ANZ2019
ANNUAL REPORTOur successdepends on
improving thefinancial wellbeingof our customers

COVER STORY

Supporting drought
affected communities
in rural Australia
Brian and Heather Coxon established BJ & HD Coxon Oyster Farmers in 1985 –a time when stocks were plentiful and business was booming. Since that time,
the business has faced some difficult times.
An ANZ customer for 10 years, Brian has appreciated the bank’s
support through those times. “During the algae bloom in 2010
I went to ANZ and pleaded relief. We did not know when things
would pick up. I am grateful for ANZ sticking with us throughthat time”.

Brian recently found himself seeking the assistance of one ofthose agencies, reaching out to the Rural Financial Counselling
Services (Southern NSW). The service, which is free, supports
rural businesses through ongoing drought, poor production or
anything else affecting their business and their life.

Fast forward to 2019 and Brian’s business is once again facing
difficulties, this time as a result of the drought impacting muchof Australia.

“When you’re doing it tough it’s all too hard, and the state you
are in does not always lead to rational decisions,” says Brian. “Thefinancial counsellor looks at you as a person, as well as a business.”“Oyster farming needs fresh water,” says Brian. “Famine on the landmeans famine in the sea. The oysters have poor growth, it’s difficult
to maintain their condition and they’re harder to sell.”

Brian looks forward to building up the business again, but hedoubts things will ever be as good as they were in 1985. “Thisbusiness is mostly about loving the lifestyle. People who want to
be on the water and love working outdoors in Australia’s oldest
aquaculture industry.”

Last year in response to the drought ANZ donated $500,000 to
the Financial Counselling Foundation for use by rural counselling
agencies working in drought affected communities.

Image: Brian Coxon

Contents
2019 performance snapshot

1

Our people24

Our 2019 reporting suite2

Our community

28

What matters most3

Governance

32

Chairman’s message

4

Risk management

44

CEO’s message

6

Performance overview

52

About our business8

Five year summary64

Our strategy

9

Remuneration Report

66

How we create value

10

Directors’ Report

99

Working with our stakeholders

12

Financial Report101

Our operating environment

14

Shareholder information (unaudited)

220

Becoming a fairer and more responsible bank

16

Glossary227

Our customers

17

Important dates for shareholders229

Our divisions

21

Contacts

230

ANZ 2019 ANNUAL REPORT$
2019
performancesnapshot

6.5

b

10.9%

Cash profit1

Cash return on equity 1

160¢

228¢

Dividend for FY19
per share

9.2%
total shareholder
returnCash earnings per share 1$19.59CO2

Net tangible assets
per share 2

11.4%

42.4%

Common Equity
Tier 1 Capital 3of employees
volunteered$19.1bfunded and facilitatedin environmentally
sustainable solutions
since 2015$
>90,000
people have been reachedthrough our financial
wellbeing programs,
MoneyMinded and Saver Plus

1.

2.

$142.2m

32.5%

in community investment5of women in leadership4

On a cash profit (continuing operations) basis. Excludes non-core items included instatutory profit and discontinued operations included in cash profit. It is provided to assist
readers in understanding the result of the ongoing business activities of the Group. For
further information on adjustments between statutory and cash profit refer to page 53.
Equals shareholders’ equity less preference share capital, goodwill, software and otherintangible assets divided by the number of ordinary shares.

3.
4.

5.

APRA Level 2.
Measures representation at the Senior Manager, Executive and Senior Executive levels. Includes
all employees regardless of leave status but not contractors (who are included in FTE).
Figure includes forgone revenue of $109 million, being the cost of providing low or fee
free accounts to a range of customers such as government benefit recipients, not for
profit organisations and students.

1

Our 2019
reporting suite2019 Annual Reportanz.com/annualreport2019 ESG Supplement
anz.com/cs

2019 Corporate Governance Statement
anz.com/corporategovernanceIntegrated reporting

Additional information

This Report includes information on our financial and non-financial
performance, providing readers with a holistic view of the Australia
and New Zealand Banking Group Limited’s1 performance. In
preparing pages 1 to 65, we have continued to draw on aspects of
the International Integrated Reporting (IR) Framework to describe
how our business model, strategy, governance and risk management
processes are addressing risks and opportunities in our operating
environment and delivering value for our stakeholders. We outline
our response to external social and environmental challenges,
including the work we are undertaking to reshape our business,
improve customer outcomes and transform our culture.

We produce a suite of reports to meet the needs and requirementsof a wide range of stakeholders, including investors, customers,
employees, regulators, non-government organisations and thecommunity.

Annual Report structure
The required elements of the Directors Report, including the
Operating and Financial Review (OFR) as required by ASIC Regulatory
Guide 247, are covered on pages 1 to 65. Commentary on our
performance overview contained on pages 52 to 64 references
information reported in the Financial Report pages 101 to 218.
The Remuneration Report pages 66 to 98 and the Financial Reportpages 101 to 218 have been audited by KPMG. KPMG also provides
limited assurance over Environmental, Social and Governance(ESG) content2 within this Annual Report. A copy of KPMG’s limited
assurance report will be contained in the ANZ 2019 Environment,
Social and Governance (ESG) Supplement to be published in
December 2019.
This report covers all ANZ operations worldwide over which, unlessotherwise stated, we have control for the financial year commencing
on 1 October 2018 and ending 30 September 2019. Monetaryamounts in this document are reported in Australian dollars,
unless otherwise stated.

1.
2.

3.

2

2019 Climate-related Financial Disclosuresanz.com/shareholder/centre

Our 2019 Corporate Governance Statement discloses how we havecomplied with the ASX Corporate Governance Council’s ‘Corporate
Governance Principles and Recommendations – 3rd edition’ isavailable at anz.com/corporategovernance.
Our ESG Supplement will complement this Annual Report, providing
stakeholders with more detailed ESG disclosures, including:
performance against our ESG targets and our approach to ourpriority areas of fair and responsible banking, financial wellbeing,environmental sustainability and housing.
The following documents are available atanz.com/shareholder/centre:•• News Release•• Consolidated Financial Report, Dividend Announcement& Appendix 4E•• Results Presentation and Investor Discussion Pack•• Annual Review3•• The Company Financial Report•• Principal Risks and Uncertainties Disclosure•• APS 330 Pillar III Disclosure•• Climate-related Financial Disclosures
We are continually seeking to improve our reporting suite andwelcome feedback on this report. Please address any questions,comments or suggestions to investor.relations@anz.com.

Group: Australia and New Zealand Banking Group Limited (the Company) and the entities it controlled at the year end and from time to time during the financial year (together, the Group).
ESG content includes the following sections: 2019 Performance Snapshot, What Matters Most, Working with our stakeholders, Becoming a fairer and more responsible bank, Our Customers,
Our People, Our Community, Risk Management: Our approach to climate change and ESG metrics on page 65.
The 2019 Annual Review is comprised of pages 1 to 65 and 229 to 230 of this Annual Report and a Remuneration Overview.

ANZ 2019 ANNUAL REPORTWhatmattersmostCustomer story icon

A focus on fair and responsible banking
Through our annual materiality assessment we engage with internaland external stakeholders to inform our identification of ESG risks
and opportunities. We seek to identify those issues that have themost potential to impact our ability to operate successfully andcreate value for our stakeholders.

These insights were presented to the Board Ethics,
Environment, Social and Governance Committee, themanagement Ethics and Responsible Business Committee
and the management Royal Commission and Self-Assessment
Oversight Group, and are informing our continuing work on
improving customer outcomes.

These issues may change over time, reflecting changes in our
We have drawn on our 2018 materiality assessment to help
business and external operating environment and the expectations
guide the content of this report. After fairness and ethicalof stakeholders. We use the results of the assessment to inform
conduct, stakeholders ranked the following four issues (risks or
our strategy.
Most material
issues icons
opportunities) as having the most potential to impact our value
This year, we focused our assessment solely on fairness andcreation in the short, medium and long-term.
ethical conduct, which has been ranked as our most material
issue for the last three years. Specifically, we sought external
Fraud and data security: ensuring we have strong
stakeholder views on the actions we are taking following the Royal
internal controls and risk management frameworks
Commission into Misconduct in the Banking,SuperannuationandMostmaterial issues
icons
in place is critical as a breach could significantly
Financial Services Industry (the Royal Commission).
impact the bank’s operations and reputation.

Customer experience: ensuring a positive
Most material issues icons
customer experience is key to delivering
New icons/infographics
Stakeholders provided us withsustainable business performance in the long-term.

three key insights:

1 They expect
us tofocus on long-termvalue creation,
Most
material
issues icons
not short-term profit maximisation;New
icons/infographics
2 While the actions we have taken to datein responseto theRoyal Commission are considered good and necessary,
they want us to do more. In particular, they expect Boardand management to demonstrate customer-centric
actions in line with theNew‘spirit’icons/infographicsof the Royal Commission’s
findings; and3 They see a broader role for the Board in overseeing conductand culture and an expectation that real and lasting change
icons/infographics
happensNew
as a resultof the Royal Commission.

Corporate governance: organisations with strong
corporate governance processes and policies inplace are likely to perform better in the long-term.

Cu

Digital innovation: core to our strategy and a key
factor in driving positive customer experience.

A full list of ANZ’s key material risks is available on pages 46–47.
The key steps undertaken in our 2019 materiality process, as wellas the full list of our material ESG issues, is discussed in our 2019
ESG Supplement available at anz.com/cs in December.

Stakeholder icons

3Chairman’s
message

DAVID GONSKI, AC

Challenging conditions continued in 2019 and our statutory profit of $6.0 billion was down
7% on the previous year. Cash profit from continuing operations (which excludes non-core
items and the discontinued Wealth businesses from statutory profit) was $6.5 billion, flat
when compared with the same time last year.

Despite those tough conditions, we held our
FY19 full year dividend at 160 cents with thefinal dividend of 80 cents franked at 70%.
We recognise how important the dividend, franking and predictability is to shareholders.
The Board’s decision to reduce franking to a new base reflects the changed shape of ourbusiness and the earnings in our Australian geography.
This has been a difficult year for us and Australian banks generally. Intense competition,
slow credit growth and increased regulation have combined with lower consumer
confidence to create this.
While this is reflected in our financial performance – particularly within our Australian Retailand Commercial business – the actions taken in recent years to improve the structure ofour bank has us well-placed to meet the industry’s challenges.

4

ANZ 2019 ANNUAL REPORTThese actions include returning our Institutional business to
profitable growth as well as the progress we have made to simplify
the products and services we offer our retail customers in Australia
and New Zealand.
We started early on our simplification agenda and this work
continued throughout the year. Simplification continues tounderpin improvement across ANZ.
A major milestone was the completion of the sale of our Life
Insurance business in Australia to Zurich Financial Services Australia
and we have also made significant progress in the sale of ourPensions & Investments business to IOOF. Subject to approval fromthe Australian Prudential Regulation Authority (APRA), we expect tocomplete this transaction in the first quarter of 2020.
Another highlight was the sale of some of our non-core assets
outside of home markets, including our retail banking joint venture
in Cambodia, our retail business in Papua New Guinea and our Life
Insurance business in New Zealand. This continues the stronger
focus on investments and resources in our core strategic retailand commercial businesses in Australia and New Zealand and our
Institutional business in Asia Pacific.
Unfortunately there have also been challenges. This year we haveannounced an additional charge of $682 million as a result of anincrease in our provisions for remediation work. While our Chief
Executive Officer (CEO) Shayne Elliott addresses this in his CEO
message, I want to assure shareholders that the Board understands
the impact fixing the failures of the past has on shareholders and
we are working proactively and as quickly as possible to remediate
impacted customers.

Our self-assessment
During the year, APRA asked a range of banks, superannuation
funds and insurance companies to take a closer look at their own
behaviour and operations.
There has been some attention given to the fact ANZ has notreleased its self-assessment. APRA requested these self-assessments
on a confidential basis to ensure institutions responded in a waythat was full and frank. We have respected that request, noting
particularly the fact that people contributed openly to the process
on that basis and we will continue to do so. To assist those interested
in our self-assessment we have published a summary which can befound on bluenotes at anz.com.
The self-assessment was a useful exercise where we identified many
critical issues across culture, accountability and governance. As weoutlined to APRA, the Board and executive team are determined
to use this as an opportunity to deepen our self-awareness andto learn from our failings. Importantly, we do not see this as just acompliance measure but as an opportunity to make ANZ a more
efficient, more sustainable bank.
We will be a simpler, less complex bank once we have implemented
our road map for change.

We will have fewer products and more
effective systems and processes. For
customers, we will be easier to deal withand when things do go wrong we will befaster to resolve them.
Critically, our regulator will recognise issues identified in our annual
attestation are being resolved in a timelier manner and this will flow
through to improvements in our comprehensive review.

Executive remuneration
ANZ recorded its ‘first strike’ last year when around 34% of shareswere voted against our Remuneration Report. The Board took thisresult very seriously and shareholders will note there has been asignificant differentiation this year in the remuneration awarded to our
Disclosed Executives. Our Chair of the Human Resources Committee,
Ilana Atlas, provides more detail in the Remuneration Report.
You will note our CEO despite a solid personal performance, has
had his remuneration impacted by the broader performance of theGroup. In fact, variable remuneration for our Disclosed Executives
ranged between 0 and 74% of maximum opportunity. We alsoenhanced our approach to accountability and consequence
management during the year and will continue to hold people toaccount who fail to meet our standards.

Capital management
We continued our focus on capital efficiency this year by returning
excess capital to shareholders as a result of our simplification
agenda. We did this while also maintaining capital levels above
APRA’s ‘unquestionably strong’ requirements. In the financial yearof 2019 we reduced shares on issue by 42 million (equivalent of$1.1 billion) as part of our $3 billion buy-back. That program
concluded in March 2019.

Outlook
While the Australian housing market is slowly recovering, we expect
challenging trading conditions to continue for the foreseeable future.

Record low interest rates in Australia
and global trade tensions will continue
to place pressure on earnings while
increased compliance and remediation
costs will be closely managed.
Competition will also remain in focus with the recently announced
inquiry into mortgage pricing. We have acknowledged we have notalways done a good job in explaining our position and hope theinquiry enables the opportunity to provide facts on a complex matter.
On the regulatory front, both APRA and the Reserve Bank of New
Zealand have announced proposals that could lift the amount of
capital required to support our New Zealand subsidiary. The final
impact of these changes depend on a number of factors. This
includes the outcome of consultation, particularly the amount of
capital required, the time allowed to achieve it, and the instruments
we are permitted to use.
Management will maintain its focus on capital efficiency. However,
our strong ongoing capital generation capacity will assist in meetingany additional capital requirements.
Despite the industry’s challenges, I’m confident we have the team,
the balance sheet and the oversight in place to execute effectively
against a strategy that will benefit all our stakeholders. On behalf of
the Board and myself, I thank our more than 39,000 people for their
hard work in supporting our customers and our shareholders.

David Gonski, AC CHAIRMAN

5

CEO’smessage

SHAYNE ELLIOTTThis has been a challenging year of slow
economic growth, increased competition,
regulatory change and global uncertainty.

Our progress
The core of our strategy has not changed. Put simply, we will generate decent returns
by improving the financial wellbeing of our customers.
This year we continued to focus on balance sheet strength, improve our culture, simplify
the business and rebuild our team’s capabilities. In doing this, we significantly reduced thecost and risk of operating the bank despite the strong headwinds facing the sector.
We are determined to have the right people who listen, learn and adapt. We will put thebest tools and insights into the hands of our customers and people. Importantly, we willconcentrate our efforts on those particular things that add value to customers – and dothem right the first time.
This means we must continue to simplify our business, improve our customer proposition
and invest in innovations that deliver better customer outcomes and improve the efficiencyof our operations.
Retail and commercial in Australia had a difficult year. Increased remediation charges,
intense competition and record low interest rates have had a significant impact on earnings.

6

ANZ 2019 ANNUAL REPORTWhile yet to flow through to the balance sheet, management
actions and operational improvements have seen a steady recovery
in home loan applications in recent months. These volume
improvements are expected to be maintained into 2020.
New Zealand delivered a solid underlying result in a more competitiveenvironment. As in Australia, compliance and remediation costs
contributed to higher operating expenses, while a focus on
operational efficiency offset inflation in business-as-usual expenses.
There are challenges ahead in New Zealand, particularly in relation
to the amount of capital we may be required to hold. However, we
are well-advanced in our preparations to manage these proposed
impacts in an orderly way.
Institutional continued its transformation with a return to profitable
growth. While macro conditions had an impact on financial
performance in the second half, the business is now generating
returns above our cost of capital that provides important
diversification given the lower growth in our home markets.

Customer remediation
The Royal Commission highlighted many failures the Australian banksneeded to quickly remedy. ANZ is not immune from this challenge.
This year we announced an additional charge of $682 million as aresult of an increase in our provisions for remediation work. We know
this is real money and has a real impact on shareholders. But we also
know it’s important to fix the mistakes of the past and return money
owed to customers as quickly as possible.
We are currently resolving identified fee or interest discrepancies
with over 3.4 million Australia Retail and Commercial customers.
To date our Responsible Banking team has remediated over one
million customer accounts.
If there is a positive from this work, it is that much of the time andresources being invested in remediating our systems and processes
will make us a better bank for our customers and shareholders.
It means the mistakes of the past are unlikely to be repeated andwhen issues arise they will be easier to fix.

Customers and community
Our purpose of shaping a world where people and communities
thrive guides our decisions. An example of this is the program
we have in place to proactively contact more than one million
customers to help them get more value from our products andservices, including those eligible for Centrelink or Veterans’ Affairs
benefits or those with persistent credit card debt. This is to makesure customers are using the best products given their individual
circumstances and that they are aware of all the options available.
Another issue we care about is providing affordable and sustainablehousing for Australians and New Zealanders. We do this byencouraging investment in the sector – including our role leading
the largest social bond issuance for housing in Australia.

We also know we have a role in enhancing environmental
sustainability and we are focusing our efforts on energy,
water and waste.

We have committed to fund andfacilitate $50 billion by 2025 towards
sustainable solutions for our customers,
including initiatives that help improve
environmental sustainability, increase
access to affordable housing andpromote financial wellbeing.
This is not philanthropy. It’s really good business for ourcustomers and shareholders given the growth opportunities
available in the sector. It’s also a business we are good atgiven our network and capabilities and an area we expect togrow rapidly in the coming years as the world grapples withenvironmental challenges.

Changing how we reward our people
This year we introduced wide-ranging reforms to the way wepay people. Variable remuneration is now a smaller part ofour people’s take-home pay and these reduced bonuses are
determined by the overall performance of the bank.
This is not about paying our people less. It is an industry-leading
initiative that will positively enhance our culture and become an
important point of differentiation. It also addresses the negative
impact an over-emphasis on individual bonuses within a bankcan have on customers and the community.
Redesigning how we reward our staff was one of the 16 key
initiatives we announced as part of our initial response to theRoyal Commission recommendations. As part of this, we also
strengthened our accountability frameworks to ensure there areappropriate consequences for the small number of people who
do not meet standards of behaviour or performance.
Finally, despite this difficult environment, we have made good
progress this year and I’d like to thank the more than 39,000
people who turn up for ANZ and work hard every day for ourcustomers. I’m confident we have the right strategy and team todeliver great, sustainable results in the future for our customers,
our shareholders and the community.

Shayne C Elliott CHIEF EXECUTIVE OFFICER

7

About our businessWe provide banking and financial products and services to around eight million
individual and business customers, and operate in and across 33 markets.

Our culture and values
Our values are the foundation of how we work and are supported by our Code of Conduct. All employees and contractors must comply
with the Code, which contains guiding principles and sets the standards for the way we do business at ANZ.

We care about:Integrity

Collaboration

Accountability

Our purpose
Our purpose is to help shape a world in which people andcommunities thrive. That means striving to create a balanced,
sustainable society in which everyone can take part and build
a better life.
One of the ways we are bringing our purpose to life is throughhelping to address complex issues that matter to society and arecore to our business strategy. We are focusing our efforts on:•• financial wellbeing – improving the financial wellbeing of ourcustomers, employees and the community by helping themmake the most of their money throughout their lives;•• environmental sustainability – supporting household,business and financial practices that improve environmental
sustainability; and•• housing – improving the availability of suitable and affordable
housing options for all Australians and New Zealanders.
We are contributing to these challenges by: developing innovativeand responsible financial products and services; participatingin relevant policy development and research; strengthening
stakeholder partnerships; and harnessing the skills of our people.
Fundamental to our approach is a commitment to fair andresponsible banking – keeping pace with the expectations of
our customers, employees and the community, behaving fairly
and responsibly and maintaining high standards of conduct.
Throughout this report we illustrate how we are embedding
purpose into our business strategy, including through ourEnvironment, Social and Governance (ESG) targets andperformance objectives.

8

ANZ 2019 ANNUAL REPORT

Respect

Excellence

The United Nations Sustainable Development Goals (SDGs)
seek to respond to the world’s most pressing challenges.
Business has an important role to play in helping achieve theSDGs. Recognising this we have identified our targets which
are making a contribution to the achievement of the SDGs
in our 2019 ESG Supplement available at anz.com/cs
in December.

Our strategy
Our strategy is focused on improving the financial wellbeing of ourcustomers; having the right people who listen, learn and adapt; putting thebest tools and insights into their hands; and focusing on those few things
that really add value to customers and doing them right the first time.
We believe that the execution of our strategy will deliver decent
returns for our shareholders, while achieving a balance between
growth and return, short and long-term performance and financial
and social impact.

Within our Institutional business we are creating an integrated
trade, cash and markets experience, while developing andappropriately scaling our capabilities across geographies todeliver connectivity for our customers.

While our focus has evolved over the past four years, the strategic
imperatives remain the same: creating a simpler, better balanced
bank; focusing our efforts where we can carve out a winning
position; building a superior everyday experience to compete in thedigital age; and driving a purpose and values led transformation.

Our strategy has driven significant improvement in our businessover the past four years. We have strengthened our balance sheet,
improved our culture, simplified the business and rebuilt ourpeople’s capabilities. In doing so we have reduced the costs andrisks associated with running the bank.

In our Australian and New Zealand businesses we are: delivering
improved customer outcomes, while rationalising our products
and services; developing new compelling services and distribution
options; and developing new initiatives to enhance our homeowner and small business owner propositions.

PurposeOur purpose is to help shape a world in which people and communities thrive
Strategic Imperatives

Strategy

Target Outcomes

Create a simpler,better capitalised,better balanced bank

Improving the financial
wellbeing of customers...

Improve thefinancial wellbeingof our customers

Build a superior
experience for ourpeople and customers
in order to compete in
the digital age
Focus our efforts
where we can carve out
a winning position
Drive a purpose
and values led
transformation of
the bank...looking tosave for,buy andown ahome...looking
to start,
buy andgrow abusiness...with people
who listen,learn and adapt...looking tomove capitaland goods
around theregion...with thebest tools
and insights...with flexible and resilient digital
infrastructure that supports greatcustomer experience at lower cost

Deliver decent returns
for our shareholders- targeted growth- low cost
- capital efficient
Resilient, adaptable
and capable workforce
Improve housing,environmental andfinancial wellbeing
outcomes for thecommunity

9

OUR VALUE DRIVERS
Customers
Trusted relationships
with our ~ 8 million retail,commercial andInstitutional customers.

$

OUR OPERATINGENVIRONMENT¢

The risks and opportunities
in our operating environment
impact our ability to create value.

Finance

Lower credit growthenvironment

How wecreatevalue

Access to capital throughcustomer deposits, debt and equity
investors and wholesale markets
enables us to run our operations
and execute our strategy.

Increased
regulatory
oversight andstakeholder
scrutiny

By transforming our business –embedding a purpose and values
led culture and simplifying our
products and services – we aim
to create long-term value forall of our stakeholders.
Our value creation model
outlines how we create value forour key stakeholders through ourbusiness activities, and identifies
the inputs – or value drivers –that we rely on to enable us todeliver that value and meet our
strategic objectives.

PeopleEmployees and contractors
with the key competencies
and right behaviours todeliver our strategy.

Digitaladvancement
and technologicalchangeRisk management
Demographic
changes

Reducing the risk of doing businessfor our customers and the bank,with systems and processes thatare less complex, less prone toerror and more secure.

Environmentand climate

Globalisation

Technology anddata capabilities
Flexible, digital–readyinfrastructure to provide
great customer experience,
agility, scale and control.

Community andrelationships
Strong stakeholder
relationships are essential
to our brand and reputation.

10

SHAREHOLDER VALUE›	Deliver decent returns enabling shareholders to meet goals› 228 cents earnings per share1› 10.9% cash return on equity1› 	160 cents dividend per share for FY19 with the final dividendof 80 cents franked at 70%› 9.2 percent total shareholder return

CUSTOMER VALUE›	Improving the financial wellbeing of our customers
OUR BUSINESS ACTIVITIESOperating across 33 markets,
we provide banking and financial
products and services to individualand business customers.
Through our business activities
we deliver the following outputs:› we provide transaction
banking services› we hold deposits for our customers› we lend money to our retail, small
business and corporate customers› we help customers mitigate
and manage financial risks›	Provide funding for lending, helping customers to own
homes and run businesses and assist businesses to transact,
trade and invest across our region›	Great customer experience through flexible and resilient
digital infrastructure›	We have contacted > 1 million of our Retail and Commercial
customers to help them get more value from our products
and services› 2
 0,024 FTE supporting our Retail and Commercial
customers, providing $339 billion in home lending and$95 billion in business lending (Australia and New Zealand)› 5
 ,468 FTE supporting our Institutional customers,
providing $165 billion in lending› C ustodians of $512 billion of customer deposits acrossthe business› we support customers withtrade and capital flows› we provide wealthmanagement products› we provide advisory services› we invest in our people to build
a diverse and inclusive workforce› we collaborate with partners
to build capacity and improvefinancial wellbeing

EMPLOYEE VALUE›	Invest in our people to build a resilient, adaptable andinclusive workforce with a strong sense of purpose and ethics› 77% employee engagement (up from 73% in 2018)› E mployed 734 people from under-represented groups(since 2016)› $4.8 billion in employee salaries and benefits› Increasing the skills and capabilities of our people providing
almost 1.5 million hours of training› we pay taxes in the countries
within which we operate› we pay dividends toour shareholders

COMMUNITY VALUE›	Connecting with, and investing in, the communities inwhich we operate to support growth, deliver services anddevelop opportunity› Invested $142.2 million in the community2› $3,172 million in taxes paid to government3› > 90,000 people have been reached through our financial
wellbeing programs, MoneyMinded and Saver Plus
1.

2.

3.

On a cash profit (continuing operations) basis. Excludes non-core items included in statutory profit anddiscontinued operations included in cash profit. It is provided to assist readers in understanding theresult of the ongoing business activities of the Group. For further information on adjustments between
statutory and cash profit refer to page 53.
Figure includes forgone revenue of $109 million, being the cost of providing low or fee free accounts toa range of customers such as government benefit recipients, not for profit organisations and students.
Total taxes borne by the Group, includes unrecovered GST/VAT,employee related taxes and other taxes.
Inclusive of discontinued operations.

11

Most material issues icons

Working with
our stakeholders

al issues icons

Customer story icon

Strong stakeholder relationships enable us Customer
to deliver
ourstory icon
business strategy and create long-term value.

New icons/infographics

Transparent and responsive engagement, combined with a genuine willingness on our part to listen and act, is one of
the most important ways in which we can demonstrate trustworthiness and rebuild community confidence. Stakeholder
engagement is embedded in our policies, processes and operations.
Summarised below are the key expectations of our stakeholders. For more detailed information on the issues raised bystakeholders this year and how we have responded, refer to our 2019 ESG Supplement available in December at anz.com/cs.

nfographics

Our stakeholders
Customers

Stakeholder icons

Government
andregulators

icons

What they expect from us

Customer story icon•• A customer-centred approach underpinned by ethical, fair andresponsible behaviour•• Financial products and services that are suitable, reliable and secure•• Responsible financial products and services•• Fair and ethical conduct and a strong customer-focused corporate culture•• Effective governance and risk management

Shareholders

How We Creat Value Icons

Employees

at Value Icons•• Sustainable long-term positive financial performance and investment returns•• Effective assessment and management of material risks and opportunities•• Informative, transparent and timely communications•• A safe, diverse and inclusive workplace that encourages engagement,
collaboration and development•• Competitive remuneration and benefits, effective performance management
and recognition

Non-governmentorganisations(NGOs)•• A clear and transparent approach to the management of existing andemerging ESG risks and opportunities•• Minimising adverse social and environmental impacts of our lending
and operations•• Collaborative partnerships and appropriate and evidence-based approachto community investment activities

12

ANZ 2019 ANNUAL REPORT$

We havematched over
$19 million
in savings
since 2003

COMMUNITY STORY

Celebrating the impact of
our Saver Plus partnership
Saver Plus is a matched savings and financial education program
developed by ANZ and The Brotherhood of St Laurence.
The program is co-funded by the Australian Government and isdelivered by community partners and service delivery agencies
in 60 locations across Australia.

involving community coordinators, ANZ branch staff, government
representatives and partners was a rare opportunity to celebrate
the impact of the program and plan for the future.

From its early pilot of 300 participants in 2003, the program is
rapidly approaching a milestone of 50,000 recruited participants
who have built their financial wellbeing and had over $19 million
in savings matched by ANZ. Saver Plus is life changing, withresearch showing 87% of participants continue to save after
they have completed the program.

“It was so great to see the collaboration between everyone,
regardless of who they worked for, because we all deliver thesame program. To see the team feel so energised and motivatedagain was fantastic to witness,” said Cheryl Allen-Ankins, The Smith
Family, Saver Plus Program Manager.

Partnership has been the key to the continued success andimpact of Saver Plus. The recent Saver Plus National Conference,

Left to right: Saver Plus Co-ordinators, Denise Clark, Graeme Grice andCath Sweeney from The Smith Family at the Saver Plus National Conference

13Our operating
environment
We seek to anticipate and respond to the risks and opportunities arisingin our external environment to ensure that we can continue to create value
for our stakeholders. A summary of the issues influencing our strategy isoutlined below.
These global trends present us with risks and opportunities
RISKS

OPPORTUNITIESLOWER CREDIT GROWTH ENVIRONMENT•• Increasing competition and regulatory requirements
places pressure on margins and customer volumes.

•• New approaches are needed to deliver products and services
to our customers, together with efficient allocation of capitaland resources to generate returns to shareholders.

INCREASED REGULATORY OVERSIGHT AND STAKEHOLDER SCRUTINY•• Trust in the Australian and New Zealand banking industry
has eroded over the past two years.
•• Increased regulatory expectations and focus places pressure
on margins and customer volumes.

•• Community concerns remain high following the Royal
Commission in Australia and a number of regulatory
developments in New Zealand. We can rebuild trust bytransparently working with, and partnering with, government,
regulators and NGOs to deliver improved customer outcomes.

DIGITAL ADVANCEMENT AND TECHNOLOGICAL CHANGE•• Competition from existing and new competitors is increasing,supported by government policy, such as the consumer
data right.
•• With the increase in digitisation, strong cyber security capability
is critical.

•• By improving our digital capabilities and investing incyber security, we can serve our customers in new andinnovative ways, meeting their needs for safe and secure
digital banking solutions.

DEMOGRAPHIC CHANGES•• Demand for home lending in Australia and New Zealand is
impacted by a range of supply and demand factors largely
outside of our control, including population growth, housing
prices and dwelling construction.

•• Community concerns about housing affordability remain high.
We can help by partnering with business, government andNGOs to deliver innovative and practical housing solutions.

ENVIRONMENT AND CLIMATE•• We will continue to experience negative reputational impacts
if we fail to raise standards across all our activities and takecustomer and societal impacts into consideration when making
business decisions.

•• By continuing to focus on improving customer outcomes andstrengthening our standards on issues such as environmental
sustainability and human rights, we have an opportunity todifferentiate ourselves from our peers.

GLOBALISATION•• Community concerns about aspects of trade and investment
can potentially limit opportunities.

•• With increasing globalisation and the rise of Asia, we
can support our customers to increase their cross-border
trade and investment.
•• Increased trade and investment leads to higher incomes andemployment for the communities in which ANZ operates.

Our strategic imperatives assist us to respond positively
to this environment and meet societal expectations

14

ANZ 2019 ANNUAL REPORTOur presence inAsia has helped
Carman’s expand
into overseas
markets
CUSTOMER STORY

Helping our customers
export to the world
Chances are if you have strolled down the supermarket cereal aisle recently
you will have seen shelves stacked with boxes of Carman’s muesli.
Established in 1992 by Carolyn Creswell with a modest $1,000,
Carman’s is now a leader in breakfast and nutritious snacks,
exporting to 35 countries.
Using our international footprint we have helped connect
Carman’s to new markets, particularly in Asia, where there is anabundance of opportunity for Westernised products.
“ANZ’s presence in Asia gives you introductions you would nothave otherwise because of their connections. It is really impressive
for an Australian bank to have that presence,” says Carolyn.
Having had a banking relationship for more than 10 years, thejourney for ANZ and Carman’s is centred on honesty, transparency
and integrity, identifying the ways in which each partner cansupport the other.

Carolyn views Carman’s relationship with ANZ similar to any
other partnership.
“ANZ is a partner with us – the reality is ANZ is trying to make ourbusiness better. If our business is better, we are going to do morebusiness with ANZ. We are all in this together.”
There is much ANZ can learn from Carman’s success, particularly
given Carolyn puts that success down to a focus on the customer
and having an engaged and passionate workforce – both central
elements of ANZ’s own strategy.
Image: Carolyn Creswell15

Becoming a fairer andmore responsible bankDuring this year we have continued to make changes to our culture,
governance and accountability mechanisms to help improve customer
outcomes and restore community trust.
Our response to the Royal Commission

APRA Self-Assessment

The Royal Commission into Misconduct in the Banking,Superannuation and Financial Services Industry (the Royal
Commission) has had a profound impact on our organisation.
We are determined to learn from our failures and build a bank that is
worthy of the trust and respect of our customers and the community.

In late 2018, the Australian Prudential Regulation Authority (APRA)
asked a range of financial services companies, including ANZ, toexamine through a Self-Assessment Report their behaviours andoperations in the wake of highly publicised misconduct in the sector.

The Commission’s report led us to further examine how we serve
our customers. We identified eight lessons from our misconduct
and failures to meet community standards and expectations. Theselessons have informed our response to the ‘spirit and letter’ of theRoyal Commission. We are now identifying measures that will allow
us to be confident that these lessons have been acted on.
Our first step was to identify which Commission recommendations
we could quickly act on. This led to 16 initiatives to improve thetreatment of our retail customers, small businesses and farmers inAustralia. Some of the key commitments we have delivered on are:•• removing overdrawn and dishonour fees on our Pensioner
Advantage account (available to eligible recipients of Centrelink
or Veterans’ Affairs pensions)•• improving our service to Indigenous customers in remotecommunities by setting up a dedicated phone service andgiving them easier options to prove their identity•• publishing principles to help family farming customers infinancial distress•• publishing principles on acting as a model litigant in disputes
with our customers•• implementing pay reforms that replace individual-based bonuses
for most of our employees with an incentive based on the overall
performance of the Group.
In addition to progressing these 16 initiatives, Colin Neave,
former Commonwealth Ombudsman and our first Customer
Fairness Adviser (appointed in 2016), reviewed individual ANZ
cases highlighted at the Royal Commission, taking action whereappropriate to resolve matters.
The majority of the recommendations in the Royal Commission
final report require legislative change and we will continue to workwith government as it implements those changes.

We submitted our Self-Assessment Report to APRA in November
2018, and have since developed a ‘roadmap’ to act on the themes
raised in that report.
We identified five focus areas in which to concentrate our efforts todeliver better outcomes. These areas were identified both throughthe self-assessment as well as issues that were examined by theRoyal Commission.

Focus areas
Simplificationof our business, products
and processes

Cultureincluding the way we reward
and recognise our people

Governanceandaccountability

including how we are held toaccount, and how we manageand execute change

Remediation

including expansion of
our specialist customer
remediation teamManagement ofoperational risk

review and improvement of
our operational risk framework

Executive Committee members have been assigned ‘ownership’of each focus area and they are responsible for monitoring
performance.
We have established a Royal Commission and Self-Assessment
Oversight Group to oversee an integrated response to the Royal
Commission and Self-Assessment.
Further details of our self-assessment can be found on bluenotes
at anz.com.

16

ANZ 2019 ANNUAL REPORTOurcustomers
Consistently delivering a positive customer experience enables us to create
value for all of our stakeholders and is critical to our long-term success.
We seek to treat our customers fairly and responsibly,
providing them with suitable and appropriate products andservices, supported by strong data protection.
We have identified three customer segments where we believe
we can best achieve this: home owners, business owners andcompanies that move capital and goods across the region.

Providing suitable products and services
We have contacted more than 1 million of our retail and commercial
customers, including customers who:•• are in receipt of eligible Centrelink or Veterans’ Affairs benefits
to offer to help them move to a low-cost, basic bank account.
Since June 2019, we have contacted 128,624 customers (viaemail or letters);

Links to 2019 Group
Performance Framework
We are committed to improving the customer
experience, as highlighted by the implementation of 16
initiatives in Australia in response to the Royal Commission.
There were some challenges during the year including
technology stability issues, and a period of underperformancein respect of assessment and approval times relative to peers
in home lending. Institutional performance in key customer
satisfaction/relationship strength surveys continued to be ahighlight, along with strong digital engagement with customers.
Refer to our Remuneration Report on pages 66 to 98 forfurther details.

•• are experiencing persistent credit card debt;•• have Interest Only home loans set to expire within 6 months,
reminding them of the expiry period and notifying them of theoptions available at the end of the period;•• have opened an ANZ Access Advantage account within the last
13–16 days, reminding them to credit their account with regularsalary payments; and•• have Progress Saver periodical payment or direct debit due toexpire in the next month to remind them an automated credit
can help them receive bonus interest on their account.

CUSTOMER STORY

Helping customers to get
on top of credit card debt
We have been contacting credit card customers whoare carrying persistent debt1 on their card to help them pay their debt faster.
Customers have been offered financial education, and theopportunity to close their card and repay the remaining debt
at a lower interest rate. We have contacted 9,500 customers as
at 30 September 2019.

Continuing his current repayment behaviour, John would havetaken more than 9 years to pay off the debt – assuming there wasno further spending on the card – accruing at least $12,000 ininterest over that time.

Earlier this year we contacted John*, a long-term customer
who has held a credit card facility with ANZ since 1976. John
had a balance of $9,500 (on a $10,000 limit) and the entirety ofthe balance was on a cash advance interest rate of 21.74% perannum. John had not transacted on the card since 2016 andhad been making payments only slightly above the minimum
monthly repayment amount.

After contacting John and explaining his options, John agreed to
an instalment plan with an interest rate of 7% per annum. This will
enable him to pay off the debt in five years or less, saving morethan $10,000 in interest charges.
This program has been welcomed by many customers,
including John who said, “I wish this had happened a long timeago … it’s such a relief.”

Where for at least the last 12 months a credit card has over 80% of the credit utilised and the customer has been paying 2–3% of the outstanding balance on average each month.
* Customer name has been changed.
1.

17Our customers continued

Home owners
We are committed to fund and facilitate $1 billion of investment
by 2023 to deliver around 3,200 more affordable, secure andsustainable homes to buy and rent in Australia.
We are developing a housing supply pipeline through direct
engagement with our clients (new and existing), supporting
innovative models to finance new supply. This includes:•• jointly arranging the inaugural bond issue of $315 million for
the Commonwealth’s National Housing Finance and Investment
Corporation (NHFIC), the largest social bond for housing inAustralia; and•• arranging the first wellbeing bonds in New Zealand for Housing
New Zealand Corporation (NZ$500 million and NZ$600 million).
We have also established a Housing Virtual Fund (the Fund)enabling us to accommodate non-conforming risk aspects of
new housing models. Emerging housing models generally comewith increased risk for the developer, the bank and the consumer,
preventing innovative models from being brought to market atscale. The Fund ensures that we have a comprehensive internal
review process, allowing us to utilise all of our expertise inunderstanding and managing risk.
Support for first home buyers
Our research shows that 64 percent of first home buyers are
uncertain of what to do when it comes to buying their first
property and they want someone they can trust to guide themthrough the process.1 In response, we are improving the skills of
our frontline staff enabling them to provide tailored guidance andsupport to first home buyers. We have:•• provided more than 3,300 frontline staff with Home Loan Coachtraining across Australia and New Zealand;•• improved our First Home Coach training in Australia – nearly
800 of our frontline staff have completed this training; and•• provided Construction Coach training in New Zealand tosupport customers building or renovating a home – morethan 220 frontline staff have received training.
We have also developed the most accurate property pricepredictor in the market to support customers in establishingthe value of their future home.

In recognition of our commitment to thiscustomer segment ANZ has been named
Bank of The Year for First Home Buyers by
Canstar for three years running (2017–2019).
Industry insights
During the year we have undertaken significant engagementwith industry stakeholders to ensure that as an organisation weare directly linked to the housing policy agenda, offering market
expertise to support government, customers and the community
with relevant insights to inform decision-making.
We have entered into a three-year partnership with CoreLogic todeliver a bi-annual housing affordability report. The report provides
in-depth market analysis of the Australian housing market for bothbuyers and renters.
1.

18

ANZ Home Buying Research, Prescience, May 2015.

ANZ 2019 ANNUAL REPORT

Making homes healthier in New ZealandAccording to research by the Building Research Associationof New Zealand, about half of the homes built are unsuitable
for the climate – they are not adequately insulated, haveinsufficient heating and are damp with visible signs of mould.
“As New Zealand’s biggest home lender, housing is one area
where we want to make a difference”, says Antonia Watson,
Acting Chief Executive Officer, New Zealand.
We have set aside NZ$100 million so our customers can enjoy
warmer, healthier homes while potentially also keeping energy
costs down. Last year we began offering our home loancustomers (both owner-occupiers and investors) an interestfree home loan top-up (up to NZ$5,000). More than 1,800
interest-free home loans (to the value of NZ$6.3 million) havebeen drawn down as at 30 September 2019. The top-up offer
was also extended to heat pumps in July 2019.
In addition, in April 2019 we launched a Healthy Home Loan
Package, that includes discounts to standard home loan rates,
as well as fee waivers across a range of accounts, for customers
buying, building or renovating a home to 6 Homestar or above,in New Zealand.
Thirty four customers are now on the package (funds undermanagement of NZ$11.7 million) and we are working to
identify existing eligible customers to transition them acrossto the package.
Not only are there health benefits associated with more energy
efficient homes but occupants may also have more disposable
income because they are paying lower power bills.
“When every dollar counts, a lower home loan rate mightswing the decision to go the extra mile on health andsustainability measures.” says Antonia.

Net promoter score
Australia

New Zealand

Retail: ranking 4th

Retail: ranking 4th3

1

(down from 3rd at end of 2018)(no change from 2018)

Commercial: ranking 3rd

Commercial and Agricultural:
ranking of 5th4

2

(no change from 2018)(no change from 2018)

Customer remediation

Customer experience

Fair, responsible and efficient customer remediation is a focus for thebank, with significant investment being made across our Australia,
Wealth and New Zealand Divisions.

One way in which we measure the experience of our customers
is through Net Promoter Score. Net Promotor Score enables us togauge whether we are meeting customer needs and expectations
and how we are performing relative to peers. It is measured byasking customers how likely they are to recommend ANZ (on a 0–10
scale) and is calculated by subtracting the percentage of detractors(those who give a score of 0–6) from the percentage of promoters(those who give a 9 or 10).

We are currently resolving identified fee or interest discrepancies
with over 3.4 million Retail and Commercial customers. To date ourAustralian Retail and Commercial Responsible Banking team has
remediated over one million customer accounts5 and issued refundsof around $62 million.
In Wealth, the team has completed the first stage of a review to
identify instances of inappropriate advice to customers. Over 7,000
advice cases, spanning more than a decade, were reviewed. In
addition, the majority of remediation cases relating to ANZ Financial
Planning ‘fee for no service’ have now been remediated.

$

Wealth has remediated nearly
26,000 cases in total and madepayments of $95.2m as at
30 September 2019.

Over the 12 months to 30 September 2019, the Responsible Banking
team has increased the number of dedicated remediation resources
working on large scale customer remediation matters from around
150 to around 275 people.
Similarly, the team within Wealth has expanded from around 120 toaround 170 over the same time period and is projected to increase
to around 200 by December 2019. Our New Zealand business also
has almost 60 dedicated remediation resources. These additional
resources, together with an increase in infrastructure and capability,
are enabling us to refund impacted customers in a scalable andrepeatable way.

With respect to our Australian and New Zealand Retail andCommercial customers we failed to meet our target to improve
our Net Promoter Score relative to peers. Our Institutional ranking
remains at number one in both Australia and New Zealand.
Managing customer complaints
Listening to our customers and responding to their complaints
in a timely, transparent and fair way is key to maintaining theirconfidence and trust in us.
This year, both the Australian Financial Complaints Authority andthe Australian Securities and Investments Commission identified theneed for significant improvement in our internal dispute resolution.
High complaint volumes and lengthy delays in resolution werehighlighted. We have established a detailed action plan whichsets out the changes we need to make to improve our customers’
experience and we will keep stakeholders informed of our progress.
For further information on our approach to complaints handling,
complaint volumes and the role of our Customer Advocate refer
to our 2019 ESG Supplement available at anz.com/cs in December.

More than 500 people throughout the Australian Retail andCommercial business are also working on a number of smaller
customer remediations, fixes and investigations.
We are delivering an ongoing education program to share ‘lessons
learnt’ and to highlight the impacts on customers when we failto get it right. In creating a collective understanding of the root
causes of our existing remediations, we continue to build a sharedaccountability for the prevention of future issues.
1.

2.

3.

Roy Morgan Research Single Source, Australian population aged 14+, Main Financial
Institution, six month rolling average to Sep’19. Ranking based on the four major
Australian banks.
DBM Business Financial Services Monitor. Base: Commercial Banking (<$100 million annual
turnover) Main Financial Institution customers. Six month average to Sep’19. Ranking
based on the four major Australian banks.
Retail Market Monitor, Camorra Research, six month rolling average to Sep’19.

4.

5.

Business Finance Monitor, TNS Kantar Research. Base: Commercial ($3 million – $150
million annual turnover) and Agricultural (>500K annual turnover) customers. Four quarterrolling average to Q3’19.
In certain instances ANZ makes:• a community service payment in lieu of a payment to a customer account. In 2019charity payments were made for ~111,000 accounts totalling ~$355,000.
• the customer payment via cheque. In 2019 cheques were issued for ~178,000 accounts
totalling ~$11,088,000. A proportion of these cheques remain unpresented.
19

Our customers continued

Offering customers more convenient andengaging banking solutions
Fifteen years ago more than half of all banking transactions occurred
within the branch network; today, that number is down to less than
10 percent. Of the 2.8 million customers using our ANZ app, 36
percent are using mobile banking only – up 30 percent this year,
demonstrating the significant shift in how customers are choosing
to engage with us.
This digital banking evolution brings both opportunities andchallenges for ANZ. We are tailoring our products and services
to the changing habits of our customers, who have told us theywant more flexibility in their banking. Our digital technology now
makes it possible for our customers to serve themselves, anywhere,anytime and we are adapting the way we operate to accommodate
this. Peak usage on the ANZ app is between 4–6pm, and evenduring our quietest time between 12–2am we are serving almost
100,000 customers.

The benefits of open banking
Open banking regulation came into force at the start of July inAustralia, supporting the sharing of generic product data withthird parties, with the aim of making it easier for customers tocompare products. The sharing of customer specific data will
start in early 2020. This will enable consumers to access data
about themselves (personal, account and transaction data) andshare it with accredited third parties of their choice.

Of the 2.8 million customers
using our ANZ app, 36 percent
are using mobile banking only –up 30 percent this year
With increasing digitalisation, a strong
cyber security capability is critical
As our customers choose to move their banking to digital platforms
we are focused on safeguarding their money and personal
information. We have invested heavily in our cyber security
capability, and are in a strong position to keep our systems, data andcustomers safe from the increasing pace, scale and sophistication of
cyber-attacks.

At the heart of open banking is trust in how open banking
participants manage their customers’ data. We will continue
to invest in our customers’ security and privacy, and apply our
ethical principles to all data use and the outcomes that result.

Recognising humans play a significant role in the security‘ecosystem’, we are delivering comprehensive education programsfor employees and customers, simplifying cyber security, andmaking it easier to understand and implement. This year we havedeveloped workshops to help small businesses stay safe online,
raised awareness of online scams and reached millions of customers
through our campaign to help them protect their ‘virtual’ valuables.
We are also helping to develop the cyber security curriculum forAustralian high schools to ‘grow’ the next generation of cybersecurity workers.

Our Data Ethics Principles put our customers’ interests first in
how their data is collected, used and disclosed; and provide
mechanisms for transparency and choice to help our customers
understand and control their personal information.

Promoting a culture where security is everyone’s business means weare better placed to protect our systems, data and our customers,
and can actively contribute to digital innovation and the economic
opportunities a secure online world offers.

We will uphold these principles as the open banking regime
begins, ensuring our customers can request the sharing of theirdata, while also maintaining control over where and how theirdata is used.

Biometric authentication protecting
customer payments in Australia
and New Zealand“The emerging Australian data economy, sustained by customerdriven data sharing frameworks, should give customers more
control in sharing information with confidence. Also, it should
create opportunities for business to leverage their expertise,
experience and technology into new areas to serve theircustomers. Businesses that engage with the data sector will
have the opportunity to offer better services, and a more precise
product to meet customer needs. Their customers should have theopportunity to benefit from enhanced choice and convenience.
The efficient use of data, in a secure ecosystem with a strong
governance structure, could be tremendously beneficial forbusinesses and customers alike.”
Scott Farrell, Chair of Open Banking Review

20

We are implementing digital solutions to assist our customers to
improve their financial wellbeing. We have developed new featuresin the ANZ app to help our customers work towards their financial
objectives by setting and tracking goals. Currently in the pilot phase,
new features include data-driven ‘nudges’ (messages) to customers
via the app, with milestones and tips to help them meet theirsavings goals.

ANZ 2019 ANNUAL REPORTANZ was the first Australian bank to enable its
customers to make high value payments (up to$25,000) via the ANZ app using their voice. Our
voice ID technology allows customers to verify
their identity using their voice, rather than a PIN or password. Whilestill an emerging technology, we currently have almost one million
customers in Australia registered for voice ID. To date there havebeen no instances of fraud from a voice biometric breach.

Supplementary disclosures
Refer to our 2019 ESG Supplement available at anz.com/cs
in December for further disclosures, including historical
data tables.

Our divisions
Australia Retail and Commercial“While this year has had its challenges, I’m pleased
our recent actions have restored momentum in ourhome loans business and with the progress we’ve
made in fixing the failures of the past.”
Mark Hand – Group Executive Australia Retail and Commercial Banking

External operating environment

Business strategy outcomes

Performance1

In Australia credit growth is slowing, revenue
growth is negligible, interest rates are atrecord lows and regulation has increased
substantially.

Momentum has returned in home lending
with applications up 34% in the second
half of 2019 (compared with the first half ),through improving turnaround times
and greater clarity on lending policies,
adjustments to lending caps and a major
marketing campaign to restore confidence
across our distribution channels. We
are confident this will flow through tosettlements.

2019 was a challenging year for Australia Retailand Commercial, impacted by continued
margin erosion, lower average lending
volumes (a combination of the external
environment and ANZ conservative businesssettings) and reduction in fee Income.

Competition too is intense, particularly in thehome loan market. New competitors built tomake the most of digital innovations to serve
customers are also having an impact.
The housing market activity is improving off
the back of the lower interest rates, and theremoval of investor and interest only lending
caps, but it is too soon to call a recovery.
Businesses remain cautious and are taking a‘wait and see’ approach with the economy.
Investment continues to be below longterm averages.

More than half of our customers now bankdigitally and the ANZ App has 2.8 million
users making more than $380 million worthof transactions every day.
Our ANZ Business Growth Program
has created more than 1,300 jobs andparticipants have increased their revenue
by 374% and profit by 461%.
Through our network and insights, ourcustomers continue to succeed in Asiaand more than 200 have joined us fordelegations to China, Hong Kong,
Singapore, Vietnam and Japan.

The home loan portfolio, down 3%, wasaffected by slowing system credit growth,competition and more conservative homeloan origination risk settings. Commercial
Lending, also down 2%, was driven by lower
volumes in Small Business Banking.
Customers grew by more than 130,000 in theyear to 6.4 million, with 3.6 million customers
now digitally active. Deposits also increased
in 2019 to $208 billion, with Retail deposits
up 1% and Commercial up 5%.
Productivity initiatives, including workforce andbranch optimisation delivered cost savings andoffset increased investment spending.
Financial Performance for Australia Retailand Commercial is provided within the Our
Performance section on pages 52 to 65.
1.

Financial PerformanceCommercial includes Small Business Banking,Business Banking and Private Bank

Cash continuing1
Cash profit ($m)

% of Group Profit FY19

2019
49%

% of Group Net Loans & Advances

1.

3,195

2018

3,626

2018

2019

332

2018

341

Customer Deposits ($b)

Return on Avg. RWAs (%)
2019

54%

Net Loans & Advances ($b)

2.0

2019
2.2

2018

208
203

On a cash profit (continuing operations) basis. Excludes non-core items included in statutory profit and discontinued operations included in cash profit. It is provided to assist readers inunderstanding the result of the ongoing business activities of the Group. For further information on adjustments between statutory and cash profit refer to page 53.
21

Our divisions continued

Institutional“Institutional is smaller but better – we’re in the rightmarkets, with the right customers and at the right
returns. Our focused strategy is delivering results, andwe’re staying vigilant in managing risks relating togeopolitics, global trade and consumer retail trends.”
Mark Whelan – Group Executive Institutional

External operating environment

Business strategy outcomes

PerformanceMarket conditions have been challenging,particularly in the second half of this financial
year. This is due to a combination of record
low interest rates, high liquidity, low volatility,and heightened geopolitical tensions.

Institutional is focused on customers whovalue us, working within clear priority sectors,
sharpening our geographic focus, simplifying
products and technology and driving
structural efficiencies.

China has been adapting to a slowing
economy, while the inverted US Treasury
yield curve sparked fears of a potential
economic recession in the world’s largest
economy.

Following our decision to exit lower
returning and non-core customer
relationships, Institutional is now in theprocess of pivoting to responsible anddisciplined growth. We have also maintained
our focus on reducing costs and capitalefficiency.

Institutional continued to deliver the benefitsof a simpler and more disciplined businessin 2019, reporting an increase in Cash Profit
and growth in the balance sheet. Net Loans
and Advances were up 10% while customer
deposits grew 6%.

Shifts in trade and supply chains due tothe US-China trade war have had a positive
impact on some markets, particularly inSouth-East Asia, where ANZ has a presence.
ANZ is also well prepared for Brexit with ourEuropean branch network and licensing
arrangements meaning customers do
not need to make changes or open new
accounts in order to continue to bank with
us in Europe.

This has delivered leading market positions
across key geographies (#1 Australia & NZ,#5 Asia) and #1 in overall relationship quality
for the second year running.
The sale of Retail, Commercial and SME in
Papua New Guinea completed in September
2019 has enabled the business to focus on
Institutional banking. The sale of our stakein Royal Bank in Cambodia (completed inJuly 2019) was also an important step in oursimplification strategy.

Financial Performance

Geographically, Australia, New Zealand andAsia Pacific, Europe & America all delivered
profit growth, supported by strong customer
revenue growth.
Transaction Banking and Loans andSpecialised Finance both increased revenue
in 2019, up 8% and 7% respectively. Markets
revenue was down marginally due to lower
Balance Sheet revenue, while Franchise
Sales and Franchise Trading both delivered
stronger revenue outcomes.
Focus on productivity contributed to anotheryear of cost reductions, a result of lower fulltime equivalent staff, decrease in softwareamortisation and property efficiencies.
Credit charges remained below long run trends.
Financial Performance for Institutional isprovided within the Our Performance section
on pages 52 to 65.

Cash continuing1
Cash profit ($m)

% of Group Profit FY19
28%

2019
2018

% of Group Net Loans & Advances
27%

22

1,828

2019
2018

1,480

Return on Avg. RWAs (%)

165
150

Customer Deposits ($b)
1.1

2019
2018

1.

Net Loans & Advances ($b)

0.9

2019

217

2018

206

On a cash profit (continuing operations) basis. Excludes non-core items included in statutory profit and discontinued operations included in cash profit. It is provided to assist readers inunderstanding the result of the ongoing business activities of the Group. For further information on adjustments between statutory and cash profit refer to page 53.

ANZ 2019 ANNUAL REPORTNew Zealand“While it’s been a difficult year reputationally forthe organisation, the business has stayed strong,with staff continuing to focus on doing the rightthing by customers.”
Antonia Watson – Acting Chief Executive Officer New ZealandExternal operating environment

Business strategy outcomes

Performance

The New Zealand economy remains soundwith commodity prices remaining solid,
population growth still strong and continued
low unemployment.

We continued to progress our strategy ofsimplifying the business and improving
customer experience.

Our New Zealand business maintained aleading position in core banking products
this year, with ~31% share of mortgages(August 2019), ~34% share of household
deposits (August 2019) and ~24% share of
KiwiSaver (June 2019).

GDP growth, however, has slowed. Businessand consumer confidence is down due touncertainty in the international economic
outlook. This has resulted in lower business
investment and consumer spending. That
has meant the historically low official cashrate environment has not provided theeconomic stimulus many had hoped for.
The level of regulatory scrutiny is increasingon all financial services entities in New
Zealand and this is increasing compliancecosts for the business.
The proposed RBNZ capital changes – which
are intended to create a stronger and morerobust banking industry and are expected tobe made public in December 2019.

The OnePath Life insurance business sale
was completed in November 2018, as wellas other non-core ANZ New Zealand assets
Paymark and ANZ Securities.
Frontline sales incentives were removed in2019 to give confidence to customers thatany products and services they purchased
were sold to them for the right reasons.
In striving to be the best bank to help Kiwis
own homes, we developed a market leading
proposition that includes a “healthy homes”
package to better insulate and heat houses.
The Commercial and Agri, and Institutionalparts of ANZ New Zealand had a major
focus on environmental initiatives to assist
customers in the economy.
Within the Wealth unit, superannuation
product Kiwisaver continued its strong
growth, surpassing $14.5 billion in funds
under management.

Cash continuing1

22%

Cash profit (NZDm)

Focus in recent years on more conservative
lending standards, together with a benign
credit environment, contributed to provision
charges remaining low this year.

2019

Net Loans & Advances (NZDb)

1,479

2018

% of Group Net Loans & Advances

Customer deposits grew 3% and customer
numbers grew modestly to 2.4 million, of
which 1.5 million customers are digitally
active. Digital sales were up ~4% and now
account for ~ 30% of all retail sales.

Financial Performance for New Zealand isprovided within the Our Performance section
on pages 52 to 65.

Financial Performance% of Group Profit FY19

While the operating conditions were morechallenging, Retail and Commercial bothdelivered balance sheet growth in 2019.
Retail net loans and advances were up
4% (driven by Home Loan growth), andCommercial lending up 2%. Revenue for thedivision was however impacted by marginpressure from lower deposit margins andhome loan mix changes.

1,655

2019

126

2018

122

Customer Deposits (NZDb)

Return on Avg. RWAs (%)

19%
2019
2018

1.

2.4
2.7

2019

90

2018

87

On a cash profit (continuing operations) basis. Excludes non-core items included in statutory profit and discontinued operations included in cash profit. It is provided to assist readers inunderstanding the result of the ongoing business activities of the Group. For further information on adjustments between statutory and cash profit refer to page 53.
23

Our
Most material issues icons
peopleCustomer story iconWearedeveloping
Mostmaterial
issues icons the culture, capabilities and behaviours weneed to live our purpose and values and deliver our strategy.

Customer story icon

New icons/infographics

Most material issues icons

Our focus is on the following priorities:
Most
material
issuesinicons
initiatives
support of our
New icons/infographics
desired culture;strengthening our Risk Culture, including
Most material issues icons

New icons/infographics
strengthening our Accountability andConsequence Framework;
New icons/infographics
changing the way in which we reward
our people;

preparing
Stakeholder
icons our people for the future,
New icons/infographics
ensuring we have the criticalcapabilities to succeed; andCustomer story icon
Our desired culture is underpinned by our purpose, values, andCode of Conduct, as well as being focused on delivering greatcustomer outcomes, making things simplerCustomer
and alwaysstory
learning.
icon
Both a strong risk mindset and behaviours are embedded in ourvalues, Code of Conduct and performance expectations, and we arecommitted to providing a safe environment in which all employees
are empowered to ‘speak up’ and raise ideasCustomer
or issues andconcerns.
story
icon
We seek to understand and improve our culture on an ongoingbasis and are continually improving the way we track and measure
our progress. One way we do this is through our Enterprise Culture
Steering Group, whose membership includes the CEO and othermembers of the Executive Committee, which meets twice a year andprovides an opportunity for each Executive to present the cultural
strengths and development areas of their business, and actions
taken and planned to shift the culture.

Stakeholder icons

Culture assessments
We are supported by a team of specialists in our Internal Audit
group who undertake cultural assessments within the bank. These
assessments assist our leaders to understand the culture within thebusiness, how culture impacts the way we support customers andwhere culture could expose us to risk.

Links to 2019 Group
Performance Framework
Stakeholder
icons
How We Creat
Value Icons

The assessments focus on identifying cultural themes, underlying
factors and their impact to support the business to drive sustainablechange toward ANZ’s desired culture. They incorporate a blend ofquantitative data, primarily through an employee survey, as well as
qualitative data through employee focus groups.

Stakeholder
iconsa diverse and inclusive
creating
workplace and building our people’s
resilience and wellbeing.

Highlights during the year include: strengthening
our Accountability and Consequence Framework; evolving
our approach to measurement and governance of culture
initiatives; redesigning and launching changes to how
Stakeholder
icons
How We Creat
Value Icons
we manage and reward our people; solid progress in theinvestment in key skills for our future; launch of a digital
How Weplatform;
Creat Valuelearning
and Iconsa record level engagement survey result.
Refer to our Remuneration Report on pages 66 to 98 forfurther detail.

How We Creat Value Icons

How We Creat Value Icons

24

CultureANZ 2019 ANNUAL REPORT

More than 20,000 employees
have participated in culture
assessments (since 2016)
Once an assessment is completed, the implementation of actions
to address cultural challenges is monitored, and the effectiveness of
those actions in shifting towards the desired culture is reviewed.

Strengthening our risk culture
During 2019 we have strengthened the way we deal with risk events
through an enhanced Accountability and Consequence Framework,
which is applicable to all of our people.
New Accountability and Consequence Principles set out when andhow an accountability review will be conducted following a material
risk or audit event, define the various categories of accountability(e.g. direct, indirect, collective) and provide guidelines for the
relevant Group Executive to consider in determining appropriate
consequences. Appropriate consequences should reflect theseverity of the issue and may include, for example, one or more of
the following: coaching, counselling, formal warnings, impacts toperformance and remuneration outcomes, impacts on promotion,
application of malus and ultimately termination of employment forthe most serious issues.
The Consequence Review Group (CRG), chaired by the CEO,oversees the implementation and ongoing effectiveness of the
Accountability and Consequence Framework, being cognisant of
its impact on the culture of ANZ. The CRG reviews material risk andaudit events and associated accountability and consequences.
Our ongoing focus on accountability, consequences and drivinga strong risk culture supports our customer commitment thatwhen things go wrong, we fix them quickly and consistently holdexecutives to account where appropriate.
‘Speak up’ culture
We also seek to support a strong ‘speak up’ culture and ensure
managers recognise exemplary risk and audit behaviours. The focus
on ‘speak up’ is being supported through our New Ways of Leading(NWOL) that are aligned with our purpose and values. NWOL
focuses on five behaviours relevant for all employees and imperative
for people leaders: be curious, create shared clarity, empower
people, connect with empathy and grow people selflessly. We areincorporating culture into leader-led team activities to facilitate
open, purposeful conversations about our culture and practices
and create a psychologically safe environment for employees to‘speak up’. We continue to promote and raise employee awarenessof the various ways that employees can ‘speak up’ including throughinitiatives such as the Whistleblower Awareness Week.

We have 39,060 full-time
equivalent employees
Application of consequences
In 2019 across the Group, 151 employees were terminated forbreaches of our Code of Conduct. A further 516 employees received
a formal disciplinary outcome, with managers required to apply
impacts to their performance and remuneration outcomes as part of
the annual review process.

Left to right: ANZ employees,
Sewmee Samarasinghe and Kate London

At the senior leadership level, 30 current or former senior leaders(Senior Executives, Executives and senior managers) had a formal
consequence applied in 2019 for Code of Conduct breaches orfindings of accountability for a material event, or otherwise left thebank after an investigation had been initiated. The 30 employees
represent ~ 1% of the senior leader population. The consequences
applied included warnings, impacts to performance and/or
remuneration outcomes and cessation of employment.
Senior leader consequences in 20191

Performance and remuneration consequence

23

Formal warnings

12

No longer employed

7

1.

Individuals are included under all categories that are relevant meaning one individual
may be reflected in multiple categories.

Changes to remuneration
A key focus this year has been the redesign of the way wefinancially reward and manage the performance of our people
to better support our purpose, culture and values. The changes
include rebalancing the way we pay our people so that variable
remuneration is a smaller part of take home pay. For the majorityof employees, variable remuneration will be based on Group
performance only (i.e. no individual bonuses). These changes will
apply from financial year 2020, and are more closely aligned to ourdesired culture, with increased focus on collaboration and teamperformance, as well as individual growth and development.
We are implementing the recommendations from Stephen
Sedgwick’s ‘Retail Banking Remuneration Review’, which is focusedon strengthening the alignment of retail bank incentives, sales
practices and good customer outcomes. Recommendations that
ANZ is delivering independently are 90% complete and will befully implemented well ahead of the October 2020 deadline. We
continue to work with industry to progress the recommendations
for third parties and principles to underpin customer metrics.
Management provides regular updates to the Board Human
Resources Committee on progress.

25

Our people continued

Building workforce capability

Diversity, inclusion and wellbeing

We are creating an environment where our people can learn
and grow every day, helping us to build organisational agility
and capability to remain competitive.

We are making progress on our priority to build an engaged, diverse
and inclusive workforce. We want our workforce to reflect thecommunities we serve and believe that leveraging the diversity of ourpeople will allow us to innovate and improve customer experience.

We are building the capabilities of our leaders through theintroduction of a new leadership feedback survey giving ourleaders tangible and actionable feedback on their strengths
and development opportunities. We continue to track thedemonstration of our NWOL behaviours and our people aretelling us through the leadership and engagement surveys thatthey are seeing their leaders demonstrating improvements acrossall five behaviours.

Employee engagement: 77%(up from 73% in 2018)1
In addition, we are building the capabilities critical to delivering
our strategy and to future-proofing our workforce, with a focus on
investing in our pipeline of data and engineering talent with newroles and development opportunities in data analysis and science.
During the year we launched a new social learning platform – Our
Way of Learning (OWL). Combining the functionality of a searchengine and a social learning network, OWL offers employees freeaccess to internal subject matter experts at ANZ and external
content providers and user-generated content. OWL can beaccessed by our people anywhere, anytime, and on any device.
In 2019 our people undertook almost 1.5 million hours of learning
to increase their skills and capabilities, including self-directed
learning through OWL.

This year our efforts have focused on enabling social and economic
participation through providing employment opportunities forpeople from under-represented groups (including Aboriginal andTorres Strait Islanders, people with disability and refugees). Overall,
we are broadly on-track to meet our target to recruit >1,000 people
from these groups by the end of FY20, reaching 734 since 2016.
Our Spectrum Program is designed to offer employment
opportunities to the autism community (sometimes described aspart of the neurodivergent community) to build fulfilling careers
in areas such as cyber security, coding and testing. This year wewelcomed additional participants and nearly half of our original
cohort moved into permanent ongoing employment with ANZ.

?

734 people employed fromunder-represented groups(since 2016)

We recognise that addressing the barriers preventing womenfrom being fairly represented in senior roles is the key to closing
our gender pay gap. We have a target in place to increase therepresentation of Women in Leadership to 34.1%2 by the end of thefinancial year 2020. This year representation has increased by 0.5%
(up from 32% as at September 2018). Our progress is monitored
monthly by the CEO and an Executive Committee.
A summary of our policy position on Diversity and Inclusion canbe found at anz.com/corporate governance.
We continue to make strong progress in supporting our people’ssafety and wellbeing. Our Health and Safety policy, and associatedprograms, ensure that we provide an environment that enables
employees to participate fully in the workplace and perform at theirbest. This year we have increased our focus on employee wellbeing,encompassing the areas of mental, physical, social and financial
wellbeing.
We also provide opportunities for our people to contribute to thecommunities in which they live and work through our giving andvolunteering programs. For further detail see page 30.

Supplementary disclosures
Refer to our Remuneration Report on pages 66 to 98 forfurther detail.
Refer to our 2019 ESG Supplement available at anz.com/cs
in December for further disclosures, including historical
data tables.

1.
2.

26

Against a target of improving by 6% to 80% by 2020 (against a 2016 baseline score of 74%).
Measures representation at the Senior Manager, Executive and Senior Executive levels. Includes all employees regardless of leave status but not contractors (who are included in FTE).

ANZ 2019 ANNUAL REPORT

Since 2009
STREAT has helped
more than 1,500
young people
COMMUNITY STORY

Cafe partnership helping to breakthe cycle of disadvantage
Social enterprise STREAT provides a bridge to employment
for young people experiencing disadvantage.
Since it was founded in 2009 it has helped more than 1,500 young
people build stability and health back into their lives, while gaining
work experience and hospitality qualifications from regular training
across STREAT’s businesses.
“We have seven cafes, a bakery, a coffee roastery and a daily
catering business and we generate 80 percent of our own income
through these businesses,” says Bec Scott OAM, STREAT co-founderand Chief Executive Officer.
STREAT’s newest location is a café housed inside ANZ’s campus
at 839 Collins Street in Melbourne.
Our decision to partner with a social enterprise was a deliberateand considered one. With the opening of our new building thisyear there was an opportunity to look at the tendering process
differently and select a partner that aligned directly with our own
values and purpose.

Having a large group of our employees within such close quartersof the café helps the young people with their work experience.
“STREAT works to create healthy people and a healthy planet.
When you buy a coffee from us you’re creating training andemployment opportunities for marginalised young Victorians,
helping create change in coffee farming communities around theworld and saving tonnes of disposable paper cups going to landfill
each year.” says Bec.
Trainees completing STREAT’s six month intensive program will
spend two shifts a week at one of STREAT’s cafés. Bec says a strong
rapport is built within the office environment over that time andcorporate staff often ask about the trainees after they graduate.
Left to right: Ryan McDonald – Cafe Operations Manager, STREAT, Bec Scott OAM –STREAT co-founder and Chief Executive Officer, Elise Bennetts – Chief Relationship
Officer, STREAT

27

Our community
Strong relationships with our stakeholders and the broader community are
critical to our success. Banking is based on trust and we are working hard toregain the community’s trust following the Royal Commission.
In 2019$
42.4% of employees
volunteered

We matched employee
donations, collectively
contributing over $2 million
to charitable organisations

Improving financial wellbeing – at the coreof our strategy
Financial wellbeing contributes significantly to overall healthand wellbeing, community connectedness and economic andsocial participation.
Over many years we have invested in community programs,
including Saver Plus and MoneyMinded, which have been provento be an important part of the financial inclusion story for lowerincome people. These programs have helped to build financial skills
and resilience, develop active savings habits and improve overall
financial wellbeing.

Links to 2019 Group
Performance Framework
Regaining the trust of the community, governmentand other key stakeholders remains a major focus – our Reptrak
community sentiment indicator improved over the 12 months
to 58.8 but remains well below pre Royal Commission levels. We
have retained high scores in a number of indices:•• Corporate Confidence Index (CCI)1: Score above peer average•• Dow Jones Sustainability Indices (DJSI)2: 2019 score of 82(2018: 83). ANZ returned to global top ten (#10 overall)
Refer to our Remuneration Report on pages 66 to 98 forfurther detail.

1.
2.

28

Employees
volunteered 134,930
hours to community
organisations

Our financial inclusion program
partnerships change lives
Saver Plus – developed by Brotherhood of St Laurence
and ANZ in 2003, program participants open an ANZ savings
account, set a savings goal and save towards it regularly over
10 months while also attending MoneyMinded financial
education sessions. On reaching their goal, savings arematched by ANZ dollar for dollar, up to $500, which must be
spent on education.
Since 2003, Saver Plus has reached over 43,600 lower-income
participants and is expected to enable over $33 million ofprivate sector funds to be invested in education by 2020.
MoneyMinded – this program supports adults with lowlevels of financial literacy and those on lower incomes across
21 markets, including Australia and New Zealand. It is deliveredby community partner organisations in Australia and New
Zealand, and a mix of community organisations and ANZ
employees in Asia and the Pacific.
MoneyBusiness – operating since 2005, MoneyBusiness isdeigned to build the money management skills and confidenceof Aboriginal and Torres Strait Islanders. In that time it hasreached over 79,500 participants and has been delivered inover 320 communities through either Australian Governmentfunded service providers or ANZ’s partners.

Corporate Confidence Index (CCI): Outcomes of the CCI are provided to ANZ on a confidential basis.
Dow Jones Sustainability Indices (DJSI): Evaluates the sustainability performance of thousands of companies trading publicly, operated under a strategic partnership between S&P Dow Jones
Indices and RobecoSAM (Sustainable Asset Management).

ANZ 2019 ANNUAL REPORT$

More than 87,500
people participatedin our MoneyMinded
program in 2019
COMMUNITY STORY

MoneyMinded –changing attitudes to money
Taghrid participated in MoneyMinded through the Brotherhood of
St Laurence’s Stepping Stones program. Stepping Stones is a microenterprise program offered to women who have migrant, refugee or
asylum seeker backgrounds.
Originally from Lebanon, Taghrid arrived in Australia 10 years
ago with her husband and one-year-old daughter. Keen to start
her own business making special occasion cakes she took partin Stepping Stones, completing MoneyMinded in the process.
MoneyMinded taught her about prioritising her spending anddeciphering between ‘needs and wants’.
She also learned about the value of having ‘emergency money’.
Since completing MoneyMinded Taghrid regularly transfers $50
into a specific savings account, ‘just like paying a bill’. With thesesavings she was able to buy a replacement car when hers broke
down – before MoneyMinded she would have been without acar for several months.

MoneyMinded has also changed her attitude to money. Taghrid iscareful with her money, but she is also finding alternatives so she
and her family are not missing out on enjoying life.
“I’m not cutting anything, I’m not suffering. But at the same time,
if I need something, I have money to buy it in a different way. I cut
my coffee, but I enrolled in a gym,” she said.
Taghrid has clear financial goals now too – a short-term goal ofsaving for materials for her business and a longer-term goal for her
family to buy a home.
Image: MoneyMinded participant Taghrid

29

Our community continued

Community investment

Public policy debate

It is important that we are a part of the communities in which we
operate, and we provide many opportunities for our people toget involved through our community programs – volunteering,funding and participating in community projects, or donating
through workplace giving.

We seek to contribute constructively to policy debate and understandthe perspectives of our community’s elected representatives,
policy makers and regulators. We contribute to debate on business,
economic, social and environmental issues affecting our customers
and shareholders.

The strength of our relationships with partners in the not-for-profit
sector is key to our ability to support the delivery of much needed
services to the community. Many of our partners work in areasaligned to our priority areas of financial wellbeing, housing andenvironmental sustainability.

We work in a collaborative and open way as members of associations
that have similar interests and approaches to ours.

$142.2 million incommunity investment1
Workplace giving
Our workplace giving program enables employees in Australia
to make contributions to around 30 charity partners throughregular pre-tax payroll deductions. This year we introduced‘double matching’ – for every dollar donated by an employee(up to $5,000 per employee in a tax year) through the program,
ANZ donates two dollars.
Our employees in New Zealand and Fiji can also donate throughpayroll to their respective staff foundations (charitable trusts thatprovide small grants) and ANZ double matches donations.
Volunteering
Our Volunteer Leave Policy, which applies to permanent, regularand fixed-term employees provides for at least one day of paid
volunteer leave each year.

Supplementary disclosures
Refer to our 2019 ESG Supplement available at anz.com/cs
in December for further disclosures, including historical
data tables.

1.

30

In 2019 our key membership payments were:Australian Banking Association$4,045,653

Business Council of Australia$93,500

New Zealand Bankers’ Association (NZD)$294,979

Business New Zealand (NZD)$40,250

Payment to the Australian Banking Association includes ourannual fee as well as expenditure related to communications
activity, contribution to the establishment of a not-for-profit Debt
Repayment Service, industry initiatives in response to the Royal
Commission’s work, and industry reform activity such as the new
Banking Code of Practice.

Public policy advocacy
We understand that some of our stakeholders are particularlyinterested in positions we hold on issues such as data security,
privacy and climate change and our membership of industry
associations that undertake advocacy on these issues.
It is not the role of any association to represent solely ANZ’s,
nor any other single member’s view. It is also not possible forindustry associations to obtain a consensus on every issue. Thereis sometimes disagreement amongst members about the final
positions taken by industry associations and even if we do notagree with it, we will participate in discussions. From time to time,
we may take positions on certain matters not supported by therelevant industry association. For example, ANZ was the first majorbank to support a ‘last resort’ compensation scheme for victims of
misconduct. Such a scheme is now public policy.
We place high importance on the ability to hold constructive
dialogue within an association’s membership and we expect industry
associations to be receptive to member feedback regarding theirlobbying or advocacy approaches.

Figure includes forgone revenue of $109 million, being the cost of providing low or fee free accounts to a range of customers such as government benefit recipients, not for profit
organisations and students.

ANZ 2019 ANNUAL REPORTA relatively new
type of financing,social bonds are
structured so theproceeds fund asocial purpose
CUSTOMER STORY

Improving access to social and affordable
housing for those most in needThis year ANZ arranged bonds for both Australia’s National Housing Finance andInvestment Corporation (NHFIC) and Housing New Zealand Corporation (HNZ),
aimed at increasing access and availability of social and affordable housing on
both sides of the Tasman.
Well received by investors, the bonds – a A$315 million social bondfor NHFIC and two wellbeing bonds for HNZ (NZ$500 million and
NZ$600 million) – set benchmarks as the first ever capital markets
issue for NHFIC and the first wellbeing bonds for HNZ.
A relatively new type of financing, social bonds are structured so
the proceeds fund a social purpose. In this case, owning a NHFIC
or HNZ bond is an indirect investment into Australia and New
Zealand’s social and affordable housing sector. The return is basedon the credit-worthiness of the borrower who is responsible fordirecting the financing to social causes, with an obligation toreport accordingly.

According to ANZ CEO Shayne Elliott, “One of the areas in which
we can impact the community is in the area of housing. This is notabout charitable works, it’s about bringing the full force of ANZ,
one of the largest financial institutions in the country to bear; tohave an impact and to shape the world for good.”Partnering with NHFIC and HNZ allowed ANZ to join forces anddraw on each organisation’s expertise in order to deliver better
outcomes for a range of stakeholders.
Left to right: Nathan Dal Bon – Chief Executive Officer, National Housing Finance andInvestment Corporation, Caryn Kakas – Head of Housing Strategy, Group Strategy,
ANZ and Tessa Dann – Associate Director, Sustainable Finance, ANZ.

