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

Consolidated Results
Dividend Announcement andAppendix 4E

Full year ended
30 September 2006

The Consolidated Results and Dividend Announcement constitutes the preliminary final report and contains the information
required by Appendix 4E of the Australian Stock Exchange Listing Rules. It should be read in conjunction with the 2006
Concise Annual and Financial Reports and is lodged with the Australian Stock Exchange under listing rule 4.3A.

RESULTS FOR ANNOUNCEMENT TO THE MARKET

Name of Company:

APPENDIX 4E

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

Report for the full year ended 30 September 2006
A$ million
Group operating revenue

! 8%*

to

10,152

Net profit after tax attributable to shareholders

!16%*

to

3,688

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

69 cents(previous corresponding period 59 cents, fully franked at 30% tax rate)
Interim 2006 dividend per ordinary share, fully franked at 30% tax rate

Record date for the proposed final dividend

56 cents

15 November 2006

The proposed final dividend will be payable to shareholders registered in the books of the Company atclose of business on 15 November 2006. Transfers must be lodged before 5:00 pm on that day to participate.

Payment date for the proposed final dividend*

15 December 2006

Compared to September 2005

Highlights
All figures compared to September 2005 full year unless otherwise indicatedProfit after tax
Statutory profit $3,688 million

up 16.2%

Cash* profit $3,587 million

up 13.8%

Cash* profit before provisions

up 10.4%

Earnings per share
Statutory EPS 200.0 centsup 18.0%

Cash* EPS 194.5 centsup 13.2%

Shareholder return
Full year dividend 125 centsup 13.6%

Total Shareholder Return 17.1%
Return on equity 20.7% (18.3%)
Business highlights
Strong result in Personal - revenue up 13%, profit up 22%
Improved results and momentum in New Zealand and Institutional
Accelerated investment spend with 1,280 new FTEs
Credit environment benign, credit quality strong, credit costs at historic lows
Achieved targeted revenue and productivity targets. Revenue target range expanded, now 7-10%:
Revenue growth 8.4%* (9.1% FX adjusted)
Cost-Income ratio 45.6%* (1.0% improvement, medium-term target 40%)
Adjusted common equity ratio stable at 4.7% (restated for new APRA capital deductions)*

Adjusted for AIFRS 2005 adjustments and non-core items (including significant items, ANZ National Bank incremental integration costs and AIFRS mark tomarket of certain hedge gains/losses)

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITEDABN 11 005 357 522

CONSOLIDATED RESULTS, DIVIDEND ANNOUNCEMENT and APPENDIX 4E
Full year ended 30 September 2006

CONTENTSPAGEHIGHLIGHTS

1

FINANCIAL HIGHLIGHTS

5

Net Profit

5

Profit on a comparable AIFRS basis

5

Cash profit

5

Earnings per share

6

Balance Sheet

6

Financial ratios

7

Business unit analysis

9

CHIEF FINANCIAL OFFICER’S REVIEW

11

2006 results

11

Comparison with March 2006 half13

Non-core items

13

AIFRS 2005 adjustments

15

Income and expenses

16

Credit Risk

21

Income Tax Expense

24

Earnings per share

24

Dividends

25

EVA Reconciliation

25

Market Risk

26

Balance Sheet

27

Capital Management

29

Deferred acquisition costs and deferred income

31

Software capitalisation

31

Deferred tax assets (overseas)

32

BUSINESS PERFORMANCE REVIEW33

GEOGRAPHIC SEGMENT PERFORMANCE

53

FIVE YEAR SUMMARY

61

CONSOLIDATED FINANCIAL INFORMATION – TABLE OF CONTENTS64

APPENDIX 4E STATEMENT

91

SUPPLEMENTARY INFORMATION

92

Average Balance Sheet on a fully comparable AIFRS basis

92

Capital Management

98

DEFINITIONS

100

ALPHABETICAL INDEX

102This Results Announcement has been prepared for Australia and New Zealand Banking Group Limited (the “Company”) together with its
subsidiaries which are variously described as “ANZ”, “Group”, “ANZ Group”, “us”, “we” or “our”.
All amounts are in Australian dollars unless otherwise stated. The information on which this announcement is based is in the process of being
audited by the Group’s auditors, KPMG. The Company has a formally constituted Audit Committee of the Board of Directors. The signing of
this preliminary final report was approved by resolution of a Committee of the Board of Directors on 25 October 2006.
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 toplace undue reliance on these forward-looking statements, which speak only as of the date hereof. Such statements constitute “forwardlooking statements” for the purposes of the United States Private Securities Litigation Reform Act of 1995. 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 datehereof or to reflect the occurrence of unanticipated events.

HIGHLIGHTSFor Release: 26 October 2006

ANZ 2006 Annual Results
Profit after tax

Statutory profit $3,688 million

up 16.2%

Cash* profit $3,587 million

up 13.8%

Cash* profit before provisions

up 10.4%

Earnings per share

Statutory EPS 200.0 centsup 18.0%

Cash* EPS 194.5 centsup 13.2%

Shareholder return

Full year dividend 125 centsup 13.6%

Total Shareholder Return 17.1%
Return on equity 20.7% (18.3%)

Business highlights
Strong result in Personal - revenue up 13%, profit up 22%
Improved results and momentum in New Zealand and Institutional
Accelerated investment spend with 1,280 new FTEs
Credit environment benign, credit quality strong, credit costs at historic lows
Achieved targeted revenue and productivity targets. Revenue target range expanded, now 7-10%
Revenue growth 8.4%* (9.1% FX adjusted)
Cost-Income ratio 45.6%* (1.0% improvement, medium-term target 40%)
Adjusted common equity ratio stable at 4.7% (restated for new APRA capital deductions)* Adjusted for AIFRS 2005 adjustments and non-core items (including significant items, ANZ National Bank incremental
integration costs and AIFRS mark to market of certain hedge gains/losses)

1

HIGHLIGHTS (continued)

For Release: 26 October 2006

ANZ 2006 Annual Results
Australia and New Zealand Banking Group Limited (ANZ) today announced a record profit after tax of$3,688 million for the year ended 30 September 2006, up 16.2%.
The headline result included a number of one-off gains including the National Housing Bank (NHB)
insurance settlement. Adjusting for these, cash* profit was up 13.8% and cash* EPS were up 13.2%.
A final dividend of 69 cents brought the full year dividend to 125 cents, an increase of 13.6%.
ANZ CEO Mr John McFarlane said: “This is a good result based on a strong business performance.
“The real highlight was our strong revenue growth, at the top of our target range, reflecting thesubstantial investment over recent years and the resultant strong momentum. This enabled us to lower
the Cost Income ratio by 1% while at the same time accelerating our investment program.
“Net interest margin fell 9 basis points over the year, moderating in the second half. Provisioning was
unusually low, and partly reflects cyclically strong credit quality and the result of substantial de-riskingthat has taken place at ANZ over the past few years.
“When we said that we would invest to create a real difference that others would find hard to replicate,
and to accelerate revenue growth to 7%-9%, it was seen as stretching. It’s now evident this is the rightapproach.
“To be a great organisation we need to stand for something. For us it is to become a very different bankby reshaping the way banking is done. We are making it compelling for a customer to deal with us andnot others, why the community should trust us, why shareholders should invest in us, and why ourpeople should devote their working lives to us.
“Our vision, our investment program, our strong foundation, and our track record, all underpin the futurethat I am personally very excited to be part of,” Mr McFarlane said.

Outlook
Commenting on the outlook for ANZ, Mr McFarlane said: “As the benefits of our investment program
come through, we are confident to extend our future revenue target range to 7-10%.
“We will continue to invest to underpin revenue growth, and work towards leadership in our major
businesses over time. We believe this will build superior and sustainable value for shareholders over the
medium to long term. In consequence, expense growth in 2007 is likely to be similar to that in 2006.
“The adoption of AIFRS will require the $141 million gain from New Zealand dollar hedges to be taken
directly to retained earnings in 2007. We have taken out additional hedges to mitigate the negative
impact of a weaker New Zealand dollar on earnings, which is expected to mitigate the 2007 EPS impact
to less than 1%.
“The impact of credit losses for the industry as a whole under IFRS is less predictable, though it isunlikely we will see current provisioning levels sustained at such low levels. Otherwise, with our strong
momentum going into 2007, we are confident about the year ahead,” Mr McFarlane said.

*

Adjusted for AIFRS 2005 adjustments and non-core items (including significant items, ANZ National Bank incremental integration costs and AIFRS
mark to market of certain hedge gains/losses)

2

HIGHLIGHTS (continued)

Divisional Performance
Personal has had an outstanding year, with revenue growth of 13% driving earnings growth of 22%. All
Personal businesses recorded double-digit earnings growth, with the highlights being Pacific (up 67%),
Investment and Insurance Products (up 48%), Consumer Finance (up 25%), and Mortgages (up 21%).
Expenses were up 9%, as investment in future growth continued, with the addition of 714 full timeequivalent staff, 25 new branches, and 330 ATMs over the year.
The Division is making good progress in establishing a strong proposition centered on “More Convenient
Banking”, and continues to have a distinct lead over our peers in Customer Satisfaction. Giving
customers a strong reason to bank with us other than price alone has resulted in minimal margin
attrition. Some of these reasons included opening call centres 24 hours, 7 days a week; expanding the
ATM network, including a partnership with Woolworths, extending branch opening hours including on
weekends, and being first to market with new products.
Institutional earnings grew 11% over the same period last year, with revenue growth of 8%. This wasoffset by an 11% increase in expenses, driven primarily by higher people costs. Good results wereachieved in Markets (up 13%), Corporate and Structured Finance (up 42%), Corporate Banking (up19%), Business Banking (up 15%), and Trade/Transactions business (up 16%). This was partly offset bysubdued performance from our Debt Products Group, mainly Institutional lending (down 10%), where theimpact on margins from excess global liquidity continues to dampen earnings growth. Given this, theDivision has sought to reduce the balance sheet intensity of this business, and this has resulted in lower
risk-weighted asset growth of 10%, and 1% in the second half. While the environment at the top end of
Institutional remains challenging, it is nevertheless making good progress in transforming this segment.
The recent Peter Lee Associates survey confirmed ANZ regained its Number One Lead Institutional Bank
position in Australia.
New Zealand Banking (in NZD) earnings were up 20% on the same period last year. The result was
assisted by lower credit provision charges, with profit before provisions up 8%. There were good resultsfrom The National Bank Retail (up 21%), Corporate & Commercial (up 102%), and New ZealandInstitutional (up 15%). The profit from UDC is still declining (down 25%), as the business is
restructured. Overall, New Zealand Businesses is showing promising momentum, and has a clear growthstrategy to build on a strong foundation. Robust credit growth and good credit quality continue.
Partnership Expansion continues with the completion of the 20% stake in Tianjin City Commercial
Bank in China, and 10% stake in Sacombank in Vietnam. Discussions are proceeding satisfactorily inShanghai and in other faster growing Asian countries. Our joint-ventures in Indonesia, the Philippines
and Cambodia are performing well, and the cards businesses are showing strong organic growth with
1 million cards now on issue in Indonesia and the Philippines. INGA remediation program is nearing
completion and the overall foundation of the business has improved substantially. We can now lookforward to normal operation and growth in the years ahead.

For media enquiries, contact:

For analyst enquiries, contact:

Paul Edwards
Head of Corporate Communications
Tel: 03-9273 6955 or 0409-655 550
Email: paul.edwards@anz.com

Stephen Higgins
Head of Investor Relations
Tel: 03-9273 4185 or 0417-379 170
Email: higgins@anz.com

3

HIGHLIGHTS (continued)

Group
1

Personal

Institutional
Continuing

New Zealand
Banking
(NZD)

2006

ChangeChangeChangeChangeTotal Assets (EOP)$m

335,771

12%

12%

13%

11%

Deposits & other borrowings (EOP)$m

204,794

8%

11%

20%

5%

Average Interest Earning Assets$m

300,179

13%

12%

21%

18%

Net Interest Margin

bps

2.31

(9bps)(1bps)(19bps)(21bps)Net Interest Income

$m

6,943

9%

12%

10%

8%

Other Operating Income

$m

3,146

7%

16%

5%

6%

Total Income$m

10,089

8%

13%

8%

7%

FTE

No.

32,256

4%

6%

7%

1%

Operating Expenses

$m

4,605

6%

9%

11%

6%

$m

5,484

10%

17%

6%

8%

Individual Provision Charge

$m

338

-5%

17%

-21%

-74%

Collective Provision Charge

$m

69

-67%

-38%

-88%

large

Total Credit Provision

$m

407

-28%

-3%

-57%

-87%

Net Profit after tax

$m

3,587

14%

22%

11%

20%

EVA

$m

2,082

9%
ActualActualActualKey Business Drivers

Profit Before Provisions

2

1

Other Measures
Individual Provisions as a %of average net advances

%

0.13

(2bps)

0.21

0.07

0.04

Return on Average Assets

%

1.11

-

0.97

1.19

1.13

Return on Average RWA's

%

1.55

4bps

1.65

1.34

1.54

Cost to Income Ratio

%

45.6

(100bps)

49.3

38.5

45.5

Cost to Average Assets

%

1.42

(11bps)

1.60

1.09

1.41

1.

All numbers adjusted for AIFRS 2005 adjustments and non-core items (including significant items, ANZ National Bank incremental integration costs
and AIFRS mark to market of certain hedge gains/losses)

2.

Profit before credit impairment and income tax

4FINANCIAL HIGHLIGHTSNet Profit
Half
year
Sep 06
$M

Half
Movt
Sep 06year
Mar 06 v. Mar 06
%
$M

Full
year
Sep 06
$M

Movt
Full
Sep 06year
Sep 05 v. Sep 05%$M

Net interest income

3,575

3,368

6%

6,943

5,818

19%

Other operating income

1,614

1,595

1%

3,209

3,578

-10%
8%

Operating income

5,189

4,963

5%

10,152

9,396

Operating expenses(2,346)(2,185)

7%(4,531)(4,418)

3%

Profit before credit impairment and income tax

2,843

2,778

2%

5,621

4,978

13%

Provision for credit impairment

(183)

(224)

-18%

(407)

(580)

-30%

Profit before income tax

2,660

2,554

4%

5,214

4,398

19%

Income tax expense

(780)

(742)

5%

(1,522)(1,220)25%

Minority interest
Net profit attributable to shareholders of the Company

(3)
1,877

(1)
1,811

large
4%

(4)
3,688

(3)
3,175

33%
16%

Profit on a comparable AIFRS basis
Net profit attributable to shareholders of the company has been amended as follows to arrive at profit on a comparable
AIFRS basis.
Half
year
Sep 06
$M

Half
Movt
Sep 06year
Mar 06 v. Mar 06
%
$M

Full
year
Sep 06
$M

Movt
Full
Sep 06year
Sep 05 v. Sep 05
%
$M

1,877

1,811

4%

3,688

3,175

16%

n/a
1,877

n/a
1,811

n/a
4%

n/a
3,688

(31)
3,144

n/a
17%

Net profit attributable to shareholders of the Company
AIFRS adjustments to bring prior periods
onto a comparable basis

1
1Profit on a comparable AIFRS basis

Cash profit
Profit on a comparable AIFRS basis has been adjusted to exclude the following non-core items to arrive at cash profit.
Throughout this document figures and ratios that are calculated on a ‘cash’ basis have been shaded to distinguish them fromfigures calculated on a statutory AIFRS basis.

1

Profit on a fully comparable AIFRS basis

Movt
Full
Sep 06year
Sep 05 v. Sep 05
%
$M

Half
year
Sep 06
$M

Half
Movt
Sep 06year
Mar 06 v. Mar 06
%
$M

Full
year
Sep 06
$M

1,877

1,811

3,688

3,144

17%

4%

Less: Non-core items
2
Significant items
Gain on sale of NBNZ Life

-

-

n/a

-

14

-100%

Settlement of ANZ National Bank claims

-

14

-100%

14

-

n/a

Settlement of NHB insurance claim

-

79

-100%

79

-

n/a

-

93

-100%

93

14

large

2

Total significant items

Ineffective hedge fair value gains/losses

3

21

13

62%

34

31

10%

-

(26)

-100%

(26)

(52)

-50%

21

80

-74%

101

(7)

large

1,856

1,731

7%

3,587

3,151

14%

4

ANZ National Bank incremental integration costs
Total non-core items
Cash profit
1.

ANZ has calculated the 2005 result on an AIFRS basis that is comparable with 2006 (refer page 15), allowing readers to see the impact on 2005 results ofaccounting standards that have only been applied from 1 October 2005. The impact is a reduction of $31 million in 2005 net profit after tax. No adjustment has
been made to retrospectively designate derivatives hedging the Group’s funding on the basis of impracticability

2.

In 2006 ANZ has classified the $113 million ($79 million after tax) settlement of the NHB insurance matter and the $14 million settlement of a dispute with Lloyds
TSB over the accounting treatment of certain items in the completion accounts for the acquisition of National Bank of New Zealand Limited (tax on settlement:$nil) as significant items. In 2005 ANZ classified $14 million after tax profit on the sale of NBNZ life and funds management businesses as a significant item (taxon gain on sale of NBNZ life and funds management businesses: $nil). ANZ excludes significant items to eliminate the distorting effect of one-off transactions on
the results of its core business (refer page 13)

3.

The Group enters into economic hedges to manage its interest rate and foreign exchange risk. In 2006 ANZ has classified $34 million after tax (2005 full year:$31 million; Sep 2006 half: $21 million; Mar 2006 half: $13 million) relating to economic hedging as a non-core item (tax on hedge gains/losses $15 million (2005
full year: $13 million; Sep 2006 half: $10 million; Mar 2006 half: $5 million)). Included in this non-core amount is ineffectiveness arising from designatedaccounting hedges, any volatility arising from usage of the fair value option and approved classes of derivatives in the 2006 year not designated in accounting
hedge relationships but that are considered to be economic hedges. The 2005 year numbers do not include any adjustment to retrospectively calculate the AIFRS
impact on the derivatives associated with the Group’s funding. ANZ excludes volatility associated with fair value movements on these transactions to provide a
better indication of the core business performance (refer page 14)

4.

In 2006 ANZ has incurred $26 million after tax ANZ National Bank incremental integration costs (2005 full year: $52 million; Sep 2006 half: nil; Mar 2006 half:$26 million). Tax on ANZ National Bank incremental integration costs is $13 million (2005 full year: $26 million; Sep 2006 half: nil; Mar 2006 half: $13 million).
ANZ National Bank incremental integration costs are excluded to better reflect the core cost base and assist analysis of the cost base following completion of theintegration

5

FINANCIAL HIGHLIGHTS (continued)

Cash profit, cont’d
Analysis of Cash1 profit by key line item:
Half
year
Sep 06
$M

Half
Movt
Sep 06year
Mar 06 v. Mar 06
%
$M

Full
year
Sep 06
$M

Movt
Full
Sep 06year
Sep 05 v. Sep 05%$M

Net interest income

3,575

3,368

6%

6,943

6,371

9%

Other operating income

1,583

1,563

1%

3,146

2,935

7%

Operating income

5,158

4,931

5%

10,0899,306

8%Operating expenses(2,346)(2,259)4%(4,605)(4,340)6%

Profit before credit impairment and income tax

2,812

2,672

5%

5,484

4,966

10%

Provision for credit impairment

(183)

(224)

-18%

(407)

(565)

-28%

Profit before income tax

2,629

2,448

7%

5,077

4,401

15%

Income tax expense

(770)

(716)

8%

(1,486)(1,247)

19%

Minority interest

(3)
1,856

(1)
1,731

large
7%

(4)
3,587

(3)
3,151

33%
14%

Half
year
Sep 06Movt
Half
Sep 06year
Mar 06 v. Mar 06
%

Full
year
Sep 06Movt
Full
Sep 06year
Sep 05 v. Sep 05%

1

Cash profit

Earnings per share

Earnings per ordinary share (cents)
Basic

101.6

98.4

3%

200.0

169.5

Diluted1
Cash (basic adjusted for non-core items)

98.5

95.5

3%

194.0

164.4

18%
18%

100.5

94.0

7%

194.5

171.8

13%

As at
Sep 06As at
Mar 06As at
Sep 05$M$M

15,01913,87011,601

8%

29%

9,665

8,336

6,348

16%

52%

Balance Sheet
Movt
Movt
Sep 06
Sep 06v. Mar 06 v. Sep 05%%$M

AssetsLiquid assets
Due from other financial institutions
Trading and available for sale assets
Net loans and advances including acceptances
Other
Total assets

19,83222,00816,327-10%

21%

268,845

255,238

245,9395%

9%22,41023,882

20,670-6%

8%

335,771

323,334

300,885

4%

12%
17%

Liabilities
Due to other financial institutions
Deposits and other borrowings
Liability for acceptances

14,11813,345

12,027

6%

204,794

196,850

190,3224%

8%13,435

13,692

13,449-2%0%

Bonds and notes

50,05046,92339,073

7%

28%

Other

33,46833,72826,476-1%

26%

315,865

304,538

281,3474%

12%

19,906

18,796

19,5386%

2%

Total liabilities
Total shareholders' equity
1.

Refer footnotes 1 to 4 on page 5

6

FINANCIAL HIGHLIGHTS (continued)

Financial ratios
Half
year
Sep 06$M
Net profit attributable to shareholders of the Company

Half
year
Mar 06
$M

Full
year
Sep 06
$M

Full
year
Sep 05
$M

1,877

1,811

3,688

3,175

Cash profit

1

1,856

1,731

3,587

3,151

TM 2

1,069

1,013

2,082

1,911

20.4%

20.9%

20.7%

18.3%

20.2%

20.0%

20.1%

19.0%

Average assets

1.13%

1.15%

1.14%

1.12%

Average risk weighted assets

1.59%

1.60%

1.59%

1.52%

EVA

Profitability ratios
Return on:
3,4

Average ordinary shareholders' equity

3,4

Average ordinary shareholders' equity

1(cash profit basis)1

Average risk weighted assets (cash profit basis)

1.57%

1.53%

1.55%

1.51%

Total income

14.2%

14.5%

14.4%

14.5%

2.33%

2.29%

2.31%

2.30%

Net interest margin1

Net interest margin (cash profit basis)

2.33%

2.29%

2.31%

2.40%

Profit per average FTE ($)

59,187

58,202

117,392

106,251

Operating expenses to operating income

45.2%

44.0%

44.6%

47.0%

Operating expenses to average assets

1.41%

1.39%

1.40%

1.55%

45.5%

45.8%

45.6%

46.6%

1.41%

1.44%

1.42%

1.53%

Efficiency ratios

1

Operating expenses to operating income (cash )1

Operating expenses to average assets (cash )Credit impairment provisioning
Collective/general provision charge

33

36

69

223

Individual/specific provision charge

150

188

338

357

Total provision charge
Individual provision charge as a % of average net advances
1

Collective provision charge (comparable AIFRS basis )

183

224

407

580

0.11%

0.15%

0.13%

0.15%

33

36

69

208

1

Individual provision charge (comparable AIFRS basis )

150

188

338

357

1

183

224

407

565

0.11%

0.15%

0.13%

0.15%

Interim - 100% franked (Mar 06: 100% franked)

n/a

56

56

51

Final - 100% franked (Sep 06 100% franked)

69

n/a

69

59

68.0%

56.9%

62.6%

65.0%

68.8%

59.6%

64.4%

64.1%

Total provision charge (on a comparable AIFRS basis )Individual provision charge as a % of average net advances
1(comparable AIFRS basis )Ordinary share dividends (cents)

5

Ordinary share dividend payout ratio
15

Cash ordinary share dividend payout ratio
Preference share dividend (cents)
Dividend paid

6

15

12

27

84

7

15

12

27

18

Dividend paid (on a comparable AIFRS basis)1.

Adjusted for AIFRS 2005 adjustments and non-core items. Refer footnotes 1 to 4 on page 5

2.

EVATM refers to Economic Value Added, a measure of shareholder value. See page 25 for a reconciliation of EVATM to reported net profit and a discussion of EVATM
and an explanation of its usefulness as a performance measure

3.

Average ordinary shareholders’ equity excludes minority interest

4.

Excludes preference share dividend

5.

Dividend payout ratio is calculated using the proposed final dividend as at 30 September 2006 and the 31 March 2006, 30 September 2005 and 31 March 2005
dividends

6.

2005 includes distributions on ANZ StEPS (Sep 2005: $34 million; Mar 2005: $32 million). Under AIFRS, distributions on ANZ StEPS are reported as interest
expense in 2006

7.

Represents dividends paid on Euro Hybrid issued on 13 December 2004

7

FINANCIAL HIGHLIGHTS (continued)

Financial ratios, cont’d
Movt
Movt
Sep 06
Sep 06v. Mar 06 v. Sep 05
%
%

As at
Sep 06As at
Mar 06As at
Sep 05

8.53

7.99

7.77

7%

10%

Net Assets
1

Net tangible assets per ordinary share ($)
1

Net tangible assets attributable to ordinary shareholders ($M)

15,664

14,61914,195

7%

10%

Total number of ordinary shares (M)1,836.6

1,828.7

1,826.4

0%1%

Tier 1

6.8%

6.8%

6.9%

0%

-1%

Tier 2

4.2%

4.0%

3.9%

5%

8%

10.6%

10.4%

10.5%

2%

1%

4.7%

5.0%

5.1%

-6%

-8%

Collective/general provision ($M)

1,940

1,903

2,167

2%

-10%

Collective/general provision as a % of risk weighted assets

0.81%

0.83%

0.99%

-2%

-18%

1,940

1,903

1,879

2%

3%

0.81%

0.83%

0.86%

-2%

-6%

661

726

642

-9%

3%

Individual provisions on non-performing loans ($M)

(279)

(305)

(256)

-9%

9%

Net non-performing loans ($M)

382

421

386

-9%

-1%

Individual provision as a % of total non-performing loans

42.2%

42.0%

39.9%

0%

6%

Gross non-performing loans as % of net advances

0.25%

0.28%

0.26%

-11%

-4%

Net non-performing loans as a % of net advances

0.14%

0.16%

0.16%

-13%

-13%

1.9%

2.2%

2.0%

-14%

-5%

32,256

31,06330,9764%

4%

Capital adequacy ratio (%)

Total capital ratio
2

Adjusted common equity ratio
Impaired assets

3

Collective/general provision on a comparable AIFRS basis ($M)
Collective/general provision on a comparable AIFRS basis
as a % of risk weighted assets

3

Gross non-performing loans ($M)
45

Net non-performing loans as a % of shareholders' equity
Other information
Full time equivalent staff (FTEs)
Assets per FTE ($M)
Market capitalisation of ordinary shares ($M)

10.4

10.4

9.7

0%

7%

49,331

48,461

43,834

2%

13%

1.

Equals Shareholders’ equity less preference share capital, minority interest and unamortised goodwill and other intangibles

2.

Adjusted common equity is calculated as Tier 1 capital, less Innovative Tier 1 capital instruments (converted at balance date spot rates), less transitional Tier 1
capital relief and deductions. This measure is commonly used to assess the adequacy of common equity held. See page 98 for a reconciliation to Tier 1 capital

3.

Refer footnote 1 on page 5

4.

Excludes individual provision on unproductive facilities

5.

Includes minority interest

8

FINANCIAL HIGHLIGHTS (continued)

Business unit analysis
Half
year
Sep 06$M

1

Net profit after income tax

Half
Movt
year
Sep 06
Mar 06 v. Mar 06
$M
%

Full
year
Sep 06
$M

Full
Movt
year
Sep 06
Sep 05 v. Sep 05$M%

Personal

668

588

14%

1,256

1,033

22%

Institutional

715

681

5%

1,396

1,258

11%

New Zealand Businesses

341

342

0%

683

592

15%

Partnerships & Private Bank

91

78

17%

169

176

-4%

Non-continuing businesses

8

30

-73%

38

126

-70%
large

2

Group Centre
3

Cash profit
3

AIFRS 2005 adjustments and non-core items

3

Net profit
1.

33

12

large

45

(34)

1,856

1,731

7%

3,587

3,151

14%

21

80

-74%

101

24

large

1,877

1,811

4%

3,688

3,175

16%

Prior period numbers have been adjusted for the divisional restructure in May 2006. Refer page 33 for an explanation of the changes

2.

New Zealand Businesses growth rates in NZD terms were 7% and 21% for the September 2006 half year and the September 2006 full year respectively

3.

Refer footnotes 1 to 4 on page 5

Half
year
Sep 06$M

Net loans and advances including
acceptances by business unit

1

Half
Movt
Sep 06year
Mar 06 v. Mar 06
%
$M

Full
year
Sep 06
$M

Movt
Full
Sep 06year
Sep 05 v. Sep 05%$M

Personal

132,532

125,702

5% 132,532

118,587

Institutional

72,57670,463

3%

72,576

66,378

9%

New Zealand Businesses

61,92057,015

9%61,92056,917

9%Partnerships & Private Bank

1,267

1,203

5%

1,267

1,110

14%

Non-continuing businesses

513

822

-38%

513

1,584

-68%

12%

2

Group Centre
AIFRS 2005 adjustments
Net loans and advances including acceptances

37

33

37

(74)

large

268,845

255,238

5% 268,845

244,50210%

n/a
268,845n/a
255,238n/an/a
5% 268,845

1,437
245,939

n/a
9%

1.

Prior period numbers have been adjusted for the divisional restructure in May 2006. Refer page 33 for an explanation of the changes

2.

New Zealand Businesses growth rates in NZD terms were 6% and 13% for the September 2006 half year and the September 2006 full year respectively

Deposits and other borrowings by business unit

1

12%

Half
year
Sep 06
$M

Half
Movt
Sep 06year
Mar 06 v. Mar 06
%
$M

Full
year
Sep 06
$M

Movt
Full
Sep 06year
Sep 05 v. Sep 05%$M

Personal

64,977

61,818

5%

64,97758,366

11%

Institutional

65,80861,5787%

65,80854,721

20%

45,41943,9383%

45,41948,016

-5%

1,158

983

18%

1,158

885

31%

New Zealand Businesses

2Partnerships & Private Bank
Non-continuing businesses
Group Centre
AIFRS 2005 adjustments
Deposits and other borrowings

-

-

n/a

-

36

-100%

27,43228,533-4%

27,432

28,233-3%

204,794

196,850

4% 204,794

190,257

8%

n/a

n/a

204,794

196,850

n/a

n/a

65

n/a

4% 204,794

190,3228%

1.

Prior period numbers have been adjusted for the divisional restructure in May 2006. Refer page 33 for an explanation of the changes

2.

New Zealand Businesses growth rates in NZD terms were 1% and -1% for the September 2006 half year and the September 2006 full year respectively. An
increase in core deposits of 10% for the year was more than offset by a decrease in Treasury Certificates of Deposit and Commercial Paper due to a switch tolonger term funding

9This page has been left blank intentionally10

CHIEF FINANCIAL OFFICER’S REVIEW

2006 results
ANZ recorded a profit after tax of $3,688 million for the year ended 30 September 2006, an increase of 16% over the
September 2005 year. Earnings per share increased 18% to 200.0 cents over the September 2005 year. After adjusting for
AIFRS 2005 adjustments1 and non-core items1 referred to on pages 13 to 15, Cash1 profit increased 14% to $3,587 million
and Cash EPS increased 13% to 194.5 cents.

Net profit attributable to shareholders of the Company

Half
year
Sep 06
$M

Half
Movt
Sep 06year
Mar 06 v. Mar 06
%
$M

Full
year
Sep 06
$M

Movt
Full
Sep 06year
Sep 05 v. Sep 05
%
$M

1,877

1,811

3,688

3,175

1

AIFRS 2005 Adjustments

4%

16%

n/a

n/a

n/a

n/a

(31)

n/a

1,877

1,811

4%

3,688

3,144

17%

(21)
1,856

(80)
1,731

-74%
7%

(101)
3,587

7
3,151

large
14%

Half
year
Sep 06
$M

Half
Movt
Sep 06year
Mar 06 v. Mar 06
%
$M

Full
year
Sep 06
$M

Movt
Full
Sep 06year
Sep 05 v. Sep 05%$M

Net interest income

3,575

3,368

6%

6,943

6,371

9%

Other operating income

1,583

1,563

1%

3,146

2,935

7%

Operating income

5,158

4,931

5%

10,0899,306

8%Operating expenses(2,346)(2,259)4%(4,605)(4,340)6%

Profit before credit impairment and income tax

2,812

2,672

5%

5,484

4,966

10%

Profit on a comparable AIFRS basis
1

Less: Non-core items (refer to page 13)
1Cash profit

Cash1 profit

Provision for credit impairment

(183)

(224)

-18%

(407)

(565)

-28%

Profit before income tax

2,629

2,448

7%

5,077

4,401

15%

Income tax expense

(770)

(716)

8%

(1,486)(1,247)

19%

Minority interest

(3)
1,856

(1)
1,731

large
7%

(4)
3,587

(3)
3,151

33%
14%

1

Cash profit

Profit growth

Cash profit increased 14% to $3,587 million. Core1 revenue increased 8% with volume growth partly offset by reduced
margins (-9 basis points). Operating expense growth of 6% reflected on-going investment in the business.
Cash profit in Australia increased 16% over the 2005 year with outstanding growth across the Personal businesses (22%).
Solid performances across the Institutional businesses were partially offset by subdued performance from the Debt ProductsGroup.
Cash profit in New Zealand increased 19% (26% in NZD terms), assisted by a lower credit provisioning charge, strong
performance in the Markets business in Institutional, good lending growth and higher capital. These increases were partly
offset by reduced earnings in UDC, competitive margin compression on mortgages and deposits and lower earnings in noncontinuing businesses from certain structured finance transactions which have been exited.
Cash profit in Asia and Pacific increased 18% and 35% respectively, driven by strong volume growth in Fiji and PNG and theIndonesian cards business, being partly offset by lower earnings from PT Panin Bank.
Profit in the UK and US decreased driven by reduced profit in non-continuing businesses with the sale of the London
headquartered project finance business in 2005 and repatriation of capital.
1.

ANZ has calculated the 2005 result on an AIFRS basis that is comparable with 2006 (refer page 15), allowing readers to see the impact on 2005 results ofaccounting standards that have only been applied from 1 October 2005. The impact is a reduction of $31 million in 2005 net profit after tax. No adjustment has
been made to retrospectively designate derivatives hedging the Group’s funding on the basis of impracticability
In 2006 ANZ has classified the $113 million ($79 million after tax) settlement of the NHB insurance matter and the $14 million settlement of a dispute with Lloyds
TSB over the accounting treatment of certain items in the completion accounts for the acquisition of National Bank of New Zealand Limited (tax on settlement:$nil) as significant items. In 2005 ANZ classified $14 million after tax profit on the sale of NBNZ life and funds management businesses as a significant item (taxon gain on sale of NBNZ life and funds management businesses: $nil). ANZ excludes significant items to eliminate the distorting effect of one-off transactions on
the results of its core business (refer page 13)
The Group enters into economic hedges to manage its interest rate and foreign exchange risk. In 2006 ANZ has classified $34 million after tax (2005 full year:$31 million; Sep 2006 half: $21 million; Mar 2006 half: $13 million) relating to economic hedging as a non-core item (tax on hedge gains/losses $15 million (2005
full year: $13 million; Sep 2006 half: $10 million; Mar 2006 half: $5 million)). Included in this non-core amount is ineffectiveness arising from designatedaccounting hedges, any volatility arising from usage of the fair value option and approved classes of derivatives in the 2006 year not designated in accounting
hedge relationships but that are considered to be economic hedges. The 2005 year numbers do not include any adjustment to retrospectively calculate the AIFRS
impact on the derivatives associated with the Group’s funding. ANZ excludes volatility associated with fair value movements on these transactions to provide a
better indication of the core business performance (refer page 14)
In 2006 ANZ has incurred $26 million after tax ANZ National Bank incremental integration costs (2005 full year: $52 million; Sep 2006 half: nil; Mar 2006 half:$26 million). Tax on ANZ National Bank incremental integration costs is $13 million (2005 full year: $26 million; Sep 2006 half: nil; Mar 2006 half: $13 million).
ANZ National Bank incremental integration costs are excluded to better reflect the core cost base and assist analysis of the cost base following completion of theintegration

11

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

2006 results, cont’d
Impact of exchange rate movements1

Movements in exchange rates had little impact on reported Cash1 profit due to NZD hedges. However growth rates inindividual line items are affected. Presented below is an analysis of the impact of foreign exchange movements and currency
hedges on the income statement.
Movements in exchange rates have resulted in a $5 million increase in Cash profits for 2006, principally in New Zealand (netof profit on contracts put in place to hedge USD and NZD revenues). The average NZD exchange rate reduced by 5.4% andthe closing rate depreciated by 4.2% with a corresponding impact on the balance sheet.
Half Year Sep 06
v. Half Year Mar 06

Net interest income

2

Full Year Sep 06
v. Full Year Sep 05

FX
unadjusted% growth

FX
adjusted% growth

FX impact$M

FX
unadjusted% growth

FX
adjusted% growth

FX impact
$M

(27)

6%

7%

(29)

9%

9%

Other operating income

1%

4%

(36)

7%

8%

(28)

Operating income

5%

6%

(65)

8%

9%

(55)

Operating expenses

4%

6%

52

6%

8%

55

Profit before credit impairment and income tax

5%

6%

(13)

10%

10%

-

-18%

-17%

1

-28%

-27%

7

Provision for credit impairment
Profit before income tax

7%

8%

(12)

15%

15%

7

Income tax expense

8%

8%

5

19%

19%

(2)

large

100%

-

33%

33%

-

7%

8%

(7)

14%

14%

5

Minority interest
1
Cash profit
1.

