDENSED CONSOLIDATED BALANCE SHEET

Australia and New Zealand Banking Group Limited
As at
Mar 10Asse ts

Note

As at
Sep 09Mov t
Movt
Ma r 10
Ma r 10v. Se p 09 v. Ma r 09
%
%
$M

As at
Ma r 09$M$M

Liquid assets

22,62625,317

26,743-11%-15%

Due from other financial institutions

6,894

4,985

5,354

38%

29%

Trading securities

33,27430,991

21,312

7%56%

Derivative financial instru ments

27,63037,40457,445-26%-52%

Current tax assets
Available- for-sale assets
Net loans and advances

8

442

693

327

-36%

35%

17,777

16,575

16,1827%

10%335,352

332,007

341,783

1%-2%

Customers' liability for acceptances

12,51013,76215,017-9%-17%

Shares in associates and joint venture entities

2,854

4,565

4,712

-37%

-39%

584

503

1,495

16%

-61%

Goodwill and other intangible assets 1

6,329

3,896

3,816

62%

66%

Investments relating to insurance bu siness

32,054

-

-

n/ a

n/a

Other assets

6,228

4,227

6,757

47%

-8%

Deferred tax assets

Premises and equipment
Total asse ts

2,154

2,062

1,855

4%

16%

506,708

476,987502,798

6%

1%
-12%

Lia bi lit ies
16,06819,924

18,314-19%

301,757

294,370

293,5983%

3%

Derivative financial instru ments

27,28936,51649,439-25%-45%

Liability for acceptances

12,51013,76215,017

-9%

-17%

131

99

1,123

32%

-88%

570

111

173

large

large

Insurance policy liabilities

28,332

-

-

n/ a

n/a

External unit holder liabilities (insurance funds)

5,610

-

-

n/ a

n/a

Payables and other liabilities

8,788

7,775

7,710

13%

14%

Due to other financial institutions
Deposits and other borrowings

11

Current tax liabilities
Deferred tax liabilities

Provisions

1,167

1,312

1,259

-11%

-7%

Bonds and notes

58,39057,26073,138

2%

-20%
-8%

13,513

13,42914,6601%

Total li abili tie s

474,125444,558

474,4317%0%

Net asset s

32,58332,42928,3670%

15%

19,294

19,151

14,1381%

36%

Loan capital

12

Sha re holders' e quit yOrdinary share capital

13,14

Preference share capital

13,14

871

871

871

0%

0%

Reserves

14(2,277 )(1,787)

(334)

27%

large

Retained earnings

14

14,62914,12913,6204%

7%32,51732,36428,295

0%

15%

66

65

72

2%

-8%

32,58332,42928,3670%

15%

Sha re ca pi tal and rese rve s attributable tosha rehol de rs of the Company
Non -controlling interests
Total equity
1.

Excludes notional goodwill in equity accounted entities

The notes appearing on pages 81 to 107 form an integral part of the Condensed Consolidated Financial Information and Other Disclosures

78

CONDENSED CONSOLIDATED CASH FLOW STATEMENT
Australia and New Zealand Banking Group Limited

Note

Half year
Ha lf ye ar
Hal f yea r
Ma r 10
Sep 09Mar 09
Inflows
Infl ows
I nflows(Out flows) ( Outfl ows) (Outflows)
$M
$M
$M

Cash fl ows from ope ra ting activi ties
Interest received
Dividends received
Fee income received
Other income received
Interest paid
Person nel expenses paid
Premises expenses paid
Other operatin g expenses paid
Net cash (paid)/ received on derivatives
Income taxes (paid)/refunds received
Australia
Overseas
Goods and services tax paid
(Increase) /decrease in operating assets:
Liquid assets - greater than three months
Due from other financial institutions - greater than three months
Tradin g securities
Loans and advances
Increase/( decrease) in operating liabilities
Deposits and oth er borrowings
Due to other finan cial institutions
Payables and other liabilities
Net cash from W ealth Managem ent & Investment businessNet ca sh provided by/(use d in) ope ra ting activi tie s
Cash fl ows from i nve sti ng a cti viti es - net decrease/ (increase)
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
Insurance business

16(a)Purchase of insurance assets
Proceeds from sale/maturity of insurance assets
Other assets
Net ca sh provided by/(use d in) i nve sti ng a ctiviti es
Cash fl ows from fina ncing act ivit ies - net (decrease)/increase
Bonds and notes
Issue proceeds
Redemptions
Loan capital
Issue proceeds
Redemptions
Net dividends paid
Share capital issues
On market share purchases
Net ca sh pro vided by financing act ivit ies
Net cash provided by/( used in) operating activities
Net cash provided by/( used in) investing activities
Net cash provided by/( used in) fin ancing activities
Net increase/( decrease) in cash an d cash equivalents
Cash and cash equivalents at beginning of period
Foreign curren cy tran slation
Cash and cash equivalents at end of period

16(b)12,18321
1,206
609(7,261)(1,919)
(267)
(906)
463

11,75427
1,451
681(6,689)(1,790)( 246)( 514)(5,641)

15,04122
1,348
511(10,665)(1,862)(257)(647)(2,113)

85
(514)
11

(1,083)( 146)
( 22)

232
(293)
(7)

1,834
(46)
(1,693)(4,843)1,818
4(8,382)
3,853

435
1,398
(7,589)(5,750)9,484(4,753)
977
429
5,100

4,238
1,610
760
1,683

8,363
(1,778)(1,754)(5,365)(18,483)
17,206(14,328)
13,888(16,652)
17,671(1,746)
6( 205)
3

(58)
12

(179)
5

( 330)
-

(379)
27

(830)
689
(699)
(4,031)286( 686)(336)
285

14,215(13,183)

6,608(10,656)

13,809(9,992)

1,737(1,306)
(880)
15
(68)
530
5,100
(4,031)530

1,287(1,330)( 673)
4,655( 109)
1,683( 686)( 109)

(14)
(24)
25
3,804
(5,365)
285
3,804

1,599
22,805(397)
24,007888
22,380( 463)
22,805(1,276)23,487
169
22,380The notes appearing on pages 81 to 107 form an integral part of the Condensed Consolidated Financial Information and Other Disclosures

79

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Australia and New Zealand Banking Group Limited

As at 1 October 2008
Total comprehensive income for the period

Shareholders'equityRetained attributable toearnings Equity holders$M of the Bank $M

Noncontrollinginterests$M

Total
Shareholders'equity$M

Ordinary
share
capital $M

Preference
shares$M

Reserves$M

12,589871(742)

13,772

26,49062

26,552

-

-

421

1,330

1,751

4

1,755

Transactions with equity holders intheir capacity as equity holders:Share placement

-

-

-

-

-

-

-

Dividends paid

-

-

-

(1,500)(1,500)-(1,500)

1,495

-

-

-

1,495

-

1,495

47

-

-

-

47

-

47

Dividend reinvestment plan
Group employee share acquisition
schemeOther equity movements:
Share based payments

-

-

5

-

5

-

5

Group share option scheme

7

-

-

-

7

-

7

Other changes
As at 31 March 2009
Total comprehensive income for the period

-

-

(18)

18

-

6

6

14,138871(334)

13,62028,29572

28,367--(1,452)

1,489

37

(2)

35

4,661

-

-

-

4,661

-

4,661

Transactions with equity holders intheir capacity as equity holders:Share placement
Dividends paid

-

-

-

(985)

(985)

-

(985)

Dividend reinvestment plan

293

-

-

-

293

-

293

Group employee share acquisition
scheme

52

-

-

-

52

-

52

Other equity movements:
Share based payments

-

-

4

-

4

-

4

Group share option scheme

7

-

-

-

7

-

7

Other changes
As at 30 September 2009
Total comprehensive income for the period

-

-

(5)

5

-

(5)

(5)

19,151871(1,787)

14,12932,36465

32,429

-

-

(482)

1,911

1,429

2

1,431

-

-

-

-

-

-

-

Transactions with equity holders intheir capacity as equity holders:Share placement
Dividends paid
Dividend reinvestment plan

-

-

-

(1,380)(1,380)-(1,380)

500

-

-

-

500

-

500

(68)

-

-

-

(68)

-

(68)

Other equity movements:
Treasury shares
Share based payments:
15

-

-

-

15

-

15

Treasury shares INGA adjustment

Group share option scheme

(366)

-

-

-

(366)

-

(366)

Group employee share acquisition
scheme

62

-

-

-

62

-

62

Adjustments to opening retained
earnings on adoption of revised
accounting standard AASB 3R

-

-

-

(39)

(39)

-

(39)

Other changes
As at 31 March 2010

-

-

(8)

8

-

(1)

(1)

19,294871(2,277)

14,62932,51766

32,583The notes appearing on pages 81 to 107 form an integral part of the Condensed Consolidated Financial Information and Other Disclosures

80

NOTES TO CONDENSED FINANCIAL STATEMENTS

1.

Basis of preparation
These Condensed Consolidated Financial Statements comprise a general purpose financial report and:
should be read in conjunction with the ANZ Annual Report for the year ended 30 September 2009 and any publicannouncements made by the Parent Entity and its controlled entities (the Group) for the half year ended 31 March2010 in accordance with the continuous disclosure obligations under the Corporations Act 2001 (as amended) andthe ASX Listing Rules;are condensed financial statements as defined in AASB 134 Interim Financial Reporting. This report does not include
all notes of the type normally included in the annual financial report;

are presented in Australian dollars unless otherwise stated; and

was approved by the Board of Directors on 28 April, 2010.

i)Statement of compliance

The Condensed Consolidated Financial Statements and Other Disclosures have been prepared in accordance with theaccounts provisions of the Banking Act 1959 (as amended), Australian Accounting Standards (AASs), AASBInterpretations, other authoritative pronouncements of the Australian Accounting Standards Board (AASB), and the
Corporations Act 2001.
ii) Use of estimates and assumptions

The preparation of the financial statements requires the use of management judgement, estimates and assumptions
that affect reported amounts and the application of policies. The estimates and associated assumptions are basedon historical experience and various other factors that are believed to be reasonable. Actual results may differ fromthese estimates. Discussion of these critical accounting treatments, which include complex or subjective decisions
or assessments, 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 the historical cost basis except that the following
assets and liabilities are stated at their fair value: derivative financial instruments, including in the case of fair value
hedging the fair value of any applicable underlying exposure; assets treated as available-for-sale; financial
instruments held for trading; assets and liabilities designated at fair value through profit and loss; insurance policy
liabilities; and defined benefit plan assets and liabilities.
iv) Changes in Accounting Policy and early adoptions

The accounting policies adopted in the preparation of the Condensed Consolidated Financial Statements are
consistent with those adopted and disclosed in the ANZ Annual Report for the year ended 30 September 2009 withthe following exceptions:
All new accounting standards and interpretations applicable to annual reporting periods beginning on orafter 1 October 2009 have been applied to the Group effective from the required date of application. The
initial application of these Standards and Interpretations has not had a material impact on the financial
results of the Group.
The revised accounting standards relating to business combinations (AASB 3) has been applied in thesefinancial statements prospectively to all business combinations for which the acquisition date is on orafter 1 October 2009. Prior to the adoption of the revised standard, the Group had $39 million ofcapitalised transaction costs in respect of acquisitions not completed at 30 September 2009, which was
written off to retained earnings on adoption of the revised standard. As a result of the adoption of thestandard the Group is required to:• expense acquisition related costs ($14 million in the current period);• remeasure the existing interest to fair value through profit or loss and to reclassify from equity
to profit or loss amounts previously held in the acquiree, for business combinations achieved instages ($213 million debit in the current period); and• recognise movements in contingent consideration, subsequent to initial measurement, in profit
and loss.
The revised accounting standard on Consolidated and Separate Financial Statements (AASB 127) has
been adopted. As a result of the adoption the Group is required to:• replace the term ‘minority interests’ with ‘non-controlling interests’;• account for changes in a parent’s ownership in a subsidiary that does not result in loss of control
as an equity transaction (no impact in the current period).
• recognise gains and losses upon loss of control of a subsidiary in profit and loss with any
investment retained measured at fair value at the date control is lost (no impact in the current
period).
The revised accounting standard on Presentation of Financial Statements (AASB 101) has also been
applied which has required inclusion of a new statement of changes in equity in these financial
statements.
The Group has previously not disclosed its accounting policies set out in note 1 (v) relating to insurance
businesses.

81

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)v) Significant accounting polices adopted on the acquisition of insurance business

The Group primarily conducts its life insurance business through ING Life Limited ("the Life Business") which isregistered under the Life Insurance Act 1995 ("Life Act"), amended by the Financial Sector Legislation Amendment(Simplifying Regulation and Review) Act 2007 (SRR Act). The life insurance operations of the Life Business are
conducted within separate statutory funds as required by the Life Act. The assets of the Life Insurance business areallocated between policyholder and shareholder funds in accordance with the requirements of the Life Act.
Significant aspects of life insurance accounting are summarised below:
Investments relating to insurance assets

Securities held to back insurance and investment contract liabilities are classified as policyholder assets, being thoseassets held within the statutory funds of ING Life Limited that are not segregated and managed under a distinct
shareholder investment mandate, and all assets of ING General Insurance Pty Limited. These policyholder assets aredesignated as fair value through the profit or loss.
Acquired Portfolio of Insurance and Investment Business
Identifiable intangible assets in respect of acquired portfolios of insurance and investment business are statedinitially at fair value. These are amortised over the period which reflects the expected period of benefit.
External unit holder liabilities
The life insurance business includes controlling interests in trusts and companies, and the total amounts of eachunderlying asset, liability, revenue and expense of the controlled entities are recognised in the Group’s consolidated
Financial Statements. When a unit trust is consolidated, the share of the unit holder liability attributable to the Groupis eliminated but amounts due to external unit holders remain as liabilities in the Group’s consolidated Balance
Sheet.
Insurance policy liabilities
Insurance policy liabilities include liabilities arising from investment and life insurance contracts.
Provisions for liabilities under investment contracts are measured at fair value. The provision consists of a deposit
component, being a financial instrument, which is recognised as an increase in investment contract liabilities and an
investment management services element. Fair value is determined as the net present value of fees, in respect of
the investment management service, discounted at the risk free rate.
Life insurance contract liabilities are determined using either a projection method or an accumulation method. Usinga projection method, expected policy cash flows are projected into the future. The liability is determined as the netpresent value of the expected cash flows. The assumptions utilised in determining the policy liability are based on
the best estimates about the future. An accumulation method is used where the policy liabilities determined are notmaterially different from those determined under the projection method.
Treasury shares
Under AAS, the Group cannot recognise ‘treasury shares’ on the Consolidated Balance Sheet. These assets, plus any
corresponding Income Statement fair value movement on the assets and dividend income, are eliminated when thelife statutory funds are consolidated into the Group. The cost of the investment in the shares is deducted fromcontributed equity. However, the corresponding investment contract and insurance contract liabilities, and related
Income Statement changes in the liabilities, remain upon consolidation.
vi) Rounding

The Parent Entity is an entity of the kind referred to in Australian Securities and Investments Commission classorder 98/100 dated 10 July 1998 (as amended). Consequently, amounts in the Condensed Consolidated Financial
Statements have been rounded to the nearest million dollars, except where otherwise indicated.
vii) Comparatives

Certain amounts in the comparative information have been reclassified to conform to current period financial
statement presentations.
2.

Critical estimates and judgements used in applying Accounting Policies
The Group prepares its consolidated financial information in accordance with policies which are based on Australian
Accounting Standards (AAS), other authoritative accounting pronouncements of the Australian Accounting Standards
Board (AASB), AASB Interpretations and the Corporations Act 2001. This involves the Group making estimates andassumptions that affect the reported amounts within the financial statements. Estimates and judgements are continually
evaluated and are based on historical factors, including expectations of future events that are believed to be reasonable
under the circumstances. All material changes to accounting policies and estimates and the application of these policies
and judgements are approved by the Audit Committee of the Board.
A brief explanation of critical estimates and judgements, and their impact on the Group, follows.

82

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)
Critical accounting estimates and assumptions
Provisions for credit impairment

The Group’s accounting policy relating to measuring the impairment of loans and advances requires the Group toassess 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 balance date 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 of large concentrated losses within the portfolio and the stage of the economic cycle.
The use of such judgements and reasonable estimates is considered by management to be an essential part of theprocess 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 are revised regularly to reduceany differences between loss estimates and actual loss experience.
Critical judgements in applying the entity’s accounting policies
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 oftransactions. The main types of these SPEs are securitisation vehicles, structured finance entities, 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. As it can be complex to determine whether the Grouphas control of an SPE, 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 theirestablishment, and the control factors associated with ANZ’s interest in them. Although there may be someindicators of control, ANZ does not bear the majority of residual risks and rewards of the SPEs, therefore they are notconsolidated.
Type of SPE

Reason for establishment

Control factors

Securitisation
vehiclesSecuritisation is a financing
technique whereby assets aretransferred to an SPE which funds
the purchase by issuing securities.
This enables ANZ (in the casewhere transferred assets originate
within ANZ) or customers toincrease diversity of funding
sources.

ANZ may manage these securitisation
vehicles, service assets in the vehicle orprovide liquidity or other support. ANZ
retains the risks associated with theprovision of these services. For any SPE
which is not consolidated, credit andmarket risks associated with the underlying
assets are not retained or assumed by ANZ
except to the limited extent that ANZ
provides arm’s length services andfacilities.

Structured financeentities

These entities are set up to assist
the structuring of client financing.
The resulting lending
arrangements are at arms lengthand ANZ typically has limited
ongoing involvement with theentity.

ANZ may manage these vehicles, holdminor amounts of capital, provide financing
or provide derivatives.

Credit protection

The SPEs in this category are
created to allow ANZ to purchasecredit protection.

ANZ may manage these vehicles.

83

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

2.

Critical estimates and judgements used in applying Accounting Policies, cont’dSignificant Associates

The carrying values of all significant investments in associates are subject to an annual recoverable amount test.
This assessment involves ensuring that the investment’s fair value less costs to sell or its value in use is greater thanits carrying amount. Judgement is applied when determining the assumptions supporting these calculations.
As at 31 March 2010, the Group reviewed all investments in associates against the following impairment indicators:- actual financial performance against budgeted financial performance;- any material unfavourable operational factors and regulatory factors;- any material unfavourable economic outlook and market competitive factors;- carrying value against available quoted market values (supported by third-party broker valuations where
possible); and- carrying value against market capitalisation (for listed investments).
Where appropriate, additional potential impairment indicators are reviewed which are more specific to the respective
investment.
The review of impairment indicators listed above did not reveal any indicators of potential impairment.


Available-for-sale assets

The accounting policy for impairment of available-for-sale financial assets 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 estimated cash flows of the asset.


Financial Instruments at Fair Value

A significant portion of financial instruments are carried on the balance sheet at fair value.
The best evidence of fair value is a quoted price in an active market. Accordingly, wherever possible fair value isbased on quoted market prices for the financial instrument. In the event that there is no active market for the
instrument, fair values are based on present value estimates or other market accepted valuation techniques.
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 from observable markets.
In respect of the valuation component where market observable data is not available, the fair value is determinedusing data derived and extrapolated from market data and tested against historic transactions and observed market
trends. These valuations are based upon assumptions established by application of professional judgement toanalyse the data available to support each assumption. Changing the assumptions changes the resulting estimate offair value.
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 fair value of financial instruments based on valuation
techniques include data inputs such as statistical data on delinquency rates, foreclosure rates, actual losses,
counterparty credit spreads, recovery rates, implied default probabilities, credit index tranche prices and correlation
curves.
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 the counterparty, representing the credit risk component of the overall
fair value increment on a particular derivative asset. The total valuation adjustment is influenced by the mark-tomarket of the derivative trades and by movement in the current market cost of credit.