Access to housing has a huge impact on people’s ability to thrivesocially and economically, as well as to feel secure and be part ofa local community.
31

GovernanceCorporate Governance Framework
SHAREHOLDERS

BOARD OF DIRECTORS

Audit
Committee

Ethics, Environment,
Social and GovernanceCommittee

Risk
Committee

Human Resources
Committee

Digital Businessand Technology
Committee

Nomination and
Board Operations
Committee

BOARD RESERVED POWERS AND DELEGATION OF AUTHORITY POLICYCHIEF EXECUTIVE OFFICERGROUP EXECUTIVE COMMITTEE32

ANZ 2019 ANNUAL REPORTBoard of Directors
ANZ’s strong governance framework provides a solid structure for
effective and responsible decision making within the organisation.
The Board is responsible for the oversight of ANZ and its sound andprudent management, with specific duties as set out in its Charter
available at anz.com/corporategovernance
There are six principal Board Committees – the Audit Committee,
the Ethics, Environment, Social and Governance Committee, theRisk Committee, the Human Resources Committee, the Digital
Business and Technology Committee and the Nomination and Board
Operations Committee.
Each Committee has its own Charter setting out its roles andresponsibilities. At management level, the Group Executive
Committee comprises ANZ’s most senior executives. There is adelegations of authority framework that clearly outlines thosematters delegated to the CEO and other members of senior
management.

Below from left to right
1 RT Hon Sir John Key, GNZM AC Independent Non-Executive Director
2 John Macfarlane Independent Non-Executive Director
3 Paula Dwyer Independent Non-Executive Director
4 David Gonski, AC Chairman, Independent Non-Executive Director
5 Graeme Liebelt Independent Non-Executive Director
6 Ilana Atlas Independent Non-Executive Director
7 Shayne Elliott Chief Executive Officer, Executive Director
8 Jane Halton, AO PSM Independent Non-Executive Director
Full biography details can be found on our website atanz.com/directors and on pages 38–42 of this report.

For further detail on ANZ’s governance framework see our 2019
Corporate Governance Statement available atanz.com/corporategovernance33

Governance (continued)

Directors’ Meetings
The number of Board, and Board Committee, meetings held during the year and each Director’s attendance at those meetings are set out below:

Board

Ethics,DigitalEnvironment, Business Nomination
Human
Social andandand BoardSpecialRisk
Audit
SharesResources Governance Technology Operations Committee Committee
Committee Committee Committee Committee Committee Committee of the Board1 of the Board1 Committee1

A

B

A

Ilana Atlas

12

12

Paula Dwyer

12

12

Shayne Elliott2

1211David Gonski, AC

12

12Jane Halton, AO PSM

1212Sir John Key, GNZM AC

12

12

8

8

Lee Hsien Yang3

4

4

3

3

Graeme Liebelt

12

12

8

8

8

8

John Macfarlane

12

12

8

8

8

8

8

8

B

8

8

A

B

A

B

A

B

8

8

6

6

5

5

8

8

6

6

8

8

A

B

A

B

A

B

A

B

2

2

1

1

1

1

1

1

2

2

1

1

2

2

3

3

2

2

3

3

4

4

6

5

5

5

5

2

2

3

3

2

2

6

6

5

5

5

5

2

2

2

2

1

1

5

5

4

4

2

2

2

2

1

1
2

2

2

2

2

2

2

2

1

1

1

1

2

2

6

6

Column B – Indicates the number of meetings attended. The Chairman is an ex-officio
member of the Risk, Audit, Human Resources, Ethics, Environment, Social and Governance,
Digital Business and Technology and Nomination and Board Operations Committees.
With respect to Committee meetings, the table above records attendance of Committee
members. Any Director is entitled to attend these meetings and from time to time Directors
attend meetings of Committees of which they are not a member.

ANZ 2019 ANNUAL REPORT

B

6

Column A – Indicates the number of meetings the Director was eligible to attend.

34

A

5

1.

2.

3.

5

The meetings of the Special Committee of the Board, Shares Committee and Committee of
the Board as referred to in the table above include those conducted by written resolution.
The Board meeting Shayne Elliott did not attend was due to his appearance at the Royal
Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
Lee Hsien Yang retired as a Non-Executive Director on 19 December 2018.

Executive Committee
Below from left to right
1 Maile Carnegie
Group Executive Digital and Australia Transformation
Joined the Executive Committee on 27 June 2016.

7 Mark Whelan
Group Executive Institutional
Joined the Executive Committee* on 20 October 2014.

2 Farhan Faruqui
Group Executive International
Joined the Executive Committee on 1 February 2016.

8 Antonia Watson
Acting Chief Executive Officer New Zealand
Joined the Executive Committee on 17 June 2019.

3 Gerard FlorianGroup Executive Technology
Joined the Executive Committee on 30 January 2017.

9 Shayne Elliott
Chief Executive Officer(appointed CEO on 1 January 2016).
Joined the Executive Committee* on 1 June 2009.

4 Alexis George
Deputy Chief Executive Officer and Group Executive Wealth Australia
Joined the Executive Committee on 1 December 2016.
5 Kathryn van der Merwe
Group Executive Talent and Culture
Joined the Executive Committee on 1 May 2017.
6 Kevin Corbally
Group Chief Risk Officer
Joined the Executive Committee on 19 March 2018.

10 Michelle Jablko
Chief Financial Officer
Joined the Executive Committee on 18 July 2016.
11 Mark Hand
Group Executive Australia Retail and Commercial Banking
Joined the Executive Committee on 15 May 2018.
Full biography details can be found on our website atanz.com/exco*previously known as Management Board

35

Governance (continued)

Board areas of focus in FY19
This year the Board and its Committees have undertaken key
strategic, governance and oversight activities, including:

STRATEGY AND PURPOSE-LED TRANSFORMATIONCUSTOMER•• Approving the development of a new customer focusedsection of the Board agenda, including in relation to:–– Customer satisfaction, complaints and remediation–– Regulatory changes impacting customers–– ANZ’s approach to marketing and specific marketing
initiatives•• Conducting annual Board strategy session, focused on thelong-term success of the company and learning lessons frompast experience•• Regularly discussing ANZ’s strategic priorities, including therefinement and implementation of them, with the Chief
Executive Officer•• Regularly discussing the progress of ANZ’s transformationof its Australian business and ANZ’s approach to it•• As part of the Board’s visit to New Zealand, receiving detailed
reports covering the entire NZ business and its direction•• Continuing its focus on ANZ’s corporate culture, including
reviewing results and key themes of ANZ’s culture
assessments and ANZ’s staff engagement survey•• Providing oversight of the design and implementation of
ANZ’s redesign and simplification of remuneration andreward and Accountability and Consequences Frameworks,
including reviewing and providing input into the Australian
Prudential Regulation Authority’s executive remuneration
proposals•• Discussing future disruptive technologies and potential
business impact on, and involvement by, ANZ36

ANZ 2019 ANNUAL REPORT•• Providing oversight of ANZ’s approach to customer
remediation and complaints•• Participating in a detailed review of ANZ’s customer service
lighthouse initiative, including meeting with participating
front line staff•• Reviewing ANZ’s approach to communicating customer
initiatives to the front line

FINANCIAL

GOVERNANCE AND REGULATORY•• Reviewing and approving ANZ’s self-assessment ofgovernance, culture and accountability practices andsubsequent roadmap of remediation activities•• Providing oversight of ANZ’s response to the final report of
the Royal Commission•• Reviewing and endorsing ANZ’s operating and strategic plans•• Regularly discussing business momentum matters•• Regularly discussing merger and acquisitions matters,
including in relation to the progress of the transactions
regarding the sale of its Wealth business•• Providing oversight of capital management matters, including
in relation to proposals from the Reserve Bank of New Zealand,
the Australian Prudential Regulation Authority and current andfuture capital management options for ANZ•• Reviewing ANZ’s governance processes for the preparationof its financial statements•• Participating in deep dives into how ANZ approaches
compliance with numerous prudential standards•• Creating a new Nomination and Board Operations
Committee, consisting of all Non-Executive Directors, tofocus on the Board’s own composition and operations•• Embedding the increased remit of the Ethics, Environment,
Social and Governance Committee to focus on ESG matters•• Reviewing and implementing improvements to Board
Committee reporting practices on technology related
matters, including in relation to technology stability andsimplicity, cloud and data governance and information andcyber security.

In addition to the regular meetings of the Board held in Melbourne and Sydney, the Board also met in
Wagga Wagga, Perth and Auckland, and went to Hobart, with each trip including customer, staff andother stakeholder functions, with a distinct focus on engagement matters.

37

Governance (continued)

Directors’ Qualifications, Experienceand Special Responsibilities

As at the date of this report, the Board comprises
seven Non-Executive Directors and one Executive
Director, the Chief Executive Officer. Lee Hsien Yang
was a Non-Executive Director from February 2009
until his retirement in December 2018. The names of
the current Directors, together with details of their
qualifications, experience and special responsibilities
are set out below.

David Gonski, AC
CHAIR
MEMBER

Audit Committee

POSITION

Ethics, Environment, Social andGovernance Committee

QUALIFICATIONS

Risk Committee

Human Resources Committee

Digital Business and Technology Committee

Chairman, Independent Non-Executive Director
BCom, LLB, FAICD(Life), FCPARESPONSIBILITIESChairman since 1 May 2014 and a Non-Executive Director
since February 2014. David is an ex officio member of all
Board Committees and Chair of the Ethics, Environment,
Social and Governance Committee and Nomination and Board
Operations Committee.
CAREER

Nomination and Board Operations Committee

David started his career as a lawyer at Herbert Smith Freehills,
and is now one of Australia’s most respected business leadersand company directors. He has business experience inAustralia and internationally, and is involved in a broad rangeof organisations in the government and education sectors. He
is a leading philanthropist and provides strong community
leadership, particularly in relation to education in Australia.
RELEVANT OTHER DIRECTORSHIPS•• Chairman: The University of New South Wales Foundation
Limited (from 2005, Director from 1999).
•• Director: Sydney Airport Limited (from 2018), Lowy Institute forInternational Policy (from 2012) and Australian Philanthropic
Services Limited (from 2012).
•• Member: Advisory Committee for Optus Limited (from 2013).
•• Chancellor: University of New South Wales Council (from 2005).
•• President: Art Gallery of NSW Trust (from 2016).
RELEVANT FORMER DIRECTORSHIPS HELD IN LAST
THREE YEARS INCLUDE

Former Chairman: Review to Achieve Education Excellence inAustralian Schools for the Commonwealth of Australia (2017–2018),
Coca-Cola Amatil Limited (2001–2017, Director from 1997) and
Sydney Theatre Company Ltd (2010–2016).
Former Member: ASIC External Advisory Panel (2013–2019)
Age 66 years | Residence Sydney, Australia

38

ANZ 2019 ANNUAL REPORTIlana Atlas

Shayne Elliott

CHAIR
MEMBERPOSITIONPOSITION

Chief Executive Officer and Executive Director

Independent Non-Executive Director

QUALIFICATIONSQUALIFICATIONS

BCom

BJuris (Hons), LLB (Hons), LLM

RESPONSIBILITIESRESPONSIBILITIES

Chief Executive Officer and Executive Director since
1 January 2016.

Non-Executive Director since September 2014. Ilana is amember of the Audit Committee, Ethics, Environment, Socialand Governance Committee and Nomination and Board
Operations Committee.

CAREER

Shayne has over 30 years’ experience in banking in Australia
and overseas, in all aspects of the industry. Shayne joined ANZ as
CEO Institutional in June 2009, and was appointed Chief Financial
Officer in 2012.
Prior to joining ANZ, Shayne held senior executive roles at EFG
Hermes, the largest investment bank in the Middle East, which
included Chief Operating Officer. He started his career with
Citibank New Zealand and worked with Citibank/Citigroup for
20 years, holding various senior positions across the UK, USA,
Egypt, Australia and Hong Kong.
Shayne is a Director of the Financial Markets Foundation forChildren and a member of the Australian Banking Association(which he also Chairs) and the Business Council of Australia.

CAREER

Ilana brings a strong financial services background and legal
experience to the Board. Ilana was a partner at law firm Mallesons
Stephen Jaques (now King & Wood Mallesons), where in
addition to her practice in corporate law, she held a number ofmanagement roles in the firm including Executive Partner, People
and Information, and Managing Partner. She also worked at
Westpac for 10 years, where her roles included Group Secretary
and General Counsel and Group Executive, People, where she
was responsible for human resources, corporate affairs andsustainability. Ilana has a strong commitment to the community,in particular the arts and education.
RELEVANT OTHER DIRECTORSHIPSRELEVANT OTHER DIRECTORSHIPS•• Chairman: Australian Banking Association (from 2017,
Member from 2016).
•• Director: ANZ Bank New Zealand Limited (from 2009) and the
Financial Markets Foundation for Children (from 2016).
•• Member: Business Council of Australia (from 2016).
Age 55 years | Residence Melbourne, Australia•• Chairman: Coca-Cola Amatil Limited (from 2017, Director
from 2011) and Jawun (from 2017, Director from 2014).
•• Director: OneMarket Limited (from 2018) and Paul Ramsay
Foundation (from 2017).
•• Member: Panel of Adara Partners (from 2015).
RELEVANT FORMER DIRECTORSHIPS HELD IN LAST
THREE YEARS INCLUDE•• Former Chairman: The Bell Shakespeare Company Limited(2010–2016, Director 2004–2016).
•• Former Director: Westfield Corporation Limited (2014–2018),
Human Rights Law Centre Ltd (2012–2017) and Treasury
Corporation of New South Wales (2013–2017).
•• Former Fellow: Senate of the University of Sydney (2015–2019)
Age 65 years | Residence Sydney, Australia

39Governance (continued)

Paula Dwyer

Jane Halton, AO PSM

CHAIR

CHAIR

MEMBERMEMBERPOSITIONPOSITION

Independent Non-Executive Director

Independent Non-Executive Director

QUALIFICATIONSQUALIFICATIONS

BCom, FCA, SF Fin, FAICD

BA (Hons) Psychology, FIML, FIPAA, NAM, Hon. FAAHMS,
Hon. FACHSE, Hon. DLitt (UNSW)RESPONSIBILITIESNon-Executive Director since April 2012. Paula is a memberof the Risk Committee, Human Resources Committee andNomination and Board Operations Committee.
CAREER

Paula has extensive experience in financial markets, corporate
finance, risk management and investments, having held
senior executive roles at Calibre Asset Management, Ord
Minnett (now J P Morgan) and at Price Waterhouse (nowPricewaterhouseCoopers). Her career as a company director spans
financial services, investment, insurance, healthcare, gamblingand entertainment, fast moving consumer goods, property andconstruction and retailing sectors. Paula has a strong interest in
education and medical research, having served as a memberof the Geelong Grammar School Council and the Business andEconomics Faculty at the University of Melbourne and as Deputy
Chairman of Baker IDI.
RELEVANT OTHER DIRECTORSHIPS•• Chairman: Tabcorp Holdings Limited (from 2011, Director from2005), Healthscope Limited (from 2014) and Kin Group Advisory
Board (from 2014).
•• Director: Lion Pty Ltd (from 2012) and Allianz Australia Limited(from 2019).
•• Member: Kirin International Advisory Board (from 2012) andAustralian Government Takeovers Panel (from 2017).
Age 59 years | Residence Melbourne, Australia

RESPONSIBILITIESNon-Executive Director since October 2016. Jane is a memberof the Human Resources Committee, Ethics, Environment,
Social and Governance Committee and Nomination and Board
Operations Committee.
CAREER

Jane’s 33 year career in the public service includes the positionsof Secretary of the Australian Department of Finance, Secretaryof the Australian Department of Health, Secretary for the
Department of Health and Ageing, and Executive Co-ordinator(Deputy Secretary) of the Department of the Prime Minister andCabinet. She brings to the Board extensive experience in finance,
insurance, risk management, information technology, humanresources, health and ageing and public policy. She also hassignificant international experience.
Jane has contributed extensively to community health throughlocal and international organisations including the World HealthOrganisation and National Aboriginal and Torres Strait Islander
Health Council.
RELEVANT OTHER DIRECTORSHIPS•• Chairman: Vault Systems (from 2017), Coalition for Epidemic
Preparedness Innovations (Norway) (from 2018, Member from2016) and Council on the Ageing Australia (from 2017).
•• Director: Clayton Utz (from 2017) and Crown Resorts Limited(from 2018).
•• Member: Executive Board of the Institute of Health Metrics and
Evaluation at the University of Washington (from 2007).
•• Adjunct Professor: University of Sydney and University ofCanberra.
•• Council Member: Australian Strategic Policy Institute (from 2016).
RELEVANT FORMER DIRECTORSHIPS HELD IN LAST THREEYEARS INCLUDE•• Former Chairman: OECD Asian Senior Budget Officials Network(2014–2016).
•• Former Public Policy Fellow: ANU Crawford School of Public
Policy (2012–2016).
Age 59 years | Residence Canberra, Australia

40

ANZ 2019 ANNUAL REPORT

Rt Hon Sir John Key,GNZM AC

Graeme Liebelt
CHAIR

MEMBERMEMBERPOSITIONPOSITION

Independent Non-Executive Director

Independent Non-Executive Director

QUALIFICATIONSQUALIFICATIONS

BCom, DCom (Honoris Causa)

BEc (Hons), FAICD, FTSE, FIMLRESPONSIBILITIESRESPONSIBILITIESNon-Executive Director since February 2018. Sir John is amember of the Ethics, Environment, Social and GovernanceCommittee, Risk Committee, Digital Business and Technology
Committee and Nomination and Board Operations Committee.

Non-Executive Director since July 2013. Graeme is a memberof the Audit Committee, Human Resources Committee andNomination and Board Operations Committee.

CAREER

Graeme brings to the Board his experience of a 23 year
executive career with Orica Limited (including a period as
Chief Executive Officer), a global mining services company
with operations in more than 50 countries. He has extensive
international experience and a strong record of achievement
as a senior executive, including in strategy development andimplementation.

Sir John was Prime Minister of New Zealand from 2008 to 2016,
having commenced his political career in 2002. Sir John had along career in international finance, primarily for Bankers Trust in
New Zealand and Merrill Lynch in Singapore, London and Sydney.
He was previously a member of the Foreign Exchange Committeeof the Federal Reserve Bank of New York (from 1999 to 2001).

CAREER

Sir John was made a Knight Grand Companion of the New
Zealand Order of Merit in the 2017 Queen’s Birthday Honours. In
2017 Sir John became a Companion of the Order of Australia foradvancing the Australia-New Zealand bilateral relationship.

Graeme is committed to global trade and cooperation, as wellas community education.

RELEVANT OTHER DIRECTORSHIPS•• Director: Australian Foundation Investment Company Limited(from 2012) and Carey Baptist Grammar School (from 2012).

•• Chairman: ANZ Bank New Zealand Limited (from 2018, Director
from 2017).
•• Director: Air New Zealand Limited (from 2017) and Palo Alto
Networks (from 2019).
RELEVANT FORMER DIRECTORSHIPS HELD IN LAST
THREE YEARS INCLUDE•• Former Chairman: The International Democratic Union(2014–2018).

RELEVANT OTHER DIRECTORSHIPS•• Chairman: Amcor Limited (from 2013, Director from 2012)

RELEVANT FORMER DIRECTORSHIPS HELD IN LAST
THREE YEARS INCLUDE•• Former Chairman: DuluxGroup Limited (2018–2019,
Director from 2016).
Age 65 years | Residence Melbourne, Australia

Age 58 years | Residence Auckland, New Zealand.

41

Governance (continued)

Company Secretaries’
Qualifications and Experience

John Macfarlane
MEMBERPOSITION

Independent Non-Executive Director
QUALIFICATIONS

BCom, MCom (Hons)RESPONSIBILITIESNon-Executive Director since May 2014. John is a member ofthe Audit Committee, Risk Committee, Digital Business andTechnology Committee and Nomination and Board Operations
Committee.
CAREER

John is one of Australia’s most experienced international bankers
having previously served as Executive Chairman of Deutsche
Bank Australia and New Zealand, and CEO of Deutsche Bank
Australia. John has also worked in the USA, Japan and PNG, andbrings to the Board a depth of banking experience in ANZ’s
key markets in Australia, New Zealand and the Asia Pacific. He
is committed to community health, and is a Director of the
Aikenhead Centre of Medical Discovery Limited (from 2016).
RELEVANT OTHER DIRECTORSHIPS

Director: Craigs Investment Partners Limited (from 2013), Colmac
Group Pty Ltd (from 2014), AGInvest Holdings Limited (MyFarm
Limited) (from 2014, Chairman 2014–2016), Balmoral Pastoral
Investments (from 2017) and L1 Long Short Fund (from 2018).
RELEVANT FORMER DIRECTORSHIPS HELD IN LAST
THREE YEARS INCLUDE

Former Director: St Vincent’s Institute of Medical Research(2008–2019)
Age 59 years | Residence Melbourne, Australia

42

ANZ 2019 ANNUAL REPORT

Currently there are two people appointed as
Company Secretaries of the Company. Detailsof their roles are contained in the Corporate
Governance Statement.
Their qualifications and experience are as follows:

Ken Adams
POSITION

Group General Counsel
QUALIFICATIONS

BA, LLB, LLM
Ken joined ANZ as Group General Counsel in August 2019, having
assisted it with major legal issues for over 10 years. Prior to ANZ,
Ken was a Partner of Freehills and later Herbert Smith Freehillsfor 21 years, and for 6 years was a member of the Herbert Smith
Freehills Global Board. Ken is one of Australia’s leading commercial
lawyers with significant experience in class actions, and complex
problems requiring strategic and multi-disciplinary analysis. He
holds a Master of Laws from the University of Melbourne and is a
co-author of Class Actions in Australia.

Simon Pordage
POSITION

Company Secretary
QUALIFICATIONSLLB (Hons), FGIA, FCIS
Simon joined ANZ in May 2016. He is a Chartered Secretary andhas extensive company secretarial and corporate governanceexperience. From 2009 to 2016 he was Company Secretaryfor Australian Foundation Investment Company Limited and anumber of other listed investment companies. Other former roles
include being Deputy Company Secretary for ANZ and Head ofBoard Support for Barclays PLC in the United Kingdom. Simonis committed to the promotion of good corporate governance.
He is a former National President and Chairman of GovernanceInstitute of Australia, and is a member and former Chairman of
its National Legislation Review Committee, and regularly presents
on governance issues.

Most material issues icons

Customer story icon

New icons/infographics

We have had
a bankingrelationship with
Willie Smith’s formore than
100 years

CUSTOMER STORY

Growing business sustainably
Stakeholder icons

Willie Smith’s Organic Apples and Cider is a family-run business in Huonville,
Tasmania. The family started apple farming in 1888 and the business has sinceevolved into a premium supplier of organic apples, cider and spirits.
Over the years they have faced many challenges, including
bushfires and the collapse of Tasmania’s apple export industry
in 1973 (the result of Britain joining the European Common
Market). In response, Ian Smith, a third-generation orchardist, built
controlled-atmosphere cool stores and began exporting to Asia in
How We Creat Value Icons
the 1980s.
More recently his son Andrew has converted the orchard into anorganic farm, in the belief that growing food without the needfor chemical fertilisers and pesticides is better for their land, theircustomers and the Tasmanian environment.
Willie Smith’s has had a banking relationship with ANZ for morethan 100 years. In June this year members of our Board andExecutive visited the cider production facilities and packing shed,meeting with the workers and learning about what matters tothem and their local community.
“I have worked hard to evolve Willie Smiths into a verticallyintegrated agribusiness in the last twenty years. The key
ingredients have been innovation, hard work and good
relationships. I feel confident and comfortable in our working
relationship with ANZ,” said Andrew.
Supporting the agricultural sector is an important part of ANZ’s
history, and banking customers like Willie Smith’s aligns with our
focus on helping our customers grow their business sustainably.
Image: Andrew Smith

43

Risk management
The successful delivery of the bank’s strategy is dependent on sound risk
management. All of the bank’s activities involve – to varying degrees – the analysis,
evaluation, acceptance and management of risks or a combination of risks.
Sound risk management plays a critical role in positioning us toprepare for, and respond to, opportunities and challenges in ouroperating environment.

Our progressThis year we have continued to strengthen our risk management
capabilities, focusing on:
Culture and conduct•• We have initiated a programme of work to build out how we willmeasure, monitor and manage conduct risk to allow us to better
understand and respond to the drivers of poor conduct. This
has included introducing new accountability and consequence
principles for employees found accountable for material
failure and non-compliance as well as recognising positive risk
behaviours in our annual performance and remuneration reviews.
•• We have raised employee awareness about our whistleblower
processes and made it easier for them to ‘speak up’– including
through initiatives such as the inaugural Whistleblower AwarenessWeek this year.
Simplification•• Investment has been made in our risk systems, including
enhancing our data analytics to improve our ability to identify
issues, and more swiftly understand the root causes.
•• Standardisation and simplification of our wholesale risk practices
and policies has helped significantly improve time responsivenessthereby delivering a better banker and customer experience.
Non-financial risk•• We have redesigned our non-financial risk framework in response
to feedback that it was too complex. Significant work has been
undertaken to simplify our language around operational risk,
consolidate our framework documentation, and clarify therequirements and roles and responsibilities of our staff.
•• We have established a Royal Commission and Self-Assessment
Oversight Group to provide oversight of the integrated approachand plans to address the Self-Assessment focus areas and Royal
Commission ‘lessons’. This includes, for example, commissioning
and reviewing reports on progress in addressing the SelfAssessment focus areas, our 16 Royal Commission commitments
and actions by government to respond to the Royal Commission.

“Strong risk management is a necessity
if we are to anticipate and navigate
ANZ through a changing environment.”
Kevin Corbally – Group Chief Risk Officer

Our Risk Management Framework
The Board is responsible for establishing and overseeing the Group’s
risk management framework. The Board has delegated authority
to the Board Risk Committee (BRC) to develop and monitor
compliance with the Group’s risk management policies.
The Committee reports regularly to the Board on its activities.
The key pillars of the Group’s risk management framework include:•• the Risk Appetite Statement (RAS), which sets out the Board’s
expectations regarding the degree of risk that the Group is
prepared to accept in pursuing its strategic objectives and its
operating plan; and•• the Risk Management Statement (RMS), which describes theGroup’s strategy for managing risks and a summary of the key
elements of the Risk Management Framework (RMF) that giveeffect to that strategy. The RMS includes: a description of eachmaterial risk; and an overview of how the RMF addresses each risk,
with reference to the relevant policies, standards and procedures.
It also includes information on how the Group identifies,
measures, evaluates, monitors, reports and then either controls or
mitigates material risks.
The Group operates a Three Lines-of-Defence Model in regard to risk
management that helps embed a culture where risk is everyone’s
responsibility. The business – as the first line of defence – has day to
day ownership of risks and controls and is accountable for identifying
and managing its own risks. The Risk Function is the second lineof defence, providing a strong and independent oversight of thework undertaken to manage the risk, as well as developing andmaintaining the Risk Management Framework.
The final line of defence is Internal Audit and includes independent
assurance that evaluates the adequacy and effectiveness of both firstand second line risk management approaches.

Links to 2019 Group
Performance Framework
We continue to operate in a dynamic and challenging
external and regulatory environment placing significant
demands on the Risk and Compliance function. There wereno material breaches of our Group Risk Appetite Statement,
and the number of adverse audits fell by a third withmanagement demonstrating accountability for fixing issues
in a timely and sustainable manner. While there were many
positives from a risk perspective there were some nonfinancial risk shortcomings from a regulatory, customer andcommunity perspective.
Refer to our Remuneration Report on pages 66 to 98 forfurther detail.

44

ANZ 2019 ANNUAL REPORTThe governance and oversight of risk, whilst embedded in day
to day activities, is also the focus of committees and regularforums across the bank (see diagram below). The committees
and forums discuss and monitor known and emerging risks,reviewing management plans and monitoring progress toaddress known issues.

Fighting financial crime
Financial crime threats continue to evolve,
as do the regulatory measures required toaddress them. In response we have:•• invested heavily in capturing andunderstanding financial crime data and infrastructure,
upgrading sanctions and fraud platforms;•• implemented a network data analysis tool, improving ourability to collaborate with external parties to fight financial
crime; and•• focused on the growth and development of employees,
developing a gap analysis tool to inform our thinking on
the current and future capabilities required of our people
to combat financial crime.

The risk landscape is continually evolving and we are therefore
constantly reviewing issues to consider their materiality to
the bank’s operations. Two risks we are currently seeking tounderstand further are:
Cyber security risk: while not new, the increasing reliance wehave on information security systems to hold our data and ourcustomers’ data requires us to continually invest in and test theadequacy of our safeguards against evolving cyber attacks andnew technology. See page 20 for further detail,Climate change risk: the financial risks associated with climatechange are subject to increasing prudential and regulatory oversightand are therefore an area of focus for us. See pages 48 to 49 forfurther detail on our approach to climate-related financial risks.

BOARD OF DIRECTORSEXECUTIVE COMMITTEE

Consequence
Review Group

ANZ’s most senior executives meet regularly to discuss performance and review shared initiatives

Group Asset andLiability Committee

Credit Ratings
System OversightCommittee

Capital and Stress
Testing OversightCommittee

Division

Modelling Ratings
Working Groups
and Usage Forums

Divisional Initiatives
Review Committees/Project Advisory
Councils

Regional or Country
Risk Management
Committees

Group

Credit and Market
Risk Committee

Country

KEY MANAGEMENT COMMITTEES
Operational Risk
Executive
Committee

Divisional Risk
Management
Committees

Ethics andResponsible
Business Committee

Investment
Committee

Various Divisional SpecificManagement Committees

Operational
Risk
Committee

Royal Commission
and Self-Assessment
Oversight Group

Divisional
Consequence
Review Groups

Product
Committee

Country Assets
and Liabilities
Committees

45

Risk management (continued)

Key material risks
The material risks facing the group (as per the Group’s Risk Management
Statement) and how these risks are managed, are summarised below:
Description

Managing the risk

CapitalAdequacy
Risk

The risk of loss arising from the Group failingto maintain the level of capital required by
prudential regulators and other key stakeholders(shareholders, debt investors, depositors, rating
agencies, etc.) to support ANZ’s consolidated
operations and risk appetite.

We pursue an active approach to Capital Management
through ongoing review, and Board approval, of thelevel and composition of our capital base against key
policy objectives.
Most material issues icons

The risk of failure to act in accordance withlaws, regulations, industry standards andcodes, internal policies and procedures andprinciples of good governance as applicableto the Group’s businesses.

Key features of how we manage Compliance Risk aspart of our Operational Risk framework include:
Most material issues icons•• centralised management of key obligations, andemphasis on identifying changes in regulations and theMost material
business environment,so as to issues
enable icons
us to proactively
New icons/infographics
assess emerging compliance risks and implement robust
reporting and certification processes.

Compliance
Risk

Credit Risk

including:•• repaying depositors or maturing wholesale
debt; or•• the Group having insufficient capacity tofund increases in assets.

Market Risk

Material
ESG issues1

New icons/infographics
Most material issues icons

icons/infographics•• recognition of incident management asNew
a separate
element to enhance ANZ’s ability to identify, manage
and report on incidents/breaches in a timely manner.
New icons/infographics•• the Whistleblower Protection Policy, allowing
employees and contractors to make confidential,
New icons/infographics
anonymous submissions
regarding concerns relating
Most material issues icons
to accounting, internal control, compliance, audit andStakeholder icons
other matters.
Most material issues icons
Our Credit Risk framework is top down, being defined
The risk of financial loss resulting from:•• a counterparty failing to fulfil its obligations; by credit principles and policies. Credit policies,
requirements and procedures cover
all aspectsof theicons
Most material
issuesorcredit life cycle — for example: transaction structuring,•• a decrease in credit quality of a counterparty risk grading, initial approval, ongoing management andStakeholder icons
resulting in a financial loss.
Newmanagement,
icons/infographics
problem debt
as well as specialist policy
topics.
Credit Risk incorporates the risks associated
Stakeholder icons
with us lending to customers who could be
New icons/infographics
impacted by climate change or by changes
to laws, regulations, or other policies adopted
Stakeholder icons
by governments or regulatory authorities,
Newmaterial
icons/infographics
Most
issues icons
How We Creat Value Icons
including carbon pricing and climate change
adaptation or mitigation policies.
Stakeholder icons

Liquidity and The risk that the Group is unable to meet
Funding Risk its payment obligations as they fall due,

The risk to the Group’s earnings arising from:•• changes in any interest rates, foreignexchange rates, credit spreads, volatility andcorrelations; or•• from fluctuations in bond, commodity or
equity prices.

46

Most material issues icons

Risk TypeANZ 2019 ANNUAL REPORTKey principles in managing our Liquidity and Funding
Risk include:•• maintaining our ability to meet liquidity ‘survival
horizons’ under a range of stress scenarios to meet cash
How We Creat Value Icons
flow obligations over a short to medium-term horizon;
New icons/infographics•• maintaining a strong structural funding profile; andHow
We Creat
Stakeholder iconsMost material
issuesicons Value Icons•• maintaining a portfolio of high-quality liquid assets
to act as a source of liquidity
in timesof stress.
How
We Creat
Value Icons
Our risk management and control framework for Market
Stakeholder icons
Risk involves us quantifying the magnitude of market risk
How
We
Creat
Value
Icons
within the trading and balanceStakeholder
sheet portfolios
iconsthroughindependent risk measurement. This identifies the rangeof possible outcomes, the likely timeframe, and thelikelihood of the outcome occurring.
Then we allocate an
New icons/infographics
appropriate amount of capital to support these activities.
How We Creat Value Icons

Most material issues icons

Risk Type

Description

Managing the risk

Operational
Risk

The risk of loss and/or non-compliance withlaws resulting from inadequate or failed
internal processes, people and/or systems, orfrom external events. This definition includes
legal risk, and the risk of reputation loss, or
damage arising from inadequate or failed
internal processes, people and systems, but
excludes strategic risk.

Reputation
Risk

The risk of loss that directly or indirectly
impacts earnings, capital adequacy or value,that is caused by:•• adverse perceptions of the Group heldby any of customers, the community,
shareholders, investors, regulators, or rating
agencies;•• conduct risk associated with the Group’s
employees or contractors (or both); or•• the social and/or environmental impacts of
our lending decisions.

Strategic
Risk

The risk that the Group’s business strategy andstrategic objectives may lead to an increase inother key Material Risks — for example: Credit
Risk, Market Risk and Operational Risk.

Technology
Risk

The risk of loss and/or non-compliance withlaws resulting from inadequate or failed
internal processes, people and systems orfrom external events impacting on IT assets,
including the compromise of an IT asset’s
confidentiality, integrity or availability.

1.

Most material issues icons
We operate a Three-Lines-of-Defence Model to manage
Operational Risk, with each Line of Defence having
defined roles, responsibilities andescalation
Most
materialpaths
issues icons
to support effective communication and effective
management of our operational risk. We also have
New icons/infographics
ongoing
reviewmechanisms
ensure our Operational
Mostmaterial
issues to
icons
Risk framework continues to meet organisational needs
and regulatory requirements.
New icons/infographics
Most material issues icons
We manage Reputation Risk by maintaining a positiveand dynamic culture that:
Newmaterial
icons/infographics
Most
issues icons•• ensures we act with integrity; and•• enables us to build strong and trusted relationships
with customers and clients, with colleagues, and with
New icons/infographics
the broader society.
We have well established decision-making frameworks
Newareicons/infographics
and policies to ensure our business decisions
guidedby sound social and environmental
standards
that
Most material issues takeicons
into account Reputation Risk.New icons/infographics
Stakeholder icons

We consider and manage strategic risks through ourannual strategic planning process, managed by the Stakeholder icons
Executive Committee and approved by the Board. Most material issues icons
Any increase to our Key Material Risks is managed inaccordance with the risk management
specified
Stakeholder
iconsabove.
Most
material issues icons
New
icons/infographics
Consistent with the management of Operational Risk,
we operate a Three-Lines-of-Defence model to manage
material
issuesicons
Technology Risk, Most
with eachLine of
DefencehavingdefinedStakeholder
roles, responsibilities
icons and escalation paths
to support effective communication and effective
management
ourCreattechnology
risk. We also have New icons/infographics
HowofWe
Value Icons
Stakeholder
ongoing review mechanisms to ensure ourOperationalicons
Risk framework, which is also used to manage
How We Creat Value Icons
New
icons/infographics
Technology Risk, continues tomeetorganisational
Stakeholder
icons needs
and regulatory requirements.

See page 3 for information on our material ESG issues

Customer story icon

Most material issues icons
Fairness and ethical conductterial issues icons
Fraud and data security

icons

For further information about the principal risks
icons
How We Creat ValueStakeholder
Icons
and uncertainties
that
Customer story
icon the Group faces, see our‘Principal risks and Uncertainties’ disclosure
How We Creat Value Icons
availableaticonanz.com/shareholder/centre
Customer story
Customer story icon

How We Creat Value Icons
Stakeholder icons

Corporate governance

Stakeholder icons

s/infographics

ics

New icons/infographics
How We Creat Value Icons

Customer story icon

Customer experience

New icons/infographics

Material
ESG issues1

Digital innovation

Stakeholder icons
How We Creat Value Icons

47

Risk management (continued)

Our approach to climate change
We seek to provide investors and otherstakeholders with information enablingthem to assess the adequacy of ourapproach to climate change and ourability to manage the associated risks
and opportunities.
This is the third year we have reported using the recommendationsof the Financial Stability Board Taskforce on Climate-related Financial
Disclosures (TCFD). For detailed information see ‘ANZ 2019 climaterelated financial disclosures’ on anz.com/annualreport.

In 2019 we have focused on:
Training our people on climate-relatedrisks and opportunities
Engaging with our largest-emitting
customers on their transition plans
Feeding the results of our customer
engagement into our assessments of individual
customers and carbon-intensive portfolios,in particular the energy, transport, buildings andfood, beverage and agricultural sectors

Engaging with our customers on their transition plans
Throughout 2019 we have analysed the carbon disclosures of over 80 of our largest emitting customers andengaged with 29 of these to support them to establish, and where appropriate, strengthen existing low carbon
transition plans.
This engagement will inform the development of a model applicable to our broader customer base enabling us to encourage customers
to improve the management and disclosure of their climate-related risks and opportunities.
Within each industry our customers have different starting points. Both through customer discussions and reviews of public disclosures
we are developing a better understanding of our customers’ preparation for, and management of, their most likely climate-related risks
and opportunities. Insights we have gained from these customer conversations include:

EnergyTransport

Energy: our engagement in this sector is initially focused on
customers with thermal coal operations. Some customers see
continuing strong demand for high-quality, low-cost Australian
thermal coal that will be used in recently built or plannedhigh efficiency, lower emissions (HELE) plants across Asia; theirstrategy is focused on developing high quality thermal coalassets and they are committed to improving their external
disclosures. Other customers have undertaken scenario analysis(aligned with TCFD recommendations), revealing that some of
their commodities perform worst under a low-carbon transition;
in response they are directing limited expenditure to thermal
coal and most of this is in maintenance capital rather than
expansion. Some companies are also starting to work with
their suppliers and customers to seek to reduce the emissions
associated with the use of their mining commodities, ie ‘Scope 3’
emissions.

48

ANZ 2019 ANNUAL REPORT

Buildings

Food, beverage
and agriculture

Transport: a significant customer has ambitious plans to expand
their electric vehicle fleet in Australia and is building a new
distribution centre that will integrate rooftop solar and electricvehicle charging bays. They also plan to enter a renewable energy
power purchase agreement (PPA) to lower their carbon footprint
and shield themselves from price volatility.
Buildings: a number of customers have established net-zerocarbon targets that will be achieved largely through improved
energy efficiency and onsite solar installations, setting time boundgoals to achieve this by 2030.
Food, beverage and agriculture: for many of our agribusinessand food producers, the physical risks of climate change (e.g.,water availability and supply) represent the most material and
immediate risk to their business, rather than transition risks.
We have observed these customers are increasingly focusedon managing climate-related risks by committing to reduce orremove deforestation from their operations and supply chains.

Our progress on the TCFD
TCFD theme

Our progress to date

Focus areas – 2020/21

Governance•• Board Risk Committee oversees management ofclimate-related risks•• An enhanced risk•• Align with regulatory
management framework
guidance on climate-related
that is responsive
risk governance, including
to climate change,stress testing of selected
and meets financial
portfolios
regulators’ requirements•• Board Ethics, Environment, Social and GovernanceCommittee approves climate-related objectives, goals
and targets•• Ethics and Responsible Business Committee (executive
management) oversees our approach to sustainability
and reviews climate-related risks
Strategy•• ANZ’s Climate Change Statement (available on anz.com)
reaffirms support for the Paris Agreement goals andtransition to a net-zero carbon economy•• Managing the net-zero carbon transition focuses on anorderly and just transition that gives careful consideration
to the impacts on communities

Beyond 2020 vision•• Consider extending scenario •• ANZ business strategy
more closely aligned to aanalysis to incorporate
bushfire, flood and other risks resilient and sustainableeconomy that supports
relating to retail customers
the Paris Agreement•• Possible extension ofgoals and Sustainable
emerging environmental andDevelopment Goals
climate-related risks to other•• Participation in a United Nations Environment Program
segments of the home loan
Finance Industry (UNEP FI) working group on TCFD scenario
portfolio
analysis that issued recommendations and methods to•• Include climate risk reference
assess portfolio transition and physical risks
in agriculture related lending•• Low carbon products and services within our Institutional
guidance documents usedbusiness focused on climate-related opportunities
by our front line bankers•• Analysis of flood-related risks for our home loan portfolio ina major regional location of Australia•• Test-pilot of socio-economic indicators showing financial
resilience of home loan customers with respect to flood risk•• Integrate assessment•• Encouraging customers toof climate-related risks
develop and disclose theirinto our Group risk•• Climate change identified as a Principal Risk and Uncertainty in transition plans in key sectors
management framework
energy,transport,
buildings
our UK Disclosure and Transparency Rules (DTR) Submission
and food, beverage and•• Standard discussions•• Guidelines and training provided to over 1,000 of ouragriculture
with business customers
Institutional bankers on customers’ transition plan discussions
include climate-related•• Customer engagement•• Enhanced financial analysis and stronger credit approvalrisks and opportunities
to identify customer orterms applied to agricultural property purchases in regions
sector-specific transition••
Assessment of customerof low average rainfall or measured variabilityor physical risks
transition plans part•• New agribusiness customers assessed for financial resilienceof standard lending
and understanding of rainfall and climate trends in theirdecisions and portfolio
area, and water budgets considered if irrigating
analysis

Risk•• Climate change risk added to Group and Institutional Risk
management
Appetite Statements

Metrics andtargets•• Support 100 of our largest emitting customers1 to establish
or strengthen low carbon transition plans by 2021, withmetrics developed to track progress•• Exceeded our 5-year $15 billion target to fund and facilitate
low carbon and environmentally sustainable solutions•• Power Purchase Agreement to increase renewable energy
use in our Australian operations•• Ongoing emissions reduction targets for ANZ energy usealigned with the Paris Agreement goals•• Complete transition plan
engagement with highemitting customers andconsider how to integrate
into customer assessments•• New 6-year $50 billion
target to fund and facilitatesustainable solutions•• New metrics for measuring
impact of our progress onenvironmental sustainability•• Monitor industry
standards for lendingaligned with the Paris
Agreement goals•• Reduce ANZ’soperational emissions
in line with thedecarbonisation
trajectory of the Paris
Agreement goals•• New target to procure 100%
renewable electricity for
ANZ’s operations by 2025
1.

In the energy, transport, buildings and food, beverage and agricultural sectors.

49

$

CUSTOMER STORY

Sustainable finance market
continues to grow

Following the growth of green bonds in the past three tofour years, the Australian and New Zealand sustainablefinance market continues to accelerate with the emergenceof loans in both green and sustainability-linked formats.
These loans are differentiated by how the proceeds are used. Green loans
require borrowers to invest in ‘green’ assets such as green buildings, renewableenergy or low carbon transport projects. Sustainability-linked loans can beused for general corporate purposes with pricing designed to incentivise
improved sustainability performance – for example, reducing emissions andimproving employee wellbeing.
In the past year, ANZ has arranged and funded the first ever sustainability
linked loan in Australia for Adelaide Airport, and the first Climate Bonds
Initiative certified green loan in Australia for Investa Commercial Property Fund.
We also acted as joint sustainability co-ordinator and bookrunner on a $1.4
billion sustainability-linked loan for Sydney Airport – the first syndicated facilityof its kind in Australia as well as the largest in Asia Pacific and the airport sector
to date. Pricing of the loan is attached to Sydney Airport’s ESG performance,
as measured by an independent third party. Sustainability initiatives include
investment in electric vehicles, an ambition to achieve carbon neutrality by2025 and cutting carbon emissions per passenger by 50 percent from 2010
levels by 2025.
In a first for the New Zealand market, we also led the successful completion ofa NZ$50 million sustainability-linked loan for dairy company Synlait Milk Ltd.
“Linking our financial arrangements to our ESG performance made perfectsense”, said Nigel Greenwood, Synlait Chief Financial Officer. “It reinforces toour shareholders and stakeholders that we are committed to continuously
improving our performance and disclosure, and aligns with our company
purpose.”
ANZ expects companies will become more receptive to these types ofsustainable finance products as climate change and sustainable development
move into the fore of their corporate strategies and risk assessment.
Images supplied by Synlait Milk Ltd

50

ANZ 2019 ANNUAL REPORTIn a first for New Zealand, we led
the completion of a NZ$50 million
sustainability linked loan for dairy
company, Synlait Milk Ltd

51

OUR PERFORMANCE (continued)
OUR PERFORMANCE (continued)

Performance
Overview
GROUP PERFORMANCEThe resultsPERFORMANCEof the Group’s operations and financial position are set out on pages 52-64. Page 9 outlines the Group’s strategy and pages
GROUP
10-23 describes in further detail the Group’s prospects in terms of future financial position and performance. Discussion of our approach
The
of to
therisk
Group’soperations
and financial
position
are keyset out
on pages
52-64.
Pageon9 outlines
the Group’s strategy and pages
and results
progressmanagement,
includinga summaryof ourmaterial
risks isoutlined
pages 44-49.
10-23 describes in further detail the Group’s prospects in terms of future financial position and performance. Discussion of our approach
Statutory profit after tax for the year ended 30 September 2019 decreased 7% on the prior year to $5,953 million. Statutory return on
and progress to risk management, including a summary of our key material risks is outlined on pages 44-49.
equity is 10% and statutory earnings per share is 210.0 cents, a decrease of 5% on prior year.
Statutory profit after tax for the year ended 30 September 2019 decreased 7% on the prior year to $5,953 million. Statutory return on
GROUP
PROFITRESULTSequity is 10%
and statutory
earnings per share is 210.0 cents, a decrease of 5% on prior year.
2019

GROUP PROFIT RESULTS

2018

Statutory
Cash
Statutory
Cash
2019
2018
$m
$m
$m
$m
Statutory
Cash
StatutoryCash
Net Interest Income
14,514
14,514
14,33914,339
Income Statement
$m
$m
$m
$m
Other operating income
5,470
4,853
4,446
4,690
14,514
14,514Net Interest Income
14,33914,339Operating income
19,984
19,367
18,78519,0295,470
4,853
Other operating income
4,446
4,690
Operating expenses(9,401)(9,401)(9,071)(9,071)
Operating income
19,984
19,367
18,78519,029Profit before credit impairment and income tax
10,583
9,966
9,714
9,958
(9,401)(9,401)
Operating expenses(9,071)(9,071)Credit impairment charge
(688)
(688)
(794)
(795)
Profit before credit impairment and income tax
10,583
9,966
9,714
9,958
Profit before income tax
9,895
9,278
8,920
9,163
(688)
(688)
Credit impairment charge
(794)
(795)
Income tax expense(2,784)(2,775)(2,609)(2,678)
Profit before income tax
9,895
9,278
8,920
9,163
Non-controlling interests
(16)
(16)
(15)
(15)
(2,784)(2,775)
Income tax expense(2,609)(2,678)
7,095
6,487
Profit after tax from continuing operations
6,296
6,470
Non-controlling interests
(16)
(16)
(15)
(15)
Profit/(Loss) after tax from discontinued operations
(695)
(682)
(343)
(309)
7,095
6,487
Profit after tax from continuing operations
6,296
6,470
6,400
5,805
Profit for the year
5,953
6,161
(695)
(682)
Profit/(Loss) after tax from discontinued operations
(343)
(309)
The
Group
uses
cash profit, a non-IFRS measure, to assess the performance of its businessis an industry-widemeasure which5,805
6,400
Profitfor theyear
5,953 activities. It6,161
enables comparison with our peer group. We calculate cash profit by adjusting statutory profit for non-core items. In general, it represents the
The Group
uses cash profit,
non-IFRS
measure,to assessthecashperformanceof its businessactivities.
is an industry-wide
which
financialperformanceof oura corebusiness
activities.
We useprofit internallyto set targets
and Itincentivise
our Seniormeasure
Executives
andenablesthroughcomparison
with our peer plans.
group. We calculate cash profit by adjusting statutory profit for non-core items. In general, it represents theleaders
our remuneration
financial performance of our core business activities. We use cash profit internally to set targets and incentivise our Senior Executives andRefer to page 53 for adjustments between statutory and cash profit.
leaders through our remuneration plans.
Cash profit is not subject to audit by the external auditor. Our external auditor has informed the Audit Committee that adjustments between
Refer to page 53 for adjustments between statutory and cash profit.
statutory and cash profit have been determined on a consistent basis across each of the periods presented.
Cash profit is not subject to audit by the external auditor. Our external auditor has informed the Audit Committee that adjustments betweenAsa resultandof thesaleof our
OnePathpensions andP&I)eachand ofaligneddealerpresented.
groups (ADG) businesses to IOOF Holdings
statutory
cash
profithavebeen determinedon investment
a consistent(OnePathbasis acrossthe periods
Limited and our life insurance business to Zurich Financial Services Australia, the financial results of these businesses and associated GroupAs a result of thesaleof our OnePathpensions
and investment(OnePathP&I) andfrom
aligneddealer groups(ADG)
businesses
to IOOF
Holdings
reclassification
andconsolidation
impacts
are treatedas discontinued
operations
a financial
reportingperspective(referto page
61).
Limited and our life insurance business to Zurich Financial Services Australia, the financial results of these businesses and associated GroupCONTINUING
reclassification
andOPERATIONS
consolidation impacts are treated as discontinued operations from a financial reporting perspective (refer to page 61).
Income Statement

We believe cash profit from continuing operations is particularly important as we continue to strategically reposition ourselves to create a
CONTINUING OPERATIONS
simpler, better capitalised, better balanced and more agile bank.
We believe cash profit from continuing operations is particularly important as we continue to strategically reposition ourselves to create a
simpler, better capitalised, better balanced and more agile bank.

52

Total Operating
Income – cash1 ($m)

Operating Expenses –cash1 ($m)

Credit Impairment
Charge – cash1 ($m)

Cash profit1 ($m)

2019

19,029

2019

9,071

2019

795

2019

6,470

2018

19,367

2018

9,401

2018

688

2018

6,487

Return on
Equity– cash1 (%)

Earnings per Share –cash1 (cents)

Common Equity
Tier 1 (%)

Dividend pershare (cents)

2019

10.9%

2019

2019

11.4%

2019

160

2018

11.0%

2018

2018

11.4%

2018

160

227.6
223.4

1.

Information has been presented on a cash profit from continuing operations basis. Discontinued operations are detailed on page 61.

1.

Information has been presented on a cash profit from continuing operations basis. Discontinued operations are detailed on page 61.

ANZ 2019 ANNUAL REPORTOUR PERFORMANCE (continued)

1
ADJUSTMENTS
BETWEENSTATUTORYCASHPROFIT1
ADJUSTMENTS BETWEENSTATUTORYAND CASHAND
PROFIT

99
6,296

2019 Statutory
profit –continuing
operations

77

Revaluationof policy
liabilities

6,470
(2)

Economic andrevenueand expense
hedges

Structured
creditintermediation
trades2019 Cashprofit –continuing
operations

Description of adjustments between continuing operations statutory profit and cash profit:
Adjustment

Reason for the adjustment

Revaluation of policy
liabilities – OnePath
Life (NZ)
2019: $77 million
2018: ($14) million

When calculating policy liabilities, the projected future cash flows on insurance contracts are discounted to reflect
the present value of the obligation, with the impact of changes in the market discount rate each period beingreflected in the Income Statement. ANZ includes the impact on the re-measurement of insurance contracts
attributable to changes in market discount rates as an adjustment to statutory profit to remove the volatility
attributable to changes in market interest rates which reverts to zero over the life of insurance contracts. With thesale completion of the OnePath Life (NZ) Ltd business, the 2019 financial year includes the reversal of life-to-datecash profit adjustments on the revaluation of policy liabilities sold increasing cash profit by $81 million.
The Group enters into economic hedges to manage its interest rate and foreign exchange risk which, in
accordance with accounting standards, result in fair value gains and losses being recognised within the Income
Statement. ANZ removes the fair value adjustments from cash profit since the profit or loss resulting from thehedge transactions will reverse over time to match with the profit or loss from the economically hedged item aspart of cash profit. This includes gains and losses arising from approved classes of derivatives not designated inaccounting hedge relationships but which are considered to be economic hedges, including hedges of foreign
currency debt issuances and foreign exchange denominated revenue and expense streams, primarily NZD and
USD (and USD correlated), as well as ineffectiveness from designated accounting hedges.
ANZ entered into a series of structured credit intermediation trades prior to the Global Financial Crisis with eight
US financial guarantors. This involved selling credit default swaps (CDSs) as protection over specific debt structuresand purchasing CDS protection over the same structures. ANZ has subsequently exited its positions with six US
financial guarantors. The remaining two portfolios with a $0.3 billion notional value are being monitored with aview to reducing the exposures when ANZ deems it cost effective relative to the perceived risk associated with a
specific trade or counterparty.
On 3 January 2017, The Group announced that it had agreed to sell its 20% stake in Shanghai Rural Commercial
Bank (SRCB). The impact of SRCB has been treated as an adjustment between statutory profit to cash profit. The
rationale being the loss on reclassification to held for sale was expected to be largely offset by the release ofreserve gains on sale completion within the 2017 year. The transaction was subsequently completed in the 2018
full year, and the entire impact of the transaction was recognised in cash profit.

Economic andrevenue and expense
hedges2019: $99 million
2018: ($257) million

Structured credit
intermediation
trades2019: ($2) million
2018: ($4) million
Sale of SRCB
2019: nil
2018: ($333) million

1.

Information has been presented on a cash profit from continuing operations basis. Discontinued operations are detailed on page 61.

53
ANZ 2019 ANNUAL REPORT53

OUR PERFORMANCE (continued)

Performance Overview (continued)

CASH PROFIT PERFORMANCE1

CASH PROFIT PERFORMANCE1
6,487

330

98

6,470

(107)

(175)
(163)

2018 Cash
Profit continuing
operationsNet
interest
incomeOther
operatingincomeOperatingexpensesCreditimpairment
chargeIncome tax
expense& noncontrollinginterests

2019 Cash
Profit continuing
operations

GROUP PERFORMANCE – CASH PROFIT
2019
$m

2018
$m

Movt

Net Interest Income
Other operating income

14,3394,690

14,514
4,853

-1%
-3%

Operating income

19,029(9,071)

19,367(9,401)

-2%
-4%

9,958
(795)

9,966
(688)

0%
16%

Income tax expense
Non-controlling interests

9,163(2,678)(15)

9,278(2,775)
(16)

-1%
-3%
-6%

Profit after tax from continuing operations

6,470

6,487

0%

Operating expenses
Profit before credit impairment and income tax
Credit impairment charge
Profit before income tax

Cash profit from continuing operations decreased $17 million (0%) compared with the 2018 financial year.
 Net interest income decreased $175 million (-1%) largely due to lower interest rates and competitive pressures resulting in a 11 basis point
decrease in the net interest margin, partially offset by 5% growth in average interest earning assets. The lower net interest margin reflects
growth in lower margin Markets Balance Sheet activities, higher proportionate growth in the lower Institutional business, customer
switching to principal and interest in Australia home loans, deposit margin compression and lower earnings on capital, partially offset by the
impact of home loans repricing. The increase in average interest earning assets reflects growth in Institutional banking portfolios and homeloan growth in the New Zealand division.
 Other operating income decreased $163 million (-3%) largely as the result of net divestment impacts of $198 million, a $120 million
decrease in net fee and commission income, and $130 million decrease primarily in other income attributable to realised losses on
economic hedges against foreign currency denominated revenue streams (which offset favourable foreign currency translations elsewherein the Group) and a reduction in income from the lenders mortgage insurance business. This was partially offset by higher Markets otheroperating income of $154 million, a $79 million increase in share of associate’s profit and a $52 million decrease in customer remediation
within other operating income.
 Operating expenses decreased $330 million (-4%) primarily due to an accelerated software amortisation charge in the prior period of $251
million, lower restructuring expenses of $150 million, a reduction in expenses following the sale of OnePath Life (NZ) and Asia Retail and
Wealth businesses of $60 million, lower Royal Commission legal costs of $40 million and lower FTE. This was partially offset by higher
customer remediation of $182 million within operating expenses, inflation, the impact of foreign currency translation and regulatorycompliance spend in New Zealand.
 Credit impairment charges increased $107 million (+16%) largely due to higher collectively assessed credit impairment charges, primarily asa result of the prior period benefitting from the release of temporary economic overlays and a greater number of customer upgrades.
1.

54

Information has been presented on a cash profit from continuing operations basis. Discontinued operations are detailed on page 61.

ANZ 2019 ANNUAL REPORT54
ANZ 2019 ANNUAL REPORTOUR PERFORMANCE (continued)

LARGE/NOTABLE ITEMS INCLUDED IN CASH PROFIT1
Within continuing cash profit, the Group recognised a number of large/notable items. The impact of these items on a post-tax basis is
as follows:
2019
$m

2018
$m

Asia Retail and Wealth businesses
Shanghai Rural Commercial Bank (SRCB)UDC Finance (UDC)
Metrobank Card Corporation (MCC)
OnePath Life NZ Ltd (OPL NZ)
ANZ Royal Bank (Cambodia) Ltd (Cambodia JV)
PNG Retail, Commercial and SME
Paymark
Divested business results

157
10
1
37

85
(86)
11
247
(3)
(42)
(21)
-

Asia Retail and Wealth businesses
MCC
OnePath Life NZ Ltd (OPL NZ)
ANZ Royal Bank (Cambodia) Ltd (Cambodia JV)
PNG Retail, Commercial and SME

10
11

24
10
66
14

7
4

7
5

(475)
(10)
(54)

(295)
(206)
(38)
(159)

Gain/(Loss) on sale of divestments

Paymark
Other large/notable items
Customer Remediation
Accelerated Software Amortisation
Royal Commission Legal Costs
Restructuring
Description of large/notable items:

1.

Item

Description

Gain/(Loss) on sale of divestments

The 2019 financial year included a gain on sale upon completion of the sale of OPL NZ, Paymark,Cambodia JV, and PNG Retail, Commercial and SME businesses. The 2018 financial year included
the gain on sale upon completion of the Asia Retail and Wealth businesses and MCC, and theloss on sale from SRCB. The Group recognised a loss on reclassification of assets and liabilities toheld for sale for Cambodia JV, OPL NZ, and PNG Retail, Commercial and SME. In addition, a net
cost recovery for UDC was recognised in respect of the terminated transaction process.

Divested business results

The 2019 financial year included the divested business results of the Cambodia JV, OPL NZ, PNG
Retail, Commercial and SME, and Paymark. The 2018 financial year included the divested
business results of the Asia Retail and Wealth businesses and a dividend received from MCC.

Customer Remediation

Customer remediation includes provisions for expected refunds to customers, remediation
project costs and related customer and regulatory claims, penalties and litigation outcomes.

Accelerated Software Amortisation

Accelerated amortisation charge of certain software assets in the 2018 financial year,
predominantly relating to the Institutional division following a review of the International
business in light of divestments.

Royal Commission Legal Costs

External legal costs associated with responding to the Royal Commission.

Restructuring

Restructuring to re-shape our workforce and simplify our business. The 2019 financial year
largely related to changes in the Group’s enablement functions. The 2018 financial year largely
related to the move of the Australia Retail and Commercial division and technology function toagile ways of working.

Information has been presented on a cash profit from continuing operations basis. Discontinued operations are detailed on page 61.

55
ANZ 2019 ANNUAL REPORT55

OUR PERFORMANCE (continued)

Performance Overview (continued)

ANALYSIS OF CASH PROFIT PERFORMANCE1
Net interest income1

Cash net interest income
Average interest earning assets3
Average deposits and other borrowings3,4
Net interest margin (%) - cash2,3
2

2019
$m

2018
$m

Movt

14,339813,219
639,144
1.76

14,514
774,883
617,008
1.87

-1%
5%
4%
-11 bps

Net interest income decreased $175 million (-1%) largely due to lower interest rates and competitive pressures resulting in a 11 basis point
decrease in the net interest margin, partially offset by 5% growth in average interest earning assets.
Net interest margin decreased reflecting growth in lower margin Markets Balance Sheet activities, higher proportionate growth in the lower
Institutional business, customer switching to principal and interest in Australia home loans, deposit margin compression and lower earnings
on capital, partially offset by the impact of home loans repricing
Average interest earning assets increased $38.3 billion (5%) reflecting growth in Institutional banking portfolios and home loan growth in the
New Zealand division.
Average deposits and other borrowings increased $22.1 billion (4%) driven by growth in the Institutional and New Zealand divisions, and theimpact of foreign currency movements.

NET INTEREST MARGIN FROM CONTINUING OPERATIONS (BPS)NET INTEREST MARGIN FROM CONTINUING OPERATIONS (BPS)

187

(4)

—

2
182

(1)
(2)

(5)

2018 Cashnet interest
margin continuing
operations
1.
2.
3.

56

Asset andfunding mix

Wholesalefunding
costs

Depositpricing

Assetspricing

Treasury

2019 Cashnet interest
marginsubtotal

Information has been presented on a cash profit from continuing operations basis. Discontinued operations are detailed on page 61.
Includes the major bank levy of -$363 million (2018: -$355 million).
Average balance sheet amounts include assets and liabilities of continuing operations reclassified as held for sale.

ANZ 2019 ANNUAL REPORT56
ANZ 2019 ANNUAL REPORT

Marketsbalancesheet
activities1

176
(1)

Large/
notableitems

2019 Cashnet interest
margin continuing
operations

OUR PERFORMANCE (continued)

Other operating income1
2019
$m

2018
$m

Movt

Net fee and commission income2
Markets other operating income
Share of associates' profit2
Other2

2,493
1,286
262
649

2,624
1,129
183
917

-5%
14%
43%
-29%

Total cash other operating income

4,690

4,853

-3%

Total increase/(decrease)
$m

Movt

Explanation

Net fee andcommission
income2

(131)

-5%

Net fee and commission income decreased primarily due to the reduction or removal ofcommercial and retail fees, lower volumes and the loss of income following the sale of
the Asia Retail and Wealth businesses, partially offset by lower customer remediation
impacting Net fee and commission income.

Markets otheroperating income

157

14%

Markets other operating income increased across Franchise Trading, Franchise Sales andBalance Sheet Trading. This was primarily due to tighter credit spreads and Australia and
New Zealand rates, partially offset by a challenging international interest rateenvironment and the lower net impact of derivative valuation adjustments relative tothe prior financial year.

Share of associates'
profit2

79

43%

Share of associates’ profit increased by $79m of which $44 million relates to P. T. BankPan Indonesia and $36 million relates to AmBank.

Other2

(268)

-29%

Other decreased primarily due to the reduction in insurance business income following
the sale of OnePath Life NZ, realised losses on economic and revenue hedges against
foreign currency revenue streams (which are offset by favourable currency translations
elsewhere in the Group) and a reduction in income in the lenders mortgage insurance
business.

Total cash otheroperating income
from continuing
operations

(163)

-3%

OTHER OPERATING INCOME FROM CONTINUING OPERATIONS ($M)

OTHER OPERATING INCOME FROM CONTINUING OPERATIONS ($M)
649
917
262

● Net fee andcommission income

183

2019
2,493
1,286

1.
2.

● Markets otheroperating income

2018
1,129

2,624

● Share of associates’ profit● Other

Information has been presented on a cash profit from continuing operations basis. Discontinued operations are detailed on page 61.
Excluding Markets.

57
ANZ 2019 ANNUAL REPORT57

OUR PERFORMANCE (continued)

Performance Overview (continued)

Operating expenses1
2019$mTotal cash operating expenses from continuing operations2
Full time equivalent staff (FTE) from continuing operations
Average full time equivalent staff (FTE) from continuing operations

9,071
37,58837,480

2018
$m
9,401
37,86040,016

Movt
-4%
-1%
-6%

Operating expenses decreased by $330 million (-4%). Key drivers: Personnel expenses increased $7 million (0%) largely driven by higher regulatory compliance spend in the New Zealand division, higher
employee leave provisions, wage inflation and the impact of insourcing technology services. This was offset by lower FTE, lower personnel
expenses following the sale of OnePath Life (NZ) and the Asia Retail and Wealth businesses ($33 million) and lower customer remediation($58 million).
 Premises expenses decreased $16 million (-2%) primarily driven by the consolidation of our property footprint.
 Technology expenses (excluding personnel) decreased $365 million (-19%) largely due to an accelerated amortisation charge in the priorperiod ($251 million) and the insourcing of technology services.
 Restructuring expenses decreased $150 million (-66%) due to higher spend in the prior period associated with the move to agile ways ofworking in the Australian Retail and Commercial division and technology function.
 Other expenses increased $194 million (+11%) largely due to higher customer remediation ($240 million), partially offset by lower expenses
following the sale of OnePath Life (NZ) and Asia Retail and Wealth businesses ($26 million) and a reduction in Royal Commission legal costs($40 million).

OPERATINGEXPENSES
EXPENSESFROMCONTINUINGOPERATIONSOPERATINGFROMCONTINUINGOPERATIONS($M)($M)
1,706

1,900

● Personnel expenses

227

77

● Premises expenses

2019

2018
4,765

1,534

1,899

795

● Technology expenses● Restructuring expenses

4,758● Other expenses

811

Credit impairment1
Collectively assessed credit impairment charge/(release) ($m)
Individually assessed credit impairment charge ($m)
Credit impairment charge ($m)
Gross impaired assets ($m)2
Credit risk weighted assets ($b)
Total allowance for expected credit losses (ECL) ($m)
Individually assessed as % of gross impaired assets
Collectively assessed as % of credit risk weighted assets3

2019

2018

Movt

17
778
795
2,029
358.1
4,190
40.1%
0.94%

(85)
773
688
2,139
337.6
3,443
43.0%
0.75%

large
1%
16%
-5%
6%
18%

The collectively assessed credit impairment charge of $102 million was primarily driven by a $55 million increase in the New Zealanddivision and a $30 million increase in the Institutional division. The increase in the New Zealand division was primarily due to release of atemporary economic overlay in 2018, followed by a new temporary management overlay in 2019. The increase in the Institutional division was
due to a greater number of customer upgrades in the prior period.
1.

Information has been presented on a cash profit from continuing operations basis. Discontinued operations are detailed on page 61.
In 2019, ANZ implemented a more market responsive collateral valuation methodology for the home loan portfolio in Australia which increased the number of home loans being classified as
impaired rather than past due. Comparative information has not been restated for this change in methodology. Additionally, refinement to underlying data resulted in a transfer from past due
and sub-standard into impaired assets. Comparative information has been restated with a transfer of $126 million for 2018.
3.
On adoption of AASB 9 on 1 October 2018, the Group increased the collectively assessed allowance for expected credit losses by $813 million, comparative information has not been restated.
2.

58

ANZ 2019 ANNUAL REPORT58
ANZ 2019 ANNUAL REPORTOUR PERFORMANCE (continued)

The individually assessed credit impairment charge increased by $5 million (1%) due to lower write-backs and recoveries in the New
Zealand and Institutional divisions, partially offset by higher write-backs and recoveries in the Australia Retail and Commercial division and adecrease due to the sale of the Asia Retail and Wealth businesses in the prior year.
Gross impaired assets decreased $110 million (-5%) driven by the Institutional division (-$177 million) with repayments reducing a number oflarge impaired assets. This was partially offset by an increase in the Australia Retail and Commercial division ($57 million) primarily driven by anumber of single name impaired loans in the Commercial portfolio. The Group’s individually assessed coverage ratio on impaired assets was
40.1 % at 30 September 2019 (Sep 18: 43.0%).

CREDIT IMPAIRMENTIMPAIRMENT($M)($M)
CREDIT
Collectively assessed
allowance for ECL($m)

Individually assessed
allowance for ECL($m)

Gross impaired assets1
($m)

3,376

814

2,029

38
374
1,169

2,523

3
43
279

920

24

72

160

1
18
81

2,139
50
236

51
245
265

251

● Australia Retailand Commercial● Institutional442● New Zealand● Pacific

1,073
558

1,795

● TSO andGroup Centre

1,411

1,468

569

1,125
2019
1.

2018

2019

2018

2019

2018

During the 2019 financial year, ANZ implemented a more market responsive collateral valuation methodology for the home loan portfolio in Australia which increased the number of home loans
being classified as impaired rather than past due. Comparative information has not been restated for the change in methodology. Additionally, refinement to underlying processes and associate
data resulted in transfer of loans from past due and sub-standard categories into impaired assets. Comparative information has been restated with transfer of $126 million at September 2018.

DIVISIONAL PERFORMANCE1
Australia
Retail andCommercial

Pacific

TSO andGroup
CentreGroup

Net interest margin
Operating expenses to operating income

2.33%
38.8%

3.75%
64.7%

n/a
n/a

1.76%
47.7%

1,828

1,399

59

(11)

6,470

164.5
217.3
5,468

116.7
83.4
6,121

2.1
3.5
1,086

0.1
(0.4)
11,010615.3
511.8
37,588Australia
Retail andCommercial

Institutional

New
Zealand

Pacific

TSO andGroup
CentreGroup

Net interest margin
Operating expenses to operating income

2.69%
40.9%

0.88%
58.3%

2.42%
36.3%

4.11%
55.4%

n/a
n/a

1.87%
48.5%

Cash profit from continuing
operations ($m)

3,626

1,480

1,521

72

(212)

6,487

Net loans and advances ($b)
Customer deposits2 ($b)
Number of FTE

341.3
202.7
13,731

150.1
205.8
6,188

111.3
79.8
6,165

2.1
3.5
1,125

(0.2)
(4.5)
10,651605.5
487.3
37,860Institutional

New
Zealand

2.59%
43.2%

0.82%
50.6%

Cash profit from continuing
operations ($m)

3,195

Net loans and advances ($b)
Customer deposits2 ($b)
Number of FTE

331.9
208.0
13,903

2019

2018

1.
2.

Information has been presented on a cash profit from continuing operations basis. Discontinued operations are detailed on page 61.
TSO and Group Centre includes term deposits, other deposits and an adjustment in Group Centre to eliminate Wealth Australia discontinued operations investments in ANZ deposit products.

59
ANZ 2019 ANNUAL REPORT59

OUR PERFORMANCE (continued)

Performance Overview (continued)

DIVISIONAL PERFORMANCE1
Australia Retail and Commercial
Lending volumes decreased as a result of lower system growth, asset competition and more conservative home loan origination risk
settings. Net interest margin decreased as a result of home loan mix changes and higher discounting, the impact of the official cashrate decreases on low-rate deposits, regulatory impact on credit card pricing and higher customer remediation, partially offset byhome loans re-pricing. Other operating income decreased as the result of higher customer remediation, and lower fee income dueto the removal of fees and lower volumes. Operating expenses were flat with higher inflation, higher compliance costs andincreased technology infrastructure spend offset by productivity initiatives including workforce and branch optimisation. Credit
impairment charges increased primarily due to an increase in collectively assessed credit impairment as a result of a weakening
Australian economic outlook, partially offset by a higher recoveries and write-backs.
Institutional
Lending volumes grew across all Institutional businesses. Customer deposits grew in Markets and Transaction Banking. Net interest
margin decreased due to a reduction in lending margins, partially offset by higher deposit margins. Other operating income
increased as a result of higher Markets income across all businesses. Operating expenses decreased due to a reduction in FTE andrelated costs, and lower ongoing software amortisation charges, partially offset by inflation. Credit impairment charges increased
primarily due to an increase in individually assessed impairment charges driven by lower write-backs and recoveries, and an increasein collectively assessed impairment charges as a result of a greater number of customer upgrades in the prior period.
New ZealandLending and customer deposit volumes grew across all portfolios and funds under management increased during the period. Net
interest margin decreased as a result of compressed deposit margins and home loan mix changes. Operating income decreased
primarily due to the loss of income as the result of the OnePath Life (NZ) divestment, and an one-off insurance recovery in the priorperiod. Operating expenses increased primarily due to higher regulatory compliance spend, partly offset by the OnePath Life (NZ)
divestment. Credit impairment charges increased primarily due to an increase in individually assessed impairment charges driven bylower write-backs and recoveries, and increase in collectively assessed impairment charges in Commercial driven by the release ofan Agri economic cycle adjustment in 2018 followed by a new temporary overlay in 2019.
Pacific
Operating income for the Pacific division was broadly in line with the prior year. Costs were higher largely due to customer
remediation. Credit impairment charges were not significant for the 2019 financial year.
TSO and Group Centre
The 2019 financial year included the gain on sale of OnePath Life (NZ), Paymark, Cambodia JV and PNG Retail, Commercial and SME.
The 2018 financial year included the gain on sale of MCC, loss on sale of SRCB, the loss on reclassification of assets and liabilities toheld for sale for Cambodia JV, OPL NZ, and PNG Retail, Commercial and SME, Royal Commission legal costs, and higher restructuringcosts.

1.

60

Information has been presented on a cash profit from continuing operations basis. Discontinued operations are detailed on page 61.

ANZ 2019 ANNUAL REPORT60
ANZ 2019 ANNUAL REPORTOUR PERFORMANCE (continued)

DISCONTINUED OPERATIONS
The financial results of the Wealth Australia businesses being divested and associated Group reclassification and consolidation impacts aretreated as discontinued operations from a financial reporting perspective. These businesses qualify as discontinued operations, a subset ofassets and liabilities held for sale, as they represent a major line of business.
The comparative Group Income Statement and Statement of Comprehensive Income have been restated to show discontinued operations
separately from continuing operations in a separate line item ‘Profit/(Loss) from discontinued operations’.
 Sale to IOOF Holdings Limited (IOOF)
On 17 October 2017, the Group announced it had agreed to sell its OnePath P&I and ADGs businesses to IOOF. The aligned dealer groups
business consists of ADGs that operate under their own Australian Financial Services licences. The sale of the ADGs completed on 1 October
2018. On 17 October 2019 the Group announced it had agreed a revised sale price for its OnePath P&I business and ADG to IOOF of $850
million, being a $125 million reduction from the original sale price of $975 million announced in October 2017. The new price of $850
million, includes approximately $25 million that ANZ has already received for the sale of ADGs in October 2018. The revised terms reflectchanging market conditions and include lower overall warranty caps as well as some changes to the strategic alliance arrangements.
Subject to APRA approval the Group expects the transaction to complete in the first quarter of calendar year 2020. The impact of the
reduction in price has been reflected in the 2019 financial results.
 Sale to Zurich Financial Services Australia (Zurich)
On 12 December 2017, ANZ announced that it had agreed to the sale of its life insurance business to Zurich and regulatory approval was
obtained on 10 October 2018. The transaction was completed on 31 May 2019.
Included in the ‘Cash loss from discontinued operations’ is: A $23 million loss ($81 million loss after tax) was recognised in the 2019 financial year. This is attributable to sale related adjustments andwrite-downs, the reversal of the life-to-date cash profit adjustments on the revaluation of policy liabilities sold to Zurich, partially offset by
the recycling of gains previously deferred in equity reserves on sale completion. A $632 million loss (pre and post-tax) was recognised on
the reclassification of Wealth Australia businesses to held for sale in the 2018 financial year; and Customer remediation which includes provisions for expected refunds to customers and related remediation costs associated withinappropriate advice or services not provided in the pensions and investments and life insurance businesses. An amount of $241 million
pre-tax, $207 million post tax was recognised in the 2019 financial year (2018: $181m pre-tax, $127 million post-tax).
ANZ’s lenders mortgage insurance, share investing, general insurance distribution and financial planning businesses which were previously
part of the continuing operations of Wealth Australia now form part of the Australia Retail and Commercial division (previously named
Australia division) and Wealth Australia ceases to exist as a continuing division.
Explanation of adjustments between statutory profit and cash profit
 Treasury shares adjustment
ANZ shares held by the Group in Wealth Australia discontinued operations are deemed to be Treasury shares for accounting purposes.
Dividends and realised and unrealised gains and losses from these shares are reversed as they are not permitted to be recognised as income
for statutory reporting purposes. In deriving cash profit, these earnings are included to ensure there is no asymmetrical impact on theGroup’s profits because the Treasury shares are held to support policy liabilities which are revalued through the Income Statement. With thesale completion of the life insurance business to Zurich, there are no further ANZ shares held by the Group in discontinued operations(2018: 15.5 million shares).
 Revaluation of policy liabilities
When calculating policy liabilities, the projected future cash flows on insurance contracts are discounted to reflect the present value of theobligation, with the impact of changes in the market discount rate in each period being reflected in the Income Statement. ANZ includes
the impact on the re-measurement of the insurance contract attributable to changes in market discount rates as an adjustment to statutory
profit to remove the volatility attributable to changes in market interest rates which reverts to zero over the life of the insurance contract.
With the sale completion of the life insurance business to Zurich, the 2019 financial year includes the reversal of the life-to-date cash profit
adjustments on the revaluation of policy liabilities sold, reducing cash profit by $15 million.
2019
$m

2018
$m

Statutory profit/(loss) from discontinued operations

(343)

(695)

Adjustments between statutory profit and cash profit
Treasury shares adjustment
Revaluation of policy liabilities

34
(11)
45

13
7
6

Cash profit/(loss) from discontinued operations

(309)

(682)

61
ANZ 2019 ANNUAL REPORT61

OUR PERFORMANCE (continued)

Performance Overview (continued)

FINANCIAL POSITION OF THE GROUP – INCLUDING DISCONTINUED OPERATIONSCondensed balance sheet
As at
2019
$b

2018
$b

Movt

Trading and investment securities/available-for-sale assets 1
Derivative financial instruments
Net loans and advances
Assets held for sale
Other

100.3
126.9
120.7
615.3
1.8
16.1

98.0
112.0
68.4
604.5
45.2
15.1

2%
13%
76%
2%
-96%
7%

Total assets

981.1

943.2

4%

18.8
637.7
121.0

18.3
618.2
69.7

3%
3%
74%

Liabilities held for sale
Other

129.7
2.1
11.0

121.2
47.2
9.2

7%
-96%
20%

Total liabilities

920.3

883.8

4%

Total equity

60.8

59.4

2%

AssetsCash / Settlement balances owed to ANZ / Collateral paid

Liabilities
Settlement balances owed by ANZ / Collateral received
Deposits and other borrowings
Derivative financial instruments
Debt Issuances

1.

On adoption of AASB 9 on 1 October 2018, the classification and measurement of financial assets were revised. Available-for-sale classification used in comparative periods ceases to exist under AASB 9
and a new classification of investment securities was introduced. Refer to Note 1 of the Annual Report for further details. Comparative information has not been restated.

Trading and investment securities/available-for-sale assets increased $14.9 billion (+13%) primarily driven by an increase in liquid assets inMarkets and the impact of foreign currency translation movements.



Derivative financial assets and liabilities increased $52.3 billion (+76%) and $51.3 billion (+74%) respectively as interest rate movements
resulted in higher derivative volumes and fair values, particularly in interest rate swap products.