ANZ has removed the impact of exchange rate movements to provide readers with a better indication of the Group’s performance in local currency terms.
Retranslation is net of revenue hedge earnings

2.

Net interest income included the impact of revenue hedge gains which increased $58 million over 2005 and $52 million over first half 2006

Profit drivers

Profit after tax increased 16% over the 2005 year and Cash1 profit increased 14% over the 2005 year. For a discussion of
the impact of non-core items and AIFRS 2005 adjustments refer pages 13 to 15.
Significant influences on profit are shown below. Explanations are on cash profit adjusted for AIFRS 2005 adjustments andnon-core items:
Net interest !19% - Adjusted for AIFRS 2005 adjustments and non-core items1 !9%:Net interest income was driven by growth of 13% in average interest earning assets attributable to Institutional Continuing (21%),
particularly in trading securities and Personal (12%), largely in Mortgages, and average deposit growth in Institutional Continuing(15%) and Personal (10%). Volume growth was partly offset by a 9 basis point decline in margin.
Other income "10% - Adjusted for AIFRS 2005 adjustments and non-core items1 !7%:

Other income growth was primarily driven by volume growth initiatives and higher trading profits in Australia and New Zealand.
These increases were partly offset by reduced foreign exchange income and lower equity accounted income in PT Panin and the joint
venture with ING.
Operating expenses !3% - Adjusted for AIFRS 2005 adjustments and non-core items1 !6%:

Operating expense growth was primarily due to higher wage rates and a 4% increase in staff numbers, largely in Personal andInstitutional, as we continue to invest in the business.
Provision for credit impairment "30% - Adjusted for AIFRS 2005 adjustments and non-core items1 "28%:

The reduction in provision for credit impairment reflected the Group’s strengthening risk profile. Individual provisions decreased by$19 million due to increased write-backs in Institutional and lower single name provisions in New Zealand partly offset by lower
write-backs in the non-continuing businesses. The collective provision charge decreased by $139 million largely driven by the oil
price shock risk provision recognised in 2005.
Income tax !25% - Adjusted for AIFRS 2005 adjustments and non-core items1 !19%:

The increase in tax expense is driven by growth in profit before tax and a 1% increase in the effective tax rate reflecting therun-off of certain structured financing transactions in non-continuing businesses.
1.

Refer footnote 1 on page 11

12

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Comparison with March 2006 half
The Group recorded a profit after tax of $1,877 million for the half year ended 30 September 2006, an increase of 4% over
the March 2006 half. Basic earnings per share increased 3% (3.2 cents) to 101.6 cents.
Cash profit increased 7% over the March 2006 half. Cash earnings per share (refer page 24) increased 7% (6.5 cents) to
100.5 cents.
Revenue increased 5%. After adjusting for non-core items, net interest increased 6% with a 4% increase in average interest
earning asset volumes together with a 4 basis point improvement in margin. The margin improvement reflects a 4 basis
point reduction from funding mix and competition offset by higher earnings from revenue hedges, trading income recognised
in interest and interest refunds. Other operating income increased 1% due to volume growth initiatives and strong
structured finance deal flows, offset by reduced trading profits. Operating costs increased 4% driven by on-going investmentin the business.
Excluding non-core items, cash profit in Australia increased 15% driven by 14% growth in Personal. Cash profit in New
Zealand increased 3% in NZD terms with strong performance from the New Zealand Businesses being partly offset by lessfavourable trading conditions for the Markets business. Cash profit in Asia and Pacific geographies increased 27% and 5%
with volume related growth. Other geographies reduced 35% due largely to the profit on the sale of a power asset and thesettlement of sale warranties occurring in the March 2006 half year.

Non-core items
ANZ has adjusted the income statement for non-core items, as outlined below, to assist readers in understanding the corebusiness performance by removing the volatility in reported results created by one-off significant items, ANZ National Bank
incremental integration costs which ceased in the half year March 2006 and the timing differences in the recognition of fairvalue gains in profit on ineffective hedging contracts.
Non-core items in the income statement

Significant items

Half
year
Sep 06
$M

Half
Movt
Sep 06year
Mar 06 v. Mar 06
%
$M

Full
year
Sep 06
$M

Movt
Full
Sep 06year
Sep 05 v. Sep 05%$M

Gain on sale of NBNZ Life

-

-

n/a

-

14

Settlement of ANZ National Bank claims

-

14

-100%

14

-

n/a

Settlement of NHB insurance claim

-

79

-100%

79

-

n/a
large

Total significant items

-100%

-

93

-100%

93

14

Ineffective hedge fair value gains/losses

21

13

62%

34

31

10%

ANZ National Bank incremental integration costs
Non-core items

21

(26)
80

-100%
-74%

(26)
101

(52)
(7)

-50%
large

#

Significant items

Significant items in the income statement are those items that management believe do not form part of the core businessby virtue of their magnitude and infrequent nature and, as such, should be removed from profit when analysing the corebusiness performance. The following are considered significant items:- Settlement of the NHB insurance claim (March 2006 half year)
During the March 2006 half ANZ settled its $130 million claim against a number of reinsurers in relation to the National
Housing Bank (NHB) matter. ANZ has reported the $113 million ($79 million after tax) cost recovery as a significant
item in 2006. $1 million was received in 2005 and not treated as significant as it was immaterial.
- Settlement of ANZ National Bank claims (March 2006 half year)
Following the purchase of National Bank of New Zealand Limited on 1 December 2003, a dispute arose with Lloyds TSB
in relation to the accounting treatment in the Completion Accounts of the provision for retirement gratuities. The
dispute was referred to arbitration and, as a result, ANZ National Bank received $14 in March 2006 ($14 million aftertax) in final settlement.
- Sale of NBNZ Life and Funds Management (September 2005 half year)
On 30 September 2005 ANZ National Bank sold NBNZ Life and Funds Management businesses into a joint venture with
ING. Profit after tax on sale of $14 million was recognised.
#

ANZ National Bank incremental integration costs

Expenditure on the integration of ANZ National Bank includes both the reallocation of existing resources to integration andincremental integration costs. Incremental costs are those costs that will not recur once integration is complete and thus
do not form part of the core ongoing cost base. During the March 2006 half year $26 million after tax (Sep 2005 half:$35 million; Mar 2005 half: $17 million) or $39 million before tax (Sep 2005 half: $53 million; Mar 2005 half: $25 million)of incremental integration costs were incurred. This program is now complete.
13

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Non-core items, cont’d#Ineffective hedge fair value gains

The Group enters into economic hedges to manage its interest rate and foreign exchange risk. The implementation of
AIFRS accounting policies on hedge accounting from 1 October 2005 introduced volatility within the Income Statement inrespect of ineffective hedges as follows:- ineffectiveness of designated accounting cash flow and fair value hedges; and- approved classes of derivatives not designated in accounting hedge relationships but that are considered to beeconomic hedges.
ANZ has separately reported the impact of volatility due to hedge ineffectiveness as a non-core item as the profit reported
on hedge transactions will reverse over time and as such is not part of the core operating performance. During 2006 ANZ
has classified $34 million after tax (2005 full year: $31 million; Sep 2006 half: $21 million; Mar 2006 half: $13 million)
relating to ineffective hedging as a non-core item (tax on hedge gains/losses $15 million (2005 full year: $13 million; Sep
2006: $10 million; Mar 2006: $5 million)). The 2005 year numbers do not include any adjustment to retrospectively
calculate the AIFRS impact on the derivatives associated with the Group’s funding.
Net unrealised loss (balance sheet position)

Sep 06$m

Mar 06$m

Sep 05$m

Non-compliant hedges
Ineffective portion of effective cash flow and fair value hedges

84
11

102
24

129
15

Net unrealised loss (balance sheet position)

95

126

144

Half year
Sep 06$m

Half year
Mar 06$m

Full year
Sep 06$m

Full year
Sep 05$m

Non-compliant hedges
Ineffective portion of effective cash flow and fair value hedges

18
13

27
(9)

45
4

36
8

Ineffective hedge fair value gains (before tax)

31

18

49

44

Ineffective hedge fair value gains (after tax)

21

13

34

31

Ineffective hedge fair value gains (income statement)

In 2007 ineffective hedge fair value gains/losses will include mark to market gains/losses on NZD revenue hedges - referpage 26.

14

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

AIFRS 2005 adjustments
The Group implemented accounting policies in accordance with AIFRS on 1 October 2004, except for those relating tofinancial instruments and insurance contracts, which were implemented on 1 October 2005. The 2005 comparatives forthese standards have not been restated in the statutory accounts. To assist readers to understand the core businessperformance on a comparable basis, ANZ has adjusted the 2005 figures to be comparable with the 2006 year result within
the Chief Financial Officer’s and Business Performance Reviews. The major adjustments are to the provision for credit
impairment and recognition of fees as effective yield adjustments to net interest. No adjustment has been made to
retrospectively calculate the AIFRS impact on the derivatives associated with the Group’s funding on the basis of
impracticability.
Full details of the impact of transition to AIFRS are set out in the 31 March 2006 Consolidated Financial Report and Dividend
Announcement.
Summary of major AIFRS impacts

The following table reconciles comparative AIFRS (statutory) numbers with equivalent figures on a comparable AIFRS basis,including the impact of AASB 139.
Full
year
Sep 05$M
Net interest income (statutory basis)

5,818
1

Fees recognised as an adjustment to yield
Reclassified hybrid financial instruments

622

2

(66)

Other
Net interest income (comparable AIFRS basis)

(3)
6,371

Other operating income (statutory basis)

3,578
1

Fees recognised as an adjustment to yield

(635)

3

Derivatives and hedging

44

Other
Other operating income (comparable AIFRS basis)

6
2,993

Operating income (statutory basis)

9,396

Total AIFRS income adjustments
Operating income (comparable AIFRS basis)

(32)
9,364

Operating expenses (statutory basis)(4,418)

Other
Operating expenses (comparable AIFRS basis)(4,418)

Profit before credit impairment and income tax (statutory basis)

4,978

Total AIFRS adjustments (net total of identified above)(32)

Profit before credit impairment and income tax (comparable AIFRS basis)

4,946

Provision for credit impairment (statutory basis)

(580)

4

Movement in credit loss provisioning

15

Provision for credit impairment (comparable AIFRS basis)(565)

Profit before income tax (statutory basis)

4,398

Total AIFRS profit before income tax adjustments
Profit before income tax (comparable AIFRS basis)

(17)
4,381

Income tax expense and minority interest (statutory basis)(1,223)Tax on AIFRS adjustments(14)

Income tax expense and minority interest (comparable AIFRS basis)(1,237)

Net profit (statutory basis)

3,175

AIFRS net profit adjustments(31)

Net profit (comparable AIFRS basis)
1.
2.
3.
4.

3,144

Reclassification of fees and commissions against interest income and measured on the effective yield basis
Reclassification of interest expense on reclassification of ANZ StEPS from equity to debt
Measuring derivatives on a fair value basis and the reclassification of interest expense on non-hedged derivatives to other income
Restatement of credit loss provisions

15

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Income and expenses
Net Interest Income

Half
year
Sep 06$M
Net interest income ($M)
Average interest earning assets ($M)
1

Full
year
Sep 06
$M

6%

Movt
Full
Sep 06year
Sep 05 v. Sep 05
%
$M

3,575

3,368

6,943

5,818

19%

305,962

294,364

4% 300,179

253,183

19%

2.33

2.29

2.31

2.30

3,575

3,368

6,943

6,371

9%

305,962

294,364

4% 300,179

265,981

13%

2.33

2.29

2.31

2.40

Net interest margin (%)
Net interest income (adjusted for AIFRS 2005 adjustments )

Half
Movt
Sep 06year
Mar 06 v. Mar 06
%
$M

6%

2

Average interest earning assets ($M)
1(adjusted for AIFRS 2005 adjustments )1

Net interest margin (adjusted for AIFRS 2005 adjustments )1.

Refer footnote 1 on page 11

2.

AIFRS 2005 adjustments include the reclassification of customers liability for acceptance from non-interest earning to interest earning (2005: $13.3 billion) to beconsistent with the classification of commercial bill fees as interest. Average balance sheets adjusted for AIFRS 2005 adjustments are included as Supplementary
Information on pages 92 to 96#

2006 result

Net interest income at $6,943 million was 19% ($1,125 million) higher than the 2005 year. After adjusting for non-core
items and AIFRS 2005 adjustments, core net interest income was 9% ($572 million) higher than the 2005 year.
VolumeAverage interest earning assets increased 19%. After adjusting for AIFRS 2005 adjustments, average interest earning
assets increased 13%:- Average net advances grew by $23.6 billion (10%). Growth in Australia was attributable to: Personal ($13.4 billion or12%), with $10.2 billion or 12% in Mortgages; and Institutional Australia ($6.1 billion or 12%) with $1.2 billion or 10%
in Corporate Banking, $1.2 billion or 13% in Business Banking, $1.8 billion or 8% in Debt Products Group andNon-continuing Businesses (-$0.8 billion). New Zealand’s average net advances increased by $4.1 billion or 7%($8.4 billion or 13% in NZD terms). Average net advances grew by $0.8 billion (9%) in Overseas Markets.
- Other interest earning assets increased $10.6 billion (32%), driven by higher levels of liquid assets ($3.8 billion),trading securities ($4.6 billion), available-for-sale assets and interbank lending ($2.2 billion).
Average deposits and other borrowings grew $17.1 billion or 9%. Growth in Australia was attributable to: Personal($5.5 billion or 10%), with $4.1 billion or 11% in Banking Products and $1.2 billion or 12% in Esanda; Institutional
Australia ($3.1 billion or 8%) with $0.9 billion or 12% in Corporate Banking, $0.8 billion in Business Banking and$0.7 billion or 5% in Trade and Transaction Services Australia; and $4.2 billion or 24% in Treasury. Average deposits andother borrowings decreased in New Zealand $0.5 billion or 0.8% ($2.6 billion increase or 5% in NZD terms which
comprised core deposits growth of 12%, partially offset by a decrease in Treasury Certificates of Deposits and Commercial
Paper due to a switch to longer term funding). Average deposits and other borrowings grew ($4.7 billion or 24%) in
Overseas Markets, with exchange rate impacts $0.3 billion.
MarginNet interest average margin was up 1 basis point to 2.31%, however, core net interest margin adjusted for AIFRS 2005
adjustments reduced 9 basis points from the 2005 year:- AIFRS 2005 adjustments (+10 basis points)
Changes predominantly reflect the inclusion of certain fees as net interest income, partially offset by interest expenseon Hybrid securities, reported as debt instruments under AIFRS, and the inclusion of acceptances in average interest
earning assets.
- Funding mix (-5 basis points)
Margins were down due to substitution of wholesale funding for customer deposits (2 basis points) and a decrease in
net non-interest bearing items (3 basis points).
- Asset mix (-3 basis points)
Reduction in margin was due to an increase in the proportion of lower yielding liquid assets and trading securities inGroup Treasury and Institutional (3 basis points), with offsetting impacts between changes in the proportion of higher
yielding Esanda and Mortgage lending.
- Competition (-8 basis points)
Competitive pressures reduced margins, mainly in Australian and New Zealand Mortgages (3 basis points) andInstitutional lending (1 basis point) with slight margin reductions in Corporate and Business Banking and Rural
portfolios (1 basis point). In addition, customer migration to lower yielding credit cards reduced the net interest
margin (1 basis points), together with migration into high yielding customer deposits principally in New Zealand(2 basis points).

16

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Income and expenses, cont’d
Net Interest Income, cont’d#

2006 result, cont’d- Wholesale rates (+3 basis points)
Wholesale rate movements benefited margins with less basis risk in variable rate mortgages and credit cards together
with increased earnings on the investment of capital and rate insensitive deposits (3 basis points).
- Other items (+4 basis points) include:##

higher earnings from foreign exchange revenue hedging (+2 basis points or $58 million)#

release of a provision relating to prior year income in Institutional (+1 basis point)#

reduced effective yield fee income (-2 basis point)#

other impacts include lower funding costs associated with unrealised trading gains, interest received on tax refunds,
increase in the proportion of credit cards earning interest and a reduction in the proportion of retail broker
payments (+3 basis points)

Comparison with March 2006 half

Net interest income increased $207 million (6%) over the March 2006 half.
VolumeAverage interest earning assets increased $11.6 billion (4%):- Average net advances grew by $9.4 billion (4%). Growth in net advances in Australia was attributable to: Personal($7.4 billion or 6%), with $5.8 billion or 6% in Mortgages; and Institutional Australia ($2.9 billion or 5%), with
$0.5 billion or 4% in Corporate Banking, $0.8 billion or 8% in Business Banking, $1.2 billion or 5% in Debt ProductsGroup, $0.2 billion in Trade and Transaction Services Australia and Non-continuing Businesses (-$0.3 billion). New
Zealand’s average net advances decreased by $1.4 billion or 2% (increased $5.0 billion or 7% in NZD terms). Average
net advances increased by $0.8 billion (9%) in Overseas Markets.
- Other interest earning assets increased $2.2 billion (6%), driven by higher levels of liquid assets ($1.0 billion) andtrading securities ($2.1 billion), offset by a decrease in available-for-sale assets and interbank lending ($0.9 million).
Average deposits and other borrowings grew $6.1 billion or 3%. Growth in Australia was attributable to: Personal($2.9 billion or 5%), with $2.0 billion or 5.2% in Banking Products; and Institutional Australia ($2.6 billion or 7%), with
$0.4 billion or 5% in Corporate Banking, $0.5 billion or 6% in Business Banking and $1.4 billion or 9% in Trade andTransaction Services Australia; and $4.0 billion or 20% in Treasury. Average deposits and other borrowings decreased in
New Zealand $3.0 billion or 6% (increased $2.2 billion or 4.0% in NZD terms comprising core deposits growth of 6%,
partially offset by a decrease in Treasury Certificates of Deposits and Commercial Paper due to a switch to longer term
funding). Average deposits and other borrowings decreased ($0.4 billion or 2.0%) in Overseas Markets with exchange
rate impact of $0.2 billion.
MarginNet interest average margin increased 4 basis points from the March 2006 half:- Funding mix (unchanged)
Stable proportions of wholesale and customer funding within the portfolio.
- Asset mix (unchanged)
Modest increase in the proportions of low yielding liquid assets and trading securities.
- Competition (-3 basis points)
Competitive pressures reduced margins, mainly in Australian and New Zealand Mortgages (1 basis point) andCorporate Banking, Business Banking and Rural portfolios (1 basis point). In addition, migration to high yielding
customer deposits and lower rate credit cards reduced margin (1 basis point).
- Wholesale rates (unchanged)
Increased income on the investment of capital and rate insensitive deposits (+1 basis points) offset by a reduction in
non-traded interest rate risk earnings, with minimal impacts from basis risk in variable rate mortgages and credit
cards.
- Other items (+7 basis points) include:▪

Higher earnings from foreign exchange revenue hedging (+3 basis points or $52 million)▪

Funding costs associated with unrealised trading gains decreased $64 million, captured as an improvement in net
interest margin (+4 basis points), however it is directly offset by an equivalent decrease in trading income.

▪

Release of revenue relating to prior year income in Institutional in the March 2006 half (-2 basis points).

▪

Other impacts include reduced effective yield fee income (-1 basis point), an increase in the proportion of credit cards
earning interest and interest received on tax refunds (+3 basis points).

17

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Income and expenses, cont’d
Other Operating Income

Half
year
Sep 06
$M

Half
Movt
Sep 06year
Mar 06 v. Mar 06
%
$M

Full
year
Sep 06
$M

Movt
Full
Sep 06year
Sep 05 v. Sep 05
%
$M

1,116

1,029

8%

2,145

1,979

8%

220

227

-3%

447

454

-2%

Profit on trading instruments

65

144

-55%

209

132

58%

Other

182

163

12%

345

370

-7%

1,583

1,563

1%

3,146

2,935

7%

n/a

n/a

n/a

n/a

585

n/a

31

18

72%

49

44

11%

1,614

14
1,595

-100%
1%

14
3,209

14
3,578

0%
-10%

Other operating income
Total fee income
Foreign exchange earnings

Core other operating income
AIFRS 2005 adjustments

1
1

Ineffective hedge fair value gains
1

Significant items
Total other income
1.

Refer footnote 1 on page 11#2006 result

Other operating income decreased $369 million (10%). After adjusting for AIFRS 2005 adjustments and non-core items(refer pages 13 to 15 for details), core other operating income increased $211 million (7%).
The following explanations are based on core other operating income:- Fee income increased $166 million (8%).
▪

Lending fee income increased $25 million (6%) largely in Personal where Mortgages increased $11 million driven byasset lending growth and Banking Products increased $7 million as a result of growth in the number of transaction
accounts. New Zealand increased $5 million (NZD increase $10 million) largely in NBNZ Retail. Institutional
increased $2 million. Trade and Transaction Services increased $10 million due to increased volumes in International
Trade Finance, which was offset by a reduction in Debt Product Group due to lower loan administration fees.

▪

Non-lending fee income increased $141 million (9%):- Personal increased $123 million (16%). Consumer Finance increased $54 million (13%) principally due to volume
growth. Investment and Insurance Products increased $30 million (26%) from income generated by financial
planners. Banking Products increased $23 million (20%) driven by new product initiatives together with strong
new transaction deposit growth. Esanda grew $5 million due to higher predetermination fee income.
- Institutional increased $16 million (4%). Trade and Transaction Services grew $9 million (5%) due to businessgrowth from new channels and the custody business. Markets increased $8 million due to debt capital market
deals.
- Partnerships & Private Bank increased $10 million mainly due to a 37% increase in cards issued in Indonesia.
- New Zealand decreased $7 million (NZD increase of $15 million, 4%) with growth across card and transaction
fees offset by exchange rate movements.

- Foreign exchange earnings decreased $7 million (2%) mainly in Institutional Markets due to lower foreign exchange
swap and spot earnings which were offset by increased profit on trading instruments. This was partially offset inMarkets in New Zealand with gains in spot and foreign exchange forward products associated with NZD and interest
rate volatility and in Trade and Transaction Services as a result of continuing growth particularly from international
payments revenue.
- Profit on trading instruments increased $77 million. Institutional increased $40 million with Markets increasing$49 million driven by strong growth in Australia and New Zealand associated with increased activity and positioning totake advantage of interest rate and currency volatility. In addition Markets increased due to the profit offsetting theforeign exchange loss referred to above. Included in the Markets increase was a $15 million reduction due tounrealised losses in Australia and New Zealand which were offset by the funding benefit from realised cash flows
included in net interest income. Debt Product Group decreased $10 million due to costs incurred in managing theportfolio. In addition, the 2005 year included a $32 million cost from the hedge of capital investment earnings in INGA
which ceased in October 2005.
- Other operating income decreased $25 million (7%):▪

Partnerships & Private Bank decreased $32 million reflecting the impact of the expiration of transitional tax relief andlower capital investment earnings on the INGA result as well as lower PT Panin equity accounted earnings.

▪

New Zealand decreased $17 million which includes a $7 million gain in 2005 resulting from the alignment of revenue
recognition on leases in the New Zealand Fleet business with Group accounting policies, UDC losses on sale ofoperating lease vehicles and lower profits from ING NZ offset by a $5 million profit due to the sale of MasterCard
shares.

18

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

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

Personal increased $15 million largely in Mortgages from higher sales volumes and associated LMI policy premiums.
A $9 million increase in Consumer Finance due to the sale of MasterCard shares was offset by a $9 million reductionin Esanda mainly as a result of the impact from the fall in secondhand car prices.

▪

Non-continuing businesses increased $10 million mainly as a result of a gain from settlement of warranties relating to
the sale of the London headquartered project finance business and a $4 million gain on the sale of power assets.

▪

Institutional increased $2 million with a $11 million increase in Corporate and Structured Financing, which included a$6 million gain on sale of power assets, offset by the impact of the $10 million gain on sale of Sydney Futures
Exchange shares in 2005.

- Movements in average exchange rates over the September 2005 year decreased total other income by $28 million.
- Total Markets income is impacted by mix impacts between the categories within other operating income and net
interest income. The effect for the 2006 year largely offset each other and was to decrease total other income by$15 million (offset in net interest income).

#

Comparison with March 2006 result

Other operating income increased $19 million (1%). Core other operating income increased $20 million (1%) after
excluding non-core items (refer pages 13 to 15 for details). The following explanations are based on core other operating
income:- Fee income increased $87 million (8%).
▪

Lending fee income was flat. Institutional decreased $13 million with a change in business mix in Corporate andStructured Financing (higher non-lending fees) and lower administration fees in Debt Products Group. Personalincreased $11 million including a $4 million increase in Mortgages driven by lending growth and a $3 million increasein Esanda due to fee initiatives.

▪

Non-lending fee income increased $87 million (11%):- Personal increased $66 million (16%), of which $35 million in Consumer Finance was driven principally by volume
growth initiatives. Banking Products increased $14 million driven by product initiatives together with strong newtransaction deposit growth. Investment and Insurance Products increased $10 million due to an increase inincome generated by financial planners.
- Institutional increased $32 million (17%). Corporate and Structured Financing increased $28 million from strong
deal flow.
- New Zealand decreased $14 million (NZD increase of $4 million) due to the impact of movements in exchange
rates.

- Foreign exchange earnings decreased $7 million (3%) mainly in Institutional as a result of strong first half earnings inMarkets associated with large currency volatility, particularly in New Zealand ($32 million). This was partially offset by
the close out of a large foreign exchange swap and spot position and the corresponding take up of a derivative trading
profit (reducing foreign exchange earnings and increasing profit on trading income) in the first half ($24 million).
- Profit on trading instruments decreased $79 million:▪

Markets decreased by $71 million due to unrealised losses in Australia and New Zealand of $64 million which areoffset by the funding benefit from realised cash flows included in net interest income. In addition, the first half
included the $24 million profit on trading instruments offsetting the lower foreign exchange swap and spot earnings(see above). Institutional sales increased $18 million associated with the closure of a number of large deals.

▪

Debt Product Group decreased $8 million due to costs incurred in managing the portfolio.

- Other operating income increased $19 million (12%):▪

Personal increased $27 million. Esanda increased $10 million due largely to the impact of a fall in secondhand car
prices recorded in the first half. Mortgages increased $9 million from higher sales volumes and associated LMI policy
premiums. Consumer Finance increased mainly due to the $9 million profit from the sale of MasterCard shares.

▪

Partnerships & Private Bank increased $12 million. INGA equity accounted income rose $5 million reflecting
increased funds under management. International Partnerships increased $4 million due to equity accounted income
from Tianjin City Commercial Bank.

▪

Institutional increased $6 million. Markets increased $7 million due to bond sales.

▪

Non-continuing businesses decreased $20 million as the first half included a $12 million gain from settlement of thesale warranties relating to the sale of the London headquartered project finance business and a $4 million gain onsale of power assets.

- Movements in average exchange rates over the March 2006 half year decreased total other income by $36 million.
- The total Markets mix impact (referred to above), in comparison with the March 2006 result, was to decrease total
other income by $64 million (offset in net interest income).

19

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Income and expenses, cont’dExpenses

Halfyear
Sep 06
$M

Half
Movt
Sep 06year
Mar 06 v. Mar 06
%
$M

Full
year
Sep 06
$M

Movt
Full
Sep 06year
Sep 05 v. Sep 05%$M

Personnel expenses

1,366

1,341

2%

2,707

2,493

Premises expenses

208

205

1%

413

390

6%

Computer expenses

285

258

10%

543

541

0%

Other expenses

464

433

7%

897

867

3%

Restructuring costs

23

22

5%

45

49

-8%

2,346

2,259

4%

4,605

4,340

6%

Operating expenses

Core operating expenses
1

ANZ National Bank incremental integration costs

9%

-

39

-100%

39

78

-50%

Significant items - settlement of NHB insurance claim
Total operating expenses

2,346

(113)
2,185

-100%
7%

(113)
4,531

4,418

n/a
3%

Total employees

32,256

31,063

4%

32,25630,976

4%

1.

For March 2006 these costs are personnel costs of $22 million (2005: $36 million), computer costs of $6 million (2005: $17 million), and other costs of $11 million(2005: $25 million)#

2006 result

Operating expenses increased $113 million (3%) over the 2005 year. After adjusting for non-core items (refer page 13
for details of non-core items), core operating expenses increased $265 million (6%). The following explanations exclude
non-core items:- Personnel expenses increased $214 million (9%) as a result of annual salary increases and a 4% increase in staff
numbers mainly in the following business units:▪

Personal staff numbers increased 6%. Consumer Finance increased 8% to deal with increased volumes and cards
initiatives. Branch Network staff numbers increased 6% due to the opening of 25 new branches under the Branch
Investment Program coupled with extending opening hours for an additional 86 branches. Mortgages increased 8%
due to increased volumes. Investment and Insurance Products increased 16% over the year due mainly torecruitment of financial planners.

▪

Institutional staff numbers increased 7% due to a 24% increase in Markets primarily reflecting the strategy to drive
business growth and increased staff for IT projects. Trade and Transaction Services increased 8% reflecting
investment in business platforms and short-term parallel runs of a new operations site.

▪

Partnership & Private Bank increased 29% driven mainly by the expansion program in Cambodia and increasing
specialist staff to follow the growth agenda in Private Banking.

- Premises costs increased $23 million (6%) reflecting additional space requirements and opening of 25 new branches.
There was also a $6 million increase in the cost of security services.
- Computer costs increased $2 million. Depreciation charges in Operations, Technology and Shared Services andPersonal were lower principally as a result of asset write-downs in 2005 and assets fully depreciating. Offsetting thiswere increases in Mortgages due to re-assessment of software projects, Trade and Transaction Services and Markets
due to investment in new platforms, and Consumer Finance due to additional ATM and merchant terminals.
- Other expenses increased $30 million:▪

Travel expenses increased $16 million with small increases spread across most business units.

▪

Advertising spend increased $14 million including expenditure on the “ANZ NOW” and “ATM” advertising campaigns
and Consumer Finance expenditure due to the launch of new products including Visa Debit Card.

- Movements in exchange rates reduced costs by $55 million.

20

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Income and expenses, cont’dExpenses, cont’d#Comparison with March 2006 half

Operating expenses increased $161 million (7%) or $87 million (4%) adjusting for non-core items (refer page 13 fordetails). The following explanations exclude non-core items:- Personnel costs were up $25 million (2%) with a 4% increase in staff numbers. The increase included a $28 million
benefit from movement in NZD exchange rates. Increases in staff numbers were mainly in the following business
units:▪

Personal increased 4%. Consumer Finance increased by 8% to deal with increased volumes and cards initiatives.
Retail Banking staff numbers increased 5% due to opening of 14 new branches under the Branch Investment
Program together with extending opening hours of branches. Investment and Insurance Products increased 8% due
mainly to recruitment of financial planners.

▪

Institutional increased 5% mainly due to a 15% increase in Markets primarily reflecting the strategy to drive businessgrowth. Trade and Transaction Services increased 6% reflecting business expansion particularly in CustodianServices and Trade Finance businesses.

▪

Partnership & Private Bank increased 19% driven mainly by the expansion program in Cambodia and Private Banking
increased 26% to bring forward the growth agenda.

- Premises costs increased $3 million (1%) driven by higher rental expense reflecting additional space requirements andopening of new branches.
- Computer costs increased $27 million (10%) due to the timing impact of higher software maintenance fees in thesecond half and re-assessment of software projects in Mortgages.
- Other expenses were $31 million (7%) higher. Advertising increased $15 million which included the launch of the Visa
Debit Card and an increased advertising campaign in New Zealand. Professional fees were up $10 million withOperations, Technology and Shared Services increasing $5 million due to a range of initiatives and Esanda increasing$4 million due to a review of Esanda’s Auto Finance business. Travel expenses increased $8 million with small
increases spread across most business units. Card processing expense increased $5 million mainly due to microchip
rollout costs. Non lending losses decreased $17 million with the first half higher due to Institutional and New Zealand(the latter included a NZD 10 million Commerce Commission settlement impact).
- Movements in exchange rates reduced cost growth by $52 million.

Credit Risk
Provision for credit impairment charge

Half
year
Sep 06$M
173

Personal

Half
Movt
year
Sep 06
Mar 06 v. Mar 06
$M
%
168
3%

Full
year
Sep 06
$M
341

Full
Movt
year
Sep 06
Sep 05 v. Sep 05
$M
%
351
-3%

Institutional

7

51

-86%

58

136

-57%

New Zealand Businesses

1

4

-75%

5

158

-97%

Partnerships & Private Bank

16

9

78%

25

17

47%

Non-continuing businesses
Core provision for credit impairment charge

(14)
183

(8)
224

75%
-18%

(22)
407

(97)
565

-77%
-28%

1

AIFRS 2005 adjustments

n/a

n/a

n/a

n/a

15

n/a

Provision for credit impairment charge

183

224

-18%

407

580

-30%

1.

Refer page 15

21

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Credit Risk, cont’d
Individual provision charge

The individual provision charge was $338 million, down $19 million from the September 2005 year. This decrease wasprincipally driven by increased recoveries and writebacks in Institutional and lower single name provisions in New Zealand.
This was partially offset by growth and moderately higher risk in Personal, driven mainly by credit cards and lower recovery
rates in Esanda due to falling used car prices and lower writebacks and recoveries in the non-continuing businesses.
Half
year
Sep 06$M
145

Personal

Half
Movt
year
Sep 06
Mar 06 v. Mar 06
$M
%
116
25%

Full
year
Sep 06
$M
261

Full
Movt
year
Sep 06
Sep 05 v. Sep 05
$M
%
223
17%

Institutional

(7)

56

large

49

62

-21%

New Zealand Businesses

8

11

-27%

19

101

-81%

Partnerships & Private Bank

15

8

88%

23

12

92%

Non-continuing businesses
Individual provision charge

(11)
150

(3)
188

large
-20%

(14)
338

(41)
357

-66%
-5%

n/a
150

n/a
188

n/a
-20%

n/a
338

357

n/a
-5%

1

AIFRS 2005 adjustments
Individual/specific provision charge
1.

Refer page 15

Collective provision charge

The collective provision charge was $69 million, down $154 million from the September 2005 year or $139 million on acomparable basis after AIFRS 2005 adjustments.
The Group charge for the year was driven by strong asset growth, changes in portfolio risk and a reduced benefit from noncontinuing businesses following the sale of offshore project finance assets. This was partially offset by a decline in the
scenario impact provision taken in 2005 to reflect the risk change of materially higher and sustained oil prices, which are now
flowing into risk measured collective or individual provisions.
The risk increase was predominantly in Personal due to strong growth in low rate cards, which have a slightly higher
risk/return; and moderately higher losses in Esanda as higher petrol prices reduce recovery rates on defaulted loans as
resale values have fallen in some vehicle classes. New Zealand benefited from strong relative growth in lower risk mortgage
products and improvement in personal loans and cards (low rate card products were only introduced late in the financialyear). New Zealand continues to be supported by stable economic conditions that are being closely watched for any signs of
weakening.
Half
year
Sep 06$M
61

Lending growth

Half
Movt
year
Sep 06
Mar 06 v. Mar 06
$M
%
70
-13%

Full
year
Sep 06
$M
131

Full
Movt
year
Sep 06
Sep 05 v. Sep 05
$M
%
147
-11%

Risk profile

22

(5)

large

17

(49)

large

Portfolio mix

(2)

8

large

6

25

-76%

Scenario impact

1

(45)

(32)

41%

(77)

141

large

Non-continuing business

(3)

(5)

-40%

(8)

(56)

-86%

Collective provision charge

33

36

-8%

69

208

-67%

1.

Scenario impact includes oil price shock and offshore risk provision in 2005 and the modelled unwind of the oil price shock provision in 2006 to offset the
emergence of related Individual and Collective provisions from these scenario impacts

The analysis of the collective provision charge by business unit is set out below:
Half
year
Sep 06
$M

Half
Movt
year
Sep 06
Mar 06 v. Mar 06
$M
%

Full
year
Sep 06
$M

Full
Movt
year
Sep 06
Sep 05 v. Sep 05$M%

Collective (general) provision charge
Personal

28

52

-46%

80

128

-38%

Institutional

14

(5)

large

9

74

-88%

New Zealand Businesses

(7)

(7)

0%

(14)

57

large

Partnerships & Private Bank

1

1

0%

2

5

-60%

Non-continuing businesses

(3)

(5)

-40%

(8)

(56)

-86%

Collective provision charge

33

36

-8%

69

208

-67%

AIFRS 2005 adjustments

n/a

n/a

n/a

n/a

15

n/a

Collective (general) provision charge

33

36

-8%

69

223

-69%

1

1.