84

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

2.

Critical estimates and judgements used in applying Accounting Policies, cont’dGoodwill and Indefinite Life Intangible Assets

The carrying values of goodwill and intangible assets with indefinite lives are reviewed at each balance date andwritten-down, to the extent that they are no longer supported by probable future benefits.
Goodwill is allocated to cash-generating units (CGUs) for the purpose of impairment testing, which is undertaken at
the lowest level at which goodwill is monitored for internal management reporting purposes. Intangible assets withindefinite useful lives are allocated to the CGU to which they relate.
Impairment testing of purchased goodwill and indefinite life intangibles is performed annually, or more frequently
when there is an indication that the asset may be impaired. Impairment testing is conducted by comparing therecoverable amount of the CGU with the current carrying amount of its net assets, including goodwill and intangibles
as applicable. Where the current carrying value is greater than recoverable amount, a charge for impairment will berecognised in the income statement.
The most significant components of the Group's goodwill balance at 31 March 2010 relate to ANZ National Bank
Limited which was $2,510 million (Sep 2009: $2,657 million, Mar 2009: $2,683 million) and ING Australia Limited
which is provisionally estimated to be $1,057 million.
In determining the recoverable amount of the CGU to which each goodwill component has been allocated a
discounted cash flow approach is utilised. Changes in assumptions upon which the valuation is based, together withchanges in future cash flows could materially impact the assessment.
The results of the impairment testing performed did not result in any impairment being identified.
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 externalsources of potential impairment. The majority of the Group’s intangible assets with a finite life is represented bycapitalised software and intangible assets purchased as part of the acquisition of ING Australia Limited and ING NZ
Limitied. The review conducted by management for these assets at 31 March 2010 did not reveal any impairment
indicators and accordingly no write-down was considered necessary.
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 was calculated 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 themeasurement basis of life insurance liabilities and are equally sensitive to the factors that are considered in theliability measurement.
The key factors that affect the estimation of these liabilities and related assets are:•the cost of providing the benefits and administering these insurance contracts;•

mortality and morbidity experience on life insurance products, including enhancements to policyholder
benefits;•

discontinuance experience, which affects the Group’s ability to recover the cost of acquiring new businessover the lives of the contracts; and•the amounts credited to policyholders’ accounts compared to the returns on invested assets through assetliability management and strategic and tactical asset allocation.

In addition, factors such as regulation, competition, interest rates, taxes and general economic conditions affect thelevel of these liabilities.
The total value of policy liabilities for life insurance contracts have been appropriately calculated in accordance withthese principles.

85

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

3.

IncomeHal f
ye ar
Mar 10
$M

Half
yea r
Sep 09
$M

Half
Movt
Movt
yea r
Ma r 10
Ma r 10
Mar 09 v. Se p 09 v. Ma r 09
$M%%

Interest incom e

12,3 07

11,506

14,700

7%-16%Interest expense(7,1 19)(6,520)(9,878)9%-28%

Net interest i ncome

5,1 88

4,986

4,822

4%

8%

i) Fee and commission income
Lending fees

3 53

403

361

-12%

-2%

Non -lendin g fees and commissions

9 67

997

995

-3%

-3%

Total fee and commission income

1,3 20

1,400

1,356

-6%

-3%

Fee and commission expense 1(1 39)

(133)

(136)

5%

2%

Net fee and commission income

1,1 81

1,267

1,220

-7%

-3%

ii ) Other i ncome
Foreign exchange earnings 2

3 93

396

566

-1%

-31%

Net gains from trading securities and derivatives

1 55

220

83

-30%

87%

Credit risk on derivatives

3

Fair value im pairment for INGA & INGNZ

47

769

(904)

-94%

large

(2 13)

-

-

n/ a

n/ a
large

Movement on financial instruments measured at fairvalue through profit & loss 4(1 92)(1,013)655-81%

Brokerage income

38

46

30

-17%

27%

Profit on sale of premises
ANZ share of ING NZ frozen funds

1

-

15

n/ a

-93%

investor settlement 5

4

(35)

(138)

large

large

Write-down on assets in non continuing businesses

( 3)

(7)

(105)

-57%

-97%

Mark to market ( loss)/gain on Panin warrants

-

21

(35)

-100%

-100%

6

6

(7)

0%

large

Mark to market ( loss)/gain on Saigon Securities
Incorporation options
Write-back ( write-down) of investment in Saigon Securities
Incorporation

25

-

(25)

n/ a

large

Other

93

48

44

94%

large

3 54

451

179

-22%

98%

1,5 35

1,718

1,399

-11%

10%

Funds management income

1 80

37

35

large

large

Elimination of treasu ry share gain

( 57)

-

-

n/ a

n/ a

Investment (expense) / income

( 39)

-

-

n/ a

n/ a

Commission and insurance premium incom e

4 59

75

73

large

large

Claims and policy holder liability expenses(2 50)

-

-

n/ a

n/ a

Total net income from funds manageme nt and insurance income

2 93

112

108

large

large

1,8 28

1,830

1,507

0%

21%

Total ot he r income
Other operat ing income
ii i) Ne t funds manageme nt and insurance income

Total ot he r opera ting income
Sha re of joint ve nt ure a nd a ssociate s' profit

6

2 01

227

238

-11%

-16%

Total income

14,3 36

13,563

16,445

6%-13%

Profit before income tax as a % of total income

19.20%

16.78%

12.7 9%1.

Includes interchange fees paid

2.

2010 comprises underlying foreign exchange earnings $360 million and $33 million non-underlying revenue and net investment hedges volatility profit (Sep2009 half: $393 million underlying and $3 million non-underlying revenue; Mar 2009 half: $539 million underlying and $27 million non-underlying revenue)

3.

2010 comprises credit intermediation trades $64 million credit (Sep 2009 half: $759 million credit; Mar 2009 half: $812 million) and credit risk on impaired
derivatives $17 million (Sep 2009 half: $10 million reversal; Mar 2009 half: $92 million)

4.

Includes any fair value movements on derivatives entered into to manage interest rate and foreign exchange risk on funding instruments not designated as
accounting hedges, ineffective portions of cash flow hedges and fair value movement in bonds and notes designated at fair value

5.

$23 million included in share of joint venture and associates profit in 2010 and represents the increase in fair value of securities held in the ING Diversified
Yield Fund and ING Diversified Income Fund which were accounted for as associates up to 30 November 2009 prior to full acquisition of ING (NZ) Holdings
Limited6.

Refer note 20

86

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

4.

Operating expenses
Half
ye ar
Mar 10
$M

Half
ye ar
Sep 09
$M

Half
Movt
Movt
yea r
Mar 10
Ma r 10
Mar 09 v. Se p 09 v. Ma r 09
$M%%

Person nel
Employee entitlem ents and taxes
Salaries and wages
Superannuation costs - defined benefit plans

105

11 8

124

-11 %

-15%

1,242

1,10 9

1,129

12 %

10%
large

7

8

2

-13 %

Superannuation costs - defined contribution plans

118

11 5

123

3%

-4%

Equ ity- settled share- based payments

65

51

52

27 %

25%

Temporary staff

87

78

77

12 %

13%

Other

324

35 0

262

-7 %

24%

1,948

1,82 9

1,769

7%

10%

26%

Total person nel expenses
Premises
Depreciation and amortisation

34

29

27

17 %

Rent

174

16 2

173

7%

1%

Utilities and other outgoings

77

65

69

18 %

12%

Other

16

19

15

-16 %

7%

301

27 5

284

9%

6%

Computer contractors

56

55

42

2%

33%

Data communications

41

37

40

11 %

3%

Depreciation and amortisation

130

12 3

116

6%

12%

Rentals and repairs

59

48

44

23 %

34%

Software purchased

96

98

83

-2 %

16%

Software written-off

9

20

6

-55 %

50%

Total premises expenses
Computer

Other
Total computer expenses

20

32

24

-38 %

-17%

411

41 3

355

0%

16%

107

10 4

91

3%

18%

5

6

4

-17 %

25%
28%

Other
Advertising an d public relations
Audit fees
Depreciation of furniture and equipment

46

36

36

28 %

Freight and cartage

31

34

30

-9 %

3%

Non- lending losses, frauds an d forgeries

46

49

25

-6 %

84%

Postage and stationery

61

57

61

7%

0%

Professional fees

147

10 8

89

36 %

65%

Telephone

30

32

31

-6 %

-3%

Travel

87

71

78

23 %

12%

Other

160

11 2

116

43 %

38%

720

60 9

561

18 %

28%

One ANZ-

5113-100 %

-100%

Other

2

4

8

-50 %

-75%

2

9

121

-78 %

-98%

3,382

3,13 5

3,090

8%

9%

Total other expenses
Restructuring

Total restructuring expenses
Opera ting ex pe nses 1
1.

2010 includes integration and acquisition costs and amortisation of intangible assets of $126 million and comprises personnel costs of $35 million, premises
costs of $2 million, computer costs of $5 million and other costs of $84 million

87

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

5.

Income tax expense
Hal f

Half

Re concili ati on of the pri ma fa cie income tax ex pe nse on
pre -ta x profit wit h the income tax ex pe nse charge d in the
Income Sta teme nt

ye ar
Mar 10$M

ye ar
Sep 09$M

yea r
Mar 10
Ma r 10
Mar 09 v. Se p 09 v. Ma r 09
$M%%

Profit before income tax

2,753

2,27 6

2,104

21 %

31%

826

68 3

631

21 %

31%

Overseas tax rate differential

( 6)

(1 3)

(3)

-54 %

100%

Rebateable and non-assessable dividends

( 3)

( 3)

(5)

0%

-40%

Profit from associates and j oint venture entities

( 60)

(7 0)

(71)

-14 %

-15%

Fair value adjustmen t for INGA
and INGNZ

64

-

-

n /a

n/ a

( 2)

( 8)

13

-75 %

large

( 7)

-

7

n /a

large

Prima facie income tax expense at 30%

Half

Movt

Movt

Tax effect of permanent differences:Mark-to-m arket (gains)/losses on fair valued
investments related to associated entities
Im pairment / (writeback) of investm ent in associatecompany
Offshore Banking Unit

( 6)

(6 3)

95

-90 %

large

New Zealand Conduits

( 38)

19 6

-

large

n/ a

ING A - Policy holder income and contributions tax

8

-

-

n /a

n/ a

Oth er

51

30

16

70 %

large

827

75 2

683

10 %

21%

Income tax ( over) provided in previous years

( 1)

-

-

n /a

n/ a

Total income tax ex pe nse charged in theincome stat ement

826

75 2

683

10 %

21%

Aust ra lia

693

51 1

446

36 %

55%

Overse as

133

24 1

237

-45 %

-44%

10 %

21%

Effe ctive T ax Rat e - Group

88

826

75 2

683

3 0.0%

33.0%

32.5%

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

6.

Dividends
Ordinary Shares
Half
ye ar
Mar 10Half
ye ar
Sep 09Interim (fu lly franked)

52

n/a

46

n /a

13%

Final (fully franked)

n/a

56

n/a

n /a

n/ a

Ordinary share divide nd

$M

$M

$M

%

%
n/ a

Divi de nd per ordinary sha re (ce nt s)

Interim dividend
Final dividend
Bonus option plan adj ustment

Half
Movt
Movt
yea r
Mar 10
Ma r 10
Mar 09 v. Se p 09 v. Ma r 09
%
%

-

99 3

-

n /a

1,403

-

1,514

n /a

-7%

( 29)

(1 7)

(38)

71 %

-24%

Total1

1,374

97 6

1,476

41 %

-7%

Ordinary share dividend payout ratio 2 (%)

6 8.7%

92.5%

71.3%

1.

Dividends recorded when paid

2.

Dividend payout ratio calculated using proposed 2010 interim dividend of $1,318 million not included in the above table. The proposed 2010 interim
dividend of $1,318 million is based on the forecast number of ordinary shares on issue at the dividend record date. Dividend payout ratios for the
September 2009 half year and March 2009 half year calculated using actual dividend paid of $1,403 million and $993 million respectively

For the 2010 interim dividend, a discount of 1.5% will be applied when calculating the “Acquisition Price” used in determining
the number of shares to be provided under ANZ’s Dividend Reinvestment Plan (DRP) and Bonus Option Plan (BOP) terms andconditions, and the “Pricing Period” under the DRP and BOP terms and conditions will be the seven trading days commencing
on 14 May 2010 as determined in accordance with those terms and conditions. Shares provided under the DRP and BOP will
rank equally in all respects with existing fully paid ANZ ordinary shares.

Preference Shares
Half

Half

ye ar
Mar 10$M

ye ar
Sep 09
$M

Half

Movt

Mo vt

6

9

24

-33 %

-75%

€ 7 .06€ 10.79€ 24.28

-35 %

-71%

yea r
Mar 10
Ma r 10
Mar 09 v. Se p 09 v. Ma r 09
$M%%

Preference share di vidend
Euro Trust S ecurities
Divi de nd per pre ference share
Euro Trust S ecurities

89

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

7.

Earnings per share

Number of fully paid ordinary shares on issue (M)

Half
ye ar
Mar 10Half
ye ar
Sep 09

Movt
Half
Movt
Ma r 10yea r
Mar 10Mar 09 v. Se p 09 v. Ma r 09%%

2,533.5

2,504.5

2 ,158.1

1,925

1,52 6

1,417

26 %

36%

( 6)

( 9)

(24)

-33 %

-75%

1%

17%

Ba sicProfit attributable to shareholders of the Company ($M)
Less Preference share dividends ($M)
Profit excluding preference share dividends ($M)

1,919

1,51 7

1,393

26 %

38%

Weighted average number of ordin ary shares ( M)

2,499.8

2,341.8

2 ,100.7

7%

19%

76.8

64.8

66.3

19 %

16%

1,919

1,51 7

1,393

26 %

38%

Interest on US Trust securities ($ M)

19

24

30

-21 %

-37%

Interest on Convertible Preferen ce S hares2 ($M)

53

22

30

large

77%

-

11

14

-100 %

-100%

1,991

1,57 4

1,467

26 %

36%

2,499.8

2,341.8

2 ,100.7

7%

19%

4.8

4.0

3.9

20 %

23%

47.4

51.3

101.9

-8 %

-53%

Ba sic e arni ngs pe r share (cents)
Dil ute dProfit excluding preference share dividends ($M)
1Interest on Convertible Notes 3 ($M)
Profit attributable to shareholders of the Company
excluding interest on US Trust securities, Convertible
Preference Shares
and Convertible Perpetual Notes ($M)
Weighted average number of shares on issue (M)Weighted average number of convertible options ( M)
Weighted average number of convertible US Trust
securities at current market price 1 (M)Weighted average number of convertible preference shares2 (M)Weighted average number of convertible n otes3 ( M)
Adjusted weighted average number of shares - diluted ( M)
Dil ute d ea rnings per sha re (ce nt s)

88.5

45.5

70.4

95 %

26%

-

24.6

38.5

-100 %-100%

2,640.5

2,467.2

2 ,315.4

7%

14%

75.4

63.8

63.4

18 %

19%

1.

The US Stapled Trust securities issued on 27 November 2003 convert to ordinary shares in 2053 unless redeemed or bought back prior to that date. The US
Stapled Trust Security issue can be de-stapled and the investor left with coupon paying preference shares at ANZ’s discretion at any time, or at theinvestor’s discretion under certain circumstances. AASB 133 requires that potential ordinary shares for which conversion to ordinary share capital ismandatory must be included in the calculation of diluted EPS. The inclusion of this issue in EPS increased the diluted number of shares by 47.4 million forthe half year ended 31 March 2010.

2.

There are two “Tranches” of convertible preference shares. The first are convertible preference shares issued on 30 September 2008 and convert to ordinary
shares on the fifth anniversary of the issue date at the market price of ANZ ordinary shares less 2.5% (subject to certain conversion conditions). The second
are convertible preference shares issued on 17 December 2009 and convert to ordinary shares on the fifth anniversary of the issue date at the market priceof ANZ ordinary shares less 1.0% (subject to certain conversion conditions). AASB 133 requires that potential ordinary shares for which conversion to
ordinary share capital is mandatory and must be included in the calculation of diluted EPS. The inclusion of these issues in EPS increased the diluted numberof shares by 88.5 million for the half year ended 31 March 2010.

3.

Convertible notes (issued on 26 September 2008) were fully redeemed by ANZ for cash at face value on 28 September 2009.

90

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

8.

Net loans and advances
Half
yea r
Mar 10
$M

Ha lf
year
Se p 09
$M

Movt
Movt
Ha lf
Mar 10
Ma r 10year
Ma r 09 v. Sep 09 v . Mar 09%%$MAust ra lia
Overdrafts

6,309

6,447

6 ,288-2%0%Credit card outstandings

8,404

7,902

7 ,614

6%

10%

Term loans - housing

149,078

141,652

137 ,239

5%

9%Term loans - non-h ousing

69,34068,30976 ,766

2%

-10%
-24%

Lease finance

1,533

1,656

2 ,018-7%Hire purchase10,238

10,390

10 ,520

-1%

-3%

Other

1,902

2,025

2 ,179-6%-13%

246,804

238,381242 ,624

4%

2%

New Zea land
Overdrafts

1,315

1,444

1 ,463-9%-10%Credit card outstandings

1,098

1,151

1 ,184-5%-7%

Term loans - housing

42,021

44,68945 ,573-6%-8%

Term loans - non-h ousing

30,281

32,657

33 ,368-7%-9%

Lease finance

178

184

201

-3%

-11%

Hire purchase

358

376

412

-5%

-13%

Other

267

352

357

-24%

-25%

75,51880,853

82 ,558-7%-9%

Overse as Market s
Overdrafts

536

456

549

18%

-2%

Credit card outstandings

352

323

306

9%

15%
-16%

Term loans - housing

1,737

1,749

2 ,067-1%

Term loans - non-h ousing

16,092

15,946

18 ,959

1%

-15%

218

224

291

-3%

-25%

Lease finance
Other
Total gross loans a nd a dva nces

538

413

441

30%

22%

19,473

19,111

22 ,6132%-14%341,795

338,345

347 ,795

1%-2%

Provisions for credit impairment (refer note 1 0)

(4,630)( 4,526)(4 ,083)2%

13%

Less income yet to mature1(2,368)( 2,372)(2 ,530)

0%

-6%

555

560

601

-1%

-8%

(6,443)( 6,338)(6 ,012)2%

7%335,352

332,007341 ,783

1%-2%

Capitalised brokerage/mortgage origination fees
Total net loa ns a nd a dva nces1.

Includes fees and expenses capitalised and amortised using the effective interest method of $425 million (Sep 2009: $391 million; Mar 2009: $403 million)

The following table shows gross loans and advances for New Zealand in NZD terms.
Half
yea r
Mar 10NZD M

New Zea land

Ha lf
year
Se p 09
NZD M

Movt
Movt
Ha lf
Mar 10
Ma r 10year
Ma r 09 v. Sep 09 v . Mar 09
%
%
NZD M

Overdrafts

1,696

1,760

1 ,765-4%-4%

Credit card outstandings

1,417

1,402

1 ,4291%-1%

Term loans - housing

54,21554,466

54 ,992

0%-1%

Term loans - non-h ousing

39,06839,802

40 ,265-2%-3%

Lease finance

230

224

243

3%

-5%

Hire purchase

462

458

498

1%

-7%

Other

345

431

431

-20%

-20%

97,43398,543

99 ,623

-1%

-2%

91

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

9.

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 theamounts reported in the table below. Principally, these differences arise in respect of financial assets that are subject torisks other than credit risk, such as equity investments which are primarily subject to market risk, or bank notes andcoins. 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 table presents the maximum exposure to credit risk of on-balance sheet and off-balance sheet financial
instruments before taking account of any collateral held or other credit enhancements.