Net loans and advances increased $10.8 billion (+2%) primarily driven by lending growth in the Institutional division (+$10.5 billion),
growth in home loans in the New Zealand division (+$4.1 billion) and the impact of foreign currency translation movements, partially
offset by the decrease in home loans in the Australia Retail and Commercial division (-$9.4 billion).



Assets and liabilities held for sale decreased $43.4 billion (-96%) and $45.1 billion (-96%) respectively primarily driven by the salecompletion of the life insurance business to Zurich, OPL NZ, Cambodia JV and PNG Retail, Commercial & SME.



Deposits and other borrowings increased $19.5 billion (+3%) primarily driven by increased deposits from banks and repurchaseagreements (+$9.9 billion), growth in customer deposits across the Australia Retail and Commercial (+$5.3 billion) and New Zealanddivision (+$2.7 billion) and the impact of foreign currency translation movements. This was partially offset by reduction in certificates ofdeposit and commercial paper issued (-$11.6 billion).



Debt issuances increased $8.5 billion (+7%) primarily driven by senior debt issuances and the impact of foreign currency translation
movements.

Funding
Net Stable Funding Ratio

2019

2018

116%

115%

The Group targets a diversified funding base, avoiding undue concentration by investor type, maturity, market source and currency.
$23.6 billion of term wholesale debt with a remaining term greater than one year as at 30 September 2019 was issued during the year.

62

ANZ 2019 ANNUAL REPORT62
ANZ 2019 ANNUAL REPORTOUR PERFORMANCE (continued)

Liquidity
Total liquid assets ($b) 1
Liquidity Coverage Ratio (LCR) 1
1.

2019

2018

188.4
140%

191.3
138%

Full year average, calculated as prescribed per APRA Prudential Regulatory Standard (APS 210 Liquidity) and consistent with APS 330 requirements.

The Group holds a portfolio of high quality unencumbered liquid assets in order to protect the Group’s liquidity position in a severely stressed
environment, as well as to meet regulatory requirements. High Quality Liquid Assets comprise three categories, with the definitions consistent
with Basel 3 LCR: Highest-quality liquid assets (HQLA1): Cash, highest credit quality government, central bank or public sector securities eligible for
repurchase with central banks to provide same-day liquidity.
 High-quality liquid assets (HQLA2): High credit quality government, central bank or public sector securities, high quality corporate debt
securities and high quality covered bonds eligible for repurchase with central banks to provide same-day liquidity.
 Alternative liquid assets (ALA): Assets qualifying as collateral for the Committed Liquidity Facility (CLF) and other eligible securities listed by
the Reserve Bank of New Zealand (RBNZ).
The Group monitors and manages the size and composition of its liquid asset portfolio on an ongoing basis in line with regulatory
requirements and the risk appetite set by the Board.
Capital management
2019

2018

Movt

Common Equity Tier 1 (Level 2)- APRA Basel 3
Credit risk weighted assets ($b)

11.4%
358.1

11.4%
337.6

6%

Total risk weighted assets ($b)

417.0

390.8

7%

APRA, under the authority of the Banking Act 1959, sets minimum regulatory requirements for banks including what is acceptable asregulatory capital and provides methods of measuring the risks incurred by the Bank.
The Group’s Common Equity Tier 1 ratio remained at 11.4% based on APRA Basel 3 standards, exceeding APRA’s minimum requirements. Cashearnings and divestments were offset by the impact of dividends and share buybacks during the year.
Dividends
This performance allowed us to propose that a final dividend of 80 cents be paid on each eligible fully paid ANZ ordinary share, bringing thetotal dividend for the year ended 30 September 2019 to $1.60 per share. This represents a dividend payout ratio of 70.1% of cash profit fromcontinuing operations.
The proposed 2019 final dividend of 80 cents per share will be 70% franked for Australian taxation purposes, and carry a New Zealand (NZ)
imputation credits of NZD 9 cents per ordinary share. It will be paid on 18 December 2019 to owners of ordinary shares at close of business on
12 November 2019 (record date).
ANZ has a Dividend Reinvestment Plan (DRP) and a Bonus Option Plan (BOP) that will operate in respect of the proposed 2019 final dividend.
For the 2019 final dividend, ANZ intends to provide shares under the DRP through an on-market purchase and BOP through the issue of newshares.
Further details on dividends provided for or paid during the year ended 30 September 2019 are set out in Note 5 in the Annual Report.
Shareholders Returns
Shareholder Returns
Earnings per
Share (cents)

1.

Dividends per
Share (cents)

Dividends Payout
Ratio (%)

Total Shareholder
Return (%)

2019

227.6

2019

160

2019

70.1

2019

9.2

2018

223.4

2018

160

2018

71.1

2018

0.6

2017 operations
2017 are detailed on page
2017 has been presented
232.7 on a cash profit from continuing
160 basis. Discontinued operations
69 61.
Information
2016
2015

202.6
260.3

2017

2016

160

2016

79.4

2016

2015

181

2015

71.2

2015

13.1
9.2
-7.5

63
ANZ 2019 ANNUAL REPORT63

OUR PERFORMANCE (continued)

Performance Overview (continued)

FIVE YEAR SUMMARY

Financial performance - cash2
Net interest income
Other operating income3
Operating expenses3
Profit before credit impairment and income tax
Credit impairment charge
Income tax expense
Non-controlling interests
Cash profit from continuing operations2
Cash profit/(loss) from discontinued operations
Cash profit
Adjustments to arrive at statutory profit2
Profit attributable to shareholders of the Company
Financial position
AssetsNet assets
Common Equity Tier 1
Common Equity Tier 1 – Internationally
Comparable Basel 34
Return on average ordinary equity (statutory)5Return on average assets (statutory)
Cost to income ratio (cash)2
Shareholder value – ordinary shares
Total return to shareholders (share price movement plus
dividends)
Market capitalisation
Dividend (cents)
Franked portion– interim– finalShare price– high (dollars)– low (dollars)– closing (dollars)
Share information(per fully paid ordinary share)
Earnings per share (cents) (statutory)
Dividend payout ratio (statutory)
Net tangible assets per ordinary share6
No. of fully paid ordinary shares issued (millions)
Dividend reinvestment plan (DRP) issue price– interim– finalOther information
No. of employees (full time equivalents)
No. of shareholders
1.

20191
$m

20181
$m

20171
$m

2016
$m

2015
$m

14,3394,690(9,071)
9,958(795)(2,678)
(15)
6,470
(309)
6,161
(208)
5,953

14,514
4,853(9,401)
9,966(688)(2,775)
(16)
6,487
(682)
5,805
595
6,400

14,875
4,941(8,967)
10,849(1,199)(2,826)(15)(6,809)
129
6,938
(532)
6,406

15,095
5,499(10,439)
10,155(1,956)(2,299)
(11)
5,889
n/a
5,889
(180)
5,709

14,616
5,921(9,378)
11,159(1,205)(2,724)
(14)
7,216
n/a
7,216
277
7,493

981,137
60,794
11.4%
16.4%

943,182
59,405
11.4%
16.8%

897,326
59,075
10.6%
15.8%

914,869
57,9279.6%
14.5%

889,900
57,353
9.6%
13.2%

10.0%
0.6%
49.5%

10.9%
0.7%
52.0%

11.0%
0.7%
46.1%

10.0%
0.6%
50.7%

14.5%
0.9%
45.7%

9.2%

0.6%

13.1%

9.2%

(7.5%)

80,842
160
100%
70%$29.30$22.98$28.5280,979
160
100%
100%
$30.80$26.08$28.1886,948
160
100%
100%
$32.95$25.78$29.6080,886
160
100%
100%
$29.17$21.86$27.6378,606
181
100%
100%
$37.25$26.38$27.08210
76.2%$19.59
2,835

221.6
72.1%
$18.47
2,874

220.1
73.4%
$17.66
2,937

197.4
81.9%
$17.13
2,927

271.5
68.6%
$16.862,903$27.79-$27.76$26.03$28.80$29.02$24.82$28.16$31.93$27.0839,060506,847

39,924509,238

44,896522,425

46,554545,256

50,152546,558

During 2018, part of Wealth Australia and TSO and Group Centre division was classified as a discontinued operation. 2017 comparatives have been restated accordingly. 2016 to 2015 have notbeen restated. All ratios are presented on a Group basis inclusive of discontinued operations across 2019 to 2015.
2.
Cash profit excludes non-core items included in statutory profit and is provided to assist readers in understanding the result of the ongoing business activities of the Group. Cash profit is not
audited; however, the external auditor has informed the Audit Committee that the adjustments have been determined on a consistent basis across each period presented, and the adjustments
for the sale impact of Shanghai Rural Commercial Bank (SRCB) in 2018 and 2017 are appropriate.
3.
On adoption of AASB 15, the Group reclassified certain items previously netted which are now presented gross in operating income and operating expenses. Only the comparative informationfor 2018 has been restated which increased total operating income and total operating expenses by $153 million for the September 2018 full year.
4.
Internationally Comparable Methodology applied for 2015–2018 aligns with APRA’s information paper entitled ‘International Capital Comparison Study’ (13 July 2015). Basel Internationally
Comparable ratios do not include an estimate of the Basel l capital floor requirement.
5.
Average ordinary equity excludes non-controlling interests and preference shares.
6.
Equals shareholders’ equity less preference share capital, goodwill, software and other intangible assets divided by the number of ordinary shares

64

ANZ 2019 ANNUAL REPORT64
ANZ 2019 ANNUAL REPORT

2019

2018

2017

2016

2015

Australia Retail1

4

3

4

2

4

Australia Commercial2

3

3

4

4

4

Australia Institutional

1

1

2

1

–

New Zealand Retail4

4

4

4

4

5

New Zealand Commercial and Agricultural

5

5

5

5

5

New Zealand Institutional

1

1

3

1

–

Breaches

784

1,114

1,443

1,408

1,629

Investigations resulting in termination

151

226

262

254

294

998,474

889,135

550,361

453,054

–

77

73

72

74

76

32.5

32.0

31.1

29.9

29.5

Fair and Responsible Banking

Net Promoter Score Ranking (relative to peers)

3

5

6

Code of conduct

Financial Wellbeing

Help enable social and economic participation of
1 million people by 2020 (cumulative total)7
Employees
Employee Engagement (%)8
Total Women in Leadership (%)

9

Community
Total community investment ($m)10
Volunteer hours
Employee volunteering participation rate (%)11

142.2

136.9

131.1

89.8

74.8

134,930

124,113113,127

113,071

108,142

42.4

34.6

29.4

–

–

6.3

–

–

–

–

19.1

11.5

6.9

2.5

–

Housing

Provide NZ $100 million of interest free loans to insulate homes for
ANZ mortgage holders (NZ$ million)12
Environmental Sustainability

Fund and facilitate at least AU$15 billion by 2020 towards environmentally
sustainable solutions for our customers (AU$ billion cumulative total)13
Environmental footprint
Total scope 1 & 2 GHG emissions (tCO2e)

156,568

171,012

180,993

193,569

209,531

Total scope 1,2 & 3 GHG emissions (tCO2e)

250,857

266,906

273,216

299,224

335,085

Renewables (%)

83

76

70

63

60

Coal (%)

9

10

16

19

18

Gas (%)

8

13

13

18

22

1,371

1,076

1,141

875

881

Project finance portfolio

14

Project finance commitment to renewable energy ($m)

1.

2.

3.

4.

5.

6.

Roy Morgan Research Single Source, Australian population aged 14+, Main Financial
Institution, six month rolling average to Sep’15, Sep’16, Sep’17, Sep’18 & Sep’19. Ranking
based on the four major Australian banks.
DBM Business Financial Services Monitor. Base: Commercial (<$100 million annual turnover)Main Financial Institution customers. Six month average to Sep’15, Sep’16, Sep’17, Sep’18 &Sep’19. Ranking based on the four major Australian banks.
Peter Lee Associates, 2019 Large Corporate and Institutional Relationship Banking surveys,
Australia.
Retail Market Monitor, Camorra Research, six month rolling average to Sep’15, Sep’16,
Sep’17, Sep’18 & Sep’19.
Business Finance Monitor, TNS Kantar Research. Base: Commercial ($3 million – $150 million
annual turnover) and Agricultural (>500K annual turnover) customers. Four quarter rolling
average to Q3’15, Q3’16, Q3’17, Q3’18 & Q3’19.
Peter Lee Associates Large Corporate and Institutional Relationship Banking surveys, New
Zealand 2016 – 2019, ranked against the Top 4 competitors (in 2016 rank based on question‘which bank would you most likely to recommend’).

Target commenced in 2016. Performance includes people helped through our initiatives tosupport financial wellbeing, including our financial inclusion, employment and community
programs, and targeted banking products and services for small business and retailcustomers. Refer to the 2019 ESG Supplement for methodology (to be released in December).
8.
The 2017 engagement survey was run as a pulse survey sent to 10% of the bank’s
employees with a 57% response rate.
9.
Measures representation at the Senior Manager, Executive and Senior Executive levels.
Includes all employees regardless of leave status but not contractors (which are included
in FTE).
10.
Includes foregone revenue ($109 million for 2019), being the cost of providing low or fee
free accounts to a range of customers such as government benefit recipients, not-for-profit
organisations and students.
11.
Commenced reporting in 2017.
12.
Target commenced in 2019.
13.
Target commenced in 2016. Performance includes funding or facilitation of initiatives that
help lower carbon emissions, improve water stewardship, and minimise waste.
14.
Breakdown for 2017 & 2018 does not total to 100% due to rounding.
7.

65Remuneration
ReportDear Shareholder,2019 Remuneration Report – audited

Executive outcomesThis was another challenging year despite the solid gains made insimplifying our business and addressing the difficulties facing ourbank and the broader industry.

There has been significant differentiation this year in the
remuneration awarded to our executives, reflecting different levelsof performance among our most senior leaders.

We continued efforts to strengthen our balance sheet and weremain well capitalised, with costs held flat for the year.

•• Our Chief Executive Officer (CEO), Shayne Elliott, had a solid year
where he demonstrated strong leadership in dealing with thechallenges facing ANZ and the industry. However, as CEO he isaccountable for the overall performance of the Group and as aresult was awarded Annual Variable Remuneration (AVR) of 48% of
his maximum opportunity.

However, momentum issues within our Retail and Commercial
business in Australia, along with challenges in New Zealand (NZ),
impacted financial performance.
All this has been taken into account when determining
remuneration outcomes.
Further customer remediation charges of $682 million wererecorded this year impacted by historical issues. The Board
acknowledges the impact this has on shareholders and this has
impacted remuneration outcomes.
As you may know, ANZ recorded a ‘first strike’ last year when arounda third of shares were voted against our Remuneration Report.
While two thirds of shares voted in favour, the Board took this result
very seriously and has actively sought feedback from both ourinstitutional and retail shareholders.
We have provided additional information in this year’s report tohelp shareholders better understand the steps we have taken
as a Board to respond to the concerns raised. This includes how
executive performance has been assessed as well as improvements
to accountability and consequence management.

66

ANZ 2019 ANNUAL REPORT•• The Variable Remuneration (VR) outcomes for our Disclosed
Executives ranged between 0% and 74% of maximum
opportunity, demonstrating the ‘at-risk’ nature of theirremuneration.
As outlined in the Chief Executive’s report, we have also introduced
wide-ranging reforms for financial year 2020 as to how we pay ourpeople below our Disclosed Executives, replacing individual bonuses
for the vast majority of employees with an incentive based on theoverall performance of the Group.
This is an industry leading initiative that addresses many of theconcerns about ‘bonus culture’ raised in the final report of theRoyal Commission.
This year, we also strengthened the way we deal with material risks
with an enhanced Accountability and Consequence Framework. 151
employees were terminated for breaches of our Code of Conduct
with a further 516 employees having their performance andremuneration outcomes impacted.

Contents
Next steps

Your Board is committed to putting remuneration frameworks inplace to help foster a culture of trust, integrity and ethical decision
making.

1.	BOARD RESPONSE TO FEEDBACK PROVIDED IN
RELATION TO THE 2018 REMUNERATION REPORT

68

2.	WHO IS COVERED BY THIS REPORT

69

During 2020, we will undertake a comprehensive review of executive
remuneration against Prudential Standard CPS 511 Remuneration
recommendations from our prudential regulator as well as theexternal environment.

3. 2019 REMUNERATION OUTCOMES AT A GLANCE

70

We will also consult with our stakeholders so that the way wereward our people is aligned with our culture and values as well as
customer, shareholder and community standards.

5. 2019 OUTCOMES

On behalf of the Board, I invite you to consider our Remuneration
Report which will be presented to shareholders for adoption at the2019 Annual General Meeting (AGM) in Brisbane.

4.	OVERVIEW OF
ANZ’S REMUNERATION FRAMEWORK

70
72

6. EXECUTIVE REMUNERATION STRUCTURE
AND DELIVERY83

7.	ACCOUNTABILITY ANDCONSEQUENCE FRAMEWORK

88

8.	NON-EXECUTIVE DIRECTOR (NED)
REMUNERATION

88

9. REMUNERATION GOVERNANCE

90

10. OTHER INFORMATION

92

Ilana Atlas
CHAIR – HUMAN RESOURCES (HR) COMMITTEE

67

Remuneration Report continued

1. BOARD RESPONSE TO FEEDBACK PROVIDED IN RELATION TO THE
2018 REMUNERATION REPORTAt the AGM in 2018, while two thirds of shares voted were cast in favour of the Remuneration Report, one third were cast against and so ANZ
recorded what is termed a ‘first strike’. The Board took this outcome very seriously and sought feedback from both our institutional and retailshareholders. A summary of the key feedback received and changes made this year is provided below.
SUMMARY
Questions around whether variable remuneration is sufficiently variable and genuinely at risk. This was a particular focus in2018 given the impact on ANZ of the Royal Commission and where ANZ recognised substantial customer remediation costs.

•• The Board has focused on ensuring that the 2019 variable remuneration awards appropriately reflect individual and overall performanceoutcomes.
•• At the start of each year, the Board sets performance objectives for the CEO and each of our Disclosed Executives that are intended to be
stretching yet achievable. These contain a blend of both financial (weighted no more than 45%) and non-financial measures designed tofocus executives on delivering sustainable long-term performance that supports both good customer and shareholder outcomes aligned to
our long-term strategic objectives.
•• The CEO’s performance is assessed against a number of factors including the Group Performance Framework and individual strategic
objectives. Although the Board assessed his performance as slightly below expectations, the Board exercised their discretion and applied areduction to the CEO’s 2019 AVR outcome. This resulted in an award of 48% of maximum opportunity in recognition of the fact that as CEO
he is ultimately accountable for overall performance.
•• This year’s VR outcomes for Disclosed Executives ranged from 0% to 74% (2018: 40% to 60%) and averaged 45% (2018: 51%) of maximum
opportunity demonstrating the ‘at risk’ nature of variable remuneration. There is significant differentiation in outcomes – with two Disclosed
Executives receiving less than 45% of maximum opportunity and one receiving no VR.
Include more rationale to help investors understand why the Board believes the remuneration outcomes are appropriate.

•• The variable remuneration structure and outcomes for the CEO and Disclosed Executives are the subject of considerable debate andevaluation by both the HR Committee and the Board. These decisions are not taken lightly or quickly.
•• In response to this feedback, the 2019 Remuneration Report aims to provide further clarity to help shareholders better understand both theprocess (how performance and remuneration outcomes are determined) and the rationale (why the Board believe this year’s outcomes areappropriate for the CEO and Disclosed Executives).
Better explain how consequences are applied for executives for poor conduct/issues ‘on their watch’ that damaged
customers and shareholders.

•• In 2019 we implemented a strengthened Accountability and Consequence Framework so that meaningful consequences are applied to
executives and employees at all levels, where it is appropriate, for material risk events.
•• The Consequence Review Group (CRG), which is now chaired by the CEO, meets at least four times a year. The CRG reviews material risk
events, and considers recommendations from each business regarding accountability and the application of consequences for significant
Code of Conduct breaches and material risk and audit events. We have also expanded our disclosures in this report to provide more
information on the number of employees where formal consequences have been applied in the 2019 financial year. See section 7.
•• The departure of the Group Executive and CEO, NZ was a clear and public example of the application of meaningful consequences this year.
His employment ceased, he was paid no variable remuneration and all unvested deferred remuneration (~$7.4 million) was immediately
forfeited.
Use ‘face value’ rather than ‘fair value’ when determining the number of deferred share rights awarded to the CRO.

•• We have changed our approach and will award the CRO deferred share rights using the face value of the Company’s shares (rather than thefair value – which is the face value adjusted for the loss of dividends). In order to maintain the same opportunity value, the VR maximum
opportunity percentage has been adjusted to 270% of fixed remuneration (previously 255%). This change maintains – it does not increase –the dollar value maximum opportunity, therefore the CRO would not receive greater VR for the same level of performance.
Focus on maximum variable remuneration opportunity rather than target opportunity.

•• Variable remuneration outcomes are now primarily expressed as a percentage of maximum opportunity, and the value of performancerights shown using the face value of the rights at full (100%) vesting. This approach more clearly demonstrates the executives’ actual
outcomes in comparison to the value they could be awarded if expectations were exceeded at the highest level. There is no change inpractice or opportunity.

68

ANZ 2019 ANNUAL REPORT

2. WHO IS COVERED BY THIS REPORT
2.1 DISCLOSED EXECUTIVE AND NED CHANGES

Chief Executive Officer (CEO) and Disclosed Executives – Current

There were several changes to our Key Management Personnel(KMP) during the 2019 year:

S Elliott

Chief Executive Officer and Executive Director

M Carnegie roup Executive, Digital and Australia
G
Transformation – appointed 1 March 2019
(formerly Group Executive, Digital Banking)

K Corbally

Chief Risk Officer (CRO)A George

 eputy Chief Executive Officer and GroupD
Executive, Wealth Australia

M Hand roup Executive, Australia Retail and Commercial
G
Banking – appointed 1 March 2019 (Acting
Group Executive, Australia from
29 December 2018 to 28 February 2019)

M Jablko

Chief Financial Officer (CFO)

A Watson

Acting Group Executive and Chief Executive
Officer, New Zealand – appointed 17 June 2019

M WhelanGroup Executive, Institutional•• Lee Hsien Yang (former NED) retired at the 2018 AGM in
December 2018.
•• Fred Ohlsson stepped down as Group Executive, Australia in
December 2018 to take an extended unpaid career-break, andMark Hand subsequently acted in the role whilst the Australia
Division structure was reviewed.
•• Following a structure review, effective March 2019 Mark Hand andMaile Carnegie share responsibility for the financial performanceof our business in Australia. Mark was appointed to the Group
Executive, Australia Retail and Commercial Banking role andMaile’s role expanded to Group Executive, Digital and Australia
Transformation.
•• David Hisco (former Group Executive and CEO, NZ) departed
ANZ in June 2019. Antonia Watson has been subsequently acting
in the role.
2.2 KEY MANAGEMENT PERSONNEL (KMP)The KMP whose remuneration is disclosed in this year’s report are:Non-Executive Directors (NEDs) – Current

D Gonski

Chairman

I AtlasDirector

P Dwyer

Director

J Halton

Director

J Key

Director

G Liebelt

Director

J Macfarlane

Director

Disclosed Executives – Former

D HiscoFormer Group Executive and Chief Executive
Officer, New Zealand – concluded in role andceased employment 14 June 2019

F Ohlsson

Former Group Executive, Australia – concluded inrole 28 December 2018

The Remuneration Report for the Group outlines our remuneration
strategy and framework and the remuneration practices that apply
to KMP. This report has been prepared, and audited, as required by
the Corporations Act 2001. It forms part of the Directors’ Report.

Non-Executive Directors (NEDs) – Former

H Lee

Former Director – retired 19 December 201869

Remuneration Report continued

3. 2019 REMUNERATION OUTCOMES AT A GLANCE
Chief Executive Officer (CEO) remuneration

Disclosed Executive remuneration

For 2019, our CEO:For 2019:•• Did not receive an increase in fixed remuneration.
•• Received an Annual Variable Remuneration (AVR) award of
48% of maximum opportunity. This reflects performanceagainst his individual objectives and the Group Performance
Framework, and the exercise of Board discretion considering
his accountability as CEO for the overall performance of
the Group.

•• Fixed remuneration increases were only received by two
Disclosed Executives – Mark Hand on appointment to theGroup Executive, Australia Retail and Commercial Banking role
to reflect his expanded responsibilities, and Kevin Corbally(CRO) based on a review of internal and external market
relativities, and in recognition of the increase in regulatory
activity and complexity of the risk environment.

•• Subject to shareholder approval at the 2019 AGM, he will beawarded Long Term Variable Remuneration (LTVR) of $4.2 million(200% of fixed remuneration) which may vest in 2023 subject
to meeting performance hurdles.

•• Variable Remuneration (VR) outcomes for our Disclosed
Executives averaged 45% of maximum opportunity, with
substantial differentiation at an individual level ranging from
0% to 74% (40% to 60% in 2018).

•• Received total remuneration of $4.09 million for 2019.

•• Upon cessation of employment David Hisco (former Group
Executive and CEO, NZ) forfeited all his unvested equity(~$7.4 million). He received his contracted and statutory
entitlements to notice and untaken leave, and was notawarded any VR.

Performance rights outcomes (CEO and Disclosed Executives)
The performance rights awarded to the CEO and Disclosed Executives in November/December 2015 were tested in November
2018 against their three equal Total Shareholder Return (TSR) performance hurdles. A total of 21.8% of the award vested and theremaining 78.2% lapsed. See section 5.4.3 for further details.
Non-Executive Director (NED) fees
There were no increases to NED fees in 2019 (or 2018). Rather, the Board decided to apply a 20% reduction to the Chairman and NED
member fees for 2019.

4. OVERVIEW OF ANZ’S REMUNERATION FRAMEWORK
4.1 CHANGES TO THE CEO AND DISCLOSED EXECUTIVES’ REMUNERATION FRAMEWORKS MADE IN 2019
The following changes were made to the CEO and Disclosed Executives’ remuneration frameworks for 2019:•• Four-year deferral: The deferral and performance period for the performance rights (excluding the CRO who receives deferred share rights)
has been extended from three years to four years. This provides an additional year for the performance rights to remain at risk (subject tomalus) and for the performance hurdles to be measured.
•• Vesting period: The deferred shares will be delivered over four years with staggered vesting (previously even vesting). See section 6.2.
•• For the CRO: The number of deferred share rights awarded will be determined using the face value (previously fair value), and these sharerights will now be subject to a four-year deferral period (previously three years).
The differing remuneration structure for the CRO is designed to preserve the independence of the role and to minimise any conflicts ofinterest in carrying out the risk control function across ANZ.
As a result of these changes, 68% of variable remuneration (AVR plus LTVR) for the CEO, 53% of VR for Disclosed Executives (other than theCRO), and 41% of VR for the CRO will be deferred for at least four years, noting that this is in excess of the BEAR minimum deferral requirementof 60% for the CEO and 40% for Disclosed Executives. See section 6.2 for more detail.

70

ANZ 2019 ANNUAL REPORT4.2 REMUNERATION FRAMEWORK OVERVIEW
The structure of our remuneration framework is aligned with our Reward Principles and has been designed to support ANZ’s purpose and strategy.
ANZ’S PURPOSE AND STRATEGY1

Is underpinned by our Remuneration Policy which includes our Reward Principles:
Attract, motivate andkeep great people

Reward our people for doing the right thing
having regard to our customers and shareholders

Focus on how things are achieved
as much as what is achieved

Are fair and simple
to understandWith remuneration delivered to our CEO and Disclosed Executives through:Fixed remuneration Cash salary and superannuation contributions. The Board sets (and reviews annually) the CEO
and Disclosed Executives’ fixed remuneration based on financial services market relativities reflecting their responsibilities,
performance, qualifications, experience and location.
Variable remuneration (at risk) The CEO and Disclosed Executives are eligible to receive variable remuneration
under the ANZ Incentive Plan (ANZIP), our main variable remuneration plan.
CEO

Disclosed Executives3

Annual Variable Remuneration (AVR)

Variable Remuneration (VR)•• Rewards the achievement of Group, Division and individual
outcomes over a 12-month period•• Rewarded under a single VR framework enabling us to:–– Provide the appropriate mix of short and long-term
rewards (including performance hurdles) to drive
performance, and attract and retain talent;•• Determination: ANZ Group Performance Framework, individual
strategic objectives, ANZ values2 and risk/complianceassessments, and Board discretion–– Tie the full VR award to the performance of ANZ; and•• Maximum opportunity: 150% of fixed remuneration–– Defer VR over the short, medium and longer term.

•• Delivery: 50% cash and 50% as ANZ shares deferred over four
years, subject to malus•• Determination: ANZ Group Performance Framework,
Divisional Performance Frameworks, ANZ values and risk/
compliance assessments, and Board discretion

Long Term Variable Remuneration (LTVR)•• Maximum opportunity: 402% of fixed remuneration4•• Reinforces the CEO’s focus on achieving longer term strategic
objectives and creating long-term value for all stakeholders•• Delivery: 25% cash, 25% as ANZ shares deferred over four
years subject to malus, and 50% as performance rights
deferred for four years subject to performance hurdles
and malus•• Face value at full vesting: 200% of fixed remuneration•• Delivery: Performance rights deferred for four years subject toperformance hurdles and malus•• Performance hurdles: Relative TSR (75%), Absolute TSR (25%)•• Performance hurdles: Relative TSR (75%), Absolute TSR (25%)

Board discretion is applied when determining CEO and Disclosed Executive performance and remuneration outcomes,
and also before any scheduled release of previously deferred remuneration.

Reinforced by aligning remuneration and risk:
Assessing behaviours
based on ANZ’s values andrisk/compliance standards(including BEAR)

Determining variable
remuneration outcomes, withrisk as a key input at a pooland individual level

Weighting remuneration
toward the longerterm with a significant
proportion at risk

Determining
accountability andapplying consequenceswhere appropriate

Prohibiting thehedging ofunvested equity

While supporting the alignment of executives and shareholders through:Substantial shareholding
requirements

Significant variable remuneration
deferral in ANZ equity

Use of relative andabsolute TSR hurdles

Use of economic profit as a key input
in determining the ANZIP variable
remuneration pool

While governed by:
The HR Committee and the Board determining the variable remuneration outcomes for both the CEO and each Disclosed Executive.
Additionally, the CEO’s LTVR outcome is also subject to shareholder approval at the AGM.
1.
2.

See the ‘About our Business’ and ‘Our Strategy’ sections of the Annual Report.
ANZ’s values (Integrity, Collaboration, Accountability, Respect, Excellence (ICARE)) –the foundation of how we work, supported by our Code of Conduct.

3.

4.

The maximum opportunity and delivery of VR differ for the CRO and Acting Group Executive
and CEO, NZ to that of other Disclosed Executives. See section 6 for further details.
Performance rights face value at full vesting.
71Remuneration Report continued

5. 2019 OUTCOMES
We are mindful of the fact that variable remuneration (more broadly than it pertains to ANZ) has been the subject of much scrutiny withquestions raised regarding whether it is truly at risk and sufficiently variable. Variable remuneration at ANZ is truly at risk and can range fromzero to maximum opportunity, as evidenced by the outcomes in 2019.
The variable remuneration outcomes for both the CEO and Disclosed Executives are the subject of considerable debate and evaluation by the
HR Committee and the Board. These decisions are not taken lightly or quickly.
The tables in sections 5.1 and 5.2 supplement, and are different to, the Statutory Remuneration table (see section 10.1) which presents theaccounting expense for both vested and unvested awards in accordance with Australian Accounting Standards.
5.1 YEAR-ON-YEAR REMUNERATION AWARDED
These tables show a year-on-year comparison of remuneration awarded to the CEO and Disclosed Executives for the 2017, 2018 and 2019
performance periods. Remuneration awarded includes any cash payments (e.g. fixed remuneration and cash variable remuneration) and thevalue of deferred shares and performance rights awarded for the year but which have not yet vested (i.e. the value which has not yet been
received during the year). These tables also show the AVR/VR as a % of target and maximum opportunity – this % remains unchanged whether
using the threshold or full vesting value of performance rights.
Fixed remuneration is largely unchanged year-on-year other than where executives have changed roles. Variable remuneration differs
significantly both year-on-year and between different executives, and appropriately reflects the variability in Group and individual
performance year-on-year. See section 5.4 for details.
CEO
AVR
deferredshares
$

Total
AVR
$

Threshold vesting

Full vesting

LTVR
Total
performance remunerationrightsawarded
$
$

LTVR
Total
performance remunerationrightsawarded$$AVR as % ofTarget Maximum
opportopportunity
unity

Financial
year

Fixed
remuneration
$

AVR
cash
$

2019

2,100,000

750,000

750,000 1,500,000

2,100,000

5,700,000

4,200,000

7,800,000

71%

48%

2018

2,100,000

875,000

875,000 1,750,000

1,400,000

5,250,000

2,800,000

6,650,000

83%

56%

2017

2,100,000 1,000,000 1,000,000 2,000,000

2,100,000

6,200,000

4,200,000

8,300,000

95%

63%

CEO
S Elliott

Note the 2019 LTVR has not yet been awarded, approval will be sought from shareholders at the 2019 AGM for the LTVR award shown above.
The 2018 LTVR award was significantly reduced as further acknowledgement of the conduct issues and reputation damage of the mattersraised in the Royal Commission.
Disclosed Executives
Financial
year

Fixed
remuneration
$

VR
cash
$

VR
deferredshares$Threshold vesting

Full vesting

VR as % of

VR
Total
performance remuneration
1
rightsawarded
$
$

VR
Total
performance remuneration
1
rightsawarded$$Targetopportunity

Maximum
opportunity

Current Disclosed Executives
M Carnegie

K Corbally

2019

1,000,000

495,000

495,000

510,000

2,500,000

1,020,000

3,010,000

75%

50%

2018

1,000,000

528,000

528,000

544,000

2,600,000

1,088,000

3,144,000

80%

53%

2017

1,000,000

561,000

561,000

578,000

2,700,000

1,156,000

3,278,000

85%

57%

2019

950,000

478,500

478,500

493,000

2,400,000

493,000

2,400,000

85%

57%

2018

486,000

164,835

164,835

169,830

985,500

169,830

985,500

83%

55%

2019

1,000,000

528,000

528,000

544,000

2,600,000

1,088,000

3,144,000

80%

53%

2018

876,000

354,750

354,750

365,500

1,951,000

731,000

2,316,500

61%

41%

2017

664,000

301,290

301,290

310,420

1,577,000

620,840

1,887,420

76%

51%

2019

726,000

198,000

198,000

204,000

1,326,000

408,000

1,530,000

41%

28%

(6.5 months in role)

A George(12 months/4.5 months
as Deputy CEO)(10 months in role)

M Hand(9 months as Disclosed
Executive)72

ANZ 2019 ANNUAL REPORTM Jablko

A Watson2

2019

1,000,000

544,500

544,500

561,000

2,650,000

1,122,000

3,211,000

83%

55%

2018

1,000,000

577,500

577,500

595,000

2,750,000

1,190,000

3,345,000

88%

58%

2017

1,000,000

739,200

739,200

761,600

3,240,000

1,523,200

4,001,600

112%

75%

2019

219,440

170,255

113,504-

503,199-

503,199

65%

43%

2019

1,200,000

874,500

874,500

901,000

3,850,000

1,802,000

4,751,000

110%

74%

2018

1,200,000

717,750

717,750

739,500

3,375,000

1,479,000

4,114,500

91%

60%

2017

1,200,000

1,080,750

1,080,750

1,113,500

4,475,000

2,227,000

5,588,500

136%

91%

843,521---843,521-843,521

0%

0%

2018

1,170,713

644,397644,397

663,925

3,123,432

1,327,849

3,787,356

83%

56%

2017

1,195,013

726,181

726,181748,187

3,395,563

1,496,374

4,143,749

92%

61%

2019

240,000

n/a

n/a

n/a

240,000n/a

240,000

n/a

n/a

2018

1,000,000

396,000

396,000

408,000

2,200,000

816,000

2,608,000

60%

40%

2017

1,000,000

534,600

534,600

550,800

2,620,000

1,101,600

3,170,800

81%

54%

(3.5 months in role)

M Whelan

Former Disclosed Executives
2019

D Hisco2(8.5 months in role)

F Ohlsson(3 months in role)1.
2.

Deferred share rights for the CRO.
Paid in NZD and converted to AUD. The year-on-year difference in 2017 and 2018 fixed remuneration for D Hisco relates to fluctuations in the exchange rate.

5.2 2019 ACTUAL REMUNERATION RECEIVED
This table shows the remuneration the CEO and Disclosed Executives actually received in relation to the 2019 performance year as cash, or in
the case of prior equity awards, the value which vested in 2019. The final column also shows the value of prior equity awards which lapsed/were
forfeited in 2019 (these awards reflect the 2015 performance rights which partially met the performance hurdles when tested in November
2018, and additionally for David Hisco the forfeiture of all of his unvested deferred remuneration on cessation of employment).
Fixed
remuneration

Cash variable
remuneration

Total
cash

Other deferredremuneration
which vested
during the year1$

Actualremuneration
received$

Deferred variable
remuneration
which vested
during the year1$$

Deferred variable
remuneration which
lapsed/forfeitedduring the year1, 2$$$

2,100,000

750,000

2,850,000

1,243,464-

4,093,464(3,038,880)

M Carnegie

1,000,000

495,000

1,495,000

153,490-

1,648,490-

K Corbally

950,000

478,500

1,428,500

430,229

573,129

2,431,858(184,676)

A George

1,000,000

528,000

1,528,000

301,609-1,829,609(101,328)

M Hand726,000

198,000

924,000--

924,000-

CEO and Current Disclosed Executives
S Elliott3

1,000,000

544,500

1,544,500

192,589

318,564

2,055,653-

5

A Watson

219,440

170,255

389,695--

389,695-

M Whelan

1,200,000

874,500

2,074,500

704,915-

2,779,415(1,059,695)

M Jablko4

Former Disclosed Executives
D Hisco2, 5, 6

843,521-843,521654,067-

1,497,588(7,385,293)

F Ohlsson

240,000n/a

240,000

433,146-

673,146(191,526)

1.

2.

3.
4.
5.
6.

The point in time value of previously deferred remuneration granted as shares/share rights and/or performance rights is based on the one day Volume Weighted Average Price (VWAP) of theCompany’s shares traded on the ASX on the date of vesting or lapsing/forfeiture multiplied by the number of shares/share rights and/or performance rights.
The lapsed/forfeited values relate to the performance rights we awarded in November 2015 which lapsed due to the performance hurdles not being met, and for D Hisco forfeiture on
cessation of unvested deferred remuneration.
Other deferred remuneration for K Corbally relates to a previously disclosed equity retention award relating to his role prior to appointment to the Group Executive Committee.
Other deferred remuneration for M Jablko relates to previously disclosed compensation for deferred remuneration forfeited as a result of joining ANZ.
Paid in NZD and converted to AUD.
The vested values for D Hisco relate to deferred shares, deferred share rights and performance rights awarded in prior years that vested prior to cessation.

73

Remuneration Report continued

5.3 FIXED REMUNERATIONThe Board has assessed the CEO’s 2019 performance as follows:

The Board sets (and reviews annually) the CEO and Disclosed
Executives’ fixed remuneration based on financial services market
relativities and reflecting their responsibilities, performance,
qualifications, experience and location.

•• Group Performance Framework = 	Below Expectations(see section 5.5.3)•• Individual strategic objectives= 	Slightly Below Expectations(see Board assessment below)

There was no change to the CEO’s fixed remuneration for 2019 and it
has not changed since commencement in the role on 1 January 2016.

•• ANZ values= Above Expectations•• Risk/compliance assessment= Met Expectations

During 2019, the HR Committee and Board reviewed the Disclosed
Executives’ fixed remuneration. The only changes made were fortwo executives.

•• Board discretion= As CEO Shayne Elliott is
ultimately accountable for the Group’s overall performance,
the Board has exercised their discretion in determining theappropriate AVR outcome for 2019 as detailed below.

•• Kevin Corbally received a fixed remuneration increase from
$900,000 to $1,000,000 on 1 April 2019. On commencing in hisrole as CRO, Kevin’s fixed remuneration was set below the market
median for comparable roles in peer group companies and lower
than that of his predecessor. With the significant increase inregulatory activity and complexity of the risk environment, andfollowing a strong performance in his role and reviewing internal
relativities, the Board considered the increase appropriate.
•• Mark Hand received a fixed remuneration increase from $800,000
to $1,000,000 on his appointment to the Group Executive,
Australia Retail and Commercial Banking role effective 1 March
2019 to reflect his expanded responsibilities.
5.4 VARIABLE REMUNERATION – DETAIL

2019 CEO individual strategic objectives•• Lead and role model the culture and accountability required
to transform ANZ to deliver better customer outcomes andlong-term shareholder value•• Enhance the reputation of ANZ•• Drive the strategic direction of the organisation to deliver
long-term, sustainable and profitable growth•• Drive the success of New Ways of Working (NWOW) at
ANZ and demonstrate better customer outcomes andproductivity gains•• Continue to build Group Executive Committee effectivenessand CEO succession

5.4.1 CEO performance, AVR and LTVR

PerformanceWith regard to AVR, the CEO is assessed 50% on the ANZ Group
Performance Framework and 50% on achievement of individual
strategic objectives aligned to ANZ’s strategy. Both the Group
Performance Framework and individual strategic objectives areagreed by the Board at the start of the financial year and intended
to be stretching.

Weighting of financial metrics
AVR: Financial metrics have a 35% weighting in the Group
Performance Framework and therefore notionally have a
17.5% weighting in the CEO’s AVR. However, the CEO’s AVR
is not formulaic – outcomes are moderated by the Risk andReputation element of the Group Performance Framework andthe Board’s judgement on the appropriate AVR considering all
aspects of performance.
LTVR: 100% of the LTVR hurdles are based on TSR (both relative
and absolute). ANZ’s view is that TSR is not purely a financial
measure as it reflects a range of factors including investors’
judgement about the prospects of a company.
At the end of the financial year, ANZ’s performance is assessedagainst the Group Performance Framework, and the CEO’s
performance is assessed against his individual strategic objectives,
the ANZ values (behaviours), delivery of the BEAR obligations
and ANZ’s risk and compliance standards. In conducting theCEO’s performance assessment, the HR Committee seeks input
from the Chairman, CRO (on risk management), CFO (on financial
performance), Group Executive, Talent and Culture (GE T&C) (ontalent and culture matters) and Group General Manager Internal
Audit (GGM IA) (on internal audit matters).

74

ANZ 2019 ANNUAL REPORTBoard assessment of performance on individual strategic
objectives: Slightly Below Expectations

The CEO consistently role modelled the ANZ culture and values in
his actions throughout a challenging year for the banking sector.
This included the content and manner of his testimony before theRoyal Commission and also his handling of the Code of Conduct
breach by the former Group Executive and CEO, NZ.
Work continued on rebuilding ANZ’s reputation following theRoyal Commission last year. However, this was impacted byfurther remediation charges and challenges in our NZ business.
In Australia Retail and Commercial, poor execution of changes tocertain processes and procedures including technology transition
saw customer loan assessment and approval times extend, leading
to a loss of market share. Actions taken throughout mid calendar
2019 have improved these issues.
The CEO has continued to build on the key planks of the ANZ
strategy – capital efficiency, productivity and simplification –to deliver long-term targeted growth. ANZ delivered a solid
financial performance in 2019 – with capital well above APRA’sunquestionably strong Common Equity Tier 1 (CET1) requirements,
continued productivity savings and the completion of further
asset/business disposals. While lending growth in the year wasmodest, delivery of the core aspects of the strategy positions ANZ
well for the future.
Around 25% of our people now work in new ways which is driving
speed and productivity benefits. These changes are enhancing
speed of delivery to customers and producing higher employee
engagement results.
The CEO has restructured accountability of the Group Executive
Committee in 2019 to enhance success and strengthen succession– filling the gaps arising in the Australian business leadership andin dealing with the NZ business leadership issues including the
cessation of the former Group Executive and CEO, NZ.

AVR and LTVR

slightly below on individual strategic objectives and the Group
Performance Framework, the Board has exercised its discretion andreduced the AVR having regard to the CEO’s ultimate accountability
for the overall performance of the Group. The Board determined thatan AVR outcome of 48% of maximum opportunity was appropriate
for 2019.

At the end of the financial year, the HR Committee determines theCEO’s AVR outcome which is ultimately approved by the Board.
The CEO’s AVR will vary up or down year-on-year, it is notguaranteed, and may range from zero to a maximum opportunity.
The 2019 AVR awarded to the CEO is 48% of maximum opportunity.
Shayne Elliott has demonstrated strong leadership both within ANZ
and the industry more broadly and delivered solid results for theGroup. He has dealt with challenges which arose during the year in a
way that is consistent with the culture we are seeking.

The CEO’s proposed LTVR of $4.2 million (performance rights facevalue at full vesting) is subject to shareholder approval at the 2019
AGM.
2019 AVR AwardedThis table shows the AVR awarded to the CEO for the year ending
30 September 2019.

Despite having been assessed as met or being above expectations
on the risk/compliance assessment and ANZ values, and beingCEO

Maximum opportunity

S Elliott1
AVR $1,500,000=

48% of max$750,000+$750,000+

LTVR $4,200,000 performance rights face value at full vesting (subject to shareholder approval at the 2019 AGM)
Cash
1.

Deferred shares

Variable remuneration for the CEO = AVR + LTVR.

Summary of Total Remuneration
The remuneration Shayne Elliott received in 2019 differs to the remuneration he was awarded in relation to the 2019 performance year (which
may or may not vest in future years), and also how his remuneration was expensed (on a statutory basis) for 2019. Awarded remuneration
shown below includes the value of the performance rights at both threshold (50%) and full (100%) vesting.
Total Remuneration
Awarded

Received1

Statutory2$7,800,000$4,093,464$5,181,339$5,250,000$6,650,000$3,849,666$5,645,295$6,200,000$8,300,000$4,261,588$5,634,860

Threshold vesting

Full vesting2019$5,700,000

2018
2017
1.
2.

Includes the value of previously awarded AVR deferred shares and LTVR performance rights at the date of vesting.
Includes the value of AVR and LTVR that has been expensed in the year.

The difference in the CEO’s awarded remuneration reflects the variability in Group and individual performance and the reduction in his 2018variable remuneration to acknowledge the conduct issues and reputational damage of the matters raised in the Royal Commission.
The difference in the CEO’s received remuneration also reflects the partial vesting in 2019 of performance rights granted in December 2015.
Historical AVR and LTVR
This table shows the AVR as a % of maximum opportunity and LTVR vesting outcomes for the CEO over the last three years.
2017

2018

2019

AVR outcome (% of maximum opportunity)

63%

56%

48%

LTVR vesting outcome (% vested)

0%

0%

21.8%

5.4.2 Disclosed Executive performance and VR

Performance
At the start of each year, the Board sets stretching performance objectives in the form of Divisional Performance Frameworks for each of our
Disclosed Executives, in alignment with the Group Performance Framework.
Similar to the Group Performance Framework, the Divisional Performance Frameworks include the key elements of Financial and Discipline,
Customer, and People and Culture, with Risk and Reputation acting as a modifier. The weighting of measures varies to reflect the
responsibilities of each individual’s role. The Financial and Discipline element weightings range from 20% to 45%.

75

Remuneration Report continued•• Mark Whelan has been awarded 74% of maximum
opportunity reflecting the delivery of strong financial results
across Institutional, sound risk management, the continued
transformation of this business, and the strong focus on culture.

At the end of the financial year, the performance of each Disclosed
Executive is assessed against their contribution to the Group
Performance Framework, their Divisional Performance Framework,
ANZ’s values (behaviours), delivery of BEAR obligations and ANZ’s risk
and compliance standards.

•• Alexis George has a broad role: she is Deputy CEO and also has
responsibility for Operations and Services and Wealth Australia.
Her VR outcome of 53% of maximum opportunity was impacted
for Wealth remediation while also taking into account her strong
performance across all aspects of her role.

The HR Committee seeks input from the CEO, CRO (on risk
management), CFO (on financial performance), GE T&C (on talentand culture matters) and GGM IA (on internal audit matters).
The HR Committee reviews and recommends to the Board for approval
the overall performance outcomes for each Disclosed Executive.

•• Mark Hand moved into leading Australia Retail and Commercial partway through the year. He is the right person to run this part of thebusiness going forward and has already led a strong program ofwork to restore business momentum. However as Group Executive
he is held accountable for the weaker performance of this businessand has been awarded VR at 28% of maximum opportunity.

VR
At the end of the financial year, the CEO and HR Committee also
determine VR recommendations for each Disclosed Executive, which
are ultimately approved by the Board. VR should and does vary yearon-year in line with performance – it is not guaranteed and may be
adjusted up or down ranging from zero to a maximum opportunity.

•• David Hisco was in his role for eight and a half months of theyear, however given the circumstances of his departure, was notawarded any VR (and he also immediately forfeited all unvested
remuneration).

The average 2019 VR for Disclosed Executives is 45% of maximum
opportunity. There is significant differentiation at an individuallevel ranging between 0% to 74% of maximum. The different VR
outcomes reflect the relative performance of the different areas/
individuals, ensuring appropriate alignment between performanceand reward. The outcomes also demonstrate the at risk nature ofVR, showing that VR is truly variable, and that outcomes do varysignificantly across the Disclosed Executives and also from year toyear. To illustrate we note that:•• Fred Ohlsson was not eligible for 2019 VR due to being in his role
for approximately three months in 2019.
2019 VR AwardedThis table shows the combined VR awarded to Disclosed Executives
for the year ending 30 September 2019. Based on shareholder
feedback, the face value of performance rights is disclosed at fullvesting, which differs from the disclosures in previous years.

Current Disclosed Executives
M Carnegie=

VR $2,010,000

Maximum opportunity$495,000+ $495,000 +$1,020,000

50% of max

K Corbally1=

VR $1,450,000+$478,500$478,500+$493,000

57% of max

A George
VR $2,144,000=$528,000=++ $528,000 +$1,088,000

53% of max

M Hand2
VR $804,000
28% of max+$408,000$198,000 $198,000

M Jablko=

VR $2,211,000$544,500+ $544,500 +$1,122,000

55% of max

A Watson2=

VR $283,759+$170,255$113,504

43% of max

M Whelan=

VR $3,551,000$874,500+$874,500+$1,802,000

74% of max

Former Disclosed Executives
D Hisco3=

VR $0
0% of max

F Ohlsson
VR n/a

Cash
1.
2.

76

Deferred shares or deferred share rights

Performance rights face value at full vesting4

CRO receives deferred share rights instead of performance rights.
Remuneration disclosed from commencement in Disclosed Executive role. Acting Group
Executive and CEO, NZ role awarded 60% of VR as cash and 40% as deferred shares.

ANZ 2019 ANNUAL REPORT

3.
4.

Remuneration disclosed to date of cessation.
Divide by two to convert to face value at threshold vesting for performance rights.

Historical Disclosed Executive VR
This table shows the VR as a % of maximum opportunity for the current and prior Disclosed Executives over the last three years.
2017

2018

2019

VR outcome (average % of maximum opportunity)

64%

51%

45%

VR outcome (range % of maximum opportunity)

51% – 91%

40% – 60%0% – 74%

VR performance rights vesting outcome (% vested)

0%

0%

21.8%

5.4.3 Performance rights outcomes (CEO and Disclosed Executives)

Performance rights granted to the CEO in December 2015 and Disclosed Executives (excluding the CRO) in November 2015 reached the endof their performance period in November 2018. Based on performance against hurdles, 21.8% of these rights vested, the remaining 78.2%
lapsed and provided no value.
HurdleGrant date1

First date
exercisable1

ANZ TSRover three years/
CAGR2 TSRMedian TSRover three years/
CAGR2 TSR target% vested

1/3 relative TSR

18 Nov 15

18 Nov 18

15.79%

10.57%

65.3%

Overall
performance rights
outcome– Select Financial Services
comparator group

1/3 relative TSR

18 Nov 15

18 Nov 18

15.79%

32.16%

0%

1/3 absolute CAGR2 TSR

18 Nov 15

18 Nov 18

5.01%

9.00%

0%

– ASX 50 comparator group

1.
2.
3.

21.8%
vested and78.2% lapsed

Grant date for the CEO was 17 December 2015, and date first exercisable was 17 December 2018. The CEO’s performance period was the same as the performance period for Disclosed Executives.
Compound Annual Growth Rate (CAGR).
From 2016 ANZ moved from three to two TSR hurdles (the relative TSR – ASX 50 hurdle was discontinued).

5.5 ANZIP VARIABLE REMUNERATION POOL AND GROUP PERFORMANCE
5.5.1 ANZIP variable remuneration pool

The ANZ Incentive Plan (ANZIP) is the variable remuneration plan that covers the CEO and Disclosed Executives (and the majority of
employees). Individual variable remuneration outcomes are funded from the ANZIP pool for all eligible employees, including the CEO’s AVR
and Disclosed Executives’ VR.
At the end of each financial year, the HR Committee makes a recommendation to the Board for their approval on the size of the ANZIP variable
remuneration pool for that year, including its allocation to each Division. The Board exercise their judgement to determine the appropriate
pool size – it is not a formulaic outcome.

ANZIP variable remuneration
pool recommended to the Board
for approval based on performanceand affordability

Board review and approve the
ANZIP variable remuneration poolBusiness and individual
allocations from ANZIP
variable remuneration pool

When determining the size of the 2019 variable remuneration pool the HR Committee and Board considered a range of inputs. These included:•• our financial performance – a range of metrics are used including cash profit, economic profit and return on risk weighted assets. Economic
profit, which is a risk adjusted measure and a strong indicator of shareholder value, is the primary financial driver but is balanced against
other financial metrics and qualitative factors.
–– Solid financial performance with cash profit up 6%, while on a continuing operations basis cash profit is flat and economic profit down 1%.
•• our performance against the ANZ Group Performance Framework.
–– Assessed overall as being below expectations in 2019 (as detailed in section 5.5.3).
•• other relevant factors such as the overall operating environment, market competitive remuneration positioning, affordability, the quality of
our results and prior year pools.
ANZ substantially reduced the size of the ANZIP pool in 2018 decreasing it by around 23% compared to the prior financial year.
In 2019, having considered all of the above inputs, the Board determined that a year-on-year increase of around 9% was appropriate, andrecognising that the pool remains 15% below that of 2017.

77Remuneration Report continued

5.5.2 ANZ Group Performance Framework

The ANZ Group Performance Framework is approved by the Board at the start of each year and is designed around the following three key inputs:

1

Creating a safebank with soundrisk practices

Achieving ouragreed annual andlonger term goals

2

Realising ourstrategic vision

3

The key objective of our Group Performance Framework is to enable aligned focus across the organisation on delivering the criticaloutcomes that matter most in successful realisation of our strategy, which includes strong and sustainable performance within the year. It
plays a key role to:•• message internally what matters most;•• reinforce the importance of sound management in addition to risk, customer, people and financial outcomes; and•• inform focus of effort, prioritisation and decision outcomes across ANZ.
5.5.3 Assessment against the Group Performance Framework for 2019

Risk & Reputation

Customer

People & Culture

Financial & Discipline

Overall

Overall
Adjustment

35%
weight30%
weight35%
weightGroup
Performance

x

+

+

=

ASSESSMENT:ASSESSMENT:ASSESSMENT:ASSESSMENT:ASSESSMENT:

Below Expectations

Below Expectations

Above Expectations

Met Expectations

Below Expectations

As managing risk appropriately is fundamental to the way ANZ operates, Risk and Reputation forms an integral part of the assessment, directly
impacting the overall Group Performance Framework outcome (a modifier ranging from 0% to 110% of the Group Performance Assessment).
Overall, ANZ’s performance was below expectations when considering the environment and the objectives we set ourselves. While we largely
achieved the targets we set, more broadly we recognise we have much to do to regain community trust.
The below table outlines ANZ’s focus areas in 2019 (aligned to the three key inputs), and provides a summary of performance outcomes foreach of the key performance categories to inform the overall assessment for 2019. Performance against expectations is evaluated using a
range of objective indicators and subjective considerations including management input on work undertaken, evidence of outcomes realised
and lessons learned, and with consideration given to the operating, regulatory and competitive environment.

78

ANZ 2019 ANNUAL REPORTRISK & REPUTATION (MODIFIER 0% TO 110%)

Risk & Reputation (modifier 0% to 110%)

ANZ continues to operate in a dynamic and a challenging external and regulatory environment placing significant demands on the Risk
and Compliance function. There were no material breaches of our Group Risk Appetite Statement, and the number of adverse audits fell
by a third with management demonstrating accountability for fixing issues in a timely and sustainable manner. Strong leadership has
been paramount, coupled with a focus on seeking to regain the trust of the community through our commitment to fair and responsiblebanking. A combination of management actions over several years together with the current relatively benign credit environment,delivered one of the lowest loss rates on record. While there were many positives from a risk perspective, our overall risk assessment was
brought back to below expectations when balanced against some non-financial risk shortcomings from a regulatory, customer andcommunity perspective and the work that still needs to be done to regain community trust.
2019 focus areas

Performance commentary

Performance against
Expectations
Below

Adhere to the Risk
Appetite Statement•• Metrics within agreed tolerances (e.g. no material breaches).

Adopt a sound approachto regulatory matters•• ANZ continued to work to support our regulators desired outcomes in theiractivities and addressing their requirements, however there were someshortcomings in 2019:

Met

Above

•• Disciplined risk management over several years (including reshaping theloan portfolio often at the expense of revenue), saw the 2019 loss rate at
13 bps.

–– Two material regulatory infractions in NZ in relation to capital models
and attestation process.
–– Along with domestic peers an additional capital overlay required for
operational risk following APRA’s self-assessment into governance,
culture and accountability.
Ensure our leadersdemonstrateaccountability for
managing risk, including
creating an environment
where people canraise issues•• Strong progress made on risk culture maturity, evidenced in employee
engagement scores, with ‘Leaders accountable for risk’ (83%) –improvement on 2018 and above 2019 target, and ‘Raise issues without
fear of reprisal’ (69%) – also up on 2018.

Quickly and effectively
remediate individual andsystemic customer issues•• While remediation focused on strategic and long-term fixes (systems,
terms and conditions and product decommissioning), short-term fixes
included refunding greater than 1 million accounts. In 2019, we returned
approximately $108 million to impacted customers.
•• Dispute Resolution Principles launched in 2019.
•• Continued efforts still required to improve customer complaints andremediation processes.

Identify and addresscommunity priorities•• ANZ was the first bank to make Royal Commission commitments and has
retained high scores in a number of indices:–– Corporate Confidence Index (CCI)1: Score above peer average–– Dow Jones Sustainability Indices (DJSI)2: 2019 score of 82 (2018: 83). ANZ
returned to global top ten (#10 overall)–– Glassdoor3 employer of choice ratings: score of 3.9 represents a
0.4 uplift on prior period (Glassdoor average 3.4)•• Our Reptrak community sentiment indicator improved over the 12months to 58.8 but remains well below pre Royal Commission levels.
•• Regaining the trust of the community, government and other key
stakeholders remains a major focus – which includes working to deliver
more consistent outcomes in credit approval processes, and providing
clarity to customers regarding ANZ’s risk tolerance.

Risk & Reputation overall: Below Expectations

79Remuneration Report continued

RISK & REPUTATION (MODIFIER 0% TO 110%)

Customer (35% weight)

We are committed to improving the customer experience, as highlighted by the implementation of 16 initiatives in Australia in responseto the Royal Commission. There were however some challenges during the year which led to a below expectations assessment. These
included some technology stability issues, and a period of underperformance in respect of assessment and approval times relative topeers in home lending. Institutional performance in key customer satisfaction/relationship strength surveys continued to be a highlight,
along with strong digital engagement with customers.
2019 focus areas

Performance commentary

Performance against
Expectations
Below

Improve customer
experience (key impact
to customer assessment
outcome)•• Examples of initiatives to improve the customer experience include:in Australia introducing Customer Promises to improve service, andorganising our people around customer episodes; in NZ launching the
Healthy Homes initiative and helping customers with persistent card debt.
•• A period of below peer approval and assessment times in Australian homelending (an outcome of a higher level of change, including enhanced
assessment criteria and delays in moving to a single assessment platform).

Listen, Learn, Act to drive •• Net Promoter Score (NPS)4 centred on key onboarding episodes. Results
continuous improvement
were mixed with improvement in retail transaction accounts, business

lending and business transaction accounts. Down in NZ.
•• ANZ ranked the #1 lead institutional bank by Peter Lee Associates5 for the
fourth year and #1 for relationship strength for the sixth year. Institutional
recorded strongest results ever with leadership positions obtained forthe majority of key indicators including overall satisfaction, and mosttrusted adviser.
Delivering innovative
solutions•• Single view of customer now available in Retail and Commercial
in Australia and improved customer insights within the businesscustomer space.
•• ANZ’s New Payments Platform (NPP) solution is being used as a whitelabel offering by 10 other banks.
•• In line with our objective of delivering digital solutions that improve thecustomer experience, digital purchases increased (28% vs 24% target) andNZ #1 for being a ‘Leader in Mobile Banking’.
•• We have invested in Machine Learning in our Institutional Trade businessleading to significant improvements in processing times and risk controls.

Help our people to makewise customer focusedchoices every day•• More than 1 million customers contacted to help them get better value
from their banking products.
•• 16 initiatives implemented to improve the treatment of customers inAustralia. These included new dispute resolution principles to ensure
customer complaints and disputes are handled reasonably and fairly.

Customer overall: Below Expectations

80

ANZ 2019 ANNUAL REPORT

Met

Above

People & Culture (30% weight)
A number of highlights contributed to an above expectations assessment including: strengthening our Accountability and Consequence
Framework, evolving our approach to measurement and governance of culture initiatives, redesigning and launching changes to how
we manage and reward our people, solid progress in the investment in key skills for our future, launch of a digital learning platform, and arecord level engagement survey result.
2019 focus areas

Performance commentary

Performance against
Expectations
Below

Engaging our people
and diversifying ourworkforce

Met

Above

•• Overall engagement score increased to 77% (up 4% from 2018), withimprovements also seen in key measures, such as leaders role modelling
our values (73% up 2% from 2018).
•• Women in leadership increased to 32.5% (against a 33.1% target). Positive
progress was made in Technology (up 3.3% from 2018) and Institutional(up 3.2% from 2018), two of our most challenging areas historically.
•• Maintained a high score (>90%) of an environment that is open andaccepting of individual differences.

Strengthen governanceand accountability forculture, including aneffective Accountability
and Consequence
Framework•• The Accountability and Governance Model for Culture evolved toprovide greater clarity and transparency on accountabilities, andimproved measurement.
•• Continued strengthening of our Accountability and Consequence
Framework.

Improve leader capability •• Continued focus on building leader capability through initiatives suchas the 180 leadership survey.
•• Leadership Promotor Scores improved from 20 in 2018 to 24 and then
28 over the course of 2019.
Implement
Reimagining Reward•• ANZ redesigned and launched changes to how we manage and reward
our people to better focus on the interests of our customers, the longterm health of the bank, and team rather than individual outcomes.

Strengthen strategic
capabilities•• Invested in technology engineering and data capability (>350 roles now
dedicated to data analysis and science).
•• Launched a digital learning platform.

People & Culture overall: Above Expectations81Remuneration Report continued

RISK & REPUTATION (MODIFIER 0% TO 110%)

Financial & Discipline (35% weight)

The operating environment remains challenging, due to competitive pressures and economic conditions. ANZ was well prepared forthese difficult conditions, maintaining a strong balance sheet, peer leading levels of capital, demonstrating good cost management
despite higher regulatory and compliance spend, and further improvements in our credit risk profile. At no time did the bank deviate
from its strategy or risk appetite to seek higher revenues. Divestments during the year again reduced the complexity of the Group.
Ongoing work to identify customers in need of remediation led to further remediation charges, which impacted financial performance.
2019 focus areas

Performance commentary

Performance against
Expectations
Below

Balance appropriately
between financial results,
safety and soundness,and investment in
the future

Met

Above

•• Return on equity (ROE) (cash continuing) of 10.9% was on target, noting
the difficult operating environment.
•• Operating expenses were down 4%. Excluding the impact of large/
notable items6, costs remained flat despite increased investment in thebusiness and higher compliance spend.
•• Capital and funding continue to be well managed. A$3 billion sharebuyback was completed during the year enabling cash earnings per
share (EPS) growth and CET1 of 11.4% was above minimum regulatory
requirements. Net Stable Funding Ratio of 116%.
•• The completion of divestments during the year further reduced thecomplexity of the Group (e.g. OnePath sale to Zurich, OnePath NZ to
Cigna, sale of businesses in Cambodia and Papua New Guinea).

Establish a framework•• Simplification framework and governance structures were establishedand governance structureduring the year, and planning commenced across all businesses towith agreed outcomes,
progress our simplification ambition – which is centred on deliveringand start to execute on
better customer and employee experience, while lowering operational
simplification

risk and reducing the cost to serve.

Simplify and standardise •• Significant increase in usage of Technology Platforms across Automation,
our technology landscape
Data and Payments (e.g. NPP) resulting in enhanced customer insights,
in support of ourand improved service delivery from a single view of the customer inambitions

Australia Retail and Commercial.

•• Machine Learning as a service platform launched. Benefits include a 40%
improvement in customer service level agreements for Trade Guarantees.
Make reasonable steps
towards the separationof Wealth•• During the year, the legal separation of the Pensions and Investments
business from the life insurance business was completed. Following this,the sale of the Australian life insurance business to Zurich was completed.
•• ANZ and IOOF continue to work towards the sale of the Pensions andInvestments business. Subject to APRA approval, ANZ expects thetransaction to complete in the first quarter of calendar year 2020.
•• Separation activities continue for both businesses.

Financial & Discipline overall: Met Expectations

OverallGroup Performance assessment: Below Expectations
1.
2.

3.
4.

5.
6.

82

Corporate Confidence Index (CCI): Outcomes of the CCI are provided to ANZ on a confidential basis.
Dow Jones Sustainability Indices (DJSI): Evaluates the sustainability performance of thousands of companies trading publicly, operated under a strategic partnership between S&P Dow Jones
Indices and RobecoSAM (Sustainable Asset Management).
Glassdoor is a website where employees and former employees anonymously review companies and their management.
Net Promoter Score (NPS) is a customer loyalty metric used globally to evaluate a company’s brand, products or services. Net Promoter® and NPS® are registered trademarks and Net Promoter
Score and Net Promoter System are trademarks of Bain & Company, Satmetrix Systems and Fred Reichheld.
Peter Lee Associates 2019 Large Corporate and Institutional Relationship Banking surveys, Australia and NZ.
Large/notable items include the impact of divestments, customer remediation, accelerated software amortisation, Royal Commission legal costs and restructuring.

ANZ 2019 ANNUAL REPORT5.5.3 ANZ performance outcomes

ANZ’s financial performance 2015 – 2019
As discussed in section 5.5.1, the sizing of the ANZIP variable remuneration pool takes into account a range of financial metrics, including
economic profit and cash profit. The Group uses cash profit as a measure of performance for the Group’s ongoing business activities, as thisprovides a basis to assess Group and Divisional performance against earlier periods and against peer institutions. We calculate cash profit byadjusting statutory profit for non-core items. Although cash profit is not audited, the external auditor has informed the Audit Committee thatrecurring adjustments have been determined on a consistent basis across each period presented.
The table below provides ANZ’s financial performance, including cash profit, over the last five years.
2015

2016

2017

2018

2019

7,493

5,709

6,406

6,400

5,953

7,216

5,889

6,938

5,805

6,161

Cash profit – Continuing operations ($m, unaudited)

7,216

5,889

6,809

6,487

6,470

Cash ROE (%) – Continuing operations (unaudited)1

14.0

10.3

11.7

11.0

10.9

Cash EPS – Continuing operations (unaudited)

260.3

202.6

232.7

223.4

227.6

Share price at 30 September ($) (On 1 October 2014, opening share price was $30.74)

27.08

27.63

29.60

28.18

28.52

Total dividend (cents per share)

181

160

160

160

160

Total shareholder return (12 month %)

(7.5)

9.2

13.1

0.6

9.2

Statutory profit ($m)
Cash profit ($m, unaudited)
1

1

1.

Cash profit from continuing operations has been presented for 2017, 2018 and 2019. Prior periods are not restated. Cash profit from continuing operations represents the Group’s cash profit
excluding the impact of our discontinued businesses, which consist of OnePath Pensions and Investments and aligned dealer groups, and the Group’s life insurance business in Australia.
The businesses were reclassified to discontinuing in 2018, and only the 2017 result was restated in the table above. During 2019, the Group adopted AASB 15 Revenue from Contracts with
Customers and only 2018 has been restated.

ANZ TSR performance (1 to 10 years)
The table below compares ANZ’s TSR performance against the median TSR and upper quartile TSR of the performance rights Select Financial
Services (SFS) comparator group over one to ten years. ANZ’s TSR performance was below the median TSR of the SFS Comparator Group whencomparing over one, three, five and ten years to 30 September 2019, noting that the below table measures TSR over a different timeframe tothe performance period for our performance rights.
YEARS TO 30 SEPTEMBER 2019
1

31

5

10

ANZ (%)

9.2

22.3

21.6

109.8

Median TSR SFS (%)

14.2

31.2

31.8

134.0

Upper quartile TSR SFS (%)

15.7

37.0

40.2

180.9

1.

The outcomes for performance rights granted in November/December 2015 and tested in November 2018 are detailed in section 5.4.3.

6. EXECUTIVE REMUNERATION STRUCTURE AND DELIVERY
There are two core components of remuneration at ANZ – fixed
remuneration and at risk variable remuneration.

–– tie the full VR award to the performance of ANZ; and–– defer VR over the short, medium and longer term.

In structuring remuneration, the Board aims to find the right balance
between fixed and variable remuneration (at risk), the way it isdelivered (cash versus deferred remuneration) and appropriate
time frames (the short, medium and long-term).

Variable remuneration seeks to differentiate for performance and isdesigned to focus our CEO and Disclosed Executives on stretching
performance objectives supporting our business strategy, andencourage the delivery of long-term stakeholder value.

The way variable remuneration operates differs somewhat between
the CEO and Disclosed Executives. Namely:

By deferring a significant portion of variable remuneration (79% of
maximum opportunity for the CEO, 75% for Disclosed Executives, 67%
for the CRO and 40% for the Acting Group Executive and CEO, NZ),
we seek to ensure alignment with shareholder interests to deliver on
ANZ’s strategic objectives and ensure a focus on long-term value creation.
Deferred variable remuneration has significant retention elements,and most importantly, can be adjusted downwards, including to zero,
allowing the Board to hold executives accountable, individually orcollectively, for the longer term impacts of their decisions and actions.

•• The CEO’s variable remuneration is comprised of AVR and LTVR
(subject to shareholder approval), which provides consistency
with external market practice, and LTVR reinforces his focus
on achieving longer term strategic objectives and long-term
stakeholder value creation.
•• Disclosed Executives are subject to one combined VR plan whichenables us to:–– provide the appropriate mix of short and long-term rewards(including performance hurdles) to drive performance, andattract and retain talent;

Board discretion is applied when determining all CEO and Disclosed
Executive variable remuneration outcomes, and also before anyscheduled release of previously deferred remuneration (i.e. consider
malus or further deferral).
83

Remuneration Report continued

6.1 REMUNERATION MIX
We structure the CEO and Disclosed Executives’ remuneration as follows:CEO
Minimum opportunity

100%$2.1 million

Target opportunity

33%

17%

Maximum opportunity

22%

Fixed remuneration

17%

17%

AVR cash33%$6.3 million

17%

44%

AVR deferred shares$9.45 million

LTVR performance rights

Minimum
Target= Fixed remuneration ($2.1 million)= Fixed remuneration + target AVR (100% of fixed remuneration) + target LTVR (100% of fixed remuneration(performance rights face value at threshold vesting))
Maximum = Fixed remuneration + maximum AVR (150% of fixed remuneration) + maximum LTVR
(200% of fixed remuneration (performance rights face value to full vesting))

Disclosed Executive1
Minimum opportunity

100%

Target opportunity

33%

Maximum opportunity

20%

Fixed remuneration

VR cash

22%

22%

20%

23%

20%

VR deferred shares

40%

VR performance rights

Minimum = Fixed remuneration
Target= Fixed remuneration + target VR (200% of fixed remuneration (performance rights face value at threshold vesting))
Maximum = Fixed remuneration + maximum VR (402% of fixed remuneration (150% of target VR and performance rights face value to full vesting))
1.

Excluding CRO and Acting Group Executive and CEO, NZ.

CRO

Acting Group Executive and CEO, NZ

To preserve the independence of the role and to minimise any
conflicts of interest in carrying out the risk control function acrossthe organisation, the CRO’s remuneration arrangements differ toother Disclosed Executives.

Due to the acting nature of Antonia Watson’s appointment her
remuneration arrangements differ to other Disclosed Executives.
For the time spent in this acting role, her fixed remuneration has
been set at NZ$800,000 per annum (from 17 June 2019) and
her VR maximum opportunity has been increased to 300% of
fixed remuneration (her remuneration mix is therefore 25% fixed
remuneration and 75% VR maximum opportunity). Her VR will bedelivered as 60% cash and 40% as shares deferred for four years(ensuring compliance with the BEAR).

The remuneration mix is 27% fixed remuneration and 73% VR
maximum opportunity. The VR target opportunity is 180% of fixed
remuneration and VR maximum opportunity is 270% of fixed
remuneration. VR is delivered as 33% cash, 33% deferred shares and
34% deferred share rights (instead of performance rights).

84

ANZ 2019 ANNUAL REPORT6.2. VARIABLE REMUNERATION DELIVERY
Variable remuneration for the CEO and the Disclosed Executives (excluding the CRO and Acting Group Executive and CEO, NZ) is delivered
partly in cash, shares deferred over four years, and performance rights deferred over four years. The performance rights are also subject toperformance hurdles which determine whether they vest in four years’ time.

Nov 2023

Nov 2022

Nov 2021

Nov 2020

Nov 2019

30 Sep 2019

1 Oct 2018

Before any scheduled release of deferred shares/deferred share rights/performance rights, the Board considers whether any malus/downward
adjustment of previously deferred remuneration (or further deferral of vesting) should be made for the CEO and Disclosed Executives. See
section 6.3.

1.

2.

(AVR/VR)

Cash(AVR/VR)

Deferred shares1

40% vesting at
the end of year 1

30% vesting at
the end of year 2(LTVR/VR)

Performancerights2ANZfinancial year

Variable remuneration paid/allocatedFixed remuneration

20% vesting at
the end of year 3

10% vesting at
the end of year 4

Vesting is subject tomeeting TSR performance
hurdles at end of year 4

Deferred shares for the CRO vest as follows: 30% at the end of years 1 and 2, and 20% at the end of years 3 and 4. Deferred shares for the Acting Group Executive and CEO, NZ vest as follows:
100% at the end of year 4.
Deferred share rights for the CRO. No performance rights for the Acting Group Executive and CEO, NZ.

6.2.1 Cash – CEO (AVR) and Disclosed Executives (VR)The cash component is paid to executives at the end of the annual Performance and Remuneration Review (usually in late November).
6.2.2 Deferred shares – CEO (AVR) and Disclosed Executives (VR)Deferred shares are ordinary shares, deferred over one to four years (deferred for four years for the Acting Group Executive and CEO, NZ).
By deferring part of an executives’ remuneration over time (and it remaining subject to malus), we enable a substantial amount of theirremuneration to be directly linked to delivering long-term shareholder value. We grant deferred shares in respect of performance for the
1 October to 30 September financial year in late November each year.
We calculate the number of deferred shares to be granted based on the VWAP of the shares traded on the ASX in the week leading up to
and including the date of grant. For disclosure and expensing purposes, we use the one day VWAP to determine the fair value.
In some cases (generally due to regulatory or tax reasons), we may grant deferred share rights to executives instead of deferred shares.
Each deferred share right entitles the holder to one ordinary share.
6.2.3a Performance rights – CEO (LTVR) and Disclosed Executives (VR) excluding the CRO and Acting Group Executive and CEO, NZ

A performance right is a right to acquire one ordinary ANZ share at nil cost – as long as time and performance hurdles are met. The future
value of performance rights may range from zero to an indeterminate value. The value depends on our performance against the hurdles andon the share price at the time of exercise.

85Remuneration Report continued

The performance rights have a four-year performance period. For the 2019 grant, the performance period is from 22 November 2019 to
21 November 2023. A four-year performance period provides sufficient time for longer term performance to be reflected.
More detail relating to the 2019 performance rights is provided below.
Element

DetailPerformancerights hurdles

The performance rights have TSR performance hurdles reflecting the importance of focusing on achieving longer term
strategic objectives and aligning executives’ and shareholders’ interests. We will apply two TSR performance hurdles for the2019 grants of performance rights:•• 75% will be measured against a relative TSR hurdle, tranche 1.
•• 25% will be measured against an absolute TSR hurdle, tranche 2.
TSR represents the change in value of a share plus the value of reinvested dividends paid. We regard it as the mostappropriate long-term measure – it focuses on the delivery of shareholder value and is a well understood and tested
mechanism to measure performance.
The combination of relative and absolute TSR hurdles provides balance to the plan by:•• Relative: rewarding executives for performance that exceeds that of comparator companies; and•• Absolute: ensuring there is a continued focus on providing positive growth – even when the market is declining.
The two hurdles measure separate aspects of performance:•• the relative TSR hurdle measures our TSR compared to that of the Select Financial Services comparator group, made up
of core local and global competitors. This comparator group is chosen to broadly reflect the geographies and businesssegments in which ANZ competes for revenue; and•• the absolute Compound Annual Growth Rate (CAGR) TSR hurdle provides executives with a more direct line of sight tothe level of shareholder return to be achieved. It also provides a tighter correlation between the executives’ rewards andthe shareholders’ financial outcomes.
We will measure ANZ’s TSR against each hurdle at the end of the four-year performance period to determine whether
each tranche of performance rights become exercisable. We measure each tranche independently from the other – thatis: one tranche may vest fully or partially but the other tranche may not vest.

Relative TSR
hurdle for the2019 grant

The relative TSR hurdle is an external hurdle that measures our TSR against that of the Select Financial Services comparatorgroup over four years. The Select Financial Services comparator group (unchanged from prior years) is made up of: Bankof Queensland Limited; Bendigo and Adelaide Bank Limited; Commonwealth Bank of Australia Limited; DBS Bank Limited;
Macquarie Group Limited; National Australia Bank Limited; Standard Chartered PLC; Suncorp Group Limited; and Westpac
Banking Corporation.
If our TSR when compared to the TSRof the comparator groupis less than the 50th percentile
reaches at least the 50th percentile,
but is less than the 75th percentile
reaches or exceeds the 75th percentile

Absolute TSR
hurdle for the2019 grant

86

then the percentage of performance rights that vest
is nilis 50% plus 2% for every one percentile increase above the50th percentile
is 100%The Absolute CAGR TSR hurdle is an internal hurdle as to whether ANZ achieves or exceeds a threshold level of growth theBoard sets at the start of the performance period.
The Board reviews and approves the absolute TSR targets each year for that year’s award. When reviewing the targets, theBoard references ANZ’s assessed Cost of Capital. The Cost of Capital is determined using methodologies including theCapital Asset Pricing Model (CAPM). The primary driver of the reduction in the Cost of Capital used in setting this year’s
target is the reduction in the risk free rate (government bond yield) that has occurred in Australia and other developed
economies in the last 12 months.
If the absolute CAGR of our TSR

then the percentage of performance rights that vest

is less than 8.5%

is nilis 8.5%is 50%

reaches at least 8.5%, but is less than 12.75%

is progressively increased on a pro-rata, straight-line, basis
from 50% to 100%

reaches or exceeds 12.75%

is 100%

ANZ 2019 ANNUAL REPORTCalculating
TSR
performance

When calculating performance against TSR, we:•• reduce the impact of share price volatility – by using an averaging calculation over a 90-day period for startand end values;•• ensure an independent measurement – by engaging the services of an external organisation, Mercer Consulting(Australia) Pty Ltd, to calculate ANZ’s performance against the TSR hurdles; and•• test the performance against the relevant hurdle once only at the end of the four-year performance period – therights lapse if the performance hurdle is not met – there is no retesting.