Refer page 15

22

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Credit Risk, cont’d
Expected loss

Management believe that disclosure of modelled expected loss data will assist readers in determining the longer term
expected loss rates on the lending portfolio as they remove the volatility in reported earnings created by the use of AIFRS
credit loss provisioning. The expected loss concept also aligns with the Basel II advanced approach to capital management.
ANZ uses the expected loss methodology internally for economic value added (EVA) reporting and as a factor when
determining the dividend payout ratio. Expected loss outcomes are subject to change as Basel II validation work iscompleted.
The Group’s expected loss was $691 million, an increase of $111 million (19%) over the September 2005 year. This increase
was primarily driven by strong growth in Personal including the strategic risk shift into lower rate credit cards and by aslightly higher risk profile in Esanda largely driven by the falling value of secondhand vehicles reducing recovery rates on
defaulted facilities. Partnerships & Private Bank also increased due to strong growth and risk changes within the Indonesiancredit cards portfolio. The non-continuing businesses expected loss reduced during 2006, however the expected loss rateincreased over this period due to a large decrease in average net lending assets.

Expected loss by segment% ofGroup Net
Advances

1

Half
year
Sep 06Halfyear
Mar 06

Fullyear
Sep 06

Fullyear
Sep 05

Personal

49%

0.28%

0.26%

0.27%

0.23%

Institutional

27%

0.30%

0.30%

0.30%

0.29%

New Zealand Businesses

23%

0.16%

0.18%

0.17%

0.19%

Partnerships & Private Bank

<1%

2.60%

1.62%

2.13%

1.29%

Non-continuing businesses
Total

<1%
100%

0.33%
0.27%

0.46%
0.26%

0.41%
0.27%

0.22%
0.25%

357

334

691

580

Expected loss ($million)
1.

Expected loss = Annualised expected loss divided by average net lending assets

Gross non-performing loans

Gross non-performing loans increased to $661 million, up $19 million from $642 million as at 30 September 2005. This
increase was largely driven by two new accounts in Institutional during the first half of 2006, partially offset by lower
non-performing loans in New Zealand and strong asset realisations and writeoffs in the non-continuing businesses.
As at
Sep 06Gross non-performing loans

As at
Mar 06As at
Sep 05Movt
Movt
Sep 06
Sep 06v. Mar 06 v. Sep 05
$M
%
%

$M

$M

Personal

147

135

136

9%

8%

Institutional

408

440

272

-7%

50%
-47%

New Zealand Businesses

99

138

187

-28%

Partnerships & Private Bank

7

5

3

40%

large

Non-continuing businesses

-

8

44

-100%

-100%

661

726

642

-9%

3%

Total gross non-performing loans

Net non-performing loans

Net non-performing loans are $382 million (Sep 2005: $386 million) representing 1.9% of shareholders’ equity as at
30 September 2006 (Sep 2005: 2.0%). The Group has an individual provision coverage ratio of 42%.
As at
Sep 06As at
Mar 06As at
Sep 05Movt
Movt
Sep 06
Sep 06v. Mar 06 v. Sep 05$M%%

Net non-performing loans$M$M

Personal

64

58

64

10%

0%

267

279

161

-4%

66%
-56%

Institutional
New Zealand Businesses

51

77

117

-34%

Partnerships & Private Bank

-

-

-

n/a

n/a

Non-continuing businesses

-

7

45

-100%

-100%

AIFRS 2005 adjustments

-

-

(1)

n/a

-100%

Total net non-performing loans

382

421

386

-9%

-1%

Individual provision coverage

42%

42%

40%

0%

5%

23

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Income Tax Expense
Half
year
Sep 06$M
Income tax expense on profit
Effective tax rate

780

742

29.3%

29.1%

1

Income tax expense on cash profit
1
Effective tax rate (cash profit )1.

Refer footnote 1 on page 11#2006 result

Half
Movt
year
Sep 06
Mar 06 v. Mar 06
$M
%

770

716

29.3%

29.2%

5%
8%

Full
year
Sep 06
$M

Full
Movt
year
Sep 06
Sep 05 v. Sep 05
$M
%

1,522

1,220

29.2%

27.7%

1,486

1,247

29.3%

28.3%

25%
19%

The Group’s income tax expense increased by $302 million to $1,522 million resulting in an effective tax rate of 29.2%,
an increase of 1.5% from the September 2005 year. The increase mainly reflects the run-off of structured financetransactions. The September 2005 year included the non-taxability of profit on sale of NBNZ Life and Funds Management
Businesses.
Adjusted for AIFRS 2005 adjustment and non-core items, income tax expense increased by $239 million resulting in an
effective tax rate of 29.3%, an increase of 1.0% from the September 2005 year. This increase mainly reflects the run-offof structured financing transactions.

#Comparison with March 2006 half

The Group’s effective tax rate for the half year ended September 2006 increased 0.2%, with the AIFRS and non-coreadjusted rate increasing 0.1% from the March 2006 half year.

Earnings per share
Half
year
Sep 06
$M

Half
Movt
year
Sep 06
Mar 06 v. Mar 06
$M
%

Full
year
Sep 06
$M

Full
Movt
year
Sep 06
Sep 05 v. Sep 05$M%

1

Earnings per share (cents)
Basic

101.6

98.4

3%

200.0

169.5

18%

Diluted

98.5

95.5

3%

194.0

164.4

18%

1,877

1,811

4%

3,688

3,175

16%

(21)

(80)

-74%

(101)

7

large

Cash earnings per share
Net profit attributable to shareholders of the Company ($M)
2

Less: non-core items included in profit after tax ($M)
2

AIFRS 2005 Adjustments ($M)
Cash Profit ($M)

n/a

n/a

n/a

n/a

(31)

n/a

1,856

1,731

7%

3,587

3,151

14%

(15)

(12)

25%

(27)

(18)

50%

1,841

1,719

7%

3,560

3,133

14%

1,832.2

1,828.40%1,830.3

1,823.7

0%

100.5

94.0

7%

194.5

171.8

13%

3

Preference share adjustments ($M)
Earnings adjusted for non-core items and
AIFRS 2005 adjustments ($M)
Weighted average number of ordinary shares (M)Cash earnings per share (cents)
1.
2.
3.

Refer page 79 for full calculation
Refer pages 13 to 15
The EPS calculation excludes the Euro preference shares2006 full year earnings per share increased 18.0% (30.5 cents) to 200.0 cents over full year 2005. Cash EPS for the Group
increased 13.2% or 22.7 cents over full year 2005. The main drivers of the increase in cash EPS on full year 2005 are:#Growth in continuing business profit before credit impairment (after tax) and preference shares contributed 11.6%#

Reduction in the continuing businesses credit impairment charge (after tax) contributed 4.8%#

Partly offset by non-continuing businesses (2.8%) and the dilution by the increase in number of shares (0.4%)

September 2006 half year earnings per share increased 3.3% (3.2 cents) on the March 2006 half. Cash EPS for the Group
increased 6.9% or 6.5 cents on the March 2006 half. The main drivers of the increase in cash EPS on the March 2006 halfare:#Growth in continuing business profit before credit impairment (after tax) contributed 6.9%#

Reduction in the continuing businesses credit impairment charge (after tax) contributed 1.4%#

Partly offset by non-continuing businesses (1.2%) and the dilution by the increase in number of shares (0.2%)
24

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Dividends
Halfyear
Sep 06
$M

Half
Movt
year
Sep 06
Mar 06 v. Mar 06
$M
%

Full
year
Sep 06
$M

Full
Movt
year
Sep 06
Sep 05 v. Sep 05$M%

Dividend per ordinary share (cents)
Interim (fully franked)

n/a

56

n/a

56

51

Final (fully franked)

69

n/a

n/a

69

59

10%
17%

Total

69

56

23%

125

110

14%

Ordinary share dividend payout ratio (%)

68.0%

56.9%

62.6%

65.0%

Net profit after tax ($M)

1,877

1,811

4%

3,688

3,175

16%

(21)

(80)

-74%

(101)

(24)

large

1,856

1,731

7%

3,587

3,151

14%

68.8%

59.6%

64.4%

64.1%

1

Non-core items and AIFRS 2005 adjustments ($M)
1Cash profit ($M)
1
Dividend payout ratio of cash profit (%)
1.

Refer footnote 1 on page 11

The Directors propose that a final dividend of 69 cents be paid on each ordinary share, up 10 cents (17%) on the 2005 final
dividend broadly in line with the growth in Cash EPS (adjusted for non-core items and AIFRS 2005 adjustments). The
proposed final dividend will be fully franked.
The Group has a dividend reinvestment plan and a bonus option plan. Participation in these plans is limited to 50,000 sharesin each plan. Election notices for these plans must be received by 5.00 pm (AEST) on the record date, namely, 15 November
2006. It is proposed that the final dividend will be payable on 15 December 2006. Dividends payable to shareholders with aregistered address in Great Britain (including the Channel Islands and the Isle of Man) and New Zealand will be converted totheir local currency at ANZ’s daily forward exchange rate at the close of business on the fifth ASX trading day immediately
following the record date for value on the payment date.
The Group expects current timing differences will generate future franking credits and therefore the Group expects it will beable to maintain full franking for the foreseeable future.

EVA Reconciliation
One measure of shareholder value is EVATM (Economic Value Added) growth relative to prior periods. EVATM for the year
ended 30 September 2006 at $2,082 million was up $171 million on the year ended 30 September 2005, and up $56 million
on the March 2006 half.
Half
year
Sep 06
$M

Half
Movt
year
Sep 06
Mar 06 v. Mar 06
$M
%

Full
year
Sep 06
$M

Full
Movt
year
Sep 06
Sep 05 v. Sep 05
$M
%

1,877

1,811

4%

3,688

3,175

16%

(21)

(80)

-74%

(101)

(24)

large

Cash Profit

1,856

1,731

7%

3,587

3,151

14%

Credit cost adjustment

(120)

(74)

62%

(194)

(4)

large

Economic profit

1,736

1,657

5%

3,393

3,147

8%

351

313

12%

664

594

12%

Adjusted economic profit

2,087

1,970

6%

4,057

3,741

8%

Cost of ordinary capital(1,003)(945)

6%(1,948)(1,812)

8%

Cost of preference share capital

(15)
1,069

(12)
1,013

25%
6%

(27)
2,082

(18)
1,911

50%
9%

EVA

TM

Net profit after tax
AIFRS 2005 adjustments and non-core items

1

Imputation credits

EVA
1.

TM

Refer footnote 1 on page 11

EVATM is a measure of risk adjusted accounting profit used for evaluating business unit performance and is a factor in
determining the variable component of remuneration packages. It is based on net profit after tax, adjusted for non-core
items, credit costs, the cost of capital, and imputation credits (measured at 70% of Australian tax). Of these, the major
component is the cost of capital, which is calculated on the risk adjusted or economic capital at a rate of 11%. At the Grouplevel, total capital is used so the cost of capital reflects the full resources provided by shareholders. The credit costadjustment replaces the credit impairment charge with expected losses after tax at the rate applicable in the relevant
geography.
At ANZ, economic capital is equity allocated according to a business unit’s inherent risk profile. It is allocated for several risk
categories including: credit risk, operating risk, interest rate risk, basis risk, mismatch risk, investment risk, trading risk
deferred acquisition costs risk and other risk. The methodology used to allocate capital to business units for risk is designed
to help drive appropriate risk management and business strategies.
25

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

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.
97.5% confidence level 1 day holding period
As at
Sep 06$M

High for
period
Sep 06$M

Low forperiod
Sep 06$M

Ave forperiod
Sep 06$M

As at
Sep 05$M

High for
period
Sep 05$M

Low forperiod
Sep 05$M

Ave forperiod
Sep 05$M

Value at risk at 97.5% confidence
Foreign exchange

0.5

1.6

0.3

0.7

0.8

1.7

0.3

0.8

Interest rate

1.7

3.2

0.8

1.8

1.3

2.2

0.2

0.9

Credit Spread
Diversification benefit
Total VaR

1.1

1.7

0.7

1.1

0.8

1.5

0.2

0.8

-1.4
1.9

n/a
3.6

n/a
0.9

-1.5
2.1

-1.2
1.7

n/a
3.0

n/a
0.8

-0.9
1.6

Low forperiod
Sep 06$M

Ave forperiod
Sep 06$M

As at
Sep 05$M

High for
period
Sep 06$M$M

High for
period
Sep 05$M

Low forperiod
Sep 05$M

Ave forperiod
Sep 05
$M

0.6

2.0

0.3

0.8

0.9

2.1

0.4

1.1

99% confidence level 1 day holding period

As at
Sep 06

Value at risk at 99% confidence
Foreign exchangeInterest rate

2.0

4.4

1.3

2.4

1.7

2.8

0.2

1.2

Credit Spread

2.8

3.6

1.1

2.3

1.4

2.4

0.4

1.2

-2.9
2.6

n/a
4.9

n/a
1.2

-2.6
2.9

-1.8
2.2

n/a
4.0

n/a
1.0

-1.3
2.2

Diversification benefit
Total VaR
Revenue related cash flow hedges

The Group has used derivative instruments to hedge against the adverse impact on future offshore revenue streams fromexchange rate movements. Movements in average exchange rates, net of associated revenue hedges, resulted in an
increase of $5 million in the Group’s profit after tax for 2006 (Sep 2006 half: decrease $7 million). This included the impactof earnings from associated revenue hedges, which increased by $58 million (before tax) from 2005. Hedge revenue isbooked in the Group Centre as interest income.
From 1 October 2006, new AIFRS rules do not permit economic hedging of offshore revenue streams to be accounted for in
the same manner as that permitted under first year AIFRS transitional rules or AGAAP. As a consequence, any revenue
hedges of the Group’s offshore revenue streams will be marked to market through the income statement. In addition, AIFRS
requires realised and unrealised positions on revenue hedges at 1 October 2006 to be taken directly to retained earnings.
The most significant offshore revenue stream is derived from the New Zealand geography (refer page 56) and the debt
component of New Zealand Dollar intra-group funding of this business, which amounted to NZD1.77 billion at 30 September
2006. Details of revenue hedges are set out below.

Net open position NZD (notional principal)
Amount taken to income (pre tax)
- NZD hedges- USD hedges

Half
year
Sep 06
$M
-

Half
year
Mar 06
$M
2,486

Full
year
Sep 06
$M
-

Full
year
Sep 05
$M
3,957

49
-

(3)
-

46
-

(27)
15

All revenue hedges existing at the start of financial year 2006 were realised. The realised gains on the hedges of futureyears’ revenues of approximately $141 million (net of tax) have been deferred in the Hedging Reserve in equity at
30 September 2006. In line with AIFRS requirements, these gains (which would have otherwise been reflected in the income
statement in future years) were transferred directly to Retained Earnings at 1 October 2006. In addition, NZD1.55 billion ofcapital hedges were established during the latter part of the financial year. The unrealised losses on these hedges at
30 September 2006 of approximately $23 million (net of tax) have been included in the Foreign Currency Translation
Reserve. Post balance date, these capital hedges have been de-designated, and will be marked-to market through theincome statement in 2007 as a partial economic hedge of the expected 2007 NZD earnings. Approximately 95% of the
anticipated 2007 NZD revenue streams (including inter-group funding) have been hedged at an effective all-in rate of
NZD1.14/A$, compared to an all in rate of NZD1.10/A$ for 2006. This will limit the expected reduction in 2007 Groupearnings per share due to a possible weaker NZD to less than 1%.
The changes to the accounting requirements have had no impact on the economic position of the Group. Whilst the marking
to market of these hedges will introduce volatility going forward, the unrealised gains/losses on these hedges will be included
in non-core items and excluded from Cash profit.
26

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Balance Sheet
Total assets increased by $34.9 billion (12%) since 30 September 2005 to $335.8 billion. Exchange rate movements
accounted for a net reduction of $2.2 billion consisting of a reduction of $3.1 billion in New Zealand partly offset by anincrease of $0.9 billion in Overseas Markets. Excluding the impact of exchange rate movements, total assets increased$28.1 billion (14%) in Australia, $7.6 billion (10%) in New Zealand and $2.5 billion (25%) in Asia Pacific, offset by areduction of $1.1 billion (10%) in other geographies.
The explanations in the table below describe movements in the major asset classes.
Liquid assets !29% (Excl Exchange Rates !29%)
Liquid assets increased by $3.4 billion to $15.0 billion at 30 September 2006.
Australia increased $3.7 billion from customer-related repurchase agreement activity in Institutional and increased liquidity
in Group Treasury. Overseas Markets decreased $0.6 billion due to a switch from bank certificates of deposit to more
attractive available-for-sale assets in the United Kingdom.
Due from other financial institutions !52% (Excl Exchange Rates !51%)
Due from other financial institutions increased by $3.3 billion to $9.7 billion at 30 September 2006 due mainly to anincrease in volumes of interbank lending in Australian Treasury, Singapore and New Zealand partially offset by a decrease inUnited Kingdom.
Trading securities !46% (Excl Exchange Rates !47%)
Trading securities volumes increased $2.9 billion to $9.2 billion at 30 September 2006 due largely to a strategic decision in
Institutional to be more competitive in the Debt Capital Markets with greater focus on supporting customer issuance andinvestment needs.
Derivatives !41% (Excl Exchange Rates !42%)
Derivative assets increased $2.7 billion to $9.2 billion at 30 September 2006 driven principally by increased volatility inexchange rates, notably the significant depreciation in the NZD during the year and increased trading activity.
Available-for-sale assets !6% (Excl Exchange Rates !5%, excl Exchange Rates and AIFRS 2005 Adjustment "5%)Available-for-sale assets include assets previously classified as investment securities (under AGAAP) and loans and advancesand other assets that are available-for-sale. These assets are measured at fair value. Available-for-sale asset volumes
increased $0.6 billion to $10.7 billion at 30 September 2006 due to the reclassification of $1.1 billion assets from net loans
and advances and other assets on 1 October 2005 on adoption of AIFRS and an increase in available-for-sale loans in
Institutional Australia. This is partially offset by a decrease in Corporate and Structured Finance following thede-consolidation of two Special Purpose Vehicles.
Net loans and advances !10% (Excl Exchange Rates !11%)
Net loans and advances increased $22.9 billion to $255.4 billion at 30 September 2006. Excluding the impact of exchange
rate movements (-$2.1 billion) and the impact of adopting AIFRS (-$1.5 billion resulting from changes in credit provisioning
and the reclassification to available-for-sale), the increase was $26.5 billion (12%).
Growth in Australia was 11% or $17.1 billion. After adjusting 2005 to a fully comparable AIFRS basis growth was$18.1 billion (11%):-

Personal (12% or $13.5 billion) with $10.5 billion as a result of growth in housing loans. Consumer Finance increased$1.1 billion, reflecting the success of the low rate MasterCard product. Esanda increased $0.6 billion with solid new
business writings partly offset by the natural run-off of assets. Investment and Insurance Products grew $0.4 billion due
to growth in margin lending volumes and uptake of new products and Regional & Rural Banking grew $0.8 billion.

-

Institutional Australia (11% or $4.6 billion) largely in Debt Products Group, with growth of $1.6 billion driven byincreased demand for funding of mergers and acquisition activity. Business Banking increased $1.3 billion (14%) driven
by continued business momentum and Corporate Banking grew $0.9 billion (14%) with growth in asset finance products
and variable rate term lending. Corporate and Structured Financing increased $0.3 billion due to increased project
finance and structured debt activity and volumes in Trade and Transaction Services increased $0.3 billion as a result ofgrowth in overdrafts.

New Zealand grew by $4.7 billion (7%). However, after excluding the impact of exchange rates and impact of adopting
AIFRS, growth was $7.3 billion, or 12%, with increases in NBNZ Retail ($2.2 billion or 10%), ANZ Retail ($2.1 billion or15%), Rural Banking ($1.4 billion or 16%) and Corporate & Commercial Banking ($1.8 billion or 20%).
Overseas Markets grew by $1.1 billion (13%) in Asia ($0.7 billion) and Pacific ($0.4 billion).
Other assets "19% (Excl Exchange Rates "18%)
Other assets reduced $1.2 billion due mainly to lower assets awaiting settlement in New Zealand.

27

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Balance Sheet, cont’d
Total liabilities increased by $34.5 billion (12%) from 30 September 2005. Exchange rate movements accounted for a net
reduction of $1.8 billion consisting of a $2.7 billion reduction in New Zealand offset by an increase of $0.9 billion in Overseas
Markets.
The explanations in the table below describe movements in the major liability classes.
Due to other financial institutions !17% (Excl Exchange Rates !15%)
Due to other financial institutions increased $2.1 billion to $14.1 billion at 30 September 2006.
Volumes in Australia increased $3.3 billion principally in the Markets business in Institutional with increased interbank
repurchase agreement activity partly offset by decreases in New Zealand and United Kingdom.
Deposits and other borrowings !8% (Excl Exchange Rates !9%)
Deposits and other borrowings increased $14.5 billion to $204.8 billion at September 2006. Excluding the impact of
exchange rate movement, the increase was $16.1 billion. After adjusting for exchange rate movements:
Australia increased $9.3 billion (8%) largely as a result of increases in the following businesses:-

Institutional increased $4.1 billion (11%) with increased deposits in Debt and Transaction Services ($4.0 billion)
following the Balance Sheet Collateralised Loan Obligation issuance ($2.2 billion) and growth in current accounts,
Institutional & Corporate Relationships ($1.7 billion) and Markets ($0.7 billion), partly offset by a reduction in deposits in
Corporate and Structured Financing ($2.3 billion).

-

Personal increased $6.3 billion (11%) mainly due to the growth in cash management account products and term deposit
balances in Banking Products ($4.3 billion) and Rural & Small Business Banking ($0.8 billion), and increased issuance ofcommercial paper in Esanda to meet funding requirements ($0.8 billion).

-

Treasury reduced $1.1 billion largely due to a reduced requirement for short term domestic funding.

New Zealand increased $2.8 billion (5%), largely in Institutional ($4.4 billion) and Retail ($2.2 billion) following growth incurrent accounts bearing interest and term deposits. This is partially offset by a reduction in Treasury ($3.8 billion) where aswitch has occurred from short term commercial paper and certificates of deposit to the longer term issuance of EMTNs.
Overseas Markets increased by $4.0 billion largely due to increased term deposits in Asia ($1.6 billion) and increased
certificates of deposit in America ($1.5 billion) and United Kingdom ($0.4 billion).
Derivatives !25% (Excl Exchange Rates !27%)
Derivative liabilities increased $1.7 billion to $8.8 billion at 30 September 2006. The increase is driven by increased
volatility in exchange rates, principally the significant movement in the NZD during the year and increased trading activities.
Payables and other liabilities !40% (Excl Exchange Rates !42%)
Payables and other liabilities increased $3.1 billion (40%) to $10.7 billion at 30 September 2006 with an increase in
securities lending volumes in Institutional and an increase in liabilities awaiting settlement in Treasury.
Bonds and Notes !28% (Excl Exchange Rates !29%)
Bonds and notes increased $11.0 billion to $50.1 billion at 30 September 2006. Excluding exchange rate movements,
bonds and notes increased by $7.1 billion (22%) in Australia and $4.1 billion (68%) in New Zealand in response toincreased term funding requirements.
Loan Capital !22% (Excl Exchange Rates !22%)
Loan capital increased $2.0 billion to $11.1 billion at 30 September 2006 in response to term funding requirements and thereclassification of ANZ StEPS ($1.0 billion) from equity to debt on adoption of AIFRS on 1 October 2005.

28

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Capital Management
As at
Sep 066.8%
4.2%(0.4%)
10.6%
5.0%(0.3%)
4.7%
4.0%-4.75%
240,219

Tier 1
Tier 2
Deductions
Total
ACE
Transitional Tier 1 Capital Relief
Adjusted ACE
Target ACE
RWA $m

As at
Mar 066.8%
4.0%(0.4%)
10.4%
5.0%
5.0%
4.5%-5.0%
230,653

As at
Sep 056.9%
3.9%(0.3%)
10.5%
5.1%
5.1%
219,573

Further details of the components of capital and the capital adequacy calculation are set out on pages 98 to 99

Prudential issues – APRA’s changes to prudential standards covering AIFRS impacts and Tier 1 hybrid capital

APRA changes to prudential standards, APS 110 “Capital Adequacy” and APS 111 “Capital Adequacy: Measurement of Capital”
became effective on 1 July 2006. Transitional rules mean that some changes are not fully effective until January 2008 andpotentially January 2010.

AIFRS and capital deductions

The changes to the prudential standards impact the capital base of the Group in the following ways:#

The Group’s Tier 1 capital base was reduced by $716 million at 1 July 2006 due to new or higher deductions for suchitems as capitalised software, net deferred tax assets, hedge accounting ineffectiveness and defined pension plan deficits,
offset by a small release in the general provision for loan losses. The deduction for deferred tax assets has been
introduced into the calculation of ANZ’s Tier 1 capital post March 2006. APRA is now requiring verification letters from theGroup’s auditors and tax advisors before netting of deferred tax assets and liabilities is permitted for offshore sites.

#

The Group’s upper Tier 2 capital base was reduced by $17 million at 1 July 2006 due to the release of the generalprovision for loan losses, offset by an allowance for the recognition of post acquisition earnings and movement in reserves
for associates.

#

APRA introduced transitional rules to January 2008, whereby the Group can add back to its capital base the adverse
impact of adopting the new prudential standards on 1 July 2006. The Group has taken Tier 1 and Upper Tier 2transitional relief of $716 million and $17 million respectively. These amounts are fixed for the period to January 2008.
The end of the transitional period is expected to be aligned with the adoption of the Basel II accord.
$m
Total Tier 1 capital at 30 September 2006
(before Transitional relief)

15,641

Transitional relief---

30 June 2006 values

Items included in Equity under IFRS:Hedge accounting ineffectivenessDefined pension plan deficits (net)General provision for loan losses

30 Sep 2006 values

132
83
(184)

77
161
(184) 1

New deduction:
Capitalised software
Deferred tax assets

397
289

397
290

Other

(1)

(1) 1

716

740

Total
Transitional Tier 1 capital at 30 September 2006
1.

$m

16,357

Assumed unchanged since June 200629

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Capital Management, cont’dTier 1 Capital and Securitisation

The prudential standards and guidance notes also outlined new criteria for Tier 1 and Tier 2 capital, including sub-categories
therein for hybrid Tier 1, Lower and Upper Tier 2. Material changes from the existing prudential standards are:#Introduction of a sub-category of Tier 1 capital being ‘Fundamental Tier 1’ which includes most components ofshareholders equity, excluding hybrid Tier 1 instruments. This sub-category must be at least 75% of net Tier 1, which
effectively reduces the level of hybrid Tier 1 capital (‘Residual Tier 1’) to 25% of net Tier 1 – previously 25% of Tier 1
before deductions.

#

Splitting hybrid Tier 1 into two sub-categories, Innovative and Non-Innovative Tier 1, with limits of 15% and 10% of net
Tier 1 respectively. Transition rules will be available to ADIs up until January 2010 if the ADI is above these limits when
first measured on 1 January 2008 based upon hybrid Tier 1 instruments on issue at 31 August 2005 (subject to certain
conditions being met). The Non-Innovative category is a new classification covering instruments that have thecharacteristics of ‘non-cumulative, irredeemable preference shares without innovative capital features’. ANZ believes thatits existing hybrid Tier 1 instruments will be classified as Innovative. At 30 September 2006, ANZ has an Innovative
hybrid usage rate of 20.4% (nil for Non-Innovative) which is above the limit and as such expects to apply for thetransitional relief contemplated in the standard.

ACE Ratio

As noted above, upon adopting APRA’s new prudential standards in July 2006, the Group incurred a $716 million reduction in
Tier 1 capital for increased or new deductions. Whilst APRA has provided transitional relief from these deductions, thistransitional relief will not flow through to Rating Agency measures of ACE. As these deductions do not reflect changes to theunderlying economic risk of the business, the Group lowered its ACE target range by 25 basis points and expanded the range
by 25 basis points to allow short term flexibility, for example AIFRS volatility. The Group’s revised ACE target range is
4.00% to 4.75%.
The ACE ratio at 4.7% remains at the upper end of the Group’s targeted capital range. During the year, ACE ratio declined
39 basis points principally due to:#

new capital deductions from adopting AIFRS and APRA’s amendments to the prudential standards on 1 July 2006(-33 basis points);#

net profit after preference share dividends of $3.7 billion (+167 basis points);#

ordinary share dividend payments and commitments, net of Bonus Option Plan and Dividend Reinvestment Plan of$2.1 billion (-95 basis points);#

increase in risk weighted assets, excluding the impact of exchange rate movements (-47 basis points);#

increase in investment/profit retention in funds management businesses and associates (-20 basis points) principally due
to capital injections into PT Panin and Tianjin City Commercial Bank, and profit retention within ING joint ventures;#buy-back of ordinary equity of $146 million (-7 basis points); and#other (-4 basis points) which includes exchange rate movements principally due to a weaker NZ dollar, increase in defined
pension liabilities, 1st loss facility deduction for Collateralised Loan Obligation (CLO), offset by share issuances to staff andoption conversions.

Hybrid Capital and Tier 1 Capital

The Group raises hybrid capital to further strengthen the Group’s capital base and ensure compliance with APRA’s prudential
capital requirements.
There was no issuance of new hybrid capital during the year and, as at 30 September 2006, the Group had three Innovative
Hybrid Capital instruments outstanding:Innovative Hybrid Capital details

ANZ StEPS

US Stapled Trust Security

Amount (in issue currency)$1,000 million

USD1,100 million

Euro Hybrid€500 million

Accounting classification

Debt (post AIFRS)

Debt

EquityRegulatory (APRA) classification

Tier 1

Tier 1

Tier 1

September 2006 balance$1,000 million$1,471 million$871 million

Interest rate

BBSW +1.00%

Tranche 1 Coupon: 4.48%
Tranche 2 Coupon: 5.36%

Euribor +0.66%

On adoption of AIFRS on 1 October 2005 the ANZ StEPS issue was reclassified from equity to debt, however, it continues to
be classified as Innovative Tier 1 capital for regulatory purposes.
Buy-Back of Ordinary Equity

The Group commenced an on-market buy-back of $350 million of ordinary equity on 10 January 2005. The buy-back wascompleted 14 March 2006 with the Group repurchasing 15.7 million shares at an average cost of $22.26 per share.
6.1 million shares were repurchased during the year at an average cost of $24.02 per share, totalling $146 million.
30

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Deferred acquisition costs and deferred income
The Group recognises assets that represent deferred acquisition costs relating to the acquisition of interest earning assets,
and liabilities that represent deferred income relating to income received in advance of services performed.
Deferred acquisition costs

At 30 September 2006 the Group’s assets included $569 million (Mar 2006: $549 million; Sep 2005: $524 million) in relation
to costs incurred in acquiring interest earning assets. During the year, amortisation of $293 million (Sep 2005: $258 million)
was recognised as an adjustment to the yield earned on interest earning assets.
Deferred income

At 30 September 2006, the Group had deferred income of $406 million (Mar 2006: $426 million; Sep 20053: $474 million) in
relation to income received in advance. At 30 September 2006, this includes $3 million (Mar 2006: $5 million; Sep 2005:$3 million) deferred service type fees. These fees are deferred and will be amortised over the period of service under
AASB 118: ‘Revenue’.
At 30 September 2006, fee income of $343 million (Mar 2006: $364 million; Sep 2005: $382 million) that is integral to theyield of an originated financial instrument, net of any direct incremental costs, has been capitalised. This income is deferred
and recognised against net loans and advances over the expected life of the financial instrument under AASB 139: ‘Financial
Instruments: Recognition and Measurement’. At 30 September 2006, the Group’s liabilities included other deferred incomeof $60 million (Mar 2006: $57 million; Sep 2005: $89 million).
The balances of deferred acquisition costs and deferred income at period end were:1

Deferred Acquisition Costs

Deferred Income3
Mar 06 Sep 05

Sep 054

Sep 06$M

Mar 06$M

Sep 05$M

Sep 06

$M

$M

$M

$M

Personal

440

447

435

149

143

140

32

Institutional

21

10

10

212

240

274

36

New Zealand Businesses

80

67

61

42

39

51

15

2

28

25

18

3

4

9

9

Total

569

549

524

406

426

474

92

Other

1.

Deferred acquisition costs largely include the amounts of brokerage capitalised and amortised in the three Business segments: Personal, Esanda and New ZealandBusinesses. Deferred acquisition costs also include capitalised debt raising expenses

2.

Includes Group Centre and Partnerships & Private Bank

3.

Includes fee income of $382 million deferred under AASB 139: ‘Financial Instruments Recognition and Measurement’

4.

Comparative AIFRS (statutory) numbers

Deferred acquisition costs analysis:
September 2006
Amortisation
Capitalised
1
Costs
Costs
Personal

September 2005
Amortisation
Capitalised
1
Costs
Costs

259

264

228

270

Institutional

1

12

6

4

New Zealand Businesses

43

31

50

20

2

2

12

4

-

Total

293

338

258

317

Other

1.
2.

Costs capitalised during the year exclude brokerage trailer commissions paid
Includes Group Centre and Partnerships & Private Bank

Software capitalisation
At September 2006, the Group’s intangibles included $397 million in relation to costs incurred in acquiring and developing
software. Details are set out in the table below:
Half
year
Sep 06
$M

Half
Movt
Sep 06year
Mar 06 v. Mar 06
%
$M

Full
year
Sep 06
$M

Movt
Full
Sep 06year
Sep 05 v. Sep 05%$M

Balance at start of period

390

386

1%

386

436

-11%

Software capitalised during the period

75

62

21%

137

99

38%

Amortisation during the period

(57)

(57)

0%

(114)

(125)

-9%

Software written-off

(9)

(1)

large

(10)

(24)

-58%

(2)
397

390

n/a
2%

(2)
397

386

3%

Other
Total software capitalisation

31

n/a

CHIEF FINANCIAL OFFICER’S REVIEW (continued)

Deferred tax assets (overseas)
Deferred tax assets are recognised using the comprehensive tax balance sheet liability method. They are recognised only tothe extent that it is probable that future taxable profits will be available against which the deductible temporary differences
or unused tax losses can be utilised. The APRA Prudential Standards require net deferred tax assets (net of deferred tax
liabilities) to be deducted from capital. The Prudential Standards only allow netting of deferred tax assets and liabilities for
subsidiaries incorporated outside of Australia under certain limited circumstances.
Overseas deferred tax assets (net of collective provision)
As at
Sep 06$M
New Zealand296

United Kingdom

84

America

25

Other

55

Gross deferred tax asset

460

Less:
Deferred tax asset in respect of overseas collective/general provision(170)

Tier 1 capital deduction

290

32

BUSINESS PERFORMANCE REVIEW

Income Statement (including effect of movements in foreign currencies)
Half
year
Sep 06$M

Net profit after income tax

Half
Movt
year
Sep 06
Mar 06 v. Mar 06
$M
%

Full
year
Sep 06
$M

Full
Movt
year
Sep 06
Sep 05 v. Sep 05$M%

Personal

668

588

14%

1,256

1,033

22%

Institutional

715

681

5%

1,396

1,258

11%

New Zealand Businesses

341

342

0%

683

592

15%

Partnerships & Private Bank

91

78

17%

169

176

-4%

Non-continuing businesses

8

30

-73%

38

126

-70%
large

Group Centre
Net profit before adjustments and non-core items
1

AIFRS 2005 adjustments and non-core items

33

12

large

45

(34)

1,856

1,731

7%

3,587

3,151

14%

21

80

-74%

101

24

large

1,877

1,811

4%

3,688

3,175

16%

1

Net profit

Income Statement (prior period figures adjusted to remove the impact of exchange rate movements2)
Half
year
Sep 06
$M

Half
Movt
Sep 06year
Mar 06 v. Mar 06
%
$M

Full
year
Sep 06
$M

Movt
Full
Sep 06year
Sep 05 v. Sep 05%$M

2

Net profit after income tax
Personal

668

588

14%

1,256

1,034

21%

Institutional

715

670

7%

1,396

1,252

12%

New Zealand Businesses

341

312

9%

683

562

22%

Partnerships & Private Bank

91

78

17%

169

176

-4%

Non-continuing businesses

8

29

-72%

38

125

-70%

Group Centre

33

47

-30%

45

6

large

1,856

1,724

7%

3,587

3,155

14%

21

80

-74%

101

25

large

1,877

1,804

4%

3,688

3,180

16%

-

7

large

-

(5)

-100%

1,877

1,811

4%

3,688

3,175

16%

Net profit before adjustments and non-core items
1

AIFRS 2005 adjustments and non-core items
Net profit

1

2

FX impact on reported net profit
Reported net profit

The Group from time to time modifies the organisation of its businesses to facilitate delivery of the strategic agenda. Prior
period numbers are adjusted for such changes to allow comparability. Significant changes since 31 March 2006 have been:#

A simplified divisional structure was implemented in May 2006:- Personal: Esanda, Small Business and the Pacific have been added to the division. INGA’s operating results are now
included in Partnerships & Private Bank.
- Institutional: Corporate Banking, Business Banking and Personal & Private Banking Asia (including the Asian branch
network) are now part of the Institutional division. In addition, Trade and Transaction Services and the Debt ProductsGroup have been combined into Debt and Transaction Services. The component of Treasury activities in respect ofmanaging interest rate mismatch is now included in Markets.
- New Zealand: UDC is now included in New Zealand Businesses.
- Partnerships & Private Bank: Includes ANZ’s partnerships and investments, including ING Australia, ANZ’sinvestments in Asia, and Private Bank.
- Group Centre: Treasury mismatch activities are now included in Institutional, and INGA’s investment earnings inPartnerships & Private Bank.