Re port ed
As a t
As at
Ma r 10
Sep 09

Excl uded 1
As at
As at
Mar 10
Sep 09Maximum ex posuret o cre di t risk
A s at
As at
Mar 10Se p 09

$M

$M

$M

$M

$M

$M

Liquid assets

22,62625,3173,4 62

3,108

19,164

2 2,209

Due from other financial institutions

6,894

4,985

-

-

6,894

4,985

Trading securities

33,27430,991--

33,274

3 0,991

Derivative financial instru ments

27,63037,404--

27,6303 7,404

Available- for-sale assets

17,777

16,5755 27

459

17,250

1 6,116

Net loans, advances and acceptances

347,862

345,769--

347,862

34 5,769

Max imum ex posure to credit ri sk

Other fin ancial assets

5,233

3,265

-

-

5,233

3,265

461,296464,306

3,9 893,567

457,30746 0,739

Undrawn facilities

110,502106,644--

110,502

10 6,644

Contingent facilities

25,251

25,218--25,251

2 5,218

135,753

131,862--

135,753

13 1,862

597,049

596,168

3,9 893,567

593,060

59 2,601

Total
1.

Includes bank notes and coins and cash at bank for liquid assets and equity instruments within available-for-sale financial assets

92

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

9.

Credit quality, cont’dDistribution of financial instruments by credit quality

Neit he r pa st due
nor i mpa ire d
As at
As at
Mar 10
Sep 09

Past due but noti mpa iredAs at
A s atMar 10Se p 09

Restructured
As a t
As at
Ma r 10
Sep 09Impai redAs at
A s atMar 10 Se p 09

T ota l
As at
As at
Ma r 10Se p 09

$M

$M

$M

$M

$M

$M

$M

$M

$M

$M

Liquid assets

19,16 4

22,209

-

-

-

-

-

-

19,164

22 ,209

Due from financial
institutions

6,89 4

4,985

-

-

-

-

-

-

6,894

4 ,985

Trading securities

33,27 430,991

-

-

-

-

-

-

33,27430 ,991

Derivative financial
1
instruments

27,56 1

37,272

-

-

2

5

67

127

27,63037 ,404

Available-for-sale assets

17,25 0

16,116

-

-

-

-

-

-

17,250

16 ,116

Net loans, advances
and acceptances

329,83 5

330,340

12,13910,369558

668

5,3 304,392

3 47,862

345 ,769

Other financial assets

5,23 3

3,265

-

-

-

-

-

-

5,233

3 ,265

135,14 9

131,459

-

-

-

-

6 04

403

1 35,753

131 ,862

574,36 0576,637

12,13910,369560

673

6,0 01

4,922

5 93,060

592 ,601

Credit related
commitments 2

1.

Derivative assets are net of credit valuation adjustments

2.

Comprises undrawn facilities and customer contingent liabilities

Credit quality of financial assets neither past due nor impaired

The credit quality of financial assets is managed by ANZ using internal ratings which aim to reflect the relative ability ofcounterparties to fulfil, on time, their credit-related obligations, and is based on their current probability of default.
Sub-standard3
but not past
Strong credit1
profileAs at
A s atMar 10Se p 09

due or
Sa tisfactory risk 2
As a t
As at
Ma r 10
Sep 09impaire d
As at
A s atMar 10 Se p 09

T ota l
As at
As at
Ma r 10Se p 09

$M

$M

$M

$M

$M

$M

$M

$M

Liquid assets

18,957

21,631

177

368

30

210

19,164

22 ,209

Due from financial
in stitutions

6,376

4,959

290

20

2 28

6

6,894

4 ,985

Trading securities

32,262

30,570

1,012

421

-

-

33,27430 ,991

Derivative financial
in struments

26,29235,317

828

1,336

4 41

619

27,561

37 ,272

Available- for-sale assets

15,93815,181

1,312

931

-

4

17,250

16 ,116

Net loans, advances
an d acceptances

219,878

229,71290,822

82,045

19,1 35

18,583

3 29,835

330 ,340

Other fin ancial assets

5,200

3,254

26

7

7

4

5,233

3 ,265110,250

105,167

22,296

23,072

2,6 033,220

1 35,149

131 ,459

435,153445,791

116,763108,200

22,4 44

22,646

5 74,360

576 ,637

Credit relatedcomm itments

1.

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 respectively

2.

Customers that have consistently demonstrated sound operational and financial stability over the medium to long term, even though some may besusceptible to cyclical trends or variability in earnings. This rating broadly corresponds to ratings “Ba1” to “Ba3” and “BB+” to “BB-” of Moody’s andStandard & Poor respectively

3.

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

93

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

9.

Credit quality, cont’dCredit quality of financial assets that are past due but not impaired
As at 31 March 2010
1-5
days

6-29
days

30-59
days

60-89
days

> 90
days

Tot al

$M

$M

$M

$M

$M

$M

Liquid assets

-

-

-

-

-

-

Due from financial institutions

-

-

-

-

-

-

Trading securities

-

-

-

-

-

-

Agei ng a na lysis of past due fi na ncia linst ruments that are not impai re d

Derivative financial instru ments

-

-

-

-

-

-

Available- for-sale assets

-

-

-

-

-

-

Net loans, advances and acceptances

2,224

5,608

1,951

833

1,52 3

12,139Other fin ancial assets

-

-

-

-

-

-

Credit related commitm ents

-

-

-

-

-

-

2,224

5,608

1,951

833

1,52 3

12,139

1-5
days

6-29
days

30-59
days

60-89
days

> 90
days

Tot al

$M

$M

$M

$M

$M

$M

Liquid assets

-

-

-

-

-

-

Due from financial institutions

-

-

-

-

-

-

Trading securities

-

-

-

-

-

-

As at 30 September 2009
Agei ng a na lysis of past due fi na ncia linst ruments that are not impai re d

Derivative financial instru ments

-

-

-

-

-

-

Available- for-sale assets

-

-

-

-

-

-

2,143

4,518

1,425

686

1,59 7

10,369

-

-

-

-

-

-

Net loans, advances and acceptances
Other fin ancial assets
Credit related commitm ents

-

-

-

-

-

-

2,143

4,518

1,425

686

1,59 7

10,369Ageing analysis of past due loans is used by the Group to measure and manage emerging credit risks. Financial assetsthat are past due but not impaired include those which are assessed, approved and managed on a portfolio basis withina centralised environment (for example credit cards and personal loans), those which can be held on a productive basis
until they are 180 days past due and those which are managed on an individual basis.
A large portion of credit exposures are generally well secured, such as residential mortgages and other secured lending
facilities. That is, the fair value of associated security is sufficient to ensure that ANZ will recover the entire amountowing over the life of the facility and there is reasonable assurance that collection efforts will result in payment of theamounts due in a timely manner.

94

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

9.

Credit Quality, cont’dCredit quality of financial assets that are individually impaired

ANZ regularly reviews its portfolio and monitors adherence to contractual terms. When doubt arises as to thecollectability of a credit facility, the financial instrument (or ‘the facility’) is classified and reported as individually
impaired and an individual provision is allocated against it.
As described in the summary of significant accounting policies in the ANZ 2009 Annual Report, provisions are created forfinancial instruments that are reported on the balance sheet at amortised cost. For instruments reported at fair value,
impairment provisions are treated as part of overall change in fair value and directly reduce the reported carrying
amounts.

I mpa ire d inst ruments
As at
As at
Mar 10
Sep 09I ndividual provisi on
ba lance s
A s at
As at
Mar 10Se p 09

$M

$M

$M

$M

Liquid assets

-

-

-

-

Due from other financial institutions

-

-

-

-

Trading securities

-

-

-

-

67

127

-

-

-

-

-

-

5,3 30

4,392

1,560

1,512

-

-

-

-

6 04

403

33

14

6,0 01

4,922

1,593

1,526

A s atMar 10As at
Se p 09

Derivative financial instru ments 1
Available- for-sale assets
Net loans, advances and acceptances
Other fin ancial assets
Credit related commitm ents
Total
1.

Derivative financial instruments are net of credit valuation adjustments$M$M

Less than $10 million

1,897

1,704

$10 million to $100 million

1,938

1,330

Greater than $10 0 million

2,726

2,561

Impai red A ssets and Re structure d Ite ms by size of e xposure

1

6,561

5,595

Less individually assessed provisions for impairment( 1,593)( 1,526)

Net impai red a ssets

4,968

4,069

Gross im paired assets

1.

Includes $560 million restructured items (Sep 2009: $673 million)

95

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

10. Provision for credit impairment

Coll ective prov isi on

Half
yea r
Mar 10
$M

Half
yea r
Sep 09
$M

Ha lf
Movt
Mov t
yea r
Ma r 10
Ma r 10
Ma r 09 v. Se p 09 v. Ma r 09
$M%%

Balance at start of period

3,000

2,742

2,821

9%

6%

36

331

(96)

-89%

large

Charge/ (Credit) to income statemen t
Provisions acquired

49

-

-

n/ a

n/a

Adjustment for exchange rate fluctuation s

(48 )

(73)

17

-34%

large

3,037

3,000

2,742

1%

11%

Balance at start of period

1,526

1,341

675

14%

large

Charge to income statement for loans and advances

1,026

1,301

1,449

-21%

-29%

Total collective provision 1
Individual provi sion

Provisions acquired

39

-

-

n/ a

n/a

Adjustment for exchange rate fluctuation s

(32 )

(16)

(6)

large

large
69%

Discount unwind

(61 )

(37)

(36)

65%

Bad debts written-off(963 )(1,106)

(783)

-13%

23%

58

43

42

35%

38%

Total individual provision

1,593

1,526

1,341

4%

19%

Total provision for credit impairment

4,630

4,526

4,083

2%

13%

Recoveries of amounts previously written-off

1.

The Collective Provision includes amounts for off-balance sheet credit exposures: $355 million at 31 March 2010 (Sep 2009: $397 million; Mar 2009:$322 million). The impact on the income statement for the half year ended 31 March 2010 was a $40 million release (Sep 2009 half year: $59 million
charge; Mar 2009 half year: $34 million release)

Half
yea r
Mar 10
$M

Half
yea r
Sep 09
$M

Mov t
Movt
Ha lf
Ma r 10
Ma r 10yea r
Ma r 09 v. Se p 09 v. Ma r 09%%
$M

Australia

896

1,053

1,330

-15%

New Zealand

299

352

188

-15%

59%

Overseas Markets

91

68

50

34%

82%

1,286

1,473

1,568

-13%

-18%

(202 )

(129)

(77)

57%

large

1,084

1,344

1,491

-19%

-27%

Provision moveme nt analysis
New and increased provisions

Provision releases
Recoveries of amounts previously written-off
Individual provision charge for loans and advances

-33%

(58 )

(43)

(42)

35%

38%

1,026

1,301

1,449

-21%

-29%

Impairmen t on available-for-sale assets

20

-

20

n/ a

0%

Collective provision charge/(credit) to income statem ent

36

331

(96)

-89%

large

1,082

1,632

1,373

-34%

-21%

As at
Mar 10

As at
Sep 09As at
Ma r 09

Cha rge to Income State ment

Individual provi sion ba lance
Australia
New ZealandDomestic Markets
Overseas Markets
Total individual provision

96

Mov t
Movt
Ma r 10
Ma r 10v. Se p 09 v. Ma r 09
%
%
$M

$M

$M

1,009

1,060

1,072

-5%

-6%

471

391

224

20%

large

1,480

1,451

1,296

2%

14%

113

75

45

51%

large

1,593

1,526

1,341

4%

19%

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

11. Deposits and other borrowings
Half
yea r
Mar 10
$M

Half
yea r
Sep 09
$M

Mov t
Movt
Ha lf
Ma r 10
Ma r 10yea r
Ma r 09 v. Se p 09 v. Ma r 09%%
$M

Certificates of deposit

44,69544,711

46,4050%-4%

Term D eposits

119,204

108,367

99,252

10%

20%

Other deposits bearing interest

107,110111,299

111,570-4%-4%Deposits not bearing interest

9,966

10,174

10,122-2%-2%

Commercial paper

16,525

14,227

16,15616%

2%

Borrowing corporations' debt

2,173

3,587

7,972

-39%

-73%

Other borrowings

2,084

2,005

2,121

4%

-2%

301,757

294,370

293,598

3%

3%

Half
yea r
Mar 10
$M

Half
yea r
Sep 09
$M

Mov t
Movt
Ha lf
Ma r 10
Ma r 10yea r
Ma r 09 v. Se p 09 v. Ma r 09
%
%
$M

890

1,330

1,734

-33%

-49%

-

-

600

n/ a

-100%

ANZ Convertible Preference Shares3

1,081

1,081

1,081

0%

0%

ANZ Convertible Preference Shares 2 4

1,969

-

-

n/ a

n/a

Total deposits and other borrowings

12. Loan capital

Innovative hybrid loan capital
US stapled trust security issue1
Convertible Notes (ANZ CN)

2

Non -in novative hybrid loan capital

UK Hybrid 5

741

820

938

-10%

-21%

975

1,026

1,130

-5%

-14%

Subordinated notes

7,857

9,172

9,177

-14%

-14%

Total Loan Capital

13,513

13,42914,6601%-8%Perpetual su bordin ated n otes

1.

Loan capital of USD750 million is subordinated in right of payment to the claims of depositors and all other creditors of the parent entity and its controlled
entities which have issued the notes. This instrument constitutes Tier 1 capital as defined by APRA for capital adequacy purposes2.

On 28 September 2009 ANZ redeemed the convertible perpetual notes (issued on 26 September 2008). These notes were convertible to a number ofordinary shares calculated at the market price of ANZ ordinary shares, plus 1% conversion premium if the instruments were not redeemed by ANZ. This
instrument constituted Tier 1 capital as defined by APRA for capital adequacy purposes3.

Convertible preference shares (issued on 30 September 2008) convert to ordinary shares on the fifth anniversary of the issue date at the market price of
ANZ ordinary shares less 2.5% (subject to certain conversion conditions). This instrument constitutes Tier 1 capital as defined by APRA for capital adequacy
purposes4.

On 17 December 2009, ANZ issued convertible preference shares which will convert into ordinary shares of ANZ on 15 December 2016 (subject to certain
conditions being satisfied), unless ANZ elects for a third party to purchase the convertible preference shares or they are exchanged earlier. This instrument
constitutes Tier 1 capital as defined by APRA for capital adequacy purposes.

5.

Loan capital of GBP450 million is subordinated in right of payment to the claims of depositors and all other creditors of the parent entity and its controlled
entities which have issued the notes. This instrument constitutes Tier 1 capital as defined by APRA for capital adequacy purposes

97

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

13. Share capital
Issued and quoted securities

Number quoted

Issue pricepe r share

Amount paid
up per sha re€ 1,000€ 1,000

Ordinary share s
As at 31 March 2010

2,533,472,241

Issued during the half year

28,931,316

Preference shares
As at 31 March 2010
E uro Trust Securities 1
1.

500,000

On 13 December 2004 the Group issued €500 million hybrid capital into the European market. The instruments consist of Floating Rate Non-cumulative
Trust Securities issued by ANZ Capital Trust III each representing a unit consisting of €1,000 principal amount of subordinated rate notes due 2053 issued
by ANZ Jackson Funding PLC stapled to a fully paid up preference share with a liquidation preference of €1,000 each, issued by Australia and New Zealand
Banking Group Limited

Profit 1 as a % of shareholders' equ ity
including preference shares at end of period (annualised)
1.

Ha lf
yea r
Ma r 10Ha lf
year
Se p 09

Hal f
ye ar
Ma r 09

11.9%

9.4%

10.0%

Profit attributable to shareholders

14. Shareholders’ equity
Half
yea r
Mar 10
$M

Half
yea r
Sep 09
$M

Mov t
Movt
Ha lf
Ma r 10
Ma r 10yea r
Ma r 09 v. Se p 09 v. Ma r 09%%
$M

20,022

15,00913,460

Sha re ca pi tal
Balance at start of period

33%

49%
n/a

Ordinary share capital
Treasury shares 1,2

(68 )

-

-

n/ a

Share placement

-

4,661

-

-100%

n/a

500

293

1,495

71%

-67%
32%

Dividend reinvestment plan
Group employee share acquisition scheme

62

52

47

19%

Treasury shares in ING A3(366 )

-

-

n/ a

n/a

Group share option scheme

15

7

7

large

large

20,16520,022

15,0091%

34%(1,725 )

(373)

(816)

large

large

Total share capital

Forei gn currency t ra nslat ion reserve
Balance at start of period
Currency translation adj ustments
net of hedges after tax(656 )(1,352)

443

-51%

large

(2,381 )(1,725)

(373)

38%

large

Balance at start of period

69

70

83

-1%

-17%

Share- based paym ents

-

4

5

-100%

-100%

Total foreign currency translation reserve

Sha re opti on re se rve

4

Transfer of options lapsed to retained earnings

(8 )

(5)

(18)

60%

-56%

Total share option reserve

61

69

70

-12%

-13%

1.

On-market purchase of shares for settlement of amounts due under the share-based payments compensation plans.

2.

As at 31 March 2010, there were 11,532,597 treasury shares outstanding (Sep 09: 7,721,314; Mar 09:7,869,128)

3.

On acquisition of ING Australia, an adjustment has been made for ANZ shares held by ING Australia. As at 31 March 2010, there were 16,679,811 INGA
treasury shares outstanding

4.

The share option reserve arises on the grant of share options to selected employees under the ANZ Share option plan. Amounts are transferred out of thereserve and into share capital when the options are exercised98

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

14. Shareholders’ equity, cont’d
Half
yea r
Mar 10
$M

Half
yea r
Sep 09$M

Balance at start of period

(41 )

(130)

(88)

-68%

-53%

Valuation gain / (loss) recognised after tax
Cum ulative (gain) / loss transferred to the income

147

84

(55)

75%

large

Ava ila bl e-for-sale re valua tion reserve

Ha lf
Movt
Mov t
yea r
Ma r 10
Ma r 10
Ma r 09 v. Se p 09 v. Ma r 09
$M
%
%

5

statement 6
Total available-for-sale revaluation reserve

13

5

13

large

0%

119

(41)

(130)

large

large

Hedging re serve7
Balance at start of period

(90 )

99

79

large

large

Gain / ( loss) recognised after tax

23

(141)

35

large

-34%

Transferred to incom e statement

(9 )

(48)

(15)

-81%

-40%

Total hedgin g reserve

(76 )

(90)

99

-16%

large

(2,277 )(1,787)

(334)

27%

large

Balance at start of period

14,12913,62013,772

4%

3%

Profit attributable to shareholders of the Company

1,925

1,526

1,417

26%

36%

8

5

18

60%

-56%

16,06215,151

15,207

6%

6%

(14 )

(37)

(87)

-62%

-84%

Total rese rve s
Re tai ne d earnings

Transfer of options lapsed from share option reserve
Total available for appropriation
Actuarial gain / (loss) on defin ed benefit plans after tax

8Adjustments to opening retained earnings on adoption ofrevised accounting stan dard AA SB 3R
Ordinary share dividends paid
Preference share dividends paid

(39 )

-

-

n/ a

n/a

(1,374 )(976)( 1,476)

41%

-7%

(6 )

(9)

(24)

-33%

-75%

Re tai ne d earnings at end of pe ri od

14,62914,12913,620

4%

7%

Sha re ca pi tal and rese rve s attributable toshareholders of t he Company

32,51732,36428,2950%

15%

Non -controlling interests
Total equity

66

65

72

2%

-8%

32,58332,42928,367

0%

15%

5.