Calculating
the number of
performancerightsThe number of performance rights we grant is calculated using a face value basis – i.e. the full share price. Face value
at full vesting is split into two tranches. Each tranche value is then divided by the market price (five trading day VWAP
of ANZ shares at the start of the performance period) to determine the number of performance rights we award ineach tranche.
Performance rights are allocated in November for Disclosed Executives and December for the CEO (subject toshareholder approval).

Expensing
performancerights

ANZ engages PricewaterhouseCoopers to independently determine the fair value of performance rights, which is onlyused for expensing purposes. They consider factors including: the performance conditions, share price volatility, life of
the instrument, dividend yield, and share price at grant date.

6.2.3b Deferred share rights – CRO (VR)The CRO receives deferred share rights instead of performance rights to preserve the independence of the role and to minimise any conflictsof interest in carrying out the risk control function across the organisation.
The CRO’s deferred share rights are subject to a time-based vesting hurdle of four years. The value the Board uses to determine the number ofdeferred share rights to be allocated to the CRO is the face value of the Company’s shares traded on the ASX at the time of grant (five trading
day VWAP).
6.3 MALUS (DOWNWARD ADJUSTMENT OF PREVIOUSLY DEFERRED REMUNERATION) – BOARD DISCRETION
All deferred remuneration we award to an employee is subject to ANZ’s on-going and absolute discretion to adjust this downward (malus)(including to zero) at any time.
ANZ may exercise this discretion, for example, where:•• there is a need to protect the financial soundness of ANZ or to meet regulatory requirements or there has been a material failure of risk
management or controls within ANZ;•• the employee has acted fraudulently or dishonestly, failed to act with due care, skill and diligence, or failed to comply with ANZ policies(including the Code of Conduct), processes or directions;•• the employee is responsible or accountable, directly or indirectly, by virtue of their role or seniority for an occurrence/event which has had
an adverse impact on ANZ;•• there has been misconduct and the employee was involved directly or indirectly, failed to take adequate steps, could be considered
responsible due to their seniority, or the decision to award or grant the deferred remuneration was made on the basis of misinformation.
Further, where the CEO and/or Disclosed Executives of ANZ have failed to comply with their accountability obligations under the BEAR, theirdeferred remuneration will be reduced by an amount that is proportionate to the failure, as required by the BEAR.
An employee’s deferred remuneration is also subject to ANZ’s on-going and absolute discretion to further defer the vesting. Where ANZ
exercises this discretion, the vesting date is postponed and will not vest unless and until ANZ determines it should vest.
Before any scheduled release of deferred remuneration, the Board (for the CEO and Disclosed Executives) and/or the CRG (for other
employees) considers whether malus/downward adjustment or further deferral should be applied.

87

Remuneration Report continued

7. ACCOUNTABILITY AND CONSEQUENCE FRAMEWORKThis year we further strengthened the way we deal with material
risk events through an enhanced Accountability and Consequence
Framework.
The Consequence Review Group (CRG) is chaired by the CEO andmembers include the CRO, CFO, GE T&C and GGM IA. The CRG
oversees the implementation and ongoing effectiveness of ANZ’s
Accountability and Consequence Framework, being cognisant of
its impact on the culture of ANZ. The CRG reviews material events,
accountability and the application of suitable consequences (the HR
Committee and Board determine accountability and consequences
for the CEO and Disclosed Executives). Appropriate consequences
are determined in light of the severity of the issue and may include,for example, one or more of the following: coaching, counselling,
formal warnings, impacts to performance and remuneration
outcomes, impacts on promotion, application of malus and ultimately
termination of employment for the most serious issues. Our ongoing
focus on accountability, consequences and driving a strong risk
culture supports our customer commitment that when things gowrong, we fix them quickly and consistently hold executives, current(and former where we can), to account where appropriate.
We also seek to support a strong ‘speak up’ culture and ensure
managers recognise exemplary risk and audit behaviours. The focus
on speak up is being supported through our New Ways of Leading(NWOL) that are aligned with our purpose and values. NWOL
focuses on five behaviours relevant for all employees and imperative
for people leaders: be curious, create shared clarity, empower
people, connect with empathy and grow people selflessly. We areincorporating culture into leader-led team activities to facilitate
open, purposeful conversations about our culture and practices andcreate a psychologically safe environment for employees to speak
up. We continue to raise employee awareness of, and promote
the various ways that employees can speak up including throughinitiatives such as the Whistleblower Awareness Week.
Where employees role model the ANZ values and exemplary risk
management we also seek to recognise and reward this, including
through our annual Performance and Remuneration Review.

In 2019 across the Group, 151 employees were
terminated for breaches of our Code of Conduct. A further 516
employees received a formal disciplinary outcome, with managers
required to apply impacts to their performance and remuneration
outcomes as part of the annual review process.
ANZ announced in June 2019 that David Hisco would depart ANZ.
The Board noted their concerns regarding the characterisationof certain transactions following an internal review of personal
expenses. This was a clear and public example of the applicationof meaningful consequences. David’s employment was ceased, he
was awarded no variable remuneration for 2019 and he immediately
forfeited all unvested deferred remuneration which totalled around$7.4 million. This provided a clear message both internally andexternally of the importance of doing the right thing and that this is
expected of all our people regardless of seniority.
No malus was applied to the previously deferred remuneration of
the CEO and Disclosed Executives during 2019. As disclosed in 2018malus (downward adjustment) was applied to the unvested equity
held by former Disclosed Executives.
At the senior leadership level, 30 current or former seniorleaders (senior executives, executives and senior managers) had
consequences applied in 2019 for Code of Conduct breaches orfindings of accountability for a material event, or otherwise left thebank after an investigation had been initiated. The 30 employees
represent ~1% of the senior leader population. The consequences
applied included warnings, impacts to performance and/or
remuneration outcomes and cessation of employment.
SENIOR LEADER CONSEQUENCES IN 20191

Performance and remuneration consequence

23

Formal warnings

12

No longer employed

7

1.

Individuals are included under all categories that are relevant meaning one individual
may be reflected in multiple categories.

8. NON-EXECUTIVE DIRECTOR (NED) REMUNERATION
8.1 REMUNERATION STRUCTURE
The Board reviewed NED fees for 2019 and determined once again not to increase their fees (which remain unchanged from 2016).
As disclosed in last year’s Remuneration Report, the NEDs who served on the Board in 2018 agreed to a 20% reduction of their Board fee for2019 (20% reduction to the Chairman fee from $825,000 to $660,000, and 20% reduction to the NED member fee from $240,000 to $192,000)
as a consequence for the shared accountability for the failures highlighted by the Royal Commission.
NEDs receive a base fee for being a Director of the Board, and additional fees for either chairing, or being a member of a Board Committee.
The Chairman of the Board does not receive additional fees for serving on a Board Committee.
In setting Board and Committee fees, the Board considers: general industry practice, corporate governance principles, the responsibilities andrisks attached to the NED role, the time commitment expected of NEDs on Group and Company matters, and fees paid to NEDs of comparable
companies.
ANZ compares NED fees to a comparator group of Australian listed companies with a similar market capitalisation, with particular focus
on the major financial services institutions. This is considered an appropriate group, given similarity in size, nature of work and timecommitment by NEDs.

88

ANZ 2019 ANNUAL REPORTTo maintain NED independence and impartiality:•• NED fees are not linked to the performance of the Group; and•• NEDs are not eligible to participate in any of the Group’s variable remuneration arrangements.
The current aggregate fee pool for NEDs of $4 million was approved by shareholders at the 2012 AGM. The annual total of NEDs’ fees, including
superannuation contributions, is within this agreed limit.
This table shows the NED fee policy structure for 2019:

Board1, 2

Board
fee after
reduction1, 2

Audit
Committee

Risk
Committee

HR
Committee

Digital Business& Technology
Committee

Ethics, Environment,
Social & GovernanceCommittee

Chair fee

$825,000$660,000$65,000$62,000$57,000$35,000$35,000

Member fee$240,000$192,000$32,500$31,000$29,000$15,000$15,000

1.
2.

Including superannuation.
The Chairman of the Board does not receive additional fees for serving on a Board Committee.

NED shareholding guidelines
We expect our NEDs to hold ANZ shares. NEDs are required:•• to accumulate shares – over a five-year period from their appointment – to the value of 100% (200% for the Chairman) of the NED member
fee; and•• to maintain this shareholding while they are a Director of ANZ.
All NEDs have met or, if appointed within the last five years, are on track to meet their minimum shareholding requirement.
8.2 2019 STATUTORY REMUNERATION - NEDSSHORT-TERM NED BENEFITS

POST-EMPLOYMENT

Financial
year

Fees1
$

Non monetary
benefits$

Super
contributions1$

Total
remuneration2$

D Gonski2019639,351-

20,649660,000

2018

804,831-

20,169825,000

I Atlas2019

275,851-

20,649296,500

2018

324,331-

20,169344,500

P Dwyer

2019296,351-

20,649317,000

2018

344,831-

20,169365,000

J Halton2019

246,058-

20,649266,7072018

277,567-

20,169297,736

J Key3

2019229,131-

20,649249,7802018

148,546-

11,996

160,542

G Liebelt

2019294,851-

20,649315,500

2018

345,858-

20,169366,0272019

249,851-

20,649270,5002018

298,331-

20,169318,500

H Lee4201957,258

4,832

5,133

67,223

2018

314,831-

20,169335,000

Total of all Non-Executive Directors

20192,288,702

4,832

149,676

2,443,210

2018

2,859,126-

153,179

3,012,305

Current Non-Executive Directors

J Macfarlane

Former Non-Executive Director

1.

2.
3.

4.

Year-on-year differences in fees relate to the 20% reduction to the Chairman fee and the NED member fees in 2019, changes in Committee memberships and changes to the superannuation
Maximum Contribution Base.
Long-term benefits and share-based payments do not apply for the NEDs.
J Key commenced as a NED for Australia and New Zealand Banking Group Limited (ANZBGL) on 28 February 2018, so 2018 remuneration reflects a partial service year. In addition for 2018, in
relation to his Non-Executive Directorship from 18 October 2017 for ANZ Bank New Zealand Limited, J Key also received a total of NZD 302,925 as a NED until 31 December 2017 and from
1 January 2018 as Chairman. In 2019, J Key also received a total of NZD 382,950 as Chairman for ANZ Bank New Zealand Limited.
H Lee retired as a NED on 19 December 2018, so 2019 remuneration reflects partial service year up to his date of retirement. Non monetary benefits relate to gifts on retirement including
Fringe Benefits Tax.

89

Remuneration Report continued

9. REMUNERATION GOVERNANCE
9.1 THE HUMAN RESOURCES (HR) COMMITTEE

9.1.2 Link between remuneration and risk

9.1.1 Role of the HR Committee

To further reflect the importance of the link between
remuneration and risk:

The HR Committee supports the Board on remuneration and otherHR matters. It reviews the remuneration policies and practicesof the Group, and monitors market practice and regulatory andcompliance requirements in Australia and overseas.
The HR Committee has a strong focus on the relationship between
business performance, risk management and remuneration,aligned with our business strategy. The chairs of the Risk and Audit
Committees are members of the HR Committee and often the full
Board is in attendance for specific HR Committee meetings. During
the year the HR Committee met on six occasions and reviewed
and approved, or made recommendations to the Board on matters
including:•• remuneration for the CEO and other key executives (broader
than those disclosed in the Remuneration Report) covered by the
ANZBGL Remuneration Policy and ANZ NZ Remuneration Policy,
and fees for the NEDs;•• the design of significant variable remuneration plans – forexample: the ANZIP – and the progress of the implementation ofchanges in Divisional Business Unit Incentive Plans in responseto the industry-wide Retail Remuneration Review by Stephen
Sedgwick AO;•• the Board had two NEDs (in addition to the Chairman) in 2019
who served on both the HR Committee and the Risk Committee;
and•• the HR Committee has free and unfettered access to risk
and financial control personnel (the CRO and CFO attend HR
Committee meetings for specific agenda items).
9.1.3 External advisors provided information but notrecommendations

The HR Committee can engage independent external advisors asneeded.
Throughout the year, the HR Committee and management received
information from the following external providers: Aon, Ashurst,
EY, Mercer Consulting (Australia) Pty Ltd, Morrow Sodali andPricewaterhouseCoopers. This information related to market data,
market practices, legislative requirements and the interpretation of
governance and regulatory requirements.
During the year, ANZ did not receive any remuneration
recommendations from external consultants about the
remuneration of KMP.

•• the design and implementation of Reimagining Reward – anorganisational-wide change to our approach to remuneration,
performance management and recognition, which supports
positive risk culture and includes the redesign of how we manage
and reward our people to better focus on the interests of ourcustomers, and the long-term health of our bank and team, rather
than individual outcomes;

ANZ employs in-house remuneration professionals who provide
recommendations to the HR Committee and the Board. The Board
made its decisions independently, using the information provided andwith careful regard to ANZ’s strategic objectives, purpose and values,
risk appetite and the ANZBGL Remuneration Policy and Principles.

•• the ANZ Group Performance Framework (annual objectives
setting and assessment) and annual variable remuneration spend;

9.2.1 Hedging prohibition•• performance and reward outcomes for key senior executives,
including the consideration of malus/downward adjustment;•• key senior executive appointments and terminations;•• the effectiveness of the ANZBGL Remuneration Policy andchanges to the policy to incorporate the BEAR requirements;•• succession plans for key senior executives;•• culture and governance including endorsing a new culture
accountability model and the strengthened Accountability andConsequence Framework; and•• diversity, inclusion, and employee engagement.
More details about the role of the HR Committee, including
its Charter, can be found on our website. Go to anz.com > Our
company > Strong governance framework > ANZ Human Resources
Committee Charter.

9.2 INTERNAL GOVERNANCE
All deferred equity must remain at risk until it has fully vested.
Accordingly, executives and their associated persons must not enter
into any schemes that specifically protect the unvested value ofequity allocated. If they do so, then they forfeit the relevant equity.
9.2.2 CEO and Disclosed Executives’ shareholding guidelines

We expect the CEO and each Disclosed Executive to, over a
five-year period:•• accumulate ANZ shares to the value of 200% of their fixed
remuneration; and•• maintain this shareholding level while they are an executive of ANZ.
For this purpose, shareholdings include all vested and unvested
equity that is not subject to performance hurdles. Based onequity holdings as at 30 September 2019, the CEO and all
Disclosed Executives:•• who have been with us for at least five years, meet thisrequirement; and•• who have been with us for less than five years, are on track tomeet it.

90

ANZ 2019 ANNUAL REPORT9.2.3 CEO and Disclosed Executives’ contract terms and equity treatment

The details of the contract terms and also the equity treatment on termination (in accordance with the Conditions of Grant) relating to the
CEO and Disclosed Executives are below. Although they are similar, they vary in some cases to suit different circumstances.
Type of contract

Permanent ongoing employment contract.

Notice on resignation•• 12 months by CEO;•• 6 months by Disclosed Executives;•• 3 months by Acting Group Executive and CEO, NZ.

Notice on termination
by ANZ•• 12 months by ANZ for CEO and Disclosed Executives;•• 3 months by ANZ for Acting Group Executive and CEO, NZ.
However, ANZ may immediately terminate an individual’s employment at any time in the case of serious
misconduct. In that case, the individual will be entitled only to payment of fixed remuneration up to thedate of their termination and their statutory entitlements.

How unvested equity istreated on leaving ANZ

Executives who resign or are terminated will forfeit all their unvested deferred equity – unless the Board
determines otherwise.
If an executive is terminated due to redundancy or they are classified as a ‘good leaver’, then:•• their deferred shares/share rights are released at the original vesting date; and•• their performance rights1 are prorated for service to the full notice termination date and released at theoriginal vesting date (to the extent that the performance hurdles are met).
On an executive’s death or total and permanent disablement, their deferred equity vests.
Unvested equity remains subject to malus post termination.

Change of control(applies to the CEO only)1.

If a change of control or other similar event occurs, then we will test the performance conditions applying
to the CEO’s performance rights. They will vest to the extent that the performance conditions are satisfied.

Or deferred share rights granted to the CRO instead of performance rights.

91Remuneration Report continued

10. OTHER INFORMATION
10.1 2019 STATUTORY REMUNERATION – CEO AND DISCLOSED EXECUTIVES
The following table outlines the statutory remuneration disclosed in accordance with Australian Accounting Standards. While it shows the
fixed remuneration awarded (cash and superannuation contributions) and also the cash component of the 2019 variable remuneration award,
it does not show the actual variable remuneration awarded or received in 2019 (see sections 5.1 and 5.2), but instead shows the amortised
accounting value for this financial year of deferred remuneration (including prior year awards).
SHORT-TERM EMPLOYEE BENEFITS

Financial
year

Cash salary1$

Non monetary
benefits2$

Total cash
incentive3$

POST-EMPLOYMENTOther cash4$

Supercontributions5$

Retirement
benefit accrued
during year6$

CEO and Current Disclosed Executives

20192,079,351

19,383750,000-

20,649-2018

2,079,831

17,321875,000-

20,169-2019

979,351

32,221

495,000-

21,149-2018

979,831

29,254

528,000-

20,669-2019929,351

16,633

478,500-

20,649-2018

472,582

6,383

164,835-

10,145-

2019979,351

37,721

528,000-

21,149-2018

843,584

40,254354,750

250,000

20,669-M Hand2019

710,307

10,868198,000-

15,693

17,851M Jablko13

2019979,351

17,083

544,500-

21,149-2018

979,831

15,341

577,500-

20,669-A Watson

2019

214,999273

170,255

-

4,441

-

M Whelan2019

1,179,351

13,883

874,500-

20,649-2018

1,179,831

11,821

717,750-

20,169-

2019746,754

246,687--

96,767-2018

1,168,324

477,076

644,397

-

2,389

2,305

2019

235,044

24,143

-

-

4,956

-

2018

979,831

31,668396,000-

20,169-S Elliott

M Carnegie9

K Corbally10

A George

11

12

14, 15Former Disclosed Executives
D Hisco15, 16

F Ohlsson

1.

2.

3.

4.

5.

92

17

Cash salary includes any adjustments required to reflect the use of ANZ's Lifestyle Leave Policy
for the period in the KMP role.
Non monetary benefits generally consist of company-funded benefits (and the associatedFringe Benefits Tax) such as car parking, taxation services and costs met by the Company inrelation to relocation and cessation.
The total cash incentive relates to the cash component only. The relevant amortisation of the
AVR/VR deferred components is included in share-based payments and has been amortisedover the vesting period. The total AVR/VR was approved by the Board on 25 October 2019.
100% of the cash component of the AVR/VR awarded for the 2018 and 2019 years vested to the
executive in the applicable financial year.
Other cash and other equity allocations relate to employment arrangements such ascompensation for bonus opportunity foregone and deferred remuneration forfeited,
retention awards, and shares received in relation to the Employee Share Offer. For further
details, see the individual footnotes for each relevant executive.
For all Australian based executives, the 2018 and 2019 superannuation contributions reflect
the Superannuation Guarantee Contribution based on the Maximum Contribution Base. From
31 August 2018, D Hisco commenced superannuation contributions to KiwiSaver where ANZ
provides an employer contribution matching member contributions up to 4% of total grosspay (less employer superannuation contribution tax). A Watson also participates in KiwiSaver.

ANZ 2019 ANNUAL REPORT

Accrual relates to Retirement Allowance. As a result of being employed with ANZ before
November 1992, M Hand is, and D Hisco was eligible to receive a Retirement Allowance onretirement, retrenchment, death, or resignation for illness, incapacity or domestic reasons. The
Retirement Allowance is calculated as three months of preserved notional salary (which is 65%
of fixed remuneration) plus an additional 3% of notional salary for each year of full-time service
above 10 years less the total accrual value of long service leave (including taken and untaken).
7.
As required by AASB 2 Share-based payments, the amortisation value includes a proportionof the fair value (taking into account market-related vesting conditions) of all equity that had
not yet fully vested as at the commencement of the financial year. The fair value is determinedat grant date and is allocated on a straight-line basis over the relevant vesting period. The
amount included as remuneration neither relates to, nor indicates, the benefit (if any) that theexecutive may ultimately realise if the equity becomes exercisable.
8.
Termination benefits reflect payment for accrued annual leave, long service leave and pay inlieu of notice in accordance with contract, payable on cessation.
9.
2018 other equity allocations for M Carnegie relate to previously disclosed compensation forbonus opportunity foregone and deferred remuneration forfeited.
10.
K Corbally commenced in a Disclosed Executive role on 19 March 2018. So his 2018
remuneration reflects a partial service year. K Corbally's fixed remuneration was adjusted on
1 April 2019 based on a review of internal and external market relativities, and in recognition of
the increase in regulatory activity and the broader risk environment. In relation to
K Corbally's role before his appointment to the Group Executive Committee, in August 2016
the Board approved an equity retention award of $600,000 vesting in August 2019. Other
equity allocations relate to this award.
6.

LONG-TERM
EMPLOYEEBENEFITSSHARE-BASED PAYMENTS7
Total amortisation value of
Variable
remuneration

Other equity
allocations4Long service leaveaccrued during
the year$

Shares$Share rights$

Performancerights$Shares$Termination
benefits8$

Total
remuneration$

31,819830,753-

1,449,384--

5,181,339

31,819

1,023,295-

1,597,860--

5,645,295

15,152

470,209-344,501--

2,357,583

15,152

366,123-

282,708

353,951-

2,575,688

29,179340,108

171,583

35,455

194,492-

2,215,950

24,255

172,70940,94333,129118,316-

1,043,297

15,152392,589-

260,314--2,234,276

26,767308,376-

194,781--2,039,181

80,949259,006-

129,198--

1,421,872

15,152539,647-

400,011

133,552-

2,650,445

15,152436,228-

331,802323,545-

2,700,068

3,580

35,35883,50011,290141-

523,837

18,182

839,283-

717,098--

3,662,946

18,182

730,160-

723,576--

3,401,489--(686,411)(902,582)(871)

2,112,376

1,612,720

3,782

-

589,413651,112475-

3,539,273

3,636

55,66813,05067,641

10-404,148

15,152

283,517

127,777

341,086284-

2,195,484

A George's fixed remuneration was adjusted in May 2018 when she commenced in the
expanded role of Deputy CEO and Group Executive, Wealth Australia. As disclosed in 2017, in
relation to A George's role before her appointment to the Group Executive Committee, in July
2016 the Board approved a cash retention award of $500,000 with partial vesting in June 2017($250,000) and December 2017 ($250,000).
12.
M Hand commenced in a Disclosed Executive role on 29 December 2018. So his 2019
remuneration reflects a partial service year. M Hand's fixed remuneration was adjusted on
1 March 2019 on appointment to the Group Executive, Australia Retail and Commercial
Banking role.
13.
Other cash and other equity allocations for M Jablko relate to previously disclosed
compensation for bonus opportunity foregone and deferred remuneration forfeited.
14.
A Watson commenced in a Disclosed Executive role on 17 June 2019. So her 2019
remuneration reflects a partial service year. A Watson's fixed remuneration is paid in NZD andconverted to AUD.
15.
In 2016 A Watson, D Hisco and F Ohlsson, and in 2018 and 2019 A Watson and D Hisco, were
eligible to receive shares under the Employee Share Offer. That offer provides a grant of ANZshares in each financial year to eligible employees subject to Board approval. See Note 31
Employee Share and Option Plans for further details on the Employee Share Offer.
11.

D Hisco ceased employment 14 June 2019. Remuneration reflects up to his date of cessation(noting his annual fixed remuneration for 2019 remained unchanged at NZD 1.274 million).
Share-based payments include the expensing treatment on cessation for unvested deferredremuneration (including reversals for forfeiture on cessation). D Hisco's fixed remuneration was
paid in NZD and converted to AUD. Termination benefits reflect payment for accrued annual
leave, long service leave and pay in lieu of notice in accordance with his contract, payable on
cessation. Following an internal review it was determined that certain expense and allowances
previously provided to D Hisco and categorised as business related would more appropriately
be characterised as non-business related and included as non monetary benefits in the
Remuneration Report. The 2018 comparative balances have been restated to increase nonmonetary benefits by $8,360 plus related Fringe Benefit Tax of $4,117. Similar items existed
in the period between 2010-2017 which would have increased the non monetary benefits
disclosed for D Hisco on average each year by approximately $44,580 plus related Fringe
Benefit Tax of $21,956.
17.
F Ohlsson concluded in his role 28 December 2018. Remuneration reflects up to his dateof conclusion in role (noting his annual fixed remuneration for 2019 remained unchanged
at $1 million).
16.

93Remuneration Report continued

10.2 EQUITY HOLDINGSFor the equity granted to the CEO and Disclosed Executives in November/December 2018, all deferred shares were purchased on the market.
For deferred share rights and performance rights, we will determine our approach to satisfying awards closer to the time of vesting.
10.2.1 CEO and Disclosed Executives equity granted, vested, exercised/sold and lapsed/forfeited

The table below sets out details of deferred shares and rights that we granted to the CEO and Disclosed Executives:•• during the 2019 year; or•• in prior years and that then vested, were exercised/sold or which lapsed/were forfeited during the 2019 year.

Name

Type of equity

Equity fairvalue at
grant
(for 2019
grantsNumberonly)
1
granted$

Lapsed/Forfeited

Vested
First
Grant
date
date exercisable

Dateofexpiry Number%

Value2$ Number%

VestedandexercisUnexerExercised/Soldable cisable
as at
as at
Value2
Value2 30 Sep 30 Sep
3$ Number%$ 2019 20194

CEO and Current Disclosed Executives
S Elliott

Deferred shares

22,79618 Nov 15

18 Nov 17

-

-

-

-

-

-

- (22,796) 100 625,278--

Deferred shares

6,941

22 Nov 16

22 Nov 17

-

-

-

-

-

-

-

(6,941) 100 190,387--

Deferred shares

6,941

22 Nov 16

22 Nov 18-

6,941 100 178,543

-

-

-

(6,941) 100 190,387--

Deferred shares

8,531

22 Nov 17

22 Nov 18-

8,531 100 219,443

-

-

-

(8,531) 100 233,999--

Deferred shares

8,623

25.72 22 Nov 18

22 Nov 19

-

-

-

-

-

-

-

-

-

-

-

8,623

Deferred shares

8,622

25.72 22 Nov 18

22 Nov 20

-

-

-

-

-

-

-

-

-

-

-

8,622

Deferred shares

8,622

25.72 22 Nov 18

22 Nov 21

-

-

-

-

-

-

-

-

-

-

-

8,622

Deferred shares

8,622

25.72 22 Nov 18

22 Nov 22

-

-

-

-

-

-

-

-

-

-

-

8,622

Performance rights

53,19117 Dec 15

17 Dec 18 17 Dec 20 34,733

65 845,478 (18,458)

35 (449,308)--- 34,733-

Performance rights

53,19117 Dec 15

17 Dec 18 17 Dec 20--- (53,191) 100 (1,294,786)

-

-

-

-

-

Performance rights

53,19117 Dec 15

17 Dec 18 17 Dec 20--- (53,191) 100 (1,294,786)

-

-

-

-

-

Performance rights

82,7748.33 19 Dec 18

19 Dec 21 26 Dec 21

-

-

-

-

-

-

-

-

-

- 82,774

Performance rights

27,5913.77 19 Dec 18

19 Dec 21 26 Dec 21

-

-

-

-

-

-

-

-

-

- 27,591

M Carnegie Deferred shares

7,228

20 Aug 16

01 Jun 18

-

-

-

-

-

-

-

(7,228) 100 198,259--

Deferred shares

15,75220 Aug 16

20 Aug 17

-

-

-

-

-

-

- (15,752) 100 432,066--

Deferred shares

1,182

22 Nov 16

22 Nov 17

-

-

-

-

-

-

-

(1,182) 100

32,421--

Deferred shares

1,182

22 Nov 16

22 Nov 18-

1,182 100 30,405

-

-

-

(1,182) 100

32,421--

Deferred shares

4,785

22 Nov 17

22 Nov 18-

4,785 100 123,085

-

-

-

-

-

-

4,785

-

Deferred shares

5,205

25.72 22 Nov 18

22 Nov 19

-

-

-

-

-

-

-

-

-

-

-

5,205

Deferred shares

5,202

25.72 22 Nov 18

22 Nov 20

-

-

-

-

-

-

-

-

-

-

-

5,202

Deferred shares

5,202

25.72 22 Nov 18

22 Nov 21

-

-

-

-

-

-

-

-

-

-

-

5,202

Deferred shares

5,202

25.72 22 Nov 18

22 Nov 22

-

-

-

-

-

-

-

-

-

-

-

5,202

Performance rights

32,163

10.39 22 Nov 18

22 Nov 21 22 Nov 23

-

-

-

-

-

-

-

-

-

- 32,163

Performance rights

10,721

5.15 22 Nov 18

22 Nov 21 22 Nov 23

-

-

-

-

-

-

-

-

-

- 10,721

K Corbally Deferred shares

3,780

18 Nov 15

18 Nov 18-

3,780 100 96,260

-

-

-

(3,780) 100 101,361--

Deferred shares

5,517

22 Nov 16

22 Nov 18-

5,517 100 141,914

-

-

-

(5,517) 100 147,939--

Deferred shares

21,49722 Nov 16

20 Aug 19- 21,497 100 573,129

-

-

-

- 21,497-

Deferred shares

4,231

22 Nov 17

22 Nov 18

-

-

-

-

Deferred shares

3,010

25.72 22 Nov 18

22 Nov 19

-

-

-

-

-

-

-

-

-

Deferred shares

3,007

25.72 22 Nov 18

22 Nov 20

-

-

-

-

-

-

-

-

-

Deferred shares

3,007

25.72 22 Nov 18

22 Nov 21

-

-

-

-

-

-

-

-

Deferred shares

3,007

25.72 22 Nov 18

22 Nov 22

-

-

-

-

-

-

-

-

Deferred share rights

14,54621.62 22 Nov 18

22 Nov 21 29 Nov 21

-

-

-

-

-

-

Performance rights

5,005

18 Nov 15

18 Nov 18 18 Nov 20

3,268

65 83,221 (1,737)

35

Performance rights

5,515

18 Nov 15

18 Nov 18 18 Nov 20

-

5

94

ANZ 2019 ANNUAL REPORT

4,231 100 108,834

-

-

-

(4,231) 100 113,455

-

-

-

-

3,010

-

-

3,007

-

-

-

3,007

-

-

-

3,007

-

-

-

- 14,546(44,234)(3,268)65

87,632--- (5,515) 100 (140,442)

-

-

-

-

-

Name

Type of equity

Equity fairvalue at
grant
(for 2019
grantsNumberonly)
1
granted$

Lapsed/Forfeited

Vested
First
Grant
date
date exercisable

Dateofexpiry Number%

Value2$ Number%

Vestedandexer- UnexerExercised/Soldcisable cisable
as at
as at
2
2
Value
Value 30 Sep 30 Sep
3$ Number%$ 201920194

CEO and Current Disclosed Executives
A George Deferred shares

2,074

18 Nov 15 18 Nov 18-

2,074 100 52,815

-

-

-

-

-

-

2,074

-

Deferred shares

4,801

22 Nov 16 22 Nov 18-

4,801 100 123,496

-

-

-

-

-

-

4,801

-

Deferred shares

3,096

22 Nov 17 22 Nov 18-

3,096 100 79,638

-

-

-

-

-

-

3,096

-

Deferred shares

3,498

25.72

22 Nov 18 22 Nov 19

-

-

-

-

-

-

-

-

-

-

-

3,498

Deferred shares

3,495

25.72

22 Nov 18 22 Nov 20

-

-

-

-

-

-

-

-

-

-

-

3,495

Deferred shares

3,495

25.72

22 Nov 18 22 Nov 21

-

-

-

-

-

-

-

-

-

-

-

3,495

Deferred shares

3,495

25.72

22 Nov 18 22 Nov 22

-

-

-

-

-

-

-

-

-

-

-

3,495

Performance rights

2,746

18 Nov 15 18 Nov 18 18 Nov 20

1,793 65 45,660(953)

35 (24,269)

-

-

-

1,793

-

Performance rights

3,026

18 Nov 15 18 Nov 18 18 Nov 20

-

-

-

(3,026) 100 (77,059)

-

-

-

-

-

Performance rights

21,610

10.39

22 Nov 18 22 Nov 21 22 Nov 23

-

-

-

-

-

-

-

-

-

- 21,610

Performance rights

7,203

5.15

22 Nov 18 22 Nov 21 22 Nov 23

-

-

-

-

-

-

-

-

-

-

7,203

M HandPerformance rights

4,663

18 Nov 15 18 Nov 18 18 Nov 20

-

-

-

-

-

-

(4,663) 100 132,474--

M Jablko

Deferred shares

11,44420 Aug 16

27 Feb 19-

11,444 100 318,564

-

-

-

-

-

- 11,444-

Deferred shares

1,182

22 Nov 16 22 Nov 18-

1,182 100 30,405

-

-

-

-

-

-

1,182

-

Deferred shares

6,305

22 Nov 17 22 Nov 18-

6,305 100 162,184

-

-

-

-

-

-

6,305

-

Deferred shares

5,693

25.72

22 Nov 18 22 Nov 19

-

-

-

-

-

-

-

-

-

-

-

5,693

Deferred shares

5,690

25.72

22 Nov 18 22 Nov 20

-

-

-

-

-

-

-

-

-

-

-

5,690

Deferred shares

5,690

25.72

22 Nov 18 22 Nov 21

-

-

-

-

-

-

-

-

-

-

-

5,690

Deferred shares

5,690

25.72

22 Nov 18 22 Nov 22

-

-

-

-

-

-

-

-

-

-

-

5,690

Performance rights

35,17910.39

22 Nov 18 22 Nov 21 22 Nov 23

-

-

-

-

-

-

-

-

-

- 35,179

Performance rights

11,726

5.15

22 Nov 18 22 Nov 21 22 Nov 23

-

-

-

-

-

-

-

-

-

- 11,726

5

A Watson5

M Whelan Deferred shares

6,724

22 Nov 16 22 Nov 18-

6,724 100 172,961

-

-

-

(6,724) 100 177,848--

Deferred shares

9,219

22 Nov 17 22 Nov 18-

9,219 100 237,140

-

-

-

(9,219) 100 243,840--

Deferred shares

7,075

25.72

22 Nov 18 22 Nov 19

-

-

-

-

-

-

-

-

-

-

-

7,075

Deferred shares

7,072

25.72

22 Nov 18 22 Nov 20

-

-

-

-

-

-

-

-

-

-

-

7,072

Deferred shares

7,072

25.72

22 Nov 18 22 Nov 21

-

-

-

-

-

-

-

-

-

-

-

7,072

Deferred shares

7,072

25.72

22 Nov 18 22 Nov 22

-

-

-

-

-

-

-

-

-

-

-

7,072

Performance rights

17,73018 Nov 15 18 Nov 18 18 Nov 20

11,577 65 294,814(6,153)65 310,934--

Performance rights

17,73018 Nov 15 18 Nov 18 18 Nov 20--- (17,730) 100 (451,503)

-

-

-

-

-

Performance rights

17,73018 Nov 15 18 Nov 18 18 Nov 20--- (17,730) 100 (451,503)

-

-

-

-

-

Performance rights

43,722

10.39

22 Nov 18 22 Nov 21 22 Nov 23

-

-

-

-

-

-

-

-

-

- 43,722

Performance rights

14,574

5.15

22 Nov 18 22 Nov 21 22 Nov 23

-

-

-

-

-

-

-

-

-

- 14,574

35 (156,689) (11,577)

95

Remuneration Report continued

NameType of equity

Equity fairvalue at
grant
(for 2019
grantsNumberonly)
granted1$

Lapsed/Forfeited

Vested

Grant
date

First
date
exercisable

Dateofexpiry Number%

Value2$ Number%

Vestedandexer- Unexercisable cisable
as at
as at
Value2 30 Sep 30 Sep$ 20193 20194

Exercised/Sold

Value2$ Number%Former Disclosed Executives
D Hisco6

Employee Share Offer

26

03 Dec 15

03 Dec 18-

26 100

697

-

-

-

-

-

-

26

-

Employee Share Offer

24

01 Dec 17

01 Dec 20

-

-

-

-

(24) 100

(677)

-

-

-

-

-

Employee Share Offer

29

03 Dec 18

03 Dec 21

-

-

-

-

(29) 100

(818)

-

-

-

-

-

Deferred share rights

7,386

22 Nov 16

22 Nov 18

22 Nov 20- (7,386) 100 198,057--

Deferred share rights

7,867

22 Nov 16

22 Nov 19

22 Nov 21--- (7,867) 100 (221,851)

-

-

-

-

-

Deferred share rights

8,379

22 Nov 16

22 Nov 20

22 Nov 22--- (8,379) 100 (236,289)

-

-

-

-

-

Deferred share rights

6,565

22 Nov 17

22 Nov 18

22 Nov 20- (6,565) 100 176,042--

Deferred share rights

6,942

22 Nov 17

22 Nov 19

22 Nov 21--- (6,942) 100 (195,766)

-

-

-

-

-

Deferred share rights

7,344

22 Nov 17

22 Nov 20

22 Nov 22--- (7,344) 100 (207,102)

-

-

-

-

-

Deferred share rights

7,764

22 Nov 17

22 Nov 21

22 Nov 23--- (7,764) 100 (218,946)

-

-

-

-

-

Deferred share rights

6,632

24.29

22 Nov 18

22 Nov 19

22 Nov 21--- (6,632) 100 (187,024)

-

-

-

-

-

Deferred share rights

7,031

22.91

22 Nov 18

22 Nov 20

22 Nov 22--- (7,031) 100 (198,276)

-

-

-

-

-

Deferred share rights

7,451

21.62

22 Nov 18

22 Nov 21

22 Nov 23--- (7,451) 100 (210,120)

-

-

-

-

-

Deferred share rights

7,900

20.39

22 Nov 18

22 Nov 22

22 Nov 24--- (7,900) 100 (222,782)

-

-

-

-

-

Performance rights

17,71118 Nov 15

18 Nov 18

18 Nov 20

11,56535 (156,511) (11,565) 65 310,118--

Performance rights

17,71118 Nov 15

18 Nov 18

18 Nov 20--- (17,711) 100 (451,019)

-

-

-

-

-

Performance rights

17,71118 Nov 15

18 Nov 18

18 Nov 20--- (17,711) 100 (451,019)

-

-

-

-

-

Performance rights

40,19822 Nov 16

22 Nov 19

22 Nov 21--- (40,198) 100 (1,133,592)

-

-

-

-

-

Performance rights

13,39922 Nov 16

22 Nov 19

22 Nov 21--- (13,399) 100 (377,854)

-

-

-

-

-

Performance rights

38,29022 Nov 17

22 Nov 20

22 Nov 22--- (38,290) 100 (1,079,786)

-

-

-

-

-

Performance rights

12,76322 Nov 17

22 Nov 20

22 Nov 22--- (12,763) 100 (359,919)

-

-

-

-

-

Performance rights

39,254

10.39

22 Nov 18

22 Nov 21

22 Nov 23--- (39,254) 100 (1,106,971)

-

-

-

-

-

Performance rights

13,084

5.15

22 Nov 18

22 Nov 21

22 Nov 23--- (13,084) 100 (368,971)

-

-

-

-

-

22 Nov 17

22 Nov 18-

7,386 100 189,990

6,565 100 168,871

4,562

Deferred shares

3,902

25.72

22 Nov 18

22 Nov 19---

Deferred shares

3,902

25.72

22 Nov 18

22 Nov 20---

Deferred shares

3,902

25.72

22 Nov 18

22 Nov 21--

Deferred shares

3,902

25.72

22 Nov 18

22 Nov 22

-

2.

3.

96

-

65 294,509 (6,146)

F Ohlsson7 Deferred shares

1.

-

4,562 100 117,348

-

-

-

-

- (4,562) 100 106,436

-

-

-

-

-

-

-

-

-

-

3,902

-

-

-

-

-

-

-

-

3,902

-

-

-

-

-

-

-

-

-

3,902

-

-

-

-

-

-

-

-

-

-

3,902

Employee Share Offer

25

04 Dec 13

04 Dec 16

-

-

-

-

-

-

-

(25) 100

583

-

-

Employee Share Offer

23

04 Dec 14

04 Dec 17

-

-

-

-

-

-

-

(23) 100

537

-

-

Employee Share Offer

26

03 Dec 15

03 Dec 18-

26 100

697

-

-

-

(26) 100

607

-

-

Deferred share rights

4,627

18 Nov 15

18 Nov 18

18 Nov 20

4,627 100 117,829--- (4,627) 100 124,272--

Deferred share rights

4,314

22 Nov 16

22 Nov 18

29 Nov 18

4,314 100 110,969--- (4,314) 100 110,969--

Performance rights

5,190

18 Nov 15

18 Nov 18

18 Nov 20

3,389

65 86,303 (1,801)

35

91,021--

Performance rights

5,720

18 Nov 15

18 Nov 18

18 Nov 20--- (5,720) 100 (145,663)

-

-

-

-

-

Performance rights

24,122

10.39

22 Nov 18

22 Nov 21

22 Nov 23

-

-

-

-

-

-

-

-

-

- 24,122

Performance rights

8,040

5.15

22 Nov 18

22 Nov 21

22 Nov 23

-

-

-

-

-

-

-

-

-

-

For the purpose of the five highest paid executive disclosures, Executives are definedas Disclosed Executives or other members of the Group Executive Committee. For the2019 financial year the five highest paid executives include four Disclosed Executives andthe Group Executive, International (F Faruqui). Rights granted to Disclosed Executives asremuneration in 2019 are included in the table. Rights granted to F Faruqui as remunerationin 2019 include four tranches of deferred share rights and two tranches of performancerights granted on 22 Nov 2018. (7,132 (tranche 1) deferred share rights first exercisable
22 Nov 2019, expiring 29 Nov 2019; 7,562 (tranche 2) deferred share rights first exercisable
22 Nov 2020, expiring 29 Nov 2020; 8,013 (tranche 3) deferred share rights first exercisable
22 Nov 2021, expiring 29 Nov 2021; 8,496 (tranche 4) deferred share rights first exercisable
22 Nov 2022, expiring 29 Nov 2022; 42,215 (tranche 1) and 14,071 (tranche 2) performancerights first exercisable 22 Nov 2021 subject to meeting performance hurdles, expiring
22 Nov 2023). No rights have been granted to the CEO, Disclosed Executives or the five highest
paid executives since the end of 2019 up to the Directors' Report sign-off date.
The point in time value of shares/share rights and/or performance rights is based on the
one day VWAP of the Company’s shares traded on the ASX on the date of vesting, lapsing/forfeiture or exercising/sale/transfer out of trust, multiplied by the number of shares/sharerights and/or performance rights. The exercise price for all share rights/performance rights
is $0.00. No terms of share-based payment transactions have been altered or modified
during the reporting period.
The number vested and exercisable is the number of shares, options and rights thatremain vested at the end of the reporting period. No shares, options and rights werevested and unexercisable.

ANZ 2019 ANNUAL REPORT

4.

6.
7.

8,040

Performance rights granted in prior years (by grant date) that remained unexerciseable at
30 Sep 2019 or date ceased in a Disclosed Executive role include:		
S Elliott
M Carnegie
K Corbally
A George
M HandM Jablko
A Watson
M Whelan
D HiscoF Ohlsson

5.

(45,863) (3,389) 65

Nov-16
150,482
9,745
5,445
4,738
7,920
9,745
3,649
55,42831,306

Nov-17143,294
39,4404,230
25,5206,277
51,9683,934
75,98037,584

Nov-18110,365
42,884
28,81326,802
46,905
4,802
58,29632,162Equity disclosed from commencement in Disclosed Executive role. There are no disclosable
transactions since commencement for A Watson.			
Equity transactions disclosed up to date of cessation of employment.
Equity transactions disclosed up to date ceased in a Disclosed Executive role.

10.2.2 NED, CEO and Disclosed Executives equity holdings

The table below sets out details of equity held directly, indirectly or beneficially by each NED, the CEO and each Disclosed Executive,
including their related parties.

Name

Type of equity

Current Non-Executive Directors
Ordinary shares
D Gonski

Resulting fromany otherchanges during
the year2

Closingbalance at
30 Sep 20193, 4

31,488---31,48814,360---14,360P DwyerOrdinary shares

17,500---17,500J Halton
J Key
G Liebelt

Ordinary shares
Ordinary shares
Ordinary shares

9,049
3,000
20,315

-

-

-

9,049
3,000
20,315

Capital notes 1

1,500

-

-

-

1,500

Capital notes 2

2,500

-

-

-

2,500

Ordinary shares

17,851---

17,851

Capital notes 2

2,000

-

-

-

2,000

Capital notes 3

5,000

-

-

-

5,000

2,662

-

-

-

2,662

8,000

-

-

82

8,082

Ordinary shares
CEO and Current Disclosed Executives
Deferred shares
S Elliott

M Carnegie

K Corbally

A George

M Hand5

M Jablko

92,08934,489-(52,620)

73,958

Ordinary shares

131,679--

57,579189,258

Performance rights

453,349

110,365-(124,840)

438,874

Deferred shares

62,921

20,811-(29,000)

54,732

Ordinary shares

14

-

-

3,057

3,071

Performance rights

49,18542,884--

92,069Deferred shares

45,63912,031-(15,039)

42,631

Ordinary shares

-

-

3,268

(1,918)1,350

Deferred share rights-

14,546--

14,546

Performance rights

20,195-(3,268)(7,252)

9,675

Deferred shares

44,97913,983--58,962

Ordinary shares

2,678

-

-

2,936

5,614

Capital notes 1

802

-

-

-

802

Performance rights

36,03028,813-(3,979)60,864

Deferred shares

26,434---

26,434

Ordinary shares

1,081

-

4,663

(4,984)760

Performance rights

45,662-(4,663)-40,999Deferred shares

61,731

22,763--84,494

Ordinary shares

-

-

-

2,925

2,925

61,713

46,905--

108,618

Employee Share Offer

102

-

-

-

102

Deferred share rights

22,129---22,129Performance rights
A Watson5

M Whelan

Performance rights

12,385---

12,385

Deferred shares

59,98028,291-(18,878)

69,393

Ordinary shares--

11,577(11,577)-

184,598

58,296(11,577)(41,613)

189,704

Performance rights
Former Disclosed Executives
Employee Share Offer
D Hisco6

98

29

-

(53)

74

138,000-

25,516(138,516)

25,000

Deferred share rights

52,24729,014(13,951)(67,310)-

Performance rights

157,783

52,338(11,565)(198,556)-

Deferred shares

18,765

15,608-(5,088)29,285

Ordinary shares

F Ohlsson6

Employee Share Offer

3.

Received during
the year on
exercise of
options or rights

Ordinary shares

Former Non-Executive Directors
Directors' Share Plan
H Lee62.

Granted during
the year as
remuneration1

I AtlasJ Macfarlane

1.

Openingbalance at
1 Oct 2018

74

-

-

(74)

-

Ordinary shares

4,050

-

12,330(16,380)-

Deferred share rights

18,430-(8,941)-

9,489

Performance rights

79,80032,162(3,389)(7,521)

101,052

Details of options/rights granted as remuneration during 2019 are provided in the previous table.
Shares resulting from any other changes during the year include the net result of any sharespurchased (including under the ANZ Share Purchase Plan), forfeited, sold or acquired under the
Dividend Reinvestment Plan.
The following shares (included in the holdings above) were held on behalf of the NEDs, CEO and
Disclosed Executives (i.e. indirect beneficially held shares) as at 30 September 2019: D Gonski 31,488, I Atlas - 14,360, P Dwyer - 17,500, J Halton - 0, J Key - 3,000, G Liebelt - 8,158, J Macfarlane- 24,851, H Lee - 2,662, S Elliott - 261,087, M Carnegie - 54,732, K Corbally - 42,631, A George - 62,442,

4.

5.
6.

M Hand - 26,434, M Jablko - 84,494, A Watson - 102, M Whelan - 69,393, D Hisco - 25,000 and
F Ohlsson - 29,285.
36,526 rights were vested and exercisable, and zero options/rights were vested andunexerciseable as at 30 September 2019. There was no change in the balance as at the Directors'
Report sign-off date.
Commencing balance is based on holdings as at the date of commencement in a KMP role.
Concluding balance is based on holdings as at the date ceased in a KMP role.
97Remuneration Report continued

10.3 LOANS
10.3.1 Overview

When we lend to NEDs, the CEO or Disclosed Executives, we do so in the ordinary course of business and on normal commercial terms andconditions that are no more favourable than those given to other employees or customers – this includes the term of the loan, the security
required and the interest rate. No amounts have been written off during the period, or individual provisions raised in respect of these balances.
The table below sets out details of loans outstanding to NEDs, the CEO and Disclosed Executives including their related parties, if – at any time
during the year – the individual’s aggregate loan balance exceeded $100,000.
Total loans to NEDs, the CEO and Disclosed Executives, including their related parties at 30 September 2019 (including those with balances lessthan $100,000) was $26,862,152 (2018: $25,000,240) with interest paid of $738,710 (2018: $931,926) during the period.
10.3.2 NED, CEO and Disclosed Executives loan transactions

Name

Opening balance at
1 October 2018$

Closing balance at
30 September 2019$

Interest paid and payablein the reporting period1$

Highest balance in thereporting period$

11,142,758

13,330,653

453,647

15,746,151

3,011,535

2,926,267

106,450

3,036,159

1,731,394

1,594,166

64,245

1,747,316

4,483,147

4,437,179

66,311

5,503,012

1,721,465

1,657,264

40,452

1,762,791

2,887,607

2,874,688

7,357

2,909,358

24,977,906

26,820,217

738,462

30,704,787

Current Non-Executive Directors
J Macfarlane2
Current CEO and Disclosed Executives
S Elliott2
A George

3

M Hand4

M Whelan2

Former Disclosed Executives
F Ohlsson2, 5
Total
1.
2.
3.
4.
5.

Actual interest paid after considering offset accounts. The loan balance is shown gross, however the interest paid takes into account the impact of offset amounts.
Opening balances have been restated to include credit card balances.
Opening balance has been restated to exclude an available for redraw component previously included within loans.
Opening balance is as at the date of commencement in a KMP role.
Closing balance is as at the date ceased in a KMP role.						10.4 OTHER TRANSACTIONSOther transactions with NEDs, the CEO and Disclosed Executives, and their related parties included deposits.

Total KMP deposits
1.
2.
3.

Opening balance at
1 October 20181$

Closing balance at
30 September 20192, 3$

55,943,066

60,237,940

Opening balance is at 1 October 2018 or the date of commencement as KMP if part way through the year.
Closing balance is at 30 September 2019 or at the date of cessation as KMP if part way through the year.
Interest paid on deposits for 2019 was $705,949.

Other transactions with KMP and their related parties included amounts paid to the Group in respect of insurance premiums, investment
management service fees, brokerage, bank fees and charges. The Group has reimbursed KMP for the costs incurred for secretarial services
associated with the performance of their duties. These transactions are conducted on normal commercial terms and conditions are no morefavourable than those given to other employees or customers.

98

ANZ 2019 ANNUAL REPORTDirectors’ Report
The Directors’ Report for the financial year ended 30 September
2019 has been prepared in accordance with the requirements of
the Corporations Act 2001. The information below forms part of thisDirectors’ Report:

Having made due enquiry, and to the best of ANZ’s knowledge, noentity of the Group has incurred any material environmental liability
during the year.

•• Operating and financial review on pages 52 to 64

Further details of ANZ’s environmental performance, including
progress against its targets and details of its emissions profile, areavailable on anz.com>About us>Corporate Sustainability.

•• Dividends on page 63

Corporate Governance Statement•• Information on the Directors, Company Secretaries and Directors’
meetings on pages 32 to 42

ANZ is committed to maintaining a high standard in its
governance framework. ANZ confirms it has followed the ASX
Corporate Governance Council’s Corporate Governance Principles andRecommendations (3rd edition) during the 2019 financial year.
ANZ’s Corporate Governance Statement, together with the ASX
Appendix 4G which relates to the Corporate Governance Statement,
can be viewed at anz.com/corporategovernance and has been
lodged with the ASX.

•• Principal activities on page 8•• Remuneration report on pages 66 to 98
Significant changes in state of affairs

There has been no significant changes in the Group’s state of affairs.
Events since the end of the financial year

On 17 October the Group announced it had agreed a revised
price for the sale of its OnePath P&I business and ADGs to IOOF of$850 million, being a $125 million reduction from the original saleprice of $975 million announced in October 2017. The new priceof $850 million includes approximately $25 million that ANZ has
already received for the sale of ADGs in October 2018. The revised
terms reflect changing market conditions and include lower overall
warranty caps as well as some changes to the strategic alliancearrangements. Subject to APRA approval, the Group expects thetransaction to complete in the first quarter of calendar year 2020.
The impact of the reduction in price has been reflected in the 2019financial results.
Other than the matter above, there have been no significant eventsfrom 30 September 2019 to the date of signing this report.
Political donations

Our policy is that we will make an annual donation to the two major
federal parties to support the democratic process in Australia. In
the 2019 calendar year, we donated $100,000 to the Liberal Party ofAustralia and $100,000 to the Australian Labor Party.
Environmental regulation

ANZ recognises the expectations of its stakeholders – customers,
shareholders, staff and the community – to operate in a way thatmitigates its environmental impact.
In Australia, ANZ meets the requirements of the National Greenhouseand Energy Reporting Act 2007 (Cth), which imposes reporting
obligations where energy production, usage or greenhouse gas
emissions trigger specified thresholds.
ANZ holds a licence under the Water Act 1989 (Vic), allowing it
to extract water from the Yarra River for thermal regulation of its
Melbourne head office building. The licence specifies daily andannual limits for the extraction of water from the Yarra River withwhich ANZ fully complies. The extraction of river water reduces
reliance on the high quality potable water supply and is one ofseveral environmental initiatives that ANZ has introduced at its
Melbourne head office building.
The Group does not believe that its operations are subject to any
particular and significant environmental regulation under a law of theCommonwealth of Australia or of an Australian State or Territory. It may
become subject to environmental regulation as a result of its lending
activities in the ordinary course of business and has developed policies
to identify and manage such environmental matters.

Pillar 3 information

ANZ provides information required by APS 330: Public Disclosure in
the Regulatory Disclosures section at www.anz.com/shareholder/
centre/reporting/regulatory-disclosure/
Non-audit services

The Group’s Stakeholder Engagement Model for Relationship with
the External Auditor (the Policy), which incorporates requirements of
the Corporations Act 2001 and industry best practice, prevents theexternal auditor from providing services that are perceived to be inconflict with the role of the external auditor or breach independence
requirements. This includes consulting advice and sub-contractingof operational activities normally undertaken by management, andengagements where the external auditor may ultimately be required
to express an opinion on its own work.
Specifically the Policy:•• limits the scope of non-audit services that may be provided;•• requires that audit, audit-related and permitted non-audit services
be considered in light of independence requirements and forany potential conflicts of interest before they are approved by
the Audit Committee, or approved by the Chair of the Audit
Committee (or delegate) and notified to the Audit Committee; and•• requires pre-approval before the external auditor can commence
any engagement for the Group.
Further details about the Policy can be found in the Corporate
Governance Statement.
The external auditor has confirmed to the Audit Committee that it has:•• implemented procedures to ensure it complies withindependence rules in applicable jurisdictions; and•• complied with applicable policies and regulations in thosejurisdictions regarding the provision of non-audit services, and
the Policy.
The Audit Committee has reviewed the non-audit services provided
by the external auditor during the 2019 financial year, and has
confirmed that the provision of these services is consistent with
the Policy, compatible with the general standard of independence
for auditors imposed by the Corporations Act 2001 and did notcompromise the auditor independence requirements of the
Corporations Act 2001. This has been formally advised by the Audit
Committee to the Board of Directors.

99

Directors’ Report (continued)

The categories of non-audit services supplied to the Group during
the year ended 30 September 2019 by the external auditor, KPMG, orby another person or firm on KPMG’s behalf, and the amounts paidor payable (including GST) by the Group are as follows:

Non-audit services

General market or regulatory insights
Training related services

Amount paid/payable
$’000
2019
2018
–

187

106

17

Controls related assessments–

94

Methodology and procedural reviews

10

10

Total

116

308

Further details on the compensation paid to KPMG is provided
in Note 34 Compensation of Auditors to the financial statements
including details of audit-related services provided during the yearof $5.71 million (2018: $6.28 million).
For the reasons set out above, the Directors are satisfied that theprovision of non-audit services by the external auditor during theyear ended 30 September 2019 is compatible with the generalstandard of independence for external auditors imposed by
the Corporations Act 2001 and did not compromise the auditor
independence requirements of the Corporations Act 2001.

Key management personnel and employee shareand option plans

The Remuneration Report contains details of Non-Executive
Directors, Chief Executive Officer and Disclosed Executives’ equity
holdings and options/rights issued during the 2019 financial year
and as at the date of this report.
Note 31 Employee Share and Option Plans to the 2019 Financial
Report contains details of the 2019 financial year and as at the dateof this report:•• Options/rights issued over shares granted to employees;•• Shares issued as a result of the exercise of options/rights granted
to employees; and•• Other details about share options/rights issued, including any
rights to participate in any share issues of the Company.
The names of all persons who currently hold options/rights are enteredin the register kept by the Company pursuant to section 170 of the
Corporations Act 2001. This register may be inspected free of charge.

Directors’ and officers’ indemnity

Rounding of amounts

The Company’s Constitution (Rule 11.1) permits the Company to:

The Company is a company of the kind referred to in Australian
Securities and Investments Commission Corporations (Rounding in
Financial/Directors’ Reports) Instrument 2016/191 dated 24 March 2016
and, in accordance with that Instrument, amounts in the consolidated
financial statements and this Directors’ Report have been rounded to
the nearest million dollars unless specifically stated otherwise.

•• indemnify any officer or employee of the Company, or its auditor,
against liabilities (so far as may be permitted under applicablelaw) incurred as such by an officer, employee or auditor, including
liabilities incurred as a result of appointment or nomination by
the Company as a trustee or as an officer or employee of anothercorporation; and•• make payments in respect of legal costs incurred by an officer,
employee or auditor in defending an action for a liability incurredas such by an officer, employee or auditor, or in resisting or
responding to actions taken by a government agency, a duly
constituted Royal Commission or other official inquiry, a liquidator,
administrator, trustee in bankruptcy or other authorised official.
It is the Company’s policy that its employees should be protectedfrom any liability they incur as a result of acting in the course of theiremployment, subject to appropriate conditions.
Under the policy, the Company will indemnify employees andformer employees against any liability they incur to any third party
as a result of acting in the course of their employment with theCompany or a subsidiary of the Company and this extends toliability incurred as a result of their appointment/nomination by orat the request of the Group as an officer or employee of anothercorporation or body or as trustee.
The indemnity is subject to applicable law and certain exceptions.
In accordance with the employee indemnity policy, the Company
has during or since the year ended 30 September 2019 paid legal
expenses totalling $874,534 incurred by Mr Richard Moscati inrelation to legal proceedings brought against him and the Company
by a third party.
The Company has entered into Indemnity Deeds with each of
its Directors, with certain secretaries and former Directors of theCompany, and with certain employees and other individuals who
act as directors or officers of related bodies corporate or of anothercompany, to indemnify them against liabilities and legal costs of thekind mentioned in the Company’s Constitution.
100

During the financial year, the Company has paid premiums for
insurance for the benefit of the Directors and employees of
the Company and related bodies corporate of the Company. In
accordance with common commercial practice, the insurance
prohibits disclosure of the nature of the liability insured against andthe amount of the premium.

ANZ 2019 ANNUAL REPORTThis report is made in accordance with a resolution of the Board of
Directors and is signed for and on behalf of the Directors.

David M Gonski, AC		
Shayne C Elliott
Chairman				Director
30 October 2019
Lead Auditor’s Independence Declaration

The Lead Auditors Independence Declaration given under Section
307C of the Corporations Act 2001 is set out below and forms part of
the Directors Report for the year ended 30 September 2019.
To: the Directors of Australia and New Zealand Banking Group Limited
I declare that, to the best of my knowledge and belief, in relation to
the audit of Australia and New Zealand Banking Group Limited forthe financial year ended 30 September 2019, there have been:•• no contraventions of the auditor independence requirements as
set out in the Corporations Act 2001 in relation to the audit; and•• no contraventions of any applicable code of professional conduct
in relation to the audit.

KPMG				Alison Kitchen				Partner
30 October 2019

Financial
Report

FINANCIALREPORT

Contents
Consolidated Financial Statements
Consolidated
Financial Statements
INCOMESTATEMENT
Income Statement
Statement of Comprehensive Income
CASH
BalanceFLOW
SheetSTATEMENTSTATEMENTOF CHANGES IN EQUITY
Cash Flow Statement
Statement of Changes in Equity

102
103
102
104103105104106105
106

Notes to The Consolidated Financial Statements
Notes to The Consolidated Financial Statements
Basis of Preparation
Basis of preparation
1. ABOUT OUR FINANCIAL STATEMENTS
1. About Our Financial Statements

107107 Non-Financial Liabilities
20. Goodwill and Other Intangible Assets

STATEMENT OF COMPREHENSIVE INCOME
BALANCE SHEETNon-Financial Assets

21. OTHER PROVISIONS

Financial Performance
Financial
Performance2.
Operating
Income2. OPERATING INCOME
3. Operating Expenses
3. OPERATING EXPENSES
4. Income Tax
4. INCOME TAX
5. Dividends
5.
DIVIDENDS
6. Earnings
per Ordinary Share6.
EARNINGSPER ORDINARY SHARE
7. Segment Reporting
7.

SEGMENT REPORTING

Financial Assets
8. Cash andAssets
Cash Equivalents
Financial
9. Trading Securities
8. CASH AND CASH EQUIVALENTS
10. Derivative Financial Instruments
9. TRADING SECURITIES
11. Investment Securities
10.
DERIVATIVE
12. NetLoans andFINANCIAL
Advances INSTRUMENTS
11.
INVESTMENT
SECURITIES
13. Allowance for Expected Credit Losses
12. NET LOANS AND ADVANCES

Financial
LiabilitiesFOR EXPECTED CREDIT LOSSES
13. ALLOWANCE
14. Deposits and Other Borrowings
15. Debt Issuances
Financial Liabilities
Financial
Instrument
Disclosures
14. DEPOSITSAND OTHERBORROWINGS
16.
Financial
Risk
Management
15. DEBT ISSUANCES
17. Fair Value of Financial Assets andFinancialInstrument
Liabilities
Financial
Disclosures
18. Assets Charged as Security for Liabilities
16. and
FINANCIALMANAGEMENT
CollateralRISK
Accepted
as Security
17. forFAIR
VALUE OF FINANCIAL ASSETS
AssetsAND FINANCIAL LIABILITIES
19. Offsetting
18. ASSETS CHARGED AS SECURITY FOR

111
111
114
114
116
116118118120120121
121
125
126
125
127
126134
127136134137136

19. OFFSETTING

23.
MANAGEMENT
22. CAPITAL
Shareholders’Equity23. Capital Management
Consolidation and Presentation
Consolidation
and Presentation
24.
PARENT ENTITYFINANCIAL INFORMATION
24.
ParentEntityFinancial Information
25. CONTROLLED ENTITIES
25. Controlled Entities
26. INVESTMENTS IN ASSOCIATES
26. Investments in Associates
27.
ENTITIES
27. STRUCTURED
Structured Entities
28.
TRANSFERSOFFINANCIAL
28. Transfers of Financial
Assets ASSETS
29.
OPERATIONS
AND andASSETS
29. DISCONTINUED
Discontinued Operations
and Assets
Liabilities
Held ForHELD
Sale FOR SALEAND
LIABILITIES

181
181
182
182
184
184
186
186
189
189
190
190

194

Other
Disclosures
33. Commitments,
Contingent Liabilities and202

Contingent Assets
171 33. COMMITMENTS,
CONTINGENT LIABILITIES AND
151
34. CONTINGENT
CompensationASSETS
of Auditors

35. Impact of Adoption of New Standards and
166172Other Changes
35. IMPACT OF ADOPTION OF NEW STANDARDS
36. Events Since the End of the Financial Year
34. COMPENSATION OF AUDITORS

205
202
206
205

Independent Auditor’s Report

209
206
210
209
211

Directors’ Declaration

210

Independent Auditor’s Report211

AND OTHER CHANGES

173

177
179
177
179

194
195
195
200
200

145
32. RELATED PARTY DISCLOSURES
146151166 Other Disclosures

171
172

175

31.
SHARE
AND OPTION PLANS
32. EMPLOYEE
Related Party
Disclosures

31. BENEFITS
Employee OBLIGATIONS
Share and Option Plans

Non-Financial Assets
20. GOODWILL AND OTHER INTANGIBLE ASSETS

22.
SHAREHOLDERS’ EQUITY
EquityEmployee andRelatedPartyParty
Transactions
137
Employee
andRelatedTransactions
145
30. Superannuation and Post Employment
30.
SUPERANNUATIONANDPOSTEMPLOYMENT
146
Benefits Obligations

LIABILITIES AND COLLATERAL ACCEPTEDAS SECURITY FOR ASSETS

Non-Financial Liabilities
21.
Other Provisions
Equity173
175

Directors’
Declaration
36.
EVENTS
SINCE THE END OF THE FINANCIAL YEAR

101

101

ANZ 2019 ANNUAL REPORT

Financial Report (continued)

FINANCIAL REPORTINCOME STATEMENT
2019
$m

20181
$m

Interest income2

31,07730,327

Interest expense(16,738)(15,813)

For the year ended 30 September

Note

Net interest income

2

14,33914,514

Other operating income

2

4,058

5,014

Net income from insurance business

2

126

273

Share of associates’ profit

2

Operating income
Operating expenses

3

Profit before credit impairment and income tax
Credit impairment charge

13

Profit before income tax
Income tax expense

4

Profit after tax from continuing operations
Profit/(Loss) after tax from discontinued operations

29

Profit for the year

262

183

18,78519,984(9,071)(9,401)

9,714

10,583

(794)

(688)

8,920

9,895

(2,609)(2,784)

6,311

7,111

(343)

(695)

5,968

6,416

5,953

6,400

15

16

Comprising:
Profit attributable to shareholders of the Company
Profit attributable to non-controlling interests
Earnings per ordinary share (cents) including discontinued operations
Basic

6

210.0

221.6

Diluted

6

201.9

212.1

Earnings per ordinary share (cents) from continuing operations
Basic

6

222.1

245.6

Diluted

6

213.0

234.2

Dividend per ordinary share (cents)

5

160

160

1.

2.

On adoption of AASB 15, the Group reclassified certain items previously netted which are now presented gross in operating income and operating expenses. Comparative information has been restatedaccordingly which increased total operating income and total operating expenses by $153 million.
Includes interest income calculated using the effective interest method of $30,224 million on financial assets measured at amortised cost or fair value through other comprehensive income (2018: $29,181
million on financial assets measured at amortised cost and available-for-sale assets).
The notes appearing on pages 107 to 209 form an integral part of these financial statements.

102

102

ANZ 2019 ANNUAL REPORTFINANCIAL REPORTSTATEMENT OF COMPREHENSIVE INCOME
For the year ended 30 September

2019
$m

2018
$m

Profit for the year from continuing operations

6,311

7,111

Investment securities - equity securities at FVOCI1

45-

Other reserve movements

67

32

Foreign currency translation reserve2

697

222

Other reserve movements

909

137

Income tax attributable to the above items

(288)

(118)

26

25

Other comprehensive income after tax from continuing operations

1,456

298

Profit/(Loss) after tax from discontinued operations

(343)

(695)

Other comprehensive income/(loss) after tax from discontinued operations

(97)

18

7,327

6,732

7,307

6,706

20

26

Other comprehensive income
Items that will not be reclassified subsequently to profit or loss

Items that may be reclassified subsequently to profit or loss

Share of associates’ other comprehensive income3

Total comprehensive income for the year
Comprising total comprehensive income attributable to:Shareholders of the Company
Non-controlling interests
1.

2.
3.

On adoption of AASB 9 on 1 October 2018, the classification and measurement of financial assets were revised. The available-for-sale classification used in comparative periods ceases to exist under AASB 9
and a new classification of investment securities was introduced. Refer to Note 1 and 35 for further details. Comparative information has not been restated.
Includes foreign currency translation differences attributable to non-controlling interests of a $5 million gain (2018: $10 million gain).
Share of associates’ other comprehensive income includes a FVOCI reserve gain of $20 million (available-for-sale revaluation reserve 2018: $28 million gain), defined benefits gain of $7 million (2018: nil),cash flow hedge reserve loss of $2 million (2018: nil) and a foreign currency translation reserve gain of $1 million (2018: $3 million loss) that may be reclassified subsequently to profit or loss.

The notes appearing on pages 107 to 209 form an integral part of these financial statements.

103

103

ANZ 2019 ANNUAL REPORT

Financial Report (continued)

FINANCIAL REPORT (continued)

BALANCE SHEETAs at 30 September

Note

2019
$m

2018
$m

8

81,621

84,636

3,739

2,319

AssetsCash and cash equivalents
Settlement balances owed to ANZ

15,006

11,043

9

43,16937,722Derivative financial instruments

10

120,667

68,423

Investment securities

Collateral paid
Trading securities

11

83,709-Available-for-sale assets1

11-

74,284

Net loans and advances2,3

12

615,258

604,464

879

882

1,2

Regulatory deposits
Assets held for sale

29

1,831

45,248Investments in associates

26

2,957

2,553

Current tax assets

265

268

Deferred tax assets

1,356

900

4,861

4,930

1,924

1,833

Goodwill and other intangible assets

20

Premises and equipment
Other assets

3

Total assets

3,895

3,677

981,137

943,182

10,867

11,810Liabilities
Settlement balances owed by ANZ

7,929

6,542

Deposits and other borrowings

14

637,677

618,150

Derivative financial instruments

10

120,951

69,676

260

300

67

69

2,121

47,159

7,968

6,894

Collateral received

Current tax liabilities
Deferred tax liabilities

3

Liabilities held for sale

29

Payables and other liabilities3

589

540

Other provisions2,3

21

2,223

1,458

Debt issuances

15

129,691

121,179

Total liabilities

920,343883,777

Net assets

60,794

59,40526,49027,205

Employee entitlements

Shareholders' equity
Ordinary share capital

22

Reserves

22

1,629

323

Retained earnings3

22

32,66431,737

Share capital and reserves attributable to shareholders of the Company

22

60,78359,265

Non-controlling interests

22

11

140

Total shareholders' equity

22

60,794

59,405

1.

On adoption of AASB 9 on 1 October 2018, the classification and measurement of financial assets were revised. Available-for-sale classification used in comparative periods ceases to exist under AASB 9 anda new classification of investment securities was introduced. Refer Note 1 and 35 for further details. Comparative information has not been restated.
2.
On adoption of AASB 9 on 1 October 2018, the Group increased the collectively assessed provisions by $813 million ($647 million in Net loans and advances, $11 million in Investment securities, and $155
million in Provisions). Comparative information has not been restated. Refer to Note 1 and 35 for further details.
3.
Comparative information has been restated for the adoption of AASB 15 and other reclassification adjustments to enhance comparability with current period presentation. Refer Note 1 and 35 for further
details
The notes appearing on pages 107 to 209 form an integral part of these financial statements.

104

104

ANZ 2019 ANNUAL REPORTFINANCIAL REPORTCASH FLOW STATEMENTThe Consolidated Cash Flow Statement includes discontinued operations. Please refer to Note 29 for cash flows associated with discontinued
operations and cash and cash equivalents reclassified as held for sale.
2019
For the year ended 30 September1
Profit after income tax
Adjustments to reconcile to net cash provided by/(used in) operating activities:
Allowance for expected credit losses
Depreciation and amortisation(Profit)/loss on sale of premises and equipment
Net derivatives/foreign exchange adjustment(Gain)/loss on sale from divestments
Reclassification of businesses to held for sale
Other non-cash movements
Net (increase)/decrease in operating assets:
Collateral paid
Trading securities
Net loans and advances
Investments backing policy liabilities
Other assets
Net increase/(decrease) in operating liabilities:
Deposits and other borrowings
Settlement balances owed by ANZ
Collateral received
Life insurance contract policy liabilities
Other liabilities
Total adjustments
Net cash (used in)/provided by operating activities2
Cash flows from investing activities
Investment securities/available-for-sale assets3
Purchases
Proceeds from sale or maturity
Proceeds from divestments, net of cash disposed
Proceeds from Zurich reinsurance arrangement
Proceeds from IOOF secured notes
Other assets
Net cash (used in)/provided by investing activities
Cash flows from financing activities
Debt issuances:4
Issue proceeds
Redemptions
Dividends paid5
On market purchase of treasury shares
Share buyback
Net cash (used in)/provided by financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Effects of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at end of year6

$m

2018

$m

5,968

6,416

794
871
(5)
4,940
(137)
(356)

688
1,199
(4)
6,721
(594)
693
(55)

(3,493)(7,941)(10,268)(3,542)(454)(1,648)
8,565(25,265)(3,914)
(973)

7,006
(1,077)
1,004
2,140(10,518)(4,550)12,207
1,853
186
4,263
228
4,150
10,566(23,847)
21,228
2,121
800
(508)
(206)

(23,806)
20,592
2,148
1,000
232
166

25,900(22,958)(4,471)(112)(1,120)(2,761)(7,517)84,964
4,174
81,621

25,075(15,898)(4,563)(114)(1,880)2,620
13,352
68,0483,564
84,9641.

As a result of restatements impacting prior period balance sheet items, certain items in the Cash Flow Statement have restated accordingly. Refer Note 35 for further information.
Net cash inflows/(outflows) from operating activities includes income taxes paid of $3,129 million (2018: $3,373 million).
On adoption of AASB 9 on 1 October 2018, the classification and measurement of financial assets were revised. Available-for-sale classification used in comparative periods ceases to exist under AASB 9 and a
new classification of investment securities was introduced. Refer Note 1 and 35 for further details.
4.
Non-cash changes in debt issuances includes fair value hedging loss of $2,437 million (2018: $1,443 million gain) and foreign exchange losses of $3,815 million (2018: $5,712 million loss).
5.
Cash outflow for shares purchased to satisfy the dividend reinvestment plan are classified in Dividends paid
6.
Includes cash and cash equivalents recognised on the face of balance sheet of $81,621 million (2018: $84,636 million) with no amounts recorded as part of assets held for sale. (2018: $328 million).
2.
3.

The notes appearing on pages 107 to 209 form an integral part of these financial statements.

105

105

ANZ 2019 ANNUAL REPORT

Financial Report (continued)

FINANCIAL REPORT (continued)

STATEMENT OF CHANGES IN EQUITY

Reserves$m

Retainedearnings$m

Share capitaland reserves
attributable toshareholdersof the Company$m29,08837

29,83458,959116

59,075

Impact on transition to AASB 15

-

-

22

22

-

22

Profit or loss from continuing operations
Profit or loss from discontinued operations

-

-

7,095
(695)

7,095
(695)

16
-

7,111
(695)

Other comprehensive income for the year fromcontinuing operations

-

264

24

288

10

298

Other comprehensive income for the year fromdiscontinued operations

-

18

-

18

-

18

-

282

6,424

6,706

26

6,732

-

-

(4,585)(4,585)(2)(4,587)

-

-

24

24

-

24

(1,880)---(1,880)--(1,880)
-

(2)

-

-

(2)

-

(2)

(1)
-

4

18

(1)
22

-

(1)
22

As at 1 October 2017

Ordinaryshare capital$m

Total comprehensive income for the year
Transactions with equity holders in their capacity
as equity holders:1
Dividends paid
Dividend income on treasury shares held within
the Group’s life insurance statutory funds
Group share buy-back2
Other equity movements:
Treasury shares Wealth Australia
discontinued operations adjustment
Group employee share acquisition scheme
Other items
1

As at 30 September 201827,205323

31,73759,265140

59,405

Impact on transition to AASB 9

-

14

(624)

(610)

-

(610)

Profit or loss from continuing operations
Profit or loss from discontinued operations

-

-

6,296
(343)

6,296
(343)

15
-

6,311
(343)

Other comprehensive income for the year fromcontinuing operations

-

1,393

58

1,451

5

1,456

Other comprehensive income for the year fromdiscontinued operations

-

(97)

-

(97)

-

(97)

-

1,296

6,011

7,307

20

7,327

-

-

(4,481)(4,481)(2)(4,483)

-

-

12

12

-

12

(1,120)---(1,120)--(1,120)
-

405

-

-

405

-

405

-

(4)

9

5

(147)

(142)

26,4901,629

32,66460,783

11

60,794

Total comprehensive income for the year
Transactions with equity holders in their capacity
as equity holders:1
Dividends paid3
Dividend income on treasury shares held within theGroup’s life insurance statutory funds
Group share buy-back2
Other equity movements:1
Treasury shares Wealth Australia
discontinued operations adjustment4
Group employee share acquisition scheme
Other items
As at 30 September 2019
1
2

3

4

Current and prior periods include discontinued operations.
The Company has completed a $3.0 billion on-market share buy-back of ANZ ordinary shares purchasing $1,120 million worth of shares in 2019 (2018: $1,880 million) resulting in 42.0 million shares being
cancelled in 2019 (2018: 66.7 million).
No new shares were issued under the Dividend Reinvestment Plan (DRP) for the 2019 Interim dividend (nil shares for the 2018 final dividend; nil shares for the 2018 Interim dividend) as the shares werepurchased on-market and provided directly to the shareholders participating in the DRP. On-market share purchases for the DRP in 2019 were $432 million (2018: $392 million).
The successor funds transfer performed in preparation for the sale of the Group’s wealth business to Zurich and IOOF completed on 13 April 2019. As a result, the Group no longer eliminates the ANZ sharespreviously held in Wealth Australia discontinued operations (treasury shares).

The notes appearing on pages 107 to 209 form an integral part of these financial statements.

106

NonTotal
controlling shareholders’interests
equity$m$m

106

ANZ 2019 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. ABOUT OUR FINANCIAL STATEMENTS
These are the financial statements for Australia and New Zealand Banking Group Limited (the Company) and its controlled entities (together, ‘theGroup’ or ‘ANZ’) for the year ended 30 September 2019. The Company is incorporated and domiciled in Australia. The address of the Company’s
registered office and its principal place of business is ANZ Centre, 833 Collins Street, Docklands, Victoria, Australia 3008.
On 30 October 2019, the Directors resolved to authorise the issue of these financial statements.
Information in the financial statements is included only to the extent we consider it material and relevant to the understanding of the financial
statements. A disclosure is considered material and relevant if, for example:
 the amount is significant in size (quantitative factor); the information is significant by nature (qualitative factor); the user cannot understand the Group’s results without the specific disclosure (qualitative factor); the information is critical to a user’s understanding of the impact of significant changes in the Group’s business during the period - for example,
business acquisitions or disposals (qualitative factor); the information relates to an aspect of the Group’s operations that is important to its future performance (qualitative factor); and the information is required under legislative requirements of the Corporations Act 2001, the Banking Act 1959 (Cth) or by the Group’s principal
regulators, including the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA).
This section of the financial statements:
 outlines the basis upon which the Group’s financial statements have been prepared; and discusses any new accounting standards or regulations that directly impact the financial statements.