#

There were also a number of minor restatements as a result of customer segmentation, changes to internal transfer
pricing methodologies and the realignment of support functions.

1.

ANZ has calculated the 2005 result on an AIFRS basis that is comparable with 2006 (refer page 15), allowing readers to see the impact on 2005 results ofaccounting standards that have only been applied from 1 October 2005. The impact is a reduction of $31 million in 2005 net profit after tax. No adjustment has
been made to retrospectively designate derivatives hedging the Group’s funding on the basis of impracticability
In 2006 ANZ has classified the $113 million ($79 million after tax) settlement of the NHB insurance matter and the $14 million settlement of a dispute with Lloyds
TSB over the accounting treatment of certain items in the completion accounts for the acquisition of National Bank of New Zealand Limited (tax on settlement:$nil) as significant items. In 2005 ANZ classified $14 million after tax profit on the sale of NBNZ life and funds management businesses as a significant item (taxon gain on sale of NBNZ life and funds management businesses: $nil). ANZ excludes significant items to eliminate the distorting effect of one-off transactions on
the results of its core business (refer page 13)
The Group enters into economic hedges to manage its interest rate and foreign exchange risk. In 2006 ANZ has classified $34 million after tax (2005 full year:$31 million; Sep 2006 half: $21 million; Mar 2006 half: $13 million) relating to economic hedging as a non-core item (tax on hedge gains/losses $15 million (2005
full year: $13 million; Sep 2006 half: $10 million; Mar 2006 half: $5 million)). Included in this non-core amount is ineffectiveness arising from designatedaccounting hedges, any volatility arising from usage of the fair value option and approved classes of derivatives in the 2006 year not designated in accounting
hedge relationships but that are considered to be economic hedges. The 2005 year numbers do not include any adjustment to retrospectively calculate the AIFRS
impact on the derivatives associated with the Group’s funding. ANZ excludes volatility associated with fair value movements on these transactions to provide a
better indication of the core business performance (refer page 14)
In 2006 ANZ has incurred $26 million after tax ANZ National Bank incremental integration costs (2005 full year: $52 million; Sep 2006 half: nil; Mar 2006 half:$26 million). Tax on ANZ National Bank incremental integration costs is $13 million (2005 full year: $26 million; Sep 2006 half: nil; Mar 2006 half: $13 million).
ANZ National Bank incremental integration costs are excluded to better reflect the core cost base and assist analysis of the cost base following completion of theintegration
ANZ has removed the impact of exchange rate movements to provide readers with a better indication of the business unit performance in local currency terms.
Retranslation is net of revenue hedge earnings

2.

33

BUSINESS PERFORMANCE REVIEW (continued)

Personal
Brian Hartzer
Half
year
Sep 06
$M

Movt
Half
Sep 06year
Mar 06 v. Mar 06
%
$M

Full
year
Sep 06
$M

Movt
Full
Sep 06year
Sep 05 v. Sep 05
%
$M

1,558

1,455

7%

3,013

2,696

12%

Net interest income
Other external operating income

645

542

19%

1,187

1,019

16%

Operating income

2,203

1,997

10%

4,200

3,715

13%

External operating expenses

(911)

(834)

9%

(1,745)(1,580)10%

Net inter business unit expenses

(167)

(157)

6%

(324)

(310)

5%

Operating expenses(1,078)(991)

9%(2,069)(1,890)9%17%Profit before credit impairment and income tax

1,125

1,006

12%

2,131

1,825

Provision for credit impairment

(173)

(168)

3%

(341)

(351)

-3%

Profit before income tax

952

838

14%

1,790

1,474

21%

Income tax expense and minority interest

(284)

(250)

14%

(534)

(441)

21%

Net profit

668

588

14%

1,256

1,033

22%

Consisting of:
Banking Products

157

139

13%

296

254

17%

Mortgages

187

176

6%

363

299

21%

141

115

23%

256

204

25%

Regional, Rural and Small Business Banking

Consumer Finance

87

80

9%

167

142

18%

Investment and Insurance Products

20

17

18%

37

25

48%

Esanda

56

41

37%

97

87

11%

Pacific

35

30

17%

65

39

67%

1

Other

2

(15)

(10)

50%

(25)

(17)

47%

668

588

14%

1,256

1,033

22%

132,532

125,702

5% 132,532

4,198

3,916

External assets

136,730

129,618

Balance Sheet
Net loans & advances including acceptances
Other external assets

118,587

12%

4,198

3,517

19%

5% 136,730

122,10412%

7%

Deposits and other borrowings

64,977

61,818

5%

64,97758,366

11%

Other external liabilities

2,472

2,200

12%

2,472

1,919

29%

External liabilities

67,44964,0185%

67,44960,285

12%

Risk Weighted Assets

80,40976,3395%

80,40972,094

12%

Ratios
Net interest margin

2.37%

2.36%

2.36%

2.37%

Return on assets

1.00%

0.94%

0.97%

0.90%

Return on risk weighted assets

1.71%

1.59%

1.65%

1.52%

Operating expenses to operating income

48.9%

49.6%

49.3%

50.9%

Operating expenses to average assets

1.61%

1.58%

1.60%

1.64%

Individual provision charge

(145)

(116)

Individual provision charge as a % of average net advances

0.22%

0.19%

Collective provision charge
Collective provision charge as a % of average net advances
Net non-performing loans

(28)

(52)

0.04%

0.09%

64

58

Net non-performing loans as a % of net advances

0.05%

0.05%

Total employees

12,795

12,259

25%
-46%

(261)

(223)

0.21%

0.20%

(80)

(128)

0.06%

0.11%

10%

64

64

0.05%

0.05%

4%

12,79512,0811.

Comprises Rural Commercial & Agribusiness Products and Small Business Banking

2.

Other includes the branch network, whose costs are fully recovered from product business units and marketing and support costs

34

17%
-38%
0%
6%

BUSINESS PERFORMANCE REVIEW (continued)

Personal
Brian Hartzer
2006 result

Profit after tax increased 22% over the year, driven by strong lending and deposit growth across the business, up 12% and
11% respectively, while margin compression was contained at 1 basis point across the division. Market share wasmaintained in retail mortgages and we grew share in retail deposits and personal lending. We continued to increase our
retail footprint through the addition of 25 more branches and the expansion of our ATM network as well as growth in our
specialist sales force. We are making good progress in establishing a strong brand proposition based on delivering “MoreConvenient Banking”, and we continue to lead our major peers in customer satisfaction.
Balance sheet growth drove double digit earnings increases in Mortgages, Consumer Finance, Banking Products and Small
Business Banking, while Regional & Rural Banking earnings benefited from a benign credit environment. Investment andInsurance Products experienced strong growth driven by our financial planning business. Pacific earnings grew 67% fromgood lending growth and low credit costs. Esanda rebounded, growing by 11% as revenue improved in the second half.
Significant factors affecting the result were:#

Overall net interest income increased 12%. Mortgages, Regional & Rural Banking and Small Business Banking net
interest income grew in line with balance sheet growth (overall up 12%) as margins were held. Consumer Finance netinterest income increased 15% with strong balance sheet growth of 21% skewed towards lower margin products.
Banking Products net interest income increased by 9% with good deposit growth of 11% offset by ongoing migration tolower margin products. Pacific net interest income grew by 25% in line with strong balance sheet growth of 24%.
Esanda net interest income increased by 5%.

#

Other operating income increased 16%. Mortgages grew other income 49% on the back of strong sales and lending
volumes and fee initiatives to match competitors. Consumer Finance grew by 15% through stronger issuing and lending
fees and a $9 million profit from the sale of shares received from the MasterCard Initial Public Offering in the second half.
Banking Products grew other income by 17% from higher sales of transaction accounts. Financial planning income was up
28% as more planners generated higher sales volumes. Small Business Banking and Pacific grew other income by 8% and
7% respectively, Regional & Rural Banking grew other income by 1%, while Esanda contracted other income by 1% due
to a $6 million impact from a fall in second hand car prices.

#

Operating costs increased 9%. Investment continued in expanding the footprint through the addition of 25 morebranches, a further 330 ATMs and significant additions to our frontline staff. Operating costs also increased due to higher
marketing and project spend and annual salary rises.

#

Overall credit costs reduced 3% largely as a result of the provisions taken into account in 2005 for the impact of higher oil
prices on consumer’s debt servicing capacity, coupled with the effectiveness of improved collections strategies.

#

Individual provisions were 17% higher primarily in our credit card business reflecting growth in the size of the book,particularly in low rate cards, which have a marginally higher risk profile.

Comparison with March 2006 half

Overall profit after tax increased 14% driven by strong income performance and investment in the business.
Operating income was up 10% driven by strong volume and fee growth across all businesses. Revenues increased by 8% in
Mortgages, 14% in Consumer Finance (including the profit on sale of MasterCard shares), 10% in Banking Products, 8% in
Regional & Rural Banking, 9% in Small Business Banking, 11% in Esanda, 9% in Pacific and 16% in Investment andInsurance Products from strong sales through the tax year end from our financial planners.
Operating expenses increased 9% due to higher numbers of front line staff to service increased business volumes, ongoinginvestment in the branch network, investment in chip technology in the Cards business and increased marketing spend as wework to create our distinctive customer proposition focused around More Convenient Banking.

35

BUSINESS PERFORMANCE REVIEW (continued)

Personal
Brian Hartzer
Personal division by business unit

Full Year Sep 2006
Revenue

Banking Products

Expenses

PBP1

Growth Rate
2

CreditNPAT

Revenue

Expenses

2

PBP1

Credit

NPAT

945

517

428

6

296

11%

8%

15%

-40%

17%

Mortgages

1,006

473

533

14

363

15%

8%

21%

8%

21%

Consumer Finance

1,006

421

585

219

256

15%

8%

21%

14%

25%

Rural Commercial &Agribusiness Products

281

110

171

4

116

10%

11%

9%

-79%

20%

Small Business Banking

171

90

81

8

51

12%

10%

16%

14%

16%

Investment &Insurance Products

179

127

52

-

37

23%

17%

49%

-100%

48%

Esanda

394

165

229

90

97

4%

2%

5%

-3%

11%

Pacific

213

123

90

-

65

18%

14%

25%

-100%

67%

Other

3

Personal Division

5

43

(38)

-

(25)

n/a

72%

52%

n/a

47%

4,200

2,069

2,131

341

1,256

13%

9%

17%

-3%

22%

Half Year Sep 2006
Banking Products

Growth Rate (on March 2006 half)

Revenue

Expenses

PBP1

Credit2

NPAT

Revenue

Expenses

PBP1

Credit

2

NPAT

495

265

230

6

157

10%

5%

16%

n/a

13%

Mortgages

521

246

275

9

187

8%

8%

7%

50%

6%

Consumer Finance
Rural Commercial &Agribusiness Products

535

223

312

110

141

14%

13%

14%

1%

23%

146

58

88

2

60

8%

12%

6%

0%

5%

Small Business Banking
Investment &Insurance Products

89

46

43

3

27

9%

5%

13%

-25%

17%

96

68

28

-

20

16%

15%

17%

n/a

18%

Esanda

208

84

124

42

56

11%

4%

17%

-13%

37%

Pacific

111

62

49

1

35

9%

2%

20%

large

17%

3

2

26

(24)

-

(15)

-33%

53%

71%

n/a

50%

2,203

1,078

1,125

173

668

10%

9%

12%

3%

14%

Other

Personal Division
1.

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

2.

Credit impairment expense

3.

Other includes the branch network, whose costs are fully recovered from product business units and marketing and support costs

36

BUSINESS PERFORMANCE REVIEW (continued)

This page has been left blank intentionally37

BUSINESS PERFORMANCE REVIEW (continued)

Institutional (Continuing)
Steve Targett
Half
year
Sep 06$M
Net interest income

1,070

Other external operating income

Movt
Half
Sep 06year
Mar 06 v. Mar 06
%
$M

Full
year
Sep 06
$M

Movt
Full
Sep 06year
Sep 05 v. Sep 05
%
$M

999

7%

2,069

1,873

10%
5%

600

660

-9%

1,260

1,204

Operating income

1,670

1,659

1%

3,329

3,077

8%

External operating expenses

(521)

(499)

4%

(1,020)

(922)

11%

Net inter business unit expenses

(130)

(133)

-2%

(263)

(232)

13%

Operating expenses

(651)

(632)

3%

(1,283)(1,154)

11%

Profit before credit impairment and income tax

1,019

1,027

-1%

2,046

1,923

6%

(7)

(51)

-86%

(58)

(136)

-57%

Profit before income tax

1,012

976

4%

1,988

1,787

11%

Income tax expense and minority interest

(297)

(295)

1%

(592)

(529)

12%

Net profit

715

681

5%

1,396

1,258

11%

315

299

5%

614

624

-2%

140

152

-8%

292

259

13%

Provision for credit impairment

Consisting of:
Debt & Transaction Services
Markets

1

2

Corporate and Structured Financing

110

94

17%

204

144

42%

Business Banking

103

102

1%

205

178

15%

Corporate Banking

94

85

11%

179

151

19%

(47)

(51)

-8%

(98)

(98)

0%

715

681

5%

1,396

1,258

11%

Other

3

Balance Sheet
Net loans & advances including acceptances

72,57670,463

3%

72,576

66,378

9%

Other external assets

46,52851,029-9%46,52838,69720%

External assets

119,104

121,492-2% 119,104

105,075

13%

Deposits and other borrowings

65,80861,5787%

65,80854,721

20%

Other external liabilities

42,87846,293-7%42,87836,90316%

External liabilities

108,686

107,871

1% 108,686

91,62419%

Risk Weighted Assets

106,050

104,729

1% 106,050

96,843

10%

1.93%

1.93%

1.93%

2.12%

Ratios
Net interest margin
Return on assets

1.15%

1.22%

1.19%

1.31%

Return on risk weighted assets

1.34%

1.34%

1.34%

1.40%

Operating expenses to operating income

39.0%

38.1%

38.5%

37.5%

Operating expenses to average assets

1.05%

1.14%

1.09%

1.20%

7

(56)

-0.02%

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 non-performing loans

(14)

5

0.04%

-0.01%

267

279

Net non-performing loans as a % of net advances

0.37%

0.39%

Total employees

5,675

5,397

large
large
-4%
5%

(49)

(62)

0.07%

0.10%

(9)

(74)

0.01%

0.12%

267

161

0.37%

0.24%

5,675

5,318

-21%
-88%
66%
7%

1.

Debt and Transaction Services consists of the Debt Product Group and Trade and Transaction Services

2.

Markets includes interest rate mismatch component of Treasury result. NPAT for 2006 was $13 million (2005: $15 million; Sep 2006: $6 million; Mar 2006:$7 million)

3.

Other includes Client Relationship Group and Personal and Private Banking Asia. Client Relationship Group carries the relationship management costs associatedwith Institutional customers, with associated revenue booked in the product businesses

38

BUSINESS PERFORMANCE REVIEW (continued)

Institutional (Continuing)
Steve Targett
2006 result

Profit after tax increased by 11% with revenue growth of 8% a good outcome. We continued to invest in our business, withexpenses growing 11% as we lifted the skills base and improved systems. The balance sheet is being more actively
managed, through mechanisms such as the recent successful Collateralised Loan Obligation (CLO), with risk weighted assets
growing by only 1% in the second half. Credit quality remained strong throughout the year. All businesses achieved annual
profit growth rates in excess of 10%, except for the Debt Products Group, which holds the lending assets for large
institutional clients. Business Banking and Corporate Banking profit grew 15% and 19% respectively with sound lending anddeposit growth, and a reduction in credit impairment expenses. Trade and Transaction Services profit increased by 16%
from higher global Trade Finance and Clearing Services volumes and the release of revenue related to prior years. Corporate
and Structured Financing profit increased 42% as deal flow volumes increased and credit impairment expense reduced after
the write-back of several individual provisions. Markets’ profit increased by 13% with continuing revenue growth from sales
activity and a particularly strong first half trading result. These strong performances were offset by the Debt Product Group,
where a net profit decline of 10% resulted from declining margins, constrained balance sheet growth and a modest increase
in individual provisions after write-backs in 2005.
Profit before credit impairment and income tax, adjusting for the impact of exchange rate movements, increased 7%.
Significant factors affecting the result were:#

Net interest income grew by 10%. Average net lending assets increased 14%, while average deposit volumes increased
15%. The net interest margin decreased 19 basis points due to competition, run-off of higher margin assets and changes
in business mix. Debt and Transaction Services increased 7% due to higher deposit volumes and the release of revenue
related to prior years, offset by margin compression in the lending portfolio. Business Banking increased 8%, with 13%
average lending growth and 11% average deposit growth, offsetting a 20 basis point decline in margins. Corporate
Banking increased 5%, with average lending growth of 10% and average deposit growth of 12% offsetting a 7 basis point
margin decline. Markets net interest income increased $47 million, from increased trading securities income andcollateral volumes.

#

Other operating income increased 5%, with an 8% increase in Markets from a strong first half result. Higher custodian
fees and foreign exchange revenue in Debt and Transaction Services was partially offset by mark to market adjustmentson hedges of the lending book. Corporate and Structured Financing increased 5%, with higher income from structured
finance transactions. Business Banking and Corporate Banking grew 10% and 8% respectively, due to higher volumes.

#

Operating expenses increased 11%, reflecting increased investment in personnel. Personnel numbers increased by 357,
and we have focussed on providing training for current staff and selective recruitment to cover skill gaps. We are also
investing in new IT platforms in our Markets and Transaction Services businesses.

#

Provision for credit impairment decreased by $78 million. This was driven by both lower collective and individual
provision charges, following a combination of improved credit quality, high debt recoveries and collective provisions
raised in 2005 for portfolio deterioration in segments identified as being most vulnerable to higher oil prices. Net
non-performing loans increased largely due to two accounts in Australia and New Zealand being downgraded in the March
2006 half.

Comparison with March 2006 half

Profit after tax increased by $34 million (5%). Profit before credit impairment and income tax, adjusting for the impact of
exchange rate movements, increased 1%.
Operating income increased by 1%. Revenue in Corporate and Structured Financing increased 13% with solid deal flow inthe second half. Business Banking increased 4% with lending and deposit growth offsetting margin declines. Corporate
Banking increased 3% due to lending and deposit growth. Lower revenue in Debt and Transaction Services was due to lower
margins in the Debt Product Group, and the release of revenue related to prior years in the first half. Markets’ operating
income reduced by 2%, with higher revenue from sales offset by lower trading income in less favorable trading conditions in
all markets.
Operating expenses increased 3% due to on-going investment in filling capability gaps and investing in systems. However,other discretionary costs were well controlled.
Provisions for credit impairment decreased $44 million. Individual provisions decreased due to ongoing debt recoveries andno large new provisions in the second half. The collective provision increased $19 million primarily from volume growth.

39

BUSINESS PERFORMANCE REVIEW (continued)

Institutional (Continuing)
Steve Targett
Institutional division by business unit

Full Year Sep 2006

Growth Rate
2

2

Revenue

Expenses

PBP1

CreditNPAT

Revenue

Expenses

PBP1

CreditNPAT

Trade andTransaction Services

631

299

332

(8)

238

15%

18%

11%

large

16%

Debt Product Group

591

15

576

37

376

-4%

36%

-5%

large

-10%

Markets

700

286

414

(4)

292

15%

13%

16%

-69%

13%

Corporate andStructured Financing

411

138

273

(6)

204

12%

10%

13%

large

42%

Business Banking

503

189

314

21

205

8%

6%

9%

-34%

15%

Corporate Banking

435

164

271

18

179

5%

12%

2%

-65%

19%

58

192

(134)

-

(98)

5%

3%

2%

n/a

1%

3,329

1,283

2,046

58

1,396

8%

11%

6%

-57%

11%

Revenue

Expenses

PBP1

CreditNPAT

Revenue

Expenses

PBP1

CreditNPAT

Trade andTransaction Services

311

147

164

(14)

124

-3%

-3%

-2%

large

9%

Debt Product Group

286

9

277

3

191

-6%

50%

-8%

-91%

3%

Markets
Corporate andStructured Financing

347

148

199

-

140

-2%

7%

-7%

-100%

-8%

219

72

147

(3)

110

13%

9%

16%

0%

17%

Business Banking

257

96

161

14

103

4%

3%

5%

100%

1%

Corporate Banking

221

81

140

7

94

3%

-1%

6%

-36%

11%

29

98

(69)

-

(47)

12%

3%

0%

n/a

-8%

1,670

651

1,019

7

715

1%

3%

-1%

-86%

5%

Other

3

Institutional

Half Year Sep 2006

Other

3

Institutional

Growth Rate (on March 2006 half)
2

1.

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

2.

Credit impairment expense

3.

Other includes Personal & Private Banking Asia and Client Relationship Group

40

2

BUSINESS PERFORMANCE REVIEW (continued)

This page has been left blank intentionally41

BUSINESS PERFORMANCE REVIEW (continued)

New Zealand Banking1 (NZ Businesses and NZ Institutional)
Graham Hodges
Half
year
Sep 06NZD M
Net interest income

Movt
Half
Sep 06year
Mar 06 v. Mar 06
%
NZD M

Full
year
Sep 06
NZD M

Movt
Full
Sep 06year
Sep 05 v. Sep 05
%
NZD M

1,031

945

9%

1,976

1,835

8%

363

417

-13%

780

736

6%

Operating income

1,394

1,362

2%

2,756

2,571

7%

External operating expenses

(608)

(600)

1%

(1,208)(1,138)

6%

Other external operating income

Net inter business unit expenses

(25)

(21)

19%

(46)

(43)

7%

Operating expenses

(633)

(621)

2%

(1,254)(1,181)

6%

Profit before credit impairment and income tax

761

741

3%

1,502

1,390

8%

(5)

(15)

-67%

(20)

(157)

-87%

Provision for credit impairment
Profit before income tax

756

726

4%

1,482

1,233

20%

Income tax expense and minority interest

(243)

(233)

4%

(476)

(394)

21%

Net profit (NZD)

513

493

4%

1,006

839

20%

Net profit (excluding Institutional Continuing) (NZD)

404

376

7%

780

642

21%

Net profit (excluding Institutional Continuing) (AUD)

341

342

0%

683

592

15%

Consisting of:
ANZ Retail

107

98

9%

205

191

7%

The National Bank Retail

138

128

8%

266

219

21%

Rural Banking

48

44

9%

92

84

10%

Corporate & Commercial Banking

93

79

18%

172

85

large

UDC

14

13

8%

27

36

-25%

4

14

-71%

18

27

-33%

109

117

-7%

226

197

15%

2

Central Support

New Zealand Institutional (Continuing)
New Zealand Banking

513

493

4%

1,006

839

20%

New Zealand Businesses (excluding Institutional Continuing)

404

376

7%

780

642

21%
13%

Balance Sheet
Net loans & advances including acceptances

77,99873,932

5%

77,99869,248Other external assets

13,387

15,503-14%

13,387

12,7485%

External assets

91,38589,4352%

91,38581,996

11%

Deposits and other borrowings

63,17661,752

2%

63,17659,943

5%

Other external liabilities

17,411

16,565

5%

17,411

13,32231%

External liabilities

80,58778,317

3%

80,58773,265

10%

Risk Weighted Assets

68,39165,097

5%

68,39160,165

14%

2.34%

2.33%

2.34%

2.55%

Ratios
Net interest margin
Return on assets

1.11%

1.16%

1.13%

1.12%

Return on risk weighted assets

1.49%

1.60%

1.54%

1.54%

Operating expenses to operating income

45.4%

45.6%

45.5%

45.9%

Operating expenses to average assets

1.37%

1.47%

1.41%

1.58%

(7)

(23)

0.02%

0.06%

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 non-performing loans

28-0.01%-0.02%

93

119

Net non-performing loans as a % of net advances

0.12%

0.16%

Total employees

9,393

9,238

1.
2.

-70%
-75%
-22%
2%

(30)

(116)

0.04%

0.18%

10

(41)

-0.01%

0.06%

93

129

0.12%

0.19%

9,393

9,333

-74%
large
-28%
1%

Excludes non-continuing businesses, integration and central funding. For a reconciliation of New Zealand Banking results to the New Zealand Geographic results
refer page 57
Central support includes Treasury, INGNZ and shared services

42

BUSINESS PERFORMANCE REVIEW (continued)

New Zealand Banking
Graham Hodges
2006 result

Profit after tax for New Zealand Banking increased 20% (NZD167 million) over the year, assisted by a NZD92 million after
tax reduction in credit impairment expense. Overall, the business is showing promising momentum and has a clear strategy
to build on this momentum. The business continues to experience robust lending growth, good credit quality, and the levelof interest margin decline has moderated.
Growth in profit before credit impairment and income tax was strong in The National Bank Retail (11%) due to other income
growth, Corporate & Commercial Banking (11%) and Rural Banking (9%) due to strong lending growth. NZ Institutional
Continuing Businesses growth was 25% due to a strong Markets performance. ANZ Retail improved marginally (2%) withgrowth constrained in other operating income and expenses impacted by the additional costs of operating domestic systems
in New Zealand (NZD10 million). UDC’s results were disappointing, with fierce competition and sales force restructuring
adversely impacting growth. A number of actions are underway in UDC to return the business to profitable growth.
The results of the Retail Banks include the cost for compensation to customers relating to a Commerce Commission action on
disclosure of optional issuer fees (-NZD10 million) and income recognised as a result of the MasterCard Initial Public Offer(+NZD5 million).
Total revenue included additional net integration revenue synergies of NZD24 million, whilst total costs included additional
net cost synergies of NZD10 million.
Key influences on the result include the following:#

Net interest income increased 8%. Lending volumes increased 13% driven by double-digit growth in ANZ Retail (15%),
The National Bank Retail (10%), Corporate & Commercial Banking (20%) and Rural (16%). This was partly offset by areduction of 7% in UDC due to fierce competition and sales force restructuring. Deposit volumes increased 5%, withstrong growth in Corporate & Commercial Banking (19%), ANZ Retail (11%), The National Bank Retail (7%) and Rural
Banking (2%). Treasury deposits reduced by 29% offset by the growth in other external liabilities driven by a shift tolonger term wholesale funding. Net interest margin reduced by 21 basis points, driven by competition and product mix
changes; the mix factors included customer migration from variable rate to fixed rate mortgages, increased requirement
for wholesale funding, and growth in lower margin at call products (including ANZ On-line Call) and term deposit
products. ANZ Retail net interest margin reduced by 22 basis points, The National Bank Retail by 18 basis points and NZ
Institutional Continuing Businesses by 14 basis points. These declines occurred primarily in the first half.

#

Other external operating income increased 6% largely due to the strong result in New Zealand Institutional Continuing(15%), mainly from the Markets business. Other income in The National Bank Retail increased by 21%, with growthacross lending, card and transactional fees as well as commission income. UDC other income reduced 83%, withperformance impacted by the transition to a restructured sales team and strong competitive pressures, and the 2005
result including a one-off benefit from an accounting policy change.

#

Operating expenses increased 6%. Increases in frontline and customer support staff, salary increases, the cost of theCommerce Commission settlement (NZD10 million), and the cost of operating domestic systems in New Zealand(NZD10 million) were partly offset by a 6% reduction in support staff, and control of discretionary expenditure.

#

Provision for credit impairment decreased by NZD137 million. This was driven by both lower collective and individual
provision charges, following a combination of increased lending volumes being offset by individual provisions raised forcorporate accounts and exposures to the apple and pear export industry in 2005, an improved credit risk profile (anincreased proportion of low risk residential and rural lending) and collective provisions raised in 2005 for portfolio
deterioration in segments identified as being most vulnerable to higher oil prices. Net non-performing loans reduced
NZD36 million (28%) with credit conditions remaining generally benign.

Comparison with March 2006 half

Profit after tax increased 4%, with growth in ANZ Retail (9%), The National Bank Retail (8%), Rural Banking (9%), andCorporate Banking (18%). This was partially offset by a reduction in NZ Institutional Continuing Businesses (-7%) with thestrong first half performance from the Markets business not matched in the second half.
#

Net interest income increased 9%. Lending volumes increased 5%, with good growth in all businesses apart from UDC,
and NZ Institutional Continuing Businesses which were impacted by repayments. Deposits grew 2% with strong growth in
ANZ Retail, The National Bank Retail and Rural Banking, offset by a reduction in Treasury of 12%. The level of interest
margin decline has moderated in all businesses, and in NZ Institutional Continuing Businesses margins improved. Thiswas due to a sharp decline in exchange rates during the March half which resulted in an additional NZD32 million interest
income being earned on swap transactions in the September half, however, trading losses offset the interest income.

#

Other operating income reduced 13%, mainly driven by NZ Institutional Continuing Businesses, with the exceptional
Markets performance in the first half not matched. Other income in The National Bank Retail increased 9%, with growthacross lending, cards and transactional fees. Fee income in other businesses was constrained by competitive pressures.

#

Operating expenses increased 2% with salary and rental increases offset by control of discretionary expenditure and with
the NZD10 million cost associated with the Commerce Commission settlement impacting the March 2006 half result.

#

Provision for credit impairment decreased NZD10 million. The individual provision charge reduced NZD16 million largely
reflecting provisioning for an isolated loss in the March 2006 half, and the collective provision charge increased by
NZD6 million. Net non-performing loans reduced 22%.
43

BUSINESS PERFORMANCE REVIEW (continued)

New Zealand Banking
Graham Hodges
New Zealand Banking by business unit

Full Year Sep 2006 (NZD M)
Revenue

Expenses

PBP

1

CreditGrowth Rate
2

NPAT

Revenue

Expenses

1

PBP

Credit2

NPAT

ANZ Retail

744

428

316

13

205

4%

5%

2%

-48%

7%

The National Bank Retail

849

450

399

2

266

8%

5%

11%

-94%

21%

Rural Banking

215

78

137

1

92

5%

1%

9%

0%

10%

Corporate &Commercial Banking

366

120

246

(11)

172

11%

10%

11%

large

large

UDC

88

45

43

2

27

-25%

0%

-41%

-89%

-25%

Central Support

26

9

17

-

18

-30%

-10%

-37%

n/a

-33%

New Zealand Institutional

468

124

344

13

226

23%

19%

25%

large

15%

New Zealand Banking

2,756

1,254

1,502

20

1,006

7%

6%

8%

-87%

20%

New ZealandBusinesses (excluding
Institutional
Continuing)

2,288

1,130

1,158

7

780

4%

5%

4%

-96%

21%

Half Year Sep 2006 (NZD M)

Growth Rate (on March 2006 half)

Revenue

Expenses

PBP

1

Credit2

NPAT

Revenue

Expenses

PBP

Credit2

NPAT

ANZ Retail

379

214

165

7

107

4%

0%

9%

40%

9%

The National Bank Retail

435

226

209

4

138

5%

1%

11%

large

8%

Rural Banking

111

39

72

1

48

7%

0%

11%

n/a

9%

Corporate &Commercial Banking

189

61

128

(11)

93

7%

3%

8%

n/a

18%

UDC

44

22

22

1

14

0%

-4%

5%

-50%

8%

Central Support

12

9

3

-

4

-14%

n/a

-79%

n/a

-71%

New Zealand Institutional

224

62

162

3

109

-8%

0%

-11%

-70%

-7%

New Zealand Banking

1,394

633

761

5

513

2%

2%

3%

-67%

4%

New ZealandBusinesses (excluding
Institutional
Continuing)

1,170

571

599

2

404

5%

2%

7%

-60%

7%

1.

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

2.

Credit impairment expense1

ING New Zealand joint venture

In September 2005 ANZ National Bank Limited entered into a joint venture with ING Insurance International Limited (INGII).
The joint venture, ING (NZ) Holdings Ltd (INGNZ), is 49% owned by ANZ National Bank Limited and 51% owned by INGII.
For 2006 full year, INGNZ contributed NZD22 million in equity accounted earnings (2005 full year: NZD29 million (prior to
the establishment of the joint venture, this was reported between INGA and NZ Businesses); Sep 2006 half: NZD10 million;
Mar 2006 half: NZD12 million). The September 2006 half contribution was marginally down on the March half due to a
one-off compensation payment for the cancellation of a property management contract. INGNZ is reported as part of Central
Support within the New Zealand Businesses.

44

BUSINESS PERFORMANCE REVIEW (continued)

This page has been left blank intentionally45

BUSINESS PERFORMANCE REVIEW (continued)

Partnerships & Private Bank
Bob Edgar
Halfyear
Sep 06$M
Net interest income

40

Half
Movt
year
Sep 06
Mar 06 v. Mar 06
$M
%
33

Full
year
Sep 06
$M

21%

73

Full
Movt
year
Sep 06
Sep 05 v. Sep 05
$M
%
62

18%

Other external operating income

103

87

18%

190

178

7%

Operating income

143

120

19%

263

240

10%

External operating expenses

(44)

(42)

5%

(86)

(71)

21%

Net inter business unit expenses

13

11

18%

24

21

14%

Operating expenses

(31)

(31)

0%

(62)

(50)

24%

Profit before credit impairment and income tax

112

89

26%

201

190

6%

Provision for credit impairment

(16)

(9)

78%

(25)

(17)

47%

Profit before income tax

96

80

20%

176

173

2%

Income tax expense and minority interest

(5)

(2)

large

(7)

3

large

Net profit

91

78

17%

169

176

-4%

64

58

10%

122

128

-5%

18

14

29%

32

42

-24%

Consisting of:
1

INGA

1

International Partnerships
2

Other

Total employees
1.
2.

9

6

50%

15

6

large

91

78

17%

169

176

-4%

635

533

19%

635

494

29%

INGA, PT Panin, Metrobank Card Corporation and Tianjin City Commercial Bank are equity accounted. Indonesia Cards and ANZ Royal are controlled entities
Other comprises Private Bank and Support Units

2006 result

Profit after tax decreased 4%. Strong underlying performance in the Cards and Private Bank businesses were offset by lower
equity accounted earnings for PT Panin Bank and the expiration of transitional tax relief and lower capital investment
earnings in INGA. The impact of exchange rate movements was immaterial. The INGA result is further explained on
pages 47 to 49. Significant influences on the result were:#

Net interest income increased 18% ($11 million), driven by strong volume growth in Indonesia Cards and the first fullyear of operations in Cambodia.

#

Other external operating income increased 7% ($12 million).
Cards other income increased $12 million. A 37% increase in cards issued drove fee income up 62% in Indonesia Cards
and contributed to significant growth in Metrobank equity accounted income. New partnerships increased income by$7 million driven by equity accounted income from Tianjin City Commercial Bank, and the first full year of operations in
Cambodia with deposit volumes well ahead of expectations. ANZ Private Bank other income increased 41% reflecting theimpact of cross sell initiatives. INGA income increased $4 million with a 12% increase in operating profit partly offset by
the impacts of the expiration of transitional tax relief in 2005 and lower capital investment earnings net of the capital
investment hedge.
These increases were partially offset by a $15 million reduction in equity accounted income from PT Panin, reflecting thedifficult economic conditions during the latter part of 2005 and reduced bond sales.

#

Operating expenses increased 24% as a result of the first full year of operations in Cambodia, increased business activity
in the Cards business in Indonesia and ongoing investment across the Private Bank and International Partnershipbusinesses. Net inter business unit expenses include a credit for inter business unit commission revenue generated by
Private Bank which was up 20% for the year primarily due to increased Mortgage commissions (up 25%), consumer
deposit commissions (up 23%) and margin lending commissions (up 26%).

#

Provision for credit impairment increased $8 million largely due to regulatory changes in Indonesia impacting the cards
portfolio.

#

Income tax expense increased $10 million mainly due to the impact of the tax benefit from capital investment hedges inrespect of INGA in 2005. ANZ ceased hedging INGA’s capital investment earnings from 1 October 2005.

Comparison with March 2006 half

Profit after tax increased 17%. Net interest income increased $7 million (21%) primarily due to volume growth in Indonesia
Cards. Other operating income increased $16 million (18%) due to increased INGA equity accounted income reflecting
higher funds under management, equity accounted income from the new Tianjin City Commercial Bank partnership andincreased fee and other income from card’s volume growth in Indonesia and the Philippines. Operating expenses were flatreflecting absorption of cost increases despite continued investment in the second half. Provision for credit impairment
increased $7 million due to the impact of regulatory changes in Indonesia.
46

BUSINESS PERFORMANCE REVIEW (continued)

Partnerships & Private Bank
Bob Edgar
ING Australia performance

The results in the table below show the performance of INGA on a fully comparable AIFRS basis, other than the full year to
September 2005 which adopts AIFRS from 1 January 2005 (i.e. commencement of INGA’s financial year). In addition, theresults have been restated to exclude net profits from the New Zealand business that INGA sold in September 2005, which
are included in New Zealand Businesses.