The available-for-sale revaluation reserve arises on the revaluation of available-for-sale financial assets. Where a revalued financial asset is sold, that
portion of the reserve which relates to that financial asset is realised and recognised in the profit or loss. Where a revalued financial asset is impaired, that
portion of the reserve which relates to that financial asset is recognised in the profit or loss

6.

Includes $32 million re-classification of equity accounted reserves upon obtaining control of ING Australia.

7.

The hedging reserve represents hedging gains and losses recognised on the effective portion of cash flow hedges. The cumulative deferred gain or loss on
the hedge is recognised in the profit or loss when the hedged transaction impacts profit or loss, consistent with the applicable accounting policy

8.

ANZ has taken the option available under AASB 119 to recognise actuarial gains/losses on defined benefit superannuation plans directly in retained earnings

99

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

15. Contingent liabilities and contingent assets
Contingent liabilities


GeneralThere 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 have been made. In some instances we have not disclosed the estimated financial
impact as this may prejudice the interests of the Group.
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 becommenced 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 to Primebroker Securities Limited. On 31 August 2009, an
Associate Justice set aside some statutory demands served by the receiver and said that, among other things, ANZ's
appointment of the receiver to Primebroker was invalid. The receiver is appealing the decision. ANZ has joined in
the appeal. On 14 April 2010, the liquidator of Primebroker filed a separate action against the receiver ofPrimebroker and ANZ, alleging that a charge created on 12 February 2008 is void against the liquidators and seeking$98 million (plus interest and costs) from ANZ. ANZ will defend the action.
Contingent tax liability

The Australian Taxation Office (ATO) is reviewing the taxation treatment of certain transactions, including structured
finance transactions, undertaken by the Group in the course of normal business activities. Some assessments havebeen received, which are being challenged in the normal manner.
The New Zealand Inland Revenue Department ("IRD") had disputed the treatment of a number of structured financetransactions as part of an audit of the 2000 to 2005 tax years. ANZ has reached a settlement with the IRD in respectof all the transactions in dispute. This liability, net of amounts received from Lloyds Banking Group plc pursuant toindemnity arrangements, was met from existing tax provisions.
Other audits and risk reviews are being undertaken by the ATO, the IRD and by revenue authorities in otherjurisdictions, as part of normal revenue authority activity in those countries.
The Group has assessed these and other taxation claims arising in Australia, New Zealand and elsewhere, including
seeking independent advice where appropriate, and considers that it holds appropriate provisions.
Interbank Deposit Agreement

ANZ has entered into an Interbank Deposit Agreement with the major banks in the payments system. Thisagreement is a payment system support facility certified by the Australian Prudential Regulation Authority, where theterms are such that if any bank is experiencing liquidity problems, the other participants are required to deposit equalamounts 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
the deposit in cash or by way of assignment of mortgages to the value of the deposit.
Nominee activities

The Group will indemnify each customer of controlled entities engaged in nominee activities against loss suffered byreason of such entities failing to perform any obligation undertaken by them to a customer in accordance with theterms of the applicable agreement.

100

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

15. Contingent liabilities and contingent assets, cont’d

Clearing and Settlement Obligations

In accordance with the clearing and settlement arrangements set out:
- in the Australian Payments Clearing Association Limited Regulations for the Australian Paper Clearing System, theBulk 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 a bilateral exposure and loss inthe event of a failure to settle by a member institution; and- in the Austraclear System Regulations and the CLS Bank 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.


New Zealand Commerce Commission

ANZ is aware that the Commerce Commission is looking closely at credit contract fees under the Credit Contracts andConsumer Finance Act 2003 ("CCCFA"). In its 2009-2012 Statement of Intent the Commission stated that:“Compliance with the Credit Contracts and Consumer Finance Act is a priority area for the Commission, given thedeterioration in consumer confidence in the financial sector and the important role that a competitive lending market
can play in strengthening the New Zealand economy.”
In particular ANZ is aware that the Commerce Commission is investigating the level of default fees charged on credit
cards and the level of currency conversion charges on overseas transactions using credit cards under the CCCFA. The
Commission is also investigating early repayment charges on fixed rate mortgages. At this stage the possible
outcome of these investigations and any liability or impact on fees cannot be determined with any certainty.


ING New Zealand Funds

ANZ National Bank markets and distributes a range of wealth management products in New Zealand. The products
are manufactured and managed by ING NZ. Trading in two of the products, the ING Diversified Yield Fund and the
ING Regular Income Fund (together, “the Funds”), was suspended on 13 March 2008, due to the deterioration in theliquidity and credit markets. Units in the Funds were sold by ANZ National Bank to its customers.
In June 2009, ING NZ AUT Investments Limited, a subsidiary of ING NZ, made an offer to investors in the Funds.
The offer closed on 13 July 2009. Investors holding approximately 99% of the funds accepted the offer to purchasetheir units and have received a payment of 60 cents per unit in the ING Diversified Yield Fund or 62 cents per unit in
the ING Regular Income Fund, as applicable, either (i) in cash, or (ii) by way of deposit in an on-call account with
ANZ National, paying 8.30% per annum fixed for up to five years.
Although acceptance of this offer included a waiver of claims, ANZ National Bank customers were offered an
additional opportunity, to access the ANZ National Bank customer complaints team (and, where still unsatisfied, the
New Zealand Banking Ombudsman) even where the investors had accepted the offer. This opportunity was available
until 31 July 2009 and approximately 1,300 customers requested for their circumstances to be considered, and overhalf of these requests have been resolved.
The Commerce Commission is separately investigating both ANZ National Bank and ING NZ in respect of their roles inmanufacturing, managing and selling of the Funds. At this stage it is not possible to predict the outcome of either ofthese investigations.
The ultimate cost to ANZ National Bank will depend on the final value of units in the Funds, any recoveries underinsurance, the assessment and outcome of the customer complaints and the results of any litigation and regulatory
investigations or proceedings that may be brought in connection with the Funds or their sale. The Group considers
that it has adequately provided for these matters.

101

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

15. Contingent liabilities and contingent assets, cont’dSale of Grindlays businesses

On 31 July 2000, ANZ completed the sale to Standard Chartered Bank (SCB) of ANZ Grindlays Bank Limited and theprivate banking business of ANZ in the United Kingdom and Jersey, together with ANZ Grindlays (Jersey) Holdings
Limited and its subsidiaries, for USD1.3 billion in cash. ANZ provided warranties and certain indemnities relating tothose 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 the provisions established at the time.
- FERAIn 1991 certain amounts were transferred from non-convertible Indian Rupee accounts maintained with Grindlays
in India. These transactions may not have complied with the provisions of the Foreign Exchange Regulation Act,
1973. Grindlays, on its own initiative, brought 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 to which such liabilities were not provided for in the Grindlays accounts as at 31 July
2000. Claims have been made under this indemnity, also with no material impact on the Group expected.

Contingent assets


National Housing Bank

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 ofwhich were credited to the account of a 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 theSpecial Court of Mumbai, after which Grindlays filed an appeal with the Supreme Court of India. Grindlays paid thedisputed 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 equivalent of the Indian
Rupees received by Grindlays) from Standard Chartered Bank under the terms of an indemnity given in connection
with the sale of Grindlays to Standard Chartered Bank.
ANZ recovered $114 million in 2006 from its insurers in respect of the above.
In addition, ANZ is entitled to share with NHB in the proceeds of any recovery from the estate of the customer whose
account was credited with the cheques drawn from NHB. However, the Indian Taxation Department is claiming astatutory 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, the order has been partially
set aside on appeal by the Supreme Court of India. The matter has been remanded to the Special Court for
redeliberation on certain issues.

102

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

16. Note to the Cash Flow Statement(a) Reconciliation of profit after income tax to net cash provided by operating activities
Hal f
Hal f
Half
y ear
ye ar
yea r
Ma r 10
Sep 09Mar 09
Inflows
Infl ows
Inflows(Outfl ows) (Outflows) (Outflows)$M$M$M
Profit after income tax

1,925

1,52 6

1,417

1,082

1,63 2

1,373

Credit risk on derivatives(47)(76 9)

904

Depreciation and amortisation

229

19 1

184

-

-

3

Provision for employee entitlem ents, restructuring
and other provisions

194

26 7

408

Payments from provisions

Adjustments to reconcile to net cash provided by operating activities
Provision for credit impairmen t(Profit)/L oss on sale of businesses( 268)(20 2)(369)(Profit)/loss on sale of premises and equipment

4

5

(10)

(Profit)/loss on sale of available-for-sale securities

(7)

( 5)

4

Amortisation of discounts/premiums included in interest income

(110)

(20)

(5 2)

Share based payments reserve

-

4

5

Net foreign exchange earnings( 393)(39 6)(566)

Net gains/losses on trading derivatives(89)(54 7)

123

Net derivatives/foreign exch ange adjustment735

2,01 9(140)

Trading securities(1,693)(8,38 2)

(7,589)L iquid assets - greater than three months

1,834

1,81 8

435

(46)

4

1,398

(Increase)/ decrease in operating assets:

D ue from other banks - greater than three months(4,843)

3,85 3(5,750)Net derivative financial in struments

463(5,64 1)

(2,113)

Interest receivable

(93)

27 8

444

Accrued income

(18)

72

20

Net tax assets

397(47 8)

622

D eposits and other borrowings

9,484

4,23 88,363

D ue to other fin ancial institutions(4,753)

1,61 0(1,778)977

76 0(1,754)

L oans and advances

In crease/(decrease) in operating liabilities:

Payables and other liabilities
L ife insurance contract policy liabilities

231

-

-

Interest payable( 248)(26 0)(855)

Accrued expenses

44

24 7

47

19

(10 9)

(81)

5,100

1,68 3(5,365)Liquid assets - less than three months

17,716

18,39 3

17,673Due from other financial institutions - less than three months

6,291

4,41 2

4,707

24,00722,80 522,380

500

31 2

1,476

Oth erNet ca sh provided by/(use d in) ope ra ting activitie s(b) Reconciliation of cash and cash equivalents
Cash at the end of the period as shown in the statement ofcash flows is reconciled to the related items in the balance sh eet as
follows(c) Non-cash financing activities
Dividends satisfied by share issue

103

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

17. Segment analysis
The following analysis shows revenue and the result for each business segment.

Segment R evenue1

Half
yea r
Mar 10
$M

Half
yea r
Sep 09$M

Australia

5,090

5,047

4,175

1%

22%

886

917

1,043

-3%

-15%

1,241

1,079

1,349

15%

-8%

7,217

7,043

6,567

2%

10%

2,079

1,925

1,116

8%

86%

Asia Pacific, Eu rope & Am erica

282

344

492

-18%

-43%

New Zealand

392

7

496

large

-21%

2,753

2,276

2,104

21%

31%

Asia Pacific, Eu rope & Am erica
New Zealand

Ha lf
Movt
Mov t
yea r
Ma r 10
Ma r 10
Ma r 09 v. Se p 09 v. Ma r 09
$M%%

Segment resul t2
Australia

1.

Segment revenue includes equity standardised net interest income, other income and intersegment revenue

2.

Segment result represents equity standardised profit before income tax expense

18. Changes in composition of the GroupAcquisition of material controlled entities

During the half year ended 31 March 2010, the Group acquired the following entities:

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 half year ended 31 March 2010 includes the financial impact of full ownership since 30 November 2009. For theperiod 1 October 2009 to 30 November 2009, the investments were accounted for as joint ventures. In the priorperiods, the results include the financial impact of the 49% interest in the joint venture.



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 for the period since acquisition are included inearnings for the half year ended 31 March 2010.



Selected Royal Bank of Scotland Group plc (RBS) businesses in Asia - during 2009, ANZ announced the acquisitionof selected RBS businesses in Asia. In the half year ended 31 March 2010, the acquisitions were completed in thePhilippines on 21 November 2009, Vietnam on the 5 December 2009 and Hong Kong on 20 March 2010. The
financial impacts of these acquisitions are included from these respective dates.

The initial accounting for all the business combinations described above, including the fair value of assets acquired andliabilities assumed and the calculation of goodwill / discount on acquisition is provisional while valuations are finalised.
Recognised goodwill increased from $2,999 million at 30 September 2009 to $3,912 million at 31 March 2010 as a resultof provisional goodwill recognised on the acquisitions of $1,062 million and foreign exchange translation losses of$149 million.
There were no material controlled entities acquired during the half years ended 30 September 2009 or 31 March 2009.
Disposal of material controlled entities

There were no material controlled entities disposed of during the half years ended 31 March 2010, 30 September 2009or 31 March 2009.

104

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

19. Business Combinations
During the half year ended 31 March 2010, the Group acquired three entities (refer Note 18. Changes in composition of
the Group). Had ING been consolidated from 1 October 2009, the consolidated Income Statement and Statement ofComprehensive Income for the six months ended 31 March 2010 would have included, operating income of $470 million
and a profit before tax of $191 million, excluding the elimination of gains/losses on treasury shares. The impact of theother acquisitions is not considered material.
The following disclosures as required by AASB 3R are provisional while valuations are finalised. Details of eachacquisition is set out below:
ING

On 30 November 2009, ANZ purchased ING Groep’s 51% interest in the ANZ-ING wealth management and life insurance
joint ventures in Australia and New Zealand. The transaction was undertaken to strengthen the Group’s position in
wealth management and more closely integrate its retail banking and wealth management businesses. As part of thetransaction the Group also purchased ING Groep’s 51% interests in two fixed income unit trusts in New Zealand, the ING
Diversified Yield Fund and the ING Regular Income Fund (“the Funds”), taking its ownership interest to over 99% of theFunds.
Fai r values of asse ts acquired and li abili tie s a ssume d as at acquisiti on date (provisi onal )$M

Due from financial institutions

707

Available- for-sale assets

1,441

Investments relating to insurance bu siness

28,082

Shares in associates

8

Other assets 1

438

Deferred tax assets

21

Intangible assets

1,449

Premises and equipment

53

Total asse ts

32,199Due to finan cial institutions

835

Payables and other liabilities

133

Current tax liabilities

103

Insurance policy liabilities

28,126

Deferred tax liabilities

258

Provisions/con tingent liabilities 2

213

Total liabilitie s

29,668

Net assets

2,531

Non -controlling interests in the Funds 3(1 )Net asset s attributable to the Group2,530

Book value of existin g equity interests

1,952

Adjustment on re-measuring existing equity interests to fair value 4(181 )

Acquisition date fair value of existing equity interests

1,771

Cash consideration transferred

1,816

Total Consi de rat ion

3,587

Provisional va lue of goodwill5

1,057

1

Includes receivables with a fair value of $432 million and a gross contractual amount receivable of $433 million. The best estimate at the acquisition date of
the contractual cash flows not expected to be collected on these receivables is $1 million.

2.

Includes employee related provisions and the fair value of contingent liabilities assumed, which relate to possible claims by investors in the Funds andinvestigations by regulatory bodies and other actual and potential claims and proceedings (refer to Note 15). The expected timing and ultimate cost ofcontingent liabilities to the Group will depend on the assessment and outcome of compliance performance, and the results of any litigation and regulatory
investigations or proceedings that may be brought. None of the contingent liabilities were used during the period.

3

Non controlling interests are measured as their proportionate share of the identifiable net assets of the Funds.

4

The adjustment on re-measuring equity interests has been recognised in Other Operating Income in the Income Statement. In addition to this adjustment,
the Group reclassified the debit equity accounted reserves of ING of $32 million to Other Operating Income in the Income Statement.

5

Upon finalisation of fair value procedures, the remaining balance will be recognised as goodwill. The goodwill paid relates to expected synergistic benefits
expected to be realised through the combination of the ANZ and ING wealth businesses. Goodwill is not expected to be deductible for income tax purposes.

Included in the consolidated Income Statement and Statement of Comprehensive Income since 30 November 2009 isoperating income of $217 million and a profit before tax of $61 million in respect of ING, after eliminating gains ontreasury shares. This excludes integration and transaction costs. In respect of transaction costs, $10 million isrecognised in Other Operating Expenses in the Income Statement and $2 million in Opening Retained Earnings on
adoption of the revised acquisition accounting standard pertaining to expenses incurred in 2009.
105

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

19. Business Combinations (cont’d)Landmark Financial Services

On 1 March 2010, the Group completed its acquisition of the Landmark Financial Services business from AWB Group.
The business is comprised mainly of an agribusiness based loan and deposit book as well as associated support staff. No
legal entity was acquired as part of this acquisition.
Fai r values of asse ts acquired and li abili tie s a ssume d as at acquisiti on date (provisi onal )1

$M

Cash

12
1

Net loans and advances

2,208

Total asse ts

2,220

Customer deposits

310

Employee entitlements

2

Total liabilitie s

312

Net fair va lue of asse ts acquired

1,908

Cash consideration paid

1,908

Provisional va lue of goodwill a nd intangi bl e a ssets
1.

0

The gross contractual amounts receivable associated with these loans and advances is $2,275 million. The best estimate of amounts not expected to bereceived at acquisition date is $68 million.

Included in the consolidated Income Statement and Statement of Comprehensive Income since 1 March 2010 isoperating income of $9 million and a profit before tax of $8 million in respect of the acquired business. This excludes
integration and transaction costs. Transaction costs of $3 million are recognised in Other Operating Expenses in the
Income Statement.
Royal Bank of Scotland

During the six months ended 31 March 2010, the acquisitions were completed in the Philippines on 21 November 2009,
Vietnam on the 5 December 2009 and Hong Kong on 20 March 2010.
Fair values of assets acquired and liabilities assumed as at acquisition date (provisional)1
Liquid assets$M
21

Due from other financial institutions

1,239

Net loans and advances

398

Other assets

3

Total assets

1,661

Due to other financial institutions

62

Deposits and other borrowings

1,597

Payables and other liabilities

6

Total liabilities

1,665

Net fair value of liabilities assumed

4

Cash consideration paid
Provisional value of goodwill and intangible assets2

5

1

1.

All balances have been translated to AUD using the spot rate at 31 March 2010.

2.

Upon finalisation of fair value procedures, including recognition of intangible assets acquired, the remaining balance will be recognised as goodwill or gain on
acquisition.

Included in the consolidated Income Statement and Statement of Comprehensive Income since the respective
acquisition dates of the Philippines, Vietnam and Hong Kong is operating income of $1 million and a loss before tax of $1
million. This excludes integration and transaction costs. A further $1 million is recognised in Other Operating Expenses
in the Income Statement for expenses incurred in relation to facilitating the signing of the transaction and a further $37
million in Opening Retained Earnings on adoption of the revised acquisition accounting standard pertaining to expenses
incurred in 2009.

106

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

20. Associates, joint venture entities and investments

Profit after income tax

Hal f
ye ar
Mar 10
$M

Half
yea r
Se p 09
$M

Ha lf
year
Ma r 09
$M

20 1

227

238

Key contributions to profit1
Contri buti on toGroup pre-tax profi t

Associa tes
P.T. Bank Pan Indonesia

Owne rshi p interest
hel d by Group

Hal f
ye ar

Half
yea r

Ha lf
year

As at
Mar 10A s atSe p 09

As a t
Ma r 09

Mar 10$M

Sep 09$M

Ma r 09
$M

%

%

%

40

21

24

39

39

39

Metrobank Card Corporation Inc

5

4

4

40

40

40

Bank of Tianj in

33

56

45

20

20

20

AMMB Holdin gs Berhad

34

59

41

24

24

19

Shanghai Rural Commercial Bank

24

30

88

20

20

20

Saigon Securities Inc.

3

2

4

18

18

18

Other associates

6

1

3

n/a

n /a

n/a

ING Australia L imited 2

28

50

23

10 0

49

49

ING (NZ) Holdings Limited 2

5

4

6

10 0

49

49

23

-

-

99

49

-

Joint ve ntures

ING D iversified Yield Fu nd
and ING D iversified In come Fun d3
1.