BASIS OF PREPARATIONThis financial report is a general purpose (Tier 1) financial report prepared by a ‘for profit’ entity, in accordance with Australian Accounting Standards(AASs) and other authoritative pronouncements of the Australian Accounting Standards Board (AASB), the Corporations Act 2001, and International
Financial Reporting Standards (IFRS) and interpretations published by the International Accounting Standards Board (IASB).
We present the financial statements of the Group in Australian dollars, which is the Company’s functional and presentation currency. We haverounded values to the nearest million dollars ($m), unless otherwise stated, as allowed under the ASIC Corporations (Rounding in Financial/Directors
Report) Instrument 2016/191. We measure the financial statements of each entity in the Group using the currency of the primary economic
environment in which that entity operates (the functional currency).

BASIS OF MEASUREMENT
We have prepared the financial information in accordance with the historical cost basis - except the following assets and liabilities which we havestated at their fair value: derivative financial instruments and in the case of fair value hedging, a fair value adjustment is made on the underlying hedged exposure; financial instruments held for trading; financial assets and financial liabilities designated at fair value through profit or loss;
 available-for-sale financial assets (prior to 1 October 2018);
 financial assets at fair value through other comprehensive income (applicable from 1 October 2018); and certain other assets and liabilities held for sale where the fair value less costs of disposal is less than their carrying value (excludes assets andliabilities held for sale which are exempt from this requirement).
In accordance with AASB 1038 Life Insurance Contracts (AASB 1038) we have measured life insurance liabilities using the Margin on Services (MoS)
model. In accordance with AASB 119 Employee Benefits (AASB 119) we have measured defined benefit obligations using the Projected Unit
Credit Method.

DISCONTINUED OPERATIONS
The aligned dealer groups business sold to IOOF Holdings Limited (IOOF) completed on 1 October 2018; the life insurance business sold to Zurich
Financial Services Australia Limited completed on 31 May 2019; and the Wealth Australia pensions and investments business sold to IOOF andassociated Group reclassification and consolidation impacts are treated as discontinued operations from a financial reporting perspective. Thesebusinesses qualify as discontinued operations, which are a subset of assets held for sale, as they represent a major line of business. The results of thedivested businesses have been included in the ‘Profit/(Loss) from discontinued operations’ until their divestment date. The Balance Sheet is notrestated when a business is reclassified as a discontinued operation.

107

107

ANZ 2018 ANNUAL REPORT

Notes to the consolidated financial statements (continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

1. ABOUT OUR FINANCIAL STATEMENTS (continued)
BASIS OF CONSOLIDATIONThe consolidated financial statements of the Group comprise the financial statements of the Company and all its subsidiaries. An entity, including a
structured entity, is considered a subsidiary of the Group when we determine that the Company has control over the entity. Control exists when theGroup is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its
power over the entity. We assess power by examining existing rights that give the Group the current ability to direct the relevant activities of theentity. We have eliminated, on consolidation, the effect of all transactions between entities in the Group.

FOREIGN CURRENCY TRANSLATION
TRANSACTIONS AND BALANCES
Foreign currency transactions are translated into the relevant functional currency at the exchange rate prevailing at the date of the transaction. At thereporting date, monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the relevant spot rate.
Any foreign currency translation gains or losses that arise are included in profit or loss in the period they arise.
We measure translation differences on non-monetary items at fair value through profit or loss and report them as part of the fair value gain or loss onthese items. We include any translation differences on non-monetary items classified as investment securities measured at fair value through othercomprehensive income (applicable from 1 October 2018 ) and non-monetary items classified as available-for-sale financial assets in the available-forsale revaluation reserve in equity (applicable prior to 1 October 2018).
FINANCIAL STATEMENTS OF FOREIGN OPERATIONS THAT HAVE A FUNCTIONAL CURRENCY THAT IS NOT AUSTRALIAN DOLLARS
The financial statements of our foreign operations are translated into Australian dollars for consolidation into the Group Financial Statements using thefollowing method:
Foreign currency item

Exchange rate used

Assets and liabilities

The reporting date rate

EquityThe initial investment date rate

Income and expenses

The average rate for the period – but if for a significant transaction we believe
the average rate is not reasonable, then we use the transaction date rate

Exchange differences arising from the translation of financial statements of foreign operations are recognised in the foreign currency translation
reserve in equity. When we dispose of a foreign operation, the cumulative exchange differences are transferred to profit or loss as part of the gain orloss on sale.

FIDUCIARY ACTIVITIESThe Group provides fiduciary services to third parties including custody, nominee, trustee, administration and investment management services
predominantly through the wealth businesses. This involves the Group holding assets on behalf of third parties and making decisions regarding thepurchase and sale of financial instruments. If ANZ is not the beneficial owner or does not control the assets, then we do not recognise thesetransactions in these financial statements, except when required by accounting standards or another legislative requirement.

KEY JUDGEMENTS AND ESTIMATES
In the process of applying the Group’s accounting policies, management has made a number of judgements and applied estimatesand assumptions about past and future events. Further information on the key judgements and estimates that we consider material to
the financial statements are contained within the relevant notes to the financial statements.

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1. ABOUT OUR FINANCIAL STATEMENTS (continued)
ACCOUNTING STANDARDS ADOPTED IN THE PERIODAASB 9 FINANCIAL INSTRUMENTS (AASB 9)
The Group has applied AASB 9 effective from 1 October 2018 (with the exception of the ‘own credit’ requirements relating to financial liabilities
designated as measured at fair value, which were early adopted by the Group effective from 1 October 2013). In addition, the Group chose to early
adopt AASB 2017-6 Amendments to Australian Accounting Standards – Prepayment Features with Negative Compensation (AASB 2017-6) effective from 1
October 2018. AASB 9 provides an accounting policy choice, which the Group has taken in current period, to continue to apply the AASB 139 hedge
accounting requirements until the International Accounting Standards Board’s ongoing project on macro hedge accounting is completed.
AASB 9 and AASB 2017-6 stipulate new requirements for the impairment of financial assets, classification and measurement of financial assets andfinancial liabilities and general hedge accounting. Details of the key requirements are outlined within the Financial Assets and Financial Liabilities
sections on pages 125 and 144 respectively, and a reconciliation of the transitional impact of adopting the standard at 1 October 2018 is set out in
Note 35.
AASB 15 REVENUE FROM CONTRACTS WITH CUSTOMERS (AASB 15)
The Group adopted AASB 15 from 1 October 2018 which resulted in changes in accounting policies and adjustments to amounts recognised in the
consolidated financial statements. The standard requires identification of distinct performance obligations within a contract, and allocation of thetransaction price of the contract to those performance obligations. Revenue is then recognised as each performance obligation is satisfied. The
standard also provides guidance on whether an entity is acting as a principal or an agent which impacts the presentation of revenue on a gross or net
basis. In accordance with the transitional provisions of AASB 15, the Group has adopted the full retrospective transition approach. Under thisapproach, the cumulative effect of initially applying the standard has been recognised as an adjustment to opening retained earnings as at 1 October
2017 and comparative information for the 2018 reporting period has been restated.
The adoption of AASB 15 resulted in the following changes in accounting policy: Recognition of trail commission revenue: trail commission revenue previously recognised over time is now recognised at the time the Groupinitially distributes the underlying product to the customer where it is highly probable the revenue will not need to be reversed in future periods.
This policy change resulted in an increase to the opening balances of Other assets of $32 million, Deferred tax liabilities of $10 million andRetained earnings of $22 million as at 1 October 2017 to recognise revenue that qualifies for upfront recognition under AASB 15 but was notpreviously recognised under AASB 118 Revenue (AASB 118). The change did not impact net profit or earnings per share in the comparative periods.
 Presentation: Certain credit card loyalty costs and other costs will be presented as operating expenses where the Group has assessed that it isacting as principal (rather than an agent). Previously these costs were presented as a reduction of other operating income. In addition, certain
incentives received from card scheme providers related to card marketing activities will be presented as operating income where the Group has
assessed that it is acting as principal (rather than an agent). Previously these incentives were presented as a reduction of operating expenses.
The presentation of these costs under AASB 15 increased other operating income and operating expenses by $153 million in 2018. The changes
did not impact net profit or earnings per share in the comparative periods.
A minor balance sheet reclassification associated with credit card loyalty programs is set out in Note 35.

ACCOUNTING STANDARDS NOT EARLY ADOPTED
A number of new standards, amendments to standards and interpretations have been published but are not mandatory for the financial statements
for the year ended 30 September 2019, and have not been applied by the Group in preparing these financial statements. Further details of these areset out below.
GENERAL HEDGE ACCOUNTINGAASB 9 introduces new hedge accounting requirements which more closely align accounting with risk management activities undertaken when
hedging financial and non-financial risks. AASB 9 provides the Group with an accounting policy choice to continue to apply the AASB 139 hedge
accounting requirements until the International Accounting Standards Board’s ongoing project on macro hedge accounting is completed. The Groupcurrently applies the hedge accounting requirements of AASB 139.
AASB 16 LEASES (AASB 16)
AASB 16 is effective for the Group from 1 October 2019 and replaces the previous standard AASB 117 Leases (AASB 117). AASB 16 primarily impacts theGroup’s property and technology leases which were previously classified as operating leases. Under AASB 117, operating leases were not recognisedon balance sheet and rent payments were expensed over the lease term.
Under AASB 16, lessees must recognise all leases (except for leases of low value assets and short term leases) on balance sheet under a single
accounting model. Accordingly, the Group will recognise its right to use an underlying leased asset over the lease term as a right-of-use (ROU) asset,
and its obligation to make lease payments as a lease liability. In the income statement, the Group will recognise depreciation expense on the ROU
asset and interest expense on the lease liability. As a result, lease expenses will be higher in the early periods of a lease and lower in the later periods ofthe lease compared to the previous standard where expenses were constant over the lease term. Cumulative expenses over the life of a lease will notchange.

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Notes to the consolidated financial statements (continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

1. ABOUT OUR FINANCIAL STATEMENTS (continued)
The Group will apply the modified retrospective transition approach whereby initial lease liabilities are recognised based on the present value ofremaining lease payments as of the transition date. The initial ROU asset recognised for certain large commercial and retail leases will be measured as
if AASB 16 had always been applied to the leases. For all other leases, the initial ROU asset will be measured as equal to the initial lease liability. Basedon this transition approach, the Group expects to recognise an increase in liabilities of $1.7 billion and an increase in assets of $1.6 billion. This is
expected to result in a reduction to opening retained earnings of $82 million and an increase in deferred tax assets of $43 million as of 1 October 2019.
Comparative information from prior periods will not be restated.
The implementation of AASB 16 requires management to make certain key judgements including the determination of lease terms, discount rates
and identifying arrangements that contain a lease. These estimates may be refined as the Group finalises its implementation of the standard in the firsthalf of the 2020 financial year.
AASB 17 INSURANCE CONTRACTS (AASB 17)
The final version of AASB 17 was issued in July 2017 and is not effective for the Group until 1 October 2021. It will replace AASB 4 Insurance Contracts,
AASB 1023 General Insurance Contracts and AASB 1038 Life Insurance Contracts. AASB 17 establishes principles for the recognition, measurement,
presentation and disclosure of insurance contracts.
The measurement, presentation and disclosure requirements under AASB 17 are significantly different from current accounting standards. Although
the overall profit recognised in respect of insurance contracts will not change, it is expected that the timing of profit recognition will change.
The impact of AASB 17 is not expected to have material impact on the Group.
AASB INTERPRETATION 23 UNCERTAINTY OVER INCOME TAX TREATMENTS (INTERPRETATION 23)
In July 2017 the AASB issued Interpretation 23 Uncertainty over Income Tax Treatments. The Interpretation clarifies application of recognition andmeasurement requirements in AASB 112 Income Taxes when there is uncertainty over income tax treatments.
Interpretation 23 will apply to the Group from 1 October 2019, and is not expected to have a material impact on the Group.
REVISED CONCEPTUAL FRAMEWORKIn June 2019 the AASB issued a revised Conceptual Framework for Financial Reporting. The new Framework includes updated definitions and criteria
for the recognition and derecognition of assets and liabilities. Additionally it introduces new concepts on measurement, including factors to consider
when selecting a measurement basis. The revised Conceptual Framework will apply to the Group from 1 October 2020 and is not expected to have amaterial impact on the Group.
INTEREST RATE BENCHMARK REFORM
Interbank offered rates (IBORs), such as LIBOR, are a key reference rate for derivatives, loans and securities for global financial markets. In response toconcerns about the transparency and liquidity of IBOR rates, regulators in a number of jurisdictions across the globe are well advanced in developing
benchmark rates to phase out and replace IBORs, these projects are collectively known as ‘IBOR Reform’. The International Accounting Standards
Board (IASB) is also considering the financial reporting implications of IBOR reform which is expected to impact elements of financial instrument
accounting, including hedge accounting, loan modifications, fair value methodologies and disclosures.
The IASB project is split into two phases: Phase 1 deals with pre-replacement issues (issues affecting financial reporting in the period before thereplacement of IBOR’s); and Phase 2 deals with replacement issues (issues affecting financial reporting when existing IBOR’s are replaced).
In September 2019, the IASB issued a final standard, Interest Rate Benchmark Reform—Amendments to IFRS 9, IAS 39 and IFRS 7 which focuses on‘pre-rate replacement issues’ and provides exceptions to specific hedge accounting requirements under IAS 39 and IFRS 9 so that entities will be able
to apply those hedge accounting requirements under an assumption that the interest rate benchmark is not altered as a result of the interest ratebenchmark reform. In October 2019, AASB adopted these amendments in AASB 2019-3 Amendments to Australian Accounting Standards – Interest
Rate Benchmark Reform.
Although the Group anticipates the new standard, once adopted, will provide certain relief in relation to hedge accounting requirements, for 30
September 2019 reporting purposes, it has considered the existing portfolio of hedge accounted relationships in light of:the significant uncertainty surrounding the method and timing of transition away from IBORs; andongoing application and reliance in capital markets on IBOR’s for financial instrument pricing.

As result of the above factors, the Group has concluded that continuation of hedge accounting relationships for potentially impacted hedge
relationship remains appropriate.
The Group is considering the new standard which is effective on 1 October 2020 but may be adopted earlier.

110

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ANZ 2019 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2. OPERATING INCOME
2019
$m

20181
$m

Net interest income
Interest income by type of financial asset
Investment securities - FVOCI /Available-for-sale assets

1,624

1,524

Financial assets at amortised cost

28,60027,657

848

1,140

5

6

31,07730,327(16,149)(15,082)

Securities sold short

(110)

(253)

Financial liabilities designated at FV through profit or loss

(116)

(123)

(16,375)(15,458)

Trading securities
Financial assets designated at FV through profit or loss
Interest income
Interest expense by type of financial liability
Financial liabilities at amortised cost

Interest expense
Major bank levy
Net interest income

(363)

(355)

14,33914,514

602

652

3,059

3,054

124

92

Other operating incomei) Fee and commission income
Lending fees
Non-lending fees
Commissions
Funds management income

254

248

Fee and commission income

4,039

4,046

Fee and commission expense(1,462)(1,336)

Net fee and commission income

2,577

2,710

ii) Other income
1,278

1,666

Sale of Asia Retail and Wealth businesses-

99

Sale of Shanghai Rural Commercial Bank (SRCB)-233

Net foreign exchange earnings and other financial instruments income2

-

240

10

(42)

Sale of PNG Retail, Commercial & SME

1

(19)

Sale of OnePath Life (NZ) Ltd (OPL NZ)

89

(3)

Sale of Metrobank Card Corporation (MCC)
Sale of ANZ Royal Bank (Cambodia) Ltd (Cambodia JV)

Sale of Paymark Limited (Paymark)37-

Dividend income on equity securities

28

39

Other

38

91

Other income

1,481

2,304

Other operating income

4,058

5,014

Net income from insurance business

126

273

Share of associates' profit

262

183

18,78519,984

Operating income

3

1.

On adoption of AASB 15, the Group reclassified certain items previously netted which are now presented gross in operating income and operating expenses. Comparative information has been restatedaccordingly which increased total operating income by $153 million.
Includes fair value movements (excluding realised and accrued interest) on derivatives not designated as accounting hedges entered into to manage interest rate and foreign exchange risk on funding
instruments, ineffective portions of cash flow hedges, and fair value movements in financial assets and liabilities designated at fair value through profit and loss.
3.
Includes customer remediation of $212 million (2018: $228 million).
2.

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Notes to the consolidated financial statements (continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

2. OPERATING INCOME (continued)

RECOGNITION AND MEASUREMENTNET INTEREST INCOME
Interest Income and Expense
We recognise interest income and expense for all financial instruments, including those classified as held for trading, assets measured at fairvalue through other comprehensive income (applicable from 1 October 2018), available-for-sale assets (applicable prior to 1 October 2018)or designated at fair value through profit or loss in net interest income. For assets held at amortised cost we use the effective interest rate
method to calculate amortised cost. The effective interest rate is the rate that discounts the stream of estimated future cash receipts or
payments over the expected life of the financial instrument or, when appropriate, a shorter period, to the net carrying amount of thefinancial asset or liability. For assets subject to prepayment, we determine their expected life on the basis of historical behaviour of theparticular asset portfolio - taking into account contractual obligations and prepayment experience.
We recognise fees and costs, which form an integral part of the financial instrument (for example loan origination fees and costs), using theeffective interest rate method. This is presented as part of interest income or expense depending on whether the underlying financial
instrument is a financial asset or financial liability.
Major Bank Levy
The Major Bank Levy Act 2017 (‘Levy’ or ‘Major bank levy’) applies a rate of 0.06% to certain liabilities of the Company. The Group hasdetermined that the levy represents a finance cost for the Group and $363 million (2018: $355 million) is presented in interest expense in
the Income Statement.
OTHER OPERATING INCOME
Fee and Commission Revenue
We recognise fee and commission revenue arising from contracts with customers (a) over time when the performance obligation issatisfied across more than one reporting period or (b) at a point in time when the performance obligation is satisfied immediately or issatisfied within one reporting period.
 Lending fees exclude fees treated as part of the effective yield calculation of interest income. Lending fees include certain guarantee
and commitment fees where the loan or guarantee is not likely to be drawn upon, and other fees charged for providing customers adistinct good or service that are recognised separately from the underlying lending product (including annual package fees thatprovide benefits on other ANZ products).
 Non lending fees includes fees associated with deposit and credit card accounts, interchange fees and fees charged for specificcustomer transactions such as international money transfers. Where the Group provides multiple goods or services to a customer
under the same contract, the Group allocates the transaction price of the contract to distinct performance obligations based on therelative stand-alone selling price of each performance obligation. Revenue is recognised as each performance obligation is satisfied.
 Commissions represent fees from third parties where ANZ acts as an agent by arranging a third party (e.g. an insurance provider) to
provide goods and services to a customer. In such cases, ANZ is not primarily responsible for providing the underlying good or service
to the customer. If the Group collects funds on behalf of a third party when acting as an agent, the Group only recognises the net
commission it retains as revenue. When the commission is variable based on factors outside the control of the Group (e.g. a trail
commission), revenue is only recognised if it is highly probable that a significant reversal of the variable amount will not be required infuture periods.
 Funds management income represent fees earned from customers for providing financial advice and fees for asset management
services and advice provided to investment funds. Revenue is recognised either at the point the financial advice is provided or overthe period in which the asset management services are delivered. Performance fees associated with funds management activities are
only recognised when it becomes highly probable the performance hurdle will be achieved.
Net Foreign Exchange Earnings and Other Financial Instruments Income
We recognise the following as net foreign exchange earnings and other financial instruments income: exchange rate differences arising on the settlement of monetary items and translation differences on monetary items translated at
rates different to those at which they were initially recognised or included in a previous financial report;
 fair value movements (excluding realised and accrued interest) on derivatives that we use to manage interest rate and foreignexchange risk on funding instruments not designated as accounting hedges;
 the ineffective portions of fair value hedges, cash flow hedges and net investment hedges;

112

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ANZ 2019 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2. OPERATING INCOME (continued)

RECOGNITION AND MEASUREMENT immediately upon sale or repayment of a hedged item, the unamortised fair value adjustments in items designated as fair value
hedges and amounts accumulated in equity related to designated cash flow hedges;
 fair value movements on financial assets and financial liabilities designated at fair value through profit or loss or held for trading; amounts released from the available-for-sale asset (AFS) revaluation reserve (applicable prior to 1 October 2018) when an available-forsale asset is sold; amounts released from the fair value through other comprehensive income (FVOCI) reserve (applicable from 1 October 2018) when adebt instrument classified as FVOCI is sold; and the gain or loss on derecognition of financial assets or liabilities measured at amortised cost.
Gain or Loss on Disposal of Non-Financial Assets
The gain or loss on the disposal of assets is the difference between the carrying value of the asset and the proceeds of disposal net of costs.
This is recognised in other income in the year in which the significant risks and rewards transfer to the buyer.
NET INCOME FROM INSURANCE BUSINESSWe recognise: premiums received (net of reinsurance premiums paid) based on an assessment of the likely pattern in which risk will emerge over theterm of the policies written. This assessment is undertaken periodically and updated in accordance with the latest pattern of risk
emergence; and claims incurred net of reinsurance, on an accruals basis once the liability to the policy owner has been established under the terms ofthe contract and through actuarial assumptions of future claims.
SHARE OF ASSOCIATES’ PROFITThe equity method is applied to accounting for associates. Under the equity method, the Group’s share of the after tax results ofassociates is included in the Income Statement and the Statement of Comprehensive Income.

113

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Notes to the consolidated financial statements (continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

3. OPERATING EXPENSES
2019
$m

20181
$m

4,249

4,225

Superannuation costs

293

290

Other2

223

243

4,765

4,758

Rent

450

468

Other

345

343

Premises795

811

Depreciation and amortisation3

694

990

Licences and outsourced services

672

675

Other

168

234

1,534

1,899

77

227

Advertising and public relations

226

248

Professional fees2

537

530

Freight, stationery, postage and communication

216

223

Royal Commission legal costs

15

55

Personnel
Salaries and related costs2

Personnel
Premises

Technology

Technology (excluding personnel)
Restructuring
Other

2

Other

906

650

Other

1,900

1,706

Operating expenses2

9,071

9,401

1.

On adoption of AASB 15, the Group reclassified certain items previously netted which are now presented gross in operating income and operating expenses. Comparative information has been restatedaccordingly which increased total operating expense by $153 million for 2018.
Includes customer remediation expenses of $373 million in 2019 (2018: $191 million).
3.
2018 includes an accelerated amortisation expense of $251 million.
2.

RECOGNITION AND MEASUREMENTOPERATING EXPENSES
Operating expenses are recognised as services are provided to the Group over the period in which an asset is consumed or once a
liability is created.
SALARIES AND RELATED COSTS - ANNUAL LEAVE, LONG SERVICE LEAVE AND OTHER EMPLOYEE BENEFITS
Wages and salaries, annual leave and other employee entitlements expected to be paid or settled within twelve months of
employees rendering service are measured at their nominal amounts using remuneration rates that the Group expects to pay when
the liabilities are settled.
We accrue employee entitlements relating to long service leave using an actuarial calculation. It includes assumptions regarding staff
departures, leave utilisation and future salary increases. The result is then discounted using market yields at the reporting date. The market
yields are determined from a blended rate of high quality corporate bonds with terms to maturity that closely match the estimated future
cash outflows.
If we expect to pay short term cash bonuses, then a liability is recognised when the Group has a present legal or constructive obligation to pay
this amount (as a result of past service provided by the employee) and the obligation can be reliably measured.

114

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ANZ 2019 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

3. OPERATING EXPENSES (continued)

RECOGNITION AND MEASUREMENT
Personnel expenses also include share-based payments which may be cash or equity settled. We calculate the fair value of equity
settled remuneration at grant date, which is then amortised over the vesting period, with a corresponding increase in share capital or
the share option reserve as applicable. When we estimate the fair value, we take into account market vesting conditions, such as
share price performance conditions. We take non-market vesting conditions, such as service conditions, into account by adjusting
the number of equity instruments included in the expense.
After the grant of an equity-based award, the amount we recognise as an expense is reversed when non-market vesting conditions
are not met, for example an employee fails to satisfy the minimum service period specified in the award on resignation, termination
or notice of dismissal for serious misconduct. However, we do not reverse the expense if the award does not vest due to the failure tomeet a market-based performance condition.
Further information on share-based payment schemes operated by the Group during the current and prior year is included in Note
31 Employee Share and Option Plans.

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Notes to the consolidated financial statements (continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

4. INCOME TAX
INCOME TAX EXPENSE
Reconciliation of the prima facie income tax expense on pre-tax profit with the income tax expense recognised in profit or loss:
2019
$m

2018
$m

Profit before income tax from continuing operations

8,920

9,895

Prima facie income tax expense at 30%

2,676

2,969

Sale of divestments

(25)

(141)

Share of associates' profit

(78)

(55)

Interest on convertible instruments

63

67

Tax effect of permanent differences:

(112)

(58)

Provision for foreign tax on dividend repatriation

39

32

Tax provisions no longer required

(14)

(41)

Other

77

8

Subtotal

2,626

2,781

Overseas tax rate differential

Income tax (over)/under provided in previous years

(17)

3

Income tax expense

2,609

2,784

Current tax expense

2,779

3,004

Adjustments recognised in the current year in relation to the current tax of prior years

(17)

3

Deferred tax expense/(income) relating to the origination and reversal of temporary differences

(153)

(223)

2,609

2,784

Australia

1,682

1,799

Overseas

927

985

29.2%

28.1%

Income tax expense

Effective tax rate

116

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ANZ 2019 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

4. INCOME TAX (continued)
TAX CONSOLIDATIONThe Company and all its wholly owned Australian resident entities are part of a tax-consolidated group under Australian taxation law. The Company is
the head entity in the tax-consolidated group. We recognise each of the following in the separate financial statements of members of the tax
consolidated group on a ‘group allocation’ basis: tax expense/income, and deferred tax liabilities/assets, that arise from temporary differences of themembers of the tax-consolidated group. The Company (as head entity in the tax-consolidated group) recognises current tax liabilities and assets ofthe tax-consolidated group.
Under a tax funding arrangement between the entities in the tax-consolidated group, amounts are recognised as payable to or receivable by theCompany and each member of the tax-consolidated group in relation to the tax contribution amounts paid or payable between the Company andthe other members of the tax-consolidated group.
Members of the tax-consolidated group have also entered into a tax sharing agreement that provides for the allocation of income tax liabilities
between the entities were the head entity to default on its income tax payment obligations.

UNRECOGNISED DEFERRED TAX ASSETS AND LIABILITIES
Unrecognised deferred tax assets related to unused realised tax losses (on revenue account) total $10 million (2018: $4 million). Unrecognised deferred
tax liabilities related to additional potential foreign tax costs (assuming all retained earnings in offshore branches and subsidiaries are repatriated) total$429 million (2018: $390 million).

RECOGNITION AND MEASUREMENT
INCOME TAX EXPENSE

CURRENT TAX EXPENSE

DEFERRED TAX ASSETS AND LIABILITIESKEY JUDGEMENTS AND ESTIMATES
Judgement is required in determining provisions held in respect of uncertain tax positions. The Group estimates its tax liabilities
based on its understanding of the relevant law in each of the countries in which it operates and seeks independent advice whereappropriate.

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Notes to the consolidated financial statements (continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

5. DIVIDENDS
ORDINARY SHARE DIVIDENDSDividends are provided for in the financial statements once determined, accordingly, the final dividend announced for the current financial year is provided forand paid in the following financial year.
Amountper share

Total dividend$m2017 final dividend paid

80 cents

2,350

2018 interim dividend paid

80 cents

2,317

Dividends% of total

Financial Year 2018

Bonus option plan adjustment(82)

Dividends paid during the year ended 30 September 2018

4,585

Cash

91.5%

Dividend reinvestment plan

8.5%

4,193
392

Dividends paid during the year ended 30 September 2018

4,585

Financial Year 20192018 final dividend paid

80 cents

2,295

2019 interim dividend paid

80 cents

2,267

Bonus option plan adjustment(81)

Dividends paid during the year ended 30 September 2019

4,481

Cash

90.4%

Dividend reinvestment plan

9.6%

4,049
432

Dividends paid during the year ended 30 September 2019

Dividends announced and to be paid after year-end
2019 final dividend (70% franked for Australian tax, New Zealand imputationcredit NZD 9 cents per share)

4,481

Payment dateAmountper share

Total
dividend$m

18 December 201980 cents

2,268

DIVIDEND REINVESTMENT PLAN AND BONUS OPTION PLAN
Eligible shareholders can elect to reinvest their dividend entitlement into ANZ ordinary shares under the Company’s Dividend Reinvestment Plan
(DRP). Eligible shareholders can elect to forgo their dividend entitlement and instead receive ANZ ordinary shares under the Company’s Bonus Option
Plan (BOP). For the 2019 final dividend, DRP participation will be satisfied by an on-market purchase of shares and BOP participation will be satisfied by
an issue of ANZ ordinary shares. There will be no discount applied to the DRP and BOP price.
See Note 22 Shareholders’ Equity for details of shares the Company issued or purchased in respect of the DRP and BOP.

DIVIDEND FRANKING ACCOUNT
Currency

2019
$m

2018
$m

Australian franking credits available at 30% tax rate

AUD

35

97

New Zealand imputation credits available (which can be attached to our Australian
dividends but may only be used by New Zealand resident shareholders)

NZD

4,068

3,868

The above amounts represent the balances of the franking accounts as at the end of the financial year, adjusted for:
 franking credits that will arise from the payment of income tax payable as at the end of the financial year; and franking credits/debits from the receipt/payment of dividends that have been recognised as tax receivables/payables as at the end of thefinancial year.

118

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ANZ 2019 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

5. DIVIDENDS (continued)
The proposed final 2019 dividend will utilise the entire balance of $35 million franking credits available at 30 September 2019. Instalment tax
payments on account of the 2020 financial year which will be made after 30 September 2019 will generate sufficient franking credits to enable thefinal 2019 dividend to be 70% franked. The extent to which future dividends will be franked will depend on a number of factors, including the level ofprofits generated by the Group that will be subject to tax in Australia.

RESTRICTIONS ON THE PAYMENT OF DIVIDENDS
APRA’s written approval is required before paying dividends on ANZ ordinary shares: if the aggregate dividends exceed the Company’s after tax earnings (in calculating those after tax earnings, we take into account any payments wemade on senior capital instruments) in the financial year to which they relate; or if the Group’s Common Equity Tier 1 capital ratio falls within capital range buffers specified by APRA.
If the Company fails to pay a dividend or distribution on its ANZ Capital Notes or ANZ Capital Securities on the scheduled payment date, it may(subject to a number of exceptions) be restricted from resolving to pay or paying any dividend on the ANZ ordinary shares.

119

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Notes to the consolidated financial statements (continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

6. EARNINGS PER ORDINARY SHARE
Earnings per ordinary share (EPS) - Basic
Earnings Per Share

2019
cents

2018
cents

210.0

221.6

Earnings Per Share from continuing operations

222.1

245.6

Earnings Per Share from discontinued operations(12.1)(24.0)

Earnings per ordinary share (EPS) - Diluted

2019
cents

2018
cents

1

Earnings Per Share

201.9

212.1

Earnings Per Share from continuing operations1

213.0

234.2

Earnings Per Share from discontinued operations(11.1)(22.1)

Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders by the weighted average number of ordinary shares
outstanding during the period (after eliminating ANZ shares held within the Group known as treasury shares). Diluted EPS is calculated by adjusting
the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares used in the basic EPS calculation for theeffect of dilutive potential ordinary shares.
Reconciliation of earnings used in earnings per share calculations

2019
$m

2018
$m

5,968

6,416

15

16

Basic:
Profit for the year
Less: Profit attributable to non-controlling interests
Earnings used in calculating basic earnings per share

5,953

6,400

Less: Profit/(Loss) after tax from discontinued operations

(343)

(695)

Earnings used in calculating basic earnings per share from continuing operations

6,296

7,095

5,953

6,400

268

279

6,221

6,679

Diluted:Earnings used in calculating basic earnings per share
Add: Interest on convertible subordinated debt
Earnings used in calculating diluted earnings per share
Less: Profit/(Loss) after tax from discontinued operations

(343)

(695)

Earnings used in calculating diluted earnings per share from continuing operations

6,564

7,374

2019
millions

2018
millions

2,834.9

2,888.3

237.9

249.0

8.8

11.4

3,081.6

3,148.7

Reconciliation of weighted average number of ordinary shares (WANOS) used in earnings per
share calculations1,2
WANOS used in calculating basic earnings per share
Add: Weighted average dilutive potential ordinary shares
Convertible subordinated debt
Share based payments (options, rights and deferred shares)
WANOS used in calculating diluted earnings per share1.

The successor fund transfer performed in preparation for the sales of the Group’s wealth businesses to Zurich and IOOF was completed on 13 April 2019. Post this date, treasury shares held in Wealth
Australia discontinued operations ceased to be eliminated in the Group’s consolidated financial statements and are included in the denominator used in calculating earnings per share. If the weighted
average number of treasury shares held in Wealth Australia discontinued operations was included in the denominator used in calculating earnings per share from continuing operations, basic earnings per
share from continuing operations for 2019 would have been 221.4 cents (2018: 244.4 cents) and diluted earnings per share from continuing operations for 2019 would have been 212.4 cents (2018: 233.1
cents).
2.
Excludes the weighted average number of treasury shares held in ANZEST of 4.7 million (2018: 5.9 million) and Wealth Australia discontinued operations of 8.2 million (2018: 15.0 million).

120

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ANZ 2019 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

7. SEGMENT REPORTINGDESCRIPTION OF SEGMENTS
The Group’s five continuing operating segments are presented on a basis that is consistent with the information provided internally to the Chief
Executive Officer, who is the chief operating decision maker. This reflects the way the Group’s businesses are managed, rather than the legal structureof the Group.
We measure the performance of these segments on a cash profit basis. To calculate cash profit, we remove certain non-core items from statutory
profit. Details of these items are included in the “Other Items” section of this note. Transactions between business units across segments within ANZ
are conducted on an arm’s-length basis and disclosed as part of the income and expenses of these segments.
The reportable segments are divisions engaged in providing either different products or services or similar products and services in different
geographical areas. They are as follows:
Australia Retail and Commercial
The Australia Retail and Commercial division comprises: Retail provides products and services to consumer customers in Australia via the branch network, mortgage specialists, contact centres, a variety
of self-service channels (internet banking, phone banking, ATMs, website, ANZ share investing and digital banking) and third party brokers in
addition to financial planning services provided by salaried financial planners.
 Commercial provides a full range of banking products and financial services including asset financing across the following customer segments:
medium to large commercial customers and agribusiness customers across regional Australia, small business owners and high net worth
individuals and family groups.
Institutional
The Institutional division services governments, global institutional and corporate customers across three product sets: Transaction Banking, Loans &Specialised Finance and Markets.
 Transaction Banking provides working capital and liquidity solutions including documentary trade, supply chain financing, commodity financing
as well as cash management solutions, deposits, payments and clearing.
 Loans & Specialised Finance provides loan products, loan syndication, specialised loan structuring and execution, project and export finance,
debt structuring and acquisition finance and corporate advisory.
 Markets provide risk management services on foreign exchange, interest rates, credit, commodities, debt capital markets in addition to managing
the Group's interest rate exposure and liquidity position.
New Zealand
The New Zealand division comprises: Retail provides a full range of banking and wealth management services to consumer, private banking and small business banking customers. We
deliver our services via our internet and app-based digital solutions and network of branches, mortgage specialists, relationship managers andcontact centres.
 Commercial provides a full range of banking services including traditional relationship banking and sophisticated financial solutions throughdedicated managers focusing on privately owned medium to large enterprises, the agricultural business segment and governments.
Pacific
The Pacific division provides products and services to retail customers, small to medium-sized enterprises, institutional customers and governments
located in the Pacific Islands. Products and services include retail products provided to consumers, traditional relationship banking and sophisticatedfinancial solutions provided to business customers through dedicated managers.
Technology, Services & Operations (TSO) and Group Centre
TSO and Group Centre provide support to the operating divisions, including technology, group operations, shared services, property, risk
management, financial management, strategy, marketing, human resources and corporate affairs. The Group Centre includes residual Asia Retail and
Wealth, Group Treasury, Shareholder Functions and minority investments in Asia.
Refer to Note 29 Discontinued Operations and Assets and Liabilities Held for Sale for details on discontinued operations.

OPERATING SEGMENTS
The presentation of divisional results has been impacted by a number of methodology and structural changes during the period. Prior period
comparatives have been restated as follows: The methodology for allocating earnings on capital at a business unit level has changed from Economic Capital to Regulatory Capital. Whileneutral at a Group level, this change has impacted net interest income at the divisional level; The residual Asia Retail and Wealth businesses have been transferred from the former Asia Retail and Pacific division to TSO and Group Centre
division. The remaining segment has been renamed Pacific division; and

121

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ANZ 2019 ANNUAL REPORT

Notes to the consolidated financial statements (continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

7. SEGMENT REPORTING (continued)
OPERATING SEGMENTS (continued)
 ANZ’s lenders mortgage insurance, share investing, general insurance distribution and financial planning businesses which were previously part ofthe continuing operations of Wealth Australia now form part of the Australia Retail and Commercial division (previously named Australia division)and Wealth Australia division ceases to exist as a continuing division.
The divisional results were also impacted by the adoption of two new accounting standards:
 AASB 9 - the Group implemented an expected credit loss methodology for impairment of financial assets, and revised the classification andmeasurement of certain financial assets from 1 October 2018. Consequently, the Group increased its provision for credit impairment by $813
million through opening retained earnings. Comparative information has not been restated.
 AASB 15 - the main impact of adoption is that certain items previously netted are now presented gross in operating income and operating
expenses. Comparative information has been restated which increased total operating income by $153 million and is offset by an increase in total
operating expenses of the same amount.

Year ended 30 September 2019
Net interest income
Net fee and commission income- Lending fees
- Non-lending fees
- Commissions- Funds management income- Fee and commission expense
Net income from insurance business
Other income
Share of associates’ profit
Other operating income
Operating income
Operating expenses
Profit before credit impairment and income tax
Credit impairment (charge)/release
Profit before income tax
Income tax expense and non-controlling interests
Profit after tax from continuing operations
Profit/(Loss) after tax from discontinued operations
Profit after tax attributable to shareholders
Non-cash items
Share of associates’ profit
Depreciation and amortisation
Equity-settled share based payment expenses
Credit impairment (charge)/release

Financial position
Goodwill
Investments in associates
1.

122

Australia
Retail andCommercial Institutional
$m
$m

New
Zealand$m

Pacific$m

TSO andGroup
Centre$m

Otheritems1
$m

Group
Total
$m

8,092

3,080

2,736

128

303

-

14,339

290
1,499
75
14
(657)
100
27
(1)
1,347
9,439
(4,074)
5,365
(712)
4,653
(1,458)
3,195

282
847
2
(338)
1,399
2,192
5,272
(2,667)
2,605
2
2,607
(779)
1,828

16
691
61
243
(459)
18
6
4
580
3,316
(1,286)
2,030
(87)
1,943
(544)
1,399

14
42
(9)
57
104
232
(150)
82
1
83
(24)
59

(20)
(12)
(5)
1
1
243
259
467
770
(894)
(124)
1
(123)
112
(11)

7
(251)
(244)
(244)
(244)
1
(243)
69
(174)

602
3,059
124
254
(1,462)
126
1,481
262
4,446
18,785(9,071)
9,714
(794)
8,920
(2,624)
6,296
(343)
5,953

(1)
(176)
(13)
(712)

(112)
(69)
2

4
(41)
(4)
(87)

(7)
(1)
1

259
(535)
(33)
1

1

262
(871)
(120)
(794)

Australia
Retail andCommercial Institutional
$m
$m
410
1,070
17
2

New
Zealand$m
1,937-

TSO andGroup Discontinued
Centreoperations
$m
$m
42
2,938
-

Group
Total
$m
3,509
2,957

Pacific$m
50-

Cash profit represents ANZ's preferred measure of the result of the segments. We remove certain items from the segments as discussed on page 124 if we consider them not integral to the ongoing
performance of the segment.

122

ANZ 2019 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

7. SEGMENT REPORTING (continued)
OPERATING SEGMENT (continued)

Australia
Retail andCommercial InstitutionalYear ended 30 September 2018
Net interest income
Net fee and commission income- Lending fees
- Non-lending fees
- Commissions- Funds management income- Fee and commission expense
Net income from insurance business
Other income
Share of associates’ profit
Other operating income
Operating income
Operating expenses
Profit before credit impairment and income tax
Credit impairment (charge)/release
Profit before income tax
Income tax expense and non-controlling interests
Profit after tax from continuing operations
Profit/(Loss) after tax from discontinued operations
Profit after tax attributable to shareholders
Non-cash items
Share of associates’ profit
Depreciation and amortisation
Equity-settled share based payment expenses
Credit impairment (charge)/release

Financial position2
Goodwill
Investments in associates
1.

2.

New
Zealand

Pacific

TSO andGroup
CentreOther
items1

Group
Total

$m
8,449

$m
2,993

$m
2,651

$m
131

$m
290

$m
-

$m
14,514

353
1,494
83
22
(609)
126
42
(1)
1,510
9,959
(4,075)
5,884
(698)
5,186
(1,560)
3,626

269
832
5
(289)
1
1,248
2,066
5,059
(2,948)
2,111
44
2,155
(675)
1,480

15
657
42
230
(417)
117
22
5
671
3,322
(1,205)
2,117
(6)
2,111
(590)
1,521

14
39
(8)
55
100
231
(128)
103
(3)
100
(28)
72

1
32
(33)
(9)
(13)
10
339
179
506
796
(1,045)
(249)
(25)
(274)
62
(212)

19
598
617
617
617
617
(9)
608

652
3,054
92
248
(1,336)
273
2,304
183
5,470
19,984(9,401)
10,583(688)
9,895(2,800)
7,095
(695)
6,400

(1)
(217)
(17)
(698)

(410)
(83)
44

5
(48)
(7)
(6)

(7)
(1)
(3)

179
(517)
(29)
(25)

(1)
-

183
(1,199)
(138)
(688)

Australia
Retail andCommercial Institutional
$m
$m
270
1,067
18
1

New
Zealand$m
1,979
5

TSO andGroup Discontinued
Centreoperations
$m
$m
767
2,531
-

Group
Total
$m
4,131
2,555

Pacific$m
48-

Cash profit represents ANZ's preferred measure of the result of the segments. We remove certain items from the segments as discussed on page 124 if we consider them not integral to the ongoing
performance of the segment.
Includes goodwill of $691 million and investments in associates of $2 million presented as assets held for sale.

123

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ANZ 2019 ANNUAL REPORT

Notes to the consolidated financial statements (continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

7. SEGMENT REPORTING (continued)
OTHER ITEMSThe table below sets out the profit after tax impact of other items which are removed from statutory profit to reflect the cash profit of each segment.
Profit after tax
Item

Related segment

2019
$m

2018
$m

Revaluation of policy liabilities

New Zealand

(77)

14

Economic hedges

Institutional, TSO and Group Centre

(118)

248

Revenue and expense hedges

TSO and Group Centre

19

9Structured credit intermediation trades

Institutional

2

4Reclassification of SRCB to held for sale

TSO and Group Centre

Total from continuing operations

-

333

(174)

608

SEGMENT INCOME BY PRODUCTS AND SERVICES
The primary sources of our external income across all divisions are interest income and other operating income. The Australia, New Zealand, andPacific divisions derive income from products and services from retail and commercial banking. The Institutional division derives its income frominstitutional products and services. No single customer amounts to greater than 10% of the Group’s income.

GEOGRAPHICAL INFORMATION
The following table sets out total operating income earned including discontinued operations and assets to be recovered in more than one year
based on the geographical regions in which the Group operates. The assets consist of investment securities measured at fair value through othercomprehensive income (applicable from 1 October 2018), available-for-sale assets (prior to 1 October 2018), net loans and advances and assets
presented as held for sale.
Asia Pacific,
Europe & Americas

Australia

124

New Zealand

Total

2019
$m

2018
$m

2019
$m

2018
$m

2019
$m

2018
$m

2019
$m

2018
$m

Total operating income

12,394

13,286

2,613

2,823

3,947

3,956

18,95420,065

Assets to be recovered in more than one year

386,062

389,119

48,54546,801

105,642

98,312

540,249534,232

124

ANZ 2019 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FINANCIAL ASSETS
Outlined below is a description of how we classify and measure financial assets relevant to the subsequent note disclosures.

CLASSIFICATION AND MEASUREMENT
Financial assets - general
There are three measurement classifications for financial assets under AASB 9: amortised cost, fair value through profit or loss (FVTPL) andfair value through other comprehensive income (FVOCI). Financial assets are classified into these measurement classifications on the basisof two criteria:
 the business model within which the financial asset is managed; and the contractual cash flow characteristics of the financial asset (specifically whether the contractual cash flows represent solely payments ofprincipal and interest).
The resultant financial asset classifications are as follows: Amortised cost: Financial assets with contractual cash flows that comprise solely payments of principal and interest only and which are held ina business model whose objective is to collect their cash flows;
 FVOCI: Financial assets with contractual cash flows that comprise solely payments of principal and interest only and which are held in abusiness model whose objective is to collect their cash flows or to sell the assets; and FVTPL: Any other financial assets not falling into the categories above are measured at FVTPL.
Fair value option for financial assets
A financial asset may be irrevocably designated at FVTPL on initial recognition when the designation eliminates or significantly reduces anaccounting mismatch that would otherwise arise.

8. CASH AND CASH EQUIVALENTS

Coins, notes and cash at bank

2019
$m

2018
$m

1,186

1,382

3

74

Securities purchased under agreements to resell in less than 3 months

25,27728,302

Balances with central banks

25,68133,724

Settlement balances owed to ANZ within 3 months

29,474

21,154

Cash and cash equivalents

81,621

84,636

Money at call, bills receivable and remittances in transit

1

1.

Excludes cash and cash equivalents held for sale of nil (2018: $328 million).

125

125

ANZ 2019 ANNUAL REPORT

Notes to the consolidated financial statements (continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

9. TRADING SECURITIES
3,782
7,271

7,825

2019

9,640

● Government securities● Corporate and financial
institution securities

2018
27,177

26,115● Equity and other securities

2019
$m

2018
$m

Government securities

27,177

26,115

Corporate and financial institution securities

9,640

7,825

Equity and other securities

7,271

3,782

Total

44,08837,722

Less: Assets reclassified as held for sale (refer to Note 29)
Total

(919)

-

43,16937,722

RECOGNITION AND MEASUREMENT
Trading securities are financial instruments we either: acquire principally for the purpose of selling in the short-term; or hold as part of a portfolio we manage for short-term profit making.
We recognise purchases and sales of trading securities on trade date: initially, we measure them at fair value; and subsequently, we measure them in the balance sheet at their fair value with any revaluation recognised in the profit or loss.

KEY JUDGEMENTS AND ESTIMATES
Judgement is required when applying the valuation techniques used to measure the fair value of trading securities not valued using
quoted market prices. Refer to Note 17 Fair Value of Financial Assets and Financial Liabilities for further details.

126

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ANZ 2019 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

10. DERIVATIVE FINANCIAL INSTRUMENTS
Assets2019$m

Liabilities
2019$m

Assets2018$m

Liabilities
2018$m

116,622(116,778)

66,457(66,198)

4,045(4,173)

1,966(3,478)120,667(120,951)

68,423(69,676)

Fair Value
Derivative financial instruments - held for trading
Derivative financial instruments - designated in hedging relationships
Derivative financial instruments

FEATURES
Derivative financial instruments are contracts:
 whose value is derived from an underlying price index (or other variable) defined in the contract - sometimes the value is derived from more than
one variable; that require little or no initial net investment; and that are settled at a future date.
Movements in the price of the underlying variables, which cause the value of the contract to fluctuate, are reflected in the fair value of the derivative.

PURPOSEThe Group’s derivative financial instruments have been categorised as following:
Trading

Derivatives held in order to: Meet customer needs for managing their own risks.
 Manage risks in the Group that are not in a designated hedge accounting relationship (balance sheet
management).
 Undertake market making and positioning activities to generate profits from short-term fluctuations in prices
or margins.

Designated in Hedging
Relationships

Derivatives designated into hedge accounting relationships in order to minimise profit or loss volatility by matching
movements to underlying positions relating to: Hedges of the Group’s exposures to interest rate risk and currency risk.
 Hedges of other exposures relating to non-trading positions.

TYPES
The Group offers and uses four different types of derivative financial instruments:
Forwards

A contract documenting the rate of interest, or the currency exchange rate, to be paid or received on a notional
principal amount at a future date.

Futures

An exchange traded contract in which the parties agree to buy or sell an asset in the future for a price agreed on thetransaction date, with a net settlement in cash paid on the future date without physical delivery of the asset.

Swaps

A contract in which two parties exchange a series of cash flows for another.

Options

A contract in which the buyer of the contract has the right - but not the obligation - to buy (known as a “call option”)
or to sell (known as a “put option”) an asset or instrument at a set price on a future date. The seller has thecorresponding obligation to fulfil the transaction to sell or buy the asset or instrument if the buyer exercises
the option.

RISKS MANAGED
The Group offers and uses the instruments described above to manage fluctuations in the following market factors:
Foreign Exchange

Currencies at current or determined rates of exchange.

Interest Rate

Fixed or variable interest rates applying to money lent, deposited or borrowed.

Commodity

Soft commodities (that is, agricultural products such as wheat, coffee, cocoa and sugar) and hard commodities (thatis, mined products such as gold, oil and gas).

CreditCounterparty risk in the event of default.

127

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ANZ 2019 ANNUAL REPORT

Notes to the consolidated financial statements (continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

10. DERIVATIVE FINANCIAL INSTRUMENTS (continued)
DERIVATIVE FINANCIAL INSTRUMENTS – HELD FOR TRADINGThe majority of the Group’s derivative financial instruments are held for trading. The fair value of derivative financial instruments held for trading are:

Fair Value

Assets2019$m

Liabilities
2019$m

Assets2018$m

Liabilities
2018
$m

74

(78)

2

(2)

Interest rate contracts
Forward rate agreements
Futures contracts

41

(109)

54

(41)

Swap agreements

82,996(80,588)

35,079(35,428)

Options purchased

1,454

-

782

-

-

(2,317)-(1,408)84,565(83,092)

35,917(36,879)

Spot and forward contracts

15,987(15,359)

15,200(14,088)

Swap agreements

13,836(16,235)

12,532(11,821)

Options purchased

405

-

494

-

-

(514)

-

(669)

Total

30,228(32,108)

28,226(26,578)

Commodity contracts

1,807(1,553)2,260(2,683)

Options sold
Total
Foreign exchange contracts

Options sold

Credit default swaps
Structured credit derivatives purchased

16

-

22

-

Other credit derivatives purchased

4

(3)

8

(29)

Credit derivatives purchased

20

(3)

30

(29)

Structured credit derivatives sold

-

(19)

-

(26)

Other credit derivatives sold

2

(3)

24

(3)

Credit derivatives sold

2

(22)

24

(29)

Total
Derivative financial instruments - held for trading

128

128

ANZ 2019 ANNUAL REPORT

22

(25)

54

(58)

116,622(116,778)

66,457(66,198)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

10. DERIVATIVE FINANCIAL INSTRUMENTS (continued)
DERIVATIVE FINANCIAL INSTRUMENTS – DESIGNATED IN HEDGING RELATIONSHIPS
There are three types of hedge accounting relationships the Group utilises:
Fair value hedge

Cash flow hedge

Net investment hedge

Objective of thishedgingarrangement

To hedge our exposure to changes tothe fair value of a recognised asset or
liability or unrecognised firm
commitment caused by interest rateor foreign currency movements.

To hedge our exposure to variability incash flows of a recognised asset or
liability, a firm commitment or a highly
probable forecast transaction caused
by interest rate, foreign currency andother price movements.

To hedge our exposure to exchange
rate differences arising from thetranslation of our foreign operations
from their functional currency toAustralian dollars.

Recognition ofeffective hedge
portionThe following are recognised in profit
or loss at the same time:

We recognise the effective portion ofchanges in the fair value of derivatives
designated as a cash flow hedge inthe cash flow hedge reserve.

We recognise the effective portion ofchanges in the fair value of thehedging instrument in the foreign
currency translation reserve.

 all changes in the fair value of theunderlying item relating to thehedged risk; and the change in the fair valueof the derivatives.

Recognition of
ineffective hedge
portionRecognised immediately in Other operating income.

If a hedging
instrument expires,or is sold, terminated,or exercised; or nolonger qualifies forhedge accounting

When we recognise the hedged itemin profit or loss, we recognise therelated unamortised fair value
adjustment in profit or loss. This may
occur over time if the hedged item isamortised to profit or loss as part ofthe effective yield over the period
to maturity.

Only when we recognise the hedged
item in profit or loss is the amountpreviously deferred in the cash flow
hedge reserve transferred to profit
or loss.

The amount we defer in the foreign
currency translation reserve remains inequity and is transferred to profit orloss only when we dispose of, orpartially dispose of, the foreign
operation.

Hedged item sold or
repaidWe recognise the unamortised fairvalue adjustment immediately in
profit or loss.

Amounts accumulated in equity aretransferred immediately to profit
or loss.

The gain or loss, or applicableproportion, we recognise in equity istransferred to profit or loss on disposal
or partial disposal of a foreign
operation.

129

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ANZ 2019 ANNUAL REPORT

Notes to the consolidated financial statements (continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

10. DERIVATIVE FINANCIAL INSTRUMENTS (continued)
As outlined in Note 1, the Group has continued to apply the AASB 139 hedge accounting requirements until the International Accounting Standards
Board’s ongoing project on macro hedge accounting is completed. However, new hedge disclosures are required for 2019 and onwards under AASB 7
Financial Instruments: Disclosures (AASB 7) which are presented below. The presentation of derivatives information for 2018 has not been amended.
The fair value of derivative financial instruments designated in hedging relationships are:
2018

2019
Nominalamount$m

Assets$m

Liabilities$m

Assets$m

Liabilities
$m

21

1

-

1

-

Fair value hedges
Foreign exchange swap agreements

581

-

(9)

1

-

Interest rate swap agreements

108,243

2,093(3,155)1,261(3,001)

Interest rate futures contracts

3,139

-

(27)

47

(1)

Interest rate swap agreements

84,365

1,876

(832)

592

(379)

Foreign exchange swap agreements

2,934

75

(91)

44

(52)

159

-

(1)

2

-

Foreign exchange spot and forward contracts

1,484

-

(58)

18

(45)

Derivative financial instruments - designated in
hedging relationships

200,926

4,045(4,173)

1,966(3,478)Foreign exchange spot and forward contracts

Cash flow hedges

Foreign exchange spot and forward contracts
Net investment hedges

The maturity profile of the nominal amounts of our hedging instruments held at 30 September 2019 is:Nominal Amount
Fair value hedges
Interest rate

Interest Rate

Foreign exchange

HKD/AUD FX Rate

Average
Rate

Less than 3months$m

3 to 12months$m

1 to 5
years
$m

After
5 years
$m

Total
$m

1.95%

3,195

18,407

63,87325,907111,382

5.38

602

-

-

-

602

2.15%

1,088

14,04066,8802,357

84,365

40

120

1,652

1,281

3,093

474

1,010

-

-

1,484

Cash flow hedges
Interest rate
Foreign exchange1

Interest Rate
AUD/USD FX Rate

0.72

USD/EUR FX Rate

0.91

TWD/AUD FX Rate

21.41

THB/AUD FX Rate

21.77

Net investment hedges
Foreign exchange
1.

130Hedges of foreign exchange risk cover multiple currency pairs. The table reflects the larger currency pairs only.

130

ANZ 2019 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

10. DERIVATIVE FINANCIAL INSTRUMENTS (continued)
The impact of ineffectiveness from our designated hedge relationships by type of hedge relationship and type of risk being hedged are:IneffectivenessAmount reclassified from
Change in value
Hedge ineffectivenessthe cash flow hedge
of hedging Change in value
recognised in profit reserve or FCTR to profit
instrument of hedged item
and lossand loss
$m
$m
$m
$m

2019
Fair value hedges1
Interest rate
Foreign exchange
Cash flow hedges1
Interest rate
Foreign exchange
Net investment hedges1
Foreign exchange
1.

586
(36)

(582)
36

4
-

-

836
20

(825)
(20)

11
-

14
2

(144)

144

-

-

All hedging instruments are held within Derivative Financial Instruments.

Hedge ineffectiveness recognised is classified within Other operating income. Reclassification adjustments to the Statement of Comprehensive
Income are recognised within Net interest income.
Hedged items in relation to the Group’s fair value hedges for 30 September 2019 are as follows:

Balance sheet
presentation
Hedged risk
Net loans and advances Interest rate

Fixed rate loans and advances

Carrying amount
AssetsLiabilities
$m
$m
2,281
-

Accumulated fair value
hedge adjustments on
the hedged item
AssetsLiabilities
$m
$m
17
-

Debt issuancesInterest rate-

(67,555)-(1,749)Fixed rate investment securities (FVOCI)

Investment securities

Interest rate

47,641

-

1,907

-

Equity securities at FVOCI1

Investment securities

Foreign exchange

581

-

52

-

50,503(67,555)

1,976(1,749)Fixed rate debt issuance
1

Total
1.

The carrying amount of debt and equity instruments at fair value through other comprehensive income does not include the fair value hedge adjustment as the hedge assets are measured at fair value. The
accounting for the hedge relationship results in transfer of the hedge adjustment out of other comprehensive income into the Income Statement.

The cumulative amount of fair value hedge adjustments relating to ceased hedge relationships remaining on the Balance Sheet is $8 million.

131

131

ANZ 2019 ANNUAL REPORT

Notes to the consolidated financial statements (continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

10. DERIVATIVE FINANCIAL INSTRUMENTS (continued)
Hedged items in relation to the Group’s cash flow and net investment hedges for 30 September 2019 are as follows:

Hedged risk
Cash flow hedges
Floating rate loans and advances
Floating rate customer deposits
Foreign currency debt issuance
Foreign currency investment securities
Highly probable forecast transactions
Net investment hedges
Foreign operations

Cash flow
hedge reserve
Continuing Discontinued
hedgeshedges$m$m

Foreign currencytranslation reserve
Continuing Discontinued
hedgeshedges$m$m

Interest rate
Interest rate
Foreign exchange
Foreign exchange
Foreign exchange

1,587
(577)
14
6
3

41
(32)
-

-

-

Foreign exchange

-

-

(159)

(149)

The table below details the reconciliation of the cash flow hedge reserve by risk type:Interest rate$m

Foreigncurrency
$m

Total
$m

Balance at 1 October 2018

128

(1)

127

Fair value gains

825

20

845

14

2

16

Income taxes and others

(251)

(6)

(257)

Balance at 30 September 2019

716

15

731

Transferred to income statement

Hedges from net investments in a foreign operation resulted in a $144 million decrease in FCTR during the year. There were no reclassifications from
FCTR to the income statement during the year.
2018 Disclosure
The impact recognised in profit or loss arising from derivative financial instruments designated in hedge accounting relationships, are as follows:
Hedge
accounting type

2018
$m

Gain/(Loss) recognised in Other operating income

132

Hedged item

Fair value

1,190

Hedging instrument

Fair value(1,210)Ineffective portion of hedging instrument

Cash flow

13132

ANZ 2019 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

10. DERIVATIVE FINANCIAL INSTRUMENTS (continued)

RECOGNITION AND MEASUREMENT
Recognition

Initially and at each reporting date, we recognise all derivatives at fair value. If the fair value of a
derivative is positive, then we carry it as an asset, but if its value is negative, then we carry it as aliability.
Valuation adjustments are integral in determining the fair value of derivatives. This includes:a credit valuation adjustment (CVA) to reflect the counterparty risk and/or event of default; and

a funding valuation adjustment (FVA) to account for funding costs and benefits in thederivatives portfolio.

Derecognition ofassets and liabilities

We remove derivative assets from our balance sheet when the contracts expire or we have transferred
substantially all the risks and rewards of ownership. We remove derivative liabilities from our balance
sheet when the Group’s contractual obligations are discharged, cancelled or expired.

Impact on the
Income Statement

How we recognise gains or losses on derivative financial instruments depends on whether thederivative is held for trading or is designated into a hedging relationship. For derivative financial
instruments held for trading, gains or losses from changes in the fair value are recognised in profit orloss.
For an instrument designated into a hedging relationship, the recognition of gains or losses depends
on the nature of the item being hedged. Refer to the previous table on page 129 for profit or loss
treatment depending on the hedge type.
Sources of hedge ineffectiveness may arise from basis risk and differences in discounting between thehedged items and the hedging instruments. The hedging instruments are discounted using OvernightIndex Swaps discount curves which are not applied to the hedged items.

Hedge effectivenessTo qualify for hedge accounting a hedge is expected to be highly effective. A hedge is highly effective
only if the following conditions are met: the hedge is expected to be highly effective in achieving offsetting changes in fair value or cash
flows attributable to the hedged risk during the period for which the hedge is designated(prospective effectiveness); and the actual results of the hedge are within the range of 80-125% (retrospective effectiveness).
The Group monitors hedge effectiveness on a regular basis but at a minimum at least at eachreporting date.

KEY JUDGEMENTS AND ESTIMATES
Judgement is required when we select the valuation techniques used to measure the fair value of derivatives, particularly the selection ofvaluation inputs that are not readily observable, and the application of valuation adjustments to certain derivatives. Refer to Note 17 Fair
Value of Financial Assets and Financial Liabilities for further details.

133

133

ANZ 2019 ANNUAL REPORT

Notes to the consolidated financial statements (continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

11. INVESTMENT SECURITIES
1,914 1,221

1,728 1,095

20,33817,067● Government securities

2019● Corporate and financial
institution securities

2018● Other securities● Equity securities

60,23655,473

2019
$m

2018
$m

Investment securities measured at fair value through other comprehensive income
Debt securities

76,489-Equity securities

1,221

-

Investment securities measured at amortised cost
Debt securities1

5,999

-

Available-for-sale assets
Debt securities-

74,268Equity securities

-

1,095

Total

75,363-(1,079)83,70974,284No
maturity
$m

Total
$m

12,603-60,236

Less: Assets reclassified as held for sale (refer to Note 29)
Total
1.

83,709Includes allowance for expected credit losses of $13 million.

2019 Investment securities

Less than 3months$m

3 to 12months 1 to 5 years After 5 years
$m
$m
$m

Government securities

6,768

14,665

26,200

Corporate and financial institution securities

1,280

2,719

15,965374-

20,338Other securities

-

-

183

1,731

-

1,914

Equity securities

-

-

-

-

1,221

1,221

8,048

17,38442,34814,708

1,221

83,709Government securities

6,715

8,159

28,144

12,455-55,473

Corporate and financial institution securities

948

2,549

13,283287-

17,067

Other securities

-

-

159

1,569

-

1,728

Equity securities

-

-

-

-

1,095

1,095

7,663

10,70841,586

14,311

1,095

75,363Total
2018 Available-for-sale assets

Total

134

Less: Assets reclassified as held for sale (refer to Note 29)(1,079)Total

74,284134

ANZ 2019 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

11. INVESTMENT SECURITIES (continued)
During the year, the Group recognised a net gain (before tax) in other operating income from the recycling of gains/losses previously deferred inequity of $240 million (2018: $48 million) in respect of investment securities (applicable from 1 October 2018) and available-for-sale assets (prior to 1
October 2018).
The carrying value of equity securities at FVOCI / AFS equity securities is $1,221 million (2018: $1,095 million). This includes the Group’s $1,106 million(2018: $1,025 million) investment in the Bank of Tianjin (BoT).

RECOGNITION AND MEASUREMENT
Policy applicable from 1 October 2018
Investment securities are those financial assets in security form (i.e. transferable debt or equity instruments) that are not held for trading
purposes. By way of exception, bills of exchange (a form of security/transferable instrument) which are used to facilitate the Group’s
customer lending activities are classified as Loans and advances (rather than Investment securities) to better reflect the substance of thearrangement.
Non-traded equity investments may be designated at FVOCI on an instrument by instrument basis. If this election is made, gains or losses
are not reclassified from other comprehensive income to profit or loss on disposal of the investment. However, gains or losses may bereclassified within equity.
Assets disclosed as Investment securities are subject to the general classification and measurement policy for Financial Assets outlined at
the commencement of the Group’s financial asset disclosures on page 125. Additionally, expected credit losses associated with
“Investment securities - debt securities at amortised cost” and “Investment securities - debt securities at fair value through othercomprehensive income” are recognised and measured in accordance with the accounting policy outlined in Note 13. For “Investment
securities – debt securities at fair value through other comprehensive income” the allowance for ECL is recognised in the FVOCI reserve inequity with a corresponding charge to profit or loss.
Policy applicable prior to 1 October 2018
AFS assets comprise non-derivative financial assets which we designate as AFS since we do not hold them principally for trading purposes.
They include both equity and debt securities. AFS assets are initially recognised at fair value plus transaction costs and are revalued at leastbi-annually. On revaluation, we include movements in fair value within the available-for-sale revaluation reserve in equity, except for certain
items which are recognised directly in profit or loss, being interest on debt securities, dividends received, foreign exchange on debt
securities and impairment charges.
When we sell the asset, any cumulative gain or loss from the available-for-sale revaluation reserve is recognised in profit or loss.
At each reporting date, we assess whether any AFS assets are impaired. We assess the impairment of any debt securities if an event has
occurred which will have a negative impact on the asset’s estimated cash flows. For equity securities, we assess if there is a significant or
prolonged decline in their fair value below cost.
If an AFS asset is impaired, then we remove the cumulative loss related to that asset from the available-for-sale revaluation reserve. We thenrecognise it in profit or loss for:
 debt instruments, as a credit impairment expense; and equity instruments, as a negative impact in other operating income.
We recognise any later reversals of impairment on debt securities in the profit or loss through the credit impairment charge line. However,
we do not make any reversals of impairment for equity securities. To the extent previously impaired equity securities recover in value, gains
are recognised directly in equity.

KEY JUDGEMENTS AND ESTIMATES
Judgement is required when we select valuation techniques used to measure the fair value of assets not valued using quoted market
prices, particularly the selection of valuation inputs that are not readily observable. Refer to Note 17 Fair Value of Financial Assets andFinancial Liabilities for further details.

135

135

ANZ 2019 ANNUAL REPORT

Notes to the consolidated financial statements (continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

12. NET LOANS AND ADVANCES
The following table provides details of net loans and advances for the Group:

Overdrafts
Credit cards
Commercial bills
Term loans – housing
Term loans – non-housing
Other
Subtotal
Unearned income
Capitalised brokerage/mortgage origination fees
Gross loans and advances (including assets reclassified as held for sale)
Allowance for expected credit losses (refer to Note 13)1,2
Net loans and advances (including assets reclassified as held for sale)Less: Net loans and advances reclassified as held for sale (refer to Note 29)
Net loans and advances
Residual contractual maturity:
Within one year
More than one year
Net loans and advances
Carried on Balance Sheet at:
Amortised cost
Fair value through profit or loss
Net loans and advances
1.
2.

2019
$m

2018
$m

7,267
9,241
6,159
343,808
248,337
3,483
618,295(398)
870
618,767(3,509)615,258
615,258

7,061
9,890
6,861
346,154
234,405
3,442
607,813(430)
997
608,380(2,917)605,463(999)
604,464

133,273
481,985
615,258

126,811477,653
604,464

614,336922
615,258

604,331133
604,464

On adoption of AASB 9 on 1 October 2018, the Group increased the collectively assessed provision by $647 million. Comparative information has not been restated. Refer to Note 35 for further details.
$500 million of collectively assessed provisions and $26 million of individually assessed provision for credit impairment attributable to off-balance sheet credit related commitments at 2018 were reclassified
from Net loans and advances at amortised cost to Other provisions to enhance comparability with current period presentation.

RECOGNITION AND MEASUREMENT
Loans and advances are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market andare facilities the Group provides directly to customers or through third party channels.
Loans and advances are initially recognised at fair value plus transaction costs directly attributable to the issue of the loan or advance,
which are primarily brokerage/mortgage origination fees which we amortise over the estimated life of the loan. Subsequently, we thenmeasure loans and advances at amortised cost using the effective interest rate method, net of any provision for credit impairment, or at fairvalue when they are specifically designated on initial recognition as fair value through profit or loss or when held for trading.
We classify contracts to lease assets and hire purchase agreements as finance leases if they transfer substantially all the risks and rewards ofownership of the asset to the customer or an unrelated third party. We include these facilities in ‘Other’ in the table above.
The Group enters into transactions in which it transfers financial assets that are recognised on its balance sheet. When the Group retains
substantially all of the risks and rewards of the transferred assets, the transferred assets remain on the Group’s balance sheet, however ifsubstantially all the risks and rewards are transferred, the Group derecognises the asset.
If the risks and rewards are partially retained and control over the asset is lost, the Group derecognises the asset. If control over the asset is
not lost, the Group continues to recognise the asset to the extent of its continuing involvement.
We separately recognise the rights and obligations retained, or created, in the transfer of assets and liabilities as appropriate.
From 1 October 2018, assets disclosed as net loans and advances are subject to the general classification and measurement policy for
Financial Assets outlined at the commencement of the Group’s Financial Asset disclosures on page 125. Additionally, expected credit losses
associated with loans and advances at amortised cost are recognised and measured in accordance with the accounting policy outlined in
Note 13.

136

136

ANZ 2019 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

13. ALLOWANCE FOR EXPECTED CREDIT LOSSESALLOWANCE FOR EXPECTED CREDIT LOSSESAs described in Note 1 and 35, the Group adopted AASB 9 effective from 1 October 2018 which resulted in the application of an expected credit loss
(ECL) model for measuring impairment of financial assets and amendments to the presentation of credit impairment information for the current year.
Comparative information has not been restated.
The following tables present the movement in the allowance for ECL (including allowance for ECL reclassified as held for sale) for the year.
Net loans and advances - at amortised cost
Allowance for ECL is included in Net loans and advances.

As at 1 October 2018
Transfer between stages
New and increased provisions (net of releases)
Write-backs
Bad debts written off (excluding recoveries)
Foreign currency translation and other movements1
As at 30 September 20191.

Stage 3
Stage 1
$m
920
166
(168)
9
927

Stage 2
$m
1,391
(308)
291
4
1,378

Individuallyassessed
$m
894
233
1,139
(382)
(1,076)
(17)
791

Total
$m
3,564
1,409
(382)
(1,076)(6)
3,509

Stage 3
Collectively Individuallyassessedassessed
$m
$m
-

Total
$m
11
1
1
13

Collectively
assessed
$m
359
(91)
147
(2)
413

Includes the impacts of divestments completed in 2019 and the impact of discount unwind on individually assessed allowance for ECL.

The movement in expected credit losses is consistent with the movement in corresponding gross balances.
Investment securities - debt securities at amortised cost
Allowance for ECL is included in Investment securities.

As at 1 October 2018
Transfer between stages
New and increased provisions (net of releases)
Write-backs
Bad debts written off (excluding recoveries)
Foreign currency translation and other movements
As at 30 September 2019

Stage 1
$m
9
2
1
12

Stage 2$m
2
(1)
1

Investment securities - debt securities at FVOCIAllowance for ECL does not change the carrying amount which remains at fair value. Instead, the allowance for ECL is recognised in the FVOCI
reserve in equity, with a corresponding charge to profit or loss.
Stage 3As at 1 October 2018
Transfer between stages
New and increased provisions (net of releases)
Write-backs
Bad debts written off (excluding recoveries)
Foreign currency translation and other movements1
As at 30 September 20191.

Stage 1
$m
14
(2)
(4)
8

Stage 2$m-

Collectively
assessed$m-

Individuallyassessed
$m
-

Total
$m
14
(2)
(4)
8

Includes the impacts of divestments completed in 2019.

137

137

ANZ 2019 ANNUAL REPORT

Notes to the consolidated financial statements (continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

13. ALLOWANCE FOR EXPECTED CREDIT LOSSES (continued)
ALLOWANCE FOR EXPECTED CREDIT LOSSES
Off-balance sheet commitments - undrawn and contingent facilities
Allowance for ECL is included in Other provisions.
Stage 3As at 1 October 2018
Transfer between stages
New and increased provisions (net of releases)
Write-backs
Bad debts written off (excluding recoveries)
Foreign currency translation and other movements
As at 30 September 2019

Stage 1
$m
474
27
(36)
8
473

Collectively
assessed
$m
15
6
21

Stage 2
$m
166
(29)
12
2
151

Individuallyassessed
$m
26
2
(3)
(2)
23

Total
$m
681
(18)
(3)
8
668

2018 Provision for credit impairment disclosures under AASB 139
The below disclosure does not reflect the adoption of AASB 9 and is prepared under the requirements of the previous AASB 139.
Net loans andadvances

Off-balance sheet
credit related
commitments

Total

2018
$m

2018
$m

2018
$m

Balance at start of year

1,118

18

1,136

New and increased provisions

1,426

18

1,444

Provision for credit impairment
Individual provision

Write-backs

(425)

-

(425)

Bad debts written off (excluding recoveries)(1,224)-(1,224)

Other1
Total individual provision

(1)

(10)

(11)

894

26

920

2,118

544

2,662

(34)

(51)

(85)

Collective provision
Balance at start of year
Charge/(release) to profit or loss

(61)

7

(54)

Total collective provision

2,023

500

2,523

Total provision for credit impairment

2,917

526

3,443

Other

2

1.

2.

138

Other individual provision includes the impact of the sale completion of the Asia Retail and Wealth business divestment in 2018. It includes an adjustment for exchange rate fluctuations and the impact of
discount unwind on individual provisions.
Other collective provision includes the impact of the sale completion of the Asia Retail and Wealth business divestment, and an adjustment for exchange rate fluctuations.

138

ANZ 2019 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

13. ALLOWANCE FOR EXPECTED CREDIT LOSSES (continued)
CREDIT IMPAIRMENT CHARGE - INCOME STATEMENT
Credit impairment charge/(release) analysis under AASB 9
2019$m
New and increased provisions (net of releases)1- Collectively assessed16- Individually assessed

1,374

Write-backs(385)

Recoveries of amounts previously written-off(212)

Total credit impairment charge

793

Less: credit impairment charge/(release) from discontinued operations
Total credit impairment charge from continuing operations
1.

(1)
794

Includes the impact of transfers between collectively assessed and individually assessed.

The contractual amount outstanding on financial assets that were written off during the period ended 30 September 2019 and that are still subject toenforcement activity is $212 million.

2018 Credit impairment charge/(release) analysis under AASB 139
The below disclosures do not reflect the adoption of AASB 9 and are prepared under the requirements of the previous AASB 139.
2018$m
New and increased individual provisions

1,444

Write-backs(425)

Recoveries of amounts previously written-off(246)

Individually assessed credit impairment charge

773

Collectively assessed credit impairment charge/(release)(85)

Credit impairment charge

688

139

139

ANZ 2019 ANNUAL REPORT

Notes to the consolidated financial statements (continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

13. ALLOWANCE FOR EXPECTED CREDIT LOSSES (continued)

RECOGNITION AND MEASUREMENT
Policy applicable from 1 October 2018
EXPECTED CREDIT LOSS IMPAIRMENT MODEL
The measurement of expected credit losses reflects an unbiased, probability weighted prediction which evaluates a range of scenarios andtakes into account the time value of money, past events, current conditions and forecasts of future economic conditions.
Expected credit losses are either measured over 12 months or the expected lifetime of the financial asset, depending on credit
deterioration since origination, according to the following three-stage approach: Stage 1: At the origination of a financial asset, and where there has not been a significant increase in credit risk (SICR) since origination, an
allowance equivalent to 12 months ECL is recognised reflecting the expected credit losses resulting from default events that are possible
within the next 12 months from the reporting date. For instruments with a remaining maturity of less than 12 months, expected credit
losses are estimated based on default events that are possible over the remaining time to maturity.
 Stage 2: Where there has been a significant increase in credit risk since origination, an allowance equivalent to lifetime ECL is recognised
reflecting expected credit losses resulting from all possible default events over the expected life of a financial instrument. If credit risk
were to improve in a subsequent period such that the increase in credit risk since origination is no longer considered significant, theexposure returns to a Stage 1 classification and a 12 month ECL applies.
 Stage 3: Where there is objective evidence of impairment, an allowance equivalent to lifetime ECL is recognised.
Expected credit losses are estimated on a collective basis for exposures in Stage 1 and Stage 2, and on either a collective or individual basis
when transferred to Stage 3.
MEASUREMENT OF EXPECTED CREDIT LOSSECL is calculated as the product of the following credit risk factors at a facility level, discounted to incorporate the time value of money:
 Probability of default (PD) - the estimate of the likelihood that a borrower will default over a given period;
 Exposure at default (EAD) - the expected balance sheet exposure at default taking into account repayments of principal and interest,
expected additional drawdowns and accrued interest; and Loss given default (LGD) - the expected loss in the event of the borrower defaulting, expressed as a percentage of the facility's EAD,
taking into account direct and indirect recovery costs.
These credit risk factors are adjusted for current and forward looking information through the use of macro-economic variables.
EXPECTED LIFE
When estimating ECL for exposures in Stage 2 and 3, the Group considers the expected lifetime over which it is exposed to credit risk.
For non-retail portfolios, the Group uses the maximum contractual period as the expected lifetime for non-revolving credit facilities. For
non-retail revolving credit facilities, such as corporate lines of credit, the expected life reflects the Group’s contractual right to withdraw afacility as part of a contractually agreed annual review, after taking into account the applicable notice period.
For retail portfolios, the expected lifetime is determined using behavioural term, taking into account expected prepayment behaviour andsubstantial modifications.
DEFINITION OF DEFAULT, CREDIT IMPAIRED AND WRITE-OFFS
The definition of default used in measuring expected credit losses is aligned to the definition used for internal credit risk management
purposes across all portfolios. This definition is also in line with the regulatory definition of default. Default occurs when there are indicatorsthat a debtor is unlikely to fully satisfy contractual credit obligations to the Group, or the exposure is 90 days past due.
Financial assets, including those that are well secured, are considered credit impaired for financial reporting purposes when they default.
When there is no realistic probability of recovery, loans are written off against the related impairment allowance on completion of theGroup’s internal processes and when all reasonably expected recoveries have been collected. In subsequent periods, any recoveries ofamounts previously written-off are credited to credit impairment charge in the income statement.

140

140

ANZ 2019 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

13. ALLOWANCE FOR EXPECTED CREDIT LOSSES (continued)

RECOGNITION AND MEASUREMENTMODIFIED FINANCIAL ASSETS
If the terms of a financial asset are modified or an existing financial asset is replaced with a new one for either credit or commercial reasons,an assessment is made to determine if the changes to the terms of the existing financial asset are considered substantial. This assessment
considers both changes in cash flows arising from the modified terms as well as changes in the overall instrument risk profile; for example,
changes in the principal (credit limit), term, or type of underlying collateral. Where a modification is considered non-substantial, the existing
financial asset is not derecognised and its date of origination continues to be used to determine SICR. Where a modification is considered
substantial, the existing financial asset is derecognised and a new financial asset is recognised at its fair value on the modification date, which
also becomes the date of origination used to determine SICR for this new asset.
SIGNIFICANT INCREASE IN CREDIT RISK (SICR)
Stage 2 assets are those that have experienced a significant increase in credit risk (SICR) since origination. In determining what constitutes a
SICR, the Group considers both qualitative and quantitative information:i. Internal credit rating grade
For the majority of portfolios, the primary indicator of a SICR is a significant deterioration in the internal credit rating grade of a facility sinceorigination and is measured by application of thresholds.
For non-retail portfolios, a SICR is determined by comparing the Customer Credit Rating (CCR) applicable to a facility at reporting date to
the CCR at origination of that facility. A CCR is assigned to each borrower which reflects the probability of default of the borrower andincorporates both borrower and non-borrower specific information, including forward looking information. CCRs are subject to review atleast annually or more frequently when an event occurs which could affect the credit risk of the customer.
For retail portfolios, a SICR is determined by comparing each facility’s scenario weighted lifetime probability of default at the reporting
date to the scenario weighted lifetime probability of default at origination. The scenario weighted lifetime probability of default may
increase significantly if: there has been a deterioration in the economic outlook, or an increase in economic uncertainty; or there has been a deterioration in the customer’s overall credit position, or ability to manage their credit obligations.
ii. Backstop criteria
The Group uses 30 days past due arrears as a backstop criteria for both non-retail and retail portfolios. For retail portfolios only, facilities are
required to demonstrate three to six months of good payment behaviour prior to being allocated back to Stage 1.
FORWARD LOOKING INFORMATION
Forward-looking information is incorporated into both our assessment of whether a financial asset has experienced a significant increase incredit risk since its initial recognition and in our estimate of ECL. In applying forward looking information for estimating ECL, the Groupconsiders four probability-weighted forecast economic scenarios as follows:i.