Funds management income

Half
year
Sep 06
$M
237

Half
year
Mar 06
$M
208

112
112

Movt
Sep 06v. Mar
06
14%

Full
year
Sep 06
$M
445

Full
Movt
year
Sep 06
Sep 05 v. Sep 05
$M
%
368
21%

107

5%

219

214

2%

15
122

-100%
-8%

15
234

6
220

large
6%
15%

Life Risk Income- income- assumption changes

1

Total Income

349

330

6%

679

588

Funds management expenses

(139)

(136)

2%

(275)

(240)

15%

Life Risk expenses

(63)

(64)

-2%

(127)

(97)

31%

(15)

(24)

-38%

(39)

(38)

3%

(34)

(18)

89%

(52)

(76)

-32%

98
-

88
-

11%

186
-

137
29

36%

98

88

11%

186

166

12%

Remediation expenses

2

Gross tax on operating profit

3

Operating profit after tax, before TTR
3Transitional tax relief (TTR)
Operating profit after tax before
capital investment earnings
4
Capital investment earnings after tax
Profit after tax

29

28

4%

57

133

-57%

127

116

9%

243

299

-19%

ANZ share of INGA earnings @ 49%
JV operating profit

48

43

12%

91

81

12%

JV capital investment earnings

14

14

0%

28

66

-58%

62

57

9%

119

147

-19%

-

-

-

(21)

ANZ capital hedges

5

Net funding

2

1

Net return to ANZ

64

58

1,462
8.5%

Carrying value of investment

6

Annualised return on ANZ investment

6

3

2

122

128

1,407

1,462

1,392

8.1%

8.1%

10.5%

10%

-5%

Performance measures for ING Australia
7

47

34

81

62

58%

60%

59%

59%

38,84933,731

15%

38,84931,696

23%

842

415

large

1,257

475

large

Total in-force

596

536

11%

596

496

20%

New premiums

103

65

58%

168

115

46%

Sep 06$M

Inflows

Outflows

Other
flows

Sep 05$M

OneAnswer

14,076

4,088(2,304)838

11,454

Other Personal Investment

8,959

518

(1,707)

659

9,489

Mezzanine

2,630

703

(697)

198

2,426

Employer Super

9,352

1,615

(1,077)

487

8,327

Oasis
Total

3,832
38,849

453
7,377

(335)
(6,120)

3,714
5,896

31,696

Value of new business
Cost to income

8

Funds Management
Retail & mezzanine funds under management
Net retail & mezzanine flows
Life Risk

Funds management growth (Retail & mezzanine)

1.
2.
3.
4.

5.

6.

7.

8.
9.

9

Gains or losses arising from a change in valuation methods and best estimate assumptions
Remediation expenses represent costs incurred in rectifying historical unit pricing errors and fully compensating customers
Transitional tax relief for life insurance companies discontinued with effect from 1 July 2005
On 30 September 2005 ING Australia sold its New Zealand based businesses to a joint venture between ING Group and ANZ National Bank (further details arecontained on page 44). As a result, prior period profits relating to the sold operations (Sep 2005: $4 million; Mar 2005: $4 million) are now reflected in the ING
NZ joint venture
In 2005, ANZ partially hedged against volatility in this income stream and, as a result, gains in capital investment earnings were partially offset by hedge losses.
ANZ ceased hedging capital investment earnings from 1 October 2005
ANZ adopts the equity method of accounting for its 49% interest in INGA. The carrying value of the investment in INGA has been tested for impairment bycomparing the carrying value with the recoverable amount of INGA. The Group engaged Ernst & Young ABC Limited (EY ABC) to provide an independent valuationof INGA for 31 March 2006 assessment purposes (the recoverable amount), and there has been no evidence of subsequent impairment. The independent
economic valuation was based on a discounted cash flow approach, with allowance for the cost of capital. Based on the results of this valuation, no change isrequired to the carrying value of the investment in INGA
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. Consistent value factors are applied across all reporting periods
Cost to Income ratio is management expenses (excluding Remediation Expenses) / Total Income
Other Flows includes investment income net of taxes, fees and charges (and the acquisition of Oasis)

47

BUSINESS PERFORMANCE REVIEW (continued)

Partnerships & Private Bank
Bob Edgar
ING Australia performance, cont’d
2006 result

Highlights of the year included the successful launch and subsequent strong sales of INGA’s new retail risk product ‘OneCare’and improvements in sales and retention of retail and mezzanine funds under management. The increased inflows occurred
mainly in INGA’s flagship platform product ‘OneAnswer’. INGA also acquired majority ownership of Oasis Asset Management,a rapidly growing provider of badged platform products to non-aligned advisers, with effect from 1 May 2006. The acquisition
serves to strengthen INGA’s position in the open market.
Substantial progress was made in resolving remediation issues. This work is well advanced.
INGA continues to hold strong market shares in its chosen segments. Net flows growth within the Personal Investments
business has outpaced the market with a 96% uplift in the year to June 2006 compared with industry growth of 36%. The
Employer Super business maintained its #3 ranking for inflows and market share (13%) within the small-medium enterprises
masterfund segment. The success of OneCare has translated into increased market share in individual life risk new annual
premiums, from 8.3% in 2005 to 13.4% in the year to June 2006. INGA enjoyed the highest growth in new annual premium
among the major institutions in the industry. (Source of market statistics: Plan For Life)A core component of INGA’s strategy has been to grow the number of aligned advisers. Following the acquisition of the
Synergy dealer group in October 2005 and continued organic growth in the aligned dealer groups in 2006, the total numberof INGA aligned advisers has grown to 1,145. This represents a year-on-year increase of 142 planners, of which ANZ
financial planners contributed 47. INGA ranks 4th in the industry for adviser numbers, with the largest growth amongst the
major institutions.
Profit after tax was 19% lower due to lower capital investment earnings. Operating profit after tax increased by 12% on
2005. Significant influences included:#

Funds management income increased by 21% based on higher average funds under management underpinned by strong
investment markets, and improved net flows in both personal investments and employer super businesses. This increase
was achieved in an environment of increasing pressure on margins. The Oasis acquisition added $11 million of funds
management income in the half year to 30 September.

#

Risk income was 6% higher than full year 2005, driven by strong growth in premium income in both term life andconsumer credit, together with continued favourable mortality and morbidity experience profits.

#

Funds management expenses increased by 15% mainly due to higher spend on customer service and five months of Oasis
expenses. Life risk expenses increased due to costs incurred in developing the new OneCare product and higher nondeferrable acquisitions costs due to the significantly higher sales volume in 2006. Remediation expenses are at similarlevels to the previous year and are not expected to continue beyond the end of the calendar year.

#

Tax on operating profit (including transitional tax relief) increased 11% due to profit growth and the impact of the loss oftransitional tax relief for life companies from 1 July 2005, offset by favourable one-off tax treatments in the March 2006
half year.

#

Capital investment earnings after tax were lower than the previous year due to:- the recognition of held-for-trading investment returns, and margin on service (MOS) actuarial reserving treatment for
the quarter ended 31 December 2004 (IFRS was adopted from 1 January 2005),- a $500 million capital repayment to shareholders made on 31 December 2004, resulting in lower average capital
invested in 2006, and- lower average yields across various asset classes in which shareholder capital is invested.

#

Note: the 2005 comparative figures have been compiled on an AGAAP basis for the first 3 months and an AIFRS basis forthe last 9 months. This was due to AASB 1 which required ANZ to commence reporting AIFRS numbers from the joint
venture's transition date of 1 January 2005. The impact of this is that the 2005 NPAT result is boosted by $13 million of
unrealised investment earnings that would not be recognised under AIFRS accounting.

The balance of unrealised gains on available for sale securities at 30 September 2006 was $13.3 million (30 September
2005: $13.0 million).
Adviser numbers (by Dealer Group)

Sales by Channel

Sep 06

Sep 05Mvmt

ANZ Financial Planning

374

327

14%

RetireInvest

205

203

1%

Tandem Financial Advice

96

81

Millenium3452

ING Financial Planning

1Life Insurance

2
3(12 mths )Sep-06Mar-06

Sep-06

Mar 0619%

ANZ Bank

45%

46%

12%

14%

381

19%

IFAs aligned to ING

18%

17%

9%

10%

18

11

64%

Direct

6%

5%

19%

18%

Open Market

31%

32%

60%

58%

1,145

1,003

14%

Total

100%

100%

100%

100%

Other
Total

Retail Funds Management

1.
2.
3.

Includes mezzanine funds management business
Includes directly marketed life insurance and consumer credit life insuranceLife insurance March 2006 restated to reflect realignment of Mastertrust and Grouprisk business48

BUSINESS PERFORMANCE REVIEW (continued)

Partnerships & Private Bank
Bob Edgar
ING Australia performance, cont’dComparison with March 2006 half

Profit after tax was 9% higher than the half year to 31 March 2006.
Operating profit after tax was 11% higher, influenced by:#Strong growth in funds management income +14% based on higher average funds under management, improved net
flows, and the acquisition of Oasis Asset Management.

#

Higher risk income from in-force premium growth, more than offset by the non-recurrence of assumption changes madein the March half.

#

Flat funds management and life risk expenses, and reduced spending on remediation in the September half as expected.

#

Higher tax due to higher taxable operating profit, and the non-recurrence of tax adjustments booked in the March half.

Capital investment earnings were 4% higher due to marginally higher yields on equities.
The balance of unrealised gains on available for sale securities at 30 September 2006 was $13.3 million (31 March 2006:$26.3 million).

49

BUSINESS PERFORMANCE REVIEW (continued)

Non-continuing businesses1
Steve Targett
Half
year
Sep 06
$M

Movt
Half
Sep 06year
Mar 06 v. Mar 06
%
$M

Full
year
Sep 06$M

Net interest income

1

11

-91%

12

Other external operating income

(4)

18

large

Operating income

(3)

29

large

External operating expenses(3)-

Net inter business unit expenses(1)

Operating expenses

(4)

Movt
Full
Sep 06year
Sep 05 v. Sep 05
%
$M
62

-81%

14

7

100%

26

69

-62%

n/a

(3)

(6)

-50%

(1)

0%

(2)

(18)

-89%

(1)

large

(5)

(24)

-79%

Profit before credit impairment and income tax

(7)

28

large

21

45

-53%

Provision for credit impairment

14

8

75%

22

97

-77%

Profit before income tax

7

36

-81%

43

142

-70%

Income tax expense and minority interest

1

(6)

large

(5)

(16)

-69%

Net profit

8

30

-73%

38

126

-70%

1.

Non-continuing businesses comprises the London headquartered project finance business, the run-off of New Zealand conduit transactions and certain structured
finance transactions that ANZ has exited as part of its de-risking strategy

2006 result

Profit after tax reduced by $88 million (70%). During the year good progress was made in reducing the volume of structuredloans in the discontinued book, which reduced by $1.1 billion to $513 million. The credit quality on the remaining business issound. Significant factors affecting the results were:#

Net interest income reduced by $50 million reflecting a 76% ($2.6 billion) reduction in average lending volumes from
$3.4 billion in 2005 to $0.8 billion in 2006.

#

Other operating income of $14 million largely represents a $12 million release of provisions created on the sale of the
London headquartered project finance business following the settlement of sale warranties provided to Standard
Chartered Bank and a $4 million gain on sale of power assets.

#

Operating expenses reduced by $19 million, with the remaining expenses being legal and restructuring costs associatedwith the legacy balances in the London headquartered project finance business.

#

The benefit from the provision for credit impairment arises from the run-off of legacy assets, releasing collective
provisions, and recoveries. The reduction in this benefit reflects a lower volume of run-off in 2006.

Comparison with March 2006 half

Profit after tax reduced by $22 million (73%). Operating income reduced by $32 million, with reduced net interest income
resulting from a $0.3 billion reduction in lending volumes. Other operating income of $18 million in the first half was largely
from the release of provisions created on the sale of the London headquartered project finance business. Operating
expenses increased by $3 million. The benefit from the provision for credit impairment increased a further $6 million,
reflecting a $4 million recovery on an individual provision together with the release of collective provisions as legacy assets
run off.

50

BUSINESS PERFORMANCE REVIEW (continued)

Group Centre1

Half
year
Sep 06$M
Net interest income

163

Other external operating income

Half
Movt
year
Sep 06
Mar 06 v. Mar 06
$M
%
94

73%

Full
year
Sep 06
$M
257

Full
Movt
year
Sep 06
Sep 05 v. Sep 05
$M
%
154

67%

5

10

-50%

15

30

-50%

Operating income

168

104

62%

272

184

48%

External operating expenses

(395)

(373)

6%

(768)

(777)

-1%

Net inter business unit expenses

287

281

2%

568

548

4%

Operating expenses

(108)

(92)

17%

(200)

(229)

-13%

60

12

large

72

(45)

large

-

-

n/a

-

-

n/a

Profit before income tax

60

12

large

72

(45)

large

Income tax expense and minority interest

(27)

-

n/a

(27)

11

large

Net profit

33

12

large

45

(34)

large

4,241

4,082

4%

4,241

4,007

6%

Profit before credit impairment and income tax
Provision for credit impairment

Total employees
1.

Group Centre comprises Group People Capital, Group Risk Management, Treasury (includes the funding component of Treasury results with the mismatchcomponent being included in the Markets business of Institutional), Group Strategic Development, Group Financial Management, Shareholder Functions andOperations, Technology and Shared Services

2006 result

The result for the Group Centre was a $45 million profit compared with a loss of $34 million in 2005. Significant influenceson the result were:#

Operating income increased by $88 million, primarily due to a $58 million increase in income on contracts put in place tohedge NZD and USD denominated earnings. These gains are largely offset in the translation of the results of New
Zealand Banking. Operating income also increased due to $38 million of additional interest received on tax refunds. Thiswas partially offset by lower benefits from USD capital hedges and other sundry income.

#Operating expenses reduced by $29 million mainly due to reductions in non-incremental New Zealand integration costs,
other project costs and lower non-lending losses. The increase in employee numbers is largely driven by the transitional
impact of offshoring technology and back office work to India.

#

The higher effective tax rate in 2006 resulted primarily from allowance for withholding tax payable on future remittancesfrom offshore operations.

Comparison with March 2006 half

The half year profit of $33 million was $21 million higher than in the March 2006 half. Revenue increased by $64 million
primarily from increases by $52 million in income on contracts put in place to hedge NZD denominated earnings and by$15 million in additional interest received on tax refunds. Operating expenses increased by $16 million largely due to timingof Technology costs. The higher effective tax rate in the September 2006 half resulted primarily from allowance forwithholding tax payable on future remittances from offshore operations in the second half.

51

This page has been left blank intentionally52

GEOGRAPHIC SEGMENT PERFORMANCE

Geographic performance
Half
year
Sep 06
$M

Half
Movt
year
Sep 06
Mar 06 v. Mar 06
$M
%

Full
year
Sep 06
$M

Full
Movt
year
Sep 06
Sep 05 v. Sep 05$M%

Net profit
Australia

1,292

1,196

8%

2,488

2,148

New Zealand

408

422

-3%

830

695

16%
19%

Asia

70

55

27%

125

95

32%

Pacific

58

55

5%

113

90

26%

Other

49
1,877

83
1,811

-41%
4%

132
3,688

147
3,175

-10%
16%

Half
year
Sep 06
$M

Half
Movt
year
Sep 06
Mar 06 v. Mar 06
$M
%

Full
year
Sep 06
$M

Full
Movt
year
Sep 06
Sep 05 v. Sep 05$M%

1

Cash profit
1,269

1,108

15%

2,377

2,054

16%

New ZealandAustralia

408

434

-6%

842

708

19%

Asia

70

55

27%

125

106

18%

Pacific

58

55

5%

113

84

35%

Other

51
1,856

79
1,731

-35%
7%

130
3,587

199
3,151

-35%
14%

Growth Rate

Full Year Sep 2006
Revenue

Expenses

PBP2

Credit3

NPAT

Revenue

Expenses

PBP2

Credit3

Australia

6,806

3,079

3,727

412

2,377

11%

8%

13%

-9%

16%

New Zealand

2,406

1,127

1,279

16

842

4%

-1%

9%

-89%

19%

NPAT

Asia

323

151

172

21

125

26%

19%

33%

large

18%

Pacific

286

128

158

-

113

15%

14%

16%

-100%

35%

Other

268
10,089

120
4,605

148
5,484

(42)
130
407
3,587

-25%
8%

3%
6%

-38%
10%

-24%
-28%

-35%
14%

2,752

1,288

1,464

4%

15%

-88%

26%

Revenue

Expenses

Australia

3,563

New Zealand

New Zealand (NZD)

19

964

10%

PBP2

Credit3

NPAT

Revenue

Expenses

PBP2

Credit3

NPAT

1,600

1,963

194

1,269

10%

8%

11%

-11%

15%

1,161

538

623

2

408

-7%

-9%

-5%

-86%

-6%

Asia

175

77

98

13

70

18%

4%

32%

63%

27%

Pacific

146

65

81

1

58

4%

3%

5%

large

5%

Other

113
5,158

66
2,346

47
2,812

(27)
51
183
1,856

-27%
5%

22%
4%

-53%
5%

80%
-18%

-35%
7%

New Zealand (NZD)

1,392

644

748

2%

0%

4%

-64%

3%

Half Year Sep 2006

1.

Growth Rate (on March 2006 half)

5490

ANZ has calculated the 2005 result on an AIFRS basis that is comparable with 2006 (refer page 15), allowing readers to see the impact on 2005 results ofaccounting standards that have only been applied from 1 October 2005. The impact is a reduction of $31 million in 2005 net profit after tax. No adjustment has
been made to retrospectively designate derivatives hedging the Group’s funding on the basis of impracticability
In 2006 ANZ has classified the $113 million ($79 million after tax) settlement of the NHB insurance matter and the $14 million settlement of a dispute with Lloyds
TSB over the accounting treatment of certain items in the completion accounts for the acquisition of National Bank of New Zealand Limited (tax on settlement:$nil) as significant items. In 2005 ANZ classified $14 million after tax profit on the sale of NBNZ life and funds management businesses as a significant item (taxon gain on sale of NBNZ life and funds management businesses: $nil). ANZ excludes significant items to eliminate the distorting effect of one-off transactions on
the results of its core business (refer page 13)
The Group enters into economic hedges to manage its interest rate and foreign exchange risk. In 2006 ANZ has classified $34 million after tax (2005 full year:$31 million; Sep 2006 half: $21 million; Mar 2006 half: $13 million) relating to economic hedging as a non-core item (tax on hedge gains/losses $15 million (2005
full year: $13 million; Sep 2006 half: $10 million; Mar 2006 half: $5 million)). Included in this non-core amount is ineffectiveness arising from designatedaccounting hedges, any volatility arising from usage of the fair value option and approved classes of derivatives in the 2006 year not designated in accounting
hedge relationships but that are considered to be economic hedges. The 2005 year numbers do not include any adjustment to retrospectively calculate the AIFRS
impact on the derivatives associated with the Group’s funding. ANZ excludes volatility associated with fair value movements on these transactions to provide a
better indication of the core business performance (refer page 14)
In 2006 ANZ has incurred $26 million after tax ANZ National Bank incremental integration costs (2005 full year: $52 million; Sep 2006 half: nil; Mar 2006 half:$26 million). Tax on ANZ National Bank incremental integration costs is $13 million (2005 full year: $26 million; Sep 2006 half: nil; Mar 2006 half: $13 million).
ANZ National Bank incremental integration costs are excluded to better reflect the core cost base and assist analysis of the cost base following completion of theintegration

2.

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

3.

Credit impairment expense

53

GEOGRAPHIC SEGMENT PERFORMANCE (continued)

Australia

Net interest income

Half
year
Sep 06
$M

Half
year
Mar 06$M

Sep 06v. Mar
06
%

Full
year
Sep 06
$M

Full
year
Sep 05$M

Sep 06v. Sep
05
%

2,470

2,291

8%

4,761

4,262

12%

Other external operating income

1,093

952

15%

2,045

1,877

9%

Operating income

3,563

3,243

10%

6,806

6,139

11%

Operating expenses(1,600)(1,479)8%(3,079)(2,847)

8%

Profit before credit impairment and income tax

1,963

1,764

11%

3,727

3,292

13%

Provision for credit impairment

(194)

(218)

-11%

(412)

(452)

-9%

Profit before income tax

1,769

1,546

14%

3,315

2,840

17%

Income tax expense

(499)

(438)

14%

(937)

(786)

19%

(1)

-

n/a

(1)

-

n/a

1,269

1,108

15%

2,377

2,054

16%

23

88

-74%

111

94

18%

1,292

1,196

8%

2,488

2,148

16%

Minority interest
1

Cash profit
1

Non-core items and AIFRS 2005 adjustments
Net profit
Net interest average margin

2.33%

2.31%

2.32%

2.12%

Return on risk weighted assets

1.64%

1.59%

1.62%

1.55%

1

Operating expenses to operating income

44.5%

42.0%

43.3%

45.8%

1

1.39%

1.29%

1.34%

1.49%

Operating expenses to average assets
1

2.33%

2.31%

2.32%

2.37%

1

1.61%

1.47%

1.54%

1.48%

Core net interest average margin
Cash return on risk weighted assets
1

Operating expenses to operating income (cash )

44.9%

45.6%

45.3%

46.4%

Operating expenses to average assets (cash )

1.39%

1.40%

1.40%

1.50%

Individual provision charge

(141)

(169)

(310)

(251)

Individual provision charge as a % of average net advances

0.15%

0.19%

0.17%

0.15%

(53)

(49)

(102)

(164)

Collective provision charge as a % of risk weighted assets

0.06%

0.06%

0.06%

0.10%

Individual provision charge (cash)

(141)

(169)

(310)

(252)

Individual provision charge as a % of average net advances (cash)

0.15%

0.19%

0.17%

0.15%

(53)

(49)

(102)

(200)

0.06%

0.06%

0.06%

0.12%

295

305

295

200

Net non-performing loans as a % of net advances

0.15%

0.18%

0.15%

0.12%

Total employees

18,723

18,221

18,72318,043

Lending growth

4.5%

5.1%

9.8%

15.7%

External assets

230,898

221,1424% 230,898

202,778

14%

Risk weighted assets

160,719

154,115

4% 160,719

145,132

11%

1

Collective provision charge

Collective provision charge (cash)
Collective provision charge as a % of average net advances (cash)
Net non-performing loans

1.

-17%
8%
-17%
8%
-3%
3%

24%
-38%
23%
-49%
48%
4%

ANZ has calculated the 2005 result on an AIFRS basis that is comparable with 2006 (refer page 15), allowing readers to see the impact on 2005 results ofaccounting standards that have only been applied from 1 October 2005. The impact is a reduction of $63 million in 2005 net profit after tax. No adjustment has
been made to retrospectively designate derivatives hedging the Group’s funding on the basis of impracticability
In 2006 ANZ has classified the $113 million ($79 million after tax) settlement of the NHB insurance matter as a significant item. ANZ excludes significant items toeliminate the distorting effect of one-off transactions on the results of its core business (refer page 13)
The Group enters into economic hedges to manage its interest rate and foreign exchange risk. In 2006 ANZ has classified $32 million after tax (2005 full year:$31 million; Sep 2006 half: $23 million; Mar 2006 half: $9 million) relating to economic hedging as a non-core item (tax on hedge gains/losses $14 million (2005
full year: $13 million; Sep 2006 half: $11 million; Mar 2006 half: $3 million)). Included in this non-core amount is ineffectiveness arising from designatedaccounting hedges, any volatility arising from usage of the fair value option and approved classes of derivatives in the 2006 year not designated in accounting
hedge relationships but that are considered to be economic hedges. The 2005 year numbers do not include any adjustment to retrospectively calculate the AIFRS
impact on the derivatives associated with the Group’s funding. ANZ excludes volatility associated with fair value movements on these transactions to provide a
better indication of the core business performance

54

GEOGRAPHIC SEGMENT PERFORMANCE (continued)

Australia, cont’d
2006 result

Profit after tax increased by 16%. Cash profit also increased 16% (refer pages 13 to 15 for an explanation of non-core items
and AIFRS adjustments). Significant influences on cash profit were:#

Net interest income increased by 12%. Average net advances increased 11%, driven by growth in Consumer Finance21%, Rural Commercial & Agribusiness Products 15%, Mortgages 12%, Business Banking 13%, Corporate Banking 10%
and Debt Product Group 8%. Average deposit and other borrowing volumes increased 12% driven by Rural Commercial &Agribusiness Products 13%, Esanda 12%, Banking Products 11%, Corporate Banking 12%, Business Banking 11% andGroup Treasury 24%. Net interest margin decreased 5 basis points with a change in the asset mix, increased volumes ofwholesale funding and competitive pressures in the lending books of Mortgages, Consumer Finance, Debt Products Group,
Business Banking and Corporate Banking, partly offset by higher earnings from foreign exchange revenue hedging,+3 basis points or $58 million, interest received on tax refunds from the ATO and release of revenue related to prior years
in Trade and Transaction Services.

#

Other operating income increased by 9%. Personal increased 8% due to volume growth initiatives in Consumer Finance,
higher transaction volumes in Banking Products and higher sales from financial planners in Investment and Insurance
Products. Institutional increased 9% due to increased volumes in Trade and Transaction Services, higher deal fees in
Corporate and Structured Financing and higher Markets earnings with increased activity and positioning to take advantage
of interest rate and currency volatility. In addition the 2005 year included a $32 million cost from the hedging of capital
investment earnings in INGA which ceased in October 2005.

#

Operating expenses increased by 8% reflecting an increased investment in frontline staff with a 4% increase in personnel
numbers, the footprint expansion in Personal through the addition of 25 more branches and a further 330 ATMs, annual
salary increases, and investment in new IT platforms in Markets and Transactional Services businesses.

#

Provision for credit impairment decreased by 9% ($40 million). This was driven by a combination of increased lending
volumes, moderately higher risk in credit cards and an increase in Institutional, due to two accounts downgraded in the
March 2006 half, partly offset by recoveries in the non-continuing businesses, being offset by an improved credit risk
profile in most portfolios and collective provisions raised in 2005 for expected portfolio deterioration in segments identified
as being most vulnerable to higher oil prices.

Comparison with March 2006 half

Profit after tax increased 8%. After adjusting for the impact of non-core items and AIFRS 2005 adjustments (refer pages 13
to 15), cash profit increased 15%.
#

Net interest income increased 8% as average net advances increased 6% and average deposits and other borrowings
increased 8% and net interest margin increased 2 basis points. Higher earnings from foreign exchange revenue hedging
contributed +5 basis points or $52 million. Market’s net interest income increased $22 million due to a reduction in
funding costs associated with unrealised trading gains resulting in a higher proportion of revenue being booked asinterest, offset in Other income.

#

Other income increased 15%. Personal increased 20%, due to strong volume and fee growth across all businesses andInstitutional increased 12%, due to solid deal flow in Corporate and Structured Financing and higher Markets revenue
from sales.

#

Operating expenses increased 8% reflecting the 3% increase in staff numbers, higher marketing spend, the ongoinginvestment in the branch network and the timing impact of higher software maintenance fees in the second half andre-assessment of software projects in Mortgages.

#

Provision for credit impairment decreased 11% as the individual provision charge decreased $28 million, due to ongoingdebt recoveries and no large new provisions in Institutional, partly offset by higher provisions in Personal due to increased
volumes and seasonality in Consumer Finance.

55

GEOGRAPHIC SEGMENT PERFORMANCE (continued)

New Zealand

Net interest income
Other external operating income

Half
year
Sep 06
NZD $M

Halfyear
Mar 06
NZD $M

Sep 06v. Mar
06
%

Full
year
Sep 06
NZD $M

Full
year
Sep 05
NZD $M

Sep 06v. Sep
05
%

1,028

943

9%

1,971

1,772

11%

364

417

-13%

781

731

7%

Operating income

1,392

1,360

2%

2,752

2,503

10%

Operating expenses

(644)

(644)

0%

(1,288)(1,234)

4%

Profit before credit impairment and income tax

748

716

4%

1,464

1,269

15%

(5)

(14)

-64%

(19)

(156)

-88%

Provision for credit impairment
Profit before income tax

743

702

6%

1,445

1,113

30%

Income tax expense

(253)

(227)

11%

(480)

(344)

40%

-

(1)

-100%

(1)

(1)

0%

490

474

3%

964

768

26%

Minority interest
1

Cash profit
1

-

(13)

-100%

(13)

(14)

-7%

Net profit (NZD)

490

461

6%

951

754

26%

Net profit (AUD)

408

422

-3%

830

695

19%

Non-core items and AIFRS 2005 adjustments

Net interest average margin

2.33%

2.32%

2.32%

2.36%

Return on risk weighted assets

1.41%

1.49%

1.45%

1.32%

1

Operating expenses to operating income

46.2%

49.9%

48.1%

52.2%

1

1.34%

1.54%

1.44%

1.63%

Operating expenses to average assets
1

2.33%

2.32%

2.32%

2.43%

1

1.41%

1.54%

1.47%

1.35%

46.3%

47.4%

46.8%

49.3%

1.34%

1.45%

1.39%

1.53%

(7)

(23)

(30)

(116)

0.02%

0.06%

0.04%

0.18%

2

9

11

(6)

-0.01%-0.03%-0.01%

0.01%

(7)

(23)

(30)

(116)

0.02%

0.06%

0.04%

0.18%

Core net interest average margin
Cash return on risk weighted assets
1

Operating expenses to operating income (cash )1

Operating expenses to average assets (cash )Individual provision charge
Individual provision charge as a % of average net advances
Collective provision charge
Collective provision charge as a % of average net advances
Individual provision charge (cash)
Individual provision charge as a % of average net advances (cash)
Collective provision charge (cash)
Collective provision charge as a % of average net advances (cash)
Net non-performing loans

29-0.01%-0.03%

93

119

Net non-performing loans as a % of net advances

0.12%

0.16%

Total employees

9,392

9,304

Lending growth

5.5%

-70%
-78%
-70%
-78%
-22%

11

(40)

-0.01%

0.06%

93

123

0.12%

0.18%

9,392

9,515

6.1%

11.9%

13.9%

1%

-74%
large
-74%
large
-24%
-1%

External assets

95,153

93,4102% 95,153

86,505

10%

Risk weighted assets

68,496

65,216

5% 68,496

61,04112%

1.

ANZ has calculated the 2005 result on an AIFRS basis that is comparable with 2006 (refer page 15), allowing readers to see the impact on 2005 results ofaccounting standards that have only been applied from 1 October 2005. The impact is a reduction of NZD27 million in 2005 net profit after tax. No adjustment
has been made to retrospectively designate derivatives hedging the Group’s funding on the basis of impracticability
In 2006 ANZ has classified the NZD$16 million settlement of a dispute with Lloyds TSB over the accounting treatment of certain items in the completion accounts
for the acquisition of National Bank of New Zealand Limited (tax on settlement: $nil) as significant items. In 2005 ANZ classified $14 million after tax profit on thesale of NBNZ life and funds management businesses as a significant item (tax on gain on sale of NBNZ life and funds management businesses: $nil). ANZ
excludes significant items to eliminate the distorting effect of one-off transactions on the results of its core business (refer page 13)
In 2006 ANZ has incurred NZD29 million after tax ANZ National Bank incremental integration costs (2005 full year: NZD56 million; Sep 2006 half: $nil; Mar 2006
half: NZD29 million). ANZ National Bank incremental integration costs are excluded to better reflect the core cost base following completion of the integration

56

GEOGRAPHIC SEGMENT PERFORMANCE (continued)

New Zealand, cont’d
Reconciliation of Geographic result

Half
year
Sep 06
NZD $MNZ Business

Movt
Half
Sep 06year
Mar 06 v. Mar 06%
NZD $M

Full
year
Sep 06
NZD $MMovt
Full
Sep 06year
Sep 05 v. Sep 05%
NZD $M

New Zealand Businesses

404

376

7%

780

642

21%

NZ Institutional (Continuing)

109

117

-7%

226

197

15%

New Zealand Banking

513

493

4%

1,006

839

20%

1

3

-67%

4

35

-89%

(24)

(22)

9%

(46)

(106)

-57%

490

474

3%

964

768

26%

-

(13)

-100%

(13)

(14)

-7%

490

461

6%

951

754

26%

Non-continuing businesses
NZ shareholder functions
New Zealand geography adjusted for non-core items

1

Non-core items and AIFRS 2005 Adjustments
Total New Zealand geography
1.

Refer footnote 1 on page 53

2006 result

Profit after tax in NZD increased by 26% (NZD197 million) after adjusting for the impact of AIFRS and non-core items (referpage 15). The result was assisted by a NZD137 million (NZD92 million after tax) reduction in the credit impairment charge.
Profit before credit impairment and income tax increased 15% after adjusting for the impact of AIFRS 2005 adjustments andnon-core items. Overall, the business is displaying promising momentum, and has achieved robust credit growth, maintained
good credit quality, and the level of interest margin decline has moderated.
Key influences on cash profit include:#

Net interest income increased 11% (NZD199 million) including an additional NZD76 million resulting from the issue ofpreference share capital in September 2005 to repay intercompany debt as a result of amendments to New Zealand thincapitalisation rules. Lending volumes increased 12% with growth robust across all businesses, except for a reduction in
UDC (impacted by intense competition and sales force restructuring), and the roll off in discontinuing businesses. Net
interest margins declined 11 basis points mainly driven by competition and product mix impacts (customer migration fromvariable rate to fixed rate mortgages, the increasing requirement for wholesale funding, and growth in lower margin
products). This was partly offset by the benefit of the additional preference share capital (equivalent of 9 basis points).

#

Other external operating income increased 7% largely due to the strong result in Institutional (15%) mainly from theMarkets business, as well as income resulting from the MasterCard Initial Public Offer (NZD5 million). The National Bank
Retail increased by 21%, with growth across lending, card and transactional fees as well as commission income.

#Operating expenses increased 4%. Increases in frontline and customer support staff numbers, salary increases, the costof the Commerce Commission settlement (NZD10 million), and the cost of operating domestic systems in New Zealand(NZD10 million) were partly offset by a 6% reduction in the number of support staff, control of discretionary expenditure,and lower non-incremental integration costs with the project completed during the year.

#

Provision for credit impairment decreased by NZD137 million. This was driven by both lower collective and individual
provision charges, following a combination of increased lending volumes being offset by individual provisions raised forcorporate accounts and exposures to the apple and pear export industry in 2005, an improved credit risk profile (anincreased proportion of low risk residential and rural lending) and collective provisions raised in 2005 for portfolio
deterioration in segments identified as being most vulnerable to higher oil prices.

#

The effective tax rate increased, largely due to the run off of structured finance deals.

Comparison with March 2006 half

Profit after tax in NZD increased by 6%. After adjusting for the impact of AIFRS and non-core items (refer pages 13 to 15),
cash profit increased 3%. The following explanations exclude the impact of non-core items:#

Net interest income increased 9%. Lending volumes increased 6%, with good growth across all businesses apart from
UDC and Institutional. Deposits grew 2%. The level of net interest margin decline has moderated in all businesses,
except in NZ Institutional Continuing Businesses where the margin has improved due to a sharp decline in exchange rates
during the March half which resulted in an additional NZD32 million interest income being earned on swap transactions in
the September half, however, trading losses offset the interest income.

#

Other operating income reduced 13%, mainly driven by NZ Institutional Continuing Businesses, with the exceptional
Markets performance in the first half not matched. Other income in The National Bank Retail increased 9%, with growthacross lending, cards and transactional fees. Fee income in other businesses was constrained by competitive pressures.

#

Operating expenses remained flat. Salary and rental increases were offset by lower non-incremental integration costswith the project completing during March 2006. The first half result was also impacted by the cost of the CommerceCommission settlement.