The results may differ from the published results of these entities due to the application of IFRS, Group Policies and acquisition adjustments. This amounted
to $17 million in 2010 (Sep 2009 half: $60 million; Mar 2009 half: $102 million)

2.

Accounted for as associates up to 30 November 2009 prior to full acquisition

3.

Increase in fair value of securities held in the ING Diversified Yield Fund and ING Diversified Income Fund which were accounted for as associates up to
30 November 2009 prior to full acquisition of ING (NZ) Holdings Limited

21. Related party disclosure
There have been no signficant changes to the arrangements with related parties, refer Notes 47 and 48 of the 2009
Annual Report.

22. Exchange rates
Major exchange rates used in translation of results of offshore controlled entities and branches and investments in
Associates and joint venture entities were as follows:
Bal ance shee t
As at
Mar 10

As at
Sep 09Profit and loss ave ra ge
As at
Ma r 09

Half
ye ar
Mar 10Half
yea r
Sep 09Ha lf
year
Ma r 09Euro

0.68290.60 140.51780.63300.5 696

0.5086

Great British Pound

0.60730.54 860.47950.5671

0.4 9880.4448

New Zealand D ollar

1.2902

1.21 88

1.20671.2615

1.2 4631.2032

United States Dollar

0.91560.87 92

0.68550.90600.7 957

0.6677

Chinese Yuan

6.24966.00 26

4.68656.1855

5.4 3514.5661Indonesian Rupiah

8348 .4

8506.37934.784 86.8

8147.27527.0

Malaysian Ringgit

2.9962

3.05 482.50283.0696

2.8 1092.3948

Papua New G uinea Kina

2.52222.41 542.01622.4563

2.2 041

1.7984

23. Significant events since balance date
The Group completed its acquisition of The Royal Bank of Scotland Taiwan businesses on 17 April 2010. Based on
preliminary unaudited information, this resulted in the acquisition of approximately USD 2.3 billion of assets and USD 2.3
billion of deposits.
107

DIRECTORS’ DECLARATION

The directors of Australia and New Zealand Banking Group Limited declare that:
1. in the directors’ opinion the condensed financial statements and notes of the Group set out on pages 76 to 107 are inaccordance with the Corporations Act 2001 (as amended), including:(a) that they comply with the Australian Accounting Standard AASB 134: ‘Interim Financial Reporting’, and the
Corporations Regulations 2001; and(b) that they give a true and fair view of the financial position of the Group as at 31 March 2010 and of its performancefor the half year ended on that date; and2. in the directors’ opinion at the date of this declaration there are reasonable grounds to believe that the Company will beable to pay its debts as and when they become due and payable.
Signed in accordance with a resolution of the directors.

John MorschelChairmanMichael R P Smith
Director

28 April 2010108

AUDITORS’ REVIEW REPORT AND INDEPENDENCE DECLARATION

Independent auditors’ review report to the members of Australia and New Zealand Banking Group Limited
Report on the Financial Report

We have reviewed the accompanying half-year financial report of Australia and New Zealand Banking Group Limited (“theCompany”), which comprises the condensed consolidated balance sheet as at 31 March 2010, condensed consolidated income
statement, condensed consolidated statement of comprehensive income, condensed consolidated statement of changes inequity and condensed consolidated cash flow statement for the half-year ended on that date, a basis of preparation and otherexplanatory notes 2 to 23 and the directors’ declaration set out on pages 76 to 108 of the Group comprising the Company
and the entities it controlled at the half-year’s end or from time to time during the half-year.
Directors’ responsibility for the half-year Financial Report
The directors of the Company are responsible for the preparation and fair presentation of the half-year financial report inaccordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations
Act 2001. This responsibility includes establishing and maintaining internal control relevant to the preparation and fairpresentation of the half-year financial report that is free from material misstatement, whether due to fraud or error; selecting
and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Auditors’ responsibility
Our responsibility is to express a conclusion on the half-year financial report based on our review. We conducted our review
in accordance with Auditing Standard on Review Engagements ASRE 2410 Review of Interim and Other Financial Reports
Performed by the Independent Auditor of the Entity, in order to state whether, on the basis of the procedures described, we
have become aware of any matter that makes us believe that the half-year financial report is not in accordance with the
Corporations Act 2001 including: giving a true and fair view of the Group’s financial position as at 31 March 2010 and its
performance for the half-year ended on that date; and complying with Australian Accounting Standard AASB 134 Interim
Financial Reporting and the Corporations Regulations 2001. As auditor of Australia and New Zealand Banking Group Limited,
ASRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial report.
A review of a half-year financial report consists of making enquiries, primarily of persons responsible for financial andaccounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit
conducted in accordance with Australian Auditing Standards and consequently does not enable us to obtain assurance that
we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express anaudit opinion.
Independence
In conducting our review, we have complied with the independence requirements of the Corporations Act 2001.
Conclusion
Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the halfyear financial report of Australia and New Zealand Banking Group Limited is not in accordance with the Corporations Act
2001, including:(a)giving a true and fair view of the Group’s financial position as at 31 March 2010 and of its performance for the half year
ended on that date; and(b)complying with Australian Accounting Standard AASB 134: Interim Financial Reporting and the Corporations Regulations
2001.

KPMG
MelbourneMichelle Hinchliffe
Partner

28 April 2010
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 review for the half-year ended 31 March 2010 there
have been:(i)no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to thereview; and(ii)

no contraventions of any applicable code of professional conduct in relation to the review.

KPMG
MelbourneMichelle Hinchliffe
Partner

28 April 2010
109

SUPPLEMENTARY INFORMATION

Reconciliation of statutory profit to underlying profit

March 2010 Half Year
Statutory

Less: Adjustments to statutory profit

profitAcquisition costs
and valuation
adjustments$M

Treasury shares Tax on New Zealandadjustment
Conduits

Organisat'ltransform'n costs

Economic hedging fair value gains/losses

$M

$M

$M

$M

Net interest income

5,188

( 4)

-

-

-

-

Other operatin g income

2,029( 213)

(57)

-

-

(192)
(192)

Operating income

7,217( 217)(57)--

Operating expenses( 3,382)( 126)----

Profit before credit impair't and tax

3,835( 343)

(57)

-

-

(192)

Provision for credit impairment( 1,082)

-

-

-

-

-

Profit before income tax

2,753( 343)

(57)

-

-

(192)

Income tax expense

(826)

21

5

38

-

54

(2)

-

-

-

-

-

1,925

( 322)

(52)

38

-

(138)

Organisat'ltransform'n costs

Economic hedging fair value gains/lossesNon -controlling interests
ProfitSeptem be r 2009 Half Yea r
Less: Adjustments to statutory profit

Statutory
profitAcquisition costs
and valuation
adjustments

Treasury shares Tax on New Zealandadjustment
Conduits

$M

$M

$M

$M

$M

$M

Net interest income

4,986

-

-

-

-

(3)

Other operatin g income

2,057

-

-

-

-

(1,013)Operating income

7,043

-

-

-

-

(1,016)

Operating expenses( 3,135)

-

-

-

( 5)

-

Profit before credit impair't and tax

3,908

-

-

-

( 5)

(1,016)

Provision for credit impairment( 1,632)

-

-

-

-

-

Profit before income tax

2,276

-

-

-

( 5)

(1,016)

Income tax expense

(752)

-

-

(196)

1

307

2

-

-

-

-

-

1,526

-

-

(196)

( 4)

(709)

Organisat'ltransform'n costs

Economic hedging fair value gains/losses$M

Non -controlling interests
ProfitMarch 2009 Half Year
Less: Adjustments to statutory profit

Statutory
profitAcquisition costs
and valuation
adjustments

Treasury shares Tax on New Zealandadjustment
Conduits

$M

$M

$M

$M

$M

Net interest income

4,822

-

-

-

-

1

Other operatin g income

1,745

-

-

-

-

655
656

Operating income

6,567

-

-

-

-

Operating expenses( 3,090)---( 137)-

Profit before credit impair't and tax

3,477

-

-

-

( 137)

656

Provision for credit impairment( 1,373)

-

-

-

-

-

Profit before income tax

2,104

-

-

-

( 137)

656

Income tax expense

(683)

-

-

-

41

(195)

(4)

-

-

-

-

-

1,417

-

-

-

( 96)

461

Non -controlling interests
Profit110

SUPPLEMENTARY INFORMATION (continued)

March 2010 Half Year
Less: Adjustments to statutory profit

Underl yingprofitNon cont. business Revenue andCredit Intermed'n Non cont. busi ness investment hedges - ANZ share of ING NZ
TradesOther
MtM investor settlement

Structured
Credit risk ontransaction impaired derivatives

Adjustments tostatutory profits

$M

$M

$M

$M

$M

$M

$M

$M

-

-

-

1

-

-

(3)

5,191

33

27

64

8

-

(17)

( 347)

2,376

33

27

64

9

-

(17)

( 350)

7,567( 3,249)

-

-

-

(7)

-

-

( 133)

33

27

64

2

-

(17)

( 483)

4,318

-

-

-

(1)

-

17

16

( 1,098)

33

27

64

1

-

-

( 467)

3,220

(10)

(2 )

(13)

1

-

-

94

(920)

-

-

-

-

-

-

-

(2)

23

25

51

2

-

-

( 373)

2,298

Septem be r 2009 Half Yea r
Less: Adjustments to statutory profit

Underl yingprofitRevenue andNon cont. business investment hedges - ANZ share of ING NZ
Credit Intermed'n Non cont. busi ness MtM investor settlement
TradesOther

Structured
Credit risk ontransaction impaired derivatives

Adjustments tostatutory profits

$M

$M

$M

$M

$M

$M

$M

$M

-

-

-

1

-

-

(2)

4,988

3

(35 )

759

(6)

-

10

( 282)

2,339

3

(35 )

759

(5)

-

10

( 284)

7,327

-

-

-

(6)

-

-

( 11)

( 3,124)

3

(35 )

759

(11)

-

10

( 295)

4,203

-

-

-

(1)

-

(10)

( 11)

( 1,621)

3

(35 )

759

(12)

-

-

( 306)

2,582

(1)

11

(164)

10

-

-

( 32)

(720)

-

-

-

-

-

-

-

2

2

(24 )

595

(2)

-

-

( 338)

1,864

March 2009 Half Year
Less: Adjustments to statutory profit

Underl yingprofitNon cont. business Revenue andCredit Intermed'n Non cont. busi ness investment hedges - ANZ share of ING NZ
TradesOther
MtM investor settlement

Structured
Credit risk ontransaction impaired derivatives

Adjustments tostatutory profits

$M

$M

$M

$M

$M

$M

$M

$M

-

-

-

(1)

-

-

-

4,822

27

(138 )(812)( 113)-(92)( 473)

2,218

27(138 )(812)( 114)-(92)( 473)

7,041

-

-

-

(9)

-

-

( 146)( 2,944)27(138 )(812)( 123)-(92)( 619)

4,097

-

-

-

(30)

-

92

62

( 1,435)

27(138 )(812)( 153)--( 557)

2,662

(8)

41

148

39

-

-

66

(749)

-

-

-

-

-

-

-

(4)

( 491)

1,908

19

(97 )

(664)

( 114)-

111-

SUPPLEMENTARY INFORMATION (continued)

Reconciliation of statutory profit to underlying profit by geography, cont’dMarch 2010 Half Year

Group
$M

Australia$M

Asia Pacific,
Europe &America
$M

1,925

1,385

234

306

Acquisition costs and valuation adjustments

(322)

(178)

(70)

(74)

Treasury shares adjustment

(52)

(52)

-

-

Tax on New Zealand Conduits

38

-

-

38

(138)

(157)

(4)

23

23

23

-

-

-

-

-

-

25

-

-

25

Credit intermediation trades

51

51

-

-

Other

2

4

-

(2)

2,298

1,694

308

296

Group
$M

Australia$M

Asia Pacific,
Europe &America$M

New Zealand$M

Statutory profit
Adjust for the following gains/(losses) included in statutory
profit (net of tax)
Tax on New Zealand Conduits

1,526

1,416

301

(191)

(196)

-

-

(196)

Organisational transformation costs (incl. One ANZ restructuring)

(4)

(4)

-

-

(709)

(654)

16

(71)

Statutory profit

New Zealand$M

Adjust for the following gains/(losses) included in statutory
profit (net of tax)

Economic hedging - fair value gains/(losses)
Revenue and net investment hedges
Organisational transformation costs (incl. One ANZ restructuring)
ANZ share of ING NZ investor settlement
Non continuing businesses

Underlying profit

Sept ember 2009 Half Year

Economic hedging - fair value gains/(losses)
Revenue and net investment hedges
ANZ share of ING NZ investor settlement

2

2

-

-

(24)

-

-

(24)

595

595

-

-

(2)

1

-

(3)

1,864

1,476

285

103

Group
$M

Australia$M

Asia Pacific,
Europe &America$M

New Zealand
$M

1,417

668

399

350

Non continuing businesses
Credit intermediation trades
Other
Underlying profit

March 2009 Half Year

Statutory profit
Adjust for the following gains/(losses) included in statutory
profit (net of tax)
Organisational transformation costs (incl. One ANZ restructuring)

(96)

(83)

1

(14)

Economic hedging - fair value gains/losses

461

425

(16)

52

Revenue and investment hedges - mark-to-market

19

19

-

-

ANZ share of ING NZ investor settlement

(97)

-

-

(97)

Credit intermediation trades

(664)

(664)

-

-

Other

(114)

(113)

-

(1)

1,908

1,084

414

410

Non continuing businesses

Underlying profit

112

SUPPLEMENTARY INFORMATION (continued)

Capital management

Quali fying Ca pi tal

As at
Mar 10As at
Se p 09$M$M

32,583

32 ,429

As at
Mar 09Movt
Movt
Mar 10Mar 10v. Sep 09 v. Mar 09$M%%

Ti er 1
Shareholders' equity and non-controlling interests

0%

15%

(2,003)(2 ,341)(2,468)

-14%

- 19%

Fundamental Tier 1 capital

30,58030 ,088

25,8992%

18%

Non -in novative Tier 1 capital instruments

3,791

1 ,901

2,019

99%

88%

Innovative Tier 1 capital instruments

1,690

2 ,122

3,076

-20%

- 45%

36,061

34 ,11130,9946%

16%(9,433)(7 ,492)(8,051)26%

17%26,628

26 ,619

22,9430%

16%

Prudential adj ustments to shareholders' equity

Table 1

28,367Gross Tier 1 capital
Deductions

Table 2Ti er 1 ca pital
Ti er 2Upper Tier 2 capital

Table 3

1,057

1 ,390

1,462

-24%

- 28%

Subordinated notes

Table 4

7,405

9 ,082

9,191

-18%

- 19%

Deductions

Table 2

(2,830)(2 ,661)(2,604)6%

9%

Ti er 2 ca pital

5,632

7 ,811

8,049

-28%

- 30%

Total qua lifyi ng capita l32,26034 ,430

30,992-6%

4%

Tier 1

10.7%

10.6%

8.2%

Tier 2

2.3%

3.1%

2.8%

Total

13.0%

13.7%

11.0%

248,961

252 ,069

280,882

-1%

- 11%

Capita l a de quacy rati os

Risk weighted assets

Table 5113

SUPPLEMENTARY INFORMATION (continued)

Capital management, cont’d
As at
Ma r 10As at
Sep 09As at
Mar 09$M

Movt
Mar 10v. Sep09

Movt
Ma r 10v. Mar09$M$M

Ta bl e 1: Prudenti al adjust ments to shareholders' equi ty
Treasu ry shares attributable to ING policy holders

364

-

-

n /a

n/a

Reclassification of preference share capital(871)( 871)(871 )

0%0%

Accumulated retained profits and reserves of insurance, funds
management and securitisation entities and associates(955)(1,010)(1,336 )

-5 %

-29%

Deferred fee revenue including fees deferred aspart of loan yields

425

391

403

9%

5%

Hedging reserve

76

90

(99 )

-16 %

large

Available- for-sale reserve

(119)

41

130

large

large

Dividend not provided for( 1,318)(1,403)(993 )

-6 %

33%

395

421

298

-6 %

33%

( 2,003)(2,341)(2,468 )

-14 %

-19%

( 2,872)(3,047)(3,093 )

-6 %

-7%

Accrual for Dividend Reinvestment Plans
Total
Ta bl e 2: Deducti ons from Tie r 1 capit al
Unamortised goodwill & other intangibles(exclu ding ING Australia and New Zealand)
Intangible component of investments in ING A ustralia and New Zealand1

Capitalised software( 1,961)

-

-

n /a

n/a

(960)

( 849)(723 )

13 %

33%

(617)

( 602)(643 )

2%

-4%

(215)

( 325)(524 )

-34 %

-59%

22

12

(358 )

83 %

large

-

( 20)

(106 )-100 %-100%( 6,603)(4,831)(5,447 )

37 %

21%

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
Negative A vailable-for- sale reserve
Sub-total
Deductions taken 50% from Tier 1 and 50% from Tier 2

Gross

50%

Investment in ANZ in surance subsidiaries

(378)

(189)

( 161)(141 )

17 %34%

Investment in funds management entities

(66)

(33)

( 33)

(33 )

0%

0%

(1,268)(634)( 737)(728 )

-14 %

-13%

(1,962)(981)( 976)(925 )

1%

6%
2%

Investment in ING in A ustralia
and New Zealand 2
Investment in other Authorised Deposit Taking Institution sand overseas equivalents
Expected losses in excess of eligible provisions 3(1,035)(518)( 506)(508 )

2%

Investment in other commercial operations

(72)

(36)

( 36)

(36 )

0%

0%

Other deductions

(878)

(439)

( 212)(233 )

large

88%

Sub-total(5,659)Total( 2,830)(2,661)(2,604 )6%9%( 9,433)(7,492)(8,051 )

26 %

17%

-

269

271

-100 %

-100%

972

1,024

1,127

-5 %

-14%

85

97

64

-12 %

33%

1,057

1,390

1,462

-24 %

-28%

Ta bl e 3: Upper Tier 2 capita lEligible component of post acquisition earnings and reserves inassociates and j oint ventures
Perpetual su bordin ated n otes
Gen eral reserve for impairmen t of financial assets net of
attributable deferred tax asset 4
Total

Table 4: Subordinated notes5
For capital adequacy calculation purposes, 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.
1.

Calculation based on prudential requirements

2.

Joint venture investments until 30 November 20093.

The gross deduction includes a collective provision component net of tax of $2,124 million, other eligible provisions of $1,529 million less an estimate forregulatory expected loss of $4,688 million

4.

Under Basel II, this consists of the surplus of the general reserve for impairment of financial assets net of tax and/or the provisions attributable to the standardised
portfolio

5.

The fair value adjustment is excluded for prudential purposes as the prudential standard only permits inclusion of cash received and makes no allowance forhedging.