Base case scenario
The base case scenario is ANZ’s view of the most likely future macro-economic conditions. It reflects management’s assumptions used forstrategic planning and budgeting, and also informs the Group Internal Capital Adequacy Assessment Process (ICAAP) which is the process
the Group applies in strategic and capital planning over a 3 year time horizon;

ii. Upside and iii. Downside scenarios
The upside and downside scenarios are fixed by reference to average economic cycle conditions (that is, they are not based on theeconomic conditions prevailing at balance date) and are based on a combination of more optimistic (in the case of the upside) andpessimistic (in the case of the downside) economic events and uncertainty over long term horizons; andiv. Severe downside scenario
The severe downside scenario is fixed by reference to average economic cycle conditions and accounts for the potentially severe impactof less likely extremely adverse economic conditions. It reflects macro-economic conditions of a downturn economic event with aprobability of occurrence once every 25 years.
The four scenarios are described in terms of macro-economic variables used in the PD, LGD and EAD models (collectively the ECL models)depending on the portfolio and country of the borrower. Examples of the variables include unemployment rates, GDP growth rates, house
price indices, commercial property price indices and consumer price indices.

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Notes to the consolidated financial statements (continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

13. ALLOWANCE FOR EXPECTED CREDIT LOSSES (continued)

RECOGNITION AND MEASUREMENT
Probability weighting of each scenario is determined by management considering the risks and uncertainties surrounding the base casescenario, as well as specific portfolio considerations where required. The Group Asset and Liability Committee (GALCO) is responsible forreviewing and approving the base case forecast scenario and the Credit and Market Risk Committee (CMRC) approves the probability
weights applied to each scenario.
Where applicable, temporary adjustments may be made to account for situations where known or expected risks have not been adequately
addressed in the modelling process. CMRC is responsible for approving such adjustments.
ECL Sensitivity
The table below illustrates the impact on the Group’s ECL allowance under scenarios where a 100% weighting is applied to both upside anddownside scenarios with all other modelling assumptions remaining constant.
Total ECL$m

Impact$m

100% upside scenario

2,384

(993)

100% downside scenario

5,334

1,956

Policy applicable prior to 1 October 2018
The Group recognises two types of impairment provisions for its loans and advances: Individual provisions for significant assets that are assessed to be impaired; and Collective provisions for portfolios of similar assets that are assessed collectively for impairment.
The accounting treatment for each of them is detailed below:

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142

IndividuallyCollectively

Assessment

If any impaired loans and advances exceed specified
thresholds and an impairment event has been
identified, then we assess the need for a provisionindividually.

To allow for any small value loans and advances where
losses may have been incurred but not yet identified,and individually significant loans and advances that
we do not assess as impaired, we assess themcollectively in pools of assets with similar credit risk
characteristics.

Impairment

Loans and advances are assessed as impaired if wehave objective evidence that we may not recoverprincipal or interest payments (that is, a loss event has
been incurred).

We estimate the provision on the basis of historicalloss experience for assets with similar credit risk
characteristics to others in the respective collective
pool. We adjust the historical loss experience based on
current observable data – such as: changing
economic conditions, the impact of the inherent riskof large concentrated losses within the portfolio andan assessment of the economic cycle.

Measurement

We measure impairment loss as the difference between the asset’s carrying amount and estimated future cash
flows discounted to their present value at the asset’s original effective interest rate. We record the result as an
expense in profit or loss in the period we identify the impairment and recognise a corresponding reduction in the
carrying amount of loans and advances through an offsetting provision.

Uncollectableamounts

If a loan or advance is uncollectable (whether partially or in full), then we write off the balance (and also any related
provision for credit impairment).
We write off unsecured retail facilities at the earlier of the facility becoming 180 days past due, or the customer’sbankruptcy or similar legal release from the obligation to repay the loan or advance. For secured facilities, write offs
occur net of the proceeds determined to be recoverable from the realisation of collateral.

Recoveries

If we recover any cash flows from loans and advances we have previously written off, then we recognise therecovery in profit or loss in the period the cash flows are received.

Off-balance
sheet amounts

Any off-balance sheet items, such as loan commitments, are considered for impairment both on an individual andcollective basis.

ANZ 2019 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

13. ALLOWANCE FOR EXPECTED CREDIT LOSSES (continued)

KEY JUDGEMENTS AND ESTIMATES
Applicable from 1 October 2018
When estimating the allowance for expected credit losses for loans and advances, we used management’s judgement in respect of thematters outlined below.
Key Judgements
Determining whena significant
increase in credit
risk has occurred

In the measurement of ECL, judgement is involved in setting the rules to determine whether there has
been a significant increase in credit risk (SICR) since initial recognition of a loan, resulting in the financial
asset moving from ‘stage 1’ to ‘stage 2’. This is a key area of judgement as transition from stage 1 to stage
2 increases the ECL calculation from an allowance based on the probability of default in the next 12months, to an allowance for lifetime expected credit losses. Subsequent decreases in credit risk
combined with transition from stage 2 to stage 1 may similarly result in significant changes in the ECL
allowance.
The setting of precise trigger points requires judgement which may have a material impact upon thesize of the ECL allowance. The Group monitors the effectiveness of SICR criteria on an ongoing basis.

Measuring both12-month andlifetime credit
lossesThe PD, LGD, and EAD credit risk parameters used in determining ECL are point-in-time measuresreflecting the relevant forward looking information determined by management. Judgement is involved
in determining which forward-looking information variables are relevant for particular lending portfolios
and for determining each portfolio’s point-in-time sensitivity.
In addition, judgement is required where behavioural characteristics are applied in estimating the
lifetime of a facility to be used in measuring ECL. All other things being equal, an increase in the
expected behavioural life will increase the amount of ECL.

Forecasting
forward-looking
scenarios

Our forecast of forward looking information variables is established from a “base case” or most likely
scenario that is used internally by management for planning and forecasting purposes.
The expected outcomes of key economic drivers for the base case scenario as at 30 September 2019 are
as follows:
Australia
The unemployment rate is expected to remain essentially flat and GDP growth to improve modestly
over the forecast period, with residential property values expected to improve after a period of decline.
Commercial property prices are expected to decline slightly through the forecast period. Consumer
price index growth is expected to rise from current levels.
New Zealand
GDP growth is forecast to improve modestly over the forecast period, with the unemployment rate
remaining stable. Residential property values are expected to achieve modest levels of growth.
Commercial property prices are expected to grow, however, the growth rate is expected to be modest
through the forecast period. The consumer price index is expected to rise modestly.
Rest of world
GDP growth is forecast to taper lower in the near term due to uncertainty in the global outlook. Inflationis also expected to remain soft over the forecast period to 2020.

Probability
weighting of eachscenario

Probability weighting of each scenario is determined by management considering the risks anduncertainties surrounding the base case scenario, as well as specific portfolio considerations whererequired.

Management
temporaryadjustments

Management temporary adjustments to the ECL allowance are adjustments we use in circumstanceswhere we judge that our existing inputs, assumptions and model techniques do not capture all the risk
factors relevant to our lending portfolios. Emerging local or global macroeconomic, microeconomic or
political events, and natural disasters that are not incorporated into our current parameters, risk ratings,
or forward-looking information are examples of such circumstances.
The use of management temporary adjustments may impact the amount of ECL recognised.

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Notes to the consolidated financial statements (continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

13. ALLOWANCE FOR EXPECTED CREDIT LOSSES (continued)

KEY JUDGEMENTS AND ESTIMATES
Applicable prior to 1 October 2018
When we measured impairment of loans and advances, we used management’s judgement of the extent of losses at reporting date.

Key Judgements

IndividuallyCollectively

 Estimated future cash flows

 Estimated future cash flows

 Business prospects for the customer

 Historical loss experience of assets withsimilar risk characteristics

 Realisable value of any collateral Group’s position relative to other claimants
 Reliability of customer information

 Impact of large concentrated losses
inherent in the portfolio

 Assessment of the economic cycle
 Likely cost and duration of recovering loans
We regularly reviewed our key judgements and updated them to reflect actual loss experience.

FINANCIAL LIABILITIESOutlined below is a description of how we classify and measure financial liabilities relevant to the subsequent note disclosures.

CLASSIFICATION AND MEASUREMENT
Financial liabilities
Financial liabilities are measured at amortised cost, or fair value through profit or loss when they are held for trading. Additionally, financial
liabilities can be designated at FVTPL where:the designation eliminates or significantly reduces an accounting mismatch which would otherwise arise;a group of financial liabilities are managed and their performance is evaluated on a fair value basis, in accordance with a documented risk
management strategy; or

the financial liability contains one or more embedded derivatives unless:a) the embedded derivative does not significantly modify the cash flows that otherwise would be required by the contract, orb) the embedded derivative is closely related to the host financial liability.

Where financial liabilities are designated as measured at fair value, gains or losses relating to changes in the entity’s own credit risk are included inother comprehensive income, except where doing so would create or enlarge an accounting mismatch in profit or loss. This section of AASB 9
was early adopted by the Group on 1 October 2013.

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ANZ 2019 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

14. DEPOSITS AND OTHER BORROWINGS
11,812

17,87236,646
72,691

77,52642,746● Certificates of deposit● Term deposits

28,342

26,2892019● On demand and shortterm deposits

2018

227,087

245,449
256,264

214,682● Deposits not bearing interest● Deposits from banks &securities sold under
repurchase agreements● Commercial paper andother borrowings1

2019$mCertificates of deposit
Term deposits
On demand and short term deposits
Deposits not bearing interest
Deposits from banks & securities sold under repurchase agreements
Commercial paper and other borrowings1
Deposits and other borrowings (including liabilities reclassified as held for sale)Less: Deposits and other borrowings reclassified as held for sale (refer to Note 29)
Deposits and other borrowings
Residual contractual maturity:
Within one year
More than one year
Deposits and other borrowings
Carried on Balance Sheet at:
Amortised cost
Fair value through profit or loss (designated on initial recognition)
Deposits and other borrowings
1.

36,646
227,087
256,264
28,342
77,526
11,812
637,677
637,6772018$m
42,746214,682
245,449
26,28972,691
17,872619,729(1,579)618,150

630,373
7,304
637,677

606,175
11,975618,150

635,376
2,301
637,677

615,818
2,332
618,150

Other borrowings related to secured investments of the consolidated subsidiary UDC Finance Limited (UDC) of NZD 0.1 billion (2018: NZD 0.9 billion) which are secured by a security interest over all theassets of UDC of NZD 3.5 billion (2018: NZD 3.3 billion).

RECOGNITION AND MEASUREMENT
For deposits and other borrowings that: are not designated at fair value through profit or loss on initial recognition, we measure them at amortised cost and recognise theirinterest expense using the effective interest rate method; and are managed on a fair value basis, reduce or eliminate an accounting mismatch or contain an embedded derivative, we designatedthem as fair value through profit or loss.
Refer to Note 17 Fair Value of Financial Assets and Financial Liabilities for details of the split between amortised cost and fair value.
For deposits and other borrowings designated at fair value we recognise the amount of fair value gain or loss attributable to changes in theGroup’s own credit risk in other comprehensive income in retained earnings. Any remaining amount of fair value gain or loss we recognise
directly in profit or loss. Once we have recognised an amount in other comprehensive income, we do not later reclassify it to profit or loss.
Securities sold under repurchase agreements represent a liability to repurchase the financial assets that remain on our balance sheet since
the risks and rewards of ownership remain with the Group. Over the life of the repurchase agreement, we recognise the difference
between the sale price and the repurchase price and charge it to interest expense in the Income Statement.

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Notes to the consolidated financial statements (continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

15. DEBT ISSUANCESThe Group uses a variety of funding programmes to issue senior debt (including covered bonds and securitisations) and subordinated debt. The
difference between senior debt and subordinated debt is that holders of senior debt take priority over holders of subordinated debt owed by therelevant issuer. In the winding up of the relevant issuer, the subordinated debt will be repaid by the relevant issuer only after the repayment of claimsof depositors, other creditors and the senior debt holders.

Senior debt
Covered bonds
Securitisation
Total unsubordinated debt
Subordinated debt
- Additional Tier 1 capital- Tier 2 capital
Total subordinated debt
Total debt issued

2019
$m

2018
$m

89,737
20,957
2,411
113,105

86,193
17,846
1,232
105,271

8,171
8,415
16,586
129,691

7,917
7,991
15,908
121,179

TOTAL DEBT ISSUED BY CURRENCY
The table below shows the Group’s issued debt by currency of issue, which broadly represents the debt holders’ base location.

USD
EUR
AUD
NZD
JPY
CHF
GBP
HKD
Other

United States dollars
Euro
Australian dollars
New Zealand dollars
Japanese yen
Swiss francs
Pounds sterling
Hong Kong dollars
Chinese yuan, Norwegian krone, Singapore dollars, Indonesian rupiah and Canadian dollars

Total debt issued
Residual contractual maturity1:
Within one year
More than one year
No maturity date (instruments in perpetuity)
Total debt issued
1.

146

Based on the final maturity date or, in the case of Additional Tier 1 capital securities, the mandatory conversion date (if any).

146

ANZ 2019 ANNUAL REPORT

2019
$m

2018
$m

45,841
26,20039,273
5,130
3,312
1,501
4,720
1,446
2,268
129,691

49,61023,23929,477
5,673
3,471
2,067
3,776
1,157
2,709
121,179

20,803106,963
1,925
129,691

21,58597,938
1,656
121,179

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

15. DEBT ISSUANCES (continued)
SUBORDINATED DEBT
Subordinated debt qualifies as regulatory capital for the Group and is classified as either Additional Tier 1 (AT1) capital or Tier 2 capital for APRA’s
capital adequacy purposes depending on their terms and conditions: AT1 capital: perpetual capital instruments such as: ANZ Capital Notes (ANZ CN); ANZ Capital Securities (ANZ CS); and ANZ NZ Capital Notes (ANZ NZ CN).
 Tier 2 capital: perpetual or term subordinated notes.
Tier 2 capital instruments rank ahead of AT1 capital instruments and AT1 capital instruments only rank ahead of ordinary shares, in a liquidation of theissuer.

AT1 CAPITAL
All outstanding AT1 capital instruments are Basel III fully compliant instruments (refer to Note 23 Capital Management for further information about
Basel III). Each of the ANZ CN and ANZ CS rank equally with each other.
Distributions on the AT1 capital instruments are non-cumulative and subject to the issuer’s absolute discretion and certain payment conditions(including regulatory requirements). Distributions on ANZ CNs are franked in line with the franking applied to ANZ ordinary shares.
Where specified, the AT1 capital instruments provide the issuer with an early redemption or conversion option on a specified date and in certain othercircumstances (such as a tax or regulatory event). This option is subject to APRA’s and, in respect of the ANZ NZ CN, the Reserve Bank of New Zealand’s(RBNZ) prior written approval.
Each of the AT1 capital instruments will immediately convert into a variable number of ANZ ordinary shares (based on the average market price of theshares immediately prior to conversion less a 1% discount, subject to a maximum conversion number of ANZ ordinary shares) if: ANZ’s or, in the case of the ANZ NZ CN, ANZ Bank New Zealand Limited’s (ANZ NZ) Common Equity Tier 1 capital ratio is equal to or less than
5.125% - known as a Common Equity Capital Trigger Event; or APRA notifies the Company that, without the conversion or write-off of certain securities or a public sector injection of capital (or equivalent
support), it considers that the Company would become non-viable or, in the case of the ANZ NZ CN, the RBNZ directs ANZ NZ to convert or writeoff the notes or a statutory manager is appointed to ANZ NZ and decides that ANZ NZ must convert or write-off the notes – known as a NonViability Trigger Event.
Where specified, AT1 capital instruments mandatorily convert into a variable number of ANZ ordinary shares (based on the average market price ofthe shares immediately prior to conversion less a 1% discount): on a specified mandatory conversion date; or on an earlier date under certain circumstances as set out in the terms.
However the mandatory conversion is deferred for a specified period if certain conversion tests are not met.
The tables below show the key details of the Group’s AT1 capital instruments on issue at 30 September in both the current and prior year:

Additional Tier 1 capital (perpetual subordinated securities)1
ANZ Capital Notes (ANZ CN)
AUD
1,120mANZ CN1
AUD
1,610mANZ CN2
AUD
970m
ANZ CN3
AUD
1,622mANZ CN4
AUD
931m
ANZ CN5
ANZ Capital Securities (ANZ CS)
USD
1,000mANZ Capital Securities
ANZ NZ Capital Notes (ANZ NZ CN)
NZD500m
ANZ NZ Capital Notes
Total Additional Tier 1 capital
1.

2019
$m

2018
$m

1,118
1,607
966
1,612
925

1,117
1,605
965
1,610
924

1,481

1,240

462

456

8,171

7,917

Carrying values net of issue costs.

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Notes to the consolidated financial statements (continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

15. DEBT ISSUANCES (continued)

ANZ Capital Notes (ANZ CN)

148

Issuer

CN1
ANZ

CN2
ANZ

Issue date

7 August 2013

31 March 2014

CN3
ANZ, acting through its New
Zealand branch
5 March 2015

Issue amount$1,120 million$1,610 million$970 million

Face value

$100

$100

$100

Distribution frequency

Semi-annually in arrears

Semi-annually in arrears

Semi-annually in arrears

Distribution rate

Floating rate: (180 day BankBill rate +3.4%)x(1-Australian
corporate tax rate)

Floating rate: (180 day BankBill rate +3.25%)x(1Australian corporate tax rate)

Floating rate: (180 day BankBill rate +3.6%)x(1-Australian
corporate tax rate)

Issuer’s early redemption or conversion option

1 September 2021

24 March 2022

24 March 2023

Mandatory conversion date

1 September 2023

24 March 2024

24 March 2025

Common equity capital trigger event

Yes

Yes

Yes

Non-viability trigger event
Carrying value 2019 (net of issue costs)

Yes$1,118 million(2018: $1,117 million)

Yes$1,607 million(2018: $1,605 million)

Yes$966 million(2018: $965 million)

CN4

CN5

IssuerANZ

ANZ

Issue date

27 September 2016

28 September 2017

Issue amount$1,622 million$931 million

Face value

$100

$100

Distribution frequency

Quarterly in arrears

Quarterly in arrears

Distribution rate

Floating rate: (90 day Bank Billrate +4.7%)x(1-Australian
corporate tax rate)

Floating rate: (90 day BankBill rate +3.8%)x(1-Australian
corporate tax rate)

Issuer’s early redemption or conversion option

20 March 2024

20 March 2025

Mandatory conversion date

20 March 2026

20 March 2027

Common equity capital trigger event

Yes

Yes

Non-viability trigger event
Carrying value 2019 (net of issue costs)

Yes$1,612 million(2018: $1,610 million)

Yes$925 million(2018: $924 million)

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ANZ 2019 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

15. DEBT ISSUANCES (continued)
ANZ Capital Securities (ANZ CS)
Issuer

ANZ, acting through its London branch

Issue date

15 June 2016

Issue amountUSD 1,000 million

Face value

Minimum denomination of USD 200,000 and an integral multiple of USD 1,000 above that

Interest frequency
Interest rate
Issuer’s early redemption option

Semi-annually in arrears
Fixed at 6.75% p.a. until 15 June 2026. Reset on 15 June 2026 and each 5 year anniversary
to a floating rate: 5 year USD mid-market swap rate + 5.168%
15 June 2026 and each 5 year anniversary

Common equity capital trigger event

Yes

Non-viability trigger event

Yes

Carrying value 2019 (net of issue costs)$1,481 million (2018: $1,240 million)

ANZ NZ Capital Notes (ANZ NZ CN)
IssuerANZ Bank New Zealand Limited (ANZ NZ)

Issue date

31 March 2015

Issue amountNZD 500 million

Face value

NZD 1

Interest frequency

Quarterly in arrears

Interest rate

Fixed at 7.2% p.a. until 25 May 2020. Resets in May 2020 to a floating rate: New Zealand 3 monthbank bill rate + 3.5%
Interest payments are subject to ANZ NZ’s absolute discretion and certain payment conditions(including APRA and RBNZ requirements)

Issuer’s early redemption option

25 May 2020

Mandatory conversion date

25 May 2022

Common equity capital trigger event

Yes

Non-viability trigger event

Yes

Carrying value 2019 (net of issue costs)$462 million (2018: $456 million)

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Notes to the consolidated financial statements (continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

15. DEBT ISSUANCES (continued)
TIER 2 CAPITAL
The convertible term subordinated notes are Basel III fully compliant instruments. If a Non-Viability Trigger Event occurs, the convertible term
subordinated notes will immediately convert into ANZ ordinary shares (based on the average market price of the shares immediately prior toconversion less a 1% discount, subject to a maximum conversion number).
APRA has granted transitional Basel III capital treatment for the USD 300 million perpetual subordinated notes until the end of the transitional
period (December 2021).
The table below shows the Tier 2 capital subordinated notes the Group holds at 30 September in both the current and prior year:

Currency

Face value

Maturity

Next optional call date – subject
to APRA’s prior approvalInterest
rate

NonViability
Trigger
Event

2019
$m

2018
$m

Floating

No

444

416

Fixed

No

-

1,249

444

1,665

Basel III transitional subordinated notes (perpetual)
USD

300m

Perpetual

Each semi-annual interest payment dateBasel III transitional subordinated notes (term)
EUR

750m

2019

N/A

Total Basel III transitional subordinated notes
Basel III fully compliant convertible subordinated notes (term)
AUD

750m

2024

2019

Floating

Yes

-

750

USD

800m

2024

N/A

Fixed

Yes

1,250

1,091

CNY

2,500m

2025

2020

Fixed

Yes

519

503

SGD

500m

2027

2022

Fixed

Yes

544

507

AUD

200m

2027

2022

Fixed

Yes

200

199

JPY

20,000m

2026

N/A

Fixed

Yes

281

243

AUD

700m

2026

2021

Floating

Yes

700

698

USD

1,500m

2026

N/A

Fixed

Yes

2,229

1,869

JPY

10,000m

2026

2021

Fixed

Yes

137

121

JPY

10,000m

2028

2023

Fixed

Yes

137

120

AUD

1,750m2029

2024

Floating

Yes

1,750

-

AUD

225m

2032

2027

Fixed

Yes

224

225

Total Basel III fully compliant subordinated notes

7,971

6,326

Total Tier 2 capital

8,415

7,991

RECOGNITION AND MEASUREMENT
Debt issuances are measured at amortised cost, except where designated at fair value through profit or loss. Where the Group enters into afair value hedge accounting relationship, the fair value attributable to the hedge risk is reflected in adjustments to the carrying value of thedebt. Interest expense is recognised using the effective interest rate method.
Subordinated debt with capital-based conversion features (i.e. Common Equity Capital Trigger Events or Non-Viability Trigger Events) areconsidered to contain embedded derivatives that we account for separately at fair value through profit and loss. The embedded derivatives
arise because the amount of shares issued on conversion following any of those trigger events is subject to the maximum conversion
number, however they have no significant value as of the reporting date given the remote nature of those trigger events.

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ANZ 2019 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

16. FINANCIAL RISK MANAGEMENTRISK MANAGEMENT FRAMEWORK AND MODELINTRODUCTION
The use of financial instruments is fundamental to the Group’s businesses of providing banking and other financial services to our customers. The
associated financial risks (primarily credit, market, and liquidity risks) are a significant portion of the Group’s key material risks.
We disclose details of all key material risks impacting the Group, and further information on the Group’s risk management activities, in the Governanceand Risk Management section.
This note details the Group’s financial risk management policies, processes and quantitative disclosures in relation to the key financial risks.
Key material financial risks

Key sections applicable to this risk

Overview

 An overview of our Risk Management Framework

Credit risk

 Credit risk overview, management and control responsibilities

The risk of financial loss resulting from: Maximum exposure to credit risk

 a counterparty failing to fulfil its obligations; or Credit quality

 a decrease in credit quality of a counterparty resulting in afinancial loss.

 Concentrations of credit risk
 Collateral management

Credit Risk incorporates the risks associated with us lending tocustomers who could be impacted by climate change or bychanges to laws, regulations, or other policies adopted bygovernments or regulatory authorities, including carbon pricing
and climate change adaptation or mitigation policies.
Market risk

 Market risk overview, management and control responsibilities

The risk to the Group’s earnings arising from: Measurement of market risk

 changes in any interest rates, foreign exchange rates, credit
spreads, volatility and correlations; or from fluctuations in bond, commodity or equity prices.

 Traded and non-traded market risk
Equity securities designated at FVOCI (from 1 October 2018) andavailable-for-sale (prior to 1 October 2018)

 Foreign currency risk – structural exposure
Liquidity and funding risk

 Liquidity risk overview, management and control responsibilities

The risk that the Group is unable to meet payment obligations as
they fall due, including: Key areas of measurement for liquidity risk repaying depositors or maturing wholesale debt; or the Group having insufficient capacity to fund increases in
assets.
Life insurance risk
Insurance risk is the risk of loss due to unexpected changes incurrent and future insurance claims rates. The changes primarily
arise due to claims payments, mortality (death) or morbidity (illness
or injury) rates being greater than expected.

 Liquidity risk outcomes Residual contractual maturity analysis of the Group’s liabilities

We control and minimise life insurance risk in the following ways:

We use underwriting procedures including strategic decisions,limits to delegated authorities and signing powers.



We analyse reinsurance arrangements using analytical modelling
tools to achieve the desired type of reinsurance and retention
levels.

No further detail is provided in this section.

151

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Notes to the consolidated financial statements (continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

16. FINANCIAL RISK MANAGEMENT (continued)
OVERVIEWAN OVERVIEW OF OUR RISK MANAGEMENT FRAMEWORKThis overview is provided to aid the users of the financial statements to understand the context of the financial disclosures required under AASB 7. It
should be read in conjunction with the Governance and Risk Management section.
The Board is responsible for establishing and overseeing the Group’s Risk Management Framework (RMF). The Board has delegated authority to theBoard Risk Committee (BRC) to develop and monitor compliance with the Group’s risk management policies. The BRC reports regularly to the Boardon its activities.
The Board approves the strategic objectives of the Group including: the Risk Appetite Statement (RAS), which sets out the Board’s expectations regarding the degree of risk that ANZ is prepared to accept in pursuitof its strategic objectives and business plan; and the Risk Management Strategy (RMS), which describes ANZ’s strategy for managing risks and the key elements of the RMF that gives effect to thisstrategy. This includes a description of each material risk, and an overview of how the RMF addresses each risk, with reference to the relevant
policies, standards and procedures. It also includes information on how ANZ identifies measures, evaluates, monitors, reports and controls or
mitigates material risks.
The Group, through its training and management standards and procedures, aims to maintain a disciplined and robust control environment in which
all employees understand their roles and obligations. At ANZ, risk is everyone’s responsibility.
The Group has an independent risk management function, headed by the Chief Risk Officer who:
 is responsible for overseeing the risk profile and the risk management framework; can effectively challenge activities and decisions that materially affect ANZ’s risk profile; and has an independent reporting line to the BRC to enable the appropriate escalation of issues of concern.
The Internal Audit Function reports directly to the Board Audit Committee (BAC). Internal Audit provides:
 an independent evaluation of the Group’s RMF annually that seeks to ensure compliance with, and the effectiveness of, the risk management
framework; facilitation of a comprehensive review every three years that seeks to ensure that the appropriateness, effectiveness and adequacy of the risk
management framework; and recommendations to improve the framework and/or work practices to strengthen the effectiveness of day to day operations.

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16. FINANCIAL RISK MANAGEMENT (continued)
CREDIT RISKCREDIT RISK OVERVIEW, MANAGEMENT AND CONTROL RESPONSIBILITIES
Granting credit facilities to customers is one of the Group’s major sources of income. As this activity is also a principal risk, the Group dedicatesconsiderable resources to its management. The Group assumes credit risk in a wide range of lending and other activities in diverse markets and inmany jurisdictions. Credit risks arise from traditional lending to customers as well as from interbank, treasury, trade finance and capital markets
activities around the world.
Our credit risk management framework ensures we apply a consistent approach across the Group when we measure, monitor and manage the credit
risk appetite set by the Board. The Board is assisted and advised by the BRC in discharging its duty to oversee credit risk. The BRC: sets the credit risk appetite and credit strategies; and approves credit transactions beyond the discretion of executive management.
We quantify credit risk through an internal credit rating system (masterscales) to ensure consistency across exposure types and to provide a consistentframework for reporting and analysis. The system uses models and other tools to measure the following for customer exposures:
Probability of Default (PD)Expressed by a Customer Credit Rating (CCR), reflecting the Group’s assessment of a customer’s ability
to service and repay debt.

Exposure at Default (EAD)

The expected balance sheet exposure at default taking into account repayments of principal andinterest, expected additional draw downs and accrued interest at the time of default.

Loss Given Default (LGD)

Expressed by a Security Indicator (SI) ranging from A to G. The SI is calculated by reference to thepercentage of loan covered by security which the Group can realise if a customer defaults. The A-G
scale is supplemented by a range of other SIs which cover factors such as cash cover and sovereign
backing. For retail and some small business lending, we group exposures into large homogenous pools– and the LGD is assigned at the pool level.

Our specialist credit risk teams develop and validate the Group’s PD and LGD rating models. The outputs from these models drive our day-to-day
credit risk management decisions including origination, pricing, approval levels, regulatory capital adequacy, economic capital allocation, andcredit provisioning.
All customers with whom ANZ has a credit relationship are assigned a CCR at origination via either of the following assessment approaches:
Large and more complex lending

Retail and some small business lending

Rating models provide a consistent and structured assessment, withjudgement required around the use of out-of-model factors. We
handle credit approval on a dual approval basis, jointly with thebusiness writer and an independent credit officer.

Automated assessment of credit applications using a combination ofscoring (application and behavioural), policy rules and external credit
reporting information. If the application does not meet the automatedassessment criteria, then it is referred out for manual assessment.

We use the Group’s internal CCRs to manage the credit quality of financial assets. To enable wider comparisons, the Group’s CCRs are mapped toexternal rating agency scales as follows:
Credit Quality
Description

Internal CCR

ANZ Customer Requirements

Moody’s
RatingStandard & Poors
RatingStrong

CCR 0+ to 4-

Demonstrated superior stability in their operating and financial
performance over the long-term, and whose earnings capacity
is not significantly vulnerable to foreseeable events.

Aaa – Baa3

AAA – BBB-

Satisfactory

CCR 5+ to 6-

Demonstrated sound operational and financial stability overthe medium to long-term, even though some may besusceptible to cyclical trends or variability in earnings.

Ba1 – B1

BB+ – B+Weak

CCR 7+ to 8=

Demonstrated some operational and financial instability, withvariability and uncertainty in profitability and liquidity projected
to continue over the short and possibly medium term.

B2 - Caa

B - CCC

Defaulted

CCR 8- to 10

When doubt arises as to the collectability of a credit facility, thefinancial instrument (or “the facility”) is classified as defaulted.

N/A

N/A

153

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ANZ 2019 ANNUAL REPORT

Notes to the consolidated financial statements (continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

16. FINANCIAL RISK MANAGEMENT (continued)
CREDIT RISK (continued)
The Group has adopted AASB 9 effective from 1 October 2018 which has resulted in changes to the classification and measurement of financial assets,
including the impairment of financial assets. The presentation of credit risk information for 2019 has been amended. Refer to Note 1 and 35 for further
details on key requirements and impacts of the changes due to the adoption of AASB 9.
MAXIMUM EXPOSURE TO CREDIT RISKFor financial assets recognised on the balance sheet, the maximum exposure to credit risk is the carrying amount. In certain circumstances there may
be differences between the carrying amounts reported on the balance sheet and the amounts reported in the tables below. Principally, thesedifferences arise in respect of financial assets that are subject to risks other than credit risk, such as equity instruments which are primarily subject tomarket risk, or bank notes and coins.
For undrawn facilities, this maximum exposure to credit risk is the full amount of the committed facilities. For contingent exposures, the maximum
exposure to credit risk is the maximum amount the Group would have to pay if the instrument is called upon.
For the purpose of this note, assets presented as assets held for sale in the Balance Sheet have been reallocated to their respective Balance Sheet
categories.
The table below shows our maximum exposure to credit risk of on-balance sheet and off-balance sheet positions before taking account of any
collateral held or other credit enhancements.
Reported

Maximum exposure
to credit risk

Excluded1

2019
$m

2018
$m

2019
$m

2018
$m

2019
$m

2018
$m

615,258

605,463--615,258

605,463

81,621

84,964

1,186

1,466

80,43583,498On-balance sheet positions
Net loans and advances
Other financial assets:
Cash and cash equivalents
Settlement balances owed to ANZ

3,739

2,319

3,739

2,319

-

-

Collateral paid

15,006

11,043--15,006

11,043

Trading securities

44,08837,722

6,199

3,595

37,88934,127

Derivative financial instruments

120,667

68,426--

120,667

68,426

Investment securities2- debt securities at amortised costs

5,999

-

-

-

5,999

-

- debt securities at FVOCI

76,489---76,489-- equity securities at FVOCI

1,221

-

1,221

-

-

-

Available-for-sale assets

2

Regulatory deposits
Investments backing policy liabilities-

75,363

-

1,095

-

74,268

879

1,028

-

-

879

1,028

-

40,054-40,054

-

-

3,619

3,850

-

-

3,619

3,850

Total other financial assets

353,328

324,769

12,34548,529340,983

276,240

Subtotal

968,586

930,232

12,34548,529956,241

881,703

253,123

244,582--

253,123

244,582

1,221,709

1,174,814

12,34548,5291,209,364

1,126,285

Other financial assets

3Off-balance sheet positions
Undrawn and contingent facilities4
Total
1.

Bank notes and coins and cash at bank within Cash and cash equivalents; Trade dated assets within Settlement balances owed to ANZ; Equity securities and precious metal exposures within Trading
securities; Equity securities within Investment securities (classified as Available-for-sale assets in 2018) were excluded as they do not have credit risk exposure.
On adoption of AASB 9 on 1 October 2018, the classification and measurement of financial assets were revised. Available-for-sale classification used in comparative periods ceases to exist under AASB 9 anda new classification of investment securities was introduced. Refer to Note 1 for further details. Comparative information has not been restated.
3.
Other financial assets mainly comprise accrued interest, insurance receivables and acceptances.
4.
Undrawn facilities and contingent facilities includes guarantees, letters of credit and performance related contingencies, net of collectively assessed allowance for expected credit losses.
2.

154

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ANZ 2019 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

16. FINANCIAL RISK MANAGEMENT (continued)
CREDIT RISK (continued)
CREDIT QUALITY
An analysis of the Group’s credit risk exposure is presented in the following tables based on the Group’s internal rating by stage without taking
account of the effects of any collateral or other credit enhancements:
Net loans and advances
2019
Stage 3
Collectively Individuallyassessedassessed$m$m

Stage 1$m

Stage 2$m

Strong425,113

18,597--443,710

Satisfactory

121,030

28,445--

149,475

7,138

10,373--

17,511

-

-

4,699

1,978

6,677

553,281

57,415

4,699

1,978

617,373(927)(1,378)

(413)

(791)

(3,509)552,354

56,037

4,286

1,187

613,864

0.17%

2.40%

8.79%

39.99%

0.57%

Weak
Defaulted
Gross loans and advances at amortised cost
Allowance for ECL
Net loans and advances at amortised cost
Coverage ratio

Total
$m

Loans and advances at fair value through profit or loss

922

Unearned income(398)

Capitalised brokerage/mortgage origination fees870

Net carrying amount

615,258

Investment securities - debt securities at amortised cost
2019

Stage 1$m

Stage 2$m

Stage 3
Collectively Individuallyassessedassessed
$m
$m

Total
$m

4,798

-

-

-

4,798

707

507

-

-

1,214

Weak

-

-

-

-

-

Defaulted

-

-

-

-

-

StrongSatisfactory

Gross investment securities - debt securities at amortised cost

5,505

507

-

-

6,012

Allowance for ECL

(12)

(1)

-

-

(13)

Net investment securities - debt securities at amortised cost

5,493

506

-

-

5,999

Coverage ratio

0.22%

0.20%

0.00%

0.00%

0.22%

155

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ANZ 2019 ANNUAL REPORT

Notes to the consolidated financial statements (continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

16. FINANCIAL RISK MANAGEMENT (continued)
CREDIT RISK (continued)

Investment securities - debt securities at FVOCI
2019

StrongStage 3
Collectively Individuallyassessedassessed$m$m

Stage 1$m

Stage 2
$m

Total
$m

76,218---76,218

271

-

-

-

271

Weak

-

-

-

-

-

Defaulted

-

-

-

-

-

76,489---76,489

(8)

-

-

-

(8)

0.01%

-

-

-

0.01%

Satisfactory

Investment securities - debt securities at FVOCIAllowance for ECL recognised in other comprehensive income
Coverage ratio
Other financial assets

2019$mStrong248,020

Satisfactory

10,060
415

Weak

-

Defaulted
Total carrying amount

258,495

Off-balance sheet commitments - undrawn and contingent
2019Stage 1$m

Stage 2$m

Strong162,891

1,972

-

-

164,863

Satisfactory

23,655

3,634

-

-

27,289

294

976

-

-

1,270

-

-

140

51

191

186,840

6,582

140

51

193,613

(473)

(151)

(21)

(23)

(668)

186,367

6,431

119

28

192,945

0.25%

2.29%

15.00%

45.10%

Weak
Defaulted
Gross undrawn and contingent facilities subject to ECLAllowance for ECL included in Other provisions (refer to Note 21)
Net undrawn and contingent facilities subject to ECL
Coverage ratio

Total
$m

0.35%

Undrawn and contingent facilities not subject to ECL1

60,178Net undrawn and contingent facilities

253,123

1.

156

Stage 3
Collectively Individuallyassessedassessed$m$mCommitments that can be unconditionally cancelled at any time without notice.

156

ANZ 2019 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

16. FINANCIAL RISK MANAGEMENT (continued)
CREDIT RISK (continued)
2018 Credit Risk Disclosures
The below disclosures do not reflect the adoption of AASB 9 and have been prepared under the requirements of the previous AASB 139.
The table below provides an analysis of the credit quality of the maximum exposure to credit risk split by:neither past due nor impaired financial assets by credit quality;past due but not impaired assets by ageing; and
restructured and impaired assets presented as gross amounts and net of individual provisions.


Loans
and advances

Other financial
assetsOff-balance sheet
credit related
commitments

Total

$m

$m

$m

$m

Strong credit profile

445,997

272,110

206,859

924,966

Satisfactory risk

127,384

4,014

36,037

167,435

Sub-standard but not past due or impaired

15,540116

1,644

17,300588,921276,240

244,540

1,109,701

8,956

-

-

8,956

Neither past due nor impaired

Sub-total
Past due but not impaired≥ 1 < 30 days
≥ 30 < 60 days

2,235

-

-

2,235

≥ 60 < 90 days

1,263

-

-

1,263

≥ 90 days

2,911

-

-

2,911

15,365--

15,365Sub-total
Restructured and impaired
Impaired loans

1,802

-

-

1,802

Restructured items1

269

-

-

269

-

-

68

68

Gross impaired financial assets

2,071

-

68

2,139

Individual provisions

(894)

-

(26)

(920)

Non-performing commitments and contingencies

Sub-total restructured and net impaired
Total
1.

1,177

-

42

1,219

605,463276,240

244,582

1,126,285

Restructured items are facilities in which the original contractual terms have been modified for reasons related to the financial difficulties of the customer. Restructuring may consist of reduction of interest,principal or other payments legally due, or an extension in maturity materially beyond those typically offered for new facilities with similar risk.

In 2019, ANZ implemented a more market responsive collateral valuation methodology for the home loan portfolio in Australia which increased thenumber of home loans being classified as impaired rather than past due. Comparative information has not been restated for the change inmethodology. Additionally, refinement to underlying processes and associated data resulted in the transfer of loans from past due and sub-standard
categories into impaired assets. Comparative information has been restated with a transfer from past due of $99 million and from sub-standard of $27
million.

157

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Notes to the consolidated financial statements (continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

16. FINANCIAL RISK MANAGEMENT (continued)
CREDIT RISK (continued)
CONCENTRATIONS OF CREDIT RISK
Credit risk becomes concentrated when a number of customers are engaged in similar activities, have similar economic characteristics, or have similar
activities within the same geographic region – therefore, they may be similarly affected by changes in economic or other conditions. The Group
monitors its credit portfolio to manage risk concentration and rebalance the portfolio. The Group also applies single customer counterparty limits toprotect against unacceptably large exposures to one single customer.
Composition of financial instruments that give rise to credit risk by industry group are presented below:
Loans
and advances158

Off-balance sheet
credit related
commitments

Other financial
assets

Total

2019
$m

2018
$m

2019
$m

2018
$m

2019
$m

2018
$m

2019
$m

2018
$m

Agriculture, forestry, fishing and mining

38,562

38,124

1,070

705

18,424

17,58358,05656,412Business services

8,449

8,439

168

122

6,976

7,016

15,593

15,577

Construction

6,711

6,849

65

61

6,697

6,950

13,473

13,860Electricity, gas and water supply

6,599

6,390

2,008

920

7,087

6,152

15,694

13,462Entertainment, leisure and tourism

12,78012,360

699

355

3,446

3,666

16,925

16,381

Financial, investment and insurance

55,34448,059247,351

187,194

41,87437,821

344,569

273,074

Government and official institutions

3,388

922

75,06675,763

2,524

2,854

80,97879,539Manufacturing

23,79623,538

2,932

2,612

44,091

41,92770,81968,077

Personal lending

351,894352,155

1,754

1,379

54,42955,159408,077

408,693

Property services

46,72145,473

1,905

708

17,216

15,837

65,84262,018Retail trade

13,07813,530

242

209

7,086

6,947

20,406

20,686

Transport and storage

13,583

12,075

1,194

650

8,269

7,980

23,046

20,705Wholesale trade15,177

15,220

3,141

3,148

20,283

21,83438,60140,202Other

22,213

24,679

3,401

2,414

15,38913,38241,00340,475Gross total

618,295

607,813340,996276,240

253,791

245,108

1,213,082

1,129,161

Allowance for ECL(3,509)(2,917)

(13)

-

(668)

(526)

(4,190)(3,443)

Subtotal

614,786

604,896

340,983

276,240

253,123

244,582

1,208,892

1,125,718

Unearned income

(398)

(430)

-

-

-

-

(398)

(430)

Capitalised brokerage/mortgage
origination fees

870

997

-

-

-

-

870

997

Maximum exposure to credit risk

615,258

605,463

340,983

276,240

253,123

244,582

1,209,364

1,126,285

158

ANZ 2019 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

16. FINANCIAL RISK MANAGEMENT (continued)
CREDIT RISK (continued)
COLLATERAL MANAGEMENT
We use collateral for on and off-balance sheet exposures to mitigate credit risk if a counterparty cannot meet its repayment obligations. Where there issufficient collateral, an expected credit loss is not recognised. This is largely the case for certain lending products that are secured by corresponding
investment for which the margin loans are utilised and for reverse repurchase agreements. For some products, the collateral provided by customers isfundamental to the product’s structuring, so it is not strictly the secondary source of repayment - for example, lending secured by trade receivables istypically repaid by the collection of those receivables. During the period there was no change in our collateral policies.
The nature of collateral or security held for the relevant classes of financial assets is as follows:
Net loans and advances
Loans - housing andpersonal

Housing loans are secured by mortgage(s) over property and additional security may take the form ofguarantees and deposits.
Personal lending (including credit cards and overdrafts) is predominantly unsecured. If we take security, thenit is restricted to eligible vehicles, motor homes and other assets.

Loans - businessBusiness loans may be secured, partially secured or unsecured. Typically, we take security by way of amortgage over property and/or a charge over the business or other assets.
If appropriate, we may take other security to mitigate the credit risk, for example: guarantees, standby lettersof credit or derivative protection.

Other financial assets
Trading securities,
Investment securities (from1 October 2018), Availablefor-sale assets (prior to 1
October 2018), Derivatives
and Other financial assets

For trading securities, we do not seek collateral directly from the issuer or counterparty. However, thecollateral may be implicit in the terms of the instrument (for example, with an asset-backed security). The
terms of debt securities may include collateralisation.
For derivatives, we typically terminate all contracts with the counterparty and settle on a net basis at market
levels current at the time of a counterparty default under International Swaps and Derivatives Association(ISDA) Master Agreements.
Our preferred practice is to use a Credit Support Annex (CSA) to the ISDA so that open derivative positions
with the counterparty are aggregated and cash collateral (or other forms of eligible collateral) is exchanged
daily. The collateral is provided by the counterparty when their position is out of the money (or provided tothe counterparty by ANZ when our position is out of the money).

Off-balance sheet positions
Undrawn and contingent
facilities

Collateral for off balance sheet positions is mainly held against undrawn facilities, and they are typically
performance bonds or guarantees. Undrawn facilities that are secured include housing loans secured by
mortgages over residential property and business lending secured by commercial real estate and/or charges
over business assets.

The table below shows the estimated value of collateral we hold and the net unsecured portion of credit exposures:
Credit exposure

Unsecured portion of credit
exposure

Total value of collateral

2019
$m

2018
$m

2019
$m

2018
$m

2019
$m

2018
$m

Net loans and advances

615,258

605,463490,188

482,097

125,070

123,366

Other financial assets

340,983

276,240

31,89833,215309,085

243,025

Off-balance sheet positions

253,123

244,582

48,22549,141

204,898

195,441

1,209,364

1,126,285

570,311564,453

639,053

561,832

Total

159

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ANZ 2019 ANNUAL REPORT

Notes to the consolidated financial statements (continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

16. FINANCIAL RISK MANAGEMENT (continued)
MARKET RISKMARKET RISK OVERVIEW, MANAGEMENT AND CONTROL RESPONSIBILITIESMarket risk stems from the Group’s trading and balance sheet management activities and the impact of changes and correlation between interest
rates, foreign exchange rates, credit spreads and volatility in bond, commodity or equity prices.
The BRC delegates responsibility for day-to-day management of both market risks and compliance with market risk policies to the Credit & Market Risk
Committee (CMRC) and the Group Asset & Liability Committee (GALCO).
Within overall strategies and policies established by the BRC, business units and risk management have joint responsibility for the control of market
risk at the Group level. The Market Risk team (a specialist risk management unit independent of the business) allocates market risk limits at various
levels and monitors and reports on them daily. This detailed framework allocates individual limits to manage and control exposures using risk factors
and profit and loss limits.
Management, measurement and reporting of market risk is undertaken in two broad categories:
Traded Market Risk

Non-Traded Market Risk

Risk of loss from changes in the value of financial instruments due
to movements in price factors for both physical and derivative
trading positions. Principal risk categories monitored are:Risk of loss associated with the management of non-traded interest rate risk,
liquidity risk and foreign exchange exposures. This includes interest rate riskin the banking book. This risk of loss arises from adverse changes in theoverall and relative level of interest rates for different tenors, differences in
the actual versus expected net interest margin, and the potential valuation
risk associated with embedded options in financial instruments and bankproducts.

1. Currency risk – potential loss arising from changes in foreignexchange rates or their implied volatilities.
2. Interest rate risk – potential loss from changes in market
interest rates or their implied volatilities.
3. Credit spread risk – potential loss arising from a movement inmargin or spread relative to a benchmark.
4. Commodity risk – potential loss arising from changes incommodity prices or their implied volatilities.
5. Equity risk – potential loss arising from changes in equity
prices.

MEASUREMENT OF MARKET RISKWe primarily manage and control market risk using Value at Risk (VaR), sensitivity analysis and stress testing.
VaR gauges the Group’s possible daily loss based on historical market movements.
The Group’s VaR approach for both traded and non-traded risk is historical simulation. We use historical changes in market rates, prices andvolatilities over: the previous 500 business days, to calculate standard VaR, and a 1-year stressed period, to calculate stressed VaR.
We calculate traded and non-traded VaR using one-day and ten-day holding periods. For stressed VaR, we use a ten-day period. Back testing is used toensure our VaR models remain accurate.
ANZ measures VaR at a 99% confidence interval which means there is a 99% chance that a loss will not exceed the VaR for the relevant holding period.

160

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ANZ 2019 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

16. FINANCIAL RISK MANAGEMENT (continued)
MARKET RISK (continued)
TRADED AND NON-TRADED MARKET RISK
Traded market risk
The table below shows the traded market risk VaR on a diversified basis by risk categories:
2019
As at
$m

2018

High foryear$m

Low foryear$mAveragefor year
$m

As at
$m

High foryear$m

Low foryear$mAveragefor year$m

Traded value at risk 99% confidence
Foreign exchange

1.4

9.5

1.2

4.1

3.7

10.3

1.7

4.2

Interest rate

3.6

10.4

3.6

5.8

8.4

16.0

4.9

7.9

Credit

5.1

5.4

1.2

3.1

2.5

6.5

2.3

4.0

Commodity

1.6

3.9

1.4

2.2

3.7

4.5

1.4

3.1

-

-

-

-

-

-

-

-

EquityDiversification benefit

(5.5)

n/a

n/a

(7.2)

(10.5)

n/a

n/a

(8.1)

Total VaR

6.2

13.4

5.1

8.0

7.8

19.9

6.9

11.1

1

1.

The diversification benefit reflects risks that offset across categories. The high and low VaR figures reported for each factor did not necessarily occur on the same day as the high and low VaR reported for theGroup as a whole. Consequently, a diversification benefit for high and low would not be meaningful and is therefore omitted from the table.

Non-traded market risk
Balance sheet risk management
The principal objectives of balance sheet risk management are to maintain acceptable levels of interest rate and liquidity risk to mitigate the negative
impact of movements in interest rates on the earnings and market value of the Group’s banking book, while ensuring the Group maintains sufficientliquidity to meet its obligations as they fall due.
Interest rate risk management
Non-traded interest rate risk relates to the potential adverse impact of changes in market interest rates on the Group’s future net interest income. Thisrisk arises from two principal sources, namely mismatches between the repricing dates of interest bearing assets and liabilities; and the investment of
capital and other non-interest bearing liabilities in interest bearing assets. Interest rate risk is reported using VaR and scenario analysis (based on theimpact of a 1% rate shock). The table below shows VaR figures for non-traded interest rate risk for the combined Group as well as Australia, New
Zealand and Asia Pacific, Europe and Americas (APEA) geographies which are calculated separately.
2019

2018

As at
$m

High foryear$m

Low foryear$mAveragefor year
$m

As at
$m

High foryear$m

Low foryear$mAveragefor year
$m

22.7

22.7

16.4

18.9

21.9

32.7

20.3

23.6

Non-traded value at risk 99% confidence
Australia
New Zealand

9.6

9.6

7.1

8.0

6.8

7.1

5.6

6.6

Asia Pacific, Europe & America

17.6

17.7

12.9

16.1

15.1

15.1

12.5

13.7

Diversification benefit1(17.8)

n/a

n/a(14.8)(16.1)

n/an/a(14.4)

Total VaR

32.1

32.1

25.2

28.2

27.7

36.4

26.0

29.5

1.

The diversification benefit reflects the historical correlation between the regions. The high and low VaR figures reported for the region did not necessarily occur on the same day as the high and low VaRreported for the Group as a whole. Consequently, a diversification benefit for high and low would not be meaningful and is therefore omitted from the table.

161

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Notes to the consolidated financial statements (continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

16. FINANCIAL RISK MANAGEMENT (continued)
MARKET RISK (continued)
We undertake scenario analysis to stress test the impact of extreme events on the Group’s market risk exposures. We model a 1% overnight parallel
positive shift in the yield curve to determine the potential impact on our net interest income over the next 12 months. This is a standard risk measure
which assumes the parallel shift is reflected in all wholesale and customer rates.
The table below shows the outcome of this risk measure for the current and previous financial years, expressed as a percentage of reported net
interest income. A positive number signifies that a rate increase is positive for net interest income over the next 12 months.
2019

20181

As at period end

1.19%

1.21%

Maximum exposure

1.19%

1.79%

Minimum exposure

0.33%

0.77%

Average exposure (in absolute terms)

0.69%

1.11%

Impact of 1% rate shock1.

Prior period numbers have been restated to reflect IRR model enhancements

EQUITY SECURITIES DESIGNATED AT FVOCI (FROM 1 OCTOBER 2018) AND AVAILABLE-FOR-SALE (PRIOR TO 1 OCTOBER 2018)
Our investment securities (from 1 October 2018) and available-for-sale financial assets (prior to 1 October 2018) contain equity investment holdings
which predominantly comprise investments we hold for longer-term strategic reasons. The market risk impact on these equity investments is not
captured by the Group’s VaR processes for traded and non-traded market risks. Therefore, the Group regularly reviews the valuations of theinvestments within the portfolio and assesses whether the investments are appropriately measured based on the recognition and measurement
policies set out in Note 11 Investment securities.
FOREIGN CURRENCY RISK – STRUCTURAL EXPOSURES
Our investment of capital in foreign operations - for example, branches, subsidiaries or associates with functional currencies other than the Australian
Dollar - exposes the Group to the risk of changes in foreign exchange rates. Variations in the value of these foreign operations arising as a result of
exchange differences are reflected in the foreign currency translation reserve in equity.
Where it is considered appropriate, the Group takes out economic hedges against larger foreign exchange denominated revenue streams (primarily
New Zealand Dollar, US Dollar and US Dollar correlated). The primary objective of hedging is to ensure that, if practical, the consolidated capital ratios
are neutral to the effect of changes in exchange rates.

162

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ANZ 2019 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

16. FINANCIAL RISK MANAGEMENT (continued)
LIQUIDITY AND FUNDING RISKLIQUIDITY RISK OVERVIEW, MANAGEMENT AND CONTROL RESPONSIBILITIES
Liquidity risk is the risk that the Group is either: unable to meet its payment obligations (including repaying depositors or maturing wholesale debt) when they fall due; or does not have the appropriate amount, tenor and composition of funding and liquidity to fund increases in its assets.
Management of liquidity and funding risks are overseen by GALCO. The Group’s liquidity and funding risks are governed by a set of principles
approved by the BRC and include: maintaining the ability to meet all payment obligations in the immediate term;
 ensuring that the Group has the ability to meet ‘survival horizons’ under a range of ANZ specific, and general market, liquidity stress scenarios, atthe site and Group-wide level, to meet cash flow obligations over the short to medium term; maintaining strength in the Group’s balance sheet structure to ensure long term resilience in the liquidity and funding risk profile; ensuring the liquidity management framework is compatible with local regulatory requirements;
 preparing daily liquidity reports and scenario analysis to quantify the Group’s positions;
 targeting a diversified funding base to avoid undue concentrations by investor type, maturity, market source and currency; holding a portfolio of high quality liquid assets to protect against adverse funding conditions and to support day-to-day operations; and establishing detailed contingency plans to cover different liquidity crisis events.
KEY AREAS OF MEASUREMENT FOR LIQUIDITY RISKScenario modelling of funding sources
ANZ’s liquidity risk appetite is defined by a range of regulatory and internal liquidity metrics mandated by the Board. The metrics cover a range of
scenarios of varying duration and level of severity.
A key component of this framework is the Liquidity Coverage Ratio (LCR), which is a severe short term liquidity stress scenario mandated by banking
regulators including APRA. As part of meeting LCR requirements, the Group has a Committed Liquidity Facility (CLF) with the Reserve Bank of Australia.
The CLF has been established to offset the shortage of available High Quality Liquid Assets (HQLA) in Australia and provides an alternative form ofcontingent liquidity. The total amount of the CLF available to a qualifying Australian Deposit-taking Institution is set annually by APRA. From 1 January
2019, ANZ’s CLF is $48.0 billion (2018 calendar year end: $46.9 billion).
Liquid assets
The Group holds a portfolio of high quality (unencumbered) liquid assets to protect the Group’s liquidity position in a severely stressed environment,
to meet regulatory requirements. HQLA comprise three categories consistent with Basel III LCR requirements:
 HQLA1- Cash and highest credit quality government, central bank or public sector securities eligible for repurchase with central banks to provide
same-day liquidity.
 HQLA2 - High credit quality government, central bank or public sector securities, high quality corporate debt securities and high quality coveredbonds eligible for repurchase with central banks to provide same-day liquidity.
 Alternative liquid assets (ALA) - Assets qualifying as collateral for the CLF and eligible securities that the Reserve Bank of New Zealand (RBNZ) will
accept in its domestic market operations.
LIQUIDITY RISK OUTCOMES1
Liquidity Coverage Ratio
ANZ’s Liquidity Coverage Ratio (LCR) averaged 140% for 2019, an increase from the 2018 average of 138%, and above the regulatory minimum of100%.
Net Stable Funding Ratio
ANZ’s Net Stable Funding Ratio (NSFR) as at 30 September 2019 was 116% (2018: 115%), above the regulatory minimum of 100%.

1.

This information is not within the scope of the external audit of the Group Financial Report by the Group’s external auditor, KPMG. The Liquidity Coverage Ratio and Net Stable Funding Ratio are non-IFRS
disclosures and are disclosed as part of the Group's APS 330 Public Disclosure which is subject to specific review procedures in accordance with the Australian Standard on Related Services (ASRS) 4400 Agreed
upon Procedures Engagements to Report Factual Findings.

163

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Notes to the consolidated financial statements (continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

16. FINANCIAL RISK MANAGEMENT (continued)
LIQUIDITY AND FUNDING RISK (continued)
Liquidity crisis contingency planning
The Group maintains APRA-endorsed liquidity crisis contingency plans for analysing and responding to a liquidity threatening event at a country andGroup-wide level. Key liquidity contingency crisis planning requirements and guidelines include:
Ongoing business management

Early signs/ mild stress

Severe Stress Establish crisis/severity levels

 Monitoring and review

 Activate contingency funding plans

 Liquidity limits Management actions not requiring
business rationalisation

 Management actions for altering asset and liability
behaviour Early warning indicators

Assigned responsibility for internal and external communications and the appropriate timing to communicate
Since the precise nature of any stress event cannot be known in advance, we design the plans to be flexible to the nature and severity of the stressevent with multiple variables able to be accommodated in any plan.
Group funding
The Group monitors the composition and stability of its funding so that it remains within the Group’s funding risk appetite. This approach ensures thatan appropriate proportion of the Group’s assets are funded by stable funding sources, including customer deposits; longer-dated wholesale funding(with a remaining term exceeding one year); and equity.
Funding plans prepared

Considerations in preparing funding plans

 3 year strategic plan prepared annually Customer balance sheet growth Annual funding plan as part of budgeting process Changes in wholesale funding including: targeted funding volumes; markets;
investors; tenors; and currencies for senior, secured, subordinated, hybridtransactions and market conditions

 Forecasting in light of actual results as a calibration to
the annual plan

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ANZ 2019 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

16. FINANCIAL RISK MANAGEMENT (continued)
LIQUIDITY AND FUNDING RISK (continued)
RESIDUAL CONTRACTUAL MATURITY ANALYSIS OF GROUP’S LIABILITIESThe tables below provide residual contractual maturity analysis of financial liabilities, including financial liablities reclassified to held for sale, at 30
September within relevant maturity groupings. All outstanding debt issuance and subordinated debt is profiled on the earliest date on which theGroup may be required to pay. All at-call liabilities are reported in the “Less than 3 months” category. Any other items without a specified maturity
date are included in the “After 5 years” category. The amounts represent principal and interest cash flows - so they may differ from equivalent amounts
reported on balance sheet. For the purpose of this note, liabilities presented as liabilities held for sale in the Balance Sheet have been reallocated totheir respective Balance Sheet categories.
It should be noted that this is not how the Group manages its liquidity risk. The management of this risk is detailed on page 163.
Less than
3 months$m

3 to 12months$m

1 to 5
years
$m

After
5 years
$m

Total
$m

Settlement balances owed by ANZ

10,83829--

10,867

Collateral received

7,929

-

-

-

7,929

2019

530,392

102,731

7,657

100

640,880

Policy liabilities

-

-

-

-

-

External unit holder liabilities

-

-

-

-

-

Deposits and other borrowings

760

-

-

-

760

7,948

18,985

95,632

17,886140,451

108,501---

108,501

Receive leg(27,588)(29,128)(82,588)(22,238)(161,542)

Pay leg

26,77826,594

77,686

21,190152,248

Receive leg(85,489)(26,218)(11,632)(1,893)(125,232)

Pay leg

85,887

26,98013,071

2,311

128,249

11,810---11,810Liability for acceptances
Debt issuances1
Derivative liabilities (excluding those held for balance sheet management)2
Derivative assets and liabilities (balance sheet management)- Funding- Other balance sheet management

2018
Settlement balances owed by ANZ

6,542

-

-

-

6,542

Deposits and other borrowings

Collateral received

518,650

92,213

12,444

117

623,424

Policy liabilities

38,325

2

9

1,271

39,607External unit holder liabilities

4,712

-

-

-

4,712

Liability for acceptances

803

-

-

-

803

Debt issuances1

5,575

21,53883,68523,399134,197

Derivative liabilities (excluding those held for balance sheet management)2

60,499---60,499Receive leg(17,972)(30,894)(85,054)(35,580)(169,500)

Pay leg

17,93629,757

82,34435,431

165,468

Receive leg(52,708)(16,646)(14,401)(2,089)(85,844)

Pay leg

53,022

16,87915,2832,256

87,440Derivative assets and liabilities (balance sheet management)- Funding- Other balance sheet management1.

2.

Any callable wholesale debt instruments have been included at their next call date. Balance includes subordinated debt instruments that may be settled in cash or in equity, at the option of the Company,
and perpetual debt instruments after 5 years.
The full mark-to-market of derivative liabilities (excluding those held for balance sheet management) is included in the ‘less than 3 months’ category.

At 30 September 2019, $209,341 million (2018: $202,531 million) of the Group’s undrawn facilities and $44,451 million (2018: $42,577 million) of its
issued guarantees mature in less than 1 year, based on the earliest date on which the Group may be required to pay.

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Notes to the consolidated financial statements (continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

17. FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIESThe Group carries a significant number of financial instruments on the balance sheet at fair value. In addition the Group also holds assets
classified as held for sale which are measured at fair value less costs to sell. The fair value is the best estimate of the price that would bereceived to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date.
VALUATION
The Group has an established control framework, including appropriate segregation of duties, to ensure that fair values are accurately determined,
reported and controlled. The framework includes the following features: products are approved for transacting with external customers and counterparties only where fair values can be appropriately determined; quoted market prices used to value financial instruments are independently verified with information from external pricing providers; fair value methodologies and inputs are evaluated and approved by a function independent of the party that undertakes the transaction;
 movements in fair values are independently monitored and explained by reference to underlying factors relevant to the fair value; and valuation adjustments (such as funding valuation adjustments, credit valuation adjustments and bid-offer adjustments) are independently
validated and monitored.
If the Group holds offsetting risk positions, then the Group uses the portfolio exception in AASB 13 Fair Value Measurement (AASB 13) to measure thefair value of such groups of financial assets and financial liabilities. We measure the portfolio based on the price that would be received to sell a net
long position (an asset) for a particular risk exposure, or to transfer a net short position (a liability) for a particular risk exposure.
Fair value designation
We designate certain loans and advances and certain deposits and other borrowings and debt issuances as fair value through profit or loss:
 where they contain a separable embedded derivative which significantly modifies the instruments’ cash flow; or in order to eliminate an accounting mismatch which would arise if the asset or liabilities were otherwise carried at amortised cost. This mismatcharises as we measure the derivative financial instruments (which we acquired to mitigate interest rate risk of the assets or liabilities) at fair value
through profit or loss.
Our approach ensures that we recognise the fair value movements on the assets or liabilities in profit or loss in the same period as the movement on
the associated derivatives.
We may also designate certain loans and advances, certain deposits and other borrowings and debt issuances as fair value through profit or loss
where they are managed on a fair value basis to align the measurement with how the instruments are managed.
FAIR VALUE APPROACH AND VALUATION TECHNIQUESWe use valuation techniques to estimate the fair value of assets and liabilities for recognition, measurement and disclosure purposes where no quoted
price in an active market exists for that asset or liability. This includes the following:
Asset or Liability

Fair Value Approach

Financial instruments classified as:

Valuation techniques are used that incorporate observable market inputs for financial
instruments with similar credit risk, maturity and yield characteristics. Equity
instruments that are not traded in active markets may be measured using
comparable company valuation multiples.

- Trading securities- Securities sold short- Derivative financial assets and financial liabilities- Investment securities (from 1 October 2018)- Available-for-sale assets (prior to 1 October 2018)
Financial instruments classified as:- Net loans and advances- Deposits and other borrowings- Debt issuances
Assets and liabilities held for sale

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Discounted cash flow techniques are used whereby contractual future cash flows of
the instrument are discounted using wholesale market interest rates, or market
borrowing rates for debt with similar maturities or yield curve appropriate for theremaining term to maturity.
Valuation based on the expected sale price before transaction costs.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

17. FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES (continued)
CLASSIFICATION OF FINANCIAL ASSETS AND FINANCIAL LIABILITIESThe following tables set out the classification of financial asset and liability categories according to measurement bases together with their carrying
amounts as reported on the balance sheet.
2019

2018

Note

At
amortised
cost
$m

At
fair
value
$m

8

81,621-

Settlement balances owed to ANZ

3,739

-

Collateral paid

15,006

-

Total
$m

At
amortised
cost
$m

At
fair
value
$m

Total
$m

81,621

84,636-

84,636

3,739

2,319

-

2,319

15,006

11,043-

11,043Financial assets
Cash and cash equivalents

Trading securities

9-43,16943,169-37,722

37,722Derivative financial instruments

10-

120,667

120,667-

68,42368,423

Investment securities

11

5,999

77,71083,709---Available-for-sale assets

11

-

-

-

-

74,28474,284

Net loans and advances

12614,336922

615,258

604,331133

604,464

Regulatory deposits

879

-

879

882

-

882

Assets held for sale1

-

1,420

1,420

727

43,15143,878

3,118

-

3,118

2,899

-

2,899

724,698

243,888968,586

706,837

223,713930,550

Settlement balances owed by ANZ

10,867-

10,867

11,810-11,810Collateral received

7,929

-

7,929

6,542

-

6,542

615,818

2,332

618,150

Other financial assets
Total
Financial liabilities

Deposits and other borrowings

14635,376

2,301

637,677

Derivative financial instruments

10-

120,951

120,951-

69,676

69,676

-

1,914

1,914

130

46,641

46,771

Liabilities held for sale1
Payables and other liabilities
Debt issuances
Total
1.

15

5,377

2,591

7,968

5,723

1,171

6,894

127,1022,589

129,691

119,737

1,442

121,179

786,651

130,346

916,997759,760

121,262

881,022

Assets held for sale and liabilities held for sale include only the components of assets or liabilities held for sale which are financial instruments.

FAIR VALUE HIERARCHYThe Group categorises assets and liabilities carried at fair value into a fair value hierarchy as required by AASB 13 based on the observability of inputs
used to measure the fair value:
 Level 1 - valuations based on quoted prices (unadjusted) in active markets for identical assets or liabilities;
 Level 2 - valuations using inputs other than quoted prices included within Level 1 that are observable for a similar asset or liability, either directly or
indirectly; and Level 3 - valuations where significant unobservable inputs are used to measure the fair value of the asset or liability.

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Notes to the consolidated financial statements (continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

17. FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES (continued)
The following table presents assets and liabilities carried at fair value in accordance with the fair value hierarchy:
Fair value measurements
Quoted market price(Level 1)

Using observable
inputs (Level 2)

Using unobservable
inputs (Level 3)

Total

2019
$m

2018
$m

2019
$m

2018
$m

2019
$m

2018
$m

2019
$m

2018
$m

37,76830,855

5,401

6,867

-

-

43,16937,722647 120,241

67,71761

59 120,667

68,423

499

-

1,211

-

77,710-AssetsTrading securities1
Derivative financial instruments

365
76,000-2-

69,508

-

3,695

-

1,081

-

74,284

Net loans and advances (measured at fair value)

-

-

922

133

-

-

922

133

Assets held for sale

-

-

1,952

44,623

-

-

1,952

44,623101,010 129,015

123,035

1,272

1,140 244,420

225,185

2,301

2,332

44 120,951

69,676
1,171

Investment securities2
Available-for-sale assets
3

Total

114,133

Liabilities
-

-

2,301

2,332

-

Derivative financial instruments

881

1,680

120,018

67,95252

Payables and other liabilities4

2,553

1,159

38

12

-

-

2,591

Debt issuances (designated at fair value)

-

-

2,589

1,442

-

-

2,589

1,442

Liabilities held for sale3

-

-

2,121

46,829

-

-

2,121

46,8292,839 127,067

118,56752

44 130,553

121,450

Deposits and other borrowings (designated at fair value)

Total

3,434

-

1.

During the year, there were no material transfers from Level 2 to Level1 (2018: $953 million) in Trading Securities. Transfers from Level 1 to Level 2 for the year and previous periods are immaterial. Transfers
into and out of levels are measured at the beginning of the reporting period in which the transfer occurred.
On adoption of AASB 9 on 1 October 2018, the classification and measurement of financial assets was revised. The available-for-sale classification used in comparative periods no longer exists under AASB 9
and a new classification of investment securities was introduced. Comparative information has not been restated.
3.
The amount classified as Assets and Liabilities held for sale relates to assets and liabilities measured at fair value less cost to sell in accordance with AASB 5 Non-current Assets Held for Sale and Discontinued
Operations. The amount presented reflects fair value excluding cost to sell but including intercompany eliminations.
4.
Payables and other liabilities relates to securities sold short, which we classify as held for trading and measured at fair value through profit or loss.
2.

FAIR VALUE MEASUREMENT INCORPORATING UNOBSERVABLE MARKET DATA
Level 3 fair value measurements
The net balance of Level 3 is an asset of $1,220 million (2018: $1,096 million). The assets and liabilities which incorporate significant unobservable
inputs primarily include: equities for which there is no active market or traded prices cannot be observed;
 structured credit products for which credit spreads and default probabilities relating to the reference assets and derivative counterparties cannot
be observed;
 other derivatives referencing market rates that cannot be observed primarily due to lack of market activity.
Movement in Level 3 balance is mainly due to the revaluation of the Group’s investment in Bank of Tianjin.
There were no material transfers in or out of Level 3 during the period.

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ANZ 2019 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

17. FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES (continued)
Bank of Tianjin (BoT)The investment is valued based on comparative price-to-book (P/B) multiples (a P/B multiple is the ratio of the market value of equity to the bookvalue of equity). The extent of judgement applied in determining the appropriate multiple and comparator group from which the multiple is derived
are non-observable inputs which have resulted in the Level 3 classification.
Sensitivity to Level 3 data inputs
When we make assumptions due to significant inputs not being directly observable in the market place (Level 3 inputs), then changing theseassumptions changes the Group’s estimate of the instrument’s fair value. Favourable and unfavourable changes are determined by changing the
primary unobservable parameter used to derive the valuation.
Bank of Tianjin (BoT)The valuation of the BoT investment is sensitive to the selected unobservable input, being the P/B multiple. If the P/B multiple was increased or
decreased by 10% it would result in a $111 million (2018: $102 million) increase or decrease to the fair value of the investment, which would berecognised in shareholders’ equity.
Other
The remaining Level 3 balance is immaterial and changes in the Level 3 inputs have a minimal impact on net profit and net assets of the Group.
Deferred fair value gains and losses
Where fair values are determined using unobservable inputs significant to the fair value of a financial instrument, the Group does not immediately
recognise the difference between the transaction price and the amount we determine based on the valuation technique (day one gain or loss) in
profit or loss. After initial recognition, we recognise the deferred amount in profit or loss on a straight line basis over the life of the transaction or until
all inputs become observable.
The day one gains and losses deferred are not material.
FINANCIAL ASSETS AND FINANCIAL LIABILITIES NOT MEASURED AT FAIR VALUE
The following table sets out the Group’s basis of estimating fair values of financial instruments carried at amortised cost:
Financial Asset and Liability

Fair Value Approach

Investment securities - debt securities at amortised cost

Calculated based on quoted market prices or observable inputs as applicable. If
quoted market prices are not available, we use a discounted cash flow model using ayield curve appropriate for the remaining term to maturity of the debt instrument.
The fair value reflects adjustments to credit spreads applicable for that instrument.

Net loans and advances to banks

Discounted cash flows using prevailing market rates for loans with similar
credit quality.

Net loans and advances to customers

Present value of future cash flows, discounted using a curve that incorporates
changes in wholesale market rates, the Group’s cost of wholesale funding and thecustomer margin, as appropriate.

Deposit liability without a specified maturity or at call

The amount payable on demand at the reporting date. We do not adjust the fairvalue for any value we expect the Group to derive from retaining the deposit for a
future period.

Interest bearing fixed maturity deposits and otherborrowings and acceptances with quoted market rates

Market borrowing rates of interest for debt with a similar maturity are used to
discount contractual cash flows to derive the fair value.

Debt issuances

Calculated based on quoted market prices or observable inputs as applicable. If
quoted market prices are not available, we use a discounted cash flow model using ayield curve appropriate for the remaining term to maturity of the debt instrument.
The fair value reflects adjustments to credit spreads applicable to ANZ for that
instrument.

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Notes to the consolidated financial statements (continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

17. FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES (continued)
The financial assets and financial liabilities listed in the table below are carried at amortised cost on the Group’s Balance Sheet. While this is the value atwhich we expect the assets will be realised and the liabilities settled, the Group provides an estimate of the fair value of the financial assets andfinancial liabilities at balance date in the table below.
Categorised into fair value hierarchy
Quoted market
price(Level 1)

At amortised cost

With significant nonobservable inputs(Level 3)

Using observable
inputs (Level 2)

Fair value (total)

2019
$m

2018
$m

2019
$m

2018
$m

2019
$m

2018
$m

2019
$m

2018
$m

2019
$m

2018
$m

614,336605,330--

22,62929,586

592,704

575,691

615,333

605,277

Financial assets
Net loans and advances1
Investment securities

5,999

-

-

-

5,997

-

-

-

5,997

-

Total

620,335

605,330--

28,626

29,586

592,704

575,691

621,330

605,277

Deposits and other borrowings1

635,376

617,397--

635,660

617,563--635,660

617,563

Debt issuances

127,102

119,737

43,304

43,41385,484

77,205--

128,788

120,618

Total

762,478

737,134

43,304

43,413

721,144694,768--

764,448

738,1812

Financial liabilities

1.
2.

Net loans and advances and deposits and other borrowings include amounts reclassified to assets and liabilities held for sale (refer Note 29 Discontinued Operations and Assets and Liabilities Held for Sale).
Investment securities under AASB 9 includes securities measured at amortised cost.

KEY JUDGEMENTS AND ESTIMATESThe Group evaluates the material accuracy of the valuations incorporated in the financial statements as they can involve a high degreeof judgement and estimation in determining the carrying values of financial assets and financial liabilities at the balance sheet date.
The majority of valuation models the Group uses employ only observable market data as inputs. However, for certain financial
instruments, we may use data that is not readily observable in current markets. If we use unobservable market data, then we need toexercise more judgement to determine fair value depending on the significance of the unobservable input to the overall valuation.
Generally, we derive unobservable inputs from other relevant market data and compare them to observed transaction prices whereavailable.
When establishing the fair value of a financial instrument using a valuation technique, the Group considers valuation adjustments indetermining the fair value. We may apply adjustments (such as bid/offer spreads, credit valuation adjustments and funding valuation
adjustments – refer Note 10 Derivative Financial Instruments) to the techniques used to reflect the Group’s assessment of factors thatmarket participants would consider in setting fair value.

170

170

ANZ 2019 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

18. ASSETS CHARGED AS SECURITY FOR LIABILITIES AND COLLATERAL ACCEPTED AS
SECURITY FOR ASSETS
The following disclosure excludes the amounts presented as collateral paid and received in the Balance Sheet that relate to derivative liabilities andderivative assets respectively. The terms and conditions of those collateral agreements are included in the standard Credit Support Annex that forms
part of the International Swaps and Derivatives Association Master Agreement.
ASSETS CHARGED AS SECURITY FOR LIABILITIESAssets charged as security for liabilities include the following types of instruments:
 Securities provided as collateral for repurchase transactions. These transactions are governed by standard industry agreements;
 UDC Secured Investments are secured by a security interest granted under a trust deed over all of UDC’s present and future assets andundertakings, to Trustees Executors Limited, as supervisor. The assets subject to the security interest comprise mainly loans to UDC's customers
and certain plant and equipment. The security interest secures all amounts payable by UDC on the UDC Secured Investments and all other monies
payable by UDC under the trust deed; Specified residential mortgages provided as security for notes and bonds issued to investors as part of ANZ’s covered bond programs;
 Collateral provided to central banks; and Collateral provided to clearing houses.
The carrying amount of assets pledged as security are as follows:

Securities sold under arrangements to repurchase1

2019
$m

2018
$m

43,21340,164

Assets pledged as collateral for UDC Secured Investments

3,228

3,019

Residential mortgages provided as security for covered bonds

30,79929,455

Other

4,927

2,794

1.

The amounts disclosed as securities sold under arrangements to repurchase include both: assets pledged as security which continue to be recognised on the Group's balance sheet; and assets repledged, which are included in the disclosure below.

COLLATERAL ACCEPTED AS SECURITY FOR ASSETSANZ has received collateral associated with various financial instruments. Under certain transactions ANZ has the right to sell, or to repledge, thecollateral received. These transactions are governed by standard industry agreements.
The fair value of collateral we have received and that which we have sold or repledged is as follows:
2019
$m

2018
$m

Fair value of assets which can be sold or repledged

37,99036,122

Fair value of assets sold or repledged

29,46023,300

171

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ANZ 2019 ANNUAL REPORT

Notes to the consolidated financial statements (continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

19. OFFSETTING
We offset financial assets and financial liabilities in the balance sheet (in accordance with AASB 132 Financial Instruments: Presentation) when there is: a current legally enforceable right to set off the recognised amounts in all circumstances; and an intention to settle the asset and liability on a net basis, or to realise the asset and settle the liability simultaneously.
If the above conditions are not met, the financial assets and financial liabilities are presented on a gross basis.
The Group does not have any arrangements that satisfy the conditions necessary to offset financial assets and financial liabilities within the balance
sheet. The following table identifies financial assets and financial liabilities which have not been offset but are subject to enforceable master netting
agreements (or similar arrangements) and the related amounts not offset in the balance sheet. We have not taken into account the effect of overcollateralisation.
Amount subject to master netting agreement or similar
Amounts not
Total amounts
subject torecognised in master netting
the agreement orBalance Sheetsimilar
$m
$m

2019

Total
$m

Financial
instruments$mFinancialcollateral(received)/pledged$mNetamount$m

Derivative financial assets

120,667(4,019)116,648(103,247)(6,378)

7,023

Reverse repurchase, securities borrowing andsimilar agreements1

37,102(5,299)31,803(1,414)(30,389)-

Total financial assets

157,769(9,318)148,451(104,661)(36,767)

7,023

Derivative financial liabilities(120,951)

3,145(117,806)

103,247

10,970(3,589)Repurchase, securities lending and similar
agreements2(41,367)

17,781(23,586)

1,414

22,172-

Total financial liabilities(162,318)

20,926(141,392)

104,661

33,142(3,589)Amount subject to master netting agreement or similar
Amounts not
Total amounts
subject torecognised in master netting
the agreement orBalance Sheetsimilar
$m
$m

2018

Financial
instruments$mNetamount$m

Derivative financial assets3

68,426(3,292)

65,134(54,251)(5,507)

5,376

Reverse repurchase, securities borrowing andsimilar agreements1

35,310(4,738)30,572(398)(30,174)-

Total financial assets

103,736(8,030)95,706(54,649)(35,681)

5,376(69,677)

3,644(66,033)

54,252

8,287(3,494)

Repurchase, securities lending and similar
agreements2(38,378)

12,794(25,584)

398

25,186-

Total financial liabilities(108,055)

16,438(91,617)54,65033,473(3,494)

Derivative financial liabilities

3

1.