#

Provision for credit impairment decreased by NZD9 million. The individual provision charge reduced NZD16 million largely
reflecting provisioning for an isolated loss in the March 2006 half, and the collective provision credit reduced by
NZD7 million. Net non-performing loans reduced 22%.
57

GEOGRAPHIC SEGMENT PERFORMANCE (continued)

Asia
Half
year
Sep 06
$M

Half
Movt
Sep 06year
Mar 06 v. Mar 06
%
$M

Full
year
Sep 06
$M

Movt
Full
Sep 06year
Sep 05 v. Sep 05%$M

Net interest income

92

77

19%

169

120

41%

Other external operating income

83

71

17%

154

136

13%

Operating income

175

148

18%

323

256

26%

Operating expenses

(77)

(74)

4%

(151)

(127)

19%

Profit before credit impairment and income tax

98

74

32%

172

129

33%

Provision for credit impairment

(13)

(8)

63%

(21)

(7)

large

Profit before income tax
Income tax expense
Minority interest
Cash profit11

Non-core items and AIFRS 2005 adjustments
Net profit

85

66

29%

151

122

24%

(14)

(11)

27%

(25)

(15)

67%

(1)

-

n/a

(1)

(1)

0%

70

55

27%

125

106

18%

70

55

n/a
27%

125

(11)
95

-100%
32%

Consisting of:
Network Business

52

41

27%

93

64

45%

International Partnerships

18
70

14
55

29%
27%

32
125

42
106

-24%
18%

44.0%

50.0%

46.8%

49.6%

44.0%
(14)

50.0%
(4)

large

46.8%
(18)

49.4%
(11)

1
(14)

(4)
(4)

large

(3)
(18)

(10)
(11)

-70%

1
913

(4)
843

large

(3)
913

4
6
826

large

Operating expenses to operating income
1

Operating expenses to operating income (cash )Individual provision charge
Collective provision charge
Individual provision charge (cash)
Collective provision charge (cash)
Net non-performing loans
Total employees
1.

large
n/a
8%

64%
64%
-100%
11%

ANZ has calculated the 2005 result on an AIFRS basis that is comparable with 2006 (refer page 15), allowing readers to see the impact on 2005 results ofaccounting standards that have only been applied from 1 October 2005. The impact is a reduction of $11 million in 2005 net profit after tax. No adjustment has
been made to retrospectively designate derivatives hedging the Group’s funding on the basis of impracticability

2006 result

Profit after tax increased 32%. After adjusting for AIFRS 2005 adjustments (refer page 15) profit after tax increased by
18%. The depreciation of the AUD increased profit growth by 2% ($2 million). After adjusting for non-core items andexchange rate movements:#

Net interest income increased 37% reflecting improved Treasury performance in Singapore, Card volumes in Indonesia,
improved deposit margins, particularly in Vietnam, and the first full year of operations in Cambodia. Loan and deposit
volumes also grew across the region, reflective of increased economic activity.

#

Other external operating income increased 10% due to higher Cards volumes in Indonesia, higher foreign exchange
revenue, increased equity accounted income from Metrobank Card Corporation and Tianjin City Commercial Bank, offset
by reduced Equity accounted income in PT Panin Bank.

#

Operating expenses increased 17% as a result of costs associated with building partner relationships in Indonesia, China
and Vietnam, the first full year of operating costs in Cambodia and new product specialists in Asia.

#

Provision for credit impairment increased by $13 million. The individual provision charge increased largely due toSingapore and Indonesia, offset by write-backs in Hong Kong and Philippines.

#

Income tax expense increase reflects increased profit and the impact of reduced equity accounted income from PT Panin
Bank.

Comparison with March 2006 half

Profit after tax increased 27%. Operating income increased 18% with strong deposit volume growth in Hong Kong andIndonesia, higher Metrobank Card Corporation Inc equity accounted income from growth in card volumes and higher equity
accounted earnings from the new partnership with Tianjin City Commercial Bank. Operating expenses increased by 4% asinvestments were made to progress partnerships in Indonesia, China and Vietnam, together with the addition of specialist
product skills. The impact of exchange rate movements was immaterial.

58

GEOGRAPHIC SEGMENT PERFORMANCE (continued)

Pacific
Halfyear
Sep 06$M
Net interest income

72

Half
Movt
year
Sep 06
Mar 06 v. Mar 06
$M
%
66

Full
year
Sep 06
$M

Full
Movt
year
Sep 06
Sep 05 v. Sep 05
$M
%

9%

138

111

24%

Other external operating income

74

74

0%

148

137

8%

Operating income

146

140

4%

286

248

15%

Operating expenses

(65)

(63)

3%

(128)

(112)

14%

Profit before credit impairment and income tax

81

77

5%

158

136

16%
-100%

Provision for credit impairment

(1)

1

large

-

(17)

Profit before income tax

80

78

3%

158

119

33%

Income tax expense

(22)

(22)

0%

(44)

(34)

29%

Minority interest
1

Cash profit

1

Non-core items and AIFRS 2005 adjustments
Net profit
Operating expenses to operating income
1

Operating expenses to operating income (cash )Individual provision charge

-100%

(1)

(1)

0%

5%

113

84

35%

58

55

n/a
5%

113

6
90

-100%
26%

33%

44.5%

45.0%

44.8%

44.8%

45.0%
3

44.8%
7

45.3%
(12)

(5)
4

(2)
3

large

(7)
7

2
(13)

large

(5)
5

(2)
8

large

(4)
22

75%

-38%

(7)
5

-77%

1,662

1,613

3%

1,662

1,606

3%

Individual provision charge (cash)
Collective provision charge (cash)

1.

(1)
55

44.5%
4

Collective provision charge

Net non-performing loans
Total employees

58

33%

large
large

ANZ has calculated the 2005 result on an AIFRS basis that is comparable with 2006 (refer page 15), allowing readers to see the impact on 2005 results ofaccounting standards that have only been applied from 1 October 2005. The impact is a reduction of $6 million in 2005 net profit after tax. No adjustment has
been made to retrospectively designate derivatives hedging the Group’s funding on the basis of impracticability

2006 result

Profit after tax increased 26%. After adjusting for AIFRS 2005 adjustments (refer page 15) profit after tax increased by
35%. The depreciation of the AUD increased profit growth by 2% ($2 million). After adjusting for non-core items andexchange rate movements:#

Net interest increased 23% reflecting growth in lending volumes in Fiji, Samoa and PNG.

#

Other external operating income increased 7% due to growth in lending volumes in Fiji, Samoa, PNG and Vanuatu andhigher foreign exchange revenue.

#

Operating expenses increased 13% predominantly due to investment in our Operational Excellence agenda and expansionof footprint.

#

Provision for credit impairment decreased by $17 million predominantly due to the writeback of two individual provisions
in Fiji.

#

Income tax expense increase reflects increased profit.

Comparison with March 2006 half

Profit after tax increased 5%. Operating income increased 4% with strong lending and increased fee income. Operating
expenses increased by 3%. The impact of exchange rate movements was immaterial.

59

GEOGRAPHIC SEGMENT PERFORMANCE (continued)

Other: United Kingdom, Europe, United States and Middle East & South Asia [including Bangalore]
Half
year
Sep 06
$M

Half
Movt
year
Sep 06
Mar 06 v. Mar 06
$M
%

Full
year
Sep 06
$M

Full
Movt
year
Sep 06
Sep 05 v. Sep 05$M%

Net interest income

82

69

19%

151

244

-38%

Other external operating income

31

86

-64%

117

111

5%
-25%

Operating income

113

155

-27%

268

355

Operating expenses

(66)

(54)

22%

(120)

(117)

3%

Profit before credit impairment and income tax

47

101

-53%

148

238

-38%

Provision for credit impairment

27

15

80%

42

55

-24%

Profit before income tax

74

116

-36%

190

293

-35%

Income tax expense

(23)

(37)

-38%

(60)

(94)

-36%

Cash profit

51

79

-35%

130

199

-35%

Non-core items and AIFRS 2005 adjustments

(2)

4

large

2

(52)

large

Net profit

49

83

-41%

132

147

-10%

60.0%

34.0%

44.8%

33.7%

44.4%

33.1%

1

Operating expenses to operating income
1

Operating expenses to operating income (cash )

58.0%

35.0%

Individual provision charge

5

4

25%

9

27

Collective provision charge

22

11

100%

33

(46)

large

Individual provision charge (cash)

5

4

25%

9

26

-65%

Collective provision charge (cash)

22

11

100%

33

29

14%

3
1,567

6
1,082

-50%
45%

3
1,567

46
986

-93%
59%

Net non-performing loans
Total employees
1.

-67%

ANZ has calculated the 2005 result on an AIFRS basis that is comparable with 2006 (refer page 15), allowing readers to see the impact on 2005 results ofaccounting standards that have only been applied from 1 October 2005. The impact is a reduction of $52 million in 2005 net profit after tax. No adjustment has
been made to retrospectively designate derivatives hedging the Group’s funding on the basis of impracticability
The Group enters into economic hedges to manage its interest rate and foreign exchange risk. In 2006 ANZ has classified $2 million after tax (2005 full year:$nil; Sep 2006 half: $2 million loss; Mar 2006 half: $4 million profit) relating to economic hedging as a non-core item. Included in this non-core amount isineffectiveness arising from designated accounting hedges, any volatility arising from usage of the fair value option and approved classes of derivatives notdesignated in accounting hedge relationships but that are considered to be economic hedges. ANZ excludes volatility associated with fair value movements onthese transactions to provide a better indication of the core business performance.

2006 result

Profit after tax decreased 10%. Cash profit reduced 35%. The impact of exchange rates was immaterial. Significant
influences on the core result were:#

Net interest income decreased 38% mainly due to reduced earnings on capital of $70 million following a change in the
New Zealand funding structure resulting in repayment of intra-group debt and a reduction in the non-continuing businessin the United States.

#

Other operating income increased 5% due largely to the profit on the sale of a power asset in the United States and thesettlement of warranties on the sale of the London headquartered project and structured finance business offset by lower
foreign exchange earnings and fees.

#

Operating expenses increased 3%. The rise in staff numbers is attributable to increases in operations and technology
staff in India, however these costs were charged to other businesses.

#

The credit in the Provision for credit impairment is due to the reduction in assets following the sale of the project andstructured finance business, lower risk in the continuing business and debt recoveries. The credit in the individual
provisions charge reduced mainly as a result of lower recoveries in the 2006 financial year. Net non-performing loans
reduced due to the realisation of a power exposure in the United States.

Comparison with March 2006 half

Profit after tax decreased 41%. Cash profit decreased 35%. Net interest income increased by 19% due largely to the lower
funding cost of derivative positions in Markets, which is offset by a reduction in other income. Other operating income wasfurther impacted by the profit on the sale of a power asset in the United States and the settlement of sale warranties
occurring in the March 2006 half year, lower foreign exchange earnings and mark to market losses on credit derivatives.
Operating expenses increased 22% mainly due to higher premises and intra-group costs in London and higher costs in India.
The increase in the credit to collective provisions is due to improved credit quality, reduction in customer limits and recovery
of bad debts previously provided for.

60

FIVE YEAR SUMMARY
Previous AGAAP
2006
$M

2005
$M

2004
$M

2003
$M

2002
$M

Net interest income

6,943

6,371

5,252

4,311

4,018

Other operating income

3,146

2,935

3,267

2,808

2,796

Operating expense(4,605)(4,340)(4,005)(3,228)(3,153)

Income Statement

Provision for credit impairment

(407)

(565)

(632)

(614)

(610)

Profit before income tax

5,077

4,401

3,882

3,277

3,051

Income tax expense(1,486)(1,247)(1,147)

(926)

(880)

(4)

(3)

(4)

(3)

(3)

3,587

3,151

2,731

2,348

2,168

Minority interest
Cash profit

1

Non-core items

1

Net profit attributable to shareholders of the company

101

24

84

-

154

3,688

3,175

2,815

2,348

2,322

335,771

300,885

19,906

19,538259,345
17,925

195,591
13,787

183,105
11,465

Balance Sheet
AssetsNet assets
Ratios
2

20.7%

18.3%

19.1%

21.2%

22.0%

Return on average assets

1.1%

1.1%

1.2%

1.2%

1.3%

Tier 1 capital ratio

6.8%

6.9%

6.9%

7.7%

7.9%

Return on average ordinary equity

3

Operating expenses to operating income
3Core operating expenses to operating income
Shareholder value - ordinary shares
Total return to shareholders(share price movement plus dividends)

44.6%

47.0%

44.9%

45.1%

41.3%

45.6%

46.6%

45.3%

45.1%

46.0%

17.1%

32.6%

17.0%

6.7%

15.3%

49,331

43,834

34,58627,31426,544125 cents

110 cents

101 cents

95 cents

85 cents

100%

100%

100%

100%

100%

- high$28.66$24.45$19.44$18.45$19.70- low$22.70$19.02$15.94$15.01$15.23- closing$26.86$24.00$19.02$17.17$16.88Market capitalisation
Dividend
Franked portion
Share price4

Share information (per fully paid)
4200.0c169.5c153.1c142.4c141.4cDividend payout ratio

62.6%

65.0%

67.5%

64.2%

57.8%

Net tangible assets

$8.53

$7.77

$7.51

$7.49

$6.58

1,836.6

1,826.4

1,818.4

1,521.7

1,503.9

Permanent employees (FTE)

30,64429,471

27,383

21,586

21,380Temporary employees (FTE)

1,612

1,505

1,372

1,551

1,102

32,25630,97628,755

23,13722,482

1,265
291,262

1,223
263,467

1,190
252,072

1,019
223,545

1,018
198,716

Earnings per share - basic

Number of fully paid ordinary shares
Other information

Total employees
Points of representation
Number of shareholders
1.

5

ANZ has calculated the 2005 result on an AIFRS basis that is comparable with 2006 (refer page 15), allowing readers to see the impact on 2005 results ofaccounting standards that have only been applied from 1 October 2005. The impact is a reduction of $31 million in 2005 net profit after tax. No adjustment has
been made to retrospectively designate derivatives hedging the Group’s funding on the basis of impracticability
In 2006 ANZ has classified the $113 million ($79 million after tax) settlement of the NHB insurance matter and the $14 million settlement of a dispute with Lloyds
TSB over the accounting treatment of certain items in the completion accounts for the acquisition of National Bank of New Zealand Limited (tax on settlement:$nil) as significant items. In 2005 ANZ classified $14 million after tax profit on the sale of NBNZ life and funds management businesses as a significant item (taxon gain on sale of NBNZ life and funds management businesses: $nil). ANZ excludes significant items to eliminate the distorting effect of one-off transactions on
the results of its core business (refer page 13)
The Group enters into economic hedges to manage its interest rate and foreign exchange risk. In 2006 ANZ has classified $34 million after tax (2005: $31 million)
relating to economic hedging as a non-core item (tax on hedge gains/losses $15 million (2005: $13 million). Included in this non-core amount is ineffectivenessarising from designated accounting hedges, any volatility arising from usage of the fair value option and approved classes of derivatives not designated inaccounting hedge relationships but that are considered to be economic hedges. The 2005 year numbers do not include any adjustment to retrospectively calculate
the AIFRS impact on the derivatives associated with the Group’s funding. ANZ excludes volatility associated with fair value movements on these transactions toprovide a better indication of the core business performance (refer page 14)
In 2006 ANZ has incurred $26 million after tax ANZ National Bank incremental integration costs (2005: $52 million; 2004: $14 million). Tax on ANZ National
Bank incremental integration costs is $13 million (2005: $26 million; 2004: $7 million). ANZ National Bank incremental integration costs are excluded to betterreflect the core cost base and assist analysis of the cost base following completion of the integration

2.

Average ordinary shareholders’ equity excludes minority interest

3.

Operating expenses excludes goodwill amortisation of $nil (2005: $nil; 2004: $146 million; 2003: $18 million; 2002: $20 million). Under AIFRS goodwill is notamortised and therefore was not recognised from 2005 onwards

4.

September 2003 and prior periods adjusted for the bonus element of the rights issue

5.

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

61This page has been left blank intentionally62

Australia and New Zealand Banking Group Limited

CONSOLIDATED FINANCIAL INFORMATION AND OTHER DISCLOSURES

Full year ended
30 September 2006

63

CONSOLIDATED FINANCIAL INFORMATION – TABLE OF CONTENTSCONTENTS

PAGE

Consolidated Income Statement

65

Consolidated Balance Sheet

66

Consolidated Statement of Recognised Income and Expense

67

Consolidated Cash flow statement

68

Notes to Financial Information

69

1.

Significant Accounting Policies

69

2.

Income75

3.

Operating expenses

76

4.

Income tax expense

77

5.

Dividends

78

6.

Earnings per share

79

7.

Net loans and advances

80

8.

Impaired financial assets

81

9.

Provision for credit impairment

82

10. Loan capital83

11. Share Capital83

12. Shareholders’ Equity

84

13. Contingent liabilities and contingent assets

86

14. Note to the Cash Flow Statement88

15. Changes in composition of the Group89

16. Associates, joint venture entities and investments

89

17. Exchange rates

90

18. Significant events since balance date90

19. Impact of adopting Australian Equivalents to International Financial Reporting Standards (AIFRS)

90

Appendix 4E Statement

91

64

CONSOLIDATED INCOME STATEMENT

Movt
Full
Sep 06year
Sep 05 v. Sep 05
%
$M

Note

Half
year
Sep 06
$M

Half
year
Mar 06$M

Movt
Sep 06v. Mar
06

Full
year
Sep 06$M

2

13,13812,372

6%

25,510Interest income

11,524

10,777

7%Interest expense(7,949)(7,409)Net interest income

3,575

3,368

6%

6,943

5,818

19%

Other operating income

1,614

1,595

1%

3,209

3,578

-10%

Total income

Operating income

21,29720%

22,301

17,71926%

7% (15,358)(11,901)

29%

5,189

4,963

5%

10,1529,396

8%(2,346)(2,185)

7%(4,531)(4,418)

3%

Profit before credit impairment and income tax

2,843

2,778

2%

5,621

4,978

13%

Provision for credit impairment

(183)

(224)

-18%

(407)

(580)

-30%

2,660

2,554

4%

5,214

4,398

19%

(780)

(742)

5%

(1,522)(1,220)

25%

1,880

1,812

4%

3,692

3,178

16%

(3)

(1)

large

(4)

(3)

33%

1,877

1,811

4%

3,688

3,175

16%

Basic

101.6

98.4

3%

200.0

169.5

18%

Diluted

98.5

95.5

3%

194.0

164.4

18%

69

56

23%

125

110

14%

8.53

7.99

7%

8.53

7.77

10%

Operating expenses

3

Profit before income tax
Income tax expense

4

Profit for the period
Net profit attributable to minority interest
Net profit attributable
to shareholders of the Company

Earnings per ordinary share (cents)

Dividend per ordinary share (cents)
Net tangible assets per ordinary share ($)
The notes appearing on pages 69 to 90 form an integral part of these financial statements

65

CONSOLIDATED BALANCE SHEET

Note

As at
Sep 06As at
Mar 06

$M

$M

As at
Sep 05Movt
Movt
Sep 06
Sep 06v. Mar 06 v. Sep 05$M%%

Assets15,01913,87011,6018%29%

Due from other financial institutions

Liquid assets

9,665

8,336

6,348

16%

52%

1

9,179

8,721

6,285

5%

46%

9,164

11,456

6,511

-20%

41%

Trading securities

2

Derivative financial instruments
3

Available for sale assets

10,653

13,287

10,042-20%

6%

255,410

241,546

232,4906%

10%13,435

13,692

13,449

-2%

0%

205

214

159

-4%

29%

Interests in associates and joint venture entities

2,200

1,912

1,926

15%

14%

Deferred tax assets

1,384

1,460

1,389

-5%

0%

3,337

3,272

3,458

2%

-3%

5

5,011

4,507

6,173

11%

-19%

Premises and equipment

1,109

1,061

1,054

5%

5%

335,771

323,334

300,885

4%

12%
17%

Net loans and advances

7

Customers' liability for acceptances
Regulatory deposits

4

Goodwill and other intangible assets
Other assets

Total assets
Liabilities
Due to other financial institutions

14,11813,345

12,027

6%

Deposits and other borrowings

204,794

196,850

190,322

4%

8%

8,753

10,105

7,006

-13%

25%

13,435

13,692

13,449

-2%

0%

1,953

1,897

1,801

3%

8%

10,679

9,697

7,618

10%

40%

957

908

914

5%

5%

50,05046,92339,0737%

28%

11,126

11,121

9,137

0%

22%

Total liabilities

315,865

304,538

281,347

4%

12%

Net assets

19,906

18,796

19,5386%2%2

Derivative financial instruments
Liability for acceptances
Income tax liabilities
Payables and other liabilities
Provisions
Bonds and notes
Loan capital

6

10

Shareholders' equity
Ordinary share capital

11,12

8,271

8,068

8,053

3%

3%

Preference share capital

11,12

871

871

1,858

0%

-53%

Reserves

12

(354)

(156)

(46)

large

large

Retained earnings
Share capital and reserves attributable toshareholders of the Company

12

11,084

9,979

9,646

11%

15%

19,872

18,762

19,511

6%

2%

34

34

27

0%

26%

19,906

18,796

19,5386%

2%

Minority interest
Total equity
Contingent liabilities and contingent assets

131.

Includes bills held in portfolio $1,569 million (Mar 2006: $1,167 million; Sep 2005: $1,182 million)

2.

March 2006 has been restated for derivative netting adjustments. No impact on net assets

3.

In 2005 available for sale assets were reported as investment securities

4.

Excludes notional goodwill in equity accounted entities

5.

Includes interest revenue receivable $1,569 million (Mar 2006: $1,468 million; Sep 2005: $1,443 million)

6.

Includes $2,471 million (Mar 2006: $2,536 million; Sep 2005: $1,443 million) hybrid loan capital that qualifies for Tier 1 capital as defined by the Australian
Prudential Regulation Authority

The notes appearing on pages 69 to 90 form an integral part of these financial statements

66

CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE

Half
year
Sep 06
$M

Half
Movt
year
Sep 06
Mar 06 v. Mar 06
$M
%

Full
year
Sep 06
$M

Full
Movt
year
Sep 06
Sep 05 v. Sep 05$M%

1

Items recognised directly in equity
Currency translation adjustments

Exchange differences taken to equity

102

(305)

large

(203)

(443)

-54%

2

18

-89%

20

n/a

n/a

(8)

-

n/a

(8)

n/a

n/a
n/a

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

93

28

large

121

n/a

Transferred to income statement for the period

(42)

(14)

large

(56)

n/a

n/a

(80)

25

large

(55)

25

large

Actuarial gain (loss) on defined benefit plans
Net profit/(loss) recognised directly in equity

67

(248)

large

(181)

(418)

-57%

Profit for the period

1,880

1,812

4%

3,692

3,178

16%

Total recognised income and expense for the period
Total recognised income and expense
attributable to minority interest

1,947

1,564

24%

3,511

2,760

27%

(3)

(1)

large

(4)

(3)

33%

1,944

1,563

24%

3,507

2,757

27%

Total recognised income and expense attributable
to shareholders of the company
1.

These items are disclosed net of tax

The notes appearing on pages 69 to 90 form an integral part of these financial statements

67

CONSOLIDATED CASH FLOW STATEMENT

Note
Cash flows from operating activities
Interest received
Dividends received
Fee income received
Other income received
Interest paid
Personnel expenses paid
Premises expenses paid
Other operating expenses paid
Recovery from NHB litigation
Income taxes paid
Australia
Overseas
Goods and Services Tax received (paid)(Increase)/decrease in operating assets:
Liquid assets - greater than three months
Due from other financial institutions
Trading Securities
Regulatory deposits
Loans and advances
Increase/ (decrease) in operating liabilities
Deposits and other borrowings
Due to other financial institutions
Payables and other liabilities
Net cash (used in) operating activities
Cash flows from investing activities
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
Other
Net cash provided by/(used in) investing activities
Cash flows from financing activities
Net (decrease)/increase
Bonds and notes
Issue proceeds
Redemptions
Loan capital
Issue proceeds
Redemptions
Change in minority interest
Dividends paid
Share capital issues
Share capital buyback
Euro Trust security issue
Euro Trust issues costs
Net cash provided by financing activities
Net cash (used in) operating activities
Net cash provided by/(used in) investing activities
Net cash provided by financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Foreign currency translation on opening balances
Cash and cash equivalents at end of period

14

14

The notes appearing on pages 69 to 90 form an integral part of these financial statements

68

Half
year
Sep 06
Inflows(Outflows)
$M

Half
year
Mar 06
Inflows(Outflows)
$M

Full
year
Sep 06
Inflows(Outflows)
$M

Full
year
Sep 05
Inflows(Outflows)$M

11,835
4
1,066
476(7,377)(1,354)(191)(1,172)
27

11,17949
1,016
581(7,299)(1,383)(188)(1,244)87

23,014
53
2,082
1,057
(14,676)(2,737)(379)(2,416)
114

17,868
144
2,303
1,013
(11,414)(2,498)(367)(2,144)
-

(249)
(355)
(13)

(539)
(82)
(5)

(788)
(437)
(18)

(572)
(500)
18

498
512
(1,666)
5(12,879)(1,798)
806
(15)
(47)
(13,969)(1,300)1,318(1,681)(42)(26,848)

(728)
(371)
(821)
5
(28,788)

7,400
700
(474)
(3,207)

8,729
1,159
1,015
(1,948)16,1291,859
541(5,155)19,856
4,972(1,339)(3,363)(5,290)
8,022(10,190)
8,217(15,480)
16,239(17,188)
17,856

(227)
14

(62)
-

(289)
14

(208)
360

(97)
17
1,611
4,050

(153)
2
86
(2,100)

(250)
19
1,697
1,950

(325)
86
(1,719)(1,138)

7,582(4,810)9,924(4,139)17,506(8,949)17,968(5,025)

639
(656)
(2)
(941)
72
1,884
(3,207)
4,050
1,884
2,727
16,845772
20,344

609
2
(989)
75
(146)
5,336
(1,948)(2,100)5,336
1,288
13,702
1,855
16,845

1,248(656)(1,930)
147
(146)
7,220
(5,155)
1,950
7,220
4,015
13,702
2,627
20,344

1,225
(93)
8
(1,808)
120
(204)
875
(4)
13,062(3,363)(1,138)13,0628,561
7,854(2,713)
13,702NOTES TO FINANCIAL INFORMATION

1.

Significant Accounting Policies(i)Basis of preparation
These consolidated financial statements comprise a general purpose financial report and:#should be read in conjunction with the ANZ Financial Report and the ANZ Concise Annual Report for the year
ended 30 September 2006 and any public announcements made by the Parent entity and its controlled
entities (the Group) for the year ended 30 September 2006 in accordance with the continuous disclosure
obligations under the Corporations Act 2001 (as amended) and the ASX Listing Rules;#

are presented in Australian dollars in accordance with class order 98/100 dated 10 July 1998 (millions, except
where stated otherwise);#comply with the accounts provisions of the Banking Act 1959, applicable Australian Accounting Standards, theCorporations Act 2001 (as amended), the Corporations Regulations 2001 and other authoritative
pronouncements of the Australian Accounting Standards Board (AASB);#

do not include all notes of the type normally included in the annual financial report; and#have been prepared in accordance with the historical cost convention except that the following assets andliabilities are stated at their fair value: derivative financial instruments including the fair value of any
applicable underlying exposure, assets treated as available-for-sale, financial instruments held for trading,term funding instruments including specific bonds and notes, and defined benefit plans assets and liabilities.

The preparation of the financial report requires the use of management judgement, estimates and assumptions
that affect reported amounts and the application of policies. The estimates and associated assumptions are
based on historical experience and various other factors that are believed to be reasonable. Actual results may
differ from these estimates. Such estimates may require review in future periods.
International Financial Reporting Standards (IFRS) form the basis of Australian Accounting Standards issued by
the AASB, being Australian equivalents to IFRS (AIFRS). The Group revised its accounting policies effective
1 October 2004 to enable the preparation of financial statements that comply with AIFRS. This is the Group’s
first consolidated financial report prepared in accordance with AIFRS and AASB 1: ‘First-time Adoption ofAustralian Equivalents to International Financial Reporting Standards’ has been applied in preparing thesefinancial statements. An explanation of how the transition from superseded policies to AIFRS has impacted theGroup’s reported financial position, financial performance and cash flow, is set out on the Group’s website(www.anz.com) and in the Consolidated Financial Report and Dividend Announcement for the half year ended
31 March 2006.
The accounting policies have been consistently applied by all consolidated entities and to all periods presented in
the consolidated financial report and the opening AIFRS balance sheet as at 1 October 2004, except for thosepolicies relating to Standards for which comparatives are not restated, as permitted under the first time adoption
transitional provisions. The Standards are AASB 132: ‘Financial Instruments: Presentation and Disclosure’,AASB 139: ‘Financial Instruments: Recognition and Measurement’, and AASB 4: ‘Insurance Contracts’.
The Group’s key accounting policies that have been amended by the adoption of AIFRS follow.
(ii)

Consolidation
The financial statements consolidate the financial statements of Australia and New Zealand Banking Group
Limited (the Company) and all its subsidiaries where it is determined that there is a capacity to control. Control
means the power directly or indirectly to govern the financial and operating policies of an entity so as to obtainbenefits from its activities.
On adoption of AIFRS certain special purpose entities in which the Group holds less than a majority of voting
rights, were deemed to be controlled entities where:#in substance, the majority of the risks and rewards from their activities accrue to the Group; or#in substance, the Group controls their decision making powers so as to obtain the majority of the risks andrewards from their activities.

69

NOTES TO FINANCIAL INFORMATION (continued)

1.

Significant Accounting Policies, cont’d(iii)

Interest income and interest expense
Interest income and interest expense are recognised in the income statement as they accrue using the effective
interest method.
Fee income and directly related transaction costs relating to loan origination, financing or restructurings aredeferred and amortised to interest income over the expected life of the loan using the effective interest method.
Loan commitment fees, together with related direct costs, are deferred and recognised as an adjustment to theinterest yield on the loan once drawn or immediately to the income statement for expired commitments.
Fees and commissions payable to brokers in respect of originating lending business, where these are incremental
costs directly related to the issue of a financial instrument, are included in interest income as part of theeffective interest rate.

(iv)

Fee and commission income
Unless included in the effective interest calculation (refer 1(iii)), fees and commissions are brought to account on
an accrual basis.
Fees and commissions that relate to the execution of a significant act (for example, advisory or arrangement
services, placement fees and underwriting fees) are recognised when the significant act has been completed.
Fees charged for providing ongoing services (for example, maintaining and administering existing facilities) arerecognised as income over the period the service is provided.

(v)

Offsetting of income and expenses
Income and expenses are not offset unless required or permitted by an accounting standard. At the Group level,
this generally arises in the following circumstances:

(vi)

#

where transaction costs, which are an integral part of the effective interest rate of a financial instrument
measured at amortised cost, are offset against the interest income generated by the financial instrument;#

where gains and losses relating to fair value hedges are assessed as being effective;#

where gains and losses from a group of similar transactions are reported on a net basis, such as foreignexchange gains and losses;#

where amounts are collected on behalf of third parties, where the Group is acting as an agent; or#where costs are incurred on behalf of customers and the Group is reimbursed.

Derivative financial instruments
Derivative financial instruments are contracts whose value is derived from one or more underlying price, index orother variable.
Derivative financial instruments including swaps, forward rate agreements, futures, options and combinations ofthese instruments are entered into by the Group for trading purposes, including customer-related reasons, or forhedging purposes where the derivative instruments are used to hedge the Group’s exposures to interest raterisk, currency risk, price risk, credit risk and other exposures relating to non-trading positions.
Derivative financial instruments are recognised initially at fair value with gains or losses from subsequentremeasurement at fair value being recognised in the income statement. Where the derivative is designated andeffective as a hedging instrument, the timing of the recognition of any resultant gain or loss in the income
statement is dependent on the hedging designation. These hedging designations and associated accounting
treatments are as follows:#

Fair value hedge
Where the Group hedges the fair value of a recognised asset or liability or firm commitment, changes in thefair value of derivatives designated as a fair value hedge are recognised in the income statement. Changes in
the fair value of the hedged item attributable to the hedged risk are reflected as adjustments to the carrying
value of the hedged items, which are also recognised in the income statement.
Hedge accounting is discontinued when the hedge instrument expires or is sold, terminated, exercised or nolonger qualifies for hedge accounting. The resulting adjustment to the carrying amount of the hedged item
arising from the hedged risk is amortised to the income statement over the period to maturity.
If the hedged item is sold or repaid, the unamortised fair value adjustment is recognised immediately in theincome statement.

70

NOTES TO FINANCIAL INFORMATION (continued)

1.

Significant Accounting Policies, cont’d(vi)

Derivative financial instruments, cont’d#Cash flow hedge
The Group designates derivatives as cash flow hedges where the instrument hedges the variability in cash
flows of a recognised asset or liability, a foreign exchange component of a firm commitment or a highly
probable forecast transaction. The effective portion of changes in the fair value of derivatives qualifying anddesignated as cash flow hedges is deferred to the cash flow hedging reserve which forms part ofshareholders’ equity. Any ineffective portion is recognised immediately in the income statement. Amounts
deferred in equity are recognised in the income statement in the period during which the hedged forecast
transactions take place.
When the hedge expires, is sold, terminated, exercised, or no longer qualifies for hedge accounting, thecumulative amount deferred in equity remains in the cash flow hedging reserve, and is subsequently
transferred to the income statement when the hedged item is recognised in the income statement.
When a forecast transaction is no longer expected to occur, the amount deferred in equity is recognised
immediately in the income statement.

#

Net investment hedge
Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. The gain orloss from remeasuring the fair value of the hedging instrument relating to the effective portion of the hedge isdeferred in equity and the ineffective portion is recognised immediately in the income statement. Amounts
deferred in the foreign currency translation reserve are recognised in the income statement on disposal of theforeign operation.

All gains and losses from changes in the fair value of derivatives, that are not designated in a hedging
relationship but are entered into to manage the interest rate and foreign exchange risk of funding instruments,
are recognised in the income statement. Under certain circumstances, the component of the fair value change inthe derivative which relates to current period realised and unrealised interest, is included in net interest income.
The remainder of the fair value movement is included in other income.
Derivatives embedded in financial instruments or other host contracts are treated as separate derivatives when
their economic characteristics and risks are not closely related to those of the host contracts, and the hostcontracts are not measured at fair value. The embedded derivative is reported at fair value with changes in fairvalue immediately recognised in the income statement.
(vii)

Trading Securities and other financial assets at fair value through profit or loss
Trading securities and other financial instruments acquired principally for the purpose of selling in the short-termor which are part of a portfolio which is managed for short-term profit-taking are recognised in the balance sheet
at their fair value. Additionally, this valuation basis is used as an alternative to hedge accounting for financial
instruments where certain conditions are met. It is not used for illiquid instruments or those for which thedemonstrated variability in the range of fair value estimates is other than low.
Changes in the fair value (gains or losses) of financial instruments are recognised in the income statement in the
period in which they occur.

(viii) Available-for-sale assets
Available-for-sale assets comprise non-derivative financial assets which the Group designates as available-forsale but which are not deemed to be held principally for trading purposes, and include equity investments,
certain loans and advances and fixed term securities. They are initially recognised at fair value plus transaction
costs. Subsequent gains or losses arising from changes in fair value are included as a separate component ofequity, the ‘available-for-sale revaluation reserve’. When an available-for-sale asset is sold, the cumulative gainor loss relating to the asset is transferred from equity to the income statement.
Where there is objective evidence of impairment to an available-for-sale asset, the cumulative loss related tothat asset is removed from equity and recognised in the income statement. If, in a subsequent period, theamount of an impairment loss relating to an available-for-sale debt instrument decreases and the decrease canbe linked objectively to an event occurring after the impairment event, the loss is reversed through the income
statement.
Premiums and discounts are included within the calculation of the fair value of the security. Interest income isaccrued and dividend income is recognised when the right to receive payment is established.
Financial assets previously disclosed as investment securities are now predominantly treated as available-forsale securities.

71

NOTES TO FINANCIAL INFORMATION (continued)

1.

Significant Accounting Policies, cont’d(ix)

Impairment of loans and advances
Loans and advances are regularly reviewed for impairment.
Credit impairment provisions are raised for exposures, including off-balance sheet items such as commitments
and guarantees, that are known to be impaired. Exposures are impaired and impairment losses incurred if there
is objective evidence of impairment as a result of one or more loss events that occurred after the initialrecognition of the loan and prior to the reporting date, and that loss event or events has had a reliably estimable
impact on the estimated future cash flows of the individual loan or the collective portfolio of loans.
Impairment is assessed firstly for assets that are individually significant (or on a portfolio basis for small valueloans), and then on a collective basis for those exposures not individually known to be impaired.
For those exposures that are assessed collectively, these are placed in pools of similar assets with similar risk
characteristics. The required provision is estimated on the basis of historical loss experience for assets withcredit risk characteristics similar to those in the collective pool. The historical loss experience is adjusted basedon current observable data.
The estimated impairment loss is measured as the difference between the asset’s carrying amount and theestimated future cash flows discounted to their present value. As this discount unwinds during the period
between recognition of impairment and recovery of the written down amount, it is recognised in net interest
income. The process of estimating the amount and timing of cash flows involves considerable management
judgement. These judgements are reviewed regularly to reduce any differences between loss estimates andactual loss experience.
The provision for impairment loss (individual and collective), referred to as “Provision for credit impairment”, isdeducted from loans and advances in the balance sheet and the movement in the provision for the reporting
period is reflected in the income statement. When a loan is uncollectible, it is written-off against the related
provision for loan impairment. Subsequent recoveries of amounts previously written off are taken to the income
statement.
Where impairment losses recognised in previous periods are subsequently decreased or no longer exist, such
impairments are reversed in the income statement.