114

SUPPLEMENTARY INFORMATION (continued)

Capital management, cont’d

As at
Ma r 10As at
Sep 09As at
Mar 09Movt
Mar 10v. Sep
09

$M

$M

$M

On balance sheet

16 6,069

170,035

181,562-2 %-9%Commitments

3 5,996

37,70445,914-5 %-22%

Contingents

9,796

12,377

13,526

-21 %

-28%

Derivatives

8,514

9,695

16,768

-12 %

-49%

22 0,375

229,811257,770

-4 %

-15%

3,969

3,553

5,632

12 %

-30%

Movt
Ma r 10v. Mar09

Ta bl e 5: Ri sk wei ghte d assets

Total credit risk
Market risk - Traded
Market risk - IRRBB

8,136

2,465

-

large

n/a

Operational risk

1 6,481

16,24017,4801%-6%Total risk weighted assets

24 8,961

252,069

280,882

-1 %

-11%

As at
Ma r 10As at
Sep 09As at
Mar 09

$M

$M

$M

Movt
Mar 10v. Sep09

Movt
Ma r 10v. Mar09

Corporate

10 0,945

116,153

136,559

-13 %

-26%

Sovereign

2,470

1,408

1,402

75 %

76%

Bank

5,108

5,592

10,374-9 %-51%

3 7,423

36,72535,932

2%

4%

7,238

6,852

8,900

6%

-19%

Other retail

1 7,942

17,10814,9055%

20%

Cre di t risk we ight ed asse ts subject t o A dva nced IR B a pproach

17 1,126

183,838

208,072

-7 %

-18%

Cre di t risk spe cia li sed l endi ng e xposures subje ct to slotti ng cri teria

2 4,965

24,27225,362

3%-2%

Corporate

1 6,892

13,531

15,59425 %8%

Sovereign

-

-

-

n /a

n/a

Bank

1

13

21

-92 %

-95%

Ta bl e 6: Cre di t risk we ight ed asse ts by Basel asset cl ass
Subject to Advance d IRB approa ch

Residential Mortgage
Qualifying revolvin g retail (credit cards)

Subject to Standardi sed a pproach

Residential Mortgage
Cre di t risk we ight ed asse ts subject t o Sta ndardise d approa ch

400

411

467

-3 %

-14%

1 7,293

13,95516,08224 %8%Credit risk weighted assets relating to securitisation exposures

1,975

2,658

3,364

-26 %

-41%

Credit risk weighted assets relating to equity exposures

1,639

1,914

1,707

-14 %

-4%

Other assets

3,377

3,174

3,183

6%

6%

22 0,375

229,811257,770

-4 %

-15%

Total credit risk wei ghte d asset s

Colle cti ve Provi sion
As at
As at
Mar 10
Sep 09Ta bl e 7: Coll ective provisi on and Re gula tory E xpect ed loss by region
Australia
Asia Pacific, Eu rope & Am erica
New Zealand
Total

115

Re gula tory
Expected LossA s atAs a tMar 10Se p 09

$M

$M

$M

$M

2,013

2,001

3,414

3,291

352

339

215

214

672

660

1,059

1,024

3,037

3,000

4,688

4,529

SUPPLEMENTARY INFORMATION (CONTINUED)

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 thegeographic segments.
Half to Da te Mar 10

Ha lf ye ar Sep 09

Half year Mar 09

Ave ba l

Int

R ate

Ave balInt

Rate

Ave bal

Int

Rat e

$M

$M

%

$M

$M

%

$M

$M

%

3 ,065

55

3.6%

4,312

68

3.1%

4,691

97

4.1%

838

10

2.4%

676

13

3.8%

2,020

36

3.6%

7 ,137

24

0.7%

6,235

12

0.4%

8,729

88

2.0%

Australia

34 ,184709

4.2%

29,223484

3.3%

26,432758

5.8%

New Zealand

6 ,348

148

4.7%

3,538

85

4.8%

2,405

81

6.8%

Asia Pacific, Europe & America

9 ,766

102

2.1%

8,200

109

2.7%

6,553

149

4.6%

Australia

240 ,107

8,000

6.7%

236,847

7 ,1946.1%

240,205

8,657

7.2%

New Zealand

76 ,841

2,186

5.7%

78,368

2 ,381

6.1%

82,047

3,223

7.9%

Asia Pacific, Europe & America

18 ,934442

4.7%

19,865440

4.4%

24,106649

5.4%

12 ,346424

6.9%

14,699427

5.8%

14,640

488

6.7%

291

2

1.4%

323

3

1.9%

528

9

3.4%

Australia

2 ,773

41

3.0%

2,690

92

6.8%

4,972

145

5.8%

New Zealand

3 ,356

91

5.4%

4,979

108

4.3%

5,967

179

6.0%

Asia Pacific, Europe & America

12 ,432

73

1.2%

9,912

90

1.8%

11,808141

2.4%

Australia

8 ,149

251

6.2%

9,265

156

3.4%

7,375

173

4.7%

Asia Pacific, Europe & America

4 ,836

8

0.3%

2,212

42

3.8%

1,240

26

4.2%

441 ,403

12,566431,344

11 ,704

443,718

14,899Interest e arni ng a ssets
Due from other financial institutions
Australia
New Zealand
Asia Pacific, Europe & America
Trading and available-for-sale assets

Loans and advances

Customers' liability for acceptances
Australia
Asia Pacific, Europe & America
Other assets

Intragroup assets

Intragroup elimination(12 ,985)( 259)

428 ,418

12,307

5.8%( 11,477)(198)

419,867

11 ,506

5.5%(8,615)(199)

435,103

14,700Non-int erest ea rning asse ts
Derivatives
Australia

27 ,036

37,04159,143

New Zealand

7 ,612

11,04813,085Asia Pacific, Europe & America

2 ,495977

612

2 ,132

1,942

1,746

Premises and equipment
Insurance assets

21 ,680--

Other assets

21 ,183

19,366

19,238Australia(3 ,062)( 2,844)(2,809)New Zealand(1 ,060)

(799)

(602)

(423)

(357)

(325)

Provisions for credit impairment

Asia Pacific, Europe & America
Total ave ra ge asse ts

77 ,593

66,37490,088506 ,011

486,241

525,191

116

6.8%

SUPPLEMENTARY INFORMATION (continued)

Average balance sheet and related interest, cont’d
Half to Da te Mar 10

Ha lf ye ar Sep 09

Half year Mar 09

Ave ba l

Int

R ate

Ave balInt

Rate

Ave bal

Int

Rat e

$M

$M

%

$M

$M

%

$M

$M

%

Australia

96 ,056

2,150

4.5%

87,592

1 ,732

3.9%

87,520

2,577

5.9%

New Zealand

29 ,643620

4.2%

30,201661

4.4%

30,797

1,034

6.7%

Asia Pacific, Europe & America

41 ,425201

1.0%

37,179211

1.1%

37,338428

2.3%

Australia

19 ,021299

3.2%

18,552257

2.8%

19,007320

3.4%

New Zealand

2 ,131

19

1.8%

2,325

24

2.1%

2,286

38

3.3%

Asia Pacific, Europe & America

1 ,864

5

0.5%

589

3

1.0%

691

3

0.9%

Australia

63 ,867

979

3.1%

66,513849

2.5%

60,235

1,103

3.7%

New Zealand

14 ,255

163

2.3%

15,479194

2.5%

16,606374

4.5%

Asia Pacific, Europe & America

2 ,205

7

0.6%

1,956

7

0.7%

1,764

7

0.8%

Australia

4 ,895

73

3.0%

5,109

64

2.5%

4,951

107

4.3%

New Zealand

1 ,418

20

2.8%

2,292

43

3.7%

2,587

62

4.8%

Asia Pacific, Europe & America

8 ,947

44

1.0%

9,578

30

0.6%

10,580125

2.4%

Australia

8 ,010

151

3.8%

5,228

83

3.2%

10,205310

6.1%

New Zealand

6 ,526

94

2.9%

5,237

82

3.1%

9,301

254

5.5%

Australia

1 ,626

49

6.0%

3,801

117

6.2%

7,536

264

7.0%

New Zealand

1 ,121

28

5.0%

1,301

37

5.7%

1,441

53

7.4%

12 ,346255

4.1%

14,699269

3.7%

14,640

366

5.0%

291

2

1.4%

323

2

1.2%

528

9

3.4%

Australia

66 ,437

1,551

4.7%

66,088

1 ,3424.0%

64,593

1,880

5.8%

New Zealand

13 ,587311

4.6%

11,937262

4.4%

13,404

448

6.7%

-

-

0.0%

813

24

5.9%

621

21

6.8%

Interest bea ri ng l iabil iti esTime deposits

Savings deposits

Other deman d deposits

Due to other financial institutions

Commercial paper

Borrowing corporations' debt

Liability for acceptances
Australia
Asia Pacific, Europe & America
Loan capital, bonds and notes

Asia Pacific, Europe & America
Other liabilities

1

Australia

2 ,882

80

n/a

3,331

14

n/a

4,422

1

n/ a

New Zealand

49

12

n/a

85

193

n/a

112

71

n/ a

Asia Pacific, Europe & America

38

6

n/a

45

20

n/a

17

23

n/ a

12 ,985259

4.0%

11,477

198

3.4%

8,615

199

4.6%

411 ,625

7,378

401,730

6 ,718409,797

10,077Intragroup liabilities
New Zealand
Intragroup elimination(12 ,985)( 259)

398 ,640

7,119

3.6%

( 11,477)(198)

390,253

6 ,5203.3%(8,615)(199)

401,182

9,878

Non-int erest bearing liabili tie s
Deposits
Australia

5 ,307

4,966

4,936

New Zealand

3 ,512

3,305

3,201

Asia Pacific, Europe & America

1 ,577

1,484

1,597

Australia

24 ,320

39,07861,783

New Zealand

5 ,702

10,827

13,095Asia Pacific, Europe & America(2 ,222)( 5,633)(648)

Insurance liabilities

19 ,018--

External unit holder liabilities

3 ,740--

Other liabilities

13 ,963

11,665

12,22374 ,91765,692

96,187

Total ave ra ge li abilitie s

473 ,557

455,945497,369

Derivatives

1.

Includes foreign exchange swap costs

117

4.9%

SUPPLEMENTARY INFORMATION (continued)

Average balance sheet and related interest, cont’d

Half
YTD
Ma r-10
$M

Ha lf
year
Se p 09
$M

Hal f
ye ar
Ma r 09$M

Australia

359,658

342 ,392

365,178

New Zealand

98,314

101 ,918

109,121

Asia Pacific, Eu rope & Am erica

61,024

53 ,40859,507

Total ave ra ge asse ts

less in tragroup elimination( 12,985)(11 ,477)(8,615)506,011486 ,241

525,191

30.5%

31.5%

31.9%

Australia

300,624

297 ,036

298,315

New Zealand

87,383

87 ,561

92,43952,964% of total average assets attributable to overseas activities
Ave ra ge inte re st earni ng a ssets

Asia Pacific, Eu rope & Am erica

53,396

46 ,747less in tragroup elimination( 12,985)(11 ,477)(8,615)428,418

419 ,867

435,103

Australia

337,628

323 ,297

349,214

New Zealand

92,382

95 ,849

102,945

Asia Pacific, Eu rope & Am erica

56,532

48 ,276

53,825

Total ave ra ge li abilitie sless in tragroup elimination% of total average liabilities attributable to overseas activities( 12,985)(11 ,477)(8,615)473,557

455 ,945

497,369

28.7%

29.1%

29.8%

31,583

29 ,425

26,951

871

871

871

32,45430 ,296

27,822506,011486 ,241

525,191

Total ave ra ge sha reholders' e quity
Ordinary share capital, reserves and retained earnings
Preference share capital
Total ave ra ge li abilitie s and shareholders' equi ty

118

SUPPLEMENTARY INFORMATION (continued)

Average balance sheet and related interest, cont’d

Ha lf
YTD
Mar-10
%

Hal f
ye ar
Sep 09
%

Half
ye ar
Mar 09%Australia

6.32

5.65

6.94

New Zealand

5.59

5.89

7.63

Asia Pacific, Eu rope & Am erica

2.45

2.97

4.02

Total Group

5.76

5.47

6.78

2.25

2.17

1.85

Gross earnings rate 1

Interest spread and net interest average margin may be analysed as follows:

Aust ra lia
Net interest spread
Interest attribu table to net non- interest bearing items

0.35

0.31

0.43

Net interest margin - A ustralia

2.60

2.48

2.28

Net interest spread

1.84

1.68

1.67

Interest attribu table to net non- interest bearing items

0.24

0.35

0.47

Net interest margin - New Zealand

2.08

2.03

2.14

New Zea land

Asia Pacific, Europe & Ame rica
Net interest spread

1.48

1.80

1.63

Interest attribu table to net non- interest bearing items(0.03)(0.10)

0.06

Net interest margin - O verseas Markets

1.45

1.70

1.69

2.18

2.13

1.84

Interest attribu table to net non- interest bearing items

0.25

0.24

0.38

Net interest margin

2.43

2.37

2.22

Group
Net interest spread

1.

Average interest rate received on interest earning assets

119

SUPPLEMENTARY INFORMATION (continued)

Derivative financial instruments
Derivatives

Derivative instruments are contracts whose value is derived from one or more underlying financial instruments or indices.
They include swaps, forward rate contracts, futures, options and combinations of these instruments. The use of derivatives
and their sale to customers as risk management products is an integral part of the Group’s trading activities. Derivatives arealso used to manage the Group’s own exposure to fluctuations in foreign exchange and interest rates as part of its asset andliability management activities. Derivatives are subject to the same types of credit and market risk as other financial
instruments, and the Group manages these risks in a consistent manner.
The following table provides an overview of the Group’s exchange rate, interest rate, commodity and credit derivatives. It
includes all contracts, both trading and hedging.
Notional principal amount is the face value of the contract and represents the volume of outstanding transactions. Fair value
is the net position of contracts with positive market values and negative market values.
As at 31 Ma rch 2010
Not ional
Pri ncipal
a mount

Asset s$M

$M

As at 30 Septembe r 2009

Liabil iti es

Noti onal
Principal
amountAssets

Li abili tie s

$M

$M

$M

$M

Total fai r value

Tot al fair va lue

Forei gn e xcha nge contracts
Spot and forward contracts

302,499

4,263(5,232)

204,830

5,658(6,7 95)

Swap agreements

186,226

6,940(9,764)

168,826

1 0,317(13,4 27)
( 28)

Futures contracts

446

24

(27)

281

19

Options purchased

7,293

274

-

7,067

569

-

Options sold11,695-(308)

14,089-(5 30)

508,159

11,501(15,331)395,093

1 6,563(20,7 80)

24,001

1,084(1,130)23,195

1,196(1,4 72)

Commodit y Contract s
Derivative con tracts
Interest rat e contract s
Forward rate agreements

91,99315(15)75,35810( 21)

Swap agreements

1,081,590

15,543(14,539)

1 ,041,561

1 8,912(18,4 13)

Futures contracts

160,902

1,266(1,267)

105,435

1,492(1,3 38)

Options purchased

17,462

139-

12,468188-

Options sold

22,262-(103)

14,699-(1 24)

1,374,209

16,963(15,924)

1 ,249,521

2 0,602(19,8 96)

10,728394-

11,303704( 14)

Cre di t defa ul t swaps
Structured credit derivatives
purchased1
Other credit derivatives
2

12,490126(221)

13,071

271

Total credit derivatives purchased

23,218520(221)

24,374975( 14)Structured credit derivatives sold 1

9,373

-

(572)

12,454-(1,0 19)

purchased

Other credit derivatives sold 2

9,757

152

(71)

9,804

146

(4 19)

Total credit derivatives sold19,130152(643)

22,258146(1,4 38)(1,4 52)

Collate ra l
Total

42,348672(864)

46,632

1,121-(2,590)5,960-( 2,078)

7,0 84

1,948,717

27,630(27,289)

1 ,714,441

3 7,404(36,5 16)

1.

Refer page 28

2.

The notional amounts comprise vanilla credit default swap transactions including credit indices such as Itraxx (Europe and Australia) and CDX. In the case of
back-to-back deals, where a risk position from one counterparty is “closed out” with another counterparty, the notional amounts are not netted down in the abovetable. For example, ANZ may sell credit protection over a particular corporate bond (or reference asset) to a counterparty and simultaneously offset that credit
exposure by buying credit protection over the same corporate bond (or reference asset) from another counterparty. Netting may only occur where there is anoffsetting deal with the same counterparty. These credit default swap trades are transacted in conjunction with other financial instruments by reference to thetraded market risk limit framework which includes VaR, name and rating specific concentration limits, sensitivity limits and stress testing limits. VaR disclosures
are set out on page 33

120

SUPPLEMENTARY INFORMATION (continued)

Special purpose entities (non-consolidated)
Below is an analysis of the assets of non-consolidated SPEs which ANZ has established or managed. This excludes vehicles
that are used in connection with stock-based compensation programs.
Non-consol idate dSPEs
Ma r 10
Sep 09$M$M

Total asse ts of SPEs
Securitisation vehicles
Structured finance entities 1
Total

Consolidat ed
SPEs
Mar 10Se p 09
$M
$M

4,781

7,110

31,705

n/ a

n/a

414

33,788
350

4,781

7,110

32,11934,1381.

ANZ’s net investment in non-consolidated Structured Finance entities is $154 million at 31 March 2010 (Sep 2009: $163 million; Mar 2009: $164 million)

Total assets of SPEs

Aust ra lia
Ma r 10
Sep 09$M$M

New Zeal andMar 10Se p 09$M$M

A sia Pa cific,
Europe & A merica
Mar 10Se p 09$M$M

Tot al
Ma r 10
Sep 09$M$M

Non-consolidat ed SPEs which
ANZ established or ma na ge
Corporate Loans

-

-

-

-

-

-

-

-

Rural loans-

2,2 17

-

-

-

-

-

2,2 17

Trade receivables
Residential mortgages
Credit cards and other person alloans
Car loans and equipm ent finance
Other
Total

2,471

2,1 64

-

-

-

-

2,471

2,1 64930

1,0 99

-

-

-

-

930

1,0 99

-

-

-

-

-

-

-

-

912

1,0 29

-

-

-

-

912

1,0 29

410

4 18

31

155

27

28

468

6 01

4,723

6,9 27

31

155

27

28

4,781

7,1 10Consolidate d SPEs
Corporate Loans

-

-

-

-

-

-

-

-

Trade receivables

-

-

-

-

-

-

-

-

26,13928,7 63

5,263

4,633

-

-

31,402

33,3 96

-

-

-

-

-

88

-

88

Residential mortgages
Car loans and equipm ent finance
Other
Total



717

6 54

-

-

-

-

717

6 54

26,85629,4 17

5,263

4,633

-

88

32,11934,1 38

Maximum exposure to SPEs
Non-consoli da ted
SPEs
Mar 10Se p 09$M$M

Max imum ex posure s to non-consoli da ted SPEs 1
Liquidity support facilities ( drawn)

810

1,296

Liquidity support facilities ( undrawn)

1,679

2,365

Credit default swaps ( net fair value)

13

30

Other facilities (drawn)

1,774

1,670

Other facilities (undrawn)

418

921

Other derivatives (net fair value)

24

41

4,718

6,323

Total
1.

Excluding structured finance entities

121

SUPPLEMENTARY INFORMATION (continued)

Leveraged finance
The Group has a dedicated Leveraged & Acquisition Finance team, which provides secured financing for the acquisition ofcompanies through the use of debt.
Leveraged & Acquisition Finance provides acquisition finance for private equity firms and other corporations with operations
in Australia, New Zealand and Asia Pacific Europe & America and concentrates on company cash flows. Target businesses arethose with stable and established earnings and the ability to reduce borrowing levels.
The tables below provide an analysis of the credit exposures arising from the provision of leverage finance.