Reverse repurchase agreements:
 with less than 90 days to maturity are presented in the Balance Sheet within cash and cash equivalents; or with 90 days or more to maturity are presented in the Balance Sheet within net loans and advances.

2.

Repurchase agreements are presented in the Balance Sheet within deposits and other borrowings.
Includes derivative assets and liabilities reclassified as held for sale.

3.

172

Total
$m

Financialcollateral(received)/pledged$m172

ANZ 2019 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

20. GOODWILL AND OTHER INTANGIBLE ASSETS
Software

Goodwill1
2019
Balance at start of year
Additions

2018

2019

Other Intangibles
2018

2019

2018

Total
2019

2018

$m

$m

$m

$m

$m

$m

$m

$m

3,440

4,447

1,421

1,860

69

663

4,930

6,970

-

1

421

390

-

-

421

391

Amortisation expense

-

-

(517)

(821)

-

(38)

(517)

(859)

Impairment expense

-

(12)

(4)

(17)

-

-

(4)

(29)

Impairment on reclassification to held for sale

-

(421)

-

-

-

-

-

(421)

Transferred to held for sale

-

(571)

-

-

-

(555)

-

(1,126)

27

(4)

2

9

2

(1)

31

4

Balance at end of year

3,467

3,440

1,323

1,421

71

69

4,861

4,930

Cost

3,467

3,440

7,068

6,490

75

149

10,61010,079n/an/a(5,745)(5,069)(4)(80)(5,749)(5,149)

3,467

3,440

1,323

1,421

71

69

4,861

4,930

2

3

Foreign currency exchange difference

Accumulated amortisation/impairment
Carrying amount1.

Goodwill excludes notional goodwill in equity accounted investments.
2.
2018 includes an accelerated amortisation expense of $251 million.
3.
Relates to discontinued operations in 2018 (refer to Note 29).

GOODWILL ALLOCATED TO CASH-GENERATING UNITS (CGUs)
An annual assessment is made as to whether the current carrying value of goodwill is impaired. For the purposes of impairment testing, goodwill isallocated at the date of acquisition to a CGU. Goodwill is considered to be impaired if the carrying amount of the relevant CGU exceeds its
recoverable amount.
To estimate the recoverable amount of the CGU to which each goodwill component is allocated, we use a fair value less cost of disposal assessment
approach for each segment.
FAIR VALUE LESS COST OF DISPOSALThe Group has determined, using a market multiple approach, the fair value less costs of disposal of each CGU. This is primarily based on observable
price earnings multiples reflecting the businesses and markets in which each CGU operates plus a control premium. The earnings are based on thecurrent forecast earnings of the divisions. As at 30 September 2019, our impairment testing did not result in any material impairment being identified.
For each of ANZ’s CGUs with goodwill, the price earnings multiples applied were as follows:
Division

2019

2018

Australia Retail and Commercial

17.9

16.9

Institutional

14.7

14.6

New Zealand

17.8

16.8

Pacific

17.7

18.5

173

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ANZ 2019 ANNUAL REPORT

Notes to the consolidated financial statements (continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

20. GOODWILL AND OTHER INTANGIBLE ASSETS (continued)

RECOGNITION AND MEASUREMENT
The table below details how we recognise and measure different intangible assets:
Definition

Carrying value

Goodwill

Software

Other Intangible Assets

Excess amount the Group has
paid in acquiring a business overthe fair value less costs of disposalof the identifiable assets andliabilities acquired.

Purchases of “off the shelf’ software
assets are capitalised as assets.

Management fee rights

Cost less any accumulated
impairment losses.

Initially, measured at cost.

Allocated to the cash generating
unit to which theacquisition relates.

Useful life

Indefinite.
Goodwill is reviewed for
impairment at least annually or
when there is an indication of
impairment.

Depreciation
methodNot applicable.

Internal and external costs incurred inbuilding software and computer
systems costing greater than $20 million
are capitalised as assets. Those less than
$20 million are expensed in the year inwhich the costs are incurred.
Subsequently, carried at cost lessaccumulated amortisation andimpairment losses.

Initially, measured at fair value atacquisition.
Subsequently, carried at cost less
impairment losses.

Costs incurred in planning or evaluating
software proposals or in maintaining
systems after implementation are
not capitalised.
Except for major core infrastructure,amortised over periods between
3-5 years.
Major core infrastructure amortised overperiods between 7 or 10 years.
Straight-line method.

Management fee rights with anindefinite life are reviewed for
impairment at least annually or where
there is an indication of impairment.
Not applicable.

KEY JUDGEMENTS AND ESTIMATESManagement judgement is used to assess the recoverable value of goodwill, and other intangible assets, and the useful economic life of anasset, or if an asset has an indefinite life. We reassess the recoverability of the carrying value at each reporting date.
The carrying amount of goodwill is based on judgements including the basis of assumptions and forecasts used for determining earnings
for CGUs, headroom availability, and sensitivities of the forecasts to reasonably possible changes in assumptions. The level at which
goodwill is allocated, the estimation of future earnings and the selection of earnings multiples applied requires significant judgement.
At each balance date, software and other intangible assets, including those not yet ready for use, are assessed for indicators of impairment.
In the event that an asset’s carrying amount is determined to be greater than its recoverable amount, the carrying value of the asset iswritten down immediately.
In addition, the expected useful life of intangible assets, including software assets, are assessed at each reporting date. The assessment
requires management judgement, and in relation to our software assets, a number of factors can influence the expected useful lives. These
factors include changes to business strategy, significant divestments and the underlying pace of technological change.

174

174

ANZ 2019 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

21. OTHER PROVISIONS
2019
$m

2018
$m

668

526

1,139

602

Restructuring costs

64

105

Non-lending losses, frauds and forgeries

94

100

Other

349

191

2,314

1,524

(91)

(66)

2,223

1,458

ECL allowance on undrawn facilities1
Customer remediation2

Total other provisions (including liabilities reclassified as held for sale)Less: Other provisions reclassified as held for sale
Total other provisions
1.
2.

Refer to Note 13 Allowance for Expected Credit Losses for movement analysis.
Customer remediation provisions relating to discontinued operations amounting to $228 million (2018: $174 million) have not been reclassified to liabilities held for sale as the Group remains accountablefor customer remediation post sale completion.

Customer
remediation$m

Restructuring
costs
$m

Non-lending
losses, frauds
and forgeries
$m

Other
$m

Balance at start of year

602

105

100

191

New and increased provisions made during the year

857

97

18

338

Provisions used during the year

(186)

(117)

(5)

(71)

Unused amounts reversed during the year1

(134)

(21)

(19)

(109)

Balance at end of year (including liabilities reclassified as held for sale)

1,139

64

94

349

1.

Customer remediation includes a $63 million transfer to the purchaser on completion of divestment of part of Wealth Australia discontinued operations.

Customer remediation
Customer remediation includes provisions for expected refunds to customers, remediation project costs and related customer and regulatory
claims, penalties and litigation outcomes.
Restructuring costs
Provisions for restructuring costs arise from activities related to material changes in the scope of business undertaken by the Group or themanner in which that business is undertaken and include employee termination benefits. Costs relating to on-going activities are not provided
for and are expensed as incurred.
Non-lending losses, frauds and forgeries
Non-lending losses include losses arising from certain legal actions not directly related to amounts of principal outstanding for loans andadvances and losses arising from forgeries, frauds and the correction of operational issues. The amounts recognised are the best estimate of theconsideration required to settle the present obligation at the reporting date, taking into account the risks and uncertainties that surround theevents and circumstances that affect the provision.
Other
Other provisions comprise various other provisions including workers compensation, make-good provisions associated with leased premises,
warranties and indemnities provided in connection with various disposals of businesses and assets, and contingent liabilities recognised as partof a business combination.

175

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ANZ 2019 ANNUAL REPORT

Notes to the consolidated financial statements (continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

21. OTHER PROVISIONS (continued)

RECOGNITION AND MEASUREMENTThe Group recognises provisions when there is a present obligation arising from a past event, an outflow of economic resources isprobable, and the amount of the provision can be measured reliably.
The amount recognised is the best estimate of the consideration required to settle the present obligation at reporting date, taking into
account the risks and uncertainties surrounding the timing and amount of the obligation. Where a provision is measured using theestimated cash flows required to settle the present obligation, its carrying amount is the present value of those cash flows.

KEY JUDGEMENTS AND ESTIMATESThe Group holds provisions for various obligations including customer remediation, restructuring costs and surplus lease space, nonlending losses, fraud and forgeries and litigation related claims. These provisions involve judgements regarding the timing and outcome of
future events, including estimates of expenditure required to satisfy such obligations. Where relevant, expert legal advice has beenobtained and, in light of such advice, provisions and/or disclosures as deemed appropriate have been made.
In relation to customer remediation, determining the amount of the provisions, which represent management’s best estimate of the costof settling the identified matters, requires the exercise of significant judgement. It will often be necessary to form a view on a number ofdifferent assumptions, including, the number of impacted customers, the average refund per customer, the associated remediation project
costs, and the implications of regulatory exposures and customer claims having regard to their specific facts and circumstances.
Consequently, the appropriateness of the underlying assumptions is reviewed on a regular basis against actual experience and otherrelevant evidence including expert legal advices and adjustments are made to the provisions where appropriate.

176

176

ANZ 2019 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

22. SHAREHOLDERS’ EQUITYSHAREHOLDERS' EQUITY
2019
$m

2018
$m

26,49027,205

Foreign currency translation reserve

705

12

Share option reserve

89

92

FVOCI reserve

126-

Ordinary share capital
Reserves

-

113

731

127

Available-for-sale revaluation reserve
Cash flow hedge reserve

(22)

(21)

Total reserves

1,629

323

Retained earnings

32,66431,737

Share capital and reserves attributable to shareholders of the Company

60,78359,26511

140

60,794

59,405

Transactions with non-controlling interests reserve

Non-controlling interests
Total shareholders’ equity

ORDINARY SHARE CAPITAL
The table below details the movement in ordinary shares for the period.
2019

Balance at start of the year
Bonus option plan1
Group employee share acquisition scheme
Share buy-back2
Treasury shares in Wealth Australia discontinued operations3
Balance at end of year

2018

Number ofshares$m

Number ofshares$m

2,873,618,118

27,2052,937,415,327

29,0882,999,796-

2,891,060

-

-

-

-

(1)

(42,032,991)(1,120)(66,688,269)(1,880)

-

405

-

(2)

2,834,584,923

26,4902,873,618,118

27,205

1.

The Company issued 1.4 million shares under the Bonus Option Plan (BOP) for the 2019 interim dividend and 1.6 million shares for the 2018 final dividend (1.4 million shares for the 2018 interim dividendand 1.5 million shares for the 2017 final dividend).
2.
The Company completed a $3.0 billion on-market share buy-back of ANZ ordinary shares purchasing $1,120 million in the September 2019 full year (Sep 18 full year: $1,880 million) resulting in 42.0 million
ANZ ordinary shares being cancelled in the September 2019 full year (Sep 18 full year: 66.7 million).
3.
The successor fund transfer performed in preparation for the sale of the Group’s wealth business to Zurich and IOOF completed on 13 April 2019. As a result the Group no longer eliminates the ANZ sharespreviously held in Wealth Australia discontinued operations.

177

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ANZ 2019 ANNUAL REPORT

Notes to the consolidated financial statements (continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

22. SHAREHOLDERS’ EQUITY (continued)

RECOGNITION AND MEASUREMENT
Ordinary shares

Ordinary shares have no par value. They entitle holders to receive dividends, orproceeds available on winding up of the Company, in proportion to the number of fully
paid ordinary shares held. They are recognised at the amount paid per ordinary share
net of directly attributable costs. Every holder of fully paid ordinary shares present at a
meeting in person, or by proxy, is entitled to: on a show of hands, one vote; and on a poll, one vote, for each share held.

Treasury shares

Treasury shares are shares in the Company which: the ANZ Employee Share Acquisition Plan purchases on market and have not yet
distributed, or the Company issues to the ANZ Employee Share Acquisition Plan and have not yet
been distributed, or the life insurance business purchased and held to back policy liabilities in thestatutory funds prior to the successor fund transfer performed in preparation for the sale of
the Group’s wealth business to Zurich and IOOF which completed on 13 April 2019.
Treasury shares are deducted from share capital and excluded from the weighted average
number of ordinary shares used in the earnings per share calculations.

Reserves:
Foreign currency translation reserve

Includes differences arising on translation of assets and liabilities into Australian dollars when
the functional currency of a foreign operation (including subsidiaries and branches) is not
Australian dollars. In this reserve, we reflect any offsetting gains or losses on hedging these
exposures, together with any tax effect.

Cash flow hedge reserve

Includes fair value gains and losses associated with the effective portion of designated cash
flow hedging instruments together with any tax effect.

Available-for-sale reserve(prior to 1 October 2018)

Includes the changes in fair value and exchange differences on our revaluation of availablefor-sale financial assets together with any tax effect.

FVOCI reserve(from 1 October 2018)

Includes changes in the fair value of certain debt securities and equity securities included
within Investment Securities together with any tax effect.
In respect of debt securities classified as measured at FVOCI, the FVOCI reserve records
accumulated changes in fair value arising subsequent to initial recognition, except for thoserelating to allowance for expected credit losses, interest income and foreign currency
exchange gains and losses which are recognised in profit or loss. As debt securities at FVOCI
are recorded at fair value, the balance of the FVOCI reserve is net of the ECL allowanceassociated with such assets. When a debt security measured at FVOCI is derecognised, thecumulative gain or loss recognised in the FVOCI reserve in respect of that security is
reclassified to profit or loss and presented in Other Operating Income.
In respect of the equity securities classified as measured at FVOCI, the FVOCI reserve records
accumulated changes in fair value arising subsequent to initial recognition (including any
related foreign exchange gains or losses). When an equity security measured at FVOCI is
derecognised, the cumulative gain or loss recognised in the FVOCI reserve in respect of that
security is not recycled to profit or loss.

178

178

Share option reserve

Includes amounts which arise on the recognition of share-based compensation expense.

Transactions with non-controllinginterests reserve

Includes the impact of transactions with non-controlling shareholders in their capacity
as shareholders.

Non-controlling interests

Share in the net assets of controlled entities attributable to equity interests which theCompany does not own directly or indirectly.

ANZ 2019 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

23. CAPITAL MANAGEMENTCAPITAL MANAGEMENT STRATEGY
ANZ’s capital management strategy aims to protect the interests of depositors, creditors and shareholders. We achieve this through an Internal
Capital Adequacy Assessment Process (ICAAP) whereby ANZ conducts detailed strategic and capital planning over a 3 year time horizon.
The process involves:
 forecasting economic variables, financial performance of ANZ’s divisions and the financial impact of new strategic initiatives to be implemented
during the planning period;
 performing stress tests under different economic scenarios to determine the level of additional capital (‘stress capital buffer’) needed to absorb
losses that may be experienced under an economic downturn; reviewing capital ratios and targets across various classes of capital against ANZ’s risk profile; and developing a capital plan, taking into account capital ratio targets, current and future capital issuances requirements and options around capital
products, timing and markets to execute the capital plan under differing market and economic conditions.
The capital plan is approved by the Board and updated as required. The Board and senior management are provided with regular updates of ANZ’scapital position. Any material actions required to ensure ongoing prudent capital management are submitted to the Board for approval. Throughout
the year, the Group maintained compliance with all the regulatory requirements related to Capital Adequacy in the jurisdictions in which it operates.

REGULATORY ENVIRONMENT
Australia
As ANZ is an Authorised Deposit-taking Institution (ADI) in Australia, it is primarily regulated by APRA under the Banking Act 1959 (Cth). ANZ mustcomply with the minimum regulatory capital requirements, prudential capital ratios and specific reporting levels that APRA sets and which areconsistent with the global Basel III capital framework. This is the common framework for determining the appropriate level of bank regulatory capitalas set by the Basel Committee on Banking Supervision (“BCBS”). APRA requirements are summarised below:
Regulatory Capital Definition
Common Equity Tier 1 (CET1) Capital

Tier 1 Capital

Tier 2 Capital

Total Capital

Shareholders’ equity adjusted forspecific items.

CET1 Capital plus certain securities
with complying loss absorbing
characteristics known as
Additional Tier 1 Capital.

Subordinated debt instruments
which have a minimum term of 5
years at issue date.

Tier 1 plus Tier 2 Capital.

CET1 Ratio

Tier 1 Ratio

Total Capital Ratio

CET1 Capital divided by total risk
weighted assets must be at least 4.5%.

Tier 1 Capital divided by total risk
weighted assets must be at least
6.0%.

Total Capital divided by total risk weighted
assets must be at least 8.0%.

Level 1

Level 2

Level 3The ADI on a stand-alone basis (that is
the Company and specified subsidiaries
which are consolidated to form the
ADI’s Extended Licensed Entity).

The consolidated Group lesscertain subsidiaries and associatesthat are excluded underprudential standards.

A conglomerate Group at the widest level.

Minimum Prudential Capital Ratios (PCRs)

Reporting Levels

APRA also requires the ADI to hold additional CET1 buffers as follows: A capital conservation buffer (CCB) of 3.5% which is inclusive of the additional 1% surcharge for domestically systemically important banks (D-SIBs).
APRA has determined that ANZ is a D-SIB.
 A countercyclical capital buffer which is set on a jurisdictional basis. The requirement is currently set to zero for Australia.
ANZ reports to APRA on a Level 1 and Level 2 basis, and measures capital adequacy monthly on a Level 1 and Level 2 basis, and is not yet required tomaintain capital on a Level 3 basis (APRA have yet to conclude required timing for Level 3 reporting).
Life Insurance and Funds Management
As required by APRA’s Prudential Standards, insurance and funds management activities are:
 de-consolidated for the purposes of calculating capital adequacy; and excluded from the risk based capital adequacy framework.
We deduct the investment in these controlled entities 100% from CET1 capital, and if we include any profits from these activities in the Group’s results,then we exclude them from the determination of CET1 capital to the extent they have not been remitted to the Company.

179

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ANZ 2019 ANNUAL REPORT

Notes to the consolidated financial statements (continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

23. CAPITAL MANAGEMENT (continued)
Outside Australia
In addition to APRA, the Company’s branch operations and major banking subsidiary operations are also overseen by local regulators such as theReserve Bank of New Zealand, the US Federal Reserve, the UK Prudential Regulation Authority, the Monetary Authority of Singapore, the Hong Kong
Monetary Authority and the China Banking and Insurance Regulatory Commission. They may impose minimum capital levels on operations in theirindividual jurisdictions.

CAPITAL ADEQUACY1
The following table provides details of the Group’s capital adequacy ratios at 30 September:
2019
$m

2018
$m

60,794

59,383

Qualifying capital
Tier 1
Shareholders' equity and non-controlling interests2

120

(322)

Gross Common Equity Tier 1 capital

60,91459,061

Deductions(13,559)(14,370)

Prudential adjustments to shareholders' equity

Common Equity Tier 1 capital

47,35544,691

Additional Tier 1 capital

7,866

7,527

Tier 1 capital

55,221

52,218Tier 2 capital

8,549

7,291

Total qualifying capital

63,77059,509Common Equity Tier 1

11.4%

11.4%

Tier 1

13.2%

13.4%

Tier 2

2.1%

1.9%

Total capital ratio

15.3%

15.2%

416,961

390,820

Capital adequacy ratios (Level 2)

Risk weighted assets

180

1.

This information is not within the scope of the external audit of the Group Financial Report by the Group’s external auditor, KPMG. The information presented in this table is a regulatory requirement
disclosed in Part A of the APRA Reporting Form (ARF) 110 Capital Adequacy which will be subject to audit in accordance with Prudential Standard APS 310 Audit and Related Matters.

2.

Prior period numbers have not been restated for the impact of AASB 15 to align with previously reported regulatory returns.

180

ANZ 2019 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

24. PARENT ENTITY FINANCIAL INFORMATION
Australia and New Zealand Banking Group Limited (the Company) has prepared a separate set of financial statements to satisfy the requirements of
the Australian Financial Services License it holds with ASIC. These separate Company financial statements are available on the ANZ website at anz.com
and have been lodged with ASIC.
Selected financial information of the Company is provided below:

SUMMARY FINANCIAL INFORMATION

Income statement information for the financial year
Profit after tax for the year
Total comprehensive income for the year
Balance sheet information as at the end of the financial year
Cash and cash equivalents
Net loans and advances1
Total assets1
Deposits and other borrowings
Total liabilities1
Shareholders' equity
Ordinary share capital
Reserves
Retained earnings1
Total shareholders' equity1
1.

2019
$m

2018
$m

4,447
5,413

8,524
8,450

77,949484,655
914,832
524,241
861,618

80,227475,851
841,211
511,992
787,335

26,413840
25,961
53,21427,533(56)
26,39953,876Comparative information has been restated for the adoption of AASB 15 and other reclassification adjustments to enhance comparability with current period presentation. Total assets increased by $464
million ($432 million related to Net loans and advances), Total liabilities increased by $442 million and Retained earnings increased by $22 million.

PARENT ENTITY’S CONTRACTUAL COMMITMENTS
PROPERTY RELATED COMMITMENTS

Lease rentals
Land and buildings
Furniture and equipment
Total lease rental commitments1
Due within 1 year
Due later than 1 year but not later than 5 years
Due later than 5 years
Total lease rental commitments1
1.

2019
$m

2018
$m

1,699
58
1,757
304
868
585
1,757

1,533
112
1,645
321
769
555
1,645

Total future minimum sublease payments we expect to receive under non-cancellable subleases at 30 September 2019 is $67 million (2018: $81 million). During the year, we received sublease payments of$28 million (2018: $29 million) and netted them against rent expense.

CREDIT RELATED COMMITMENTS AND CONTINGENCIES

Contract amount of:
Undrawn facilities
Guarantees and letters of credit
Performance related contingencies
Total

2019
$m

2018
$m

171,881
20,37520,097
212,353

164,944
16,363
22,176
203,483

The contingent liabilities of the Group described under Other contingent liabilities in Note 33 are contingent liabilities of the parent entity (some arealso contingent liabilities of other group companies).

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Notes to the consolidated financial statements (continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

25. CONTROLLED ENTITIES
Incorporated inAustralia

Nature of BusinessBanking

All controlled entities are 100% owned, unless otherwise noted.
The material controlled entities of the Group are:
ANZ Bank (Vietnam) Limited1

VietnamBanking

ANZ Capel Court Limited

Australia

Securitisation Manager

ANZ Funds Pty. Ltd.

Australia

Holding Company

Kiribati
Samoa
Thailand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New ZealandSingapore
Singapore
Hong Kong
Hong Kong
VanuatuSingapore
Australia

Banking
Banking
Banking
Holding Company
Banking
Funds Management
Finance
Holding Company
Funds Management
FinanceFinance
Holding Company
Merchant Banking
Holding Company
Banking
Banking
Captive-Insurance
Mortgage Insurance

ANZ Residential Covered Bond Trust4

Australia

Finance

ANZ Wealth Australia Limited

Australia

Holding Company

OnePath Custodians Pty Limited
OnePath Funds Management Limited
Australia and New Zealand Bank (China) Company Limited1

Australia
Australia
China

TrusteeFunds Management
Banking

Australia and New Zealand Banking Group (PNG) Limited1

Papua New Guinea

Banking

Chongqing Liangping ANZ Rural Bank Company Limited1

China

Banking

Guam

Holding Company

Guam
Indonesia

Banking
Banking

The ultimate parent of the Group is Australia and New Zealand Banking Group Limited

ANZ Bank (Kiribati) Limited (75% ownership)
ANZ Bank (Samoa) Limited1
ANZ Bank (Thai) Public Company Limited1
ANZ Holdings (New Zealand) Limited1
ANZ Bank New Zealand Limited1
ANZ Investment Services (New Zealand) Limited1
ANZ New Zealand (Int’l) Limited1
ANZ Wealth New Zealand Limited1
ANZ New Zealand Investments Limited1
ANZNZ Covered Bond Trust1,4
UDC Finance Limited1
ANZ International Private Limited1
ANZ Singapore Limited1
ANZ International (Hong Kong) Limited1
ANZ Asia Limited1
ANZ Bank (Vanuatu) Limited2
ANZcover Insurance Private Ltd1ANZ Lenders Mortgage Insurance Pty. Limited
1

Citizens Bancorp

3

ANZ Guam Inc3
PT Bank ANZ Indonesia1 (99% ownership)
1.

Audited by overseas KPMG firms — either as part of the Group audit, or for standalone financial statements as required.
Audited by Law Partners.
3.
Audited by Deloitte Guam.
4.
Not owned by the Group. Control exists as the Group retains substantially all the risks and rewards of the operations.
2.

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25. CONTROLLED ENTITIES (continued)
CHANGES TO MATERIAL CONTROLLED ENTITIESThe following changes to our material entities have occurred during the year ended 30 September 2019.
 In September 2018, the business of Share Investing Limited was sold to CMC Markets Stockbroking Limited. Share Investing Limited and its
immediate parent company, ACN 003 042 082 Limited, are no longer considered to be material entities.
 In November 2018, OnePath Life (NZ) Limited was sold to Cigna Corporation and the business of ANZ Europe Limited (formerly ANZ Bank(Europe) Limited) was wound up. ANZ Europe Limited is no longer considered to be a material entity.
 In March 2019, the business of ANZ (Lao) Sole Company Limited (formerly ANZ Bank (Lao) Limited) was transferred to a newly established
Laos branch of the Company. ANZ (Lao) Sole Company Limited is no longer considered to be a material entity.
 In April 2019, ANZ Bank (Taiwan) Limited merged with the Taiwan branch of the Company.
 In May 2019, OnePath General Insurance Pty Limited, OnePath Life Australia Holdings Pty Limited and OnePath Life Limited were sold to
Zurich Financial Services Australia (Zurich). See note 29 for further details.
 In August 2019, we completed the sale of our 55% share of ANZ Royal Bank (Cambodia) Limited to J-Trust.
 As ANZ Finance Guam, Inc and ANZ Commodity Trading Pty Ltd no longer have material business and Votraint No. 1103 Pty Limited’s only
business is to hold the Group’s investment in PT Bank Pan Indonesia (see note 26), these companies are no longer considered to bematerial entities.
We did not acquire, or dispose of, any material entities during the year ended 30 September 2018.

RECOGNITION AND MEASUREMENTThe Group’s subsidiaries are those entities it controls through: being exposed to, or having rights to, variable returns from the entity; and being able to affect those returns through its power over the entity.
The Group assesses whether it has power over those entities by examining the Group’s existing rights to direct the relevant activities ofthe entity.
If the Group sells or acquires subsidiaries during the year, it includes their operating results in the Group results to the date of disposal orfrom the date of acquisition. When the Group’s control ceases, it derecognises the assets and liabilities of the subsidiary, any related noncontrolling interest and other components of equity.
When the Group ceases to control a subsidiary, it: measures any retained interest in the entity at fair value; and recognises any resulting gain or loss in profit or loss.
If the Group’s ownership interest in a subsidiary changes in a way that does not result in a loss of control, then the Group accounts forthat as a transaction with equity holders in their capacity as equity holders.
All transactions between Group entities are eliminated on consolidation.

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Notes to the consolidated financial statements (continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

26. INVESTMENTS IN ASSOCIATES
Significant associates of the Group are:Ordinary shareinterest

Carrying amount$m

Name of entity

Principal activity

2019

2018

2019

2018

AMMB Holdings Berhad

Banking and insurance

24%

24%

1,586

1,427

PT Bank Pan Indonesia

Consumer and business bank

39%

39%

1,350

1,103

n/a

n/a

21

23

2,957

2,553

Aggregate other individually immaterial associates
Total carrying value of associates

1

1.

Includes the impact of foreign currency translation recognised in the foreign currency translation reserve.

FINANCIAL INFORMATION ON SIGNIFICANT ASSOCIATES
Set out below is the summarised financial information of each associate that is significant to the Group. The summarised financial information is basedon the associates’ IFRS financial information.
Principal place of business and country of incorporation

AMMB Holdings Berhad
Malaysia

PT Bank Pan Indonesia
Indonesia

2019
$m

2018
$m

2019
$m

2018
$m

Operating income

3,298

3,016

1,109

1,000

Profit for the year

569

430

349

192

Other comprehensive income/(loss)

69

(37)

24

(10)

Total comprehensive income

638

393

373

182

Less: Total comprehensive (income)/loss attributable to non–controlling interests

(25)

(33)

(12)

39

Total comprehensive income attributable to owners of associate

613

360

361

221

55,74049,092

22,51819,552

Total liabilities

48,71842,70018,743

16,446

Total Net assets1
Less: Non–controlling interests of associate

7,022

6,392

3,775

3,106

(368)

(395)

(309)

(272)

Net assets attributable to owners of associate

6,654

5,997

3,466

2,834

Reconciliation to carrying amount of Group's interest in associate
Carrying amount at the beginning of the year

Summarised results

Summarised financial position
Total assets1
1

1,427

1,185

1,103

1,033

Group's share of total comprehensive income

146

86

140

88

Dividends received from associate

(50)

(35)

-

-

Group's share of other reserve movements of associate and foreign currency translation
reserve adjustments2

63

191

107

(18)

1,586

1,427

1,350

1,103

1,050

992

1,303

853

Carrying amount at the end of the year
Market value of Group's investment in associate

31.

Includes market value adjustments (including goodwill) the Group made at the time of acquisition (and adjustments for any differences in accounting policies).
2.
The Group recognised a decrease of $32m and $33m to the carrying value of AMMB Holdings Berhad and PT Bank Pan Indonesia respectively with a corresponding decrease to retained earnings reflecting
the Group's share of the estimated initial application impact of IFRS 9 (the international equivalent of AASB 9). Refer Note 35.
3.
Applies to those investments in associates with published price quotations. Market Value is based on a price per share and does not include any adjustments for the size of our holding.

IMPAIRMENT ASSESSMENT
As at 30 September 2019, for AMMB Holdings Berhad (AmBank) and PT Bank Pan Indonesia (PT Panin), the market value (based on share price) was
below the respective carrying values of these investments. The Group performed value-in-use (VIU) calculations to assess whether the carrying valueof the investments was impaired. The VIU calculations supported the carrying value for both AmBank and PT Panin.

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26. INVESTMENTS IN ASSOCIATES (continued)

RECOGNITION AND MEASUREMENT
An associate is an entity over which the Group has significant influence over its operating and financial policies but does not control. The
Group accounts for associates using the equity method. Its investments in associates are carried at cost plus the post-acquisition share ofchanges in the associate’s net assets less accumulated impairments. Dividends the Group receives from associates are recognised as a
reduction in the carrying amount of the investment. The Group includes goodwill relating to the associate in the carrying amount of theinvestment. It does not individually test the goodwill incorporated in the associates carrying amount for impairment.
At least at each reporting date, the Group reviews investments in associates for any indication of impairment. If an indication of impairment
exists, then the Group determines the recoverable amount of the associate using the higher of: the associate’s fair value less cost of disposal; and its value-in use.
We use a discounted cash flow methodology, and other methodologies (such as capitalisation of earnings methodology), to determine therecoverable amount.

KEY JUDGEMENTS AND ESTIMATES
The value-in-use calculation is sensitive to a number of key assumptions requiring management judgement, including future profitability
levels, capital levels, long term growth rates and discount rates. A change in any of the key assumptions below could have an adverse
effect on the recoverable amount of the investments. The key assumptions used in the value-in-use calculation are outlined below:
As at 30 September 2019

AmBankPT Panin

Post-tax discount rate

10.7%

13.3%

Terminal growth rate

4.8%

5.3%

Expected NPAT growth (compound annual growth rate – 5 years)
Core Equity Tier 1 rate

4.1%

6.5%

11.9% to 12.7%

11.6%

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Notes to the consolidated financial statements (continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

27. STRUCTURED ENTITIESA Structured Entity (SE) is an entity that has been designed such that voting or similar rights are not the dominant factor in determining who controls
the entity. SEs are generally established with restrictions on their ongoing activities in order to achieve narrow and well defined objectives.
SEs are classified as subsidiaries and consolidated when control exists. If the Group does not control a SE, then it is not consolidated. This note
provides information on both consolidated and unconsolidated SEs.
The Group’s involvement with SEs is as follows:Type

Details

Securitisation

The Group controls SEs established to securitise customer loans and advances that it has originated, in order todiversify sources of funding for liquidity management. Such transactions involve transfers to an internal
securitisation (bankruptcy remote) vehicle used to create assets that are eligible for repurchase under agreementswith the applicable central bank (these are known as ‘Repo eligible’). These internal securitisation SEs areconsolidated. Refer to Note 28 Transfers of Financial Assets for further details.
The Group also establishes SEs on behalf of customers to securitise their loans or receivables. The Group may
manage these securitisation vehicles or provide liquidity or other support. Additionally, the Group may acquireinterests in securitisation vehicles set up by third parties through holding securities issued by such entities. In
limited circumstances where control exists, the Group consolidates the SE.

Covered bond issuances

Certain loans and advances have been assigned to bankruptcy remote SEs to provide security for issuances ofdebt securities by the Group. The Group retains control over these SEs and therefore they are consolidated. Refer
to Note 28 Transfers of Financial Assets for further details.

Structured financearrangements

The Group is involved with SEs established: in connection with structured lending transactions to facilitate debt syndication and/or to ring-fencecollateral; and to own assets that are leased to customers in structured leasing transactions.
The Group may manage the SE, hold minor amounts of the SE’s capital, or provide risk management products(derivatives) to the SE. In most instances, the Group does not control these SEs. In limited circumstances wherecontrol exists, the Group consolidates the SE.

Funds management activities

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186

ANZ 2019 ANNUAL REPORTThe Group conducts investment management and other fiduciary activities as a responsible entity, trustee,custodian or manager for investment funds and trusts – including superannuation funds and wholesale and retail
trusts (collectively ‘Investment Funds’). The Investment Funds are financed through the issuance of puttable units
to investors and the Group considers them to be SEs. The Group’s exposure to Investment Funds is limited toreceiving fees for services and derivatives entered into for risk management purposes. These interests do notcreate significant exposures to the funds that would allow the Group to control the funds. Therefore, the funds
are not consolidated.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

27. STRUCTURED ENTITIES (continued)
CONSOLIDATED STRUCTURED ENTITIESFINANCIAL OR OTHER SUPPORT PROVIDED TO CONSOLIDATED STRUCTURED ENTITIESThe Group provides financial support to consolidated SEs as outlined below. As these are intra-group transactions, they are eliminatedon consolidation:
Securitisation and coveredbond issuances

The Group provides lending facilities, derivatives and commitments to these SEs and/or holds debt instrumentsthat they have issued.

Structured financearrangements

The assets held by these SEs are normally pledged as collateral for financing provided. Certain consolidated SEs
are financed entirely by the Group while others are financed by syndicated loan facilities in which the Group is aparticipant. The financing provided by the Group includes lending facilities where the Group’s exposure is limited
to the amount of the loan and any undrawn amount. Additionally, the Group has provided Letters of Support tothese consolidated SEs confirming that the Group will not demand repayment of the financing provided for theensuing 12 month period.

The Group did not provide any non-contractual support to consolidated SEs during the year (2018: nil). Other than as disclosed above, the Group does
not have any current intention to provide financial or other support to consolidated SEs.

UNCONSOLIDATED STRUCTURED ENTITIESGROUP’S INTEREST IN UNCONSOLIDATED STRUCTURED ENTITIESAn ‘interest’ in an unconsolidated SE is any form of contractual or non-contractual involvement with a SE that exposes the Group to variability of
returns from the performance of that SE. These interests include, but are not limited to: holdings of debt or equity securities; derivatives that pass-on
risks specific to the performance of the SE; lending; loan commitments; financial guarantees; and fees from funds management activities.
For the purpose of disclosing interests in unconsolidated SEs:
 no disclosure is made if the Group’s involvement is not more than a passive interest - for example: when the Group’s involvement constitutes atypical customer-supplier relationship. On this basis, exposures to unconsolidated SEs that arise from lending, trading and investing activities are
not considered disclosable interests - unless the design of the structured entity allows the Group to participate in decisions about the relevant
activities (being those that significantly affect the entity’s returns).
 ‘interests’ do not include derivatives intended to expose the Group to market-risk (rather than performance risk specific to the SE) or derivatives
through which the Group creates, rather than absorbs, variability of the unconsolidated SE (such as purchase of credit protection under a credit
default swap).
The table below sets out the Group’s interests in unconsolidated SEs together with the maximum exposure to loss that could arise fromthose interests:
Securitisation andstructured finance2019$m

Investment funds

Total

2018
$m

2019
$m

2018
$m

2019
$m

2018
$m

1,923

-

-

-

1,923

-

-

1,715

-

-

-

1,715

On-balance sheet interests
Investment securities1
Available-for-sale assets1

-

-

-

18

-

18

Gross loans and advances

7,789

7,018

-

-

7,789

7,018

Total on-balance sheet

9,712

8,733

-

18

9,712

8,751

1,540

1,381

-

-

1,540

1,381

Investments backing policy liabilities

Off-balance sheet interests
Commitments (facilities undrawn)

67

10

-

-

67

10

Total off-balance sheet

1,607

1,391

-

-

1,607

1,391

Maximum exposure to loss

11,31910,124-18

11,31910,142

Guarantees

1.

On adoption of AASB 9 on 1 October 2018, the classification and measurement of financial assets were revised. Available-for-sale classification used in comparative periods ceases to exist under AASB 9 anda new classification of investment securities was introduced. Refer Note 1 and 35 for further details. Comparative information has not been restated.

In addition to the interests above, the Group earned funds management fees from unconsolidated SEs of $509 million (2018: $505 million) during
the year.

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Notes to the consolidated financial statements (continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

27. STRUCTURED ENTITIES (continued)
The Group’s maximum exposure to loss represents the maximum amount of loss that the Group could incur as a result of its involvement withunconsolidated SEs if loss events were to take place — regardless of the probability of occurrence. This does not in any way represent the actual losses
expected to be incurred. Furthermore, the maximum exposure to loss is stated gross of the effects of hedging and collateral arrangements enteredinto to mitigate ANZ’s exposure to loss.
The maximum exposure to loss has been determined as: the carrying amount of Investment securities measured at amortised cost (from 1 October 2018), available-for-sale assets (prior to 1 October 2018)
and investments backing policy liabilities; and the carrying amount plus the undrawn amount of any committed loans and advances.
Information about the size of the unconsolidated SEs that the Group is involved with is as follows: Securitisation and structured finance: size is indicated by total assets which vary by SE with a maximum value of approximately $1.1 billion (2018:$1.0 billion); and Investment funds: size is indicated by Funds Under Management which vary by SE with a maximum value of approximately $38.8 billion (2018:$36.9 billion).
The Group did not provide any non-contractual support to unconsolidated SEs during the year (2018: nil) nor does it have any current intention toprovide financial or other support to unconsolidated SEs.

SPONSORED UNCONSOLIDATED STRUCTURED ENTITIESThe Group may also sponsor unconsolidated SEs in which it has no disclosable interest.
For the purposes of this disclosure, the Group considers itself the ‘sponsor’ of an unconsolidated SE if it is the primary party involved in the design andestablishment of that SE and:
 the Group is the major user of that SE; or the Group’s name appears in the name of that SE, or on its products; or the Group provides implicit or explicit guarantees of that SE’s performance.
The Group has sponsored the ANZ PIE Fund in New Zealand, which invests only in deposits with ANZ Bank New Zealand Limited. The Group does notprovide any implicit or explicit guarantees of the capital value or performance of investments in the ANZ PIE Fund. There was no income received
from, nor assets transferred to, this entity during the year.

KEY JUDGEMENTS AND ESTIMATES
Significant judgement is required in assessing whether control exists over Structured Entities involved in securitisation activities andstructured finance transactions, and investment funds. Judgement is required to determine the existence of: power over the relevant activities (being those that significantly affect the entity’s returns); and exposure to variable returns of that entity.

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28. TRANSFERS OF FINANCIAL ASSETSIn the normal course of business the Group enters into transactions where it transfers financial assets directly to third parties or to SEs. These transfers
may give rise to the Group fully, or partially, derecognising those financial assets - depending on the Group’s exposure to the risks and rewards orcontrol over the transferred assets. If the Group retains substantially all of the risk and rewards of a transferred asset, the transfer does not qualify for
derecognition and the asset remains on the Group’s balance sheet in its entirety.

SECURITISATIONSNet loans and advances include residential mortgages securitised under the Group’s securitisation programs which are assigned to bankruptcy
remote SEs to provide security for obligations payable on the notes issued by the SEs. The holders of the issued notes have full recourse to the pool ofresidential mortgages which have been securitised and the Group cannot otherwise pledge or dispose of the transferred assets.
In some instances the Group is also the holder of the securitised notes. In addition, the Group is entitled to any residual income of the SEs andsometimes enters into derivatives with the SEs. The Group retains the risks and rewards of the residential mortgages and continues to recognise themortgages as financial assets. The obligation to pay this amount to the SE is recognised as a financial liability of the Group.
The Group is exposed to variable returns from its involvement with these securitisation SEs and has the ability to affect those returns through its
power over the SEs activities. The SEs are therefore consolidated by the Group.

COVERED BONDS
The Group operates various global covered bond programs to raise funding in its primary markets. Net loans and advances include residential
mortgages assigned to bankruptcy remote SEs associated with these covered bond programs. The mortgages provide security for the obligations
payable on the issued covered bonds.
The covered bond holders have dual recourse to the issuer and the cover pool of assets. The issuer cannot otherwise pledge or dispose of thetransferred assets, however, subject to legal arrangements it may repurchase and substitute assets as long as the required cover is maintained.
The Group is required to maintain the cover pool at a level sufficient to cover the bond obligations. In addition, the Group is entitled to any residual
income of the covered bond SEs and enters into derivatives with the SEs. The Group retains the majority of the risks and rewards of the residential
mortgages and continues to recognise the mortgages as financial assets. The obligation to pay this amount to the SEs is recognised as a financial
liability of the Group.
The Group is exposed to variable returns from its involvement with the covered bond SEs and has the ability to affect those returns through its powerover the SEs activities. The SEs are therefore consolidated by the Group. The covered bonds issued externally are included within debt issuances.

REPURCHASE AGREEMENTS
When the Group sells securities subject to repurchase agreements under which we retain substantially all the risks and rewards of ownership, thenthose assets do not qualify for derecognition. An associated liability is recognised for the consideration received from the counterparty.

STRUCTURED FINANCE ARRANGEMENTS
The Group arranges funding for certain customer transactions through structured leasing and commodity prepayment arrangements. Thesetransactions are recognised on Group’s balance sheet as lease receivables or loans. At times, other financial institutions participate in the funding ofthese arrangements. This participation involves a proportionate transfer of the rights to the assets recognised by the Group. The participating banks
have limited recourse to the leased assets or financed commodity and related proceeds. Where the Group continues to be exposed to some of therisks of the transferred assets through a derivative or other continuing involvement, the Group does not derecognise the lease receivable or loan.
Instead, the Group recognises an associated liability representing its obligations to the participating financial institutions.
The table below sets out the balance of assets transferred that do not qualify for derecognition, along with the associated liabilities:
Securitisations1,2

Covered bonds

Repurchaseagreements

Structured financearrangements

2019
$m

2018
$m

2019
$m

2018
$m

2019
$m

2018
$m

2019
$m

2018
$m

Current carrying amount of assets transferred

2,422

1,239

30,79929,455

43,21340,164

81

96

Carrying amount of associated liabilities

2,411

1,232

20,957

17,84641,36738,378

81

88

1.
2.

Does not include transfers to internal structured entities where there are no external investors.
The securitisation noteholders have recourse only to the pool of residential mortgages which have been securitised. The carrying value of securitised assets and the associated liabilities approximates theirfair value.

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Notes to the consolidated financial statements (continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

29. DISCONTINUED OPERATIONS AND ASSETS AND LIABILITIES HELD FOR SALEDISCONTINUED OPERATIONS
On 17 October 2017, the Group announced it had agreed to sell its OnePath P&I and ADGs business to IOOF. The sale of the ADGs business completed
on 1 October 2018. On 17 October 2019, the Group announced it had agreed a revised sale price for its OnePath P&I business and ADGs to IOOF of$850 million, being a $125 million reduction from the original sale price of $975 million announced in October 2017. The new price of $850 million
includes approximately $25 million that ANZ has already received for the sale of the ADGs in October 2018. The revised terms reflect changing market
conditions and include lower overall warranty caps as well as some changes to the strategic alliance arrangements. Subject to APRA approval, theGroup expects the transaction to complete in the first quarter of calendar year 2020. The impact of the reduction in price has been reflected in the2019 financial results.
On 12 December 2017, ANZ announced that it had agreed to the sale of its life insurance business to Zurich Financial Services Australia (Zurich) andregulatory approval was obtained on 10 October 2018. The transaction was completed on 31 May 2019.
As a result of the sale transactions outlined above, the financial results of the businesses to be divested and associated Group reclassification andconsolidation impacts are treated as discontinued operations from a financial reporting perspective.
Details of the financial performance and cash flows of discontinued operations are shown below.
Income Statement
2019
$m

2018
$m

(76)

-

Other operating income

245

81

Operating income

169

81

(449)

(544)

(280)

(463)

1

-

Profit/(Loss) before income tax

(279)

(463)

Income tax expense1

(64)

(232)

(343)

(695)

Net interest income
1

Operating expenses

1

Profit/(Loss) before credit impairment and income tax
Credit impairment (charge)/release

Profit/(Loss) for the period attributable to shareholders of the Company

1,2

1.

Includes customer remediation of $207 million post-tax recognised in the September 2019 financial year (2018: $127 million) comprising $161 million of customer remediation recognised in other operating
income (2018: $106 million), $80 million of remediation costs recognised in Operating expenses (2018: $75 million), and a $34 million income tax beneft (2018: $54 million).

2.

Includes the results of the life insurance business up to the sale completion in May 2019.

Cash Flow Statement
2019
$m

2018
$m

(552)

2,989

Net cash provided by/(used in) investing activities

837(2,444)

Net cash provided by/(used in) financing activities

(290)

(575)

(5)

(30)

Net cash provided by/(used in) operating activities

Net increase/(decrease) in cash and cash equivalents

ASSETS AND LIABILITIES HELD FOR SALE
At 30 September 2019, assets and liabilities held for sale are re-measured at the lower of their existing carrying amount and fair value less costs to sell,
except for assets such as deferred tax assets, financial assets and contractual rights under insurance contracts, which are specifically exempt from thisrequirement and continue to be recognised at their existing carrying value.
In addition to the assets and liabilities associated with the Group’s discontinued operations, assets and liabilities held for sale in the prior period
contain the assets and liabilities of other assets or disposal groups, subject to sale, which do not meet the criteria to classify as a discontinued
operation under the accounting standards.

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ANZ 2019 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

29. DISCONTINUED OPERATIONS AND ASSETS AND LIABILITIES HELD FOR SALE
(continued)
2019

2018
PNG Retail,Commercial
OPL NZ& SME$m$m

Discontinued
Operations$m

Discontinued
Operations$mCambodia
JV
$m

919
16
394
1
501

5
1,079
46
1
102
1,155
40,054
4
450

323
3
806
146
1
2
6
92

93
727

147
6
-

328
3
1,079
999
146
2
104
1,248
40,05416
1,269

Total assets held for sale

1,831

42,896

1,379

820

153

45,248Deposits and other borrowings
Derivative financial instruments
Current tax liabilities
Deferred tax liabilities
Policy liabilities
External unit holder liabilities
Payables and other liabilities
Provisions

3
105
1,914
99

(33)
160
39,607
4,712
644
28

1,067
1
8
1
98
43

15
160
130
-

512
6

1,579
1
(10)
321
39,607
4,712
872
77

Total liabilities held for sale

2,121

45,118

1,218

305

518

47,159As at 30 September 20191
Cash and cash equivalents
Trading securities2
Derivative financial instruments
Available-for-sale assets
Investment securities
Net loans and advances
Regulatory deposits
Investments in associates
Deferred tax assets
Goodwill and other intangible assets
Investments backing policy liabilities2
Premises and equipment
Other assets

Total
$m

1.

Amounts in the table above are shown net of intercompany balances.
2.
The successor fund transfer performed in preparation for the sale of our wealth business to Zurich and IOOF completed on 13 April 2019. As a result, OnePath P&I assets previously held as Investmentsbacking policy liabilities are now shown as Trading securities.

Other strategic divestments not classified as discontinued operations have been presented as assets and liabilities held for sale in the prior period:
 ANZ Royal Bank (Cambodia) Ltd (Cambodia JV) - Institutional division
On 17 May 2018, the Group announced it had reached an agreement to sell its 55% stake in Cambodia JV ANZ Royal Bank to J Trust, a Japanesediversified financial holding company listed on the Tokyo Stock Exchange. The transaction was completed on 19 August 2019.
 OnePath Life NZ Ltd (OPL NZ) - New Zealand division
On 30 May 2018, the Group announced that it had agreed to sell OnePath Life NZ Limited to Cigna Corporation and the final regulatory approval
was obtained on 29 October 2018. The transaction was completed on 30 November 2018.
 Papua New Guinea Retail, Commercial and Small-Medium Sized Enterprise businesses (PNG Retail, Commercial and SME) - Institutional
division
On 25 June 2018, the Group announced it had entered into an agreement to sell its Retail, Commercial and Small-Medium Sized Enterprise (SME)banking businesses in Papua New Guinea to Kina Bank. The transaction was completed on 23 September 2019.

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Notes to the consolidated financial statements (continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

29. DISCONTINUED OPERATIONS AND ASSETS AND LIABILITIES HELD FOR SALE
(continued)
INCOME STATEMENT IMPACT RELATING TO ASSETS AND LIABILITIES HELD FOR SALE
During the 2019 financial year, the Group recognised the following impacts in relation to assets and liabilities held for sale: $65 million loss after tax on discontinued operations, comprising a net loss of $1 million from sale related adjustments and write-downs, partially
offset by the recycling of gains previously deferred in equity reserves on sale completion, and a $64 million income tax expense. This loss wasrecognised in discontinued operations.
 $10 million gain after tax relating to the sale of Cambodia JV, comprising a $30 million release from the foreign currency translation reserve, a $17
million dividend withholding tax associated with the sale completion and $3 million of asset write-offs. The gain was recognised in continuing
operations.
 $1 million gain after tax relating to the sale of PNG Retail, Commercial and SME, net of costs associated with the sale. The gain was recognised incontinuing operations.
 $76 million gain after tax relating to the sale of the OPL NZ business, comprising a $56 million gain on sale, a $26 million release from the foreign
currency translation reserve, a $7 million provision release and a $13 million income tax expense. The gain was recognised in continuing
operations.
 $37 million gain after tax relating to the sale of the Paymark. The gain was recognised in continuing operations.
During the 2018 financial year, the Group recognised the following impacts in relation to assets and liabilities held for sale: $632 million loss after tax recognised on the reclassification of the Wealth Australia discontinued operations business to held for sale. This loss isrecognised in discontinued operations.
 $85 million gain after tax comprising $99 million relating to the sale of the remaining Asia Retail and Wealth businesses, net of costs associatedwith the sale and a $14 million tax expense. This gain is recognised in continuing operations.
 $247 million gain after tax relating to SRCB comprising a $289 million gain on release of reserves, $56 million of foreign exchange losses and othercosts, and a $14 million tax benefit. This gain is recognised in continuing operations.
 $18 million gain after tax relating to UDC comprising a cost recovery in respect of the terminated transaction process. This gain is recognised incontinuing operations.
 $247 million gain after tax relating to MCC comprising a $259 million gain on sale of the 40% stake, $13 million of foreign exchange losses, $6
million loss on release of reserves, and a $7 million tax benefit. This gain is recognised in continuing operations
 $42 million loss after tax relating to the reclassification of the Cambodia JV to held for sale, comprising a $27 million impairment and $15 million of
costs associated with the sale. The loss is recognised in continuing operations.
 $3 million loss after tax relating to OnePath Life NZ transaction costs. The loss is recognised in continuing operations.
 $21 million loss after tax relating to the reclassification of the PNG Retail, Commercial and SME businesses to held for sale, comprising a $12 million
impairment of goodwill, $7 million costs associated with the sale and a $2 million tax expense. The loss is recognised in continuing operations.

RECOGNITION AND MEASUREMENT
LIFE INSURANCE CONTRACT LIABILITIES AND LIABILITIES CEDED UNDER REINSURANCE CONTRACTS
We calculate Life insurance contract Liabilities under the Margin on Service (MoS) model using a projection method based on actuarial
principles and standards.
We discount the expected future cash flows of these contracts at the risk-free discount rate.
LIFE INVESTMENT CONTRACT LIABILITIESA life investment contract liability is measured at fair value and is directly linked to the fair value of the assets that back it. For guaranteed
policies, we determine the liability as the net present value of expected cash flows, subject to a minimum of current surrender value.
EXTERNAL UNIT HOLDER LIABILITIESThe life insurance business includes controlling interests in investment funds which we aggregate. When we aggregate a controlled
investment fund, we recognise the external unit holder liabilities as a liability and include them on the balance sheet in external unit
holder liabilities.
INVESTMENTS BACKING POLICY LIABILITIESOur determination of fair value of investments backing policy liabilities involves the same judgement as other financial assets as describedin Note 17 Fair Value of Financial Assets and Financial Liabilities.

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ANZ 2019 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

29. DISCONTINUED OPERATIONS AND ASSETS AND LIABILITIES HELD FOR SALE
(continued)

KEY JUDGEMENTS AND ESTIMATES
A significant level of judgement is used by the Group to determine: whether an asset or group of assets is classified and presented as held for sale or as a discontinued operation; and the fair value of the assets and liabilities classified as being held for sale.
Management is required to exercise significant judgement when assessing the fair value less costs to sell for assets and liabilities held forsale. The judgemental factors include determining: costs to sell, allocation of goodwill, indemnities provided under the sale contract andconsideration received - particularly where elements of consideration are contingent in nature. Any impairment we record is based on thebest available evidence of fair value compared to the carrying value before the impairment. The final sale price may be different to the fairvalue we estimate when recording the impairment. Management regularly assess the appropriateness of the underlying assumptions
against actual outcomes and other relevant evidence and adjustments are made to fair value where appropriate. We expect that the sales
will complete within 12 months after balance date, subject to the relevant regulatory approvals and customary terms of sale forsuch assets.
Life Insurance Liabilities continue to be measured in accordance with AASB 1038. The Group is largely insulated from significant changes tothe carrying value of the liability due to the share sale agreements.
Our estimates of life insurance liabilities are affected by: regulation, competition, interest rates, inflation, taxes and general
economic conditions.
We have performed sensitivity analysis on key variables influencing the insurance liabilities and assets - namely: interest, inflation, mortality,
morbidity and discontinuance risk. We have determined that there would be no material impact to the Group for a reasonable change inany of these variables after taking into account of the share sale agreements.

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Notes to the consolidated financial statements (continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

30. SUPERANNUATION AND POST EMPLOYMENT BENEFIT OBLIGATIONS
Set out below is a summary of amounts recognised in the Balance Sheet in respect of the defined benefit superannuation schemes:
2019
$m

2018
$m

Defined benefit obligation and scheme assets
Present value of funded defined benefit obligation(1,538)(1,418)Fair value of scheme assets

1,739

1,551

Net defined benefit asset

201

133

Net liabilities arising from defined benefit obligations included in payables and other liabilities

(54)

(21)

Net assets arising from defined benefit obligations included in other assets

255

154

As represented in the Balance Sheet

Net defined benefit asset

201

133

Weighted average duration of the benefit payments reflected in the defined benefit obligation (years)

14.9

16.8

As at the most recent reporting dates of the schemes, the aggregate surplus of net market value of assets over the value of accrued benefits on afunding basis was $48 million (2018: surplus of $21 million). In 2019, the Group made defined benefit contributions totaling $3 million (2018: $5
million). It expects to make contributions of around $3 million next financial year.

GOVERNANCE OF THE SCHEMES AND FUNDING OF THE DEFINED BENEFIT SECTIONS
The main defined benefit superannuation schemes in which the Group participates operate under trust law and are managed and administered onbehalf of the members in accordance with the terms of the relevant trust deed and rules and all relevant legislation. These schemes have corporate
trustees, which are wholly owned subsidiaries of the Group. The trustees are the legal owners of the assets, which are held separately from the assetsof the Group, and are responsible for setting investment policy and agreeing funding requirements with the employer through the triennial actuarial
valuation process.
The Group has defined benefit arrangements in Australia, Japan, New Zealand, Philippines, Taiwan and United Kingdom. The defined benefit sectionof the ANZ Australian Staff Superannuation Scheme, the ANZ UK Staff Pension Scheme and the ANZ National Retirement Scheme in New Zealand are
the three largest plans. They have been closed to new members since 1987, 2004 and 1991 respectively. None of the schemes had a material deficit,
or surplus, at the last funding valuation. The Group has no present liability under any of the schemes’ trust deeds to fund a deficit (measured on afunding basis). A contingent liability of the Group may arise if any of the schemes were wound up.

RECOGNITION AND MEASUREMENT
Defined benefit superannuation schemes
The Group operates a small number of defined benefit schemes. Independent actuaries calculate the liability and expenses related toproviding benefits to employees under each defined benefit scheme. They use the Projected Unit Credit Method to value the liabilities. Thebalance sheet includes:
 a defined benefit liability if the obligation is greater than the fair value of the schemes assets; and an asset (capped to its recoverable amount) if the fair value of the assets is greater than the obligation.
In each reporting period, the movements in the net defined benefit liability are recognised as follows: the net movement relating to the current period’s service cost, net interest on the defined benefit liability, past service costs and othercosts (such as the effects of any curtailments and settlements) as operating expenses;
 remeasurements of the net defined benefit liability (which comprise actuarial gains and losses and return on scheme assets, excludinginterest income included in net interest) directly in retained earnings through other comprehensive income; and contributions of the Group directly against the net defined benefit position.
Defined contribution superannuation schemes
The Group operates a number of defined contribution schemes. It also contributes (according to local law, in the various countries in which
it operates) to Government and other plans that have the characteristics of defined contribution plans. The Group’s contributions to theseschemes are recognised as personnel expenses when they are incurred.

194

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ANZ 2019 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

30. SUPERANNUATION AND POST EMPLOYMENT BENEFIT OBLIGATIONS (continued)

KEY JUDGEMENTS AND ESTIMATES
The main assumptions we use in valuing defined benefit obligations are listed in the table below. A change to any assumptions, orapplying different assumptions, could have an effect on the Statement of Other Comprehensive Income and Balance Sheet.

Discount rate (% p.a.)2019
1.1 - 2.0

Sensitivity analysis
change in significant
2018
assumptions
2.5 - 3.7
0.5% increase

Future salary increases (% p.a.)

1.7 - 3.2

1.7 - 3.8

1.7 - 3.0/2.3

1.7 - 3.0/2.3– Males (years)

25.6 - 28.6

25.5 - 29.0

– Females (years)

28.8 - 30.3

28.7 - 31.1

Assumptions

Increase/(decrease) in
defined benefit obligation
2019
$m

2018
$m

(107)

(139)

0.5% increase

80

118

1 year increase

70

61

Future pension indexation
In payment (% p.a.)/In deferment (% p.a)Life expectancy at age 60 for current pensioners

31. EMPLOYEE SHARE AND OPTION PLANSANZ operates a number of employee share and option schemes under the ANZ Employee Share Acquisition Plan and the ANZ Share Option Plan.

ANZ EMPLOYEE SHARE ACQUISITION PLAN
ANZ Employee Share Acquisition Plan schemes that operated during the 2019 and 2018 years were the Employee Share Offer and the Deferred
Share Plan.
Employee Share Offer

Eligibility

Most permanent employees employed in either Australia or New Zealand with three years continuous service for themost recent financial year.

Grant

Up to AUD 1,000 in Australia (and AUD 800 in New Zealand) ANZ shares each financial year, subject to Board approval.

Allocation value

One week Volume Weighted Average Price (VWAP) of ANZ shares traded on the ASX in the week leading up to andincluding the date of grant.

Australia

ANZ ordinary shares are granted to eligible employees for nil consideration. The shares vest on grant and are held in
trust for three years from grant date, after which time they may remain in trust, be transferred to the employee’s nameor sold. Dividends are automatically reinvested in the Dividend Reinvestment Plan.

New ZealandShares are granted to eligible employees on payment of NZD one cent per share. Shares vest subject to satisfaction ofa three year service period, after which they may remain in trust, be transferred to the employee’s name or sold.
Unvested shares are forfeited if the employee resigns or is dismissed for serious misconduct. Dividends are either paidin cash or reinvested into the Dividend Reinvestment Plan.

Expensing value(fair value)

In Australia, the fair value of the shares is expensed in the year shares are granted, as they are not subject to forfeiture.

2019 and 2018 grants

656,738 shares were granted on 3 December 2018 at an issue price of $26.91.

In New Zealand, the fair value is expensed on a straight-line basis over the three year vesting period.
The expense is recognised as a share-based compensation expense with a corresponding increase in equity.
541,982 shares were granted on 1 December 2017 at an issue price of $28.67.

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Notes to the consolidated financial statements (continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

31. EMPLOYEE SHARE AND OPTION PLANS (continued)
Deferred Share Plani) ANZ Incentive Plan (ANZIP) - Chief Executive Officer (CEO) and Group Executive Committee (ExCo)
EligibilityGroup CEO and ExCo.

Grant

50% of the CEO’s Annual Variable Remuneration (AVR) and 25% of ExCo’s Variable Remuneration (VR) received asdeferred shares.

Conditions
Deferred over four years from grant date.
ii) ANZIP (excluding the CEO and ExCo) and Business Unit Incentive Plans (BUIPs) - for grants from 1 October 2017
Eligibility

All employees excluding the CEO and ExCo.

Grant

If VR is at or exceeds AUD 150,000, then 60% of incentive amounts exceeding AUD 80,000 (subject to a minimum
deferral amount of AUD 42,000) is deferred as shares.
Deferred over three years from grant date.

Conditionsiii) Long Term Incentives (LTIs)
Eligibility

Selected employees.

Grant

100% deferred shares.

Conditions

Vest three years from grant date.

iv) Exceptional circumstances
Remuneration foregone

In exceptional circumstances, we grant deferred shares to certain employees when they start with ANZ tocompensate them for remuneration they have foregone from their previous employer. The vesting period generallyaligns with the remaining vesting period of the remuneration they have foregone, and therefore varies
between grants.

Retention

We may grant deferred shares to high performing employees who are regarded as a significant retention risk
to ANZ.

v) Further information
Cessation

Unless the Board decides otherwise, employees forfeit their unvested deferred shares if they resign, are terminatedon notice, or are dismissed for serious misconduct. The deferred shares may be held in trust beyond thedeferral period.

Dividends

Dividends are paid in cash or reinvested in the Dividend Reinvestment Plan.

Instrument

Deferred share rights may be granted instead of deferred shares in some countries as locally appropriate (seedeferred share rights section).

Allocation value

All deferred shares are issued based on the VWAP of ANZ shares traded on the ASX in the week leading up to andincluding the date of grant.

Expensing value (fair value)

We expense the fair value of deferred shares on a straight-line basis over the relevant vesting period and we
recognise the expense as a share-based compensation expense with a corresponding increase in equity.
During the 2019 year, we granted 1,945,668 deferred shares (2018: 2,232,563) with a weighted average grant priceof $25.39 (2018: $29.31).
Deferred shares remain at risk and the Board has the discretion to adjust the number of deferred shares
downwards, including to zero at any time before the vesting date. ANZ’s downward adjustment provisions aredetailed in section 6.3 of the 2019 Remuneration Report.
Board discretion was exercised to adjust downward 9,810 deferred shares to zero in 2019 (2018: 2,632).

2019 and 2018 grants
Downward adjustment

Expensing of the ANZ Employee Share Acquisition Plan
Expensing value(fair value)

196

196

ANZ 2019 ANNUAL REPORTThe fair value of shares we granted during 2019 under the Employee Share Offer and the Deferred Share Plan,
measured as at the date of grant of the shares, is $67.7 million (2018: $80.9 million) based on 2,602,406 shares (2018:
2,774,545) at VWAP of $26.01 (2018: $29.17).

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

31. EMPLOYEE SHARE AND OPTION PLANS (continued)
ANZ SHARE OPTION PLAN
Allocation

We may grant selected employees options/rights which entitle them to acquire fully paid ordinary ANZ shares at a
fixed price at the time the options/rights vest. Voting and dividend rights will be attached to the ordinary shares
allocated on exercise of the options/rights.
Each option/right entitles the holder to one ordinary share subject to the terms and conditions imposed on grant.
Exercise price of options, determined in accordance with the rules of the plan, is generally based on the VWAP of theshares traded on the ASX in the week leading up to and including the date of grant. For rights, the exercise price is nil.

Rules

Prior to the exercise of the option/right if ANZ changes its share capital due to a bonus share issue, pro-rata new shareissue or reorganisation the following adjustments are required: Issue of bonus shares - When the holder exercises their option, they are also entitled to be issued the number ofbonus shares they would have been entitled to had they held the underlying shares at the time of thebonus issue;
 Pro-rata share offer - We will adjust the exercise price of the option in the manner set out in the ASX Listing
Rules; and Reorganisation - In respect of rights, if there is a bonus issue or reorganisation of ANZ’s share capital, then the
Board may adjust the number of rights or the number of underlying shares so that there is no advantage ordisadvantage to the holder.
Holders otherwise have no other entitlements to participate: in any new issue of ANZ securities before they exercise their options/rights; or in a share issue of a body corporate other than ANZ (such as a subsidiary).
For equity grants made after 1 November 2012, any portion of the award which vests may, at the Board’s discretion,
be satisfied by a cash equivalent payment rather than shares.

Expensing

We expense the fair value of options/rights on a straight-line basis over the relevant vesting period and we recognise
the expense as a share-based compensation expense with a corresponding increase in equity.

Cessation

The provisions that apply if the employee’s employment ends are in section 9.2.3 of the 2019 Remuneration Report.

Downward adjustment

ANZ’s downward adjustment provisions are detailed in section 6.3 of the 2019 Remuneration Report.

Option Plans that operated during 2019 and 2018i) Performance Rights
Allocation

Satisfying vesting1.

We grant performance rights to selected employees as part of ANZ’s incentive plans. Performance rights provide theholder with the right to acquire ANZ shares at nil cost, subject to a three-year vesting period1 and Total Shareholder
Return (TSR) performance hurdles. Further details on the performance hurdles are in section 6.2.3a of the 2019
Remuneration Report.
Any portion of the award of performance rights (that have met the performance hurdles) may be satisfied by a cash
equivalent payment rather than shares at the Board’s discretion. All performance rights were satisfied through a shareallocation, other than 47,195 performance rights (2018: none) for which Board discretion was exercised.

2019 and 2018 grants

During the 2019 year, we granted 885,810 performance rights (2018: 1,023,239).

Downward adjustment

Board discretion was exercised to adjust downward 59,012 performance rights to zero in 2019 (2018: none).

Four years for grants from 1 October 2019.

197

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Notes to the consolidated financial statements (continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

31. EMPLOYEE SHARE AND OPTION PLANS (continued)ii) Deferred Share Rights (no performance hurdles)
Allocation

Deferred share rights provide the holder with the right to acquire ANZ shares at nil cost after a specified
vesting period. We adjust the fair value of rights for the absence of dividends during the restriction period.

Satisfying vesting

Any portion of the award of share rights may be satisfied by a cash equivalent payment rather than shares at
the Board’s discretion. All share rights were satisfied through a share allocation, other than 68,357 deferredshare rights (2018: 108,783) for which Board discretion was exercised.

2019 and 2018 grants

During the 2019 year, 2,078,427 deferred share rights (no performance hurdles) were granted(2018: 2,546,333).

Downward adjustment

Board discretion was exercised to adjust downward 11,824 deferred share rights to zero in 2019(2018: 1,638).

Options, Deferred Share Rights and Performance Rights on Issue
As at 30 October 2019, there were 615 holders of 4,173,045 deferred share rights on issue and 142 holders of 2,486,001 performance rights on issue.
Options/Rights Movements
This table shows the options/rights over unissued ANZ shares and their related weighted average (WA) exercise prices as at the beginning and end of2019 and the movements during 2019:

Number of options/rights
WA exercise price

Options/rightsexpiredOptions/rightsexercised

Closingbalance
30 Sep 2019

(1,589,109)

0(1,835,163)

6,688,538

$0.00

$0.00

$0.00

$0.00

Openingbalance
1 Oct 2018

Options/rightsgrantedOptions/rightsforfeited1

7,148,573

2,964,237

$0.00

$0.00

$26.66

WA closing share price
WA remaining contractual life

1.9 years

WA exercise price of all exercisable
options/rights outstanding$0.00

Outstanding exercisable options/rights

181,581

This table shows the options/rights over unissued ANZ shares and their related weighted average exercise prices as at the beginning and end of 2018
and the movements during 2018:
Options/
Options/
Closing
Opening
Options/
Options/rightsrightsbalancebalancerightsrightsexpiredexercised
30 Sep 2018
1 Oct 2017
grantedforfeited1
Number of options/rights
WA exercise price

7,113,784

3,569,572(2,043,209)(1,558)(1,490,016)

7,148,573

$0.00

$0.00

$0.00

$0.00

$0.00

$0.00

WA closing share price
WA remaining contractual life1.

WA exercise price of all exercisable
options/rights outstanding$0.00

Outstanding exercisable options/rights

67,666

Refers to any circumstance where equity can be forfeited (for example on cessation, downward adjustment or performance conditions not met).

All of the shares issued as a result of the exercise of options/rights during 2019 and 2018, were issued at a nil exercise price.
As at the date of the signing of the Directors’ Report on 30 October 2019: no options/rights over ordinary shares have been granted since the end of 2019; and 14,464 shares issued as a result of the exercise of options/rights since the end of 2019, all with nil exercise prices.

198$28.43
2.1 years198

ANZ 2019 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

31. EMPLOYEE SHARE AND OPTION PLANS (continued)
Fair Value Assumptions
When determining the fair value, we apply the standard market techniques for valuation, including Monte Carlo and/or Black Scholes pricing models.
We do so in accordance with the requirements of AASB 2 Share-based Payments. The models take into account early exercise of vested equity, nontransferability and internal/external performance hurdles (if any).
The table below shows the significant assumptions we used as inputs into our fair value calculation of instruments granted during the period. We
present the values as weighted averages, but the specific values we use for each allocation are the ones we use for the fair value calculation.
2019

Exercise price ($)
Share closing price at grant date ($)

PerformancerightsPerformancerights

0.00

0.00

0.00

0.00

25.83

25.52

29.24

29.21

20.0

20.0

20.0

20.0

Equity term (years)

2.5

4.8

2.4

5.0

Vesting period (years)

2.1

3.0

2.1

3.0

Expected life (years)

2.1

3.0

2.1

3.0

Expected volatility of ANZ share price (%)

1.

2018
Deferred
share
rightsDeferred
share
rights1

Expected dividend yield (%)

6

6

5.75

5.75

Risk free interest rate (%)

1.96

2.05

1.65

1.95

Fair value ($)

22.87

9.40

26.03

12.24

Expected volatility represents a measure of the amount by which ANZ’s share price is expected to fluctuate over the life of the rights. The measure of volatility used in the model is the annualised standard
deviation of the continuously compounded rates of return on the historical share price over a deferred period of time preceding the date of grant. This historical average annualised volatility is then used toestimate a reasonable expected volatility over the expected life of the rights.

SATISFYING EQUITY AWARDS
All shares underpinning equity awards may be purchased on market, reallocated or be newly issued shares, or a combination.
The equity we purchased on market during the 2019 financial year (either under the ANZ Employee Share Acquisition Plan and the ANZ Share Option
Plan, or to satisfy options or rights) for all employees amounted to 4,317,094 shares at an average price of $25.99 per share (2018: 3,936,773 shares at
an average price of $29.00 per share).

199

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Notes to the consolidated financial statements (continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

32. RELATED PARTY DISCLOSURESKEY MANAGEMENT PERSONNEL COMPENSATIONKey Management Personnel (KMP) are defined as all directors and those executives who report directly to the CEO: with responsibility for the strategic direction and management of a major income generating division; or who control material income and expenses.
KMP compensation included within total personnel expenses in Note 3 Operating Expenses is as follows:
2019
$0001

2018
$0001

15,784

19,497

Post-employment benefits

415

333

Other long-term benefits

213

150

Short-term benefits2

Termination benefits

2,112

454

Share-based payments

6,184

8,910

Total

24,70829,344

1.

Includes former disclosed KMPs until the end of their employment.
2.
Includes restatement of prior year amount to include items previously characterised as business related expenses that would be more appropriately be characterised as non-business related. Similar items
existed in the prior periods between 2010-2017 which would have increased the short-terms benefits by less than $0.1 million per annum.

KEY MANAGEMENT PERSONNEL LOAN TRANSACTIONS
Loans made to KMP are made in the ordinary course of business and on normal commercial terms and conditions that are no more favourable thanthose given to other employees or customers, including: the term of the loan, security required and the interest rate. No amounts have been written
off during the period, or individual provision raised in respect of these balances. The aggregate of loans (including credit card balances) made,guaranteed or secured, and undrawn facilities to KMP including their related parties, were as follows:
2019
$000

2018
$000

Loans advanced1,2

26,862

23,675

Undrawn facilities

513

286

Interest charged3

739

932

1

1.

Balances are as at the balance sheet date (for KMP in office at balance sheet date) or at the date of cessation of former KMP.
Prior period has been restated to include credit card balances and exclude an available for redraw component of loan balances previously included within loans advanced.
3.
Interest charged is for all KMP’s during the period.
2.

KEY MANAGEMENT PERSONNEL HOLDINGS OF ANZ SECURITIESKMP, including their related parties, held subordinated debt, shares, share rights and options over shares in the Company directly, indirectly or
beneficially as shown below:

Shares, options and rights
Subordinated debt
1.

200

Balances are as at the balance sheet date (for KMP in office at balance sheet date) or at the date of cessation of former KMP.

200

ANZ 2019 ANNUAL REPORT

2019
Number1

2018
Number1

1,892,754

2,293,271

11,802

13,152NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

32. RELATED PARTY DISCLOSURES (continued)
OTHER TRANSACTIONS OF KEY MANAGEMENT PERSONNEL AND THEIR RELATED PARTIESThe aggregate of deposits of KMP and their related parties with the Group were $60 million (2018: $56 million).
Other transactions with KMP and their related parties included amounts paid to the Group in respect of insurance premiums, investment
management service fees, brokerage and bank fees and charges. The Group has reimbursed KMP for the costs incurred for secretarial services
associated with the performance of their duties. These transactions are conducted on normal commercial terms and conditions no more favourable
than those given to other employees or customers.
In November 2010, a subsidiary of ANZ Bank New Zealand Limited (ANZ NZ) purchased a residential property in New Zealand for NZ$7.55 million. The
property was leased to the then ANZ NZ Chief Executive Officer (CEO), Mr David Hisco, as part of a relocation package arrangement.
On 31 March 2017, the property was sold to Mr David Hisco’s wife for NZ$6.9 million. At that time, Mr Hisco was the CEO of ANZ NZ and a member of
Key Management Personnel.
ANZ NZ obtained two independent valuations of the property, one of which was not considered for a number of reasons, including that it did notcomply with valuation standards. ANZ NZ then obtained a further independent valuation and the sale price was determined as the midpoint of these
two independent valuations, less an amount reflecting part of the estimated sale costs that would have otherwise been incurred.
Consistent with the Reserve Bank of New Zealand’s requirements on ANZ NZ concerning independence, the sale of the property was overseen by
ANZ NZ.
This transaction was not separately disclosed in the Group’s or ANZ NZ’s 2017 financial statements. ASIC made enquiries of ANZ concerning disclosureof this matter in the 2017 financial statements. ANZ also acknowledges the determination of the Financial Markets Authority (New Zealand) that ANZ
NZ should have disclosed the March 2017 sale as a related party transaction in its 2017 financial statements.

ASSOCIATES
We disclose significant associates in Note 26 Investments in Associates. During the course of the financial year, transactions conducted with all
associates were on terms equivalent to those made on an arm’s length basis:
2019
$000

2018
$000

Amounts receivable from associates

664

35,083

Amounts payable to associates

697

1,504

Interest income from associates

93

1,772

Other expenses paid to associates

11,561

15,296

Dividend income from associates

50,01451,643

There have been no material guarantees given or received. No amounts have been written-off during the period, or individual provisions raised in
respect of these balances.

201

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ANZ 2019 ANNUAL REPORT

Notes to the consolidated financial statements (continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

33. COMMITMENTS, CONTINGENT LIABILITIES AND CONTINGENT ASSETSCREDIT RELATED COMMITMENTS AND CONTINGENCIES
2019
$m

2018
$m

Undrawn facilities

209,340

202,531

Contract amount of:
Guarantees and letters of credit

22,33918,441

Performance related contingencies

22,112

24,136

Total

253,791

245,108

UNDRAWN FACILITIESThe majority of undrawn facilities are subject to customers maintaining specific credit and other requirements or conditions. Many of these facilities
are expected to be only partially used, and others may never be used at all. As such, the total of the nominal principal amounts is not necessarily
representative of future liquidity risks or future cash requirements. Based on the earliest date on which the Group may be required to pay, the total
undrawn facilities of 209,341 million (2018: $202,531 million) mature within 12 months.
GUARANTEES, LETTERS OF CREDIT AND PERFORMANCE RELATED CONTINGENCIES
Guarantees, letters of credit and performance related contingencies relate to transactions that the Group has entered into as principal – including:guarantees, standby letters of credit and documentary letters of credit.
Documentary letters of credit involve the Group issuing letters of credit guaranteeing payment in favour of an exporter. They are secured against anunderlying shipment of goods or backed by a confirmatory letter of credit from another bank.
Performance related contingencies are liabilities that oblige the Group to make payments to a third party if the customer fails to fulfil its non-monetary
obligations under the contract.
To reflect the risk associated with these transactions, we apply the same credit origination, portfolio management and collateral requirements that weapply to loans. The contract amount represents the maximum potential amount that we could lose if the counterparty fails to meet its financial
obligations. As the facilities may expire without being drawn upon, the notional amounts do not necessarily reflect future cash requirements. Basedon the earliest date on which the Group may be required to pay, the total guarantees and letters of credit of $22,339 million (2018: $18,441 million)
and total performance related contingencies of $22,112 million (2018: $24,136 million) mature within 12 months.

PROPERTY RELATED COMMITMENTS
2019
$m

2018
$m

1,586

1,431

Lease rentals
Land and buildings

70

205

1,656

1,636

Due within 1 year

320

371

Due later than 1 year but not later than 5 years

847

832

Due later than 5 years

489

433

1,656

1,636

Furniture and equipment
Total lease rental commitments1

Total lease rental commitments
1.