(x)

Goodwill and other intangible assets#

Goodwill
Goodwill, representing the excess of the purchase consideration over the fair value of the identifiable net
assets of a controlled entity at the date of gaining control, is recognised as an asset and not amortised, but
assessed for impairment annually and whenever there is an indication that the goodwill may be impaired.
Where the assessment results in the goodwill balance exceeding the value of expected future benefits thedifference is charged to the income statement.
Any impairment of goodwill cannot be subsequently reversed.

#

Other intangible assets
Other intangible assets comprise costs incurred in acquiring and building computer software.
Software is amortised using the straight-line method over its expected useful life to the Group. The period ofamortisation is between 3 and 5 years except for branch front-end applications where 7 years is used.
Costs incurred in planning or evaluating software proposals, or in maintaining systems after implementation,
are not capitalised.

(xi)

Impairment of non-financial assets
At each reporting date, the carrying amounts of non-financial assets are reviewed for impairment. If any such
indication exists, the recoverable amount of the assets are estimated and compared against the existing carrying
value. Where the existing carrying value exceeds the recoverable amount, the difference is charged to theincome statement. If it is not possible to estimate the recoverable amount of an individual asset, the Groupestimates the recoverable amount of the cash generating unit to which the asset belongs.
A previously recognised impairment loss is reversed if there has been a change in the estimates used todetermine the recoverable amount.

72

NOTES TO FINANCIAL INFORMATION (continued)

1.

Significant Accounting Policies, cont’d(xii) Employee benefits#

Defined benefit superannuation schemes
The directors have elected under s334(5) of the Corporations Act 2001 to early adopt the December 2004
revision of Australian Accounting Standard AASB 119: ‘Employee Benefits’.
The Group operates a number of defined benefit schemes. The liability and expense related to providing
benefits to employees under each defined benefit scheme are calculated by independent actuaries. Initially, adefined benefit liability is recognised to the extent that the present value of the defined benefit obligation ofeach scheme, calculated using the Projected Unit Credit Method, is greater than the fair value of eachscheme’s assets. Where this calculation results in a benefit to the Group, a defined benefit asset isrecognised. In each subsequent reporting period, ongoing movements in the defined benefit liability or asset
carrying value are treated as follows:#-

the net movement relating to the current period’s service cost, interest cost, expected return on scheme
assets, past service costs and other costs (such as the effects of any curtailments and settlements) is
recognised as an employee expense in the income statement-

movements relating to actuarial gains and losses are recognised directly in retained earnings-

contributions incurred are recognised directly against the net defined benefit position.

Share-based compensation
The Group has various equity settled share-based compensation plans. These will be described in the notes
to the 2006 Annual Financial Report and largely comprise the Employee Share Acquisition Plan and the ANZ
Share Option Plan.
ANZ ordinary shares
The fair value of ANZ ordinary shares granted under the Employee Share Acquisition Plan is measured at
grant date, using the one-day volume weighted average market price of ANZ shares. The fair value isexpensed immediately when shares vest immediately or on a straight-line basis where shares vest over theperiod in which the employees become unconditionally entitled to the shares. This is recognised as an
employee compensation expense with a corresponding increase in equity.
Share options
The fair value of share options is measured at grant date, using an option pricing model. The fair value isexpensed on a straight-line basis over the relevant vesting period. This is recognised as an employeecompensation expense with a corresponding increase in the share options reserve. The option pricing modeltakes into account the exercise price of the option, the risk free interest rate, the expected volatility of ANZ
ordinary share price and other factors. Market vesting conditions are taken into account in estimating the fairvalue.
Performance rights
A Performance Right is a right to acquire a share at nil cost to the employee, subject to satisfactorily meetingtime and performance hurdles. Upon exercise, each Performance Right entitles the holder to one ordinary
share in ANZ. The fair value of Performance Rights is determined at grant date using an option pricing
model, taking into account market conditions. The fair value is expensed over the relevant vesting period.
This is recognised as an employee expense with a corresponding increase in equity.
Other adjustments
The amount recognised as an expense is adjusted to reflect the actual number of shares or share options thatvest, except where forfeiture is only due to share prices not achieving the threshold for vesting.

(xiii) Offsetting of assets and liabilities
Assets and liabilities are offset and the net amount reported in the balance sheet only where:#

there is a current enforceable legal right to offset the asset and liability, and#there is an intention to settle on a net basis, or to realise the asset and settle the liability simultaneously.

73

NOTES TO FINANCIAL INFORMATION (continued)

1.

Significant Accounting Policies, cont’d(xiv) Income tax#

Income tax expense
Income tax on earnings for the period comprises current and deferred tax and is based on the applicable tax
law in each jurisdiction. It is recognised in the income statement as tax expense, except when it relates toitems credited directly to equity, in which case it is recorded in equity, or where it arises from the initialaccounting for a business combination, in which case it is included in the determination of goodwill.

#

Current tax
Current tax is the expected tax payable on taxable income for the period, based on tax rates (and tax laws)
which are enacted or substantively enacted by the reporting date, including any adjustment for tax payable inprevious periods. Current tax for current and prior periods is recognised as a liability (or asset) to the extent
that it is unpaid (or refundable).

#

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

#

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

74

NOTES TO FINANCIAL INFORMATION (continued)

2.

IncomeFullyear
Sep 06
$M

Movt
Full
Sep 06year
Sep 05 v. Sep 05
%
$M

Half
year
Sep 06
$M

Half
Movt
Sep 06year
Mar 06 v. Mar 06%$M

Interest income

11,524

10,777

7%

22,301

17,71926%

Interest expense
Net interest income(7,949)3,575(7,409)3,368

7% (15,358)
6%
6,943

(11,901)
5,818

29%
19%

-59%

i) Fee and commission income
1

Lending fees

215

215

0%

430

1,043

Non-lending fees and commissions

1,017

939

8%

1,956

1,800

9%

Total fee and commission income

1,232

1,154

7%

2,386

2,843

-16%

(116)
1,116

(125)
1,029

-7%
8%

(241)
2,145

(232)
2,611

4%
-18%

Foreign exchange earnings

220

227

-3%

447

454

-2%

Net gains/(losses) from trading securities

(24)

17

large

(7)

33

large

Net gains from trading derivatives

89

127

-30%

216

101

large

3

31

18

72%

49

-

n/a

-

14

-100%

14

-

n/a

2

Fee and commission expense
Net fee and commission incomeii) Other income

Ineffective hedge fair value gains

Settlement of ANZ National Bank warranty claims
Gain from the sale of NBNZ Life

-

-

n/a

-

14

-100%

62

57

9%

119

149

-20%

Share of joint venture profit from ING (NZ)

8

11

-27%

19

-

n/a

Share of associates profit - International Partnerships

19

15

27%

34

40

-15%
0%

Share of joint venture profit from ING Australia
4

Share of associates profit - other (net of write-offs)

4

3

33%

7

7

Private Equity and Infrastructure earnings

12

10

20%

22

22

0%

Other
Total other income

77
498

67
566

15%
-12%

144
1,064

147
967

-2%
10%

5

Total other operating income

1,614

1,595

1%

3,209

3,578

-10%

Total income

13,13812,372

6%

25,51021,29720%

Profit before income tax as a % of total income

20.25%

20.64%

20.44%

20.65%

1.

Lending fees in 2006 exclude fees included as part of the effective yield calculation

2.

Comprises interchange fees paid

3.

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, profit or loss on disposal of investment securities, and fair value movement in bonds and notes
designated at fair value

4.

A joint venture entity from 30 September 2005

5.

Includes earnings from private equity and infrastructure portfolios. Includes share of associates’ profit $15 million (2005 full year: $5 million; Sep 2006
half: $11 million; Mar 2006 half: $4 million)

75

NOTES TO FINANCIAL INFORMATION (continued)

3.

Operating expenses
Half
year
Sep 06
$M

Half
Movt
Sep 06year
Mar 06 v. Mar 06
%
$M

Full
year
Sep 06
$M

Movt
Full
Sep 06year
Sep 05 v. Sep 05%$M

Personnel
Employee entitlements and taxes

101

106

-5%

207

190

9%

Salaries and wages

874

872

0%

1,746

1,625

7%

Superannuation costs - defined benefit plans

7

4

75%

11

16

-31%

Superannuation costs - defined contribution plans

80

80

0%

160

143

12%
-5%

Equity-settled share-based payments

38

38

0%

76

80

Temporary staff

57

64

-11%

121

111

9%

209
1,366

199
1,363

5%
0%

408
2,729

364
2,529

12%
8%

Other
Total personnel expenses
Premises
Depreciation and amortisation

17

16

6%

33

27

22%

Rent

115

113

2%

228

213

7%

Utilities and other outgoings

64

64

0%

128

122

5%

12
208

13
206

-8%
1%

25
414

32
394

-22%
5%

Computer contractors

23

24

-4%

47

53

-11%

Data communications

29

28

4%

57

60

-5%

Depreciation and amortisation

104

104

0%

208

235

-11%

Rentals and repairs

33

35

-6%

68

58

17%

Software purchased

64

53

21%

117

115

2%

Other
Total computer expenses

32
285

20
264

60%
8%

52
549

37
558

41%
-2%

Advertising and public relations

95

80

19%

175

161

9%

Audit fees

6

3

100%

9

7

29%

Depreciation of furniture and equipment

25

23

9%

48

43

12%

Other
Total premises expenses
ComputerOther

Freight and cartage

24

23

4%

47

45

4%

Non-lending losses, frauds and forgeries

19

36

-47%

55

62

-11%

-

(113)

-100%

(113)

-

n/a

59

57

4%

116

113

3%

Settlement of NHB insurance claim
Postage and stationery
Professional fees

66

61

8%

127

123

3%

Telephone

28

28

0%

56

55

2%

Travel

71

65

9%

136

124

10%

71
464

61
324

16%
43%

132
788

152
885

-13%
-11%

23

28

-18%

51

52

-2%

2,346

2,185

7%

4,531

4,418

3%

Other
Total other expenses
Restructuring
1

Operating expenses
1.

Includes ANZ National Bank incremental integration costs $39 million (2005 full year: $78 million; Sep 2006 half: $nil; Mar 2006 half: $39 million)

76

NOTES TO FINANCIAL INFORMATION (continued)

4.

Income tax expense
Half
year
Sep 06
$M

Half
Movt
year
Sep 06
Mar 06 v. Mar 06
$M
%

Full
year
Sep 06
$M

Full
Movt
year
Sep 06
Sep 05 v. Sep 05
$M
%

2,660

2,554

4%

5,214

4,398

19%

798

766

4%

1,564

1,320

18%

Overseas tax rate differential

9

16

-44%

25

22

14%

Rebateable and non-assessable dividends

(3)

(3)

0%

(6)

(23)

-74%
-72%

Reconciliation of the prima facie income tax
expense on pre-tax profit with the income tax
expense charged in the Income Statement
Profit before income tax
Prima facie income tax expense at 30%
Tax effect of permanent differences:

Other non-assessable income

(4)

(5)

-20%

(9)

(32)

Profit from associated and joint venture entities

(31)

(26)

19%

(57)

(59)

-3%

-

-

n/a

-

(5)

-100%
large

Life insurance accounting
Other

15

(6)

large

9

(1)

784

742

6%

1,526

1,222

25%

Income tax (over) provided in previous years

(4)

-

n/a

(4)

(2)

100%

Total income tax expense on operating profit

780

742

5%

1,522

1,220

25%

Australia

510

474

8%

984

803

23%

Overseas

270

268

1%

538

417

29%

780
29.3%

742
29.1%

5%

1,522
29.2%

1,220
27.7%

25%

Effective Tax Rate - GroupTax expense comprises:
Current tax expense

901

846

7%

1,747

1,044

67%

Deferred tax expense

(121)

(104)

16%

(225)

176

large

780

742

5%

1,522

1,220

25%

77

NOTES TO FINANCIAL INFORMATION (continued)

5.

Dividends
Ordinary Shares
Half
year
Sep 06
$M

Half
Movt
year
Sep 06
Mar 06 v. Mar 06
$M
%

Full
year
Sep 06
$M

Full
Movt
year
Sep 06
Sep 05 v. Sep 05$M%

Dividend per ordinary share (cents)
Interim (fully franked)

n/a

56

n/a

56

51

10%

Final (fully franked)

69

n/a

n/a

69

59

17%

1,024

-

n/a

1,024

930

10%

Ordinary share dividend

1Interim dividend paid
Final dividend paid
Bonus option plan adjustment
Total
2

Ordinary share dividend payout ratio (%)

-

1,078

n/a

1,078

983

10%

(16)
1,008

(18)
1,060

-11%
-5%

(34)
2,068

(36)
1,877

-6%
10%

68.0%

56.9%

62.6%

65.0%

1.

Dividends recorded when determined

2.

Dividend payout ratio calculated using proposed final dividend of $1,267 million not included in the above table. Dividend payout ratio for the March 2006
half year calculated using $1,024 million dividends paid in September 2006 halfPreference Shares

Half
year
Sep 06
$M

Half
Movt
year
Sep 06
Mar 06 v. Mar 06
$M
%

Full
year
Sep 06
$M

Full
Movt
year
Sep 06
Sep 05 v. Sep 05$M%

Preference share dividend
ANZ StEPS

1

n/a

n/a

n/a

n/a

66

Euro Hybrid

15

12

25%

27

18

50%

15

12

25%

27

84

-68%

2

n/a

n/a

n/a

n/a

$6.58

n/a

Euro Hybrid (EUR)€ 17.84€ 14.8620%€ 32.70€ 21.45

52%

n/aDividend per preference share
ANZ StEPS (AUD)

1.

Under AIFRS, the ANZ StEPS issue is treated as debt, with distributions being reported as an interest expense in year ended 30 September 2006

2.

Represents the equivalent dividend per share on distributions made78

NOTES TO FINANCIAL INFORMATION (continued)

6.

Earnings per share

Number of fully paid ordinary shares on issue (M)

Full
year
Sep 06
$M

Full
year
Sep 05$M

Movt
Sep 06v. Sep05

0% 1,836.6

1,826.4

1%

Half
year
Sep 06
$M

Half
year
Mar 06$M

Movt
Sep 06v. Mar06

1,836.6

1,828.7

1,877

1,811

4%

3,688

3,175

16%

15

12

25%

27

84

-68%

4%

3,661

3,091

18%

0% 1,830.3

1,823.70%

Basic
Net profit attributable to shareholders of the Company ($M)
Less Preference share dividends ($M)
Net profit excluding preference share dividends ($M)
Weighted average number of ordinary shares (M)Basic earnings per share (cents)

1,862

1,799

1,832.2

1,828.4

101.6

98.4

1,862
24

3%

200.0

169.5

18%

1,799

4%

3,661

3,091

18%

29

-17%

53

48

10%

23

22

5%

45

44

2%

1,909

1,850

3%

3,759

3,183

18%

1,832.2

1,828.4

0% 1,830.3

1,823.7

0%

13.0

11.9

9%

13.9

9.7

43%

54.8

58.0

-6%

54.8

60.1

-9%

-1%

38.2

42.7

-11%

0% 1,937.2

1,936.2

0%

164.4

18%

DilutedNet profit excluding preference share dividends ($M)
1Interest on US Trust securities ($M)
2Interest on ANZ StEPS ($M)
Net profit attributable to shareholders of the Company excludinginterest on US Trust securities and ANZ StEPS ($M)
Adjusted weighted average number of shares on issue (M)Weighted average number of convertible options (M)Weighted average number of convertible US Trust securities
1

at current market price (M)2Weighted average number of convertible ANZ StEPS securities (M)Adjusted weighted average number of shares - diluted (M)Diluted earnings per share (cents)

38.2

38.7

1,938.2

1,937.0

98.5

95.5

3%

194.0

1.

The US Stapled Trust securities issued on 27 November 2003 mandatorily 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, orat the investor’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 54.8 million

2.

ANZ StEPS (issued on 23 September 2003) converts to either $100 for each ANZ StEPS share or a number of ordinary shares calculated at the market priceof ANZ ordinary shares less 2.5%. ANZ StEPS has been included for the first time in dilutive EPS in 2005 due to the adoption of AIFRS. The inclusion of thisissue in EPS increased the diluted number of shares by 38.2 million

79

NOTES TO FINANCIAL INFORMATION (continued)

7.

Net loans and advances
Half
year
Sep 06
$M

Half
Movt
year
Sep 06
Mar 06 v. Mar 06
$M
%

Full
year
Sep 06
$M

Full
Movt
year
Sep 06
Sep 05 v. Sep 05$M%

Australia
Overdrafts

6,237

5,780

8%

6,237

5,276

18%

Credit card outstandings

6,190

5,904

5%

6,190

5,434

14%

Term loans - housing

101,945

96,846

5% 101,945

91,196

12%

Term loans - non-housing

53,90550,873

6%

53,90548,893

10%

Lease finance

2,580

2,774

-7%

2,580

2,854

-10%

9,650
180,507

9,795
171,972-1%9,650
5% 180,507

9,636
163,289

0%
11%

Other

New Zealand
Overdrafts

1,666

1,677

-1%

1,666

1,647

1%

Credit card outstandings

1,081

1,033

5%

1,081

1,026

5%

Term loans - housing

37,84534,961

8%

37,84534,8599%

Term loans - non-housing

26,97925,103

7%

26,97925,012

8%

421

361

17%

421

639

-34%

937
68,929901
64,0364%
8%937
68,9291,207
64,390-22%
7%

Lease finance
Other

Overseas markets
Overdrafts

518

434

19%

518

303

71%

Credit card outstandings

198

184

8%

198

134

48%

Term loans - housing

766

693

11%

766

592

29%

8,347

8,051

4%

8,347

7,510

11%

179

217

-18%

179

217

-18%

194
10,202

156
9,735

24%
5%

194
10,202

69
8,825

large
16%

259,638

245,743

6% 259,638

236,504

10%(2,226)(2,219)0%(2,226)(2,440)-9%(2,002)(4,228)(1,978)(4,197)1%
1%(2,002)(4,228)(1,574)(4,014)27%
5%255,410

241,546

6% 255,410

232,490

10%

Term loans - non-housing
Lease finance
Other
Total gross loans and advances
1

Less provisions for credit impairment (refer note 9)Less Income yet to mature2

1

Total net loans and advances
1.

The provisions for credit impairment were restated under AIFRS. Refer to Note 9 for details of change

2.

Includes fees capitalised and amortised using the effective interest method of $343 million (Mar 2006: $364 million; Sep 2005: $nil)

The following table shows gross loans and advances for New Zealand in NZD terms.

New Zealand

Half
year
Sep 06
NZD $M

Half
Movt
year
Sep 06
Mar 06 v. Mar 06
NZD M
%

Full
year
Sep 06
NZD M

Full
Movt
year
Sep 06
Sep 05 v. Sep 05
NZD M%

Overdrafts

1,908

1,962

-3%

1,908

1,811

5%

Credit card outstandings

1,238

1,209

2%

1,238

1,128

10%

Term loans - housing

43,35140,904

6%

43,351

38,33913%

Term loans - non-housing

30,90429,371

5%30,90427,509

12%

482

422

14%

482

703

-31%

1,075

1,054

2%

1,075

1,326

-19%

78,95874,922

5%

78,95870,816

11%

Lease finance
Other

80

NOTES TO FINANCIAL INFORMATION (continued)

8.

Impaired financial assets
As at
Sep 06As at
Mar 06As at
Sep 05Movt
Movt
Sep 06
Sep 06v. Mar 06 v. Sep 05
$M
%
%

$M

$M

661

726

642

-9%

3%

-

-

28

n/a

-100%

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

37

76

43

-51%

-14%

698

802

713

-13%

-2%

Non-performing loans

(279)

(305)

(256)

-9%

9%

Unproductive facilities

(7)

(11)

(17)

-36%

-59%

412

486

440

-15%

-6%

Gross impaired financial assets
Less individual provisions:

Net impaired financial assets
Non-performing loans
Australia

507

516

355

-2%

43%

New Zealand

132

177

194

-25%

-32%

Overseas markets
Gross non-performing loans

22

33

93

-33%

-76%

661

726

642

-9%

3%

212

212

153

0%

39%

52

75

83

-31%

-37%
-25%

Less individual provisions:
Australia
New ZealandOverseas markets

15

18

20

-17%

Individual provisions

279

305

256

-9%

9%

Net non-performing loans

382

421

386

-9%

-1%

As at
Sep 06As at
Mar 06As at
Sep 05

$M

$M

Movt
Movt
Sep 06
Sep 06v. Mar 06 v. Sep 05
$M
%
%

29

63

29

-54%

0%

7

6

7

17%

0%

Unproductive facilities
Australia
New ZealandOverseas markets

1

7

7

-86%

-86%

37

76

43

-51%

-14%

Australia

6

9

7

-33%

-14%

New Zealand

-

-

7

n/a

-100%

Overseas markets

1

2

3

-50%

-67%

Individual provisions

7

11

17

-36%

-59%

30

65

26

-54%

15%

Half
Movt
year
Sep 06
Mar 06 v. Mar 06
$M
%

Full
year
Sep 06$M

Gross unproductive facilities
Less individual provisions:

Net unproductive facilities

Half
year
Sep 06
$M

Full
Movt
year
Sep 06
Sep 05 v. Sep 05$M%

New and increased non-performing loans
Australia

370

513

-28%

883

585

51%

New Zealand

65

102

-36%

167

282

-41%

19
454

15
630

27%
-28%

34
1,084

96
963

-65%
13%

Overseas markets
1

Total new non-performing loans
1.

Includes $238 million relating to Consumer Finance (2005 full year: $186 million; Sep 2006 half: $138 million; Mar 2006 half: $100 million)

81

NOTES TO FINANCIAL INFORMATION (continued)

8.

Impaired financial assets, cont’d
The following amounts are not classified as individually impaired financial assets and therefore are not included within
the summary on page 81.
As at
Sep 06
Accruing loans past due 90 days or more

1

As at
Mar 06As at
Sep 05Movt
Movt
Sep 06
Sep 06v. Mar 06 v. Sep 05
$M
%
%

$M

$M

Australia

406

339

282

20%

44%

New Zealand

75

74

66

1%

14%

Overseas markets

18
499

15
428

33
381

20%
17%

-45%
31%

1.

Includes unsecured credit card and personal loans 90 day past due accounts which are allowed by APRA to be retained on an accrual basis for up to
180 days past due amounting to $64 million (Mar 2006: $64 million; Sep 2005: $51 million). The remainder of 90 day past due accounts are predominantly
held on an accrual basis having been assessed as ‘well secured’, for example no loss of principal or interest is expected

In the event of customer default, any loan security is held as mortgagee in possession and therefore the Group does nothold any other real estate owned assets.
9.

Provision for credit impairment
1

Collective provision
Balance at start of period
Adjustment due to adoption of accounting standard
AASB 139

Halfyear
Sep 06
$M

Half
Movt
Sep 06year
Mar 06 v. Mar 06
%
$M

Full
year
Sep 06
$M

1,903

2,167

-12%

2,167

AGAAP
Movt
Full
Sep 06year
Sep 05 v. Sep 05
%
$M
1,992

9%

-

(288)

-100%

(288)

-

n/a

-

-

n/a

-

(13)

-100%

Adjustment for exchange rate fluctuations

4

(12)

large

(8)

(35)

-77%

Charge to income statement

33

36

-8%

69

580

-88%

-

-

n/a

-

(471)

-100%

1,940

1,903

n/a
2%

1,940

114
2,167

-100%
-10%

Balance at start of period
Adjustment due to adoption of accounting standard
AASB 139

316

273

16%

273

384

-29%

-

(1)

-100%

(1)

-

n/a

Charge to income statement

150

188

-20%

338

-

n/a
-64%

Provisions acquired (disposed)

Transfer to individual provision
Recoveries

22

Total collective provision3

Individual provision

Adjustment for exchange rate fluctuations

(1)

(3)

-67%

(4)

(11)

Discount unwind

(13)

(13)

0%

(26)

-

n/a

Bad debts written off

(239)

(182)

31%

(421)

(571)

-26%

73

54

35%

127

-

n/a

286

316

n/a
-9%

286

471
273

-100%
5%

2,226

2,219

0%

2,226

2,440

-9%

Recoveries of amounts previously written off
Transfer from collective provision
Total individual provision2

Total provision for credit impairment
1.
2.
3.

2005 figures represent general provision and specific provision
Under AIFRS, the impairment calculation results in a nil amount for these line items from 1 October 2005
The Collective Provision includes amounts for off balance sheet credit exposures, $260 million at 30 September 2006 ($255 million at 1 October 2005). The
charge to the income statement for the year ended 30 September 2006 was $5 million
1

Provision movement analysis
New and increased provisions
Australia
New ZealandOverseas markets

Half
year
Sep 06
$M
253
41
17
311
(88)
223
(73)
150
33
183

Provision releases
Recoveries of amounts previously written off
Individual provision charge
Net credit to collective provision
Charge to Income Statement1.

2005 figures represent general provision and specific provision

82

Half
Movt
year
Sep 06
Mar 06 v. Mar 06
$M
%
255
40
12
307
(65)
242
(54)
188
36
224

-1%
3%
42%
1%
35%
-8%
35%
-20%
-8%
-18%

Full
year
Sep 06
$M
508
81
29
618
(153)
465
(127)
338
69
407

AGAAP
Full
Movt
year
Sep 06
Sep 05 v. Sep 05
$M
%
378
146
80
604
(133)
471
(114)
357
223
580

34%
-45%
-64%
2%
15%
-1%
11%
-5%
-69%
-30%

NOTES TO FINANCIAL INFORMATION (continued)

9.

Provision for credit impairment, cont’d
As at
Sep 06As at
Mar 06

$M

$M

218
52
270
16
286

221
75
296
20
316

160
90
250
23
273

Half
year
Sep 06
$M

Half
Movt
year
Sep 06
Mar 06 v. Mar 06
$M
%

Full
year
Sep 06
$M

Full
Movt
year
Sep 06
Sep 05 v. Sep 05
$M
%

1,471

1,536

-4%

1,471

1,443

1,000

1,000

0%

1,000

-

n/a

401

419

-4%

401

394

2%

8,254
11,126

8,166
11,121

1%
0%

8,254
11,126

7,300
9,137

13%
22%

Individual provision balance
Australia
New ZealandDomestic markets
Overseas markets
Total individual provision

As at
Sep 05Movt
Movt
Sep 06
Sep 06v. Mar 06 v. Sep 05
$M
%
%
-1%
-31%
-9%
-20%
-9%

36%
-42%
8%
-30%
5%

10. Loan capitalHybrid loan capital
1
US stapled trust security issue

2%

ANZ Stapled Exchangeable Preferred Securities(ANZ StEPS)

2

Perpetual subordinated notes
Subordinated notes
Total Loan Capital
1.

2.

Loan capital of USD1.1 billion 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. Hybrid loan capital constitutes Tier 1 capital as defined by the Australian Prudential Regulation Authority for capital
adequacy purposes
ANZ StEPS securities are classified as Loan Capital instead of share capital under AIFRS financial reporting

11. Share Capital
Issued and quoted securities
Number quoted

Issue priceper share

Amount paid
up per share€ 1,000€ 1,000

Ordinary shares
As at 30 September 2006

1,836,572,115

Issued during the full year

16,214,721

Bought back during full year

6,092,086

Preference shares
As at September 2006
1
Euro Hybrid
1.

500,000

On 13 December 2004 the Group issued €500 million hybrid capital into the European market. The instruments consist of a coupon paying note issued by
ANZ Jackson Funding PLC stapled to a fully paid up €1,000 preference share issued by Australia and New Zealand Banking Group Limited

Net profit as a % of shareholders' equity
including preference shares at end of period

Half
year
Sep 06
$M

Half
year
Mar 06
$M

Full
year
Sep 06
$M

Full
year
Sep 05
$M

18.9%

19.3%

18.6%

16.3%

83

NOTES TO FINANCIAL INFORMATION (continued)

12. Shareholders’ Equity
Half
year
Sep 06
$M

Half
Movt
year
Sep 06
Mar 06 v. Mar 06
$M
%

Full
year
Sep 06
$M

Full
Movt
year
Sep 06
Sep 05 v. Sep 05
$M
%

8,939

9,911

-10%

9,911

8,992

10%

-

(987)

-100%

(987)

(62)

large

8,939

8,924

0%

8,924

8,930

0%

Share capital
Balance at start of period
Adjustment due to adoption of AIFRS
Restated balance at beginning of period
Ordinary share capital
Dividend reinvestment plan

80

85

-6%

165

153

8%

Group employee share acquisition scheme

53

37

43%

90

57

58%

Group share option scheme

70

39

79%

109

104

5%

-

(146)

-100%

(146)

(204)

-28%

9,142

8,939

n/a

9,142

871
9,911

-100%

2%

Group Share Buyback
Preference share capital
New preference share issues
Total share capital-8%

Asset revaluation reserve
-

-

n/a

-

31

-100%

Adjustment due to adoption of AIFRS

Balance at start of period

-

-

n/a

-

(31)

-100%

Total asset revaluation reserve

-

-

n/a

-

-

n/a

1

Foreign currency translation reserve
Balance at start of period

(748)

(443)

69%

(443)

218

large

Adjustment due to adoption of AIFRS
Restated balance at beginning of period

(748)

(443)

n/a
69%

(443)

(218)
-

-100%
n/a

Currency translation adjustments
net of hedges after tax

102

(305)

large

(203)

(443)

-54%

Total foreign currency translation reserve

(646)

(748)

-14%

(646)

(443)

46%

Balance at start of period

78

67

16%

67

-

n/a

Adjustment on adoption of AIFRS
Restated balance at beginning of period

78

67

n/a
16%

67

44
44

-100%
52%

Share-based payments

(14)

11

large

(3)

23

large

Transfer (to) retained earnings

(1)

-

n/a

(1)

-

n/a

Total share option reserve

63

78

-19%

63

67

-6%

8

n/a

n/a

n/a

n/a

n/a

specified by AASB 132 & AASB 139
Restated balance at beginning of period

8

(10)
(10)

-100%
large

(10)
(10)

n/a
n/a

n/a
n/a

Valuation gain recognised after tax

2

18

-89%

20

n/a

n/a

2

Share option reserve

3

Available-for-sale revaluation reserve

4

Balance at start of period
Adjustments on adoption of accounting policies
5

Cumulative (gain) transferred to the income
statement on sale of financial assets

(8)

-

n/a

(8)

n/a

n/a

Total available-for-sale revaluation reserve

2

8

-75%

2

n/a

n/a

1.

The asset revaluation reserve has been transferred to retained earnings on adoption of AIFRS

2.

The foreign currency translation reserve has been transferred to retained earnings on adoption of AIFRS

3.

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 exercised

4.

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

5.

ANZ elected, pursuant to accounting standard AASB 1 (36A), to not comply with accounting standards AASB 132 and AASB 139 in the comparative
information in its first AIFRS financial report. Therefore the 2005 year is nil for this line item84

NOTES TO FINANCIAL INFORMATION (continued)

12. Shareholders’ Equity, cont’d
Half
year
Sep 06$M
Hedging reserve

Half
Movt
year
Sep 06
Mar 06 v. Mar 06
$M
%

Full
year
Sep 06
$M

Full
Movt
year
Sep 06
Sep 05 v. Sep 05$M%

6

Balance at start of period

176

n/a

n/a

n/a

n/a

n/a

Adjustments on adoption of accounting policies
5

specified by AASB 132 & AASB 139

-

162

-100%

162

n/a

n/a

Restated balance at beginning of period

176

162

9%

162

n/a

n/a

Gain recognised after tax

93

28

large

121

n/a

n/a

Transferred to income statement
Total hedging reserve

(42)
227

(14)
176

large
29%

(56)
227

n/a
n/a

n/a
n/a

0%

General reserve
Balance at the start of the period
7

Transfer (to) retained earnings
Total general reserve

181

181

0%

181

181

(181)

-

n/a

(181)

-

n/a

-

181

-100%

-

181

-100%

0%

Capital reserve
149

149

0%

149

149

Transfer (to) retained earnings

(149)

-

n/a

(149)

-

n/a

Total capital reserve
Total reserves

(354)

149
(156)

-100%
large

(354)

149
(46)

-100%
large

9,979

9,646

3%

9,646

8,336

16%

-

(431)

-100%

(431)

71

large

Balance at the start of the period
7

Retained earnings
Balance at start of period
8

Adjustment on adoption of AIFRS
Restated balance at beginning of period

9,979

9,215

8%

9,215

8,407

10%

Net profit attributable to shareholders of the Company

1,877

1,811

4%

3,688

3,175

16%

Total available for appropriation

11,856

11,026

8%

12,903

11,582

11%

331

-

n/a

331

-

n/a

(80)

25

large

(55)

25

large

Ordinary share dividends paid

(1,008)(1,060)-5%(2,068)(1,877)

10%

Preference share dividends paid
Retained earnings at end of period(15)
11,084

(12)
9,979

25%
11%

(27)
11,084

(84)
9,646

-68%
15%

Share capital and reserves attributable toto shareholders' of the Company

19,872

18,762

6%

19,872

19,511

2%

Minority interest
Total equity

34
19,90634
18,7960%
6%34
19,90627
19,53826%
2%Transfers from reserves
9

Actuarial gain (loss) on defined benefit plans after tax

6.

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

7.

The transfer of balances from the general and capital reserves to retained earnings represent items of a distributable nature

8.

Comprises- Remeasurement of the carrying value of the Group’s investment in INGA as at 1 October 2005
- Adjustment in respect of hedging derivative financial instruments as at 1 October 2005
- Recognition of the fair value of derivatives relating to securitisation and structured finance transactions as at 1 October 2005
- Deferral of previously recognised fees now treated as an adjustment to yield on 1 October 2005
- Restatement of credit loss provisions to an AIFRS basis

9.

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

85

NOTES TO FINANCIAL INFORMATION (continued)

13. 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.

#

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 our reported results. All
expected settlements and costs have been covered within the provisions established at the time. ANZ may be held
liable in relation to the following:- 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 have served notices on Grindlays and certain of its officers in India that could lead topossible penalties. Criminal prosecutions have also been filed and, in the case of two former officers and the bank,commenced. These prosecutions are being defended.
- Differential Cheques

In June 2003, Grindlays was successful in its appeal against orders to repay, with interest, two payments it
received from a stockbroker in 1991 in connection with securities transactions. These orders had directed
repayment of Indian Rupees 24 million (plus interest accruing at 24% since 1991). Since the appeal decision was
handed down, no further action has been taken against Grindlays in relation to notices in respect of a further
eleven payments received by it in 1991 in similar circumstances totalling Indian Rupees 225 million.
In addition, 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 with no material impact on the Group expected.

#

Contingent tax liability

The Group in Australia was during 2005 subjected to client risk reviews by the Australian Taxation Office (ATO)
across a broad spectrum of matters, as part of normal ATO procedures. The reviews mainly covered years up to
2003. Some matters listed by the ATO for further investigation remain outstanding.
The ATO is also reviewing the taxation treatment of certain other transactions, including legacy structured financetransactions, undertaken by the Group in the course of normal business activities.
The ATO’s review of the sale of Grindlays in 2000 and of the transfer of the life and funds management businesses
into the joint venture with ING Australia in 2002 was finalised during the year.
The Inland Revenue Department (IRD) in New Zealand is reviewing a number of conduit-relieved structured financetransactions as part of normal revenue authority audit procedures. This is part of an industry-wide review by the IRDof these transactions undertaken in New Zealand. The IRD has issued Notices of Proposed Adjustment (the ‘Notices’)
in respect of some of those structured finance transactions. The Notices are not tax assessments and do notestablish a tax liability, but are the first step in a formal disputes process. In addition, some tax assessments
relating to some of the transactions have been received. Should the same position be adopted by the IRD on theremaining transactions of that kind as reflected in the Notices and in the tax assessments received, the maximum
potential tax liability would be approximately NZD469 million (including interest tax effected) for the period to
30 September 2006. Of that maximum potential liability, approximately NZD133 million is subject to tax indemnities
provided by Lloyds TSB Bank PLC under the agreement by which ANZ acquired the National Bank of New Zealand andwhich relate to transactions undertaken by the National Bank of New Zealand before December 2003. All of these
conduit-relieved transactions have now either matured or been terminated.
Additional general or issue-specific audits and other investigations are being undertaken by the New Zealand IRD,
and by revenue authorities in the United States, the United Kingdom and in other jurisdictions as part of normal
revenue authority activity in those countries.
The Company 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.

86

NOTES TO FINANCIAL INFORMATION (continued)

13. Contingent liabilities and contingent assets, cont’d#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.

#

Clearing and Settlement Obligations

In accordance with the clearing and settlement arrangements set out:-in the Australian Payments Clearing Association Limited (APCA) Regulations for the Australian Paper Clearing
System, the Bulk Electronic Clearing System, the Consumer Electronic Clearing System and the High Value
Clearing System (HVCS), the Company has a commitment to rules which could result in a bilateral exposure andloss in the 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 both the APCA HVCS and Austraclear, the obligation arises only in limited circumstances.