Ex posure byindustry

Unfundedcommitme nts
Mar 10Se p 09$M$M

Funde d exposure
Ma r 10
Sep 09$M$M

Total grossex posureMar 10Se p 09$M$M

Indi vidua lprovision
Ma r 10
Sep 09$M$M

Net Ex posure
Mar 10Se p 09$M$M

Manufacturing

230

278

447

782

677

1,060

(18)

( 19)

659

Business Services

169

310

581

609

750

919

(16)

( 2)

734

1,041
917

Healthcare

59

82

206

334

265

416

-

-

265

416

Retail

131

75

279

308

410

383

(12)

( 3)

398

380

Media

11

32

44

145

55

177

-

-

55

177

Other

101

128

487

468

588

596

-

( 6)

588

590

Total

701

905

2,044

2,646

2,745

3,551

(46)

( 30)

2,699

3,521

Australia

303

474

1,205

1,325

1,508

1,799

(32)

( 30)

1,476

1,769

New Zealand

229

246

797

1,009

1,026

1,255

(14)

-

1,012

1,255

Other

169

185

42

312

211

497

-

-

211

497

Total

701

905

2,044

2,646

2,745

3,551

(46)

( 30)

2,699

3,521

Ma r 10$M

Sep 09$M

Ex posure bygeography

Move ments in individual
provision
Balance at start of year30

22Charge to income statement

62

118

Bad debts written-off(46)( 110)

Total individual provi si on

46

30

122

SUPPLEMENTARY INFORMATION (continued)

Asset-backed securities
The Group may acquire asset-backed securities primarily as part of trading activities (classified as trading securities), liquidity
management (classified as available-for-sale assets) or through investments in special purpose vehicles.
Asset-backed securities are debt instruments that are based on pools of assets or are collateralised by the cash flows from a
specified pool of underlying assets. All asset-backed securities held by the Group are carried at fair value on the balance
sheet with the exception of a portfolio of US issued securities reclassified as loans and advances in November 2008.
Summary of asset-backed securities1

Face Va lue
Mar 10 Sep 09$M$M

Carry ing amount
Ma r 10 Sep 09$M$M

Commercial mortgage backed securities

136

142

135

Residential mortgage backed securities

574

650

431

13 9
45 5

Total

710

792

566

59 4

Asset-backed securities by underlying asset

Tra di ng portfolio
Mar 10 Se p 09
$M
$M

Liquidity
port foli o
Mar 10 Se p 09
$M$M

Ot he rMar 10 Sep 09$M$M

T ota l
Ma r 10 Sep 09$M$M

Sub-prime

-

-

-

-

-

-

-

-

Alt- A

-

-

251

273

-

-

251

27 3

A rated ( mortgage) paper and other assets

129

124

82

94

104

103

315

32 1

Total

129

124

333

367

104

103

566

59 4

Asset-backed securities by credit rating and geography

A AA & AA
Ma r 10 Sep 09$M$M

A
Mar 10 Se p 09
$M
$M

B BB
Mar 10 Se p 09
$M
$M

BB and below
inc not rate d
Mar 10 Sep 09$M$M

T ota l
Ma r 10 Sep 09$M$M

Australia and New Zealand

231

226

2

-

-

1

-

-

233

22 7

USA2

82

94

-

-

67

73

184

200

333

36 7

Total

313

320

2

-

67

74

184

200

566

59 4

1.

Excludes asset-backed securities backing policy holder liabilities

2.

Includes the reclassified securities

123

SUPPLEMENTARY INFORMATION (continued)
Principal risks and uncertainties
The Group’s business activities are subject to risks that can adversely impact its business, future performance and financial
condition. The risks and uncertainties described below are not the only ones the Group may face. Additional risks anduncertainties that the Group is unaware of, or that the Group currently deems to be immaterial, may also become importantfactors 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, with the result that the trading price of the Group’s securities could
decline and you could lose all or part of your investment.
Changes in general business and economic conditions, including disruption in global credit markets, may adversely
affect our results

The Group’s financial performance is primarily influenced by the economic conditions and the level of business activity in the
major countries and regions in which it trades (i.e. Australia, New Zealand, the Asia Pacific Region, Europe and United Statesof America) and the Group’s financial results can be negatively affected by changes to these economic and businessconditions.
The economic and business conditions that prevail in the Group’s major trading markets, are affected by domestic andinternational economic events, political events and by movements and events that occur in global financial markets.
The impact of the Global Financial Crisis (GFC) in 2008 and 2009 saw a sudden and prolonged dislocation in credit and capital
markets, a contraction in global economic activity and the creation of many challenges for financial services institutions
worldwide that still persist in 2010.
The economic effects of the GFC in Australia included weakened retail sales, declines in personal and business credit growth,
lower growth in housing credit and subdued business and consumer confidence. Whilst some of these economic factors havesince improved, there is no certainty as to the future sustainability of these economic factors.
The New Zealand economy contracted sharply in 2008 and the first half of 2009, and economic conditions in Australia, New
Zealand and some Asia Pacific countries remain difficult in 2010, especially in the rural, commercial and corporate sectors.
Should the difficult economic conditions of these countries or regions persist or worsen, asset values in the housing,commercial or rural property markets could reduce, unemployment could rise and corporate and personal incomes could
suffer. Also, deterioration in global markets, including equity, property and other asset markets, could impact our customers
and the security we hold against loans which may impact the Group’s ability to recover some loans.
All or any of these negative economic and business impacts could cause a reduction in demand for the Group’s products andservices and/or see an increase in loan defaults and bad debts, which could adversely affect the Group’s financial
performance.
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 or general business conditions, or theoperating 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 not limited to, volatility in commodity prices, foreign exchange rates and interest rates, changes in inflation and monetary
supply, fluctuations in both debt and equity capital markets, and decreasing consumer confidence.
Geo-political instability, such as threats of, potential for, or actual conflict, war or terrorism, occurring around the world, mayalso adversely affect global financial markets, general economic and business conditions and the Group’s ability to continue
operating or trading in a country, which in turn may negatively impact the Group’s financial performance.
An appreciation in the Australian or New Zealand dollar relative to other currencies could negatively impact Australian or New
Zealand economies, including agricultural exports and international tourism, whereas a depreciation would increase debt
service obligations in Australia or New Zealand dollar terms. Also, a depreciation in the value of the New Zealand dollar
against the Australian dollar could have a negative effect on the financial results of our New Zealand businesses.
The withdrawal of the Australian Government Guarantee Scheme for Large Deposits and Wholesale Funding and the
New Zealand Government wholesale funding guarantee scheme may adversely impact the Group’s access to funding
and liquidity

At the end of the 2008 calendar year, both the Australian federal Government and the New Zealand Government separately
introduced wholesale funding guarantee schemes designed to help Australian and New Zealand banks continue to accessfunding during the global financial crisis. Similar stabilising actions were implemented by governments and regulatory bodies
in the United States, United Kingdom, Europe and other jurisdictions at that time.
In response to improved international market and liquidity conditions, and banks being able to again successfully raise nonguaranteed funds in the wholesale market, internationally, government sponsored financial stabilisation packages areprogressively being withdrawn. There is a risk that this may result in unexpected stress on the global financial system, which
could adversely impact the Group and its customers and counterparties.

124

SUPPLEMENTARY INFORMATION (continued)
Principal risks and uncertainties, cont’dSpecifically, on 7 February 2010, the Australian Federal Government announced the withdrawal of the Australian Government
guarantee scheme for wholesale funding effective 31 March 2010. Similarly, on 10 March 2010, the New Zealand
Government announced the withdrawal of its wholesale guarantee facility with effect from 30 April 2010. Other countries
have also ended their guarantee schemes or are in the process of doing so.
The withdrawal of the Australian and New Zealand wholesale funding guarantee schemes could adversely impact the Group’s
ability to access sources of funding and lead to a decrease in the Group’s liquidity position and increase in funding costs,
particularly if credit markets conditions are disrupted as they were during the end of the 2008 and beginning of the 2009
calendar years.
It is also possible that new risks may emerge as a result of markets experiencing stress, or existing risks manifest in waysthat are not currently foreseeable.
Competition may adversely affect the Group’s results, especially in Australia and New Zealand and the Asian markets inwhich the Group operates

The financial services sector in which the Group operates is highly competitive and could become even more so, particularlyin those segments that are considered to provide higher growth prospects or are in greatest demand (e.g. deposits). Factorsthat contribute to competition risk include industry deregulation, mergers and acquisitions, changes in customers’ needs andpreferences, entry of new participants, development of new distribution and service methods and increased diversification of
products by competitors. For example, changes in the financial services sector in Australia and New Zealand have made it
possible for non-banks to offer products and services traditionally provided by banks, such as automatic payment systems,
mortgages and credit cards. In addition, banks in different jurisdictions are subject to different levels of regulation andconsequently some may have lower cost structures. Increasing competition for customers could also potentially lead to acompression in the Group’s net interest margins, or increased advertising and related expenses to attract and retain
customers.
The effect of the competitive market conditions, especially in the Group’s main markets Australia and New Zealand, may leadto erosion in market share and have a materially adverse effect on the Group’s financial performance and position.
The Group regularly considers acquisitions, and there is a risk that the Group may undertake an acquisition that could
result in a material adverse effect on the Group’s performance

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 that is 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 will depend on a range of factors including potential funding
strategies and challenges associated with integrating and adding value to an acquired business.
There can be no assurance that any acquisition would have the anticipated positive results, including results relating to thetotal cost of integration, the time required to complete the integration, the amount of longer-term cost savings, or the overall
performance of the combined entity, or an improved price for the Group’s securities. Integration of an acquired business canbe complex and costly, sometimes including combining relevant accounting and data processing systems and management
controls, as well as managing relevant relationships with employees, clients, suppliers and other business partners.
Integration efforts could divert management attention and resources, which could adversely affect the Group’s operations or
results.
Acquisitions 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 toacquisitions could result in the disruption of the Group’s ongoing businesses or inconsistencies 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 could adversely affect the Group’s
ability to conduct its business successfully. The Group’s operating performance, risk profile or capital structure may also beaffected by these corporate opportunities and there is a risk that any of the Group’s credit ratings may be placed on credit
watch or downgraded if these opportunities are pursued.
Changes in monetary policies may adversely affect the Group’s results

The Reserve Bank of Australia (“RBA”) and the Reserve Bank of New Zealand (“RBNZ”) regulate the supply of money andcredit in Australia and New Zealand, respectively. Their policies determine in large part the Group’s cost of funds for lending
and investing and the return that the Group will earn on those loans and investments. Both of these factors impact theGroup’s net interest margin and can affect the value of financial instruments it holds, such as debt securities and hedging
instruments. The policies of the RBA and the RBNZ, and any other relevant central monetary authority, can also affect theGroup’s borrowers, potentially increasing the risk that they may fail to repay loans. Changes in the RBA’s and RBNZ’s policies
are difficult to predict accurately.

125

SUPPLEMENTARY INFORMATION (continued)
Principal risks and uncertainties, cont’d
The Group is exposed to credit risk, which may adversely affect the Group’s results

As a financial institution, the Group is exposed to the risks associated with extending credit to other parties. Less favourable
business or economic conditions, whether generally or in a specific industry sector or geographic region, could cause
customers or counterparties to experience adverse financial consequences, thereby exposing the Group to the increased riskthat those customers or counterparties will fail to meet their obligations in accordance with agreed terms. 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 the Group’s
financial results and condition, requires difficult, subjective and complex judgements, including forecasts of how current andfuture 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 identify proper factors or fails to accurately estimate
the impact of factors the Group does identify, the provisions made for credit impairment may be insufficient, which could
have a material adverse effect on the Group’s financial performance.
Recent periods have seen an increase in impairment expenses as a consequence of weaker global economic environment.
Early signs of a recovery in the global economy have seen a reduction in impairment charges over the half. Trading
conditions however remain difficult for a number of commercial businesses and as such ANZ retains a cautious approach toimpairment charges and provisions over the forward period.
In addition, in assessing whether to extend credit or enter into other transactions with customers, the Group relies on
information provided by or on behalf of customers, including financial statements and other financial information. The Group
may also rely on representations of customers as to the accuracy and completeness of that information and, with respect tofinancial statements, on reports of independent auditors. The Group’s financial performance could be negatively impacted tothe extent that it relies on information that is inaccurate or materially misleading.
An increase in the failure of third parties to honour their commitments in connection with the Group’s trading, lending
and other activities, may adversely affect the Group’s results

The Group is exposed to the potential risk of credit related losses that can occur as a result of a counterparty being unable orunwilling to 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 tosatisfy its financial obligations to the Group on a timely basis.
There is a risk that subsequent events will not be the same as assumed in the Group’s original assessment of the ability of athird party to satisfy its obligations. Such credit exposure may also be increased by a number of factors including declines in
the financial condition of the counterparty, the value of assets the Group holds as collateral and the market value of thecounterparty instruments and obligations it holds. Credit losses can and have resulted in financial services organisations
realising significant losses and in some cases failing altogether.
To the extent the Group’s credit exposure increases, the increase could have an adverse effect on the Group’s business andprofitability if material unexpected credit losses occur.
The Group is also subject to the risk that its rights against third parties may not be enforceable in certain circumstances.
Weakening of the real estate markets in Australia or New Zealand may adversely affect the Group’s results

Residential, commercial and rural property lending, together with property finance, including real estate development andinvestment property finance, constitute important businesses to the Group. As at March 31, 2010, housing loans represented
approximately 58%, and commercial property finance (which includes completed or under construction commercial offices,
industrial warehouses, retail shopping malls and residential dwelling or retirement village development for third parties)
represented approximately 7.5%, of the Group’s net loans and advances respectively. Property values have been quite
volatile and in some locations there have been substantially reduced asset values.
A decrease in property valuations in Australia and New Zealand could decrease the amount of new lending the Group is able
to write and/or increase the losses that the Group may experience from existing loans, which, in either case, could materiallyand adversely impact the Group’s financial condition and results of operations. In particular, a significant slowdown in theAustralian and New Zealand housing markets could adversely affect the results of operations of the Group.
Litigation and contingent liabilities may adversely affect the Group’s results

From time to time, the Group may be subject to material litigation, regulatory actions, legal or arbitration proceedings andother contingent liabilities which, if they crystallise, may adversely affect the Group’s results. Details regarding the Group’smaterial contingent liabilities as at 31 March 2010 are contained in Note 15 Contingent liabilities and contingent assets. Thereis a risk that these contingent liabilities may be larger than anticipated or that additional litigation or other contingent
liabilities may arise.

126

SUPPLEMENTARY INFORMATION (continued)
Principal risks and uncertainties, cont’d
The Group is exposed to liquidity and funding risk, which may adversely affect the Group’s results

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 they fall due, including repaying depositors or maturing wholesale debt. Liquidity risk is inherent in all banking
operations due to the timing mismatch between cash inflows and cash outflows which is closely monitored by the Group.
Reduced liquidity could also 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 theGroup could materially impact the Group’s ongoing operations and funding.
The Group utilises a variety of funding sources including customer deposits and wholesale funding to ensure that it continues
to meet its funding obligations and to maintain or grow its business generally. In times of systemic liquidity stress, or in theevent of damage to market confidence in the Group, the Group’s ability to access sources of funding and liquidity may beconstrained. Deterioration in global markets and systemic market liquidity stress may limit the Group’s ability to accesssources of funding and liquidity.
Since the second half of 2007, developments in the US mortgage industry and in the US and European markets moregenerally, have adversely affected the liquidity in global credit and capital markets. This has resulted in an increase infunding costs and in many cases a reduction in the availability of some funding sources. Future deterioration in these market
conditions may limit the Group’s ability to replace maturing liabilities and access capital in a timely manner necessary to fundand grow its business.
Global and domestic regulators have released proposals intended to strengthen liquidity requirements which, together withany risks arising from these regulatory changes, are set out in the risk factor entitild “Regulatory changes or a failure tocomply with regulatory standards, law or policies may adversely affect the Group’s results, operations or financial condition”.
The Group is exposed to the risk that its credit ratings could change, which could adversely affect the Group’s ability toraise capital and wholesale funding

The Group’s credit rating has a significant impact on both its access to, and cost of, capital and wholesale funding. A
reduction in the Group’s credit rating could reduce its access to equity and wholesale debt markets and lead to an increase infunding costs, as well as affecting the willingness of counterparties to transact with us. Credit rating references may be
withdrawn, revised, or suspended by the relevant credit rating agency at any time.
The Group is exposed to market risk (including foreign exchange risk), which may adversely affect the Group’s result

The Group is subject to the typical risks that arise in banking, insurance and funds management activities, including 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 effect on the Group. As the Group conducts business in several different
currencies, mainly Australian and New Zealand dollars, its businesses may be affected by a change in currency exchange
rates. Additionally, as ANZ’s annual and interim reports are prepared and stated in Australian dollars, any appreciation in theAustralian dollar against other currencies in which the Group earns revenues (particularly to the New Zealand dollar and US
dollar) may adversely affect the reported earnings.
The Group is exposed to insurance risk, which may adversely affect the Group’s results

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 business this arises primarily through mortality (death) and morbidity (illness and injury) risks
being greater than expected, whereas for the general insurance business variability arises mainly through weather related
incidents (including floods and bushfires) and similar calamities, as well as general variability in home, motor, travel andother insurance claim amounts.
Furthermore, weaknesses in global securities markets due to credit, liquidity or other problems could result in a decline in ourrevenues from our funds management and insurance business.
The Group may experience challenges in managing its capital base, which could give rise to greater volatility in capitalratiosThe Group’s capital base is critical to the management of its businesses and access to funding. The Group is required byregulators including, but not limited to APRA, the RBNZ, the UK Financial Services Authority and US regulators to maintainadequate regulatory capital.
Under current regulatory requirements, risk weighted assets and expected 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 in times of stress. As a result, greater volatility in capital ratios may arise and may require theGroup to raise additional capital. There can be no certainty that any additional capital required would be available or be able
to be raised on reasonable terms.
127

SUPPLEMENTARY INFORMATION (continued)
Principal risks and uncertainties, cont’d

Global and domestic regulators have released proposals, including the Basel III proposals, to strengthen, among other things,
capital requirements. These proposals, together with any risks arising from any regulatory changes, are set out in the risk
factor entitled “Regulatory changes or a failure to comply with regulatory standards, law or policies may adversely affect theGroup’s results, operations or financial condition”.
The Group may experience reductions in the valuation of some of the Group’s assets, resulting in fair value adjustmentsthat may have a material adverse effect on the Group’s earnings

Under Australian Accounting Standards, the Group recognises at fair value:•financial instruments classified as “held-for-trading” or “designated as at fair value through profit or loss”;•

financial assets classified as “available-for-sale”;•

derivatives;•

insurance assets and liabilities (refer Note 2); and•defined benefit plan assets and liabilities.

Generally, in order to establish the fair value of these instruments, the Group relies on quoted market prices or, where themarket for a financial instrument is not sufficiently active, fair values are based on present value estimates or other market
accepted valuation techniques. In certain circumstances, the data for individual financial instruments or classes of financial
instruments used by such estimates or techniques may not be available or may become unavailable due to changes in market
conditions. In these circumstances, the fair value is determined using data derived and extrapolated from market data andtested 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 such as statistical data on delinquency rates, foreclosure rates, actual losses, counterparty credit spreads,
recovery rates, implied default probabilities, credit index tranche prices and correlation curves. These assumptions,judgements and estimates need to be updated to reflect changing 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.
The Group is exposed to the risks associated with credit intermediation and financial guarantors

ANZ entered into a series of structured credit intermediation trades from 2004 to 2007. ANZ sold protection using credit
default swaps over these structures and then to mitigate risk purchased protection via credit default swaps over the samestructures from eight US financial guarantors. The underlying structures involve credit default swaps (CDS) over synthetic
collateralised debt obligations (CDOs), portfolios of external collateralised loan obligations (CLOs) or specific bonds/floating
rate notes (FRNs).
Being derivatives, both the sold protection and purchased protection are marked-to-market. Prior to the commencement of
the global credit crisis, movements in valuations of these positions were not significant and largely offset each other inincome. Following the onset of the credit crisis, the purchased protection has provided only a partial offset against
movements in valuation of the sold protection as:•

one of the purchased protection counterparties has defaulted and many of the remaining were downgraded, and•

ANZ makes a credit valuation adjustment on the remaining purchased protection counterparties reflective of changes tocredit worthiness.