202

1

Total future minimum sublease payments we expect to receive under non-cancellable subleases at 30 September 2019 is $67 million (2018: $81 million). During the year, sublease payments we received
amounted to $29 million (2018: $32 million) and were netted against rent expense.

202

ANZ 2019 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

33. COMMITMENTS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS (continued)
OTHER CONTINGENT LIABILITIESAs at 30 September 2019, the Group had contingent liabilities in respect of the matters outlined below. Where relevant, expert legal advice has beenobtained and, in the light of such advice, provisions (refer to note 21) and/or disclosures as deemed appropriate have been made. In some instances
we have not disclosed the estimated financial impact of the individual items either because it is not practicable to do so or because such disclosure
may prejudice the interests of the Group.
REGULATORY AND CUSTOMER EXPOSURESIn recent years there has been an increase in the number of matters on which the Group engages with its regulators. There have also been significant
increases in the nature and scale of regulatory investigations and reviews, civil and criminal enforcement actions (whether by court action orotherwise), formal and informal inquiries, regulatory supervisory activities and the quantum of fines issued by regulators, particularly against financial
institutions both in Australia and globally. The Group has received various notices and requests for information from its regulators as part of bothindustry-wide and Group-specific reviews and has also made disclosures to its regulators at its own instigation. The nature of these interactions can bewide ranging and, for example, currently include a range of matters including responsible lending practices, product suitability and distribution,interest and fees and the entitlement to charge them, customer remediation, wealth advice, insurance distribution, pricing, competition, conduct infinancial markets and financial transactions, capital market transactions, anti-money laundering and counter-terrorism financing obligations, reportingand disclosure obligations and product disclosure documentation. There may be exposures to customers which are additional to any regulatory
exposures. These could include class actions, individual claims or customer remediation or compensation activities. The outcomes and total costs
associated with such reviews and possible exposures remain uncertain.
BANK FEES LITIGATION AND PERIODICAL PAYMENT REMEDIATION AND ASIC ACTION
A litigation funder commenced a class action against the Company in 2010, followed by a second similar class action in March 2013. The applicants
contended that certain exception fees (honour, dishonour and non-payment fees on transaction accounts and late payment and over-limit fees on
credit cards) were unenforceable penalties and that various of the fees were also unenforceable under statutory provisions governing unconscionableconduct, unfair contract terms and unjust transactions. The claims in the March 2013 class action failed and have been dismissed.
The original claims in the 2010 class action have been dismissed. In 2017, a new claim was added to the 2010 class action, in relation to the Company’s
entitlement to charge certain periodical payment non-payment fees. Part of the class of customers had already received remediation payments fromthe Company. An agreement to settle the claim was reached in December 2018. The settlement is subject to court approval.
In July 2019, ASIC commenced civil penalty proceedings against the Company in relation to the charging of fees for periodical payments in certain
circumstances between August 2003 and February 2016. ASIC seeks civil penalties in respect of alleged false or misleading representations andunconscionable conduct. ASIC also alleges that the Company engaged in misleading or deceptive conduct and breached certain statutory obligations
as a financial services licensee. The matter is at an early stage. The outcomes and total costs remain uncertain. The Company is defending theallegations.
BENCHMARK/RATE ACTIONSIn July and August 2016, class action complaints were brought in the United States District Court against local and international banks, including theCompany – one action relating to the bank bill swap rate (BBSW), and one action relating to the Singapore Interbank Offered Rate (SIBOR) and theSingapore Swap Offer Rate (SOR). The class actions are expressed to apply to persons and entities that engaged in US-based transactions in financial
instruments that were priced, benchmarked, and/or settled based on BBSW or SIBOR. The claimants seek damages or compensation in amounts not
specified, and allege that the defendant banks, including the Company, violated US anti-trust laws and (in the BBSW case only) anti-racketeering laws,
the Commodity Exchange Act, and unjust enrichment principles. The Company is defending the proceedings. The matters are at an early stage.
In February 2017, the South African Competition Commission commenced proceedings against local and international banks including the Company
alleging breaches of the cartel provisions of the South African Competition Act in respect of trading in the South African rand. The potential civil penalty
or other financial impact is uncertain. The matter is at an early stage.
CAPITAL RAISING ACTIONSIn June 2018, the Commonwealth Director of Public Prosecutions commenced criminal proceedings against the Company and a senior employee
alleging that they were knowingly concerned in cartel conduct by the joint lead managers of the Company’s August 2015 underwritten institutional
equity placement of approximately 80.8 million ordinary shares. The matter is at an early stage. The Company and its senior employee are defending
the allegations.
In September 2018, the Australian Securities and Investments Commission (ASIC) commenced civil penalty proceedings against the Company alleging
failure to comply with continuous disclosure obligations in connection with the Company’s August 2015 underwritten institutional equity placement.
ASIC alleges the Company should have advised the market that the joint lead managers took up approximately 25.5 million ordinary shares of theplacement. The matter is at an early stage. The Company is defending the allegations.
FRANCHISEE LITIGATIONIn February 2018, two related class actions were brought against the Company alleging breaches of contract and unconscionable conduct in relation
to lending to 7-Eleven franchisees. An agreement to settle the claims against the Company was reached in March 2019. The settlement is subject tocourt approval.

203

203

ANZ 2019 ANNUAL REPORT

Notes to the consolidated financial statements (continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

33. COMMITMENTS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS (continued)
ROYAL COMMISSION
The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry released its final report on 4 February 2019.
The findings and recommendations of the Commission are resulting in additional costs and may lead to further exposures, including exposuresassociated with further regulator activity or potential customer exposures such as class actions, individual claims or customer remediation orcompensation activities. The outcomes and total costs associated with these possible exposures remain uncertain.
SECURITY RECOVERY ACTIONS
Various claims have been made or are anticipated, arising from security recovery actions taken to resolve impaired assets. These claims will bedefended.
WARRANTIES AND INDEMNITIESThe Group has provided warranties, indemnities and other commitments in favour of the purchaser and other persons in connection with various
disposals of businesses and assets and other transactions, covering a range of matters and risks. It is exposed to potential claims under thosewarranties, indemnities and commitments.
CLEARING AND SETTLEMENT OBLIGATIONS
Certain group companies have a commitment to comply with rules governing various clearing and settlement arrangements which could result in a
credit risk exposure and loss if another member institution fails to settle its payment clearing activities. The Group’s potential exposure arising fromthese arrangements is unquantifiable in advance.
Certain group companies hold memberships of central clearing houses, including ASX Clear (Futures), London Clearing House (LCH) SwapClear and
RepoClear, Korea Exchange (KRX), Hong Kong Exchange (HKEX), Clearing Corporation of India and the Shanghai Clearing House. These memberships
allow the relevant group company to centrally clear derivative instruments in line with cross-border regulatory requirements. Common to all of thesememberships is the requirement for the relevant group company to make default fund contributions. In the event of a default by another member,the relevant group company could potentially be required to commit additional default fund contributions which are unquantifiable in advance.
PARENT ENTITY GUARANTEESThe Company has issued letters of comfort and guarantees in respect of certain subsidiaries in the normal course of business. Under these letters andguarantees, the Company undertakes to ensure that those subsidiaries continue to meet their financial obligations, subject to certain conditions
including that the entity remains a controlled entity of the Company.
SALE OF GRINDLAYS BUSINESSESOn 31 July 2000, the Company completed the sale to Standard Chartered Bank (SCB) of ANZ Grindlays Bank Limited and the private banking businessof ANZ in the United Kingdom and Jersey, together with ANZ Grindlays (Jersey) Holdings Limited and its subsidiaries, for USD1.3 billion in cash. The
Company provided warranties and certain indemnities relating to those businesses and, where it was anticipated that payments would be likely under
the warranties or indemnities, made provisions to cover the anticipated liabilities. The issue below has not adversely impacted the reported results. All
settlements and penalties to date have been covered within existing provisions.
In 1991 certain amounts were transferred from non-convertible Indian Rupee accounts maintained with Grindlays in India. These transactions may nothave complied with the provisions of the Foreign Exchange Regulation Act, 1973. Grindlays, on its own initiative, brought these transactions to theattention of the Reserve Bank of India. The Indian authorities served notices on Grindlays and certain of its officers in India and civil penalties havebeen imposed which are the subject of appeals. Criminal prosecutions are pending and will be defended. The amounts in issue are not material.

CONTINGENT ASSETSNATIONAL HOUSING BANKThe Company is pursuing recovery of the proceeds of certain disputed cheques which were credited to the account of a former Grindlays customer inthe early 1990s.
The disputed cheques were drawn on the National Housing Bank (NHB) in India. Proceedings between Grindlays and NHB concerning the proceeds ofthe cheques were resolved in early 2002.
Recovery is now being pursued from the estate of the Grindlays customer who received the cheque proceeds. Any amounts recovered are to beshared between the Company and NHB.

204

204

ANZ 2019 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

34. COMPENSATION OF AUDITORS
2019
$’000

2018
$’000

Audit or review of financial reports

9,036

10,058

Audit-related services

3,392

4,999

114

306

12,542

15,363

Audit or review of financial reports

5,691

5,797

Audit-related services

2,316

1,276

2

2

KPMG Australia
1

Non-audit services2
Total

3

Overseas related practices of KPMG Australia
1

Non-audit services2
Total

8,009

7,075

Total compensation of auditors

20,551

22,4381.

Comprises prudential and regulatory services of $4.47 million (2018: $3.70 million), comfort letters $0.48 million (2018: $0.51 million) and other services $0.76 million (2018: $2.07 million).
The nature of the non-audit services includes general market and regulatory insights, training, controls related assessments, methodology and procedural reviews. Further details are provided in the
Directors’ Report.
3.
Inclusive of goods and services tax.
2.

The Group’s Policy allows KPMG Australia or any of its related practices to provide assurance and other audit-related services that, while outside thescope of the statutory audit, are consistent with the role of an external auditor. These include regulatory and prudential reviews requested byregulators such as APRA. Any other services that are not audit or audit-related services are non-audit services. The Policy allows certain non-audit
services to be provided where the service would not contravene auditor independence requirements. KPMG Australia or any of its related practices
may not provide services that are perceived to be in conflict with the role of the external auditor or breach auditor independence. These include
consulting advice and subcontracting of operational activities normally undertaken by management, and engagements where the external auditor
may ultimately be required to express an opinion on its own work.

205

205

ANZ 2019 ANNUAL REPORT

Notes to the consolidated financial statements (continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

35. IMPACT OF ADOPTION OF NEW STANDARDS AND OTHER CHANGESThe following table summarises changes to the balance sheet in the comparative period resulting from the application of AASB 15, and otherreclassification adjustments to enhance comparability with current period presentation.
Impact ofapplication of
AASB 15$m

Other
reclassification
adjustment$m

Restated as at
30 Sep 18$m603,938-526

604,464

3,645

32

-

3,677

Reported as
at 30 Sep 18$m
Net loans and advances1
Other assets2
Other non-impacted balance sheet line items

335,041--

335,041

Total assets

942,62432

526

943,182

59

10

-

69

Deferred tax liabilities2
Payables and other liabilities

6,788

106

-

6,894

Other provisions1,3

1,038

(106)

526

1,458

Other non-impacted balance sheet line items

875,356--875,356

Total liabilities

883,24110526

883,777

Retained earnings2

31,71522-

31,737

3

Other non-impacted balance sheet line items

27,528--27,528

Share capital and reserves attributable to shareholders of the Company2

59,24322-

59,265

140

-

-

140

59,38322-

59,405

Non-controlling interests
Total shareholders' equity

2

1.

$500 million of collectively assessed and $26 million of individually assessed provisions for credit impairment attributable to off-balance sheet credit related commitments at 30 September 2018 werereclassified from Net loans and advances at amortised cost to Other provisions to enhance comparability with current period presentation.
2.
The Group adopted AASB 15 in this reporting period with comparatives restated. The impact of this policy change on the reported 30 September 2018 balance sheet was an increase in Other assets of $32
million, an increase in Deferred tax liabilities of $10 million and an increase in Retained earnings of $22 million, reflecting revenue that qualifies for upfront recognition under AASB 15 but was not previously
recognised under AASB 118.
3.
Upon adoption of AASB 15, certain liabilities associated with credit card loyalty programs have been reclassified from Other provisions to Payables and other liabilities.

In addition to the balance sheet impact above, upon adoption of AASB 15 certain items previously netted are now presented gross in operating
income and operating expenses. This increased total operating income and total operating expenses by $128 million for the 2019 financial year.
Comparative information has been restated which increased total operating income and total operating expenses by $153 million for the 2018
financial year.

Impact of the transition to AASB 9 Financial Instruments (AASB 9)
ALLOWANCE FOR EXPECTED CREDIT LOSSES
The table below reconciles the closing provisions for credit impairment of financial assets determined in accordance with AASB 139 Finanicial
Instruments: Recognition and Measurement, and provisions for credit impairment of loan commitments and financial guarantee contracts determined inaccordance with AASB 137 Provisions, Contingent Liabilities and Contingent Assets as at 30 September 2018, and the opening allowance for expectedcredit losses determined in accordance with AASB 9 as at 1 October 2018.
As at 30 Sep 18
As at 1 Oct 18
Provision for credit
Incremental
impairment under allowance for ECL Allowance for ECLAASB 139 or AASB 137
under AASB 9
under AASB 9$m$m$m
Loans and advances - at amortised cost

2,917

647

3,564

-

11

11

Off-balance sheet commitments - undrawn and contingent facilities1

526

155

681

Total provisions for credit impairment

3,443

813

4,256

Investment securities - debt securities at FVOCI2

-

14

14

Total loss allowance recognised in other comprehensive income

-

14

14

Investment securities - debt securities at amortised cost

Loss allowances recognised in other comprehensive income

1.
2.

206

The individually and collectively assessed allowance for ECL is included in Other provisions.
Allowance for ECL does not change the carrying amount which remains at fair value. Instead, the allowance for ECL is recognised in OCI, with a corresponding charge to profit or loss.

206

ANZ 2019 ANNUAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

35. IMPACT OF ADOPTION OF NEW STANDARDS AND OTHER CHANGES (continued)
The following table summarises the adjustments arising on adoption of AASB 9.
CONSOLIDATED BALANCE SHEET RECONCILIATIONAASB 139AASB 9measurement measurement
Reference
category
category
Trading securities

1,2

FVTPL

Restated
AASB 9as atreclassifi30 Sep 18 cation impact$m$m

AASB 9AASB 9Remeasurecredit
ment (excl. impairment
impairment)
impact$m$m

Revisedcarrying
amount as
at 1 Oct 18
$m

FVTPL

37,722

(993)

-

-

36,729Investment securities:- debt securities at amortised
cost

2,6,7

N/A Amortised cost

-

6,158

2

(11)

6,149

- debt securities at FVOCI

1,2

N/A

FVOCI

-

70,938--70,938- equity securities at FVOCI

2

N/A

FVOCI

-

1,087

-

-

1,087

Available-for-sale assets (AFS)

2

AFS

N/A

74,284(74,284)---

Loans andAmortised costreceivables

604,331(4,470)15(647)

599,229

Net loans and advances- at amortised cost
- at FVTPL
Investments in associates
Deferred tax assets

3,6,7,8
3,8

FVTPL

FVTPL

133

1,564

(23)

-

1,674

5

N/A

N/A

2,553

-

-

(65)

2,488

1,2,4,6

N/A

N/A

900

-

15

234

1,149

N/A

N/A

223,259---

223,259

943,182

-

9

(489)

942,702

Other non-impacted balance
sheet line items
Total assets
1,3,4

N/A

N/A

300

-

30

-

330

6

N/A

N/A

1,458

-

-

155

1,613

- at amortised cost

4 Amortised cost Amortised cost

119,737

(879)

-

-

118,858- at FVTPL

4

Current tax liabilities
Other provisions
Debt issuances:

FVTPL

FVTPL

1,442

879

(55)

-

2,266

N/A

N/A

760,840---

760,840

Total liabilities

883,777

-

(25)

155

883,907

Ordinary share capital

27,205---27,205

323

1

3

10

337

31,737

(1)

31

(654)

31,11359,265

-

34

(644)

58,655

Non-controlling interests

140

-

-

-

140

Total shareholders' equity

59,405

-

34

(644)

58,795

Other non-impacted balance
sheet line items

Reserves
Retained earnings
Share capital and reserves
attributable to shareholders of
the Company

1,2,6
1,2,3,4,
5,6

207

207

ANZ 2019 ANNUAL REPORT

Notes to the consolidated financial statements (continued)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

35. IMPACT OF ADOPTION OF NEW STANDARDS AND OTHER CHANGES (continued)
REFERENCE
1.

On initial application of AASB 9, a portfolio of bonds with a fair value of $1,000 million was transferred from Trading securities to Investment
securities - debt securities at FVOCI as the applicable business model was held to collect and sell. Cumulative fair value gains/(losses) on thisportfolio of $2 million (after tax) were transferred from Retained earnings to the FVOCI reserve. Additionally, the reclassification resulted in a
reduction in deferred tax assets and current tax liabilities of $1 million.

2.

The Available-for-sale classification is no longer applicable under AASB 9. Accordingly, on transition:
 $69,938 million of Available-for-sale debt instruments were reclassified to Investment securities – debt securities at FVOCI due to thebusiness model being held to collect and sell. There was no re-measurement impact associated with this reclassification;
 $3,252 million of Available-for-sale debt instruments were reclassified to Investment securities – debt securities at amortised cost due to thebusiness model being held to collect at 1 October 2018. This reclassification resulted in re-measurement of a $2 million increase to thecarrying amount arising from reversal of the previous available-for-sale revaluation reserve. Additionally, a deferred tax asset of $1 million
associated with the previous available-for-sale revaluation was reversed;
 the Group made irrevocable elections to designate $1,087 million of non-traded Available-for-sale equity securities as Investment securities equity securities at FVOCI; and $7 million of Available-for-sale equity securities were reclassified to Trading securities and the related reserve balance of $1 million wasreclassified to Retained earnings.

3.

Certain loans with contractual cash flow characteristics that are not solely payments of principal and interest were reclassified from Net loans
and advances at amortised cost to Net Loans and advances at FVTPL. The loans had an amortised cost carrying amount of $224 million and afair value of $201 million at 30 September 2018. The associated re-measurement of $23 million was recognised in Retained earnings offset by adecrease in current tax liabilities of $7 million. In addition, one of the loans was previously in a fair value hedge relationship which was
discontinued effective 1 October 2018. Accordingly, changes in the fair value due to changes in the hedged risk which were previously
recognised as a reduction to the carrying value of the loan amounting to $15 million were written back to Retained earnings offset by anincrease in current tax liabilities of $4 million.

4.

The Group elected to designate certain financial liabilities (bonds included within Debt issuances) as measured at FVTPL effective from 1
October 2018 to reduce an accounting mismatch. The bonds had an amortised cost carrying amount of $879 million and a fair value of $824
million at 30 September 2018. The difference of $55 million (comprising a $109 million decrease in fair value before own credit, offset by a $54
million increase in fair value attributable to own credit) offset by a net tax impact of $17 million (increase in deferred tax asset of $17 million andan increase in current tax liability of $34 million) was recognised in Retained earnings.

5.

The Group recognised a decrease of $65 million to the carrying value of Investments in associates with a corresponding decrease to Retained
earnings reflecting the Group’s share of the estimated initial application impact of IFRS 9 (the international equivalent of AASB 9).

6.

The initial application of the expected credit loss requirements of AASB 9, resulted in increases in allowances for credit impairment attributable
to the following: On-balance sheet loans and advances of $647 million reflected in Net loans and advances at amortised cost; Debt securities measured at amortised cost of $11 million reflected in Investment securities – debt securities at amortised cost; and Off-balance sheet credit related commitments of $155 million reflected in Other provisions.
The total impact of $813 million was recognised as a reduction to Retained earnings, offset by an increase of $234 million related to deferredtax. Additionally, loss allowances of $10 million (after-tax) attributable to Investment Securities – debt securities at FVOCI have beenrecognised in Reserves with a corresponding adjustment to Retained earnings. The debt securities remain at fair value on the face of the
Balance Sheet.

208

7.

On initial application of AASB 9, a portfolio of Negotiable Certificates of Deposit with a carrying amount of $2,906 million was reclassified fromNet loans and advances at amortised cost to Investment Securities – debt securities at amortised cost. There was no re-measurement impact
associated with this reclassification.

8.

On initial application of AASB 9, loans with a carrying amount and fair value of $1,340 million that were in the process of being syndicated werereclassified from Net loans and advances at amortised cost to Net Loans and advances at FVTPL on the basis that the applicable business modelis held-to-sell. There was no re-measurement impact associated with this reclassification.

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36. EVENTS SINCE THE END OF THE FINANCIAL YEAR
On 17 October the Group announced it had agreed a revised price for the sale of its OnePath P&I business and ADGs to IOOF of $850 million, being a$125 million reduction from the original sale price of $975 million announced in October 2017. The new price of $850 million includes approximately$25 million that ANZ has already received for the sale of ADGs in October 2018. The revised terms reflect changing market conditions and include
lower overall warranty caps as well as some changes to the strategic alliance arrangements. Subject to APRA approval, the Group expects thetransaction to complete in the first quarter of calendar year 2020. The impact of the reduction in price has been reflected in the 2019 financial results.
Other than the matter above, there have been no significant events from 30 September 2019 to the date of signing this report.

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CONSOLIDATED GROUP DIRECTORS’ DECLARATION
Directors’ Declaration
The Directors of Australia and New Zealand Banking Group Limited declare that:a) in the Directors’ opinion, the financial statements and notes of the Consolidated Entity are in accordance with the Corporations Act
2001, including:i)

section 296, that they comply with the Australian Accounting Standards and any further requirements of the Corporations Regulations
2001; andii) section 297, that they give a true and fair view of the financial position of the Consolidated Entity as at 30 September 2019 and of its
performance for the year ended on that date;b) the notes to the financial statements of the Consolidated Entity include a statement that the financial statements and notes of the Consolidated
Entity comply with International Financial Reporting Standards;c) the Directors have been given the declarations required by section 295A of the Corporations Act 2001; andd) in the Directors’ opinion, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become dueand payable.
Signed in accordance with a resolution of the Directors.

David M Gonski, AC
Chairman30 October 2019

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ANZ 2019 ANNUAL REPORT

Shayne C Elliott
Director

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

INDEPENDENT AUDITOR’S REPORTTO THE SHAREHOLDERS OF AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITEDREPORT ON THE AUDIT OF THE FINANCIAL REPORTOPINION
We have audited the Financial Report of Australia and New Zealand Banking Group Limited (the Company) and the entities it controlled at the year
end and from time to time during the financial year (together, the Group).
In our opinion, the accompanying Financial Report of the Group is in accordance with the Corporations Act 2001, including: giving a true and fair view of the Group’s financial position as at 30 September 2019 and of its financial performance for the year ended on that
date; and
 complying with Australian Accounting Standards and the Corporations Regulations 2001.
The Financial Report comprises the: consolidated statement of financial position as at 30 September 2019; consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity, andconsolidated statement of cash flows for the year then ended; notes 1 to 36 including a summary of significant accounting policies; and Directors’ Declaration.

BASIS FOR OPINION
We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit evidence we have obtained is sufficient andappropriate to provide a basis for our opinion.
Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the Financial Report section of
our report.
We are independent of the Group in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional andEthical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the Financial Report inAustralia. We have fulfilled our other ethical responsibilities in accordance with the Code.

KEY AUDIT MATTERS
The Key Audit Matters we identified are:
 Allowance for expected credit losses;
 Valuation of Financial Instruments held at Fair Value; Provisions for Customer Remediation;
 Accounting for Divestments; and IT Systems and Controls.
Key Audit Matters are those matters that, in our professional judgement, were of most significance in our audit of the Financial Report of thecurrent period.
These matters were addressed in the context of our audit of the Financial Report as a whole, and in forming our opinion thereon, and we do notprovide a separate opinion on these matters.

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Independent Auditor’s Report (continued)

INDEPENDENT AUDITOR’S REPORT (continued)

KEY AUDIT MATTERS (continued)
ALLOWANCE FOR EXPECTED CREDIT LOSSES ($4,190M)
Refer to the critical accounting estimates and judgements disclosures in relation to the allowance for expected credit losses in Note 13 to the Financial Report.
The Key Audit Matter
AASB 9 Financial Instruments (AASB 9) was adopted by the Group on 1 October 2018. This is a key audit matter due to the significance of the loans
and advances balance to the financial statements and the inherent complexity of the Group’s Expected Credit Loss (ECL) models (ECL models) used tomeasure ECL allowances. This new and complex accounting standard requires the Group to recognise ECLs on its loans and advances and off-balance
sheet positions; the Group developed new models which are reliant on data as well as a number of estimates including the impact of multiple
economic scenarios and other assumptions such as defining a significant increase in credit risk (SICR). This involves significant judgement andestimates and takes into account forward looking information reflecting potential future economic events.
AASB 9 requires the Group to measure ECLs on a forward-looking basis reflecting a range of future economic conditions, including key forwardlooking assumptions such as forecast GDP and unemployment levels. Post-model adjustments to the ECL results are also made by the Group toaddress known ECL model limitations or emerging trends in the loan portfolios. We exercise significant judgement in challenging the economic
scenarios used and the judgemental overlays the Group applied to the ECL results.
The criteria selected to identify a SICR, such as a decrease in customer credit rating (CCR), are key areas of judgement within the Group’s ECL
methodology as these criteria determine if a forward-looking 12 month or lifetime allowance is recorded.
Separate from the ECL calculation, allowances for individually assessed loans exceeding specific thresholds are individually assessed by the Group.
These specific allowances are established based on the expected future cash repayments and estimated proceeds from the value of the collateral heldby the Group in respect of the loans.
How the matter was addressed in our audit
Our audit procedures for the allowance for ECL and disclosures for the year ended 30 September 2019 included assessing the Group’s significant
accounting policies against the requirements of the accounting standard. Additionally our procedures covered:
We tested key controls in relation to: The Group’s ECL model governance and validation processes;
 The Group’s assessment and approval of the forward looking macroeconomic assumptions and scenario weightings through challenge applied by
the Group’s internal governance processes; and Reconciliation of the data used in the ECL calculation process to gross balances recorded within the general ledger as well as source systems.
 Testing the key controls over counterparty risk grading for wholesale loans (larger customer exposures are monitored individually). We tested theapproval of new lending facilities against the Group’s lending policies, and controls over the monitoring of counterparty credit quality. This
included testing controls over the identification of exposures showing signs of stress, either due to internal factors specific to the counterparty or
external macroeconomic factors, and testing the timeliness of and the accuracy of counterparty risk assessments and risk grading against therequirements of the Group’s lending policies and regulatory requirements; and For retail loans, testing controls over the systems which record lending arrears, group exposures into delinquency buckets, and re-calculate
individual allowances. We tested automated calculation and change management controls and evaluated the Group’s oversight of the portfolios,with a focus on controls over delinquency monitoring. We tested a sample of the level of allowances held against different loan products basedon the delinquency profile and challenged assumptions made in respect of expected recoveries, including from collateral held.
We also tested relevant General Information Technology Controls (GITCs) over the key IT applications used by the Group in measuring ECL allowances
as detailed in the IT Systems and Controls key audit matter below.
In addition to controls testing, our procedures included: Performing credit assessments of a sample of wholesale loans controlled by the Group’s specialist workout and recovery team assessed as higher
risk or impaired, and a sample of other loans, focusing on larger exposures assessed by the Group as showing signs of deterioration, or in areas of
emerging risk (assessed against external market conditions). We challenged the Group’s risk grading of the loan, assessment of loan recoverability,
valuation of security and the impact on the credit allowance. To do this, we used the information on the Group’s loan file, understood the facts
and circumstances of the case with the loan officer, and performed our own assessment of recoverability. Exercising our judgement, ourprocedures included using our understanding of relevant industries and the macroeconomic environment and comparing data and assumptions
used by the Group in recoverability assessments to externally sourced evidence, such as commodity prices, publicly available audited financial
statements and comparable external valuations of collateral held. Where relevant we assessed the forecast timing of future cash flows in thecontext of supporting valuations and approved business plans and challenged key assumptions implicit in the valuations; Obtaining an understanding of the Group’s processes to determine ECL allowances, evaluating the Group’s ECL model methodologies against
established market practices and criteria in the accounting standards;

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KEY AUDIT MATTERS (continued)
 Working with KPMG Risk Consulting specialists, we assessed the accuracy of the Group’s ECL model predictions by re-performing, for a sample ofloans, the ECL allowance and comparing this to the amount recorded by the Group; Working with KPMG Economic specialists, we challenged the Group’s forward-looking macroeconomic assumptions and scenarios incorporated in
the Group’s ECL models. We compared the Group’s forecast GDP and unemployment rates to relevant publicly available macro-economic
information, and considered other known variables and information obtained through our other audit procedures to identify contradictoryindicators;
 Testing the implementation of the Group’s SICR methodology by re-performing the staging calculation for a sample of loans and comparing our
expectation to actual staging applied on an individual account level, taking into consideration movements in CCR; and Assessing the accuracy of the data used in the ECL models by confirming a sample of data fields such as account balance and CCR to relevant
source systems.
We also challenged key assumptions in the components of the Group’s post-model adjustments to the ECL allowance balance. This included:
 Evaluating underlying data used in concentration risk and economic cycle allowances by comparing underlying portfolio characteristics to recent
loss experience, current market conditions and specific risks inherent in the Group’s loan portfolios; Assessing the requirement for other additional allowances considering the Group’s ECL model and data deficiencies identified by the Group’s ECL
model validation processes, and Assessing the completeness of additional allowance overlays by checking the consistency of risks we identified in the portfolios against theGroup’s assessment.
AASB 7 Financial Instruments: Disclosures
Assessing the appropriateness of the Group’s disclosures in the financial report using our understanding obtained from our testing against therequirements of the accounting standard.
VALUATION OF FINANCIAL INSTRUMENTS HELD AT FAIR VALUE:- ASSETS HELD AT FAIR VALUE $243,888M- LIABILITIES HELD AT FAIR VALUE $130,346M
Refer to the critical accounting estimates, judgements and disclosures of fair values in Note 17 to the Financial Report.
The Key Audit Matter
Financial instruments held at fair value on the Group’s balance sheet include investment securities, trading securities, derivative assets and liabilities,
certain debt securities, and other assets and liabilities designated as measured at fair value through profit or loss or fair value through othercomprehensive income. The instruments are mainly risk management products sold to customers and used by the Group to manage its own interest
rate and foreign exchange risk.
The valuation of financial instruments held at fair value is considered a Key Audit Matter as: Financial instruments held at fair value are significant (25% of assets and 14% of liabilities);
 The significant volume and range of products transacted, in a number of international locations, increases the risk of inconsistencies in transaction
management processes that could lead to inaccurate valuation;
 Determining the fair value of trading securities and derivatives involves a significant level of judgement by the Group, increasing the risk of error,
and adding complexity to our audit. The level of judgement increases where internal models, as opposed to quoted market prices, are used todetermine fair value of an instrument, or where inputs to the internal models, such as discount rates and measures of volatility, are not observable;or where there are a greater number of variables, including trade economic details and modelling assumptions, which feed into the internal
models; and The valuation of certain derivatives held by the Group is sensitive to inputs including funding rates, probabilities of default loss given default. Bothfunding and credit risk are incorporated within the valuation of certain derivative instruments. This increased our audit effort in this area andnecessitated the involvement of valuation specialists.
How the matter was addressed in our audit
Our audit procedures for the valuation of financial instruments held at fair value included: Testing access rights and change management controls for key valuation systems;
 Testing interface controls, notably the completeness and accuracy of data transfers between transaction processing systems, key systems used togenerate valuations and any related valuation adjustments, and the Group’s market risk management and finance systems to identify
inconsistencies in transaction management and valuation processes across products and locations; Testing the governance and approval controls, such as management review and approval of the valuation models, and approval of new products
against policies and procedures;

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Independent Auditor’s Report (continued)

INDEPENDENT AUDITOR’S REPORT (continued)

KEY AUDIT MATTERS (continued)
 Testing the front office management review and approval of the daily financial instrument trading profit and loss reconciliations prepared by theGroup’s independent markets and treasury control; Testing the management review and approval of model construction and validation, aimed at assessing the validity and robustness of underlying
valuation models; and Testing the Group’s data validation controls, such as those over key inputs in generating the fair value to market data where fair values were
determined by front office teams.
We carried out testing over the valuation of financial instruments with both observable and unobservable inputs. Our specific testing involved
valuation specialists and included:
 Re-performing the valuation of ‘level 1’ and ‘level 2’ investment securities and trading securities, which are primarily government, semigovernment and corporate debt securities, by comparing the observable inputs, including quoted prices, to independently sourced market data; Using independent models, re-calculating the valuation of a sample, across locations, of derivative assets and liabilities where the fair value wasdetermined using observable inputs. This included comparing a sample of observable inputs used in the Group’s derivative valuations to
independently-sourced market data, such as interest rates, foreign exchange rates and volatilities;
 Where the fair value of derivatives and other financial assets and liabilities were determined using unobservable inputs (‘level 3’ instruments),
challenging the Group’s valuation model by testing the key inputs used to comparable data in the market, including the use of proxy instruments
and available alternatives. We compared the Group’s valuation methodology to industry practice and the criteria in the accounting standards; and Evaluating the appropriateness of the Group’s valuation methodology for derivative financial instruments, having regard to current and emerging
derivative valuation practices across a range of peer institutions, and against the required criteria in the accounting standards. We tested
adjustments made to valuations, particularly funding and credit valuation adjustments on un-collateralised derivatives. In particular, for a sample
of individual counterparties, across locations, we tested key inputs to the credit valuation adjustment calculation, including the probability ofdefault, against observable market data. Where proxies were used, we assessed the proxy against available alternatives, across a number oflocations.
PROVISION FOR CUSTOMER REMEDIATION ($1,139M)
Refer to the critical accounting estimates, judgements and disclosures in Notes 21 and 33 to the Financial Report.
The Key Audit Matter
The Group has assessed the need to recognise provisions in relation to certain customer remediation activities arising from both internal and external
investigations, and reviews. This includes provisions for expected refunds to customers, remediation project costs and related customer andregulatory claims, penalties, and litigation outcomes.
The provision for customer remediation activities is a Key Audit Matter due to the number of investigations, the quantum of amounts involved,
and the judgements required by us in assessing the Group’s determination of: The existence of a present legal or constructive obligation arising from a past event using the conditions of the event against the criteria in theaccounting standards;
 Reliable estimates of the amounts which may be paid arising from investigations, including estimates of related costs and regulatory penalties;
and The potential for legal proceedings, further investigations, and reviews from its regulators leading to a wider range of estimation outcomes for us
to consider.
How the matter was addressed in our audit
Our audit procedures for customer remediation provisions included:
 Obtaining an understanding of the Group’s processes for identifying and assessing the potential impact of the investigations into customer
remediation payments, related project costs and legal proceedings associated with compliance matters, investigations and reviews from its
regulators;
 Enquiring with the Group regarding ongoing legal, and regulatory matters, and investigation into other remediation activities;
 Enquiring with external legal counsel;
 Reading the minutes and other relevant documentation of the Group’s Board of Directors, Board Committees, various management committees,
and attending the Group’s Audit and Risk Committee meetings;
 Inspecting correspondence with relevant regulatory bodies; For a sample of individual exposures, assessing the basis for recognition and measurement of a provision and associated costs against therequirements of the accounting standards. We did this by understanding and challenging the provisioning methodologies andunderlying assumptions;

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KEY AUDIT MATTERS (continued)
 Testing completeness by evaluating where exposures may have arisen based upon our knowledge and experience of broader industry matters,
the Group's documentation and the current regulatory environment. We also checked these features of these exposures against the criteria
defining a provision or a contingency in the accounting standards;
 Assessing the appropriateness of the Group’s conclusions against the requirements of Australian Accounting Standards where estimates wereunable to be reliably made for a provision to be recognised; and Evaluating the related disclosures against the requirements of Australian Accounting Standards.
DIVESTMENT OF WEALTH AUSTRALIA
Refer to the critical accounting estimates, judgements and disclosures in Notes 1 and 29 to the Financial Report.
The Key Audit MatterOn 17 October 2017, the Group announced the sale of its OnePath Pensions and Investments (OnePath P&I) business and Aligned Dealer Groups(ADGs) business to IOOF Holdings Limited (IOOF). The sale of the ADGs business completed on 1 October 2018. On 17 October 2019, the Groupannounced it had revised its contract terms with IOOF and, subject to APRA approval, the Group expects the transaction to complete in the firstquarter of calendar year 2020. On 12 December 2017, the Group announced the sale of its Life Insurance business to Zurich Financial Services Australia
Limited (together, the Divestment Businesses). The transaction completed on 31 May 2019 and final adjustments to sale proceeds are subject tofinalization of a post completion net asset review. These businesses were part of the Wealth Australia operating segment. The financial results of theDivestment Businesses are presented as discontinued operations, and the associated assets and liabilities of OnePath P&I continues to be classified asheld for sale at balance date.
The divestments are considered a Key Audit Matter due to the: significance of the Divestment Businesses to the Group; judgement applied by the Group in the measurement of the Divestment Businesses using the requirements accounting standards and the terms
and conditions of the divestments;
 judgement is applied by the Group when assessing events that occur after the reporting date but before the financial statements are authorized
for issue; and judgement applied by the Group in assessing the probability of the divestments against the requirements of Australian Accounting Standards at
30 September 2019.
We focused on the areas where judgement exists in the measurement of the discontinued operations, including the: allocation of goodwill between the Divestment Businesses;
 estimation of costs required to complete the divestments including costs associated with separating these businesses from the Group; subsequent re-measurement adjustments of the Divestment Businesses;
 consideration of adjusting and non-adjusting subsequent events relating to the Divestment Businesses; and taxation implications of the divestments, potentially having a significant impact on the loss on sale and requiring specialist knowledge.
How the matter was addressed in our audit
Our audit procedures in relation to the Divestment Businesses included: Reading the relevant transaction documents to understand the terms and conditions of the divestments;
 Assessing the criteria for the Divestment Businesses to be recognised and measured as held for sale against the criteria in the accounting
standards at balance sheet date; Evaluating the substance of the divestments using the terms and conditions of the transaction documents against the criteria for discontinued
operations in the accounting standards;
 Evaluating the Group’s controls for measurement of the divestments held for sale. This included the Steering Committee review and approval ofcosts associated with separating the divestments from the Group; Assessing, on a sample basis, the identification of assets and liabilities disposed by comparing to transaction documents and underlying financial
records at balance date; Checking the consideration for the divestments to the transaction documents and underlying financial records;
 Assessing the identification, basis for recognition, and treatment of a sample of costs associated with separating the divestments from the Groupfor compliance with the accounting standards;
 Comparing the quantum of the costs associated with separating the divestments from the Group to similar transactions within the market;
 Using our tax specialists, we evaluated the associated tax implications against the requirements of the tax legislation;

 Evaluating the methodology applied by the Group to allocate goodwill between the Divestment Businesses based on our knowledge of thebusinesses and the requirements of the accounting standards;

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Independent Auditor’s Report (continued)

INDEPENDENT AUDITOR’S REPORT (continued)

KEY AUDIT MATTERS (continued)
 Checking the Group’s calculations of loss on sale of each of the divestments and any subsequent re-measurement adjustments;
 Assessing events that occur after the reporting date but before the financial statements were authorised for issue; and Assessing the disclosures in the financial report against the requirements of the accounting standards.
IT SYSTEMS AND CONTROLSThe Key Audit Matter
As a major Australian bank, the group’s businesses utilise a large number of complex, interdependent Information Technology (IT) systems to process
and record a high volume of transactions. Controls over access and changes to IT systems are critical to the recording of financial information and the
preparation of a financial report which provides a true and fair view of the Group’s financial position and performance. The IT systems and controls, as
they impact the financial recording and reporting of transactions, is a key audit matter and our audit approach could significantly differ depending on
the effective operation of the Group’s IT controls. KPMG IT specialists were used throughout the engagement as a core part of our audit team.
How the matter was addressed in our audit
We tested the technology control environment for key IT applications (systems) used in processing significant transactions and recording balances in
the general ledger. We also tested automated controls embedded within these systems which support the effective operation of technology-enabledbusiness processes. Our audit procedures included:
 Assessing the governance and higher-level controls in place across the IT Environment, including the approach to Group policy design, review
and awareness, and IT Risk Management practices.
 Design and operating effectiveness testing of controls across the User Access Management Lifecycle, including how users are on-boarded,
reviewed, and removed on a timely basis from critical IT applications and supporting infrastructure. We also looked at how privileged roles andfunctions are managed across each IT Application and the supporting infrastructure.
 Design and operating effectiveness testing of controls in place to enable Change Management including how changes are initiated, documented,
approved, tested and authorised prior to migration into the production environment of critical IT Applications. We also assessed theappropriateness of users with access to make changes to IT applications across the Group.
 Design and operating effectiveness testing of controls used by the Group’s technology teams to schedule system jobs and monitor system
integrity.
 Design and operating effectiveness testing of controls in place to support Program Development, including the implementation of revised
guidelines per the new ANZ Delivery Framework.
 Design and operating effectiveness testing of automated business process controls include those that enforce segregation of duties conflicts
between toxic role combinations within IT applications, configurations in place to perform calculations, mappings, and flagging of financialtransactions, automated reconciliation controls, both between systems and intra-system and data integrity of critical system reporting used forsampling, data analysis and financial reporting across the audit

OTHER INFORMATIONOther Information is both financial and non-financial information in Australia and New Zealand Banking Group Limited’s annual reporting which
is provided in addition to the Financial Report and the Auditor's Report. The Directors are responsible for the Other Information.
Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not express an audit opinion or any form ofassurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion.
In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In doing so, we consider whether the
Other Information is materially inconsistent with the Financial Report or our knowledge obtained in the audit, or otherwise appears to bematerially misstated.
We are required to report if we conclude that there is a material misstatement of this Other Information, and based on the work we have
performed on the Other Information that we obtained prior to the date of this Auditor’s Report, we have nothing to report.

RESPONSIBILITIES OF DIRECTORS FOR THE FINANCIAL REPORTThe Directors are responsible for:
 preparing a Financial Report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001;
 implementing necessary internal control to enable the preparation of a Financial Report that gives a true and fair view and is free from material
misstatement, whether due to fraud or error; and assessing the Group’s ability to continue as a going concern and whether the use of the going concern basis of accounting is appropriate. This
includes disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless they either intend toliquidate the Group or to cease operations, or have no realistic alternative but to do so.

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AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL REPORTOur objective is: to obtain reasonable assurance about whether the Financial Report as a whole is free from material misstatement, whether due to fraud or
error; and to issue an Auditor’s Report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Australian Auditing Standards
will always detect a material misstatement when it exists. Misstatements can arise from fraud or error. They are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the Financial Report.
A further description of our responsibilities for the audit of the Financial Report is located at the Auditing and Assurance Standards Board website at:
http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description forms part of our Auditor’s Report.

REPORT ON THE REMUNERATION REPORT
In our opinion, the Remuneration Report of Australia and New Zealand Banking Group Limited for the year ended 30 September 2019, complies with
Section 300A of the Corporations Act 2001.

DIRECTORS’ RESPONSIBILITIESThe Directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with Section 300A of
the Corporations Act 2001.

OUR RESPONSIBILITIESWe have audited the Remuneration Report included in pages 66 to 98 of the Directors’ report for the year ended 30 September 2019.
Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian
Auditing Standards.

KPMG

Alison Kitchen
Partner
Melbourne
30 October 2019

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Shareholder information
unaudited
Ordinary shares
At 3 October 2019, the twenty largest holders of ANZ ordinary shares held 1,672,054,745 ordinary shares, equal to 58.99% of the total issued
ordinary capital. At 3 October 2019 the issued ordinary capital was 2,834,584,923 ordinary shares.
Name

Number of shares% of shares

1

HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED

726,059,635

25.61

2

J P MORGAN NOMINEES AUSTRALIA PTY LIMITED

434,784,608

15.34

3

CITICORP NOMINEES PTY LIMITED

214,446,909

7.57

4

NATIONAL NOMINEES LIMITED

97,007,871

3.42

5

BNP PARIBAS NOMINEES PTY LTD <AGENCY LENDING DRP A/C>

58,973,524

2.08

6

BNP PARIBAS NOMS PTY LTD <DRP>

30,698,777

1.08

7

HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED <NT-COMNWLTH SUPER CORP A/C>

21,860,144

0.77

8

CITICORP NOMINEES PTY LIMITED <COLONIAL FIRST STATE INV A/C>

19,334,919

0.68

9

ARGO INVESTMENTS LIMITED

9,765,275

0.34

10

AUSTRALIAN FOUNDATION INVESTMENT COMPANY LIMITED

8,487,710

0.30

11

AMP LIFE LIMITED

8,122,291

0.29

12

HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED

7,417,874

0.26

13

HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED-GSCO ECA

6,228,440

0.22

14

NETWEALTH INVESTMENTS LIMITED <WRAP SERVICES A/C>

4,975,304

0.18

15

ANZEST PTY LTD <DEA CONTROL A/C>

4,769,613

0.17

16

AUSTRALIAN EXECUTOR TRUSTEES LIMITED <IPS SUPER A/C>

4,116,373

0.15

17

BNP PARIBAS NOMINEES PTY LTD HUB24 CUSTODIAL SERV LTD DRP

4,041,082

0.14

18

NAVIGATOR AUSTRALIA LTD <MLC INVESTMENT SETT A/C>

3,835,300

0.14

19

NULIS NOMINEES (AUSTRALIA) LIMITED <NAVIGATOR MAST PLAN SETT A/C>

3,676,345

0.13

20

MILTON CORPORATION LIMITED3,452,751

0.12

1,672,054,745

58.99% of holders Number of shares% of shares

Total
Distribution of shareholdings

At 3 October 2019 – Range of shares

Number of holders

1 to 1,000

284,96156.25

108,892,987

3.84

1,001 to 5,000

175,98934.74

403,426,849

14.23

5,001 to 10,000

29,3395.79

204,708,674

7.22

10,001 to 100,000

15,851

3.13

316,640,643

11.17Over 100,000

438

0.09

1,800,915,770

63.54

506,578

100.002,834,584,923

100.00Total
At 3 October 2019:•• the average size of holdings of ordinary shares was 5,595(2018: 5,644) shares; and•• there were 21,559 holdings (2018: 12,555 holdings) of less than amarketable parcel (less than $500 in value or 19 shares based on
the market price of $27.30 per share), which is less than 4.26% of
the total holdings of ordinary shares.
On 12 May 2017 ANZ was notified by Blackrock Group that it helda substantial shareholding of 148,984,864 ordinary shares in ANZ(5.07%). As at 3 October 2019 ANZ has received no further updatein relation to this substantial shareholding.

220

ANZ 2019 ANNUAL REPORT

On 3 July 2018 ANZ was notified by The Vanguard Group, Inc thatit held a substantial shareholding of 144,730,016 ordinary shares in
ANZ (5.001%). As at 3 October 2019 ANZ has received no further
update in relation to this substantial shareholding.
Voting rights of ordinary shares

The Constitution provides for votes to be cast as follows:i) on show of hands, one vote for each shareholder; andii) on a poll, one vote for every fully paid ordinary share.
A register of holders of ordinary shares is held at:
452 Johnston Street
Abbotsford
Victoria, Australia(Telephone: +61 3 9415 4010)

ANZ Capital Notes
ANZ CN1

On 7 August 2013 the Company issued convertible subordinated perpetual notes (ANZ CN1) which were offered pursuant to a prospectus
dated 10 July 2013.
At 3 October 2019 the twenty largest holders of ANZ CN1 held 2,530,752 securities, equal to 22.60% of the total issued securities. At 3 October
2019 the total number of ANZ CN1 on issue was 11,200,000.
Name

Number of securities% of securities

1

HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED

730,384

6.52

2

BNP PARIBAS NOMS PTY LTD <DRP>

200,963

1.79

3

BNP PARIBAS NOMINEES PTY LTD HUB24 CUSTODIAL SERV LTD DRP

175,118

1.56

4

NATIONAL NOMINEES LIMITED

153,510

1.37

5NAVIGATOR AUSTRALIA LTD <MLC INVESTMENT SETT A/C>

148,991

1.33

6

HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2

140,907

1.26

7

AUSTRALIAN EXECUTOR TRUSTEES LIMITED <IPS SUPER A/C>

133,5161.19

8NETWEALTH INVESTMENTS LIMITED <WRAP SERVICES A/C>

131,598

1.17

9

NULIS NOMINEES (AUSTRALIA) LIMITED <NAVIGATOR MAST PLAN SETT A/C>

125,030

1.12

10 J P MORGAN NOMINEES AUSTRALIA PTY LIMITED

95,1900.85

11 MUTUAL TRUST PTY LTD

64,993

0.58

12 SERVCORP HOLDINGS PTY LTD

58,3250.52

13 BERNE NO 132 NOMINEES PTY LTD <684168 A/C>

56,6800.51

14 DIMBULU PTY LTD

50,0000.45

14 RANDAZZO C & G DEVELOPMENTS PTY LTD

50,0000.45

16 AUSTRALIAN EXECUTOR TRUSTEES LIMITED <IPS IDPS A/C>

47,9780.43

17 MCCUSKER FOUNDATION LTD <THE MCCUSKER CHARITABLE FNDN>

46,0000.41

18 AUSTRALIAN EXECUTOR TRUSTEES LIMITED <NO 1 ACCOUNT>43,4780.39

19 THORSEN INVESTMENTS PTY LTD

40,0000.36

20 CITICORP NOMINEES PTY LIMITED <DPSL>

38,0910.34

2,530,752

22.60

Number of holders % of holders Number of securities% of securities

Total
Distribution of ANZ CN1 holdings

At 3 October 2019 – Range of securities
1 to 1,000

15,57391.60

4,797,776

42.84

1,001 to 5,000

1,289

7.58

2,646,130

23.63

5,001 to 10,000

92

0.54

709,222

6.33

10,001 to 100,000

39

0.23

1,106,855

9.88Over 100,000

9

0.05

1,940,017

17.32

17,002100.00

11,200,000

100.00Total
At 3 October 2019 there were 6 holdings (2018: 4 holdings) of lessthan a marketable parcel (less than $500 in value or 5 securities
based on the market price of $103.09 per security), which is less than
0.04% of the total holdings of ANZ CN1.

Voting rights of ANZ CN1

ANZ CN1 do not confer on holders a right to vote at any meeting ofmembers of the Company.
A register of holders of ANZ CN1 is held at:
452 Johnston Street
Abbotsford
Victoria, Australia(Telephone: +61 3 9415 4010)
221

Shareholder Information – unaudited (continued)

ANZ CN2
On 31 March 2014 the Company issued convertible subordinated perpetual notes (ANZ CN2) which were offered pursuant to a prospectus
dated 19 February 2014.
At 3 October 2019 the twenty largest holders of ANZ CN2 held 3,923,301 securities, equal to 24.37% of the total issued securities. At 3 October
2019 the total number of ANZ CN2 on issue was 16,100,000.
Name

Number of securities% of securities

1

HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED

1,284,850

7.98

2

BNP PARIBAS NOMS PTY LTD <DRP>

301,347

1.87

3

BNP PARIBAS NOMINEES PTY LTD <AGENCY LENDING DRP A/C>

288,1131.79

4NETWEALTH INVESTMENTS LIMITED <WRAP SERVICES A/C>

221,999

1.38

5

BNP PARIBAS NOMINEES PTY LTD HUB24 CUSTODIAL SERV LTD DRP

183,994

1.14

6NETWEALTH INVESTMENTS LIMITED <SUPER SERVICES A/C>

175,748

1.09

7

NAVIGATOR AUSTRALIA LTD <MLC INVESTMENT SETT A/C>

169,023

1.05

8

JOHN E GILL TRADING PTY LTD

165,026

1.03

9

AUSTRALIAN EXECUTOR TRUSTEES LIMITED <IPS SUPER A/C>

160,199

1.00

10

NULIS NOMINEES (AUSTRALIA) LIMITED <NAVIGATOR MAST PLAN SETT A/C>

119,851

0.74

11HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED – A/C 2

119,8230.74

12NATIONAL NOMINEES LIMITED

107,7820.67

13

BERNE NO 132 NOMINEES PTY LTD <684168 A/C>

103,989

0.65

14

LIGHTNINGEDGE PTY LTD

100,000

0.62

15

NAVIGATOR AUSTRALIA LTD <JB WERE LIST FIX INT SMA A/C>

79,586

0.49

16

MUTUAL TRUST PTY LTD

78,4390.49

17

CITICORP NOMINEES PTY LIMITED <DPSL>

76,0660.47

18

J P MORGAN NOMINEES AUSTRALIA PTY LIMITED

74,785

0.47

19

RAKIO PTY LTD <PIEKARSKI GYMPIE A/C>

60,0000.37

20

CITICORP NOMINEES PTY LIMITED

52,681

0.33

3,923,301

24.37

Number of holders % of holders Number of securities% of securities

Total
Distribution of ANZ CN2 holdings

At 3 October 2019 – Range of securities
1 to 1,000

18,40789.86

6,182,838

38.40

1,001 to 5,000

1,868

9.12

3,679,863

22.86

5,001 to 10,000

120

0.58

894,557

5.56

10,001 to 100,000

77

0.38

1,940,998

12.05

Over 100,000

13

0.06

3,401,744

21.13

20,485100.00

16,100,000

100.00Total
At 3 October 2019 there were 6 holdings (2018: 6 holdings) of lessthan a marketable parcel (less than $500 in value or 5 securities
based on the market price of $102.56 per security), which is less than
0.03% of the total holdings of ANZ CN2.

Voting rights of ANZ CN2

ANZ CN2 do not confer on holders a right to vote at any meeting ofmembers of the Company.
A register of holders of ANZ CN2 is held at:
452 Johnston Street
Abbotsford
Victoria, Australia(Telephone: +61 3 9415 4010)

222

ANZ 2019 ANNUAL REPORTANZ CN3
On 5 March 2015 the Company acting through its New Zealand branch, issued convertible subordinated perpetual notes (ANZ CN3) whichwere offered pursuant to a prospectus dated 5 February 2015.
At 3 October 2019 the twenty largest holders of ANZ CN3 held 2,186,674 securities, equal to 22.54% of the total issued securities. At 3 October
2019 the total number of ANZ CN3 on issue was 9,701,791.
Name

Number of securities % of securities

1

HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED

631,374

6.51

2

BNP PARIBAS NOMS PTY LTD <DRP>

199,252

2.05

3

LONGHURST MANAGEMENT SERVICES PTY LTD

173,868

1.79

4

NATIONAL NOMINEES LIMITED

157,608

1.62

5

J P MORGAN NOMINEES AUSTRALIA PTY LIMITED

122,271

1.26

6NETWEALTH INVESTMENTS LIMITED <WRAP SERVICES A/C>

111,565

1.15

7

RAKIO PTY LTD <PIEKARSKI GYMPIE A/C>

100,000

1.03

8

JDB SERVICES PTY LTD <RAC & JD BRICE INVEST A/C>

90,7550.94

9HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2

89,791

0.93

10 BNP PARIBAS NOMINEES PTY LTD HUB24 CUSTODIAL SERV LTD DRP

68,4170.70

11 BNP PARIBAS NOMINEES PTY LTD <AGENCY LENDING DRP A/C>

60,724

0.63

12 NULIS NOMINEES (AUSTRALIA) LIMITED <NAVIGATOR MAST PLAN SETT A/C>

59,5530.61

13 INVIA CUSTODIAN PTY LIMITED <INCOME POOL A/C>

50,8500.52

14 NAVIGATOR AUSTRALIA LTD <MLC INVESTMENT SETT A/C>

46,0300.47

15 HAWAII INVESTMENTS PTY LTD

44,2500.46

16 MR PAUL WILLIAM BROTCHIE + MR KENNETH FRANCIS WALLACE <STAFFORD FOX FOUNDATION A/C>

40,0000.41

17 NAVIGATOR AUSTRALIA LTD <JB WERE LIST FIX INT SMA A/C>

39,4300.41

18 MR RONI G SIKH

36,472

0.38

19 AUSTRALIAN EXECUTOR TRUSTEES LIMITED <IPS SUPER A/C>

32,5900.34

20 CITICORP NOMINEES PTY LIMITED

31,8740.33

2,186,674

22.54

Total
Distribution of ANZ CN3 holdings

At 3 October 2019 – Range of securities

Number of holders % of holders Number of securities % of securities

1 to 1,000

10,92389.53

3,715,468

38.30

1,001 to 5,000

1,132

9.28

2,426,969

25.01

5,001 to 10,000

85

0.70

676,011

6.97

10,001 to 100,000

54

0.44

1,487,405

15.33

Over 100,000

6

0.05

1,395,938

14.39

12,200100.009,701,791

100.00Total
At 3 October 2019 there were 2 holdings (2018: 1 holding) of lessthan a marketable parcel (less than $500 in value or 5 securities
based on the market price of $104.00 per security), which is less than
0.02% of the total holdings of ANZ CN3.

Voting rights of ANZ CN3

ANZ CN3 do not confer on holders a right to vote at any meeting ofmembers of the Company.
A register of holders of ANZ CN3 is held at:
452 Johnston Street
Abbotsford
Victoria, Australia(Telephone: +61 3 9415 4010)

223

Shareholder Information – unaudited (continued)

ANZ CN4
On 27 September 2016 the Company issued convertible subordinated perpetual notes (ANZ CN4) which were offered pursuant to aprospectus dated 24 August 2016.
At 3 October 2019 the twenty largest holders of ANZ CN4 held 4,357,859 securities, equal to 26.87% of the total issued securities. At 3 October
2019 the total number of ANZ CN4 on issue was 16,220,000.
Name

Number of securities% of securities

1

HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED

1,459,282

9.00

2

CITICORP NOMINEES PTY LIMITED

441,131

2.72

3

BNP PARIBAS NOMS PTY LTD <DRP>

344,2092.12

4NATIONAL NOMINEES LIMITED

340,122

2.10

5

AUSTRALIAN EXECUTOR TRUSTEES LIMITED <IPS SUPER A/C>

226,8211.40

6NETWEALTH INVESTMENTS LIMITED <WRAP SERVICES A/C>

200,195

1.23

7

HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2

192,571

1.19

8

NAVIGATOR AUSTRALIA LTD <MLC INVESTMENT SETT A/C>

168,128

1.04

9

NULIS NOMINEES (AUSTRALIA) LIMITED <NAVIGATOR MAST PLAN SETT A/C>

152,801

0.94

10

BNP PARIBAS NOMINEES PTY LTD HUB24 CUSTODIAL SERV LTD DRP

131,251

0.81

11

J P MORGAN NOMINEES AUSTRALIA PTY LIMITED

102,887

0.63

12

JMB PTY LIMITED

100,600

0.62

13

MUTUAL TRUST PTY LTD

90,8340.56

14

RANDAZZO C & G DEVELOPMENTS PTY LTD

78,5000.48

15

AUSTRALIAN EXECUTOR TRUSTEES LIMITED <NO 1 ACCOUNT>71,1830.44

16

MR PHILIP WILLIAM DOYLE

60,0000.37

17

BNP PARIBAS NOMINEES PTY LTD <AGENCY LENDING DRP A/C>

59,676

0.37

18

V S ACCESS PTY LTD <V S ACCESS A/C>

49,3770.31

19

PAMDALE INVESTMENTS PTY LTD

47,121

0.29

20

FEDERATION UNIVERSITY AUSTRALIA

41,1700.25

4,357,859

26.87

Number of securities% of securities

Total
Distribution of ANZ CN4 holdings

At 3 October 2019 – Range of securities

Number of holders % of holders

1 to 1,000

17,08589.29

5,799,762

35.76

1,001 to 5,000

1,822

9.52

3,839,313

23.67

5,001 to 10,000

140

0.73

1,046,933

6.45

10,001 to 100,000

76

0.40

1,673,994

10.32

Over 100,000

12

0.06

3,859,998

23.80

19,135100.0016,220,000

100.00Total
At 3 October 2019 there were 5 holdings (2018: 5 holdings) of lessthan a marketable parcel (less than $500 in value or 5 securities
based on the market price of $108.40 per security), which is less than
0.03% of the total holdings of ANZ CN4.

Voting rights of ANZ CN4

ANZ CN4 do not confer on holders a right to vote at any meeting ofmembers of the Company.
A register of holders of ANZ CN4 is held at:
452 Johnston Street
Abbotsford
Victoria, Australia(Telephone: +61 3 9415 4010)

224

ANZ 2019 ANNUAL REPORTANZ CN5
On 28 September 2017 the Company issued convertible subordinated perpetual notes (ANZ CN5) which were offered pursuant to aprospectus dated 24 August 2017.
At 3 October 2019 the twenty largest holders of ANZ CN5 held 1,950,586 securities, equal to 20.95% of the total issued securities. At 3 October
2019 the total number of ANZ CN5 on issue was 9,310,782.
Name

Number of securities% of securities

1

HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED

685,824

7.37

2

HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2

104,704

1.12

3

BNP PARIBAS NOMS PTY LTD <DRP>

95,779

1.03

4

NULIS NOMINEES (AUSTRALIA) LIMITED <NAVIGATOR MAST PLAN SETT A/C>

91,153

0.98

5

CITICORP NOMINEES PTY LIMITED

89,3550.96

6NAVIGATOR AUSTRALIA LTD <MLC INVESTMENT SETT A/C>

86,767

0.93

7

DIMBULU PTY LTD

85,0000.91

8NETWEALTH INVESTMENTS LIMITED <WRAP SERVICES A/C>

79,9290.86

9LONGHURST MANAGEMENT SERVICES PTY LTD

78,2460.84

10

JMB PTY LIMITED

70,0000.75

11AUSTRALIAN EXECUTOR TRUSTEES LIMITED <IPS SUPER A/C>

65,0530.70

12

BNP PARIBAS NOMINEES PTY LTD HUB24 CUSTODIAL SERV LTD DRP

61,2250.66

13EASTCOTE PTY LTD <VAN LIESHOUT FAMILY A/C>

50,0000.54

14

FEDERATION UNIVERSITY AUSTRALIA

50,0000.54

15

RANDAZZO C & G DEVELOPMENTS PTY LTD

50,0000.54

16

J P MORGAN NOMINEES AUSTRALIA PTY LIMITED

44,9270.48

17NETWEALTH INVESTMENTS LIMITED <SUPER SERVICES A/C>

44,813

0.48

18

G C F INVESTMENTS PTY LTD

44,811

0.48

19

MR RONALD MAURICE BUNKER

40,0000.43

20

SIR MOSES MONTEFIORE JEWISH HOME <INCOME A/C>

33,0000.35

1,950,586

20.95

Number of securities% of securities

Total
Distribution of ANZ CN5 holdings

At 3 October 2019 – Range of securities

Number of holders % of holders

1 to 1,000

10,90590.11

3,885,297

41.73

1,001 to 5,000

1,075

8.88

2,337,997

25.11

5,001 to 10,000

64

0.53

487,689

5.24

10,001 to 100,000

56

0.46

1,809,271

19.43

Over 100,000

2

0.02

790,528

8.49

12,102100.009,310,782

100.00Total
At 3 October 2019 there were 4 holdings (2018: 4 holdings) of lessthan a marketable parcel (less than $500 in value or 5 securities
based on the market price of $105.90 per security), which is less than
0.04% of the total holdings of ANZ CN5.

Voting rights of ANZ CN5

ANZ CN5 do not confer on holders a right to vote at any meeting ofmembers of the Company.
A register of holders of ANZ CN5 is held at:
452 Johnston Street
Abbotsford
Victoria, Australia(Telephone: +61 3 9415 4010)

225

Shareholder Information – unaudited (continued)

Employee Shareholder Information

American Depositary Receipts

In order to comply with the requirements of the ANZ Employee Share
Acquisition Plan Rules and the ANZ Share Option Plan Rules, sharesor options must not be issued under these Plans if the aggregate
number of shares and options that remain subject to the Rulesof either Plan exceed 7% of the total number of ANZ shares of allclasses on issue (including preference shares). At 30 September 2019
participants under the following plans/schemes held 0.69% (2018:
0.78%) of the total number of ANZ shares of all classes on issue:

The Company has American Depositary Receipts (ADRs)
representing American Depositary Shares (ADSs) that are traded on
the over-the-counter securities market ‘OTC Pink’ electronic platform
operated by OTC Markets Group Inc. in the United States under the
ticker symbol: ANZBY and the CUSIP number: 052528304.

•• ANZ Employee Share Acquisition Plan;•• ANZ Employee Share Save Scheme;•• ANZ Share Option Plan; and•• ANZ Directors’ Share Plan.

Stock Exchange Listings
Australia and New Zealand Banking Group Limited’s ordinary sharesare listed on the Australian Securities Exchange and New Zealand’s
Exchange (NZX).
The Group’s other stock exchange listings include:•• Australian Securities Exchange – ANZ Capital Notes (CN1, CN2,
CN3, CN4 and CN5), ANZ Capital Securities, senior debt (including
covered bonds) and subordinated debt [Australia and New
Zealand Banking Group Limited], and residential mortgage
backed securities;•• London Stock Exchange – Senior (including covered bonds) debt
[Australia and New Zealand Banking Group Limited] and senior(including covered bonds) debt [ANZ New Zealand (Int’l) Limited];•• Luxembourg Stock Exchange – Perpetual subordinated debt
[Australia and New Zealand Banking Group Limited];•• NZX – ANZ NZ Capital Notes and senior debt [ANZ Bank New
Zealand Limited];•• SIX Swiss Exchange – Senior debt [ANZ New Zealand (Int’l)Limited]; and•• Taipei Exchange – Senior debt [Australia and New Zealand
Banking Group Limited].
For more information on the ANZ Capital Notes, ANZ Capital
Securities and ANZ NZ Capital Notes please refer to Note 15 to the
Financial Report.

226

ANZ 2019 ANNUAL REPORTWith effect from 23 July 2008, the ADR ratio changed from one ADS
representing five ANZ ordinary shares to one ADS representing one
ANZ ordinary share.
The Bank of New York Mellon (BNY Mellon) is the Depositary for
the Company’s ADR program in the United States. For further
information about ADRs, please call BNY Mellon at 1-888-269-2377 if
you are calling from within the United States. If you are calling fromoutside the United States, please call 1-201-680-6825. You may also
visit BNY Mellon’s website at www.adrbnymellon.com

Glossary
AASs – Australian Accounting Standards.
AASB – Australian Accounting Standards Board. The term “AASB” iscommonly used when identifying AASs issued by the AASB. In doing
so, the term is used together with the AAS number.
ADI – Authorised Deposit-taking Institution.
APRA – Australian Prudential Regulation Authority.
APS – ADI Prudential Standard.
BCBS – Basel Committee on Banking Supervision.
Cash and cash equivalents comprise coins, notes, money atcall, balances held with central banks, liquid settlement balances(readily convertible to known amounts of cash which are subject toinsignificant risk of changes in value) and securities purchased underagreements to resell (reverse repos) in less than three months.
Cash profit is an additional measure of profit which is prepared ona basis other than in accordance with accounting standards. Cashprofit represents ANZ’s preferred measure of the result of the corebusiness activities of the Group, enabling readers to assess Groupand Divisional performance against prior periods and against peer
institutions. To calculate cash profit, the Group excludes noncore items from statutory profit as noted below. These items arecalculated consistently period on period so as not to discriminate
between positive and negative adjustments.
Gains and losses are adjusted where they are significant, or havethe potential to be significant in any one period, and fall into one ofthree categories:
1. gains or losses included in earnings arising from changes intax, legal or accounting legislation or other non-core items not
associated with the ongoing operations of the Group;
2. treasury shares, revaluation of policy liabilities, economic hedging
impacts and similar accounting items that represent timing
differences that will reverse through earnings in the future; and3. accounting reclassifications between individual line items that do
not impact reported results, such as policyholders tax gross up.
Cash profit is not a measure of cash flow or profit determined on a
cash accounting basis.
Collectively assessed provision under AASB 139 is the provision
for credit losses that are inherent in the portfolio but not able to be
individually identified. A collectively assessed provision may only berecognised when a loss event has already occurred. Losses expected
as a result of future events, no matter how likely, are not recognised.
Collectively assessed allowance for expected credit loss under
AASB 9 represent the Expected Credit Loss (ECL). This incorporates
forward looking information and does not require an actual loss
event to have occurred for an impairment provision to be recognised.
Covered bonds are bonds issued by an ADI to external investors
secured against a pool of the ADI’s assets (the cover pool) assigned
to a bankruptcy remote special purpose entity. The primary assets
forming the cover pool are mortgage loans. The mortgages remainon the issuer’s balance sheet. The covered bond holders have dual
recourse to the issuer and the cover pool assets. The mortgages
included in the cover pool cannot be otherwise pledged or disposedof but may be repurchased and substituted in order to maintain thecredit quality of the pool. The Group issues covered bonds as part ofits funding activities.

Credit risk is the risk of financial loss resulting from the failure of
ANZ’s customers and counterparties to honour or perform fully theterms of a loan or contract.
Credit risk weighted assets (CRWA) represent assets which areweighted for credit risk according to a set formula as prescribed in
APS 112/113.
Customer deposits represent term deposits, other deposits bearing
interest, deposits not bearing interest and borrowing corporations’debt excluding securitisation deposits.
Customer remediation includes provisions for expected refunds
to customers, remediation project costs and related customer andregulatory claims, penalties and litigation outcomes.
Derivative credit valuation adjustment (CVA) – Over the life ofa derivative instrument, ANZ uses a model to adjust fair value totake into account the impact of counterparty credit quality. The
methodology calculates the present value of expected losses overthe life of the financial instrument as a function of probability ofdefault, loss given default, expected credit risk exposure and an asset
correlation factor. Impaired derivatives are also subject to a CVA.
Dividend payout ratio is the total ordinary dividend payment
divided by profit attributable to shareholders of the Company.
Fair value is an amount at which an asset or liability could beexchanged between knowledgeable and willing parties in an arm’s
length transaction.
Group is Australia and New Zealand Banking Group Limited (theCompany) and the entities it controlled at the year end and fromtime to time during the financial year (together, the Group).
Gross loans and advances (GLA) is made up of loans and advances,
acceptances and capitalised brokerage/mortgage origination fees
less unearned income.
IFRS – International Financial Reporting Standards.
Impaired assets are those financial assets where doubt exists as
to whether the full contractual amount will be received in a timely
manner, or where concessional terms have been provided becauseof the financial difficulties of the customer. Financial assets are
impaired if there is objective evidence of impairment as a result ofa loss event that occurred prior to the reporting date, and that loss
event has had an impact, which can be reliably estimated, on the
expected future cash flows of the individual asset or portfolio ofassets.
Impaired loans comprise drawn facilities where the customer’s
status is defined as impaired.
Individually assessed allowance for expected credit losses isassessed on a case-by-case basis for all individually managed
impaired assets taking into consideration factors such as therealisable value of security (or other credit mitigants), the likely
return available upon liquidation or bankruptcy, legal uncertainties,
estimated costs involved in recovery, the market price of the
exposure in secondary markets and the amount and timing of
expected receipts and recoveries.

227

Glossary (continued)

Interest rate risk in the banking book (IRRBB) relates to thepotential adverse impact of changes in market interest rates on
ANZ’s future net interest income. The risk generally arises from:

Net tangible assets equal share capital and reserves attributable
to shareholders of the Company less unamortised intangible assets(including goodwill and software).

1. repricing and yield curve risk – the risk to earnings or market value
as a result of changes in the overall level of interest rates and/or
the relativity of these rates across the yield curve;

Regulatory deposits are mandatory reserve deposits lodged withlocal central banks in accordance with statutory requirements.

2. basis risk – the risk to earnings or market value arising fromvolatility in the interest margin applicable to banking book items;and3. optionality risk – the risk to earnings or market value arising fromthe existence of stand-alone or embedded options in banking
book items.
Internationally comparable ratios are ANZ’s interpretation of theregulations documented in the Basel Committee publications;“Basel lll: A global regulatory framework for more resilient banks andbanking systems” (June 2011) and “International Convergence ofCapital Measurement and Capital Standards” (June 2006). They also
include differences identified in APRA’s information paper entitled“International Capital Comparison Study” (13 July 2015).
Level 1 in the context of APRA supervision, Australia and New
Zealand Banking Group Limited consolidated with certain approved
subsidiaries.
Level 2 in the context of APRA supervision, the consolidated ANZGroup excluding associates, insurance and funds management
entities, commercial non-financial entities and certain securitisation
vehicles.
Net interest margin is net interest income as a percentage of
average interest earning assets.
Net loans and advances represent gross loans and advances lessallowance for expected credit losses.
Net Stable Funding Ratio (NSFR) is the ratio of the amount ofavailable stable funding (ASF) to the amount of required stable
funding (RSF) defined by APRA. The amount of ASF is the portionof an Authorised Deposit-taking Institution’s (ADI) capital andliabilities expected to be a reliable source of funds over a one
year time horizon. The amount of RSF is a function of the liquidity
characteristics and residual maturities of an ADI’s assets and offbalance sheet activities. ADIs must maintain an NSFR of at least
100%.

228

ANZ 2019 ANNUAL REPORT

Restructured items comprise facilities in which the originalcontractual terms have been modified for reasons related to thefinancial difficulties of the customer. Restructuring may consist of
reduction of interest, principal or other payments legally due, or an
extension in maturity materially beyond those typically offered to
new facilities with similar risk.
Return on average assets is the profit attributable to shareholders of
the Company, divided by average total assets.
Return on average ordinary shareholders’ equity is the profit
attributable to shareholders of the Company, divided by averageordinary shareholders’ equity.
Risk weighted assets (RWA) are risk weighted according to each
asset’s inherent potential for default and what the likely losses would
be in the case of default. In the case of non asset backed risks (i.e.
market and operational risk), RWA is determined by multiplying thecapital requirements for those risks by 12.5.
Settlement balances owed to/by ANZ represent financial assets
and/or liabilities which are in the course of being settled. Thesemay include trade dated assets and liabilities, vostro accounts andsecurities settlement accounts.

Important dates
for shareholders1
APRIL 2020

30th April

NOVEMBER 2020

Half Year Results Announcement

MAY 2020

9th November

Final Dividend Ex-Date

10th November

Final Dividend Record Date

11th November

DRP/BOP/Foreign Currency Record Date

11th MayInterim Dividend Ex-Date

12th MayInterim Dividend Record Date

DECEMBER 2020

13th May

DRP/BOP/Foreign Currency Record Date

16th December

Final Dividend Payment Date

16th December

Annual General Meeting (Adelaide)

JULY 2020

1st JulyInterim Dividend Payment Date

OCTOBER 2020

14th OctoberClosing date for receipt of director nominations

29th October

Annual Results Announcement

Our international presence and earning composition by geography2

International$965 million

Australia$3,640 million

New Zealand$1,865 million
International
Asia
China
Hong Kong
India
Indonesia
Japan
Laos
Malaysia

1.
2.

Myanmar
The Philippines
Singapore
South Korea
TaiwanThailand
Vietnam

Pacific
American Samoa
Cook Islands
Fiji
Guam
Kiribati
New Caledonia
Papua New Guinea
Samoa

Solomon Islands
Timor-Leste
Tonga
Vanuatu

EuropeFranceGermany
United Kingdom

Middle East
United ArabEmirates (Dubai)
United Statesof America

If there are any changes to these dates, the Australian Securities Exchange will be notified accordingly.
On a Cash profit (continuing operations) basis. Excludes non-core items included in statutory profit and discontinued operations included in cash profit. It is provided to assist readers inunderstanding the result of the ongoing business activitives of the Group. For further information on adjustments between statutory and cash profit refer to page 53
229

Contacts
REGISTERED OFFICESHARE AND SECURITIES REGISTRARANZ Centre Melbourne
Level 9, 833 Collins Street
Docklands VIC 3008
Australia

AUSTRALIA

UNITED KINGDOM

Computershare Investor Services Pty Ltd
GPO Box 2975
Melbourne VIC 3001
Australia

Computershare Investor Services PLC
The Pavilions Bridgwater Road
Bristol BS99 6ZZ
UK

Telephone: +61 3 9273 5555
Facsimile: +61 3 8542 5252

Telephone within Australia: 1800 11 33 99
Company Secretary: Simon Pordage International Callers: +61 3 9415 4010
INVESTOR RELATIONS
Level 10, 833 Collins Street
Docklands VIC 3008
Australia
Telephone: +61 3 8654 7682
Facsimile: +61 3 8654 8886
Email: investor.relations@anz.com
Web: www.shareholder.anz.com
Group General Manager
Investor Relations: Jill Campbell
COMMUNICATIONS AND
PUBLIC AFFAIRSLevel 10, 833 Collins Street
Docklands VIC 3008
Australia
Telephone: +61 2 6198 5001
Email: Tony.Warren@anz.com
Group General Manager
Communications andPublic Affairs: Tony Warren

Facsimile: +61 3 9473 2500
Email: anzshareregistry@computershare.com.au
Austraclear Services Limited
20 Bridge Street
Sydney NSW 2000
Australia
Telephone: 1300 362 257
JAPANJapan Securities Depository Center,
Incorporated
1-1, Nihombashi Kayabacho 2-chome,
Chuo-ku, Tokyo 103-0025
Japan
Phone: +81-3-3661-0161 (Main) /+81-3-3661-7193 (Book-Entry Transfer Department)
LUXEMBOURG

Deutsche Bank Luxembourg S.A.
2, Boulevard Konrad Adenauer
L-1115 Luxembourg
Luxembourg
Telephone: +352 4 21 22 656
NEW ZEALAND

Computershare Investor Services Limited
Private Bag 92119
Auckland 1142
New Zealand
Telephone: 0800 174 007
Facsimile: +64 9 488 8787

230

ANZ 2019 ANNUAL REPORT

Telephone: +44 870 702 0000
Facsimile: +44 870 703 6101
UNITED STATESThe Bank of New York Mellon
240 Greenwich St, Floor 7E
New York, NY 10286
USA
Telephone: +1 1800 254 2826
BNY Mellon Shareowner Services
PO Box 505000
Louisville, KY 40233-5000
USA
USA Toll Free Telephone: 1888 269 2377
Telephone for International Callers: 1201 680 6825
Website: https://www-us.computershare.com/investor
Email: shrrelations@bnymellon.com
Deutsche Bank Trust Company Americas
60 Wall Street, 24th Floor Mailstop NYC 60-2407
New York, NY 10005
USA
Telephone: +1 212 250 2500
GERMANY

Deutsche Bank Aktiengesellschaft
COO Global Markets Operations
Schuldschein Operations
Mainzer Landstr. 11-174
60272 60329 Frankfurt am Main
Germany
Telephone: +49 69 910 31441
Facsimile: +49 69 910 85025
Email: GTO-FFT.SDO@db.com

MORE INFORMATION
General Information on ANZ can be obtained from our website: anz.com. Shareholders
can visit our Shareholder Centre at anz.com/shareholder/centre. ANZ Corporate Governance:
For information about ANZ’s approach to Corporate Governance and to obtain copiesof ANZ’s Constitution, Board/Board Committee Charters, Code of Conduct and summaries of other
ANZ policies of interest to shareholders and stakeholders, visit anz.com/corporategovernance.
Australia and New Zealand Banking Group Limited ABN 11 005 357 522.

Founding Signatory of:This Annual Review (Review) 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”, “the Bank”, “us”, “we” or “our”.
DISCLOSURE INSIGHT ACTION

shareholder.anz.com
Australia and New Zealand Banking Group Limited (ANZ) ABN 11 005 357 522.
ANZ’s colour blue is a trade mark of ANZ.