Contingent asset matters#

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 the Special Court of Mumbai, after which Grindlays filed an appeal
with the Supreme Court of India. Grindlays paid the disputed money including interest into court. Ultimately, theparties settled the matter and agreed to share the moneys 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 apayment 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 Claims

ANZ has pursued two separate actions arising from the above:-

A $130 million plus interest claim against its insurers. $130 million being the balance of the limit of indemnity
under ANZ’s insurance arrangements for the 1991-92 policy year.
ANZ settled the claim for $114.3 million which has been recognised in these accounts, less an amount of$0.9 million which was recognised in the accounts at 30 September 2005.

-#

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 by NHB. However, the Indian Taxation Department is claiming a statutory
priority to all of the funds available for distribution to creditors of that customer. Proceedings are currently onfoot in the Special Court, Mumbai to determine these issues.

Harris Scarfe

The Receiver and Manager of Harris Scarfe Limited (HSL) and related companies, together with ANZ, have initiatedproceedings in the Supreme Court of South Australia to recover damages for breach of contract, negligence andstatutory causes of action against the former auditors of HSL. These proceedings are continuing. It is not practicable
to reliably estimate the financial effect of these proceedings.

87

NOTES TO FINANCIAL INFORMATION (continued)

14. Note to the Cash Flow Statement(a) Reconciliation of profit after income tax to net cash provided by operating activities

Half
Half
Full
Full
year
year
year
year
Sep 06
Mar 06
Sep 06
Sep 05
Inflows
Inflows
Inflows
Inflows(Outflows) (Outflows) (Outflows) (Outflows)
$M
$M
$M
$M
Reconciliation of profit after income tax
to net cash provided by operating activities
Profit after income tax

1,877

1,811

3,688

3,175

Adjustments to reconcile to net cash provided by operating activities
Provision for credit impairment

183

224

407

580

Depreciation and amortisation
Provision for employee entitlements,
restructuring and other provisions

144

145

289

484

172

78

250

556

Payments from provisions

(121)

(102)

(223)

(498)

Loss on sale of of premises and equipment

1

3

4

22

Profit on sale of available for sale securities

(2)

-

(2)

-

31

-

31

-

(Increase)/decrease in operating assets:

Share based payments reserve
Trading securities
Liquid assets - greater than three months
Due from other banks-more than 90 days
Loans and advances(1,666)(15)(1,681)

(821)

498

(1,798)(1,300)

(728)

512

806

1,318

(371)

(12,879)(13,969)(26,848)(28,788)

Regulatory deposits

5

(47)

(42)

5

Interest receivable

(97)

(22)

(119)

88

Net tax assets

176

121

297

162
19,856

Increase/(decrease) in operating liabilities:

7,400

8,729

16,129Due to other financial insititutions

Deposits and other borrowings

700

1,159

1,859

4,972

Payables and other liabilities

(474)

1,015

541

(1,339)Interest payable

372

110

482

214

(39)

(196)

(235)

(932)

(3,207)(1,948)(5,155)(3,363)Liquid assets - less than 3 months

11,633

9,943

11,6339,600

Due from other financial institutions - less than 3 months

8,711

6,902

8,711

4,102

20,344

16,845

20,344

13,702

80

85

165

153

Other
Net cash (used in) operating activities(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 sheet
as follows

Non-cash financing and investment activities
Share capital issues
Dividend reinvestment plan88

NOTES TO FINANCIAL INFORMATION (continued)

15. Changes in composition of the Group
Newly controlled entities

The following securitisation special purpose entities were consolidated as part of the Group from 1 October 2004 becauseof the application of new AASB UIG Interpretation 112: ‘Consolidation - Special Purpose Entities’. The entities were notincluded in the previous year’s financial statements because AASB UIG 112 became operative on 1 October 2005.

#

Arc Funding Pty Ltd#

Kingfisher Trust 2001-1G#

Omeros II Trust#

Eos Trust#Kingfisher Trust 2004-1G#

Solera Trust#

Kingfisher Trust No. 1#

Kingfisher Securitisation Pty Ltd#

Stellar Funding Pty Ltd#

Kingfisher Trust No. 2#

Omeros Trust#

Coral Finance Ltd

The impact of the consolidation of these entities has been to increase assets and liabilities recorded within the Balance
Sheet by $5 billion as at 1 October 2004. For the comparative year ended 30 September 2005, the Group recognised adecrease in both assets and liabilities of $388 million reflecting the net impact of repayment and securitisation of new
assets during the year.

Disposal of controlled entities

There were no material controlled entities disposed of during the year to 30 September 2006. On 30 September 2005,
the controlled entities NBNZ Life Insurance Limited and NBNZ Investment Services Limited were sold. The profit before
tax on disposal was $14 million ($14 million after tax). The after tax contribution prior to disposal was $9 million in the
September 2005 half (Mar 2005 half: $9 million).

16. Associates, joint venture entities and investments

Half
year
Sep 06
$M

Movt
Half
Sep 06year
Mar 06 v. Mar 06
%
$M

Full
year
Sep 06
$M

Movt
Full
Sep 06year
Sep 05 v. Sep 05%$M

Aggregate associates and joint venture entities
Operating profit

104

90

16%

194

201

-3%

Profit after income tax

104

90

16%

194

201

-3%

Significant contributions to profit

Contribution toGroup pre-tax profit

Ownership interest
held by Group

Half
year
Sep 06
$M

Half
year
Mar 06
$M

Full
year
Sep 06
$M

Full
year
Sep 05$M

As at
Sep 06As at
Mar 06

Sep 05

As at

%

%

%

Associates
PT Panin Indonesia Bank

10

12

22

37

29

29

29

E*Trade

4

3

7

6

34

34

34

Metrobank Card Corporation Inc
1
Tianjin City Commercial Bank

4

3

7

3

40

40

40

5

n/a

5

n/a

20

n/a

n/a

62

57

119

149

49

49

49

8

11

19

-

49

49

49

Joint ventures
ING Australia Limited2
ING (NZ) Holdings Limited
1.

An associate from 13 June 2006

2.

A joint venture entity from 30 September 2005.

89

NOTES TO FINANCIAL INFORMATION (continued)

17. Exchange rates
Major exchange rates used in translation of results of offshore controlled entities and branches into the Group accounts
for each reporting period were as follows:

Balance Sheet
As at
As at
Sep 06
Mar 06As at
Sep 05

Profit and Loss Average
Half
Half
Full
year
year
year
Sep 06
Mar 06
Sep 06

Fullyear
Sep 05Euro

0.58820.58900.63250.59410.62020.60710.6024

Great British pound

0.39820.41040.43250.40630.42370.41500.4142

New Zealand dollar

1.1455

1.17001.09981.1942

1.0921

1.14331.0847

United States dollar

0.7476

0.71620.76230.75180.74180.74680.7657

18. Significant events since balance dateOn 1 September 2006, the Group announced that it had agreed to sell Esanda Fleetpartners in Australia and New
Zealand to Nikko Principal Investments Australia, the Australian private equity arm of Nikko Cordial Corporation for
approximately $380 million. The profit after tax on sale is anticipated to be approximately $130 million. This sale isexpected to be completed by the end of October 2006. Esanda Fleetpartners contributed approximately $20 million to
the Group’s net profit after tax for the year ended 30 September 2006.
There have been no other significant events from 30 September 2006 to the date of this report.

19. Impact of adopting Australian Equivalents to International Financial Reporting Standards (AIFRS)
Please refer to the Dividend Announcement for the half year ended 31 March 2006 and to our website (www.anz.com).

90

APPENDIX 4E STATEMENT

The directors of Australia and New Zealand Banking Group Limited confirm that the financial information and notes of theconsolidated entity set out on pages 65 to 90 are in the process of being audited.

Charles Goode
ChairmanJohn McFarlane
Director

25 October 2006

91

SUPPLEMENTARY INFORMATION

Average Balance Sheet on a fully comparable AIFRS basis1
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, advances and bills
discounted”. Intra-group interest earning assets and interest bearing liabilities are treated as external assets and liabilities
for the geographic segments.
Full year Sep 06

Full year Sep 05

Ave balInt

Rate

Ave bal

Int

Rate

$M

$M

%

$M

$M

%

Interest earning assets
Due from other financial institutions
Australia

1,442

71

4.9%

807

42

5.2%

New Zealand

2,236

146

6.5%

2,242

126

5.6%

Overseas markets

4,061

190

4.7%

2,664

90

3.4%

Trading and available for sale and other assets
15,957946

5.9%

11,482639

5.6%

New ZealandAustralia

2,459

182

7.4%

2,226

133

6.0%

Overseas markets

2,883

134

4.6%

2,992

100

3.3%

170,118

12,4787.3%

151,898

10,971

7.2%

65,134

5,653

8.7%

60,993

5,115

8.4%

9,538

671

7.0%

8,990

522

5.8%

13,786958

6.9%

13,166

893

6.8%

216

11

5.1%

74

2

2.7%
5.0%

Loans, advances and bills discounted
Australia
New ZealandOverseas markets
Acceptances

2

Australia
Overseas markets
Other assets
Australia

3,833

317

8.3%

2,217

110

New Zealand

4,361

283

6.5%

2,912

166

5.7%

Overseas markets

4,155

261

6.3%

3,318

190

5.7%

11,501

559

4.9%

9,476

330

3.5%

311,680

22,860275,457

19,429Intragroup assets
Overseas markets
Intragroup elimination(11,501)(559)

300,179

22,301

7.4%(9,476)(330)

265,981

19,099Non-interest earning assets
Derivatives
Australia

9,600

4,937

New Zealand

2,593

1,646

Overseas markets

(579)

(267)

Premises and equipment

1,074

1,094

13,22313,027

Other assets
Provisions for credit impairment
Australia(1,567)(1,451)New Zealand

(419)

(421)

Overseas markets

(191)

(254)

23,734

18,311

323,913284,292

Total average assets
1.

See definition on page 100

2.

Acceptances have been classified as interest earning assets following adoption of AIFRS on 1 October 2005. This is consistent with the reclassification ofcommercial bill margins from fees to net interest.

92

7.2%

SUPPLEMENTARY INFORMATION (continued)

Average Balance Sheet on a fully comparable AIFRS basis1, cont’d
Full year Sep 06

Full year Sep 05

Ave balInt

Rate

Ave bal

Int

Rate

$M

$M

%

$M

$M

%

Australia

42,907

2,445

5.7%

39,388

2,126

5.4%

New Zealand

26,363

1,839

7.0%

25,582

1,659

6.5%

Overseas markets

13,699646

4.7%

11,075383

3.5%Interest bearing liabilities
Time deposits

Savings deposits
Australia
New ZealandOverseas markets

15,087480

3.2%

13,896

413

3.0%

6,841

305

4.5%

7,210

291

4.0%

566

10

1.8%

417

3

0.7%

Other demand deposits
Australia

38,935

1,751

4.5%

33,950

1,432

4.2%

New Zealand

8,494

502

5.9%

7,992

412

5.2%

Overseas markets

1,003

22

2.2%

794

13

1.6%

Australia

4,151

223

5.4%

1,456

86

5.9%

New Zealand

1,961

107

5.5%

1,680

93

5.5%

Overseas markets

5,965

306

5.1%

4,642

166

3.6%
5.6%

Due to other financial institutions

Commercial paper
Australia

10,858

637

5.9%

7,879

443

New Zealand

6,315

470

7.4%

7,717

521

6.8%

Overseas markets

7,373

333

4.5%

6,260

171

2.7%

Australia

9,117

522

5.7%

9,258

518

5.6%

New Zealand

1,863

130

7.0%

1,954

125

6.4%

13,786799

5.8%

13,166

730

5.5%

216

10

4.6%

74

2

2.7%

45,244

2,677

5.9%

39,305

2,207

5.6%

9,293

703

7.6%

4,757

335

7.0%

135

7

5.2%

137

4

2.9%

Borrowing corporations' debt

Acceptances

2

Australia
Overseas markets
Loan capital, bonds and notes
Australia
New ZealandOverseas markets
Other liabilities

3

Australia

5,122

304

n/a

4,593

452

n/a

New Zealand

149

94

n/a

107

101

n/a

Overseas markets

510

36

n/a

91

17

n/a

Intragroup liabilities
Australia

5,146

169

3.3%

3,646

(14)

-0.4%

New Zealand

6,355

390

6.1%

5,830

344

5.9%

287,454

15,917

252,856

13,033Intragroup elimination(11,501)(559)

275,953

15,3585.6%(9,476)(330)

243,380

12,703

Non-interest bearing liabilities
Deposits
Australia

4,412

4,147

New Zealand

3,682

3,535

Overseas markets

1,123

976

Derivatives
Australia

8,642

4,765

New Zealand

2,663

2,106

Overseas markets

(635)

(460)

9,457

8,659

29,344305,297

23,728267,108

Other liabilities
Total average liabilities
1.

See definition on page 100

2.

Acceptances have been classified as interest bearing liabilities following adoption of AIFRS on 1 October 2005. This is consistent with the reclassification ofcommercial bill margins from fees to net interest.

3.

Includes foreign exchange swap costs

93

5.2%

SUPPLEMENTARY INFORMATION (continued)

Average Balance Sheet on a fully comparable AIFRS basis1, cont’d
Half year Sep 06

Half year Mar 06

Ave balInt

Rate

Ave bal

Int

Rate

$M

$M

%

$M

$M

%

Australia

1,563

39

5.0%

1,320

32

4.9%

New Zealand

2,340

77

6.6%

2,131

69

6.5%

Overseas markets

3,539

91

5.1%

4,586

99

4.3%

16,655513

6.1%

15,255433

5.7%Interest earning assets
Due from other financial institutions

Investments in available for sale and other assets
Australia
New Zealand

2,625

99

7.5%

2,292

83

7.3%

Overseas markets

3,078

77

5.0%

2,687

57

4.3%

Loans and advances
Australia
New ZealandOverseas markets
Acceptances

175,106

6,491

7.4%

165,103

5,987

7.3%

64,406

2,804

8.7%

65,866

2,849

8.7%

9,902

363

7.3%

9,172

308

6.7%

13,847494

7.1%

13,725

464

6.8%

262

7

5.3%

170

4

4.7%

2

Australia
Overseas markets
Other assets
Australia

4,326

189

8.7%

3,337

128

7.7%

New Zealand

4,305

150

6.9%

4,417

133

6.0%

Overseas markets

4,008

130

6.5%

4,303

131

6.1%

10,959287

5.2%

12,046272

4.5%

316,921

11,811

306,410

11,049(10,959)(287)(12,046)(272)

305,962

11,524294,364

10,777Intragroup assets
Overseas markets
Intragroup elimination

7.5%

Non-interest earning assets
Derivatives
Australia

12,476

6,708

New Zealand

3,004

2,180

Overseas markets

(594)

(564)

Premises and equipment

1,070

1,078

12,656

13,794(1,635)(1,499)

(406)

(432)

Other assets
Provisions for credit impairment
Australia
New ZealandOverseas markets
Total average assets
1.

See definition on page 100

2.

Excludes Treasury shares held within the Group

(197)

(185)

26,37421,080332,336

315,444

94

7.3%

SUPPLEMENTARY INFORMATION (continued)

Average Balance Sheet on a fully comparable AIFRS basis1, cont’d
Half year Sep 06

Half year Mar 06

Ave balInt

Rate

Ave bal

Int

Rate

$M

$M

%

$M

$M

%

5.6%

Interest bearing liabilities
Time deposits
Australia

44,482

1,294

5.8%

41,323

1,151

New Zealand

25,861912

7.0%

26,868927

6.9%

Overseas markets

14,591363

5.0%

12,802283

4.4%

Savings deposits
Australia
New ZealandOverseas markets

15,407252

3.3%

14,765

228

3.1%

6,662

154

4.6%

7,021

151

4.3%

630

7

2.2%

502

3

1.2%
4.4%

Other demand deposits
40,478939

4.6%

37,384812

New ZealandAustralia

8,612

260

6.0%

8,375

242

5.8%

Overseas markets

1,038

13

2.5%

968

9

1.9%

Due to other financial institutions
Australia

5,284

145

5.5%

3,012

78

5.2%

New Zealand

1,795

49

5.4%

2,128

58

5.5%

Overseas markets

5,331

142

5.3%

6,602

164

5.0%

Commercial paper
12,104

362

6.0%

9,605

275

5.7%

New ZealandAustralia

5,754

217

7.5%

6,879

253

7.4%

Overseas markets

6,127

153

5.0%

8,626

180

4.2%

Australia

9,110

265

5.8%

9,124

257

5.6%

New Zealand

1,765

63

7.1%

1,962

67

6.8%

13,847415

6.0%

13,725

384

5.6%

262

6

4.6%

170

4

4.7%

46,886

1,425

6.1%

43,593

1,252

5.8%

9,693

372

7.7%

8,891

331

7.5%

133

4

6.0%

137

3

4.4%

5,395

71

n/a

4,847

233

n/a

64

44

n/a

234

50

n/a

551

22

n/a

469

14

n/a

Borrowing corporations' debt

Acceptances

2

Australia
Overseas markets
Loan capital, bonds and notes
Australia
New ZealandOverseas markets
Other liabilities

3

Australia
New ZealandOverseas markets
Intragroup liabilities
Australia

4,571

87

3.8%

5,724

82

2.9%

New Zealand

6,388

200

6.2%

6,322

190

6.0%

292,8218,236

282,058

7,681

Intragroup elimination(10,959)(287)

281,862

7,949

5.6%

(12,046)(272)

270,012

7,409

Non-interest bearing liabilities
Deposits
Australia

4,437

4,387

New Zealand

3,507

3,858

Overseas markets

1,142

1,104

Derivatives
Australia
New ZealandOverseas markets
Other liabilities
Total average liabilities
1.

See definition on page 100

2.

Average interest rate received on interest earning assets

3.

Includes foreign exchange swap costs

10,453

6,821

3,184

2,139

(297)

(975)

8,952

9,964

31,37827,298313,240

297,31095

5.5%

SUPPLEMENTARY INFORMATION (continued)

Average Balance Sheet on a fully comparable AIFRS basis1, cont’d
Half
year
Sep 06
$M

Half
year
Mar 06
$M

Full
year
Sep 06
$M

Full
year
Sep 05$M

Australia

229,872

211,498

220,710

190,540

New Zealand

80,412

81,736

81,072

74,564

Overseas markets

33,011

34,25633,632

28,664(10,959)(12,046)(11,501)(9,476)332,336

315,444

323,913284,292

30.8%

33.0%

31.9%

33.0%

Australia

211,497

198,740

205,136

179,570

New Zealand

73,67674,70674,19068,373

Overseas markets

31,74832,96432,35427,514

Total average assets

less intragroup elimination% of total average assets attributable
to overseas activities
Average interest earning assets

less intragroup elimination(10,959)(12,046)(11,501)(9,476)

305,962

294,364

300,179

265,981

Australia

218,938

201,742

210,364

181,567

New Zealand

74,82775,83875,331

70,036

Overseas markets

30,434

31,776

31,10324,981(10,959)(12,046)(11,501)(9,476)313,240

297,310305,297

267,108

18,225

17,263

17,745

16,487

871

871

871

697

19,09618,134

18,616

17,184332,336

315,444

323,913284,292

31.6%

34.1%

32.8%

33.4%

Total average liabilities

less intragroup elimination

Total average shareholders' equity
Ordinary share capitalPreference share capital
Total average liabilities and shareholders' equity% of total average liabilities attributable to overseas activities
1.

See definition on page 100

96

SUPPLEMENTARY INFORMATION (continued)

Average Balance Sheet on a fully comparable AIFRS basis1, cont’d
Half
year
Sep 06%Gross earnings rate

Half
year
Mar 06%

Fullyear
Sep 06%

Fullyear
Sep 05%

2

Australia

7.29

7.11

7.20

7.05

New Zealand

8.47

8.41

8.44

8.10

Overseas markets

6.00

5.30

5.64

4.48

Total Group

7.51

7.34

7.43

7.18

Interest spread and net interest average margin may be analysed as follows:
Australia
Gross interest spread

1.99

1.91

1.95

2.02

Interest not recognised on impaired assets(0.01)(0.00)(0.01)(0.01)Net interest spread

1.98

1.91

1.94

2.01

Interest attributable to net non-interest bearing items

0.35

0.40

0.38

0.36

Net interest average margin - Australia

2.33

2.31

2.32

2.37

New ZealandGross interest spread

1.68

1.80

1.74

1.93

Interest not recognised on impaired assets(0.00)(0.02)(0.01)(0.01)Net interest spread

1.68

1.78

1.73

1.92

Interest attributable to net non-interest bearing items

0.65

0.54

0.59

0.51

Net interest average margin - New Zealand

2.33

2.32

2.32

2.43

Overseas markets
Gross interest spread

1.08

0.95

1.02

1.27

Interest not recognised on impaired assets(0.02)(0.02)(0.02)(0.02)Net interest spread

1.06

0.93

1.00

1.25

Interest attributable to net non-interest bearing items

0.48

0.36

0.41

0.47

Net interest average margin - Overseas markets

1.54

1.29

1.41

1.72

Group
Gross interest spread

1.90

1.85

1.87

1.97

Interest not recognised on impaired assets(0.01)(0.01)(0.01)(0.01)Net interest spread

1.89

1.84

1.86

1.96

Interest attributable to net non-interest bearing items

0.44

0.45

0.45

0.44

Net interest average margin

2.33

2.29

2.31

2.40

1.

See definition on page 100

2.

Average interest rate received on interest earning assets

97

SUPPLEMENTARY INFORMATION (continued)

Capital Management

Qualifying Capital
Tier 1AIFRS Shareholders' equity and outside equity interests
Reclassification of preference share capital
Accumulated retained profits & reserves of insurance,
funds management & securitisation entities and associates
2

Deferred fee revenue
Cash flow hedging reserve
3
Dividend
Other adjustments
Fundamental Tier 1 capital
Innovative Tier 1 capital instruments
Gross Tier 1 capital
Deductions
Unamortised goodwill & other intangibles
Capitalised software
4
Capitalised expenses
5
Deferred tax assets
Investment in ANZ Lenders Mortgage Insurance
Other adjustments
Transitional Tier 1 capital relief
Tier 1 capital
Tier 2
Asset Revaluation Reserve
Eligible component of post acquisition earnings and reservesin associates and joint ventures
Perpetual subordinated notes
6
General reserve for impairment of financial assets
Transitional Upper Tier 2 capital relief
Upper Tier 2 capital
7
Subordinated notes
Tier 2 capital
Deductions
Investment in Funds Management, Life Insurance &Securitisation entities
8
Investment in joint ventures with ING
Investment in other Authorised Deposit Taking
Institutions and overseas equivalents
Other
Total deductions
Total qualifying capital
Adjusted common equity
Tier 1 capital
Less: Innovative Tier 1 capital instruments
Transitional Tier 1 Capital Relief
Deductions
9
Adjusted common equity (ACE)Capital adequacy ratios
Tier 1
Tier 2
Deductions
Total
Adjusted common equity
Risk Weighted Assets

As at

As at

As at
Sep 06

Mar 06$M$M

19,906(871)

18,796(871)

19,538(1,858)

6%
0%

2%
-53%

(289)

(161)

(213)

80%

36%

343
(227)
(1,267)(22)
17,573
3,342
20,915258(176)(1,024)86
16,9083,407
20,315(1,077)(81)
16,3093,301
19,610

33%
29%
24%
large
4%
-2%
3%

n/a
n/a
18%
-73%
8%
1%
7%

(3,996)
(397)
(569)
(290)
(31)
9
716
16,357(3,943)(534)(27)
15,811(3,902)(524)(27)
15,157

1%
n/a
7%
n/a
15%
n/a
n/a
3%

2%
n/a
9%
n/a
15%
n/a
n/a
8%

-

-

31

n/a

-100%

184

-

-

n/a

n/a

401
1,344
17
1,946
8,177
10,123

419
1,318
1,737
7,416
9,153

394
1,448
1,873
6,701
8,574

-4%
2%
n/a
12%
10%
11%

2%
-7%
n/a
4%
22%
18%

86
526

86
525

84
528

0%
0%

2%
0%

370
91
1,073
25,407321
13945
24,019159
13784
22,947

15%
large
14%
6%

large
large
37%
11%

16,357
3,321
716
1,073
11,247

15,811
3,385
945
11,481

15,157
3,233
784
11,140

3%
-2%
n/a
14%
-2%

8%
3%
n/a
37%
1%

6.8%
4.2%
11.0%
-0.4%
10.6%
4.7%
240,219

6.8%
4.0%
10.8%
-0.4%
10.4%
5.0%
230,653

6.9%
3.9%
10.8%
-0.3%
10.5%
5.1%
219,573

4%

9%

1

Movt
Movt
Sep 06
Sep 06v. Mar 06 v. Sep 05$M%%

Sep 051

1.

Calculated in accordance with Australian Prudential Regulation Authority requirements and transitional rules effective at those dates

2.

Includes fees deferred under AIFRS forming part of loan yields. Value as at March 2006 is post tax. Value at September 2006 is pre tax, as allowed under thecurrent prudential standard

3.

Relates to dividend not provided for

4.

Comprises loan and lease origination fees, capitalised securitisation establishment costs and costs associated with debt raisings

5.

Deferred tax assets (excluding the component relating to the collective provision) attributable to operations in countries outside Australia

6.

Net of attributable deferred tax asset

7.

For capital adequacy calculation purposes, subordinated note issues are reduced by 20% of the original amount over the last four years to maturity

8.

Joint ventures with ING in Australia and New Zealand

9.

Tier 1 capital, less Innovative Tier 1 capital instruments (converted at balance date spot rates), less transitional Tier 1 capital relief and deductions

98

SUPPLEMENTARY INFORMATION (continued)

Capital Management, cont’dAssets

Sep
2006
$M

Risk Weighted
Assets

Sep
2005
$M

Sep
2006
$M

Sep
2005
$M

Balance Sheet
Zero risk weighted assets

1

Claims on approved banks and local governments

35,24625,941--

19,584

16,054

3,917

3,211

Advances secured by mortgages eligible for 50% risk weighting

131,134

118,895

65,56759,448Other assets - credit risk

138,119

127,204

138,119

127,204

Total statement of financial position assets - credit risk

324,083

288,094

207,603

189,863

Trading assets - market risk

11,688

7,872

n/a

n/a

Impact of adoption of AIFRS
Total balance sheet

335,771

4,919
300,885

207,603

189,863

Notional Amount
Sep
2006
$M

Risk Weighted
AssetsCredit Equivalent

Sep
2005
$M

Sep
2006
$M

Sep
2005
$M

Sep
2006
$M

Sep
2005
$M
7,337

2

Off-balance sheet exposures
Direct credit substitutes

7,588

9,657

7,588

9,657

5,432

Trade and performance related items

14,78813,175

6,470

5,683

5,657

4,953

Commitments

98,55487,31917,03014,017

14,611

12,2491,169,553
1,290,483

782,380
892,53118,01049,09812,30941,666

5,240
30,9403,681
28,220Total risk weighted assets - credit risk

238,543

218,083

Risk weighted assets - market risk
Total risk weighted assets

1,676
240,219

1,490
219,573

Foreign exchange, interest rate and other market
related transactions
Total off balance sheet exposures - credit risk

1.

Includes $1,938 million in assets excluded for risk weighting calculations for Australian Prudential Regulation Authority reporting purposes2.

Excludes off balance sheet exposures in subsidiaries consolidated on adoption of AIFRS from 1 October 2004 as required by Australian Prudential Regulation
Authority

99

DEFINITIONS

Adjusted common equity (ACE) is Tier 1 capital less preference shares and other Hybrid Capital at current rates, regulatory
deductions from total capital and transitional capital relief as approved by the Australian Prudential Regulation Authority.
AIFRS - Australian Equivalents of International Accounting Standards.
Business Unit description:
Personal
Personal is a division comprised of Regional, Rural and Small Business Banking, Banking Products, Mortgages, Consumer Finance,
Investments and Insurance, Esanda, Pacific Banking and a number of other areas, including the branch network and marketing andsupport costs in Australia.
- Regional & Rural Banking provides a full range of banking services to personal customers across regional and rural Australia,
and to small business and agribusiness customers in rural and regional Australia.
- Small Business Banking provides a full range of banking services for metropolitan-based small businesses in Australia withfunds under management up to A$50,000.
- Banking Products provides transaction banking and savings products, such as term deposits, V2+, and cash management
accounts.
- Mortgages provides housing finance to consumers in Australia for both owner occupied and investment purposes.
- Consumer Finance provides consumer and commercial credit cards, ePayment products, personal loans, merchant payment
facilities in Australia and ATM facilities.
- Investments and Insurance comprises ANZ Australia’s Financial Planning, Margin Lending, insurance distribution, and Trustees
businesses in addition to the equity accounted earnings from E*Trade Australia, an online broking business.
- Esanda provides motor vehicle and equipment finance, operating leases and management services, fleet management services
and investment products.
- Pacific provides retail and corporate banking services to customers in the Pacific Region.
Institutional
Institutional is a division encompassing businesses that provide a full range of financial services to ANZ Australia and New Zealandcorporate and institutional customers in all geographies. Institutional has a major presence in Australia and New Zealand and also
operations in UK, USA, 13 countries in Asia, and Europe- Institutional & Corporate Relationships manages customer relationships and develops financial services solutions andstrategies for Business Banking clients with funds under management (“FUM”) in excess of A$50,000, for Corporate clientswith FUM in excess of A$10 million and for Institutional clients with FUM in excess of A$150 million in Australia and New
Zealand and, for global corporate clients with whom ANZ Australia has an existing customer relationship, in the United Kingdom,
United States and Asia.
- Debt and Transaction Services combines managing Institutional and Corporate’s balance sheet with a particular focus on credit
quality, diversification and maximising risk adjusted returns. Also provides cash transaction banking management, trade finance,international payments, clearing and custodian services principally to institutional and corporate customers.
- Markets provides foreign exchange and commodity trading sales-related services to corporate and institutional clients globally.
In addition, the business provides origination, underwriting, structuring and risk management services, advice and sale of credit
and derivative products globally.
- Corporate & Structured Financing provides complex financing and advisory services, structured financial products, leasing,private equity finance, project finance, leveraged finance and infrastructure investment products.
- Personal and Private Banking Asia provides banking services in selected Asian geographies.
New Zealand Banking
The New Zealand Banking division is a combination of New Zealand Institutional and New Zealand Businesses. New ZealandBusinesses includes the following businesses:- ANZ Retail, operating under the ANZ brand in New Zealand provides a full range of banking services to personal and small
business banking customers.
- NBNZ Retail, operating under the National Bank brand in New Zealand, provides a full range of banking services to personal andsmall business banking customers.
- Corporate Banking in New Zealand incorporates the ANZ and National Bank brands and provides financial solutions through arelationship management model for medium-sized businesses with a turnover up to NZ$100 million.
- Rural Banking in New Zealand provides a full range of banking services to rural and agribusiness customers.
- Central support includes Operations, Technology, Treasury, our 49% stake in ING New Zealand, Risk Management, People
Capital, Financial Management and Property New Zealand.
- UDC provides motor vehicle and equipment finance, operating leases and management services, fleet management services, andinvestment products.
Partnerships & Private Bank
Partnerships & Private Bank is responsible for ANZ’s partnerships with other institutions in Australia and Asia, along with our Private
Bank business, and includes the following:- INGA includes the equity accounted earnings from our 49% stake in ING Australia Ltd, a joint venture between ANZ and ING.
- International Partnership- ANZ continues to develop a portfolio of strategic retail partnerships in Asia. ANZ currently has
partnerships in Indonesia with PT Panin Bank, in the Philippines with Metrobank, in Cambodia with the Royal Group, in China withTianjin City Commercial Bank and in Vietnam with Sacombank. These partnerships are focused on leveraging ANZ Australia's
capabilities into faster growing personal and small business banking markets via the established client bases of the local partners.
- Other includes Private Bank and support units within the division.
Group Centre
Group Centre division includes Operations, Technology and Shared Services, Treasury (funding component), Group People Capital, Group
Strategic Development, Group Financial Management, Group Risk Management, Capital Funding and Group Items.

100

DEFINITIONS (continued)‘

Collective provision is 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.
‘

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 Economic Value Added (EVATM) principles are in use throughout the Group, whereby risk adjusted capital isallocated and charged against business units. Equity standardised profit is determined by eliminating the impact of earnings on eachbusiness unit’s book capital and attributing earnings on the business unit’s risk adjusted capital. This enhances comparability ofbusiness unit performance. Geographic results are not equity standardised.
Impaired assets are those whose carrying value was greater than the amount expected to be recovered over its life. Morespecifically, in relation to loans or other credit facilities, impairment may arise where there is reasonable doubt about thecollectability of interest, fees (past and future) or principal outstanding, or where concessional terms have been provided because of
the financial difficulties of the customer.
Income includes external interest income, other external operating income, and if positive, net inter-segment interest income.
Individual provision charge is the amount of impairment on those loans and advances 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 loans and advances.
Liquid assets are cash and cash equivalent assets. Cash equivalent assets are highly liquid investments with short periods tomaturity, are readily convertible to cash at ANZ’s option and are subject to an insignificant risk of changes in value.
Net advances includes gross loans and advances and acceptances less income yet to mature and provisions.
Net inter business unit expenses consists of the charges made between business units for the provision of support services. Bothpayments and receipts by business units are shown as net inter business unit expenses.
Net interest margin is net interest income as a percentage of average interest earning assets. Non-assessable interest income isgrossed up to the equivalent before tax amount for the purpose of these calculations.
Net interest spread is the average interest rate received on interest earning assets less the average interest rate paid on interest
bearing liabilities. Non-assessable interest income is grossed up to the equivalent before tax amount for the purpose of thesecalculations.
Net non-interest bearing items referred to in the analysis of interest spread and net interest average margin, includes
shareholders’ equity, impairment of loans and advances, deposits not bearing interest and other liabilities not bearing interest, offset
by premises and equipment and other non-interest earning assets. Impaired loans are included within interest bearing loans,advances and bills discounted.
Net tangible assets equals share capital and reserves attributable to shareholders of the company less preference share capital andunamortised intangible assets (including software).
Operating expenses exclude the provision for impairment of loans and advances charge.
Operating income in business segments includes equity standardised net interest and other operating income.
Overseas Markets includes all operations outside of Australia and New Zealand. The Group’s geographic segments are Australia,
New Zealand and Overseas Markets.
Profit on a fully comparable AIFRS basis is management’s estimate of prior year results adjusted for the impact of those AIFRS
standards, principally financial instrument and insurance related, which became effective from 1 October 2005. No adjustment has
been made to retrospectively designate derivatives hedging the Group’s funding on the basis of impracticability.
Return on asset ratios include net intra group assets which are risk weighted at 0% for return on risk weighted assets calculations.
Significant items are items that have a material impact (typically >$10 million) on profit after tax, or the earnings used in theearnings per share calculation. Significant items also do not arise in the normal course of business and are infrequent in nature.
Divestments are typically defined as significant items.
Total advances include gross loans and advances and acceptances less income yet to mature (for both as at and average volumes).
Loans and advances classified as available-for-sale are excluded from total advances.
Unproductive facilities comprise facilities (such as standby letters of credit, bill endorsements, documentary letters of credit,
guarantees to third parties, undrawn facilities to which the Group is irrevocably committed and market related exposures) where thecustomer status is non-performing.

101

ALPHABETICAL INDEXPAGEAppendix 4E Statement ...........................................................................................................................................91
Associates, joint venture entities and investments.......................................................................................................89
Business Performance Review ...................................................................................................................................33
Chief Financial Officer’s Review .................................................................................................................................11
Changes in the composition of the Group ...................................................................................................................89
Contingent liabilities and contingent assets.................................................................................................................86
Consolidated Condensed Cash flow statement.............................................................................................................68
Consolidated Condensed Income Statement ...............................................................................................................65
Consolidated Condensed Balance Sheet .....................................................................................................................66
Consolidated Condensed Statement of Recognised Income and Expense ........................................................................67
Definitions............................................................................................................................................................100
Dividends ...............................................................................................................................................................78
Earnings per share ..................................................................................................................................................79
Exchange rates .......................................................................................................................................................90
Financial Highlights .................................................................................................................................................. 5
Five Year summary..................................................................................................................................................61
Geographic Segment Performance.............................................................................................................................53
Highlights................................................................................................................................................................ 1
Impact of adopting Australian Equivalents to International Financial Reporting Standards (AIFRS) ....................................90
Impaired financial assets..........................................................................................................................................81
Income ..................................................................................................................................................................75
Income tax expense ................................................................................................................................................77
Loan capital............................................................................................................................................................83
Net loans and advances ...........................................................................................................................................80
Note to the Cash Flow Statement ..............................................................................................................................88
Operating expenses .................................................................................................................................................76
Provision for credit impairment .................................................................................................................................82
Share Capital..........................................................................................................................................................83
Shareholders’ Equity................................................................................................................................................84
Significant accounting policies...................................................................................................................................69
Significant events since balance date .........................................................................................................................90
Supplementary information - Average Balance Sheet...................................................................................................92
Supplementary information - Capital Management ......................................................................................................98102