ANZ is actively managing this portfolio with a view to reducing the exposure via termination and restructuring of both thebought and sold protection. To date, all but one open sold protection trades arising due to the purchased protection
counterparty defaulting have been terminated. Other sold protection trades were also terminated or matured in the current
period with the notional amount on the outstanding sold trades at 31 March 2010 being US$8.6 billion (Sep 2009: US$10.9
billion, Mar 2009: US$11.0 billion).
The credit risk expense on structured credit derivatives still remains volatile reflecting the impact of market movements incredit spreads and USD/AUD rates. It is likely there will continue to be substantial volatility in this market value. The overall
credit exposure however is significantly reduced reflecting reduction in credit spreads, relative stabilisation in the credit
markets and progress in unwinding these trades. The remaining trades continue to be actively managed with a view totermination where an appropriate opportunity presents itself.
The Group is exposed to operational risk, which may adversely affect the Group’s results

Operational risk refers to 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, and excludes strategic risk. For
Regulatory Capital purpose, however, ANZ applies a definition consistent with the definition of Operational Risk outlined in
APS 115 Capital Adequacy: Advanced Measurement Approaches to Operational Risk which excludes reputational risk
considerations.
128

SUPPLEMENTARY INFORMATION (continued)
Principal risks and uncertainties, cont’dLoss can include: direct financial loss (eg. fines, penalties, loss or theft of funds or assets, legal costs, customer
compensation), reputational loss, loss of life or injury to people, loss of property and / or information.
Examples of operational risks that the Group is exposed to include the risks arising from: theft, fraud and crime; processerror or failure to follow established procedures; operational or system failures; external events such as: a natural disaster,other bank failures, civil unrest and other events that lead to the loss or unavailability of Bank property, systems or staff;
failure and breach of security, physical protection and recovery systems; failure of third party suppliers or outsourced
functions; failure of customer services, staff skills and performance; product development and maintenance; failure todisclose, provide adequate advice or misselling; and breaches of the Group’s internal policies and of laws and regulations.
Similarly, there are operational risks in the management, design and implementation of major projects.
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.
Disruption of information technology systems or failure to successfully implement new technology systems could
significantly interrupt business

The Group is highly dependent on information systems and technology and there is a risk that these, or the services it uses
or is dependent upon, might fail.
Most of the Group’s daily operations are computer based and information 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, and the capacity of theexisting systems to effectively accommodate growth and integrate existing and future acquisitions and alliances.
To manage some of these risks, the Group has disaster recovery and systems continuity plans in place. However, any failureof these systems could result in business interruption, loss of customers, financial compensation, damage to reputation
and/or a weakening of the Group’s competitive position and could adversely impact the Group’s business and have a material
adverse effect on the Group’s financial condition and operations.
In addition, the Group must constantly update and implement new information technology systems, in part to assist it tosatisfy regulatory demands, ensuring information security, enhancing computer based banking services for the Group’s
customers and integrating the various segments of its business. The Group may not organise these implementation projects
effectively or execute them efficiently, which could lead to increased project costs, delays in the ability to comply withregulatory requirements, failure of the Group’s information security controls or a decrease in the Group’s ability to enhanceservices to customers.
Regulatory changes or a failure to comply with regulatory standards, law or policies may adversely affect the Group’s
results, operations or financial condition

Entities in the Group are subject to laws, regulations, policies and codes of practice in Australia, New Zealand and in theother countries (including but not limited to the United Kingdom, the United States and different countries within Asia) inwhich they have operations, trade or raise funds or in respect of which they have some other connection. In particular, theGroup’s banking, funds management and insurance activities are subject to extensive regulation, mainly relating to our
liquidity levels, capital, solvency, provisioning and insurance policy terms and conditions.
Regulations vary from country to country but generally are designed to protect depositors, customers with other banking
products and the banking system as a whole.
The Australian Government and its agencies, including APRA, the RBA and other financial industry regulatory bodies including
ASIC, have supervisory oversight of the Group. The New Zealand Government and its agencies, including the RBNZ, havesupervisory oversight of the Group’s operations in New Zealand. To the extent that a member of 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 of Treasury, the US Office of the Comptroller of theCurrency, the UK’s Financial Services Authority, the Monetary Authority of Singapore, the Hong Kong Monetary Authority andother financial regulatory bodies in those countries and in other relevant countries. A failure to comply with any laws,
regulations or policies in any of those jurisdictions could result in sanctions by these or other regulatory agencies, theexercise of any discretionary powers that the regulators hold or compensatory action by affected persons, which may in turncause 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, and the Group’s ability to pay
coupons, distributions and principal on securities issued by the Group.
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 of practice or policies including changes
in interpretation or implementation of 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 thetypes of 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.
129

SUPPLEMENTARY INFORMATION (continued)
Principal risks and uncertainties, cont’d

As a result of the global financial crisis, local and global regulators have proposed various amendments to financial regulationthat may affect the Group. Both APRA and the Basel Committee on Banking Supervision (Basel Committee) have recently
released discussion papers in regards to strengthening the resilience of the banking sector, including proposals to strengthen
global capital and liquidity requirements.
Whilst uncertainty remains as to the final form of the regulatory changes and whether any or all of these proposed regulatorychanges will be adopted, and the form that any such changes will take, in Australia, any such changes may adversely affect
the Group’s results, operations or financial condition. The changes may lead to the Group incurring additional costs as aresult of increased management attention, the Group being required to raise additional amounts of higher-quality capital(such as ordinary shares) and hold significant levels of additional liquid assets and undertaking additional wholesale longterm funding to replace short-term funding to more closely match the Group’s long-term asset profile. At this stage it isexpected that the Group will be subject to any regulations or laws implemented to effect these frameworks, however, it is notpossible to assess the impact until the relevant regulations are drafted.
Unexpected changes to the Group’s license to operate in any jurisdiction may adversely affect the Group’s results

The Group is licensed to operate in the various countries, states and territories in which it operates. Unexpected changes in
the conditions of the licences to operate by governments, administrations or regulatory agencies which prohibit or restrict theGroup from trading in a manner that was previously permitted may adversely impact the Group’s financial results.
The Group is exposed to reputation risk, which may adversely impact results

Reputation risk may arise as a result of an external event or the Group’s own actions and adversely affect perceptions about
the Group held by the public, shareholders, investors, regulators or rating agencies. The impact of a risk event on theGroup’s reputation may exceed any direct cost of the risk event itself and may adversely impact the Group’s earnings, capital
adequacy or value.
Damage to the Group’s reputation may have wide ranging impacts, including the Group’s profitability, capacity to source
funding and liquidity, cost of sourcing funding and liquidity and business opportunities.
Changes to accounting policies may adversely affect the Group’s results

The accounting policies and methods that the Group applies are fundamental to how it records and reports its financial
position and results of operations. Management must exercise judgement in selecting and applying many of theseaccounting policies and methods so that not only do they comply with generally accepted accounting principles but they also
reflect the most appropriate manner 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 resultsof 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 be reasonable under the circumstances, yet might result inreporting materially different outcomes than would have been reported under another alternative.
The Group may be exposed to the impact of future climate change, geological and other extrinsic events which may
adversely affect the Group’s results

Scientific observations and climate modelling are pointing to changes in the global climate system that may see the incidenceof extreme weather events increase in both frequency and severity. Among other possible effects of climate change are therisks of severe storms, cyclones, hurricanes, floods and rising sea levels. Such events, and others like them, pose the risk ofinundation and damage to the houses and commercial assets of the Group’s customers. In some cases this impact may also
adversely affect the Groups collateral position in relation to credit facilities extended to those customers and as a result thismay adversely impact the Group’s results.
While the future impact of climate change is difficult to predict accurately, it should nevertheless be considered amongst therisks that may adversely impact the Group’s financial results in the future.
In addition to climatic events, geological events (e.g. volcanic or seismic activity) or other extrinsic events (e.g. flu
pandemic) could severely disrupt normal business activity and have a negative effect on the Group’s customer’s ability to pay
interest or repay principal on their loans. As a consequence of the Group’s large market share in the New Zealand rural sector(particularly the dairy sector), climatic and pandemic risks that can have a large impact on this sector, could adversely
impact the Group’s financial results.

130

SUPPLEMENTARY INFORMATION (continued)
Principal risks and uncertainties, cont’d

The Group may be exposed to the risk of impairment to capitalised software and goodwill that may adversely affect theGroup’s results

In certain circumstances the Group may be exposed to a reduction in the value of intangible assets. The group carries a
goodwill balance of $3,912 million which principally relates to its investment in ANZ National Bank and ING Australia. On atleast an annual basis, the Group is required to assess the recoverability of these goodwill balances based on a discounted
cashflow calculation. Changes in the assumptions upon which the calculation is based, together with expected changes infuture cash flows, could materially impact this assessment, resulting in the potential write-off of a part, or all of the goodwill
balance. Similarly capitalised software amounts to $1,034 million and the recoverability of this asset is assessed at least
annually. In the event that software is no longer in use, or that the cashflows generated by the system do not support thecarrying value an impairment may be recorded, adversely impacting the Group's results.

131

DEFINITIONSAAS - Australian Accounting Standards
AASB - Australian Accounting Standards Board.
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 be recognised when a loss event has
already occurred. Losses expected as a result of future events, no matter how likely, are not recognised.
Customer deposits represent term deposits, other deposits bearing interest, deposits not bearing interest and borrowing
corporations debt excluding collateralised loan obligation and securitisation vehicle funding.
Expected loss is determined based on the expected average annual loss of principal over the economic cycle for the current
risk profile of the lending portfolio.
Equity standardisation Risk adjusted capital is allocated and charged against business units. Equity standardised profit isdetermined by eliminating the impact of earnings on each business unit’s book capital and attributing earnings on thebusiness unit’s risk adjusted capital. This enhances comparability of business unit performance.
IFRS – International Financial Reporting Standards
Impaired assets are those financial assets where doubt exists as to whether the full contractual amount will be received ina timely manner, or where concessional terms have been provided because of the financial difficulties of the customer.
Financial Assets are impaired if there is objective evidence of impairment as a result of a loss event that occurred prior to thereporting date, and that loss event has had an impact, which can be reliably estimated, on the expected future cash flows of
the individual asset or portfolio of assets.
Impaired commitments and contingencies comprises undrawn facilities and contingent facilities where the customer’s
status is defined as impaired.
Impaired loans comprises drawn facilities where the customer’s status is defined as impaired.
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 those financial instruments.
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.
Net advances includes gross loans and advances and acceptances and capitalised brokerage/mortgage origination fees,
less income yet to mature and allowances for credit on impairment.
Net inter business unit expenses (also known as Service Transfer Pricing) consists of the charges made between business
units for the provision of support services. Both payments and receipts by business units are shown as net inter business
unit expenses.
Net interest average margin is net interest income as a percentage of average interest earning assets. Non-assessableinterest income is grossed up to the equivalent before tax amount for the purpose of these calculations.
Net tangible assets equals share capital and reserves attributable to shareholders of the Group less preference sharecapital and unamortised intangible assets (including goodwill and software).
Operating expenses excludes the provision for impairment of loans and advances charge.
Operating income in business segments includes equity standardised net interest and other operating income.

132

DEFINITIONS (continued)

Return on asset ratios 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 repurchaseagreement.
Restructured items represents customer facilities which for reason of financial difficulty have been re-negotiated on terms
which the Bank considers as uncommercial but necessary in the circumstances, and are not considered non-performing.
Includes both on and off balance sheet exposures.
Revenue includes net interest income and other operating income.
Segment review description:
The Group is managed along the geographic regions of Australia, New Zealand and Asia Pacific, Europe and America, and thematrix segment of its global institutional client business which is viewed as a separate segment but also impacts each region.
Australia
The Australia region consists of Retail, Commercial, Institutional and Wealth segments together with the Group Centre.
•••

Retail-Retail Distribution operates the Australian branch network, Australian call centre, specialist businesses (including
specialist mortgage sales staff, mortgage broking and franchisees, direct channels (Mortgage Direct and One Direct))and distribution services.

-

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 in Australia 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 and investment products.

-

Regional Commercial Banking provides a full range of banking services to personal customers and to small
business and agribusiness customers in rural and regional Australia and includes the recent acquisition of loans anddeposits from Landmark 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 Products provides a full range of banking services for metropolitan-based small
businesses in Australia with unsecured loans up to A$100,000.

Institutional-••

A full range of financial services to institutional customers within Australia along the product lines of Transaction
Banking, Markets and Specialised Lending. Also includes Balance Sheet Management and Relationship andinfrastructure. Refer detailed description of the Institutional business under the paragraph below entitled“Institutional”.

Wealth-Private Bank specialises in assisting high net worth individuals and families to manage, grow and preserve theirfamily assets.

-

Investments and Insurance Products comprises Australia’s Financial Planning, Margin Lending, Insurance
distribution and Trustees businesses in addition to ETrade, an online broking business.

-

ING Australia Limited (“INGA”) was a joint venture between ANZ and the ING Group. ANZ owned 49% of INGA
and received proportional equity accounted earnings prior to ANZ acquiring the remaining 51% interest to take fullownership. INGA manufactures and distributes investment and insurance products and advice.

Group Centre-

Group Centre includes the Australian portion of Operations, Technology & Shared Services, Treasury, Group Human
Resources, Group Strategy, Group Financial Management, Group Risk Management and Group Items.

Asia Pacific, Europe & America
The Asia Pacific, Europe & America region includes the following:•

Retail which provides retail and small business banking services to customers in the Asia Pacific region.

•

Asia Partnerships which is a portfolio of strategic partnerships in Asia. This includes investments in Indonesia with P.T.
Panin Bank, in the Philippines with Metrobank, in China with Bank of Tianjin and Shanghai Rural Commercial Bank, in
Malaysia with AMMB Holdings Berhad and in Vietnam with Sacombank and Saigon Securities Incorporation.

•

Wealth which includes investment and insurance products and services across Asia Pacific and under the Private Bank
banner assisting customers in the Asia Pacific region to manage, grow and preserve their assets.

133

DEFINITIONS (continued)

Segment review description, continued:
Asia Pacific, Europe & America, cont’d•Operations & Support which includes the central support functions for the division.

•

Institutional Asia Pacific, Europe & America matrix reports to the Asia Pacific, Europe & America division and isreferred to in the paragraph below entitled "Institutional".

•

Bangalore which includes operations, technology and shared services support services to all geographic regions.

In August 2009, ANZ announced it had reached agreement with the Royal Bank of Scotland Group plc to acquire selected
RBS businesses in Asia. The acquisition of the businesses in Philippines, Vietnam and Hong Kong were completed during the
March 2010 half.
New Zealand Businesses
New Zealand comprises three customer segments, Retail, Commercial and Institutional, a Wealth segment and an operations
and support area which includes Treasury funding:•Retail- National Bank Retail, operating under the National Bank brand in New Zealand, provides a full range of banking
services to personal and business banking customers.
- ANZ Retail, operating under the ANZ brand in New Zealand, provides a full range of banking services to personaland business banking customers.

•

Commercial-•-

Corporate & Commercial Banking incorporates the ANZ Banking Group Limited (ANZBGL) and ANZ National Bank
brands and provides financial solutions through a relationship management model for medium-sized businesses witha turnover of up to NZ$150 million.
Rural Banking provides a full range of banking services to rural and agribusiness customers.

-

UDC provides motor vehicle and equipment finance, operating leases and investment products.

Institutional-••

A full range of financial services to institutional customers within New Zealand along the product lines of Transaction
Banking, Markets and Specialised Lending. Also includes Balance Sheet Management and Relationship andinfrastructure. Refer detailed description of the Institutional business under the paragraph below entitled“Institutional”.

Wealth-Private Banking includes the private banking operations under the ANZBGL and ANZ National Bank brands andBonus Bonds.

-

ING New Zealand Limited (“INGNZ”) was a joint venture between ANZ and ING whereby ANZ owned 49% of
INGNZ and received proportional equity accounted earnings prior to ANZ acquiring the remaining 51% interest to
take full ownership. INGNZ manufactures and distributes investment and insurance products and advice.

Operations and Support includes the back-office processing, customer account maintenance, and central support areas
including Treasury funding.

Institutional
The Institutional division provides a full range of financial services to institutional customers in all geographies.
Multinationals, institutions and corporates with sophisticated needs and multiple relationships are served globally.
Institutional has a major presence in Australia and New Zealand and also has operations in Asia, Europe and the UnitedStates.
•Transaction Banking provides working capital solutions including lending and deposit products, cash transaction
banking management, trade finance, international payments, and clearing services principally to institutional andcorporate customers.

•

Global Markets provides risk management services to corporate and institutional clients globally in relation to foreignexchange, interest rates, credit and commodities. This includes the business providing 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.

•

Specialised & Relationship Lending provides complex financing and advisory services, structured financial products,
leasing, project finance, leveraged finance and infrastructure investment products to the Group’s global client set.

•

Relationship and infrastructure includes client relationship teams for global institutional customers and corporate
customers in Australia, and central support functions.

Underlying profit represents the directors’ assessment of the profit for the ongoing business activities of the Group, andis based on guidelines published by the Australian Institute of Company Directors and the Financial Services Institute ofAustralasia. ANZ applies this guidance by adjusting statutory profit 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 businesses, timing differences on economic hedges, and acquisition related costs.
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ALPHABETICAL INDEX

PAGE
Associates, joint venture entities and investments.....................................................................................................107
Auditors Review report and Independence declaration ...............................................................................................109
Basis of preparation................................................................................................................................................ 81
Business combinations ...........................................................................................................................................105
Chief Financial Officer’s Review ................................................................................................................................ 13
Changes in the composition of the Group .................................................................................................................104
Condensed Consolidated Balance Sheet .................................................................................................................... 78
Condensed Consolidated Cash Flow Statement........................................................................................................... 79
Condensed Consolidated Income Statement .............................................................................................................. 76
Condensed Consolidated Statement of Comprehensive Income .................................................................................... 77
Contingent liabilities and contingent assets...............................................................................................................100
Credit quality ......................................................................................................................................................... 92
Critical estimates and judgements used in applying Accounting Policies......................................................................... 82
Definitions............................................................................................................................................................132
Deposits and other borrowings................................................................................................................................. 97
Directors’ Declaration ............................................................................................................................................108
Directors’ Report .................................................................................................................................................... 75
Dividends .............................................................................................................................................................. 89
Earnings per share ................................................................................................................................................. 90
Exchange rates .....................................................................................................................................................107
Financial Highlights................................................................................................................................................... 7
Four year summary by Half Year .............................................................................................................................. 71
Income ................................................................................................................................................................. 86
Income tax expense ............................................................................................................................................... 88
Loan capital ........................................................................................................................................................... 97
Media Release.......................................................................................................................................................... 1
Net loans and advances .......................................................................................................................................... 91
Note to the Cash Flow Statement ............................................................................................................................103
Operating expenses ................................................................................................................................................ 87
Provision for credit impairment ................................................................................................................................ 96
Related party disclosure .........................................................................................................................................107
Segment Analysis..................................................................................................................................................104
Segment Review .................................................................................................................................................... 43
Share capital ......................................................................................................................................................... 98
Shareholders’ equity ............................................................................................................................................... 98
Significant events since balance date .......................................................................................................................107
Supplementary information – Asset-backed securities................................................................................................123
Supplementary information - Average balance sheet and related interest .....................................................................116
Supplementary information - Capital management ....................................................................................................113
Supplementary information - Derivative financial instruments.....................................................................................120
Supplementary information – Leveraged finance .......................................................................................................122
Supplementary information – Principal risks and uncertainties ....................................................................................124
Supplementary information - Reconciliation of statutory profit to underlying profit ........................................................110
Supplementary information – Special purpose entities (non-consolidated) ....................................................................121
136

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